Gerdau update on results for Q1 2014

Gerdau closed the Q1 of 2014 with a 15.1% increase in consolidated net income, reaching BRL 10.6 billion. This increase was due primarily to the effect of the exchange rate from dollars into reals, intensification in iron ore sales and the larger volume of steel sold on the domestic Brazilian market and in Latin American countries. A total of 4.4 million tonnes of steel was sold during the same period, which is a 3.7% decline in relation to the first three months of 2013.

his was mostly due to lower exports from Brazil partially offset by the growth in sales volume on the domestic market - and the decline in long steel sales in the United States because of the harsh winter and increased imports in the region. Consolidated steel production, in turn, rose 3.3% compared to the Q1 of 2013, reaching 4.6 million tonnes.

The operating cash flow (EBITDA) of BRL 1.3 billion for the quarter represents a 48.6% increase in relation to the first quarter of 2013, while consolidated net profit reached BRL 440 million, an increase of 175%. These significant variations in EBITDA percentages and net profit are the result of better performance in most of the company’s business operations, as well as the reduced comparative basis (Q1 of 2013), with performance notably lower due to maintenance shutdowns at production plants during the period.

Throughout the quarter, the international markets Gerdau targets behaved differently. In Brazil, domestic sales (excluding special steel production units) grew 1.8% in relation to the same period the previous year, totaling 1.4 million tonnes. Whereas exports from the country fell by 60.4% to 155,000 tons. In the United States and Canada (excluding special steels production units) 1.5 million tonnes were sold, 4.2% less than the Q1 of last year, affected by the harsh winter in the region and the substantial increase in imports.

Units in other Latin American countries (excluding Brazil) totaled 681,000 tonnes sold, 5.4% higher in relation to the first three months of 2013. In turn, sales conducted by the Special Steels Business Operation (including production plants in Brazil, the United States, India and Spain) totaled 758,000 tonnes an increase of 13.6% compared to the first semester of 2013, which was influenced by greater demand in all regions, particularly India.

In 2014, iron mining activities that were previously reported as part of the Brazilian Business Operation are now presented separately as the new Iron Mining Business Operation. From January to March, iron ore sales reached 2 million tons against the 912,000 tons sold over the same period the previous year. Of this total, 812,000 tons were designated to Gerdau steel plants and 1.2 million to the market.

Mr Andre B Gerdau Johannpeter CEO of Gerdau said that “In the Q1, Gerdau performed well in relation to previous years. This was the result of efforts by company management, the positive exchange rate effect and improved demand in different markets. In the coming quarters we will continue to work at improving operational efficiency, optimizing working capital and changing the debt profile in pursuit of continuously improving results. We will also continue to invest in our strategic projects, such as expanding iron ore and flat steel production in Brazil in line with our position of continuing to be selective in CAPEX assessment.”