Gerdau S.A. (GGB) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Gerdau's conference call for the presentation of their results related to the fourth quarter of 2012. [Operator Instructions] We would like to emphasize that any forward-looking statements the management makes during this conference call related to Gerdau's business outlook, projections and financial and operating goals are near assumptions based on management's expectations related to the future of the company. Even though Gerdau believes that its comments are based on reasonable assumptions, there is no guarantee that future events will not affect this evaluation. Here today are Mr. André Gerdau Johannpeter, Director, President and CEO of the company; and André Pires, Vice President and IR Director. Now I would like to give the floor to Mr. André Gerdau Johannpeter. You may proceed, sir. André Bier Gerdau Johannpeter: Thank you. Good afternoon to you all, and welcome to Gerdau's conference call on its latest results. As we always do, we would like to begin our analysis by giving you an overview of the steel market all over the world and then we will talk about Gerdau's performance during 2012 and the outlook for the regions where the company operates. Right after my presentation, André Pires will give you more details about Gerdau's financial performance, and right after that, we will be available to take your questions. I would like to take this moment to welcome André Pires, who will now replace Osvaldo Schirmer and he will join me in the presentation of our results in the next quarters. André Pires de Oliveira Dias: Well, I will start by talking about the world steel production at which 1.5 billion tons in 2012, which was up by 1.2% when compared to the year before. Excluding China, the world steel production went from 801.4 million tons, which was very much in keeping with the volume in 2011. Through the fourth quarter of 2012, the world steel production was 3% vis-a-vis the same period, which is 360.5 million tons. Now speaking about Brazil's steel production, it was 34.7 million tons in the year and this represented a decrease of 1.5% vis-a-vis 2011 in the fourth quarter. Steel production in Brazil grew 3.1% when compared to the same period of the year before, which is 8.6 million tons. Now talking about steel production in other countries in Latin America, not including Brazil, was 33.2 million tons, which represented a 4% reduction when compared to 2011. In the fourth quarter, steel production was in keeping with the same period of the year before, which is 8.6 million tons. Now in the United States, steel production was 88.6 million tons, which was up by 2.5% when compared to the figures of 2011. In the last 3 months of the year, their production was 20.6 million tons, which was down by 4.7% when compared to the fourth quarter of 2011. I will now give you some of the highlights of 2012. Gerdau's performance throughout the year of 2012 was impacted by the growing global competition in the steel market, mainly due to the slowdown in China and other emerging countries, also due to the European crisis and uncertainties about the tax policy in the United States. And the Brazilian domestic markets are not included in this analysis of specialty steel despite the growing economic activity in the country. We could highlight some of the reasons for Gerdau's rate was the growth of our net revenue by 12%, an increase in shipments by 5%. Consolidated shipments was 18.6 million tons, 3% below of what we posted in 2011. In the fourth quarter, shipping were 4.3 million tons. Now steel production for Gerdau in 2012 was 18.9 million tons, 4% lower than the year before. In the fourth quarter, Gerdau produced 4.2 million tons. For those who are following us, we are on Page 3. In terms of our net sales, there was an increase of 7% when compared to the year before, which is BRL 38 billion. In the fourth quarter, the net sales reached BRL 8.9 billion. Operating cash generation, which is more commonly known as EBITDA, was BRL 4.2 billion, down by 10% vis-à-vis 2011. EBITDA in the fourth quarter was BRL 891 million. Now net income was BRL 1.5 billion in the year against BRL 2.1 billion posted in 2011. In the fourth quarter, net income was BRL 143 million. Now speaking about dividends, there will be a dividend payout of BRL 8 million to Metalúrgica Gerdau S.A. shareholders referring to the performance in the fourth quarter and BRL 34 million for those who have stocks of Gerdau S.A. Year-to-date, the numeration to shareholders from Metalúrgica Gerdau was BRL 130 million and Gerdau's was BRL 408 million. Now on Page 4, I will talk about the outlook. I will start by giving you a general overview and the current estimates of the IMF in terms of the global GDP points to a growth of 3.5% for 2013. Therefore, it is expected an increase in the global economic activity this year when compared to the year before and it should also have an impact in the consumption of steel. In terms of the steel world consumption, according Worldsteel, there is an estimated growth of 3.2% in steel consumption in 2013, which is 1.46 billion tons. Now speaking about Brazil, it is expected that the Brazilian economy should grow about 3.1% in 2013 according to forecast report, and the steel consumption should reach 26.4 million tons, which means an increase of 4.3% when compared to figures of 2012. Now if you look at the construction industry, we should expect more growth in 2013 based on margin statistics, which show an evolution in the sales of unit property or in terms of real estate financing or other similarly related to this market. And the strong growth is also based on -- in comparison with 2012, which was depreciated. Now looking at the industry in Brazil. Industrial production should evolve 3.1% in 2013. Now if we refer to the projects related to the World Cup in 2014 or the Olympic Games of 2016, these projects are still underway and should pick up and accelerate during this year. In this regard, Gerdau will continue to supply steel for the construction and remodeling of the soccer stadium and other -- for other urban mobility projects and projects related to infrastructure, airport, highways, railways, ports and streets. All of these projects are already in progress but not as fast as we should expect it. It is expected that partnerships between the government and the private sector should probably expedite the projects and that's why Gerdau is clearly prepared to supply the market fully. Now I will talk about North America on Page 5 and now I'm not including Mexico, neither all the specialty steel mills in the United States. The U.S. economy had positive growth, especially in the first half of 2012. However, in the second half of the year, the economy was more heavily impacted by increases in imports, uncertainties about the tax policy of the U.S. and in a way also was impacted by the presidential elections that took place last year. For that reason, throughout the year, the company worked hard trying to fix our operating efficiencies. And at the same time, we also introduced a single IT platform in our units in North America, which will ensure better efficiency, safety and to be able to be quick to market and serve our clients better. Now in 2013, the United States should continue to present good demand, particularly in the sectors of energy and industry. With the increasing exploration in the shale gas reserves, the industry expects to grow as the cost of energy will become more competitive. Now when we come to talk about the construction, there is a slight improvement but the figures are still below historical numbers. In this context, I would like to highlight the recovery in the nonresidential construction sector, which managed to have an increase of 8% in 2012 when compared to 2011, reaching BRL 211 billion. Now PMI, the Purchasing Managers Index, the Institute for Supply Management has indicated that talks about the industry production in the United States reached 50.2 points in December and [indiscernible] represents growth. And now looking at the numbers of 2011, the KPI went up to 53.1, which clearly shows that the U.S. economy is gradually recovering. For 2013, it is expected that the GDP will grow by 2%. Now steel consumption should improve to 3.6% in the country reaching 100 million tons. Now referring to Canada, GDP should grow about 1.9% in 2013 whereas steel consumption should also grow by 2.9% growing to 15 million tons. Now Latin America, with that including Brazil with the countries in Latin America where Gerdau operates, should still present significant performance in economic terms, and GDP in 2013 for Peru grew 5.8%; in Chile, the economy grew by about 4.7%; Columbia, plus 4.5%; Uruguay, plus 4%; and Mexico, plus 3.5%. So in this landscape, Worldsteel anticipates that the region should grow at 6.5% in terms of steel consumption reaching 43.5 million tons. However, it's important to mention as well -- it's important to say that despite the economic growth and growing demand for steel, the countries in Latin America are still experiencing a lot of pressures on costs, mainly due to raw materials, industrialization by direct and indirect imports next year. So this acceleration process can also clearly done through the extension of indirect trade products that contain some steel with China, adding up to 46 billion in 2012 and 11% higher when compared to 2011. Brazil, followed by Mexico, was a country where we see the largest volume of imports of steel-based products coming from China. Considering the economic landscape, Gerdau is still working to recover results and margins in its operations in Latin America. I would also like to highlight our investments to also a fairly broad mix of products in the region, especially in Mexico where we are building a plant for the production of structural shapes. Now speaking about specialty steel, I would like to begin with Brazil. The production of light and heavy vehicles presented a reduction throughout the year, a drop of 38% due to the effect of the anticipation with the manufacturers not having vehicles at the end of 2011 stemming from the new regulation coming around at Euro 5 for diesel engines and it was enforced in January of 2012. Now when it comes to automobiles and our commercial vehicles, a reduction of the IPI motivated consumption and that's why production increased by 6%, reaching BRL 3.2 million for 2013. According to ANFAVEA, the automobile production should grow by 4.5%, and trucks, 7%. Now still talking about this area in North America, Canada, U.S. and Mexico, the production of light and heavy vehicles experienced a significant growth throughout the year, being 18% in the automobile segment and 8% in the segment of light or medium and heavy vehicles in the region. 15.8 million vehicles are produced and also, there was a larger local production of automotive components in 2013. The warming up of this demand in the region should also see the growth of -- in the production of light vehicles and commercial vehicles. And so this was a positive impact in the sales of vehicles. Nonetheless, in Europe, the reality is different because Europe experienced a slowdown in the production and sale of vehicles. In terms of light vehicles, they produced 12.5 million units, which was down by 8% when compared to the previous year and the production of mid-sized and heavy vehicles of 370,000 units, down by 11%. Indeed, the production of light vehicle was reduced by 8% in 2012 reaching 3.3 million units, and the production of heavy vehicles experienced an increase of 860,000, a decrease of 3%. So we should expect growth vis-à-vis the previous year for this year. Now we already covered all of our regions and now we will talk about investments on Page 7. From January to December, Gerdau invested BRL 3.1 billion in fixed assets, more commonly known as CapEx, in our operations throughout the world. In this regard, I would like to highlight an investment for the beginning of the production of flat steel in Brazil and the [indiscernible], which have impacted this since December. The equipment, with installed capacity of 800,000 tons should begin operating in the first quarter of this year. Now speaking about mining, we had -- we continue to invest to reach our installed capacity of 11.5 million annual tons in 2013. In this regard, we have already conducted a purchase of iron ore to the international market adding up to 325,000 tons. And in India, a very significant potential market, we initiated our blast furnace operation with an installed capacity of 350,000 tons a year and plant which will generate energy, also a [indiscernible], sintering, melt shop and a new specialty steel rolling mill with an installed capacity of 300,000 tons. During 2013, we will start the operation of 2 bar inspection lines. In 2013, we already anticipate the introduction of a new coke plant with an annual capacity of 300,000 tons. And attached to it, we will also have a power generation plant. Considering the investments in 2012, which had been previously scheduled and the uncertainty about the economic world market, the company is feeling now more selective when it comes to evaluating projects for the future. For the period from 2013 and 2017, we have already settled BRL 8.5 billion in investments in our industrial plans considering steel and mining operations. Now I'll just go to my final remarks on Page 8. Gerdau ended the year of 2012 with strong -- by many challenges, especially considering the growing competition in the steel world market as I mentioned before. Brazil, all that I said before, we are trying to reach greater operating efficiencies and greater opportunities especially in the current scenario where China is slowing down, and there are also other problems in emerging countries and the European crisis. That's why all of these factors resulted in a lower demand when compared to what was initially expected. Just to give you an idea, the industry, the steel industry is facing a surplus capacity which results in an item of 26% impacting the profitability of the industry as a whole. At the same time, we experienced a cost increase of important raw materials such as coke and also freight costs. I would also like to emphasize that the in the fourth quarter of 2012, the company performed well but that does not represent a performance trend further down and the company's operating financial adjustment in North America and Latin America, in addition to the impact that affected us in terms of what was happening in the world economic scenario, so in this line, we are looking for new business opportunities in the mining industry because that should flatten out revenues through our businesses and at the same time generating pertinent results with the export of those raw materials to the international market. We also want to expand the mix of products in Brazil such as the initial production of [indiscernible] steel in the first quarter of this year, and we're also reinstated in diversifying our geographic footprint in markets that are experiencing growth like India, where we initiated the production of specialty steel, which is higher value. So in 2013, our expectation is to see a recovery in the economies of the United States and Brazil, as well as the continuity of [indiscernible] in China and other countries in Latin America. So all of this positive outlook, combined with internal actions by the company, should lead us to increase our operating efficiency and will give us better results. So now I'll give the floor to André and I'll come back later for the Q&A. Thank you very much. André Bier Gerdau Johannpeter: Thank you very much, André. Thank you for the welcome, and good afternoon, everyone. And thank you for the talk about the figures for Gerdau's performance for 2012 as a whole. And because of that, I'm going to talk about the consolidated activities of the first quarter in 2013. And also, I will try to put in context the performance vis-à-vis the year as a whole. At the end, I will be closing the presentation by talking about the capital structure and the investments. I would like to start with Slide #9. With the consolidated figures, net sales grew by 1% in Q4 2012 on a year-over-year basis. And this slight growth was due to the lower volume of shipments minus 8% which shows evidence of the growth in the net revenue per ton. For the year, net sales grew about 7%, BRL 38 million. Cost of sales had a 1% growth in the quarter, mainly due to the lower volume of shipments and consequent lower dilution of our fixed cost. With that, the gross margin grew by 2 percentage points for the quarter closing at 11% in the year as a whole, 13% gross margin. SG&A dropped by 6% in the quarter. In the year, these expenses grew by 3%. They track at a level of 6.5% over the next period. I would like to remind you that the real was devalued on average 17% for the whole year of 2012 vis-a-vis 2011, which impacts the accounts due to the weight of our operations abroad, mainly in North America. We that, we consider that the SG&A is stabilized with a downward trend. EBITDA dropped by 13% in the quarter and for the year, as André mentioned, BRL 4.2 billion, the consolidated EBITDA dropping by 10% on a year-on-year basis. If we look at base chart on Slide #9, we can see that the 2 factors that have a profound contribution to this drop in EBITDA were the drop in the net sales and the increase in the cost of sales. The higher net financial result was due mainly to the lower debenture revenue due to the lower cash level and lower return of our cash investments that -- mainly in Brazil where interest rates dropped significantly during the year. And with that, we saw a drop into net income reaching BRL 143 million in the quarter, and for the year, it closed at BRL 1,496,000,000. Now going to Slide #10. I would like to mention the results of the performance of each one of the business operations, starting with Brazil. Regarding Brazil, we would like to tell you about the recovery of the EBITDA margin due to the better sales mix and the higher revenues per ton sold in the domestic market. I believe even with a 6% drop in the volume of shipments, the Brazil BO reported 1% growth in the net sales during the fourth quarter of 2012, and this increase was due basically to the domestic market that's presented by 4% higher and a revenue increase of 3% showing an important contribution of our revenues per ton under the external market where the exports have a drop of 26% in the volume of shipments and 34% in the net sales, showing a more challenging international scenario for the full year. We see the same phenomenon in the domestic market, delivering a 12% growth in the net sales and 5% in shipments where the volume of exports from Brazil went down 23% for the year. EBITDA grew by 32% on a year-on-year basis with an EBITDA margin expanding from 15% to 20%. In the year, EBITDA grew by 8% reaching BRL 4.2 billion. Now going to Slide #11, talking about North America. In the North America operations, excluding specialty steel and also Mexico, we saw a 15% drop in our volumes with a 4% drop in our net revenue from sales on the year-on-year basis. And the lower volume of shipments was due to the drop in the activity driven by the uncertainty about the import policy in the U.S. and the winter in the northern hemisphere were more rigorous than at the beginning of the fourth quarter of 2011, and we promptly saw a drop in EBITDA, which was BRL 59 million in the quarter. And besides the effects already mentioned, I would like to mention and cite some extraordinary items posted with no impact on our cash and this amounts to BRL 55 million, impacting the results of the North America steel and for the year, EBITDA for the business, it was BRL 132 million. And now we're talking about Latin America, excluding Brazil. We see a stable volume of shipments on a year-on-year basis. Net sales grew by 14% for the quarter, mainly because of the exchange rate variation. In the year, net sales grew by 24% reaching BRL 5 billion. EBITDA for Latin America, BRL 21 million in the quarter and BRL 108 million for the year. In this case, the main factor in the drop of the EBITDA was the high cost of raw materials that impacted the cost of sales. I would like to emphasize some extraordinary items with no cash impact amounting to BRL 28 million that had an influence on the results of the business organization. In '13, some specialty steel observations with a reduction of 13% on the volume of shipments on a year-on-year basis and the drop of 8% in the net sales. In this case, the impact came from the lower activities in Europe and the new regulation of Euro 5. That affected the volume of sales for the heavy vehicle sector in Brazil where we saw a reduction of 38% in the production of trucks in 2012 compared to the previous year, for example, as André has already mentioned. Anyway, I think we should mention that the volumes and margins of North America continue to be very healthy with the production of light vehicles going back to the pre-crisis levels of the year. Net revenue from sales dropped by 2% with a 10% drop in shipments. EBITDA for this business operation was BRL 218 million in the quarter and the EBITDA margin was 13% in the year. EBITDA was BRL 1,073,000,000 with EBITDA margins being flat at 13%. This is the last slide, 14, where I talk about capital structure, liquidity and investments. The gross debt on December 31 was BRL 14.7 billion, being 20% in reals, 47% in foreign currency contracted from Brazil and 33% in different currencies contracted by our subsidiaries abroad. The average weighted cost of the debt closed the year at 6.1% a year with a net average amortization schedule of 5 years. Cash reduction 2012 was due basically to the payment of some debt and also the higher working capital needs. Although working capital -- you saw on the lower part of the screen on the right, although working capital dropped nominally 4% in September 2012, the cash conversion cycle measured by day, shows a growth due to the lower net sales in the quarter. The gross debt EBITDA and net debt EBITDA ratios presented a relative stability vis-a-vis the previous quarter and I would like to mention that the increase in the gross debt caused by the devaluation of the real has actually developed -- is more than offset by the appreciation of our assets abroad, which guarantees an economic hedge. And to conclude, I would like to mention that we continue to work in the preservation of our liquidity, focusing on the adaptation of our level of working capital vis-à-vis the current scenario. And as of now, André and I will be available to you to answer any questions that you might have. Ladies and gentlemen, now we would like to start the Q&A session.

[Operator Instructions] Our first question comes from Rodolfo De Angele from JPMorgan. Rodolfo R. De Angele - JP Morgan Chase & Co, Research Division: My first question has to do with the CapEx reduction. Maybe you could talk about that. Which were the projects that you did not include the rationale behind that? How did you get to this reduction? And my second question is the following: I understand that you are painting a scenario of recovery in many different markets and I defend that is your expectation. And could you please, along the same lines of discipline, could you please mention what else you could do in terms of working capital and reduction of costs? I know that you have already done your homework. André Bier Gerdau Johannpeter: This is André Johannpeter. I would like to talk about CapEx and then André Pires will be talking about cash management. Let me try to go back. We had BRL 10.3 billion, and if you look at 2012, we have already invested BRL 3.1 billion of this BRL 10.3 billion. And for the next 4 years, we would have BRL 7.2 billion and we have a new year so this number went to BRL 8.5 billion. But in fact, this is a year in which there were major investments are made and when you make bigger investments such in the Açominas [indiscernible] these amounts tend to go up and in fact, the current BRL 8.5 billion is adapted to the next 5 years and adapted to our cash generation, our cash and cash availability. That's our investment capacity. So there is no focus and specific costs or some project or this or that. Our investment is BRL 8.5 billion for the next 5 years. And once again, it was BRL 3.2 billion in 2012 and this is a figure now for the next 5 years. André Pires de Oliveira Dias: Regarding the internal measures that are being taken and our concern with liquidity and working capital, this is our daily routine. This is something that we do on a daily basis regarding working capital more specifically. What we take into account at least 20 days cash conversion cycle, which is the best way to see the adaptation of the working capital to the reality of our business, so there are many opportunities that we have been seeking so that our working capital may be maximized as the situation improves or not. And as André already mentioned, the initiative of a new platform for IT in the United States and this will be helping us quite a lot to maximize the management of our working capital. And also, cost control is part of our DNA and this is something that we do on a daily basis as well, as I mentioned at the beginning of our presentation. And considering the devaluation of the real this should bring about an increase in the consolidated SG&A in our operations abroad, and also take into account the cost pressure, labor cost. This is constant, and I would say that it is dropping slightly so many initiatives are being taken, and we are working very strongly on these.

Our next question comes from [indiscernible] from Credit Suisse.

I would like to ask a question about demand. Could you talk about the demand outlook for 2013 for Brazil, U.S., including specialty steels, and maybe in the United States? Could we expect an improvement in terms of volumes for Q3 2013? This is the first question. André Pires de Oliveira Dias: This is André Pires. These are industries that operate with a different dynamic. When we talk about North America, the situation there is very disciplined when you look at the specialty steel market and the regular steel market. In specialty steel, in the fourth quarter, there was a lower drop in volume when you compare to the common steel volume as a whole. During my presentation, I said that there was a drop of 15% in the shipments of our operations in North America. In the U.S. when it comes to specialty steel, the decrease was up only 3%. So these are 2 different industries that operate based on a different business model, whereas in specialty steel, we operate [indiscernible] I mean, we have a long-term portfolio production and less volatility when there is a reduction or a downturn in the economic activity. And then when we look at specialty steels in North America, what we see is that this is an industry that is still very strong. We are still producing close to 90% of our capacity in North America. But now long common steel in North America, in the fourth quarter, we had a point out of the curve. There was a change in volume in the first month of the year, but it's difficult to say whether the problem will grow a lot in 2013. It's hard to determine this right now. Now talking about specialty steel in Brazil, we are already seeing some demand recovery after the drop in 2012 because of introduction of Euro 5. I would say that the third quarter in general, this year is not very different than the past first quarter, especially vis-à-vis long steel as a whole.

My second question is about mining and I would like you to tell us a little bit about the current status of the project and whether you could give us any guidance about CapEx, export volumes and a review for '13 and '14 and whether there is any port authority at Greenland to export all of this volumes. André Bier Gerdau Johannpeter: This is a André Johannpeter. About mining, until the middle of the year, we will complete our production reaching 11.5 million tons so this is a new production level. This capacity is being now utilized and the internal investment is BRL 838 million and this is what has been posted year-to-date in the mining areas. So for 2013, this is the expectation up to June. And in terms of export, we expect -- we hope to export 1 million to 1.5 million tons of iron ore to be produced in [indiscernible], which will produce about 7 million tons. So these are the numbers that we anticipate for 2013. For 2014, it's hard to tell. We do not have any forecast at the moment. It depends on when the equipment will be ready to produce in terms of logistics. We are still moving ahead with our project, and we are trying to look for other alternatives in the market to solve the issue of export this year and the next 2 years until we have our own port. So we are looking to see other alternatives in the market.

[Operator Instructions] Our next question comes from Carlos de Alba from Morgan Stanley.

I have 2 questions. The first one is on the North American business unit. Could you tell us a little bit about the competative situation there. You lost some market share, [indiscernible] the volumes in the fourth quarter did not decrease as much as the number controlled in the port. I'm talking only about the long steel operations against your competitors. So can you elaborate a little bit more of the competitive landscape that you are facing in North America? And also, we have seen some improvement in the construction markets in the U.S.. Can you tell us -- or do you have any positive benefits from these trends in your order book for 2013? And my second question is regarding the [indiscernible] in EBITDA. You had your facilities turned off in the last 2 quarters [indiscernible]. Is this a level that concerns you? Or what are your plans to bring this down in the next few quarters? André Bier Gerdau Johannpeter: Mr. Carlos, can you please repeat your second question?

Sure. The second question was regarding the net debt to EBITDA, which had increased from 2x in December 2011 to 2.9x in December of 2012. Is this a level that concerns management? And what are the plans to bring it down given though it seems to be reaching the upward limit of the range where I feel the company feels comfortable? André Bier Gerdau Johannpeter: About North America and the shipments of long steel that the fact we saw in the third quarter whether there was a lot of market share and the comparisons with some competitors to the question is more regarding volume and some specific factors and the outlook for the construction market in the U.S.. North America is strong. However, it was very much linked to the fiscal problem once again, of the United States and many of our clients and the market in general didn't buy or they waited to buy and there's a drop in volume. And there is market share, of course. And as volume is once again linked to the price of lead, which ultimately affected our results. We understand there should be a recovery in the first quarter and over the year. They're already talking about the -- with construction market and construction in general in the U.S.. We started to see some positive signs of new launch into residential construction, home building and nonresidential, specifically in some regions. It is stronger than in others. It is a slow but sure recovery. That is the outlook we work with for 2013. André Pires de Oliveira Dias: This is André Pires talking. The second question was about the increases of net debt to EBITDA ratio and what was the reason for this increase and what is our strategy and what is our concern vis-a-vis these indicators. More specifically about that, we have already given you some color about the figures and gross debt didn't grow as much, 7%, but of course, net debt ultimately went up more than that because of the drop in cash. And the drop was due mainly to capital -- working capital needs but also because of our CapEx. We had the CapEx within the year of 2012 around BRL 3.1 billion. And of course, the investment that generates higher amounts, they are about to be completed. And I'm referring to the coiled hot-rolled strips mill and also the measures that are being taken. We are reviewing our investment trends, as André mentioned, and we are working very strongly in the management of our working capital. And we estimate a reduction in our working capital needs for this year. And we have explained that these indicators should go back to levels closer to the ones that we saw in late 2011 by the end of 2013. This is our objective, and we will take all the necessary measures to get there.

Our next question comes from Mr. [indiscernible]

Can you talk about the concept in Brazil? And what is the possibility for the previous prices for long steel we've been seeing in Brazil and the impact that you expect of the exchange rate dynamics? And the second question had to do with current duty -- current imports. Which product on your side could be impacted by that? And what is your expectation? André Bier Gerdau Johannpeter: Referring to the price of flat products, I would rather not comment on any trends because it works according to the market, foreign market and domestic market. So we would rather not give you any estimate for our final product. In terms of export tariffs last year, there was mix set of issues. And in this space, we saw some products experienced an increase in their export tariffs and now we are submitting a new mix, and we are just waiting to see the outcome and maybe it will be published at the end of July, but we also have the look at other countries because there are other industries that are also part of that list. But we are sending to the government a list of our products, not only long but also flat.

Your next question comes from Renato Antunes.

My first question referred to the new coiled hot-rolled strips mills. Could you tell me a little bit about the marketing expectation on sales that you expect to have for this product. Maybe also you could tell me a little bit about cost and can you help us to model that? This is my first question. The second question is about North America. You talked about the dynamics out there for this market, and I just want to understand whether you have a target or any number that you would release in terms of EBITDA margin for 2013? André Bier Gerdau Johannpeter: I will talk about hot-rolled strips and André Pires will talk about North America. We are in the testing phase. It already started in December and the shipment will take place at the end of March and early April. We are working shipment that of 350,000 tons or even 400,000 tons this year and probably the shipments will be half to the domestic market and half to export. We'll have to double the capacity of the equipment around the year and by 2014, we will increase the value but it will also depend on the performance of rolling mill and the market outlook. But in terms of volume and production, this is what we anticipate. In terms of cost, we cannot anticipate any figures at the moment because the rolling mill is still being tested so it's too soon to tell you anything about cost. André Pires de Oliveira Dias: This is André Pires. Talking about North America, I think that even before we talk about this particular event in the U.S., the business model is very much dependent on the performance of the scrap price. So we work with the scrap surcharge concept. So the margin is related to the price of scrap and then you compensate your margins through this method. In 2012, just to put things into perspective, it was almost like a reverted mirror when you look back to 2011 and 2012. There was a lot of volatility in the price of scrap, and there was a significant drop in the price of scrap at the end of the summer and heading towards the second half of the year and that's why the performance was relatively positive with EBITDA margins reaching double digits. And the EBITDA margin at the end was deteriorated in the second half of 2012. At year end, we reached an average level with the utilization of our production capacity of about 70% to 73%. Now talking about long-term objectives, we do believe that once the volume returns, which we believe will happen in North America, this EBITDA margin double digits vary between 12%, 13% and 15% can be reached once we have our capacity level up to 80% to 85%. And that's why we work with a long-term prospective.

Our next question comes from [indiscernible] from JPMorgan.

I would like to ask you if your company discussed or met with the credit rating agencies and the company conference regarding recent credit metrics that you're presenting today. And also, I would like to know your position regarding the investment grade rating and if you are committed to these ratings in the coming future. André Bier Gerdau Johannpeter: Please repeat your question.

I'm sorry? André Bier Gerdau Johannpeter: Could you please repeat your question?

I would like to know if you met with the credit rating agencies recently and if they expressed any concerns regarding the evolution of the operation and the metrics you are presenting and then [indiscernible] with the position regarding the investment grade ratings, if you are committed to the investment grade or... André Bier Gerdau Johannpeter: The question was about our commitment with investment grade. And if we are concerned with the situation and what are the measures that we are taking in regards to that. It's a little bit of what I said before. Of course, investment grade is extremely important to us. It's one of our main objectives, to keep our investment grade and all the measures are being taken to...

Did you discuss with the rating agency or something? That position regarding... [Technical Difficulty]

How do you see the performance of these margins? Or the pressure on your margins or what is your estimate?

In March, we will start operation, and at the beginning, the volumes will still be very low in comparison to the expected demand in Brazil. I think we will deliver about 300,000 to 350,000 tons or maybe 400,000 tons. Half of it will be exported and the other half will be sold domestically. So maybe if we consider 350,000 an average, part of it will be used in this market, but I don't think this will not affect the overall market in Brazil. We already have our distribution quota [indiscernible] which they're already buying today. They will continue to buy. We'll be a part of it because we are also looking for other customers that want other companies supplying them in the market. So therefor why we believe that our entrance in this market will be gradual with exports into Mexico and in the future when we are producing more. And depending on how the market evolves, I don't think that we will be that big to the point that we could impact the market that heavily.

I just have a very quick question. What are the alternatives to iron ore? In view of that improved experience this year, do you believe that you will be looking to other possibilities again? André Bier Gerdau Johannpeter: Our focus now is to finish the investments up to July to increase our capacity to 11.5 million and then continue to invest. And I'm still talking about the exploration and continuing with logistics. We have our projects that are on course but we will also see other alternatives as they go into market to use for exports above our quota are available. So our focus right now is to complete this phase and look for the logistics solution and then make the investments to bring this to 18 million tons and afterwards to 24 million. This is our focus today and we have already ended the phase of looking for a partner. This is already over and now we are focusing on our investments. Of course, we are always open to dialogue to talk, but our focus right now is to complete this and start beginning to export -- start exporting the ore because the prices are better and this will bring about higher profitability to the business.

Our next question comes from Marcos Assumpção from Itaú BBA. Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division: My first question has to do with the Brazilian operations. Could you break down the demand and the output for demand for the domestic market for 2013? In infrastructure and in the construction, what do you expect coming from these sectors? And how do you see profitability for each one of these sectors? Will they be similar between themselves or not? And the second question has to do with competition in the domestic market. In 2013, could you also talk about the outlook regarding the increase in exports and the decrease in imports that you expect and in 2014 anyway regarding market share because of the entry of new players in the market in 2014? André Pires de Oliveira Dias: Marcos, this is André Pires. About 2013 first, in the demand for -- from the specific sectors that we cater to in Brazil, we have been seeing some statistics in the market. And about civil construction, there is an expectation of growth of new launches of new real estate units and the estimate is 20% for 2013. So this is a figure that we saw and we take this into consideration and also the fact that in 2012, the basis was low because of the drop in that area. So of course, it depends on financing for these activities, but we believe that the civil construction sector should have a better performance in 2013 than it has in the previous year. And infrastructure, yes, our expectation is that these projects already underway will pick up and we will be seeing more initiatives [indiscernible], and as a consequence, we believe that we will see a better performance of the infrastructure sector this year than in 2012. In terms of profitability without getting into details, the average infrastructure projects bring about a better profitability than the civil construction projects. About imports in 2012, we saw 80%, 90% penetration of long steel and our expectation is that this should be reduced to '13, '14 and go down to 8% or 10% or 12%, which has been the average in the last few years. So this is what we foresee for the import of long steel. Regarding the entry of new players in the market, if new players do come to the market, of course, competition becomes tougher but we are prepared to cope with that. We have a good brand, we have good service, we have all our advanced parts and all our mills are scattered throughout the globe and in the U.S. as well. So we are very well positioned. And if more competitors come to the market, I think we are very well prepared. We have our traditions, our heritage and our name and I think this is very valuable to all our clients.

Our next question comes from Rodrigo Barros from Deutsche Bank.

I only have one question. This week, we've heard from economists very much concerned with the market in Brazil. Some of them even said that the country should increase interest rates in Brazil for more than 60 or 70 basis points because -- and even though this is not likely to happen. And the question is, do you believe that with an interest rate increase, this will affect the situation in Brazil? André Bier Gerdau Johannpeter: Very complicated question. It's very difficult for us to tell you precisely what would be the effect of an increase in interest rates. In the construction area or in other areas in the last few years, we saw the increase in credit availability not only in our case but in many other industries like automobile industry, [indiscernible], et cetera. So of course, if there is a significant increase in interest rates, there will be an impact though the interest rate increase is not very significant -- the impact will not be so severe. We do believe that there are many instruments that are available, and I'm sure that the Central Bank will take some necessary measures to cope with the situation that we're facing at the moment.

Now we conclude the Q&A session. I would like to give the floor to André Gerdau Johannpeter for his final remarks. Mr. Johannpeter, you have the floor. André Pires de Oliveira Dias: This is André Pires. I would like to thank you all for participating in this conference call, and I would like to take the opportunity to invite you all to our next conference call on May 7 when we will talk about the results for the first quarter of this year. Now with André Johannpeter, thank you very much for your interest in Gerdau. And if you still have any questions, our Investor Relations department will be available to clarify your doubts or answer other questions. Thank you very much and, I will see you again on May 7. Thank you.

Gerdau's conference call is now concluded. We would like to thank you all for participating and I wish you a very good afternoon.