Good afternoon, and welcome to Gerdau's conference call to discuss the results for the Fourth Quarter of 2018. At this time, all participants will be in listen-only mode. And later on, we will initiate the Q&A session. [Operator Instructions] We would like to emphasize that any forward-looking statement that might be made during this conference call related to Gerdau's business outlook, projections and financial and operating goals are mere assumptions based on the management's expectations related to the future of the company. Even though Gerdau believes that its comments are based on reasonable assumptions, there is no guarantee that future events will not affect its evaluation. Here today are Mr. Gustavo Werneck, Director, President and CEO of the company; and Harley Scardoelli, Executive Vice President and CFO. With no further ado, I'd like to give the floor to give to Mr. Gustavo Werneck. You may proceed, sir.

[Interpreted] Good afternoon, everyone. I would like to begin by saying that, it's a pleasure to be here with you once again. And again, I would like to welcome you to Gerdau's conference call on the results of the last 12 months of 2018. I will talk about our results for the year and then Scardoelli will elaborate more on the performance of our operations and will also talk about our debt position. After that, I will talk about the outlook for the markets where we operate and investments looking forward. At the end, we will be available to answer your questions. So let's move to Slide 2 to talk about the main highlights of the year. 2018 ended with important achievements in the goals and priorities that the company set forth for the year. We posted the best annual EBITDA and net income since 2008. And we also had improvements in the profitability of almost all of our operations. Our main consolidated figures were positively impacted by three factors: higher shipments in the Brazilian domestic market, more profitable exports, and lastly, the positive effect of the exchange rate when converting sales generated abroad into BRL. Also Gerdau's divestment plan was concluded successfully, reaching more than R$7 billion in the last four years. And we significantly reduced our net debt to 1.7 times EBITDA. Moreover, we generated the highest volume of free cash flow of the last few years of R$2.600 billion. We also managed to achieve the lowest historical level of SG&A equivalent to 3.6% of net sales. Well, I would also like to stress that there was significant progress in the EBITDA margin of the North America operation, a market that remains extremely relevant to us. As a result of our team's dedication and the evolution of the markets in 2018, we are paying out higher dividends to our shareholders, much higher levels when compared to previous years. I also want to emphasize that these achievements demonstrate that the efforts from our teams to transform Gerdau into a more innovative and open organization is beginning to bear fruit. Throughout 2018, we worked on something very important to our future, and that was the definition and the global launching of Gerdau's purpose. In other words, we reached for the true reason of being of our company. Building up our purpose, which is to empower people who build the future is one more step towards the cultural transformation we've been going through in the last few years. In practice, this transformation is translated into more independence and openness for people, less hierarchy, more flexibility and agility to help us adapt to a fast-changing world in an increasingly competitive global steel market. Therefore, our purpose will not only guide us in our day-to-day operation, but will also guide our decisions and business strategies in the years to come. Now I'll give the floor to Scardoelli, right next to me, and then I will get back to you soon.

[Interpreted] Thank you very much, Gustavo, and good afternoon to you all. For those of you following us over the web, I will start with Slide Number 4, and I'll talk about the results and performance in the fourth quarter 2018. In consolidated terms, adjusted EBITDA was R$1.4 billion in the fourth quarter 2018, being the best result for this quarter in 10 years. Looking at the chart on the upper part of the slide, if we compare to the fourth quarter 2017, we see the evolution of adjusted EBITDA and the margin that went from 12% to 12.9% and from R$1.18 billion to R$1.4 billion in absolute value. This increase was mainly due to the improved performance of the North America BO caused by improvements in metallic spread and supported by the economic growth that favored the construction and industrial sectors. In relation to the Special Steel's BO, it is important to mention the adverse effects in the second half of 2018 caused by a slowdown in the economic activity of Argentina, an important customer of our Special Steels operation in Brazil with implications to the Brazilian automotive industry. And with regards to cost pressure, cyclical price increases for superior scrap, electrodes and metallic alloys, all important cost components of this operations. And all of these factors affect the margins of the operation. With the results of this last quarter at the end of 2018, as mentioned by Gustavo, we posted the best EBITDA and net income of the last 10 years. There was a significant reduction of our debt. And we paid out much higher dividends. We reduced the profile of our debt. And the payout of much higher dividends was also in keeping with the betterment of our results. And we will talk about these topics in…

[Interpreted] Thank you, Scardoelli. Well, now, I would like you to move to Slide number 9, and we can talk about the outlook for 2019. Up to now, we are optimistic about the outlook for our main markets, Brazil and the U.S., which could generate consistent results in 2019. According to statistics from the World Steel Association, for this year, global demand for steel should grow 1.4% over 2018, growing to 1,680,000,000 tonnes, boosted by the rebound investments in the developed countries and also by the improved performance in emerging economies, despite the current landscape of trade tensions. In Brazil, we believe that a positive economic cycle is about to begin, which should lead to a rebound of the domestic market. According to data from Instituto Aço Brasil, it is estimated that the apparent consumption of steel in the country should grow 6.2%, reaching 22.5 million tonnes, influenced by the continuous growth of the industry and the recovery of the civil construction sector. Speaking about civil construction, Sinduscon, São Paulo estimates that the sector's GDP should grow approximately 2% if the estimated growth of 2.5% of the Brazilian economy is materialized. To this end, we are fully prepared to serve the growth in Brazilian demand. And as I told you before in previous meetings, we have plants from Cerro Chato, Rio Grande do Sul. And some of them are still operating at idle capacity. However, Brazil's sustainable growth depends on the country solving its tax crisis. And it all starts with the pension reform. Gerdau and the steel industry and other economic agents in the country supports the necessary review of the pension rules. And we remain confident that the National Congress will approve the theme. Brazil urgently needs this pension reform. In regards to our operation in North America,…

Ladies and gentlemen, we will now initiate the Q&A session. [Operator Instructions] Our first question comes from Thiago Ojea from Goldman Sachs.

[Interpreted] Good afternoon and thank you very much for taking my question. My first question refers to the dams. With this new E&M measure, the dams have to be decommissioned, especially the upstream mining dam. How are you dealing with that situation? And how would you transition from the iron ore production vis-à-vis the change in the mining dam? So if you could give me some idea of timing. And what do you think in terms of the CapEx you just announced? What will be the cost of the change in relation to the dams? And the second question refers to the domestic market. Are you noticing any improvement in the domestic market? Is there any room to increase prices in the short term or any changes in the civil construction industry that could be more significant? Thank you.

[Interpreted] HI, Thiago. Thank you for your questions. I would start with the dams. I would like to remind you that half of Gerdau's steel production in Brazil it's based on metallic scrap, recycling of the metallic scrap. The other part is iron ore. And the bulk of the production is then through dry processing. Only 15% of iron ore processing requires the use of dams. We have two tailings dam from - of iron ore located in Ouro Branco in Minas Gerais. One of them is inactive, and it has been inactive since 2011. It is totally dried. And in February, we just received a report decharacterizing the dam. The second dam is currently in operation. It's monitored and audited and is considered stable. And we rigorously follow all of the federal and state legislation. We will invest approximately R$300 million by 2021 to deactivate this dam and to deploy another solution of dry dams. We are constantly seeking for the best possible technologies around the world in order to improve our practices in all of our mining activities. Moreover, as I said before, we are committed to the highest possible safety levels because safety, as I said before, is a nonnegotiable value to all of us at Gerdau. Now, in relation to the domestic market, Thiago, as I said before, I also want to say that mid to long term sustainable growth involves the pension reform. The society as a whole and the business community, they need to get together to enforce the approval or to force the approval of the pension reform. In the domestic market, the industry is resuming a recovery that was initiated last quarter. We will see a moderate growth in the construction segment in 2019, boosted by what was initiated last year and continues this year. In terms of civil construction retail, it wasn't stagnated before, and it will continue to move forward in 2019. Infrastructure investments, we don't believe that there will be major infrastructure events in 2019, but probably in 2020. So all in all, the growth of the domestic market, according to our estimates is between 6% to 7%. As for prices, you know that traditionally, we do not comment on our commercial policy or price increases. But it is good to remember that this strong price increase that we notice from the beginning of the year onwards, we continue to have import premium close to 0. In some cases, even negative. So this import premium, we believe that it should evolve, going back to historical levels.

[Interpreted] Thank you, Werneck. I just want to get a better understanding, out of the 300 million in the dams, can you probably tell me how much of that relates to the adoption of the new technology for dry piling up and the deactivation of the dam? When you talk about your investment policy, you said that even with this increase in CapEx, you are not going to change your guidance of 1 to 1.5 times net debt over EBITDA ratio, right?

[Interpreted] Okay. We estimate that 50% of the 300 million, it will be a 50/50 split. Now related to our CapEx for the next three years, we have investments in new technologies and ramp up of capacity. The investments will occur once the market proves that it will be able to improve and generate free cash flow, so most importantly is to follow our policy. Well, the investment in Ouro Branco is important, because it will help us maintain all of the operations. But this bulk of the investment, I mean, out of the R$7 million, that amount for Ouro Branco is R$2.4 million, but Scardoelli can elaborate more on that.

[Interpreted] Thiago, I just have something else to comment. I think we have to look at our CapEx program with a view in the long run. If we take the last three years, from 2016 to 2018, our CapEx was much lower, mainly because of all of our efforts to reduce our cash position - I mean our debt position. In the previous years, from 2013 to 2016 the company's EBITDA was below R$5 billion. And back then, on average, we were investing something similar to what we are expecting to invest now, R$2.3 million to R$2.4 billion a year. And even then, we generated positive free cash flow all these years. So our plan is to execute on our CapEx plan to reach new leverage indicators with free cash flow generation. And as Gustavo said, we are flexible to use the CapEx that will allow us to reach our goals. Another important aspect that I must mention is that in 2018, our EBITDA was much higher than in previous years. But with the improvement in the business landscape, better volumes in most part of our operations, great part of that free cash flow generation is also geared towards increasing working capital, if you look forward and if market conditions remain the same, so this is only in theory. So, theoretically, there should be no further consumption of working capital. In order for that to happen, things would have to be better. And that will mean also improved EBITDA. So we are prepared both to fulfill our leverage goals as well as to fulfill our CapEx program with a good degree of flexibility.

That's very clear. Thank you very much to both of you.

Next question is from Thiago Lofiego from Bradesco BBI.

[Interpreted] Good afternoon. My question starts with your investments plan, particularly the ramp-up. If you could recap, please, what kind of expansion and what is the capacity that you have in mind? And if you could repeat the numbers, and what is the expected return from the capacity increase? And again, what benefit do you expect to have with cost reductions in the maintenance of Ouro Branco? And the second question relates to the U.S. market. How do you see the supply of longs in the U.S. with all of these ongoing debates about tariffs and capacity reduction in that geography?

[Interpreted] Hi, Thiago. Your question - we couldn't hear your question very well. But I think your first question was about our investments to increase capacity and to do a technological update. The investments will be done on a different asset base compared to what we had before. I mean, we've made some strategic choices in the last few years. And so now, we are focusing on assets with greater profitability. And this is an important point because we will invest in the assets that, in the future, will increase our profit margins when compared to investments done in the past. So when we talk about investments to increase capacity and to update technologies, we understand that there is room to improve the performance of our operations by conducting a technological update, especially in the mills that produce structural profiles. We believe that we will be able to improve performance and to grow capacity of 530,000 tonnes in the assets in North America. And there is another investment that, I think, we mentioned in previous occasions at the end of last year, which is the preparation of our Special Steel mills to cater to the automobile industry, who is going through great transformations because they are using lighter steels, cleaner steels and more resistant steels. Therefore, we are investing in the improvement of our melting shops in the two main Special Steel plants we have in the world, one in Pindamonhangaba in São Paulo and the other one in Monroe in the U.S. Investments in these two plants amount to approximately R$ 800 million. And in Brazil, we see also a significant growth in terms of the expansion of our coil hot rolled strips in Ouro Branco. This investment amounts to R$ 380 million, where we intend to add 230,000…

[Interpreted] Thank you. Thank you very much.

Next question is from Leonardo Correa from BTG Pactual.

[Interpreted] Good afternoon everyone and thank you. My first question relates to Special Steel's BO. There may - maybe it came as a surprise, the drop in margin of almost 5 percentage points in the quarter. I would just like to hear from you what led to that? And what is the outlook looking forward for that business which is very important to the company. We've seen some slowdown in Brazil, especially in São Paulo. There was recently the shutdown of a truck plant from Ford. But you said that the outlook for the business seems to be good. So I'd just like to hear something about the margin evolution for that unit. And what should we expect looking forward? The second point in relation to the U.S., we saw the improvement in your performance. And I know that you are now reaping the benefits of some of the processes that you introduced through your business. But I just want to understand the new road map for the U.S. and what's still missing? What is - what should happen? Because I know that they already made capacity adjustments and then you divested from assets of lower margins. But what is still missing? Or what could be expected in the U.S.? And what still remains a challenge that could lead to further improvements. And then I also have a one-off question. Because you talked about Ouro Branco and you were very clear during your presentation. But my question is with that 60-day downtime, I understand that you are building up inventory to be able to supply to your customers. But my question relates to volume and cost performance. Can you hold cost at a stable level? And what kind of profitability you expect considering the downtime of 60 days?

[Interpreted] Thank you for your questions. Well, I will answer that in three parts. First, in relation to Special Steels - I think, we should - temporary, what happened in Brazil and in the U.S., in that regard, even though the phenomenon were similar, but there are some particularities that apply to Brazil that are different in the U.S. In 2018, we saw a very strong automotive market, very strong in terms of sales in the beginning of the year. But in May, in June, there were two factors that impacted our volumes. The volumes of Special Steels in Brazil, and that was a truckers' strike in Brazil and followed by the tax crisis in Argentina. Argentina has a relevant stake in our volumes of Special Steels in Brazil. As a reminder, Argentina is the third-largest partner of Brazil. In 2018 alone, passenger vehicles accounted for 26% of exports from Argentina to Brazil. When we look at the numbers and compare exports between Brazil and Argentina, there was a drop of 17%. So Argentina also had lower volumes. And then you look at months of May and June, there was a drop in the volume of Special Steels in Brazil in shipments. There was another phenomena in the U.S., which was the strong increase in input prices, particularly scrap, alloys and electrodes. When you look at the dynamics of these markets, and we have long-term contracts with our customers. And so the margin recomposition is not as quick as it happens with long. So throughout 2019, we hope that we can revisit the margins, not only by reviewing contracts with our customers, but also through some structural events that occur, both in Brazil and in the U.S., in regards to scrap prices. Now speaking about the U.S., after the divestment,…

Yeah, that's very clear, Werneck. Thank you very much.

Next question is from Rafael Cunha from Credit Suisse.

[Interpreted] Good afternoon, everyone, and thank you for taking my question. My question relates to the Brazil BO. What should we expect the exports to be considering the domestic market performance? And how do you think that the sales mix will behave? And could you give me a follow-up on the premium aspect, considering a most favorable environment of domestic demand, which has been expected for quite some time. Could we see an export premium at a higher level higher than 10% to 15% or you see that 10% or 15% more normalized once demand picks up more strongly? Do you see that possibility? And what would be a fair level considering a demand that supersedes expectations?

[Interpreted] Rafael, in relation to your first question, exports in our operation in Brazil, one important aspect to bear in mind is that, since the drop in the market in 2014 exports through our Brazil BO became irrelevant. But it's not enough to look at the situation of the domestic market. But also, we have to look at what happens in the international market. As of June 2018, we have experienced a significant drop in steel prices in the international market. Around June of last year, the billet price in the international market was about $120 per tonne. And in three months it went up to - I mean, it was much higher, and it went down to $320 per tonne. So the current export scenario, considering 30% in Brazil, has an impact in the margin. In the last few months, the billet price has experienced some recovery, from $390 it went back to 450. And 30% of the exports are through Brazil. So this would have a positive impact in the margin. That's why it's important to remember that there is a delay between the raise in prices internationally and margins of our exports. What we are doing today with the billet price in the international market, are the deliveries or the shipments will occur in three months. Therefore, there is a gap between price increases internationally and in the margins and the results in Brazil. Now, in terms of the domestic market, with the escalation of prices in the international prices, there was a decrease in export premium. In the end of last year, it went over two digits, getting close to 15% and now it's pointing down to 0 again. So traditionally, we don't work with the premium export. We believe that in the next few months, there is a possibility that we will resume the old export prices of around 10% to 15%.

[Interpreted] Okay. Thank you.

Next question is from Marcos Assumpção from Itaú BBA. Marcos Assumpção: [Interpreted] Good afternoon, everyone. My first question relates to your mining business and whether you see some room to increase the production of iron ore to make up for the short-term price recovery, whether there is still room in your operation to do that? And now, looking on the side of the risk of shutting down operations because of lack of licenses or certification, could you elaborate on the certification process of your dams? And what would be the next steps? And whether there is any risk of shutting down the operation unexpectedly as it happened in some cases in Brazil? Now, changing gear and talking about cost. Werneck, could you please elaborate a bit on scrap? We've heard that there was a significant drop in scrap prices earlier this year, impacted by maybe demand. So could you please confirm the information? And tell me whether - what was the price in the market and what it is now? And finally, I know that you talked a lot about free cash flow, Harley talked about the company's cash flow. Could you comment on the dividend payout expectation for 2019? We saw what happened in 2018. And Harley said that even if you expect a stable EBITDA, maybe this year you won't use a lot of working capital. So in that case, what would be the position of dividend payout in this case?

[Interpreted] Marcos, about mining, I would like to recall there that our ore production is basically for our own use. And only 15% of our ore production requires the use of dams. That's why we don't see any further room for increase in the mining production. Well, we will remain focused on our production for internal use. We have one tailings dam, which is currently in operation. This dam is constantly monitored and audited. And we strictly follow the legislation, the state and federal standards. And if at any point there is any change in the norms, and they tell - somebody tells us that we can no longer operate with these dams, we will follow and comply with the legislation in force. In regards to scrap, the scrap price in Brazilian market has been falling. So as of December, because of seasonality, scrap prices are coming down. And even now, it's still dropping. Prices are still dropping. I will give the floor now to Scardoelli that can - who can elaborate more and answer your third question.

[Interpreted] Marcos, about your question, free cash flow and dividend payout, I think, this is quite an interesting question, because considering what we said that we have a long term CapEx schedule and more precise investments and our financial policy is still conservative. Even considering all of that, our view is that we will continue to generate very interesting positive cash flow. And with that, we will reduce the debt, reduce the financial expense. And the dividend payout outlook is that we will continue to pay good dividend and consistent with the operation. Today, we maintain our policy of paying out 30% of dividends. But even with that policy, the outlook is that once we reduce leverage in interest rates, so it's a good outlook that the dividend policy will remain untouched. Marcos Assumpção: [Interpreted] Thank you, Harley.

Next question is from Gustavo Allevato from Santander.

[Interpreted] Good afternoon, everyone. I have two follow-up questions. The first has to do with the Brazil BO. I just want to understand the export mix? And whether in the first quarter, given the rebound of the economy in Brazil, whether it should be similar to the fourth quarter, or the improvement should come more in the domestic market? And I also want to understand something related to Special Steels and whether the EBITDA margin of the fourth quarter will go through a recovery in the first quarter? Or this will come maybe in the second half of the year or next year?

[Interpreted] Referring to the Brazil BO. Last year, 28% of our total volume was exported. There were - we had higher margins than the ones that we have now. We always make our business decisions. So with the current margins, we are deciding whether we should or should not export. We have to look at what will be the percentage of exports until the end of the year. But we believe that throughout the year, with the recovery of the domestic market, I mean, in 6%, 7% growth, then we will reduce exports and make shipments to the domestic market. We also believe that in terms of domestic demand, it goes through natural seasonality in the end of the year - and sometimes, in January and February. And the margins become more consistent as of March. The margins for Special Steels, to answer your second question. When you compare the margin we had in the fourth quarter of last year, follows a similar logic. Therefore, there is a rebound in the vehicle production after the year was over. And we will see a reduction in scrap prices, both in the U.S. and Brazil because with lower scrap prices, we reduced the average cost of our inventories. And this also reflects in higher margins.

[Interpreted] It's very clear. Thank you very much.

Our next question in English from Carlos De Alba from Morgan Stanley.

Thank you very much. Good afternoon. Maybe the question I have is maybe at a high level, but - so the company has gone through a lot in the last say 3, 4 years. A tremendous improvement in the share price, driven by recovering global markets, but also by a lot of efforts in the company in divesting assets, improving the balance sheet and all the expectations on a Brazil recovery. So fast forward, Gerdau is leaner, stronger, better positioned company. What is the next phase? How would you describe the next phase for Gerdau? Do you expect this company to be a growth company, a cash flow payment company? Where would you like to - how would you like to describe the new Gerdau or the Gerdau in the next phase? And also, are there any initiatives perhaps now that all these improvements have been made to move the company to Novo Mercado? Or to change the dividend policy and put in more related to cash flow generation than net income? And also, if you could explain what is the rationale maybe Harley, what is the rationale for the 1 to 1.5 net debt-to-EBITDA leverage, which seems if that is for across the cycle, it seems a little bit low but not that it is necessarily bad, but just a little bit low.

[Interpreted] Thank you, Carlos. Your question was very broad. And your question was about we had better performance, better balance sheet, what is the focus looking forward, whether we will be a company focused on growth and cash flow, what is the outlook and whether we intend to enter into Novo Mercado and what is the rationale behind that net debt-to-EBITDA ratio 1 to 1.5 time. I would say that what we were able to accomplish in the - more recently is that now we are a company that is much more prepared. Our industry is very cyclical and it's capital-intensive. That's why we remain with that view that our leverage should remain as the one reported, to 1 and 1.5 times net debt-to-EBITDA ratio, which is adequate, considering the cyclical nature of our industry. And this will be adequate because there were some very strong structural changes in the market. Therefore, I believe that this leverage level is adequate. And it's not inconsistent to our policy that will give us a good return on equity. Also, if we look at the return of employed capital that came down significantly after the low cycle, after 2012, it goes back to its cost of capital. And this will determine the adequate profitability to all of our stakeholders, shareholders. It will allow us to pay the interest on equity, interest on our debt. And so, I think, we are getting close to these levels with the reduction of our debt position. Whether Gerdau is going to be a company focused on this or that area? We will focus on profitability. We will guide our growth. And we will focus on niche markets that we are also looking at new initiatives. But in terms of size, size is not the focus. Size is not the focus. We want to be profitable with adequate growth and a more balanced position or P&L. The last part of your question, I think, relates to our equity structure. We believe that Gerdau is very well positioned in terms of governance. And we consider our dividend policy. And also considering the fact that we're 100% tagalong, our structure is very adequate. And we are very much focused on the profitability of the company. We know that the company still has some years ahead of itself to focus on results. And Novo Mercado is not something that is in our pipeline.

Thank you very much, Werneck.

Next question in English from Timna Tanners from Bank of America.

Yeah, hey, good afternoon. Just having two quick ones for me, if you would. One was just a follow-up on the scrap question. It looks like the scrap price is starting to go up in some global markets, the U.S. is up maybe 10, 20 in early days for March, partly function of the higher pig iron prices with iron ore also rising. So I wanted to get your thoughts on that, and how that would play out for timing of your Q1 versus Q2? Then the second question is just on the beam market in the U.S. And how you're seeing that and any thoughts on prospects for fabricated beam prosecution given the pending trade cases there? Thank you.

[Interpreted] Timna, thank you for your question. I would just repeat the first part of the question about the increase of scrap prices in the global market and the possible impact that this price increase will have in the next few months, vis-à-vis the results of Q1 and Q2. I would like to begin by saying that it's important that we understand that the scrap market in the geographies we operate have some differences. In Brazil, we are flexible enough to increase production in our integrated industries. We have our own ore production. We have a very distinguished and competitive scrap base. Therefore, the increase in scrap prices in the global market does not have a very direct impact when we look at our cost in the Brazil BO. Our North America BO is more closely impacted by differences in prices. There was a drop in January and February. And we are still looking at how prices will evolve in February and early March. But as our scrap inventories, both in Brazil and the U.S. are well formed, these possible swings up and down in scrap prices will be translated in production costs as our inventories are reduced. There was some price reductions in November, in December. And there were some price increases, those early price increases will only have an impact in the second quarter. Timna, now, when you talk about the structural prices in the U.S., our view, the initial view is that this is very positive to our operation, because we are highly exposed to structural profiles in the U.S. The part of the assets that we divested in the U.S., I mean, we remain in the markets that were more attractive to us. And this will benefit local producers. And we are amongst them.

Okay, thank you.

Next question in English from Petr Grishchenko from Barclays.

Good afternoon, and thanks for taking my questions. I wanted to follow-up on your commentary and expectations regarding the auto sector in Brazil. Just today, it seems that that most domestic steel producers are fairly bullish on the auto sector. But then, I keep hearing comments from Ford shutting production and GM management considering shutting some facilities in Brazil. And I guess, simply the fact that reported car production decline, roughly 10% year-over-year in January. So I guess could you please help me reconcile the steel industry's views with those of its customers? So that's number one. And then, two, can you also provide little more clarity on your net leverage target of 1 to 1.5. It wasn't clear to me if this includes any additional asset sales or you think that you'll achieve this through just free cash flow generation over time in any timeframe? It would be really helpful. Thank you.

[Interpreted] Petr, thank you for your question. Petr's first question was about the auto market in Brazil. The production growth of vehicles in Brazil was around 7% in 2018 when we compare it to 2017. There is a natural seasonality, which is every year-end and the beginning of the year we estimate that the auto production in Brazil should be around 10%. When we look at the growth of orders and the portfolio of orders to be shipped as of March, this portfolio indicates to a 10% growth. And this is beginning to be materialized. Therefore, we are very optimistic, because we believe that this year's growth will be in keeping with our projections. We have some difficulties, as I said, in Argentina. So in relation to exporting volumes, this year, I think, our volume will be lower when compared to last year. But since June of last year, we are looking for other export alternatives into other countries rather than Argentina, to compensate for that drop in volume to Argentina. So we believe that volumes, we're very optimistic about shipments. And even though there was a drop in January, the projection is positive. And we see now a more consistent flow of orders starting in March. Now the second part of Petr's question refers to our leverage objective of 1 to 1.5 times, whether they are dependent on additional investments, our investments are concluded? We concluded in 2018. And this objective of 1 to 1.5 times should be reached through free cash flow generation. And as I said, we will anticipate more positive levels looking forward, also in face of the investments that we mentioned. At the end of the year, we had that level of leverage.

Next question in English is from Jon Brandt from HSBC.

Hi, good afternoon. You mentioned several times your focus on profitable growth and on profitability. Could you, perhaps, just touch on what your expected returns are in some of the U.S. and Brazilian projects that you're undertaking over the next few years? And if you're not comfortable with that, perhaps what the hurdle rate is for these projects or for any project in the U.S. and Brazil? And secondly, we've been hearing a while back about a potential cut in import tariffs into Brazil. I'm wondering if you can comment a little bit on that. If you could give us an update. Is that something that we should be concerned about, if the 12% import tariff could be cut or eliminated? Thank you.

[Interpreted] The first part of Jon's question relates to our profitable growth. And what is our hurdle rate in the projects, whether we anticipate and when we should anticipate some returns. The question is - oh, yes, we do. Our cost of capital - the average cost of capital at Gerdau is around 11% to 12%. And as I said, our return on employed capital is also very close to that level. Our hurdle rate was higher than that number, because we use a minimum hurdle rate of 15% for the approval of investments. And more and more, we are even more stringent when it comes to approving investments, because we want to ensure that the profitability of the projects will be guaranteed. So the profitability falls into the levels that I mentioned before. Jon's second question is about import tariffs in Brazil and the possible decrease or drop of the tariffs. We are constantly in conversation with the Ministry of Economy via Instituto Aço Brasil. In the second meeting that took place a few weeks ago and reported by the press, and in the last meeting, once again, the Ministry of Treasure said that import tariffs will change if there is good competitive landscape for Brazilian companies. Therefore, we believe that what the minister was committed to vis-à-vis the steel industry becomes a reality, all the commitments become a reality.

Okay. Thank you, Werneck.

Next question from Mr. Milton Sullyvan from XP Assets.

[Interpreted] Thank you for taking my question. I would like to get a better understanding about your CapEx for increase for your technological capacity. You said that the hardware you use are in markets with higher added value, where Gerdau has a different - a competitive edge in the BQ market, maybe BQ is a product with lower added value? That's maybe only one of the categories where you have an idle capacity, which is very large. I just want to understand what is the rationale behind that BQ capacity?

[Interpreted] Milton, thank you for your question. In terms of the production of coil hot-rolled strips in Brazil, we started with that a few years ago. And we're very pleased with our entry in flat steels. Our capacity is operating at full speed, catering to the Brazilian market. Our quality is very differentiated vis-à-vis the rest of the competition in the market. And I am sure that we will be very pleased with our coil hot-rolled strips production.

[Interpreted] Could you also be more specific and talk about expenses in the Brazil BO? I don't know whether my calculation is right, but it seems to me that expenses went up, not particularly only SG&A, but also in that line of other expenses. In consolidated terms, that line was up substantially, especially in Brazil, so I just want to understand what caused that.

[Interpreted] Milton, these originally referred to non-recurring items. So, without getting into lot of details about this quarter, there is no reason for concern. So in terms of cost of operations in Brazil, this could be modeled further on.

Okay, thank you. Thank you both of you.

We now conclude the Q&A session. I would like to turn the floor back to Mr. Gustavo Werneck for his final remarks.

[Interpreted] I would like to thank you very much for participating. And it's always a pleasure to talk to you. Also, I would like to invite you to join us again in our next earnings release related to the first quarter of 2019, on May 8. So, once again, on my behalf and behalf of Scardoelli and the entire Gerdau team, I would like to thank you for this opportunity. And, once again, I wish you all a very good year 2019. All the best.

Gerdau's conference call is now concluded. Thank you very much for participating and have a good afternoon.