Companhia Siderúrgica Nacional S A : 3Q22 Conference Call Transcription*

Conference Call Transcript

3Q22 Results

CSN (CSNA3 BZ)

November 1, 2022

Operator:

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to CSN's conference call to present results for the 3Q22. 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's presentation. Ensuing this, there will be a question-and-answer session, at which time further instructions will be given. Should any participant require assistance during the call, please press *0 to reach the operator.

We have a simultaneous webcast that may be accessed through CSN's Investor Relations website ri.csn.com.br/english, where the presentation is also available. The replay service will be available soon after the closing for a period of one week. You can flip through the slides at your own convenience.

Before proceeding, we would like to clarify that some of the statements herein are mere expectations or trends and are based on current assumptions and opinions of the Company management. Future results, performance and events may differ materially from those expressed herein as they do not constitute projection. In fact, actual results, performance and 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 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 at a global, regional or national basis.

I would now turn the conference over to Mr. Marcelo Cunha Ribeiro, CFO and Investor Relations Executive Officer, who will present the Company's operating and financial highlights for the period. Mr. Ribeiro, you may proceed.

Marcelo Cunha Ribeiro:

Good morning, and thank you all for participating in our results call for the 3Q, our quarter highlights.

First of all, I would like to mention that this was a pretty turbulent period due to the change of prices in commodities, especially in the international market, iron ore, the impacts of the Chinese economy that is going into a slowdown, impacted by the global market factors and the prices of steel and mining at domestic level.

We did our part in this very complicated period. We obtained a good operational result, a growth in volumes and a reduction in the cost of production of our main business. It shows that we are quite resilient in our figures.

Secondly, we were able to conclude our strategy that transforms the cement business, integrating the plants and assets of LafargeHolcim, now called CSN Cimentos Brasil. It has been consolidated in our figures during September. The good news is that we have a company with ever stronger results and more promising synergies.

In the third place, and as a subsequent event, we were able to conclude 2 acquisitions that will also transform CSN in terms of energy. We concluded the acquisition of

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Conference Call Transcript

3Q22 Results

CSN (CSNA3 BZ)

November 1, 2022

Quebra-Queixo, and ensuing this, the inclusion of control of CEEE-G. And this is a step of the Group towards renewable and competitive self-energy, but also poses a low risk and is an excellent segment. These are the highlights for the period.

We go on to page 3 with our consolidated operating and financial indicators. A normalization of our profitability based on a change of all of that exuberance that you observed in prices and commodities at the beginning of the pandemic. This allows us to have representative margins in all segments.

This quarter, we had an evolution with a drop of EBITDA of 16% because of the steel sector, where there was a compression of margins in the quarter, and the prices in the international market dropped and sequential increase of prices. The good news is that now the prices and the raw material costs are going down.

But we do have a negative variation in the period. In mining, stability, marked with a growth in production volumes, lower costs offset with a lower price for iron ore.

In cement, a strong performance and the consolidation of the CSN Brasil for the first month. We have 24% margin for the quarter.

We continue on. We see the cash generation. We begin with investments that showed a stable performance at R$839 million. We have already communicated to the market this. We are being very careful with our reimbursements because of a more term loan (06:27)market and because of the increase in prices and cash generation.

We took the decision to prioritize our initiatives, and this is being reflected in our expectations for investment in the year 2022. Initially it was to be R$4 billion. We are now at R$3 billion, which is in accordance with the moment that we live in. And because of the delay in our main expansion project we pick in due to a delay in the manufacture of equipment, which is somewhat complex in terms of the delivery.

The outlook for the CAPEX for the 4Q will drop following that guidance of R$3 billion in working capital, a significant evolution. This is one of our essential leverages in our search for cash generation. We have had good news in several fronts, stocks that are dropping, drop in the price of raw material and the length in the term we have suppliers boosting and aiding our networking capital with an impact of almost R$3 billion.

On the following page you see the adjusted cash flow where we show you a favorable comparison vis-à-vis previous quarters. In previous quarters we were impacted by the working capital because of the high costs in raw material with a negative impact in cash generation. And presently, you see a strong cash flow, a very timely one, offsetting the investment in the period, taxes with a cash generation of R$3.2 million.

What is essential when we look at the next page is to look at our leverage under control. Of course, the leverage has increased as we have a normalization of EBITDA. It goes from the last year to values of 1x, now getting to 1.7x. But of course, this is the result of a very strong movement that we had this quarter, the confusion of the LafargeHolcim operation that should have reduced our indebtedness as we had a reimbursement of R$4.8 million, net debt increases, R$3 million, goes up to R$24 million and leverage stands at 1.7x.

What is relevant is that we are changing our leverage guidance for the medium term, and medium term means the end of the year 2022 and the beginning of 2023, to a level

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Conference Call Transcript

3Q22 Results

CSN (CSNA3 BZ)

November 1, 2022

between 1.75x and 1.95x net debt, above the levels that we desire, which are 1x. But we recognize an increase in the price of commodities and capital allocation made recently.

The outlook is to have a lower price of commodities in 2023. And with this adjustment, we will maintain a sufficiently strong cash generation, avoiding the leverage to go above these levels.

On page 7, our liquidity, which is based on our policy, of course, R$15 billion in cash this quarter. And this is the amount we reached this with a series of initiatives and the management of our liabilities, R$1.4 billion for mining, of infrastructure, debenture and the institutional CSN debenture carried out in the month of October.

With this we were not only able to obtain this amount, but lengthen our liabilities with a short-term debt coverage of more than 6 years and a very strong balance to face up to this moment of uncertainty and the investments foreseen for the coming year. This is a very strong metric that deserve the continuity of our upgrades in terms of credit ratings. We have a BB at present, and we expect a BB+ very soon. And of course, this is a structural search, this investment grade for us.

I will speak about the performance of each separate business, beginning with steel. We had a strong performance in terms of volumes in the domestic market. We had stability. CSN was able to grow almost 20% using the distribution channels and its strength in segments, and continues to grow in civil construction, which has been quite resilient.

This offset other segments where the growth is lower, for example, the automotive segment and the white line. We have the typical seasonality of the summer in Europe, but we are on a very strong path of profitability, especially in terms of profitability in Germany, where we have excellent prices and favorable costs because of energy hedges and low raw material costs. This has given us stability during the period.

In terms of revenue, despite the growth of volumes, we had international prices that were adjusted dropping approximately 9%. In the case of EBITDA that compression of margin caused by the prices and also because of very expensive raw material in purchases during the second semester coke and coal reducing the margin in the period to R$1.21 billion, R$3 billion with an EBITDA margin of 16%.

In the next page, we see that this cross increase was a timely thing. In production, we have good news. There has been a drop of 6%, R$4,100 slab. And when we compare the cost of September with the average of the period, there is a subsequent drop. The cost in September was 8% lower than the average for the quarter, showing us a clear direction through the 4Q.

Costs will continue to be reduced significantly because of the raw material and because of the operational enhancement. This quarter we had more than 1 million tonnes of slab and this helps us to reduce our fixed costs. We had R$1,100, US$105 of EBITDA per tonne between the peaks, of course, that we saw in the pandemic, but with interesting profitability above our historic average, and this is how we will continue in the coming quarters.

Speaking about mining, as in steel, we had an important moment in terms of production volumes and sales vis-à-vis the weaker quarters in the past, impacted by operational

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Conference Call Transcript

3Q22 Results

CSN (CSNA3 BZ)

November 1, 2022

restrictions because of the heavy rainfall and the contention of the use of water at the plant. These problems were reduced during the 3Q gradually.

We are still at the maximum limited production that we will reach in the 4Q with all of the projects coming into operation. We still have some enhancements to do. This is the good news, but we did achieve this important evolution, but we had a significant drop in prices. Stability in the revenues, this positive evolution of 20% in sales, offset by greater drop in prices and offset by good news in quality and the cost of freight, and that is why there is a drop of only 3% in EBITDA.

The margin without a significant drop because the costs were very good. We had an important evolution, an increase in production volumes and better costs in the movement of our freight. So we are at the best level of the year of US$19 with a neutral EBITDA vis-à-vis the 2Q.

On page 13, a perhaps better comparison, eliminating the effects of that reversion of provisions of cargoes sold at provisional prices. Orange and Orange, this quarter our EBITDA grows because of enhancements in all of the lines, better volume, a better quality mix, better purchases, reduced freight and lower costs, offset by the negative evolution of the Platts index with a drop of 15%. We get to an EBITDA of R$960 million.

Our breakeven of iron ore delivered in China is competitive. And despite the lower slab prices, that will not persist below US$80. We are making margins that are higher than US$20 per tonne. We have interesting margins presently.

Regarding the next segment, which is cement, we had a very special quarter with a change in level in terms of volumes because of the consolidation of the 10 plants of LafargeHolcim in Brazil, now called CSN Cimentos Brasil.

Compared to our historic average, we have grown 650,000 tonnes a month and a growth of 50% that we had between 1 quarter and the other. Now because of this consolidation, the business did very well. Prices were recovering their increases based on inflation, volumes, quite strong, reflecting a very resilient construction segment. And without the consolidation of LafargeHolcim, our results were increasing.

We also have the consolidation of our PCHs that were acquired to offer us sufficiency and to work with the cement business. With this our margin was increasing.

We had the consolidation of this additional production. And with this, our EBITDA went from R$160 million to R$260 million. What the levels are still not what we expect this will become formalized in the 4Q, but it shows us the potential that the cement business has.

In the past, it was 1% to 2%. It will have a more relevant share in the 4Q and with the acquisition of LafargeHolcim Brasil.

To conclude, our energy business, at the end of the 3Q, we had the closing of the acquisitions that will transform our energy business. Quebra-Queixo, R$427 million, funded by anticipation, a very efficient way of funding energy assets. And it will bring about a competitiveness in production of iron ore, will benefit production. It will transform us into a player in the energy sector, not only in our search for self- sufficiency, but will also enable us to sell some of this energy. We have already begun

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Conference Call Transcript

3Q22 Results

CSN (CSNA3 BZ)

November 1, 2022

to operate this business, and we are quite enthusiastic with the opportunities that we are finding.

With this, I would like to give the floor to Helena Guerra, who will speak about our ESG performance for the quarter.

Helena Guerra:

Good morning, everybody. Here we are again to present results for the 3Q. The full material is being presented and it's geared towards offering you a very transparent vision of ESG in the Company.

In the last quarter for the 8 consecutive year, we received an award because this is the highest level of qualification of our inventory. During this period because of a better understanding of our actions, we were able to improve our performance and the rating went up to 55 points where the average of the world is 20 points.

And we also began our study on climate changes. We are analyzing our processes to detect some opportunities. Now this construction of scenario is based on the best market practices and they will enable us to make more assertive decision when it comes to climate changes.

To continue speaking about climate and our emissions for the quarter, the accrued results for the 9 months of the year, point to adherence to the plan set for each segment, improvements in the production of steel and a slight increase in the level of emissions in the production of iron ore. And of course, we do have great expectations in terms of our performance and the implementation of projects that have been set forth.

We spoke about renewable energy, of course, when it comes to speaking about climate changes. And this is so important for the Company. It is through the Company's strategy that we will be able to stand out and also work with new innovation projects. We will have clean energy that can be scaled up in several of our new developments.

Speaking about our dam management, we are continuing the de-characterization works on the Vigia dam. We have completed the structural building, and officially, it is being acknowledged as being de-characterized, and then there is nothing reported in terms of our licenses.

We have had a significant evolution in operational terms. Quarter-on-quarter, we speak about our security, which is also under evolution. We have reduced the number of accidents, the problem of the third party. All these presenting the best result in our historical series.

This quarter, we reached the best figure, and we ended the quarter with 0 fatalities. And in terms of social and diversity, of course, we are under constant evolution. We have increased the representation of women in leadership positions. In 9 months, we had significant advances compared to 2021.

Daniel Sasson, Itaú BBA:

Good morning. Thank you for taking my question. Marcelo, if you could remark on CAPEX, the reduction in your guidance, if this is coming from something that will

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