SID Companhia Siderurgica Nacional

  Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

São Paulo, December 22 , 2017

3Q17 Earnings Release

Unaudited 

Companhia Siderúrgica Nacional (CSN) (B3 S.A. – BOLSA BRASIL BALCÃO: CSNA3) (NYSE: SID) exceptionally discloses its preliminary and unaudited results for the  third quarter of 2017 ( 3 Q17) 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$3.16 25 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.

·          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$38 million in 3Q17, versus R$ 39 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.

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:

·          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.

³Since the end of 2015 results, after the combination of CSN’s mining assets (Casa de Pedra, Namisa and Tecar), the consolidated result have included all the information related to this new company.

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.

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.

·          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.

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.

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.

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

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

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%.

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.

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%.

Capital Market

CSN’s shares appreciated by 32% in 3Q17, while the IBOVESPA moved up by 17%. Daily traded volume on the B3 S.A. – BOLSA BRASIL BALCÃO 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.