Gerdau S.A. (NYSE:GGB) Q3 2018 Earnings Conference Call Transcript

Nov 07, 2018 • 11:00 am ET

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Gerdau S.A. (NYSE:GGB) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good afternoon, and welcome to Gerdau's Conference Call to discuss the results of the third quarter of 2018. At this time, all participants will be on listen-only mode and later on we will initiate the Q&A session. (Operator Instructions)

(Forward-Looking Cautionary Statement)

Here today are Mr. Gustavo Werneck, Director, President and CEO of the company, and Harley Scardoelli, EVP and CFO.

I would like now to give the floor to Mr. Gustavo Werneck. You may proceed, sir.

Executive
Gustavo Werneck Da Cunha

Once again, welcome to Gerdau's conference call for the results of the third quarter of 2018. I would like to say that I am really pleased to be here once again to comment on our results. Also the company's main highlight and the outlook for the market where we operate. Next after my presentation, Ms. Scardoelli, sitting next to me here will elaborate on financial portfolio of Gerdau. And at the end, we will both be available to answer your questions.

I would like to start this conversation by talking about our main positive milestones of the third quarter 2018, which are summarized on slide two. We reached the best quarterly EBITDA of the last 10 years at Gerdau. Moreover, it is the third best quarterly EBITDA in the history of the company. This, therefore, reinstates and ensures that we are pursuing the right strategy to enhance profitability of our operations, while at the same time, we manage to reduce our debt position and promote a more stringent management effort.

In the third quarter of '18, one of the highlights was the performance improvement in North America. I recall that earlier this year, we talked about our challenge to reach a two-digit EBITDA margin in this operation, and the goal was reached now this quarter. This achievement motivates us to persist on our journey towards improving the efficiency gains of our assets. It is the best EBITDA margin of North America since 2008, boosted by the economic effects of the US tax reform and the implementation of Section 232.

(Technical Difficulty)

In addition, another highlight was the performance of the Brazil operation that benefited from enhanced domestic demand. Also international prices remained good despite being slightly lower than prices in the first and second quarters of the year.

Overall, Gerdau's impressive performance also reflects the management's effort in all our operations. This comes as a result of our austerity in managing CapEx investments and also the lower historical levels of SG&A that reached 3.3% of net sales. Free cash flow generation was BRL405 million. This quarter, foreign exchange, or more precisely, foreign exchange variation of BRL, was also positive to us because we posted gains in converting revenues generated abroad into Brazilian real.

In the period, once again, we were able to improve our net debt over EBITDA ratio. It reached 2.2x, being the best performance since 2012. Our debt position follows a downward trend since the conclusion of the divestment of the rebar units in the US this week, and which was also