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 2021. Today, we have with us the company's executive officers. We would like to inform you that this event is being recorded. .

We have simultaneous webcast that may be accessed through CSN's Investor Relations website, ri.csn.com.br, where the presentation is also available. The replay of this event will be available after the closing for 1 week. The slide presentation may be downloaded, and you can flip through the slides at your convenience..

Good afternoon to all of you, and thank you for participating in another call for CSN. Today, we have the Chairman of the Board, Benjamin Steinbruch; Luis Martinez, who works with Steel; Mr. Rabelo; and Helena Guerra, our Sustainability Director. For the initial address, I would like to give the floor to Benjamin Steinbruch..

A good day to all of you. It is with pleasure that we present to you the results for the first quarter for CSN. Exceptional results from the viewpoint of EBITDA and net revenue, and the margins that we have been able to attain in each of our businesses.

As mentioned previously, this is the expectation that we had, to have a growth in margins in Steel, in Cement and in other areas. We were confident that we would have a very good quarter, and it has now materialized in all of our businesses.

We have received excellent figures working in a market where we have a continuous price increase for everything, not only for raw material that compose our products but also in the final cost of our products. Demand domestically as well as internationally for the steel mill is considerable, and I do believe that the market is fully supplied.

The regulatory stocks still have not been recomposed. But whatever goes out to third parties is what comes in, which means to say that the production chain has been supplied. So far, we have not been able to recompose the intermediate and regulatory stocks. In the case of Cement, the production is sold out completely.

And so far as we can produce, we are able to sell our production. And I believe that steel as well as cement are essential products for the economic recovery of any country, which means to say that, basically, everything will go through infrastructure. And in Brazil, the infrastructure works so far have not begun.

Once they begin, without a doubt, there will be demand for these products, and in the domestic market, generally, demand for other products, more specifically in our sector that have a growing demand..

operational improvement, financial actions, working with our liabilities. And I think this quarter, we were able to deliver this 1.29x net debt/EBITDA, aided and abetted by CSN Mining, and we're very close to attaining our goal of a 1.0x net debt/EBITDA ratio.

With this, of course, we have had a reward when it comes to credit, the increase of our CSN ratings, and we're at an intermediate stage. We would like to get to an investment rating. We go on to Page 4. Speaking about the adjusted EBITDA, this is not an isolated measure. We have had 5 quarters of strong growth.

And if we look at this, we have 5 years of growth with a growth of almost -- compound growth of 40% a year.

This time, we delivered an EBITDA that is double what it was a quarter before, BRL5.8 billion, with a record EBITDA already last year, which was BRL4.7 billion and 23% with an exceptional performance for the Mining that grew more than other businesses, a growth of BRL48 million, contributing with BRL600 million only this quarter.

But of course, all companies contributed for us to reach this BRL5.8 billion. On Page 5, we speak about cash generation. We begin with financial indicators and begin with CapEx. There is a natural seasonality because of the maturity of projects and the approval of budget. Some investments do not reflect our expectation for the year.

It is BRL3 billion as set forth in the guidance. We're going to speed up especially in the second semester and deliver the disbursement that will take us to the guidance figures. In terms of net working capital, quite comfortable in this quarter.

Nominally, a slight drop because of the dividends of BRL900 million that we're going to pay out after the general assembly at the beginning of May. That is why we observed a drop. But in terms of operation, we have a recomposition of inventory offset by new terms for suppliers. So this does not show your full cash generation.

It was very strong, BRL3.5 billion. It was not a record because of seasonality, the income tax, social contribution based on the annual regime of Mining. And this is what normally happens at the end of the first quarter..

social practices, sustainable practices, governance, diversity and inclusion. And all of this made up by the high levels of management of the company. In terms of environmental protection and climate action, this quarter, we began the matrix of risks and climatic opportunities based on TCFD.

It is important to incorporate the risks, the risks that relate to climate. We began this task in the company this quarter. And of course, this is extremely important. We have to think about the risks we have in the company due to climate impacts. We have also contracted an artificial intelligence software that will help us.

It is called CO2 road map, and it will help us in our research, will enable us to create that curve of the marginal cost in terms of the new technologies that we're going to use to set CSN aside and so that we can begin establishing long-term goals that will be very aggressive and perhaps review the goals that we had set forth initially in terms of reduction of CO2.

And finally, in May, CSN as a group with a new matrix, we have reviewed the matrix we came up with last year. We have this with more than 1,000 people and stakeholders, both inside and outside the company. And we're going to verify this by third parties, and of course, this enables us to comply with Resolution 14 of the CVM.

And I would now like to return the floor to Marcelo..

Thank you, Helena. With this, we would like to end the presentation and go on to the question-and-answer session. Thank you..

. We have a question from Leonardo Correa from BTG Pactual..

My first question, for Benjamin. In the more strategic part, we look upon CSN in the last few years and the focus was one of deleveraging that I think has been very well addressed by the CMIN IPO and the expressive cash generation that the company has had and will have going forward besides other initiatives.

When we look at the company, perhaps it could get to 0.5x net debt/EBITDA. And this would, of course, place CSN at a level equivalent to peers, not only in Latin America but globally, and equivalent companies that have a very conservative balance. So this level has already been attained.

Now when we look upon CSN in the period 2005, 2010, a company with strong growth, seeking out new businesses. CSN today, approved last night, something that the market had been working on the IPO for Cement.

And CSN held the CMIN IPO, and CSN has all of its business units fully funded with a very good growth outlook that can capture on their own and grow.

Now the question that I would like to pose now, Benjamin, looking forward, are the opportunities in the field of infrastructure and with the world recovering from COVID and reopening -- you did speak about the resumption of business in the United States and Europe. My question, therefore, is a strategic one.

What is it that you're looking upon as new businesses of interest? Which are the fields that you would consider as good opportunities? I imagine that in your strategic map, this is something historical considering the background of the company. The second question is to Martinez. I will not refer to the details, Martinez.

You always point these out brilliantly, speak about price scenarios, demand and opening outlook. But my question is somewhat more generic. It refers to the implementation of the significant price increases, something unprecedented. I think we have never seen the prices going up more than 100% a year.

Of course, we understand the reasons underlying this, the exchange rate, international prices. It's not that CSN is practicing excessive prices. This is a global movement. There is a strong movement to increased prices. There is the exchange rate in international parameters.

But which is the acceptance of these price increases downstream? Do you feel that you have a margin squeeze? Have you had a pushback in these implementations? Or has all of this been accepted? And are you able to transfer these expressive price increases that are unprecedented?.

Martinez, if you could respond first..

A very timely question that you posed, and I will move away from my natural scripts, that is to speak about prices. But your question, of course, is highly pertinent. If we speak from the strategic viewpoint of the company, I have been in the company practically 20 years. I was able to serve the small waves, the large waves and observe business cycles.

And in fact, in the last 7 or 8 months, I never observed such strong movements as we see in terms of supply, demand, imports and costs. It truly is something, as mentioned by Benjamin, peculiar thing, China being serviced by the world and not otherwise of having China as an exporter.

Now first of all, what we're focusing upon in the market, and we have always spoken about added value and capacity.

As we move ahead in the value chain and get to the consumer, there is a natural difficulty of implementing increases, not in our case, but this when you work with the end consumer, and it is legitimate because in some products, the share of steel -- if we think of agricultural implements, and I think agricultural implements are the sector with the greatest amount of steel.

70% of steel are cars, incredibly enough, do not have such a high share of steel as they put in the price. So Benjamin also referred to our trade policy. What is it that I'm doing? What is it that I'm thinking? First of all, and more and more, and I had this experience in other sectors, the distribution price will come close to the price per industry.

If you look at my portfolio today with a strategic viewpoint, I have practically 70% of my shipments or my sales linked to the distribution sector, civil construction, part of the industry that are spot prices that do not follow contracts.

And the trend, therefore, is that ever more, CSN -- and I'm speaking positively, not negatively, we will work with spots and more attuned with what is happening in the market. This is not a trend. It's a fact. And I can dare to say that in the coming quarters, these sales will represent 80% out of contract.

And another very important point, something that we have closed up in the last days, was to alter the pricing system in some OEMs. And you will say, but to hamper to the client now. When you're negotiating a price situation, I sell steel and the client produces the final product. This has to be a symbiotic relationship. Otherwise, it will not work.

So there are 2 OEMs that are important, the white line and the automotive sector that are very important for CSN, especially the home appliances for our plant in Paraná. We have altered our policy. And we have contracts with very few clients. Instead of being yearly or 6 months contracts, they are quarterly contracts.

To give more color to what you asked, we had an increase for the assembly plants in January, spare parts, OEMs, the -- those who assemble home appliances. And we're also going to have a price correction in June. Now this has a positive and negative side, but we have a long-term relationship with the clients.

And of course, I cannot live without selling steel and they cannot manufacture their products without steel. Of course, there is a difficulty, a standstill, but we do have the right to be different from the rest of the world. Who would imagine that a BQ in the United States would call $1,200, and in China, according to the report, is now $920, $940.

This had happened in 2008. And to corroborate what was said by the Chairman, it's not an issue of scarcity or capacity. The industry here is highly prepared. If you base yourself on the year, we have BRL14 million a year, perhaps more. It's not a problem of capacity. What exists now and what was mentioned by Benjamin is that inventories are still low.

They will be recovered, recomposed. And from the viewpoint of prices, they're going to go up. There's no way out. Everything is moved by cost. And there are articles saying that the distributing sector is speculating. This does not exist. This is one of the most promising sectors in Brazil.

Everything that is limited, that is cut off goes through the distribution sector. It is a sector that adds value. And it is a sector that CSN holds in high value, high esteem. Therefore, everything is moved by cost, by the world movements. And despite all of this, we also have the increases in imports.

There are several trade-offs that I have mentioned here that we are living with very well. This change in the CSN trade policy is very important.

It allows us to say that we will have a list price for the entire market regardless of their being distributors or industry, and that this will be modulated by scale discounts, which is a practice that exists worldwide and that we are finally able to work with in Brazil for the good of the market and to redress the variations that are immense upwards and downwards.

I was somewhat long in my response, Leo, but I wanted to share this moment with you and what we are doing internally. If anybody needs this, we can speak about premiums and what I normally refer to more direct information..

deleveraging, ESG and technology..

The next question is from Daniel Sasson from Itaú BBA..

My question refers specifically to Cement and is geared to Martinez. We know that IPO is very close. If you could recall the outlooks in terms of volume, price results for the year.

And if you allow me, Martinez, with the news that you're leaving this in Brazil, do you think you will have any problem with CADE? I would be very thankful if you could share your outlook on this. A second question also for you, Martinez, about the steel mill. You mentioned that your second quarter has already been sold out.

What is happening in terms of the margins, the margins that were above 27% in the first quarter? What is it that you expect in terms of realized prices in the second quarter because of the increases in distribution? And refer to the costs, the increase of costs in raw materials, which will be the margin evolution in the steel mill?.

Daniel, this is Edvaldo. I'm going to respond to this before Martinez and respond to the questions on Cement. First, about the M&A, the exit of Lafarge from the Brazilian market. Now in terms of M&A and market consolidation, we're following up on this closely. And of course, there will be a market consolidation in Brazil.

In the last 5 or 6 years, the players in cement suffered a great deal, always working with margins that were close to 0 or even negative. Therefore, it's natural to have a market reconsolidation. And obviously, CSN is an important player and we are in the process of consolidation.

Now faced with that, we are thinking of the opportunities that we're going to go deeper and if they make sense for the company. So this movement of Lafarge with leaving Brazil, I think, this was something that was expected.

Now when it comes to the expansion plan, as was said by Benjamin, we have 2 different avenues for the growth of the Cement business. One is through M&As that we have just remarked on. We're looking for opportunities. And the other avenue is organic growth. In the last few years, while there was a drop in the market, we surveyed Brazil.

We carried out a deep analysis, looking for the most relevant regions, relevant markets in Brazil. And we also tried to acquire rights in those areas. So our organic expansion plan will go through diversifying CSN Cement geographically but in a very orderly way, and it will be one of the best markets here in our viewpoint.

So we have 5 projects that we're working strongly on. They're very robust projects.

One is a downfield project, specific growth in our steel unit with a growth of 30% of volume in that unit and four greenfield projects, Paraná project, the Sergipe project and other in Sera and one in Para that will depend on the market growth and the resources that we may obtain from the IPO. Therefore, we're working strongly on these projects.

We have a mineral reserve that is more than 100 or 200 years old that we're quite protected that way. We're carrying out the environmental research for a project in the northeast. We're working with the government so as to create a protocol of intentions for both parties so that we can implement these projects.

We already have some of the protocols signed. We also have the engineering part for the project. So we're moving forward. We also have equipment that was acquired some years ago. A large part of this equipment was manufactured, and they're now stored at the Port of Antwerp in Belgium, but we will be bringing them down to Brazil.

They should be here by July, and we will gear them to these different locations, therefore, very quickly. This is the plan, and this is what we're thinking of doing in the coming years. And thank you for your question..

Thank you, Edvaldo. Daniel, once again, thank you for the question. And I would like to complement what Edvaldo said. He spoke about all of the projects. I would simply like to underscore something that I have reiterated often.

Analysts speak about how this market will behave in Brazil, if it will continue to grow, if it depends on infrastructure, if it depends on the green and yellow CADE. The truth is that in the first quarter, this market grew 18.8%, a relevant figure that motivates us and thrusts us forward to look upon this market with a much more positive viewpoint.

If we carry out a historic series of this market since 1980, since the crisis, and later, I can detail this better for you. We did this in a roadshow that we carried out with investors and clients. But despite this up and down of cement, if we look at 1970, the growth was 8%. There was a drop.

And now if you look at this historical series, the growth was very positive at 7% to 8%. And this is important. Our drive for the IPO is to grow. It is not to pay off our debt. Our drive for the IPO is to set up a new plant, to think of M&A opportunities and to enhance our position in the market. Now we go back to what was said by Benjamin.

We have a single strategy, a unique strategy that considers the sale bag by bag of fragmented sale, looking at different regions. And this sets us aside in the market. Thanks again for the question about Lafarge and regarding the market. And I'll give you a short summary of what happened. The market projection for 2021.

Now the projection of CSN is that the Brazilian market should have a 10% growth, perhaps a little more differently from other projections that refer to 5% or 6%. The industry in general will grow 6% to 8%; the automotive segment, a modest growth of 15%; distribution, 8% to 10%. We still have the recomposition of stock, the part of the home appliances.

The white line, 8% growth; packaging, which is a sector where we have good representation, 9%. If you mix all of that and put it into our portfolio, I do believe that our sales, as mentioned by Marcelo, will be a high double digit for the year. This is relevant information that I wanted to share with you about the market.

Now some points of curiosity to give a greater foundation to what I say. If we think about a sector within contestable growth, the power of Brazil compared to other countries in agriculture. In agriculture, we have silos, agricultural machines, the drums for storage, agricultural implements. They have an intensive use of steel.

And as these markets -- we're going to continue on regardless of what happens in the world, at least during the second quarter and in the third quarter that are practically guaranteed. CSN has a very strong front of orders of 1,200,000 tons.

And as Marcelo also remarked, luckily, our units outside of Brazil -- Marcelo spoke about the United States, but if we think of Portugal, I would have never imagined that in Portugal, we would have BRL15 million EBITDA for the quarter. And I see no possibility of being different because sales there are at another level.

So the market component is important in terms of understanding what is happening. When it comes to prices, I don't know if you will recall. In the last call, I said that the carryover prices for the first quarter would be 25%. And I got it right. It's exactly that.

I imagine, Daniel, that in terms of modeling and depending on my new commercial policy, I should have a carryover of 22% to 28% in the second quarter. Quite expressive for the present day Brazilian market. So this is something that we are truly pursuing. Another fact, I don't know if you perceived it. But our cost has increased in the first quarter.

The increase was expressive vis-à-vis the fourth quarter '20. And despite this, we had a very high EBITDA margin with those costs. What is going to happen to costs? Of course, in the first quarter, we have the impact of the raw material, and we had a few variations in the cost of goods sold, and the cost was somewhat higher.

Going forward, what is going to happen? We buy coke. We pay $480, $500. And this will benefit our cost. This coke is now being negotiated at $409. It has reached $380. I don't think it will remain at that level, but it should increase in the second quarter. Now iron ore, we truly cannot say what will happen. And in coal, we're bought out.

We -- the value reached $140. Now it's down to $110. So if we think about margins, we're going to have a volume growth in the second quarter. We have $300 margins in the domestic market.

We think that in the second quarter, it will go up even more because the -- when you have a full capacity, we're maximizing the bottlenecks, the real per hour of a hot lamination. And so we're now prioritizing to undo the bottlenecks. And despite the limited capacity that we have at present, we're obtaining maximum potential for the company.

And the issue of premiums, and it's important to speak about them. This came out in CRU. It is underestimated. The BQ price in China is impressive. It has reached $920, $940. The premium at present is negative in 6% or 7%. And beginning on May 1, we have decided to implement a price increase that will go from 16% to 18%.

I think that the value chain will end up absorbing this price. It's a matter of cost. And of course, the more steel-intensive products will suffer more. But generally, this is not something that pertains only to CSN, pertains to the entire market. This is the scenario that I imagine for the second quarter.

And I dare to say that in another month, the third quarter will be guaranteed in terms of profitability, the placement of orders and results as a whole. Thank you once again for your question..

The next question in English comes from Carlos De Alba from Morgan Stanley..

The question is just with a very strong performance across the CSN businesses and the already strong balance sheet, what can we expect in terms of either more dividends, perhaps a more defined dividend policy linking those payments to shareholders to free cash flow or cash flow operations and sustaining CapEx or share buybacks? What are your thoughts there?.

Carlos, thank you for the question. We mentioned this. The capital allocation goes through the center of the company. Formerly, we were working on reducing debt. Now we're seeing what to do with cash allocation. We can invest for the business to grow.

We can invest to enhance the business or remunerate the shareholder in the short term through dividends and share buyback. Now all of this is very recent. Therefore, we still have not attained our deleveraging goals.

It's around the corner, of course, and we should do this in the second quarter, having a net debt/EBITDA below 1 and EBITDA below -- the debt below BRL15 billion. But until we do this, we're not going to change the CSN dividend policy. We paid minimum mandatory amount, 25% profit. What happens is these dividends will already increase significantly.

Only in the first quarter, we had more than BRL5 billion in profit. Only this will lead to dividends that are higher than those in 2020. We will have more disbursements in terms of the payout to shareholders. In CSN Mining, the dividend payout will be more generous, as discussed in the IPO, and a payout of 80% and 100%.

This for the short term and the medium term, as mentioned. We're going to try to make the most of the growth opportunities in M&As and investing in organic growth. But should these opportunities not appear in the short term, it would be natural to use this capital to pay out the shareholders through the dividend policy.

It's too early to say anything at this point..

The next question is from Caio Ribeiro from Crédit Suisse..

Most of the questions I had have been responded to. I would like to speak about the risks that you foresee today. We see a very favorable movement for Mining, for Steel.

But what comes to mind is a possible reduction in the import of steel or the steel cuts in China that have been mentioned by the Ministry and perhaps the taxation for the mining sector in Brazil. If you could speak about this, see if it is feasible that we will have changes this year.

And what will happen with the dynamics that we see for this year?.

Caio, this is Martinez. Regarding the reduction of the import tariffs, a very important thing is that the steel industry and specifically CSN have no problem in competing, none whatsoever. The level of operating excellence that a company such as CSN has is outstanding. Now the problem is that the worldwide business arena is not the same.

What we're looking for is competitive isonomy. I don't think it would be intelligent for the government to scrap the industry by increasing import tariffs. I do believe that this is a movement that has a trend as the government has said. But I think that CSN, particularly, will be able to be competitive.

And we also have a competitive industry, and this will enable us to reduce taxes and reduce tariffs as well. Another important thing what the government is saying is taking 10% of the 12% that we have at present, which would be 1.2% for the first year, which means this is correct from people who are looking at the equation, a competitive isonomy.

It's not something that is of concern at present. We are obviously concerned with the Brazilian industrial policy and the opportunities for exporting. Regarding the rebates in China, they're unbelievable. Throughout the last years, China was a net importer, became a net exporter.

And with this new rule in the government, what happened? In the last call, I said that the capacity of the Chinese industry was 94. They continue to work with a high level of capacity, a very high level. And it's not only obsolete capacity. In truth, they're modulating everything vis-à-vis what happens with the climate.

We no longer see those images of complete pollution. There are people in Hong Kong that are witnesses to what is happening. The fact that they changed the tariff is due to survival. China had a GDP growth of close to 20% in the first quarter. There is no country that can grow without cement or steel. It's very simple.

They're going to leave the steel in the domestic market. What was also not perceived is that there was a tariff for China to import semifinished products from other countries. This is over. In the next meeting, we're going to see a movement of steel plates coming from Brazil and from Russia going to China.

So this world balance of plates, the transoceanic plate market, it's transferred from one plant to the other. It's 12 million or 13 million. It's not that considerable. And this is another important point. Another point that could improve. I particularly believe that the prices in China are low.

They will be appreciated because of the restriction for exports. The scenario, therefore, is very positive in China. The scenario is highly positive in Europe. For a long time, we had not seen such a thriving automotive industry in Europe. And in the United States, no need to mention that United States is undergoing a spectacular virtuous cycle.

For the first time in history, the stock is at 0 practically. I will then ask Pedro to share with you an analysis of the inventories in the United States. And it's hard to go back. There's a natural industry inertia to recompose this and have accelerated growth. So very generally, this is the worldwide scenario. Now what could go wrong? Difficult to say.

I think that there is an excess of liquidity worldwide. It's not happening only in the world. It's also happening in Brazil. And the President has said several times, those that produce will be privileged. And Brazil is a country that has to produce. We have a great deal to do here, not only in the agricultural sector, industry, infrastructure.

We're still at an incipient stage. Infrastructure hasn't even begun. Imagine when we have the resumption of this sector in Brazil. Caio, the environment is very positive. It's the realist optimist speaking here. I'm being more optimistic than realistic at present. Thank you for your question..

The next question is in English from Alejandra Andrade from JPMorgan..

I just had a quick question on possible liability management. When we look at your pro forma debt profile, clearly, we can see there that the idea would be to refinance the '23 with a smaller bond, but I was wondering if you're possibly looking into other types of liability management across your entire debt structure..

Thank you, Alejandra, for the question. You're right. I'm going to confirm your interpretation. One of our initiatives would be to use our short-term bonds in 2023, lengthen it. The bond matured in 2018. It has a coupon of almost 8%. And the refinancing today would bring us a great deal of savings and possibly also a reduction of our gross debt.

We could reduce this and reduce our gross debt. Now in this phase of rating improvement, another liability management is the possibility of an issuance in the local market. Our rating begins to get to AA and goes beyond the local market.

And it would be interesting for issuance to finance investment and to finance our bank debt with longer terms and lower rates. So this is a front that we're going to seek out. And third, with a group of banks that are a minority in our balance at present, they're no longer interested in leaving.

They want to remain, and they're interested in lengthening the debt under interesting conditions. These are the 3 fronts that we will tackle, therefore, Alejandra..

The next question is from Isabella Vasconcelos from Bradesco BBI..

I think that all of the topics have been approached here. Martinez, if we could have estimates on the restocking cycle in Brazil for steel and the finished products. I think that this will move forward perhaps.

Or will it not move forward until the end of the year?.

Thanks for the question. I could state today that the situation of the Brazilian market is full supply. What we have is a lag in some value chains linked to the sudden growth that we had in a very short interval. Simply to give you an idea in distribution at present, we had inventories of 1.5, 1.6 months of inventory. At present, it is at 2.3.

In another 2 or 3 months, we will get back to the level of 3 months, which is what is acceptable for the market in the automotive sector, a very important sector. The car inventory at present is of 13 days. And in truth, the market would like to have 30 or 40 days. And steel is not the villain here.

There are other products that are missing such as semiconductors and other primary products.

A very important fact, and I'd like to speak about facts, PSP presents a very well drafted report every month of all sectors of economy, and steel is the sector with the best supply in the market compared to paper, glass and other sectors linked to commodities.

I can say very calmly that Brazil and CSN are prepared to once again capture this growth that should be even stronger in the second quarter..

As we have no further questions, we will return the floor to Marcelo Ribeiro, the Executive Investor Officer, for the closing remarks..

I would simply like to thank all of you. It's been 1.5 hours that we have been conversing. We hope to see you in the next call. Thank you very much..

The conference call for the CSN results, and here, we would like to thank all of you for your participation. Have a good afternoon..