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Gerdau S.A. Latin America Natural Resources Trip 2006. March 2006. Steel Sector Gerdau Group Operating and Financial Highlights Capital Markets. Agenda. Production. Apparent Consumption. World Steel – Supply and Demand. Finished Steel. + 15.3% over 2005. In million tons.
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Gerdau S.A. Latin America Natural Resources Trip 2006 March 2006
Steel Sector Gerdau Group Operating and Financial Highlights Capital Markets Agenda
Production Apparent Consumption World Steel – Supply and Demand Finished Steel + 15.3% over 2005 In million tons + 18.6% over 2005 1,153 1,000 1,117 According to a WSD forecast for 2010, 97% of the world’s production will be consumed. 942 830 698 690 632 772 655 641 603 1985 1990 1995 2000 2005F 2010F Source: IISI / World Steel Dynamics F=Forecast
Among the Leaders Crude Steel – Output 2004 In million tons Mittal Steel (NET) 1 58.9 * Arcelor (LUX) 2 46.9 32.4 Nippon Steel (JAP) 3 JFE Steel (JAP) 4 31.6 Posco (KOR) 5 30.2 Shangai Baosteel (CHI) 6 21.4 20.8 US Steel (USA) 7 Corus Group (UK) 8 19.0 Nucor (USA) 9 17.9 ThyssenKrupp (GER) 10 17.6 Riva Group (ITA) 11 16.7 Gerdau Group (BRA) 12 13.4 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. Sumitomo (JAP) 13 13.0 * Includes ISG acquired by Mittal Steel in 2004. Source: IISI
Steel Sector – 2005 • The world’s steel output reached 1.1 billion metric tons of crude steel in 2005, an increase of 5.9% compared to 2004. Crude steel production in China reached 349 million metric tons (31.5% of the world’s steel output), an increase of 24.6% compared to 2004. World • The North American crude steel output for 2005 was 127 million metric tons, a decrease of 5.3% compared to the previous year. In the USA, crude steel output reached 93.3 million metric tons in 2005 from 99.7 million metric tons in 2004 (- 6.4%). North America • The South American crude steel output for 2005 was down 1.2% at 45.3 million metric tons. Brazil is the largest producer, with 69.8% of the total output, followed by Argentina, with 11.9% of the total output in the region. South America • In 2005, the crude steel output reached 31.6 million metric tons, 3.9% less than in the previous year. • Domestic sales of long steel products (including blooms and billets) in 2005 reached 6.3 million metric tons, a decrease of 10.7% compared to 2004. • Exports of long steel products (including ingots, blooms and billets) totaled 4,3 million metric tons in 2005 (+ 25.6% YoY). • In 2005, the long steel production decreased 4.8% compared to 2004, retaking the levels of 2003. Brazil Source: IBS andIISI
Brazil and the Global Steel Industry Crude Steel Production – 2005 In million tons Total World Production: 1,108 million tons China accounted for 31.5% of the global steel output Brazil accounted for 2.8% of the global steel output Italy India Brazil China Ukraine USA Japan Russia Germany South Korea Source: IISI
Steel Sector Gerdau Group Operating and Financial Highlights Capital Markets Agenda
Philosophy VISION TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY MISSION 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
Investment Considerations • A low cost international steel company with operations in Brazil, Uruguay, Canada, Chile, Argentina, Colombia, Spain and the United States • Substantial international profile – foreign exchange generation through divisions abroad and export sales amount approximately 67% of consolidated revenues in 2005 • Ranked 12th globally by steel output in 2004 with an output of 13.7MM tons (including strategic shareholdings) • 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 30 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 (Gross Debt-to-EBITDA at approximately 1.6x in 2005) and strong cash generation • Shares of Gerdau S.A. are currently traded at the São Paulo, New York and Madrid stock exchanges • Shares of Metalúrgica Gerdau S.A. are traded at the São Paulo stock exchange • Gerdau Ameristeel’s shares are traded at the New York and Toronto stock exchanges
100+ Years in Business THE 70’s 1901 • Capacity expansion with acquisition of two mills (Alagoas and Paraná) and construction of largest mill (Rio de Janeiro) • Diversification in reforestation • 1901 – First operation: nail factory THROUGH THE 40’s • First steel mill acquisition – Siderúrgica Riograndense (1948) 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) THE 50’s • Expansion of Siderúrgica Riograndense • Construction of second mill at Riograndense THE 90’s THE 60’s • 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 • Market share increase by: - Diversification and verticalization of product line - Structuring of distribution network (today more than 77 sales points) - Acquisition of mill in Pernambuco
Solid Track Record Brazil – Crude Steel Installed Capacity Abroad – Crude Steel Installed Capacity 16,372 In thousand tons Potter Form Gate City & RJ North Star(USA) SACK(Chile) 18,658 TOTAL INVESTED (1981-2005): Brazil = US$ 4.0 billion + Debt North America = US$ 1.4 billion + Debt South America = US$ 468 million + Debt Araçariguama(Brazil) Sidenor (Spain) 11,076 7,696 ControllofAçominas(Brazil) CartersvilleDrawingCo-Steel (USA) 16,475 Diaco(Col.) Ameristeel (USA) AZANew Plant(Chile) Additionalstake inAçominas(Brazil) 3,072 3,934 4,568 Cambridge(Canada) Usiba(Brazil) Piratini(Brazil) AZA(Chile) 4,595 Stake inAçominas (Brazil) 2,611 Manitoba (Canada) 1,757 BarãodeCocais(Brazil) Laisa - 1980(Uruguay)
An International Company Total Capacity (Includes Strategic Shareholdings) 18.7 million tons of crude steel 14.9 million tons of rolled steel products Brazil 8.6 million tons of crude steel 5.3 million tons of rolled steel products 11 mills 11 fabrication shops 6 downstream operations and special sections 75 sales points and flat steel service centers Abroad 10.1 million tons of crude steel 9.6 million tons of rolled steel products 19 mills 37 fabrication shops 15 downstream operations and special sections Steel mills Strategic Shareholding 12
Solid Market Share in Long Steel NORTH AMERICA BRAZIL Other29% Barra Mansa5% Imports18% Gerdau 48% Commercial Metals7% Other 7% Aços Villares5% Nucor27% Gerdau Ameristeel19% Belgo35% MARKET SHARE MAIN COMPETITORS COUNTRY CHILE 53% CAP + Imports URUGUAY 90% Imports ARGENTINA 20% Acindar + Bragado + Zapla COLOMBIA 37% Acerias Paz Del Rio SPAIN 36%* GSB * Specialty steel only
Growth portfolio (CAGR 1999-2003)benchmarked against industry average Value Builder CompanyATKearney Revenue Growth 30% Gerdau Outokumpu Acerinox 25% China Steel Baoshan1) Usinas INI Steel Nucor Salzgitter 20% Ipsco Rautaruukki Tata US Steel 15% Voest-Alpine Smorgon Industry average 10% Boehler-Uddeholm Arcelor SSAB Corus Ispat JFE 5% SAIL Harsco Thyssenkrupp Dofasco CSN Nippon Steel Onesteel1) Kobe 0% Wuhan Steel1) Kennametal RIVA1) Carpenter -5% Iscor AK Steel Stelco Nisshin Steel Haynes Posco Allegheny -10% Eregli Demir -35% -25% -15% -5% 5% 15% 25% 35% 45% Industry average Value Growth Note: 1) RIVA 98 02, Wuhan Steel & Onesteel 00 03, Baoshan 01 03 Source: ThyssenKrupp (segment), Kobe (segment), RIVA, Haynes: EBIT Growth
Steel Sector Gerdau Group Operating and Financial Highlights Capital Markets Agenda
Shipments Billets, blooms& slabs Heavystructural shapes Wires Wire-rod Rebars Merchant bars Nails Fabricated steel In thousand tons 13,550 12,560 12,144 Brazil – Domestic Market (25% in 2005) 9,109 Brazil – Exports (20% in 2005) 7,411 7,302 South America (10% in 2005) North America (45% in 2005)
Strong Export Business 2005 NET REVENUE BREAKDOWN BY REGION South America6% Brazil (Domestic Market) 34% North America47% Exports (from Brazil)13% EXPORT SHIPMENTS BY REGION Africa8% Europe 11% Central America13% North America5% Asia44% South America 19%
Margin Evolution Gross Margin EBITDA Margin Brazil North America South America
Consolidated Financials In US$ millions 2005 2003 2004 Balance Sheet Current assets Non-current assets Fixed assets Total Current liabilities Non-current liabilities Shareholders’ equity Total 1,846 364 2,721 4,931 1,503 1,747 1,681 4,931 5,182 377 3,788 9,347 1,790 3,225 4,332 9,347 3,600 390 3,041 7,031 1,977 2,186 2,868 7,031 Income Statement Net revenue Gross profit Operating income Net income EBITDA 4,627 1,139 397 434 929 9,077 2,446 1,727 1,386 2,098 7,383 2,353 1,678 1,219 2,092 26.9% 23.1% 1.6x 0.4x 27.8x 31.9% 28.3% 1.1x 0.8x 19.8x Ratios Gross margin EBITDA margin Total debt / EBITDA Net debt / EBITDA EBITDA/Net Financial Expenses 24.6% 20.1% 2.3x 2.0x 5.0x
Indebtedness In US$ million COST OF DEBT IN DEC. 05 (per annum) In US$ Dec. 05 Brazil – Domestic Currency Brazil – Foreign Currency Companies Abroad 32.5%* 5.9% 7.3% DEBT AVERAGE LIFE 9.1 years *Includes xx% of 2005 FX DEBT STRUCTURE Companies Abroad31% Foreign Currency46% Domestic Currency23%
Capital Expenditures Brazil Brazil Abroad Abroad INVESTMENTS - 2005 In US$ millions Investment Program 2006 – 2008: US$ 3.8 billion EVOLUTIONOFINSTALLED CAPACITY In thousand tons Rolled Steel Crude Steel + 14% + 14% 16,908 21,360 14,869 18,658 + 6% + 7% 10,675 10,323 10,073 9,609 + 25% + 24% 10,685 6,585 5,260 8,585 2006 2006 2008 2008
Steel Sector Gerdau Group Operating and Financial Highlights Capital Markets Agenda
Listed Companies Gerdau’s shares traded a daily volume of US$ 34.3 million during 2005 GERDAU S.A. GGBR4 = R$ 52.25Market Cap = US$ 11.0 billion METALÚRGICA GERDAU S.A. GOAU4 = R$ 63.59Market Cap = US$ 3.8 billion BOVESPASão Paulo NYSE New York GERDAU S.A. GGB = US$ 24.87 GERDAU AMERISTEEL CORP. GNA = US$ 8.50 GERDAU AMERISTEEL CORP. GNA.TO = Cdn$ 9.60Market Cap = Cdn$ 2.9 billion TSEToronto GERDAU S.A. XGGB = € 20.40 LATIBEXMadrid Stock prices in 03.02.2006
Stock Liquidity Monthly average volume Monthly average volume Monthly average # of trades Monthly average # of trades METALÚRGICA GERDAU S.A. AND GERDAU S.A. PREFERED SHARES ARE PART OF BOVESPA INDEX METALÚRGICA GERDAU S.A.(GOAU4) GERDAU S.A.(GGBR4) In US$ million (Volume) In number of trades 50% Stock bonus(GGBR e GOAU) 30% Stock bonus + 70% Split (GOAU)100% Stock bonus (GGBR) 1,500 25 1,200 20 GGBR4: 1,020 trades US$ 17.6 MM 15 900 GGBR4: 595 trades US$ 8.3 MM 600 10 GOAU4: 441 trades US$ 7.1 MM 5 300 GOAU4: 162 trades US$ 2.3 MM 0 Jan 06 Nov 04 Jan 05 Mar 05 May 05 Jul 05 Sep 05 Nov 05 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Source: Economática
Dividends Policy • 30% of the adjusted net income (Pay-out) • Dividend payments are being made on a quarterly basis DIVIDENDS DISTRIBUTION* In US$ million Metalúrgica Gerdau S.A. (GOAU4) Gerdau S.A. (GGBR4) * Dividends related to each period, but not necessarily paid in the same period.
Outlook Brazil • Greater economic growth in 2006 – 3 to 3.5% • Increase in volumes shipped in the domestic market - 5 to 6% • Strengthening of the civil construction sector • Price stability in Brazilian currency • Inventories adjusted • Increase in government spending North America • Consistent economic growth • More investments in infrastructure (Highway Bill) • Stability in production costs • Stability in metal spread South America • Consolidated economic growth • Strengthening of the civil construction sector • Demand is strong Europe • Consolidation of stake in Sidenor as of the 1Q06
Safe Harbor Statement This press release 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.
Gerdau S.A. www.gerdau.com.br inform@gerdau.com.br +55 51 3323 2703