Latin America Pulp & Paper / Metals & Mining Conference JP MORGAN
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Transcript of Latin America Pulp & Paper / Metals & Mining Conference JP MORGAN
Latin America Pulp & Paper / Metals & Mining Conference
JP MORGAN
São Paulo, March 5th, 2004
Steel Sector
Gerdau S.A. Consolidated
Stock Market
2003 2002 Var. %
1 China 220.1 181.7 21.1%
2 Japan 110.5 107.7 2.6%
3 United States 91.4 92.2 -1.0%
4 Russia 61.3 58.6 4.7%
5 Korea 46.3 45.4 2.0%
6 Germany 44.8 45.0 -0.4%
7 Ukraine 36.7 34.1 7.8%
8 India 31.8 28.8 10.3%
9 Brazil 31.1 29.6 5.1%
10 I taly 26.7 26.0 3.0%
Others 244.4 236.7 3.3%
TOTAL 945.1 885.8 6.7%
World ProductionCrude Steel
In million tons
Sources: IISI
In 2003, the
world produced
945.1 million tons
of steel.
Brazil
contributed
with 3.3% of
this tonnage.
03
Largest ProducersCrude Steel 2002
Source: IISI
In million tonsProduction
1 Arcelor 44.0
2 LNM Group 34.8
3 Nippon Steel 29.8
4 POSCO 28.1
5 Shanghai Baosteel 19.1
6 Corus 16.8
7 Thyssen Krupp 16.4
8 NKK 15.2
Company
(LUX)
(ENG)
(JAP)
(KOR)
(CHI)
(ENG)
(GER)
(JAP)
9 Riva 15.0
10 US Steel 14.4
11 Kawasaki 13.7
12 Nucor 12.4
13 Sumitomo 11.8
14 Gerdau 11.5
15 SAIL 11.4
Company Production
(ITA)
(USA)
(JAP)
(USA)
(JAP)
(BRA)
(ENG)
04
North America
250
270
290
310
330
350
370
390
410
Jan-01 Jul-01 J an-02 Jul-02 J an-03 Jul-03 J an-04200
220
240
260
280
300
320
340
360
380
J an-01 J ul-01 J an-02 J ul-02 J an-03 J ul-03 J an-04
REBAR PRICESMERCHANT BARS PRICES
PRICE INCREASE (LTM): +33% PRICE INCREASE (LTM): +34%
End-use demand is improving for all long steel products, although cost pressures remain the dominant influence on prices everywhere…
December shipments were up by 10% YoY. While one month of positive data is not enough to confirm that an upward trend in demand has set in, December´s growth marks a significant turnaround after one year of uninterrupted contraction.
Source: MEPS/Metal Bulletin
STEEL SCRAP PRICES
50
70
90
110
130
150
170
190
210
230
Jan-01 Jul-01 J an-02 Jul-02 J an-03 Jul-03 J an-04
PRICE INCREASE (LTM): +52% 05
Brazilian Steel Sector2003
Belgo (Arcelor) – 33.8%2,654 thousand tons
Gerdau Açominas – 49.6%3,894 thousand tons
Barra Mansa - 5%385 thousand tons
Aços Villares - 6%456 thousand tons
V&M do Brasil - 6%466 thousand tons
LONG STEEL PRODUCERS IN BRAZIL
Source: IBS
CRUDE STEEL PRODUCERS IN BRAZIL
In thousand tonsUsiminas/Cosipa
Gerdau Açominas
Belgo/CST/Acesita (Arcelor)
CSN
Aços Villares
V&M do Brasil
Barra Mansa
8,624
6,976
8,449
5,318
775
551
421
MWL Brasil 36
06
TOTAL 2003: 7,855 thousand tons
TOTAL 2003: 31,150 thousand tons
Exports of Long Steel Products9M2003 Brazil
Source: IBS
Exports Domestic SalesExports of long steel products
reached 2.2 million tons in 2003, an increase
of 78% YoY.
In million tons
Domestic SalesSep.2003/2001
- 11%
ExportsSep.2003/2001
+85%
2001 2002 2003
Monthly Average 517.2 thousand tons
100
200
300
400
500
600
700Monthly Average
528.2 thousand tonsMonthly Average
461.5 thousand tons
Monthly Average 84.4 thousand tons
Monthly Average 99.2 thousand tons
Monthly Average 156.3 thousand
tons
07
Brazilian Steel Sector Competitiveness
Source: IBS
EBITDA MARGIN - 2002
Brazil Asia*
* Does not include Japan
Japan EU North America
Others (World)
In %
5
10
15
20
25
30
35
40
Despite increases in the prices of main inputs, Brazil has the highest operating margin in the world.
The mills operate with up-to-date technology due to a permanent investment program.
35%
08
Investments in the Brazilian Steel Sector
Source: IBS
INVESTMENT SCHEDULE
2003 2004 2005 2006 2007 TOTAL
FLAT STEEL 613.4 694.0 854.4 351.5 117.9 2,631.3
LONG STEEL 290.3 276.2 281.2 185.9 180.1 1,213.8
SPECIALTY STEEL 72.8 58.5 50.4 38.1 32.3 252.1
TOTAL 976.5 1,028.8 1,186.0 575.4 330.4 4,097.1
In US$ million
30 31 29
33 33 34 34 35
40 40
3028 302826 25 25 26 26 25
28 27
31
2423222119181918161617
151313
0
10
20
30
40
50
20071994 95 96 97 98 99 00 01 02 03 04 05 06
In million tons
Apparent Consumption
Installed Capacity
Crude Steel Production
INSTALLED CAPACITY X PRODUCTION X APPARENT CONSUMPTION
09
Steel Sector
Gerdau S.A. Consolidated
Stock Market
Main Products
BILLETSMERCHANTS AND STRUCTURALS REBARS FABRICATED STEEL
STRUCTURAL SHAPES WIRE-ROD WIRES NAILS
11
Gerdau Açominas 7,374 4,811
South 510 634America
North 6,567 6,187America
TOTAL 14,451 11,632
Billets, merchant bars, rebars, wire rod,
drawn products, welded meshes, nails,
downstream products and fabricated steel
products.
Installed Capacity
Billets, slabs, blooms, merchant bars,
rebars, wire rod, drawn products, welded
wire meshes, structurals, nails,
downstream products, fabricated steel
products and specialty steel.
Billets, merchant bars, rebars and wire rod.
CRUDE STEEL
ROLLED
PRODUCTS
12
In thousand tons
Output Evolution
AVERAGE GROWTH RATE
1980 - 2003Crude Steel 10.2% per year
Rolled Products 9.2% per year
14th largest world steel producer according to the IISI. Largest long steel producer in the Americas.
Crude Steel Rolled Products
12.3 million
9.0 million
AzaChile1992
MRMCanada1995
Part. Açominas
1997AmeriSteel
USA1999
CearenseGuaíra1982
LaisaUruguay
1981
Hime1985
Barão de Cocais1988
CourticeCanada1989
Usiba1989
Piratini1992
Pains1994
Sipsa Argentina
1997
Açominas(control)
2002
Co-Steel2002
20031980 1984 199619921988 2000
Part. Sipar
Argentina1998
13
Geographical Distribution
(2) Rolling mill, 38% stake JV
(1) Flat steel mill, 50% stake JV
SOUTH AMERICA
2 mills and 1 strategic shareholding (Sipar)
3 fabrication shops
BRAZIL
10 mills
11 fabrication shops
6 downstream operations and special sections
73 sales points (Comercial Gerdau).
5 service centers for flat steel (Comercial Gerdau).
NORTH AMERICA
10 mills and 1 strategic shareholding (Gallatin Steel)
20 fabrication shops
12 downstream operations and special sections
Gerdau AmeriSteel Corp.
Sipar (2)
Laisa
GerdauAçominas S.A.
AZA
Gallatin Steel (1)
14
Competitive Edge
Focus on long steel products manufacturing and distribution
Market mill approach
Up-to-date technology
Competitive production costs
Diversified production processes
Multiple raw materials sourcing
Vertical and horizontal integration
Relevant market share in every country in which the Company has operations
Financial soundness and access to international capital markets
Confirmed experience in turning around distressed operations
15
4Q2003 3Q2003 2003 2002
GROSS SALES REVENUE 4,169 4,132 15,783 11,144
Net Sales Revenue 3,516 3,494 13,367 9,162
Cost of Sales (2,648) (2,688) (10,077) (6,539)
Gross Profit 869 806 3,290 2,623
SG&A (364) (291) (1,212) (1,002)
Net Financial Expenses (156) (240) (647) (1,084)
Other Operating Results 16 3 15 16
Equity pick-up (14) 26 (299) 409
Operating Profit 350 304 1,147 962
Non-operating result 6 (4) (7) (50)
Provision for income tax and social contrib. 117 (50) 141 (80)
Other (13) (5) (26) (14)
Net Income 460 245 1,255 818
ResultsIn R$ million
16
Main Variations
COST OF GOODS SOLD
NET SALES
In R$ thousand
2002 2003
9,162
13,367
In R$ thousand
2002 2003
6,539
10,077
The great performance of exports in the period as
well as the incorporation of the new North American
units in October 2002 and the recovery of full
productive capacity of Gerdau Açominas allowed for
the 45.9% increase in net sales revenues.
The increase of 54.1% YoY was due to the price
increases in the main inputs of Gerdau such as
scrap and pig iron in Brazil, and scrap, energy and
natural gas in North America.
17
2002 2003
1,0021,212
In R$ thousand
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Main Variations
2002 2003
(80)
141In R$ thousand
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION
As a consequence of the integration of the operating
assets of Gerdau S.A. into Gerdau Açominas, the
latter was able to create a positive income tax and
social contribution provision, in the year , of R$
140.9 million based on the recognition of R$ 333.7
million in tax credits resulting from fiscal losses.
Operating expenses (SG&A) increased by 21%
resulting mainly from the greater costs involved in
exporting (port services and freight) and the increase
in Gerdau Ameristeel's expenses.
18
NORTH SOUTHBRAZIL AMERICA AMERICA TOTAL
In R$ million
Net Sales 7,307 5,570 490 13,367
Gross Profit 2,881 245 165 3,290
EBITDA 2,297 235 152 2,684
Net Income 1,210 (48) 93 1,255
In R$ / ton
Net Sales 1,109 1,084 1,178 1,101
Gross Profit 437 48 396 271
EBITDA 349 46 364 221
Net Income 184 (9) 225 103
In %
Gross Margin 39.4% 4.4% 33.6% 24.6%
EBITDA Margin 31.4% 4.2% 30.9% 20.1%
Net Margin 16.6% -0.9% 19.1% 9.4%
Results by Region2003
19
Sales Track Record
In 1,000 tons
1Q03 2Q03 3Q03
854 798 850
1,271 1,284
1,295
107 101109
657 793 869
2,889 2,976 3,156 TOTAL SHIPMENTS
Brazil (domestic sales)
Brazil (exports)
North America
South America
4Q03
875
1,290
99
892
3,123
TOTAL SHIPMENTS IN 2003:12,144 thousand tons (+32.7%)
20
ExportsDESTINATION OF EXPORTS 2002 DESTINATION OF EXPORTS 2003
Asia 52%
Africa 3%
SouthAmerica
6%
NorthAmerica
14%
Europe 11%
CentralAmerica
11%
Asia 51%
Africa 11%
SouthAmerica
6%
NorthAmerica
9%
Europe 12%
CentralAmerica
11%
EXPORTS IN 2003: 3.2 MILLION TONS (+69.9%)
Export revenues US$ 787.3 (+125%) Strong demand in the international markets Very attractive prices Average price increase of 30.9%
21
ROLLED PRODUCTSIn 1,000 tons
1Q03 2Q03 3Q03 4Q03
1,012
1,197
90
940
1,216
90
921
1,122
92
2,2992,2462,135
1,018
1,241
107
2,366
Output
1Q03 2Q03 3Q03 4Q03
CRUDE STEEL
In 1,000 tons 3,1233,0852,968
1,790
1,250
83
1,679
1,321
85
1,688
1,195
85
3,166
1,818
1,254
94
Gerdau S.A. North America South America
22
TOTAL 2003: 9,045 thousand tons
(+30.5%)
TOTAL 2003: 12,343 thousand tons
(+30.7%)
TOTAL DEBT 6,263 100% 6,943 100%
SHORT TERM 2,417 39% 3,153 45%
Local currency (Brazil) 281 4% 736 10%
Foreign corrency 1,343 21% 1,576 23%
Companies abroad 794 13% 841 12%
LONG TERM 3,845 61% 3,791 55%
Local currency (Brazil) 717 11% 763 11%
Foreign corrency 1,031 16% 1,047 15%
Companies abroad 2,097 33% 1,980 29%
CASH & EQUIVALENTS 1,017 100% 1,498 100%
Local currency (Brazil) 430 42% 798 53%
Foreign corrency 587 58% 700 47%
NET DEBT 5,246 - 5,446 -
SEPT.03DEC.03
IndebtednessIn R$ million
HEDGE
Foreign currency 2,374
Swap operation 1,211
Cash & equiv. US$ 587
HEDGE / EXPOSURE 0,8X
SENIOR SECURED CREDIT FACILITYUS$ 350 SENIOR UNSECURED NOTES US$ 405(June)Total volume: US$ 755 mmBond portion swapped to floating: US$ 200 mmAverage cost: 7.7%Average term: 6.6 years
SECURED EXPORT NOTES PROGRAM (September)Total volume: US$ 400 mm 1st tranche: US$ 105 mmCost: 7.37% p.y.Term: 7 years Grace period: 2 years
EURO-COMMERCIAL PAPER PROGRAM(October)Total volume: US$ 300 mm1st tranche: US$ 100 mmCost: 4.125% p.y.Term: 1 year
23
DEBT COST
Brazil - R$ * 20%
Brazil - R$ + FX 6%
Companies abroad - US$ 6%
* Considers the average SELIC interest rate in 2003 (23% p.a.). For 2004 the estimated rate is 15% p.a.
Investments2003
Gerdau AçominasUS$ 230 mm
South AmericaUS$ 7 mm
North AmericaUS$ 59 mm
NEW WIRE-ROD MILL
Installed capacity:
550 thousand tons/year
Total investment:
US$ 66 mm
TOTAL IN 2003: US$ 295 MMFORECAST FOR 2004: US$ 300
MM 24
Operational Integration
Combination of strengths of both companies: greater competitiveness
Project developed in partnership between Gerdau and CEA (partner-
contributor)
Headquarters in Ouro Branco - MG
Gerdau Açominas S.A.Gerdau S.A. Aço Minas Gerais S.A.Açominas
NEW CORPORATE GOVERNANCE
Met. Gerdau S.A.
Gerdau Açominas S.A.
Brazil NorthAmerica
SouthAmerica
Gerdau Ameristeel
Gerdau AZA
Gerdau Laisa
Sipar
Gerdau S.A.
25
Demand picking up in Brazil;
Declining trend in interest rates in Brazil;
Brazil’s economic and political stability results in an improved country risk;
International prices trend: stable to upward;
North American operations pursuing better results;
US economy recovering;
South American operations in very good shape and improving.
Outlook
26
Steel Sector
Gerdau S.A. Consolidated
Stock Market
Shareholders Structure
Metalúrgica Gerdau S.A.
Other Gerdau Companies 25%
Brazilian Inst. Investors 24%
Foreign Inst. Investors
15%
Other Shareholders
36%
Gerdau S.A.
Met. Gerdau and otherGerdau companies
52%
Brazilian Inst.
Investors 10%
Foreign Inst. Investors
22%
Other Shareholders
16%
Gerdau Açominas S.A.
GerdauGroup
92%
CEA Clube / Fund. Aços 4%
Other Shareholders 4%
28
Adjusted Net Income Dividends paid
Payout of 30% of the Adjusted Net Income.
Since March 2003, dividend payments are being made on a quarterly basis.
Dividend Policy
1998
32.0% 33.1% 32.6% 52.5% 33.9% PAYOUT
YIELD16.4% 6.0% 7.9% 17.0% 12.4 %
32.8% 32.0% 32.8% 35.6% 34.9%
11.7% 3.6% 6.1% 6.8 % 7.1%
METALÚRGICA GERDAU S.A.In US$ million
GERDAU S.A.In US$ million
2000
8929
8828
1999
9130
2001*
10153
2002
11740
2001
19971
2000
19564
1999
17155
1998
15049
2002
21675
* Higher amount due to a one-time supplementary dividend payment.
TOTAL AMOUNT PAID IN 2003 WAS R$ 172.1 MILLION.
TOTAL AMOUNT PAID IN 2003 WAS R$ 351.3 MILLION.
29
Stock Price Performance
Source: Economática/Bloomberg
USA (New York Stock Exchange)
Canada (Toronto Stock Exchange)
30
2003 > GGBR4: + 152% GOAU4 : + 161%2004 > GGBR4: + 8% GOAU4 : + 16%
2003 > GGB: + 195%2004 > GGB: + 11%
2003 > GNA: +149%2004 > GNA: - 3%
-
50
100
150
200
250
300
350
J anuary-03 J anuary-04
Base
10
0
GGBR4 GOAU4 IBOVESPA
-
50
100
150
200
250
300
350
J anuary-03 J anuary-04
Base
10
0
GGB DOW J ONES
-
50
100
150
200
250
January-03 January-04
Base
100
GNA S&P TXT índex
Brazil (São Paulo Stock Exchange)
Appreciation ChartReturns in US$
BRAZIL (Bovespa)
GGB + 198.3%
Dow Jones + 25.2%
GGB + 212.3%
Dow Jones - 3.1%
USA (NYSE)
GGBR4+891.9%
1 YEAR 3 YEARS 5 YEARS
GGBR4+207.8%
Ibov+141.3% Ibov
+37.1%Ibov-1.4%
GGBR4+280.1%GOAU4
+219.6%
GOAU4+831.5%
GOAU4+294.4%
Source: Economática December 31st, 200331
www.gerdau.com.br [email protected]