Investor Presentation October 2007 1 1
Highlights Among the most competitive steel companies in the world Strong low cost structure as a result of diversified production processes and multiple raw material sourcing An international company Large export revenues from Brazil Operations in 13 countries Ranked 14 th globally by steel output for year 2006 with an output of 15.6 million tonnes (source: International Iron and Steel Institute - IISI) Largest long steel producer in the Americas 2 nd largest long steel producer in North America 41 steel units with state of the art technology Relevant market share and diversified product range through downstream and service centers Strong balance sheet, low leverage and strong cash generation Gerdau S.A. shares are listed on the São Paulo, New York and Madrid Stock Exchanges 2 2
Agenda Industry Overview Group Overview Operating and Financial Highlights All data presented in US Dollar and in metric tons, except when indicated 3 3
Supply WORLD CRUDE STEEL OUTPUT EVOLUTION 1400 1200 World China 1,244 Production increased 8.9% in 2006 compared to 2005. 1000 800 600 2 nd Oil Shock 1 st Oil Shock USSR breakup Accelerated growth in China 423 Equivalent to 70% of the world s production growth from 2001 to 2006 400 200 0 1950 1960 1970 1980 1990 1996 1998 2000 2002 2004 2006 Source: IISI / IISI apud IBS 4 4
Demand FINISHED STEEL APPARENT DEMAND In million tonnes 1,113 5.9% 1,179 6.1% 1,251 The world steel demand should increase 4.2% p.a. from 2010 to 2015. 2006 2007e 2008e FINISHED STEEL APPARENT PER CAPITA DEMAND (kg) 315 146 94 66 28 NAFTA China Brazil World India 2002 2003 2004 2005 2006e 2007e 333 298 106 102 42 STEEL USE PER CAPITA GROWTH (2002 2007) NAFTA: +5.7% China: +104.1% Brazil: +12.8% World: +54.5% India: +50.0% e: estimated Source: IISI 5 5
Ranking Crude Steel Production 2006 In million tonnes Total World Production: 1.2 billion tonnes China represented 34.0% of the global steel production 423 Brazil represented 2.4% of the global steel production and is the 10 th largest crude steel producer in the world 116 98 71 48 47 44 41 32 31 China South Japan USA Russia Germany India Ukraine Italy Brazil Korea Source: IISI 6 6
Consolidation Global Steel Market 27% 24% 21% TOP 5: 12.3% (1990) 16.9% (2005) TOP 5: 13.4% (1990) 24.4% (2005) 18% 15% 12% 9% 6% 3% Production in 1990 770 million tonnes Production in 2005 1,129 billion tonnes WORLD EX-CHINA 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: Prof. Germano de Paula 7 7
Agenda Industry Overview Group Overview Operating and Financial Highlights All data presented in US Dollar and in metric tons, except when indicated 8 8
100+ Years in Business Expansion of Riograndense (Construction of 2 nd steel mill) Acquisition of a new steel mill (Paraná, Brazil) Construction of a new mill (Rio de Janeiro, Brazil) New Acquisitions: Piratini (Rio Grande do Sul, Brazil) specialty steel Second mill in Minas Gerais and rolling mill in São Paulo (Brazil) Stake in Açominas International expansion ( Chile, Canada, Argentina and USA) 1901 - First Operation: Nail Factory 1 st Steel Mill Acquisition (Riograndense) Market Share increase by: Diversification / Verticalization Distribution Network New acquisition (Pernambuco, Brazil) Acquisition of 3 mills (Rio de Janeiro, Minas Gerais and Bahia, Brazil) Construction of 2 mills (Paraná and Ceará, Brazil) International expansion (Uruguay and Canada) New Acquisitions: -USA -Downstream mills and fab shops in North America Entering European and Asian market Expansion in Latam market Construction of steel mill in São Paulo (Brazil) 1900 1940 s 1950 s 1960 s 1970 s 1980 s 1990 s New Millenium 9 9
Solid Track Record In thousand tonnes (BR GAAP) TOTAL INVESTED (1981 1H2007): Brazil = US$ 5.7 billion + Debt North America = US$ 2.4 billion + Debt Latin America = US$ 1.1 billion + Debt Europe = US$ 420 million + Debt 4,568 CAGR 1997-2007: 17% p.a. 1980 Laisa (Uruguay) 1988 Barão de Cocais (Brazil) 1989 Usiba (Brazil) Cambridge (Canada) 1992 Piratini (Brazil) AZA (Chile) 1994 Pains (Brazil) Manitoba (Canada) Stake in Açominas (Brazil) 7,696 Ameristeel (USA) AZA New mill (Chile) Additional stake in Açominas (Brazil) 11,076 Control of Açominas (Brazil) Co-Steel (USA) 16,372 North Star (USA) 16,709 Diaco (Colombia) 19,230 São Paulo (Brazil) Sidenor (Spain) Sheffield (USA) Siderperú (Peru) GSB (Spain) 22,700 Sidertul (Mexico) INCA (Dom.Rep.) Sizuca (Venezuela) SJK (India) Chaparral (USA) 25,425 Installed Capacity Expansion 19 9 7 19 9 8 19 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 9 e Brazil Installed Capacity of Crude Steel Abroad Installed capacity of Crude Steel e: estimated Besides the mills acquired, as related above, Gerdau acquired many fab shops in order to add value to its products and offer services and products to its clients according to their needs. 10 10
Location BRAZIL 9.3 million tonnes of crude steel 6.2 million tonnes of rolled products 11 Steel Units 12 Fabricated Reinforcing Steel Facilities 04 Downstream Operations 68 Retail Facilities (Comercial Gerdau) 06 Flat Steel Service Centers ABROAD (including JV in India) 13.4 million tonnes of crude steel 14.0 million tonnes of rolled products 30 Steel Units 44 Fabricated Reinforcing Steel Facilities 11 Downstream Operations 02 Associated Companies (Spain and Dom. Rep.) 02 Joint ventures (USA and India) Canada United States Spain Mexico Colombia Dominican Republic Venezuela India Peru Brazil Chile Argentina Uruguay Steel Units Associated Companies Joint Ventures 11 11
Ranking by Company Crude Steel Production - 2006 In million tonnes Arcelor Mittal (LUX) 1 117,2 Nippon Steel (JAP) 2 JFE Steel (JAP) 3 Posco (KOR) 4 Baosteel (CHI) 5 US Steel (USA) 6 Nucor (USA) 7 Tangshan (CHI) 8 Corus Group (U.K.) 9 Riva Group (ITA) 10 Severstal (RUS) 11 ThyssenKrupp (GER) 12 EvrazHolding (RUS) 13 Gerdau Group (BRA) 14 32,7 32,0 30,1 22,5 21,2 20,3 19,1 18,3 18,2 17,5 16,8 16,1 15,6 Gerdau should have an installed capacity of 26 million tonnes of crude steel per year after the investment program in Brazil is completed in 2009. Source: IISI 12 12
Value Builder Company ATKearney study Growth portfolio (CAGR 2001-2005) benchmarked against industry average Revenue Growth 70% 60% 50% Eregli Demir Celik Baoshan Severstal Angang Bluescope 03 05 Maanshan Iron Steel Ipsco Mittal 40% Steel Dynamics Nucor Gerdau Novolipetsk 1) Industry Average 30% 20% Acerinox Voestalpine Onesteel US Steel SSAB 10% Hyundai Steel Corus Imsa 0% ArcelorWorthington Nisshin Steel 02 05 AK Steel Thyssenkrupp 1) Nippon Steel Carpenter Technology -10% Tokyo Steel Boehler-Uddeholm Cap Salzgitter SAIL Oregon Steel MillsHylsamex JFE 03 05 Rautaruukki Neomax Tata Steel Usinas Sumitomo -40% 10% Industry 60% 110% Equity Value Average Growth Notes: 1) EBIT-growth Notes: USINAS = USIMINAS; ARCELOR Takeover MITTAL/ SEVERSTAL: The market capitalization of Severstal is 6.8 bn USD (same as revenue, hence valued above the industry multiple of 0.79) Source: Thyssenkrupp: steel segment 13 13
Growth Opportunities LONG STEEL PRODUCTS (Brazil) Maintenance of market share Improvement of current installed capacity LATIN AMERICA Maintenance of leadership in the long steel sector New markets SPECIALTY STEEL Active role in the steel sector consolidation process Search for new opportunities AÇOMINAS (Ouro Branco mill) New 1.5 MM ton blast furnace Growth platform for slabs, blooms and billets Iron Ore Reserves NORTH AMERICA Efficiency and productivity gains (Gaps) Enhancement of leadership in the long steel sector through acquisitions 14 14
Outlook BRAZIL Domestic demand will continue to grow especially in the civil construction and industrial sectors which have the largest customers Prices should remain firm in the domestic market In the international market, prices should track raw material price volatility and the sustainability of demand in the different regions of the world High maritime freight charge NORTH AMERICA Demand continues intense Product price volatility is a function of scrap prices Higher operating costs due to maintenance downtime Metal spread stands at record levels LATIN AMERICA Economies reporting solid growth Investments in infrastructure and good demand from the civil construction sector High costs Stable prices EUROPE Seasonal impacts in 3Q07 (annual August vacation period in Spain) Demand continues strong Stable prices Good performance from the specialty steel sector Obs.: As of end of June 2007 15 15
Agenda Industry Overview Group Overview Operating and Financial Highlights All data presented in US Dollar and in metric tons, except when indicated 16 16
Shipments In thousand tonnes (BR GAAP) 13,550 12,560 12,144 63% increase in the last 5 years 14,819 Europe (3% in 1H07) Latin America (13% in 1H07) 9,109 7,433 8,212 North America (45% in 1H07) Brazil Exports (14% in 1H07) Brazil Domestic Market (25% in 1H07) 2002 2003 2004 2005 2006 1H06 1H07 Billets, blooms & slabs Merchant bars Rebars Fabricated steel Heavy structural shapes Wire-rod Wires Nails 17 17
Foreign Currency Generation 1H07 Net Sales - Currency Breakdown Net sales from the overseas units plus exports from Brazil, represented 69% of consolidated net sales Exports From Brazil (By Region) (35% of Brazilian shipments in tonnes) Latin America 12% North America 43% Europe 5% Brazil - Domestic Market 31% Brazil Exports 9% Europe 13% Asia 24% Africa 13% Central America 16% North America 13% Latin America 21% 9,148 5.6% 47.0% 13.4% 34.0% Historical Net Sales Geographical Distribution 10,940 3.4% 9.9% 45.9% 9.1% 31.7% US$ millions (BR GAAP) 5,321 3.6% 8.5% 47.5% 8.6% 31.8% 6,853 5.2% 9.1% 43.1% 11.9% 30.7% 2005 2006 1H06 1H07 Europe Latin America North America Brazil - Exports Brazil - Domestic Market 18 18
Margins GROSS MARGIN 50% 40% 30% 20% 10% 0% 39% 34% 34% 26% 25% 24% 22% 22% 19% 4% 2003 2004 2005 2006 1H 07 EBITDA MARGIN 40% Consolidated Brazil North America Latin America Europe 30% 20% 10% 31% 31% 20% 26% 21% 18% 19% 18% 18% 0% 4% 2003 2004 2005 2006 1H 07 19 19
Consolidated Financials In US$ millions (BR GAAP) BALANCE SHEET Current assets 2006 6,573 1H06 6,150 1H07 7,012 Non-current assets 6,022 5,330 7,370 Total Assets 12,596 11,480 14,382 Current liabilities 2,571 2,545 2,870 Non-current liabilities 4,070 3,570 4,263 Minority Interest 1,294 1,075 1,494 Shareholders equity 4,661 4,290 5,755 Total Liabilities and Shareholder s equity 12,596 11,480 14,382 Total debt 4,240 4,002 4,493 Cash & Equivalents 2,791 2,722 2,572 Net debt 1,449 1,280 1,921 INCOME STATEMENT Net sales 10,999 5,321 6,853 Gross profit 3,038 1,471 1,762 Operating income 2,055 1,084 1,191 Net income 1,347 836 896 EBITDA 2,502 1,194 1,455 EBITDA Margin 22.3% 22.4% 21.2% RATIOS Net debt / Total capitalization 19.6% 19.6% 21.0% Total debt / EBITDA LTM 1.7X 1.8x 1.6x Net debt / EBITDA LTM 0.6X 0.6x 0.7x LTM = Last twelve months EBITDA = Earnings before interest, taxes, depreciation and amortization 20 20
Consolidated Debt Profile June 2007 (BR GAAP) GROSS DEBT US$ MM 4,493 100% COST OF DEBT (per annum) In US$ SHORT TERM 1,009 22% Brazil Domestic Currency 22.2% Domestic Currency Foreign Currency Companies Abroad 430 256 323 9% 6% 7% Foreign Currency Companies Abroad 6.6% 8.0% LONG TERM Domestic Currency 3,484 1,032 78% 23% DEBT AVERAGE LIFE: 8 years and 1 month Foreign Currency Companies Abroad 1,695 757 38% 17% DEBT STRUCTURE CASH & CASH AND EQUIV. Domestic Currency Companies Abroad 2,572 1,324 1,248 100% 51% 49% Domestic Currency 33% Companies Abroad 24% NET DEBT ALL DATA IN BR GAAP 1,921 Foreign Currency 43% 21 21
Consolidated Debt Amortization In US$ millions Jun/07 (BR GAAP) Perpetual Bond: 600 Debentures: 273 FINIMP: 172 Companies abroad: 101 FINIMP: 90 BNDES: 79 Working Capital: 265 Companies Abroad: 251 708 Companies Abroad: 289 FINIMP: 80 Pre-export: 83 BNDES: 79 535 FINIMP: 209 BNDES: 152 498 BNDES: 129 FINIMP: 122 395 Companies Abroad: 426 BNDES: 100 FINIMP: 95 708 BNDES: 61 FINIMP: 44 1,174 301 174 2H07 1H08 2H08 2009 2010 2011 2012 After 2012 SHORT TERM: US$ 1,009 LONG TERM: US$ 3,484 22 22
CAPEX ACTUAL 1H07 (BR GAAP) INVESTMENT PLAN 2007 2009 In US$ millions CAPEX ACQUIS 1H07 In US$ millions 2007 2008 2009 TOTAL BRAZIL 483.3 0 483.3 BRAZIL 820 570 1,000 2,390 ABROAD 225.8 403.5 629.3 ABROAD 580 530 500 1,610 North America 84.7 10.0 94.7 North America 260 360 315 935 Latin America 100.9 393.5 494.4 Latin America 260 125 142 527 Europe 40.2 0 40.2 Europe 60 45 43 148 TOTAL 709.1 403.5 1,112.6 TOTAL 1,400 1,100 1,500 4,000 Current Capacity* 2007 2008 2009 New Capacity Variation Brazil Crude Steel 9.340 1.560 50-10.950 17,2% Rolled Products 6.160 - - 350 6.510 5,7% North America Crude Steel 10.490 50 230 370 11.140 6,2% Rolled Products 10.630 30 130 875 11.665 9,7% Latin America Crude Steel 2.290 10 825 50 3.175 38,6% Rolled Products 2.970-270 475 3.715 25,1% Europe Crude Steel 460 - - 60 520 - Rolled Products 490 - - - 490 - TOTAL Crude Steel 22.580 1.620 1.105 480 25.785 14,2% Rolled Products 20.250 30 400 1.700 22.380 10,5% 23 23
Governance Best Practices External members on the Board of Directors Fiscal Board (Audit Committee) Gerdau Executive Committee Support and Excellence Committee Corporate Governance Committee Strategy Committee Compensation and Succession Committee Disclosure Committee Gerdau Business System Risk Management Tag Along (100% ON and PN) Quarterly dividends (30% of the adjusted net income according to BR GAAP) Bovespa Level 1 New York Stock Exchange Toronto Stock Exchange LATIBEX Madrid Stock Exchange Gerdau S.A. shares are included in the following São Paulo stock exchange indexes: Bovespa Index - Ibovespa Corporate Sustainability Index ISE Special Corporate Governance Stock Index IGC Special Tag Along Stock Index ITAG Brazil Index 50 - IBrX 50 Industrial Sector Index INDX 24 24
Disclaimer This document can contain statements which constitute forward-looking statements. Such forward-looking statements are dependent on estimates, data or methods that may be incorrect or imprecise and that may be incapable of being realized. These estimates also 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. Prospective investors are cautioned that any such forwardlooking statements are not guarantees of future performance and involve risks and uncertainties. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements, which speak only as of the date made. 25 25
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