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, October 27, 2017

2Q16 Earnings Release

Companhia Siderúrgica Nacional (CSN) (BM&FBOVESPA: CSNA3) (NYSE: SID) announces today its consolidated results for the second quarter of 2016 (2Q16), which are presented in Brazilian Reais and in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and with Brazilian accounting practices, which are fully convergent with international accounting norms, issued by the Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities and Exchange Commission (CVM), pursuant to CVM Instruction 485 of September 1, 2010. All comments presented herein refer to the Company’s 2Q16 consolidated results and comparisons refer to the first quarter of 2016 (1Q16) and the second quarter of 2015 (2Q15), unless otherwise stated. The Real/U.S. Dollar exchange rate was R$3.2092 on June 30, 2016 and R$3.5583 on March 31, 2016.

¹ Iron ore sales volumes include 100% of the stake in NAMISA until November 2015 and 100% of the stake in Congonhas Minérios as of December 2015.

² 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.

³ 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.

For further information, please visit our corporate website: www.csn.com.br/ri

  

	2Q16 RESULTS
Total no. of shares= 1,387,524,047

 

CSN’s Consolidated Results

·         Net revenue totaled R$4,185 million in 2Q16, 4% up on 1Q16 and 14% more than in the same period last year. In relation to the previous quarter, the upturn was primarily due to increased sales volume in the mining segment and higher steel prices. Concerning 2Q15, the improvement was also due to the increase in mining sales volume.

·         COGS amounted to R$3,263 million, 6% up on the previous three months and 15% more than in 2Q15, chiefly due to higher iron ore output and increased costs as a result of the blast furnace #3 stoppage.

·         Second-quarter gross profit came to R$922 million, in line with 1Q16, with a gross margin of 22%, 1p.p. down on the first quarter. In relation to 2Q15, gross profit climbed by 10% and the gross margin narrowed by 1p.p., from 23% to 21%.

·         Selling, general and administrative expenses totaled R$498 million, 18% less than in 1Q16, but 18% higher year-on-year. These variations were largely due to distribution costs, which were 11% lower than in 1Q16, but 32% more than in the same quarter last year.

·         Other operating income (expenses) was a net expense of R$171 million in 2Q16, 35% up on the quarter before, due to the payment of provisioned taxes, and 23% down on 2Q15.  

·         Working capital came to R$2,867 million, R$525 million less than in 1Q16, while the financial cycle closed the second quarter at 82 days, 19 days less than in the previous quarter.

·         Adjusted net debt fell by 3% over 2Q16, totaling R$25,873 million, while leverage ended the quarter at 8.3x, versus 8.7x in the previous three months.

·         The proportional net financial result was negative by R$220 million in 2Q16, due to: i) financial expenses (excluding the exchange variation) of R$848 million; ii) the positive exchange variation result of R$478 million. The result was parcially offset by the financial revenue of R$150 million.

·         CSN’s equity result was a positive R$18 million in 2Q16, versus a positive R$45 million in 1Q16 and a negative R$44 million in 2Q15, chiefly due to MRS’s equity result, which fell from R$61 million, in 1Q16, to R$32 million, as shown below:

 

2Q16 RESULTS

·         CSN recorded a second-quarter net profit of R$46 million, versus net losses of R$777 million and R$615 million in 1Q16 and 2Q15, respectively. The improvement was primarily due to the recovery of the financial result, which was negative by R$197 million in 2Q16, versus R$897 million negative in 1Q16 and R$772 million negative in 2Q15.

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

·         Adjusted EBITDA amounted to R$855 million in 2Q16, 17% up on the quarter before and 7% more than in 2Q15, accompanied by an adjusted EBITDA margin of 19.4%, 1.1p.p. higher than in 1Q16, but 1.5p.p. down on 2Q15.

Debt

The adjusted amounts of EBITDA, Debt and Cash included the stakes of 60% in Namisa, 33.27% in MRS and 50% in CBSI until November 2015 and the stakes of 100% in Congonhas Minérios, 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 June 30,

 

2Q16 RESULTS

2016, consolidated net debt totaled R$25,873 million, while the net debt/EBITDA ratio stood at 8.28x, based on LTM adjusted EBITDA.

Foreign Exchange Exposure

In 2Q16, CSN began reviewing its FX hedge strategy, which led the company to completely unwind it FX derivatives position. As a result, the FX exposure of our consolidated balance sheet on June 30, 2016 was US$1,791 million, as shown in the table below. It is important to mention that the net FX exposure includes a liability totaling US$1.0 billion in the Loans and Financing line related to the Perpetual Bonds, which, due to its nature, will not require disbursements for the settlement of the principal amount in the foreseeable future. The company’s hedge strategy began to focus on preserving its cash flow, replacing the exposure generated by the settlement of the derivatives for new Hedge Accounting designations, capturing the existing natural relations, as well as possibly using other financial instruments to protect CSN's future cash flow.

The hedge accounting adopted by CSN correlates the 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 in shareholders’ equity, flowing through P&L when revenues in USD from exports occur.

 

 

2Q16 RESULTS

Capex

CSN invested R$473 million in 2Q16, led by:

·         Investments in the new clinker kiln in Arcos-MG, which will start its operation in the 2H16, allowing the cement segment to generate competitive margins and scale gains in the Southeast region due to self-sufficiency in clinker production;

·         Projects designed to improve the operational and environmental performance of the Presidente Vargas Plant.

Working Capital

As a result, working capital applied to the Company’s business totaled R$2,867 million in 2Q16, R$525 million less than in 1Q16, chiefly due to the R$481 million reduction in inventories. On a same comparison basis, the average receivable period fell by 5 days, while payment periods and inventory turnover fell by 9 and 23 days, respectively.

 

 

2Q16 RESULTS

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: For the purpose of preparing and presenting the information by business segment, Management opted to maintain the proportional consolidation of its jointly-owned subsidiaries, as historically presented, For the reconciliation of CSN’s consolidated results, these companies’ results are eliminated in the "corporate/elimination expenses" column.

 In order to report the Company’s 2015 results, after the combination of CSN’s mining assets (Casa de Pedra, Namisa and Tecar), the consolidated result includes all this new company’s information.

Net revenue per Segment – 2Q16 (R$ million)

 

 

2Q16 RESULTS

Steel

According to preliminary figures from the World Steel Association (WSA), global crude steel production totaled 795 million tonnes in the first half, 2% down on the same period last year .

According to the Brazilian Steel Institute – IABr (also preliminary figures), domestic production came to 7.4 million tonnes in 2Q16, in line with the previous three months, giving a first-half total of 14.9 million tonnes, 13% down year-on-year, Domestic production of rolled products stood at 5.1 million tonnes in the second quarter, also in line with 1Q16, and 10.2 million tonnes in the first six months, 14.7% less than in 1H15, Apparent consumption through June

 

 

2Q16 RESULTS

totaled 9.0 million tonnes, 23.7% less than in 1H15, with domestic sales of 8.2 million tonnes, down by 15.5%, In the same period, imports dropped by 64.2% to 741,300 tonnes, while exports climbed by 16.6% to 6.7 million tonnes.

According to INDA (the Brazilian Steel Distributors’ Association), 2Q16 steel purchases and sales by distributors fell by 11.3% and 7.7% over 2Q15 to 1,503,000 and 1,559,000 tonnes, respectively, Inventories closed the quarter at 866,000 tonnes, 1.4% down on the previous month, representing 3.3 months of sales.

Automotive

According to ANFAVEA (the Auto Manufacturers’ Association), vehicle production totaled 1 million units in the first half, 21% down on 1H15, In the same period, new car, light commercial vehicle, truck and bus licensing fell by 25% to 983,000 units, The association estimates a reduction in vehicle sales of up to 19% in 2016 over 2015, to 2.1 million units, while FENABRAVE (the Vehicle Distributors’ Association) expects a 15% reduction in vehicle sales.

Construction

According to SECOVI-SP (the São Paulo Residential Builders’ Association), residential real estate launches in the city of São Paulo totaled 5,731 units in the 1H16, 42.8% down on the 10,027 units launched in the same period last year.

According to ABRAMAT (the Construction Material Manufacturers’ Association), first-half sales of building materials fell by 14.3% over 1H15, The association also revised its 2016 estimate a decline of 8%.

Home Appliances

According to the Brazilian Institute of Geography and Statistics (IBGE), home appliance production in the first five months fell by 11% over the same period last year and by 17% in the last 12 months, respectively, reflecting the low level of business and consumer confidence.

Results from CSN’s Steel Operations

 

 

2Q16 RESULTS

Mining

In 2Q16, the seaborne iron ore market was influenced by the recovery in demand for steel in China. Policies to stimulate the economy ensured ample available credit, encouraging a recovery in the real estate market and construction activities; on the tax side, we noticed an increase in investments in infrastructure. In addition, low steel inventories throughout the production chain limited immediate delivery availability and positively pressured prices. In response to encouraged demand and fueled by the higher margins, steelmakers increased output by 9%, the highest quarter-on-quarter increase in more than three years. As a result, iron ore demand grew and the commodity’s price averaged US$55.66/dmt (Platts, Fe62%, N. China) in 2Q16, 15% up on 1Q16.

Maritime freight costs on Route CI-C3 (Tubarão-Qingdao) averaged US$8.43/t in 2Q16, 48% up on 1Q16. The route was positively impacted by a seasonal increase in transported volume by of capesize vessel and higher fuel prices.

Results from CSN’s Mining Operations

·         In 2Q16, iron ore production totaled 8,537,000 tonnes, 17% and 26% up on 1Q16 and 2Q15, respectively.

·         Second-quarter iron ore purchases came to 1,376,000 tonnes, 123% up on the previous quarter and 40% more than in 2Q15, as the Company took advantage of market opportunities.

·         Iron ore sales came to 9,267,000 tonnes in 2Q16, 12% and 26% up on 1Q16 and 2Q15, respectively, thanks to sales volume to third parties. Around 695,000 tonnes from Congonhas Minérios were sold to CSN’s the Presidente Vargas Plant.

¹ Production and sales volumes include 100% of the stake in NAMISA until November 2015 and 100% of the interest in Congonhas in December 2015.

·           Net revenue from mining operations totaled R$1,0 billion in 2Q16, 8% up on 1Q16 and 49% more than in 2Q15 1Q15. The upturns in both periods were due to higher total iron ore sales volume, which came to 9,267 thousand tonnes this quarter.

·           Mining segment COGS came to R$743 million, in line to 1Q16 and 37% up on 2Q15, due to the higher volume of iron ore sold and higher purchases from third parties. In 2Q16, Congonhas Minérios recorded a Chinese delivery cost excluding depreciation of US$28.2/wmt, 10% down on the previous quarter, mainly due to a reduction in the mine’s production costs and in seaborne freight charges.

·          Adjusted EBITDA stood at R$365 million in 2Q16, 29% and 61% up on 1Q16 and 2Q15, respectively, with an adjusted EBITDA margin of 36%, 10 p.p. higher than 1T16, chiefly due to the increase in FOB export prices and reductions in production cost and seaborne freight.

 

 

2Q16 RESULTS

Casa de Pedra Iron Ore Cost Excluding Depreciation

(US$/wmt delivered to China)

Logistics

Results from CSN’s Logistics Operations

Railway Logistics: In 2Q16, net revenue came to R$337 million, generating EBITDA of R$141 million and an EBITDA margin of 42%.

Port Logistics: In the second quarter, Sepetiba Tecon handled 32,000 containers, in addition to 197,000 tonnes of steel products and 1,000 tonnes of general cargo. Net revenue totaled R$45 million, generating EBITDA of R$11 million, accompanied by an EBITDA margin of 24%.

Cement

According to the IBGE’s Monthly Industrial Survey (PIM-PF), Brazil’s cement production fell by 14.2% year-on-year in 2Q16, in line with the performance of the construction industry.

Preliminary figures from SNIC (the Cement Industry Association) indicate domestic cement sales of 28 million tonnes in the first half of 2016, 14% less than in the same period the year before. For 2016 as a whole, SNIC estimates respective annual declines of 12% to 15% in sales and 9% to 11% in apparent consumption.

Results of CSN’s Cement Operations

In 2Q16, cement sales amounted to 594,000 tonnes, 4% up on 1Q16, while net revenue came to R$109 million. EBITDA totaled R$7 million, accompanied by an EBITDA margin of 6%.

 

 

2Q16 RESULTS

Energy

According to the Energy Research Company (EPE), Brazilian electricity consumption totaled 231 TWh in 1H16, 1.7% less than in the first six months of 2015. Consumption in the industrial and commercial segments fell by 5.3% and 1.5%, respectively, while residential consumption climbed by 1.2%.

Results from CSN’s Energy Operations

In 2Q16, net revenue from energy operations totaled R$66 million, EBITDA stood at R$16 million and the EBITDA margin came to 25%.

Capital Market

CSN’s shares appreciated by 9% in 2Q16, while the Ibovespa increased by 1% in the same period. Daily traded volume on the BM&FBovespa averaged R$88.9 million. On the New York Stock Exchange (NYSE), CSN’s American Depositary Receipts (ADRs) moved up by 24%, versus the Dow Jones’ 1% appreciation. On the NYSE, daily traded volume of CSN’s ADRs averaged US$7.1 million.