Transcript Slide 1

GERDAU
Deutsche Bank - Investor Trip to Brazil
December 2005
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
2
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 61% 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 28 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 (Gross Debt-to-EBITDA at approximately 1.4x in 9M05)
and strong cash generation

Shares of Gerdau S.A. are currently traded at the São Paulo, New York and
Madrid exchanges
3
Shareholding Structure
Metalúrgica
Gerdau S.A.
Banco
Gerdau S.A.
99%
44.8%
Gerdau S.A.
97.1%
89.3%
77.2%
89.3%
89.3%
89.3%
89.3%
22.8%
Seiva S.A.
Florestas e
Indústrias
66.5%
Gerdau
Internacional
Empreend.
Ltda.
Sipar
Aceros
S.A.
Gerdau
Ameristeel
Corporation
50%
Gallatin
Steel
100%
Gerdau
América do Sul
Participações
S.A.
Gerdau
Açominas
S.A.
Gerdau
Aços Longos
S.A.
Gerdau
Aços Especiais
S.A.
Gerdau
Comercial de
Aços S.A.
74.4%
Gerdau
Laisa
S.A.
100%
Gerdau
Chile
100%
57.1%
Gerdau
AZA S.A.
Gerdau
Colômbia
4
100+ Years in Business
THROUGHOUT THE 40’s
 1901 – First operation: nail factory
 First steel mill acquisition –
Siderúrgica Riograndense (1948)
THE 50’s
 Expansion of Siderúrgica Riograndense
 Construction of second mill at
Riograndense
THE 60’s
 Market share increase by:
- Diversification and verticalization
 of product line
- Structuring of distribution network
 (today more than 77 sales points)
- Acquisition of mill in Pernambuco
THE 80’s
 Acquisition of three mills (Rio de
Janeiro, Minas Gerais and Bahia)
 Construction of two new plants
(Paraná and Ceará)
 Operations abroad begin (Uruguay
and Canada)
THE 90’s
 Diversification into specialty steel –
acquisition of Piratini
 Expansion abroad – acquisition of mills
in Chile, Canada, Argentina and the USA
 Acquisition of second mill in Minas
Gerais and rolling mill in São Paulo
 Shareholdings restructuring
THE 70’s
 Acquisition of stake in Açominas
 Capacity expansion with acquisition of
two mills (Alagoas and Paraná) and
construction of largest mill (Rio de
Janeiro)
 Diversification in reforestation
5
Solid Track Record
In thousand tons
THE NEW MILLENNIUM
 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
Includes a pending
transaction in Colombia
Potter Form
Gate City & RJ
North Star
(USA)
Cartersville DIACO and
Drawing
SIDELPA
Co-Steel
(Colombia)
(USA)
Ameristeel
(USA)
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
7,696
TOTAL INVESTED ABROAD (1981-2004):
North America = US$ 1.3 billion + Debt
South America = US$ 314 million + Debt
16,830
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An International Company
Total Capacity
(Includes 1 Joint Venture)
16.8 million tons of crude steel
13.9 million tons of rolled steel products
Brazil
7.6 million tons of crude steel
4.8 million tons of rolled steel products
10 mills
11 fabrication shops
6 downstream operations and special
sections
75 sales points and flat steel service centers
Rolling mill
Abroad
Steel mills
9.2 million tons of crude steel
Joint venture
9.1 million tons of rolled steel products
18 mills and 1 rolling mill
38 fabrication shops
15 downstream operations and special
sections
1 joint venture
7
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
8
Solid Market Share in Long Steel
NORTH AMERICA
BRAZIL
Barra Mansa
5%
Other
29%
Gerdau
48%
Imports
18%
Commercial
Metals
7%
Other 7%
Aços Villares
5%
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
9
Growth Strategies
LONG STEEL PRODUCTS (Brazil)
 Maintenance of market share
 Enhancement of current installed
capacity
SOUTH AMERICA
 Maintenance of leadership in
the long steel sector
 New markets
 New steel mill in São Paulo
 Continuous improvements
NORTH AMERICA
 Efficiency and productivity
SPECIALTY STEEL
 Growth in the domestic and
export markets
gains (Gaps)
 Active role in the steel sector
consolidation process
 New mill in Rio de Janeiro
 New markets/regions
NEW OPPORTUNITIES
 Mexico, Asia, South America…
AÇOMINAS (Ouro Branco mill)
 New 1.5 mm ton blast furnace
 Flat Steel
 Iron ore and pig iron
 Next phase: +3 mm tons
 Growth platform for slabs,
blooms and billets
 Export-oriented sales
10
Shipments
In thousand tons
13,581
14 ,0 0 0
12,144
12,560
12 ,0 0 0
Brazil – Domestic Market
10 ,0 0 0
8 ,0 0 0
9,151
7,213
Brazil – Exports
7,394
South America
6 ,0 0 0
North America
4 ,0 0 0
2 ,0 0 0
2000
Billets,
blooms
& slabs
* Annualized data
2001
Merchant
bars
2002
2003
Rebars
2004
Fabricated
steel
2005*
Heavy
structural shapes
Wire-rod
Wires
Nails
11
Strong Export Business
SHIPMENTS BY REGION
2004
Asia
34%
Central
America
15%
9M05
Europe 11%
Asia
44%
SHIPMENTS BY SEGMENT
Agricultural
2%
Europe
11%
Africa
8%
South America
17%
Civil Construction
41%
Industry
57%
North America
15%
Agricultural
1%
Africa
8%
Central America
12%
North America
4%
Industry
62%
Civil
Construction
37%
South America
21%
12
Costs and Prices
733
755
718
443
747
707
444
402
374
546
338
311
299
492 494
500
310
289
511
681
449
Brazil
425
Net Sales Revenue and Cost of Sales per ton
In US Dollars/ton
Net Sales Revenue
Cost of Sales
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05
1Q032Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05
Net Sales Revenue
Cost of Sales
All data in BR GAAP converted by R$ 2.2222/US$
675
722
615
697
584
735
638
685
558
512
498
396
408 411
385
378
384
526
561
636
463
731
510
579
699
487
351
418
367
637
417
586
425
288
331
502
549
717
422
637
723
510
820
613
North America
South America
1Q03 2Q03 3Q03 4Q031Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05
Net Sales Revenue
Cost of Sales
13
Consolidated Financials
In US$ millions
9M04
9M05
7,383
2,353
1,678
1,219
2,092
5,143
1,666
1,151
870
1,492
7,362
1,996
1,424
1,132
1,743
Current assets
Non-current assets
Fixed assets
Total
3,600
390
3,041
7,031
2,954
273
2,662
5,889
5,152
365
3,794
9,311
Current liabilities
Non-current liabilities
Shareholders’ equity
Total
1,977
2,186
2,868
7,031
1,654
1,827
2,407
5,888
1,698
3,267
4,346
9,311
Gross margin
31.9%
EBITDA margin
28.3%
Total debt / EBITDA
1.1x
Net debt / EBITDA
0.8x
EBITDA/Net Financial Expenses 19.8x
32.4%
29.0%
1.2x
0.8x
14.3x
2004
Income Statement
Net revenue
Gross profit
Operating income
Net income
EBITDA
Balance Sheet
Ratios
27.1%
23.7%
1.4x
0.5x
23.3x
14
Liquidity Management
Gerdau maintains a strong liquidity policy to
ensure that ample resources are available in the
case of a downturn in market conditions or any
deterioration of the sovereign environment
Gerdau’s liquidity policy
 Cash and liquid investments of at least 25% of total debt
 Gerdau export sales not more than 50% leveraged through
export credit and receivable securitization
 Liquid funds are held in USD and Brazilian Reais both in
offshore and onshore accounts
15
Consolidated Debt Profile
In US$ millions
COST OF DEBT
(per year)
Sep./05
GROSS DEBT
3,261
100%
SHORT TERM
570
18%
Domestic Currency
107
3%
Foreign Currency
Companies Abroad
151
312
5%
10%
Brazil
Domestic Currency
Foreign Currency
Companies Abroad
In
R$
In
US$
16.5%
39.1%*
FX+
5.8%
5.8%
-
7.3%
DEBT MATURITY
LONG TERM
2,691
82%
Domestic Currency
691
21%
Foreign Currency
Companies Abroad
1,328
672
41%
20%
CASH & CASH AND EQUIV.
2,111
100%
Domestic Currency
Foreign Currency
1,363
748
65%
35%
NET DEBT
1,150
* Includes exchange and monetary variation in the last 9 months
9.1 years
DEBT STRUCTURE
Companies
Abroad
30%
Foreign
Currency
46%
Domestic
Currency
24%
16
Schedule of Amortization
In US$ million
Pre-export = 639
Debentures = 280
994
Comp. Abroad = 396
Debentures = 75
Comp. Abroad = 136
BNDES = 83
Imports = 108
Pre-export = 113
BNDES = 68
Imports = 62
Comp. Abroad = 211
382
286
199
4Q05
1S06
316
211
171
2S06
554
2007
2008
2009
148
2010
2011
After
2011
17
Guaranteed Perpetual Senior Notes
ISSUER
Gerdau S.A.
GUARANTORS
Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços
Especiais S.A., Gerdau Comercial de Aços S.A.
RATINGS
Moody’s: Ba1 (stable) / S&P: BB- (stable) /
Fitch: BB- (stable)
LEAD MANAGERS
HSBC / Citigroup
ISSUE AMOUNT
US$ 600,000,000
SETTLEMENT
September 22, 2005
MATURITY
Perpetual
OPTIONAL
REDEMPTION
Callable at Par on any interest payment date on or after
September 22, 2010
INTEREST PAYMENT
Payable Quarterly on September, December, March & June 22
COUPON
8.875% (First Coupon Payment Date: December 22, 2005)
LISTING
Singapore Stock Exchange
Obs.: 1) The offering orders exceeded US$ 3.5 billion.
2) The geographic distribution of the offering was as follows: 46% Asian, 32% European, 20% U.S. and
2% Brazilian investors.
18
Euro Commercial Paper
ISSUER
GTL Trade Finance, Inc.
GUARANTOR
Gerdau S.A.
LEAD MANAGER
Santander Investment Limited
PROGRAM AMOUNT
US$ 300,000,000
ISSUE
Third
ISSUE AMOUNT
US$ 200,000,000
SETTLEMENT
October 12, 2005
MATURITY
October 11, 2006
INTEREST PAYMENT
Payable Quarterly, starting in April 11, 2006
COUPON
5.00%
Obs.: 1) This is the second issuance on a programme which started with US$ 100 mm in 2003.
2) Coupons of each issue: 2003 – 4.125% (275 bps above Libor of 1 year)
2004 – 3.125% (67.5 bps above Libor of 1 year)
2005 – 5.000% (45.5 bps above Libor of 1 year)
19
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
Crude Steel
+ 28%
16,380
+ 11%
21,450
9,730
+ 55%
12,970
11,720
7,580
BraZil
+ 19%
8,240
8,800
2004
Rolled Steel
4,730
2007
Abroad
2004
Brazil
15,490
+ 8%
8,880
+ 40%
6,610
2007
Abroad
20
Safe Harbor Statement
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.
Gerdau S.A.
www.gerdau.com.br
[email protected]
+55 51 3323 2703