Companhia Siderúrgica Nacional S A : 4Q22 and 2022 Transcription of the Results Teleconference

Conference Call Transcript

4Q22 and 2022 Results

CSN (CSNA3 BZ)

March 9, 2023

Operator:

Welcome, everyone, to the CSN conference call to release results for the 4Q22. 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 questions and answer session, when further instructions will be given. Should any participant need assistance during this call, please press *0 to reach the operator.

We have simultaneous webcast that may be accessed through CSN's Investor Relations website at ri.csn.com.br, where the presentation is also available. The replay of this IR event will be available as soon as the call ends after 1 week. Once again, you can flip through the slides at your own convenience.

Please bear in mind that some of these statements made herein are mere expectations or trends and are based on the 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 projections. In fact, actual results, performance or events may differ materially from those expressed or implied by forward- looking statements as a result of several factors such as overall and economic conditions in Brazil and other countries, interest rates and exchange rate levels, future rescheduling or prepayment of debt pegged in foreign currencies, protectionist measures in the U.S., Brazil and other countries, changes in laws and regulations and general competitive factors at global, regional or national basis.

I would now like to turn the floor over to Mr. Marcelo Cunha Ribeiro, the CFO and the IR Executive Officer, who will present the financial and operational highlights for CSN. Mr. Ribeiro, you may proceed.

Marcelo Cunha Ribeiro:

Good morning to all of you and thank you for attending our results call for the 4Q22 for CSN. Before beginning the presentation, I would like to thank all of you for your attendance. The CEO and Chairman of CSN is with us, as well as other executive officers that will participate in the question-and-answer session.

Let's begin with the highlights for the period. The acceleration in our financial results for the 4Q. We had important frameworks and some impacts, especially because of the rainfall in mining, but we were able to come up with a good response, and we had a speed up in volumes, prices and costs in mining.

And in terms of steel, we had the traditional good performance, which enabled us to increase our EBITDA by 15% at the end of the year, a growth that should increase its pace throughout 2023.

Secondly, we highlight the conclusion of the acquisition process of CEEE with the acquisition of 66% of the capital of the Company and also a transaction at the end of the year when we acquired an additional 32% from Eletrobras. We are now owners of 99% of the capital of CEEE. An important player in the electrical sector, it enables us to be self-sufficient, and we can also sell energy at present.

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Conference Call Transcript

4Q22 and 2022 Results

CSN (CSNA3 BZ)

March 9, 2023

The third important impact, a jump in our ESG indicators, work that has been done by putting in place policies and goals but also enhancing the disclosure of our historical practices.

We have attained 2 important indicators. The first, we have been called an industry mover, the Company that most improved ESG throughout the year. And secondly, Sustainalytics has included us as the fourth best company in the segment throughout the world, thanks to the endeavors and efforts that CSN carries out on that front.

We go on to page 4 and show you our evolution of our EBITDA quarter-on-quarter. Of course, we had volatility throughout the year. We were impacted by the strong prices of iron ore and steel in the first half of the year. We then saw a normalization in the price of these commodities impacting our profitability. At the end of the year, at operational level, we were able to obtain better margins, 27% and ended the year with R$13.8 million in EBITDA, the second-best year of CSN, although it represents a drop of 30% vis-à-vis 2021. With this, we had a growth of 15% in the quarter and the sequential comparison.

At the right in the graph, you can see that the great difference lies in the mining sector, where we practically increased the results twofold in terms of prices and volumes, as mentioned, still also operational, but with a gradual reduction of prices causing that drop in the EBITDA.

We go on to page 5, where we will speak about our cash beginning with our investment. We accelerated our CAPEX in the 4Q going from R$839 million to R$1.036 billion, especially investing strongly in segments besides steel and mining. We had some factors that were not part of our initial forecast, the consolidation of Holcim and the rights of use bringing us a new level of CAPEX in the segment of R$1 billion, raising our CAPEX of R$3.4 million for the year, still below what we expect to do in 2023. And of course, we will have a speed up in the mining sector with the evolution of the P15 sector.

In working capital this quarter, we had a very strong demand in our inventories. We had been reducing inventories of raw material because of the normalization of prices abroad. As you will see in the steel results, we had production. We ended our inventory, which was, of course, part of our strategy. We increased production and accounts receivables because of the possible evolution of the mining cost, and all of this was fully offset with the receivables from suppliers, but this led to an increase in our working capital with an impact on our cash flow.

In the next page, you can see the volatility that we faced in the operational cash flow that you can see to the left of the page, ending the year with good operational results, but with a high level of inventories.

That is why we have a negative cash flow. We enhanced cash generation and ended the quarter. Well, we had an EBITDA of R$3.4 billion used in these variations of working capital, a higher CAPEX, higher interest rates as well and taxes that seasonably were somewhat higher for 2023, we will stabilize this cash flow. We have a positive result in EBITDA, and this will offset the higher investments. So a positive cash flow will enable us to reduce our indebtedness that we see in the following page.

In page 7, we observed that this cash flow for the 4Q was insufficient to allow us to reduce our indebtedness subsequently, it went from R$24 billion to R$30 billion for very obvious reasons. The acquisition in the electrical sector an increase of R$3.3 million. This is an important payment that we carried out. All of this adding up to the totality of

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Conference Call Transcript

4Q22 and 2022 Results

CSN (CSNA3 BZ)

March 9, 2023

our net debt that grew 25% to R$30 billion. With this, we ended the quarter with 2.2x leverage pro forma for the prepayment of mining that we announced in the first days of January. And in truth, this leverage would have been 2x, which is the reason which we would like to operate for 2023, we will see a sequential improvement of EBITDA and cash flow. And of course, we will tend to fall within that range with minor variations through the coming quarters.

On the following slide are liquidity and our debt amortization, which is quite lengthened. Liquidity remains comfortable at R$12 billion and because of a prepayment of the US$500 million. This would be very close to our target liquidity, a good coverage in the short term. We highlight our activity in the capital market, especially the local capital market. We took advantage of a very sound window. We debentures more than R$4 billion, helping us to line out our indebtedness and making it more efficient.

Before we were working in a more volatile and more expensive capital market than in this quarter. Now we had debentures in each of the businesses. We had a good year in 2022. Our volumes were very close to 2021, especially in the domestic market. We had a minor drop of 3%, smaller than the drop market that was close to 10%, showing our endeavors to conquer the market. We grew in important sectors, in construction and others, more than leveraging what had happened in other sectors, the automotive line, the white line.

And we had a quarter with prices that internationally were weakened therefore, we were very careful, privileging volumes and not prices. We had a slightly higher drop but better than 2021.

Regarding prices, they had a drop of approximately 8%, in line with the international prices. The positive issue, as announced, is that the international market has given way for new price increases. And as we will see in questions and answers, we have the opportunity of holding new rounds. We still see very high prices, and this should allow us new incursions. We had an EBITDA with a marginal of 13%, despite a good operational performance and dropping prices.

On page 11, as you can see, we had a production of 7% and below 2021. We took the most of some opportunities, buying slabs in the international market, taking advantage of the drop in average prices. We also had a drop of 5% in slabs, and we had a drop in the cost of the final product, which has enabled us to maintain average prices.

The floor of our profitability that would be higher than our historical average, R$819, which is above US$150, which is the average cost. What we saw in 2022, we intend to improve upon we have that attempt of increasing prices and, of course, a better quality.

In mining, on page 13, a very strong quarter from the viewpoint of results and operations. We were able to have an increase of sales in the quarter, which typically is a slower quarter because of seasonality. We produce somewhat less because of seasonality, but we were able to sell more and impact working capital because of the improvement in prices.

We began the quarter with low prices with a price improvement in December. We made the most of this price improvement sold on our inventory during the period, and we had a slight increase in volume vis-à-vis 2021. Our forecast for 2023 is even better. We will buy from third parties, an improvement in the market at higher prices, and we are quite

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Conference Call Transcript

4Q22 and 2022 Results

CSN (CSNA3 BZ)

March 9, 2023

enthusiastic about the margins. In 2023, all of this should speed up to what we saw in the 4Q above 50% and higher EBITDA that we saw of R$1.8 million for the 4Q.

On page 14, this is an x-ray, a comparison among quarters. We had an improvement in all of the areas in volume and the mix of our own mix vis-à-vis that of third parties and improvement in prices freight. And with this, we got to attain this growth, also bolstered by the provision of what had been sold in previous quarters, leading us to R$1.8 billion of EBITDA.

To speak about cement on page 16, for the first time, we consolidated LafargeHolcim of Brazil, now called CSN Cements of Brazil. We got to 3 million tons this quarter and ended the year with 7.2 million tons. Of course, if we look at 2023, these are figures that will change quite drastic as happens every year, but we also expect a significant growth in uncertain environment.

At the end of the year, we implemented some actions within our CSN Cimentos plant in Brazil to reconnect capacity, and this led to a slight reduction in margin, the reconnection of some operations, and because of the cost of fuel that is higher, it led to a profitability that is a one-time effect that was somewhat lower.

We had prices of coke and oil dropping in 2023. We will not have these reconnection costs. And of course, we have an abundance of synergies to make the most of a control of the LafargeHolcim plant that has proven to be better than we had imagined.

We have, for example, the cost of our own energy, something we had foreseen for July, we have anticipated to April. We are quite enthusiastic with the cement business in 2023.

This ends our presentation of segments. We would now like to speak about ESG.

Helena Guerra:

Good morning, everybody. We are here again to present to you the results for the 4Q of ESG. And of course, this is something under constant evolution with the aim of offering you greater transparency in terms of what is done in the Company. I am just going to give you a bird's eye view in terms of governance, create strides. We concluded the impact and dependency matrix on ecosystem services.

We are following the guideline of TNFD, mapping of risks and opportunities, setting for some parameters, especially that relate to nature. And in April, in our report, we are going to approach all of these topics. We ended the year with CSN Mining with all of its dams renewed. The Vigia dam has completed, of course, the works in re-characterization, and we continue to evolve in terms of our operational performance quarter-on-quarter. We ended the year of 2022 with a reduction of 25% in our accident frequency rate. And compared with 2021, this is the best result in our historical series. A significant reduction, 19% in the number of accidents as well with employees and our third parties.

Our cement plant began with the 14001 certification. We are working on sewage projects for the reduction in the consumption of water and the emission of CO2, of course, this has been done for each segment. In steel, minus 5% versus the baseline in 2018, an improvement of CO2 emissions in cement, minus 7% versus the baseline in 2020, a slight increase in the emission of mining. So you can see that all of these trends have been carefully forecast segment per segment, and we have mapped out our initiatives through time.

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Conference Call Transcript

4Q22 and 2022 Results

CSN (CSNA3 BZ)

March 9, 2023

It's also important to mention that we have identified all of the risks in the Company. And all of this will be part of the next integrated report of the Company. When it comes to diversity in the social area, we have a growth of women and leadership growing year-on- year. We have had a 50% growth. Of course, we would like to reach 2025 with 28% of women in leadership position.

In the social area, we concluded 2 projects in the last quarter. A partnership with Getulio Vargas Foundation and the conclusion of our theory of change, which will enable us a new instrument in terms of social investment.

As has been mentioned, there has been a constant evolution in the Company in terms of our main ratings, especially in Sustainanalytics, where we had the fourth best score in the segment among 155 companies.

We are the only Brazilian company with steel and mining that was indicated into these categories. We are the steel company with the greatest evolution in terms of its ESG practices.

Thank you very much.

Rafael Barcellos, Santander:

Good morning. Thank you for taking my question. My question refers to steel. We imagine what the purchase of slabs has been quarter-on-quarter, and what you are doing in the 1Q, considering that we are already in March. If you could speak about your priorities at present in terms of your capital spending, what would be ideal for the Company at present?

Luis Martinez:

Good morning, Rafael. In terms of cost, as mentioned by Marcelo, we had a significant reduction in the cost of sabs in the 4Q. Our efforts are strong to continue on with this cost reduction.

In the 1H of the year, we are going to ensure that this cost reduction continues. It's fundamental to preserve our EBITDA margin. In the 4Q, we got to 3,900, but we are going to work to reduce this cost even further for slabs.

We carried out a strategic acquisition of slabs, approximately 400,000 tons. We have already used of 300,000 tons of slabs. We have 100,000 tons that we can still utilize, and we are also analyzing other possible acquisitions of slabs to balance out the price of slabs at the plant.

We have additional efforts to reduce the cost of conversion and manufacture as well, in the transition between hot and cold slabs and for upstream products as well, 4 efforts ahead to continue to reduce our costs.

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