Gerdau S.A.
Itaú First Annual Brazil Conference
May 2006
1
Agenda
Steel Sector
Gerdau Group
Operating and Financial Highlights
2
World
Steel Sector – 1st Quarter 2006
 The world’s steel output reached 284.5 million metric tons in the 1st quarter,
a decrease of 1.15% compared to that of the forth quarter of 2005.
 Total output in Brazil reached 7.2 million metric tons in the 1st quarter of 2006,
a decrease of 9.8% compared to 4Q2005.
Brazil
 In the 1Q2006, the long steel production (including blooms and billets) remained
in the same level’s of the last period, reaching 2,7 million metric tons.
 Domestic sales of long steel products (including blooms and billets) in 1Q2006
reached 1.7 million metric tons, an increase of 9.1% compared to the quarter
before.
South
North
America America
 Exports of long steel products (including ingots, blooms and billets) totaled 1.0
million metric tons in the 1Q2006, compared to 894 thousand metric tons in
4Q2005.
 The North American crude steel output for 1Q2006 was 32.1 million metric tons,
an increase of 2.0% compared to the previous quarter.
 The South American crude steel output for the 1Q06 was 10.6 million metric tons.
Brazil is the largest producer, with 67.5% of the total output, followed by
Argentina, with 12.8% of the total output in the region.
Source: IBS and IISI
3
Brazil and the Global Steel Industry
Crude Steel Production – 1Q06
In million tons
92
Total World Production: 285.2 million tons
China accounted for 32.3% of the global steel output
Brazil accounted for 2.5% of the global steel output
28
24
17
Source: IISI
12
11
10
9
8
7
4
Agenda
Steel Sector
Gerdau Group
Operating and Financial Highlights
5
Philosophy
VISION
TO BE A WORLD-CLASS
INTERNATIONAL 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
6
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
subsidiaries abroad and export sales amount approximately 60% of
consolidated revenues in the 1Q06

Ranked 14th globally by steel output in 2005 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 1.7x in 1Q06)
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
7
Value Builder Company
ATKearney
Revenue
Growth
Growth portfolio
(CAGR 1999-2003)
benchmarked against
industry average
30%
Gerdau
Outokumpu
Acerinox
25%
Usinas
Salzgitter
20%
15%
Industry
average
China Steel
Baoshan1)
INI Steel
Nucor
Rautaruukki Ipsco
Tata
US Steel
Voest-Alpine
Smorgon
Boehler-Uddeholm
SSAB
Ispat
JFE
10%
5%
Arcelor
Corus
SAIL
Harsco
Thyssenkrupp
Dofasco
Nippon Steel
Kobe
0%
Carpenter
-5%
-10%
-35%
Iscor
Nisshin Steel
-25%
Onesteel1)
Wuhan Steel1)
Kennametal
RIVA1)
Haynes
CSN
AK Steel Stelco
Eregli DemirPosco Allegheny
-15%
-5%
5%
Note:
1) RIVA 98 02, Wuhan Steel & Onesteel 00 03, Baoshan 01 03
Source: ThyssenKrupp (segment), Kobe (segment), RIVA, Haynes:
EBIT Growth
Industry
average
15%
25%
35%
45%
Value Growth
8
Solid Track Record
16,372
In thousand tons
Potter Form
Gate City & RJ
18,658
North Star
Araçariguama
(USA)
(Brazil)
SACK
Sidenor
(Chile)
(Spain)
TOTAL INVESTED (1981-2005):
Brazil = US$ 4.0 billion + Debt
North America = US$ 1.4 billion + Debt
South America = US$ 468 million + Debt
11,076
7,696
Controll
of
Açominas
(Brazil)
Ameristeel
(USA)
AZA
New Plant
(Chile)
6
2
00
5
00
4
Abroad – Crude Steel Installed Capacity
2
00
3
2
00
2
2
2
00
1
2
00
0
00
9
2
99
1
99
7
1
99
6
1
99
5
99
4
1
99
3
Brazil – Crude Steel Installed Capacity
8
Stake in
Açominas
(Brazil)
Manitoba
(Canada)
1
99
2
1
1
99
1
99
0
1
99
9
1
98
8
1
4,568
4,595
AZA
(Chile)
Diaco
(Col.)
Cartersville
Drawing
Co-Steel
(USA)
Additional
stake in
Açominas
(Brazil)
1
Piratini
(Brazil)
Usiba
Barão (Brazil)
de
Cocais
(Brazil)
98
7
1
1
98
6
Laisa - 1980
(Uruguay)
98
3,934
Cambridge
(Canada)
2,611
1,757
1
3,072
16,475
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An International Company
Total Capacity
(Includes Strategic Shareholdings)
18.7 million tons of crude steel
14.9 million tons of rolled steel products
Brazil
9 million tons of crude steel
5.5 million tons of rolled steel products
11 mills
11 fabrication shops
6 downstream operations and special
sections
74 sales points and flat steel service centers
Abroad
9.7 million tons of crude steel
9.3 million tons of rolled steel products
19 mills
38 fabrication shops
Steel mills
15 downstream operations and special
sections
Strategic Shareholding
12
10
Solid Market Share in Long Steel
NORTH AMERICA
BRAZIL
Barra Mansa
5%
Gerdau
48%
Other
50%
Mittal
7%
Other 7%
Commercial
Metals
6%
Aços Villares
5%
Gerdau
Ameristeel
15%
Belgo
35%
Nucor
22%
COUNTRY
MARKET SHARE
CHILE
51%
CAP + Imports
URUGUAY
90%
Imports
ARGENTINA
20%
Acindar + Bragado + Zapla
COLOMBIA
37%
Acerias Paz Del Rio
SPAIN
36%*
GSB
* Specialty steel only
MAIN COMPETITORS
11
Agenda
Steel Sector
Gerdau Group
Operating and Financial Highlights
12
Shipments
In thousand tons
12,144
12,560
13,550
9,109
Brazil – Domestic Market (27% in 1Q06)
7,411
Brazil – Exports (17% in 1Q06)
3,374
3,691
South America (9% in 1Q06)
North America (45% in 1Q06)
Europe (2% in 1Q06)
2001
Billets,
blooms
& slabs
2002
2003
Merchant
bars
2004
2005
Rebars
1Q 0 5
Fabricated
steel
1Q 0 6
Heavy
structural shapes
Wire-rod
Wires
Nails
13
Strong Export Business
1Q06
NET REVENUE
BREAKDOWN BY REGION
Europe
3%
North America
44%
South America
9%
Brazil (Domestic Market)
35%
Exports (from Brazil)
9%
EXPORT SHIPMENTS BY
REGION
Africa
13%
Europe
12%
Asia
22%
Central America
12%
North America
16%
South America
25%
14
Margin Evolution
Gross Margin
52%
42%
40.5%
31%
29.5%
21%
10%
34.5%
26.3%
26.1%
18.6%
27.6%
15.6%
0%
1Q05
2Q05
EBITDA Margin
42%
31%
3Q05
4Q05
1Q06
Net Margin
30%
35.0%
20.8%
25.2%
21% 24.3%
10% 14.2%
26.0%
22.7%
20.8%
20%
16.5%
15.5%
10%
13.9%
22.5%
14.8%
13.2%
7.9%
7.3%
0%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
1Q05
2Q05
Brazil
South America
North America
Consolidated
3Q05
4Q05
1Q06
15
Consolidated Financials
In US$ millions
1Q05
4Q05
1Q06
Current assets
Non-current assets
Fixed assets
Total
3,725
409
3,075
7,209
5,182
377
3,788
9,347
5,684
503
4,432
10,619
Current liabilities
Non-current liabilities
Shareholders’ equity
Total
1,742
2,307
3,160
7,209
1,790
3,225
4,332
9,347
1,976
3,628
5,015
10,619
2,187
605
439
304
531
2,088
551
375
312
443
2,584
681
532
383
538
27.6%
24.3%
1.1x
0.7x
26.4%
21.2%
1.6x
0.4x
Balance Sheet
Income Statement
Net revenue
Gross profit
Operating income
Net income
EBITDA
Ratios
Gross margin
EBITDA margin
Total debt / EBITDA
Net debt / EBITDA
26.3%
20.8%
1.7x
0.5x
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Indebtedness
In US$ million
Mar. 06
GROSS DEBT
3,660
100%
SHORT TERM
Domestic Currency
Foreign Currency
Companies Abroad
670
18%
113
3%
184
5%
373
10%
LONG TERM
Domestic Currency
Foreign Currency
Companies Abroad
2,991
82%
791
22%
1,508
41%
692
19%
CASH & CASH AND EQUIV.
Domestic Currency
Foreign Currency
2,550
100%
1,558
61%
992
39%
NET DEBT
1,110
COST OF DEBT IN MAR. 06
(per annum)
In US$
Brazil – Domestic
Currency
14.2%*
Brazil – Foreign
Currency
7.3%
Companies Abroad
7.8%
DEBT AVERAGE LIFE
8.8 years
*Includes (7.19%) of 2006 FX
DEBT STRUCTURE
Foreign
Currency
46%
Companies
Abroad
29%
Domestic
Currency
25%
17
Expansion Program 2006 - 2008
Investment Program 2006 – 2008: US$ 3.8 billion
2006 – US$ 1.7 billion
2007 – US$ 1.4 billion
2008 – US$ 0.7 billion
NEW CAPACITY
US$ 2.0 billion
MAINTENANCE
US$ 1.8 billion
Brazil
US$ 674 MM
North America
US$ 977 MM
South America
US$ 129 MM
INSTALLED CAPACITY EVOLUTION
Crude Steel
+ 14%
18,658
Abroad
10,073
+ 6%
21,360
10,675
Brazil
8,585
2006
Rolled Products
In thousand tons
+ 24%
+ 17%
17,471
14,870
+ 13%
9,610
10,685
5,260
2008
2006
10,886
Abroad
Brazil
+ 25%
6,585
2008
18
Dividends Policy

30% of the adjusted net income (Pay-out)

Dividend payments are being made on a quarterly basis
DIVIDENDS DISTRIBUTION*
In US$ million
334
302
Metalúrgica Gerdau S.A. (GOAU4)
Gerdau S.A. (GGBR4)
153
153
118
30
55
1999
66
30
2000
53
81
71
42
2001
58
2002
2003
2004
2005
DIVIDEND YIELD
1999
2000
2001
2002
2003
2004
2005
GOAU4
6.0%
7.9%
17.0%
11.3%
6.2%
7.8%
6.1%
GGBR4
3.6%
6.1%
6.8%
6.8%
3.9%
6.1%
4.6%
* Dividends related to each period, but not necessarily paid in the same period.
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Outlook
Brazil





Greater economic growth in 2006 – around 3.5%
Growing volumes – Domestic market from 8 to 10%
Strengthening of the civil construction sector
Price stability in Brazilian currency
Inventories adjusted
North America





Consistent economic growth
Greater investments in infrastructure
Production costs stability
Prices rising
Growing metallic spread
South America
 Consolidated economic growth
 Strengthening of the civil construction sector
 Demand is strong
Europe
 Consolidation of the specialty steel operations at Sidenor
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Safe Harbor Statement
This presentation 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.
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Gerdau S.A.
www.gerdau.com.br
inform@gerdau.com.br
+55 51 3323 2703
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