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Companhia Siderurgica Nacional ADR Q2 2010 Earnings Call Transcript

Companhia Siderurgica Nacional ADR Q2 2010 Earnings Call Transcript

Companhia Siderurgica Nacional ADR (SID)

Q2 2010 Earnings Call Transcript

August 11, 2010 11:00 am ET

Executives

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Paulo Penido Pinto Marques – CFO and IR Officer

Luis Martinez – Commercial Director

Analysts

Leonardo Correa – Barclays Capital

Carlos de Alba – Morgan Stanley

Rene Kleyweg – UBS

Alex Hacking – Citigroup

Marcos Assumpcao – Itau

Rodrigo Barros – Deutsche Bank

Marcelo Aguiar – Goldman Sachs

Christopher Buck – Barclays Capital

Presentation

Operator

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Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to CSN second quarter 2010 earnings conference call. 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. After the company's remarks are over, there will be a question-and-answer section. (Operator Instructions)

We have simultaneous webcast that may be accessed through CSN's Investor Relations website at www.csn.com.br/ir. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during the conference call. There will be a replay service for this call on the website.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of CSN management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of CSN and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I'll turn the conference over to Mr. Paulo Penido Pinto Marques, who will present on CSN's operating and financial highlights for the period. Mr. Penido, you may begin your conference.

Paulo Penido Pinto Marques

Good morning and good afternoon, depending on where you are. We would like to make a brief introduction to our conference call. We have a presentation, a 12-page presentation.

I will start on page three, please, where we present the highlights of our performance in the quarter. Summarizing all these points, we would like to say that our EBITDA margin came back to our traditional level of above 45%; we had 46% in the second quarter of the year. Our net revenue went up 22% comparing to the first quarter of the year, basically due to price and volume increase in our mining activity and also to price and volume increase in our steel – domestic steel sales and some export sales of steel. We remain quite optimistic for the rest of the year and we are also investing – or we have invested 1.5 billion reais in the first half of the year.

Providing some more details on our steel performance on page four, you can clearly see the higher volume, jumping from 1.26 million tons in the first quarter to 1.3 million tons in the second quarter. We can see the revenues increased as a result of the price adjustment that was made in the second half of the year. And we are preserving our high value-added mix of profits.

Now on page five, we can see the higher volume – record volumes in terms of products and a jump, net revenues coming from the mining activity as a result of the international price for iron ore that went up in a meaningful way comparing the first and second quarters of the year.

On a consolidated basis, you can see on page six, our net revenues reached 3.8 billion reais in the second quarter of the year. Approximately 20% of the – sorry, approximately 1 billion reais in terms of exports and sales abroad and 2.86 billion reais of sales – domestic sales. Our – as we can see in this pie chart, 70% of our revenues in the second quarter came from steel and 22% from mining activity. So our core business at this point in time is 92% in terms of mining and steel activities.

On page seven, we can see the clear and very fast recovery of CSN. We took worst quarter ever, that was first quarter of '09 where we were fully impacted by the international price and how we could – on a very fast way of how – come back to the 40%, 46% level of EBITDA margin. Explaining the EBITDA evolution from the first quarter of 2010 to the second quarter of 2010, on page eight, we can clearly see, as I said, that the steel revenues and the mining revenues are basically responsible for the increase in the EBITDA.

On page nine, we present our debt situation. We preserved the net debt-to-EBITDA ratio at 1.56 times comparing the first quarter of '10 to the second quarter of the year. And understanding this leverage ratio on page 10, we can clearly see that the size of the net debt went up from 6.6 billion reais to 8.3 billion reais as a result of the investments, the capital expenditures that we did and the interest on capital that we have paid in the first half of the year. They were the major, I would say, cash outflows from the company. And at the end of the day, they responded for this increasing debt.

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