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Valuation Guide

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

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 25,490
Brazil BO 9,100
Mini-mill 4,600
Integrated mill 4,500
North America BO 9,870
Latin America BO 2,700
Special Steel BO 3,820
Brazil 1,430
EUA 1,420
Spain 970
ROLLED PRODUCTS Mar-13
Total 21,830
Brazil BO 5,540
North America BO 9,460
Latin America BO 3,140
Special Steel BO 3,690
Production

‘000 tonnes

 
CRUDE STEEL 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
Total 4.749 5.123 5.018 4.732 4.940 5.046 4,747 4,186 4,410
Brazil BO 1.722 1.969 2.007 1.874 1.751 1.825 1,925 1,702 1,708
North America BO 1.771 1.802 1.726 1.670 1.899 1.841 1,735 1,425 1,474
Latin America BO 430 446 428 414 470 518 444 408 426
Special Steel BO 826 906 857 774 820 862 644 651 802
 
ROLLED PRODUCTS 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
Total 4.049 4.178 4.210 3.982 4.217 4.201 3,959 3,447 3,682
Brazil BO 1.105 1.182 1.248 1.164 1.140 1.143 1,213 1,019 1,069
North America BO 1.623 1.598 1.630 1.574 1.744 1.714 1,637 1,329 1,385
Latin America BO 529 549 537 523 596 577 496 444 527
Special Steel BO 792 849 795 721 737 767 614 655 700
Shipments

’000 tonnes

 
  1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
Total 4.710 4.897 4.849 4.709 4.725 4.778 4,774 4,317 4,555
Brazil BO 1.819 1.958 1.932 1.940 1.778 1.916 1,791 1,814 1,808
Domestic 1.172 1.288 1.380 1.242 1.269 1.418 1,339 1,294 1,417
Export 647 670 552 698 509 498 452 520 391
North America BO 1.644 1.681 1.631 1.607 1.752 1.593 1,768 1,359 1,516
Latin America BO 638 644 711 649 671 685 705 647 646
Special Steel BO 740 798 734 692 698 731 625 603 667
Eliminations (131) (184) (159) (179) (174) (147) (115) (106) (82)

The historical breakdown of sales by the two Gerdau's biggest business operations is presented below, 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

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.
Specialty Steel BO: stainless steel, round, square and flat bar, wire rod.


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

* Includes debt of companies acquired in the period

 
CAPEX 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
R$ million
Total 333 340 614 674 691 850 904 683 571
Brazil BO 231 237 465 473 432 555 594 337 332
North America BO 33 30 50 59 82 71 90 113 101
Latin America BO 34 50 37 51 39 43 58 58 39
Special Steel BO 36 23 62 91 138 181 162 175 99

Investment Plan

The plan for investments in fixed assets from 2013 to 2017 is currently estimated at R$ 8.5 billion, which includes strategic investments and maintenance.


 
Investment Plan
Investment Plan - Main Projects Location Additional production capacity (1,000 t) Start-up
Brazil BO
Flat steel rolling (hot rolled coil) at Açominas Mill in Minas Gerais Brazil 800 2013
Flat steel rolling (heavy plates) at Açominas Mill in Minas Gerais Brazil 1,100 2015
Expansion of mining operations capacity to 11,5 million tons2 Brazil - 2013
Expansion of mining operations capacity to 18 million tons2 Brazil - 2016
Expansion of mining operations capacity to 24 million tons² Brazil - 2020
Rebar fabricating and ready-to-use steel product units Brazil - 2013/2014
Wire rod and rebar rolling mill at Cosigua in Rio de Janeiro1, 2 Brazil 600 2014
New melt shop at Riograndense mill in Rio Grande do Sul4 Brazil 650 2015
North America BO
Capacity expansion from new continuos casting at St Paul unit - Minnesota5 USA 550 2015
Latin America BO
Rebar and light commercial profile rolling in Guatemala3 Guatemala 200 2013
New melt shop in Mexico (Gerdau Corsa)3 Mexico 1.000 2014
New structural profile rolling mill in Mexico (Gerdau Corsa)3 Mexico 700 2014
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
Specialty Steel BO
Expansion of rolling capacity at Mogi das Cruzes Mill in São Paulo Brazil 60 2013
Specialty steel rolling mill at Pindamonhangaba Mill in São Paulo Brazil 500 2013
Coke plant, power generation plant and two bar inspection lines India - 2013/2014
New continuous casting and reheating furnace at Pindamonhangaba in São Paulo Brazil - 2015
Expansion of crude steel, long steel products and finishing capacities2 USA 300 2014

1 To meet this rolling capacity, one of the electric furnaces in the melt shop will be revamped.
2 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 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
GROSS DEBT 14,235 11,908 13,524 13,684 13,461 14,892 14,968 14,669 14,943
SHORT TERM 1,729 1,289 1,611 1,757 1,928 2,971 3,093 2,583 3,333
Local currency 706 554 576 821 808 1,003 1,022 652 552
Foreign currency 200 179 257 243 280 333 485 469 774
Companies abroad 823 556 778 693 840 1,635 1,585 1,462 2,007
LONG TERM 12,506 10,619 11,913 11,927 11,533 11,921 11,875 12,086 11,610
Local currency 2,611 2,739 2,692 2,383 2,309 1,947 1,866 2,240 2,123
Foreign currency 5,589 5,198 6,271 6,462 6,242 6,855 6,551 6,422 6,261
Companies abroad 4,306 2,682 2,950 3,082 2,982 3,119 3,458 3,424 3,226
FINANCIAL INVESTMENTS 2,446 4,121 4,366 4,578 3,435 3,165 2,999 2,497 1,832
Local currency 1,746 3,361 3,384 3,587 2,424 2,296 1,987 1,617 1,110
Companies abroad 700 760 982 991 1,011 869 1,012 880 722
NET DEBT 11,789 7,787 9,158 9,105 10,026 11,727 11,969 12,261 13,111
GROSS DEBT BY CURRENCY
Brazilian real 3,317 3,293 3,268 3,204 3,118 2,943 2,889 2,892 2,675
U.S. dollar 10,346 8,065 9,610 10,000 9,866 11,247 11,131 10,838 11,177
Euro 134 109 135 122 131 148 133 120 135
Other currencies 438 441 511 358 346 554 815 819 956
GROSS DEBT – LONG-TERM
2014 910
2015 747
2016 543
2017 3,303
2018 and after 6,108

MAIN COVENANTS

Net Debt / EBITDA < 4 times
EBITDA / Financial Expenses > 3 times

 
DEBT COSTS
Brazil R$ 7.4%
Brazil US$ 5.5% + VC
Abroad US$ 5.8%
Net Investment Hedge
      Dec/12 Mar/13 Exchange
Variation
    US$ US$ RS$ RS$
Total debt   3,150 6,437 6,343 94
R$/US$     2.0435 2.0138  
  Corresponding Line on the
Quartely Results		       Impact on the
Income Statment 
Part of the debt with
Net Investment Hedge		   2,361      
Part of the debt without
Net Investment Hedge		 Exchange variation on
Net Investment Hedge		 789 1,602 1,589 23
Exchange variation effect
on tax		 IR/CS on Net Investment
Hedge		       23
Financial Statements
 
INCOME STATEMENT 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
R$ million
Net sales revenue 8,364 9,010 8,967 9,066 9,199 9,975 9,819 8,988 9,166
Cost of goods sold (7,199) (7,606) (7,628) (7,865) (8,093) (8,550) (8,621) (7,969) (8.257)
Gross income 1,165 1,404 1,339 1,201 1,106 1,425 1,198 1,018 908
GROSS MARGIN 14% 16% 15% 13% 12% 14% 12% 11% 10%
Selling, general and administrative expenses (579) (589) (591) (642) (599) (635) (630) (607) (635)
Losses from impairment of assets and restructuring cost - - - - - - - - -
Other operating revenue (expenses) 35 18 24 32 32 9 3 20 51
Equity income 34 45 5 (22) 31 (14) (3) (6) 17
Income before financial income (expenses) and taxes 655 878 777 569 570 785 568 425 341
Net financial income (expenses) (172) (217) (58) (82) (97) (335) (134) (222) (192)
Income before taxes 483 661 719 487 473 450 434 203 149
Provision for income tax and social contribution (74) (158) (6) (15) (76) 99 (26) (60) 11
NET INCOME IN THE PERIOD 409 503 713 472 397 549 408 143 160
Parent company interest 391 469 707 439 370 536 389 131 148
Minority interest 18 34 6 33 27 13 19 12 12
Depreciation 448 431 437 456 438 459 465 465 464
EBITDA 1,102 1,309 1,215 1,025 1,008 1,244 1,033 891 805
EBITDA MARGIN 13% 15% 14% 11% 11% 12% 11% 10% 9%
 
BALANCE SHEET 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
ASSETS
CURRENT ASSETS 13,403 15,813 17,263 17,319 16,871 18,171 17,546 16,410 15,909
Cash, cash equivalents and financial investments 2,420 4,095 4,366 4,578 3,435 3,165 2,999 2,497 1,832
Accounts receivable 3,557 3,892 4,108 3,603 4,003 4,510 4,276 3,695 4,450
Inventories 6,614 7,081 7,853 8,059 8,372 9,366 9,125 9,022 8,537
Other 812 745 936 1,079 1,061 1,130 1,146 1,196 1,090
NON CURRENT ASSETS 29,529 29,223 32,164 32,663 32,757 35,175 36,052 36,683 35,898
Deferred income tax 1,416 1,315 1,436 1,548 1,636 2,099 2,144 2,210 1,728
Investments 1,307 1,288 1,384 1,355 1,425 1,579 1,436 1,426 1,344
Goodwill 8,030 7,745 9,054 9,156 8,956 9,870 9,952 10,033 9,838
Intangible 1,166 1,116 1,279 1,274 1,255 1,350 1,346 1,364 1,341
Fixed assets 16,027 15,799 16,882 17,295 17,443 18,406 19,289 19,690 19,623
Other 1,583 1,960 2,129 2,035 2,042 1,871 1,885 1,960 2,024
TOTAL ASSETS 42,932 45,036 49,427 49,982 49,628 53,346 53,598 53,093 51,807
LIABILITIES
CURRENT LIABILITIES 5,612 5,705 6,452 6,777 6,666 8,251 8,070 7,823 7,883
Suppliers 2,388 2,817 3,171 3,212 3,229 3,527 3,326 3,060 3,020
Financing 1,729 1,289 1,611 1,715 1,884 2,971 2,756 2,324 3,180
Other 1,495 1,599 1,670 1,850 1,553 1,753 1,987 2,439 1,683
NON CURRENT LIABILITIES 16,934 14,825 16,344 16,685 16,220 16,674 16,643 16,472 15,449
Financing 12,506 10,619 11,913 11,182 10,874 11,297 11,571 11,726 11,304
Deferred income tax 1,976 1,885 1,851 1,859 1,769 1,764 1,750 1,796 1,242
Employee benefits 793 720 828 1,090 1,035 1,007 1,016 1,188 1,148
Other 1,659 1,601 1,752 2,554 2,542 2,606 2,305 1,762 1,755
SHAREHOLDERS’ EQUITY 20,386 24,506 26,631 26,520 26,742 28,421 28,886 28,798 28,475
Capital stock 15,651 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249
Reserves and other 3,613 3,794 5,861 5,749 5,972 7,661 8,073 7,997 7,768
Minority interest 1,122 1,463 1,521 1,522 1,521 1,511 1,563 1,552 1,458
TOTAL LIABILITIES 42,932 45,036 49,427 49,982 49,628 53,346 53,598 53,093 51,807
EXCHANGE RATE
Average Exchange Rate 1.67 1.60 1.64 1.80 1.77 1.96 2.02 2.06 1,98
End of Period Exchange Rate 1.63 1.56 1.85 1.88 1.82 2.02 2.03 2.04 2,01
Business Operations Results
 
R$ million 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
NET SALES 8,364 9,010 8,967 9,066 9,199 9,975 9,819 8,988 9,166
Brazil BO 3,187 3,582 3,606 3,558 3,220 3,724 3,567 3,589 3,458
Domestic 2,344 2,720 2,869 2,629 2,700 3,113 3,053 2,975 3,082
Export 843 862 737 929 520 611 514 614 376
North America BO 2,628 2,690 2,676 2,817 3,141 3,184 3,415 2,709 2,925
Latin America BO 949 958 1,039 1,068 1,149 1,274 1,322 1,219 1,144
Special Steel BO 1,754 2,032 1,868 1,863 1,855 2,070 1,750 1,713 1,813
Eliminations and adjustments (154) (252) (222) (240) (166) (277) (235) (242) (175)
                   
GROSS PROFIT 1,165 1,404 1,339 1,201 1,107 1,425 1,198 1,018 908
Brazil BO 488 627 631 563 427 610 715 717 530
North America BO 307 314 292 216 335 351 223 88 171
Latin America BO 132 121 113 145 114 113 58 44 95
Special Steel BO 244 361 294 246 238 339 207 184 118
Eliminations and adjustments (6) (19) 9 31 (7) 12 (5) (15) (6)
                   
EBITDA 1,102 1,309 1,215 1,025 1,008 1,244 1,033 891 805
Brazil BO 504 567 618 531 411 589 691 703 509
North America BO 332 352 306 187 330 328 205 59 148
Latin America BO 115 121 79 95 92 70 (3) 21 53
Special Steel BO 251 365 296 246 260 362 233 218 155
Eliminations and adjustments (100) (96) (84) (34) (85) (105) (93) (110) (60)
                   
DEPRECIATION 448 431 437 456 438 459 465 465 464
Brazil BO 220 204 214 211 203 185 191 189 193
North America BO 107 102 103 112 106 117 122 126 115
Latin America BO 31 30 30 34 38 42 40 34 41
Special Steel BO 90 95 90 99 91 115 112 116 115
Eliminations and adjustments 0 0 0 0 0 0 0 0 0
EXCHANGE RATE
Average Exchange Rate 1.67 1.60 1.64 1.80 1.77 1.96 2.02 2.06 1,98
Costs
 
% of costs 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
GERDAU CONSOLIDATED
Personnel 14 14 14 15 14 15 15 17 16
Maintenance 5 5 5 6 6 5 6 7 6
Depreciation 6 5 5 5 4 4 5 5 5
Metallic Inputs 54 55 54 53 55 55 53 50 51
Energy and Reducing Agents 13 13 14 13 13 13 13 13 14
Specific Materials 8 8 8 8 8 8 8 8 8
Brazil BO
Personnel 16 14 15 17 16 17 15 18 18
Maintenance 7 6 6 7 7 7 6 6 6
Depreciation 10 7 7 7 7 6 6 7 7
Metallic Inputs 39 44 42 39 40 41 44 40 37
Energy and Reducing Agents 21 22 23 24 24 23 23 23 24
Specific Materials 7 7 7 6 6 6 6 6 8
North America BO
Personnel 11 12 12 12 11 13 14 16 14
Maintenance 3 4 4 5 4 4 5 7 7
Depreciation 3 3 3 3 3 3 3 4 3
Metallic Inputs 68 66 66 66 69 66 62 58 61
Energy and Reducing Agents 7 7 7 6 5 6 7 7 7
Specific Materials 8 8 8 8 8 8 9 8 8
Latin America BO
Personnel 11 10 12 12 11 10 12 12 11
Maintenance 5 5 5 5 5 5 6 6 5
Depreciation 4 3 3 3 4 3 3 3 3
Metallic Inputs 60 66 62 64 65 66 65 64 67
Energy and Reducing Agents 16 11 13 11 10 10 9 9 9
Specific Materials 4 5 5 5 5 6 5 6 5
Special Steel BO
Personnel 17 17 17 19 19 19 20 22 20
Maintenance 6 5 6 7 7 6 7 7 6
Depreciation 5 4 4 5 4 4 5 5 5
Metallic Inputs 54 56 54 50 51 52 47 45 49
Energy and Reducing Agents 9 9 9 9 9 9 10 10 9
Specific Materials 9 9 10 10 10 10 11 11 11
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.