MESSAGE FROM THE CHAIRMAN OF THE BOARD - Gerdau

ANNUAL REPORT GERDAU 2011 7of Courtice Steel located in the province of Ontario(Canada) in 1989. Over the following years, theexpansion of business abroad resulted in entering intodifferent countries, located in the Americas, Europeand Asia. With this the Company reached in 2011 theposition of 10th largest steel producer in the worldaccording to studies by the World Steel Association.Watch the video of the 110 years celebration onGerdau’s website (www.gerdau.com.br/110years.html).RENEWED BRANDAs part of the celebrations, Gerdau established a singleglobal brand positioning and updated the design of itslogo, which has undergone a subtle revitalization, andit has become lighter and more modern. The purposeof its new “One brand, One logo” positioning is tostrengthen its brand globally. With this, there was asimplification of the brands in Brazil and the long steeland special steels operations located in North America,up until then called Gerdau Ameristeel and GerdauMacsteel, began to be called Gerdau. Descriptors weredeveloped to differentiate the two business operationsin North America, and the descriptor for the long steeloperations, previously called Gerdau Ameristeel, beganto be called Gerdau Long Steel North America. GerdauSpecial Steel North America is the descriptor of thecompany’s special steel operations in the United Statesformerly known as Gerdau Macsteel.Gerdau’s logo has undergone five changes during its110 year history. The first graphical representation ofGerdau’s brand was a stamp with a picture of a nail,which was widely used in promotional materials inthe 40s, 50s, and 60s. Then in 1970, Gerdau’s firstinstitutional logo was created in which the two letterGs represented the Company’s spirit of cohesion anddesire to grow. This version of the logo underwent aminor change in 1976 and, in the 1980s, the Companyagain changed its logo, which it had been using untilearly 2011.GERDAU CORPORATE CULTURE AND ETHICSIn order to strengthen its corporate culture, Gerdaurevised and updated its Vision, Mission, and Valuesat a global level. The completion of this work was madebased on interviews with members of the Board ofDirectors, Gerdau’s Executive Committee, and with thecompany’s main leaders. Moreover, another thousandleaders located in all operations of Gerdau around theworld were involved through an online questionnaire,which established an even greater participatoryprocess. With these inputs, it was also possible todevelop a book with stories about the experiences thatemployees had in their daily work routines that reflecteach one of the Company’s Values. This book entitled“Our culture unites us – lessons from our history” will bedistributed to all of Gerdau’s operations in 2012.In addition, the Company launched its new Codeof Ethics and promoted the training of more than45,000 employees in the countries where it operates.The new code reinforces Gerdau’s commitments andexpected behavior with regard to each of the values,thus becoming an important instrument for maintainingthese concepts and the Company’s longevity.At Gerdau, employees can send or register theirquestions and concerns related to ethics by theEthics Channel that is available on the intranet orby an internal extension. All inquiries are treatedconfidentially. The new Code of Ethics is public andcan be found on Gerdau’s website (www.gerdau.com.br/sobre-gerdau/governanca-corporativa-diretriz-etica.aspx). The Company also offers channels that seek toencourage the free expression of opinions, attitudes,and concerns of all stakeholders through which it hasrelationships by means of its website (www.gerdau/institucional/contatos.aspx).

8ANNUAL REPORT GERDAU 2011CORPORATEGOVERNANCEscope of business and operations. It is also up to theBoard of Directors to appoint members of the GerdauExecutive Committee (CEG).Century-old values and a solidmanagement structure are thebasis of Gerdau’s actionsGerdau follows international standards ofcorporate governance and in all its operationsuses the most modern management tools. Thismakes it possible to reach increasing levels ofexcellence and at the same time have the flexibilityand agility to adapt to the fluctuations in the marketsit operates. With 110 years of history, the Companyguides its conduct by century-old values and strictethical principles, fundamental to a relationship oftransparency with its stakeholders and to continueits path of sustainable development.It has three publicly listed companies – GerdauS.A., Metalúrgica Gerdau S.A., and EmpresaSiderúrgica Del Perú S.A.A. (Siderperu). Theshares of Metalúrgica Gerdau S.A. are traded onBM&FBOVESPA (São Paulo) and those of Siderperuon the Lima Stock Exchange. Gerdau S.A., in turn, istraded in São Paulo, Madrid and New York. In orderto be able to trade its shares in the United States,Gerdau S.A. has to meet the requirements of theSarbanes-Oxley (SOx) Act, which establishes goodcorporate governance practices as well as a strictcontrol over internal processes.GOVERNANCE STRUCTUREThe long-term strategies of Gerdau S.A. are set bythe Board of Directors, which is the body that monitorsthe implementation of the policies established by itand makes decisions about themes relevant to theThe Board of Directors of Gerdau S.A. is composedof nine members including outside members, whichhold between eight and ten meetings a year. TheBoard of Directors of Metalúrgica Gerdau S.A., in turn,consists of eleven members and nine of them are alsopart of the Board of Directors of Gerdau S.A. In bothcompanies the term of office of each of its members isone year with the possibility of reelection.The members of the Board of Directors andof the Audit Committee are elected annuallyat the Ordinary General Meeting (OGM).The responsibilities of the Board of Directorsinclude deciding on the accounts submitted bythe administrators, as well as for analyzing,discussing, and voting on the financial statements,the allocation of net income, and the dividenddistribution policy, among other items.Metalúrgica Gerdau S.A. and Gerdau S.A. haveaudit committees responsible for monitoring andinspecting the actions of the board members. Inaddition, these bodies issue opinions and provideadvice on the Board of Directors’ report and thefinancial statements.Gerdau’s corporate management is theresponsibility of the Board of Directors and theGerdau Executive Committee (CEG) coordinatesand oversees the Business Divisions and FunctionalProcesses. Composed of a CEO, a COO, and fiveExecutive Vice Presidents, the CEG carries out thepolicies determined by the Board of Directors. Todo so, it has the support of committees establishedaccording to criteria of expertise.

ANNUAL REPORT GERDAU 2011 9INDEPENDENT AUDITThe financial statements of Gerdau’s publicly tradedcompanies regularly undergo an external audit. TheCompany, in accordance with CVM Instruction No.381/2003, informs that its service provider in thisarea did not perform services not related to externalauditing during the year 2011. Gerdau’s policy forthe contracting of eventual services not relatedto external auditing by the independent auditor isbased on the principles that preserve the auditor’sindependence.CORPORATE GOVERNANCE STRUCTUREShareholders’MeetingBoard ofAuditorsBoard ofDirectorsCorporate GovernanceCommittee, StrategyCommittee and Compensationand Succession CommitteeSupportCommitteesGerdau Officersand ExecutiveCommitteeMacroprocessesBusinessOperationsBrazilSpecialSteelNorthAmericaLatinAmericaRead more about the Gerdau governance structure atwww.gerdau.com.br/investidores/governanca-corporativa.aspx

10ANNUAL REPORT GERDAU 2011SUMMARIZED CORPORATE STRUCTUREMetalúrgicaGerdau S.A.40.6%Gerdau S.A.94.2%86.7%94.0%94.0%95.9%95.6%GerdauAmérica LatinaParticipaçõesS.A.EmpresaSiderúrgicadel Perú S.A.A.PeruGerdauAçominas S.A.BrazilGerdau AçosLongos S.A.BrazilGerdau AçosEspeciais S.A.GerdauComercialde Aços S.A.Brazil9.7% 63.4%100.0%GerdauInternacionalEmpreendimentosLtda.26.9%CorporaciónSidenor, S.A.Spain80.6% KalyaniGerdau Steel Ltd.India49.0% 99.9%100.0%100.0%IndústriasNacionalesC. por A.Dominican Rep.SiparAceros S.A.ArgentinaGerdauMacsteel Inc.USASidenorIndustrial, S.A.Spain99.2%Diaco S.A.Colombia100.0%GerdauLaisa S.A.Uruguay93.3%6.7% GerdauAmeristeel Corp.USA100.0%SiderúrgicaZuliana, C.A.Venezuela100.0%GerdauAza S.A.Chile50.0%GallatinSteel Inc.USA49.0%CorsaControladoraS.A. de CVMexico100.0%SiderúrgicaTultitlán S.A.de CVMexico30.0%CorporaciónCentroamericanadel Acero, S.A.GuatemalaDirect and indirect shareholdings on total share capitalDecember 2011

ANNUAL REPORT GERDAU 2011 11GERDAU S.A. BOARD OF DIRECTORSJorge Gerdau JohannpeterChairmanGermano H. GerdauJohannpeterVice ChairmanKlaus Gerdau JohannpeterVice ChairmanFrederico C. GerdauJohannpeterVice ChairmanAndré B. GerdauJohannpeterBoard MemberClaudio GerdauJohannpeterBoard MemberAffonso Celso PastoreBoard MemberAlfredo HuallemBoard MemberOscar de PaulaBernardes NetoBoard Member

12ANNUAL REPORT GERDAU 2011GERDAU EXECUTIVE COMMITTEE (CEG)1 - André B. Gerdau JohannpeterChief Executive Officer (CEO) and President of the Gerdau Executive Committee (CEG)2 - Claudio Gerdau JohannpeterChief Operating Officer (COO)3 - Expedito LuzExecutive Vice President of Legal Affairs and Compliance4 - Manoel Vitor de Mendonça FilhoExecutive Vice President, Brazil Business Operation - Açominas and Long Steel Brazil5 - Ricardo Giuzeppe MascheroniExecutive Vice President, North America and Latin America Business Operation - North6 - Osvaldo Burgos SchirmerExecutive Vice President, Finance, Auditing, and Investor Relations7 - Francisco Deppermann FortesExecutive Vice President of Human Resources,Management, and Organizational Development5 4 2 1 6 7 3

ANNUAL REPORT GERDAU 2011 13CORPORATE MANAGEMENT*CORPORATE MANAGEMENTAndré Araujo Hofmeister | Director, Planning and Business DevelopmentAntonio José Bacelar Teixeira | Director, LogisticsAntônio Marques de Almeida | Director, Brazil Shared ServicesDenise Casagrande da Rocha | Director, Personnel DevelopmentDirceu Tarcisio Togni | Director, Industry and EngineeringEnio Viterbo Junior | Director, Health, Safety and EnvironmentFernando Jimenez Boldrini | Director, Gerdau Shared ServicesFladimir Batista Lopes Gauto | Director, ProcurementGeraldo Toffanello | Director, AccountingGlen Anderson Beeby | Director, Information TechnologyHarley Lorentz Scardoelli | Director, FinanceHildo Alberto Baldasso | Director, Technical EngineeringJosé Paulo Soares Martins | Director, Gerdau InstituteMarcos Eduardo Faraco Wahrhaftig | Director, Gerdau Template ProjectPaulo Perlott Ramos | Director, Marketing, Sales and MetallicsPaulo Augusto de Lima Torres | Director, Operational PlanningRenato Gasparetto Jr. | Director, Corporate Communications and Public AffairsBUSINESS DIVISIONS MANAGEMENTBRAZILHeitor L. Beninca Bergamini | Executive Director - Long Steel BrazilRodrigo Belloc Soares | Executive Director - Gerdau AçominasMarcus Rocha Duarte | Director, Solid Fuels of Brazil Business OperationPaulo José Barros Rabelo | Director, Iron Ore of Brazil Business OperationAloysio Antonio P. de Carvalho | Director, Planning & Management Technology - Gerdau AçominasAntônio Pinto Segreto | Industrial Director - Gerdau AçominasCarmine Sarao Neto | Director, Human Resources - Gerdau AçominasDaniel Antonio M. de Mesquita | Engineering Director - Gerdau AçominasFernando José Dutra Parreira | Executive Director, Southern Brazil Business Operation - Long Steel BrazilJosé Carlos de Matos Silva | Sales Director - Gerdau AçominasJosé Eustaquio de Lima | Executive Director, Comercial Gerdau - Long Steel BrazilJosé Falcão Filho | Director, Metallics - Long Steel BrazilJosé Walnei G. de Almeida | Director, Direct Sales - Long Steel BrazilLuciana Domagala | Director, Human Resources - Long Steel Brazil & Special Steel BrazilLuiz Augusto Polacchini | Director, Logistics of Brazil Business OperationMarcelo Costa Nasser | Executive Director, Fabricated Reinforcing Steel Facilities - Long Steel BrazilMario Sant’Anna Junior | Executive Director, Brazil Forestry Operation - Long Steel BrazilNestor Mundstock | Executive Director, Cosigua mill - Long Steel BrazilPaulo Ricardo Tomazelli | Commercial Director - Long Steel Brazil* Updated in February, 2012

14ANNUAL REPORT GERDAU 2011CORPORATE MANAGEMENT*SPECIAL STEELMark Anthony Marcucci | Executive Director, Special Steel Business DivisionAndré Beaudry | Executive Director, Business Development (India)A.S. Mathur | Executive Director, Kalyani Gerdau (India)T. Mohan Babu | Chief Operating Officer, Kalyani Gerdau (India)Roberto de Barros Bezerra | Industrial Director, Kalyani Gerdau (India)Cesar Arroyo Garcia | Director, Human Resources, Gerdau Sidenor (Spain)Francisco Javier F. Retana | Industrial Director, Gerdau Sidenor (Spain)Gregorio Iparraguirre Campos | Commercial Director, Gerdau Sidenor (Spain)Hermenio Pinto Gonçalves | Industrial Director, Special Steel BrazilJoaquim Guilherme Bauer | Executive Director, Special Steel BrazilJack Finlayson | President, Gerdau Special Steel North America (USA)John Kelleher | Vice President, Operations Gerdau Special Steel North America (USA)José Jainaga Gomez | General Director, Gerdau Sidenor (Spain)Ricardo Sendim Fioramonte | Commercial Director, Special Steel BrazilRobert Jeffrey Karmol | Controller, Gerdau Special Steel North America (USA)Rodrigo Ferreira de Souza | Financial Director, Gerdau Sidenor (Spain)Richard Mark Szink | Director, Sales & Marketing, Gerdau Special Steel North America (USA)LATIN AMERICAAndré Felipe Gueiros Reinaux | Executive Director, Latin America - NorthHermann Von Mühlenbrock Soto | Executive Director, Latin America - SouthRenato Silva Bernardes | Executive Director, Gerdau MexicoCarlos Hamilton de O. Pimenta | Executive Director, Diaco (Colombia)José Padilla Bello | Executive Director, Sizuca (Venezuela)José Pedro Sintas | Executive Director, Gerdau Laisa (Uruguay)Luís Daniel Pécora Nova | Executive Director, Sipar Gerdau (Argentina)Samuel Nanes Venguer | Administrative, Financial and Institutional Relations Director, Gerdau MexicoNORTH AMERICAGuilherme Gerdau Johannpeter | President, Gerdau Long Steel North AmericaAndré Pires de Oliveira Dias | Vice President of Finance, Gerdau Long Steel North AmericaCarl Czarnik | Vice President of Human Resources, Gerdau Long Steel North AmericaJames Kerkvliet | Vice President of Sales and Marketing, Gerdau Long Steel North AmericaMatthew C. Yeatman | Vice President of Metallics Raw Materials, Gerdau Long Steel North AmericaPeter Campo | Vice President of Downstream Operations, Gerdau Long Steel North AmericaWang Chia Yuan | Vice President of Mill Operations, Gerdau Long Steel North America* Updated in February, 2012

ANNUAL REPORT GERDAU 2011 15RISK MANAGEMENTStrict internal control ofprocesses ensures appropriaterisk managementGerdau monitors in a structured manner all the possiblerisks of its business and its operations. This is doneusing a rigorous risk management system that iscontinually improved, which contributes to efficientmanagement and generation of sustainable value forshareholders.MANAGING OPERATIONAL RISKSGerdau’s internal audit is responsible for mappingoperational risks and respective internal controls ofthe processes. Operational risks arise from failures,deficiencies, or inadequacy of internal processes,people, or technology environments. These riskscan be related to the industrial process or to themanagement of the Company’s different areas,including the supply of raw materials and inputs,marketing & sales, information technology, logistics,and personnel management.These risks are assessed annually from the resultsof the audit work and Sarbanes-Oxley Certificationtests, as well as interviews with senior managementand information received from the managers of theprocesses. Based on this data, the Audit Plan iscarried out for the following year, which involvesidentifying gaps in the processes as well asopportunities for improvements in controls and othermitigation measures.MANAGING BUSINESS RISKSGerdau also rigorously monitors the business risks,which include issues related to competitivenessand the Company’s positioning in the steel market.The management of business risks is carried out bydifferent decision-making forums that consider thebenefits and risks linked to it. Furthermore, the variousbusiness indicators monitor not only results, but alsofactors that can impact the Company, many of whichare flags of strategic and operational risks.The Gerdau Executive Committee (CEG) andits committees have the responsibility to identify,evaluate, and determine actions in relation to businessrisks that arise. The CEG, for example, managesstrategic risks that involve the evaluation of creditavailability in the international market, the emergenceof new competitors, launching of new products,Gerdau’s reputation with its various stakeholders, andthe needs of future investments. The compliance teamin turn is responsible for staying continuously up-todatewith the laws in each country where Gerdauoperates and to comply with all the current regulationsand legal norms.RISK MANAGEMENT COMMITTEEThe Risk Management Committee overseesmanaging the most relevant risks in a direct orindirect way.The themes supervised directly by the committeeinclude the status of assessments on the controlsunder the Sarbanes-Oxley Act, the audit work onoperational risks, the progress of complaints madethrough the ethics channel (respecting anonymityand confidentiality), compliance, and others. Theapproval of the Annual Audit Plan is also part of itsresponsibility.Indirect supervision is given to risks that are alreadyregularly monitored by other decision-making forums.Periodically the body requests presentations onrisk management from other processes as a wayto assess the adequacy of risk control in differentareas, trying to prove whether the risks that Gerdau issubject are being properly identified and managed.

16ANNUAL REPORT GERDAU 2011STRATEGY ANDCOMPETITIVEADVANTAGEContinuous search for newlevels of profitability andsustainable growthGerdau in 2011 continued working to extend the levelsof efficiency of its operations driven by the strategyof striving to reach higher levels of profitabilityand growth with sustainability. To increase thecompetitiveness of the business, one of the pillarsof its strategy has been efforts to reduce costs andincrease our own supply of iron ore and coal, whichare key raw materials in the steelmaking process.Furthermore, studies for the commercial exploitationof surplus iron ore located in Minas Gerais areunderway.To be relevant in markets where it operates is anotherof Gerdau’s strategic pillars. The Company alsobelieves that geographic diversification is fundamentalfor its continual growth process. In this sense, itspresence in India, where in 2012 it will start up arolling mill for special steels and rebars and a sinteringfacility, consists of one of its biggest challenges. In aneffort to consolidate itself as a player in all segmentsof the steel industry, Gerdau has been investing tostart up production of flat steel in Brazil by the endof 2012 with the manufacturing of hot rolled coils atGerdau Açominas (MG).UNIQUE FEATURES OF GERDAU MANAGEMENTGerdau Business SystemOne of Gerdau’s main competitive advantagesis its ability to enhance and disseminate its bestpractices in a way that is standardize and fast to theirteams in the different countries where it operates.This work, which covers all areas of the Company, isaccomplished through the Gerdau Business System(GBS), a system that consolidates different practicesdeveloped in-house or as benchmarks outside theCompany.Because it is an open system and is constantly beingimproved, GBS identifies, evaluates, and incorporatesnew practices that have shown significant resultsin operations. It also facilitates spreading Gerdau’scorporate culture, contributing to the Company’scomplete integration.In 2011, an experiment was conducted to simplifythe system in order to accelerate the deployment ofpriorities practices and to make it increasingly focusedon business needs.GERDAU STRATEGYProfitabilityandGrowth with SustainabilityRelevancein the marketsBusinesscompetitivenessPlayerin all segmentsGeographicdiversificationIntegrated Organization

ANNUAL REPORT GERDAU 2011 17Shared Services GerdauSince 2006, the Company has had the SharedServices Gerdau (SSG), which is a service centerthat brings together all the operational processescommon to the Gerdau units in Brazil such asAccounting Services, Indirect Taxes Management,Financial Services, Planning and Managementof Services, Management of Registrations, andEmployee Support and Services. The role of theSSG is to make it possible to streamline resourcesand services as well as to simplify and standardizeprocesses, reducing costs and providing more agilityand operational productivity.In 2011, Shared Services Gerdau was recognized bythe Group for the Study of Shared Services Centers(GESC) as a reference services center in Brazil. Asa result of successful experience in Brazil, Gerdauwill expand the service to its other operations in 2012through three centers located in Brazil, Mexico, andthe United States. The center in Brazil will continuegiving support to the operations in the country, the onein Mexico will focus on operations in Latin Americaand Spain, and the one in the United States will meetthe demands of operations of long and special steelsin North America.Gerdau TemplateFollowing the challenge of being an organizationincreasingly integrated, Gerdau started the firstphase of deploying the Gerdau Template in 2011,which will make it possible to apply a singleinformation technology system in the countrieswhere it operates, using SAP technology. Thiswill enable greater efficiency, security, and agility inthe collection and sharing of information and in theintegration of new units.The initiative includes the participation of a permanentteam consisting of about 250 employees and thesupport of several specialized consultants. The firstphase of the project was completed in 2011 with thedeployment of the system in Mexico, Colombia, andPeru. During this process, 151,000 data related tosuppliers, customers, products, and materials werereviewed and uploaded into the new system. Inaddition to this, about 50,000 tests were performed.Two thousand people received training and of those,135 have become multipliers, which means that theyare responsible for training and supporting employeeswho use the system in their respective countries. In2012 the operations located in the United States (notincluding special steel units), Canada, Argentina,Chile, and Uruguay will have the new system.The Gerdau Template deployed in Mexico, Colombia (photo), and Peru will enable greater efficiency in collecting and sharing information