Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gerdau SA (GGB, Financial) achieved a historically low accident frequency rate of 0.67, emphasizing its commitment to safety.
- The company has been proactive in supporting the Rio Grande do Sul region, contributing over BRL26 million to recovery efforts after heavy rains.
- Gerdau SA (GGB) became the first steel company certified as a B Corporation in North America, highlighting its sustainability efforts.
- The North America business division showed resilience, maintaining stable demand and a high backlog despite lower prices.
- Gerdau SA (GGB) is implementing cost reduction initiatives expected to lower its cost base by approximately BRL1.5 billion by 2025.
Negative Points
- The Brazilian steel market is facing challenges due to a high inflow of imported steel, impacting local performance.
- The South American market, particularly Argentina, is struggling with inflationary pressures and economic measures affecting steel demand.
- Gerdau SA (GGB) experienced BRL131 million in one-off costs related to the hibernation of some industrial units in Brazil.
- EBITDA margin decreased by 1.6 percentage points from the first quarter, affected by lower sales prices in North America.
- The company is facing uncertainties in the North American market due to upcoming presidential elections and economic dynamics.
Q & A Highlights
Q: Can you provide more details on the cost reduction initiatives in Brazil and the expected impact on EBITDA?
A: (Rafael Japur, CFO) We have been implementing a series of cost optimization initiatives, aiming to reduce our cost base by approximately BRL1.5 billion by the start of 2025. In Brazil, we expect to save around BRL1 billion annually. The impact of these initiatives will be more visible in the second half of 2024, with a significant portion of the savings coming from increased operating leverage due to hibernations and efficiency improvements.
Q: How do you see the impact of recent government measures on the Brazilian steel market?
A: (Gustavo Werneck, CEO) The Brazilian government has implemented trade remedies, including a mixed tariff rate quota system, which we expect to positively impact the domestic steel market in the second half of the year. While it's too early to see the full effects, initial results are promising, and we remain in open dialogue with the government to ensure fair competition.
Q: What is the outlook for Gerdau's North American operations, especially in light of recent market conditions?
A: (Gustavo Werneck, CEO) Our North American operations remain resilient, supported by strong demand from government initiatives like the Inflation Reduction Act and the CHIPS Act. Despite some market volatility, our backlog and spreads remain solid, and we expect continued positive performance in the coming months.
Q: Can you elaborate on the strategic CapEx projects and their expected returns?
A: (Rafael Japur, CFO) Our strategic CapEx projects, including the expansion of our mining operations and the HRC project in Ouro Preto, are expected to generate up to BRL2 billion in incremental EBITDA over the medium term. These projects are part of our strategy to enhance our product mix and competitiveness, with an expected internal rate of return (IRR) of around 20%.
Q: What is the company's approach to capital allocation and shareholder returns, particularly regarding the recent share buyback program?
A: (Rafael Japur, CFO) We aim to maintain a balanced capital structure with a net debt target close to $1 billion. The recently approved share buyback program reflects our commitment to returning value to shareholders, and we intend to execute it over the next 12 months. We also anticipate robust cash generation in the second half of the year, which could support further shareholder returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
