Transcript Slide 1

Gerdau S.A.
Annual Citigroup Asia Pacific Fixed
Income Investor Conference
January 2006 1
Disclaimer
Statements relative to business perspectives are based on current
expectations of future events and trends that may affect our
business. These estimates 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.
2
Agenda
Gerdau Group Overview
Steel Industry Overview
Gerdau’s Operating and Financial Highlights
All data presented in US Dollar and in metric tons, except when indicated
3
Philosophy
VISION
TO BE A WORLD-CLASS
INTERNATIONAL STEEL COMPANY
MISSION
Gerdau is an organization focused on the steel business
with a mission to satisfy customers` needs and add
value to shareholders, committed to the fulfillment of
people and to the sustainable development of society
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Investment Considerations

A low cost international steel company with operations in Brazil, Uruguay,
Canada, Chile, Argentina, Colombia and the United States

Substantial international profile – foreign exchange generation through divisions
abroad and export sales amount approximately 63% of consolidated revenues in
9M05

Ranked 12th globally by steel output in 2004 with an output of 13.4m tons
(includes one joint venture)

2nd largest long steel producer in North America and largest long steel producer
in the Americas

Focused on the production of long steel products Gerdau operates 29 mills
incorporating both integrated and mini mills with the latest technologies

Relevant market share in every country with operations and diversified product
range, with high value-added products

Strong low cost strategy as a result of diversified production processes and
multiple raw material sourcing

Sound balance sheet (Net Debt/EBITDA 0.6x at Sep05) and strong cash
generation

Shares of Gerdau S.A. are currently traded at the São Paulo, New York and
Madrid exchanges
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An International Company
Total Capacity
(Includes Joint Ventures)
16.8 million tons of crude steel
13.9 million tons of rolled steel products
Abroad
Brazil
7.6 million tons of
9.2 million tons of
crude steel
crude steel
4.8 million tons of
9.1 million tons of
rolled steel products
rolled steel products
Gerdau’s installed capacity will reach some 21 million tons
of crude steel per year post completion of the Brazilian
investment program in 2007
Steel mills (29)
Downstream operations (21)
Fab shops (49)
Comercial Gerdau stores and Service centers (75)
Scrap collection and processing units (24)
Solid pig iron production units (2)
Iron ore extraction areas (3)
Private port terminals (2)
Joint venture (1)
6
Solid Track Record
In thousand tons
THE NEW MILLENNIUM
16,830
 Expansion abroad – reverse takeover of Co-Steel
and acquisition of North Star Mills
 Acquisition of stake in Açominas – controller since 2002
 Strategic alliance in Colombia
 Expansion into SBQ - Spain
Potter Form
Gate City & RJ
North Star
(USA)
Cartersville
DIACO
Drawing
(Colombia)
Co-Steel
(USA)
7,696
Ameristeel
(USA)
TOTAL INVESTED ABROAD (1981-2004):
North America = US$ 1.3 billion + Debt
South America = US$ 314 million + Debt
Brazil – Crude Steel Installed Capacity
Abroad – Crude Steel Installed Capacity
0
4
2
0
0
3
2
0
0
2
2
0
0
1
2
0
0
0
2
0
9
9
1
9
9
8
1
9
9
7
SIPAR
(Arg.)
1
9
9
6
1
9
1
9
9
4
1
9
9
3
9
2
1
9
9
1
1
9
9
0
1
9
1
9
8
8
1
9
8
7
1
9
8
6
1
9
8
5
1
9
8
4
1
9
8
3
1
9
1
9
8
2
Laisa - 1980
(Uruguay)
8
9
Cambridge
(Canada)
1
9
1,757
Manitoba
(Canada)
AZA
(Chile)
9
5
3,072
AZA
New Plant
(Chile) Cartersville
Mill
Orrvile
SIPSA
Drawing
(Argentina)
(USA)
4,595
3,934
SACK
(Chile)
14,450
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Value Builder Company
ATKearney
Revenue
Growth
Growth portfolio
(CAGR 1999-2003)
benchmarked against
industry average
30%
Gerdau
Outokumpu
Acerinox
25%
Usinas
Salzgitter
20%
15%
Industry
average
China Steel
Baoshan1)
INI Steel
Nucor
Rautaruukki Ipsco
Tata
US Steel
Voest-Alpine
Smorgon
Boehler-Uddeholm
SSAB
Ispat
JFE
10%
5%
Arcelor
Corus
SAIL
Harsco
Thyssenkrupp
Dofasco
Nippon Steel
Kobe
0%
Carpenter
-5%
-10%
-35%
Iscor
Nisshin Steel
-25%
Onesteel1)
Wuhan Steel1)
Kennametal
RIVA1)
Haynes
CSN
AK Steel Stelco
Eregli DemirPosco Allegheny
-15%
-5%
5%
Note:
1) RIVA 98 02, Wuhan Steel & Onesteel 00 03, Baoshan 01 03
Source: ThyssenKrupp (segment), Kobe (segment), RIVA, Haynes:
EBIT Growth
Industry
average
15%
25%
35%
45%
Value Growth
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Agenda
Gerdau Group Overview
Steel Industry Overview
Gerdau’s Operating and Financial Highlights
9
World Steel – Supply and Demand
Finished Steel
+ 15.3%
over 2005
In million tons
1,153
1,000
830
632
603
1985
690
698
655
641
1990
1995
Production
Source: IISI / World Steel Dynamics
1,117
According to a
WSD forecast for
2010, 97% of the
world’s
production will
be consumed.
942
772
2000
2005F
+ 18.6%
over 2005
2010F
Apparent Consumption
10
Brazil and the Global Steel Industry
Crude Steel Production – 2004
In million tons
In million tons
272
Total World Production: 1,057 million tons
China accounted 25.7% of the global steel production
Brazil accounted 3.1% of the global steel production
113
99
65
48
Source: IISI
46
39
33
33
28
11
Among the Leaders
Crude Steel – Output 2004
In million tons
Mittal Steel (NET)
1
Arcelor (LUX)
2
58.9*
46.9
32.4
Nippon Steel (JAP) 3
JFE Steel (JAP)
4
Posco (KOR)
5
31.6
30.2
Shangai Baosteel (CHI) 6
21.4
20.8
US Steel (USA)
7
Corus Group (U.K.)
8
Nucor (USA)
9
17.9
ThyssenKrupp (GER) 10
17.6
Riva Group (ITA) 11
Gerdau Group (BRA) 12
Sumitomo (JAP) 13
19.0
16.7
13.4
13.0
Gerdau should have an installed
capacity of approximately 21
million tons of crude steel per
year after the investment
program in Brazil is completed in
2007.
* Includes ISG acquired by Mittal Steel in 2004.
Source: IISI
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Solid Market Share in Long Steel
NORTH AMERICA
BRAZIL
Barra Mansa
5%
Other
29%
Gerdau
48%
Imports
18%
Commercial
Metals
7%
Other
12%
Nucor
27%
Gerdau
Ameristeel
19%
Belgo
35%
COUNTRY
MARKET SHARE
MAIN COMPETITORS
CHILE
53%
CAP + Imports
URUGUAY
90%
Imports
ARGENTINA
20%
Acindar + Bragado + Zapla
COLOMBIA
37%
Acerias Paz Del Rio
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Agenda
Gerdau Group Overview
Steel Industry Overview
Gerdau’s Operating and Financial Highlights
14
Shipments
US GAAP - In thousand tons
BY REGION
11,453
* 9M05 Annualized
12,906
531
8,928
348
438
6,856
309
4,466
4,724
5,874
311
339
2,841
2,353
541
2,311
790
1,904
3,263
2,830
2,954
3,372
3,416
3,874
3,376
3,881
3,547
2000
2001
2002
2003
2004
2005*
6,577
Billets,
blooms
& slabs
11,873
Merchant
bars
Brazil – Domestic Market
South America
Brazil – Exports
North America
Rebars
Fabricated
steel
Heavy
structural shapes
Wire-rod
Wires
Nails
15
Strong Hard Currency Generation
NET SALES - US GAAP
In US$ millions
Currency Breakdown – 9M05
Exports and
Companies
Abroad
63%
Brazil
37%
Historical Geographical Distribution
6,952
6,602
4,531
319
4,977
122
1,811
3,010
168
521
1,250
2,161
752
248
South America
2,963
North America
950
2,077
2,373
1,896
2,441
2003
2004
9M04
9M05
Brazil - Exports
Brazil – Domestic Market
16
Strong Export Business
Shipments by Region
2004
US$ 1.1 billion
2.7 million tons
Asia
34%
Europe
11%
Africa
8%
Central
America
15%
South
America
17%
North America
15%
9M2005
US$ 949.7 million
2.1 million tons
Europe
11%
Asia
44%
Africa
8%
Central America
12%
North America
4%
South America
21%
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Costs and Prices
682
Cost of Sales
All data in BR GAAP converted by R$ 2.2222/US$
444
425
402
338
314
309
316
293
1Q032Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05
Net Sales Revenue
707
Cost of Sales
655
558
583
689 674
606
557
729
633
685
509
494
392
630
461
407
565
0
516
374
397
376
731
510
579
487
723
368
351
418
367
637
417
586
425
288
331
502
549
422
637
718
North America (US GAAP)
510
820
699
755
546
Net Sales Revenue
South America (BR GAAP)
733
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05
Cost of sales
717
490 493
501
496
504
483
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05
Net Sales
498
374
507
414
371
364
447
674
673
476
339
387
295
263
342
403
304
568
625
692
747
680
443
Brazil (BR GAAP)
Group (US GAAP)
449
Net Sales Revenue and Cost of Sales
In US$/ton
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05
Net Sales
Cost of Sales
18
Capital Expenditures
INVESTMENTS - 9M2005
In US$ millions
BRAZIL
410.4
ABROAD
248.2
North America
114.4
South Amerca
133.8
TOTAL
658.6
Investment Program 2005 – 2007: US$ 3.2 billion
EVOLUTION OF INSTALLED CAPACITY
In thousand tons
Rolled Steel
Crude Steel
+ 28%
16,380
+ 11%
9,730
+ 55%
11,720
7,580
BraZil
12,970
8,240
8,800
2004
+ 19%
21,450
4,730
2007
Abroad
2004
Brazil
15,490
+ 8%
8,880
+ 40%
6,610
2007
Abroad
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Consolidated Financials
US GAAP
In US$ millions
2004
9M05
4,531
6,952
6,602
915
1,085
2,113
1,760
563
696
1,628
1,307
229
526
1,722
1,482
232
510
1,158
925
880
157
343
(34)
122
292
1,869
83
772
407
276
331
1,501
47
297
411
301
446
2002
2003
3,265
Income Statement
Net revenue
Gross profit
Operating income
Income before taxes
Net income
Free Cash Flow
EBITDA
(-) Net interest expenses
(-) Capex (including acquisitions)
(-) Taxes
(-) Dividends
Free cash flow
760
116
464
7
74
99
20
Consolidated Financials
US GAAP
In US$ millions
September/05
2002
2003
2004
Current assets
Non-current assets
Fixed assets
Total
1,524
2,476
2,085
4,000
1,760
3,011
2,304
4,771
3,323
3,529
2,790
6,852
4,946
4,311
3,525
9,257
Current liabilities
Non-current liabilities
Minority interest
Shareholders’ equity
Total
1,588
1,239
309
864
4,000
1,459
1,644
265
1,403
4,771
1,712
1,975
642
2,523
6,852
1,610
3,059
934
3,654
9,257
Total debt
Cash and cash equivalents
Net debt
2,100
423
1,667
2,086
331
1,755
2,298
659
1,639
3,190
2,080
1,110
24%
19%
2.4x
2.0x
5.6x
125%
56%
38%
30%
27%
1.2x
0.9x
22.5x
65%
39%
29%
27%
23%
1.6x
0.6x
30.6x
30%
23%
17%
Balance Sheet
Ratios
Gross margin
28%
EBITDA margin
23%
Total debt / EBITDA
2.8x
Net debt / EBITDA
2.2x
EBITDA / Interest
6.6x
Net debt / Shareholders’ equity 194%
Net debt / Total capitalization
66%
Short term debt / Total debt
53%
21
Consolidated Debt Profile
US GAAP
In US$ millions
Sep./05
GROSS DEBT
3,190
100%
SHORT TERM
543
17%
Domestic Currency
76
2%
Foreign Currency
Companies Abroad
402
65
13%
2%
LONG TERM
2,648
83%
Domestic Currency
701
22%
Foreign Currency
Companies Abroad
1,239
708
39%
22%
CASH & CASH AND EQUIV.
2,080
100%
Domestic Currency
Foreign Currency
1,825
255
61%
39%
NET DEBT
1,110
* Includes exchange and monetary variation in the last 9 months
DEBT STRUCTURE
Foreign
Currency
52%
Companies
Abroad
24%
Domestic
Currency
24%
22
Consolidated Debt Amortization
US GAAP
Debentures: 328.7
Bonds GNA: 398.9
Securitization: 24.4
Perpetual:589
In US$ millions – September/05
Securitization: 38.1
BNDES: 60.8
Debentures GNA: 93.3
Imports: 107.6
Pre-Export: 22
Securitization: 8
Securitization: 40.9
BNDES: 65
Imports: 61.6
Pre-Export: 112
Securitization:18
Securitization: 9
4Q 05
NOTES:
Securitization: 41
Securitization: 44
378
274
1,527
190
167
1H 06
2H 06
310
205
2007
2008
2009
143
2010
AFTER 2010
a) US$ 328.7 million equivalent of local bonds maturing from 2011 to 2020
b) US$ 398.9 million GNA bonds maturing in July/2011
c) US$ 589.0 million Perpetual Bonds with no final maturity date
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Gerdau S.A.
www.gerdau.com.br
[email protected]
+55 51 3323 2703
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