Gerdau ended 2016 with consolidated net sales of R$37.7 billion, a reduction of 14% from 2015, which is mainly due to the lower steel shipments at all business divisions and the divestment of the special steel units in Spain. Shipments and production both amounted to 16 million tonnes, representing decreases of 8% and 7%, respectively, compared to the prior year.
Gerdau's results in 2016 were also influenced by nonrecurring items related to noncash accounting write-offs, particularly of fixed assets and goodwill, in the amount of R$2.9 billion. Therefore, the Company is reporting its EBITDA and net income on an adjusted basis to reflect better its performance and the respective internal management efforts at all of its divisions. On this basis, adjusted operating cash generation (EBITDA), i.e. excluding nonrecurring items, came to R$4 billion, down 10% from 2015, reflecting the decline in gross profit, which was partially offset by the R$343 million reduction in selling, general and administrative expenses. Consolidated adjusted net income amounted to R$91 million and, including the effects from nonrecurring items, the net result was a loss of R$2.9 billion.
"Despite the challenges in the global steel industry and the recession in Brazil, we delivered positive results in 2016 and met our priorities for the year, thanks to the intensive management efforts made by our teams at all divisions. In 2016, we posted free cash generation of R$2.3 billion, reduced our investments by 43% on a year earlier and cut general and administrative expenses by 13%, which allowed us to reduce our net debt by 26% and to improve our leverage ratios. These achievements were complemented by the divestments of R$1.3 billion in 2016, which reflect the strategy to focus on our more profitable assets. All these efforts were recognized by the capital markets during the year, given the sharp appreciation in the stock prices of Gerdau S.A. and Metalúrgica Gerdau S.A.," said Gerdau CEO André B. Gerdau Johannpeter.
In the fourth quarter, Gerdau's net sales amounted to R$8.6 billion, decreasing 18% on the same period of 2015. Shipments came to 3.8 million tonnes, down 2% from the same period of 2015, while production decreased 14% to 3.3 million tonnes. In the period from October to December, adjusted operating cash generation (EBITDA) amounted to R$716 million, down 21% from the same period of 2015. In the fourth quarter, Gerdau posted an adjusted consolidated net loss of R$205 million; including nonrecurring items, the net loss in the quarter was R$3 billion.
In 2016, shipments declined in all markets served by Gerdau. Shipments to Brazil's domestic market came to 3.7 million tonnes in the year, decreasing 13% in relation to 2015, due to the slowdown in the construction and manufacturing sectors. Exports from Brazil, however, advanced 9% to 2.4 million tonnes, reflecting the commercial efforts made in the international market.
In 2016, the operations in Canada, United States and Mexico (excluding the mills producing special steels) shipped 6 million tonnes, down 4% from the prior year, due to the continued flow of imported goods into the region and to the uncertainty regarding the presidential elections in the United States, with these factors partially mitigated by the continued strong demand from the non-residential construction sector. In South America (excluding the Brazil division), shipments came to 2.1 million tonnes, 6% lower than in 2015.
The special steel division (includes mills in Brazil, United States and India) shipped 2.1 million tonnes in 2016, 20% less than in 2015, reflecting the divestment of the units in Spain and, to a lesser extent, the lower shipments by the units in Brazil.
Divestments amounted to R$1.3 billion in 2016
Gerdau continued to execute its strategy of focusing on its more profitable assets by divesting in the year assets worth R$1.3 billion based on their economic value. The divestments comprised the special steel units in Spain, a long steel mill in Colombia, Cleary Holdings Corp (producer of coke and holder of coking coal reserves in Colombia), a 30% interest in Corporación Centroamericana del Acero and manufacturing units and properties in the United States. Since 2014, divestments have amounted to R$2.4 billion. Over these three years, the Company has sold 13 assets in the United States, Europe and Latin America.
Investments amount to R$1.3 billion in 2016
In 2016, investments in fixed assets came to R$1.3 billion, 43% lower than in 2015, reflecting the more rigorous criteria adopted for approving new investments. The highlights in the year were the conclusion of the investments in flat steel, with the startup of the heavy plate rolling mill at the Ouro Branco Mill, and the completion of construction of the melt shop in Argentina, which is scheduled to start up in March 2017.
For fiscal year 2017, Gerdau will continue to limit its capital expenditure and expects to invest R$1.3 billion, prioritizing investments in capturing productivity gains and in maintaining its plants.
Gerdau S.A. distributes R$85.4 million in dividends in 2016
In fiscal year 2016, Gerdau S.A. allocated R$85.4 million (R$0.05 per share) to the payment of dividends, which was distributed from the profit earned in the first nine months of 2016 and from the retained earnings reserve.
Metalúrgica Gerdau S.A., however, reported a net loss of R$1.4 billion in 2016. Even after adjusting the result by the proportionate interest in non-recurring events at Gerdau S.A. in the fiscal year, Metalúrgica Gerdau S.A. recorded a net loss of R$239 million. Given the net loss in the year and the financial obligations exceeding cash generation, the company did not distribute dividends in fiscal year 2016.
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.