gerdau group ubs sixth annual ceo conference rio de janeiro, march 7-8, 2005
TRANSCRIPT
Gerdau Group
UBSSixth Annual
CEOConference
Rio de Janeiro, March 7-8, 2005
Steel Sector
Gerdau S.A. Consolidated
Consolidated Figures
Capital Markets
All data presented in R$ and metric tons, except when indicated
0
50
100
150
200
250
300
Chin
a
Japan
US
A
Russ
ia
South
Kore
a
Germ
any
Ukra
ine
Bra
zil
India
Italy
+23.2%
+2.6% +3.5% +4.9% +5.7% +2.7% +5.3%
+2.0%+5.6%
+4.6%
20032004
World OutputCrude Steel
In million tons
3
The world production of crude steel surpassed themark of 1 billion tons in 2004, an increase of 8.9% over the previous year. The growth average has been 4.6% year over year if China was not included.
Source: IISI
4Source: Metal Bulletin
8 US Steel (USA) 17.9 10
9 Thyssen Krupp Steel (GER) 17.0 6
10 Riva Group (ITA) 15.7 9
11 Nucor (USA) 15.8 12
12 Sumitomo Metal (J AP) 13.3 13
13 Sail (IND) 12.4 14
14 Grupo Gerdau (BRA) 12.3 19
15 Evraz Holding (RUS) 12.1 nd
1 Arcelor (LUX) 42.8 1
2 Nippon Steel (JAP) 31.8 2
3 LNM Group (NED) 31.1 4
4 JFE Group (JAP) 29.8 nd
5 Posco (KOR) 29.7 3
6 Shanghai Baosteel (CHI ) 19.9 5
7 Corus Group (ENG) 18.9 7
COMPANYOUTPUT
2003RANKING
2002
After the investment program in Brazil is
completed, Gerdau will have an installed capacity of 21 million tons of crude steel
per year.
Mittal Steel (Ispat, LNM and ISG) will be
the biggest world steel company with 60 million tons of installed capacity.
World Top ProducersCrude Steel
COMPANYOUTPUT
2003RANKING
2002
In million tons
Steel Sector
Gerdau S.A. Consolidated
Consolidated Figures
Capital Markets
NORTH AMERICA
14 mills and 1 strategic shareholding (Gallatin Steel)
29 fabrication shops
13 downstream operations and special sections
BRAZIL
10 mills
11 fabrication shops
8 downstream operations and special sections
75 sales points (Comercial Gerdau) and flat steel service centers
SOUTH AMERICA
2 mills and 1 strategic shareholding (Sipar)
4 fabrication shops
4 sales pointsSipar**
Laisa
Gerdau Açominas S.A.
Aza
Gerdau Ameristeel Corp.Gallatin Steel*
Units Distribution
** Rolling mill, 38% stake JV
* Flat steel mill, 50% stake JV6
12,970
7,630
610
4,730
ROLLEDPRODUCTS
Billets, merchant bars, rebars, wire rod, drawn products, welded meshes, nails, downstream products, fabricated steel products, flat steel products and grinding balls.
-8,290NORTH
AMERICA
2,610
-
2,610
SLABS, BLOOMS &
BILLETS
16,380TOTAL
Billets, merchant bars, rebars and wire rod.
510SOUTHAMERICA
Billets, slabs, blooms, merchant
bars, rebars, wire rod, drawn
products, welded wire meshes,
structurals, nails, downstream
products, fabricated steel
products and specialty steel.
7,580BRAZIL
MAIN PRODUCTSCRUDESTEEL
7
In thousand tons
Installed Capacity December 2004
0
2,000
4,000
6,000
8,000
10,000
2000 2001 2002 2003 2004
10,274
9,045
6,9335,9685,836
8
Output Evolution CRUDE STEELIn thousand tons
ROLLED PRODUCTSIn thousand tons
AbroadBrazil
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2000 2001 2002 2003 2004
13,44812,343
9,441
7,2517,065
Utilization rate:
• Brazil: 91.7%
• Abroad: 83.7%
Utilization rate:
• Brazil: 96.2%
• Abroad: 83.9%
0
2,600
5,200
7,800
10,400
13,000
2000 2001 2002 2003 2004-
300
600
900
1,200
1,500
1,800 12,560
12,144
9,151
7,394
7,213
ShipmentsIn thousand tons
74% increase in sales in the last 5 years
9
AbroadBrazil Average price (Net sales (R$)/ton)
10
ASIA 51%SOUTH
AMERICA6%
NORTHAMERICA
9%
CENTRALAMERICA
11% AFRICA11%
EUROPE12%
ASIA 34%
SOUTHAMERICA
15%
NORTHAMERICA
15%
CENTRALAMERICA
17%AFRICA
8%
EUROPE11%
Exports
2003 2004
EXPORTS 2004
• Shipments from Brazil reached 2.7 million tons in 2004
• Revenues generated by exports reached US$ 1.1 billion in 2004
• Average price 57.9% greater than in 2003 (in US$)
20032004
Financials
In R$ million
11
GROSS SALES REVENUE 23,408 15,783
Net sales revenue 19,597 13,367
Cost of sales (13,352) (10,077)
Gross profit 6,245 3,290
SG&A (1,459) (1,212)
Net Financial expenses (176) (647)
Other operating income 188 15
Equity pick-up (343) (299)
Operating profit 4,455 1,147
Non-operating expense (25) (8)
Profit before taxes 4,430 1,139
Provision for income tax (1,154) 141
Other (41) (26)
Net Profit for the period 3,235 1,254
NET SALES REVENUE +46.6%- Better prices in the international market;- Recovery of the domestic demand; - Consolidation of the units acquired in 2004.
NET FINANCIAL EXPENSES -72.8%- Increase in financial investments of the cash generated in the period;
OTHER OPERATING INCOME +1,153.3%- Favorable outcome of a legal suite due to the improper collection of PIS.
EQUITY PICK UP +14.7%- FX variation over investments abroad;- Fiscal incentives reserves; - Goodwill amortization.
MAIN VARIATIONS (YoY):
12
Results by Region 2004
Var. %BRAZIL
NORTH
AMERICA
SOUTH
AMERICA 2004 2003In R$ million
Gross Revenue 12,914 9,453 1,040 23,407 15,783 48%
Net Revenue 9,976 8,857 764 19,597 13,367 47%
Gross Profit 4,307 1,662 276 6,245 3,290 90%
EBITDA 3,705 1,597 251 5,553 2,683 107%
Net Income 2,165 896 174 3,235 1,255 158%
In R$/Ton
Gross Revenue 1,948 1,747 1,996 1,864 1,300 43%
Net Revenue 1,505 1,637 1,466 1,560 1,101 42%
Gross Profit 650 307 530 497 271 83%
EBITDA 559 295 482 442 221 100%
Net Income 327 166 334 258 103 150%
In %
Gross Margin 43% 19% 36% 32% 25%
EBITDA Margin 37% 18% 33% 28% 20%
Net Margin 22% 10% 23% 17% 9%
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04
992 1,0551,195 1,217
1,435
1,7051,830 1,844
US$ million
NET REVENUE
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04
210 225 230 229
304
552582
486
US$ million
EBITDA
Brazil North America South America
0%
10%
20%
30%
40%
50%
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04
GROSS MARGIN EBITDA MARGIN
0%
10%
20%
30%
40%
50%
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04
2.9%
14.9%
42.0%43.6%
34.1%30.3%
3.6%13.5%
36.2%35.8%
32.1%25.3%
Evolution of Results
13
COST OF DEBT (per annum)
Brazil - Domestic currency 15.2%
Brazil – Foreign currency FX+4.4%
Companies abroad 7.2%
Indebtedness
GROSS DEBT 6,377 100% 6,263
SHORT TERM 1,972 31% 2,418
Domestic currency 202 3% 281
Foreign currency 705 11% 1,343
Companies abroad 1,065 17% 794
LONG TERM 4,405 69% 3,845
Domestic currency 1,211 19% 717
Foreign currency 1,653 26% 1,031
Companies abroad 1,541 24% 2,097
CASH & CASH EQUIV. 2,042 100% 1,017
Domestic currency 649 32% 430
Companies abroad 1,393 68% 587
NET DEBT 4,335 5,246
2004 2003
HEDGE
In R$ million
Foreign currency debt 2,358
Swap operations 225
Exports 2,904
Cash in US$ 1,393
TOTAL HEDGE 4,522
COVERAGE RATIO 1.9x
DEBT AVERAGE LIFE 4.1 years
In R$ million
14
-
200
400
600
800
1,000
1,200
1,400
2004 2005 2006 2007
15
In US$ million
Capital Expenditures
772
AbroadBrazil Scheduled
1,140
1,260
770
North Star Assets (USA)Investments in São PauloAcquisition of stakes in Colombia
Melt shop start up in São PauloAcquisition of stakes in ColombiaImprovements at PiratiniImprovements at Cosigua
Rolling mill start up in São PauloImprovements in Colombia
New blast furnace in Ouro BrancoImprovements at Brazilian millsNew Specialty Steel mill in Rio
Main InvestmentsBrazil
16
DISBURSEMENT SCHEDULEDISBURSEMENT SCHEDULE
Brazil: Expansion: US$ 1,620 mm
Update: US$ 750 mm
Brazil: Expansion: US$ 1,620 mm
Update: US$ 750 mm
TOTAL INVESTMENT: US$ 3.2 BILLIONTOTAL INVESTMENT: US$ 3.2 BILLION
Abroad: Update: US$ 800 mmAbroad: Update: US$ 800 mm
INSTALLED CAPACITYINSTALLED CAPACITY
Brazil – Crude Steel
Current: 7,580 k tons
New: 11,720 k tons
Brazil – Crude Steel
Current: 7,580 k tons
New: 11,720 k tons
Brazil – Rolled Products
Current : 4,730 k tons
New: 6,610 k tons
Brazil – Rolled Products
Current : 4,730 k tons
New: 6,610 k tons
Consolidated – Crude Steel
Current : 16,380 k tons
New: 20,950 k tons
Consolidated – Crude Steel
Current : 16,380 k tons
New: 20,950 k tons
Consolidated – Rolled Products
Current : 12,970 k tons
New: 15,490 k tons
Consolidated – Rolled Products
Current : 12,970 k tons
New: 15,490 k tons
2005: US$ 1,140 mm
2006: US$ 1,260 mm
2007: US$ 770 mm
2005: US$ 1,140 mm
2006: US$ 1,260 mm
2007: US$ 770 mm
Outlook
In general terms, the expectation is that 2005 will be similar to 2004 both in Brazil and abroad.
Increase in cost of coking coal and iron ore brings repercussions to the steel products international prices.
In the short term there is a decline in scrap and pig iron prices.
In Brazil the trend is to see margins in the 1Q05 at the same levels as those of the 4Q04.
In the 1Q05, volumes in Brazil seasonally low, compensated by exports.
In Brazil GDP should grow around 4% leading to an increase in the demand for steel products.
Investments in infrastructure in Brazil are expected to grow sharply in 2005.
The increase in interest rates in North America brings uncertainties.
The role of China. 17
Steel Sector
Gerdau S.A. Consolidated
Consolidated Figures
Capital Markets
0
50
100
150
200
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05
0
50
100
150
200
250
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05
0
50
100
150
200
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05
0
50
100
150
200
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05
GGBR4 – GERDAU S.A.GGBR4 – GERDAU S.A.
GNA – GERDAU AMERISTEEL CORP.GNA – GERDAU AMERISTEEL CORP.GGB – GERDAU S.A. ADRsGGB – GERDAU S.A. ADRs
GOAU4 – METALÚRGICA GERDAU S.A.GOAU4 – METALÚRGICA GERDAU S.A.
Stock Performance
Source: Economática/Bloomberg - Period: 01.01.2004 to 02.17.2005 (Base 100).
Metalúrgica Gerdau S.A.
Ibovespa
Market Cap: US$ 1.9 biMarket Cap: US$ 1.9 bi
+99% +99%
+22% +22%
ADRs - Gerdau S.A.
Dow Jones
Market Cap: US$ 5.1 biMarket Cap: US$ 5.1 bi
+68% +68%
+3% +3%
Gerdau Ameristeel Corp.
S&P TSX
Market Cap: US$ 2.0 biMarket Cap: US$ 2.0 bi
+71% +71%
+17% +17%
+54% +54%
+22% +22%
Gerdau S.A.
Ibovespa
Market Cap: US$ 5.1 biMarket Cap: US$ 5.1 bi
19
37240.1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
200
300
400
500
600
700
800
1,100
1,200
1,300
1,000
900
100
Dec03
Dec03
Jan04Jan04
Feb04
Feb04
Mar04
Mar04
Apr04
Apr04
May04
May04
Jun04Jun04
Jul04Jul04
Aug04
Aug04
Sep04
Sep04
Oct04
Oct04
Nov04
Nov04
Dec04
Dec04
Jan05Jan05
30% Stock bonus + 70% Split (GOAU)100% Stock bonus (GGBR)
METALÚRGICA GERDAU S.A. (GOAU4)
Monthly daily average # of trades Monthly daily volume
Monthly daily average # of trades Monthly daily volume
GERDAU S.A. (GGBR4)
20
GOAU4:109
tradesUS$ 1.6 mm
GGBR4:492
tradesUS$ 5.4 mm
Stock LiquidityBovespa
GOAU4:240
tradesUS$ 2.5 mm
GGBR4:862
tradesUS$ 8.7 mm
Source: Economática