GERDAU S.A. — FY2021 Form 20-F Summary
Reporting period: Year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB. Gerdau produces steel across Brazil, North and South America, and special-steel markets; it also produces iron ore in Brazil. The filing describes scrap recycling as a significant input, with 73% of steel production made from scrap.
Key financial and operating metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | R$78.35 billion | R$43.81 billion |
| Gross profit / gross margin | R$20.82 billion / 26.6% | R$5.93 billion / 13.5% |
| Net income, including non-controlling interests | R$15.56 billion | R$2.39 billion |
| Net income attributable to parent shareholders | R$15.49 billion | R$2.37 billion |
| Net income margin | 19.9% | 5.5% |
| Basic EPS | R$9.09 | R$1.39 |
| Net cash from operating activities | R$12.52 billion | R$6.41 billion |
| Capital expenditure (property, plant and equipment) | R$3.03 billion | R$1.65 billion |
| Cash and cash equivalents | R$4.16 billion | R$4.62 billion |
| Short-term investments | R$2.63 billion | R$3.04 billion |
| Gross debt | R$14.04 billion | R$17.52 billion |
| Net debt, as defined by the company | R$7.25 billion | R$9.86 billion |
| Total assets / total equity | R$73.81 billion / R$42.82 billion | R$63.12 billion / R$31.09 billion |
Shipments rose 11% to 12.72 million tonnes; crude-steel production increased 9% to 13.29 million tonnes. The cash conversion cycle lengthened to 60 days from 49 days, principally as inventories increased to support demand. The filing does not provide a clear consolidated EBITDA value or a standalone Q4 financial-results table.
Changes versus FY2020
- Net sales increased 78.8%, reflecting stronger sales volumes and prices, a global steel-market recovery, and currency translation effects. Sales rose across all reported business segments.
- Gross margin expanded to 26.6% from 13.5%; net income increased 551.5%.
- Cost of sales rose 51.9%, below revenue growth, despite substantial raw-material inflation. Management cited higher iron-ore and scrap prices; the filing reports differing segment-specific increases.
- Operating cash flow nearly doubled. Higher earnings were partly offset by a R$7.70 billion inventory cash outflow and increased receivables.
- Gross debt declined by R$3.48 billion and net debt by R$2.60 billion. Cash and short-term investments together totaled R$6.79 billion at year-end.
Outlook, commentary, risks and unusual items
- Management described the outlook for 2022 as positive for construction in the Americas, citing potential infrastructure activity in Brazil and the United States. The company also cited gradual recovery prospects in automotive markets, subject to semiconductor availability. These are forward-looking statements, not guarantees.
- The company approved a 2022 investment plan of R$4.5 billion, including amounts deferred from 2021; more than R$800 million is expected to support environmental benefits. FY2021 investment was R$3.0 billion versus an announced R$3.5 billion plan, with supply-chain constraints and pandemic conditions cited for the shortfall.
- FY2021 results included a R$1.39 billion gain from recovery of Eletrobras compulsory-loan claims and R$789 million of monetary update on tax credits. These items increased reported earnings and should be considered when assessing earnings quality.
- Key exposures include cyclical steel demand and prices; scrap, iron ore, coal, energy and freight costs; foreign exchange, interest rates and inflation; trade restrictions and competition; and operating, permitting, climate and cybersecurity risks. COVID-19 impacts remain uncertain.
- Brazilian tax, civil and labor proceedings remain material. Certain possible-loss tax claims include substantial goodwill-amortization and other tax disputes; management did not record provisions for claims assessed as possible. The company also disclosed ongoing Brazilian investigations relating to CARF matters and political contributions; it said the SEC had closed its inquiry and that the outcome of Brazilian proceedings could not be predicted.
- Gerdau reported no proven or probable mineral reserves under SEC definitions. Mining activity and related investment therefore carry resource-estimation and economic-recovery risks. Environmental liabilities were R$576 million, up from R$297 million in 2020.
- Auditors issued unqualified opinions on the IFRS financial statements and internal control over financial reporting. KPMG identified goodwill impairment testing, deferred-tax-asset recoverability, and certain tax risks as critical audit matters. PwC was appointed principal accountant for FY2022 after completion of the FY2021 audit.
Important facts for investors to verify
- How much FY2021 earnings and cash generation depend on exceptional Eletrobras and tax-credit items, versus underlying steel operations.
- Whether higher raw-material, energy and logistics costs can be passed through to customers, and how margins respond if steel prices or demand weaken.
- Inventory levels, cash-conversion trends and working-capital needs, alongside the planned R$4.5 billion FY2022 investment program and dividend distributions.
- Debt currency composition, refinancing schedule and liquidity: the filing reports different debt-cost figures in separate sections, so reconcile the stated weighted average cost with the loan-note effective rate.
- Developments and potential exposure in the disclosed Brazilian tax and antitrust proceedings, including the possible-loss claims for which no provision was recorded.
- Progress against environmental obligations and emissions targets, and the status of mining-resource studies given the absence of proven or probable reserves.