International expansion and increase in demand in Brazil raise Gerdau Group’s sales to R$ 34.2 billion

Prospecting studies exceed expectations and indicate the existence of 1.8 billion tons of iron ore in Gerdau Group’s Brazilian reserves, which in 2010 will be able to meet 80% of units’ demand in the country

The international expansion of Gerdau Group, added to the 15.5% increase in sales in Brazil, raised the company’s consolidated gross sales to R$ 34.2 billion in 2007, which represents an 18.5% growth over the previous year. Over the fiscal year, Gerdau Group made acquisitions in countries where it already operated – the United States and Spain – and in new markets: Mexico, Venezuela, the Dominican Republic, and India. On the 2007 balance sheet, however, Macsteel (United States), Corsa (Mexico), and the Kalyani Gerdau joint venture (India) had not been consolidated yet. From the total of R$ 34.2 billion worth of gross sales, the Brazilian units accounted for 47%, the industrial plants in the U.S. and Canada contributed 33.3%, the Latin American units (except for Brazil) totaled 10.6%, and Spanish units accounted for 9.1% of consolidation. The revenues from overseas operations, added to exports from Brazil, reached 60% of total gross sales. In the same period, the consolidated net profit reached R$ 4.3 billion and was in line with the amount registered in the previous year. However, excluding non-recurrent items, net profit grew by 11.9% over the previous fiscal year, reaching R$ 4.5 billion. This happened because in 2007 there were costs of R$ 164 million (return of ‘Tax on Industrialized Products’ amounts offset as input credits due to changes in the jurisprudential guideline with retroactive effect; and industrial reorganization costs), while in 2006 the Group obtained revenues of R$ 263 million (discount and market value adjustments regarding the purchase and/or sale of shares and revenues on undue social-security payments), both as non-recurrent items. “The first management year of the new corporate governance was marked by the continued positive operational performance and the expansion that widened Gerdau Group’s growth platform on the international steel scene. We will maintain the profitable growth strategy and high competitiveness standards. In this context, I highlight the recent expansion of our iron ore reserves, which will be able to account for 80% of the supply of this raw material to the units of the Group in Brazil in 2010. In addition, our investment plan is estimated at US$ 6.4 billion, over the next three years, in the expansion and technological update of industrial plants”, states Mr. André Gerdau Johannpeter, the company CEO. In the fiscal year, total physical sales increased by 15.2% and reached 17.2 million tons. In the same period, consolidated steel production (slabs, blooms and billets) had a 13.6% increase and reached 17.9 million tons. The production of rolled products (end products such as rebars, bars and shapes) had an 18.4% evolution, reaching 15.2 million tons. In Brazil, the expansion in construction and industry – Gerdau Group’s major customers – enabled a 15.5% growth in physical sales, whose volume reached 4.9 million tons. To meet the increase in the domestic market demand, exports from Brazil had a 10.3% reduction to 2.1 million tons. US$ 1.4 billion worth of export revenues was generated, including shipments to controlled and associated companies. In other Latin American countries (Argentina, Chile, Colombia, Mexico, Peru, the Dominican Republic, Uruguay and Venezuela), sales performance evolved by 45.5% over 2006 and 2.3 million tons were marketed as a result of the acquisitions made in the period and the economic expansion in the region. If the volumes marketed by the new companies were deducted, sales would have grown by 7.7% over the previous year. In the United States and Canada, sales totaled 6.9 million tons in 2007, 14.9% higher than 2006. Without annual consolidated acquisitions, sales would have been practically equal to those of 2006, which shows that operations in the region were not impacted, in the period, by the U.S. real-estate crisis, as the Group’s focus of operation in North America is non-residential construction, infrastructure works, and the metal-mechanical industry. 936,000 tons were marketed in Spain, a volume 37.4% higher than last year’s. If the contribution by new companies were excluded, the increase in sales would have been 5.2%.
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