Investor Presentation February 2008 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 51 steel units with state of the art technology (including Joint Ventures and Associated Companies) Relevant market share and diversified product range through downstream and service centers Strong balance sheet 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
Crude Steel Production In million tonnes Growth rate in the last 10 years: + 65% 728 725 China: + 349% World Growth 1993 to 1999 = 1.4% p.a. China Growth 1993 to 1999 = 5.5% p.a. 750 750 799 777 789 848 850 WorldGrowth 2000 to 2007 = 6.5% p.a. China Accelerated Growth 2000 to 2007 = 21.2% p.a. 1.139 1.069 970 904 1.230 1.322 90 93 95 101 109 115 124 127 151 182 222 280 356 423 489 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: IISI Mundo China 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 up to 2015. 2006 2007e 2008e FINISHED STEEL APPARENT PER CAPITA DEMAND (kg) 315 298 333 146 94 106 66 102 28 42 2002 2003 2004 2005 2006 2007e 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 N A F T A B razil C hina India Wo rld 5 5
Ranking Crude Steel Production 2007 In million tonnes Global Production: 1,322 MMt China: 37% of global production Brazil: 3% of global production 489 100% 53% 59% 63% 67% 70% 74% 76% 79% 81% 82% 46% 235 37% 120 97 72 9th Largest Producer 53 51 49 43 34 32 26 21 China Source: IISI Japan USA Russia India South Germany Ukraine Brazil Italy Turkey Taiwan Korea Production Accumulated Participation Others 6 6
Agenda Industry Overview Group Overview Operating and Financial Highlights All data presented in US Dollar and in metric tons, except when indicated 7 7
100+ Years in Business 1901 - First Operation: Nail Factory 1948-1 st Steel Mill Acquisition (Riograndense) Expansion of Riograndense Mill (Construction of 2 nd steel mill) Distribution channel arrangements (today: more than 70 sales points) Market Share increase by: Diversification / Verticalization Distribution channel New acquisition (Pernambuco, Brazil) Acquisition of a new steel mill (Paraná, Brazil) Construction of a new mill (Rio de Janeiro, Brazil) Entering in the Reforestation business 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: 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) New Acquisitions: Downstream mills and fab shops, Chaparral and Quanex 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 2000 8 8
Solid Track Record In thousand tonnes (IFRS) TOTAL INVESTED (1997 2007): Brazil = US$ 4.5 billion + Debt North America = US$ 6.1 billion + Debt Latin America = US$ 1.3 billion + Debt Europe = US$ 687 million + Debt Asia = US$ 71 million + Debt 4,556 Brazil Crude Steel Installed Capacity Abroad Crude Steel Installed Capacity 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 11,076 Ameristeel (USA) AZA New mill (Chile) Additional stake in Açominas (Brazil) Control of Açominas (Brazil) Co-Steel (USA) 16,372 North Star (USA) CAGR 1997-2007: 18,5% a.a. 16,857 Diaco (Colombia) 19,870 São Paulo (Brazil) Sidenor (Spain) Sheffield (USA) Siderperú (Peru) GSB (Spain) 24,805 Sidertul (Mexico) INCA (Dom. Rep.) Sizuca (Venezuela) SJK (India) Chaparral (USA) 29,810 Installed Capacity Expansion Corsa (Mexico) MacSteel (USA) 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 10 e e: estimated * MacSteel and Corsa operations haven t been concluded yet. In addition to 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. 9 9
Location BRAZIL Capacities: 11.4 million tonnes of crude steel 6.8 million tonnes of rolled steel products Units: 13 Steel Units 12 Fabrication Shops - Armafer 05 Downstream operations and special sections 68 Sales point (Comercial Gerdau) 04 Flat steel service centers ABROAD Capacities: 13.4 million tonnes of crude steel 14.2 million tonnes of rolled steel products Units: 38 Steel Units 52 Fabrication Shops 28 Downstream operations and special sections 07 Associated Companies (Spain and Dominican Republic) Canada United States Spain Mexico Colombia Dominican Republic Venezuela India Peru Brazil Chile Argentina Uruguay Steel Units Associated Companies Joint Ventures 10 10
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 NORTH AMERICA Efficiency and productivity gains (Gaps) Enhancement of leadership in AÇOMINAS New 1.5 MM tonnes blast furnace the long steel sector through acquisitions Growth platform for slabs, blooms and billets Iron Ore Reserves 11 11
Outlook BRAZIL High demand in the domestic market in 2008, mainly from the civil construction and infrastructure segments Increase in costs in view of the estimated increases in the price of the iron ore and coke. The prices of the scrap will not present significant fluctuations Adjustments in the domestic prices should balance operating margins. The prices should continue high in the foreign market NORTH AMERICA Adjustment in prices to offset the increase in costs Increase in production costs Prospect of solid demand due to the renewal of the infrastructure in the region an low level of imports LATIN AMERICA Demand should continue to be strong Maintenance of investments in infrastructure Increase in costs Prices may also be adjusted to balance the margins EUROPE Demand for specialty steels should continue to be strong Recovery of margins in view of the industrial reorganization Increase in costs, mainly electric energy costs 12 12
Agenda Industry Overview Group Overview Operating and Financial Highlights All data presented in US Dollar and in metric tons, except when indicated 13 13
Shipments In thousand tonnes (IFRS) 2006 = 14,890 +15.2% 2007 = 17,159 Europe (5% in 4Q07) 3,689 3,770 3,703 3,727 4,157 4,160 4,204 4,637 Latin America (13% in 4Q07) North America (41% in 4Q07) Brazil Exports (13% in 4Q07) Brazil Domestic Market (28% in 4Q07) 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 Billets, blooms & slabs Merchant bars Rebars Fabricated steel Heavy structural shapes Wire-rod Wires Nails 14 14
Net Sales Breakdown Net Sales Breakdown by Region - 2007 Net sales from the overseas units plus exports from Brazil, represented 66% of consolidated net sales Exports from Brazil (t) Latin America 11% North America 37% Europe 10% Brazil - Domestic Market 34% Brazil Exports 8% 13% in tonnes Europe 10% Asia 26% Africa 12% Central America 15% North America 13% South America 24% Historical Net Sales Geographical Distribution In US$ millions (IFRS) 3,030 3,577 3,915 4,168 4,558 9% 12% 12% 9% 8% 10% 9% 11% 11% 11% 38% 39% 35% 35% 38% 11% 7% 8% 10% 8% Europe Latin America North America Brazil - Exports Brazil - Domestic Market 32% 30% 34% 38% 36% 4Q06 1Q07 2Q07 3Q07 4Q07 15 15
EBITDA and Margins EBITDA* In US$ millions 614 51 81 151 742 829 823 89 63 84 84 111 60 219 243 254 912 40 63 302 457 506 357 344 386 8% 10% 26% 56% Brazil North America Latin America Europe 4Q06 1Q0 7 2Q0 7 3Q07 4Q 07 GROSS MARGIN* EBITDA MARGIN* 45% 35% 40% 35% 30% 33.3% 33.2% 30% 25% 26.3% 25.2% 26.4% 25% 20% 15% 10% 23.8% 21.4% 23.6% 19.2% 17.3% 17.2% 14.9% 13.9% 4Q06 1Q07 2Q07 3Q07 4Q07 20% 15% 10% 20.3% 20.0% 18.3% 17.3% 12.5% 12.5% 10.5% 4Q06 1Q07 2Q07 3Q07 4Q07 Consolidated Brazil North America Latin America Europe * Data in IFRS 16 16
Consolidated Financials In US$ millions (IFRS) 4Q07 4Q06 2007 2006 BALANCE SHEET Current Assets 8,645 7,055 8,645 7,055 Non-current Assets 14,771 7,754 14,771 7,754 Total Assets 23,416 14,809 23,416 14,809 Current Liabilities 3,719 2,896 3,719 2,896 Non-current Liabilities 10,302 4,990 10,302 4,990 Shareholder's Equity 9,395 6,923 9,395 6,923 Total Liabilities and Shareholder's Equity 23,416 14,809 23,416 14,809 Total Debt 8,978 4,620 8,978 4,620 Cash and Equivalents 2,901 2,984 2,901 2,984 Net Debt 6,077 1,636 6,077 1,636 INCOME STATEMENT Net Sales 4,558 3,030 17,283 12,107 Gross Profit 1,075 722 4,224 3,201 Operating Income 619 559 2,972 2,409 Net Income 537 533 2,433 1,993 EBITDA 921 614 3,528 2,735 EBITDA Margin 20.0% 20.3% 20.4% 22.6% RATIOS Net Debt / Total Capitalization 38.0% 19.6% 38.0% 19.6% Total Debt/EBITDA LTM 2.5x 1.7x 2.5x 1.7x Net Debt / EBITDA LTM 1.7x 0.6x 1.7x 0.6x LTM = Last twelve months EBITDA = Earnings before interest, taxes, depreciation and amortization 17 17
Consolidated Debt Profile December 2007 (IFRS) US$ MM GROSS DEBT 8,978 100% COST OF DEBT (p.a.) Brazil Domestic Currency 10.2% SHORT TERM 1,433 16% Domestic Currency 657 7% Foreign Currency 280 3% Companies Abroad 496 6% LONG TERM 7,545 84% Domestic Currency 1,443 16% Foreign Currency 1,451 16% Companies Abroad 4,651 52% CASH & CASH AND EQUIV. 2,901 100% Domestic Currency 1,143 39% Companies Abroad 1,758 61% Foreign Currency Companies Abroad DEBT AVERAGE LIFE: 6 years and 4 months DEBT STRUCTURE Companies Abroad 57% FX + 6.0% 7.4% NET DEBT 6,077 Domestic Currency 19% Foreign Currency 24% 18 18
Consolidated Debt Amortization In US$ millions December/07 (IFRS) Perpetual Bond: 600 Companies Abroad: 1,126 Companies Abroad: 1,685 Companies abroad: 232 BNDES: 378 663 BNDES: 83 Companies Abroad: 60 BNDES: 84 Companies Abroad: 71 Companies Abroad: 134 BNDES: 91 BNDES: 323 Companies Abroad: 145 FINIMP: 219 BNDES: 289 Debentures: 152 FINIMP: 129 Companies Abroad: 140 751 732 Companies Abroad: 501 BNDES: 143 866 1,895 Companies Abroad: 1,055 1,292 2,009 216 227 327 1Q08 2Q08 3Q08 4Q08 2009 2010 2011 2012 2013 A fter 2013 SHORT TERM: US$ 1,433 LONG TERM: US$ 7,545 19 19
CAPEX ACTUAL 2007 (IFRS) INVESTMENT PLAN 2008 2010 In US$ millions BRAZIL ABROAD North America Latin America Europe TOTAL *Does not include acquisitions CAPEX 1,046 495 190 165 140 1,541 ACQUISITIONS 0 4,774 4,283 466 25 4,774 Capacity Dec/2007 2007 1,046 5,269 4,473 631 165 6,315 In US$ millions BRAZIL ABROAD North America Latin America Europe TOTAL 2008 1,105 405 183 141 81 2008 2009 2010 New Capacity* 2009 1,955 853 338 416 99 2010 1,375 681 264 301 116 TOTAL 4,435 1,939 785 859 295 1,510 2,808 2,056 6,374 Variation Brazil Crude Steel 11,435 105 20 1,105 12,665 10.8% Rolled Products 6,800 100 325 2,195 9,420 38.5% North America Crude Steel 9,955 0 0 225 10,180 2.3% Rolled Products 10,350 0 0 90 10,440 0.9% Latin America Crude Steel 2,265 630 165 955 4,015 77.3% Rolled Products 2,610 265 225 580 3,680 41.0% Europe Crude Steel 1,150 0 150 100 1,400 21.7% Rolled Products 1,220 0 95 0 1,315 7.8% TOTAL Crude Steel 24,805 735 335 2,385 28,260 13.9% Rolled Products 20,980 365 645 2,865 24,855 18.5% 20 20
Governance Best Practices BOARD OF DIRECTORS - External members on the board - Support Committee (Support and Excellence; Corporate Governance; Strategy and Compensation and Succession) EXECUTIVE COMMITTEE - Vice-presidents responsible for the Operations and Support Areas - Support Committee ( Disclosure, Financial, Risk Management and Human Resources and Orgazational Development) FISCAL BOARD (AUDIT COMMITTEE) - Permanent and in accordance to the SOX (Gerdau S.A.) HIGHLIGHTS: First Brazilian company to submit its Consolidated Financial Statements in conformity with international accounting standards (IFRS) Tag Along (100% common and preferred shares) Bovespa Level 1 Shares are negociated in Bovespa, Nova York Stock Exchange, Toronto Stock Exchange and LATIBEX Stock Exchange Risk Management Gerdau Business System Gerdau S.A. shares are included in the following São Paulo Stock Exchange indexes: Bovespa Index - Ibovespa Corporate Sustainability Index - ISE Special Tag Along Stock Index - ITAG Brazil Index 50 IBrX 50 Industrial Sector Index INDX 21 21
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. 22 22
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