Increased improvement in steel consuption net income for Gerdau reaches R$9 billion

Press Release

- Consolidated sales grew 12 percent in the second quarter over the same period last year, reaching 4.9 million metric tons.
- Consolidated steel output reached 5.1 million tons, an increase of 9 percent on the second quarter of 2010.
- Gerdau announces the investment of R$183 million in the Mogi and Pinda plants, both located in São Paulo, in order to meet the growing demand for special steel in the Brazilian automotive industry.

Gerdau's financial performance in the second quarter of the current year was influenced by the greater global demand for steel – which resulted in the expansion of sales volume and net income – as well as by the rising costs of inputs.

Consolidated sales volume reached 4.9 million tons, an increase of 12 percent, expanding the Company's total net income to R$9 billion, a 9 percent increase in the second quarter of 2010. Consolidated steel output, in turn, reached 5.1 million metric tons, an increase of 9 percent over the same period in the previous year.

The increased costs of inputs, especially iron ore, mineral coal and ferrous scrap, impacted the operating cash flow (EBITDA), which was R$1.3 billion against R$1.7 billion in the second quarter of 2010, a reduction of 24 percent. However, in comparison with the first quarter of 2011, the EBITDA presented a 19 percent growth. Net profit reached R$503 million, 41 percent less than the same period of 2010. In comparison with the first three months of the year, net income showed an increase of 23 percent.

For the full year, consolidated net income reached R$17.4 billion, a 13 percent growth over the first six months of 2010. Consolidated sales volume reached 9.6 million tons compared to the first half of 2010, a 14 percent increase, while consolidated steel output showed an increase of 9 percent, reaching 9.9 million tons. In the same period, EBITDA was R$2.4 billion and net profit reached R$912 million.

"Gerdau results were impacted by the unfavorable exchange rate in Brazil and by the high costs of inputs. We are still following the strategy to achieve self-sufficiency in iron ore, as well as to expand the supply of mineral coal from our operations in Colombia, which have a capacity to serve about 25 percent of Gerdau Brazil's current needs, and to expand the network of exclusive scrap suppliers. On the other hand, we continue to work on the project to monetize part of our mineral resources and will expand the product range with higher added value. Particularly noteworthy in this context is the fact that Brazil will start production of flat steel in 2012.

Additionally, we continue to maintain a good capital structure for the company, reinforced by the R$3.6 billion capital increase operation completed in the second quarter. "Based on these initiatives, we will seek maximum efficiency for our operations, improving operating margins and long-term sustainable growth,” says Gerdau CEO André B. Johannpeter.

During the second quarter, all Gerdau operations posted growth in sales volumes. In Brazil (excluding special steel plants), sales grew 7 percent over the second quarter of 2010, reaching 1.8 million metric tons. Of this total, 1.3 million metric tons was destined for the domestic market, a volume that has remained in line with the same period in the previous year. Exports from the Country, in turn, accounted for 507,000 metric tons, 29 percent more than the period ranging from April to June in 2010.

The remaining Latin American countries (except Brazil) traded 20 percent more compared to the same period last year, reaching 644,000 metric tons of steel, and the highlight markets were Colombia, Argentina and Mexico. Units in Canada and the United States (excluding the special steel mills), presented a 16 percent increase in sales volume due to the increased demand from the industry and energy sectors, reaching 1.7 million metric tons.

The Special Steel Business Operation (including units in Brazil, the United States and Spain) showed an 8 percent increase, totaling 787,000 metric tons, due to increased demand from the U.S. automotive sector and increased exports from Spain to other European countries.

Gerdau announces R$183 million investment in Mogi and Pinda  plants (state of São Paulo, Brazil)

In addition to the R$718 million investment announced last May for plants located in the state of São Paulo, the Company will invest an additional R$183 million until the second quarter of 2012, in the Pindamonhangaba and Mogi das Cruzes mills (state of São Paulo, Brazil) to meet the growing demand for special steel in the Brazilian automotive market. Using advanced industrial technology, a new continuous caster and a new reheating furnace will be installed in Pinda, increasing the plant's productivity and competitiveness.

Mogi, in turn, will have its rolling capacity expanded from 216 metric tons to 276,000 metric tons per year. At the end of both investments, 130 direct permanent jobs and 570 indirect jobs will have been created in the supply chain. In addition, at the peak of the building stage, approximately 300 temporary jobs will be created.  

The Company is also resuming technical studies for a new investment in Chile. The studies will analyze the feasibility of increasing annual installed capacity for the Colina mill, adding 280,000 metric tons of steel and 425,000 metric tons of rolled products. With that, Gerdau's installed capacity in Chile could reach 800,000 tons of steel and 900,000 tons of rolled products.

Regarding the monetization of part of the Company's mineral resources, located in the state of Minas Gerais, Gerdau has disclosed that a company has already been hired to conduct in-depth studies on alternatives to market these assets efficiently, considering all the needs of a project of this magnitude in terms of mining, processing, transport logistics, storage and marketing.

In the second quarter, investments in fixed assets (CAPEX) amounted to R$340 million, of which 71 percent were allocated to units in Brazil and 29 percent to operations overseas. In the full year, disbursements reached R$673 million.

Payment of dividends will take place on August 25

On August 25, publicly traded companies Gerdau S.A. and Metalúrgica Gerdau S.A. will pay dividends in the form of interest on equity, referring to the second quarter. Gerdau S.A. shareholders will receive R$154 million (R$0.09 per share) and Metalúrgica Gerdau S.A. shareholders will receive R$61 million (R$0.15 per share).

About Gerdau
Gerdau is a leader in long steel in the Americas and a leading supplier of special steel. With 45,000 employees, the Company has plants in 14 countries – in the Americas, Europe and Asia – with a total installed capacity of over 25 million metric tons per year. Gerdau is the largest recycler in Latin America and, around the world, it transforms millions of metric tons of scrap into steel every year. With about 140,000 shareholders, Gerdau's shares are traded in the Sao Paulo, New York and Madrid Stock Exchanges.

Porto Alegre, August 4, 2011.
Press Office - 51 3323-2170

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