Gerdau S.A.

Good morning and welcome to Girdal's first quarter 2025 results presentation. I'm Mariana Dutra, Head of Investor Relations, and joining us today on this conference call are our CEO, Gustavo Werneck, and CFO, Rafael Japor. Please note that this call is being simultaneously translated into English and you can choose your preferred language by clicking on the globe icon at the bottom of your screen. During the presentation, all participants will be in listen-only mode. And then next, we will initiate the Q&A session. Analysts and investors can join the queue by clicking on the raise hand button. It is worth noting that the forward-looking statements contained herein are based on the company's beliefs and assumptions based on information currently available. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may occur. I will now turn the floor over to Gustavo to begin the presentation. Gustavo, you may proceed.

Thank you, Mari.

And I would like to say hello to everyone. I hope you're all well. And I certainly appreciate the opportunity to be together for another earnings release. We will briefly comment on the highlights of the quarter. We will also talk about the outlook for our operations. and certainly we will dedicate more time to the Q&A session. But firstly, I would like to highlight that we ended the first quarter of 2025 with an accident frequency rate of 0.61. In the week in which we celebrate World Day for Safety and Health at Work, this results reaffirms our commitment to the health, well-being, and safety of all people. Moreover, we receive IRMA standard recognition, the initiative for responsible mining insurance for our Miguel Brunier iron ore mine located in the municipality of Ouro Preto in the state of Minas Gerais. The operation achieved IRMA performance level 50, highlighting the company's transparency and commitment to sustainability and business integrity. With this, Miguel Bournier joins an exclusive group of only 11 minds worldwide that have completed and received this certification, which is one of the main certifications worldwide. Also in Minas Gerais, in March, we inaugurated the expansion of hot roll coil production capacity in Ouro Branco, increasing the share of flat steel in our portfolio in Brazil, and also enabling Gerdau to offer a wider range of high-value-added products to our customers in the domestic market. This market continued to be strongly impacted by the influx of imported steel in the first three months of the year, when the penetration rate of imported steel reached 22%, up by almost three percentage points when compared to the fourth quarter last year. This data shows that the current quota tariff system remains ineffective ineffective in defending the Brazilian steel industry. I will now hand over to Jean-Paul who will detail the financial highlights.

Thank you, Gustavo. Hello, everyone. It is always a great pleasure to be here with you in our earnings call. In this quarter, adjusted EBITDA totaled 2.4 billion BRLs, while net income was 758 million BRLs, or 37 cents of a real per share. Our result was stable compared to the last quarter due to the recovery in performance in North America with higher volumes and better prices, which ended up offsetting the drop we had previously. In the Brazil operation, which in turn was impacted by two factors. The first, a non-recurring event, which was the increased costs resulting from the implementation of the new hot-rode coil mill. in Ouro Branco, which impacted the costs of the Brazil operation. And the second point, which impacted our profitability in the quarter, was an environment of oversupply in the domestic market, especially long steel. And that was mentioned by Gustavo. So again, it's worth highlighting that geographical diversification that we have in our asset portfolio played a key role in providing more resilience to our performance at a time of a little more turbulence, as was the case in this quarter. With regard to CapEx this quarter, we invested 1.4 billion BROs this quarter, focusing mainly on our strategic projects such as the expansion in flat steels, as I just mentioned, and our project to expand our mining capability in Miguel Buenia. These projects together have a potential to lead to 1.4 billion bureaus in the midterm as they mature. as they are fully rolled out. And thanks to our solid capital structure, we maintained in this quarter our financial metrics of net debt over EBITDA within our financial policy. Our net debt over EBITDA ratio stood at 0.69 times. And this... gives us the possibility of continuing to invest in our important strategic projects that we have just mentioned, and also to maintain our commitment to creating value for our shareholders. If we include dividends and share buyback in this quarter, in Q1 2025, we have achieved a payout of 74% of our net income, more than double that specified in our financial policy. Lastly, I would like to point out that by April 11, we had executed 44% of Gerdau SA's current share buyback program, investing 444 million BRLs, or approximately 1.4% of the outstanding shares of the company. At Metallurgica Gerdau, in turn, we concluded the buyback program investing 56 million in BRLs. We believe that share buybacks are an excellent way to allocate capital and return value to our shareholders. I'll end here and I'll join Gustavo in the Q&A. Gustavo, over to you. Thank you, Japura. I'd like to comment that throughout the first few months of 2025, we recorded an increase in volumes delivered in North America, with order backlog returning to more than 70 days, which is above the historical level. We have also seen a positive impact from the import tariffs announced by the U.S. government in terms of our capacity utilization, and we continue to have a healthy market outlook, especially in relation to demand in the non-residential construction sector. However, we are aware of a more uncertain business environment in the coming months in the United States, reflecting and discussing the concerns of some of our clients. In turn, in Brazil, the domestic market, despite a reasonable level of demand from the main consumer sectors, continues to be impacted by the excessive influx of imported steel, as I mentioned at the beginning of this presentation. As a result, a large part of the increase in steel consumption recorded at the start of the year, as you know, was served by imports. For the coming quarters, in addition to the expectation of an annual review of the trade defense system known as the quota tariff system, we are cautious about the future performance of steel-consuming sectors, such as construction and automotive industries, which could be affected by the current high interest rates. Well, I'll stop my initial remarks because, like I said, we want to have more time for the Q&A to answer your questions. So, Mari, I'll turn the floor back to you so you can moderate the question and answer session.

Thank you, Gustavo. So now we will initiate our Q&A session. Once your name is prompted for the question, you must activate your microphone and video. Our first question comes from Caio Ribeiro, Ribeiro Sales Site Analyst with Bank of America. Welcome, Caio. Good afternoon, everyone, and thank you for taking my questions. My first question. Can you hear me? Yes, yes. Yeah, we can hear you well. Yeah, you can hear us well. Yes, I can. My first question is about cash generation, more specifically related to working capital and capex. Now, looking at your cash generation this past quarter, which was pressured by increase in working capital and your level of cash, I mean, cash capex, which was high. So for the next coming quarters, could you please comment on the evolution of these two aspects? And now, looking ahead, I mean, going forward, last year was 6.2 billion BRLs for capex, but your maintenance capex is around half that amount. in 2024, and I know that the company is working on some expansion projects in Ouro Branco, mining areas, etc. My question is, how do you think we should look at the recurring capex level that you see going forward once all the projects are concluded? And secondly, You refer to your U.S. backlog, which is very high. It is the highest level since 2022. We've seen some price increases already announced for beans and merchant bars with the drop in scrap, which indicates to a reduction in metal spreads. Could you please comment what kind of margins you anticipate for the U.S.? ? And how do you see the outlook for the second half of the year, considering increase in tariffs and also other infrastructure packages in the US? Thank you. Well, you already started with two very important topics. Let me first start with the free cash flow outlook. And we refer to CapEx to begin with, and then Hafez will conclude with working capital and what we anticipate going forward. And then we will answer your question on the backlog part. I mean, capex last year and this year, according to your comments, is a bit different when compared to capex that we had in the past, because these capex are not intended to grow shipments in general, because they are much more focused on productivity and cost reductions. I think the most significant of all in terms of our disbursements for this year, and we have this production of $6 billion, refers to our investments in the mining sector. We will increase the steel cost of Ouro Branco, I mean, next year, and we will be in a position that we never had before. So these investments are directly related to short- and mid-term competitiveness. I would say, therefore, the quality of CapEx is different when compared to what we had last year. So now, for 2025, we will not reduce disbursements or investments that we presented in our last meeting. But going forward, and if you look at the possibility of reviewing the alternatives for capital allocation, I believe that it's very coherent on our side to to review our CAPEX reimbursement so that it will be lower going forward. Therefore, we are not yet ready to tell you where we will make that reduction in what geographies or anything like that, but I can probably anticipate that in the next coming years we will probably have a lower CAPEX disbursement when compared to what we have now and lower than what we anticipated for the coming years. I mean, there might be other things to be considered at the light of this information that has to do with the decision we made to cancel our investment in Mexico. That was something that was in our pipeline. I don't think I mentioned that investment in the past, but this has been officially canceled. in terms of our possible investments in the coming years, not due to the current administration in the US, but mostly due to everything we have experienced in terms of this global defense. I think that there will be a very deep reconfiguration of the automotive platform in the next few years. I mean, in what countries these auto parts will be produced, who will supply to whom, whether Mexico will still remain a robust platform to provide auto parts to the US, or whether this industry will be relocated from Mexico into the US in the coming years. There is a lot of uncertainty in the market right now, but we are certain that there will be a reconfiguration. Therefore, it doesn't make sense for us to invest in Mexico bear in mind that we still have some capacity to be used in the U.S. Therefore, we are canceling that Mexico investment, so possible disbursements will not take place. Another important issue, Caio, is that we are just waiting to see what will happen in May, whether the federal government will react or not, or whether the government will play some commercial defense, looking at the portfolio of several alternatives, because In our view, we gave the federal government a menu of alternatives. I mean, they are looking at it not as fast as we hoped that it would happen. But once this quota tariff system matures, we were expecting some news, but we don't have any visibility right now in terms of what is about to come. But it's probably very feasible that... In terms of what Brazil is experiencing and all of these lineas, I mean, lack of promptness to make a decision, we may remove some of the investments we had in the pipeline for the coming years. If you analyze all of that, it's very likely that at a given moment this year, we may give you more visibility and clarity in terms of what we anticipate for CapEx going forward. But I can say that that current level of 5 to 6 billion, it's a level that should not be maintained in the coming years. But I would like to reinstate that for this year, 2025, We will maintain our disbursements because we cannot stop important investments in progress. And one important investment is mining because this will give us an additional EBITDA that is relevant to us. So this is the macro scenario. But now, Kapoor can talk about working capital. According to what he said at the beginning, i believe that we still have to debate whether in terms of capital allocation at a current level cash generation of the company we believe that this will remain healthy in the coming years whether the other options such as buyback maybe it wouldn't be more logical considering the all of the players that relate with us, also including the capital markets. So I think Japor can elaborate a bit more on that subject of working capital, and then I can come back and talk about the U.S. market. So, Caio, giving you a little bit more details about working capital and capex, In terms of disbursement in our cash flow line-in with a cash effect, we believe that throughout the year, the number would be slightly lower when compared to the disbursement of this quarter. We had a relevant disbursement of things that were disbursed in the beginning of this year. But in general terms, our average disbursement should be close To the guidance, if you divide it by four, the guidance we gave for the entire year, about $1.5 billion per quarter. You should also recall that last quarter we had more than $2 billion BRLs, but the capex disbursement was lower than that in the cash point of view. So it's just natural that throughout the quarters there will be some sort of disbursement. So this quarter... we had 1.4 billion of property investment. And this year, we will just calculate it divided by quotas. In terms of seasonality and working capital, there was an improvement vis-a-vis last year. Typically, the first quarter is when we use a lot of working capital, especially in North America, because shipments and prices were escalating. And because of that, We expand the number of trade accounts payable. So if you run a year-on-year comparison, the disbursement was lower by 300 million when compared to the same period of last year. So in terms of working capital, we expect that throughout the year, we should have a more normalized level maybe we will consume a little bit of cash due to the increased prices especially in north america but throughout the year there should be a return in working capital from our operations maybe more so in south america but also in our north american BU. This quarter, we started with a lot of uncertainties in North America in terms of tariffs and commercial operations, so there was an increase on the part of our customers and ourselves, and so we made some safety... inventory to cater to the supply chain in our meals that have some interchange from one country to another, like Canada and the U.S. Therefore, working capital was a bit higher, but we believe that throughout the next quarters, things will go back to normal levels. So the other part of your question about North America, in terms of margins, I think this year will be similar in quantitative terms to last year. This is what we... see happening but distribution might be different last year we started with the first and second quarters you know more robust and things were deteriorating throughout the year in terms of our performance in north america but this quarter we started off like a more typical year with a significant recovery vis-a-vis the fourth quarter and we believe that today as we mentioned During Gustavo's remarks, we see some positive signs in North America for the next coming quarters. I mean, the second quarter, if there is a recession in the U.S. economy, this could probably affect our main customers. And, Caio, just to conclude, I would like to say that especially in the beams market or structural markets, not only there was a price increase that you comment and changes in spread, but the quality of the backlog runs on the margin of all of that. When you look at the amount of steel that we are delivering and the prospective growth that will be more significant in the U.S. in the coming years, we also talk about the World Cup next year. I mean, the stadiums are ready, but there are some constructions occurring in the U.S. We also note that warehouses and the steel demand for this and next year, it's quite promising. All of this is not very much impacted by the short-term debates related to recession. Our backlog is growing.

Maybe we could

think that it should grow much faster, but it is growing week after week, and the quality is also improving, you know, every week. In terms of what we anticipate for results for next year in the U.S., it's quite positive.

Perfect.

Very clear. Thank you, Wernick and Japor. Thank you. Thank you, Caio. Our next question comes from Daniel Sassoon from Itaú BBA. Thank you and good afternoon, everyone. Thank you, Mari, Werneck and Japor. My first question is just a follow-up on capital allocation and cash generation that Caio mentioned. Gustavo, I think... It's very important that you give us a bit more visibility on the Mexico position. I mean, the sustainable mining project is moving quite well, is progressing, and the Midlothian project is also well underway. The Mexico project was not among the approved CAPEX disbursements. I just want to understand what is your level of flexibility for the other projects that have been previously approved that you showed us during your agourdao, you know, rolling field capacity, forestry expansion in Minas Gerais and even other things that you have approved. Do you think that those can be revisited? I mean, or are you going to raise the threshold that you have to approve other projects. Or maybe today you are seeing some expected return from your shares vis-à-vis current levels, and this may be used as, I mean, a cap. How are you going to approach your new projects? Or maybe you're going to raise the bar when it comes to approving new projects. So what is your rationale going forward for capital use? And my second question, and now referring to Brazil because we already talked about the US in the previous question, in the short run, it seems to me that there is a competition pressure. I mean, prices are coming down. There is still a lot of competition with imported goods, and we lack more clear measures regarding that voter tariff system that basically didn't work. I mean, if nothing changes in that macro environment, what could we expect in the domestic market related to cost, lower maintenance shutdowns? Because in the first... For half of the year, you had a lot of maintenance shutdowns. You optimized most of your assets. What would be a more constant scenario, business as usual, without the adoption of measures that would indeed work? Because this is still a very difficult competition scenario. What do you see for Brazil in the second half of the year? Well, all the points you raised, they're all very interesting topics for us to talk about. There is no impediment for us to make a decision. Let's say, okay, everybody should go home and let's save on the disbursements we did. I mean, we did that in the past, but we learned. that the upturn of these investments, I mean, the rebound of these investments, they are all very important for the company. They are important to ensure competitiveness. And when they return, the numbers that we calculate, it's not just a gas, but we spend 40% more just to put capex back again because disbursement increased by 40%. We made decisions in the past that were very much related to new capacity building, to increase steel production, capacity and production. So what we have today is the result of all the work we did in the past. And we are very certain, and as Shapur was saying, that the additional benefit from EBITDA coming from these events, we don't see that it makes sense. Because, I mean, mining is already part of our CAPEX schedule. So it doesn't make sense for us to make any radical changes. Therefore, we intend to maintain that investment. We have more than 1,000 people working in that site now. So we would rather continue the investments. And starting next year, we will be able to capture the benefit of this additional EBITDA. I mean, we have to monitor things closely, which are poor to see how much of that EBITDA that we are committed to add to our balance sheet will be captured or not. So I would rather see debates more in those lines. But looking forward, I understand that there are probably more robust alternatives or alternatives that would allow us to get better returns in terms of capital allocation. This is an open debate. you know, to expedite share buyback. Maybe, you know, should we do that, share buyback or accelerate capex? It's still a question mark. In terms of Brazil, we are losing confidence. We don't know whether Brazil will be able to accelerate that mechanism. Not only Mexico, that will become a future disbursement along the lines that What I said that we hope to maintain 5 or 6 billion of capex a year, this will no longer hold to be true. But if it is not that, how much would that be and where we will allocate that money? I mean, this is an ongoing debate. We have a team working on it. And as soon as we have that mapped out, we'll certainly give you more visibility. We are committed to tell you what will happen, and we believe that it's correct that in the coming years we will reduce this capex. And so I am committed to let you know when the right time comes, what we will do and what we will do. put in a pipeline going forward and part of this decision stems from that second point i mentioned all of these mechanisms of trade defense that they are not yet in place the federal government you know and the ministry of industry and trade they have several alternatives they they could also probably introduce high quotas all of the steel that comes in should pay a tariff or maybe to expedite the application of anti-dumping measures. It is shocking to see the timing that the government asks to be able to make a decision. So we should accelerate their decisions. And even when we see an increase in coming of rebars coming from Egypt, And looking at Mercosur, I mean, there are a series of options in our menu, but we haven't seen any measures yet coming from the Brazilian government. The commitment is that we should wait about a year to be able to understand what was good or bad and then be able to deploy changes. And that's why I keep insisting in May, because we have to wait and see what will come. There are several alternatives. But in addition to that, we are also looking at different possible scenarios. What if the government does nothing? If the government doesn't do anything, I mean, we have to make our own decisions. Maybe we should hibernate some of our lines, or maybe we should revisit our fixed costs. I can never say that we exhausted all our possibilities to seek for further competitiveness. We also have to look at areas where imported goods have no competition. Therefore, we should create more competitiveness there too. I mean, what you heard about increasing competitiveness, in terms of rebar, Gerdau is positioning itself in a very robust way in this market. Everybody already knows that all of these figures are available through Instituto Aço Brasil of what happened to the market. So they have information about that. And with the strength of our balance sheet and everything we did in the past years to... create the necessary conditions to be more present in the market, especially regarding rebars. We are positioning ourselves in a very robust way because we believe that what we are doing now will certainly be beneficial because it will bring further competitiveness and competitiveness in the mid-term. What I've heard about this dispute in the market is more related to rebars due to all of our more recent positions. So I think in general, I covered all the points, but let's hear from Jaipur to see whether he wants to add anything. So Daniel, I just have a short question. common related to capex disbursement in a year where we believe that we will disperse we will have a decreasing disperse we had a long you know shut down in the hot roll coil meal And that rolling mill, so throughout the next quarters, our disbursement will be substantially lower in terms of maintenance shutdowns when compared to previous quarters. Thank you. Thank you very much, Japor and Gustavo. All the best.

Thank you. Next question from Carlos de Alba with Morgan Stanley.

Thank you, Mari. My question is, if you could maybe, I'm sorry, I'm in English, my Portuguese is not too good. No problem. So how do you see maybe, Rafael, the ramp up of the EBITDA that you will generate from the HRC new line as well as the mining project? You can give us an update on that ramp up. Clearly, it's very substantial, the amount of incremental EBITDA. So some color as to when we will see it, that would be quite useful. And then just coming back, maybe Gustavo to the discussion on what the government could do. What do you believe, what does Gerdau believe would be the more effective measure to protect or to more than protect, maybe to put the playing field at a similar level to imports? And maybe in addition to that, how do you think The challenging situation in the current rebar supply-demand balance in the country, how could it be resolved? You think we need to wait until some company gets into financial pressures, weak balance sheet, and then shuts down capacity? Could it be a combination of that with some acquisitions? I mean, how can it get resolved?

How are you doing, Carlos?

It's good to have you on board. As regards to the ramp-up of hot rolled coils, we have opened this. We are producing originally in the old part of the rolling mill as in the new part of the rolling mill. We are producing with commercial quality with higher and higher specifications. And we do have the ambition of ending the year with an additional production of 250,000 tons. Of course, since we started production in March, we are not going to have the full year of 250,000 tons, but something close to 150,000 to 100,000 additional hot rolled coils. It is important to highlight that today Gerdau has more demand from our clients of hot-rolled coils than we produce. So we are still buying hot-rolled coils from our competitors in Brazil to sell through Comercial Gerdau to complement the demand we have due to lack of capacity. So the investment in HRCs will not only increase our volumes, but will replace the purchase of third-party material so that we can have our own material. So there's also this trade-off. But we mentioned that over this year, we'll capture a substantial part of that, and we'll end the year with the HRC mill ethyl capacity. Regarding mining, we haven't got an update in terms of changing the deadlines yet. We continue to move forward according to plan in terms of physical progress and financial progress. And we have this timeframe of completing this investment and putting into operation a part of the equipment in December or by December of 2025. And along 2026, we would reap the fruits of this high content, low cost iron ore production that we will have at Miguel Bournier. I think that I answered your first question. Would you like to compliment? Yes. Carlos, let me give you my personal opinion about the trade defense mechanisms. They are very broad, and of course, people will have different opinions about this topic. What the federal government did was to try to build a trade defense wall, but they built a very short wall. and full of holes so the first thing to prevent these imports is to close these holes on the wall there are some holes big holes one is the zpes of manaus they have a tax benefit for the acquisition of steel and local processing so this growth There we see the influx of steel through Manaus is certainly not for consumption in Manaus. We would like to have a detailed investigation by the federal government to understand this. The ZPEs in Manaus should not be an alternative route for the influx of imported material. Another big hole we see is a bilateral agreement with Egypt. which has already been used, as we speak, for the arrival of rebar in Brazil, paying a lower tax. And the third big hole on the wall is the Santa Catarina issue, where there is ICMS deduction. And with the ICMS tax deduction, it is practically as the 25% import tax did not exist. We would need to create mechanisms to close those three holes on the wall. And in parallel to that, increasing the height of the wall. I advocate a hard quota mechanism. We should have a limited volume that can be arriving in Brazil based on a historical level, having a maximum level of imported material coming into Brazil. Another point that frustrates me a lot is how slow the government is to deploy anti-dumping decisions. It's absurd the time they're taking at the ministry to do this kind of analysis. And my fourth point, more to the mid and long term, is that there should be some kind of incentive in an equal level of competition, the utilization of local steel, for example. for the factories of imported vehicles that are being built in Brazil. There should be in the contracts the development of the local industry. We speak about the factory of EVs. It's not exactly a factory. It's just an assembly line. There's not one kilo of steel, of rubber, not even a local supplier. so the government should have a clear plan for the development of a local supplier park. To supply the need, it's shocking to see some debates and discussions regarding Chinese investments for energy transmission. And they are bringing material ready from China. In my opinion, this should be combated. So that's my point of view regarding the trade defense. And on Rebar, it's always a combination of themes. with the current level of rebar price this will not be an incentive for a new investment a lot of players that are not as strong as ours we follow public information about our competitors many of them facing difficulties due to internal management and weaker balance sheets and perhaps In terms of the short term, we have the Santa Catarina issue. It's an entry door and a deviation of taxes. Perhaps this will be corrected with the tax reform, but with the current level, And repositioning, I think that there will be a lack of stimulus regarding the arrival of imported material at some ports. But my answer to you is a combination of factors. We are sure that a short-term effort, which is absorbed by our balance sheet, will bring the mid-term a level of competitiveness and a level of competition that we haven't seen in Brazil in the recent years. So we have to exchange the short-term for the mid-term.

Looking forward for the official announcement of lower capex and an increase in buybacks or dividends.

Thank you, Carlos. Thank you, Carlos. Next question on Caio Gramer with UBS.

Hello. We have two follow-up questions.

The first on the status of the steel market in the United States. It's interesting to hear from you, Fario. I have a very optimistic view. regarding the U.S. market until the end of the year. But this goes against the signs that we're seeing, that the U.S. economy is getting close to a standstill point, and it's starting to decelerate. We saw consumer trust, data in industry trust, data, confidence data dropping. So I'd like to hear from you. You're seeing a better steel demand for your steel. Do you think that this is being seen as real demand? Or perhaps it is what you said in the release, more in the line of a panic buying? So do you have a clear outlook for the second quarter? And looking at the second half, what do you expect? What are your clients saying? Because, again, we see a deceleration for residential construction, some deceleration in the industry, and the impression we get is that the economy will decelerate. And do you think that this will impact Gredau products specifically or not? Or perhaps you are operating in a niche which is more protected than that of other players? And a second follow-up question on CapEx. Regretting energy, more specifically, you have shown a big interest in self-energy production in Brazil. My question is, do you intend to continue to invest in this and make acquisitions to become self-sufficient? And if so... How much more should we expect in terms of acquisitions? And whether these possible acquisitions and investments in energy specifically are part of this number report that the total capex should be below the levels of 5 to 6 billion that we saw in recent years?

Thank you, Caio.

Well, I think it summarized a protected niche, for example, for structural profiles, although you mentioned some indications of the health of residential construction. Well, this kind of product is not affected by these indices. So we have big structural profiles being used in large data processing centers, industries, and even in oil and gas. We believe that these investments exist and will be accelerated in the United States. We believe that we're playing a more protected niche and we had an additional benefit, although the merchants... do not have a lot of imports because there are many different gauges and it is a material that normally clients do not accept these products with oscillations but the additional penetration of leaving Mexico was contained relatively so I think that we are kind of more protected and in a way this was a goal we had way back when when we left Rebar we are less exposed And that's why we are optimistic. Our optimism is very much associated with our product mix currently in the United States. Of course, we have to consider the spreads. Scrap price is falling and there is an undersupply, there are orders. Will this increase the spreads or not? We believe that in this specific segment of BIMS, this will happen. There was a recent price increase, and we use a lot of obsolescence scrap, which helps us have a more competitive price. So there's nothing today that I look at and that gives me a headache in terms of the health of our backlog in the U.S. As for energy, I'll give you the concept. Japor will give you the numbers. Our energy investments are very much linked to the Brazilian tax benefit related to self-sufficiency, self-production. So my view is similar to what I mentioned regarding CAPEX in the previous questions. We can reduce our future investments in new assets, energy assets, and be a little more conservative. We will not capture the benefit of cost or EBITDA, just like It would happen in any CapEx we did not invest. My rationale is the same. It is related to CapEx. Investments are directly related to our growth of self-production. And with the current law in Brazil, we enjoy a tax benefit, and this has a direct impact on our costs. You asked about numbers, so I'll leave that for Shapur.

Hello, Caio. I think that breaking down the topics as part of our CAPEX

There is a part of the 6 billion BRL capex that includes investments in energy, which are the solar energy parks. About 400 million BRLs to round it up. That would be the disbursement for this year for that area. And this number is part of our capex of 6 billion that we mentioned. The investments that we made last year to buy some power plants And that entailed disbursements a little in Q1 and a little in recent days. Actually, yesterday, we signed the second power plant, a small power plant. And this will be about 400 million, 440 million euros to be disbursed along 2025. So that is the rationale. Now, room to grow? Again, when we compare the concession period we are not buying cash flow from contracted companies we are buying companies that have no energy contracted and we have a plug and play of the new capacity included in our energy matrix and our power matrix with significant cost reductions 50% of self-sufficiency currently. We do not intend to increase to 100% self-sufficiency because we believe that this would be inefficient and too much capital intensive. But if we do find good assets with good internal rates of returns, IPCA plus 15, IPCA plus 20, which is what we had in the energy investments made, we will look at that, of course. but not increasing the total disbursement of our cash flow. Perhaps we'll need to make some adjustments, reducing some CapEx approvals, as Gustavo mentioned earlier in this call. Thank you. Great.

Thank you, Caio.

Our next question from Rafael Barcelos with Bradesco BBI. Go ahead, Marcelo. Good morning. I have two questions on the Brazilian market. My first question is on the ramp-up of the new rolling mill in Ouro Branco. First, I would like to learn more about the operating and cost aspect, and then market. And we've also noticed that the environment is more challenging, with import levels reaching record levels month after month. So can you please tell us a little bit about the ramp up in terms of on the commercial side and the market side as well? And at the same time, whether you could tell us whether you believe that we will still see some price impacts due to this additional capacity that is entering the local market. My second question is about long stills. In the release, you talked about increased competition. of rebars. This is something that has been mentioned in previous earnings calls as well. But could you please tell us about the progress of this scenario in April and whether you still see some price pressure on rebars? And strategically speaking, what would be your diagnosis for rebar market in Brazil, whether the idea would be to reassess the segment or probably, you know, if you have no protective measures, if the domestic market doesn't come with any solution, whether you would consider divesting? So, hi, Rafael. I hope you're fine. Speaking about the ramp-up of BQ2, I think in terms of volumes, we are quite confident in terms of our performance throughout the year. Your concern regarding price pressure… I mean, if you think 200,000 additional tons, which is what we anticipate for this year, and the total volume of imported goods. I mean, looking at the size of the hot rolled coils. I think, you know, there are other players with a more robust presence in Brazil. For us, so in terms of increased supply, this would not cause any impact to us on the point of view of the rolling mill. And we imagine, we think that by the end of the second or third quarter this year, the costs of hot roll coils would resume old levels. And this is in line with an increase in our metallic spread, which is very good in terms of the volumes of the rolling mill, but also EBITDA, not only because of that 150,000 additional tons, but also related to the 1.8 tons of hard coils that we will produce. No, go ahead. You already talked about the hot coils, the BQ. After our last call, I received some additional questions. So my understanding is that not everyone that interacts with us every day are not so familiar with what rebars represent. represent to us so i asked marie and japor and they they included they included a chart in our presentation just to show how what is the impact of rebars for girdal brazil i mean we are reducing that ratio and with this new bq phase the participation of rebar is even lower with some of the people that i talk to people that are not very familiar with our operations, they still saw Gerdau as a company that solely produced rebars. I mean, rebar is losing ground in our portfolio. It's a very pure commodity, probably the purest we have, but especially rebars that go to distribution. I mean, the space that traditionally was always ours, I think we can occupy that space in an optimal equation, meaning that we can increase capacity but also reduce some costs, even if this has an impact on pricing and profitability. We understand that this space is ours, I mean, and this is evolving. I don't think that we should have any additional effort, considering what we have at the moment and the margins that we see in Brazil at the moment. I mean, there are several markets, markets with different characteristics. Therefore, I think we will reach... but still maintaining the general margins of all of those competitors in the markets. The margins are under pressure. I mean, if you look at our mix of products and the strength of our balance sheet, we believe that this can be easily absorbed through, you know, margin growth and other products. And the benefit is that we will have a cost dilution by producing more rebars. And eventually, there will be a rebalance in the industry. The market size today does not compete with the supply of rebars. I mean, this is my general comment. Thank you. Thank you. Thank you, Rafa. Next question from Lucas Lagui with XP.

Good afternoon.

Good afternoon, Vernecki, Mari and Japor. Hi, Lucas.

I have just two additional comments.

The first is on North America and that backlog performance that we saw in the first quarter. You also talked about inventory levels. your the inventory levels of your customers and what you believe is structural and if you see any other inventory movements in the coming quarters and what can you tell us about april in comparison with the first quarter and my second question has to do with capital structure Leverage is within your policy, the average tenure also, but your gross debt was slightly higher than that 12 billion that you set forth. But given the habitat level and given the fact that the policy is within that leverage level, whether we could assume that Gerdau would be comfortable in running with that 12 million of gross debt?

Okay.

I think you got it right. Since our timeline is adequate and our leverage is also adequate, EBITDA is not expanded or out of the normal levels. So we are not concerned with our gross debt. I mean, this policy was set forth in 2018, 2019, and the exchange rate changed significantly since then. And so when we look at our internal guidance of having about $1 billion in cash with a gross debt of $12 billion, That is a net debt of 6 million BRLs, which would be half EBITDA. And this is deleveraged. At this point, given the leverage level we have and the EBITDA we have and the average tenure of our debt, this is not a concern right now because we are past beyond that gross debt level. In terms of our portfolio in North America, we are still over 70 days. We haven't seen any move on the part of our customers. And like other industries, in the first week of april and the measures that were that follow that for still this was announced before other sectors and it's been enforced since March. So in April, we see a very robust portfolio of over 70 days of our order book. And we haven't noticed any reduction in shipments or people removing products from their orders. Well, certainly, some sectors are more resilient than others, like the automotive industry. Because there are some systems that really rely on imported goods. They're trying still to understand what they will do with their pricing. But when we look at type of products, we also understand that our activity level is quite robust. It doesn't mean that this will remain the same thing throughout the year. Well, we will see some things maturing in the American economy, so probably we will see... some impact in our customer portfolio, even though the type of products we sell and the destination, especially non-residential construction, are long-term. That's why we don't think that the impact will be felt so, you know, instantly. Okay, thank you.

Thank you, Lucas.

Next question from Yuri Pereira with Santander.

Hello, good afternoon.

The level of share buyback has been very strong at even higher price levels than what the company is currently trading at. I know that you mentioned in the beginning that you're studying CAPEX versus share-by-back, but could you elaborate on your share-by-back plans and, if possible, the distribution between... dividend and share buyback between Gerdau and the other one, given the price levels, if we could expect anything different. Thank you.

Hello, Yuri.

When we look at our share buyback level, we accelerated the program as you yourself said the average price considering everything we have executed by April 11 is very close to the current trading price what we executed in in the first quarter this was done slowly and at higher price but if we consider or we repurchase between March 31st and April 11th, the average price is very similar to the current screen price.

But this is not important to us.

We don't do share-by-back thinking about the P&L of the Treasury because we're not going to be selling these shares in the future. We're actually returning value to our shareholders and reducing our number of shares. in adapting our level of capital employed to the level of activity and the level of balance sheet that we need right now. Our preference between dividends and share buyback. Then share buyback gains more force given the price. a price which is depressed for our shares. The Gerdau shares, if we think about book value per share, if we consider the PPE divided by the number of shares, the PPE of Gerdau divided by the shares is 15 BRL per share, just in the PPE item. Inventory, working capital, 16 billion divided by the shares. We have eight reais per share. allocated in working capital. Just to think about the net value of realization of the company. We understand that Gradao's shares are significantly discounted. From the balance sheet standpoint and from the standpoint of multiples, our EBITDA, in our view, is not out of the ordinary. It's not a super cycle EBITDA. But with a multiple as if we were in a super cycle, with a multiple of 3, 3.5 times, it doesn't make any sense. Very resilient and deleveraged company as Gerdau. And that's why we understand that we're making good use of our funds, a good capital allocation for us to do share buyback, considering that we declare dividends of 12 cents per share. Plus the executed share by bank, it's close to 25 seconds per share. And that's our philosophy right now, Yuri. And as for Gerdau Metallurgica, the funding of Gerdau Metallurgica, the funding received from dividends or interest on capital from Gerdau. If there's not an extra ordinary dividend payout by Gredau S.A., Metallurgica Gredau today does not have significant cash to continue repurchasing its shares because it completed its share buyback with the cash it had available, and it concluded this in Q1.

Thank you very much.

Thank you, Yuri. Next question from Ricardo Monegalha with Safra. Hello, thank you for taking my question. I have only one question. This discussion of margin. We did an exercise in the past of structural margin or margin reference. Now we're considering the consolidation of specialties in Brazil and North America. Perhaps we have a reference margin. Could you explain this and how it compares? Ricardo, I think that at the end of the day, our business divisions became more similar considering the North American Brazil operations in the mid-term and when we think about margins. We think that the North America division, with all the investments made, remodernization of our facilities and concentration in higher value products as we currently have, can give us higher margins than what we had in the past, which was a single digit. just like in brazil with investments being made capex investments and reduction of costs and reduction of operating expenses as is the case of mining and electric power will have a significant increase in profitability in the coming years so i think that both For the North America BD and the Brazilian BD, we have to think about EBITDA margins between mid-teens and or close to 15%. I think that makes sense, given our historical context and the fact we are in a cyclical industry. At the moment, it might be over 20%, and sometimes close to single digits, but I guess that over time, this is one of the big strengths of Gridal, to have a resilient portfolio. And sometimes the geographies, as happened in this quarter, one BD offset the other. When the market or some internal issue, we had a non-recurring event, as was the case this quarter when we had the start of operations of the HCL. Okay, we're going to get the last question by Igor Gediz from Genial.

Good afternoon. Good afternoon. Thank you for taking my question. I have two questions. I know that this has been a topic previously mentioned, but I would like to revisit the CAPEX subject. In the fourth quarter of 24, you reported a managerial CAPEX of 2.4 billion, but with a cash effect of 1.8. This difference, according to my understanding, roll over to the cash effect So cash effect is 462 million in terms of managerial capex. Considering the comparison of capex, which should be different when compared to your historical capex, there used to be a growth in the second half of the year. So in my view, I think you will have less room in the last three quarters to maintain the same visibility of capex. So you would have a... more intense cash effect? Do you think that the same effect you had in 2024 would occur also now, the difference between managerial capex and the cash effect? And I'm asking that because of the calculation of free cash flow, because then I will not calculate it as managerial capex, but I will use the cash effect. And my second question relates to Long steals. Marcelo has already asked that question, but I would like to learn more about your pricing policy. I know this is a sensitive subject for you, but this is a valid question for investors. Would you please tell us? if you would be willing to let go of profitability just to maintain your market share in the long market, and what would be the trade-off between market share and price, and what are your biggest priorities? I know that this is a sensitive information, but this could also give me an idea, because this is a topic that is bothering investors. So you can start, Rafa, answering the capex side of the question. It's not a matter of managerial capex. It's a matter of cash versus the regime. We measure things with suppliers and then, okay, we say, this is already allocated in my PP&E, but in terms of accounts payable, sometimes... We finished, you know, I mean, that that nail that I put on the wall in December hasn't been paid yet. It will be paid 30 days later. So there is always this difference. If you stop and think that you're down. will have 1.6 billion BRLs a year of PP&E. We are talking about 500 million BRLs a month. So if the payment term is 30 days, there will be a carryover from one month to the next. This quarter, as you mentioned, the opposite thing happened. There was There were more disbursements. And throughout the year, this will be normalized. In this first quarter, the picture was reversed. So it is possible, and this is what we hope will happen. Even in terms of... P&E, we hope to see something more linear and in terms of disbursements, probably we will expedite that in the second quarter, but nothing very relevant. Okay, now the price of shares will change because the distributor capex changed, but this will probably stem from the window we look at if it's January, February, March or February, March or April. And in this case, we should have different answers, but this is a one-off because the trend is to have a more linear disbursement throughout the year in terms of our capex investments. Speaking about longs, I will just give you a very objective question. In terms of rebar and distribution, there is no trade-off. Our issue here is market share, period. At the current level of cost dilution, to reach our share, considering all of our competitive advancements, it's very obvious for us to be in a position that is comparable to our size. OK? Thank you. Thank you very much. That's very clear.

Very good.

Thank you very much. Our Q&A session is now concluded. And now I'll turn the floor back to Gustavo for his final remarks. Well, first of all, I would like to thank Rafa and Japor for their participation. And on my behalf and on behalf of the entire company, I would like to thank you for joining us in another earnings release presentation. This is a very good opportunity for us also to learn from you. And again, I take this opportunity to invite you for our next earnings release presentation scheduled for August 1st. So see you then. We remain at your disposal. Thank you very much.