Gerdau S.A. (GGB) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to Gerdau's conference call about the results referring to the third quarter of 2013. [Operator Instructions] We would like to emphasize that any forward-looking statement that might be made during this conference call related to Gerdau's business outlook, projections and financial and operating goals are mere assumptions based on the 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. Andre 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. Gerdau Johannpeter. You may proceed. André Bier Gerdau Johannpeter: Thank you. Good afternoon, everyone, and welcome to our conference call to talk about the results of the third quarter of 2013. We will begin our analysis by looking at the steel market landscape; and later on, we will talk about Gerdau's performance during the third quarter and the outlook for the regions where the company operates. Right afterwards, André Pires will give you more details on the company's financial performance and after that, we will be available to take your questions. It's also important to highlight that in our presentation, we will evaluate the performance of the third quarter when compared to the same period of the year before. Moreover, we will also comment on Gerdau's year-to-date performance. So I would like to start by giving you an overview of the industry, it's on Slide 2. Now talking about the world steel production, it reached 396.4 million tonnes in the third quarter, up 4.1% when compared to the same period of 2012. Excluding China, the world production was 198.9 million tonnes, and this volume is in keeping with the same period the 2012 according to the World Steel Association. Now steel production in Brazil was 8.9 million tonnes, up 2.5% when compared to what was posted in the third quarter of 2012 according to Instituto Aço Brasil. Now the steel production in other countries in Latin America, not including Brazil, was up by 11% when compared to the third quarter of 2012, totaling 8.6 million tonnes according to Alacero. The steel production in the United States was 22 million tonnes, up by 1.2% when compared to the third quarter of 2012 according to the World Steel Association. But now looking at the outlook, according to estimates by the International Monetary Fund, we see an increase of 2.9% growth in the global GDP in 2013. For next year, the outlook points out that the world economy should grow by 3.6%. The World Steel Association, which review the projections this past October points to a growth of 3.1% in the overall steel consumption in 2013 when compared to 2012, reaching 1.48 billion tonnes. Now for 2014, it is expected that the world steel consumption increases by 3.3%, reaching 1.52 billion tonnes. On Slide #3, we refer to Gerdau's performance, starting with net sales. Net sales increased 6.9%. Consolidated net sales in the third quarter of 2013, drawing a comparison to the same period of the year before, reached BRL 10.5 billion net sales. Now year-to-date, the consolidated net sales was up by 1.9% when compared to in the first 9 months of this year, reaching BRL 29.5 billion. Earnings before interest, taxes and depreciation, known as EBITDA, was BRL 1.4 billion, up by 36.8% when compared to the third quarter of 2012. Now in the period from January through September, EBITDA grew 3.9%, reaching BRL 3.4 billion. Investments, CapEx, known as CapEx, in this quarter was BRL 614 million and year-to-date, BRL 1.9 billion. To that end, I would like to highlight the start-up of the new unit for iron ore treatment in Miguel Burnier, Minas Gerais, which occurred in September, which raised its production capacity from 6.5 million to 11.5 million tonnes a year. In the third quarter, we also had the start-up of the operations of our coiled hot rolled-strip rolling mill with an annual installed capacity of 800,000 tonnes, and the products are already being sold. In the segment of specialty steels, we are still testing the new rolling mill of Pindamonhangaba, Sao Paulo with an annual capacity of 500,000 tonnes. Now I would like to refer to the quarterly performance and outlook for the operations, starting with Brazil, and this does not include the plants that produces specialty steels in Brazil. In the Brazilian domestic market, Gerdau sold 1.5 million tonnes in the third quarter, which is up by 15.3% when compared to the same period of the previous year, especially due to higher demand coming from commercial construction and infrastructure sectors and also at least -- [ph] also capital goods industry. Exports were down by 18.4%, reaching 369,000 tonnes. Now referring to the outlook for the economy in Brazil. Focused report points out that there should be an increase of 2.5% in the GDP in 2013. And as a consequence, the steel consumption in the country, according to Instituto Aço Brasil, should reach 26 million tonnes, which is up 3.2% when compared to the numbers of 2012. Now looking ahead into the future and next year, the Brazilian economy is expected to grow 2.1% according to focus report and steel consumption, in turn, should also be reaching 27 million tonnes, which is up 3.8%. Now looking at the main factors served by Gerdau. The expectations are the following: Starting with civil construction according to the central bank. The outlook indicates a growth of 1.9% in 2013. To that end, we see that the real estate market is still under recovery, and we also see that with the expansion and the filling [ph] for up GTS [ph] used is also interesting and is a positive factor for the acquisition of property. Infrastructure and civil construction market will also pick up and are picking up. And moreover the projects of infrastructure are well underway, mainly due to the urban mobility projects for the World Cup in 2014 and the same projects that are linked to the Olympic Games in Rio in 2016. In terms of the industry, the industry should increase and grow 1.4% this year according to estimates by the central bank. In this landscape segments of power transmission and agriculture machinery are the most important ones that must be highlighted. Talking about farming and agriculture, the main figures indicates that we'll reach a new record, 192 and 195 million tonnes in our grains production and the grain crop. In this regard, GDP of this sector should grow 9.9% in 2013. Now I would like to refer to our operation in North America. It does not include Mexico or the producing units of specialty steels. I am on Slide 5. In the United States and in Canada, we sold 1.6 million tonnes, 9% less when compared to the third quarter of 2012. And I would like to say that this was a consequence of the high level of imports in the period and also the fact that the market was weaker than expected. However, it's important to highlight that demand coming from the residential construction sector is already growing in the U.S., and that normally is followed by a nonresidential construction segment, which is a large consumer of Gerdau steel. According to the ABI or Architecture Billings Index, the main indicator of investment in nonresidential construction, have a ramp-up reaching 54.3 points in September. And anything above 50 denotes growth. Now purchasing managers index reached also another 56.2 points in September. Now speaking about the macroeconomics, IMF, indicates that the GDP of the U.S. should grow 1.6% in 2013. However, steel consumption should be up by only 0.7%, reaching almost 97 million tonnes in the year. However, in 2014, the outlook indicates that there should be improvement in the North American economy, and they should probably see growth of 2.6% in their GDP. Steel consumption will also be impacted by this growth, and it should grow by 3%, mainly influenced by automotive, power and nonresidential industries. Now I will talk about Latin America. It does not include Brazil. The sales volume in the third quarter was up by 2.1%, reaching 720,000 tonnes. Most countries in Latin America where Gerdau operates, should also post growth in GDP by 2013. And I would like to highlight Peru, up by 5.4%; Chile with more than 4.4%; and Colombia, more than 3.7%. For 2013, countries in Latin America should reach steel consumption of 42.4 million tonnes, very much in keeping with the year before. Now in terms of our investments in the region, we can highlight the construction of a new plant of structural shapes in Mexico. Up to now, the main equipment for that plant has been already acquired, and the civil construction works are in full execution. The new plant will have an installed capacity for 1 million tonnes [ph] of steel and 700,000 tonnes of rolled products a year. Now I will refer to our specialty steel operations, that includes Brazil, the U.S., Spain and India, and I'm on Slide 6. Specialty steels sales performance was up by 14.1%, totaling 713,000 tonnes. This is due to the ramp-up in the production of vehicles in Brazil, particularly trucks; and in India, due to the beginning of the sale of products, which was initiated as of the first quarter of this year. Looking at Brazil, the main consumer markets of specialty steels were light/heavy vehicles, and agricultural machines remain very strong. The production of light and heavy-duty vehicles in the first quarter was up 6.8% when compared to the same period of 2012, reaching 985,000 units. The outlook is that the pace of growth in the fourth quarter of 2013 should be lower due to the high levels of stocks of vehicles. However, considering our overall view for 2013, the production of light-duty vehicles will be a record one with a projected growth of 12%. For 2014, the forecast for the production of light and heavy-duty vehicles should reach 3.9 million units, approximately 5% more when compared to 2013. In North America, we see that the growth in the sales and production of light-duty vehicles are reflecting the economic recovery of the U.S. economy. In the third quarter, for instance, 3.9 million units of automobiles were produced, automobiles and light commercial vehicles, representing a 5.6 growth vis-à-vis the year before. Now referring to the fourth quarter, the outlook for the segment are that [indiscernible] production in sales will be maintained. For the year as a whole, projections indicate an increase of 4.5% and the total production of vehicles reaching 15.5 million units. However, the production of heavy-duty vehicles that consume more steel should still remain in the same levels of 2012. We estimate that there will be a slight recovery of the segment throughout 2014. In addition, the demand for specialty steel in North America was negatively influenced by the de-stocking of the main service centers throughout the year. In Europe, automobile registration during the third quarter of the year posted growth of 0.5% when compared to the same period of the year before, going to 2.8 million units. Now the registration of commercial vehicles would -- had 2.8% growth when compared to the third quarter of 2012, reaching 398,000 units. However, the production of vehicles in Europe still at lower levels when compared to 2009. However, we already see some recovery and the figures are beginning to be more positive. Now in relation to the production of heavy-duty vehicles reached, the production throughout the year was down. The outlook is that there will be a slight recovery in -- due to the introduction of Euro 6 standard. The Euro 6 standard, in a nutshell, imposes a tougher emission limit and therefore due to that reason for this new standard. For trucks, there will be an early purchase of part of these vehicles before the standard comes into force. In terms of India, the sales of light-duty vehicles and heavy-duty vehicles had a slight decline in keeping with the inflation in interest rates in this country. The expectation is for a recover in the fourth quarter with the end of the monsoon period. For those that are with me on Slide 7, my final remarks, we are still working strongly. And to boost our efficiency, and this was reflected in the increase of cash -- operating cash generation, EBITDA, and we had improvements in the liquidity of the company, and we also posted improvements in all of our debt indicators. With very strong dedication by our teams, we were able to reduce working capital by more than BRL 700 million in the last 12 months. Moreover, we are still expanding our activities in the areas of mining, and we are already selling our own production of flat steels, which should also increase our EBITDA throughout the next coming years. Now if we take a look at 2014, we anticipate that in the markets where we operate, there should be different levels of growth. As I said before, the infrastructure segment in Brazil should be very strong, still mainly due to all of the projects related to the World Cup and the Olympics. Despite all of the uncertainties related to the debt ceiling of the U.S., the public debt ceiling, we are still very optimistic vis-à-vis the U.S. market that should post some evolution in improvements in the next year. In addition, we believe that the levels of economic development of China, the largest world production of steel, should still be maintaining 2014 around 7.3%, 7.5% in terms of GDP growth. At the same time, we see some signs of recovery in Europe after a period of economic recession stemming from the world crisis. The challenge of excess installed capacity, all over the world of steel, it's still a matter of concern in 2014 in a landscape where a company must continuously seek to improve their competitiveness and levels of efficiency. And this is a job that, at Gerdau, we've been doing nonstop and already seeing some good results. Now I finish my part of the presentation. I give the floor now to André Pires and I'll be back with our Q&A. Thank you. André Pires de Oliveira Dias: Thank you, André, and Good afternoon. Now I will talk about the consolidated results of the third quarter 2013 and then give you some details about each business operation. And I will close my presentation talking about capital structure and indebtedness. So on Slide 8, for those of you who are watching on the Internet. In spite of deliveries volume having to be maintained stable, net sales had increased to 7% in the third quarter 2013, compared to the same quarter in the previous year. The different reasons to the different business operations, because of volume, the effect of the exchange rates variation and net sales. We'll talk about that in the next few slides. Regarding the second quarter 2013, there was an increase of 6.2% in net sales, which is because of the net sales over tonne, which has increased in larger sold volumes. The sales cost or the shipment sales increased 4% because of the greater cost per tonnes sold, but less than net sales per tonne increased -- because of increased gross margin of 12.2% in the third quarter of 2012 to 14.6% of the third quarter 2013. The computation of expenditures, the SG&A regarding net sales remained stable, 6.4% in the third quarter of 2013, but year-on-year and also compared to the second quarter of 2013, which shows the management efforts of our teams to rationalize in expenditures, particularly during this periods of cost pressure and real devaluation, which impacts our expenses in international operations whenever it's converted to reals. EBITDA totaled BRL 1,413,000,000 in the third quarter 2013, an increase of 36.8% year-on-year. If we look at the chart on the left-hand side of the slide, we can see that the main contribution to the increased EBITDA was the growth of net sales rather than the increase of the sales cost. So the margin grew from 10.5% in the third quarter 2012 to 13.5% in the third quarter of 2013. Now regarding the second quarter of 2013, EBITDA showed a growth of 18.1% with the margin expanding from 12.1% to 13.5%. The major negative financial results in the third quarter 2013 stems particularly from the negative net exchange rate variation, since the variations occurred financial expenses and revenues that offsets each other. Regarding the second quarter 2003, (sic) the opposite occurred because of the lower negative financial results, particularly because of a less negative net exchange rates variations. As we have said, besides exchange variation on the investment hedge, which neutralizes the income tax social contribution tax, the company also has liabilities taken in different currencies in the different countries where we're present, which also results in an exchange variation of financial results. And so the effect of the exchange rate variation on the net investment hedge is registered directly on the stockholders equity. With this, an increase of 57% in the net income vis-à-vis the former year and totaling BRL 642 million. Regarding the second quarter 2013, net sales showed -- or net profit showed a growth of 60%. Dividends based on the profit of the company's regarding the performance of the third quarter 2013, dividends of BRL 65 million will be prepaid to Metalurgica Gerdau shareholders BRL 0.16 per share and BRL 204 million from the Gerdau shareholders, BRL 0.12 per share. These dividends will be paid on the 22nd of November based on 11th of November positions. Now on Slide 9, I would like talk about the performance of each business operations, starting with Brazil. So starting with Brazil, the increase of 11.7% on net sales were the result of the increase of 6.8% in the volume of sales and the growth of 4.6% in the net sales per tonne. And domestic market showed an increase of 15.3% of shipments and 2.2% in net sales per tonne, whereas export there was a drop of 18.4% in the volume of shipments and an increase of 2.7% in the net sales per tonne. And we must remember that the exports revenue includes iron ore and coal. The business operations in Brazil, which contributes 64.8% to the EBITDA, showed a growth of 42.1% of this item vis-à-vis larger shipments and a greater dilution of fixed costs and also with a greater net sales per tonne. The EBITDA margin grew from 19.4% in the third quarter 2012 to 24.6% in the third quarter 2013. Regarding the second quarter 2013, the increased shipments was 8.2%. And lower costs, greater dilution of fixed costs contributed for a growth of 31.3% in the EBITDA, and -- which is 4.3 percentage points on the margin of the third quarter of 2013 compared of third quarter of 2012. [ph] And now on Slide 10. We have the North American operations. In North America, we had a drop of 9% in the sales volume in the third quarter 2013 when compared to the same period in 2012 because the market was weaker than we had initially expected and because of the growing participation of imported product because of the appreciation of the North American dollar. Imports then accounted for 20% of consumption at some point during the last few months. And as we have already said, there was also an impact on the implementation of the new management software throughout the last 12 months. The reduction on shipment volume lowered prices in dollar were offset by the exchange rate bringing about a stability of the net revenue of shipment when compared to the third quarter of 2012. Regarding the second quarter 2013, net sales showed a growth of 11.4%, leading to a greater net sales per tonne over 7%, impacted by the exchange rate variation of the period and greater volumes sold. The lower prices in dollar and dilution of fixed costs reduced EBITDA from BRL 205 million in the third quarter of the previous year to BRL 129 million in the third quarter of 2013. So the EBITDA margin dropped from 6% to 3.7% in this period. Regarding the second quarter of 2013, the reduction of EBITDA and the margin were the consequence of the lower prices of dollar in the period. You must remember that besides what has been mentioned, the EBITDA in the third quarter 2013 was affected by the temporary shutdown of a melt shop in Canada, which had an impact of approximately BRL 17 million. This amount represented point -- 0.5% EBITDA margin. And now, Screen 11. And we have the Latin American operations excluding Brazil. The shipment volume will show the growth of 2.1% in the third quarter 2013 year-on-year, particularly because of good demand in some countries of this region. Net sales grew 7.9%, particularly because of greater net sales, greater than 5.6%. EBITDA in the third quarter 2013 totaled BRL 131 million, showing a significant improvement, which is because of the better net sales per tonne together with stable costs and a better equity income in the period. With this EBITDA margin, totaled 9.2% in this quarter versus minus 0.2% in the same period the previous year. Vis-à-vis the second quarter 2013, EBITDA grew 20.2% and the margins went from 8.2% to 9.2% due to a greater net sales per tonne, greater than 7.9% in the period. Now on our specialty steels operation on Slide 12, where there was an increase to 14.1% in the shipments in the third quarter 2013 year-on-year. Stemming from the growth of sales and shipments in Brazil where we had recovery of the total production of vehicles, as [indiscernible] has mentioned, point -- plus 6.8%, particularly trucks, another 50%. And also comparing quarter-to-quarter, we must mention the beginning of the sale of products in India as from the first quarter 2013, a greater net sales, 16.9%, with the result of greater amount sold. EBITDA grew 17.2% in the third quarter 2013, totaling 273 million but maintenance of the EBITDA margin at 13.3% because of the learning curve in our Indian operations, which operations started in January and also because of the greater cost step-down in Spain. Regarding the second quarter 2013, because of a reduction of 6% in the volume of sales of the operating units, there was stability of EBITDA and the margin because of the relative participation in Brazil, which has a higher operating margin. Slide 13, I will be talking about indebtedness and liquidity and working capital. So the gross debt on 30 September was BRL 15.5 billion. The weighted average cost of the debt was 6.4% a year and amortization period 5.5 years. The gross debt exposure in foreign currency, which reduced 85% in June to 81% in September, reflecting financial management initiatives of the company to reduce the exchange rate-risk in the period of real volatility. Increased cash from June to September 2013 happened basically because increased cash in the period and the reduction of working capital. The reduction of 3.3% of net debt from 30th of September 2013 when compared to 30th of June 2013 is a consequence of the increased cash of the company, reducing the net debt combined with the greater generation of cash for the third quarter 2013 led to a reduction of net debt EBITDA ratio from 3.1% to 2.8%. And working capital showed a slight drop regarding June 2013, even with the growth of 6.2% in a net revenue or net sales of third quarter 2013 compared to the second quarter 2013, because of a cash effect of approximately BRL 100 million, which show management efforts to optimize working capital and adjust the capital used in the business. Consequently, financial cycle will show the reduction 5 days vis-à-vis June 2013 going from 85 to 80 days. And just to highlight, since September of 2012, the financial cycle has reduced 12 days, and working capital has been reduced more than BRL 700 million, which if we ignore the really -- exchange rate variation in the period, this means more than BRL 1.1 billion of reduction. So Gerdau will have a significant free cash flow for the company. So now I'm going to have now -- at your disposal for questions.

[Operator Instructions] Our first question comes from Mr. Rodolfo De Angele from JPMorgan. Rodolfo R. De Angele - JP Morgan Chase & Co, Research Division: I have 2 questions. The first regarding the Brazil operation. This is a positive surprise. Growth has been robust. I'd like to know a little bit more what to expect short term, particularly taking into account the imports. We know that we have new competitors coming in. And in the last call last quarter, you talked about potential measures and the upside potential. So short term and medium term, how do you see Brazil? And also, I'd like to have an explanation, for the United States, which seems to be in an opposite situation, what could we expect in margins? And in the States, there seems to be an antidumping against rebars coming from the United States and for Mexico. So could you elaborate on this, please. André Pires de Oliveira Dias: Rodolfo, this is André Pires and thank you for your question. Let's start with Brazil. In fact, we had a good quarter for several reasons. The market continues to present relatively stable and sound demand in real estate and infrastructure. And as André has commented and also the opportunities of exports that we had because of the currency devaluation, which gave us the opportunity to export [indiscernible] in this quarter. And also, part of this improvement comes from internal initiatives, efficiency gains, cost reductions, which have helped us to improve our gross margins. So I'd say a combination of good business environment and internal initiatives, which are leading to good results. And now I'll ask André to talk about North America. André Bier Gerdau Johannpeter: Thank you, Rodolfo. In North America -- well, it's been a difficult year, this quarter has been difficult too. And steel, the market has been steady and GDP lower than what we expected. And this has been reflected particularly in construction, in the construction industry, which is our main market. And nonresidential construction and also an increase of imports above the average, which pressured the long steel market, and spreads were pressured, which were reflected on the margin. But for 2014 and '15, the prospects are better since the GDP indicates that growth of 2.7, steel consumption 3.7, and there are people who believe that there will be a rebound of the nonresidential construction market, because the residential markets is recovering, and we think that the nonresidential recovered too. And also infrastructure, improving some things in some states and the balance sheets of some states. There seems to be more money for infrastructure in some states. So the outlook, this is still going to be a difficult year in the last quarter. But next year during the year, we expect a recovery, and for 2015. So for the next 2 years, the market should improve in the United States. It's very difficult to say how much and what the margins will be, but it will be better than this year, certainly.

Our next question comes from Leonardo Correa from HSBC.

My first question has to do of domestic market prices. Perhaps you could give us some greater detail, what can we expect in carryover of benefits from already implemented prices now in the third to the fourth quarters, my first question. And the second, Açominas, you still have not received the contribution of Açominas and or a margin of EBITDA 35% to Brazil. So I'd like to know your scenario for Açominas next year, how much will you be able to -- how much will it contribute? What is the sales contribution also in the domestic market? I think that will help us. I do think it's reasonable to assume that these -- this shipment would have an EBITDA per tonne of about $100. So these are my 2 questions, Açominas and the question of these new market that you are entering and the price in the domestic market, if there's any carry over to the fourth quarter. André Bier Gerdau Johannpeter: Leonardo, this is André. Thank you for your question. Regarding the domestic environment and prices, you know we don't like to talk too much about that, but what we could say is that we expect a relatively similar fourth quarter in terms of price with what we have had in the third quarter. Nothing too different. Obviously, you know that there is a seasonality in the fourth quarter every year, like in the first quarter that has to be taken into account. But we don't see anything significant event from the third to the fourth quarters, which has to do with -- what might lead to profitability. Regarding Açominas, it's now tied to Ouro Branco, the Ouro Branco mill, which we will have coiled hot-rolled strips really mill, but from now on we will not be giving specific numbers about production and shipment. But we expect it to yield production started now in August, September, and we are already in -- selling in October. Next year will be a year of -- well only until the end of this year, but next year we will have a good level of operations, bringing in contributions and a good results for Brazil, with the start up of that mill. I don't have any specific numbers to give you, but certainly it will contribute next year.

Just to confirm, the term -- is it -- tonnage still 800,000 full capacity. And most of that will be for the domestic market, right? André Bier Gerdau Johannpeter: Yes, 800,000 capacity and both external and domestic, depending on the demand. We don't have this yet too clear, but for both markets in fact.

Your next question comes from Renato Antunes from Brasil Plural.

First of all, the question on prices in Brazil. I know you don't like to talk about numbers, but qualitatively, what about your strategies when you think about prices, vis-à-vis import strategies, imports from Turkey to Brazil, we know things are volatile. So how are you seeing that? Can you work with a higher premium than we've had in the last few years? Or are we still going to see that those numbers, 15%, which was a sustainable premium? And second question, going back to the United States, I'm not sure that you can share with us, but regarding the potential antidumping study, is there any timing expectation? Anything that you can help on that subject would be welcome. André Bier Gerdau Johannpeter: Renato, this is André. I will speak about premiums or prices, because as always, things vary a lot. These export peaks. Also, we have months that goes from imports in Brazil. There are peaks. Some months we have 0. Sometimes, we have a high peak. So you have to take the average. And price, any forecast would depend on domestic demand, world supply, exchange rates, so it's very difficult to make any forecasts. André Pires de Oliveira Dias: Regarding antidumping, it's very difficult to have a forecast and with the shakedown of the government, all the processes that have been taken up into the federal sphere, has obviously been delayed. So we think that by the end of the year, we should have some indication from the government, but it's difficult to say what the timing might be.

Our next question comes from Mr. Carlos de Alba from Morgan Stanley.

I have a couple of questions. The first one is, it seems that there were a couple of nonrecurring events during the quarter. One, the costs associated with the closure of the melt shop in Canada and second, the learning curve of the Indian operation. Is it possible, André, to quantify how much these 2 events cost the company, which would have had an even higher EBITDA if they were in there? And my second question is on North America. When I looked at the results of Nucor and Steel Dynamics and I looked at the breakdown of their product shipments, the structural business of these 2 companies grew volumes by 18% year-on-year. So clearly, there is something that may be affecting more Gerdau than these 2 competitors. And if you can give us some more color, that will be very useful, because the only thing we have been seeing a negative year-on-year growth in shipments in North America for almost a year now. André Pires de Oliveira Dias: This is André Pires. I will just translate what you said. The first thing relates to nonrecurring effects. I think you talked about the temporary shutdown of the melt shop in Canada and our mill in Cambridge, and you also talk about a nonrecurring item in India. I will try to start by answering these questions first. Now in terms of that nonrecurring event in Canada, that comes to BRL 70 million, about USD 8 million and with -- that was a nonrecurring posting of the temporary shutdown of the melt shop in Cambridge, and that we will serve the needs for billets with the melt shop that is nearby in Woodby [ph] and also very close to Toronto. We are just trying to rationalize that operation. In terms of India, there is no nonrecurring effect in our operations in India. We are just looking at the figures, but maybe we should clarify that better, but we do not have any nonrecurring fact. Maybe we can -- what we can say about India is that in that same quarter of last year we didn't have any sales volumes, because we were not operating yet, but we are now. So when you draw a comparison, and also when you measure the EBITDA margin, there is also a negative effect because we did not have any sales then. And as a consequence, we still had a negative EBITDA and this had an effect in the overall EBITDA margins in what concerns the specialty steel. So I think that's what you're referring to. And the second question that you asked was about the sales of the structural shapes in, vis-à-vis the competition. In fact, if we look, to our very specific case year-on-year, there was a certain stability in the sales of structural shapes. And then, also, if you look at quarter-on-quarter, it is very much in line with what happened the year before. So these are just market momentum. But if you look at month after month sales are recovering. They've been recovering lately.

And could you comment a little bit as to what measures the company is taking to alleviate the impact of the installation of the new management software in the U.S.? I assume that this obviously had an impact on volumes and the relationship with some customers. What are the measures that the management team is taking to alleviate the situation and make sure that you regain these volumes, in the coming quarters? André Pires de Oliveira Dias: This is, again, André Pires. I think your question is about the new management software deployment and what was the impact of that new software and what are the initiatives that we are adopting. Basically, we are gradually resuming the volumes that, throughout the 12 months deployment period, the volume was lost, now the volume is being resumed by improving our service platform and now we are also going back to our production levels. This was already forecasted. And so, the management is working very, very hard to be able to resume the volumes during the deployment of the software was affected.

Our next question comes from Thiago Lofiego from Merrill Lynch.

I have 2 questions, and the first one has to do with your cost estimate for the Brazil unit. I would just like to explore them a little bit. Item per item, where were you able to notice a significant margin reduction now and vis-à-vis the year before, and whether you see room for more gains in that unit? And also I would like you to talk a little bit about the scrap market in Brazil, and what is your pricing structure from now on? André Pires de Oliveira Dias: Here is André Pires. In terms of costs for -- in Brazil and the reduction that we see, maybe a slower growth in sales cost. We had already mentioned that sometime ago and André also talked about it last year. We are in the final processes to conclude the merger of the old Açominas, the former Açominas, with the long's operations in Brazil. This merger brought about many benefits in terms of daily activities that were in both companies, like procurement, support in general. And because of that, once we merge the areas, we had many gains: purchase of materials, exports, commercial areas. And all of these gains were very important because they helped us to reduce costs and also to improve efficiencies. It's just a combination between cost reduction and efficiency gains. And we are working diligently to improve the situation further. So I believe that this is one of the main reasons why the sales growth was lower than the net sales revenue. André Bier Gerdau Johannpeter: André, I'd just like to interrupt you a little bit. What about cost per tonne? It was better, right, if you look at the previous quarter? So I think we can say that this is sustainable. And I think you can say that you have room for more gains in this cost per tonne from now on. Thiago, in a way, this is also working capital. You try to make adjustments, as much as possible, to gain more efficiencies in your operation. So in terms of gains or many of the gains that we were able to have, they were captured because of all of the opportunities that we had. But the main opportunities were already harvested. We already used them. Now about scrap, you ask about the general market or you just want to learn something specific?

No, just about the general market and what is the position in terms of the use of scrap at the moment. André Bier Gerdau Johannpeter: It's very difficult to make predictions because the market finds itself in a quite stable position. With a more depressed global demand, the appetite for scrap in the world also decreases. And one way or the other, the U.S. also influences here. There's also a demand for pig iron in Brazil, and that impacts our business because we can use 20% up to 30% of pig iron and this has an impact in the final price of scrap. So I do not have any prediction that I could probably tell you, but there are many things that end up by impacting the scrap market.

Our next question is from Marcos Assumpção from Itaú. Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division: My question is about the Brazilian business unit. Could you please make a distinction between revenue per tonne in the domestic market, which was up 4%, how much of that was the effect of products and how much of that was the impact of actual price increases? And also, having that outlook in mind and looking ahead into the future, maybe there is still the possibility of recent increases and discount reductions, whether you see that this should have an impact for the future. In terms of heavy plate, if you look at the antidumping outlook in Brazil and whether that also has an impact in your rolling mill. André Pires de Oliveira Dias: Here is André Pires. Thank you for your questions. I would say that there is a combination of things. There's a combination between mix and positive market conditions. It's very difficult to say how much each of these items -- how much they weigh in an improvement of sales per tonne. We increased exports when compared to the second quarter of 2013, due to some specific opportunities that we saw in international markets that we had put on the side for a while because of not very favorable prices in the international market, and also because our currency, the riyal, was too appreciated. So it was just a combination of factors, there is an opportunity and we see that -- if in the future we see other opportunities, we will try to take advantage of them. But it will depend on market conditions. It's just a combination of things we see that things are improving. Marcos Assumpção - Itaú Corretora de Valores S.A., Research Division: And now you still have to tell me a little bit about heavy plate. André Pires de Oliveira Dias: Nothing changes in terms of our investments, it's still according to plan. Now the next step is the assembly, and that was part of our pipeline. So nothing changes in terms of the heavy plate investment.

Our next question comes from Diogo Miura from Goldman Sachs.

I'm Marcelo Aguiar. I would like to learn more about iron ore and how are you operating for next year and whether you are about to make an agreement for medium long term with the other players? And what is the volume expectation for next year? And the second question refers to CapEx, your average CapEx. I know that you have a 4- to 5-year plan, but maybe you can tell me, for next year, what do you expect to invest. André Pires de Oliveira Dias: Marcelo, this is André Pires. In terms of mining and starting with the port solutions, I think I already said that before. But in fact, we have already contracted some space in the port. So in the short run, our situation is very comfortable. We have -- there is available capacity in the market. But in the mid- and long-range, we will have to wait a little. We will wait to see what are the alternatives in the mid and long-range. And in our view, there will be capacity in the ports available in the next coming years. In terms of volumes, we are now reaching the end of 2013 with a production pace of 11.5 million tonnes, this when we had a start-up of Miguel Burnier, which is our processing unit, and then we were able to expedite the production of ore. And the forecast for 2014 is -- sales to third parties, we do 4,000 tonnes, and we will maintain our original plans to reach 8 million tonnes by 2016. Now I'll give the floor to André who will talk about CapEx. André Bier Gerdau Johannpeter: In terms of CapEx, we will just update the figures in February. We are just concluding the projections for the next 5 years. So then we will then extract the numbers for 2013 out of that announced total amount, and then we will just post the numbers for the following year. There's still some investments underway. They are large investments, and there are always new ones on the way too, but the trend is that we will keep that same level of CapEx for the near future. So this is the trend and probably, we will announce the package for CapEx for the next 5 years, which is very similar to what we've done so far.

Just some clarification. In terms of your 2-year ore contract, is that a simple tariff? Or it's a variable tariff? André Bier Gerdau Johannpeter: There are several agreements and each one involves a different situation as these are commercial contracts. It's difficult for me now to get into details. But in what concerns our production cost and international prices, we believe that this agreement makes sense to us.

Our next question is from Renato Antunes from Brasil Plural.

I have a very quick question. Could you please talk a little bit about the plate -- or the flat market and whether you -- what you see ahead? And the second question refers to specialty steel, especially in Brazil. And I would just like to hear from you how -- how do you see the demand for this segment in 2014, whether there are some different ideas. Some people have more negative assets for 2014. So what's your view for this market next year? André Bier Gerdau Johannpeter: This is André. About slabs in the domestic market. We see that as an opportunity that comes in and comes out, it's very difficult to say that next year we'll be able to say something, there will be less slabs available, we would do less exports. And if there is something in the domestic market, we will certainly do that, because it's always better to operate in the domestic market than to export. But this is not structural and it's not constant for every quarter. Well, regarding specialty steels, that's interesting because heavy-duty vehicles this year experienced good growth, especially in the first quarter. In the second quarter, it was not so significant. But there is also a big question whether BNDES will still maintain financing of trucks. They are boosting these sales. And so if that contract is renewed, so the situation will remain as is. Otherwise, we will experience some decrease, especially in that segment of heavier duty trucks and in other instances where BNDES financing is not so important.

With that, we conclude the Q&A session. Now I would like to give the floor to Mr. André Gerdau Johannpeter and Mr. André Pires for their final remarks. André Bier Gerdau Johannpeter: Thank you all very much. Thank you for expressing interest in our conference call. If you still have any questions, our IR team will be available to clarify your doubts. So now, I would like to invite you all for our next call, which will be in February, probably in the third week of February. Have a good day.

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