3Q16 Earnings Conference Call

Transcription

1 3Q16 Earnings Conference Call André B. Gerdau Johannpeter President & Chief Executive Officer Harley Lorentz Scardoelli Chief Financial Officer Gerdau is the pioneer in the world steel industry in industrial equipment monitoring systems, thanks to its partnership with GE Digital

2 Slight increase in demand for steel is expected in 2016, after the decline last year World steel demand should increase 0.2% in 2016 compared to 2015, reaching 1.5 billion tonnes, after dropping 3% in 2015 (Worldsteel Association). Surplus global installed capacity and unfair trade practices remain industry concerns. Add to this the economic recession in Brazil, which is reflected in lower demand. In Brazil, steel consumption in 2016 should drop 14%, the worst level in the last decade. In 2017, domestic consumption should increase 3.8% (Brazilian Steel Institute). In North America, the increase in imports, the caution surrounding the elections in the U.S. and weak industry demand have affected margins in the sector. In 2017, steel consumption should grow 3% in the U.S. In South America, the highlights are the bright prospects in 2017 for the economies of Peru (+4.1%), Colombia (+2.7%) and Argentina (+2.7%). In the Special Steels segment, the automotive sector in Brazil should improve in In the Unites States, the light vehicles market should continue its healthy performance. In India, the automotive sector is expected to remain buoyant. Global steel demand in 2017 should grow 0.5%. Excluding China, demand in emerging economies and developing countries should grow 4% 2

3 Net sales of R$ 8.7 billion in 3Q16 Reduction of 23% in selling, general and administrative expenses compared to 3Q15 reflects the Company's cost management efforts. In the first nine months, SG&A expenses decreased by R$ 222 million. Adjusted EBITDA of R$ 1.2 billion is 7% lower than in 3Q15 but remains stable in relation to 2Q16. Net income of R$ 95 million in the quarter and R$ 293 million in the year. Unit 3Q16 3Q15 % 9M16 9M15 % SHIPMENTS '000 ton 3,668 4,669-21% 11,759 13,083-10% NET SALES R$ million 8,699 11,925-27% 29,032 33,123-12% COST OF GOODS SOLD R$ million (7,652) (10,714) -29% (26,090) (29,628) -12% SG&A EXPENSES R$ million (483) (631) -23% (1,705) (1,927) -11% EBITDA Adjusted R$ million 1,200 1,291-7% 3,332 3,591-7% EBITDA MARGIN Adjusted % 13.8% 10.8% 11.5% 10.8% NET INCOME Adjusted R$ million % % FREE CASH FLOW R$ million 230 1,646-86% 1,048 1,797-42% Free cash flow of R$ 1.0 billion in the first nine months of

4 Investments of R$ 286 million in 3Q16 20% 23% 7% 50% Brazil South America North America Special Steel Main projects Heavy plate rolling mill at Ouro Branco Unit in Minas Gerais Melt shop in Argentina CAPEX disbursement planned for 2017 is R$1.4 billion, focused on productivity improvement and maintenance 4

5 Financial Results Gerdau S.A. Consolidated IFRS

6 Geographic diversification reduces volatility in results Shipments ('000 ton) 1,938 Brazil BD 1,629 1,482 North America BD 1,664 1,644 1,372 South America BD Special Steel BD Brazil BD EBITDA and EBITDA margin per BD North America BD South America BD Special Steel BD 32.2% 32.5% 16.6% 18.7% % 13.2% % % % % % 14.0% 9.1% % % % EBITDA (R$ million) EBITDA Margin (%) Participation of Adjusted EBITDA per BD (last 12 months) 6

7 EBITDA stable despite challenging scenario EBITDA (R$ million) 2, ,291 1,200 * Includes Net Sales of Iron Ore EBITDA 3Q15 Adjusted (2,374) Shipments (852) Net Sales/tonne* Cost of Sales SG&A Others EBITDA 3Q16 Adjusted Net Income (R$ million) (91) (124) 95 Net Income Adjusted 3Q15 EBITDA Variation Depreciation Net Financial Result* Income Taxes and others* Adjusted Net Income 3Q16 * Net of the effect from Net Investment Hedge. SG&A reduced 23% compared to 3Q15 7

8 Maintenance of Net Debt Debt & Leverage Ratio Long-Term Debt Amortization Schedule R$ billion R$ billion x x 4.1x x x 4.0x 3.6x 3.6x 3.6x 2.7x Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Gross Debt Cash Net debt/ebitda (R$) Net debt/ebitda (US$) 2.7 * and after Average Debt Cost: 7.4% Average Debt Term: 5.5 years (1) EBITDA in the last 12 months. *R$ 2.6 billion refers to a bond with maturity in October Stability of the Net Debt/EBITDA ratio 8

9 Net sales reduction affected the financial cycle Working Capital (R$ million) Trade accounts receivable (+) 4,587 4,043 4,091 Inventories (+) 8,781 6,764 6,911 Trade accounts payable (-) 3,630 2,757 2,558 Working Capital 9,738 8,050 8, sep.15 dec.15 mar.16 jun.16 sep.16 Working Capital (R$ billions) Cash Conversion Cicle (days) Working capital reduced by R$ 1.3 billion in

10 Positive free cash flow despite the challenging scenario 3Q2016 1,200 (286) (40) (255) (389) 230 Adjusted EBITDA 3Q16 CAPEX Income Tax Debt Interest Working Capital Free Cash Flow 3Q16 9M2016 3,332 (1,097) (132) (856) (199) 1,048 Adjusted EBITDA 9M 2016 CAPEX Income Tax Debt Interest Working Capital Free Cash Flow 9M 2016 EBITDA was more than sufficient to honor the Company s commitments 10

11 Closing Remarks Management's efforts helped to mitigate the impact of the adverse scenario in the steel industry in Brazil and around the world. Third Quarter Highlights: - Reduction in selling, general and administrative expenses (-23%) - Improvement in EBITDA margins in almost all operations - Continued containment of Capex (R$ 286 million in 3Q) - Substantial free cash flow generation (R$ 1 billion in 9 months) - Stability of net debt Brazil: despite the improvement in margins, the market scenario is expected to remain challenging in the coming months, marked by a gradual and slow recovery in economic activity and lower volume of exports. The challenging scenario also applies to other operations in the Americas. Ongoing review of the potential profitability of assets. Modernization of corporate culture. Digital innovation in operations, with the use of new technologies to rapidly improve efficiency and productivity and to cut costs. 11

12 4Q16 Earnings Release: February 22, FEBRUARY 12