SUSTAINABLE EVOLUTION - Gerdau
SUSTAINABLE EVOLUTION - Gerdau
SUSTAINABLE EVOLUTION - Gerdau
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ANNUAL REPORT 2011<br />
<strong>SUSTAINABLE</strong> <strong>EVOLUTION</strong>
<strong>Gerdau</strong><br />
<strong>SUSTAINABLE</strong><br />
<strong>EVOLUTION</strong><br />
Throughout its 110 years, <strong>Gerdau</strong> has grown,<br />
diversified its business in the steel value chain, and<br />
developed a strong commitment to people and the<br />
environment. It has built its history on the foundation<br />
of integrity, consistency, and professionalism, always<br />
seeking to establish a direct relationship of mutual<br />
gains with its shareholders, customers, suppliers,<br />
employees, and communities.<br />
Producing and delivering solutions in steel is<br />
<strong>Gerdau</strong>’s passion and purpose. The company<br />
strives for excellence in all aspects of its business<br />
besides working in an agile and flexible way with<br />
a capacity to face adversity and take advantage of<br />
market opportunities. With an industrial presence in<br />
14 countries - in the Americas, Europe, and Asia - it<br />
values understanding and respecting the cultures of<br />
each region where it operates.<br />
Today <strong>Gerdau</strong> is the leader in the segment of long<br />
steel in the Americas and one of the largest suppliers<br />
of special long steel in the world. It has over 45,000<br />
employees and its operations add up to a an installed<br />
capacity of over 25 million metric tons of steel per<br />
year. It is the largest scrap recycler in Latin America<br />
and worldwide transforms millions of metric tons of<br />
this raw material into new steel products each year.<br />
The Company is listed on the stock exchanges of São<br />
Paulo, New York, Madrid and Lima and has more than<br />
140,000 shareholders.<br />
For the landmark of its 110<br />
years, the Company issued<br />
a commemorative seal with<br />
the image of the Pontas de<br />
Paris Nail Factory, which<br />
gave rise to the Company.
MEXICO<br />
GUATEMALA<br />
HONDURAS<br />
MISSION<br />
To create value for our customers,<br />
shareholders, employees, and communities<br />
by operating as a sustainable steel business.<br />
VISION<br />
COLOMBIA<br />
PERU<br />
BOLIVIA<br />
CHILE<br />
To be a global organization and a benchmark<br />
in any business we conduct.<br />
ARGENTINA<br />
VALUES<br />
UNITED STATES<br />
DOMINICAN REPUBLIC<br />
VENEZUELA<br />
URUGUAY<br />
BRAZIL<br />
CANADA<br />
Be the CUSTOMER’s choice<br />
SAFETY above all<br />
Respected, engaged and fulfilled EMPLOYEES<br />
Pursuing EXCELLENCE with SIMPLICITY<br />
Focus on RESULTS<br />
INTEGRITY with all stakeholders<br />
Economic, social and environmental SUSTAINABILITY<br />
UNITED KINGDOM<br />
GERMANY<br />
FRANCE<br />
SPAIN<br />
ITALY<br />
GERDAU AROUND THE WORLD<br />
61<br />
143<br />
4<br />
48<br />
4<br />
126<br />
3<br />
Steel mills<br />
Downstream operations<br />
Iron ore extraction areas<br />
Scrap collection and processing facilities *<br />
Power plants<br />
Retail facilities<br />
Private port terminals<br />
<strong>Gerdau</strong> headquarters<br />
Associated companies<br />
Joint ventures<br />
* Scrap collection and processing facilities, solid pig<br />
iron production facilities, and coal units.<br />
INDIA
KEY INDICATORS*<br />
Consolidated financial performance (R$ million)<br />
40,000<br />
30,000<br />
20,000<br />
10,000<br />
0<br />
35,407<br />
4,651<br />
2011<br />
EBITDA 1<br />
2,098<br />
31,393<br />
5,201<br />
2010<br />
1 Represents earnings before interest, taxes, depreciation and<br />
amortization, also known as generation of cash from operations.<br />
* The dollar exchange rate on December 31, 2011 was R$ 1.8758.<br />
2,457<br />
Net revenue Net income<br />
Financial margins 2011 2010<br />
Gross margin 14% 18%<br />
Net margin 6% 8%<br />
EBITDA margin 13% 17%<br />
Output and shipments 2011 2010<br />
Steel production (thousand metric tons) 19,623 17,852<br />
Rolled steel production<br />
(thousand metric tons)<br />
Consolidated shipments<br />
(thousand metric tons)<br />
16,419 14,782<br />
19,164 17,363<br />
Investiments 2011 2010<br />
Investments in fixed assets<br />
(R$ million)<br />
1,961 1,289<br />
Environmental management 2011 2010<br />
Reuse of by-products<br />
(% of total generated)<br />
78.3 78.0<br />
Investments (R$ million) 370.9 137.7<br />
Social responsibility projects 2011 2010<br />
Investiments (R$ million) 61.0 57.4<br />
Volunteer employees<br />
(% of applicable personnel)<br />
24.9 24.1<br />
Capital markets 2011 2010<br />
Metalúrgica <strong>Gerdau</strong> S.A.<br />
Dividends (R$ per share) 0.55 0.65<br />
Dividend yield (%) 2 3.1 2.4<br />
<strong>Gerdau</strong> S.A.<br />
ANNUAL REPORT GERDAU 2011<br />
Dividends (R$ per share) 0.35 0.44<br />
Dividend yield (%) 2 2.4 1.9<br />
2 Ratio of dividend paid per share to quotation on the last day of the year.
2<br />
TABLE OF CONTENTS<br />
Message from the Chairman of the Board<br />
Message from the CEO<br />
110 years of history<br />
Corporate governance<br />
Risk management<br />
Strategy and competitive advantage<br />
Business<br />
Performance of operations<br />
Finances<br />
Relationships<br />
Employees<br />
Customers<br />
Suppliers<br />
Shareholders<br />
Society<br />
Environment<br />
Environmental management<br />
Timeline<br />
Summarized financial statements<br />
Glossary<br />
Corporate information<br />
03<br />
04<br />
06<br />
08<br />
15<br />
16<br />
18<br />
19<br />
28<br />
32<br />
33<br />
37<br />
39<br />
40<br />
42<br />
44<br />
45<br />
48<br />
54<br />
64<br />
68<br />
HIGHLIGHTS<br />
ANNUAL REPORT GERDAU 2011<br />
▪ <strong>Gerdau</strong> completes 110 years of business operations,<br />
currently occupying a leading position in the long<br />
steel segment in the Americas and one of the largest<br />
suppliers of special long steel in the world.<br />
▪ The Company has defined as its strategy to sell<br />
part of its iron ore resources in Brazil and to continue<br />
investing toward self-sufficiency of this important raw<br />
material at its integrated mills in Brazil.<br />
▪ Investments continue to be made for beginning the<br />
production of flat steel in Brazil. The new rolling mill<br />
for hot rolled coils will start its operations by the end of<br />
2012 at <strong>Gerdau</strong> Açominas (MG).<br />
▪ <strong>Gerdau</strong> announces a project to expand the supply<br />
of special steels in Brazil and in the United States,<br />
as well as making significant investment in India.<br />
These initiatives are aimed at the segment of special<br />
bar quality (SBQ), which is sold primarily to the<br />
automotive supply chain.<br />
▪ The project to expand the Cosigua (RJ) mill began<br />
and a new rolling mill for wire rod and rolled rebar will<br />
be installed there. The equipment will be operational<br />
in 2013, with an initial installed capacity of 600,000<br />
metric tons per year, a volume that will be expand<br />
to 1.1 million metric tons a year during its second<br />
phase. With this investment, the rolling mill’s total<br />
annual capacity will increase from 1.5 million to 2.1<br />
million metric tons in 2013, and in the second phase<br />
will reach 2.6 million metric tons per year.<br />
▪ The public offering of shares of <strong>Gerdau</strong> S.A. is<br />
completed with the net proceeds of R$ 3.6 billion<br />
in cash resources for <strong>Gerdau</strong>. Of this total, R$ 2.1<br />
billion were used to make advance payment of debts.<br />
Because of this, there was a 27% reduction in net<br />
debt and an increase of 108% of cash in comparison<br />
between December 2011 and the same period in<br />
2010, which keeps the Company in a comfortable<br />
financial situation for years to come.
MESSAGE FROM THE<br />
CHAIRMAN OF THE BOARD<br />
Strategy of balancing profitability<br />
and growth with sustainability<br />
Each year, we have always worked hard to exceed<br />
our own levels of efficiency and competitiveness.<br />
The year 2011 was no different and it is the year that<br />
<strong>Gerdau</strong> completed 110 years of operations. We had<br />
a good financial and operational performance<br />
despite the instability of the global economic scenario,<br />
due mainly to the European economic crisis. We were<br />
able to adjust our operations to the swings in the<br />
markets where we operate, following our strategy of<br />
balancing profitability and growth with sustainability.<br />
TOWARD REACHING FULL SUSTAINABILITY<br />
The strength of our management structure, the<br />
continuous training of our teams, our top quality<br />
services to customers, investments for the<br />
preservation of the environment, and our deep<br />
involvement in strengthening the communities where<br />
we operate give us conviction that we are able to<br />
meet the expectations of our stakeholders based on a<br />
relationship of trust and mutual gains.<br />
At <strong>Gerdau</strong>, one of our values is economic, social,<br />
and environmental sustainability, which is<br />
substantiated by a long-term vision that seeks the<br />
perpetuity of our business. We therefore believe<br />
that the longevity of our Company must involve<br />
a conduct of professionalism and commitment<br />
to deliver value to our customers, shareholders,<br />
employees, communities, and suppliers. The practice<br />
of sustainability makes us more competitive and<br />
reaffirms our respect and our responsibility to future<br />
generations.<br />
More recently we began to reflect on the need to<br />
incorporate into sustainability the concepts related<br />
to culture and politics. When working in different<br />
countries, we believe that cultural sustainability,<br />
ANNUAL REPORT GERDAU 2011 3<br />
which is a full understanding and respect of cultures<br />
in the different regions where we operate, is essential<br />
to the long-term stability of our Company. And with<br />
this comes the increasingly stronger preference of<br />
our customers. Furthermore, we believe that political<br />
sustainability, through the engagement of different<br />
segments of society in building a long-term vision<br />
for the regions where we operate, has an extremely<br />
important role in improving the quality of life as a<br />
whole. With this we can seek to contribute to building<br />
a better future for society.<br />
VISION OF THE FUTURE<br />
The uncertainties of the economic scenario will make<br />
it more challenging to predict steel demand trends.<br />
However, considering the current panorama, the<br />
expectations for 2012 are positive and because of<br />
this we will continue investing to achieve increasing<br />
standards of excellence.<br />
Finally, I would like to thank the Board of Directors and<br />
<strong>Gerdau</strong> Executive Committee for their commitment<br />
and dedication, as well as all our teams that<br />
undoubtedly make <strong>Gerdau</strong> a better company.<br />
“The practice of sustainability makes us more<br />
competitive and reaffirms our respect and our<br />
responsibility to future generations.”<br />
Jorge <strong>Gerdau</strong> Johannpeter<br />
Chairman of the <strong>Gerdau</strong> Board of Directors
4<br />
MESSAGE FROM THE CEO<br />
Record shipments with<br />
higher demand for steel in<br />
the Americas<br />
The year 2011 represented a milestone for <strong>Gerdau</strong>:<br />
while we celebrate 110 years of doing business,<br />
we broke a record in shipments by reaching 19.2<br />
million metric tons – a volume 10% higher than 2010.<br />
This good performance was driven by a greater<br />
demand for long steel on the American continent<br />
despite the adversities caused by the slowdown of<br />
global economy and the European crisis.<br />
Consolidated net revenues, in turn, evolved 13% over<br />
2010, reaching R$ 35.4 billion. Consolidated steel<br />
production on the other hand grew 10% to 19.6 million<br />
metric tons. Consolidated generation of cash from<br />
operation (EBITDA) went to R$ 4.7 billion and net<br />
income of R$ 2.1 billion, both impacted by the strong<br />
pressure of the cost of raw materials, mainly iron ore,<br />
pig iron, coal, and scrap.<br />
Throughout the year, we intensified our work in order<br />
to reduce the cost of raw materials, increase the<br />
productivity of mills, and expand the product<br />
mix. We invested R$ 2 billion in mills and equipment<br />
(CAPEX), especially for entering into the flat steel<br />
sector in Brazil, which is scheduled to start in late<br />
2012, and for expanding our own production of<br />
iron ore. Thus, we continue having the goal of<br />
reaching self-sufficiency of this raw material in Brazil.<br />
Furthermore, studies for the commercial exploitation<br />
of surplus iron ore located in the state of Minas Gerais<br />
are underway.<br />
ANNUAL REPORT GERDAU 2011<br />
With a focus on the automotive industry, we<br />
announced significant investments to increase the<br />
supply of special steels in Brazil and in the United<br />
States, as well as to expand our presence in India<br />
– markets whose demand for vehicles has shown<br />
significant growth.<br />
For the landmark of its 110 years, <strong>Gerdau</strong> revised<br />
and updated its Vision, Mission, Values, and Code<br />
of Ethics at a global level in order to strengthen<br />
our corporate culture. Also as part of the<br />
celebrations we established a unique positioning<br />
of the brand and updated our logo’s design, which<br />
has undergone a subtle revitalization, making it<br />
lighter and more modern. This has strengthened<br />
<strong>Gerdau</strong>’s brand globally.<br />
Following the challenge of being an organization<br />
increasingly integrated, we started the first<br />
phase of deploying the <strong>Gerdau</strong> Template project<br />
in 2011, which will make it possible to use a<br />
single information technology system globally.<br />
At this first moment, the project, which includes<br />
SAP technology, was implemented in Mexico,<br />
Colombia, and Peru. In 2012, the next operations<br />
to receive the deployment are those located in the<br />
United States (not including special steel units), in<br />
Canada, Argentina, Chile, and Uruguay.<br />
The hard work and commitment of our more<br />
than 45,000 employees based on a relationship of<br />
respect and mutual gains were essential to reach<br />
our objectives. One example of this are the results<br />
of the 2011 Opinion Survey that evaluates the<br />
Company’s internal climate globally. For this year,<br />
the favorability index reached 75%, which is a level<br />
considered to be excellent in comparison with the<br />
world’s largest companies.
During the year we also strengthened our work<br />
with communities, not only through increasing<br />
social investments, but also with the active<br />
participation of approximately 9,500 volunteer<br />
employees who devote part of their time to<br />
transfer knowledge to various social organizations.<br />
As for the environment, <strong>Gerdau</strong> plays a key role<br />
by recycling millions of tons of scrap per year,<br />
removing obsolete materials from the cities and<br />
the countryside and turning them into steel, which<br />
also contributes to the generation of income<br />
for thousands of families. We also operate with<br />
advanced industrial technologies for the protection<br />
of the environment and have tried to widen the<br />
applications of our by-products in the steel industry<br />
and other segments of the economy.<br />
OUTLOOK<br />
The signals from the global steel market point to<br />
a growing demand in 2012 mainly in emerging<br />
countries such as China, Brazil, and India, which<br />
have shown good levels of economic growth.<br />
On the other hand, we will continue monitoring<br />
the situation of the European countries whose<br />
economies are facing a time of severe downturn.<br />
Faced with this scenario, we will keep working<br />
hard to continue <strong>Gerdau</strong>’s path of sustainable<br />
growth and development.<br />
ACKNOWLEDGEMENTS<br />
To conclude, I would like to thank the trust shown<br />
by our customers, shareholders, suppliers and<br />
communities. I would also like to give a special<br />
thanks to our employees for their daily dedication<br />
in overcoming challenges and achieving success.<br />
ANNUAL REPORT GERDAU 2011 5<br />
“In the year that <strong>Gerdau</strong> completed<br />
110 years of business operations, we<br />
saw record of shipments. Even against a<br />
backdrop of global economic uncertainty, we<br />
closed the year with a net revenue growth<br />
and reduction in expenses and debt.”<br />
André B. <strong>Gerdau</strong> Johannpeter<br />
<strong>Gerdau</strong> Chief Executive Officer
6<br />
110 YEARS OF HISTORY<br />
Centennial journey consolidates<br />
operations in the steel industry<br />
In 2011, <strong>Gerdau</strong> celebrated 110 years of existence<br />
consolidating its path of sustainable development<br />
in the steel industry. Ethical values, professional<br />
management, financial austerity, along with industrial<br />
and commercial competitiveness were the basis<br />
for the Company’s solid and consistent growth and<br />
today it is the leader in the segment of long steels<br />
in the Americas and one of the largest special steel<br />
supplier in the world. Celebrations were organized<br />
in all countries where it operates to celebrate this<br />
milestone, bringing together its more than 45,000<br />
employees.<br />
<strong>Gerdau</strong>’s history began in 1901 with the Pontas<br />
de Paris Nail Factory in Porto Alegre. The year of<br />
1948 marked the Company’s entrance into the steel<br />
industry with the acquisition of the Riograndense mill,<br />
also located in Porto Alegre, in order to ensure the<br />
Steel production (1948 - 2011)<br />
(in thousands of metric tons)<br />
3<br />
48<br />
11<br />
53<br />
21<br />
58<br />
62<br />
63<br />
144<br />
68<br />
503<br />
73<br />
950<br />
1,294<br />
ANNUAL REPORT GERDAU 2011<br />
supply of raw material for the production of nails. The<br />
new mill anticipated the minimill concept, a model<br />
based on the use of scrap and regional sales, which<br />
has kept its operating costs more competitive. (see<br />
“Timeline”).<br />
In the following decades, <strong>Gerdau</strong> continued expanding<br />
its operations to produce steel in Brazil through the<br />
construction and purchase of units in the main consumer<br />
centers as well as to expand its distribution network.<br />
The first step in its internationalization process<br />
occurred in Uruguay with the acquisition of Laisa<br />
in 1980. This move was followed with the purchase<br />
2,056<br />
2,878<br />
<strong>Gerdau</strong> has produced steel since 1948 and throughout its history has become the 10th largest producer<br />
78<br />
83<br />
88<br />
93<br />
3,661<br />
98<br />
12,343<br />
03<br />
19,599 19,623<br />
08<br />
11
of Courtice Steel located in the province of Ontario<br />
(Canada) in 1989. Over the following years, the<br />
expansion of business abroad resulted in entering into<br />
different countries, located in the Americas, Europe<br />
and Asia. With this the Company reached in 2011 the<br />
position of 10th largest steel producer in the world<br />
according to studies by the World Steel Association.<br />
Watch the video of the 110 years celebration on<br />
<strong>Gerdau</strong>’s website (www.gerdau.com.br/110years.html).<br />
RENEWED BRAND<br />
As part of the celebrations, <strong>Gerdau</strong> established a single<br />
global brand positioning and updated the design of its<br />
logo, which has undergone a subtle revitalization, and<br />
it has become lighter and more modern. The purpose<br />
of its new “One brand, One logo” positioning is to<br />
strengthen its brand globally. With this, there was a<br />
simplification of the brands in Brazil and the long steel<br />
and special steels operations located in North America,<br />
up until then called <strong>Gerdau</strong> Ameristeel and <strong>Gerdau</strong><br />
Macsteel, began to be called <strong>Gerdau</strong>. Descriptors were<br />
developed to differentiate the two business operations<br />
in North America, and the descriptor for the long steel<br />
operations, previously called <strong>Gerdau</strong> Ameristeel, began<br />
to be called <strong>Gerdau</strong> Long Steel North America. <strong>Gerdau</strong><br />
Special Steel North America is the descriptor of the<br />
company’s special steel operations in the United States<br />
formerly known as <strong>Gerdau</strong> Macsteel.<br />
<strong>Gerdau</strong>’s logo has undergone five changes during its<br />
110 year history. The first graphical representation of<br />
<strong>Gerdau</strong>’s brand was a stamp with a picture of a nail,<br />
ANNUAL REPORT GERDAU 2011 7<br />
which was widely used in promotional materials in<br />
the 40s, 50s, and 60s. Then in 1970, <strong>Gerdau</strong>’s first<br />
institutional logo was created in which the two letter<br />
Gs represented the Company’s spirit of cohesion and<br />
desire to grow. This version of the logo underwent a<br />
minor change in 1976 and, in the 1980s, the Company<br />
again changed its logo, which it had been using until<br />
early 2011.<br />
GERDAU CORPORATE CULTURE AND ETHICS<br />
In order to strengthen its corporate culture, <strong>Gerdau</strong><br />
revised and updated its Vision, Mission, and Values<br />
at a global level. The completion of this work was made<br />
based on interviews with members of the Board of<br />
Directors, <strong>Gerdau</strong>’s Executive Committee, and with the<br />
company’s main leaders. Moreover, another thousand<br />
leaders located in all operations of <strong>Gerdau</strong> around the<br />
world were involved through an online questionnaire,<br />
which established an even greater participatory<br />
process. With these inputs, it was also possible to<br />
develop a book with stories about the experiences that<br />
employees had in their daily work routines that reflect<br />
each one of the Company’s Values. This book entitled<br />
“Our culture unites us – lessons from our history” will be<br />
distributed to all of <strong>Gerdau</strong>’s operations in 2012.<br />
In addition, the Company launched its new Code<br />
of Ethics and promoted the training of more than<br />
45,000 employees in the countries where it operates.<br />
The new code reinforces <strong>Gerdau</strong>’s commitments and<br />
expected behavior with regard to each of the values,<br />
thus becoming an important instrument for maintaining<br />
these concepts and the Company’s longevity.<br />
At <strong>Gerdau</strong>, employees can send or register their<br />
questions and concerns related to ethics by the<br />
Ethics Channel that is available on the intranet or<br />
by an internal extension. All inquiries are treated<br />
confidentially. The new Code of Ethics is public and<br />
can be found on <strong>Gerdau</strong>’s website (www.gerdau.com.<br />
br/sobre-gerdau/governanca-corporativa-diretriz-etica.<br />
aspx). The Company also offers channels that seek to<br />
encourage the free expression of opinions, attitudes,<br />
and concerns of all stakeholders through which it has<br />
relationships by means of its website (www.gerdau/<br />
institucional/contatos.aspx).
8<br />
CORPORATE<br />
GOVERNANCE<br />
Century-old values and a solid<br />
management structure are the<br />
basis of <strong>Gerdau</strong>’s actions<br />
<strong>Gerdau</strong> follows international standards of<br />
corporate governance and in all its operations<br />
uses the most modern management tools. This<br />
makes it possible to reach increasing levels of<br />
excellence and at the same time have the flexibility<br />
and agility to adapt to the fluctuations in the markets<br />
it operates. With 110 years of history, the Company<br />
guides its conduct by century-old values and strict<br />
ethical principles, fundamental to a relationship of<br />
transparency with its stakeholders and to continue<br />
its path of sustainable development.<br />
It has three publicly listed companies – <strong>Gerdau</strong><br />
S.A., Metalúrgica <strong>Gerdau</strong> S.A., and Empresa<br />
Siderúrgica Del Perú S.A.A. (Siderperu). The<br />
shares of Metalúrgica <strong>Gerdau</strong> S.A. are traded on<br />
BM&FBOVESPA (São Paulo) and those of Siderperu<br />
on the Lima Stock Exchange. <strong>Gerdau</strong> S.A., in turn, is<br />
traded in São Paulo, Madrid and New York. In order<br />
to be able to trade its shares in the United States,<br />
<strong>Gerdau</strong> S.A. has to meet the requirements of the<br />
Sarbanes-Oxley (SOx) Act, which establishes good<br />
corporate governance practices as well as a strict<br />
control over internal processes.<br />
GOVERNANCE STRUCTURE<br />
The long-term strategies of <strong>Gerdau</strong> S.A. are set by<br />
the Board of Directors, which is the body that monitors<br />
the implementation of the policies established by it<br />
and makes decisions about themes relevant to the<br />
ANNUAL REPORT GERDAU 2011<br />
scope of business and operations. It is also up to the<br />
Board of Directors to appoint members of the <strong>Gerdau</strong><br />
Executive Committee (CEG).<br />
The Board of Directors of <strong>Gerdau</strong> S.A. is composed<br />
of nine members including outside members, which<br />
hold between eight and ten meetings a year. The<br />
Board of Directors of Metalúrgica <strong>Gerdau</strong> S.A., in turn,<br />
consists of eleven members and nine of them are also<br />
part of the Board of Directors of <strong>Gerdau</strong> S.A. In both<br />
companies the term of office of each of its members is<br />
one year with the possibility of reelection.<br />
The members of the Board of Directors and<br />
of the Audit Committee are elected annually<br />
at the Ordinary General Meeting (OGM).<br />
The responsibilities of the Board of Directors<br />
include deciding on the accounts submitted by<br />
the administrators, as well as for analyzing,<br />
discussing, and voting on the financial statements,<br />
the allocation of net income, and the dividend<br />
distribution policy, among other items.<br />
Metalúrgica <strong>Gerdau</strong> S.A. and <strong>Gerdau</strong> S.A. have<br />
audit committees responsible for monitoring and<br />
inspecting the actions of the board members. In<br />
addition, these bodies issue opinions and provide<br />
advice on the Board of Directors’ report and the<br />
financial statements.<br />
<strong>Gerdau</strong>’s corporate management is the<br />
responsibility of the Board of Directors and the<br />
<strong>Gerdau</strong> Executive Committee (CEG) coordinates<br />
and oversees the Business Divisions and Functional<br />
Processes. Composed of a CEO, a COO, and five<br />
Executive Vice Presidents, the CEG carries out the<br />
policies determined by the Board of Directors. To<br />
do so, it has the support of committees established<br />
according to criteria of expertise.
INDEPENDENT AUDIT<br />
The financial statements of <strong>Gerdau</strong>’s publicly traded<br />
companies regularly undergo an external audit. The<br />
Company, in accordance with CVM Instruction No.<br />
381/2003, informs that its service provider in this<br />
area did not perform services not related to external<br />
CORPORATE GOVERNANCE STRUCTURE<br />
Support<br />
Committees<br />
Brazil<br />
Special<br />
Steel<br />
Shareholders’<br />
Meeting<br />
Board of<br />
Directors<br />
<strong>Gerdau</strong> Officers<br />
and Executive<br />
Committee<br />
Business<br />
Operations<br />
North<br />
America<br />
Board of<br />
Auditors<br />
ANNUAL REPORT GERDAU 2011 9<br />
auditing during the year 2011. <strong>Gerdau</strong>’s policy for<br />
the contracting of eventual services not related<br />
to external auditing by the independent auditor is<br />
based on the principles that preserve the auditor’s<br />
independence.<br />
Corporate Governance<br />
Committee, Strategy<br />
Committee and Compensation<br />
and Succession Committee<br />
Macroprocesses<br />
Latin<br />
America<br />
Read more about the <strong>Gerdau</strong> governance structure at<br />
www.gerdau.com.br/investidores/governanca-corporativa.aspx
10<br />
SUMMARIZED CORPORATE STRUCTURE<br />
94.2%<br />
<strong>Gerdau</strong><br />
América Latina<br />
Participações<br />
S.A.<br />
9.7% 63.4%<br />
<strong>Gerdau</strong><br />
Internacional<br />
Empreendimentos<br />
Ltda.<br />
49.0% 99.9%<br />
Indústrias<br />
Nacionales<br />
C. por A.<br />
Dominican Rep.<br />
99.2%<br />
Diaco S.A.<br />
Colombia<br />
100.0%<br />
Siderúrgica<br />
Zuliana, C.A.<br />
Venezuela<br />
49.0%<br />
Corsa<br />
Controladora<br />
S.A. de CV<br />
Mexico<br />
Sipar<br />
Aceros S.A.<br />
Argentina<br />
100.0%<br />
<strong>Gerdau</strong><br />
Laisa S.A.<br />
Uruguay<br />
100.0%<br />
<strong>Gerdau</strong><br />
Aza S.A.<br />
Chile<br />
100.0%<br />
Siderúrgica<br />
Tultitlán S.A.<br />
de CV<br />
Mexico<br />
30.0%<br />
86.7%<br />
Empresa<br />
Siderúrgica<br />
del Perú S.A.A.<br />
Peru<br />
Corporación<br />
Centroamericana<br />
del Acero, S.A.<br />
Guatemala<br />
26.9%<br />
94.0%<br />
<strong>Gerdau</strong><br />
Açominas S.A.<br />
Brazil<br />
100.0%<br />
<strong>Gerdau</strong><br />
Macsteel Inc.<br />
USA<br />
6.7%<br />
Metalúrgica<br />
<strong>Gerdau</strong> S.A.<br />
40.6%<br />
<strong>Gerdau</strong> S.A.<br />
93.3%<br />
<strong>Gerdau</strong><br />
Ameristeel Corp.<br />
USA<br />
50.0%<br />
Gallatin<br />
Steel Inc.<br />
USA<br />
94.0%<br />
<strong>Gerdau</strong> Aços<br />
Longos S.A.<br />
Brazil<br />
ANNUAL REPORT GERDAU 2011<br />
95.9%<br />
<strong>Gerdau</strong> Aços<br />
Especiais S.A.<br />
100.0%<br />
Corporación<br />
Sidenor, S.A.<br />
Spain<br />
100.0%<br />
Sidenor<br />
Industrial, S.A.<br />
Spain<br />
80.6%<br />
95.6%<br />
<strong>Gerdau</strong><br />
Comercial<br />
de Aços S.A.<br />
Brazil<br />
Kalyani<br />
<strong>Gerdau</strong> Steel Ltd.<br />
India<br />
Direct and indirect shareholdings on total share capital<br />
December 2011
GERDAU S.A. BOARD OF DIRECTORS<br />
Jorge <strong>Gerdau</strong> Johannpeter<br />
Chairman<br />
Frederico C. <strong>Gerdau</strong><br />
Johannpeter<br />
Vice Chairman<br />
Affonso Celso Pastore<br />
Board Member<br />
Germano H. <strong>Gerdau</strong><br />
Johannpeter<br />
Vice Chairman<br />
André B. <strong>Gerdau</strong><br />
Johannpeter<br />
Board Member<br />
Alfredo Huallem<br />
Board Member<br />
ANNUAL REPORT GERDAU 2011 11<br />
Klaus <strong>Gerdau</strong> Johannpeter<br />
Vice Chairman<br />
Claudio <strong>Gerdau</strong><br />
Johannpeter<br />
Board Member<br />
Oscar de Paula<br />
Bernardes Neto<br />
Board Member
12<br />
GERDAU EXECUTIVE COMMITTEE (CEG)<br />
1 - André B. <strong>Gerdau</strong> Johannpeter<br />
Chief Executive Officer (CEO) and President of the <strong>Gerdau</strong> Executive Committee (CEG)<br />
2 - Claudio <strong>Gerdau</strong> Johannpeter<br />
Chief Operating Officer (COO)<br />
3 - Expedito Luz<br />
Executive Vice President of Legal Affairs and Compliance<br />
4 - Manoel Vitor de Mendonça Filho<br />
Executive Vice President, Brazil Business Operation - Açominas and Long Steel Brazil<br />
5 - Ricardo Giuzeppe Mascheroni<br />
Executive Vice President, North America and Latin America Business Operation - North<br />
6 - Osvaldo Burgos Schirmer<br />
Executive Vice President, Finance, Auditing, and Investor Relations<br />
7 - Francisco Deppermann Fortes<br />
Executive Vice President of Human Resources,<br />
Management, and Organizational Development<br />
ANNUAL REPORT GERDAU 2011<br />
5 4 2<br />
1 6 7 3
CORPORATE MANAGEMENT*<br />
CORPORATE MANAGEMENT<br />
André Araujo Hofmeister | Director, Planning and Business Development<br />
Antonio José Bacelar Teixeira | Director, Logistics<br />
Antônio Marques de Almeida | Director, Brazil Shared Services<br />
Denise Casagrande da Rocha | Director, Personnel Development<br />
Dirceu Tarcisio Togni | Director, Industry and Engineering<br />
Enio Viterbo Junior | Director, Health, Safety and Environment<br />
Fernando Jimenez Boldrini | Director, <strong>Gerdau</strong> Shared Services<br />
Fladimir Batista Lopes Gauto | Director, Procurement<br />
Geraldo Toffanello | Director, Accounting<br />
Glen Anderson Beeby | Director, Information Technology<br />
Harley Lorentz Scardoelli | Director, Finance<br />
Hildo Alberto Baldasso | Director, Technical Engineering<br />
José Paulo Soares Martins | Director, <strong>Gerdau</strong> Institute<br />
Marcos Eduardo Faraco Wahrhaftig | Director, <strong>Gerdau</strong> Template Project<br />
Paulo Perlott Ramos | Director, Marketing, Sales and Metallics<br />
Paulo Augusto de Lima Torres | Director, Operational Planning<br />
Renato Gasparetto Jr. | Director, Corporate Communications and Public Affairs<br />
BUSINESS DIVISIONS MANAGEMENT<br />
BRAZIL<br />
Heitor L. Beninca Bergamini | Executive Director - Long Steel Brazil<br />
Rodrigo Belloc Soares | Executive Director - <strong>Gerdau</strong> Açominas<br />
Marcus Rocha Duarte | Director, Solid Fuels of Brazil Business Operation<br />
Paulo José Barros Rabelo | Director, Iron Ore of Brazil Business Operation<br />
Aloysio Antonio P. de Carvalho | Director, Planning & Management Technology - <strong>Gerdau</strong> Açominas<br />
Antônio Pinto Segreto | Industrial Director - <strong>Gerdau</strong> Açominas<br />
Carmine Sarao Neto | Director, Human Resources - <strong>Gerdau</strong> Açominas<br />
Daniel Antonio M. de Mesquita | Engineering Director - <strong>Gerdau</strong> Açominas<br />
Fernando José Dutra Parreira | Executive Director, Southern Brazil Business Operation - Long Steel Brazil<br />
José Carlos de Matos Silva | Sales Director - <strong>Gerdau</strong> Açominas<br />
José Eustaquio de Lima | Executive Director, Comercial <strong>Gerdau</strong> - Long Steel Brazil<br />
José Falcão Filho | Director, Metallics - Long Steel Brazil<br />
José Walnei G. de Almeida | Director, Direct Sales - Long Steel Brazil<br />
Luciana Domagala | Director, Human Resources - Long Steel Brazil & Special Steel Brazil<br />
Luiz Augusto Polacchini | Director, Logistics of Brazil Business Operation<br />
Marcelo Costa Nasser | Executive Director, Fabricated Reinforcing Steel Facilities - Long Steel Brazil<br />
Mario Sant’Anna Junior | Executive Director, Brazil Forestry Operation - Long Steel Brazil<br />
Nestor Mundstock | Executive Director, Cosigua mill - Long Steel Brazil<br />
Paulo Ricardo Tomazelli | Commercial Director - Long Steel Brazil<br />
ANNUAL REPORT GERDAU 2011 13<br />
* Updated in February, 2012
14<br />
CORPORATE MANAGEMENT*<br />
SPECIAL STEEL<br />
Mark Anthony Marcucci | Executive Director, Special Steel Business Division<br />
André Beaudry | Executive Director, Business Development (India)<br />
A.S. Mathur | Executive Director, Kalyani <strong>Gerdau</strong> (India)<br />
T. Mohan Babu | Chief Operating Officer, Kalyani <strong>Gerdau</strong> (India)<br />
Roberto de Barros Bezerra | Industrial Director, Kalyani <strong>Gerdau</strong> (India)<br />
Cesar Arroyo Garcia | Director, Human Resources, <strong>Gerdau</strong> Sidenor (Spain)<br />
Francisco Javier F. Retana | Industrial Director, <strong>Gerdau</strong> Sidenor (Spain)<br />
Gregorio Iparraguirre Campos | Commercial Director, <strong>Gerdau</strong> Sidenor (Spain)<br />
Hermenio Pinto Gonçalves | Industrial Director, Special Steel Brazil<br />
Joaquim Guilherme Bauer | Executive Director, Special Steel Brazil<br />
Jack Finlayson | President, <strong>Gerdau</strong> Special Steel North America (USA)<br />
John Kelleher | Vice President, Operations <strong>Gerdau</strong> Special Steel North America (USA)<br />
José Jainaga Gomez | General Director, <strong>Gerdau</strong> Sidenor (Spain)<br />
Ricardo Sendim Fioramonte | Commercial Director, Special Steel Brazil<br />
Robert Jeffrey Karmol | Controller, <strong>Gerdau</strong> Special Steel North America (USA)<br />
Rodrigo Ferreira de Souza | Financial Director, <strong>Gerdau</strong> Sidenor (Spain)<br />
Richard Mark Szink | Director, Sales & Marketing, <strong>Gerdau</strong> Special Steel North America (USA)<br />
LATIN AMERICA<br />
André Felipe Gueiros Reinaux | Executive Director, Latin America - North<br />
Hermann Von Mühlenbrock Soto | Executive Director, Latin America - South<br />
Renato Silva Bernardes | Executive Director, <strong>Gerdau</strong> Mexico<br />
Carlos Hamilton de O. Pimenta | Executive Director, Diaco (Colombia)<br />
José Padilla Bello | Executive Director, Sizuca (Venezuela)<br />
José Pedro Sintas | Executive Director, <strong>Gerdau</strong> Laisa (Uruguay)<br />
Luís Daniel Pécora Nova | Executive Director, Sipar <strong>Gerdau</strong> (Argentina)<br />
Samuel Nanes Venguer | Administrative, Financial and Institutional Relations Director, <strong>Gerdau</strong> Mexico<br />
NORTH AMERICA<br />
Guilherme <strong>Gerdau</strong> Johannpeter | President, <strong>Gerdau</strong> Long Steel North America<br />
André Pires de Oliveira Dias | Vice President of Finance, <strong>Gerdau</strong> Long Steel North America<br />
Carl Czarnik | Vice President of Human Resources, <strong>Gerdau</strong> Long Steel North America<br />
James Kerkvliet | Vice President of Sales and Marketing, <strong>Gerdau</strong> Long Steel North America<br />
Matthew C. Yeatman | Vice President of Metallics Raw Materials, <strong>Gerdau</strong> Long Steel North America<br />
Peter Campo | Vice President of Downstream Operations, <strong>Gerdau</strong> Long Steel North America<br />
Wang Chia Yuan | Vice President of Mill Operations, <strong>Gerdau</strong> Long Steel North America<br />
ANNUAL REPORT GERDAU 2011<br />
* Updated in February, 2012
RISK MANAGEMENT<br />
Strict internal control of<br />
processes ensures appropriate<br />
risk management<br />
<strong>Gerdau</strong> monitors in a structured manner all the possible<br />
risks of its business and its operations. This is done<br />
using a rigorous risk management system that is<br />
continually improved, which contributes to efficient<br />
management and generation of sustainable value for<br />
shareholders.<br />
MANAGING OPERATIONAL RISKS<br />
<strong>Gerdau</strong>’s internal audit is responsible for mapping<br />
operational risks and respective internal controls of<br />
the processes. Operational risks arise from failures,<br />
deficiencies, or inadequacy of internal processes,<br />
people, or technology environments. These risks<br />
can be related to the industrial process or to the<br />
management of the Company’s different areas,<br />
including the supply of raw materials and inputs,<br />
marketing & sales, information technology, logistics,<br />
and personnel management.<br />
These risks are assessed annually from the results<br />
of the audit work and Sarbanes-Oxley Certification<br />
tests, as well as interviews with senior management<br />
and information received from the managers of the<br />
processes. Based on this data, the Audit Plan is<br />
carried out for the following year, which involves<br />
identifying gaps in the processes as well as<br />
opportunities for improvements in controls and other<br />
mitigation measures.<br />
MANAGING BUSINESS RISKS<br />
<strong>Gerdau</strong> also rigorously monitors the business risks,<br />
which include issues related to competitiveness<br />
and the Company’s positioning in the steel market.<br />
ANNUAL REPORT GERDAU 2011 15<br />
The management of business risks is carried out by<br />
different decision-making forums that consider the<br />
benefits and risks linked to it. Furthermore, the various<br />
business indicators monitor not only results, but also<br />
factors that can impact the Company, many of which<br />
are flags of strategic and operational risks.<br />
The <strong>Gerdau</strong> Executive Committee (CEG) and<br />
its committees have the responsibility to identify,<br />
evaluate, and determine actions in relation to business<br />
risks that arise. The CEG, for example, manages<br />
strategic risks that involve the evaluation of credit<br />
availability in the international market, the emergence<br />
of new competitors, launching of new products,<br />
<strong>Gerdau</strong>’s reputation with its various stakeholders, and<br />
the needs of future investments. The compliance team<br />
in turn is responsible for staying continuously up-todate<br />
with the laws in each country where <strong>Gerdau</strong><br />
operates and to comply with all the current regulations<br />
and legal norms.<br />
RISK MANAGEMENT COMMITTEE<br />
The Risk Management Committee oversees<br />
managing the most relevant risks in a direct or<br />
indirect way.<br />
The themes supervised directly by the committee<br />
include the status of assessments on the controls<br />
under the Sarbanes-Oxley Act, the audit work on<br />
operational risks, the progress of complaints made<br />
through the ethics channel (respecting anonymity<br />
and confidentiality), compliance, and others. The<br />
approval of the Annual Audit Plan is also part of its<br />
responsibility.<br />
Indirect supervision is given to risks that are already<br />
regularly monitored by other decision-making forums.<br />
Periodically the body requests presentations on<br />
risk management from other processes as a way<br />
to assess the adequacy of risk control in different<br />
areas, trying to prove whether the risks that <strong>Gerdau</strong> is<br />
subject are being properly identified and managed.
16<br />
STRATEGY AND<br />
COMPETITIVE<br />
ADVANTAGE<br />
Continuous search for new<br />
levels of profitability and<br />
sustainable growth<br />
<strong>Gerdau</strong> in 2011 continued working to extend the levels<br />
of efficiency of its operations driven by the strategy<br />
of striving to reach higher levels of profitability<br />
and growth with sustainability. To increase the<br />
competitiveness of the business, one of the pillars<br />
of its strategy has been efforts to reduce costs and<br />
increase our own supply of iron ore and coal, which<br />
are key raw materials in the steelmaking process.<br />
Furthermore, studies for the commercial exploitation<br />
of surplus iron ore located in Minas Gerais are<br />
underway.<br />
To be relevant in markets where it operates is another<br />
of <strong>Gerdau</strong>’s strategic pillars. The Company also<br />
believes that geographic diversification is fundamental<br />
for its continual growth process. In this sense, its<br />
presence in India, where in 2012 it will start up a<br />
rolling mill for special steels and rebars and a sintering<br />
facility, consists of one of its biggest challenges. In an<br />
GERDAU STRATEGY<br />
Relevance<br />
in the markets<br />
Profitability<br />
and<br />
Growth with Sustainability<br />
Business<br />
competitiveness<br />
Integrated Organization<br />
ANNUAL REPORT GERDAU 2011<br />
effort to consolidate itself as a player in all segments<br />
of the steel industry, <strong>Gerdau</strong> has been investing to<br />
start up production of flat steel in Brazil by the end<br />
of 2012 with the manufacturing of hot rolled coils at<br />
<strong>Gerdau</strong> Açominas (MG).<br />
UNIQUE FEATURES OF GERDAU MANAGEMENT<br />
<strong>Gerdau</strong> Business System<br />
One of <strong>Gerdau</strong>’s main competitive advantages<br />
is its ability to enhance and disseminate its best<br />
practices in a way that is standardize and fast to their<br />
teams in the different countries where it operates.<br />
This work, which covers all areas of the Company, is<br />
accomplished through the <strong>Gerdau</strong> Business System<br />
(GBS), a system that consolidates different practices<br />
developed in-house or as benchmarks outside the<br />
Company.<br />
Because it is an open system and is constantly being<br />
improved, GBS identifies, evaluates, and incorporates<br />
new practices that have shown significant results<br />
in operations. It also facilitates spreading <strong>Gerdau</strong>’s<br />
corporate culture, contributing to the Company’s<br />
complete integration.<br />
In 2011, an experiment was conducted to simplify<br />
the system in order to accelerate the deployment of<br />
priorities practices and to make it increasingly focused<br />
on business needs.<br />
Player<br />
in all segments<br />
Geographic<br />
diversification
Shared Services <strong>Gerdau</strong><br />
Since 2006, the Company has had the Shared<br />
Services <strong>Gerdau</strong> (SSG), which is a service center<br />
that brings together all the operational processes<br />
common to the <strong>Gerdau</strong> units in Brazil such as<br />
Accounting Services, Indirect Taxes Management,<br />
Financial Services, Planning and Management<br />
of Services, Management of Registrations, and<br />
Employee Support and Services. The role of the<br />
SSG is to make it possible to streamline resources<br />
and services as well as to simplify and standardize<br />
processes, reducing costs and providing more agility<br />
and operational productivity.<br />
In 2011, Shared Services <strong>Gerdau</strong> was recognized by<br />
the Group for the Study of Shared Services Centers<br />
(GESC) as a reference services center in Brazil. As<br />
a result of successful experience in Brazil, <strong>Gerdau</strong><br />
will expand the service to its other operations in 2012<br />
through three centers located in Brazil, Mexico, and<br />
the United States. The center in Brazil will continue<br />
giving support to the operations in the country, the one<br />
in Mexico will focus on operations in Latin America<br />
and Spain, and the one in the United States will meet<br />
the demands of operations of long and special steels<br />
in North America.<br />
ANNUAL REPORT GERDAU 2011 17<br />
<strong>Gerdau</strong> Template<br />
Following the challenge of being an organization<br />
increasingly integrated, <strong>Gerdau</strong> started the first<br />
phase of deploying the <strong>Gerdau</strong> Template in 2011,<br />
which will make it possible to apply a single<br />
information technology system in the countries<br />
where it operates, using SAP technology. This<br />
will enable greater efficiency, security, and agility in<br />
the collection and sharing of information and in the<br />
integration of new units.<br />
The initiative includes the participation of a permanent<br />
team consisting of about 250 employees and the<br />
support of several specialized consultants. The first<br />
phase of the project was completed in 2011 with the<br />
deployment of the system in Mexico, Colombia, and<br />
Peru. During this process, 151,000 data related to<br />
suppliers, customers, products, and materials were<br />
reviewed and uploaded into the new system. In<br />
addition to this, about 50,000 tests were performed.<br />
Two thousand people received training and of those,<br />
135 have become multipliers, which means that they<br />
are responsible for training and supporting employees<br />
who use the system in their respective countries. In<br />
2012 the operations located in the United States (not<br />
including special steel units), Canada, Argentina,<br />
Chile, and Uruguay will have the new system.<br />
The <strong>Gerdau</strong> Template deployed in Mexico, Colombia (photo), and Peru will enable greater efficiency in collecting and sharing information
Business<br />
<strong>Gerdau</strong> continues to invest to increase its own production<br />
of iron ore from its mines located in Miguel Burnier<br />
(photo), Várzea do Lopes, and Gongo Soco (MG)
PERFORMANCE OF<br />
OPERATIONS<br />
Greater global demand drives<br />
record shipments in 2011<br />
The expansion of world demand for steel and<br />
<strong>Gerdau</strong>’s commercial efforts allowed the company to<br />
break the record in shipments in 2011. It sold 19.2<br />
million metric tons during the year, representing a<br />
growth of 10% compared to the previous year. This<br />
good performance was driven by increased demand<br />
from the automotive and energy industry in the United<br />
States and Canada, and by the construction in Brazil<br />
and other Latin American countries.<br />
Consolidated steel production also broke a record.<br />
It progressed 10% over 2010, totaling 19.6 million<br />
metric tons with expansion in volumes produced in<br />
all regions where the Company operates. Important<br />
investments were made during the year for the<br />
expansion of installed capacity and modernization<br />
of industrial mills totaling R$ 2 billion in 2011. The<br />
biggest investments have been for the production of<br />
flat steel in Brazil, scheduled to start by the end of<br />
2012, to increase our own production of iron ore.<br />
Shipments per Business Division<br />
19.2 million metric tons<br />
Latin America<br />
15.3%<br />
Does not include<br />
operations<br />
in Brazil<br />
Special Steel<br />
13.8%<br />
Includes special steel<br />
operations in Brazil,<br />
Spain and the US<br />
Note: The above information does not include data from<br />
affiliated companies and jointly-owned subsidiaries.<br />
Brazil<br />
36.9%<br />
Does not include<br />
special steel<br />
operations in Brazil<br />
North America<br />
34.0%<br />
Does not include<br />
Mexico and special<br />
steel mills in the<br />
United States<br />
ANNUAL REPORT GERDAU 2011<br />
“In the year that <strong>Gerdau</strong> completed 110<br />
years, we continue investing in order to<br />
ensure excellence in all operations. We<br />
have also worked with a focus on reducing<br />
costs and achieving new synergies<br />
between the units. Over the next five<br />
years, we will invest R$ 10.3 billion with a<br />
special focus on entering into the flat steel<br />
production market in Brazil, expanding the<br />
special steel installed capacity in Brazil<br />
and the United States, and increasing our<br />
presence in India. We will also continue<br />
our project to sell the surplus of iron ore<br />
with the goal of achieving self-sufficiency<br />
of this important raw material in Brazil.”<br />
Claudio <strong>Gerdau</strong> Johannpeter<br />
<strong>Gerdau</strong> Chief Operating Officer (COO)<br />
19
20 ANNUAL REPORT GERDAU 2011<br />
OUTLOOK | WORLD<br />
▪ The World Steel Association estimates<br />
indicate that global steel consumption is<br />
expected to grow 5.4% in 2012 driven<br />
mainly by demand from emerging markets<br />
(BRIC, Middle East, and North Africa). The<br />
Company also believes that the United<br />
States will continue in its recovery period<br />
and is following carefully the evolution of the<br />
economic crisis in Europe.<br />
▪ About 70% of consumption for 2012 should<br />
occur in developing economies where<br />
<strong>Gerdau</strong> has a large portion of its operations.<br />
▪ According to this scenario, <strong>Gerdau</strong> is fully<br />
prepared to meet the future needs of steel<br />
in countries where it operates. In 2012, the<br />
Company will continue investing to add value<br />
to its products, increase the installed capacity<br />
in relevant markets, improve operational<br />
excellence of its units, reduce costs, and<br />
achieve new synergies between operations.<br />
▪ Investments of R$ 10.3 billion are scheduled<br />
for the next five years (2012 - 2016).<br />
BRAZIL (except special steel mills)<br />
<strong>Gerdau</strong> reported a good shipments performance<br />
in 2011 in Brazil especially in the area of construction.<br />
The shipments volume reached 7.1 million metric<br />
tons, a 6% growth over 2010, and steel production<br />
in turn reached 7.6 million metric tons, up 9% from a<br />
year earlier.<br />
Despite increases in the levels of production volume<br />
and shipments, the level of business profitability<br />
was impacted by the pressure of raw material costs,<br />
unfavorable exchange rates, and expansion of direct<br />
and indirect imports of steel.<br />
Under “Brazil”, <strong>Gerdau</strong> reports all its activities in the<br />
country except for the special steel segment, whose<br />
information is provided separately. In the Brazilian<br />
market, the Company operates with 11 steel mills, 4<br />
downstream operations, 40 fabricated reinforcing steel<br />
facilities, 4 flat steel service centers, 7 scrap collection<br />
and processing facilities, and 4 iron ore extraction<br />
areas. In each state of the country, the Company<br />
has at least one Comercial <strong>Gerdau</strong> unit, which is a<br />
distributor of flat and long steel. In total there are 82<br />
distribution branches.<br />
<strong>Gerdau</strong> steel was used for the construction of the Rio Negro bridge,<br />
the second largest cable-stayed bridge in the world over river water
During the year, <strong>Gerdau</strong> intensified its work to<br />
reduce the cost of raw materials, increase the<br />
productivity of its mills, and expand its product<br />
mix. In relation to our own production of iron ore, the<br />
Company continues with the goal of achieving selfsufficiency<br />
of this raw material in Brazil. Furthermore,<br />
studies for the commercial exploitation of surplus iron<br />
ore located in Minas Gerais are underway.<br />
In 2011, <strong>Gerdau</strong> continued with its investments for<br />
the start of production of flat steel in Brazil, especially<br />
the installation of a hot rolled coil mill at <strong>Gerdau</strong><br />
Açominas (see table “<strong>Gerdau</strong> will start production of<br />
flat steel in Brazil”).<br />
GERDAU WILL START PRODUCTION OF FLAT STEEL IN BRAZIL<br />
In late 2012, <strong>Gerdau</strong> will begin producing flat<br />
steel products in Brazil, expanding the product<br />
range offered to its customers. In the first stage<br />
of the investment, a new rolling mill for hot rolled<br />
coils will start up operations aimed to meet<br />
the needs of the construction industry (steel<br />
The new rolling mill for hot rolled coils will start its operations by the end of 2012<br />
ANNUAL REPORT GERDAU 2011<br />
To meet the needs of the civil construction consumer<br />
market, the Company expanded the installed capacity<br />
of the structural shapes rolling mill in 2011, which is<br />
also located in <strong>Gerdau</strong> Açominas, to 700,000 metric<br />
tons per year. Considering the prospect of continued<br />
growth in demand, the Company has already initiated<br />
studies to expand to 1 million metric tons the annual<br />
production capacity of structural shapes, which are<br />
used in construction, the oil industry, as well as for<br />
machinery and equipment.<br />
Throughout the year, <strong>Gerdau</strong> also provided steel<br />
for the construction of soccer stadiums for the 2014<br />
World Cup and major infrastructure building projects<br />
construction), oil, shipbuilding, machinery, and<br />
implements. In the second stage, a heavy plate<br />
rolling mill will begin its operations. Both pieces of<br />
equipment will be located at <strong>Gerdau</strong> Açominas in<br />
Ouro Branco (MG).<br />
21
22 ANNUAL REPORT GERDAU 2011<br />
for the country such as railways, wind power mills,<br />
bridges, ports, and highways, as well as the Federal<br />
Government’s My House, My Life program stimulating<br />
home ownership. In addition, it continued investing<br />
to add value to its clients in the civil construction<br />
sector. An example of this was the increase in the<br />
rebar fabricating capacity with the expansion and<br />
opening of new units. The fabricated reinforcing steel<br />
facilities system provides greater cost savings, quality,<br />
and speed in the execution of building projects.<br />
The Company has also announced investments in<br />
improvements to the Araçariguama (SP) rolling mill<br />
with the installation of a new line of <strong>Gerdau</strong> GG 50<br />
rebar in coils, which will start up operation in 2012.<br />
OUTLOOK | BRAZIL<br />
▪ The perspective for 2012 is for continued<br />
growth of the internal market where steel<br />
consumption is expected to reach 26.7<br />
million metric tons, which is an increase of<br />
7% over 2011 according to the Brazil Steel<br />
Institute.<br />
▪ <strong>Gerdau</strong> will continue to provide steel for<br />
the construction of soccer stadiums as well<br />
as infrastructure building projects such as<br />
Bus Rapid Transit (BRT), railways, wind<br />
power mills, ports, and highways. In 2012,<br />
the civil construction sector should be<br />
driven by the acceleration of the building<br />
projects for the World Cup in 2014 and by<br />
the continuity of Federal Government’s My<br />
House, My Life program.<br />
▪ Given these prospects, the Company is<br />
fully prepared to meet the demand for steel<br />
in Brazil considering its current installed<br />
capacity and planned investments.<br />
In addition, a new rolling mill for wire rod and rolled<br />
rebar will be installed at the Cosigua (RJ) mill, which<br />
will begin operations in 2013, initially with an installed<br />
capacity of 600,000 metric tons per year, a volume<br />
that will be increased to 1.1 million metric tons a<br />
year in a second stage. The expansion project also<br />
includes the installation in Rio de Janeiro of a new<br />
rebar fabricated reinforcing steel facility for civil<br />
construction and another subsidiary of Comercial<br />
<strong>Gerdau</strong> focused on selling steel products.<br />
LATIN AMERICA (does not include operations in Brazil)<br />
<strong>Gerdau</strong> ended the year with increased shipments<br />
and production in Latin America, which is a market<br />
that showed a significant recovery in 2011 despite<br />
the high level of imports and high pressure from<br />
costs. The consolidated volume of shipments in Latin<br />
America was 2.6 million metric tons in 2011, 19%<br />
more than the previous year with the highest growth<br />
taking place in Colombia, Argentina, and Chile. In<br />
the same period, steel production reached 1.7 million<br />
metric tons, an increase of 15% compared to 2010.<br />
<strong>Gerdau</strong> made several investments in order to<br />
keep up with the growing demand for steel in the<br />
region. A new fabricated reinforcing steel facility<br />
was inaugurated in Mexico, and it is <strong>Gerdau</strong>’s first<br />
in the country. The unit is geared to meet the civil<br />
construction industry in the region.<br />
A new welded wire mesh factory was installed<br />
in Guatemala, which is also dedicated to civil<br />
construction. Also, a new drawing mill and rolling mill<br />
for rebars and light merchant bars is scheduled to<br />
start up operations in 2012, strengthening our service<br />
capacity in the domestic market and neighboring<br />
countries. The new mill will have an annual installed<br />
capacity of 200,000 metric tons.
<strong>Gerdau</strong> opened its first fabricated reinforcing steel facility in Mexico, geared to meet the demand of civil construction of the region<br />
In the Dominican Republic, the Company opened<br />
a new rolling mill with a capacity of 400,000 metric<br />
tons for rebars and light merchant bars in 2011. As a<br />
result, <strong>Gerdau</strong> became the sole producer of structural<br />
shapes in the Caribbean region.<br />
In Venezuela, several operational improvements<br />
were made as well as technical and managerial<br />
training of employees. As a result, there was an<br />
increase of 50% in production with the expansion of<br />
service capacity and volume of deliveries for the civil<br />
construction market.<br />
In Colombia, <strong>Gerdau</strong> took up its activities again at<br />
its Duitama unit that has a rebar rolling mill with an<br />
annual production capacity of 90,000 metric tons.<br />
It also made several investments for technological<br />
upgrading of the Yumbo mill, which resumed<br />
operations in early 2012 to better meet the growing<br />
demand for long steel in the country. The mill, whose<br />
production is geared to meet the civil construction<br />
industry, has an annual installed capacity of 240<br />
metric tons.<br />
OUTLOOK | LATIN AMERICA<br />
ANNUAL REPORT GERDAU 2011<br />
Investments are also planned to increase the capacity<br />
of the mills and plants of Tocancipá and Tuta in 2012,<br />
adding 80,000 metric tons to their annual installed<br />
capacity in Colombia. Furthermore, a port terminal<br />
will be inaugurated in the country for shipment of coal<br />
and coke, which are important raw materials for steel<br />
production. The port will serve mainly the markets of<br />
Brazil, Mexico, and the United States.<br />
▪ A strong recovery in the civil construction<br />
and infrastructure sectors should keep<br />
demand for steel strong in 2012.<br />
▪ According to the World Steel Association,<br />
the countries of Latin America (except Brazil)<br />
should reach a steel consumption of 41.7<br />
million metric tons in 2012, which is an<br />
increase of 5% over the previous year.<br />
23
24 ANNUAL REPORT GERDAU 2011<br />
In Peru, a project is being studied to expand the<br />
capacity of the rolling mill Siderperu. The improvement<br />
of the port logistics structure and of the mill’s<br />
environmental protection technologies are also<br />
scheduled for 2012. This year completed the fiveyear<br />
period of commitments made by <strong>Gerdau</strong> in the<br />
purchase of Siderperu with the Peruvian State. The<br />
fulfillment of this commitment was endorsed by audit<br />
firms of recognized prestige and has been supervised<br />
and approved by the Agency for Promoting Private<br />
Investments (ProInversión).<br />
In Chile, investments were made in a new dust removal<br />
system in the Colina mill. In addition, studies are<br />
underway to expand the Company’s installed capacity.<br />
NORTH AMERICA (does not include Mexico and<br />
special steel mills in the United States)<br />
The growing recovery in the economy of the United<br />
States and Canada has had a positive impact on<br />
the performance of <strong>Gerdau</strong>’s shipments in the<br />
region. Moreover, the constant work of management<br />
to increase productivity and reduce costs, along with<br />
investments in modernization of units has increased the<br />
Company’s competitiveness.<br />
During the year, 6.5 million metric tons of steel were<br />
sold, which is 14% more compared to 2010 mostly due<br />
to the increase in demand for long steel products from<br />
the manufacturing and oil & gas industries in the region,<br />
as well as due to the increase of exports from the United<br />
States. Steel production reached 7 million metric tons –<br />
12% higher from a year earlier.<br />
<strong>Gerdau</strong> has a large industrial presence in North America with 20 steel mills, 12 downstream operations, 48 fabricated reinforcing steel facilities,<br />
and 22 scrap collection and processing facilities
<strong>Gerdau</strong> has a large industrial presence in the region:<br />
20 mills, 12 downstream operations, 48 fabricated<br />
reinforcing steel facilities, and 22 scrap collection<br />
and processing units. This makes it possible for us to<br />
serve our customers with unique advantages such as<br />
agility and a broad product mix.<br />
In the coming years, the Company will continue<br />
investing to increase the competitiveness of its<br />
units. The annual installed capacity of the Midlothian<br />
mill in Texas, <strong>Gerdau</strong>’s main unit in North America, will<br />
evolve to 1.8 million metric tons of steel. The installed<br />
capacity of rebars will also be expanded in the same<br />
unit to 550,000 metric tons per year. Both initiatives<br />
will start operations in 2014. Furthermore, a new<br />
reheating furnace will be commissioned at the Calvert<br />
City (Kentucky) mill at the end of 2012.<br />
In 2012, the Company will also initiate the deployment<br />
of the <strong>Gerdau</strong> Template, a project to ensure the use<br />
of a single information technology system through<br />
the SAP platform in all of <strong>Gerdau</strong>’s operations (see<br />
“Strategy and Competitive Advantage” section).<br />
OUTLOOK | NORTH AMERICA<br />
▪ The perspective for 2012 is a recovery<br />
of the economies of North America driven<br />
primarily by the continued recovery in the<br />
manufacturing industry and of the oil & gas,<br />
energy, and agriculture sectors.<br />
▪ The World Steel Association predicts that<br />
steel consumption in the United States is<br />
expected to grow 5% in 2012, reaching 93.8<br />
million metric tons. In Canada, the growth<br />
forecast is 5% in steel consumption, reaching<br />
14.7 million metric tons.<br />
ANNUAL REPORT GERDAU 2011<br />
<strong>Gerdau</strong> provided steel for the construction of the Freedom Towers<br />
(USA), a project to rebuild the World Trade Center<br />
SPECIAL STEEL (includes mills in Brazil, Spain, the<br />
United States and India)<br />
In 2011, the growing demand from the automotive<br />
sector in Brazil and the United States brought<br />
about a 6% increase in shipments of special steel<br />
at <strong>Gerdau</strong> in comparison with the previous year,<br />
reaching 2.9 million metric tons. In the same period,<br />
steel production reached 3.4 million metric tons, an<br />
increase of 5%. Against this backdrop of growth in<br />
shipments, <strong>Gerdau</strong> announced new investments in<br />
its special steel units in Brazil and the United States<br />
(see table “<strong>Gerdau</strong> invests to increase its production<br />
capacity of special steel”).<br />
In Brazil, the Brazilian automotive sector posted<br />
shipments of 3.4 million vehicles in the period,<br />
keeping in line with the 2010 volume according to<br />
the National Association of Vehicle Manufacturers<br />
(Anfavea). Thus, the Brazilian market remained the<br />
4th largest in the world in vehicles sold. Due to the<br />
anticipated growth in coming years, new vehicle mills<br />
will be installed in the country and existing companies<br />
in this market will expand, thus creating an increased<br />
demand for special steels.<br />
25
26 ANNUAL REPORT GERDAU 2011<br />
In the markets of the United States, Canada, and<br />
Mexico, the production of vehicles (passenger and<br />
light commercial vehicles) recorded 13 million units,<br />
which increased 10% compared to 2010. Motivated<br />
by the good performance of the market, new car<br />
manufacturers are also coming to the United States,<br />
and the level of nationalization of the automotive<br />
components also continues to expand.<br />
The production of <strong>Gerdau</strong>’s special steel is directed to the<br />
segment of special bar quality (SBQ), which primarily serves<br />
the automotive supply chain<br />
As for Europe, the number of light, medium, and<br />
heavy commercial vehicles evolved to 1.9 million<br />
units, which is 10% higher than in 2010 according to<br />
the European Automobile Manufacturers’ Association<br />
(ACEA). To cope with the economic instability of<br />
the region, the Company continued its efforts to<br />
reduce costs, increase productivity, and diversify the<br />
markets served.<br />
OUTLOOK | SPECIAL STEEL<br />
▪ The prospects for 2012 are positive for the<br />
special steel market in Brazil, the United States,<br />
and India.<br />
▪ In Brazil, according to the National Association<br />
of Vehicle Manufacturers (Anfavea), it is<br />
estimated that vehicle production will grow 2%<br />
in 2012, thus keeping the high demand levels<br />
already recorded in the last years.<br />
▪ In the United States, demand for steel should<br />
also remain at high levels mainly due to the<br />
need to renew the fleet of vehicles and the good<br />
moment being experienced by the oil & gas<br />
industry. For the market of medium and heavy<br />
commercial vehicles, which carry more steel<br />
in their composition, the estimates indicate a<br />
growth of 10% in production in 2012. In relation<br />
to the market for light vehicles (light commercial<br />
and passenger vehicles), the estimate is an 8%<br />
growth in production.<br />
▪ As regards to Europe, the prospects for<br />
the production of light, medium, and heavy<br />
commercial vehicles are of decreasing in 2012.<br />
▪ In India, the prospects for production of vehicles<br />
(passenger, light and medium commercial<br />
vehicles, motorcycles, and tricycles) point to a<br />
growth of up to 13% in 2012 compared with 2011<br />
according to the Society of Indian Automobile<br />
Manufacturers (SIAM).
<strong>Gerdau</strong>, one of the largest suppliers of<br />
special steel in the world, is making significant<br />
investments to expand the supply of special<br />
steels in Brazil and the United States, as well<br />
as expand its presence in India. Its production<br />
is aimed at the segment of special bar quality<br />
(SBQ), which is sold primarily to the automotive<br />
supply chain.<br />
In Brazil, an expansion of the Pindamonhangaba<br />
(SP) mill is scheduled with the installation of a<br />
new special steel rolling mill, continuous casting,<br />
and a reheating furnace. With this, the annual<br />
installed capacity of the mill will grow from its<br />
current 700,000 metric tons of rolled products to<br />
1.2 million metric tons. In the Mogi das Cruzes<br />
(SP) mill, the rolling capacity will be increased<br />
from 216,000 metric tons to 276,000 metric<br />
tons per year. Both investments should start up<br />
operations by the end of 2012.<br />
ANNUAL REPORT GERDAU 2011<br />
GERDAU INVESTS TO INCREASE ITS PRODUCTION CAPACITY OF SPECIAL STEEL<br />
A program is underway in the United States to<br />
expand the mill in Monroe (Michigan), which<br />
should be completed by the second half of 2013.<br />
The initiative includes the installation of a new<br />
continuous casting system, as well as a new<br />
reheating furnace of the walking beam type and<br />
four rolling stands. <strong>Gerdau</strong>’s other special steel<br />
mills in the United States located in Fort Smith<br />
(Arkansas), Jackson (Michigan), and St. Paul<br />
(Minnesota) will also receive investments to<br />
better serve customers of the automotive and<br />
industrial sector.<br />
In India, <strong>Gerdau</strong> will start up rolling mill operations<br />
in 2012 for special steels and rebars along with<br />
sintering, besides continuing with the installation<br />
of a coke mill and carrying out projects in the area<br />
of power generation.<br />
New special steel rolling mill, continuous casting, and reheating furnace will be installed in the Pindamonhangaba mill (SP)<br />
27
28 ANNUAL REPORT GERDAU 2011<br />
FINANCES<br />
Greater demand for steel<br />
boosts net revenue<br />
NET REVENUE<br />
<strong>Gerdau</strong>’s record in shipments in 2011 resulted in a<br />
13% increase in its consolidated net revenue, which<br />
reached R$ 35.4 billion.<br />
OPERATING EXPENSES<br />
In 2011, the cost of shipments in consolidated terms<br />
totaled R$ 30.3 billion, 17% above that recorded in<br />
2010. This increase reflects a higher shipments<br />
volume and rising costs of key raw materials.<br />
The expenses with shipments increased in<br />
accordance with the higher shipments volume while<br />
general and administrative expenses remained in line<br />
with those of the year 2010 even with the expansion<br />
of the economic activity because of the Company’s<br />
Consolidated statement of income - summarized*<br />
<strong>Gerdau</strong> S.A. and subsidiaries (R$ millions)<br />
* Years ended on December 31, 2011 and 2010<br />
Source of net revenue<br />
R$ 35.4 billion<br />
Special Steel<br />
21.2%<br />
Includes special steel<br />
operations in Brazil,<br />
Spain and the US<br />
North America<br />
30.5%<br />
Does not include Mexico<br />
and special steel mills<br />
in the United States<br />
Note: The information above does not include data from<br />
affiliated companies and jointly owned subsidiaries<br />
Brazil<br />
35.9%<br />
Does not include<br />
special steel<br />
operations in Brazil<br />
Latin America<br />
12.4%<br />
Does not include<br />
operations in Brazil<br />
2011 2010 % 2011/2010<br />
Net shipments 35,407 31,393 13%<br />
Cost of shipments (30,298) (25,873) 17%<br />
Gross profit 5,109 5,520 -7%<br />
Selling, general, and administrative expenses (2,402) (2,358) 2%<br />
Reversal (Losses) by the non-recoverability of assets and restructuring<br />
costs<br />
- 336 -<br />
Other income/operating expenses and result from equity in earnings 172 146 18%<br />
Income before financial income and taxes 2,879 3,644 -21%<br />
Financial income (528) (685) -23%<br />
Income before taxes 2,351 2,959 -21%<br />
Income tax and social contribution (253) (502) -50%<br />
Net income for period 2,098 2,457 -15%
Composition of consolidated EBITDA *<br />
(R$ million)<br />
* Includes the results of affiliated companies and jointly owned subsidiaries according to the equity method.<br />
efforts to reduce costs. With this, the share of<br />
the selling, general, and administrative expenses<br />
compared to net revenue decreased from 8% in 2010<br />
to 7% in 2011.<br />
EBITDA<br />
The EBITDA, also known as generation of cash from<br />
operations, was R$ 4.7 billion in 2011, a reduction of<br />
11% compared to 2010 primarily due to higher costs<br />
of raw materials. As a consequence, the EBITDA<br />
margin was also impacted, going from 17% last year<br />
to 13% in 2011.<br />
Despite the drop of the EBITDA, there was an<br />
increase of 49% in the generation of cash from<br />
operations of the North America Business Operation<br />
(does not include mills producing special steels),<br />
mainly because of higher shipments volumes.<br />
FINANCIAL RESULT<br />
The financial result was negative R$ 528 million<br />
against a R$ 685 million loss the previous year,<br />
which was due mainly to the public offering of shares<br />
held in April 2011. This offer caused a reduction in<br />
indebtedness, and increased financial resources<br />
(see details on the public offering of shares in the<br />
“Shareholders” section).<br />
EBITDA<br />
R$ 4.7 billion<br />
Brazil<br />
Does not include special<br />
steel operations in Brazil<br />
ANNUAL REPORT GERDAU 2011<br />
2011 2010 % 2011/2010<br />
Net income 2,098 2,457 -15%<br />
Net financial income 528 685 -23%<br />
Provision for income tax and social contributions 253 502 -50%<br />
Depreciation and amortization 1,772 1,893 -6%<br />
Reversal/losses by assets write-offs - (336) -<br />
EBITDA 4,651 5,201 -11%<br />
EBITDA Margin 13% 17%<br />
1,153<br />
437<br />
1,177<br />
1,884<br />
North<br />
America<br />
Does not include Mexico<br />
and special steel mills<br />
in the United States<br />
2011 2010<br />
1,284<br />
419<br />
789<br />
2,709<br />
Latin America<br />
Does not include<br />
operations in Brazil<br />
Special Steel<br />
Includes special steel<br />
operations in Brazil,<br />
Spain and the US<br />
Note: Includes the results of affiliated companies and jointly owned<br />
subsidiaries according to the equity method<br />
29
30 ANNUAL REPORT GERDAU 2011<br />
Net income<br />
(R$ million)<br />
NET INCOME<br />
During the year, <strong>Gerdau</strong>’s consolidated net income<br />
reached R$ 2.1 billion against R$ 2.5 billion in<br />
2010 due mainly to lower operating income. The<br />
reversal/loss for the non-recoverability of assets and<br />
restructuring costs that occurred in 2010 totaling<br />
R$ 208 million, net of taxes, also contributed to this<br />
reduction.<br />
VALUE ADDED BREAKDOWN<br />
The value added of <strong>Gerdau</strong> companies in<br />
consolidated terms reached R$ 9.8 billion in 2011,<br />
which is a 5% increase on the previous year. This<br />
good performance is a result of revenues from<br />
products and services net of discounts, which reached<br />
R$ 37 billion in the year, net of costs.<br />
R$ 27.2 billion related to raw materials and consumer<br />
goods, outsourced services, depreciation and<br />
amortization, equity in earnings, and financial income,<br />
among other items.<br />
FINANCIAL LIABILITIES<br />
In 2011, the level of indebtedness showed<br />
improvement to the previous year. One of the main<br />
factors that influenced this performance was the<br />
public offering of shares, which resulted in a net inflow<br />
of R$ 3.6 billion in resources for the Company.<br />
2011 2010 % 2011/2010<br />
Income before taxes * 2,351 2,959 -21%<br />
Income tax and social contribution (253) (502) -50%<br />
Consolidated net income * 2,098 2,457 -15%<br />
* Includes the results of affiliated companies and jointly owned subsidiaries according to the equity method.<br />
Of this total, R$ 2.1 billion was used to advance<br />
payment of debts, which contributed to a 27%<br />
reduction in net debt (gross debt less available<br />
cash, cash equivalents, and investments) and a<br />
108% increase in cash, which keeps <strong>Gerdau</strong> in a<br />
comfortable financial situation for years to come.<br />
As a result, the net debt that was R$ 12.5 billion in<br />
Value added breakdown<br />
R$ 9.8 billion<br />
6.3%<br />
Dividends and<br />
interest on<br />
shareholder’s equity<br />
15.2%<br />
Profits<br />
reinvested<br />
10.1%<br />
Interest on<br />
financing<br />
41.9%<br />
Salaries benefits,<br />
profit sharing<br />
and training<br />
26.5%<br />
Taxes<br />
and social<br />
contributions
December 2010 dropped to R$ 9.1 billion at year-end<br />
of 2011, while cash (available cash, cash equivalents,<br />
and investments) totaled R$ 4.6 billion, and 22% of<br />
this amount was held by <strong>Gerdau</strong> companies abroad,<br />
mainly in US dollars.<br />
On December 31, 2011, 49% of the Company’s gross<br />
debt (loans and financing and debentures) was in<br />
Indebtedness<br />
(R$ million)<br />
ANNUAL REPORT GERDAU 2011<br />
foreign currency contracted by the subsidiaries in<br />
Brazil, 28% in different currencies contracted by<br />
subsidiaries abroad, and 23% in reais. Of the total<br />
gross debt, 87% was long-term and 13% short-term.<br />
The relationship between net debt and EBITDA reached<br />
2.0 times in December 2011 against 2.4 in December<br />
2010. The relationship between gross debt and EBITDA,<br />
in turn, reached 2.9 times versus 2.8 times.<br />
31/12/2011 31/12/2010<br />
Short term 1,757 1,693<br />
Local currency (Brazil) 821 703<br />
Foreign currency (Brazil) 243 169<br />
Companies abroad 693 821<br />
Long term 11,927 12,977<br />
Local currency (Brazil) 2,383 2,623<br />
Foreign currency (Brazil) 6,462 5,656<br />
Companies abroad 3,082 4,698<br />
Gross debt 13,684 14,670<br />
Cash, cash equivalents, and financial investments 4,578 2,204<br />
Net debt 9,106 12,466<br />
31
Relationships<br />
100% of the employees at the Cotia (São Paulo)<br />
unit participated in programs that encourage<br />
innovation, creativity, and teamwork
EMPLOYEES<br />
Incentives to overcome challenges<br />
and autonomy contribute to<br />
increased competitiveness<br />
<strong>Gerdau</strong> respects, values, and invests in its more<br />
than 45,000 employees. It stimulates overcoming<br />
challenges, entrepreneurship, and autonomy,<br />
providing opportunities for developing a work<br />
environment where people feel more engaged and<br />
fulfilled. Upon completing 110 years, the Company<br />
reinforced the spread of its corporate culture by<br />
updating at a global level its Values, Code of<br />
Ethics, Mission, and Vision, which are critical to its<br />
sustainability, making it even more cohesive and<br />
integrated (see chapter “110 Years of History”).<br />
HEALTH AND SAFETY<br />
People’s safety is a fundamental value for <strong>Gerdau</strong>.<br />
Because of this, no emergency situation or production<br />
results justify the lack of safety of its employees and<br />
contractors. That is why the Total Safety System was<br />
created, which is a comprehensive and rigorous set<br />
of practices that involves continuous investment in<br />
technologies, equipment, and overall management<br />
systems in this area. During the year, these<br />
investments reached R$ 71 million, up 45% over 2010.<br />
As a result of the Company’s continuous efforts<br />
and investments, the frequency rate of accidents<br />
per million hours worked (international index that<br />
measures the occurrence of accidents in the<br />
workplace) was reduced from 2.3 in 2010 to 1.6 in<br />
2011. This index is well below the industry average,<br />
whose most recent number available is<br />
2.3 according to the World Steel Association.<br />
In recognition of its safety practices, <strong>Gerdau</strong> received<br />
the Safety and Health Excellence Recognition<br />
for the second time in 2011, which is an important<br />
award granted by the World Steel Association.<br />
The project called “The Path of the Liquid Steel”<br />
Accident frequency rate*<br />
Accident frequency rate*<br />
2.79<br />
2011<br />
1.6<br />
2011<br />
0.97<br />
3.83<br />
ANNUAL REPORT GERDAU 2011<br />
*Lost-time accident frequency rates per million hours worked,<br />
including employees and service providers. The data also includes<br />
restricted work and change of function (OSHA recordable treated<br />
as LT accidents).<br />
Investments in<br />
occupational<br />
safety and<br />
health<br />
(R$ million)<br />
2.3<br />
2010<br />
2010<br />
1.28<br />
5.13<br />
2.9<br />
2009<br />
2009<br />
1.20<br />
Companies acquired less than 5 years ago<br />
Companies acquired more than 5 years ago<br />
71.0<br />
2011<br />
49.1<br />
2010<br />
39.9<br />
2009<br />
33
34 ANNUAL REPORT GERDAU 2011<br />
seeks to ensure safe procedures for personnel and<br />
equipment during the processes of melting, refining,<br />
and transporting steel. The initiative is part of a set<br />
of procedures to identify and assess the main risks<br />
of the production process, establishing strict control<br />
standards to eliminate them in all its units.<br />
The project “Path of the Liquid Steel” received the award<br />
Safety and Health Recognition of the World Steel Association<br />
<strong>Gerdau</strong> values safe behavior and therefore honors<br />
employees and units with the best results. Among<br />
the highlights is the performance of Barão de Cocais<br />
(MG) mill.<br />
INTERNAL CLIMATE<br />
The results of the Opinion Survey, which evaluates<br />
<strong>Gerdau</strong>’s internal climate at a global level, had<br />
a favorability index of 75% that reflects the good<br />
relationship between the Company and its employees<br />
and is in line with the previous year’s performance.<br />
According to the Hay Group, which is recognized<br />
internationally in the area of internal climate<br />
management, the satisfaction of working in <strong>Gerdau</strong><br />
is among the highest in the world. The rate of<br />
participation in the survey reached 96%.<br />
TRAINING<br />
In 2011, <strong>Gerdau</strong> invested R$ 32.1 million in training<br />
its staff, which is 52% more than in 2010. In total, the<br />
activities involved 2.3 million hours of training, which<br />
corresponds on average to 49.7 hours of training per<br />
employee.<br />
One of the highlights of this area is the <strong>Gerdau</strong><br />
Business Program (GBP), an MBA tailor-made for the<br />
Company’s needs for training high-performance global<br />
leaders. During the year, the Company began its third<br />
GBP class in which <strong>Gerdau</strong> executives participate<br />
during a two-year period in modules in world-renown<br />
educational institutes such as Insper in Brazil, Insead<br />
in France, and Duke University in the United States.<br />
FUTURE GERDAU TRAINEES<br />
The Future <strong>Gerdau</strong> Trainee program seeks to attract,<br />
develop, and retain talents with higher potential and<br />
aligned with the Company’s corporate culture. The<br />
intention is that they take on leadership positions in<br />
the Company in the future. In 2011, more than 24,000<br />
people participated in the selection process,<br />
which included interactive stages to provide greater<br />
exposure of the candidates and this way make a<br />
more thorough evaluation of their profile. In total, 152<br />
young people were admitted and started to work at<br />
<strong>Gerdau</strong> units in nine countries: Brazil, Canada, Chile,<br />
Colombia, United States, Mexico, Peru, Dominican<br />
Republic, and Venezuela.<br />
SUCESSORS<br />
To prepare fully trained professionals, <strong>Gerdau</strong> created<br />
the People Development Committees, which have<br />
as their main objective to discuss and define the<br />
succession of executive positions in the Organization.<br />
Debates about career and succession are conducted<br />
by leaders of different areas. Throughout the year, 435<br />
People Development Committees were held in the<br />
various countries where <strong>Gerdau</strong> operates.<br />
Training and development 2011 2010<br />
Investments (R$ million) 32.1 21.1<br />
Number of training hours per employee 53.4 49.7
COMPENSATION AND BENEFITS<br />
<strong>Gerdau</strong> adopts a compensation policy that seeks<br />
to enhance the commitment and outstanding<br />
performance of its employees. Besides the fixed<br />
salary, they receive variable remuneration based upon<br />
the achievement of individual goals, of the teams, and<br />
of the operations.<br />
The Company also offers a benefit plan to its<br />
employees and their families that includes a defined<br />
contribution private pension plan, life insurance,<br />
health insurance, dental care, college scholarship,<br />
and a nutrition allowance for children up to 12 months,<br />
among others. These benefits are aligned with<br />
<strong>Gerdau</strong>’s needs in the various regions of the world<br />
where it operates.<br />
LABOR UNION AGREEMENTS<br />
<strong>Gerdau</strong>’s relationship with the unions is guided by<br />
the pursuit of common interests and mutual gains.<br />
To this end, the negotiations are conducted in a<br />
transparent manner taking into account respect for<br />
labor demands and the sustainability of the Company<br />
in the long run. In 2011, <strong>Gerdau</strong> closed 16 labor<br />
agreements in Brazil, Canada, Chile, Spain, the<br />
United States, Mexico, and Peru.<br />
EMPLOYEE COMMUNICATIONS<br />
<strong>Gerdau</strong> establishes an open and permanent<br />
dialog with its employees through an employee<br />
communications global system that contributes<br />
to spreading <strong>Gerdau</strong>’s corporate culture. Among<br />
the main channels of communication is <strong>Gerdau</strong><br />
Connection, a biannual magazine sent to the homes<br />
of all the Company’s employees that cover topics such<br />
as products, the steel market, sustainability, safety,<br />
and management practices. In addition, employees<br />
can read news about the Company at the blog <strong>Gerdau</strong><br />
Connection, which publishes an average of two<br />
articles a week and is available on the Intranet.<br />
In 2011, <strong>Gerdau</strong> continued its quarterly meetings<br />
through conference calls, bringing together over a<br />
thousand leaders around the world who are led by<br />
the Chief Executive Officer (CEO) and the Chief<br />
Profit sharing<br />
(R$ million)<br />
ANNUAL REPORT GERDAU 2011<br />
585.7<br />
2011<br />
511.3<br />
2010<br />
Benefits (R$ million) 2011 2010<br />
Meals 71.7 52.3<br />
Transportation 68.6 52.0<br />
Health Insurance 299.0 265.8<br />
Private Pension Plan 137.3 147.9<br />
Operating Officer (COO). At these meetings the<br />
leaders discuss the global economic scenario and<br />
prospects for the business, as well as the Company’s<br />
challenges and priorities for the months ahead.<br />
MANAGEMENT FOCUSED ON THE OPERATOR<br />
<strong>Gerdau</strong> is continually developing initiatives to<br />
increase the autonomy and responsibility of its<br />
teams. One of these is the program Management<br />
Focused on the Operator (MFO) whereby the<br />
managerial activities of the cells are shared with the<br />
operators. Thus, in addition to carrying out their usual<br />
activities, they also take annual turns to take control of<br />
processes such as quality, costs, maintenance, safety,<br />
and environment.<br />
As the employees are developed, MFO increases<br />
the productivity of the processes and the quality<br />
of final products. All this reflects positively on<br />
business results.<br />
KNOWLEDGE MANAGEMENT<br />
The Knowledge Management portal is one of<br />
<strong>Gerdau</strong>’s unique management tools that aims to<br />
maximize the knowledge existing in the Company<br />
by increasing the operational efficiency of the<br />
35
36 ANNUAL REPORT GERDAU 2011<br />
mills. One of the main channels of interaction of<br />
the portal are Practice Communities that facilitate<br />
communication between employees from different<br />
countries through a virtual network for sharing best<br />
practices.<br />
Thus, it is possible from any location to request<br />
assistance from specialists in different countries<br />
for the development of problem solving. Practice<br />
Communities today bring together more than 3,400<br />
professionals from 89 facilities in 13 countries. The<br />
year 2011 closed with 34 communities in operation<br />
and approximately 10,800 documents and news<br />
being accessed.<br />
SIX SIGMA<br />
Since 2000 <strong>Gerdau</strong> has used the Six Sigma<br />
methodology to leverage results quickly and<br />
consistently and to reach more challenging goals. This<br />
methodology consists of carrying out improvement<br />
projects using quality and statistic tools by specially<br />
trained professionals. In 2011, 98 projects were<br />
completed, which brought a financial return of<br />
approximately US$ 160 million. Currently <strong>Gerdau</strong><br />
develops Six Sigma projects at units in Argentina,<br />
Brazil, Canada, Chile, and the United States.<br />
STIMULUS TO INNOVATION AND CREATIVITY ARE A STRONG FOCUS AT GERDAU<br />
<strong>Gerdau</strong> seeks creative solutions to ensure greater<br />
competitiveness for its operations. To do so it<br />
develops participatory programs such as Quality<br />
Improvement Story (QIS) and Ideas Program to<br />
stimulate autonomy, creativity, innovation, and<br />
teamwork among its employees. In 2011, four mills<br />
in Brazil and four in Colombia reached 100% of<br />
their employees to be involved in these programs.<br />
Worldwide, <strong>Gerdau</strong> has more than 11,500<br />
employees participating.<br />
In QIS, teams of three to seven people offer<br />
solutions by means of methodologies and<br />
management tools to problems encountered in<br />
their daily tasks. In 2011, 6,179 professionals<br />
participated in 410 projects, which helped generate<br />
earnings of US$ 176 million for <strong>Gerdau</strong>. Every year<br />
the solutions that bring more return to the business<br />
are presented at the Global Meeting of the Quality<br />
Improvement Story at which time the teams that<br />
have achieved more significant results around the<br />
world are recognized.<br />
In the Ideas Program, on the other hand,<br />
employees present either individually or in groups<br />
innovative solutions to their managers related to<br />
daily tasks. In 2011, this initiative recorded the<br />
participation of 7,108 employees. There were<br />
59,725 ideas registered with 30,107 of them<br />
implemented throughout the year. As a result,<br />
<strong>Gerdau</strong> achieved earnings of US$ 14 million.<br />
The Global Meeting of the Quality Improvement Story brings together the best projects to solve problems faced in the daily tasks of the business
CUSTOMERS<br />
Superior quality in everything<br />
we do ensures excellent<br />
customer service<br />
Being the customer’s choice is one of <strong>Gerdau</strong>’s<br />
values. That’s why the Company is always seeking<br />
to achieve the highest quality in everything it does<br />
and to develop innovative solutions to meet the<br />
specific needs of each one of its more than 120,000<br />
customers in all market segments and geographic<br />
regions where it operates. It also works to help them<br />
be more competitive based on a relationship of mutual<br />
respect, trust, and a long-term win-win vision. <strong>Gerdau</strong><br />
continuously invests in training a team of highly skilled<br />
professionals, which has 258 employees with master’s<br />
degrees and 21 with doctorate degrees.<br />
It also has a large and qualified sales team, which<br />
allows greater proximity to customers, making the<br />
service more responsive and effective. This effort<br />
of differentiated customer service brought about the<br />
positive results obtained in the opinion survey<br />
conducted with approximately 7,600 customers in<br />
2011, which showed a high level of satisfaction and<br />
preference, especially in commercial and technical<br />
service items, product quality, and logistics.<br />
The Company also works continuously to monitor<br />
and anticipate the needs of its customers. To do so,<br />
it has four research and development centers<br />
– two in Brazil, one in the United States, and one<br />
in Spain – mainly focused to meet the needs of<br />
the automotive industry. In Spain, for example,<br />
the Research and Development Center of <strong>Gerdau</strong><br />
Sidenor is participating in the Etorgai project, which<br />
is a public-private initiative of industrial research<br />
for strategic sectors that seeks to develop a type<br />
of nano-alloyed steel for the automotive chain. The<br />
objective is to improve mechanical properties such as<br />
resistance, tenacity, and useful life so that in the future<br />
nano-alloyed steel can also be applied in the segment<br />
ANNUAL REPORT GERDAU 2011<br />
of renewable energies. The research involves the<br />
participation of 55 persons, of which 25 are part of the<br />
<strong>Gerdau</strong> Sidenor team.<br />
In several countries where it operates, <strong>Gerdau</strong> also<br />
conducts seminars and training courses for improving<br />
the qualification of its customers. Throughout 2011,<br />
for example, it developed the program “The World of<br />
Special Steels” that sought to enhance the technical<br />
knowledge of its customers on applications and<br />
specifications of products in this segment. Among<br />
the topics discussed during the talks were the<br />
manufacturing processes of steel for mechanical<br />
purposes, its mechanical properties, thermal<br />
treatments, as well as the application and selection of<br />
products. The theoretical content was complemented<br />
with the technical visits of the participants to <strong>Gerdau</strong>’s<br />
special steel mills in Brazil.<br />
Following the concept of sustainability, the Company<br />
also develops programs to encourage excellence in<br />
management and entrepreneurship with small and<br />
medium customers (see table “<strong>Gerdau</strong> invests in the<br />
development of its customers”), thus reinforcing the<br />
steel supply chain. With its broad product line, <strong>Gerdau</strong><br />
has been supplying steel for significant projects in<br />
several countries. In Brazil, for example, <strong>Gerdau</strong> steel<br />
is part of the construction and modernization of eight<br />
soccer stadiums for the 2014 FIFA World Cup and<br />
major infrastructure projects for the country such as<br />
railways, wind power mills ports, and roads. In the<br />
United States, <strong>Gerdau</strong> steel has also been used for<br />
building the Freedom Towers, a project for rebuilding<br />
the World Trade Center, among other ventures.<br />
In 2011, <strong>Gerdau</strong> was the first steel producer in Brazil<br />
to receive the Falcão Bauer Environmental Seal for<br />
agricultural products. The Company had already been<br />
the first steel manufacturer in the country to have civil<br />
construction products certified by the environmental<br />
seal, helping its clients obtain environmental<br />
certifications for projects developed with <strong>Gerdau</strong> steel.<br />
In total, more than 30 products from <strong>Gerdau</strong> have<br />
received certification.<br />
37
38 ANNUAL REPORT GERDAU 2011<br />
GERDAU INVESTS IN THE DEVELOPMENT OF ITS CUSTOMERS<br />
In 2011, <strong>Gerdau</strong> intensified its programs to<br />
encourage excellence in management and<br />
entrepreneurship of micro and small customers.<br />
Courses were developed in Brazil for developing<br />
micro and small metalworking shops, and in<br />
Colombia the focus of these initiatives was on the<br />
network of distributors. In Chile, on the other hand,<br />
the initiatives sought to leverage the business of<br />
small and medium metallurgy companies.<br />
In Brazil, the Company also developed three new special<br />
steel products in 2011. One of them is patina-bound<br />
steel for the local manufacturing of fasteners for steel<br />
structures, which were previously imported. Among the<br />
benefits of this new product is its corrosion resistance,<br />
which is up to three times greater than that of common<br />
steel. <strong>Gerdau</strong> also developed a steel micro-alloyed<br />
to niobium for automotive fasteners, which means a<br />
significant reduction in supply chain costs, and the<br />
SAE4145 steel for fasteners used in wind towers.<br />
During the year, the quality of <strong>Gerdau</strong>’s products and<br />
services were recognized through various awards.<br />
In the special steel segment, it was awarded by the<br />
Sogefi Group, one of the leading manufacturers of<br />
stabilizer bars and automotive suspension springs in the<br />
world, as a supplier with the best performance in South<br />
America with an emphasis on product quality, punctuality<br />
The courses and consulting services given to these<br />
customers seek to encourage management skills,<br />
innovation, and total quality, which contribute to<br />
their increased productivity and competitiveness.<br />
During the year more than 6,000 hours of training<br />
were given, benefiting 121 companies. As a result,<br />
these companies recorded an average increase of<br />
34% in their volumes of purchasing steel products<br />
compared to 2010.<br />
Training for small and medium metalworking shops in Brazil seeks to encourage management skills, innovation, and total quality<br />
with deliveries, and partnership in developing new<br />
business. It also received the Supplier Performance<br />
Award from Meadville Forging Company, a leading<br />
forging company in the United States, for the quality of<br />
its products and customer service.<br />
In Brazil, <strong>Gerdau</strong>’s long steel products were awarded<br />
by the Magazine “Revenda” as Best Product of the<br />
Year in the categories of rebars and nails. <strong>Gerdau</strong> also<br />
was recognized with the Anamaco Award for suppliers<br />
with the best performance in the construction industry,<br />
which awarded <strong>Gerdau</strong> in the categories of rebars, nails,<br />
fences/trusses and annealed wire, along with the Pini<br />
Award in the category of rebar. In the agricultural sector, it<br />
was featured in the Top List with its products oval-shaped<br />
wire and barbed wire, as well as in the Top of Mind Rural<br />
and Magazine “Rural” for its wires and fences.
SUPPLIERS<br />
Long-term relationship and search<br />
for mutual gains with suppliers<br />
<strong>Gerdau</strong> believes that the development and<br />
sustainability of its business are directly linked to<br />
being able to build lasting relationships with its<br />
chain of suppliers.<br />
This is done by having a relationship that is direct,<br />
transparent, and with mutual gains resulting in greater<br />
competitiveness and better quality of customer service<br />
by the Company.<br />
To achieve this, <strong>Gerdau</strong> continued in 2011 to hold<br />
global negotiating tables involving employees<br />
from all operations of the Company in order to get<br />
economies of scale, productivity, and efficiency in the<br />
purchase of supplies and equipment. This initiative<br />
enables greater market knowledge of key materials<br />
in the manufacturing process and expands the<br />
synergies between <strong>Gerdau</strong>’s operations around the<br />
world, as well as generates business opportunities<br />
GERDAU ENCOURAGES THE COMPETITIVENESS OF SUPPLIERS<br />
Since 2007, <strong>Gerdau</strong> has supported the training<br />
of micro, small, and medium companies with<br />
the belief that it plays a key role in the business<br />
chain of steel. This work is done by means of<br />
the Supplier Development Program, which is<br />
an initiative that grows every year. In 2011, the<br />
program was launched in Argentina and Peru<br />
and was expanded to seven other states in<br />
Brazil beyond Rio Grande do Sul, where the<br />
initiative was carried out four years ago. During<br />
the year, 21,000 hours of consulting and training<br />
were developed benefiting 291 companies that<br />
generate more than 2,000 direct jobs. As a result<br />
ANNUAL REPORT GERDAU 2011<br />
for its suppliers in different countries and regions<br />
streamlines its logistics of deliveries.<br />
At the same time, <strong>Gerdau</strong> gives preference to<br />
hiring suppliers that share its policy of respect for<br />
people and the environment. Besides requiring strict<br />
compliance with the laws in each country where it<br />
operates, the Company also performs periodic audits<br />
to ensure compliance of their suppliers to their levels<br />
of excellence.<br />
Because steel scrap is one of its main raw materials<br />
for steel production, <strong>Gerdau</strong> is dedicated to improving<br />
its supply chain in various countries. In 2011, aiming<br />
to develop and integrate these micro and small<br />
suppliers into the Company’s business, technical and<br />
managerial training programs were promoted for more<br />
than 75 companies and scrap cooperatives in Brazil,<br />
Chile, Colombia, Peru, and Uruguay, which resulted in<br />
an increase of 32% on sales of scrap to <strong>Gerdau</strong> when<br />
comparing the years 2011 and 2010. The training<br />
programs pass on to the suppliers good practices<br />
in management, quality, and occupational health<br />
and safety. Moreover, the importance of achieving<br />
sustainable practices in the social and environmental<br />
area is reinforced. In 2012 the initiative will also be<br />
done in Mexico and Venezuela.<br />
of the initiative, the business volume between<br />
<strong>Gerdau</strong> and the micro and small participating<br />
companies grew 8% compared to 2010.<br />
The program seeks to train organizations on<br />
issues related to excellence and sustainability<br />
of their business, as well as on the evolution<br />
of its management performance in the main<br />
competitive dimensions. In 2012, the initiative will<br />
be expanded to Colombia and Mexico and will<br />
involve, among all participating countries, a total<br />
of 450 micro, small, and medium companies.<br />
39
40 ANNUAL REPORT GERDAU 2011<br />
SHAREHOLDERS<br />
Good governance practices<br />
ensure sustainable performance<br />
in the capital market<br />
With 65 years of experience in capital markets,<br />
<strong>Gerdau</strong> has more than 140,000 shareholders<br />
worldwide. Throughout this period it has established a<br />
sustainable performance in the capital market based<br />
on financial strength and good corporate governance<br />
practices. Currently <strong>Gerdau</strong> has three publicly traded<br />
companies: Metalúrgica <strong>Gerdau</strong> S.A., <strong>Gerdau</strong> S.A.,<br />
and Empresa Siderúrgica del Perú S.A.A. (Siderperu).<br />
In 2011, these companies totaled US$ 48 billion in<br />
trading volume on the stock exchanges of São Paulo,<br />
New York, Madrid, and Lima.<br />
SUPPLY OF CAPITAL<br />
A public offering of shares was completed in the<br />
year that resulted in a net inflow of R$ 3.6 billion in<br />
the Company’s cash resources. Of this total, R$ 2.1<br />
billion were used to make advance payment of debts.<br />
Because of this, there was a 27% reduction in net<br />
debt and an increase of 108% of cash comparing<br />
December 2011 with the same period in 2010,<br />
which keeps the Company in a comfortable financial<br />
situation for years to come.<br />
The operation involved a primary offering of common<br />
and preferred shares of <strong>Gerdau</strong> S.A., worth R$ 3.7<br />
billion, and a secondary offering of <strong>Gerdau</strong> S.A.’s<br />
preferred shares held by Metalúrgica <strong>Gerdau</strong> S.A.<br />
and <strong>Gerdau</strong> BG Participações S.A., amounting to<br />
R$ 1.3 billion.<br />
There were 68.03 million common shares and 134.83<br />
million preferred shares issued of <strong>Gerdau</strong> S.A. to carry<br />
out the primary offering. In the secondary offering, 69<br />
million preferred shares held by Metalúrgica <strong>Gerdau</strong><br />
S.A. and by BG Participações S.A. were sold.<br />
LEVEL OF INVESTMENT<br />
<strong>Gerdau</strong>’s improved liquidity position and capital<br />
structure contributed so that the rating agencies<br />
Standard & Poor’s and Fitch Ratings maintained<br />
an investment grade rating of BBB- in 2011. In<br />
addition, Moody’s agency assigned to the Company<br />
an investment grade of Baa3 with a stable outlook.<br />
As a result, <strong>Gerdau</strong> received an investment grade<br />
by all three most known risk rating agencies in the<br />
capital market, which demonstrates the market’s<br />
confidence in the Company’s management.<br />
IMPROVEMENT OF PRACTICES<br />
In 2011, the companies Metalúrgica <strong>Gerdau</strong> S.A.<br />
and <strong>Gerdau</strong> S.A. voluntarily joined Abrasca Code<br />
of Self-Regulation and Good Practices of Public<br />
Companies. The objective of the code is to encourage<br />
the adoption and use of a set of principles, rules, and<br />
recommendations that help to ensure a standard of<br />
good corporate governance.<br />
<strong>Gerdau</strong> S.A. also follows the strict corporate<br />
governance standards determined by the Sarbanes-<br />
Oxley (SOx) Act because the company’s shares are<br />
traded on the New York Stock Exchange through<br />
ADRs - American Depositary Receipts.<br />
SHAREHOLDER COMPENSATION<br />
<strong>Gerdau</strong>’s three publicly listed companies –<br />
Metalúrgica <strong>Gerdau</strong> S.A., <strong>Gerdau</strong> S.A., and Empresa<br />
Siderúrgica del Perú S.A.A. (Siderperu) – have clear<br />
compensation policies in line with the parameters of<br />
the market. Metalúrgica <strong>Gerdau</strong> S.A. and <strong>Gerdau</strong><br />
S.A. pay dividends and/or interest every three months<br />
on capital of at least 30% of adjusted net income<br />
for the year in accordance with Brazilian accounting<br />
practices. This percentage is higher than the level of<br />
25% set by corporate law. Empresa Siderúrgica del<br />
Perú S.A.A. (Siderperu) in turn pays dividends of up to<br />
33% of its adjusted net income.<br />
In 2011 shareholders of Metalúrgica <strong>Gerdau</strong><br />
S.A. received dividends of R$ 224 million, which<br />
corresponds to R$ 0.55 per share. The compensation<br />
for those owning <strong>Gerdau</strong> S.A. shares reached R$ 597<br />
million, which corresponds to R$ 0.35 per share.
Distribution of Dividends<br />
(R$ million)<br />
50<br />
40<br />
30<br />
20<br />
41%<br />
37%<br />
30%<br />
25%<br />
For the fifth consecutive year, <strong>Gerdau</strong> S.A. and<br />
Metalúrgica <strong>Gerdau</strong> S.A. are among the 38 member<br />
companies of the Business Sustainability Index<br />
(ISE) from BM&FBovespa. The ISE brings together<br />
companies recognized for their commitment to<br />
sustainable development and socially responsible<br />
practices, and that also insert the topic into their<br />
strategies.<br />
Moreover, the <strong>Gerdau</strong> companies are part of the main<br />
index of BM&FBOVESPA, Ibovespa, in which <strong>Gerdau</strong><br />
S.A. has the tenth highest liquidity among companies<br />
that make up this indicator. They are also listed on the<br />
Special Corporate Governance Stock Index (IGC),<br />
the Share Index with Differentiated Tag Along Rights<br />
(ITAG), on the Brazil Index 50 (IBrX50), the Index<br />
of Basic Materials (IMAT), and the Industrial Sector<br />
Index (INDX).<br />
RECOGNITION OF CAPITAL MARKET<br />
During the year, <strong>Gerdau</strong> won the Latin Finance Deal<br />
of the Year award in the category Best Follow-On<br />
Equity Issue granted by the publication Latin Finance<br />
that considered the public offering of shares held by<br />
<strong>Gerdau</strong> as the most successful operation of its kind<br />
held in Latin America during the year 2011.<br />
Furthermore, it was one of the winners of the 15th<br />
Anefac-Fipecafi-Serasa - Transparency Trophy related<br />
to financial statements for 2010. It was the 12th time<br />
in a row that <strong>Gerdau</strong> was ranked among the top<br />
ten companies with the best financial statements.<br />
The award is aimed at companies headquartered in<br />
Brazil with operations in the areas of trade, industry,<br />
Metalúrgica <strong>Gerdau</strong> S.A. (Payout)<br />
33% 33%<br />
30%<br />
25%<br />
ANNUAL REPORT GERDAU 2011<br />
Minimum Dividend<br />
<strong>Gerdau</strong> S.A. (Payout) Compulsory Dividend (Law S/A)<br />
32% 32%<br />
30%<br />
25%<br />
2009 2010 2011<br />
and services, beside the 50 largest state-owned<br />
companies.<br />
In addition, <strong>Gerdau</strong> and its professionals were<br />
highlighted in nine categories in the ranking of the<br />
Institutional Investor Magazine - 2011 Latin America<br />
Executive Team. The publication recognizes every<br />
year the top Chief Executive Officers (CEOs), Chief<br />
Financial Officers (CFOs), and investor relations<br />
professionals from Latin America based on a survey<br />
made with analysts and fund managers.<br />
The company also received the IR Magazine Brazil<br />
Award - Honorable Mention for the area of investor<br />
relations in the segment of individual investors.<br />
The award recognizes the excellence of companies<br />
and investor relations (IR) professionals in their<br />
communication with their shareholders and IR<br />
practices in Brazil. The winners are chosen by<br />
a survey carried out by the Brazilian Institute of<br />
Economics of Getúlio Vargas Foundation – FGV.<br />
AGILITY AND TRANSPARENCY IN<br />
COMMUNICATION WITH SHAREHOLDERS<br />
Shareholders and analysts of the stock market are<br />
informed about the performance of <strong>Gerdau</strong>’s business<br />
through a communication system that is efficient<br />
and easy to access. In this sense, one of the<br />
highlights is the Company’s website (www.gerdau.<br />
com/investidores) that provides specific information<br />
for individual shareholders and institutional investors<br />
in Portuguese, English, and Spanish. In addition,<br />
<strong>Gerdau</strong> holds conferences and presentations in<br />
various markets worldwide.<br />
41
42 ANNUAL REPORT GERDAU 2011<br />
SOCIETY<br />
Sustainable development<br />
of communities and the<br />
business chain<br />
<strong>Gerdau</strong> believes that the strengthening of<br />
communities is critical to the growth of its business<br />
and sustainable development of the regions<br />
close to its units. That is why it stimulates local<br />
business chains of steel, mainly by encouraging the<br />
growth of micro and small companies and it supports<br />
ENTREPRENEURIAL EDUCATION PROJECTS BENEFIT STUDENTS<br />
<strong>Gerdau</strong> believes that entrepreneurial attitudes<br />
can contribute to creating jobs and improving<br />
people’s quality of life. One example of this is<br />
its partnership with Junior Achievement that<br />
benefited more than 13,000 students in 238<br />
schools in 2011. The programs were offered<br />
in Brazil, Argentina, Uruguay, Peru, Colombia,<br />
Mexico, and the Dominican Republic with the<br />
participation of 595 volunteers from <strong>Gerdau</strong>.<br />
Junior Achievement is the largest and oldest<br />
organization of practical education in business,<br />
economics, and entrepreneurship in the world.<br />
In 2012, <strong>Gerdau</strong> will also begin to support<br />
The JA Job Shadow Program is developed by <strong>Gerdau</strong> employees in various countries<br />
social programs relevant to the communities where it<br />
operates.<br />
Besides the investments in this area, which totaled<br />
R$ 61 million in 2011, the company involves its<br />
employees in doing volunteer work, as well as<br />
mobilizing different segments of society, multiplying<br />
the results of their actions by bringing together the<br />
knowledge and skills of those involved. All of these<br />
activities receive orientation from the <strong>Gerdau</strong> Institute,<br />
which is responsible for the Company’s policies and<br />
guidelines for social responsibility and are guided by<br />
specific focus of activity: education, management &<br />
quality, and providing emergency assistance.<br />
projects from this entity in the United States,<br />
Spain and Venezuela.<br />
One of the projects developed by employees<br />
of <strong>Gerdau</strong> that can be highlighted is the JA Job<br />
Shadow Program. The initiative provides students<br />
the opportunity to follow in the footsteps of an<br />
executive during his/her entire workday. This<br />
way young people acquire a realistic view of<br />
the business world while also learning how the<br />
knowledge acquired in the classroom can be<br />
applied in professional life.
ANNUAL REPORT GERDAU 2011<br />
GERDAU SUPPORTS THE MODERNIZATION OF PUBLIC MANAGEMENT IN BRAZIL<br />
<strong>Gerdau</strong> seeks to contribute with the development<br />
of society by actively participating in programs of<br />
public interest. That is why the Company supports<br />
the initiatives of the Competitive Brazil Movement<br />
(MBC), which aims to provide greater efficiency and<br />
more productivity to the government in Brazil. The<br />
Modernizing Public Management Program (PMGP),<br />
for example, accounts for returns of R$ 188.00 for<br />
every R$ 1.00 invested. This means that the gains<br />
of the ten Brazilian states and eight municipalities<br />
benefited by this program reach, considering five<br />
years of work, an annual efficiency of more than<br />
R$ 14.2 billion. These results are obtained without<br />
raising taxes or interrupting services,<br />
In 2011, <strong>Gerdau</strong> continued in its internationalization<br />
efforts and dissemination of best practices<br />
of social responsibility in order to strengthen<br />
concepts on socially responsible management and<br />
to stimulate a reflection on the challenge of the<br />
Company in the insertion of the topic into its strategy<br />
and business. Throughout the year, 50 workshops<br />
on social responsibility were carried out involving<br />
944 executives in Brazil, the United States, Peru,<br />
Colombia, Mexico, and the Dominican Republic.<br />
Furthermore, another nine <strong>Gerdau</strong> Institute<br />
committees were created: five in Spain, two in Mexico,<br />
one in Colombia, and one in the Dominican Republic,<br />
which are added to the 48 committees already in<br />
place in Argentina, Brazil, Canada, Chile, the United<br />
States, Peru, and Uruguay. The committees have the<br />
active participation of employees from different areas<br />
of the Company who have the autonomy to coordinate<br />
in each of the Company’s units the budget and<br />
initiatives to be supported in the communities.<br />
Through the <strong>Gerdau</strong> Volunteer Program (PVG), the<br />
Company encourages its employees to pursue<br />
volunteer activities in society. During the year,<br />
approximately 9,500 employees served as volunteers<br />
in social projects, which is a number 21% higher than<br />
the one recorded in 2010.<br />
but only through improved management and<br />
increased productivity, which turns into benefits for<br />
society. The MBC is also committed to improving<br />
the business environment in Brazil. That is why it<br />
develops a number of actions to take management<br />
tools and concepts to micro and small companies.<br />
One of the most effective channels of this strategy<br />
is the MPE Brazil, a Competitiveness Award for<br />
Micro and Small Company that was attended by<br />
over 58,000 companies in its 2011 edition. In Rio<br />
Grande do Sul where <strong>Gerdau</strong>’s headquarters are<br />
located, work has also been developed in the area<br />
of public administration through the Rio Grande do<br />
Sul Quality and Productivity Program (PGQP).<br />
In North America, for example, <strong>Gerdau</strong> employees<br />
support the United Way, which is one of the largest<br />
charity institutions in the world, through the donation<br />
of funds or volunteer hours. For every dollar donated<br />
by employees, the Company invests the same<br />
amount to meet the demands of the communities<br />
in areas close to the Company’s mills. Founded in<br />
1876, United Way supports social projects that benefit<br />
communities in 42 countries mainly in the areas of<br />
health, education, and income generation.<br />
Programs to encourage excellence in<br />
management and entrepreneurship stand out in<br />
the business chain. In 2011, these initiatives were<br />
intensified through partnerships with major institutions<br />
such as the Brazilian Service to Support Micro and<br />
Small Enterprises (SEBRAE), Deutsche Gesellschaft<br />
für Internationale zusammenarbeit (GIZ), and<br />
Corporación de Fomento de la Producción de Chile<br />
(Corfo) – read more about this topic in the chapters<br />
“Customers” and “Suppliers”.<br />
In Brazil another highlight in 2011 was to support the<br />
remodeling of the Church of Our Lady of Conception<br />
located in Conselheiro Lafaiete (MG), whose baroque<br />
construction dates back to 1733.<br />
43
Environment<br />
<strong>Gerdau</strong> inaugurated its new dust removal<br />
system for air protection in the Cearense<br />
(Ceará) mill and replaced the existing one
ENVIRONMENTAL<br />
MANAGEMENT<br />
Efficient management<br />
system keeps the<br />
environment protected<br />
<strong>Gerdau</strong> is continually working to reduce the impact<br />
of its activities on the environment. That is why it<br />
follows stringent practices to protect nature, invests in<br />
new industrial technologies, and seeks to rationalize<br />
the use of natural resources and inputs. In 2011,<br />
R$ 370.9 million was allocated for the protection<br />
of the environment with a special highlight to the<br />
modernization projects of the dust removal systems<br />
in mills in Brazil, Chile, Colombia, and the United<br />
States. The dust removal systems captures with<br />
high efficiency the solid particles generated in the<br />
steelmaking process.<br />
Through the Environmental Management System<br />
(EMS), a set of processes aligned with ISO<br />
14001 standard, the Company monitors under an<br />
environmental point of view, the entire steel production<br />
ANNUAL REPORT GERDAU 2011<br />
cycle, from obtaining the raw material until the final<br />
delivery of the product, including the allocation of<br />
by-products. Currently, 47 industrial mills of <strong>Gerdau</strong>,<br />
which represents 87% of the total, have the ISO<br />
14001 certification.<br />
SCRAP<br />
As the largest recycler in Latin America, <strong>Gerdau</strong><br />
transforms more than 15 million tons of scrap steel<br />
every year. More than 75% of <strong>Gerdau</strong>’s production<br />
is made from electric steel mills whose main raw<br />
material is scrap, while the world average is only 28%.<br />
The use of scrap for the steel production process<br />
contributes to the preservation of the environment<br />
because it reduces the consumption of energy and<br />
other supplies such as iron ore and coke, and, as a<br />
result, reduces emissions of CO . 2<br />
ENERGY<br />
<strong>Gerdau</strong> continuously invests in expanding its energy<br />
efficiency through the improvement and optimization<br />
of industrial processes. It is also expanding the use of<br />
natural gas in its operations, which is already used in<br />
more than 90% of <strong>Gerdau</strong>’s units worldwide.<br />
GERDAU LAUNCHES A PROJECT TO RECYCLE THOUSANDS OF VEHICLES IN BRAZIL<br />
<strong>Gerdau</strong> has begun a pioneering project<br />
to recycle thousands of vehicles<br />
confiscated decades ago by the State of<br />
Rio Grande do Sul. Besides contributing<br />
to the protection of the environment, this<br />
initiative plays an important economic<br />
and social role since it reduces the costs<br />
that the government has to store the<br />
cars and creates job opportunities. In<br />
2012, the project will be expanded to<br />
other regions of the country.<br />
This initiative should be expanded to other regions of Brazil in 2012<br />
45
46 ANNUAL REPORT GERDAU 2011<br />
Furthermore, an expansion of the capacity of its<br />
own energy production is scheduled through the<br />
construction of new hydroelectric mills in Brazil. At the<br />
same time, the Company is working on increasing the<br />
energy generation by reusing the by-products from the<br />
production process of its mills.<br />
AIR<br />
<strong>Gerdau</strong>’s industrial mills are equipped with modern<br />
atmosphere protection systems, which are the dust<br />
removal systems. They are equipment that capture<br />
with high efficiency solid particles generated in the<br />
production of steel, which are later reused by other<br />
industry segments.<br />
The use of scrap as the main raw material for steel<br />
production in most mills contributes to reaching high<br />
energy efficiency, which makes it possible to reduce<br />
CO in the atmosphere by 70% in comparison with the<br />
2<br />
world average for this sector.<br />
BY-PRODUCTS<br />
<strong>Gerdau</strong> seeks intelligent and sustainable alternatives<br />
for the use of by-products generated during the<br />
steel production. This is done through several<br />
initiatives such as identifying recycling opportunities<br />
in the production process of steel itself, developing<br />
research partnerships with universities, research<br />
institutions, and industries, as well as making internal<br />
improvements in the processing of by-products to<br />
facilitate recycling.<br />
In 2011, <strong>Gerdau</strong> increased the level of reuse of its byproducts,<br />
contributing to the conservation of natural<br />
resources. The reuse rate of these materials, which<br />
considers the volume of waste reused by different<br />
segments of economy and the steel industry itself,<br />
reached 78.3%.<br />
During the year, one of the highlights was the<br />
beginning of recycling 100% of the dust collected<br />
<strong>Gerdau</strong> recycles 100% of the dust collected by the dust removal system of the mills in São Paulo and Rio de Janeiro
y the dust removal systems of the electric melt<br />
shops of the mills located in São Paulo and Rio de<br />
Janeiro. During the process, all of the zinc contained<br />
in the dust is reused and the rest is transformed into<br />
products for construction. In 2012, feasibility studies<br />
were initiated to extend this project to other industrial<br />
mills located in Brazil. Moreover, <strong>Gerdau</strong>’s mills in the<br />
United States, Canada and Spain also have initiatives<br />
for the reuse of melt shop dust.<br />
The entire process of transportation, storage, and<br />
selling of by-products meets legal requirements and of<br />
the <strong>Gerdau</strong>’s Environmental Management System.<br />
<strong>SUSTAINABLE</strong> PRODUCTS<br />
In Brazil, <strong>Gerdau</strong>’s products for construction are<br />
certified by the Falcão Bauer Environmental Seal.<br />
In addition to ensuring compliance to prerequisites of<br />
sustainability, the seal facilitates achieving, through<br />
contractors, environmental certifications for its projects<br />
developed with <strong>Gerdau</strong> steel.<br />
Sustainable building is also a growing market in<br />
Chile, and <strong>Gerdau</strong> has participated actively in this<br />
process. <strong>Gerdau</strong> steel produced in the country meets<br />
the necessary requirements, including the use of<br />
recyclable material and local manufacturing, so that<br />
builders receive environmental certifications for their<br />
building projects.<br />
BIODIVERSITY<br />
<strong>Gerdau</strong> contributes to preserving biodiversity in the<br />
regions where its units are located. Currently, of the<br />
19,500 acres owned by the Company, 5,800 represent<br />
areas of legal reserves or permanent preservation.<br />
Another 7,600 hectares corresponds to voluntarily<br />
preserved forests.<br />
<strong>Gerdau</strong> also invests in various projects of planting<br />
native flora. In 2011, 103,000 seedlings of different<br />
species were planted in the vicinity of its units<br />
worldwide, contributing to maintaining and expanding<br />
reserves located in their mills.<br />
Water recirculation rate (%)<br />
97.1%<br />
2011<br />
ANNUAL REPORT GERDAU 2011<br />
97.6%<br />
2010<br />
2009<br />
97.3%<br />
WATER<br />
<strong>Gerdau</strong> has a high level of water reuse. In 2011,<br />
97.1% of the water used in the manufacturing process<br />
was treated and reused internally, totaling 2 billion<br />
cubic meters. The small amount of water that is not<br />
reused corresponds mainly to evaporative losses. On<br />
average, <strong>Gerdau</strong> consumes 3.8 cubic meters of water<br />
per ton of steel produced, of which all are virtually<br />
reused.<br />
ENVIRONMENTAL EDUCATION<br />
<strong>Gerdau</strong> continually holds lectures, gives training,<br />
and holds environmental awareness campaigns for<br />
employees. In 2011 these activities involved 27,600<br />
people totaling 67,800 hours of training.<br />
In addition, <strong>Gerdau</strong> launched the 1 st Germinate Prize<br />
of Environmental Education in 2011. The project had<br />
the participation of public and private schools where<br />
<strong>Gerdau</strong> Açominas steel mill is located, totaling 69<br />
entries. Of this total, four of them were selected and<br />
will be developed with resources from <strong>Gerdau</strong> in 2012.<br />
Employees and teachers of the winning schools will<br />
be trained in environmental education and the projects<br />
will be monitored by <strong>Gerdau</strong> employees that are part<br />
of the Germinate Program, which aims to educate<br />
citizens qualified for solving socio-environmental<br />
problems.<br />
47
48 ANNUAL REPORT GERDAU 2011<br />
TIMELINE<br />
João <strong>Gerdau</strong> businesses branch<br />
into two separate areas: Hugo runs<br />
the nail factory and his brother<br />
Walter assumes responsibility for<br />
the <strong>Gerdau</strong> Furniture Factory, both<br />
in Porto Alegre (state of Rio<br />
Grande do Sul, Brazil). In 1930,<br />
Hugo and Walter <strong>Gerdau</strong> take<br />
part in the creation of the State<br />
Center for the Manufacturing<br />
Industry, future Federation of<br />
Industries of the State.<br />
João <strong>Gerdau</strong> and his son Hugo<br />
lay the foundations of <strong>Gerdau</strong><br />
with the Pontas de Paris Nail<br />
Factory in Porto Alegre (state<br />
of Rio Grande do Sul, Brazil).<br />
The Nail Factory<br />
is expanded with<br />
construction of a new mills<br />
in Passo Fundo (state of<br />
Rio Grande do Sul, Brazil),<br />
active until 1964<br />
Hugo <strong>Gerdau</strong> becomes a<br />
founding member of the<br />
Cia. Geral de Indústrias<br />
(state of Rio Grande do<br />
Sul, Brazil), which later<br />
becomes Fogões Geral.<br />
He later assumes control of<br />
the company and in 1947<br />
leaves the business.<br />
Learn about the important facts that<br />
marked <strong>Gerdau</strong>’s history<br />
The Nail Factory – today<br />
Metalúrgica <strong>Gerdau</strong> S.A.<br />
– becomes a public c<br />
ompany and begins<br />
trading on the Porto<br />
Alegre stock exchange.<br />
1907 1933 1947<br />
1901 1914 1946<br />
Curt Johannpeter,<br />
son-in-law of Hugo,<br />
takes the helm of<br />
the company and<br />
oversees a decisive<br />
phase of business<br />
expansion.
Steel production begins with<br />
Riograndense – known as Usina<br />
Farrapos (UFA) – in Porto Alegre<br />
(state of Rio Grande do Sul,<br />
Brazil), with forward-thinking<br />
conception of the minimill, a model<br />
based on the use of scrap and<br />
regional sales, enabling more<br />
competitive operational costs.<br />
The second Riograndense<br />
unit starts up operation in<br />
Sapucaia do Sul (RS). The<br />
mill was also known as Rio<br />
dos Sinos mill.<br />
The <strong>Gerdau</strong><br />
Foundation is<br />
created, with health,<br />
education, housing<br />
and social assistance<br />
programs, reinforcing<br />
the culture of social<br />
responsibility within<br />
the organization.<br />
Germano, Klaus, Jorge,<br />
and Frederico <strong>Gerdau</strong><br />
Johannpeter, the sons of<br />
Curt Johannpeter, take<br />
on leadership positions<br />
in the Company.<br />
The São Judas<br />
Tadeu Wire Factory<br />
is set up in São<br />
Paulo (state<br />
of São Paulo,<br />
Brazil), marking<br />
the company’s<br />
expansion into the<br />
Brazilian southeast.<br />
ANNUAL REPORT GERDAU 2011<br />
<strong>Gerdau</strong> acquires the<br />
Açonorte steel mill<br />
(state of Pernambuco,<br />
Brazil), whose facilities<br />
were being transferred<br />
from Tição (in the city<br />
of Iguarassu) to the<br />
industrial district of<br />
Curado (in the city of<br />
Recife).<br />
1948 1963<br />
1967 1969<br />
1957 1964 1970<br />
Siderúrgica<br />
Riograndense<br />
publicly launches<br />
shares on the Rio<br />
de Janeiro and<br />
São Paulo stock<br />
exchanges.<br />
49
50 ANNUAL REPORT GERDAU 2011<br />
Steel distribution activities start with<br />
the first Comercial <strong>Gerdau</strong> in the<br />
state of São Paulo (Brazil).<br />
<strong>Gerdau</strong> assumes control of the Guaíra<br />
mill, a steel production pioneer in the<br />
state of Paraná (Brazil).<br />
Construction of Cosigua mill<br />
(RJ) begins in the Industrial<br />
District of Santa Cruz, which<br />
was completed in record time of<br />
14 months. The project had the<br />
participation of Thyssen ATH and<br />
was financed by the World Bank<br />
through the International Finance<br />
Corporation (IFC), among others.<br />
Beginning of internationalization<br />
with the acquisition of Laisa<br />
in Uruguay.<br />
Cosigua begins to have its<br />
shares traded on the Stock<br />
Exchanges in São Paulo and<br />
Rio de Janeiro.<br />
Operation begins at<br />
the Cearense mill in<br />
Maracanaú (state of<br />
Ceará, Brazil).<br />
Second <strong>Gerdau</strong><br />
mill in the state of<br />
Paraná (Brazil) begins<br />
operation, in Araucária.<br />
Cosigua shares<br />
are publicly<br />
released,<br />
which earns<br />
the company<br />
over 60 thousand<br />
new shareholders.<br />
<strong>Gerdau</strong> wins its first<br />
privatization auction in<br />
Brazil and acquires the<br />
Barão de Cocais steel<br />
mill (state of Minas<br />
Gerais, Brazil).<br />
1971 1980 1988<br />
1982 1984 1989<br />
<strong>Gerdau</strong> acquires<br />
Usiba (state of<br />
Bahia, Brazil) at a<br />
privatization auction.<br />
<strong>Gerdau</strong> enters North<br />
America with the<br />
acquisition of Courtice<br />
Steel, now <strong>Gerdau</strong><br />
Ameristeel Cambridge, in<br />
Ontario (Canada).
<strong>Gerdau</strong> acquires<br />
Siderúrgica Pains,<br />
currently Divinópolis mill.<br />
The Company acquires AzA in Chile<br />
and Aços Finos Piratini (state of Rio<br />
Grande do Sul, Brazil).<br />
The <strong>Gerdau</strong> GG 50 rebar, a<br />
<strong>Gerdau</strong> flagship product in<br />
Brazil, is released.<br />
<strong>Gerdau</strong> acquires<br />
MRM, in the<br />
province of<br />
Manitoba, Canada.<br />
Acquisition of part<br />
of the capital stock of<br />
Sipar rolling mill in<br />
Argentina. In 2005,<br />
<strong>Gerdau</strong> takes a<br />
controlling stake.<br />
1994 1995 1998 1999<br />
1992 1997<br />
<strong>Gerdau</strong> becomes a partner<br />
of Açominas with a small<br />
ownership stake.<br />
ANNUAL REPORT GERDAU 2011<br />
<strong>Gerdau</strong> acquires control of<br />
Ameristeel, marking its arrival<br />
in the United States.<br />
<strong>Gerdau</strong> S.A., a public<br />
company in Brazil, is listed<br />
on New York Stock<br />
Exchange (NYSE).<br />
51
52 ANNUAL REPORT GERDAU 2011<br />
<strong>Gerdau</strong> celebrates 100 years<br />
in business, with installed steel<br />
production capacity of 8.4<br />
million metric tons per year.<br />
<strong>Gerdau</strong> takes a controlling<br />
stake in <strong>Gerdau</strong> Açominas<br />
(state of Minas Gerais,<br />
Brazil), its largest mill.<br />
<strong>Gerdau</strong> acquires the<br />
Cartersville mill (United States).<br />
2001<br />
2002<br />
The merger of <strong>Gerdau</strong><br />
and Co-Steel, in North<br />
America, creates<br />
<strong>Gerdau</strong> Ameristeel.<br />
Diaco (Colombia) and<br />
North Star Steel (United<br />
States) are acquired.<br />
2004<br />
2005<br />
<strong>Gerdau</strong> goes into Europe,<br />
acquiring 40% of Sidenor.<br />
As a result of this<br />
acquisition, the Company<br />
takes an indirect stake in<br />
Aços Villares (Brazil).<br />
The <strong>Gerdau</strong> Institute,<br />
responsible for coordinating<br />
the organization’s social<br />
responsibility policies and<br />
guidelines, is created.<br />
André B. <strong>Gerdau</strong> Johannpeter takes over as Chief<br />
Executive Officer (CEO) and Claudio <strong>Gerdau</strong><br />
Johannpeter becomes Chief Operating Officer (COO).<br />
<strong>Gerdau</strong> acquires Chaparral Steel, one of the<br />
largest producers of structural shapes in the<br />
United States, thus marking the greatest<br />
acquisition in the history of the Company.<br />
The Company enters Mexico (Siderúrgica<br />
Tultitlán) and Venezuela (Siderúrgica Zuliana).<br />
The Organization also acquires a stake in the<br />
Dominican Republic (Industrias Nacionales - Inca)<br />
and in Aceros Corsa (Mexico); signs agreement for<br />
purchase of Macsteel (United States), and starts<br />
the Kalyani <strong>Gerdau</strong> joint venture (India).<br />
<strong>Gerdau</strong> Açominas (state of Minas Gerais,<br />
Brazil) increases its production capacity by<br />
50% to 4.5 million metric tons per year.<br />
2006<br />
<strong>Gerdau</strong> acquires Siderperu (Peru),<br />
Sheffield Steel (United States),<br />
Callaway Building Products (United<br />
States) and GSB (Spain).<br />
The Company announces its<br />
joint venture Pacific Coast<br />
Steel (United States).<br />
<strong>Gerdau</strong> São Paulo mill state<br />
of São Paulo, Brazil)<br />
commences operations.<br />
2007
<strong>Gerdau</strong> enters Central America, with a<br />
30% stake in Corporación Centroamericana<br />
del Acero, in Guatemala.<br />
The Company acquires a 50.9%<br />
stake in Cleary Holdings (Colombia),<br />
a metallurgical coke producer and<br />
holder of coking coal reserves.<br />
<strong>Gerdau</strong> takes over Macsteel<br />
operations (United States).<br />
The Várzea do Lopes mine (state of<br />
Minas Gerais, Brazil) is initiated.<br />
The Company›s entering into<br />
the flat steel sector in<br />
Brazil is disclosed.<br />
Company announces new<br />
investments in India.<br />
<strong>Gerdau</strong> invests to expand its<br />
own production of iron ore.<br />
ANNUAL REPORT GERDAU 2011<br />
<strong>Gerdau</strong> acquires Tamco (United States), a leading<br />
producer of rebars on the west coast of the United States,<br />
with production capacity of 500,000 metric tons per year.<br />
<strong>Gerdau</strong> gains 100% ownership of <strong>Gerdau</strong><br />
Ameristeel, with the acquisition of approximately<br />
34% of the company’s minority shares. As a result,<br />
the company shares are no longer traded on the<br />
Toronto and New York stock exchanges.<br />
An additional stake of 49.1% is acquired in<br />
Cleary Holdings (Colombia), granting <strong>Gerdau</strong><br />
100% ownership of the company’s capital.<br />
<strong>Gerdau</strong> incorporates Aços Villares, a special steel<br />
producer in Brazil, in which the Company already<br />
had an 87% direct and indirect stake.<br />
2008 2010<br />
2009 2011<br />
<strong>Gerdau</strong> completes 110 years of activity, reaching<br />
an annual production capacity of 25 million<br />
metric tons and revitalizes its logo’s design.<br />
The Mission, Vision, Values, and Code of<br />
Ethics are revised and unified at a global level,<br />
strengthening <strong>Gerdau</strong>’s corporate culture.<br />
<strong>Gerdau</strong> begins studies for commercial exploration of part<br />
of its iron ore resources located in Minas Gerais.<br />
The first phase for implementing the <strong>Gerdau</strong><br />
Template is completed, which aims to deploy a<br />
single system of information technology using SAP<br />
in all countries where the Company operates.<br />
<strong>Gerdau</strong> announces investments to<br />
increase the installed capacity in special<br />
steel mills in Brazil and the United States.<br />
53
54<br />
SUMMARIZED<br />
FINANCIAL<br />
STATEMENTS<br />
<strong>Gerdau</strong> S.A and Metalúrgica <strong>Gerdau</strong> S.A.<br />
As of December 31, 2011 and 2010<br />
GERDAU S.A. AND SUBSIDIARIES<br />
- CONSOLIDATED BALANCE SHEETS<br />
CURRENT ASSETS<br />
ANNUAL REPORT GERDAU 2011<br />
As of December 31, 2011 and 2010<br />
(In thousands of Brazilian reais)<br />
2011 2010<br />
Cash and cash equivalents 1,476,599 1,061,034<br />
Short-term investments held for trading 3,095,359 1,105,902<br />
Short-term investments available for sale 6,290 9,559<br />
Trade accounts receivable - net 3,602,748 3,153,027<br />
Inventories 8,059,427 6,797,785<br />
Tax credits 815,983 586,056<br />
Unrealized gains with financial instruments 140 783<br />
Other current assets 262,603 231,798<br />
NON-CURRENT ASSETS<br />
17,319,149 12,945,944<br />
Long-term investments - 26,797<br />
Tax credits 389,035 401,222<br />
Deferred income taxes 1,547,967 1,579,011<br />
Related parties 111,955 35,037<br />
Unrealized gains with financial instruments - 5,529<br />
Judicial deposits 713,480 493,502<br />
Other non-current assets 201,989 177,143<br />
Prepaid pension cost 533,740 437,072<br />
Advance for capital increase in jointly-controlled entity 65,254 -<br />
Investments in associates and jointly-controlled entities 1,355,291 1,264,520<br />
Other investments 19,366 19,002<br />
Goodwill 9,155,789 8,158,098<br />
Other intangibles 1,273,708 1,176,823<br />
Propriety, plant and equipment, net 17,295,071 16,171,560<br />
32,662,645 29,945,316<br />
TOTAL ASSETS 49,981,794 42,891,260
CURRENT LIABILITIES<br />
ANNUAL REPORT GERDAU 2011 55<br />
2011 2010<br />
Trade accounts payable 3,212,163 1,783,274<br />
Short-term debt 1,715,305 1,577,968<br />
Debentures 41,688 115,069<br />
Taxes payable 591,983 524,967<br />
Payroll and related liabilities 617,432 475,237<br />
Dividends payable 136,391 90,289<br />
Unrealized losses on financial instruments 314 -<br />
Environmental liabilities 31,798 29,191<br />
Other current liabilities 429,927 425,905<br />
NON-CURRENT LIABILITIES<br />
6,777,001 5,021,900<br />
Long-term debt 11,182,290 12,360,056<br />
Debentures 744,245 616,902<br />
Related parties 6 722<br />
Deferred income tax 1,858,725 2,270,849<br />
Unrealized losses on financial instruments 5,013 92,476<br />
Provision for tax, civil, and labor liabilities 907,718 645,375<br />
Environmental liabilities 36,621 42,902<br />
Employee benefits 1,089,784 834,471<br />
Put options on non-controlling interest 533,544 516,706<br />
Other non-current liabilities 327,044 341,286<br />
EQUITY<br />
16,684,990 17,721,745<br />
Capital 19,249,181 15,651,352<br />
Treasury stock -237,199 -161,405<br />
Legal reserve 407,615 307,329<br />
Stock option 36,339 22,700<br />
Other reserves -701,399 -1,884,002<br />
Retained earnings 6,242,932 5,534,468<br />
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF PARENT 24,997,469 19,470,442<br />
NON-CONTROLLING INTERESTS 1,522,334 677,173<br />
EQUITY 26,519,803 20,147,615<br />
TOTAL LIABILITIES AND EQUITY 49,981,794 42,891,260
56<br />
GERDAU S.A. AND SUBSIDIARIES<br />
CONSOLIDATED STATEMENTS OF INCOME<br />
ANNUAL REPORT GERDAU 2011<br />
As of December 31, 2011 and 2010<br />
(In thousands of Brazilian reais)<br />
2011 2010<br />
NET SALES 35,406,780 31,393,209<br />
Cost of sales -30,298,232 -25,873,476<br />
GROSS PROFIT 5,108,548 5,519,733<br />
Selling expenses -603,747 -551,547<br />
General and administrative expenses -1,797,937 -1,805,914<br />
Reversal of impairment of assets - 336,346<br />
Other operating income 195,015 207,320<br />
Other operating expenses -85,533 -100,840<br />
Equity in earnings of unconsolidated companies 62,662 39,454<br />
INCOME BEFORE FINANCIAL INCOME AND TAXES 2,879,008 3,644,552<br />
Financial income 455,802 295,563<br />
Financial expenses -970,457 -1,097,633<br />
Exchange variations, net 51,757 104,364<br />
Gains and losses on financial instruments, net -65,438 12,392<br />
INCOME BEFORE TAXES 2,350,672 2,959,238<br />
Income and social contribution taxes<br />
Current -519,843 -642,306<br />
Deferred 266,747 140,447<br />
NET INCOME 2,097,576 2,457,379<br />
ATTRIBUTABLE TO:<br />
Owners of the parent 2,005,727 2,142,488<br />
Non-controlling interests 91,849 314,891<br />
2,097,576 2,457,379<br />
Basic earnings per share – preferred and common 1,22 1,50<br />
Diluted earnings per share – preferred and common 1,22 1,50
GERDAU S.A. AND SUBSIDIARIES<br />
CONSOLIDATED STATEMENTS OF CASH FLOWS<br />
Cash flows from operating activities<br />
ANNUAL REPORT GERDAU 2011 57<br />
As of December 31, 2011 and 2010<br />
(In thousands of Brazilian reais)<br />
2011 2010<br />
Net income for the year 2,097,576 2,457,379<br />
Adjustments to reconcile net income for the year to net cash provided by<br />
operating activities:<br />
Depreciation and amortization 1,771,881 1,893,074<br />
Reversal of impairment of assets - -336,346<br />
Equity in earnings of unconsolidated companies -62,662 -39,454<br />
Exchange variation, net -51,757 -104,364<br />
Losses (gains) on financial instruments, net 65,438 -12,392<br />
Post-employment benefits 15,882 82,611<br />
Stock-based compensation 13,974 18,629<br />
Income tax 253,096 501,859<br />
Losses (Gains) on disposal of property, plant and equipment and investments 21,006 -20,532<br />
Gains on available for sale securities -28,073 -<br />
Allowance for doubtful accounts 42,980 16,018<br />
Provision for tax, labor, and civil claims 261,024 199,092<br />
Interest income on investments -265,766 -174,622<br />
Interest expense on loans 828,106 919,594<br />
Interest on loans with related parties -4,388 -<br />
Provision for net realisable value adjustment in inventory 56,999 50,526<br />
Reversal of net realisable value adjustment in inventory -122,877 -50,634<br />
Changes in assets and liabilities<br />
4,892,439 5,400,438<br />
Increase in trade accounts receivable -203,041 -660,891<br />
Increase in inventories -681,604 -1,160,419<br />
Increase in trade accounts payable 1,121,433 110,358<br />
(Increase) Decrease in other receivables -415,192 176,403<br />
Decrease in other payables -127,854 -168,962<br />
Distributions from jointly-controlled entities 61,150 68,647<br />
Purchases of trading securities -6,113,717 -712,204<br />
Proceeds from maturities and sales of trading securities 4,384,832 2,423,597<br />
Cash provided by operating activities 2,918,446 5,476,967<br />
Interest paid on loans and financing -726,360 -796,799<br />
Income and social contribution taxes paid -482,068 -541,048<br />
Net cash provided by operating activities 1,710,018 4,139,120
58<br />
Cash flows from investing activities<br />
ANNUAL REPORT GERDAU 2011<br />
2011 2010<br />
Additions to property, plant and equipment -1,961,379 -1,288,769<br />
Proceeds from sales of property, plant and equipment,<br />
investments and other intangibles<br />
11,473 19,269<br />
Additions of other intangible -141,666 -94,598<br />
Advance for capital increase in jointly-controlled entity -74,785 -<br />
Payments for business acquisitions, net of cash of acquired entities - -283,110<br />
Purchases of available for sale securities -723,285 -1,371,835<br />
Proceeds from sales of available for sale securities 778,484 1,415,981<br />
Net cash used in investing activities -2,111,158 -1,603,062<br />
Cash flows from financing activities<br />
Capital increase 3,874,329 -<br />
Purchase of treasury shares -78,094 -38,705<br />
Dividends and interest on capital paid -550,706 -1,018,488<br />
Payment of loans and financing fees -25,530 -4,562<br />
Payment for interest increase in subsidiaries - -2,908,969<br />
Proceeds from loans and financing 1,378,637 3,885,937<br />
Repayment of loans and financing -3,781,247 -3,453,158<br />
Intercompany loans, net -90,325 39,344<br />
Net cash provided by /(used in) financing activities 727,064 -3,498,601<br />
Exchange variation on cash and cash equivalents 89,641 -68,367<br />
Increase (Decrease) in cash and cash equivalents 415,565 -1,030,910<br />
Cash and cash equivalents at beginning of year 1,061,034 2,091,944<br />
Cash and cash equivalents at end of year 1,476,599 1,061,034
METALÚRGICA GERDAU S.A. AND SUBSIDIARIES<br />
CONSOLIDATED BALANCE SHEETS<br />
CURRENT ASSETS<br />
ANNUAL REPORT GERDAU 2011 59<br />
As of December 31, 2011 and 2010<br />
(In thousands of Brazilian reais)<br />
2011 2010<br />
Cash and cash equivalents 1,477,020 1,062,247<br />
Short-term investments held for trading 3,095,359 1,110,804<br />
Short-term investments available for sale 6,290 9,559<br />
Trade accounts receivable - net 3,602,748 3,153,025<br />
Inventories 8,059,427 6,797,785<br />
Tax credits 829,617 602,509<br />
Unrealized gains with financial instruments 140 783<br />
Other current assets 264,966 235,429<br />
NON-CURRENT ASSETS<br />
17,335,567 12,972,141<br />
Long-term investments - 26,797<br />
Tax credits 389,035 401,222<br />
Deferred income taxes 1,658,416 1,683,813<br />
Related parties 82,088 33,981<br />
Unrealized gains on financial instruments - 5,529<br />
Judicial deposits 713,963 493,751<br />
Other non-current assets 201,954 177,870<br />
Prepaid pension cost 533,740 437,205<br />
Advance for capital increase in jointly-controlled entity 65,254 -<br />
Investments in associates and jointly-controlled entities 1,355,291 1,264,520<br />
Other investments 19,560 19,196<br />
Goodwill 9,247,802 8,251,454<br />
Other intangibles 1,273,708 1,176,823<br />
Propriety, plant and equipment, net 17,295,833 16,172,403<br />
32,836,644 30,144,564<br />
TOTAL ASSETS 50,172,211 43,116,705
60<br />
CURRENT LIABILITIES<br />
ANNUAL REPORT GERDAU 2011<br />
2011 2010<br />
Trade accounts payable 3,212,278 1,783,390<br />
Short-term debt 1,715,305 1,577,968<br />
Debentures 45,475 105,897<br />
Taxes payable 594,532 526,732<br />
Payroll and related liabilities 617,432 476,136<br />
Dividends payable 124,894 84,323<br />
Environmental liabilities 31,798 29,191<br />
Unrealized losses on financial instruments 314 -<br />
Other current liabilities 431,900 428,001<br />
NON-CURRENT LIABILITIES<br />
6,773,928 5,011,638<br />
Long-term debt 11,182,290 12,360,056<br />
Debentures 2,040,970 1,919,705<br />
Deferred income tax 1,907,493 2,320,237<br />
Unrealized losses on financial instruments 5,013 92,476<br />
Provision for tax, civil, and labor liabilities 909,116 646,535<br />
Environmental liabilities 36,621 42,902<br />
Employee benefits 1,089,784 834,471<br />
Put options on non-controlling interest 1,348,963 1,256,740<br />
Other non-current liabilities 327,045 342,016<br />
EQUITY<br />
18,847,295 19,815,138<br />
Capital 6,881,998 6,881,998<br />
Treasury stock -69,861 -69,861<br />
Other reserves 76,141 172,187<br />
Retained earnings 2,504,820 1,683,083<br />
Accumulated comprehensive income -353,044 -837,690<br />
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF PARENT 9,040,054 7,829,717<br />
NON-CONTROLLING INTERESTS 15,510,934 10,460,212<br />
EQUITY 24,550,988 18,289,929<br />
TOTAL LIABILITY AND EQUITY 50,172,211 43,116,705
METALÚRGICA GERDAU S.A. AND SUBSIDIARIES<br />
CONSOLIDATED STATEMENT OF INCOME<br />
ANNUAL REPORT GERDAU 2011 61<br />
As of December 31, 2011 and 2010<br />
(In thousands of Brazilian reais)<br />
2011 2010<br />
NET SALES 35,406,780 31,393,209<br />
Cost of sales -30,298,231 -25,873,476<br />
GROSS PROFIT 5,108,549 5,519,733<br />
Selling expenses -603,747 -551,547<br />
General and administrative expenses -1,819,196 -1,833,931<br />
Reversal of impairment of assets - 336,346<br />
Other operating income 209,487 196,370<br />
Other operating expenses -89,284 -101,300<br />
Equity in earnings of unconsolidated companies 62,662 39,454<br />
INCOME BEFORE FINANCIAL INCOME AND TAXES 2,868,471 3,605,125<br />
Financial income 457,042 298,279<br />
Financial expenses -1,131,756 -1,253,236<br />
Exchange variations, net 51,754 104,364<br />
Gains and losses on financial instruments, net -65,438 12,392<br />
INCOME BEFORE TAXES 2,180,073 2,766,924<br />
Income tax and social contribution taxes<br />
Current -526,394 -643,673<br />
Deferred 325,970 165,917<br />
NET INCOME 1,979,649 2,289,168<br />
ATTRIBUTED TO:<br />
Owners of the parent 760,522 895,684<br />
Non-controlling interests 1,219,127 1,393,484<br />
1,979,649 2,289,168<br />
Basic earnings per share – common and preferred 1,87 2,20<br />
Diluted earnings per share – common and preferred 1,87 2,20
62<br />
METALÚRGICA GERDAU S.A. AND SUBSIDIARIES<br />
CONSOLIDATED STATEMENTS OF CASH FLOWS<br />
Cash flows from operating activities<br />
ANNUAL REPORT GERDAU 2011<br />
As of December 31, 2011 and 2010<br />
(In thousands of Brazilian reais)<br />
2011 2010<br />
Net income for the year 1,979,649 2,289,168<br />
Adjustments to reconcile net income for the year to net cash provided by<br />
operating activities:<br />
Depreciation and amortization 1,771,964 1,893,159<br />
Reversal of impairment of assets - -336,346<br />
Equity in earnings of unconsolidated companies -62,662 -39,454<br />
Exchange variation, net -51,754 -104,364<br />
Losses (Gains) on financial instruments, net 65,438 -12,392<br />
Post-employment benefits 16,637 92,165<br />
Stock-based compensation 13,974 18,629<br />
Income tax 200,424 477,756<br />
Losses (Gains) on disposal of property, plant and equipment and investments 21,978 -20,383<br />
Gains on available for sale securities -28,073 -<br />
Allowance for doubtful accounts 42,980 16,018<br />
Provision for tax, labor, and civil claims 261,263 199,463<br />
Interest income on investments -266,275 -175,155<br />
Interest expense on loans 989,482 1,073,137<br />
Interest on loans with associated companies -3,712 -<br />
Provision for net realisable value adjustment in inventory 56,999 50,526<br />
Reversal of net realisable value adjustment in inventory -122,877 -50,634<br />
4,885,435 5,371,293<br />
Changes in assets and liabilities<br />
Increase in trade accounts receivable -203,041 -660,891<br />
Increase in inventories -681,604 -1,160,419<br />
Increase in trade accounts payable 1,121,447 110,521<br />
(Increase) Decrease in other receivables -422,642 195,515<br />
Decrease in other payables -126,120 -184,296<br />
Distributions from jointly-controlled entities 61,150 68,647<br />
Purchases of trading securities -6,113,717 -712,204<br />
Proceeds from maturities and sales of trading securities 4,387,297 2,425,062<br />
Cash provided by operating activities 2,908,205 5,453,228<br />
Interest paid on loans and financing -715,237 -793,235<br />
Income and social contribution taxes paid -482,272 -542,708<br />
Net cash provided by operating activities 1,710,696 4,117,285
Cash flows from investing activities<br />
ANNUAL REPORT GERDAU 2011 63<br />
2011 2010<br />
Additions to property, plant and equipment -1,961,379 -1,288,769<br />
Proceeds from sales of property, plant and equipment, investments and other<br />
intangibles<br />
11,473 19,269<br />
Additions to other intangibles -141,666 -94,598<br />
Advance for capital increase in jointly-controlled entity -74,785 -<br />
Payments for business acquisitions, net of cash of acquired entities - -283,110<br />
Purchases of available for sale securities -723,285 -1,371,835<br />
Proceeds from sales of available for sale securities 778,484 1,416,107<br />
Net cash used in investing activities -2,111,158 -1,602,936<br />
Cash flows from financing activities<br />
Effects of capital increase in subsidiaries 2,623,134 -<br />
Proceeds from preferred shares of subsidiaries 1,291,529 -<br />
Purchase of treasury shares -78,094 -40,578<br />
Dividends and interest on capital paid -543,083 -897,397<br />
Payment of loans and financing fees -25,530 -4,562<br />
Proceeds from loans and financing 1,342,587 3,834,706<br />
Repayment of loans and financing -3,824,276 -3,506,831<br />
Intercompany loans, net -60,665 39,748<br />
Payment for interest increase in subsidiaries - -2,908,969<br />
Net cash provided by /(used in) financing activities 725,602 -3,483,883<br />
Exchange variation on cash and cash equivalents 89,633 -68,361<br />
Increase (Decrease) in cash and cash equivalents 414,773 -1,037,895<br />
Cash and cash equivalents at beginning of the year 1,062,247 2,100,142<br />
Cash and cash equivalents at end of the year 1,477,020 1,062,247
64<br />
GLOSSARY<br />
A<br />
ABRASCA (Brazilian Association of Listed<br />
Companies) – a nonprofit civil society organization<br />
founded in 1971 in São Paulo, bringing together<br />
companies legally registered in Brazil as publicly<br />
traded companies.<br />
Adjusted net income – net income after deduction of<br />
legal reserves. It is the basis for calculating dividends<br />
to be paid to shareholders.<br />
ADR – Tacronym for American Depositary Receipt.<br />
Security that represents shares of non-U.S.<br />
companies issued and traded on the capital market of<br />
the United States.<br />
B<br />
Billet – steel product of a square or rectangular<br />
section produced by continuous casting or by<br />
laminating larger sections. It is raw material for rolling<br />
long products.<br />
Blast furnace – oven with large dimensions, coated<br />
with refractory bricks, used in integrated mills to<br />
produce pig iron from iron ore.<br />
Bovespa Level 1 Corporate Governance – set<br />
of conduct standards for companies, directors and<br />
controlling entities, through which they commit<br />
primarily to improving provision of information to the<br />
market and to a broad ownership base.<br />
By-product – secondary product of an industrial<br />
process, which may or may not be desirable.<br />
C<br />
Cash generation – see EBITDA.<br />
ANNUAL REPORT GERDAU 2011<br />
Coke – a carbon rich fuel used as a reducer of iron<br />
ore in blast furnaces. It is derived from mineral coal.<br />
Coke Mill – area of the steel mill where coke is made<br />
from coal.<br />
Common share – securities representing the smallest<br />
portion of capital stock in a corporation, and which<br />
give the holder voting rights.<br />
Compliance – obedience to laws and adherence to<br />
standards that govern a particular industry.<br />
Continuous casting – process that continually<br />
produces billets or slabs from liquid steel poured into<br />
a mold.<br />
Corporate governance – system whereby companies<br />
are managed and monitored, involving relations<br />
between shareholders, Board of Directors, Executive<br />
Board, independent auditors, and Board of Auditors.<br />
The purpose of good corporate governance practices<br />
is to increase the value of the company, facilitate its<br />
access to capital and contribute to its sustainability<br />
(definition of the Brazilian Institute of Corporate<br />
Governance).<br />
Corporate Sustainability Index – a portfolio of<br />
the Bolsa de Valores de Sao Paulo (BOVESPA)<br />
composed of companies known for being committed<br />
to social responsibility and corporate sustainability.<br />
D<br />
Debenture – debt securities issued by a corporation<br />
to raise funds to be invested or to finance working<br />
capital.<br />
Dividend – amount distributed to shareholders in<br />
cash, based on the number of shares held. Results<br />
from profits obtained by a company in the current<br />
fiscal year or in past fiscal years.<br />
Dividend yield – this indicator measures the financial<br />
return of a share in the form of dividends and/or<br />
interest on capital. It is the ratio of dividends and/or
interest on shareholders’ equity per share to the price<br />
of the stock at the end of a specific period.<br />
Dust removal system – set of measures adopted<br />
to control dust at the place where it is generated. It<br />
involves hoods for capture, piping, fans, and filters.<br />
E<br />
EBITDA – earnings before interest, taxes,<br />
depreciation and amortization. Also known as<br />
generation of cash from operations.<br />
EBITDA margin – equal to EBITDA divided by net<br />
revenue, expressed in percentage. The percentage<br />
represents the total of each monetary unit of net<br />
revenue that resulted in EBITDA.<br />
Electric arc furnaces – steelmaking equipment<br />
in which the metallic load (scrap + solid pig iron) is<br />
melted using energy resulting from an electrodegenerated<br />
electric arc.<br />
F<br />
Falcão Bauer Seal – Certification of the Falcão Bauer<br />
Quality Institute launched in November 2007 with the<br />
objective of checking and ensuring the sustainability<br />
of products.<br />
Financial liabilities – covers the quotas representing<br />
underwriting liabilities whose payment is independent<br />
of budget authorization.<br />
Fixed assets – a component of the balance sheet<br />
composed of the sum of tangible assets used in the<br />
company’s operating activities and that should not<br />
be converted into cash or consumed in the course of<br />
the company’s operations (e.g. buildings, machinery,<br />
equipment, land, etc.).<br />
Flat steel – classification of steel products that<br />
includes plates and strips. Flat steels are used on<br />
external parts of automobiles, household appliances,<br />
etc.<br />
G<br />
ANNUAL REPORT GERDAU 2011 65<br />
<strong>Gerdau</strong> Business System (GBS) – one of the<br />
Company’s main competitive advantages is the <strong>Gerdau</strong><br />
Business System (GBS), which consolidates and<br />
transfers best management and operational practices,<br />
through standardized procedures, to all its units in<br />
different countries, along with encouraging continuous<br />
improvement based on different practices developed<br />
internally or from references external to the Company.<br />
Gross debt – bank loans plus debentures issued by<br />
the company.<br />
H<br />
Heavy Plate – steel flat rolled product, normally<br />
rectangular with nominal thickness bigger than 5<br />
mm. It can be produced directly in the form of plates<br />
or from hot cutting of coils of heavy plates(nominal<br />
thickness bigger than 5 mm).<br />
Hot rolled coils – flat-rolled steel products produced<br />
in the shape of coils, which can be classified as coils<br />
of hot-rolled thin plates (with a nominal thickness of<br />
up to 5 mm) and of hot-rolled heavy plates (with a<br />
nominal thickness greater than 5 mm ) according to<br />
ABNT.<br />
I<br />
Investment grade – risk rating from specialized<br />
agencies, conferred upon companies or countries<br />
evaluated as capable of honoring their commitments.<br />
Iron ore – raw material for the production of pig iron<br />
and sponge iron, the form in which iron is found in<br />
nature.<br />
ISO 14001 – standard developed by the International<br />
Organization for Standardization (ISO) that specifies<br />
the requirements related to an organization’s<br />
environmental management system.
66<br />
J<br />
Joint venture – the joint investment of two companies<br />
in a third company.<br />
L<br />
Liquidity – greater or lesser ease in trading a<br />
security, converting it to cash.<br />
Long steel – classification of steel products in which<br />
one dimension (the length) prevails over the others.<br />
Includes bars, shapes, wire rod, rebar, structural<br />
shapes and wire. This is <strong>Gerdau</strong>’s primary product line.<br />
Lost time accident – an accident that prevents the<br />
employee from returning to work, to his normal duties,<br />
on the day immediately following the accident, in the<br />
normal working hours, or that results in death, partial<br />
permanent disability, total or total temporary disability.<br />
M<br />
MBA – Master of Business administration. Postgraduate<br />
course geared to education of executives.<br />
Melt shop – area of a mill where raw materials such as<br />
scrap and pig iron are processed and made into steel.<br />
Minimill – mill built to meet the demand of a given<br />
region and using local resources and raw materials.<br />
Minority shareholder – individual or group holding<br />
a number of shares that is not sufficient to control<br />
the company.<br />
N<br />
Net debt – gross debt minus cash on hand and<br />
financial investments.<br />
Net income – final result achieved in a certain period,<br />
after all income and expenses are recorded.<br />
ANNUAL REPORT GERDAU 2011<br />
Net margin – equal to net income divided by net<br />
revenue. Expressed as a percentage. The percentage<br />
represents the total of each monetary unit of net<br />
revenue that resulted in net income. It is expressed as a<br />
percentage. The percentage represents the total of each<br />
monetary unit of net revenue that resulted in net income.<br />
P<br />
Preferred share – securities representing the<br />
smallest portion of capital stock in a corporation,<br />
providing privileges in terms of dividend distribution<br />
and/or reimbursement of capital in the case of<br />
dissolution. In general, preferred stock holders do<br />
not enjoy voting rights.<br />
R<br />
Rating – mechanism for classifying the creditworthiness<br />
of a company, a country, a security, or a structured<br />
transaction, which provides potential lenders with an<br />
independent opinion regarding the credit risk of the object<br />
analyzed.<br />
Rebar – long ribbed steel bar, used as structural<br />
reinforcement in civil construction of roads, bridges,<br />
buildings, etc.<br />
Rolling – mechanical shaping process carried out<br />
cold or hot to modify shape and dimensions in the<br />
cross-section of the initial material, usually from the<br />
melt shop.<br />
S<br />
Sarbanes-Oxley – law approved by the U.S. congress<br />
to protect investors against the possibility of accounting<br />
fraud at corporations. The rules and applications<br />
amend and supplement the laws in effect for public<br />
companies that trade shares on U.S. stock exchanges.<br />
Sintering – process that consists of agglomerating iron<br />
ore in a mix with approximately 5% of a finely divided<br />
carbon. This mix is heated, causing alloying of ore
particles and results in a uniform and porous product,<br />
called sinter, which is used as load in a blast furnace.<br />
Slab – steel product of the sector of flat steels, basis<br />
for the production of plates and strips.<br />
Special steel (long) – its production process<br />
ensures the specific physical and metallurgical<br />
characteristics required by special applications,<br />
such as automotive, petrochemical, tools, and<br />
machinery and equipment industries.<br />
Steel – iron and carbon alloy (up to 1.5%) that can<br />
also contain other chemical elements, aimed at the<br />
improvement of its properties.<br />
Structural shape – group of steel products including<br />
I and H profiles, wide-flange beams and sheet pile.<br />
Used in construction of buildings, industrial facilities,<br />
bridge reinforcements, etc.<br />
T<br />
Tag along – right that guarantees minority<br />
shareholders the same conditions offered to<br />
controlling shareholders, in the case of sale of<br />
company control.<br />
Trainee – recent college graduate who undergoes an<br />
accelerated program to assume future positions in the<br />
company.<br />
Truss – triangular frame produced in ca-60 grooved<br />
steel, used in pre-fabricated slabs for buildings,<br />
bridges and viaducts, spacers for slabs and floors and<br />
other applications.<br />
V<br />
Value added breakdown – this figure derives from<br />
the revenue generated by products and services, net<br />
of discounts granted, subtracting the costs related to<br />
raw materials, consumer goods, outsourced services,<br />
depreciation, amortization, equity income, and<br />
financial income, among others.<br />
W<br />
ANNUAL REPORT GERDAU 2011 67<br />
Wire rod – steel product of a small circular crosssection<br />
obtained in the rolling process. Wire rod is<br />
normally drawn and used in the production of wire,<br />
screws, and nails.
68<br />
Corporate information<br />
<strong>Gerdau</strong><br />
Av. Farrapos, 1811<br />
Porto Alegre – RS – Brazil<br />
CEP 90.220-005<br />
Tel.: 55 (51) 3323-2000<br />
www.gerdau.com<br />
Shareholders Relations<br />
Av. Farrapos, 1811<br />
Porto Alegre – RS – Brazil<br />
CEP 90.220-005<br />
acionistas@gerdau.com.br<br />
Tel.: 0800 702-2001<br />
Tel.: 55 (51) 3323-2211<br />
Fax: 55 (51) 3323-2281<br />
Depositary Bank in Brazil<br />
Itaú Corretora de Valores S.A.<br />
investfone@itau.com.br<br />
Tel.: (11) 5029.7780<br />
Depositary Bank Overseas<br />
The Bank of New York Mellon<br />
shrrelations@bnymellon.com<br />
Tel.: +1 888 BNY ADRS (From the United States)<br />
Tel.: +1 201 680-6825 (Outside the United States)<br />
Investor and Analyst Service<br />
Av. Farrapos, 1811<br />
Porto Alegre - RS - Brazil<br />
CEP 90.220-005<br />
inform@gerdau.com.br<br />
Tel.: 55 (51) 3323-2703<br />
Fax: 55 (51) 3323-2281<br />
Independent Auditor<br />
Deloitte Touche Tohmatsu<br />
Credits<br />
Coordination<br />
<strong>Gerdau</strong> Corporate Communications and<br />
Public Affairs<br />
ANNUAL REPORT GERDAU 2011<br />
Editing and production supervision<br />
<strong>Gerdau</strong> Corporate Communications and Public Affairs<br />
and Odin Art & Communication<br />
Concept<br />
<strong>Gerdau</strong> Corporate Communications<br />
and Public Affairs<br />
Graphic Design<br />
Néktar Design<br />
Printing<br />
Gráfica Impresul<br />
Paper and ink<br />
Duo Design 300g (cover) and Couché Matte 150g<br />
(content), produced by Cia. Suzano through the<br />
cultivation of planted forests certified by Forest<br />
Stewardship Council (FSC). Printed with soy-based<br />
inks.<br />
Circulation<br />
600 copies in Brazilian Portuguese, 300 in English,<br />
and 300 in Spanish.<br />
Photo credits and illustrations<br />
<strong>Gerdau</strong> image bank (p. 6, 12, 34), Bruno Magalhães/<br />
Agência Nitro (p. 10), Chico Batata (p. 20),<br />
Claudia Hurtado (p. 23), Cia Group Eventos (p.<br />
36), Emmanuelle Bernard (p. 10), Foguinho/<br />
Save The Image (p. 38, 45), Gentil Barreira (p.<br />
44), Ivson Miranda (p. 3, 5, 10, 12, 19, 21, 27, 44,<br />
46), Istockphoto/Christopher Penler (p. 24), Leo<br />
Drummond (p. 18), Mathias Cramer (p. 6), MP Fotos/<br />
Eduardo Simões (p. 24), Nicolas Bright (p. 42), Produ-<br />
Video Eventos (p. 26).<br />
We would like to thank all of those who contributed by<br />
supplying information and images for this publication.<br />
<strong>Gerdau</strong> believes in the importance of seeking<br />
continuous improvement in all its processes, products,<br />
and services. As such, we would like to hear your<br />
opinion about the 2011 annual report. Evaluate its<br />
scope, relevance, quality of information, and graphic<br />
presentation. Your opinion is very important to us.<br />
Access our website<br />
www.gerdau.com.br/relatoriogerdau/2011 and<br />
answer the opinion survey or send an email to<br />
gerdau@gerdau.com with suggestions on aspects<br />
which can be improved. We thank you in advance<br />
for your participation.
www.gerdau.com<br />
ARGENTINA<br />
www.sipargerdau.com<br />
BRAZIL<br />
www.gerdau.com.br<br />
CANADA<br />
www.gerdau.com/longsteel<br />
CHILE<br />
www.gerdauaza.cl<br />
COLOMBIA<br />
www.diaco.com.co<br />
DOMINICAN REPUBLIC<br />
www.industriasnacionales.com<br />
GUATEMALA<br />
www.acerosdeguatemala.com<br />
INDIA<br />
www.kalyanigroup.com<br />
MEXICO<br />
www.gerdau.com.mx<br />
PERU<br />
www.sider.com.pe<br />
SPAIN<br />
www.gerdau.es<br />
UNITED STATES<br />
www.gerdau.com/longsteel<br />
www.gerdau.com/specialsteel<br />
URUGUAY<br />
www.gerdaulaisa.com.uy<br />
VENEZUELA<br />
www.sizuca.com.ve