Gerdau Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

There are 2 speakers on the call.

Operator

Good afternoon, everyone, and welcome to Gerdau's First Quarter 2023 earnings release call. My name is Renata, Head of Investor Relations, and participating in this video conference today are Gerdau's CEO, Gustavo Wernecki and CFO and RO, Rafael Zapur. We would like to inform you that this video conference is being recorded and will be available on the company's IR website where the complete material of the earnings release is available. You can also download the presentation using chat. We would like to remind you that this discussion is progressing through the 2 available platform.

Operator

To access the feature, just click on the Interpretation button via the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English. For those listening to the video conference in English, there is and option to mute the original audio in Portuguese by clicking on mute and audio. During the company's presentation, all participants will have their microphones presentation will begin the Q and A session. Analysts and investors can send their questions in advance via chat and can open their cameras if they prefer during the Q and A session. We would like to emphasize that the information contained in this presentation and any other statements that may be done during this video conference concerning Gerdau's business prospects, projections and operating and financial goals are based on the beliefs and assumptions of the company's management as well as information currently available.

Operator

Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Should understand that general economic conditions, market conditions and other operating factors may affect Gerdau's future performance and lead to results that differ substantially from those expressed in such forward looking statements. I will now turn the floor to Gustavo Werneck to initiate the presentation. Gustavo, you may proceed.

Operator

Good afternoon to all of you. I hope you're all well, and thank you very much for the opportunity to meet in this video conference call to discuss Gerdau's results for the Q1 of 2023. Here beside me is our CFO, Rafael Japore. So it's always a pleasure for both of us to talk to you about our performance and answer questions that may arise during our presentation. I will start by talking about the business macro environment, the highlights of the overall results.

Operator

And then I will give you more details on the performance of our business operations in the quarter. Next, I will call Jean Paul, who will share with you some information about our financial performance. Finally, I will come back to highlight some important points from our ESG agenda. At the end, we will both be available to talk to you about some points that you would like us to elaborate further. Now let's jump to Slide number 2.

Operator

Here, I will talk about the macro environment in which Gerdau operates. I would like to start by saying that during the Q1 of 2023, we once again demonstrated our capacity to transform, innovate, mitigate risks and also generate value for our customers against a very challenging macroeconomic background. We closely monitor the uncertainty surrounding the economic and inflationary scenario worldwide, particularly in Brazil and in the U. S, where some of our main facilities are located. We also closely monitor the continuity of the Russian and Ukraine conflict, which continue to impact the dynamics of raw material costs, particularly coal.

Operator

We also saw the recovery of China's economy in the period whose GDP grew 4.5% in the first quarter. Also, in the midst of this challenging scenario in the Q1, Gerdau performed quite well as the company benefited from its business model, geographic diversification in the Americas and also our flexibility in production routes, especially those we have in Brazil. Now in the next slide, before I talk about the highlights of Gerdau's results for the 1st 3 months of the year. I would like to point out that we came to the end of the Q1 of 2023 with an accident frequency rate of 0.52. This result is even better than that of 0.73 reported in the consolidated 2022 period being the lowest rate ever recorded in our historical series of 122 years.

Operator

This performance renews our commitment to the health and safety of all of our people. At Gerdau's safety always comes first. Since no result will ever matter more will ever be more important to people's lives. In a sense, in the last week of April, in celebration of World Safety Day. We promoted various chat rounds, seminars and events in all our plants in corporate offices in the countries where we operate.

Operator

With the intent of sharing learnings and reinforcing our culture of active care and safety, focus on the monitoring of critical activities and job accident prevention. So I must congratulate our team for these excellent results. Now in the next two slides. I briefly bring you some highlights that reflect the company's solid performance in the Q1 of 2023. Later on, Jean Paul will come in to elaborate on our financial performance.

Operator

But I will give you just some general highlights about our results, starting with our EBITDA. We ended the Q1 of 'twenty three with an adjusted EBITDA of BRL 4 300,000,000, the 2nd best EBITDA for this period in our historical series. Even in the midst Of the challenging landscape that I mentioned before, we continue to post strong financial results, reflecting not only the recovery in our steel shipments in the 1st months of the year when compared to the last quarter of 2022 but mainly the company's agile and innovative mindset focused on the challenges and needs of our customers and other stakeholders. I also emphasize that this good financial result achieved in this first quarter reflects the consistent efforts of our teams in pursuing operating excellence. During this period, not only we saw the recovery in steel shipments, but we also saw a significant reduction in costs, resulting in improved margins in all of our business operations when compared to the Q4 of 'twenty 2.

Operator

Once again, I would like to highlight the level of our SG and A expenses, which appears in our SG and A results that have been maintained below the steel industry average. In addition to the financial highlights, I would like to point out that Gerdau recently launched together with Kubo Itau and partner companies something that we call Cubo custo Living, the 1st hub focused on creating innovative experiences and the journey of the housing and construction ecosystem. The purpose of this initiative is to boost growth in the construction and housing sectors through connections among the main players and also to generate business opportunities in Latin America and in other parts of the world. Our expectation is to increase the number of start ups by 300% in the 1st year of activity, offering solutions in the segments related to design, like feasibility, construction acquisition and housing in general. Through Gerdau Next, and as you know, this is our new business arm.

Operator

Gerdau supports open innovation initiatives by supporting entrepreneurs and also partnering with large companies. I emphasize that Constru Tek is one of the 4 strategic clusters of Gerdau Next and that our purpose is to contribute realization, modernization, digitalization and also the reduction of the housing deficit in the construction sector, especially in Brazil. So with cultural living hub, we aim to generate even more value to the entire chain of this segment, jointly seeking improvements in productivity, efficiency and more sustainable practices. So now looking at Slide number 6, I will talk about the highlights of our business operations, and I will also take this opportunity to talk about the outlook for the markets where we operate. I will start, Slide 7, talking about North America.

Operator

Our North America BO that includes Mexico, the U. S. And Canada continues to deliver strong results in early 2023. In this Q1, adjusted EBITDA for the business totaled BRL 2 R400 1,000,000,000 with an adjusted EBITDA margin of 30.2%. Shipments in the local market remain high, in line with good levels of activity in the steel consuming sectors and also with the rebuilding of stocks in the distribution sector that we've been looking at throughout this Q1.

Operator

In February March of this year, we had record monthly shipments in this business, BD. Our backlog of orders in the U. S. Remained stable at a very high level of approximately 60 days, above the pre pandemic level. I would also like to point out that since the U.

Operator

S. Government approved incentive package last year, investments in the industrial sector in the U. S. Have already exceeded $200,000,000,000 indicating a favorable environment for investments and for the continued generation of jobs in the country with positive impacts on the economy, especially in the Energy segment. In this respect, in addition to the Inflation Reduction Act, IRA, includes US370 billion dollars in tax credits for GLEAN Technologies, while the CHIPS Act provides US39 $1,000,000,000 of investments to encourage local production of semiconductors.

Operator

These measures, together with a reassuring process, we'll certainly increase future demand for steel in the region. In this sense, Our North America BD is very well positioned to meet the needs of our customers operating at full capacity as it continues to focus on improving the profitability and productivity of its mills, sharing, as I said before, even more value with its stakeholders, in particular, in the case of North America with our customers. Noteworthy here are the investments in long steel units in the U. S. In the mills of Jackson, Tennessee in the U.

Operator

S. And would be in Canada, which will have new equipment ramping up in the coming months, increasing the capacity to serve our customers even better. Moving to the next slide, I would like to talk about our Special Steels operation. This operation is split between the U. S.

Operator

And Brazil, but I will start with the U. S, with the United States, where I would like to point out that the CHIPS Act, which I mentioned before, will help bring semiconductor factories to the country over the next few years, thereby addressing the issue of chip shortages in the U. S. That has impacted the demand for special skills in recent years, especially in the U. S.

Operator

In terms of the market, we continue to see a rebound in the production and sale of vehicles in the United States, but it's still at a level below the historical average. The production of trucks, for instance, increased almost 30% in February year on year, reaching almost 50,000 units according to data provided from the Local Automotive Association. The production of heavy vehicles should total approximately 300,000 units this year 2023, while the production of light vehicles should stay above 50,000,000 units. Moreover, the oil and gas segment, which is important for us in the U. S.

Operator

In North America keeps on picking up, approaching to the monthly mark of 1,000 rig counts in the coming months. Now moving to Brazil. The outlook for the Special Steel market in Brazil continues to be influenced by uncertainties related to access to credit lines and high interest rates leading to, as we've seen through the press, leading to restrained demand for vehicles. Among light and heavy vehicles, Right now, there are 8 automakers that have announced shutdowns in the Q1 of 2023 impacting 35,000 units according to Amphibia, the National Association of Vehicle Manufacturers. For 2023, Amphavia itself, even in the midst of an uncertain scenario, continues to project an increase of about 4% in the production of light vehicles in relation to the previous year.

Operator

The agriculture and machinery sector, on the other hand, should maintain a positive outlook with the prospect of a 4% increase as the fleet is being modernized in the midst of a good harvest in Brazil. I would also point out that the competitiveness of the special steel consuming sectors, mainly the auto parts sector, decrease in the Q1 due to the appreciation of the BRL against the U. S. Dollar. I would like to emphasize again that we continue to advance in the operation of the new continuous casting of blooms and billets at the Pintamoyangaba plant in Sao Paulo.

Operator

This is going to be our equipment whose products are currently being certified by our customers. This equipment allows the Pinda unit, to have a more automated process with lower CO2 emissions, with better yield, resulting in the delivery of differentiated and higher quality products to the demanding markets in Brazil. Now moving on quickly to the next slide, I will talk about the long and flat steel landscape in Brazil, whose performance in the Q1 reflects a recovery in our sales shipments to the different sectors in which we operate when compared to the previous quarter. Steel consumption in the residential and commercial construction sectors is still at a high level by current market concerns about the number of new launches and the level of inventories in some geographies. The number of active construction sites in Brazil, for example, reached a new historical high in April, standing above 10,000 units, up 3% year on year.

Operator

The sector may also benefit from the reforms in the housing programs aimed at the low income segment over the next few quarters. The Industrial Construction segment continues to generate strong demand, especially from the paper and pulp, Mining and Oil and Gas Sectors. We've seen reports of new investments, especially in these sectors. Even the Brazilian chamber of the construction industry, the so called CIBIC, foresees a 2.5 percent growth in 2023 for the construction industry. This production includes consistent market growth, which we've seen over the last few years.

Operator

And in addition, this also validates what is happening in the real estate market and also with a very sound housing demand going forward. Also, there was a slight recovery in retail sales in the Q1 when compared to the last quarter of last year, positively impacted by 1 off government aid measures. But the sector's performance continues to be hampered by high interest rates and credit restrictions, as I was saying earlier on. In addition, I anticipate the resumption of public and private investments in infrastructure works. These are an engine to drive the country's growth, such as, for example, the subway works in Fortaleza in Sao Paulo.

Operator

According to Abidibi, investments in infrastructure should be around 100 and 73,000,000 to 175,000,000 barrels in 2023, the highest since 2014. In addition, I would like to highlight the accommodating of the demand for steel coming from the industrial sector, specialty road equipment, which grew 4% in the 1st 3 months of the year as well as the demand from the energy especially solar and wind power and power in addition to other demands coming and growing when it comes to oil and gas.

Speaker 1

My last slide and briefly talking about South America. In Argentina, demand for steel from the construction, Energy and Mining Industries remain strong, encouraging sales in the domestic market. The Argentine construction sector Should repeat in 2023, the good performance reported in 2022 when the level of activity increased by around 3.5%. The same scenario is repeated in the Uruguayan steel market. And in Peru, in turn, economic activity was impacted in the Q1 by weather issues related to social conflicts and an atypical phenomenon that we had to address, weather issues related to a cyclone that hit the country in March.

Speaker 1

And for a while, It brought a slightly lower demand for steel. So this concludes my first part. And now I'll turn it over to Jean Paul to tell us more about the financial highlights and then I'll come back so we can talk about our ESG agenda. Over to you, Jaapur. Thank you, Gustavo.

Speaker 1

Good morning, all. It's always a huge pleasure to be here with you again in our earnings conference call. Let us start with Slide 12. Let us talk about our cash flow and working capital. In the chart on the left, we see the evolution of our working capital and cash conversion cycle.

Speaker 1

This is the upper part of the chart. We ended the quarter at a level of BRL 16,300,000,000 with a slight increase of BRL100 1,000,000 visavisendofthelastyear despite the scenario of higher shipment and net sales, like Gustavo said early in his presentation, pretty much driven by Brazil and North America. And looking more closely at the working capital for the quarter, it's important to highlight that there was a positive exchange between the inventory of our accounts. The letter is the closest to easily convert into cash by the company. We reported a cash conversion cycle of 78 days, a reduction of 3 days compared to the previous quarter, pretty much favored by the increase in net sales, like we said before.

Speaker 1

It's also important to say That we are happy with the current level of financial numbers yet. We believe there is room for improvement. And we do have some action plans in progress in all our BDs aiming to improve our metric performance. Now let us move to the right hand side of the slide and talk about the cash flow this quarter. Based on our adjusted EBITDA of BRL 4,322,000,000, a margin of 23%, We invested BRL 550,000,000 in working capital owing to a higher operating leverage this quarter.

Speaker 1

The physical Sales volume was 11% above the previous quarter. Our CapEx disbursement totaled BRL 954,000,000 this quarter, as we can see on the slide, of which Almost BRL300,000,000 are earmarked for expansion and updating of our IT operations, trying to pursue long term competitiveness. It's important to say that in line with our commitment To sustainable economic and social development of the state of Minas Gerais, nearly half of the total disbursement for the quarter was allocated to this region. After disbursement with income tax and net interest, We ended the period with a cash flow of BRL2.700 billion or 140% higher than the previous quarter, which is equivalent to approximately 14% of our net sales, up 62% of EBITDA, showing a significant capacity to convert revenues into cash. In the lower chart, we can see the historical performance long term since 2014, Our quarterly cash flow.

Speaker 1

Typically, as we can see, the Q1 of each year, which in the chart is shown in green when positive or in red when cash flow is negative. Typically, the Q1 Is a time in which use of cash is mostly related to an increase in working capital resulting from seasonality, usually with lower volumes of operations in the Q4 and a resumption in the Q1. It's important to underscore that this time we have the 3rd consecutive time that we report a positive cash flow in the Q1. Let's move now to Slide 13 to address our liquidity and indebtedness. We continue with a very healthy level of net debt over EBITDA of 0.31 times.

Speaker 1

In March, our net debt was BRL6.400 billion, a reduction of approximately BRL800 1,000,000 compared or both due to a reduction in gross debt and an increase in cash. So we are very much in line with the parameters of our financial policy and pursue and are very close to what we consider to be an optimal capital structure for our business. Moving to the right hand side of the page. I would like to point out that we ended the first quarter with a solid cash position of BRL5 1,000,000,000 and BRL800 1,000,000. We continue having our $875,000,000 revolver line, which is fully available and undrawn.

Speaker 1

As a result, our liquidity position immediately for use exceeds BRL10 1,000,000,000. Now briefly addressing our debt amortization schedule And sharing a little spoiler about the Q2, now in April, our 2023 bond was due and settled in the amount of approximately $190,000,000 And now next week on May 8, We'll have the tranche of our 16th issue of debenture to be matured in the amount of BRL 600,000,000. The second tranche will follow due only in 2026. As you can see on the chart, the 800 down the road will be amortized. To conclude my part, right now, I would like to move on to the next slide, Slide 14, to talk about our proceeds.

Speaker 1

Due to the earnings of the Q1 of this year, the Board of Directors of Gerdau S. A. Approve the payment of procedures interest and equity in the amount of BRL 892,000,000 of BRL 0.51 per share. This payment will take place on May 29 based on the shareholding position on May 15. Metalogica Gerdau, in turn, will pay BRL310 1,000,000 or $0.30 per share.

Speaker 1

And for Metalogica, there will be a mix of approximately EUR0.25 as interest on capital and EUR0.05 per share as dividends. Now moving away from dividends and addressing our holistic performance. And now on the right hand side of the chart, we can see 4 bars. In here, we show Gerdau's relative performance in yellow within a group of peers in the industry, which we believe are closer to our segments and our regional footprint. The top of each bar shows the best performing peers for that indicator.

Speaker 1

In the middle, we have the average peers. And at the bottom of the chart, we show the lowest performers. We can see by looking at the different bars That Gerdau has an outstanding and above average performance on different metrics, whether in our margins, our return on capital employed, Our austerity with SG and A or our financial position. In other words, this big consistency in different pillars allows us to remain committed to return value to our shareholders over time, increasingly leveraging our position as one of the companies in the industry with the lowest level of CO2 emissions. Well, once again, thank you very much for your attention.

Speaker 1

And I give the floor back to Gustavo. He will talk about ESG topics and highlight the important progress achieved this quarter on our operations in Minas Gerais. Thank you, Jean Paul. Actually on the next two slides, we have two topics to share about our ESG agenda. First, Jean Paul talked about Minas Gerais.

Speaker 1

I would like to say that considering the best sustainable mining and responsible and economic practices that we can give to the new practices. We adopted the most modern technologies in the market. And since February 2023, we are using only the dry stacking method to dispose of 100% of tailings from It's iron ore production process. So this has turned out to be a reality. And all the iron ore produced in our mines is via this method of thrice tacking and no longer having tailings to the dam.

Speaker 1

And Gerdau was once again recognized by the Women Leadership 2023 survey in the Metallurgy, Steel and Mining category Promoted by NGO Women in Leadership in Latin America, known by the WIL acronym. Gerdau was highlighted for its actions to provide an encouraging female leadership. Currently, women hold 27% of leadership positions at Gerdau. The target, the variable payment of the company's leading leaders, is to increase this number to 30% by 2025. Gerdau's purpose is to empower people who build a future and the promotion of a diverse and inclusive environment is one of our pillars.

Speaker 1

We are committed to being an agent of social transformation, engaging our whole ecosystem and All ecosystems where we are globally present and building a future with opportunities for all people. So On behalf of myself and Jean Claude, I thank you all for your attention. And I give the floor back to Renata for the Q and A session. Thank you, Vernaki. Thank you, Jean Paul.

Speaker 1

We will now begin the Q and A session. In case you don't want to open your cameras, please ask us to enable it. And you can also send your questions in writing, and I'll be in charge of reading them out loud. So now we have the first question.

Operator

Leo Kohei from BTG Pactual. The first question In relation to the U. S. Metal spread, we've seen a correction that gets to almost $120 per ton since the beginning of this year. I understand that this is not a perfect analysis, but I would like to hear you elaborate a bit more about Gerdau's metal spread.

Operator

Is it more resilient? And Ro has a second question related to prices in Brazil. We noticed pricing being 10% lower every quarter. How do you see the environment in terms of deploying price adjustments in the second half of twenty twenty three or in the Q2 of 'twenty three. So, Jean Paul, I think I can start answering the question, but please interrupt me anytime.

Operator

I was also looking at my notes, and I was really startled by that 124% spread. This is very far from reality. I mean, there was indeed a decline in metal spread in the 1st month of Q1, but it's much lower than that 120 that you mentioned, even less than half of that number. That might be some misleading information that I can talk to you later about that information, but this is not in line with all of the information we have in terms of metal spread. Now in terms of pricing and Brazil in general, well, first of all, I think it's important to say and to repeatedly say that I mean, we don't want to be seen as a producer of rebars all the time because we serve more than 10 different segments, 40 different sectors of the economy that benefit from Gerdau's products, traditional materials for civil construction like cut and band, rebars and products ready for consumption.

Operator

They account for about onethree of the products that we earmarked for the domestic market. And I would say that somehow export premium, our balance. The largest difficult, I think, we've seen since last share is with rebars. Other product categories, I think, have adequate profitability premiums. Probably rebars is what have taken that average down a bit.

Operator

And specifically speaking about rebars, It's been a little bit more difficult to recover profitability, but this is a process that is determined. That's why it's difficult for us to say how long it will take until we recover that profitability that you now are going to be more adequate. This is a process that we're gradually able. Now also, if we look at the general margins of our operations in Brazil, you must also take into account the difficulties we are encountering to have positive margins in regards to our exports. Traditionally, we export 10% of our production capacity in Brazil, and the levels have been down during the pandemic, and it came down to 5% because we made a decision to prioritize the domestic market.

Operator

But we already resumed to old levels of 20%. It's been a bit more difficult to find businesses with interest margin. As our export margins are low, the average becomes low. We believe that this quarter, there should be an improvement in exports, but we also see a bit of concern the drop international prices. All of the deals to deliver in the next quarter, the margins will be somehow affected.

Operator

But in general, in Brazil, I would like to say that demand is not an issue for us at the moment. And everything is significant, we increased the number of service revenue, probably slightly higher than what we saw last year. Therefore, our main concern at the moment is recovering rebar profitability. Also, we would like to pursue a profitability level that, in our view, is adequate. So, Chapar, if you want to add anything.

Operator

Hello, though. I think Gustavo already explained the issue of metal spread. We understand That number you mentioned is very different than the current figures, but I'm sure you can talk to Renata about that later on. And in terms of Brazil, I think the main point is that we are pursuing higher volumes in the Q1, and we could see that our shipments in the market. We did some efforts in that regard, and we understand that the dynamic for the next coming quarters will certainly depend That balance between foreign exchange that fluctuated a lot in this first quarter ending quarter at 5 0.8 and out of the market at 5 0.5.

Operator

And it's an important thing when it comes to price dynamics going forward. Thank you for the answers. Our next question comes from Caio Ribeiro, sell side analyst from Bank of America. My first question would be about the outlook for the second half of the year in your North America BD. We noticed There are some concerns on the part of the market concerning a possible recession in the U.

Operator

S, a downturn in the real estate market and a contraction in metal spreads. Could you please Give us an idea about what you see going forward in the next half and if you believe that the reassuring program could mitigate for that effect? And also, if you could tell us a little bit about price increases in the domestic market for long steels. If you could say something about that, that would be nice. Thank you, Renata.

Operator

I think that in terms of pricing, I somewhat Answer that. And Jean Paul, if you want, you can also ask me. And it's great because we always had a good discussion with you. I will start talking about North America, and Jean Paul can add to my comments. In terms of concerns with the U.

Operator

S. Economy, this is something that is Among us, every quarter, every quarter, this is a point that comes up. And we kind of postponed that debate because when we look at all of the indicators from the U. S, we still see great resilience on the part of the economy, so much so that we are not talking about that in terms of quarters about the U. S.

Operator

Because we believe that all of the factors that are in place will accommodate a strong demand for long steels in the U. S. We are not very much exposed to the real estate market because once we sold our rebar operation, We are now more exposed to infrastructure and nonresidential sector and there's low penetration of imported goods. There are no capacities coming into this segment. I would also like to reinstate the benefits that all of these U.

Operator

S. Packages will bring to the steel industry in the U. S. So when we put together the infrastructure package together with the Inflation Reduction Act and the CHIPS Act altogether. Once you combine all of these acts, This will bring about more than US1 $1,000,000,000,000 in terms of incentives and taxes, and this will boost steel consumption in the U.

Operator

S. Therefore, we are very certain that well, certainly, in one quarter, there might be some recession or some setbacks in the U. S. Economy. But in the very specific segment of steel and demanding parties, they will still be moving forward.

Operator

And the same thing applies to metal spread. It's been resilient in 2021 2020 to certainly, there has been some variations in some given months, but it still remains at very high levels. There is a short term concern. Some people are concerned whether there's drop in scrap, especially driven by Turkey because they reduced Actually, their imports of scrap from the U. S, there was a momentarily drop in scrap.

Operator

And I believe these are volatilities that we will also see in the coming quarters. But in terms of this equation of supply and demand in the U. S. For both metal spread and other indicators that are translated into resilience to our margins and results. We remain very sound, very solid.

Operator

But I would like to take this opportunity to talk about Mexico. We had some ago. We had some record numbers in Mexico. We've never had such strong results coming from Mexico, and this will continue. Just to give you an idea, Every year, since we started operating in Mexico, We've never heard people talking about lack of rebars in Mexico, but there was a scarcity of rebars in Mexico, and I'm sure that Mexico will become a good reshoring market for the U.

Operator

S. Only OEMs or automakers that have announced productive capacity, I mean Tesla, we will have a new I think Mexico, BMW and Nissan, a lot of investments coming from the private sector. Therefore, I mean, the numbers in Mexico remain very strong, and they will contribute to the numbers in the U. S. As well.

Operator

So what we see are very, very positive things coming from that geography. Chopra, would you like to add anything? I think in terms of North America in general, one relevant aspect is that all of these major package in terms of a short term impact, I mean, we see them more being like a long term impact throughout our journey of investments and expansion of our mills. We see further resilience in the mid and long range in the segments where we operate. Despite the volatility we see in the market with some indicators going up and others going down, our portfolio, as you mentioned, remains positive.

Operator

We still have a 60 day order book. Therefore, we do have some good elements to start this new quarter in terms of our volumes and sales. Thank you for your answers.

Speaker 1

Next question, Daniel Sasson, sell side analysts with Itau Bevia. I will ask to ask the question live. Hello, everyone. Good afternoon. Thank you for the opportunity.

Speaker 1

My first question, I apologize for going back to the metal spread topic in the U. S. Gustavo. You already said that over 2021 2022 position was solid despite acceleration. But could you comment more specifically about scrap And diving deeper perhaps, if the level of scrap cost In your earnings in the Q1, how does it compare with the scrap inventory you currently have?

Speaker 1

I'm asking you this because we recently saw an increase in U. S. Scrap. So how can it hit the margin in the U. S, which was at 30% so healthy this quarter?

Speaker 1

My second question is very to the point. Maybe could you give us an update about 253 tax credits that you had this quarter. And as for Mexico, just a follow-up question about your last comment. You said shortage of rebar in Mexico. Is it possible to supply this market from another region, maybe from Brazil and send rebar to Mexico considering this challenge that you mentioned about having a profitable rebar in the domestic market.

Speaker 1

Thank you, Gustavo, Jean Paul and Renate. Daniel, thank you for [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Always opening your camera and interacting with us. You always have a very rich debate. So Daniel, about metal spread, I understand your question. However, we don't see this in house as a source of concern.

Speaker 1

But this BD is not so fragmented as we have in Brazil. And over the years, we've been a very unique capacity to buy scrap in the U. S. I think I even used this expression, some side and acquired moves. We have some scrap agents here, additional capacity from there.

Speaker 1

So I don't see there is if we don't have anything in inventory, Nothing that can be a point of concern that might bring big changes to metal spread. We don't have a philosophy to build up a lot of scrap. We have a very lean operation. Like you said, there was an increase in scrap. Now it's going back again.

Speaker 1

So considering things we do well in the U. S, we can also [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So in Brazil, we have this capacity to benefit from these moves. This is very solid. So let us see what happens. Right now, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Scrap is going down, Daniel.

Speaker 1

So we used to see the Turkish scenario about rebuilding the scenario, Bringing additional demand for steel and scrap went up. What we saw last week is that we are far from this scenario. There are several drivers in Turkey showing that this rebuilding process and demand will not happen short term. If I'm not mistaken, that will be election on March or mid May and also devaluation of currencies. So Turkey is slowing down and almost $50 going down.

Speaker 1

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And also the prime scrap, we can also play with that. These are volatility phenomena that we will continue to see. So for us, overall speaking, when it comes to demand metal spread in North America, this is very sound and healthy. We have everything to be in line with our demand plans. If we look at this quarter and our deliveries and when you look ahead For the future, I don't see major upsides nor downsides.

Speaker 1

We just keep on leaving on 2023 similarly to the Q1. And 253, Jean Pierre is going to tell you more about this number more diabetically. So it was very specific in the first quarter. And I just use rebar as an example to show how the economy is up and running. I don't think we'll come to a point in which Mexico, we need to import and we have to send Brazilian rebar to Mexico.

Speaker 1

I think this decision, There is no rationale behind it when it comes to a financial standpoint. This is just an example to show how the Mexican economy Speeding up and responding to North America. Our positioning for rebar, capacity, merchant bars and structural bars. We were very successful in the implementation of our mills for these structural profiles to replace. So we created a very sustainable platform.

Speaker 1

I would say It's very proper to accommodate the demand that will come from Mexico in the coming months. So our Mexico division is greatly contributing for us. So repeating rebar was just an example to show how economy is sound as we speak. Chapul, can you tell Daniel about 253? Sure.

Speaker 1

I'll try to be brief. Sometimes these are hard topics. But in February, we had a gain where we won a case. We had a tax client for PIS and COFINS on scrap. It was an old case.

Speaker 1

And the judgment or the trial was favorable for us in February. The main thing was the BRL 845,000,000 BRL launch as a nonrecurring item and BRL 253,000,000 is the monetary restatement from the core capital as a financial result. Because we had this extraordinary item, nonrecurring, we also had income tax, which was higher of BRL270 million owing to this gain of BRL845 plus BRL253 that you found in the financial line. So the net of nonrecurring factors this quarter is huge. Our fees, coffins over scrap, which was BRL 828,000,000, which increased our capital net income.

Speaker 1

People joke you cannot give adjusted numbers going up. In our case, we did the opposite. We are correcting down both our EBITDA and our net income excluding from the BRL828 1,000,000. And the dividends that we are paying out Actually considers the capital net income. So the payout this quarter, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] If we are net of the noncash effect of piece and coffins on the scrap, Considering only the cash effect from the moment we benefit from This and COFINS credit to offset what will be payable in future quarters.

Speaker 1

If we didn't have this effect, The dividend would be lower. So we did adjusted net income. We paid more than 40% of payout this quarter. It's a long answer. Maybe we can talk later or Renata can also give you further information.

Speaker 1

So this The origin of the BRL 253,000,000 of the total decision that we have. Crystal clear, Gustavo and Jean Paul. Next question? Thiago Lofieiro, sell side analyst with Bradesco BBI. He also wants to ask the question live.

Speaker 1

Please go ahead, Thiago. Good afternoon. Can you hear me? Vernaki, the first question is, In the last call, we talked about margin recovery, and you described the dynamics in the Q1 and you actually delivered. So now I repeat the same question about the Q2.

Speaker 1

What about the process more specifically in Brazil with margins? We have some drivers that are in conflict. So I would like to understand your mindset about a potential margin recovery continuation in Brazil. And could you give us some color about shipments? And what about the results In April May, what is the visibility?

Speaker 1

The second question is simple. What about the price drop Mi in the Q1 in Brazil of 10%. How much was owing to the mix effect? Could you tell us the reasons? Thiago, always a pleasure to talk to you too.

Speaker 1

Look, this has been one of the main challenges of our Brazilian BD since last year. If you look at demand, we don't have a single rationale to explain a drop in margin and working with export premium at the level that we had. So when it comes to demand, we are very bullish are realistic that there will be a steel demand in Brazil in line with what we had last year. For us, considering the shipment that we recovered in the Q1, maybe this is slightly above our last year's deliveries. So our concern right now is not demand.

Speaker 1

Some sectors are more are being more challenged like the automotive industry, like we have We have 8 EOMs that are idle, and we made the decision to stop our Moji mill and having an equal demand on special steel. On the other hand, civil construction, considering the discussion, It's very strong for us. Our cut and bend portfolio is great by year end. It's very consistent. And the figures that we showed Yesterday, we had a report at SECOVI Sao Paulo and other indicators that we measure, And they show some demand for launches.

Speaker 1

So the construction industry is very good for us and also interesting demand in other construction Sectors like the manufacturing industry or pulp and paper, our plants and new plants in Brazil demanding steel. So Demand is not an issue. Maybe there is a mood right now or this feeling that things in Brazil are not moving forward and concerns that are challenging the process of recovery in margins. So as we speak, in April May, Well, we are in the market, and we are considering how we can take these numbers to a right level. And it's too early to say anything.

Speaker 1

We haven't consolidated April results yet to say how much can be our uptake. But I can easily say that when it comes to rebar, okay, but when we think about flat [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The premium level is adequate. So when it comes to rebar, like I said, this is not the main line today, accounts for less than 1 third. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And Apur will tell you more about the mix, your second question. But this is the process that we're working on right now.

Speaker 1

We do have to reduce if you consider recent years, but this has been our expectations considering competitiveness and all those concerns about the Brazilian economy. Conversations over the coming weeks. Once we have this call, maybe considering what We see in April, maybe we can give you more color about this.

Operator

Jean Pierre?

Speaker 1

Hi, Thiago. About the mix, there was some effect. If we look and check our quarterly statements and check variation, we have a higher increase in raw steel compared to flat steel. So there was an effect considering Q4. So a heavier weight in Long steel considering compared to flat steel.

Speaker 1

And when we check our revenue, going down into volume or shipment and price, 8% price and 1% mix in the variation, but nothing too significant. Slightly driven, you're right, by the rise in long steel and the net sales per ton is slightly lower. And like we said before, just to close, we managed to cover. We gained room that we lost last quarter and it has an impact as well. So Thiago, just overall speaking, Let's close Abram numbers first and then we can talk later with Renata as well And you can share more information about this specific topic.

Speaker 1

Great. Thank you, Wernecki. Thank you, Japur.

Operator

Our next question comes from Rafael Barcelos, a sell side analyst from Santander. He would also like to open his camera and ask the question live. You may proceed. Good afternoon, everyone. Can you hear me?

Operator

I think so, right? Good afternoon, Renek and Jean Couture. My first question is about your Special Steels BD. In fact, Even though your results still remain in a very robust level, I think that the main negative highlight in the quarter and that's what you also talked about during this earnings release call. And we've been monitoring the recent shutdown of OEMs in Brazil.

Operator

And Vernacchio said that You don't anticipate a demand problem, but maybe the main aspect would be that. Could you please comment on your expectations for the year or whether you are noticing some recovery possibility. So what will what can we anticipate going forward? And my second question relates to capital allocation and leverage. The company's policy is to have BRL 2,000,000,000 of gross debt.

Operator

And whether you already reached that level and The net debt level is comfortable. So what would be, in your view, the minimum cash position for the company. In addition to that, I mean, the results of the company remain very robust in this Q1. So I think the natural question would be on extraordinary dividend payout. When we look at the buyback program.

Operator

You already did almost 60% of the buyback program. Are you thinking about renewing that? Well, Rafael, Jean Pierre will answer the first part on Special Steels and you get the second part of the question. Right now, what I see for Gerdau throughout 2023 are quarters that are very similar to this current quarter in terms of results, especially EBITDA and generation of gross cash. So the next quarter should be pretty much in line with the Q1.

Operator

Special Steels is probably an area where we could see some improvement going forward, especially driven by North America, less driven by Brazil. Therefore, demand is sounder in North America. We may see the production of light vehicles picking up again in the U. S, we will see greater stability of our larger mill in the U. S.

Operator

We invested a lot in that mill in the U. S. And when we see this level of investments, of course, that we have a new melt shop, a new furnace. And then we will get some benefits from cost reductions in Monroe. And in addition to heavy and light vehicles, we don't see any signs that, that will not continue.

Operator

That might be a slight upset. But in Brazil, in terms of short term improvements, we've seen some expectation or maybe some optimism when we look at ENVAVIA numbers for the second half. But in practical terms, I don't we didn't see any signs from our customers that would indicate that this would happen in the next few months. All of the announcements are more to align supply and demand. It's interesting to see the percentage of light vehicles in Brazil that is bought cash.

Operator

So the curve is now inverted. And in terms of heavyplates. We saw the reduction of engine Aero 5 to Aero 6. So this led to a reduction in heavy vehicles and the expectation of some vintages. We may see some increase in supply and demand, but nothing that will lead us to start up our melt shop emoji.

Operator

I think in the U. S, We hear things louder than here. Maybe here, we would see a slight recovery in the results in terms of what we in comparison with what we delivered in the Q1, but nothing that would cause us to have extraordinary results when compared to this Q1. I think by the end of 2023, We will post good results visavishistorical results, but it may be below the results we posted 20212022. So now, Jean Paul, you can answer the second question.

Operator

About the minimum cash, I think I Briefly talked about it. Our objective is to have about BRL 6,000,000 In terms of high cash, our gross debt is 12,000,000,000 cash is 6,000,000. Therefore, the snapshot we have today of approximately $6,000,000,000 of net debt. This is pretty much what will be an optimal structure for Gerdau, giving the potential I mean, opportunities and the obligations we have in our balance sheets. About extraordinary dividend payout, I think I already answered that when I answered Thiago's question.

Operator

The dividend payout, the current dividend payout means that we are paying a significant amount of the results based on a corporate net income that was not considered cash in the case of the 828,000,000 net from income tax of fees and consents over scrap. So in fact, we are already paying higher or more than the 30% anticipated payout. And in the second quarter I mean, the quarter has just begun. We are in the 1st few days. And we also have important payouts, I mean, both of dividends and also the bond that we paid 2 weeks ago of BRL 1,000,000,000 and the debenture, which is about to mature, of $600,000,000 maturing next week.

Operator

Therefore, Between return to shareholders and debt amortization, we have 2,800,000 BRLs in this very short period of time. So if you consider, okay, we have R5,800,000, but almost half of it It's almost already earmarked for payments in I mean payments next week. So we will continue to look at it every quarter, look at our capacity to generate additional cash when compared to our optimal structure. And as we see opportunities, especially in those quarters when we generate more cash when compared to other quarters, well, certainly, we may pay higher dividends. And this has been the case in the past few years, especially that happens in the Q3 of the year, especially because these are considered stronger quarters, both in Brazil and in the U.

Operator

S. In terms of the buyback program, it's pretty much in line with that same thing that I said. When we have more availability of cash in terms of what we are generating and what we are investing and refinancing, we will certainly return more to shareholders. As a reminder, if you look at the past 2 years, if you look at everything we paid in the past 2 years, we paid a lot more dividends and in terms of buyback and returns to our shareholders, way above the 30% payout determined by our bylaws. Thank you.

Operator

Thank you very much to both of you. Our next question comes from Marcio Ferreji, sales side analyst from Goldman Sachs. He would also like to open his camera. Hello, everyone. Good afternoon, and thank you for this opportunity, Jean Paul, Berenaki, Renata.

Operator

I have two follow-up questions. I think the first point, Werneck. And I believe you mentioned that you are very confident with your North America operations. The market is more confident, but there was a positive surprise in the Q1. And based on the comments from your peers about North America, we see a generalized confidence increase in the market.

Operator

What do you think could be an impediment in terms of generating increased capacity or even exports into the U. S. Because it doesn't seem to be so reliable to see such high margins for a long period of time. So what would be the risks on the supply side considering that We may see a good outlook for the next 5 years according to what you said. The second point, There was a comment today during your press conference when you talked about CapEx for Minas.

Operator

You gave details, but it seemed to me that You said something about the next 10 years. Could you comment a little bit more about that EUR 5,000,000,000, whether that is part of the plan or that is part of the plan or this would be diluted CapEx diluted throughout a longer period of time. And now going back to my previous question, could you elaborate a little bit more about Mexico? It seems like the metal spread in Mexico is detached from that of the U. S.

Operator

Even though it's higher, it's still different than that of the U. S. Excellent, Marceau, and thank you for your questions. Achapur, you can start. Marcel, in terms of risks, I think we have to look at the financial sector and regional banks and how that could affect the capacity of industries in some regions in terms of continuing to consume steel and keep the economy running.

Operator

But we think U. S. Government and also very conservative in terms of maintaining the liquidity of the system, trying to avoid any systemic risk of contamination. And in that regard, in the mid range, we do not anticipate any major risks. Of course, there are some important aspects of the economy that should be monitored like inflation, vacancy of commercial properties.

Operator

But today, Much of the demand, as mentioned by Gustavo, we've seen demand for the construction of manufacturing plants in the U. S. That are not generating the economic activity of the quarter, but of the decade. We should look all the plans for ensuring reshoring of the current administration. And we think that this is not something that it's something for just this moment, but it's something that is here to stay in relation to boosting demand in the U.

Operator

S. Market. Let me just add another point. I think Marcio also talked a lot about supply. I think we reap the benefits because And except for rebars in terms of long stales, we are very well positioned for several reasons.

Operator

First of all, there is a low penetration of imported goods in the where we operate. This is quite complex because it also involves manufacturing activities and importing large structures for large infrastructure works, and this is not something trivial. There is a low penetration of imported products in the segments where we operate. This was the case of rebars. And that's why we sold that operation because that would eat up our margins.

Operator

And this is great there is great incentives to local production. Most part of the packages are aimed at boosting domestic production, and investments in these segments are marginal in terms of to add productive capacity in existing plants, and this is our case. We have been adding capacity. Our mills in Virginia, our mill in Tennessee. And now we are making some investments in our Meat Loaf mill in Texas because we are adding additional capacities to marginally serve that demand.

Operator

So I think that supply side is very balanced. When a new plant comes in, they don't start right away. And I think that the U. S. Steel market remains very focused in the competitive dynamics in the flats market.

Operator

So on our side, this is one last distraction, Putting on the side the subject of flat steels. So in relation to supply, it's quite balanced, and this will help us reap the benefits, the additional benefits going forward. The Milagenais CapEx, there is nothing new. This is mostly related to our geographic position to show where we will focus our investments in Brazil in the next coming years. Now any signs that there will be a higher CapEx than that, that has been announced last quarter won't happen.

Operator

I think this is an adequate level of CapEx for the coming years. So what the press is saying is more related to getting a better understanding of the geographic area of investment. And I was just pointing out to where we are investing. So we will continue to invest in mining, not as a player in our ore, but just to serve the demand from our own mills. But we are also making investments to improve the processing quality.

Operator

And during my original introduction, I said that we are no longer putting tailings in dams. So 100% of our Our processing is dry stacking. So we are also making investments in Ouro Branco for those of you who been monitoring us for a long time that Ouro Branco was there to produce semi finish. So we are trying to add more value to our products produced at Ouro Branco. We are investing in a new plant for coiled hot rolled strips.

Operator

And if there is yet a third phase, we still have potential. So we are investing in Ouro Branco to add more value to our products. We are also investing in the buyer reducer because it's very competitive cost wise and low emissions of CO2. So that $5,000,000,000 of CapEx It's more to qualify our investments in a certain location and our desire to look for opportunities in our own country. Great.

Operator

Thank you, Wernecki, Japura and Renata. Sorry, if you could also comment on Mexico, Bernadette. Sorry, I forgot to say to talk about that. Mexico, regardless of Mexico's decision to support the U. S.

Operator

In its economic growth. We were very Fortunate in the past to invest in our Tagung plant. It was there to produce large structural profiles because Mexico used to import from Spain and Korea. So now this mill is reaching its maximum capacity. So aside from these Mexico things, all this reshoring and all of if this discussion was not in place, we would, none at delivering strong results in Mexico, reaping benefits from our growing capacity and also serving the local market.

Operator

But right now, we always get additional results from 2 plants we have. We have one that produces rebars and also another one that produce commercial profiles. We are benefiting from this interesting moment of the U. S. Economy, and our results are outstanding in these two lines of products.

Operator

Perfect. Thank you again. Perfect.

Speaker 1

Thank you. A question from Vanessa Quiroga, Sell side analysts with Credit Suisse. What is the margin dynamics in North America and Brazil? What about the future? And the second question is how many inventory days for scrap and other raw materials does Gerdau owned in North America and in Brazil.

Speaker 1

I'll also answer it with Jean Paul. Margins, like I said before, Naturally, they will be a little bit up or down, but let us wait what happens in the second and third quarter. I think the dynamics for results It will be similar to what we currently have. In Brazil, we want to have a capacity to recover margins in rebars. Let's see how it goes.

Speaker 1

And in the U. S, things are very sound, maybe some volatility, expansion of spread depending on the scrap dynamics. But overall speaking, When you think about the 2nd and third quarters, we expect to see similar dynamics that brought us these results in the 3rd Q1. Jean Claude, anything to add? Hello.

Speaker 1

We won't get into details for scrap because This is very strategic and sensitive information for us. But about finished goods, we do everything we can to make [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Sure that we deliver everything we manufacture. And we highlight that for many quarters, Our use rate is very high. So we've been manufacturing a lot what we We believe that we managed to sell. Our current inventory coverage is slightly lower than our order book, maybe 60 days like Gustavo said for order book.

Speaker 1

But for finished goods, our shipment is slightly lower. As a reminder and thinking about a previous analyst question. In the U. S, we don't use FIFO nor IFO. We use average cost.

Speaker 1

So we cannot set that this is higher or lower. It will always be the average scrap and maybe connected to the Turkish dynamics [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So the Ramadan influence in the Middle East, we have a low pressure for scrap And also lowered inventory costs in North America. Gustavo, anything else to add? No, I think this is within what we can share. Thank you.

Speaker 1

And Vanessa, thank you for your question as well. Alex Falke with Citi, sales side analysts. He has two questions. First question is what about the backlog in the U. S.

Speaker 1

In North America compared to the same period of last year? The second question, he wants to know if we consider any opportunities of reinvestment in the U. S. Market considering the positive scenario. Most of the CapEx is currently coming to Brazil.

Speaker 1

Now I give the floor back to you. Alex, thank you for the question. The backlog is pretty stable, pretty flat. Overall speaking, it was in a certain level pre pandemic And post pandemic, in late 2020 early 2021, it reached a peak and went slightly down, but it's pretty stable for some months now. Levels are above what we saw even in good months and good pre pandemic periods.

Speaker 1

So they have proved to be very solid and consistent In the latest months, no signs or reduction or problems in the backlog. So it is in pre pandemic levels and some peaks, but lower than what we saw in 2020 2022. 5 or 6 years ago, I used to say to talk about this gap in performance and cost vis a vis our peers in North America. And ever since then, we started to have A very consistent CapEx investment plan in North America. We understood it wouldn't be worth worthy with a greenfield operation, but update our IT in the plants and additional capacity, and it has turned out to be our strategy.

Speaker 1

So the investment level that we have in the U. S. Has proved to be enough to deliver very adequate performance, and we imagine this will still happen in the coming years. When it comes to investment decision, the last movement was our Midlothian in Texas. And we are just considering if new investments might bring interesting return For existing operations, when it comes to cost and productivity, we consider the current level is more than adequate to bring to our Next question, Carlos De Alba, sales side with Morgan Stanley.

Speaker 1

He thank you for the presentation and asked two questions. Our cost expectations and working capital for the Q2 of 2023. The second question is What is going on with steel prices in the domestic market? And what about our efforts for price increase? Hello, Carlos.

Speaker 1

Well, we are not happy yet with our cash conversion cycle. We consider there is room for a further reduction in our financial aspects. And we've been having some moves This quarter, for instance, a migration in our inventory into our customer account. So this is a good sign that we have conditions and elements to pursue a reduction in our overall working capital level for future quarters, ideally something around 60 to 70 days closer to what we consider to be adequate to our level of industry today. And if everything turns out fine, well, this is not a guidance, but we are working in this direction for better results.

Speaker 1

When it comes to cost, it will largely depend on our operating leverage volume. Our fixed cost in the North America BD fluctuates with no depreciation between 20% 23% of our cost. So there is a significant cost share in VRL or U. S. Dollars per ton of products sold that largely depend on the operating leverage.

Speaker 1

We understand that if we maintain the current production levels that we see particularly in this quarter or maybe except for Q4, we may have conditions to pursue more competitive costs. As for price dynamics, Bryce, like I said before, I think the Most significant concern about profitability in Brazil and particularly in civil construction and rebar and byproducts, There was a significant concern by the end of last year. We had the World Cup, seasonality and concern about elections in Brazil. So at that time, competitive dynamics was different compared to what we usually see. At that time, we tried to maintain profitability.

Speaker 1

But as for moves in the market, These moves made margins go down dramatically and now we have a recovery process. It's always faster to go down than recovering. So this was the major problem Last year, atypical months, things that we hadn't seen in the competitive scenario and now recovery has been going on for some months. Like I told Thiago before, let's see how agile we will be to recover these margins, particularly for rebar. For other products in general, I don't think there was a dramatic change or concern when it comes to profitability compared to the competitive scenario in Brazil for a while.

Operator

Thank you, Berenaki. Our next question comes from Rodolfo Angele, sell side analyst from JPMorgan. He would like to open his camera to ask the question live. Good afternoon. Okay.

Operator

We already talked a lot about short term quarters. Now I have my question is more going towards the future. I mean, Today, the company is very different from the day when you took over Gustavo. We are looking at earnings, but Certainly, the company is much bigger today when compared to what it was pre pandemic period. Your balance sheet is almost free of debt.

Operator

Now looking ahead, When you sit and talk to the controlling agents looking towards the next 5 years, Are you leaning more towards, let's say, the 5 coming years would be more inclined towards paying more dividends to shareholders? Or your growth agenda is going to be the main topic of debate. We know everything about CapEx. We know that you have some one off opportunities to invest in certain areas. But thinking in terms or thinking more in strategic terms, do you think that you would be leaning towards more growth?

Operator

Or you would rather focus on increasing your payout to your shareholders. Well, all of these are always subjects for good debate. I remember that you had the opportunity to talk to Faraku that for a long time led our operation in Brazil. He is probably also joining us today. He gave us an important contribution to our BD Brazil.

Operator

He had a beautiful history in Gerdau. He knows the business very well. And certainly, the fact that now Faraku is our strategic head, He is almost leading the company in terms of these debates. But we have our feet on the ground. We want to grow, but more in niches.

Operator

We want to grow our profitability. Therefore, what we are doing is We are just learning from our past history. We are learning from our mistakes and from all of the things we did right. And our ears are more open because we want to hear the opinion of those who want to contribute to us. There are very few companies with a track record like ours.

Operator

We really like when we can surf In a moment of stability, we like to return value to our shareholders because they've been with us for the long run. A growing agenda is normal, but we want to benefit from the platforms that we already have and ways of adding more value. I mean, we have to use our capacity to add more added value. All of that is translated to growth. But we want to grow in products that can serve the domestic market, adding more value to our customers.

Operator

Next is just that, a very down to earth company. We are investing close to our core business, looking for synergies and logistics synergies. We I'm really pleased with this moment of peace. But also, whenever we talk to the Board, we are also pursuing a growth agenda, but different from what we had in the past. I think the learnings we had is here to stay.

Operator

I mean, it will not disappear. Maybe one day we can sit with you and just draw up a specific agenda. But All in all, we want to extend that tranquility period for longer. We want to invest with our feet on the ground with more assertiveness because this will certainly bring good returns to company and to our stakeholders. So in general, this is what I had to say just to answer your question.

Operator

Very good. Thank you. Thank you for mentioning that topic. Well, In view of everybody's agenda and time concerns, we will end the Q and A session. Questions that have not The answer will be certainly answered by our IR team right after the call.

Operator

Well, in terms of my final remarks, I will start with great thanks. As I said at the beginning, this was a very challenging quarter, But I really enjoy all of the interactions that we have with you. We always learn a lot. Our we are all ears, and we are very attentive to all of the opportunities that arise from all sides. The environment is very challenging, but it's amazing to see so many opportunities in house.

Operator

We are putting our focus on our performance, details, SG and A. We also have great focus on the customer and how we can add more value to our customers. So this has been a challenging quarter. But again, I would like to thank you all very much because you've always been close to us looking at our results. And I would like to invite you again to join us once again in our next earnings release call on August 9, when we will discuss the results for the Q2 of this year.

Operator

So I hope to see you soon. I wish you all the best.

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Earnings Conference Call
Gerdau Q1 2023
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