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Gerdau S.A. Annual Citigroup Asia Pacific Fixed Income Investor Conference. January 2006. Disclaimer.
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Gerdau S.A. Annual Citigroup Asia Pacific Fixed Income Investor Conference January 2006
Disclaimer Statements relative to business perspectives are based on current expectations of future events and trends that may affect our business. These estimates 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.
Gerdau Group Overview Steel Industry Overview Gerdau’s Operating and Financial Highlights Agenda All data presented in US Dollar and in metric tons, except when indicated
Philosophy VISION TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY MISSION 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
Investment Considerations • A low cost international steel company with operations in Brazil, Uruguay, Canada, Chile, Argentina, Colombia and the United States • Substantial international profile – foreign exchange generation through divisions abroad and export sales amount approximately 63% of consolidated revenues in 9M05 • Ranked 12th globally by steel output in 2004 with an output of 13.4m tons (includes one joint venture) • 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 29 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 (Net Debt/EBITDA 0.6x at Sep05) and strong cash generation • Shares of Gerdau S.A. are currently traded at the São Paulo, New York and Madrid exchanges
An International Company Total Capacity (Includes Joint Ventures) 16.8 million tons of crude steel 13.9 million tons of rolled steel products Abroad Brazil 7.6 9.2 million tons of million tons of crude steel crude steel 9.1 4.8 million tons of million tons of rolled steel products rolled steel products Gerdau’s installed capacity will reach some 21 million tons of crude steel per year post completion of the Brazilian investment program in 2007 (29) Steel mills (21) Downstream operations (49) Fab shops Comercial Gerdau stores and Service centers (75) Scrap collection and processing units (24) (2) Solid pig iron production units (3) Iron ore extraction areas (2) Private port terminals (1) Joint venture
Solid Track Record Brazil – Crude Steel Installed Capacity Abroad – Crude Steel Installed Capacity In thousand tons THE NEW MILLENNIUM 16,830 • Expansion abroad – reverse takeover of Co-Steel and acquisition of North Star Mills • Acquisition of stake in Açominas – controller since 2002 • Strategic alliance in Colombia • Expansion into SBQ - Spain Potter Form Gate City & RJ North Star(USA) SACK(Chile) DIACO(Colombia) 14,450 CartersvilleDrawingCo-Steel (USA) 7,696 Ameristeel (USA) AZANew Plant(Chile) TOTAL INVESTED ABROAD (1981-2004): North America = US$ 1.3 billion + Debt South America = US$ 314 million + Debt CartersvilleMillOrrvileDrawing (USA) SIPSA(Argentina) 4,595 3,934 3,072 Manitoba (Canada) SIPAR(Arg.) AZA(Chile) 1,757 Cambridge(Canada) Laisa - 1980(Uruguay)
Growth portfolio (CAGR 1999-2003)benchmarked against industry average Value Builder CompanyATKearney Revenue Growth 30% Gerdau Outokumpu Acerinox 25% China Steel Baoshan1) Usinas INI Steel Nucor Salzgitter 20% Ipsco Rautaruukki Tata US Steel 15% Voest-Alpine Smorgon Industry average 10% Boehler-Uddeholm Arcelor SSAB Corus Ispat JFE 5% SAIL Harsco Thyssenkrupp Dofasco CSN Nippon Steel Onesteel1) Kobe 0% Wuhan Steel1) Kennametal RIVA1) Carpenter -5% Iscor AK Steel Stelco Nisshin Steel Haynes Posco Allegheny -10% Eregli Demir -35% -25% -15% -5% 5% 15% 25% 35% 45% Industry average Value Growth Note: 1) RIVA 98 02, Wuhan Steel & Onesteel 00 03, Baoshan 01 03 Source: ThyssenKrupp (segment), Kobe (segment), RIVA, Haynes: EBIT Growth
Agenda Gerdau Group Overview Steel Industry Overview Gerdau’s Operating and Financial Highlights
Production Apparent Consumption World Steel – Supply and Demand Finished Steel + 15.3% over 2005 In million tons + 18.6% over 2005 1,153 1,000 1,117 According to a WSD forecast for 2010, 97% of the world’s production will be consumed. 942 830 698 690 632 772 655 641 603 1985 1990 1995 2000 2005F 2010F Source: IISI / World Steel Dynamics
Brazil and the Global Steel Industry Crude Steel Production – 2004 In million tons In million tons Total World Production: 1,057 million tons China accounted 25.7% of the global steel production Brazil accounted 3.1% of the global steel production Italy India Brazil China Ukraine USA Japan Russia Germany South Korea Source: IISI
Among the Leaders Crude Steel – Output 2004 In million tons Mittal Steel (NET) 1 58.9 * Arcelor (LUX) 2 46.9 32.4 Nippon Steel (JAP) 3 JFE Steel (JAP) 4 31.6 Posco (KOR) 5 30.2 Shangai Baosteel (CHI) 6 21.4 20.8 US Steel (USA) 7 Corus Group (U.K.) 8 19.0 Nucor (USA) 9 17.9 ThyssenKrupp (GER) 10 17.6 Riva Group (ITA) 11 16.7 Gerdau Group (BRA) 12 13.4 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. Sumitomo (JAP) 13 13.0 * Includes ISG acquired by Mittal Steel in 2004. Source: IISI
Solid Market Share in Long Steel NORTH AMERICA BRAZIL Other29% Imports18% Gerdau 48% Barra Mansa5% Commercial Metals7% Other12% Nucor27% Gerdau Ameristeel19% Belgo35% MARKET SHARE MAIN COMPETITORS COUNTRY CHILE 53% CAP + Imports URUGUAY 90% Imports ARGENTINA 20% Acindar + Bragado + Zapla COLOMBIA 37% Acerias Paz Del Rio
Agenda Gerdau Group Overview Steel Industry Overview Gerdau’s Operating and Financial Highlights
Shipments Billets, blooms& slabs Heavystructural shapes Wires Wire-rod Rebars Merchant bars Nails Fabricated steel US GAAP - In thousand tons BY REGION 12,906 11,873 11,453 531 438 348 8,928 6,856 309 5,874 6,577 4,466 4,724 339 2,841 311 2,311 2,830 3,263 2,353 2,954 1,904 790 541 3,874 3,881 3,547 3,376 3,416 3,372 2000 2002 2003 2001 2004 2005* South America Brazil – Domestic Market North America Brazil – Exports * 9M05 Annualized
Strong Hard Currency Generation NET SALES - US GAAP In US$ millions Currency Breakdown – 9M05 Exports and Companies Abroad63% Brazil 37% Historical Geographical Distribution 6,952 6,602 319 4,531 4,977 248 South America 168 3,010 122 2,963 North America 2,161 1,811 Brazil - Exports 1,250 950 752 521 Brazil – Domestic Market 1,896 2,441 2,077 2,373
Strong Export BusinessShipments by Region 2004US$ 1.1 billion2.7 million tons Europe11% Asia34% 9M2005US$ 949.7 million2.1 million tons Africa8% South America17% Central America 15% Africa8% Europe 11% North America15% Central America12% North America4% Asia44% South America 21%
Costs and Prices Net Sales Revenue and Cost of Sales In US$/ton Brazil (BR GAAP) Group (US GAAP) 755 747 718 733 707 680 692 682 673 674 625 568 546 507 493 498 490 476 447 403 387 501 496 504 483 342 449 425 443 444 402 374 414 371 338 364 316 339 314 309 293 295 304 263 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 2Q05 4Q03 3Q05 3Q03 2Q04 3Q04 4Q04 1Q05 1Q03 2Q03 1Q04 Cost of sales Net Sales Net Sales Revenue Cost of Sales South America (BR GAAP) North America (US GAAP) 820 723 731 717 699 729 637 637 689 685 674 655 586 630 549 5650 502 579 509 633 510 510 425 487 606 583 558 407 397 557 516 374 422 418 417 494 367 461 351 392 331 376 368 288 4Q04 3Q05 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 1Q05 2Q05 3Q05 2Q05 4Q04 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 1Q05 Net Sales Cost of Sales Net Sales Revenue Cost of Sales All data in BR GAAP converted by R$ 2.2222/US$
Capital Expenditures Capital Expenditures Brazil BraZil Abroad Abroad INVESTMENTS - 9M2005 In US$ millions Investment Program 2005 – 2007: US$ 3.2 billion EVOLUTIONOFINSTALLED CAPACITY In thousand tons Rolled Steel Crude Steel + 28% + 19% 21,450 15,490 12,970 16,380 + 11% 9,730 8,880 + 8% 8,240 8,800 11,720 + 55% + 40% 6,610 7,580 4,730 2004 2007 2004 2007
Consolidated Financials US GAAP In US$ millions 9M05 2002 2003 2004 Income Statement Net revenue Gross profit Operating income Income before taxes Net income 4,531 1,085 696 526 510 3,265 915 563 229 232 6,602 1,760 1,307 1,482 925 6,952 2,113 1,628 1,722 1,158 Free Cash Flow EBITDA (-) Net interest expenses (-) Capex (including acquisitions) (-) Taxes (-) Dividends Free cash flow 1,869 83 772 407 276 331 1,501 47 297 411 301 446 760 116 464 7 74 99 880 157 343 (34) 122 292
Consolidated Financials US GAAP In US$ millions September/05 2002 2003 2004 Balance Sheet Current assets Non-current assets Fixed assets Total Current liabilities Non-current liabilities Minority interest Shareholders’ equity Total Total debt Cash and cash equivalents Net debt 1,524 2,476 2,085 4,000 1,588 1,239 309 864 4,000 2,100 423 1,667 1,760 3,011 2,304 4,771 1,459 1,644 265 1,403 4,771 2,086 331 1,755 4,946 4,311 3,525 9,257 1,610 3,059 934 3,654 9,257 3,190 2,080 1,110 3,323 3,529 2,790 6,852 1,712 1,975 642 2,523 6,852 2,298 659 1,639 Ratios Gross margin EBITDA margin Total debt / EBITDA Net debt / EBITDA EBITDA / Interest Net debt / Shareholders’ equity Net debt / Total capitalization Short term debt / Total debt 27% 23% 1.6x 0.6x 30.6x 30% 23% 17% 24% 19% 2.4x 2.0x 5.6x 125% 56% 38% 30% 27% 1.2x 0.9x 22.5x 65% 39% 29% 28% 23% 2.8x 2.2x 6.6x 194% 66% 53%
Consolidated Debt Profile US GAAP In US$ millions Sep./05 GROSS DEBT 3,190 100% DEBT STRUCTURE SHORT TERM 543 17% Domestic Currency 76 2% Foreign Currency 402 13% Companies Abroad24% 65 2% Companies Abroad Foreign Currency52% LONG TERM 2,648 83% Domestic Currency 701 22% Domestic Currency24% Foreign Currency 1,239 39% Companies Abroad 708 22% 2,080 CASH & CASH AND EQUIV. 100% Domestic Currency 61% 1,825 255 Foreign Currency 39% NET DEBT 1,110 * Includes exchange and monetary variation in the last 9 months
Consolidated Debt Amortization US GAAP Debentures: 328.7 Bonds GNA: 398.9 Securitization: 24.4 Perpetual:589 In US$ millions – September/05 Securitization: 38.1 BNDES: 60.8 Debentures GNA: 93.3 Imports: 107.6 Pre-Export: 22 1,527 Securitization: 40.9 BNDES: 65 Imports: 61.6 Pre-Export: 112 Securitization: 8 Securitization:18 Securitization: 41 Securitization: 9 Securitization: 44 NOTES: a) US$ 328.7 million equivalent of local bonds maturing from 2011 to 2020 b) US$ 398.9 million GNA bonds maturing in July/2011 c) US$ 589.0 million Perpetual Bonds with no final maturity date
Gerdau S.A. www.gerdau.com.br inform@gerdau.com.br +55 51 3323 2703