Usinas Siderúrgicas de Minas Gerais S.A. (USIM5) Earnings Call Transcript & Summary

[Audio Gap] to the conference call of Usiminas, in which the results of the second quarter of 2026 will be discussed. I'm Leonardo Karam, Investor Relations Officer at Usiminas. To those who wish to follow the presentation in English, a free translation of the webcast presentation is available on Usiminas Investor Relations website. We also have an interpreter providing simultaneous translation. [Operator Instructions] This conference call is being recorded and simultaneously broadcast on the Usiminas YouTube channel. We would like to remind you that this conference call is intended exclusively for investors and market analysts. We kindly ask you to identify yourself so that your question can be addressed. We also request that any questions from journalists be directed to the media relations team at Usiminas via e-mail imprensa@usiminas.com. Before proceeding, I would like to clarify that any forward-looking statements that may be made during this conference call regarding the prospects of the company's business as well as projections, operational and financial goals related to its growth potential constitute forecasts based on the management's expectation regarding the future of Usiminas. These expectations are highly dependent on the performance of the steel sector, the country's economic situation and the situation on international markets. So they are subject to change. With us here today is our President, Marcelo Chara; the Vice President of Finance and Investor Relations, Diego Garcia; and our Commercial Vice President, Miguel Homes. First, Marcelo will make some initial remarks, then Diego will present the results. Afterwards, the questions asked in the Q&A section will be answered. Now I'll give the floor to Marcelo. You may proceed, sir.

Thank you, Leonardo. Ladies and gentlemen, good morning, everyone, and welcome to the conference call of Usiminas. It's a pleasure to be here once again to discuss the results and the advances of the company for the second quarter of 2026. This quarter was marked by the continuity of the evolution of our management with a focus on the maximization of the profitability, prioritizing operations with larger margins, increase of operational efficiency and reduction of costs and in the discipline in the allocation of capital. Together with that, we advanced in the implementation of CapEx projects, reinforcing our competitiveness agenda and ensuring a solid basis for the sustainability of the business in the medium and long terms. We reached an EBITDA of BRL 761 million with a margin of 12%, accounting for a recovery of the previous periods. In steel sector, there was an increase of 5% in net revenue in relation to the first quarter of 2026, and this was driven by better prices and the better sales mix. In the mining area, we had an increase of 27% in the sales volume when compared to the previous quarter after the end of the rainy season in the region, however, with margins impacted by the higher prices of maritime freight as a result of the world geopolitical situation. In this quarter, we completed the new plant of PCI, power (sic) [ Pulverized ] Coal Injection in the blast furnace of Ipatinga to mitigate the increase of the rate of pulverized coke as a replacement of coke. The project represents an important structural advance for the company providing operational efficiency and higher -- lower intensity of GEE. This initiative reinforced the commitment of Usiminas with sustainability and the competitiveness of its operation. In the business environment, we still have a challenged situation marked by the structural excess of the global market due to the uncertainties as well in relation to the growth of the main economies. Considering this context, the main markets that consume our products have been adopting measures of commercial defense to preserve their local industries. And this has contributed to higher volatility and pressure on the flows of the world's commercialization of steel. In Brazil, even though some tech sectors continue showing resilient demand, the industrial activity is still pressurized by the high volume of imports of manufactured products and also by the high levels of the interest rates. And this limits consumption, reduced investments and affect the productivity of a domestic industry and also job generation. The major defense adopted by the Brazilian government in the first quarter of 2026 have generated gradual effects on the market, contributing to the reduction of the flat steel and the rate of penetration of imports reached 22% in the first quarter of -- first half of 2026, about 5 percentage points below the level observed in the same period of the previous year. However, the imports remain at levels which are historically high, sustained by the increase of the shipments from other origins, alternative origins in addition to China. In parallel, the inventory levels in the chain remain high. This was due to the anticipation of imports that were made before the antidumping measures were implemented. The replacement of manufactured goods have been intensifying in several consuming segments. This includes auto parts, machines and equipment, vehicles and also metal products. And this affects the sustainability of the transformation industry in Brazil and reduces the installed capacity and limits the realization of investments in the country. And this impacts negatively the job generation, income and value added in Brazil. In this context, we consider it to be fundamental, the continuation of the investigation of antidumping of hot-rolled steels as well as the strengthening of the inspection and the effective application of the commercial defense measures already implemented. Technical and effective measures are essential to reestablish the more balanced competition conditions in Brazil. For the next quarter, the expectation is to remain stable in the steel unit operation activities, excluding the extraordinary effect of the last periods. An increase of steel in the second quarter in comparison to the previous period and shows a mix of product, which is similar to what we observed previously. In addition, the higher price in the industrial segment. On the other hand, we expect higher costs, especially those associated with coal, coke and plates as a result of higher operational efficiency. We estimate an elevation of iron ore and the logistics costs are likely to remain high, especially those related to the maritime freight, especially in the Route C3, which is -- account for 33% of global reference of iron ore. And this level points compared to the recent historical average. We continue making advances in our industrial excellence, environment performance, safety of our personnel, competitiveness and financial discipline. And we continue executing our priority project, especially the reconstruction and the hot repair of coke repair batteries. We would like to thank all the employees, clients, suppliers, shareholders and the community at large for the confidence, trust and partnership. We continue moving on together. And I'll turn the floor to Diego, who will continue the presentation.

Thank you, Marcelo. Good morning, everyone. Thank you very much for attending our results conference call. We are going to start with the highlights of the quarter. Steel sales had a reduction of 2% when compared to the previous quarter, showing that we are implementing our strategy to have operations more focused on higher margin. There was an increase in the automotive segment. Iron ore sales was 27% higher when compared to previous quarter. It's driven by the normalization of the shipments after the rainy season that affected the first quarter. Consolidated EBITDA shows an increase, which is significant in comparison to the previous quarter, supported by the steel operations that had better results and a better mix as a result of legal agreements and nonoperational assets. It more than offset the drop in the mining activity. Net steel revenue increased by 5%, showing an outline of the industrial network in addition to sales mix, which was favorable, which was driven by the automotive sector. In the external market, there was a positive evolution with a growth of 16% as a result of a better mix. EBITDA of steel increased by 26%, driven by better mix prices and extraordinary results that we have already mentioned. This effect more than offset the negative impact of the reduction in volumes and also the increase of the COGS. As a result, the margin was of 13%, 2.4 percentage points above the previous period. Our consolidated results, net revenue advanced 4% when compared to the first quarter of 2026, driven by higher prices, as we have already mentioned and also by the higher volumes of -- in the Mining segment. Adjusted EBITDA had an improvement in relation to the previous quarter, supported by the steel area that more than offset the steel segment. Net income repeats what happened as it decreased by 52%, reflecting the weaker financials, something that was not repeated in the other quarter in addition to worse financial results. Sales of steel was partially offset by the significant increase of the automotive segment, leading to a better sales mix. This better mix, together with higher prices, led to a net revenue per ton, almost 4% higher. The increase of adjusted EBITDA reflects this higher net revenue that more than offset the light drop in volume. Here, we can see, as we mentioned previously, the significant impact of the improvement in the mix and the improvement in prices. The COGS was higher, excluding depreciation and amortization, explained by higher cost of coal and slabs. Other operational expenses shows the nonrecurring effects, especially the recovery of values coming from legal lawsuits in the amount of BRL 57 million. Also the sale of nonoperational assets that added another BRL 130 million. So let's move on. The volume of sales of iron ore was 27% higher than the previous quarter, leading to a more normalized level. The first quarter was affected by the rainy season. Net revenues of the mining unit dropped 11% in addition to the higher volume and the valuation of 1.2% of the reference price of iron ore. The result was impacted by the higher level of 35% of the maritime freight and by the appreciation of real against the dollar. The drop of adjusted EBITDA reflects those effects in particular. For the quarter, we show an operational cash flow of BRL 358 million. The variation of working capital of BRL 184 million was affected by the payment of BRL 360 million in operations of forfaiting. The CapEx was 13% higher than the previous quarter, especially in relation to the finalization of PCI injection that we will ensure better operational efficiency. In line with the discipline of execution of the CapEx, Usiminas reduced the guidance of the CapEx for the year from BRL 1.4 billion to BRL 1.2 billion to BRL 1.4 billion. In spite of the strong reduction in operation of forfaiting when implemented CapEx when compared to the previous quarter, the cash flow -- the free cash flow was positive in BRL 35 million. Therefore, Usiminas closed the quarter with a net cash of nearly BRL 500 million in comparison to the BRL 390 million of the previous quarter, an evolution of more than BRL 100 million, reflecting the better EBITDA of the period. Net gross debt ended at BRL 6.8 million, stable in relation to the previous quarter. Finally, with amortization, we are not very significant for the year, for the next 2 years, Usiminas maintained its financial discipline with a low leverage and a solid cash position. Leo, over to you.

Thank you, Diego. We are now going to start our Q&A session. The first question is about the change in the guidance of CapEx that we issued today. Daniel Sasson from Itau, Luca Vello of Genial, Ricardo Monegaglia, Safra; Gabriel Barra, Citi; Rafael Barcellos, Bradesco; they all ask about the same topic. You reduced the guidance of CapEx for 2026 to BRL 1.4 billion. What would justify this reduction? Was there a delay for some projects? How can we think about the CapEx for 2027? And as a complement, would the reforms of coke and the gasometer would maintain the initial schedule or not?

Thank you very much for the question. The projects that are being delayed are all projects of sustaining CapEx, a large number of projects with the purpose of maintaining financial discipline, maintaining a strong cash position and allowing us to focus on the projects with better value added, such as the coke battery project, which maintains its original schedule. So there were no migrations or changes. As a complement, as Diego mentioned, we have improved significantly the execution of our projects. And also we have improved the optimization of costs. As Diego said, the main priority is to maintain the projects according to schedule, and they are all aligned with our prospects and projections. And we have made a redistribution of other projects that will not affect the reliability of the activities and also has the purpose of ensuring a better efficiency in terms of costs.

A complement that Daniel had asked, how can we think about the CapEx for 2027 compared to what -- in relation to what has happened?

We do not provide a guidance for 2027. In relation to 2027, we can say that we are expecting the completion of the gasometer project. We happen that the completion will happen in the middle of next year.

Okay. Great. Miguel, the next block of question is related to price. Okay. I'm going to break down into 2 blocks, lower -- smaller blocks. Gabriel Barra, Citi; Ricardo Monegaglia, Safra; Guilherme Nippes ask about the strategy of prices for the third and fourth quarters of this year. Is there room for new adjustments should the scenario of imports changes in considering the antidumping process? Usiminas managed to make new adjustments in July. Is there room for additional increases? Will there be other effects of the adjustment of prices? And Guilherme says, could you make some comments on the products where the dynamics would be more constrained, but that would be more room for further price pass-throughs?

Thank you very much for the question. Good morning, everyone. Our pricing strategy basically doesn't change from what we have seen since the beginning of the year. Basically, we have been very stringent in pricing in order to recover the margins and profitability that we need in order to ensure the sustainability of the operations. Since the beginning of the year, we have led the increase of prices basically based on the pricing policy defined by the company. This may have generated some distortions in the beginning of the first quarter. And we understand that the distortions were decreasing along the time -- along the quarters. And now we believe it's already balanced. In relation to the increases, in July, we have updated with the industrial contract renewals. We had some adjustments, and there is some lag in relation to what we did. So as of the 1st of July, we have updated some contracts, and we have made some specific adjustments that had some price lag in relation to the margins that we had as an objective for the company. The other question was in relation to products, right? We have -- we haven't seen any differences in the dynamics of prices in the market. Today, we see cold-rolled coils with more gains in profitability. And of course, based on the fact that they have sectors with a more specific demand for the product such as the automotive sector, and they're also products with more value added, which have less pressure in relation to exports, not only from China, but from other origins, of which we have noticed some more growth such as in the Southeast Asia. BQ has a higher price in relation to the offer, but it has also impacted by the demand of other sectors that consume this in the domestic market that would be transport and agricultural products that are not so heated in relation to the other products demand.

Thank you, Miguel. Miguel, it's still for you in relation to price. Caio Ribeiro and Bank of America and Rafael Barcellos with Bradesco asked this question. What was the average price per ton in the last month of the quarter in relation to the average of the whole quarter? And what are your expectations for additional increases in the future?

Caio, answering this question directly, the price of the last month was very similar to the average price of the quarter because the adjustments were implemented in the beginning of the quarter, the current quarter. In relation to the expectations for the future, we separate our sales in 3 segments: automotive sector, we are going to continue following the contract for this quarter and onwards. And in terms of Industry, we expect an update of prices following the trend of the Distribution sector and the lag may vary from one quarter or 5 or 6 months. And we're also going to be monitoring the price cost so that we're going to monitor for margins to be recovered.

Thank you, Miguel. Marcelo, there is a block of questions about the Compactos Project for the mining unit. Caio Ribeiro, Bank of America; Daniel Sasson, Itau; Guilherme Nippes of XP; Tathiane Candini of JPMorgan and Rafael Barcellos asked the following question. In relation to the mining unit, could you provide more color on the extension life of the asset? Do you have deeper studies and what were the timing, the CapEx, the incremental volume, the effect on the cost? And Rafael completes asking if this decision can be made still this year? Marcelo, over to you.

Okay. Thank you, Caio, Daniel, Guilherme, Tathiane and Rafael, all of you. As you know, we have been providing you with information. We have an environmental permitting process for the Compactos Project. This is running according to schedule. We might have some news, some updates until the end of 2026. And when we are going to be able to do a more deeper analysis of everything for -- and this is likely to happen in the end of this year or beginning of next year. Together with that, we have had -- we have developed some initiatives to optimize the current life of [ friables ] with some initiatives that we have already been implementing, until we make the decision for the next step.

Thank you, Marcelo. Still about Compactos, Diego. Gabriel Barra with Citi asks if there will be the need of a partner for the Compactos project. And if the Usiminas would be able to finance its part without additional leverage?

Yes. I think you're referring to something additional. We already have a minority partner. And you're asking if you need something additional in relation to the finance capacity. Well, even though we haven't defined completely the project as a whole, we are sure that Usiminas -- what Usiminas can do in relation to leverage levels, our leverage is negative nowadays. And for sure, if we implement this project, we are going to have a level of leverage which is going to be positive. However, always within reasonable levels, healthy levels for the company.

Thank you, Diego. Miguel, there's a question about demand, steel demand. Rafael Barcellos, Ricardo Monegaglia. How do you see the demand for steel in the main segment for the second quarter? Is there any sector that shows more strength or more weakness than expected? Miguel, please?

Without a doubt, the major player is the automotive sector. There are some important numbers for us to show because the segment grew by 100%. And the new vehicles registration increased about 27%. So imports grow than the registrations of new cars. And this is eye-catching because we have been closely monitoring together with authorities because this is very relevant to the sector so that we cannot miss the consumption opportunities that we can see in the market. This happens not only in the automotive sector, but also in other sectors such as industrial equipment, agricultural machines. And the biggest challenge that we have ahead of us as a sector, as a country, as a chain, the expectations according to ANFAVEA report is to maintain the dynamics and this increase in the automotive sector. And Usiminas, a leader of supply of steel in the sector, will be important. Another important is something that increased more than the average, which is the transportation machines that showed very important numbers, but this shows some weakness for the future, but there was an increase when compared to the previous year. And the segment that continues suffering in terms of consumption is the agricultural machinery that is facing a very delicate situation because manufacturers have given long collective vacations, and this has been affecting the chain and the sector. Transportation equipment has also been affected and they are all undergoing a very weak demand in relation to the previous periods. Appliances has positive demand based on the consumption. Another sector that has a lot of pressure of imported manufactured products is the appliance as well. And this is a little what we have seen as a dynamic, both for the second quarter and also for the future quarters of 2026.

Okay. Great, Miguel. Now Miguel, in relation to prices, still talking about prices. Ricardo Monegaglia with Safra and Tathiane Candini of JPMorgan say the following. We observed that the outlook of results, which is stable in steel unit includes higher volumes. Can we assume that this first drives to a lower profitability quarter-on-quarter? What are the drivers for the loss of profitability? Domestic numbers were very stable. Is it a strategy of value over volume? And is it likely to be the main strategy down the road?

It's important to clarify this for the future. Without a doubt, our pricing policy will not change in terms of strategy. But now it's important to say the following. When we say that we have a higher volume for the future, we have to separate the sales in 3 segments: automotive sector with more added value and higher profitability in relation to the rest of the sector. The rest of the industrial sectors, as we mentioned before, have been showing weakening signs and less activity. And this is a trend that's likely to be maintained in the short term. In Distribution sector, without a doubt, our policy of price relates to discipline and it impacted the volume sold to the sector along the quarter. And that generated a certain level of distortion. Today, we see that those distortions are less prevalent. And so we can increase the expectation of sales. And we also have to understand that imports should continue with a downward trend for the next months. Talking about imports, important to mention that in spite of the drop of imports coming from China, based on the policies and the dumping definitions that were approved by the government, we have been observing a strong increase, especially from the Southeast Asia. When we talk about Vietnam or Korea, for example, we have the interesting data that we have been monitoring and we have been telling that the government and the World Steel Association have published those data. Korea and Vietnam have shown a strong production in 2026. But the demand does not present this growth, however, which is similar to the production. Without a doubt, this has been generating some pressure for those countries, to increase their share, in many cases, in conditions of unfair competition for countries that do not have aggressive policy that we can see in the United States and Europe. And we can feel this pressure in the domestic market in Brazil.

Thank you, Miguel. Now in the next block is going to be directed to Diego in relation to the outlook that we showed in the release. Tathiane Candini, JPMorgan; Henrique Braga of Morgan Stanley, they ask the following. Can you provide more details on the quantitative part of the steel area? What's the price percentage that was realized quarter-on-quarter and which would be enough to offset the price increase? Is there an initiative of efficiency underway that would help the results for the next quarters? When we mentioned that the cost will be driven by operational effect, does it reflect anything related to the PCI plant? And can we quantify the PCI plant contribution on the EBITDA?

Thank you very much for the questions. So again, for the next quarter, we expect an increase in prices and increase in costs, cost more than prices, especially for coal. And we have expectation of a higher volume that will offset this per ton. So per ton, we are going to have a slight drop of yield in relation to the increases of prices of the raw materials, the positive and additional impact will be on the COGS and the best operations that has 2 sites. On the one hand, we are estimating lower cost and maintenance. On the other hand, we are expecting operational improvements that are connected to the PCI project. If we hadn't completed the PCI project, our EBITDA for the next quarter would be to maintain a similar level or it would be much worse. So that was an excellent timing for the completion of the project.

As mentioned by Diego, I'm going to complement his idea. The new plant allow us to increase by 15% our injection rate for this quarter when compared to the previous one. And in the next quarter, we estimate to have an additional 15%. So if you compare the third quarter with the first quarter, we are going to have 30% additional injection rate and an improvement in efficiency and also operating costs. The plant is working well. The project was a success, and it's in full operation now.