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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).
4.  Starting in 2014, the iron ore operation, which previously was reported under the Brazil Business Operation, started to be reported separately as a new business operation called “Iron Ore.” The change is explained by the progress made in the iron ore project over the course of 2013, which led the Company to decide to separate this operation given its importance.

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-15
Total 26,000
Brazil BO 9,100
Mini-mill 4,600
Integrated mill 4,500
North America BO 9,970
Latin America BO 2,870
Special Steel BO 4,060
Brazil 1,430
EUA 1,320
Spain 1,060
India 250
ROLLED PRODUCTS Mar-15
Total 22,400
Brazil BO 5,990
North America BO 9,090
Latin America BO 2,740
Special Steel BO 4,580
Production

‘000 tonnes

 
CRUDE STEEL 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Total 4,747 4,186 4,410 4,646 4,507 4,446 4,557 4,668 4,475 4,323 4,341
Brazil BO 1,925 1,702 1,708 1,771 1,794 1,691 1,609 1,621 1,603 1,619 1,528
North America BO 1,735 1,425 1,474 1,640 1,457 1,549 1,649 1,787 1,705 1,509 1,546
Latin America BO 444 408 426 429 444 426 441 399 389 384 408
Special Steel BO 644 651 802 806 812 780 858 861 778 811 859
 
ROLLED PRODUCTS 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Total 3,959 3,447 3,682 4,078 3,922 3,848 4,153 4,115 3,925 3,832 3,823
Brazil BO 1,213 1,019 1,069 1,219 1,232 1,122 1,291 1,116 1,142 1,130 1,134
North America BO 1,637 1,329 1,385 1,541 1,430 1,501 1,547 1,697 1,603 1,445 1,466
Latin America BO 496 444 528 529 531 521 526 511 457 489 502
Special Steel BO 614 655 700 789 729 704 789 791 723 768 721
 
IRON ORE 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Iron Ore BO 1,124 1,052 1,568 1,842 1,736 1,988 2,219 1,681 1,481
Shipments

’000 tonnes

 
  4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Total 4,317 4,555 4,634 4,775 4,556 4,387 4,524 4,558 4,399 4,143
Brazil BO 1,814 1,808 1,768 1,913 1,792 1,597 1,588 1,660 1,738 1,557
Domestic 1,294 1,417 1,506 1,544 1,417 1,442 1,372 1,369 1,357 1,252
Export 520 391 262 369 375 155 216 291 381 305
North America BO 1,359 1,516 1,545 1,608 1,476 1,452 1,652 1,648 1,402 1,393
Latin America BO 647 646 726 720 716 681 631 647 664 634
Special Steel BO 603 667 766 713 711 758 749 710 677 696
Eliminations (106) (82) (171) (179) (138) (101) (96) (107) (82) (139)
  1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Iron Ore BO 912 894 1,073 2,139 2,000 1,735 1,981 2,254 1,463
Gerdau Units 905 817 966 1,088 812 1,020 1,289 1,281 1,164
Third Parties 7 77 107 1,051 1,188 715 692 973 299

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* 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
US$ million
Total - - - - - - - - - - -
Brazil BO - - - - - - - - - - -
North America BO - - 26 - - - - - - - -
Latin America BO - - - - 29 - - - - - -
Special Steel BO - - - - - - - - - - -

* Includes debt of companies acquired in the period

 
CAPEX 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
R$ million
Total 904 683 567 678 676 677 677 479 438 673 612
Brazil BO 594 337 291 357 337 293 332 210 89 278 268
North America BO 90 113 86 93 84 107 79 63 70 97 73
Latin America BO 58 58 39 49 50 36 78 57 72 113 113
Special Steel BO 162 175 109 126 146 143 137 124 166 141 144
Iron Ore BO - - 42 53 59 98 51 25 41 44 14

 

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 1,1 2016
New melt shop at Riograndense mill-RS1 Brazil 650 2016
Latin America BO
New structural profile rolling mill in Mexico (Gerdau Corsa)2 Mexico 700 2015
New melt shop in Argentina Argentina 650 2016
Specialty Steel BO
Coke plant and power generation plant in India mill India - 2015

1 This capacity is not included in the consolidated figures since it is a jointly-controlled entity.
2 Deactivation of current melt shop (450,000 tones capacity)

 

Indebtedness
 
R$ million 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
SHORT TERM 1,770 1,769 1,838 1,756 1,299 1,949 2,038 2,366
Local currency 382 435 492 539 109 35 79 712
Foreign currency 295 272 262 290 298 281 304 129
Companies abroad 1,093 1,062 1,084 926 892 1,633 1,655 1,525
LONG TERM 13,889 14,022 14,869 15,004 15,415 16,516 17,484 20,916
Local currency 1,964 2,506 2,927 3,396 3,365 4,245 4,073 3,351
Foreign currency 8,500 8,146 8,725 8,381 8,966 9,395 10,717 11,680
Companies abroad 3,425 3,370 3,217 3,227 3,084 2,876 2,694 5,885
GROSS DEBT (principal+interest) 15,659 15,791 16,707 16,759 16,714 18,465 19,521 23,282
Interest on the debt (344) (339) (391) (374) (283) (340) (343) (400)
GROSS DEBT (principal) 15,315 15,452 16,316 16,386 16,431 18,125 19,178 22,882
FINANCIAL INVESTMENTS 2,972 3,512 4,222 3,520 3,963 4,670 5,849 5,847
Local currency 1,877 1,920 2,142 1,995 2,011 2,305 3,466 3,430
Companies abroad 1,095 1,592 2,080 1,525 1,952 2,365 2,383 2,417
NET DEBT* (principal) 12,343 11,941 12,094 12,866 12,468 13,455 13,329 17,035
GROSS DEBT (principal+interest) BY CURRENCY
Brazilian real 2,345 2,941 3,418 3,935 3,474 4,280 3,816 4,062
U.S. dollar 12,510 12,027 12,420 11,972 12,377 13,209 14,709 17,776
Euro 135 163 117 185 157 170 169 282
Other currencies 669 660 752 667 706 806 827 1,162
GROSS DEBT (principal): LONG-TERM AMORTIZATION SCHEDULE
2016 734
2017 3,987
2018 817
2019 859
2020 2,896
2021 and after 11,624

MAIN COVENANTS

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

 
COST OF DEBT
Local currency 10.1%
Foreign currency 6.0% + FX
Companies abroad 5.9%
* As of 2Q12 it refers to net debt principal
Net Investment Hedge
      Dec-14 Mar-15 Exchange
Variation
    US$ RS$ RS$ RS$
Total debt   3,899 10,357 12,508 (2,151)
R$/US$     2.6562 3.2080  
  Corresponding Line on the
Quartely Results
      Impact on the
Income Statment 
Part of the debt with
Net Investment Hedge
  2,855     -
Part of the debt without
Net Investment Hedge
Exchange variation on
Net Investment Hedge
1,044 2,773 3,349 (576)
Exchange variation effect
on tax
IR/CS on Net Investment
Hedge
      576

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 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
R$ million
Net sales revenue 9,882 10,494 10,321 10,554 10,443 10,706 10,844 10,447
Cost of goods sold (8,540) (8,960) (8,971) (9,238) (9,179) (9,430) (9,559) (9,335)
Gross income 1,342 1,534 1,350 1,316 1,264 1,276 1,284 1,112
GROSS MARGIN 14% 15% 13% 12% 12% 12% 12% 11%
Selling, general and administrative expenses (636) (672) (669) (707) (678) (661) (681) (660)
Other operating revenue (expenses) 14 5 108 19 17 19 33 27
Losses from impairment of assets - - - - - - (339) -
Gains in joint-ventures operations             637 -
Equity income (1) 18 19 27 27 35 13 6
Income before financial income (expenses) and taxes 719 886 808 654 630 669 946 485
Net financial income (expenses) (548) (206) (355) (101) (211) (575) (674) (898)
Income before taxes 171 679 453 553 419 94 273 (413)
Provision for income tax and social contribution 230 (37) 39 (113) (25) 168 120 680
NET INCOME IN THE PERIOD 401 642 492 440 394 262 393 267
Parent company interest 390 595 450 397 357 252 397 293
Minority interest 11 47 42 43 37 10 (4) (26)
Depreciation 477 528 561 542 541 555 590 604
EBITDA 1,196 1,413 1,370 1,196 1,170 1,224 1,238* 1,089
EBITDA MARGIN 12% 13% 13% 11% 11% 11% 11% 10%
 
BALANCE SHEET 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
ASSETS
CURRENT ASSETS 16,807 17,399 18,177 18,202 18,835 20,283 20,683 22,907
Cash, cash equivalents and financial investments 2,972 3,512 4,222 3,520 3,963 4,671 5,849 5,847
Accounts receivable 4,126 4,441 4,079 4,492 4,292 4,364 4,439 5,272
Inventories 8,551 8,197 8,500 8,689 9,006 9,312 8,867 10,190
Other 1,158 1,249 1,376 1,501 1,574 1,936 1,528 1,598
NON CURRENT ASSETS 38,249 38,809 40,038 39,352 39,059 41,189 42,359 47,936
Deferred income tax 2,095 2,165 2,056 1,973 1,912 2,334 2,567 3,552
Investments 1,492 1,497 1,590 1,554 1,515 1,331 1,394 1,668
Goodwill 10,753 10,844 11,353 10,970 10,706 11,776 12,556 14,970
Intangible 1,431 1,456 1,498 1,472 1,428 1,505 1,547 1,716
Fixed assets 20,473 20,807 21,419 21,242 21,085 21,694 22,132 23,771
Other 2,005 2,040 2,121 2,141 2,413 2,549 2,163 2,259
TOTAL ASSETS 55,056 56,208 58,473 57,554 57,894 61,472 63,042 70,843
LIABILITIES
CURRENT LIABILITIES 6,731 6,949 7,237 6,904 6,675 7,560 7,773 8,060
Suppliers 3,303 3,289 3,271 3,183 3,448 3,507 3,236 3,745
Financing 1,770 1,742 1,811 1,678 1,299 1,950 2,038 2,366
Other 1,658 1,918 2,154 2,043 1,928 2,103 2,499 1,949
NON CURRENT LIABILITIES 17,861 18,123 18,958 19,007 19,513 20,704 22,015 26,344
Financing 13,454 13,622 14,481 14,583 14,981 16,131 17,149 20,588
Deferred income tax 1,306 1,284 1,187 1,104 1,054 1,157 945 1,243
Employee benefits 1,169 1,204 942 906 881 832 1,273 1,517
Other 1,932 2,013 2,347 2,414 2,597 2,584 2,648 2,996
SHAREHOLDERS’ EQUITY 30,464 31,136 32,021 31,643 31,706 33,208 33,255 36,439
Capital stock 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249
Reserves and other 9,298 9,954 11,090 10,712 10,747 12,192 12,952 16,064
Minority interest 1,917 1,933 1,682 1,682 1,710 1,767 1,054 1,126
TOTAL LIABILITIES 55,056 56,208 58,474 57,554 57,894 61,472 63,042 70,843
EXCHANGE RATE
Average Exchange Rate 2.07 2.29 2.27 2.37 2.23 2,27 2,54 2,87
End of Period Exchange Rate 2.22 2.23 2.34 2.26 2.20 2,45 2,66 3,21

 *Adjusted EBITDA was calculated by impairment of assets and gains in joint ventures operations. The Company's EBITDA calculated pursuant to Instruction 527 of the CVM was R$ 1,536 in 4Q14. 

Business Operations Results
 
R$ million 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Consolidated        
Net Sales 8,988 9,166 9,882 10,494 10,321 10,554 10,443 10,706 10,843 10,447
Gross Profit 1,018 908 1,342 1,534 1,350 1,316 1,264 1,276 1,284 1,112
EBITDA 891 805 1,196 1,413 1,370 1,196 1,170 1,224 1,238* 1,089
Depreciation 465 464 476 528 561 542 541 555 590 604
                     
Brazil BO        
Net Sales 3,589 3,457 3,666 3,967 3,747 3,655 3,446 3,560 3,634 3,266
Domestic 2,792 3,001 3,234 3,453 3,175 3,360 3,105 3,132 3,039 2,776
Export 797 456 432 514 572 295 341 428 595 490
Gross Profit 717 514 725 950 765 749 594 592 719 503
EBITDA 703 496 702 933 848 731 598 587 738 515
Depreciation 189 188 186 206 217 200 209 223 231 218
                     
North America BO        
Net Sales 2,709 2,925 3,092 3,443 3,102 3,258 3,581 3,694 3,516 3,648
Gross Profit 223 171 187 147 138 99 277 348 232 225
EBITDA 59 148 158 129 140 70 281 337 199 226
Depreciation 126 115 119 133 149 136 136 138 158 172
                     
Latin America BO        
Net Sales 1,219 1,144 1,332 1,426 1,464 1,399 1,302 1,428 1,541 1,509
Gross Profit 44 95 139 162 169 185 148 151 165 168
EBITDA 21 53 109 131 135 143 109 109 109 140
Depreciation 34 41 46 50 49 52 50 50 56 60
                     
Special Steel BO        
Net Sales 1,713 1,813 2,122 2,045 2,044 2,263 2,182 2,095 2,104 2,246
Gross Profit 184 118 241 222 133 161 193 174 193 210
EBITDA 218 155 276 273 205 203 230 231 254 260
Depreciation 116 115 120 133 136 142 134 132 137 144
                     
Iron Ore BO                    
Net Sales   79 124 127 374 316 216 207 205 125
Gerdau Units   78 111 108 133 105 118 107 80 76
Third Parties   1 13 19 241 211 98 100 125 49
Gross Profit   16 50 55 142 119 52 8 (23) 6
EBITDA   14 46 49 141 121 53 10 (24) 6
Depreciation   5 5 5 10 12 11 12 9 10
                     
EXCHANGE RATE        
Average Exchange Rate 2.06 1.98 2.07 2.29 2.27 2.37 2.23 2.27 2,54 2,87

*Adjusted EBITDA was calculated by impairment of assets and gains in joint ventures operations. The Company's EBITDA calculated pursuant to Instruction 527 of the CVM was R$ 1,536 in 4Q14.  

Production Costs
 
% of production costs 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
GERDAU CONSOLIDATED
Personnel 15 17 18 16 16 17 18 17
Maintenance 6 7 7 6 6 8 9 8
Depreciation 5 5 5 5 5 5 5 5
Metallic Inputs 52 50 50 53 53 50 48 48
Energy and Reducing Agents 14 13 12 13 12 12 12 13
Specific Materials 8 8 8 7 8 8 8 9
Brazil BO
Personnel 18 18 19 19 19 21 23 21
Maintenance 6 6 7 7 7 7 7 7
Depreciation 6 7 7 7 7 7 8 7
Metallic Inputs 39 39 39 39 39 36 33 36
Energy and Reducing Agents 23 23 21 21 21 22 22 22
Specific Materials 8 7 7 7 7 7 7 7
North America BO
Personnel 11 16 17 14 13 14 14 14
Maintenance 7 9 9 5 7 10 12 12
Depreciation 3 3 5 4 3 3 4 4
Metallic Inputs 64 57 56 62 63 58 55 54
Energy and Reducing Agents 7 7 6 7 6 7 6 7
Specific Materials 8 8 7 8 8 8 9 9
Latin America BO
Personnel 11 11 11 10 11 13 13 13
Maintenance 5 5 5 4 6 7 6 5
Depreciation 3 3 3 3 4 3 4 4
Metallic Inputs 68 66 66 69 64 62 61 62
Energy and Reducing Agents 8 9 9 9 10 10 10 10
Specific Materials 5 6 6 5 5 5 6 6
Special Steel BO
Personnel 20 19 21 19 20 20 20 20
Maintenance 6 6 6 6 5 6 7 6
Depreciation 5 5 5 5 5 6 5 5
Metallic Inputs 47 46 45 48 49 46 46 46
Energy and Reducing Agents 11 12 12 12 11 12 12 12
Specific Materials 11 12 11 10 10 10 10 11
GLOSSARY
Personnel Costs with personel and consulting.    
Metallic charge Scrap, pig iron, iron ore and metallic alloys.    
Energy and Reducing Agents Coal, coke, 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 43)
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.

 

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