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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 Dec-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 Dec-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 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Total 5.123 5.018 4.732 4.940 5.046 4,747 4,186 4,410 4,646 4,507 4,446
Brazil BO 1.969 2.007 1.874 1.751 1.825 1,925 1,702 1,708 1,771 1,794 1,691
North America BO 1.802 1.726 1.670 1.899 1.841 1,735 1,425 1,474 1,640 1,457 1,549
Latin America BO 446 428 414 470 518 444 408 426 429 444 426
Special Steel BO 906 857 774 820 862 644 651 802 806 812 780
 
ROLLED PRODUCTS 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Total 4.178 4.210 3.982 4.217 4.201 3,959 3,447 3,682 4,078 3,922 3,820
Brazil BO 1.182 1.248 1.164 1.140 1.143 1,213 1,019 1,069 1,219 1,232 1,094
North America BO 1.598 1.630 1.574 1.744 1.714 1,637 1,329 1,385 1,541 1,430 1,501
Latin America BO 549 537 523 596 577 496 444 527 529 532 520
Special Steel BO 849 795 721 737 767 614 655 700 789 729 704
Shipments

’000 tonnes

 
  2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Total 4.897 4.849 4.709 4.725 4.778 4,774 4,317 4,555 4,634 4,775 4,556
Brazil BO 1.958 1.932 1.940 1.778 1.916 1,791 1,814 1,808 1,768 1,913 1,792
Domestic 1.288 1.380 1.242 1.269 1.418 1,339 1,294 1,417 1,506 1,544 1417
Export 670 552 698 509 498 452 520 391 262 369 375
North America BO 1.681 1.631 1.607 1.752 1.593 1,768 1,359 1,516 1,545 1,608 1,476
Latin America BO 644 711 649 671 685 705 647 646 726 720 716
Special Steel BO 798 734 692 698 731 625 603 667 766 713 711
Eliminations (184) (159) (179) (174) (147) (115) (106) (82) (171) (179) (138)

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

* Includes debt of companies acquired in the period

 
CAPEX 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
R$ million
Total 340 614 674 691 850 904 683 571 635 675 677
Brazil BO 237 465 473 432 555 594 337 332 411 395 391
North America BO 30 50 59 82 71 90 113 101 49 84 107
Latin America BO 50 37 51 39 43 58 58 39 49 50 36
Special Steel BO 23 62 91 138 181 162 175 99 126 146 143

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 mill (heavy plates) at Ouro Branco mill-MG Brazil 1,100 2016
Expansion of mining operations capacity to 18 million tonnes and logistics for the operation2 Brazil - 2016
Expansion of mining operations capacity to 24 million tonnes² Brazil - 2020
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
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

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 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
SHORT TERM 1,757 1,928 2,971 3,093 2,583 3,333 1,770 1,769 1,838
Local currency 821 808 1,003 1,022 652 552 382 435 492
Foreign currency 243 280 333 485 469 774 295 272 262
Companies abroad 693 840 1,635 1,585 1,462 2,007 1,093 1,062 1,084
LONG TERM 11,927 11,533 11,921 11,875 12,086 11,610 13,889 14,022 14,868
Local currency 2,383 2,309 1,947 1,866 2,240 2,123 1,964 2,506 2,927
Foreign currency 6,462 6,242 6,855 6,551 6,422 6,261 8,500 8,146 8,724
Companies abroad 3,082 2,982 3,119 3,458 3,424 3,226 3,425 3,370 3,217
GROSS DEBT (principal+interest) 13,684 13,461 14,892 14,968 14,669 14,943 15,659 15,791 16,707
Interest on the debt     (383) (339) (308) (417) (344) (339) (391)
GROSS DEBT (principal)     14,509 14,629 14,361 14,526 15,315 15,452 16,316
FINANCIAL INVESTMENTS 4,578 3,435 3,165 2,999 2,497 1,832 2,972 3,512 4,222
Local currency 3,587 2,424 2,296 1,987 1,617 1,110 1,877 1,920 2,142
Companies abroad 991 1,011 869 1,012 880 722 1,095 1,592 2,080
NET DEBT* (principal) 9,105 10,026 11,344 11,630 11,864 12,694 12,343 11,941 12,094
GROSS DEBT (principal+interest) BY CURRENCY
Brazilian real 3,204 3,118 2,943 2,889 2,892 2,675 2,345 2,941 3,418
U.S. dollar 10,000 9,866 11,247 11,131 10,838 11,177 12,510 12,027 12,420
Euro 122 131 148 133 120 135 135 163 117
Other currencies 358 346 554 815 819 956 669 660 752
GROSS DEBT (principal): LONG-TERM AMORTIZATION SCHEDULE
2015 959
2016 592
2017 4,058
2018 503
2019 and after 8,756

MAIN COVENANTS

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

 
COST OF DEBT
Local currency 8.6%
Foreign currency 5.9% + FX
Companies abroad 6.1%
* As of 2Q12 it refers to net debt principal
Net Investment Hedge
      Set-13 Dec-13 Exchange
Variation
    US$ RS$ RS$ RS$
Total debt   3,640 8,117 8,527 (410)
R$/US$     2.2300 2.3426  
  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 2,319 2,436 (117)
Exchange variation effect
on tax
IR/CS on Net Investment
Hedge
      117

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 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
R$ million
Net sales revenue 8,967 9,066 9,199 9,975 9,819 8,988 9,166 9,882 10,494 10,321
Cost of goods sold (7,628) (7,865) (8,093) (8,550) (8,621) (7,969) (8.257) (8,540) (8,960) (8,971)
Gross income 1,339 1,201 1,106 1,425 1,198 1,018 908 1,342 1,534 1,350
GROSS MARGIN 15% 13% 12% 14% 12% 11% 10% 14% 15% 13%
Selling, general and administrative expenses (591) (642) (599) (635) (630) (607) (635) (636) (672) (669)
Other operating revenue (expenses) 24 32 32 9 3 20 51 14 5 108
Equity income 5 (22) 31 (14) (3) (6) 17 (1) 18 19
Income before financial income (expenses) and taxes 777 569 570 785 568 425 341 719 886 808
Net financial income (expenses) (58) (82) (97) (335) (134) (222) (192) (548) (206) (355)
Income before taxes 719 487 473 450 434 203 149 171 679 453
Provision for income tax and social contribution (6) (15) (76) 99 (26) (60) 11 230 (37) 39
NET INCOME IN THE PERIOD 713 472 397 549 408 143 160 401 642 492
Parent company interest 707 439 370 536 389 131 148 390 595 450
Minority interest 6 33 27 13 19 12 12 11 47 42
Depreciation 437 456 438 459 465 465 464 477 528 561
EBITDA 1,215 1,025 1,008 1,244 1,033 891 805 1,196 1,413 1,370
EBITDA MARGIN 14% 11% 11% 12% 11% 10% 9% 12% 13% 13%
 
BALANCE SHEET 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
ASSETS
CURRENT ASSETS 17,263 17,319 16,871 18,171 17,546 16,410 15,909 16,807 17,399 18,177
Cash, cash equivalents and financial investments 4,366 4,578 3,435 3,165 2,999 2,497 1,832 2,972 3,512 4,222
Accounts receivable 4,108 3,603 4,003 4,510 4,276 3,695 4,450 4,126 4,441 4,079
Inventories 7,853 8,059 8,372 9,366 9,125 9,022 8,537 8,551 8,197 8,500
Other 936 1,079 1,061 1,130 1,146 1,196 1,090 1,158 1,249 1,376
NON CURRENT ASSETS 32,164 32,663 32,757 35,175 36,052 36,683 35,898 38,249 38,809 40,296
Deferred income tax 1,436 1,548 1,636 2,099 2,144 2,210 1,728 2,095 2,165 2,315
Investments 1,384 1,355 1,425 1,579 1,436 1,426 1,344 1,492 1,497 1,590
Goodwill 9,054 9,156 8,956 9,870 9,952 10,033 9,838 10,753 10,844 11,353
Intangible 1,279 1,274 1,255 1,350 1,346 1,364 1,341 1,431 1,456 1,498
Fixed assets 16,882 17,295 17,443 18,406 19,289 19,690 19,623 20,473 20,807 21,419
Other 2,129 2,035 2,042 1,871 1,885 1,960 2,024 2,005 2,040 2,121
TOTAL ASSETS 49,427 49,982 49,628 53,346 53,598 53,093 51,807 55,056 56,208 58,473
LIABILITIES
CURRENT LIABILITIES 6,452 6,777 6,666 8,251 8,070 7,823 7,883 6,731 6,949 7,211
Suppliers 3,171 3,212 3,229 3,527 3,326 3,060 3,020 3,303 3,289 3,271
Financing 1,611 1,715 1,884 2,971 2,756 2,324 3,180 1,770 1,742 1,811
Other 1,670 1,850 1,553 1,753 1,987 2,439 1,683 1,658 1,918 2,129
NON CURRENT LIABILITIES 16,344 16,685 16,220 16,674 16,643 16,472 15,449 17,861 18,123 18,999
Financing 11,913 11,182 10,874 11,297 11,571 11,726 11,304 13,454 13,622 14,481
Deferred income tax 1,851 1,859 1,769 1,764 1,750 1,796 1,242 1,306 1,284 1,446
Employee benefits 828 1,090 1,035 1,007 1,016 1,188 1,148 1,169 1,204 942
Other 1,752 2,554 2,542 2,606 2,305 1,762 1,755 1,932 2,013 2,130
SHAREHOLDERS’ EQUITY 26,631 26,520 26,742 28,421 28,886 28,798 28,475 30,464 31,136 32,264
Capital stock 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249
Reserves and other 5,861 5,749 5,972 7,661 8,073 7,997 7,768 9,298 9,954 11,090
Minority interest 1,521 1,522 1,521 1,511 1,563 1,552 1,458 1,917 1,933 1,925
TOTAL LIABILITIES 49,427 49,982 49,628 53,346 53,598 53,093 51,807 55,056 56,208 58,474
EXCHANGE RATE
Average Exchange Rate 1.64 1.80 1.77 1.96 2.02 2.06 1.98 2.07 2.29 2.27
End of Period Exchange Rate 1.85 1.88 1.82 2.02 2.03 2.04 2.01 2.22 2.23 2.34
Business Operations Results
 
R$ million 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
NET SALES 8,967 9,066 9,199 9,975 9,819 8,988 9,166 9,882 10,494 10,321
Brazil BO 3,606 3,558 3,220 3,724 3,567 3,589 3,458 3,679 3,986 3,988
Domestic 2,869 2,629 2,623 2,997 2,931 2,792 3,000 3,234 3,457 3,229
Export 737 929 597 727 636 797 458 445 529 759
North America BO 2,676 2,817 3,141 3,184 3,415 2,709 2,925 3,092 3,443 3,102
Latin America BO 1,039 1,068 1,149 1,274 1,322 1,219 1,144 1,332 1,426 1,464
Special Steel BO 1,868 1,863 1,855 2,070 1,750 1,713 1,813 2,122 2,045 2,044
Eliminations and adjustments (222) (240) (166) (277) (235) (242) (175) (343) (406) (277)
                     
GROSS PROFIT 1,339 1,201 1,107 1,425 1,198 1,018 908 1,342 1,534 1,350
Brazil BO 631 563 427 610 715 717 530 776 1,005 906
North America BO 292 216 335 351 223 88 171 187 147 138
Latin America BO 113 145 114 113 58 44 95 139 162 169
Special Steel BO 294 246 238 339 207 184 118 241 222 133
Eliminations and adjustments 9 31 (7) 12 (5) (15) (6) (1) (2) (2)
                     
EBITDA 1,215 1,025 1,008 1,244 1,033 891 805 1,196 1,413 1,370
Brazil BO 618 531 411 589 691 703 509 748 982 989
North America BO 306 187 330 328 205 59 148 158 129 140
Latin America BO 79 95 92 70 (3) 21 53 109 131 135
Special Steel BO 296 246 260 362 233 218 155 276 273 205
Eliminations and adjustments (84) (34) (85) (105) (93) (110) (60) (95) (102) (99)
                     
DEPRECIATION 437 456 438 459 465 465 464 476 528 561
Brazil BO 214 211 203 185 191 189 193 191 211 227
North America BO 103 112 106 117 122 126 115 119 133 149
Latin America BO 30 34 38 42 40 34 41 46 50 49
Special Steel BO 90 99 91 115 112 116 115 120 133 136
Eliminations and adjustments 0 0 0 0 0 0 0 0 0 0
EXCHANGE RATE
Average Exchange Rate 1.64 1.80 1.77 1.96 2.02 2.06 1.98 2.07 2.29 2.27
Production Costs
 
% of production costs 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
GERDAU CONSOLIDATED
Personnel 14 15 14 15 15 17 16 15 17 18
Maintenance 5 6 6 5 6 7 6 6 7 7
Depreciation 5 5 4 4 5 5 5 5 5 5
Metallic Inputs 54 53 55 55 53 50 51 52 50 50
Energy and Reducing Agents 14 13 13 13 13 13 14 14 13 12
Specific Materials 8 8 8 8 8 8 8 8 8 8
Brazil BO
Personnel 15 17 16 17 15 18 18 18 18 19
Maintenance 6 7 7 7 6 6 6 6 6 7
Depreciation 7 7 7 6 6 7 7 6 7 7
Metallic Inputs 42 39 40 41 44 40 37 39 39 39
Energy and Reducing Agents 23 24 24 23 23 23 24 23 23 21
Specific Materials 7 6 6 6 6 6 8 8 7 7
North America BO
Personnel 12 12 11 13 14 16 14 11 16 17
Maintenance 4 5 4 4 5 7 7 7 9 9
Depreciation 3 3 3 3 3 4 3 3 3 5
Metallic Inputs 66 66 69 66 62 58 61 64 57 56
Energy and Reducing Agents 7 6 5 6 7 7 7 7 7 6
Specific Materials 8 8 8 8 9 8 8 8 8 7
Latin America BO
Personnel 12 12 11 10 12 12 11 11 11 11
Maintenance 5 5 5 5 6 6 5 5 5 5
Depreciation 3 3 4 3 3 3 3 3 3 3
Metallic Inputs 62 64 65 66 65 64 67 68 66 66
Energy and Reducing Agents 13 11 10 10 9 9 9 8 9 9
Specific Materials 5 5 5 6 5 6 5 5 6 6
Special Steel BO
Personnel 17 19 19 19 20 22 20 20 19 21
Maintenance 6 7 7 6 7 7 6 6 6 6
Depreciation 4 5 4 4 5 5 5 5 5 5
Metallic Inputs 54 50 51 52 47 45 49 47 46 45
Energy and Reducing Agents 9 9 9 9 10 10 9 11 12 12
Specific Materials 10 10 10 10 11 11 11 11 12 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.