Gerdau reports 1Q16 net sales of R$10.1 billion

- Strong presence in U.S. market and higher exports from Brazil helped partially offset the lower shipments to Brazil's domestic market.

 

- Gerdau ended the first quarter of 2016 with net income, reversing the net loss in the fourth quarter of 2015, demonstrating the efforts made by its management.

 

In the first three months of 2016, Gerdau posted net sales of R$10.1 billion, a reduction of 3% from the same period last year. In the period from January to March, the highlights were the company's strong presence in the U.S. market, where net sales grew 12%, and the 72% growth in exports from Brazil, which partially offset the lower shipments to Brazil's domestic market.

In the first quarter, Gerdau sold 3.9 million tonnes of steel goods, or 7% less than in the prior-year period. Steel production came to 4.2 million tonnes, declining 4%, which supported the optimization of inventories.

As a result, consolidated operating cash generation (EBITDA) came to R$930 million, down 16% from the first quarter of 2015, reflecting the weaker performance of the long and special steel operations in Brazil. However, compared to the fourth quarter of 2015, consolidated EBITDA advanced 2%, led by the growth of 33% in the Brazil Division (excludes the special steel mills) and of 15% in the Special Steel Division (includes the mills producing special steel in Brazil, the United States, Spain and India).

Compared to the first quarter of 2015, the highlights were the EBITDA growth of 40% in the North America Division (includes the long steel mills in the United States, Canada and Mexico) and of 44% in the South America Division (excludes Brazil).

Consolidated net income was R$14 million, decreasing 95% from 1Q15, reflecting the lower operating income. Nevertheless, net income in the quarter increased in relation to the fourth quarter of 2015, when Gerdau posted an adjusted net loss of R$41 million, excluding nonrecurring items. 

"Our strong presence in North America and the efforts by management in all divisions supported a 21% reduction in working capital needs in the first quarter compared to the same quarter last year, resulting in positive free cash flow. We also grew consolidated EBITDA compared to the fourth quarter of last year. Seasonality in North America and Brazil, combined with the country's political uncertainty and recession, marked the first quarter of 2016. Nevertheless, we believe the impacts caused by these factors in the period do not represent a trend for the rest of the year," said André B. Gerdau Johannpeter.

Over the course of the quarter, the markets served by Gerdau reduced their shipments, except in the North America Division (includes the long steel mills in Canada, the United States and Mexico). In Brazil, shipments to the domestic market (excludes the special steel units) decreased 28% from the same quarter last year to 896 thousand tonnes, due to weaker activity in the construction and manufacturing sectors. The lower domestic shipments were partially offset by the 72% growth in exports from Brazil, to 526 thousand tonnes. Export growth was driven by the identification of commercial opportunities in the international market and by the favorable exchange rate. Compared to the fourth quarter of 2015, however, domestic shipments in the first quarter advanced 10%, reflecting seasonality.

The operations in Canada, the United States and Mexico (excludes special steel mills) sold 1.5 million tonnes in the first quarter of 2016, or 2% more than in the same period last year. Meanwhile, the units in South America (excluding Brazil) shipped 505 thousand tonnes, 6% less than in the first three months of 2015. Shipments by the Special Steel Division (includes the special steel mills in Brazil, the United States, India and Spain) came to 632 thousand tonnes, declining 9% compared to the first quarter of 2015, due to the sharp drop in demand from Brazil's automotive industry.

"Over the course of the year, we'll continue the process of transforming Gerdau by seeking to add more value and boost the competitiveness of our operations in the global steel industry. Our priorities remain generating free cash flow – by limiting new investments and cutting costs – and deleveraging. We also will continue to work on modernizing our organizational culture and defining strategic initiatives, which include reassessing the potential profitability of our assets," added Gerdau's CEO.

​Gerdau invests R$485 million in the first quarter

 In the first quarter, Gerdau invested R$485 million in fixed assets (CAPEX). At the Ouro Branco Mill in Minas Gerais, the new heavy plate rolling mill with annual capacity of 1.1 million tonnes is undergoing operational tests and slated for startup in July 2016. In Argentina, the construction of the new melt shop is in the advanced phase and reached 85% completion and all pieces of equipment have been delivered by the suppliers. The new mill, whose startup is expected by year-end, will have annual installed capacity of 650 thousand tonnes and help substitute part of the country's steel imports.

 For 2016, CAPEX is estimated at R$1.5 billion and will prioritize the maintenance of existing industrial facilities. This amount, therefore, considers a reduction of 35% in capital expenditures compared to 2015, given that Gerdau's main ongoing investments are nearing completion.  


About Gerdau

Gerdau is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world. In Brazil, it also produces flat steel and iron ore, activities that are expanding its product mix and boosting its competitiveness. It is also the largest recycler in Latin America and around the world it transforms each year millions of tons of scrap into steel, reinforcing its commitment to sustainable development in the regions where it operates. Gerdau's shares are listed on the São Paulo, New York and Madrid stock exchanges. 


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