Gerdau S.A. (GGB) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Gerdau's Conference Call to present the results of the third quarter of 2012. [Operator Instructions] We would like to clarify that forward-looking statements that might be made during this call regarding the business outlook for Gerdau's projections and operating and financial targets are estimates based on the company's management expectations regarding the future of the company. Although Gerdau believes that these remarks are based on reasonable assumptions, there is no guarantee that future events will not affect this evaluation. Today with us, we have Mr. André Johannpeter, CEO and Chairman; and Osvaldo Schirmer, Vice President and Investor Relations Officer. Now I would like to give the floor to Mr. André Johannpeter. Mr. Johannpeter, you have the floor. André Bier Gerdau Johannpeter: Good afternoon, everyone, and welcome to our conference call for the results of 3Q 2012. Before I start talking about our operating and financial performance in Q3, I would like to share with you our new mining strategy. We made a decision of terminating the process to seek for strategic partner for our mining project at the moment. This decision was caused by the upward review of iron ore discovery and the fact that the proposal did not fulfill the expectations of the company. The project, presenting to the potential investors contemplated resources of 2.9 billion tons of iron ore where, currently, according to the construction [ph] in study that indicated a volume of 6.3 billion tons of iron grade, which was up by 40%. Thus, Gerdau reinstated its commitment with the mining project, implementing a investment plan without compromising the necessary resources in the sustainability of the steel business. Our new investments involved BRL 500 million for an increase in installed capacity of mining by 11.5 million tons to 18 million tons by 2016, thus Gerdau will have a very broad product portfolio of iron ore concentrated centrally in granulated products with good enough quality to fulfill all the requirements of the very demanding market. All the BRL 500 million will be used to deploy a railway terminal in Minas Gerais to distribute additional products from Gerdau. These investments announced today are in addition to investments of BRL 838 million, which have been previously informed and aimed at obtaining installed capacity of 11.5 million tons on an annual basis into 2013, which will allow us to be self-sufficient in iron ore and also to trade the product. Gerdau's objective is to reach 24 million tons of annual production capacity by the construction of the new processing plant that should begin operation in 2020. This expansion is still under study. In terms of the construction process of a new port terminal in Port of Itaguai and distribution of the volume for export, Gerdau is still developing strategic solutions to ensure sustainability and the profitability of the project. Moreover, the company is constantly looking for available opportunities to fulfill short-term distribution demands. We just concluded our first exports business of iron ore involving 160,000 tons of sinter feeds, and it should be shipped in October -- in November. Now we will talk about the world situation in the case of steel, and then we will talk about Gerdau's performance. Right after this brief presentation, Osvaldo Schirmer will talk about the financial performance. And next, we'll be available to take questions. I would like to stress that we will evaluate the performance of Q3 2012 and compare it with the same period of the year before. Our world outlook, starting with the crude steel production, which was 382.6 million tons in Q3 of 2012, which is a volume in keeping with the same period of the year before. Excluding China, world production was 197.4 million tons, in keeping again with the volume, which was fulfilled in Q3 of 2011. Steel production in Brazil was down 3% vis-à-vis the same quarter of 2011, reaching 8.7 million tons. Steel production in other countries of Latin America, not including Brazil, was 7.7 million tons, down 8% when compared to the same period of the year before. Steel production in the United States was 21.9 million tons, obviously in keeping with the same period of the year before. Now I will mention some highlights of Gerdau's major figures. Undoubtedly, the global economic landscape and the respective impact in the steel market was -- we experienced lower growth in the demand for steel, and also more global competition impacted Gerdau's performance in Q3. Our consolidated shipments were 4.8 million tons, in keeping with the same period of the year before. Now steel production was down 5% when compared to the period from July to September of 2011, reaching 4.7 million tons. Net sales grew 10% vis-à-vis the same period of 2011, reaching BRL 9.8 billion. Operating cash generation, also known as EBITDA, was BRL 1 billion, down 15% when compared to Q3 of 2011. Net income was BRL 408 million in Q3, down 43% when compared to the same period of the year before. In terms of dividends, the dividend payout will be BRL 119 million paid to shareholders of Gerdau S.A. and BRL 36.6 million paid out to shareholders of Metalúrgica Gerdau. In terms of the investments in the same quarter, Gerdau invested BRL 904 million and year-to-date, BRL 2.4 billion. For those of you who follow us online, I'm on Page 5. And I'll refer to the outlook for the end of this year and 2013. I would like to start giving you a general overview of the world. According to expectations by the IMF, the global GDP points to growth of 3.3% in 2012. For next year, the outlook indicates that the world economy should grow 3.6%. Now referring to the world steel consumption, most recent projections published by World Steel showed growth of 2.1% this year and 3.2% for 2013. The estimated volumes are lower when compared to previous forecasts and this certainly reflects the economic crisis in Europe and also the slowdown in China's growth. Now I will talk about Brazil where the Brazilian economy should grow 1.5% in 2012. In view of the lower growth expectation for Brazil, the Instituto Aco Brasil recently published its new projection for steel consumption in the country, which should reach 25.9 million tons, up 3.3% when compared to volumes of 2011. Now for 2013, the expectation for growth in Brazil is 4% GDP. And consumption should reach 27 million tons and a growth of 4.2% over 2012. Now still talking about Brazil and looking at the specific construction industry, most recent estimates indicate that there will be a 2.5% growth in terms of construction GGP. And the industry -- industrial production should go down 2.1%, impacted by the de-industrialization process that we are experiencing in Brazil. Now I would like to refer to North America, and this does not include Mexico or any other specialty steels located in the United States. I will start referring to the United States, which is presenting good demand in the energy and industrial industries. According to PMI, Purchasing Managers Index, the main indicator of industrial production in the U.S. reached 51.5% in September, and anything above 50% represents growth. Investments now into the construction, and we are not including residential or infrastructure. Construction was up 9% in the period between July and August of 2012 when compared to the same period in 2011, reaching BRL 50 billion, mainly boosted by many constructions of buildings in the United States. As a consequence of this landscape, it is estimated that the U.S. GDP should grow 2% in 2012, above the outlook that was published early this year. In consumption, according to World Steel, should also be higher than the expectation, reaching 96.5 million tons, 8.3% increase, when compared to 2011. Now in 2013, the GDP estimate is 2.1% growth, and steel consumption should be up by 3.6%, reaching 100 million tons. In terms of Canada, the IMF outlook is that GDP will grow 1.9% and steel consumption, 2.8%. Now in 2013, GDP estimate growth is 2% and steel consumption, 2.9%, reaching 15 million tons. In Latin America, according to IMF, the economies of Latin American countries are presenting a positive performance. In Peru, it is up 6%, Chile up 5% and Colombia up 4.3%. However, the World Steel reviewed downward steel consumption estimates for countries in Latin America which should reach 40.9 million tons, which is 5.7% up, when compared to figures of last year. Now for 2013, the growth forecast is 6.4%, reaching 43.5 million tons in Latin America. Now Page 7, we will talk about our Specialty Steel operation, including North America, Brazil, Europe and India. Starting with North America, where there were 3.7 million light vehicles produced in the third quarter, considering the markets of Canada, U.S. and Mexico, which represents a growth of 15.4% when compared to the same period of 2011. In terms of heavy vehicles production, it was 105,000 tons or up 5%. Now for 2012, market expectations indicate an important growth of 16.1% in the production of light vehicles and 14% in the [indiscernible] of mid-sized and -- mid and heavy vehicles. Now in Brazil, vehicle production was 910,000 units in the third quarter, which was in keeping with the same period of the year before. According to ANFAVEA, the production of light commercial vehicles in the country should grow 1.4% in 2012, reaching 3.2 million tons. However, the outlook for the heavy vehicle segment is still negative, down 27% in terms of production volumes. In Europe, statistics show that vehicle registration experienced a drop of 9.3% vis-à-vis the same period of the year before, reaching 2.7 million units. Now registration of commercial vehicles was 389,000 units in Q3, which was down 10.6% when compared to the same period in July and September in 2011. And these drops already reflect crisis in Europe. In India, there is growth, an expansion of 8.3% for light vehicles this year. And for heavy vehicles, it should reach 907,000 units, which is up 2.3% over 2011. On Page 8, I will talk about investments in this quarter. In addition to all of the investments that have been announced for mining, I would like to announce a new melt shop with installed capacity of 650,000 annual tons at Riograndense mill located in Sapucaia do Sul in the state of Rio Grande do Sul. This melt shop will replace the current one, which has a capacity of 450,000 tons of steel a year. This investment, involving BRL 460 million will also allow for the expansion and productivity, more operating security, better quality of products, environmental protection, in addition to reducing our energy consumption. The value of the investment that will make this melt shop get into operation in 2015 also covers the construction of necessary infrastructure and the expansion of the unit, acquisition of machinery and equipment. Considering the uncertainties in the world economy market, we will still be very selective when it comes to evaluating new investment projects. We are already reviewing our investment plan of BRL 10.3 billion, which was announced for the period of 2012 to 2016. This new plan will be announced when we announce our results in February of 2013. To conclude on Page 9, I would like to stress our decision to continue investing in mining without compromising the sustainability of our business in the steel industry, which represents another initiative to improve the company's results in view of higher cost of raw material, lower demand in the world for steel and also the stronger global competition. In addition to mining investments, we are also increasing the supply of coal coming from our operations in Colombia and also the network of captive scrap suppliers. Not only that, we have already initiated the sale -- the trade of our iron ore. And we will start producing flat steel and hot coils at the end of 2012 and early 2013. So we are facing a moment with many economic uncertainties and market volatility. And because of that, the third quarter was more difficult than what we had anticipated. However, there are -- there is a very good outlook for 2013 in the several geographies where we operate. The United States, for instance, experienced a gradual recovery of its economy. In Brazil, the volume outlook in terms of investments in infrastructure in the country will certainly boost steel consumption. Therefore, we can say that we will quickly adapt to the ups and downs in the market with a lot of agility in our decision-making process and flexibility of our operations, since these are features that are very much part of the company's management. And this will help us overcome all of the difficulty that we see in the world economic scenario. But before I give the floor to Schirmer, I would like to once again thank him for his dedication and all the work he did over -- more than 25 years of work at Gerdau. As you know, Schirmer will retire on December 31 of this year. I would like to especially acknowledge Schirmer. And he has been Gerdau's -- one of the most important partners of Gerdau. And he worked nonstop with our investors. He has been an important partner in all of our discussions and debates and acquisitions. So I would like to, once again, thank him very much for all the work he did. And also, I would like to say welcome to the new VP. He will be the Executive VP for Finance and Controllership. He will also be part of Gerdau's executive committee. André Pires de Oliveira Dias is in the U.S., but he will soon come here. So with that, I would give the floor to Schirmer. And then I'll be available to take your questions. Thank you very much.

Thank you, very much André. Before getting into the specific financial analysis. I would like to thank André for his very kind words about my years with the company. André, thank you very much. I'm touched. Now I would like to invite you to look at Slide #10 where we talk about the consolidated net sales and afterwards, about each one of our business, our BOs. On Page 10, I would like to start by saying that the consolidated net sales in Q3 reached BRL 9.8 billion, as André mentioned, BRL 852 million more than Q3 2011, as you can see on the second bar of this chart on the lower part of the slide. And the increase in net revenue is due to the increase in the net revenue per tonne sold in all our business operations since we were able to recover prices. The cost of sales increased by BRL 993 million in Q3. As you can see the third bar on the chart, which represents a 13% increase year-on-year. The higher cost of sales, which was said by André, was driven mainly by the higher cost of raw materials. And these increases exceeded the growth in our net revenue per tonne sold, bringing about the reduction in our gross margin in all business operations, except the nature of Brazil business operation. About our SG&A, there was an increase in the absolute value by BRL 39 million, as you can see on the fourth bar of the chart. However, the participation vis-à-vis the net revenue, fortunately, went down from 7% to 3% due to the higher growth in our net revenue. EBITDA in Q3 reached BRL 1 billion with a 15% reduction year-on-year, and the comparison on our margins will also be consolidated. Margin came from 14% in Q3 '11 to 11% in Q3 '12, and once again, driven by the higher cost of raw materials because we exceeded the growth in our net revenue per tonne sold. The higher negative financial results in Q3, that is to say, higher financial expenses -- financial losses, because of the reduction of our liquidity and also lower interest rates affected our financial side. Consolidated net income had a reduction vis-à-vis the third quarter of last year, and this is a consequence of the lower operating result and also the lower financial revenue. Slide #11, starting with Brazil. The volume of sales in the Brazil BO reached 1.8 million tons minus 7% year-on-year and of which, 75% went to the domestic market as you can see, and the remainder, to exports. Exports, in fact, dropped by 18% year-on-year due to the low prices in the international market and also, of course, the lower profitability in the domestic market. The reduction was 3% year-on-year, driven by the lower activity in the residential and commercial segments, even with the higher activity in the infrastructure segment. And as André said, we expect the recovery for next year. Net revenue from sales reached BRL 3.6 billion, as you can see on the right on Slide #11. In the steel, we had different behaviors among the different markets. In the domestic market, the higher net revenue per tonne sold contributed to improved net revenue, offsetting, to a certain extent, the lower volume of sales and also exports. And the drop in government was also caused by lower sales and by the lower net revenue per tonne sold. Just to give you an idea of the level of contribution of the Brazil BO in the overall revenues of the company, which has contributed 36% of the net revenue in the quarter EBITDA in Q3, while BRL 691 million delivering a 12% growth year-on-year, with a 19% margin vis-à-vis 17% in Q3 2011. So we see a recovery of margins in Brazil, as you can see. And the Brazil BO still contributes to a significant part of our EBITDA, 61% of our consolidated EBITDA cash generation. Slide #12, North America. In North America, we saw an 8% increase in shipments year-on-year, as you can see on the left. This increase in shipments came from the good demand from the industry and the energy sector beside the gradual recovery of construction activity. Net revenue reached BRL 3.4 billion, as you can see here on the right, 28% higher on a year-on-year basis and growth stemmed from the higher net revenue per tonne sold and the higher volume sold in the period. The steel contributed 34% to the consolidated net revenue in the quarter. EBITDA was BRL 205 million, 33% lower on a year-on-year basis, basically due to the mismatch between the reduction of steel prices already recognized in the quarter and the scrap that became more expensive over Q3 2012 and was reflected in the cost of sales in Q3. And as a consequence, EBITDA margin was 6% vis-à-vis 11% last year. And with the recovery of price in -- maybe less expensive scrap, we will see an improvement in the situation in the beginning of this year. And the steel contributed 18% of our cash generation. Latin America, Slide #13. In Latin America, shipments, reached 705,000 tons, as you can see on the left, practically stable vis-à-vis the previous year. Net revenue on the right was BRL 1.3 billion vis-à-vis BRL 1 billion in Q3 2011. Therefore, delivery, almost a 30% growth, due to better net revenue per tonne sold. And the steel contributed -- contributes 13% for our consolidated net revenue. EBITDA in Q3 was negative by BRL 3 million due to the higher cost of sales, mainly because of the adaptation of production to the inventory levels and market to market, which had an impact on our margins. As soon as we remove the non-recurrent effect, it wouldn't have been viewed; it would be around 3% to 3.5%. Specialty Steel, 14. In the Steel, reduction was 15% in the volume sold because of the lower volumes, mainly in 2 units: the Brazil and the Spain units. In Brazil, we still have the effect of the reduction of heavy vehicles by the end of 2011 due to the new fuel [indiscernible] regulation for diesel engine, which became -- was enforced as of January 2012. And in Spain, everybody follows the situation of Europe. Net sales had a 6% reduction, reaching BRL 1.8 billion, as you can see on the chart on the right, driven by the lower volume sold to be offset by the higher net revenue per tonne sold. The Steel contributed 17% to our consolidated net revenue in the quarter. EBITDA of Q3 was BRL 233 million, 21% lower than last year. And the lower shipments brought about a lower dilution of our fixed cost, with a reduction in our EBITDA margin, which was 13% in Q3 2012, lower than the 16% in Q3 2011. And the Specialty Steel contributed 21% to our consolidated EBITDA for the group. Indebtedness and liquidity, we will talk about that on Slide 15. The group's debt in September 2012 was 18% in reais, 49% in foreign currency, contracted by our companies in Brazil; and 33% in different currencies contracted by our subsidiaries abroad. Of the total debt, 21% were short term. And about 80% of our indebtedness is long term. Gross debt, as compared to what we had in December 2011, had a 9% increase mainly due to the exchange rate effect occurred during the period with the devaluation of the real of about 8-something percent compared to the U.S. dollar. And most of the gross debt has its origin in the capital markets in debentures and bonds. The cash reduction from December 2011 until September occurred mainly due to the payment of amortization of debt and also because of the higher need for working capital over 2012. Of schedule of this liquidity, 34% were held by the [indiscernible] companies abroad and mainly denominated in US dollars. Net debt went up by 31% in a comparison with September 30 -- between 30 September 2012 to 31 December 2011, consequence of the cash reduction and the increase in gross debt. And in relation to June 30, when the debt was 11.7%, there has been relevant stability. The average nominal weighted cost of our gross debt on September 30 was 5.9% and for the amount denominated in real, 7%. And money borrowed in dollars of 5.7%, partly [ph] exchange variation and of the part borrowed by our subsidiaries abroad, 5.7% the debt repayment schedule, as you can see on the right. So we're relatively stable or relatively comfortable situation for the next few years vis a vis our available cash and the expected for cash generation for the company. And in September, the average term for our debt repayment was almost 5 years in the cash conversion cycle, which is the working capital divided by the net revenue. As well as working capital in September, had a slight drop vis a vis June 2012 because of reduction in the values of inventory, accounts receivables and the higher level than the reduction of our suppliers' account. So in our operations in Brazil and abroad, it's mandatory to achieve this -- it's almost mandatory. And reaching the end of the financial analysis, I would like to thank all the journalists that, during the last 26 years, have been participating in our lives with their criticisms, with their questions and always leading us to improve the way we impart information to the market. So my thanks to all of you.

[Operator Instructions] Our first question comes from Mr. Renato Antunes from Barclays.

I would like to know about your compensation program because you have announced that you are no longer looking for a partner. Could you talk us about cost and production and could you give us an estimate for the potential CapEx for your project? It would be very interesting, to help us, so that we may evaluate this project better. And the second question has to do with the Brazil deal. We saw in this quarter volume dropping in the domestic market of long steel vis-à-vis the second quarter of 2011. I would like to hear from you if you have felt in this quarter a drop in the volumes because of the anticipation of account in the last quarter and if this should go back to normal in the next few quarters.

This is Schirmer and André will answer the other part of your question. I will answer the part related to the mining project. As we informed the market, when we started this, we had 2.9 billion tons in resources and this went up to over 6 billion, which is a very major growth over the year and as you said, yourself, we announced that we will be carrying out the project all by ourselves. We are no longer looking for partners. About it is what I can tell you, and this is something that the market already knows that our mines are very differentiated with a high content of iron, over 43% iron content, and this is a very convenient quality as far as CapEx is concerned and very rich as well in hematite. What we are not disclosing to the market yet is the percentage of the quantity of each one of the mines because this is premature, but I can guarantee to you that these are mines of excellent quality. And our current experience supplying to Açominas itself -- it is being done at very competitive prices and if you look at the other suppliers in the domestic market. And this is encouraging because we are anticipating very encouraging for us is for exports. We have already started exporting and it will grow our exports over the years and this was the reason for our material information. We will have exportable surplus [ph] end of 2013 and increasingly so. André Bier Gerdau Johannpeter: So the second question about the Brazilian market and volumes. If we look year-on-year, the domestic market is still 5% above the numbers of last year and Schirmer was referring to the second and third quarters where there was a decline of 6% year-on-year, on a quarterly basis, 3%. What we noted is that there was a slowdown in the construction industry in Q3 and a little bit on Q2, but this is more related to [indiscernible] construction and real estate construction. But we understand that growth will be resumed next year. But the good news in the Brazilian market refers to infrastructure. We are participating in large construction projects, projects related to the World Cup and infrastructure is part of that and there are also other projects for the Olympic Games in 2016. But there are other infrastructure projects like HPP [ph], roads, railroads. There was also an announcement of a PPP, public and private projects, so this drop in volumes, when we look at it more closely, we will -- we know that, in the future, the growth will be resumed because certainly, all of these new infrastructure projects will be run in our models, too.

Our next question comes is from Credit Suisse.

I would like to mention 3 points. One related to the short run, whether you could say something about pricing in your Brazil and U.S. units and whether you believe that new list of 100 products, where there's an increase of imports that will also include rebars and now referring to the midrange -- the midterm, we have no expectation of new projects with long steel from CSM [indiscernible] and it's expected that there will be some changes in the composition of the domestic market. So could you please elaborate a little bit about the margins for the Brazil unit in the next few years? André Bier Gerdau Johannpeter: Referring to pricing, in the short run, we do not have any forecasts about pricing because the world's landscape is very volatile. So it's difficult to make any evaluation. But now referring to another tech entry in the new project lists and our steel Brazil division is working towards that, but we do not -- we didn't hear any confirmation about the listings. Some steel projects were included on the list, but I believe we haven't seen anything more concrete in terms of a second list. Now, about new projects, what we have here are some names like the ones that you mentioned. These were just announcements, but we do not have anything concrete or absolutely confirmed. But as the market is growing, if there are new entrants, the margins will certainly be able to absorb that. And this competition will increase, but what will happen to the margin is something difficult to anticipate. Well, the winners will be those that can serve the clients better and can be faster.

Our next question comes from Rodrigo Barros from Deutsche Bank.

I have 2 questions. One is for Schirmer. I mean, it's the last time I have an opportunity to ask you anything, so I will address you first. Well, whether you will maintain the investment grade in the debt [ph] because you have mining and the expansion in the [indiscernible] in the South. So I would like to know whether you will maintain your investment grade at Gerdau. And the other question has to do with port access for midsize assets, so what kind of announcement you will be giving and when will that be heard?

There is no doubt that the investment grade by the 3 agencies is something very hard to achieve. So it stems from the ongoing work that we do and that they do as well, following us and this is something that I wouldn't like to lose as far as we are concerned. And as far as our internal efforts and our strategies, this is something to be maintained. We cannot say anything about then. Regarding the port access, André was reasonably clear in his speech. We continue to study the possibility of going into port and there are alternatives in the market and at least, in the initial years of our activity is mining operators and exports. And unfortunately, I cannot see at what stage we are, in which stage we are now. We are dealing with all the possible alternatives, that's all I can say so far.

Mr. Leonardo Correa from Barclays.

About the ramp up and the estimated -- and can you talk about the commercial strategies? How much will you be selling if there's new capacity in 2013 and if commercially, you would be willing to have lower than the market prices? And the second question has to do with Latin America, the Latin America deals. The previous quarter had quite a big pressure on the results. I would like to know your view about the profitability and perspective for Latin America and from which regions and which ones are playing against you and if you would contemplate divesting some non-core assets or those who are underperforming. André Bier Gerdau Johannpeter: Okay. I will start with the rolling mills. The coil hot rolled strips rolling mill; 107,000 -- 770,000 tons, then there are 800,000 tons that, in the first quarter of the coming year, I mean, production will not be commercial, but as of the end of the first quarter of next year, we will start commercial production. So I think we will see something like 300,000, 400,000 tons, pretty much around these figures. We are -- we have already contacted the market. We have some perspective customers. Gerdau -- Comercial Gerdau is one of our customers, but we have to contact other customers in the market, even -- because this coil hot rolled strip rolling mills, I mean, strip is a very demanding market, so we cannot practice lower prices but once again, considering the fact that we will gradually increase the volume and that, paired with the growth of the Brazilian market, we will certainly be very competitive in this market, willing to gain more customers. Schirmer?

I think the first part of your question refers to our business in Latin America, and why we experienced a drop in margins. Latin America is a very curious and peculiar market and I'm sure you've been following that in relation to other companies. Brazil is in a geographic area where countries are very open to the entry of other -- of new projects and import tariffs are very low, almost 0. In this quarter, there were some non-recurring events that impacted some of our operations like that of Colombia and Peru. We had some production stops and we were doing market-to-market spot in some of the projects there were sitting idle. And I think during my presentation, I said that if we were to exclude the analysis, these non-recurring events in this geography, the margin will be around 3% to 3.5%, which is bad but it will still be productive. The curious fact is that these are countries where the growth outlook is very promising. Their estimated growth of GDP is around 5%, 5.5%, that's why I would like to say that we cannot afford to just invest in any of those Latin American countries. We do believe that we have the possibility of moving along with these projects because there is a very good outlook of growth. Argentina, despite all of the difficulty, still [indiscernible]. China is in a stable market, so we had to write off one of our old units, but we are still putting our trust in Latin America.

Our next question is from Thiago Lofiego from Bank of America.

I have a few questions. First, whether you could say a few words about Specialty Steel and elaborate on Brazil and the United States. In Brazil, should we expect a better production due to the increase in the production of trucks or heavy vehicles? And the second question refers to the partnership which was canceled. What was the main limiting factor in the negotiations? Was it related to the quality of the ore, logistics? What is the most significant logistics bottleneck of the project, the iron ore project? André Bier Gerdau Johannpeter: Thiago, this is André. I'll talk first about specialty steel and then I've give the floor to Schirmer. Speaking about Brazil, certainly, Brazil was heavily impacted by the 27% drop in the production of trucks because they use more steel when compared to light vehicles. And in terms of the recovery, it was going well because there are some finds [ph] and production was anticipated, some purchases were anticipated. There's also the issue of the supply network. But once again, we believe that next year, this segment should resume growth. Specialty Steel growth is not so significant, but next year, certainly, we will resume growth in this market. So [indiscernible] steel was heavily impacted this quarter, which is really because of the issues related to the production of heavy vehicles, but we expect a recovery in this industry, both coming from heavy and light vehicles. In the United States, growth has been very good, 6% this year and the outlook for next year is that growth will continue. We are making investments in our Specialty Steel plants in North America just in keeping with the growing demand. We also work with new parts -- spare parts companies. There are new OEMs in the U.S.: cost of energy, productivity and the exchange rate is also visible. So in the automobile industry in the U.S., the recovery has been significant and it should continue next year.

Your question has to deal with our mining project, with our decision to stop looking for a partner and you asked whether it has to do with quality of our products or the logistics and I would like to tell you that it was a decision made by the company based on the realizations. We have 2.9 billion tons available [ph] now to the market if it were through the working debt [ph] when we started to look for a partner. And over the years, I've said it pointed to growing the volume of resources, grew extensively and over 6 billion. This is what we have to do and it is true that is very difficult to work with this kind of treaty [ph] where the interested parties, we had some people who made the purchase once [ph], but we were not satisfied with the timing that they proposed regarding disbursements, et cetera, and we reached a conclusion that the best thing that we could do for the company would be to develop the project ourselves. But it had nothing to do whatsoever with quality or logistics. It was an internal decision about how to make our asset more profitable.

[Operator Instructions] Our next question comes from Marcos Assumpcao from Itau BBA. Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division: First, I would like to thank the work done by Schirmer during the -- all these last few years and wish him a lot of luck in the new challenge that he will be taking and more [indiscernible] that he will be participating in and I would like to ask the imports of [indiscernible] in 2013. André, could you say what we are -- you are expecting after the recent measures by the government? It includes an imports tax for some projects for the [indiscernible]. What do you expect for the apparent consumption for 2013 to double this year and also about the scrap market in Brazil? André Bier Gerdau Johannpeter: We see an increasing scrap export in Brazil still coming from a very low base, but growing very steeply. Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division: So do you see this as a risk and a growing concern for Gerdau? Do you think will be a cap for this kind of export because of the fragmentation of the scrap market in Brazil? André Bier Gerdau Johannpeter: Marcos, about imports, this year, it's proved vis-à-vis last year and part of that is attributed to the position [ph] [indiscernible] that will be enforced next year. So maybe people are making early purchases and the penetration is around 9% to 11% for long steel and we believe it will be maybe even lower than this level for next year, which is the figure we are working with, which is higher than the 3%, 4% historical level, that it's not 15% or 16% or 18% that we're trying to pass. This is the figures that we'll work with for next year, 9%, 10% or 11% import and get the market growing and domestic consumption, with part of that being imported. What was your other question? Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division: About the scrap market in Brazil, if you see a risk of scrap exports as being of a higher concern than it is for this year.

In our sector of long steel, in iron [indiscernible] As I said before, there is a potential new risk [indiscernible] and we are working with the government to see if we can have business for new startups [ph] and this is being negotiated, so there is nothing confirmed in this regard. Regarding the scrap market, first of all, I would like to thank you very much for your kind remarks about my work in the company. Thank you. Now talking about the scrap market. Is it true that the market has been having some attempts, so to say, to export scrap, taking advantage of some situations in the market in a different way than it was before with the entire country and it is very difficult to forecast whether there is a task as you asked and what the companies have to do and what Gerdau is doing is do more of what we were doing already, having a very pulverized base of suppliers, keeping our tradition of scrap suppliers in the business, so that they do not change and very scattered. We are truly the largest scrap buyers in Brazil from the far north to the far south of the country and in very broad manner, as we have always done, so we will continue to do more of the same. You were asking whether this is going to grow or stabilize. Well, I think the market will be defining that, but what we're doing is and we will continue doing this.

Renato Antunes from Barclays.

As you're no longer looking for a partner for your ore project, could you talk about the effect of that on the leverage of the company? André Bier Gerdau Johannpeter: Because you will not count on both projects, we feel it is now. For those who follow Gerdau for many years, I see -- I understand that you all know that we never give more of what we can do. Still, this is our decision from those with zero knowledge of our company and of course, our debt equity ratio has to be at certain levels that are accepted by the company. And when we said that we will be doing this all by ourselves, the mining project -- first of all, let me clarify, our leverage today, if you look at our total debt versus our total capital, it is very low. So there is no concern regarding leverage. However, we are always pay attention to everything and as it continues, [indiscernible] investment, they measured the cash -- debt-cash ratio and it is not a mining project that will make us worried from the fact. So we do have liquidity, we do have cash generation with our activities and the cash generation from mining is what will allow us to take this business ahead and we're not going to risk our liquidity and we're not going to increase our leverage.

[Operator Instructions] Now we are closing the Q&A session. And I would like to give the floor back to Mr. André Johannpeter for his closing remarks. André Bier Gerdau Johannpeter: Thank you very much for your interest and for following us during all these years and especially...

This is Schirmer. I would like to thank you very much for all the support that you have been giving us and certainly, we expect to see you again next quarter. Thank you very much for your questions, for your interest and our Investor Relations Department will be available to you at all times in case you wish to ask any additional questions and I would like to invite you all to join us on February 21, 2013, for our fourth quarter of 2012 earnings conference call. Thank you very much. Have a very good day.

Right now, this conference call is closed. We thank you very much for your participation and wish you all a very good afternoon.