FORM 6-K

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

Dated May 10, 2018

 

Commission File Number 1-14878

 

GERDAU S.A.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Federative Republic of Brazil

(Jurisdiction of incorporation or organization)

Av. das Nações Unidas, 8,501 – 8° andar São Paulo, São Paulo - Brazil CEP 05425-070

(Address of principal executive offices) (Zip code)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F  x                   Form 40-F  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes o                                     No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  Not applicable.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:  May 10, 2018

 

 

	GERDAU S.A.
	By:	/s/ Harley Lorentz Scardoelli
	Name:	Harley Lorentz Scardoelli
	Title:	Investor Relations Director

 

2

 

EXHIBIT INDEX

 

Exhibit		Description of Exhibit
99.1		Quarterly Results, 1Q18, Gerdau SA and subsidiaries, May 9, 2018

 

3

Exhibit 99.1

 

 

 

Highlights of the first quarter of 2018

 

Consolidated Highlights

 

·                  EBITDA of R$1,484 million in 1Q18, up 74% from 1Q17, with EBITDA margin of 14.3%.

 

·                  Reduction in selling, general and administrative expenses in 1Q18, which corresponded to 4.0% of net sales, compared to 5.2% in 1Q17.

 

·                  Financial leverage measured by net debt/adjusted EBITDA ratio falls to 2.7x as of March 31, 2018.

 

·                  Adjusted net income of R$ 451 million in 1Q18, with dividend distribution of R$136.1 million, equivalent to the amount distributed in the whole of 2017.

 

EBITDA (R$ million) and EBITDA Margin (%)	SG&A Expenses (R$ million and % of Net Sales)
Debt (R$ billion) & Leverage Ratio	Adjusted Net Income (R$ million)

 

1

 

Consolidated Information

 

Gerdau’s performance in the first quarter of 2018

 

The Consolidated Financial Statements of Gerdau S.A. are presented in accordance with the International Financial Reporting Standards (IFRS) and the accounting practices adopted in Brazil, which are fully aligned with the accounting standards issued by the Accounting Pronouncements Committee (CPC).

 

The information in this report does not include data of associates and jointly controlled entities, except where stated otherwise.

 

Results of Operations

 

Consolidated		1st Quarter 2018		1st Quarter 2017		Variation 1Q18/1Q17		4th Quarter 2018		Variation 1Q18/4Q17
Volumes (1,000 tonnes)
Production of crude steel		4,165		4,018		3.7	%	3,949		5.5	%
Shipments of steel		3,871		3,591		7.8	%	3,774		2.6	%
Results (R$ million)
Net Sales		10,389		8,459		22.8	%	9,817		5.8	%
Cost of Goods Sold		(9,050	)	(7,805	)	15.9	%	(8,777	)	3.1	%
Gross profit		1,339		654		104.8	%	1,040		28.8	%
Gross margin (%)		12.9	%	7.7	%			10.6	%
SG&A		(420	)	(439	)	-4.2	%	(398	)	5.6	%
Selling expenses		(150	)	(138	)	9.0	%	(122	)	23.3	%
General and administrative expenses		(270	)	(301	)	-10.3	%	(276	)	-2.2	%
Adjusted EBITDA		1,484		853		74.0	%	1,181		25.7	%
Adjusted EBITDA Margin		14.3	%	10.1	%			12.0	%

 

Production and shipments

 

·      On a consolidated basis, crude steel production and shipments increased in 1Q18 compared to 1Q17, due to stronger steel demand, led by the Brazil and North America BDs.

 

·      In relation to 4Q17, consolidated shipments also increased, due to stronger demand in the North America and Special Steel BDs.

 

Operating result

 

·      In 1Q18, consolidated net sales increased in relation to 1Q17, due to the higher net sales per tonne at all BDs, supported by the higher international prices.

 

·      Consolidated cost of goods sold increased in 1Q18 compared to 1Q17 and 4Q17, reflecting the higher raw material costs.

 

·      Consolidated gross profit more than doubled in relation to 1Q17, due to the better performance of the Brazil and North America BDs. Meanwhile, gross margin expanded, with higher prices more than offsetting the increase in raw material costs in the period.

 

·      The reduction in selling, general and administrative expenses in 1Q18, which correspond to 4.0% of net sales, compared to 5.2% of net sales in 1Q17, reflects the continuous efforts made to streamline all business divisions and the net sales growth in the period.

 

2

 

Breakdown of Consolidated EBITDA (R$ million)		1st Quarter 2018		1st Quarter 2017		Variation 1Q18/1Q17		4th Quarter 2017		Variation 1Q18/4Q17
Net income		448		824		-45.6	%	(1,384	)	—
Net financial result		343		(54	)	—		438		-21.8	%
Provision for income and social contribution taxes		173		437		-60.4	%	(221	)	—
Depreciation and amortization		453		528		-14.3	%	524		-13.6	%
EBITDA - Instruction CVM (1)		1,416		1,735		-18.4	%	(643	)	—
Impairment of assets		—		—		—		1,115		—
Gains and losses on assets held for sale and sales os interest in subsidiaries		3		—		—		649		—
Equity in earnings of unconsolidated companies		(16	)	1		—		2		—
Proportional EBITDA of associated companies and jointly controlled entities		81		47		72.3	%	58		39.7	%
Reversal of contingent liabilities, net		—		(930	)	—		—		—
Adjusted EBITDA(2)		1,484		853		74.0	%	1,181		25.7	%
Adjusted EBITDA Margin		14.3	%	10.1	%			12.0	%

 

(1) - Non-accounting measurement calculated pursuant to Instruction 527 of the CVM.

(2) - Non-accounting mesurement prepared by the Company.

 

Note: EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is not a method used in accounting practices, does not represent cash flow for the periods in question and should not be considered an alternative to cash flow as an indicator of liquidity.

 

The Company presents adjusted EBITDA to provide additional information regarding cash flow generation in the period.

 

Conciliation of Consolidated EBITDA (R$ million)		1st Quarter 2018		1st Quarter 2017		4th Quarter 2017
EBITDA - Instruction CVM (1)		1,416		1,735		(643	)
Depreciation and amortization		(453	)	(528	)	(524	)
OPERATING INCOME BEFORE FINANCIAL RESULT AND TAXES(2)		964		1,207		(1,167	)

 

(1) - Non-accounting measure calculated pursuant to Instruction 527 of the CVM.

(2) - Accounting measurement disclosed in consolidated Statements of Income.

 

·                  Adjusted EBITDA and adjusted EBITDA margin in 1Q18 compared to 1Q17 and 4Q17 registered significant increases, supported by the better performance of all business divisions, led by the Brazil BD.

 

 

3

 

Financial result and net income

 

Consolidated (R$ million)		1st Quarter 2018		1st Quarter 2017		Variation 1Q18/1Q17		4th Quarter 2017		Variation 1Q18/4Q17
Income (loss) before financial income expenses and taxes(1)		964		1,207		-20.1	%	(1,167	)	—
Financial Result		(343	)	54		—		(438	)	-21.8	%
Financial income		31		82		-61.8	%	48		-34.8	%
Financial expenses		(366	)	(463	)	-20.9	%	(400	)	-8.5	%
Exchange variation, net		(7	)	75		—		(84	)	-91.7	%
Exchange variation on net investment hedge		(4	)	72		—		(81	)	-95.1	%
Exchange variation - other lines		(3	)	3		—		(3	)	0.0	%
Reversal of monetary update of contingent liabilities, net		—		370		—		—		—
Gains (losses) on financial instruments, net		(1	)	(10	)	-92.1	%	(2	)	-60.7	%
Income (loss) before taxes(1)		621		1,261		-50.7	%	(1,605	)	—
Income and social contribution taxes		(173	)	(437	)	-60.4	%	221		—
On net investment hedge		4		(72	)	—		81		-95.1	%
Other lines		(178	)	77		—		22		—
IR/CS extraordinary items		1		(442	)	—		118		-99.2	%
Consolidated Net Income (loss)(1)		448		824		-45.6	%	(1,384	)	—
Non-recurring items		3		(858	)	—		1,646		-99.8	%
Gains and losses on assets held for sale and sales os interest in subsidiaries		3		—		—		649		—
Impairment of assets		—		—		—		1,115		—
Reversal of IR/CS non-recurring items		—		—		—		(118	)	—
Reversal of contingent liabilities, net		—		(858	)	—		—		—
Consolidated Adjusted Net Income (loss)(2)		451		(34	)	—		262		72.3	%

 

(1) - Accounting measurement disclosed in the income statement of the Company.

(2) - Non accounting measurement made by the Company to demonstrate the net income adjusted by the extraordinary events that impacted the result, but without cash effect.

 

·      In 1Q18 compared to 1Q17, the lower financial result basically reflects the reversal of an adjustment to a contingent liability made in 1Q17. Compared to 4Q17, the higher financial result was mainly due to the effects from exchange variation on liabilities contracted in U.S. dollar (appreciation in the closing price of the Brazilian real against the U.S. dollar of 0.5% in 1Q18 and depreciation of 4.4% in 4Q17).

 

·      Financial expenses decreased in 1Q18 compared to 1Q17 and 4Q17, due to the Company’s efforts to reduce its gross debt and to the decline in interest rates in the comparison period.

 

·      Note that, in accordance with IFRS, the Company designated the bulk of its debt in foreign currency contracted by companies in Brazil as hedge for a portion of the investments in subsidiaries located abroad. As a result, only the effect from exchange variation on the portion of debt not linked to investment hedge is recognized in the financial result, with this effect neutralized by the line “Income and Social Contribution taxes on net investment hedge.”

 

·      The increase in adjusted net income in 1Q18 compared to the net loss in 1Q17 was mainly due to the improvement in adjusted EBITDA and to the reduction in financial expenses.

 

Dividends

 

·      Gerdau S.A. approved the payment of dividends in the form of interest on equity in the amount of R$ 136.1 million (R$ 0.08 per share) in 1Q18, distributed as an advance of the minimum mandatory dividend stipulated in the Bylaws.

 

Payment date: June 1, 2018

Record date: close of trading on May 21, 2018

Ex-dividend date: May 22, 2018

 

Working capital and Cash conversion cycle

 

·      In March 2018, the cash conversion cycle (working capital divided by daily net sales in the quarter) increased in relation to December 2017, reflecting the 12.1% increase in working capital. This effect on working capital was due to the increase in the line Accounts receivable in the period, supported by the Company’s better performance.

 

·      In working capital at December 2017 and March 2018, assets and liabilities arising from the divestment of certain operations in North America and Chile were excluded from the lines “Trade accounts receivable”, “Inventories” and “Trade accounts payable” and reported in the lines “Asset held for sale” and “Liability held for sale,” in accordance with IFRS.

 

4

 

·      Meanwhile, for the calculation of the cash conversion cycle at December 2017 and March 2018, working capital includes assets and liabilities arising from the divestment of operations in North America and Chile to ensure comparability with Net sales, which will be affected only after the conclusion of the sales of said assets.

 

 

Financial liabilities

 

Debt composition (R$ million)		03.31.2018		12.31.2017		03.31.2017
Short Term		2,180		2,004		4,185
Long Term		14,539		14,505		15,516
Gross Debt		16,719		16,509		19,701
Cash, cash equivalents and short-term investments		3,246		3,377		5,454
Net Debt		13,473		13,132		14,247

 

·      On March 31, 2018, gross debt was 13.0% short term and 87.0% long term, with 17.6% denominated in Brazilian real, 80.0% in U.S. dollar and 2.4% in other currencies.

 

·      On March 31, 2018, 65.7% of cash was held by Gerdau companies abroad and denominated mainly in U.S. dollar.

 

·      On March 31, 2018, the nominal weighted average cost of gross debt was 6.6%, or 7.8% for the portion denominated in Brazilian real, 5.6% plus exchange variation for the portion denominated in U.S. dollar contracted by companies in Brazil and 7.9% for the portion contracted by subsidiaries abroad. On March 31, 2018, the average gross debt term was 6.5 years.

 

·      On March 31, 2018, the payment schedule for long-term gross debt was as follows:

 

Long Term		R$ million
2019		839
2020		3,172
2021		1,758
2022		149
2023		1,882
2024		3,105
2025 and after		3,634
Total		14,539

 

·      The key debt indicators are shown below:

 

Indicators		03.31.2018		12.31.2017		03.31.2017
Gross debt / Total capitalization (1)		41	%	41	%	44	%
Net debt(2) (R$) / EBITDA (3) (R$)		2.7x		3.0x		3.5x

 

(1) - Total capitalization = shareholders’ equity + gross debt- interest on debt

(2) - Net debt = gross debt - interest on debt - cash, cash equivalents and short-term investments

(3) -  Adjusted EBITDA in the last 12 months.

 

Investments

 

·      In 1Q18, CAPEX amounted to R$217 million. Of the amount invested in the quarter, 43.4% was allocated to the Brazil BD, 36.7% to the North America BD, 15.4% to the Special Steel BD and 4.5% to the South America BD.

 

5

 

·      CAPEX projected for 2018 is R$ 1.2 billion, which will focus on productivity gains and maintenance.

 

Divestments

 

·      According to the material fact notice dated January 2, 2018, the Company entered into a final agreement for the sale of certain rebar production units, fabricated rebar units and distribution centers in the United States, to Commercial Metals, for US$ 600 million (equivalent to R$ 2.0 billion), subject to adjustments to the acquisition price typical of transactions of this kind. The agreement includes mills in Jacksonville (Florida), Knoxville (Tennessee), Rancho Cucamonga (California) and Sayreville (New Jersey) with combined annual production capacity of 2.5 million short tonnes, in addition to the rebar processing and distribution units in the United States, which are reported in the North America segment. The transaction is subject to authorization by regulatory agencies and to typical settlement conditions, which should occur by the end of 2018. Furthermore, due to the measurement of net assets classified as held for sale at the lowest of carrying amount or fair value less selling expenses, the Company recognized an expense, net of income tax, of R$ 649 million in the line Income (expense) from transactions with subsidiaries in its Income Statement.

 

·      On January 31, 2018, the Company announced a final agreement for the sale of its wire-rod production unit located in Beaumont, Texas and two processing units to Optimus. On March 30, 2018, the Company concluded the sale for US$ 99.5 million (equivalent to R$ 330.7 million). The sale includes the Company’s mill located in Beaumont, Texas and the processing units Beaumont Wire Products and Carrollton Wire Products. The mill has a melt shop with annual capacity of approximately 700,000 tons, and is capable of producing both wire rod and coiled rebar. Although the proceeds are reflected in 1Q18, the deconsolidation effect will be registered as from 2Q18.

 

·      On February 14, 2018, the Company issued a notice on the sale of its two hydropower plants in Goiás for R$ 835 million to Kinross Brasil Mineração, a wholly-owned subsidiary of the mining company Kinross Gold Corporation. The plants Caçu and Barra dos Coqueiros, inaugurated in 2010, have total installed capacity of 155 MW. The transaction is subject to authorization from regulatory agencies and typical settlement conditions.

 

·      Gerdau maintains its strategy of focusing on its more profitable assets and, since 2014, has conducted divestments in the United States, Europe, Latin America and Brazil, with aggregate economic value of R$6 billion. The transactions are aligned with the process to optimize the Company’s asset portfolio with a focus on deleveraging.

 

Free Cash Flow (FCF)

 

·      In 1Q18, free cash flow amounted to R$ 65 million generated by adjusted EBITDA, which was sufficient to honor the CAPEX, income tax and interest commitments, as well as the working capital consumption, reversing a historical standard of seasonality in the period.

 

Free Cash Flow 1Q18

(R$ million)

 

 

6

 

Free cash flow by quarter

(R$ million)

 

 

Business Divisions (BD)

 

The information in this report is divided into four Business Divisions (BD) in accordance with Gerdau’s corporate governance, as follows:

 

·      Brazil BD (Brazil Business Division) — includes the operations in Brazil (except special steel) and the iron ore operation in Brazil;

·      North America BD (North America Business Division) — includes all operations in North America (Canada, United States and Mexico), except special steel, as well as the jointly controlled entity and associate company, both located in Mexico;

·      South America BD (South America Business Division) — includes all operations in South America (Argentina, Chile, Peru, Uruguay and Venezuela), except the operations in Brazil, and the jointly controlled entity in the Dominican Republic and Colombia;

·      Special Steel BD (Special Steel Business Division) — includes the special steel operations in Brazil, United States and India.

 

Net Revenue

 

 

7

 

EBITDA and EBITDA Margin

 

 

Brazil BD

 

Brazil BD		1st Quarter 2018		1st Quarter 2017		Variation 1Q18/1Q17		4th Quarter 2018		Variation 1Q18/4Q17
Volumes (1,000 tonnes)
Production of crude steel		1,532		1,481		3.4	%	1,541		-0.6	%
Shipments of long steel		1,071		990		8.2	%	1,071		0.0	%
Domestic Market		647		625		3.5	%	606		6.8	%
Exports		424		365		16.2	%	465		-8.8	%
Shipments of flat steel		367		285		28.8	%	391		-6.1	%
Domestic Market		349		238		46.6	%	302		15.6	%
Exports		18		47		-61.7	%	89		-79.8	%
Shipments of steel		1,438		1,275		12.8	%	1,462		-1.6	%
Domestic Market		996		863		15.4	%	908		9.7	%
Exports		442		412		7.3	%	554		-20.2	%
Results (R$ million)
Net Sales(1)		3,611		2,784		29.7	%	3,475		3.9	%
Domestic Market		2,794		2,210		26.4	%	2,530		10.4	%
Exports		817		574		42.3	%	945		-13.5	%
Cost of Goods Sold		(2,929	)	(2,485	)	17.9	%	(2,950	)	-0.7	%
Gross profit		682		299		128.1	%	525		29.9	%
Gross margin (%)		18.9	%	10.7	%			15.1	%
EBITDA		751		389		93.1	%	605		24.1	%
EBITDA margin (%)		20.8	%	14.0	%			17.4	%

 

(1) - Includes iron ore net sales.

 

Production and shipments

 

·      Crude steel production and shipments increased in 1Q18 compared to 1Q17, driven by higher demand in the domestic market.  The domestic market expanded in 1Q18, mainly due to stronger shipments to the industrial sector. Meanwhile, shipments to export markets increased due to favorable international prices.

 

·      In relation to 4Q17, shipments declined, due to the reduction in exports. On the other hand, the domestic market expanded, reflecting the stronger demand from the industrial sector.

 

·      In 1Q18, 682,000 tonnes of iron ore were sold to third parties and 1,259,000 tonnes were consumed internally.

 

Operating result

 

·      Net sales increased in 1Q18 compared to 1Q17 and 4Q17, due to the increase in net sales per tonne sold in both the domestic and export markets.

 

·      Cost of goods sold increased in 1Q18 in relation to 1Q17, due to higher raw material costs.

 

8

 

·      Gross margin expanded in 1Q18 in relation to 1Q17 and 4Q17, since the increase in net revenue per tonne sold surpassed the increase in costs.

 

·      EBITDA and EBITDA margin increased in 1Q18 compared to 1Q17 and 4Q17, accompanying the performance of gross profit and gross margin.

 

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

 

 

North America BD

 

North America BD		1st Quarter 2018		1st Quarter 2017		Variation 1Q18/1Q17		4th Quarter 2017		Variation 1Q18/4Q17
Volumes (1,000 tonnes)
Production of crude steel		1,799		1,711		5.1	%	1,643		9.5	%
Shipments of steel		1,689		1,560		8.3	%	1,566		7.9	%
Results (R$ million)
Net Sales		4,428		3,624		22.2	%	3,903		13.5	%
Cost of Goods Sold		(4,188	)	(3,514	)	19.2	%	(3,787	)	10.6	%
Gross profit		240		110		118.2	%	116		106.9	%
Gross margin (%)		5.4	%	3.0	%			3.0	%
EBITDA		248		157		58.0	%	167		48.5	%
EBITDA margin (%)		5.6	%	4.3	%			4.3	%

 

Production and shipments

 

·      Crude steel production and shipments increased in 1Q18 compared to 1Q17 and 4Q17, due to stronger steel demand in all sectors where the Company operates and to the reduction in the high level of exports.

 

9

 

Operating result

 

·      Net sales increased in 1Q18 compared to 1Q17 and 4Q17, reflecting the increases in shipments and in net sales per tonne sold.

 

·      The increase in cost of goods sold in 1Q18 compared to 1Q17 and 4Q17 is explained by higher shipments and by higher raw material costs. The improvement in gross margin is explained by the increase in net sales per tonne sold surpassing the increase in cost per tonne sold.

 

·      EBITDA and EBITDA margin in 1Q18 compared to 1Q17 and 4Q17 accompanied the performances of gross profit and gross margin in the comparison periods.

 

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

 

 

South America BD

 

South America BD		1st Quarter 2018		1st Quarter 2017		Variation 1Q18/1Q17		4th Quarter 2017		Variation 1Q18/4Q17
Volumes (1,000 tonnes)
Production of crude steel		243		303		-19.8	%	253		-4.0	%
Shipments of steel		376		489		-23.1	%	383		-1.8	%
Results (R$ million)
Net Sales		967		1,003		-3.6	%	1,125		-14.0	%
Cost of Goods Sold		(811	)	(901	)	-10.0	%	(972	)	-16.6	%
Gross profit		156		102		52.9	%	153		2.0	%
Gross margin (%)		16.1	%	10.2	%			13.6	%
EBITDA		187		119		57.1	%	175		6.9	%
EBITDA margin (%)		19.3	%	11.9	%			15.6	%

 

Production and shipments

 

·      Production and shipments decreased in 1Q18 compared to 1Q17, mainly due to the deconsolidation of Colombia, as of June 2017. Excluding this effect, shipments increased, due to the higher shipments in Argentina. In relation to 4Q17, production and shipments decreased, mainly due to the lower shipments at the operations in Venezuela.

 

10

 

Operating result

 

·      Net sales and cost of goods sold decreased in 1Q18 compared to 1Q17, mainly due to the deconsolidation of Colombia. In relation to 4Q17, net sales decreased, given the reduction in sales per tonne sold. Cost of goods sold decreased due to the reduction in costs per tonne.

 

·      Gross margin expanded in 1Q18 compared to 1Q17 and 4Q17, since the increase in net sales per tonne sold surpassed the increase in cost per tonne sold.

 

·      EBITDA and EBITDA margin increased in 1Q18 compared to 1Q17 and 4Q17, given the improvement in gross profit and the reduction in selling, general and administrative expenses.

 

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

 

 

Special Steel BD

 

Special Steel BD		1st Quarter 2018		1st Quarter 2017		Variation 1Q18/1Q17		4th Quarter 2017		Variation 1Q18/4Q17
Volumes (1,000 tonnes)
Production of crude steel		591		523		13.0	%	513		15.2	%
Shipments of steel		514		441		16.6	%	498		3.2	%
Results (R$ million)
Net Sales		1,732		1,357		27.6	%	1,608		7.7	%
Cost of Goods Sold		(1,467	)	(1,215	)	20.7	%	(1,362	)	7.7	%
Gross profit		265		142		86.6	%	246		7.7	%
Gross margin (%)		15.3	%	10.5	%			15.3	%
EBITDA		315		193		63.2	%	308		2.3	%
EBITDA margin (%)		18.2	%	14.2	%			19.2	%

 

Production and shipments

 

·      Crude steel production and shipments increased in 1Q18 compared 1Q17, mainly due to the growth in the automotive industry in all countries where Gerdau operates, led by the recovery in Brazil.

 

11

 

Operating result

 

·      Net sales increased in 1Q18 compared to 1Q17 and 4Q17, due to the increases in shipments and in net sales per tonne sold.

 

·      Cost of goods sold increased in 1Q18 in relation to 1Q17, explained mainly by the higher shipments.

 

·      Gross margin expanded in 1Q18 in relation to 1Q17, since the increase in net sales per tonne sold surpassed the increase in costs per tonne sold.

 

·      The increases in EBITDA and EBITDA margin in 1Q18 compared to 1Q17 accompanied the performances of gross profit and gross margin.

 

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

 

 

Highlights

 

·      On April 24, 2018, the Company announced Chia Yuan Wang as the new Chief Executive Officer of the North America Business Division. Wang is succeeding the CEO of Gerdau, Gustavo Werneck, who temporarily accumulated this position during the last three months.

 

THE MANAGEMENT

 

This document contains forward-looking statements. These statements are based on estimates, information or methods that may be incorrect or inaccurate and that may not occur. These estimates are also subject to risks, uncertainties, and assumptions that include, among other factors: general economic, political, and commercial conditions in Brazil and in the markets where we operate, as well as existing and future government regulations. Potential investors are cautioned that these forward-looking statements do not constitute guarantees of future performance, given that they involve risks and uncertainties. Gerdau does not undertake and expressly waives any obligation to update any of these forward-looking statements, which are valid only on the date on which they were made.

 

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GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

 

		March 31, 2018		December 31, 2017
CURRENT ASSETS
Cash and cash equivalents		2,375,447		2,555,338
Short-term investments
Held for Trading		870,691		821,518
Trade accounts receivable - net		3,596,583		2,798,420
Inventories		6,980,484		6,701,404
Tax credits		375,415		402,429
Income and social contribution taxes recoverable		383,226		487,633
Unrealized gains on financial instruments		4,512		—
Assets held for sale		4,555,809		3,745,634
Other current assets		415,361		469,737
		19,557,528		17,982,113
NON-CURRENT ASSETS
Tax credits		27,771		30,841
Deferred income taxes		3,078,630		3,054,393
Related parties		44,992		51,839
Judicial deposits		2,073,208		2,051,181
Other non-current assets		518,414		542,973
Prepaid pension cost		1,149		1,149
Investments in associates and jointly-controlled entities		1,331,444		1,280,299
Goodwill		7,924,269		7,891,142
Other Intangibles		908,724		972,089
Property, plant and equipment, net		15,510,247		16,443,742
		31,418,848		32,319,648
TOTAL ASSETS		50,976,376		50,301,761

 

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GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

 

		March 31, 2018		December 31, 2017
CURRENT LIABILITIES
Trade accounts payable		3,496,330		3,179,954
Short-term debt		2,179,677		2,004,341
Taxes payable		371,779		284,101
Income and social contribution taxes payable		77,988		70,242
Payroll and related liabilities		375,430		443,859
Employee benefits		315		253
Environmental liabilities		22,903		21,928
Unrealized losses on financial instruments		39		—
Liabilities held for sale		1,058,350		1,084,032
Other current liabilities		592,273		625,410
		8,175,084		7,714,120
NON-CURRENT LIABILITIES
Long-term debt		14,495,824		14,457,315
Debentures		43,844		47,928
Related parties		1,303		—
Deferred income taxes		123,772		82,686
Unrealized losses on financial instruments		—		1,267
Provision for tax, civil and labor liabilities		791,082		827,883
Environmental liabilities		62,270		63,263
Employee benefits		1,413,426		1,424,611
Obligations with FIDC		1,159,764		1,135,077
Other non-current liabilities		575,476		653,670
		18,666,761		18,693,700
EQUITY
Capital		19,249,181		19,249,181
Treasury stocks		(193,857	)	(76,085	)
Capital reserves		11,597		11,597
Retained earnings		3,709,745		3,315,374
Operations with non-controlling interests		(2,870,825	)	(2,870,831	)
Other reserves		3,973,498		4,015,965
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT		23,879,339		23,645,201
NON-CONTROLLING INTERESTS		255,192		248,740
EQUITY		24,134,531		23,893,941
TOTAL LIABILITIES AND EQUITY		50,976,376		50,301,761

 

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GERDAU S.A.

CONSOLIDATED STATEMENTS OF INCOME

In thousands of Brazilian reais (R$)

 

		For the three-month periods ended
		March 31, 2018		March 31, 2017		December 31, 2017
NET SALES		10,388,800		8,458,664		9,816,898
Cost of sales		(9,049,700	)	(7,804,777	)	(8,777,352	)
GROSS PROFIT		1,339,100		653,887		1,039,546
Selling expenses		(150,435	)	(138,446	)	(122,335	)
General and administrative expenses		(269,996	)	(301,047	)	(276,090	)
Other operating income		48,857		68,966		33,268
Other operating expenses		(18,257	)	(5,456	)	(75,415	)
Impairment of assets		—		—		(1,114,807	)
Gains and losses on assets held for sale and sales os interest in subsidiaries		(3,497	)	—		(649,204	)
Reversal of contingent liabilities, net		—		929,711		—
Equity in earnings of unconsolidated companies		17,749		(810	)	(2,186	)
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES		963,521		1,206,805		(1,167,223	)
Financial income		31,317		81,827		47,509
Financial expenses		(366,031	)	(463,237	)	(399,569	)
Exchange variations, net		(7,063	)	75,038		(84,359	)
Reversal of monetary update of contingent liabilities, net		—		369,819		—
Gain and losses on financial instruments, net		(787	)	(9,731	)	(1,612	)
INCOME BEFORE TAXES		620,957		1,260,521		(1,605,254	)
Current		(148,175	)	(49,532	)	(116,199	)
Deferred		(24,371	)	(387,445	)	337,872
Income and social contribution taxes		(172,546	)	(436,977	)	221,673
NET INCOME		448,411		823,544		(1,383,581	)
(+) Impairment of assets		—		—		1,114,807
(+) Gains and losses on assets held for sale and sales os interest in subsidiaries		3,497		—		649,204
(-) Reversal of contingent liabilities, net		—		(929,711	)	—
(-) Reversal of monetary update of contingent liabilities, net		—		(369,819	)	—
(+) Income tax on non-recurring items		(813	)	441,840		(117,984	)
		2,684		(857,690	)	1,646,027
ADJUSTED NET INCOME*		451,095		(34,146	)	262,446

 

* Adjusted net income is a non-accounting indicator prepared by the Company, reconciled with the financial statements and consists of net income adjusted by extraordinary events that influenced the net income, without cash effect.

 

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