Companhia Siderúrgica Nacional (SID) Q2 2021 Earnings Report, Transcript and Summary

Good morning and thank you for waiting. Welcome to CSN's Conference Call to present the Results for the Second Quarter of 2021. 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 session. At that time, further instructions will be given.

Good morning everyone. Thank you for participating in this conference call. This is yet another call in a quarter of very good numbers very good news. We will start this presentation on page number two with the highlights for the period mentioning a record EBITDA. And practically all the financial metrics of the company reached record numbers except for the net income where the number of the -- of quarter one was even higher. But at the time it was impacted by the IPO of CSN Mineração. At this time, it was BRL5 billion of net income and with excellent operational results. It's a historical number. However, it's a short history because with such positive trends in terms of prices and costs, we are expecting that the next coming quarters are even better. So, this has allowed us to reach some leverage targets that were expected only for the end of the year but we were able to bring our leverage to very low levels. We even reduced the net debt to less than BRL50 billion and we inaugurated a new phase in the company's journey. We are now focusing more on capital reallocation. So, the highlights of this quarter mark the start of this phase with the purchase of main plant inaugurating the investment strategy of CSN in this industry.

Good morning, everyone. First of all, we would like to announce the publication of our integrated report for 2020, with a little bit of CSN's history. CSN just celebrated its 80th anniversary. So this was our first integrated annual report. It brings the largest number of indicators ever reported by CSN, and the main events and results of the past year in terms of financial management, economic aspects environmental aspects of our five segments: mining, logistics, energy, cement. This was outsourced to an independent company. According to CVM's construction 14 of 2020, so I invite you all to read the report, which is already available on our platforms on CSN's site. And in this quarter, we also concluded, our TCFD and this is all available in the global emission record. And this was all prepared according to the GHG methodology. And for the seventh consecutive year, we got the Golden stamp. Also, we concluded our disclosure inside action about our environmental and climate-related performance, water capture supply chain. All this information is also available to all investors through this very important platform CDP. In this quarter, we also had the start of the training of our executive officers and other members of the staff. The construction of our risk metrics and climate opportunities metrics, which allows us to venture and incorporate the impact of our climate-related initiatives in our financial reports. We also have Grupo CLIMA, a forum with many executives in different areas that will allow us to discuss and supervise implementation of initiatives related with our decarbonization road map. And we are also using an AI tool that creates an imaginary curve showing the results of all -- projected for all projects. So it allows us to calculate the impact of the emissions that will be avoided. And in the end of this year, we will have new targets even more ambitious and aggressive targets than what we presented in our initial plan.

Thank you, Helena. And before we open for questions, I'd like to hand the conference over to our Chairman and President, Benjamin Steinbruch for his considerations. Benjamin? I think we're having connection problems. I apologize. So I suggest that we open for questions, and Benjamin can join us for the final remarks. Thank you all.

Thank you. Ladies and gentlemen, the floor is now open for questions. We will take questions from investors and analysts. The first question is from Daniel Sasson, Itaú. Mr. Daniel, you may proceed.

Hello. Good morning. Thank you for the opportunity. My first question is perhaps to Martinez about steel your steel business. Can you talk about your expected margin looking forward based on the 33% this quarter. So how far can you reach considering that you still have some price carryover from the second to the third quarter? And also there's the evolution of the cost of raw materials. And the second question maybe is for Marcelo. With the low leverage levels and very strong perspectives in terms of results, there's a natural question that arises about capital allocation. Do you see more opportunities after the perpetuals that you're going to rest in September, so in which business lines of the company today except of course for the projects that we already know and have already been approved in mining and cement. What are the business areas today where you see your major opportunities? And if you allow me, I'd like to ask about cement. We saw a price increase of 6% in the quarter. So can you also talk about what you expect for quarter -- so for the second half of the year, do you think that these price increases will continue in the second half of the year and will continue to help the results of this business unit? Thank you.

Hello, Daniel. Good morning. This is Martinez. So let's start with your question about the expected margin for quarter three. I don't know if you remember, but when we started the profitability recovery plan of the company, Marcelo used to say that 1.5 year ago and that was in dollar per ton of EBITDA. And fortunately, with all the work that was done and with other factors that also helped supply-demand and cost factor, we closed the first quarter with a margin of $400 per ton of EBITDA. And the forecast for quarter three is to reach a margin of about $500 to $530 per ton. Of course, we expect that in this quarter costs will behave a little better. Although -- well people didn't really pay attention to this in the market. But today for example, for one ton of coal, we are already paying about $200 per ton. So if you look at what is happening regarding costs, for example, the cost of coal today which was $140, $150 now it's $210 fob Australia. Coke remains the same, the same price fob China and for iron ore $203 to $215. So part of this has already priced in. And another important thing is that we should have a price carryover to quarter three between 13% and 17%. There are some reasons for that that are very peculiar to CSN's work and their strategy. And what is motivating this? For example, in July, there was a change in the pricing criteria for customers that had an annual or even half yearly contract. And that doesn't exist anymore in CSN. All our contracts now are quarterly. And we work with a very small number of contract today. So we changed the sales profile to work with spot 75% to 80% and this has been of great help. Just to give you an idea in July, in the industry, we accumulated an increase of about 120% to 130%. So we should certainly have this price carryover which will help us our profitability quarter three. In a magnitude 13% to 17% and an EBITDA of $500 to $530 per ton.

Well now as for your question about capital allocation, we have our priorities very well defined by segment. For example, in the case of steel, we are very much focused on productivity gains considering the current volumes. So these are projects under UPV in particular, which will lead to improved efficiencies, centralization of our coke shops and removing bottlenecks. This will increase the production volume in about 10% to 15% and reduce the production costs. So this is what we have planned for steel. In mining, we have a very ambitious plan of tripling our production rates using the IPO funds. And in the case of cement, there's a mix of inorganic growth via sector consolidation and we have the appetite to do that if we have adequate price conditions. And also, organic projects that are exceptional projects that count with long-lasting sources with excellent technology and equipment a very privileged location. So this will reinforce our presence in the Southeast. These are the growth focused actions that we have planned. In the case of mining, we're talking about BRL 30 billion of CapEx in a period of seven to eight years. Mixing equity and debt. We already announced the financing with -- of $350 million in a 12-year term. Very favorable conditions. We will also be issuing an infrastructure debenture 10 to 15 years of maturation subsidies of 2,431. So the company's debt from now on will be very much based on this type of project financing long-term and low cost. And the liability management will follow the strategy of improving the conditions of the current liabilities. We are retiring the perpetual which has a high cost of 7%. Just for comparison purposes, we have our 10-year bond negotiating at 4.2%. So we will possibly be prolonging further our debt, but always seeking to reduce the average cost trying to reach the investment levels of our credit ratings.

This is -- Daniel -- Martinez. Your question about cement. Just to give you an overview of what we are going through right now. The Brazilian market is growing at about 15.8%. Of course, this is very much impacted by last quarter, which was very bad. But the expected -- and CSN is growing at 16.2%, considering that in the Southeast the market has grown 12%. So we're gaining share in the market that we chose. Another important point is that, the market will probably close the year with a growth rate of about 6% to 8%, which is what we always talk about -- what we talk about when we prepared for the IPO. Another important point is price. Price in Brazil is still very low. Cement in Brazil is cheapest in the world. So what happens today, just to give you an idea, is that coke, the coke that we use as fuel for cement production, has doubled in price. And today it accounts for maybe 30% to 40% of our cost. So the increase of price in cement is not about recovering profitability, it's about recovering your costs. So we increased by 6% quarter-over-quarter. We already see some increases. The cement has different dynamics. We have some more focal increases -- monthly increases. So the expectation is to reach a FOB net price of $295 -- sorry, BRL 295, which should be the industry price to allow us to have a good profitability in this segment. Thank you, Daniel, for your questions.

Thank you.

Thank you, Martinez and Marcelo.

The next question is from Leonardo Correa of BTG Pactual. Leonardo, you may proceed.

Good afternoon, everyone. My first question is also about capital allocation. I'd like to further explore the avenues that you're implementing. For example, in cement your strategy is very clear. The strategy of going through M&As and you're already delivering on that strategy and you have other opportunities inside. You also have the growth in mining, which is very well defined and already being implemented. So I'd like to explore if you have been looking at new business opportunities. And maybe, you could consider a more aggressive capital allocation, or if you will keep focusing on the core services of CSN, where you already have a presence and you still have room to grow. So I would like to understand what is the strategy that you have planned for capital allocation? And also, still about capital allocation, the theme of the buyback. We saw CSNA3 negotiating with your consensus accounts, a paper that is very deep -- low versus historical levels of valuation. So how do you see the possibility of a buyback, potential buyback? And the second question to Martinez. Martinez, you already talked about the market and the price carryover. But at the same time, we realized that we are at a crossroad in Brazil regarding price. Of course, the scenario is still very positive. The recent increases were very strong. But when we look at the recent news flow of distributors and some small adjustments and discounts, when we look at the pressure of the government for a potential small reduction in import rates and all the noise that we hear about this informal price agreement, which was then denied. Looking at the premiums, we see that the premiums are getting fuller between 15% and 20%. So it seems that it is somehow losing momentum and customers are having some difficulty in some isolated cases. So I'd like to hear more about price in Brazil and how you see this current moment and the new elements that were brought into the discussion?

Now about capital allocation. We have five segments. It's not just mining and steel and cement. We also have energy and infrastructure. This gives us more broadness in terms of how we search for opportunities. We're reinforcing our staff. We're training our senior executives with very good results. We have a very interesting pipeline but within these segments that I mentioned. And we don't see any possibility of diversifying beyond these five segments. What we have is an interesting discussion that has always been present in CSN, which is geographical diversification. Considering the recent global crisis and national crisis that we see, it's very interesting to be present in disconnected economies for risk mitigation purposes and exposure in different markets. So CSN already has a presence abroad, but that could be improved in the future. So this is certainly something that is included in Benjamin's concerns. And he will address this in his final considerations. And regarding the buyback, we do think it's a very interesting use of our cash. We already have a short-term buyback program that we have started. So in the next weeks and months, we will see part of our cash being used for that purpose. And regarding price, I think Martinez is the best person to answer your question.

Leo, one important thing, first we need to consider what is happening in the world. We already heard about this in the first call this morning. But this is all somehow permeating and being transferred to Brazil, regarding the import spiller which has grown greatly. China today has the control -- has decided that they will have a strong production control in the second half of the year. We have heard from different plans that we'll be working at much lower levels. And in steel production, this is very positive, because this certainly means that prices will increase in China, compared with the current prices of about $930, $940. Other data like industrial production, retail and automotive, and a reduction of the rebates that they have today for export products. So this is what's happening in China. In Russia, for example, which is a country that we didn't use to mention a lot, but on August 1st, they're going to have the implementation of temporary tariffs for imports of iron and non-iron products. So this will certainly impact us. And another important subject, which is, very interesting and important for Brazil is that we're going back to apparent consumption levels of 2013. In 2013, we had BRL14.5 million then we reached that value of BRL11 million or BRL10 million. And now in 2021, from what we see we should close the year at BRL14.5 million or BRL15 million. And why do I think this price can be sustained overtime? One important thing is that today in Brazil because of supply and demand, and also because of the service level that we have been providing which improved greatly particularly in CSN. I think we are allowed to maintain higher premiums. Premiums of about 15% are not a sin today, vis-à-vis the instability of the market, the fluctuation of the dollar exchange rate and the market. Supply and demand as I said, we have a good relationship today. And another important point that I just mentioned is that, costs. Although, we think they are totally controlled they are not controlled. Coke has skyrocketed to $210. Iron ore is still at very high levels. The prices are around the world. And we are not different from the rest of the world. They are more appreciated than in Brazil. Today, in Brazil, we have price effect of maybe a BQ of about $1,400 or $1,220, similar to Europe. In the U.S. they're higher. And with this current global situation the peak of imports has gone by already. Of course there will be a carryover for the next few months. The exchange rate variable is exogenous so we don't -- will not have full control, but we believe in the level of 5.10, 5.20 which is still healthy for us. So these are basically the items that are supporting, our strategy. And we can even think of a price increase in the future, depending on the cost and depending on the premium or the dollar exchange rate. Regarding import tariffs, I think this makes no sense. And it would actually be counterproductive, because we don't want to compete. All the steel industries in the world from their door in are very competitive. But what motivated the discussion about the import tariffs was supply. So what causes the import cost is the low stock. And this doesn't happen anymore. We have full supply currently. And regarding competition, we're already preparing for the drop in these tariffs. And it's interesting to see this happening in Brazil because this means that the other reforms will be happening in parallel. So having this competitive strategy and the other reforms taking place, I don't see why we should reduce the rates. And regarding the import tariffs, this was very polarized in a few sectors. Today markets are well replenished. And when we talk about imports we see a lot of imports coming in. We have 900,000 tons imported this year. It was equivalent to the whole of last year. So competitiveness is full in this industry. I don't think that will be a relevant threat. I don't even think that will be a priority for the government. The highest priority for the government based on our conversations was supply. And we don't have a supply problem now. We have full supply in all product lines.

The next question is from Caio Ribeiro, Credit Suisse. Caio, please you may proceed.

My first question is about your dividend payout policy. Today your policy is 25% of your net income. But with this low leverage and the potential tax reform with the taxation -- potential taxation of dividends. Is there any chance you'll be announcing extraordinary dividends this year or even expanding your policy to a higher payout linked to cash generation maybe? And also my second question is about steel. Could you talk more about how you see the evolution of the delivery terms of your products? How this has evolved in the last few months? And how these terms compare with the terms that you had in the first and second quarter of last year? Also how are you seeing the steel inventory levels and the sales mix in the internal and external markets, I know you're focusing on the domestic market, but do you see any changes planned for that?

Thank you for question. Regarding the dividends, of course, we're very attentive to the repercussions of eventual reforms any reforms that may happen and this will guide our strategy and behavior. But regarding the CSN Group based on the reform that we had, we don't see any intra-group losses of course from the standpoint of the shareholders the possibility of taxes on dividends would decrease efficiency. So this could be a trigger for new decisions taken this year. But looking from a structural standpoint this new phase of liquidity and capital allocation is very recent. So we have our radar very attentive to any potential opportunities and these opportunities are coming up because this is a time of desynchronized recoveries. We have some industries doing really well and others not so much so this is the time of opportunities. But it's a little premature to talk about increasing dividends when we can have new opportunities arising. And we have a clear limitator which is reaching the level of investment from the standpoint of our credit rating and also the low leverage. And this will be our priority before increasing dividend payout. But shareholders do have a different level of distribution. Last year, we distributed BRL 900 million. And now only in the first half of the year we have distributed twice as much. So the dividends will come with the improved results. And of course we will study the impact of this recent reform. But for now CSN's and CSN mining policies will be maintained.

Hi. This is Caio. And as we heard from Benjamin, quarter three is a given right? You talked about delivery terms.

And delivery terms of products are fully under control. There may be some very short delays, but also anticipation which compensates for the delays. Another important point is that we have pipeline of orders of about 900 tons. So you'll have a full quarter three. And with the price carryover of 13% to 17% you can expect that our results in quarter three will be even better than in quarter two. And that's for everything. And regarding inventory levels this is also an important question. Distribution which used to be a sector where we heard a lot about how we had to have 3 or 3.5 months of inventory. The inventory went from 2.3 to 2.6. So we didn't have that much of a recovery. And of course the -- the other businesses in the sector they are more conservative now in terms of increasing their stocks. We see a lot of anxiety and fragility around the world towards changes. So they are planning to keep the stocks at 2.6. There's even a possibility of distribution recovering some of its stocks because they have never made so much money in the history of steelmaking in Brazil and in the world. And the upstream -- then the downstream chains will have a healthy recovery that will allow customers not to lose sales. For example, in auto industry -- in the auto industry we thought they were going to go back to 35 days to 40 days of stock in the -- in their plans, but it's not that high. So despite the growth mentioned by client the stocks are not increasing and this is very positive. Now regarding the mix being cautious is never too much, right? So what we are doing is the export quota to the US at the full price level that we have today, we'll close the year at 250,000 tons to 300,000 tons of products to the US with a better margin than we have in Brazil. The second point is BQ supply, which is relatively well supplied in Brazil. We are trying to empty our stocks and sending our full supply to Portugal. Portugal consumes 400,000 450,000 tons per year. And from now on we will send them whatever they need. And we're also accelerating the exports of metallic sheet. So we will have an outlet or a way out for some accommodation based on the level of full supply that we currently have in the market. So we're very confident about quarter three because we have volumes already sold. We have prices realized and we will wait for our EBITDA results, which will certainly be the magnitude of $500 to $530 per ton.

Thank you. Very clear. Thank you, Marcelo and Martinez.

The next question in English is from Carlos De Alba, Morgan Stanley. Mr. Carlos, you may proceed.

Great. Thank you very much. So a couple of questions. First one is obviously extraordinary results expected for the third quarter in terms of EBITDA per ton in the steel business. But looking here at my historical numbers going back to 2003, the highest annual EBITDA per ton was in 2008 was $151. This is a cyclical industry. So how do you see the sustainability of the current or the expected third quarter EBITDA per ton margin? And what do you expect would be a more recurring sustainable long-term margin? And then if I may ask on capital allocation. Now that the IP of the cement business is postponed or canceled would the company still pursue an acquisition on that sector and maybe finance it differently with debt and cash on hand?

Hi, Carlos. Well, from the standpoint of sustainability. Well I was happy to go through that situation in 2003, 2004. I was already here. So I understand what are the major differences. The world is very different. The first point is that in operational excellence, so from the standpoint of productivity, CSN is launching now it's at full speed. It has all its maintenances regularly anticipated, some of the maintenances in quarter -- in quarter two to prepare ourselves for quarter three and four. Of course, we are being a little more careful with coal. Because the price has increased a lot and this certainly has an impact on our costs and ore prices are also at a high level and that will sustain the price level. Regarding supply and demand, what I said, we have a good situation and looking at all the possible scenarios in Brazil and all the markets, the agribusiness market, the railway market or roads, civil construction. All the markets are now at a very privileged situation in Brazil. Imports differently from what people think. I think that it has a decreasing trend in imports because of the rebalancing of the steel chains in the world considering Europe and the US. So we truly believe that this margin of $500 to $520 per ton of steel going beyond quarter three will be sustainable even for quarter four. And of course the next year we still don't know. But there's nothing pointing to a bad scenario in the next six months at least. That's what we think in terms of sustainability of our steel business as a whole.

And Carlos, just to add to what he said is that the vision of stronger for longer. We think that from the standpoint of global demand, there's no half turn in the stimuli for future consumption. So at least for the next two or three years and this will even be a lesson learned after the crisis that we had in 2008, 2009. Developed countries and developing countries will take good care of their societies and the way they were affected by the pandemic. So demand will keep being really strong and supply has been disappointing from the standpoint of volumes and also structurally as we can see from the activities of the Chinese government. So structurally, we will see margins above the historical margin of 150 margins or at least double that amount in the next three years. And regarding cement, thank you for asking about cement. The IPO was not canceled, not at all. We are still updating our numbers for quarter two. We had excellent record-breaking numbers. So we're very excited with the mid and long-term of this business, not the short-term but med and long-term. So yes, we are looking for opportunities to finance this growth. That's what we're seeing in mining. We committed to the IPO and we moved on. We actually made it. But we think, there's additional time to update with the numbers of quarter two will be very useful, so that we can keep training and educating the investors that don't know much about this segment at least not for now. So we will continue with our IPO plans. And we will continue with our strategy of M&A and consolidation in the sector. Of course, the timing of one may not be the same as the other. But these things will be taking place even without the IPO and always conditioned to our capital structure. We will always respect our capital structure. We will not make any moves that will increase our net debt to more than BRL15 billion or deleverage to more than one time. But today we don't see any acquisitions that could bring us to above these levels that we establish. We are looking for the right M&As.

All right. Thank you very much, Marcelo and Martinez

The next question is from Thiago Lofiego, Bradesco BBI. Thiago, you may proceed.

Good morning, everyone. I have two questions. Martinez, going back to the issue of price and focusing on car mix and the automotive industry. Will you revise the frequency of your contracts with car companies? You talked about that but I'd like to understand more, what is the current situation? Is there any chance of having quarterly contracts with car industry -- with the car industry as well? And what about the rest of the industry other industrial customers that you may have. And the second question is about cement. Martinez, what is the risk that you see for quarter -- for the second half of the year? And even for 2022 of seeing some deceleration in retail demand with all the reforms. And any changes in the current pace in the current rhythm? So what will be the equation for cement demand in Brazil in the second half of the year in 2022?

Hello, Thiago. Good morning. As for your first question just to try to explain very clear terms what we're doing here in CSN. Well first, there was always this desire on the part of CSN to eliminate the gap that exists between distribution and civil construction products and contract products, contract-based products even for white line appliances or car mix. And this is not a problem that was led by CSN. It was actually the culture. There was a lot of deviation, that was causing great distortions in the market as a whole. So what's happening today is that, of course, this price situation, the cost situation that we have in the market allowed us to do something more coherent in terms of our business policies. As I said in the beginning of this call we defined a new sales policy in CSN. And these contracts I don't even think this is good for the customer or for CSN those annual contracts. What we need is, to close a certain volume and deliver this volume and discuss this on a half yearly basis at the longest and I'd rather do it quarterly with very few customers that we have today based on this model. For example, today in our product breakdown and market production breakdown, we have 34 in distribution, plus 16 in civil construction so 50; 17 in general industry with spot price 67 and 10 more in packaging. We're the only producer in Brazil, so 77. So we have practically 75% to 80% of our customers in spot price. The other 20% -- the other 20% will be working with very short-term contracts and much more corrected because we don't want to have distortions in the value chain. So there's no chance and this is CSN's policy. I don't really care about what the market is doing. The market is doing a lot of things that are wrong. So we will work with the things that we think are right to maximize profitability to our shareholders. So this is our commercial policy and we will not be making any changes. Now regarding cement, to be honest Thiago, we only see good things for cement. We are not expecting to have problems in the market. And we discussed this, when we were preparing for the IPO. The accumulated growth of the market is 16%. The forecast for the year considering the second half of the year compared to last year is 6% to 8%, very promising. And the self construction -- the construction stores are still open. The number of new projects has increased, last month the number of foundations, which is also in the backlog has increased. And traditionally, the second half of the year is always stronger. So I don't see any problems. We don't foresee any problems for the cement sector. The only point is the difficulty that the sector is having. And maybe the sector should be a little bit more eager or stronger to be able to recover its profitability, because the prices that we have here in Brazil are very low compared with the rest of the world. And with the increase in costs that we are seeing for example for coke, the prices will increase. There is no other way. That accounts for 30% to 40% of the price and it has doubled in price. So from the standpoint of the market, I don't have any worries. We will continue to see a very positive outlook. And we are -- we also work with long products and everything that uses cement has to do with long products. The interest rates are relatively low. We have good liquidity in the market. And we have the willingness and the trust of the business community. We have to consider facts and data and that's what we will use as a base to guarantee our second half of the year. And the second point, which I want to highlight today and Edvaldo may even add if he wants. But the acquisition of Elizabeth, what it will bring us is a very strong entry in a market that was practically unknown by CSN and is very strategic. And it will also allow us to have better integration of the markets, the customers and et cetera. I don't know if Edvaldo wants to add anything about the acquisition of Elizabeth, which I think is a very important milestone for CSN this year.

Thank you. Well, it's important to mention that Elizabeth represents to us a fast entry in the Northeast market and a growth of 30% in our production capacity. It's a very competitive plant. We certainly have a lot of expectations in terms of synergies and upsides with Elizabeth. And the summary of these upsides and opportunities is that we are going to replicate what we have done in the past 10 years in the company in our commercial strategy of selling little too many. And in manufacturing our focus on results and cost optimization. That's what we expect in a very important market, which is the Northeast of Brazil.

Very clear. Thank you very much for your answers.

Thank you.

The next question in English is from Alexandra Cinonij . Alexandra, you may proceed.

Hi. Thank you for the opportunity to ask question. So there was this article in Bloomberg saying that this finance minister said that Brazil has a deal with steel companies not to raise prices in 2021. I already see high -- yes, I already see higher realized prices in your reports and you also just said in your report, you might consider higher prices in the future. So, again, can you please help me understand what the segment was and how we can refer to what you said before? And also next question that I have is that in the morning you announced the rider of first will be financed 100% from cars? And can you please remind me your leverage target? Has it changed? I think last time that last quarter it was four to five times net debt to EBITDA? Thank you.

Well, regarding the price control that the government is supposedly implementing, I once again must tell you that, first, Brazil today has a full steel supply condition. We don't have any customer or any productive change today either for flats or longs that is not fully replenished. We don't have that today. We have full supply. Another important point is that the steel plants in Brazil and CSN particularly due to the integration of our assets is very competitive as I said from its doors in. I don't have any control or actually we are paying for the lack of control of the Brazil cost. So I can say for sure we're not looking for protection. We're looking for a competitive isonomy regarding other products. And the third important point is that Brazil is totally open for imports. As I said in the first half of the year, the import of flats was equivalent to the imports of the entire year last year. So there's no possibility of stock-outs of steel. So the trend is that the government if they choose to do something, they'll do the 10% of 12, which is 1.2. I think that is also very unlikely. And I -- well, that could even take place if the administrative and tax reforms would be effectively implemented simultaneously. And I don't see that as a threat in terms of price control for Brazil. Now regarding the buyback, we will be doing that with our own cash. We will not need new emissions to buy back the $1 million of the perpetual. That doesn't mean that, over time we will not find good opportunities in the market. But, looking at this horizon for the buyback of the perpetual, we will be using our own cash.

Okay. So, your leverage targets, can you remind me what the leverage target, what it is now in terms of net debt-to-EBITDA?

The target -- well, it's actually more of a ceiling. It's one time the net debt/EBITDA ratio. Right now, we are at 1.6 times. But, by the end of the year, we will be below one.

Thanks so much.

Thank you, ladies and gentlemen. Since we have no further questions, I hand it back over to Mr. Marcelo Cunha Ribeiro, Executive Director of Investor Relations for his final remarks.

So, now let's hand it over to Benjamin for his remarks, but this is just an attempt, because we still have some connection problems. Benjamin. Can you hear us?

Can you hear me, Marcelo?

Yes, we hear you. We hear you. Go ahead.

Well, I apologize for the technical problems. Good afternoon, everyone. Thank you for attending this conference call. I would just like to tell you that we are very happy to having been able to deliver these very good results. It was actually as if we had completed 12 months in six. So, by midyear, we have reached what we had proposed for the full year. So very briefly, I will go over the next priorities that we will have from now on. Just to bring everybody to the same level. The first intensive priority will be the investment grade until the end of the year. We will be doing whatever we can to be considered an investment grade company. We will maintain our leverage level close to zero or below 1. Don't be surprised, if we have zero debt by the end of the year. Our greatest priority is to have this zero leverage. Investments will be made with long-term financing compensated by our cash. We will maintain high cash levels. I heard a lot of questions about with the fact that we are a cyclical industry having highs and lows, so how we would fight that. We're going to do that through a low debt level and a high cash level. So, investments will be based on the strategy, both organic investments and also any potential M&A opportunities. They will be listed on the stock exchange their respective currency, so that we can tap the opportunities without the need to increase our debt level. We will be very conservative in everything that we do and we will preserve as much as we can this investment grade that we are seeking to achieve by the end of the year. We are always striving for quality, increasingly striving for quality. That's our main premise. So both for ore and cement and also steel we will also be looking for added value improved quality always based on the highest price. And our great project for the second half of the year is to control and lower our costs. We did everything possible and impossible to update our prices based on the cost increase and we will now be strongly working to reduce these costs so that -- we can assure the best competitiveness possible. So I'm very confident. I'm expecting an exceptional second half of the year. Quarter three, as we heard is a given. And in quarter 4, unless we have any unexpected disaster there's nothing that will change this good trajectory that we are seeing this year with increasing results. We're very optimistic about our company about the market. And we're very proud of our team. We're proud of our company of the targets that we were able to reach as we said six months -- 12 months in 6 months. And many wouldn't have believed that if we had told the story in the beginning of the year. Today we have a company that is totally different from what it was in the past. What we still have is good assets. And based on that we will be working on a totally opposite way. We have to manage excesses now and not deficiencies. And this is something that we will be doing surgically with maximum dedication always looking at our investment grade, always looking at our 0 debt target, always looking at our high liquidity targets and low debt targets. So these are the premises that will guide us moving forward. Thank you very much for attending. Congratulations to everyone in our company who worked really hard much more than you can imagine. Our analysts and everyone we are very proud of the results that you helped us achieve and thank you all for your hard work. This was exceptional work and I would like to congratulate each and every one of you, our employees and everyone involved because this certainly required a lot of dedication, hard work and energy and the results are very good. We are very proud of communicating these results to the market, the results that we had in the first half of the year. And that we are expecting for the rest of the year as well. Thank you all for attending this conference call. We are always at your service. Should you have any further questions and a big hug to all of you. Thank you, Marcelo.

Thank you, Benjamin. I think everything was very clear. I'd like to thank all the investors and analysts who attended this call and we are at your service should you have any further questions. Thank you very much.

This conference call is now finished. You may disconnect your lines now. Have a great day.