CRUDE STEEL PRODUCTION INCREASES 3.7%

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1 Dear Shareholders, The beginning of the year was strongly impacted by the devaluation of the real and the concerns regarding the serious implications, both domestically and internationally, of this political and economic Government decision.. In practice, however, the first forecasts of the effects of the devaluation did not hold. Inflation and the economic activity didn t change in spite of the hike in internal interest rates (45% per annum) and the reduction in foreign credit. With this new exchange rate reality, some sectors of the economy have been revitalized, such as autoparts, and other sectors were able to maintain the existing level of activity, such as civil construction, a segment of great importance for Gerdau s business. CRUDE STEEL PRODUCTION INCREASES 3.7% The Gerdau companies (Brazil and abroad) produced in the first six months of the year, 1.9 million metric tons of crude steel, an increase of 3.7% compared to the same period last year. The increase in rolled products was 12.4%, with a volume of 1.9 million metric tons. In Brazil, Gerdau S.A. produced 1.6 million tons of crude steel and the same volume of rolled products. These volumes represent increases of 5.7% and 14.9% respectively, compared to that of last year in the same period. The units abroad contributed with 353 thousand metric tons of crude steel and 338 thousand metric tons of rolled products. These volumes represent a reduction of 4.4% in crude steel and an increase of 1.8% in rolled products. Total shipments in the first semester this year totaled 2 million metric tons. This represents an increase of 4.5% compared to the same period last year. Part of this growth results from the growth in exports and the re-selling of flat products. Exports totaled 192 thousand metric tons and resulted in a gross revenue of US$ 47.4 million. Subsidiaries abroad shipped 11.1% less that last year mainly due to a smaller demand in Chile and in Uruguay. EARNINGS BEFORE TAXES ARE R$ 168 MILLION Consolidated gross revenues in this first half of 1999 were R$ 1.6 billion, an increase of 15.9% compared to last year s. This growth, combined with an increase in productivity, has produced an improvement in gross margins, from 30.17% in the first semester of 1998 to 34.8% in the same period this year. Operating profit also presented an increase in the period. If we disregard the financial effects and the impact of equity pickup, the EBIT was R$ million, 45.6% greater than that of the same period in The EBIT margin increased to 19.98% in 1999 from 16.16% in Consolidated earnings before income tax and social contributions were of R$ million. This amount is net of the currency devaluation impact which, in the period, totaled R$ 24.9 million. Net Income in the semester was R$ 175 million and already accounts for the devaluation that occurred last January. Metalúrgica Gerdau S.A. had a net income of R$ 99.8 million, an increase of 46.5% over last year s first semester. This result represents R$ 9.60 per lot of one thousand shares. On June 30th, net worth was R$ million, equal to R$ per lot of one thousand shares. Gerdau S.A. s sales in the semester were of R$ 1.2 billion, a growth of 28.8% when compared to the first semester of Earnings before taxes was R$ million. This total added to the deferred taxes of

2 R$ 19.7 million, resulted in a net income of R$ million. This represents R$ 3.02 per lot of one thousand shares. Net worth, at the end of the period, was R$ 2 billion, a net worth of R$ pe3r lot of one thousand shares. Consolidated cash generation (before income tax, social contribution, depreciation and amortization) increased by 24.2%, totaling R$ million this, 19,45% of net sales. NEW PLANT IN CHILE On July 16, 1999 Gerdau Chile inaugurated its new plant with an installed capacity of 360 thousand metric tons per year of steel products. This unit, responsible for 36% of Gerdau s production abroad, demanded investments of US$ 100 million and incorporates technology that brings together operational and environmental issues. In addition to the conclusion of this project, the other ongoing projects include the medium size shapes and profiles rolling mill at Cosigua, in Rio de Janeiro along with productivity increasing refurbishment of equipment in several units both in Brazil and abroad. It is worthwhile mentioning that Gerdau rebar products have been certified by the Brazilian Technical Norms Association ABNT. The product will now be carrying a label indicating its conformity to the norms of INMETRO, the National Institute of Metrology as of July This represents a guarantee that the Gerdau products are of good quality and that all of Gerdau s production meets the requirements for the certification. INTEREST OVER CAPITAL STOCK TOTALS R$ 61.9 MILLION From January to June, the shares issued by the Gerdau companies moved R$ billion in the Brazilian stock exchanges. Trades were in a total of 8,017 and represented a volume of 9.4 billion shares traded. This represents an increase of 93.8% over the same period last year. In the semester, on a per company basis, Metalúrgica Gerdau S.A. had 2,806 trades and Gerdau S.A. had 5,213 trades, totaling a physical volume of 7.6 billion shares. As already informed, since March 10, this year, Gerdau S.A. preferred shares have ADRs traded at the New York Stock Exchange. By the end of June, 461,000 ADRs had been traded. This reflects trades made in 91.1% of trading days. In continuing our policy of relations with the market, the company has held meetings with the six regional analyst association (Abamec) in which senior management did presentations on the results of the first quarter of this year. We would like to mention that Gerdau has been awarded the ABAMEC Award of 1998 in the category Public Company for the quality of the information and the frequency with which it presents it to the market. The award will be presented Monday August 2nd, 1999 at the São Paulo Stock Exchange s auditorium. In meetings held by the Executive boards of the Gerdau companies, held on the 22nd of July, the payment of interests over capital stock in lieu of dividends for the semester were authorized. These payments will be made on August 3, 1999 and will amount to R$ 2.15 per lot of one thousand shares of common stock and R$ for preferred shares at Metalúrgica Gerdau S.A. whereas payments at Gerdau S.A. total R$ 0.63 and R$ accordingly. Management

3 Fluxo de Caixa Consolidado Janeiro a junho Consolidated Cash Flow January to June Metalúrgica Gerdau S.A. Gerdau S.A Lucro antes dos impostos Net income before taxes Provisão para imposto de renda e contribuição social Provision for income taxes and social contribution (30.710) (29.724) Lucro líquido do período Net income Imp. de Renda, Contrib. Social e Desp. não operacionais Income Tax, Social Contribution, Non-Operational Expenses (2.434) (1.091) Depreciações e amortizações Depreciation and amortization Geração de caixa antes do Imp. de Renda, Contrib. Social, Depreciações e Amortizações Cash generation before Income Tax, Social Contribution, Depreciation and Amortization Juros e variações monetárias não-caixa Non-cash interest and monetary variations Variação do capital de giro Working capital variation (63.015) (58.832) (74.186) (57.233) Geração de caixa após o capital de giro Cash generation after working capital Aquisição / alienação de imobilizado Permanent assets purchases / disposals ( ) ( ) ( ) ( ) Diferido Deferred charges (359) (1.121) (359) (1.121) Aquisição / alienação de investimentos Investments purchases / disposals (45.191) (41.025) (22.731) Aplicação de caixa em investimentos Funds used for investments ( ) ( ) ( ) ( ) Financiamento do capital de giro Working capital financing Aportes de recursos de longo prazo Long term debt increase Amortização de financiamentos de longo prazo Long term debt repayment ( ) (99.033) ( ) (97.025) Ações em tesouraria Shares withheld (893) (596) Pagamento de dividendos e participações Dividend and statutory participation payment (33.242) (31.252) (32.059) (29.086) Caixa líquido da atividade financeira Net funds from financial activities Variação no saldo do caixa Cash balance variation Saldo de caixa / Cash balance No início do período / At the begining of the period No final do período / At the end of the period

4 METALÚRGICA GERDAU S.A. Demonstrações contábeis resumidas Financial statements summary CONSOLIDADO EMPRESA CONSOLIDATED COMPANY BALANÇO PATRIMONIAL / BALANCE SHEET 30/06/99 31/03/99 30/06/99 31/03/99 ATIVO / ASSETS CIRCULANTE / CURRENT ASSETS REALIZÁVEL A LONGO PRAZO / LONG-TERM RECEIVABLES PERMANENTE / PERMANENT ASSETS INVESTIMENTOS / INVESTMENTS IMOBILIZADO / FIXED ASSETS TOTAL DO ATIVO PERMANENTE / TOTAL PERMANENT ASSETS TOTAL DO ATIVO / TOTAL ASSETS PASSIVO / LIABILITIES CIRCULANTE / CURRENT LIABILITIES EXIGÍVEL A LONGO PRAZO / LONG-TERM LIABILITIES PATRIMÔNIO LÍQUIDO / SHAREHOLDERS EQUITY CAPITAL SOCIAL / CAPITAL STOCK RESERVAS/LUCROS ACUMULADOS CAPITAL RESERVES/RETAINED EARNINGS TOTAL DO PATRIMÔNIO LÍQUIDO TOTAL SHAREHOLDERS EQUITY TOTAL DO PASSIVO TOTAL LIABILITIES AND SHAREHOLDERS EQUITY DEMONSTRAÇÃO DO RESULTADO Janeiro a junho / January to June STATEMENT OF INCOME RECEITA BRUTA DE VENDAS / GROSS SALES REVENUE IMPOSTOS SOBRE VENDAS / TAXES ON SALES ( ) ( ) - - FRETES E DESCONTOS / FREIGHT AND DISCOUNT (62.070) (66.282) - - Receita líquida de vendas / Net sales revenue CUSTO DAS VENDAS / COST OF SALES ( ) ( ) - - Lucro bruto / Gross profit DESPESAS COM VENDAS / SELLING EXPENSES (61.079) (53.863) - - DESPESAS FINANCEIRAS / FINANCIAL EXPENSES ( ) (96.159) (4.306) (26.924) RECEITAS FINANCEIRAS / FINANCIAL REVENUE DESPESAS GERAIS E ADMINISTRATIVAS GENERAL AND ADMINISTRATIVE EXPENSES ( ) ( ) (3.309) (1.805) RESULTADO DA EQUIV. PATRIMONIAL / EQUITY PICK-UP OUTRAS DESPESAS/RECEITAS OPERACIONAIS OTHER OPERATING EXPENSES/REVENUE Lucro operacional / Operating profit DESPESAS/RECEITAS NÃO -OPERACIONAIS NON-OPERATING EXPENSES/REVENUE (3.933) IMPOSTO DE RENDA E CONTRIBUIÇÃO SOCIAL INCOME TAX AND SOCIAL CONTRIBUTION (30.710) 689 (593) PARTICIPAÇÕES ESTATUTÁRIAS / STATUTORY PARTICIPATION (3.160) (2.918) - - Lucro líquido do período / Net profit for the period Lucro por lote de mil ações / Earnings per lot of one thousand shares - R$ - - 9,60 6,55 Valor patrimonial por lote de mil ações Equity value per lot of one thousand shares - R$ ,01 86,65 NÚMERO DE AÇÕES EMITIDAS (milhões) SHARES OUTSTANDING (million)

5 GERDAU S.A. Demonstrações contábeis resumidas Financial statements summary CONSOLIDADO EMPRESA CONSOLIDATED COMPANY BALANÇO PATRIMONIAL / BALANCE SHEET 30/06/99 31/03/99 30/06/99 31/03/99 ATIVO / ASSETS CIRCULANTE / CURRENT ASSETS REALIZÁVEL A LONGO PRAZO / LONG-TERM RECEIVABLES PERMANENTE / PERMANENT ASSETS INVESTIMENTOS / INVESTMENTS IMOBILIZADO / FIXED ASSETS TOTAL DO ATIVO PERMANENTE / TOTAL PERMANENT ASSETS TOTAL DO ATIVO / TOTAL ASSETS PASSIVO / LIABILITIES CIRCULANTE / CURRENT LIABILITIES EXIGÍVEL A LONGO PRAZO / LONG-TERM LIABILITIES PATRIMÔNIO LÍQUIDO / SHAREHOLDERS EQUITY CAPITAL SOCIAL / CAPITAL STOCK RESERVAS/LUCROS ACUMULADOS CAPITAL RESERVES/RETAINED EARNINGS TOTAL DO PATRIMÔNIO LÍQUIDO TOTAL SHAREHOLDERS EQUITY TOTAL DO PASSIVO TOTAL LIABILITIES AND SHAREHOLDERS EQUITY DEMONSTRAÇÃO DO RESULTADO Janeiro a junho / January to June STATEMENT OF INCOME RECEITA BRUTA DE VENDAS / GROSS SALES REVENUE IMPOSTOS SOBRE VENDAS / TAXES ON SALES ( ) ( ) ( ) ( ) FRETES E DESCONTOS / FREIGHT AND DISCOUNT (62.070) (66.282) (43.456) (48.979) Receita líquida de vendas / Net sales revenue CUSTO DAS VENDAS / COST OF SALES ( ) ( ) ( ) ( ) Lucro bruto / Gross profit DESPESAS COM VENDAS / SELLING EXPENSES (61.079) (53.863) (50.914) (46.596) DESPESAS FINANCEIRAS / FINANCIAL EXPENSES ( ) (89.410) ( ) (73.496) RECEITAS FINANCEIRAS / FINANCIAL REVENUE DESPESAS GERAIS E ADMINISTRATIVAS GENERAL AND ADMINISTRATIVE EXPENSES ( ) ( ) (91.811) (57.496) RESULTADO DA EQUIV. PATRIMONIAL / EQUITY PICK-UP OUTRAS DESPESAS/RECEITAS OPERACIONAIS OTHER OPERATING EXPENSES/REVENUE Lucro operacional / Operating profit DESPESAS/RECEITAS NÃO -OPERACIONAIS NON-OPERATING EXPENSES/REVENUE (3.722) (1.417) (3.242) (654) IMPOSTO DE RENDA E CONTRIBUIÇÃO SOCIAL INCOME TAX AND SOCIAL CONTRIBUTION (29.724) (19.713) PARTICIPAÇÕES ESTATUTÁRIAS / STATUTORY PARTICIPATION (2.231) (2.209) - - Lucro líquido do período / Net profit for the period Lucro por lote de mil ações / Earnings per lot of one thousand shares - R$ - - 3,02 1,92 Valor patrimonial por lote de mil ações Equity value per lot of one thousand shares - R$ ,67 33,29 NÚMERO DE AÇÕES EMITIDAS (milhões) SHARES OUTSTANDING (million)