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GERDAU
December 2005
Morgan Stanley Basic Materials Conference
VISION
MISSION
TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY
TO BE A WORLD-CLASSINTERNATIONAL STEEL COMPANY
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
Philosophy
2
A low cost international steel company with operations in Brazil, Uruguay, Canada, Chile, Argentina, Colombia and the United States
Substantial international profile – foreign exchange generation through divisions abroad and export sales amount approximately 61% of consolidated revenues in 9M05
Ranked 12th globally by steel output in 2004 with an output of 13.4m tons (includes one joint venture)
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 28 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 1.4x in 9M05) and strong cash generation
Shares of Gerdau S.A. are currently traded at the São Paulo, New York and Madrid exchanges
Investment Considerations
3
Shareholding Structure
Gerdau Chile
GerdauLaisaS.A.
SiparAceros
S.A.
100%
74.4%
100%
44.8%
97.1%
MetalúrgicaGerdau S.A.
77.2%
66.5%
50%Gallatin
Steel
GerdauAçominas
S.A.
GerdauAços Longos
S.A.
GerdauAços Especiais
S.A.
89.3%89.3%
Gerdau S.A.
89.3% 89.3%
GerdauAmeristeelCorporation
89.3%
GerdauComercial de
Aços S.A.
22.8%
BancoGerdau S.A.
99%
Gerdau Colômbia
Gerdau AZA S.A.
100% 57.1%
GerdauAmérica do SulParticipações
S.A.
GerdauAmérica do SulParticipações
S.A.
GerdauInternacionalEmpreend.
Ltda.
GerdauInternacionalEmpreend.
Ltda.
Seiva S.A.Florestas eIndústrias
Seiva S.A.Florestas eIndústrias
4
THROUGHOUT THE 40’s
THE 60’s
THE 50’s
1901 – First operation: nail factory First steel mill acquisition – Siderúrgica Riograndense (1948)
Expansion of Siderúrgica Riograndense Construction of second mill at Riograndense
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
100+ Years in Business
Capacity expansion with acquisition of two mills (Alagoas and Paraná) and construction of largest mill (Rio de Janeiro)
Diversification in reforestation
THE 70’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 80’s
THE 90’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
5
CartersvilleMill
OrrvileDrawing
(USA)
Laisa - 1980(Uruguay)
AZA(Chile)
SIPAR(Arg.)
Ameristeel(USA)
AZANew Plant
(Chile)
Potter FormGate City & RJ
North Star(USA)
SACK(Chile)
DIACO andSIDELPA
(Colombia)
Cambridge(Canada)
Manitoba(Canada)
SIPSA(Argentina)
CartersvilleDrawingCo-Steel
(USA)
1,7573,072
3,934 4,595
7,696
14,450
16,830
Abroad – Crude Steel Installed Capacity
TOTAL INVESTED ABROAD (1981-2004):North America = US$ 1.3 billion + DebtSouth America = US$ 314 million + Debt
In thousand tons
THE NEW MILLENNIUM Expansion abroad – reverse takeover of Co-Steel and acquisition of North Star Mills Acquisition of stake in Açominas – controller since 2002 Strategic alliance in Colombia
Solid Track Record
Includes a pending transaction in Colombia
Brazil – Crude Steel Installed Capacity6
Brazil
7.6 million tons of crude steel
4.8 million tons of rolled steel products
Abroad
9.2 million tons of crude steel
9.1 million tons of rolled steel products
Total Capacity (Includes 1 Joint Venture)
16.8 million tons of crude steel
13.9 million tons of rolled steel products
Steel mills
Joint venture
Rolling mill
10 mills
11 fabrication shops
6 downstream operations and special sections
75 sales points and flat steel service centers
18 mills and 1 rolling mill
38 fabrication shops
15 downstream operations and special sections
An International Company
1 joint venture
7
Crude Steel – Output 2004
In million tons
Arcelor (LUX) 2
Mittal Steel (NET) 1
Nippon Steel (JAP) 3
JFE Steel (JAP) 4
Posco (KOR) 5
Shangai Baosteel (CHI) 6
US Steel (USA) 7
Corus Group (U.K.) 8
ThyssenKrupp (GER) 10
Riva Group (ITA) 11
Nucor (USA) 9
Gerdau Group (BRA) 12
Sumitomo (JAP) 13
46.9
58.9
32.4
31.6
30.2
21.4
20.8
19.0
17.9
17.6
16.7
13.4
13.0
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.
Source: IISI
Among the Leaders
*
* Includes ISG acquired by Mittal Steel in 2004.
8
BRAZIL
Gerdau 48%
Belgo35%
Barra Mansa5%
Other 7%
NORTH AMERICA
Nucor27%
Gerdau Ameristeel
19%
Commercial Metals
7%
Imports18%
Other29%
COUNTRY MARKET SHARE MAIN COMPETITORS
Solid Market Share in Long Steel
Aços Villares5%
CHILE
URUGUAY
ARGENTINA
53%
20%
90%
CAP + Imports
Acindar + Bragado + Zapla
Imports
COLOMBIA 37% Acerias Paz Del Rio
9
LONG STEEL PRODUCTS (Brazil) Maintenance of market share Enhancement of current installed
capacity New steel mill in São Paulo Continuous improvements
SPECIALTY STEEL Growth in the domestic and
export markets New mill in Rio de Janeiro New markets/regions
AÇOMINAS (Ouro Branco mill) New 1.5 mm ton blast furnace Next phase: +3 mm tons
Growth platform for slabs,
blooms and billets Export-oriented sales
Growth Strategies
SOUTH AMERICA Maintenance of leadership in
the long steel sector New markets
NORTH AMERICA Efficiency and productivity
gains (Gaps) Active role in the steel sector
consolidation process
NEW OPPORTUNITIES Mexico, Asia, South America… Flat Steel Iron ore and pig iron
10
Output Evolution
2000 2001 2002 2003 2004 2005*
CRUDE STEELIn thousand tons
13,44812,343
9,441
7,2517,065
13,676
2000 2001 2002 2003 2004 2005*
ROLLED PRODUCTSIn thousand tons
5,836 5,9686,933
9,04510,274 10,621
North America
Brazil
South America
* Annualized data 11
Shipments
Brazil – Domestic Market
Brazil – Exports
South America
North America
In thousand tons
Billets, blooms& slabs
Merchant bars
Rebars Fabricated steel
Heavystructural shapes
Wire-rod Wires Nails
7,213 7,394
9,151
12,56012,144
13,581
12* Annualized data
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2000 2001 2002 2003 2004 2005*
Strong Export Business
Asia44%
Central America12%
South America 21%
North America4%
Africa8%
9M
05
SHIPMENTS BY REGION SHIPMENTS BY SEGMENT
Asia34%
Europe11%
Africa8%
Central America
15% North America15%
South America 17% Industry57%
Agricultural2%
2004
Civil Construction41%
Industry62%
Agricultural1%
Civil Construction 37%
Europe 11%
13
Costs and PricesNet Sales Revenue and Cost of Sales per ton
Brazil
North AmericaSouth America
408 411
561512
636
735685 697
384378
385
396
526
463
498 558 638
613
Net Sales Revenue
Cost of Sales
Net Sales Revenue
Net Sales Revenue
Cost of SalesCost of Sales
1Q03 2Q03 3Q03 3Q044Q031Q04 2Q04 4Q04 1Q05 2Q05
584
675
In US Dollars/ton
3Q05
722
615
511 500 492 494546
681733747 755
289
310
311
299
338
374
402
425
449
443
718707
444
1Q03 2Q03 3Q03 3Q044Q03 1Q04 2Q04 4Q04 1Q05 2Q05 3Q05
425
549637
586
717 699637
820
502
331
288 367
418
351 422
417 487 5
79
1Q032Q03 3Q03 3Q044Q031Q04 2Q04 4Q04 1Q05 3Q05
510
723
2Q05
731
510
14
Consolidated FinancialsIn US$ millions
2004 9M04
Income Statement
Net revenueGross profitOperating incomeNet incomeEBITDA
9M05
7,3832,3531,6781,2192,092
5,1431,6661,151
8701,492
7,3621,9961,4241,1321,743
Balance Sheet
Current assetsNon-current assetsFixed assetsTotal
Current liabilitiesNon-current liabilitiesShareholders’ equityTotal
3,600390
3,0417,031
1,9772,1862,8687,031
2,954273
2,6625,889
1,6541,8272,4075,888
5,152365
3,7949,311
1,6983,2674,3469,311
Ratios
Gross marginEBITDA marginTotal debt / EBITDANet debt / EBITDAEBITDA/Net Financial Expenses
31.9%28.3%
1.1x0.8x
19.8x
32.4%29.0%
1.2x0.8x
14.3x
27.1%23.7%
1.4x0.5x
23.3x
15
Liquidity Management
Gerdau maintains a strong liquidity policy to ensure that ample resources are available in the case of a downturn in market conditions or any
deterioration of the sovereign environment
Gerdau maintains a strong liquidity policy to ensure that ample resources are available in the case of a downturn in market conditions or any
deterioration of the sovereign environment
16
Gerdau’s liquidity policy Cash and liquid investments of at least 25% of total debt Gerdau export sales not more than 50% leveraged through
export
credit and receivable securitization Liquid funds are held in USD and Brazilian Reais both in
offshore
and onshore accounts
GROSS DEBT 3,261 100%
SHORT TERM 570 18%
Domestic Currency 107 3%
Foreign Currency 151 5%
Companies Abroad 312 10%
LONG TERM 2,691 82%
Domestic Currency 691 21%
Foreign Currency 1,328 41%
Companies Abroad 672 20%
CASH & CASH AND EQUIV. 2,111 100%
Domestic Currency 1,363 65%
Foreign Currency 748 35%
NET DEBT 1,150
Sep./05
In US$ millions
Consolidated Debt Profile
17
DEBT STRUCTURE
Domestic Currency24%
Foreign Currency
46%
Companies Abroad30%
COST OF DEBT (per year)
InR$
InUS$
Brazil Domestic Currency 16.5% 39.1%*
Foreign CurrencyFX+ 5.8%
5.8%
Companies Abroad - 7.3%
DEBT MATURITY 9.1 years
* Includes exchange and monetary variation in the last 9 months* Includes exchange and monetary variation in the last 9 months
Capital Expenditures
INVESTMENTS - 9M2005INVESTMENTS - 9M2005
2004 2007
8,800
7,580
9,730
11,720
16,380
21,450
+ 55%
+ 11%
+ 28%
EVOLUTION OF INSTALLED CAPACITY
Investment Program 2005 – 2007: US$ 3.2 billionInvestment Program 2005 – 2007: US$ 3.2 billion
2004 2007
8,240
4,730
8,880
6,610
12,970
15,490
+ 40%
+ 8%
+ 19%
BraZil Abroad Brazil Abroad
Crude Steel Rolled Steel
BRAZIL 410.4
ABROAD 248.2
North America 114.4
South Amerca 133.8
TOTAL 658.6
In thousand tonsIn thousand tons
In US$ millions
18
Statements relative to business perspectives are based on current
expectations of future events and trends that may affect our
business. These estimates 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.
Safe Harbor Statement
