Financial Information Strategic Vision Production Sales Investments Management Technology Modernization of mills, team training and expansion into new markets are all part of Gerdau's growth strategy • Throughout its history, the Gerdau Group has established a growth strategy based on investing in technological excellence in its mills, team training and expansion into new markets. Adding these strategies to efficient capital management has allowed the group to build a solid base in six countries and perfect its customer service. • Gerdau has invested US$ 2.8 billion in the last 10 years: US$ 360.5 million in 2001. • This year, Gerdau assumed control of Açominas. This was an important step in the development of its expansion strategy, and represented a commitment of R$ 333.8 million (US$ 144 million) in 2001. By October 2002 Gerdau will increase its control over Açominas and have a qualified majority under the existing shareholders' agreement. • The group's presence in the United States was reinforced with the purchase of a fifth mill, an investment of US$ 48.8 million. This plant, located at Cartersville in the state of Georgia, has the capacity to produce 725,000 metric tons of steel per year, and complements AmeriSteel's product line with gauges of up to 12 inches, especially in the structural profile segment. It services the civil construction and industrial sectors in the Southeast United States, where AmeriSteel's other plants are also located. • Within the current steel-making context in the United States, it is important to note that Gerdau's operations meet global productivity standards as a result of their being based on the market mill concept, which is characterized by the purchase of scrap - their principal raw material - and sales of products in regional markets. This strategy is also used in the other countries where Gerdau operates. It is important to highlight the fact that the companies in crisis in the steel sector are largely integrated mills, producers of flat steel with uncompetitive operating costs and legacy costs (pensions and health benefits). • The announcement of the construction of a new mill in the state of São Paulo marks a new Brazilian investment with a focus on the civil construction market. The plant will be built in two stages, each with an installed capacity of 550,000 metric tons of steel per year. • In this sector, Gerdau opened new rebar fabricating facilities, enlarging a system that adds value to construction processes and increases the productivity of civil works. • The strategic alliance with Monteferro allows the manufacturing of elevator guide rails in Brazil and Canada. The Monteferro América Latina plant was opened in Cotia, state of São Paulo, in 2001. • In the energy sector, the Gerdau Group holds a 22% stake in the Dona Francisca hydroelectric plant, opened in 2001. Located in the municipalities of Agudo and Nova Palma in the state of Rio Grande do Sul, it has a generating capacity of 125 megawatts. • The effects of energy rationing in Brazil were minimized with investments in electricity rationalization programs and the purchase and leasing of generators, installed at strategic points in the downstream operations of the Gerdau and Açominas mills. • The main highlights in the information technology field were the development of systems for consolidating global data, and the e-procurement website for dealing with suppliers. A pilot Management Execution System (MES) was installed at the Cosigua mill, for the management of production processes. Once established, it will be extended to other units. MAIN INVESTMENTS • Investment in the modernization of industrial plants, updating of the environmental management equipment and R&D totaled US$ 167.8 million this year. • Gerdau has more than 20 ongoing research projects with universities related to the development of technologies and competitive advantages for its products, to waste reduction and to the development of improved uses for industrial waste in other sectors of the economy. It also has contracts for the exchange of management and technological know-how with a number of companies around the world. Brazil • Açominas concluded the revamping of its blast furnace in 2001, giving it the capacity to produce three million metric tons of steel per year. This volume is 25% higher than in 1997, when Gerdau first acquired a stake in the mill. Work also continued on the rolling mill for I- and H-beams, which produces gauges from 150 to 610 mm. The equipment came on line in 2002 and has an installed capacity of 440,000 metric tons. • Cosigua carried out a series of investments to complement its product line. The program included modifications to the continuous casting system to allow for the production of 160 x 160 mm billets rather than 130 x 130 mm billets, a new exit for coils of wire rod from the number 2 rolling mill, the addition of equipment in the number 3 rolling mill for the production of light profiles, and the installation of a new small profile rolling mill. • The upgrading of the Açonorte rolling mill contributed to its improved performance and reduced operating costs. • Modernization is under way at Riograndense's melt shop and rolling mill, which will offer greater operating safety, reduced loss of metal, and increased productivity. Argentina, Chile and Uruguay • The new ladle furnace was brought on line in the melt shop at Gerdau AZA in Chile. This equipment refines the steel by means of adjustments to its temperature and chemical composition. The profile rolling mill was also modernized to broaden the product line, standardize the use of 130 x 130 mm billets and reduce operating costs. • Laisa in Uruguay installed a Thermex controlled bar-cooling system, to add to the quality of its rolled products. Canada and the United States • In the United States, the Gerdau Group increased its services to the manufacturing industry by acquiring 80% of capital stock in a new downstream unit, AmeriSteel Bright Bar, in Orrville, state of Ohio. The plant supplies cold drawn flat and square bars. • The Jacksonville mill completed improvements to its cooling bed, and installed equipment to improve the quality of its coils of wire rod. • The main investments in the West Tennessee unit were the expansion of the melt shop water cooling system, new rolling mill equipment, and the expansion of the warehouse. In 2002, the plant will expand its product line to include large round and square bars up to 2 ½ inches. • In Canada, the Courtice Steel rolling mill began producing 2 ½ inch channels, aimed at the manufacturing industry and civil construction. • MRM Steel installed a new descaling system and is installing production management software for the rolling mill, due to the breadth of its product line.