São Paulo, May 8, 2019 — Gerdau S.A. (B3: GGBR4 / NYSE: GGB) announces its results for the first quarter of 2019. The consolidated financial statements of the Company are presented in Brazilian real (R$), in accordance with International Financial Reporting Standards (IFRS) and the accounting practices adopted in Brazil. The information in this report does not include the data of associates and jointly controlled entities, except where stated otherwise.
CONSOLIDATED HIGHLIGHTS
· Highest first-quarter EBITDA of last 11 years in 1Q19 (R$ 1.6 billion), with EBITDA margin of 15.5%.
· Dividend distribution in 1Q19 of R$ 119 million (R$ 0.07 per share).
· Financial leverage (net debt/adjusted EBITDA) of 1.8x on March 31, 2019, down sharply from 2.7x on March 31, 2018.
· Substantial improvement in EBITDA and EBITDA margin at North America BD, to R$ 506 million and 13.2%.
EBITDA (R$ million) and EBITDA Margin (%) |
| Dividends (R$ million) |
|
|
|
|
Debt (R$ billion) and Leverage Ratio | EBITDA and EBITDA Margin |
|
|
GERDAU’S PERFORMANCE IN 1Q19
Results of Operations
CONSOLIDATED |
| 1Q19 |
| 1Q18 |
| ∆ |
| 4Q18 |
| ∆ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 3,343 |
| 4,165 |
| -19.7 | % | 3,221 |
| 3.8 | % |
Shipments of steel |
| 2,985 |
| 3,871 |
| -22.9 | % | 3,167 |
| -5.7 | % |
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 10,026 |
| 10,389 |
| -3.5 | % | 10,900 |
| -8.0 | % |
Cost of Goods Sold |
| (8,757 | ) | (9,050 | ) | -3.2 | % | (9,596 | ) | -8.7 | % |
Gross profit |
| 1,269 |
| 1,339 |
| -5.2 | % | 1,304 |
| -2.7 | % |
Gross margin (%) |
| 12.7 | % | 12.9 | % |
|
| 12.0 | % |
|
|
SG&A |
| (368 | ) | (420 | ) | -12.4 | % | (393 | ) | -6.4 | % |
Selling expenses |
| (129 | ) | (150 | ) | -14.0 | % | (131 | ) | -1.5 | % |
General and administrative expenses |
| (239 | ) | (270 | ) | -11.5 | % | (262 | ) | -8.8 | % |
%SG&A/Net Sales |
| 3.7 | % | 4.0 | % |
|
| 3.6 | % |
|
|
Adjusted EBITDA |
| 1,552 |
| 1,484 |
| 4.6 | % | 1,404 |
| 10.5 | % |
Adjusted EBITDA Margin |
| 15.5 | % | 14.3 | % |
|
| 12.9 | % |
|
|
Production and shipments
In 1Q19, crude steel production and steel shipments decreased in relation to 1Q18, reflecting the asset divestments concluded in the previous year, namely the operations in Chile and India and most rebar units and wire rod unit in the United States.
Operating result
Despite the divestments’ impact on shipments, the slight reduction in net sales in 1Q19 compared to 1Q18 was influenced by the growth in net sales per tonne sold at all BDs, given mainly the effect from exchange variation (depreciation of 16% in the average price of the Brazilian real against the U.S. dollar in 1Q19 vs. 1Q18).
Consolidated cost of goods sold decreased slightly in 1Q19 in relation to 1Q18, despite the divestments concluded, given the higher cost per tonne at all BDs, which was influenced by the higher prices of inputs in general and by exchange variation.
Consolidated gross profit decreased in 1Q19 in relation to 1Q18, reflecting the asset divestments.
Selling, general and administrative (SG&A) expenses in 1Q19 decreased in relation to both 1Q18 and 4Q18, to 3.7% of net sales, reflecting the ongoing efforts to streamline operations and implement digital innovations, as well as the divestments concluded.
SG&A Expenses (R$ million and % of Net Sales)
Breakdown of Consolidated EBITDA |
| 1Q19 |
| 1Q18 |
| ∆ |
| 4Q18 |
| ∆ |
|
Net income |
| 453 |
| 448 |
| 1.0 | % | 389 |
| 16.5 | % |
Net financial result |
| 375 |
| 343 |
| 9.5 | % | 392 |
| -4.3 | % |
Provision for income and social contribution taxes |
| 162 |
| 173 |
| -6.4 | % | (149 | ) | — |
|
Depreciation and amortization |
| 506 |
| 453 |
| 11.8 | % | 504 |
| 0.4 | % |
EBITDA - Instruction CVM (1) |
| 1,496 |
| 1,416 |
| 5.6 | % | 1,136 |
| 31.7 | % |
Gains and losses on assets held for sale and sales in subsidiaries |
| — |
| 3 |
| — |
| 186 |
| — |
|
Equity in earnings of unconsolidated companies |
| (14 | ) | (16 | ) | -13 | % | 29 |
| — |
|
Proportional EBITDA of associated companies and jointly controlled entities |
| 70 |
| 81 |
| -13.6 | % | 53 |
| 32.1 | % |
Adjusted EBITDA(2) |
| 1,552 |
| 1,484 |
| 4.6 | % | 1,404 |
| 10.5 | % |
Adjusted EBITDA Margin |
| 15.5 | % | 14.3 | % |
|
| 12.9 | % |
|
|
(1) - Non-accounting measurement calculated pursuant to Instruction 527 of the CVM.
(2) - Non-accounting mesurement prepared by the Company.
Note: EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is not a method used in accounting practices, does not represent cash flow for the periods in question and should not be considered an alternative to cash flow as an indicator of liquidity.
The Company presents adjusted EBITDA to provide additional information regarding cash flow generation in the period.
CONCILIATION OF CONSOLIDATED EBITDA |
| 1Q19 |
| 1Q18 |
| 4Q18 |
| 3M19 |
| 3M18 |
|
EBITDA - Instruction CVM (1) |
| 1,496 |
| 1,416 |
| 1,136 |
| — |
| — |
|
Depreciation and amortization |
| (506 | ) | (453 | ) | (504 | ) | — |
| — |
|
OPERATING INCOME BEFORE FINANCIAL RESULT AND TAXES(2) |
| 990 |
| 964 |
| 632 |
| — |
| — |
|
(1) - Non-accounting measure calculated pursuant to Instruction 527 of the CVM.
(2) - Accounting measurement disclosed in consolidated Statements of Income.
Adjusted EBITDA and adjusted EBITDA margin grew in 1Q19 compared to 1Q18 and 4Q18, due to the asset divestments, reflecting the successful divestments plan in recent years, besides the better performance of the North America BD and the lower selling, general and administrative expenses. Note that EBITDA in 1Q19 was the highest first-quarter result since 2008.
EBITDA (R$ million) and EBITDA Margin (%)
Financial result and net income
CONSOLIDATED |
| 1Q19 |
| 1Q18 |
| ∆ |
| 4Q18 |
| ∆ |
|
Income before financial income expenses and taxes(1) |
| 990 |
| 964 |
| 2.7 | % | 632 |
| 56.6 | % |
Financial Result |
| (375 | ) | (343 | ) | 9.5 | % | (392 | ) | -4.3 | % |
Financial income |
| 41 |
| 31 |
| 30.9 | % | 82 |
| -50.0 | % |
Financial expenses |
| (345 | ) | (366 | ) | -5.7 | % | (425 | ) | -18.8 | % |
Exchange variation, net (including net investment hedge) |
| (48 | ) | (13 | ) | 269.2 | % | 181 |
| — |
|
Exchange variation (other currencies) |
| (23 | ) | 6 |
| — |
| 6 |
| — |
|
Bonds repurchase expenses |
| — |
| — |
| — |
| (224 | ) | — |
|
Gains (losses) on financial instruments, net |
| — |
| (1 | ) | — |
| (12 | ) | — |
|
Income before taxes(1) |
| 615 |
| 621 |
| -1.0 | % | 240 |
| 156.3 | % |
Income and social contribution taxes |
| (162 | ) | (173 | ) | -6.4 | % | 149 |
| — |
|
Exchange variation including net investment hedge |
| 20 |
| 12 |
| 66.7 | % | (129 | ) | — |
|
Other lines |
| (182 | ) | (185 | ) | -1.6 | % | (209 | ) | -12.9 | % |
Non-recurring items |
| — |
| — |
| — |
| 487 |
| — |
|
Consolidated Net Income (1) |
| 453 |
| 448 |
| 1.0 | % | 389 |
| 16.5 | % |
Non-recurring items |
| — |
| 3 |
| — |
| (77 | ) | — |
|
Gains and losses on assets held for sale and sales os interest in subsidiaries |
| — |
| 3 |
| — |
| 186 |
| — |
|
Bonds repurchase expenses |
| — |
| — |
| — |
| 224 |
| — |
|
Income and social contribution taxes - Non-recurring items |
| — |
| — |
| — |
| (487 | ) | — |
|
Consolidated Adjusted Net Income(2) |
| 453 |
| 451 |
| 0.4 | % | 312 |
| 45.2 | % |
(1) - Accounting measurement disclosed in the income statement of the Company.
(2) - Non accounting measurement made by the Company to demonstrate the net income adjusted by the extraordinary events that impacted the result, but without cash effect.
In 1Q19, the higher financial result was due to exchange variation (depreciation of 17% in the end-of-period price of the Brazilian real against the U.S. dollar in 1Q19 vs. 1Q18).
Adjusted net income in 1Q19 was stable in relation to 1Q18 and higher in relation to 4Q18.
Dividends
Gerdau S.A. approved the payment of dividends in the amount of R$ 119 million (R$ 0.07 per share) in 1Q19, anticipating the results for 2019.
Payment date: May 29, 2019
Record date: shareholdings on May 17, 2019
Ex-dividend date: May 20, 2019
Working Capital and Cash Conversion Cycle
In March 2019, the cash conversion cycle and working capital measured in days (working capital divided by daily net sales in the quarter) increased in relation to December 2018, reflecting the seasonality of the first quarter of each year, which typically is marked by higher consumption of working capital than other quarters. Another factor was the building of a strategic inventory, especially of iron ore and slabs, to prepare the Ouro Branco Mill for its scheduled maintenance shutdown in the second half of 2019.
Financial Liabilities
Debt composition |
| 03.31.2019 |
| 12.31.2018 |
| 03.31.2018 |
|
Short Term |
| 2,939 |
| 1,825 |
| 2,180 |
|
Long Term |
| 12,054 |
| 13,082 |
| 14,539 |
|
Gross Debt |
| 14,993 |
| 14,907 |
| 16,719 |
|
Cash, cash equivalents and short-term investments |
| 2,532 |
| 3,325 |
| 3,246 |
|
Net Debt |
| 12,461 |
| 11,582 |
| 13,473 |
|
On March 31, 2019, gross debt was 19.6% short term and 80.4% long term. Broken down by currency, 24.9% of gross debt was denominated in Brazilian real, 74.4% in U.S. dollar and 0.7% in other currencies.
On March 31, 2019, 62.3% of cash was held by Gerdau companies abroad and denominated mainly in U.S. dollar.
The evolution in key debt indicators is shown below:
Indicators |
| 03.31.2019 |
| 12.31.2018 |
| 03.31.2018 |
|
Gross debt / Total capitalization (1) |
| 36 | % | 36 | % | 41 | % |
Net debt(2) (R$) / EBITDA (3) (R$) |
| 1.8x |
| 1.7x |
| 2.7x |
|
(1) - Total capitalization = shareholders' equity + gross debt- interest on debt
(2) - Net debt = gross debt - interest on debt - cash, cash equivalents and short-term investments
(3) - Adjusted EBITDA in the last 12 months.
The sharp reduction in the net debt/EBITDA ratio from 2.7x on March 31, 2018 to 1.8x on March 31, 2019, was due to the funds generated by the successful divestments program in recent years, which reached the economic value of R$ 7 billion, with a focus on deleveraging and optimizing the Company’s asset portfolio, besides the continued improvement in EBITDA.
Payment schedule of gross debt (non-current)
On March 31, 2019, the nominal weighted average cost of gross debt was 6.5%, or 6.8% for the portion denominated in Brazilian real, 5.6% plus exchange variation for the portion denominated in U.S. dollar contracted by companies in Brazil and 9.8% for the portion contracted by subsidiaries abroad. On March 31, 2019, the average gross debt term was 7.2 years, with the debt maturity schedule well balanced and distributed over the coming years.
Investments
Capital expenditure came to R$ 305 million in 1Q19, with R$ 191 million allocated to general maintenance, R$ 77 million to technological expansion and modernization, and R$ 37 million to maintenance of the Ouro Branco Mill. Of the amount invested in the quarter, 31% was allocated to the North America BD, 41% to the Brazil BD, 24% to the Special Steel BD and 4% to the South America BD. For 2019, capital expenditure is projected at R$ 2.2 billion.
This amount is part of the CAPEX plan of R$ 7.1 billion for the three-year period (2019-2021), of which R$ 2.4 billion in investments in expansion and technological update, of which the largest part refers to increase capacity. All the investments in this category meet the criterion of minimun rate of return of 15% per year and will be done as the expectations of market evolution and the generation of free cash flow the period are confirmed.
It is worth mentioning that the investment of R$ 532 million in the special steel unit, in Pindamonhangaba, is already underway, with the start of civil works and the equipment purchases. In addition, inventory formation began in antecipation of the shutdown of the blast furnace 1 of Ouro Branco — MG, in the second half of 2019.
Cash Flow
In 1Q19, EBITDA was sufficient to honor all commitments related to CAPEX, income tax and interest. However, given the consumption of R$ 1,234 million in working capital associated with the optimization of inventories and the increase in accounts receivable, free cash flow was negative R$ 166 million, reflecting the seasonality of the first quarter of each year, which is typically marked by higher working capital consumption than other quarters. Another factor was the building of a strategic inventory, especially of iron ore and slabs, to prepare the Ouro Branco Mill for its scheduled maintenance shutdown in the second half of 2019.
Free Cash Flow - Quarterly (R$ million)
PERFORMANCE BY BUSINESS DIVISION (BD)
The information in this report is divided into four Business Divisions (BD) in accordance with Gerdau’s corporate governance, as follows:
· Brazil BD (Brazil Business Division) — includes the operations in Brazil (except special steel) and the iron ore operation in Brazil;
· North America BD (North America Business Division) — includes all operations in North America (Canada, United States and Mexico), except special steel, as well as the jointly controlled entities and associate company, both located in Mexico;
· South America BD (South America Business Division) — includes all operations in South America (Argentina, Peru, Uruguay and Venezuela), except the operations in Brazil, and the jointly controlled entities in the Dominican Republic and Colombia;
· Special Steel BD (Special Steel Business Division) — includes the special steel operations in Brazil and the United States.
NET SALES
EBITDA & EBITDA MARGIN
BRAZIL BD
BRAZIL BD |
| 1Q19 |
| 1Q18 |
| ∆ |
| 4Q18 |
| ∆ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 1,419 |
| 1,532 |
| -7.4 | % | 1,454 |
| -2.4 | % |
Shipments of steel |
| 1,357 |
| 1,438 |
| -5.6 | % | 1,311 |
| 3.5 | % |
Domestic Market |
| 939 |
| 996 |
| -5.7 | % | 887 |
| 5.9 | % |
Exports |
| 418 |
| 442 |
| -5.4 | % | 424 |
| -1.4 | % |
Shipments of long steel |
| 1,041 |
| 1,071 |
| -2.8 | % | 921 |
| 13.0 | % |
Domestic Market |
| 641 |
| 647 |
| -0.9 | % | 589 |
| 8.8 | % |
Exports |
| 400 |
| 424 |
| -5.7 | % | 332 |
| 20.4 | % |
Shipments of flat steel |
| 316 |
| 367 |
| -13.9 | % | 390 |
| -18.9 | % |
Domestic Market |
| 298 |
| 349 |
| -14.6 | % | 298 |
| 0.0 | % |
Exports |
| 18 |
| 18 |
| 0.0 | % | 92 |
| -80.4 | % |
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales (1) |
| 3,849 |
| 3,611 |
| 6.6 | % | 3,946 |
| -2.5 | % |
Domestic Market |
| 3,010 |
| 2,794 |
| 7.7 | % | 3,023 |
| -0.4 | % |
Exports |
| 839 |
| 817 |
| 2.7 | % | 923 |
| -9.1 | % |
Cost of Goods Sold |
| (3,321 | ) | (2,929 | ) | 13.4 | % | (3,374 | ) | -1.6 | % |
Gross profit |
| 528 |
| 682 |
| -22.6 | % | 571 |
| -7.6 | % |
Gross margin (%) |
| 13.7 | % | 18.9 | % |
|
| 14.5 | % |
|
|
EBITDA |
| 674 |
| 751 |
| -10.3 | % | 647 |
| 4.2 | % |
EBITDA margin (%) |
| 17.5 | % | 20.8 | % |
|
| 16.4 | % |
|
|
(1) - Includes iron ore net sales.
Production and shipments
Crude steel production decreased in 1Q19 compared to 1Q18, due to the lower shipments in the period.
Shipments decreased in 1Q19 in relation to 1Q18, due to lower shipments of semi-finished products in the domestic market, especially of slabs. Another factor was the reduction in shipments to export markets of semi-finished products, especially billets, given the export market’s lower profitability and the building of a strategic inventory to prepare the Ouro Branco Mill for its scheduled maintenance shutdown in the second half of 2019.
In relation to 4Q18, shipments increased, reflecting the higher sales of long steel products. The better performance in the domestic market was influenced primarily by the retail construction market. The reduction in exports of flat steel products in 1Q19 compared to 4Q18 is explained by the rebuilding of slab inventories to meet the needs of the flat steel rolling mills at the Ouro Branco Mill during the scheduled maintenance shutdown of blast furnace 1.
In 1Q19, 256,000 tonnes of iron ore were sold to third parties and 1.196,000 tonnes were consumed internally. The lower shipments of iron ore in the period reflect the building of strategic inventories given the challenges faced by the mining industry in Minas Gerais state.
Operating result
Net sales increased in 1Q19 compared to 1Q18, due to the increase in net sales per tonne sold, especially in the domestic market. Compared to 4Q18, the decrease in net sales was mainly due to the reduction in net sales per tonne sold in the export market, influenced by the international prices formed during the last three months of 2018, given that export prices are set on average three months prior to shipment.
Cost of goods sold increased in 1Q19 in relation to 1Q18, given the higher costs of raw materials, especially scrap, pig iron, iron ore and coal.
Gross profit and gross margin decreased in 1Q19 compared to 1Q18, since the increase in costs per tonne sold surpassed the increase in net sales per tonne sold.
The reduction in EBITDA in 1Q19 compared to 1Q18 was due to the lower gross profit, which was partially neutralized by the higher depreciation in the period.
EBITDA (R$ million) and EBITDA Margin (%)
NORTH AMERICA BD
NORTH AMERICA BD |
| 1Q19 |
| 1Q18 |
| ∆ |
| 4Q18 |
| ∆ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 1,267 |
| 1,799 |
| -29.6 | % | 1,179 |
| 7.5 | % |
Shipments of steel |
| 1,076 |
| 1,689 |
| -36.3 | % | 1,198 |
| -10.2 | % |
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 3,842 |
| 4,428 |
| -13.2 | % | 4,335 |
| -11.4 | % |
Cost of Goods Sold |
| (3,400 | ) | (4,188 | ) | -18.8 | % | (3,915 | ) | -13.1 | % |
Gross profit |
| 442 |
| 240 |
| 84.2 | % | 420 |
| 5.2 | % |
Gross margin (%) |
| 11.5 | % | 5.4 | % |
|
| 9.7 | % |
|
|
EBITDA |
| 506 |
| 248 |
| 104.0 | % | 437 |
| 15.7 | % |
EBITDA margin (%) |
| 13.2 | % | 5.6 | % |
|
| 10.1 | % |
|
|
Production and shipments
Production and shipments in 1Q19 decreased in relation to 1Q18, due to the divestment of most rebar units and wire rod unit in the United States.
Operating result
Despite the impact from the divestments on shipments, the slight reduction in net sales in 1Q19 compared to 1Q18 was due to the increase in net sales per tonne sold, which was influenced by the improvement in prices over the course of 2018 and by the effect from exchange variation (depreciation of 16% in the average price of the Brazilian real against the U.S. dollar in 1Q19 vs. 1Q18).
The reduction in cost of goods sold in 1Q19 compared to 1Q18 was due to the asset divestment program, despite the higher costs of inputs in general, especially scrap, and the effect from exchange variation (depreciation of 16% in the average price of the Brazilian real against the U.S. dollar in 1Q19 vs. 1Q18).
The significant improvement in gross profit and gross margin in 1Q19 in relation to 1Q18 was due to 232 Section effects and the record high metal spread, which was supported by solid economic growth, especially in non-residential construction.
The improvement in EBITDA and EBITDA margin in 1Q19 in relation to 1Q18 was supported by the similar improvement in gross profit and gross margin in the comparison period, as well as by the higher depreciation.
EBITDA (R$ million) and EBITDA Margin (%)
SOUTH AMERICA BD
SOUTH AMERICA BD |
| 1Q19 |
| 1Q18 |
| ∆ |
| 4Q18 |
| ∆ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 139 |
| 243 |
| -43.0 | % | 144 |
| -3.9 | % |
Shipments of steel |
| 244 |
| 376 |
| -35.1 | % | 262 |
| -7.0 | % |
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 739 |
| 967 |
| -23.6 | % | 819 |
| -9.7 | % |
Cost of Goods Sold |
| (629 | ) | (811 | ) | -22.4 | % | (701 | ) | -10.3 | % |
Gross profit |
| 110 |
| 156 |
| -29.5 | % | 118 |
| -6.6 | % |
Gross margin (%) |
| 14.9 | % | 16.1 | % |
|
| 14.4 | % |
|
|
EBITDA |
| 157 |
| 187 |
| -16.0 | % | 128 |
| 22.6 | % |
EBITDA margin (%) |
| 21.2 | % | 19.3 | % |
|
| 15.6 | % |
|
|
Production and shipments
Production and shipments decreased in 1Q19 compared to 1Q18, influenced primarily by the deconsolidation of Chile and by the weaker performance of Argentina, due to the country’s economic crisis.
Operating result
Net sales and cost of goods sold decreased in 1Q19 compared to 1Q18, mainly due to the deconsolidation of Chile.
Gross profit and gross margin decreased in 1Q19 compared to 1Q18, also due to the deconsolidation of Chile.
EBITDA decreased in 1Q19 compared to 1Q18, due to the lower gross profit, which was partially neutralized by the higher depreciation in the period.
EBITDA (R$ million) and EBITDA Margin (%)
SPECIAL STEEL BD
SPECIAL STEEL BD |
| 1Q19 |
| 1Q18 |
| ∆ |
| 4Q18 |
| ∆ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 518 |
| 591 |
| -12.3 | % | 444 |
| 16.7 | % |
Shipments of steel |
| 430 |
| 514 |
| -16.3 | % | 474 |
| -9.3 | % |
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 1,840 |
| 1,732 |
| 6.2 | % | 1,989 |
| -7.5 | % |
Cost of Goods Sold |
| (1,649 | ) | (1,467 | ) | 12.4 | % | (1,814 | ) | -9.1 | % |
Gross profit |
| 191 |
| 265 |
| -27.9 | % | 175 |
| 9.4 | % |
Gross margin (%) |
| 10.4 | % | 15.3 | % |
|
| 8.8 | % |
|
|
EBITDA |
| 238 |
| 315 |
| -24.4 | % | 226 |
| 5.1 | % |
EBITDA margin (%) |
| 12.9 | % | 18.2 | % |
|
| 11.4 | % |
|
|
Production and shipments
Shipments decreased in 1Q19 compared to 1Q18, influenced by the deconsolidation of India and the lower shipments in Brazil and the United States. In Brazil, despite the growth in vehicle shipments, vehicle production declined, influenced by weaker exports, given that Argentina is the main destination of Brazil’s auto exports. In the United States, the decline in shipments was due to the lower consumption in the oil and gas industry and the reduction in inventories in the distribution chain.
Operating result
Net sales increased in 1Q19 compared to 1Q18, reflecting the higher net sales per tonne sold.
Cost of goods sold increased in 1Q19 in relation to 1Q18, due to the higher costs of inputs in general, especially electrodes, scrap and metal alloys.
Gross profit and gross margin decreased in 1Q19 compared to 1Q18, since the increase in costs per tonne sold surpassed the increase in net sales per tonne sold, due to the strong pressure from costs of inputs in general.
EBITDA and EBITDA margin decreased in 1Q19 in relation to 1Q18, accompanying the decline in gross margin.
EBITDA (R$ million) and EBITDA Margin (%)
THE MANAGEMENT
This document contains forward-looking statements. These statements are based on estimates, information or methods that may be incorrect or inaccurate and that may not occur. These estimates are also subject to risks, uncertainties and assumptions that include, among other factors: general economic, political and commercial conditions in Brazil and in the markets where we operate, as well as existing and future government regulations. Potential investors are cautioned that these forward-looking statements do not constitute guarantees of future performance, given that they involve risks and uncertainties. Gerdau does not undertake and expressly waives any obligation to update any of these forward-looking statements, which are valid only on the date on which they were made.
GERDAU S.A.
CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
|
| March 31, 2019 |
| December 31, 2018 |
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
Cash and cash equivalents |
| 1,941,764 |
| 2,890,144 |
|
Short-term investments |
| 590,403 |
| 459,470 |
|
Trade accounts receivable - net |
| 3,976,755 |
| 3,201,656 |
|
Inventories |
| 9,377,329 |
| 9,167,689 |
|
Tax credits |
| 538,228 |
| 527,428 |
|
Income and social contribution taxes recoverable |
| 325,835 |
| 445,561 |
|
Unrealized gains on financial instruments |
| 36,914 |
| 30,711 |
|
Other current assets |
| 782,457 |
| 780,423 |
|
|
| 17,569,685 |
| 17,503,082 |
|
|
|
|
|
|
|
NON-CURRENT ASSETS |
|
|
|
|
|
Tax credits |
| 38,167 |
| 32,065 |
|
Deferred income taxes |
| 3,787,600 |
| 3,874,054 |
|
Unrealized gains on financial instruments |
| 2,561 |
| 2,706 |
|
Related parties |
| 74,998 |
| 27,939 |
|
Judicial deposits |
| 2,157,968 |
| 2,135,414 |
|
Other non-current assets |
| 439,271 |
| 449,592 |
|
Prepaid pension cost |
| 16,715 |
| 17,952 |
|
Advance for future investment in joint venture |
| 374,083 |
| 375,456 |
|
Investments in associates and joint ventures |
| 1,379,597 |
| 1,367,802 |
|
Goodwill |
| 9,163,909 |
| 9,112,390 |
|
Leasing |
| 907,998 |
| — |
|
Other Intangibles |
| 748,947 |
| 836,096 |
|
Property, plant and equipment, net |
| 15,483,804 |
| 15,546,481 |
|
|
| 34,575,618 |
| 33,777,947 |
|
TOTAL ASSETS |
| 52,145,303 |
| 51,281,029 |
|
GERDAU S.A.
CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
|
| March 31, 2019 |
| December 31, 2018 |
|
CURRENT LIABILITIES |
|
|
|
|
|
Trade accounts payable |
| 4,066,763 |
| 4,335,054 |
|
Short-term debt |
| 2,911,897 |
| 1,822,183 |
|
Debentures |
| 26,981 |
| 2,755 |
|
Taxes payable |
| 494,743 |
| 351,545 |
|
Income and social contribution taxes payable |
| 415,564 |
| 395,682 |
|
Payroll and related liabilities |
| 405,854 |
| 588,627 |
|
Dividends payable |
| — |
| 169,616 |
|
Leasing payable |
| 215,556 |
| — |
|
Employee benefits |
| — |
| 157 |
|
Environmental liabilities |
| 65,102 |
| 60,419 |
|
Unrealized losses on financial instruments |
| 2,694 |
| 5,245 |
|
Other current liabilities |
| 691,597 |
| 772,970 |
|
|
| 9,296,751 |
| 8,504,253 |
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
Long-term debt |
| 10,529,771 |
| 11,545,658 |
|
Debentures |
| 1,524,382 |
| 1,536,118 |
|
Related parties |
| 5,285 |
| 1,350 |
|
Deferred income taxes |
| 59,101 |
| 118,368 |
|
Provision for tax, civil and labor liabilities |
| 698,953 |
| 770,305 |
|
Environmental liabilities |
| 65,963 |
| 72,228 |
|
Employee benefits |
| 1,348,681 |
| 1,356,560 |
|
Obligations with FIDC |
| 958,211 |
| 938,526 |
|
Leasing payable |
| 696,849 |
| — |
|
Other non-current liabilities |
| 515,005 |
| 499,092 |
|
|
| 16,402,201 |
| 16,838,205 |
|
EQUITY |
|
|
|
|
|
Capital |
| 19,249,181 |
| 19,249,181 |
|
Treasury stocks |
| (261,282 | ) | (280,426 | ) |
Capital reserves |
| 11,597 |
| 11,597 |
|
Retained earnings |
| 5,251,678 |
| 4,806,089 |
|
Operations with non-controlling interests |
| (2,870,825 | ) | (2,870,825 | ) |
Other reserves |
| 4,855,225 |
| 4,814,988 |
|
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT |
| 26,235,574 |
| 25,730,604 |
|
|
|
|
|
|
|
NON-CONTROLLING INTERESTS |
| 210,777 |
| 207,967 |
|
|
|
|
|
|
|
EQUITY |
| 26,446,351 |
| 25,938,571 |
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
| 52,145,303 |
| 51,281,029 |
|
GERDAU S.A.
CONSOLIDATED STATEMENTS OF INCOME
In thousands of Brazilian reais (R$)
(Unaudited)
|
| For the three-month period ended |
| ||||
|
| March 31, 2019 |
| March 31, 2018 |
| December 31, 2018 |
|
|
|
|
|
|
|
|
|
NET SALES |
| 10,025,661 |
| 10,388,800 |
| 10,899,702 |
|
|
|
|
|
|
|
|
|
Cost of sales |
| (8,756,650 | ) | (9,049,700 | ) | (9,596,145 | ) |
|
|
|
|
|
|
|
|
GROSS PROFIT |
| 1,269,011 |
| 1,339,100 |
| 1,303,557 |
|
|
|
|
|
|
|
|
|
Selling expenses |
| (122,637 | ) | (146,337 | ) | (138,493 | ) |
Impairment loss on trade receivables |
| (6,007 | ) | (4,098 | ) | 7,402 |
|
General and administrative expenses |
| (238,668 | ) | (269,996 | ) | (262,000 | ) |
Other operating income |
| 88,520 |
| 48,857 |
| 82,041 |
|
Other operating expenses |
| (14,444 | ) | (18,257 | ) | (146,073 | ) |
Gains and losses on assets held for sale and sales os interest in subsidiaries |
| — |
| (3,497 | ) | (185,559 | ) |
Equity in earnings of unconsolidated companies |
| 14,228 |
| 17,749 |
| (28,796 | ) |
|
|
|
|
|
|
|
|
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES |
| 990,003 |
| 963,521 |
| 632,079 |
|
|
|
|
|
|
|
|
|
Financial income |
| 41,017 |
| 31,317 |
| 81,580 |
|
Financial expenses |
| (345,373 | ) | (366,031 | ) | (424,802 | ) |
Bonds repurchases |
|
|
|
|
| (223,925 | ) |
Exchange variations, net |
| (70,456 | ) | (7,063 | ) | 187,052 |
|
Gain and losses on financial instruments, net |
| 79 |
| (787 | ) | (11,959 | ) |
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES |
| 615,270 |
| 620,957 |
| 240,025 |
|
|
|
|
|
|
|
|
|
Current |
| (125,606 | ) | (148,175 | ) | 276,081 |
|
Deferred |
| (37,038 | ) | (24,371 | ) | (126,941 | ) |
Income and social contribution taxes |
| (162,644 | ) | (172,546 | ) | 149,140 |
|
|
|
|
|
|
|
|
|
NET INCOME |
| 452,626 |
| 448,411 |
| 389,165 |
|
|
|
|
|
|
|
|
|
(-) Results in operations with subsidiaries and associate company |
| — |
| 3,497 |
| 185,559 |
|
(+) Bonds repurchases |
| — |
| — |
| 223,925 |
|
(+) Income tax of extraordinary items |
| — |
| (813 | ) | (486,647 | ) |
(=) Total of extraordinary items |
| — |
| 2,684 |
| (77,163 | ) |
|
|
|
|
|
|
|
|
ADJUSTED NET INCOME* |
| 452,626 |
| 451,095 |
| 312,002 |
|
*Adjusted net income is a non-accounting indicator prepared by the Company, reconciled with the financial statements and consists of net income adjusted for extraordinary events that influenced the net income (loss), without cash effect.
GERDAU S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of Brazilian reais (R$)
|
| For the three-month period ended |
| ||
|
| March 31, 2019 |
| March 31, 2018 |
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
Net income for the period |
| 452,626 |
| 448,411 |
|
Adjustments to reconcile net income for the period to net cash provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 505,799 |
| 453,516 |
|
Equity in earnings of unconsolidated companies |
| (14,228 | ) | (17,749 | ) |
Exchange variation, net |
| 70,456 |
| 7,063 |
|
(Gains) Loss on financial instruments, net |
| (79 | ) | 787 |
|
Post-employment benefits |
| 46,420 |
| 47,968 |
|
Stock based compensation |
| 10,384 |
| 9,252 |
|
Income tax |
| 162,644 |
| 172,546 |
|
Gains on disposal of property, plant and equipment, net |
| (7,977 | ) | (5,664 | ) |
Gains and losses on assets held for sale and sales os interest in subsidiaries |
| — |
| 3,497 |
|
Impairment loss on trade receivables |
| 6,007 |
| 4,098 |
|
Provision for tax, labor and civil claims |
| (71,387 | ) | (36,035 | ) |
Interest income on short-term investments |
| (16,742 | ) | (10,165 | ) |
Interest expense on debt and debentures |
| 249,960 |
| 273,841 |
|
Interest on loans with related parties |
| (565 | ) | (4 | ) |
(Reversal) Provision for net realizable value adjustment in inventory, net |
| (428 | ) | (843 | ) |
|
| 1,392,890 |
| 1,350,519 |
|
Changes in assets and liabilities |
|
|
|
|
|
Increase in trade accounts receivable |
| (743,494 | ) | (886,432 | ) |
Increase in inventories |
| (202,171 | ) | (406,697 | ) |
(Decrease) Increase in trade accounts payable |
| (286,996 | ) | 378,481 |
|
Increase in other receivables |
| (41,416 | ) | (32,089 | ) |
Decrease in other payables |
| (179,195 | ) | (281,316 | ) |
Dividends from associates and joint ventures |
| 3,160 |
| 5,343 |
|
Purchases of trading securities |
| (292,391 | ) | (174,923 | ) |
Proceeds from maturities and sales of trading securities |
| 157,581 |
| 141,526 |
|
Cash (used in) provided by operating activities |
| (192,032 | ) | 94,412 |
|
|
|
|
|
|
|
Interest paid on loans and financing |
| (172,010 | ) | (235,256 | ) |
Income and social contribution taxes paid |
| (24,405 | ) | (63,213 | ) |
Net cash used in operating activities |
| (388,447 | ) | (204,057 | ) |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of property, plant and equipment |
| (304,532 | ) | (216,656 | ) |
Proceeds from sales of property, plant and equipment, investments and other intangibles |
| 13,817 |
| 332,410 |
|
Purchases of other intangibles |
| (9,063 | ) | (4,464 | ) |
Net cash (used in) provided by investing activities |
| (299,778 | ) | 111,290 |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Purchases of Treasury stocks |
| — |
| (149,711 | ) |
Dividends and interest on capital paid |
| (166,420 | ) | (55,150 | ) |
Proceeds from loans and financing |
| 211,249 |
| 479,150 |
|
Repayment of loans and financing |
| (240,540 | ) | (310,765 | ) |
Intercompany loans, net |
| (42,558 | ) | 7,704 |
|
Net cash used in financing activities |
| (238,269 | ) | (28,772 | ) |
|
|
|
|
|
|
Exchange variation on cash and cash equivalents |
| (21,886 | ) | (58,352 | ) |
|
|
|
|
|
|
Decrease in cash and cash equivalents |
| (948,380 | ) | (179,891 | ) |
Cash and cash equivalents at beginning of period |
| 2,890,144 |
| 2,555,338 |
|
Cash and cash equivalents at end of period |
| 1,941,764 |
| 2,375,447 |
|
APPENDIX — PRO FORMA
To present the results of the business divisions excluding the effects from the divestment program, the pro forma Business Division and Consolidated results for 2018 follow:
Brazil BD - Pro forma |
| 1Q18 |
| 2Q18 |
| 3Q18 |
| 4Q18 |
| 2018 |
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 1,532 |
| 1,381 |
| 1,479 |
| 1,454 |
| 5,846 |
|
Shipments of steel |
| 1,438 |
| 1,364 |
| 1,422 |
| 1,311 |
| 5,535 |
|
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 3,611 |
| 3,798 |
| 4,390 |
| 3,946 |
| 15,745 |
|
Cost of Goods Sold |
| (2,929 | ) | (3,139 | ) | (3,602 | ) | (3,374 | ) | (13,044 | ) |
Gross profit |
| 682 |
| 659 |
| 788 |
| 571 |
| 2,700 |
|
Gross margin (%) |
| 18.9 | % | 17.4 | % | 17.9 | % | 14.5 | % | 17.2 | % |
Adjusted EBITDA |
| 751 |
| 743 |
| 891 |
| 647 |
| 3,032 |
|
Adjusted EBITDA Margin |
| 20.8 | % | 19.6 | % | 20.3 | % | 16.4 | % | 19.3 | % |
North America BD - Pro forma |
| 1Q18 |
| 2Q18 |
| 3Q18 |
| 4Q18 |
| 2018 |
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 1,328 |
| 1,297 |
| 1,221 |
| 1,008 |
| 4,854 |
|
Shipments of steel |
| 1,061 |
| 1,125 |
| 1,027 |
| 1,003 |
| 4,216 |
|
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 2,933 |
| 3,818 |
| 4,030 |
| 3,705 |
| 14,486 |
|
Cost of Goods Sold |
| (2,693 | ) | (3,376 | ) | (3,516 | ) | (3,325 | ) | (12,910 | ) |
Gross profit |
| 240 |
| 442 |
| 514 |
| 380 |
| 1,576 |
|
Gross margin (%) |
| 8.2 | % | 11.6 | % | 12.8 | % | 10.3 | % | 10.9 | % |
Adjusted EBITDA |
| 239 |
| 437 |
| 522 |
| 406 |
| 1,604 |
|
Adjusted EBITDA Margin |
| 8.1 | % | 11.4 | % | 13.0 | % | 11.0 | % | 11.1 | % |
South America BD - Pro forma |
| 1Q18 |
| 2Q18 |
| 3Q18 |
| 4Q18 |
| 2018 |
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 146 |
| 169 |
| 142 |
| 144 |
| 601 |
|
Shipments of steel |
| 262 |
| 275 |
| 284 |
| 262 |
| 1,083 |
|
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 691 |
| 808 |
| 907 |
| 819 |
| 3,225 |
|
Cost of Goods Sold |
| (583 | ) | (667 | ) | (762 | ) | (701 | ) | (2,713 | ) |
Gross profit |
| 108 |
| 141 |
| 145 |
| 118 |
| 512 |
|
Gross margin (%) |
| 15.6 | % | 17.5 | % | 16.0 | % | 14.4 | % | 15.9 | % |
Adjusted EBITDA |
| 154 |
| 174 |
| 185 |
| 128 |
| 641 |
|
Adjusted EBITDA Margin |
| 22.3 | % | 21.5 | % | 20.4 | % | 15.6 | % | 19.9 | % |
Special Steel BD - Pro forma |
| 1Q18 |
| 2Q18 |
| 3Q18 |
| 4Q18 |
| 2018 |
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 522 |
| 568 |
| 578 |
| 444 |
| 2,112 |
|
Shipments of steel |
| 445 |
| 502 |
| 494 |
| 474 |
| 1,915 |
|
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 1,557 |
| 1,931 | �� | 2,116 |
| 1,989 |
| 7,593 |
|
Cost of Goods Sold |
| (1,321 | ) | (1,633 | ) | (1,819 | ) | (1,814 | ) | (6,587 | ) |
Gross profit |
| 236 |
| 298 |
| 297 |
| 175 |
| 1,006 |
|
Gross margin (%) |
| 15.2 | % | 15.4 | % | 14.0 | % | 8.8 | % | 13.2 | % |
Adjusted EBITDA |
| 283 |
| 351 |
| 342 |
| 226 |
| 1,202 |
|
Adjusted EBITDA Margin |
| 18.2 | % | 18.2 | % | 16.2 | % | 11.4 | % | 15.8 | % |
Consolidated - Pro forma |
| 1Q18 |
| 2Q18 |
| 3Q18 |
| 4Q18 |
| 2018 |
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 3,527 |
| 3,412 |
| 3,421 |
| 3,051 |
| 13,411 |
|
Shipments of steel |
| 3,060 |
| 3,117 |
| 3,124 |
| 2,971 |
| 12,272 |
|
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 8,443 |
| 9,937 |
| 10,927 |
| 10,270 |
| 39,577 |
|
Cost of Goods Sold |
| (7,167 | ) | (8,397 | ) | (9,177 | ) | (9,006 | ) | (33,747 | ) |
Gross profit |
| 1,276 |
| 1,540 |
| 1,750 |
| 1,264 |
| 5,830 |
|
Gross margin (%) |
| 15.1 | % | 15.5 | % | 16.0 | % | 12.3 | % | 14.7 | % |
Adjusted EBITDA |
| 1,410 |
| 1,657 |
| 1,899 |
| 1,373 |
| 6,339 |
|
Adjusted EBITDA Margin |
| 16.7 | % | 16.7 | % | 17.4 | % | 13.4 | % | 16.0 | % |
Divestments |
| 1Q18 |
| 2Q18 |
| 3Q18 |
| 4Q18 |
| 2018 |
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 638 |
| 575 |
| 548 |
| 170 |
| 1,931 |
|
Shipments of steel |
| 811 |
| 718 |
| 564 |
| 196 |
| 2,289 |
|
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 1,946 |
| 2,097 |
| 1,909 |
| 630 |
| 6,582 |
|
Cost of Goods Sold |
| (1,883 | ) | (1,993 | ) | (1,797 | ) | (590 | ) | (6,263 | ) |
Gross profit |
| 63 |
| 104 |
| 112 |
| 40 |
| 319 |
|
Gross margin (%) |
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
| 74 |
| 99 |
| 114 |
| 31 |
| 318 |
|
Adjusted EBITDA Margin |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| 1Q18 |
| 2Q18 |
| 3Q18 |
| 4Q18 |
| 2018 |
|
Volumes (1,000 tonnes) |
|
|
|
|
|
|
|
|
|
|
|
Production of crude steel |
| 4,165 |
| 3,987 |
| 3,969 |
| 3,221 |
| 15,342 |
|
Shipments of steel |
| 3,871 |
| 3,835 |
| 3,688 |
| 3,167 |
| 14,561 |
|
Results (R$ million) |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| 10,389 |
| 12,034 |
| 12,836 |
| 10,900 |
| 46,159 |
|
Cost of Goods Sold |
| (9,050 | ) | (10,390 | ) | (10,974 | ) | (9,596 | ) | (40,010 | ) |
Gross profit |
| 1,339 |
| 1,644 |
| 1,862 |
| 1,304 |
| 6,149 |
|
Gross margin (%) |
| 12.9 | % | 13.7 | % | 14.5 | % | 12.0 | % | 13.3 | % |
Adjusted EBITDA |
| 1,484 |
| 1,756 |
| 2,013 |
| 1,404 |
| 6,657 |
|
Adjusted EBITDA Margin |
| 14.3 | % | 14.6 | % | 15.7 | % | 12.9 | % | 14.4 | % |