gerdau: informe anual edición 2012

7/28/2019 Gerdau: Informe Anual edicin 2012

1/43

ANNUAL REPORT 2012 BUILDING OPPORTUNITIES


2/43

BUILDING OPPORTUNITIES

Gerdau

Gerdau faces the challenges of the present with an eye

on the future. That is why it is always looking to build new

business opportunities that can generate outstanding returns

and ensure its sustainable development. Stemming from a

relationship of respect, integrity, transparency, and continuous

search for mutual gains, Gerdau seeks to contribute toward

the development of its customers, suppliers, employees, and

communities where it operates, while creating value for its

shareholders.

Gerdaus history began in 1901 as a small nail factory in Porto

Alegre (RS). Today Gerdau is the leader in the segment of

long steel in the Americas and one of the largest suppliers of

special steel in the world.

Pictures on the Cover

Gerdau is continuously investing in building new business opportunities.

Below are some examples:

1. The construction of a new area of the rolling mill in Ouro Branco (MG) to

manufacture hot rolled coils, making it possible to start the production of at

steel in Brazil in 2013.

2. The increase in production capacity of special bar quality (SBQ) in mills

located in Brazil and the United States.

3. The start of production of special steel in India to supply the automotive

market.

4. The expansion of production capacity of iron ore in Brazil.

It has industrial units in the Americas, Europe, and Asia, which

together represent an installed capacity of over 25 million

metric tons per year. It is the largest scrap recycler in Latin

America and worldwide transforms millions of metric tons of

this raw material into new steel products each year.

Gerdau steel is used in homes, cars, freeways, bridges,

agricultural machinery, home appliances, telephone and

electricity towers, among other uses and is part of the lives of

millions of people everyday.

1 2 3 4


3/43

Consolidated nancial performance

(R$ million)

*Represents earnings before interest, taxes, depreciation,

and amortization. It is calculated in accordance with CVM

Instruction no. 527.

KEY INDICATORS*

0

10,000

20,000

30,000

40,000

2012 2011

2,098

4,651

35,407

1,496

4,176

37,982

Net sales

EBITDA*

Net income

*Lost-time accident frequency rates per million hours worked,

including employees and service providers. The data also includes

restricted work and change of function (OSHA recordable treated as

LT accidents).

*Ratio between the dividend paid per share and the preferred share priceon the last day of the year.

*The appreciation of the shares was calculated considering the local

currency at the beginning and at the end of the year.

Environmental management 2012 2011

Reuse of by-products(% of total generated)

74.8 78.3

Investments (R$ million) 178.4 370.9

Social Responsibility 2012 2011

Investments (R$ million) 52.7 61.0

Volunteer employees(thousand people) 7.9 9.5

Capital markets 2012 2011

Metalrgica Gerdau S.A.

Dividends (R$ per share) 0.32 0.55

Dividend yield (%)* 1.4 3.1

Gerdau S.A.

Dividends (R$ per share) 0.24 0.35

Dividend yield (%)* 1.3 2.4

Valuation of shares* 2012

Metalrgica Gerdau S.A. PN (GOAU4) - R$ 30.2%

Metalrgica Gerdau S.A. ON (GOAU3) - R$ 20.3%

Gerdau S.A. PN (GGBR4) - R$ 25.7%

Gerdau S.A. ON (GGBR3) - R$ 28.4%

Gerdau S.A. ADRs Nyse (GGB) - US$ 17.0%

Gerdau S.A. - Latibex (XGGB) - 12.5%

Ibovespa (So Paulo) - R$ 7.4%Dow Jones (New York) - US$ 7.3%

Latibex (Madrid) - -10.7%

Production and shipments 2012 2011

Steel production(thousand metric tons)

18,920 19,623

Consolidated shipments(thousand metric tons)

18,594 19,164

People 2012 2011

General Satisfaction Index(internal climate)

76% 75%

Accident frequency rate* 1.06 1.59

Financial margins 2012 2011Gross margin 13% 14%

Net margin 4% 6%

EBITDA Margin 11% 13%

*The dollar exchange rate on December 31, 2012 was R$ 2.0435.


4/43

MISSION

To create value for our customers,

shareholders, employees, and communities

by operating as a sustainable steel business.

VISION

To be a global organization and a benchmark

in any business we conduct.

VALUES

Be the CUSTOMERs choice

SAFETY above all

Respected, engaged and fulfilled EMPLOYEES

Pursuing EXCELLENCE with SIMPLICITY

Focus on RESULTS

INTEGRITYwith all stakeholders

Economic, social and environmental SUSTAINABILITY

CANADA

UNITED STATES

DOMINICAN REPUBLIC

VENEZUELA

BRAZIL

URUGUAY

ARGENTINA

CO

ATEMALA

HONDURAS

COLOMBIA

PERU

BOLIVIA

CHILE

INDIA

SPAIN

60

148

4

62

4

135

3

* Scrap collection and processing facilities, solid pig

iron production facilities, and coal units.

Countries where Gerdau has jointly controlled

entities: Guatemala, Mexico, and the

Dominican Republic

GERDAU AROUND THE WORLD

Steel mills

Downstream operations

Iron ore extraction areas

Scrap collection and processing facilities *

Power plants

Retail facilities

Private port terminals

Gerdau Headquarters


5/43

4

Message from the Chairman of the Board

Message from the CEO

Corporate governanceStrategy and competitive advantage

Business

Performance of operations

Finances

Relationships

Employees

05

06

0711

12

12

18

20

20

Customers

Suppliers

ShareholdersSociety

Environment

Timeline

Summarized nancial statements

Credits and contacts

24

25

2627

28

30

36

40

2012 HIGHLIGHTS

Gerdau announces new investments in mining to increase

its annual installed capacity from 11.5 million to 18 million

metric tons by 2016. Besides that, the rst shipments of

iron ore were made to the international market, totaling

325,000 metric tons.

Investments continue to be made to begin the production

of at steel in Brazil. With an installed capacity of 800,000

metric tons per year, the hot rolled coil mill will begin

operations in 2013.

The company announces the construction of a new melt

shop at its Riograndense mill located in Sapucaia do Sul

(RS) with an installed capacity of 650,000 metric tons per

year, which will replace the current melt shop.

The project for building a new plant in Mexico has

resumed as the joint venture Gerdau Corsa. Focused on

the production of structural shapes, the plant will have an

annual installed capacity of 1 million metric tons of steel

and 700,000 metric tons of rolled products.

Gerdau starts up the blast furnace operation in India along

with the power generation plant, the sinter plant, the melt

shop, and the new special steel rolling mill.

A new continuous casting plant is inaugurated in Monroe,

Michigan (U.S.) in 2012 as part of the investment to

expand the installed capacity of special steels to meet the

growing demand of the automotive market in the region.

TABLE OF CONTENTS

GERDAU ANNUAL REPORT 2012


6/43


7/43

6

Andr B. Gerdau Johannpeter

Gerdau Chief Executive Ofcer

MESSAGE FROM THE CEO

We built new business opportunities and seek to enhance

our operational efciency in a scenario marked

by signicant challenges.

Management efforts and construction ofopportunities

For Gerdau, the year 2012 was marked by signicant

challenges, mainly due to strong competition in the global

steel market. Because of this, we sought to expand our

operational efciency and build new business opportunities

in an economic scenario characterized by a slowdown in

China and other emerging countries, the European crisis,

and by the uncertainty over the scal policy in the United

States, which resulted in a lower global demand than

initially expected. At the same time, we are experiencing

an increase in the costs of raw materials and freight.

Nevertheless, we increased our net sales by 7% to R$

38 billion, even with the 3% reduction in shipments,

which totaled 18.6 million metric tons in 2012.

EBITDA in turn was R$ 4.2 billion, a 10% reduction

compared to the previous year. Consolidated net

income was R$ 1.5 billion, 29% lower than in 2011.

During the year we worked hard to build new business

opportunities such as increased investments in mining,

which will generate signicant results with exporting this

raw material to the international market. We are also

going to expand the product mix in Brazil with the start

of production of at steel products in 2013. Furthermore,

we strengthened our presence in India where we started

producing special steel, a high added-value segment.

All this would not be possible without the commitment

of our employees in a positive work climate, which can be

seen by the high satisfaction rate on the Opinion Survey

that increased from 75% in 2011 to 76% in 2012. We also

believe that Gerdaus growth is directly related to its respect

for the environment and with the development of the steel

business chain. That is why we have invested in more than

900 social projects and in the most advanced technologies

to minimize the impact of our operations on nature.

Outlook

Considering the investments made in 2012 and the

uncertainties about the global economic market, we will be

more selective in evaluating future projects. Investments of

R$ 8.5 billion have been planned for the period of 2013-

2017, considering both the steel and mining activities.

For 2013, we expect a gradual evolution of the U.S.

economy and a recovery of Brazils, as well as continued

growth in China and other countries in Latin America.

These positive perspectives combined with the internal

actions to improve our operating efciency should

improve Gerdaus protability throughout the year.

Acknowledgments

I would like to thank our employees for their dedication

and the condence of our customers, shareholders,

suppliers, and communities, as they are fundamental to the

continuation of our trajectory of sustainable development.



8/43

7

A solid governance structure andtransparency with our stakeholdersare at the core of Gerdau

Gerdau follows strict ethical principles that have been

consolidated along its centennial trajectory, and it is

continually striving to improve its relationship with all of

its stakeholders. It has a solid governance structure

and uses modern management tools that make it

possible to build business opportunities, achieve increasing

levels of excellence and competitiveness, as well as

achieve the highest quality in everything it does.

Gerdau currently has three publicly traded companies:

Gerdau S.A., Metalrgica Gerdau S.A., and Empresa

Siderrgica Del Per S.A.A. (Siderperu). The Gerdau S.A.

shares are traded on BM&FBOVESPA (So Paulo),

on the New York Stock Exchange (NYSE), and on

the Madrid Stock Exchange (Latibex). Because it has

shares traded on the U.S. market, Gerdau S.A. follows

the requirements of the Sarbanes-Oxley (SOX) act,

which sets stringent corporate governance practices

and internal controls. The shares of Metalrgica

Gerdau S.A. are traded on BM&FBOVESPA (So Paulo)

and those of Siderperu on the Lima Stock Exchange.

Corporate governance structure

The Board of Directors of Gerdau S.A. is responsible for

dening the Companys long-term strategies and to monitor

the execution of the policies it establishes. In addition, this

body makes decisions about issues considered relevant

within the business and operations, as well as appointing

the Gerdau Executive Committee (CEG) members. The

Board of Directors has nine members, including external

directors, who meet between eight to ten times a year. It is

assisted by the following committees: Strategy Committee,

Corporate Governance Committee, Compensation

and Succession Committee, and Risk Committee.

The Board of Directors of Metalrgica Gerdau S.A.,

on the other hand, has 11 members, nine of which are

also a part of the Board of Directors of Gerdau S.A.

and two are elected by the minority shareholders. In

both companies, the term of ofce of each member

is one year with the possibility of re-election.

It should also be pointed out that Gerdau S.A. and

Metalrgica Gerdau S.A. have audit committees that

monitor and inspect the actions of the board members

as well as give their opinions and advice on the nancial

statements. The members of the Board of Directors and

of the Audit Committee in each one of the companies

are elected at the Ordinary General Meeting (OGM).

Corporate management is the responsibility of the

Board of Directors, whose Executive Committee

(CEG) coordinates and supervises the Companys

Business Operations and the Functional Processes,

working in accordance with the policies established by

the Board of Directors. Composed of a CEO and ve

Executive Vice-Presidents, the CEG has the support of

committees set up according to criteria of expertise.

Risk management

A structured and continuously updated management

system monitors all the variables that may pose

risks to Gerdaus business and operations. In 2012,

the Company consolidated its best practices in this

area and formalized its Risk Management Policy,

which was approved by the Board of Directors.

Furthermore, the Risk Committee, which is responsible

for managing and monitoring possible risks that

may generate impacts directly or indirectly on the

Company, began reporting directly to the Board of

Directors and no longer as a committee of the CEG.

Independent Audit

Gerdaus publicly traded companies regularly submit

their nancial statements for external audit. In the

case of needing to contract eventual services not

related to external auditing by the independent

auditor, the Company bases this on the principles

that preserve the auditors independence.

CORPORATE GOVERNANCE



9/43

8

Corporate Governance Structure

Read more about the Gerdau governance structure athttp://www.gerdau.com.br/sobre-gerdau/governanca-corporativa.aspx?language=en-US

Board ofDirectors

Corporate Governance, Strategy,Compensation & Succession,

and Risk Committees

Board ofAuditors

Gerdau Officersand Executive

Committee

BusinessDivisions

BrazilSpecialSteel

NorthAmerica

LatinAmerica

SupportCommittees

Macroprocesses

ShareholdersMeeting




10/43

9

Jorge Gerdau JohannpeterChairman

Klaus Gerdau JohannpeterVice-Chairman

Germano H. Gerdau JohannpeterVice-Chairman

Affonso Celso PastoreBoard Member

Oscar de Paula Bernardes NetoBoard Member

Alfredo HuallemBoard Member

Frederico C. Gerdau JohannpeterVice-Chairman

Claudio Gerdau JohannpeterBoard Member

Andr B. Gerdau JohannpeterBoard Member

Gerdau S.A. Board of Directors




11/43

10

1. Andr B. Gerdau Johannpeter

Chief Executive Ofcer (CEO) and Chairman of the Gerdau Executive Committee (CEG)

2. Andr Pires de Oliveira Dias

Executive Vice President of Finance, Auditing, and Investor Relations

3. Expedito Luz

Executive Vice President of Legal Affairs and Compliance

4. Francisco Deppermann Fortes

Executive Vice President of Human Resources, Management, and Organizational Development

5. Manoel Vitor de Mendona Filho

Executive Vice President of Brazil Business Division

6. Ricardo Giuzeppe Mascheroni

Executive Vice President of North America and Latin America Business Divisions


Gerdau Executive Committee (CEG)

4 1 23 65



12/43

11

Searching for new business opportunitiesensures sustainable development

Gerdau builds business opportunities in order togenerate outstanding returns and sustainable

development from its operations. Within this scenario,

it currently has three highlights in its investment plan:

expansion of the mining activity, production of at steel

in Brazil, and manufacturing of special steel in India.

In the mining area, the Company has been working over

the past few years to gradually become an international

supplier of iron ore, which began at the end of 2012. In

addition, in the segment of steel, it is working to consolidate

itself as a player in all segments of the market and,

therefore, it is investing to begin production of at steel

in Brazil with the startup of operation of a rolling mill for

hot rolled coils in 2013, and eventually for heavy plates.

In India, industrial production started in 2012 in order to

meet needs of the special steel market in the region.

Unique Features of Gerdau Management

Gerdau Business System (GBS)

Taking actions as a fully integrated organization is the basis

of Gerdaus strategy. To do so, it uses the Gerdau Business

System (GBS), a management system that standardizes,

enhances, and transfers the best practices to all of

the Companys units around the world. The GBS also

contributes to spreading Gerdaus corporate culture,

further expanding the integration between operations.

Gerdau TemplateSince 2010, Gerdau has invested heavily in implementing

a single and global information technology platform

in all of its units around the world. The project, which has

a permanent team of more than 250 employees, provides

greater efciency, security, and speed to customer service

and in sharing information between units, which also

contributes to the Companys greater integration. The units

located in Colombia, Mexico, and Peru were the pioneers

in using the new system, and have already shown positive

results. In 2012, the system was deployed in operations in

Argentina, Canada, Chile, the United States, and Uruguay.

Now in 2013, the initiative will be expanded to other units

in the United States and the project will start up in Brazil.

EBITDA Deployment

In order to increase its protability, Gerdau began the

EBITDA Deployment project in 2012, which included the

alignment of targets and identifying gaps that impact the

generation of the Companys operating cash ow. The

project, which has a global scope, involves building a

breakdown plan of the EBITDA targets in which benchmarks

are established. To do this, the teams use management

techniques to continually monitor results, correct deviations,

as well as make any adjustments in the action plans.

GERDAU STRATEGY

Integrated Organization

Relevance inthe markets

Businesscompetitiveness

Player inall segments

Geographicdiversification

Profitabilityand Growth with Sustainability

STRATEGY AND COMPETITIVE ADVANTAGE



13/43

12

Brazilian market stands out in Gerdausperformance

Strong global competition in the steel market due to

the slowdown in China and other emerging countries,

the European crisis and uncertainty over the scal

policy in the United States inuenced the reduction of

3% in the volume of Gerdaus consolidated shipments

in 2012, which was 18.6 million metric tons.

Throughout the year, the effects of the global economic

scenario were felt at different levels, depending on

the business segment and geographic region of the

operations. The positive highlight for the year was the

Companys performance in the Brazilian domestic market

(excluding special steel mills), despite the lower economic

activity recorded in the country, with an expansion in its

net sales (12%) and the volume of shipments (+5%).

Gerdaus consolidated steel production in 2012, in turn,

was 18.9 million metric tons, 4% less compared to 2011.

BUSINES

S

Shipments per Business Division

18.6 million metric tons

Note: The above information does not include the shipments

volumes from afliated companies and jointly-owned

subsidiaries, neither of coal and coke.

Gerdau expands investments in mining to become an international supplier of iron ore

PERFORMANCE OF OPERATIONS

North America

34%Includes long steel

operations in the United

States and Canada

Brazil

38%Except special

steel mills

Special Steel

14%

Includes special

steel operationsin Brazil, Europe,

and the United States

Latin America

14%

Except Brazil

GERDAU ANNUAL REPORT 2012 | PERFORMANCE OF OPERATIONS


14/43

13

Brazil(except special steel mills)

Gerdau operates in Brazil with 15 mills producing steel

and rolled products, 3 downstream operations, 39

fabricated reinforcing steel facilities, 5 at steel service

centers, 9 scrap collection and processing units, and

4 iron ore extraction areas. It also has 88 distribution

branches ofComercial Gerdau, which ensures an

agile and efcient distribution of at and long steel,

as well as greater proximity to customers.

The global steel market should show signs of

recovery in 2013. According to the World Steel

Association, steel consumption is expected to

grow 3.2%, reaching 1.46 billion metric tons.

Gerdau is prepared to meet the growing demand

for steel in the world. For the period of 2013-2017,

R$ 8.5 billion are scheduled in investments in its

industrial units, considering both the steel and

mining activities.

In a scenario of signicant cost pressures, especially

of raw materials, and the deindustrialization of the

country, the main challenge for Gerdau was to improve

operational efciency and the competitiveness

of its units. To do this, the Company continued its

investments in the technological modernization ofits units, expanded its mining operations as a way

to increase its protability, and continued investing

to begin the production of at steel in Brazil.

As for the mining area, the Company plans to

achieve an installed capacity of 11.5 million metric

tons in 2013. Moreover, Gerdau has already made

its rst shipments of iron ore to the international

market, totaling 325,000 metric tons.

At the end of 2012, Gerdau announced additional

investments to expand its production capacity of iron ore

to 18 million metric tons by 2016, and implement a rail

terminal in Miguel Burnier (MG) for shipping the product

easily. With these investments, the Company will have

a broad portfolio of iron ore products concentrates,

sinter feed, and granulated materials with a quality to

meet the requirements of the most demanding markets.

Gerdaus volume of mineral resources today reaches

Gerdau will start the production of at steel in Brazil in 2013

OUTLOOK: WORLD

PERFORMANCE OF OPERATIONS | GERDAU ANNUAL REPORT 2012


15/43


16/43

15

To reduce costs, Gerdau acquired Cycle Systems

Inc. in early 2013, a company with facilities located

in Virginia for recycling and processing scrap steel,

which is a key raw material for producing steel. It

also continued with the implementation of a single

information technology system, which will further

ensure its customer service quality (see the section

Strategies and Competitive Advantages, p. 11).

For 2013, we expect a gradual recovery of the

economies of the countries in North America.

In the United States, the increase in the production of

shale gas should generate new market opportunities

for Gerdau due to the infrastructure necessary for the

exploration of this input, as well as allow the reduction

of operating costs with a cheaper access to an

alternative energy source.

Regarding steel consumption in the region, the World

Steel Association forecasts growth of 3.6% in 2013 in

the United States, reaching 100 million metric tons. In

Canada, in turn, the consumption of steel should have

a rise of 2.9%, reaching 15 million metric tons.

OUTLOOK: NORTH AMERICA

Latin America (except Brazil)

In 2012, Gerdaus units in Latin America faced heavy

pressure from raw material costs and signicant growth in

imports. Faced with this scenario, the Company worked

to adjust its operations with agility and exibility.

Besides seeking to increase operational efciency

and competitiveness in the markets where it operates,

Gerdau invested to expand its product line in the region.

The main highlight was the resumption of the project

to build a new plant in Mexico through its joint venture

Gerdau Corsa. Focused on the production of structural

shapes, the plant will have an annual installed capacity

of 1 million metric tons of steel and 700,000 metric

tons of rolled products. This investment will enable the

replacement of imports of this product in the country

and is expected to start up in the beginning of 2014.

In Guatemala, Gerdau inaugurated a new factory

of welded wire mesh focused on selling to the

construction industry. Furthermore, it continued with

the installation of a new rolling mill for rebars and light

commercial proles with an annual capacity of 200,000

metric tons that will go into operation in 2013.

In Venezuela, the Company is investing in the

technological upgrade of its mill with the objective

Gerdaus CEO announces resumption of the project to build a new plant in Mexico



17/43

16

Special Steel

(includes special steel operations in Brazil,

Europe, the U.S., and India)

With steel mills producing special steel in Brazil, the

U.S., Spain, and India, Gerdau is a leading global

supplier to the automotive industry, besides selling

to the segments of oil & gas, wind energy, agricultural

machinery & equipment, mining, among others.

In the Brazilian market, the production of medium and

heavy vehicles (trucks and buses) showed a signicant

reduction over the year, of 38%, caused by the effect

of anticipated manufacturing of heavy vehicles at the

end of 2011 due to new Euro 5 regulations for diesel

engines, which became effective in January 2012. In

the segment of cars and light commercial vehicles, the

reduction of the excise tax (IPI) caused production to

move forward 1% to 3.2 million units according to the

National Association of Vehicle Manufacturers (Anfavea).

Nevertheless, Gerdau continued its investments to expand

the capacity of its plants, focused on expand of future

Gerdaus special steels are used in automotive parts

that require high safety, quality, and reliability

of improving its operational safety and expanding the

production capacity of steel and rolled products in

order to meet the growing demand in the country.

In order to get even closer to the civil construction market

in Chile, Gerdau is building a new fabricated reinforcingsteel facility that will begin operations in 2013.

According to estimates from the World Steel

Association, steel consumption should evolve 6.4%

in Latin America (excluding Brazil), reaching 43.5

million metric tons.

The markets in this region have great growthpotential for 2013 as compared to 2012. Because

of this, Gerdau will continue investing to meet the

future expansion of the market and the specic

needs of its customers.

OUTLOOK: LATIN AMERICA

demand for special steel in the country. In 2013, the new

rolling mill for round bars will start up operations at the

Pindamonhangaba (SP) mill with an annual capacity

of 500,000 metric tons. In addition, the capacity of the

Mogi das Cruzes (SP) rolling mill will grow in 2013 from

216,000 metric tons to 276,000 metric tons per year.

As for the North America market (Canada, U.S., and

Mexico), the production of light, medium, and heavy vehicles

grew signicantly during the year with an 18% evolution in

the automotive segment and 8% in the segment of medium

and heavy vehicles. In total, 15.8 million vehicles (light,

medium, and heavy) were produced and, additionally, there

was a higher local production of automotive components.

To meet the development of the current and future

demand, Gerdau started the operation of a new

continuous casting in Monroe mill (Michigan) as well as

continuing with its modernization and expansion of the

installed capacity of this mill unit, which will increase

from 500,000 to 800,000 metric tons per year by 2014.

In Europe, meanwhile, the economic crisis experienced

in the region led to a decrease in the production of light,

medium, and heavy vehicles in 2012. For example,

the production of light vehicle of 12.5 million units fell

by 8%. The production of medium and heavy vehicles

GERDAU ANNUAL REPORT 2012 | PERFORMANCE OF OPERATIONS


18/43

17

For 2013, the markets of Brazil, the U.S., and India

should show growth while Europe should start its

process of recovering demand in 2014.

In Brazil, Anfaveas projections indicate that the

production of cars will grow 4.5% and trucks 7%.

In the United States, the stronger demand in the

region is expected to drive growth in the production

of light vehicles and medium and heavy commercial

vehicles by 4%, according to market forecasts.

In India, it is estimated that the production of light

and heavy vehicles will present a growth compared

to the previous year.

OUTLOOK: SPECIAL STEEL

Gerdau starts up the production of special steel in India to supply the regions market

was of 378,000 units, a drop of 11% compared with the

previous year. However, the Company continued investing

in the technological upgrading of its operations located

in Spain, such as the modernization of the continuous

casting at the Basauri mill, in order to enhance the

quality of its products and increase its productivity.

Gerdau has started the operation of a blast furnace in

India, a large potential market, with an annual installed

capacity of 350,000 metric tons, the power generation

plant that will use blast furnace gas, sintering, the melt

shop, and the new special steel rolling mill with an annual

installed capacity of 300,000 metric tons. Two new

inspection lines of bars will start operating in 2013, and

already in the plans for 2014 is the implementation of a

coking plant with an annual capacity of 200,000 metric

tons and integrated into it is a power generation plant.



19/43

18

Composition of consolidated EBITDA* (R$ million) 2012 2011

Net income 1,496 2,098

Net nancial income 789 528

Provision for income tax and social contribution 63 253

Depreciation and amortization 1,828 1,772

EBITDA 4,176 4,651

EBITDA Margin 11% 13%

* Includes the results of associated companies and jointly-controlled entities according to the equity method.

* Years ended on December 31, 2012 and 2011.

Consolidated statement of income - summarized*Gerdau S.A. and subsidiaries (R$ millions)

2012 2011

Net sales 37,982 35,407

Cost of sales -33,234 -30,298

Gross prot 4,748 5,109

Operating expenses -2,400 -2,230

Income before nancial income and taxes 2,348 2,879

Financial income -789 -528

Income before taxes 1,559 2,351

Income tax and social contribution -63 -253

Net income for period 1,496 2,098

Net Sales Grows 7% in 2012

Net sales

Gerdau closed the year 2012 with aconsolidated net sales of R$ 38 billion, which

is a growth of 7% compared to last year.

Cost of sales and operating expenses

In 2012, the cost of sales in consolidated terms was

R$ 33.2 billion, 10% above that recorded in 2011.

This increase reects the rising costs of key raw

materials for the steel production process and lower

dilution of xed costs due to lower volumes sold.

Selling, general, and administrative expenses

grew 3% to R$ 2.5 billion. However, its part in

relation to net revenues proved to be stable in

2012 compared with the previous year.

FINANCES

Source of net sales

R$ 38 billion

Note: The information above does not include data from

afliated companies and jointly owned subsidiaries.

Brazil

36%Except special

steel mills

North America32%Includes long steel

operations in the

United States and Canada

Latin America

13%Except Brazil

Special Steel

19%Includes special

steel operations in

Brazil, Europe, and

the United States

GERDAU ANNUAL REPORT 2012 | FINANCES


20/43

19

EBITDA

EBITDA (earnings before interest, taxes, depreciation

and amortization) was R$ 4.2 billion, which is a 10%

reduction compared to the previous year inuenced

mainly by rising costs of key raw materials and lower

equity in earnings of subsidiaries and associatedcompanies. As a result, the EBITDA margin was also

impacted, going from 13% last year to 11% in 2012.

Financial expenses and incomes

The higher net nancial expenses, which reached

R$ 789 million against R$ 528 million in 2011, were

primarily due to a lower net income and foreign

exchange losses on the hedge of net investment.

Net protFor the year, consolidated net prot went from R$ 2.1

billion in 2011 to R$ 1.5 billion in 2012, which was

mainly due to lower operating and nancial results.

Added value breakdown

The added value of Gerdau companies in consolidated

terms reached R$ 10 billion in 2012, which is a 2% increase

on the previous year. This good performance is a result

of revenues from products and services net of discounts,

which reached R$ 39.6 billion, net of costs of R$ 29.6

billion related to raw materials and consumer goods,

outsourced services, depreciation and amortization, equity

in earnings, and nancial income, among other items.

Added Value Breakdown

R$ 10 billion

Financial liabilities

On 31 December 2012, Gerdaus net debt (gross debt

minus cash on hand and nancial investments) was

R$ 12.2 billion against the R$ 9.1 billion recorded at

the end of 2011. This increase in net debt is a reection

primarily of the exchange rate effect on debts in foreign

currencies, the increased need for working capital

throughout 2012, and investments made during the year.

Gross debt at the end of the year was R$ 14.7 billion, of

which 82% was long-term and 18% short-term. Of the

total gross debt, 47% was in foreign currency contracted

by the subsidiaries in Brazil, 33% in different currencies

contracted by subsidiaries abroad, and 20% in reais.

On December 31, 2012, Gerdaus available cash,

cash equivalents, and investments were R$ 2.5

billion, of which 35% was held by the Gerdau

companies abroad, mainly in U.S. dollars.

The ratio between net debt and EBITDA reached 2.9

times in December 2012 against 2.0 times in December

2011. The ratio between gross debt and EBITDA, in turn,

reached 3.5 times versus 2.9 times in the previous year.

Indebtedness(R$ million)

12/31/2012 12/31/2011

Current 2,583 1,757

Non-current 12,086 11,927

Gross debt 14,669 13,684

Cash, cash equivalents,and nancial investments

2,497 4,578

Net debt 12,172 9,106

Salaries, benefits,

profit sharing,

and training

49%(R$ 4.9 bi)

Dividends and interest

on shareholders equity

4%(R$ 0.4 bi)

Reinvestments

of profits

11%(R$ 1.1 bi)

Interest

on financing

11%(R$ 1.1 bi)

Taxes

and social

contributions

25%(R$ 2.5 bi)

FINANCES | GERDAU ANNUAL REPORT 2012


21/43

20

RELATIONSHIPS

Gerdaus corporate culture is the basefor the efciency needed to face theglobal challenges

Gerdaus corporate culture, made up of values,history, and attitudes, is shared by its more than

45,000 employees. And this is what forms the basis of

the existence of this centennial Company. Knowledge

of the business, focus on results, continuous search

for customer preference, quality, commitment, integrity,

safety, social responsibility, and recognition are

concepts that permeate daily operations and contribute

toward Gerdau building new business opportunities

and consolidating itself in the global steel market.

Strengthening this culture, which was one of the main

highlights in the area of human resources in 2012,

has contributed toward the Company responding to

the challenges posed by the current global economic

scenario in an increasingly integrated and agile way.

This is achieved through communicating the Companys

values, by setting up and aligning processes and

practices in all business operations, implementing

processes and tools for managing people, and developing

The safety of people in the work environment is a top priority in all of Gerdaus operations

The book Our Culture Unites Us

- Lessons from Our History with

stories about the experiences

of employees in their daily work

routines, was distributed to all of

Gerdaus operations worldwide

leaders who act as clear agents of Gerdaus corporate

culture, spreading the Companys values to their teams

through personal examples, along with enhancing the

employees autonomy and showing respect to people.

During the year, for example, meetings were held between

members of the Board of Directors and the Gerdau

Executive Committee with over 1,000 employees in

Chile, the United States, and Peru. The perspective

is that all the leaders in Gerdau participate in

these meetings over a period of two years.

EMPLOYEES

GERDAU ANNUAL REPORT 2012 | EMPLOYEES


22/43

21

Health and safety

Peoples safety is a fundamental value for Gerdau. That

is why the Company has a strict set of practices that are

part of its Safety Management System, which involves

investment in new technologies, equipment, and global

management systems. In 2012, this area receivedR$ 92.7 million, 31% more than the previous year.

With the objective of improving safety in the work

environment, the Company has developed a manual in line

with the best global practices with guidelines on behavioral

management. In parallel, it initiated specic training on the

topic for the leaders of the operations in Argentina, Brazil,

and Spain. In 2013, the training will be extended to the other

operations in Latin America and in 2014 to North America.

These initiatives contributed so that the accident frequency

rate per million hours worked (international index that

measures the occurrence of accidents in the workplace)

decreased from 2.31 in 2010 to 1.06 in 2012. This level

is below the world average for the sector, whose latest

gure released by the World Steel Association is 1.9.

Furthermore, Gerdau received the Safety and

Health Excellence Recognition for the third time,

Accident frequency rate*

*Lost-time accident frequency rates per million hours

worked, including employees and service providers. The

data also includes restricted work and change of function

(OSHA recordable treated as LT accidents).

Investments in occupational

health & safety (R$ million)

0

20

40

60

80

100

201220112010

49.1

71.0

92.7

0

0.5

1.0

1.5

2.0

2.5

201220112010

2.31

1.59

1.06

Gerdau receives for the third time the Safety and Health

Excellence Recognition awarded by the World Steel Association

which is awarded by the World Steel Association.

The Company was awarded for the project Safety

Multipliers, which recorded positive results since

its implementation in 2004. The project consists of

train operators who encourage and offer support to

their colleagues to put into practice solutions that

make the work environment 100% accident free.

EMPLOYEES | GERDAU ANNUAL REPORT 2012


23/43

22

Internal climate

The favorability index of the Opinion Survey, which

evaluates the Companys internal climate, once again

reected a high level of engagement of its employees.

The indicator rose from 75% in 2011 to 76% in 2012, with

a highlight being the growth in operations of long steeland special steels in North America. The performance

was ve percentage points above the world market

average, which includes global companies with excellent

nancial performance and/or that are part of the ranking

of the most admired companies in Fortune magazine.

Moreover, Gerdau was elected as the best company

to work for in the steel and metallurgy industry in Brazil

by Guia Exame/Voc S.A., a leading benchmark in the

country in this area. The Company is among the 150

organizations best positioned in this ranking since 2007.

Training

Gerdau seeks to invest heavily in training its team of

employees, which already includes about 600 people

with masters and doctorate degrees. The main

objective is working with high performers who are

aligned with the strategic business objectives, besides

forming global leaders. In 2012, the investments

in this area reached R$ 37.2 million. The activities

involved 2.2 million hours, which represents an

average of 52 hours of training per employee.

The Gerdau Business Program (GBP) is one of the

highlights in this area. Lasting two years, this initiative was

developed in partnership with the Institute of Education

and Research (Insper) in So Paulo and consists of a

specic MBA degree conducted in accordance with the

needs of Gerdau. The executives selected for this program

are of high potential and participate in modules in leading

universities worldwide such as Insead in France and

Darden in the United States. The third edition of the GBP

is in progress with the participation of 32 executives from

Brazil, Chile, Mexico, Peru, and the Dominican Republic.

In 2012, the Company launched a program structured

for training controllers with the aim of increasing the

alignment and synergy of this function in all of its

operations. The training also aims to meet the standards

of the Gerdau Business System (GBS) and currently there

are a total of 12 professionals participating.

Training and development 2012 2011Investments (R$ million) 37.2 32.1

Number of training hours per employee 52.4 53.4

Knowledge Management

Knowledge Management is an initiative on Gerdaus

part to have a set of strategies to maximize the use of

existing knowledge in the Company, generating positive

impacts such as increased efciency and operational

productivity, while at the same time reducing costs. One

of the main strategies adopted is the Communities of

Practice, which facilitate interaction between employees in

different countries through a virtual network for sharing of

best practices. This way, for example, it is possible for an

employee from one country to have an issue cleared up by

a colleague from across the world with speed and clarity.

In the fth year since it began, the Communities of

Practice have already gathered together more than

5,000 employees in 36 communities, exceeding

58,000 posts. Posts can take on the form of

questions, answers, documents, and news, and they

take place between 95 plants in 14 countries. The

operation in India began its participation in 2012.

Autonomy and Creativity

Gerdau encourages delegation, autonomy, and creativity

in its teams. One example of this is the program

Management Focused on the Operator (MFO) where

employees, besides performing their usual activities,

help control processes such as quality, safety, cost,

maintenance, and the environment. This shared

management encourages professionals to overcome their

challenges, expand the productivity of processes and

quality of nal products. The program has been deployed

in plants in Argentina, Brazil, Chile, Colombia, the United

States, Mexico, the Dominican Republic, and Uruguay. In

2013, it will be expanded to eight more industrial plants.

GERDAU ANNUAL REPORT 2012 | EMPLOYEES


24/43

23

The active participation of employees is also present

in two other programs: Quality Improvement Story

(QIS) and Ideas. In the QIS, teams of three to seven

people offer creative solutions to problems in their daily

operations. In 2012, 6,800 employees in 11 countries

participated with 437 projects, which generated earningsworth US$ 145.3 million. The Ideas program, on the

other hand, encourages the search for innovative

solutions both individually or in groups. During the year,

the project involved 13,800 people from eight countries

who registered over 97,000 new ideas. Of this total, the

Company implemented 73,000 suggestions throughout

the year that yielded earnings of US$ 20.2 million.

executives are prepared to take strategic positions in the

Company. In 2012, there were 211 of these committees

set up in various countries where Gerdau operates.

Gerdau Future Trainees

The Gerdau Future Trainee Program is the mainentrance of young professionals into the Company.

For a two-year period, the trainees work on projects and

activities that challenge their professional skills while also

bringing good results to the business. Furthermore, the

trainees receive training and evaluations that help their

learning and development process. Currently, Gerdau

has 382 trainees in this program in ten countries.

Compensation and benets

Gerdau maintains a compensation policy of xed and

variable amounts based on the achievement of individual,

team, and operations targets. In addition to this, the

Company offers a benet plan for employees and their

families. The benets vary according to the needs of

each region where Gerdau operates.

A new health insurance model was launched in Brazil

in 2012. In line with the best market practices, the plan

gives the option for more coverage and exibility for

employees with more competitive costs for Gerdau.

Furthermore, close to 100% of the employees in Brazil

participate in the complementary pension plan with a

dened contribution, and the Company adds 150%

of that amount as a contribution to the employee.

Benets (R$ million) 2012 2011

Meals 94.7 71.7

Transportation 75.4 68.6

Health Insurance 401.4 299.0

Private Pension Plan 170.7 137.3

Labor union agreements

Gerdau guides its relationship with the unions by

seeking mutual gains, taking into account the labor

demands and the Companys sustainability. During the

year, 15 agreements were made in Brazil, Canada,

Chile, the United States, Mexico, and Venezuela.

Management of high potentials

To be able to count on outstanding professionals who

are prepared to take on positions of high responsibility

is another of Gerdaus concerns. In this sense, external

consultants contribute to enhance the training of the

Companys employees through the External Executive

Coaching Program, an initiative launched in 2012.

Parallel to this, 14 of Gerdaus leaders with higher level of

knowledge and experience, among them members of the

Board of Directors and the Gerdau Executive Committee,

supported during the exercise the development of

19 executives through the Mentoring Program.

Succession

Discussions about careers and succession at Gerdau

are held in the People Development Committees

made up of leaders from different areas. This way, new

The teams that reach the most signicant results are

recognized at the QIS global meetings

EMPLOYEES | GERDAU ANNUAL REPORT 2012


25/43

24

CUSTOMERS

Innovative solutions contribute to increasingthe competitiveness of customers

Gerdau seeks to establish a relationship of mutual

gains with its more than 130,000 customers,

contributing to the development of the consumer chain

of steel. It also strives for excellence in all aspects of

its business, all the way from the quality of its products

and services to delivery and technical assistance. To

do this, it has a team of highly specialized employees

and takes surveys to monitor customer satisfaction

and improve its services to each market segment, as

well as carrying out specic relationship programs.

Toward this end, Gerdau held a survey in 2012 with

more than 500 civil construction technicians in Brazil to

understand fabricated reinforcing steel market needs.

As a result it adopted new technologies and internal

processes, set up monitoring systems to increase the

predictability of deliveries, and also trained sales teams

for giving technical support to contractors. These new

practices will be applied in Gerdaus more than 100

fabricated reinforcing steel facilities around the world. The

cutting and bending system makes it possible to deliver

the steel in quantities, shapes, and sizes according to the

demands of each project and can increase productivity by

up to 70% in the structure assembly stage at the jobsite.

Gerdau steel also contributes for building projects

to receive environmental certications for their

work because it is 100% recyclable. The Leadership in

Energy and Environmental Design (LEED) certication,

for example, has already been granted to several

projects that use the Companys products. Among

the projects certied are the Duke Energy Center

in the United States, the Oscar Niemeyer Tower in

Brazil, and the Transoceanic Building in Chile.

Gerdaus Research and Development Centers

for the special steel sectorlocated in Brazil and

Spain are another highlight of its services for the

industry. Currently the Company is participating in

more than 70 projects for the automotive, energy,

and naval sectors. These initiatives are aimed at

continually improving the mechanical properties of

steel, resulting in better performance in use and gains

in efciency along the chains supplied by Gerdau.

Two of these projects are focused on developing

nano-alloyed steels for the automotive industry.

Regarding the at steel segment, Gerdau is

conducting an intense market mapping in order to

understand customer needs before the startup of

operations of a hot rolled coil mill in Brazil (read

more on this topic in chapter Business, p. 14).

Fabricated reinforcing steel facilities adopt new practices and processes to improve customer service

GERDAU ANNUAL REPORT 2012 | CUSTOMERS


26/43

25

SUPPLIERS

Participants of the Supplier Development Program receive

certicates in Peru

Supporting the sustainable developmentof suppliers strengthens the steelbusiness chain

Gerdau establishes long-term relationships with its

suppliers based on a direct, transparent and in search

for mutual gains relationship. It gives preference to

contracting suppliers that share its policy of respect for

people and the environment because it believes that the

sustainability of its business also passes through the

steel chain. Because of this, it requires strict compliance

with the laws in each country where it operates and

carries out periodic audits to make sure that the supply

chain is complying with its levels of excellence.

With operations in the Americas, Europe, and Asia, Gerdau

currently has a network of more than 30,000 suppliers,

60% of which are micro, small and medium enterprises

that strengthen the local economies where it operates.

For this reason, the Company has supported its Supplier

Development Program since 2007 in order to improve the

management performance of these organizations. This

initiative, developed with partner organizations, ranges

from giving courses and on-site consulting to designing and

monitoring the execution of action plans. In total, more than

500 training hours are devoted to addressing issues

related to management improvement, quality &

productivity, encouraging entrepreneurship, citizenship,and sustainability over a period of 24 months.

The program has had a direct impact on Gerdaus

competitiveness as it prepares the way to receive products

and services of better quality, punctual delivery, and building

long-term relationships, as well as sharing its ethical values

along its business chain. Moreover, by strengthening these

micro, small, and medium enterprises, this stimulates

market growth and generates jobs and wealth based on

projects with a strong social content. In 2012, the program

involved 404 micro, small, and medium enterprises in

Argentina, Brazil, Colombia, Mexico and Peru. As a result,

the business volume between Gerdau and the participating

companies grew 24% compared to 2011. For 2013, the

program will be expanded to suppliers in Chile, India,

the the Dominican Republic, Uruguay, and Venezuela.

Regarding the supply of scrap steel, a key raw material

in steel production, Gerdau has its own collection and

processing units of scrap, especially in Brazil and North

America. In order to expand the supply of this raw material

and develop micro and small suppliers, programs to

develop technical and managerial skills were promoted

in 2012 for about 90 companies and scrap cooperatives

in Brazil, Chile, Colombia, Peru, Uruguay, and Venezuela

that increased their sales to Gerdau by 125%.

At the same time, Gerdau is increasingly seeking to expand

the synergy among its operations around the world through

a global procurement structure that makes it possible to

reach economies of scale, productivity, and cost reduction

in the purchase of equipment and inputs. Additionally,

the new structure generates for the large suppliers the

opportunity to expand their business in different countries

and regions, as well as to streamline their logistics delivery.

SUPPLIERS | GERDAU ANNUAL REPORT 2012


27/43

26

Transparency and agility characterizeGerdaus relationship with its shareholders

Conservative nancial management, exibility, geographicdiversication of operations, and ability to take advantage

of opportunities were Gerdaus characteristics recognized

by the capital market. As a result, the shares of Gerdau S.A.

appreciated by 26% and those of Metalrgica Gerdau S.A.

by 30%, respectively, over 2012, which is one ofbest

performance among companies in the global

steel industry.

Relationship actions with shareholders

With over 65 years of experience in capital markets,

Gerdau is always working hard to improve its relationship

with its more than 130,000 shareholders. In 2012, it

held over 500 meetings with shareholders, investors,

and investment analysts, the main ones being 13

non-deal road shows in Brazil, in the United States,

and in countries in Europe and Asia, and participated

in two meetings of the Association of Capital Market

Analysts and Professionals (APIMEC) in Brazil.

Gerdau also launched a new website (www.gerdau.com/ri)

in order to improve its services to the capital markets such

as increasing the speed of browsing and access to

information. This new communication channel also provides

content specic for individual shareholders and institutional

investors in Portuguese, English, and Spanish.

Shareholder compensation

Gerdaus three publicly listed companies Gerdau S.A.,

Metalrgica Gerdau S.A., and Empresa Siderrgica del

Per S.A.A. have clear remuneration policies that are

in line with market practices. Metalrgica Gerdau S.A.

and Gerdau S.A. pay dividends and/or interest every

three months on capital of at least 30% of adjusted

net income for the year calculated in accordance with

Brazilian accounting practices. It is worth noting that

this percentage is higher than the level of 25% set bycorporate law in Brazil. The compensation policy for the

company Siderrgica del Per S.A.A. on the other hand,

is to pay dividends of up to 33% of its adjusted net prot.

In 2012, the shareholders of Metalrgica Gerdau S.A.

received R$ 130 million in dividends and interest on capital,

which is equivalent to R$ 0.32 per share and Gerdau S.A.

R$ 408 million, equivalent to R$ 0.24 per share.

Recognition from capital marketIn recognition of Gerdaus management capacity, the three

major rating agencies in the capital market maintained

the Companys investment grade in 2012. Standard &

Poors and Fitch Ratings kept their rating level at BBB-,

while Moodys maintained an investment grade of Baa3.

For the seventh consecutive year, Gerdau S.A. and

Metalrgica Gerdau S.A. have been a part of the Corporate

Sustainability Index (ISE) portfolio of BM&FBOVESPA. This

index is made up of shares of companies that stand out

for their more sustainable practices in the long term and

have a high degree of commitment on issues of corporate

governance, social responsibility, and the environment.

Moreover, Gerdaus publicly listed companies in Brazil

are part of the main index of BM&FBOVESPA, Ibovespa,

in which Gerdau S.A. has the 11th highest liquidity among

companies that make up this indicator. They are also listed

on the Special Corporate Governance Stock Index (IGC),

the Share Index with Differentiated Tag Along Rights (ITAG),

on the Brazil Index 50 (IBrX50), on the Index of Basic

Materials (IMAT), and on the Industrial Sector Index (INDX).

SHAREHOLDERS

GERDAU ANNUAL REPORT 2012 | SHAREHOLDERS


28/43

27

The Gerdau Volunteer Olympics was one of the highlights among the volunteer activities done in 2012

Volunteer work from employees is criticalto the development of social programs

Over the years, Gerdau has been improving its role insocial responsibility and consolidating the theme in its

business strategy. With the belief that the growth of its

operations is directly related to developing its business

chain and the communities where its plants are

located, the Company has expanded, standardized, and

internationalized its practices for this area over the last few

years. It also began to apply management methodologies

in planning, implementation, and monitoring of social

projects in order to achieve even more effective results.

In 2012, R$ 52.7 million was invested in more than

900 social projects that were conducted in 13

countries where Gerdau operates. These initiatives

are led by Gerdau Institute, which is responsible

for the Companys social responsibility policies and

guidelines, and are focused in the areas of education,

emergency assistance, and quality management.

Moreover, Gerdau believes that volunteering is an

important transforming agent of change in society.

For this reason it offers specic training courses to

its employees who want to get involved in volunteer

activities. As a result, in 2012, approximately

8,000 employees participated in the Gerdau

Volunteer Program (PVG) by working actively insocial projects supported by the Company.

One of the highlights among the volunteering actions

undertaken during the year was the Gerdau Volunteer

Olympics, a competition held in nine countries: Argentina,

Brazil, Chile, Colombia, Spain, Mexico, Peru, Uruguay,

and Venezuela. Under the slogan United for Safety:

victory belongs to us all, 13,000 volunteer employees

helped promote improvements and awareness activities

to encourage safe habits and behaviors in the daily

activities of about 800 micro and small enterprises,

schools, daycare centers, and other social organizations.

Gerdau also develops partnerships with major

institutions that implement programs to encourage

quality in management and entrepreneurship along

the steel business chain. Furthermore, the Company

supports institutions that promote transforming

actions in society such as the Competitive Brazil

Movement, Everyone for Education Movement, Junior

Achievement, and the World Childhood Foundation.

SOCIETY

SOCIETY | GERDAU ANNUAL REPORT 2012


29/43

28

ENVIRONM

ENT

Gerdau contributes to the sustainability ofthe communities and their businesses bytransforming scrap into steel

For Gerdau, recycling is not just an initiative of

environmental protection, but it is also part of its business

strategy. Every year, it transforms more than 15 million

metric tons of steel scrap, making it the largest scrap

recycler in Latin America. The use of this raw material

reduces the volume of material deposited in inappropriate

places and reduces the consumption of energy as well as

other natural resources in the steel production process,

while minimizing emissions of greenhouse gases such

as CO2. Moreover, the collection and processing of

scrap generate jobs over a long chain of small, medium

and large entrepreneurs who live off of this activity.

Gerdau has been developing projects in partnership with

the public sector in Brazil, Colombia, and Peru in order

to further expand scrap collection in the regions where

it operates and promote proper disposal of cars, trucks,

and buses that are no longer in circulation. Besides

contributing to the environment, these initiatives play

an important socio-economic role, because they reduce

the costs of governments with its storage, generate

revenue from the sale of scrap, and also create new

job opportunities in the processing of this raw material.

Since 2010 when the project began, over 36,000

metric tons of scrap have already been recycled.

Stringent environmental management practices

Gerdaus strong commitment to the environment is

reected in its stringent practices in this area along with

its ISO 14001 certication, of which the Environmental

Management System (EMS) is a part. The Company

uses the EMS to monitor the entire production cycle of

steel, beginning from the collection of raw materials all

the way to delivering the nal product and the disposal of

by-products. Currently 48 industrial plants are ISO 14001

certied, which corresponds to 89% of the total.

By-products

Through continuous investment, improvements in

processes, and studies in partnership with universities,

research entities and companies, Gerdau seeks intelligent

and sustainable alternatives for the application of

its by-products. As a result of these initiatives, in 2012,

the reuse rate of these materials reached 74.8%.

Air

The dust removal systems at Gerdaus plants capture with

high efciency the solid particles generated by the steelmaking

Gerdau invested in the expansion and modernization of the dust removal system in plants in Canada, Colombia (photo), and Chile

GERDAU ANNUAL REPORT 2012 | ENVIRONMENT


30/43

29

process, which are later processed into by-products used

in other segments of the industry. In 2012, the Company

invested in the expansion and modernization of the dust

removal system in plants in Canada, Colombia, and Chile.

WaterGerdau has one of the best water recirculation rates

in the global steel industry today with an average rate

exceeding 97%. This percentage represented in 2012 over

2 trillion liters of recycled water to be used internally in the

production of steel. The volume, if captured, corresponds

to a supply of water for a period of two years from the

state of New York (United States), which has over 19

million inhabitants, considering an average consumption

of 150 liters per person per day. The small amount not

reused corresponds mainly to evaporative losses.

to increase energy savings in auxiliary equipment

to the steel production process, which represent

approximately 40% of the energy consumed in the mills.

The project goal is to achieve a reduction of 2.5% of total

energy consumed by 2014. To start this process, teamsfrom all the industrial mills in Brazil ran a diagnostics

of savings opportunities, which were transformed

into more than 1,300 actions. This project will also be

applied in other countries where Gerdau operates.

Gerdau also optimizes the use of energy by expanding

the use of by-products from the production process

of its mills. In addition, the Company is increasing

its use of natural gas in its operations, which is

already applied in 94% of its mills worldwide.

Biodiversity

Gerdau maintains green areas at its mills for the purpose

ofimproving the quality of the air and maintain local

biodiversity. Currently, of its total 17,000 hectares of

Company property, 3,000 hectares are preserved native

forests made up of legal reserves, permanent preservation

areas, and private reserves of natural heritage. Over

4,000 hectares are areas preserved voluntarily.

Environmental education

As part of its environmental management practices,

Gerdau promotes awareness campaigns, conferences,

and training courses for employees and third parties.

In 2012, these activities totaled 48,200 hours with

the involvement of about 26,000 people.

One of the initiatives created during 2012 was the

Environmental Laboratory, which seeks to improve social-

environmental practices and knowledge of educators

in the municipal and state schools in the region of

Ouro Branco (MG). For the year, 292 professionals

participated in 22 courses and workshops.

Water treatment system in Peru will increase the mills

recirculation rate to more than 98%

These achievements in the process of reusing water are

due to continuous investments in advanced closed water

treatment and recirculation systems. In 2012, for example, a

new water treatment plant was constructed at the Reinosa

mill located in Spain. With this, the amount of water captured

externally by the plant decreased by 50%. Also, in Peru, a

project is currently underway to improve and upgrade the

water treatment system in order to increase the level of

the plants recirculation from 95.1% to more than 98%.

Energy

In order to expand its energy efciency, Gerdau

invests continuously in improving and optimizing its

industrial processes. In 2012, for example, the Company

initiated a pilot project in operations in Brazil in order

ENVIRONMENT | GERDAU ANNUAL REPORT 2012


31/43


32/43

31

Steel production begins with

Riograndense known as Usina

Farrapos (UFA) in Porto Alegre

(state of Rio Grande do Sul,

Brazil), with forward-thinking

conception of the mini-mill, a

model based on the use of scrap

and regional sales, enabling more

competitive operational costs.

The second Riograndense

unit starts up operation

in Sapucaia do Sul (RS).

The mill was also known

as Rio dos Sinos mill.

The Gerdau Foundation

is created, with health,

education, housing

and social assistance

programs, reinforcing

the culture of social

responsibility within

the Organization.

The So Judas Tadeu

Wire Factory is set up

in So Paulo (state

of So Paulo, Brazil),

marking the companys

expansion into the

Brazilian southeast.

Germano, Klaus, and

Jorge Gerdau Johannpeter

take on leadership

positions in the Company,

and, in 1971, Frederico

Gerdau Johannpeter also

becomes part of the board.

Gerdau acquires the

Aonorte steel plant (state

of Pernambuco, Brazil),

whose facilities were being

transferred from Tio (in

the city of Iguarassu) to the

industrial district of Curado

(in the city of Recife).

Siderrgica Riograndense

publicly launches shares on

the Rio de Janeiro and So

Paulo stock exchanges.

1957

1963

1964 1970

1948 1967 1969

TIMELINE | GERDAU ANNUAL REPORT 2012


33/43

32

Gerdaus executive

leadership begins

to be in the hands

of Jorge Gerdau

Johannpeter (CEO)

and Germano, Klaus,

and Frederico Gerdau

Johannpeter

(Vice Chairmen).

Construction of Cosigua mill

(RJ) begins in the IndustrialDistrict of Santa Cruz, which

was completed in record

time of 14 months. The

project had the participation

of Thyssen ATH and was

nanced by the World Bank

through the International

Finance Corporation

(IFC), among others.

Germano, Klaus,

Jorge, and FredericoGerdau Johannpeter

became part of

the Gerdau Board

of Directors.

Steel distribution activities start

with the rst Comercial Gerdau in

the state of So Paulo (Brazil).

Gerdau assumes control of the

Guara plant, a steel production

pioneer in the state of Paran (Brazil).

Beginning of

internationalization

with the acquisition of

Laisa in Uruguay.

Cosigua begins to have

its shares traded on the

Stock Exchanges in So

Paulo and Rio de Janeiro.

Operation begins at

the Cearense plantin Maracana (state

of Cear, Brazil).

Cosigua shares are

publicly released,which earns the

company more

than 60,000 new

shareholders.Second Gerdau

plant in the state of

Paran (Brazil) begins

operation, in Araucria.

Gerdau wins its

rst privatization

auction in Brazil

and acquires

the Baro de

Cocais steel mill

(state of Minas

Gerais, Brazil).

1982 1984

1983

1973

1971 1980 1988

GERDAU ANNUAL REPORT 2012 | TIMELINE


34/43

33

Acquire part of the capital

stock of Sipar rolling mill in

Argentina. In 2005, Gerdau

takes a controlling stake.

The Company acquires AZA in

Chile and Aos Finos Piratini (stateof Rio Grande do Sul, Brazil).

The GG 50 rebar, a Gerdau agship

product in Brazil, is launched.

Gerdau acquires

Siderrgica

Pains, now called

Divinpolis mill.

Gerdau acquires

MRM in the

province of

Manitoba, Canada.

Gerdau becomes a

partner of Aominas witha small ownership stake.

Gerdau acquires control of

Ameristeel, marking its arrival

in the United States.

Gerdau S.A., a publicly

traded company in Brazil,

is listed on the New York

Stock Exchange (NYSE).

1992 1997

1994 1995 1998 1999

Gerdau enters

North America with

the acquisition of

Courtice Steel,

which later took

on the name

of Cambridge in

the province of

Ontario (Canada).

Gerdau acquires

Usiba (state of

Bahia, Brazil) at a

privatization auction.

1989



35/43

34

Gerdau celebrates 100 years

in business with an installed

steel production capacity of 8.4

million metric tons per year.

Gerdau takes a controlling

stake in Gerdau Aominas

(state of Minas Gerais,

Brazil), its largest mill.

Gerdau acquires the Cartersville

plant (United States).

The merger of Gerdau

and Co-Steel, in North

America, creates

Gerdau Ameristeel.

Diaco (Colombia) and

North Star Steel (United

States) are acquired.

Gerdau enters Europe,

acquiring 40% of Sidenor. As

a result of this acquisition, the

Company takes an indirect

stake in Aos Villares (Brazil).

The Gerdau Institute, responsible

for coordinating the Companys

social responsibility policies and

guidelines, is created, broadening

the scope of the Gerdau

Foundation, established in 1963.

Gerdau acquires Siderperu (Peru),

Shefeld Steel (United States),

Callaway Building Products (United

States), and GSB (Spain).

The Company announces its

joint venture Pacic Coast

Steel (United States).

Gerdau So Paulo mill

(state of So Paulo, Brazil)

commences operations.

Andr B. Gerdau Johannpeter takes over as Chief

Executive Ofcer (CEO) and Claudio Gerdau

Johannpeter becomes Chief Operating Ofcer (COO).

Gerdau acquires Chaparral Steel, one of

the largest producers of structural steel inthe United States, thus marking the greatest

acquisition in the history of the Company.

The Company enters Mexico (Siderrgica

Tultitln) and Venezuela (Siderrgica Zuliana).

The Organization also acquires a stake in the

Dominican Republic (Industrias Nacionales - Inca)

and in Aceros Corsa (Mexico), signs agreement

for purchase of Macsteel (United States), and

starts the Kalyani Gerdau joint venture (India).

Gerdau Aominas (state of Minas Gerais,

Brazil) increases its production capacity by

50% to 4.5 million metric tons per year.

2002

2004

2006

2001

2005

2007

GERDAU ANNUAL REPORT 2012 | TIMELINE


36/43

35

The Company acquires a 50.9%

stake in Cleary Holdings (Colombia),

a metallurgical coke producer and

holder of coking coal reserves.

Gerdau enters Central America, with a 30%

stake in Corporacin Centroamericana

del Acero, in Guatemala.

Gerdau takes over Macsteel

operations (United States), a

producer of special steels.

The Vrzea do Lopes mine (state

of Minas Gerais, Brazil) is initiated

with the production of iron ore.

The Companys entering

into the at steel sector

in Brazil is disclosed.

Company announces new

investments in India.

Gerdau incorporates Aos Villares, a special

steel producer in Brazil, in which the Company

already had an 87% direct and indirect stake.

An additional stake of 49.1% is acquired in Cleary

Holdings (Colombia), granting Gerdau 100%

ownership of the companys capital.

Gerdau gains 100% ownership of Gerdau Ameristeel, with the

acquisition of approximately 34% of the companys minority

shares. As a result, the company shares are no longer

traded on the Toronto and New York stock exchanges.

Gerdau acquires Tamco (United States), a leading producer

of rebars on the west coast of the United States, with

production capacity of 500,000 metric tons per year.

Gerdau invests to expand its

own production of iron ore.

Gerdau completes 110 years of business,

reaching an annual production capacity of 25

million metric tons and revitalizes its brand.

Gerdau announces new

investments in mining

to increase its annual

installed capacity to 18

million metric tons by 2016.

Later, it celebrates the

rts shipments of iron ore,

marking its entry into the

international mining market.

The Mission, Vision, Values, and Code of

Ethics are revised and unied at a global level,

strengthening Gerdaus corporate culture.

Gerdau begins studies for commercial

exploration of part of its iron ore

resources located in Minas Gerais.

The rst phase for implementing the Gerdau

Template, which aims to deploy a single system of

information technology using SAP in all countries

where the Company operates, is completed.

Gerdau announces investments to increase the installed

capacity in special steel mills in Brazil and the United States.

Production of special steel

in India begins, in order to

supply the regions market.

The Company completes

20 years of experience in

the special steel sector.

2009 2011 2012

2008 2010



37/43

36

CONSOLIDATED BALANCE SHEETS

GERDAU S.A.As of December 31, 2012 and 2011

(In thousands of Brazilian reais)

Non-current assets

Deferred income and social contribution taxes 2,210,300 1,547,967

Other non-current assets 1,958,863 2,034,819

Investments in associates and jointly-controlled entities 1,425,605 1,355,291

Goodwill and other intangible assets 11,397,812 10,429,497

Property, plant, and equipment 19,690,181 17,295,071

36,682,761 32,662,645

Total assets 53,093,158 49,981,794

Total liabilities and equity 53,093,158 49,981,794

Current liabilities

Trade Accounts Payable 3,059,684 3,212,163Short-Term Debt and Debentures 2,582,353 1,756,993

Taxes payable 528,698 591,983

Payroll and related liabilities 558,634 617,432

Other current liabilities 1,093,813 598,430

7,823,182 6,777,001

2012 2011

Current assets

Cash and cash equivalents 1,437,235 1,476,599

Short-term investments 1,059,605 3,101,649

Trade accounts receivable 3,695,381 3,602,748

Inventories 9,021,542 8,059,427

Other current assets 1,196,634 1,078,726

16,410,397 17,319,149

SUMMARIZED FINANCIAL STATEMENTS

Non-current liabilities

Long-Term Debt and Debentures 12,086,202 11,926,535

Deferred income taxes 1,795,963 1,858,725

Employee benets 1,187,621 1,089,784Other non-current liabilities 1,402,273 1,809,946

16,472,059 16,684,990

Shareholders equity

Attributable to the equity holders of parent 27,245,604 24,997,469

Non-controlling interests 1,552,313 1,522,334

28,797,917 26,519,803

GERDAU ANNUAL REPORT 2012 | FINANCIAL STATEMENTS


38/43

37

CONSOLIDATED STATEMENTS OF INCOME (In thousands of Brazilian reais)

Income before nancialincome and taxes

2,348,205 2,879,008

Net nancial income (expenses) -654,615 -580,093

Exchange variations, net -134,128 51,757

Earnings per share - common and preferred 0.84 1.22

2012 2011

Net sales 37,981,668 35,406,780

Cost of sales -33,234,102 -30,298,232

Gross prot 4,747,566 5,108,548

Selling, general, and administrative expenses -2,471,675 -2,401,684

Other Operating Income (expenses), net 72,314 172,144

Income before taxes 1,559,462 2,350,672

Income and social contribution taxes -63,222 -253,096

Net income 1,496,240 2,097,576

Attributed to:

Owners of the parent 1,425,633 2,005,727

Non-controlling interests 70,607 91,849

CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Brazilian reais)

Net cash used in investing activities -3,438,025 -2,111,158

Net cash generated by operating activities 4,344,047 1,710,018

Net cash used in nancing activities -1,036,294 727,064

Effect of exchange rate variation on cash and cash equivalents 90,908 89,641

(Decrease) Increase in cash and cash equivalents -39,364 415,565

Cash and cash equivalents at beginning of year 1,476,599 1,061,034

Cash and cash equivalents at end of year 1,437,235 1,476,599

2012 2011

Net income 1,496,240 2,097,576

Adjustments to reconcile net income with net cash 3,048,240 2,794,863

Changes in assets and liabilities (net of interest and income tax) -200,433 -3,182,421

FINANCIAL STATEMENTS | GERDAU ANNUAL REPORT 2012

Read more on the nancial statements of Gerdau S.A. at www.gerdau.com/ri


39/43

38

CONSOLIDATED BALANCE SHEETS (In thousands of Brazilian reais)

Non-current assets

Deferred income and social contribution taxes 2,376,709 1,658,416

Other non-current assets 1,959,459 2,005,594

Investments in associates and jointly-controlled entities 1,425,605 1,355,291

Goodwill and other intangible assets 11,489,825 10,521,510

Property, plant, and equipment 19,690,863 17,295,833

36,942,461 32,836,644

Total assets 53,370,116 50,172,211

Total liabilities and equity 53,370,116 50,172,211

Current liabilities

Trade Accounts Payable 3,059,814 3,212,278Short-Term Debt and Debentures 3,888,232 1,760,780

Taxes payable 534,631 594,532

Payroll and related liabilities 558,634 617,432

Other current liabilities 1,088,177 588,906

9,129,488 6,773,928

2012 2011

Current assets

Cash and cash equivalents 1,437,724 1,477,020

Short-term investments 1,059,605 3,101,649

Trade accounts receivable 3,695,381 3,602,748

Inventories 9,021,542 8,059,427

Other current assets 1,213,403 1,094,723

16,427,655 17,335,567

Non-current liabilities

Long-Term Debt and Debentures 12,073,867 13,223,260

Deferred income taxes 1,844,731 1,907,493

Employee benets 1,187,621 1,089,784Other non-current liabilities 2,316,057 2,626,758

17,422,276 18,847,295

Shareholders equity

Attributable to the equity holders of parent 9,965,945 9,040,054

Non-controlling interests 16,852,407 15,510,934

26,818,352 24,550,988

METALRGICA GERDAU S.A.As of December 31, 2012 and 2011

SUMMARIZED FINANCIAL STATEMENTS

GERDAU ANNUAL REPORT 2012 | FINANCIAL STATEMENTS


40/43

39

CONSOLIDATED STATEMENTS OF INCOME (In thousands of Brazilian reais)

Income before nancialincome and taxes

2,320,455 2,868,471

Net nancial income (expenses) -835,573 -740,152

Exchange variations, net -134,128 51,754

Earnings per share - common and preferred 1.12 1.87

2012 2011

Net sales 37,981,668 35,406,780

Cost of sales -33,234,102 -30,298,231

Gross prot 4,747,566 5,108,549

Selling, general, and administrative expenses -2,477,894 -2,422,943

Other operating income (expenses), net 50,783 182,865

Income before taxes 1,350,754 2,180,073

Income and social contribution taxes -18,077 -200,424

Net income 1,332,677 1,979,649

Attributed to:

Owners of the parent 456,731 760,522

Non-controlling interests 875,946 1,219,127

CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Brazilian reais)

Net cash used in inves

gerdau: informe anual edición 2012

Documents