Investor Presentation Heavy plate rolling mill starts operating in July at the Ouro Branco mill (MG)
Agenda Outlook Gerdau Highlights 2
Economic Outlook GDP Growth 2014 2015f 2016f World 3.4% 3.1% 3.4% US 2.4% 2.4% 2.2% Brazil 0.1% -3.8% -3.7% China 7.3% 6.9% 6.3% Sources: FED, IMF and Focus 3
Apparent steel use forecast moving sideways in 2016 Region / Country (in mmt and %) 2015f 2016f 15/14 16/15 World 1,513 1,523-1.7% 0.7% European Union 150 153 1.3% 2.2% NAFTA 141 144-2.7% 2.1% Central & South America 45 46-7.3% 2.0% Brazil* 21 19-16.7% -8.8% Asia and Oceania 995 993-2.1% -0.2% China 686 672-3.5% -2.0% Sources: World Steel Association (October) and Brazil Steel Institute* 4
Steel capacity has been growing much faster than consumption In million metric tonnes 2.384 2.426 1.664 overcapacity 751 782 336 1.633 1.644 1.051 1.328 843 2000 2004 2008 2012 2015 2016f Apparent Crude Steel Use Capacity Source: World Steel Association (April and October) 5
and capacity utilization rate has reached lower historical levels In million metric tonnes 81% 84% 88% 90% 83% 79% 76% Jan-Feb/16 66% 72% 70% 2000 2003 2006 2009 2012 2015 Source: World Steel Association 6
Chinese steel exports are affecting steel industry In million metric tonnes 112 93 Exports 2016: 62 Jan.+Feb.: stability (-1%) Feb.: -17% (8.1 Mmt) 2013 2014 2015 +83% Source: World Steel Association 7
Prices turning up over the last weeks In US$/t 136 274 96 227 60 182 41 573 567 Rebar export Source: Platts 507 440 454 334 326 248 381 330 Turkey China jan/14 abr/14 jul/14 out/14 jan/15 abr/15 jul/15 out/15 jan/16 24 Mar 16 8 57 jan/14 abr/14 jul/14 out/14 jan/15 abr/15 jul/15 out/15 jan/16 24 Mar 16 jan/14 abr/14 jul/14 out/14 jan/15 abr/15 jul/15 out/15 jan/16 24 Mar 16 369 331 US Scrap export Iron Ore CFR China
Agenda Outlook Gerdau Highlights 9
Vertically Integrated Operations Upstream Relevant level of direct purchase and captive scrap (50%) 6.3 billion tonnes 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) 10
Broader portfolio products 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 Industry and commercial buildings Agricultural Industrial Industry and commercial buildings Energy Exports 29% of Net Sales 39% of Net Sales 12% of Net Sales 20% of Net Sales 35% of EBITDA 35% of EBITDA 12% of EBITDA 18% of EBITDA 11
Focus in add 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, 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) 12
Transforming Gerdau to achieve our goals and share our success: check out these great examples! Digital Mill Araçariguama (SP) Strategic Roadmap New partnerships in wind power market Plate mil Earlier entrance: July Gerdau Lean Delivery Systems in Special Steel in North America Quicker deliveries with optimized logistic costs. The Gerdau we are creating Gerdau among the best companies in Brazil in leadership development! 18 ideas implemented for 2 challenges addressed: Processes simplification and Working capital reduction IT as a collaborative partner in North America BD Tablets in the scrap yard, GoPro cameras for maintenance production, iphone thermography capability
World-Class Steelmaker Ranking Gerdau is in 4 th place 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 Source: World Steel Dynamics 7.2 7.1 7.1 7.1 7.0 7.0 7.0 7.0 7.0 6.9 6.9 6.9 6.9 6.9 6.9 6.8 6.8 6.8 6.7 7.3 7.3 7.6 7.5 7.9 23 factors analyzed, here are some examples: 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 14
Financial Highlights Unit 2015 2014 % Shipments '000 tonnes 16,970 17,869-5.0% Net Sales R$ MM 43,581 42,546 2.4% SG&A R$ MM (2,582) (2,728) -5.4% Adjusted EBITDA R$ MM 4,501 4,906-8.3% Adjusted EBITDA Margin % 10.3% 11.5% - Adjusted Net Income R$ MM 684 1,190-42.5% Free Cash Flow R$ MM 3,021 1,933 56.3% 15
Geographic diversification reduces volatility in results EBITDA and EBITDA margin per BD Brazil BD North America BD South America BD 11.9% Special Steel BD 18.1% 35.4% 34.6% 19.0% 2,815 12.8% 1,656 6.5% 955 9.4% 1,619 9.4% 10.2% 476 557 10.6% 9.6% 918 850 2014 2015 2014 2015 2014 2015 2014 2015 EBITDA (R$ million) EBITDA Margin (%) Participation of adjusted EBITDA per BD 16
Strong free cash flow despite challenging scenario Cash effect on reduction in working capital of R$ 2.4 billion in 2015 17
Reduction of 35% on CAPEX in 2016 3.1 CAPEX Disbursements (R$ billion) 2.6 2.3 2.3-35% 1.5 2012 2013 2014 2015 2016 (F) Main projects Construction of heavy plate rolling mill at Ouro Branco Unit in Brazil Construction of new melt shop in Argentina Startup of structural profiles mill in Mexico 18
Debt under control, despite exchange variation impact R$ billion Debt & Leverage Ratio Long-Term Debt Amortization Schedule R$ billion 27.6 26.5 23.3 22.6 19.5 3.8x 4.2x 3.2x 3.1x 2.4x 3.6x 2.1x 2.4x 2.6x 2.7 5.8 5.8 5.7 6.7 6.9 Dec/14 Mar/15 Jun/15 Sep/15 Dec/15 Gross Debt Cash Net debt/ebitda (R$) Net debt/ebitda (US$) 4.6 1.5 1.0 3.9 4.7 2017 2018 2019 2020 2021 2022 2023 2024 2025 and after 0.2 2.4 3.5 2.3 Liquidity: R$ 6.9 billion cash + US$ 1.0 billion global working capital line Average Debt Term: 6.5 years Average Debt Cost: 6.8% Net Debt/EBITDA ratio in U.S. dollar of 3.6x 19
Extraordinary events in 2015 Extraordinary events (R$ million) Impairments Brazil BD North America BD Fiscal Year 2015 South America BD Special Steel BD Consolidated Goodwill - 1,520 354 1,125 2,999 Property, plant and equipment, net 835 - - 800 1,635 Investments - 362 - - 362 Write-off of deferred tax assets - - - 284 284 Total 835 1,882 354 2,209 5,280 Results in 2015 affected by negative noncash impact of R$ 5.3 billion 20
Closing Remarks Strong free cash flow generation of R$ 3.0 billion in 2015, supported by the optimization of working capital. Positive highlights in 2015 include the strong presence in the North American market and management efforts from our teams. Priorities for 2016: Free cash flow generation; Financial leverage reduction; Costs and SG&A reduction; CAPEX restriction (-35% in comparison with 2015); Optimize our assets profitability. 21
Closing Remarks Long-term initiatives: Streamlining operations and internal structures; Modernizing the corporate culture; and reassessing the potential profitability. 22
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
www.gerdau.com inform@gerdau.com.br +55 51 3323 2703 24