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Conference Call – 3rd Quarter 2008 GERDAU S.A. · PDF file 1 Conference Call – 3rd Quarter 2008 GERDAU S.A. CONSOLIDATED André Gerdau Johannpeter President and CEO Osvaldo B

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  • 1

    Conference Call – 3rd Quarter 2008 GERDAU S.A. CONSOLIDATED

    André Gerdau Johannpeter President and CEO

    Osvaldo B. Schirmer CFO and IR Director

    November 5th, 2008

  • 2

    SHIPMENTS

    3Q 2008: 5.1 million tonnes ���� +21.3% compared to 3Q 2007

    REVENUES

    3Q 2008: R$ 13.9 billion ���� +61.3% compared to 3Q 2007

    EBITDA

    3Q 2008: R$ 3.8 billion ���� +153,7% compared to 3Q 2007

    NET INCOME

    3Q 2008: R$ 1.4 billion ���� + 37.2% compared to 3Q 2007

    INVESTMENTS (Acquisitions and Capex)

    US$ 477 million

    Gerdau – Highlights 3rd Quarter

  • 3

    Steel Market 3rd Quarter

    Source: World Steel Association, Steel Business Briefing

    WORLD STEEL PRODUCTION

    � Growth of 2.4%, reaching 340 million tonnes compared to 3Q 07

    � China: stable production growth levels

    PRICES / COSTS

    � Prices kept following the upward trend in raw materials and other costs

    OUTLOOK

    � 2008 should prove to be a year of growth for the steel industry as a whole,

    despite the uncertainty about the effects of the world economic crisis.

    �4th Quarter should present reduction on raw materials and steel prices

  • 4

    �Apparent consumption in 3rd Quarter still very robust, based specially on civil

    construction, but also capital goods and automotive

    �Shipments for the Brazilian operations up 30% compared to last year

    INVESTMENTS

    �Capex: US$ 212 million

    OUTLOOK

    �Brazilian economy with sustainable growth in the year 2008

    �Steel demand in Brazilian domestic markets stable in the near term

    Gerdau – Performance 3Q08 vs. 3Q07 Brazil

    Source: IBS (Instituto Brasileiro de Siderurgia)

  • 5

    North America

    � Robust 3rd Quarter: record quarterly EBITDA

    � Shipments: growth of 17% compared to 3Q07

    � Well capitalized and diversified business

    � 40% of scrap consumption is now internally sourced

    INVESTMENTS

    � Capex: US$ 47 million

    OUTLOOK

    � Continuous monitoring of the economy

    � Steel demand affected by market and seasonality in 4th Quarter

    � Scrap and steel products price reduction, but spreads above historical averages

    Gerdau – Performance 3Q08 vs. 3Q07

  • 6

    Latin America (excluding Brazil)

    �3rd quarter: sound financial results (higher spot coke prices – business acquired in

    Colombia)

    INVESTMENTS

    � Capex: US$ 45 million

    OUTLOOK

    �Seasonal reduction on demand in 4th Quarter

    �Focus on infrastructure investments on majority of countries

    �Monitoring effects of the financial crisis on the different economies

    Gerdau – Performance 3Q08 vs. 3Q07

  • 7

    Specialty Steel

    � Brazil: strong quarter - automobile production up by 16%

    � Shipments up 51% compared to 3rd Q 2007

    INVESTMENTS

    � Capex: US$ 61 million

    OUTLOOK

    � Brazil: stable automobile and equipment/machinery segments.

    � Europe and US: diversification of customer base (energy, heavy machinery)

    Gerdau – Performance 3Q08 vs. 3Q07

  • 8

    Summary

    � Strong quarter

    � Focus on:

    � Cost efficiency

    � Synergies

    � Best practices

    � Alignment with market demand/customer base

    � Investment Program: reassessing priorities and schedules

  • 9

    1, 51

    4

    3, 84

    1

    1, 61

    5

    1, 98

    5

    2, 74

    7

    3Q07 4Q07 1Q08 2Q08 3Q08

    Gerdau – Consolidated Financials

    EBITDA In millions of R$

    In millions of R$ 3Q08 3Q07

    MARGINS

    (149)37Other operating income (expenses)

    1,0351,420NET INCOME

    (210)(434)Provision for income tax

    57 (1,553)Net financial results

    2795Equity in earnings of unconsolidated companies

    1,1613,312Operating profit

    (606)(815)Sales, General and Administrative Expenses

    1,9164,090Gross profit

    7,66512,444NET SALES

    23.6% 23.8% 26.8%

    22.2% 24.7%

    25.0%

    32.9%

    19.8%

    30.9%

    20.0%

    3Q07 4Q07 1Q08 2Q08 3Q08

    GROSS Margin EBITDA Margin

  • 10

    Exchange Rate Effects

    ASSETS

    US$ 4.7 billion

    LIABILITIES

    US$ 2.8

    billion

    Gain: directly to equity (IFRS)

    3Q08: R$ 1.1 BILLION NEGATIVE FX VARIATION ON INCOME STATEMENT (R$ 700 AFTER TAX)

    BALANCES IN BRAZILIAN SUBSIDIARIES DENOMINATED IN FOREIGN CURRENCY:

    NET ASSET POSITION: US$ 1.9 billion

    Loss: income statement (IFRS)

    EXCHANGE RATE R$ / US$

    20 %

    � Effect is non-cash

    � Not related to derivatives

    � Tax-deductible

    3Q08: R$ 1.8 BILLION

    POSITIVE FX

    VARIATION ON EQUITY

    3Q08: R$ 1.1 ECONOMIC GAIN (AFTER TAX)

    1.59

    1.91

    Q208 Q308

  • 11

    Gerdau - Performance 3rd Quarter Brazil1

    Note1: Does not include specialty steel operations

    NET SALES (R$ Million) & GROSS MARGIN (%)

    EBITDA (R$ Million) &

    EBITDA MARGIN (%)

    73 6 1

    ,2 08

    82 1

    62 9

    1, 91

    7

    24.2%

    41.1%

    33.8%

    28.2%27.7%

    3Q07 4Q07 1Q08 2Q08 3Q08

    4, 66

    2

    2, 59

    9

    2, 90

    6

    3, 57

    6

    2, 65

    3

    36.0%

    45.8%

    36.4% 33.0%

    39.9%

    3Q07 4Q07 1Q08 2Q08 3Q08

  • 12

    Gerdau - Performance 3rd quarter North America1

    Note1: Does not include Mexico and MacSteel

    Note2: Information above does not include data from associated companies and joint ventures

    NET SALES2 (R$ Million)

    & GROSS MARGIN (%)

    EBITDA (R$ Million) &

    EBITDA MARGIN (%)

    2, 67

    8 3, 50

    9

    4, 17

    0

    3, 09

    9 4, 14

    4

    17.0% 17.2% 18.4%

    20.1% 22.4%

    3Q07 4Q07 1Q08 2Q08 3Q08

    53 5

    87 5

    68 3

    40 2

    99 0

    15.0%

    23.9%

    21.0% 19.4%

    17.3%

    3Q07 4Q07 1Q08 2Q08 3Q08

  • 13

    89 7 1, 11

    3

    95 0

    89 0

    1, 44

    7

    20.1%

    30.2% 26.6%

    19.1%

    13.9%

    3Q07 4Q07 1Q08 2Q08 3Q08

    Gerdau - Performance 3rd quarter Latin America1

    Note1: Does not include Brazil

    Note2: Information above does not include data from associated companies and joint ventures

    NET SALES2 (R$ Million) & GROSS MARGIN (%)

    EBITDA (R$ Million) & EBITDA MARGIN (%)

    11 2

    28 9

    15 6

    15 5

    40 3

    17.4%

    27.9% 25.9%

    16.4%

    12.5%

    3Q07 4Q07 1Q08 2Q08 3Q08

  • 14

    Gerdau - Performance 3rd quarter Specialty Steel

    NET SALES (R$ Million)

    & GROSS MARGIN (%)

    EBITDA (R$ Million)

    & EBITDA MARGIN (%)

    1, 49

    8

    1, 57

    9 2 ,2

    41

    1, 42

    5 2 ,1

    90

    19.6% 22.0%

    18.7%

    26.9%

    23.1%

    3Q07 4Q07 1Q08 2Q08 3Q08

    23 2

    37 5

    32 5

    32 8

    53 1

    16.7%

    20.6%

    16.3%

    21.9% 24.2%

    3Q07 4Q07 1Q08 2Q08 3Q08

  • 15

    Indebtedness

    Set. 08 In millions of R$

    Dec. 07 DEBT/EBITDA

    LTM EBITDA: Last 12 months EBITDADebt Average Term: 7 years and 3 months

    GROSS DEBT/TOTAL CAPITALIZATIONDEBT MATURITY

    * Data in IFRS. Others in BRGAAP.

    Local currency 3,422 3,718

    Foreign currency 6,012 4,862

    Companies abroad 9,578 7,323

    GROSS DEBT 19,012 15,903

    Financial Investments 5,640 5,139

    NET DEBT 13,372 10,764

    15

    10.8 13.4

    1.3 x

    1.7x 1.9x

    2.5x

    Dec.07 Sep.08

    Net Debt Net Debt/EBITDALTM

    Gross Debt/EBITDALTM

    4,421 4,855 7,613 14,188

    21,071 7,168 6,263

    6,377 7,651

    9,878

    16,642 24,242

    10,141

    15,903 19,01216,483

    44%

    62% 56%

    46% 43% 41% 49%

    44%

    2002 2003 2004 2005 2006* 2007* Jun/08* Set/08*

    ShareHolders Equity Gross Debt Gross Debt/Total Capitalization

    0.40.90.50.82.6

    4th Q3rd Q2nd Q1st Q2009 Period Debt

    2.6

    1.9 2.1

    3.8 3.9

    5.0

    1.1

    2008 2009 2010 2011 2012 2013 After

  • 16

    Liquidity �Strong cash position

    �Access to credit lines

    5,640 Subtotal Cash

    1,198 Other

    770 Cash North America

    3,672 Cash Brazil

    R$ Million

    11,615Total Estimated Liquidity

    3.393Subtotal Best Efforts

    5.975Subtotal Credit Lines

    249Other

    1.884Latin America

    302Pre-Export

    957ACC

    2.582Subtotal Committed

    1.816North America (Committed)

    766Senior Liquidity Facility (Committed)

    R$ Million

  • 17

    Dividends

    Dividends – 3rd quarter 2008

    �Payment: November 26th, 2008

    �Base date: record at close of business on November 14th (ex-

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