csfb december 2004 - · pdf filelatam material ceo trip credit suisse first boston gerdau...

LATAM MATERIAL CEO TRIPCredit Suisse First Boston

Gerdau Group

December, 2004

Steel Sector

Gerdau S.A. Consolidated

Capital Markets

Environment

Source: Metal Bulletin / Gerdau

In milion metric tons

COMPANYOUTPUT

2003RANKING

2002

8 US Steel (USA) 17.9 10

9 Thyssen Krupp Steel (GER) 17.0 6

10 Riva Group (ITA) 15.7 9

11 Nucor (USA) 15.8 12

12 Sumitomo Metal (JAP) 13.3 13

13 Sail (IND) 12.4 14

14 Gerdau (BRA) 12.3 19

15 Evraz Holding (RUS) 12.1 na

World Largest Steel Producers

COMPANYOUTPUT

2003RANKING

2002

1 Arcelor (LUX) 42.8 1

2 Nippon Steel (JAP) 31.8 2

3 LNM Group (NED) 31.1 4

4 JFE Group (JAP) 29.8 na

5 Posco (KOR) 29.7 3

6 Shanghai Baosteel (CHI) 19.9 5

7 Corus Group (UK) 18.9 7

With the North Star plants and the new São

Paulo mill, Gerdau should inch up to the12th position in 2005.

(17.3 million metric tons of installed capacity)

Crude Steel - 2003

Mittal Group(Ispat, LNM e ISG) will

be the largest steelproducer in the world.(60 million metric tons of

installed capacity)

03

Prices in the International Market

* Data through september, 2004Source: Metal Bulletin

FACTORS THAT INFLUENCE PRICESIN THE INTERNATIONAL MARKETS

Rebars Bars and ShapesWire rod

2004*

Prices FOB Antwerp

1994 1996 1998 2000 2002

100

200

300

400

500

600

US$/ton

SpeculationAdvance purchases

Reduction of purchasesRaw materialsshortages

Greater demandfor main inputs

Increasinginput costs

Increased demandfor steel products

Recoveringeconomies

Growingimports

500500

530

280275

305

04

Cost of Inputs

05

Coal prices should double in 2005 and may decrease in 2006.

International prices for pig iron have stabilized at higher levels while steel producerscompete for raw material on a market environment of scarcity. Pig iron producers are sold out until February, 2005.

Despite the increases in wire rod production capacity and the slowdow in growth in China, the perception of reduced supply of these inputs is accelerating a movement towards long termsupply contracts.

Source: Steel Business Briefing/ World Steel Dynamics / Metal Bulletin

Scrap (Rotterdam)

Pig iron (CIS/Bálticos)

Coke (China)

Iron ore (sinter feed)245225

330

36

Billets and wirerod producersare unanimous

about long steelprices going up,

based on theestimate that

input andfreight costs

will continue to raise in theforeseeable

future...

INCREASING COSTS OF INPUTS SHOW THAT PRICES SHOULD NOT DROP

Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04

450

350

250

150

50

91

75

120

29

US$/ton

Oct 04

2003 2004 04/03 05/04PRELIMINARY (%) (%)

OUTPUT (million metric tons)

CRUDE STEEL 31.1 33.0 6.1 2.5

ROLLED STEEL 21.1 23.5 11.5 4.3

SEMI-FINISHED FOR SALE 8.0 7.0 (12.6) ( 1.0)

DOMESTIC SALES 15.4 17.6 14.3 5.8

FLAT STEEL 9.5 10.5 11.2 5.1

LONG STEEL 5.9 7.1 19.4 6.9

FOREIGN TRADE

EXPORTS (million metric tons) 13.0 12.0 ( 7.5) 3.0

FLAT STEEL 9.2 8.1 (11.8) 1.3

LONG STEEL 3.8 3.9 2.9 6.4

(US$ Billion) 3.9 4.7 20.5 6.4

APPARENT CONSUMPTION(million metric tons*) 16.0 18.2 13.9 6.3

FLAT STEEL 9.8 10.8 10.1 5.8

LONG STEEL 6.1 7.4 19.9 7.0

IBS Projections Brazil

06(*) Excludes intercompany salesSource: IBS

Steel Sector


Capital Markets

Environment

NORTH AMERICA

SOUTH AMERICA (Brazil included)

Steel plants 14

Joint Venture (Gallatin Steel – 50%) 01

Fabrication shops 30*

Downstream operations 13

Scrap collection and processing units 15

Steel plants 12

Joint Venture (SIPAR – 38%) 01

Fabrication shops 14

Downstream operations 06

Pig iron production units 02

Scrap collection and processing units 08

Iron ore extraction areas 03

Private sea terminal 02

Comercial Gerdau stores & Flat steel service centers 75

Prontofer units 09

Thermal Cutting Service Center 06

Geographical Distribution

* Includes the 7 Gate City and RJ Rebar

08

Downstream Operations (36)

Minimill facilities (15)

Scrap operations (15)

North American Operations

15 Scrap Operations• 30% of internal scrap

supply located in close proximity to mills

• Retain scrap profit

15 Strategically Located Mills

• Broad geographic coverage

• 8.4 million tons of capacity

36 Downstream Facilities (*)

• Less capital intensive• Higher margin and return• Base load demand for mills• Minimal import

competition

(*) Excludes Gate City and RJ Rebar09

Cambridge Mill

North StarSteel (Beaumont, St. Paul, Wilton, Calvert

City, downstream operations)

Manitoba Mill

Cold Drawn Facility

(Cartersville)

1989 20041995 1999 2002

Ameristeel (Jackson,

Jacksonville, Charlotte, Knoxville,

downstream operations)

Co-Steel (Whitby,

Sayreville, Perth Amboy, Gallatin JV, recycling facilities)

Midwest Fabricati

ng Region

0,3 0,62,8 3,4

6,48,4

0246810

1989 1995 1999 2001 2002 2004

Total Finished Steel Capacity

(mm short tons)

2001

Northeast Fabricating

Region

ColdDrawnFacility

(Orrville)

Gerdau AmeristeelGerdau Ameristeel

Cartersville Mill

Gate City/RJ(pending)

Growth in North America

10

Investment Program 2005-2007

Brazil: Expansion: US$ 1,165 million

Tech. Update: US$ 670 million

INVESTMENTS PLANNED: US$ 2.2 BILLION

Abroad: Tech. Update: US$ 400 million

INSTALLED CAPACITY EVOLUTION

INVESTMENT SCHEDULE

Brazil – Crude Steel

Current: 7,580 thousand metric tons

New: 10,920 thousand metric tons

Brazil – Rolled Steel



Consolidated – Crude Steel



Consolidated – Rolled Steel



2005: US$ 770 million

2006: US$ 795 million

2007: US$ 670 million 11

NORTH SOUTH TOTAL TOTAL TOTALBRAZIL AMERICA AMERICA 3Q04 9M04 9M03

In US$ millionNet Sales 976 786 68 1,830 5,143 3,370 Gross Profit 450 183 23 657 1,666 828 EBITDA 383 178 21 582 1,492 692 Net Profit 266 133 16 415 870 272

In US$/TonNet Sales 581 581 495 577 544 374 Gross Profit 268 135 171 207 176 92 EBITDA 228 131 157 184 158 77 Net Profit 158 98 114 131 92 30

In %Gross Margin 46% 23% 34% 36% 32% 25%EBITDA Margin 39% 23% 32% 32% 29% 21%Net Margin 27% 17% 23% 23% 17% 8%

Shipments 1,681 1,353 137 3,171 9,453 9,022

Results by Region

12All tonnage in metric tons on less otherwise stated.

Evolution of ResultsEBITDA NET SALES

EBITDA MARGINGROSS MARGIN

Brazil North America South America

1,8301,705

1,4351,2171,195

1,055992

In US$ million

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

582552

304

229230225210

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

In US$ million

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

10%

20%

30%

45%

50%

35.8%

32.1%

3.6%

39.3%

31.7%

22.6%

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

10%

20%

30%

45%

50%43.6%

34.1%

2.9%

46.1%

34.4%

23.3%

13

Sales Track RecordIn thousand metric tons

3Q03 4Q03

TOTAL SHIPMENTS

Brazil (domestic market)

Brazil(exports)

North America

South America

1Q04

TOTAL SHIPMENTS 9M04: 9.5 million metric tons9M04 annualized: 12.6 million metric tons (+3.8% over 2003)

2Q04

850

1,295

109

869

875

1,290

99

892

121

1,389

723

915

3,156 3,123 3,148 3,134

119

1,334

632

1,049

3Q04

3,171

137

1,353

572

1,109

14

Steady Growth in NA Shipments

0

200

400

600

800

1000

1200

1400

1600

1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

FabricatedSpecialsRodFlat RolledMerchantRebar

Shipments by quarter Shipments by quarter –– k tonsk tons

Proforma Actual

5,153 5,570 4,475 (Sep YTD)7.5%

2002 shipments pro forma for Co-Steel mergerShipments in short tons

8%

15

Exports from Brazil

EXPORTS 9M04:

1.9 MILLION METRIC TONS (-17.7% OVER 9M03)

Export revenues US$ 752 million (+31.8% over 9M03)

Strong demand in the international markets

Attractive prices (57% higher than 9M03)

No credit risk

DESTINATION OF EXPORTS - 9M03(2,342 thousand metric tons)

Asia46%

Africa11%

SouthAmerica

9%

NorthAmerica

10%

Europe12%

CentralAnerica

12%

Asia37%

CentralAmerica

15%

Europe10%

NorthAmerica

14%

SouthAmerica

18%

Africa6%

DESTINATION OF EXPORTS - 9M04(1,927 thousand metric tons)

16

Sales by Product LineGERDAU AÇOMINAS – 3Q04(1,681 thousand metric tons)

GERDAU AMERISTEEL – 3Q04(1,353 thousand metric tons)

PRICE INCREASES – 9M04

(Net sales per ton shipped)

VAR.9M039M04

US$ 374

US$ 374

US$ 364

US$ 381

US$ 267

US$ 486

+58%US$ 587North America

+32%US$ 512BRAZIL AVERAGE

+42%US$ 544TOTAL

+31%US$ 502South America

+57%US$ 427Export

+14%US$ 565Domestic

17

4%Flat Steel(resale)

30%Slabs, Blooms

& Billets

46%CommonLongRolled

6%Specialty

Steel

14%Drawn

& Others

13%Flat Steel(Gallatin)

68%CommonLongRolled

6%SpecialtySections

13%Drawn

& Others

Total Sales by SegmentGERDAU AÇOMINAS – 3Q04(1,681 thousand metric tons)

GERDAU AMERISTEEL – 3Q04(1,353 thousand metric tons)

INDUSTRY

WiresBars and shapesEqual anglesGalvanized cordageGrinding ballsWelding electrode Gg-erWire rodElevator guide railsScrewsSlab, Blooms and BilletsStar barsLight structural shapesTribars

CIVIL CONSTRUCTION

FencesBlack annealed wireTransfer barsPOP ColumnsJoistsHeavy structural shapesWire mesh for concrete tubesTelcon welded meshRebars

MAIN PRODUCTS BY SEGMENTS

AGRICULTURE

Barbed wireGalvanized wireOval shaped wireEletric fencing wireWires for aerial culturesCercafixWire rope / strandsGripleFence staplesHigh resistance steel postsPosts for eletric fences

18

34%Civil

Construction

66%Industry41%

CivilConstruction

57%Industry

2%Agriculture

Production Costs

MetallicInputs37%

Maintenance8%

Energy sourcesand Reductionagents23%

Depreciation8%

Others11%

Labor13%

GERDAU AÇOMINAS – 3Q04

MetallicInputs

59%

Maintenance 6%Energy sourcesand Reductionagents 9%

Others*17%

Labor6%

Depreciation 3%

* Includes support team labor costs

GERDAU AMERISTEEL – 3Q04(does not include Gallatin Steel)

COST OF SALES PER TON(US$ per ton shipped)

Gerdau Açominas data converted into US dollars at FX rate of R$2,8586.19

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

459

100

200

300

400

500

600

316 335 338

461421

523564

410

381433

326

317

311

Net Sales per ton Cost per ton

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

394 387 381 383424

539 577

100

200

300

400

500

600

Net Sales per ton Cost per ton

316

304

265

244

240

246

227

* Scrap* Pig Iron* Alloys

* Scrap* Pig Iron* Iron Ore* Alloys

North Star Acquisition Overview

*Fiscal year ended May 2004.

Sales of approximately $700 million*

EBITDA of approximately $82 million*

2.0 million short tons of mill capacity

300,000 tons of downstream capacity

$97 million for assets

$181 million for net working capital

Acquired at $49/ton or $139/ton including working capital

TOTAL PURCHASE PRICE: US$ 266 MILLION CASH PLUS US$ 12 MILLION IN OBLIGATIONS

FOUR LONG STEEL MILLS, FOUR DOWNTREAM FINISHING OPERATIONS, AND TWO RECYCLING OPERATIONS ACQUIRED FROM CARGILL

20

North Star - Acquisition Rationale

• Complementary geographic fit

• Expands customer base / product mix

• Favorable contributions from scrap and downstream operations

• Synergies anticipated from:– SG&A reductions– Manufacturing cost

savings– Midwest market

logistics– Increased purchasing

power– Calvert City billet supply

• Attractive purchase price

Jacksonville

Cartersville

Whitby

Jackson

Charlotte

Cambridge Sayreville

Perth Amboy

Manitoba

Gallatin

Knoxville

Beaumont

Wilton

Calvert City

St. Paul

Carrollton Memphis

Gerdau MillsNorth Star MillsNorth Star Scrap OperationsNorth Star Downstream Operations

Broad geographic coverage with 15 mills and 8.4 million short tons of finished

capacity

Duluth

21

JUN.042.86 3.11

TOTAL DEBT 2,027 100% 2,075

SHORT TERM 645 32% 715

Brazilian Currency 70 3% 61

Foreign Currency 258 13% 363

Companies Abroad 317 16% 291

LONG TERM 1,382 68% 1,359

Brazilian Currency 262 13% 226

Foreign Currency 602 30% 607


CASH AND CASH &

EQUIVALENTS681 100% 479

Local Currency 269 39% 196


NET DEBT 1,346 1,595

SEP.04In US$ million

Consolidated Indebtedness

COST OF DEBT (per year)

Brazilian local currency 14.9%Brazilian foreign currency FX+5.2%Companies abroad 7.0%

FX VARIATION EXPOSURE

Foreign currency debt 2,461

Swap operations 257Exports (annualized) 1,003Cash in US$ 1,179TOTAL 2,439

COVERAGE RATIO 1.0x

DEBT AVERAGE LIFE 4.2 YEARS

22

In US$ million

SHORT TERM – US$ 645 mm

NET DEBT

Indebtedness Evolution

Companies abroad 49%

Imports 16%

Resolution 2770 11%

Pre Export 10%

BNDES 9%

Others 5%

GROSS DEBT COMPOSITION

LONG TERM – US$ 1,382 mm

Companies abroad 32%

Pre Export 16%

Securitization 17%

Imports 10%

BNDES 10%

Debentures Brazil 7%

Debentures GNA 6%

Others 2%

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

1,7641,965 1,863 1,816 1,797

1,5951,346

500

1,000

1,500

2,000

23

* Last twelve months.

In US$ million

Net Financial Expenses

24

2.1x

2.6x

5.6x

52.4%

Sep. 2003

14.3x8.4xEBITDA / Net Financial Expenses (-VM/VC)*

35.9%45.7%Net Debt / Total Net Capitalization

1.3x

1.6x

Jun. 2004

0.8xNet Debt / EBITDA*

1.2xGross Debt / EBITDA*

Sep. 2004FINANCIAL INDICATORS

1T03 2T03 3T03 4T03 1T04 2T04 3T04

-100

-40

-20

0

20

60

-32 -49 -82 -54 -53 -74 +44

Interest & Others

FX and MonetaryVariations

NETFINANCIALEXPENSES

-35 -47 -55 -41 -35 -29-12

+3

-2

-27

-13 -18 -45

+5640

-60

-80

Debt Amortization Flow Sep. 2004

25

4Q04 1Q05 2Q05 3Q05 4Q05 2006 2007 2008 2009and thereafter

301

121163

59 48

164

240188

742

In US$ million

Secured Export Notes Senior Secured Credit Facility

Senior Unsecured Notes

BNDES = 19Pre Export = 16Imports = 46ECP = 167Others = 53

BNDES = 20Pre Export = 17Imports = 18ECP = 23Others = 43

BNDES = 69Pre Export = 22Others = 72

LONG TERM = US$ 1,382

BNDES = 32Securitization = 38

Imports = 57Debentures GNA = 79

Others = 34

Securitization = 41Pre Export = 118

Others = 29

SHORT TERM = US$ 644

BNDES = 53Pre Export = 38

Imports = 32Securitization = 27

Others = 14

Exchange rate of US dollar 1,00 – R$ 2,8586

Outlook

NORTH AMERICA

BRAZIL

SOUTH AMERICA

IN GENERAL TERMS, THE TREND FOR RESULTS IN THE CURRENT QUARTER IS POSITIVE. THIS STATEMENT IS SUPPORTED BY THE FACT THAT, DESPITE THE PREDICTIONS OF INCREASES IN THE PRICES OF SOME INPUTS, THE SPREAD BETWEEN SALES PRICE AND THE COST OF RAW MATERIALS SHOULD REMAIN

WIDE COMPARED TO HISTORICAL FIGURES.

In spite of the twin deficit instability, unbalanced and modest job recovery, theeconomy shows evidence of strength and continued growth (GDP of 3,5%).

Economic growth above 4% gives us the confidence that steel products demandcontinue to increase, despite the uncertainties regarding oil prices and interest rates.

The forecast is of growth and includes Argentina, which experienced powershortages in the third quarter and currently shows strong signs of recovery.

26

Steel Sector


Capital Markets

Environment

Positions held on 10.31.2004

METALÚRGICA GERDAU S.A.

Gerdau Companies23%

Brazilian Instit. Investors24%

Foreign Instit. Investors 11%

Other Shareholders

42%

GERDAU S.A.

Met. Gerdau and other Gerdau Companies50%

Brazilian Instit. Investors 10%

Foreign Instit. Investors 9%

Other Shareholders

21%

GERDAU AÇOMINAS S.A.

Gerdau Companies

92%

CEA Clube /Aços Foundation 4%

OtherShareholders 4%

ADR’s10%

Controlling Shareholders

28

GERDAU AMERISTEEL CORP.

Other Shareholders31%

Management3%

Gerdau Companies

66%

Gerdau S.A.

Ibovespa

Market Cap: US$ 4.6 bi

Jan03

Apr03

Jul03

Oct03

Jan04

Apr04

Jul04

Oct04

100

200

300

400

500+282%

+100%

GGBR4 – GERDAU S.A.

GNA – GERDAU AMERISTEEL CORP.GGB –GERDAU S.A. ADRs

GOAU4 – METALÚRGICA GERDAU S.A.

Stock Perfomance

Source: Economática/Bloomberg - Date: 01.01.2003 through 11.09.2004 (Base 100).

Jan03

Apr03

Jul03

Oct03

Jan04

Apr04

Jul04

Oct04

100

200

300

400

500

600Metalúrgica Gerdau S.A.

Ibovespa


+381%

+100%

Jan03

Apr03

Jul03

Oct03

Jan04

Apr04

Jul04

Oct04

100

200

300

400

ADRs - Gerdau S.A.

Dow Jones


+232%

+21%

Jan03

Apr03

Jul03

Oct03

Jan04

Apr04

Jul04

Oct04

100

200

300 Gerdau Ameristeel Corp.

S&P TSX


+152%

+31%

29

Stock Liquidity Bovespa

Monthly daily average # of tradesMonthly daily volume

METALÚRGICA GERDAU S.A. (GOAU4)

Monthly daily average # of trades Monthly daily volume

GERDAU S.A. (GGBR4)

30

GGBR41.076 trades

US$ 11.6 mm

GOAU4240

tradesUS$ 2.4 mm

GGBR4492

tradesUS$ 5.4 mm

GOAU4109

tradesUS$ 1.6 mm 1

200

300

400

500

600

700

800

1.100

1.200

1.300

2

3

4

5

6

7

8

9

10

11

12

13

14

# of tradesVolume (US$ million)

Dec2003

Jan2004

Feb2004

Mar2004

Apr2004

May2004

Jun2004

Jul2004

Aug2004

Sep2004

Oct2004

Nov2004

30% Stock bonus + 70% Split (GOAU)100% Stock bonus (GGBR)

1.000

900

100

15

ADR Liquidity NYSE

DAILY AVERAGE VOLUME TRADED AT THE NYSE

In US$ million

Dec03

Jan04

Feb04

Mar04

Apr04

May04

Jun04

Jul04

Aug04

Sep04

3.44.0

3.5 3.3

4.0 4.0 3.84.1

5.6

6.2

DailyAverage

Value Tradedin 2003

US$ 1.2 million

7.2

Oct04

31Source: The Bank of New York

Steel Sector


Capital Markets

Environment

Sustainable Development

All Gerdau mills operate in compliance with the standards of theEnvironmental Management System (Sistema de Gestão Ambiental – SGA), that determines rules of environmentalpreservation backed by ISO 14000 patterns.

Gerdau invested more than US$ 125 million in environmental technologies over the last 10 years.

A pioneer in Brazilian steel, Gerdau developed an environmental monitoring anddiagnosis program that will serve as a technical reference for the sector.

33

Industrial water recirculation rate at Gerdau is among the best in the global steel industry.

Air treatment capacity has increased by 57% since 1998.

Environmental Control & Scrap CollectionThe Orientation for the Scrap Supply program is an innovating project for the

certification in scrap management and in association with the National Center for Clean Technologies (Centro Nacional de Tecnologias Limpas/CNTL - Senai/RS).

The initiativeinvolves the

technical trainningof approximately 1.5

thousandprofessionals,

among employeesand suppliers. This

certificationimproves the strict

control of environmental

qualityaccomplished by themill when receiving

and selecting its rawmaterial.

34

[email protected]

csfb december 2004 - · pdf filelatam material ceo trip credit suisse first boston gerdau...

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