- Adjusted EBITDA amounted to R$ 1.2 billion in the third quarter and R$ 3.3 billion in the first nine months of the year.
- Selling, general and administrative expenses decreased by 23% in the third quarter and by R$ 222 million in the nine-month period, underscoring the Company's management efforts.
- Free cash flow, a priority of the Company's financial management, came to R$ 1 billion in the nine months.
Gerdau ended the third quarter of 2016 with net sales of R$ 8.7 billion, down 27% from the same period last year, reflecting the lower shipments at all business divisions. Consolidated shipments fell 21% from the third quarter of last year, to 3.7 million tonnes, while steel production came to 3.9 million tonnes, down 7% from the year-ago period.
Operating cash generation, measured by adjusted consolidated EBITDA, which includes proportional EBITDA from the jointly controlled entities and associate companies, amounted to R$ 1.2 billion, decreasing 7% from the same period last year. This performance is explained by the weaker performance of the North America Division, which was partially neutralized by the better performance of the other divisions. Compared to the second quarter of 2016, EBITDA was stable, essentially due to the better performance of the Brazil Division (excludes special steel units).
In the third quarter, adjusted consolidated net income was R$ 95 million, 51% lower than in the same period last year, reflecting the lower EBITDA in the period. In the nine months, net income amounted to R$ 293 million. Selling, general and administrative expenses decreased by 23% in the third quarter and by R$ 222 million in the nine-month period.
"This quarter, we were able to mitigate the effects from this challenging moment for the steel industry in the world and Brazil through the efforts of our management teams at all divisions. We managed to cut expenses, expand margins, generate substantial free cash flow while keeping the level of net debt unchanged. In Brazil, despite the margin improvement, we still foresee a challenging market scenario, with gradual and slow recovery in economic activity and weaker exports. The scenario also applies to our other operations in the Americas. On the other hand, we will continue to work intently on creating value for the company on various work fronts, which include modernizing our corporate culture, cutting costs and expenses, generating strong free cash flow, limiting CAPEX, continuing to reassess the potential of assets and implementing digital innovation initiatives," said Gerdau CEO André B. Gerdau Johannpeter.
In the area of digital innovation, Gerdau recently signed an unprecedented partnership with GE Digital. The Company became a pioneer in the world steel industry by implementing an Online Monitoring and Diagnostic System, which uses advanced tools to analyze data with a view to anticipating potential faults in equipment and conducting preventive maintenance. "The implementation of unique new initiatives, such as the project with GE Digital, is already reflecting the digital evolution we are experiencing. The project is generating substantial gains for our mills in Brazil, such as capturing industrial efficiency gains and reducing costs," said Johannpeter.
Some 30,000 sensors are being installed on 1,000 pieces of equipment at 11 mills in Brazil to enable real-time monitoring of equipment performance. The monitoring center installed at the Ouro Branco Mill in Minas Gerais will initially monitor the performance of mills in the Brazil Division, but the Company plans to expand the system to its special steel mills and mining units in the country.
During the quarter, all markets served by Gerdau posted lower shipments. In Brazil, shipments to the domestic market (excludes the special steel units) decreased 18% from the same quarter last year to 928,000 tonnes in the third quarter this year, reflecting the slowdown in the construction and manufacturing industries. In the first nine months of the year, shipments in the domestic market came to 2.8 million tonnes. Steel exports amounted to 554,000 tonnes in the third quarter, down 32% from the same period of 2015, explained by the record-high exports in that period. However, in the first nine months of the year, exports increased 7% on the year-ago period, to 1.7 million tonnes, helping to neutralize the weaker performance in the domestic market.
The operations in Canada, United States and Mexico (excluding special steel units) shipped 1.4 million tonnes in the third quarter of 2016, down 18% from the same period last year, reflecting the strong flows of imports into the region, weaker industrial activity and the heightened caution ahead of the U.S. presidential elections. Meanwhile, the units in South America (excluding Brazil) shipped 516,000 tonnes, or 11% less than in the third quarter of 2015. Shipments by the Special Steel Business Division (formed by mills in Brazil, United States and India) came to 437,000 tonnes, declining 29% from the same period a year earlier, basically due to the divestment of the units in Spain.
Gerdau invests R$286 million in the quarter
In the third quarter of the year, capital expenditure (CAPEX) amounted to R$286 million. Most of the expenditures were allocated to the Brazil Division (50% of CAPEX) to conclude the investments in the heavy plate rolling mill at the Ouro Branco Mill in Minas Gerais.
As previously announced, Gerdau expects to end fiscal year 2016 with CAPEX of around R$ 1.5 billion, down 35% from 2015. The CAPEX projected for 2017 is R$ 1.4 billion, which will be concentrated in productivity gains and maintenance.
Gerdau S.A. to pay dividends on December 1st
On December 1st, Gerdau S.A., based on the results for the third quarter, will distribute dividends to be calculated towards the minimum mandatory dividends set forth in its Bylaws. A total of R$34.2 million will be distributed to the shareholders of Gerdau S.A. (R$0.02 per share). In the first nine months of 2016, Gerdau S.A. allocated R$ 5.7 million (R$ 0.05 per share) to the distribution of dividends.
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.