Companhia Siderurgica (SID) Q2 Loss Narrows Y/Y, Sales Up

Brazilian steel maker Companhia Siderurgica Nacional (NYSE:SID) or CSN reported improved results for second-quarter 2016, with its net loss of R$42.7 million (US$12.2 million), narrowing roughly 93% year over year.

Loss per share in the quarter was R$0.03 or 1 cent per American Depository Receipt.

Revenues

In the quarter, Companhia Siderurgica Nacional generated net revenues of R$4,349.3 million (US$1,242.7 million), increasing 18% year over year. The year-over-year improvement was primarily due to higher sales volume in the mining segment.

Roughly 41.2% of Companhia Siderurgica's net revenue was generated from domestic markets, while the rest was sourced from international operations.

Crude steel production declined 55% year over year to 0.5 million tons while production of rolled steel decreased 35% to 0.668 million tons. Steel sales volume decreased 1% year over year to roughly 1.25 million tons, of which domestic sales accounted for 53%, overseas subsidiaries about 40%, and direct exports around 7%. Iron ore sales were up 55% year over year to approximately 9.3 million tons.

Steel revenues, comprising 62.4% of net revenue, grew 4.1% year over year. Revenues from Companhia Siderurgica's mining segment increased 73.5%, accounting for 25.6% of net revenue.

The logistics segment contributed 8.3% to net revenue, up 18.3% year over year. Cement revenues decreased 5.2% and represented 2.4% of net revenue. Revenues from the Energy segment grew 10% year over year, accounting for 1.4% of net revenue.

Margins

Companhia Siderurgica Nacional’s margins weakened in the second quarter. Cost of sales represented 78.8% of net sales up from 77.2% in the year-ago quarter. Gross margin in the quarter decreased 200 basis points (bps) to 21%.

As a percentage of net revenue, selling expenses increased 60 bps year over year, while general and administrative expenses decreased 60 bps over the same time frame.

Adjusted earnings before interest, taxes, depreciation and amortization increased 7% year over year to R$855 million (US$244.3 million), with a margin of 19.7% compared with 21.7% in the previous quarter. Net financial results included expense of R$204.5 million (US$58.4 million).

Balance Sheet & Cash Flow

Exiting second-quarter 2016, Companhia Siderurgica Nacional had cash and cash equivalents of R$5,462 million (US$1,691 million), down from R$6,305.1 million (US$1,756.3 million) at the end of the previous quarter. Borrowings and financing (net of current portion) decreased 5.1% sequentially to R$29,005 million (US$8,979.9 million).

In the quarter, Companhia Siderurgica generated net cash of R$208.5 million (US$59.6 million) from its operating activities as against approximately R$983.5 million (US$252.2 million) used in the previous quarter. Capital spend on fixed assets/intangible increased 41.7% sequentially to R$467.2 million (US$133.5 million).