Good afternoon and welcome to Gerdau's Conference Call Results for the First Quarter 2024. I'm Renata, Investor Relations. Here with us today are Rafael Japur and Gustavo Werneck. We would like to inform you that this video conference is being recorded, and it will be available on the IR side of the company where the entire material is available for download. It is also possible to download the presentation using the chat icon. I would like to remind you that the broadcast of this video conference is being done with simultaneous translation using the tool available in the platform. For that end, just click on the Interpretation icon via the globe icon that is in the lower part of your screen, and then choose the language of your choice, either Portuguese or English. For those of you listening to this video conference in English, you have the option to mute the original audio in Portuguese by clicking mute original audio. During the company's presentation, all participants will have their microphones disabled. After that, we will initiate the Q&A session. Analysts and investors can send in their questions in advance using the Q&A and you can open your video if you so desire. The business outlook and goals of this presentation are based on the beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not guarantees of performance and depend on circumstances that may or may not occur. Investors should understand the general economic conditions, market conditions, and other operating factors could affect the future results of the company and may differ substantially from those expressed in such forward-looking statements. Now, I would like to turn the floor to Gustavo Werneck to initiate the presentation. Gustavo, you may proceed.

Hello everyone. I hope you are well, and thank you for the opportunity to meet with us during this video conference to discuss Gerdau's results for the first quarter of 2024. I’m joined by our CFO, Rafael Japur, and it's always a pleasure for both of us to talk to you about our performance and to clarify any points that may arise during our presentation. I'll start by talking about the macro business environment, about the highlights of the overall results, and then I will detail the performance of our business operations in the quarter. Right after that, Japur will share with you some information on our financial performance. And finally, we'll highlight some points from our sustainability agenda and then we'll move on to our Q&A session. But before we move on to the presentation of our results, on behalf of all of Gerdau’s employees, I would like to express our solidarity with the population of Rio Grande do Sul, which is going through a very difficult period due to the intense and heavy rains that have hit the state since the beginning of the week. Gerdau, as a company originally from Rio Grande do Sul, is providing all the assistance needed and we are supporting our employees and neighboring communities in mitigating the damages. The company maintains an open dialogue with the competent authorities and we will spare no efforts to stand side by side and meet the needs of the population in this challenging moment. Now, on the second slide, I would like to point out that we ended the first quarter of '24 with an accident frequency rate of 0.47, reinforcing our commitment to the people's health and safety. At Gerdau, safety always comes first since no result is more important than people's lives. With this in mind, I would like to say that in April, to celebrate the World Safety Day, we held a number of workshops, seminars, and activities in all of our plants and corporate offices in the countries where we operate to share lessons learned and reinforce our culture of active care and safety, focused on monitoring critical activities and accident prevention. Over the next three slides, I would like to emphasize that Gerdau continues to differentiate itself by delivering solid financial results to its shareholders and pursuing a transparent business strategy, based on strong discipline in cost management and the continuous improvement of the competitiveness of its assets. We continue to look for opportunities to adapt the company's structure to the current business scenario. Furthermore, I would like to highlight the growth in steel exports from China throughout the first quarter as the main factor impacting our business in the markets where we operate. The growth of the Chinese economy, whose GDP rose by 5.3% in the first quarter, was also accompanied by an increase in exports of 5% in the same period. At the same time, the infrastructure and residential construction segments in that country continue to lose prominence as drivers of the local economy, which has resulted in a significant imbalance between steel supply and demand in the Chinese domestic market. Steel exports rose by 25% in March, reaching almost 10 million tons, and in the quarter, the increase was 31%, reaching 26 million tons, negatively impacting the world steel market since the surplus steel production intended for export has been subsidized by the Chinese government. In this regard, I would like to acknowledge the Brazilian government for its recently announced trade defense measures aimed at defending the Brazilian industry against unfair competition from imports along the lines of initiatives already taken by other countries such as the U.S., Mexico, and those that make up the European Union. The establishment of a mixed system on 11 Common Nomenclature Mercosur or NCM with import quotas, which once reached are subject to an import tariff of 25% for anything above that ceiling, is an important step towards forward in terms of competitive equality and covers around 25% of the product mix sold by Gerdau in Brazil. I would also like to stress that the trade defense measures announced are the first step, but do not yet solve all the challenges faced by the Brazilian steel industry. We will continue to monitor the real impacts this trade defense initiative will have on the domestic market in the short term and move forward with requests for anti-dumping analysis with the appropriate agencies. Now moving to Slide 6, I will talk about the highlights of each of our business operations and the outlook for the coming months. On Slide 7, we see that in the first quarter of 2024, we saw a recovery in shipments and in the performance of the North America business operation, when compared to the previous period. This performance reflects the resilience of the North American market, which contributed to keeping local demand for steel at healthy levels with our backlog remaining stable at a high level of around 55 days. The U.S. market continues to be positively impacted by government measures such as the Inflation Reduction Act, IRA reassurance movement, and the maintenance of Section 232. We continue to invest in improving operating efficiency and the modernization of our units in North America in order to provide a portfolio of innovative products and solutions that meet the current and future needs of our customers. Such, for instance, the future demand for steel linked to the large investments planned in infrastructure in the country. I would also like to highlight the modernization of the Jackson Plant in Tennessee, which will further increase the plant's competitiveness and will become an even more relevant service center to cater to our customers in that region. Moving on to the next slide, I will now talk about our special steel business operation. The automotive market in the U.S. continues to recover gradually, with production of light and heavy vehicles projected to be above 16 million units in 2024, with normalized inventory levels. There is still room, however, for a more intense recovery in the coming periods returning to pre-pandemic levels. In addition, I would like to report that we are starting feasibility studies for the construction of a greenfield unit for the production of special steels in Mexico. This move reflects the positive outlook for the local automotive industry and the near-shoring movement in the United States, which have had a positive impact on the performance of the Mexican economy. In turn, the outlook for the special steel market in Brazil remains optimistic as a result of some signs that point out to a recovery in automotive activity, especially in the heavy segment. Truck production in the first quarter exited 29,000 units, up 19.7% on the same period of 2023 according to Alzavia data. For buses, the increase was 61.6% with 6,500 units manufactured. The market, however, remains attentive to the uncertainties that are still linked to access to credit lines, high interest rates, and excessive entry of imported vehicles. Now moving to the next slide, I will discuss the long and flat steel market in Brazil whose performance in the first quarter continues to be impacted by the strong influx of imported steel in the country. Since the trade defense measures that I mentioned earlier had not yet been announced, between January and March, imports reached 1.3 million tons, up 25% compared to the same period last year according to data from the Brazil Steel Institute. In March alone, volumes of imported steel jumped by 46%, leading to a penetration rate from imported goods close to 20%. I would also like to comment that we continue to expect the development of some positive indicators for the Brazilian market, especially concerning the construction industry and a more significant drop in interest rates. One example is the federal government signaling that it will introduce measures to release around BRL300 billion for real estate loans, which should help boost this market going forward. We now move on to the next slide to talk about the South American business operation. I will start by saying that we completed the divestment of our operations in Colombia and the Dominican Republic during the first quarter as part of our capital allocation strategy, which focuses on the growth and competitiveness of our assets with the greatest potential for generating long-term value. In Argentina, on the other hand, inflationary measures, import restrictions, and the economic measures taken by the new administration, such as the devaluation of the Argentine peso, remain points of attention for the performance of the local market in the coming quarters. The Uruguay scenario remains positive, reflecting good levels of steel consumption, particularly driven by the agribusiness sector and also by public and private investments. In Peru, meanwhile, GDP in February rose by almost 20% - the highest peak in February in the last 20 months due to momentum in the mining and construction sectors, especially public works. I'll now turn over to Japur and then I'll come back to talk about our sustainability journey and then to answer your questions.

Thank you, Gustavo. Hello, everyone. It's always a great pleasure to be here with you to announce Gerdau’s first quarter 2024 earnings. With regard to financial results, we ended the quarter with an EBITDA of BRL2,813 million with an EBITDA margin of 17.4%, 3.5 percentage points higher than the previous quarter, as we can see on the chart on the left. The growth in EBITDA happened in all Gerdau business operations driven mainly by the North American operation, where we also had an expansion of our shipments. In addition, we had a better mix in our Brazil operation with lower export shipments and more deliveries to the domestic market as shown in the graph on the right. In addition to the more positive operating context, we recall that revenues as well as costs in the fourth quarter of 2023 have been negatively impacted by the currency depreciation in Argentina. Now speaking about the working capital, on the next slide, we ended the quarter with a position of BRL15.4 billion, despite this 9% increase compared to Q4 ’23. It is important to highlight that our cash conversion cycle fell to 86 days due to the 10% increase in net sales, which boosted the client's account. When we compare our working capital with the same period last year to take into account seasonality, we can already see an important reduction of BRL900 million in our working capital. Looking at a graph on the right, we see from the bars highlighted in red that typically the first quarter of each year consumes cash due to the recovery of sales volumes after maintenance stoppages that we normally do at the end of the year. Let's talk more about cash flow on the next slide. In Q1 ‘24, we adopted a new free cash flow model. The aim is to support reconciliation with the cash flow statement of the financial statements and with our cash position at the beginning and end of each quarter. As we saw in the previous slide of this quarter, we had a significant investment in working capital totaling BRL1.1 billion, driven with an increase in revenues in all the company's businesses. We executed our CapEx in line with the plan, also dispersing BRL1.1 billion. Heading to columns, we had a negative free cash flow of BRL610 million in the first quarter. For comparison purposes, if we were to apply the previous format of free cash flow, we would have had a cash flow generation of BRL85 million positive. On the next slide, we'll talk about liquidity and debt. Our liquidity stood at a robust BRL10.3 billion and we closed the first quarter with a gross debt of BRL11 billion. We continue with an excellent leverage level with a net debt over EBITDA ratio of 0.4x. In addition, during the second quarter, we plan to issue debentures in the amount of BRL1.5 billion with a five-year maturity to roll over some short-term debts. A host spread and interest rates are currently above our cost of new funding, also taking advantage of the good momentum and extending our 2024 and 2025 obligations to 2029. Moving on to the next slide, let's talk about the return to our shareholders. Gerdau S.A. and Metallurgica Gerdau will pay dividends on May 27 and 28 respectively. Gerdau S.A. will pay BRL0.28 per share, while Metallurgica Gerdau will pay out BRL0.19 per share. In both cases, shareholder positions as of May 5 and positions as of May 15, 2024 will be taken into account. We would like to remind you that on April 22, Gerdau S.A. shareholders received a bonus of one new share for every five shares of the same type. Our shares have been trading at the price adjusted by the bonus since April 18. Now let's talk about CapEx. In Q1, our CapEx investment totaled BRL858 million with 50% going to maintenance projects and 50% to competitiveness projects. To date, we have invested 41% of the BRL11.9 billion forecast in Gerdau's strategic CapEx for the 2021 to 2026 cycle. In the next slides, we will highlight some of these projects. In Brazil, we highlight sustainable mining and flat steel investments in Minas Gerais. Both projects are already significantly ahead of schedule, both physically and financially. We have already received all the critical equipment for our new mining complex in Miguel Burnier and work in progress for starting operation in the end of next year. In our Ouro Branco unit, the expansion of the hot rolled of the coiled rolled strip has already entered the assembly phase for the rolling mills and main engines and is scheduled to start operating at the end of this year. In the United States, we would like to highlight the conclusion of the modernization of the rolling mill at the Jackson plant in Tennessee, which will lead to greater competitiveness by expanding the product mix, allowing for a one-stop shop business model at this unit. With that, thank you very much for your attention. I'll join you, Gustavo during the Q&A session.

Thank you, Rafael Japur. On the following slide, I detail the progress we have made in our sustainability journey. Gerdau stood out as the B2B industrial company with the best reputation in Brazil according to the 10th edition of the Merck 2023 ranking. The company climbed 10 positions compared to last year, reaching 24th place among the 100 Brazilian organizations evaluated. The company is the only steel producer in the ranking and remained the leader in the mining, steel, and metallurgy category. The survey carried out by the corporate reputation business monitor Brazil or Merco. The survey identified the top 100 companies with the best reputation in Brazil and involved more than 11,000 respondents. Merco's research methodology includes six evaluations with 25 different groups and sources of information, taking into account economic and financial results, the quality of the commercial offer, talent, ethics and corporate responsibility, the international dimension, and innovation. This recognition reflects our commitment to a continuous and transparent dialogue with all our stakeholders in strengthening the Gerdau brand's connection with society in general. And as the result of the efforts made by our more than 30,000 employees to build the Gerdau of the future. I would like to thank everyone for listening to our comments or initial remarks. From now on, we will be available to answer questions and to go into more detail on your points of interest. Thank you very much.

Thank you, Gustavo. We now initiate the Q&A session. Please click on the Q&A icon in the bottom of your screen and write down your question to get in line. Once your name is called, you will receive a pop-up to activate your microphone. So activate your microphone and ask your question. In case you want to use video, please let us know so that we can enable your camera. Please ask all of your questions at once. We will now proceed to our first question.

Good morning, everyone. My first question would be about the Brazil BD. I do understand that early this year, the company's strategy was focused on capturing market share, but I would like to see if you see any room to increase prices along the following months. And if you can tell us what kind of margin you could reach throughout the year in this segment, especially when initiatives of cutting costs are delivered, I would be really happy with it. And also, the initiatives to cut costs in Brazil is my other question. Whether these will be enough measures to significantly reduce the pressure coming from imported goods and whether you could also anticipate price increases in the short run?

Thank you, Renata, for the introduction. And Caio, thank you for your question. I don't think my video is enabled, but I will start answering your question. If Japur has anything to add, please do so. This commercial defense was not a simple journey. We've been talking about this topic in the past quarters and months, and in our view, there has been a positive advancement. Finally, the Brazilian government heard the claims from the steel industry, and it gave a first step. I mean, this is not the last step. I think this was the first step given that allows us to evaluate in more detail what will be the performance from now on. And from this point forward, we will make adjustments to this mechanism so that in the coming months, we will have a more fair competition scenario. In this first measure, I think the main question from the industry was not particularly the fact that they consider this time period between 2020 and 2022, but they also added that additional 30%. We understand that this followed a certain appropriate methodology, and the question that usually appears is why is it that 11 NCM was more focused on flats rather than long steels? Because flats were the main products that had a more aggressive penetration in the market during this period. There is a very clear commitment on the part of the federal government that as other products, including long steels, as imports increase along the coming months, new measures and new NCM may be put in place. Therefore, in general, it was a very positive measure and the government also took into account claims from other sectors that initially were against it. I understand that these sectors, as I was saying before, it was just a matter of time that these Chinese imports would also have an impact on other industries in Brazil, and this is what happened. Therefore, there was a general consensus from the industry that if Brazil were not to fight the entry of imported goods, not only in the steel industry, but in other industrial segments, this could become a very, very difficult problem to manage. Therefore, the measures were considered very positive. We do not believe that in the short term, this would be translated into a significant price increase or the rebound or profitability. So in the next few months, the pricing issue will be mostly related to getting more competitiveness related to coal or other raw materials and factors that now can also impact price. But there will be no short-term measure or pricing or increase in import premium. I believe that the major gain to be captured in the next few months will be an increase in production in the domestic market. These would be like material gains going forward. Now market share, as we mentioned in the first quarter was not a specific recovery strategy or measures to recover market share in a particular quarter. Because in the end, it is related to something that I've been telling you before because we are putting a greater focus on the domestic market. The production capacity that we had and still have in Brazil for export, I've been telling you that this will no longer exist in the future in Brazil. It will be more and more complex for us to export from Brazil. Therefore, this market share that we mentioned in the first quarter is more related to a more intense focus on the Brazilian market. So we will gear that export capacity to new products, to new things that over time can generate new investments, particularly in Ouro Branco of our export capacity. So it was just a consequence of our mid- to long-term strategy rather than some one-off actions in the first quarter just to recover market share. In general terms, I mean this is what I would have to say. And Japur, if you want to add anything please jump in.

Caio, good afternoon. In addition to what Gustavo said, I must express our satisfaction with this measure. It represents significant progress since we collaborated with the government for several months, leading to these measures that can enhance our operating leverage through increased sales volumes and shipments. Notably, in the last quarter, we observed an uptick in imported goods entering the domestic market. We believe this new measure will contribute to a more balanced market, especially considering there was nearly a 10 percentage point increase in the penetration of imported raw materials compared to last year.

Our next question is from Rodolfo Angele, sell-side analyst from JPMorgan. It came in writing, but he asked me to open the camera. So please, can you open Rodolfo's camera. I was just promoted to panelists. Now we can see you well, great.

I would like to ask you to elaborate a bit more on that Mexico project. Can you give me some more color, tell me a little bit more about the rationale? If there is anything you can tell me in addition to the article that was published on São Paulo, I think CapEx of BRL500 million, something in that order, so that I can check my economics of this new investment.

Let me start with the concept behind it. Rodolfo, as you know, we've been operating in Mexico for some time. We are quite aware of everything that is happening in Mexico and in the U.S. So it's very impressive to see all the investments that have been announced in Mexico, more particularly investments from the automotive industry. If you look at the segments we serve today, I mean, large structural profiles and rebars. There were months in Mexico that there was a scarcity of rebars. And we've been visited by some clients, and they've been consulting with us. Therefore, they are building new productive capacities in Mexico and all of that to cater to these new investments in Mexico from Tesla, BMW, etc. And even though Mexico is where it is today, they import special steels today. With our investments in Mexico and with the platform that we'll be able to serve that automotive industry in the near future, I would say that we are highly motivated to increase our productive capacity because there is a market and there is demand. Therefore, we are engaged in a more detailed feasibility study. Throughout this year, we will continue with that study, and it should be concluded by the end of the year, and then we will make a final decision to be submitted to the Board by the end of the year. So starting 2025, if it is approved, we will then mobilize the resources to start with our new capacity in Mexico in 2026. I mean, we do not have all the members yet, but Japur has some things. So maybe I'll turn the floor over to him so he can give you a little bit more color.

I can shed some more light on some of the points that Gustavo mentioned. The Mexican market, they import still the market is of about 1.2 million tonnes. It's a significant market, but they import 70% of all of the materials they need for auto parts. But at the same time, they are the largest exporter of auto parts to the U.S. We are already participating in some operations in La Brea and others in Mexico. But in addition, we sell a significant amount of special steels to Mexico from our operations in the U.S. and Brazil. Therefore, we already have a good footprint in Mexico with important clients. Therefore, part of our rationale is based on that and also due to our expertise with special steels in North America and our knowledge of the Mexican market. So for the next coming months until the end of the year, we will take a deeper look into the economics to find out what will be the best location. So we have to make decisions related to our partners, supply chain, and important customers that are investing more heavily in Mexico, also taking into account a more detailed analysis about cost. The last time we looked at Mexico was 10 years ago with our land in that country. Therefore, it's important that we look at CapEx and costs until we have the approval and see some concrete returns. And finally, between the opening and disclosure of the steady to customers in the market in general in addition to being in line with our assumptions and our transparency towards the market. We should have some constructive conversations with our customers to understand what would be the ideal product mix that they will demand in view of the investments that they themselves are contemplating. In special steels, once we certify a product, we are certifying a platform that will consume steel for five years into the future once we get into production. Therefore, this investment has to be well coordinated with the entire supply chain, where it's not simply to sell for distribution. I just have a final comment. The amount that you mentioned that was published is a market reference. It's not an internal number that we have. We are conducting studies to understand what are the synergies that can be captured with our current operations. We haven't yet announced any specific location where the productive capacity will be installed. We are still in negotiations with the local government. So it will be a bit premature to tell you what will be the amount of the investment. But in order of magnitude looking at other geographies, it is within the range that was mentioned by the press. But this is not yet the final amount.

Gustavo, I just have a very quick follow-up. The chance of being a ground field is zero, right? We are talking about a new plant, you will not operate as part of a unit you already have?

No, special investments, Rodolfo. They are very different from traditional investments or long steel investments. Just to certify a plant like that, to start supplying to a customer, it takes two years and that requires a very specific expertise. It's not for anyone to do it. And the synergy will come from the acquisition of scrap and other synergies. But using any existing plant, no, definitely not.

Next question from Marcio Farid, sell-side analyst at Goldman Sachs is asking to ask the question live, so let's enable Marcio's camera, please.

Well, I guess that Q1 numbers were even better than expected. But in our analysis, at least a good part of the surprise came from cost reductions. I think volume remains relatively weak in most divisions, but particularly for long steel in Brazil. So my question is, how do you see this volume improvement? Gustavo, you spoke a little about Brazil and how revenues and tariffs can hope? But if you could speak about the other regions, particularly the U.S. and also on the cost front, again, you spoke a little about some improvements via raw material. But is there any room to deliver a greater profitability perhaps in the Brazil operation? And where are the main points of attention? Where are you putting more effort and perhaps you could quantify these efforts for us? The U.S., unlike Brazil, continues to be a positive surprise. I think that recently, we saw a little discount from Nucor for rebar perhaps for merchant bars as well. So if you could speak about how you see the North America market in the margin? And also, CapEx execution in Q1, when we analyze the number, it was way below the annual guidance. I just want to understand, Japur, perhaps you could give us more color on how you would expect to spend the CapEx during the year?

I'll try to talk about the concept, Japur, and then you speak about the numbers and cost, okay? Let's start with North America. Marcio, is all very solid. The orders keep coming. Our backlog is very stable. Still in the backlog, we don't have great orders related to the infrastructure build that's coming, but slowly. Of the things we have not understood well at the time, we thought that this was going to come faster, but there is a matter of state funding, project execution. So it took longer than we expected because it's been a while since we had such a big infrastructure package. So it's starting to come, but it's not that representative. To us, it is certainty that the backlog continues high. What we see in the present is the IRA orders for merchant bars that service racks for solar panels. So we have a backlog and orders coming and price will fluctuate up and down because of scrap, but we'll maintain probably the current level of spread. All of the initiatives in the last five years of preparing our mills to compete head-to-head with our competitors have translated positive into positive benefits in terms of improved costs, more competitiveness. I think that for five years, we did well-executed work that put us on equal footing with North American competitors. And we have the certainty that in the next quarters, perhaps years, the margins we're seeing will remain. We don't see any clouds on the horizon that could challenge the results that we delivered in North America. Japur, anything that you would like to add? Well, Marcio, regarding Brazil, Japur will give us the numbers, but I'd like to make a point. Number one, we are not going to cancel or postpone any of the investments already announced in Brazil, particularly for Ouro Branco. We understand that these investments advanced independently of China and trade issues; they are more related to the relevant transformation that we are going to have so that we can get out of Brazil's historical productive capacity for exporting. In the next 10 years, we believe that the windows may be closed. Perhaps one quarter or another, we'll have a spot opportunity to export. But this market has been closing, and it will continue to be closed for a long time. So we need to transform this exporting capacity redirected to the domestic market with higher-added value products. That's why we're investing a lot in mining so that we can get our supply for the next 40 years in the coiled hot strip rolling mills that will start operating. All of that so that Ouro Branco will not be working for exporting. So we're maintaining these investments. The trade defense measures will help us have more volume in the currently operating mills and plants. This will help us dilute fixed costs and improve operations. But there's another transformation we're still looking into. We don't have details to disclose right now, but it will happen. In light of everything that I mentioned, a significant change focusing on the domestic market rather than exports, we'll optimize the assets in Brazil as well. I'll get these more competitive mills that we have, we'll have more production there. Perhaps we'll stop producing in some less competitive mills. So we have a plan that is not totally finished, but it will at least be started this year. So that we can take a step forward in Brazil to gain competitiveness, not just reducing prices of raw material, but also significantly improving the way we use the existing portfolio in Brazil. We don't think that this will be translated into cost improvements in the coming quarters. But over time, with certain that will be more competitive when we optimize these assets. I'll turn the floor to Japur because he has all the numbers. And he'll give us the timing when we'll see the impact of that on our results. Japur, what are you thinking? What are you seeing?

I have two additional points to add to Gustavo's remarks. First, I want to highlight two concepts regarding our inventory costs, which include both production and sales costs. Currently, our largest working capital account is inventories, which is equal in size to the working capital itself. Our cash conversion cycle is about 86 days, meaning our inventory stays on balance for the same duration. All expenses related to consumption, production, and cost of goods sold are reflected in our inventory, and we will report this in total selling costs in the following quarter. This emphasizes an important timing factor where we need to manage the reduction in fixed costs until we observe a decrease in variable costs for raw materials and how that will impact our results. It's crucial to consider the timing of these changes and when we will see their benefits, as Gustavo pointed out. Regarding CapEx, it's essential to highlight two factors. First, we are currently investing in mining in Minas Gerais, which can be influenced by weather conditions that affect our ability to move land. Typically, this region experiences significant rainfall in the first quarter, which impacts the timing of our CapEx expenditures throughout the year. Another key consideration is the scheduled maintenance downtimes we experience, which occur annually. For instance, a typical 10-day shutdown to replace a furnace component may extend an additional 5 to 10 days for equipment upgrades. These maintenance activities usually take place in the second half of the year. Historically, our CapEx disbursement tends to increase from the first half to the second half of the year, so we need to account for the seasonality of CapEx and understand that our current disbursement aligns well with our annual guidance.

Next question by Daniel Sasson, sell-side analyst with Itau BBA. He is asking to ask his question live.

Most of my questions have been answered, but I have a quick one regarding the Brazil operation. I'm sorry to insist. I know that you've started doing the co-work of adapting the footprint, reviewing the footprint and personnel already at the beginning of the year. But perhaps it could give us a little more color, because I imagine you're already having additional costs by reviewing the headcount. And perhaps you could quantify for us the impact that was in Q1? And to what extent this should extend along the first half of the year? And when should we expect to see a structure adapted to the current conditions in your view? So to what extent can we reduce personnel expenses, SG&A, personnel cost per ton because that could be helpful for us to quantify these efficiency gains you're pursuing in the Brazilian operation. My second question is related to the United States. Werneck, I think you mentioned the healthy backlog in the U.S. operation. If anybody had a doubt regarding the sustainability of margins in the United States, I think that little by little, the doubts will vanish. I know you avoid providing guidance or making comments about margins in quantitative terms, but perhaps Werneck, you can mention EBITDA margins in the United States versus EBITDA margin in Brazil. Given the Section 232 will continue in place regardless of the results of the U.S. elections. Perhaps U.S. margins can be sustainably better than Brazilian ones, perhaps close to 20%. In Brazil, margins close to 15%. So if you can make qualitative comments about that, it would be helpful.

I'll make some comments about your two questions. I'm trying to give you a little more color, but I'll not get into the numbers because that is up to Japur. So I made a comment about opportunities that we are pursuing to optimize our assets. That involves initiatives like Cosigua. Cosigua is a relevant mill we have in Rio de Janeiro. It has three rolling mills. Rolling mill one produces rebar and merchant bars. It is a highly competitive role with excellent costs and it is not being used in the way it should be used because we have lower volumes in Brazil. So we end up producing less with the Cosigua rolling mill. And we believe that in optimizing the assets, we could use the state-of-the-art rolling mill to produce a maximum that it can. It will bring us cost competitiveness. So we are reviewing all of this completely and are ready to disclose the plan. We can do it as soon as it is ready. But it will involve such measures in Ouro Branco. In the future, I mentioned it will become a very relevant platform to supply the domestic market. Volume coming from blast furnace that is exported will become BQ and new merchant bars. It will become a number of high-added value products for the domestic market. So to have most based in Ouro Branco. Cosigua has rolling mill three, which is very important to us to reinvest in Cosigua to improve the mix of products in this rolling mill. So we have opportunities. Japur can tell us whether we will see gains coming out of that this year or beyond. But we want to make Gerdau more competitive in Brazil than we are currently. We have room to work with that. And I'll link to the second question now. Daniel, you didn't see it; you will not remember. But we would see margins in the United States in North America, higher than Brazilian margins. I'd say that we are doing well over there. We cannot imagine that we're going to see a margin increase. But what we cannot accept is that we have the Brazilian margins that we currently have. So we're not working to increase margins in North America, but to bring the Brazilian margins to the same levels we see in North America. We have a combination of margins of the domestic market with exports. So we cannot stop blast furnace 2 right now. That's a process that I mentioned will take a while. So we continue in the spot market to pursue some opportunities to export. When we look at our team, we exported about 20% of the volume with very poor margins. So domestic margins, which are worse than the past, but they are not that bad, and they end up being pushed down. So that's the kind of work that I'm talking about. With short and mid-term actions, we can bring back the Brazil business operation margins to higher levels. In the United States, we are doing five years of work. You will remain by the BRL39 per tonne that I mentioned five years ago, which is the bulk of that has come, but there are some incremental things to do. The focus of our work today is we have big opportunities to be captured in the coming quarters in Brazil. Japur, any additional information?

I think that there are two points here. I spoke a little about how our efforts to reduce costs are not immediate because we have investments to be made. And you will see that in our balance sheet in the next quarters, this connects to the previous question the time it takes to appropriate the cost, so it will be transferred to cost of goods sold, getting out of working capital and going to our results. But we understand that there are important gains and impacts to be derived in the future regarding product mix. I think Gustavo highlighted that. But I should underscore that this quarter in the Brazil business operation, we had a significant increase in domestic sales and the reduction in exports today, with the current level of production and exports from China, not only to Brazil but to the rest of the world at a pace of almost 100 million tonnes exported from China and we consider international prices. Well, they're very low. It's very hard to have production capacity today in Brazil dedicated and geared to exporting and having return levels and margins similar to the domestic market whenever we can operate as we managed this quarter with a great mix of sales in the domestic market and a certain relative reduction in export volumes, we can derive a gain in profitability, thinking not just in terms of expenses and costs, which are important for a capital-intensive industry and that works on efficiency and it's 123 years of existence, but we should not overlook the commercial area and the mix between domestic market and foreign market.

And Japur, if I may, is it reasonable to say that perhaps in Q4, you think that all of these impacts will be 100% reflected in the financials of the Brazil operation? I understand that the short-term actions we're implementing, those adjustments.

I believe, yes, perhaps not fully, but in the covering pace, our cost structure will be more reflecting that. Now, other moves like Gustavo mentioned, the vacation of our mills, reviewing the footprint. That might require some small investments for adjustments of some rolling mills and gauges. And these adjustments will probably take more time than our quick wins.

Next question into our Q&A is an investor. The Ouro Branco unit is responsible for a significant amount of Gerdau's production capacity. In relation to blast furnace 1, what about your schedule to refurbishing because this will impact production? Do you believe that you could extend the campaign?

That's an interesting question because Ouro Branco's blast furnace 1, it's a very important equipment for us. And the last status we gave you is that we would have a downtime for the refurbishing of the blast furnace last year in 2025. But this downtime will be delayed at least until 2026. We are still evaluating to see whether we can extend that period for a bit longer. We are now being advised by some important advisory companies. That's why we do not need to interrupt the operation of the blast furnace next year. And this may lead to postponement of that investment in that blast furnace one. And that CapEx may be used for other investments like the one in Mexico. Being certain that with this current level of CapEx, and I think we mentioned that many times, we do not intend to increase that CapEx level in the coming years because in our view, this is a very sustainable level because it is enough to support improvements and the growth of our assets, while at the same time, we will be able to invest an important amount of these resources to invest in the health of our plans. So that's it.

We have a question from an analyst regarding the BRL251 million variation in our cash flow. They are seeking more details about the nature of this cash disbursement and the reasons behind the mismatch concerning the new model. Additionally, there is another question from Camilla, an analyst at Bradesco, about costs. The Brazil cost was surprisingly positive despite the increase in coal costs at the end of last year. They are interested in the expected cost trends in Brazil during the first half of the year and want more information about the significant cost cuts amounting to BRL1.3 billion during this period. Furthermore, there was a notable release in working capital this quarter, and they would like to know what to expect regarding cash costs and free cash flow in the coming quarters, as well as details about the change in methodology.

I will ask Renata to show the cash flow slide again so I can elaborate on the changes. While we wait for that, I'll discuss costs. Igor and Camilla, one key point about costs is that we have already provided details in response to Marcio's and Daniel's questions. It's important to consider the lead time and carryover of coal costs, which impact our overall expenditures. We recognize there was a rebound in iron ore and other costs at the end of last year, affecting the final results of our Brazil DP and influencing our variable costs. However, we are committed to managing our fixed costs, and this quarter we already observed a reduction in costs per ton, which will help offset the increases in variable costs. Regarding Igor's questions about cash flow changes, the primary factor to note is that cash flow was limited to working capital, capital expenditures, income tax, and interest from financial transactions. After reconciling our cash position from the start of the period to the end, we found a significant gap from other unreported items in our managerial cash flow. While the accounting details were clear, many analysts desired more managerial insights, which we also sought. Therefore, we have aligned these points for better clarity, allowing us to understand cash generated by the business during the quarter, capital allocation for M&A or dividend payouts to shareholders, and fluctuations in net debt. We successfully reconciled the cash position at both the beginning and the end of the period. However, we should revisit our working capital accounts, which include inventory, suppliers, and clients. Other components of working capital, such as tax payable or ICMS calculated in one quarter but paid in the next, salary accounts, and long-term bonuses accrued throughout the year but paid in specific months, also play a role. These variations are now represented as part of current assets and liabilities. In our updated modeling guide, we are merging previous and current concepts. We acknowledge the challenges in adopting this new methodology, but it is simply an adjustment to improve clarity. We reported a positive free cash flow, and while the total may not appear as high as it would have under the old concept, we are being more transparent about our cash generation capacity.

Camilla from Bradesco also asked about intense rainfall in the state of Rio Grande do Sul. If you could comment whether there is any impact on the operation by the heavy rainfall?

And I want to show our solidarity with all our employees and the whole population of the state of Rio Grande do Sul such a huge tragedy happening there. We have been in daily contact with local authorities and Gerdau is available to them, not only in the short term, but in what's coming in the future in revolving and mitigating the problems that will happen from now on. Just like we did in 2023, when at least twice there were big impacts caused by rainfall. But specifically, regarding our operations, we decided yesterday to stop our production in the plant of special steels. There will be no impact on cost in supplying the market because that plant is not totally taken. Although in recent months, there has been an increase in orders for special steels for heavy industry. We still have a lot of capacity to supply additional demand. So we decided to stop the plant from today until Sunday because of the local impact caused by the rains on the homes of our employees. So that's the short-term impact, although it is not material. More important to us at this point is to show the safety, the health of our people, and to reduce the impact on the lives of our employees. We want these impacts to be mitigated or resolved as much as possible. And we just heard Gustavo that we stopped our Rio Grande do Sul unit located in Sapucaia do Sul. It should stop for the coming days so we can focus on what matters most at this point: the safety of all our employees and the people and the communities where we operate.

Next question from Ricardo Monegaglia, a sell-side analyst at Safra Bank. He asks to ask the questions live.

I have a problem with my camera, but I think you can hear me. I have two quick questions. If we can compare the project for special sales in Mexico, I don't know if it will be approved. But if we could compare it with other projects that have now been started in the strategic CapEx plan in terms of priority, attractiveness, perhaps we could have the strategic plan from 2021 to '26 being extended. How do you see this if the Mexican project is approved? And the second question is about special steels. We saw a strong recovery in special steels, particularly in the margin quarter-on-quarter. This was driven, I guess, with the stronger demand in the U.S. So the margin difference that we see in the special steel operations of the U.S. and Brazil operations. Do we have the same order of magnitude that we see between Brazil and North America operations? And how are you thinking about volumes? If you could break it down by region, perhaps demand evolving in the second half of the year in the two regions? That comparison would be interesting.

All right, Ricardo. We're going to give you kind of a general answer, and Japur will complement with more operational numbers, so to speak. And I'll speak about CapEx and investments in general. Well, both markets have shown a recovery in recent months. In the U.S., there was an important progress in completing the union negotiation in our Monroe unit. We debated this in the last call, the strike that happened at the end of last year in the United States of the big car makers and the impact of that on the results of the automakers and on the automotive market in the U.S., we also went through a union negotiation. It was completed with minimum impact. We had no stop or paralysis in our Monroe operation. It is our biggest unit for special steels. So the U.S. market remains resilient. We believe that there might be some growth, although marginal in the demand for special steels in North America, until the end of the year. I think that the biggest upside comes from the Brazil operation. Not in light deals that remain to have difficulties, interest rates, access to loans, but also given the penetration of imported vehicles, which happened before the increase in Texas, we are still having some vehicles arriving, and this has impacted production of vehicles locally. But in the heavy-duty vehicle segment, buses and trucks, we saw recent months of significant increase in orders from our clients in the heavy vehicle segment. This is the result, I believe, of the transition from EUR5 to EUR6, which was completed. And also the expectation of growing crop seasons in the coming years. So the heavy vehicle market has recovered and we believe it will recover even further by year-end based on Anfavea numbers and our own market outlook. Our Brazil operation, 60% of the demand comes from heavy vehicles, and 40% from light vehicles. So overall, the results we saw regarding special steels in this quarter, well, there is a high likelihood that if it does increase slightly in the coming quarters, there will be at least the maintenance of these results. That's what we have for special steels, and I'll turn the floor to Japur to give us some numbers and to speak about the general CapEx plan of Gerdau.

I think I'll focus on the last point that Gustavo mentioned and I'll go to Mexico in the end. I guess the regarding the margin, the main difference regarding our business model in the United States and in Brazil for special steels is linked to the way in which we price our contracts with our clients. In Brazil, we have negotiations with a closed price for our customers, given the specs of the steel we sell. While in the United States, as the routine and the culture in the U.S. market, a significant part of our contracts with our customers are adjusted by the spread between prime scrap and the obsolete scrap in the U.S. market. So in moments when flat steel sectors have a high demand for prime scrap and the spread increases, then we have a marking of this premium of the surcharge in realized revenues, and that significantly increases our EBITDA margin. Well, the opposite happens, as this happened in Q4. When we had a compression of the spread between prime scrap and obsolete scrap and that led to 'mark-to-market' of our top line and impacting revenue. So I guess that the margins are not so different. They are resilient, they are important. But in the United States, overall, we have greater volatility of EBITDA margin compared to our special steel operation in Brazil. As regards to CapEx in Mexico that we are evaluating for special steels. When we think about our strategic CapEx curve from 2021 to 2026, and that's something we've been talking over and over with you since our last Investor Day and stakeholder Day in Minas Gerais last year. And we think about the detailed project in Mexico. That's when we are going to conduct the studies so that we can make a decision by year-end to have a green light or not from our Board of Directors. So we have 2025 as a year to hire the main suppliers to have the basic contracting to do the basic engineering for the investment so that we can start having more substantial CapEx disbursements starting in 2026. So we understand that these investments don't concur with the projects we already have in our portfolio in the 2021 to '26 horizon. And this specific project that we started looking into in more detail, more thoroughly and for which we expect to make a decision to move forward with by year-end. I'd like to remind you, our decision-making criteria considering our investment commitment that supports the decisions of our Board of Directors are very strict, very cautious to take into account a number of factors, and we've been very disciplined in terms of approving large investments. And that's why we've been prioritizing debottlenecking the problems and to prioritize what we already have.

Our next question from Lucas Laghi, sell-side analyst with XP. He would like to use his camera. Please enable the use of his camera.

I have two quick follow-up questions. First, when looking at the production performance and the difference between production and shipments for the quarter, it seems there is a seasonal issue when comparing the fourth quarter to the third quarter. Year-on-year, we've observed a larger drop in shipments or a stronger production rate compared to shipments. I would like to know if this was simply a one-time demand issue that led to excess inventory, or if it relates to the company's planning given the backlog, particularly in terms of meeting future demand and the excess production this quarter, as well as the impact on our working capital due to the stocks compared to the previous quarter. My second point concerns the export mix in Brazil. You mentioned optimism regarding the civil construction industry there. While quotas have been published, can we anticipate improvement in this mix approaching 15% of exports, as opposed to the 20% seen in the first quarter? Or based on your current visibility, would it be more realistic to consider maintaining that 20% of exports without expecting significant improvements for Brazil, especially with regard to profitability from the mix? Those are my points.

Let me start with these two topics. There is a mismatch between steel production and shipments due to the volume of sales that we sell to our joint ventures. This quarter, we didn't have any more. So there is a mismatch between steel production, which is a KPI that we talk about instead of rolling mill products. And on the other hand, we have shipments or sales or products that also considered rolling new products. And this will no longer occur since we shut down the Colombia and Dominican Republic operations because these two operations consumed a significant amount of steel that we would produce and sell to the subsidiaries. Now in the first quarter of this year, in fact, there was a price reduction in structural profiles and midsized profiles in North America in the second half of March. And we understand that this removed some of the volumes that we thought we would realize in March, but they were then transferred to the second half of the year. Therefore, there was some accumulation of working capital, but mostly due to the rebound of 10% revenues, and that was a significant increase in revenue, but there was also the aspect of working capital accumulation because production was slightly higher and a reduction in prices at the end of the quarter that removes some of the traction of sales that were previously planned. Now thinking about the product mix, I think you have to be a bit cautious because even though we praise all of our advances because of the recent measures by the government of quota and tariffs, we have to see the results of that. And what will be the final outcome in the next quarters. We do not believe that there will be any impressive change coming in the next quarters. There might be some incremental changes to our mix between domestic sales and exports. But we understand that there has been an important progress between the 25% we had and the 19% that we have to date. So we remain optimistic, but we are even more optimistic in the second half of the year because maybe in this half of the year, it might be too soon to say that we will see significant changes.

Well, this new measure that was approved at the end of April, just to add, Lucas, to that point. That 11 NCM, it's Mercosur Common Nomenclautre, it's just like an idea of every product. The decision of the Minister talks about imports of several NCMs from the period of 2020 to 2022. There was the technical standard, and that's why they decided to focus on these 11 NCM. There are a series of other measures that are now being studied to normalize things. That quota per quarter will divide the annual quota into four, limiting it by the quarter. So what will they do to look at the NCM per escape, I would say. So you by limiting with that number of 11 NCMs and other NCM that could be a replacement for these products. So now the ministry is taking additional measures. And at the same time, we will be monitoring very closely the use of other NCMs because in our view, there should be an increase in imports into Brazil, like rebars. If you look at it, rebar is not there, but we assume that there will be an increase in imported rebars, and they would come into the market in an unfair way. And therefore, the ministry will closely monitor that. And if need be, they will introduce other measures. They will have a very detailed analysis. But all of these 11 NCMs are related to 25% of our deliveries to Brazil. So 75% is not related. So life goes on as usual. It will follow price dynamics, import premium, market, etc. But it is a relevant amount; 25% of everything we delivered means that in the next few months, we will be able to see some changes in profitability and a reduction in fixed costs, as I said before. And at the same time, other commercial measures are underway, like antidumping and other mechanisms that can be used. They will continue to happen normally. Brazil has no demand issues today. Demand remains sound in the civil construction industry, things are going as usual, we are constantly monitoring the number of active works, cuts, and bands, etc. So we can previously check the health of this market. I know that you talk to construction companies, but we can measure things on a day-to-day basis. The market will continue to be very sound. So demand is not an issue in Brazil. It's clear that we will not see a significant boom. But demand will not go down. It goes through that 3 million additional tons of steel that is getting into Brazil. That 3 million means a large integrated plan. So if this the numbers change and they go back to numbers that we saw in 2018, 2019, like 11% rather than the 20% that we have today. We will be in place to resume profitability at the levels we believe are adequate for Brazil. This will allow us to continue to invest and to invest in these new investments and new things that I referred to before. That is it.

Next question from Carlos De Alba, sell-side analyst from Morgan Stanley. He is asking for more details about the SBQ potential investment in Mexico and whether we could give them some more color in terms of what we envision for the second half of 2024 in terms of performance based on the different business divisions and also information at a consolidated level? And how do we see working capital for the coming quarters? Also, if we intend to have another buyback program?

Well, I think we already talked a little bit about Mexico, maybe Japur could add something. So maybe Japur, you could answer both questions about performance and working capital going forward.

Mexico, I think we gave a lot of details. We can give you a follow-up later on if you need any particular explanation. But this is a region where we've been before. We are familiar with the market. We have 10 years of experience. They are an imported market of SBQ. We are an important market in terms of exports. We export there from the U.S. and Brazil. We have a lot of our customers growing and also investing in Mexico because then considering the entire geopolitical scenario and near-shoring, we understand that it makes a lot of sense to us to invest and to analyze carefully our move in Mexico. Certainly, our investment in SBQ in Mexico. In terms of our performance in the next quarter, well, we do not give guidance on results, but we expect to see the recovery of the Brazil business operations once we can optimize cost and everything else that Gustavo mentioned in previous questions; it is important that we also look at our stocks and inventory and working capital and variable costs that will be diluted into our results over time. So in our Brazil business division, if everything remains constant, we should see an increase in margin throughout the year. In terms of the North American division, it will depend on the dynamics of the economy. We are seeing sometimes opposite signs, given employment statistics, PMI statistics, and architectural billing index. So it will very much depend on the level of operating leverage because as Gustavo said earlier, spreads remain very healthy. Now when we think about our working capital, we believe that this reduction in working capital that we've been experiencing should remain the same. We had a 10 percentage points increase. That's why there was an additional demand for working capital in order to serve our customers, especially in the North American division. But as we keep that level of service and this order book, we understand that throughout the year, we see room for further release of working capital, especially in the second half of the year. Now, I think in terms of your third and last question about their buyback program. In this first quarter, we invested heavily in working capital. Our net debt did not move significantly. And as we have more visibility about our cash generation possibility throughout the year, we will evaluate not only their buyback program but also our policy of capital allocation.

As we are running out of time and considering everyone's busy agenda, we are ending the Q&A session. Questions that were not answered will be answered by our Investor Relations team. Now I'd like to turn the floor over to Gustavo Werneck for the company's closing remarks. Gustavo?

On my behalf, on behalf of Japur and Renata and the whole Gerdau team, I would like to thank you once again for your participation. As always, it's a pleasure to talk to you and debate our results. And I would like to invite you to participate in our next earnings video conference call referring to the second quarter of 2024, which will be held on August 1. Thank you very much. All the best. Have a great weekend and take care.