Good morning and welcome to Gerdau's first quarter 2025 results presentation. I am Mariana Dutra, Head of Investor Relations. And joining us today on this conference call are our CEO, Gustavo Werneck, and CFO, Rafael Japur. Please note that this call is being simultaneously translated into English, and you can choose your preferred language by clicking on the globe icon at the bottom of your screen. During the presentation, all participants will be in listen-only mode. And then next, we will initiate the Q&A session. Analysts and investors can join the queue by clicking on the raise hand button. It is worth noting that the forward-looking statements contained herein are based on the company's beliefs and assumptions based on information currently available. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may occur. I will now turn the floor over to Gustavo to begin the presentation. Gustavo, you may proceed.

Thank you, Mari, and I would like to say hello to everyone. I hope you're all well, and I certainly appreciate the opportunity to be together for another earnings release. We will briefly comment on the highlights of the quarter. We will also talk about the outlook for our operations, and certainly, we will dedicate more time to the Q&A session. But firstly, I would like to highlight that we ended the first quarter 2025 with an accident frequency rate of 0.61. In the week in which we celebrate World Day for Safety and Health at Work, these results reaffirm our commitment to the health, well-being, and safety of all people. Moreover, we received IRMA Standard recognition, the Initiative for Responsible Mining Assurance for our Miguel Burnier iron ore mine located in the municipality of Ouro Preto in the state of Minas Gerais. The operation achieved IRMA performance level 50, highlighting the company's transparency and commitment to sustainability and business integrity. With this, Miguel Burnier joins an exclusive group of only 11 mines worldwide that have completed and received this certification which is one of the main certifications worldwide. Also in Minas Gerais, in March, we inaugurated the expansion of hot rolled coil production capacity in Ouro Branco, increasing the share of flat steel in our portfolio in Brazil and also enabling Gerdau to offer a wide range of high-value-added products to our customers in the domestic market. This market continued to be strongly impacted by the influx of imported steel in the first three months of the year when the penetration rate of imported steel reached 22%, up by almost 3 percentage points when compared to the fourth quarter last year. This data shows that the current quota tariff system remains ineffective in defending the Brazilian steel industry. I will now hand over to Japur, who will detail the financial highlights.

Thank you, Gustavo. Hello, everyone. It is always a great pleasure to be here with you on our earnings call. In this quarter, adjusted EBITDA totaled BRL2.4 billion while net income was BRL758 million or BRL0.37 per share. Our result was stable compared to the last quarter due to the recovery in performance in North America with higher volumes and better prices, which ended up offsetting the drop we had in the Brazil operation, which in turn was impacted by two factors. The first, a non-recurring event, which was the increased costs resulting from the implementation of the new hot-rolled coil mill in Ouro Branco, which impacted the costs of the Brazil operation. And the second point which impacted our profitability in the quarter was an environment of oversupply in the domestic market, especially long steel, and that was mentioned by Gustavo. So, again, it's worth highlighting that geographical diversification that we have in our asset portfolio played a key role in providing more resilience to our performance at a time of a little more turbulence, as was the case in this quarter. With regard to CapEx this quarter, we invested BRL1.4 billion focusing mainly on our strategic projects such as the expansion in flat steels, as I just mentioned, and our project to expand our mining capability in Miguel Burnier. These projects together have the potential to lead to BRL1.4 billion in the mid-term as they mature, as they are fully rolled out, and thanks to our solid capital structure, we maintained in this quarter our financial metrics of net debt over EBITDA within our financial policy. Our net debt over EBITDA ratio stood at 0.69 times, and this gives us the possibility of continuing to invest in our important strategic projects that we have just mentioned and also to maintain our commitment to creating value for our shareholders. If we include dividends and share buyback in this quarter, in first Q 2025, we have achieved a payout of 74% of our net income, more than double that specified in our financial policy. Lastly, I would like to point out that by April 11, we had executed 44% of Gerdau S.A.'s current share buyback program, investing BRL444 million or approximately 1.4% of the outstanding shares of the company. At Metalurgica Gerdau, in turn, we concluded the buyback program by investing BRL56 million. We believe that share buybacks are an excellent way to allocate capital and return value to our shareholders. I'll end here, and I'll join Gustavo in the Q&A. Gustavo, over to you.

Thank you, Japur. I'd like to comment that throughout the first few months of 2025, we recorded an increase in volumes delivered in North America, with order backlog returning to more than 70 days, which is above the historical level. We have also seen a positive impact from the import tariffs announced by the US Government in terms of our capacity utilization, and we continue to have a healthy market outlook, especially in relation to demand in the non-residential construction sector. However, we are aware of a more uncertain business environment in the coming months in the United States, reflecting and discussing the concerns of some of our clients. In turn, in Brazil, the domestic market, despite a reasonable level of demand from the main consumer sectors, continues to be impacted by the excessive influx of imported steel as I mentioned at the beginning of this presentation. As a result, a large part of the increase in steel consumption recorded at the start of the year, as you know, was served by imports. For the coming quarters. In addition to the expectation of an annual review of the trade defense system, known as the quota tariff system, we are cautious about the future performance of steel-consuming sectors such as construction and automotive industries, which could be affected by the current high interest rates. Well, now I'll stop my initial remarks because like I said, we want to have more time for the Q&A to answer your questions. So, Mari, I'll turn the floor back to you so you can moderate the question-and-answer session.

Our first question comes from Caio Ribeiro, a sell-side analyst with Bank of America. Welcome, Caio.

Good afternoon, everyone, and thank you for taking my questions. My first question is, can you hear me?

Yes, yes. Yeah, we can hear you. Well, yeah, you can hear us, right?

Yes, I can. My first question is about cash generation, specifically regarding working capital and capital expenditures. Looking at your cash generation this past quarter, it was impacted by an increase in working capital and high cash capital expenditures. Could you comment on how these two aspects may evolve in the upcoming quarters? Last year, capital expenditures were BRL6.2 billion, but you expect maintenance capital expenditures to be about half that amount in 2024. I know the company is pursuing expansion projects in the Ouro Branco mining areas. How should we view the recurring capital expenditure level once all projects are completed? Additionally, you mentioned that your US backlog is at its highest level since 2022. With recent price increases for beams and merchant bars due to a drop in scrap metal, which suggests reduced metal spreads, could you share what margins you expect in the US? How do you see the outlook for the second half of the year, considering an increase in tariffs and additional infrastructure initiatives in the US? Thank you.

You have already mentioned two very important topics. I will first discuss the free cash flow outlook, starting with our CapEx, followed by Rafael who will talk about working capital and our future expectations, and then we will address your question about the backlog. This year’s CapEx, as compared to last year, is a bit different. The current spending isn't aimed at increasing shipments overall, but rather focuses on productivity and cost reductions. The most notable aspect of our expenditures this year, with a production of BRL6 billion, is our investments in the mining sector. Next year, we will see increased steel costs at Ouro Branco, putting us in a position we've never had before. These investments are directly tied to our competitiveness in the short and mid-term, and thus the nature of our CapEx is different from last year. Looking ahead to 2025, we won't reduce the investments we mentioned in our previous meeting, but we are open to reviewing our capital allocation strategies. I anticipate that our CapEx reimbursements will decrease moving forward. While we aren't ready to specify where those reductions will occur geographically, we expect that over the next few years, our CapEx disbursements will be lower than currently anticipated. One contributing factor to this is our decision to cancel the investment in Mexico, which was previously in our pipeline. This cancellation is not primarily due to the current US administration, but rather reflects our experiences with the current global landscape. The automotive industry is poised for significant changes in the coming years, particularly regarding where auto parts are produced and whether Mexico will continue as a strong supplier to the US market. There's considerable uncertainty ahead, but we are quite certain that a reconfiguration is forthcoming. As a result, investing in Mexico does not align with our strategy, especially since we have untapped capacity in the US. Therefore, we are canceling that investment, which means we will not make those anticipated expenditures. Another critical point is our wait for the government's reaction in May regarding potential commercial defenses. We've provided the federal government with various options for consideration, but progress has been slower than we hoped. Once the quota tariff system evolves, we expect some updates, but currently, we lack clarity on the future. Given Brazil's situation and slow decision-making, we may need to revise our investment plans for the coming years. In summary, we believe we can provide more clarity this year regarding our expected CapEx moving forward. However, the current spending level of BRL5 billion to BRL6 billion should not be sustained in future years. That said, we will continue with our disbursements for 2025 since we cannot halt crucial investments already underway, particularly in mining, which is pivotal for our EBITDA. Now, Japur can discuss working capital. I believe we need to evaluate our capital allocation in light of our healthy cash generation, which we expect to maintain in the upcoming years. We should also consider alternatives like buybacks, especially in relation to our interactions within capital markets. I think Japur will provide more detail on working capital, and afterward, I can touch on the US market.

Caio, I'd like to provide more details regarding working capital and capital expenditures. We believe that our cash outflow throughout the year will be somewhat lower compared to this quarter. We've experienced significant expenditures at the start of this year. Generally, our average disbursement should align with our guidance when broken down quarterly, aiming for approximately BRL1.5 billion per quarter. Last quarter, we exceeded BRL2 billion in disbursements, but the actual capital expenditure was lower from a cash perspective. It's normal for disbursements to vary quarterly. This quarter, we had between BRL1 billion and BRL1.4 billion for property investments, and we will calculate this across the quarters for the year. Regarding seasonality in working capital, we saw improvement compared to last year. Typically, the first quarter demands more working capital, especially in North America, due to shipments and rising prices, which increased our trade accounts payable. Year-on-year, disbursements were down by BRL300 million compared to the same period last year. We expect working capital to normalize throughout the year. While we might use some cash due to rising prices, particularly in North America, we anticipate a return to normal levels in working capital from our operations, notably in South America and also in our North American business unit. This quarter started with uncertainties in North America concerning tariffs and commercial operations, prompting customers and us to maintain higher safety inventories to support the supply chain across our mills interlinked with Canada and the US. As a result, working capital was elevated, but we expect things to stabilize in the upcoming quarters. Addressing your question about margins in North America, we expect them to be similar in quantitative terms to last year, though distribution may differ. Last year began with stronger first and second quarters, followed by performance deterioration. This quarter kicked off more typically, showing significant recovery compared to the fourth quarter, and we're observing positive signs for the upcoming quarters. If there's a recession in the US, it could potentially impact our key customers. To wrap up, in the structural beams market, there have been price increases and variations in spreads, alongside improvements in the quality of our backlog. The quantity of steel we're delivering and anticipated growth in the US looks promising, especially with events like the World Cup next year. While construction is ongoing in the US, demand for steel remains strong for this and next year. This growth trajectory is not significantly hampered by short-term recession concerns. Our backlog continues to grow steadily, with improvements in quality each week, making our outlook for next year in the US quite positive.

Perfect. Very clear. Thank you, Werneck and Japur.

Thank you.

Thank you, Caio. Our next question comes from Daniel Sasson from Itau BBA.

Thank you, and good afternoon, everyone. Thank you. Marie, Werneck, and Japur. My first question is just a follow-up on capital allocation and cash generation that Caio mentioned. Gustavo, I think it's very important that you give us a bit more visibility on the Mexico position. I mean, the sustainable mining project is moving quite well, is progressing and the Midlothian project is also well underway. The Mexico project was not among the approved CapEx disbursements. I just want to understand what is your level of flexibility for the other projects that have been previously approved that you showed us during your Gerdau Day, rolling mill capacity, forestry expansion in Minas Gerais and even other things that you have approved. Do you think that those can be revisited? I mean, or are you going to raise the threshold that you have to approve other projects? Or maybe today you are seeing some expected return from your shares vis-a-vis current levels and this may be used as, I mean a cap, how are you going to approach your new projects? Or maybe you're going to raise the bar when it comes to approving new projects. So what is your rationale going forward for capital use? And my second question, and now referring to Brazil, because we already talked about the US in the previous question. In the short run, it seems to me that there is competition pressure. I mean, prices are coming down, there is still a lot of competition with imported goods, and we lack more clear measures regarding that older tariff system that basically didn't work. I mean, if nothing changes in that macro environment, what could we expect in the domestic market related to cost, lower maintenance shutdowns? Because in the first half of the year, you had a lot of maintenance shutdowns, you optimized most of your assets, what will be a more constant scenario? Business as usual without the adoption of measures that would indeed work, because this is still a very difficult competition scenario. What do you see for Brazil in the second half of the year?

All the points you mentioned are intriguing topics for us. We can make a decision without any obstacles. We might consider halting our spending, as we have done previously, but we've learned that the return on those investments is crucial for the company. They play a significant role in maintaining competitiveness, and the returns we estimated are based on concrete analysis. We've had to increase our capital expenditures significantly to reinstate those investments. Our past decisions have focused on building new capacity to enhance steel production. What we have now is a product of our previous efforts, and we are confident, as Japur mentioned, that the additional EBITDA from these investments is essential for us. Mining is already factored into our capital expenditure plans, so making drastic changes doesn't seem pragmatic. We intend to continue our investments, and starting next year, we will be positioned to benefit from the resulting additional EBITDA. We need to monitor the situation closely to understand how much of that EBITDA will be realized in our balance sheet. I prefer discussions to be framed around these issues. However, I recognize that there may be better opportunities for capital allocation. The decision to expedite share buybacks versus accelerating capital expenditures remains an open question. In Brazil, our confidence is waning as we are uncertain about the country's ability to speed up its mechanisms. This hesitation also applies to Mexico, which will become a future expenditure, affecting our plans for maintaining a capital expenditure of BRL5 billion or BRL6 billion per year. If that is not feasible, we need to reassess our budget allocation. This matter is under continuous review, and we will provide clarity as soon as we can. We are committed to keeping you informed about our expenditures and plan to reduce capital expenditures in the coming years. I'll let you know how we respond to interest rate changes and what steps we will take moving forward. This is influenced by the trade defense mechanisms, which are not yet established. The federal government and the Ministry of Industry and Trade have several options, including the potential introduction of quotas or the acceleration of anti-dumping measures. The slow decision-making process from the government is concerning. We expect to see more timely actions, especially as we have noticed an increase in rebar imports from Egypt amongst other factors. There are multiple strategic options available to us, yet we have not observed any measures from the Brazilian government. We anticipate a year of analysis to determine the effects of previous actions, yielding the possibility of changes thereafter. Therefore, I maintain that we must wait to see what unfolds. We are preparing for various scenarios, including the possibility of government inaction. In such a case, we may need to reassess certain operations or fixed costs. I wouldn't say we've exhausted all possibilities for increasing our competitiveness. We need to focus on areas where imported goods face no competition and seek to enhance our competitiveness there too. As mentioned, Gerdau is firmly positioning itself in the rebar market, leveraging strong market data from Instituto Aco Brazil to inform our strategy. Our balance sheet is in good shape, reflecting the efforts we've made over the years to strengthen our market presence, specifically regarding rebars. I believe our current strategies will yield long-term benefits through enhanced competitiveness. The ongoing market dispute is largely centered around rebars, reflecting our strategic positioning. Overall, I believe I've addressed all the points, and now let's turn it over to Japur to see if he has anything further to add.

I have a brief point to make about our capital expenditures. We expect our spending to decrease this year due to a long shutdown in the hot-rolled coil mill. As a result, our maintenance-related expenditures in the coming quarters will be significantly lower compared to previous quarters.

Thank you very much, Japur and Gustavo. All the best.

Thank you. Next question from Carlos de Alba with Morgan Stanley.

Good morning, Gustavo, Rafael, Mari. My question is about the expected increase in EBITDA from the new HRC line and the mining project. Could you provide an update on that ramp up? The anticipated incremental EBITDA appears to be significant, so any details would be helpful. Additionally, Gustavo, regarding government actions, what measures do you think would be most effective in leveling the playing field with imports? Also, concerning the current challenges in the rebar supply and demand situation in the country, how do you think it could be resolved? Do you believe we need to wait for some companies to face financial difficulties and reduce capacity, or could it involve a combination of that and potential acquisitions? How do you see this situation resolving?

How are you doing, Carlos? It's good to have you on board. As regards the ramp up of hot rolled coils, we have opened this. We are producing originally in the old part of the rolling mill. As in the new part of the rolling mill, we're producing with commercial quality with higher and higher specifications. And we do have the ambition of ending the year with an additional production of 250,000 tons. Of course, since we started production in March, we are not going to have the full year of 250,000 tons, but something close to 150,000 to 100,000 additional hot rolled coils. It is important to highlight that today, Gerdau has more demand from our clients of hot rolled coils than we produce. So, we are still buying hot rolled coils from competitors in Brazil to sell through Comercio Gerdau to complement the demand we have due to lack of capacity. So the investment in HRCs will not only increase our volumes, but will replace the purchase of third-party material so that we can have our material. So there's also this trade-off. But we imagine that over this year we'll capture a substantial part of that and we'll end the year with the HRC mill at full capacity. Regarding mining, we haven't got an update in terms of changing the deadlines. We continue to move forward according to plan in terms of physical progress and financial progress. And we have this timeframe of completing this investment and putting into operation a part of the equipment in December or by December of 2025. And along 2026, we would reap the fruits of this high-content low-cost iron ore production that we will have at Miguel Burnier. I think that I answered your first question.

Would you like to compliment?

Yes, Carlos. Let me give you my personal opinion about the trade defense mechanisms. They are very broad, and of course, people will have different opinions about this topic. What the federal government did was to try to build a trade defense wall, but they built a very short wall and full of holes. So the first thing to prevent these imports is to close these holes on the wall. There are some holes, big holes, one is the ZPEs of Manaus. They have a tax benefit for the acquisition of steel and local processing. So this growth that we see in the influx of steel through Manaus is certainly not for consumption in Manaus. We would like to have a detailed investigation by the Federal to understand this. That's the ZPEs in Manaus should not be an alternative route for the influx of imported material. Another big hole we see is a bilateral agreement with Egypt, which is already being used as we speak for the arrival of rebar in Brazil, paying a lower tax. And the third big hole on the wall is the Santa Catarina issue, where there is ICMS deduction, and with the ICMS tax deduction, it is practically as if the 25% import tax did not exist. We would need to create mechanisms to close those three holes on the wall. And in parallel to that, increasing the height of the wall. I advocate for a hard quota mechanism. We should have a limited volume that can be arriving in Brazil, based on a historical level, having a maximum level of imported material coming into Brazil. Another point that frustrates me a lot is how slow the government is to deploy anti-dumping decisions. It's absurd the time they're taking at the Ministry to do this kind of analysis. And my fourth point, more to the mid and long-term, is that there should be some kind of incentive in an equal level of competition. The utilization of local steel, for example, for the factories of imported vehicles that are being built in Brazil, there should be in the contrast, the development of the local industry. We speak about the factory of EVs. It's not exactly a factory; it's just an assembly line. There's not 1 kilo of steel, of rubber, not even a local supplier. So the government should have a clear plan for the development of a local supplier park to supply the need. It's shocking to see some debates and discussions regarding Chinese investments for energy transmission and they are bringing material ready from China. In my opinion, this should be combated. So that's my point of view regarding the trade defense, and on rebar, it's always a combination of themes. And with the current level of rebar price, this will not be an incentive for new investments. A lot of players that are not as strong as ours, we follow public information about our competitors. Many of them are facing difficulties due to internal management and weaker balance sheets. And perhaps in terms of the short term, we have the Santa Catarina issue. It's an entry door and a deviation of taxes. Perhaps this will be corrected with the tax reform, but with the current level and repositioning, I think that there will be a lack of stimulus regarding the arrival of imported material at some ports. But my answer to you is a combination of factors. We are sure that a short-term effort which is absorbed by our balance sheet will bring in the midterm a level of competitiveness and a level of competition that we haven't seen in Brazil in the recent years. So, we have to exchange the short term for the mid-term.

Thank you, Carlos. Next question on Caio Greiner with UBS.

Hello. I have two follow-up questions. First, regarding the status of the steel market in the United States. It's interesting to hear your optimistic view on the US market for the rest of the year, but this contrasts with signs indicating that the US economy is nearing a standstill and starting to decelerate. We've observed declines in consumer trust and industry confidence data. Therefore, I would like to know if you expect better steel demand for your products. Do you believe this demand is genuine, or could it be indicative of panic buying as mentioned in your release? Do you have a clear outlook for the second quarter, and what are your expectations for the second half of the year? What feedback are you receiving from clients? We notice a slowdown in residential construction and some decrease in industrial activity, leading us to believe the economy will continue to decelerate. Will this affect Gerdau's products, or do you think you're in a niche that offers more protection compared to other players? My second follow-up question is about CapEx, particularly concerning energy. You have shown significant interest in self-energy production in Brazil. Will you continue investing in this area and pursuing acquisitions to achieve self-sufficiency? If so, how much more should we anticipate in terms of acquisitions, and do these potential investments in energy fit within the CapEx target of below BRL5 billion to BRL6 billion that we've seen in recent years?

Thank you, Caio. I believe you understood the situation correctly. Our timeline and leverage are both sufficient, and our EBITDA remains stable and within normal ranges. Therefore, we are not worried about our gross debt. This policy was established in 2018 and 2019, and the exchange rate has shifted considerably since then. Looking at our internal guidance, we aim for around $1 billion in cash against a gross debt of BRL12 billion, resulting in a net debt of BRL6 million, which is half of EBITDA. This is a deleveraged position. Given our current leverage relative to EBITDA and the average maturity of our debt, this is not an issue right now as we have moved beyond that gross debt threshold. Concerning our North American portfolio, we still have over 70 days of backlog. We have not seen any changes from our customers, and similar to other industries in early April, the measures announced for our sector began in March. In April, our order book remains strong with over 70 days of backlog, and we have not observed any decrease in shipments or cancellations. Some sectors, such as automotive, are more resilient as they depend heavily on imported goods, and they are still figuring out their pricing strategies. However, when assessing the types of products we offer, our activity level appears robust. That said, we recognize that the economic situation in the U.S. may evolve, potentially impacting our customer portfolio. While our products and their applications in non-residential construction are long-term, we believe any effects will not be immediate.

Good afternoon. Werneck, Marie, and Japur.

Hi, Lucas.

I have just two additional comments. The first is on North America, and that backlog performance that we saw in the first quarter. You also talked about inventory levels. I would just like to understand the inventory levels of your customers and what you believe is structural, and if you see any other inventory movements in the coming quarters? And what can you tell us about April in comparison with the first quarter? And my second question has to do with capital structure leverages within your policy, the average tenure also, but your gross debt was slightly higher than that BRL12 billion that you set forth. But giving the EBITDA level and given the fact that the policy is within that leverage level, whether we could assume that Gerdau would be comfortable in running with that BRL12 million of gross debt?

Well, okay, I think you got it right. Since our timeline is adequate and our leverage is also adequate, the EBITDA is not expanded or out of the normal levels. So, we are not concerned with our gross debt. I mean, this policy was set forth in 2018, 2019, and the exchange rate changed significantly since then. And so when we look at our internal guidance of having about $1 billion in cash with a gross debt of 12, that is a net debt of BRL6 million, which would be half EBITDA. And this is deleveraged. At this point, given the leverage level we have in the EBITDA we have and the average tenure of our debt, this is not a concern right now because we are passed beyond that gross debt level.

Our Q&A session has now concluded. And now I'll turn the floor back to Gustavo for his final remarks.

Well, first of all, I would like to thank Rafa and Japur for their participation. And on my behalf, and on behalf of the entire company, I would like to thank you for joining us in another earnings release presentation. This is a very good opportunity for us also to learn from you. And again, I take this opportunity to invite you for our next earnings release presentation scheduled for August 1st. So see you then. We remain at your disposal. Thank you very much.