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Gerdau (GGB)

Filed: 28 Oct 21, 12:15pm

 

Exhibit 99.1

 

 

 

 

 

  

 

São Paulo, October 27, 2021 – Gerdau S.A. (B3: GGBR / NYSE: GGB): announces its results for the third quarter of 2021. 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.

 

GERDAU’S PERFORMANCE IN 3Q21

 

Operating Results

 

CONSOLIDATED3Q213Q202Q219M219M20
Volumes (1,000 tonnes)        
Production of crude steel3,4163,2007%3,448-1%10,0158,82014%
Shipments of steel3,2533,1892%3,2161%9,5578,24416%
Results (R$ million)        
Net Sales21,31712,22274%19,13011%56,79030,19488%
Cost of Goods Sold(14,898)(10,525)42%(13,716)9%(41,160)(26,924)53%
Gross profit6,4191,697278%5,41419%15,6303,270378%
Gross margin (%)30.1%13.9%16.2p.p28.3%1.8p.p27.5%10.8%16.7p.p
SG&A(527)(370)42%(476)11%(1,473)(1,047)41%
Selling expenses(188)(131)43%(168)11%(512)(348)47%
General and administrative expenses(340)(239)42%(308)10%(962)(699)38%
%SG&A/Net Sales2.5%3.0%-0.5p.p2.5%0.0p.p2.6%3.5%-0.9p.p
Adjusted EBITDA7,0232,139228%5,89719%17,2384,634272%
Adjusted EBITDA Margin32.9%17.5%15.4 p.p30.8%2.1 p.p30.4%15.3%15.1 p.p

 


Production & Shipments

 

In 3Q21, crude steel production increased in relation to 3Q20, accompanying the growth in volumes shipped in Gerdau’s main business divisions. In the quarter, the Company maintained its production capacity utilization rate at around 80%, which represents the highest level since 2018 and indicates healthy demand in its main operations. Steel shipments in 3Q21 grew in relation to the prior-year quarter, accompanying the recovery in key consumer sectors in the countries where Gerdau has operations.

 

In relation to 2Q21, crude steel production and steel shipments were stable, maintaining the positive trend of the prior quarter.

 

Net Sales

 

Net sales in 3Q21 increased in relation to both 3Q20 and 2Q21, accompanying the increase in revenue per tonne shipped, reflecting the positive trend in the steel industry combined with the portfolio of higher value-added products optimized by the Company over recent years.

 

Cost of Goods Sold

 

The main factors driving the increase in cost of goods sold in 3Q21 compared to 3Q20 were the higher costs for the main raw materials used by the Company, such as scrap consumed and iron ore, which registered price increases in the comparison period of 75% and 200%, respectively. In relation to 2Q21, the increase in cost of goods sold accompanied the growth in net sales in the period.

  

 

 

 

 

 

 

 

Gross Profit

 

Gross profit and gross margin increased in the quarter compared to 3Q20, since the 74% increase in net sales per tonne sold surpassed the 42% increase in cost per tonne sold. This result was driven mainly by the strong performance of the construction industry in the U.S. and Brazilian markets. In relation to 2Q21, the highlight was the growth in gross profit at the North America BD, which benefitted from the favorable moment for commodities and from international prices steel prices remaining at historically high levels.

 

Selling, General & Administrative Expenses

 

Selling, general and administrative expenses registered significant decreases when analyzed as a ratio of net sales, from 3.0% in 3Q20 to 2.5% in 3Q21, repeating the same behavior observed in 2Q21.

 

EBITDA & EBITDA MARGIN

 

Breakdown of Consolidated EBITDA
(R$ million)
3Q213Q202Q219M219M20
Net income5,594795604%3,93442%11,9991,331801%
Net financial result(78)303-(58)34%135865-84%
Provision for income and social contribution taxes1,872282564%1,68611%4,375433910%
Depreciation and amortization6736474%6307%1,9521,8158%
EBITDA - Instruction CVM ¹ 8,0622,027298%6,19330%18,4614,444315%
Equity in earnings of unconsolidated companies(271)(71)279%(237)14%(657)(78)744%
Proportional EBITDA of associated companies and jointly controlled entities405180125%33421%994384158%
Losses due to non-recoverability of financial assets13-69%0732%672-91%
Non recurring items(1,173)--(393)198%(1,566)(189)729%
Fixed cost impacts of plants without production------119-
Recovery of compulsory loans(1,391)----(1,391)--
Credit recovery / Provisions218--(393)-(175)(308)-43%
Adjusted EBITDA² 7,0232,139228%5,89719%17,2384,634272%
Adjusted EBITDA Margin 32.9%17.5%15.4p.p30.8%2.1p.p30.4%15.3%15.0p.p

CONCILIATION OF CONSOLIDATED EBITDA
(R$ million)
3Q213Q202Q219M219M20
EBITDA -  Instruction CVM ¹8,0622,0276,19318,4614,444
Depreciation and amortization(673)(647)(630)(1,952)(1,815)
OPERATING INCOME BEFORE FINANCIAL RESULT AND TAXES³7,3891,3805,56316,5092,629

1 - Non-accounting measure calculated in accordance with CVM Instruction 527.

2 - Non-accounting measure calculated by the Company. The Company presents Adjusted EBITDA to provide additional information on cash generation in the period. 

3 - Accounting measure reported in the consolidated Income Statement.

 

The Company’s Adjusted EBITDA and adjusted EBITDA margin in 3Q21 set all-time highs for a single quarter. The results reflect the scenario of strong demand for steel in all countries where the Company operates, combined with the teams’ capacity to seize the opportunities arising in the market.

  

EBITDA (R$ million) & EBITDA Margin (%)

 

 

 

 

 

 

 

 

 

 

Financial Result & Net Income

 

CONSOLIDATED
(R$ million)
3Q213Q202Q219M219M20
Income before financial income expenses and taxes¹7,3891,380436%5,56333%16,5092,629528%
Financial Result78(303)-5834%(135)(865)-84%
Financial income564233%5013%16213916%
Financial expenses(354)(354)0%(344)3%(1,012)(1,069)-5%
Exchange variation, net (including net investment hedge)1045784%52166%14330371%
Exchange variation (other currencies)(71)(48)48%(120)-41%(237)35-
Tax credit update326--463-30%789--
Gains (losses) on financial instruments, net16(1)-5236%2009297%
Income before taxes¹7,4671,076594%5,62133%16,3741,765828%
Income and social contribution taxes(1,872)(282)564%(1,686)11%(4,375)(433)910%
Exchange variation including net investment hedge71600%(23)-(9)100-
Other lines(1,414)(283)400%(1,954)-28%(3,610)(469)669%
Non recurring items(466)--291-(757)(64)1082%
Consolidated Net Income ¹5,594795604%3,93442%11,9991,331801%
Non recurring items(1,034)--(565)83%(1,599)(124)1190%
Recovery of compulsory loans(1,391)----(1,391)--
Credit Recovery / Provisions(108)--(856)-87%(964)(308)213%
Fixed costs Impacts of plants without production------119-
Income tax and social contribution on extraordinary items466--29160%757641082%
Consolidated Adjusted Net Income²4,560795474%3,37035%10,4001,207762%

1 - Accounting measure disclosed in the consolidated Income Statement.

2 - Non-accounting measure calculated by the Company to show net profit adjusted by non-recurring events that influenced the result.

 

The financial result in 3Q21, adjusted by non-recurring items, increased in relation to 3Q20, due to the negative exchange variation (-4%), which benefitted the Company’s foreign-denominated liabilities.

 

On September 13, 2021, the Company disclosed a Material Fact notice informing that the lawsuit pending before the 14th Civil Court of Rio de Janeiro claiming compensation for losses incurred from the Eletrobras Compulsory Loan (ECE), registered a development in which the asset, until then treated as contingent, due to uncertainties as to the term, form and amount that would be effectively paid and currently defined, fulfilled the accounting characteristics related to the entry of economic benefits, pursuant to paragraph 35 of IAS 37 (CPC 25), which implied the recognition by the Company, in 3Q21 of a gain in the statement of income of approximately R$ 1.4 billion (before taxes), net of fees and related expenses. Given the nonrecurring nature of this gain, the Company is presenting EBITDA and Net Income on an adjusted basis.

 

 

 

 

 

 

 

 

Adjusted net income in 3Q21 also set a new quarterly record for the Company, supported by EBITDA growth.

 

Dividends & Interest on Equity

 

On September 17, 2021, the Board of Directors of Gerdau S.A. approved the distribution of share-based payments in the form of interest on equity in the amount of R$ 648.1 million (R$ 0.38 per share), to be paid as an advance on the minimum mandatory dividend for fiscal year 2021, as stipulated in the Bylaws.

 

Record date: shareholding position on September 27, 2021

Ex-dividend date: September 28, 2021

 

On October 26, 2021, the Board of Directors of Gerdau S.A. approved the distribution of share-based payments in the form of interest on equity in the amount of R$341.1 million (R$0.20 per share) and of dividends in the amount of R$2.421,9 million (R$1.42 per share), to be paid as an advance on the minimum mandatory dividend for fiscal year 2021, as stipulated in the Bylaws.

 

Record date: shareholding position on November 5, 2021

Ex-dividend date: November 8, 2021

 

The payment date is November 16, 2021 for all distributions.

 

Management reaffirms its understanding that the best way to increase absolute dividends is through strong cash generation, which it has been delivering, enabling it to maintain its policy of distributing at least 30% of adjusted net income. For example, the amount to be paid as from November 16, 2021 is a quarterly record.

 

Working Capital & Cash Conversion Cycle

 

The cash conversion cycle (working capital divided by daily net sales in the quarter) returned to more balanced levels, from 60 days in June 2021 to 63 days in September 2021, reflecting the increases of 13% in inventories and of 11% in accounts receivable. Note that these are natural adjustments given the stronger global demand for steel.

 

Working Capital (R$ million) & Cash Conversion Cycle (days)

 

 

 

 

 

 

 

 

Financial Liabilities

 

DEBT BREAKDOWN09.30.202106.30.202109.30.2020
(R$ Million)   
Short Term7472612,173
Long Term16,37415,54517,368
Gross Debt17,12115,80719,541
Cash, cash equivalents and short-term investments8,4315,6387,200
Net Debt8,69010,16912,341

 

On September 30, 2021, only 2% of gross debt was due in the short term while 98% was concentrated in the long term. The Company maintained its consolidated exposure denominated in U.S. dollar at 74%, and marginally reduced its consolidated exposure denominated in Brazilian real from 26% to 24% of total gross debt in the same comparison period.

 

On September 30, 2021, 44% of cash was denominated in U.S. dollar.

 

The evolution in key debt indicators is shown below:

 

Indicators09.30.202106.30.202109.30.2020
Gross debt / Total capitalization ¹29%31%38%
Net debt² (R$) / EBITDA ³ (R$) 0.41x 0.65x 2.07x

 

 

1 - Total capitalization = shareholders' equity + gross debt – interest on debt.

2 – Net debt = gross debt – interest on debt – cash, cash equivalents and financial investments.

3 – Adjusted EBITDA in the last 12 months.

 

The reduction in the net debt/EBITDA ratio from 0.65x on June 30, 2021, to 0.41x on September 30, 2021, is explained by the strong EBITDA generated in 3Q21.

 

Gross Debt Maturity Schedule

(R$ billion)

 

 

At the end of September 2021, the weighted average nominal cost of gross debt was 6.13%, with 6.85% for the portion denominated in BRL, 5.7% plus foreign-exchange variation for the portion denominated in USD contracted by companies in Brazil and 6.42% for the portion contracted by subsidiaries abroad. On September 30, 2021, the average gross debt term was 7.5 years, with the debt maturity schedule well balanced and well distributed over the coming years.

 

 

 

 

 

 

Investments

 

Capital expenditures amounted to R$ 810 million in 3Q21, with R$ 455 million allocated to general maintenance, R$ 112 million to maintenance of the Ouro Branco Mill and R$ 243 million to technological expansion and updating. Of the amount invested in the quarter, 54% was allocated to the Brazil BD, 24% to the North America BD, 18% to the Special Steel BD and 4% to the South America BD. 

 

ESG Factors 

 

The recognitions garnered by Gerdau reinforce the adoption of a business model based on close relations with clients, flexibility in production routes, diversification of markets and an agile culture for decision-making. 

 

Gerdau was named Company of the Year and Brazil’s best company in Mining & Steelmaking by the Época Negócios 360° Yearbook. The analysis of some 500 companies resulted in a list of 30 organizations that serve as examples of excellence in aspects that include financial performance, corporate governance, innovation, people, sustainability and vision of the future. 

 

Gerdau placed first in the dimensions for innovation, people and sustainability in the Mining & Steelmaking industry. The recognition is the result of the broad cultural and digital transformation that the company has been undergoing in recent years, which has made it even more agile, innovative and diverse and enabled it to commemorate its 120th anniversary with the best results of its long history. 

 

In the 2021 edition of the Best & Largest awards of the magazine Exame, Gerdau was named Company of the Year and placed first in the Mining & Steelmaking category. The best companies identified in 20 sectors of the economy were highlighted for the success achieved in managing their businesses.

 

Free Cash Flow

 

Free cash flow in 3Q21 was positive R$ 3.8 billion, which reflects the record-high EBITDA described above.

 

 

 

Free Cash Flow (R$ million)

 

 

 

 

 

 

 

 

 

 

 

 

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 company 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 companies in the Dominican Republic and Colombia;
·Special Steel BD (Special Steel Business Division) – includes the special steel operations in Brazil and the United States, as well as the jointly controlled company in Brazil.

 

NET SALES

 

 

 

EBITDA & EBITDA MARGIN

  

 

 

 

 

 

 

BRAZIL BD

 

BRAZIL BD3Q213Q202Q216M216M20
Volumes (1,000 tonnes)        
Production of crude steel1,6421,5536%1,659-1%4,5933,92717%
Shipments of steel1,5471,5132%1,4765%4,3073,80013%
Domestic Market1,3591,2985%1,3630%3,9573,16825%
Exports188216-13%11367%350632-45%
Shipments of long steel1,1171,0675%1,0536%3,0582,66515%
Domestic Market9338717%956-2%2,7362,11829%
Exports184196-6%9789%321547-41%
Shipments of flat steel430446-4%4232%1,2501,13510%
Domestic Market4264260%4075%1,2211,05016%
Exports420-78%16-72%2885-67%
Results (R$ million)        
Net Sales¹10,0604,990102%8,94013%25,88311,966116%
Domestic Market9,2464,465107%8,5248%24,46110,467134%
Exports81452655%41696%1,4221,499-5%
Cost of Goods Sold(6,221)(3,904)59%(5,443)14%(16,149)(10,061)61%
Gross profit3,8391,087253%3,49810%9,7341,905411%
Gross margin (%)38.2%21.8%16.4p.p39.1%-1.0p.p37.6%15.9%21.7p.p
Adjusted EBITDA²4,0051,253220%3,63410%10,1762,453315%
Adjusted EBITDA Margin (%)39.8%25.1%14.7p.p40.7%-0.8p.p39.3%20.5%18.8p.p

1 – Includes iron ore sales.

 

Production and Shipments 

 

The scenario in Brazil for steel production and shipments remains positive. According to data from the Brazilian Steel Institute (IABr), in the nine months to September 2021, the country produced 27.0 million tonnes of crude steel, 20% more than in the same nine-month period of 2020. The highlight was the production of flat and long steel products, which combined registered production growth of 29% in the comparison period. Shipments in the domestic market grew by 30% to 18 million tonnes. 

 

Crude steel production at the Brazil BD in 3Q21 was 6% higher than in 3Q20, which is basically explained by the performance of shipments to the domestic market, driven by demand from the construction and industrial sectors. Compared to 2Q21, production at the Brazil BD remained practically stable. 

 

Shipments to the domestic market registered growth of 5% in 3Q21 in relation to 3Q20. Gerdau’s current business model and close relations with clients and partners have proven essential for enabling it to seize opportunities created by the favorable scenario in all regions of Brazil. In 3Q21, the Company directed 12% of its shipments to export markets, compared to 8% in 2Q21. 

 

Shipments to the industrial sector registered good performances in the agriculture, energy, machinery and highway equipment, capital goods and yellow line segments, which benefited from demand in the domestic market, the location of the supplier base and opportunities in the export market given foreign exchange rates. Meanwhile, the infrastructure segment presented a positive scenario, supported by light rail vehicle (LRV) projects in Salvador, the privatization of highways, basic sanitation and wind power infrastructure. For example, 20 photovoltaic power yards are being built this year that represent 3 gigawatts of solar power and use our entire product line. The prospects for this sector remain highly optimistic. 

 

In 3Q21, 440,000 tonnes of iron ore were sold to third parties and 658,000 tonnes were consumed internally. 

 

 

 

 

 

 

 

Operating Result 

 

Net sales increased in 3Q21 compared to 3Q20, due to the higher volumes shipped in the domestic market and the increase in net sales per tonne sold. The percentage of shipments to the domestic market as a ratio of total sales increased from 86% in 3Q20 to 88% in 3Q21. Given the changes in the scenario for the international steel industry and the costs of key inputs, the Company has been working to rebuild and protect its margins given the upcycle in the costs of its main raw materials.

 

Cost of goods sold in 3Q21 increased in relation to both comparison periods, reflecting the higher costs of raw materials in general (e.g., the cost of scrap consumed increased over 91% in relation to 3Q20, while the cost of iron ore rose over 200% in relation to 3Q20). 

 

Gross profit and gross margin increased in 3Q21 compared to 3Q20, since the increase in revenue per tonne sold surpassed the increase in costs per tonne sold. Higher shipments in the domestic market and lower exports also contributed to this factor, resulting in a better market mix. 

 

In 3Q21, the Brazil BD delivered its highest quarterly EBITDA ever, with the result reflecting the strong scenario for both the local and global steel industry combined with the capacity of Gerdau’s teams in seizing the opportunities arising from this scenario. 

 

EBITDA (R$ million) & EBITDA Margin (%)

 

 

 

 

 

 

 

 

 

NORTH AMERICA BD

 

NORTH AMERICA BD3Q213Q202Q219M219M20
Volumes (1,000 tonnes)        
Production of crude steel1,2291,1546%1,269-3%3,7493,5306%
Shipments of steel1,1311,0874%1,143-1%3,3973,1687%
Results (R$ million)        
Net Sales7,4454,48366%6,61213%19,94512,42860%
Cost of Goods Sold(5,786)(4,196)38%(5,419)7%(16,358)(11,574)41%
Gross profit1,658288477%1,19339%3,586854320%
Gross margin (%)22.3%6.4%15.9p.p18.0%4.2p.p18.0%6.9%11.1 p.p
EBITDA1,892461310%1,35240%4,0871,304214%
EBITDA margin (%)25.4%10.3%15.1p.p20.4%5.0p.p20.5%10.5%10.0 p.p

 

Production & Shipments

 

Steel production increased in 3Q21 in relation to 3Q20, driven by strong demand from the construction and industrial sectors. Note that the North America BD currently is operating near its full capacity, with the rolling mills running at over 90% capacity.

 

Shipments increased in 3Q21 compared to 3Q20. Demand from the non-residential construction and industrial sectors remained at healthy levels. Total investments in construction (CPIP) grew by 10% in the 12 months to August, to US$ 1.5 trillion. Note that the leading indicator for non-residential construction (ABI) recovered to strong expansion territory, reaching 56,6 points in September 2021. The industrial sector also remained strong, as shown by the Institute for Supply Management (ISM) index, which reached 61 points in September 2021 (near the 10-year record).

 

Operating Result

 

The growth in net sales in 3Q21 compared to 3Q20 and 2Q21 is explained by the increases in net sales per tonne sold recorded in the comparison periods.

 

Cost of goods sold increased in 3Q21 in relation to 3Q20, affected by higher scrap and alloys costs.

 

Gross profit and gross margin increased in 3Q21 in relation to 3Q20, explained by the better metals spread and by the initiatives to reduce costs with production at full capacity (above 90% utilization).

  

EBITDA and EBITDA margin set an all-time high, accompanying the better performance of gross profit and gross margin.

 

EBITDA (R$ million) & EBITDA Margin (%)

 

 

  

 

 

 

 

 

SOUTH AMERICA BD

 

SOUTH AMERICA BD3Q213Q202Q219M219M20
Volumes (1,000 tonnes)        
Production of crude steel160170-6%12429%44739014%
Shipments of steel3183006%26819%88263040%
Results (R$ million)        
Net Sales1,8601,25249%1,30842%4,6172,50684%
Cost of Goods Sold(1,438)(977)47%(1,002)43%(3,502)(2,041)72%
Gross profit42327553%30538%1,115464140%
Gross margin (%)22.7%22.0%0.7p.p23.4%-0.6p.p24.1%18.5%5.6p.p
EBITDA60237660%49422%1,646685140%
EBITDA margin (%)32.4%30.0%2.3p.p37.8%-5.4p.p35.7%27.3%8.3p.p

 

Production & Shipments

 

Steel production increased in 3Q21 in relation to 2Q21, but decreased slightly compared to 3Q20. Shipments increased in 3Q21 in relation to 3Q20, supported primarily by the continued good performance of the operations in Peru. In relation to 2Q21, the increase was driven by the normalization of production in Argentina, which in 2Q21 faced challenges related to Covid-19.

 

Operating Result

 

Net sales increased in 3Q21 in relation to 3Q20 due to higher shipments and the strong correlation of these countries with international steel prices. In relation to 2Q21, revenue growth accompanied the higher shipments in the comparison periods.

 

Cost of goods sold increased in 3Q21 compared to 3Q20, in line with the growth in shipments and higher raw material prices, especially the increase of over 52% in in the cost of scrap consumed.

 

Gross profit increased in 3Q21 compared to 3Q20 and 2Q21, supported by higher shipments. Gross margin remained virtually stable in both comparison periods.

 

EBITDA and EBITDA margin increased in 3Q21 compared to 3Q20, reflecting the higher gross profit and the important contribution from the joint ventures in Colombia and the Dominican Republic. In relation to 2Q21, EBITDA advanced, driven by the increase in gross profit.

  

EBITDA (R$ million) & EBITDA Margin (%)

 

 

 

 

 

 

 

 

 

SPECIAL STEEL BD

 

SPECIAL STEEL BD3Q213Q202Q219M219M20
Volumes (1,000 tonnes)        
Production of crude steel38632319%396-3%1,22797326%
Shipments of steel40833821%417-2%1,25184448%
Results (R$ million)        
Net Sales2,8711,70568%2,6508%7,9514,03697%
Cost of Goods Sold(2,405)(1,640)47%(2,243)7%(6,793)(3,956)72%
Gross profit46666610%40715%1,158801345%
Gross margin (%)16.2%3.8%12.4p.p15.3%0.9p.p14.6%2.0%12.6p.p
EBITDA539168221%4959%1,443393267%
EBITDA margin (%)18.8%9.9%8.9p.p18.7%0.1p.p18.2%9.7%8.4p.p

 

Production & Shipments

 

Steel production increased in relation to 3Q20, in line with the recovery in shipments. In relation to 2Q21, steel production remained virtually stable.

 

Steel shipments registered strong growth in 3Q21 compared to 3Q20, reflecting the gradual recovery in light vehicle production in Brazil and the United States, as well as the good performance of the heavy vehicle sector in Brazil and of the oil and gas industry in the United States. Compared to 2Q21, steel shipments remained stable, with light vehicle production still affected by the supply of semiconductors, which are used in all electronic components installed in vehicles.

 

In Brazil, according to Anfavea, vehicle production increased 24% in the nine months to September compared to the same period of 2020. The highlight was the growth of over 100% in the production of heavy vehicles, which use approximately 10 times more special steel than light vehicles and are less affected by the supply of semiconductors.

 

In the United States, vehicle sales grew 19% in the year to August compared to the same period of 2020. Meanwhile, vehicle production advanced 14%. We also have been observing a gradual recovery in demand from the oil and gas industry and related distribution activities.

 

Operating Result

 

The increases in net sales and cost of goods sold in 3Q21 compared to 3Q20 are mainly due to the growth in shipments, which was driven by the recovery in demand mentioned above and by the higher steel prices and raw material costs currently practiced in the steel industry.

 

In 3Q21, gross profit and gross margin continued their upward trend in the period, supported by the economies of scale resulting from the growth in shipments. Note that this division has been posting a gradual recovery in performance, as shown by the increase in the production capacity utilization rate from less than 50% in 3Q20 to over 70% in 3Q21.

 

EBITDA and EBITDA margin increased in 3Q21 in comparison with both periods, accompanying the performance of gross profit and gross margin. As a result, the Special Steel BD sustained margin levels not observed since 2018.

 

 

 

 

 

 

 

EBITDA (R$ million) & 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$)
(Unaudited)  
 September 30, 2021 December 31, 2020
CURRENT ASSETS  
Cash and cash equivalents3,976,077 4,617,204
Short-term investments4,454,507 3,041,143
Trade accounts receivable - net6,416,155 3,737,270
Inventories15,653,770 9,169,417
Tax credits2,236,373 1,201,312
Income and social contribution taxes recoverable597,899 1,051,584
Dividends receivable0                -   
Eletrobras compulsory loan recovery  1,524,933  
Other current assets597,054 591,523
 35,456,768 23,409,453
    
NON-CURRENT ASSETS 
Tax credits208,546 664,045
Deferred income taxes2,298,605 3,393,354
Related parties152,988 134,354
Judicial deposits1,837,213 1,825,791
Other non-current assets548,319 590,864
Prepaid pension cost               -           39,196
Investments in associates and joint ventures2,977,883 2,271,629
Goodwill12,651,253 12,103,519
Leasing850,797 815,311
Other Intangibles507,558 622,578
Property, plant and equipment, net17,872,237 17,252,915
 39,905,399 39,713,556
    
TOTAL ASSETS75,362,167 63,123,009

 

 

 

 

 

 

 

GERDAU S.A.  
CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
(Unaudited)  
 September 30, 2021 December 31, 2020
CURRENT LIABILITIES   
Trade accounts payable  7,244,509   5,437,953
Short-term debt     694,949   1,424,043
Debentures       52,039          7,463
Taxes payable     894,099      600,089
Income and social contribution taxes payable  1,383,119      810,125
Payroll and related liabilities     971,238      591,653
Dividends payable     550,904      510,348
Leasing payable     264,617      231,703
Employee benefits               -                208
Environmental liabilities     210,922      125,992
Fair value of derivatives         4,142             971
Obligations with FIDC       46,684      944,513
Other current liabilities     837,833      797,082
 13,155,055 11,482,143
    
NON-CURRENT LIABILITIES 
Long-term debt13,477,670 13,188,891
Debentures2,896,398 2,894,954
Related parties       52,217        22,855
Deferred income taxes58,010 61,562
Provision for tax, civil and labor liabilities1,265,196 1,172,511
Environmental liabilities334,434 171,102
Employee benefits1,836,941 1,861,231
Obligations with FIDC               -           42,893
Leasing payable     640,450      624,771
Other non-current liabilities     347,392      514,886
 20,908,708 20,555,656
    
 EQUITY   
Capital19,249,181 19,249,181
Treasury stocks    (152,973)     (229,309)
Capital reserves11,597 11,597
Retained earnings17,052,600 7,292,332
Transactions with non-controlling interests without change of control (2,870,825)  (2,870,825)
Other reserves7,793,445 7,407,295
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT41,083,025 30,860,271
    
NON-CONTROLLING INTERESTS215,379 224,939
    
EQUITY41,298,404 31,085,210
    
TOTAL LIABILITIES AND EQUITY75,362,167 63,123,009

 

 

 

 

 

 

 

 

GERDAU S.A.       
CONSOLIDATED STATEMENTS OF INCOME       
In thousands of Brazilian reais (R$)      
(Unaudited)For the three-month period ended For the nine-month period ended
 September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
        
NET SALES21,317,057  12,222,108  56,790,157  30,194,482 
        
Cost of sales(14,897,908) (10,525,273) (41,159,912) (26,924,121)
        
GROSS PROFIT6,419,149  1,696,835  15,630,245  3,270,361 
        
Selling expenses(187,782) (130,900) (511,596) (347,856)
General and administrative expenses(339,687) (239,308) (961,738) (699,178)
Other operating income117,992  135,114  318,412  798,393 
Other operating expenses(282,268) (150,122) (401,456) (398,547)
Tax credits recovery  393,341  
Eletrobras compulsory loan recovery1,391,280   1,391,280  
Impairment of financial assets(1,038) (3,372) (6,199) (72,131)
Equity in earnings of unconsolidated companies271,119  71,495  657,057  77,895 
        
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES7,388,765  1,379,742  16,509,346  2,628,937 
        
Financial income56,424  42,270  162,120  139,338 
Financial expenses(354,103) (353,681) (1,011,606) (1,069,429)
Exchange variations, net33,197  8,587  (94,074) 65,351 
Tax credits monetary update326,090   788,741  
Gains (Losses) on financial instruments, net15,971  (512) 19,562  208 
        
INCOME BEFORE TAXES7,466,344  1,076,406  16,374,089  1,764,405 
        
   Current(1,614,856) (205,172) (3,499,424) (364,247)
   Deferred(257,547) (76,649) (875,711) (68,900)
Income and social contribution taxes(1,872,403) (281,821) (4,375,135) (433,147)
        
NET INCOME5,593,941  794,585  11,998,954  1,331,258 
        
(+) Fixed costs of plants without production   119,356 
(-) Eletrobras compulsory loan recovery(1,391,280)  (1,391,280) 
(-) Credit recovery / Provisions(107,571)  (963,563) (307,773)
(+) Income tax on extraordinary items465,518   756,555  64,062 
(=) Total of extraordinary items(1,033,333)  (1,598,288) (124,355)
        
ADJUSTED NET INCOME*4,560,608  794,585  10,400,666  1,206,903 

*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, without cash effect.  

 

 

 

 

 

 

 

 

GERDAU S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands of Brazilian reais (R$)

(Unaudited)

 For the three-month period ended For the nine-month period ended
 September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
        
Cash flows from operating activities       
Net income for the period5,593,941  794,585  11,998,954  1,331,258 
Adjustments to reconcile net income for the period to net cash provided by operating activities:       
       Depreciation and amortization672,673  647,106  1,952,002  1,815,264 
       Equity in earnings of unconsolidated companies(271,119) (71,495) (657,057) (77,895)
       Exchange variation, net(33,197) (8,587) 94,074  (65,351)
       (Gains) Losses on financial instruments, net(15,971) 512  (19,562) (208)
       Post-employment benefits71,534  52,369  195,923  151,673 
       Stock based compensation16,393  11,654  45,003  31,310 
       Income tax1,872,403  281,821  4,375,135  433,147 
       Gains on disposal of property, plant and equipment, net(5,614) (9,412) (3,747) (22,089)
       Impairment of financial assets1,038  3,372  6,199  72,131 
       Provision (reversal) of tax, civil, labor and environmental liabilities, net29,677  154,500  92,778  230,519 
       Credit recovery, net(1,717,370)  (2,573,362) (457,185)
       Interest income on short-term investments(44,250) (16,799) (111,639) (69,803)
       Interest expense on debt and debentures272,458  260,557  705,992  770,906 
       Interest on loans with related parties(1,874) (2,612) (4,942) (6,246)
       (Reversal) Provision for net realizable value adjustment in inventory, net(2,783) 1,465  (6,198) (34,831)
 6,437,939  2,099,036  16,089,553 4,102,600 
Changes in assets and liabilities       
Increase in trade accounts receivable(334,506) (475,185) (2,553,085) (785,106)
(Increase) Decrease in inventories(1,383,114) 748,537  (6,416,980) 199,597 
(Decrease) Increase in trade accounts payable(4,401) 560,557  1,637,568  (51,116)
(Increase) Decrease in other receivables(11,275) 212,629  (11,421) 398,106 
Increase (Decrease) in other payables355,417  172,673  (703,838) 133,642 
Dividends from associates and joint ventures6,737  7,809  20,600  19,614 
Purchases of trading securities(1,361,927) (543,471) (2,360,270) (2,286,306)
Proceeds from maturities and sales of trading securities(420,968) 19,825  1,059,955  3,000,531 
Cash provided by operating activities3,283,902  2,802,410  6,762,082  4,731,562 
        
Interest paid on loans and financing(128,614) (157,372) (599,055) (678,495)
Interest paid on lease liabilities(15,644) (15,997) (47,735) (47,224)
Income and social contribution taxes paid(563,574) (143,431) (1,420,110) (192,666)
Net cash provided operating activities2,576,070  2,485,610  4,695,182  3,813,177 
        
Cash flows from investing activities       
Purchases of property, plant and equipment(810,355) (359,621) (1,811,078) (1,101,868)
Proceeds from sales of property, plant and equipment, investments and other intangibles8,314  36,014  22,492  54,612 
Purchases of other intangibles(25,527) (20,989) (108,022) (83,065)
Capital increase in joint ventures   (42,782)
Net cash used in investing activities(827,568) (344,596) (1,896,608) (1,173,103)
        
Cash flows from financing activities       
Dividends and interest on capital paid(923,523) (254) (2,059,887) (70,737)
Pagamentos de custos de empréstimos e financiamentos   
Proceeds from loans and financing294,613  16,759  604,640  1,943,975 
Repayment of loans and financing(160,717) (1,968,155) (1,799,751) (3,265,210)
Leasing payment(70,633) (62,455) (205,259) (183,372)
Intercompany loans, net(34,862) (6,554) 15,669  (35,471)
Pagamentos na aquisição de participação adicional em controladas   
Pagamento de opção de ações   
Net cash used in by financing activities(895,122) (2,020,659) (3,444,588) (1,610,815)
        
Exchange variation on cash and cash equivalents96,469  (12,888) 4,887  500,217 
        
Increase (Decrease) in cash and cash equivalents949,849  107,467  (641,127) 1,529,476 
Cash and cash equivalents at beginning of period3,026,228  4,063,661  4,617,204  2,641,652 
Cash and cash equivalents at end of period3,976,077  4,171,128  3,976,077  4,171,128