Gerdau S.A. Q1 FY2025 earnings call

• Highlighted an accident frequency rate of 0.61, reaffirming commitment to safety. - Miguel Burnier iron ore mine received IRMA Standard recognition at performance level 50. - Inaugurated expansion of hot rolled coil production capacity in Ouro Branco. - North America had increased volumes delivered with order backlog returning to over 70 days. - Brazil market was strongly impacted by influx of imported steel with a penetration rate of 22%. - CapEx of BRL1.4 billion focused on strategic projects, and dividends and share buyback in Q1 2025 achieved a payout of 74% of net income.

In the first quarter of 2025, adjusted EBITDA totaled BRL2.4 billion, and net income was BRL758 million or BRL0.37 per share. The North America operation saw a recovery in performance with higher volumes and better prices, offsetting the drop in the Brazil operation. Brazil was impacted by two factors: increased costs from the new hot-rolled coil mill in Ouro Branco and an oversupply environment in the domestic market, especially for long steel. Geographical diversification played a key role in providing resilience. CapEx for the quarter was BRL1.4 billion, focusing on strategic projects like flat steel expansion and the Miguel Burnier mining project. The net debt over EBITDA ratio stood at 0.69 times.

• CapEx disbursement for the year is expected to be around BRL1.5 billion per quarter, with future CapEx potentially being reduced. - North America order backlog is over 70 days, with a positive outlook for non-residential construction demand. - Awaits review of the trade defense system in Brazil, with uncertainty in the US economy affecting clients. - Commitment to review capital allocation and potentially reduce future CapEx investments.

• Ineffective quota tariff system in Brazil allowing high imported steel penetration. - Uncertainty in the US economy impacting clients. - Slow deployment of anti-dumping decisions by the Brazilian government. - Some competitors in the rebar market facing financial difficulties.

Q: About cash generation, working capital, and CapEx evolution, and US backlog margins.

A: CapEx disbursement is expected to be lower than the current quarter's level, working capital is expected to normalize throughout the year. North America margins are expected to be similar to last year in quantitative terms, with the backlog growing.

Q: About Mexico project, Brazil market competition.

A: The Mexico investment has been canceled, and Brazil awaits effective trade defense measures, with a focus on enhancing competitiveness in the domestic market.

Q: About ramp-up of EBITDA from HRC new line and mining project, and trade defense.

A: The HRC new line is expected to end the year with additional production of around 150,000 - 100,000 tons, and mining project progress continues as planned. Trade defense mechanisms in Brazil need to close holes like ZPEs in Manaus, bilateral agreements with Egypt, and Santa Catarina ICMS issues.

Q: About US market inventory and capital structure.

A: North America backlog is over 70 days, with no significant movement from customers noticed. Gross debt is within the company's financial policy and not a concern given the current leverage level.

Q: About share buyback and margin reference.

A: Share buyback is seen as a good capital allocation due to undervaluation of shares. Margins for North America and Brazil divisions are expected to improve with strategic investments and product mix.

Q: About CapEx cash effect and long steel pricing.

A: The difference between managerial CapEx and cash effect will normalize throughout the year. In the longs market, market share is a priority with cost dilution to maintain competitiveness.