EX-99.1 2 tm2222479d1_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

CONSOLIDATED RESULTS
OPERATIONAL PERFORMANCE

PRODUCTION & SHIPMENTS

CONSOLIDATED | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Volumes (1,000 tonnes) |  |  |  |  |  |  |  |
Production of crude steel | 3,429 | 3,406 | 0.7% | 3,448 | -0.6% | 6,835 | 6,599 | 3.6%
Shipments of steel | 3,245 | 3,055 | 6.2% | 3,216 | 0.9% | 6,300 | 6,304 | -0.1%

In the quarter, crude steel production remained in line with 1Q22 and 2Q21, and in the first half, steel production was 4% higher than in the same period last year. As a result, the production capacity utilization rate stood at 83%.

Steel shipments increased 6% in relation to 1Q22, attesting to the resilience of the construction and industrial sectors and to the gradual recovery in the automotive sector.

SALES SEGMENTATION PER BD

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FINANCIAL PERFORMANCE

NET SALES

In 2Q22, net sales came to R$ 23.0 billion, increasing 13% from 1Q22 and 20% from 2Q21, explained by the higher shipments and rebalancing of sales prices in the period.

The result was mainly driven by the performance of the distribution and construction sectors in the U.S. market, the manufacturing and construction sectors in Brazil, and the results of the special steel operations.

GROSS PROFIT

The higher costs of the main raw materials used by the Company led costs of goods sold in 2Q22 increased by 24% compared to 2Q21 and by 13% in relation to 1Q22. Compared to 1Q22, the highlights were the increases of 15% in coal cost, 6% in iron ore cost and 11% in pig iron consumed cost. The consumed scrap cost also increased, by around 16% in the period, especially in Brazil.

In this context, gross profit reached R$ 5.9 billion in 2Q22, increasing 14% from 1Q22 and 9% from 2Q21. Gross margin remained in line with 1Q22 and contracted 2.6 p.p. in relation to 2Q21.

CONSOLIDATED | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Results (R$ million) |  |  |  |  |  |  |  |
Net Sales | 22,968 | 20,330 | 13.0% | 19.,130 | 20.1% | 43,299 | 35,473 | 22.1%
Cost of Goods Sold | (17,065) | (15,149) | 12.6% | (13,716) | 24.4% | (32,214) | (26,262) | 22.7%
Gross Profit | 5,904 | 5,181 | 14.0% | 5,414 | 9.0% | 11,085 | 9,211 | 20.3%
Gross Margin | 25.7% | 25.5% | 0.2p.p | 28.3% | -2.6p.p | 25.6% | 26.0% | -0.4p.p

SELLING, GENERAL & ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses amounted to R$ 516 million in the quarter, representing increases of 4% compared to 1Q22 and 8% in relation to 2Q21. As a ratio of net sales in the periods, these expenses decreased 0.2 p.p. in both comparisons, reflecting Gerdau’s ongoing efficiency gains and strategy to become one of the most profitable and efficient companies in the steel chain.

CONSOLIDATED | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Results (R$ million) |  |  |  |  |  |  |  |
SG&A | (516) | (494) | 4.4% | (476) | 8.3% | (1.010) | (946) | 6.8%
Selling expenses | (178) | (168) | 6.1% | (168) | 6.1% | (346) | (324) | 6.8%
General and admininstrative expenses | (338) | (326) | 3.5% | (308) | 9.6% | (664) | (622) | 6.8%
%SG&A/Net Sales | 2.2% | 2.4% | -0.2p.p | 2.5% | -0.2p.p | 2.3% | 2.7% | -0.3p.p

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EBITDA & EBITDA MARGIN

BREAKDOWN OF CONSOLIDATED EBITDA (R$ million) | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Net income | 4,298 | 2,940 | 46.2% | 3,934 | 9.3% | 7,239 | 6,405 | 13.0%
Net financial result | 361 | 503 | -28.3% | (58) | - | 864 | 213 | 305.9%
Provision for income and social contribution taxes | 1,131 | 1,570 | -27.9% | 1,686 | -32.9% | 2,701 | 2,503 | 7.9%
Depreciation and amortization | 701 | 659 | 6.4% | 630 | 11.2% | 1,360 | 1,279 | 6.3%
EBITDA - Instruction CVM¹ |  | 6,492 | 5,672 | 14.4% | 6,193 | 4.8% | 12,164 | 10,400 | 17.0%
Equity in earnings of unconsolidated companies | (387) | (309) | 25.4% | (237) | 63.5% | (695) | (386) | 80.1%
Proportional EBITDA of associated companies and jointly controlled entities | 573 | 464 | 23.5% | 334 | 71.4% | 1,037 | 589 | 76.1%
Losses due to non-recoverability of financial assets | 2 | (1) | - | 0 | 1483.7% | 1 | 5 | -73.0%
Non recurring items | - | - | - | (393) | - | - | (393) | -
Credit recovery / Provisions | - | - | - | (393) | - | - | (393) | -
Adjusted EBITDA² |  | 6,680 | 5,827 | 14.6% | 5,897 | 13.3% | 12,507 | 10,215 | 22.4%
Adjusted EBITDA Margin |  | 29.1% | 28.7% | 0.4 p.p | 30.8% | -1.7 p.p | 28.9% | 28.8% | 0.1 p.p
CONCILIATION OF CONSOLIDATED EBITDA (R$ million) | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
EBITDA - Instruction CVM¹ | 6,492 | 5,672 | 14.4% | 6,193 | 4.8% | 12,164 | 10,400 | 17.0%
Depreciation and amortization | (701) | (659) | 6.4% | (630) | 11.2% | (1,360) | (1,279) | 6.3%
OPERATING INCOME BEFORE FINANCIAL RESULT AND TAXES 2 | 5,791 | 5,014 | 15.5% | 5,563 | 4.1% | 10,804 | 9,121 | 18.5%

1 - Non-accounting measure calculated in accordance with CVM Instruction 527, in effect on the Quarterly Information reporting date.
2 - Non-accounting measure calculated by the Company.

In 2Q22, adjusted EBITDA was R$ 6.7 billion, with adjusted EBITDA margin of 29.1%, expanding 0.4 p.p. on the prior quarter. This increase in profitability is a direct result of the current stage of demand and prices in the steel industry, the latter as a reflection of the higher costs, added to the capacity of the teams to capture market opportunities.

In relation to 1Q21, the highlight was the larger contribution by the North America BD supported by the stronger metals spread in the United States.

EBITDA PER BD - 2Q22

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ADJUSTED EBITDA (R$ million) & ADJUSTED EBITDA MARGIN (%)

FINANCIAL INCOME

CONSOLIDATED (R$ million) | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Financial Result | (361) | (503) | -28.3% | 58 | - | (864) | (213) | 305.9%
Financial income | 141 | 89 | 58.4% | 50 | 182.4% | 229 | 106 | 116.4%
Financial expenses | (400) | (361) | 10.7% | (344) | 16.3% | (761) | (658) | 15.7%
Exchange variation (1) | 151 | (122) | - | 5 | - | 30 | 39 | -24.0%
Exchange variation (other currencies) | (198) | (120) | 65.0% | (120) | 65.0% | (318) | (166) | 91.6%
Tax credit update | - | - | - | 463 | - | - | 463 | -
Bond repurchase expenses | (51) | - | - | - | - | (51) | - | -
Gains (losses) on financial instruments, net | (4) | 11 | - | 5 | - | 7 | 4 | 71.8%

(1) Includes portion of net investment hedge.

(2). Non-recurring.

The financial result was negative in R$ 361 million in 2Q22, decreasing 28% in relation to 1Q22, mainly due to the exchange rate variation in the period. Compared to 2Q21, the sharp variation was mainly due to the non-recurring effects of inflation adjustment on tax credits in the amount of R$ 463 million in that quarter.

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NET INCOME

In 2Q22, adjusted net income came to R$ 4.3 billion, increasing 46% in relation to the prior quarter and 27% compared to 2Q21, demonstrating the Company’s ability and resilience to adapt according to different macroeconomic scenarios.

Note that 2Q21 was affected by non-recurring items in the amount of negative R$ 565 million, as shown in the table below:

CONSOLIDATED (R$ million) | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Income before financial income expenses and taxes¹ | 5,791 | 5,014 | 15.5 % | 5,563 | 4.0% | 10,804 | 9,121 | 18.5%
Financial Result | (361) | (503) | -28.3% | 58 | - | (864) | (213) | 305.%
Income before taxes¹ | 5,430 | 4,510 | 20.4% | 5,621 | -3.4% | 9,940 | 8,908 | 11.6%
Income and social contribution taxes | (1,131) | (1,570) | -28.0% | (1,686) | -32.9% | (2,701) | (2,503) | 7.9%
Exchange variation including net investment hedge | 169 | (346) | - | (23) | - | (177) | (16) | -
Other lines | (1,300) | (1,224) | 6.2% | (1,372) | -5.2% | (2,524) | (2,196) | 1.8%
Non recurring items | - | - | - | (291) | - | - | (291) | -1.0%
Consolidated Net Income¹ | 4,298 | 2,940 | 46.2% | 3,934 | 9.3% | 7,239 | 6,405 | 13.0%
Non recurring items | - | - | - | (565) | - | - | (565) | -
Credit recovery / Provisions | - | - | - | (856) | - | - | (856) | -
Income tax and social contribution on extraordinary items | - | - | - | 291 | - | - | 291 | -
Consolidated Adjusted Net Income² | 4,298 | 2,940 | 46.2% | 3,370 | 27.5% | 7,239 | 5,840 | 24.0%

1 - Accounting measure disclosed in the consolidated Income Statement.

2 - Non-accounting measure calculated by the Company to show net profit adjusted by non-recurring events that influenced the result.

ADJUSTED NET INCOME (R$ MILLION) & NET MARGIN (%)

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CAPITAL STRUCTURE & INDEBTEDNESS

DEBT BREAKDOWN (R$ million) | 2Q22 | 1Q22 | 2Q21
Short Term | 3,550 | 2,084 | 261
Long Term | 8,895 | 10,683 | 15,545
Gross Debt | 12,445 | 12,767 | 15,806
Gross Debt / Total Capitalization ¹ | 20% | 23% | 31%
Cash, cash equivalents and short-term investments | 7,755 | 7,591 | 5,638
Net Debt | 4,690 | 5,176 | 10,168
Net Debt ² (R$) / EBITDA ³ (R$) | 0.18x | 0.20x | 0.65x

| 1 - Total capitalization = shareholders’ equity + gross debt – interest on debt.
| 2 - Net debt = gross debt – interest on debt – cash, cash equivalents and financial investments.
| 3 - Adjusted EBITDA in the last 12 months.

We ended 2Q22 with gross debt of R$ 12.4 billion, 2.5% lower than the previous quarter and 21% lower than in 2Q21. Regards to the debt profile, 71% is long-term.

Meanwhile, the Company ended the quarter with a cash position of R$ 7.7 billion available, resulting in net debt of R$ 4.7 billion in the period and a net debt /EBITDA ratio of 0.18x.

Compared to prior periods, the lower net debt/EBITDA ratio is explained by a better cash generation combined with deleveraging actions and the robust EBITDA registered in 2Q22.

INDEBTEDNESS (R$ BILLION) & LEVERAGE RATIO

The weighted average nominal cost of gross debt was 7.64% and the average debt term of 8 years demonstrates a debt maturity schedule that is well balanced and well distributed over the coming years.

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INVESTMENTS

Capital expenditures amounted to R$ 959 million in 2Q22, with R$ 661 million allocated to Maintenance and R$ 298 million to Technological Expansion and Updating. Of the amount invested in the quarter, 63% was allocated to the Brazil BD, 20% to the North America BD, 14% to the Special Steel BD and 3% to the South America BD.

Of the total capex in 2Q22, R$ 126 million represented investments in implementing technologies to improve the environmental control and performance of existing facilities.

Maintenance projects are associated with the concept of reinvestment of depreciation over the years to ensure the good functioning of plants. Meanwhile, Expansion and Technological Updating investments include expanding forestry assets, updating and improving environmental controls and technological improvements that increase energy efficiency and reduce greenhouse gas emissions.

Gerdau S.A. has been demonstrating its capacity to adapt to changing scenarios, and the expenditures in its investment plan will be directly related to the pace of demand in our markets, as well as based on criteria involving the return on capital invested and the consequent cash generation.

CAPEX PER BD - 2Q22

| BRAZIL BD
| ■ | Expand hot-rolled production at Ouro Branco.
| ■ | Add 250 kta of coils and reduce operating costs.
| ■ | Investment of ~R$ 1 billion.

| SPECIAL STEEL BD
| ■ | New continuous casting line in Pindamonhangaba.
| ■ | Increase clean steel production, reduce costs and emissions.
| ■ | Investment of ~R$ 700 million.

| NORTH AMERICA BD
| ■ | Technological Updating Whitby Mini-Mill.
| ■ | Add 200 kta of steel by modernizing mini-mill in Canada.
| ■ | Investment of ~R$ 300 million.

| SOUTH AMERICA BD
| ■ | Expand rolled steel capacity in Peru.
| ■ | Increase capacity, reduce costs, and improve occupational safety.
| ■ | Investment of ~R$ 90 million.

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FREE CASH FLOW

Free cash flow in 2Q22 was positive R$ 3.2 billion, which marks the ninth straight quarter in which the Company has delivered positive free cash flow. The result reflects the significant contribution from EBITDA, as well as the disciplined allocation of capital to investments and to working capital. As a result and combined with the gradual reduction in debt, 48% of EBITDA in the quarter was converted into free cash flow.

FREE CASH FLOW (R$ BILLION)

WORKING CAPITAL & CASH CONVERSION CYCLE

The cash conversion cycle (working capital divided by daily net sales in the quarter), influenced by natural variations in demand, decreased from 66 days in March 2022 to 64 days in June 2022.

RETURN ON CAPITAL EMPLOYED - ROCE

The evolution in the Company’s level of efficiency, measured by ROCE in the last 12 months (as of June 2022), reflects the Company’s efficiency gains and higher value creation, with return exceeding its cost of capital.

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GOVERNANCE & CAPITAL MARKETS

EXTRAORDINARY SHAREHOLDERS MEETING

The Extraordinary Shareholders Meeting held on June 28 approved the increase in the number of members on the Company’s Board of Directors to seven members, being three of them independent.

DIVIDENDS

On August 2, 2022, the Board of Directors of Gerdau S.A. approved the distribution of dividends in the amount of R$ 1.2 billion (R$ 0.71 per share), to be paid based on the results for the second quarter of 2022, as stipulated in the Bylaws. The dividends will be paid on August 25, 2022, based on shareholding positions on August 15, 2022 and the ex-dividend date will be August 16, 2022.

Management reaffirms its understanding that the best way to increase absolute dividends is through strong cash generation, which it has been delivering, enabling it to maintain its policy of distributing at least 30% of adjusted net income. This flexibility, including in the frequency of distribution, enables the Company to deliver value in different scenarios.

SHARE BUYBACK PROGRAM

On May 5, 2022, Gerdau S.A. announced that the Board of Directors approved a share buyback program envisaging the acquisition of up to 55,000,000 preferred shares, representing approximately 5% of the preferred shares (GGBR4) and/or ADRs backed by the preferred shares (GGB) forming the free-float, with maximum duration of 18 months. As of June 18, 2022, the Company acquired 17,769,500 preferred shares at an average price of R$ 23.88, corresponding to 32.3% of the share buyback program executed to date.

PERFORMANCE
BY BUSINESS DIVISION (BD)

Gerdau presents its results in four Business Divisions (BD).

BRAZIL BD (Brazil Business Division) – includes the operations in Brazil (except special steel) and the iron ore operation in Brazil.

NORTH AMERICA BD (North America Business Division) – includes all operations in North America (Canada and United States), except special steel, as well as the jointly controlled company in Mexico.

SPECIAL STEEL BD (Special Steel Business Division) – includes the special steel operations in Brazil and the United States, as well as the jointly controlled company in Brazil.

SOUTH AMERICA BD (South America Business Division) – includes all operations in South America (Argentina, Peru and Uruguay), except the operations in Brazil, and the jointly controlled companies in Colombia and the Dominican Republic.

NET SALES

EBITDA & EBITDA MARGIN

BRAZIL BD

PRODUCTION & SHIPMENTS

| BRAZIL BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
| Volumes (1,000 tonnes) |  |  |  |  |  |  |  |
| Production of crude steel | 1,576 | 1,527 | 3.2% | 1,659 | -5.0% | 3,102 | 2,951 | 5.1%
| Shipments of steel | 1,529 | 1,384 | 10.5% | 1,476 | 3.6% | 2,913 | 2,760 | 5.5%
| Domestic Market | 1,186 | 1,085 | 9.3% | 1,363 | -13.0% | 2,271 | 2,599 | -12.6%
| Exports | 343 | 299 | 14.5% | 113 | 204.0% | 642 | 162 | 297.1%
| Shipments of long steel | 1,061 | 953 | 11.3% | 1,053 | 0.7% | 2,014 | 1,941 | 3.7%
| Domestic Market | 745 | 665 | 12.2% | 956 | -22.0% | 1,410 | 1,803 | -21.8%
| Exports | 315 | 288 | 9.3% | 97 | 224.7% | 604 | 138 | 338.8%
| Shipments of flat steel | 468 | 431 | 8.6% | 423 | 10.7% | 899 | 819 | 9.7%
| Domestic Market | 441 | 420 | 4.9% | 407 | 8.2% | 861 | 795 | 8.3%
| Exports | 27 | 11 | 156.1% | 16 | 75.3% | 38 | 24 | 58.5%

Crude steel production at the Brazil BD increased 3.2% in 2Q22 in relation to 1Q22 and contracted 5% in relation to 2Q21. Total shipments in 2Q22 increased 10.5% on the previous quarter and 3.6% compared to the previous year..

This quarter, the Company directed 22% of its shipments to export markets, up 14 p.p. from 2Q21, consisting essentially of products sold to South America.

Despite the current scenario of higher interest rates, we observed that domestic demand remained stable at high levels in 2Q22, with satisfactory levels of real demand in the construction and manufacturing sectors, especially in the machinery and equipment, agribusiness and energy segments.

The construction industry remains robust, with record sales, active construction sites and job creation. Real estate inventories and launches are at very healthy levels. The quarter also was marked by consistent recovery in industrial infrastructure, where we observed a growing number of projects in our clients’ portfolio. In the energy sector, new transmission line auctions are on the horizon, with investments in solar and wind power infrastructure. According to market analyses, the outlook for the oil and gas industry remain favorable, which could have a positive impact on the Company’s operations.

Regarding to the product mix, domestic salles were positively impacted by the growth in product delivery ,such as reinforced concrete, as well as flat steel, drawn steel and structural profiles. The export market registered an increase of 14.5% in shipments, with demand for products such as drawn steel, flat steel and structural profiles.

In 2Q22, 506,000 tonnes of iron ore were sold to third parties and 788,000 tonnes were internally consumed.

OPERATING RESULT

BRAZIL BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Results (R$ million) |  |  |  |  |  |  |  |
Net Sales¹ | 9,588 | 8,022 | 19.5% | 8,940 | 7.2% | 17,610 | 15,823 | 11.3%
Domestic Market | 8,097 | 6,862 | 18.0% | 8,524 | -5.0% | 14,959 | 15,215 | -1.7%
Exports | 1,491 | 1,160 | 28.6% | 416 | 258.6% | 2,651 | 608 | 336.0%
Cost of Goods Sols | (7,481) | (6,226) | 20.1% | (5,443) | 37.5% | (13,707) | (9,929) | 38.1%
Gross Profi | 2,107 | 1,795 | 17.4% | 3,498 | -39.8% | 3,903 | 5,895 | -33.8%
Gross Margin (%) | 22.0% | 22.4% | -0.4p.p | 39.1% | -17.1p.p | 22.2% | 37.3% | -15.1p.p
Adjusted EBITDA ² | 2,288 | 1,951 | 17.3% | 3,634 | -37.1% | 4,239 | 6,172 | -31.3%
Adjusted EBITDA Margin (%) | 23.9% | 24.3% | -0.5p.p | 40.7% | -16.8p.p | 24.1% | 39.0% | -14.9p.p

1 – Includes iron ore sales.

2 - Non-accounting measure calculated by the Company. The Company presents Adjusted EBITDA to provide additional information on cash generation in the period.

Net sales increased 19.5% in 2Q22 compared to 1Q22, due to the increase in net sales per tonne sold and the higher volumes shipped in both the domestic and export markets. Compared to 2Q22, net sales increased 7%, explained by market conditions in the period and higher exports with positive exchange rate variation.

In 2Q22, cost of goods sold increased 20.1% compared to 1Q22 and 37.5% in relation to the previous year, mainly explained by the high cost of scrap, pig iron and metallurgical coal.

Gross profit increased 17.4% in 2Q22 in relation to 1Q22 and decreased 39.8% compared to the same period last year, as described above.

In 2Q22, the Brazil BD reported Adjusted EBITDA of R$ 2.3 billion, up 17.3% from 1Q22 and down 37.1% from 2Q21, reflecting the strong comparison base of that period, when the operation registered record EBITDA.

NORTH AMERICA BD

PRODUCTION & SHIPMENTS

NORTH AMERICA BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Volumes (1,000 tonnes) |  |  |  |  |  |  |  |
Production of crude steel | 1,145 | 1,214 | -5.7% | 1,269 | -9.8% | 2,359 | 2,520 | -6.4%
Shipments of steel | 1,121 | 1,094 | 2.4% | 1,143 | -1.9% | 2,215 | 2,266 | -2.2%

In 2Q22, steel production decreased 5.7% in relation to 1Q22 and 9.8% compared to 2Q21. Shipments improved 2.4% in relation to 1Q22, due to the higher demand from the non-residential construction sector in the period.

The outlook for 2022 remains positive for the construction and distribution sectors. In the infrastructure sector, the U.S. government has required all public construction projects to use locally produced steel to support domestic producers.

OPERATING RESULT

NORTH AMERICA BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
Results (R$ million) |  |  |  |  |  |  |  |
Net Sales | 8,573 | 8,222 | 4.3% | 6,612 | 29.7% | 16,795 | 12,500 | 34.4%
Cost of Goods Sols | (6,121) | (5,856) | 4.5% | (5,419) | 13.0% | (11,977) | (10,572) | 13.3%
Gross Profit | 2,451 | 2,366 | 3.6% | 1,193 | 105.6% | 4,818 | 1,928 | 149.9%
Gross Margin (%) | 28.6% | 28.8% | -0.2p.p | 18.0% | 10.6p.p | 28.7% | 15.4% | 13.3p.p
EBITDA 1 | 2,836 | 2,711 | 4.6% | 1,352 | 109.8% | 5,548 | 2,195 | 152.8%
EBITDA Margin (%) | 33.1% | 33.0% | 0.1p.p | 20.4% | 12.6p.p | 33.0% | 17.6% | 15.5p.p

1 - Non-accounting measure calculated by the Company. The Company presents Adjusted EBITDA to provide additional information on cash generation in the period.

Net sales totaled R$ 8.6 billion in 2Q22, up 4.3% from 1Q22 and 29.7% from 2Q21, explained by higher metal spread and the increase in net sales per tonne sold in the comparison periods. In relation to 1Q22, note that the 13% increase in costs of goods sold reflects the higher average prices for purchasing alloysand scrap.

The gross profit was R$ 2.4 billion in the quarter, two-times higher than in 2Q21. Meanwhile, gross profit in the first half of the year was R$ 4.8 billion, 150% higher than in the same period last year. The increases are explained by the growth in operations, which continue at full capacity to meet the sector’s demand, combined with the expansion of product lines to clients, which increased local competitiveness and improved the level of service.

Another highlight was the EBITDA of R$ 2.8 billion and EBITDA margin of 33.1% in the quarter, due to the combination of higher shipments, higher steel prices, our strategy of continuous segmentation and efforts to control costs, which helped to achieve record results at the BD.

SPECIAL STEEL BD

PRODUCTION & SHIPMENTS

| SPECIAL STEEL BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
| Volumes (1,000 tonnes) |  |  |  |  |  |  |  |
| Production of crude steel | 507 | 494 | 2.6% | 396 | 27.9% | 1,001 | 842 | 18.9%
| Shipments of steel | 435 | 418 | 4.0% | 417 | 4.2% | 853 | 843 | 1.2%

In 2Q22, steel production increased 2.6% in relation to 1Q22 and 27.9% compared to 2Q21. Steel shipments grew 4% on the previous quarter and on the same period last year.

Note that light vehicle sales continued to be affected by the global semiconductor shortage, which are used in all electronic components installed in vehicles. On the other hand, the good performances of the heavy vehicle sector in Brazil and the oil and gas industry in the United States continue to partially offset the effects caused by the semiconductor shortage on the light vehicle sector.

OPERATING RESULT

| SPECIAL STEEL BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
| Results (R$ million) |  |  |  |  |  |  |  |
| Net Sales | 3,657 | 3,219 | 13.6% | 2,650 | 38.0% | 6,876 | 5,080 | 35.4%
| Cost of Goods Sols | (2,808) | (2,601) | 8.0% | (2,243) | 25.2% | (5,409) | (4,388) | 23.3%
| Gross Profit | 849 | 618 | 37.5% | 407 | 108.8% | 1,467 | 692 | 112.0%
| Gross Margin (%) | 23.2% | 19.2% | 4.0p.p | 15.3% | 7.9p.p | 21.3% | 13.6% | 7.7p.p
| EBITDA 1 | 928 | 692 | 34.1% | 495 | 87.3% | 1,620 | 904 | 79.2%
| EBITDA Margin (%) | 25.4% | 21.5% | 3.9p.p | 18.7% | 6.7p.p | 23.6% | 17.8% | 5.8p.p

| 1 - Non-accounting measure calculated by the Company. The Company presents Adjusted EBITDA to provide additional information on cash generation in the period.

Net sales in 2Q22 reached R$ 3.7 billion, surpassing 1Q22 by 13.6% and 2Q21 by 38.0%. Gross profit and gross margin registered significant improvements, since the increase in net sales per tonne surpassed the increase in cost per tonne, in the comparison periods. Note that the sectors that boosted results were heavy vehicles (especially trucks), oil and gas, and distribution.

Despite the cost inflation and semiconductor shortage, EBITDA in 2Q22 increased 34% on 1Q22 and 87% on 2Q21, driven by current profitability levels.

SOUTH AMERICA BD

PRODUCTION & SHIPMENTS

| SOUTH AMERICA BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
| Volumes (1,000 tonnes) |  |  |  |  |  |  |  |
| Production of crude steel | 201 | 172 | 17.4% | 124 | 62.4% | 373 | 287 | 30.0%
| Shipments of steel | 292 | 332 | -12.0% | 268 | 9.1% | 625 | 565 | 10.7%

Steel production grew 17.4% in relation to 1Q22 and 62.4% in relation to 2Q21, notably in Argentina’s construction sector, boosting gross steel production at the South America BD to a record high, surpassing the 2018 results. In relation to the previous quarter, shipments were negatively affected by lower steel sales in Peru.

OPERATING RESULT

| SOUTH AMERICA BD | 2Q22 | 1Q22 | ∆ | 2Q21 | ∆ | 6M22 | 6M21 | ∆
| Results (R$ million) |  |  |  |  |  |  |  |
| Net Sales | 1,894 | 1,753 | 8.0% | 1,308 | 44.8% | 3,647 | 2,757 | 32.3%
| Cost of Goods Sols | (1,375) | (1,405) | -2.1% | (1,002) | 37.1% | (2,779) | (2,064) | 34.6%
| Gross Profit | 519 | 348 | 49.2% | 305 | 70.1% | 868 | 692 | 25.3%
| Gross Margin (%) | 27.4% | 19.9% | 7.6p.p | 23.4% | 4.1p.p | 23.8% | 25.1% | -1.3p.p
| EBITDA 1 | 740 | 483 | 53.2% | 494 | 49.7% | 1,222 | 1,044 | 17.0%
| EBITDA Margin (%) | 39.1% | 27.5% | 11.5p.p | 37.8% | 1.3p.p | 33.5% | 37.9% | -4.4p.p

| 1 - Non-accounting measure calculated by the Company. The Company presents Adjusted EBITDA to provide additional information on cash generation in the period.

In 1Q22, net sales came to R$ 1.9 billion, up 8% from 1Q22 and 44.8% from 2Q21, due to price adjustments in the period. Driven by the effects on sales and cost of goods sold, gross profit reached R$ 519 million in 2Q22, an increase of 49.2% in relation to the previous quarter and of 70% compared to the previous year.

EBITDA and EBITDA margin in 2Q22 registered record highs at this Business Division, explained by the stronger demand from the construction sector, mainly in Argentina – despite the scenario of high volatility in its economy.

APPENDICES

ASSETS

GERDAU S.A. |  |  |  |  |  |
CONSOLIDATED BALANCE SHEETS |  |  |  |  |  |
In thousands of Brazilian reais (R$) |  |  |
|  | June 30, 2022 |  |  | December 31, 2021 |
CURRENT ASSETS |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 5,776,753 |  |  |  | 4,160,654 |
Short-term investments |  |  | 1,977,982 |  |  |  | 2,626,212 |
Trade accounts receivable |  |  | 7,261,198 |  |  |  | 5,414,075 |
Inventories |  |  | 18,464,285 |  |  |  | 16,861,488 |
Tax credits |  |  | 1,978,938 |  |  |  | 2,083,885 |
Income and social contribution taxes recoverable |  |  | 471,180 |  |  |  | 804,053 |
Dividends receivable |  |  | 5,182 |  |  |  | 7,671 |
Fair value of derivatives |  |  | 2,596 |  |  |  | 3,246 |
Other current assets |  |  | 797,311 |  |  |  | 679,193 |
|  |  | 36,735,425 |  |  |  | 32,640,477 |
NON-CURRENT ASSETS |  |  |  |  |  |  |  |
Tax credits |  |  | 109,971 |  |  |  | 124,600 |
Deferred income taxes |  |  | 2,513,700 |  |  |  | 2,929,308 |
Related parties |  |  | - |  |  |  | 2,678 |
Judicial deposits |  |  | 1,738,624 |  |  |  | 1,659,379 |
Other non-current assets |  |  | 665,402 |  |  |  | 571,637 |
Prepaid pension cost |  |  | 4,942 |  |  |  | 4,942 |
Investments in associates and joint ventures |  |  | 3,925,524 |  |  |  | 3,340,775 |
Goodwill |  |  | 11,685,319 |  |  |  | 12,427,527 |
Leasing |  |  | 900,412 |  |  |  | 861,744 |
Other Intangibles |  |  | 435,709 |  |  |  | 509,760 |
Property, plant and equipment, net |  |  | 18,941,784 |  |  |  | 18,741,786 |
|  |  | 40,921,387 |  |  |  | 41,174,136 |
TOTAL ASSETS |  |  | 77,656,812 |  |  |  | 73,814,613 |

LIABILITIES

GERDAU S.A. |  |  |  |  |  |
CONSOLIDATED BALANCE SHEETS |  |  |  |  |  |
In thousands of Brazilian reais (R$) |  |  |
|  | June 30, 2022 |  |  | December 31, 2021 |
CURRENT LIABILITIES |  |  |  |  |  |  |  |
Trade accounts payable |  |  | 9,394,840 |  |  |  | 8,017,140 |
Short-term debt |  |  | 1,402,840 |  |  |  | 234,537 |
Debentures |  |  | 2,147,180 |  |  |  | 1,531,956 |
Taxes payable |  |  | 665,819 |  |  |  | 548,173 |
Income and social contribution taxes payable |  |  | 630,260 |  |  |  | 863,136 |
Payroll and related liabilities |  |  | 814,980 |  |  |  | 1,199,143 |
Leasing payable |  |  | 265,069 |  |  |  | 275,086 |
Employee benefits |  |  | 582 |  |  |  | 39 |
Environmental liabilities |  |  | 250,555 |  |  |  | 231,711 |
Fair value of derivatives |  |  | 5,454 |  |  |  | - |
Obligations with FIDC |  |  | - |  |  |  | 45,497 |
Other current liabilities |  |  | 949,986 |  |  |  | 1,090,396 |
|  |  | 16,527,565 |  |  |  | 14,036,814 |
NON-CURRENT LIABILITIES |  |  |  |  |  |  |  |
Long-term debt |  |  | 8,096,022 |  |  |  | 10,875,249 |
Debentures |  |  | 798,724 |  |  |  | 1,397,951 |
Related parties |  |  | 26,172 |  |  |  | 24,648 |
Deferred income taxes |  |  | 103,592 |  |  |  | 98,975 |
Provision for tax, civil and labor liabilities |  |  | 1,809,680 |  |  |  | 1,741,026 |
Environmental liabilities |  |  | 259,595 |  |  |  | 343,998 |
Employee benefits |  |  | 1,309,618 |  |  |  | 1,415,151 |
Leasing payable |  |  | 698,724 |  |  |  | 643,279 |
Other non-current liabilities |  |  | 508,784 |  |  |  | 421,873 |
|  |  | 13,610,911 |  |  |  | 16,962,150 |
EQUITY |  |  |  |  |  |  |  |
Capital |  |  | 19,249,181 |  |  |  | 19,249,181 |
Treasury stocks |  |  | (472,908) |  |  |  | (152,409) |
Capital reserves |  |  | 11,597 |  |  |  | 11,597 |
Retained earnings |  |  | 17,862,503 |  |  |  | 17,838,494 |
Transactions with non-controlling interests without change of control |  |  | 5,891,944 |  |  |  | - |
Other reserves |  |  | 4,790,908 |  |  |  | 5,657,419 |
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT |  |  | 47,333,225 |  |  |  | 42,604,282 |
NON-CONTROLLING INTERESTS |  |  | 185,111 |  |  |  | 211,367 |
EQUITY |  |  | 47,518,336 |  |  |  | 42,815,649 |
TOTAL LIABILITIES AND EQUITY |  |  | 77,656,812 |  |  |  | 73,814,613 |

INCOME STATEMENT

GERDAU S.A. |  |  |  |  |  |  |
CONSOLIDATED STATEMENTS OF INCOME |  |  |  |  |  |  |
In thousands of Brazilian reais (R$) |
| For the three-month period ended |  | For the six-month period ended
| June 30, 2022 |  | June 30, 2021 |  | June 30, 2022 |  | June 30, 2021
NET SALES | 22,968,442 |  | 19,130,116 |  | 43,298,933 |  | 35,473,100
Cost of sales | (17,064,511) |  | (13,715,929) |  | (32,214,000) |  | (26,262,004)
GROSS PROFIT | 5,903,931 |  | 5,414,187 |  | 11,084,933 |  | 9,211,096
Selling expenses | (178,235) |  | (168,421) |  | (346,126) |  | (323,814)
General and administrative expenses | (337,778) |  | (307,956) |  | (664,194) |  | (622,051)
Other operating income | 59,912 |  | 37,564 |  | 96,521 |  | 200,420
Other operating expenses | (42,069) |  | (42,875) |  | (61,039) |  | (119,188)
Tax credits recovery | - |  | 393,341 |  | - |  | 393,341
Impairment of financial assets | (1,976) |  | (125) |  | (1,351) |  | (5,161)
Equity in earnings of unconsolidated companies | 386,851 |  | 236,979 |  | 695,419 |  | 385,938
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES | 5,790,636 |  | 5,562,694 |  | 10,804,163 |  | 9,120,581
Financial income | 140,617 |  | 49,788 |  | 229,416 |  | 105,696
Financial expenses | (450,975) |  | (343,907) |  | (812,409) |  | (657,503)
Exchange variations, net | (46,566) |  | (115,402) |  | (288,355) |  | (127,271)
Tax credits monetary update | - |  | 462,651 |  | - |  | 462,651
Gains (Losses) on financial instruments, net | (4,160) |  | 4,750 |  | 6,870 |  | 3,591
INCOME BEFORE TAXES | 5,429,552 |  | 5,620,574 |  | 9,939,685 |  | 8,907,745
Current | (1,425,280) |  | (1,140,752) |  | (2,316,336) |  | (1,884,568)
Deferred | 294,227 |  | (545,345) |  | (384,465) |  | (618,164)
Income and social contribution taxes | (1,131,053) |  | (1,686,097) |  | (2,700,801) |  | (2,502,732)
NET INCOME | 4,298,499 |  | 3,934,477 |  | 7,238,884 |  | 6,405,013
(-) Credit recovery / Provisions | - |  | (855,992) |  | - |  | (855,992)
(+) Income tax on extraordinary items | - |  | 291,037 |  | - |  | 291,037
(=) Total of extraordinary items | - |  | (564,955) |  | - |  | (564,955)
ADJUSTED NET INCOME* | 4,298,499 |  | 3,369,522 |  | 7,238,884 |  | 5,840,058

* Adjusted net profit is a non-accounting measure calculated by the Company, reconciled with the financial statements and consists of net income (loss) adjusted by non-recurring events that influenced profit or loss, without cash effect.

CASH FLOW

GERDAU S.A. |  |  |  |  |  |  |
CONSOLIDATED STATEMENTS OF CASH FLOWS |  |  |  |  |  |  |
In thousands of Brazilian reais (R$) |  |  |  |  |  |  |
| For the three-month period ended |  | For the six-month period ended
| June 30, 2022 |  | June 30, 2021 |  | June 30, 2022 |  | June 30, 2021
Cash flows from operating activities |  |  |  |  |  |  |
Net income for the period | 4,298,499 |  | 3,934,477 |  | 7,238,884 |  | 6,405,013
Adjustments to reconcile net income for the period to net cash provided by |  |  |  |  |  |  |
operating activities: |  |  |  |  |  |  |
Depreciation and amortization | 701,208 |  | 630,498 |  | 1,360,019 |  | 1,279,329
Equity in earnings of unconsolidated companies | (386,851) |  | (236,979) |  | (695,419) |  | (385,938)
Exchange variation, net | 46,566 |  | 115,402 |  | 288,355 |  | 127,271
Gains and losses on derivative financial instruments, net | 4,160 |  | (4,750) |  | (6,870) |  | (3,591)
Post-employment benefits | 56,292 |  | 57,512 |  | 126,742 |  | 124,389
Long-term incentive plans | 21,740 |  | 17,391 |  | 39,415 |  | 28,610
Income tax | 1,131,053 |  | 1,686,097 |  | 2,700,801 |  | 2,502,732
Gains on disposal of property, plant and equipment | (14,189) |  | 2,206 |  | (18,547) |  | 1,867
Impairment of financial assets | 1,976 |  | 125 |  | 1,351 |  | 5,161
Provision of tax, civil, labor and environmental liabilities, net | 70,262 |  | 27,965 |  | 78,391 |  | 63,101
Tax credits recovery | - |  | (855,992) |  | - |  | (855,992)
Interest income on short-term investments | (59,822) |  | (30,936) |  | (118,229) |  | (67,389)
Interest expense on debt and debentures | 274,152 |  | 219,304 |  | 520,205 |  | 433,534
Interest on loans with related parties | 29 |  | (1,571) |  | 29 |  | (3,068)
Provision (Reversal) for net realizable value adjustment in inventory, net | 5,561 |  | 1,878 |  | 7,555 |  | (3,415)
| 6,150,636 |  | 5,562,627 |  | 11,522,682 |  | 9,651,614
Changes in assets and liabilities |  |  |  |  |  |  |
Increase in trade accounts receivable | (13,822) |  | (1,044,018) |  | (1,915,468) |  | (2,218,579)
Increase in inventories | (1,478,186) |  | (2,676,888) |  | (2,288,678) |  | (5,033,866)
Increase in trade accounts payable | 715,294 |  | 679,865 |  | 1,571,663 |  | 1,641,969
Increase in other receivables | (191,243) |  | (4,617) |  | (225,092) |  | (146)
Decrease in other payables | (330,747) |  | (1,007,986) |  | (1,032,720) |  | (1,059,255)
Dividends from associates and joint ventures | 13,047 |  | 9,795 |  | 15,730 |  | 13,863
Purchases of short-term investments | (253,969) |  | (440,679) |  | (1,301,447) |  | (998,343)
Proceeds from maturities and sales of short-term investments | 1,056,534 |  | 607,611 |  | 2,073,429 |  | 1,480,923
Cash provided by operating activities | 5,667,544 |  | 1,685,710 |  | 8,420,099 |  | 3,478,180
Interest paid on loans and financing | (418,344) |  | (365,761) |  | (522,981) |  | (470,441)
Interest paid on lease liabilities | (20,173) |  | (15,940) |  | (39,304) |  | (32,091)
Income and social contribution taxes paid | (1,371,583) |  | (753,645) |  | (1,680,139) |  | (856,536)
Net cash provided by operating activities | 3,857,444 |  | 550,364 |  | 6,177,675 |  | 2,119,112
Cash flows from investing activities |  |  |  |  |  |  |
Purchases of property, plant and equipment | (958,982) |  | (565,594) |  | (1,551,839) |  | (1,000,723)
Proceeds from sales of property, plant and equipment, investments and other intangibles | 22,006 |  | 13,515 |  | 35,273 |  | 14,178
Additions in other intangibles | (38,220) |  | (45,390) |  | (74,434) |  | (82,495)
Net cash used in investing activities | (975,196) |  | (597,469) |  | (1,591,000) |  | (1,069,040)
Cash flows from financing activities |  |  |  |  |  |  |
Acquisition of interest in subsidiary | (46,153) |  | - |  | (46,153) |  | -
Purchases of Treasury stocks | (312,144) |  | - |  | (312,144) |  | -
Dividends and interest on capital paid | (870,332) |  | (695,176) |  | (1,210,915) |  | (1,136,364)
Proceeds from loans and financing | 10,426 |  | 164,677 |  | 305,580 |  | 310,027
Repayment of loans and financing | (1,290,039) |  | (410,026) |  | (1,486,703) |  | (1,639,034)
Leasing payment | (85,723) |  | (68,324) |  | (157,410) |  | (134,626)
Intercompany loans, net | 4,912 |  | 49,420 |  | 4,174 |  | 50,531
Net cash used by financing activities | (2,589,053) |  | (959,429) |  | (2,903,571) |  | (2,549,466)
Exchange variation on cash and cash equivalents | 588,397 |  | (209,110) |  | (67,005) |  | (91,582)
Increase (Decrease) in cash and cash equivalents | 881,592 |  | (1,215,644) |  | 1,616,099 |  | (1,590,976)
Cash and cash equivalents at beginning of period | 4,895,161 |  | 4,241,872 |  | 4,160,654 |  | 4,617,204
Cash and cash equivalents at end of period | 5,776,753 |  | 3,026,228 |  | 5,776,753 |  | 3,026,228

QUARTERLY RESULTS - 2T22

Gerdau presents its results in four Business Divisions (BD): BRAZIL BD (Brazil Business Division) – includes the operations in Brazil (except special steel) and the iron ore operation in Brazil. NORTH AMERICA BD (North America Business Division) – includes all operations in North America (Canada and United States), except special steel, as well as the jointly controlled company in Mexico. SOUTH AMERICA BD (South America Business Division) – |  | includes all operations in South America (Argentina, Peru and Uruguay), except the operations in Brazil, and the jointly controlled companies in Colombia and the Dominican Republic. SPECIAL STEEL BD (Special Steel Business Division) – includes the special steel operations in Brazil and the United States, as well as the jointly controlled company in Brazil.

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