4Q24 Earnings Release February 20, 2025 DISCLAIMER This document may contain forward-looking statements. These statements are based on estimates and information 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 c ...

Company Overview - Gerdau S.A. (NYSE: GGB) has been identified as a company worth closer examination due to its various positive attributes, although current market conditions and valuation do not support a Buy recommendation at this time [1]. Investment Philosophy - The investment philosophy emphasizes that success in equity markets is derived from aligning investment approaches with personal strengths and analytical capabilities, rather than relying on extraordinary trading skills [1]. - The company adopts a realistic view of market performance, acknowledging the difficulty of consistently outperforming the S&P 500 benchmark, which leads to a significant portion of the portfolio being allocated to index funds while focusing active investments on selected opportunities [1]. Market Focus and Strategy - The focus is on identifying value opportunities, particularly in small and mid-cap sectors where market inefficiencies are prevalent [1]. - The strategy includes seeking industry leaders in out-of-favor sectors, quality companies facing temporary challenges, and businesses with strong balance sheets and robust cash generation [1]. Analytical Approach - The analytical approach prioritizes balance sheet strength from a credit perspective, near-term cash flow generation, next twelve-month earnings forecasts, and book value analysis, especially for financial sector investments [1]. Professional Background - The investment approach is supported by over 10 years of professional experience in financial sector consulting, specifically with banks, insurance companies, and payment firms, which aids in identifying overlooked opportunities [1].

Group 1 - The article expresses a beneficial long position in the shares of TLPFY, indicating a positive outlook on the company's stock performance [1] - The author emphasizes the importance of conducting due diligence and research prior to any investment, highlighting the risks associated with short-term trading and options trading [2] - The article clarifies that past performance is not indicative of future results, and no specific investment recommendations are provided [3]

Core Viewpoint - The recent surge in Gerdau's stock price and trading volume is linked to broader market optimism following the U.S. presidential election, particularly in the steel and industrial sectors, with potential implications from U.S.-China trade tariffs [1][2][5]. Company Summary - Gerdau's stock price is currently $3.38, with a 52-week range of $2.92 to $4.21 and a dividend yield of 2.66% [1]. - The stock experienced a rally of over 10% in a single day post-election, indicating strong market interest [1][2]. - Analysts have set a price target of $5.00 for Gerdau, suggesting a potential upside of 40.1% from current levels [6][8]. Trading Volume and Market Activity - Gerdau's average trading volume is 7.5 billion shares per day, but over 15 billion shares were traded the morning after the election, indicating heightened interest [2]. - The stock's trading volume spike is attributed to potential tariffs on Chinese exports, which may benefit Brazilian steelmakers like Gerdau [2][11]. Market Context and Demand - The Chinese government has increased economic stimulus measures, which could lead to higher demand for basic materials, potentially benefiting Gerdau [3][4]. - Gerdau's stock trades at a price-to-book (P/B) ratio of 0.8x, significantly lower than the materials sector average of 3.6x, indicating a discount and potential for growth [7]. Analyst Sentiment - Analysts from Bank of America and J.P. Morgan Chase believe Gerdau can deliver a double-digit rally, reinforcing bullish sentiment [5][6]. - The stock has a "Buy" rating among analysts, with a consensus forecast of $5.00, reflecting a 47.71% upside potential [8]. Industry Connections - The positive trading activity in Gerdau is mirrored by other stocks in the industrial sector, such as Stellantis, which also saw increased interest post-election [9][10]. - The reduction in short interest for Stellantis by 22.6% suggests a shift in market sentiment that could also positively impact Gerdau [10].

Financial Performance - Adjusted EBITDA for 3Q24 reached R$ 3.0 billion, representing a 14.9% increase compared to 2Q24 [1] - Total investments (CAPEX) in 3Q24 amounted to R$ 1.5 billion, with R$ 589 million allocated for Maintenance and R$ 920 million directed towards the Competitiveness of the Business Divisions [1] Shareholder Returns - A dividend distribution of R$ 0.30 per share, totaling R$ 619.4 million, will be paid based on the results of 3Q24 [2] - The share buyback program resulted in the repurchase of 39.6 million shares by the end of October 2024, amounting to R$ 729.4 million [2] Regulatory Filings - The company has filed its 3Q24 results with the Securities and Exchange Commission (SEC) and the Comissão de Valores Mobiliários (CVM), which are accessible on Gerdau's website [3]

G E R D A U S . A . C o n d e n s e d c o n s o l i d a t e d i n t e r i m fi n a n c i a l s t a t e m e n t s a s o f S e p t e m b e r 3 0, 2 0 2 4 E x h i b i t 9 9 . 1 GERDAU S.A. CONSOLIDATED BALANCE SHEETS In thousands of Brazilian reais (R$) (Unaudited) | | Note | September 30, 2024 | December 31, 2023 | | --- | --- | --- | --- | | CURRENT ASSETS | | | | | Cash and cash equivalents | 4 | 8,074,104 | 3,005,645 | | Short-term investments | 4 | 757,578 | 2,338,097 | | Trade accounts receivable | 5 | 5 ...

Core Viewpoint - Gerdau S.A. is positioned to benefit from ongoing investments in the automotive industry, electric vehicles, and electrical transmission renovations globally, indicating significant undervaluation in its stock price [3][26]. Company Overview - Gerdau S.A. is the largest Brazilian steel producer with over 100 years of experience in the industry, operating mills in multiple countries including Brazil, Canada, the U.S., and several Latin American nations [3][4][5]. - The company is also the largest recycling company in Latin America, which enhances its competitive position [5]. Financial Performance - In the last quarterly report, Gerdau reported an EPS GAAP of $0.07, beating expectations by $0.01, but revenue fell short by $10.55 million, totaling $2.94 billion [6][5]. - Analysts project revenue growth for 2026, 2027, and 2028, suggesting a positive long-term outlook [5]. Market Demand Drivers - Significant investments in electric vehicles and renewable energy are expected to drive steel demand, particularly in North America, Europe, and China [7][8]. - The automotive steel market was valued at approximately $112.93 billion in 2021, with a projected growth rate of over 3% from 2022 to 2030 [8]. Financial Health and Valuation - Gerdau has been reducing its total debt and liabilities, which has positively impacted its tangible book value per share [9][10]. - The company’s stock price is currently trading close to its book value per share, indicating potential undervaluation [10]. Cash Flow and Profitability - Gerdau has reported positive net income for the last six years and has maintained positive unlevered free cash flow, indicating a trend of increasing profitability [12]. - The company sold its equity interests in joint ventures for $325 million, which could enhance its cash position for future investments [13]. Currency Impact - The depreciation of the Brazilian real against stronger currencies could improve Gerdau's financials, as it receives payments in dollars and euros while incurring expenses in reais [14][15]. Debt Management - Gerdau's management has committed to maintaining a net debt/EBITDA ratio of 1.5x or lower, with a weighted average cost of debt around 5.4% [16]. Future Projections - Using a WACC of 15% and a perpetuity growth rate of 3%, the implied enterprise value is estimated at $15.75 billion, with a target stock price of $6.28 per share [20][22]. - Gerdau's valuation metrics indicate it is significantly undervalued compared to competitors, with a P/E ratio of 7.80 compared to a sector median of 18.53 [23].

Consolidated Financial Statements [Consolidated Balance Sheets](index=2&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Gerdau S.A.'s balance sheets show increased total assets and equity as of June 30, 2024, driven by higher cash, receivables, and goodwill, alongside increased long-term debt Consolidated Balance Sheet Highlights (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | **Assets** | | | | | | Total Current Assets | 31,828,120 | 29,197,937 | 2,630,183 | 9.01% | | Cash and cash equivalents | 4,889,466 | 3,005,645 | 1,883,821 | 62.67% | | Trade accounts receivable | 5,875,819 | 4,875,394 | 1,000,425 | 20.52% | | Inventories | 16,547,424 | 15,227,778 | 1,319,646 | 8.67% | | Total Non-Current Assets | 50,571,144 | 45,687,207 | 4,883,937 | 10.69% | | Goodwill | 12,369,346 | 10,825,148 | 1,544,198 | 14.26% | | Property, plant and equipment, net | 25,438,034 | 22,880,530 | 2,557,504 | 11.18% | | **Total Assets** | **82,399,264** | **74,885,144** | **7,514,120** | **10.03%** | | **Liabilities** | | | | | | Total Current Liabilities | 11,246,915 | 11,284,612 | (37,697) | -0.33% | | Total Non-Current Liabilities | 15,810,443 | 14,361,669 | 1,448,774 | 10.09% | | Long-term debt | 8,575,171 | 8,296,474 | 278,697 | 3.36% | | Debentures | 2,294,707 | 799,212 | 1,495,495 | 187.12% | | **Total Liabilities** | **27,057,358** | **25,646,281** | **1,411,077** | **5.50%** | | **Equity** | | | | | | Equity Attributable to Parent | 55,130,309 | 49,058,959 | 6,071,350 | 12.37% | | **Total Equity** | **55,341,906** | **49,238,863** | **6,103,043** | **12.39%** | [Consolidated Statements of Income](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME) Net sales and net income significantly decreased for both three-month and six-month periods ending June 30, 2024, reflecting a challenging operational environment Consolidated Statements of Income Highlights (June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | 3-Month Period Ended June 30, 2024 | 3-Month Period Ended June 30, 2023 | Change | % Change | | :-------------------------- | :--------------------------------- | :--------------------------------- | :----- | :------- | | Net Sales | 16,615,817 | 18,265,370 | (1,649,553) | -9.03% | | Gross Profit | 2,186,896 | 3,278,341 | (1,091,445) | -33.30% | | Income Before Financial Income (Expenses) and Taxes | 1,620,067 | 2,884,904 | (1,264,837) | -43.84% | | Net Income | 866,981 | 2,142,723 | (1,275,742) | -59.54% | | Basic EPS - Preferred (R$) | 0.41 | 1.02 | (0.61) | -59.80% | | Basic EPS - Common (R$) | 0.41 | 1.02 | (0.61) | -59.80% | | | **6-Month Period Ended June 30, 2024** | **6-Month Period Ended June 30, 2023** | **Change** | **% Change** | | Net Sales | 32,826,080 | 37,137,673 | (4,311,593) | -11.61% | | Gross Profit | 4,606,615 | 6,907,016 | (2,300,401) | -33.31% | | Income Before Financial Income (Expenses) and Taxes | 4,372,379 | 7,177,341 | (2,804,962) | -39.08% | | Results in operations with joint ventures | 808,367 | - | 808,367 | N/A | | Net Income | 2,919,853 | 5,358,122 | (2,438,269) | -45.50% | | Basic EPS - Preferred (R$) | 1.38 | 2.55 | (1.17) | -45.88% | | Basic EPS - Common (R$) | 1.38 | 2.55 | (1.17) | -45.88% | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Total comprehensive income significantly increased for the six-month period ended June 30, 2024, primarily due to a positive cumulative translation adjustment Consolidated Statements of Comprehensive Income Highlights (June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | 3-Month Period Ended June 30, 2024 | 3-Month Period Ended June 30, 2023 | Change | % Change | | :-------------------------- | :--------------------------------- | :--------------------------------- | :----- | :------- | | Net income for the period | 866,981 | 2,142,723 | (1,275,742) | -59.54% | | Cumulative translation adjustment | 3,113,159 | (1,081,351) | 4,194,510 | -387.89% | | Total comprehensive income for the period, net of tax | 3,791,277 | 1,221,667 | 2,569,610 | 210.34% | | | **6-Month Period Ended June 30, 2024** | **6-Month Period Ended June 30, 2023** | **Change** | **% Change** | | Net income for the period | 2,919,853 | 5,358,122 | (2,438,269) | -45.50% | | Cumulative translation adjustment | 4,443,855 | (1,782,829) | 6,226,684 | -349.27% | | Total comprehensive income for the period, net of tax | 6,821,200 | 4,039,680 | 2,781,520 | 68.85% | [Consolidated Statements of Changes in Equity](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20EQUITY) Total equity increased significantly from January 1 to June 30, 2024, driven by comprehensive income and capital increase from retained earnings Consolidated Statements of Changes in Equity Highlights (January 1, 2024 to June 30, 2024) | Metric (in thousands of R$) | January 1, 2024 | June 30, 2024 | Change | % Change | | :-------------------------- | :-------------- | :------------ | :----- | :------- | | Capital | 20,215,343 | 24,273,225 | 4,057,882 | 20.07% | | Retained earnings | 20,471,931 | 16,240,066 | (4,231,865) | -20.67% | | Other reserves | 14,504,471 | 18,688,206 | 4,183,735 | 28.84% | | Equity Attributable to Parent | 49,058,959 | 55,130,309 | 6,071,350 | 12.37% | | Non-controlling interests | 179,904 | 211,597 | 31,693 | 17.62% | | **Total Equity** | **49,238,863** | **55,341,906** | **6,103,043** | **12.39%** | - The increase in capital was primarily due to the capitalization of **R$ 4,057,882 thousand** from retained earnings, approved on April 16, 2024, which involved issuing 351,413,410 new shares (120,105,288 common and 231,308,122 preferred) as a bonus[6](index=6&type=chunk)[158](index=158&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Operating cash flow decreased, but reduced investing and financing cash outflows, plus positive exchange variation, led to a significant increase in cash and cash equivalents Consolidated Statements of Cash Flows Highlights (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :-------------------------- | :------------ | :------------ | :----- | :------- | | Net cash provided by operating activities | 2,766,821 | 5,180,523 | (2,413,702) | -46.59% | | Net cash used in investing activities | (894,865) | (2,285,504) | 1,390,639 | -60.85% | | Net cash used in financing activities | (431,019) | (2,665,484) | 2,234,465 | -83.83% | | Exchange variation on cash and cash equivalents | 442,884 | (149,356) | 592,240 | -396.53% | | Increase in cash and cash equivalents | 1,883,821 | 80,179 | 1,803,642 | 2249.64% | | Cash and cash equivalents at end of period | 4,889,466 | 2,556,042 | 2,333,424 | 91.29% | - The significant increase in cash and cash equivalents at the end of the period was primarily driven by a substantial reduction in net cash used in financing activities and a positive exchange variation on cash and cash equivalents, despite a decrease in operating cash flows[7](index=7&type=chunk) Notes to the Condensed Consolidated Interim Financial Statements [Note 1 - General Information](index=8&type=section&id=NOTE%201%20-%20GENERAL%20INFORMATION) Gerdau S.A. is a leading Brazilian long steel producer and Latin America's largest recycler, with interim financial statements approved July 31, 2024 - Gerdau S.A. is a leading producer of long steel in the Americas and a major global supplier of special steel, with its corporate domicile in São Paulo, Brazil[9](index=9&type=chunk) - The Company is recognized as the largest recycler in Latin America, converting millions of tons of scrap into steel annually, aligning with its commitment to sustainable development[9](index=9&type=chunk) - The Condensed Consolidated Interim Financial Statements were approved by Management on July 31, 2024[10](index=10&type=chunk) [Note 2 - Summary of Significant Accounting Practices](index=8&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20PRACTICES) This note details accounting principles, adherence to IAS 34 and IFRS, and the assessment of new IFRS standards and SEC rules effective from 2025 [2.1 - Basis of Presentation](index=8&type=section&id=2.1%20-%20Basis%20of%20Presentation) Interim financial statements are prepared under IAS 34, consistent with 2023 IFRS annual statements, primarily using historical cost - The Condensed Consolidated Interim Financial Statements are prepared in accordance with International Accounting Standard (IAS) Nº 34[11](index=11&type=chunk) - These statements should be read in conjunction with the Consolidated Financial Statements as of December 31, 2023, prepared under International Financial Reporting Standards (IFRS)[11](index=11&type=chunk) - Accounting policies applied are consistent with those used for the year ended December 31, 2023, with historical cost as the basis, except for certain financial instruments measured at fair value[12](index=12&type=chunk)[13](index=13&type=chunk) [2.2 – New accounting standards](index=8&type=section&id=2.2%20%E2%80%93%20New%20accounting%20standards) New IFRS standards for 2024 had no impact, while future IFRS and SEC climate-related disclosures effective 2025 and 2027 are being evaluated - New IFRS standards effective for 2024 had no impact on the Company's Financial Statements[14](index=14&type=chunk) - The Company is assessing the impact of future standards, including an amendment to IAS 21 (Lack of Exchangeability) effective January 1, 2025, which is not expected to have material impacts[14](index=14&type=chunk)[15](index=15&type=chunk) - New SEC rules requiring climate-related disclosures are effective January 1, 2025, and the Company is evaluating their impact[16](index=16&type=chunk) - IFRS 18 (Presentation and Disclosure in Financial Statements) and IFRS 19 (Subsidiaries without Public Accountability: Disclosures) are effective January 1, 2027, and their impacts are being evaluated[17](index=17&type=chunk)[19](index=19&type=chunk) [Note 3 – Condensed Consolidated Interim Financial Statements](index=9&type=section&id=NOTE%203%20%E2%80%93%20CONDENSED%20CONSOLIDATED%20INTERIM%20FINANCIAL%20STATEMENTS) This note details interests in subsidiaries, joint ventures, and associates, highlighting a **US$ 325 million** joint venture sale resulting in an **R$ 808.4 million** gain [3.1 - Subsidiaries](index=9&type=section&id=3.1%20-%20Subsidiaries) No material changes in subsidiary interests were reported for the period ended June 30, 2024, compared to December 31, 2023 - The Company reported no material changes in interest in subsidiaries for the period ended June 30, 2024, compared to December 31, 2023[22](index=22&type=chunk) [3.2 - Joint Ventures](index=9&type=section&id=3.2%20-%20Joint%20Ventures) Joint ventures include entities like Bradley Steel Processors and Gerdau Corsa, with significant declines in net sales and net income for the period Joint Ventures Equity Interests (June 30, 2024) | Joint ventures | Country | Equity Interests (June 30, 2024) | | :------------- | :------ | :------------------------------- | | Bradley Steel Processors | Canada | 50.00% | | MRM Guide Rail | Canada | 50.00% | | Gerdau Corsa S.A.P.I. de CV | Mexico | 75.00% | | Gerdau Summit Aços Fundidos e Forjados S.A. | Brazil | 58.73% | | Juntos Somos Mais Fidelização S.A. | Brazil | 27.49% | | Addiante S.A | Brazil | 50.00% | | Ubiratã Tecnologia S.A | Brazil | 50.00% | | Brasil ao Cubo S.A. | Brazil | 44.66% | - Despite owning over **50%** of Gerdau Corsa S.A.P.I. de C.V. and Gerdau Summit Aços Fundidos e Forjados S.A., the Company does not consolidate their financial statements due to joint control agreements[24](index=24&type=chunk) Joint Ventures Financial Information (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :-------------------------- | :------------ | :------------ | :----- | :------- | | Net sales | 3,480,003 | 7,104,461 | (3,624,458) | -51.02% | | Net income | 269,687 | 862,376 | (592,689) | -68.73% | [3.3 — Associate companies](index=10&type=section&id=3.3%20%E2%80%94%20Associate%20companies) Associate companies include Dona Francisca Energética S.A. and Newave Energia S.A., with varied financial performance for the six-month period Associate Companies Equity Interests (June 30, 2024) | Associate companies | Country | Equity Interests (June 30, 2024) | | :------------------ | :------ | :------------------------------- | | Dona Francisca Energética S.A. | Brazil | 51.82% | | Newave Energia S.A. | Brazil | 33.33% | - Dona Francisca Energética S.A. is not consolidated despite over **50%** ownership due to by-laws requiring **65%** interest for control[28](index=28&type=chunk) Associate Companies Financial Information (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :-------------------------- | :------------ | :------------ | :----- | :------- | | Net sales | 57,029 | 32,811 | 24,218 | 73.81% | | Net income | 4,990 | 10,933 | (5,943) | -54.36% | [3.4 — Results in operations with joint ventures](index=11&type=section&id=3.4%20%E2%80%94%20Results%20in%20operations%20with%20joint%20ventures) The Company sold equity interests in two joint ventures for **US$ 325 million**, recognizing an **R$ 808.4 million** gain, aligning with capital allocation strategy - On January 17, 2024, the Company sold its **49.85%** equity interest in Diaco S.A. and **50.00%** in Gerdau Metaldom Corp for **US$ 325 million** (**R$ 1.5 billion**)[31](index=31&type=chunk) - This transaction resulted in a **R$ 808.4 million** gain recognized in the Statement of Income, including **R$ 407.6 million** reclassified from Cumulative translation adjustment[31](index=31&type=chunk) - The sale aligns with Gerdau's capital allocation strategy, focusing on growth and competitiveness of assets with higher long-term value generation potential[31](index=31&type=chunk) [Note 4 – Cash and Cash Equivalents, and Short-Term Investments](index=11&type=section&id=NOTE%204%20%E2%80%93%20CASH%20AND%20CASH%20EQUIVALENTS%2C%20AND%20SHORT-TERM%20INVESTMENTS) Cash and cash equivalents significantly increased, while short-term investments decreased, with both categories stated at fair value for cash management Cash and Short-Term Investments (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | Cash and cash equivalents | 4,889,466 | 3,005,645 | 1,883,821 | 62.67% | | Short-term investments | 1,749,547 | 2,338,097 | (588,550) | -25.17% | - Immediately available investments, part of cash and cash equivalents, have maturities up to **90 days**, immediate liquidity, and low fair value variation risk[32](index=32&type=chunk) - Short-term investments, including Bank Deposit Certificates and marketable securities, are used in the Company's operations and cash management and are stated at fair value[33](index=33&type=chunk) [Note 5 – Accounts Receivable](index=11&type=section&id=NOTE%205%20%E2%80%93%20ACCOUNTS%20RECEIVABLE) Total trade accounts receivable increased by over **R$ 1 billion**, mainly from foreign subsidiaries, with most receivables remaining current Trade Accounts Receivable (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | Trade accounts receivable - in Brazil | 2,948,387 | 2,622,865 | 325,522 | 12.41% | | Trade accounts receivable - exports from Brazil | 352,982 | 617,577 | (264,595) | -42.85% | | Trade accounts receivable - foreign subsidiaries | 2,689,858 | 1,724,838 | 965,020 | 55.95% | | (-) Impairment of financial assets | (115,408) | (89,886) | (25,522) | 28.39% | | **Total Trade accounts receivable** | **5,875,819** | **4,875,394** | **1,000,425** | **20.52%** | Accounts Receivable by Aging (June 30, 2024 vs. December 31, 2023) | Aging Category (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :---------------------------------- | :------------ | :---------------- | :----- | :------- | | Current | 5,269,141 | 4,294,446 | 974,695 | 22.69% | | Past-due (Up to 30 days) | 563,254 | 513,384 | 49,870 | 9.71% | | Past-due (Above 360 days) | 6,760 | 21,132 | (14,372) | -68.01% | [Note 6 - Inventories](index=12&type=section&id=NOTE%206%20-%20INVENTORIES) Total inventories increased by **R$ 1.3 billion** due to higher finished products and work in progress, while the allowance for net realizable value decreased Inventories (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | Finished products | 7,803,879 | 6,971,497 | 832,382 | 11.94% | | Work in progress | 3,768,330 | 3,336,780 | 431,550 | 12.93% | | Raw materials | 3,259,357 | 3,241,607 | 17,750 | 0.55% | | Storeroom supplies | 1,389,103 | 1,266,465 | 122,638 | 9.68% | | Imports in transit | 355,424 | 469,601 | (114,177) | -24.31% | | (-) Allowance for adjustments to net realizable value | (28,669) | (58,172) | 29,503 | -50.72% | | **Total Inventories** | **16,547,424** | **15,227,778** | **1,319,646** | **8.67%** | - The allowance for adjustment to net realizable value decreased from **R$ 58,172 thousand** to **R$ 28,669 thousand**, with a reversal of **R$ 48,923 thousand** during the period[37](index=37&type=chunk) [Note 7 – Income and Social Contribution Taxes](index=12&type=section&id=NOTE%207%20%E2%80%93%20INCOME%20AND%20SOCIAL%20CONTRIBUTION%20TAXES) Income and social contribution taxes significantly decreased for both periods ended June 30, 2024, influenced by lower income before taxes and various tax adjustments [a) Reconciliations of income and social contribution taxes at statutory rates to amounts presented in the Statement of Income](index=13&type=section&id=a)%20Reconciliations%20of%20income%20and%20social%20contribution%20taxes%20at%20statutory%20rates%20to%20amounts%20presented%20in%20the%20Statement%20of%20Income%20are%20as%20follows%3A) Income and social contribution taxes decreased significantly, influenced by lower income before taxes and statutory rates ranging from **23% to 35%** Income and Social Contribution Taxes Reconciliation (June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | 3-Month Period Ended June 30, 2024 | 3-Month Period Ended June 30, 2023 | Change | % Change | | :-------------------------- | :--------------------------------- | :--------------------------------- | :----- | :------- | | Income before income taxes | 1,022,789 | 2,462,169 | (1,439,380) | -58.46% | | Income and social contribution taxes | (155,808) | (319,446) | 163,638 | -51.22% | | Current | (289,515) | (469,810) | 180,295 | -38.38% | | Deferred | 133,707 | 150,364 | (16,657) | -11.08% | | | **6-Month Period Ended June 30, 2024** | **6-Month Period Ended June 30, 2023** | **Change** | **% Change** | | Income before income taxes | 3,299,354 | 6,704,511 | (3,405,157) | -50.79% | | Income and social contribution taxes | (379,501) | (1,346,389) | 966,888 | -71.81% | | Current | (639,543) | (1,135,354) | 495,811 | -43.67% | | Deferred | 260,042 | (211,035) | 471,077 | -223.22% | - The statutory tax rates for income tax and social contribution in Brazil are **25%** and **9%** respectively, totaling **34%**. Foreign subsidiaries are subject to rates between **23%** and **35%**[38](index=38&type=chunk) [b) Tax Assets not booked](index=13&type=section&id=b)%20Tax%20Assets%20not%20booked) The Company did not recognize significant tax assets for Brazilian tax losses and foreign subsidiary tax credits on capital losses and state taxes - The Company did not recognize **R$ 270,659 thousand** in tax assets for tax losses and negative social contribution from Brazilian operations, which have no expiration date[41](index=41&type=chunk) - Foreign subsidiaries have **R$ 633,742 thousand** in unbooked tax credits on capital losses expiring between **2029** and **2035**[41](index=41&type=chunk) - Additionally, **R$ 307,035 thousand** in state tax credits from foreign subsidiaries, expiring between **2025** and **2038**, were not booked[41](index=41&type=chunk) [Note 8 – Investments](index=14&type=section&id=NOTE%208%20%E2%80%93%20INVESTMENTS) Total investments increased by **R$ 404,617 thousand** to **R$ 4,263,066 thousand**, primarily due to equity in earnings and cumulative translation adjustments in North America Investments by Segment (June 30, 2024 vs. December 31, 2023) | Segment (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :--------------------------- | :------------ | :---------------- | :----- | :------- | | North America | 3,118,265 | 2,766,406 | 351,859 | 12.72% | | Special Steel | 277,095 | 268,522 | 8,573 | 3.19% | | Others | 867,706 | 823,521 | 44,185 | 5.37% | | **Total Investments** | **4,263,066** | **3,858,449** | **404,617** | **10.49%** | - Equity in earnings contributed **R$ 187,198 thousand** to investments during the six-month period ended June 30, 2024[43](index=43&type=chunk) - Cumulative Translation Adjustment positively impacted investments by **R$ 165,316 thousand** in the six-month period[43](index=43&type=chunk) [Note 9 – Property, Plant and Equipment](index=14&type=section&id=NOTE%209%20%E2%80%93%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT) Significant acquisitions in property, plant and equipment totaled **R$ 2,278,096 thousand**, alongside an **R$ 199,627 thousand** impairment loss in the Brazil segment [a) Summary of changes in property, plant and equipment](index=14&type=section&id=a)%20Summary%20of%20changes%20in%20property%2C%20plant%20and%20equipment) Acquisitions of property, plant and equipment totaled **R$ 2,278,096 thousand** for the six-month period ended June 30, 2024 Property, Plant and Equipment Changes (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :-------------------------- | :------------ | :------------ | :----- | :------- | | Acquisitions | 2,278,096 | 2,183,061 | 95,035 | 4.35% | | Disposals | 26,313 | 24,618 | 1,695 | 6.88% | - Acquisitions for the three-month period ended June 30, 2024, amounted to **R$ 1,419,775 thousand**[44](index=44&type=chunk) [b) Capitalized borrowing costs](index=14&type=section&id=b)%20Capitalized%20borrowing%20costs) Capitalized borrowing costs significantly increased for both the three-month and six-month periods ended June 30, 2024 Capitalized Borrowing Costs (June 30, 2024 vs. June 30, 2023) | Period | June 30, 2024 (in thousands of R$) | June 30, 2023 (in thousands of R$) | Change | % Change | | :-------------------------- | :--------------------------------- | :--------------------------------- | :----- | :------- | | Three-month period | 35,385 | 724 | 34,661 | 4787.43% | | Six-month period | 65,147 | 24,793 | 40,354 | 162.76% | [c) Impairment of assets](index=14&type=section&id=c)%20Impairment%20of%20assets) An impairment loss of **R$ 199,627 thousand** was recognized in the Brazil segment due to lack of future use expectation for industrial assets - An impairment loss of **R$ 199,627 thousand** was recognized in the Brazil segment during Q2 2024[46](index=46&type=chunk) - The loss was due to the lack of expectation of future use of some industrial plant assets and was recorded as an expense in the Consolidated Statements of Income[46](index=46&type=chunk) [d) Guarantees](index=14&type=section&id=d)%20Guarantees) No property, plant and equipment were pledged as collateral for loans and financing as of June 30, 2024, or December 31, 2023 - No property, plant and equipment were pledged as collateral for loans and financing as of June 30, 2024, and December 31, 2023[47](index=47&type=chunk) [Note 10 – Goodwill](index=14&type=section&id=NOTE%2010%20%E2%80%93%20GOODWILL) Goodwill increased by **R$ 1,544,198 thousand** to **R$ 12,369,346 thousand**, mainly due to foreign exchange effects, with no impairment test required for the period Goodwill by Segment (June 30, 2024 vs. December 31, 2023) | Segment (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :--------------------------- | :------------ | :---------------- | :----- | :------- | | Brazil | 373,135 | 373,135 | 0 | 0.00% | | Special Steels | 4,095,704 | 3,566,989 | 528,715 | 14.82% | | North America | 7,900,507 | 6,885,024 | 1,015,483 | 14.75% | | **Total Goodwill** | **12,369,346** | **10,825,148** | **1,544,198** | **14.26%** | - The increase in goodwill was largely driven by a positive foreign exchange effect of **R$ 1,544,198 thousand** during the six-month period[48](index=48&type=chunk) - The Company determined that no impairment test for goodwill and other long-lived assets was necessary for the period ended June 30, 2024[50](index=50&type=chunk)[191](index=191&type=chunk) [Note 11 – Trade Accounts Payable (domestic market, debtor risk and imports)](index=15&type=section&id=NOTE%2011%20%E2%80%93%20TRADE%20ACCOUNTS%20PAYABLE%20%28domestic%20market%2C%20debtor%20risk%20and%20imports%29) Total trade accounts payable remained stable at **R$ 5,933,921 thousand**, with increased import payables and decreased debtor risk payables, the latter facilitating supplier financing Trade Accounts Payable (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | Trade accounts payable - domestic market | 4,111,504 | 4,120,701 | (9,197) | -0.22% | | Trade accounts payable - debtor risk | 484,200 | 584,320 | (100,120) | -17.13% | | Trade accounts payable - imports | 1,338,217 | 1,196,162 | 142,055 | 11.87% | | **Total Trade accounts payable** | **5,933,921** | **5,901,183** | **32,738** | **0.55%** | - The 'Trade Accounts Payable – Debtor Risk' mechanism allows suppliers to anticipate receivables via financial institutions, with the financial cost borne by the supplier, not Gerdau[52](index=52&type=chunk) - 'Trade Accounts Payable - Imports' primarily relates to purchases of coal and other raw materials abroad, often involving letters of credit with payment terms up to **180 days**[53](index=53&type=chunk) [Note 12 – Loans and Financing](index=15&type=section&id=NOTE%2012%20%E2%80%93%20LOANS%20AND%20FINANCING) Total loans and financing increased slightly to **R$ 10,259,620 thousand**, primarily in US dollars, with an unused **US$ 875 million** global credit line for liquidity Loans and Financing (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | Ten/Thirty Years Bonds | 8,072,813 | 7,051,637 | 1,021,176 | 14.48% | | Other financing | 2,186,807 | 3,028,038 | (841,231) | -27.78% | | **Total financing** | **10,259,620** | **10,079,675** | **179,945** | **1.79%** | | Current | 1,684,449 | 1,783,201 | (98,752) | -5.54% | | Non-current | 8,575,171 | 8,296,474 | 278,697 | 3.36% | Loans and Financing by Currency (June 30, 2024 vs. December 31, 2023) | Currency (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :---------------------------- | :------------ | :---------------- | :----- | :------- | | Brazilian Real (R$) | 1,861,118 | 2,667,065 | (805,947) | -30.22% | | U.S. Dollar (US$) | 8,070,978 | 7,169,183 | 901,795 | 12.58% | | Other currencies | 327,524 | 243,427 | 84,097 | 34.55% | - The nominal weighted average cost of US dollar debts was **5.45% p.a.** (down from **5.68% p.a.**), and Real-denominated debts were **106.7%** of CDI p.a. (up from **104.9%** of CDI p.a.) as of June 30, 2024[57](index=57&type=chunk) [a) Credit Lines](index=16&type=section&id=a)%20Credit%20Lines) The Company maintains an unused **US$ 875 million** global credit line, maturing in September 2027, to provide liquidity for operations - The Company renewed a Global Credit Line of **US$ 875 million** (**R$ 4,864 million**) in September 2022, maturing in September 2027[59](index=59&type=chunk) - This credit line aims to provide liquidity for operations in North America and Latin America, including Brazil, and was unused as of June 30, 2024[59](index=59&type=chunk) - Gerdau S.A., Gerdau Açominas S.A., and Gerdau Aços Longos S.A. provide guarantees for this transaction, and the Company has complied with all non-financial performance clauses[59](index=59&type=chunk)[60](index=60&type=chunk) [Note 13 – Debentures](index=16&type=section&id=NOTE%2013%20%E2%80%93%20DEBENTURES) Total consolidated debentures significantly increased to **R$ 2,321,437 thousand** due to a new **R$ 1.5 billion** issuance in May 2024, indexed to CDI Debentures (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | 16th - B Issuance | 812,303 | 813,633 | (1,330) | -0.16% | | 17th Issuance | 1,509,134 | - | 1,509,134 | N/A | | **Total Consolidated** | **2,321,437** | **813,633** | **1,507,804** | **185.31%** | | Current | 26,730 | 14,421 | 12,309 | 85.35% | | Non-current | 2,294,707 | 799,212 | 1,495,495 | 187.12% | - In May 2024, the Company issued **1,500,000** debentures with a nominal unit value of **R$ 1**, totaling **R$ 1.5 billion**[63](index=63&type=chunk) - Debentures are denominated in Brazilian Reais, nonconvertible, and pay variable interest as a percentage of the CDI (Interbank Deposit Certificate)[62](index=62&type=chunk) [Note 14 - Financial Instruments](index=17&type=section&id=NOTE%2014%20-%20FINANCIAL%20INSTRUMENTS) The Company uses financial instruments and derivatives to mitigate commodity, interest rate, and exchange rate risks, with fair value measurements based on observable market data [a) General considerations](index=17&type=section&id=a)%20General%20considerations) Gerdau S.A. uses financial instruments and derivatives to manage market risks, including exchange rate, interest rate, and commodity price fluctuations, without speculation - Gerdau S.A. uses financial instruments to manage risks, with strategies discussed and shared with senior management[64](index=64&type=chunk) - Financial instruments are recorded as short-term investments, trade accounts receivable/payable, derivatives, loans, debentures, and other assets/liabilities[64](index=64&type=chunk) - Derivatives and non-derivative instruments are used to hedge against exchange rate, interest rate, and commodity price fluctuations, without leverage[65](index=65&type=chunk) [b) Fair Value](index=17&type=section&id=b)%20Fair%20Value) Fair values of financial instruments, including loans and debentures, are determined using market premises and discounted cash flows Fair Value of Financial Instruments (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | Book Value (June 30, 2024) | Fair Value (June 30, 2024) | Book Value (December 31, 2023) | Fair Value (December 31, 2023) | | :-------------------------- | :------------------------- | :------------------------- | :----------------------------- | :----------------------------- | | **Assets** | | | | | | Short-term investments | 1,749,547 | 1,749,547 | 2,338,097 | 2,338,097 | | Trade accounts receivable - net | 5,875,819 | 5,875,819 | 4,875,394 | 4,875,394 | | Fair value of derivatives | 33,987 | 33,987 | 766 | 766 | | **Liabilities** | | | | | | Loans and Financing | 10,259,620 | 10,299,075 | 10,079,675 | 10,161,103 | | Debentures | 2,321,437 | 2,320,462 | 813,633 | 812,413 | | Fair value of derivatives | 24,080 | 24,080 | 20,648 | 20,648 | - Fair values of Loans and Financing and Debentures are based on market premises, including discounted cash flows using equivalent market rates and credit ratings[66](index=66&type=chunk) [c) Risk factors that could affect the Company's and its subsidiaries' businesses](index=18&type=section&id=c)%20Risk%20factors%20that%20could%20affect%20the%20Company's%20and%20its%20subsidiaries'%20businesses) The Company is exposed to commodity price, interest rate, exchange rate, credit, capital management, and liquidity risks, mitigated through monitoring and derivatives - The Company is exposed to commodity price risk, which can affect net sales and cost of sales due to fluctuations in product, raw material, and input prices. This risk is minimized through constant monitoring and potential derivative contracts[67](index=67&type=chunk)[76](index=76&type=chunk) - Interest rate risk arises from fluctuations in rates applied to financial liabilities and assets. The Company monitors SOFR and CDI and may use interest rate swaps[68](index=68&type=chunk)[75](index=75&type=chunk) - Exchange rate risk is managed by measuring differences between foreign currency assets and liabilities, with derivatives used to mitigate effects of exchange rate fluctuations[69](index=69&type=chunk)[73](index=73&type=chunk) - Credit risk is minimized by detailed analysis of customer financial positions, credit limits, and transactions with first-rate financial institutions for investments[70](index=70&type=chunk) - Capital management risk involves optimizing financial leverage and debt management, with KPIs like Net Debt/EBITDA (target: **≤ 1.5 times**) and average debt maturity (target: **> 6 years**)[71](index=71&type=chunk) - Liquidity risk is managed by utilizing committed and available credit lines, with maturity schedules for long-term loans and debentures detailed in Notes 12 and 13[72](index=72&type=chunk) Sensitivity Analysis Impacts on Statements of Income (June 30, 2024 vs. June 30, 2023) | Assumption | Percentage of change | June 30, 2024 (in thousands of R$) | June 30, 2023 (in thousands of R$) | | :---------------------------------------- | :------------------- | :--------------------------------- | :--------------------------------- | | Foreign currency sensitivity - Loans and financing | 5% | 12,139 | 2,049 | | Foreign currency sensitivity - Imports/Exports | 5% | (49,262) | 37,353 | | Interest rate sensitivity | 10 bps | 34,471 | 28,325 | | Sales price of products | 1% | 166,158 | 182,654 | | Raw material and commodity prices | 1% | 104,942 | 112,144 | | Currency forward contracts | 5% | (16,276) | 183 | | Commodity derivatives | 5% | (3,949) | 2,085 | | Swaps USD x DI | 5% | 8,559 | - | [d) Financial Instruments per Category](index=20&type=section&id=d)%20Financial%20Instruments%20per%20Category) Financial assets are categorized by amortized cost or fair value through profit or loss, while liabilities are primarily at amortized cost Financial Assets by Category (June 30, 2024) | Assets (in thousands of R$) | Financial asset at amortized cost | Financial asset at fair value through profit or loss | Total | | :-------------------------- | :-------------------------------- | :--------------------------------------------------- | :---- | | Short-term investments | - | 1,749,547 | 1,749,547 | | Trade accounts receivable | 5,875,819 | - | 5,875,819 | | Fair value of derivatives | - | 33,987 | 33,987 | | **Total Assets** | **7,036,266** | **1,801,664** | **8,837,930** | Financial Liabilities by Category (June 30, 2024) | Liabilities (in thousands of R$) | Financial liability at fair value through profit or loss | Financial liability at amortized cost | Total | | :------------------------------- | :------------------------------------------------------- | :------------------------------------ | :---- | | Trade accounts payable - domestic market | - | 4,111,504 | 4,111,504 | | Loans and financing | - | 10,259,620 | 10,259,620 | | Debentures | - | 2,321,437 | 2,321,437 | | Fair value of derivatives | 24,080 | - | 24,080 | | **Total Liabilities** | **24,080** | **20,649,722** | **20,673,802** | [e) Operations with derivative financial instruments](index=21&type=section&id=e)%20Operations%20with%20derivative%20financial%20instruments) Gerdau uses derivative financial instruments solely for market risk mitigation, not speculation, with fair value gains/losses recognized monthly - Gerdau uses derivative financial instruments (e.g., interest rate/currency swaps, currency futures, options) solely for market risk mitigation, not for speculative purposes[83](index=83&type=chunk)[85](index=85&type=chunk)[88](index=88&type=chunk) - All derivative instruments are reviewed monthly by the Financial Risk Committee, and gains/losses are recognized at fair value in the Consolidated Financial Statements[84](index=84&type=chunk) Derivative Financial Instruments Fair Value (June 30, 2024 vs. December 31, 2023) | Metric (in thousands of R$) | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Fair value of derivatives (Assets) | 33,987 | 766 | | Fair value of derivatives (Liabilities) | 24,080 | 20,648 | | Net Income (Gains/Losses on financial instruments) | (19,630) | (16,203) | [f) Net investment hedge](index=23&type=section&id=f)%20Net%20investment%20hedge) The Company designated **US$ 0.4 billion** in Ten Years Bonds as a hedge for foreign net investments, resulting in an unrealized loss from exchange rate changes - The Company designated Ten Years Bonds (**US$ 0.4 billion**, **R$ 2.1 billion**) as a hedge for part of its net investments in foreign subsidiaries[92](index=92&type=chunk) - Exchange rate changes on these hedged debts resulted in an unrealized loss of **R$ 295,865 thousand** (net of taxes) for the six-month period ended June 30, 2024, recognized in the Statement of Comprehensive Income[92](index=92&type=chunk)[93](index=93&type=chunk) - The hedge's objective is to protect the Company's investment in foreign subsidiaries against exchange rate fluctuations, demonstrating effectiveness through prospective and retrospective tests[94](index=94&type=chunk) [g) Measurement of fair value](index=23&type=section&id=g)%20Measurement%20of%20fair%20value) Fair value is defined by IFRS as the price for an arm's length transaction, with the Company's measurements based on observable market data - Fair value is defined by IFRS Accounting Standards as the price received for selling an asset or paid for transferring a liability in an arm's length transaction[95](index=95&type=chunk) - The Company's financial assets and liabilities measured at fair value on a recurring basis use valuation techniques based solely on observable market data[97](index=97&type=chunk) [h) Changes in liabilities from Cash flow from financing activities](index=23&type=section&id=h)%20Changes%20in%20liabilities%20from%20Cash%20flow%20from%20financing%20activities) Changes in liabilities from financing activities include cash effects, interest on loans, and exchange variance, impacting related parties, leasing, and other financing Changes in Liabilities from Financing Activities (December 31, 2023 to June 30, 2024) | Metric (in thousands of R$) | December 31, 2023 | Cash effects (Received/(Paid) from financing activities) | Non-cash effects (Interest on loans, financing and loans with related parties) | Non-cash effects (Exchange Variance and others) | June 30, 2024 | | :-------------------------- | :---------------- | :------------------------------------------------------- | :-------------------------------------------------------------------------- | :---------------------------------------------- | :------------ | | Related Parties, net | 24,992 | 2,738 | - | - | 27,730 | | Leasing payable | 1,277,602 | (217,789) | (69,106) | 289,420 | 1,349,233 | | Loans and Financing, Debentures and Fair value of derivatives | 10,913,190 | 545,417 | (409,533) | 1,156,575 | 12,571,150 | [Note 15 – Tax, Civil and Labor Claims and Contingent Assets](index=24&type=section&id=NOTE%2015%20%E2%80%93%20TAX%2C%20CIVIL%20AND%20LABOR%20CLAIMS%20AND%20CONTINGENT%20ASSETS) The Company manages provisions for probable losses from judicial and administrative proceedings, significant contingent liabilities, and has recovered assets from Eletrobras and PIS/COFINS tax credits [I) Provisions](index=24&type=section&id=I)%20Provisions) Total provisions for tax, labor, and civil claims increased to **R$ 2,278,508 thousand**, deemed sufficient to cover probable losses - Provisions for judicial and administrative proceedings are considered sufficient to cover probable and reasonably estimable losses[100](index=100&type=chunk) Provisions (June 30, 2024 vs. December 31, 2023) | Provision Type (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :---------------------------------- | :------------ | :---------------- | :----- | :------- | | Tax provisions | 1,847,103 | 1,737,984 | 109,119 | 6.28% | | Labor provisions | 398,491 | 413,179 | (14,688) | -3.56% | | Civil provisions | 32,914 | 34,662 | (1,748) | -5.04% | | **Total Provisions** | **2,278,508** | **2,185,825** | **92,683** | **4.24%** | - Changes in provisions include additions of **R$ 114,262 thousand** and monetary correction of **R$ 79,989 thousand**, offset by reversals of **R$ 101,910 thousand**[105](index=105&type=chunk) [II) Contingent liabilities for which provisions were not recorded](index=24&type=section&id=II)%20Contingent%20liabilities%20for%20which%20provisions%20were%20not%20recorded%20as%20of%20March%2031%2C%202024) Significant contingent liabilities, classified as possible losses, include various tax, civil, and labor claims for which no provisions are recorded - Contingent liabilities with a 'possible' (but not likely) probability of loss are not accrued[106](index=106&type=chunk) - Tax contingencies include lawsuits related to ICMS (**R$ 709,588 thousand**), IPI (**R$ 499,612 thousand**), PIS and COFINS (**R$ 2,050,810 thousand**), social security contributions (**R$ 150,852 thousand**), and other taxes (**R$ 695,495 thousand**)[107](index=107&type=chunk)[108](index=108&type=chunk) - Significant tax contingencies also involve Withholding Income Tax on interest remitted abroad (**R$ 1,587,237 thousand**) and goodwill amortization (**R$ 564,940 thousand** and **R$ 7,891,521 thousand**)[109](index=109&type=chunk)[110](index=110&type=chunk)[112](index=112&type=chunk) - Civil contingencies include a lawsuit related to antitrust legislation (**R$ 417,820 thousand**, updated to August 1, 2013) and other civil demands totaling **R$ 643,208 thousand**[114](index=114&type=chunk)[120](index=120&type=chunk) - Labor contingencies amount to approximately **R$ 1,161,020 thousand**[121](index=121&type=chunk) [III) Judicial deposits](index=27&type=section&id=III)%20Judicial%20deposits) Total judicial deposits increased to **R$ 2,091,429 thousand**, primarily for tax matters like ICMS/PIS/COFINS, with some withdrawals pending final judgment Judicial Deposits (June 30, 2024 vs. December 31, 2023) | Deposit Type (in thousands of R$) | June 30, 2024 | December 31, 2023 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Tax | 1,901,987 | 1,828,611 | 73,376 | 4.01% | | Labor | 51,091 | 56,640 | (5,549) | -9.80% | | Civil | 138,351 | 178,819 | (40,468) | -22.63% | | **Total Judicial deposits** | **2,091,429** | **2,064,070** | **27,359** | **1.33%** | - Tax judicial deposits include **R$ 1,739,952 thousand** related to the ICMS inclusion in the PIS and COFINS tax base, awaiting court termination for return to the Company[122](index=122&type=chunk) - The Federal Supreme Court ruled in **2017** that ICMS does not comprise the tax base for PIS and COFINS, with effects modulated to apply after March 15, 2017, except for lawsuits filed before that date[125](index=125&type=chunk)[126](index=126&type=chunk) - In **2021**, the Company recognized **R$ 1.2 billion** in tax credits (net of expenses) from the ICMS/PIS/COFINS lawsuits, with **R$ 393.3 million** in Other Operating Income and **R$ 788.7 million** in Tax Credits Monetary Update[127](index=127&type=chunk) - A request for withdrawal of **R$ 1.7 billion** in judicial deposits related to ICMS in PIS/COFINS calculation base was granted on March 14, 2024, pending final judgment[131](index=131&type=chunk) [IV) Eletrobras Compulsory Loan — Centrais Elétricas Brasileiras S.A. (Eletrobras)](index=29&type=section&id=IV)%20Eletrobras%20Compulsory%20Loan%20%E2%80%94%20Centrais%20Elétricas%20Brasileiras%20S.A.%20%28Eletrobras%29) The Company has favorable final decisions on Eletrobras Compulsory Loan lawsuits, recognizing a **R$ 1,391,280 thousand** gain in 2021 and receiving further payments in 2024 - The Company has lawsuits claiming appropriate interest and monetary correction for the Eletrobras Compulsory Loan, with final favorable decisions[133](index=133&type=chunk) - In **2021**, a gain of **R$ 1,391,280 thousand** (net of fees) was recognized from a judicial deposit/payment by Eletrobras[133](index=133&type=chunk) - Gerdau S.A. entered into agreements with Eletrobras in February and June 2024, receiving **R$ 17 million** and **R$ 134 million** (**R$ 101.1 million** net) respectively, to finalize related processes[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) - Other pending lawsuits related to this subject, with final favorable decisions, total approximately **R$ 40 million**[137](index=137&type=chunk) [V) Other contingent assets](index=30&type=section&id=V)%20Other%20contingent%20assets) A **R$ 828 million** credit from a successful PIS and COFINS lawsuit on scrap purchases was recognized in February 2023, expected to be monetized within five years - In February 2023, Gerdau S.A. recognized a **R$ 828 million** credit (principal plus monetary update minus legal fees and taxes) from a successful lawsuit regarding PIS and COFINS credits on scrap purchases[139](index=139&type=chunk) - This credit, previously disclosed as a contingent asset, is now considered virtually certain and is expected to be monetized within **five years**[139](index=139&type=chunk) [Note 16 - Related-Party Transactions](index=31&type=section&id=NOTE%2016%20-%20RELATED-PARTY%20TRANSACTIONS) The Company engages in intercompany loans, commercial operations, and management compensation with related parties, also providing significant guarantees for subsidiary financing [a) Intercompany loans](index=31&type=section&id=a)%20Intercompany%20loans) Intercompany loans include a liability to Bradley Steel Processors Inc. maturing on August 1, 2024 Intercompany Loans (Liabilities) (June 30, 2024 vs. December 31, 2023) | Related Party (in thousands of R$) | Maturity | June 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :------------ | :---------------- | | Bradley Steel Processors Inc. | August 1, 2024 | (27,730) | (24,992) | [b) Operations with related parties](index=31&type=section&id=b)%20Operations%20with%20related%20parties) Commercial operations with related parties saw a significant decrease in sales and an increase in purchases for the six-month period Commercial Operations with Related Parties (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :-------------------------- | :------------ | :------------ | :----- | :------- | | Sales | 195,381 | 815,757 | (620,376) | -76.05% | | Purchases | 101,470 | 74,707 | 26,763 | 35.82% | | Net balance | 93,911 | 741,050 | (647,139) | -87.33% | - Receivables from controlling shareholders for property sales amounted to **R$ 17,313 thousand** as of June 30, 2024[143](index=143&type=chunk) - The Company provided guarantees for various financing and commercial agreements of its subsidiaries, totaling significant amounts with maturities extending to **2044**[144](index=144&type=chunk) [c) Price conditions and charges](index=31&type=section&id=c)%20Price%20conditions%20and%20charges) Loan agreements with related parties are updated by fixed/market rates plus exchange rate variation, while commercial operations follow agreed terms - Loan agreements between related parties are updated by fixed and/or market rates (e.g., SOFR) plus exchange rate variation[145](index=145&type=chunk) - Sales of products and purchases of inputs with related parties are conducted under agreed terms and conditions[145](index=145&type=chunk) [d) Management compensation](index=32&type=section&id=d)%20Management%20compensation) Management compensation, including salaries, benefits, and long-term incentive plans, decreased for the six-month period ended June 30, 2024 Management Compensation (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :-------------------------- | :------------ | :------------ | :----- | :------- | | Salaries, benefits and variable compensation | 19,795 | 20,427 | (632) | -3.09% | | Contributions for defined contribution plan | 971 | 1,028 | (57) | -5.54% | | Cost of social charges | 8,368 | 12,471 | (4,103) | -32.90% | | Cost of long-term incentive plans | 15,108 | 17,768 | (2,660) | -14.97% | [e) Other information from related parties](index=32&type=section&id=e)%20Other%20information%20from%20related%20parties) Contributions to assistance entities totaled **R$ 46,627 thousand**, with defined benefit pension plans also classified as related parties - Contributions to assistance entities (Fundação Gerdau, Instituto Gerdau, Fundação Ouro Branco) totaled **R$ 46,627 thousand** as of June 30, 2024[151](index=151&type=chunk) - Defined benefit pension plans and post-employment health care benefit plans are also related parties[151](index=151&type=chunk) [Note 17 – Equity](index=32&type=section&id=NOTE%2017%20%E2%80%93%20EQUITY) Equity saw a significant capital increase of **R$ 4,057,882 thousand** from retained earnings, issuing **351,413,410** new shares, alongside treasury stock management and dividend declarations [a) Capital](index=32&type=section&id=a)%20Capital) Capital increased by **R$ 4,057,882 thousand** through capitalization of retained earnings, issuing **351,413,410** new shares, with preferred shares having no voting rights - The Board of Directors can issue new shares up to an authorized limit of **1,500,000,000** common shares and **3,000,000,000** preferred shares[152](index=152&type=chunk) Outstanding Shares (June 30, 2024 vs. December 31, 2023) | Share Type (in thousands) | June 30, 2024 | December 31, 2023 | Change | % Change | | :------------------------ | :------------ | :---------------- | :----- | :------- | | Common shares | 720,631,730 | 600,526,442 | 120,105,288 | 20.00% | | Preferred shares | 1,383,019,888 | 1,148,995,967 | 234,023,921 | 20.37% | - On April 16, 2024, an Extraordinary Shareholder's Meeting approved a capital increase of **R$ 4,057,882 thousand**, issuing **351,413,410** new shares as a bonus[158](index=158&type=chunk) - Preferred shares do not have voting rights but have the same dividend rights and priority in capital distribution during liquidation as common shares[156](index=156&type=chunk) [b) Treasury stocks](index=33&type=section&id=b)%20Treasury%20stocks) Treasury stocks decreased in both quantity and value, held for cancellation, market sale, or long-term incentive plans Treasury Stocks (June 30, 2024 vs. December 31, 2023) | Metric | June 30, 2024 | December 31, 2023 | Change | % Change | | :------------------------ | :------------ | :---------------- | :----- | :------- | | Shares | 4,828,842 | 7,544,641 | (2,715,799) | -35.99% | | Value (in thousands of R$) | 97,293 | 150,182 | (52,889) | -35.22% | - Treasury shares are held for subsequent cancellation, market sale, or granting under the long-term incentive plan[159](index=159&type=chunk) - The average acquisition cost of treasury shares was **R$ 20.15** as of June 30, 2024[159](index=159&type=chunk) [c) Capital reserves](index=33&type=section&id=c)%20Capital%20reserves) Capital reserves consist solely of premium on issuance of shares - Capital reserves consist of premium on issuance of shares[160](index=160&type=chunk) [d) Retained earnings](index=33&type=section&id=d)%20Retained%20earnings) Retained earnings include legal reserves, tax incentives reserve, and investments/working capital reserve, each with specific usage rules - Legal reserves require **5%** of annual net income to be transferred until it equals **20%** of paid-in capital, usable for capital increase or loss absorption, but not dividends[161](index=161&type=chunk) - Tax incentives reserve allows transfer of net income from government benefits, excluded from dividend calculation basis[162](index=162&type=chunk) - Investments and working capital reserve consists of undistributed earnings, usable for loss absorption, capitalization, dividends, or share repurchase after minimum dividend requirements are met[163](index=163&type=chunk) [e) Operations with non-controlling interests](index=34&type=section&id=e)%20Operations%20with%20non-controlling%20interests) This category reflects amounts recognized in equity from changes in non-controlling interests - This category corresponds to amounts recognized in equity from changes in non-controlling interests[164](index=164&type=chunk) [f) Other reserves](index=34&type=section&id=f)%20Other%20reserves) Other reserves encompass gains/losses on net investment hedge, cash flow hedge derivatives, pension plans, cumulative translation adjustments, and long-term incentive plan expenses - Other reserves include gains and losses on net investment hedge, derivatives accounted as cash flow hedge, pension plan, cumulative translation adjustments, and long-term incentive plan expenses[164](index=164&type=chunk) [g) Dividends](index=34&type=section&id=g)%20Dividends) Dividends of **R$ 0.28** per share were credited for the first quarter, totaling **R$ 589,013 thousand** Dividends Credited to Shareholders (First Quarter) | Period | Nature | R$/share | Outstanding shares (thousands) | Credit Date | Payment Date | Amount (in thousands of R$) | | :-------- | :-------- | :------- | :----------------------------- | :---------- | :----------- | :-------------------------- | | 1st Quarter | Dividends | 0.28 | 2,103,652 | 05/15/24 | 05/28/24 | 589,013 | [Note 18 – Earnings Per Share (EPS)](index=34&type=section&id=NOTE%2018%20%E2%80%93%20EARNINGS%20PER%20SHARE%20%28EPS%29) Basic and diluted EPS for common and preferred shares significantly decreased for both periods ended June 30, 2024, retrospectively adjusted for bonus share issuances Basic Earnings Per Share (June 30, 2024 vs. June 30, 2023) | Metric (R$) | 3-Month Period Ended June 30, 2024 | 3-Month Period Ended June 30, 2023 | Change | % Change | | :-------------------------- | :--------------------------------- | :--------------------------------- | :----- | :------- | | Basic EPS - Preferred | 0.41 | 1.02 | (0.61) | -59.80% | | Basic EPS - Common | 0.41 | 1.02 | (0.61) | -59.80% | | | **6-Month Period Ended June 30, 2024** | **6-Month Period Ended June 30, 2023** | **Change** | **% Change** | | Basic EPS - Preferred | 1.38 | 2.55 | (1.17) | -45.88% | | Basic EPS - Common | 1.38 | 2.55 | (1.17) | -45.88% | Diluted Earnings Per Share (June 30, 2024 vs. June 30, 2023) | Metric (R$) | 3-Month Period Ended June 30, 2024 | 3-Month Period Ended June 30, 2023 | Change | % Change | | :-------------------------- | :--------------------------------- | :--------------------------------- | :----- | :------- | | Diluted EPS (Common and Preferred) | 0.41 | 1.01 | (0.60) | -59.41% | | | **6-Month Period Ended June 30, 2024** | **6-Month Period Ended June 30, 2023** | **Change** | **% Change** | | Diluted EPS (Common and Preferred) | 1.37 | 2.53 | (1.16) | -45.85% | - All EPS figures have been retrospectively adjusted to account for the capital increase with the issuance of common and preferred shares as a bonus[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) [Note 19 – Long-Term Incentive Plans](index=36&type=section&id=NOTE%2019%20%E2%80%93%20LONG-TERM%20INCENTIVE%20PLANS) Long-term incentive plans, including Restricted and Performance Shares, increased to **17,554,853** shares, while the recognized cost in income decreased for both periods Long-Term Incentive Plans Summary (January 1, 2023 to June 30, 2024) | Metric | Quantity on January 01, 2023 | Quantity on December 31, 2023 | Quantity on June 30, 2024 | | :------------------------ | :--------------------------- | :---------------------------- | :------------------------ | | Balance | 10,812,887 | 14,308,539 | 17,554,853 | | Granted | 7,697,990 | 5,628,243 | | | Exercised | (2,674,136) | (3,533,124) | | Cost of Long-Term Incentive Plans Recognized in Income (June 30, 2024 vs. June 30, 2023) | Period | June 30, 2024 (in thousands of R$) | June 30, 2023 (in thousands of R$) | Change | % Change | | :------------------------ | :--------------------------------- | :--------------------------------- | :----- | :------- | | Three-month period | 40,124 | 43,018 | (2,894) | -6.73% | | Six-month period | 75,588 | 80,322 | (4,734) | -5.89% | - The cost is recognized based on the fair value of options granted on the grant date over the vesting period (**3 years** for grants from **2017** onwards)[176](index=176&type=chunk) - As of June 30, 2024, the Company holds **4,828,842** preferred shares in treasury that may be used for this plan[178](index=178&type=chunk) [Note 20 – Expenses by Nature](index=37&type=section&id=NOTE%2020%20%E2%80%93%20EXPENSES%20BY%20NATURE) This note breaks down expenses by nature, showing raw material costs as the largest, with total expenses decreasing for the six-month period ended June 30, 2024 Expenses by Nature (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Expense Type (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :-------------------------------- | :------------ | :------------ | :----- | :------- | | Raw material and consumption material | (20,524,029) | (22,620,810) | 2,096,781 | -9.27% | | Labor expenses | (4,035,047) | (3,858,519) | (176,528) | 4.58% | | Depreciation and amortization | (1,497,105) | (1,467,226) | (29,879) | 2.04% | | Freight | (2,163,284) | (2,284,102) | 120,818 | -5.29% | | Impairment of assets | (199,627) | - | (199,627) | N/A | | Results in operations with joint ventures | 808,367 | - | 808,367 | N/A | | **Total Expenses by Nature** | **(28,640,899)** | **(30,547,876)** | **1,906,977** | **-6.24%** | - The Company recognized **R$ 808,367 thousand** from results in operations with joint ventures for the six-month period ended June 30, 2024[179](index=179&type=chunk) - An impairment of assets totaling **R$ 199,627 thousand** was recorded for the six-month period ended June 30, 2024[179](index=179&type=chunk) [Note 21 – Financial Income](index=37&type=section&id=NOTE%2021%20%E2%80%93%20FINANCIAL%20INCOME) Net financial result significantly deteriorated for both periods ended June 30, 2024, driven by increased financial expenses, monetary variation, and negative exchange variations Financial Income and Expenses (June 30, 2024 vs. June 30, 2023) | Metric (in thousands of R$) | 3-Month Period Ended June 30, 2024 | 3-Month Period Ended June 30, 2023 | Change | % Change | | :-------------------------- | :--------------------------------- | :--------------------------------- | :----- | :------- | | Financial income total | 185,285 | 243,797 | (58,512) | -24.00% | | Financial expenses total | (371,732) | (355,920) | (15,812) | 4.44% | | Exchange variation, net | (377,789) | (299,905) | (77,884) | 25.97% | | Financial result, net | (597,278) | (422,735) | (174,543) | 41.29% | | | **6-Month Period Ended June 30, 2024** | **6-Month Period Ended June 30, 2023** | **Change** | **% Change** | | Financial income total | 359,959 | 459,659 | (99,700) | -21.69% | | Financial expenses total | (714,930) | (679,655) | (35,275) | 5.19% | | Exchange variation, net | (698,424) | (489,633) | (208,791) | 42.64% | | Financial result, net | (1,073,025) | (472,830) | (600,195) | 126.94% | - Hyperinflation adjustments in Argentina contributed **R$ (514,557) thousand** to exchange variation, net, for the six-month period ended June 30, 2024[180](index=180&type=chunk) [Note 22 – Segment Reporting](index=38&type=section&id=NOTE%2022%20%E2%80%93%20SEGMENT%20REPORTING) The Company reports across four segments: Brazil, North America, South America, and Special Steels, all showing decreased net sales and gross profit for the six-month period Net Sales by Business Segment (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Business Segment (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :------------------------------------ | :------------ | :------------ | :----- | :------- | | Brazil Operation | 12,577,049 | 14,161,117 | (1,584,068) | -11.19% | | North America Operation | 13,002,690 | 14,598,982 | (1,596,292) | -10.93% | | South America Operation | 2,595,500 | 3,225,652 | (630,152) | -19.54% | | Special Steels Operation | 5,461,552 | 6,033,974 | (572,422) | -9.49% | | **Consolidated Net Sales** | **32,826,080** | **37,137,673** | **(4,311,593)** | **-11.61%** | Gross Profit by Business Segment (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Business Segment (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :------------------------------------ | :------------ | :------------ | :----- | :------- | | Brazil Operation | 844,949 | 1,699,837 | (854,888) | -50.29% | | North America Operation | 2,527,277 | 3,474,203 | (946,926) | -27.26% | | South America Operation | 443,623 | 697,408 | (253,785) | -36.39% | | Special Steels Operation | 811,721 | 1,026,040 | (214,319) | -20.89% | | **Consolidated Gross Profit** | **4,606,615** | **6,907,016** | **(2,300,401)** | **-33.31%** | Net Sales by Geographic Area (Six-Month Period Ended June 30, 2024 vs. June 30, 2023) | Geographic Area (in thousands of R$) | June 30, 2024 | June 30, 2023 | Change | % Change | | :----------------------------------- | :------------ | :------------ | :----- | :------- | | Brazil | 14,066,504 | 15,516,395 | (1,449,891) | -9.34% | | Latin America | 2,623,956 | 3,640,056 | (1,016,100) | -27.91% | | North America | 16,135,620 | 17,981,222 | (1,845,602) | -10.26% | | **Consolidated Net Sales** | **32,826,080** | **37,137,673** | **(4,311,593)** | **-11.61%** | - The main products for the Brazil Operation include rebar, bars, wide flange beams, wires, plates, hot rolled plates, billets, blooms, slabs, wire rod, and structural shapes[182](index=182&type=chunk) - The Eliminations and Adjustments column includes intercompany sales and loans, as well as corporate-level items not specific to a segment, such as Tax credits recovery and corporate SG&A[184](index=184&type=chunk) [Note 23 – Impairment of Assets](index=40&type=section&id=NOTE%2023%20%E2%80%93%20IMPAIRMENT%20OF%20ASSETS) An impairment loss of **R$ 199,627 thousand** was recognized in the Brazil segment for industrial assets, with no further impairment test required for goodwill as of June 30, 2024 - An impairment loss of **R$ 199,627 thousand** was recognized in the Brazil segment in Q2 2024 for long-lived assets, recorded as an expense in the Consolidated Statements of Income[188](index=188&type=chunk) - Impairment tests for goodwill and other long-lived assets are based on discounted cash flow projections, considering assumptions like cost of capital, growth rate, and investment plans[188](index=188&type=chunk)[189](index=189&type=chunk) - The Company concluded that no impairment test for goodwill and other long-lived assets was required for the period ended June 30, 2024[191](index=191&type=chunk) - Sensitivity analysis from the **2023** annual test showed that even with a **0.5 percentage point** increase in discoun

Gerdau (GGB) has been beaten down lately with too much selling pressure. While the stock has lost 19.7% over the past four weeks, there is light at the end of the tunnel as it is now in oversold territory and Wall Street analysts expect the company to report better earnings than they predicted earlier. reverse soon for reaching the old equilibrium of supply and demand. We use Relative Strength Index (RSI), one of the most commonly used technical indicators, for spotting whether a stock is oversold. This is ...

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