Gerdau reports 2Q15 net sales of R$10.8 billion

- Net sales advance 3% from the same period last year (2Q14).

- Operational cash generation (EBITDA) remains stable compared to 2Q14, despite oversupply in the world steel industry and adverse economic conditions in Brazil.

- Management highlights include the Gerdau 2022 project, a global initiative being implemented to simplify internal operations and structures, modernize the corporate culture and reevaluate the potential profitability of assets.

 

Gerdau ended the second quarter of 2015 with net sales of R$10.8 billion, up 3% on from the same period last year, primarily reflecting the effects from currency variation due to the conversion of U.S. dollars generated by overseas operations and exports from Brazil into Brazilian real.

However, shipments in the quarter amounted to 4.3 million tonnes, down 6% from 2Q14, reflecting the lower shipments by the Special Steel BO (formed by the special steel producers in Brazil, Spain, United States and India) and by the North America BO (formed by the long steel mills in Canada and the United States). In the same period, consolidated steel production fell 5% to 4.4 million tonnes.

Operating cash generation (EBITDA) amounted to R$1.2 billion in the quarter, stable compared to 2Q14, reflecting the better results of the North America BO and the Company's comprehensive efforts to reduce selling, general and administrative expenses. Consolidated net income was R$265 million, down 33% on 2Q14, explained by the lower operating income and higher financial expenses in the period.

"In the second quarter, Gerdau's strategy of diversifying geographically enabled the stronger results in North America to partially offset the weaker performance in Brazil. We continue to work on various fronts to prepare Gerdau for both current and future challenges and to improve its competitiveness in the current scenario of oversupply in the global steel industry and weak demand in Brazil. These efforts can already be seen in the greater austerity reflected by the reduction in costs and expenses and the greater selectivity adopted in the investment program (capex). We are also working hard to implement the Gerdau 2022 project, a global initiative that involves simplifying internal operations and structures, modernizing the corporate culture and reassessing the potential profitability of assets, in accordance with a long-term strategic vision," said Gerdau CEO André B. Gerdau Johannpeter.

Over the course of the quarter, the markets served by Gerdau presented distinct performances. The shipments to Brazil's domestic market (excluding the mills producing special steels) of 1.1 million tonnes were 20% lower year over year, reflecting the contraction in the construction industry and weaker industrial production. However, exports from Brazil advanced 121% to 477,000 tonnes.

In the other Latin American countries (excluding the operations in Brazil), shipments came to 634,000 tonnes, in line with 2Q14. Meanwhile, the operations in Canada and the United States (excluding the mills producing special steels) shipped 1.5 million tonnes, down 6% from 2Q14. The lower shipments in the period were due to the strong comparison base in 2Q14 (pent-up demand in 1Q14 due to the region's rigorous winter) and increased pressure from imports in the region.

The special steel operations (including the mills in Brazil, United States, Spain and India) shipped 700,000 tonnes, down 7% from 2Q14, due to the sharp contraction in demand in the Brazilian market and the learning curve at the new rolling mill in Monroe, Michigan (USA).

Iron ore shipments amounted to 2 million tonnes, increasing 13% on 2Q14. Of this amount, 1.4 million tonnes were shipped to Gerdau mills and 571,000 tonnes were sold in the market.

 

Restructuring of the Business Operations

To capture greater strategic and operational synergies in its operations in Brazil, in the other countries in South America and in North America, Gerdau is restructuring its Business Operations. As a result, the units in Mexico and the Joint Ventures in the Dominican Republic, Guatemala and Mexico will become part of the North America Business Operation, which is currently formed by the long steel operations in Canada and the United States.

Gerdau will also create the South America Business Operation, which includes the long steel units in Argentina, Chile, Colombia, Peru, Venezuela and Uruguay. Given its core focus on serving the Ouro Branco mill in Minas Gerais, the Iron Ore Operation will become part of the Brazil Business Operation, which currently is formed by the long and flat steel units in Brazil and the metallurgical coal and coke units in Colombia. The Special Steel Business Operation will remain unchanged, formed by the special steel operations in Brazil, Spain, United States and India. The results of the operations will be reported in accordance with this new configuration as from the third quarter of 2015.

 

Investments by Gerdau reach R$648 million in the second quarter

In the second quarter, investments in fixed assets (capital expenditure) amounted to R$648 million. These investments include the construction of the heavy plate rolling mill at the Ouro Branco Mill in Minas Gerais, the ongoing construction of the melt shop in Argentina and the startup of the coke and power generation plant in India. For the second half of the year, the expectation is for a reduction in capital expenditures compared to the first half of the year.

 

Dividends to be paid on September 4

On September 4, the corporations Gerdau S.A. and Metalúrgica Gerdau S.A. will pay, respectively, interest on equity and dividends for the second quarter of 2015. The amounts to be paid are R$84.3 million to the shareholders of Gerdau S.A. (R$0.05 per share) and R$8.1 million to the shareholders of Metalúrgica Gerdau S.A. (R$0.02 per share).

 

About Gerdau

Gerdau is the leading manufacturer of long steel in the Americas and a major global supplier of special steel. In Brazil, Gerdau also produces flat steel and iron ore, activities that are expanding its product mix and the competitiveness of its operations. Gerdau has industrial operations in 14 countries – in the Americas, Europe and Asia – with a combined installed capacity of more than 25 million tonnes of steel a year. It is also Latin America's biggest recycler and, worldwide, transforms millions of tonnes of scrap metal into steel every year, 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.

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