2015 Earnings Conference Call

Transcription

1 2015 Earnings Conference Call André B. Gerdau Johannpeter President & CEO Harley Lorentz Scardoelli CFO Heavy plate rolling mill starts operating in July at the Ouro Branco mill (MG).

2 World steel demand expected to strengthen slightly in 2016 Global steel production contracted 2.8% in 2015, according to the Worldsteel Association. World installed capacity utilization stood at 69.7% in 2015, compared to 73.4% in 2014 (Worldsteel Association). For 2016, world steel demand is expected to grow 0.7%. However, demand from China, where most of the world's overcapacity is installed, is expected to contract 2% in 2016, which would lead China's surplus production to pressure prices in the international market. In emerging and developing economies, including China, steel demand should grow 1.2% this year. In developed economies, demand is expected to grow 1.8% (Worldsteel Association). Global overcapacity and high imports of steel goods into North America and Latin America should continue in Brazil's recession strongly impacted its steel industry: 16.1% drop in domestic shipments by the industry in 2015, according to Instituto Aço Brasil. In North America, non-residential construction was the highlight in steel shipments. In the Special Steel segment, the light and heavy vehicle industry improved in USA, Europe and India, while in Brazil, production and shipments suffered sharp declines. World installed overcapacity and steel imports in markets where Gerdau operates should remain key challenges in

3 Net sales of R$ 43.6 billion in 2015 Adjusted operating cash generation (EBITDA) of R$ 4.5 billion, down 8% compared to Gerdau posted adjusted consolidated net income of R$ 684 million; including nonrecurring items, this figure was a net loss of R$ 4.6 billion. Free cash flow reached R$ 3 billion, increasing 58% compared to Unit 4Q15 4Q14 % % SHIPMENTS '000 tonnes 3,887 4, % 16,970 17, % NET SALES R$ MM 10,449 10, % 43,581 42, % SG&A R$ MM (655) (681) -3.8% (2,582) (2,728) -5.4% ADJUSTED EBITDA R$ MM 911 1, % 4,501 4, % ADJUSTED EBITDA MARGIN ADJUSTED NET INCOME % 8.7% 11.5% % 11.5% - R$ MM (41) , % Reduction of 5% in selling, general and administrative expenses in

4 Investment of R$ 2.3 billion in CAPEX Disbursements (R$ billion) % 1.5 Main projects (F) Construction of heavy plate rolling mill at Ouro Branco Unit in Minas Gerais Construction of new melt shop in Argentina Startup of structural profiles mill in Mexico Projected capital expenditure for 2016 is 35% lower than in

5 Financial Results Gerdau S.A. Consolidated IFRS

6 Geographic diversification reduces volatility in results Brazil BO North America BO Shipments ('000 ton) South America BO Special Steel BO 1,738 1,938 1,394 1,483 1,664 1, Brazil BO 35.4% EBITDA and EBITDA margin per BO North America BO South America BO 11.9 % Special Steel BO 18.1% 34.6% 19.1% % % % % % % 9.1% % % 10.2% % 151 EBITDA (R$ million) EBITDA Margin (%) Participation of Adjusted EBITDA per BO (last 12 months) 6

7 EBITDA affected by weaker shipments EBITDA Bridge (R$ million) * Includes Net Sales from Iron Ore Net Income Bridge (R$ million) * Net of effects from Net Investment Hedge. Better performance of North America BO partially offsets weaker performance of Brazil and Special Steel BOs 7

8 Debt under control, despite exchange variation impact Debt & Leverage Ratio Long-Term Debt Amortization Schedule R$ billion R$ billion x 4.2x 3.2x 3.1x 2.4x 3.6x 2.1x 2.4x 2.6x Dec/14 Mar/15 Jun/15 Sep/15 Dec/15 Gross Debt Cash Net debt/ebitda (R$) Net debt/ebitda (US$) and after Average Debt Cost: 6.8% Average Debt Term: 6.5 years (1) EBITDA in the last 12 months Net Debt/EBITDA ratio in U.S. dollar of 3.6x 8

9 Shorter cash conversion cycle on working capital efforts Working Capital (R$ million) Trade accounts receivable (+) 4,439 5,478 4,587 Inventories (+) 8,867 10,040 8,781 Trade accounts payable (-) 3,236 4,129 3,630 Working Capital 10,070 11,389 9, dez/14 mar/15 jun/15 set/15 dez/15 Working Capital (R$ billion) Cash Conversion Cycle (days) Cash effect on reduction in working capital of R$ 2.4 billion in

10 Positive free cash flow despite challenging scenario Efforts to release working capital generate positive free cash flow 10

11 Extraordinary events in 2015 Extraordinary events (R$ million) Brazil BO North America BO Fiscal Year 2015 South America BO Special Steel BO Consolidated Impairments Goodwill - 1, ,125 2,999 Property, plant and equipment, net ,635 Investments Write-off of deferred tax assets Total 835 1, ,209 5,280 Results in 2015 affected by negative, noncash impact of R$5.3 billion 11

12 Metalúrgica Gerdau: capitalization of R$ 900 million Pre-Offer Post-Offer Net Debt R$2.1 billion R$1.2 billion Debt cost 107% of CDI 105% of CDI Shares outstanding 413 million 913 million Number of securities traded 5.3 million 13.5 million Holding company discount 37% 17% Public Offering of R$900 million gives Metalúrgica Gerdau S.A. financial sustainability 12

13 Closing Remarks Gerdau's results in 2015 were heavily influenced by nonrecurring items, though noncash. Positive highlights in 2015 include the strong presence in the North American market and management efforts from our teams. Public offering at Metalúrgica Gerdau S.A: capitalization of R$900 million to amortize debt and improve liquidity. Priorities for 2016: Free cash flow generation; Costs reduction; CAPEX restriction; Financial leverage reduction. Long-term initiatives: streamlining operations and internal structures, modernizing the corporate culture and reassessing the potential profitability of assets. 13