Gerdau S.A.

Good morning, everyone, and welcome to Gerdau's video conference call for the second quarter, 24. I am Mariana Dutra, Head of Investor Relations, and participating in our video conference today are Gustavo Wernick, the CEO of Gerdau, and Rafael Japor, the CFO. We would like to remind you that the broadcast of this video conference is being done with simultaneous translation, and to choose your preferred language, simply click in the interpretation button via the globe icon at the bottom of the screen. For those of you listening to the video conference in English, there is the option to mute the original audio in Portuguese by clicking on Mute Original Audio. During the company's presentation, all participants will have their microphones disabled. Later on, we will begin the Q&A session. Analysts and investors may be able to join the queue via the Q&A button and can open their microphone and camera if they so prefer. The business prospects, projections, and targets contained in this presentation are based on the beliefs and assumptions of the company's management, as well as on information currently available. Forward-looking statements are no guarantees of performance and dependent circumstances that may or may not occur. Investors could understand that general economic and market conditions and other operating factors may impact the company's future results, and the actual performance may differ from the outlook presented. I will now turn the floor to Gustavo Werneck to initiate the presentation. Gustavo, you may proceed. Hello, everyone. I hope you are well. And thank you for the opportunity to meet with you during this video conference to announce your DAOs results for the second quarter of 2024. I'm joined by our CFO, Rafael Japor, and it's always a pleasure for both of us to talk to you about our performance and also to answer questions that may arise during our presentation. I will start by talking about the macro business environment, the highlights of the overall results, and next I will detail the performance of our business operations in the quarter. Next, Jaipur will share some information about our financial performance. And then finally, I will move on to our Q&A session. Well, I start my presentation by saying that we ended the second quarter of 2024 with an accident frequency rate of 0.67, a historically low figure, reinforcing our commitment to the health and safety of our people. At Gerdau, safety always comes first, since no result is more important than people's lives. Before we move on to the presentation of the results, I would like to express once again, on behalf of all GDAL employees, our solidarity with the people of Rio Grande do Sul, who are still going through a very difficult period due to the heavy rains that hit the state in May. Since then, Gerdau, a centennial company founded in Porto Alegre 123 years ago, has been active on various fronts in support of Rio Grande do Sul. We have already contributed more than 26 million BRL to a series of initiatives to support, recover and rebuild the state. These actions seek to support emergency and structuring projects so that Rio Grande do Sul can reclaim its leading role and the strength that is inherent to the people of Rio Grande do Sul. Among these initiatives, I would highlight the partnership with the UN Refugee Agency, UNHCR, to provide 100 emergency housing units to benefit up to 600 people affected by the rains in the metropolitan region of Pontalegre. The project is part of a fund set up by the company and the NGO Gerando Falcões to raise funds to rebuild homes in the state of Rio Grande do Sul. Over the next three slides, I will emphasize that Godal continues to deliver solid financial results to its shareholders and investors and also a transparent business strategy based on strong discipline in cost management and its assets in Brazil continue to show increasing competitiveness. We constantly seek opportunities to adapt the company's structure to the current global business scenario. Also, I would like to point out that in the last 12 months, the monthly average of steel imports into Brazil was 396,000 tons, 66% above the historical average, totaling 4.8 million tons, according to data from the Brazil Steel Institute. The penetration rate in the same period was 19.2%. We expect that in the second half of the year, the domestic steel market should begin to feel the effects of the trade remedies recently implemented by the Brazilian government with the mixed tariff rate quota system. Finally, regarding our sustainability highlights, I would like to point out that Gerdau has become the first company in the steel industry to be certified as a B Corporation in North America, representing another step in our journey of sustainability and value creation with our stakeholders. The certification of our long-still and special-still operations in the US and Canada reaffirms Gurdjieff's century-old commitment to contribute to solving society's challenges and quandaries, while promoting a positive impact in the regions where we are present. Moving now to the next slide, I will comment on the highlights of each of our business divisions and the outlook for the coming months. In the second quarter of 2024, the performers of the North American business division remained unchanged from previous periods. The results reflect the resilience of the North American market, which contributed to keeping local demand for steel at healthy levels, with our backlog stable at a high level of around 50 days, even despite lower prices in the period. The US market will continue to be positively impacted by government measures, such as the Inflation Reduction Act , the public infrastructure investment package, in addition to reshoring movement and the maintenance of Section 232. As a point of attention, we are closely monitoring the uncertainties linked to the presidential elections in November, and also the dynamics of the economy in general, including inflation and interest rates. In parallel, we continue to invest in improving operating efficiency and modernizing our units in North America in order to improve the competitiveness of these operations and provide a portfolio of innovative products and solutions that meet the current and future needs of our customers, like, for example, the future demand for steel brought about by the major infrastructure investments planned in the country. Moving on to the next slide, I will now talk about our special steel business division. The automotive market in the US continues to recover, with the production of light and heavy vehicles projected to exceed 16 million units in 2024. There is still room, however, for a more intense recovery in the coming periods, returning to pre-pandemic levels. The heavy vehicle and oil and gas segments should face a scenario of slight deceleration in the year to date. In turn, the outlook for the special steel market in Brazil is cautiously more optimistic as a result of some signs that point to a rebound in automotive activity, especially in the heavy-duty segment. Heavy-duty production in 2024 is expected to grow by 32.1% according to data from Anfavia, mainly driven by the performance of bus production. The market, however, remains attentive to the uncertainties linked to access to credit lines, high interest rates, and the excessive entry of imported vehicles. As a highlight, we recently completed the certification of all the steel produced from the new continuous casting process at the Pindamonhangaba plant, which allows us to offer products with higher added value to the market and optimize the performance of our operation in terms of productivity. We now move on to the next slide, to talk about the South America Business Division. In Argentina, meanwhile, the local steel market reached its lowest point ever in the second quarter, following inflationary pressure and the economic measures taken by the new administration, such as depreciation of the Argentine peso. Steel demand in the country is expected to recover slowly in the short term, with a stronger upturn expected in the fourth quarter of the year. The outlook for Uruguay remains positive, reflecting good levels of steel consumption, particularly from the agribusiness sector and public and private investments. In Peru, GDP has exceeded market expectations. in recent months and has risen by 5.5%, boosted by a good performance in the fishing, manufacturing and construction sectors. The construction sector even reported a similar rise of 5.5% in the period, driven by investments in public works. Moving to the next slide, I will now talk about the long and flat steel scenario in Brazil, whose performance in the second quarter continued to be impacted by the strong inflow of imported steel in the country since the trade remedies I mentioned earlier have not yet taken effect in the local market. In addition, during this period, our shipments were impacted by production capacity readjustment initiatives and were also partially affected by the temporary shutdown of our unit in Rio Grande do Sul and the logistical restrictions imposed by the heavy rains that hit the state in May. I would also point out that we expect to see some positive indicators come to fruition in the Brazilian market, especially with regard to the construction industry and a more significant drop in interest rates. One example is the forecast of an 8.5% increase in the number of new housing launches in 2024 compared to the previous year, according to Abra Inc. Furthermore, I would like to mention that the GDP of the construction industry is expected to increase by 1.7% this year, reversing the slight drop recorded last year, according to IBGE. Now, I'll hand over to Japur, who will give some more details on the Brazil Business Division. And afterwards, I'll be back to answer your questions. Over to you.

Obrigado, Gustavo.

Thank you, Gustavo. Hello, everyone. It's always a great pleasure to be here with you for our earnings release conference call. As you can see in the blue highlight on the slide, in the quarter, we had 131 million bureaus of one-off costs related to the hibernation of some industrial units in Brazil, as Gustavo has mentioned previously. Excluding this impact, Repita in the second quarter would have been 665 million barrels, 12% higher than in Q124. Moving on to the next slide, I will give you more details about our cost reduction initiatives. Since the end of last year, we have been carrying out a series of initiatives in our business divisions with the aim of optimizing our cost base. The expectation is that, at the start of 2025, we will have a cost and expense base approximately 1.5 billion BRLs lower than that posted in 2023. Looking at the left-hand side of the slide, we detail the initiatives coming from the Brazil BD, where we expect to see savings of approximately 1 billion barrels in annualized terms. In the first half of 2024, we have already saved around 150 million BRLs through initiatives to readjust production capacity in Brazil and efficiency improvement projects. For the second half of the year, we expect to save another 400 million BRLs. focusing on increasing the operating leverage of our plants due to hibernation, optimizing maintenance costs, and a lower consumption of specific materials. At the start of 2025, we anticipate the annualization of these earnings that I have just mentioned. On the right-hand side of the slide, we present the initiatives of the other business divisions, where we intend to save around half a million BRLs on an annualized basis. These initiatives primarily contemplate improvements in productivity of our operations and stabilization of gains from some CAPEX that we have recently executed. Therefore, Without taking into account the possible impacts from shipments, inflation, exchange rate variations and fluctuations in raw material prices, and focusing only on what we can actually control, we expect to see the reduction in our costs and expenses reflected in the full year 2025. Now let's move to the financial results in our EBITDA. We ended the quarter with an EBITDA of 2,624,000,000 BRLs with a margin of 15.8%. down 1.6 percentage points from the first quarter. The reduction in EBITDA in the period was mainly driven by lower sales prices in the North America BD due to the rollover of higher raw material costs compared to the first quarter. and as already explained the impact or the non-recurring impact associated with the hibernations in brazil we now move to the next slide where we'll talk about our cash flow In the second quarter, we allocated 259 million BRLs to working capital, mainly as a result of the preparation for the reallocation of production capacity of our units in Brazil. The working capital line, when we look at our balance sheet, rose by another 800 million BRLs due to the exchange rate variation. due to the 11% exchange rate variation between March and June. But it is important to highlight that this exchange rate variation has no cash effect. We spent approximately 1.2 billion BRLs on capex in line with our guidance. In addition, it is important to remember that historically, the second quarter of every year sees a more substantial concentration of income tax payments. But even with significant cash outflows, we had a positive free cash flow of 89 million BRLs in the second quarter. We ended the second quarter with gross debt of 12 billion 500 million BRLs and a healthy leverage level of 0.53%. The increase in the company's debt was a result of the conclusion of the issuance of 1 billion 500 million bureaus in debentures with a five-year maturity plus the effect of the exchange rate variation on our foreign currency debt in the period corresponding to 839 million bureaus. The chart on the right shows the new maturity schedule of our debt in our robust liquidity position of 11 billion 500 million BRLs considering the sum of our cash position of 6 billion 600 million BRLs and the 875 million dollars of our revolver line which is fully available and undrawn by the company. Now let's talk about our capex. In the second quarter, our investment in capex totaled 1 billion 420 million bureaus. 50% of which was remarked for growth and competitiveness projects. To date, we have already invested 47% of the 11,900,000,000 euros foreseen in Gredau's strategic capex for the 2021-2026 cycle. In Brazil, Investments in mining and flat steel in Minas Gerais have reached around 55% of the physical and financial plan, and their schedules remain unchanged as planned. Moving on to the next slide, let's talk about the return to our shareholders. In addition to the dividend of 12 cents of a real per share at Gerdau S.A. and 8 cents per share at Meteorologica Gerdau, the board of directors of both companies approved a new share-by-back program at Gerdau. Up to 68 million preferred shares and approximately 1,800,000 common shares may be acquired. Considering the prices of the last few weeks, the buyback program represents an investment of approximately 1 billion 300 million BRLs. At Metallurgica Gredau, up to 33 million preferred shares may be acquired, which represents an investment of approximately 350 million BRLs. Both programs will be valid for 12 months, starting now on August 1, 2024. Thank you, Jabour. Well, I'd like to thank you all for listening to our initial comments and remarks, and we'll be happy to answer any questions you may have now, and perhaps go over any points of interest that you might have. Thank you.