CSN | Companhia Sirderúrgica Nacional

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CSN broke several operating and financial records in 2008, underlining the success of the horizontal growth strategy adopted a few years ago. The increased share of the mining segment, the diversification of the steel product portfolio throughout the year and the sales mix bias towards the domestic market, all boosted the Company’s results.

In the first ten months of the year, CSN reaped the benefits of a highly favorable economic scenario, which helped sustain demand for steel products. In the final two months, however, demand fell sharply in the wake of the global economic crisis. Nevertheless, the annual financial performance was still better than in 2007.

Net Revenue

Net revenue totaled R$14.0 billion in 2008, 22% up on 2007 and a new Company record, fueled by successive iron ore and steel product price hikes along the year, the domestic market’s higher share of the sales mix and the increased contribution of the mining segment, which accounted for 15% of the total, well above the 6% and 2% recorded in 2007 and 2006 respectively.

Net revenue from the domestic market averaged R$ 2,205 per tonne, 16% up on the previous year’s average of R$ 1,893.

EBITDA - Top

Annual EBITDA totaled R$6.6 billion, 35% up on 2007 and a new Company record, primarily due to the increases in the price of steel products throughout the year and the greater share of the mining segment.

The annual EBITDA margin came to a substantial 47%, around five percentage points more than the year before. This was the eighth successive year that the EBITDA margin has exceeded 40%.

Financial results and Net Debt - Top

The 2008 net financial result was negative by R$2.83 billion, basically due to:

• Provisions for interest on loans and financing totaling R$735 million;
• Monetary restatement of tax provisions in accordance with the SELIC rate, amounting to R$450 million;
• Losses of approximately R$1.3 billion resulting from the Total Return Equity Swap, based on CSN’s ADR price, whose purpose is to exchange (swap) the return on assets against the price variation of the Company’s ADRs;
• Other financial expenses of R$ 102 million, consisting mainly of IOF (financial operations tax), commissions and bank guarantees.

Consolidated net debt moved up from R$ 4.8 billion at the end of 2007 to R$ 5.3 billion at the close of 2008, essentially due to the following factors:

• EBITDA of R$ 6.6 billion in 2008;
• Dividends and interest on equity paid in 2008, totaling R$2.3 billion;
• Investments of R$2.9 billion in various expansion projects;
• Effect of R$3.4 billion related to the cost of debt, allocated to results;
• Tax payments totaling R$ 1 billion;
• The change in the booking criterion of the equity swap reduced cash and cash equivalents, reclassified under the escrow account, by R$1.5 billion, increasing net debt;
• Net effect of R$ 3.9 billion, corresponding to the prepayment of R$ 7.3 billion for future iron ore supplies and logistics access, partially offset by the proportional consolidation of CSN’s interest in Namisa;
• Disbursement of R$ 0.3 billion related to the share buyback program.

Excluding the effects of the equity swap reclassification and the proportional recognition of NAMISA’s anticipation as an operating liability, CSN’s consolidated net debt would have come to R$0.4 billion, which represents an adjusted net debt/EBITDA ratio of 0.06. The net debt/EBITDA ratio, based on EBITDA of R$6.6 billion in the last 12 months, came to 0.80 at year-end, an improvement over the 0.99 recorded at the close of 2007.

Selling, general and administrative expenses - Top

Selling expenses totaled R$769 million in 2008, R$178 million more than the previous year, chiefly due the increased drive to sell steel products on the domestic market and higher provisions for doubtful accounts.

General and Administrative (G&A) expenses came to R$460 million, R$76 million higher than in 2007 due to higher labor and outsourced service costs.

Other Revenues and Expenses - Top

In 2008, CSN recorded a positive result of R$3.85 billion in the “Other Revenues and Expenses” line, versus a negative R$7.7 million in 2007. The R$3.86 billion improvement was chiefly due to the non-recurring gain of R$4.04 billion in the 2008 from the percentage variation in equity income resulting from the sale of 40% of NAMISA.

Pursuant to Provisional Presidential Decree 449/08, other operating and non-operating revenues/expenses are now classified under “Other Revenues and Expenses”.

Net Income - Top

CSN posted 2008 net income of R$5.8 billion, R$2.9 billion up on 2007 and a new Company record, primarily due to:

• The R$2.3 billion increase in gross profit over 2007;
• Gain of R$4.0 billion from the NAMISA transaction.

On the other hand, the following factors had a negative impact on annual net income:

• The R$3.1 billion decline in the net financial result over 2007;
• The R$ 0.2 billion upturn in selling, general and administrative expenses.

Capex (R$ million) - Top

The most important investments in 2008 are shown below:

Working Capital - Top

Working capital closed December at R$2.2 billion, 72% up on the end-of-2007 figure. The main impact came from the R$982million increase in “Inventories”, reflecting the replacement of inputs at higher costs, and the R$342 million upturn in “Accounts Receivable”. On the other hand, liabilities grew by R$295 million as a result of the R$592 million increase in the “Suppliers” line, partially offset by the R$359 million reduction in “Taxes Payable”.

The average supplier payment period increased from 73 days at the close of 2007 to 100 days at the end of 2008, while the average receivables period was 22 days, 3 days up on the previous year.

The inventory turnover period averaged 187 days, 56 days up on the end of 2007, due to lower demand for steel products in the last two months of the year and the planned build-up of semi-finished product inventories, in light of the programmed maintenance stoppage of Blast Furnace 2, scheduled for 2009.

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