Gerdau responds quickly to contraction in demand

In order to adjust quickly to the new market reality, Gerdau boosted its cash position and improved liquidity, while lowering its costs and working capital requirements.

Gerdau’s performance in the first quarter of 2009 was significantly impacted by the contraction in world steel demand. Compared with the fourth quarter of 2008, consolidated sales volume fell by 12.7% to 3.1 million tons, while steel production decreased by 22.2% to 2.5 million tons. However, in March the company observed signs of improvement in the market, with its sales volume in that month 20.7% higher than in December 2008. In this environment, Gerdau closed the first quarter with revenue of R$ 7.7 billion and net income of R$ 35 million.

“We managed to adjust quickly to the new market reality, drawing on our flexible operations and the concerted efforts and expertise of our teams in all countries where we have operations. We increased our cash position, which stood at R$ 5.8 billion at the end of March, and improved liquidity by lowering our working capital requirements. In addition, total production costs decreased by R$ 1.8 billion, or 28%, in relation to the previous quarter. These efforts by our management teams should have positive repercussions on costs in the coming quarters, which are no longer suffering impacts from the high inventories formed to meet the growing consumption observed in October 2008,” said André B. Gerdau Johannpeter, Gerdau’s CEO.

In Canada and the United States (except for units producing specialty steels), Gerdau Ameristeel registered growth in steel production volume of 1 million tons, 11.4% higher than in the fourth quarter of last year. Meanwhile, sales volume was 1.1 million tons, down 11.5% on the previous quarter. Despite the lower demand observed in the first quarter, North America sales in March were 10.1% higher than in December 2008.

In Latin America (excluding Brazil), steel production at Gerdau units totaled 316,000 tons in the first three months of the year, up 41.1% on the previous quarter. Sales volume was 487,000 tons, also expanding against the previous quarter, by 9.7%.

In Brazil (excluding the units producing specialty steel), steel production volume in the first quarter declined by 41.3% against the prior quarter to 879,000 tons. This contraction in volume was mainly due to the anticipation of the scheduled maintenance stoppage of the No. 1 Blast Furnace at Gerdau Açominas in Minas Gerais. Sales volume in the domestic market in the quarter fell by 26.8% to 721,000 tons. However, in March, domestic sales volume was 12.2% higher than in December 2008.

To partially offset the slowdown in the domestic economy during the first quarter, Gerdau increased its exports from Brazil, despite the lower profitability of export sales. Accordingly, export shipments totaled 374,700 tons, increasing by 38.4%, while revenue from export sales totaled R$ 397.4 million.

In the specialty steel segment (units in Brazil, United States and Spain), production was 300,000 tons, down 50.5% on the prior quarter. Meanwhile, sales volume contracted by 32% to 398,000 tons. However, in March, specialty steel sales volume expanded by 9.6% against December 2008.

First-quarter investments of US$ 242 million

From January to March, investments in fixed assets totaled US$ 242 million, which was used for projects already initiated in 2008. Of this amount, 57.9% was allocated to Brazil (excluding units producing specialty steel) while the remaining 42.1% was allocated to the other operations.

Prepayment of dividends

Metalúrgica Gerdau S.A. and Gerdau S.A. have clear dividend payment policies that are aligned with market practices and provide for the distribution of at least 30% of adjusted net income each fiscal year, above the minimum of 25% required by Brazilian law. In view of the current economic environment and the Company’s objective of preserving cash, the dividend payment for the first quarter of 2009 will not be anticipated. This position will be reviewed for the coming quarters, always in compliance with the minimum mandatory dividend stipulated in the Company’s bylaws.

About Gerdau

Gerdau is the leading company in the production of long steels in the Americas and one of the major suppliers of specialty long steel in the world. It has industrial plants in 14 countries, with operations in the Americas, Europe and Asia, which total an installed capacity of more than 20 million tons of steel. It is the largest recycler in Latin America, and reclaims over 16 million tons of scrap worldwide every year. With over 140,000 stockholders, Gerdau’s publicly traded companies are listed in the São Paulo (Bovespa: GGBR4, GGBR3, GOAU4, GOAU3 and AVIL3), New York (Nyse: GNA, GGB), Toronto (GNA.TO), Madrid (Latibex: XGGB) and Lima (BVL: SIDERC1) stock exchanges.

Press Office +55(51) 3323-2170

Thursday, May 07, 2009

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