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Summary

Assumptions

This Valuation Guide is based on the following assumptions:

Data since 1st quarter 2008
Updating: quarterly
Accounting standard: IFRS
Volume unit: Metric Ton (1 metric ton = 1,1 short ton)
Cost accounting standard: average cost
Debt information: includes debentures

Functional currency: Brazilian real - R$ (For overseas companies, Income Statement accounts are converted based on the average exchange rate in the quarter, while Balance Sheet accounts are converted based on the exchange rate at the end of the quarter).

Business operations (BO):
Brazil: Includes all operations in Brazil (except special steel) and the Colombia metallurgical coal and coke operation
North America: Includes all North American operations, except Mexico and specialty steel
Latin America: Includes all Latin American operations, except for Brazil
Special Steel: Includes the specialty steel operations in Brazil, Spain, United States and India
Iron Ore: Includes the iron ore operations in Brazil

Notes:
1. As of 1Q12, Colombian metallurgical coal and coke operation, which was previously reported in the Latin America BO, have been consolidated into the Brazil BO. This change stems from the strategic decision to integrate this coal and coke operation with the Gerdau Açominas, due to its increasing relevance in providing metallurgical coal to this mill. For the purpose of better comparison, the historical data has been corrected since 1Q11.                     
2. As of 1Q12, with the purpose of aligning this document to financial statements presented in the American and Brazilian markets, comments have started to separate transactions occurred between the Business Operations, indicated in tables under the "Eliminations and adjustments" line, as well as the Company's corporate expenses, which were previously reported under the Brazil BO. For the purpose of better comparison, the historical data has been corrected since 1Q11.                     
3. The information contained in this guide does not include joint ventures or companies in which Gerdau has shared control, which are recognized under the equity income method: Guatemala (Corporación Centroamericana del Acero), Dominican Republic (Inca), Mexico (Corsa) and USA (Gallatin).
 

Production Process (metallic charge)

Production Processes – Flowchart:

Semi-integrated (mini-mill): represents approximately 75% of the business

Integrated (blast furnace): represents approximately 25% of the business

Main inputs for the production of one tonne of steel

Note: Market references considering approximate amounts for steel plants in general, with actual amounts varying in accordance with product quality and specifications. The references don't apply directly at Gerdau's mills.

  Electric furnaces Integrated
Scrap 0.9 tonnes -
Solid pig iron 0.3 tonnes -
Iron ore - 1.6 tonnes
Coal - 0.8 tonnes
Coke - 0.6 tonnes
Power Supply 400 kWh/tonne -
Production Capacity

‘000 tonnes

CRUDE STEEL Mar-13
Total 25,680
Brazil BO 9,100
Mini-mill 4,600
Integrated mill 4,500
North America BO 9,870
Latin America BO 2,740
Special Steel BO 3,970
Brazil 1,430
EUA 1,320
Spain 970
India 250
ROLLED PRODUCTS Mar-13
Total 23,400
Brazil BO 6,340
North America BO 9,380
Latin America BO 3,170
Special Steel BO 4,510
Production

‘000 tonnes

 
CRUDE STEEL 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Total 5.018 4.732 4.940 5.046 4,747 4,186 4,410 4,646 4,507 4,446 4,557
Brazil BO 2.007 1.874 1.751 1.825 1,925 1,702 1,708 1,771 1,794 1,691 1,609
North America BO 1.726 1.670 1.899 1.841 1,735 1,425 1,474 1,640 1,457 1,549 1,649
Latin America BO 428 414 470 518 444 408 426 429 444 426 441
Special Steel BO 857 774 820 862 644 651 802 806 812 780 858
 
ROLLED PRODUCTS 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Total 4.210 3.982 4.217 4.201 3,959 3,447 3,682 4,078 3,922 3,820 4,075
Brazil BO 1.248 1.164 1.140 1.143 1,213 1,019 1,069 1,219 1,232 1,094 1,213
North America BO 1.630 1.574 1.744 1.714 1,637 1,329 1,385 1,541 1,430 1,501 1,547
Latin America BO 537 523 596 577 496 444 528 529 531 521 526
Special Steel BO 795 721 737 767 614 655 700 789 729 704 789
 
IRON ORE 1Q13 2Q13 3Q13 4Q13 1Q14
Iron Ore BO 1,124 1,052 1,568 1,842 1,736
Shipments

’000 tonnes

 
  3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Total 4.849 4.709 4.725 4.778 4,774 4,317 4,555 4,634 4,775 4,556 4,387
Brazil BO 1.932 1.940 1.778 1.916 1,791 1,814 1,808 1,768 1,913 1,792 1,597
Domestic 1.380 1.242 1.269 1.418 1,339 1,294 1,417 1,506 1,544 1,417 1,442
Export 552 698 509 498 452 520 391 262 369 375 155
North America BO 1.631 1.607 1.752 1.593 1,768 1,359 1,516 1,545 1,608 1,476 1,452
Latin America BO 711 649 671 685 705 647 646 726 720 716 681
Special Steel BO 734 692 698 731 625 603 667 766 713 711 758
Eliminations (159) (179) (174) (147) (115) (106) (82) (171) (179) (138) (101)
  1Q13 2Q13 3Q13 4Q13 1Q14
Iron Ore BO 912 894 1,073 2,139 2,000
Gerdau Units 905 817 966 1,088 812
Third Parties 7 77 107 1,051 1,188

The historical breakdown of sales, which may vary in accordance with the specific market.

Brazil BO %
Construction 50-55
Industrial 40-45
Agribusiness 0-5
North America BO %
Infrastructure 30-35
Non-residential construction 40-45
Industrial 25-30
Other 5-10
Special Steel BO %
Automotive (light vehicle) 40
Automotive (heavy vehicle) 40
Industrial (oil, gas and energy) 20

The main Products

Brazil BO: rebar, bar, wire rod, beam, drawn product, billet, bloom, slab and structural beam.
North America BO: rebar, bar, wire rod, light and heavy structural beam.
Latin America BO: rebar, bar and drawn product.
Special Steel BO: stainless steel, round, square and flat bar, wire rod.


 
Investments
 
ACQUISITIONS* 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
US$ million
Total - - - - - - - - - - -
Brazil BO - - - - - - - - - - -
North America BO - - - - - - - - - - -
Latin America BO - - - - - - - - - - -
Special Steel BO - - - - - - - - - - -

* Includes debt of companies acquired in the period

 
CAPEX 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
R$ million
Total 614 674 691 850 904 683 567 678 676 677 677
Brazil BO 465 473 432 555 594 337 291 357 337 293 332
North America BO 50 59 82 71 90 113 86 93 84 107 79
Latin America BO 37 51 39 43 58 58 39 49 50 36 78
Special Steel BO 62 91 138 181 162 175 109 126 146 143 137
Iron Ore BO - - - - - - 42 53 59 98 51

 

Investment Plan
Investment Plan - Main Projects Location Additional production capacity (1,000 t) Start-up
Brazil BO
Flat steel rolling mill (heavy plates) at Ouro Branco mill-MG Brazil 1,100 2016
Wire rod and rebar rolling mill at Cosigua mill-RJ1, 2 Brazil 600 2016
New melt shop at Riograndense mill-RS4 Brazil 650 2016
North America BO
Capacity expansion from new continuos casting at St Paul mill - Minnesota5 USA 550 2014
Latin America BO
New melt shop in Mexico (Gerdau Corsa)3 Mexico 1.000 2014
New structural profile rolling mill in Mexico (Gerdau Corsa)3 Mexico 700 2015
Expansion of crude steel capacity at all Colombia's mills Colombia 400 2016
Expansion of rolling capacity at all Colombia's mills Colombia 450 2016
New melt shop in Argentina Argentina 650 2016
Specialty Steel BO
Expansion of rolling capacity at Mogi das Cruzes Mill in São Paulo Brazil 60 2014
Second bar inspection line in India mill Brazil - 2014
Coke plant and power generation plant in India mill India - 2015
New continuous casting and reheating furnace at Pindamonhangaba mill, São Paulo Brazil - 2016
Expansion of crude steel, long steel products and finishing capacities at Monroe mill, MI2 USA 300 2014
Iron Ore BO
Expansion of mining operations capacity to 18 million tonnes and logistics for the operation2 Brazil - 2016

1 To meet this rolling capacity, one of the electric furnaces in the melt shop will be revamped.
Investment with approval in stages.
3 This capacity is not included in the consolidated figures since it is a jointly-controlled entity.
4 Deactivation of current melt shop (450,000 tones capacity)
5 Deactivation of current continuous casting (450,000 tones capacity)
 

Indebtedness
 
R$ million 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
SHORT TERM 2,971 3,093 2,583 3,333 1,770 1,769 1,838 1,756
Local currency 1,003 1,022 652 552 382 435 492 539
Foreign currency 333 485 469 774 295 272 262 290
Companies abroad 1,635 1,585 1,462 2,007 1,093 1,062 1,084 926
LONG TERM 11,921 11,875 12,086 11,610 13,889 14,022 14,868 15,004
Local currency 1,947 1,866 2,240 2,123 1,964 2,506 2,927 3,396
Foreign currency 6,855 6,551 6,422 6,261 8,500 8,146 8,724 8,381
Companies abroad 3,119 3,458 3,424 3,226 3,425 3,370 3,217 3,227
GROSS DEBT (principal+interest) 14,892 14,968 14,669 14,943 15,659 15,791 16,707 16,759
Interest on the debt (383) (339) (308) (417) (344) (339) (391) (374)
GROSS DEBT (principal) 14,509 14,629 14,361 14,526 15,315 15,452 16,316 16,386
FINANCIAL INVESTMENTS 3,165 2,999 2,497 1,832 2,972 3,512 4,222 3,520
Local currency 2,296 1,987 1,617 1,110 1,877 1,920 2,142 1,995
Companies abroad 869 1,012 880 722 1,095 1,592 2,080 1,525
NET DEBT* (principal) 11,344 11,630 11,864 12,694 12,343 11,941 12,094 12,866
GROSS DEBT (principal+interest) BY CURRENCY
Brazilian real 2,943 2,889 2,892 2,675 2,345 2,941 3,418 3,935
U.S. dollar 11,247 11,131 10,838 11,177 12,510 12,027 12,420 11,972
Euro 148 133 120 135 135 163 117 185
Other currencies 554 815 819 956 669 660 752 667
GROSS DEBT (principal): LONG-TERM AMORTIZATION SCHEDULE
2015 529
2016 1,055
2017 3,994
2018 599
2019 578
2020 and after 8,249

MAIN COVENANTS

Net Debt (principal) / EBITDA < 4 times
EBITDA / Financial Expenses > 3 times

 
COST OF DEBT
Local currency 9.4%
Foreign currency 6.2% + FX
Companies abroad 5.9%
* As of 2Q12 it refers to net debt principal
Net Investment Hedge
      Dec-13 Mar-14 Exchange
Variation
    US$ RS$ RS$ RS$
Total debt   3,640 8,527 8,237 290
R$/US$     2.3426 2.2630  
  Corresponding Line on the
Quartely Results
      Impact on the
Income Statment 
Part of the debt with
Net Investment Hedge
  2,600      
Part of the debt without
Net Investment Hedge
Exchange variation on
Net Investment Hedge
1,040 2,436 2,354 83
Exchange variation effect
on tax
IR/CS on Net Investment
Hedge
      (83)

To use this sheet is necessary  to consult  the informations contained in the items "Financial Results", "Financial Liability" and "Net Income" of the Quartely  Results.

Financial Statements
 
INCOME STATEMENT 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
R$ million
Net sales revenue 9,199 9,975 9,819 8,988 9,166 9,882 10,494 10,321 10,554
Cost of goods sold (8,093) (8,550) (8,621) (7,969) (8.257) (8,540) (8,960) (8,971) (9,238)
Gross income 1,106 1,425 1,198 1,018 908 1,342 1,534 1,350 1,316
GROSS MARGIN 12% 14% 12% 11% 10% 14% 15% 13% 12%
Selling, general and administrative expenses (599) (635) (630) (607) (635) (636) (672) (669) (707)
Other operating revenue (expenses) 32 9 3 20 51 14 5 108 19
Equity income 31 (14) (3) (6) 17 (1) 18 19 27
Income before financial income (expenses) and taxes 570 785 568 425 341 719 886 808 654
Net financial income (expenses) (97) (335) (134) (222) (192) (548) (206) (355) (101)
Income before taxes 473 450 434 203 149 171 679 453 553
Provision for income tax and social contribution (76) 99 (26) (60) 11 230 (37) 39 (113)
NET INCOME IN THE PERIOD 397 549 408 143 160 401 642 492 440
Parent company interest 370 536 389 131 148 390 595 450 397
Minority interest 27 13 19 12 12 11 47 42 43
Depreciation 438 459 465 465 464 477 528 561 542
EBITDA 1,008 1,244 1,033 891 805 1,196 1,413 1,370 1,196
EBITDA MARGIN 11% 12% 11% 10% 9% 12% 13% 13% 11%
 
BALANCE SHEET 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
ASSETS
CURRENT ASSETS 16,871 18,171 17,546 16,410 15,909 16,807 17,399 18,177 18,202
Cash, cash equivalents and financial investments 3,435 3,165 2,999 2,497 1,832 2,972 3,512 4,222 3,520
Accounts receivable 4,003 4,510 4,276 3,695 4,450 4,126 4,441 4,079 4,492
Inventories 8,372 9,366 9,125 9,022 8,537 8,551 8,197 8,500 8,689
Other 1,061 1,130 1,146 1,196 1,090 1,158 1,249 1,376 1,501
NON CURRENT ASSETS 32,757 35,175 36,052 36,683 35,898 38,249 38,809 40,038 39,352
Deferred income tax 1,636 2,099 2,144 2,210 1,728 2,095 2,165 2,056 1,973
Investments 1,425 1,579 1,436 1,426 1,344 1,492 1,497 1,590 1,554
Goodwill 8,956 9,870 9,952 10,033 9,838 10,753 10,844 11,353 10,970
Intangible 1,255 1,350 1,346 1,364 1,341 1,431 1,456 1,498 1,472
Fixed assets 17,443 18,406 19,289 19,690 19,623 20,473 20,807 21,419 21,242
Other 2,042 1,871 1,885 1,960 2,024 2,005 2,040 2,121 2,141
TOTAL ASSETS 49,628 53,346 53,598 53,093 51,807 55,056 56,208 58,473 57,554
LIABILITIES
CURRENT LIABILITIES 6,666 8,251 8,070 7,823 7,883 6,731 6,949 7,237 6,904
Suppliers 3,229 3,527 3,326 3,060 3,020 3,303 3,289 3,271 3,183
Financing 1,884 2,971 2,756 2,324 3,180 1,770 1,742 1,811 1,678
Other 1,553 1,753 1,987 2,439 1,683 1,658 1,918 2,154 2,043
NON CURRENT LIABILITIES 16,220 16,674 16,643 16,472 15,449 17,861 18,123 18,958 19,007
Financing 10,874 11,297 11,571 11,726 11,304 13,454 13,622 14,481 14,583
Deferred income tax 1,769 1,764 1,750 1,796 1,242 1,306 1,284 1,187 1,104
Employee benefits 1,035 1,007 1,016 1,188 1,148 1,169 1,204 942 906
Other 2,542 2,606 2,305 1,762 1,755 1,932 2,013 2,347 2,414
SHAREHOLDERS’ EQUITY 26,742 28,421 28,886 28,798 28,475 30,464 31,136 32,021 31,643
Capital stock 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249
Reserves and other 5,972 7,661 8,073 7,997 7,768 9,298 9,954 11,090 10,712
Minority interest 1,521 1,511 1,563 1,552 1,458 1,917 1,933 1,682 1,682
TOTAL LIABILITIES 49,628 53,346 53,598 53,093 51,807 55,056 56,208 58,474 57,554
EXCHANGE RATE
Average Exchange Rate 1.77 1.96 2.02 2.06 1.98 2.07 2.29 2.27 2.37
End of Period Exchange Rate 1.82 2.02 2.03 2.04 2.01 2.22 2.23 2.34 2.26
Business Operations Results
 
R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Consolidated
Net Sales 9,066 9,199 9,975 9,819 8,988 9,166 9,882 10,494 10,321 10,554
Gross Profit 1,201 1,107 1,425 1,198 1,018 908 1,342 1,534 1,350 1,316
EBITDA 1,025 1,008 1,244 1,033 891 805 1,196 1,413 1,370 1,196
Depreciation 456 438 459 465 465 464 476 528 561 542
                     
Brazil BO
Net Sales 3,558 3,220 3,724 3,567 3,589 3,457 3,666 3,967 3,747 3,655
Domestic 2,629 2,623 2,997 2,931 2,792 3,001 3,234 3,453 3,175 3,360
Export 929 597 727 636 797 456 432 514 572 295
Gross Profit 563 427 610 715 717 514 725 950 765 749
EBITDA 531 411 589 691 703 496 702 933 848 731
Depreciation 211 203 185 191 189 188 186 206 217 200
                     
North America BO
Net Sales 2,817 3,141 3,184 3,415 2,709 2,925 3,092 3,443 3,102 3,258
Gross Profit 216 335 351 223 223 171 187 147 138 99
EBITDA 187 330 328 205 59 148 158 129 140 70
Depreciation 112 106 117 122 126 115 119 133 149 136
                     
Latin America BO
Net Sales 1,068 1,149 1,274 1,322 1,219 1,144 1,332 1,426 1,464 1,399
Gross Profit 145 114 113 58 44 95 139 162 169 185
EBITDA 95 92 70 (3) 21 53 109 131 135 143
Depreciation 34 38 42 40 34 41 46 50 49 52
                     
Special Steel BO
Net Sales 1,863 1,855 2,070 1,750 1,713 1,813 2,122 2,045 2,044 2,263
Gross Profit 246 238 339 207 184 118 241 222 133 161
EBITDA 246 260 362 233 218 155 276 273 205 203
Depreciation 99 91 115 112 116 115 120 133 136 142
                     
Iron Ore BO
Net Sales           79 124 127 374 316
Gerdau Units           78 111 108 133 105
Third Parties           1 13 19 241 211
Gross Profit           16 50 55 142 119
EBITDA           14 46 49 141 121
Depreciation           5 5 5 10 12
                     
EXCHANGE RATE
Average Exchange Rate 1.80 1.77 1.96 2.02 2.06 1.98 2.07 2.29 2.27 2.37
Production Costs
 
% of production costs 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
GERDAU CONSOLIDATED
Personnel 15 14 15 15 17 16 15 17 18 16
Maintenance 6 6 5 6 7 6 6 7 7 6
Depreciation 5 4 4 5 5 5 5 5 5 5
Metallic Inputs 53 55 55 53 50 51 52 50 50 53
Energy and Reducing Agents 13 13 13 13 13 14 14 13 12 13
Specific Materials 8 8 8 8 8 8 8 8 8 7
Brazil BO
Personnel 17 16 17 15 18 18 18 18 19 19
Maintenance 7 7 7 6 6 6 6 6 7 7
Depreciation 7 7 6 6 7 7 6 7 7 7
Metallic Inputs 39 40 41 44 40 37 39 39 39 39
Energy and Reducing Agents 24 24 23 23 23 24 23 23 21 21
Specific Materials 6 6 6 6 6 8 8 7 7 7
North America BO
Personnel 12 11 13 14 16 14 11 16 17 14
Maintenance 5 4 4 5 7 7 7 9 9 5
Depreciation 3 3 3 3 4 3 3 3 5 4
Metallic Inputs 66 69 66 62 58 61 64 57 56 62
Energy and Reducing Agents 6 5 6 7 7 7 7 7 6 7
Specific Materials 8 8 8 9 8 8 8 8 7 8
Latin America BO
Personnel 12 11 10 12 12 11 11 11 11 10
Maintenance 5 5 5 6 6 5 5 5 5 4
Depreciation 3 4 3 3 3 3 3 3 3 3
Metallic Inputs 64 65 66 65 64 67 68 66 66 69
Energy and Reducing Agents 11 10 10 9 9 9 8 9 9 9
Specific Materials 5 5 6 5 6 5 5 6 6 5
Special Steel BO
Personnel 19 19 19 20 22 20 20 19 21 19
Maintenance 7 7 6 7 7 6 6 6 6 6
Depreciation 5 4 4 5 5 5 5 5 5 5
Metallic Inputs 50 51 52 47 45 49 47 46 45 48
Energy and Reducing Agents 9 9 9 10 10 9 11 12 12 12
Specific Materials 10 10 10 11 11 11 11 12 11 10
GLOSSARY
Personnel Costs with personnel and consulting.
Metallic charge Scrap, pig iron, iron ore, coke and metallic alloys.
Energy and Reducing Agents Coal, electricity, oxygen, natural gas and fuel oil.
Specific Materials Refractories, electrodes, rolling cylinders, rollers, guides, carburants and lime.
Frequent Questions

Click in the question to access the document with their answers.

More details Where to find information on the Gerdau website
Quarterly Results Website Gerdau1 - Investors - Financial Information - Quarterly Results
Plant Capacity Website Gerdau1 - Investors - Financial Information - SEC Files - 2011 - Form 20F (20-F in the item 4.D - PROPERTY, PLANT AND EQUIPMENT - Page 41)
Contingencies of Gerdau S.A.: ICMS credits, resulting mainly from sales of products to trading companies and tax income related to companies abroad Website Gerdau1 - Investors - Financial Information - SEC Files - 2011 - Form 20F (NOTE 18 - PROVISIONS FOR TAX, LABOR AND CLAIMS, item II) Non accrued contingent liabilities, items A.1 and A.4

1Website Gerdau - www.gerdau.com

Disclaimer

This modeling guide is based on historic and publicly available data. It does not seek to provide any guidance (estimates or projections) of future events, except for the best estimate the Company currently has for its investment and debt amortization plan. The estimates and premises in this guide are subject to risks, uncertainties and assumptions that include, among others, the general economic, political and business conditions in Brazil and in the markets where we operate, as well as existing and future government regulations. Potential investors are cautioned that the data provided here is not a guarantee of future performance as it involves risks and uncertainties. The company does not assume, and specifically rejects, any obligation to update any estimate, which is only valid on the date it was made.