Gerdau reports 2015 net sales of R$ 43.6 billion


- Adjusted EBITDA came to R$4.5 billion in 2015, while consolidated adjusted net income was R$684 million

- Consolidated EBITDA margin was 10.3%, supported by the strong presence in the United States, despite the challenging scenario in the global steel industry

- Free cash flow amounted to R$3 billion in the year, reinforcing the strategy of disciplined capital management

Gerdau ended 2015 with consolidated net sales of R$43.6 billion, an increase of 2% on the prior year, due to the positive effect from the translation into Brazilian real of revenue from its overseas operations. The highlight in the year was the North America Business Operation (Canada, United States and Mexico), which accounted for 39% of consolidated net sales, which was partially offsett by the weaker performance of the Brazil Business Operation, which was severely affected by the country's recession.

Shipments came to 17 million tonnes, decreasing 5% compared to 2014, which is explained by weaker shipments at all business operations, especially in the domestic market of the Brazil Business Operation. Steel production also came to 17 million tonnes, decreasing 6% from the prior year, reflecting the adjustment of inventory levels at the North America, Special Steel and Brazil business operations, which contributed to the reduction in the Company's working capital needs.

Gerdau's results in 2015 were influenced by nonrecurring items related to noncash accounting write-offs, particularly of fixed assets and goodwill, in the amount of R$5.3 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 operations. Accordingly, adjusted operating cash generation (EBITDA), excluding nonrecurring items, amounted to R$4.5 billion, down 8% from 2014, reflecting the weaker performance of the Brazil and Special Steel business operations, which was partially offset by the stronger performance of the North America Business Operation. Meanwhile, consolidated adjusted net income amounted to R$684 million; considering the effects from nonrecurring items, the result was a net loss of R$4.6 billion.

"Although our results were affected by nonrecurring, noncash items, Gerdau's strong presence in the North America market and the intensive management efforts made by our teams enabled us to mitigate the effects on our balance sheet from the weaker steel demand globally and in Brazil. Given this scenario, we prioritized the company's financial sustainability by significantly reducing our working capital needs, which generated a cash effect of R$2.4 billion in the year, and by expanding our free cash generation by 58%, to R$3 billion. We also reduced by 5% our selling, general and administrative expenses from the previous year. And we adjusted our production in Brazil to the level of market demand, which was severely affected by the country's economic crisis," said Gerdau CEO André B. Gerdau Johannpeter.

In the fourth quarter, Gerdau's net sales amounted to R$10.4 billion, decreasing 4% on the same period of 2014. Shipments and production amounted to 3.9 million tonnes, decreasing 12% and 10%, respectively. From October to December, adjusted operating cash generation (EBITDA)

amounted to R$911 million, down 27% from the fourth quarter of 2014. From October to December, Gerdau posted a consolidated adjusted net loss of R$41 million; considering nonrecurring items, the net loss in the quarter was R$3.2 billion.

Over the course of 2015, the effects from weaker steel demand and continued pressure from imported goods in Gerdau's markets were felt to varying degrees, depending on the operation's segment and geographic region. Shipments to Brazil's domestic market came to 4.3 million tonnes in 2015, decreasing 23% in relation to 2014, due to the slowdown in the construction and manufacturing sectors. However, exports from Brazil advanced 108% to 2.2 million tonnes.

In the fourth quarter, Gerdau's performance in Brazil was significantly affected by the 40% drop in sales to the domestic market (mainly in December) compared to the prior-year period. Faced with this scenario, the Company adjusted its operations to the current and future level of market demand by carrying out shutdowns at its mills, which generated a one-off impact on EBITDA.

In 2015, the operations in Canada, United States and Mexico (excluding the mills producing special steels) shipped 6.2 million tonnes, down 4% from the prior year, due to the continued flow of imported goods into the region, despite the continued strong demand from the non-residential construction sector. In South America (excluding the Brazil operations), shipments came to 2.2 million tonnes, 2% lower than in 2014.

The Special Steel Business Operation (includes mills in Brazil, United States, Spain and India) shipped 2.6 million tonnes in 2015, 9% less than in 2014, reflecting the sharp drop in demand from the automotive industry in Brazil and, to a lesser extent, from the oil and gas industry in the United States.

According to Gerdau CEO André B. Gerdau Johannpeter, "In 2016, we will continue to prioritize free cash generation, limit new investments, cut costs and deleverage, given the challenging scenario in the steel industry. We also will continue to work on generating more market value and on identifying opportunities in markets for higher-value goods, as demonstrated by the early startup of the heavy plate rolling mill in Brazil, among other initiatives."


Investment amounted to R$2.3 billion in 2015

In 2015, investments in fixed assets amounted to R$2.3 billion, influenced by the weaker Brazilian real, since a portion of investments is linked to the U.S. dollar. The highlights of the year were the startup of the structural profile mill in Mexico in June 2015 and the construction of the melt shop in Argentina, whose commissioning is expected by year-end, as well as the construction of the heavy plate rolling mill at the Ouro Branco Unit in Minas Gerais, which is slated to start up by July.

For 2016, Gerdau will continue to limit its capital expenditure, which is estimated at R$1.5 billion for the year and will prioritize the maintenance of existing industrial facilities. This amount, therefore, considers a reduction in expenditures, given that Gerdau's ongoing investments are nearing completion.


Gerdau S.A. distributes R$253 million in dividends in 2015

In 2015, Gerdau S.A. allocated R$253 million (R$0.15 per share) to the payment of dividends and interest on capital, which was distributed from the reserve of profits for the first half of 2015 and from the retained earnings reserve, despite the challenging scenario in the steel industry. Meanwhile, Metalúrgica Gerdau S.A. distributed R$16.2 million (R$0.04 per share) in 2015.


Stock tender offer at Metalúrgica Gerdau S.A. raises R$900 million

In November 2015, Metalúrgica Gerdau S.A. successfully concluded a tender offer of 500 million shares, with capitalization of R$900 million, which was used to amortize the Company's debt and improve its liquidity position. With the transaction, net debt fell from R$2.1 billion to R$1.2 billion on December 31, 2015. Management used the proceeds to settle more expensive and shorter-dated liabilities.


About Gerdau

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.​

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