Gerdau S.a. · BMFBOVESPA:GGBR3
Gerdau — Investor Day (June 2015)
52 slides from Gerdau's investor day presentation, Jun 15, 2015
Slide 1: Gerdau Day NYSE June, 2015
GERDAU DAY NYSE June, 2015
Slide 2: Agenda
Agenda SECTOR CORPORATE OVERVIEW AND STRATEGY NORTH AMERICA BUSINESS OPERATION PERFORMANCE AND OUTLOOK CLOSING REMARKS Peter Campo President, Long Steel North America Operation Andre B. Gerdau Johannpeter Chief Executive Officer Andre Pires de Oliveira Dias Chief Financial Officer Speakers: 2
Slide 3: Agenda
Agenda SECTOR CORPORATE OVERVIEW AND STRATEGY NORTH AMERICA BUSINESS OPERATION PERFORMANCE AND OUTLOOK CLOSING REMARKS Peter Campo President, Long Steel North America Operation Andre B. Gerdau Johannpeter Chief Executive Officer Andre Pires de Oliveira Dias Chief Financial Officer Speakers: 3
Slide 4: Worldsteel projections revised downward
Worldsteel projections revised downward Apparent steel use million tonnes growth rates Source: worldsteel – SRO April 2015. 4 2014 2015 (f) 2016 (f) 15/14 16/15 European Union (28) 146.8 149.9 154.1 2.1% 2.8% NAFTA 144.6 143.3 145.1 -0.9% 1.3% Central & South America 48.1 46.5 48.1 -3.3% 3.4% Asia &
Slide 5: Excess capacity grew, stabilizing: capacity vs. apparent steel use
Excess capacity grew, stabilizing although it seems to be Capacity vs. Apparent Steel Use Source: worldsteel. *forecast 5 World steel capacity utilization rate 89.4% 81.6% 70.8% 77.2% 79.3% 77.9% 77.3% 75.5% 71.8%
Slide 6: Global overcapacity continues to affect industry profitability
Global overcapacity continues to affect industry profitability niinPiatts World Steel Price (Base 100; 100 =Jan/2000) Daily Average Output (world) 300 4.500 4.000 270 3.500 Cl) u ·;:: c.. 3.000 240 ,e-n Q) -E Cl) 2.500 ;: 0 0 2.000 p 210 a:l a:l en 1.500 ! c"..' 1.000 180 500 0 2013 2014 2015 2010 S
Slide 7: China: production levels are stabilizing at a high level
China: production level levels are stabilizing at a high Finished Steel Exports Jan-Apr.15: 34.3 million tonnes, growth of 32.7%*. Finished Steel Imports Jan-Apr.15: 4.4 million tonnes, decrease of 9.5%*. Steel Production Jan-Apr.15: 200 million tonnes, 0.3%* lower. Crude Steel Production (million t
Slide 8: Agenda
Agenda SECTOR CORPORATE OVERVIEW AND STRATEGY NORTH AMERICA BUSINESS OPERATION PERFORMANCE AND OUTLOOK CLOSING REMARKS Peter Campo President, Long Steel North America Operation Andre B. Gerdau Johannpeter CEO Andre Pires de Oliveira Dias CFO and IR Director Speakers: 8
Slide 9: Steel industry faces challenges in 2015
Steel industry faces challenges in 2015 Main initiatives: Current challenges are transforming Gerdau 3 9 Modernizing the culture, structure and leadership4 Costs and SG&A reduction Asset optimization and divestment of non-core assets2 CAPEX discipline1
Slide 10: Continuing to be selective in capital expenditures
Continuing to expenditures be selective in capital CAPEX disbursement (US$ million) 2008 2009 2010 2011 2012 2013 2014 2015e Expected approval for 2015: US$ 381 million e: expected. * Refers to 1Q2015 10 1,605 1,400 1,202 1,159 960 700 735 671 209* 1
Slide 11: Adjusting Gerdau's operations to ensure business sustainability
Adjusting Gerdau’s operations business to ensure the sustainability of the Operating asset optimization: Colombia: 300 kt (crude), 186 kt (rolled) and closing of Operating assets optimization: Água Funda (SP): 104 kt (rolled); Guaíra (PR): 541kt (crude), 166kt (rolled); Usiba (BA): 495kt (crude). Sa
Slide 12: Delivering reduction on costs and SG&A
Delivering reduction on costs and SG&A SG&A (US$ million) 1,620 1,209 1,158 2008 2009 2010 2011 2012 2013 2014 2015 (f) SG&A (US$) 1st Quarter SG&A / Net Sales (%) 12 7.1% 1,434 1,340 6.8% 1,264 1,072 7.5% 6.5% 6.6% 6.4% 892 8.1% -23% 299 229 3
Slide 13: Management Systems Evolution
Management Systems Evolution EBITDA Deployment Innovation Management – Knowledge: Definition of the Innovation management model Definition of GAPS for all processes FA Module Certif. Integrada Cearense GMR Basis Integration Knowledge Managemen t (KM) Innovation management – Practice: Innovation Pilo
Slide 14: Modernizing the culture, structure and leadership
Modernizing leadership the culture, structure and II GERDAU The difference to 1-rAAJ{-IrHA. Gerdau. 0p:nness ISimfkilytil(/llusletily I LetKkrs/)evei.pLetxkrs I Enpwermenfm'lhAxrxmttiiu>Y 14 2022. <.
Slide 15: Innovative initiatives to enhance customer preference
Innovative customers initiatives to enhance the preference of our Wide range Fabricated of products Billets, blooms & slabs steel Merchant bars SBQ Ready-to-use Iron Ore Wire-rod Rebars Nails Heavy HRC Wires products structural shapes Housing Infrastructure Industry and commercial buildings Agricult
Slide 16: Global player with dominant regional presence
Global player with dominant regional presence . CAHAOA •••• • "".,'-.·-. . ' • • • .,.. .•·.!· _.., .. . •.;.,-- - _!!U_NI=T,f_l,iI,_T,_A,T_I,_,_B •t DOMlNK::AH REPUBUC tNOIA 54 Steel mills 148 Downstream operations VENEZUELA ' • COl.OM8tA 4 Iron ore extraction areas • •• " ' ' 70 Scrap collect on a
Slide 17: Vertically integrated operations – flexible production base
Vertically integrated operations – flexible production base Relevant level of direct purchase and captive scrap (50%). 6.3 billion tonnes of iron ore resources: • Self-sufficiency at Ouro Branco mill. Coke unit and coking coal mine in Colombia. Partial level of energy self generation: • 40% in Brazi
Slide 18: Latest generation technology – investments in Mexico
Latest generation technology – investments in Mexico Construction of a new mill to produce structural shapes, in partnership with Gerdau Corsa (joint venture). Annual installed capacity of 1 million tonnes of crude steel and 700k tonnes of rolled steel. Hot testingin the melt shop started in the end
Slide 19: Latest generation technology – special steel rolling mill in Monroe
Latest generation technology – special steel rolling mil in Monroe New rolling mil with annual capacity of 300k tonnes started operations at the end of 2014. New reheating furnace, 1st quarter of 2015. that will increase productivity at the mil, begun operations in the Reheating furnace. Cooling bed
Slide 20: Latest generation technology – flat products project
Latest Timeline generation technology - flat products project Civil Works for plate rolling mill completed Plate Machinery Installation complete Capacity: 1,100 mt Start of Plate rolling mill Capacity: 800 kt Start of HRC rolling mill 20
Slide 21: Iron ore project – focus on self sufficiency
Iron ore project – focus on self sufficiency Self sufficiency brings cost benefits for the Ouro Branco mill: Annual iron ore need: 6.5 MMt*. Capacity expansion project on hold. No long-term commitment (volumes and logistics). CAPEX (US$ million) CAPACITY (million t) 11.5 116 81 83 Plants from partne
Slide 22: Ensuring the safety of employees and service providers is a top priority
Ensuring the safety of employees and service providers is a top priority for Gerdau Accident frequency rate1 2011 2012 2013 2014 YTD 2015 1-Lost-time accident (LTA) frequency rates per million hours worked, including employees and service providers. The data also includes restricted work and change
Slide 23: World Safety Day
World Safety Day Gerdau leadership and employees dedicated their day to promote safety in our locations. Checklists of critical risks: in the days following the World Safety Day, leaders went to the shop floor evaluate critical risks, give feedback and talk about safety with our employees. Safety, a
Slide 24: Corporate Governance
Corporate Governance Renovation of the Corporate Governance structure, representing another phase Gerdau Johannpeter family succession process. in the Re-elected Members New Members Guilherme C. Gerdau Johannpeter André B. Gerdau Johannpeter Claudio Gerdau Johannpeter MG Chairman GSA Chairman Richar
Slide 25: Agenda
Agenda SECTOR CORPORATE OVERVIEW AND STRATEGY NORTH AMERICA BUSINESS OPERATION PERFORMANCE AND OUTLOOK CLOSING REMARKS Peter Campo President, Long Steel North America Operation Andre B. Gerdau Johannpeter Chief Executive Officer Andre Pires de Oliveira Dias Chief Financial Officer Speakers: 25
Slide 26: North America Business Operation
North America Business Operation Annualmanufacturing capacity of over 9.1million metrictonsof finished steel products in North America. Employs approximately 9,200 people in the United States and Canada at locations – mills, reinforcing steel fabrication and placement, metallics materials. over and
Slide 27: North America key differentiators
North America key differentiators Minimill technology in all locations – no blast furnaces in North America. Vertical integration across the value stream – metallics, mills, downstream: Provides some commercial defense from imported rebar. Coast to Coast coverage in the USA for key products: Product
Slide 28: North America Business Operation - Product Mix
North America Business Operation - Product Mix Rebar 31% Offers a diverse and balanced product mix of merchant bar quality (MBQ), special bar Wire Rod 7% Rebar 17% Structural 25% Fabricated 14% quality (SBQ), rebar and wire rod. Merchants/SBQ 36% 28 Structural Wire Rod Fabricated Rebar MBQ/SBQ
Slide 29: North America Business Operation - Principal locations
North America Business Operation - Principal locations 62 Reinforcing Steel Locations 16 Steel Mills 23 Recycling Locations 29 Serve customers throughout the United States and Canada
Slide 30: Gerdau Long Steel North America - Mill Locations
Gerdau Long Steel North America - Mill Locations Manitoba Whitby Cambridge St. Paul Sayreville Wilton Petersburg Calvert City Knoxville Charlotte Jackson Rancho Cucamonga Cartersville Midlothian Jacksonville Beaumont Tampa 30 Merchants Wire Rod/Rebar Structurals/SBQ
Slide 31: Metallics Raw Materials Locations
Gerdau Long Steel North America: Metallics Raw Materials Locations Manitoba Minot Jamestown Fargo Bismarck Cornwall Oshawa Toronto St. Paul Mississauga Buffalo London Perth Amboy Guelph Wilton Dexter Guelph Fair Rd Division Harrisonburg Waynesborough Petersburg Charlottesville Covington Roanoke Mart
Slide 32: Downstream Locations – Western N.A.
Gerdau Long Steel North America: Downstream Locations – Western N.A. Auburn Draper Napa Fairfield Lindon Denver Kansas City Santa Fe Henderson Sand Springs Springs San Bernardino Muskogee San Diego Glendale Houston 32 Reinforcing Steel West Construction Products, BB, Wire and Rail Northern Fabricati
Slide 33: Downstream Locations – Eastern N.A.
Gerdau Long Steel North America: Downstream Locations – Eastern N.A. Duluth Foxboro Appleton Madison Perth Amboy York Belvidere Sayreville Eldridge Orrville Muncie Sterling Decatur Urbana Cincinnati St. Louis Northern Virginia Louisville Raleigh Johnson City Nashville Charlotte Paragould Memphis Kno
Slide 34: Gerdau Long Steel North America - All Locations
Gerdau Long Steel North America-All Locations 34 lmGERDAU
Slide 35: North America imports are increasing
North Long Product Imports America 800 imports are increasing 7>0 /UU soo uu 0 Flat irrporls significanto/ higher than longs, surges in rebar I rod. I!GERDAU 35 us Flat and Long Product Import short tons/month Source: SIMA 400 1200 1000 l 800 :;; 600 400 200 .. ._ OC'\ - <::o.:c - o ,....-< --. o""-
Slide 36: Most project categories are recording gains
Most project categories are recording gains Total Construction CPIP * Residential does not include improvements. Source: US Census Bureau. 36
Slide 37: Better metal spread increases profitability
Better metal spread increases profitability North America Operation Average Metal Spread (Base 100) 101 100 84 Average Metal Spread (Base 100; 100 = Jan.12) 37 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
Slide 38: Agenda
Agenda SECTOR CORPORATE OVERVIEW AND STRATEGY NORTH AMERICA BUSINESS OPERATION PERFORMANCE AND OUTLOOK CLOSING REMARKS Peter Campo President, Long Steel North America Operation Andre B. Gerdau Johannpeter Chief Executive Officer Andre Pires de Oliveira Dias Chief Financial Officer Speakers: 38
Slide 39: Lower steel shipments impacted results in 1Q15
Lower steel shipments impacted results in 1Q15 Evolution of EBITDA (R$ million) EBITDA (R$ million) and EBITDA Margin 11.3% 1,196 11.2% 1,170 11.4% 1,238 11.4% 1,224 10.4% 1,089 480 47 EBITDA Shipments Net Cost of Sales SG&A Others EBITDA 1Q15 1Q14 Sales/t* 4Q14¹ 1Q14 2Q14 EBITDA 3Q14 1Q15 EBITDA Ma
Slide 40: Challenging 2015 for Brazil business operation
Challenging 2015 for Brazil business operation 2015 Outlook GDP forecast: -1,1% Apparent steel consumption: -7,8% Civil Construction Segment Number of New Starts (thousand units) Infrastructure projects (2015 – 2020 in R$ MM) 106.8 193.7 189.9 87.6 84.4 -10.0% 79.4 68.1 -37.2% 61.3 38.5 +5.1% 10.3 -
Slide 41: Significant growth of non-residential construction in the US
Significant growth of the non-residential construction sector in the US 2015 Outlook (US) GDP forecast: +3.1% Apparent steel consumption: -0.4% Non-residential Construction vs. Portland Cement Consumption Public Construction vs. Portland Cement Consumption +8.9% 36,657 2013 2014 2015* 2016* 2017* 20
Slide 42: Steel consumption in Latin America should follow economic growth
Steel consumption in Latin America should follow the economic growth in the region 2015 Outlook Apparent steel consumption: +2.2% GDP forecast: Mexico: +3.8%; Peru: +4.5%; Colombia: +4.3%; Chile: +3.9% Mexico Access to US market New structural shapes plant Apparent Steel Use SRO Apr.2015 (million to
Slide 43: Good outlook for the automotive sector in USA and India
Good outlook for the automotive sector in USA and India Global coverage, with operations in Brazil, USA, Spain and India. One of the largest special steel producer globally, being the main supplier to the automotive industry. 2015 Vehicle Production Growth Special steel market size (million tonnes)
Slide 44: Debt impacted by exchange variation
Debt impacted by exchange variation Debt and Leverage ratio R$ billion 20,916 17,484 3.2x 5,847 5,849 1-Net debt = gross debt (principal) - cash, cash equivalents and short-term investments ($ million) mar.14 jun.14 sep.14 dec.14 mar.15 Gross Debt Principal (R$ billion) Cash (R$ billion) Net Debt/EB
Slide 45: Average maturity term
Average maturity term Debt maturity schedule R$ billion 2015 2016 2017 2018 2019 2020 2021 and after (1) EBITDA LTM. 45 Investment grade Moody’s: Baa3 (stable); Standard & Poors: BBB-(stable); Fitch: BBB-(stable) Average debt term: 6.9 years Debt by origin Capital markets Commercial banks BNDES Expo
Slide 46: FX effect on working capital increased the cash conversion cycle
FX effect on working capital increased the cash conversion cycle by approximately 10 days 11.7 mar.14 jun.14 sep.14 dec.14 mar.15 Working Capital (R$ billions) Cash Conversion Cicle (days) 46 10.09.910.210.1 101 85 84 85 85 Working Capital (R$ million) Trade accounts receivable (+) Inventories (+) T
Slide 47: Positive free cash flow generation
Positive R$ billion free cash flow generation FY2013 866 (2,598) EBITDA 2013 Income Tax Net Financial Expenses Change in WK - cash effect CAPEX Dividends & IOCS Free Cash Flow FY2014 R$ billion 637 (860) (2,267) EBITDA 2014 Gains with JV operations Income Tax Net Financial Change in WK - CAPEX Divid
Slide 48: Agenda
Agenda SECTOR CORPORATE OVERVIEW AND STRATEGY NORTH AMERICA BUSINESS OPERATION PERFORMANCE AND OUTLOOK CLOSING REMARKS Peter Campo President, Long Steel North America Operation Andre B. Gerdau Johannpeter Chief Executive Officer Andre Pires de Oliveira Dias Chief Financial Officer Speakers: 48
Slide 49: Searching for greater competitiveness in a challenging environment
Searching for environment greater competitiveness in a challenging 49 •Experienced, qualified and tested management team •Diversified portfolio: •Wide product range •Geographic diversification •Flexible production base (mini-mill/integrated) •Focus on customer service (value creation) •Balance sheet
Slide 50: Closing remarks
Closing remarks 50 •Gerdau’s strategy of geographic diversification, combined with management’s efforts at all operations, minimized the impacts on Gerdau’s performance of this challenging period in the global steel industry. •Cautious monitoring of all market developments in this scenario of global
Slide 51: Q & A
Q & A
Slide 52: www.gerdau.com/ri
www.gerdau.com/ri inform@gerdau.com.br +55 51 3323 2703