OREANDA-NEWS. May 11, 2012. Gerdau closed the first quarter of 2012 with net revenue of BRL  9.2 billion, which is an increase of 10% against the same period last year. Consolidated shipments of 4.7 million metric tons 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. On the other hand, 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. Furthermore, there 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 metric tons.

The generation of cash from operations (EBITDA) of BRL  1 billion in the quarter was impacted by a substantial increase in the costs of raw materials—iron ore, coal, and scrap—which continue pressuring the Company's margins. The EBITDA was also influenced, especially in Brazil, from the process of de-industrialization of the economy and heavy rains that took place in the state of Minas Gerais, which affected the production, sales logistics, and the flow of raw materials at Gerdau Acominas. Despite these factors, net income was BRL  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," affirms Gerdau's chief executive officer (CEO), Andre B. Johannpeter.

During the quarter, the markets supplied by Gerdau performed differently. In Brazil, sales to the domestic market (excluding the units producing special steels) grew 8%, adding 1.3 million metric tons, while exports from the country decreased 21%, reaching 509,000 metric tons. In the United States and Canada (excluding the units producing special steels), 1.8 million metric tons were sold, which is 7% more than in the first quarter of last year. As for the units in the other countries of Latin America (except Brazil), they accounted for 671,000 metric tons sold, a volume 5% higher compared to the first three months of 2011, primarily due to the expansion in the demand of civil construction in Colombia, Peru, and Chile. The sales closed by the Business Operation of Special Steels (including plants in Brazil, the United States, and Spain) totaled 698,000 metric tons, which is a 6% decrease.

Gerdau's investments reach BRL  691 million in first quarter

Investments in fixed assets (CAPEX) in the first quarter totaled BRL  691 million with the main investments being for starting up production of flat steel (hot rolled coils) at the end of 2012 at Gerdau Acominas (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 seeking to achieve self-sufficiency in iron ore at Gerdau Acominas, 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 metric tons to 11.5 million metric tons with the installation of a second ore processing unit.

The project also involves its own logistics structure with investments in building a highway in order to facilitate the transportation of its production, as well as the installation of a nine kilometer 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 BRL  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 also 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 (Minnesota), which will expand its annual production capacity from 90,000 metric tons to 500,000 metric tons with an investment of BRL  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 (Michigan), increasing the processing capacity of the products. This investment of BRL  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 metric tons to 720,000 metric tons in the coming years.

The production capacity of steel and rolled products will be expanded in Colombia in order to meet the expansion of the domestic market. With this, the Company will reach an annual installed capacity of 950,000 metric tons of steel and 1.1 million metric tons of rolled products by 2015, representing an investment of BRL  192 million.

Dividends to be paid on May 23

The publicly traded companies Gerdau S.A. and Metalurgica Gerdau S.A. shall pay dividends on May 23 for the performance in the first quarter of 2012. The shareholders from Gerdau S.A. shall receive BRL  102.1 million (BRL  0.06 per share) and those from Metalurgica Gerdau S.A. BRL  32.5 million (BRL  0.08 per share).