Gerdau S.A. (GGBR4) Earnings Call Transcript & Summary

Hi. I'm Chris Taylor, Global Head of Listings at the New York Stock Exchange and today is Gerdau Day at the NYSE. In 2021, Gerdau completes 120 years of history and more than 20 years of being listed on the New York Stock Exchange. Gerdau is the largest Brazilian steel producer and one of the main suppliers of long steel in the Americas and of specialty steel worldwide. Gerdau has 32 steel production units, 28,000 employees worldwide, 250,000 hectares of floor space and a presence in 10 countries. The company is also the largest ferrous scrap recycler in Latin America. In this virtual event, investors will hear from the main executives about Gerdau's digital transformation, its financial results and outlook and how the company views ESG opportunities. Come with us to learn how Gerdau will shape the future. Thank you.

Good afternoon, everyone. Welcome to Gerdau Day. It is my great pleasure to start this meeting, which was created especially for the year Gerdau proudly celebrates 120 years. Before we start our event, I would like to share some important information. As we are still experiencing COVID-19's health crisis, Gerdau Day is being held online. But even so, I'm sure it will be a major opportunity for us to talk about the company's outstanding performance, strategies and prospects. At the bottom of the screen, you can choose in which language you want to watch the streaming. Simultaneous translation into Portuguese is available. We will save some time to answer any queries that may arise during the presentation. So feel free to send your questions through the Q&A button that is available at the bottom of the platform. And before we go on, 1 last important message. Everyone here in this studio, myself included, took the COVID test, and we are complying with every required safety protocol. Well, Gerdau's history, as I mentioned, started 120 years ago. A successful journey have led the company to be Brazil's largest steel producer and one of the largest in the world. So to talk about this leading journey, in the steel market and to officially open this meeting, I have the honor to introduce the President and CEO at Gerdau, Gustavo Werneck. Welcome, Gustavo.

Good afternoon, everyone. I want to start by welcoming everyone to Gerdau Day 2021. I hope that all of you are well health and getting through this difficult time as well as possible. I wanted to hold this event in New York City like we did last Gerdau Day in 2019 to be able to talk with you all personally, but we are still forced to follow global health protocols to eradicate COVID-19 as soon as possible. So we opted to hold this virtual event in partnership with New York Stock Exchange, so that we can share important information about Gerdau without having to wait for the next opportunity to meet you all in person in United States. With me today is our CFO, Harley Scardoelli, and our key executives responsible for the United States, Chia Wang; for Brazil, Marcos Faraco; and for Gerdau Next, Juliano Prado. It's always a pleasure for us to talk with you about our performance and to answer any questions you may have during our presentation. Let's start by talking about fiscal year 2021, which holds a special place in our history and by commenting our special steel operations in Brazil and United States. Then I will pass the presentation over to Wang who will talk about our operation in the United States and to Faraco who will comment on our long and flat steel operations in Brazil and in South America. Then Juliano will talk about the plans at Gerdau Next, our business development division and Scardoelli will comment on our financial results. Then I will come back to give details on our strategic focus in the next step in our ESG journey. Lastly, we will have a question-and-answer session when we will be available to talk with you about any points you want to explore in greater depth. As I noted, 2021 is a very special year for us since it marks our 120th anniversary. Born in 1901 as a small nail factory, today, you are Brazil's largest steel producer and Latin America's largest recycler in ferrous scrap with operations in 10 countries in the Americas. We commemorated yet another important milestone in our century-long history for a new cycle of sustainable growth. Over the past few years, we have reinvented our company. We have become an organization that is even more focused on people, more digital, more innovative, more diverse and inclusive while continuing to deliver solid financial performance. Looking to the future, we are going to accelerate our progress on 2 major challenges, which we will see in more detail over today's presentation which are, creating more value for our customers located in our key markets, especially in the Americas and becoming an even more sustainable company in all aspects. Let's move on to the next slide, which shows our special steels business division. In Brazil, despite the impact from the semiconductor shortage on the automotive industry, which resulted in as many as 30,000 vehicles not being produced in January to August, we continue to adversely affect the light vehicle market over the coming months. Demand for special steel has remained the firm, especially for heavy vehicles which is enjoying strong demand in line with the robust performance of the construction and agricultural sectors. According to the Industry Association, ANFAVEA, truck and bus production this year is expected to grow by 42% on the prior year. The wind power sector also continues to enjoy a bright outlook. The latest data from Brazil's Mines and Energy Ministry shows that in July, the country set 10 new records for renewable energy generation, including from wind power. Today, wind power accounts for 10.9% of Brazil's energy profile, is expected to reach 13.6% by 2025, according to the ministry. Turning now to our special steel operations in the United States. The outlook for the market is positive, which had vehicle production this year projected to grow by 45% year-over-year driven by economic growth and gradual improvement in the oil and gas industry with so-called rig counts increasing by 75% in June compared to a year earlier. However, light vehicle production sales volume should continue to lag due to the semiconductor shortage. We estimate that around 1.5 million units will not be produced this year because of this shortage. Worldwide [indiscernible] project that they will produce over 64 million fewer units to the lack of components. Moving on to the next slide, I want to reinforce that our Special Steel's business division, which is a global leader in this market remains focused on meeting our customers' needs with the best and most innovative solutions in products and services. As part of this strategy, we recently concluded at the Monroe Mill located in Michigan, an important investment to technologically modernize and update the plant, which will improve our performance in costs and in offering higher value products to the market. Meanwhile, in Brazil, we announced a few months ago, investments of around $200 million to modernize and expand our Special Steel operations in the country in line with our positive outlook for recovery in the automotive and machinery and equipment industries. A good part of this investment will be allocated to the Pindamonhangaba mill where installing a new continuous casting machine is slated for a start-up in August 2022. The equipment will enable Gerdau to achieve higher automation and improve yield resulting in differentiated and even higher quality products for demanding markets. The technological revamping of the plant also is aligned with the growing use of clean steel which offers low residuals and superior quality. The investment is aligned with the outlook for higher production of hybrid and electric vehicles. In Brazil, hybrid and electric vehicles should account for 9% and 3% of the light vehicle market by 2030, respectively, according to the consulting firm [indiscernible] Thank you, and I'll come back after Scardoelli's presentation.

It was an incredible journey built by many generations and by great innovations. Thank you, Gustavo, for sharing this brilliant story about Gerdau. Well, now to continue and talk about the prospects for the business division North America and market indicators. I would like to invite the operations CEO, Chia Yuan Wang. Wang, welcome to our event.

Thanks, Gustavo, and good afternoon. Thank you all for taking the time to hear more about Gerdau Long Steel, North America we refer to as GLN. As introduction for those who might not be familiar with our operation of North America, we produce only long steel products. We have leading positions in merchant and structure and we'll continue to offer rebar as part of our product mix. We're 100% EF based production. We have capacity of 5 million metric tonnes with a low carbon footprint using 100% recycled scrap. We have a network of processing and collection spread facilities strategically located and capable of supplying greater than 45% of our internal requirements. North America is important to Gerdau as a strong operational cash contributor and the gateway to roll cost of capital. The regional diversification strengthens Gerdau's global footprint. Now shifting to our current view of GLN business. We are seeing strong end user demand for the foreseeable future in many metal consuming sectors. Our production backlog has been steady at over 3 months for multiple quarters. While the entry remained robust, with all segments and channels to market that GLN serves. We are optimistic that there will be a meaningful U.S. infrastructure investment package of at least $1.2 trillion, that will continue to generate additional demand for us to impacting the future years to come. Over the last several years, GLN has been committing -- committed to expanding our product portfolio, enhancing our cost structure. This hard work and strategic vision have paid off during the tremendous demand recovery. Additionally, very recently, we have commissioned 2 major investments at our Petersburg, Virginia, and Cartersville, Georgia mill, adding range and capacity in our piling, beams and merchant products. Our Whitby, Ontario, Canada mill will have a new upgraded electric arc furnace in the next step of our road map journey, adding billet capacity to balance and optimize our 3 rolling mills in Ontario. I will share more detail on these investments in the upcoming slides. GLN is also committed to continue streaming our relationship with our customer. As an example, the renewable energy sector is seeing an exponential growth, and GLN has been a strong partner to the main players of this sector. Gerdau's current asset capacity utilization is around 90%. Keep our mills full, we are seeing a large benefit to fixed cost dilution in our cost structure. Strategically using our network of mills, we can make the right product in the right places, easily shifting within our network to seamlessly service our customers. And then looking at our results this year, 2021 has been a year of many accomplished North America operations and I give the team a tremendous amount of credit for the performance on top of the strong market. They are doing a fantastic job and a big thank you to our customers and partners in the market. We have a robust goal to deliver double-digit EBITDA margin throughout industrial cycle and operational cash flow, and we are pacing to achieve it, a big accomplishment we are proud of. Our average metal spread is at multiple year high, contributing to our strong EBITDA and EBITDA margin results. Next slide, please. Looking forward, we see a continuation of a positive business environment, economic indicators are showing general [indiscernible] in the U.S. The U.S. economy remain in a very strong growth mode with many sectors still within room to improve. For example, oil and gas, traditional nonresidential spending et cetera. We see metal spread remain at the level way above historical average for the foreseeable quarters. In regard to manufacturing, the Institute of Supply Management Manufacturing PMI, Purchasing Managers Index, manages new orders and production level in the U.S. It is a survey of the major purchasing companies on the confidence of their future outlook, which has been and remain very positive. PMI showed a quick recovery during the pandemic and has remained near decade high level since. We see continued growth in the quarters to come, but a slightly slower pace. On the nonresidential construction demand in market, we also see reason for optimism as nonresidential additional spending begin to return post pandemic. Nonresidential typical lag behind residential growth and we certainly have seen that area grow for the last 18 months. Projection for builds in newly created suburban area of medical, school and commercial building are looking strong. Architectural Building Index, ABI, measures the level of activity by major architectural firms, the indication of future construction activity, generally 9 to 12-month leading indicator. Billings are growing and inquiry at record levels. ABI in June at -- is at 10-year record high. This indicator is currently signaling strong demand in the future and suggest steady 2020 structural steel demand in the U.S. before any impact of a meaningful infrastructure bill. Service center shipments remain at an excellent pace and days on hand and distribution channel remain at multiple years lows, both indicative of strong end user demand pull. Metal Service Center Institute, MSCI, and association serving the industry, metal industry reports carbon bar and structural bar stays on hand inventory, both under traditional levels. Next slide, please. To provide first-class service to our customer, we need operational excellence. Our highest priority is always safety. The goal is 0 accidents. We owe it to our workforce and anyone that will work alongside. To return safely home to their family at each day, we continue to be recognized by our peers as the industry leader in safety, and this is something we are proud of. Now I will talk about GLN's ambition. We have been in the journey for the last 3 years, and there are still a lot of good things to come. Our first pillar is culture. Cultural transformation is the foundation for current and future success. As we focus on training and developing our workforce, we have a flat organization, driven by empowered teams striving for the same goal that is aligned with our strategic vision. To sustain this culture, it is important that we continue to track, retain and challenge top diverse talent. We are building a winning achievement culture with a focus on what matters and results driven. We believe that to achieve challenging goals consistently, it is important to foster a culture where everyone has an owner's mentality and work relentlessly toward our strategic goals. Another key focus is our global Gerdau ESG initiative. GLN will be holding a solar groundbreaking ceremony on September 23 of our 80 megawatts capacity solar project in Midlothian, Texas, as part of our ESG actions. Energy generation will represent around 20% of Midlothian's mills consumption overall. We are committed to being great work stewards towards educational, financial and volunteer support to transform our people and our communities. Strategic aligning our capacity with our customer demand for products and service is key to the driving and the success of our second pillar, market positioning. We have built a company-wide obsession with the customer centricity, providing high-level service throughout fully leveraged digital applications to provide a seamless purchasing experience. We're expanding our product range, increasing highly productive service offerings to better serve customers. Understanding and winning individual uniqueness and by creating a win-win solution to acquire and diversify market share today and for the future. The last pillar of our vision is asset strategy that will support our long-term plan. We will further improve our low-cost position and operational efficiency with a capital expenditure that will allow us to have high utilization of our major mill throughout cycle. Building flexibility, improving the range of manufactured products in each mill will allow us to better serve our customer and optimize our network of mills to deliver higher profitability. A multifunctional team with strong technical and commercial skill is working to assess the best strategic economic project that will further improve our capacity and generate the best return to each -- every dollar invested. This team is working on in a series of alternatives of capital expenditure that will deploy as part of our long-term plan in which we are not limiting ourselves to the mills. We believe there are great opportunity to improve our return upstream and downstream also. The project that we just commissioned in Petersburg, Virginia, and Cartersville, Georgia, were both on time and on budget and the results of hard work of a lot of people. We've also approved the electric arc furnace modernization project for our mill located in Whitby, Ontario. There are some other projects in the pipeline, and we will share more information with the market when they are approved. Next slide, please. Now I would like to share more detail of our recent CapEx -- capital investments. As mentioned earlier, we are committed to expanding our product portfolio to service customers better, improve operating efficiencies and lower cost. The modernization of Cartersville, Petersburg rolling are recent examples. Both mills CapEx projects were commissioned early this year. For the Petersburg project, all new sites have been commissioned, and we are ramping up production through the balance of the year. The results will come in 2022. For Cartersville projects, all new sites are currently being commissioned in Q3 of 2021, and the original product will be recommissioned using the new technology over the next year, improving overall productivity. The EAF upgrade will bring substantial gain to efficiency and productivity reducing environmental impacts and improving its low-cost position while generating additional volume to serve the regional market demand. This project is ongoing and will be completed in Q3 2022. Overall, these 3 capital investments totaled over USD 130 and aligned to GLN execution of our long-term strategic plan, a road map that our team continued to refine and extend it further into the future, finding solution that will deliver long-term growth and sustainable enhanced financial returns to GLN. I'm excited to have the opportunity to share our GLN vision and future. Thank you, and now I'll pass to Faraco.

Thank you so much Wang, a great presentation. And now to talk about the prospects for the business division, Brazil and South America, I would like to call Marcos Faraco, Vice President of this operation. Faraco, you have our attention.

Well, good afternoon, everyone. Hope you are safe and doing well. My name is Marcos Faraco, and I'm responsible for our business here in Brazil, Argentina and Uruguay. According to the Brazilian Steel Institute, the steel demand in Brazil should grow 25% this year. When we look at our shipments, when we look at our order entry and when we look at our backlog, we see solid numbers and very healthy numbers. And we believe that we're going to meet the expectations for the years in terms of domestic deliveries. When it comes to asset utilization in Brazil, our number today is around 80%. And breaking down this number, what we see is for the heavy plate line is between 70% and 75%. If you look at our downstream business, is around 85%. If you look at our long product business, around 80%. And if you look at our hot rolled coil, we are running full in our Steckel mill in Ouro Branco plant. I think that I would like to highlight 1 important point about our results in 2021 and the importance that we have from our business model. As we have mentioned before, the flexibility of our business model and the agility that we have in our culture is allowing us to capture most of the market opportunities that we have seen in the market throughout this year. This has been very instrumental due to the results that we have delivered. And we believe that this is going to be very important for the next months and especially for 2022. Just going now into more details about the markets that we play. I'd like to talk about the construction market. As you know, construction accounts for average 40% of our deliveries here in Brazil and what we have seen since last year is that demand is improving month after month since May last year. So we see very strong demand, very healthy levels of demand. And when you look at the different sectors that are part of this market, residential sector, which accounts for about 30% of the construction demand. We look at the numbers, construction sales going up by almost 25% comparing to last year. When you look at the inventories, inventory is going down and we look at new launches pipeline, 60% bigger than what we saw in the same period last year. One number that I would like to highlight here is when we look at our construction sites that we serve and compared this last July to last year, we are serving 50% more construction sites than last year. So that shows the strength of this segment and the demand that's really coming from the construction sector. Important also to look at the retail portion of the business, which accounts for almost 50% of the construction demand. Gerdau is very well positioned to serve this segment, and we've been talking about this and what we have seen is a very nice story. We expect these markets to continue to grow, and we should see numbers around 6% this year comparing to last year. And we also have infrastructure. Infrastructure accounts today for about 20% of the construction demand in Brazil. Important to say that about 10 years ago, this was 40%. So you see the potential that we have and the upside that we have in this sector. But important to say that we see projects starting to move into infrastructure. We have wind farms. We have solar farms coming, transmission lines that are being installed in Brazil. You have urban mobility projects coming back. So you have transportation, new projects being announced for ports, airports. So we believe that infrastructure is going to have some growth in this 2020 -- 2021, sorry. And we expect the potential to be unlocked in the coming months and especially in 2022. So overall, when we look at the construction sector, we see very strong demand in our expectation for the balance of the year and for next year is very positive. Just moving now to the industrial market, which accounts for about 60% of our deliveries here in Brazil. It's very important market, different sectors. I would like to highlight some important sectors that we supply to. Agriculture is a market that continues to grow and everything that is related to agriculture is having a very good year in 2021. If you look at the agricultural equipment and machines, growing by 25%; if you look at trailers, going up by more than 45%. So this segment continues to demand and the perspective for the coming future is very positive. Important also to highlight the yellow line segment growing more than 40% this year, which is very positive and not only supplying for the domestic market, but also increasing the exports and serving North America and Europe on the construction sector. And another important market for us is the energy market. As I mentioned before, wind farms, solar farms, transmission lines, strong demands. We have a very healthy backlog for the sectors and we continue to see a good perspective for this energy sector in the coming years. So if we put all this together, we believe that for the coming months, we're going to continue to see the solid demand coming from the different sectors on the industrial markets and our perspective and outlook for 2022 is very positive where we see the momentum going forward, and we see this demand going forward for 2022 as well. Well, now talking about the strategy, 2021 has been a very important year for us in terms of strategy execution. We just announced some expansions in our production here in Brazil. We are increasing our hot-rolled coil capacity by 30% and that's going to be done in Ouro Branco site. We're also announcing that we have plans to invest to double our structure beam capacity that's also going to be in our Ouro Branco site. And this year, we have the full integration of the former Silat, is what we call now the Caucaia mill that is part of the business and has been very instrumental and fundamental to our strategy this year. It's helping us to serve the Northeast and the North region of the country, and we have more than tripled the volume that was produced in that mill before our acquisition. I want also to highlight as part of the strategy implementation, what we call the Digital 4.0 package. We've been investing very heavily in Brazil in analytics, artificial intelligence, image. And we are capturing and we're starting to capture the results from these investments. When you look at our cost structure and especially when you look at our operational efficiency, we see important results coming from these investments. We also have important investments that we are doing in the customer relationship. Gustavo is going to talk about this later. But we see a lot of improvements going on and progress in 2021 coming from this strategy to go digital. And the last piece of the strategy that I would like to highlight from 2021 is related to our commercial strategy. Comercial Gerdau, that's part of our business model in Brazil is our distribution network, and it's helping us to reshape our go-to-market strategy here in Brazil. Just to give you some numbers, we have added more than 25,000 customers to our customer base in the last 3 years. This year, on average, we are adding 1,000 customers to our customer base. More important than the customer base is that we are also capturing this profit pool for the last mile. So we are capturing the margin from this last mile and most importantly as well, we are not adding fixed cost, and we are doing that through a digital platform. So Comercial Gerdau, as I said, is reshaping the way that we go to the market and it's really helping us to get closer to customers and add value throughout our business. So this is our journey. This is going to continue towards 2022. But so far, this has been a very good year in terms of strategy execution here in Brazil. And now shifting to our countries in South America. When you look at Peru, Argentina and Uruguay, we have very good demand also in these countries. The expectation and the forecast for this year that we're going to grow between 20% and 30%, our deliveries in these countries. And what is driving basically demand is agriculture, mining and construction. And when we look for the months ahead and when we look to 2022, we continue to see this demand very solid. So the perspectives are very positive for the coming months for these 3 regions that we have in South America. So that's what I have to share with you now. I'll come back later for the Q&A. Thank you very much.

Thank you very much, It's always good to learn more about operations in Brazil and South America. I would like to remind you that our chat is available to you. So if you have any doubts about the topics discussed so far, just send us your questions. At the end of the program, as mentioned, we will have some time saved to answer them. Now to talk about Gerdau Next's great development during this first year, I would like to call Juliano Prado.

Ladies and gentlemen, good morning, and good afternoon as well for those in Brazil and Latin America. In addition to our goal of growing the steel business in the Americas, with a long-term vision, we invest in new business that complements steel. Gerdau Next comes to undertake beyond steel, diversifying our business portfolio. Working on sustainability, mobility and [indiscernible] construction, we look for new opportunities that generate more value for our customers and greater competitiveness for Gerdau. Next slide, please. We seek to build a new portfolio of relevant and profitable companies connected together within an ecosystem of valuable partnerships. In the construction area, we invested at the end of 2020 in Brasil ao Cubo, an off-site modular construction company that's growing exponentially already above $100 million on sales this year -- by the end of August, I would say. And we launched G2BASE, a company that makes construction foundations with metal piles. It's still under construction, but more connected with neighborhood retail stores. We have a joint venture with Votorantim Cimentos and Tigre that already handles a marketplace of $1.4 billion annually. In sustainability, in addition to the solar park under development in Midlothian, U.S., we recently announced the joint venture with Shell to build a solar farm of 190 megawatts of power in Brazil. We expanded our path in sustainability with the launch of Gerdau Graphene which will develop applications for these advanced material, graphene, in multiple sectors in the Americas. There are also 2 circular economy initiatives, eCiclo and ReCircula, which I might call at this moment developing digital MVPs related to recycling. The sustainability vertical tends to represent between 50% to 60% of Gerdau Next total value generation, mainly due to the high EBITDA margins. On the right side of the slide, we G2L and GMOV, our combined and logistics business with [indiscernible] with a total revenue of $150 million expected for the end of this year. It's important to mention that all new businesses are born with the digital complement because there is no such separation as they work together as an integrated solution. Next slide, please. We have to constantly look for synergies, maximizing revenues and integrated margin. In the example presented here, we have a pulp warehouse under construction in the north of Brazil, Itaqui Port, using Gerdau steel from Ouro Branco mill, transported by G2L, our logistics company, with the foundation, the base built by G2BASE, over 3,000 piles and the metallic construction above the ground by Brasil ao Cubo. Another example that I can tell you through Brasil ao Cubo, we built an 8-storey building in just 100 days, 20 days of assembly. Full metallic construction, and I would say, more competitive, not only in cost but mainly in delivery time, which is crucial for our customers. The key message here is that we have created a very competitive solution with all the companies attached. Next slide, please. Thank you very much. My last slide is about our B2B2C joint venture with Votorantim Cimentos and Tigre. Juntos Somos Mais started as a B2B marketplace connecting building materials to all the neighborhood stores with seller companies engaged in a load system. We will end 2021 with more than 100,000 stores integrated into the program. As with any marketplace, Juntos Somos Mais matches buyers with sellers. All the stores have different benefits and prices when buying building materials from Juntos Somos Mais, but not only products from the 3 shareholders, but also considering more than 30 selling companies. As you can see here, in 2020, this market player transacted more than $1.4 billion. We are already the top Brazilian player in the [indiscernible] construction arena and to keep winning, we are now implementing the B2C strategy with the recent acquisition of the digital companies, Triider and Habitissimo Brasil. When final customers want to carry out a construction or minor renovation, they can use our digital channels to have access to qualified and audited professionals with more affordable cost. And these professionals buy products from owned stores on Juntos Somos Mais, a successful closed circle connecting B2B and B2C. Thank you very much. It was a great pleasure to be here.

Thank you, Juliano. It's great to know more about Gerdau Next and these 2 value chain complementarity. Now to talk more about EBITDA and margin development, free cash flow and working capital, indebtedness, shareholder return and capital allocation, I'm pleased to call the CFO at Gerdau, Harley Scardoelli. Welcome, Harley.

Good morning, good afternoon, everybody. It's a pleasure to be here in the year that we completed 120 years as a company, as was mentioned before by my colleagues. It's an honor to be here and be able to, even it being online, talking to you and talk about our financials, our numbers. So without further ado, I'll start covering my numbers. First of all, our EBITDA. As you have seen by the numbers that we have released for this year, we have an all-time record for our EBITDA. We've made in the first 6 months of 2021, BRL 10.2 billion of EBITDA. And as you can see in the graph, where we see the numbers since 2012, this is almost double in 6 months what we had in most of the best few years. So it's a really very, very good results, not only in terms of absolute terms, but also in terms of EBITDA margins. As you can see, this is the blue line that we see in the graph. We went from being around 11%, 12% EBITDA margins, all the way up to almost 30% in this first 6 months of the year. And this is a combination of factors that justify these great numbers. First of all, of course, the markets are in high demand for steel products, commodities in general, right? But steel products are also very highly demanded. We have also seen some structural changes in our markets, especially coming from the reduction in production out of China. As you guys know, have been following our markets for the last few years, China was at a point of time, exporting more than 100 million tonnes of steel a year, and they have reduced substantially these exports. They're trying to reduce their carbon emissions. They're trying to become more efficient in their production. And this has, of course, helped a lot, especially in terms of prices. So this is a big factor that has helped our markets as well. The second, of course, and not less important is a management focus on cost, productivity. We have also reduced SG&A significantly in the last few years, almost BRL 1 billion of reduction in the last few years. And this is here to stay. This is a change that we did in our structures. We became leaner, we became more efficient. And this is something that we will carry on from here on. So record EBITDA numbers for this year. Secondly, we're looking into our free cash flow and our working capital. On the top of the page here, you see our free cash flow in million reals. By the way, I'm looking in numbers here always in reals because this is the numbers that we put out to the markets when we do our quarterly releases. So 2020, more than BRL 4 billion, same thing for 2019. For this year, the first 6 months, BRL 2.3 billion. So very strong cash flows remain being our delivery in terms of cash generation, very importantly. And below, we see our working capital. This is an important point to make here. The line that we see there in the middle of the bars, those are the working capital in terms of days of cycle, okay? So you see that from 2012 all the way to here, we reduced from about 97 days all the way down to 50, 60 days, okay? We ended 2020 with 49 days of cycle. This is very low, okay? And this is natural because as you -- as you know, by the end of last year, markets were highly demanded and there was a lot of difficulty in the whole chain to replenish their inventories. So we were, of course, prioritizing delivering products to our customers. We are not able to do at the same time a rebuild of our working capital. So what we're doing now during the first half of 2021 is that we did both. We delivered products to our customers, but we were also able to bring back production in some of our facilities, okay, and bring inventories to a better level, okay? And why this is important? Because we entered the second half of 2021 with very good perspectives for EBITDA and at the same time, with more normalized levels of inventory, which means that our free cash flow should be even better for the second half because we have already rebuilt our working capital. This is a very important point that I want to make. We're now to my third slide here, we talk about debt, liquidity and indebtedness. This is also a number that we're very proud of because if you look there in 2015, that was the point in time where we had the highest leverage in our history, above 4x net debt to EBITDA. So this was, of course, a situation that has many factors there. We are in a cyclical business, of course, and by being cyclical, whenever your EBITDA goes down, leverage naturally goes up, right? The other point is we have traditionally always been able to tap into debt in the international markets. What's the advantage of that long term for our debt, and we'll talk about that in a minute here. And long term, and at the same time, we can also have very low interest rates. But the reverse of that coin is that normally, it's debt issued in dollars, right? So whenever you have depreciation of the real, you'll see a spike in leverage. This is past us. If you look at the numbers for leverage now, we ended the second quarter, end of June with leverage at 0.65. So these levels are very, very, very adequate. I know that we have published that our targets established by the board in terms of financial policy is to get to 1x, 1.5x. But the point is we established the target as a maximum, right? We crossed that line, and we're on the positive side of that line, right? So leverage is very much under control, okay? This is the lowest ratio in 14 years that we achieved, okay? We remain investment grade by the 2 of the rating agencies put by -- in reality by the 2 of the rating agencies right now. And we are very, very happy with this position. In the bottom there, you see our -- the profile of our debt, okay? On average, our debt costs 5.36% a year and the average maturity in terms of term of payment, right, how much time I have to pay my debt is 7.7 years. So it's a very good profile. You can see also, we don't have any single year where we have a big spike in terms of payments of debt. So it's very well established. We're also very happy with that. The point about debt is that there's still 1 target that we want to achieve, which is to take our gross debt. Today, it's about BRL 16 billion. We want to take it to BRL 12 billion of gross debt. So this is also one of the financial targets that we have that we're really striving to get to. And with the cash flows very strong as we are, and obviously we're going to get there very soon. Going now to return on investment, okay? This is a very important point. And probably, we consider this to be the most relevant point for investors because this is how much return you get on the assets that you have invested on. We're talking about fixed assets. We're talking about inventories. We're talking about goodwill that we have. So you get the results and you divide it by those assets and you see how much return you're giving. And then you compare it to your cost of capital because that's the other side of the equation. You have to have your return above your cost of capital. That's when you're really creating value for your shareholders, you're paying your debts. So you're really doing your job in terms of the financial targets of the company. And as you can see, our returns went to almost 10% back in 2018, went down slightly to 7% in 2019. At 2020, we reached 8.7%, which is right about our cost of capital. So we're basically delivering cost of capital in 2020. In 2021, for the last 12 months, you have to take the first 6 months of 2021 and the last 6 months of 2020, we're returning 22.5%. This is practically double our cost of capital, okay? So this is how you create value, especially for your shareholders. And this is return shareholders measured as our dividend payout. So that's basically our dividend payout policy, how much you're paying terms of dividends, right? So if you look for the last 12 months, we have paid BRL 7.8 billion in terms of -- we achieved in terms of net income, and we paid BRL 2.3 billion in terms of dividends. If you look at the dividends paid in the last few years, okay, so this number is between 3 to 5x what we've paid in the last few years. And this is important to mention because our dividend policy is a percentage of our net income. So it self adjusts to better results. And this is important when I talk a little bit about capital allocation, okay, in a couple of slides down the road here, okay? Dividend yield, that's the bottom of the presentation here. Same measurement in the last 12 months. We have achieved 8.5% dividend yield, okay, which is really, really very, very strong. If you look at the last few years, we have always been positive. We have always paid dividends year-in, year-out, but dividend yield has increased significantly, as you can see here. I'll talk a little bit about CapEx. There's a lot of information here in this graph, and you're going to have access to this, of course. I'm not going to cover every single number that we have here. But important to mention is that we are investing in additional capacity in our Brazilian operation, in our North American operation. We're investing in improvements of our portfolio in our Specialty Steel division, okay? And we have -- I mentioned already about the return on capital employed. All of this translates into putting money in your assets, keeping it -- them productive, effective, adding capacity and at the same time, achieving a good return on capital employed, okay? This is, as I mentioned before, a very important measure, right? In terms of expenditures, you can see that from 2019 -- sorry, 2021 we went from spending BRL 1.7 billion in 2019, all -- way down to 1.7 -- less than BRL 1.7 billion in 2020. And that was, of course, because of the pandemic. We had to reduce a little bit in the beginning because there was no clarity of how things are going to happen during the year, right? And CapEx plans are things that it takes time to stop, but takes time to resume again, right? So that's why for 2021, we're spending BRL 3.5 billion. This is the plan for the full year, okay? We've spent about around BRL 1 billion so far this year, but the plan is to spend above BRL 3 billion this year. This is a spread between technological improvements, in terms of maintenance of our equipment, additional capacity as well, okay? I'll go into the capital allocation slide. This is a conceptual slide. And what do you want to address with this slide here. Basically, it's telling you that with the strong free cash flow generation that we're having this year, we've been able to basically accommodate all the main requirements for a company. First of all, our shareholders, our dividend, I mentioned before, BRL 2.3 billion for the last 12 months, 8.5% dividend yield. So we've been able to really return a lot of capital to our shareholders via dividends or this is 1 point. At the same time, we're able to execute our CapEx plan. We saw before, BRL 2.5 billion for the year, so very strong CapEx. This is the investments that are going to assure that we keep having good EBITDA in the next few years, that we invest in the right businesses. We have Gerdau Next. We have investments in North America, in Brazil, our main markets. Other operations, of course, are going to get their share of CapEx. So that's how you assure that you keep generating good results for our shareholders. You need to invest in CapEX. And thirdly, we were able also to rebuild our working capital. You guys will remember, and we're still seeing a lot of disruption in supply chains all over the world, especially when you talk about commodities, right? So we were able to supply the demand, at the same time rebuild inventory. That's very important because if you don't rebuild inventory, the whole chain suffers and your customers cannot -- are not able to adequately supply their customers, right? So I think that we have successfully allocated capital in a way that addresses all these main points, okay? And last but not least, I mentioned before as well, we have the target to reduce gross debt. It's a cyclical business. The important thing about keeping leverage under control is that you reduce your gross debt, because net debt is a function of cash versus debt, right? So cash, all of a sudden, you may have other requirements, but your gross debt remains there. So we're also working besides those points that I mentioned in reducing our gross debt, very important. Again, target is to get to BRL 12 billion, a maximum gross debt for the company. And this is my presentation. I thank you all for your attention. Now we're going back to Gustavo, and we'll be able to join all my other colleagues here during the Q&A session. Thank you very much.

Thank you very much, Scardoelli, for presenting the historical financial results. Well, now President Gustavo Werneck will return to talk about ESG strategy, governance, diversity, environment and results in the social sphere. At the end, we will open the Q&A session. So if you haven't sent your questions yet, you can still send them during Gustavo's presentation. Gustavo, our attention is all yours.

I return for this last part of the presentation to give more details on Gerdau's future. I want to go over the factors that from the solid foundation that has paved the way of our transformation aligned with the new future that we are building. We are benefiting from our business model based on diversifying our geographies and our production routes, which included iron ore, scrap and charcoal, [indiscernible] as well as our focus on operational excellence. But we also are harvesting the fruits of the cultural and digital transformation that we have been undergoing over recent years, which has made us a lighter, simpler and more agile company ready to meet the needs of our customers. With the simplification of our company, we are now focusing solely on the Americas with the conclusion of our divestment plan that generated proceeds of $1.5 billion. In addition, our selling, general and administrative expenses as a ratio of net revenue fell to under 3%, down from 6% 5 years ago, which represents annual savings of around $300 million. Looking to the future, our digital vision, whose guiding principles including creating more value for customers and improving the performance of the key internal processes such as industrial and supply chain have delivered real gains of nearly $200 million since 2018. Our long-term vision also led us to announce the creation of Gerdau Next, our new business division, which was covered by Juliano. And we remain focused on becoming a more sustainable company by engaging our people and value chains and the challenges faced in our planet. The next slide gives more details on our digital transformation. A good example of this effort is the number of new customers and businesses captured via digital channels, with over 9,000 customers buying steel online during the last year, while another $30 million from new digital revenue streams contributed to our EBITDA for 2021. And this trend should continue to accelerate in all countries where we have operations. Let's go to the next slide, where I will comment on the risks to our business that we see in our future scenario. We are closely monitoring the energy and impacts of the new COVID-19 variants and the effects they could pose to people and the economic activity despite the advance in vaccinations around the world. In the near term, we are closely monitoring developments in the run-up to Brazil's presidential elections in October 2022. Since the economic scenario typically reflects the related political uncertainties as well as the effects from inflation on consumers' purchasing power in the economies where we are present. We also expect the shortage of semiconductors in the global market to continue, which should adversely affect the automotive industry, and consequently, the supply of special steels for the production of light vehicles. In the medium term, we are following developments in the supply/demand balance for steel especially in Brazil and the United States, with the possibility of new production capacities coming online in both countries and then associated change in important flows. We also are closely following the increase in demand for ferrous scrap in our markets, which could pose challenges to secure and access the material and pressuring our margins. I also should note the uncertainties and challenges associated with the political scenario in Latin America, which, in the medium term could have impact on the conduction of the economy policy in these countries. Now on Slide 33, you can see our ESG journey. A highlight was the approval for the proposal to include performance targets for ESG indicators and the long-term incentive plans of our serious executives. Coming into effect as of 2021, the change stipulates that around 20% of the amount of the long-term bonus included in the variable compensation of our executives is conditioned upon meeting ESG targets. We believe that this will give greater strategic visibility to our organization's sustainability, a topic that will help carry us into the future. The measurement of this percentage of ESG targets will be calculated based on 2 new indicators, percentage of women in leadership positions and greenhouse gases emissions. Another target will be achieving 40% of economic value added the EV. Our ESG priorities also include fostering diversity and inclusion, mapping all risks involving the business and Gerdau Next's focus on solutions to improve sustainability. Going to the next slide, you can see that last year, our carbon emissions were half the average of the global steel industry. This performance reflects our management focus on seeking solutions to global challenges such as climate change as well as a production model based on ferrous scrap as the main raw material in the use of charcoal products produced from planted forests. Today, Gerdau is Latin America's larger recycler with 11 million tons of scrap processed annually. Meanwhile, the planted forest base that we use to produce charcoal covers an area greater than New York City. Gerdau also adopted the curve methodology, marginal abatement cost curve and marginal energy abatement cost curve for restructuring its emissions reduction targets for the short, medium and long term. The goal of this study is to learn about the technologies available and under development that are pertinent to end and feasible for the steelmaking process using by the company, analyze which are eligible, prioritize and plan the initiatives and investments that then disclosed [indiscernible] publicly over the coming years. Returning to the topic of diversity and inclusion. On the next slide, you can see that in 2018, 17% of leadership positions at our operations in Brazil were filled by women. Now in 2021, we have increased this percentage to 23% through the various initiatives to foster gender equality that we have carried out in our operations to ensure equal opportunities for all persons. The goal is to reach 30% by 2025. We still have a long way to go, especially with regard to senior leaders, but we believe that inclusion is a journey and that step by step, we will achieve a more diverse and inclusive workplace. Supported by our ongoing cultural transformation, we continue to make progress in incorporating the ESG agenda into our business decisions with a view to making the company even more sustainable than it has been over its 120 years completed this year. One important advance in this process is the ESG scorecard metrics, which improves visibility of the environmental, social and governance indicators prioritized by the company. The incorporation of these indicators in the long-term compensation of our executives was part of the process to increase the transparency of Gerdau's reporting of ESG information to the market and to the general public, upholding the commitments to transparency and sustainability incorporated in our decision-making process in our ESG action plan. Thank you very much, and we'll now move to the question-and-answer section.

Thank you, Gustavo. Despite the atypical period we are experiencing, Gerdau has continued to show great results. Congratulations to everyone for the excellent and enlightening presentations. Before we start to the last part of our event, with questions from analysts and investors, I would like to present a short inspired video about Gerdau's 120 years. Next, Rodrigo Mala, Investor Relations General Manager, will be here in the studio to lead the Q&A session, okay? Well, let's play the video, please. [Presentation]

Hello, everyone. One more time, I'm glad to be here to have this opportunity to moderate the Q&A session of Gerdau. All the executives are here today with us, and we'll be pleased to answer the questions you may have. During the presentation, we've been receiving more than 15 questions for more than 300 investors following the presentation. So keep going. The Q&A session is ready. You can continue to send your questions. So now we're going to start with a special friend Daniel Sasson from Itau the first question. There will be relevant flat steel capacity expect to start in the U.S. over the next 2 or 3 years. You'll see any of your competitions making moves to add long steel capacity in the country. The question will be for Wang. Wang is here with us today, but he's from Tampa. So Wang, please answer the question.

Thank you. Good afternoon. Well, we see these investments coming, right, mainly the flats. And as for long steel supply, we believe the base is very, very well established, mature in the U.S., okay? Aside from those already announced, we are not seeing many in the foreseeable future, okay? And especially in the product line of merchant structure that we operate, we think we are well, the supply base is strong. And as for GLN, we continue to invest our existing asset bases, as I've shown before, to our road map, continue widening our product offering, and services and also screening our cost structure to be more competitive to face a challenge in the future.

Thank you, Wang. The same from Daniel now for Faraco. Faraco, how concerned are you from the water crisis in Brazil? Anything Gerdau can do to mitigate the effect? Thank you, Faraco.

Daniel, thank you for the question. And well, this is really a point of concern for us. This is something that we've been watching very closely. How this water crisis is evolving and the potential scenarios that we can face in the near future because of this worst drought that we have in discounter in the last 100 years. So this is something that we have to understand from the different perspectives. I think first, this water crisis is more severe in the Southeast of the country and less severe when you look at the Northeast and in the south. This is important for us as we have production all over the country. This gives us the flexibility to move production around as needed. As we did this in the last water crisis that we had 6 or 7 years ago. So we can reshuffle our production and try to offset eventual problems that we have in some of the regions. This is one of the alternatives that we are working. The second point here, Daniel, I think it's important for us to understand Ouro Branco there is our main facility here in Brazil, generates around 60% to 70% of its own energy. So it's also important for us in terms of flexibility. And we also have the Dona Francisca power plant in the South. That's also part of our matrix generation here in Brazil. So that's also something that we have to take into account. And the third piece here, Daniel, is we have to look at -- we've been looking into this since the end of first quarter and we have made the decision to build some inventory throughout these months to prepare ourselves for worst scenario at the end of the year, beginning of the next year. So if you look at our numbers and if you look at the numbers that we posted out in the end of the second quarter, you're going to see that inventories are going up and that's part of the strategy to prepare the organization for the year-end and for the beginning of the next year as a safe, yes, for a potential worse scenario than the 1 that we are facing now. So these are the 3 levers that we are pulling, and we believe that we can manage the situation if it gets worse in the coming months.

Thank you, Faraco. The next question comes from Leonardo Correa from BTG. Thank you for the great presentation. I want to ask first for Scardoelli, capital allocation. How do you see a new dividend formula -- policy or extraordinary dividends already given low leverage.

Yes. Thank you very much, Leonardo. This is a recurring question these days because of the very strong free cash flow, right? But during the presentation, I think one of the points that I made is about the self-adjustment of our current dividend policy, right? It's 30% of the net income. So when net income goes up, naturally, we'll pay more dividends, right? We've seen that so far. If you look at the last 12 months of the dividends paid by Gerdau, 8.5% dividend payout, so is substantially higher than the average that we had in the past few years, right? At the same time, we're -- we still have the target to reduce gross debt, and we're [indiscernible] on the target. We are very mindful of net debt leverage. So for now, we think the dividend policy is at adequate levels, okay? And again, dividends are substantially higher, just by the way, we established 30% of net income.

Thank you, Scardoelli. Our next question is also from Leonardo for Wang. Wang would you see U.S. EBITDA margin above 20% as a new normal for Gerdau? Please, Wang.

Well, there's no doubt we are seeing huge recovery in spread starting -- beginning of this year, right, driven by strong demand recovery, economic recovery post pandemic, the infrastructure that can about and also a very strong backlog. We surely hope this level to sustain, but also we've got to watch also scrap, right? A lot of new addition capacity is basically EAF production. So we have to look at that. What I can tell you is that as for GLN, we are very well positioned in the terms of having 45% of capital scrap with the yards and collection system and shredders. And we are probably one of the least dependent of the prime scrap with low residual due to our product mix, okay? And additionally, I would say that our focus been the last 3 years is to implement a road map, become more competitive, widen our service and product offering while investing CapEx to reduce our cost structure. I think we'll continue doing this work to become more competitive. I think we are prepared, much better prepared to face the downturn. As for spread level today, I think for short term, we're surely hopeful and that can remain for the, let's say, quarters, foreseeable quarters, okay?

Thank you, Wang. Well, our next question is coming from Safra, Conrado. Yesterday, the lower house approved some subjects regarding the tax reform. So that's why Conrado is asking to Scardoelli, considering the tax reform ongoing in Brazil, are you considering anticipated dividends before the end? Could you do buybacks to play a larger role in the next few years in Gerdau? Please, Scardoelli.

Thank you, Conrado. This is, of course, a very relevant question, especially when we see the approval that we had just yesterday, right? And first of all, we naturally anticipate dividends during the year, right? So normally, we do 3 payments of dividends during the current year, and we just make a final adjustment in the following year, right? With the approval of this tax reform, right, when confirmed and with the new taxation and dividends, it's natural that we could consider paying an estimate for the whole dividend of the year during 2021. So this is something that is a real possibility. We're evaluating that. This means anticipating what we would pay naturally in March next year, anticipating into 2021. So it's a natural consideration. Of course, we're going to look seriously into that. In terms of share buybacks, Conrado, this is 1 thing that, of course, it's always an alternative for companies like us. Strong free cash flow, of course, as I mentioned before. We do have a CapEx plan ahead of us. We do have reduction in gross debt that we want to do. But naturally, a company that keeps generating very strong free cash flows, share buybacks are always an alternative. Haven't decided anything about that. But yes, it is something that will be in our arsenal of alternatives in the near future, no question.

Thank you, Scardoelli. Well, the next question is also from Conrado for Faraco. There are some talks of cooling long steel market in Brazil. Due to more import cargoes rising and an expectation of potentially lower price going forward, do you agree with that reading? How do you see domestic price behaving? Is exporting a short-term alternative. Please, Faraco?

Conrado, thank you for the question. I think the way that we see the market is we look at our order entry and it remains in a very good level. When we look at our backlog, it remains very healthy. And we look at the supply/demand, it's in balance, it's in equilibrium now. So I think that we see for the foreseeable future, this equilibrium will continue. So that's very important to take into account. The second point that I want to make is we've been talking about these imports. But historically, I think that we have the import penetration between 10% and 15%. If you look at this year, we have this number ranging between 5% and 15%. That is in line with historical levels. So there is nothing special comes in terms of imports, and we don't see that as a threat at the moment, and then we don't see that in balancing and breaking this balance that we have in the market. So that's an important point to say. In terms of prices, what we have seen this year is we saw the prices for long products going up at the beginning of the year. And I think that we had most of the price implementation for longs in the first quarter and beginning of the second quarter, and we have the price execution for flats coming at the beginning of the second quarter and moving towards the beginning of the third quarter. So the price execution and price implementation has been completed for longs and flats. We have some carryover that we're going to see from quarter 2 to quarter 3. And at this point, we see stable prices in our backlog and our order entries. When you look at international prices as well, we see some stability there. So for the coming months, we don't see any major movement on prices, and we believe that we're going to have some stabilities for either longs and flat products here in Brazil.

Thank you, Faraco. Our next question from Rodolfo, JPMorgan to Scardoelli. Well, every time that we see strong business performance, it comes together with strong cash flows. How the management is thinking about the cash flow? We're going to disable dividends or potential expansion? So you see already a very high utilization rate everywhere. Please, Scardoelli.

Yes. Thank you, Rodolfo. This question kind of connects with my past answers here in terms of dividend policy, right, and returning capital to our shareholders. But I think, Rodolfo, that your point is very important. And that's why I mentioned that we do have to take care not only of the short term, we have to think about cash flow generation for the future, right? So assuring that our EBITDA is going to remain strong. So we do have to invest in our companies, in our operations. We've seen in the slide about CapEx that we do have expansions in North America. We do have expansions in Brazil. We just announced the resuming of operations in Brazil. So we do have to take care of capacity, right? We do have an important market share in the markets that we do operate and we need to keep that, you have to make sure that you always have enough capacity to supply our customers. And that's what we've done this year, right? So I think dividend policy, that's what I mentioned before. We think our dividend policy for now is adequate. At the same time, we will make sure that we -- yes, we invest in expansions as necessary to keep our market shares, to keep supplying our customers and growing as a company.

Thank you, Scardoelli. Questions from [indiscernible] Considering the 25% growth in consumption in Brazil, according to Brazil Steel Institute, how Gerdau is planning to increase utilization rate as we mentioned that we are above 80%. Please, Faraco.

Thank you, for the question. I think that I mentioned during my presentation, we are running now around 80% utilization of our capacity here in Brazil. And what we have done, and we have to look at the last months how we have behaved. A lot of our production was to supply the domestic market, and we have to remember that we have this inventory replenishment going on in the market. We believe that we finished this phase, we see the inventory level now in historical levels for long and flat products. So now what's playing is the real domestic demand in the market. During this period, we have increased and brought back capacity to our facilities here in Brazil. So for instance, we have rolling mill #1 in Cosigua that was hibernated for 7 years. That's now back. We have the ramp-up of our Caucaia Mill in the Northeast, that's also helping us in adding capacity. And we are also using the capacity for the other mills that are available. So what we are doing now, we are starting to look again into the export market, and there is some profitable business that we can do on the export market, and we have plans to start to explore again, increasing the utilization rate of our mills, combining the domestic demand versus exports and bringing this number up in the coming months. So this is the plan that we have for the coming months to benefit for the growth in Brazil and also for this very healthy international environment for the steel business.

Thank you, Faraco. Our next question is also for a Faraco, from Thiago Lofiego, Bradesco. You mentioned 6% growth in retail construction '21 in our presentation. What's the outlook for next year? Do you see any risk in a lower retail construction activity due to lower government income programs. Also, what's the impact of the end of the pandemic in '22 with people shifting focus to service and not so much at home. Please, Faraco.

Thiago, thank you for the question. I think that as I mentioned, retail is a very important market for us. It accounts for about 50% of the construction demand here in Brazil. So we watch this segment very, very closely. And what we have seen over the years that despite of the overall economical environment, retail is growing. So since 2016, throughout the cycle, we see retail growing year after year. If you look at the last 2 years, last 2020 and 2021, of course, that we have the incentives coming from the government, what we call here the corona voucher. This boosted some of the demand through the retail market. But we still believe that without these incentives, we're going to continue to see retail performing and performing well. We are starting to discuss the forecast for 2022. And our forecast is ranging between 2% and 4% growth for next year for the retail business. So we continue to see this market as very important, and we continue to count on the growth of this market for the coming year. And we believe that we're going to see another positive year for the retail market here in Brazil.

Faraco, the next question is for Wang also from Lofiego. Well, how do you see the scrap market in the U.S. in the next 12 to 18 months as new electric arc furnace capacity is starting up? Do you consider a risk to the metal scrap as the scrap demand is full by those new capacity? Thank you. Please Wang.

Okay, great question. Yes, I think all eyes on scrap, right? As we know, new capacity coming, as I mentioned before, and majority in production, right? So that puts pressure on scrap. But we all also have to remember that U.S. is a scrap surplus country, right? So we got -- we have to pay attention to the export level, okay? And generally speaking, it's around 15 million to 20 million tons a year. So we've got to watch how that number is going to behave going forward. Additionally is that as vaccination becomes more effective, I believe the collection will increase. Availability should also increase, okay? And as I mentioned before, the -- for GLN, we are very well positioned, and we don't rely much on prime scrap, and we have our collection system and processing units to provide almost 50% of our scrap, right? So it's something that we should pay attention. I think it's a very dynamic. Market will probably adjust it by itself. At end of the day, I think it all comes down to how competitive you are to capturing the scrap and running the mill though. Our objective is to be able to take advantage from the market, run mills through and source economical hyperscrap as much as we can.

Thank you, Wang. Now we have a question from Maria from Daycoval, and it's for Juliano Prado from Gerdau Next. Well, I would like to understand better how the project with Habitissimo and Twitter works. Please, Juliano?

Thank you, Maria, very much. Very great question. [indiscernible] joint venture between Votorantim Cimentos, Tigre and Gerdau, we started working on B2B. By the end of 2020, we acquired a trader, a B2C platform as well as Habitissimo in Brazil. So what is this about? When a consumer -- an end consumer starts working in a minor reform, minor renovation at the same time at a construction, you can use a lot of professionals that are engaged on this platform. And that's what I'm saying here, that we are able to connect a huge B2B platform already developed through over the 3 -- over the last 3 years with more than 1,000 stores and 1 million professional -- construction professionals that are part of the trader and Habitissimo platform. So it's very great on data, very great on intelligence, and we have a kind of positive circle involving in all of them. Thank you very much.

Thank you, Juliano. So our next question is coming from Rafael from Santander. M&A in USA, how do you understand is the market position of Gerdau today? Please comment about the -- what we think if we are well positioned or not in U.S. and if we are planning any expansion? Please Wang.

Well, absolutely. Great question again. And I think we remain very diligent but very open to grow with sustainability, right? We have to always pay attention to the financial solidity, the debt EBITDA levels, and we look for opportunities. But as important as new acquisitions, I think, it's about how we invest in our existing network of assets, right, in terms of bringing their competitiveness. So all the CapEx plans, the results from the road map, we explained, we have a plan for 3, 5 years, really bringing better services, product offerings and efficiency side to lower our cost structure so we can compete in this marketplace when downturn comes. And I think we can secure our share increase. On the other side, not only about new business, but we are very determined to invest in our upstream and downstream in terms of more service to be offered to our customers and penetrating in new segments and new products. And for upstream, I think it becomes very evident. We have -- a clear plan is already execution in growing our footprint of capping scrap, securing even more scrap, competitive scrap for our network.

Okay. Our next question is anonymous, and I'm sure that it's not coming from me, okay. It's an acknowledgment for Gustavo. Gustavo, your time as CEO in Gerdau has been remarkable, even if we adjust by the recent industry upcycle. Congratulations. Gustavo, what are your goals for the next 3, 5 years? Please, Gustavo.

Well, thanks for Mr. Anonymous for the question. So addressing a simple answer for this complex question, I would say that my main goal is to keep reframing or creating a new meaning of my current position as CEO, from Chief Executive Officer to Chief Enabling Officer, with the purpose to release the power -- the full potential of our people and our business. So that's my daily work. One good example, I would say that I remember that 2 years ago in the Gerdau Day in New York, I was talking about digital transformation, the possibility to generate what, 20% of EBITDA in case we are able to close the performance gaps we have with digital transformation. So one chief -- traditional Chief Executive Officer are not able to close this gap, but the Chief Enabling officer is able to do that. So I would say that's my main goal and the main contribution I can give to the company.

Thank you, Gustavo. Now we have a question from Caio Ribeiro from Credit Suisse. What you think about the water prices in Brazil? So Faraco already answered the question, but if you wanted to talk a little bit more. But also, if we're going to be included in the energy program from the government, energy program for rational consumption reduction. Please, Faraco.

So Caio, thank you for the question. As I mentioned before, we've been watching very closely the scenario in Brazil and how it's evolving. This is also -- it's just, of course, a point of concern for us. As I mentioned before, we are doing everything that's in our hands at the moment. So we are building inventory to propel ourselves for a more stressed scenario in the future. This is one of the points that we are working at. The second point that I mentioned is really the strength of our business model, as we have these different routes here in Brazil and we can move production around. So this flexibility is very important, and depending on the scenario, will become even more important for us. And that's going to be really an advantage for us. So these are the 2 big things that we are doing now, yes. I think in terms of these government policies, yes, it's, of course, that we are analyzing everything that we are putting on the table. For this specific policy, yes, we have joined it. We have signed for that. It doesn't mean that we're going to do it. It just mean that we have the option to do it if we decide. So we have joined this policy, and we are tracking the market when we're going to make the decision as time goes and when we have to face this specific moment.

Thank you, Faraco. Our next question from Joaquin to Wang. Well, with the new package for infrastructure in the American Congress, what you think about the Dow growth in U.S.? What are the opportunities? Please, Wang.

Okay. Of course, this package is quite significant, right, and of course, it's ongoing. It takes a lot of time to define the details from specific -- in terms of activities, so it's difficult to measure how much and which product line with the accuracy. But overall, I think we see this represents amount of 20 million, 30 million tons in products in the next 4, 5 years, right, which is quite significant, and that's for us. As you know, for GLN, we are already running full. So it's about how can we do to increase our productivity and show the right supply base with a higher profitability and retain our customer with the best, better product offering and services and achieving the best results as possible.

Thank you, Wang. Our next question is also anonymous. It's talking about the growth chart is impressive. Congratulations. Is a growth part of the management KPI? I think I will pass to Scardoelli, Please, Scardoelli.

Yes. Thanks for the question. Yes, it's a very important metric for us, not only because it means the creation of value for our shareholders, but it is also included in the long-term incentive plan that all our executives -- that have their long-term incentive plan have. So we have our financial incentive also tied to this kind of metric, the return that you give to the assets that we manage, okay? So yes, thanks for the observation. Yes, it has been really a very good year for ROCE. And yes, it is linked to our long-term performance measurement as a management team.

Okay. Now I think I will combine 2 questions here from Mauro, [ Real Investimentos ] and also, [ Jon Paulo Damolin ], and I will move forward to Juliano Prado. Juliano, how is the partnership with Shell going? And about the solar park in Brazil. And from Mauro, considering all the ESG movement that we are seeing, how do you see energy metrics of Gerdau? How are we going to develop new ways to consume energy or even participate on new projects? Please, Juliano.

Thank you. Okay, I'll try to answer both in the same answer. So we want to be a relevant player in the renewables in the Americas, not only in Brazil. And we have 2 solar packs on the development on the construction, one in Midlothian that we have already announced 1 year before, and the one that we recently announced with Shell. The work that we are working with -- the work that has been done with Shell is to build a solar park in Minas Gerais. If you look at Minas Gerais, it's one of the top place in terms of eradiation, and we have a lot of lands there from Gerdau as well. So we want to have the best worlds. I mean, how can we extract the best of Gerdau land at the same time as Shell. So we start with a pilot NBP, what we call Aquarii site, 190 megawatts of power. That can be extended. Shell has gone public with the intention of having 2.2 gigawatts of energy in solar. So most likely, we can be part of it. So there is a lot of discussions going on. It's not decided yet. And in terms of our strategy, I mean, our strategy goes to operating in 3 different sources, not only solar. So we understand that we have been combining hydro, solar and wind at the same time, not only in Brazil but Latin America, and North America as well. Thank you very much.

Thank you, Juliano. Well, our next question is for Scardoelli from Alejandra Andrade. In order to reduce gross debt, the Dow will be targeting dollar debt or BRL debt? And I will combine with another question from anonymous telling, as we reach the target of BRL 12 billion, what will be the next steps for the indebtedness? Please, Scardoelli.

Thank you. That's a very good question as well. First of all, yes, today, we have already reduced the percentage of debt in dollars versus the total debt. We used to be almost above 80%, about 85% of debt in dollars. Today, we're approaching 70% -- between 70% and 60%, okay? So that also means that the majority of the debt that we have to pay down to reduce is in dollar terms, okay? So it's a natural target to go after the U.S. dollar-denominated debt, okay? So this is the first question here. The second one, which has to do with -- after we reach that -- the growth that we want to do, what can we do about that, right? And that's something that we're always open to analyze alternatives, right? We want to keep a position in the debt capital markets, which are important for us. They have always allowed us to raise debt with very long maturity at very good costs. So we will keep analyzing the opportunities that arise, okay? There was a time, for instance, 2 years back, where the Brazilian debt markets were very liquid so we could issue with good terms, with good maturities and also with good costs, right? So this could be an alternative as well in the future. So we will be open to alternatives. For now, probably, our main target, yes, is going to be dollar-denominated debt.

Thank you, Scardoelli. Our next question, I will combine from Thiago Lofiego, Bradesco, and Caio Ribeiro from Credit Suisse to Wang. There are some talks about Section 232. What do you think will be the future of the Section 232? Is Gerdau ready for the future? And do you think that will change, there will be established quotas instead of the Section 232. Please, Wang.

Well, thank you. Yes. That's a tough question, but a very good question. Indeed, we are paying a lot of attention to 232. First of all, we really enjoy it as part of the steel producer with this policy from the administration past. And I would say, even the present, that continue to reaffirm supporting this policy which brought a possibility for us to compete in level playing field, and you can see significant recovery from industry in the U.S. in general, which, of course, we are part of it. Going forward, I think our sentiment is that present administration is embracing, in terms of supporting the same policy. Some change in the future can happen. I think USMCA and relations improved, the upcoming talks with the Europe -- European Union, all that's happening. But as what we believe that we don't see substantial change in the short term and eventually change will come, and quota being one of the possibilities. Maybe some changes in format, but not in the dramatic way, at least in the short term.

Thank you. So the next question is special steel. It's coming from [ Lucu Folta ]. How do you see the supply chain for special steel today? How is the demand? And especially if you see, what do you think will be the outlook in the contracts for this year and next year? Please, Gustavo.

Well, thanks for the question. Our customers are still rebuilding their inventories, so we believe that we will keep this high demand at least up to the middle of next week -- next year, 2022. I would say that this is the time that the entire supply chain needs to review these semiconductors supply chain. So we project an increase in our financial results for special steel for the coming quarters.

Thank you, Gustavo. Our very last question is not actually a question. It's from [ Guillermo Bajera-Fiero ]. Being a shareholder for more than 40 years, I began with Cosigua. Congratulations for the development and for the future plans. Management, keep going with the excellent job. So now, we finish the Q&A session, and I look forward to Gustavo to make the final remarks. Please, Gustavo.

So I would like to thank all of you for participating in this very important event for us. As I mentioned at the beginning, it's a very important year for us, the year we celebrated our 120th anniversary. So thank you again to be here. Let's keep working hard, and I hope to see you healthy and safe in the next opportunity in New York maybe next year. So thank you very much.

Okay. Well, thank you for the more than 300 people that are still listening to our Q&A session. It's really important for us to have you with us. So now, I will forward to our hostess, [ Adelle Viza ], to finish the event. Thank you.

This is the end of our program. Thank you for sharing this Gerdau Day with me. If you would like to check out the materials presented, go to Investor Relations website or other Gerdau channels on the Internet and social media. I hope you enjoyed it, and on behalf of Gerdau, I would like to thank the investors for joining us today. I wish all the best to everyone and further 120 years of great growth for the company. See you next time.