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Summary

Assumptions

This Valuation Guide is based on the following assumptions:

Data since 1st quarter 2008
Updating: quarterly
Accounting standard: IFRS
Volume unit: Metric Ton (1 metric ton = 1,1 short ton)
Cost accounting standard: average cost
Debt information: includes debentures

Functional currency: Brazilian real - R$ (For overseas companies, Income Statement accounts are converted based on the average exchange rate in the quarter, while Balance Sheet accounts are converted based on the exchange rate at the end of the quarter).

Business operations (BO):
Brazil: Includes all operations in Brazil (except special steel) and the Colombia metallurgical coal and coke operation
North America: Includes all North American operations, except Mexico and specialty steel
Latin America: Includes all Latin American operations, except for Brazil
Special Steel: Includes the specialty steel operations in Brazil, Spain, United States and India
Iron Ore: Includes the iron ore operations in Brazil

Notes:
1. As of 1Q12, Colombian metallurgical coal and coke operation, which was previously reported in the Latin America BO, have been consolidated into the Brazil BO. This change stems from the strategic decision to integrate this coal and coke operation with the Gerdau Açominas, due to its increasing relevance in providing metallurgical coal to this mill. For the purpose of better comparison, the historical data has been corrected since 1Q11.                     
2. As of 1Q12, with the purpose of aligning this document to financial statements presented in the American and Brazilian markets, comments have started to separate transactions occurred between the Business Operations, indicated in tables under the "Eliminations and adjustments" line, as well as the Company's corporate expenses, which were previously reported under the Brazil BO. For the purpose of better comparison, the historical data has been corrected since 1Q11.                     
3. The information contained in this guide does not include joint ventures or companies in which Gerdau has shared control, which are recognized under the equity income method: Guatemala (Corporación Centroamericana del Acero), Dominican Republic (Inca), Mexico (Corsa) and USA (Gallatin).
4.  Starting in 2014, the iron ore operation, which previously was reported under the Brazil Business Operation, started to be reported separately as a new business operation called “Iron Ore.” The change is explained by the progress made in the iron ore project over the course of 2013, which led the Company to decide to separate this operation given its importance.

Production Process (metallic charge)

Production Processes – Flowchart:

Semi-integrated (mini-mill): represents approximately 75% of the business

Integrated (blast furnace): represents approximately 25% of the business

Main inputs for the production of one tonne of steel

Note: Market references considering approximate amounts for steel plants in general, with actual amounts varying in accordance with product quality and specifications. The references don't apply directly at Gerdau's mills.

  Electric furnaces Integrated
Scrap 0.9 tonnes -
Solid pig iron 0.3 tonnes -
Iron ore - 1.6 tonnes
Coal - 0.8 tonnes
Coke - 0.6 tonnes
Power Supply 400 kWh/tonne -
Production Capacity

‘000 tonnes

CRUDE STEEL Jun-14
Total 25,680
Brazil BO 9,100
Mini-mill 4,600
Integrated mill 4,500
North America BO 9,870
Latin America BO 2,740
Special Steel BO 3,970
Brazil 1,430
EUA 1,320
Spain 970
India 250
ROLLED PRODUCTS Jun-14
Total 23,400
Brazil BO 6,340
North America BO 9,380
Latin America BO 3,170
Special Steel BO 4,510
Production

‘000 tonnes

 
CRUDE STEEL 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Total 4,732 4,940 5,046 4,747 4,186 4,410 4,646 4,507 4,446 4,557 4,668
Brazil BO 1,874 1,751 1,825 1,925 1,702 1,708 1,771 1,794 1,691 1,609 1,621
North America BO 1,670 1,899 1,841 1,735 1,425 1,474 1,640 1,457 1,549 1,649 1,787
Latin America BO 414 470 518 444 408 426 429 444 426 441 399
Special Steel BO 774 820 862 644 651 802 806 812 780 858 861
 
ROLLED PRODUCTS 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Total 3,982 4,217 4,201 3,959 3,447 3,682 4,078 3,922 3,848 4,153 4,115
Brazil BO 1,164 1,140 1,143 1,213 1,019 1,069 1,219 1,232 1,122 1,291 1,116
North America BO 1,574 1,744 1,714 1,637 1,329 1,385 1,541 1,430 1,501 1,547 1,697
Latin America BO 523 596 577 496 444 528 529 531 521 526 511
Special Steel BO 721 737 767 614 655 700 789 729 704 789 791
 
IRON ORE 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Iron Ore BO 1,124 1,052 1,568 1,842 1,736 1,988
Shipments

’000 tonnes

 
  1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Total 4.725 4.778 4,774 4,317 4,555 4,634 4,775 4,556 4,387 4,524
Brazil BO 1.778 1.916 1,791 1,814 1,808 1,768 1,913 1,792 1,597 1,588
Domestic 1.269 1.418 1,339 1,294 1,417 1,506 1,544 1,417 1,442 1,372
Export 509 498 452 520 391 262 369 375 155 216
North America BO 1.752 1.593 1,768 1,359 1,516 1,545 1,608 1,476 1,452 1,652
Latin America BO 671 685 705 647 646 726 720 716 681 631
Special Steel BO 698 731 625 603 667 766 713 711 758 749
Eliminations (174) (147) (115) (106) (82) (171) (179) (138) (101) (96)
  1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Iron Ore BO 912 894 1,073 2,139 2,000 1,735
Gerdau Units 905 817 966 1,088 812 1,020
Third Parties 7 77 107 1,051 1,188 715

The historical breakdown of sales, which may vary in accordance with the specific market.

Brazil BO %
Construction 50-55
Industrial 40-45
Agribusiness 0-5
North America BO %
Infrastructure 30-35
Non-residential construction 40-45
Industrial 25-30
Other 5-10
Special Steel BO %
Automotive (light vehicle) 40
Automotive (heavy vehicle) 40
Industrial (oil, gas and energy) 20

The main Products

Brazil BO: rebar, bar, wire rod, beam, drawn product, billet, bloom, slab and structural beam.
North America BO: rebar, bar, wire rod, light and heavy structural beam.
Latin America BO: rebar, bar and drawn product.
Special Steel BO: stainless steel, round, square and flat bar, wire rod.


 
Investments
 
ACQUISITIONS* 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
US$ million
Total - - - - - - - - - - -
Brazil BO - - - - - - - - - - -
North America BO - - - - - - - - - - -
Latin America BO - - - - - - - - - - -
Special Steel BO - - - - - - - - - - -

* Includes debt of companies acquired in the period

 
CAPEX 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
R$ million
Total 674 691 850 904 683 567 678 676 677 677 479
Brazil BO 473 432 555 594 337 291 357 337 293 332 210
North America BO 59 82 71 90 113 86 93 84 107 79 63
Latin America BO 51 39 43 58 58 39 49 50 36 78 57
Special Steel BO 91 138 181 162 175 109 126 146 143 137 124
Iron Ore BO - - - - - 42 53 59 98 51 25

 

Investment Plan
Investment Plan - Main Projects Location Additional production capacity (1,000 t) Start-up
Brazil BO
Flat steel rolling mill (heavy plates) at Ouro Branco mill-MG Brazil 1,100 2016
Wire rod and rebar rolling mill at Cosigua mill-RJ1, 2 Brazil 600 2016
New melt shop at Riograndense mill-RS4 Brazil 650 2016
North America BO
Capacity expansion from new continuos casting at St Paul mill - Minnesota5 USA 550 2014
Latin America BO
New melt shop in Mexico (Gerdau Corsa)3 Mexico 1,000 2014
New structural profile rolling mill in Mexico (Gerdau Corsa)3 Mexico 700 2015
Expansion of crude steel capacity at all Colombia's mills Colombia 400 2016
Expansion of rolling capacity at all Colombia's mills Colombia 450 2016
New melt shop in Argentina Argentina 650 2016
Specialty Steel BO
Expansion of rolling capacity at Mogi das Cruzes Mill in São Paulo Brazil 60 2014
Second bar inspection line in India mill Brazil - 2014
Coke plant and power generation plant in India mill India - 2015
New continuous casting and reheating furnace at Pindamonhangaba mill, São Paulo Brazil - 2016
Expansion of crude steel, long steel products and finishing capacities at Monroe mill, MI2 USA 300 2014
Iron Ore BO
Expansion of mining operations capacity to 18 million tonnes and logistics for the operation2 Brazil - 2016

1 To meet this rolling capacity, one of the electric furnaces in the melt shop will be revamped.
Investment with approval in stages.
3 This capacity is not included in the consolidated figures since it is a jointly-controlled entity.
4 Deactivation of current melt shop (450,000 tones capacity)
5 Deactivation of current continuous casting (450,000 tones capacity)
 

Indebtedness
 
R$ million 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
SHORT TERM 3,093 2,583 3,333 1,770 1,769 1,838 1,756 1,299
Local currency 1,022 652 552 382 435 492 539 109
Foreign currency 485 469 774 295 272 262 290 298
Companies abroad 1,585 1,462 2,007 1,093 1,062 1,084 926 892
LONG TERM 11,875 12,086 11,610 13,889 14,022 14,869 15,004 15,415
Local currency 1,866 2,240 2,123 1,964 2,506 2,927 3,396 3,365
Foreign currency 6,551 6,422 6,261 8,500 8,146 8,725 8,381 8,966
Companies abroad 3,458 3,424 3,226 3,425 3,370 3,217 3,227 3,084
GROSS DEBT (principal+interest) 14,968 14,669 14,943 15,659 15,791 16,707 16,759 16,714
Interest on the debt (339) (308) (417) (344) (339) (391) (374) (283)
GROSS DEBT (principal) 14,629 14,361 14,526 15,315 15,452 16,316 16,386 16,431
FINANCIAL INVESTMENTS 2,999 2,497 1,832 2,972 3,512 4,222 3,520 3,963
Local currency 1,987 1,617 1,110 1,877 1,920 2,142 1,995 2,011
Companies abroad 1,012 880 722 1,095 1,592 2,080 1,525 1,952
NET DEBT* (principal) 11,630 11,864 12,694 12,343 11,941 12,094 12,866 12,468
GROSS DEBT (principal+interest) BY CURRENCY
Brazilian real 2,889 2,892 2,675 2,345 2,941 3,418 3,935 3,474
U.S. dollar 11,131 10,838 11,177 12,510 12,027 12,420 11,972 12,377
Euro 133 120 135 135 163 117 185 157
Other currencies 815 819 956 669 660 752 667 706
GROSS DEBT (principal): LONG-TERM AMORTIZATION SCHEDULE
2015 440
2016 1,009
2017 2,673
2018 631
2019 573
2020 and after 10,089

MAIN COVENANTS

Net Debt (principal) / EBITDA < 4 times
EBITDA / Financial Expenses > 3 times

 
COST OF DEBT
Local currency 9.3%
Foreign currency 5.9% + FX
Companies abroad 5.6%
* As of 2Q12 it refers to net debt principal
Net Investment Hedge
      Mar-14 Jun-14 Exchange
Variation
    US$ RS$ RS$ RS$
Total debt   3,899 8,823 8,588 236
R$/US$     2.2630 2.2025  
  Corresponding Line on the
Quartely Results
      Impact on the
Income Statment 
Part of the debt with
Net Investment Hedge
  2,855     -
Part of the debt without
Net Investment Hedge
Exchange variation on
Net Investment Hedge
1,044 2,363 2,299 63
Exchange variation effect
on tax
IR/CS on Net Investment
Hedge
      (63)

To use this sheet is necessary  to consult  the informations contained in the items "Financial Results", "Financial Liability" and "Net Income" of the Quartely  Results.

Financial Statements
 
INCOME STATEMENT 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
R$ million
Net sales revenue 9,819 8,988 9,166 9,882 10,494 10,321 10,554 10,443
Cost of goods sold (8,621) (7,969) (8.257) (8,540) (8,960) (8,971) (9,238) (9,179)
Gross income 1,198 1,018 908 1,342 1,534 1,350 1,316 1,264
GROSS MARGIN 12% 11% 10% 14% 15% 13% 12% 12%
Selling, general and administrative expenses (630) (607) (635) (636) (672) (669) (707) (678)
Other operating revenue (expenses) 3 20 51 14 5 108 19 17
Equity income (3) (6) 17 (1) 18 19 27 27
Income before financial income (expenses) and taxes 568 425 341 719 886 808 654 630
Net financial income (expenses) (134) (222) (192) (548) (206) (355) (101) (211)
Income before taxes 434 203 149 171 679 453 553 419
Provision for income tax and social contribution (26) (60) 11 230 (37) 39 (113) (25)
NET INCOME IN THE PERIOD 408 143 160 401 642 492 440 394
Parent company interest 389 131 148 390 595 450 397 357
Minority interest 19 12 12 11 47 42 43 37
Depreciation 465 465 464 477 528 561 542 541
EBITDA 1,033 891 805 1,196 1,413 1,370 1,196 1,170
EBITDA MARGIN 11% 10% 9% 12% 13% 13% 11% 11%
 
BALANCE SHEET 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
ASSETS
CURRENT ASSETS 17,546 16,410 15,909 16,807 17,399 18,177 18,202 18,835
Cash, cash equivalents and financial investments 2,999 2,497 1,832 2,972 3,512 4,222 3,520 3,963
Accounts receivable 4,276 3,695 4,450 4,126 4,441 4,079 4,492 4,292
Inventories 9,125 9,022 8,537 8,551 8,197 8,500 8,689 9,006
Other 1,146 1,196 1,090 1,158 1,249 1,376 1,501 1,574
NON CURRENT ASSETS 36,052 36,683 35,898 38,249 38,809 40,038 39,352 39,059
Deferred income tax 2,144 2,210 1,728 2,095 2,165 2,056 1,973 1,912
Investments 1,436 1,426 1,344 1,492 1,497 1,590 1,554 1,515
Goodwill 9,952 10,033 9,838 10,753 10,844 11,353 10,970 10,706
Intangible 1,346 1,364 1,341 1,431 1,456 1,498 1,472 1,428
Fixed assets 19,289 19,690 19,623 20,473 20,807 21,419 21,242 21,085
Other 1,885 1,960 2,024 2,005 2,040 2,121 2,141 2,413
TOTAL ASSETS 53,598 53,093 51,807 55,056 56,208 58,473 57,554 57,894
LIABILITIES
CURRENT LIABILITIES 8,070 7,823 7,883 6,731 6,949 7,237 6,904 6,675
Suppliers 3,326 3,060 3,020 3,303 3,289 3,271 3,183 3,448
Financing 2,756 2,324 3,180 1,770 1,742 1,811 1,678 1,299
Other 1,987 2,439 1,683 1,658 1,918 2,154 2,043 1,928
NON CURRENT LIABILITIES 16,643 16,472 15,449 17,861 18,123 18,958 19,007 19,513
Financing 11,571 11,726 11,304 13,454 13,622 14,481 14,583 14,981
Deferred income tax 1,750 1,796 1,242 1,306 1,284 1,187 1,104 1,054
Employee benefits 1,016 1,188 1,148 1,169 1,204 942 906 881
Other 2,305 1,762 1,755 1,932 2,013 2,347 2,414 2,597
SHAREHOLDERS’ EQUITY 28,886 28,798 28,475 30,464 31,136 32,021 31,643 31,706
Capital stock 19,249 19,249 19,249 19,249 19,249 19,249 19,249 19,249
Reserves and other 8,073 7,997 7,768 9,298 9,954 11,090 10,712 10,747
Minority interest 1,563 1,552 1,458 1,917 1,933 1,682 1,682 1,710
TOTAL LIABILITIES 53,598 53,093 51,807 55,056 56,208 58,474 57,554 57,894
EXCHANGE RATE
Average Exchange Rate 2.02 2.06 1.98 2.07 2.29 2.27 2.37 2.23
End of Period Exchange Rate 2.03 2.04 2.01 2.22 2.23 2.34 2.26 2.20
Business Operations Results
 
R$ million 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Consolidated  
Net Sales 9,199 9,975 9,819 8,988 9,166 9,882 10,494 10,321 10,554 10,443
Gross Profit 1,107 1,425 1,198 1,018 908 1,342 1,534 1,350 1,316 1,264
EBITDA 1,008 1,244 1,033 891 805 1,196 1,413 1,370 1,196 1,170
Depreciation 438 459 465 465 464 476 528 561 542 541
                     
Brazil BO  
Net Sales 3,220 3,724 3,567 3,589 3,457 3,666 3,967 3,747 3,655 3,446
Domestic 2,623 2,997 2,931 2,792 3,001 3,234 3,453 3,175 3,360 3,105
Export 597 727 636 797 456 432 514 572 295 341
Gross Profit 427 610 715 717 514 725 950 765 749 594
EBITDA 411 589 691 703 496 702 933 848 731 598
Depreciation 203 185 191 189 188 186 206 217 200 209
                     
North America BO  
Net Sales 3,141 3,184 3,415 2,709 2,925 3,092 3,443 3,102 3,258 3,581
Gross Profit 335 351 223 223 171 187 147 138 99 277
EBITDA 330 328 205 59 148 158 129 140 70 281
Depreciation 106 117 122 126 115 119 133 149 136 136
                     
Latin America BO  
Net Sales 1,149 1,274 1,322 1,219 1,144 1,332 1,426 1,464 1,399 1,302
Gross Profit 114 113 58 44 95 139 162 169 185 148
EBITDA 92 70 (3) 21 53 109 131 135 143 109
Depreciation 38 42 40 34 41 46 50 49 52 50
                     
Special Steel BO  
Net Sales 1,855 2,070 1,750 1,713 1,813 2,122 2,045 2,044 2,263 2,182
Gross Profit 238 339 207 184 118 241 222 133 161 193
EBITDA 260 362 233 218 155 276 273 205 203 230
Depreciation 91 115 112 116 115 120 133 136 142 134
                     
Iron Ore BO
Net Sales         79 124 127 374 316 216
Gerdau Units         78 111 108 133 105 118
Third Parties         1 13 19 241 211 98
Gross Profit         16 50 55 142 119 52
EBITDA         14 46 49 141 121 53
Depreciation         5 5 5 10 12 11
                     
EXCHANGE RATE  
Average Exchange Rate 1.77 1.96 2.02 2.06 1.98 2.07 2.29 2.27 2.37 2.23
Production Costs
 
% of production costs 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
GERDAU CONSOLIDATED
Personnel 15 17 16 15 17 18 16 16
Maintenance 6 7 6 6 7 7 6 6
Depreciation 5 5 5 5 5 5 5 5
Metallic Inputs 53 50 51 52 50 50 53 53
Energy and Reducing Agents 13 13 14 14 13 12 13 12
Specific Materials 8 8 8 8 8 8 7 8
Brazil BO
Personnel 15 18 18 18 18 19 19 20
Maintenance 6 6 6 6 6 7 7 6
Depreciation 6 7 7 6 7 7 7 7
Metallic Inputs 44 40 37 39 39 39 39 39
Energy and Reducing Agents 23 23 24 23 23 21 21 21
Specific Materials 6 6 8 8 7 7 7 7
North America BO
Personnel 14 16 14 11 16 17 14 13
Maintenance 5 7 7 7 9 9 5 7
Depreciation 3 4 3 3 3 5 4 3
Metallic Inputs 62 58 61 64 57 56 62 63
Energy and Reducing Agents 7 7 7 7 7 6 7 6
Specific Materials 9 8 8 8 8 7 8 8
Latin America BO
Personnel 12 12 11 11 11 11 10 11
Maintenance 6 6 5 5 5 5 4 6
Depreciation 3 3 3 3 3 3 3 4
Metallic Inputs 65 64 67 68 66 66 69 63
Energy and Reducing Agents 9 9 9 8 9 9 9 10
Specific Materials 5 6 5 5 6 6 5 6
Special Steel BO
Personnel 20 22 20 20 19 21 19 20
Maintenance 7 7 6 6 6 6 6 5
Depreciation 5 5 5 5 5 5 5 5
Metallic Inputs 47 45 49 47 46 45 48 49
Energy and Reducing Agents 10 10 9 11 12 12 12 11
Specific Materials 11 11 11 11 12 11 10 10
GLOSSARY
Personnel
Metallic charge
Energy and Reducing Agents
Specific Materials
Frequent Questions

Click in the question to access the document with their answers.

More details Where to find information on the Gerdau website
Quarterly Results Website Gerdau1 - Investors - Financial Information - Quarterly Results
Plant Capacity Website Gerdau1 - Investors - Financial Information - SEC Files - 2011 - Form 20F (20-F in the item 4.D - PROPERTY, PLANT AND EQUIPMENT - Page 43)
Contingencies of Gerdau S.A.: ICMS credits, resulting mainly from sales of products to trading companies and tax income related to companies abroad Website Gerdau1 - Investors - Financial Information - SEC Files - 2011 - Form 20F (NOTE 18 - PROVISIONS FOR TAX, LABOR AND CLAIMS, item II) Non accrued contingent liabilities, items A.1 and A.4

1Website Gerdau - www.gerdau.com

Disclaimer

This modeling guide is based on historic and publicly available data. It does not seek to provide any guidance (estimates or projections) of future events, except for the best estimate the Company currently has for its investment and debt amortization plan. The estimates and premises in this guide are subject to risks, uncertainties and assumptions that include, among others, the general economic, political and business conditions in Brazil and in the markets where we operate, as well as existing and future government regulations. Potential investors are cautioned that the data provided here is not a guarantee of future performance as it involves risks and uncertainties. The company does not assume, and specifically rejects, any obligation to update any estimate, which is only valid on the date it was made.