Exhibit 99.1

 

KEY MEASURES ADOPTED BY THE COMPANY

· We are closely following all guidance for preventing the spread of Covid-19 issued by the health authorities in the countries where we operate. As such, we have adopted a series of measures to mitigate infection risk in workplaces, such as working from home, creating crisis committees and cancelling all domestic and international travel and participation in external events, just to cite a few.

· At all our units, if needed, we are opting for collective leave and shorter work shifts for our employees.

· We also intensified hygiene measures at units, adopted flexible meal times, expanded the supply of chartered transportation and implemented triage protocols at plant entry points, among other measures.

· On a daily basis, employees who must be physically present at Gerdau units follow the mandatory standard hygiene procedure and undergo a clinical evaluation that includes temperature measurement and answering a questionnaire.

· Expansion of the + Care Program, which offers online psychological support, and of the telemedicine channels.

· In 30 days, we delivered, jointly with our partners and setting a new record time for the construction of a hospital in Brazil, the new Covid-19 Treatment Center, which was built as an annex to Independência Hospital in Porto Alegre, Rio Grande do Sul.

· Donation of funds to the recyclable material collectors of the Bolsa Reciclagem Program to support the association of recyclable material collectors in Minas Gerais state.

· Development, in partnership with the startup Monkey, of a platform for suppliers to receive in advance payments from Gerdau in a fast and easy way, at attractive costs, to support them during the pandemic.

· For information on other measures, please visit the Company’s website.

2

 

São Paulo, August 5, 2020 – Gerdau S.A. (B3: GGBR4 / NYSE: GGB) announces its results for the second quarter of 2020. The consolidated financial statements of the Company are presented in Brazilian real (R$), in accordance with International Financial Reporting Standards (IFRS) and the accounting practices adopted in Brazil. The information in this report does not include the data of associates and jointly controlled entities, except where stated otherwise.

GERDAU’S PERFORMANCE IN 2Q20

Operating Results

CONSOLIDATED	2Q20			2Q19			∆			1Q20			∆			6M20			6M19			∆
Volumes (1,000 tonnes)
Production of crude steel		2,433			3,425			-29	%		3,188			-24	%		5,620			6,768			-17	%
Shipments of steel		2,365			2,972			-20	%		2,691			-12	%		5,055			5,957			-15	%
Results (R$ million)
Net Sales		8,745			10,154			-14	%		9,228			-5	%		17,972			20,180			-11	%
Cost of Goods Sold		(8,027	)		(8,881	)		-10	%		(8,372	)		-4	%		(16,399	)		(17,638	)		-7	%
Gross profit		718			1,273			-44	%		855			-16	%		1,574			2,542			-38	%
Gross margin (%)		8.2	%		12.5	%					9.3	%					8.8	%		12.6	%
SG&A		(306	)		(352	)		-13	%		(370	)		-17	%		(677	)		(713	)		-5	%
Selling expenses		(97	)		(120	)		-19	%		(120	)		-19	%		(217	)		(243	)		-11	%
General and administrative expenses		(209	)		(232	)		-10	%		(250	)		-16	%		(460	)		(471	)		-2	%
%SG&A/Net Sales		3.5	%		3.5	%					4.0	%					3.8	%		3.5	%
Adjusted EBITDA		1,318			1,574			-16.2	%		1,177			12.0	%		2,495			3,131			-20.3	%
Adjusted EBITDA Margin		15.1	%		15.5	%					12.8	%					13.9	%		15.5	%

Production and Shipments

In 2Q20 compared to both 1Q20 and 2Q19, crude steel production decreased due to the stoppages at the Company’s mills, as mentioned in the material fact notices disclosed to the market. The stoppages were carried out due to the Covid-19 pandemic and its impacts on businesses.

Steel shipments in 2Q20 declined in relation to both 1Q20 and 2Q19, due to the lower shipments at all business divisions, with the exception of the Brazil BD, which registered an increase in shipments compared to 1Q20.

Operating Result

The reductions in net sales and in consolidated cost of goods sold in 2Q20 in relation to 1Q20 is mainly due to the lower shipments.

Consolidate gross profit and gross margin decreased in relation to 1Q20, mainly due to the impacts from the costs with the stoppages at mills during the quarter. Meanwhile, in relation to 2Q19, gross profit and gross margin decreased, basically due to the decline in net sales outpacing the decline in cost of goods sold. In the same comparison period, cost per tonne sold increased by 14%, compared to the increase of 8% in net sales per tonne sold.

Selling, general and administrative expenses decreased in 2Q20 in relation to both 1Q20 and 2Q19, due to the measures adopted by the Company to reduce costs and expenses given the effects of the Covid-19 pandemic and despite the adverse effect from exchange variation. As a ratio of net sales, selling, general and administrative expenses were 3.5% in 2Q20, in line with 2Q19.

3

Breakdown of Consolidated EBITDA (R$ million)	2Q20			2Q19			∆			1Q20			∆			6M20			6M19			∆
Net income		315			373			-15	%		221			43	%		537			825			-35	%
Net financial result		330			300			10	%		232			43	%		561			675			-17	%
Provision for income and social contribution taxes		131			252			-48	%		21			528	%		151			415			-64	%
Depreciation and amortization		611			527			16	%		557			10	%		1,168			1,033			13	%
EBITDA - Instruction CVM ¹		1,387			1,452			-4	%		1,030			35	%		2,417			2,948			-18	%
Impairment of financial assets		25			2			1192	%		43			-41	%		69			8			762	%
Equity in earnings of unconsolidated companies		4			39			-89	%		(10	)		-139	%		(6	)		24			-126	%
Proportional EBITDA of associated companies and jointly controlled entities		91			81			12	%		114			-20	%		204			151			35	%
Fixed cost of plants without production		119			-			-			-			-			119			-			-
Credit recovery / Provisions		(308	)		-			-			-			-			(308	)		-			-
Adjusted EBITDA²		1,318			1,574			-16.2	%		1,177			12.0	%		2,495			3,131			-20.3	%
Adjusted EBITDA Margin		15.1	%		15.5	%					12.8	%					13.9	%		15.5	%

CONCILIATION OF CONSOLIDATED EBITDA (R$ million)	2Q20			2Q19			1Q20			6M20			6M19
EBITDA -  Instruction CVM ¹		1,387			1,452			1,030			2,417			2,948
Depreciation and amortization		(611	)		(527	)		(557	)		(1,168	)		(1,033	)
OPERATING INCOME BEFORE FINANCIAL RESULT AND TAXES³		776			925			474			1,249			1,915

1 - Non-accounting measure calculated in accordance with CVM Instruction 527. 

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

3 - Accounting measure reported in the consolidated Income Statement.

Adjusted EBITDA and adjusted EBITDA margin increased in 2Q20 compared to 1Q20, mainly due to the higher shipments at the Brazil BD. In addition, adjusted EBITDA is reported with the elimination of the non-recurring effects of the fixed costs of plants without production, net of credit recovery / Provisions in the quarter.

In relation to 2Q19, adjusted EBITDA and adjusted EBITDA margin accompanied the decline in gross profit, after the elimination of non-recurring effects in this indicator, as explained above.

EBITDA (R$ million) and EBITDA Margin (%)

 

4

 

Financial Result and Net Income

CONSOLIDATED (R$ million)	2Q20			2Q19			∆			1Q20			∆			6M20			6M19			∆
Income before financial income expenses and taxes¹		776			925			-16	%		473			64	%		1,249			1,915			-35	%
Financial Result		(330	)		(300	)		10	%		(232	)		43	%		(561	)		(675	)		-17	%
Financial income		51			48			6	%		46			10	%		97			89			9	%
Financial expenses		(390	)		(353	)		11	%		(325	)		20	%		(715	)		(698	)		2	%
Exchange variation, net (including net investment hedge)		29			27			11	%		(56	)		-			(26	)		(22	)		22	%
Exchange variation (other currencies)		(20	)		(15	)		38	%		103			-			83			(37	)		-
Gains (losses) on financial instruments, net		0			(7	)		-			1			-			1			(7	)		-
Income before taxes¹		446			625			-29	%		242			84	%		688			1,240			-45	%
Income and social contribution taxes		(131	)		(252	)		-48	%		(21	)		528	%		(151	)		(415	)		-64	%
Exchange variation including net investment hedge		19			(42	)		-			80			-76	%		99			(21	)		-
Other lines		(85	)		(211	)		-59	%		(101	)		-15	%		(186	)		(394	)		-53	%
Non-recurring items		(64	)		-			-			-			-			(64	)		-			-
Consolidated Net Income ¹		315			373			-15	%		221			43	%		537			825			-35	%
Non-recurring items		(124	)		-			-			-			-			(124	)		-			-
Fixed costs of plants without production		119			-			-			-			-			119			-			-
Credit recovery / Provisions		(308	)		-			-			-			-			(308	)		-			-
Income taxon extraordinary items		64			-			-			-			-			64			-			-
Consolidated Adjusted Net Income²		191			373			-48.7	%		221			-13.7	%		412			825			-50.0	%

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.

In 2Q20 compared to 1Q20 and 2Q19, the variation in the financial result was basically due to the effects from exchange variation.

Adjusted net profit decreased in 2Q20 compared to 1Q20 and 2Q19, due to the lower gross profit, which was mitigated by the reduction in selling, general and administrative expenses.

Dividends

The Company’s Board of Directors opted not to anticipate the payment of dividends for 2Q20, due to the uncertainties caused by the effects from Covid-19 on the result for fiscal year 2020, in line with the other initiatives to ensure liquidity. We reiterate that the Company’s dividend policy remains unchanged with the distribution of 30% of adjusted net profit for the fiscal year, with its anticipation discretionary.

5

Working Capital and Cash Conversion Cycle

The cash conversion cycle (working capital divided by daily net sales in the quarter) went from 83 days in March 2020 to 95 days in June 2020, affected by the reduction in net sales and by exchange variation in the period.

Working Capital (R$ million) and Cash Conversion Cycle (days)

Financial liabilities

Debt composition (R$ million)	03.31.2020		12.31.2019		03.31.2019
Short Term		3,659		1,562		2,939
Long Term		16,370		14,488		12,054
Gross Debt		20,029		16,050		14,993
Cash, cash equivalents and short-term investments		5,979		6,295		2,532
Net Debt		14,051		9,755		12,461

On June 30, 2020, gross debt was 18.4% short term and 81.6% long term. Broken down by currency, 14.4% of gross debt was denominated in Brazilian real, 85.5% in U.S. dollar and 0.1% in other currencies.

On June 30, 2020, 53% of cash was denominated in U.S. dollar.

The evolution in key debt indicators is shown below:

Indicators	03.31.2020			12.31.2019			03.31.2019
Gross debt / Total capitalization ¹		40	%		37	%		36	%
Net debt² (R$) / EBITDA ³ (R$)		2.55	x		1.67	x		1.81	x

1 - Total capitalization = shareholders' equity + gross debt - debt interest

2 – Net debt = gross debt – interest on debt – cash, cash equivalents and financial investments.

3 – Adjusted EBITDA in the last 12 months.

The increase in the net debt/EBITDA ratio from 2.55x on March 31, 2020 to 2.78x on June 30, 2020 is explained mainly by the exchange variation in the period.

6

 

Payment schedule of gross debt (non-current)

On June 30, 2020, the nominal weighted average cost of gross debt was 4.7%, or 2.3% for the portion denominated in Brazilian real, 5.6% plus exchange variation for the portion denominated in U.S. dollar contracted by companies in Brazil, and 3.9% for the portion contracted by subsidiaries abroad. On June 30, 2020, the average gross debt term was 7.2 years, with the debt maturity schedule well balanced and distributed over the coming years.

Investments

Capital expenditure amounted to R$ 271 million in 2Q20, with R$ 144 million allocated to general maintenance, R$ 43 million to maintenance of the Ouro Branco Mill and R$ 84 million to technological expansion and modernization. Of the total amount invested in the quarter, 45.5% was allocated to the Brazil BD, 18.1% to the Special Steel BD, 31.1% to the South America BD and 5.3% to the North America BD.

The Company’s investment plan for 2020, which recently was revised due to uncertainties given the effects of Covid-19, is R$ 1.6 billion. Accordingly, the capital expenditure estimate for the period 2019-21 was decreased to R$ 6 billion.

The investments in technological expansion and modernization will be made as expectations for the market’s recovery and for free cash flow generation in the period are confirmed.

7

 

8

 

Free Cash Flow

Free cash flow in 2Q20 was positive, which represents a recovery in relation to 1Q20, due to the various efforts to ensure the Company’s financial liquidity. Note that in the last 12 months the Company registered positive free cash flow in excess of R$ 3.9 billion, reinforcing its liquidity position.

Free Cash Flow (R$ million)

Free Cash Flow - Quarterly (R$ million)

9

 

PERFORMANCE BY BUSINESS DIVISION (BD)

The information in this report is divided into four Business Divisions (BD) in accordance with Gerdau’s corporate governance, as follows:

· 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, United States and Mexico), except special steel, as well as the jointly controlled entities and associate company, both located in Mexico;

· South America BD (South America Business Division) – includes all operations in South America (Argentina, Peru, Uruguay and Venezuela), except the operations in Brazil, and the jointly controlled entities in the Dominican Republic and Colombia;

· Special Steel BD (Special Steel Business Division) – includes the special steel operations in Brazil and the United States.

NET SALES

10

 

EBITDA & EBITDA MARGIN

11

 

BRAZIL BD

BRAZIL BD	2Q20		2Q19		∆		1Q20		∆		6M20		6M19		∆
Volumes (1,000 tonnes)
Production of crude steel	1,135		1,626		-30	%	1,239		-8	%	2,374		3,045		-22	%
Shipments of steel	1,169		1,343		-13	%	1,117		5	%	2,287		2,701		-15	%
Domestic Market	930		985		-6	%	940		-1	%	1,870		1,924		-3	%
Exports	239		359		-33	%	178		34	%	417		777		-46	%
Shipments of long steel	836		961		-13	%	761		10	%	1,598		2,002		-20	%
Domestic Market	635		658		-3	%	611		4	%	1,247		1,299		-4	%
Exports	201		304		-34	%	150		34	%	351		704		-50	%
Shipments of flat steel	333		382		-13	%	356		-6	%	689		698		-1	%
Domestic Market	295		327		-10	%	328		-10	%	624		625		0	%
Exports	38		55		-31	%	28		37	%	66		73		-11	%
Results (R$ million)
Net Sales¹	3,561		4,018		-11	%	3,414		4	%	6,975		7,867		-11	%
Domestic Market	2,994		3,280		-9	%	3,008		0	%	6,002		6,290		-5	%
Exports	567		737		-23	%	406		40	%	974		1,576		-38	%
Cost of Goods Sold	(3,148	)	(3,426	)	-8	%	(3,009	)	5	%	(6,157	)	(6,747	)	-9	%
Gross profit	413		592		-30	%	406		2	%	819		1,120		-27	%
Gross margin (%)	11.6	%	14.7	%			11.9	%			11.7	%	14.2	%
Adjusted EBITDA²	663		717		-8	%	537		23	%	1,200		1,398		-14	%
Adjusted EBITDA Margin (%)	18.6	%	17.8	%			15.7	%			17.2	%	17.8	%

1 – Includes iron ore sales.

2 – Adjusted EBITDA due to the elimination of non-recurring effects of fixed costs of mills stopped in the quarter.

Production and Shipments

In 2Q20 compared to both 1Q20 and 2Q19, crude steel production decreased due to the stoppages at the Company’s mills, as mentioned in the material fact notices disclosed to the market.

Total shipments increased in 2Q20 compared to 1Q20, driven by the opportunities for increasing exports and the favorable exchange variation in the period. The highlight was the 10% increase in long steel shipments, mainly due to the resilience of the construction industry.

In 2Q20, 387,000 tonnes of iron ore were sold to third parties and 942,000 tonnes were consumed internally. In 6Q20, 480,000 tonnes of iron ore were sold to third parties and 2,071,000 tonnes were consumed internally.

Operating Result

Net sales increased in 2Q20 compared to 1Q20, mainly due to the higher shipments.

Cost of goods sold increased in 2Q20 compared to 1Q20, due to the production stoppages at the Company’s mills.

Gross profit and gross margin remained stable in 2Q20 compared to 1Q20, despite the stoppages at mills, given the flexibility in raw material routes and the capture of business opportunities in the short term. Meanwhile, in relation to 2Q19, the reductions in gross profit and gross margin was due to the lower dilution of fixed costs explained by the decline in shipments.

Compared to 1Q20, adjusted EBITDA and adjusted EBITDA margin increased in 2Q20, mainly due to the higher shipments. In addition, adjusted EBITDA is reported without the non-recurring effects from the fixed costs of mills undergoing stoppages in the quarter. Meanwhile, in relation to 2Q19, EBITDA and EBITDA margin in 2Q20 declined, accompanying gross profit.

12 

EBITDA (R$ million) and EBITDA Margin (%)

13 

 

NORTH AMERICA BD

NORTH AMERICA BD	2Q20		2Q19		∆		1Q20		∆		6M20		6M19		∆
Volumes (1,000 tonnes)
Production of crude steel	1,031		1,195		-14	%	1,345		-23	%	2,376		2,462		-4	%
Shipments of steel	960		1,066		-10	%	1,122		-14	%	2,081		2,142		-3	%
Results (R$ million)
Net Sales	3,979		3,812		4	%	3,966		0	%	7,945		7,654		4	%
Cost of Goods Sold	(3,730	)	(3,441	)	8	%	(3,648	)	2	%	(7,378	)	(6,841	)	8	%
Gross profit	249		371		-33	%	318		-22	%	567		813		-30	%
Gross margin (%)	6.3	%	9.7	%			8.0	%			7.1	%	10.6	%
EBITDA	418		426		-2	%	425		-2	%	842		930		-9	%
EBITDA margin (%)	10.5	%	11.2	%			10.7	%			10.6	%	12.1	%

Production and Shipments

Steel production and shipments declined in 2Q20 compared to both 1Q20 and 2Q19, due to the impacts caused by the Covid-19 pandemic, especially in April. Despite the decline, May and June registered a recovery, reflecting the resilience of construction activities in general.

Operating Result

Despite the lower shipments, the slight increase in the metals spread in 2Q20 (US$ 411/st in 1Q20 vs. US$ 415/st in 2Q20) and the effects from exchange variation in the comparison periods contributed to the stability in net sales in relation to 1Q20 and to the growth in net sales in relation to 2Q19.

Cost of goods sold increased in relation to both 1Q20 and 2Q19, due to the average Brazilian real depreciation of 21% and 37%, respectively. Excluding the effects from exchange variation, cost of goods sold decreased 14% and 20%. Note that the Company has been making efforts to reduce its fixed and variable costs, such as idling its mill in St. Paul, Minnesota.

Gross profit and gross margin in 2Q20 registered reductions compared to both 1Q20 and 2Q19, due to the lower shipments resulting from the impacts caused by the Covid-19 pandemic in April.

EBITDA in 2Q20 remained stable in relation to the other periods, due to the effects from exchange variation, as mentioned above. EBITDA margin presented relative stability, reflecting the efforts to reduce costs.

14 

EBITDA (R$ million) and EBITDA Margin (%)

15 

 

SOUTH AMERICA BD

SOUTH AMERICA BD	2Q20		2Q19		∆		1Q20		∆		6M20		6M19		∆
Volumes (1,000 tonnes)
Production of crude steel	79		156		-50	%	142		-44	%	220		295		-25	%
Shipments of steel	128		262		-51	%	202		-36	%	330		506		-35	%
Results (R$ million)
Net Sales	554		840		-34	%	699		-21	%	1,253		1,580		-21	%
Cost of Goods Sold	(471	)	(719	)	-35	%	(594	)	-21	%	(1,064	)	(1,349	)	-21	%
Gross profit	83		121		-31	%	105		-21	%	189		231		-18	%
Gross margin (%)	15.0	%	14.4	%			15.1	%			15.1	%	14.6	%
EBITDA	145		169		-14	%	164		-11	%	309		326		-5	%
EBITDA margin (%)	26.2	%	20.1	%			23.4	%			24.7	%	20.6	%

1 – EBITDA adjusted for the elimination of non-recurring effects from the fixed costs of mills undergoing stoppages in the quarter.

Production and Shipments

Steel production and shipments decreased in 2Q20 compared to both 1Q20 and 2Q19, due to the impacts caused by the Covid-19 pandemic, especially the state of emergency declared in Peru, under which all activities were suspended.

Operating Result

Net sales and cost of goods sold declined in 2Q20, mainly due to the lower shipments compared to 1Q20 and 2Q19, which were offset by the effects from exchange variation in the periods.

Gross profit decreased in 2Q20 compared to both 1Q20 and 2Q19, due to lower shipments. Gross margin was in line in both comparison periods.

EBITDA declined in 2Q20 in relation to 1Q20 and 2Q19, accompanying gross profit, after the elimination of non-recurring effects from the fixed costs of the mill stoppages in the quarter. Meanwhile, EBITDA margin increased in 2Q20, also reflecting these eliminations, in comparison with both periods.

EBITDA (R$ million) and EBITDA Margin (%)

 

16

SPECIAL STEEL BD

SPECIAL STEEL BD	2Q20		2Q19		∆		1Q20		∆		6M20		6M19		∆
Volumes (1,000 tonnes)
Production of crude steel	188		448		-58	%	462		-59	%	651		967		-33	%
Shipments of steel	176		426		-59	%	329		-46	%	506		857		-41	%
Results (R$ million)
Net Sales	893		1,844		-52	%	1,437		-38	%	2,330		3,684		-37	%
Cost of Goods Sold	(908	)	(1,670	)	-46	%	(1,407	)	-35	%	(2,316	)	(3,319	)	-30	%
Gross profit	-15		174				30				15		366		-96	%
Gross margin (%)	-1.7	%	9.5	%			2.1	%			0.6	%	9.9	%
EBITDA	106		242		-56	%	119		-10	%	225		481		-53	%
EBITDA margin (%)	11.9	%	13.1	%			8.2	%			9.7	%	13.0	%

1 – EBITDA adjusted for the elimination of non-recurring effects from the fixed costs of mills undergoing stoppages in the quarter.

Production and Shipments

Steel production and shipments declined in 2Q20 compared to both 1Q20 and 2Q19, given the effects of Covid-19, mainly in the automotive industry, and which were more intense in the United States than in Brazil.

Operating Result

The reduction in net sales and cost of goods sold in 2Q20 compared to both 1Q20 and 2Q19 is due to lower shipments.

Gross profit and gross margin were negative in the period, given that capacity utilization rate was below 30%, which resulted in the lower dilution of fixed costs, reflecting the mill stoppages in April and the weaker demand from the automotive industry.

EBITDA declined in 2Q20 in relation to 2Q20, accompanying gross profit in the period, after the elimination of non-recurring effects from the fixed costs of mill stoppages in the quarter. Despite the low capacity utilization rate, the efforts to reduce costs softened the contraction in EBITDA margin compared to 2Q19.

EBITDA (R$ million) and EBITDA Margin (%)

 

17

 

THE MANAGEMENT

This document contains forward-looking statements. These statements are based on estimates, information or methods that may be incorrect or inaccurate and that may not occur. These estimates are also subject to risk, uncertainties and assumptions that include, among other factors: general economic, political and commercial conditions in Brazil and in the markets where we operate, as well as existing and future government regulations. Potential investors are cautioned that these forward-looking statements do not constitute guarantees of future performance, given that they involve risks and uncertainties. Gerdau does not undertake and expressly waives any obligation to update any of these forward-looking statements, which are valid only on the date on which they were made.

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

	June 30, 2020		December 31, 2019
CURRENT ASSETS
Cash and cash equivalents		4,063,661		2,641,652
Short-term investments		2,484,834		3,652,949
Trade accounts receivable - net		3,612,036		2,672,370
Inventories		9,515,481		7,659,737
Tax credits		521,055		504,302
Income and social contribution taxes recoverable		389,623		483,088
Fair value of derivatives		2,078		2,846
Other current assets		1,174,417		618,769
		21,763,185		18,235,713
NON-CURRENT ASSETS
Tax credits		612,518		465,549
Deferred income taxes		3,661,581		4,071,219
Unrealized gains on financial instruments				-
Related parties		127,996		95,445
Judicial deposits		1,806,140		1,991,715
Other non-current assets		524,939		464,169
Prepaid pension cost		37,862		45,381
Advance for future investment in joint venture		-		0
Investments in associates and joint ventures		2,156,718		1,812,399
Goodwill		12,723,896		9,469,311
Leasing		817,637		777,314
Other Intangibles		743,017		673,262
Property, plant and equipment, net		17,624,940		15,901,493
		40,837,244		35,767,257
TOTAL ASSETS		62,600,429		54,002,970

18

GERDAU S.A.

CONSOLIDATED BALANCE SHEETS

In thousands of Brazilian reais (R$)

	June 30, 2020			December 31, 2019
CURRENT LIABILITIES
Trade accounts payable		3,908,476			3,762,768
Short-term debt		3,856,347			1,544,211
Debentures		10,666			18,015
Taxes payable		527,497			432,988
Income and social contribution taxes payable		118,308			205,092
Payroll and related liabilities		378,476			479,693
Dividends payable		-			50,968
Leasing payable		227,319			202,536
Employee benefits		233			495
Environmental liabilities		67,916			60,913
Fair value of derivatives		103			-
Other current liabilities		1,068,741			666,858
		10,164,082			7,424,537
NON-CURRENT LIABILITIES
Long-term debt		14,216,089			11,594,612
Debentures		2,893,992			2,893,029
Deferred income taxes		69,642			517,413
Provision for tax, civil and labor liabilities		769,348			809,299
Environmental liabilities		156,280			51,395
Employee benefits		1,927,665			1,469,949
Obligations with FIDC		1,050,526			1,018,501
Leasing payable		625,900			601,733
Other non-current liabilities		465,532			449,375
		22,174,974			19,405,306
EQUITY
Capital		19,249,181			19,249,181
Treasury stocks		(229,788	)		(242,542	)
Capital reserves		11,597			11,597
Retained earnings		6,173,084			5,644,706
Operations with non-controlling interests		(2,870,825	)		(2,870,825	)
Other reserves		7,718,373			5,163,584
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT		30,051,622			26,955,701
NON-CONTROLLING INTERESTS		209,751			217,426
EQUITY		30,261,373			27,173,127
TOTAL LIABILITIES AND EQUITY		62,600,429			54,002,970

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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, 2020			June 30, 2019			June 30, 2020			June 30, 2019
NET SALES		8,744,833			10,154,053			17,972,374			20,179,714
Cost of sales		(8,026,768	)		(8,881,496	)		(16,398,848	)		(17,638,146	)
GROSS PROFIT		718,065			1,272,557			1,573,526			2,541,568
Selling expenses		(97,034	)		(120,131	)		(216,956	)		(242,768	)
General and administrative expenses		(209,415	)		(231,833	)		(459,870	)		(470,501	)
Other operating income		639,724			59,321			663,279			147,841
Other operating expenses		(245,997	)		(14,219	)		(248,425	)		(28,663	)
Impairment of financial assets		(25,467	)		(1,971	)		(68,759	)		(7,978	)
Equity in earnings of unconsolidated companies		(4,090	)		(38,587	)		6,400			(24,359	)
INCOME BEFORE FINANCIAL INCOME (EXPENSES) AND TAXES		775,786			925,137			1,249,195			1,915,140
Financial income		50,759			47,756			97,068			88,773
Financial expenses		(390,326	)		(352,901	)		(715,748	)		(698,274	)
Exchange variations, net		9,440			12,052			56,764			(58,404	)
Gains (Losses) on financial instruments, net		197			(7,173	)		720			(7,094	)
INCOME BEFORE TAXES		445,856			624,871			687,999			1,240,141
Current		(74,154	)		(105,467	)		(159,075	)		(231,073	)
Deferred		(56,379	)		(146,653	)		7,749			(183,691	)
Income and social contribution taxes		(130,533	)		(252,120	)		(151,326	)		(414,764	)
NET INCOME		315,323			372,751			536,673			825,377
(+) Fixed costs of plants without production		119,356			-			119,356			-
(-) Credit recovery / Provisions		(307,773	)		-			(307,773	)		-
(+) Income tax on extraordinary items		64,062			-			64,062			-
(=) Total of extraordinary items		(124,355	)		-			(124,355	)		-
ADJUSTED NET INCOME*		190,968			372,751			412,318			825,377

*Adjusted net income is a non-accounting indicator prepared by the Company, reconciled with the financial statements and consists of net income adjusted for extraordinary events that influenced the net income, without cash effect.

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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, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Cash flows from operating activities
Net income for the period		315,323			372,751			536,673			825,377
Adjustments to reconcile net income for the period to net cash provided by operating activities:
Depreciation and amortization		611,529			526,838			1,168,158			1,032,637
Equity in earnings of unconsolidated companies		4,090			38,587			(6,400	)		24,359
Exchange variation, net		(9,440	)		(12,052	)		(56,764	)		58,404
(Gains) Losses on financial instruments, net		(197	)		7,173			(720	)		7,094
Post-employment benefits		41,685			35,216			99,304			81,636
Stock based compensation		10,713			9,330			19,656			19,714
Income tax		130,533			252,120			151,326			414,764
(Gains) Losses on disposal of property, plant and equipment, net		(13,503	)		7,141			(12,677	)		(836	)
Impairment of financial assets		25,467			1,971			68,759			7,978
Provision (reversal) of tax, civil, labor and environmental liabilities, net		146,552			(3,418	)		76,019			(74,805	)
Credit recovery, net		(457,185	)		-			(457,185	)		-
Interest income on short-term investments		(21,376	)		(11,979	)		(53,004	)		(28,721	)
Interest expense on debt and debentures		282,494			256,599			510,349			506,559
Interest on loans with related parties		(2,030	)		(1,276	)		(3,634	)		(1,841	)
(Reversal) Provision for net realizable value adjustment in inventory, net		(6,046	)		4,464			(36,296	)		4,036
		1,058,609			1,483,465			2,003,564			2,876,355
Changes in assets and liabilities
(Increase) Decrease in trade accounts receivable		(126,038	)		221,690			(309,921	)		(521,804	)
Decrease (Increase) in inventories		256,111			(214,590	)		(548,940	)		(416,761	)
Decrease in trade accounts payable		(580,501	)		(295,202	)		(611,673	)		(582,198	)
Decrease (Increase) in other receivables		189,780			1,998			185,477			(39,418	)
Increase (Decrease) in other payables		86,116			(339,693	)		(39,031	)		(465,863	)
Dividends from associates and joint ventures		11,805			7,773			11,805			10,933
Purchases of trading securities		(587,279	)		(131,625	)		(1,742,835	)		(424,016	)
Proceeds from maturities and sales of trading securities		292,033			342,487			2,980,706			500,068
Cash provided by operating activities		600,636			1,076,303			1,929,152			937,296
Interest paid on loans and financing		(383,861	)		(351,657	)		(521,123	)		(523,667	)
Interest paid on lease liabilities		(21,398	)		(21,074	)		(31,227	)		(42,316	)
Income and social contribution taxes paid		(29,016	)		(159,491	)		(49,235	)		(183,896	)
Net cash provided operating activities		166,361			544,081			1,327,567			187,417
Cash flows from investing activities
Purchases of property, plant and equipment		(270,659	)		(423,741	)		(742,247	)		(728,273	)
Proceeds from sales of property, plant and equipment, investments and other intangibles		16,139			5,497			18,598			19,314
Purchases of other intangibles		(24,464	)		(26,025	)		(62,076	)		(35,088	)
Advance for future investment in joint venture		-			(94,687	)		-			(94,687	)
Capital increase in joint ventures		-			-			(42,782	)		-
Net cash used in by investing activities		(278,984	)		(538,956	)		(828,507	)		(838,734	)
Cash flows from financing activities
Dividends and interest on capital paid		-			(131,204	)		(70,483	)		(297,624	)
Proceeds from loans and financing		364,610			1,670,759			1,927,216			1,882,008
Repayment of loans and financing		(58,188	)		(1,715,922	)		(1,297,055	)		(1,956,462	)
Leasing payment		(57,999	)		(34,648	)		(120,917	)		(66,431	)
Intercompany loans, net		(33,735	)		13,060			(28,917	)		(29,498	)
Net cash provided (used in) financing activities		214,688			(197,955	)		409,844			(468,007	)
Exchange variation on cash and cash equivalents		145,742			1,923			513,105			(19,963	)
Increase (Decrease) in cash and cash equivalents		247,807			(190,907	)		1,422,009			(1,139,287	)
Cash and cash equivalents at beginning of period		3,815,854			1,941,764			2,641,652			2,890,144
Cash and cash equivalents at end of period		4,063,661			1,750,857			4,063,661			1,750,857

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