Please ensure Javascript is enabled for purposes of website accessibility

Companhia Siderurgica Nacional (SID) Q4 2019 Earnings Call Transcript

By Motley Fool Transcribers - Mar 5, 2020 at 6:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

SID earnings call for the period ending December 31, 2019.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Companhia Siderurgica Nacional (SID -2.50%)
Q4 2019 Earnings Call
Mar 5, 2020, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, and thank you for holding. At this time, we would like to welcome everyone to CSN's conference call to present results for the Fourth 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.

Once the company's remarks are over, there will be a question and answer session when further instructions will be given. [Operator Instructions] We have a simultaneous webcast that may be accessed through CSN's Investor Relations website at where the presentation is also available. The replay of this service will be available for the period of one week. Now you can watch the slides at your own convenience.

Before proceeding, we would like to state that some of the forward-looking statements herein are mere expectations or trend and are based on the current assumptions and opinions of the Company management and there may -- these may differ materially from the forward-looking statements expressed herein as they do not constitute projections.

Actual results, performances or events may differ materially from those expressed or implied by the forward-looking statements as a result of several factors such as the general and economic conditions in Brazil and other countries; interest rates and exchange rate level; future rescheduling or prepayment of debt denominated 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 or national basis.

We would now like to turn the conference over to Mr. Marcelo Cunha Ribeiro, the IR Executive Officer who will present the Company's operating and financial highlights for the period. Mr. Ribeiro, you may proceed, sir.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Hey, good morning to all of you and thank you for participating in the conference call for CSN. As is usual, we will have a brief presentation followed by a Q&A session. I begin with the presentation on Page 2 where we refer to the highlights of the period beginning with the main EBITDA figures.

During the year, we were able to have a very strong free cash flow generation and we achieved record EBITDA figures. Although this was a difficult year, but to be celebrated. We had a very strong fourth quarter and in terms of the priority of the Company to improve its balance, we made significant strides.

We reduced our indebtedness that continues to be lengthened with operations that have brought us higher liquidity and a better long-term debt profile. And we also, and mainly reduced our leverage, we went from 4.55 to 3.7, through growth of EBITDA, cash generation and iron ore prepayments.

We continue on in the presentation, going to Page number 4 where we show you the evolution of the EBITDA. We had a strong growth of 24% with a margin of 28%. One of the highest in our history despite a very difficult year. And in sequence, it was also a good quarter where we attained growth despite a drop in the cost of iron ore. Now when we look at the results we have good news, which is that the steel industry once again has increased its results. We had better volume, lower cost and this of course enhanced our results.

And mining, despite the drop in prices, had a good result because of better volumes and a better realization of prices in cement. We had a significant evolution even with lower volume and stoppages for maintenance. We had better prices, better cost and a significant margin evolution. We got to BRL1.6 billion therefore of EBITDA.

On Page number 5, we show you additional and relevant financial indicators. For example capex in 2019, we made investments of BRL2.2 billion because of a significant evolution in the steel industry we had a relevant movement, which was a stoppage of blast furnace number 3. And of course there is other important processes like sintering and other peripheral projects that allowed us to practically double the figures in this business and this is a very special business when it comes to investment.

And this is a non-recurrent point and this capex of BRL2.2 billion should be reduced in 2020 coming closer to BRL1.8 billion. When we look at the financial cycle, we do have good news. A significant source of cash flow 15 days less vis-a-vis 2018 and in working capital, the source of this reduction is in accounts receivable and inventories especially we had an acceleration in accounts receivable, especially in the steel industry with shorter term giving us greater liquidity and an inventory of finished product and raw material.

We have become more efficient generating almost 900-and-some-million in terms of operating cash flow and free cash flow. We also -- because of those from EBITDA that we had, we reached BRL1.8 billion and we ended the year with BRL1.7 million in cash flow, which is highly relevant for our goal that is to reduce indebtedness.

We go on to Page number 6 where we continue our deleveraging. This quarter, we got 3.7 times [Phonetic] net debt-to-EBITDA ratio. This was a great event. We began the year with 4.5 and in this quarter more specifically, we had a significant reduction in net debt BRL1.3 million.

This is still is not sufficient. The reduction of net debt was less than we expected because of some temporary events non-recurrent amortizations or operational results that impeded us to have better results. But we continue with our target in the middle term to get to BRL20 billion in the coming year. And of course, this will require perhaps financial initiatives such as the sale of assets.

On Page number 7, we see our debt amortization profile with very relevant events. As a priority, we have the lengthening of the debt, a reduction of short-term debt and an increase in liquidity and we made great strides since the first semester and later on. We have lengthened our bank debt, and at the beginning of 2020, we took advantage of the window in the international market with the issuance of $1 billion for an eight year period, which has enhanced our liquidity and resolved our challenges of refinancing for the year 2020.

We will continue to do the same, maintaining a high liquidity, higher than BRL4 billion and cash over short term debt will be one, continuing to lengthen the debt and of course, taking advantage of the local market with the issuance of debentures.

We also speak about the business highlights on Page number 9 we begin with the steel production, and this was a very special year for steel, a challenging year. And of course we lost some competitiveness because of blast furnace number 3. And we had a drop in the sales volume. Now our sales indicator is not a very good indicator. It compares the year 2018, when we had the Indiana plant in the U.S. And of course, we have an impact of this in the comparison.

But the local market shows our competitiveness and a drop of 5% vis-a-vis the Brazilian market that had a drop of 2%. However, in the fourth quarter, we resumed our strength with a growth of 9%. We have good volume and a good recovery, enabling us to foresee that the year 2020 will be quite different. When it comes to revenue and despite the growth of 4%, we have a growth of 1% because the average prices dropped 3% because of the mix of the products sold and with shorter average term.

Now, despite these factors we made strides in EBITDA. We got up to BRL177 million with an increase in margin. Thanks to the increase in cost, which we see on Page number 10, we see that we had a significant move forward in terms of production volume. We practically doubled our production and I would like to highlight that most of the production was in December when we concluded the ramp-up once we had resumed the maintenance of the blast furnace and we see a new level of cost.

The cost of slabs has had a significant decrease of 9% from the third to the 4th quarter and we believe this reduction will also be reflected in the 2020 results, enabling us to reach new profitability level. We have had growth but it is far from what we wanted to have.

On page number 11, we see the highlights for mining. We had another very important quarter with record in terms of sales volumes, reaching 10.3 [Phonetic] tons. This is a semester where the production is impacted by the seasonality of rainfall. We tend to have lower volumes, but this was offset with a purchase from third parties and some inventory. We ended the year with a significant evolution of 11% and 5% for the quarter.

Revenue increased vis-a-vis the third quarter, although the average prices, the market prices did have a drop, our costs increased slightly because of lower reduction of fixed costs and because the volume was impacted by rainfall, and the EBITDA is marginally smaller than that of the third quarter dropping to 51%. But the high for the quarter, we ended the year with BRL5.9 million of EBITDA more than doubled the EBITDA for the year 2018.

In the last page, we show you the excellent realization of prices in the quarter. And although there was a drop of 13% in the Platts62 index, we ended up with only minus 2%. We were favored by the basket of quotation that favors us vis-a-vis the third quarter and we will have more sales at fixed costs which helped us and also the drop in the price of freight, which was 15%. These are the main indicators that we wanted to present to you. And at this point, we can go on to the question-and-answer session.

Questions and Answers:


Thank you. We will now go on to the question and answer session for investors and analysts. [Operator Instructions] Our first question is from Daniel Sasson from Itau Bank. You may proceed Mr. Sasson.

Daniel Sasson -- Itau BBA -- Analyst

My first question refers to the cash flow that you reported for the quarter, if you could help us reconciliate this with a drop in net debt of BRL500 million and compare the fourth quarter to the third quarter, this would be very helpful. Which were the factors that allowed you not to have a greater drop in net debt? The other question refers to cash flow and dividends. If you could give us an update on the sale, what is it that is pending still and which is your expectation for the generation of operational cash and the payment of dividends in 2020? If we're going to have a pay-out that is higher than the cash generation for the year, as happened in the year 2019. These are the questions I have. Thank you.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Thank you. Daniel for your multiple questions. Let's speak about the net debt and the free cash flow. While the free cash flow as shown is the stores, the operating stores, we generated net revenue. But this quarter we had some temporary events and other non-recurring events that consumed some of our generation among the temporary ones. The amortization of our mining sector BRL300 million approximately. And we also have the new payments that will be announced in the very short term.

Now this is one of the variations that -- will cause variations from one quarter to the other. We also have non-recurring events. For example, the operational generation is still impacted by the resumption of the blast furnace 3 representing BRL117 million in terms of operating revenue that is still not part of our free cash flow.

That is part of the debt but that also consumed resources but we can mention a certain leak of dividends, which are not the normal dividend of CSN to shareholders, but are dividends of CSN Mining to CNS. Some consortiums that represent BRL100 million that are not part of the consolidated figures, and we had to make contributions to that Transnordestina as part of our commitment with the government to reinitiate the work and the contribution this quarter was a BRL150 million and a commitment of new investments for BRL250 million has. These are non-recurrent and temporary investments that explains the variation.

When it comes to SWT. We have a potential buyer who is fully engaged with us, has been engaged for the last year and a half. He is interested. He has undergone that whole process of diligence, has improved the proposal until he has come to a proposal that we deemed to be attractive. Now this process is lengthier than we had imagined. After the due diligence, the buyer had a delay in terms of finding insurance and funds to conclude the transaction, but recently has resumed the negotiations. And as we had already mentioned, if the conditions are attractive and aligned with what we expect, we will continue under the sale to continue to reduce our leverage.

Daniel Sasson -- Itau BBA -- Analyst

Thank you, Marcelo.


The next question comes from Mr. Leonardo Correa from BTG Pactual. You may proceed, Mr. Correa.

Leonardo Correa -- BTG Pactual -- Analyst

Hey. Good morning to all of you. My first question refers to iron ore we have access to the monthly data of volume per ton in Brazil, there are -- data from LBH and we are following up on a drop -- on a accumulated drop of 40%, including January and February. I would like to know if there's something wrong with the data or if they are real, and if you are reasonably below the pace that you had last year? And it is what caused any risk, if there is something extraordinary happening, we know the rainfall situation El Nino had but why are these figures so weak? What is happening perhaps from the viewpoint of buyers if there's a problem with the coronavirus. Problems that we are unable to explain to justify this great drop in the shipments of iron ore at the port of CSN.

My second question I don't know if Martinez is on the line. My doubt refers to the fuel plant, we see that the results are still under evolution. Now the renovation had a significant impact on the business until 2019. This should stop in 2020 and what investors are attempting to do is understand the pace of evolution that we can see in the quarter a result of BRL200 million and EBITDA is below the potential of steel production. Therefore, what do you expect in terms of evolution and if you can quantitate and explain to us when you will get back to a normal pace of EBITDA BRL700 million per semester in the steel production.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Leonardo, good morning, this is Net. Yes, it's true the rainfall level is 92% above that of previous years and of course this has an impact on all the mining companies. We're very much aligned with what is happening with other providers of iron ore. Now our guideline for 2020 are the same. We're going to recover our production. And we hope that industrially we can guarantee production. And as of April, we should get back to our normal level.

We are suffering but nothing that will compromise our activity. We're waiting for a normalization in terms of rainfall. And of course, there is a disadvantage in volume but an advantage in prices, there is a scarcity of Brazilian iron ore in the basket, and our product has an attractive price because of the low alumina content to offset the scarcity of iron ore in the Brazilian market. And there has been an increase in price because of the supply from China.

Luis Fernando Barbosa Martinez -- Executive Director responsible for Commercial & Logistic divisions

Good morning, this is Martinez. In steel production, the main emphasis especially at the beginning of the year is to recover our margins. Nowadays, we're operating in the industry with a margin and if you look at the results of 3% to 5% sustainably. This is not something that the steel mills have achieved in the last year they used to attain higher levels at CSN. From the operational viewpoint, the conclusion of the renovation of blast furnace three, one of the pillars is to work at full steam.

Last year we purchased slab, we bought 800,000 tons, 900,000 tons of slabs as in others. So what that means that from now on we can work at full production, 85% in the local market and nothing will change. Now when it comes to prices, and with the dollar rate, and the level of the dollar it's impossible not to restate the prices. In January, we had a correction or restatement of 10% in February and higher added value of products 7% increase on March 2 for civil construction and distribution, a correction of 10% as well.

When it comes to the premium nowadays, the CRO report came out today with a return of some industries from China and they remarked that the level of activity from the region of Wuhan has returned by 30% to 70% to normality and the price of China that had reached $155 is now at $465. This amount of $465 with the price increases we had at the beginning of the year and with the level of the dollar means we should work with a new price increase to ensure that the premium is zero.

In the local market nowadays, the BQ is 800 with PIS/COFINS. This will give you an idea that it would cost BRL620 million and this will show you how we will recover our margins. Now when we return to levels of BRL700 million of EBITDA throughout the second semester, without a doubt, we will present to you more relevant statements in terms of dollar per ton for EBITDA. Well we have to seek at CSN is to return to that level of $100 per ton, giving us BRL2.3 billion EBITDA in the steel industry per year.

Leonardo Correa -- BTG Pactual -- Analyst

Thank you, gentlemen. If you allow me to check some details, and I begin with a NAS, it was my understanding in the past that Turner was at 14 million tons of iron ore this year. Is there a minor revisions just 386 or is my understanding wrong?

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Yes, we're seeking that figure of 40. Now the rainfall at the end of November and December hit us strongly because of the seasonality. For this year, of course, we were highly impacted the first quarter, but we do have a great deal of muscle. We expect to operate at full seam and industrially we are more ready to advance through the coming quarters. Our guidance therefore is at BRL40 million and which would be the calendar we ended 2019 was.

Leonardo Correa -- BTG Pactual -- Analyst

And for Martinez you were suggesting that given the exchange rate, that you could have a third increase for the year. Is there anything on the table for the month of April some evolution or is it still too premature for that?

Luis Fernando Barbosa Martinez -- Executive Director responsible for Commercial & Logistic divisions

Our policy and the policy in the domestic market, which is the more correct policy is to maintain a price for TSN based on our portfolio, but very generally the premiums should be 7% to 10% for the nationalized imported products for DQ with the present day dollar rate for fixed fee practically brings us a negative premium of 7% and this of course will justify a new increase for either April or May. We have to make a correction, it's an issue of cost, we cannot recover margins because of the increase in the dollar rate.

Leonardo Correa -- BTG Pactual -- Analyst

Thank you. Thank you very much.


The next question comes from Thiago Ojea from Goldman Sachs. You may proceed sir.

Thiago Ojea -- Goldman Sachs -- Analyst

Good morning and thank you all. My first question refers to the cash generation. This year we saw very strong EBITDA at CSN BRL7.3 billion but the net debt also increased because of a combination of exchange rate, and the payment of dividends. Marcelo, perhaps you could give us greater guidance, not with specific numbers, but in terms of capital allocation for 2020 and 2021. For Martinez, if you have any figures confirmed in March it would be interesting if you could remark on this?

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

When it comes to our cash flow as I mentioned here, the cash flow and reduction were either non-recurrent or temporary. So, we have focused on cash flow. We will see a better EBITDA in 2020 vis-a-vis 2019, a capex that will be somewhat lower as mentioned, a working capital that will be quite comfortable, and a lesser cash generation and interest cash also lower which means that we will have a favorable situation in an environment where the dividends will follow the minimum mandatory pay-out of 25%.

The dividends into '19 were higher, because we had a year of extraordinary profit coming from 2018. And there will be a strong reduction in the year 2020 and 2021, which will be the necessary amount to get to that minimum debt of BRL20 million, perhaps with a sale of assets or more.

Now, there was a mention of 5% and we will have to review that situation because with the present day exchange rate, it is impossible to maintain the market and desperately going forward we're going to follow up on the forecast and we will recover our margins in the industrials sector, the home appliances, white line, equipments and much more.

Thiago Ojea -- Goldman Sachs -- Analyst

Thank you. Thank you for your responses.


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

Caio Ribeiro -- Credit Suisse -- Analyst

Good morning, and thank you for taking my question. My first question refers to the effects of coronavirus in China and your viewpoint, especially the slowing down of the iron ore production domestically, which would be the annualized volumes of production and you're reading on the stimuli package that was announced recently in China.

Is this a great surprise or was it expected for semester? In the fourth quarter, you were very successful in capturing market share in the domestic market. If you could give us a hint of what will happen in the first quarter 2020 and where will your market share stem?

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Caio, good day. Regarding the coronavirus, we haven't had any impact from our clients. The orders continue. What we do observe now is something favorable, there is a greater control in China and with this stimuli, the economy is reacting, there is a greater infrastructure and construction. Now Platts used to be at $95 net there was volatility and what we expect is that a strong slabs because of a return to normalcy in China.

And as you mentioned, the economy itself is resuming, the steel production tends to increase its production level. So, our outlook for the second quarter is very good. Now when it comes to the fourth quarter '19 with a return of the blast furnace, there was a recovery. It was our obligation to go back to the historical levels of production of products. What truly collaborated in the fourth quarter was price.

We had a drop of 4%. But we ended up selling more BQ. We normally have 235,000 for the quarter, we went up to 300,000 in the last quarter, therefore it is natural that -- to have lost 2% in price only in the mix. Now for 2020, as I mentioned previously, we're going to work at full steam all of our lines are full and coronavirus itself has made imports more vulnerable. And with the dollar exchange rate, any importer will have to think twice because of the cost.

What I foresee, therefore is an opportunity to recover part of the market because of the penetration of imports that last year represented 10%. There is a 1,200,000 tons that could be converted to the domestic market.

Now regarding the different sectors, and despite the coronavirus and data that is not satisfactory for the industry, we foresee an apparent consumption of approximately 6%, but all of the sectors involved continue on with their same forecast. In the specific case of CSN, regardless of the market, we're going to work with a full market domestically, we're going to work for the domestic market.

Basically, the strategy for the first quarter is to be careful in the lines that are somewhat more vulnerable, that [Technical Issues]

Caio Ribeiro -- Credit Suisse -- Analyst

If you could give us a quick follow up, besides the steel production in China and the production of iron ore domestically, do you have a reading of which was the impact due to coronavirus, which was a drop in production in China?

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Are you referring to China or Brazil?

Caio Ribeiro -- Credit Suisse -- Analyst

I am referring to China.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

China had a drop of production. I truly don't know which was the impact in percentage but there was a drop in the production due to the coronavirus. This is a fact. Percentage wise I can't give you a figure.

Caio Ribeiro -- Credit Suisse -- Analyst

Very good. Thank you.


The next question is from Thiago from Bradesco BBI. You may proceed sir.

Thiago Lofiego -- Bradesco BBI -- Analyst

Thank you, Martinez. I don't know if you have already remarked on this the trend for a drop in price in fuel production. What is it that we should expect in the first quarter and when will you be comfortable to say that there is normalization? Are the level satisfactory now or not?

And you already mentioned this, but simply to gain a better understanding? You had an increase of 10% for distribution in January, another 10% that will be implemented in March. And there seems to be room for greater price increases perhaps 7% to be able to recover the negative premium, if you could confirm this?

The second question for Marcelo, how much more in terms of contributions do you have to make for the Transnordestina, the total figures for the coming 12 or 18 months and if you'll confirm the capex for 2021 once again? Thank you.

Pedro Gutemberg Quariguasi Netto -- Executive Officer, Responsible for Production Division of the Steel Segment

Good morning. Thiago, this is Pedro Gutemberg. About your question referring to the ramp up of blast furnace 3, we're very close to what we would deem to have the ideal result. The first quarter has been very typical because of the rainfall, something seasonal of course, on our operations, but presently we have a stable operation and we have been able to capture 80% to 90% of the expected results and we will get to the second quarter with a situation that is more sound. We have another work that we began recently on our coke plant that will allow us to have even more competitiveness and more than we have in this first quarter, we will have sounder results. And we're very optimistic that as we make your investments we will have a very clear return on this and that we will present on the following three quarters.

Luis Fernando Barbosa Martinez -- Executive Director responsible for Commercial & Logistic divisions

Thiago, I confirm this, there is a price increase in tin foil 7.5% for April 1. So civil construction 10% in January-March, in February, galvanized 7%, this has already been put in place. This has already been put in place, the portfolio has already been altered so, distribution with a negative premium of 7%. Now when you get to the price of the Q, the more common one with season called season 240/250.

Now, if you work backwards and you think of the BQ in China, that was 465 theoretically with $1 between 440 and 470 the premium is negative between minus 2% and minus 8%. So of course there's room for increases. And we have to transfer this increase otherwise. In this case, it's very clear its cost and we have to recover the cost.

Thiago Lofiego -- Bradesco BBI -- Analyst

And what will prevent you from making a new announcement now.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

It's not a problem of transferring this one of the distribution -- extreme, distribution is not a market it is a channel. There was a price increase in January another one in February. One for galvanized product, one for hot and cold production 10% theoretically, we should announce a new increase for April or May. But once again the entire chain has to be lubricated and should continue to buy.

We have a commitment of contributing to the work of Transnordestina. This represented BRL515 million, once this investment is over the work will be proceeding full steam and will be financed by public resources. These resources has already been identified, and they're awaiting the approval of the new budget. In the coming 15 months this budget should be approved and it will no longer need our operational contributions. We will be contributing BRL150 million up to BRL250 million more during 2020. Thank you.


Our next question comes from Mr. Ricardo [Phonetic] from UBS. You may proceed, sir.

Ricardo -- UBS -- Analyst

Hey good morning to all of you. Thank you for taking my question about the process that underwent judgement at CADE, will you be successful in this process and this would entitle the -- entail I'm sorry, the payment of almost BRL1 billion in 2020?

Benjamin Steinbruch -- President, Chairman and Chief Executive Officer

This is one of the processes that has been resolved or included in our financial statements. With part of the transaction that we had in mining, this is a process that has already been won in the lower chamber of the CADE, seven to one vote. And yesterday, it was voted again and as expected there was a decision that favored luckily enough. So there was a very positive evolution in our opinion the amount had a reduction of almost 40%. And now we're going to define what to do. We're going to discuss this in courts, but of course this will be a lengthy process. From our viewpoint, there has been a positive evolution in our opinion on this case has not been offered. Thank you.


Our next question comes from Mr. Carlos De Alba from Morgan Stanley. Mr. Carlos, you may proceed.

Carlos De Alba -- Morgan Stanley -- Analyst

Yes thank you very much, good morning everyone. So questions -- for Marcelo on Transnordestina could you repeat the commitment for 2020. I think I heard BRL250 million but just wanted to double check that. And also what happened Marcelo after 2020 if there is no agreement for the new funding of the project, what are the obligations and responsibilities of CSN?

If we have any records in terms of finishing funding for this project or what if it will stop the company's responsibility? And on SWT Marcelo, we see a firm offer from the buyer because given the uncertainties that we have right now in the macro front. I just want to understand how likely SID that the company will finally close this transaction?

And if I may Martinez, what has been the actual implementation Martinez of the price increases that the company has already announced because we assume weak demand in January, and all of the companies in the domestic market have imported, and showed a decline in the real life prices. So everyone team is going to pull this but the fact is our prices net prices in the fourth quarter was down for the three companies in the country. So I just want to see how much of the announced price increase has the company been able to implement? Thank you.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Carlos thank you for your questions, when it comes to Transnordestina based on present day movements so, we do have a very positive viewpoint. This is now awaiting the decision of the tribunal of accounts to proceed with the works. And of course, all of this depends on the budget on the budgetary approval. Now the budget was prepared in July the work should proceed. And that is why we have this commitment of making contributions to this work even though we have already fully complied with our contractual commitments.

We have done our share. And now we're missing an important contractual part that was foreseen in the original agreements, monetary restatement and other things that were foreseen. So this is our obligation to try to conclude this work, because it will be positive for CSN. Now financially, what exists and what you see in our balance is a guarantee from CSN to pay part of the debt of this subsidiary that is at about BRL2.5 billion. Now this is our exposure in the project but we're highly confident that this evolution will allow the project to continue and begin to operate in a few years.

Now in terms of SWT, we have an interested buyer perhaps not a firm offer. This is a buyer that has different moments has participated. We have always been firm in its will to diversify. It is a producer of long steel that works in Germany and is a leader in other parts of Europe and this buyer is truly interested. So on our part, we want this proposal to reach a satisfactory level. There is nothing contractual so far of course could not happen could not materialize. Carlos, good morning. All of the price increases that I mentioned here has been implemented. And while we have to consider is that part of our invoicing, we have 22%, 23% in the automotive sector, and spare parts and 13% in the industrial market. The greatest challenge in the first quarter and in the second quarter as well is to recover margin in these sectors. Those increases for distribution have been fully implemented. When it comes to demand, as I mentioned previously, we have the downstream lines working at full steam, painting and metal sheets and a greater capacity in the cold and hot rolling because of the resumption of the blast furnace. And there will be no problem in placing these new volumes during the first semester.

Carlos De Alba -- Morgan Stanley -- Analyst

Thank you very much.


Our next question comes from Alex Hacking from Citibank. Mr. Alex, you may proceed.

Alex Hacking -- Citigroup -- Analyst

Yes good morning. Could you please discuss the performance of the dry stacking technology at the Casa de Pedra mine? Is [the dry stacking currently operating at the full rate? How is the performance last year versus your expectations and how was the performance been during the very heavy rainfall during the first quarter? Thank you very much.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Alex, good morning, well both are already in operation. We have achieved a 100% of our production capacity, which means that CSN no longer depends on the dam. The final adjustments were made in December, enabling us to reach the nominal capacity of the plant. And we're now going to have full domain of the technology and produce more, but we're very satisfied with our performance in this field.


Thank you. As we have no further questions. We will now return the floor to Mr. Marcelo Cunha Ribeiro, the CFO and IRO for the closing remarks.

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Thank you all for participating in the call. I will very quickly review of some of the questions and to emphasize the Company policy and give you a very brief outlook of what we foresee for the first quarter and the year 2020.

I begin with Daniel Sasson from Itau, who asked about the dividend? Our policy is 25% as a minimum pay-out. We're going to stick to this for the year 2020. And in normal situations, this is what we intend to implement as was said last year and for the coming years.

When it comes to the shipment of iron ore and steel production, from the viewpoint of demand, we have never had supply for cargo that has not been placed in the market, which means that there is no problem of lack of demand in the sale of our products. Quite contrary as you have observed that steep drop in shipments because of the torrential rains that we had in the Southeast since November.

And now at the end of February and March, we had a very high concentration of rainfall at the port. And because of this production, transportation and shipments become highly complicated for all the producers in the South-eastern market. As in Australia, we had problems due to the bad weather, but the demand exists and it will come back even stronger, especially for high quality iron ore.

And this is what we intend to do to have a premium, iron ore is at 91.60 at present, and we think there should be a price increase and a higher premium because of the quality. We believe therefore that this year will be quite steady in terms of price and quality and from the viewpoint of the prices for the market.

Regarding the steel mills, we do have a price recovery. We have worked a great deal with our steel production last year. You followed up on this, the renovation of blast furnace three, a recovery of 15,000 tons with hot roll process. And we're going to use our distribution chain. And part of the policy of CSN is to give support to our allies and distributors. We want to significantly increase distribution during these five, six or seven clients that will become our main partner and place the production in the domestic market.

Our priority has always been and continues to be to place the production in the domestic market. As Martinez mentioned, the added values have already been concluded until the first semester and for BQ, we will do everything to six or seven distributors that are our partners.

When it comes to prices, Martinez has already explained to you the new price implementation. Without a doubt, we will be forced because of need, costs, and devaluation of the real to have an increase of 10% beginning in May for all types of products in all types of segments. It is a recomposition of prices, the dollar will reach 4.70. And there is a deficit -- I don't think the dollar will have less value and we will have to recompose our prices due to the costs and these increases will be implemented in April or May.

Regarding Thiago from Bradesco, who spoke about iron ore, coronavirus, and shipments. Coronavirus is a reality. We have seen a high number of people contaminated by this disease. There is a low mortality rate in terms of percentages, but it is a surprise when it comes to the speed of dissemination and increase of this disease in China.

They did very good work when it comes to controlling the disease, we will see what will happen in Europe and the United States. And we're ready for another two months of difficulties in terms of the resumption of logistics business, and a bit of tranquillity for a better consumption. I think we will overcome of all of this.

Worldwide I think we are able to fight against this disease. And beginning in the second semester, everything will have been controlled. And we will no longer have greater interferences in the trough of the GNP that we observe in all countries.

When it comes to the shipments of Iron ore, the difficulty of production, transportation and shipments, we're going to recover this production. We will do everything within our control to get there and in flat steel, the first quarter we have had a good performance. And based on January, February, and March, I think we will have a good year in the domestic market.

As you know, the market was unsupplied, now the recovery of the Brazilian domestic market is lagging behind for more than a year and three months. Everybody were sure that the economy would resume. This has not happened. It began well this year, but then we had the coronavirus problem. We're ready for a full resumption of the local market. And from the viewpoint of steel production, there have been no difficulties in terms of our sales for the market.

To respond to Thiago from Bradesco, we have resumed the Transnordestina work as of October of 2019 through an agreement made with the Ministry of Infrastructure. The intention was to contribute BRL254 million for the recovery of some of the part of this highway Piaui and others. And of course, there's a negotiation under way with the entities funding this project.

And the FDNE already has funds allocated to the project for the continuity of the project. And these are funds from the Development Fund of the Northeast that do not depend on the budget. We have done our share, and beginning in April when we will conclude our commitment, we believe that the work will be resumed at a very fast pace.

And the conclusion is 14th April of 2022, still within the mandate of President Bolsonaro about Mr. Smith, and the fine as you know, we're involved in a significant litigation with a government. These are large companies and we were able to win a favorable decision at the lower chamber. This has gone up to the upper chamber of the Khadi. And as happens most of the time, the President has favored the government, but we do believe we have a very good foundation in terms of our discussion, and as other issues that are being discussed, we do believe that the result will be favorable

Luis Fernando Barbosa Martinez -- Executive Director responsible for Commercial & Logistic divisions

Now regarding this year and regardless of the situation with coronavirus, we are ready to work and operationally you can expect that we'll do whatever is possible to reduce costs and increase prices. And we will deliver a better EBITDA than that of 2019. We will do this and when it comes to the deleveraging that continues to be a market concern. We're discussing not only the sale of SWT. Not only that, perhaps we made a mistake, we were left with only one interested party after the discussion.

And of course, surprisingly, this is dragging the discussion more than we expected. However, we cannot impose a timing on this. So we continue on with our negotiations, regardless of these other issues, prepayments, streaming, the sale of assets, for mining, a part of mining. To conclude our strategy, we're working on the IPO for mining. That is to say we're working in all sources to get to BRL20 billion of net debt for that company as fast as possible.

This is our wish and of course in a certain way, this coronavirus will delay our intention somewhat. As you know, all of the markets are quite uncertain about the near future. So we're making the most of the good market opportunities to issue $1 billion in bonds. We thought we would have continuity through streaming or the sale to a strategic partner of 12% of our mining. And that is how we got to the IPO of mining.

But now we will have to wait more and the greatest priority for all here and Marcelo is responsible for this is to see alternative -- alternatives I'm sorry, for the leveraging of the company to get to BRL20 billion in net debt.

Now our expectations for this year are good. We are optimistic we're working at full steam with lower costs in mining. We're going to seek a recovery to deliver what has been budgeted and we are able to do this in cement. We believe that we can make enhancements because of the resumption of civil construction. This would enable us to deliver better figures in 2020 compared to the ones we have already delivered.

That was quite good. I would like to thank all of you for your participation in this call and Marcelo's team is always at your disposal, what we seek is transparency and we will gladly clarify any of your doubts. Thank you very much.


[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Marcelo Cunha Ribeiro -- Chief Financial Officer & Executive Director-Investor Relations

Luis Fernando Barbosa Martinez -- Executive Director responsible for Commercial & Logistic divisions

Pedro Gutemberg Quariguasi Netto -- Executive Officer, Responsible for Production Division of the Steel Segment

Benjamin Steinbruch -- President, Chairman and Chief Executive Officer

Daniel Sasson -- Itau BBA -- Analyst

Leonardo Correa -- BTG Pactual -- Analyst

Thiago Ojea -- Goldman Sachs -- Analyst

Caio Ribeiro -- Credit Suisse -- Analyst

Thiago Lofiego -- Bradesco BBI -- Analyst

Ricardo -- UBS -- Analyst

Carlos De Alba -- Morgan Stanley -- Analyst

Alex Hacking -- Citigroup -- Analyst

More SID analysis

All earnings call transcripts

AlphaStreet Logo

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Companhia Siderúrgica Nacional Stock Quote
Companhia Siderúrgica Nacional
$3.12 (-2.50%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.