Gerdau Group UBS Sixth Annual CEO Conference Rio
Gerdau Group UBS Sixth Annual CEO Conference Rio de Janeiro, March 7 -8, 2005
Steel Sector Gerdau S. A. Consolidated Figures Capital Markets All data presented in R$ and metric tons, except when indicated
World Output Crude Steel In million tons The world production of crude steel surpassed the mark 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. +23. 2% +2. 0% +5. 6% +4. 6% Source: IISI +2. 6% +3. 5% 2004 +4. 9% +5. 7% +2. 7% +5. 3% 2003 3
World Top Producers Crude Steel COMPANY OUTPUT 2003 RANKING 2002 In million tons Mittal Steel (Ispat, LNM and ISG) will be the biggest world steel company with 60 million tons of installed capacity. COMPANY OUTPUT 2003 RANKING 2002 After the investment program in Brazil is completed, Gerdau will have an installed capacity of 21 million tons of crude steel per year. Source: Metal Bulletin 4
Steel Sector Gerdau S. A. Consolidated Figures Capital Markets
Units Distribution NORTH AMERICA ü 14 mills and 1 strategic shareholding (Gallatin Steel) ü 29 fabrication shops ü 13 downstream operations and special sections Gerdau Ameristeel Corp. Gallatin Steel* BRAZIL Gerdau Açominas S. A. SOUTH AMERICA ü 4 sales points ü 11 fabrication shops ü 8 downstream operations and special sections ü 2 mills and 1 strategic shareholding (Sipar) ü 4 fabrication shops ü 10 mills Aza Laisa Sipar** ü 75 sales points (Comercial Gerdau) and flat steel service centers * Flat steel mill, 50% stake JV ** Rolling mill, 38% stake JV 6
Installed Capacity December 2004 In thousand tons CRUDE STEEL SLABS, BLOOMS & BILLETS ROLLED PRODUCTS MAIN PRODUCTS Billets, slabs, blooms, merchant bars, rebars, wire rod, drawn BRAZIL 7, 580 2, 610 4, 730 products, welded wire meshes, structurals, nails, downstream products, fabricated steel products and specialty steel. SOUTH AMERICA NORTH AMERICA TOTAL 510 - 610 Billets, merchant bars, rebars and wire rod. Billets, merchant bars, rebars, wire rod, drawn products, welded meshes, nails, downstream products, fabricated steel products, flat steel products and grinding balls. 8, 290 - 7, 630 16, 380 2, 610 12, 970 7
Output Evolution CRUDE STEEL 13, 448 12, 343 In thousand tons 9, 441 Utilization rate: 7, 065 • Brazil: 96. 2% 7, 251 • Abroad: 83. 9% ROLLED PRODUCTS In thousand tons 10, 274 Brazil Abroad 9, 045 6, 933 5, 836 5, 968 Utilization rate: • Brazil: 91. 7% • Abroad: 83. 7% 8
Shipments In thousand tons ar e y t 5 s s e reas c in % 4 7 e la h t n les i in sa 12, 144 2, 560 1 9, 151 7, 213 7, 394 Brazil Abroad Average price (Net sales (R$)/ton) 9
Exports 2003 2004 SOUTH AMERICA 15% ASIA 51% SOUTH AMERICA 6% NORTH AMERICA 15% ASIA 34% NORTH AMERICA 9% CENTRAL AMERICA 11% AFRICA 11% EUROPE 12% CENTRAL AMERICA 17% AFRICA 8% EUROPE 11% EXPORTS 2004 • Shipments from Brazil reached 2. 7 million tons in 2004 • Revenues generated by exports reached US$ 1. 1 billion in 2004 • Average price 57. 9% greater than in 2003 (in US$) 10
Financials In R$ million 2004 2003 MAIN VARIATIONS (Yo. Y): 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. 11
Results by Region 2004 In R$ million Gross Revenue BRAZIL NORTH SOUTH AMERICA 2004 2003 Var. % 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% 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% Gross Margin 43% 19% 36% 32% 25% EBITDA Margin 37% 18% 33% 28% 20% Net Margin 22% 10% 23% 17% 9% In R$/Ton In % 12
Evolution of Results NET REVENUE EBITDA US$ million 1, 830 1, 705 1, 844 552 486 1, 435 992 1, 055 1, 195 582 1, 217 304 210 GROSS MARGIN 225 230 229 EBITDA MARGIN 43. 6% 42. 0% 36. 2% 35. 8% 34. 1% 30. 3% 25. 3% 32. 1% 14. 9% 2. 9% 13. 5% 3. 6% Brazil North America South America 13
Indebtedness In R$ million 2004 2003 COST OF DEBT (per annum) Brazil - Domestic currency Brazil – Foreign currency Companies abroad 15. 2% FX+4. 4% 7. 2% HEDGE In R$ million Foreign currency debt Swap operations 2, 358 225 Exports 2, 904 Cash in US$ 1, 393 TOTAL HEDGE 4, 522 COVERAGE RATIO DEBT AVERAGE LIFE 1. 9 x 4. 1 years 14
Capital Expenditures In US$ million Rolling mill start up in São Paulo Improvements in Colombia Melt shop start up in São Paulo Acquisition of stakes in Colombia Improvements at Piratini Improvements at Cosigua North Star Assets (USA) Investments in São Paulo Acquisition of stakes in Colombia 1, 260 1, 140 New blast furnace in Ouro Branco Improvements at Brazilian mills New Specialty Steel mill in Rio 772 Brazil 770 Abroad Scheduled 15
Main Investments Brazil TOTAL INVESTMENT: US$ 3. 2 BILLION Brazil: Expansion: US$ 1, 620 mm Abroad: Update: US$ 800 mm Update: US$ 750 mm INSTALLED CAPACITY Brazil – Crude Steel Consolidated – Crude Steel Current: 7, 580 k tons Current : 16, 380 k tons New: 11, 720 k tons New: 20, 950 k tons Brazil – Rolled Products Consolidated – Rolled Products Current : 4, 730 k tons Current : 12, 970 k tons New: 6, 610 k tons New: 15, 490 k tons DISBURSEMENT SCHEDULE 2005: US$ 1, 140 mm 2006: US$ 1, 260 mm 2007: US$ 770 mm 16
Outlook ü In general terms, the expectation is that 2005 will be similar to 2004 both in Brazil and abroad. ü Increase in cost of coking coal and iron ore brings repercussions to the steel products international prices. ü In the short term there is a decline in scrap and pig iron prices. ü In Brazil the trend is to see margins in the 1 Q 05 at the same levels as those of the 4 Q 04. ü In the 1 Q 05, volumes in Brazil seasonally low, compensated by exports. ü In Brazil GDP should grow around 4% leading to an increase in the demand for steel products. ü Investments in infrastructure in Brazil are expected to grow sharply in 2005. ü The increase in interest rates in North America brings uncertainties. ü The role of China. 17
Steel Sector Gerdau S. A. Consolidated Figures Capital Markets
Stock Performance GOAU 4 – METALÚRGICA GERDAU S. A. Metalúrgica Gerdau S. A. +99% GGBR 4 – GERDAU S. A. Gerdau S. A. +54% Ibovespa +22% Market Cap: US$ 5. 1 bi Market Cap: US$ 1. 9 bi GGB – GERDAU S. A. ADRs GNA – GERDAU AMERISTEEL CORP. ADRs - Gerdau S. A. Dow Jones +68% Gerdau Ameristeel Corp. +71% S&P TSX +3% Market Cap: US$ 5. 1 bi Source: Economática/Bloomberg - Period: 01. 2004 to 02. 17. 2005 (Base 100). +17% Market Cap: US$ 2. 0 bi 19
Stock Liquidity Bovespa GERDAU S. A. (GGBR 4) METALÚRGICA GERDAU S. A. (GOAU 4) Monthly daily volume Monthly daily average # of trades 15 1, 300 14 1, 200 13 1, 100 12 1, 000 11 900 10 GGBR 4: 492 trades US$ 5. 4 mm 9 800 8 700 7 600 6 109 trades US$ 1. 6 mm 5 400 3 200 2 GOAU 4: 240 trades US$ 2. 5 mm 100 1 Dec 03 Source: Economática 862 trades US$ 8. 7 mm 500 4 GOAU 4: GGBR 4: Jan Feb Mar Apr May Jun Jul 04 04 30% Stock bonus + 70% Split (GOAU) 100% Stock bonus (GGBR) Aug Sep 04 04 Oct 04 Nov 04 Dec 04 Jan 05 20
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