2016 Earnings Conference Call

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Bartholomew Ross
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1 2016 Earnings Conference Call André B. Gerdau Johannpeter President & Chief Executive Officer Harley Lorentz Scardoelli Chief Financial Officer Flat steel operations: coils produced at the mill in Ouro Branco, Minas Gerais

2 World steel production grew in 2016 World steel production came to 1.6 billion tons in 2016, up 0.8% from (Source: World Steel Association) World installed capacity utilization stood at 69.3% in 2016, vs. 69.7% in World installed overcapacity, of around 800 million tonnes, remains a point of concern for the industry. For 2017, world steel consumption is expected to grow 0.5%, mainly in emerging and developing economies, where consumption growth, excluding China, should reach 4% (Source: World Steel Association). The gradual recovery in Brazil's economy during 2017 should support steel consumption growth in the country of 3.5%. (Source: Brazilian Steel Institute). In North America, the forecast for 2017 calls for growing demand from non-residential construction and a recovery in the industrial sector. In South America, the highlights are the GDP growth forecasts for Peru (+4.1%), Colombia (+2.5%) and Argentina (+2.9%). (Source: IMF) In the Special Steel segment, the expectation is for improvement in Brazil's and India s auto industry and stability in the United States. The market should remain challenging in 2017, but with prospects for a recovery in demand in the regions served by Gerdau. 2

3 Key performance numbers for 2016 Consolidated adjusted EBITDA amounted to R$ 4.0 billion, despite the challenging global scenario for the steel industry and the economic recession in Brazil. Consolidated net sales came to R$37.7 billion and consolidated adjusted net income was R$ 91 million. Management's efforts in the period are demonstrated by the reductions in capital expenditure, selling, general and administrative expenses and net debt. Unidade % 4Q16 4Q15 % SHIPMENTS '000 ton 15,558 16, % 3,799 3, % NET SALES R$ million 37,652 43, % 8,620 10, % COST OF GOODS SOLD R$ million (34,188) (39,290) -13.0% (8,098) (9,662) -16.2% SG&A EXPENSES R$ million (2,239) (2,582) -13.3% (535) (655) -18.3% EBITDA Adjusted R$ million 4,049 4, % % EBITDA MARGIN Adjusted % 10.8% 10.3% - 8.3% 8.7% - NET INCOME Adjusted R$ million % (205) (41) 400% FREE CASH FLOW R$ million 2,287 3, % 1,238 1, % Free cash flow amounted to R$2.3 billion in the year, with the highlight the generation of R$1.2 billion in 4Q16 3

4 Divestments: R$1.3 billion in 2016 Country Asset Description Economic value Spain Gerdau Sidenor Special steel units R$ 562 million Guatemala and Honduras Corporación Centroamericana del Acero (divestment of 30% interest in the JV) Long steel mills R$ 238 million Colombia Cleary Holdings Corp Coke units and owner of coking coal reserves R$ 196 million Colombia Yumbo Long steel mill R$ 119 million United States Perth Amboy, Sand Springs, Tonowanda, Indian Town and Little Rock Downstream units and land R$ 184 million R$2.4 billion of divestments in past three years 13 assets sold since 2014 Mills and downstream units in Europe, United States and Latin America In 2017, Gerdau will continue to focus efforts on its most profitable assets 4

5 Investments of R$ 1.3 billion in 2016 CAPEX Disbursement (R$ billion) 2016 CAPEX by Business Division % 11% Brazil % 46% South America North America 26% Special Steel (F) CAPEX disbursement planned for 2017 is R$ 1,3 billion, focused on productivity improvement and maintenance. 5

6 Financial Results Gerdau S.A. Consolidated IFRS

7 Costs pressure and imports affects results Shipments ('000 ton) Brazil BD North America BD South America BD Special Steel BD 1,394 1,482 1,536 1,433 1,372 1, Brazil BD 35.5% EBITDA and EBITDA margin per BD North America BD 26.0% South America BD 17.1% Special Steel BD 21.4% 19.7% % % % % % % 15.1% 10.9% % % 16.8% EBITDA (R$ million) EBITDA Margin (%) Participation of Adjusted EBITDA per BD (last 12 months) 7

8 Lower shipments and prices affects EBITDA Adjusted EBITDA (R$ million) (199) 1, (15) EBITDA 4Q15 Adjusted Shipments (1,630) Net Sales/tonne* Cost of Sales SG&A Others EBITDA 4Q16 Adjusted * Includes Net Sales from iron ore Adjusted Net Income (R$ million) (41) (205) (195) (16) Adjusted Net Loss 4Q15 EBITDA Variation Depreciation Net Financial Result* Income Taxes and others* Adjusted Net Loss 4Q16 * Net of the effect from Net Investment Hedge. SG&A reduced 18% compared to 4Q15 8

9 Net debt reduction Debt & Leverage Ratio Debt Maturity Schedule R$ billion R$ billion x x x 3.6x 3.5x Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Gross Debt Cash Net debt/ebitda (R$) and after Average Debt Cost: 7.2% Debt Average Term: 5.7 years (1) EBITDA in the last 12 months. Reduction of the Net Debt/EBITDA ratio 9

10 Cash conversion cycle reduced to 75 days Working Capital (R$ million) Trade accounts receivable (+) 4,587 4,091 3,577 Inventories (+) 8,781 6,911 6,333 Trade accounts payable (-) 3,630 2,558 2,744 Working Capital 9,738 8,444 7, dec.15 mar.16 jun.16 sep.16 dec.16 Working Capital (R$ billions) Cash Conversion Cycle (days) Working capital reduced by R$ 2.6 billion in

11 Positive free cash flow for the seventh consecutive quarter 4Q (226) (36) (384) 1,168 1,238 Adjusted EBITDA 4Q16 CAPEX Income Tax Debt Interest Working Capital Free Cash Flow 4Q (1,324) 4,049 (168) (1,240) 970 2,287 Adjusted EBITDA 2016 CAPEX Income Tax Debt Interest Working Capital Free Cash Flow 2016 EBITDA was more than sufficient to honor the Company s commitments 11

12 Extraordinary events in 2016 Impairment of assets by business operations (R$ million) North America BD Fiscal Year 2016 South America BD Consolidated Goodwill 2,679-2,679 Property, plant and equipment, net Investments Total 2, ,918 Results in 2016 affected by negative, noncash impact of R$ 2.9 billion 12

13 Closing remarks Gerdau closes 2016 with a positive performance, despite the challenges facing the world steel industry and the economic recession in Brazil. Highlights: - Reduction in selling, general and administrative expenses (-13%) - Restrictions on CAPEX (-43%) - Strong free cash flow (R$2.3 billion in 2016) - Reduction in net debt (-26%) - Improvement in leverage ratios (3.5x in 2016) Divestments amounted to R$1.3 billion in 2016 and we will remain focused on our more profitable assets in Recognition of management s efforts by the capital markets, as shown by the strong stock price appreciation of Gerdau S.A. and Metalúrgica Gerdau S.A. The scenario for 2017 will remain challenging, but Gerdau believes that, with a gradual recovery in demand and the results of the measures it has implemented, it is now even better prepared to compete in the world steel industry. Continuation of the initiatives to modernize the culture and implement digital innovations in the operations. 13

14 1Q17 Earnings Release: May 4th, MAY 14

2Q15 Earnings Conference Call

2Q15 Earnings Conference Call André B. Gerdau Johannpeter President and CEO Harley Lorentz Scardoelli Financial, Planning and IR Director - CFO Credit: New York State Thruway Authority Gerdau is supplying