Investor Presentation 2017 www.gerdau.com 1
Outlook Gerdau Highlights 2
Region / Country (in Mt and %) 2017f 17/16 World 1,622 7.0% European Union 162 2.5% Better outlook for steel consumption NAFTA 139 4.9% USA 96 4.8% Central & South America 40 2.5% Brazil 18 1.1% Asia and Oceania 1,099 9.3% China 766 12.4% Source: World Steel Association 3 3
GDP growth Interest rate sharply reduction Inflation below the target FGTS R$ 44 billion The end of the recession Job generation Stock market Agenda reform Ceiling on public spending Labor Social security Tax Political Scenario increasing uncertainty 4
Job generation GDP growth Fight unfair imports Rebar Wire rod Increase competitiveness Tax rate Focus to reduce from 38% to 15% Section 232 Deregulation Infrastructure additional US$ 1.0 trillion (10y) Consumer confidence 5
World steel capacity utilization rate improved Source: World Steel Association 6
GDP growth FAI 7M17: +8.3% Steel Consumption 7M17: +10.9% y-o-y Capacity closures 2016: 60 Mt All induction furnaces ~120 Mt 2017: 50 Mt Rebalancing economy and steel industry Prices Strong price in domestic market Steel industry Consolidation Partnership with steel-users Steel exports reduction 7M17: -56% in long steel 7
Monthly In Mt China steel exports decreased significantly Annually 2016: 109 Mt 2017*: 80 Mt (-27%) Source: World Steel Association 8
In US$/t Rebar margin in Chinese domestic market is in good shape Margin was updated until October, 17 Source: Platts 9 9
Better price in the international steel market Turkey China 10
Outlook Gerdau Highlights 11
YEARS Profile 116 OF EXPERIENCE LEADER IN PRODUCTION OF LONG STEEL IN AMERICAS ONE OF THE MAIN SPECIAL STEEL SUPPLIER OF THE WORLD LARGEST RECYCLER OF LATIN AMERICA: 12 MILLION TONS SHARES LISTED IN SP, NY, MADRID: +120,000 SHAREHOLDERS OPERATION IN FLAT STEEL PIONEER IN THE IMPLEMENTATION OF DIGITAL INNOVATION 12
India USA & Canada Player with dominant presence Mexico Colombia Dominican Republic Venezuela Peru Brazil Chile Uruguay Steel Units Argentina Associated Companies 13 13
Brazil North America South America Special Steel Housing Infrastructure Housing Automotive Infrastructure Non-residential Infrastructure Shipbuilding Industrial and Industrial Industrial and Energy commercial commercial buildings buildings Geographic diversification Agriculture Exports LTM* Jun.17 32% of Net Sales 40% of Net Sales 12% of Net Sales 16% of Net Sales 43% of EBITDA 19% of EBITDA 14% of EBITDA 24% of EBITDA *Net sales and EBITDA in the last 12 months 14 14
Relevant level of direct purchase and captive scrap (50%) UPSTREAM 6.3 billion tons of iron ore resources Self-sufficiency at Ouro Branco mill Partial level of energy self generation Vertically integrated operations STEEL Low cost structure Mini-mills and integrated mills key to low cost strategy Latest generation technology DOWSTREAM Reinforcing steel fabrication facilities (Fab Shops) Drawn products Multi-product distribution network Tailor-made added-value approach (~40% of sales to civil construction) 15 15
Roadmap Economic value: R$ 2.8 billion since 2014 New partnership in wind power market Digital Innovation GE partnership Uber for heavy truck Use of drones New Ideas Partnership with startups and innovative companies to think different Culture modernization Leaders as role model People Development Committees 16
Divestments Sold operation in Spain and Guatemala Sold a mill and coal assets in Colombia 2014-15: R$ 1.1 bi 2016: R$ 1.3 bi 1H17: R$ 0.4 bi JVs in Dominican Republic and Colombia Roadmap: economic value of R$ 2.8 billion Sold a mill, downstream operations and real state assets in US Strategic alliances Partnership to produce forged parts for the Wind power industry Technical assistance agreement 17 17
Unit 2Q17 2Q16 Δ% 1Q17 Δ% Shipments '000 ton 3,707 4,240-13% 3,591 3% Net Sales R$ million 9,166 10,249-11% 8,459 8% EBITDA margin in 2Q17 improved compared to 2Q16 and 1Q17 Cost of Goods Sold R$ million (8,229) (9,165) -10% (7,805) 5% SG&A R$ million (420) (578) -27% (439) -4% EBITDA* R$ million 1,120 1,201-7% 853 31% EBITDA Margin % 12.2% 11.7% 10.1% Net Income* R$ million 149 184-19% (34) Free Cash Flow R$ million 241 827-71% (227) * Adjusted by extraordinary events 18 18
Geographic diversification reduces volatility EBITDA (R$ million) EBITDA Margin (%) Participation of adjusted EBITDA per BD 19
Strong reduction in SG&A, corresponding to 4.6% of net sales in 2Q17 SG&A R$ million and in % of Net Sales Working Capital R$ billions and Days 2Q17 4.6% 20
Selectivity in CAPEX CAPEX Disbursements (R$ billion) 1H17 CAPEX by Business Division 21
R$ 1.6 billion of FCF generation in the last twelve months Evolution of Free Cash Flow (R$ million) 2Q17 Free Cash Flow (R$ million) 22
Deleveraging of R$ 1.2 billion on Net Debt y-o-y Debt & Leverage Ratio R$ billion Debt Amortization Schedule R$ billion Average Debt Cost: 6.9% Average Debt Term: 5.5 years Graph 1: EBITDA in the last 12 months Graph 2: 2017 Bond 23
Closing Remarks High productivity CAPEX selectivity Free Cash Flow generation Deleverage Shareholder return Roadmap execution 2524
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. 25