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São Paulo, December 22, 2017

1Q17 Earnings Release

Companhia Siderúrgica Nacional (CSN) (BM3 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 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.

 

Operating and Financial Highlights

 

 

Highlights	1Q16	4Q16	1Q17	Change
				1Q17 x 4Q16	1Q17 x 1Q16
Steel Sales (thousand t)	1,248	1,187	1,194	1%	-4%
- Domestic Market	52%	62%	52%	-10%	0%
- Overseas Subsidiaries	42%	34%	41%	7%	-1%
- Exports	6%	4%	8%	4%	2%
Iron Ore Sales (thousand t)1	8,295	9,191	7,244	-21%	-13%
- Domestic Market	13%	14%	19%	5%	6%
- Exports	87%	86%	81%	-5%	-6%
Consolidated Results (R$ Million)
Net Revenue	3,997	4,519	4,412	-2%	10%
Gross Profit	923	1,349	1,318	-2%	43%
Adjusted EBITDA	733	1,249	1,333	7%	82%
Adjusted Net Debt	26,654	25,831	25,477	-1%	-4%
Adjusted Cash Position	6,472	5,762	5,146	-11%	-20%
Net Debt / Adjusted EBITDA	8.7x	6.3x	5.5x	(0,89x)	(3.22x)

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.
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.

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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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• 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 B3 S.A. – BOLSA BRASIL BALCÃO. 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:

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.

Since the end of 2015, after the combination of CSN’s mining assets (Casa de Pedra, Namisa and Tecar), the consolidated results have included all the data related to this new company.

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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 year. According

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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 the upturn 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).

 

• 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.

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.

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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Capital Market

CSN’s shares appreciated by 6% in 1Q17, while the Ibovespa increased by 7% in the same period. Daily traded volume on the B3 S.A. – BOLSA BRASIL BALCÃO 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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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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