Financial Data and Key Metrics Changes - The adjusted EBITDA for Q3 2022 reached BRL 5.4 billion, marking the second-best EBITDA for a third quarter in the company's history [21][22] - The net debt over EBITDA ratio reached a historical low of 0.16 times, reflecting a successful deleveraging process [28] - The company closed the quarter with a robust cash position of BRL 8.6 billion, slightly up from the previous year [28] Business Line Data and Key Metrics Changes - North America reported an adjusted EBITDA of BRL 2.6 billion with a margin of 32.9%, both historical records for Q3 [2] - The special steel operations saw a 17% increase in adjusted EBITDA year-on-year, driven by current profitability levels [7] - The Brazilian long and flat steel operations experienced a 2% growth in shipments compared to Q2 2022, indicating stable demand [14] Market Data and Key Metrics Changes - In North America, the demand for steel remains strong, particularly from the construction sector, with non-residential construction spending reaching nearly $80 billion in August [4] - The Argentinian construction sector grew by 6.4% year-on-year, while Peru's steel demand increased by 6% in Q3 compared to the previous year [18][19] - The Brazilian Civil Construction Confidence Index reached its highest value in six years, indicating positive market sentiment [15] Company Strategy and Development Direction - The company is focusing on digital transformation and productivity improvements in North America to enhance competitiveness [5] - Investments are being made in the Whitby mill in Canada and the Jackson unit in Tennessee to expand product offerings [6] - The company aims to maintain a gross debt below BRL 12 billion while continuing to invest in share buybacks and dividends [29][31] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the demand for steel in North America, particularly from the construction sector, despite potential seasonal impacts [4][5] - The company anticipates a positive outlook for the fourth quarter, supported by a healthy order backlog [3] - Management highlighted the importance of labor shortages and inflation as ongoing challenges in the North American market [6] Other Important Information - The company announced a dividend payout of approximately BRL 3.6 billion, representing over 60% of the free cash flow generated in the first nine months of the year [31] - Gerdau Summit received certification as a B Corporation, reflecting its commitment to sustainability [39][40] - The company aims to achieve carbon neutrality by 2050 and has set new targets for reducing greenhouse gas emissions [41] Q&A Session Questions and Answers Question: Difference in dividend payout between Gerdau and Metalúrgica - Management clarified that the share buyback program at Metalúrgica is larger compared to Gerdau, which affects the dividend payout strategy [46][47] Question: Profitability trends in Brazil - Management indicated that demand remains solid, with profitability levels expected to remain adequate despite fluctuations in raw material prices [49][50] Question: Capital allocation and extraordinary dividends - The company emphasized that the extraordinary dividend was based on strong cash generation and not on advancing reserves [58][59] Question: Outlook for U.S. operations and margins - Management noted that while there were maintenance downtimes, demand remains strong, and they expect to operate at full capacity moving forward [62][63] Question: Cost evolution in Brazil - Management acknowledged stable costs for mini mills but highlighted potential volatility in coal prices as a key factor to monitor [84][85]

[Condensed Consolidated Interim Financial Statements](index=1&type=section&id=Condensed%20consolidated%20interim%20financial%20statements) [Consolidated Balance Sheets](index=2&type=section&id=Consolidated%20Balance%20Sheets) Gerdau's total assets grew to R$79.8 billion by September 2022, driven by higher inventories, while lower liabilities boosted total equity to R$49.4 billion Consolidated Balance Sheet Summary (in thousands of R$) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | 37,557,578 | 32,640,477 | | **Total Non-Current Assets** | 42,214,747 | 41,174,136 | | **Total Assets** | **79,772,325** | **73,814,613** | | **Total Current Liabilities** | 16,667,208 | 14,036,814 | | **Total Non-Current Liabilities** | 13,726,460 | 16,962,150 | | **Total Liabilities** | **30,393,668** | **30,998,964** | | **Total Equity** | **49,378,657** | **42,815,649** | | **Total Liabilities and Equity** | **79,772,325** | **73,814,613** | - The increase in current assets was mainly due to higher inventories, which rose to **R$18.8 billion from R$16.9 billion**, and an increase in trade accounts receivable to **R$6.7 billion from R$5.4 billion**[2](index=2&type=chunk) - The decrease in non-current liabilities was primarily driven by a reduction in long-term debt from **R$10.9 billion to R$8.2 billion**[3](index=3&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net sales grew 13.5% to R$64.4 billion for the nine-month period, but net income fell to R$10.3 billion due to higher costs and the absence of prior-year one-time gains Nine-Month Income Statement Highlights (in thousands of R$) | Account | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Net Sales** | 64,448,165 | 56,790,157 | | **Gross Profit** | 15,822,787 | 15,630,245 | | **Income Before Taxes** | 13,872,022 | 16,374,089 | | **Net Income** | **10,261,130** | **11,998,954** | | Net Income Attributable to Owners | 10,217,898 | 11,945,709 | | **Basic EPS (R$)** | 1.79 | 3.27 | - The third quarter of 2022 showed a significant decline in net income to **R$3.0 billion compared to R$5.6 billion in Q3 2021**, with net sales remaining relatively flat[4](index=4&type=chunk) - The 2021 results included a one-time Eletrobras compulsory loan recovery of **R$1.39 billion**, which was not present in 2022, contributing to the year-over-year decline in income[4](index=4&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for the nine-month period decreased to R$10.1 billion from R$12.5 billion year-over-year, impacted by lower net income and negative currency translation effects Comprehensive Income Summary (in thousands of R$) | Item | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Net income for the period** | 10,261,130 | 11,998,954 | | **Other comprehensive income for the period, net of tax** | (201,951) | 517,736 | | *Cumulative translation adjustment* | *(507,926)* | *945,601* | | *Unrealized Gains (Losses) on net investment hedge* | *303,928* | *(447,163)* | | **Total comprehensive income for the period, net of tax** | **10,059,179** | **12,516,690** | [Consolidated Statements of Changes in Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Shareholders' equity grew to R$49.4 billion by September 2022, as R$10.3 billion in net income more than offset R$2.2 billion in dividends and R$935 million in share buybacks Key Changes in Equity - 9 Months Ended Sep 30, 2022 (in thousands of R$) | Description | Amount | | :--- | :--- | | **Balance as of January 1, 2022** | **42,815,649** | | Net income | 10,261,130 | | Other comprehensive income (loss) | (201,951) | | Effects of the share buyback program | (934,768) | | Dividends/interest on equity | (2,210,276) | | **Balance as of September 30, 2022** | **49,378,657** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations doubled to R$9.4 billion, driving a R$2.0 billion increase in total cash, despite higher spending on investments, dividends, and share buybacks Cash Flow Summary - 9 Months Ended (in thousands of R$) | Cash Flow Activity | September 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **9,425,997** | **4,695,182** | | **Net cash used in investing activities** | **(2,726,184)** | **(1,896,608)** | | **Net cash used by financing activities** | **(4,832,663)** | **(3,444,588)** | | Increase (Decrease) in cash and cash equivalents | 2,024,997 | (641,127) | | Cash and cash equivalents at end of period | 6,185,651 | 3,976,077 | - Key uses of cash in financing activities included **R$2.4 billion for dividends** and interest on capital, and **R$916 million for the purchase of treasury stocks**[7](index=7&type=chunk) [Notes to the Condensed Consolidated Interim Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Interim%20Financial%20Statements) [Note 1 - General Information](index=8&type=section&id=NOTE%201%20-%20GENERAL%20INFORMATION) Gerdau S.A. is a leading global steel producer and the largest recycler in Latin America, with listings on the São Paulo, New York, and Madrid stock exchanges - Gerdau S.A. is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world[8](index=8&type=chunk) - The company is also a major producer of flat steel and iron ore in Brazil and is described as the largest recycler in Latin America[8](index=8&type=chunk) [Note 2 - Summary of Significant Accounting Practices](index=8&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20PRACTICES) The interim financials comply with IAS 34, maintain consistent accounting policies with the 2021 annual report, and identify the war in Ukraine as a key macroeconomic risk - The financial statements are prepared in accordance with IAS 34 and should be read with the 2021 annual financial statements[10](index=10&type=chunk) - The company identifies the Russian invasion of Ukraine as a significant risk that could have a material adverse effect on the macroeconomic environment, steel demand, prices, and energy costs[20](index=20&type=chunk) [Note 3 – Investments in Subsidiaries, Joint Ventures, and Associates](index=9&type=section&id=NOTE%203%20%E2%80%93%20CONDENSED%20CONSOLIDATED%20INTERIM%20FINANCIAL%20STATEMENTS) The company details its interests in other entities, including the sale of its Venezuelan subsidiary and its rationale for not consolidating certain majority-owned joint ventures - In March 2022, the company sold its **100% interest** in the Venezuelan subsidiary, Sizuca - Siderúrgica Zuliana C.A[21](index=21&type=chunk) - The company does not consolidate Gerdau Corsa S.A.P.I. de C.V. (75% ownership) and Gerdau Summit (58.73% ownership) because **joint control agreements prevent it from controlling their business decisions**[23](index=23&type=chunk) Combined Net Sales of Joint Ventures (in thousands of R$) | Period | Net Sales | | :--- | :--- | | **Nine-month period ended Sep 30, 2022** | 11,559,656 | | **Nine-month period ended Sep 30, 2021** | 8,827,737 | [Note 6 - Inventories](index=12&type=section&id=NOTE%206%20-%20INVENTORIES) Inventories rose to R$18.8 billion by September 2022 from R$16.9 billion at year-end 2021, with a notable increase in the allowance for adjustments to net realizable value Inventory Breakdown (in thousands of R$) | Category | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Finished products | 8,097,722 | 7,209,379 | | Work in progress | 4,821,906 | 3,453,948 | | Raw materials | 3,785,135 | 3,994,655 | | **Total Inventories** | **18,811,541** | **16,861,488** | [Note 9 – Property, Plant and Equipment (PPE)](index=14&type=section&id=NOTE%209%20%E2%80%93%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) Capital expenditures on PPE for the first nine months of 2022 increased significantly to R$2.61 billion, with R$20.5 million in borrowing costs capitalized during the period - Acquisitions of PPE for the nine-month period ended September 30, 2022, amounted to **R$2,607,753 thousand**, compared to R$1,811,078 thousand for the same period in 2021[41](index=41&type=chunk) - Borrowing costs capitalized during the nine-month period of 2022 were **R$20,452 thousand**[42](index=42&type=chunk) [Note 12 – Loans and Financing](index=15&type=section&id=NOTE%2012%20%E2%80%93%20LOANS%20AND%20FINANCING) Total debt decreased to R$9.8 billion from R$11.1 billion, with the majority denominated in U.S. Dollars, and the company renewed an undrawn US$875 million credit line Loans and Financing by Currency (in thousands of R$) | Currency | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Brazilian Real (R$) | 487,650 | 461,187 | | U.S. Dollar (US$) | 8,890,445 | 10,535,532 | | Other currencies | 427,087 | 113,067 | | **Total** | **9,805,182** | **11,109,786** | - The company renewed a Global Credit Line of **US$875 million** in September 2022, with a maturity in September 2027; as of the reporting date, no amount of this credit line was used[50](index=50&type=chunk) [Note 14 – Financial Instruments and Risk Management](index=16&type=section&id=NOTE%2014%20%E2%80%93%20FINANCIAL%20INSTRUMENTS) The company details its management of financial risks, capital management targets like a Net Debt/EBITDA ratio of 1.0-1.5x, and its use of derivatives for hedging - The company's capital management targets include a **Net Debt/EBITDA ratio of 1.0 to 1.5 times**, a gross debt limit of R$12 billion, and an average debt maturity of over 6 years[61](index=61&type=chunk) - The company designates its **Ten/Thirty Years Bonds (US$1.1 billion)** as a hedge of its net investments in foreign subsidiaries, with exchange rate effects recognized in Other Comprehensive Income[79](index=79&type=chunk) Sensitivity Analysis on Statements of Income (Impacts) | Assumption | Change | Impact on Sep 30, 2022 (R$) | | :--- | :--- | :--- | | Foreign currency sensitivity | 5% | 116,385 | | Interest rate sensitivity | 10 bps | 31,138 | | Product price sensitivity | 1% | 211,492 | | Raw material price sensitivity | 1% | 138,900 | [Note 15 – Provisions and Contingencies](index=22&type=section&id=NOTE%2015%20%E2%80%93%20PROVISIONS%20FOR%20TAX,%20CIVIL%20AND%20LABOR%20CLAIMS) The company has provisioned R$1.86 billion for probable legal losses while disclosing over R$13 billion in significant contingent liabilities deemed possible, mainly from tax disputes - Provisions for probable losses from tax, civil, and labor claims totaled **R$1,856,351 thousand** as of September 30, 2022[90](index=90&type=chunk) - The company faces significant tax contingencies classified as 'possible loss' and not provisioned, including **R$8.6 billion related to goodwill amortization** from a 2004/2005 corporate restructuring[102](index=102&type=chunk) - Investigations by Brazilian authorities into CARF proceedings and political contributions are ongoing, and while the **U.S. SEC has closed its related inquiry**, the company cannot predict the outcome or need for a provision[105](index=105&type=chunk) [Note 18 – Equity](index=30&type=section&id=NOTE%2018%20%E2%80%93%20EQUITY) A share buyback program for up to 55 million preferred shares was approved, with R$934.8 million spent to acquire 39.2 million shares by September 30, 2022 - On May 4, 2022, the Board approved a new Share Buyback Program for up to **55,000,000 preferred shares** over 18 months[148](index=148&type=chunk) - As of September 30, 2022, the company had acquired **39,162,900 preferred shares** under the new program for a total cost of **R$934,768 thousand**[148](index=148&type=chunk) Dividends and Interest on Equity Credited in 2022 (in thousands of R$) | Period | Nature | Amount | | :--- | :--- | :--- | | 1st Quarter | Interest on income | 973,542 | | 2nd Quarter | Dividends | 1,199,713 | | **Total** | | **2,173,255** | [Note 19 – Earnings Per Share (EPS)](index=32&type=section&id=NOTE%2019%20%E2%80%93%20EARNINGS%20PER%20SHARE%20(EPS)) For the nine months ended September 30, 2022, basic EPS decreased to R$6.02 and diluted EPS fell to R$5.98, down from R$7.01 and R$6.97 in the prior year Earnings Per Share (in R$) | EPS Type | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Basic EPS** | 6.02 | 7.01 | | **Diluted EPS** | 5.98 | 6.97 | [Note 22 – Net Financial Result](index=35&type=section&id=NOTE%2022%20%E2%80%93%20FINANCIAL%20INCOME) The net financial expense for the nine-month period increased tenfold to R$1.4 billion, driven by higher interest costs, negative exchange variations, and no repeat of prior-year tax credit updates Net Financial Result Breakdown (in thousands of R$) | Item | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Financial income total | 388,360 | 162,120 | | Financial expenses total | (1,200,114) | (1,011,606) | | Exchange variations, net | (603,439) | (94,074) | | Tax credits monetary update | - | 788,741 | | Gains and Losses on derivatives, net | 20,536 | 19,562 | | **Financial result, net** | **(1,394,657)** | **(135,257)** | [Note 23 – Segment Reporting](index=35&type=section&id=NOTE%2023%20%E2%80%93%20SEGMENT%20REPORTING) The North America Operation's gross profit doubled to R$7.0 billion, offsetting a sharp decline in the Brazil Operation and driving overall sales growth Gross Profit by Business Segment - 9 Months Ended (in thousands of R$) | Business Segment | September 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Brazil Operation | 5,285,744 | 9,734,039 | | North America Operation | 7,042,298 | 3,586,415 | | South America Operation | 1,328,323 | 1,114,805 | | Special Steels Operation | 2,026,773 | 1,157,836 | Total Assets by Geographic Area (in thousands of R$) | Geographic Area | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Brazil | 32,185,295 | 31,740,469 | | Latin America | 10,904,027 | 8,959,237 | | North America | 36,683,003 | 33,114,907 | | **Consolidated** | **79,772,325** | **73,814,613** | [Note 25 – Subsequent Events](index=37&type=section&id=NOTE%2025%20%E2%80%93%20SUBSEQUENT%20EVENTS) Post-period end, the company proposed a R$3.6 billion dividend payment, approved the cancellation of over 46 million treasury shares, and finalized a leasing partnership with Randon - On November 7, 2022, the company proposed dividend and interest on equity payments totaling **R$3.58 billion** (R$2.88 billion in dividends and R$0.70 billion in interest on equity), to be paid on December 14, 2022[182](index=182&type=chunk) - On November 8, 2022, the Board approved the cancellation of **1,697,538 common shares and 44,564,000 preferred shares** held in treasury, without reducing the capital value[183](index=183&type=chunk) - On November 3, 2022, the company's subsidiary Gerdau Next S.A. finalized a strategic partnership with Randon to create a new company focused on leasing services for trucks and semi-trailers[181](index=181&type=chunk)

Gerdau SA (NYSE:GGB) Q2 2022 Earnings Conference Call August 3, 2022 1:00 PM ET Company Participants Renata Battiferro - IR Gustavo Werneck - CEO & Director Rafael Japur - EVP, CFO & IR Officer Conference Call Participants Rafael Barcellos - Santander Daniel Sasson - Itaú BBA Thiago Lofiego - Bradesco BBI Renata Battiferro [Technical Difficulty] Gerdau's conference call to discuss the results of the second quarter of 2022. [Operator Instructions]. We inform that this video conference is being recorded and w ...

[Financial Statements](index=2&type=section&id=Financial%20Statements) [Consolidated Balance Sheets](index=2&type=section&id=Consolidated%20Balance%20Sheets) Gerdau S.A. reported **BRL 77.66 billion** in total assets and **BRL 47.52 billion** in equity as of June 30, 2022, driven by inventory and receivable growth Consolidated Balance Sheet Highlights (in thousands of BRL) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | 36,735,425 | 32,640,477 | | **Total Non-Current Assets** | 40,921,387 | 41,174,136 | | **Total Assets** | **77,656,812** | **73,814,613** | | **Total Current Liabilities** | 16,527,565 | 14,036,814 | | **Total Non-Current Liabilities** | 13,610,911 | 16,962,150 | | **Total Liabilities** | **30,138,476** | **30,998,964** | | **Total Equity** | **47,518,336** | **42,815,649** | | **Total Liabilities and Equity** | **77,656,812** | **73,814,613** | - Key changes in assets include a significant increase in Inventories to **BRL 18.46 billion** from **BRL 16.86 billion** and Trade accounts receivable to **BRL 7.26 billion** from **BRL 5.41 billion**[2](index=2&type=chunk) - Long-term debt decreased from **BRL 10.88 billion** at year-end 2021 to **BRL 8.10 billion** as of June 30, 2022[3](index=3&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net sales increased **22.1%** to **BRL 43.30 billion** for the six months ended June 30, 2022, with net income rising to **BRL 7.21 billion** Income Statement Summary (in thousands of BRL, except EPS) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | 22,968,442 | 19,130,116 | 43,298,933 | 35,473,100 | | **Gross Profit** | 5,903,931 | 5,414,187 | 11,084,933 | 9,211,096 | | **Net Income** | 4,298,499 | 3,934,477 | 7,238,884 | 6,405,013 | | **Net Income (Parent)** | 4,282,123 | 3,916,551 | 7,207,041 | 6,367,890 | | **Basic EPS (R$)** | 2.51 | 2.30 | 4.23 | 3.74 | | **Diluted EPS (R$)** | 2.50 | 2.29 | 4.20 | 3.72 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income reached **BRL 6.42 billion** for the six months ended June 30, 2022, influenced by net income and negative translation adjustments Comprehensive Income Summary (in thousands of BRL) | Metric | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | | **Net income for the period** | 7,238,884 | 6,405,013 | | **Other comprehensive income (loss)** | (819,408) | (635,735) | | *Cumulative translation adjustment* | (1,206,242) | (815,629) | | *Unrealized Gains on net investment hedge* | 468,250 | 310,665 | | **Total comprehensive income** | **6,419,476** | **5,769,278** | [Consolidated Statements of Changes in Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Parent company equity increased to **BRL 47.33 billion** by June 30, 2022, driven by net income despite share buybacks and dividends - Equity attributable to the parent company increased by **BRL 4.73 billion** during the first six months of 2022[6](index=6&type=chunk) Key Changes in Equity (in thousands of BRL) - 6 Months 2022 | Description | Amount | | :--- | :--- | | **Balance as of January 1, 2022** | **42,604,282** | | Net income | 7,207,041 | | Other comprehensive income (loss) | (815,284) | | Effects of the share buyback program | (341,367) | | Dividends/interest on equity | (973,542) | | **Balance as of June 30, 2022** | **47,333,225** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased to **BRL 6.18 billion** for the six months ended June 30, 2022, leading to a **BRL 1.62 billion** net increase in cash Cash Flow Summary (in thousands of BRL) | Cash Flow Activity | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **6,177,675** | **2,119,112** | | **Net cash used in investing activities** | **(1,591,000)** | **(1,069,040)** | | **Net cash used by financing activities** | **(2,903,571)** | **(2,549,466)** | | Increase (Decrease) in cash and cash equivalents | 1,616,099 | (1,590,976) | | Cash and cash equivalents at end of period | 5,776,753 | 3,026,228 | [Notes to the Financial Statements](index=8&type=section&id=Notes%20to%20the%20Financial%20Statements) [Note 1 & 2 - General Information and Accounting Practices](index=8&type=section&id=Note%201%20%26%202%20-%20General%20Information%20and%20Accounting%20Practices) Gerdau S.A., a leading steel producer, prepares its interim financial statements under IAS 34, with no material impact expected from new IFRS standards - The company is a **leading producer of long steel in the Americas** and one of the **largest suppliers of special steel in the world**[8](index=8&type=chunk) - Financial statements are prepared in accordance with **IAS 34, Interim Financial Reporting**[10](index=10&type=chunk) - The company is assessing the impact of new IFRS standards effective in 2023 but does not expect **material impacts**[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) [Note 4, 5, 6 - Liquidity and Working Capital](index=9&type=section&id=Note%204%2C%205%2C%206%20-%20Liquidity%20and%20Working%20Capital) Liquidity improved with cash and equivalents rising to **BRL 5.78 billion**, alongside increases in trade receivables and inventories Key Working Capital Accounts (in thousands of BRL) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 5,776,753 | 4,160,654 | | Short-term investments | 1,977,982 | 2,626,212 | | Trade accounts receivable | 7,261,198 | 5,414,075 | | Inventories | 18,464,285 | 16,861,488 | [Note 12 & 13 - Debt and Financing](index=13&type=section&id=Note%2012%20%26%2013%20-%20Debt%20and%20Financing) Total loans and financing decreased to **BRL 9.50 billion** with a **5.70%** weighted average interest cost, primarily USD-denominated debt - Total loans and financing decreased from **BRL 11.11 billion** to **BRL 9.50 billion**, with the weighted average interest cost at **5.70% p.a.**[38](index=38&type=chunk) - In Q2 2022, the company redeemed all bonds with maturity in 2024, settling a principal amount of **US$158.7 million**[42](index=42&type=chunk) Debt by Currency (in thousands of BRL) | Currency | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Brazilian Real (R$) | 463,636 | 461,187 | | U.S. Dollar (US$) | 8,752,514 | 10,535,532 | | Other currencies | 282,712 | 113,067 | | **Total** | **9,498,862** | **11,109,786** | [Note 14 - Financial Instruments and Risk Management](index=14&type=section&id=Note%2014%20-%20Financial%20Instruments%20and%20Risk%20Management) The company manages financial risks using derivatives, targeting a **1.0-1.5x** Net Debt/EBITDA ratio, with currency fluctuations impacting income - The company uses **derivative and non-derivative instruments** to hedge against exchange rate and interest rate fluctuations[46](index=46&type=chunk) - Key capital management targets include a Net Debt/EBITDA ratio of **1.0 to 1.5 times** and a gross debt limit of **BRL 12 billion**[53](index=53&type=chunk) Sensitivity Analysis Highlights (Impact on Income) | Assumption | Change | Impact (R$ thousands) | | :--- | :--- | :--- | | Foreign currency (BRL/USD) | 5% | 96,996 | | Interest rate | 10 bps | 41,124 | | Product prices | 1% | 229,684 | | Raw material prices | 1% | 145,971 | - The company designated **US$0.9 billion** of its Ten/Thirty Years Bonds as a hedge of its net investments in foreign subsidiaries[71](index=71&type=chunk) [Note 15 - Provisions and Contingencies](index=21&type=section&id=Note%2015%20-%20Provisions%20and%20Contingencies) Provisions for probable losses total **BRL 1.81 billion**, while unprovisioned contingent liabilities exceed **BRL 13 billion**, mainly from tax disputes Provisions for Probable Losses (in thousands of BRL) | Provision Type | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Tax provisions | 1,311,211 | 1,270,473 | | Labor provisions | 459,223 | 435,803 | | Civil provisions | 39,246 | 34,750 | | **Total** | **1,809,680** | **1,741,026** | - Significant unprovisioned tax contingencies (possible loss) include disputes over goodwill amortization totaling **BRL 8.50 billion** and **BRL 493 million**[89](index=89&type=chunk)[91](index=91&type=chunk) - The company has judicial deposits of **BRL 1.74 billion**, of which **BRL 1.42 billion** relates to a favorable court ruling on the exclusion of ICMS from the PIS/COFINS tax base[103](index=103&type=chunk) [Note 18 - Equity](index=28&type=section&id=Note%2018%20-%20Equity) Total capital was **BRL 19.25 billion** as of June 30, 2022, with a new share buyback program acquiring **14.1 million** preferred shares - A new share buyback program was approved in May 2022 to acquire up to **55 million preferred shares** over 18 months[133](index=133&type=chunk) - As of June 30, 2022, the company had acquired **14,065,700 preferred shares** under the new program for **BRL 341.4 million**[133](index=133&type=chunk) Dividends and Interest on Equity - 2022 | Period | Nature | R$/share | Amount (in thousands BRL) | | :--- | :--- | :--- | :--- | | 1st Quarter | Interest on income | 0.57 | 973,542 | [Note 23 - Segment Reporting](index=33&type=section&id=Note%2023%20-%20Segment%20Reporting) Brazil and North America operations led net sales, with North America generating the highest operating income for the first six months of 2022 Net Sales by Business Segment (6 Months 2022, in thousands of BRL) | Segment | Net Sales | | :--- | :--- | | Brazil Operation | 17,609,961 | | North America Operation | 16,794,996 | | Special Steels Operation | 6,875,956 | | South America Operation | 3,646,839 | Operating Income by Business Segment (6 Months 2022, in thousands of BRL) | Segment | Operating Income* | | :--- | :--- | | North America Operation | 4,977,677 | | Brazil Operation | 3,541,982 | | Special Steels Operation | 1,364,519 | | South America Operation | 1,053,597 | *Before financial income (expenses) and taxes* [Note 25 - Subsequent Events](index=35&type=section&id=Note%2025%20-%20Subsequent%20Events) A dividend payment of **BRL 1.2 billion** (**BRL 0.71 per share**) was approved on August 2, 2022, for payment later that month - A dividend of **BRL 1.2 billion** (**BRL 0.71 per share**) was approved on August 2, 2022, for payment on August 25, 2022[164](index=164&type=chunk)

QUARTERLY RESULTS Shape the future 1 st quarter| 2022 MACRO ENVIRONMENT 1Q22 1 Apr 21 14 Apr 2127 Apr 21 10 May 2121 May 213 Jun 2116 Jun 2129 Jun 2112 Jul 2123 Jul 215 Aug 2118 Aug 2131 Aug 2113 Sep 2124 Sep 217 Oct 2120 Oct 212 Nov 2115 Nov 2126 Nov 219 Dec 2122 Dec 214 Jan 2217 Jan 2228 Jan 2210 Feb 2223 Feb 228 Mar 2221 Mar 22 1 Apr 21 14 Apr 2127 Apr 21 10 May 2121 May 213 Jun 2116 Jun 2129 Jun 2112 Jul 2123 Jul 215 Aug 2118 Aug 2131 Aug 2113 Sep 2124 Sep 217 Oct 2120 Oct 212 Nov 2115 Nov 2126 Nov 219 ...

Financial Data and Key Metrics Changes - Gerdau reported an adjusted EBITDA of BRL5.8 billion for Q1 2022, with an adjusted EBITDA margin of 28.7%, both record highs for the first quarter [12][13] - Net income reached BRL2.9 billion, a 19% increase year-on-year, while net sales totaled BRL20,030 million, reflecting a 24% increase compared to the same period last year [13] - The company achieved shipments of 3.1 million tons during the quarter, indicating strong demand [13] Business Line Data and Key Metrics Changes - In North America, adjusted EBITDA tripled year-on-year to BRL2.7 billion, with a record adjusted EBITDA margin of 33% [15] - The special steel operation's EBITDA was higher than both the previous quarter and the same quarter last year, despite challenges in the light vehicle market due to chip shortages [24] - The long and flat steel segment in Brazil showed healthy demand levels, with expectations of up to 4% year-on-year growth in actual demand for 2022 [30] Market Data and Key Metrics Changes - The construction sector in Brazil is expected to have a strong year, with a normalized inventory level for real estate at approximately 11 months and a forecast for the second-best historical year in property launches [31] - In Argentina, the construction sector grew nearly 31% year-on-year in 2021, with a positive outlook for 2022 [36] - The U.S. construction sector saw significant investment, with BRL360 billion spent in the first quarter, indicating robust demand for steel [42] Company Strategy and Development Direction - Gerdau is focusing on digital transformation and improving productivity in North America, with an investment of BRL300 million for modernization in Canada [20][21] - The company is committed to enhancing its ESG agenda, including investments in renewable energy and reducing greenhouse gas emissions [51][52] - Gerdau plans to continue investing in its operations to improve profitability and productivity, particularly in the U.S. market [19][21] Management's Comments on Operating Environment and Future Outlook - Management noted that the conflict between Russia and Ukraine has led to increased raw material prices, impacting production costs, but Gerdau's operations remained unaffected due to safety stocks [8][9] - The outlook for North America remains positive, with a strong backlog of orders and high capacity utilization levels [16][17] - Management expressed confidence in maintaining high margins and strong operational performance despite challenges such as labor shortages and inflation [64][65] Other Important Information - Gerdau announced a share buyback program aimed at acquiring up to 55 million preferred shares, reflecting confidence in its cash generation capacity [48][49] - The company is also set to pay dividends totaling BRL964 million on May 26, 2022, and BRL314 million for Metalurgica Gerdau [47] Q&A Session Summary Question: What is the outlook for metal spread in the US considering the shortage of scrap? - Management indicated that while there is a shortage of prime scrap due to reduced automotive production, the outlook for metal spread remains positive, supported by a strong backlog and high demand [61][62] Question: Regarding the buyback program, will it continue as long as net debt over EBITDA is close to your goal? - Management stated that the buyback program is based on the belief that their stock is undervalued and will be reassessed based on leverage and cash generation capacity [71] Question: What about the infrastructure pipeline in the U.S.? - Management expects the infrastructure package to contribute to demand starting in November, with strong spending in the construction sector already observed [73][74] Question: Will the 33% margin in Q1 be maintained in the second quarter? - Management expressed confidence that margins will be maintained above Q1 levels due to strong operational performance and high metal spreads [85]

Financial Performance - Net sales for Q1 2022 reached R$20,330,491, a 24.3% increase compared to R$16,342,984 in Q1 2021[4] - Gross profit for the same period was R$5,181,002, up 36.4% from R$3,796,909 in Q1 2021[4] - Net income for Q1 2022 was R$2,940,385, representing a 19.0% increase from R$2,470,536 in Q1 2021[5] - Basic earnings per share for Q1 2022 were R$1.71, compared to R$1.44 in Q1 2021, reflecting an 18.8% increase[4] - Cash provided by operating activities for the three-month period ended March 31, 2022, was R$2,752,555, compared to R$1,792,470 in the same period of 2021, reflecting a 53.7% increase[7] - The company reported an income before income taxes of R$4,510,133 thousand for the three-month period ended March 31, 2022, compared to R$3,287,171 thousand for the same period in 2021, an increase of approximately 37.2%[31] - Financial income totaled R$88,799 thousand, up 58.6% from R$55,908 thousand in the previous year, while financial expenses increased to R$361,434 thousand from R$313,596 thousand[145] - The net income for the three-month period was R$2,940,385 thousand, compared to R$2,470,536 thousand in the same period of 2021, marking a 19% increase[146] Assets and Liabilities - Total assets decreased to R$71,539,429 as of March 31, 2022, down from R$73,814,613 at the end of 2021[3] - Total liabilities decreased to R$28,003,178 as of March 31, 2022, down from R$30,998,964 at the end of 2021[3] - Retained earnings increased to R$20,443,675 as of March 31, 2022, compared to R$17,838,494 at the end of 2021[3] - Trade accounts receivable increased to R$6,756,022 as of March 31, 2022, up from R$5,414,075 as of December 31, 2021[80] - Total liabilities as of March 31, 2022, were R$22,190,663, a decrease from R$23,639,247 as of December 31, 2021[80] Cash and Cash Equivalents - Cash and cash equivalents increased to R$4,895,161 as of March 31, 2022, from R$4,160,654 at the end of 2021[2] - The company’s cash and cash equivalents at the end of the period were R$4,895,161, an increase from R$4,241,872 at the end of the same period in 2021[7] - Cash and cash equivalents decreased from R$4,895,161 thousand as of March 31, 2022, compared to R$4,160,654 thousand as of December 31, 2021, reflecting a decline of approximately 6.5%[24] Inventory and Purchases - The company’s inventories decreased to R$16,317,038 as of March 31, 2022, down from R$16,861,488 at the end of 2021[2] - Finished products inventory slightly decreased to R$7,184,476 thousand as of March 31, 2022, from R$7,209,379 thousand as of December 31, 2021, indicating a reduction of approximately 0.3%[28] - Purchases of property, plant, and equipment for the three-month period ended March 31, 2022, amounted to R$592,857, compared to R$435,129 in the same period of 2021[7] Dividends and Shareholder Returns - Dividends and interest on capital paid during the three-month period ended March 31, 2022, were R$340,583, down from R$441,188 in the same period of 2021[7] - The Company proposed a mandatory minimum dividend of R$973.5 million, equivalent to R$0.57 per share, to be paid on May 25, 2022[156] - Gerdau S.A. approved a Share Buyback Program to acquire up to 55,000,000 preferred shares, representing approximately 5% of the outstanding preferred shares (GGBR4) and/or ADRs backed by preferred shares (GGB)[157] Provisions and Contingent Liabilities - The company has contingent liabilities related to tax matters totaling R$8,323,178, with various lawsuits pending[95] - The company is involved in administrative proceedings related to withholding income tax, with claims amounting to R$1,385,570[92] - The company believes that the provisions recorded for judicial and administrative proceedings are sufficient to cover probable losses[82] - The total balance of provisions as of March 31, 2022, was R$1,747,107, compared to R$1,741,026 at the end of 2021, marking a net increase of R$6,081[84] Market and Economic Conditions - The company plans to maintain constant monitoring of the steel market throughout 2022 to identify any significant changes that may impact demand and financial projections[154] - A 1% increase in the sales price of products would result in an impact of R$203,305 on revenues for the three-month period ended March 31, 2022[62] - A 5% increase in commodity prices would result in an income of R$18,862, while a 5% decrease would lead to an equivalent expense[64] Management and Compensation - Management compensation totaled R$8,262 for the three-month period ended March 31, 2022, down from R$8,634 in the same period of 2021[125] - The cost of social charges related to management increased to R$5,259 for the three-month period ended March 31, 2022, compared to R$3,872 in 2021[126] - The company recognized R$3,963 in long-term incentive plans for key management during the three-month period ended March 31, 2022, down from R$4,649 in the same period of 2021[126]

Financial Data and Key Metrics Changes - Gerdau achieved a historical EBITDA of BRL23 billion for the year 2021, with Q4 2021 EBITDA reaching BRL6 billion and an EBITDA margin of 27.8% [20][30] - The company reported a positive free cash flow of BRL3.4 billion in Q4 2021, marking the second-best quarterly cash flow result in its history [27] - The net debt at the end of 2021 was BRL7.3 billion, a reduction of BRL1.4 billion from the previous quarter, with a net debt to EBITDA ratio of 0.30 times [33][34] Business Line Data and Key Metrics Changes - Brazil BD reported an EBITDA of BRL2.8 billion in Q4 2021, with an EBITDA margin of 31% [21] - North American operations posted a record EBITDA of BRL2.2 billion in Q4 2021, with a margin of 27% [23] - Special steels operations reported an EBITDA of BRL540 million with an 18% margin in Q4 2021 [25] - South America achieved an EBITDA of BRL521 million with a margin of 23% in Q4 2021 [26] Market Data and Key Metrics Changes - The U.S. GDP grew by 5.7% in 2021, with a forecast of 4% growth for 2022 [46] - The Architectural Billing Index and the Institute For Supply Management Index remained above 50 points, indicating strong activity in the non-residential construction sector [47] - In Brazil, the construction sector's GDP is forecasted to advance by 3.2% in 2022, supported by high levels of active construction sites [59] Company Strategy and Development Direction - Gerdau aims to reduce greenhouse gas emissions to below 50% of the global average for the steel industry by 2031, with plans to invest in renewable energy and enhance energy efficiency [37][39] - The company is focusing on expanding its operations in North America and improving productivity, with significant investments planned for 2022 [48][66] - Gerdau is also evaluating opportunities in wind power and aims to diversify into complementary businesses [43] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2022, expecting it to be one of the best years in the company's history, driven by strong demand in North America [86][88] - Challenges such as labor shortages, inflation, and logistical issues were acknowledged, particularly in North America [49] - The company anticipates stable profitability levels in Brazil, despite some margin pressures due to costs [104] Other Important Information - Gerdau plans to distribute BRL0.20 per share in dividends for Q4 2021, totaling BRL5.4 billion in dividends for the year, the highest in the last decade [36] - The company reduced its gross debt by BRL3.1 billion in Q4 2021, primarily through bond repurchases and loan payments [31] Q&A Session Summary Question: Capital allocation and dividend expectations - Analysts inquired about the potential for excess free cash flow to be allocated to dividends, given the company's strong cash generation and net debt levels [70] - Management indicated that while dividends are a priority, they will remain cautious and ensure investments meet expected returns [72][81] Question: Cost evolution in Brazil BD - Questions were raised regarding the future evolution of costs, particularly related to charcoal, and the impact on margins [83] - Management acknowledged ongoing cost pressures but expressed confidence in maintaining historically high margins [104] Question: Margin sustainability in North America - Analysts asked about sustainable margin levels in North America post-COVID and the impact of construction cost inflation [111] - Management highlighted efforts to improve margins and maintain competitiveness, with expectations for strong performance in the coming quarters [114]

Quarterly results GERDAU S.A. 3Q21 CONSOLIDATED INFORMATION 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 ...

Financial Performance - Net sales for Q3 2021 reached R$21,317,057, a 74.3% increase compared to R$12,222,108 in Q3 2020[4] - Gross profit for the nine-month period ended September 30, 2021, was R$15,630,245, up from R$3,270,361 in the same period of 2020, representing a 377.5% increase[4] - Net income for Q3 2021 was R$5,593,941, compared to R$794,585 in Q3 2020, marking a 605.5% increase[5] - Total comprehensive income for the nine-month period ended September 30, 2021, was R$12,516,690, compared to R$4,365,967 in the same period of 2020, a 186.5% increase[5] - Net income for the nine-month period ended September 30, 2021, was R$11,998,954 thousand, a significant increase from R$1,331,258 thousand in the same period of 2020, representing a growth of approximately 804%[7] - The company reported a basic earnings per share of R$3.27 for Q3 2021, significantly higher than R$0.46 in Q3 2020[4] - For the nine-month period ended September 30, 2021, the net income allocated to common shareholders reached R$3,987,610, up from R$440,371 in the same period of 2020, reflecting an increase of 805%[170] Assets and Liabilities - Total assets as of September 30, 2021, amounted to R$75,362,167, an increase from R$63,123,009 as of December 31, 2020[3] - Current liabilities increased to R$13,155,055 as of September 30, 2021, from R$11,482,143 at the end of 2020, reflecting a 14.6% rise[3] - Retained earnings surged to R$17,052,600 as of September 30, 2021, compared to R$7,292,332 at the end of 2020, indicating a 133.5% increase[3] - The total equity as of September 30, 2021, was R$41,298,404 thousand, compared to R$31,085,210 thousand as of September 30, 2020, reflecting an increase of approximately 32.8%[6] - The total liabilities decreased from R$19,838,551 thousand as of December 31, 2020, to R$18,409,324 thousand as of September 30, 2021, reflecting a reduction of approximately 7.2%[90] Cash Flow and Investments - Cash provided by operating activities for the nine-month period ended September 30, 2021, was R$6,762,082 thousand, compared to R$4,731,562 thousand in 2020, indicating a year-over-year increase of about 43%[7] - The company reported a net cash used in investing activities of R$1,896,608 thousand for the nine-month period ended September 30, 2021, compared to R$1,173,103 thousand in 2020, indicating a rise of approximately 61.6%[7] - The company’s cash and cash equivalents decreased to R$3,976,077 as of September 30, 2021, from R$4,617,204 at the end of 2020[2] - The balance of cash and cash equivalents at the end of the period was R$3,976,077 thousand, a decrease from R$4,171,128 thousand at the end of September 30, 2020[7] Inventory and Receivables - Inventories rose to R$15,653,770 as of September 30, 2021, compared to R$9,169,417 at the end of 2020, reflecting a 70.8% increase[2] - The company experienced an increase in trade accounts receivable by R$2,553,085 thousand for the nine-month period ended September 30, 2021, compared to R$785,106 thousand in 2020[7] - Trade accounts receivable rose significantly to R$6,416,155 thousand as of September 30, 2021, up from R$3,737,270 thousand at December 31, 2020, marking an increase of 71.5%[36] Operational Highlights - The company maintained a strong focus on operational continuity despite the ongoing impacts of the Covid-19 pandemic, implementing various health and safety measures[25][26] - Gerdau S.A. is recognized as a leading recycler in Latin America, transforming millions of tons of scrap into steel annually, reinforcing its commitment to sustainable development[9] - The Brazil Operation generated net sales of R$25,883,446, a 116% increase from R$11,965,795 in 2020[179] - North America Operation net sales increased to R$19,944,509 from R$12,427,931, marking a 60% rise[179] Tax and Legal Matters - The Company has tax contingencies totaling R$474,685 related to ICMS (state VAT) lawsuits[99] - Claims related to Imposto sobre Produtos Industrializados (IPI) amount to R$423,213, while PIS and COFINS claims total R$1,339,534[100] - The Company faces administrative proceedings regarding Withholding Income Tax totaling R$1,347,555, with several lawsuits pending judgment[102] - The Company is involved in ongoing investigations by Brazilian federal authorities regarding potential illegal conduct, but believes it has complied with legal standards[108] Management and Compensation - Management compensation totaled R$39.2 million for the nine-month period ended September 30, 2021, compared to R$18.3 million for the same period in 2020[148] - Contributions for the defined contribution plan totaled R$484 million for the three-month period ended September 30, 2021, compared to R$281 million in the same period of 2020, representing a 72% increase[149] Future Outlook - The company will continue to monitor the steel market throughout 2021 to identify any significant drops in demand, particularly from the automotive and construction sectors, which could impact projections and lead to potential impairment losses[191] - On October 25, 2021, the company proposed a mandatory minimum dividend totaling R$341.1 million (R$0.20 per share) in interest on equity and R$2,421.9 million (R$1.42 per share) in dividends, with payment scheduled for November 16, 2021[192]