Good afternoon, and welcome to Gerdau’s Conference Call to discuss the Results of the Fourth Quarter and Full Year of 2016. At this time, all participants will be in a listen-only mode during the Company's presentation. And after the Company's remark, we will initiate the question-and-answer session. [Operator Instructions] We would like to emphasize that any forward-looking statements that might be made during this conference related to Gerdau's business outlook, projections and financial and operating growth are mere assumptions based on management's expectations related to the future of the Company. Even though Gerdau believe that its comments are based on reasonable assumptions, there is no guarantee that future events will not affect the valuation. Here today are Mr. Andre Gerdau Johannpeter, Director, President, and CEO; and Harley Scardoelli, Executive Finance Vice President. With no further ado, I would like to give the floor to Mr. Andre Gerdau Johannpeter. You may proceed, sir.

Thank you, good afternoon, everyone and welcome to the earnings call to discuss Gerdau's results. We will be doing our analysis with an overview of the world steel industry followed by comments on Gerdau's performance in 2016. Further on, we will elaborate on the investments during the period. It is important to mention that we will analyze the performance of the consolidated results for 2016 and the fourth quarter of 2016. After today's comment, Harley Scardoelli will elaborate on Gerdau's financial performance, and at the end, we will be available to take your questions. For those of you who will follow us on the web, I am on Slide 2 that show world steel landscape, according to the World Steel Association, the world steel production totaled 1.6 billion tons in 2016, up 5.8% vis-a-vis 2015. This growth is mainly driven by an increase in steel production coming from the Middle-East and Asia where higher growth came from India, which posted an increase of 0.2% in the period, and China had an evolution over 1.2% in the period. And the country accounted for 49.6% of the entire production 808 million; however, there was a downturn in steel production in Europe, Americas and Africa. The most significant decrease in Brazil that posted 9.2 reduction in steel production in 2016. Now, if we look at world's installed capacity utilization is stood at 69.3%, very similar to the figures of last year which 69.7%. World installed overcapacity is around 800 million tons then it's still remained major concern for the industry. Now, looking at 2017, it is expected that the world steel consumption should grow 0.5% mainly in emerging and developing economies where consumption should grow 4% excluding China. And China consumption of steel should drop 2% in 2017. In Brazil, we expect a…

Thank you, Andre, and good afternoon. Now, let’s take a look on Slide 7 and I’ll talk about the results and performance of each business operation in the fourth quarter of 2016. Further on, I will give you more details about our consolidated results. Starting with Brazil, shipments in the fourth quarter of 2016 in relation to the same period, the EBITDA were higher due to increase in export and a slight recovery in the domestic market. Looking at EBITDA and the margin, in the fourth quarter of last year, there was an increase as to lower SG&A even though the gross profit remained stable. Specifically, related to the third quarter of 2016, reductions in EBITDA and EBITDA margins were caused by the market mix, a drop in the domestic market and an increase in export with lower profitability coming from export and scheduled maintenance cause amounting to BRL$500 million. Now, referring to North America, our imports are stable when we compared to the fourth quarter of 2016 with the fourth quarter of 2015. EBITDA in the fourth quarter of 2016 was down vis-à-vis the fourth quarter of the year before due to lower net sales per ton, denominated in dollars by competition and also by competition, from imported good reduction was partially offset that lower SG&A. With that, the EBITDA margin coming from 8.7% in the fourth quarter of 2015 to 3.8% in the fourth quarter of 2016. Now, referring to South America, shipment in the fourth quarter of 2016 were slightly down when compared to the fourth quarter of the year before and keeping with the economic performance out each country where Gerdau operates. EBITDA and EBITDA margin in the fourth quarter of ’16 also the reduction when compared to the fourth quarter of 2015 due to lower…

Thank you, Harley. To conclude, I would just want to say a few things about this current moment of structural challenges that the steel stays in global steel markets, the economic downturn that has been faced by Brazil, which is all is coming to an end and the dropping shipment remained in our main market, and we were able to close 2016 despite of that this positive performance. And I would like to start by mentioning the BRL$2.3 billion of cash flow generation, a reduction of 43% in CapEx vis-a-vis year before. We also improved our leverage ratio with the 26% reduction of our net debt and promoted a 13% reduction in SG&A when compared to the previous years. Moreover, we continue pursuing our strategy to focus our efforts in assets of higher profitable margin. And in 2016, divestments totaled BRL$1.3 billion and in the last three years BRL$2.4 billion. In U.S. all of these initiatives, the management efforts were acknowledged by the capital market, which resulted in a very strong stock price appreciation of Gerdau S.A. and also Metallurgical Gerdau S.A in 2016. Now, the outlook for 2017, we remained challenging in the steel industry, but we hope to see a gradual recovery of steel demand throughout the year. On a positive note, I would like to say why we believe that that will be the case and that’s because international steel prices are higher this year than the year before much due to increases in raw material especially coal, prices of coal has escalated. And more recently, we have seen a strong price recovery of iron ore, which helped the steel international prices at a higher level. Also in 2017, we can mention the asset related growth in the U.S. probably reduced at by the new administration and…

Ladies and gentlemen, we will now initiative Q&A session. [Operator Instructions] Our first comes from Thiago Lofiego from Bradesco BBI.

I have two questions. And then, first I would like you to comment on the competitive landscape in Brazil. Talking a little bit about demand but also supply, the March seems to be more fragmented with new small players in the market that maybe bothering or steering up this competitive landscape. So, you believe that we should expect to see some consolidation in the industry? And how aggressive are these smaller players? My second question refers to the U.S. whether you see any evolution of the some metal spread in the first quarter maybe I don't know whether you can give me any expectation about this third quarter? And whether you can comment on steel demand still referring again to the first quarter which you can?

Good afternoon, Thiago. This is Andre. I'll start by answering your first question and then Harley will take the second question. About entrants, these entrants are mainly focused on rebars. Well, we should also recall that we have other product lines that do not experience a market with so many players, like bars or iron ore, wire. They do not experience the same dynamic. But when it comes to rebar, and we experienced the entry of new players, that happened when the market was down, and this is what we’ve been experiencing in the last two to three years. However, we’ve also noticed that these new players were gradually finding their niche market and the market adjusted itself to the new demand. And with a rebound in the second half of the year, that in fact will be minimized because we face a 16% drop and last year’s 14% drop in consumption. So with a drop in consumption of 3% this year, the transfer of new players that have been in the market for quite some time, they are already revisiting their different clients. And the market will adjust itself in terms of supply and demand. So I think the worst is already behind us. But again, the market is very competitive. That’s why it’s very difficult to make any predictions about how the market will behave from now on.

Good afternoon, Thiago. This is a Harley. To answer your second question about the metal spread in the U.S. and at yearend, and this is one of the factors that negatively impacted our margins is that incremental spreads were under pressure. And that numbers were in both $40 and $50 of this with one of the lowest levels of metal spread. And then fourth quarter was even lower than that. And certainly, those affected our figures. We expect from now on to see some improvement in some areas when the market begins to recover. And we already saw some stability in spot prices and that’s why the trend is for metal spreads to improve. Of course, it takes some time until that is materialized. And I don’t know how long it will take, whether it will be all entirely in the first half of the year or the second half. But we expect to see some improvement. And certainly, this walks hand-in-hand with our plans for with the overall landscape and investment in infrastructure in the U.S., as mentioned by the current administration. But the market, in a way, it’s already showing signs of recovery, not only I’m referring to our operation, but the market is as a whole. These are aspects that involve potential improvements throughout the year.

Next question is from Felipe Hirai of Bank of America Merrill Lynch.

Good afternoon. Now, in fact, this is Kyle. I have two questions. The first refers to cash generation whether you can give me more details about working capital whether there’s still room for further reductions. I know that in 2016, you've promoted great reductions, but whether you can give me also some outlook for CapEx not only in 2017, but also 2018? Thank you.

Good afternoon. This is Harley. In terms of capital, there are few things that should be considered. We still work diligently in the three years and if you look at our history through 2010, we went from more than $5 million to numbers around 2.1 million, but of course this effects our earning generation. But when we look at the cash erosion cycle, we moved today to numbers close to 70 to 80 days. We already demonstrated our efforts in terms of working capital in the last few years. From now on, we are that are adjusted, meaning that we should promoted any further major working capital reductions unless the market deteriorate, so that not in the horizon. Because we foresee some recoveries and we really show you the decreasing in shipments. And we already experience some increases that should probably impact working capital, but not significantly. In terms of cash generation, I may mention EBITDA that in a way should repeat or should near this last case of recovery. So in Brazil and North America and we are diligently pursuing a very strong discipline in terms of CapEx. When we look at what we set in 2016 is BRL$1.3 billion. This could be maintained in the following years. If we continue to experience a recovery and this is more than enough to keep our operations going with good maintenance levels and also good enough to maintain our equipment fully operational and into checks. So, we will continue to generate a positive free cash flow in the next few years. And this combined with more stable exchange rate. We will be able to improve our leverage. Thank you.

Next question is from Ivano Westin from Credit Suisse.

Good afternoon and very good afternoon Harley, and thank you for the questions. Well, the first point I refer to the South America BD, you have a significant margin in the second quarter announced in this quarter a decline. Could you reiterate on the around the outlook for that unit and whether it will be reasonable to consider this with a one-off situation index? We should expect a 15% again we should resume the 15% figure that we had in the best?

You have a ramp up of flat steel coming soon, and even considering this current scenario with recovery in the second half of the year, due to that positive scenario and your plans coming for next year, what we'll do with the volumes also consolidated for the domestic market, you can anticipate.

Thank you. This is Harley. As for the first question related to margins in South America, we do believe that the fourth quarter was heavily impacted by the seasonal asset, which is normal. But the South America operations should have margins, I mean have a good margin and we expect to main the same margin started in 2016. We see a positive growth on GDP and some countries like Peru, Argentina also will post positive figures. And we were impacted by seasonality in the first quarter that we should review our regular levels in the next coming months. About our plans, we have the hot coiled rolling mill that has been in operations for about three years. And the performance has been very good also in terms of sales. We are very pleased because it's been well impacted by our customers, but if I had to tell a mature cost at high utilization level in terms of risk capacity, integration capacity is over 80%. Now that heavy plate rolling mills started out more recently and we still have to go through a learning curve, which takes about six months to one year until we can see improvement. And the utilization volume is lower. We cannot disclose the volume for the future, but I can just give you an idea about the current will lowering mills that we hope to see from market recovery in terms of having to say well in, but we are introducing very modern products of high quality and very differentiated. We have positive feedback from our customers, customers are pleased and therefore we are very excited with the performance that we will cleanly achieve once the heavy plate rolling mills reached full maturity.

Next question is from Thiago Ojea from Citibank.

Good afternoon and thank you for this opportunity. My first question is about scrap prices in Brazil. We have seen a drop on the average long steel prices, but we've seen an increase in the price of scrap in Brazil. How do you see that movement? And what could be the short-and midterm outlook? And the second question refers to demand in the United States. Andre mentioned the new Trump administration and the measures that should be implemented. But in view of all of these measures, can you anticipate any rebound of the economic activity? Or, you think that the U.S. will depend on these new measures to be able to grow more?

Good afternoon, Thiago. This is Harley. Referring to scrap, I think what you mentioned is more one-off structurally. Our price in Brazil reflects our advantage because we have a very diversified and spread around the collection of scraps throughout Brazil even though there is some one-off the effects here and there. Structurally speaking, we haven’t seen any changes in this landscape. The structure is very strong, especially considering the way we collect scrap. Now about the United States, I commented on Trump Administration initiative, things that we are announced during his campaign. And we’re just waiting to see whether these things will be implemented. Infrastructure is not something that will happen overnight. And we do not have a lead time yet. So, we’re just waiting to see what will happen. Tax reduction is something that will produce a more immediate effect and this would have people on the industrial side. We also have an anti-dumping case on rebar. And I think, this week, we will hear something about that from the U.S. Department of Commerce. But in the shorter term, we can say that non-residential construction continues to develop in at good levels. The industry itself also has some recovery. And that starts with increasing commodity prices. That does affect some industries in the U.S. oil and gas and energy, we start to see some reaction. And we see some signs in the industry, but our market focus is more on the non-residential market. It continues to develop well. Infrastructure will produce consumption. Not for now, but probably for 2018, it should be a bit stronger.

Thank you. Do you think that this non-residential improvement is something that could be seen in the first quarter because then we also have to take into account the seasonality effect?

It’s hard to say. Probably, it could be more noticeable in the second half of the year, because the winter will be over and spring, summer and autumn are better months, mainly because of the climate condition.

Next question is from Marcos Assumpção from Itaú BBA. Marcos Assumpção: Good afternoon. You just talked about countervailing duties and anti-dumping cases in the US. Could you please give me an idea of what should be expected in the short term and what could possible be the margin in the U.S. if these cases are proven and enforced of rebar from Turkey? Can you also talk about productions and leverage at Metalurgica Gerdau since 2015? And how do you see a leverage ratio at Metalurgica Gerdau? Do you believe that the ideal situation would be still to have some debt, or no debt at all? So, how do you see the situation, going forward?

Thank you, Marcos. I will talk about trading and Harley will talk about Metalurgica Gerdau. Our expectation is that there should -- the result should be positive for the industry. Three years ago, between ‘13 and ‘14, there was a previous study and the evaluation showed a very small percentage of anti-dumping. But the period of that period of that is under analysis now is 2015 to 2016 and they were a big retail volume. So, we also believe that it will be possible to true that anti-dumping and that’s occur and from countervailing measured will be adopted separately accept, you have done, you have to wait for the results. It’s very difficult first to express any opinion, but we are helpful because looking at the industry data. There is a possibility that the anti-dumping case will be successful. There might be any effect in the market depending on the percentage and then we will have to see what the market dynamics will be. Mostly here, we are talking about imports of rebars into the U.S., that’s why, this case is so important. And so, we have to wait and see what the final outcome will be.

Good afternoon, Marcos. This is Harley. Now about Metalurgica as a holding company, our objective is to reach zero debt. We only want to hold stake operating assets, so this is our objective. So, all of the efforts they're started back in 2015 produced good results, and we have to find the solutions to that without putting pressure on Gerdau to something that we can successful. Part of that has to do with the debenture that we would be issued that re in high demand. And once that is converted into equity, I know the great possibility of that happening that will get down. And so, we will be a more comfortable position, and we believe that work we were in the net debt over EBITDA ratio, Gerdau results will emerge and that we will produce more dividends to Metalurgica and this equation with cash generation will be well resolved.

Next question is from Leonardo Correa from BTG Pactual.

Good afternoon, everyone. So I do apologies for the quality of my landline, but I hope you can hear my questions. My first question is addressed to Andre. About the U.S., my question has to do with the possible listing of the operation in the U.S., whether this is being contemplated or whether this could be studied in the future? I know that G&A has been listed and you engaged in a deal you see now the scenario changes and we see some Gerdau peers in the U.S. like Commercial metals and trading at nine or 11 times EBITDA. That is a relevant multiple differential which generates great value potential. I would just like to hear your views about this movement and what you see coming forward in terms of listings abroad, especially considering a more promising scenario in this Trump administration. My second question is about operating adjustments. Our, the quarter had some stoppages and this harms some of the analysis. Do you think that we still see some more streamlining of assets? Or, this is a project that will continue for the or not? And what should be expected? Also, given this benign scenario of low metal spreads I want to know whether you expect to export in that market.

Good afternoon, Leonardo. This is Harley. Let me first answer the first part of your question about listing in the U.S. When you look at the comments of the market, on the market you see that the U.S. market today is using very given multiples in the industry. And this also impacts us indirectly, therefore indirectly, we benefit from those moves. And even though we are not considering anything at the current moment, this has always an option that is brought over to us. I would say therefore that this is an option that augments our attention and further analysis. I will I think we've also asked about operating adjustments. In fact the last quarter of 2016 was heavily impacted by scheduled maintenances and adjustments that at the end can loop the entire result. And it's difficult to outline all of the impact. In fact we have to consider that the drop in Brazil and also the drop in shipments in the U.S. was the main adjustment stoppages occurred in Brazil. But now we reviewing operations and in the January so things should be back to normal. We don't have anything in the pipeline for the year or do not anticipate any adjustments or shutting downs or stoppage that will cause great impact. We cause the 50% utilization and in the second half of the year we were much lower than that due to the normal seasonality. But I think that the impact was stronger this year. And as our iron ore our priority is to shut the order into mills, but our production is higher than Ouro Branco's consumption, not only in terms of volume, but we also buy from other local producers and this is a necessary plan. And so what we produced we end up not consuming everything, so we try to follow those semantically and broader. And we are constantly monitoring that we have concern last year but now iron hits 95 almost. So we have to look at the reality at the moment or so. If as a given moment, we may export and then we should resume to regular movement. It’s just a one-off situation because I was focused at the moment is to supply to our Ouro Branco mill.

Thank you, Andre. If you allow me to add something to my question, do you have any significant inventory that you could sell probably, I don’t know whether you can tell, if anything about iron ore inventory level?

Honestly, I can’t tell you because we would have to analyze the operation. Usually, all of the output is already full. And we don’t carry much inventory. We produce as -- in the same pace of our delivery maybe we can tell you -- we can answer you in more detail later on, okay.

Next question is from Bruno Giardino from Santander.

Good afternoon. My first question is about price increases. You tried to increase prices in February, and I just want to know how that’s moving forward? And the second question, it has to do with the impact of this price vis-à-vis coal prices and volatility?

Bruno, good afternoon. This is André. On pricing, I’m not going to be specific for markets. But as I said, there is an environment that is strongly sustaining prices influenced by the spike in coal prices and still very high even though it has dropped a bit. And also, iron ore prices were up. And this impacted international prices and caused those prices to rise. We have heard of global prices in China and also prices from other exporters like Turkey, as we built that prices are going up and this has an impact on the metals market, which is a cause of further adjustment. But this should be looked on a market by market approach. If this continues, it should lead to further adjustments due to higher international prices and raw material prices. And I think your other question was on coal. It’s difficult to say because there was a spike in coal prices and then prices came down a bit. Therefore, it's difficult for me to give you any figures at the moment.

Next question is from Gabriela Cortez from Banco do Brasil.

Good afternoon and thank you for this opportunity. I would like you to elaborate more on what happens to that non-recurring depreciation at the Brazil unit? And also, a question regarding divestments, I don't know whether you can comment on the assets that you have in mind to sell? And where they are located, in what units? And how much you would expect to gain from the sales?

Could you please repeat the first part of your question? Because, it was very low. The second part of the question was okay.

Can you hear me better now?

Yes.

The first question refers to depreciation at the Brazil BD looking at the month reported for the fourth quarter. Why we look at the depreciation?

Let me say that we continue pursuing our strategy of focusing on the most comfortable and this last year, we already refer to important divestment and this certainly keeping with what difference in the past 2.5 years. And now, we are just showing in some of the results. And we will continue pursuing this strategy. We don’t have anything to now at the moment because we do not disclose anything specific for region. We continue looking at possibilities of full sales or p partial sales or even joint venture. So, we will continue to focus on this program as things happened we will let you know. Thank you.

Now, as our depreciation in Brazil, in fact in the last quarter, we may experience some adjustments possibly the most representative figure when compared to -- I mean an average between the third and fourth quarter. The start-up of our heavy plate rolling mill in Ouro Branco impacted the depreciation in the fourth quarter. So, you think we could see some payable still remaining in this coming quarter or what happen in the third and fourth quarter is more significant than anything else. I would also like to say something about divestments just to give an idea of how this is important to us. Other divestments that we already get with what we presented to you during this presentation, amounting to 1.3 billion in 2016 for instance. So multiple in relation to EBITDA, it was around 8 to 10 times supply. That's why this is so important and it really emphasizes the fact that we are focusing on the most profitable assets, which bring about higher economic value to the Company, reducing SG&A and reducing other lines of our balance sheet and EBITDA would be much lower. When we sold, you remember what the multiple was, the average is very close to what we had been spent between 8% to 10%. Thank you very much.

Next question is from Milton Sullyvan of XP Investimentos.

Good afternoon. I would like to apologize for the poor quality of the call. But I have two questions and thank you for this opportunity. The first question refers to scrap prices or scrap costs. Given the operating leverage of the Company, when you take a look at the metallic costs of the Company in the Brazil BD, the metallic costs seems to be at a better quality. I think that improved significantly. So, I would like to revisit the issue of scrap from earlier on. I just want to know whether we are looking at further stability or improvement in the cost of scrap once we look forward to the second half of 2017? And the second question relates to the growth in shipment and the impact in working capital and CapEx. We saw that the Company had a good performance in working capital and CapEx, but I want to understand what are we looking at in terms of shipment growth, with that having to look at relevant impacts and investment working capital and maintenance CapEx?

Thank you. Good afternoon, Milton. This is Harley Scardoelli. On scrap, well, I would say again that this was one-off situation. So, we shouldn't expect any more significant changes. We anticipate a good spread in terms of our scrap, because we collect scrap all over Brazil and this benefits our average cost of scrap because we collect in bulk. Therefore, what you saw in the quarter is like a one-off situation. But in particular we don't see any major changes, going forward. Now, in terms of working capital and CapEx, we are well positioned in working capital, but more particularly, referring to CapEx. Even with a quick recovery in the market, both in Brazil and in the U.S., our largest markets, we figures around 60% we do not anticipate any substantial divestment or changes in CapEx to face this recovery. Once recovery comes, we will be at a great advantage and there will be no need for further investments. Now, referring to working capital, we are better adjusted and we also introduced practices to manage working capital that were very positive. So, once the market recovers, we will tend to recover, as well, and operate as a more optimized condition. When you have a 60% capacity, we still have a lot of room to maneuver through our capacity and then for instance, we can change from one product to the other because we have capacity to do that. So, if there is a rebound, we will not need as much working capital. For this year, we believe that even though there will be a recovery in volume the efforts in working capital will not be very significant. We always see the seasonal effect at the end of the year and some working capital recovery in the beginning of the following year. So, I think we will find ourselves very optimized levels this year.

Next question is in English from Carlos de Alba from Morgan Stanley.

Thank you very much. I just wanted to know if there are any specific initiatives to further or to increase EBITDA and further improve cash flow generation? And the accomplishments on working capital have been great, and CapEx is already low. So, going forward, the cash flow generation has to come from better EBITDA. And could you share any of the specific initiatives that the Company may still be pursuing to increase EBITDA? Either is it possible to further reduce costs and reduce SG&A expenses without seeing a recovery in volumes or without seeing a strong recovery in volumes? And the second question has to do with expectations for higher dividends in 2017. The Company paid very low dividends last year, understandably, given the difficult situation that it faced. But is it possible that the Company would try to increase the level of dividends that it pays in 2017?

Carlos de Alba's question referred to free cash flow generation for 2017 considering that an important part of our cash generation in 2016 had to do with working capital adjustments and whether we reached the limit and whether there is the possibility of EBITDA improvement or any interest rate reduction in order to maintain that situation. And also, whether this would have a positive impact in our dividend payout in 2017? Well, in a way, we anticipate some volume increases in our operations. We also talked about better margins and SG&A that was significantly reduced in 2016, also taking into account that if we look at the end of the year, at year-end our SG&A level was much lower. Therefore, throughout 2017 we may capture additional reductions. Well, we are comparing it with the beginning of 2016 where that number was higher. There is a possibility of EBITDA increase. And if we continue to optimize CapEx, like we mentioned BRL1.3 billion, this should also tend to improve and generate good cash. Another point I'd like to mention is that, as I said, we have a cash and cash equivalents and goodwill good enough to honor all of our commitments. This is the most expensive bond that we have. Most part of our cash is denominated in U.S. dollars. So, there is a difference between the interest that we pay and the interest that we receive in dollar terms, and that should also be captured throughout the year once we pay for that bond. And in a way, this should improve our interest rate position in 2017. Having said all that, we could say that cash generation will continue to be very good in 2017.

We will now conclude the Q&A session. And I’ll give the floor to Mr. Andre Gerdau Johannpeter for his final remarks.

Thank you all very much for joining us today. Thank you for your questions and if you have any further questions, please contact our Investor Relations team and on my behalf of Harley. I would like thank you and invite you also join us again on the earnings conference call for the first quarter of 2017. Have a good day.

Gerdau’s earnings conference call is now concluded. I would like to thank you for participating and have a good afternoon.