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Gerdau S.A.
May 2006
Global Metals, Mining & Steel Conference
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Agenda
Steel Sector
Gerdau Group
Operating and Financial Highlights
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The North American crude steel output for 1Q2006 was 32.1 million metric tons,
an increase of 2.0% compared to the previous quarter.
Steel Sector – 1st Quarter 2006
Total output in Brazil reached 7.2 million metric tons in the 1st quarter of 2006, a decrease of 9.8% compared to 4Q2005.
In the 1Q2006, the long steel production (including blooms and billets) remained in the same level’s of the last period, reaching 2,7 million metric tons.
Domestic sales of long steel products (including blooms and billets) in 1Q2006 reached 1.7 million metric tons, an increase of 9.1% compared to the quarter
before.
Exports of long steel products (including ingots, blooms and billets) totaled 1.0 million metric tons in the 1Q2006, compared to 894 thousand metric tons in 4Q2005.
Source: IBS and IISI
Worl
d The world’s steel output reached 284.5 million metric tons in the 1st quarter, a decrease of 1.15% compared to that of the forth quarter of 2005.
Bra
zil
Nort
h
Am
eri
ca
Sou
th
Am
eri
ca The South American crude steel output for the 1Q06 was 10.6 million metric
tons. Brazil is the largest producer, with 67.5% of the total output, followed by Argentina, with 12.8% of the total output in the region.
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92
2824
1712 11 10 9 8 7
Crude Steel Production – 1Q06
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: 285.2 million tons
China accounted for 32.3% of the global steel output
Brazil accounted for 2.5% 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 60% of consolidated revenues in the 1Q06
Ranked 14th globally by steel output in 2005 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 1.7x in 1Q06) 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
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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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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)
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Brazil
9 million tons of crude steel
5.5 million tons of rolled steel products
Abroad
9.7 million tons of crude steel
9.3 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
74 sales points and flat steel service centers
19 mills
38 fabrication shops
15 downstream operations and special sections
An International Company
Steel mills
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Strategic Shareholding
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BRAZIL
Gerdau 48%
Belgo35%
Barra Mansa5%
Other 7%
NORTH AMERICA
Nucor21,8%
Gerdau Ameristeel
14,8%
Commercial Metals
5,6%
Mittal6,8%
Other41,9%
COUNTRY MARKET SHARE MAIN COMPETITORS
Solid Market Share in Long Steel
Aços Villares5%
CHILE
URUGUAY
ARGENTINA
51%
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
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2001 2002 2003 2004 2005 1Q05 1Q06
ShipmentsIn thousand tons
3,374
7,411
9,109
12,56012,144
13,550
Billets, blooms& slabs
Merchant bars
Rebars Fabricated steel
Heavystructural shapes
Wire-rod Wires Nails
3,691
Brazil – Domestic Market (27% in 1Q06)
Brazil – Exports (17% in 1Q06)
South America (9% in 1Q06)
North America (45% in 1Q06)
Europe (2% in 1Q06)
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Strong Export Business
Asia22%
Central America12%
South America 25%
North America16%
Africa13%
EXPORT SHIPMENTS BY REGION
Europe12%
1Q06
NET REVENUE BREAKDOWN BY REGION
Brazil (Domestic Market) 35%
Exports (from Brazil)9%
North America44%
South America9%Europe
3%
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22.5%20.8%
7.9%7.3%
13.2%
16.5%
13.9%
14.8%
0%
10%
20%
30%
1Q05 2Q05 3Q05 4Q05 1Q06
26.0%
35.0%
15.5%14.2%
22.7%25.2%
24.3% 20.8%
0%
10%
21%
31%
42%
1Q05 2Q05 3Q05 4Q05 1Q06
Margin Evolution
Gross Margin
Net MarginEBITDA Margin
34.5%
40.5%
18.6%15.6%
26.1%
29.5%
27.6%26.3%
0%
10%
21%
31%
42%
52%
1Q05 2Q05 3Q05 4Q05 1Q06
Brazil
North America
South America
Consolidated
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Consolidated FinancialsIn US$ millions
1Q05 4Q05
Income Statement
Net revenueGross profitOperating incomeNet incomeEBITDA
1Q06
2,187605439304531
2,088551375312443
2,584681532383538
Balance Sheet
Current assetsNon-current assetsFixed assetsTotal
Current liabilitiesNon-current liabilitiesShareholders’ equityTotal
3,725409
3,0757,209
1,7422,3073,1607,209
5,182377
3,7889,347
1,7903,2254,3329,347
5,684503
4,43210,619
1,9763,6285,015
10,619
Ratios
Gross marginEBITDA marginTotal debt / EBITDANet debt / EBITDA
27.6%24.3%
1.1x0.7x
26.4%21.2%
1.6x0.4x
26.3%20.8%
1.7x0.5x
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Indebtedness
Mar. 06
In US$ million
GROSS DEBT 3,660 100%
SHORT TERM 670 18%
Domestic Currency 113 3%
Foreign Currency 184 5%
Companies Abroad 373 10%
LONG TERM 2,991 82%
Domestic Currency 791 22%
Foreign Currency 1,508 41%
Companies Abroad 692 19%
CASH & CASH AND EQUIV. 2,550 100%
Domestic Currency 1,558 61%
Foreign Currency 992 39%
NET DEBT 1,110
In US$COST OF DEBT IN MAR. 06 (per annum)
DEBT AVERAGE LIFE 8.8 years
Brazil – Domestic Currency
Brazil – Foreign Currency
Companies Abroad
14.2%*
7.3%
7.8%
DEBT STRUCTURE
Domestic Currency25%
Foreign Currency
46%
Companies Abroad29%
*Includes (7.19%) of 2006 FX
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2006 – US$ 1.7 billion
2007 – US$ 1.4 billion
2008 – US$ 0.7 billion
NEW CAPACITY US$ 2.0 billion
MAINTENANCE US$ 1.8 billion
Brazil US$ 674 MM
North America US$ 977 MM
South America US$ 129 MM
Expansion Program 2006 - 2008
+ 14%
2006 2008
10,073
8,585
10,675
10,685
18,65821,360
+ 24%
+ 6%
INSTALLED CAPACITY EVOLUTION
2006 2008
9,610
5,260 6,585
14,87017,471
+ 25%
+ 13%
+ 17%
Brazil
Abroad
Brazil
Abroad
Crude Steel Rolled ProductsIn thousand tonsIn thousand tons
10,886
Investment Program 2006 – 2008: US$ 3.8 billion Investment Program 2006 – 2008: US$ 3.8 billion
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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 – around 3.5% Growing volumes – Domestic market from 8 to 10% Strengthening of the civil construction sector Price stability in Brazilian currency Inventories adjusted
North America Consistent economic growth Greater investments in infrastructure Production costs stability Prices rising Growing metallic spread
South America Consolidated economic growth Strengthening of the civil construction sector Demand is strong
Europe Consolidation of the specialty steel operations at Sidenor
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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.