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 August 9, 2018

 

Commission File Number 1-14878

 

GERDAU S.A.

(Exact Name as Specified in its Charter)

 

N/A

(Translation of Registrant’s Name)

 

Av. das Nações Unidas, 8,501 — 8° andar

São Paulo, São Paulo - Brazil CEP 05425-070

(Address of principal executive offices)

 

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:  August 9, 2018

 

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

 

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EXHIBIT INDEX

 

Exhibit		Description of Exhibit
99.1		Quarterly Results 2Q18, Gerdau S.A. and subsidiaries, August 8, 2018

 

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Exhibit 99.1

 

 

 

Highlights in the Second Quarter of 2018

 

Consolidated Highlights

 

·                  EBITDA of R$ 1,756 million in 2Q18, the best quarterly result since 2008, with EBITDA margin of 14.6%.

 

·                  Discipline on selling, general and administrative expenses in 2Q18, to 3.6% of net sales, the lowest level ever.

 

·                  Financial leverage measured by net debt/adjusted EBITDA ratio stable at 2.7x as of June 30, 2018.

 

·                  Adjusted net income of R$ 746 million in 2Q18, with the distribution of R$ 238 million in dividends.

 

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)

 

* Net of effects from Net Investment Hedge

 

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Consolidated Information

 

Gerdau’s performance in the second 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		2nd Quarter 2018		2nd Quarter 2017		Variation 2Q18/2Q17		1st Quarter 2018		Variation 2Q18/1Q18		1st Half 2018		1st Half 2017		Variation 1H18/1H17
Volumes (1,000 tonnes)
Production of crude steel		3,989		4,090		-2.5	%	4,165		-4.2	%	8,154		8,109		0.6	%
Shipments of steel		3,834		3,707		3.4	%	3,871		-1.0	%	7,705		7,298		5.6	%
Results (R$ million)
Net Sales		12,035		9,166		31.3	%	10,389		15.8	%	22,424		17,625		27.2	%
Cost of Goods Sold		(10,391	)	(8,229	)	26.3	%	(9,050	)	14.8	%	(19,440	)	(16,034	)	21.2	%
Gross profit		1,644		937		75.5	%	1,339		22.8	%	2,984		1,591		87.6	%
Gross margin (%)		13.7	%	10.2	%			12.9	%			13.3	%	9.0	%
SG&A		(431	)	(420	)	2.6	%	(420	)	2.5	%	(851	)	(860	)	-1.0	%
Selling expenses		(158	)	(133	)	18.8	%	(150	)	5.0	%	(308	)	(272	)	13.2	%
General and administrative expenses		(273	)	(287	)	-4.9	%	(270	)	1.1	%	(543	)	(588	)	-7.7	%
Adjusted EBITDA		1,756		1,120		56.8	%	1,484		18.3	%	3,240		1,973		64.2	%
Adjusted EBITDA Margin		14.6	%	12.2	%			14.3	%			14.4	%	11.2	%

 

Production and shipments

 

·      Consolidated crude steel production decreased slightly from 2Q17, due to the truck drivers’ strike in Brazil in May, which was partially mitigated by the higher production of the Special Steel and North America BDs.

 

·      Consolidated shipments increased slightly in 2Q18 compared to 2Q17, due to stronger steel demand, especially at the North America BD.

 

Operating result

 

·      In 2Q18, consolidated net sales increased in relation to 2Q17, due to the higher net sales per tonne at all BDs, influenced primarily by the higher international prices.

 

·      Consolidated cost of goods sold increased compared to both 2Q17 and 1Q18, reflecting higher raw material costs in general.

 

·      Consolidated gross profit increased in relation to 2Q17, supported by the better performance of the Brazil and North America BDs. Meanwhile, gross margin expanded, explained by the increase in net sales per tonne sold, which more than offset the increase in cost per tonne sold.

 

·      Selling, general and administrative expenses fell to their lowest level ever in 2Q18, to 3.6% of net sales, which reflects the ongoing efforts to streamline operations and implement the digital innovation, as well as the higher net sales in the period.

 

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Breakdown of Consolidated EBITDA (R$ million)		2nd Quarter 2018		2nd Quarter 2017		Variation 2Q18/2Q17		1st Quarter 2018		Variation 2Q18/1Q18		1st Half 2018		1st Half 2017		Variation 1H18/1H17
Net income		698		75		830.7	%	448		55.7	%	1,147		899		27.6	%
Net financial result		713		505		41.2	%	343		108.2	%	1,056		451		134.1	%
Provision for income and social contribution taxes		(231	)	(100	)	131.0	%	173		—		(59	)	337		—
Depreciation and amortization		457		526		-13.1	%	453		1.0	%	910		1,054		-13.7	%
EBITDA - Instruction CVM (1)		1,637		1,006		62.7	%	1,416		15.6	%	3,054		2,741		11.4	%
Gains and losses on assets held for sale and sales os interest in subsidiaries		48		72		-33.3	%	3		—		51		72		-29.2	%
Equity in earnings of unconsolidated companies		(24	)	2		—		(16	)	50.0	%	(42	)	3		—
Proportional EBITDA of associated companies and jointly controlled entities		95		40		137.5	%	81		17.3	%	177		87		103.4	%
Reversal of contingent liabilities, net		—		—		—		—		—		—		(930	)	—
Adjusted EBITDA(2)		1,756		1,120		56.8	%	1,484		18.3	%	3,240		1,973		64.2	%
Adjusted EBITDA Margin		14.6	%	12.2	%			14.3	%			14.4	%	11.2	%

 

(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		2nd Quarter		2nd Quarter		1st Quarter		1st Half		1st Half
(R$ million)		2018		2017		2018		2018		2017
EBITDA- Instruction CVM (1)		1,637		1,006		1,416		3,054		2,741
Depreciation and amortization		(457	)	(526	)	(453	)	(910	)	(1,054	)
OPERATING INCOME BEFORE FINANCIAL RESULT AND TAXES(2)		1,180		480		964		2,144		1,687

 

(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 increased in 2Q18 compared to 2Q17, supported by the better performance of all Business Divisions, led by the Brazil and North America BDs, representing the best quarterly result since 2008.

 

 

Financial result and net income

 

Consolidated (R$ million)		2nd Quarter 2018		2nd Quarter 2017		Variation 2Q18/2Q17		1st Quarter 2018		Variation 2Q18/1Q18		1st Half 2018		1st Half 2017		Variation 1H18/1H17
Income before financial income expenses and taxes(1)		1,180		480		145.8	%	964		22.4	%	2,144		1,687		27.1	%
Financial Result		(713	)	(505	)	41.2	%	(343	)	108.2	%	(1,056	)	(451	)	134.1	%
Financial income		34		44		-22.7	%	31		8.6	%	65		126		-48.4	%
Financial expenses		(387	)	(454	)	-14.8	%	(366	)	5.7	%	(753	)	(917	)	-17.9	%
Exchange variation, net (including net investment hedge)		(388	)	(96	)	304.2	%	(7	)	—		(395	)	(21	)	—
Reversal of monetary update of contingent liabilities, net		—		—		—		—		—		—		370		—
Gains (losses) on financial instruments, net		28		1		—		(1	)	—		27		(9	)	—
Income before taxes(1)		467		(25	)	—		621		-24.8	%	1,088		1,236		-12.0	%
Income and social contribution taxes		231		100		131.0	%	(173	)	—		59		(337	)	—
Exchange variation (including net investment hedge)		374		107		249.5	%	12		—		386		35		1002.9	%
Other lines		(143	)	(7	)	—		(186	)	-23.1	%	(328	)	70		—
IR/CS extraordinary items		—		—		—		1		—		1		(442	)	—
Consolidated Net Income (1)		698		75		830.7	%	448		55.7	%	1,147		899		27.6	%
Non-recurring items		48		72		-33.3	%	3		—		51		(786	)	(1	)
Gains and losses on assets held for sale and sales os interest in subsidiaries		48		72		-33.3	%	3		—		51		72		-29.2	%
Reversal of contingent liabilities, net		—		—		—		—		—		—		(858	)	—
Consolidated Adjusted Net Income (2)		746		147		407.5	%	451		65.3	%	1,198		113		960.2	%

 

(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 2Q18 compared to 2Q17, the variation in the financial result was basically due to the effects from exchange variation on liabilities contracted in U.S. dollar (depreciation in the end-of-period price of the Brazilian real against the U.S. dollar of 16.0% in 2Q18, depreciation of 4.4% in 2Q17 and depreciation of 0.5% in 1Q18).

 

·      Financial expenses decreased in 2Q18 compared to 2Q17, due to the Company’s efforts to reduce its gross debt.

 

·      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

 

3

 

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 - Exchange variation including net investment hedge.”

 

·      The higher adjusted net income in 2Q18 compared to 2Q17 was mainly due to the improvement in adjusted EBITDA.

 

Dividends

 

·      Gerdau S.A. approved the payment of dividends in the form of interest on equity in the amount of R$ 238.3 million (R$ 0.14 per share) in 2Q18, distributed as an advance of the minimum mandatory dividend stipulated in the Bylaws.

 

Payment date: August 31, 2018

Record date: shareholding position on August 21, 2018

Ex-dividend date: August 22, 2018

 

Working capital and Cash conversion cycle

 

·      In June 2018, the cash conversion cycle (working capital divided by daily net sales in the quarter) decreased in relation to March 2018, reflecting the 15.8% increase in net sales, which outpaced the increase in working capital.

 

·      In 2Q18 was a natural impact of cash consumption for the recovery of working capital, due to best business environment, with a positive reversal of working capital in terms of cycle days, from 77 days in 2Q17 to 72 in 2Q18.

 

·      In the working capital as of December 2017 to June 2018, assets and liabilities arising from the divestment of certain operations in North America and Chile were excluded from the lines “Trade receivables,” “Inventories” and “Trade accounts payable” and reported in the lines “Asset held for sale” and “Liability held for sale” and in the Company’s financial statements, in accordance with IFRS.

 

·      Meanwhile, for the calculation of the cash conversion cycle as of December 2017 to June 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 divestment of said assets.

 

 

Financial liabilities

 

Debt composition (R$ million)		06.30.2018		03.31.2018		06.30.2018
Short Term		2,317		2,180		4,186
Long Term		15,798		14,539		15,778
Gross Debt		18,115		16,719		19,964
Cash, cash equivalents and short-term investments		2,941		3,246		5,430
Net Debt		15,174		13,473		14,534

 

·      On June 30, 2018, gross debt matured 12.8% in the short term and 87.2% in the long term, and was denominated 14.2% in Brazilian real, 83.7% in U.S. dollar and 2.1% in other currencies.

 

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·      On June 30, 2018, 70.3% of the cash balance was held by Gerdau companies abroad and denominated mainly in U.S. dollar.

 

·      On June 30, 2018, the nominal weighted average cost of gross debt was 6.4%, 6.6% 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 8.0% for the portion contracted by subsidiaries abroad. On June 30, 2018, the average gross debt term was 6.6 years.

 

·      On June 30, 2018, the payment schedule for long-term gross debt was as follows:

 

Long Term		R$ million
2019		345
2020		3,418
2021		1,983
2022		123
2023		2,129
2024		3,563
2025 and after		4,237
Total		15,798

 

·      The key debt indicators are shown below:

 

Indicators		06.30.2018		03.31.2017		06.30.2017
Gross debt / Total capitalization (1)		41	%	41	%	44	%
Net debt(2) (R$) / EBITDA (3) (R$)		2.7	x	2.7	x	3.6	x

 

(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 2Q18, CAPEX amounted to R$ 299 million. Of the amount invested in the quarter, 49.3% was allocated to the Brazil BD, 35.9% to the North America BD, 11.4% to the Special Steel BD and 3.4% to the South America BD. In the first six months of 2018, CAPEX amounted to R$ 516 million.

 

·      CAPEX projected for 2018 is R$ 1.2 billion, to be allocated primarily to productivity gains and maintenance.

 

Divestments

 

·      On June 29, 2018, Gerdau concluded the sale of 100% of the shares in Aza Participações SpA and its subsidiaries, Gerdau AZA SA; Aceros Cox SA; Armacero - Matco SA; and Salomon Sack S.A. by Gerdau Chile Inversiones Limitada, an indirect subsidiary of Gerdau SA, to the Chilean investment group formed by Ingeniería e Inversiones Limitada; Inversiones Reyosan SpA; Los Andes S.A. de Inversiones, and Matco Cables SpA. The sale includes three productions plants with annual installed production capacity of 520,000 tonnes of recycled long steel and the associated distribution network in Chile. The economic value of the transaction is US$ 134 million (equivalent to R$ 594 million).

 

·      On July 31, 2018, Gerdau concluded the sale of its two hydroelectric power plants based in Goias state, in Brazil, for R$ 835 million, to Kinross Brasil Mineração, a wholly-owned subsidiary of the Canadian mining company Kinross Gold Corporation. The hydroelectric power plants Caçu and Barra dos Coqueiros, that started operations in 2010, have total capacity of 155 MW.

 

·      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 2Q18, free cash flow amounted to R$ 86 million generated by adjusted EBITDA, which was sufficient to cover CAPEX investments, income tax and interest obligations, as well as working capital consumption.

 

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Free Cash Flow 2Q18

(R$ million)

 

 

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.

 

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Net Sales

 

 

EBITDA & EBITDA Margin

 

 

7

 

Brazil BD

 

Brazil BD		2nd Quarter 2018		2nd Quarter 2017		Variation 2Q18/2Q17		1st Quarter 2018		Variation 2Q18/1Q18		1st Half 2018		1st Half 2017		Variation 2018/2017
Volumes (1,000 tonnes)
Production of crude steel		1,381		1,545		-10.6	%	1,532		-9.9	%	2,913		3,025		-3.7	%
Shipments of long steel		1,025		1,074		-4.6	%	1,071		-4.3	%	2,098		2,064		1.6	%
Domestic Market		692		642		7.8	%	647		7.0	%	1,340		1,267		5.8	%
Exports		333		432		-22.9	%	424		-21.5	%	758		797		-4.9	%
Shipments of flat steel		339		307		10.4	%	367		-7.6	%	705		594		18.7	%
Domestic Market		290		229		26.6	%	349		-16.9	%	639		468		36.5	%
Exports		49		78		-37.2	%	18		172.2	%	66		126		-47.6	%
Shipments of steel		1,364		1,381		-1.2	%	1,438		-5.1	%	2,803		2,658		5.5	%
Domestic Market		982		871		12.7	%	996		-1.4	%	1,979		1,735		14.1	%
Exports		382		510		-25.1	%	442		-13.6	%	824		923		-10.7	%
Results (R$ million)
Net Sales(1)		3,798		3,060		24.1	%	3,611		5.2	%	7,409		5,844		26.8	%
Domestic Market		2,931		2,295		27.7	%	2,794		4.9	%	5,725		4,504		27.1	%
Exports		867		765		13.3	%	817		6.1	%	1,684		1,340		25.7	%
Cost of Goods Sold		(3,138	)	(2,684	)	16.9	%	(2,929	)	7.1	%	(6,068	)	(5,168	)	17.4	%
Gross profit		660		376		75.5	%	682		-3.2	%	1,341		676		98.4	%
Gross margin (%)		17.4	%	12.3	%			18.9	%			18.1	%	11.6	%
EBITDA		743		473		57.1	%	751		-1.1	%	1,493		862		73.2	%
EBITDA margin (%)		19.6	%	15.5	%			20.8	%			20.2	%	14.8	%

 

(1) - Includes iron ore net sales.

 

Production and shipments

 

·      In 2Q18, crude steel production decreased in relation to 2Q17 and 1Q18, due to the truck drivers’ strike in Brazil in May and the planned maintenance of Blast Furnace 2 in Ouro Branco, MG.

 

·      Shipments fell slightly compared to 2Q17 due to lower exports, affected by the planned maintenance of Blast Furnace 2 in Ouro Branco, MG, which was offset by stronger domestic demand. The domestic market expanded in 2Q18, mainly due to higher shipments to the industrial sector and, to a lesser extent, to sales to the construction retailing sector.

 

·      In relation to 1Q18, shipments decreased, mainly due to lower exports, which were affected by lower production in the period.

 

·      In 2Q18, 720,000 tonnes of iron ore were sold to third parties and 1,082,000 tonnes were consumed internally.

 

Operating result

 

·      Net sales increased in 2Q18 compared to 2Q17 and 1Q18, due to the increase in net sales per tonne sold in both the domestic and export markets.

 

·      Cost of goods sold increased in 2Q18 in relation to 2Q17 and 1Q18, due to higher raw material costs and to the costs with stoppages in May, reflecting the truck drivers’ strike and the planned maintenance of Blast Furnace 2 in Ouro Branco, MG.

 

·      Gross margin expanded in 2Q18 in relation to 2Q17, since the increase in net sales per tonne sold outpaced the increase in costs.

 

·      EBITDA and EBITDA margin increased in 2Q18 compared to 2Q17, accompanying the performance of gross profit and gross margin.

 

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

 

 

North America BD

 

North America BD		2nd Quarter 2018		2nd Quarter 2017		Variation 2Q18/2Q17		1st Quarter 2018		Variation 2Q18/1Q18		1st Half 2018		1st Half 2017		Variation 2018/2017
Volumes (1,000 tonnes)
Production of crude steel		1,755		1,700		3.2	%	1,799		-2.4	%	3,554		3,412		4.2	%
Shipments of steel		1,665		1,563		6.5	%	1,689		-1.4	%	3,355		3,123		7.4	%
Results (R$ million)
Net Sales		5,411		3,903		38.6	%	4,428		22.2	%	9,839		7,527		30.7	%
Cost of Goods Sold		(4,907	)	(3,712	)	32.2	%	(4,188	)	17.2	%	(9,095	)	(7,226	)	25.9	%
Gross profit		504		191		163.9	%	240		110.0	%	744		301		147.2	%
Gross margin (%)		9.3	%	4.9	%			5.4	%			7.6	%	4.0	%
EBITDA		497		234		112.4	%	248		100.4	%	745		391		90.5	%
EBITDA margin (%)		9.2	%	6.0	%			5.6	%			7.6	%	5.2	%

 

Production and shipments

 

·      Crude steel production and shipments increased in 2Q18 compared to 2Q17, due to stronger steel demand in all sectors in which the Company operates, combined with the reduction in the high level of imports, which was accelerated by Tax Reform and by Section 232, among other measures by the U.S. government.

 

·      Compared to 1Q18, crude steel production and shipments decreased slightly due to the deconsolidation of the wire rod operations in the United States as of April 2018. Excluding this effect, shipments would have increased.

 

Operating result

 

·      Net sales increased in 2Q18 compared to 2Q17 and, due to the higher net sales per tonne sold and higher shipment volumes.

 

·      The increase in cost of goods sold in 2Q18 compared to 2Q17 and 1Q18 was mainly due to higher scrap 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.

 

·      The growth in EBITDA and EBITDA margin in 2Q18 in relation to 2Q17 and 1Q18 accompanied the performance of gross profit and gross margin in the same comparison periods, except for the effects from exchange variation on operating expenses.

 

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·      Note that in 2Q18, the North America BD posted its highest quarterly EBITDA since 2008.

 

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

 

 

South America BD

 

South America BD		2nd Quarter 2018		2nd Quarter 2017		Variation 2Q18/2Q17		1st Quarter 2018		Variation 2Q18/1Q18		1st Half 2018		1st Half 2017		Variation 2018/2017
Volumes (1,000 tonnes)
Production of crude steel		216		279		-22.6	%	243		-11.1	%	459		582		-21.1	%
Shipments of steel		386		441		-12.5	%	376		2.7	%	761		930		-18.2	%
Results (R$ million)
Net Sales		1,108		968		14.5	%	967		14.6	%	2,075		1,971		5.3	%
Cost of Goods Sold		(957	)	(849	)	12.7	%	(811	)	18.0	%	(1,767	)	(1,751	)	0.9	%
Gross profit		151		119		26.9	%	156		-3.2	%	308		220		40.0	%
Gross margin (%)		13.6	%	12.3	%			16.1	%			14.8	%	11.2	%
EBITDA		179		126		42.1	%	187		-4.3	%	366		245		49.4	%
EBITDA margin (%)		16.2	%	13.0	%			19.3	%			17.6	%	12.4	%

 

Production and shipments

 

·      Production and shipments decreased in 2Q18 compared to 2Q17, mainly due to the deconsolidation of Colombia, as of June 2017. Excluding this effect, shipments increased, due to the higher shipments in Argentina.

 

Operating result

 

·      Net sales and cost of goods sold increased in 2Q18 compared to 2Q17 and 1Q18, due to the higher international prices for steel and the higher costs with raw materials, respectively.

 

·      Gross margin expanded in 2Q18 compared to 2Q17, since the increase in net sales per tonne sold outpaced the increase in cost per tonne sold. Compared to 1Q18, gross margin contracted, affected by the performance of the Chile and Peru operations.

 

·      EBITDA and EBITDA margin increased in 2Q18 compared to 2Q17, given the improvement in gross profit and the reduction in selling, general and administrative expenses.

 

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

 

 

Special Steel BD

 

Special Steel BD		2nd Quarter 2018		2nd Quarter 2017		Variation 2Q18/2Q17		1st Quarter 2018		Variation 2Q18/1Q18		1st Half 2018		1st Half 2017		Variation 2018/2017
Volumes (1,000 tonnes)
Production of crude steel		637		566		12.5	%	591		7.8	%	1,228		1,089		12.8	%
Shipments of steel		569		512		11.1	%	514		10.7	%	1,083		953		13.6	%
Results (R$ million)
Net Sales		2,133		1,616		32.0	%	1,732		23.2	%	3,865		2,972		30.0	%
Cost of Goods Sold		(1,807	)	(1,364	)	32.5	%	(1,467	)	23.2	%	(3,274	)	(2,579	)	26.9	%
Gross profit		326		252		29.4	%	265		23.0	%	591		393		50.4	%
Gross margin (%)		15.3	%	15.6	%			15.3	%			15.3	%	13.2	%
EBITDA		386		297		30.0	%	315		22.5	%	700		490		42.9	%
EBITDA margin (%)		18.1	%	18.4	%			18.2	%			18.1	%	16.5	%

 

Production and shipments

 

·      Crude steel production and shipments increased in 2Q18 compared to both 2Q17 and 1Q18, mainly due to the improvement in the automotive industry in Brazil and to the improvement in the oil and gas industry in the United States.

 

Operating result

 

·      Net sales increased in 2Q18 compared to 2Q17 and 1Q18, due to the increases in shipments and in net sales per tonne sold.

 

·      Cost of goods sold increased compared to both 2Q17 and 1Q18, pressured by the growth in shipments and higher scrap costs.

 

·      EBITDA in 2Q18 compared to 2Q17 and 1Q18, increased supported by the better performance of the Brazil and North America. EBITDA margin in 2Q18 compared to 2Q17 and 1Q18, was stable, demonstrating the operation’s capacity to maintain its profitability.

 

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

 

 

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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.

 

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

 

		June 30, 2018		December 31, 2017
CURRENT ASSETS
Cash and cash equivalents		2,637,691		2,555,338
Short-term investments
Held for Trading		303,724		821,518
Trade accounts receivable - net		4,100,884		2,798,420
Inventories		8,479,855		6,701,404
Tax credits		432,872		402,429
Income and social contribution taxes recoverable		427,302		487,633
Unrealized gains on financial instruments		32,790		—
Assets held for sale		3,776,058		3,745,634
Other current assets		462,644		469,737
		20,653,820		17,982,113
NON-CURRENT ASSETS
Tax credits		34,443		30,841
Deferred income taxes		3,511,040		3,054,393
Unrealized gains on financial instruments		11,925		—
Related parties		42,690		51,839
Judicial deposits		2,052,541		2,051,181
Other non-current assets		595,470		542,973
Prepaid pension cost		1,149		1,149
Investments in associates and jointly-controlled entities		1,454,877		1,280,299
Goodwill		9,122,664		7,891,142
Other Intangibles		945,626		972,089
Property, plant and equipment, net		16,036,880		16,443,742
		33,809,305		32,319,648
TOTAL ASSETS		54,463,125		50,301,761

 

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GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

 

		June 30, 2018		December 31, 2017
CURRENT LIABILITIES
Trade accounts payable		4,204,057		3,179,954
Short-term debt		2,317,053		2,004,341
Taxes payable		395,717		284,101
Income and social contribution taxes payable		132,257		70,242
Payroll and related liabilities		509,016		443,859
Employee benefits		200		253
Environmental liabilities		29,665		21,928
Unrealized losses on financial instruments		6,731		—
Liabilities held for sale		552,880		1,084,032
Other current liabilities		593,272		625,410
		8,740,848		7,714,120
NON-CURRENT LIABILITIES
Long-term debt		15,758,721		14,457,315
Debentures		39,579		47,928
Related parties		1,344		—
Deferred income taxes		155,660		82,686
Unrealized losses on financial instruments		—		1,267
Provision for tax, civil and labor liabilities		787,117		827,883
Environmental liabilities		64,206		63,263
Employee benefits		1,577,487		1,424,611
Obligations with FIDC		1,183,496		1,135,077
Other non-current liabilities		476,461		653,670
		20,044,071		18,693,700
EQUITY
Capital		19,249,181		19,249,181
Treasury stocks		(191,698	)	(76,085	)
Capital reserves		11,597		11,597
Retained earnings		4,268,182		3,315,374
Operations with non-controlling interests		(2,870,825	)	(2,870,831	)
Other reserves		4,920,630		4,015,965
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT		25,387,067		23,645,201
NON-CONTROLLING INTERESTS		291,139		248,740
EQUITY		25,678,206		23,893,941
TOTAL LIABILITIES AND EQUITY		54,463,125		50,301,761

 

13