Management efforts and recovery of markets improve Gerdau performance

Physical sales increase 15% in the third quarter to 3.9 million tons, with the highlight being the recovery of the Brazilian market. Cost of sales fall 5% and sales, administrative and general costs, decrease 14%.

The gradual recovery of the worldwide demand for steel, especially in Brazil, increased Gerdau physical sales to 3.9 million tons in the third quarter, 14.7% greater volume than in the second semester of this year. In the comparison between the month of September 2009 and December 2008, the expansion of physical sales was even greater, reaching 46.3%. In order to satisfy the evolution of the demand, the company’s consolidated steel production was 4 million tons in the quarter, 29.8% greater than in the period of April through June of 2009.

Consequently, Gerdau gross sales increased 8%, totaling R$7.8 billion. In turn, net revenue went from R$6.4 billion in the second quarter, to R$6.8 billion in the third quarter.

*EBITDA (profit before interest, taxes, depreciation and amortizations and losses for fixed assets write-downs), as known as operational cash generation, was R$1.4 billion in the quarter, showing an increase of 131.1% compared with the previous quarter. EBITDA margin, one of the principal indicators for demonstrating the profitability of the company, considering its operational cash generation, also more than doubled, going from 9.3% in the second quarter to 20.2%.

From July to September, Gerdau’s consolidated net profit was R$655 million. Without considering non-recurring items in the amount of R$90 million, without income tax, the quarterly net profit would have been R$745 million. Year to date, the company had a positive result of R$361 million.

“Demand has grown gradually, but in a different way in each region where we operate. In the context of this improving scenario, with the efforts of our teams, we managed to reduce costs and working capital, besides reducing our debt, maintaining a high level of cash liquidity, which was R$5.4 billion in September. This shows that the company’s strategy of adaptation to the new world economic reality is well founded. We continue monitoring the behavior of the markets and we are prepared to meet the expansion of steel consumption”, affirms the President and CEO of Gerdau, André B. Gerdau Johannpeter.

From July through September, the cost of sales – which includes the production costs of the steel that was commercialized in the third quarter – was reduced by 5.3%, even with the increase of 14.7% in the sales volumes. Therefore, the efforts to reduce production costs carried out throughout the year reflected positively on the financial performance of the company. Sales, administrative and general costs showed a 13.8% reduction in the third quarter, dropping to R$520 million.

Besides that, working capital, represented by accounts receivable, plus stocks less suppliers, was R$7.1 billion in September of 2009, which represents a reduction of R$430 million compared with the month of June. In the third quarter, the net debt decreased 15.7% to R$10.7 billion and in the first nine months of 2009 the reduction was 39.9%.

In the quarter, all company operations showed growing physical sales. In Brazil (excluding specialty steel producing units), physical sales for the internal and external market reached 1.4 million tons, 20% more than in the second quarter. Of this total, 1 million tons were commercialized in the domestic market (+26.4%), especially due to the expansion of civil construction and industry. Shipments outside of the country were 428 thousand tons (+7%). In the period, the start up of blast furnace #1 at the Ouro Branco mill on 1 July contributed to meeting the higher demand for steel.

In Canada and in the United States (excluding specialty steel producing units) physical sales had a 13.8% increase and reached 1.4 million tons in the quarter due to stock reposition throughout the consumer chain and higher seasonal demand.
In the other Latin American countries (excluding Brazil), sales showed an evolution of 5.9%, totaling 537 thousand tons, with highlights for Argentina, Chile, Uruguay and Mexico.
In the Specialty Steels Business Operation (units in Brazil, United States and Spain), 475 thousand tons were commercialized, 13.1% higher volume than in the second semester, due to the gradual recovery of the Brazilian and North American markets.

Gerdau increases global investment plan with recovery of demand
 
In the quarter, investments in fixed assets totaled R$231.7 million, with 66.3% destined for Brazil and 33.7% for the remaining operations. Year to date spending totaled R$1.1 billion.
 
Considering the gradual recovery of the demand for steel, Gerdau revised its investment plan. In the next five years (2010-2014), R$9.5 billion will be invested, approximately 80% in Brazil.
In Brazil, Gerdau recently announced the re-activation of the implementation of the thick plate rolling mill at the Ouro Branco Mill (MG), estimated at R$1.75 billion. The equipment will have an installed capacity of 1 million tons yearly, with the possibility of future expansions, and its start up is scheduled for the end of 2012. At the height of the work, four thousand temporary jobs should be created. In addition, 420 new permanent jobs should be created for the operation of the new equipment.
 
The principal focus of this investment is the domestic market, especially for the petroleum segment, followed by the shipbuilding industry, civil construction (metallic construction) and heavy machinery (machines and implements). The remaining production will be destined for export to other countries in Latin America.
At the Ouro Branco(MG) mill, the expansion of the rolling mill for structural shapes is also being re-activated, an investment of R$100 million that should increase its yearly installed capacity of 540 thousand tons to 700 thousand in 2011. The production increase of structural shapes is aimed principally at supplying the construction work for 2014 Soccer World Cup and the 2016 Olympic Games, as well as the demand created by Pré-Sal.
 
In addition, Gerdau is going to restart the Várzea de Lopes(MG) Mine, which should reach an annual production of 1.5 million tons of iron ore. Totaling the productions at Miguel Burnier and Várzea de Lopes, Gerdau should reach an annual production rhythm of 2.7 million tons of iron ore, destined for its own use.
For Gerdau’s joint venture in India – country that occupies the position of the third largest steel producer in the world, considering the first nine months of 2009 – R$88 million are scheduled for investments in 2010. This investment reinforces the company strategy of operating in the Asian market, serving civil construction and the automotive industry. For this operation, the installation of a rolling mill is planned for the production of rebar and specialty steels, which will have an installed annual capacity of 300 thousand tons. The forecast is for the equipment to come into operation in 2011.
 
Dividends will be paid on 26 November 
 
Due to the results presented through September of 2009, Metalúrgica Gerdau S.A. and Gerdau S.A. decided to pay dividends, as an anticipation of the obligatory annual remuneration, in the form of interest on capital.
Metalúrgica Gerdau shareholders will be paid R$67.1 million, which corresponds to R$0.165 per share and R$106.5 million will be destined to Gerdau S.A. shareholders, equivalent to R$0.075 per share.
 
About Gerdau
 
Gerdau is the leading producer of long steel in the Americas and one of the world’s largest suppliers of special long steel. It has plants in 14 countries spanning the Americas, Europe and Asia, with total installed capacity of more than 20 million metric tons of steel. It is the largest recycler in Latin America and the world, transforming around 16 million metric tons of scrap into steel every year. With over 140,000 shareholders, Gerdau’s publicly-held companies are listed in the stock exchanges of São Paulo (Bovespa: GGBR4, GGBR3, GOAU4, GOAU3 and AVIL3), New York (NYSE: GNA, GGB), Toronto (GNA: TO), Madrid (Latibex: XGGB) and Lima (BVL: SIDERC1).
 
 
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