Investor Presentation. Heavy plate rolling mill starts operating in July at the Ouro Branco mill (MG)

Transcription

1 Investor Presentation Heavy plate rolling mill starts operating in July at the Ouro Branco mill (MG)

2 Agenda Outlook Gerdau Highlights 2

3 Economic outlook GDP Growth f 2016f World 3.4% 3.1% 3.2% US 2.4% 2.4% 2.4% Brazil 0.1% -3.8% -3.8% China 7.3% 6.9% 6.5% Sources: IMF and Focus 3

4 Global steel demand is expected to decrease in 2016 Region / Country (in mmt and %) f 15/14 16/15 World 1,500 1, % -0.8% European Union % 1.4% NAFTA % 3.2% Central & South America % -6.0% Brazil % -8.8% Asia and Oceania % -1.7% China % -4.0% Source: World Steel Association 4

5 Steel capacity growing at faster rate vs consumption In million metric tons Source: OECD 5

6 Capacity utilization rate improved In million metric tons 72% 72% 70% 72% 70% 68% 67% 66% Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Source: World Steel Association 6

7 Chinese steel exports are affecting steel industry In million metric tons *annualized from 1Q pace* Source: World Steel Association 7

8 Price recovery In US$/t Prices were updated until May, 24 th Source: Platts Turkey China 8 Jan/14 May/14 Sept/14 Jan/15 May/15 Sept/15 Jan/16 May/16 US Scrap export Jan/14 May/14 Sept/14 Jan/15 May/15 Sept/15 Jan/16 May/ Rebar export Jan/14 May/14 Jan/16 Sept/14 Jan/15 May/15 Sept/15 May/16 Iron Ore CFR China

9 Agenda Outlook Gerdau Highlights 9

10 Global player with dominant regional presence Spain India USA. & Canada Dominican Republic Largest long steel producer in the Americas and 2nd largest globally Mexico Guatemala Colombia Venezuela Peru Brazil Operations in 14 countries with relevant market share Steel Units Associated Companies Joint ventures Chile Argentina Uruguai 10

11 Vertically integrated operations Upstream Relevant level of direct purchase and captive scrap (50%) 6.3 billion tons of iron ore resources Self-sufficiency at Ouro Branco mill Coke unit and coking coal mines in Colombia Partial level of energy self generation Steel Low cost structure Mini-mills and integrated mills key to low cost strategy Latest generation technology Downstream Reinforcing steel fabrication facilities (Fab Shops) Drawn products Multi-product distribution network Tailor-made addedvalue approach (~40% of sales to civil construction) 11

12 Broad product portfolio and geographic diversification Billets, blooms & slabs Merchant bars SBQ Rebars Fabricated steel Ready-to-use Heavy products structural shapes Wire-rod Wire Nails HRC Iron Ore Wires Brazil North America South America Special Steel Housing Infrastructure Housing Automotive Infrastructure Non-residential Infrastructure Shipbuilding Industrial and commercial buildings Agriculture Industrial Industrial and commercial buildings Energy Exports 28% of Net Sales 40% of Net Sales 12% of Net Sales 20% of Net Sales 31% of EBITDA 38% of EBITDA 14% of EBITDA 17% of EBITDA *Net sales and EBITDA in the last 12 months 12

13 Focus in adding value to our products Technical Assistance Agreement To support our State-of-the-Art Plate Mill facility at Ouro Branco Works (Brazil) Capacity 1.1 mt/year Start-up: July 2016 For the production of high-quality steel plates to be supplied to the Americas and to the World Main Benefits for Gerdau Technical support to optimize Gerdau s Plate Mill learning curve High level supervision and training for our Steelmaking and Plate Mill teams Short cut to high-tech steel plates (includes development of new products with JFE s know-how, e.g. API X80 grade steel plates) 13

14 Transforming Gerdau to achieve our goals and share our success: check out these great examples! Plate mil Earlier entrance: July Digital Mill Araçariguama (SP) Gerdau Agile Day Think big. Start small. Deliver results in a valuable and simple way. The Gerdau we are creating Strategic Roadmap New partnerships in wind power market Gerdau among the best companies in Brazil in leadership development! Gerdau Lean Delivery Systems in Special Steel in North America Quicker deliveries with optimized logistic costs. IT as a collaborative partner in North America BD Tablets in the scrap yard, GoPro cameras for maintenance production, iphone thermography capability 18 ideas implemented for 2 challenges addressed: Processes simplification and Working capital reduction

15 Gerdau is 4th - World-Class Steelmaker Ranking POSCO Nucor Nippon Sumitomo Gerdau Severstal JSW Steel NLMK JFE Hyundai Erdemir CSN SDI SAIL Voestalpine Tata Steel Hadded Jindal ArcelorMittal China Steel Evraz Baosteel Finarvedi MMK Ternium factors analyzed, including: Profitability Value-added product mix Cost-cutting efforts Pricing power in home market Threat from nearby competitors Size Downstream business M&A, alliances and JV s Source: World Steel Dynamics 15

16 Financial highlights Unit 1Q16 1Q15 % 4Q15 % Shipments '000 ton 3,851 4, % 3, % Net Sales R$ million 10,085 10, % 10, % Cost of Goods Sold R$ million (9,272) (9,335) -0.7% (9,662) -4.0% SG&A R$ million (644) (660) -2.4% (655) -1.7% EBITDA R$ million 930 1, % % EBITDA Margin % 9.2% 10.6% 8.7% Net Income R$ million % (41)* Free Cash Flow R$ million 11 (502) 1, % G&A expenses declined 10% in 1Q16 compared to 1Q15 * In the 4Q15, the net income was adjusted by extraordinary events 16

17 Geographic diversification reduces volatility EBITDA and EBITDA margin per BD Brazil BD North America BD South America BD Special Steel BD 30.9% 13.7% 17.0% 38.4% 15.7% % % % % % % % 14.8% % % 8.0% Q15 4Q15 1Q16 1Q15 4Q15 1Q16 1Q15 4Q15 1Q16 1Q15 4Q15 1Q16 EBITDA (R$ million) EBITDA Margin (%) Participation of adjusted EBITDA per BD 17

18 Positive free cash flow despite challenging scenario 1,106 (612) (287) (195) (514) (502) (485) Adjusted EBITDA 1Q15 CAPEX Income Tax Debt Interest Working Capital Free Cash Flow 1Q (37) (290) (107) 11 Adjusted EBITDA 1Q16 CAPEX Income Tax Debt Interest Working Capital Free Cash Flow 1Q16 EBITDA is sufficient to service all commitments 18

19 35% CAPEX reduction in CAPEX Disbursements (R$ billion) % 1.5 1Q16: R$ 485 million (F) Main projects Construction of heavy plate rolling mill at Ouro Branco Unit in Brazil Construction of new melt shop in Argentina 19

20 Indebtedness under control Debt & Leverage Ratio Long-Term Debt Amortization Schedule R$ billion R$ billion and after Average Debt Cost: 7.1% Average Debt Term: 6.3 years EBITDA in the last 12 months Gross debt declined by R$ 2.8 billion; R$ 1.9 billion due to FX effect and R$ 0.9 billion to amortizations 20

21 Closing Remarks Strong presence in North America and management efforts in all operations supported a 21% decrease in working capital in 1Q16 compared to 1Q15, resulting in positive free cash flow. Improvement in consolidated EBITDA compared to 4Q15. Compared to 1Q15, EBITDA grew in both North America BD (+40%) and South America BD (+44%). Gerdau's 1Q16 performance does not indicate the full year period trend. Recovery in international commodity prices. Focus on generating free cash flow and reducing financial leverage in 2016: Costs and SG&A reduction; CAPEX restriction (-35% in comparison with 2015). 21

22 Closing Remarks Gerdau continues to undergo a transformation process: creating more value and strengthening the competitiveness of its operations. Long-term initiatives: Streamlining operations and internal structures; Modernizing the corporate culture; and Reassessing the potential profitability. 22

23 Statement This presentation may contain forward-looking statements. These forward-looking statements rely upon estimates, information or methods that may be incorrect or inaccurate and may not actually occur. These estimates are also subject to risks, uncertainties and assumptions, including, among others: general economic, political and commercial conditions in Brazil and in the markets where we operate and existing and future government regulations. Potential investors are hereby informed that these estimates do not constitute a guarantee of future performance as they involve risks and uncertainties. The Company does not undertake, and specifically denies, any obligation to update any estimate, which only speak as of the date they are made. 23

24