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, November 13, 2015

3Q15 Earnings Release

Companhia Siderúrgica Nacional (CSN) (BM&FBOVESPA: CSNA3) (NYSE: SID) announces today its consolidated results for the third quarter of 2015 (3Q15), 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 consolidated results and comparisons refer to the second quarter of 2015 (2Q15) and third quarter of 2014 (3Q14), unless otherwise stated. The BRL/USD exchange rate on September 30, 2015 was R$3.97.

² 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). Adjusted EBITDA also includes the proportional share of EBITDA of the jointly-owned investees: Namisa, MRS Logística and CBSI.

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

3Q15 EARNINGS RELEASE

 

Economic Scenario

Throughout 2015, the improvement in economic activity in the United States and the UK contrasted with the slower recovery in the Eurozone and the recession in Brazil and Japan. The IMF expects the global economy to grow by 3.3% in 2015, slightly less than in 2014 and by 3.8% in 2016.

The U.S. economy decelerated in the third quarter, recording growth of 1.5%, versus 3.9% in the previous three months. However, domestic demand remained solid and the labor market continued to expand, increasing expectations that the FED would begin the upward interest rate cycle shortly. 

In China, the third-quarter figures indicate the continuation of the economic accommodation process. GDP recorded a year-on-year growth of 6.9%, the lowest result since 2Q09. The country's authorities resumed the discussions focused on medium-term reforms and signaled that the current growth rate is acceptable.

In Brazil, the activity indicators are pointing to an even greater deterioration in 3Q15, characterized by economic shrinkage, high interest rates and inflation. As a result, uncertainty has led to greater risk aversion and the depreciation of the real. In this context, the government announced new fiscal measures after the downgrading of sovereign rating and the loss of investment-grade status. The Central Bank’s Focus report estimates an economic downturn of 3.10% in 2015, with inflation of 9.99%.

Industrial production fell by 10.9% in September, over the same month last year, primarily due to the 31.7% reduction in capital goods output. The labor market continues to deteriorate. According to the IBGE’s Monthly Employment Survey, the country’s unemployment rate reached 7.6% in September.

3Q15 EARNINGS RELEASE

 

CSN Consolidated Result

·         CSN posted consolidated net revenue of R$3,956 million in 3Q15, 7% up on 2Q15, positively influenced by higher sales volume from mining operations and the depreciation of the real against the U.S. dollar.

·          Cost of goods sold (COGS) totaled R$3,015 million, 6% more than in 2Q15, mainly due to the increase in sales volume from mining operations.

·         Third-quarter gross profit came to R$941 million, 12% up on 2Q15, while gross margin increased by 1.0 p.p. on the same comparison basis, reaching 24% in 3Q15.

·         Selling, general and administrative expenses (SG&A) totaled R$531 million in 3Q15, 26% up on 2Q15, largely because of higher iron ore freight expenses, given- the increase in CIF sales and higher export sales expenses, and due to the higher expenses with sales of steel in the foreign market.

·         Other operating income and expenses totaled R$85 million in 3Q15, a 62% reduction over the R$223 million posted in 2Q15, particularly influenced by lower expenses with provisions. During 3Q15, the Company recognized impairment of R$81 million due to the reduction in the market value of Usiminas’ preferred shares.

·         Third-quarter net proportional financial result was negative by R$779 million, due to: i) Interest on loans and financing ex-exchange rate variation totaling R$1.304 million; ii) positive result from exchange and monetary variations amounting R$133 million and iii) financial revenues of R$123 million.

·         The Company posted net loss of R$533 million in 3Q15, 13% lower quarter-on-quarter, due to the increase in gross profit and the positive equity result of R$861 million.

·         Adjusted EBITDA amounted to R$853 million in 3Q15, 6% higher than the previous quarter. The adjusted EBITDA margin was 20% in 3Q15, in line with the 2Q15 margin.

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Indebtedness

Gross debt, net debt and the net debt/EBITDA ratio presented below reflect the Company’s proportional interest in Namisa, MRS Logística and CBSI, and includes financial investments as collateral for foreign exchange transactions on the BM&F. On September 30, 2015, consolidated net debt totaled R$23.4 billion, while the net debt/LTM EBITDA ratio was 6.6x.

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Foreign Exchange Exposure

In order to manage the exposure in dollars, CSN considers the proportional consolidation of the jointly controlled Namisa, in which CSN holds 60% stake.

The net foreign exchange exposure generated by the difference between assets and liabilities in US dollars, derivative instruments and hedge accounting recorded in CSN, was US$457 million on 09/30/2015.

The derivatives form a long USD position achieved by the purchase of NDFs (Non-Deliverable Forwards).

The hedge accounting adopted by CSN correlates the projected exports flow in dollars with part of the scheduled debt principal payments in the same currency. Therefore, the exchange variation of the dollar-denominated debt is temporarily booked on shareholder’s equity, flowing through P&L when the revenues in USD from exports occur.

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Capex

In the 3Q15, CSN took advantage of opportunities to accelerate projects that enhance competitiveness, such as:

•       New mining equipments acquisition (trucks, shovels, etc), accelerating part of the investment scheduled for 2016 due to current advantageous loan terms. These equipments are already contributing to cost reduction in the mining business in 2015.

•       Accelerated development of Arcos´s clinker kiln, enabling higher operational margins in the Southeastern System.

CSN’s investments totaled R$803 million in 3Q15, in accordance with IFRS, as shown in the table below. 9M15 investments amounted to R$1,704 million.

Working Capital

To calculate the working capital, CSN adjusts its assets and liabilities as demonstrated below:

·         Accounts Receivable: Excludes Dividends Receivable , Advances to Employees and Other Credits (Note 5 of financials).

·         Inventories: Includes Estimated Losses and excludes Spare Parts which are not part of the cash conversion cycle, and will be booked in the Fixed Assets when consumed. (Note 6 of financials)

·         Recoverable Taxes: Composed only by the Income Tax (IRPJ) and Social Contribution (CSLL) amount  included in Recoverable Taxes (Note 7of financials)

·         Taxes Payable: Composed by the Current Liabilities account Taxes Payable plus Taxes in installments (Note 13 of financials)

·         Advance from Clients: Subaccount of Other Liabilities recorded in Current Liabilities (Note 13 of financials)

At the close of 3Q15, working capital applied to the Company’s businesses totaled R$3,979 million, R$595 million more than in 2Q15, particularly due to the increase by R$366 million in accounts receivable and R$255 million in inventories. On the same comparison basis, both inventory turnover and accounts payable widened by 8 days, while average payment period reduced by 1 day.

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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:

The information on CSN’s five business segments is derived from the accounting data, together with allocations and the apportionment of costs among the segments. Results by segment reflect the Company’s proportional interest in Namisa, MRS Logística and CBSI, as well as the full consolidation of FTL.

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Steel

According to the World Steel Association (WSA), global crude steel production totaled 1.2 billion tonnes in the first nine months of 2015, 2.5% less than in 9M14. According to the Brazilian Steel Institute (IABr), domestic production dropped by 1.2%, to 25.3 million tonnes in the same period. Domestic flat rolled steel production totaled 17.4 million tonnes in 9M15, 8.2% lower than 9M14, while apparent steel consumption fell 14.0%, to 16.9 million tonnes, accompanied by domestic sales of 14.2 million tonnes and imports of 2.8 million tonnes. On the other hand, exports came to 10.0 million tonnes, up by 48.6% on 9M14.

According to IABr, apparent steel consumption is expected to reduce by 12.8%, to 22.3 million tonnes, with domestic sales of 18.3 million tonnes and imports of 4.0 million tonnes.

According to INDA (the Brazilian Steel Distributors’ Association), in 9M15 purchases and sales from the distribution segment fell by 22.6% and 22.4% year-on-year, respectively. Inventories stood at 967,700 tonnes at the close of September 2015, 2.8% less than in the previous month, while inventory turnover stood at 3.9 months. Compared to the same month last year, inventories were reduced by 10%, from 1,048 million tons in September 2014 to 967,700 tons at the end of September 2015. On the same comparison basis the inventory turnover increased from 2.9 months to 3.9 months in September 2015.

Automotive

According to ANFAVEA (the Auto Manufacturers’ Association), vehicle production totaled 1.9 million units in 9M15, 25% lower than 9M14. On the same comparison basis, vehicle licensing reduced by 23%, to 1.95 million units. According to ANFAVEA and FENABRAVE (the Vehicle Distributors’ Association), vehicle sales are expected to decline by 27.4% and 23.8%, respectively in 2015.

Construction

According to SECOVI-SP (the São Paulo Residential Builders’ Association), residential real estate launches in the city of São Paulo dropped by 31.5% in the first nine months of 2015, while new unit sales reduced by 4.7% year-on-year. The Association expects launches to drop by 23% to 25% in 2015 and new unit sales by 15% to 20%.

Home Appliances

According to the Brazilian Institute of Geography and Statistics (IBGE), home appliance production fell by 14.0% in the first nine months of 2015, compared to the previous year, down by 10.4% in the last twelve months ended August 2015, influenced by the low level of confidence of businessmen and consumers. 

Results from CSN’s Steel Operations

CSN’s crude steel production reached 1.0 million tonnes, while consumption of slabs purchased from third parties amounted to 61,000 tonnes, 9% and 12% down on 2Q15, respectively. As a result, flat rolled steel production dropped by 4% over 2Q15, to 989,000 tonnes in 3Q15.

In 9M15, crude steel production reduced by 4% over the same period last year, to 3.3 million tonnes, while flat steel production fell 6%, to 3.0 million tonnes.

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·         Steel product sales totaled 1.2 million tonnes, 6% down quarter-on-quarter. Of this total, 58% came from the domestic market, 39% from overseas subsidiaries and 3% from exports, thus confirming our subsidiaries’ gain of export market share. Total sales reached 3.86 million tonnes in 9M15, 2% less than in 9M14.   ·         In the third quarter, domestic steel sales came to 686,000 tonnes, 10% down on 2Q15. Of this total, 645,000 tonnes corresponded to flat steel and 41,000 tonnes to long steel.   ·         Third-quarter foreign steel sales amounted to 506,000 tonnes, in line with the 2Q15 figure. Of this total, the overseas subsidiaries sold 461,000 tonnes, 221,000 by LLC, 154,000 by SWT, 86,000 by Lusosider and, 44,000 tonnes of direct exports.   ·         In 3Q15 CSN increased its share of coated products in total sales volume, according to the strategy of increasing CSN’s value-added product mix. In the domestic market, sales of coated such as galvanized and tin plate, accounted for 44% of sales volume compared to the 41% observed in 2Q15. In the foreign market, the increase rise from 66% of sales to 67% in 3Q15.

 

·         Net revenue totaled R$2,737 million in 3Q15, 1% lower than 2Q15, due to the decrease in volumes of domestic steel sales and by SWT, partially offset by the increase of flat steel export sales and the depreciation of the real against the U.S. dollar. Average net revenue per tonne increased by 2%, from R$2,172 in 2Q15 to R$2,224 in 3Q15. ·         In 3Q15, COGS amounted to R$2,270 million, 2% up on the R$2,225 million posted in 2Q15. ·      The parent company’s production cost totaled R$1.59 billion in 3Q15, 5% less than in 2Q15, particularly influenced by: i) the 14% reduction in raw material costs, given the lower production volume, and also due to the higher internal coke production; ii) the increase in labor costs given the pay rise due to the collective labour agreement. ·      The slab production cost reached R$979/t, lower than the R$984/t recorded in 2Q15. In US dollars, the cost reduced 13% to US$278/t compared to US$320/t in 2Q15, helped by the depreciation of the real against the dollar.

 

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

 

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·         Adjusted EBITDA amounted to R$386 million in 3Q15, with an adjusted margin of 14%.

Mining

In the third quarter, the seaborne iron ore market continued under pressure due to the increasing supply and lower domestic steel demand in China. On the supply side, the capacity closures announced were more than offset by the ramp-up of projects in Australia and Brazil. On the demand side, the weaker investments and construction activities continued to negatively impact steel prices and margins recorded by Chinese steelmakers. In this scenario, iron ore prices dropped by 6% over 2Q15, averaging US$54.90/dmt (Platts, 62% Fe, N. China) in 3Q15. 

Results from CSN’s Mining Operation

·         In the third quarter, iron ore production totaled 7.94 million tonnes¹, 17% up on 2Q15, with record production of 7.46 million tonnes from the Casa de Pedra mine.

·         Iron ore purchases reached 1.6 million tonne in 3Q15, 60% more than in 2Q15, due to market opportunities.

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·         Net revenue from mining operations totaled R$942 million in 3Q15, 38% higher than in 2Q15, due to increased sales volumes. The FOB revenue in 3Q15 was US$38/t, unchanged from the previous quarter, while the iron ore price index (Platts 62% Fe, N. China) declined by 6% in the same period.

·         Third-quarter mining COGS came to R$625 million, 17% higher than the previous quarter, due to sales volume growth, partially offset by lower production costs. In the quarter, Casa de Pedra recorded a delivered cash cost to China of US$ 35.4/wmt, 9% lower compared to 2Q15.

¹ Volumes include 100% of the stake in NAMISA.

Iron Ore Delivered Cash Cost to China

(US$/wmt)

·         Third-quarter adjusted EBITDA from mining operations totaled R$395 million, 74% up on 2Q15, due to: i) the increase in sales volume; ii) the effect from the currency depreciation in the quarter; and iii) lower production costs. EBITDA/tonne climbed from R$40.90 in 2Q15 to R$57.04 in 3Q15.

·         The EBITDA margin from mining operations increased 8.5 p.p. reaching 42% in 3Q15 from 33% in 2Q15, the highest margin recorded since the 1Q14.

Logistics

According to ANTAQ (the National Waterway Transport Agency), Brazil’s ports handled 480 million gross tonnes in 1H15, 3.7% higher than the same period in the previous year. Bulk solids handling totaled 295 million tonnes in 1H15, while container handling achieved 4.4 million TEUs¹, in line with the 1H14 figure.

¹TEU (Twenty‐Foot Equivalent Unit) – transportation unit equivalent to a standard 20-feet intermodal container

Results from CSN’s Logistics Operation

Railway Logistics: Net revenue from railway logistics amounted to R$295 million in 3Q15, generating adjusted EBITDA of R$119 million, accompanied by an adjusted EBITDA margin of 40%.

Port Logistics: In the third quarter, Sepetiba Tecon handled 304,000 tonnes of steel products, most of which directed to the foreign market, in addition to 87,000 tonnes of general cargo and approximately 44,000 containers. Net revenue reached R$60 million in 3Q15, generating adjusted EBITDA of R$22 million, with an adjusted EBITDA margin of 37%.

Cement

According to IBGE’s (Brazilian Statistical and Geographical Institute) Monthly Survey of Industry (PIM-PF), Brazil’s cement production fell 10.8% in 9M15 over 9M14, in line with the civil construction segment’s performance.

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According to ABRAMAT (the Construction Material Manufacturers’ Association), 9M15 sales of building materials decreased by 11.4% compared to 9M14. The association revised its annual building material sales forecast, from a 1% increase in early 2015, to a 9% reduction.

Results from CSN’s Cement Operation

In 3Q15, cement sales totaled 582,000 tonnes, 1% higher than 2Q15, while net revenues amounted to R$114 million. Adjusted EBITDA reached R$9 million in 3Q15, with margin of 8%.

An unscheduled stoppage at UPV’s grinding operations resulted in discontinuation of production in Volta Redonda for 37 days. Nevertheless, volume remained virtually stable due to the start-up of additional production capacity in Arcos. 

Energy

According to the Energy Research Company (EPE), Brazilian electricity consumption recorded year-on-year reduction of 0.7% in the first nine months of 2015, to 348 TWh. Consumption in the industrial and residential segments fell by 4.5% and 0.7%, respectively, while the commercial segment registered a 1.1% increase. Given this scenario, EPE’s initial forecast at the close of last year of a 3.1% increase in consumption, was revised down to a 1.5% decline in the second four-month review.

Results from CSN’s Energy Operation

In 3Q15, net revenues from energy operations totaled R$60 million, adjusted EBITDA reached R$8 million and the EBITDA margin was 13%.

Capital Markets

CSN’s shares depreciated by 24% in 3Q15, while the IBOVESPA dropped by 15% during the same period. Daily traded volume on the BM&FBovespa averaged R$28.6 million. On the New York Stock Exchange (NYSE), CSN’s American Depositary Receipts (ADRs) fell by 42%, versus the Dow Jones’ 8% depreciation. On the NYSE, daily traded volume of CSN’s ADRs averaged US$2.4 million.

         Source: Economática

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