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São Paulo, December 22, 2017

2Q17 Earnings Release

Companhia Siderúrgica Nacional (CSN) (B3 S.A. – BOLSA BRASIL BALCÃO: CSNA3) (NYSE: SID) discloses results for the first quarter of 2017 (1Q17). The information disclosed in Brazilian Reais and prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB); and also in accordance with accounting practices adopted in Brazil and fully convergent with international accounting standards, issued by the Accounting Pronouncements Committee (CPC) and referenced by the Brazilian Securities and Exchange Commission (CVM), pursuant to CVM Instruction 485 of 09/01/2010. The below text encompasses the Company's consolidated results for the second quarter of 2017 (2Q17) and comparisons are for the first quarter of 2017 (1Q17) and for the second quarter of 2016 (2Q16) without Metallic, unless otherwise specified. The Real/U.S. Dollar exchange rate was R$3.3076 on June 30, 2017 and R$3.1684 on March 31, 2017.

 

Operating and Financial Highlights

 

·         EBITDA totaled R$896 million, 5% up on 2Q16, accompanied by an EBITDA margin of 20%.

·         Iron ore sales reached 7,8 million tonnes, 8% higher than in 1Q17.

·         In 2Q17, CSN’s domestic steel sales came to 652,000 tonnes, 6% higher than in 1Q17.

·         The net debt/EBITDA ratio closed 2Q17 at 5.7x, following a downward path.

Highlights	2Q16	1Q17	2Q17	Change
				2Q17 x 1Q17	2Q17 x 2Q16
Steel Sales (thousand t)	1,251	1,194	1,174	-2%	-6%
- Domestic Market	53%	52%	56%	4%	-4%
- Overseas Subsidiaries	40%	41%	39%	-2%	1%
- Exports	7%	7%	5%	-2%	3%
Iron Ore Sales (thousand t)1	9,267	7,244	7,818	8%	-16%
- Domestic Market	7%	19%	17%	-2%	10%
- Exports	93%	81%	83%	2%	10%
Consolidated Results (R$ Million)
Net Revenue	4,164	4,412	4,311	-2%	4%
Gross Profit	924	1,318	985	-25%	7%
Adjusted EBITDA	855	1,333	896	-33%	5%
Adjusted Net Debt	25,873	25,477	26,754	5%	3%
Adjusted Cash Position	5,678	5,146	4,545	-12%	-20%
Net Debt / Adjusted EBITDA	8.3x	5.5x	5.7x	0.2x	(2.6x)

¹Adjusted EBITDA is calculated based on net income/loss, plus depreciation and amortization, income tax, net financial result, results from investees and other operating revenue (expenses), and includes the proportionate share of EBITDA of the jointly-owned subsidiaries MRS Logística and CBSI. It has also included the Company’s stakes of 100% in Congonhas Minérios, 37.27% in MRS and 50% in CBSI as of December 2015.

²Adjusted Net Debt and Adjusted Cash Position include the stakes of 100% in Congonhas Minérios, 37.27% in MRS and 50% in CBS excluding Forfaiting and drawee risk operations.

CSN’s Consolidated Results

• Net revenue totaled R$4,311 million in 2Q17, in line with the steel product sales volume compared with the immediately previous quarter and the slight upturn in shipped volume in the mining segment, but negatively affected by decrease iron prices compared with the previous quarter.

  

 

 

 

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·         COGS came to R$3,326 million in 2Q17, 8% higher than in the previous quarter.

 

·         Gross profit totaled R$985 million, 25% down on 1Q17, while the gross margin reached 22.8%, slight fall in net revenue and 8% higher COGS compared with the previous quarter.

 

·         Selling, general and administrative expenses amounted to R$592 million in 2Q17, 21% higher than in 1Q17, especially due to the higher share of iron ore CIF sales in the mix.

 

·         Other operating income (expenses) was a net expense of R$99 million in 2Q17, exactly in line with the previous quarter.

 

·         In 2Q17, the net financial result was negative by R$829 million, as a result of financial expenses of R$912 million. the financial expenses were reduced by the financial revenue of R$84 million, the exchange rate variation was negatively affected in 2Q17.

Financial Result (R$ Million)	2Q16	1Q17	2Q17
Financial Result - IFRS	(190)	(497)	(829)
Financial Revenues	141	103	84
Financial Expenses	(331)	(601)	(912)
Financial Expenses (ex-exchange rates variation)	(826)	(787)	(683)
Result with Exchange Rate Variation	495	186	(229)
Monetary and Exchange Rate Variation	1,202	308	(461)
Hedge Accounting	(588)	(135)	227
Notional Amount of Derivatives Contracted	(119)	13	5
Others	-	-	-

• CSN’s equity result was a positive R$40 million in 2Q17, versus R$20 million in 1Q17. This result was chiefly due to the improved performance of MRS.

• CSN recorded a second-quarter net loss of R$640 million, versus net income of R$118 million in 1Q17.

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• Adjusted EBITDA amounted to R$896 million in 2Q17, accompanied by an adjusted EBITDA margin of 20.8%, in line with 2Q16.

 

¹The adjusted EBITDA margin is calculated as the ratio between adjusted EBITDA and adjusted net revenue, considering the stakes of 100% in Congonhas Minérios, 37.27% in MRS and 50% in CBSI.

Debt

On June 30, 2017, consolidated net debt totaled R$26,754 million, while the net debt/EBITDA ratio, calculated based on LTM adjusted EBITDA, stood at 5.7x.

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Foreign Exchange Exposure

The net FX exposure of our consolidated balance sheet excluding Perpetual Bond on June 30, 2017 was US$689 million, as shown in the table below.

The hedge accounting adopted by CSN correlates projected export inflows in dollars with part of the scheduled debt payments in the same currency. Therefore, the exchange variation of the dollar-denominated debt is temporarily booked under shareholders’ equity, being recorded in the income statement when dollar revenues from exports are received.

 

Capex

CSN invested R$239 million in 2Q17.

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Capex (R$ million)	2Q16	1Q17	2Q17
Steel	132	92	102
Mining	61	59	106
Cement	261	24	20
Logistics	13	13	11
Other	0	0	0
Total Capex - IFRS	467	188	239

 Working Capital

 

As a result, working capital invested in the Company’s business totaled R$3,597 million in 2Q17, R$566 million more than in 1Q17, chiefly due increase in accounts receivable and inventories.

 

To calculate working capital, CSN adjusts its assets and liabilities as demonstrated below:              

·         Accounts Receivable: Excludes Dividends Receivable, Advances to Employees and Other Credits.;

·         Inventories: Includes Estimated Losses and excludes Spare Parts, which are not part of the cash conversion cycle, and will be booked in Fixed Assets when consumed;

·         Recoverable Taxes: Composed only by the Income (IRPJ) and Social Contribution (CSLL) Taxes amount included in Recoverable Taxes;

·         Taxes Payable: Composed by the Current Liabilities account Taxes Payable plus Taxes in Installments;

·         Advance from Clients: Subaccount of Other Liabilities recorded in Current Liabilities;

·         Suppliers: Includes Forfaiting and Drawee Risk.

Working Capital (R$ Million)	2Q16	1Q17	2Q17	Change
				2Q17 x 1Q17	2Q17 x 2Q16
Assets	4,874	5,526	6,252	725	1,378
Accounts Receivable	1,579	1,849	2,300	450	721
Inventories Turnover	3,108	3,562	3,744	182	636
Advances to Taxes	186	115	207	92	21
Liabilities	2,074	2,495	2,655	160	581
Suppliers	1,345	1,934	2,078	144	733
Salaries and Social Contribution	260	252	294	43	34
Taxes Payable	418	190	183	-6	-235
Advances from Clients	51	119	100	-19	49
Working Capital	2,799	3,031	3,597	566	798
Turnover Ratio (days)	2Q16	1Q17	2Q17	Change
				2Q17 x 1Q17	2Q17 x 2Q16
Receivables	31	33	41	8	10
Supplier Payment	39	56	59	3	20
Investory Turnover	90	104	106	2	16
Cash Conversion Cycle	82	81	88	7	6

Results by Segment

The Company maintains integrated operations in five business segments: Steel, Mining, Logistics, Cement and Energy.

The main assets and/or companies comprising each segment are presented below:

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Automotive

According to ANFAVEA (the Auto Manufacturers’ Association), vehicle production totaled 1.3 million units in 1H17, 23.3% up on 1H16. In the same period, new light car, commercial vehicle, truck and bus licensing increased by 8.0% to 913,000 units.

Construction

According to ABRAMAT (the Construction Material Manufacturers’ Association), sales of building materials fell by 7.1% between 1H16 and 1H17.

Home Appliances

According to IBGE (the Brazilian Institute of Geography and Statistics), home appliance production in the year through June fell by 1.8% over the same period last year.

Results from CSN’s Steel Operation

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Mining

After the price surge that enabled less competitive producers to return to the market, iron ore prices fell substantially following increased supply and port inventories. In addition, the monetary tightening by the Chinese government restricted steelmakers’ access to credit, also contributing to the slowdown in Chinese exports. Given this scenario, the commodity’s price averaged US$62.90/dmt (Platts, Fe62%, N. China) in 2Q17, 27% down on the previous quarter.

In 2Q17, seaborne freight charges were impacted by increased transoceanic cargo volume, which in turn pushed up vessel rental costs. Maritime freight costs on Route CI-C3 (Tubarão-Qingdao) averaged US$13.56/t in 2Q17, 4% up on 1Q17.

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Results from CSN’s Mining Operations

• In 2Q17, iron ore production totaled 7,9 million tonnes, in line with 1Q17.
• Iron ore sales reached 7,8 million tonnes in 2Q17, 8% up on 1Q17, in the quarter, 1.3 million tonnes from CSN
  Mineração were sold to CSN’s Presidente Vargas Plant.

• Net revenue from mining operations totaled R$1,067 million, 9% lower than in 1Q17. CFR+FOB unit revenue stood at US$49,5/t in 2Q17, 20% less than in the previous quarter, while the iron ore price index (Platts, 62% Fe, N. China) also fell by 27% in the same period.
• Mining COGS came to R$742 million in 2Q17, 17% lower than in 1Q17.
• Adjusted EBITDA totaled R$408 million in 2Q17, 34% down on 1Q17, with an adjusted EBITDA margin of 38.2%, 14.6p.p. lower than in 1Q17.

The table above shows the breakdown of CSN's price of modality, CFR+FOB, by quarter, as of 4Q16.

Logistics

Railway Logistics: Net revenue stood at R$364 million in 2Q17, generating EBITDA of R$163 million, accompanied by an

EBITDA margin of 45%.

Port Logistics: Sepetiba Tecon handled 39,000 containers, in addition to 212,000 tonnes of steel products and 1,000 tonnes of general cargo in 2Q17. Net revenue totaled R$52 million, generating EBITDA of R$12 million, accompanied by an EBITDA margin of 23%.

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Sepetiba TECON Highlights	2Q16	1Q17	2Q17	Change
				2Q17 x 1Q17	2Q17 x 2Q16
Containers Volume (thousand units)	32	30	39	29%	23%
Steel Products Volume (thousand t)	197	275	212	-23%	8%
General Cargo Volume (thousand t)	1	5	1	-89%	-4%

Cement

According to IBGE’s Monthly Survey of Industry (PIM-PF), Brazil’s cement production increased by 2.1% in the first six months of 2017.

Preliminary figures from SNIC (the Cement Industry Association) indicate domestic cement sales of 26 million tonnes in the first half of 2017, 8.8% less than in the same period the year before. For 2017 as a whole, SNIC estimates an annual decline of 5% to 9% in sales.

Results from CSN’s Cement Operations

In 2Q17, cement sales totaled 831,000 tonnes, 1% up on 1Q17, while net revenue amounted to R$114 million.

Cement Highlights (thousand t)	2Q16	1Q17	2Q17	Change
				2Q17 x 1Q17	2Q17 x 2Q16
Total Production	606	817	841	3%	39%
Total Sales	594	821	831	1%	40%

 

Energy

According to the Energy Research Company (EPE), Brazilian electricity consumption totaled 233 GWh in the first six months of 2017, 0.4% more than in the same period last year. Consumption in the industrial segment remained flat in the period, edging up by a mere 0.1%, while residential consumption climbed by 1.2% and consumption in the commercial segment fell by 0.7%.

Results from CSN’s Energy Operations

In 2Q17, net revenue from energy operations totaled R$111 million, EBITDA stood at R$39 million and the EBITDA margin was 35%.

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Capital Market

CSN’s shares depreciated by 20% in 2Q17, while the IBOVESPA dropped by 4% in the same period. Daily traded volume on the B3 S.A. – BOLSA BRASIL BALCÃO averaged R$67.9 million. On the New York Stock Exchange (NYSE), CSN’s American Depositary Receipts (ADRs) fell by 25%, versus the Dow Jones’ 3% appreciation. On the NYSE, daily traded volume of CSN’s ADRs averaged US$5.1 million.

 

 

 

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INCOME STATEMENT
CONSOLIDATED – Corporate Law (In thousand of R$)
	2Q16	1Q17	2Q17
Net Revenues	4,163,827	4,411,596	4,310,609
Domestic Market	1,768,985	1,989,552	1,962,864
Foreign Market	2,394,842	2,422,044	2,347,745
Cost of Goods Sold (COGS)	(3,239,694)	(3,093,474)	(3,325,893)
COGS, excluding depreciation	(2,942,345)	(2,711,868)	(2,977,952)
Depreciation allocated to COGS	(297,349)	(381,606)	(347,941)
Gross Profit	924,133	1,318,122	984,716
Gross Margin (%)	22%	30%	23%
Selling expenses	(390,976)	(367,575)	(477,063)
General and administrative expenses	(100,767)	(112,398)	(106,801)
Depreciation allocated to SG&A	(5,690)	(8,278)	(7,829)
Other operation income (expense), net	(178,921)	(99,189)	(99,025)
Share of profits (losses) of investees	16,732	21,105	39,393
Operational Income before Financial Results	264,511	751,787	333,391
Net Financial Results	(189,840)	(497,224)	(828,619)
Income before social contribution and income taxes	74,671	254,563	(495,228)
Income Tax and Social Contribution	(28,413)	(136,948)	(144,728)
Continued operations, net	46,258	117,615	(639,956)
Discontinued Operations, Net	(135)	-
Profit/(Loss) for the period	46,123	117,615	(639,956)

 

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This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.

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