Business context and reporting period
Gerdau S.A. filed its Form 20-F annual report for the fiscal year ended December 31, 2023. The company is a Brazil-based steel producer operating across Brazil, North America, South America and special steel markets; it also produces iron ore in Brazil. Financial statements are prepared under IFRS as issued by the IASB. This filing reports annual results, not standalone 2023 Q4 results; quarterly figures are not clearly provided in the filing text.
Key financial metrics
Amounts are in Brazilian reais (R$), unless stated otherwise. Consolidated net income includes non-controlling interests.
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | R$68.9 billion | R$82.4 billion | Down 16.4% |
| Gross profit / margin | R$11.3 billion / 16.4% | R$18.8 billion / 22.8% | Margin down 6.4 percentage points |
| Income before financial items and taxes / margin | R$10.5 billion / 15.2% | R$17.8 billion / 21.5% | Down 41.1% |
| Net income / margin | R$7.5 billion / 10.9% | R$11.5 billion / 13.9% | Down 34.3% |
| Net income attributable to parent shareholders | R$7.5 billion | R$11.4 billion | Down from 2022 |
| Net cash from operating activities | R$11.1 billion | R$11.2 billion | Essentially flat |
| Capital expenditure on property, plant and equipment | R$5.2 billion in cash-flow statement; approximately R$5.7 billion in management’s capex discussion | R$4.3 billion | Higher |
- Shipments were 11.3 million tonnes, down 4.9%; crude steel production was 11.6 million tonnes, down from 12.7 million tonnes.
- Cash and cash equivalents plus short-term investments totaled R$5.3 billion, compared with total debt of R$10.9 billion; reported net debt was R$5.5 billion, down from R$7.2 billion.
- Current assets were R$29.2 billion and current liabilities R$11.3 billion at year-end. The cash conversion cycle increased to 87 days from 81 days.
- Total assets were R$74.9 billion and total equity, including non-controlling interests, was R$49.2 billion.
- Gross debt’s weighted average cost was 104.9% of CDI for the real-denominated portion and 5.7% for the U.S.-dollar portion. Average gross debt maturity was 7.2 years. A committed US$875 million revolving credit facility was undrawn.
- The company paid R$2.7 billion in dividends and interest on capital in 2023. The filing reports R$1.51 per share in proposed and paid 2023 distributions, including a fourth-quarter distribution paid in March 2024.
Material changes versus the prior comparable period
- Sales fell 16.4%, reflecting lower selling prices and a 4.9% decline in shipment volumes amid weaker demand and lower commodity prices. Gross margin fell to 16.4% from 22.8%.
- Cost of sales declined 9.5%, supported by lower input prices, including iron ore and scrap, but the reduction did not offset lower sales.
- Operating cash flow remained stable despite lower earnings, aided in part by inventory reduction and lower income-tax payments.
- Net debt declined by R$1.6 billion, while cash and short-term investments together decreased slightly.
- Brazil segment net sales decreased 18.6%; North America decreased 13.6%; South America decreased 28.7%; and Special Steel decreased 16.4%.
- Brazilian steel imports rose 50% to about 5 million tonnes, the highest level since 2010, increasing competitive pressure. Gerdau suspended some workforce contracts for up to five months and laid off approximately 900 employees by year-end.
Outlook, management commentary, risks and unusual items
- Management described 2024 prospects as positive, particularly in the United States, citing infrastructure and industrial-support programs and reshoring. It also cited anticipated recovery in vehicle production, including Brazilian projections of 5% growth in light-vehicle production and 32% in heavy vehicles.
- The 2024 investment plan is R$6.0 billion, including approximately R$1.3 billion expected to produce environmental benefits. A separate sustainable-mining investment program totals R$3.2 billion over 2023–2026; the company reported certified iron-ore reserves of 476 million dry metric tonnes at Miguel Burnier.
- Gerdau targets reducing Scope 1 and 2 emissions intensity from 0.93 to 0.82 tonnes of CO2e per tonne of steel by 2031 and aims for carbon neutrality by 2050. Management cautions that reaching the longer-term goal depends on technologies and other factors outside its control.
- A final tax decision on PIS/COFINS credits for scrap purchases produced a net credit of R$828 million, recognized in 2023; R$1.1 billion of tax credits were recovered in the cash-flow reconciliation. The filing also reports a R$253 million monetary update on tax credits.
- The company agreed to sell its interests in Colombian Diaco and Dominican Republic Gerdau Metaldom for a base price of US$325 million. Both transactions were completed in 2024. The filing classifies R$1.2 billion of these investments as held for sale at year-end 2023.
- Tax, civil and labor provisions totaled R$2.2 billion. Additional possible-loss claims were not provisioned, including substantial tax disputes; management says recorded provisions are adequate but acknowledges outcomes remain uncertain. Environmental liabilities were R$518 million.
- Steel-market cyclicality, excess capacity and imports, raw-material and energy costs, currency and interest-rate movements, trade restrictions, political and economic conditions, climate regulation, operational interruptions and dam-related risks could adversely affect results. The company reported no cybersecurity incidents in 2023, but noted that recovery from a significant incident could take 12 hours to two weeks and that it has no specific cyber insurance.
- Goodwill was R$10.8 billion. No goodwill impairment was recorded, but the filing’s combined sensitivity analysis indicates a potential R$501 million impairment in Brazil under the specified adverse assumptions. Goodwill impairment and deferred-tax-asset recoverability were identified as critical audit matters. The auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Reconcile the filing’s conflicting trend narrative: one passage incorrectly says 2023 net sales were 16.4% higher, while the audited financial statements and operating review show a 16.4% decline.
- Confirm the distinction between R$5.2 billion of property, plant and equipment purchases in the cash-flow statement and management’s approximately R$5.7 billion capex figure.
- Review the 2024 completion accounting, actual proceeds and any gain or loss from the Diaco and Gerdau Metaldom divestments.
- Assess the sensitivity of earnings and cash generation to Brazilian import penetration, steel prices, shipment volumes and scrap, iron-ore and energy costs.
- Monitor the material unprovisioned tax and other claims, the realization assumptions for deferred tax assets, and the Brazil goodwill sensitivity.
- Check progress against the R$6.0 billion 2024 investment plan, the certified-reserve development program and emissions targets, alongside the expected return on capital.