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Gerdau. January 2007. Highlights. One of the world’s lowest cost steel companies Strong cost position as a result of diversified production processes and multiple raw material sourcing Strong foreign currency generation Large export base International subsidiaries

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slide1

Gerdau

January 2007

slide2

Highlights

  • One of the world’s lowest cost steel companies
    • Strong cost position as a result of diversified production processes and multiple raw material sourcing
  • Strong foreign currency generation
    • Large export base
    • International subsidiaries
  • Ranked 14th globally by steel output for year 2005 with an output of 13.7m tons
  • Largest long steel producer in the Americas
    • 2nd largest long steel producer in North America
    • 32 mills, integrated and mini mills, with state of the art technology
  • Relevant market share and diversified product range through downstream and service centers
  • Strong balance sheet, low leverage and strong cash generation
  • Gerdau S.A. shares are listed on the São Paulo, New York and Madrid Stock Exchanges
slide3
Industry Overview

Group Overview

Operating and Financial Highlights

Agenda

All data presented in US Dollar and in metric tons, except when indicated

slide4

World Production

  • WORLD CRUDE STEEL PRODUCTION

In million tonnes

Production should reach 1,2 billion tonnes in 2006.

903

9.1%

828

9M06

9M05

EVOLUTION OF WORLD CRUDE STEEL PRODUCTION

World

China

2º Oil Shock

Accelerated increase of China

USSR breakup

1º Oil Shock

Corresponds to 70% of the world production growth from 2001 to 2005

Source: IISI / IISI apud IBS

slide5

World Demand

FINISHED STEEL APPARENT DEMAND

In million tonnes

The world steel demand should increase 4.2% p.a. from 2010 to 2015.

1,179

5.2%

1,121

1,029

8.9%

China

NAFTA

Japan

India

South America

FINISHED STEEL APPARENTDEMAND PER CAPITA (KG)

  • With increasing investments in infrastructure and civil construction, India should grow 10% in 2006.
  • Steel consumption in South America should increase 12% in 2006.
  • Chinese steel consumption should experience a more moderate growth in 2007.

344

NAFTA

322

295

China

205

World

195

171

Brazil

110

102

e: estimated

Source: IISI

slide6

Brazil and the Global Steel Industry

Crude Steel Production – 2005

In million tons

In million tonnes

Total World Production: 1.1 billion tonnes

China represented 31.4% of the global steel production

Brazil represented 2.8% of the global steel production

South Korea

Brazil

Italy

Germany

Ukraine

India

USA

Japan

Russia

China

Source: IISI

slide7
Industry Overview

Group Overview

Operating and Financial Highlights

Agenda

All data presented in US Dollar and in metric tons, except when indicated

slide8

100+ Years in Business

1901

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)
  • 1901 – First operation: nail factory

THROUGH THE 40’s

  • First steel mill acquisition – Siderúrgica Riograndense (1948)

THE 50’s

THE 90’s

  • Expansion of Siderúrgica Riograndense
  • Construction of second Riograndense’s mill
  • 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
  • Acquisition of stake in Açominas

THE 60’s

  • Market share increase by the:

- Diversification and verticalization

of product line

- Structuring of distribution network

(today more than 70 sales points)

- Acquisition of mill in Pernambuco

THE NEW MILLENNIUM

THE 70’s

  • Acquisition of four companies in the US
  • Acquisition of downstream units and fab shops in North America
  • Entering the European market
  • Construction of a steel mill in São Paulo
  • Capacity expansion with acquisition of two mills (Alagoas and Paraná); construction of largest Gerdau mill (Rio de Janeiro)
  • Diversification into reforestation
slide9

An International Company

Total Capacity

(Includes Strategic Shareholdings)

CANADA

19.2

million tonnes of crude steel

17.0

million tonnes of rolled steel products

Brazil

9.2 million tonnes of crude steel

6.3 million tonnes of rolled steel products

11 steel mills

12 fabrication shops

6 downstream operations

74 sales points and flat steel service centers

Abroad

10.0 million tonnes of crude steel

10.7 million tonnes of rolled steel products

21 steel mills

44 fabrication shops

17 downstream operations

2 strategic shareholdings

slide10

Solid Track Record

In thousand tonnes

21,605

TOTAL INVESTED (1981- Sep.2006):

Brazil = US$ 4.5 billion + Debt

North America = US$ 1.8 billion + Debt

South America = US$ 590 million + Debt

Europe = US$ 235 million + Debt

Installed Capacity Expansion

19,230

Araçariguama(Brazil)

Sidenor (Spain)

Sheffield (USA)

Siderperú

(Peru)

GSB(Spain)

7,696

16,372

Ameristeel

(USA)

AZANew Plant(Chile)

Additionalstake inAçominas(Brazil)

North Star(USA)

11,076

ControlofAçominas(Brazil)

Co-Steel

(USA)

16,709

3,072

Diaco(Colombia)

Cambridge(Canada)

Usiba(Brazil)

3,934

4,568

4,595

Piratini(Brazil)

AZA(Chile)

Stake inAçominas

(Brazil)

Manitoba

(Canada)

2,611

1,757

BarãodeCocais(Brazil)

Laisa - 1980(Uruguay)

2009e

Brazil – Installed Capacity of Crude Steel

Abroad – Installed capacity of Crude Steel

e: estimated

Besides the mills acquired, as related above, Gerdau acquired many fab shops in order to add value to its products and offer services and products to its clients according to their needs.

slide11

Among the Leaders

Crude Steel – Output 2005

In million tonnes

Rank

1

2

3

4

5

6

Gerdau should have an installed capacity of 21.5 million tonnes of crude steel per year after the investment program in Brazil is completed in 2009.

7

8

9

10

11

12

13

14

GERDAU GROUP (BRA)

Source: Metal Bulletin

slide12

Value Builder CompanyATKearney study

Growth portfolio (CAGR 2001-2005)benchmarked against industry average

Revenue Growth

70%

Eregli Demir Celik

60%

Mittal

Severstal

Baoshan

Bluescope 03 05

Angang

50%

Maanshan Iron Steel

Ipsco

Steel Dynamics

Gerdau

Nucor

Novolipetsk1)

40%

Acerinox

Tata Steel

30%

Usinas

Voestalpine

Industry

Average

Onesteel

Tokyo Steel

Cap

Boehler-Uddeholm

20%

US Steel

SSAB

Salzgitter

SAIL

Oregon Steel Mills

Hylsamex

10%

HyundaiSteel

JFE 03 05

Rautaruukki

Corus

Neomax

Imsa

Worthington

0%

Arcelor02 05

Nisshin Steel

Sumitomo

AK Steel

Thyssenkrupp1)

Nippon Steel

Carpenter Technology

-10%

-40%

10%

60%

110%

Equity Value Growth

Industry Average

Notes: 1) EBIT-growth

Notes: USINAS = USIMINAS; ARCELOR Takeover MITTAL/ SERVERSTAAL: The market capitilization of Severstaal is 6.8 bn USD (same as revenue, hence valued above the industry multiple of 0,79)

Source: Thyssenkrupp: steel segment

slide13

Shipments

In thousand tonnes

83% increase in the last 5 years

13,550

South America (6% in 2005)

+ 9.5%

12,560

12,144

11,143

North America (47% in 2005)

10,181

9,109

Brazil – Exports (21% in 2005)

7,411

Brazil – Domestic Market (26% in 2005)

Europe

2001

2002

2003

2004

2005

9M05

9M06

Billets, blooms& slabs

Heavystructural shapes

Wires

Wire-rod

Rebars

Merchant bars

Nails

Fabricated steel

slide14

Markets

BRAZIL - 2005

Arcelor Brasil 36%

Gerdau 48%

Other 5%

Barra Mansa5%

V&M do Brasil6%

MARKET SHARE

COUNTRY

MAIN COMPETITORS

NORTH AMERICA

Nucor + ArcelorMittal + CMC

15%

CHILE

51%

CAP + Imports

URUGUAY

84%

Imports

ARGENTINA

20%

Acindar + Bragado + Zapla

COLOMBIA

37%

Acerias Paz Del Rio + Imports

SPAIN

36%

ArcelorMittal + Imports

PERU

~44%

Aceros Arequipa + Imports

* Specialty steel only

growth opportunities
Growth Opportunities

LONG STEEL PRODUCTS (Brazil)

  • Maintenance of market share
  • Improvement of current installed capacity
  • São Paulo mill expansion

SPECIALTY STEEL

  • Active role in the steel sector consolidation process
  • Search for new opportunities

AÇOMINAS (Ouro Branco mill)

  • New 1.5 MM ton blast furnace
  • Growth platform for slabs, blooms and billets

LATIN AMERICA

  • Maintenance of leadership in the long steel sector
  • New markets

NORTH AMERICA

  • Efficiency and productivity gains (Gaps)
  • Enhancement of leadership in the long steel sector through acquisitions
slide16

Outlook

Brazil

  • Domestic volumes growing around 6 - 8% in 2007
  • Strengthening of the housing and industrial sectors
  • Price stability in local currency terms
  • Relatively stable costs

North America

  • Solid demand for rebars and merchant bars
  • Reduced level of imports
  • Increase in supply of higher value added products

South America

  • Solid economic growth
  • Strengthening of the civil construction sector
  • Government spending
  • Demand in line with economic growth

Europe

  • Good performance in the specialty steel business
  • Growing market share
slide17
Industry Overview

Group Overview

Operating and Financial Highlights

Agenda

All data presented in US Dollar and in metric tons, except when indicated

slide18

Exports

9M06

Domestic Market 79%

NET SALES BREAKDOWN BY REGION

Europe3%

South America10%

Brazil 41%

North America46%

Exports

21%

(35% in tonnes)

EXPORTS BY REGION (IN TONNES)

North America16%

South America 27%

Central America 15%

Africa 9%

Asia24%

Europe 9%

slide19

Margins

Gross Margin

42%

Consolidated

Brazil

North America*

South America*

32%

30%

28%

26%

26%

20%

17%

EBITDA Margin

33%

23%

26%

21%

21%

21%

19%

17%

* Calculated by hard currency

slide20

Consolidated Financials

In US$ million

9M06

9M05

2004

2005

6,251

5,656

11,907

2,539

3,652

1,235

4,481

11,907

3,918

2,589

1,329

5,152

4,159

9,311

1,698

3,267

843

3,503

9,311

3,260

2,111

1,149

5,182

4,165

9,347

1,790

3,225

896

3,436

9,347

3,269

2,335

934

3,600

3,431

7,031

1,977

2,186

580

2,288

7,031

2,402

769

1,633

Balance Sheet

Current assets

Non-current assets

Total Assets

Current liabilities

Non-current liabilities

Minority Interest

Shareholders’ equity

Total Liabilities and Shareholder’s equity

Total debt

Cash & Equivalents

Net debt

Income Statement

Net revenue

Gross profit

Operating income

Net income

EBITDA

7,362

1,996

1,424

1,132

1,743

8,088

2,289

1,610

1,237

1,900

9,077

2,446

1,727

1,387

2,098

7,383

2,353

1,678

1,219

2,092

21%

1.4x

0.5x

19%

1.6x

0.6x

36%

1.1x

0.8x

18%

1.6x

0.4x

Ratios

Net debt / Total capitalization

Total debt / EBITDALTM

Net debt / EBITDALTM

slide21

Consolidated Debt Profile

September 2006

DEBT STRUCTURE

Companies Abroad 30%

Foreign Currency 45%

Domestic Currency 25%

slide22

Consolidated Debt Amortization

In US$ million – Sep/06

Companies Abroad: 32

FINIMP: 37

Perpetual Bond: 600

Debentures: 292

Pre-Exports: 113

FINIMP: 151

BNDES: 99

Companies Abroad: 64

Securitization: 41

1,014

BNDES: 43

Companies Abroad: 411

FINIMP: 59

Debentures: 55

Companies Abroad: 110

Pre-Exports: 55

BNDES: 88

Securitization: 44

FINIMP: 139

Companies abroad: 409

618

FINIMP: 55

491

473

BNDES: 67

FINIMP: 85

Securitization: 41

Companies Abroad: 55

FINIMP: 59

354

FINIMP: 32

Pre-Exports: 22

243

206

182

160

101

76

After 2012

2010

1Q07

3Q07

2008

2009

2011

4Q06

2Q07

4Q07

2012

SHORT TERM: US$ 980

LONG TERM: US$ 2,938

slide23

CAPEX 2007 - 2009

9M06

Investment Program 2007 – 2009: US$ 3.0 billion

In US$ million

In US$ million

INSTALLED CAPACITY EVOLUTION

In thousand tonnes

Rolled Products

Crude Steel

+ 12%

+ 12%

21,605

19,035

19,230

17,040

+ 10%

11,005

9,970

+ 12%

11,985

10,680

Abroad

Abroad

10,600

+ 14%

9,260

+ 11%

Brazil

Brazil

7,050

6,360

2006

2009

2006

2009

slide24

Disclaimer

This document can contain statements which constitute forward-looking statements. Such forward-looking statements are dependent on estimates, data or methods that may be incorrect or imprecise and that may be incapable of being realized. These estimates also 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. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements, which speak only as of the date made.

slide25

Gerdau S.A.

www.gerdau.com.br

inform@gerdau.com.br

+55 51 3323 2703