Companhia Siderurgica Nacional SA (SID) 2017 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the conference call of CSN to present the results for the 2015 and 2016 balance sheet and for the first 3 unaudited quarters of 2017.

Today with us are the officers of the company. We would like to inform you that this event is being recorded. (Operator Instructions) We have simultaneous webcast that may be accessed through CSN investor relations website at www.csn.com.br/ir. And the IQ platform, www.mziq.com, where the presentation is also available. The slide presentation may be downloaded from this website. Please feel free to flip through the slide during the conference call. There will be a replay service for this call on the website. Before proceeding, we would like to declare that some of the statements herein are mere expectations or trends and are based on the current assumptions and opinions of the company's management and that future results, performance and events may differ materially from those expressed herein, which do not constitute projections. In fact, actual results, performances or events may differ materially from those expressed or implied by these forward-looking statements, as a result of several factors, such as general and economic conditions in Brazil and other countries, interest rate and exchange rate levels, future rescheduling or prepayment of debt denominated in foreign currencies, protectionist measures in the U.S. Brazil and other countries, changes in laws and regulations and general competitive factors on a global, regional or national basis.

Now, I'll turn the conference over to Mr. Benjamin Steinbruch, CEO and Chairman, who will present the company's operating and financial highlights for the period. Please, Mr. Steinberg, you may begin your conference.

It is another one year here to present the balance sheet of 2015 and 2016 and the first 3 unaudited quarters of 2017. I would now like to open the conference saying that we have during this period the cooperation of every one here at the company in order to complete the balance sheet, so that they could be audited. As you can observe considering everything that has been audited, we found no problems, no accounting problems or any problems of any kind. What happened was different interpretations of fiscal statements that had higher impact on the balance sheet and some observations made by the audit team about 5 or 6 years ago. And we have to understand those changes and criteria. And express the main points related to all those periods in which our balance sheets were pending. Then the company included this process without any verification of abnormalities in relation to what is done by the executives and officers of the company.

Considering 2017, yes, we have presented the balance sheet of 2015 and 2016. We are working on our businesses, and in March and April, we were surprised by political impact that retarded the market recovery. And there has also been a drop in interest rates that we had expected to be done more quickly. And we also expected stronger and quicker recovery of the economy. However, it's important to mention that we continue to -- opening the information related to May and in June, the month was quite positive. There was a recovery in the third quarter. And the fourth quarter is expected to be a bit better than the third one.

Businesses will be commented on with new and we have been noticing that the internal market has been heating up. And we're also considering there will be an improvement in the pricing strategy in relation to steel and the steel industry. As for mining, we have seen that prices have improved. So in relation to pricing, I could say that the situation is very positive and effective considering all markets. In terms of costs, we are working very hard since last year and we have been making all possible reductions and our management has been very tough considering all the operations. And we have managed to reach a significant improvement in our current capital.

In terms of deadline in sales and purchases and in operational aspect, we are delivering what we had proposed last year. And in March and April, we have been impacted by politics and the market has been affected by that. And we have faced greater difficulties than we had expected. We also have the possibilities to make our fixed costs lower, and so that we can operate in a market in a more effective manner. And we also have seen the possibility of reducing our indebtedness, because the second quarter was not as good as we had expected. There was a reduction in the indebtedness, which was lower than we had proposed and what we had disclosed to you in our previous calls.

We continue moving along this line, so that we believe that these are comfortable figures as we have adopted for the company. In terms of asset sales, we have been making contacts, and we have been discussing with all those interested in our assets. And I could say that many of the negotiations have been successful with concrete proposals, and considering what believe that is good for company, we believe that we have to wait for the right time to make the next move. And I believe everybody agrees that there's a trend of improving prices and assets for the next year. So 2018 will be a positive year with negotiations already made. And some negotiations have made headways in terms of sales of assets.

In relation to interest rate that we used to believe that it would have a quicker and stronger reduction, we see that the result in operational numbers. There is still room for interest rate reduction, and therefore, the credit will improve or a better way to operate in the market. So I could say that we are working on both fronts, both in reduction of cost. We are working hard on improving prices and the revenues. It's also important to mention to all of you that we had revenues of about BRL 15 billion in 2016. Our revenues amounted to BRL 16 billion. And in 2017, revenues will be BRL 28 billion. Different from what is happening to most of the companies, whose revenues had been decreasing along these past years. And our idea is that, by the end of the year, our EBITDA will be close to BRL 5 billion with ratio debt EBITDA close to BRL 5 billion. And with a significant drop in the beginning of 2016 from 8.5x to 6x. We are not happy considering what we have planned to do, but it's important to highlight all those points to (inaudible) so that by selling assets, we managed to maintain our debt stable. And even we were able to make a drop and we can say that it's not what we had expected. But it's positive and this is what we were able to do.

For all of you, who are following, historically, our performance, and you'll agree with me that the margins are returning -- recovering. And if everything goes according to what we expect, I do believe that we are going to deliver what we had proposed in terms of debt reduction. In fact, we are going to be very close to what we had expected, may not completely, but in terms of margin, we are going to be very successful.

I'm going to turn the call over to David for him to discuss the presentation. Then we are going to hear the officers commenting about the results, and then we are going to open the Q&A session.

Good afternoon to everyone. We are going to start our presentation on Slide #3. While first of all, I would like to clarify a few topics related to restatement of our financials of 2015. This is a very technical and complex issue that might lead to misinterpretation. So, actually, the company decided to change its financial statements of 2015 because of detailed review of the business combination or business merger that took place in November 2015, in which the company's mining activities were restructured and concentrated within the main company called CSN Minera��o or CSN Mining. So this combination took place after we first published our financials. And we were discussing back then in terms of the [gains] that were assigned to controlling and noncontrolling partners. So according to our review, there are -- it's based on the assumptions that we use in determining the fair amount for Namisa and also CSN Minera��o. So these assumptions are maritime freight, the discount fees in the net worth report, also the review of the settlement of the pre-existing relations and also the clause of the investment agreement that determined the merger of certain assets that were part of the transaction and also railway freight assumptions. And I would like to emphasize that in all those cases, there was no over evaluation of assumptions. They were fair and accurate assumptions in terms of valuing assets. The same financials of 2015 the company had balances in deferred tax credits for income tax and social contribution, thereby offsetting the positive and negative aspects that were part of its maintenance. And it refers to projections for future results, and also tax losses in the past business years in accordance with accounting standards. In this manner, the company decided to keeping its assets, the amount of its losses equivalent to 30% of the deferred taxes of the period. So in this manner, the total credits arising from this difference went down and they were part of the stock of credit, of tax benefits for the company for later use. So in this manner, it is an accounting entry that is reversible without any operational impact in the company. And you may consider all the details of this operation both in the explanatory note of our financials that have been already filed and also in the earnings release of 2016.

Now on the next slide. You can see the consolidated results of 2015 and '16. The net revenue BRL 17.1 million in 2016, a 12% growth as compared to 2015, basically because of price adjustment of steel products. Whereas, in mining the increase was because of a larger volume of iron ore that we sold, especially with the increase that we saw in international prices of the ore. The gross profit is BRL 4.5 billion, a growth of 28%. Comparing 2016 to 2015, EBITDA margin is 26.3%. Therefore, greater than 2015. In 2016, EBITDA was BRL 4.1 billion with a margin -- adjusted EBITDA margin of 22%, especially because of the best results of mining.

We should also highlight the losses in 2016, it's BRL 853 million. It's a significant production, if we compare to 2015, and this is basically due to operational performance and also financial performance of the company. The gross debt in contrast dropped by 11%, whereas, adjusted net debt went down by 3%. It's important to highlight at the end of 2016, the net debt over adjusted EBITDA went down to 6.3x. And this drop in trajectory remained along 2016 and 2017. Now we go to the next Slide #6, where you can see the main operational and financial highlights.

First, we have the net revenue of steel increased by 11% year to -- first 9 months of this year compared to the same 9 months last year. The average net revenue increased also. We have had a significant growth of 46% in the sharing, automotive share and auto part share with a direct impact in average prices that we practice.

After scheduled downtime of our blast ovens and also -- and in the second quarter of 2017, we had a significant reduction in the second quarter in profit went from (inaudible) to BRL 1,287. The EBITDA increased by 28%. EBITDA margin went from 38% to 46%. Average prices of iron ore in its period have gone up by 37%. Therefore, above the valuation.

In cement, I would like to highlight that we have reached a significant market share of 15% in the southeast region. And in this manner, CSN is very well positioned to grow in both civil construction and in infrastructure market as they pickup growth. There has been a significant reduction in working capital in the third quarter of 2017, more than BRL 660 million with a highlight for the reduction in inventory and accounts receivable and also the increase in the balance of suppliers. Just to highlight operational cycle went from 88 to 73 days. Now on the next slide.

The net revenue until September 2017 has reached BRL 13.5 billion, a growth of 7%, as compared to the same period in 2016. And it's important to highlight that net revenue of steel has increased also during this period. Gross profit is BRL 3.6 billion, a growth of 11%, considering many actions that we are implementing to reduce the company's operating cost. Accumulated EBITDA until September was BRL 3.4 billion with EBITDA margin of 24%. Therefore, greater than 2016 with a highlight to the price of iron ore.

The net loss in the first 9 years (sic) [9 months] was more than BRL 200 million. And in 2017, the company has generated a positive cash flow before funding activities. The net debt in September 2017 is BRL 25.7 million, a slight reduction as compared to September 2016. Whereas, the net debt over EBITDA is continuously dropping fast. Now on the next slide. And here you can see a summary of our performance per segment.

In the first 9 months of 2017, it's BRL 13.5 million and 74% come from steel; 23% from mining; 9% from logistics; 3% from cement; and 2% from energy. So on this slide, you can see the cumulative EBITDA on the first 9 months, which is BRL 3.4 billion with 39% market share in steel, 44% in mining, 14% in logistics and 2% in energy.

So these are the main numbers. Now I would like to turn the conference over to Luis Fernando Martinez, who is going to continue the presentation.

Good afternoon to everyone. And I'll continue on Slide #8. There's some interesting news to share with you according to what Benjamin and David said. First of all, the quarter was -- it's been the best quarter since the first quarter 2015. We have reached the 1,300,000 tonnes in sales. Another very important point is our sales in domestic market in the third quarter compared to the second quarter have increased by 23%, already capturing the good timing in Brazilian economy, especially in the automobile and manufacturing industry. Another important piece of information, our mix has gone from 52% in domestic markets to 62%. And we also have an upside of (inaudible) going back to CSN's landmark of 85% in the domestic market. So this is a great opportunity for us of generating value for the company both in terms of value-added and recovery in the domestic market.

On Slide #9, talking about value-added in domestic market. I always reinforce our participation in coated products. And here, once again, you can see that 60% of our sales, they are related to flat steel and in spite of a very challenging year, we had kept 70%, obviously, did some export here. But the main challenge today is to turn what I used to export to our unit in U.S., so that this steel is more directed towards the domestic markets, which have significant gain in terms of value-added for the company.

So the strategy of focusing on domestic market and value-added is doing very well.

On the lower right-hand side, you can see that our strategy for tackling slightly more -- the manufacturing industry more directly, it has produced good results. Our increasing automotive industry is representing 14% to 21%, in home appliance, from 13% to 15% and there has been a reduction even though small, in distribution because of the measures that we use directly.

And the upper right-hand side chart show, what I always say, which is how diverse our portfolio is. So I am in almost every industry, we have hot-rolled products, cold-rolled products, tin plates on steel and so on. On slide -- on the other slide, the next one, you can see which -- the growth of CSN per (inaudible) in the automotive industry actually. We made the most of a good time on the automotive industry towards increase in export, sold more new cars in the domestic market, that has increased by 10%. And the increase in manufacturing of cars, which will close the year at 27%. So in this manner, CSN has captured this increase of the automotive industry, increasing its sales compared to the same period last year by 46%. Along the same lines the manufacturing industry, machinery and OEM, and I highlight also for home appliances, which has been having a negative results over the past 4 years. So home appliance in the past year has already recorded a growth that is significant, which is also captured by CSN.

In terms of distribution, as I had said before, represented a drop in CSN sales. In my understanding it's positive because we migrated to industry or manufacturing industry directly. And today, we are expecting stability. And we will capture the opportunities that are present in end markets.

In terms of civil construction, CSN is well positioned because we are working with cement and plinth. In field construction, for the first time in 3 years, the expectation is very relevant and we observed the level of activities, the purchase of inputs and the level would be higher than 50% in a way it's stopped getting worse and show some signs of growth. We have captured 9%. And (inaudible) we are going to provide details about cement. And longer in terms of last year, considering that we have produced more growing by 42%. And there are some opportunities that I'm going to provide more details on the next chart is the metal packaging, which was an important sector with high value-added, and we are going to capture to the domestic market. Basically, this is an overview of the industry at present.

And on the last chart or Chart 12, I'm going to provide information of what we are doing. There is a summary of the opportunities of BRL 50 million EBITDA that we are going to go after by the end of this year and the beginning of next year. To make it clear, when this is going to happen. In the first bar, which shows BRL 200 million, this refers to what exactly? This is basically an increase in the automotive sector that is going to be at least 25%. So we are targeting 30% in fact. And we also expect increase in tin plate that has been announced for the December of 31% and an increase in the distribution of the civil construction that had 5% realized in October and 5% in November. And also to add to all those results, in (inaudible) ways is for long field. Since July and October, we had a value accumulated that on annualized basis will deliver BRL 210 million.

The second bar related to BRL 130 million. This is what I'm doing, bringing (inaudible) 6 million tonnes that I used to send to the United States and we're going to have trade-off. And I'm going to go to the domestic market with a better margin. And this is an opportunity for a company of 130 million for the year, which would be added to our EBITDA results. And the bar of 140 million is an additional volume of material that is imported at present by clients of the employees that is going to be converted into domestic market as well that on an annualized basis will come to 140 million. Those actions will amount to 480 million for the year. I would like to remind you that nowadays to put it in perspective, margin is about BRL 500 and BRL 600 per tonne -- BRL 750 and tin plate is about BRL 1,500 per tonne. This land has 3 major pillars in the recovery of CSN in the domestic market going back to the normal level of CSN, maximize the added value and recover prices that have had no adjustments in prices. And this commercial strategy is what we are going to implement.

And now, I'm going to turn the call to (inaudible), who will talk about the industrial opportunities.

Good afternoon, everyone. We can see on Slide 13 that we had the first quarter (inaudible) plate flow, which is much higher. And in fact, was very strong in terms of raw material prices, coke, mines. And we can see on this graph below, we show the importance of all those inputs in our costs, cash costs. And the good news is that in the third quarter we managed to reverse this through different actions. We did not expect the raw materials to drop, but we did different action, improving the operational stabilization in the furnaces. And we need to optimize coke in order to offset the prices. We had a higher volume in the production of tins.

In summary, a number of actions to offset the increase that we had in the prices of raw materials, as you can see on the graph to the right that in August and September, the operating cost was much lower. And the cash cost is below that.

On the following slide, we can provide more details showing some highlights of our short-term perspective. We improved the production of coke this year and this is very important. We know that there is arbitration of coke making the production of coke being ever more important. So we are working hard on this. We are focusing on this. We improved the production. We can say that we're going to improve this in the future. In terms of furnaces, we had an increasing efficiency. There was a reduction of 33 kilos per tonne that's going to impact by 70% in terms of cost for the period. And we also increased this production in the third quarter compared to the first half. And also the last important action that we would like to mention is that in our products, we are trying to get more efficiency in the production so that (inaudible) work would be necessary for the products that we're delivering that we managed to reach a reduction in quality problem from 5.91% to 4.82%. We can see the impact, which is quite positive. And some of the actions are also going to provide some impact for the quarters to come. And on the last slide related to operating factors. We can see that there are 2 actions in order to strengthen our strategies in the steel industry.

We believe there are strategies for the efficiency of coke. We have program with CapEx invested in the next 4 years, that is going to impact the costs by 3% or 4% depending on the coke price in the market. And next year, we have planned many retrofitting of our furnaces that we expecting increase in efficiency by 15% that's going to strengthen our market recovery, when the market will operate more strongly in this segment.

Now I would like to turn the call over to Mr. Denis, our Executive Director of the company.

Good afternoon, everyone, to all of you who are attending this conference. Before providing details on the numbers provided on the slide, I would like to put you in the context. In the first month of the year, the demand has been heated, resulting in strong growth in segment. Additionally, we have been very stringent in reducing pollutants. The strong demand resulted in increase in the price of steel. We also observe that there has been increment in the merits and businesses. And you can see in the first slide, the performance of the mining.

Mining had solid results along the first 9 months of 2017, among which we would like to highlight the net revenue of BRL 3.4 million, an increase of 6% in relation to the previous year. Adjusted EBITDA was BRL 1.6 million and annualized growth of 28%. The drop in sales volume to 20.4% was impacted by the lower purchase volume because of higher selectivity in terms of the purchase product. Higher -- a drop of 3.6% due to the search for products of higher quality with a drop of 20.3% and compare to 24.4% of the previous year. And revenues shipped will be BRL 1.5 million.

In the 9 first months was (inaudible) 30% year-on-year. In the same period, we have included 35%, due to a higher exposure that reflects the vital offshoot when the market was heated. And there has also been an increase. Now as mentioned, we will be talking about 2017. It will be marked by a structural change in the domestic market. It's important to emphasize that production costs have always seen point of success. Now the quality is a very important factor for us within our results. We, ever since the beginning of the year in mining, have focused our efforts in implementing action and that will make us comply with new markets requirement. We want to assure profitability and competitiveness of our products in the market in order to buy the best iron ore possible. We are going to show the most significant project in the mid and long-term.

So Engenho Minas we started in July 2017. We have Casa de Pedra (inaudible) cost reduction with 300 million tonnes providing a significant impact in our quality. CMAIs magnetic concentrators implementation of 2 concentration plants B4 and B5 dams the main impact increasing 1.5 million tonnes in concentrated less production of waste.

The first stage was announced in September and the second phases will be in October, 2018.

Filtering on the next slide. Construction of the 2 filtering plants for waste in the (inaudible) CMAIs extending the life of the dams for tailings. Fernandinho. We are starting, again, the operation of Fernandinho. With the implementing high-intensity magnetic concentration across tailings from Fernandinho's tailings piles and dams. It's important to emphasize that Fenrnandinho mine was audited by BRL 78 million, that will be explored in the future. Dry production, one of the most important projects in terms of productivity, focusing on better prices. Logistics reducing 55% of the dry production, thereby representing a global reduction of 18% in the production flow of our mining operations. And it's going to start up in July 2019. Cayman, so it's an iron ore deposit with great potential for sinter feed production. It has potential reserve for hematite and (inaudible) grew in excess of 200 million tonnes according to preliminary studies.

On our next slide, ERSA. We consider ERSA the diamond in Rond�nia that needs to be polished. Its finer product is sustained. The price of this ore is at very high level. It's a completed structure already scaled for the production of tin. We -- it won't require too many resources. And this production line is expected to be self-sufficient and we are going to double production in order to best serve the market. So we are going to have the first probing phase. And we'll be talking more about ERSA in the future we hope.

And it's very favorable for the good potential we had provide in terms of iron. And we're going to pay full attention to this unit.

So the next 6 months require close attention and hard work to adapt to the new reality. I would like to emphasize that we have high-quality assets that place us in a differentiated position in order to structural changes the mining industry is going through. We are looking at the movements in the market as a good opportunity. Thank you all very much.

Now, we are going to conclude talking about cement with Martinez. Now going back to the segment. The Brazilian cement market has gone through a drop of 20% over the last 2 years. So this market will close 2016 with BRL 54 million, a drop of 20%, as compared to 2015. CSN has grown from 2015 to '17, 60%. So we started in 2015 with 2.8 million tonnes and we will grow this year with something around 3.6, 3.7 million tons. So in spite of all the difficulties in the market, the CSN strategy was to position itself in the market and be active in the actions where we have planned. So our sales in the quarter we have grown 32% quarter-on-quarter. And our focus on cement is to sell a little to many customers, actually what we wanted maximum polarization. So we have worked strongly on our customer base. Today CSN has in its bases more than 10,000 customers of hardware stores, construction store and every year, we have the goal of increasing more and more the customer base. And also market coverage is very important. The number of cities that we have been serving has been growing at 28% a year.

The other important part of cement which was a big setback this year was related to profitability. Over the past few months, CSN has been able to recover 24% of prices in BRL. (inaudible) I would like to make here just to show you a little bit of this business. Today cement is sold in Brazil at USD 45 per tonne. I think that Brazil is not different from the world. Today in the U.S., just to give you an idea, cement is sold at $110, $120 in Europe, $90, $100. And in Colombia, just next door, $100. And in Mexico, maybe $170. So what I mean here is that Brazil is going through an adjustment and accommodation and the trend in my understanding is that as time goes by, the capacity will adjust and this industry is going to recover its profitability, this is yet to come. So on the next chart, please. I'm going to turn the call over to Edvaldo, who will talk about the opportunities that we have, looking at long, medium and the long-term scenarios.

Good afternoon, everyone. As Martinez has just said, our cement business has been affected by the drop in consumption. And as a consequence, the increase in the idleness of players. CSN has been carrying out actions to improve results. As we can see on the graph to the left, the pricing actions that we have already adopted, as Martinez has already said. He mentioned the recovery of 24% in terms of prices in this semester. And we are going to continue this trend because our prices have been below the market, even in a very challenging scenario that we face nowadays.

On the third bar, we believe -- we can see that we are able to improve our volumes in the short-term in next year. More specifically, the end of this year and the beginning of next year, considering that we are in a phase of consolidation and stabilization of line to our coke project that started operating in October last year.

With that, we are likely to capture an increase in volume. In terms of cost reduction, we have been making efforts to reduce our costs in a smart way. We managed to reduce by 18% our costs in relation to 2016. We continue to focus on the reduction. And we have already started the process of permitting of long projects in Arcos, that will decrease our dependence on imported coke, and with an additional reduction from 7% to 10% in the cash cost below of what we had been operating in the past few months.

With the start of operation of furnace II, which is the largest furnace operating in the amount of 500 tonnes per day. And we have the most competitive operation in Brazil. So CSN is very well positioned and well-prepared to phase up the recovery that is likely to happen in the years to come.

Thank you. I'm going to turn the call over to Marcelo Ribeiro, who will discuss the financial aspect.

Good afternoon, everyone. We are going to talk about the financial indicators.

On Page 25, you have the information. We have perspective of shorter term. There was an increase of 22% quarter-on-quarter, a 23% drop in relation to last year. In a longer perspective, we can observe that investment dropped significantly due to 2 reasons, one is the closure of the expansion cycle of our cement business, and also due to the strategy of deleveraging of the company that has led to a higher selectivity of our projects. Continuing discussing our main indicators on Page 26.

We discussed another indicator, which is quite important, which is the working capital that in this quarter had a significant contribution to our cash generation. Quarter-on-quarter, we have freed up almost BRL 700 million with positive evolution and the main indicators as mentioned by Benjamin.

We believe that the trend is sustainable. And we believe that this operating cycle of about 70 days is sustainable. And we're going to work hard so that this can continue improving.

On Page 27, we discuss our leveraging assets. And adding to what David has already said, we can see a quick and continuous drop of this leveraging. The drop was result of a debt that did not grow, even without the need to sell assets and also because there was a growth increase in the EBITDA from 8.7x in the beginning of last year to 5.5x days in the last quarter even with the EBITDA dropping in the 12 months slightly, we maintain that dropping because we were able to generate cash. We had a contribution both on EBITDA and also the working capital reduction of debt and also reduction of interest rate. So looking ahead, we expect to continue this trend considering all those factors that we will continue. We are also going to count on the reduction of interest rates. And our target is to reach lower than 3.5x, that we believe to be feasible in 12 or 18 months.

This also considering the sale of assets, as Benjamin mentioned. And mentioned to our debt, we can see the amortization schedule. The gross debt of BRL 29 million with 85% is in the -- for the long term. And only 15% is related to the short term. This short-term debt is concentrated in a healthy way as bank debt with whom we have had an historical, important relationship along the year. And we have been managing through, maintain negotiations to liquify the debt. And this has been positive and we were waiting for the disclosure of our balance sheet. And we expect that by the end of the year, we will be able to disclose the new profiles in a structural and positive way that will impact positively the cash flow of the company. And then we will focus on the long-term needs and negotiation -- negotiate on the strategy for 2019 and 2020, when 2 of our bonds will mature. And we expect that once we announce the profiling of the bank debt, we are going to go to the capital market in the first semester of next year, with this initiative that will allow us to extend this debt profile. And this would be the plan for the months to come in relation to our debt.

This is what we have to say in relation to the presentation.

I would like to thank all my colleagues, and now, we will continue for the Q&A session.

(Operator Instructions) Our first question comes from Mr. Marcos Assump��o from Ita� BBA.

My first question regards long steel prices in Brazil. You mentioned that the prices have gone up by 21% over the past few months. Can you explain to us, what you see the dynamics in sector of long steel? And is it only in a region where you operate or is it straight out through the country? And secondly, in terms of mining business, you have mentioned that your initiative to increase the life of your tailings dam, so do you expect any new licenses for the tailings dam. And what -- how does it compare to your current production?

Actually, in long steel (inaudible) , there have been 2 price alignment. One, 12% and the other one, 15%. Because prices were quite depressed as compared to hot-rolled product.

Now I'm going to answer your question about mining. So as to (inaudible), we have the license from the Ministry of Mines and Energy, all the new licenses that we're supposed to have. And we conducted preventive maintenance, and so it's like when you change the oil in your car because of the mileage. And so in terms of the life of our dam, we have the filter concentrated to increase the life of our dam. This is a modern project with a filtering system that will make it possible for us to take out material from the dam to recovery. And then we have dry material that is more noble and returning it to the dam, thereby significantly increasing the life of our dam at the levels -- production levels that today, we have.

So just following up. How does it impact production costs?

Well, this cost of startup of production, as you know, classically the cost is higher than working with dams. The most recent movement that we have had in terms of production on dams, so dam costs are likely to increase, so it is the learning process in which our target once it is stable is to fix the cost that we have always traditionally had in mind.

Our next question comes from Leonardo Correa with BTG Pactual.

My first question regards the sale of assets. There are many things that can be done. We have heard of many assets on your pipeline. So as much as possible, could you mention what are your priorities and what is more advanced? What year is your strategy with regards to (inaudible)? Secondly, regarding your CapEx. We have seen a few projects that has been announced by you in your presentation. How is this all associated to the maintenance CapEx and what should we expect in terms of the company's investment over the next few weeks, especially taking into account that the whole focus using deleveraging. And lastly, just one piece of detail. If you allow me, and I apologize for asking so many questions. With regards to quality, late last year, we weren't really sure that discount in price of iron ore of CSN. And how the market has been dealing very much based on the penalties considering the high level of silicon? And what is the current level of discount that we should expect and what kind of progress in terms of silicon are you selling?

Well, with regards to the sale of assets, unlike -- we're differently from what the market believes, we are actively working in the discussion of possible sale of assets, meaning it's not because we haven't done it yet, that we are not talking to possible people, who might be interested. And we have been doing it quite actively. So that I can tell you that all assets that are not core assets for the company, we are working on them. We are discussing about them. And we are determining their value. And when the right time comes in terms of cost effectiveness, we will sell them. So we are doing everything, even though no sale has been done. In fact, all assets are being discussed and offered to possible interested parties. The only thing is that, we are only going to do it when we think the time is right. We are not going to sell assets just for sake of selling. We will negotiate them, but when we find the right -- the time is right, that still would mean we have had a significant valuation of their shares over the past few months, just for the whole industry. And certainly, and let's say, (inaudible) the preferred shares, (inaudible) especially are being -- we're working on them, so that when we find that the time is right, we will make them available to the market. You said other security that we have in treasure. And I could tell you that our objective in concrete terms (technical difficulty) is its relationship debt EBITDA of 3.5x. And I can also tell you that according to my expectations, we will end the year 2017 at 5x in terms of debt EBITDA ratio. And this 1.5x that is still missing for us to get from 3.5 to 5. This is going to be done because of improved operational efficiency that we are working very hard in reducing costs and improving productivity and improving sales prices and also margin and also complementing it by the sale of assets. Meaning that 1.5x, we will go after it, and we will achieve it. And we said 12 to 18 months. I would say that is much more like 12 months. And we believe that the market will be better. We believe that the prices of assets will improve, as the market also improves. And I think 2018 will be the year for us to put the levels at the right debt levels.

So as to CapEx within the scenario of better regards cash generation and sale of assets. This is not inconsistent with the sudden increase of CapEx, considering the minimal levels that the company has reached in 2017, that are good projects, and they will lead us to increase by 20% to 30%, as compared to minimal numbers that we are having on 2017. And we hope to end in at about BRL 1 billion in CapEx this year. So the (inaudible) project also involving growth such as steel projects that we mentioned, we will increase volume and with the fast return with a payback within 12 to 24 months. So within (inaudible) and this is the guidance that we are going to mention. You know though, as to iron ore and silicon, we at CSN, we're working currently better at about 6% silicon. And these are the best products that we buy. And the projects that we showed to you are likely to keep or even improve this content, we are even trying to lower it. I would like to compliment by saying that environmental issue of Minas Gerais, especially after the Samarco accident has become quite difficult. It's quite worrisome because, of course, no one works to cause an accident. But we need to put priority in opening the mine. We need to increase the opening of the mine and we need a license, we need a permit and once we have the permit, then we have access to better quality ore. At the same time, the same of the dam we are evolving very strongly. And also, I was saying a surprising way is terms of the gain that we have obtained over the past few months, I think that we have been able to receive 16 environmental permits that were essential for us to continue our work. And it was very difficult for us to get them. In terms of us getting the permits in this manner, this issue of the tailings dam will take about 12, 18 months. But we are definitely focusing on working in addressing this issue. And also in terms of opening a mine, the Casa de Pedra reserve is really fantastic in terms of quality and quantity. So we need to approach it in a right away to obtain this benefit.

Next question comes from (inaudible).

If you comment on your plans for 2018 based on what happened this year. So can I understand the demand is very respectful next year and what could surprise us in a positive manner in the second and third (inaudible)? And if you could break down into more details? And continuing this question, I would like to know what are the negotiations like in terms of negotiation with the automotive sector? Another question, if I may, is for iron ore. What is the pricing trend considering dilutory content, could you provide more details so that we can make some calculation maybe provide us with some breakdown, FOBs, et cetera, so that we can better understand this trend?.

Hi, [Chavo]. I still do not have the scenario for 2018. What I can say is that it's going to be much more positive than the last 2 years. In 2017, basically in the same steel, the apparent consumption of steel in relationship to 2016 is likely to have a 9% growth. It's likely to cover -- close the year at 10.5 of last year. For next year obviously, we are looking at general improvement in this sector. And part has already been captured by the automotive industry. We believe that at least this is going to continue. We believe that household appliance will improve, because the clients or the consumers who have no strong debt, will purchase more. However, the big star of the factor that will say whether or not the economy will start operating well again, is approval construction. I believe that this is where the big question lies. Obviously, there won't be major infrastructure project demanding a lot of steel, cement and [laying steel]. But in commercial and residential construction sector, there is fine recovery for the sector that CSN intends to capture. As for next year for our company, something important that I would like to mention is first invited to look at 2015 and 2016. As Benjamin said, we're going to work with a positive effect because what we would expect for next year is better results, 5 million. In 2016, I sold [2.600]. I exported 1 million tonnes to the United States and also to Portugal. And the big change in my opinion, in our strategy is that we are going to go to a level of stability, that we are going to continue growing. And I will be able to capture the growth into the domestic market and I will also continue moving the American market. So this is the strategy, increase the domestic market share and work with value-added products. CSN has a balanced pricing strategy. About 30% of exports are allocated to Japan and Korea. And the prices are decided on a quarterly basis. And we are likely to repeat the averages that were recorded in the past period. And percentage may vary depending on the market condition. (inaudible) 60% will continue and 30% is (inaudible) mid-March and it's to be updated, and this would be basically what we are expecting in terms of pricing.

Our next question comes from (inaudible) from JPMorgan.

My first question is related to the renegotiation of the debt that will mature in the next year. And after disclosing the balance sheet, I would like to know what is missing so that we can make headways in the direction? So the banks need the balance sheet to be audited.

Second, in relation to the current capital, we see that the level has been very high for in the third quarter. So I would like you understand what we can expect in those lines and the level that we have seen third quarter is sustainable?

Let me start from the second part, which is more straightforward. Yes, it sustainable. We get 73 days in operational cycle and we want to work below that during the year. In relation to the negotiation with banks, there was a period after we discussed the profile and we have to discuss it further and we have to have the balance sheet audited. And we're hitting out there turbine, so to say and audit the balance sheet so that this can be completed as soon as possible. And you asked me if you would need a quarterly results to be audited? This is something that we are only going to know along the process. However, each committee has its own preference and we're going to be open for discussion and make decisions along the process. And we are always trying to catch up with all those audits. And we want to have all this regulated in the next month. So we are likely to have those 2 items converging at the end of the year.

Our next question comes from Ivan Westin from Cr�dit Suisse.

My questions are related to mining. I would like to make comment on what you expect in terms of volume of production such as by third parties and what is the expectation of relation of the cash costs? And the second point in your initial comment, you made references to CapEx and furnaces with an increasing capacity by 15%. I would like to know when this is likely to happen? When do you expect to have this stoppage. And when do you start to expect the production to start?

Production volume has a target. And this is going to amount to 30 million tonnes. You know the quality of the ore is a significant aspect. And the guidance for 2018 is still maintained with the level of production. The purchase is a little bit more difficult. We expect to purchase 3.7 pounds, but we are concerned about quality. We are going to bargain which is the best quality product and we also use it for quality. And we're going to see what's going to happen in terms of quick change regards to premium and quality demerit of iron. And understand, what our -- how the producers operate? And we are also going to try to get to the virtual blend in our strategy for 2018 is to develop some contacts in China and new tools to promote the virtual blend. The accurate figures will be about BRL 31 billion. But as for third parties, it's more dramatic -- maybe 4.5 tonnes. I would like (inaudible) to answer your second question.

So the renovation of our blast furnace is scheduled for September/October next year. We are already manufacturing an excess of slabs, so that once it's down, we don't need to buy any slabs in the market considering that today the price of slabs is $100 above our cash cost. So once it's down, we will have all the slabs necessary for us to continue normal production.

Okay. What is exact CapEx for this renovation? How long it's going to be down for the renovations?

CapEx is on the slide approximately BRL 200 million. We are finalizing numbers. And the period that we believe the blast furnace will be down is for 50 to 60 days.

Our next question.

[Audio Gap}

The cash cost of mining this year was affected by 2 events considering the accident we had at the port in April. So we had a loss of production in the fourth, boarding was delayed and increased cost at the mine. Another aspect impacting our cost was the purchase of ore. With the volume of ore that we bought had an impact in our cash costs. We hope that our cost continuing on as projects go live, that they will be smaller than this year.

Our next question comes from [Gabriela] (inaudible) from Banco Do Brasil.

This is more regarding cement. I know that there has been a price increase based on economy and the markets. My question is, do you expect an increase in revenue just because of increasing economic performance? Or is there any specific point that you're working on to leverage your business? And the cement business, would it be open for divestments or sales?

In terms of the business basically, Gabriela, there are typical price costs, and obviously opportunities in the market. With regards to price, the Brazilian market has suffered because of major excess capacity and still suffering from that. The market has to go way down to the ground to come back. So the market was very close to the loss of some cement manufacturers. And this had to happen for us to recover prices. So the event has recovered 24% of its prices this year, getting to the level of USD 45. The most important aspect in CSN today is that the business has come to prove its deeds. We are working at a level of 4 million tonnes a year. And as Geraldo had mentioned, we are having cost reductions amounting to 18%. And I could say today that our cost of cement in BRLs per tonne is below BRL 100 per tonne, which is quite interesting for the Brazilian market. And this is the scenario of selling and obviously next year, Benjamin has already mentioned, we're going to work at full capacity, which is still new entrants in the market. The market is 54, we are going to have a total market -- we think we have about 10% concentrated (inaudible) Minas and reals.

And what BMS that you would be considering for sale in terms of deleveraging?

Gabriela, this year, or in 2018, we are going to reach the nominal capacity of -- 4 800. And we have already bought 2 plants, as you know, one is ready. And the other one is part -- an important part with the manufacturer. We think that the market will go through consolidation. And we want to be one of the consolidators in this market. Obviously, we're open to other discussions in terms of association to our partnerships and considering our current assets. And maybe for us we'd like to implement the 2 new plants. But we will be believe that cement, is one of the industries that has been chosen by us as core, so we do not see ourselves outside of (inaudible).

Our next question comes from (technical difficulty) Asset Management.

My question has already been answered.

Now we're going to have questions in English. Our next question is in English. And it came from Carlos De Alba, Morgan Stanley.

Apologies if this has been mentioned in the past but the quality of the audio on the call is not great. So if you could comment again on what is the status of the tailing dam situation in the United States. What are the plans or the goals going forward in order to have enough capacity to continue operating at a quarter rate? And then talking, again, about asset sales, could you comment what are the assets that you believe could be sold in the next 12, 18 months, because definitely, it seems that you still need to execute those to reduce net debt to levels that are more comfortable? And second, I think you had mentioned you're working on renegotiating bank debt that is expiring or due next year. But I missed the details. So if you could, again, please comment on what is the status and the next step on the renegotiation? That would be great.

Carlos, as for the tailings dam, Casa de Pedra, this is one of the safest or the world's safest tailings dam. The precautions that we have taken is that in May, we started a maintenance work in a tailings dam, which will need it to safety breaks it will be well above the standards, regulation agencies in Brazil and Ministry of Mines and Energy are working together with us, have approved the scope of the work. And as of January, so as soon as we complete the work. We will be free to use it for tailings. Brazil has mentioned -- Benjamin mentioned because of Samarco accident, there is very strict control and people are paying close attention to tailings dams, and for the grant, we need to have new technologies with filtering systems, constructing it so that once it's out from the production process (inaudible). We still need to use them in mining. We will continue using them for some time. So Casa de Pedra dam is very, very safe and we're being supervised by the regulation agencies and they're perfectly safe.

Carlos, with regard to your question about the debt renegotiation. We have a situation, which helps us, which is a concentration of banking investments into banks only. There are banks with which the company has already discussing a new profile for the debt. This is not the first time, one would have this kind of discussion, that we profiling had already been done in 2015. So it's not new. And this reprofiling will have already completed the modeling, for even it is not yet formalized because our financials are not yet audited, once we are done with that before the end of the year, we will complete that.

Our next question in English comes from Peter (inaudible) of Barclays.

Can you please help me understand the difference in your reported revenue per tonne and the benchmark price? I'm trying to (inaudible) differential I think year-to-date is about $27 and seems a bit high. And second question, just wanted to understand what is it more in your (inaudible) EBITDA? (inaudible) currently for your quarter of nonrecurring cost, it seems to be so consistent and also, what portion of the EBITDA from JVs is proxy for cash? In other words maybe like how much of this, I think, 540 million of EBITDA I think should be from JVs so eventually, in the form of cash (inaudible) or something like that?

The second part of your question regarding reporting a number, if I understand correctly, with regards, the portion of our EBITDA coming from our subsidiaries. And in our little bit of detail we reported part of the consolidated, most of this EBITA comes from INRS. And this can be considered as a cash proxy because we have quite consistent flow of dividends from MRS similar to our consolidated EBITDA in terms of analyzing the consolidated numbers of the company, we think adjusted EBITDA is the most appropriate parameter for reporting. As surprised, 60% of CFR and 30% quarterly delayed especially considering the consortium that is part of our mining activity.

Our next question in English comes from Rafael (inaudible) .

Two questions. The first one is what explains the drop in cash? EBITDA growing, CapEx going down -- why are we seeing lower cash levels? And the second question has to do with an article that appeared today in the local press implying that Mr. Steinbruch might have wanted to make some payments to [Mr. Bellucci]. How that has resulted from (inaudible) Do you expect any consequences from this article as you're going forward in terms of earnings (inaudible) in terms of company?

With regards to cash, the main reason why the cash has dropped is because of our financial cash flow. So debt that has been amortized with the consequent drop in gross debt. These debts are especially local market, they are debentures that have been amortized considering the fact that we don't have a balance sheet. We haven't yet renegotiated it. Now that we have our financials, the next step so that we may have access to this loan so that we get our cash levels right. As to the first question, I would like to say that the company has done its homework and has taken all precautions with regards to that. And Rafeal, there is a note, an explanatory note in our financials hold conclusion that nothing has been confirmed of the possible claims. And thereby, there is no adjustment or provision in our balance sheet, but anyhow, I would kindly request you to read this note in our financials.

Our next question in English comes from (inaudible) of (inaudible).

First one is, if you could clarify the CapEx number that you provided to us. I think it didn't really come out well in the translation, something was BRL 1 billion. I'm not sure if that's in '17 or '18. And then plus 20% to 30%. So if you could qualify that or clarify that? And then also elaborate a bit on how is the cash flow could look and the CapEx guidance next year?

You heard correctly. So our expectations at the end of 2017 is BRL 1 billion. And the preliminary expectations for 2018 considering all our projects is still at 20%, 30%. Still, with this added CapEx, we have all actions in terms of cost reduction, price increases and contention of working capital and probably interest rates may generate free cash flow to reduce the debt after the CapEx.

Can you quantify that?

Our next question in English comes from (inaudible).

So we saw the news that sometime the company (inaudible). So could you please provide timing as we wait for the conclusion for the asset sales before the tapping market?

Could you please repeat your question? The connection is not so good. The audio is not so good. Could you please kindly repeat your question?

Sure. So my question is regarding CSN's plan to come to the market to issue another bond. Can you (inaudible) this one?

Yes. What we said is that we are going to go to the market as soon as the conditions permit, conditions permitting meaning that there is a window and we have already announced renegotiation with the banks. These conditions are favorable. Once that is given we are going to be out in the market in the first half of next year.

If there are no further questions, I would like to turn the conference back to Mr. Benjamin Steinbruch for his closing remarks.

We at CSN would like to thank you all for your participation. And we'd like to say that we are committed in pursuing the reduction of the company's leverage 3.5x, if our target, we have excellent assets and they're all being contemplated in possible discussions in order to reduce this leverage. Even start of a core assets, we would contemplate with as drastically reducing leverage, as we wish. At the same time, we are working very hard in operational improvement and we have been successful in doing that, both in reducing cost and in gaining productivity and also improving our prices. We have been working actively every day, based on this aspect, which is what we should do annually to improve our management as much as we can, so that we may -- it may all be translated into good results. As we've said before, we are working at full and this is how we like to work. This is how we deal with challenges. We are going to keep our production yes. And we believe that we are going to have good numbers and good performance once we see a more marked improvement in the domestic markets. We also believe that reduction in interest rates will continue and this will provide us benefit in terms of reducing our financial expenses. At the same time, we are working already, and we have been working for more than 9 months in terms of having a longer debt profile. As we've said before, we have 2 bank partners, our old partners, that understand our company and they're aware of what we can produce in terms of performance. So it's not a novelty. They are long-standing partners that know very well our company. And I'm sure that this will make it possible for us before the end of the year. And I believe in November, we will have a longer time. Once we have this extension, we are going to talk to bond holders. And, as you know, in the market, there has been a very good evolution for our bonds. And I believe that very soon, we are going to succeed. And I wouldn't be surprised, if before the end of the year, we attain that. And this would facilitate the conversations that we will have with bondholders in the first half of next year. The operational commitment that we have is given, we believe that we can continue growing some investments have become mature now. Environmental issues have been overcome in general, lines. We had good position in terms of the negotiations with environmental agencies of the Brazilian government, especially of the government of the (inaudible) because of our history, of course, this all changed because of the accident with Samarco and negotiations became much more intense because, of course, no one would like to see that sort of accident again. So we have resumed our negotiations. We are taking the lead. Just as all other mining companies, we need to work with much longer times because we need to know that after that episode everything will take longer and everything became more difficult but we need to change the way to work and we need to start earlier to have more time, so that we may appropriately negotiate with debt authorities of the state of Minas Gerais. But we would also like to take something that in spite of the accident, the state of Minas Gerais and its authorities have rapidly adapted to the new reality and they're facilitated in terms of -- because they understand that jobs want to continue. So this is overcome and now we are ready to -- going back to full production, so that we may expand the mines and also solve our issues related to the tailings there.

Now I would like to thank you all very much. Everyone in a company assuming our challenge and we are all going to do our best. And even the impossible to deliver what we have said in this conference call, after almost 11 months without a published financial statement with all our financial information, bondholders and rating agencies and financial entities that supported us in terms of our investments, as all this discussion has come to an end. So the financial statement has been signed for 2016. We are going to -- we want our unaudited financials to be audited in the shortest time possible. And we are going to face the challenge of being prepared again to grow, invest and generate more jobs. Thank you all very much.

Thank you. The conference call of CSN has now ended. Please disconnect your line, and have a good afternoon. Thank you.