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Gerdau Reports 1st Quarter Revenues, Investments

05/07/2012 - Gerdau closed the first quarter of 2012 with net revenue of R$ 9.2 billion, an increase of 10% compared to the same period last year. Consolidated sales of 4.7 million tonnes remained stable in relation to the first three months of last year.

Gerdau closed the first quarter of 2012 with net revenue of R$ 9.2 billion, an increase of 10% compared to the same period last year. Consolidated sales of 4.7 million tonnes remained stable in relation to the first three months of last year, being positively influenced by increased demand from civil construction in Brazil and in the industrial and energy sectors in the United States.
 
In Brazil, sales were impacted by lower demand for special steels due to the anticipation of purchases during the fourth quarter of 2011 and the reduction of exports from the country. There also was a decrease in sales volume of special steels in Europe due to reduced business activities in the region. Considering the behavior of the different markets where the company operates, consolidated steel production showed a 4% growth, reaching 4.9 million tonnes.
 
The generation of cash from operations (EBITDA) of R$ 1 billion in the quarter was impacted by a substantial increase in the costs of raw materials—iron ore, coal, and scrap. The EBITDA was also influenced, especially in Brazil, from the process of de-industrialization of the economy and heavy rains that took place in Minas Gerais, which affected the production, sales logistics, and the flow of raw materials at Gerdau Açominas. Despite these factors, net income was R$ 397 million, roughly in line with the results of the first quarter of last year, benefited by the reduction of the financial result.
 
"The performance of Gerdau in the first quarter shows that demand continues to be strong in relevant markets, but the level of profitability of our operations was affected mainly by the growth of production costs and by the de-industrialization process of the steel supply chain in Latin America. In Brazil, the impacts from de-industrialization have been strongly felt in the domestic market. Faced with this scenario, we continue to work on improving our management of costs, especially as it relates to our own production of iron ore and coal, as well as for the supply of captive scrap, reinforcing our commitment to creating sustainable value for our shareholders," said Gerdau's CEO, André B. Johannpeter.
 
Investments in fixed assets (CAPEX) in the first quarter totaled R$ 691 million with the main investments being for starting up production of flat steel (hot rolled coils) at the end of 2012 at Gerdau Açominas (MG). The expansion of the installed capacity of special steel in Brazil and the United States was also continued, as well as the increased production of rolled products at the Cosigua (RJ) plant and the deployment of the rolling mill and sintering unit in India.
 
The company also continues attempting to achieve self-sufficiency in iron ore at Gerdau Açominas, which is the main consumer of this raw material. Also in full swing is the installation of the second phase of the company's investment in the mining sector when its installed capacity will grow from its current 6.5 million tonnes to 11.5 million tonnes with the installation of a second ore processing unit.
 
The project involves its own logistics structure with investments in building a highway to facilitate the transportation of its production, as well as the installation of a 9-km long conveyor belt system to transport the raw material to the Ouro Branco mill. Another highlight is the project of implementing a rail terminal, which is in the final stage of studies. The total number of investments reaches R$ 838 million in funds and should be completed in 2014.
 
Additionally, the project for the commercial exploitation of the surplus production of iron ore located in Minas Gerais is still in progress, which is in the phase of seeking a strategic partner for the venture.
 
New investments were approved in the first quarter to meet the growing demand for special steels in the automotive market in the United States. A new continuous casting mill will be installed at the plant in St. Paul, Minn., which will expand its annual production capacity from 90,000 tonnes to 500,000 tonnes with an investment of R$ 91 million. The new equipment should begin operations in the beginning of 2014. A new inspection line of bars will start operating in 2013 at the plant in Monroe, Mich., increasing the processing capacity of the products. This investment of R$ 39 million is over and above the unit's expansion plan previously announced, which will increase the annual production capacity of rolled products at Monroe from 470,000 tonnes to 720,000 tonnes in the coming years.
 
The production capacity of steel and rolled products will be expanded in Colombia to meet the expansion of the domestic market. With this, the company will reach an annual installed capacity of 950,000 tonnes of steel and 1.1 million tonnes of rolled products by 2015, representing an investment of R$ 192 million.
 
Gerdau is the leader in the segment of long steel in the Americas and one of the main suppliers of special long steel in the world. With over 45,000 employees, it has industrial operations in 14 countries—in the Americas, Europe, and Asia—which together represent an installed capacity of more than 25 million tonnes of steel per year. It is the largest recycler in Latin America and in the world, and transforms each year millions of tonnes of scrap steel.