March, 2010 1
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. 2
4 0.0 % 3 0.0 % 2 0.0 % 1 0.0 % 0.0 % -1 0.0 % -2 0.0 % -3 0.0 % World Crude Steel Production Signs of gradual recovery in the markets. World production grew 22% in the 4Q09 when compared to the 4Q08. 120 100 23.8% 30.2% In million tonnes 80 60 40 20 0 14.5% 1.9% -3.2% -4.3% -12.4% -11.0% -15.4% -19.0% -20.7% -26.6% -23.5% -24.0% -21.6% -23.2% Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 China Other Countries % over the same period of last year Source: World Steel Association 3
World Steel Demand Finished Steel Apparent Demand (In million tonnes) = 9.2% YoY 825 885 978 1,040 1,134 1,215 1,207 1,104 1,206 Demais Other Countries Países China 2002 2003 2004 2005 2006 2007 2008 2009e 2010e Finished Steel Apparent Per Capita Demand (Kg) 324 NAFTA China 319 288 149 140 92 28 World 190 Brazil 124 India 44 2002 2003 2004 2005 2006 2007 2008 Source: World Steel Association 4
Company s Highlights More than 100 years in Business Among the most competitive steel companies in the world with operations in 14 countries Second largest long steel producer in the world and the largest in the Americas Vertically integrated operations with flexible production process Relevant market share and diversified product range through downstream and service centers Strong balance sheet and cash generation Gerdau companies shares are listed on the São Paulo, New York, Toronto, Lima and Madrid Stock Exchanges Source: World Steel Association 5
Customer base (end users) PRODUCTS Billets, blooms & slabs Merchant bars SBQ Rebars Fabricated steel Heavy structural shapes Wire-rod Wires Nails Brazil and Latin America North America Specialty Steel Housing Infrastructure Industrial and commercial buildings Agricultural Billet and Bloom Markets Infrastructure Non-residential Industrial Automotive Shipbuilding Clean Energy related projects 6
Global Player with Dominant Regional Presence Long Steel Capacity - Ranking by company (million tonnes) - 2008 M ittal Arcelor 47.3 Spain Gerdau Group 19.5 Evrazholding 14.7 India Tata Corus 10.7 USA. & Canada Dominican Republic Nippon Steel Industrial Union of Donbass JFE Steel Group Nucor Group 10.5 10.1 9.5 8.9 Largest long steel producer in the Americas and 2 nd globally Steel Units Mexico Guatemala Colombia Peru Chile Venezuela Uruguai Brazil Associated Companies Argentina Riva Group 8.6 Joint ventures Celsa Group 8.2 Fonte: Steel on the Net 7
Shipments (In thousand tonnes) 4,988 24% 9% 44% 12% 11% 5,524 23% 10% 42% 11% 14% 5,100 27% 10% 37% 11% 15% 3,506 28% 8% 35% 13% 17% 3,062 24% 12% 35% 16% 13% = 19.9% 3,877 3,378 26% 24% 12% 11% 37% 36% 15% 14% 12% 12% 3,670 30% 9% 33% 13% 15% Brazil - Domestic Market Brazil - Exports North America Latin America Specialty Steel 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Company is gradually recovering historical capacity utilization and sales levels The higher sales volume primarily reflects recovery in the main sectors that consume the Company s products The restocking of depleted inventories in North American operations also played an important role 8
Strategically Located and Vertically Integrated Operations Upstream Steel Downstream Scrap: Brazil 80% and North America 40% captive. 39 collection units and scrap processing. Iron Ore: increasing self sufficiency 1.8 billion tons of iron ore resources Coking coal mill and coking coal reserves in Colombia. Premium steel assets Low cost structure State of the art production technology Specialized efficient plants Mini-mills and integrated mills Mini-mills represent 75% of the Company s installed capacity, giving flexibility under unstable market conditions Fabrication Reinforcing Steel Facilities (Fab Shops) - 38 in Brazil - 69 Abroad (represents 23% of the North American sales) Downstream operations - 4 in Brazil - 28 Abroad Retail Facilities - 68 in Brazil - 30 Abroad Customization 9
Corporate Governance Best Practices Shareholders Meeting Board of Auditors First Brazilian company to release IFRS balance sheet Board Independent board members (3 out of 9) Excellence Committee and Support Committee Gerdau Officers and Executive Committee Board of Directors Corporate Governance Committee, Strategy Committee and Compensation and Succession Committee Executive Committee Support Committees (Excellence and Support, Corporate Governance, Strategy, Compensation and Successions) Business Operations Functional Processes SOX compliant (Gerdau S.A.) Brazil Specialty Steel North America Latin America 10
Quick Response to Global Crisis: Strategic Initiatives Fixed and variable cost reduction Breakdown of Production Cost SG&A (R$ million) 6% 8% 7% 6% 6% 70% 67% 69% 73% 72% Depreciation Variable Costs Fixed Costs 760 217 647 211 = -24.9% 604 179 520 571 134 156 24% 25% 24% 21% 22% 4Q08 1Q09 2Q09 3Q09 4Q09 Working capital reduction (R$ billion) 4Q08 1Q09 2Q09 3Q09 4Q09 SG&A R$ / tonne shipped 11.2 9.5 = -41.1% 7.5 7.1 6.6 4Q08 1Q09 2Q09 3Q09 4Q09 Increasing focus on improving cost structure efficiency Fast adjustment to new demand levels 11
Gerdau Consolidated Performance Net Sales & Gross Margin EBITDA & EBITDA Margin 12,444 3,841 11,100 8,945 26.8% 23.8% 9,420 32.9% 17.9% 6,968 11.3% 6,808 6,402 6,363 12.5% 22.1% 21.0% 22.2% 1,985 2,747 24.7% 30.9% 15.4% 1,452 8.6% 599 595 20.2% 19.6% 1,375 1,246 9.3% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 R$ million unless otherwise stated R$ million unless otherwise stated 14% 10% EBITDA Breakdown by Operations 14% 26% 10% 16% 8% 32% 15% 15% 21% 35% 3% 50% 22% 2% 15% 10% 44% 92% 21% 41% 109% 60% 96% 67% -4% -24% -16% -3% -1% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Specialty Steel Latin America North America Brazil Positive EBITDA generation in all operations in 2H09 12
Indebtedness Debt/EBITDA 23,2 22,1 19,0 18,9 4.0x 3,8 15,4 2.3x 1.7x 16,5 2.1x 1.4x 1.9x 1.3x 2.3x 1,8x 2.6x 1.9x 2.9x 2.0x 16,1 2.7x 14,5 2,5 Average Cost of Debt 6.3% 4,1 5,6 5,6 5,5 5,8 6,3 5,3 4,8 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q9 (1) EBITDA LTM Gross Debt (R$ billion) Cash (R$ billion) Net Debt/EBITDA (1) Gross Debt/EBITDA (1) Amortization Schedule R$ million 4,8 6,6 Debt Average Life 7 years 2,7 2,6 0,4 0,4 0,6 0,8 0,4 Cash 1Q10 2Q10 2H10 2011 2012 2013 2014 After 13
Indebtedness In R$ million Local Currency Dec. 08 3,517 Sep. 09 Dec. 09 3,159 2,845 Foreign Currency 7,989 5,890 5,465 Companies Abroad 11,728 7,028 6,211 GROSS DEBT 23,234 16,077 14,521 Cash and Cash equivalent 5,491 5,405 4,819 NET DEBT 17,743 10,672 9,702 R$ million U.S. dollar 75% * Include debentures and bonds issued Euro 2% Other currencies 3% Brazilian real 20% Capital Market* 45.0% Comercial Banks 34.3% BNDES 13.8% Export Credit Agencies 6.9% 14
Financial and Operational Summary Gerdau S.A. Consolidated Figures 4Q09 3Q09 4Q08 Net Revenues (R$ million) 6,363 6,808 9,420 Net Income (R$ million) 644 655 311 Total assets (R$ million) 44,583 45,932 59,051 Total shipments (thousand tonnes) 3,670 3,877 3,506 Total Output (thousand tonnes) 3,836 4,024 3,263 EBITDA (R$ million) 1,246 1,375 1,452 EBITDA Margin (%) 19.6% 20.2% 15.4% Gross Margin (%) 21.0% 22.1% 17.9% Capex (R$ million) 276 232 845 15
Investment Plan Revision R$ 9.5 BILLION IN FIVE YEARS (2010 2014) APPROVED AND ANNOUNCED: HEAVY PLATE ROLLING MILL AT OURO BRANCO UNIT; Investment of R$ 1.75 billion; Installed capacity: 1 MM tonnes in the end of 2012; STRUCTURAL BEAM ROLLING MILL EXPANSION AT OURO BRANCO UNIT; Investment of R$ 100 million; Future installed capacity: 700 thousand tonnes in 2011. RESTART OF OPERATIONS AT VÁRZEA DO LOPES (MG) IRON ORE MINE; Resumed operations on 6th November; Annual production: 1.5 MM tonnes of iron ore; INVESTMENTS AT JV IN INDIA; Investment: R$ 88 million in 2010; Highlight: the rolling mill installation (rebars and specialty steel) starting in 2011; Annual Installed capacity: 300 thousand tonnes. IN STUDY: INSTALLATION OF A WIRE ROD ROLLING MILL AT THE BRAZIL BO; EXPANSION OF ROLLING CAPACITY AT THE SPECIALTY STEEL BO; EXPANSION OF CUTTING AND BENDING FABRICATING UNITS. 16
Outlook WORLD Continued recovery throughout 2010, with different degrees depending on the region. World GDP projected to grow 3.9%. Outlook for the world steel market remain positive. Steel consumption estimated at 1.2 billion tonnes in 2010, 9% higher than in 2009. BRAZIL Domestic demand should remain strong. GDP estimated to increase 5.8%. Steel production expected to rise 24% in 2010. Construction industry: construction GDP expected to grow 6.4% in the year. Industry: manufacturing industry estimated to expand 8.8% in 2010. Source: Worldsteel, FMI, Central Bank of Brazil and Instituto Aço Brasil. 17
Outlook NORTH AMERICA Demand expected to recover gradually. Government stimulus expected to impact demand during 2010. Commercial opportunities in the energy segment and export markets. LATIN AMERICA Continued gradual recovery in economic activity, led by Peru, Chile, Mexico and Uruguay. Rolled steel consumption in the region should grow 12% from 2009. SPECIALTY STEEL United States: recovery in credit and consumer confidence should improve sales in 2010. Brazil: vehicle sales estimated to increase 9% in 2010. Government incentives should continue benefitting light and heavy vehicle demand. Spain: gradual recovery should continue in the year, following the adjustment to new market levels in 2009. Source: Worldsteel, FMI, Latin American Iron and Steel Institute, ANFAVEA 18
Investment Considerations Gerdau is the largest long steel producer in the Americas and 2nd globally with solid financial track-record. Experienced management team Strong balance sheet and cash generation Flexible production processes with low cost structure Vertically integrated operations Operations in 14 countries with significant market share in all these markets Diversified product range and geographic locations of production and distribution 19
www.gerdau.com.br inform@gerdau.com.br +55 51 3323 2703 20