Gerdau S.A. (GGB) Q4 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Gerdau's conference call about the results for the fourth quarter of 2013. [Operator Instructions] We would like to emphasize that any forward-looking statements 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 management's expectations related to the future of the company. Even though Gerdau believes that it's 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 Mr. André Pires, Vice President and IR Director. With no further ado, I would like to give the floor over to Mr. André Gerdau Johannpeter. You may proceed, sir. André Johannpeter Bier Gerdau: Thank you. Good afternoon, everyone, and welcome to Gerdau's conference call to talk about Gerdau's results in the last quarter. As we always do, we will initiate our analysis with the overall landscape for the steel market followed by information on Gerdau's performance in 2013 and the outlook for 2014. It is important to mention that we will talk about the performance of the year in addition to highlighting the main figures of Q4 2013. Right after my presentation, André Pires will elaborate on the financial performance of Gerdau. And after that, we will be available to take your questions. For those of you following us on the web, on Page 2 we start with the industry overview, starting with world steel production that reached 1.6 billion tonnes in 2013, up by 3.5%, vis-à-vis the year before. Excluding China, the world production was in keeping with that of 2012, amounting to 828 million tonnes. On the other hand, in the fourth quarter of 2013 worldwide steel production was up by 6% when compared to the same period of 2012, totaling 421 million tonnes. In Brazil, 34.2 million tonnes, almost the same volume of the year before. In the fourth quarter of 2013, steel production in the country did not evolve when compared to the same period of the previous year, totaling 8.3 million tonnes. In Latin America, not including Brazil, 31.7 million tonnes, almost the same as in 2012. In the fourth quarter, production in the region was 8.2 million tonnes and now that was 5.1% lower when compared to the same period of the previous year. Steel production in the United States totaled 87 million tonnes, down by 2% year-on-year. In the fourth quarter, however, production increased 4% totaling 21.7 million tonnes. If we look at the outlook, including estimates by the world monitor response, they point to a global GDP growth of 3.7% in 2014. Therefore, we see global economic activity is expected to grow this year, especially in developed nations when compared to the year before, which could be translated into an increase in steel consumption. According to the world steel, the growth is estimated to be 3.3% in terms of steel consumption in 2014, reaching as much as 1.52 billion tonnes. Slide #3, we have Gerdau's big figures, starting with net sales. Net sales was BRL 39.9 billion, up by 5% year-on-year. In the fourth quarter, net sales increased 14.8% when compared to the same period of 2012, reaching BRL 10.3 billion. Now EBITDA. EBITDA was up 14.6% year-on-year, amounting to BRL 4.8 billion. In the fourth quarter, EBITDA was BRL 1.4 billion. CapEx was BRL 2.6 billion in 2013, of which almost 59% was invested in Gerdau's operations in Brazil, particularly due to the startup of the coiled hot-rolled strips rolling mill in the Ouro Branco mill in Minas Gerais and the extension of the mining business also in Minas Gerais. Another 2 -- 20.2% was invested in the specialty steel deal, and this includes Brazil, Spain, the United States and India. 14% was invested in North America and 6.7% went to other countries in Latin America. In the fourth quarter, the company invested BRL 677.2 million. I would like to recall the total of BRL 2.6 billion. Now, Slide 4, we will talk about the performance in the quarter and the outlook starting with Brazil, that throughout the year, sales to the domestic market were 5.9 million tonnes, up 10.6% when compared to 2012, including sales of semifinished, flats and billets and also rolled products. I would like to highlight that the sales of rolled products in the period were lower than that full percentage. So exports starting in Brazil of 1.4 million tonnes were down by 29.4% due to lower demand coming from the international market and also the overcapacity of steel in the world. In addition to that, we have the impact of the Brazil cost and the foreign exchange rate variations, both limiting factors of Brazil's competitiveness. During the fourth quarter, shipments to the domestic market totaled 1.4 million tonnes, 9.4% higher vis-à-vis the same period the year before. However, exports were 376,000 tonnes, which accounts for a reduction of 27.7%. In terms of the Brazilian economy, the focus report estimates that GDP should grow 1.8% in 2014 and steel consumption should be 27.4 million tonnes, up 3.2% when compared to the year -- the previous year. Now in terms of the main sectors, the outlook is the following. We start with the book construction. According to IBGE, the projected GDP should be 2.4% this year, boosted by the continuous growth of the figure of total wages, mortgage loans and the end of the infrastructure works in the country, together with all of the initiatives related to the World Cup and the Olympics. Therefore, Gerdau continues to participate very actively in the industry supplying steel to the most important and projects in Brazil, such as airport, automobility projects and other investments related to the energy sector. Now speaking about the industry, the industry should grow about 1.9% this year. And farming, for the agribusiness, the estimated GDP growth should be up by 3.3% in 2014. It's worth mentioning that due to the evolution of the iron ore project throughout the year of 2013, we believe that this operation will become relevant from 2014 onwards. In 2013, shipments of iron ore to third parties totaled 1.2 million tonnes, mostly concentrated in the fourth quarter of 2013. Now I'd like to refer to North America, and on Slide 5, not including Mexico but U.S. and Canada, where we sold 6.1 million tonnes in 2013, down 5.1% vis-à-vis 2012, due to the growing participation of the imported goods in the market. So it's important to mention that internal shipments of steel in the U.S., excluding import, had a decline of 0.3% during the year. However, in the fourth quarter of the year, there was a rebound of 8.6% in sales due to the low volumes sold in 2012 in that period, at that time, was impacted by uncertainties related to the tax policy in the United States. Moreover, the U.S. economy is still moving on towards recovery which should expand the steel consumption in 2014. The nonresidential construction industry, which is showing signs of recovery, according to the U.S. Department of Commerce, investments in this industry amounted to 4.6% increase in 2013. Now PMI is a main KPI production in the U.S. posted the best result in the year in December, reaching 56.5 points. I would just like to remind you that anything above 50 is positive. But in January, despite the very severe winter that the country is facing now, that KPI reached 51.3 points, which shows a very positive path. And to this end, the outlook for the U.S. economy in 2014 can be very optimistic. IMF estimates that the United States should post 2.8% growth of GDP. And with that, steel consumption in the country should also post a growth of 3% or more throughout the year, reaching almost close to 100 million tonnes, mainly influenced by the automotive industry, energy, heavy equipment and nonresidential construction. Now speaking about Latin America. Shipments in 2013 was at 3.7%, reaching 2.8 million tonnes. This stems from the economic growth experienced in the region. In the fourth quarter, shipments totaled 715,000 tonnes, which was up by 10.5% vis-à-vis the same period of 2012. Most countries in Latin America where the company operates should also post a GDP growth, especially Peru, up by 5.7%. Chile is plus 4.5%, and Colombia, 4.2% for 2014. As a consequence, steel consumption in the region should also evolve. There should be an increase of 5.9% when compared to 2013, reaching 44.9 million tonnes. And with that landscape, I would like just to highlight the construction of our new plant for structural shapes [ph] in Mexico to a joint venture Gerdau Corsa. Most equipment -- most of the equipment has been already delivered by the vendors and the civic construction works are underway. The new unit should start up in 2015 with an annual installed capacity of 1 million tonnes of steel and 700,000 tonnes of rolled products. Now going back to Latin America, we see a high level of steel input in the region, and we are constantly monitoring that aspect. Slide #6 now refers to specialty steel -- Brazil, the U.S., Spain and India. In this operation, shipments increased by 7.5% in 2013, totaling 2.9 million tonnes. This good performance was due to improvement in sales of heavy-duty vehicles in Brazil and also sales in India after its first year of operation. In the fourth quarter, this operation boosted its deliveries by 17.9% when compared to the same period of the year before, reaching 711,000 tonnes. In Brazil, the heavy-duty vehicle industry experienced a significant rebound. It was a good rebound after the downturn of 2012. I would just like to remind you that in 2012, we had the enactment of the Euro 5 [ph] standard. In the case of light-duty vehicles, despite drops in sales, production also -- was also up substantially as a replacement for imports and the growth of exports. The production of light- and heavy-duty vehicles in 2013 was up 10% vis-à-vis 2012, reaching 3.7 million units. In 2014, increases in IPI and interest rates of financing from the NDF should be able to -- should restrain the growth in the industry. However, the outlook for the heavy-duty vehicle segment is positive because of the performance of Brazilian agribusiness. Another fact to that maybe a positive contribution is the inova auto [ph] program that boost the nationalization of automobile spare parts. In this regard, we estimate that the production of light- and heavy-duty vehicles will reach 3.8 million units, up by 1.4%. In North America, the demand for specialty steel was benefited from the recovery of the sales of light vehicles, compensated in part by a retraction in the production of heavy-duty trucks. In that year there was an increase of 4.5% in the total production of vehicles, reaching 15.5 million units. For 2012, the recovery of the market for heavy-duty trucks will continue with upgrowth in the sales of light vehicles, should certainly be a positive factor in our sales in general. In Europe, on the other hand, the main market for specialty steel experienced a rebound in Q4 2014. Vehicle registration, for instance, was up 6% year-on-year. However, 2013 was a still difficult year for both passenger and heavy-duty vehicles. That experienced a decline of 2%. For 2014, the rebound will be gradual as the economy in the region improves and inventory levels are resumed. In India, despite the recovery that began in Q4 of 2013, the main specialty steel market, light- and heavy-duty vehicles, experienced a decline throughout the year due to the lower pace of economic growth, higher interest rates and the slowdown of the mining activities affecting the industry of heavy-duty vehicles for 2014. Again, the rebound initiated in the last quarter of 2013 should continue to evolve supported by the expectation of higher public spending. On Slide 7, I have my final remarks. I would like to start by saying that Gerdau's improved performance in 2013 reflects our effort of the entire Gerdau team to improve the efficiency of our operations and also the growth of some markets, despite the fact that this growth was lower than expected. Improvements on the management side can also be noted through the reduction of almost BRL 1 billion in working capital during the year, excluding exchange rate variation, which led to more liquidity and improvement in the company's indebtedness KPI. Throughout this year, we met important challenges in Brazil with the full integration of the long steels operations, the startup of the flat steel production, together with the expansion of the mining activities. It's important to say that the coiled hot-rolled rolling mill is working at full capacity, meeting the client's expectations. We also grew our worldwide install capacity of specialty steels with investments in Brazil and in the U.S, in addition to celebrating our first year of operations in India. So we believe that with all of these initiatives, we will be able to contribute to the company's result in the next coming years. Despite uncertainties concerning the global economic market, Gerdau has been able to maintain its investment plan in a selective way, focusing on its long-term strategy. So in 2014, the company will invest BRL 2.9 billion on its industrial plants, covering steel and mining. With all of these initiatives, we believe to be fully capable of emerging even stronger from the current moment faced by the steel industry worldwide, which is being impacted by an overcapacity of steel. Currently 26% of the world's steel capacity is idle, which affects the profitability of the industry as a whole. It is also important to mention that in a pre-crisis period, the idle capacity in the world was on average, 17%. With that, I conclude my presentation, and now I'll give the floor to André Pires. After his presentation, I will be back with you for our Q&A session. Thank you very much. André Pires de Oliveira Dias: This is André. Good afternoon, everyone. I'm starting on Slide #8. And I'll start by talking about consolidated results of 4Q '13, and then we'll provide details on each business operation. I'll conclude the presentation talking about capital restructure. Net sales were up 14.8% in 4Q '13, vis-à-vis 4Q '12, and that was due to different reasons in each deal, among them higher volume and growth of net sales per tonne, and we'll talk more about it in the next slides. In regards 3Q '13, there was a 1.6% reduction in net sales, and that was due to lower volumes sold by all the yields, which is a regular and seasonal behavior of the business. Shipment costs were up 12.6% because of higher volumes sold and higher cost per tonne sold. But they were lower than the net sales per tonne increase, raising the gross margin from 11.3% in 4Q '12, to 13.1% in 4Q '13. Expenses was SG&A, sales, general and administrative expenses. Regarding net sales we're stable in 6.5% in 4Q '13 when compared to the same period of the prior year, as well as to 3Q '13. That reflects our management efforts in optimizing expenses, especially in a time of cost pressure and real devaluation, which impact expenses of our international operations when converted to our currency. EBITDA has reached BRL 1,307,000,000 in 4Q '13, an increase of 53.8% vis-à-vis the same period of the prior year. The bridge chart to your left shows the major contribution to the EBITDA increase, that was the growth in net sales. It was higher than the increase of shipment costs, therefore the margin went from 9.9% in 4Q '12, to 13.3% in 4Q '13. In regards to 3Q '13, EBITDA showed a slight drop, which was up 3%, but the margin remained stable. In the fiscal year of 2013, Gerdau's consolidated EBITDA reached BRL 4,784,000,000, a 14.6% growth, vis-à-vis the fiscal year of 2012. EBITDA margin went from 11% to 12%. The highest negative financial result in 4Q '13 is mainly due to negative net exchange rate variation and liabilities denominated in American dollars, both for 4Q '12 and 3Q '13. As we have said before, most part of the exchange rate variation is in the company because we use investment hedge for a good part of financing and dollars. Here it's good to remind you that the net equity of the dollar has been positively impacted by the exchange rate variation because we have more assets in American dollars, and that is due to our investments abroad. Even then, the net income for 4Q '13, when compared to 4Q '12, has increased and it was an important increase reaching BRL 492 million. In regards to 3Q '13, net income dropped 23.4%, the lowest operating performance caused by seasonality and a higher negative financial result which was impacted by the exchange rate variations. In the fiscal year of 2013, net income has reached BRL 1,694,000,000, an increase of 13.2% compared to the prior year. Now talking about dividends. Based on the company's profit regarding 4Q '13 performance, dividends of BRL 32.5 million will be paid to shareholders of Metalurgica Gerdau and that is equivalent to BRL 0.08 per share and 119.3 million shareholders of Gerdau S.A. BRL 0.07 a share dividends will be paid on March 17 as recorded at the close of business on March 5. In 2013, Metalurgica Gerdau and Gerdau S.A. approved respectively BRL 150.4 billion and that is equivalent to BRL 0.30 per share and BRL 476.7 million, BRL 0.28 per share and dividends in/or interest on equity. Now turning to Slide #9. I'll talk about results and performance of each business operation starting by Brazil. There was, in Brazil, an increase of 11.1% in net sales due to the increase of 9.4% of shipment of steel products in the domestic market as well as higher net sales per tonne. Also the higher shipment of iron ore in 4Q '13 vis-à-vis 4Q '12 avoided export net sales, which was steel plus ore, being impacted by the drop of steel product export. Brazil, which accounted for 67.3% of EBITDA, had an increase of 30.8% in absolute value due to improved gross profit, which in turn was impacted by the net sales higher than sales cost increase. And also because we served real estate that was recorded in the 4Q of '13, and it was around BRL 99 million. Besides the sale of iron ore to third parties have helped the results, the EBITDA margin, therefore developed from 19.6% in the fourth quarter of 2012 to 24.8% in the fourth quarter of '13. Vis-à-vis 3Q '13, the impact of lower volumes sold, there was a drop in 6.3% in the deliveries. It was offset by the sales of the real estate, as I mentioned. And also because we started selling iron ore to third party. Therefore, there was a balance in the absolute EBITDA and the EBITDA margin. In the fiscal year of 2013, EBITDA of Brazil deal [ph] has increased to 34.8% in the margin, went from 17% to 21.4%. It's important to mention that along 2013, iron ore activity is strongly contributed to Brazil deal's [ph] results. As I have said, in addition to an extraction upturn, mining to treatment unit became operational in Miguel Burnier, promoting the delivery of 1.2 million tonnes for third parties in 2013. Therefore, considering the iron ore business growth and its relevance for 2014, the company has decided that from the first quarter of 2014 on, the iron ore activity will be reported separately as an independent business operation. Now turning to Slide #10. I will talk about the performance in North America. There was a growth of 8.6% in shipment volume in 4Q '13 vis-à-vis 4Q '12, and that was the mainly -- to an improvement in the economic landscape in the region, considering the same period of the prior year. The increase in volumes sold, as well as higher net sales per tonne, which was due to the exchange rate variation in the period, provided a 14.5% net sales increase in the period. [indiscernible] in 3Q '13 net sales dropped 9.9%, and that was due to lower shipments around 8.2%, a regular and seasonal event in this period. North American EBITDA accounted for 9.5% of consolidated EBITDA 4Q '13, and it went from BRL 59 million in 4Q '12, to BRL 139 million on 4Q '13, especially due to higher shipment volumes. Then the EBITDA margin has also shown improvement in the period. Vis-à-vis 3Q '13, there was a growth of 7.8% in EBITDA's absolute value and an improvement in the EBITDA margin that went from 3.7% to 4.5%. Slide 11, we'll talk about Latin America, Brazil excluded as usual. And shipments were 10.5% higher in 4Q '13 compared to the same quarter of the prior year. And that was due to favorable demand from some countries in the region, especially Colombia, Peru and Chile. Net sales increased 20.1% in the quarter, thanks to higher volumes sold as well as greater net sales per tonne. The EBITDA in 4Q '13 for Latin America represented 9.3% of the consolidated EBITDA, and it reached BRL 136 million, a significant improvement vis-à-vis 4Q '12. That is due to higher volumes sold and therefore greater dilution of fixed cost. So EBITDA margin has reached 9.2% in the quarter, compared to 1.7% in the same period of the prior year. Vis-à-vis 3Q '13, both EBITDA and its margin were aligned at a good level after the cost optimizations implemented in the different countries of the business operations. In the fiscal year of 2013, EBITDA improved 137.8% vis-à-vis the prior fiscal year. And the EBITDA margins went from 3.6% in 2012 to 8% in 2013. Now let's turn to Slide #12 and talk about specialty steel. There was an increase of 17.9% in shipment in 4Q '13, vis-à-vis the same quarter of the prior year due to shipment growth in all countries where Gerdau was present, India included. They have started operating the rolling mill in the beginning of 2013. The highest net sales of 19.3% resulted mainly from greater volumes sold. EBITDA accounted for 13.9% of the consolidated EBITDA, and it dropped 6% in the 4Q '13, reaching BRL 205 million due to the performance of India's operations, with a higher cost coming from productive process learning curve. EBITDA margins dropped from 12.7% in the 4Q '12 to 10% in 4Q '13. Vis-à-vis 3Q '13, reduction in the EBITDA of 24.9% and in the EBITDA margin was caused by a change in the geographic mix of shipments, with a smaller participation of Brazil and larger share of Spain and India, which have lower margins. Besides also, we had the impact of the seasonality which is a regular one in that activity. Now Slide 13, and I'll talk about capital restructure, indebtedness and liquidity. The gross debt in December 31 of '13 was of BRL 16.3 billion, an increase of BRL 2 billion vis-à-vis December of 2012. But the devaluation of real was responsible for almost all of that difference. If we take away the exchange rate, our gross debt only has an increase of BRL 61 million. The weighted average cost of debt was at 6.5% a year with an average period of amortization of 5.3 years. The gross debt exposure in foreign currency dropped from 80.3% in December '12 to 79.5% in December of '13, and in spite of the real devaluation which was close to 15% vis-à-vis the American dollar in that period. This lower exposure is a result of financial management initiative taken to minimize the exchange rate risk in a period of real volatility. The cash flow increase from December '12 to December '13 of BRL 1.7 billion happened because there was optimization of working capital in the period and also due to higher generation of operating cash flow. Therefore, the net debt had an increase of BRL 313 million, and that was totally offset by the cash flow increase. So there was a reduction in the net debt indicator, from 2.8x to 2.5x. And that reduction was a result from the company's efforts in order to optimize working capital and improve cash flow generation in the business. Allow me to remind you that along 2013, Gerdau had its investment grade re-endorsed by the 3 main rating agencies. In December 13, the working capital dropped 4.1% vis-à-vis December of 2012, and in spite of the growth of almost 15% in net sales of the fourth quarter of 2013 vis-à-vis 4Q '12. And that shows the company's efforts, as I said, in optimizing working capital and focusing on its balance sheet and liquidity. As a result, the cash conversion cycle was reduced in 16 days, vis-à-vis December 2012, closing in 81 days. It's important to stress that the BRL 350 million capital -- working capital reduction from December 2012 to December 2013 reflects exchange rate variations, mainly over the working capital of companies abroad. Excluding that variation, the cash flow impact of that reduction was of BRL 935 million. That is almost BRL 1 billion. So from now on, me and André will be able available to address your questions. Thank you very much.

[Operator Instructions] Our first question comes from Thiago Lofiego, Merrill Lynch.

I have 2 questions. The first refers to your 2014 CapEx. You mentioned BRL 2.9 billion for this year, which is slightly above what you mentioned more recently. So could you please give me a breakdown of this CapEx? And also why is it that it's slightly above the BRL 2 billion figure that we had assumed before? The second question refers to the steel market in the United States. Could you please tell me a little bit about the metallic spread? And at what level does metal -- metal spread is today? And what is the impact of this very severe weather in the U.S. to your figures? André Pires de Oliveira Dias: Hello, Thiago, thanks for your question. This is André Pires. Well, in terms of CapEx, in fact, this is the number that we had in mind, although we expected and we were talking about it for a while. If you look at disbursements of CapEx or investments that took place throughout 2013 was BRL 2.6 billion. The expectation for 2014 of BRL 2.9 billion contemplates some projects that are already in the pipeline and some others that are yet to be approved. But it's always good to remember that when we translate CapEx into reais, there is the impact of the FX variation. So part of the equipment that we acquire, they come from abroad. They are included [ph] equipment. So to invest in an environment where the real currency is depreciated, that leads to a higher disbursement of reais, certainly it depends on the FX variation and the performance of the exchange rate throughout the year. But that's the number, BRL 2.9 billion. There hasn't been any changes. Now concerning the U.S. market, I think that you divided your question into the metal spread and also the severe winter. Starting with the weather, I mean, winter is indeed affecting the market as a whole from operations one way or another affected. I think you are all following what is happening. I think this is -- this has been the worst winter ever. And the economic activity is also demonstrating that the industry's been affected. And in terms of the metal spread, it continues to perform the way that you mentioned because of the situation in the U.S. And it is relatively low if you compare it to the levels that we experienced in 2011 and 2012, and in other words, half of 2012.

Now going back to the CapEx issue, you said that by 2017, your total CapEx will be BRL 8.5 billion. So you believe that we should see a decline in CapEx in the next coming years, or maybe not? So could you please tell me, give me a breakdown of what mining and steel milling still needs to do in that regard? André Pires de Oliveira Dias: Okay, Thiago. In fact, we decided to talk about CapEx -- use of CapEx on an annual basis rather than in a 5-year term. The main reason is that we are, in fact, reviewing our investment plans. And this review is occurring on a very frequent basis, focusing on working capital and also focusing on the economic landscape. So there is no decline in CapEx. But again, we must take into account the FX effect to foreign exchange variations. And I'm speaking more particularly about mining and steel milling. I would say that if you look at CapEx spending in 2014, I think more than 50% or 60% would go to Brazil. And in Brazil, mining plays a very important role because we still have our projects to expedite production of iron ore. As you know, we intend to reach a production capacity of 18 million tonnes by the end of 2016, and this will require important investment if we want to reach that goal. Our next question comes from Ivano Westin from Crédit Suisse. Ivano Westin - Crédit Suisse AG, Research Division: First, I would like to know about operations in Brazil. Can you please elaborate more about your energy self-sufficiency levels here in Brazil? And that was due to recurring decision of a possible savings program for energy. How do you see the demand for the first quarter? And what are you going to transfer in terms of price increase in Brazil for the first scenario? That was the first question. And also please comment on the specialty steels, what do you expect to see in terms of margin recovery along the year? André Pires de Oliveira Dias: Hello, Ivano, here is Pires. About energy, that it's important to let you know a little bit about our structure. We do have a self-generation capacity of around 40% of our needs in Brazil in specialty. And also included here is specialty steel, that includes our cogeneration in Ouro Branco plant, and also our 2 hydroelectric power plants and the participation that we have in [indiscernible]. So with all that, we have 40% of self-generation. About pricing, we have hired energy both in the free market as well as in the private market plus our self-generation. That is enough, and we still have a little bit to spare in regards to the load that we have that is estimated for our use. And so in this scenario, we feel very comfortable. And it's important to stress that we do have production units all over Brazil. We have production units in the Southeast, in the Northeast. Therefore, I would say we have a good geographic diversification, and it makes us very comfortable in terms of energy distribution. Now I'll turn to André to talk about the Brazil's demand and also specialty steel. André Johannpeter Bier Gerdau: Hello, Ivano, this is André. About Brazil's demand, we're still working along with Aços [ph] Brazil in a growing consumption of around 3% to 4%, depending on how the year goes. That is the outlook that we have in terms for the demand. We've seen that increased structure is still here. We do have construction works, not as much as we expected, but those are happening, whether for the World Cup, for transportation and the Olympics structure, energy. And so there are things happening, but not as fast as we expected. Residential construction is more or less stable, and the industry depends on the FX variation to go ahead, to go forward. About the specialty steel, we don't have a specific projection of margin. But this 2013 was the first year for India, and that impacted India's coming into the operation. So it did have an impact. We should have an improvement of margins in India. Now it's going to be the second year, the operation should be improved. Europe also, we see some signs of recovery and it tends to improve. And here in Brazil, we should have something similar or maybe -- we don't know. The year has started, we have incentives coming out, higher interest, then maybe the car sales should stabilize. We don't know. It's going to depend on the FX variation and competitiveness. And in the U.S., we expect it to have that good consumption of light-duty vehicles. And also then, they should have a recovery of oil and gas energy there. So we should expect some better margins in India and in Spain. And I would say Brazil and the U.S., we'll have more similar margins. Ivano Westin - Crédit Suisse AG, Research Division: Okay. I just would like to make sure about one point. About pricing, can we expect anything about price increase for long steels here in Brazil? And where do you see that price match here? André Johannpeter Bier Gerdau: Yes. We are not going to comment on prices. We have hundreds of products, different situations, hundreds of variations, so we cannot comment on prices. Ivano Westin - Crédit Suisse AG, Research Division: Can you tell us where do you see a price match in general? André Johannpeter Bier Gerdau: No. You were talking about a match? Ivano Westin - Crédit Suisse AG, Research Division: Yes, because we have the rebar in the international market and in the local markets. André Johannpeter Bier Gerdau: Okay, we cannot comment on that.

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

The first question is also on India. How long more would it take for the operation to be completely ramped up? Based on the press release, you just started operations in January, and you still had a negative effect in the fourth quarter results. So I wonder if things are going well there. And when do you expect the operation there to bring that full capacity? André Johannpeter Bier Gerdau: Well, the question from Carlos de Alba is about India and our operation in that country and when we believe that the plant will be operating at full capacity 1 year after the start up. The capacity of that plant is 300,000 tonnes and the focus is on specialty steels. And to reach capacity because it's a specialty steel, it takes a little bit longer, maybe 2 or 3 years would be more realistic. And it's -- they operate differently than a rebar mill or a mill that produces other products. So 2 to 3 years would be the expectation in terms of reaching full capacity, but it certainly depends on the market. This is just based on our experience and our production curve. If there is more demand from the market, that may be different.

Understood. And if I may, on iron ore, what are your expectation of volumes for 2014? And then the last question is on working capital. It has been a key focus of the management team to reduce working capital. Can you do more in '15 and beyond to be in that point even further, the base of working capital that we saw in the fourth quarter? Because the reality, despite the great results on this and the cash generation that took place, the net debt to EBITDA remains around 2.5x, which is not necessarily low. And I just want -- how you see these 2 things, the working capital and the net debt levels? André Pires de Oliveira Dias: This is André Pires. Your first question refers to iron ore and what is our expectation in terms of iron ore production in 2014. And the second question refers to working capital. Taking into account the reduction that occurred in 2013, so what is our expectation for 2014 and how we see the net debt over EBITDA performance? Well, related to your first question on iron ore, as we said during the presentation, our purpose is that after the first half of 2014, after the results for the second quarter, we will start talking about numbers of production and deliveries of iron ore. And for that reason, we will not anticipate anything at the moment. We will give you more details when we report on the results for the second quarter -- for the first quarter of 2014. Now about working capital in 2013, as we said, our liquidity agenda was quite strong. And then we understand the repeating the same time of reduction in working capital, it's very difficult. However, we are still putting a lot of effort to operate at a more balanced or fair working capital level. And so the focus is to work with a cash conversion cycle a bit shorter. Now in terms of net debt over EBITDA of 2.5x, this is an objective that we pursued in the first half of 2013. We were pursuing 2.5x, but we understand that due to all of that work, we were able to have our investment grade reinstated by the main grading agencies. This is a comfortable level, and therefore, we will start to operate with this level of debt, focusing on 2.5x. There may be fluctuations upwards and downwards because it's very hard to have a very defined tuning of this number, but we will try to operate with a number around this number, the number that we had at the end of 2013, 2.5x.

Our next question comes from Renato Antunes, Brazil Plural.

First, it's about the United States and antidumping matter that is being studied there by American agencies. We have a negative preliminary view. But I would like to know your opinion, do you have a clear expectation that could help us about what's going on and what they are investigating there, especially in terms of antidumping regarding Turkey and Mexico? And also Brazil, in terms of iron ore, if I'm not mistaken, you already mentioned that you made 1.2 million tonnes of sales. I would like just to confirm, and analyzing some -- that figure, a large part of that was concentrated on fourth quarter, almost 700,000 tonnes in the fourth quarter. Can you help me understand how much of that is being exported and how much of that is being shipped to the domestic market? André Johannpeter Bier Gerdau: Renato, this is André. I will talk about the antidumping, and André Pires will talk more about Brazil. You talked our expectations. We are, along with other manufacturers, we are participating, contributing with [indiscernible] and it's very difficult to do any type of forecast. What we had coming out yesterday was about subsidies, and so we still have more to know about antidumping. And we're waiting for more information, and probably that's going to come out only in April. That is as much as I can tell you. Turkey -- and in that matter of the antidumping in Turkey and Mexico. André Pires de Oliveira Dias: This is André Pires, Renato. And I mentioned, in the past, in 2013, deliveries of iron ore for third parties reached 1.2 million tonnes. And a large part of that was in the fourth quarter. We started with that treatment units too in September, if I'm not mistaken -- if I'm -- end of September, beginning of October. So that helped us to expedite the iron ore treatment and therefore, production. Obviously, as you know, an important part of the production of our mines is to support Ouro Branco. In regards to what is sent to the export market, I can tell you that we have flexibility to export a large part of the production or to meet the demand of the domestic market. So it's going to depend upon where the demand is and about -- also, it's going to depend on the price equation. So I would say that we would like to export, but that doesn't mean that we are supporting the demand of the domestic market.

Our next question comes Rafael Oliveira from Itau BBA. Rafael Oliveira - Itaú Corretora de Valores S.A., Research Division: And this is my first question, refers to the Brazilian market. We're seeing imports of rebars and rods and there is a 15 -- a 20% growth. And now we saw imports, higher imports of rebars. How do you see that move? That's my first question. My second question relates to other operating expenses. The line that appears in your statement, you talked about an amount of BRL 99 million of properties sold, and we will see in the results that -- I would like to know what kind of properties you were referring to? André Johannpeter Bier Gerdau: Rafael, this is André. In fact, we saw from import growth in the next half year. But we have to look on a month-by-month basis because last month it was almost 0. Maybe there was a ship that didn't come in, so that number is posted in January. But we've been monitoring this volume very closely, taking the necessary actions to compete in the market because sometimes this comes into some regions and not others. So we are constantly monitoring this scenario, looking at international prices, the economic landscape. But we do not believe that the volume of imports will increase. Part [ph] will be taken into market, but we are working towards avoiding higher figures. André Pires de Oliveira Dias: Rafael, Pires. In terms of the other extraordinary revenues or operating expenses. In fact, in the case of the fourth quarter of 2014, there was an impact from the sales of real estate or property close to BRL 99 million, and this affected EBITDA. They referred to some sales of the momentum when we filed the opportunity there to sell the properties without necessarily leaving that area. These are sales, but we are still renting the property. There is no plan to use this same mechanism in the next quarters. This is considered on a case-by-case basis, depending on the opportunity of the moment. But we do not anticipate any further plan to do that in a more structural fashion.

Next question comes from Roy Yackulic from Bank of America.

Again, about the land side, I -- in the cash statement that were -- you realized, BRL 237 million from sale of PP&E. I assume that's the landfill. And I'm confused, are you saying BRL 99 million or is that -- or is it $99 million? And was that the impact on EBITDA, the BRL 237 million, or what was the impact on EBITDA? And I'm a bit curious, how much of the EBITDA in 2013 came from iron ore sales? André Johannpeter Bier Gerdau: Roy's question was about the impact of the real estate sale and the EBITDA, how much was that? If it was BRL 99 million or $99 million? And the second question is about the EBITDA impact in 2013 on the iron ore sale. So addressing the first question. Really the impact in the EBITDA of the fourth quarter of 2013, it was BRL 98.6 million, not dollars. Those had a positive impact in the sales value of the real estate. And the cost that we had in the balance sheet of those properties that brought the result of BRL 98.6 million was an impact in the EBITDA. So about the iron ore sales, as I have mentioned before, we are going to start disclosing separately that activity from the first quarter of 2014 on. Right now we'll tell more about the impact in terms of volumes, in terms of third-party sales and in terms of productivity comparing it to prior periods. So I would like to ask you for a little bit of more patience. Wait a little because when we start disclosing that information in an independent way, all that information will be available to you.

Our next question comes from Leonardo Correa from HSBC.

My first question relates to the competitive scenario. So I would just like to hear from you, your idea about the new entrants, CSN, starting as of April. And then likely [ph] and as mentioned previously, the level of import still bothers a little bit because there's a lot of material entering the country. So I would like to hear your opinion on how you intend to proceed in terms of your commercial strategy, given the scenario of new entrants with a different kind of imported goods coming into the country? And the second question refers to a previous subject that was raised during the call. Certainly there's still a lot of uncertainties in terms of the scenario concerning rationing and the drops in demand. Could you please tell me a little bit more about measures that could be taken by the company, or maybe you could increase the level of exports, considering a future exchange rate depreciation? Therefore, I would like to hear from you what would you do in case of a scenario similar to what we've had in 2001 and '02. So what is your plan b to -- in face of a scenario like that? André Johannpeter Bier Gerdau: Leonardo, this is André. Now, in terms of the competitive scenario with new entrants, and you mentioned CSN and Simec, they are about to come. We do not know exactly when. But the issue is coming toward this year. And about imported goods, I already talked about that. We are monitoring that very closely. It goes up and down depending on the month, so we continue to monitor that on a frequent basis. So in the south part of the country, at São Paulo and Rio, this is a good market. But -- so this does not affect our whole market, therefore, we will focus more on the Southeast market. But I think what is important to highlight is our entire commercial strategy with several mills, we are still -- we are present in several areas with all of our added value and cut and bend operations which are all over the country, and also the distribution from Comercial Gerdau. In addition to distribution, image and presence, I mean, I know that there are new entrants coming in, but we are strong enough and we have a long-standing tradition. The market continues to grow, and there will be more competition in the market. But that's part of the market. But we trust our strength, our team and our commercial strategy, which is very strongly differentiated in Brazil. André Pires de Oliveira Dias: Leonardo, here is Pires. In terms of energy, it's hard to tell what the expectations are because nothing has been outlined yet. But if we borrow the example from 2001, when there was some rationing, what I said before is the fact that we are present in different regions of the country. In our view, we find ourselves in a much more comfortable situation. In 2001 there was no rationing, it was mostly concentrated in the Southeast part of the country. And as a consequence, we had the opportunity to sell to other markets. So it's also worth mentioning the fact that we have operations in other parts of the world and in Latin America as well. This is very, very important because we find ourselves in a very good position. I mean, there is no particular plan b. We're very alert, but we cannot envision any possible landscape at the moment.

But just to add, what about exports? Because in the past, we've heard a lot about what would be the ideal exchange rate so that you will be neutral in terms of domestic market and export. I know that this will vary per company, but if we think in terms of 2.40, 2.50, could you think about exporting more to offset a moment of lower demand in the domestic market? André Pires de Oliveira Dias: Well, Leonardo, I think it greatly depends on prices on the international market and on the entire situation of that international market. Well, there is a variation of the exchange rate, but you must also consider variations in the international market. So it's hard to tell what will be the ideal exchange rate, but what will be the ideal international landscape? Well, even with an exchange of 2.40, exports have not been using it as an interesting alternative. To that end, our export level has declined in the fourth quarter due to a very weak landscape abroad. So just basing -- looking at the variation of the exchange rate, that's not enough alone.

Our next question is from Marcelo Aguiar from Goldman Sachs.

André, please, can you comment -- you talked about metal spread comparing 2011 to 2012. Can you talk about it, about that metal spread in American operation in the first quarter compared to what you have seen in the fourth quarter? And my second question is about the operations that you have of ramp-up. How much do you expect in terms of production, Pindamonhangaba, Ouro Branco, and in the South? So that we can have an idea where is the potential growth of volume in tonnes. And my last question, if you can please tell me a little bit about costs, especially about coal, energy and how have how you started the year? And what is the perspective that you have in the short and medium terms? André Pires de Oliveira Dias: Marcelo, this is Pires. Let me tell you a little bit more about metal spreads. We still see a challenging scenario for metal spread in the U.S. As I said before, obviously we are operating at a lower margin, vis-à-vis 2011, the first half of 2012. About the fourth quarter, I would say that it's flat. It is stable, vis-à-vis fourth quarter of 2013. You also probably have seen that in despite of a very strong winter in the U.S., there's scrap that, under these conditions, that would raise prices due to logistics problems as those have fallen. They are dropping contrary to expectations, and that is due especially to export to Turkey. So in a scenario where we are having dropped in the scrap, the American market is difficult to recover the margin. But we are still looking at the macro data and also about investment expectations and the nonresidential factor, and we still see an improvement in the American landscape. We think that investment growth of nonresidential was 4.6%. And if we compare there, the average of estimates for 2014, that nonresidential sector has a forecast of 5.8% and -- for 2014, and for 2015, 8%. So we expect it is going to improve. This is a short-term scenario and should change for the future. Now I will turn the floor to André to talk about costs and ramp-up. André Johannpeter Bier Gerdau: Marcelo, about the ramp-up, I'll always talk about in round numbers because it is the expectation of what we are going to get. In Ouro Branco, we expect to have around a 40% to 50% of use of the rolling mill. In India, in terms of steel, we are at 60% to 70% because the India's operation was already working in the billets and steel production. And what's new there is the rolling mills. And we expect to reach 40% on that one as well because we have a learning curve there, considering it's specialty steel. And since it has recently started just in December, we don't have an outlook yet, but because it's only operating for 2 months. So it's harder to give you a forecast. These are more or less the figures between Pinda, Ouro Branco and India rolling mills. About costs. Let me talk also in a broad way. You talked about coal and coal cost. There's a stable drop in the world, very similar to iron ore, something that we haven't seen in a long time. And coal was even higher. Iron ore also dropped a little bit, and it's back to 120 more or less. So we expect some stability there. For scrap, we did have a decrease. In the beginning of the year, there was demand. But also due to a strong winter in the U.S., could impact some. But what we have seen in January and February was a drop in the scrap in the market. About energy, in Brazil, we are not impacted. We have agreements for the whole year and for the next years for most of our plants, so I wouldn't say we will be impacted. And in the U.S., winter has been affecting the cost. We see that gap in the U.S. is over $5, almost $6, and it was always very close to $3 and $4. So there are variations. It depends upon the commodities and the regions. So I just gave you a general overview of what we have, is that okay?

Our next question comes from Fernando Leitão from Hoya Corretora. Fernando Leitão: I have 2 questions. The first is on the scrap market in the U.S., and I would like to refer to that market. Obviously when you took over the U.S. unit, I think the landscape was very different from the current one. And we see that the EBITDA margin is significantly higher in the Brazilian market. Even when the unit is recent, like in the case of India, the numbers are still much different when compared to Brazilian numbers. So your entry in the market of flat steel, which in my view, I believe has a tighter EBITDA when compared to long steel, what is Gerdau's strategy to that end? The averages of EBITDA in new markets, do you think that they tend to shrink? André Johannpeter Bier Gerdau: Okay. About scrap, in North America, we use our Gerdau business system, which is the way we work in terms of scrap processing to look for cost efficiencies. And this has worked quite well in North America. In some regions, better than others, so this is the model that we use there, which is similar to the operation way of acting in other areas. Not only for scrap, but this gets us good gains, and this is the strategy used in Brazil that was replicated in North America. About EBITDA, I think you were referring to flat steels when we were talking about the margin. We have now a coiled hot-rolled strip rolling mill, and we will not be so influential because it is a very vast market. But we also understand that profitability is also linked to the fact that we used to sell flat. But once you turn those into coiled hot-rolled strips, we have some advantages. In terms of flat steels, the margins are within our expectations to pay for the investments that was done in coil hot-rolled strips. We have our own distribution, but we are selling to other clients in the market. And we understand, therefore, that we will be able to get the returns within our expectations and within the figures estimated for coiled hot-rolled strips. So we still need some time in order to do a better evaluation.

Our next question comes from Juliana Chu from Votorantim Corretora.

I have 2 questions. First, about North America and the United States, how is the capacity in the year? And considering that 2013, it is good year, you knew that you turned to several efforts on North American operations. What do you expect in terms of profitability? Can we expect something higher for 2014? Something more similar to 2012? And also about coiled hot-rolled strips, do you have an expectation of volume sales for domestic and export markets for 2014? André Pires de Oliveira Dias: Juliana, this is André Pires. About North America, we are operating now at a capacity of 63%. That is the figure that we have now, that is working now. As you've said, in 2013, it was a difficult year in terms of profitability and we are working strongly. And we do believe, considering what we have seen in the macroeconomic KPIs that, in 2014, we should have better profitability, that is a better EBITDA margin than in 2013. But it's difficult to have a very clear estimate because we're just in the beginning of the year. It just started with this strong winter. It was unexpected. But we think it's going to be better. And now I'll turn to André for your second question. André Johannpeter Bier Gerdau: About the yield, I'll turn to a figure that we just mentioned. We have a yield of 40% to 50% of the capacity of the coiled hot-rolled strips rolling mill for 2014. That sale will depend of what we are going to do in terms of the line, which gauges we are going to use on the lines, we are already working on rolling products. So we can give you more data of that on production, 40% to 50% of the used capacity for this year.

So we conclude now our session of questions and answers. I would like to turn the floor to Mr. André Gerdau Johannpeter and Mr. André Pires for their final remarks. André Johannpeter Bier Gerdau: Thank you all for your participation and your interest on our conference call. And if you have any questions, our IR team is available to address any further details. And I would like to invite you to our call from the first quarter of 2014, and it's going to be on May 7. Thank you very much, and have you all a good day.

The conference call from Gerdau is concluded. Thank you all for participating. Have a good afternoon.