Hot rolled steel coils secure CST's profitability by qdk21196

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									                                      Hot rolled steel coils secure CST’s profitability

  Serra, July 28 2005 – Companhia Siderúrgica de Tubarão (CST) – (BOVESPA: CSTB4; OTC: CSTPY) –, a leading world supplier of semi-finished steel, today
  announced its second quarter 2005 results. All operating and financial information, except where otherwise specified, are based on the Company’s consolidated
  figures in Reais (R$) pursuant to the Brazilian Corporate Law. All comparisons provided in this release have been made in relation to the second quarter 2004 unless
  otherwise stated.

     nd                                CST now ranks as one of the leading domestic suppliers of hot rolled steel (coil), during the first
 2        Quarter 2005                 half of the year achieving a 26% share of the Brazilian market. As a result, the Company’s
                                       changed breakdown in gross sales translates into improved commercial stability, thus making for a
Closing Price               CSTB4
                                       more consistent profit trajectory.
R$/thous. Shares            108.60     In the first half of 2005, domestic sales already accounted for 48% of CST’s gross revenues—
US$/thous. Shares            46.20     against only 3% in 2002, when in the fourth quarter of that year, the hot rolling line began
Date: 06/30/05
                                       operations. The rapid consolidation in this segment — a process of continuous evolution — is the
                                       result of the Company’s operating excellence which has enabled CST to offer the market a
                                       premium product with customized specifications and at highly competitive costs.
                              1H05
CSTB4                       -28.0%     First half net operating revenues exceeded R$ 3.2 billion, a year-on-year increase of 46%,
Ibovespa                     -4.5%     confirming the growth tendency in the first quarter when there was an increase of 36% over the
                                       same period in 2004. The maintenance of good average selling prices for CST’s products (slabs
                                       and coil) in both the domestic and international markets also contributed to this great performance.
M arket Capitalization         CST
                                       Operating cash generation (EBITDA) in the semester amounted to R$ 1.7 billion, with an
R$ million                    5,536
                                       accumulated net profit in excess of R$ 1 billion — both breaking existing Company records - a
US$ m illion                  2,355
                                       growth of 69% and 33%, respectively compared with the first half of 2004.
                                       Production costs are yet another key area where the Company’s competitive edge helped boost
Shares Outstanding               %     results. According to WSD – World Steel Dynamics, CST’s manufacturing costs are among the five
Comm om                         39     lowest in the world steel industry in spite of the appreciation of the Real and the absence of
Preferred                       61     proprietary sources of iron ore and coal. The Company also successfully retained an excellent
Total Shares (mm )          50,976
                                       financial position, posting a highly satisfactory net debt to EBITDA ratio (0.2 times) in the second
                                       quarter.
Other Indicators              1H05     Expansion work at CST, which will ramp up annual installed capacity from the existing 5 to 7.5
Net Debt/EBITDA                0,2x    million tons, continues to run according to plan with conclusion scheduled for the third quarter
                                       2006. The expansion project is to be completed without compromising the Company’s financial
EV/EBITDA                      1,9x    situation in any way, at the same time further improving production cost competitiveness.
EPS (R$/thous. Shrs.          20.00    (Message from Leonardo Horta, Investor Relations Director)

BV (R$/Thous. Shrs)         160.90                                                             Highlights
                                                                                                              nd                            st
Price/BV                       67%
                                                                                                          2        Quarter                1 Semester
                                        Thousand Tons                                           2005      2004 % Chg.        2005       2004                % Chg.
                                        Slab Production                                        1,202     1,237        (3)   2,404      2,478                    (3)
                                        Hot Coil Production                                      571       437        31    1,120        932                     20
                                        Slab Sales Volume                                        653       806      (19)    1,236      1,474                   (16)
                                        Hot Coil Sales Volume                                    578       465        24    1,101        946                     16
                                        Millions of Reais (R$)                                 2,005     2,004 % Chg.       2,005      2,004                % Chg.
                                        Net Operating Revenues                                 1,703     1,258        35    3,241      2,216                     46
                                                                1
                                        Operating Profit (EBIT)                                  745       466        60    1,457        762                     91
                                        Net Income                                               483       592      (18)    1,020        767                     33
                                                  2
                                        EBITDA                                                   885       620        43    1,727      1,022                     69
                                        EBITDA Margin and Var. in b.p.                          52%       49%           3    53%        46%                       7
                                        Net Debt                                                 538     1,392      (61)      538      1,392                   (61)
                                        Stockholder´s Equity                                   8,202     6,203        32    8,202      6,203                     32
                                         Capital Expenditures (US$ millions)                     211        23       817      306         37                   727
       www.cst.com.br
                                        (1) Earnings before interest. 2) Earnings before interest, taxes, depreciation and amortization
                                                                                                2Q05 Earnings Release


Trading Scenario
World Steel Industry
World crude steel production totaled 546 million tons in the first semester 2005, (277 million tons in 2Q05),
corresponding to an expansion of about 8% compared with the same period in 2004. China continues to dictate
the pace of growth with an increase of 28% in the first six months, or 30% of the sector’s global volume. The
increase in Chinese output, the equivalent of 36 million tons in the first half of 2005, represented 94% of the
total world expansion according to International Iron and Steel Industry data.

Brazilian Steel Industry
Production
In the first half of 2005, Brazilian crude steel production (Brazilian Steel Institute – IBS data), amounted to 16
million tons, indicating stability in comparison with the same period in 2004, and this in spite of the deceleration
in the economy and the levels of steel inventory in the distribution
chain.                                                                                Hot Rolled Sales per Market
The flat rolled segment, of which CST is a part, closed the semester                             (thousand tons)
with a production of 7 million tons, 2% less than the volume recorded                                         5,227
                                                                                        5,026
in the same period in 2004, (in 2Q05, there was fall of 3%).
Slab production for sale to third parties was 2 million tons in the first
half of 2005, (10% less than the performance for the same period in
the preceding year). This performance is due largely to changes in                              1,822
                                                                                                                      1,468
production and sales mix at CST with increasing in-house deliveries
of slab output to feed the hot coil line and despite increased sales of
slab by other market players in the period.
                                                                                     1S04              1S05
Sales
Total first semester sales of rolled products remained practically               Domestic Market          Exports
stable against the same period in 2004, reporting a 2% decline. This
weaker trend was more accentuated in 2Q05, with a fall of 6%
compared with 2Q04. In 1Q05, sales volume of rolled products grew 3% against the same period in 2004. Flat
rolled steel saw a 4% increase in sales to the domestic market reflecting continued growth in Brazilian white line
domestic appliance and automotive industries, both flat steel consumers.

Sales

Hot Rolled Coil
CST’s hot rolled coil sales volume continued to expand in 2Q05, amounting to 578,000 tons, an increase of
24% compared with the same period in 2004 – equivalent to 47% of total sales in the period. The accumulated
first half sales of hot coil rose by 16% to 1,101,000 tons, thus consolidating the Company’s position as one of
the leading suppliers of the product to the domestic market.

                                                                                                              st
             Hot Rolled Coils Sales Volume                                  Hot Rolled Coils Destination - (1 Sem/05)
                      (thous. tons)
                                              578
                              506      523
    481      465      450
                                                                              Exports              Domestic
                                                                               20%                  Market
                                                                                                     80%




   1Q04    2Q04      3Q04     4Q04    1Q05   2Q05


Hot coil sales are proceeding according to plan, involving the continued development of higher value-added
                                                                                                          2
                                                                                           2Q05 Earnings Release


items directed towards supplying specific segments such as auto parts, large diameter pipes, compressors and
wagons, which represented 28% of domestic sales of the product.
As well as breaking into new segments in the domestic and international market (Latin America, Asia and
Europe) for an array of different hot coil specifications, CST’s principal customer for this product continues to be
Vega do Sul, responsible for 32% of the Company’s sales for the first half year. Thanks to this continuing
growth scenario, the hot coil production line not only reached its nominal installed capacity at the end of 2004
but also achieved additional growth through gains in productivity and efficiency. Vega has an estimated 35%
market share of the automotive sector and represents the principal conduit between CST and the flat rolled
steel consumer market.


Vega do Sul
           CST’s sales to Vega reached the historical mark of 1 million tons in July of this year.

Production at Vega do Sul continues to maintain growth rates and should reach full capacity in 2006.
Approximately 74% of the company’s sales are to the automotive industry. This sector ended the first semester
of 2005 registering an expansion of 16% in vehicle production over the same period in 2004, a total output of
1.2 million units. Indirectly, in sales of cold rolled and galvanized steel to the white line and automotive
industries, this percentage is 34% and 63%, respectively.
Slabs
In 2Q05, CST sold 653,000 tons of slab, in volume terms 19% less than recorded in the same period in 2004.
The accumulated sales volume for the first semester, the equivalent of 1,236,000 tons, was year-on-year 16%
less, reflecting the enhanced share of hot coil in the Company’s total sales.

          Slab Sales Volume (thousand tons)                          Slab Sales Destination (1 st Semester/05)
                                                                                      Europe
            806                                                                        1%
                    749     726                                         Asia
   668                                        653
                                    583                                26%




   1Q04    2Q04    3Q04    4Q04    1Q05       2Q05                                                        North
                                                                                                         America
                                                                                                          73%

CST continues to sell its slab in the higher value-added segment to traditional customers and under long term
supply contracts. Geographically, the North American market
accounted for 73% of sales.                                          Average Price of Slab and Hot Rolled Coil
Prices                                                                               US$;ton)

In 2Q05, the average selling price for CST’s products (slabs                                                     578
                                                                                                      534
and hot coils) increased 8% compared to 1Q05, a constant                                      470
trend since 1Q04 and the result of sales of higher value-                            380
added        products, especially coil with customized                       328
                                                                     290
specifications, for which there is stable demand in the
Company’s core markets.


Distribution of Sales by Market
                                                                      1Q04    2Q04     3Q04    4Q04     1Q05      2Q05
In addition to the competitive advantages that CST has
steadily accumulated over the past years, of particular
importance has been the significant change in the breakdown of sales, with an improved balance between
domestic and export markets.

                                                                                                                         3
                                                                                            2Q05 Earnings Release


In its domestic market sales, CST benefits from operating in market niches where there is significant value-
added. In spite of the barriers to new entrants to this market, the Company has successfully managed to
consolidate its position as a supplier of hot coil to the
domestic market thanks to investments and enhanced                     CST - Revenues per Marlet (%)
efficiency in the operating area. As a result, the Company
now enjoys competitive advantages and greater stability in
its sales performance.
                                                                                                                  52%
                                                                                        63%          64%
This trend began with the first hot coils to be produced late in             73%
2002 and directed towards the domestic market, this                 97%
triggering the evolution in sales mix breakdown. By the first
half of 2005, the Company had achieved a 26% market                                                               48%
share of the Brazilian hot coil segment.                                                37%          36%
                                                                             27%
                                                                    3%
                                                                    2002     2003       2004         1S04         1S05
                                                                     Domestic Market (in Reais)      Exports (In US$)


Production
CST
CST’s crude steel production dipped in the first half by 3% to 2.4 million tons in relation to the same period in
2004. The lower output in 2Q05 was due to an operational instability in # 1Blast Furnace in June, an event
which provided the opportunity to anticipate downtime, originally programmed for August 2005. The period
chosen for the anticipated stoppage coincided with the weaker demand for steel products in the world market.
The production stoppage could result in a reduction in
                                                                      Slab and Hot Coil Output (thous. Ton)
planned volumes for 2005 of approximately 150,000 tons
of finished slab, part of this decline being already built into 1,241           1,303
                                                                        1,237                     1,202   1,202
                                                                                         1,154
2Q05 figures.

Hot Coil – In 2Q05, CST produced 571,000 tons of hot
coil, which represent an increase of 31% over the same                                509                   549         571
                                                                     495     437                  501
period in 2004 and 4% compared with 1Q05, when the
production line was operating at its nominal capacity.
Accumulated production volume in the first semester was
20% more than recorded in the same period for 2004. The
Company is maintaining its target of 2,300,000 tons for the        1Q04    2Q04     3Q04      4Q04       1Q05      2Q05
full year. In 2Q05, CST reported global productivity of
1,241 tons of liquid steel per man/year, practically                        Slab             Hot Rolled Coil
unchanged from 1Q05.

Slabs – Finished slab volume in 2Q05 amounted to 1,202,000 tons, 3% below the same period in 2004. The
same percentage decline was recorded in the first half as a whole with an accumulated production volume of
2,404,000 tons. This stability in slab output over the past two quarters is related to the Company’s strategy of
focusing on customers where there is a long-term relationship and demand for higher value-added products.




                                                                                                                              4
                                                                                                         2Q05 Earnings Release


Economic and Financial Performance
Net Sales Revenue
CST posted net operating revenues in 2Q05 of R$ 1,703 million, an increase of 35% compared with 2Q04. The
accumulated amount for the first six months reached R$ 3,241 million, (46% more than in the first half of 2004)
in spite of the negative impact of the strengthening
domestic currency on CST’s overseas sales.                        Net Revenue (R$ m m) and Gross Margin (%)
                                                              1       .
                                                                      8    0 0
                                                                                                                               1.703   6     0 %




This performance reflects the favorable average prices the    1       .
                                                                      6    0 0
                                                                                                           1.554     1.538
Company has been able to successfully pass on to both         1       .
                                                                      4    0 0
                                                                                         1.258
                                                                                                 1.327                                 5     0 %




its markets, sustained by a customer portfolio with a long                        958                                    50%
                                                              1       2
                                                                      .    0 0




                                                                                                           46%                 47%     4     0 %




term profile, plus the added value created from hot coil          1       0
                                                                          . 0 0
                                                                                         42%      42%
production.                                                           8    0 0
                                                                                  37%                                                  3     0 %




Cost of Goods Sold                                                    6    0 0                                                         2     0 %




                                                                      4    0 0




                                                                                                                                       1     0 %




In 2Q05, the cost of goods sold amounted to R$ 897                    2    0 0




million, the main impact on which was increased raw                          0                                                         0 %




material prices, particularly iron ore and coal.                                  1Q04   2Q04    3Q04      4Q04      1Q05      2Q05

The portion of costs denominated in Reais (39%),                     Net Revenue   Gross Margin
increased in the same proportion as the annualized IGPM
index for the period of approximately 6%. On the other hand, US dollar denominated costs (61%) were
attenuated by the strengthening Real over the same period.

Gross Profit
CST’s gross profits in 2Q05 amounted to R$ 806 million or R$ 1,578 million in the first half as a whole and
equivalent to a 79% increase in relation to the first semester 2004. CST’s gross profitability remained healthy,
posting a first half margin of 49%, well above the 40% in the same period in 2004. This performance was
achieved in the face of more significant increases in the costs of inputs and raw materials in 2Q05.

    Industrial Cash Cost of Slabs (1st Semester;05)                                      Industrrial Cash Cost by Currency (%)

                    Depreciation
     Refractories      13%                Iron Ore/Pellets
         5%                                     22%
   Personnel
      7%                                                                                                            R$
                                                                                                   US$             39%
                                                                                                   61%
                                               Outsourcing
     Others                                     Services
      15%                                          7%

      Alloys/Aliminum              Coal
             8%                    23%




Operating Expenses
Operating expenses for 2Q05 were stable at R$ 63 million, the same amount posted for this item in 1Q05 and
remaining at approximately 4% relative to net operating revenue.
EBITDA
The quarterly EBITDA figure amounted to an excellent R$ 885 million, a 43% increase over the amount posted
for the same period last year, due to a combination of positive factors. The accumulated six month EBITDA
reached R$ 1,727 million, representing an increase of 69% compared with the same period in 2004. The
EBITDA margin has been holding up well at high levels over recent quarters, registering 53% in the first half of
2005, against 46% in the same period of 2004.



                                                                                                                                       5
                                                                                                                                 2Q05 Earnings Release




                        EBITDA (R$ m m ) and EBITDA Margin (%)
                                                                                                                        EBITDA Statement
 1       0 0 0




                                                               842         885     1     0 0 %




                                                                                                 In Millions of Reais              2Q05    1Q05    2Q04
     9    0 0


                                                   779                             9     0 %




                                        651
     8    0 0                                                                      8     0 %




                           620
     7    0 0                                                                      7     0 %




                                                                                                 Operational profit                  706    666        370
     6    0 0                                                                      6     0 %




     5    0 0
                 402                                                               5     0 %




     4    0 0
                                                               55%         52%
                                                                                   4     0 %
                                                                                                 Net financial result                 40      47       100
                           49%          49%       50%
     3    0 0



                 42%                                                               3     0 %




     2    0 0                                                                      2     0 %




     1    0 0                                                                      1     0 %     Depreciation and amortization       139    129        150
            0                                                                      0 %




                 1Q04      2Q04     3Q04          4Q04        1Q05         2Q05
                              EB ITDA                    EBITDA M argin
                                                                                                 EBITDA                              885    842        620




Financial Result and Debt

Net Financial Result
CST reported a 60% reduction in the financial expenses, these falling from R$ 100 million in 2Q04 to R$ 40
million in 2Q05. The accumulated amount for the semester of R$ 86 million is also down on the first six months
of 2004 (a R$ 144 million financial expense). This improved showing is principally due to a reduction in debt and
foreign exchange rate movements. While the constant appreciation of the Real against the US dollar has a
negative impact on the translation of the Company’s overseas assets, on the other hand, it has a positive effect
on debt.
CST closed 2Q05 with a net debt of R$ 538 million, equivalent to US$ 229 million. This is 23% less in US
dollars compared with the same position as at the close of 1Q05 and 40% less in relation to the end of 2004.
Amortizations exceeded new funding in the period due to alterations in the schedule of reimbursements relating
to the Company’s expansion project.
                                              Debt Indicators                                                                 Due Date
                   In US$ million                     Jun/30/05           Mar/31/05              % Chg.          Position on Jun/30/05 - US$ million
Gross Debt                                                     549                544                 1%    2005                                        57
Net Debt                                                       229                299                (23)   2006                                       112
Net Debt/EBITDA (x)                                            0.2                0.3                (33)   2008                                        83
Debt Structure (%)                                             28%                22%               6 p.p   2009 to 2014                               296
Debt Level (%)                                                 11%                14%             - 3 p.p   TOTAL                                      549

Note: Breakdown of debt = Short Term Debt/ Total Debt and Leverage = Gross Debt/Total Liabilities

We should also point out that the total debt profile continues substantially long term with 70% maturing after
2007 and 64% of the total US dollar-linked. While the debt in Reais declined 11% in 2Q05 compared with the
preceding quarter, the 20% appreciation in the Real in the first semester 2005 had a negative impact on the
remaining 36% local currency debt, thus increasing the dollar indebtedness.
Currently, CST is in an extremely comfortable position with the lowest net debt to EBITDA in its history at only
0.2x as shown in the following graph.




                                                                                                                                                             6
                                                                                                                                      2Q05 Earnings Release



                                         Net Debt versu s EBITDA annualized (R$ million)
               3,500                                                                                                                                           1.6




                               1.3                                                                                                                             1.4




                                                                                                                                                  3,159
               3,000




                                                                                                                      2,894
                                                                                                                                                               1.2




               2,500




                                                                                           2,455
                                                    0.8                                                                                                        1.0




               2,000




                                                                         1,913
                                                                       0.6                                                                                     0.8
                       1,724




               1,500
                                                      1,649
                                                                                         0.4
                                                                                                                                                               0.6
                                            1,392
                                 1,369




                                                               1,206
                                                                                                                0.3
               1,000




                                                                                 1,020
                                                                                                                                                               0.4




                                                                                                                                            0.2




                                                                                                          797
                500




                                                                                                                                      538
                                                                                                                                                               0.2




                  0                                                                                                                                            0.0




                         1Q04                 2Q04               3Q04              4Q04                    1Q05                        2Q05

                                 Net Debt (US$ mm)               EBITDA (12 months)                      Net Debt./EBITDA (x)


Net Income for the 2nd Quarter 2005

Net income according to Brazilian Corporate Law (BR GAAP)
The Company recorded a 2Q05 net income of R$ 483 million, amounting to a total first half result of R$ 1,020
million compared with R$ 767 million for the same period in 2004. This performance reflects price levels and a
continued focus on cost control.
The positive tax benefit arising from the court ruling on the Summer Plan was particularly important as shown in
the following table:


                                                              Income Statement
                                                    Brazilian Corporate Law - Consolidated
                                                                                           2Q05          1Q05                 1Q05           % Chg.                  % Chg.
                                In Millions of Reais
                                                                                                   (A)          (B)              (C)          (A) x (B)              (A) x (C)




Net Operating Revenues                                                                    1,703          1,538                1,258                        11               35

Gross Profit                                                                                   806        772                  522                          4               54

Income Before Interests, Taxes and Profit Sharing                                              745        712                  466                         5               60

Net Income                                                                                     483        537                  592                        (10)            (18)

Impact of "Summer Plan"                                                                        (41)        (71)                (293)                      (42)            (86)

Net Income Without the Impact of Summer Plan (Pro forma)                                       442        466                  299                         (5)             48


Summer Plan (Plano Verão)
An amount of R$ 41 million was recognized in the current quarterly result, R$ 5 million of which relates to the
benefit from the depreciation of the asset in the period and R$ 36 million of the portion to be realized arising
from the additional gain of 6.13% in the current fiscal year, the outcome of the definitive court ruling handed
down in 2005.
In the quarter, the Company further recognized the remaining outstanding of the realizable benefit existing on
December 31 2004 amounting to R$ 215 million (effect on shareholders’ equity – adjustment for previous fiscal
years, the amount established in the definitive court ruling in 2004) based on the gain of 42.72%. In both cases,

                                                                                                                                                                                 7
                                                                                       2Q05 Earnings Release


the credit was recorded as a long-term realizable asset, there being no further effects on future results – the
credit being merely for the effect of cash flow as the permanent asset is realized through depreciation or sold.
ADENE
During the quarter, the Company recognized a fiscal benefit of R$ 108 million under the ADENE Program (an
accumulated total of R$ 207 million in 2005), and directly appropriated to shareholders’ equity. ADENE’s
benefit has not had a definitive court ruling, but the Company’s management, based on its legal counselors,
understands that it remains fully effective until it does not have an opposite an unappealable act from the
Internal Revenue Service.

This benefit was generated as a result of the continued investment in modernization and product diversification.
All these resources are already being ploughed back into the expansion of CST’s industrial complex.

Free Cash Flow

In 2Q05, CST recorded a free cash flow of R$ 210 million. This positive operating result, if compared with the
preceding quarter, was impacted by the negative variation in working capital, the higher prices prevailing in the
period and circumstantial delays in June in the realization of receivables. In relation to the remaining fiscal
credits, the demonstrated variation reflects a larger use of credits in the period.
The strong cash generation allowed the Company to maximize the use of its own resources to make significant
disbursements at a moment when substantial funding was required for the expansion project without, however,
increasing debt levels.


                                       Free Cash Flow - BR GAAP
             In Millions of Reais                                           2Q05        1Q05
             EBIT                                                            745         712
             Taxation on EBIT - (34%)                                        (253)      (242)
             Fiscal Credit                                                    193         242
             Net Operating Profit (-) Adjusted Taxes                          685         712
             Depreciation and Amortization                                    139         129
             Change in Working Capital                                       (118)        186
             Change in Remaining Accounts (*)                                 (79)          5
             Gross Cash Flow                                                  627       1,032
             Capex                                                           (417)       (46)
             Investments                                                     (489)      (270)
             Related Loans                                                      72       224
             Free Cash Flow                                                    210        986




                                                                                                                8
                                                                                                                                                                         2Q05 Earnings Release



Capital Markets

Preferred Share Performance (CSTB4)
CST’s preferred shares appreciated by 25% over the past 12 months (June 2004 to June 2005), exceeding the
19% increase in the Ibovespa for the same period. In 2Q05, this differential in performance was maintained in
spite of the decline of 33% in the stock price during 2Q05 compared with the 6% dip in the Ibovespa. In the first
semester of 2005, the shares of the five largest Brazilian steel mills all recorded price declines of more than
25%. This pattern of events is associated to factors affecting the Ibovespa as a whole and also changing
perceptions of the world steel industry scenario, more specifically the fall in product prices and the rising cost of
raw materials.
                                                                                Capital Markets - CSTB4
                                                                                                                  2Q04                      3Q04                     4Q04                    1Q05                    2Q05
Average Trade Volume (Thous. shares)                                                                            99,668                     97,400                  96,833                  90,863                 104,860
Average Trade Volume (Thous. Reais)                                                                               9,215                    11,025                  12,551                  14,141                  13,516
Closing Price (R$;thous. Shares)                                                                                   87.1                     114.2                    150.9                   163.0                  108.6
CSTB4 - Quarterly Profitability (%)                                                                                   -                     31.1                      32.1                    8.0                   (33.4)
CSTB4 - Accumulated Profitability (%)                                                                                 -                     31.1                      73.2                   87.0                    24.6
Ibovespa - Quarterly Profitability (%)                                                                                -                       9.9                     12.7                    1.6                     (5.9)
Ibovespa - Accumulated Profitability (%)                                                                              -                       9.9                     23.9                   25.8                    18.5
Book Value (Reais per Thous. Share)                                                                               121.7                     130.1                    132.6                   145.1                  160.9
Book Value (US$ per Thous. Share)                                                                                  51.7                      53.2                      55.8                   58.4                    62.7
Price Book Value                                                                                                   72%                       88%                     114%                    112%                     67%
Market Capitalization (R$ mm)                                                                                   4,442.6                   5,822.3                  7,694.1                 8,309.2                5,536.0
Market Capitalization (US$ mm)                                                                                  1,429.6                   2,036.8                  2,898.6                 3,116.5                2,355.4



                                       Share Performance (CSTB4) versus BOVESPA Index (Base: 100) - Price in R$/thous.
  200
  180                        CSTB4
  160                        IBOVESPA
  140
  120
  100
   80
   60
                                                                                                                                               Variation                         2004   1H05
   40                                                                                                                                          CSTB4                              64,6% -28,0%
                                                                                                                                                Bovespa Index                    18,3% -4,46%
   20
    0
        30/12/03


                   30/1/04


                             29/2/04


                                        30/3/04


                                                  30/4/04


                                                            30/5/04


                                                                      30/6/04


                                                                                  30/7/04


                                                                                            30/8/04


                                                                                                      30/9/04


                                                                                                                    30/10/04


                                                                                                                               30/11/04


                                                                                                                                              30/12/04


                                                                                                                                                         30/1/05


                                                                                                                                                                       28/2/05


                                                                                                                                                                                 30/3/05


                                                                                                                                                                                              30/4/05


                                                                                                                                                                                                        30/5/05


                                                                                                                                                                                                                      30/6/05




Source: Economática




                                                                                                                                                                                                                                9
                                                                                          2Q05 Earnings Release




Capital Expenditures

In the first semester of 2005, CST disbursed US$ 306 million, equivalent to R$ 781 million, as part of the
continued project for expanding nominal installed slab capacity from 5 to 7.5 million tons/year. Work on the
expansion project is running to plan with completion scheduled for the third quarter 2006 as originally
envisaged.

Out of total disbursements, approximately 90% was allocated to work on the expansion of installed capacity.
This includes SOL Coqueria Tubarão S.A., the joint venture involving CST (62%), Cia. Siderúrgica Belgo-
Mineira (37%) and Sun Coke International (1%), the construction program of which is also on time.

The SOL project involves the installation and operation of a coke production unit together with a thermoelectric
power plant, both of which integrated into CST’s industrial complex as a whole. The new coke unit forms a
component part of CST’s overall growth strategy, both for supplying the world slab market in 2006 as well as
for the future expansion of market share in the hot coil segment.

The following is a list of the principal projects currently being developed:

!     # 3 Blast Furnace;
!     New PCI (pulverized coal injection unit or coal fines injection system);
!     Third steel shop converter;
!     Third continuous slab caster;
!     Second steel vacuum degassing unit (RH);
!     Installation of various systems in the utilities and support areas (supply of raw materials);
!     Fluid supply system;
!     Expansion in the electrical system; and
!     Ocean-going barge terminal.

Third party projects currently being installed:
!     Two oxygen plants;
!     Limestone processing unit; and
!     Blast furnace slag granulation unit.

SOL Coqueria projects:

!     Coke unit – nominal capacity of 1.5 million tons of coke/year; and
!     Thermoelectric power plant – electricity generation capacity of 175 MW .


Outlook
Sector
In the first semester of 2005, world steel industry growth rates remained buoyant with the production of crude
steel totaling 546 million tons, largely driven by China’s booming economy. This scenario continues to sustain
forecasts of output of 1.1 billion tons for the full year, representing growth of about 5%, although down on the
9% increase recorded in 2004. The outlook for more modest expansion in 2005 is principally due to two factors.
Firstly, the Chinese government is pursuing a policy of encouraging the closure of less productive mills, the
consolidation of the largest steel groups, the investment of foreign capital in existing companies and exchange
rate flexibility. These factors should allow Chinese production to grow consistently with demand in the period
2004-2010 (slightly less than 10% against 21% for the period 2000-2004, according to the IISI). The second
factor is the speed at which major world players, especially in the USA and Europe, have responded to higher
inventory – above average for the world market – by reducing production along the entire steel chain. This
should contribute to containing price erosion.
In spite of the continuing pressure of recent increase in coal prices on production costs, in the second semester,
                                                                                                                  10
                                                                                       2Q05 Earnings Release


the market is showing signs of lower prices for coal and iron ore (spot), freight, flux and alloys. The trend in
production costs could be a factor inhibiting the fall in world slab prices, which are unlikely to slide back to
historical levels. According to World Steel Dynamics data, the average world industrial slab cash cost for 2005
is expected to be in the region of US$307 per ton.
In Brazil, crude steel output has been showing signs of a slower growth rate since the beginning of the year and
the industry is currently adjusting its production levels to falling domestic demand. Brazilian GDP forecasts for
2005 have been revised down to 3% p.a. according to the Central Bank’s Focus report. This weaker trading
environment is due to high interest rates and a consequent reduction in economic activity, as well as the need
to run down steel inventory in the distribution chain.
The global market outlook is for this accommodation in production and consumption to persist into the third
quarter and continue to impact corporate earnings. However, a recovery is envisaged in the final quarter of the
year, the turning point in the business cycle being forecast for the September-October period.
CST
Despite the challenge of the industry-wide adjustment, CST continues to be an outstanding player in the sector
- a highly competitive business in the world context with diversified geographical markets and products,
enabling it to respond to customized demand in the hot coil segment. This is particularly the case in the
automotive sector which has been operating at high growth rates since 2004. These developments have left the
Company less susceptible to variations in price and demand, allowing it to look forward to satisfactory price
levels.
Average estimated prices in 2005 for CST’s products range between US$ 410 and US$ 430 per ton for slabs
and between US$ 570 and US$ 600 per ton for hot coil.


                                                                                 Estimated
      US$ per ton                                                      3Q05                    2005
      Slab                                                           345 - 365               410 - 430
      Hot Rolled Coil (Domestic and Foreign market)                  575 - 600               570 - 600


Other Highlights

We list some of the second quarter 2005 highlights:


    "    CST’s continuous slab caster completed ten years of operations on April 12. Beginning production on
         April 12 1995 with two machines, the unit concluded ten years of operations with an accumulated
         production of 30 million tons
    "    Publication of the Annual Report containing the Verification of Environmental and Social Information
         prepared by the Independent Auditors (PricewaterhouseCoopers).

    "    Renewal of the ISO 14.001 Environmental Certification by LRQA in a Monitoring Audit carried out in
         April 2005.

    "    Awarded the "Brasil Ambiental" prize sponsored by the American Chamber of Commerce - Amcham
         Brazil (Rio de Janeiro), Water Management category, for the work " Management in the rational use of
         water at CST".

    "    Comments complementary to CVM Instruction 381 of April 14 2003 – With respect to CST’s policy
         of corporate governance, we wish to notify that in the first semester 2005, the Company contracted the
         following professional services unrelated to the external audit prepared by Deloitte Touche Tohmatsu
         Auditores Independentes: - Tax management consultancy, the duration of which did not exceed one
         year. The respective fees account for less than 5% of the overall payment for the 2005 external audit.



                                                                                                                11
                                                                                                  2Q05 Earnings Release




Announcement

We invite all interested parties to take part in a conference call with the market, scheduled for August 2 at 9:30
a.m. (Portuguese) and at 12:30 p.m.(English), local time. To be connected, please call the following numbers 5
minutes prior to the start of the conference call. Should you still not have received an invitation, please access
the Company’s site www.cst.com.br, Investor Relations section, or contact one of the following addresses


Conference in Portuguese                                                                Local                   5511-4613-0500
                                                                                       Abroad                   5511-4613-4520

Conference in English                                                   Brazilian Participants                  5511-4613-0502
                                                                              US Participants                   1-800-860-2442
                                                            Participants from Other Countries                   1-412-858-4600




    Companhia Siderúrgica de Tubarão - CST                                Financial Investor Relations Brasil

   Christiano Woelffel Furtado / Tereza de Fátima Miranda                         Mário Roberto Mariante
                     Investor Relations                                                  Consultant
                  Phone: (27) 3348-1136                                           Phone: (11) - 3897-6401
                  e-mail: ricst@cst.com.br                                    e-mail: mario.mariante@firb.com
                      Dalmes Binotte
                      Press Relations
                  Phone: (27) 3348-1297
                e-mail: binotte@cst.com.br




                                                                                                                                 12
                                                                                                   2Q05 Earnings Release


                                      Consolidated Income Statement
                                         Brazilian GAAP (Corporate Law)
                                                                      nd                                st
                                                                   2       Quarter                     1 Semester
                  In Thousand Reais
                                                               2005           2004 % Chg.           2005        2004 % Chg.

Gross sales                                                 1.959.728      1.426.926     37     3.744.699    2.544.291     47
   Domestic market                                           921.727        464.934      98     1.804.028     899.198     101

   Exports                                                  1.038.001       961.992       8     1.940.671    1.645.093     18
 Sales deductions                                           (256.438)      (168.903)     52     (503.416)    (328.676)     53

Net sales and services                                      1.703.290      1.258.023     35     3.241.283    2.215.615     46

 Cost of sales and services                                 (897.210)      (735.843)     22    (1.663.695) (1.336.508)     24

Gross profit                                                 806.080        522.180      54     1.577.588     879.107      79

                            Gross Margin and Var. in b.p.       47%            42%        6          49%         40%        9
Operating income (xxpenses)                                  (63.389)       (50.597)     25     (126.795)    (106.585)     19
 Selling                                                     (25.927)       (31.316)    (17)     (51.131)     (55.441)     (8)
 General and administrative                                  (43.428)       (33.829)     28      (81.424)     (61.848)     32
 Other, net (expenses)                                         5.966         14.548     (59)        5.760      10.704     (46)
Equity Income                                                  2.559         (5.824)   (144)        6.555     (10.087)   (165)
Income (loss) before interests, taxes and profit sharing     745.250        465.759      60     1.457.348     762.435      91
                      Operational Margin and Var. in b.p.       44%            37%        7          45%         34%       11

Financial income (expenses)                                  (39.549)       (99.769)    (60)     (86.247)    (144.030)    (40)
 Financial expenses                                          (34.535)       (53.422)    (35)     (78.750)     (85.039)     (7)
 Net exchange gain (loss)                                    (10.783)       (60.687)    (82)     (19.051)     (74.973)    (75)
 Revenues                                                      5.769         14.340     (60)       11.554      15.982     (28)
Operating income                                             705.701        365.990      93     1.371.101     618.405     122
 Non-operating results                                           532            159     235         2.014         318     533
Income before taxes and profit sharing                       706.233        366.149      93     1.373.115     618.723     122
 Social contribution and income tax                         (195.602)       244.930    (180)    (300.840)     180.675    (267)
Income before profit sharing                                 510.631        611.079     (16)    1.072.275     799.398      34
 Profit sharing                                              (27.219)       (19.129)     42      (52.106)     (32.503)     60
Net income for the year                                      483.412        591.950     (18)    1.020.169     766.895      33
EBITDA                                                       884.452        619.986      43     1.726.911    1.022.486     69
                           EBITDA Margin and Var. in b.p        52%            49%        3          53%         46%        7
Depreciation and amortization                                139.202        150.381      (7)      267.773     256.204       5




                                                                                                                                 13
                                                                                                                               2Q05 Earnings Release




                                                        Consolidated Balance Sheet
                                              Brazilian Gaap (Legislação Societária) - in thousands of Reais

                    Assets                        Jun/30/2005     Mar/31/2005     Liabilities and Stockholders´equity            Jun/30/2005    Mar/31/2005


Current Assets                                        2.368.702      2.270.487   Current Liabilities                                1.009.220       891.635

Cash and cash equivalents                              751.772        653.885    Suppliers                                           230.380        245.959
Trade accounts receivable                              513.505        433.897    Financing                                           366.060        318.238
Advances to suppliers                                   30.705         41.420    Taxes and contributions                             147.607        115.098
Deferred income tax and social contribution            179.242        263.855    Deferred Taxes                                      107.068        107.598
Other taxes and contributions recoverable               68.381         65.247    Salaries and payroll taxes                           50.708         42.184
Inventories                                            808.580        788.964    Dividends / interest on equity                          427           427
Other                                                   16.517         23.219    Profit sharing                                       54.766         27.547
                                                                                 Other                                                52.204         34.584




Long-Term Receivable                                   337.348         96.728    Long-Term Liabilities                              1.923.348     2.143.931

Deferred income tax and social contribution            266.921         21.850    Financing                                           924.026      1.133.094
Other taxes and contributions recoverable               15.839         13.421    Provision for contingencies                          42.418         72.829
Deposits at law                                         42.251         38.854    Deferred income tax and social contribution         913.446        937.436
Advance for future capital growth                           -          10.204    Accounts payable to related parties                  42.886            -
Other                                                   12.337         12.399    Other                                                   572           572


                                                                                 Minority Participation                              132.326        130.588


Permanent Assets                                      8.560.743      8.194.647   Stockholders´ Equity                               8.201.899     7.395.708

Investments                                            182.075        167.864    Capital                                            2.782.106     2.782.106
Property, plant and equipment                         8.371.700      8.019.354   Capital reserves                                    576.995        469.135
Deferred charges                                          6.968          7.429   Revaluation reserve                                1.868.595     1.908.901
                                                                                 Revenue reserves                                   1.658.251     1.658.251
                                                                                 Acumulated profit                                  1.315.952       577.315


Total Assets                                         11.266.793     10.561.862   Total Liabilities and Stockholders´ Equity        11.266.793    10.561.862




                                                                                                                                                              14
                                                                                                             2Q05 Earnings Release


                                     CONSOLIDATED CASH FLOW STATEMENT
                                                                                         2nd Quarter                   1st Semester
In Thousand of Reais                                                                  2005         2004            2005          2004
Operating Activities
Net income (Loss) for the period                                                      483.412      591.950        1.020.169      766.895
Adjustament for reconciling net profit (loss) to the cash flow generated
from operating activities
  Depreciation and Amortization                                                         139.202      150.381         267.773       256.204
  Residual value of fixed asset adjustament                                               -            -                                 5
  Equity                                                                                 (2.559)       5.824          (6.555)       10.087
  Profit Sharing Plan                                                                    27.219       19.129           52.106       32.503
  Financ. exp., including monetary and foreign exch. variation, interest and others          455      98.783           29.047      134.087
  Deferred income tax and social contribution                                            54.461    (223.340)         159.699     (213.225)
  Contingency Reserve                                                                      1.075         313            3.048        4.970
                                                                                       703.265      643.040        1.525.287      991.526
(Increase) decrease in assets
     Accounts Receivable                                                               (79.608)      (3.933)         100.240      (18.613)
     Others taxes and contributions recoverable                                         (5.552)      (4.608)           2.924       34.762
     Inventories                                                                       (21.373)     (68.395)        (204.987)     (81.840)
     Advances to suppliers                                                              10.715      (24.067)         (23.533)     (23.728)
     Reversal of Credits with associated company                                        10.204        6.351           10.204        6.351
     Operations with associated company                                                    -        (12.236)           2.033      (18.587)
     Others                                                                              3.367       (1.555)          12.181       (5.961)
                                                                                       (82.247)    (108.443)        (100.938)    (107.616)
(Decrease) increase in liabilities
    Suppliers and controlled companies                                                 (56.294)          30.654        61.971       26.787
    Labor - related expenses                                                             8.524            7.705         6.731        6.524
    Taxes                                                                              115.850           40.934       116.819       89.791
    Provisions for contingencies                                                       (31.486)        (68.648)      (37.684)     (69.132)
    Payment of participations                                                              -                -        (46.233)     (30.659)
    Minority interest                                                                    1.738              -        101.329           -
                                                                                        42.886              -         42.886
    Others                                                                              39.238         (18.037)        34.683    (27.449)
                                                                                       120.456          (7.392)      280.502      (4.138)
Cash flow generated from operating activities                                          741.474         527.205     1.704.851     879.772
Investing Activities
Permanent Assets
    Investments                                                                        (11.652)         (6.352)      (11.652)     (13.377)
    Addition in Property, plant and equipment                                         (516.840)        (75.675)     (781.048)    (125.299)
    Deferred                                                                               -               -             (50)         -
Cash flow used in investing activities                                                (528.492)        (82.027)     (792.750)    (138.676)
Financing Activities
Advances against export contacts
  Funding                                                                                    -             -             -        254.914
  Amortization of principal                                                                  -         (78.616)          -       (331.156)
  Payment of charges                                                                         -          (1.760)          -        (12.352)
Loans
  Funding                                                                               44.242       36.397          269.063       36.397
  Amortization of principal                                                            (98.837)     (72.501)        (292.191)    (239.592)
  Payment of charges                                                                   (14.730)     (17.071)         (39.548)     (43.616)
Clients antecipation                                                                    19.097          -             19.097          -
Payment of dividends                                                                       -            -           (441.171)    (153.129)
Cash flow used in financing activities                                                 (50.228)    (133.551)        (484.750)    (488.534)
Foreign Exch. Gain (loss) against cash invest. in foreign currency                     (64.867)      20.481          (63.579)      22.588
Cash flow generated (used) during the year                                              97.887      332.108          363.772      275.150
Cash and financial investments at the end of the period                                751.772      692.903          751.772      692.903
Cash and financial investments at the beginning of the period                          653.885      360.795          388.000      417.753
Net movement of cash and financial investments                                         97.887      332.108          363.772      275.150




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