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Gerdau S.A.Annual Citigroup Asia Pacific Fixed Income Investor Conference
January 2006
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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.
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Gerdau Group Overview
Steel Industry Overview
Gerdau’s Operating and Financial Highlights
Agenda
All data presented in US Dollar and in metric tons, except when indicated
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VISION
MISSION
TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY
TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY
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
Philosophy
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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
Investment Considerations
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Steel mills
Downstream operations
Fab shops
Comercial Gerdau stores and Service centers
Scrap collection and processing units
Solid pig iron production units
Iron ore extraction areas
Private port terminals
Joint venture
Brazil
7.6 million tons ofcrude steel
4.8 million tons ofrolled steel products
Abroad
9.2 million tons ofcrude steel
9.1 million tons ofrolled steel products
Total Capacity (Includes Joint Ventures)
16.8 million tons of crude steel
13.9 million tons of rolled steel products
(29)
(21)(49)
(75)(24)
(2)
(3) (2)
(1)
An International Company
Gerdau’s installed capacity will reach some 21 million tons of crude steel per year post completion of the
Brazilian investment program in 2007
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CartersvilleMill
OrrvileDrawing
(USA)
Laisa - 1980(Uruguay)
AZA(Chile)
SIPAR(Arg.)
Ameristeel(USA)
AZANew Plant
(Chile)
Potter FormGate City & RJ
North Star(USA)
SACK(Chile)
DIACO(Colombia)
Cambridge(Canada)
Manitoba(Canada)
SIPSA(Argentina)
CartersvilleDrawingCo-Steel
(USA)
1,7573,072
3,934 4,595
7,696
14,450
16,830
Abroad – Crude Steel Installed Capacity
TOTAL INVESTED ABROAD (1981-2004):North America = US$ 1.3 billion + DebtSouth America = US$ 314 million + Debt
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 Expansion into SBQ - Spain
Solid Track Record
Brazil – Crude Steel Installed Capacity
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Value Builder CompanyATKearney
Value Growth
RevenueGrowth
Industryaverage
Industryaverage
StelcoHaynes
AK Steel
Smorgon
Carpenter
Salzgitter
Onesteel1)
Boehler-Uddeholm
INI SteelIpsco
Allegheny
Rautaruukki
Usinas
Ispat
Kennametal
SSAB
Voest-Alpine
Harsco
Nisshin Steel
Eregli Demir
Wuhan Steel1)Kobe
Dofasco
Iscor
Tata
RIVA1)
SAIL
Outokumpu
Corus
Gerdau
CSN
US Steel
Acerinox
Nucor
Thyssenkrupp
China Steel
Arcelor
Baoshan1)
Posco
JFE
Nippon Steel
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
-35% -25% -15% -5% 5% 15% 25% 35% 45%
Note: 1) RIVA 98 02, Wuhan Steel & Onesteel 00 03, Baoshan 01 03Source: ThyssenKrupp (segment), Kobe (segment), RIVA, Haynes:
EBIT Growth
Growth portfolio (CAGR 1999-2003)
benchmarked against industry average
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Gerdau Group Overview
Steel Industry Overview
Gerdau’s Operating and Financial Highlights
Agenda
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World Steel – Supply and Demand
Source: IISI / World Steel Dynamics
Finished Steel
1985 1990 1995 2000 2005F 2010F
632
1,000
1,153
Production Apparent Consumption
690 698
830
1,117
942
772
641655603
+ 15.3% over 2005
+ 18.6% over 2005
According to a WSD forecast for 2010, 97% of the
world’s production will be consumed.
In million tons
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Crude Steel Production – 2004
272
113
99
6548 46
39 33 33 28
China
USAJapan
Russia
South K
orea
Germany
Ukrain
e
Brazil
India
Italy
Source: IISI
Brazil and the Global Steel Industry
In million tonsIn million tons
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
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Crude Steel – Output 2004
In million tons
Arcelor (LUX) 2
Mittal Steel (NET) 1
Nippon Steel (JAP) 3
JFE Steel (JAP) 4
Posco (KOR) 5
Shangai Baosteel (CHI) 6
US Steel (USA) 7
Corus Group (U.K.) 8
ThyssenKrupp (GER) 10
Riva Group (ITA) 11
Nucor (USA) 9
Gerdau Group (BRA) 12
Sumitomo (JAP) 13
46.9
58.9
32.4
31.6
30.2
21.4
20.8
19.0
17.9
17.6
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.
Source: IISI
*
* Includes ISG acquired by Mittal Steel in 2004.
Among the Leaders
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COUNTRY MARKET SHARE MAIN COMPETITORS
Solid Market Share in Long Steel
CHILE
URUGUAY
ARGENTINA
53%
20%
90%
CAP + Imports
Acindar + Bragado + Zapla
Imports
COLOMBIA 37% Acerias Paz Del Rio
BRAZIL
Gerdau 48%
Belgo35%
Barra Mansa5%
Other12%
NORTH AMERICA
Nucor27%
Gerdau Ameristeel
19%
Commercial Metals
7%
Imports18%
Other29%
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Gerdau Group Overview
Steel Industry Overview
Gerdau’s Operating and Financial Highlights
Agenda
15
ShipmentsUS GAAP - In thousand tons
Billets, blooms& slabs
Merchant bars
Rebars Fabricated steel
Heavystructural shapes
Wire-rod Wires Nails
Brazil – Domestic Market
Brazil – Exports
South America
North America
3,372
5412,353
311
3,416
7902,311
339
3,874
1,904
2,841
309
3,376
3,263
4,466
348
3,881
2,830
4,724
438
6,577 6,856
8,928
11,45311,873
2000 2001 2002 2003 2004 2005*
2,954
3,547
5,874
531
12,906
* 9M05 Annualized
BY REGION
16
2 0 0 3 2 0 0 4 9 M 0 4 9 M 0 5
Strong Hard Currency Generation
6,602
4,9774,531
6,952
South America
North America
Brazil – Domestic Market
NET SALES - US GAAP
In US$ millions
122
521
2,077
319
3,010
2,373
168
1,896
2,161
2,441
950
248
Exports and Companies
Abroad63%
Brazil37%
Brazil - Exports 752
2,963
1,2501,811
Currency Breakdown – 9M05
Historical Geographical Distribution
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Strong Export BusinessShipments by Region
Asia44%
Central America12%
South America 21%
North America4%
Africa8%Europe
11%
Asia34%
Europe11%
Africa8%
South America17%
North America15%
Central America
15%
2004US$ 1.1 billion2.7 million tons
9M2005US$ 949.7 million2.1 million tons
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Cost of Sales
Net Sales Revenue and Cost of SalesIn US$/ton
Costs and Prices
North America (US GAAP)
397 407
5650509
630729
685 689
374
368
376
392 5
16
461
494
557 633
606
Net Sales Cost of Sales
1Q03 2Q03 3Q03 3Q044Q03 1Q04 2Q04 4Q04 1Q05 2Q05
583
674
3Q033Q03 2Q042Q04 3Q043Q04 4Q044Q04 1Q051Q05
403403447447
476476
674674 692692
Net SalesNet Sales Cost of sales Cost of sales
414
414
371
371
364
364
339
339
295
295
2Q052Q05
496
496
673673
4Q034Q03 1Q041Q042Q032Q031Q031Q03
Group (US GAAP)
304
304
263
263
483
483
504
504
568568
342342 387387
625625
All data in BR GAAP converted by R$ 2.2222/US$
Brazil (BR GAAP)
Cost of SalesNet Sales Revenue
507 498 490 493546
680733747 755
293
316
309
314
338
374
402
425
449
443
718707
444
1Q03 2Q03 3Q03 3Q044Q03 1Q04 2Q04 4Q04 1Q05 2Q05 3Q05
South America (BR GAAP)
Net Sales Revenue
425
549637
586
717 699637
820
502
331
288 3
67
418
351 422
417 487 579
1Q032Q03 3Q03 3Q044Q031Q04 2Q04 4Q04 1Q05 3Q05
510
723
2Q05
731
510
3Q053Q05
501
501
682682
3Q05
558
655
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Capital ExpendituresCapital Expenditures
INVESTMENTS - 9M2005INVESTMENTS - 9M2005
2004 2007
8,800
7,580
9,730
11,720
16,380
21,450
+ 55%
+ 11%
+ 28%
EVOLUTION OF INSTALLED CAPACITY
Investment Program 2005 – 2007: US$ 3.2 billionInvestment Program 2005 – 2007: US$ 3.2 billion
2004 2007
8,240
4,730
8,880
6,610
12,970
15,490
+ 40%
+ 8%
+ 19%
BraZil Abroad Brazil Abroad
Crude Steel Rolled Steel
BRAZIL 410.4
ABROAD 248.2
North America 114.4
South Amerca 133.8
TOTAL 658.6
In thousand tonsIn thousand tons
In US$ millions
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US GAAP
Consolidated Financials
In US$ millions
2002 2003 2004
Income Statement
Net revenueGross profitOperating incomeIncome before taxesNet income
Free Cash Flow
EBITDA(-) Net interest expenses(-) Capex (including acquisitions)(-) Taxes(-) DividendsFree cash flow
9M05
3,265
915
563
229
232
4,531
1,085
696
526
510
6,952
2,113
1,628
1,722
1,158
6,602
1,760
1,307
1,482
925
1,501
47
297
411
301
446
760
116
464
7
74
99
880
157
343
(34)
122
292
1,869
83
772
407
276
331
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US GAAP
Consolidated Financials
In US$ millions
2002 2003 2004
Ratios
Gross marginEBITDA marginTotal debt / EBITDANet debt / EBITDAEBITDA / InterestNet debt / Shareholders’ equityNet debt / Total capitalizationShort term debt / Total debt
28%23%2.8x2.2x6.6x
194%66%53%
24%19%2.4x2.0x5.6x
125%56%38%
30%27%1.2x0.9x
22.5x65%39%29%
Balance Sheet
Current assetsNon-current assetsFixed assetsTotal
Current liabilitiesNon-current liabilitiesMinority interestShareholders’ equityTotal
Total debtCash and cash equivalentsNet debt
1,5242,4762,0854,000
1,5881,239
309864
4,000
2,100423
1,667
1,7603,0112,3044,771
1,4591,644
2651,4034,771
2,086331
1,755
3,3233,5292,7906,852
1,7121,975
6422,5236,852
2,298659
1,639
September/05
4,9464,3113,5259,257
1,6103,059
9343,6549,257
3,1902,0801,110
27%23%1.6x0.6x
30.6x30%23%17%
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US GAAPIn US$ millions
Consolidated Debt Profile
DEBT STRUCTURE
Domestic Currency24%
Foreign Currency
52%
Companies Abroad24%
* Includes exchange and monetary variation in the last 9 months* Includes exchange and monetary variation in the last 9 months
GROSS DEBT 3,190 100%
SHORT TERM 543 17%
Domestic Currency 76 2%
Foreign Currency 402 13%Companies Abroad 65 2%
LONG TERM 2,648 83%
Domestic Currency 701 22%
Foreign Currency 1,239 39%
Companies Abroad 708 22%
CASH & CASH AND EQUIV. 2,080 100%
Domestic Currency 1,825 61%
Foreign Currency 255 39%
NET DEBT 1,110
Sep./05
23
Consolidated Debt Amortization
274190 167
378310
205143
4Q 05 1H 06 2H 06 2007 2008 2009 2010 AFTER 2010
Securitization: 38.1BNDES: 60.8Debentures GNA: 93.3Imports: 107.6Pre-Export: 22
Securitization: 8
Securitization: 40.9BNDES: 65Imports: 61.6Pre-Export: 112
Securitization: 41
Debentures: 328.7Bonds GNA: 398.9Securitization: 24.4Perpetual:589
Securitization: 9
Securitization:18
Securitization: 44
In US$ millions – September/05
US GAAP
NOTES: a) US$ 328.7 million equivalent of local bonds maturing from 2011 to 2020 b) US$ 398.9 million GNA bonds maturing in July/2011c) US$ 589.0 million Perpetual Bonds with no final maturity date
1,527
