Good afternoon ladies and gentlemen and thank you for holding. At this time, we would like to welcome everyone to CSN's conference call to present results for the first quarter 2020.Today, we have with us the company's executive officers.

We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company presentation. And following this, there will be a question-and-answer session at which time further instructions will be given.

[Operator Instructions].We have a simultaneous webcast that may be accessed through CSN's Investor Relation website at csn.com.br/ri, where the presentation is also available. The replay of this event will be available soon after the closing for one week period.

Once again, you can watch the presentation at your own convenience.Before proceeding, we would like to state that forward-looking statements herein are near expectations or trends that are based on the current assumptions and opinions of the company's management.

The future results, performance and events may differ materially from those expressed herein. They do not constitute projections.

In fact, actual results, performance or events may differ materially from those expressed or implied by forward-looking statements as a result of several factors, such as general and economic conditions in Brazil and other countries, interest rates and exchange rate levels, future rescheduling or prepayment of debt denominated in foreign currencies, protectionist measures in the U.S., Brazil and other countries, changing laws and regulations and general competitive factors globally, regionally or nationally.We would now like to turn the conference over to Mr.

Marcelo Cunha Ribeiro, the IRO, who will present the company's operating and financial highlights for the period. You have the floor, Mr. Ribeiro..

Good afternoon to all of you and thank you for participating in our results conference call for the first quarter of 2020. We are going to have a brief presentation followed by the comments by Chairman and CEO, Benjamin Steinbruch. We begin with an update for the market on the efforts that the company has adapted in the efforts against COVID-19.

Of course, this is inevitable as it affects all of us. As part of its activities, CSN has businesses that are deemed to be essential such as mining and steel production.

And because of this, we have maintained our activities without interruption.Our operation lines are operating at full speed but with a certain care where the priorities are the health of our employees and that is why we have put in place the best practices such as distancing, awareness and the use of individual protection equipments, sanitizers, the use of masks.

Once again, distancing at the workstation, changes in shifts and transportation and all of these measures have been quite successful in containing the advance of infection in our workplace. Up to present, we have very few cases to report and luckily enough, none of these patients is serious.

And most of the employees have already recovered.Now, besides this internal focus on our employees' health, the company has carried out activities to support the community where we operate, especially in Rio de Janeiro, Volta Redonda.

One of the most important is the donation of 500,000 fabric masks to the health secretary of that municipality, the donation of 50,000 food baskets for the community for needy people that have been impacted by the pandemic and our employees themselves and finally, an important measure, the city hall of Volta Redonda saw contributions for their Campaign Hospital for medium complexity patients.We then go on to the highlights of the first quarter on number three to comment our three strategic pillars, the improvement of operational results, maintaining liquidity and acceleration of deleveraging.

This was a different quarter, of course. In the steel production, we have a quarter of only two months and in mining, the severe impact of rainfall.

Purchase prices, we obtained good results in terms of EBITDA and a strong operational cash generation.When it comes to liquidity, we were able to take advantage of the capital market window issuing $1 billion to extend our debt and to increase our liquidity so as to comply with our short term debt.

Finally, when it comes to leveraging, of course, at this point in time, we have had a one-off increase in indebtedness. Net debt EBITDA for this will be recovered with an increase in revenue from export. We, of course, are net exporter. These are the highlights for the period.We go on to page number five which is about our consolidated EBITDA.

It was BRL1.3 billion, about 15% below the fourth quarter 2019 EBITDA with a different performance for each of the sectors. First, we have the steel segment with a positive performance and a growth in volume even in this pandemic event and increasing prices and recover our cost. Productivity EBITDA grew almost 70%.

The great impact comes from mining because of volumes and we will speak the causes in detail and how these impacts will be mitigated going forward.The third segment is cement with a good performance. A growth of BRL4 million in EBITDA with better volumes, margin recoveries, more normal cost and resiliency of construction.

And cement has offered positive results despite this difficult environment.

When it comes to exchange volume, price and cost, the great impact was on volume for the quarter and the impact focuses on mining impacted by the rainfall in January and February and in March a delay in some new sources and there was a delay in the licensing that had already been obtained.In terms of the exchange rate, very little effect because this happened at the end of the quarter and the increase of cost of the steel mills were offset with the revenues in mining.

Besides this, we had good impact on prices and the steel prices, cement and iron ore as well. The Platts index had a good performance as well as our price realization. We had a good cost evolution, especially in steel, but also in cement and expenses helped us with a significant reduction.

This allows us to get to the EBITDA of BRL1.3 billion.On page number six, we will speak about impact on cash generation. We begin with the CapEx where we already show you a figure of BRL354 million for the quarter, more normal vis-à-vis the previous quarter, a year marked by strong investments in steel because of the blast furnace three.

And going forward, what we expect is to have investments as a priority in operational, safety and maintenance. In this environment of uncertainty, we are reducing our expectation for investments.We had expected to invest BRL1.8 billion.

This has been reduced to BRL1.1 billion and we are postponing some great projects and only working with sustaining projects. In the financial cycle, we had to work hard to generate good inventory levels that begin to grow because of an uncertain demand, support to clients and management along with suppliers that we are supporting case-by-case.

Thus we were able to significantly mitigate variations and we get to BRL1.3 billion EBITDA and BRL500 million in operational cash.We go on to page number seven. And we see that this cash flow is still not sufficient to ensure a reduction of indebtedness in this quarter.

Specifically, we had a strong evolution in debt which is very natural as 70% of our debt is in dollars and we are net exporters. Additionally to this, the exchange rate change happened at the end of the quarter and the net debt ratio on EBITDA that reflects an average exchange rate is distorted.

If we look at the net debt EBITDA based on the average exchange rate, it was 3.8 and 4.1 and not 4.8 as we have said would be for the period.Now, this indicator that has risen as a one-time effect of the significant growth of revenues will come back to normalcy.

We benefit from greater revenues in reais and we have a positive dollar sensitivity as a $0.20 U.S. decreases the net debt EBITDA ratio by 0.15% and so we maintain our goal of getting to three times net debt EBITDA at the end of next year.

We begin with BRL32 million, BRL33 million of net debt to get to that new target of relative indebtedness of BRL23 billion and for this we have to generate cash from our operations but continue with our divestment program, maintaining the initiatives that are underway and this will enable us to reduce the debt by BRL10 billion until the end of 2021.On page number eight, we speak about our liquidity and our amortization schedule.

Highlighting the most relevant action which was the issuance of $1 billion in new bonds with maturity in 2028 and we gone from 35 months to 45 months in terms of lengthening of the debt. This was essential for our liquidity.

At the end of the first quarter, cash was at BRL3.2 billion and vis-à-vis amortization of 2020 of BRL5.7 billion.We are at a very advanced stage at present of rollover of the debt especially the banking debt.

We see that only BRL1.8 billion will be amortized in 2020, which means we have sufficient liquidity to honor all of our short term commitments and we continue to work on new initiatives to increase this liquidity.

Very soon, we will announce the prepayment of iron ore to reinforce our cash position.We will now speak about the details of our individual businesses at page 10.

We see the more relevant indicators of steel where we see an increase in volume, a sequential increase of 2% in total volume and show you the advantage of the geographical diversification and impact on sales domestically that have the nominal drop but we had a good performance in Europe showing that we have resilience in Portugal and especially in Germany.Now this also had a price increase, especially in the domestic market because of the depreciation of exchange rate and we had price transfers in January, March and we now are faced with a situation that with the increase of the foreign exchange we have margin for future increases in price.

So this leads to an evolution of profitability. We reached BRL3 billion in EBITDA. We are not where we would like to be but this is an important step when we compare this to the high cost we had in 2019.In the next page, just speak of this productivity. We show you that the production volume has become more normal.

We had low volumes due to the blast furnace. And now this is normal. We had 874,000 tons, the best volume in a year-and-a-half.

And this has led to a sequence of cost reductions in reais even with the appreciation of the dollar and although we face from events such as an outage in January.The plant was without electricity for more than one day with an impact of several million reais.

Intense rainfall in January and February and the humidity led to a drop of productivity in the blast furnace.

So in the second quarter, everything will be in line with what is expected after the renovation of the blast furnace and our figures of EBITDA per ton have improved beyond $100 which is where we would to get at the end of the year.On page number 12, we go to the mining performance with an atypical quarter in terms of the volume due to the rain and we weren't only ones, of course.

All of the mining companies in the Southeast of Brazil had a relevant impact in mining and shipment at the port and because of this, there were drops over 30% that were observed. We see here drop of 37%, not only because of the rainfall but because of delays in licensing of a new mine.The good news is that these licenses finally have been obtained.

The volume is on its path to become more normal. But if we observe the year 2020, we decided to carry out a marginal revision of our expectation for production for this year, an expectations that will be a drop of a maximum of 10% compared to 2019 and 2020. We would love to reduce this impact but this is the best estimate that we have at present.

Now, these effects of a drop in volume are being offset with an excellent environment in the other areas of price, the exchange rate and of course the freight.Because of our initiative, they are at a low historical level which means that the figures of revenues and EBITDA were less impacted compared to the volume.

Revenues dropped 21%, EBITDA 27% and we got to BRL921 million, a margin of 56%. And what we see is a good price realization. Because of this, the Platts is at $89, practically stable, but our price realization went beyond this.

It increased by 2% because we had a good performance of our quotational baskets and there was a lockdown of prices in very interesting moments.With this, we would like to end our presentation and I give the floor to Benjamin Steinbruch for his remarks before we go on to questions-and-answers..

Good afternoon to all of you and thank you very much for your participation in our conference call. I would like to make some remarks very briefly and say that we are fully respecting the pandemic that has arisen in Brazil and the entire world. We acknowledge the difficulties in economy and politics.

Notwithstanding this, we do have to go through this and in the best way possible. I believe that CSN has been working arduously, at least in-house, to do whatever we can to reduce costs, making investments in productivity enhancements and productivity and we are following up very closely on the markets.Now to speak about each segment.

My market perception is that from the viewpoint of cement, we are going through a very good moment. The market is stable practically and we believe that we will have an increase of sales for the second quarter. We are working with production at 80% in the first quarter.

We are going to obtain 90% for the second quarter.Now, prices are being corrected favorably. And in truth, what has made the great difference is the availability of logistics.

We have been more aggressive in the market and that is why we had a good performance in the first quarter and expect this to increase in the second quarter.In terms of long steel, because of our limited representativeness in the market, we are selling full. We haven't had any problem in placing our products and we also had a price improvement.

We believe that for the second quarter, they should be maintained or improved vis-à-vis the first quarter.In terms of mining, we have an opposite problem which means that all of the conditions are favorable when you think of price, the dollar rate, freight.

We had one problems with rainfall in the first quarter and this will not be recurrent in the second quarter. We were able to obtain the environmental licenses which were very important for us because we are opening up two new mining fronts.

And with this, we will not only obtain iron ore, but also good quality iron ores which will enhance our performance in terms of quality in the second quarter.And of course, the amounts represents a challenge. Everything that will be produced will be sold.

So in the case of mining, our problem is the opposite, to have more production to make the most of the other variables.

And I think that after having obtained these environmental licenses and the opening of these new mining fronts, we are on the right path to reestablish our quantities, a return to normalcy without the problem of the rainfall.In flat steel, the market did have a greater drop.

I think you have followed up on what is happening in the automobile industry and the industry as a whole. The civil construction was somewhat less of an impact and distribution wasn't so bad in terms of its behavior.

But despite all of this, we had a good first quarter and we believe that for the second quarter, we will have 60% of the deliveries.So far, we do not know what will happen with production. What is under discussion is a stoppage of the blast furnace, the blast furnace two, because the working capital invested is quite steep.

And presently a good manager has the obligation of preserving liquidity. So we have an eye on production and the market and we are also looking towards liquidity and our financial commitments.But as a whole, I would like to transmit the most realistic viewpoint possible. I see and I acknowledge all of the difficulties.

but I would say that there are several positive factors because of the efforts that were deployed previously by CSN.

We should be having a significant reduction in the production cost of flat steel because of the renovation of blast furnace three, productivity gains as well gains in quality, 60,000 tons that we should have as a result of this renovation and perhaps the stoppage of blast furnace two is being considered because of this.

But we do see a gradual and progressive recovery of the domestic market along with the potential of a resumption in foreign sales because of the exchange rate and because of the products that we produce.When I say, therefore, that the only concern is flat steel and we are working with 60% of the second quarter as part of all of these variables of the exchange rate, the quality and the transportation of iron ore, they contribute strongly to the result of CSN as well as the fact the 60% will have a much lower cost because of blast furnace three and the eventual of blast furnace two, all of this will contribute towards a reduction of cost.

Because blast furnace three has a cost that is much lower than blast furnace to and we would have a margin then that would be significant for CSN in the second quarter.Once again, we are considering all of these social issues and because of this, we still have not come to a decision.

When we do, we want to make sure that we have contemplated all of the possibilities to minimize the social issues that would be caused by this stoppage as well as policies that are important in the region where we work. We are attempting to support our employees and communities where we work ever more during this Coronavirus period.

We are deploying all our efforts, our best efforts and in joint work with the City Hall and. With our internal units, what we want to do is minimize problems referring to Coronavirus.Now, if there is a stoppage of blast furnace two, we want to have this convergence of effort.

Therefore despite all of these difficulties, my message is that we are somewhat optimistic in terms of the second quarter. We believe that this second quarter will bring about the peak of this pandemic and then again we will have a third and fourth quarter that will be better. And of course, this will depend on the management capacity of each company.

We will do whatever is possible, without a doubt. We are mobilized for this. We continue with our commitment towards greater deleveraging. And as soon as the market opens up again, that will make possible deleveraging. This will continue to be our priority.Now as part of all of this, the new exchange rate is very favorable.

But this does not mean that we are not going to attempt to help the net debt EBITDA ratio and make sure that it falls within what we want in a more speedier way. Now, if this situation is maintained as it is at the end of the year 2020, the ratio would be three times.

And we must make the best of all of the operational efforts and the good results that we continue to have. An EBITDA of 56% margin in mining and an EBITDA going towards 15% in the steel segment for the second quarter seems to me that despite everything we have set ourselves up vis-à-vis our competitors and the market in general.These are my remarks.

I would like to thank you. And we can now go on to the question-and-answer session..

[Operator Instructions]. Our first question comes from Daniel Sasson from Itau BBA..

A good afternoon to all of you and thank you for taking my question. My first question refers to the potential stoppage of blast furnace two.

Is there any period in which you plan to come back? And if you are going to stop, will this be similar to the scheduled stoppages that you had before? How quickly will the blast furnace comes back into operation? And what is the savings potential that you refer to in terms of variable costs and margin improvement? My second question, perhaps to Marcelo, refers to that target of BRL23 billion in net debt and three times net debt EBITDA ratio at the end of 2021.

Now how much of this depends on cash generation and other investment programs? I imagine that in the last few months, the situation has been ever more complex. Could you speak about the potential sale of some assets? Thank you very much..

Well, regarding you first question, the stoppage of blast furnace two, from the technical viewpoint, we have already carried out this comparison very rationally because of the cost reduction. You can calculate that the reduction of cost will be 10% between blast furnace three and blast furnace two. We always operate with this costs difference.

And of course, the trend is that this spread will increase ever more. Then you can consider 10% difference for the steel produced in blast furnace three and the one produced in blast furnace two.Now when it comes to production, I think it makes sense to do the stoppage. Why? It will allow us to sell more iron ore. We are going to use less pellets.

We will have a better pet coke. And additionally, if we consider the inventory levels that we, without a doubt, we will consider that we can place in the market this entire inventory that we have.From the rational viewpoint therefore if we take into account results, this is what would happen.

From the strategic viewpoint, this is where we have a doubt. And we are working with different possibilities of allocating a large part of our production from blast furnace two for export.

Now, if we are successful in this attempt, it would make sense to continue to work with all of our equipment lines servicing both the domestic and foreign market, awaiting a recovery for the second quarter and the end of the year and to come into 2020 in a good position.

Now what is holding us back in terms of our decision is social issue.To make sure that at this point in time, we do not contribute with a crisis or by exacerbating the social situation, especially in the municipalities where we are active. This is a technical strategic decision, if we want to think about it that way.

And in the coming, we are going to enter into discussions and in one or two weeks at the most we will be able to make this decision.

The technical part has been scheduled fully and if we truly do work with a stoppage, we are going to do it with a great deal of calmness and with a great deal of technical security as we have all the stoppage in blast furnace two twice. This would be the third time we will do it without risk and in a very natural fashion.

Now between this week and the next, we will come to a decisionYour second question, Daniel..

Before I respond to it, I don't know if the answer given by Benjamin fully responds to your question. Regarding the second question, we have made an adjustment of our balance from BRL20 billion to BRL23 billion because of the exchange rate. But we maintain that figure of three times net debt EBITDA.

And informally, we always have a target of $1 billion for divestment potential. Last year, $1 billion was BRL4 billion. We are now getting close to BRL6 billion. This is also helpful. So we are considering having a reduction of BRL10 billion between now and 2021. The difference will be the cash generated by the operation..

And in terms of SWT, do you have anything to tell us?.

Nothing different from what we said two months ago. In those two months, Europe was in a situation of total abnormality. But there is a positive side to this. The negotiations have continued and the potential buyers, albeit involved with their own problems because of the pandemic, are still engaged and interested. The possibility continues to exist..

Thank you Marcelo..

Our next question comes from Thiago from Goldman Sachs. You may proceed..

Good afternoon. Thank you for taking my question. My first question refers to mining. That had a much lower volume this quarter. You mentioned the impact of rainfall and the lack of your environmental licenses.

If you could break this down and tell us what was caused by rainfall and what was caused by the licenses? And you had a cost of several million because of this idle capacity. Now why did you take this decision? Shouldn't we have business as usual? Now the second question, perhaps to Marcelo, on a more positive note.

If you could give us more color of what is happening with your debt, BRL200 million less? Thank you very much..

Thank you. Now, regarding that ratio, it is always very imprecise. So the mining was to come into operation in March and the impact was more in March and April. 80% of the impact in the first quarter was due to the rainfall.

And as of May, we will see that this will return to normalcy.When it comes to idle capacity, you have to comply with accounting rules. You can not allocate to sold products costs that were not applied to production. And if they are operational sots, they are classified n other expenses.

And this is what happened last year in 2019 with the reform of blast furnace three, where some equipment was not used and the cost associated to that equipment was not in the cost of goods sold but in another line item with the criteria that CSN always uses.Now for the first time, we have this steep drop in volume. And this is a one-off event.

The shipment, transportation and equipment at the mine were not used.

And what happened was that same practice separating those cost for products that have not been sold.Were there any more questions?.

Your debt service? This was benefited by the positive exchange rate in cash. This financial expense therefore has that net characteristic. In this quarter, we had an impact and an appreciation in reais. Thank you..

The next question is from Gabriel Galvao from Credit Suisse..

Good afternoon and thank you, Benjamin, Marcelo for taking my question and congratulations on the rollover of your debt. My question refers to your commercial strategy.

When there is a resumption of demand, what are going to do initially? Increase prices or increase your market share? What has the best in the industry done regarding this? The second question along the same line. If you could speak about your export mix? You sold more to the international market in this first quarter.

What is your strategy going forward during this year? Of course, it will depend on the second quarter.

So if you could speak more about this, I would appreciate it?.

Hello Gabriel. This is Martinez. The strategy has changed somewhat compared to the end of last year, but basically it is the same. Benjamin has mentioned that we are going to work with the blast furnace three that is producing the full steam.

This is the lower cost equipment and the more economical production will be in blast furnace three using the minimum amount of outside pet coke and pellets. Another point that does not change that I always mention and I always repeat this, we have maintained this during the year.

50% to 53% of our output is linked to the coded products.The third point, which I have reiterated often and it has become very clear in our strategy. Thanks to our strategy, at present we don't depend exclusively on the automobile market.

CSN has 12% of the automotive market and markets that have had less peak troughs such as civil construction, there we have 16% in the industry and general 16%, in packaging 11%. There wasn't a drop. Quite the contrary. 9% in health appliances and 15% in distribution.Our strategy of not having all the eggs in the same basket continues.

And in export, besides other strategies that we are seeking linked to maintaining the production of the blast furnace two, we are competing this amount in the United States for selling fully to the USA. We are selling 300,000 and we are going to produce a large amount of galvanized products that have been contracted until the end of the year.

Presently, we have been able to close some deals in Canada, Mexico and something in Latin America.Of course, this would be nirvana, but the fact is that these markets are also suffering but we have become one competitive because of the exchange rate. Now the recovery of margins is mandatory.

70% of the cost of a slab at present and this refers to any plant in the world is iron ore, from bonds in coal and pet coke. With the dollar prices, you have to increase the prices. It's a matter of survival. So recovering margin through a reduction of price, this has to be done.

It is part of our strategy.And as part of our strategy, what is happening, in the first quarter, apparent steel consumption with a very reasonable consumption, three million tons in the second quarter as Benjamin mentioned and this is going to materialize. It has been contracted for CSN and it will be a below that of competitors.

The drop will be 37% to 40%. So the market will have 1,800,000 tons for the second quarter. What I am drawing up, although this is negative, it is drop in the market as a whole of 20% to 25%.And CSN will work with a reduction that is lower than our competitors, thanks to our distribution, perhaps of 20%.

Our strategy will be focused on added value, on working with very economical products and recovering prices as well as margins.

When we speak about a price recovery, if we consider the premium that we have in nationalized imported goods, imagine that there is new BQ in China $400 and some dollars and the dollar at 5.85 reais, the premium is 12% to 15% negative at present.We cannot imagine not having a price correction and CSN is going to increase prices in June.

We are looking for the best stage. We are going to look at the supply demand curve, the competitiveness of the value chain, this premium. We are going to look at the clients and see who will buy. The market needs to improve but we have to make corrections in the price to continue to survive in the market.

I think an increase of 10% to 12% in June and we can not flee from this. Now, this is the CSN strategy for this year to return to the market in the second semester as mentioned by Benjamin.I don't know if you require any further information..

No, that was very clear, Martinez. Thank you for your answer..

Thank you Gabriel..

Our next question is coming from Mr. Carlos de Alba with Morgan Stanley. You may proceed..

Thank you very much everyone. Good afternoon. I hope everyone is doing fine.

I just wanted to check, how much do you expect reducing in terms of benefit because of the lower freight cost? I wonder if you can quantify this and particularly you are able to monetize from lower sales? And then maybe I missed this, but can you comment on the latest regarding asset sales to further strengthen the balance sheet and generate cash flow? That would be great.

And my last question. Do you expect to increase production of iron ore in any quarter? Can you mention the new guidance for the year in terms of iron ore or steel? That would be great. Thank you very much..

Carlos, thank you for your question. Well, freight, we are working below $7 and $8 and we began the year with an expectation of about $10 higher. And this curve will remain this way this year.

But with simple math, $10 times the total of our export as we are thinking of selling 36 million and exporting 32 million, we are speaking of $320 million of advantage that would come from this, almost BRL2 billion. And of course, this is significant.

This is not guaranteed but it would be impactful for our profitability.When it comes to the sale of assets, I updated you in terms of SWT. This is an asset that has been debated for over a year. Now, the magnitude is of $500 million in terms of debt reduction. Now, adjusted by the present exchange, it means this amount would be even greater.

It could be half of our needs. But we also have several other options such as streaming. That continues to be a possibility or an even greater alternative opportunity which would be complementary or replace this IPO of CSN Mining, not in the present day market.

But the company is making some moves and will be ready to do this once we have an opening of the economy, as mentioned by Benjamin. I think these were your questions.

Are there any further doubts, Carlos?.

[Operator Instructions]. Thank you. As we have no further questions, we will return the floor to Mr. Marcelo Cunha Ribeiro, the IR Officer, for his closing remarks..

It seems that we have more questions. No, apparently we have no more questions. I would like to thank all of you for your presence and we are at your entire disposal. Have a good afternoon..

Thank you. The earnings release conference call for CSN ends here. Have a good afternoon..