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, August 7, 2018

2Q18 Earnings Release

Companhia Siderúrgica Nacional (CSN) (BM&FBOVESPA: CSNA3) (NYSE: SID) announces today its results for the second quarter of 2018 (1Q18) in Brazilian reais, and its consolidated financial statements, which are presented in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and with the accounting practices adopted in Brazil, which are fully convergent with international accounting standards, 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. The comments presented herein refer to the Company's second quarter of 2018 (2Q18) and comparisons refer to the first quarter of 2018 (1Q18) and second quarter of 2017 (2Q17). The Brazilian real/US dollar exchange rate was R$3.8558 as at June 30, 2018, R$3.3238 as at March 31, 2018 and R$3.3082 as at June 30, 2017.

2Q18 financial and operating highlights

·          Generation of adjusted EBITDA of R$1,420MM , an increase of 58% compared to the 2Q17 and 14% compared to the 1Q18, with EBITDA margin of 24%, due to better performance in all segments.

·          Increase in steel sales volume in the domestic market reached 798 thousand tons, an increase of 22% compared to the same period in 2017.

·          Mining adjusted EBITDA reached R$533MM, an increase of 21% compared to the 1Q18 , with  iron ore sale volumes increase, foreign exchange gains and better realized price against the Platts index, reaching EBITDA margin of 40%.

·          Increase of 10% in cement sales compared to the 1Q18, totaling 890 thousand tons – EBITDA of R$42MM compared to R$12MM in the 1Q18.

·          Free cash flow, before financing activities, totaled R$1.598MM in the 2Q18, compared to R$521MM in the 1Q18.

·          Net profit of R$1,190MM in the 2Q18 , due to the gain accrued from the sale of CSN LLC, totaling R$2,7 billion for the year.

¹ Adjusted EBITDA is calculated based on net profit/loss, plus depreciation and amortization, income tax, net finance income (costs), share of profit (loss) of investees and other operating income (expenses), and includes the proportionate share of EBITDA of the jointly-owned subsidiaries MRS Logística and CBSI. Adjusted EBITDA includes 100% in CSN Mineração, 37.27% in MRS and 50% in CBSI.

² Adjusted net debt and adjusted cash account for 100% stake in CSN Mineração, 37.27% in MRS and 50% in CBSI.

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EARNINGS RELEASE 2Q18

CSN´s consolidated result

·          In the 2Q18, net revenue totaled R$5,687 million, an increase of 12% and 32% compared to the 1Q18 and 2Q17, respectively. The improvement in performance compared to the 1Q18 was due to the increase in steel product prices, increase in volumes and prices in the mining segment and expansion of the railway logistics, cement and energy segments.

·          In the 2Q18, cost of sales totaled R$4.124 million, an increase of 12% compared to the 1Q18, due to the larger volume of sales in the period and increase in raw material prices (coal and coke) as a result of the US dollar appreciation against Brazilian real, as well as increase in general manufacturing costs.

·          In the second quarter of 2018, gross profit totaled R$1,563 million, a significant increase of 59% compared to the 2Q17, and increase in gross margin by 4.7 p.p. against the same comparison basis, from 22.8% to 27.5%, due to the recovery of the steel and mining margin.

·          In the 2Q18, general and administrative expenses totaled R$113 million, a decrease from 2.5% (2Q17) to 2.0% (2Q18) of net revenue. Selling expenses totaled R$470 million, or 8.3% of net revenue, a reduction of 2.8 p.p. compared to the 2Q17 (11.1% of net revenue).

·          In the 2Q18, other net income totaled R$542 million arising mainly from the gain on the sale of CSN LLC (R$1,150 million), partially compensated for the depreciation of Usiminas’ shares in the period, representing a loss of R$516 million at fair value through profit or loss.

·          In the 2Q18, net financial result, totaled R$989 million. Financial expenses (ex-exchange variation) continue to decrease, by virtue of the decrease in Selic rate, generating a reduction of R$195MM compared to the 2Q17. Monetary and exchange variations were strongly impacted by exchange variation in the period, generating a negative amount of R$ 1,905 million, with the increase in hedge accounting positions softening the final result.

·          Share of profit of investees totaled R$27 million in the 2Q18 , compared to R$25 million in the 1Q18, mainly due to the better results in MRS.

·           In the 2Q18 , the Company recorded net profit of R$1,190 million , compared to the net profit of R$1,486 million in the 1Q18, due to the recognition of the sale of CSN LLC and partial reversal of the provision for recognition of deferred income tax gains.

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EARNINGS RELEASE 2Q18

¹The Company’s adjusted EBITDA excludes equity interest and other operating income (expenses) as these items should not be considered when calculating the cash flow generated from operating activities.

·          Adjusted EBITDA totaled R$1,420 million , compared to R$1,242 million in the 1Q18, an increase of 14% due to an improvement in all segments. Adjusted EBITDA margin reached 23.9% , an increase of 0.4 p.p. compared to the previous quarter.

Adjusted EBITDA margin is calculated based on Adjusted EBITDA divided by Adjusted net revenue, which includes 100% stake in CSN Mining, 37.27% in MRS and 50% in CBSI, beginning December/15.

Free Cash Flow

In 2Q18 , generation of operating cash, measured by Free Cash Flow, was R$ 1,598 million, influenced by the sale of LLC. Considering only the recurring operation, R$ 73MM was generated in the period, due to the negative variation of working capital, impacted by higher inventories. In the last 12 months, recurring Free Cash Flow reached R$ 1,395 million.

Debt

 In June 30, 2018, adjusted net debt totaled R$27,125 million, while net debt/EBITDA ratio, calculated based on the adjusted EBITDA for the last twelve months, reached 5.34x. In the quarter, the deleveraging effects from the increased EBITDA LTM, in addition to the sale of LLC, reduced the net debt/EBITDA ratio by 0.8x. However, these effects were partially offset by the exchange rate changes on the debt, representing a final reduction of 0.48x.  

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EARNINGS RELEASE 2Q18

Foreign exchange exposure

The net foreign exchange exposure of the consolidated balance sheet was US$1,035 million as at June 30, 2018, as shown in the table below. It should be noted that within the net foreign exchange exposure, a liability of US$1.0 billion is included in line item “Borrowings and financing” related to the perpetual bond, which, due to its nature, will not require disbursement for settlement of the principal amount in the foreseeable future.

The hedge accounting adopted by CSN correlates the projected export inflow in US dollars with part of the scheduled debt payments in the same currency. As a result, the exchange rate changes in the US dollar-denominated debt is temporarily recorded in equity and subsequently recorded in profit or loss when revenues in US dollars from exports occur. In this quarter, the increased number of US debt instruments designated as hedge accounting, increased with additional export volumes, mitigated further volatility.

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Investments

Investments totaled R$263 million in the 2Q18 , an increase of 18% compared to the 1Q18, arising mainly due to the project seasonality. The increase in steel expenses refers to the investments for the improvement of coking and sintering performance.

Working capital

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

·          Trade receivables: excludes dividends receivable, advances to employees and other receivables;

·          Inventories: excludes warehouse, which is not part of the cash conversion cycle, and will be subsequently recorded in property, plant and equipment when consumed;

·          Advanced taxes: solely composed of income tax and social contribution included in line item “Recoverable taxes”;

·          Taxes payable: composed of line item "Taxes payable”, in current liabilities, plus taxes in installments;

·          Advances from customers: recognized in line item “Other payables”, in current liabilities;

Accordingly, working capital invested in the Company’s business totaled R$2,959 million in the 2Q18, increasing the financial cycle in 5 days , compared to the 1Q18 , mainly due to the trucker strike and high raw material prices, which  impacted the increase in inventories by R$394 million compared to the prior quarter.  

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Business segment reporting

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:

Beginning 2013, the Company no longer proportionally consolidated its jointly-owned subsidiaries Namisa, MRS and CBSI. For purposes of preparation and presentation of the information by business segment, Management maintained the proportional consolidation of the jointly-owned subsidiaries, as historically presented. For purposes of reconciliation of the consolidated result, the amounts recorded by these companies are not included in “Corporate expenses/elimination”. After the closing of 2015, after the combination of the mining assets (Casa de Pedra, Namisa and Tecar), the consolidated result includes this new company´s information as a whole.

Net revenue by segment – 2Q18 (R$ million)

Adjusted EBITDA by segment – 2Q18 (R$ million)

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CSN’s Steel Results

According to the World Steel Association (WSA), the global crude steel production totaled 453.9 million tons (Mton) in the 2Q18, an increase of 5.4% compared to the 2Q17. Asia produced 319.6 Mton in the 2Q18, an increase of 6.3% compared to the same period in 2017, while the European Union and North America increased by 1.7% and 2.7% , respectively, on the same comparison basis.

·            In the 2Q18 , CSN’s plate production totaled 996 thousand tons, a decrease of 5% compared to the 1Q18 due to corrective maintenance. In turn, the production of flat rolled products in the 2Q18 remained stable compared to the 1Q18 and 4% above compared to the 2Q17, totaling 981 thousand tons. According to the Brazilian Steel Institute (IABr) , in the second quarter of 2018, the domestic sales totaled 6.4 million tons of steel, an increase of 5% compared to the prior year. The apparent consumption totaled 5.1 million tons, an increase of 9% compared to the same period of last year. Brazilian steel production totaled 8.5 million tons, an increase of 1% .  

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EARNINGS RELEASE 2Q18

·            CSN’s total sales reached 1,321 thousand tons of steel products in the 2Q18 , an increase of 3% and 13% compared to the 1Q18 and 2Q17, respectively.

·           In the 2Q18 the steel volume sold by CSN in the domestic market totaled 798 thousand tons, an increase of 2% compared to the 1Q18 and 22% compared to the 2Q17. Out of this total, 748 thousand tons refers to flat steel products and 50 thousand tons to long steel products. The expansion of the automotive and OEM market significantly increased  hot rolled flat steel products (+29% YoY) and galvanized items (+38% YoY) .

·          In the foreign market, CSN’s sales in the 2Q18 totaled 523 thousand tons, an increase of 5% compared to the immediately prior quarter. In this period, 74 thousand tons were directly exported and 449 thousand tons were sold by  foreign subsidiaries, out of which 142 thousand tons by LLC, 212 thousand tons by SWT and 95 thousand tons by Lusosider.

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EARNINGS RELEASE 2Q18

·            In the 2Q18, CSN maintained its high market share of coated products as a percentage of total sales volume (44% in the 2Q18), following the strategy of adding more value to its product mix. Sales of coated products such as galvanized items and metallic sheets accounted for 56% of flat steel sales, considering all markets in which the Company operates. In the foreign market , the market share of coated products increased from 81% in the 1Q18 to 84% of flat steel sales in the 2Q18.

According to ANFAVEA (National Association of Automobile Manufacturers), in the second quarter of 2018, the production of vehicles, light commercial vehicles, trucks and buses totaled 734,774 thousand units, an increase of 12.73% , compared to the same period of prior year. The exports , in turn, reduced the performance, totaling 198,816 thousand vehicles sold, a decrease of 2% compared to the same period of prior year. Anfavea estimates an increase of 11.9% in vehicles produced in 2018, for 3.02 million units.   According to ABRAMAT (Brazilian Association of Building Material Industry), the accumulated building material sales decreased by 4,7% through June 2018, compared to the June 2017, however, the association estimates an increase of 1,5% in the industry revenues, despite a reduction of 0,4% in 1H18.   According to IBGE (Brazilian Institute of Geography and Statistics),  home appliance production referring to data accumulated from 12 months to May,   registered a 13.8% increase , compared to the same period accumulated in 2017.   According to INDA (National Institute of Steel Distributors) in the 2Q18 , distribution purchases increased by 11.2% compared to the 2Q17. Accumulated imports in the 2Q18 increased by 16.9% compared to the same period in 2017, a total volume of 335.8 thousand tons.

·          Net steel revenue totaled R$4,093 million in the 2Q18, an increase of 11% and 34% compared to the 1Q18 and 2Q17, respectively, mainly due to an increase in sales in the domestic and foreign markets and higher average steel prices, both in the domestic market (+3% compared to the 1Q18) and foreign market (+17% compared to the 1Q18).

·          Cost of sales in the 2Q18 increased by 13% compared to the 1Q18, totaling R$3,276 million, mainly due to the increase in raw material prices (coal HCC, coke and pellets) and corrective maintenance.

·          Plate production cost in the 2Q18 totaled R$1,635/t, an increase of 11% compared to the 1Q18. The increase in the prices of the main raw materials was also impacted by the exchange rate  variation in the period.

·          Adjusted EBITDA totaled R$708 million in the 2Q18 , an increase of 2.6% compared to R$690 million in the 1Q18, due to the increase in sales volume, as well as the challenging scenario during the trucker strike. The adjusted EBITDA margin in the 2Q18 reached 17.3%, or a decrease of 1.5 p.p. compared to the immediately prior quarter.

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EARNINGS RELEASE 2Q18

CSN’s Mining Results

In the 2Q18 ,  the steel production in China was 238 Mt, reaching a record quarterly production and representing an increase of 13% compared to 1Q18.  However, the cut in production of sintering and trade tensions have negatively impacted prices. In this regard, iron ore price ratio in the 2Q18 reached US$65.35/dmt (Platts, Fe62%, N. China), on average, a decrease of 12% compared to the 1Q18 . The US dollar variation between the periods was 11.1%, which offset, in domestic currency, the decrease in iron ore prices.

The drop in the overall supply of high silica ore resulted in a strong reduction of 50% in the market discount of this impurity in 2Q18 , compared to the 1Q18.

·          In the 2Q18 , iron ore production totaled 6.7 million tons, an increase of 10% compared to the 1Q18, mainly due to the mining plan, lower rainfall index of the period and efforts to mitigate the restrictions imposed by the truck drivers' strike. Iron ore purchases totaled 1,878 thousand tons in the 2Q18 , an increase of 26% compared to the 1Q18.

·          Iron ore sales totaled 8.1 million tons in the 2Q18 , an increase of 9% compared to the 1Q18, out of which 1.4 million tons were sold to Presidente Vargas Plant (+5%).

In the 2Q18 , mining net revenue totaled R$1,331 million, an increase of 16% compared to the immediately prior quarter due to the decrease in sales volumes (+9%) and appreciation of the US dollar against Brazilian real. The CIF + FOB unit revenue in the 2Q18 totaled US$56.8/wmt , an increase of 2% compared to the prior quarter, due to improved quality and higher demand for low alumina products.

Realized iron ore price by CSN Mineração

  (CIF + FOB* - US$/wmt delivered in China)

·          Mining sales cost totaled R$855 million in the 2Q18, an increase of 7% compared to the 1Q18, due to the increase in the sales volume in the period (+9%).

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EARNINGS RELEASE 2Q18

·          Despite the decrease in the Platts index in the quarter compared to the prior quarter, adjusted EBITDA margin reached 40% in the 2Q18, or an increase of 1.7 p.p. compared to the 1Q18 , and adjusted EBITDA reached R$533 million in the 2Q18 , an increase of 21% compared to the 1Q18, due to the increased volume, lower unit cost of iron ore volume in vessels and better realized price, in addition to the US dollar appreciation of 11.1% against Brazilian real.

CSN’s Logistics Results

Railway logistics : In the 2Q18 , net revenue totaled R$370 million, generating adjusted EBITDA of R$147 million and adjusted EBITDA margin of 40%.

Port logistics : In the 2Q18 , Sepetiba Tecon shipped 114 thousand tons of steel products, in addition to 98 thousand tons of general cargo and approximately 56 thousand containers. In the 2Q18, net revenue totaled R$64 million, due to the significant increase in general cargo volume and balance against container and steel volumes, generating adjusted EBITDA of R$12 million and adjusted EBITDA margin of 18%.

CSN’s Energy Results

According to EPE (Energy Research Company) , domestic electric consumption in Brazil decreased by 0.4% in June over the same period of the previous year. The industrial segment posted an increase in energy consumption of 1.9% in the first half of 2018 versus the same period last year. The residential and commercial sectors increased energy consumption by 1.5% and 0.4% , respectively, against the same period in 2017.

In the 2Q18 , net energy revenue totaled R$113 million (+24% compared to the 1Q18) due to the increase in energy sales in the free market, with adjusted EBITDA of R$36 million and adjusted EBITDA margin of 32%.

CSN’s Cement Results

In the second quarter of 2018 , cement sales in the domestic market totaled 12.9 million tons, according to the preliminary industry data, disclosed by the SNIC (National Cement Industry Union), an increase of solely 0.14% compared to the second quarter of 2017.

According to the SNIC data, sales volume in the second quarter was significantly impacted due to the trucker strike, representing a decrease of 20.3% in May compared to the same period in 2017.

In the 2Q18 , CSN’s cement sales totaled 890 thousand tons, an increase of 10% compared to the 1Q18, representing net revenue of R$152 million, despite of the adverse strike scenario. Adjusted EBITDA reached R$42 million (+248%), with adjusted EBITDA margin of 28%, or an increase of 18.6 p.p. compared to the prior quarter, mainly due to the increased prices and volumes.

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Capital market

In the second quarter of 2018 , the CSN’s shares depreciated by 1.8%, while the Ibovespa index depreciated by 14%. The daily traded volume (CSNA3) on B3, in turn, totaled R$81.2 million. On the New York Stock Exchange (NYSE), the Company’s American Depositary Receipts (ADRs) depreciated by 24%, while Dow Jones increased by 2.65%. The daily traded volume (SID) of the Company’s ADRs on NYSE totaled US$6.3 million.

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