Investor Presentation
December 2007
11
Highlights
 Among the most competitive steel companies in the world
• Strong low cost structure as a result of diversified production processes
and multiple raw material sourcing
 An international company
• Large export revenues from Brazil
• Operations in 13 countries
 Ranked 14th globally by steel output for year 2006 with an output of 15.6
million tonnes (source: International Iron and Steel Institute - IISI)
 Largest long steel producer in the Americas
• 2nd largest long steel producer in North America
• 41 steel units with state of the art technology
 2nd largest SBQ producer in the world
 Relevant market share and diversified product range through downstream and
service centers
 Strong balance sheet and strong cash generation
 Gerdau S.A. shares are listed on the São Paulo, New York and Madrid Stock
Exchanges
22
Agenda
Industry Overview
Group Overview
Operating and Financial Highlights
All data presented in US Dollar and in metric tons, except when indicated
33
Crude Steel Production
In million tonnes
Growth rate in the last 10 years:
+ 65%
 China: + 347%
World Growth
1,3 17
1993 to 1999 = 1.4% p.a.
1,2 3 0
China Growth
1,13 9
1993 to 1999 = 5.5% p.a.
1,0 6 9
970
904
848
799
728
725
750
750
777
850
789
487
423
356
280
90
93
95
19 9 3
19 9 4
19 9 5
10 9
115
12 4
12 7
15 1
10 1
19 9 6
19 9 7
19 9 8
19 9 9
2000
2001
* Annualized Production 9M07
Source: IISI / World Steel Figures 2007
World
18 2
2002
222
2003
2004
2005
2006
2007*
China
44
Demand
FINISHED STEEL APPARENT DEMAND
In million tonnes
1,251
1,179
1,113
The world steel demand should increase 4.2% p.a.
from 2010 up to 2015.
2006
2007e
2008e
FINISHED STEEL APPARENT PER CAPITA DEMAND (kg)
333
315
298
STEEL USE PER CAPITA GROWTH
(2002 – 2007)
NAFTA: +5.7%
China: +104.1%
146
106
102
94
66
28
2002
42
2003
NAFTA
e: estimated
2004
B ra zil
2005
C hina
2006
India
Brazil: +12.8%
World: +54.5%
India: +50.0%
2007e
Wo rld
Source: IISI
55
Ranking
Crude Steel Production – 2006
In million tonnes
Global Production: 1,230 MMt
 China: 34% of global production
 Brazil: 2.5% of global production
Production
Accumulated Participation
423
100%
58%
62%
66%
69%
73%
75%
80%
78%
81%
230
52%
44%
10th Largest
34%
116
Producer
99
71
49
48
47
41
32
31
23
20
Others
China
Source: IISI
Japan
USA
Russia
India
South
Korea
Germany Ukraine
Italy
Brazil
Turkey
Taiwan
66
Consolidation
Global Steel Market
27%
24%
21%
TOP 5: 12.3% (1990)
16.9% (2005)
TOP 5: 13.4% (1990)
24.4% (2005)
18%
15%
12%
9%
Production in 1990
770 million tonnes
6%
Production in 2005
1.139 billion tonnes
WORLD
EX-CHINA
3%
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Prof. Germano de Paula
77
Agenda
Industry Overview
Group Overview
Operating and Financial Highlights
All data presented in US Dollar and in metric tons, except when indicated
88
100+ Years in Business
Expansion of
Riograndense Mill
(Construction of 2nd
steel mill)
1901 - First
Operation:
Nail Factory
1900
1948 - 1st Steel
Mill Acquisition
(Riograndense)
1940´s
1950´s
Acquisition of a new
steel mill (Paraná,
Brazil)
Construction of a
new mill (Rio de
Janeiro, Brazil)
Entering in the
Reforestation
business
Distribution channel
arrangements (today: more
than 70 sales points)
Market Share increase by:
Diversification /
Verticalization
Distribution channel
New acquisition
(Pernambuco, Brazil)
1960´s
1970´s
New Acquisitions:
Piratini (Rio Grande
do Sul, Brazil) –
specialty steel
Second mill in Minas
Gerais and rolling
mill in São Paulo
(Brazil)
Stake in Açominas
International
expansion ( Chile,
Canada, Argentina
and USA)
Acquisition of 3 mills (Rio
de Janeiro, Minas Gerais and
Bahia, Brazil)
Construction of 2 mills
(Paraná and Ceará, Brazil)
International expansion
(Uruguay and Canada)
1980´s
1990´s
New Acquisitions:
USA
Downstream mills
and fab shops in
North America
Entering European
and Asian market
Expansion in Latam
market
Construction of
steel mill in São
Paulo (Brazil)
2000
99
Solid Track Record
In thousand tonnes (IFRS)
23,175
Sidertul
(Mexico)
19,870 INCA
São Paulo (Dom. Rep.)
(Brazil)
Sizuca
Sidenor (Venezuela)
(Spain)
SJK
Sheffield
(India)
(USA)
Chaparral
Siderperú
(USA)
(Peru)
GSB
(Spain)
TOTAL INVESTED(1997 – Sep. 2007):
Brazil = US$ 4.2 billion + Debt
North America = US$ 6.1 billion + Debt
Latin America = US$ 1.3 billion + Debt
Europe = US$ 687 million + Debt
Asia = US$ 71 million + Debt
16,372
Brazil – Crude Steel Installed Capacity
North Star
(USA) 16,475
Diaco
(Colombia)
Abroad – Crude Steel Installed Capacity
4,556
11,076
7,696
Control of
Açominas
(Brazil)
Co-Steel
(USA)
1980 – Laisa (Uruguay) Ameristeel
1988 – Barão de Cocais
(USA)
(Brazil)
AZA
1989 – Usiba (Brazil)
New mill
Cambridge (Canada)
(Chile)
1992 – Piratini (Brazil) Additional
AZA (Chile)
stake in
1994 – Pains (Brazil)
Açominas
Manitoba (Canada)
(Brazil)
Stake in Açominas
(Brazil)
19 9 7
19 9 8
19 9 9
27,580
Installed
Capacity
Expansion
MacSteel
(USA)
2000
2001
2002
2003
2004
2005
2006
2007
2009e
e: estimated
In addition to 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.
10
10
Location
ABROAD
BRAZIL
13.3 million tonnes of crude steel
9.9 million tonnes of crude steel
13.9 million tonnes of rolled steel products
6.6 million tonnes of rolled steel products
30 Steel Units
11 Steel Units
45 Fabrication Shops
12 Fabrication Shops - Armafer
04 Downstream operations and special sections
68 Sales point (Comercial Gerdau)
04 Flat steel service centers
20 Downstream operations and special sections
02 Associated Companies (Spain and Dominican
Republic)
02 Joint ventures (USA and India)
Canada
Spain
United States
India
Mexico
Dominican
Republic
Venezuela
Colombia
Peru
Brazil
Chile
Uruguay
Argentina
Steel Units
Associated Companies
Joint Ventures
11
11
Growth with Profitability
ATKearney study
Growth portfolio
(CAGR 2001-2005)
benchmarked against industry average
Revenue Growth
70%
Eregli
60% Demir Celik
Baoshan
50%
Angang
Maanshan Iron Steel
Steel Dynamics
Bluescope 03 05
Ipsco
Gerdau
Nucor
40%
Novolipetsk1)
Acerinox
Tata Steel
30%
Industry
Average
Usinas
Voestalpine
Onesteel
US Steel
SSAB
20%
10%
0%
Tokyo Steel
Cap
Boehler-Uddeholm
Salzgitter
SAIL
Oregon
Steel MillsHylsamex
Hyundai
Steel
JFE 03 05 Rautaruukki
Corus
Worthington
Arcelor
02 05 AK Steel
-10%
-40%
Mittal
Severstal
Imsa
Nisshin Steel
Thyssenkrupp1)
Nippon Steel
Carpenter Technology
10%
Neomax
Sumitomo
Industry
Average
60%
110%
Equity Value
Growth
Notes: 1) EBIT-growth
Notes: USINAS = USIMINAS; ARCELOR Takeover MITTAL/ SEVERSTAL: The market capitalization of Severstal is 6.8 bn USD
(same as revenue, hence valued above the industry multiple of 0.79)
Source: Thyssenkrupp: steel segment
12
12
Growth Opportunities
LONG STEEL PRODUCTS (Brazil)
 Maintenance of market share
 Improvement of current installed
capacity
LATIN AMERICA
 Maintenance of leadership in
the long steel sector
 New markets
SPECIALTY STEEL
 Active role in the steel sector
consolidation process
 Search for new opportunities
NORTH AMERICA
 Efficiency and productivity
gains (Gaps)
 Enhancement of leadership in
AÇOMINAS
 New 1.5 MM tonnes blast furnace
the long steel sector through
acquisitions
 Growth platform for slabs, blooms
and billets
 Iron Ore Reserves
13
13
Outlook
BRAZIL
 Strong demand for the 4th quarter 2007 and throughout 2008
 Scrap prices stable; iron ore and coal prices aligned to international market
 Maritime freight should continue to be high, squeezing export margins
NORTH AMERICA
 Government should continue investing in infrastructure
 Prices relatively stable
 Lower volumes during the next quarter due to impending winter period
 Chaparral consolidated since September 14th
 Good prospects for early 2008
LATIN AMERICA
 Demand should continue strong impacted by economic growth in the region
 Government investments should continue
 Costs may increase
EUROPE
 Demand should continue strong
 Increase in production due to investment plan in progress
 Higher costs, mostly energy
14
14
Agenda
Industry Overview
Group Overview
Operating and Financial Highlights
All data presented in US Dollar and in metric tons, except when indicated
15
15
Shipments
In thousand tonnes (IFRS)
9M07 = 12,544
9M06 = 11,162
Europe (4% in 3Q07)
4,164
3,689
3,770
3,703
4,168
4,212
3,727
Latin America (15% in 3Q07)
North America (39% in 3Q07)
Brazil – Exports (11% in 3Q07)
Brazil – Domestic Market (31% in 3Q07)
1Q06
Billets,
blooms
& slabs
2Q06
3Q06
Merchant
bars
4Q06
1Q07
Rebars
2Q07
Fabricated
steel
3Q07
Heavy
structural shapes
Wire-rod
Wires
Nails
16
16
Net Sales Breakdown
Net Sales Breakdown by Region - 9M07
Exports from Brazil (t)
Net sales from the overseas units plus exports from Brazil,
represented 66% of consolidated net sales
Europe
11%
Africa
12%
Brazil Domestic Market
34%
Latin America
11%
Europe
12%
North America
13%
Asia
24%
North America
36%
Central America
16%
South America
23%
Brazil – Exports 8%
Historical Net Sales Geographical Distribution
In US$ millions (IFRS)
3,038
3,030
3,577
3,915
4,168
7%
9%
12 %
12 %
9%
10 %
10 %
9%
11%
39%
35%
38%
9%
38%
8%
11%
35%
7%
11%
10 %
36%
32%
30%
34%
38%
3Q06
4Q06
1Q07
2Q07
3Q07
Europe
Latin America
North America
Brazil - Exports
Brazil - Domestic Market
17
17
EBITDA and Margins
EBITDA*
In US$ millions
742
734
614
50
74
49
77
2 17
14 5
84
60
254
829
823
89
63
84
10%
2 19
26%
457
56%
111
243
393
343
344
386
3Q06
4Q06
1Q 0 7
2Q07
3Q07
EBITDA MARGIN*
GROSS MARGIN*
45%
40%
35%
3 8 .9 %
30%
35%
30%
25%
20%
15 %
Brazil
North America
Latin America
Europe
8%
3 3 .7 %
2 8 .7 %
2 5 .8 %
25%
2 5 .2 %
2 5 .0 %
19 .3 %
2 0 .1%
18 .7 %
17 .0 %
18 .8 %
2 8 .7 %
20%
2 4 .5 %
2 4 .1%
2 3 .1%
19 .8 %
17 .7 %
17 .4 %
18 .7 %
15 %
15 .0 %
10 %
10 %
3Q06
4Q06
Consolidated
1Q 0 7
Brazil
2Q07
3Q07
North America
3Q06
Latin America
4Q06
1Q 0 7
2Q07
3Q07
Europe
* Data in IFRS
18
18
Consolidated Financials
In US$ millions (IFRS)
3Q07
3Q06
9M07
9M06
BALANCE SHEET
Current Assets
Non-current Assets
Total Assets
Current Liabilities
Non-current Liabilities
Shareholder's Equity
Total Liabilities and Shareholder's Equity
Total Debt
Cash and Equivalents
Net Debt
8,384
13,965
22,349
4,682
8,693
8,974
22,349
8,906
2,758
6,149
6,560
7,146
13,706
2,721
4,499
6,486
13,706
4,124
2,757
1,367
8,384
13,965
22,349
4,682
8,693
8,974
22,349
8,906
2,758
6,149
6,560
7,146
13,706
2,721
4,499
6,486
13,706
4,124
2,757
1,367
INCOME STATEMENT
Net Sales
Gross Profit
Operating Income
Net Income
EBITDA
EBITDA Margin
4,168
1,042
677
563
823
19.8%
3,038
872
540
409
734
24.1%
12,258
3,033
2,267
1,827
2,520
20.6%
8,925
2,438
1,819
1,436
2,086
23.4%
40.7%
2.7x
17.4%
-
40.7%
2.7x
17.4%
-
RATIOS
Net Debt / Total Capitalization
LTM
Total Debt/EBITDA
Net Debt / EBITDALTM
1.9x
-
1.9x
-
LTM = Last twelve months
EBITDA = Earnings before interest, taxes, depreciation and amortization
19
19
Consolidated Debt Profile
September 2007 (IFRS)
COST OF DEBT
(p.a.)
US$ MM
GROSS DEBT
8,906
100%
SHORT TERM
Domestic Currency
Foreign Currency
Companies Abroad
2,304
26%
461
5%
289
3%
1,554
18%
LONG TERM
Domestic Currency
Foreign Currency
Companies Abroad
6,602
74%
1,219
14%
1,656
18%
3,727
42%
CASH & CASH AND EQUIV.
Domestic Currency
Companies Abroad
2,758
100%
1,315
48%
1,442
52%
NET DEBT
6,149
Brazil
Domestic Currency
9.6%
Foreign Currency
FX + 6.4%
Companies Abroad
7.1%
DEBT AVERAGE LIFE:
7 years and 7 months
DEBT STRUCTURE
Foreign
Currency
22%
Companies
Abroad
59%
Domestic
Currency
19%
20
20
Consolidated Debt Amortization
In US$ millions – September/07 (IFRS)
Perpetual Bond: 600
Companies Abroad: 2,982
4 ,3 0 1
Companies
abroad: 1,259
(BRIDGE)
FINIMP: 69
BNDES: 48
BNDES: 319
Companies
Abroad: 83
Companies
Abroad:232
BNDES: 47
FINIMP: 55
BNDES: 46
1,3 8 3
FINIMP: 51
BNDES: 46
Pre-export: 45
BNDES: 178
FINIMP: 214
Companies
Abroad: 84
Debentures:
166
BNDES: 154
FINIMP: 127
Companies
Abroad: 699
830
432
349
14 0
4Q07
1Q 0 8
2Q08
SHORT TERM: US$ 2,304
3Q08
626
631
2009
2 0 10
2 14
4Q08
2 0 11
A f t e r 2 0 11
LONG TERM: US$ 6,602
21
21
CAPEX
INVESTMENT PLAN 2007–2009
ACTUAL 9M07 (IFRS)
In US$ millions
CAPEX
ACQUISITIONS
9M07
BRAZIL
729
0
729
ABROAD
316
4,873
5,189
North America
137
4,283
4,420
Latin America
130
494
624
49
25
74
0
71
71
1,045
4,873
5,918
Europe
Asia
TOTAL
2007
2008
2009
TOTAL
BRAZIL
820
570
1,000
2,390
ABROAD
580
530
500
1,610
North America
260
360
315
935
Latin America
260
125
142
527
60
45
43
148
1,500
4,000
In US$ millions
Europe
TOTAL
1,400
1,100
Capacity
Sep/2007
2007
2008
2009
New
Variation
Capacity*
9,925
6,640
1,560
-
50
-
1,350
11,535
7,990
16.2%
20.3%
9,810
9,920
50
30
230
130
370
875
10,460
10,955
6.6%
10.4%
2,290
2,770
10
-
825
270
50
475
3,175
3,515
38.6%
26.9%
1,150
1,225
-
-
-
1,210
1,225
5.2%
-
23,175
20,555
1,620
30
1,105
400
480
2,700
26,380
23,685
13.8%
15.2%
Brazil
Crude Steel
Rolled Products
North America
Crude Steel
Rolled Products
Latin America
Crude Steel
Rolled Products
Europe
Crude Steel
Rolled Products
TOTAL
Crude Steel
Rolled Products
*MacSteel is not included
22
22
Quanex Corporation (MacSteel)
 One of the largest SBQ producer in the world and a strong presence in the
North American market
 Possibility in increasing the presence of the Gerdau Group in the automotive
and autoparts industry as a supplier of long specialty steel products (SBQ)
 Annual installed capacity: 1.2 million metric tons of crude steel and 1.1
million tons of rolled products
 Three mini-mills, located in Jackson, Michigan; Monroe, Michigan; and Fort
Smith, Arkansas
 Six downstream operations located in the states of Michigan (two), Ohio,
Indiana (two) and Wisconsin
 1,600 employees
 Investment: US$1.458 billion – US$39.20 per share – plus the assumption of
liabilities of US$215 million
 The acquisition will be paid through cash available
 Quanex will spin-off its non-steel business
 Quanex Corporation’s Board of Directors has unanimously approved the
transaction on November 18. The shareholders still must to approve the
offer.
23
23
Quanex Corporation (MacSteel)
OPPORTUNITIES
 Best entry opportunity in the high end SBQ market ( if not the one in the
medium term)
 Strategic fit to Gerdau SBQ strategy (be one of the global leaders in the
automotive market)
 Synergies with Gerdau
STRENGTHS
 Strong and resilient financial performance
 Cost structure (lowest SBQ producer in North America)
 High productivity
 Good management team
 Long standing customer base
 Plant located close to the main SBQ markets (Midwest, Texas and Mexico)
 State of the art downstream
 Value added processing facilities
 Strong brand recognition
 Common values to Gerdau
24
24
Governance – Best Practices
 BOARD OF DIRECTORS
- External members on the board
- Support Committee (Support and Excellence; Corporate Governance; Strategy
and Compensation and Succession)
 EXECUTIVE COMMITTEE
- Vice-presidents responsible for the Operations and Support Areas
- Support Committee ( Disclosure, Financial, Risk Management and Human
Resources and Orgazational Development)
 FISCAL BOARD (AUDIT COMMITTEE)
- Permanent and in accordance to the SOX (Gerdau S.A.)
HIGHLIGHTS:
 First Brazilian company to submit its Consolidated Financial Statements in conformity
with international accounting standards (IFRS)
 Tag Along (100% common and preferred shares)
 Bovespa Level 1
 Shares are negociated in Bovespa, Nova York Stock Exchange, Toronto Stock Exchange
and LATIBEX Stock Exchange
 Risk Management
 Gerdau Business System
Gerdau S.A. shares are included in the following São Paulo Stock Exchange indexes:
 Bovespa Index - Ibovespa
 Corporate Sustainability Index - ISE
 Special Tag Along Stock Index - ITAG
 Brazil Index 50 – IBrX 50
 Industrial Sector Index – INDX
25
25
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 forwardlooking 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.
26
26
www.gerdau.com.br
inform@gerdau.com.br
+55 51 3323 2703
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