Gerdau(GGB) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Gerdau's consolidated EBITDA increased from BRL 3.1 billion in Q4 2020 to BRL 4.3 billion in Q1 2021, marking a record EBITDA for the company in a single quarter [10] - The EBITDA margin for North American operations reached 14.3%, approximately 4 percentage points higher than the previous quarter [11] - Brazil's EBITDA was BRL 2.5 billion with an EBITDA margin of 36.9%, another record for a single quarter [13] - The company's net debt at the end of March was BRL 10.8 billion, slightly higher than the end of 2020 due to exchange rate impacts [20] - The financial leverage ratio (EBITDA/net debt) improved from 1.25x in Q4 2020 to 0.96x in Q1 2021 [24] Business Line Data and Key Metrics Changes - North American business unit's EBITDA was BRL 843 million, a 50% increase from the last quarter of 2020 [11] - South America business unit posted an EBITDA of BRL 550 million with a margin of 38% [14] - Special steel operations achieved an EBITDA of BRL 409 million with a margin of 16.8% [14] - The steel utilization capacity for special steels improved to 83% compared to 78% in the previous quarter [15] Market Data and Key Metrics Changes - Global crude steel production grew by 10% in the first half of 2021 compared to the same period last year [35] - Demand for steel is expected to grow by 5.8% in 2021 and 2.7% in 2022 [35] - In Brazil, apparent steel consumption increased by 32.8% in Q1 year-on-year, with domestic sales growing by 29% [53] - The construction sector in Brazil is experiencing a strong recovery, with mortgage loans expected to increase by 27% this year [54] Company Strategy and Development Direction - Gerdau is focusing on simplifying operations, with SG&A expenses reduced to less than 3% of net revenue, down from 6% five years ago [32] - The company is investing in modernization and technological upgrades in North America to expand its product mix [38] - Gerdau is committed to sustainability, with a focus on reducing greenhouse gas emissions and improving production efficiency [76][78] Management's Comments on Operating Environment and Future Outlook - Management sees positive signs for demand growth in both Brazil and the U.S., particularly in the construction sector [82] - The company anticipates strong results in the second half of 2021, driven by infrastructure investments and a robust order backlog [81][84] - There is optimism regarding the impact of the Biden administration's infrastructure investment package on steel demand [41] Other Important Information - Gerdau's return on capital employed reached 14.2%, higher than the previous four years [26] - The company plans to invest BRL 3.5 billion in CapEx for 2021, focusing on high-return projects [65][92] - Gerdau Graphene was launched to develop products with graphene applications, expanding the company's portfolio beyond steel [71] Q&A Session Summary Question: Is there potential for further improvement in 2021 and special dividends? - Management sees potential for expanding results in the second half of 2021, with strong demand in various markets [81][82] Question: What is the likelihood of dropping leverage further and capital allocation going forward? - The company plans to maintain strong cash generation while executing a robust CapEx program [91][92] Question: Can margins above 35% be sustainable going forward? - Management believes that structural conditions will support maintaining margins, influenced by changes in the global steel market [95][96] Question: How is the order portfolio and inventory levels in Brazil? - The inflow of orders remains strong, and inventories are expected to normalize by mid-2021 [110][111] Question: What is the strategy behind the restart of the Araucaria unit in Paraná? - The restart aims to increase crude steel availability, with current utilization around 75% in Brazil [121][122]