1 gerdau s.a. march 2006 fourteenth annual latin america conference
TRANSCRIPT
1
Gerdau S.A.
March 2006
Fourteenth Annual Latin America Conference
2
Agenda
Steel Sector
Gerdau Group
Operating and Financial Highlights
3
World Steel – Supply and Demand
Source: IISI / World Steel DynamicsF=Forecast
Finished Steel
1985 1990 1995 2000 2005F 2010F
632
1,000
1,153
Production Apparent Consumption
690 698
830
1,117
942
772
641655603
+ 15.3% over 2005
+ 18.6% over 2005
According to a WSD forecast for 2010, 97% of the
world’s production will be consumed.
In million tons
4
Crude Steel – Output 2004
Arcelor (LUX) 2
Mittal Steel (NET) 1
Nippon Steel (JAP) 3
JFE Steel (JAP) 4
Posco (KOR) 5
Shangai Baosteel (CHI) 6
US Steel (USA) 7
Corus Group (UK) 8
ThyssenKrupp (GER) 10
Riva Group (ITA) 11
Nucor (USA) 9
Gerdau Group (BRA) 12
Sumitomo (JAP) 13
46.9
58.9
32.4
31.6
30.2
21.4
20.8
19.0
17.9
17.6
16.7
13.4
13.0
Gerdau should have an installed capacity of
approximately 21 million tons of crude steel per year after the investment program in Brazil is completed in 2007.
Source: IISI
*
* Includes ISG acquired by Mittal Steel in 2004.
Among the Leaders
In million tons
5
The North American crude steel output for 2005 was 127 million metric tons, a decrease of 5.3% compared to the previous year. In the USA, crude steel output reached 93.3 million metric tons in 2005 from 99.7 million metric
tons in 2004 (- 6.4%).
In 2005, the crude steel output reached 31.6 million metric tons, 3.9% less than in the previous year.
Domestic sales of long steel products (including blooms and billets) in 2005 reached 6.3 million metric tons, a decrease of 10.7% compared to 2004.
Exports of long steel products (including ingots, blooms and billets) totaled 4,3 million metric tons in 2005 (+ 25.6% YoY).
In 2005, the long steel production decreased 4.8% compared to 2004, retaking
the levels of 2003.
Source: IBS and IISI
Worl
d The world’s steel output reached 1.1 billion metric tons of crude steel in 2005, an increase of 5.9% compared to 2004. Crude steel production in China reached 349 million metric tons (31.5% of the world’s steel output), an increase of 24.6% compared to 2004.
Bra
zil
Nort
h
Am
eri
ca
Steel Sector – 2005S
ou
th
Am
eri
ca
The South American crude steel output for 2005 was down 1.2% at 45.3 million metric tons. Brazil is the largest producer, with 69.8% of the total output, followed by Argentina, with 11.9% of the total output in the region.
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Crude Steel Production – 2005
349
113
9366
48 45 39 3832 29
China
USAJapan
Russia
South K
orea
Germany
Ukrain
e
Brazil
India
Italy
Source: IISI
Brazil and the Global Steel Industry
In million tons
Total World Production: 1,108 million tons
China accounted for 31.5% of the global steel output
Brazil accounted for 2.8% of the global steel output
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Agenda
Steel Sector
Gerdau Group
Operating and Financial Highlights
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VISION
MISSION
TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY
TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY
Gerdau is an organization focused on the steel
business with a mission to satisfy customers` needs
and add value to shareholders, committed to the
fulfillment of people and to the sustainable
development of society
Philosophy
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A low cost international steel company with operations in Brazil, Uruguay, Canada, Chile, Argentina, Colombia, Spain and the United States
Substantial international profile – foreign exchange generation through subsidiaries abroad and export sales amount approximately 67% of consolidated revenues in 2005
Ranked 12th globally by steel output in 2004 with an output of 13.7MM tons (including strategic shareholdings)
2nd largest long steel producer in North America and largest long steel producer in the Americas
Focused on the production of long steel products Gerdau operates 30 mills incorporating both integrated and mini mills with the latest technologies
Relevant market share in every country with operations and diversified product range, with high value-added products
Strong low cost strategy as a result of diversified production processes and multiple raw material sourcing
Sound balance sheet (Gross Debt-to-EBITDA at approximately 1.6x in 2005) and strong cash generation
Shares of Gerdau S.A. are currently traded at the São Paulo, New York and Madrid stock exchanges
Shares of Metalúrgica Gerdau S.A. are traded at the São Paulo stock exchange
Gerdau Ameristeel’s shares are traded at the New York and Toronto stock exchanges
Investment Considerations
10
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 75 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 More acquisitions in the US Downstream expansion in North America Entering the European market Presence in São Paulo with a brand new steel mill
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1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Laisa - 1980(Uruguay)
Piratini(Brazil)
AZA(Chile)
Ameristeel(USA)
AZANew Plant
(Chile)
Additionalstake in
Açominas(Brazil)
Potter FormGate City & RJ
North Star(USA)
SACK(Chile)
Cambridge(Canada)
Usiba(Brazil)
Manitoba(Canada)
Controllof
Açominas(Brazil)
CartersvilleDrawingCo-Steel
(USA)
1,757
3,072 3,934
4,595
7,69611,076
16,372
Abroad – Crude Steel Installed Capacity
TOTAL INVESTED (1981-2005):Brazil = US$ 4.0 billion + Debt North America = US$ 1.4 billion + DebtSouth America = US$ 468 million + Debt
In thousand tons
Solid Track Record
Brazil – Crude Steel Installed Capacity
Diaco(Col.)
16,475
Barãode
Cocais(Brazil)
2,611Stake in
Açominas(Brazil)
4,568
18,658Araçariguama
(Brazil)
Sidenor (Spain)
12
Brazil
8.6 million tons of crude steel
5.3 million tons of rolled steel products
Abroad
10.1 million tons of crude steel
9.6 million tons of rolled steel products
Total Capacity (Includes Strategic Shareholdings)
18.7 million tons of crude steel
14.9 million tons of rolled steel products
11 mills
11 fabrication shops
6 downstream operations and special sections
75 sales points and flat steel service centers
19 mills
37 fabrication shops
15 downstream operations and special sections
An International Company
Steel mills
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Strategic Shareholding
13
Value Builder CompanyATKearney
Value Growth
RevenueGrowth
Industryaverage
Industryaverage
StelcoHaynes
AK Steel
Smorgon
Carpenter
Salzgitter
Onesteel1)
Boehler-Uddeholm
INI SteelIpsco
Allegheny
Rautaruukki
Usinas
Ispat
Kennametal
SSAB
Voest-Alpine
Harsco
Nisshin Steel
Eregli Demir
Wuhan Steel1)Kobe
Dofasco
Iscor
Tata
RIVA1)
SAIL
Outokumpu
Corus
Gerdau
CSN
US Steel
Acerinox
Nucor
Thyssenkrupp
China Steel
Arcelor
Baoshan1)
Posco
JFE
Nippon Steel
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
-35% -25% -15% -5% 5% 15% 25% 35% 45%
Note: 1) RIVA 98 02, Wuhan Steel & Onesteel 00 03, Baoshan 01 03Source: ThyssenKrupp (segment), Kobe (segment), RIVA, Haynes:
EBIT Growth
Growth portfolio (CAGR 1999-2003)
benchmarked against industry average
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BRAZIL
Gerdau 48%
Belgo35%
Barra Mansa5%
Other 7%
NORTH AMERICA
Nucor27%
Gerdau Ameristeel
19%
Commercial Metals
7%
Imports18%
Other29%
COUNTRY MARKET SHARE MAIN COMPETITORS
Solid Market Share in Long Steel
Aços Villares5%
CHILE
URUGUAY
ARGENTINA
53%
20%
90%
CAP + Imports
Acindar + Bragado + Zapla
Imports
COLOMBIA 37% Acerias Paz Del Rio
SPAIN 36%* GSB
* Specialty steel only
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Agenda
Steel Sector
Gerdau Group
Operating and Financial Highlights
16
2000 2001 2002 2003 2004 2005
Shipments
Brazil – Domestic Market (25% in 2005)
Brazil – Exports (20% in 2005)
South America (10% in 2005)
North America (45% in 2005)
In thousand tons
7,302 7,411
9,109
12,56012,144
13,550
Billets, blooms& slabs
Merchant bars
Rebars Fabricated steel
Heavystructural shapes
Wire-rod Wires Nails
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Strong Export Business
Asia44%
Central America13%
South America 19%
North America5%
Africa8%
EXPORT SHIPMENTS BY REGION
Europe 11%
2005
NET REVENUE BREAKDOWN BY REGION
Brazil (Domestic Market) 34%
Exports (from Brazil)13%
North America47%
South America6%
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37.1%37.9%
12.6% 15.7%
27.1% 30.4%
0%
10%
20%
30%
40%
50%
2001 2002 2003 2004 2005
Margin Evolution
Brazil North America South America
Gross Margin
EBITDA Margin
31.4%28.2%
14.7%
12.1%
24.5%21.6%
0%
10%
20%
30%
40%
2001 2002 2003 2004 2005
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Consolidated FinancialsIn US$ millions
2003 2004
Income Statement
Net revenueGross profitOperating incomeNet incomeEBITDA
2005
4,6271,139
397434929
7,3832,3531,6781,2192,092
9,0772,4461,7271,3862,098
Balance Sheet
Current assetsNon-current assetsFixed assetsTotal
Current liabilitiesNon-current liabilitiesShareholders’ equityTotal
1,846364
2,7214,931
1,5031,7471,6814,931
3,600390
3,0417,031
1,9772,1862,8687,031
5,182377
3,7889,347
1,7903,2254,3329,347
Ratios
Gross marginEBITDA marginTotal debt / EBITDANet debt / EBITDAEBITDA/Net Financial Expenses
24.6%20.1%
2.3x2.0x5.0x
31.9%28.3%
1.1x0.8x
19.8x
26.9%23.1%
1.6x0.4x
27.8x
20
Indebtedness
Dec. 05
In US$ million
GROSS DEBT 3,269 100%
SHORT TERM 568 17%
Domestic Currency 98 3%
Foreign Currency 149 4%
Companies Abroad 321 10%
LONG TERM 2,701 83%
Domestic Currency 640 20%
Foreign Currency 1,386 42%
Companies Abroad 675 21%
CASH & CASH AND EQUIV. 2,335 100%
Domestic Currency 1,379 59%
Foreign Currency 956 41%
NET DEBT 934
In US$COST OF DEBT IN DEC. 05 (per annum)
DEBT AVERAGE LIFE 9.1 years
Brazil – Domestic Currency
Brazil – Foreign Currency
Companies Abroad
32.5%*
5.9%
7.3%
DEBT STRUCTURE
Domestic Currency23%
Foreign Currency
46%
Companies Abroad31%
*Includes 11.82% of 2005 FX
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+ 14%
Capital Expenditures
INVESTMENTS - 2005INVESTMENTS - 2005
2006 2008
10,073
8,585
10,675
10,685
18,65821,360
+ 24%
+ 6%
EVOLUTION OF INSTALLED CAPACITY
Investment Program 2006 – 2008: US$ 3.8 billion Investment Program 2006 – 2008: US$ 3.8 billion
2006 2008
9,609
5,260 6,585
14,86916,908
+ 25%
+ 7%
+ 14%
Brazil Abroad Brazil Abroad
Crude Steel Rolled Steel
BRAZIL 568.8
ABROAD 289.2
North America 135.9
South America 153.3
TOTAL 858.0
In thousand tonsIn thousand tons
In US$ millions
10,323
22
30 3055 66
81
118
302334
153153
584253
71
1999 2000 2001 2002 2003 2004 2005
Dividends Policy
30% of the adjusted net income (Pay-out)
Dividend payments are being made on a quarterly basis
In US$ million
DIVIDEND YIELD
1999 2000 2001 2002 2003 2004 2005
GOAU4 6.0% 7.9% 17.0% 11.3% 6.2% 7.8% 6.1%
GGBR4 3.6% 6.1% 6.8% 6.8% 3.9% 6.1% 4.6%
DIVIDENDS DISTRIBUTION*DIVIDENDS DISTRIBUTION*
Metalúrgica Gerdau S.A. (GOAU4)
Gerdau S.A. (GGBR4)
* Dividends related to each period, but not necessarily paid in the same period.
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Outlook
Brazil Greater economic growth in 2006 – 3 to 3.5% Increase in volumes shipped in the domestic market - 5 to 6% Strengthening of the civil construction sector Price stability in Brazilian currency Inventories adjusted Increase in government spending
North America Consistent economic growth More investments in infrastructure (Highway Bill) Stability in production costs Stability in metal spread
South America Consolidated economic growth Strengthening of the civil construction sector Demand is strong
Europe Consolidation of stake in Sidenor as of the 1Q06
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Safe Harbor Statement
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.