Lower steel demand cuts down Gerdau sales in the fourth quarter of 2008

In comparison with the same period the year before, there were drops in sales (- 24.4%), production (-33.7%) and profits (-67.1%)

Gerdau closed the fourth quarter of 2008 with sale and production volumes below those of the same period the year before due to the significant decrease in the worldwide steel demand. Between October and December, 3.5 million tons were sold, a 24.4% drop, which percentage the Company had already forecast late in November at the annual meetings with stock market analysts and investors. In the same period, the production of 3.3 million tons of steel showed a 33.7% decrease against the fourth quarter of 2007. “Gerdau has over a hundred years' experience and the flexibility to quickly adjust to market fluctuations, which makes us confident about the organization's ability to overcome the obstacles posed by the world's current economic scenario, whose evolution is still uncertain. Based on our efficient resource management, experience in operating under critical conditions, and the flexibility of our industrial process, we will continue monitoring the behavior of the various markets“, said André B. Gerdau Johannpeter, the Gerdau CEO. “Besides, the necessary measures encouraging infrastructure investments that are being taken in the several countries where we do business should increase the use of steel, and consequently expand the demand for our products”, he added. Given the lower demand for steel, since November the company has been taking a series of measures to adjust its production volumes to the new reality of the market. For instance, it has moved up scheduled maintenance downtime and employee vacation periods, as well as postponing previously announced investments. In addition, negotiations with unions – whether underway or completed – are being held to adjust the staff to the demand, according to the individual situation of the local markets. Despite the lower demand in the fourth quarter, gross sales went up 16% in comparison to the same period in 2007, reaching R$ 10.5 billion. The expansion in gross sales in the last quarter of 2008 is due mainly to the 31.9% exchange rate change from the conversion of foreign income and the consolidation of new companies. However, the EBITDA (earnings before interest, tax, depreciation and amortization), also known as operating cash generation, was R$ 1.5 billion and presented a negative 9.6% variation. Net profits in the fourth quarter were R$ 311 million, a 67.1% decrease against the same period the year before, which was due to the lower sales from October to December, the adjustment of inventory values to market prices, and the impact of exchange rate changes on the debts purchased in foreign currency. In light of the current economic scenario, in North America the company performed an assessment of the premium recouped on investments, which led to a US$ 1.2 billion accounting loss in Gerdau Ameristeel's balance sheet, under the US GAAP accounting standards. As a result, Gerdau Ameristeel recorded US$ 1.3 billion in losses in the fourth quarter and US$ 542 million in the year. Such losses do not represent present or future cash disbursements for the company. It should be noted that the losses recorded in North America did not affect Gerdau S.A.'s consolidated balance because the analysis performed under the International Financial Reporting Standards (IFRS), based on the recoupment of premium on investments, did not indicate accounting losses.
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