Gerdau SA Q2 FY2024 earnings call

• Safety: Accident frequency rate of 0.67, a historically low figure. • Support for Rio Grande do Sul: Contributed over BRL 26 million to support initiatives, including partnership with UNHCR for emergency housing. • Sustainability: First steel industry company in North America certified as B Corporation. • Business divisions: North America had stable backlog despite lower prices, special steel in US automotive recovering, South America had mixed outlooks, Brazil long/flat impacted by imports and weather. • Cost reduction: Plan to reduce cost and expense base by BRL 1.5 billion by 2025, with BRL 1 billion from Brazil BD and BRL 0.5 billion from other divisions. • CapEx: Spent BRL 1.2 billion in Q2, with typical seasonality in Q3/Q4. • Shareholder returns: Dividend approved and share buyback programs announced.

In the second quarter of 2024, the North America business division showed resilience with stable backlog despite lower prices, positively impacted by government measures like the Inflation Reduction Act. The special steel business division in the US had automotive production recovering, while Brazil's special steel was cautiously optimistic due to automotive activity rebound. The Brazil business division was impacted by imported steel, production capacity readjustment, and heavy rains, but expected positive indicators in construction and interest rates. Revenue contribution details were not explicitly given in absolute terms with percentages, but each segment's performance was discussed in context.

• Cost reduction: Expect to see BRL 1.5 billion lower cost and expense base by start of 2025, with BRL 1 billion from Brazil BD and BRL 0.5 billion from other divisions. • CapEx: Guidance of BRL 6 billion for the year, with typical higher spending in Q3/Q4. • Dividends: BRL 0.12 cents per share at Gerdau SA and BRL 0.08 cents per share at Metalurgica Gerdau approved. • Share buyback: Programs for Gerdau SA and Metalurgica Gerdau valid for 12 months starting August 1, 2024.

• Uncertainties linked to presidential elections in November and general economic dynamics including inflation and interest rates. • Impact of imported steel on Brazil market, with uncertainties in access to credit, high interest rates, and excessive imports. • Operational risks from heavy rains and logistical restrictions in Rio Grande do Sul.

Q: Please remind us what is the potential of the Brazil cost in dollar terms and if the BRL 1 billion cost reduction is in real base.

A: Approximately 20%-25% of Brazil operation costs are dollar-denominated. The BRL 1 billion cost reduction is in real base, with costs like SG&A and salaries correlated to IPCA, while variable costs depend on market dynamics.

Q: Do you think we should expect an acceleration in CapEx in the second half to reach the guidance of BRL 6 billion?

A: Typically, more CapEx is spent in Q3/Q4 due to seasonality and maintenance downtime, with brownfield investments requiring mill shutdowns.

Q: What is the scenario for North America BD and the impact of tariffs in Brazil?

A: North America BD showed resilience with solid backlog and spreads, while Brazil tariffs are being monitored with hope for positive impact but uncertainties remain.

Q: Thoughts on further adjustments to include more long steels in tariffs?

A: There is potential for further adjustments as the government is open to dialogue, with a positive outlook on continued communication and possible additions to tariff measures.