Gerdau posted net sales in the second quarter of 2016 of R$10.2 billion, a decline of 5% from the same period a year earlier. The decline is mainly explained by the lower shipments of long and special steel goods in Brazil's domestic market and by the divestment of the operation in Spain that was consolidated in the financial statements until May. However, compared to the first quarter of 2016, Gerdau's consolidated net sales grew 2%, due to higher shipments in nearly all operations.
Meanwhile, consolidated shipments were relatively stable compared to the second quarter last year (-1%), at 4.2 million tonnes. Compared to the first quarter, shipments grew by 10%. In April to June, steel production amounted to 4.3 million tonnes, declining by 3% compared to the same period last year and increasing by 4% compared to the prior quarter.
Despite the challenging scenario, consolidated adjusted operating cash generation (EBITDA), which excludes the non-cash effect from the divestment of the operation in Spain, amounted to R$1.2 billion, remaining relatively stable (+1%) from the prior-year period, supported by a 9% reduction in selling, general and administrative expenses in the period and a higher contribution from jointly controlled entities and associate companies. Compared to the first quarter of 2016, EBITDA advanced 29% and was accompanied by EBITDA margin expansion in all operations. The highlights of the second quarter were the EBITDA growth of 62% in the Brazil Division (excludes the special steel units) and of 53% in the Special Steel Division (formed by the special steel mills in Brazil, United States, India and Spain, the latter until May) compared to the first quarter of 2016.
Excluding the non-cash effect from the divestment of the operation in Spain, consolidated adjusted net income came to R$184 million, down 31% from the second quarter of 2015. However, compared to the first quarter of 2016, adjusted net income increased significantly driven by higher operating income.
"Our management efforts at all operations are generating immediate gains for the Company that can already be felt on our balance sheet. This quarter, we managed to deliver strong free cash flow, deleverage, reduce investment and generate higher net income. This performance shows that Gerdau is reinventing itself and focusing on the priorities set for 2016 of creating value and enhancing the competitiveness of our operations. A highlight on this front is the digital innovation we are implementing in our operations based on new technologies, which is rapidly capturing efficiency and productivity gains," said André B. Gerdau Johannpeter.
One example of the innovation initiatives developed by Gerdau is the Digital Mill project that is being rolled out at its steel mills and mining units in Brazil and is in the pilot phase in North America. The initiative has helped to optimize industrial processes through the use of mobility and applications in scrap recycling, melt shop and rolling mill management, logistics as well as other activities.
In the second quarter, shipments registered distinct performances in the various regions where Gerdau operates. In Brazil, shipments to the domestic market (excludes the special steel units) decreased 8% from the same quarter last year, reflecting the slowdown in the construction and manufacturing industries. However, to offset the weaker performance in the domestic market, Gerdau exported 622,000 tonnes of steel goods, or 30% more than in the second quarter of 2015. Compared to the first quarter of this year, shipments increased in both the domestic (+12%) and export (+18%) markets, which is explained by seasonality and the higher international steel prices in early 2016, respectively.
The operations in Canada, United States and Mexico (excludes the special steel mills) shipped 1.6 million tonnes of steel goods in the second quarter of 2016, in line with the same period a year earlier. Meanwhile, the units in South America (excluding Brazil) shipped 532,000 tonnes, or 3% less than in the second quarter of 2015. Shipments by the Special Steel Business Division (formed by the special steel mills in Brazil, United States, India and Spain) came to 595,000 tonnes, declining 15% compared to the second quarter of 2015, basically due to the divestment of the units in Spain and the adjustment of inventory levels in Brazil.
Gerdau invests R$326 million in the second quarter
In the second quarter of the year, capital expenditures (CAPEX) amounted to R$326 million, which is the lowest level since 2010. One of the main investments was in the new heavy plate rolling mill with annual installed capacity of 1.1 million tonnes, which started operations at the Ouro Branco Mill in Minas Gerais on schedule. With the startup of this project, Gerdau effectively expands its product line in the flat steel segment and is serving new market niches. Heavy plates are used in industries such as construction, oil and gas, shipbuilding, wind power, highway, machinery and equipment, etc. In Argentina, construction of the new melt shop has reached an advanced phase and the plant's operational tests are slated to begin in December. The new unit will have annual installed capacity of 650,000 tonnes and serve primarily the domestic market.
The CAPEX projected for 2016 is unchanged at R$1.5 billion, which is 35% below the amount invested in 2015. The focus of investments will be on boosting productivity and maintenance.
Gerdau S.A. to pay dividends on September 2nd
On September 2nd, Gerdau S.A., based on its results for the second quarter, will prepay the minimum mandatory dividend, with R$51.5 million distributed to the shareholders of Gerdau S.A. (R$0.03 per share).
Gerdau is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world. In Brazil, it also produces flat steel and iron ore, activities that are expanding its product mix and boosting its competitiveness. It is also the largest recycler in Latin America and around the world it transforms each year millions of tons of scrap into steel, reinforcing its commitment to sustainable development in the regions where it operates. Gerdau's shares are listed on the São Paulo, New York and Madrid stock exchanges.