1 Gerdau January 2007
Dec 20, 2015
2
One of the world’s lowest cost steel companies– Strong cost position as a result of diversified production processes
and multiple raw material sourcing
Strong foreign currency generation– Large export base– International subsidiaries
Ranked 14th globally by steel output for year 2005 with an output of 13.7m tons
Largest long steel producer in the Americas– 2nd largest long steel producer in North America – 32 mills, integrated and mini mills, with state of the art technology
Relevant market share and diversified product range through downstream and service centers
Strong balance sheet, low leverage and strong cash generation
Gerdau S.A. shares are listed on the São Paulo, New York and Madrid Stock Exchanges
Highlights
3
Agenda
Industry Overview
Group Overview
Operating and Financial Highlights
All data presented in US Dollar and in metric tons, except when indicated
4
0
200
400
600
800
1000
1200
1400
1950
1960
1970
1980
1990
1996
1998
2000
2002
2004
2006
a
1º Oil Shock
World Production
WORLD CRUDE STEEL PRODUCTION In million tonnes
Source: IISI / IISI apud IBS
EVOLUTION OF WORLD CRUDE STEEL PRODUCTION
2º Oil Shock
USSR breakupAccelerated increase of
China
World
China
Corresponds to 70% of the world
production growth from 2001 to 2005
9M05 9M06
828903
9.1%Production should reach 1,2 billion tonnes in 2006.
5
2004 2005 2006e 2007e
World Demand
2005 2006e 2007e
1,0291,121 1,179
China
NAFTA
Japan
India
South America
e: estimated
Source: IISI
8.9%
5.2%
FINISHED STEEL APPARENT DEMANDIn million tonnes
FINISHED STEEL APPARENT DEMAND PER CAPITA (KG)
322295
195
110
344
205171
102
NAFTA
China
World
Brazil
With increasing investments in infrastructure
and civil construction, India should grow 10% in
2006.
Steel consumption in South America should
increase 12% in 2006.
Chinese steel consumption should experience a
more moderate growth in 2007.
The world steel demand should increase 4.2% p.a. from 2010 to 2015.
6
349
11294
6648 45 39 38 32 29
Crude Steel Production – 2005
Source: IISI
Brazil and the Global Steel Industry
In million tonsIn million tonnes
China USAJapan Russia Germany Ukraine BrazilIndia Italy
Total World Production: 1.1 billion tonnes
China represented 31.4% of the global steel production
Brazil represented 2.8% of the global steel production
South Korea
7
Agenda
Industry Overview
Group Overview
Operating and Financial Highlights
All data presented in US Dollar and in metric tons, except when indicated
8
THROUGH THE 40’s
THE 60’s
THE 50’s
First steel mill acquisition – Siderúrgica Riograndense (1948)
Expansion of Siderúrgica Riograndense Construction of second Riograndense’s mill
Market share increase by the: - Diversification and verticalization of product line - Structuring of distribution network (today more than 70 sales points) - Acquisition of mill in Pernambuco
100+ Years in Business
Acquisition of three mills (Rio de Janeiro, Minas Gerais and Bahia) Construction of two new plants (Paraná and Ceará) Operations abroad begin (Uruguay
and Canada)
THE 80’s
THE 90’s Diversification into specialty steel –
acquisition of Piratini Expansion abroad – acquisition of mills
in Chile, Canada, Argentina and the USA Acquisition of second mill in Minas
Gerais and rolling mill in São Paulo Shareholdings restructuring Acquisition of stake in Açominas
1901 1901 – First operation: nail factory
Capacity expansion with acquisition of two mills (Alagoas and Paraná);
construction of largest Gerdau mill (Rio de Janeiro) Diversification into reforestation
THE 70’sTHE NEW MILLENNIUM
Acquisition of four companies in the US Acquisition of downstream units and
fab shops in North America Entering the European market Construction of a steel mill in São
Paulo
9
CANADA
Brazil
9.2 million tonnes of crude steel
6.3 million tonnes of rolled steel products
Abroad
10.0 million tonnes of crude steel
10.7 million tonnes of rolled steel products
Total Capacity(Includes Strategic Shareholdings)
19.2 million tonnes of crude steel
17.0 million tonnes of rolled steel products
11 steel mills
12 fabrication shops
6 downstream operations
74 sales points and flat steel service centers
21 steel mills
44 fabrication shops
17 downstream operations
2 strategic shareholdings
An International Company
10
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2008
e
Laisa - 1980(Uruguay)
Piratini(Brazil)
AZA(Chile)
Ameristeel(USA)
AZANew Plant
(Chile)
Additionalstake in
Açominas(Brazil)
North Star(USA)
Cambridge(Canada)
Usiba(Brazil)
Manitoba(Canada)
Controlof
Açominas(Brazil)
Co-Steel(USA)
1,757
3,072
3,9344,595
7,696
11,076
16,372
Diaco(Colombia)
16,709
Barãode
Cocais(Brazil)
2,611
Stake inAçominas(Brazil)
4,568
19,230Araçariguama
(Brazil)
Sidenor (Spain)
Sheffield (USA)
Siderperú(Peru)
GSB(Spain)
Solid Track Record
e: estimated
In thousand tonnes
21,605Installed Capacity
Expansion
Abroad – Installed capacity of Crude SteelBrazil – Installed Capacity of Crude Steel
Besides the mills acquired, as related above, Gerdau acquired many fab shops in order to add value to its products and offer services and products to its clients according to their needs.
2009
e
TOTAL INVESTED (1981- Sep.2006):Brazil = US$ 4.5 billion + Debt North America = US$ 1.8 billion + DebtSouth America = US$ 590 million + DebtEurope = US$ 235 million + Debt
CAGR 1996-2006: 15% p.a.
11
49.9
46.7
32.9
31.4
29.6
22.7
19.3
18.5
18.2
17.5
16.6
15.2
13.9
13.7
Mittal Steel (UK)
Arcelor (LUX)
Nippon Steel (JAP)
Posco (COR)
JFE Steel (JAP)
Shanghai Baosteel (CHI)
US Steel (EUA)
Nucor (EUA)
Corus Group (UK)
Riva Group (ITA)
ThyssenKrupp (ALE)
Severstal (RUS)
EvrazHolding (RUS)
Gerdau Group (BRA)
Among the LeadersCrude Steel – Output 2005
Gerdau should have an installed capacity of 21.5
million tonnes of crude steel per year after the investment program in Brazil is completed
in 2009.
In million tonnes
Source: Metal Bulletin
1
GERDAU GROUP (BRA)
2
3
4
5
6
7
8
9
10
11
12
13
14
Rank
12
Value Builder CompanyATKearney study
Notes: 1) EBIT-growthNotes: USINAS = USIMINAS; ARCELOR Takeover MITTAL/ SERVERSTAAL: The market capitilization of Severstaal is 6.8 bn USD
(same as revenue, hence valued above the industry multiple of 0,79)Source: Thyssenkrupp: steel segment
IndustryAverage
Revenue Growth
Industry Average
AK Steel
Oregon Steel Mills
Worthington
Onesteel
Hylsamex
Neomax
Cap
Imsa
Maanshan Iron Steel
Eregli Demir Celik
Angang
Boehler-Uddeholm
Steel Dynamics
Carpenter Technology
Nisshin Steel
HyundaiSteel
Tokyo Steel
Bluescope 03 05
Rautaruukki
Acerinox
Salzgitter
Ipsco
SSAB
Voestalpine
Corus
Tata Steel
Severstal
US SteelSAIL
Usinas
Gerdau
Baoshan
Novolipetsk1)
Thyssenkrupp1)
Nucor
Sumitomo
Mittal
JFE 03 05
Nippon Steel
Arcelor02 05
-10%
0%
10%
20%
30%
40%
50%
60%
70%
-40% 10% 60% 110% Equity Value Growth
Growth portfolio (CAGR 2001-2005)
benchmarked against industry average
13
Shipments
Billets, blooms& slabs
Merchant bars
Rebars Fabricated steel
Heavystructural shapes
Wire-rod Wires Nails
Brazil – Domestic Market (26% in 2005)
Brazil – Exports (21% in 2005)
South America (6% in 2005)
North America (47% in 2005)
In thousand tonnes
7,411
9,109
12,56012,144
13,550
2001 2002 2003 2004 2005
Europe
83% increase in the last 5
years
9M05 9M06
10,18111,143
+ 9.5%
14
BRAZIL - 2005
COUNTRY MARKET SHARE MAIN COMPETITORS
Gerdau 48%
Arcelor Brasil 36%
Barra Mansa5%
Other 5%
V&M do Brasil6%
CHILE
URUGUAY
ARGENTINA
51%
20%
84%
CAP + Imports
Acindar + Bragado + Zapla
Imports
COLOMBIA 37% Acerias Paz Del Rio + Imports
* Specialty steel only
NORTH AMERICA 15% Nucor + ArcelorMittal + CMC
Markets
PERU ~44% Aceros Arequipa + Imports
SPAIN 36% ArcelorMittal + Imports
15
LONG STEEL PRODUCTS (Brazil)
Maintenance of market share
Improvement of current installed
capacity
São Paulo mill expansion
SPECIALTY STEEL
Active role in the steel sector
consolidation process
Search for new opportunities
AÇOMINAS (Ouro Branco mill)
New 1.5 MM ton blast furnace
Growth platform for slabs, blooms
and billets
Growth Opportunities
LATIN AMERICA
Maintenance of leadership in
the long steel sector
New markets
NORTH AMERICA
Efficiency and productivity
gains (Gaps)
Enhancement of leadership in
the long steel sector through
acquisitions
16
Outlook
Brazil Domestic volumes growing around 6 - 8% in 2007 Strengthening of the housing and industrial sectors Price stability in local currency terms Relatively stable costs
North America Solid demand for rebars and merchant bars Reduced level of imports Increase in supply of higher value added products
South America Solid economic growth Strengthening of the civil construction sector Government spending Demand in line with economic growth
Europe Good performance in the specialty steel business Growing market share
17
Agenda
Industry Overview
Group Overview
Operating and Financial Highlights
All data presented in US Dollar and in metric tons, except when indicated
18
EXPORTS BY REGION (IN TONNES)
NET SALES BREAKDOWN BY REGION
Exports
Brazil 41%
North America
46%
Europe3%South America
10%
9M06
Asia24%
Central America 15%
South America
27%
North America16%
Africa 9%
Europe 9%
Domestic Market 79%
Exports 21%
(35% in tonnes)
19
0%
10%
20%
30%
40%
1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06
,
0%
10%
20%
30%
40%
50%
1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06
Consolidated
Brazil
North America*
South America*
Gross Margin
EBITDA Margin
Margins
30%
20%
42%
26%
17%
28%
32%
26%
19%
17%
21%21%
26%21%
33%23%
* Calculated by hard currency
20
Consolidated FinancialsIn US$ million
2004 2005
Income Statement
Net revenueGross profitOperating incomeNet incomeEBITDA
9M05
7,3621,9961,4241,1321,743
Balance Sheet
Current assetsNon-current assetsTotal Assets
Current liabilitiesNon-current liabilitiesMinority InterestShareholders’ equityTotal Liabilities and Shareholder’s equity
Total debtCash & EquivalentsNet debt
5,1524,1599,311
1,6983,267
8433,5039,311
3,2602,1111,149
Ratios
Net debt / Total capitalizationTotal debt / EBITDALTM
Net debt / EBITDALTM
21%1.4x0.5x
19%1.6x0.6x
3,6003,4317,031
1,9772,186
5802,2887,031
2,402769
1,633
36%1.1x0.8x
5,1824,1659,347
1,7903,225
8963,4369,347
3,2692,335
934
18%1.6x0.4x
9M06
8,0882,2891,6101,2371,900
6,2515,656
11,907
2,5393,6521,2354,481
11,907
3,9182,5891,329
7,3832,3531,6781,2192,092
9,0772,4461,7271,3872,098
21
DEBT STRUCTURE
Domestic Currency 25%
Foreign Currency
45%
Companies Abroad 30%
DEBT AVERAGE LIFE 8.8 YEARS
US$ MM
GROSS DEBT 3,918 100%
SHORT TERM 980 25%
Domestic Currency 217 6%
Foreign Currency 210 5%
Companies Abroad 553 14%
LONG TERM 2,938 75%
Domestic Currency 758 19%
Foreign Currency 1,574 40%
Companies Abroad 606 16%
CASH & CASH AND EQUIV. 2,589 100%
Domestic Currency 1,622 63%
Companies Abroad 967 37%
NET DEBT 1,329
COST OF DEBT (per annum)
InUS$
Brazil Domestic Currency 20.7%
Foreign Currency 7.1%
Companies Abroad 7.4%
September 2006
Consolidated Debt Profile
22
Pre-Exports: 113FINIMP: 151BNDES: 99Companies Abroad: 64Securitization: 41
Pre-Exports: 22
FINIMP: 55
In US$ million – Sep/06
Companies Abroad: 55FINIMP: 59FINIMP: 32
Companies abroad: 409
Companies Abroad: 110 Pre-Exports: 55
BNDES: 88Securitization: 44FINIMP: 139
BNDES: 43Companies Abroad: 411FINIMP: 59Debentures: 55
4Q06 1Q07 2Q07 3Q07 2008 2009 2010 2011
SHORT TERM: US$ 980 LONG TERM: US$ 2,938
491
101
206 182 160
473
354
618
76
Consolidated Debt Amortization
2012 After 2012
1,014
Companies Abroad: 32FINIMP: 37Perpetual Bond: 600Debentures: 292
4Q07
243
BNDES: 67FINIMP: 85Securitization: 41
23
9M069M06 Investment Program 2007 – 2009: US$ 3.0 billionInvestment Program 2007 – 2009: US$ 3.0 billion
BRAZIL 484.6
ABROAD 588.1
North America 270.6
South America 100.2
Europe 217.3
TOTAL 1,072.7
In US$ million
2007 2008 2009 Total
Brazil 806 691 517 2,014
Abroad 235 378 356 968
TOTAL 1,041 1,068 873 2,982
CAPEX 2007 - 2009
INSTALLED CAPACITY EVOLUTION
Crude Steel Rolled Products
In thousand tonnesIn thousand tonnes
Brazil
Abroad
Brazil
Abroad
+ 12%
2006 2009
9,970
9,260
11,005
10,600
19,23021,605
+ 14%
+ 10%
2006 2009
10,680
6,3607,050
17,04019,035
+ 11%
+ 12%
+ 12%
11,985
In US$ million
24
Disclaimer
This document can contain statements which constitute forward-looking
statements. Such forward-looking statements are dependent on
estimates, data or methods that may be incorrect or imprecise and that
may be incapable of being realized. These estimates also are subject to
risk, uncertainties and suppositions and include, among other, overall
economic, political and commercial environment, in Brazil and in the
markets we are present in addition to government regulations, present
and future. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and
involve risks and uncertainties. The Company does not undertake, and
specifically disclaims any obligation to update any forward-looking
statements, which speak only as of the date made.