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COMPANHIA SIDERÚRGICA NACIONAL
Publicly-Held Company
Corporate Taxpayer’s ID (CNPJ/MF): 33.042.730/0001-04
Company Registry (NIRE): 35-3.0039609.0

MATERIAL FACT

Companhia Siderúrgica Nacional (BOVESPA: CSNA3; NYSE: SID) (“Company”), pursuant to the Material Fact and the Notice to the Market disclosed on March 27, 2017 and May 24, 2017, respectively, hereby informs its shareholders and the market in general that it has disclosed its audited financial statements for the fiscal year ended December 31, 2016 and that it has voluntarily restated the financial statements for the fiscal year ended December 31, 2015.

In addition, as stated in the Material Facts disclosed on May 15, 2017 and August 15, 2017, the conclusion of the above-mentioned works impacted the opening balances of the 2017 financial statements, which is why the Company has not disclosed the quarterly information for 2017 by the regulatory deadlines. As a result, considering the duty to inform and acting with diligence and transparency, the Company has decided to disclose to the market the preliminary unaudited results for the first, second and third quarters of 2017, which are, therefore, subject to independent auditors’ review, pursuant to the applicable legislation.

Said preliminary unaudited information related to fiscal year 2017 is attached to this material fact.

For further information, please contact the Company’s Investor Relations Department at (11) 3049-7585 or at invrel@csn.com.br.

São Paulo, October 30, 2017.

DAVID MOISE SALAMA
INVESTOR RELATIONS OFFICER

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1Q17 Earnings Release

Unaudited

 

Companhia Siderúrgica Nacional (CSN) (BM & FBOVESPA: CSNA3) (NYSE: SID) exceptionally discloses its preliminary and unaudited results for the first quarter of 2017 (1Q17) and is therefore subject to adjustments and modifications by independent auditors review. 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 first quarter of 2017 (1Q17) and comparisons are for the fourth quarter of 2016 (4Q16) and for the first quarter of 2016 (1Q16) without Metallic, unless otherwise specified. The Real/U.S. Dollar exchange rate was R$3.1684 on March 31, 2017 and R$3.2591 on December 31, 2016.

 

 

The financial information contained herein for the first quarter of 2017 is preliminary and unaudited, and is therefore subject to adjustments and modifications as a result of an independent auditors' review.

 

Operating and Financial Highlights

 

·         EBITDA totaled R$1,333 million, 82% up on 1Q16, accompanied by an EBITDA margin of 28,7%, 11 p.p. higher than in the previous year.

·         Leverage declined by 3.2x, from 8.7x on 1Q16 to 5.5x on 1Q17.

·         Steel EBITDA came to R$610 million, 12% higher on 4Q16, while apparent steel consumption climbed 5.0% according to the Brazilian Steel Institute (IABr).

·         Mining EBITDA reached R$620 million, 21% higher than in 4Q16.

 

 

 

¹ Adjusted EBITDA is calculated based on net income/loss, before depreciation and amortization, income taxes, the net financial result, results from investees, and other operating income (expenses) and includes the proportional share of the EBITDA of the jointly-owned investees MRS Logística and CBSI, as well as the Company’s 60% interest in Namisa, 33.27% in MRS and 50% in CBSI until November 2015 and stakes of 100% in Congonhas Minérios, 37.27% in MRS and 50% in CBSI as of December 2015.

 

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² Adjusted Net Debt and Adjusted Cash and Cash Equivalents included 33.27% of the stake in MRS, 60% of the interest in Namisa and 50% of the stake in CBSI until November 2015. As of December 2015, they included 100% of Congonhas Minérios, 32.27% of MRS and 50% of CBSI, excluding Forfaiting and drawee risk operations.

 

 

 

CSN’s Consolidated Results

 

·         Net revenue totaled R$4,412 million in 1Q17, 2% down on 4Q16, due to lower sold volume in the mining segment and despite the price increases and the slight upturn in steel product sales volume compared with the previous quarter.

 

·         COGS came to R$3,093 million in 1Q17, 2% lower than in the previous quarter.

 

·         Gross profit totaled R$1,318 million, 2% down on 4Q16. The gross margin stood at 29.9%, in line with the previous quarter.

 

·         Selling, general and administrative expenses amounted to R$488 million in 1Q17, 17% less than in 4Q16.

 

·         Other operating income (expenses) was an expense of R$99 million in 1Q17, versus negative R$114 million in 4Q16.

 

·         In 1Q17, the net financial result was negative by R$497 million, as a result of financial expenses of R$601 million, which has been partially offset by financial revenue of R$103 million. 

 

 

·         CSN’s equity result was a positive R$21 million in 1Q17, versus a negative R$24 million in 4Q16. This result was chiefly due to the performance of TLSA.

 

 

·          CSN recorded a first-quarter net income of R$118 million, versus loss income of R$56 million in 4Q16. The result in 1Q17 is for the better performance of the financial result, which recorded R$ 497 million, and R$ 677 million in 4Q16, 27% down on the last quarter of 2016.

 

 

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¹The Company discloses adjusted EBITDA excluding interests in investments and other operating income (expenses) in the belief that these items should not be considered when calculating recurring operating cash flow.

 

·         Adjusted EBITDA amounted to R$1,333 million in 1Q17, versus R$1,249 million in the previous quarter, accompanied by an adjusted EBITDA margin of 29%, 2.4 p.p. up.

 

 

 

¹The adjusted EBITDA margin is calculated as the ratio between adjusted EBITDA and adjusted net revenue, which considered the stakes of 100% in CSN Mineração, 37.27% in MRS and 50% in CBSI.

 

Debt

 

The adjusted amounts of EBITDA, debt and cash included the stakes of 100% in CSN Mineração, 37.27% in MRS and 50% in CBSI as of December 2015, as well as financial investments used as collateral for exchange operations on the BM&FBovespa. On March 31, 2017, consolidated net debt totaled R$25,477 million, while the net debt/EBITDA ratio, calculated based on LTM adjusted EBITDA, stood at 5.5x.

 

 

 

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Foreign Exchange Exposure

 

The FX exposure of our consolidated balance sheet on March 31, 2017 was US$ 603 million, ex bond 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.

 

 

 

 

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Capex

 

CSN invested R$189 million in 1Q17, 58% less of 4Q16.

 

 

 

Working Capital

 

The working capital invested in the Company’s business totaled R$3.031 million in 1Q17, R$161 million more than in 4Q16, chiefly due to the R$171 million increase in inventories. On a same comparison basis, the average receivable period down on 2 days, while payment periods and inventory turnover increased by 5 days and 10 days, respectively.

 

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 (Note 13 to the Quarterly Information - ITR).

 

 

 

 

 

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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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Adjusted EBITDA by Segment – 1Q17 (R$ million)

 

 

 

 

 

Steel

According to the World Steel Association (WSA), global crude steel production totaled 410 billion tonnes in the first quarter of 2017, 5.7% more than in 1Q16. According to the Brazilian Steel Institute (IABr), domestic crude steel production came to 8.2 million tonnes, 10.9% up. Domestic flat rolled steel production totaled 5.4 million tonnes, 6.9% up on 1Q16, while apparent consumption moved up by 5.0%, to 4.6 million tonnes, with domestic sales of 4.0 million tonnes and imports of 637,000 tonnes. Exports totaled 3.8 million tonnes, 17.4% more than in the same period last

 

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year. According to the Brazilian Steel Distributors’ Association (INDA), 1Q17 steel purchases sales remain flat, while sales fell 8.7%, totaling 759,600 tonnes and 708,600 tonnes, respectively.  Inventories stood at 951,500 tonnes at the close of 1Q17, 3.6% more than in the previous quarter while inventory turnover fell to 3.7 months.

 

Automotive

 

According to the Auto Manufacturers’ Association (ANFAVEA), vehicle production totaled 610 million units in 1Q17, 24% up on 1Q16. In the same period, new car, light commercial vehicle, truck and bus licensing fell by 1.9% to 472,000 units.  The association expects an increase of 4.0% in vehicle licensing in 2017, with the sale of 2.13 million units and production of 2.41 million units, 11.9% more than in 2016.

 

Construction

 

According to the Construction Material Manufacturers’ Association (ABRAMAT), sales of building materials fell 6.3% between 1Q16 and 1Q17.

 

Home Appliances

 

According to the Brazilian Institute of Geography and Statistics (IBGE), home appliance production increased 4.5% in the first quarter over the same period last year.

 

Results from CSN’s Steel Operation

 

 

 

 

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Mining

 

Demand for steel in China remained high, influenced by heavy investments in infrastructure and the strong construction activity in the first quarter. Given this scenario, rising steel prices pushed up iron ore prices, which came to more than US$95.00/dmt in February and averaged US$85.64/dmt (Platts, Fe62%, N. China) at the end of 1Q17, 21% up quarter-on-quarter.

 

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In the first quarter, maritime freight was positively impacted by theupturn in crude prices and, consequently, in ship fuel.  As a result, Route BCI-C3 (Tubarão-Qingdao) averaged US$13.03/t, 10% up on 4Q16.

 

Results from CSN’s Mining Operation

 

·         CSN’s first-quarter iron ore production totaled 7.8 million tonnes, in line with the 4Q16 figure.

 

·         Iron ore sales amounted to 7.2 million tonnes in 1Q17, 21% down on 4Q16.  CSN Mineração sold 1.3 million tonnes of iron ore to the President Vargas Plant (UPV).

 

 

¹ Production and sales volumes included the stakes of 100% in NAMISA until November 2015 and 100% in Congonhas in December 2015.

² As of December 2015, Congonhas Minérios began selling iron ore to CSN’s President Vargas Plant (UPV).

 

·         Net revenue from mining operations totaled R$1,174 million in 1Q17, 11% down on 4Q16 due to the lower sales volume. CRF+FOB unit revenue stood at US$53/t in 4Q16 , 20% up on the previous quarter, while the iron ore price index (Platts, 62% Fe, N. China) rose 21% in the same period.

 

·       In the first quarter, mining COGS totaled R$636 million, 20% less than in 4Q16, influenced by lower sales volume.

 

·     Adjusted EBITDA amounted to R$620 million in 1Q17, 20% higher than in 4Q16, accompanied by an adjusted EBITDA margin of 52.8%, 14.0 p.p. up, chiefly due to the reduction in total sales volume.  

 

CSN Mineração’s Iron Ore Price

(CFR + FOB* - US$/wmt delivered to China)

 

 

The table above shows the breakdown of CSN's price of modality, CFR+FOB, by quarter, as of 2Q16.

 

Logistics

Railway Logistics: first-quarter net revenue totaled R$323 million, generating EBITDA of R$123 million and an EBITDA margin of 38%.

 

 

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Port Logistics: in the first quarter, Sepetiba Tecon handled 275,000 tonnes of steel products, in addition to 5,000 tonnes of general cargo and approximately 30,000 containers. First-quarter net revenue came to R$55 million, accompanied by EBITDA of R$14 million and an EBITDA margin of 26%.

                                   

 

 

 

 

Cement

 

According to IBGE’s Monthly Survey of Industry (PIM-PF), Brazil’s cement production in the last twelve months recorded year-on-year reduction of 9.3%, in line with the civil construction segment’s performance.

 

Preliminary figures from the Cement Industry Association (SNIC) indicate local cement sales of 13 million tonnes in 1Q17, 8.2% less than in the previous year.  The SNIC expects 2017 cement sales to fall by between 5% and 7% over 2016.

 

Results from CSN’s Cement Operation

 

In 1Q17, cement sales amounted to 821,000 tonnes, 3% more than in 4Q16, while net revenue came to R$126 million.  EBITDA totaled R$12 million, with an EBITDA margin of 10%. 

 

 

Energy

 

According to the Energy Research Company (EPE), Brazilian electricity consumption until March 2017 recorded a year-on-year increase of 2.0%, to 118GWh.  Consumption in the industrial and commercial segments grew by 1.1% and 0.5%, respectively, while the residential segment registered a 3.2% increase.

 

Results from CSN’s Energy Operation

 

In 1Q17, net revenue from energy operations totaled R$90 million, EBITDA stood at R$19 million and the EBITDA margin was 21%.

 

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CSN’s shares appreciated by 6% in 1Q17, while the Ibovespa increased by 7% in the same period. Daily traded volume on the BM&FBovespa averaged R$51.8 million. On the New York Stock Exchange (NYSE), CSN’s American Depositary Receipts (ADRs) appreciated by 15%, versus the Dow Jones’ 1% upturn. On the NYSE, daily traded volume of CSN’s ADRs averaged US$8.3 million.

 

 

 

 

 

 

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Steel

 

According to the World Steel Association (WSA), global crude steel production totaled 836 million tonnes in the first half of 2017, 4.5% more than in the same period last year. According to the Brazilian Steel Institute – IABr, domestic crude steel production came to 16.7 million tonnes, 12.4% up. Apparent steel consumption grew by 2.8%, to 9.2 million tonnes, with domestic sales of 8.1 million tonnes and imports of 1.2 million tonnes. Exports totaled 7.3 million tonnes, 9.2% more than in the same period last year. According to INDA (the Brazilian Steel Distributors’ Association), first-half steel purchases by distributors declined by 4.1% year-on-year, totaling 1.4 million tonnes. Inventories stood at 955,900 tonnes at the close of 2Q17, 0.7% more than in the previous month, while inventory turnover fell to 4.3 months.

 

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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.

 

Results from CSN’s Mining Operations

 

·         In 2Q17, iron ore production totaled 7.9 million tonnes, in line with 1Q17.

 

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·         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.

 

CSN Mineração’s Iron Ore Price

(CFR + FOB* - US$/wmt delivered to China)

 

 

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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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.

 

 

 

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 BM&FBovespa 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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São Paulo, October 30, 2017

 

3Q17 Earnings Release

Unaudited 

 

 

Companhia Siderúrgica Nacional (CSN) (BM & FBOVESPA: CSNA3) (NYSE: SID) exceptionally discloses its preliminary and unaudited results for the first quarter of 2017 (1Q17) and is therefore subject to adjustments and modifications by independent auditors review. 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 third quarter of 2017 (3Q17) and comparisons are for the second quarter of 2017 (2Q17) and for the third quarter of 2016 (3Q16) without Metallic, unless otherwise specified. The Real/U.S. Dollar exchange rate was R$3.1674 on September 30, 2017 and R$3.3076 on June 30, 2017.

 

The financial information contained herein for the second quarter of 2017 is preliminary and unaudited, and is therefore subject to adjustments and modifications as a result of an independent auditors' review.

 

 

Operating and Financial Highlights

 

·         EBITDA totaled R$1,213 million, 35% up on 2Q17, accompanied by an EBITDA margin of 24%, 4.4 p.p. higher than in the same quarter of the previous year.

·         Net revenue stood at R$4,810 million in 3Q17, the highest output quarter since 2014.

·         Iron ore sales reached 7,9 million tonnes, 2% higher than in 2Q17.

·         The net debt/EBITDA ratio closed 3Q17 at 5.5x.

·         Steel lower spending with scheduled maintenance of LTQ2 and AF3.

·          Fall of R$ 662 million in working capital, with a focus on inventories reduction and a longer finance cycle.

Adjusted 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.

Adjusted 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.

 

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CSN’s Consolidated Results

 

·         Net revenue totaled R$4,810 million in 3Q17, 12% up on 2Q17, due to higher steel product sales volume compared with the immediately previous quarter and the slight upturn in shipped volume in the mining segment, with an increase in ore prices.

 

·         COGS came to R$3,597 million in 3Q17, 8% higher than in the previous quarter, accompanying the increase in sales volume in the steel segment.

 

·         Gross profit totaled R$1,213 million, 23% higher on 2Q17, while the gross margin reached 25,2%, highlight with the strong results in the mining segment.

 

·         Selling, general and administrative expenses amounted to R$491 million in 3Q17, 17% less than in 2Q17, especially due to the lower share of iron ore CIF sales in the mix in the previous quarter.

 

·         Other operating income (expenses) was a net expense of R$98 million in 3Q17, in line with the previous quarter.

 

·         In 3Q17, the net financial result was negative by R$278 million, i) as a result of financial expenses of R$348 million, partial compensated by the financial revenue of R$71 million. The foreign exchange variation of the dollar-denominated debt was positive in R$ 473 million.

 

 

 

·         CSN’s equity result was a positive R$38 million in 3Q17, versus R$40 million in 2Q17.

 

 

 

·          CSN recorded a third-quarter net income of R$256 million, versus net loss of R$640 million in 2Q17. In 3Q17 was reflected by a better operating margin in steel and mining, as well as financial results.

 

 

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¹The Company discloses adjusted EBITDA excluding interests in investments and other operating income (expenses) in the belief that these items should not be considered when calculating recurring operating cash flow.

 

·         Adjusted EBITDA amounted to R$1,213 million in 3Q17, versus R$896 million in the previous quarter, 35% up, accompanied by an adjusted EBITDA margin of 24%, due to higher performance of iron and steel.

 

 

 

 

 

 

 

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

 

The adjusted amounts of EBITDA, debt and cash include the stakes of 100% in Congonhas Minérios, 37.27% in MRS and 50% in CBSI, as well as financial investments used as collateral for exchange operations on the BM&FBovespa. 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 5.5x.

 

 

 

 

 

 

 

 

 

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Foreign Exchange Exposure

 

The FX exposure of our consolidated balance sheet on September 30, 2017 was US$742 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$293 million in 3Q17. The cumulative amount in 2017 was much lower than 2016..

 

 

 

Working Capital

 

Working capital invested in the Company’s business totaled R$2.935 million in 3Q17, R$662 million less than in 2Q17, chiefly due to the decrease in inventories and accounts receivable R$ 199 million and R$ 174 million respectively . On a same comparison basis, the average receivable period decreased by four days, while inventory turnover fell by nine days and the average payment period moved up by two days.

 

In order to calculate working capital, CSN adjusts its assets and liabilities as shown below:

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

·         Inventories: Includes Estimated Losses and excludes Spare Parts, which is not part of the cash conversion cycle, and will be subsequently booked under 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 of Taxes Payable under Current Liabilities plus Taxes in Installments.

·         Advances from Clients: Subaccount of Other Liabilities recorded under Current Liabilities.

·         Suppliers: Includes Forfaiting and Drawee Risk.

 

 

 

 

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:

 

   

Notes: As of 2013, the Company ceased the proportional consolidation of its jointly-owned subsidiaries Namisa, MRS and CBSI. For the purpose of preparing and presenting the information by business segment, Management opted to maintain the proportional consolidation of its jointly-owned subsidiaries, in line with historical data. In the reconciliation of CSN’s consolidated results, these companies’ results are eliminated in the “Corporate Expenses/Elimination” column.

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Net Revenue by Segment  – 3Q17  (R$ million)

 

 

   

 

 

Adjusted EBITDA by Segment – 3Q17 (R$ million)

 

 

 

 

 

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Steel

 

According to the World Steel Association (WSA), global crude steel production totaled 1.1 billion tonnes until August 2017, 4.9% more than in the same period last year. According to the Brazilian Steel Institute – IABr, domestic crude steel production came to 22.5 million tonnes, 9.3% up. Apparent steel consumption grew by 4.5%, to 12.6 million tonnes, with domestic sales of 11 million tonnes and imports of 1.6 million tonnes. Exports totaled 9.8 million tonnes, 12.9% more than in the same period last year. According to INDA (the Brazilian Steel Distributors’ Association), in the first eight months, steel purchases by distributors declined by 1.9% year-on-year, totaling 1.9 million tonnes. Inventories stood at 897,500 tonnes at the end of August, 2.7% more than in the previous month, while inventory turnover fell to 3 months.

 

Automotive

According to ANFAVEA (the Auto Manufacturers’ Association), vehicle production totaled 1.9 million units in the first nine months of 2017, 27% up on the same period in 2016. In the same period, new light car, commercial vehicle, truck and bus licensing increased by 11% to 1.4 million units.

 

Construction

 

According to ABRAMAT (the Construction Material Manufacturers’ Association), sales of building materials fell by 6.1% in the year through August 2017 over the same period in 2016.

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Home Appliances

 

According to IBGE (the Brazilian Institute of Geography and Statistics), home appliance production in the year through August increased by 10.1% over the same period last year.

 

Results from CSN’s Steel Operation

 

 

 

 

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·         The slab production reached 1.1 million tonnes in 3Q17, in line with 2Q17. Flat rolled steel production totaled 903,000 tonnes.  

 

 

·         COGS moved up by 8% over the previous quarter, to R$2,845 million, chiefly due the higher sale volume.

 

·          The production cost amounted to R$1,906 million in 3Q17, 9% more than in 2Q17, particularly due to the better prices in purchase of raw material, especially to ore price, increased own consumption of coke, in addition to the end of maintenance of the blast furnace #3 and the hot strip mill.

 

·         The slab production cost came to R$1,286/t, 9% down on 2Q’s R$1,414.

 

 

·         Adjusted EBITDA amounted to R$465 million in 3Q17, 42% up on the R$327 million recorded in 2Q17, accompanied by a 3 p.p. incline the quarter before. Adjusted EBITDA margin increased to 13.7%, 3p.p. higher than in the previous quarter.

 

 

 

 

 

 

Mining

 

After the sharp drop in prices in 2Q17, the closure of induction furnaces in China was a result of a decrease in steel supply, raising the utilization levels of the plants’ installed capacity and margins. In this context, the commodity’s price averaged US$70.90/dmt (Platts, Fe62%, N. China) in 3Q17, 13% up on the previous quarter.

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In 3Q17, seaborne freight charges continued positively impacted by higher export volumes and, additionally, a recovery in oil prices. In this scenario, maritime freight costs on Route CI-C3 (Tubarão-Qingdao) averaged US$15.13/t in 3Q17, 12% up on 2Q17.

 

Results from CSN’s Mining Operations

 

·         In 3Q17, iron ore production totaled 7.7 million tonnes, 3% down on 2Q17, 1.4 million tonnes volume was purchased by third parties.

 

·         Iron ore sales  reached 7.9 million tonnes in 3Q17, 2% up on 2Q17. 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$1,204 million, 13% higher than in 2Q17. CFR+FOB unit revenue stood at US$55,7/t, 13% more than in 2Q17, while the iron ore price index (Platts, 62% Fe, N. China) also fell by 13% in the same period.

 

·        Mining COGS came to R$719 million in 3Q17, 3% lower than in 2Q17.

 

·    Adjusted EBITDA totaled R$568 million in 3Q17, 39% up on 2Q17, with an adjusted EBITDA margin of 47%, 8.9 p.p. more than in 2Q17.

 

 

 

The table above shows the price of the two modalities, CFR+FOB.

 

 

Logistics

Railway Logistics: Net revenue stood at R$364 million in 3Q17, generating EBITDA of R$164 million, accompanied by an EBITDA margin of 45%.

 

Port Logistics: Sepetiba Tecon handled nearly 51,000 containers, in addition to  250,000 tonnes of steel products. Net revenue totaled R$60 million, generating EBITDA of R$21 million, accompanied by an EBITDA margin of 35%.

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Cement

 

Preliminary figures from SNIC (the Cement Industry Association) indicate domestic cement sales of 40.5 million tonnes from January to September 2017, 7.4% less than in the same period the year before.

 

 

Results from CSN’s Cement Operations

 

In 3Q17, cement sales totaled 982,000 tonnes, 17% up on 2Q17, while net revenue amounted to R$142 million.

 

 

 

 

Energy

 

According to the Energy Research Company (EPE), the trend of stability in the energy market continued in August, with consumption edging down 0.1% year-over-year, to 37,583 GWh. In the year through August, consumption remained in line with the same period last year. Considering the Brazilian regions, the South grew by 4.0% and the North by 3.4%, while the Northeast fell by 2.1%, the Southeast by 1.3% and the Midwest by 0.1%. The captive market of the distribution companies fell by 6.3% in the month, while free consumption increased by 15.3%.

 

Results from CSN’s Energy Operations

 

In 3Q17, net revenue from energy operations totaled R$103 million, EBITDA stood at R$27 million and EBITDA margin was 26.5%.

 

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Capital Market

 

CSN’s shares appreciated by 32% in 3Q17, while the IBOVESPA moved up by 17%. Daily traded volume on the BM&FBovespa averaged R$72.6 million. On the New York Stock Exchange (NYSE), CSN’s American Depositary Receipts (ADRs) appreciated by 17%, versus the Dow Jones’ 4% appreciation. On the NYSE, daily traded volume of CSN’s ADRs averaged US$7.4 million.

 

 

 

 

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