Companhia Siderurgica Nacional SA (SID) 2016 Q2 法說會逐字稿

Good morning and thank you for standing by. Welcome to CSN Second Quarter of 2016 Earnings Conference Call.

Today, we have with us the Company's Executive Officer. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the Company's presentation. After the Company's remarks, we will begin a question-and-answer session, when you will receive further instructions.

(Operator Instructions)

Today's event is being simultaneously aired by webcast and can be accessed through the CSN's Investor Relations website at www.csn.com.br/ir where you will find a slide presentation as well. Please feel free to flip through the slides during the conference call. There will be a replay for this call right after the event is closed.

Before proceeding, I'd like to mention that forward-looking statements that are made during this conference are under the safe harbor arm of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of CSN management and on information currently available to the Company. They involve risks, uncertainties and assumptions, and they do not guarantee performance. Therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors should also affect the future results of CSN and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I'll turn the conference over to Mr. David Moise Salama, Corporate and Investor Relations Executive Officer, who will present the Company's operating and financial highlights for the period. Please, Mr. Caffarelli -- Mr. Salama, you may proceed.

Good morning, everyone. Thank you also being here for CSN earnings conference call. I have here with me officers from the Company as well.

We will begin on slide 3. During the second quarter, we highlight an EBITDA totaling BRL855 million, a 17% increase over the first quarter of 2016 with an EBITDA margin of 19%. During June, EBITDA reached BRL320 million showing a recovery in the domestic steel market and also according to the good figures in the mining segment.

In steel sales, we have reached 1,253kt, a slight expansion over the first quarter with an increased share of coated products achieving 60% of the total sales for flat sales, a very expressive figure. In mining, you have iron ore production totaling 8.5 million tons with sales of 9.3 million tons in the same period.

The delivered iron ore cost went from $31.20 in the first quarter of this year to $28.20, a reduction of $3 resulting from the -- of efforts we have been made of reducing cost in production. It is also worth noting that the working capital has been reduced and totaled BRL718 million during the second quarter and this is in line with our financial agenda that we have been disclosing to the market for China reduction, therefore, in line with what we have said.

Moving on, we have the consolidated results in the fourth slide. In the second quarter, net revenues of BRL4.3 billion, had an increase of 13% compared to the first quarter mainly due to higher volumes and sales in mining and the higher prices in steel. Concerning the second quarter of last year, the net revenue totaled 18% higher, gross profit of BRL922 million in the second quarter is in line with the figures for the first quarter, and it's interesting if we compare with the second quarter of 2016, we have had an increase of 10%.

For the quarter, we have losses of BRL42 million, which is significant, when we compare to the first quarter of this year and also with the first quarter of this year, and the second quarter of last year. The adjusted EBITDA totaled BRL855 million, BRL17 million higher than last quarter, and because of the highest EBITDA in the mining segment. And when we compare to last year, we had an increase of 7%. The adjusted EBITDA margin reached 19%.

The net debt adjusted fell by 3% compared to the first quarter totaling [BRL25.8 million], whereas the net debt flat adjusted EBITDA attained 8.3 times which is inferior to the 8.7 times that we showed in the first quarter of this year.

Now, we're moving on to slide 5 where you can see the net results build-up. And this slide is a build-up for the second quarter. We will go through the second quarter -- the first quarter EBITDA and now reaching the loss in the first quarter 2016. We reached BRL855 million, an increase by 17% when compared to the first quarter of 2016.

To get to BRL42 million in net losses, we have reached the EBITDA with the controlled companies, BRL171 million with other expenses, BRL110 million with taxes and social contributions, in addition to the negative results of BRL228 million. We have included the financial results of the jointly controlled companies and the equity results. It is worth highlighting that the result was 95% better when compared to the previous quarter.

In the next slide, you see the results per segment. You can see in the top part of the chart while you have the second quarter of 2016, the revenue for steel totaled [BRL2.9 million], mining BRL1.2 billion, logistics BRL382 million, cement BRL109 million, energy BRL66 million. Net revenue consolidated totaled [BRL4.3 million] out of which 62% come from steel, 26% from mining, 8% from logistics, 2% from cement and 1% from energy. On the bottom part of the chart, you have the adjusted EBITDA for the second quarter totaling BRL855 million, 40% of which goes to steel, mining 40%, 16% logistics, 0.8% cement, and 2% energy.

We will now move on to slide 7 where we will have the results for the steel performance in the second quarter. We see that the total sales of steel totaled [2 million tons] above the first quarter, and an improved sales in the domestic market totaling 53% of total sales, whereas the foreign market accounted for 47%. In the top chart to the right, we have the net revenues in steel totaling [BRL2.9 million], an increase of 2% compared to the first quarter of this year. The EBITDA BRL369 million in the second quarter, 12% less compared to the BRL420 million in the first quarter, whereas the EBITDA margin went from 16% to 13% due to the stoppage for maintenance and also for the retake of the [Blast Furnace 3] and therefore we had an impact with the less overhead cost -- fixed cost.

Now on slide 8, for the second quarter, we see that the coated steel sales totaled 60% of the flat steel market. So we have 85% in the foreign market and the rest in the domestic market. From the total sales 37% of galvanized product, 11% for tin plates, and we have hot and cold for 20% and 21% respectively. And we have 49% of distributions, 14% through the white line for home appliance and then we have 14% to automotive and 11% for construction and the rest for packaging. On the last bar chart, we have the foreign market sales. In the second quarter, we have 229 tons sold by SWT in Germany, Lusosider in Portugal, then we have 178 tons LLC in the US and [85,000 tons] were sold directly, direct export.

In the next slide, we have the steel cost competitiveness. In the second quarter the slab production cost was increased [by $280] impacted by a stoppage in the Blast Furnace 3 and then the retake of the Blast Furnace. And this interrupted production for 22 days. It is worth highlighting that, as of June, the production cost went back to [280 million tons], in line with what we practiced in the first quarter, and the stoppage was actually beneficial because of the inventory of steel products and this can be seen that we have reduced the working capital due to this event. In the second quarter, the average net result per ton was [BRL2,097], whereas EBITDA per ton was BRL295 in the quarter.

In the next slide, we have the performance in the mining sector. As you can see in the biggest chart, we have an increase of 12% in iron ore sales, totaling 9.3 million tons in the second quarter. In the second quarter, the net sales totaled BRL1 billion, 8% above than the first quarter of 2016, mainly due to the increased sales of iron ore, as well as the impact of higher prices practiced in exports. The EBITDA totaled BRL365 million in the second quarter, 29% higher than the first quarter. The EBITDA margin was [36%], which is also above the first quarter by [3%].

Now, we're going to the mining cost competitiveness, slide number 11. Once again, we see an efficient plan for cutting down costs, decreasing 10% in the cash cost of iron ore delivered in China which attained $28 per ton. So, the right, you can see the evolution of the EBITDA and revenue, and EBITDA went up per ton $2 reaching $11 in the second quarter.

On slide 12, we have the cement segment performance. In the second quarter, due to the ramp up of the Arcos cement operation, we were able to increase sales by 4% to 594,000 tons in the quarter. The net revenues totaled BRL109 million in the second quarter and the EBITDA margin at 6%.

On slide 13, we have the results for logistics, highlighting Sepetiba Tecon performance. In the second quarter, we have 32,000 containers in Sepetiba containers, dropped by 18% whereas the transport of steel products totaled 197,000, therefore increasing by 38%. To the top right, you have net revenues BRL45 million, EBITDA BRL11 million and a margin of 24%, therefore 5% higher than the previous quarter.

Now, we're going to slide number 14, where we'll have the investments -- consolidated investments for the quarter. We invested BRL473 million, BRL271 million to the cement segment where we invested in the new clinker furnace in Arcos, which we'll begin producing this year's [steel]. Then we have in steel, BRL330 million improving the performance of President Vargas Steelworks and also [environment of] 61% in mining and BRL30 million in logistics.

The next slide, which is number 15, we have the evolution of the working capital. In line with our strategy of reducing cash, we have seen -- the working capital applied totaled BRL718 million, BRL200 million less than the first quarter of this year, due to the reduction of BRL602 million in stocks and BRL125 million in accounts receivable. The inventory of finished products was reduced by 200,000 tons in the second quarter, which represent 26%.

Now, we're going to slide 16. Here, we have the debt for 2017 as we have seen in close, we are now working to postpone the payments of the following years. On June 30, the average time was 6.4 years on the cost in reais of 107% of the CDI, in foreign currency, 5.7% per year.

Now the last slide of this presentation, to the center, we have 52% of the debt is in domestic currency and 48% in foreign currency, and you can see to the right, 44% of the -- and 48% of the EBITDA come from the domestic market where as 56% and 52% respectively of revenue and EBITDA come from the foreign market. And this shows a natural hedging of the debt of CSN.

Now, we'll open for questions and answers. Thank you.

We will now begin the question-and-answer session for investors and analysts.

(Operator Instructions)

Marcos Assumpcao, Itau BBA.

This is (inaudible) from Itau. My first question is for the sales tax. We see an increase in the domestic market, but also and improve in the mix and the improvement in coated product. Could you tell us a little bit more about the improvement in the mix, what was actually done? And if the increase in cost reflected in terms of distribution? And in line with this, what -- how you see the premium in terms of the current levels of exchange rates for imports?

And concerning cash generation, you have a lot of liberation of working capital because of lower inventory due to the stoppage that you mentioned. Do you expect this to be partially reverted during the next quarter? And you will probably increasing inventories again? And do you think that inventory is at a more normal level now? And another thing is concerning the cost of production. I just like to have more information you commented about slab, went back to $280 in June. Could you say a little bit more, has this leveled off, has this stabilized in June? And what will, is this the trend for the third quarter or can we all have some effects of the reduced fixed costs as well in the second quarter? That's what I have to ask.

Daniel, thank you for your questions. I'll ask Martinez to answer all your questions.

Daniel, good morning. I'll start answering what you asked on cost. Going back we have that maintenance of the Blast Furnace 3, which was planned. It was expected to last 10 days. It was started on April 14, it should have finished on 24, but it went on to May 6. It was 22 day long, it was successful, but it lasted more than we expected. So what happened was that, at this time we took all the inventory of finished products, which was 200 million tons more or less and we worked on inventories promoting a reduction, a significant reduction of the Company's working capital. So today, Blast Furnace 3 is normal, it's operating at full capacity. The furnace number 2 is under maintenance and will be back on operations in October, so we'll have then a brand new Blast Furnace 3, it's totally complete and in full fledge, although we were delayed and then the Furnace, Blast Furnace 2 will be back on October 1.

So what David already said was that, we had a slab price that was normalized and was normalized in the second quarter. Together with the increase in price we are going probably to pick up in margin in the second -- in the next quarter. So the cost is still totally under control and in addition to the slab cost, which is the most important that we have that had a very expressive leap, we still have a target to reduce cost in other lines of the Company, to reduce internal costs and all the other cost deductions that we have.

Concerning the price increase for the domestic market, growing that we actually did three price increase in the domestic market; in distribution, major networks and civil construction and also industries, excluding automakers. We had an increase in April, May and June. All these increases were implemented successfully. We're the automakers, obviously, we are still negotiating. CSN does not have annual agreements with automakers but the scenario is not favorable this year for another price increase in the vehicle sector. So we have to settle it for next year, that for sure we'll have two figure increase for the automaker sector.

In the distribution segment, this increase went up to the end of the line, it was internalized in the network in the chain actually. And today it has mirrored in our balance sheet concerning the mix. So this quarter in a very slight way, the mix was accounted for 8% and the increase is 5%. So this will fill the reflected significantly in the next quarter.

Concerning the premiums, I think that's also another important question, we must not forget that in China today, the price level and China is our main competitor concerning imports. China today has maintained DQ totaling $400, $420 per FOB ton. If you take this price and you put this in the domestic market at 1.32, this gives a premium of 8% to 11%, which is a sustainable premium, in my opinion, in the domestic market. So, the same rationale go to the hot-rolled coil, cold-rolled coil, and galvanized well because it has a level of capacity, which is a bit stronger.

In the case of strategy for CSN for the third quarter, we'll still be working in diversifying product with adding value as well and to work in the niche market, that is our strategy.

Concerning the inventory, which was your last question, we should increase inventories, the inventories that we did was 540,000 tons. If you think that we have a domestic level that's picking up again, this inventory only last one month, if you consider other companies outside. We can't forget that for this inventory, we have SWT which we sell 70,000 a month, Lusosider 35,000, (technical difficulty) in exports, but I do directly total 25,000.

So, therefore, there is no possibility of increasing inventory levels. What we want to do is to keep this level, that was achieved in the second quarter.

(Operator Instructions)

Leonardo Correa, BTG Pactual.

My first question concerns the demand, Martinez, we had seen that they are certainly leveling off, not really significant, but the figures have not decreased anymore and maybe in the second half, we'll have more improvements. But for 2017, how can one justify or that -- is there anything in the outlook for [2017] industry that shows or there will be higher demands because if we look in Brazil, the last 35 years, the steel market product has dropped by 35%. What is the elasticity lasted 34 the elasticity for the demand in sales.

What should we expect, do we expect a stronger demand for 2017, and intensive (inaudible) again if you can help us understand (inaudible) by getting your opinion, because all of the protectionism that we have in Brazil, the government now is analyzing and antidumping requests of China and Russia clients. Could you tell us the probability of this, it's actually given the global consensus, is there any sense, what is the reason why Brazil should act in this way.

And another thing is the [hein] diagram. What is the expectations for increase around 5%. And my last question is concerning the down of the reject product of the byproducts. We have been reading that there may be new legislation on this due to the some Arcos incident. I would like to know what are the risks that you have in your desk, what measures have been taken in order to protect and to act according to the new regulation?.

Leonardo, thank you for your questions. Before giving the floor to my colleagues, I would like to announce that Benjamin Steinbruch, CEO and Chair of the Board is following our call and he is available to answer questions from the market as well.

The first question will be answered by Martinez in the steel segment. And the last question concerning the dams, I will give to (inaudible) who is our Commercial Director for mining.

Leonardo, good morning again. You said something that was very important and that I consider your opinion very clear and I highlighted the same conclusion. There is a potential in our country and ample reform , therefore the demand potential would be more encouraging than the last year's. The directions are positive than what we have noticed that there are factors that have recovered in the industry and this is clear to us. The apparent consumption has reached a level that can't get any worse. If you think that we are closing a year with an apparent consumption of 10 million and last year was 12 million, and in 2014 it was 14 million.

So, I have a view for 2017, particularly which is very optimistic. I think that steel in 2017, first of all, I think that next year's GDP depending on the reforms that we have, may be much better than what is being expected and still may have an elasticity better than it has historically, more than 2.5% is the additional figure.

And then the recovery of the sector may happen quicker than we think, and I'm not -- I'm being excessively optimistic, we have witnessed these kinds of moments in Brazilian economy. We have gone beyond and come back from rock bottom. Another important is too is the level of imports that in Brazil, we had import penetration that making it easier for the domestic market to adjust and to start to have the production chains which are more aligned.

So today, you'll see, a certain integration of production chains and today in import penetration, we may close the year with less than 600,000 tons in imports, again 2 million last year. So, this is a scenario that is also very positive. The import level and it makes it easier for us to transfer prices in a domestic market.

Concerning the dumping phase, we suffered in the US as I have seen, and this will make it more difficult for us to export in -- our Company in the US. We have suffered an anti-dumping of 34% and a countervailing duty of 11%. So, this puts us at 43% less competitiveness in the US. This happened also in Mexico, there are other countries, smaller countries that are working against Brazil.

Concerning the investigation, Brazil has started a dumping case for flat steel in Russia and China. It was a lawsuit that we started. It was a process that we opened, we filed and Russia and China and they are working to prove it.

And another important issue that we're having a good result is the non-automatic licensee of the imports. The change in the treatment that the administration is giving to import and the measures that Brazil has taken has put back the import of materials. But this was happening and has helped Brazil in a war that we are suffering in terms of exchange rates and protectionism crisis that is global today. And these are my answers.

Now give the floor to [Geraldo], who will be answering the questions referring to the dam.

Our dam in Casa de Pedra has a license. It is safe, it has recently undergone two environmental inspections and we went through them successfully. The way the dam was built was the most safe, was the safest and now the dam is considered a reference in the sector. The work schedule for the dam is correct, it's -- we are on schedule and there are two to three years that we have for the level of the dam that it is today. So that's the rate that we have.

Now I would like to give the floor to Mr. Benjamin Steinbruch, who would like to make some comments concerning the results for the second quarter of this year. Mr. Benjamin Steinbruch?

Good morning, everyone. Good morning, CSN personnel. I only managed to connect now. I would like to participate briefly in this call to provide you with an overview of what we have been doing in the second quarter, and the consequences that this may have for the effects concerning the results for the next quarter. I'd like to highlight that I was not able to listen to the previous questions, but giving you some of my view concerning the prices in mining, we have been penalized because we are conservative and have opted to sell at a close price and because of the high-prices in the second quarter and probably in the third quarter, we did not enjoy this peaking prices, but we will capture it in the next quarter. So we will recover significantly in terms of margin and concerning the quantities, we are optimistic, we are producing more than we forecast. And I believe we are going to meet the budget earning -- be over the budget by 10% which affects quality, price and margin, and thus we will be seeing in the third quarter.

Concerning the steel price, I heard the penultimate question, we have had three price increases that have been affected totaling 10% each. They will be mirrored in the next quarter. And in terms of quantity, you see that the [high] Furnace 2 is being maintained and it will be back in October first week. And we believe there is demand and there is space -- room for this production in the second quarter, we acquired DQ plaques to feed the production and we are now back, we will be back with this second blast furnace in October. And we always look for added value, we prioritize the coated products and we believe that in steel, we should have a quality lead that affects the margin.

We have operated the second quarter with an EBITDA margin of 18.7% and I expect for the next quarter a margin of 25% in terms of EBITDA. I think it's given and we are working very hard to meet this margin. What we have to do in terms of operations have been done, the cost control is very, very strict and other expenses, we are negotiating everything that we can with suppliers. We have withheld investments. We have recently completed the last major investment that we have to do with the furnaces of Arcos, and now the investments are safe, in terms of expenses and we intend with this to provide a significant improve in working capital and as you have seen the working capital rate was much better managed, and we have seen a reduction in inventory and the postponement of purchases has resulted in a reduction of this working capital and we also like to expect that in the third quarter, this also reflects in terms of cash. We will have also another movement due to the first demobilization that we'll be having then we will have a second and this is to improve the ratio between that and EBITDA, so we can improve the capital structure of the company.

We are also working in an optimistic way in the second quarter, because we believe that not only, it's no longer getting worse, but we are seeing a slight improvement in terms of domestic market across segment and we believe that in a diversified manner if we segment products and market, we will be able to have a full-fledged production.

In the second quarter, you have seen that we have our increasing production from 210,000 tons in June to 350,000 tons in cement. In July and August, we have 375,000 ton and of course the margin is very tight because of the increase in the offer. But, we're doing all we can to work hard and in terms of annual sales, we'll beat the budget and you have seen that in the last quarter, we had BRL4.3 billion in terms of sales. The third quarter will be even better, I believe and we have had a slight sign because we had a loss of BRL42 million in the quarter compared to BRL831 million in the first quarter and this shows reversion of the situation and I am certain that we will have positive numbers in terms of income for the third quarter.

Everything that we could have done in terms of operations, as we have said we have done; everything that we committed to do, has also been done and we are now beginning this process to de-mobilize assets and it's another thing that the market is asking for. And after the third quarter, we will be working firmly in the financial area. That's what missing because we need a liquidity position that is improved and a capital structure which is also needs to be improved. We have very good assets. We are working on several fronts, not only the peripheral side, but we're looking for sales of some of the assets, core of our assets in order to meet this better capital structure that we are aiming at.

In terms of delinquency, we are basically at a zero level, that is something I'd like to share. The importers are the ones who are delinquent in the system and the (inaudible) that was given to sellers, so those who imported have a 180-day period. They were penalized due to the lower exchange rate and former importers are now in a very critical position, therefore, imports decreased because what actually moved import a lot in terms of steel was (inaudible) the easy credit lines that those who imported has and they used this advantage to put major productions in the Brazilian market. But this is in the past now, most of them today has a serious problem in terms of credits and therefore the market is starting to be cleaner.

We are very optimistic in terms of the second quarter, you see that iron ore is at $62. We believe that the price will be between $60 and $70 for the quarter and the still factor. We also believe that the price it has reached another level and because of this limitation of imports, we will be witnessing leveling off of prices. Our fixed costs is a reason for joy. We have $280 for iron ore and in steel, we're going back to $280 a slab going now to $260, I believe in the next month, which translates in our competitiveness being very high both in steel and iron ore, and the margins will therefore pickup. We are confident. We are sure that the third quarter will explicitly show all the efforts that we have done in operations and with market improvement that we have seen that has happened in the second and third quarters, we are sure that we will be having positive figures and good figures. This is what I had to say.

If you have any questions, I'm available, and thank you very much for your attention.

(inaudible), Banco Credit Suisse.

I'd like to make a question in terms of iron ore. What can we expect for this year and for next year, this cost of $28 per ton in China, even with the exchange rate effect, how much -- how long can you sustain this cost and can you keep it at this level if we look to the future? These are the questions.

Geraldo will answer both of them.

The volume for this year is 32 million tons and concerning the sustainability of the cost part, the reduction that we have seen is a result of the further hard work that Mr. Benjamin Steinburch has said. And it is grounded in structural actions that we've taken in the operations. We have (inaudible) that we have captured synergy in operation, we have gain in productivity, they were very positive. We also, as we've mentioned, and as Benjamin mentioned, we have already discussed all the contracts that we have supplied exhaustively, result today is going through a moment of recovery and in order to cut down on cost, we sat down with suppliers for services and products.

Our inner planning, medium and long-term has been optimized. We have a very clear view of our reserves, and we have optimized our planning for the line and still with some -- presenting some kinds of ore that were being used as byproduct. We have $70 that product that should not have gone to the market because we recovered products and we made it feasible.

Finally, our fee rate according to the volume that we are able to produce additionally were exported almost everything to China, because the level of the market is very competitive and we saw that despite the figures of last quarter, our maritime price was reduced. And therefore these (inaudible) and are here to stay. We don't believe that trade in the next years will be changing much. So therefore these actions are at a competitive level at the same level of the major mining companies that work with lower prices -- lower costs.

Carlos de Alba, Morgan Stanley.

I still believe that the Company has made great efforts to improve the performance, but yet your leverage remains quite high around 8 times net debt to EBITDA. And so my question is if the asset sale or take longer to be realized, is the controlling shareholder, I know the shareholder is ready to inject fresh equity into the Company to alleviate much faster the balance sheet of CSN? And then the second question has to do with just within the delivered cash cost of iron ore of $28, how much is trade?

I will ask Geraldo to start with the second question, and then we'll answer the first question concerning the ramp up of the Company.

The $28.11 is the freight. Carlos, concerning the first question that you placed concerning the high leverage of the Company, we have been conducting a kind of work that has several fronts to try to bring to a more comfortable level. Many of these actions have reduced our working capital for example. We are focusing on Company business, increasing profitability in terms of operations, better cost, better results and at the same time, we have a deleverage program, which is ongoing, the program may, as you know, take a while and we want to look for a fair price for our asset. We have excellent assets, so we cannot miss an opportunity to look for a reasonable price for the asset. This, of course, takes some time, but we are comfortable, because we have already renegotiated the main, the principal of our debt for 2016 and 2017.

So, I believe we are on schedule. We are going to announce a first sale in the next 10 days. I can't announce it yet. And then we have another sale, so it is a program that is ongoing and it will have the effect in the figures that we will have for the next quarters.

(Operator Instructions)

Thank you. Since there are no more questions, I'd like to give the floor to Mr. David Salama, CEO for Investor Relations for his final remarks.

I would like to reinforce our optimistic message for the second quarter of this year. We have seen a recovery in the domestic market that has begun. The Company is focused on the niches and this leads to higher profitability. The situation of China is better than what we could have imagined in the beginning of the year. We are working hard to reduce costs and expenses and you can now see this on the results. Our working capital has also shown the results the work we've been doing having an [expressive] decrease in this quarter. The commercial strategies are consistent, and also we will be announcing the first sales of assets, we have very good assets and this will happen we'll then schedule that the Company thinks appropriate.

Lastly the scenario is positive and will be reflected in that figures, and this will be a gradual process from now on. I'd now like to give the floor to Mr. Benjamin Steinbruch, who will also provide final remarks.

I would like to thank you all for being here for this earnings conference call, and to express our belief that the scenario is improving that the Company's performance is improving of the entire segment in fact, and things will get better and will improve more than they have improved to now, we have the political scenario that will be solved in the short-term. And with this I believe that the market conditions might improve will improve, due to a return of credits and cutting down on interest, which we know that is highly exaggerated and has been penalizing productions and consumptions. We believe that what has to be done in terms of reducing costs and to work on production, everything has been done and I think that was depended on us. In terms of operations for the entire Company have been done, we had started reaping fruits of this in August and July. And we are certain that the task is the correct one and that the EBITDA 25% rate for the third quarter is reality. And the Company has a feature that it reacts very quickly to figure those scenarios, that is when we work with the production with low cost and the possible pick-up in the market that we have discussed will lead to figures for a third quarter that is much better than these ones. As I had said we will tackle the financial part now, the leveraging is what concerns us at this moment and it was not the increase of the debt that penalized us, the decrease in EBITDA from iron ore, it went from $150 to $37 and it's now at $62, $63. But in concrete terms it was big drop in margin that penalized us in terms of the debt. And that was in terms of what we could do operations wise, we will show an improvement in EBITDA with consequences that will lead to a better leveraging.

And I'd like to stress again that we are concerned and we are acting, we will be announcing a sale of asset in the next days, 10 days and we will like to say that we are working even on what we think is core to sell hard in order to use the debt of the Company. And this has been our focus. So everything we can do that is within our reach we have been doing and we are doing. And after this general operations improvement is what comes next is the financial aspects. This is what we have to say to you.

Thank you very much for all of your questions. Thank you for your participation and we will see each other in the next call, which will probably bring everything that we have. Thank you.

Thank you. The earnings conference call for CSN is now closed. Please disconnect your lines and have a good day.

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.