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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 Dec-14
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 Dec-14
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 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Total 5,046 4,747 4,186 4,410 4,646 4,507 4,446 4,557 4,668 4,475 4,323
Brazil BO 1,825 1,925 1,702 1,708 1,771 1,794 1,691 1,609 1,621 1,603 1,619
North America BO 1,841 1,735 1,425 1,474 1,640 1,457 1,549 1,649 1,787 1,705 1,509
Latin America BO 518 444 408 426 429 444 426 441 399 389 384
Special Steel BO 862 644 651 802 806 812 780 858 861 778 811
 
ROLLED PRODUCTS 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Total 4,201 3,959 3,447 3,682 4,078 3,922 3,848 4,153 4,115 3,925 3,832
Brazil BO 1,143 1,213 1,019 1,069 1,219 1,232 1,122 1,291 1,116 1,142 1,130
North America BO 1,714 1,637 1,329 1,385 1,541 1,430 1,501 1,547 1,697 1,603 1,445
Latin America BO 577 496 444 528 529 531 521 526 511 457 489
Special Steel BO 767 614 655 700 789 729 704 789 791 723 768
 
IRON ORE 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Iron Ore BO 1,124 1,052 1,568 1,842 1,736 1,988 2,219 1,681
Shipments

’000 tonnes

 
  3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Total 4,774 4,317 4,555 4,634 4,775 4,556 4,387 4,524 4,558 4,399
Brazil BO 1,791 1,814 1,808 1,768 1,913 1,792 1,597 1,588 1,660 1,738
Domestic 1,339 1,294 1,417 1,506 1,544 1,417 1,442 1,372 1,369 1,357
Export 452 520 391 262 369 375 155 216 291 381
North America BO 1,768 1,359 1,516 1,545 1,608 1,476 1,452 1,652 1,648 1,402
Latin America BO 705 647 646 726 720 716 681 631 647 664
Special Steel BO 625 603 667 766 713 711 758 749 710 677
Eliminations (115) (106) (82) (171) (179) (138) (101) (96) (107) (82)
  1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Iron Ore BO 912 894 1,073 2,139 2,000 1,735 1,981 2,254
Gerdau Units 905 817 966 1,088 812 1,020 1,289 1,281
Third Parties 7 77 107 1,051 1,188 715 692 973

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* 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
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 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
R$ million
Total 850 904 683 567 678 676 677 677 479 438 673
Brazil BO 555 594 337 291 357 337 293 332 210 89 278
North America BO 71 90 113 86 93 84 107 79 63 70 97
Latin America BO 43 58 58 39 49 50 36 78 57 72 113
Special Steel BO 181 162 175 109 126 146 143 137 124 166 141
Iron Ore BO - - - 42 53 59 98 51 25 41 44

 

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 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
SHORT TERM 3,333 1,770 1,769 1,838 1,756 1,299 1,949 2,038
Local currency 552 382 435 492 539 109 35 79
Foreign currency 774 295 272 262 290 298 281 304
Companies abroad 2,007 1,093 1,062 1,084 926 892 1,633 1,655
LONG TERM 11,610 13,889 14,022 14,869 15,004 15,415 16,516 17,484
Local currency 2,123 1,964 2,506 2,927 3,396 3,365 4,245 4,073
Foreign currency 6,261 8,500 8,146 8,725 8,381 8,966 9,395 10,717
Companies abroad 3,226 3,425 3,370 3,217 3,227 3,084 2,876 2,694
GROSS DEBT (principal+interest) 14,943 15,659 15,791 16,707 16,759 16,714 18,465 19,521
Interest on the debt (417) (344) (339) (391) (374) (283) (340) (343)
GROSS DEBT (principal) 14,526 15,315 15,452 16,316 16,386 16,431 18,125 19,178
FINANCIAL INVESTMENTS 1,832 2,972 3,512 4,222 3,520 3,963 4,670 5,849
Local currency 1,110 1,877 1,920 2,142 1,995 2,011 2,305 3,466
Companies abroad 722 1,095 1,592 2,080 1,525 1,952 2,365 2,383
NET DEBT* (principal) 12,694 12,343 11,941 12,094 12,866 12,468 13,455 13,329
GROSS DEBT (principal+interest) BY CURRENCY
Brazilian real 2,675 2,345 2,941 3,418 3,935 3,474 4,280 3,816
U.S. dollar 11,177 12,510 12,027 12,420 11,972 12,377 13,209 14,709
Euro 135 135 163 117 185 157 170 169
Other currencies 956 669 660 752 667 706 806 827
GROSS DEBT (principal): LONG-TERM AMORTIZATION SCHEDULE
2016 893
2017 3,152
2018 755
2019 671
2020 2,436
2021 and after 9,577

MAIN COVENANTS

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

 
COST OF DEBT
Local currency 9.4%
Foreign currency 5.9% + FX
Companies abroad 5.9%
* As of 2Q12 it refers to net debt principal
Net Investment Hedge
      Sep-14 Dec-14 Exchange
Variation
    US$ RS$ RS$ RS$
Total debt   3,899 9,556 10.357 (800)
R$/US$     2.4510 2.6562  
  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 2,559 2,773 (214)
Exchange variation effect
on tax
IR/CS on Net Investment
Hedge
      214

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 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
R$ million
Net sales revenue 9,166 9,882 10,494 10,321 10,554 10,443 10,706 10,844
Cost of goods sold (8.257) (8,540) (8,960) (8,971) (9,238) (9,179) (9,430) (9,559)
Gross income 908 1,342 1,534 1,350 1,316 1,264 1,276 1,284
GROSS MARGIN 10% 14% 15% 13% 12% 12% 12% 12%
Selling, general and administrative expenses (635) (636) (672) (669) (707) (678) (661) (681)
Other operating revenue (expenses) 51 14 5 108 19 17 19 33
Losses from impairment of assets - - - - - - - (339)
Gains in joint-ventures operations               637
Equity income 17 (1) 18 19 27 27 35 13
Income before financial income (expenses) and taxes 341 719 886 808 654 630 669 946
Net financial income (expenses) (192) (548) (206) (355) (101) (211) (575) (674)
Income before taxes 149 171 679 453 553 419 94 273
Provision for income tax and social contribution 11 230 (37) 39 (113) (25) 168 120
NET INCOME IN THE PERIOD 160 401 642 492 440 394 262 393
Parent company interest 148 390 595 450 397 357 252 397
Minority interest 12 11 47 42 43 37 10 (4)
Depreciation 464 477 528 561 542 541 555 590
EBITDA 805 1,196 1,413 1,370 1,196 1,170 1,224 1,238*
EBITDA MARGIN 9% 12% 13% 13% 11% 11% 11% 11%
 
BALANCE SHEET 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
ASSETS
CURRENT ASSETS 15,909 16,807 17,399 18,177 18,202 18,835 20,283 20,683
Cash, cash equivalents and financial investments 1,832 2,972 3,512 4,222 3,520 3,963 4,671 5,849
Accounts receivable 4,450 4,126 4,441 4,079 4,492 4,292 4,364 4,439
Inventories 8,537 8,551 8,197 8,500 8,689 9,006 9,312 8,867
Other 1,090 1,158 1,249 1,376 1,501 1,574 1,936 1,528
NON CURRENT ASSETS 35,898 38,249 38,809 40,038 39,352 39,059 41,189 42,359
Deferred income tax 1,728 2,095 2,165 2,056 1,973 1,912 2,334 2,567
Investments 1,344 1,492 1,497 1,590 1,554 1,515 1,331 1,394
Goodwill 9,838 10,753 10,844 11,353 10,970 10,706 11,776 12,556
Intangible 1,341 1,431 1,456 1,498 1,472 1,428 1,505 1,547
Fixed assets 19,623 20,473 20,807 21,419 21,242 21,085 21,694 22,132
Other 2,024 2,005 2,040 2,121 2,141 2,413 2,549 2,163
TOTAL ASSETS 51,807 55,056 56,208 58,473 57,554 57,894 61,472 63,042
LIABILITIES
CURRENT LIABILITIES 7,883 6,731 6,949 7,237 6,904 6,675 7,560 7,773
Suppliers 3,020 3,303 3,289 3,271 3,183 3,448 3,507 3,236
Financing 3,180 1,770 1,742 1,811 1,678 1,299 1,950 2,038
Other 1,683 1,658 1,918 2,154 2,043 1,928 2,103 2,499
NON CURRENT LIABILITIES 15,449 17,861 18,123 18,958 19,007 19,513 20,704 22,015
Financing 11,304 13,454 13,622 14,481 14,583 14,981 16,131 17,149
Deferred income tax 1,242 1,306 1,284 1,187 1,104 1,054 1,157 945
Employee benefits 1,148 1,169 1,204 942 906 881 832 1,273
Other 1,755 1,932 2,013 2,347 2,414 2,597 2,584 2,648
SHAREHOLDERS’ EQUITY 28,475 30,464 31,136 32,021 31,643 31,706 33,208 33,255
Capital stock 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249
Reserves and other 7,768 9,298 9,954 11,090 10,712 10,747 12,192 12,952
Minority interest 1,458 1,917 1,933 1,682 1,682 1,710 1,767 1,054
TOTAL LIABILITIES 51,807 55,056 56,208 58,474 57,554 57,894 61,472 63,042
EXCHANGE RATE
Average Exchange Rate 1.98 2.07 2.29 2.27 2.37 2.23 2,27 2,54
End of Period Exchange Rate 2.01 2.22 2.23 2.34 2.26 2.20 2,45 2,66

 *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 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Consolidated      
Net Sales 9,819 8,988 9,166 9,882 10,494 10,321 10,554 10,443 10,706 10,843
Gross Profit 1,198 1,018 908 1,342 1,534 1,350 1,316 1,264 1,276 1,284
EBITDA 1,033 891 805 1,196 1,413 1,370 1,196 1,170 1,224 1,238*
Depreciation 465 465 464 476 528 561 542 541 555 590
                     
Brazil BO      
Net Sales 3,567 3,589 3,457 3,666 3,967 3,747 3,655 3,446 3,560 3,634
Domestic 2,931 2,792 3,001 3,234 3,453 3,175 3,360 3,105 3,132 3,039
Export 636 797 456 432 514 572 295 341 428 595
Gross Profit 715 717 514 725 950 765 749 594 592 719
EBITDA 691 703 496 702 933 848 731 598 587 738
Depreciation 191 189 188 186 206 217 200 209 223 231
                     
North America BO      
Net Sales 3,415 2,709 2,925 3,092 3,443 3,102 3,258 3,581 3,694 3,516
Gross Profit 223 223 171 187 147 138 99 277 348 232
EBITDA 205 59 148 158 129 140 70 281 337 199
Depreciation 122 126 115 119 133 149 136 136 138 158
                     
Latin America BO      
Net Sales 1,322 1,219 1,144 1,332 1,426 1,464 1,399 1,302 1,428 1,541
Gross Profit 58 44 95 139 162 169 185 148 151 165
EBITDA (3) 21 53 109 131 135 143 109 109 109
Depreciation 40 34 41 46 50 49 52 50 50 56
                     
Special Steel BO      
Net Sales 1,750 1,713 1,813 2,122 2,045 2,044 2,263 2,182 2,095 2,104
Gross Profit 207 184 118 241 222 133 161 193 174 193
EBITDA 233 218 155 276 273 205 203 230 231 254
Depreciation 112 116 115 120 133 136 142 134 132 137
                     
Iron Ore BO                    
Net Sales     79 124 127 374 316 216 207 205
Gerdau Units     78 111 108 133 105 118 107 80
Third Parties     1 13 19 241 211 98 100 125
Gross Profit     16 50 55 142 119 52 8 (23)
EBITDA     14 46 49 141 121 53 10 (24)
Depreciation     5 5 5 10 12 11 12 9
                     
EXCHANGE RATE      
Average Exchange Rate 2.02 2.06 1.98 2.07 2.29 2.27 2.37 2.23 2.27 2,54

*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 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
GERDAU CONSOLIDATED
Personnel 16 15 17 18 16 16 17 18
Maintenance 6 6 7 7 6 6 8 9
Depreciation 5 5 5 5 5 5 5 5
Metallic Inputs 51 52 50 50 53 53 50 48
Energy and Reducing Agents 14 14 13 12 13 12 12 12
Specific Materials 8 8 8 8 7 8 8 8
Brazil BO
Personnel 18 18 18 19 19 19 21 23
Maintenance 6 6 6 7 7 7 7 7
Depreciation 7 6 7 7 7 7 7 8
Metallic Inputs 37 39 39 39 39 39 36 33
Energy and Reducing Agents 24 23 23 21 21 21 22 22
Specific Materials 8 8 7 7 7 7 7 7
North America BO
Personnel 14 11 16 17 14 13 14 14
Maintenance 7 7 9 9 5 7 10 12
Depreciation 3 3 3 5 4 3 3 4
Metallic Inputs 61 64 57 56 62 63 58 55
Energy and Reducing Agents 7 7 7 6 7 6 7 6
Specific Materials 8 8 8 7 8 8 8 9
Latin America BO
Personnel 11 11 11 11 10 11 13 13
Maintenance 5 5 5 5 4 6 7 6
Depreciation 3 3 3 3 3 4 3 4
Metallic Inputs 67 68 66 66 69 64 62 61
Energy and Reducing Agents 9 8 9 9 9 10 10 10
Specific Materials 5 5 6 6 5 5 5 6
Special Steel BO
Personnel 20 20 19 21 19 20 20 20
Maintenance 6 6 6 6 6 5 6 7
Depreciation 5 5 5 5 5 5 6 5
Metallic Inputs 49 47 46 45 48 49 46 46
Energy and Reducing Agents 9 11 12 12 12 11 12 12
Specific Materials 11 11 12 11 10 10 10 10
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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