Good afternoon, everyone, and welcome to Investor Relations and our Presentation for the Third Quarter of 2023. My name is Renata, Head of Investor Relations.

And participating in our video conference today are the CEO of Gerdau, Gustavo Werneck; and the CFO, Rafael Japur. We would like to inform you that this video conference is being recorded and will be available on the company's IR website, ir.gerdau.com, where the complete material of the earnings release is available.

You can also download the presentation using the chat icon. We would like to remind you that the broadcast of this video conference is being done with simultaneous translation through the tool available in the platform.

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 of you listening to the video conference in English, there is an option to mute your original audio in Portuguese by clicking on mute original audio.

During the company's presentation, all participants will have their microphones disabled. Following the presentation, we will begin the Q&A session.

Analysts and investors can send their questions in advance via chat and can open their camera if they prefer during the Q&A session. We wish to emphasize that the information contained in this presentation and any other statements that may be made during the 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.

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.

Investors should understand that general economic conditions, market conditions, and other operating factors may differ substantially from those expressed in such forward-looking statements. I would now turn the floor to Gustavo Werneck to initiate the presentation.

Please, sir, you may proceed.

Hello, everyone. I hope you are well and thank you very much for the opportunity to meet again during our video conference to announce Gerdau's results for the third quarter of 2023.

I am joined by our CFO, Rafael Japur, and it's always a pleasure for both of us to talk to you about our performance and also to clarify any points that may arise during our presentation. I will start by talking about the macro business environment, the highlights of the overall results, and then I will detail the performance of our business operations in the quarter.

Next, Japur will then share some information about our financial performance. And finally, I will highlight a few points from our ESG agenda.

We will make a shorter initial presentation so that at the end, we will have more time to talk to you about the points that you want to elaborate in more detail. On the second slide, I would like to point out that we ended the first nine months of the year with an accident frequency rate of 0.69.

This result is below the rate of 0.76 recorded in the consolidated figures for 2022, which represents the lowest rate ever recorded in our annual historical series. This performance renews our commitment to the health and safety of all of our people.

At Gerdau, safety always comes first, since no result is more important than people's lives. Moving on to the next two slides, I would like to point out that the macro environment in which Gerdau operates impacted our shipments of steel in the third quarter.

Issues like global inflation, high interest rates, military conflicts, and weaknesses in the Chinese domestic economy contributed significantly to the slowdown in the level of activity in the markets where we operate. In turn, the Brazilian market was strongly affected by an excessive influx of imported steel mainly from China, a movement that continues to occur in this fourth quarter and which requires urgent corrective measures on the part of the federal government, which I will elaborate further on.

Moving on to Slide 5, I will talk about the highlights of each of our business operations and the outlook for the coming months. For the North American market, after the strong growth recorded in the first few months of the year, we can already see a slowdown in demand, which is still at healthy levels, also due to the seasonality of the fourth quarter and aim at an increase in imports, high interest rates, and the inflationary context.

Our order book in the U.S. remains stable at a high level of 60 days, and we continue to work on initiatives focused on cost control and operating efficiency, which allows us to maintain our profitability levels above the other local players.

We are optimistic about the long-term scenario since the recent measures taken by the U.S. Government, such as the Inflation Reduction Act (IRA) and the reshoring movement will still have a positive effect on the market in the coming periods, as well as investments linked to infrastructure package.

I emphasize that the North America BD is well positioned with its product portfolio and also prepared to continue meeting the future needs of our customers and sharing value with local stakeholders. Now moving to the next slide, I will now talk about our special steel business operation.

The automotive market in the U.S. continues to perform well, with the production of light and heavy vehicles reaching 15,332,000 units respectively, still below historical levels.

In addition, the oil and gas segment remains resilient, with rig counts stable when compared to the previous period. In turn, the outlook for the special steel market in Brazil continues to be influenced by uncertainties linked to access to credit lines and high interest rates, which contribute to restricting demand for vehicles.

The National Association of Vehicles Manufacturers, ANFAVEA, has even revised downwards its projections for the sector this year. Light vehicle production is expected to grow by only 3.2%, while heavy vehicle production is expected to fall by 34.2%, the latter also impacted by the changing truck technology to Euro 6.

Production of agricultural machinery is also forecast to fall by 16% year-on-year in 2023. Despite the production of a record harvest and the increase in resources via the harvest plan, the late introduction of the plan and the devaluation of commodities on the international market have had a negative impact on the sector's performance.

Moving on to the next slide, I will now talk about the long and flat steel scenario in Brazil, whose performance in the third quarter reflects a slowdown in demand for steel, but mainly the excessive influx of imports into the country, which has negatively affected the sector. Between January and September, steel imports grew by 57.9% compared to the same period in 2022, totaling 3.7 million tonnes.

In September, the penetration rate in Brazil reached 23%, according to the Brazil Steel Institute. For 2023 as a whole, the Brazilian steel market is expected to post an all-time record volume of around 5 million tonnes, with products from countries like China, Russia, South Korea and Turkey.

I would remind you that the largest volume of imports ever recorded in the country was in 2010 with 4.4 million tonnes, at a time when Brazil's GDP was growing by around 7%. I would point out that if we take into account also indirect steel imports, the volume of imported materials entering Brazil is equivalent to the capacity of two large integrated mills.

Competition with Asian steel is unfair under normal market practices, since the prices charged are lower than production costs. With this backdrop, since half of this volume of imported product comes from China, which exports with unfair and predatory trade practices, it is urgent for the federal government to temporarily raise import tariffs to 25% in the short term, in order to ensure the sustainability and competitiveness of the national steel sector, similar to moves already made in regions like Europe, the United States and Mexico.

The steel sector in Brazil employs three million people, including direct, indirect and ancillary jobs and the significant portion of these jobs are at an imminent risk in the face of this challenging short-term scenario. If prolonged, the situation will also accelerate the deindustrialization of the country, which is already underway, and threatens the investments planned by the steel sector for the coming years.

Now let's move to the next slide, where I start speaking about Argentina, where steel demand remains stable in the third quarter, driven by the construction, mining and energy sectors. Inflationary pressure, restrictions on imports and the presidential elections remain points of attention for the performance of the local market in the coming quarters.

Uruguay's scenario remains positive, reflecting good levels of steel consumption, particularly in the agribusiness sector, and also due to public and private investments. In Peru, El Niño weather issues continue to have an impact on the domestic market, particularly in the construction sector.

I will now hand over to Japur, and then I will be back to talk about our ESG journey and to answer your questions.

Thank you, Gustavo. Hello, everyone.

It's always a great pleasure to be here with you once again for our results presentation. Starting with Slide 11, we have some of the financial highlights of the period, showing that the slowdown in global demand and the excessive penetration of imported steel in Brazil will let the company to report lower results when compared to those posted in previous quarters.

But still very robust results when we look at our historical numbers and our 122 years of history. If we were to conclude the year of 2023 today with nine months to date, these nine months alone would be equivalent to the third best year in the company's year.

This shows how strong our results are both today and also in terms of our historical numbers. Moving now to Slide 12, I will talk about our cash flow and the company's working capital.

We ended the quarter with working capital of R$15.8 billion, 4% lower than the previous quarter due to lower inventory levels. I would like to mention that this is now the fourth consecutive quarter of reduction in our inventory levels.

Our cash conversion cycle still remains high due to a decline in net sales during this past period. Therefore, we believe that there is room for further release of working capital in the coming quarters.

Now, moving on to the right hand side of the slide, we will talk about our cash flow. Gerdau generated this quarter R$2.246 billion of free cash flow in the quarter, our adjusted EBITDA stood at R$3.349 billion with a margin of approximately 20%.

We had a working capital release of R$501 million, which compensated for the slightly lower result when compared to the second quarter. We invested R$1.486 billion in CapEx in line with our guidance of R$5 billion for 2023.

In the next slide, we will talk about our liquidity and debt. We continue to have an excellent level of leverage with a net debt over EBITDA ratio of 0.34x.

We ended September with gross debt of R$11.478 billion below our limit of R$12 billion set by our policy, despite a U.S. dollar rate 4% higher than in the previous quarter.

On the right hand side of the page, we show a breakdown of our liquidity and our debt amortization schedule. Considering the cash position of R$6 billion added to our revolver line of US$875 million, equivalent to approximately R$4.5 million, which is fully available and absolutely undrawn, this adds up to more than R$10 billion of liquidity available for the company.

We strongly believe that the maintenance of a deleveraged balance sheet with maturity dates well distributed over time is critical to allow us to make the investments required to develop and enhance our operations, even in more challenging times, which are so common in an industry that is cyclical and capital intensive. Moving on to Slide 14, let's talk about return to our shareholders.

As you can see in the chart on the left, our dividend payout remains above the targeted minimum of 30% set by our policy, even in the midst of a more challenging scenario, reaching a payout of 58% for Gerdau in the quarter. Last week, we concluded the company's buyback program.

We performed a significant share of the program, buying 45 million preferred shares of Gerdau S.A. and 48 million preferred shares of Metalurgica Gerdau.

Both Gerdau and Metalurgica Gerdau will assess the potential for new share buyback programs in a timely manner. Lastly, thanks to the results delivered and our cash position and liquidity this quarter, the company decided to pay dividends, both at Gerdau S.A.

and Metalurgica. Dividends will be paid on December 13 and 14, respectively.

Gerdau S.A. will pay R$0.47 per share, equivalent to a total of approximately R$822 million whereas Metalurgica Gerdau will pay R$0.93 per share, totaling R$960 million.

Both cases will take into account the position of the shares held on November 17, 2023. Finally, on Slide 15, we give you an update on our progress in the company's strategic CapEx.

Of the R$11.900 billion to be invested between 2021 and 2026, approximately one-third has already been disbursed by third quarter 2023. EMR mainly for investments in the rolling mill and melt shop in the North America operation, in the casting and finishing capacities in the specialty steel operation, and naturally, needless to say, important investments in our operation in Brazil.

Here we highlight investments in mining and processing of iron ore, and the expansion of the coiled hot rolled rolling mill in Ouro Branco, displayed in the cover of this quarter's presentation, showing a little bit of our progress and the status of the construction works. Guys, thank you very much.

I'll give the floor back to Gustavo, who will talk about some ESG initiatives, and I'll come back at the end for the Q&A section.

Thank you, Japur. On the next slide, I'll dive deeper into our investments in renewable energy.

Gerdau holds a 33.33% stake in Newave Energia. This company, through its new business division, Gerdau Next, concluded the acquisition of the Arinos Solar farm in Minas Gerais from the Voltalia Group.

The transaction is another important step in the company's strategy of expanding the generation of clean, renewable energy, seeking greater competitiveness and sustainability in its operations. The future project, to be completed by the end of 2024, will have a total investment in construction of around R$1.4 billion.

The new solar energy cluster will have an installed generation capacity of approximately 420 megawatts and will include a power substation. I highlight that the photovoltaic capacity installed at the plant is equivalent to 7% of Gerdau's annual energy consumption in the country based on 2022 production and provides for an estimated reduction of up to 22,000 tonnes of CO2 per year.

Once fully operational, 30% of the renewable energy produced at the Arinos Solar farm will be used to manufacture Gerdau Steel in Brazil, in the self-production mode. This volume of energy accounts for approximately 34 megawatts, equivalent to the use of a steel plant with an annual capacity of approximately 400,000 tonnes.

Finally, I would like to point out that for the second year in a row, Gerdau won the 14th edition of the Steelie Awards 2023 in the Excellence in Communication category. The award ceremony, organized by the World Steel Association, is the greatest in the global steel industry and acknowledges the contributions of its member companies.

We won the award of a brand case study that tells the story of our partnership with Rock in Rio Brazil 2022, whose main forum, the World Stage, was built with over 200 tonnes of 100% recyclable Gerdau steel. The initiative also shows our journey to transform the image and the global reputation of the steel sector.

Well, thank you all for listening to our comments. From now on, we'll be available to answer questions and dive deeper into subjects of interest to you.

Thank you, thank you all. So now we will open the Q&A session.

As a reminder, if you want to ask questions, please click on the Q&A icon at the bottom of your screen and type your question to be on the queue. When you are announced, there will be a request to unmute.

At this time, please unmute so you can ask your question. Should you need to open your cameras, please let us know so we can enable your camera.

We kindly ask you to ask all your questions at once. Let's move on to the first question via the Q&A icon.

The question comes from Edgard Pinto de Souza, sell-side analyst from Itaú BBA.

My first question refers to capital allocation. We saw the dividend payout from GOAU above Gerdau with yield of almost 9% in the quarter versus 2% in GGBR.

Looking forward, I mean, looking towards the future, could we expect that the GOAU's dividend payout should be at a higher level when compared to Gerdau's giving the balance sheet position of the holding? The second question is, in relation to the U.S.

results, the margin remained very sound, very close to 25% in the quarter. What is the margin level that Gerdau has in mind for the 2024 budget?

What do you expect in terms of shipments for the region? Thank you.

I'll turn it out the floor to Gustavo and Japur.

Hi, Edgard. In terms of Gerdau's and Metalurgica's dividend payout, I would like to remind you that Metalurgica Gerdau in the third quarter of last year, Gerdau S.A.

had a dividend payout way above the other quarters, R$3.6 billion. And back then, Metalurgica Gerdau paid out R$663 million, meaning that it retained an important amount of the dividends in its cash throughout the year and throughout the quarters taking into account the macroeconomic landscape and the potential tax reforms and the current interest levels, we look at the situation and now routinely we allocate capital.

And at the time, we thought that it was good to pay out an important part of our dividends, which will now be paid in the third quarter. In terms of the future perspectives, as Metalurgica Gerdau has one single asset, which are Gerdau S.A.'

s shares, we don't think that there is a lot of room in the long run for Metalurgica to pay out dividends above the levels of Gerdau S.A. Of course, it still has a good amount of cash.

It is not distributing all of it, but this is not something that there will be very freaking throughout the years. And now Gustavo will talk about the outlook going forward.

Hi, Edgard. It's a pleasure to talk to you.

In relation to our North America operation, we remain very optimistic because we will still experience a very sound business environment in 2024. Our North America BD involves also Mexico, the U.S.

and Canada, and more specifically in the U.S. When we look at the business environment, not only now at the end of 2023, but also 2024 and going forward, we look at the scenario in a very positive way.

At the moment, we are seeing a slight slowdown in our order backlog. I think this is something I've been mentioning in other quarters, but it's according to expected.

Our backlog remains sound. Spread is still at high levels.

We haven't yet used all of the incentive packages in terms of steel consumption provided by the federal government. Infrastructure packages have been a cause of constant review and our order number will increase.

Our Mexico operation, as I said before, is demonstrating very good performance. This, I mean, reshoring and nearshoring are now being translated into a higher demand for steel in Mexico.

We are also working with our operations in Mexico with rebars and profiles with good penetration. So therefore, North America right now, it is not in our -- it's not part of our concern.

We remain with a very strong operation in that geography.

Thank you, Gustavo.

Our next question comes from Leonardo Correa, sell-side analyst from BTG Pactual. Please allow him to use his camera.

Hi, guys. Can you hear me?

Yes, Leo. We can hear and see you very well.

Hello, Werneck, Japur and Renata. My first question.

Well, I'm sorry for being so insistent, but given that this is a hot subject, I will go back to the capital allocation in leverage levels. In terms of Metalurgica Gerdau, I think this is pretty much in line with what we had in mind.

There is an extraordinary cash in the company that was distributed. I mean, you had an excessive cash and could be distributed in the form of extraordinary payout.

In terms of GGB, we had the feeling, we had the impression that the company's leverage would be around R$6 billion or R$7 billion, I mean, net debt, which would give about R$12 billion of gross debt and about R$6 billion of cash. Therefore, we thought about R$6 billion to R$7 billion.

And maybe you could calibrate dividends according to that target. Now, this quarter, you announced an additional deleveraging, and your net debt remained at R$5.5 billion.

And this was like a negative surprise of the dividends paid by GGB, which was 50% below what we thought it would be. So, I would just like to hear from you, what led you to make such a conservative decision in terms of dividend payout?

And a lot of people are asking, I mean, given the fact that there is no M&A in that calculation and your CapEx, it's quite predictable and very well outlined by you. You even said that in your stakeholder day.

The only thing that I can think is that you've been very cautious in terms of the current landscape, and in a way, the current landscape is bad. But I would just like to learn more about your decision-making process and why you decided to be more conservative.

Has there been any changes in your target? And I think this has been the main focal point in terms of the analysts in general.

The second point, Werneck, I think the message of the company has been very clear in terms of all of this incredible, I mean, this excessive volume of imported steel and the deceleration that we are seeing in many chains. Looking at the Brazil results in the margin of Brazil, I think that this is one of the main points of attention for the company.

And that's why, I mean, that also includes increasing tariffs and profitability. If I look at the past 10 to 15 years, Brazil's profitability is at Dilma's level, I mean, recession level.

So, what do you have that you could utilize to somehow resume profitability in Brazil or go back to your profitability levels in Brazil? Do you have any measures related to cost reduction?

Or is there anything that you can tell us that you've been doing to somehow on the micro side somehow you could try to compensate for this more challenging landscape?

Well, thank you, Leo. Thank you for all of your comments and questions.

I mean, Japur, answer the part on dividends and then I will talk a little bit about the Brazil side.

I think your second question, it's quite timely and that gives me the opportunity to tell you something about your first question. I mean, we are a Brazilian company that pays dividends in Brazil and, therefore, this depends on our capacity to generate cash denominated in BRLs to pay the dividends.

But when we see moments like the one today, whereas our Brazilian operation is performing, I mean, in addition to everything that is happening with so -- with a large volume of imported products and our investment portfolio in terms of CapEx comes from Brazil, I mean, R$9 billion of CapEx. So, this is a very important amount for our Brazil operation.

But we depend on bringing money from the U.S. or maybe from other subsidiaries of the company to pay out dividends, but this is not necessarily good for financial and tax reasons.

Well, certainly, we should highlight that the year is not over yet. We still have another quarter and so we have room to revisit and rediscuss the dividend payout for the coming quarters.

But today, taking into account the current perspective in the Brazilian market with this excessive amount of imported goods, I mean, 23% penetration of imported materials in September and we do not see any going trend of this number coming down. And we have an important portfolio of projects, but yet a lot of uncertainty is related to the Brazilian economy, because the apparent consumption for domestic goods, I mean, is uncertain.

That's why we are more cautious in terms of paying dividends, starting in Brazil.

But now, Leo, let me tell you a little bit about Brazil. We are still very quick in adapting to the current scenarios.

Our capacity to deliver good profitability and proof of what I'm saying is our special steel operations. When you look at the results, despite a very complex landscape, as you put it yourself, in Brazil with the decline in the demand for light and heavy vehicles, despite all that, we were able to quickly adjust our fixed cost in our steel operations and adjust that to the current moment of our business.

This is just a message that indicates that we are still very alert and very quick to prepare the company to navigate in different scenarios. In terms of flat and long steels operation, that was a bit different because in the past few months, we thought that we could find opportunities to continue to export from Brazil.

And that we thought that we would have the penetration of imported steel coming from Asia, especially from China, much lower than in fact, the reality showed. And in the past few weeks, we went to China and we came out of that country very convinced that this current export level will continue in the next coming months.

After almost 13 years, we may see again a high level of Asian exports, absolutely high. I think there will be 100 million exports coming from China and they're looking -- so we're looking for geographies and countries that have not yet adopted measures to contain all of this subsidized steel that comes into the country in a very unfair and predatory way.

We've been -- well, given that, we are now trying to remove capacity to reduce fixed costs as we did with special steels. Because it's important that we can navigate in a scenario that will still be prevalent in the next coming months.

So, in addition to the reduction in fixed costs and the removal of capacity, I mean, it's important that the federal government comes up with measures that can bring more competitive field. This is affecting the entire steel industry in Brazil and we have to fight that predatory import very quickly.

We've been talking about this tariff of 25% and this will come as a means to level the playing field in terms of competitiveness. We said for -- in several occasions that our competitiveness is quite high.

We compete on equal footing with any large steel producer, but we see the penetration of steel that comes to Brazil at a cost that is lower than the production cost. This really indicates unfair competition.

We've been constantly talking to people at the federal government and what we see is that they are now being convinced that something has to be done. We are already removing capacity from our operations in Ceara and Rio Grande do Sul and unfortunately, in the last few weeks, we had to let go almost 700 direct workers.

And in terms of wealth generation in Brazil, this is a very complex issue. Therefore, something has to be done and it has to be done urgently.

It's important that competition goes back to something fair in Brazil. So, this is our claim today.

In addition to that, we are reducing capacity. We are making some strides towards reducing our fixed costs because it's important that we recover our domestic market levels.

In terms of exports, we see that the market is closed to us right now. I know that 22% of our installed capacity in Brazil has been traditionally vocation for exports, but with this flood of Chinese steel, we don't see any opportunities to export at margins that will be attractive to us.

Therefore, this is bad for the consolidated margins that we've had in our Brazil operations. But I know that this was a very detailed answer, but it was just to explain to you that in fact, this unprecedented flood of imported products from China is bringing about serious problems to the entire steel market in Brazil.

Well, Gustavo, talking about imports, when we look at the traditional prices from March to now, there was a drop between 5% and 7%. On the other hand, negatively speaking about our exports from Brazil, our exchange rate from March to now, and it changed, I mean, there was the appreciation of the Brazilian BRL.

So, there was a gap between 10% to 15% of competitive -- competition losses. So, after this flood of steel coming from China, and also, in view of the exchange rate, it's very difficult to be competitive and to generate cash and have good results, if you think about exports from Brazil.

That was great. Thank you, Japur.

Thank you very much.

Thank you, Leo, for joining us today. Next question, Lucas Laghi, sell-side analyst with XP.

Lucas, please you can ask your question live and enable your camera.

Good afternoon. Can you hear me now?

Hi, Lucas. We can hear you very well.

Thank you, Werneck. I was just connecting.

Good afternoon everyone. Thank you for taking my question.

I have two questions that I'd like to dive deeper with you. First, a follow-up question on the previous one.

It's about the Brazil operation, particularly about profitability. There was a slight contraction on a quarterly basis.

If we think about lower prices on Q3 compared to Q2, Werneck already mentioned the imports of Chinese and Asian steel in Brazil. So, I'd like to better understand, if we think about Q4, still about cost, but particularly variable cost, particularly when it comes to coal and iron ore price dynamics and the timing vis-à-vis how these components are accounted for as cost over fourth quarter and first quarter 2024.

I know there is a time dismatch, but it would be important to know the cost dynamics could, by the end of the day, be beneficial in a contest of lower prices with these challenges in Brazil. It can also have an impact for not only flat, but also long steel.

Second question is about specialty steel. Could you give us an update about the impacts created by strikes in the automotive sector in the U.S.?

One month and ten days already. So, I'd like to better understand what you see as impacts.

And also take into account high, about light and heavy in the U.S., maybe the impact of the strikes. So, it would be nice to have an update about the impacts for Q4 when it comes to strike in the specialty steel operation.

So, these are my two points.

Thank you, Lucas. Thank you for being with us.

Japur is also going to help me answer the question.

Yes, maybe I can talk about Brazil BO and also coal and iron ore. So, breaking down your question, Lucas, let's talk about Brazil first.

It's important to remember in our cost structure, typically in the Brazil operation, we have 25%to 28% of fixed costs and the rest is variable costs. In times like now, when we have a predatory invasion of important material, shifting our sales, domestic sales, apparent sales, sometimes we lose the operational leverage this quarter.

When it comes to variable costs that we expect to see in Q4, coal, as you mentioned well, has a very specific lead time. Between the time we check the price on the screen of this coal and until it converts into results, it takes around 180 days.

Oftentimes, it makes it very challenging for us to set the impacts, because we don't work with FIFO, but with average costs. So, price dynamics is hard to follow-up very sharply.

But today, as we can see in the international market, we have a hike of coal prices, maybe reverting in the low that we saw between the first and second quarters. In the third and fourth quarter, owing to this excess production in China, we could have higher pressure on international coal prices.

We imagine this might have an impact early next year on our variable costs.

Lucas, when it comes to our specialty steel operations, like I said before, our capacity was very fast to be adapted to new demand levels, particularly in Brazil. If we check on five year's figures, a drop was expected, particularly in heavy vehicle production, pretty much driven by current market conditions and also advanced purchases related to the technology of Euro 6.

Current levels of profitability are evidence of our fast adaptation. In North America, slightly different from here, the market was following at a very stable level of demand, both for light and heavy vehicles.

We began to suffer, as of November this month, the impact of the strike that Lucas mentioned, the strike that has been going on right now for five or six weeks, particularly for the six big OEMs in the U.S., it didn't impact our results on Q3, but the extension of the strike may begin to have impacts starting October and November. We are making measures to be promptly adapting in our fixed costs there.

But unlike here, as soon as the strike is over, this demand or orders that were not delivered over the weeks, maybe they can convert into higher deliveries down the road. So it's only a matter of postponing results.

But now, since you asked this question, let me highlight the investments that we've made in our North America BO in recent years. We concluded an investment cycle that is very key, particularly in Monroe, Michigan.

This mill is absolutely state-of-the-art, up-to-date when it comes to specialty steel production, fully ready to meet the needs of hybrid and growing segment of electrical vehicles. So over the coming quarters, not only will we benefit from increased demand in North America and the sound and solid market, but also higher competition in our operation in North America.

Our plan is state-of-the-art, like I said, and the cost level is lower compared to what we saw in the last two years.

It's clear Werneck and Japur. Thank you.

Good afternoon to everyone. Thank you, Lucas.

All the best.

Next question, Gabriel Simoes, sell-side analyst with Goldman Sachs. Please, Gabriel.

You can ask your question and open your camera.

Hello. Good afternoon.

Thank you for taking my questions. I have two questions.

First question is about your CapEx. You gave us more details in Investor Day and Japur also made brief comments for CapEx for the coming years?

So considering the CapEx below what we expected this quarter, considering this scenario where we have normal EBITDA slightly lower than we saw in previous years, I would like to understand if it still makes sense in our mindset, this CapEx close to R$6 billion per year or if there is any chance of a slightly lower CapEx down the road? We'd like to understand how much of the CapEx you mentioned is already in and how much room for the future?

Second question is about working capital. There was a good reduction this quarter, but still lower compared to what we expected.

So could you give us more color about this? Japur already mentioned you expect to see a drop in Q4.

I know it's complicated, but we'd like to have an order of magnitude expectations for the future. Does it make sense to have the same level of working capital as historical levels around 80 days?

Just to understand what you work in-house and also the drivers to bring working capital back to this lower level. Thank you.

Thank you, Gabriel. Just allow me to talk about normal results that you said and then Japur is going to answer your questions.

We've been discussing over the last quarters, maybe normal results is an expression that no longer fits in geopolitical and economic status today. Volatility has been even higher today.

As a reminder, despite these reduced results that we saw along 2022, the company is at a different level, a different status to keep on generating very solid results, when we compare to years 2019 and before. So all our efforts in every front, strategy, culture, digital transformation, Gerdau over 2023 and going forward, the level of result generation is way above what we had last year.

So the earnings in 2021 and 2022 were outliers. We reached levels over R$20 billion as generation of results.

But when we consider the results expected for year 2023 and the future, the level of financial results is way above what we had in the past. So we cannot compare this moment of 2023 with what we had prior to 2019.

I just wanted to give you some context. Not mentioning normalization, but we should bear in mind that, this is a very different moment.

Better, the company is more solid and well prepared to tackle these challenges compared to the past. Having said that, I turn it over to Japur, so he can talk about CapEx and also issues related to working capital for the coming quarters.

Hi, Gabriel. Let me begin with CapEx.

We disbursed year-to-date 72% of the guidance that we gave in February, disbursement around R$5 billion, this quarter, R$1.5 billion. We believe we are in a good pace to deliver and perform what we expected early in the year, taking into account the projects that we have.

When it comes to the pace of long-term disbursement, Gustavo highlighted this before, our intention is not to stop and interrupt the projects that we approve and discuss. Our scrutiny at Gerdau in order to approve projects for competition purposes, bringing higher sales, cost reduction and profitability, these projects are very strict.

They go through a number of committees, multidisciplinary committees, involving supplies, engineering, commercial teams, financial teams. So they are exhaustively discussed before being approved and once they are approved, we consider them to be robust.

Sometimes the economic cycle in our business and cash generation may be slightly below what we expected. We believe we should not just invest because it's convenient for us.

It takes capital allocation to unleash value and bring us continuous and perennial business into the future. This is why we understand that even if results are lower, we have no intention to cancel any projects.

There is always room to postpone one initiative or another, but when you think about mature investments that are really driving forces in our capacity to generate value and profitability, we don't expect to postpone or cancel any projects. Moving now to working capital, Gabriel, this quarter more specifically, please note there was an increase in our cash conversion cycles in terms of sales days.

Take into account not only 360 days, but the last 90 days. So this is a little bit more sensitive to fluctuations in our level of revenue.

So we had a negative impact and increased our cash conversion cycle in days despite a reduction in working capital around R$500 million. For the coming quarters, if we take into account what we've seen already in terms of reduction in accounts payable and inventory levels, we expect to continue reducing working capital, trying to go back to normal.

Take into account or assuming we won't have any material changes in sales. Why am I talking about accounts payable and inventories?

Because there is an important difference in our inventory terms close to 70 days or 80 days and our account payable, which is close to 30 days. So what we are decreasing today as accounts payable, there is some mismatch, 30 days or 40 days compared to what will be converted into lower COGS down the road via lower inventory levels.

So when we deliver a recurring reduction of inventory levels and accounts payable, working capital is expected to continue.

Let me add to what Japur said, about CapEx. I would like to highlight something that I recently underscored during the Stakeholders' Day, but it's okay to be redundant.

It's important to mention the importance of our investments in mining, in our Ouro Branco mill. Ouro Branco, for the next 40 years, will turn into an absolutely competitive platform to meet the Brazilian domestic market.

The former Açominas, which is Ouro Branco mill today, was designed at the time to be a platform to produce semi-finished goods. Blocks, slabs, billets, and over the years we've been converting Ouro Branco mill into a very efficient platform to meet the local market with highly added value products.

Investments in mining, therefore, will bring us high quality iron ore, concentrated 70% iron. The mine is just 12 kilometers or 13 kilometers only.

And we have evidence that we have resources and funds for the next 40 years. Our forecast for next year, 2024, is to start up a second phase of our investments in coiled hot-roll strips.

We have a broad network of Comercial Gerdau with plenty of possibilities to meet our customers' needs with this additional capacity and investments for future years, expanding our production of structural profiles and other plans for Ouro Branco so it becomes absolutely competitive. So rest assured, how assertive we are in our investments.

Sustainable mining, no dams, very low environmental impact. So more specifically about this investment in mining and Ouro Branco, that's why I want to highlight it again, understand the possibility in the coming years to benefit of results, big results and profitability of our BO in Brazil stemming from this platform which, like I said, is going to be one of the most effective and competitive steel plants for finished goods in Brazil.

Thank you. Maybe just a brief follow-up about CapEx.

When I mentioned about a slightly lower execution in the mats, the idea was to talk about next. So when we think about R$5 billion, like Japur said, you're very much on track.

The investment in next was slightly lower than expected at first, close to R$100 million over the year when your guidance was R$500 million to R$800 million. So the idea is to understand in this front if we expect to see a slowdown of CapEx, known as CapEx, but this investment in next for the coming quarter and if you maintain the idea at the same level for next year.

Just to give you some concepts, Gabriel, we have no urgency to invest in new business at Gerdau Next. Gerdau Next is a platform of new business.

Some of them, we believe they are not promising, so we quickly remove them from our portfolio and businesses that are becoming more mature or as robust to the future. So our investments in Gerdau Next will be very down to earth.

From the moment we feel more confident that these businesses are growing and bringing adequate results, we'll keep on doing, but we have no urgency to allocate capital in Gerdau Next. We'll be promoting growth of these businesses as we become more confident over the coming years.

So I just wanted to -- well, rest assured at Gerdau Next we have no need, no urgency to invest as we've been doing in other Gerdau Next business, more specifically in Minas Gerais with mining in Ouro Branco, Japur.

Sure, it's so confusing when we think about earnings release and quarterly statements. I was trying to recap exactly the date of our advisory to the market.

On October 10, we released an advisory, a notice to the market about the acquisition part of Newave Energia we hold 33.33% of Arinos Solar farm, and we totaled part of the requirements of our investment agreement with Newave Capital in order to complete the portion of around R$500 million, which will happen over Q4. Like we said in the beginning of the year, between allocations at Gerdau Next, we would consider over 2023 between R$500 million and R$800 million, depending on the conditions of the business.

If we think about inflow for heavy vehicles at Shandong, where we have the commitment to invest R$125 million and now we are concluding this full share of capital, which is already subscribed at Newave Energia amounting to R$500 million.

Perfect. Thank you.

Crystal clear.

Thank you, Gabriel.

Thank you, Gabriel. Our next question from [indiscernible] sell-side analyst from [indiscernible].

He has got two questions for us. The first question, the company should invest R$8.9 million between 2021 and 2026 in initiatives that if I'm not mistaken, should generate an incremental EBITDA of R$4 billion in 2031.

I would like to understand what initiatives should pay more contributions to EBITDA and whether the EBITDA increase is linear or not. My second question refers to exploiting the drop of sales in the domestic market in the third quarter of 2023 versus the general industry using ABR data.

This discrepancy is due to the mix or the commercial strategy of the company. Could we expect a better performance, I mean, better than the industry in the fourth quarter of this year?

Ricardo, thank you for your questions. Let me turn the floor to Japur.

In terms of CapEx, in the presentation during our Stakeholder Day, it became very clear on the left hand side of this slide, we have the CapEx disbursements that total the strategic CapEx for this window of 2021 to 2026. And that involves several initiatives.

The main initiatives that will generate resources refer to investments in our Brazil BD and our sustainable mining operation as we detailed during the presentation. But in that presentation, I'm sure you will find more details and also in our reference form you also have the breakdown per initiative and how much we understand will be our EBITDA contribution throughout the year.

Along the same lines, when we talk about a potential EBITDA that could be generated, this is not something that will happen instantaneously. There is a disclaimer until 2031 as a potential value generation, because even with these investments, there is a ramp up curve.

And that's when we add the volumes of these productive capacity until we can really, you know, release all the potential of all of these initiatives. And then you answer the part about Brazil.

Okay, about Brazil Ricardo, this has to do with the mix it’s just normal that throughout the quarter, there are some variations between the numbers that you look at the ABR numbers and then the numbers that you look when you take a look at our quarterly results. So it is usually a mix.

Also, the apparent steel consumption remains very sound from January to September of 2023 approximately 1% vis-à-vis 2022. But the demand in the domestic market is quite sound when compared to the previous years.

The main issue today, as I said before, already referring to this drop in sales to the domestic market is related to this absurd increase in the penetration of imported steel. When we look at our main market and now, looking at the closing of 2023, and going towards 2024, we remain optimistic that the demand or steel consumption in Brazil will continue to stay at the current levels.

We recently heard something just as an example, that Ministry of the Cities expressed a desire to expand the Minha Casa Minha Vida program to the -- to the middle class. So there are many new orders, especially coming from our cut and bend units.

And there is an expectation that with a reduction in interest rates, the retail market could also resume demand. And the Industrial segment, even though it went through a more difficult half year with the penetration of imported machinery, it's a sector of the economy of the economy that is beginning to react.

Therefore, the apparent demand remains sound. Therefore, I reiterate the importance of the federal government that in the shortest possible time should introduce efficient measures to fight the penetration coming from this unfair import.

We will certainly resume our capacity, we will put new capacities into operation. So in the short run, there is no other effective mechanism for us to resume our shipments to the domestic market.

There is nothing better than the new measures taken by the Brazilian government to fight this predatory flood of imports coming from China. Still speaking about China, I don't know exactly what is your calculation in terms of our market share in different areas, but I am assuming that you are using information from the Brazil Steel Institute, that they publish information, at the end of every month.

And so there are two important aspects here. The first one has to do with what Gustavo said, which is in relation to imports.

Whenever we think about Gerdau’s shipments, vis-à-vis the apparent consumption of steel in Brazil, we went from 11%, 12% penetration last year. And in September, this number went from 11%, to 12% to 23% of imports that penetrated in the country.

So not only Gerdau, but the entire industry is suffering because we saw the influx of import materials coming here at costs below the cost price. The numbers from the Brazil Steel Institute within long steels, we also have other categories, one of them being special steels.

Given the nature of each segment and also giving the different industries like heavy vehicles, and agricultural, machinery has different uses for long steels. And this sometimes makes it difficult for us to understand the actual numbers.

You have to look at the type of product and you have to look at every line in every product to arrive at more precise numbers.

We also received two other questions related to CapEx. Some other questions have been answered, but Igor Guedes, a sell-side analyst Genial, asked the following question.

I would like to understand what level of trust you have in that R$5 billion CapEx guidance and how do you see the dynamics of increasing investments of the company considering a lower EBITDA and less room to generate cash? And Camilla, the sales side analyst from Bradesco also has a question on CapEx and she talks about the R$8.6 billion in CapEx to be invested by 2026, whether we could expect a higher concentration of investments in 2024 or whether it will be something more spread through the years.

Thank you both of you. In terms of that guidance of R$5 billion a year -- R$5 million a year, we think that we will be able to execute all of the disbursements.

We already have a good percentage of the total. Therefore, we still have some room going forward, especially in the fourth quarter, because typically given seasonality in North America and Brazil because of the holidays at the end of the year, we reduce our production activities.

Now, speaking about the strategic CapEx and now uniting both questions, the question from Igor Guedes and Camilla's question, I think both of us, Gustavo and I already talked about our perspective and long-term view for our CapEx investments. And given everything that has been approved by our board, we know that these are not opportunistic investments.

These are all investments that are intrinsically related to our long-term strategic view to ensure the continuity and sustainability of our business. That's why our cash conversion cycle or the cycle of the industry is not so favorable as we experienced in the past few years, but we know that these are investments that are absolutely essential and transformational.

Now, in relation to the pace of the disbursement of that two-thirds that we have yet to execute, considering the total amount of the portfolio by 2026, we understand that it will be prudent for us to phase it out, phase it throughout time, given the pace of every project. In Brazil, we see many engineering companies with difficulties to find people, difficulties to execute some of the investments that were approved in the past few years and also, concerning infrastructure works from previous administrations.

Everything we saw when you look at the supply chain in the past few years, we understand that it is prudent, be it in terms of the financial discipline of our balance sheet and our execution capacity, it would be important to phase it throughout time in a more synchronized way. And certainly, variations either up or down will certainly occur.

I think you already said it all, Japur. I would like to thank Igor and Camilla for their questions.

Camilla already sent us a second question, and she talks about the following thing. Gerdau made a series of divestments in the past.

Considering political uncertainties in some Latin American countries, like Peru and Argentina in particular, would you consider divesting in these regions so that you could turn your focus to the U.S. and Brazil?

Well, Camilla, right now, we extensively reviewed our asset portfolio between 2014, 2015 and 2019. Therefore, we are very pleased with the current assets portfolio that we have.

We understand that we are a much better company today when compared to what we were three to four years ago. Therefore, right now, we are not contemplating any divestments.

Perfect. Gustavo Wang [ph], HSBC analyst.

He asked two questions, but maybe they were already answered. He wants to know about costs in the Brazilian operation, take into account the drop in the quarter, and how could we consider profitability.

He also wants to know about the strike in North America and potential impacts on our results. And if we expect to see an end to this strike, would you like to comment anything else?

Or maybe we can give the floor back to Gustavo. I think it was already addressed.

And Wu Xin [ph], sell-side analyst or buy-side analyst at Triguno [ph] he wants to know about dynamics for scrap prices considering the main markets in the future, U.S. and Brazil.

To some extent, the price of scrap in the main markets where we are, the U.S. and Brazil, prices are stable.

Seasonality appears now in North America with winter time. We know transportation and logistics with scrap is more challenging from November to March, so we might see a slight change in prices owing to seasonality.

It's also important to know that in North America, it's important to see how purchase will happen with Turkey. Turkey's level of export for this conflict area, particularly Israel, this is very high.

Turkey exports around one million tonnes of rebar to Israel per year. So let us see what Turkey's decision will be about this capacity.

If it will keep on buying scrap and producing rebar to export, or if it will lower its production capacity, putting less pressure on scrap in North America. And in Brazil, as we speak, with a lower production capacity, chances are scrap prices will remain stable with a downward trend.

So this is not our most important concern right now. Like Japur said before, especially for coal, which is a significant raw material, we have no control, no manufacturer in Brazil has control over prices.

And we have to be very cautious about the behavior of this raw material in the coming months.

Thank you, Gustavo. For the benefit of time and respecting your agenda, we've been on for one hour and fifteen minutes.

This concludes the Q&A Section. Questions which were not answered during our session will be answered to you.

Our Investor Relations team will talk to you. And now I give the floor back to Gustavo for the final remarks.

Thank you, Renata. So, once again, I want to thank you all for joining us today.

As always, it was a great pleasure talking to you. I would like to invite you to join our next earnings conference call for the fourth quarter of 2023, which will be held on February 21.

So on behalf of Japur, Renata, the whole Gerdau team, thank you very much. All the best and take care.