Enhanced Investments - Financial Portal

Published: 2021-02-26 15:41:18 ET

EX-99.1 2 tm217830d1_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

São Paulo, February 24, 2021 – Gerdau S.A. (B3: GGBR4 / NYSE: GGB) announces its results for the fourth quarter of 2020. The consolidated financial statements of the Company are presented in Brazilian real (R$), in accordance with International Financial Reporting Standards (IFRS) and the accounting practices adopted in Brazil. The information in this report does not include the data of associates and jointly controlled entities, except where stated otherwise.

GERDAU’S PERFORMANCE IN 4Q20

Operating Results

CONSOLIDATED
Volumes (1,000 tonnes)	4Q20		4Q19		∆		3Q20		∆		12M20		12M19		∆
Production of crude steel	3,374		2,952		14	%	3,200		5	%	12,194		12,453		-2	%
Shipments of steel	3,217		3,078		5	%	3,189		1	%	11,461		12,090		-5	%
Results (R$ million)
Net Sales	13,620		9,533		43	%	12,222		11	%	43,815		39,644		11	%
Cost of Goods Sold	(10,960	)	(8,857	)	24	%	(10,525	)	4	%	(37,884	)	(35,441	)	7	%
Gross profit	2,660		676		293	%	1,697		57	%	5,931		4,203		41	%
Gross margin (%)	19.5	%	7.1	%			13.9	%			13.5	%	10.6	%
SG&A	(483	)	(352	)	37	%	(370	)	31	%	(1,530	)	(1,430	)	7	%
Selling expenses	(165	)	(117	)	41	%	(131	)	26	%	(513	)	(476	)	8	%
General and administrative expenses	(318	)	(235	)	36	%	(239	)	33	%	(1,017	)	(954	)	7	%
%SG&A/Net Sales	3.5	%	3.7	%			3.0	%			3.5	%	3.6	%
Adjusted EBITDA	3,056		1,138		169	%	2,139		43	%	7,690		5,733		34	%
Adjusted EBITDA Margin	22.4	%	11.9	%			17.5	%			17.6	%	14.5	%

Production and Shipments

In 4Q20, crude steel production grew in relation to both 3Q20 and 4Q19, supported by the continued recovery in demand in the various countries where the company operates.

Steel shipments grew in 4Q20 in relation to 4Q19, led by shipments to the domestic market of the Brazil BD and to the North America BD. Compared to 3Q20, the stability in shipments in a seasonally weaker quarter is explained by the better performance of the Special Steel BD and North America BD.

Operating Result

Net Sales

Net sales in 4Q20 accompanied the growth in shipments in relation to 4Q19. Note that net sales in 4Q20 were mainly influenced by the 31% Brazilian real depreciation in the last 12 months, which had a positive effect especially on the translation of net sales from our operations in North America. Another highlight was the rebuilding of margins following the increases in raw materials, with the aim of maintaining profitability.

Cost of Goods Sold

Cost of goods sold accompanied the growth in shipments and increased in relation to 4Q19. There also were increases in the costs of key raw materials used by the Company, notably the 59% increase in scrap prices in Brazilian real and the 69% increase in the iron ore price in relation to 4Q20. In relation to 3Q20, the scrap price increased 19%, while the iron ore price rose 26%.

Gross Profit

Gross profit and gross margin expanded, reflecting the 10% increase in sales per tonne sold and the 3% increase in cost per tonne sold compared to 3Q20. Compared to 4Q19, margin expansion is explained by the strong domestic market in the Brazil BD, which reached 86% of total shipments of the division, up from 67% in 4Q19.

Selling, General & Administrative Expenses

Selling, general and administrative expenses increased in relation to the comparison periods, but remained stable as a ratio of net sales, at 3.5%.

EBITDA & EBITDA Margin

Breakdown of Consolidated EBITDA (R$ million)	4Q20		4Q19		∆		3Q20		∆		12M20		12M19		∆
Net income	1,057		102		939	%	795		33	%	2,388		1,217		96	%
Net financial result	834		272		207	%	303		175	%	1,699		1,509		13	%
Provision for income and social contribution taxes	674		193		249	%	282		139	%	1,108		458		142	%
Depreciation and amortization	684		538		27	%	647		6	%	2,499		2,073		21	%
EBITDA - Instruction CVM ¹	3,250		1,105		194	%	2,027		60	%	7,693		5,256		46	%
Equity in earnings of unconsolidated companies	(75	)	2		-		(71	)	4	%	(153	)	17		-
Proportional EBITDA of associated companies and jointly controlled entities	171		86		99	%	180		-5	%	555		320		74	%
Impairment of financial assets	(8	)	5		-		3		-		64		21		204	%
Non recurring items	(282	)	(62	)	354	%	-		-		(471	)	119		-
Fixed cost impacts of plants without production	-		131		-		-		-		119		369		-68	%
Impairment of non-financial assets	412		-		-		-		-		412		-		-
Credit recovery / Provisions	(694	)	(193	)	259	%	-		-		(1,002	)	(250	)	301	%
Adjusted EBITDA²	3,056		1,138		169	%	2,139		43	%	7,690		5,733		34	%
Adjusted EBITDA Margin	22.4	%	11.9	%			17.5	%			17.6	%	14.5	%

CONCILIATION OF CONSOLIDATED EBITDA (R$ million)	4Q20		4Q19		3Q20		12M20		12M19
EBITDA - Instruction CVM ¹	3,250		1,105		2,027		7,693		5,256
Depreciation and amortization	(684	)	(538	)	(647	)	(2,499	)	(2,073	)
OPERATING INCOME BEFORE FINANCIAL RESULT AND TAXES³	2,566		567		1,380		5,194		3,183

1 – Non-accounting measure calculated in accordance with CVM Instruction 527.

2 – Non-accounting measure calculated by the Company. The Company presents Adjusted EBITDA to provide additional information on cash generation in the period.

3 - Accounting measure reported in the consolidated Income Statement.

Adjusted EBITDA and adjusted EBITDA margin in 4Q20 expanded in relation to the comparison periods in all business divisions, led by the Brazil BD. This result demonstrates the capacity of Gerdau’s teams to capture opportunities and also reflects the better moment in the global steel industry. Note that this is Company’s higher EBITDA ever for a fourth quarter.

EBITDA (R$ million) & EBITDA Margin (%)

Financial Result & Net Income

CONSOLIDATED (R$ million)	4Q20			4Q19			∆			3Q20		∆		12M20			12M19			∆
Income before financial income expenses and taxes¹		2,565			568			352	%	1,380		86	%		5,194			3,184			63.1	%
Financial Result		(834	)		(272	)		207	%	(303	)	175	%		(1,699	)		(1,509	)		13	%
Financial income		55			86			-36	%	42		30	%		194			223			-13	%
Financial expenses		(379	)		(404	)		-6	%	(354	)	7	%		(1,448	)		(1,470	)		-1	%
Exchange variation, net (including net investment hedge)		(142	)		95			-		57		-			(111	)		(120	)		-7	%
Exchange variation (other currencies)		(128	)		(49	)		160	%	(48	)	167	%		(93	)		(127	)		-27	%
Bonds repurchase expenses		(239	)		-			-		-		-			(239	)		-			-
Gains (losses) on financial instruments, net		(1	)		1			-		(1	)	0	%		(1	)		(15	)		-95	%
Income before taxes¹		1,731			296			674	%	1,076		61	%		3,495			1,675			109	%
Income and social contribution taxes		(674	)		(193	)		249	%	(282	)	139	%		(1,108	)		(458	)		142	%
Exchange variation including net investment hedge		(3	)		(81	)		-96	%	1		-			97			109			-11	%
Other lines		(484	)		(112	)		332	%	(283	)	71	%		(953	)		(566	)		68	%
Non recurring items		(187	)		-			-		-		-			(251	)		-			-
Consolidated Net Income ¹		1,057			102			939	%	795		33	%		2,388			1,217			96	%
Non recurring items		145			(41	)		-		-		-			20			78			-75	%
Credit recovery / Provisions		(694	)		(193	)		260	%	-		-			(1,002	)		(250	)		301	%
Income tax on extraordinary items		187			21			788	%	-		-			251			(41	)		-
Bonds repurchase expenses		239			-			-		-		-			239			-			-
Impairment of non-financial assets		412			-			-		-		-			412			-			-
Fixed costs Impacts of plants without production		-			131			-		-		-			119			369			-68	%
Consolidated Adjusted Net Income²		1,202			61			1878	%	795		51	%		2,408			1,295			86	%

1 - Accounting measure disclosed in the consolidated Income Statement.

2 - Non-accounting measure calculated by the Company to show net profit adjusted by non-recurring events that influenced the result.

In 4Q20 compared to 3Q20 and 4Q19, the variation in the financial result was basically due to the effects from exchange variation and the expenses with bond repurchases. The purpose of the bond operation was to decrease the exposure of foreign-denominated debt to mitigate the effect of the 29% Brazilian real depreciation against the U.S. dollar in 2020.

Adjusted net income in 4Q20 increased in comparison to 3Q20 and 4Q19, supported by EBITDA growth.

Dividends

On February 23, 2021, the Board of Directors of Gerdau S.A. approved the distribution of dividends as interest on equity in the amount of R$ 221.2 million (R$ 0.13 per share), to be paid as an advance on the minimum mandatory dividend for 2020, as stipulated in the Bylaws.

Record date: shareholding position on March 11, 2021

Ex-dividend date: March 12, 2021

On December 8, 2020, the Board of Directors of Gerdau S.A. approved the distribution of dividends as interest on equity in the amount of R$ 289.2 million (R$ 0.17 per share), to be paid as an advance on minimum mandatory dividend in 2020, as stipulated in the Bylaws.

Record date: shareholding position on December 21, 2020

Ex-dividend date: December 22, 2020

The payment date is March 25, 2021 for both distributions.

Working Capital & Cash Conversion Cycle

The cash conversion cycle (working capital divided by daily net revenue in the quarter) decreased from 63 days in September 2020 to 49 days in December 2020. This record-high level is explained by the increased freeing up of working capital and by the net sales growth in 4Q20 compared to 3Q20.

Working Capital (R$ million) & Cash Conversion Cycle (days)

Financial Liabilities

Debt composition (R$ million)	12.31.2020		09.30.2020		12.31.2019
Short Term		1,432		2,173		1,562
Long Term		16,084		17,368		14,488
Gross Debt		17,516		19,541		16,050
Cash, cash equivalents and short-term investments		7,658		7,200		6,295
Net Debt		9,858		12,341		9,755

On December 31, 2020, gross debt was 8% short term and 92% long term. Through its liability management, the Company reduced its consolidated exposure denominated in U.S. dollar to 77% of total gross debt, with the repurchase of bonds in the principal amount of US$300 million and the raising of R$1.2 billion through bilateral loans denominated in Brazilian real. As a result, debt denominated in Brazilian real now accounts for 23% of total gross debt.

On December 31, 2020, 29% of cash was in U.S. dollar.

The evolution in key debt indicators is shown below:

Indicators	12.31.2020			09.30.2020			12.31.2019
Gross debt / Total capitalization ¹		36	%		38	%		37	%
Net debt² (R$) / EBITDA ³ (R$)		1.25	x		2.78	x		1.67	x

1 - Total capitalization = shareholders' equity + gross debt – interest on debt.
2 – Net debt = gross debt – interest on debt – cash, cash equivalents and financial investments.
3 – Adjusted EBITDA in the last 12 months.

The reduction in the net debt/EBITDA ratio from 2.07x on September 30, 2020 to 1.25x on December 31, 2020 is explained mainly by the amortizations in the period, the effects from exchange variation on debt and the higher cash generation.

Note that this means that the Company’s management has achieved one goal of its financial policy approved by the Board of Directors, which is keeping the net debt/EBITDA ratio between 1.0x and 1.5x.

Gross debt payment schedule

(R$ billion)

At the end of December 2020, the nominal weighted average cost of gross debt was 4.7%, or 2.46% for the portion denominated in Brazilian real, 5.7% plus exchange variation for the portion denominated in U.S. dollar contracted by companies in Brazil and 4.25% for the portion contracted by subsidiaries abroad. On December 31, 2020, the average gross debt term was 7.7 years, with the debt maturity schedule well balanced and well distributed over the coming years.

Investments

Capital expenditure amounted to R$ 549 million in 4Q20, with R$ 233 million allocated to general maintenance, R$ 94 million to maintenance of the Ouro Branco Mill (MG) and R$ 222 million to technological expansion and updating. Of the amount invested in the quarter, 53% was allocated to the Brazil BD, 13% to the Special Steel BD, 30% to the North America BD and 4% to the South America BD.

CAPEX in 2020 amounted to approximately R$ 1.6 billion.

In 2020, of the total investments, 26% are related to environmental improvements in existing facilities, with this environmental investment exceeding the percentage of such investments in the last three years.

The investments bring the following environmental benefits:

	·	New tailings filtration system, which is an innovative project in the iron ore process that will allow for eliminating the use of tailings dams.
	·	Formation of planted forests to ensure the supply of biomass to our mills, resulting in environmental benefits and supporting the company’s carbon management by reducing gas emissions causing climate change, since the bioreducer is a renewable source of carbon.
	·	Expansion and modernization of environmental control systems, such as dedusting, wastewater treatment lake, scrap inbound shipping and processing to reduce impacts on material topics relating to air emissions and water management.
	·	Improvements and technological updating that enable higher energy efficiency gains and lower greenhouse gas emissions driven by reducing losses in continuous casting, electric arc furnace, spheroidization furnace and logistics processes.

CAPEX projected for 2021 is R$ 3.5 billion, with the CAPEX estimate for the three-year period (2019-2021) revised to R$ 6.9 billion.

The investments in technological expansion and updating will be made as expectations for the market’s recovery and for free cash flow generation in the period are maintained.

Conclusion of acquisition of Silat

On November 30, 2020, the Company, through its subsidiary Gerdau Aços Longos S.A., concluded, after meeting the respective conditions precedent, including approval by Brazil's antitrust agency CADE, the acquisition of 96.35% of shares issued by Siderúrgica Latino-Americana S.A. (“SILAT”) for R$ 475.9 million. SILAT, which is located in Caucaia in the Fortaleza metropolitan area of Ceará state, has annual installed capacity of 600,000 tons of long steel rolled goods. With the transaction, Gerdau strengthens its positioning in the region and reinforces its strategy to better serve its clients in the domestic market.

Free Cash Flow

Free cash flow in 4Q20 was positive R$ 2.4 billion, which is explained by the combination of EBITDA growth on the prior quarter and lower working capital needs. Note that in 2020, the Company registered positive free cash flow of R$ 4.5 billion for the second straight year, which strengthened its liquidity position.

Free Cash Flow (R$ million)

Free Cash Flow, Quarterly (R$ million)

PERFORMANCE BY BUSINESS DIVISION (BD)

The information in this report is divided into four Business Divisions (BD) in accordance with Gerdau’s corporate governance, as follows:

·	Brazil BD (Brazil Business Division) – includes the operations in Brazil (except special steel) and the iron ore operation in Brazil;

·	North America BD (North America Business Division) – includes all operations in North America (Canada, United States and Mexico), except special steel, as well as the jointly controlled entities and associate company, both located in Mexico;

·	South America BD (South America Business Division) – includes all operations in South America (Argentina, Peru, Uruguay and Venezuela), except the operations in Brazil, and the jointly controlled entities in the Dominican Republic and Colombia;

·	Special Steel BD (Special Steel Business Division) – includes the special steel operations in Brazil and the United States.

NET SALES

EBITDA AND EBITDA MARGIN

BRAZIL BD

BRAZIL BD	4Q20			4Q19			∆			3Q20			∆			12M20			12M19			∆
Volumes (1,000 tonnes)
Production of crude steel		1,565			1,439			9	%		1,553			1	%		5,492			5,563			-1	%
Shipments of steel		1,419			1,493			-5	%		1,513			-6	%		5,219			5,609			-7	%
Domestic Market		1,226			1,004			22	%		1,298			-6	%		4,394			3,959			11	%
Exports		193			490			-61	%		216			-11	%		825			1,650			-50	%
Shipments of long steel		1,007			1,059			-5	%		1,067			-6	%		3,671			4,134			-11	%
Domestic Market		821			637			29	%		871			-6	%		2,939			2,633			12	%
Exports		186			423			-56	%		196			-5	%		733			1,500			-51	%
Shipments of flat steel		412			434			-5	%		446			-8	%		1,548			1,475			5	%
Domestic Market		406			367			11	%		426			-5	%		1,455			1,325			10	%
Exports		7			67			-90	%		20			-67	%		92			150			-38	%
Results (R$ million)
Net Sales¹		5,787			4,057			43	%		4,990			16	%		17,753			16,122			10	%
Domestic Market		5,258			3,175			66	%		4,465			18	%		15,725			12,912			22	%
Exports		529			882			-40	%		526			1	%		2,028			3,210			-37	%
Cost of Goods Sold		(4,119	)		(3,782	)		9	%		(3,904	)		6	%		(14,180	)		(14,363	)		-1	%
Gross profit		1,668			275			506	%		1,087			53	%		3,573			1,759			103	%
Gross margin (%)		28.8	%		6.8	%					21.8	%					20.1	%		10.9	%
Adjusted EBITDA²		1,790			539			232	%		1,253			43	%		4,178			2,642			58	%
Adjusted EBITDA Margin (%)		30.9	%		13.3	%					25.1	%					23.5	%		16.4	%

1 – Includes iron ore sales.

2 – EBITDA adjusted for the elimination of non-recurring effects from the fixed costs of mills undergoing stoppages in the amount of R$ 65 million in 2Q20 and 2020 and R$ 238 million in 3Q19 and 2019.

Production & Shipments

Crude steel production remained stable in 4Q20 compared to 3Q20. Compared to 4Q19, crude steel production increased due to higher shipments in the domestic market.

Shipments to the domestic market registered significant growth in 4Q20 compared to 4Q19, driven by growing demand from construction and in the industry. A highlight was the construction retailing segment, which reflected the Company’s digital initiatives that agilely captured the strong growth in construction in Brazil’s various regions. In flat steel, the highlight was the demand for heavy plates to meet demand from the wind power and infrastructure sectors. Exports registered a decline in a natural movement to prioritize product shipments to the domestic market. In relation to 3Q20, total sales decreased following the normal seasonality for the fourth quarter.

In 4Q20, 540,000 tonnes of iron ore were sold to third parties and 1,039,000 tonnes were consumed internally.

Operating Result

Net sales increased in 4Q20 compared to 3Q20 and 4Q19, reflecting the higher shipments to the domestic market. Shipments to the domestic market as a ratio of total sales increased from 68% in 4Q19 to 86% in 4Q20. In 2020, there also was a movement to rebuild the costs of raw materials absorbed over recent years.

Cost of goods sold in 4Q20 increased in relation to both comparison periods, due to the higher costs of raw material in general. Scrap and iron ore prices rose 80% and 69%, respectively, compared to 4Q19. Compared to 3Q20, these product prices increased by 37% and 26%.

Gross profit and gross margin expanded in relation to both comparison periods, driven by the better market mix, with 86% of shipments going to the domestic market in 4Q20. The change in mix led the increase in revenue per tonne sold to outpace the increase in cost per tonne sold. Shipments to the domestic market are mainly composed of rolled steel products, whose revenue per tonne sold is higher than that of export products, which are mainly composed of crude steel.

In 4Q20, EBITDA and EBITDA margin grew in relation to both periods, accompanying gross profit, as explained above. Note that these were the highest results for EBITDA and EBITDA margin registered by the Brazil BD in the last 12 months.

EBITDA (R$ million) & EBITDA Margin (%)

NORTH AMERICA BD

NORTH AMERICA BD	4Q20		4Q19		∆		3Q20		∆		12M20		12M19		∆
Volumes (1,000 tonnes)
Production of crude steel	1,177		1,053		12	%	1,154		2	%	4,706		4,601		2	%
Shipments of steel	1,166		1,050		11	%	1,087		7	%	4,334		4,275		1	%
Results (R$ million)
Net Sales	5,030		3,375		49	%	4,483		12	%	17,458		14,656		19	%
Cost of Goods Sold	(4,639	)	(3,201	)	45	%	(4,196	)	11	%	(16,213	)	(13,351	)	21	%
Gross profit	391		174		125	%	288		36	%	1,246		1,305		-5	%
Gross margin (%)	7.8	%	5.2	%			6.4	%			7.1	%	8.9	%
EBITDA	562		264		113	%	461		22	%	1,866		1,583		18	%
EBITDA margin (%)	11.2	%	7.8	%			10.3	%			10.7	%	10.8	%

Production & Shipments

Steel production and shipments in 4Q20 increased in relation to 3Q20, demonstrating the continued resilience of the non-residential construction market and the industry. Total construction investments (CPIP) increased 7% in the 12 months to November to reach US$ 1.4 trillion. Construction activity also remained strong, as shown by the Institute for Supply Management (ISM) index, which reached 60.7 in December 2020 (above 50 indicates growth).

Operating Result

The growth in net sales in 4Q20 compared to 4Q19 was mainly due to the 31% appreciation in the average U.S. dollar rate against the Brazilian real in the period. In relation to 3Q20, net sales accompanied the growth in shipments.

Cost of goods sold in 4Q20 increased compared to 4Q19 due to exchange variation effects, as mentioned above. In relation to 3Q20, COGS was impacted by higher scrap costs, as well as by the growth in shipments.

Gross profit and gross margin in 4Q20 increased in relation to 3Q20, due to higher shipments and the initiatives to streamline costs.

EBITDA and EBITDA margin in 4T20 grew in relation to both comparison periods, accompanying the evolution in gross profit and gross margin. Note that this was the highest EBITDA margin for a fourth quarter since 2007.

EBITDA (R$ million) & EBITDA Margin (%)

SOUTH AMERICA BD

SOUTH AMERICA BD	4Q20		4Q19		∆		3Q20		∆		12M20		12M19		∆
Volumes (1,000 tonnes)
Production of crude steel	184		161		14	%	170		8	%	574		609		-6	%
Shipments of steel	331		274		21	%	300		10	%	962		1,059		-9	%
Results (R$ million)
Net Sales	1,326		908		46	%	1,252		6	%	3,831		3,259		18	%
Cost of Goods Sold	(974	)	(770	)	26	%	(977	)	0	%	(3,015	)	(2,762	)	9	%
Gross profit	352		138		155	%	275		28	%	816		497		64	%
Gross margin (%)	26.5	%	15.2	%			22.0	%			21.3	%	15.3	%
EBITDA	454		183		148	%	376		21	%	1,113		674		65	%
EBITDA margin (%)	34.2	%	20.2	%			30.0	%			29.1	%	20.7	%

1 – EBITDA adjusted for the elimination of non-recurring effects from the fixed costs of mills undergoing shutdowns in the amount of R$ 26 million in 2020.

Production & Shipments

Steel production and shipments in 4Q20 increased in relation to 3Q20 and 4Q19, supported by the continued good performance of the construction industry, especially in Peru and Argentina.

Operating Result

Net sales increased due to higher shipments and the effects from currency variation. Cost of goods sold remained in line with 3Q20.

Gross profit and gross margin increased in 4Q20 compared to both periods, since the increase in revenue per tonne sold surpassed the increase in costs per tonne sold in the period.

EBITDA and EBITDA margin in 4Q20 reflected the robust demand from the construction industry, mainly in Peru and Argentina, and the important contribution from the joint ventures. This was the highest EBITDA of the South America BD since 2008.

EBITDA (R$ million) & EBITDA Margin (%)

SPECIAL STEEL BD

SPECIAL STEEL BD	4Q20		4Q19		∆		3Q20		∆		12M20		12M19		∆
Volumes (1,000 tonnes)
Production of crude steel	448		299		50	%	323		39	%	1,422		1,680		-15	%
Shipments of steel	407		343		19	%	338		20	%	1,252		1,586		-21	%
Results (R$ million)
Net Sales	2,061		1,397		48	%	1,705		21	%	6,096		6,702		-9	%
Cost of Goods Sold	(1,839	)	(1,373	)	34	%	(1,640	)	12	%	(5,795	)	(6,168	)	-6	%
Gross profit	222		24		828	%	66		-		302		534		-44	%
Gross margin (%)	10.8	%	1.7	%			3.8	%			5.0	%	8.0	%
EBITDA	310		114		172	%	168		85	%	703		800		-12	%
EBITDA margin (%)	15.1	%	8.2	%			9.9	%			11.5	%	11.9	%

1 – EBITDA adjusted for the elimination of non-recurring effects from the fixed costs of mills undergoing shutdowns in the amount of R$ 28 million in 2020.

Production & Shipments

Steel production and shipments increased in 4Q20 compared to 4Q19 and 3Q20, reflecting the recovery of the automotive industry relating to the operations in Brazil, combined with the recovery in shipments from the United States, which is an effect already observed in the prior quarter.

There are still repercussions from the impacts of the oil price in the U.S. oil & gas industry and the lower exports of vehicles from Brazil to Argentina. On the other hand, the automotive industry is staging a significant recovery, with higher production and shipments in both Brazil and the United States.

Operating Result

The increase in net sales and cost of goods sold in 4Q20 compared to 4Q19 is mainly due to the effects from the 31% appreciation in the U.S. dollar against the Brazilian real on the revenues from the operations in the United States.

Gross profit and gross margin increased in the period, due to the economies of scale resulting from the higher sales. Note that this division has been posting a gradual recovery, as shown by the capacity utilization rates of 25% in 2Q20, 45% in 3Q20 and 70% in 4Q20.

EBITDA and EBITDA margin increased in 4Q20 compared to both periods, accompanying the performance of gross profit and gross margin in the period.

EBITDA (R$ million) & EBITDA Margin (%)

THE MANAGEMENT

This document contains forward-looking statements. These statements are based on estimates, information or methods that may be incorrect or inaccurate and that may not occur. These estimates are also subject to risk, uncertainties and assumptions that include, among other factors: general economic, political and commercial conditions in Brazil and in the markets where we operate and existing and future government regulations. Potential investors are cautioned that these forward-looking statements do not constitute guarantees of future performance, given that they involve risks and uncertainties. Gerdau does not undertake and expressly waives any obligation to update any of these forward-looking statements, which are valid only on the date on which they were made.

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

	December 31, 2020		December 31, 2019
CURRENT ASSETS
Cash and cash equivalents		4,617,204		2,641,652
Short-term investments		3,041,143		3,652,949
Trade accounts receivable - net		3,737,270		2,672,370
Inventories		9,169,417		7,659,737
Tax credits		1,201,312		504,302
Income and social contribution taxes recoverable		1,051,584		483,088
Fair value of derivatives		-		2,846
Other current assets		591,523		618,769
		23,409,453		18,235,713

NON-CURRENT ASSETS
Tax credits		664,045		465,549
Deferred income taxes		3,393,354		4,071,219
Related parties		134,354		95,445
Judicial deposits		1,825,791		1,991,715
Other non-current assets		590,864		464,169
Prepaid pension cost		39,196		45,381
Investments in associates and jointly-controlled entities		2,271,629		1,812,399
Goodwill		12,103,519		9,469,311
Leasing		815,311		777,314
Other Intangibles		622,578		673,262
Property, plant and equipment, net		17,252,915		15,901,493
		39,713,556		35,767,257

TOTAL ASSETS		63,123,009		54,002,970

GERDAU S.A.
CONSOLIDATED BALANCE SHEETS
In thousands of Brazilian reais (R$)
	December 31, 2020			December 31, 2019
CURRENT LIABILITIES
Trade accounts payable		5,437,953			3,762,768
Short-term debt		1,424,043			1,544,211
Debentures		7,463			18,015
Taxes payable		600,089			432,988
Income and social contribution taxes payable		810,125			205,092
Payroll and related liabilities		591,653			479,693
Dividends payable		510,348			50,968
Leasing payable		231,703			202,536
Employee benefits		208			495
Environmental liabilities		125,992			60,913
Fair value of derivatives		971			-
Obligations with FIDC		944,513			-
Other current liabilities		797,082			666,858
		11,482,143			7,424,537

NON-CURRENT LIABILITIES
Long-term debt		13,188,891			11,594,612
Debentures		2,894,954			2,893,029
Related parties		22,855			-
Deferred income taxes		61,562			517,413
Provision for tax, civil and labor liabilities		1,172,511			809,299
Environmental liabilities		171,102			51,395
Employee benefits		1,861,231			1,469,949
Obligations with FIDC		42,893			1,018,501
Leasing payable		624,771			601,733
Other non-current liabilities		514,886			449,375
		20,555,656			19,405,306

EQUITY
Capital		19,249,181			19,249,181
Treasury stocks		(229,309	)		(242,542	)
Capital reserves		11,597			11,597
Retained earnings		7,292,332			5,644,706
Operations with non-controlling interests		(2,870,825	)		(2,870,825	)
Other reserves		7,407,295			5,163,584
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT		30,860,271			26,955,701

NON-CONTROLLING INTERESTS		224,939			217,426

EQUITY		31,085,210			27,173,127

TOTAL LIABILITIES AND EQUITY		63,123,009			54,002,970

GERDAU S.A.

CONSOLIDATED STATEMENTS OF INCOME

In thousands of Brazilian reais (R$)

	For the three-month period ended on						For the year ended on
	December 31, 2020			December 31, 2019			December 31, 2020			December 31, 2019
NET SALES		13,620,179			9,533,467			43,814,661			39,644,010

Cost of sales		(10,959,981	)		(8,856,923	)		(37,884,102	)		(35,440,726	)

GROSS PROFIT		2,660,198			676,544			5,930,559			4,203,284

Selling expenses		(165,094	)		(117,788	)		(512,950	)		(476,339	)
General and administrative expenses		(318,257	)		(234,806	)		(1,017,435	)		(954,117	)
Other operating income		965,291			329,286			1,763,684			636,847
Other operating expenses		(247,438	)		(78,181	)		(645,985	)		(187,647	)
Impairment of financial assets		7,999			(5,349	)		(64,132	)		(21,044	)
Impairment of non-financial assets		(411,925	)		-			(411,925	)		-
Equity in earnings of unconsolidated companies		74,674			(2,376	)		152,569			(17,050	)

INCOME (LOSS) BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES		2,565,448			567,330			5,194,385			3,183,934

Financial income		54,754			85,566			194,092			223,213
Financial expenses		(379,032	)		(403,836	)		(1,448,461	)		(1,469,754	)
Bonds repurchases		(239,273	)		-			(239,273	)		-
Exchange variations, net		(269,642	)		45,299			(204,291	)		(247,555	)
Gain and losses on financial instruments, net		(982	)		1,153			(774	)		(15,118	)
		1,731,273			295,512
INCOME (LOSS) BEFORE TAXES		1,731,273			295,512			3,495,678			1,674,720


Current		(543,804	)		52,012			(908,051	)		(240,400	)
Deferred		(130,673	)		(245,319	)		(199,573	)		(217,433	)
Income and social contribution taxes		(674,477	)		(193,307	)		(1,107,624	)		(457,833	)


NET INCOME (LOSS)		1,056,796			102,205			2,388,054			1,216,887


(+) Fixed costs of plants without production		-			-			119,356			-
(+) Maintenance Stoppage / Impacts of the Blast Furnace 1 reform of the Ouro Branco steel mill		-			131,110			-			368,813
(-) Credit recovery / Provisions		(693,710	)		(193,083	)		(1,001,483	)		(250,311	)
(+) Impairment of non-financial assets		411,925			-			411,925			-
(+) Bonds repurchases		239,273			-			239,273			-
(+) Income tax of extraordinary items		187,356			21,071			251,418			(40,291	)
(=) Total of extraordinary items		144,844			(40,902	)		20,489			78,211

ADJUSTED NET INCOME*		1,201,640			61,303			2,408,543			1,295,098

*Adjusted net income is a non-accounting indicator prepared by the Company, reconciled with the financial statements and consists of net income adjusted for extraordinary events that influenced the net income (loss), without cash effect.

GERDAU S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of Brazilian reais (R$)

	For the three-month period ended on						For the year ended on
	December 31, 2020			December 31, 2019			December 31, 2020			December 31, 2019
Cash flows from operating activities
Net income (loss) for the year		1,056,796			102,205			2,388,054			1,216,887
Adjustments to reconcile net income for the year to net cash provided by operating activities
Depreciation and amortization		683,840			539,672			2,499,104			2,074,295
Impairment of non-financial assets		411,925			-			411,925			-
Equity in earnings of unconsolidated companies		(74,674	)		2,376			(152,569	)		17,050
Exchange variation, net		269,642			(45,299	)		204,291			247,555
Losses (Gains) on financial instruments, net		982			(1,153	)		774			15,118
Post-employment benefits		52,016			46,437			203,689			165,487
Long-term incentive plans		31,491			9,469			62,801			43,895
Income tax		674,477			193,307			1,107,624			457,833
Losses (Gains) on disposal of property, plant and equipment		3,607			3,819			(18,482	)		2,129
Impairment of financial assets		(7,999	)		5,349			64,132			21,044
Provision (reversal) of tax, civil, labor and environmental liabilities, net		246,999			43,692			477,518			38,417
Tax credits recovery		(901,559	)		(280,133	)		(1,358,744	)		(402,499	)
Interest income on short-term investments		(29,556	)		(28,438	)		(99,359	)		(72,784	)
Interest expense on loans		251,554			181,893			1,022,460			938,120
Interest on loans with related parties		(2,031	)		(2,110	)		(8,277	)		(4,767	)
Reversal of net realisable value adjustment in inventory		(5,866	)		(27,438	)		(40,697	)		24,665
		2,661,644			743,648			6,764,244			4,782,445
Changes in assets and liabilities
Decrease (Increase) in trade accounts receivable		257,384			770,250			(527,722	)		656,831
(Increase) Decrease in inventories		(627,860	)		1,219,552			(428,263	)		1,556,713
Increase (Decrease) in trade accounts payable		1,065,916			(42,071	)		1,014,800			(642,699	)
(Increase) Decrease in other receivables		(29,030	)		(25,707	)		369,076			146,825
Decrease in other payables		49,292			(20,936	)		182,934			(462,906	)
Dividends from jointly-controlled entities		75,323			5,085			94,937			44,037
Purchases of short-term investments		(937,852	)		(2,506,136	)		(3,224,158	)		(3,676,744	)
Proceeds from maturities and sales of short-term investments		924,268			12,418			3,924,799			521,616
Cash provided by operating activities		3,439,085			156,103			8,170,647			2,926,118

Interest paid on loans and financing		(401,486	)		(261,928	)		(1,079,981	)		(945,027	)
Interest paid on lease liabilities		(14,503	)		(20,490	)		(61,727	)		(83,620	)
Income and social contribution taxes paid		(428,367	)		(33,750	)		(621,033	)		(254,679	)
Net cash provided (used) by operating activities		2,594,729			(160,065	)		6,407,906			1,642,792

Cash flows from investing activities
Purchases of property, plant and equipment		(548,910	)		(485,960	)		(1,650,778	)		(1,746,600	)
Proceeds from sales of property, plant and equipment, investments and other intangibles		6,663			1,498			61,275			21,805
Purchases of other intangibles		(71,185	)		(35,872	)		(154,250	)		(100,313	)
Advance for future investment in equity interest		-			-			-			(94,687	)
Capital decrease (increase) in joint venture		-			20,344			(42,782	)		20,344
Payment for business combination		(442,542	)		-			(442,542	)		-
Net cash (used) provided in investing activities		(1,055,974	)		(499,990	)		(2,229,077	)		(1,899,451	)

Cash flows from financing activities
Dividends and interest on capital paid		(204,078	)		(67,954	)		(274,815	)		(484,173	)
Proceeds from loans and financing		1,176,770			2,112,754			3,120,745			5,585,573
Repayment of loans and financing		(1,818,818	)		(1,014,210	)		(5,084,028	)		(4,885,083	)
Leasing payment		(64,542	)		(60,511	)		(247,914	)		(161,824	)
Intercompany loans, net		27,694			52,466			(7,777	)		(64,089	)
Net cash (used) provided in financing activities		(882,974	)		1,022,545			(2,493,789	)		(9,596	)

Exchange variation on cash and cash equivalents		(209,705	)		(12,254	)		290,512			17,763

Increase (Decrease) in cash and cash equivalents		446,076			350,236			1,975,552			(248,492	)
Cash and cash equivalents at beginning of year		4,171,128			2,291,416			2,641,652			2,890,144
Cash and cash equivalents at end of year		4,617,204			2,641,652			4,617,204			2,641,652