The Gerdau Group manages the risks inherent to its activity using tools that ensure reduced exposure to industrial, environmental, financial, legal, and market aspects and boost the competitiveness of business management.

The Group’s corporate governance establishes integrated risk management for all its operations, supported by the Risk Management Committee. This process also meets the standards of the United States Sarbanes-Oxley Law, which requires that officers take responsibility for the appropriate structuring of internal controls. This legislation is binding to all companies listed on the New York Stock Exchange, as is the case with Gerdau S.A. and Gerdau Ameristeel Corporation.

The risks associated with the operations and their respective internal controls are monitored directly by the plants. Plant managers are responsible for supervising relevant risks and for developing efficient actions for their minimization. Internal controls are tested and analyzed by internal and external audits and overseen by the Board of Auditors, which ensures their reliability and transparency.

These initiatives, together with a structured corporate governance model, allow the Gerdau Group to maintain its outstanding position in the global steel market and ensure appropriate levels of transparency for investors.

Market risks

The world steel market is cyclical, and its profitability is impacted by periodical fluctuations in global supply and demand. Consumption, therefore, is influenced by a combination of the specific aspects of each country and the global economy. Demand for steel is historically related to economic growth. In some countries, normally those less developed, this correlation is stronger. This behavior results from the fact that steelmaking is directly related to those sectors which drive development, including civil construction, infrastructure projects, metal machining and automotive industries and agriculture.

In order to identify opportunities and minimize negative impacts on its performance, the Gerdau Group analyzes economic trends in each of the countries where it operates, as well as trends of the main steel consumer sectors.

The Group combines global action with regional operations – facilities in different countries that purchase raw materials and sell products chiefly in their own regions – as well as an export platform from Brazil. In this way, it has the flexibility to adjust its production volumes to meet demand. Over long periods of poor economic performance, the difficulty in adapting to the new market level may lead to abrupt reductions in prices and therefore in the financial margins necessary for business sustainability.

In order to set itself apart from the competition, the Gerdau Group offers products with greater added value, through the fabrication of long and flat steel (fabricated reinforcing steel services with assembly at the construction site), the production of specialty steel and the use of outstanding quality standards and on-time delivery. The Group also has its own distribution network.

Investment risks

As part of a cyclical market, the Gerdau Group has strict methods for evaluating investments, with control of approval stages determined by its corporate governance process. Decisions are made according to a long-term vision and seek to ensure operational competitiveness in different market situations.

Raw material price fluctuation risks

Fluctuations in prices of raw materials, such as iron ore, scrap, coal and electricity, have direct impact on steel production costs. The Gerdau Group aims to manage exposure to these variables through medium to long-term supply contracts, when applicable.

Personal injury risks

The commitment to personal safety for everyone in the workplace – employees and service providers – is clearly expressed in the values of the Gerdau Group.

All units have the aim of being zero-accident workplaces, and some have already become world benchmarks in this regard. They follow a system of safety management, which is a set of strict procedures, training and prevention programs described in the Gerdau Business System (see Employees). Periodical internal and external audits are also carried out to ensure the effectiveness of the practices.

Environmental risks

Potential environmental risks and the performance of the main environmental indicators are constantly tracked by the Environmental Management System, which is used by all of the Group’s facilities. In this way, all stages of the industrial processes are monitored, from raw material purchases to product distribution, including the correct use or disposal of by-products (see Environmental management).

Designed in compliance with ISO 14001, the Environmental Management System helps in establishing goals, actions and procedures in a standardized manner, ensuring greater efficiency in results.

Financial risks

The Gerdau Group has a conservative policy for the management of financial risks. It uses instruments to protect against fluctuations in interest and exchange rates and, when applicable, in the price of certain raw materials, such as energy and gas. As a rule, it negotiates high liquidity contracts on the futures and derivatives markets, which are recorded according to the FASB statement 133 of the United States GAAP.

Over the years, the Gerdau Group has also achieved a natural hedge against exchange rate risk by means of exports from Brazil and cash generation in strong currencies (U.S. dollar and euro) through operations in the United States, Canada and Spain.

Legal risks

As a result of its international operations, the Gerdau Group is exposed to a range of legal risks. For this reason, the Group is permanently up to date with changes in legislation, thereby ensuring that it fulfills all of its obligations.

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