Good morning and thank you for holding. Welcome to the CSN's Earnings Conference Call to present Results for the Second Quarter 2019. 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 presentation. And following this, we will go onto the question-and-answer session when further instructions will be given. [Operator Instructions] We have simultaneous webcast that may be accessed through CSN's Investor Relation website at www.csn.com.br/ir where the presentation is also available. The slide presentation -- well the conference of this event will be available for one week. Once again you can follow through the slides at your convenience. Before proceeding, we would like to state that some of the forward-looking statements made are based on expectations and trends and the opinion of the company management. Future results performance and events may differ materially from those expressed herein, which do not constitute projection. In fact actual results performance or events may differ materially from those expressed or implied in the forward-looking statements as a result of several factors such as general 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 and national levels. We will now turn over the conference to Mr. Marcelo Cunha Ribeiro, Investor Relations Executive Officer who will present the company's operating and financial highlights for the period. You may proceed Mr. Ribeiro.

A good morning to all of you and thank you for participating in our call. I would now like to give the floor to Mr. Benjamin Steinbruch, the CSN CEO for his initial comments.

Good morning to all of you and thank you for participating in our earnings conference call. Basically I believe that the results testify to what was said the last year referring to an enhancement in our figures and an improvement in the company's situation. What was promised is now being delivered. We are undergoing a process of delevering and demobilization, improving our image, a process of growth and appreciation of the company once again as part of that process, which was announced in 2018. And the figures do not pose any novelty compared to what was said. The great novelties are yet to come. We have a very optimistic view when it comes to the second semester. We have a given for the iron ore situation; you will have heard that we are purchasing more iron ore as well as producing more. We are producing at a lower cost. We have a very good price policy selling at future price and so far we have not contemplated the maximum price of iron ore differently from the Platts. As you know we have been practicing prices that date back three months. We believe that the prices will continue to evolve in the coming quarter. And we have made the right decisions, and of course, we're being aided and abetted in terms of climate factors, it has not been raining and once again this contributes towards the ease of operation and the shipment of iron ore. I would say, therefore, that mining is doing its very best and will be able to increase both qualitatively and quantitatively. We expect an improvement in quantity as well as an improvement in quality and consequently in price for the second semester when it comes to mining. If you analyze the issue of the steel mills,…

Thank you, Benjamin. We will go on to our financial and operating highlights on page number 4. We show you the EBITDA evolution in the last quarter sequentially. A year-on-year evolution 68% compared to the same period last year. An increase in volume and prices that have been continuous throughout the last year not only in the steel mills and more recently in the last quarter showing that mining has had a very significant share in our consolidated results. Margin because of this is exceptional 33% in terms of the company and leading to R$2.4 billion which is a historical record for the company. Vis-à-vis the previous quarter it is a growth of almost 40% as we see in the previous graph with a great contribution of mining that had a 60% growth more than offsetting the performance of steel plant and the cost. We had a growth in volume prices; logistics had a very good performance. In truth, this was a quarter with a positive evolution in general. On Page number 5, we look at our financial indicators that, of course, will lead to our cash generation. We begin with our CapEx. In the quarter, we have accelerated investments R$461 million something that was already expected. This quarter concentrates all of the expenses with a reform of blast furnace number three along with other important projects that will be commented by Gutemberg centering as well as other projects. And in mining, important deliveries, for example, the second tailing geonet for mining within the second quarter will allow us to have full independence. Now, this important indicator leads us to think about higher investments this year as well as an acceleration in production 33 million tons and we will come to a CapEx very close to R$1.92 billion when it…

We will now go on to questions and answers for investors and analysts. [Operator Instructions]. Our first question is from Leonardo Correa from BTG Pactual.

Good morning to all of you. Thank you for taking my question congratulations for your results. The first part when it comes to leveraging, we have been following up on your efforts and the metrics show significant improvement, because of the EBITDA that has changed levels. My question is the following: I would like to further explore the absolute net debt. We have seen that throughout the year this debt has changed timidly a reduction of R$500 million approximately. Going forward, I would like to see your levers. How is this absolute net debt going to be reduced which will be the magnitude of reduction that we can expect in the coming quarters? And a question to Benjamin. If we could have a quick overview of conversations with streaming and SWT, I think this would be very helpful. To go on to a second point and to include Martinez in the discussion now the price of steel clearly has suffered an impact. Benjamin clarified and underscored that this is a one-time event, it is not a recurrent event. But if we follow-up on the evolution of results, we see the very strong impact and contribution of EBITDA. Now in the second quarter last year, the contribution to EBITDA was much higher this has -- this dropped to R$350 million in the first quarter and now to R$325 million in the second quarter, very small figure for CSN. Now you have stated in the presentation that the fourth quarter will have more aggressive figures. What will happen in the third quarter Martinez? Will we have a lesser amount for EBITDA? Is this the bottom? Is there room for improvement? If you could speak about the recovery in the third quarter and speak about normalization of steel that will be very important for CSN. Those are my questions. Thank you.

Let me begin with net debt, which is your first question. Well, Benjamin very clearly stated his personal goal of getting to R$20 million and the R$5 million additional. Now we are at R$23.5 million in terms of absolute net debt as you mentioned. When we look at cash generation and what is within our reach in terms of initiative. Now when it comes to the financial initiative and in terms of SWT, last time we mentioned that we had constant negotiations and this time the situation is not different. We have made advances and were ever more certain that this will be a real opportunity in the short-term. An M&A is an M&A and we're going to do it right once we get to the right conditions for CSN but we are closer to coming to a solution. When it comes to streaming, we're becoming quite demanding in terms of the conditions. We have better visibility in terms of the potential for growth and the average growth curve. And we have to obtain conditions that will reflect all of this potential. We -- well, we could work with a more creative structure. And, of course, this structure will have to reflect all of the potential. This is what has delayed us but we're quite confident in the process.

When it comes to the questions about the third quarter, Leonardo you asked about the EBITDA. R$200 million is the bottom figure. Going forward, the figures will not be below R$200 million. Quite the contrary at the end of the year and the fourth quarter, we should obtain R$500 million in EBITDA for the steel plant. Evidently there are some levers that Benjamin mentioned. And we expect stronger growth than in the first quarter. The figures of ABR show a growth of 4% for the second semester, zero for the first semester and I'm working with a sale of growth of R$300 million to R$400 million in the domestic market. We achieved R$1.600 million, we need to achieve a R$1.800 million. As a minimum this is what we have to grow in the second semester. In terms of price this is interesting. We're being somewhat selective in terms of our profitability. We're going to have a price carryover that is important for the third quarter and we're focusing fully on profitability. I continue to speak about galvanized material, up 40% and we're going to work strongly, so this increase to 63% to 64%. And price as mentioned by Marcelo will continue to increase and we have to be smart enough to capture the premium of BQ and BS in the market. Obviously there is a situation of idle capacity for BQ that we will have to resolve. In the second quarter, CSN maintained the prices for industry and automotive market stable. And we had an increase of 3% on the average and a carryover of 2% or 3%. Now the reform of the blast furnace should end at the end of August. And in the third quarter we will get to a bottom line of 200 and some then onwards…

Thank you, Benjamin, Marcelo. Thank you for your response.

Our next question is from Gustavo Allevato from Santander Bank. You may proceed, sir.

A good morning to all of you. I have a question that refers to mining. I would like to gain a better understanding of how much you have hedged in the quarter to get to your EBITDA guidance of BRL 8.5 million. The second question to Marcelo, who mentioned in the presentation that we are at BRL 2 billion for 2019. Now after the guidance that we see for EBITDA this seems to be very low which will be your cash consumption to get to that final generation. Thank you.

Gustavo, this is Marcelo. When it comes to hedging, well, historically we have done very little of this. And in that R$8.5 million there is practically none of this. We have been working with price fixing somewhat further ahead in the curve. And we are able to do this in a very convenient fashion. At the end of the year, we had a certain problem when it comes to slabs, but there have been results. We have a favorable curve and we will reach that R$8.5 million based on our expectation for the second semester. As mentioned by Benjamin, we are being conservative and we are being optimistic when it comes to the average Platts for the second semester. In terms of cash generation, once again we are being conservative. On the one hand, we foresee an increase of CapEx to get closer to R$2 billion and an increase in income tax cash. We have a very good situation, a good EBITDA in mining that will generate exceptional results when compared with the beginning of the year and this will have a significant cash impact and an impact in working capital. And with the higher cost of raw materials, we end-up having higher consumption that was expected. Once again, all of these factors are transitory and we will continue generating strong cash to revert this.

Thank you, Marcelo. If I can ask Martinez a question and she is -- he thinks that there is space to have a price increase in the third quarter.

Gustavo, an important thing is the premium. If we think of $500 FOB and an internal price at $2,700 for BQ and fiscal fin well, this premium is very low it is 2% or 3% premium. And we have the problem of international freight that has increased significantly. We believe that if the market acts with reasonable intelligence between volume, supply and demand we will have the obligation of recovering at least 7% or 8% of that premium. We have worked with historical premiums in 2002, 2003 of 25%. We are only at 10% or 15%. It's our obligation to once again recover this space. The only problem that impacts CSN directly is coated material. Imports dropped 11% during the semester and grew 13% in terms of galvanized products. We have to be careful to ensure that the imported products will not gain penetration in the domestic market. We're being very assertive and we think we can improve in the third quarter and it will have to be done in any way we can. There is nothing more relevant for us than the reform and the price of iron ore that had an increase of almost 70% during the year, and the increase of other raw material. Everything transpires to enable us to have this recovery and what we hope for is a stronger demand in the second semester. We truly believe that this will materialize.

Gustavo, if you observe the price of steel in the international market it is on the rise. There is a strong movement in the United States as well as in China. And as Martinez mentioned, reflecting this ratio, we will see that the trend for a price upturn abroad is a reality and it should increase further. I believe that domestically, we will be able to update our prices vis-à-vis international prices, because of the need of increasing costs that apply to everybody and not only to our blast furnace an increase of 10% at least and this will be different to what is happening abroad. And whether the market reacts or not part of this cost increase will be transferred to the market. This is simply based on what we observe internationally. There has been a price increase since last month. This is the reality. Thank you.

Our next question is from Daniel from Itau BBA. You may proceed.

Good morning to all of you. Thank you, Marcelo and Benjamin for taking my questions. The first question is cash flow. I wasn't able to conciliate the difference in terms of what was reported even if we consider the R$1.1 million you paid out in dividend. If you could share with us perhaps if there was a non-cash effect that ended up not having an impact on EBITDA during the quarter, when it comes to the R$20 million in net debt? I would like to know if you believe that this is an appropriate level even if we have an accommodation in the iron ore prices. Now if the results of mining are not sustainable at these very healthy and high levels that we saw in this quarter if we will see an increase in leverage throughout 2020 and still speaking about cash generation of R$2 billion or R$2.5 billion for the quarter if you have any initiative in place for the prepayment of debt going forward? These are my three questions. Thank you for taking them.

So, well, very broadly when it comes to conciliating this we generated R$800 million in cash and the debt increased R$800 million that is R$1.6 billion. R$1.2 billion because of the dividend of this R$400 million has also referred to working capital that are excluded from our definition of working capital. A R$100 million in foreign exchange variation and a R$100 million in reduction because of our prepayment for Glencore, and of course, we have been rolling this over through a new payment. There is a revolving characteristic that we have excluded from our definition of working capital. The rest is either non-recurrent or non-operating that is below the EBITDA line in non-operating expenses. When it comes to leveraging, I would say that my analysis of what would be a healthy capital for a normal part of the cycle would be R$12 million of gross debt and not net debt and we would like to get to that in the near future. We're counting on projection, strategic planning to be able to define the horizon for this gross debt, but not a net debt that would be more reasonable for us. And finally, which was your third question, if you have any initiative undergoing for prepayment. Taking into account the growth that you expect in cash generation in truth we do not. We have amortizations. Our debt has been lengthened with the banking sector. There is a short-term amortization as I mentioned. The debt continues high in the short term and we will need to have prepayment because of the lengthening of the debt. We're going to replace bank debts with capital markets as mentioned.

Thank you. That was very clear. Thank you very much.

Our next question is coming from Mr. Carlos De Alba with Morgan Stanley. You may proceed.

Thank you very much gentlemen. So just coming back to the target of net debt of R$20 billion, can you comment as to when do you expect to reach that level? And based on the prior-year answer is it fair to assume then that most of the reduction well depending again on when the target will be achieved would come from increased cash balance rather than a reduction in gross debt? The second question that I have is regarding, I think Benjamin you mentioned that the company has been selling iron ore in futures market. Can you comment a little bit more about for what period this is? Is this for the second half of the year or for further periods and more or less what prices have you been able to secure? And then finally for Martinez. Martinez I understood that or at least I saw some news about two weeks ago or a week ago that prices in Brazil had been -- it had come down to being -- or discounts had increased in the margin -- in the magnitude of 5% to 8%. Could you comment on this, and also, if they were implemented by CSN or given by CSN what are the expectations for prices in the third quarter and the second half of the year? Is that embedded in the 3%, I think, I understood carryover effect in prices from what the company was able to hike in the first half of the year? Thank you very much.

Thank you for your question Carlos. We want to get to R$2.5 billion in terms of EBITDA the coming year and necessarily we'll have those R$20 billion in net debt in 2020. I don't have the precise figure so far but we're going to begin the year below three times between December 2019 and 2020. Now when it comes to the future sales we know that the mining curve has a performance that drops because of supply and at a certain point in time there should be a normalization or perhaps we will work with hedging. We didn't do this in the past. We could use it more. And we have these long-term contracts that will enable us this ease, but so far we haven't priced anything. Now when it comes to the price to reinforce what I said in the second quarter we had already implemented price increase in the automotive industry and in others. So practically it was zero. In the second quarter, we tried to work with a 10% increase. We were able to capture 6% in construction and the white line. Additionally, another point that I mentioned is that there is no business logic with such a low premium a premium. A premium of 2% to 3% is extremely low especially in BS and BQ. And remember we have to increase prices in the third and fourth quarter as it is about 10% to take this premium to a value between 10%, 12% or 13% that would be reasonable. Of course, we know that importers have the risk of foreign exchange of delivery and others. This is what we are imagining in terms of prices for the second semester and we also work with enriching our portfolio day after day. We continue to maintain 51%. When we have more than 6,000 clients we try not to have all the eggs in the same basket. And in the United States as Benjamin mentioned we have already captured an increase of $40 in the last few weeks. It seems to be accepted and of course, we are going to try to send to the United States 250,000 to 300,000 tons that will help us balance out the domestic market. In tin plate the good news is that there is no longer any imports of tin plate in Brazil. And the packaging which was importance in terms of profitability for CSN once again occupy space vis-à-vis plastic and other materials. All of this will enrich our portfolio the premium and our ability to penetrate the market. And we think we will be able to have a 10% price increase in the third and fourth quarters.

Thank you very much.

Our next question is from Thiago Lofiego from Bradesco. You may proceed, sir.

Hi. Good morning. And Maritnez, you remarked on the increase of 10%. Now which has the risk of going back to that premium we see that there is a weaker demand in general. And as we see demand once again is not very strong this year, which is the risk of not being able to increase the premium back to 10%. If you consider the scenario of demand now you have mentioned that you are expecting an improvement. And once the blast furnace comes back into operation what will happen? What I'm attempting to do is to understand the risk of trying to return to that 10% premium. My second question that refers to mining, I would like to gain an understanding of the dynamic of purchases from third-party considering that these small producers tend to have a very high margin which has been your procurement dynamic and if you are going to continue buying from third parties during the year.

Thiago, good morning. When it comes to demand I have to agree with you that a stronger demand will doubtlessly help us increase the price in the market. When we think about our cost context the pressure is much greater. 2% to 3% is a very low premium. If the premium were 8% to 10% the importer would not have the courage to import with those prices because of the very high risk. We are also not working only in the distribution market. There are other markets that demand other service levels and deliveries. I think that the risk is quite low, but the sector needs to work with greater intelligence. We need to recover profitability. We have to wait for the market to increase, increase to increase volume and understand the international dynamics. Now, in the second semester, the bias is positive and if demand increases, this would ease our work. Now, I think we will be able to implement this in the third and fourth quarter.

This is Martinez referring to the procurement from third parties. Last year we reached the goal of R$7.2 million, this year it has been of R$6 million. Once we resolve the problem of demand, we can look for more and this demand will be supplied by internal production. We are thinking of R$ 40 million in sale of iron ore once again as guidance for the year.

Thank you very much Martinez and Marcelo.

Our next question is from Mr. Caio Ribeiro from Credit Suisse. You may proceed sir.

Hey, good morning to all of you and thank you for taking my question. My question refers to the iron ore freight that had a significant increase this year. If you could give us more color, explain what has given way to this increase. Secondly, to speak about the environment of demand for steel in China, there have been some cut downs in production because of the Chinese government that should be reverted at the beginning of August which means that at the beginning of August; perhaps there could be a greater steel production in China. I would like to know how you interpret this increase in steel inventory. Is this a sign that demand is increasing because of what we have seen until June of this year?

When it comes to freight we had an increase a significant increase in C3 and there has also been an increase in the price of iron ore and we think that this will reach levels of $20 per ton. Now, we are working with a positive outlook when it comes to the prices in iron ore until the end of the year. This is our specific case our prices are lagging behind while we compare this with European and once again we have a growing curve in terms of iron ore and there is that pressure. We understand that the iron ore inventories are dropping because there was a reduction in the premium price, but we do believe that the prices will remain at the same levels until the end of the year. Another important point China is much more complex than what we see. Perhaps it goes against what we are seeing. What is it that I see about China? $500 for BQ FOB is a very low price. Most of the Chinese plants are operating with negative results at this level of BQ price because they buy all of the iron ore that is at a record historical level and we have to calculate things. In the case of China, they have imported enormous productions in the last few years. They are trying to have a cleaner and more sustainable production and we do believe that the Chinese price cannot drop below $500 which would be impossible because of technical reasons and cost reasons. The most productive country, the most competitive country in terms of steel is Russia. They can produce a slab at $340, $350. China follows the international market when it comes to raw material; at least, this is our belief for this year. Obviously, this issue of China and the United States has halted the deceleration, but we think there will be a trend towards an increase.

Thank you. Thank you very much.

Our next question is coming from Mr. Petr Grishchenko with Barclays. You may proceed.

Hi. Thanks for taking my questions. I couldn't hear too well on the call. Can you please help me a little bit better understand the actual items for the rest of the year? I don't know if you mentioned the dividends on CapEx and the role of payments to Glencore for the second half. Also can you please confirm if you do not include advance payment to Glencore as part of your base calculation which appears to be the case? And lastly can you maybe share some thoughts on I guess, there are some Brazilian economics where you – for proposed galvanizing plants and potential timing for CapEx, I mean any details will be helpful including capacities that you expect to bring in line? Thank you.

Peter, thank you for your question. When it comes to cash in the second semester, we are not trying to quantify this component, we do have our guidance. About your specific doubt the prepayment of iron ore by Glencore what it does is to just store things. You have the resource you have cash vis-à-vis a non-financial liability. It will reduce the liability during the period against delivery and we did not consider this in our calculation of working capital. It is a reduction of liability during the period. What we have planned and what we are executing is that every once in a while every six to nine months or every year, we will carry out new prepayment so that this disbursement with the prepayment will not take place it will be replaced. In the cash flow, calculations this should not be considered as an outflow. This is the way that we can figure things and that means that the cash flow for the year 2019 without taking into account financial initiatives at R$2.5 billion. Now as I mentioned, we are considering a CapEx of about R$2 billion to address your second question which is the expansion of capacity and investments in the galvanizing plant. This continues as is. We are moving forward in terms of planning financial aspects and engineering and evidently this will not have an impact on the investments of this year, but in future years it is an investment of about $350 million that will be carried out during a two-year period during construction for 250,000 tons of galvanized products.

Thank you. As there are no further questions, we would like to return the floor to Mr. Ribeiro, the Executive Director of Investor Relations for his closing remarks.

We would like to thank all of you for your presence and we hope to see you at our next earnings conference call. Thank you.

The earnings conference call for CSN ends here. You can now disconnect your line. Have a good afternoon.