GERDAU S.A. CONSOLIDATED
Transcript of GERDAU S.A. CONSOLIDATED
Conference Call on 2nd Quarter 2007 Results
GERDAU S.A. CONSOLIDATED
André Gerdau JohannpeterPresident & CEO
Osvaldo B. SchirmerExecutive VP & CFO
Director of Investor Relations
August 8 2007
Steel Market2nd quarter
Sources: IISI (International Iron & Steel Institute) /MEPS
World Demand:
� Demand for steel products continued strong due to worldwide economic growth.
� According to the IISI, apparent demand for steel products for 2007 and 2008 should grow at about
6% annually, reaching 1.2 billion tonnes per year.
Production:
� World output of crude steel grew 3.8% in 2Q07 compared with 1Q07, influenced principally by China
which ramped up production by 7.6%, and output in the USA and Canada,
which reported growth of 6.5% in the period.
Prices:
� Prices remain firm on the international market due to good demand and high costs of raw
materials.
Costs:
� Following a sharp rise in the 1st quarter, scrap prices declined in the 2nd but volatility should
continue.
� Iron ore prices saw an increase of 9.5% early on in the year.
� Maritime freight costs remain very high despite the increase in the ocean-going fleet in 2006.
02
Gerdau – 2nd quarter Performance
Brazil
� Strong domestic demand driven by the industrial and civil construction
sector
� Stable international prices, but export margins squeezed due to
appreciation of the Real
� Trends towards higher prices in the market for scrap and other
inputs
� Rising specialty steel prices
OUTLOOK
� Domestic demand will continue to grow especially in the civil
construction and industrial sectors which have the largest customers
� Prices should remain firm in the domestic market
� In the international market, prices should track raw material price
volatility and the sustainability of demand in the different regions of
the world
� High maritime freight charges
03
Gerdau – 2nd quarter Performance
North America
� Investments in infrastructure and industrial and commercial
construction have continued to grow at a good pace
� Good demand from the industrial sector
� Reduction in sales due to anticipated buying in 1Q07
� Scrap prices lower
� Margins at good levels
� Contribution of the residential construction segment to GNA’s sales is
limited
OUTLOOK
� Demand continues intense
� Product price volatility is a function of scrap prices
� Higher operating costs due to maintenance downtime
� Metal spread stands at record levels
04
Gerdau – 2nd quarter Performance
Latin America
� Demand continues strong in the majority of countries
� Higher costs
� Consolidation of the companies acquired in the quarter (Mexico,
Venezuela and the Dominican Republic)
OUTLOOK
� Economies reporting solid growth
� Investments in infrastructure and good demand from the civil
construction sector
� High costs
� Stable prices
05
Gerdau – 2nd quarter Performance
Europe
� Strong demand from the automotive industry
� Scrap prices stable
� Other costs stabilized at high levels
OUTLOOK
� Seasonal impacts in 3Q07 (annual August vacation period in Spain)
� Demand continues strong
� Stable prices
� Good performance from the specialty steel sector
06
CHAPARRAL STEEL (USA) ACQUISITION AGREEMENT
Value: US$ 4.22 billion (US$ 86.00 per share)
Description of the asset: Chaparral is the second largest manufacturer of structural
steel in North America as well as being a leading producer of steel bars. It operates
two mini mills in Midlothian, Texas, and Dinwiddie County, Virginia
Installed capacity: 2.5 million tonnes of crude steel and 2.4 million tonnes of rolled
products
Synergies: more than US$ 55 million (before tax) up to the end of 2008
Form of payment: cash, following approval of Chaparral’s shareholders and other
procedures inherent to concluding the business, as well as regulatory authority.
Financial Structuring: Gerdau Ameristeel will issue shares to ensure a prudent level of
capitalization and a solid balance sheet. It will also take on a term loan. Gerdau S.A.
will subscribe its part of the equity offering by using its cash position combined with a
long-term bond offer.
Gerdau – 2nd quarter highlights
07
� Strategic alliance with INCA, a rolling mill in the Dominican Republic.
� Acquisition of the assets of Valley Placers through the Pacific Coast Steel
joint venture. Valley Placers is a company specialized in the delivery and
assembly of steel products, located in Las Vegas, Nevada.
� Acquisition of SIZUCA – Siderúrgica Zuliana, a mini mill headquartered in
Ciudad Ojeda, Venezuela.
� Joint venture with the Kalyani Group of India for operating a steel plant in
Tadipatri in the south of the state of Andhra Pradesh.
� Gerdau Ameristeel signed new labor contracts with the United Steelworkers
at five of its units. The new contracts are effective for three to five years.
� Gerdau is rated investment grade by Standard & Poor’s.
08
Gerdau – 2nd quarter highlights
INVESTMENTS - (US$ million) 2Q07 1Q07 1H07
Brazil 213.6 269.7 483.3 Abroad 113.6 112.2 225.8 North America 30.7 54.0 84.7
Latin America 77.7 23.2 100.9
Europe 5.2 35.0 40.2
TOTAL IN FIXED ASSETS 327.2 381.9 709.1 Acquisitions North America 10.0 - 10.0
Latin America 134.5 259.0 393.5
TOTAL IN ACQUISITIONS 144.5 259.0 403.5 TOTAL 471.7 640.9 1,112.6
Investments – 2nd Quarter
� Investments in fixed assets amounted to US$ 327 million in 2Q07.
- Increased installed capacity at the Ouro Branco Mill. New blast furnace is expected to be
commissioned in October.
- Expansion in the capacity of the melt shop at the Jacksonville unit – Florida, USA (May/07)
- Improvements for increasing productivity at various units in Brazil and overseas
� Three acquisitions in the steel-making category were concluded in the 2nd quarter at a
total investment of US$ 145 million.
09
Investment Plan 2007-2009
10
Actual
Capacity
2007 2008 2009 New
Capacity
Variation
Crude Steel 20,110 1,500 1,055 420 23,085 14.8%
Rolled Products 17,520 30 400 1,390 19,340 10.4%
1,400 1,100 1,500 4,000
TOTAL - In thousand tonnes
TOTAL - In US$ million
� Of the amount to be invested over the next three years, about 40% will be allocated to
maintenance and operational improvements (replacement of depreciation) and the remaining 60%
for expanding installed capacity.
� The main features of the investment plan for the next three years are:
� Gerdau Açominas – enhancement of installed capacity and improvements in several areas of
the mill;
� Electric energy – Caçu and Barra dos Coqueiros hydroelectric power complex in the southeast
region of the state of Goiás;
� Technological modernization and improvements (depreciation of US$ 500 million/year).
� In Mexico, investments in progress will result in more installed capacity from 2008.
� Investments in Colombia and in Peru will increase steel and rolled products output over the next
two years.
Gerdau – The Big Picture
11
GROSS SALES REVENUE: R$ 7.8 billion ���� + 4% compared to 1st quarter/2007
(46% Brazil / 54% Abroad)
EBITDA: R$ 1.4 billion ���� + 4% against 1st quarter/2007
(50% Brazil / 50% Abroad)
NET PROFIT: R$ 856 million ���� slight fall (1.5%) compared with
1st quarter/2007 (50% Brazil / 50% Abroad)
SALES: 4.1 million tonnes ���� in line with 1st quarter/2007 sales
(40% Brazil / 60% Abroad)
EXPORTS: 655.5 thousand tonnes ���� 7% lower in relation to exports for the 1st
quarter/2007
Gerdau Performance – 2nd QuarterBrazil
SHIPMENTSIn thousands of tonnes
1,6301,475 1,504
1,673
2Q06 3Q06 4Q06 1Q07 2Q07
1,591
MARGINS
42.5%
34.0%35.3%
26.2%
20%
25%
30%
35%
40%
45%
2Q06 3Q06 4Q06 1Q07 2Q07
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Gross Margin
EBITDA Margin
Exports
Domestic Market
19.6% 19.5%
16.6%17.8%
8%
12%
16%
20%
24%
2Q06 3Q06 4Q06 1Q07 2Q07
Gro ss M argin EB IT D A M argin
Gerdau Performance – 2nd QuarterNorth America
* Brazilian GAAP
MARGINS*
1,7591,8491,714
1,507
SHIPMENTSIn thousands of tonnes
2Q06 3Q06 4Q06 1Q07 2Q07
1,933
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Gerdau Performance – 2nd QuarterLatin America
MARGINS*
602
348
438 426
SHIPMENTSIn thousands of tonnes
2Q06 3Q06 4Q06 1Q07 2Q07
456
23.9%
27.4%
17.8%
22.0%
10%
15%
20%
25%
30%
2Q06 3Q06 4Q06 1Q07 2Q07
Gro ss M argin EB IT D A M argin
* Brazilian GAAP
14
22.4%
25.6%
18.9%17.3%
10%
15%
20%
25%
30%
2Q06 3Q06 4Q06 1Q07 2Q07
Gro ss M argin EB IT D A M argin
Gerdau Performance – 2nd QuarterEurope
SHIPMENTSIn thousands of tonnes
108
76
54
69
MARGINS*
2Q06 3Q06 4Q06 1Q07 2Q07
113
* Brazilian GAAP
15
1H07
2Q06 3Q06 4Q06 1Q07 2Q07
Gerdau Performance - Consolidated
MARGINS
4,099
3,748 3,710 3,675
SHIPMENTSIn thousand tonnes
In million R$ 1Q072Q07 2Q06 1H06
4,093
26.1%28.9%
21.3%24.0%
10%
15%
20%
25%
30%
2Q06 3Q06 4Q06 1Q07 2Q07
Gross Margin EBITDA Margin
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GROSS SALES REVENUE 7,820 7,507 6,864 15,327 13,481
Net sales revenue 6,714 6,487 5,901 13,201 11,515
Gross Profit 1,753 1,640 1,705 3,393 3,184
SG&A (585) (528) (530) (1,114) (1,092)
Net Financial Result 195 213 (18) 409 356
Other Operating Results 9 6 23 15 84
Equity pick-up (225) (184) 12 (410) (185)
Operating Profit 1,147 1,146 1,192 2,294 2,347
Non-operating Result (4) (2) 15 (6) 26
Provision for income tax (284) (271) (225) (555) (554)
Other (3) (4) (6) (8) (11)
Net profit 856 869 976 1,725 1,808
In R$ In US$GROSS DEBT 8,654 100% 8,675
SHORT TERM 1,943 22% 1,677
Domestic Currency 828 9% 536
Foreign Currency 492 6% 490
Companies Abroad 623 7% 651
LONG TERM 6,711 78% 6,998
Domestic Currency 1,988 23% 2,014
Foreign Currency 3,265 38% 3,638
Companies Abroad 1,458 17% 1,346
CASH & CASH EQUIV. 4,954 100% 5,238
Domestic Currency 2,550 51% 3,084
Foreign Currency 2,404 49% 2,154
NET DEBT 3,700 3,437
Indebtedness
Mar.07Em million R$
COST OF DEBT (per annum)
AVER. DEBT MATURITY : 8 years 1 month
Brazil – Domestic cur.
Brazil – Foreign cur.
Companies Abroad
10.1%
FX + 6.6%
-
22.2%
6.6%
8.0%
Jun.07
RATIOS
Gross Debt/EBITDA* 1.6x
Net Debt/EBITDA* 0.7x
Net debt/Net Capitalization 21.0%
* Last twelve months
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Contact: (51) 3323 2703
www.gerdau.com.br
This presentation 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.
Disclaimer