1 gerdau march 2007. 2 one of the world’s lowest cost steel companies strong cost position as a...
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1
Gerdau
March 2007
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 steel units, 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
Industry Overview
Group Overview
Operating and Financial Highlights
Agenda
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
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 2006
1,1201,217
8.7%
Production reached more than 1,2
billion tonnes in 2006.
2005 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 have grown
10% in 2006.
Steel consumption in South America should have
increased 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
Ukraine
Crude Steel Production – 2006
Source: IISI
Brazil and the Global Steel Industry
In million tonsIn million tonnes
China USAJapan Russia Germany BrazilIndia Italy
Total World Production: 1.2 billion tonnes
China represented 34.4% of the global steel production
Brazil represented 2.5% of the global steel production
South Korea
419
11698
7148 47 44 41 32 31
7
Industry Overview
Group Overview
Operating and Financial Highlights
Agenda
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 units
12 fabrication shops
6 downstream operations
74 sales points and flat steel service centers
21 steel units
44 fabrication shops
17 downstream operations
1 associated company
1 joint venture
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 - 2006):Brazil = US$ 5.2 billion + Debt North America = US$ 2.0 billion + DebtSouth America = US$ 654 million + DebtEurope = US$ 380 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 21.6
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 (27% in 2006)
Brazil – Exports (16% in 2006)
South America (10% in 2006)
North America (45% in 2006)
In thousand tonnes
7,411
9,109
12,56012,14413,550
2001 2002 2003 2004 2005
Europe (2% in 2006)
100% increase in the last 6 years
2006
14,819
14
BRAZIL - 2006
COUNTRY MARKET SHARE MAIN COMPETITORS
Gerdau 47%
Arcelor Brasil 37%
Barra Mansa5%
Other 5%
V&M do Brasil6%
CHILE *
URUGUAY
ARGENTINA
44%
19%
83%
CAP + Imports
Acindar + Bragado + Zapla
Imports
COLOMBIA 37% Acerias Paz Del Rio + Imports
* Market share of rebars, profiles and wire-rod.** Market share of long products, it doesn’t include flat steel.
NORTH AMERICA 17% Nucor + ArcelorMittal + CMC
Markets
PERU ** 45% Aceros Arequipa + Imports
SPAIN 43% Aceralia + Saarsthal
15
LONG STEEL PRODUCTS (Brazil)
Maintenance of market share
Improvement of current installed
capacity
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
OutlookBRAZIL
Growing volumes in the domestic market: 6 to 8% in 2007 Industrial and residential construction sectors revving up Recovery of agricultural sector Prices in reais stable Costs relatively stable
NORTH AMERICA
Demand remains strong for rebars, merchant bars and profiles Imports falling Increase in supply of higher value added products
SOUTH AMERICA Strong growth in the economy Civil construction sector strengthening Increase in public investments Demand in line with economic growth
EUROPE Demand continues strong Price increases Specialty steel sector performing well Growing market share
17
Industry Overview
Group Overview
Operating and Financial Highlights
Agenda
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%
2006
Asia23%
Central America15%
South America 29%
NorthAmerica16%
Africa 9%
Europe 8%
Domestic Market 78%
Exports 22%
(37% in tonnes)
19
0%
10%
20%
30%
40%
50%
1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06
0%
6%
12%
18%
24%
30%
36%
42%
1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06
Consolidated
Brazil
North America*
South America*
GROSS MARGIN
EBITDA MARGIN
Margins
24%
15%
36%
22%
10%
40%
38%
24%
13%10%
15%
38%
19%21%
28%31%
* Calculated by hard currency
20
Consolidated FinancialsIn US$ million
2004 2005
INCOME STATEMENT
Net revenueGross profitOperating incomeNet incomeEBITDA
BALANCE SHEET
Current assetsNon-current assetsTotal Assets
Current liabilitiesNon-current liabilitiesMinority InterestShareholders’ equityTotal Liabilities and Shareholder’s equity
Total debtCash & EquivalentsNet debt
RATIOS
Net debt / Total capitalizationTotal debt / EBITDANet debt / EBITDA
20%1.7x0.6x
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%1.5x0.4x
2006
10,9993,0382,0551,6332,502
6,5736,022
12,595
2,5704,0701,2944,661
12,595
4,2402,7911,449
7,3832,3531,6781,2192,092
9,1482,5171,7271,3872,169
21
DEBT STRUCTURE
Domestic Currency 28%
Foreign Currency
46%
Companies Abroad 26%
DEBT AVERAGE LIFE:9 years and 2 months
US$ MM
GROSS DEBT 4,240 100%
SHORT TERM 917 22%
Domestic Currency 235 6%
Foreign Currency 270 6%
Companies Abroad 412 10%
LONG TERM 3,323 78%
Domestic Currency 940 22%
Foreign Currency 1,723 40%
Companies Abroad 660 16%
CASH & CASH AND EQUIV. 2,791 100%
Domestic Currency 1,773 64%
Companies Abroad 1,018 36%
NET DEBT 1,449
COST OF DEBT (per annum)
InUS$
Brazil Domestic Currency 22.8%
Foreign Currency 7.3%
Companies Abroad 8.0%
December 2006
Consolidated Debt Profile
22
FINIMP: 196BNDES: 134
Debentures: 110FINIMP: 24
In US$ million – Dec./06
Companies Abroad: 207FINIMP: 147Pre-export: 118
WorkingCapital: 99
Companies abroad: 201
Companies Abroad: 176 BNDES: 112
FINIMP: 109
BNDES: 55
1Q07 2Q07 3Q07 4Q07 2009 2010 2011 2012
SHORT TERM: US$ 917 LONG TERM: US$ 3,323
330
227
82
278
665
447
300
141 165
Consolidated Debt Amortization
2013 After 2013
875
FINIMP: 90Perpetual Bond: 600
Debentures: 115
2008
730
CompaniesAbroad: 401Debentures: 111FINIMP: 82
23
ACTUAL 2006*ACTUAL 2006*INVESTMENT PLAN 2007 – 2009:
US$ 4.0 billionINVESTMENT PLAN 2007 – 2009:
US$ 4.0 billion
BRAZIL 694.4
ABROAD 1,308.2
North America 537.6
South America 255.5
Europe 515.1
TOTAL 2,002.6
In million US$
2007 2008 2009 TOTAL
BRAZIL 820 570 1,000 2,390
ABROAD 580 530 500 1,610
North America 260 360 315 935
South America 260 125 142 527
Europe 60 45 43 148
TOTAL 1,400 1,100 1,500 4,000
INSTALLED CAPACITY EVOLUTION
Crude Steel Rolling Products
In thousand metric tonsIn thousand metric tons
Brazil
Abroad
Brazil
Abroad
+ 12%
2007 2009
9,260
9,97011,005
10,600
19,23021,605
+ 14%
+ 10%
2007 2009
10,680
6,360 6,450
17,04018,435
+ 1%
+ 12%
+ 8%
11,985
In million US$
Investment Plan
* Including acquisitions in the period.* Including acquisitions in the period.
23
24
2002 2003 2004 2005 2006
1,600
1,400
1,200
1,000
800
600
400
200
0
Gerdau S.A. PN – GGBR4
Gerdau S.A. ADR – GGB
Ibovespa
Dow Jones Index1,135%
669%
212%
21%
Gerdau S.A.’s shares are included in the following São Paulo stock exchange index:
Corporate Sustainability Index – ISE
Special Corporate Governance Stock Index – IGC
Special Tag Along Stock Index – ITAG
Bovespa Index - Ibovespa
Brazil Index 50 - IBrX 50
Industrial Sector Index – INDX
Stock Appreciation
25
Capital Market
30% of the adjusted net income (Pay-out) Dividend payments are being made on a quarterly basis
2002 2003 2004 2005 2006DIVIDENDS* US$ 124.4 MM US$ 164.3 MM US$ 401.7 MM US$ 372.5 MM US$ 418.6 MM
PAY-OUT 34.9% 32.5% 31.9% 30.1% 32.7%
DIVIDEND YIELD 6.8% 3.9% 6.1% 4.6% 3.9%
•Dividends related to each period, but not necessarily paid in the same period.Figures are in BR GAAP converted to US Dollar of R$ 2.138 (12/31/2006)
DIVIDENDS POLICY
Jan05
Mar05
May05
Jul05
Sep05
Nov05
Jan06
Mar06
May06
Jul06
Sep06
Nov06
Jan07
10
20
30
40
50
60
70
80
90
In US$ million
DAILY AVERAGE VOLUME
GGBR4 (BOVESPA) GGB (NYSE)
2005 = US$ 11.5 MM2006 = US$ 17.5 MM
2005 = US$ 11.5 MM2006 = US$ 22.6 MM
Gerdau S.A. PN – GGBR4
Gerdau S.A. ADR – GGB
26
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.
