Gerdau S.a. · BMFBOVESPA:GGBR3
Gerdau — Investor Presentation (May 2017)
28 slides from Gerdau's investor presentation, May 2017
Slide 1: Investor Presentation 2017
Investor Presentation | 2017 | Gerdau steel in the world| www.gerdau.com 1
Slide 2: Outlook / Gerdau Highlights
Outlook Gerdau Highlights 2
Slide 3: Economic outlook
Economic outlook GDP Growth 2016 2017f 2018f World 3.1% 3.5% 3.6% US 1.6% 2.3% 2.5% Brazil -3.6% 0.5% 2.5% China 6.7% 6.6% 6.2% Sources: IMF and IBGE 3
Slide 4: Better outlook for apparent steel use
Better outlook for apparent steel use Region / Country 2017f 17/16 (in mmt and %) World 1,535 1.3% European Union 158 0.5% NAFTA 135 2.2% USA 94 3.0% Central & South America 41 3.5% Brazil 19 2.8% Asia and Oceania 1,016 1.0% China 681 0.0% Source: World Steel Association 4
Slide 5: Brazil outlook
Brazil outlook GDP growth: good harvests, some industrial segments (e.g. vehicles) and mineral sector. Sharply reduction in interest rate from 14.25% to 8.5% at year end. Inflation will close the year bellow the target of 4.5%. Release of inactive FGTS accounts: around R$ 40 billion. The Investment
Slide 6: US outlook
US outlook Consumer confidence registered a 15-year high after the election. The stock market is shattering records. Job numbers are improving. Trump government focus on: Lower corporate tax rate from 38% to 15%. Reducing regulations: any federal agency that proposes a new regulation must identify t
Slide 7: World steel capacity utilization rate improved besides overcapacity
World steel capacity utilization rate improved besides overcapacity Source: World Steel Association 7
Slide 8: Chinese exports decreased significantly in last months
Chinese exports decreased significantly in last months In million metric tons *January to April of 2017 annualized Source: World Steel Association 8
Slide 9: More balance in Chinese steel market
More balance in Chinese steel market The Ministry of Industry and Information Technology (MIIT) announced that 29 mills will be removed from the list of qualified companies and another 40 mills are requested to improve their environmental and safety performance in order to remain on the list. The Na
Slide 10: World dealing with unfair trade
World dealing with unfair trade Cases against steel unfair trade growing strongly worldwide; China is the main target of unfair trade cases in more than 20 countries; World reacting against unfair Chinese steel trade conditions: G7 expressed concern regarding overcapacity; Creation of the G20 Global
Slide 11: Price move sideways in the international steel market
Price move sideways in the international steel market Turkey China Source: Platts 11 Prices were updated until May, 25
Slide 12: Margins sustainability – China domestic margins
Margins sustainability – China domestic margins In US$/t Rebar HRC Source: Platts 12 Margins were updated until May, 25
Slide 13: Gerdau Highlights
Outlook Gerdau Highlights 13
Slide 14: Profile
Profile YEARS LEADING IN THE PRODUCTION OF 116 OF EXPERIENCE LONG STEEL IN THE AMERICAS ONE OF THE MAIN SPECIAL STEEL SUPPLIER OF THE WORLD SHARES LISTED ON ON THE SÃO PAULO NY AND MADRID: LARGEST RECYCLER + 120,000 SHAREHOLDERS GLOBAL PRESENCE OF LATIN AMERICA: 12 MILLION TONS PIONEER IN THE IMPLEM
Slide 15: Player with dominant presence and broad product portfolio
Player with dominant presence and broad product portfolio India Billets, blooms Merchant bars Structural Rebars & slabs & light shapes shapes USA & Canada Dominican Republic Mexico Venezuela Colombia Ready-to-use Wires Wire rod Nails products Peru Brazil Chile Uruguay Steel Units Argentina Associate
Slide 16: Geographic diversification
Geographic diversification Brazil North America South America Special Steel ► Housing ► Infrastructure ► Housing ► Automotive ► Infrastructure ► Non-residential ► Infrastructure ► Shipbuilding ► Industrial and ► Industrial ► Industrial and ► Energy commercial buildings commercial buildings ► Agricul
Slide 17: Vertically integrated operations
Vertically integrated operations Upstream Steel Downstream ► Relevant level of direct ► Reinforcing steel fabrication purchase and captive scrap facilities (Fab Shops) (50%) ► Low cost structure ► Drawn products ► 6.3 billion tons of iron ore ► Mini-mills and integrated mills ► Multi-product distrib
Slide 18: The Gerdau we are
Transforming Gerdau to achieve our goals and share our success Digital Innovation Digital mill Asset Optimization GE partnership Economic value: around R$ 2.8 billion Uber for heavy truck since 2014 Freight cost reduction New partnership in wind power market Metallics Cloud infrastructure The Plate
Slide 19: Asset Optimization: economic value of R$ 2.8 billion since 2014
Asset Optimization: economic value of R$ 2.8 billion since 2014 The strategy of focusing on more profitable assets will continue in 2017. Gerdau Diaco (sale of 50% interest, transformation into the JV Gerdau Diaco). Merge in Dominican Republic. JV in Brazil to produce forged parts for the wind power
Slide 20: EBITDA margin improvement in 1Q17 mainly due to Brazil BD
EBITDA margin improvement in 1Q17 mainly due to Brazil BD Unit 1Q17 1Q16 ∆% 4Q16 ∆% Shipments '000 ton 3,591 3,851 -6.8% 3,799 -5.5% Net Sales R$ million 8,459 10,085 -16.1% 8,620 -1.9% R$ Cost of Goods Sold (7,805) (9,272) -15.8% (8,098) -3.6% million SG&A R$ million (439) (644) -31.8% (535) -17.9%
Slide 21: Geographic diversification reduces volatility
Geographic diversification reduces volatility EBITDA and EBITDA margin per BD North South Special Brazil BD America BD America BD Steel BD 22.5% 15.3% 22.4% 39.8% 16.8% 16.8% 14.2% 14.0% 7.7% 11.9% 10.9% 9.2% 9.0% 389 8.0% 331 3.8% 4.3% 248 264 208 230 193 127 157 132 119 174 1Q16 4Q16 1Q17 1Q16 4Q1
Slide 22: Strong reduction in SG&A and focus on working capital
Strong reduction in SG&A and focus on working capital SG&A Working Capital R$ million and in % of Net Sales 9.3 8.4 8.1 7.2 7.5 1Q17 5.2% 87 83 80 71 75 mar.16 jun.16 sep.16 dec.16 mar.17 Working Capital (R$ billions) Cash Conversion Cycle (days) Reduction of R$ 1.8 billion on working capital y-o-y
Slide 23: Selectivity in CAPEX
Selectivity in CAPEX CAPEX Disbursements 1Q17 CAPEX (R$ billion) by Business Division CAPEX planned for 2017 is R$ 1.3 billion, focused on productivity improvement and maintenance 23
Slide 24: Deleveraging of R$ 4.0 billion on Net Debt y-o-y
Deleveraging of R$ 4.0 billion on Net Debt y-o-y Debt & Leverage Ratio Debt Amortization Schedule R$ billion R$ billion Average Debt Cost: 7.1% Average Debt Term: 5.6 years EBITDA in the last 12 months BOND 2017 Net Debt/EBITDA ratio in 3.5x 24
Slide 25: R$ 2.0 billion of FCF generation in the last twelve months
R$ 2.0 billion of FCF generation in the last twelve months Evolution of Free Cash Flow (R$ million) 1Q17 Free Cash Flow (R$ million) (237) 853 (53) (362) (457) (256) Adjusted EBITDA CAPEX Income Tax Debt Interest Working Capital Free Cash Flow 1Q17 1Q17 25
Slide 26: Closing Remarks
Closing Remarks Gerdau's performance in the first quarter reflects the challenging moment facing the world steel industry. Steel demand in Brazil should grow gradually starting in the second half of 2017. In North America, the steel industry continues to grow with a positive forecast for the year. J
Slide 27: Statement
Statement This presentation may contain forward-looking statements. These forward-looking statements rely upon estimates, information or methods that may be incorrect or inaccurate and may not actually occur. These estimates are also subject to risks, uncertainties and assumptions, including, among
Slide 28: Thank you!
Investor Presentation Thank you! www.gerdau.com 28