GERDAU S.A. Annual Report Summary

1. Business Overview

GERDAU S.A. stands as a global powerhouse in steel production, renowned for its long steel and special steel products. With a robust presence across the Americas, the company plays a crucial role in the construction, automotive, and industrial sectors. GERDAU is one of the largest producers of long steel in the Americas and a leading supplier of special steels. The company operates through distinct business segments: Gerdau Brazil, Gerdau North America, and Gerdau Special Steels (which covers both Brazil and North America).

2. Financial Performance

GERDAU S.A. navigated a challenging market in fiscal year 2023, reporting net revenue of R$67.3 billion. This figure represents an approximate 12% decrease from the previous year, primarily due to lower steel prices and reduced sales volumes in certain regions. Despite this, the company achieved a robust Adjusted EBITDA of R$13.5 billion. This reflects strong operational efficiency and cost management, though it was down from the record highs of 2022. Net income reached R$5.6 billion, demonstrating healthy profitability margins even in a demanding economic environment. The company maintained strong operating cash flow at R$11.2 billion, underscoring its ability to generate cash from core operations.

3. Risk Factors

Investors should consider several key risks:

• Commodity Price Volatility: GERDAU faces significant exposure to price fluctuations in essential raw materials like iron ore, scrap metal, and energy costs.
• Economic Cycles: The company's performance directly correlates with the health of the construction, automotive, and industrial sectors in Brazil, North America, and other South American markets.
• Foreign Exchange Risk: As a Brazilian company with substantial international operations, fluctuations in the Brazilian Real against the US Dollar can impact reported earnings.
• Interest Rate Risk: Changes in global and local interest rates could increase financing costs for the company's significant debt.
• Contingent Liabilities: Financial guarantees totaling R$3.8 billion represent a potential call on the company's resources if guaranteed entities face financial distress.
• Regulatory and Environmental Risks: Evolving environmental regulations, carbon pricing, and trade protectionist measures could impact operations and increase costs.

4. Management Discussion (MD&A highlights)

In 2023, GERDAU S.A. skillfully navigated a complex global economic landscape. The company demonstrated resilience in key markets and adapted effectively to fluctuating demand and commodity prices. Overall, GERDAU maintained a solid operational footing, even as some segments encountered headwinds.

Major Wins:

• Strategic Investments: GERDAU advanced its strategic diversification and innovation efforts. The company invested R$250 million in Gerdau Next S.A. to develop new business models and technologies, and R$150 million in Newave Energia I Advisory Fundo De Investimento Em Participacoes Multiestrategia to secure renewable energy access.
• Operational Efficiency: The company successfully implemented cost-reduction initiatives and optimized production processes. These efforts contributed to resilient EBITDA margins despite revenue contraction.
• Sustainability Progress: GERDAU made significant strides in reducing carbon emissions and increasing its use of recycled materials, aligning with global ESG targets.

Key Challenges:

• Market Volatility: Fluctuations in global steel prices, iron ore, and scrap metal costs impacted both revenue and profitability.
• Economic Slowdown: Slower economic growth in key markets, particularly in South America, affected demand for construction and industrial products.
• Financial Guarantees: The company maintains substantial financial guarantees, totaling R$3.8 billion, for its various subsidiaries and joint ventures, which represents a contingent liability.

Strategic Direction and Market Trends: The company's strategic direction remains consistent, focusing on operational excellence, portfolio optimization, sustainability, and digital transformation. Investments in Gerdau Next clearly underscore a commitment to fostering innovation and developing new business models beyond traditional steelmaking. A stable leadership team continues to drive these strategic pillars forward.

Global trends significantly impact GERDAU, including decarbonization (which favors its Electric Arc Furnace (EAF) technology and scrap utilization), the circular economy (aligning with its scrap-based model), infrastructure spending (providing tailwinds for demand), and trade policies (influencing international flows and pricing).

5. Financial Health

GERDAU S.A. maintains a strong financial position. At year-end 2023, the company held cash and cash equivalents of R$10.5 billion. Total debt stood at R$24.1 billion, resulting in a healthy net debt of R$13.6 billion.

The company's Net Debt/Adjusted EBITDA ratio was a comfortable 1.0x, well below its target leverage, indicating a strong capacity to manage debt. GERDAU manages its debt profile effectively, with a significant portion of maturities extending beyond 2027. This includes "Two Thousand Twenty Seven Bonds" and "Debentures Sixteenth Issuance" maturing in 2030 and 2035, respectively, with some obligations stretching to 2044.

The company also reported Retirement and Termination Benefit Liabilities of R$1.5 billion, which it has adequately provisioned. Capital expenditures (CapEx) for the year totaled R$4.5 billion, primarily directed towards modernization, maintenance, and strategic growth projects.

6. Future Outlook

Management expresses cautious optimism for the coming year. They anticipate stable demand in key North American markets, driven by infrastructure spending and a gradual recovery in the automotive sector. In Brazil, management expects demand to remain steady, supported by ongoing construction projects. The company will continue to prioritize cost control, operational efficiency, and selective investments in high-return projects. GERDAU's long-term financial planning, evidenced by debt maturities extending to 2044, reflects a commitment to sustainable growth and shareholder returns.

7. Competitive Position

GERDAU S.A. holds a leading market share in long steel in Brazil and stands as a significant player in the North American special steels market. The company's competitive advantages include:

• Geographic Diversification: Operations across multiple continents reduce reliance on any single market.
• Vertical Integration: Strong capabilities in scrap collection and processing provide a cost advantage and support the company's circular economy initiatives.
• Product Portfolio: A wide range of high-quality steel products caters to diverse industrial needs.
• Innovation Focus: Investments in Gerdau Next and digital transformation initiatives aim to maintain a competitive edge and explore new revenue streams.