Usiminas (OTC:USNZY) (USIM5.SA) has released its fourth-quarter and full-year 2023 earnings, revealing a complex blend of achievements and challenges. The company completed significant revamp projects, including the major overhaul of blast furnace 3, and achieved a record iron ore sales volume. Despite facing a volatile international political and economic environment and increased unfair competition in steel imports, Usiminas sees growth prospects in various sectors and plans substantial investments to improve environmental performance. However, the company experienced a drop in steel sales and net revenue, while maintaining a net cash position and reducing working capital.
Key Takeaways
- Usiminas completed major revamp projects, including the overhaul of blast furnace 3, with an investment of BRL2.7 billion.
- The company achieved record iron ore sales of 9.1 million tons in 2023.
- Plans to invest BRL1.8 billion in 2024 to enhance CO2 emissions and environmental performance.
- Consolidated results showed a decrease in steel sales and net revenue, but an increase in iron ore sales and revenue.
- EBITDA for the steel unit improved, mining unit sales remained stable, and revenue increased due to higher iron ore prices.
- Significant reduction in working capital and completion of BRL3 billion in capital expenditures for the year.
Company Outlook
- Usiminas sees growth opportunities in the automobile industry, agriculture, and decarbonization.
- The company expects stable prices in the auto industry during Q1 2024 and a stable net revenue for the quarter.
- Demand for steel is anticipated to remain stable with a positive outlook for the automobile industry.
Bearish Highlights
- The complex and volatile international political and economic situation posed challenges, including an increase in steel imports under unfair competition.
- The consolidated results indicated a drop in steel sales and net revenue due to lower steel prices.
Bullish Highlights
- Record sales of iron ore and increased revenue from the mining unit due to higher ore prices.
- The company ended the year with a net cash position and a leverage of minus 0.05%.
- Positive expectations for the automobile industry and a 6% increase in production.
Misses
- EBITDA for Q4 was impacted by a nonrecurring effect, resulting in a lower figure of BRL324 million with a 5% margin.
- Net profit was affected by the recoverability of accumulated tax losses.
Q&A Highlights
- Usiminas is focused on industrial excellence and asset management, with the ramp-up of Blast Furnace 3 going well.
- The company addressed provisions made in Q4, including the reversal of provisions related to a legal process.
- Expectations for a return to positive EBITDA in the next quarter were discussed.
Usiminas has faced a challenging period marked by external pressures but remains committed to its strategic investments and operational improvements. The company's focus on efficiency and cost reduction, along with its record iron ore sales, points to a resilience that may serve it well in the evolving market landscape. The management's emphasis on industrial excellence and asset management, combined with their commitment to environmental performance, indicates a forward-looking approach aimed at long-term stability and growth.
InvestingPro Insights
Usiminas, a prominent player in the Metals & Mining industry, is currently trading at attractive valuation multiples, according to InvestingPro data. With a Price/Earnings (P/E) Ratio of 8.04 for the last twelve months as of Q4 2023, the company is trading at a low earnings multiple. This could signal a potential undervaluation of the company's earnings capacity, especially when compared to industry averages.
In addition to the favorable P/E ratio, Usiminas's Price/Book value as of the same period stands at 0.47, which suggests that the company is trading at a low Price/Book multiple. This metric can often indicate that a company's market value is less than its book value, potentially offering an attractive entry point for investors who are looking for value stocks.
Despite a decrease in revenue growth by -14.88% over the last twelve months, Usiminas has maintained dividend payments for six consecutive years. The company's commitment to returning value to shareholders is further demonstrated by a dividend yield of 3.34% as of the specified date. This consistent dividend payment history, coupled with a solid dividend yield, may appeal to income-focused investors.
For those interested in a deeper analysis, InvestingPro offers additional insights on Usiminas. There are currently 14 InvestingPro Tips available, which provide a comprehensive look at the company's financial health, market performance, and industry positioning. Readers can explore these tips by visiting https://www.investing.com/pro/USNZY and can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription using the coupon code PRONEWS24.
Full transcript - Usinas Siderurgicas de Minas Gerais (USNZY) Q4 2023:
Leonardo Karam: Good morning and welcome to our Conference Call to discuss Usiminas’ Fourth Quarter and 2023 Results. I am Leonardo Karam, General Manager, Investor Relations, at Usiminas. For those who want to follow us in English a free translation of the webcast presentation is available on the Usiminas IR website. We also have an interpreter for simultaneous translation. Please select the sound channel on the icon at the bottom of your Zoom (NASDAQ:ZM) screen. [Operator Instructions] This call is being recorded and simultaneously broadcast on the YouTube channel. Please note that this conference call is for investors and analysts only. Please identify yourself so that your question can be answered and for the sake of time, we request a limit of two questions per participant. We also ask that any questions from journalists be sent to Usiminas Media relationship by empresa@usiminas.com. Before proceeding, we would like to clarify that statements made during this conference call regarding the company’s business prospects as well as forecast, operational and financial targets regarding its growth potential or forecast based on the management’s expectations of the future of Usiminas. These expectations are heavily dependent on the performance of the steel sector, the country’s economic situation and the situation of the international markets, and therefore, subject to change. With us today, we have Marcelo Chara, our CEO; the Vice President of Finance and Investor Relations, Thiago Rodrigues; and Commercial Vice President, Miguel Homes. Marcelo will begin with his reflection subsequently. Thiago will present results. Subsequently, the questions raised will be answered. Now, Marcelo has the floor. Marcelo, you may speak.
Marcelo Chara: Good morning to everyone. It’s a pleasure to be here once again to talk about the results and the progress of Usiminas in the past quarter and the year 2023. 2023 was an extremely challenging year and it was a transformation year for Usiminas. We are in the middle of an international political and economic situation that is complex and volatile. And the distribution of international, there was an exponential growth of import of steel in Brazil and many of them under unfair competition situation, this created major distortions in the market and the negative impact in all the value chain, less employment, lower production, adjustments of production, sales decline in local collections also impacting the fiscal accounts of the countries. In Usiminas throughout the second semester of 2023 which was an important year in term of the intervention of our works as well in the decisions that we adopted regarding our industrial configuration or setting. Now the blast furnace 3, the grade – the work was one of the major challenges. This revamp was extremely complex. We mobilize financial capital and dimensions that we had never seen in Usiminas and we had over 9,000 people working in the peak of the work and investment of BRL2.7 billion. And in addition, we completed a number of interventions in the Pachinga plant with reimpairment in our steel mill and also another work with over BRL500 million and we focused on competitiveness and the improvement of industrial performance. And market today, we can say that we are prepared to follow and drive the growth opportunities in each one of the Brazilian industrial sectors with steel and services that are competitive, creating formal employment and creating value in the industrial segment of the country. We have to encourage the reindustrialization of Brazil and we are carrying out initiatives with new ideas together with the public power to create a scenario so that the private sector can invest in order to mobilize and create green development that is sustainable in Brazil. Now, focusing on our specific actions regarding our management dynamic, I can say that internally, we have adopted adjustments in the organization and the structure, focusing more on our industrial operations. And we have also implemented a new management routine that is systemic to follow in – to follow locally, the performance and the main management it matters. This new management allows us to adopt important decisions, significant swiftly and more assertive. We have decided to disconnect the Coke plat #3 because of the environment. And with this, we were able to develop a very important reduction of cost. And efficiency improvement, we discontinued blast furnace when we focus now on blast furnace 2 and 3 that are more efficient and we can achieve a greater level of use. Therefore, after this shutdown is also connected to the high level of steel imports under unfair conditions that have arrived in Brazil throughout 2023. When we compare it to 2022, it’s 50% higher. We are implementing rigorous measures in inventories, better evaluation just that lowered the amount of products that are obsolete and of lower turnaround. All of these improved our production costs. And during Q4, our cost production when we compare it to Q3 of 2023 13% inferior and this will impact our results in the upcoming quarters. In terms of people management, we are focused on the development and our people in our teams in training and increasing knowledge within our employees, strengthening our plans with more professionals. We are encouraging leaders and we have a diversity and inclusion program that we are focusing on and we have given a priority. We are also internally strengthened in all the operational industrial culture, the need to be good neighbors in the communities where we operate security and environment are not an option. This is a condition so that our operations are legitimate. This is part of our value. We have to improve more in environmental performance and we will provide support to the communities to develop and strengthen them. Now regarding Usiminas migration, I would like to share that this year 2023 was an all-time high record in terms of sales, BRL9.1 million tons and [indiscernible] also with this, we have complemented – we’ve had important work during the first stage with the [indiscernible] system. Now the target is to eliminate those the – we want to eliminate the – we have the canter and we don’t want dry stacking. Now regarding 2024 and I would like to share that our vision, no doubt is extremely challenging. As last year, we started a year with the economic and political scenario, very similar to 2023, high volatility, distortion of the international trade and a strong pressure of imports in unfair conditions that was like last year in addition to a low expectation of growth in Brazil. Nonetheless, we do see good opportunities in the different sectors where we operate. We have carried out a very important improvement in terms of our competitiveness due to the information that I shared with you regarding the productive setting after high the blast furnace 3 also investments because of the automobile industry. The interest rate, the Brazil industrial plan announced by the government can drive agriculture industry, all these sectors in Brazil and the investments that are necessary for the decarbonization of the economy in Brazil, we’re focused on the efficiency and the competitiveness of our operations. And as a target, we are aiming at markets with higher added value, lowering the cost of production, and we want to see better results in 2024. Blast furnace 3 continues in a ramp-up process and we’re highly reassured with what we’re seeing. We will reap the results in cost and environment in this year. In 2024, we calculated investments of BRL1.8 billion, focused on the fuel injection system of the new blast furnace that will allow us to continue improving our CO2 emissions and with the repair of our coke plant too for its recovery of the hot area, and we have projects focused on improving environmental performance and more safety Mineracao, we continue with our licensing projects of compact projects always considering better interaction and the care towards the environment and the value of the energy. We have an ambitious plan of decarbonization. We clearly know what the targets are in briefly. We will give you some announcements. We will work with Cubatao Ipatinga plant and our service center, making progress in the decarbonization, improving productivity, efficiency, competing with operations, a worldwide reference with a great array of services and products. Thank you very much to everyone. I will hand it over to Thiago that will present the results of the year and the fourth quarter. Thank you very much.
Thiago Rodrigues: Thank you very much, Marcelo, good morning. It’s a pleasure to be here to present the results of Usiminas that would be Q4 of 2023. And the year before I start, I would like to say that after this presentation, the results of the business area and steel transformation are consolidated in the steel unit. Now we report our results only in this division of edu units mining and steel. This division shows an improvement in our management in Usiminas, and we do understand that it will be easier to understand the results and market projections. So we can go to the highlights of 2023 in Mineracao. We ended the year of 9.1 million tons of iron ore sales, the highest volume in Mossel sales of $4 million, a drop of 5% vis-à-vis 2022 a strong impact in our imports that are sold at subsidized prices. Now the adjusted EBITDA, which includes nonrecurring effects that you will see subsequently was that of BRL1.8 billion, and net profit was BRL1.6 billion. Our CapEx is BRL3 billion in 2023, the largest in the past. 14 year-end, we had a net cash and a leverage of minus 0.05% with an important improvement in our working capital. There’s a dividend proposal of BRL330 million that will be taken to the general meeting in April. The blast furnace 3, as Marcelo mentioned, after a strong work, it’s in ramp up and Usiminas for the second year in a row is considered in the easy that is the sustainability index from B3. So we continue with the consolidated results of 2023, we can see that these results were are marked by the drop of sales of steel sales that was the lowest in the past 5 years when we did regard 2020, which was the year of the pandemic, but also because of the all-time high record of iron ore sales, but this wasn’t enough to offset the drop of the price of steel throughout the year. And our net revenue dropped 32 – went from BRL3 billion to BRL27 billion in 2023. And something else that impacted our results was the high cost of production, especially during the refurbishment of blast furnace 3 and our consolidated EBITDA went to 4.17% in 2023 or 1.4%. Without the recurring effects so by the end, we ended the year with BRL1.6 billion. Now here, we have also the results– the consolidated results broken out by quarters. So the net revenue was stable during Q3, BRL6.8 billion in terms of revenue, an increase because of the increase in mining and a drop in the steel unit that we will mention the EBIT was BRL625 million, a margin of 9%, but with nonrecurring effect of BRL301 million. Without these effects, our EBITDA would be BRL324 million, with a 5% margin. This is a growth in both business units. Now the net profit of BRL975 million had the impact of net income impacted by greater recoverability of accumulated tax losses of BRL495 million now. In steel, we improved 3% sales and 5% in the same period last year, especially because of sales in the foreign market. Now in revenues, a drop of 4% net revenue per ton quarter-on-quarter. This – the impact is a decline in price in the domestic market, which is offset by a better sale mix to the foreign market. Now the EBITDA was BRL267 million, a 5% margin, including the nonrecurring effects of BRL309 million without this effect, the EBITDA would be minus 4 to a margin of minus 1, but it still demonstrates a real improvement in our operating results. Now regarding the non-recurrent effects of BRL309 million, these are accounting effects that did not affect the cash of the country. It’s made up by BRL532 million regarding provisions of the past 10 years that were reverted after we ended a legal process and BRL223 million negative because of provisions for low inventory turnover. Just to clarify, the BRL532 million positive also impacted other lines of expenses and revenue and minus BRL223 million impacted the CPV line. So here, we can see the variation of the EBITDA during Q4, clarifying the non-recurrent effects that was a one-off effect of our operation. So here, the decline of the mix price that affected BRL251 million. Our EBITDA was more than offset by the decline of cost of BRL289 million, the BRL90 million of other effects is the – these are tax credits that were offset by an inventory adjustments were 69 negative. So when you see our results statement, it seems a stable none the less, but there is a cost of BRL289 million, has an effect up to BRL223 million and the BRL67 million of other –the inventory adjustment. Now mining Mineracao Usiminas we had stable sales 2.4 million tons. I would like to highlight sales to the steel unit that are growing. During Q4, we sold 341,000. Now the net revenue was $1 million or $101 per ton, 32%, – 31% above the past quarter due to the increase in the price of iron ore during this period. Now the EBITDA was BRL327 million and 31% of margin, also impacted by the increase of price in iron ore during this period. Now the financial indicators, we will start with working capital. We had an important drop in working capital of BRL1 billion, mainly due to the slab inventory that were BRL443 million and other drops in other raw materials of BRL370 million and an accounting effect of BRL300 million that didn’t affect the cash. So we had a BRL3.7 billion drop in working capital in 2023, mainly due to BRL2.5 billion reduction in inventory. And on the right, we see steel inventory after the retrofit of Blast Furnace 3. Well, we have 93 days of ramp-up. Now CapEx. CapEx of Q4 was BRL654 million. We ended the year with BRL3 billion so BRL1.2. That was the revamp of Blast Furnace 3. BRL224 million, we have a guidance between BRL1.7 billion, BRL1.9 billion. And all of this and with this, we ended the year with a cash of BRL6 billion and net cash of BRL89 million. This is higher than our debt and leverage of point – minus 0.05. Our debt profile is sound, and we continue following the market conditions and also to see the maturity of bonds of 2026. During the best moment, this was a brief presentation of a result. And now I hand it back to Leo, so we can initiate our Q&A session.
A - Leonardo Karam: So we will start our Q&A session now. Our first question for Marcelo. And it’s regarding importers Caio Ribeiro from Bank of [indiscernible] from Santander (BME:SAN). I want to know the about the evolutions of a discussion of a possible increase of steel tariff. If there is an expectation regarding the timing of this decision by the government and our authors that yesterday, just spoke about 12%, 13% increased taxes for tubes and bars. So what is your expectation regarding the new tariff review in the upcoming months? Marcelo, you have the floor.
Marcelo Chara: So thank you for your questions, Thiago. Joining these two questions, I’m going to give you data regarding reality. The five areas that were impacted, you can see we have 227,700 tons. The imports of steel of 2023 were 5.7 million tons. This impact is marginal. This impact in terms of measures, we are saying that our neighbors from Americas, U.S., Mexico adopted rates of 25%, this impacted 4% of the export. So they are insufficient. Here, the expectation is that is to be able to apply rates to create [indiscernible] balance, because it is totally unfair the type of competition that we are facing. And the concern is regardless of having sectors. Here, we have – here we have to think about the countries in industrial development. This affects the all value chain. This affects the competitiveness of Brazil, we are losing industrial jobs regardless of the initiatives that are important. Now specifically when we think about unfair competition, this has no response. The expectation is that the government will propose something that is constructed, that is different that will allow us to balance this situation – this invasion that we are suffering of subsidized products.
Leonardo Karam: Thank you, Marcelo. Our next question for Miguel, now what about prices in the auto industry, [indiscernible] from Goldman Sachs (NYSE:GS). They want to know if regarding the auto industry, what are the price negotiations during the year what are the levels of discount in January and what to expect in April if this readjustment from the beginning of the year represents around 20% of the volume of the industry. So everybody wants to know about price evolution for the auto industry during Q1 of 2024, Miguel, you have the floor.
Miguel Homes: Well, good morning. Thank you, Leo. Good morning to everyone. Well, as a matter of fact, we entered the negotiations together with the auto industries with the contracts that update conditions as of January 1. The discount was between 9% and 12%. The volume associated to these contracts that were updated their conditions as of February 1 are between 25% and 30% of our sales to the auto industry.
Leonardo Karam: Now your second question was regarding to talk about the negotiations of April 1, and how this impacts the contracts that already represent 70% of our sales toward this area. Our expectation is to see levels similar to the contracts that updated the contracts on January 1. I’m talking about a discount between 9% and 12%. More Miguel, when we – this is about price [indiscernible] from Bank of America (NYSE:BAC), [indiscernible] and Marcio Farid from Goldman. They say in your release, you say that you expect the revenue per ton to be stable during the first quarter of 2024 nonetheless some industry participants say that there can be an increase throughout this month in the distribution. Can we see this guidance as an expectation that there will be no price adjustments throughout this quarter? Or is there a mix of effect of this distribution that should generate this effect?
Miguel Homes: Well, they know regarding is they can flat steel, can the price of flat steel increase during Q1 of 2024, Miguel. Well, it’s important to number one, to underscore that for the first time, Usiminas is providing a price guidance for the upcoming quarter. This will help you in each one of your models. Now how do we reach this sustainability in net revenue? In Usiminas, we can classify the sales in 3 segments. Automobile sector that follows contracts, some are yearly, some are semestrial, great networks that are spot negotiations that are updated month – on a monthly basis and the industry that has contracts and conditions that are renegotiated quarterly or semesterally. Now, when I say that 30% of the automobile contracts, we had an adjustment of 9%, 12% as of January 1. Then we have the industry sector that is stable because we are updating the conditions of the first quarter. Now the gray ready in network that represents 30% of our sales. We had a 6% of price increase as of February 1, when we make the conditions of the 3 segments. Well, this gives us an expectation of stability in our net revenue during Q1 of 2024.
Leonardo Karam: Our next question about prices [indiscernible] from Morgan Stanley (NYSE:MS). He wants more color regarding the price of steel. What was the situation of December vis-à-vis the average of quarter four. That was it?
Miguel Homes: Well, we generally presented the indicator of December vis-à-vis the semester, so you could see future expectation. What is the new assumption that we are based on? What kind of we want to provide you the expectation of the net revenue of Q4 – of Q1 and it loses as importance now. Now December presented a similar price, especially vis-à-vis Q4, especially when we see the price of sale in the domestic market.
Leonardo Karam: There is a follow-up here from Carlos De Alba regarding prices. He wants to know if this increase of 6% for major networks was totally implemented.
Miguel Homes: Yes, it was. We adjusted our price list for grade network around 6%. This took place as of February 1.
Leonardo Karam: The next question for you about demand, [indiscernible] from Santander wants to know your feeling regarding the steel demand in the beginning of the year and what to expect throughout 2024.
Miguel Homes: Well aligned to our expectation and our guidance of sales volume during the first semester, we see a certain stability. There is a typical seasonality from the beginning of the year, that is January, February and December, that is aligned to our expectation, the automobile industry, well, the expectations announced by Amfabia, they expect a 6% increase in production. And in 2023, there was a drop of production and 2%. And this is very positive for Usiminas and the country. This means a resumption in terms of this area activity, as Marcelo mentioned, better conditions in terms of credit. And impact in new investments because incentive programs for the industry and infrastructure will this can resolve in better conditions to consume steel in our country.
Leonardo Karam: Our next question is for Thiago. [indiscernible] want more color regarding the provisions that we launched during this quarter. Could you deep dive on the provision revision of liability of BRL650 million in the steel unit during Q4 of last year. And Daniella also wants you to tell us if in other quarters, there were impacts of stock ups lessens that you didn’t pay attention to. So what has changed in the company? And in terms of these adjustments, number one BRL530 million of positive effects.
Miguel Homes: As I already mentioned, these were provisions of the past 10 years regarding an actuarial liability because of a legal lawsuit underway, we couldn’t approach this to change the conditions and to balance this liability. Once this dispute came to and then we were able to change the conditions to eliminate this liability and therefore, – and this – and there would be no impact in new provisions in the future. Regarding BRL223 million negative regarding the provision for items of low turnover. Yes, we had a policy for the provision of low turnover products that existed here but anticipate a provision to – a provision to materials – for materials that were over 5 years in inventory. Now we’ve seen good market practices and will encourage us to control our inventories, we will provision all the items that have been over 1 year in our inventory, this first change. We – this is called, we call it non-recurring because it’s a one-off effect. And from here on, it will become a recurrent effect, and this is connected to our inventory management.
Marcelo Chara: I apologize for interrupting. I would just like to mention something Thiago was extremely clear. We have reconverted totally the industrial dynamic of the company. We carried out a deep review in our organizational charter and we’ve developed important promotions, and we have people of excellent profile to carry out the transformation. We’ve changed the management tools. And within this package of industrial, we view we are convinced that industrial excellence is the base to base all of these challenges, all are – this was the dynamic of stocks and tools hundreds – and there we need a rigorous plan of all the components that are part of our inventories for our operation. And this is strategic. We can do this because we have reclafied all the tool, strategic high rotation, low rotation and there is a need of a reclassification because we changed our stock dynamic seen lead times and maintenance strategies, consumption, everything that we’ve done is extraordinary, but this is a deep review of our asset management speaking of spare parts and materials.
Leonardo Karam: And Marcelo for you, a number of questions regarding blast furnace 3, it’s ramp-up and the impact of this blast furnace 3. We have [indiscernible] Gustavo from HSBC and Rafael Barcelo [indiscernible] from Bradesco. They want you to talk about the first months of the ramp-up and how this efficiencies compared to your expectation. They also want to know what is the expectation of drop of price of slabs when can – when will the blast furnace 3 reach its maximum capacity? Could you give us more details regarding the cost evolution with this blast furnace and talk more about the ramp up, give us details about the ramp-up?
Marcelo Chara: To achieve maximum capacity is totally connected with the market situation. If imports continue coming in the way they are coming in. It’s very – it will be very difficult to see full the productive development of our facilities. This is, yes, under risk. This is a risk. This is an important component and nonetheless we are plan to use our blast furnace 3 at maximum capacity during this quarter. This quarter, we want to test the machine at its full capacity. But to maintain this will depend especially on the market conditions, which is extremely important, and we have to hold unloyal competition. When you talk about cost. I mentioned cost of Q4 vis-à-vis Q3 last year, and the expectation is to continue improving our cost efficiency. Our ramp-up processes need adjustments and fine-tuning of a number of variable. Our team is learning with the best experts in the world how to use this type of technology in this new – with this new blast furnace. So we have important collaboration from a number of people that are references – there is a strong program together with our supplier. And it is making progress in a highly satisfactory way. We’ve – of course, we run into difficulties that are normal in these processes, but our expectation is to test the full speed of the blast furnace during this quarter and also continue focusing on improving efficiency and cost. We have a base, we have a foundation for this, and we are extremely reassured regarding this process.
Leonardo Karam: Thank you, Marcelo. The next question for Miguel [indiscernible] Barcelo from Bradesco. He wants to know about the demand. He wants more color regarding the evolution of the domestic demand during Q1 of 2024.
Miguel Homes: Well, Rafael, we see a stable market with the typical seasonalities of the beginning of the year, January, February and with Carnival (NYSE:CCL). Therefore, our expectation is of stability when we compare it to Q4 of 2023.
Leonardo Karam: Thank, you, Miguel. Our next question for Thiago from [indiscernible] from Safra. He wants to know how do we see the evolution of spread the cost of production in the COGC can we there – can there be a drop of COGS per ton during Q1?
Thiago Rodrigues: Ricardo, it’s difficult to give you an answer because we have a number of variables. The COGS and the CPP has the influence of the mix of what you produce and what you sell, but we see a decline trend in terms of production cost. On Q3, Q4, the production cost dropped 13%. And we continue with the blast furnace 3 ramp-up that will continue dropping our cost. The expectation is that we will drop the COGS during the next quarter, which is difficult to comment. A reference that we focus on is how long the material is an inventory until it so we have 70 and 90-day between the productive cycle until it is sold in the market. So this is the average period between production and COGS.
Leonardo Karam: Now Thiago [indiscernible]. He asks about the consolidation of Usiminas solution within the steel unit. He wants to better understand what was the rationale to incorporate the line of steel of transformation with – and had $2 billion of revenue per quarter. If it was always separated. Why are you going to join it now?
Thiago Rodrigues: Well, the main factor was how we manage our business. So in Usiminas, the steel business as a whole is seen as a unit separation between steel mill and SU didn’t make sense and hindered our management. Miguel that is the commercial – from the commercial side, he works directly to the SCO and customers are the same steel mill customer and transform material customers are the same. So we understood that it would make sense to unify them. And this – and if you see with our peers, if I am not wrong, other industries don’t carry out this type of segregation. And I believe that this is why we did it because it’s a good way of managing business. There is an important difference 100% of the sold volume by Usiminas Solutions comes from Usiminas. This is a relevant factor. Now controversially [indiscernible] has an important part of its business that is related with third parties.
Thiago Rodrigues: Thank you. Our next question for you, Thiago. Regarding provision Gabriel Simoes from Goldman Sachs. Just a follow-up. The difference of provision of obsolescence and reclassification of inventory. One was considered one-off and the other one was the rationale here is basically the change in the criteria of the assessment of slow moving was a change of criteria. So there we created provision with a criteria of 5 years, and we changed the criteria to provision material that has been for over 1 year in the inventory. This was a one-off, and now we can see recurrent effects of these provisions, unlike the inventory adjustment that is a natural adjustment and something that we see in all of our operations. When there is a topography and you verify a difference between the physical and accounting inventory, you adjust it. And we always adjusted without considering nonrecurring effects. So this is how we’re doing it.
Marcelo Chara: I would like to add something. Just one point, the reclassification presents additional measures because what we have launched are all the preventive measures to prevent these actions. What am I talking about? And I’ll give you a simple exam, there is a spare part that is very important in the productive process that we have. It’s called strategic. If it is there for the next 10 years, it’s good news. You – of course, when you have the spare parts and the same thing to products that are not strategic and that remain for a long period of time, you define obsolescence, but you have to create conditions and processes that will avoid this purchase, this acquisition and the production. This is the key of success in the efficient management of resources, and this is what we’re doing here. And as I have more questions here that are asking about the interaction, we are applying the best practices because with this, we can be more efficient, and we are using this in all our productive processes in machines, equipment as well as products because this is where competitiveness lies.
Leonardo Karam: Thank you. Our next question Carlos De Alba for you, Thiago. He wants to know about idealness. When can we expect equipment expenses that incur in depreciation, well can they represent zero now that blast furnace is running and what plans are included in this slide.
Thiago Rodrigues: I cannot tell, I really don’t know when it will go down to zero or if this will happen. These are equipment with equipment that have been shut down and don’t produce, you have to maintain these equipment, although they have shut down, but you still have expenses to disassemble and to take this material somewhere else. The value will drop significantly because it is classified during a long period of time, blast furnace 3 was considered as shutdown equipment. The greatest expenses are in Cubatao. And these – we continue – we are demobilizing them disassembling – assembling them and with Coke plant 3 in Ipatinga that is paralyzed. But the trend is for this expense to be marginal from here on.
Leonardo Karam: Now for you, Thiago. Regarding [indiscernible], well, we prices pressured downward, but when you see the net cost in the steel mill, during – with the ramp up of blast furnace 3 can, we think about a breakeven EBITDA or even positive results. During Q1 or this improvement will be seen during Q2 onward and Carlos Thiago wants to know what to expect in terms of EBITDA margin in the upcoming quarters. Thiago.
Thiago Rodrigues: I can’t talk about EBITDA margin, but the expectation already helps. In Q4, that has just been reporting and eliminating nonrecurring effect. We still had a negative EBITDA of minus BRL40 million and a margin of minus 1%. Our expectation is an EBITDA that will be positive as of the next quarter. I can’t – we give you exactly what the margin is, but yes, the expectation is that the company will go back to the black.
Leonardo Karam: Daniel Sasson, wants to know about working capital after a strong release of working capital during the second semester. Are you at ease, how will the working capital be impacted with the ramp up of blast furnace 3, the delta of the slabs from third parties. Have they been used already?
Thiago Rodrigues: The slab inventory is practically back to normal. Perhaps so we have some slabs in our inventory, that was for the overhaul of blast furnace 3. Our inventory by and large is normalized as we showed. Well, comfortable is a difficult word because we always try to improve. Marcelo mentioned how we’re working in a number of fronts, but mainly when we think about working capital. Therefore, we will continue pursuing improvements. Now the expectation for the upcoming quarters is of stability because we have already reached on an adequate level, and we’re still pursuing new opportunities, but we don’t expect a significant drop in working capital from here on, at least not during the next quarter.
Leonardo Karam: Thank you. Our next question for Marcelo. [Indiscernible] from Daniel wants to know what is the reposition of coke coming from the Cokes and now that the consumption of slabs is normalized in the operation and also the working capital. Thiago.
Thiago Rodrigues: Well, I can say that today, during the first part of the presentation, we showed you the important decisions in our industry configurations. We shut down one of the coke plants that has an important environmental impact in lowest coast. And now we focused in Coke plant 2. This coke plant is operating at more than 95% of its capacity. We completely recovered its production dynamic and maintenance dynamics. We have an excellent team dealing with this. And we are initiating a hot repairment to totally recover its productive conditions and environmental performance. This is a project that will last – has lasted over 2 years. What do I mean here? So our facilities are stable. We will fully recover it. And the complement for the blast furnaces are being developed. We’re doing this with an important network of Coke supplier. This is something that we have already developed. And the cost conditions of this operation are extremely competitive. We already have a plan and a clear definition for the upcoming years to operate with the mix until this coke plant goes into full production.
Leonardo Karam: Thank you, Marcelo. The next question, Thiago from Carlos De Alba from Morgan Stanley. He wants you to elaborate on the iron ore sales for 2024. And if could you explain the shutdown line and why this line was – where was it is activated?
Thiago Rodrigues: Carlos, as we also communicated our expectation of 2024 is the drop of production of iron ore or by Goza because of the areas that we are focusing on. A number of areas specifically one area had to be deactivated because of natural matters because slab. We will only initiate or other areas during the second semester of the year, there will be a production dropped during the first semester and greater production as of the second semester. There – it is not – it’s not connected to the processing plants, but yes, the other areas. We are building roads, and we are creating the necessary infrastructure to start this area, these areas – these plough areas.
Leonardo Karam: There are questions from Rafael from Carlos because and our Investor Relations team will answer these questions afterwards. Marcelo Marcio Farid from Goldman’s Sachs with almost 40 years [indiscernible] Usiminas. How do you see the position of the company in the upcoming years? And what is the best pathway for the company? You are muted, Marcelo.
Marcelo Chara: Yes, these are many years. I am extremely excited. And Usiminas is an emblematic company. when we see Brazilian industries, and there is great potential here of development of growth. It can contribute with the industrial growth of the country providing value to suppliers, communities, people to shareholders, to all the stakeholders. Now the pathway, they are no secret regarding the pathway you talk the 40 years – the 40 years in the company were based on fundamental principles, we have to create value to our stakeholders, to societies that we work in communities, shareholders, this is what we will continue strengthening in office. And Usiminas we will focus on industrial excellence, the quality and development of human resources and being good neighbors and also we need to contribute towards the growth of Brazil. And we have to contribute with the country’s industrial segment doing what is best in each one of the segments. We – to be reference inside the industries like the best of world-class industries. That is our target. It’s to be better. And of course, we can achieve this with focus, discipline in all our dynamics, supply, commercial, industrial processes for this, we must be perseverant. We must be consistent. We have to be transparent. We have to work with knowledge. And of course, we have to work with community, collaborator, society. We are optimistic as Usiminas and we’re optimistic regarding Brazil.
Leonardo Karam: So our Q&A session has come to an end, and we would like to thank all of you for your participation. And I would like to remind you that all the IR team is at your disposal for any further questions, and we do wish you an excellent afternoon.
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