Gerdau S.A. ($GGBR4)

Good morning. Welcome to Gerdau's First Quarter 2026 Results Presentation. I'm Ariana Pereira, Investor Relations specialist. And joining us on this conference call are our CEO, Gustavo Da Cunha; and Rafael Japur. Please note that this call is being simultaneously translated into English, and you can choose your preferred language by clicking on the globe icon at the bottom of the screen. [Operator Instructions] It is worth noting that the forward-looking statements contained here and are based on the company's belief beliefs and assumptions based on information currently available. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may or may not occur. And now I'll turn the floor to Gustavo to begin the presentation.

Good afternoon. I hope that you're all well. I thank you very much for this opportunity. to join you for another earnings release presentation. We will briefly discuss the highlights of the first quarter of 2026. We will also talk about the outlook for our operations. And next, we will proceed to our Q&A session. For one more period, we posted strong result in North America. Between January and March of this year, we posted the best adjusted EBITDA for the first quarter since 2022 in our North American operations. which accounted for 75% of the company's consolidated EBITDA. This performance results from continued strong local steel demand, driven by consumption in segments such as data centers, infrastructure and solar power as well as the sound operating performance of our operations in the region. Meanwhile, in Brazil, the domestic market remained under pressure from excessive steel imports who's volume rose 4.2% in the first quarter of 2016 when compared to the same period of the year before, reaching a penetration rate of 22.7%. Against this backdrop, we continue to closely monitor potential developments in the antidumping investigations regarding long and flat products, which are expected to be updated in the coming months. This scenario of unfair imports has impacted the profitability of our operations in the Brazilian market. I then reiterate that we are investing in initiatives that strengthen the competitiveness and profitability of our operations. in the country. We have even seen a recovery in EBITDA for our Brazilian operation in this first quarter as a result of this strategy. And finally, I would like to highlight that we recently introduced Gerdau New Echo to the market, a low carbon steel solution developed to support customers seeking to advance their decarbonization journeys and strengthen their competitiveness in the transition to a low-carbon economy. With the launch of this new line, we now offer a complete portfolio of products with a lower carbon footprint for steel consuming sectors in general, like the automotive and construction industries. I will now turn the floor to Japur, who is next to me, who will give you more details on the financial highlights and the impacts of the current scenario on our results. And then I will have -- I will conclude with some brief comments, and we will jump to Q&A.

Thank you, Gustavo. Good day, everyone. It's always a great pleasure to be here with you today in another Gerdau earnings conference call. We started 2026 with BRL 1 billion of consolidated net income, 50% up compared to the previous quarter, 34% above the same compared to the same period in 2025. And these results were driven by sequential growth across all our business segment, particularly our operations in North America, which continues to gain prominence as Gustavo just mentioned. In Brazil, on the other hand, despite a decline in apparent consumption of long steel products, our main market, we achieved a higher EBITDA margin than in the previous quarter, a lot thanks to our cost discipline. Therefore, we recorded EBITDA of BRL 3 billion in Q1 2026. Please hold, the call froze, [indiscernible]. Well, we were talking about operations in Brazil even with a decline in apparent consumption of long steel products, typically, our main market. We achieved a higher EBITDA margin compared to the previous quarter, a lot thanks to our cost discipline. That's in consolidated numbers, we ended an EBITDA of BRL 3 billion in Q1 with an EBITDA margin of almost 18%. We ended the month of March with a leverage of 0.74x net debt over EBITDA ratio. However, we consider extremely sound and in keeping with our financial strategy and policy. . In the first quarter 2026, we recorded a free cash flow of BRL 16 billion, even in a period, which typically consumes cash due to the replenishment of working capital and also the end-of-year maintenance shutdowns. Compared with the same period of 2025, we generated BRL 1.300 billion more in cash. This reflects not just the substantial improvement in our EBITDA, but also the substantial reduction in the pace of CapEx investments compared to previous years. But this does not mean that we are not investing in our future. Until the end of 2026, I'd like to remind you, again, stressing what we have talked about in our previous earnings calls and Investor Day, Gerdau should complete 3 very significant projects for Gerdau, the mining expansion in Miguel Burnier, the scrap processing center in [indiscernible] and the first phase of the middle lithium expansion in Texas. Together, these projects have the potential to add nearly BRL 1.5 billion to our annual EBITDA when the ramp-ups are complete. Lastly, we remain steadfast in our commitment to creating value for our shareholders. This quarter, Gerdau Assay will distribute BRL 0.18 per share in dividends, while Metalurgica Gerdau will distribute BRL 0.08 per share. In addition, talking about Metalurgica Gerdau, we just approved the launch of a new share buyback program, covering up to 10 million preferred shares, which today amount to approximately BRL 100 million at current market prices. I'll wrap up here, and I'll join you again during the Q&A session. Thank you.

Thank you, Japur. I'd like to say that in Brazil, we see signs of a gradual recovery in domestic demand. particularly in the construction and infrastructure sectors following a more intense seasonality or seasonal slowdown at the beginning of the year. Well, we still face an excessive inflow of imported steel into the local market. In North America, meanwhile, we continue to see steel consumption stable at high levels. With the order backlog above historical averages, we continue to monitor developments regarding Section 232 and the formal review of the U.S., Mexico, Canada agreement, USMCA, scheduled for the beginning of the second half of the year. We'll now turn the floor back to Ariana and Japur and I will be available to answer your questions and address your concerns. Ariana?

Thank you, Gustavo and Japur. We will now initiate the Q&A session. Our first question comes from [ Ricardo Monga ] with Software Bank.

It's always nice to talk to you. I don't know if you can see the screen if you can see me on the screen. Well, first, I would like to congratulate the performance in Brazil. It was a very pleasant surprise, both for me and also in my late conversations with investors. So I would like to go on with that topic of productivity in Brazil. You're talking about a new wave of improvement that is not coming from closing capacity but more efficiency and cost reduction. So I would like to give you this opportunity to tell us what are the main levers that you see today I know I want to know whether this includes logistics, mining, industrial productivity. So this is a very broad question, but I think it's also very relevant for the current moment. And then my second question in terms of capital allocation. I see that you still have -- there's still some differences between what the market expects in terms of CapEx for 2027. I would just like to confirm with you. So given the fact that you already delivered the mining project and with other very competitive projects being more clearly outlined in CapEx being lower, does it make sense for us to expect that next year's CapEx would be closer to the level of depreciation, mainly considering that the company's priority is to be very disciplined in capital allocation and cash generation?

Ricardo no, we cannot see your camera, but we could hear you loud and clear. I will talk about competitiveness in more general terms, can give you more detailed numbers, and then I can add if necessary. And also, Japur can answer the question about CapEx. Well, in general, Ricardo, the evolution of our margins in the first half of this first quarter of this year, they send from initiatives that we control. But we still see that there is still room to seek for further cost competitiveness. In Brazil, we serve all corners of the country from the south to the north. And in terms of logistics, we have lots of opportunities because we take the materials from the mills, and we take to more than 70 locations. We deliver to construction stores. Therefore, our the maximization of our equation, competitiveness versus cost hasn't reached its limit yet. We see opportunities to go forward. So we will certainly pursue all the possible opportunities. On the other hand, looking ahead, we -- there is also a pressure over cost, especially in terms of the energy grid and this conflict between U.S. and Iran has led our main input providers are constantly ask us to negotiate prices and so at the moment, we are negotiating with our customers, trying to find a solution where they could probably transfer part of the cost to several segments. And going forward, we still have the benefits coming from capital allocation and investments in CapEx projects that we are doing in Brazil. And maybe Japur can give you more detail competitiveness in terms of scrap and the investment in the Burnier mining project. So there are many things to look forward to going forward. But we are very much confident of things that we have under our control. For next quarter, we want to continue in our reduction cost trajectory, and we are putting all of our efforts to accomplish that. We will not -- we do not expect any margin or radical cuts. But gradually, we believe that we have only takes to improve our margins. without even considering the trade defense measures, especially concerning flat steel anti-dumping measures. We believe that this could bring a new reality to the sector starting the third quarter of this year. So this is my general view on the top. But now I turn the floor to Japur to elaborate further to give you more details. And I would also ask you to answer the question on CapEx.

Well, to give you a little bit more light, we are thinking about 2 major projects that should be delivered from now until the end of the year. One is mining and Miguel Burnier and this project should generate about BRL 1.1 billion a year and potentially with additional EBITDA, we are thinking about cost savings in our project in Ouro Branco, but also this would be incoming revenue. This project contemplate both components. And also thinking about our mini mills or the electric or power mills there is an investment to be concluded at the end of the year, which is the scrap recycling center, and this will generate about BRL 100 million in benefits, meaning that we have very robust projects and levers. I mean, it's very complex to estimate performance. But structurally thinking, thinking about the mid- and long range, we will increase our level of competitiveness. And so we should be seeing that in Brazil in the next coming years. Structurally speaking, that's the major change. And this is probably linked to your second question on CapEx. We know that it's probably too soon to talk about any formal guidance for CapEx for 2027 because the year 2026 is just beginning. But typically, our CapEx guide for the current year is given in February. But last year, we anticipated our Investor Day because we thought it was important to be more accountable to the market. I mean, we -- the Board had already made a decision to reduce the level of BRL 6 billion. of disbursement to something close to BRL 4.7 billion. And so if we think about the first quarter and then you annualize it, the pace is very much in line with the CapEx. But thinking about 2027, I think it's due too soon to give you any information about it. And we already talked during our Investor Day that the general maintenance CapEx, the maintenance CapEx should be close to BRL 3 billion for the next 5 years on average with some fluctuations depending on the shutdown of of the blast furnace or the Coke plan. But structurally speaking, this would be the maintenance level. And we also believe that it will be hard for us to think that we will always do maintenance as the company's CapEx. I mean, whenever you think about the actual life. But when you think about how the model acts in terms of the cash flow, we cannot ignore the competitive projects are there just to generate additional EBITDA to generate growth and competitiveness. And this is what we are reaping with this investment in mid low and also with the scrap processing in Pindamonhangaba. And all of these benefits should also be incorporated in the cash flow and oftentimes what we see -- when I look at the analysts and their models, they disregard any kind of gain coming from new projects. And they consider as though everything is -- this is as usual. But considering the level that we find ourselves today, I mean, excess capacity in Brazil and adjusted demand well adjusted in North America, we don't see room for large projects with large CapEx increase because I don't think it would make a lot of sense.

Ricardo. Next question from Rodolfo with JPMorgan.

I would like to hear more about the North American operation. We were here positive with that region for quite some time. And so to be honest, I mean, we were surprised with the level of very high backlog. So I would like to ask you, Gustav and Japur. If you could give us more details what is happening, what are the strengths that you see in the region and not only looking at the quarter, but what do you expect to see happening in the second quarter in that region of North America? And my second question is similar to that 1 on North America, but now I'm referring to Brazil. I think it's clear because you referred to your fight against the imported products. But I would just like to hear from you, what do you see in terms of demand instead of supply? How is the construction activity going and whether you anticipate any positive surprises coming on the demand side?

Rodolfo. How are you? Well, it's never -- it's never all perfect because if you cheer for my soccer team, you never -- you're never in piece. Well, Japur, Okay, let's -- let's split the answer. I'll speak about Brazil and you talk about the U.S. Well, first of all, demand is very resilient, both short and midterm. -- and the segments where we find the main demands for our backlog. They remain very steady and firm. data centers, think about data centers, the number of data centers that are being built, and they will be built in the next coming years in North America. That will demand a significant amount of still, and that's 1 strength. The other strength is that they will not build more greenfield mills in the coming years, but possibly in the areas where we operate. The other strength is our business model, very much focused on merchants, structurals, directly related to the demands that I mentioned, infrastructure and data centers. This -- the U.S. trade defense mechanisms are very robust. Since Trump's first administration and then Biden's administration, they did not reduce what was mentioned in the 232 section. The negotiation of the USMCA will be even more favorable to North America, but we have also our internal strengths. We are very lean in North America since 2018, when we drew up a very strong plan to recover our industrial gap in terms of the USI, we are operating our mills very well, very few maintenance shutdowns. And we've been very assertive. We grew the critical surplus. So any shutdown, we solve their problems quite fast. So things there are running very, very well. So you see China exporting a lot through the integrated route. Maybe they removed part of our competitiveness because of scrap exports. So there is surplus, there is additional scrap supply in North America. That's why prices in a way went up and spread is has been broadened, and we think it will continue to be like that. We are very positive. We are very certain that the results that we delivered this quarter will continue to be good in the coming quarters. And with that, we gained some time to implement what is in our control to improve productivity in Brazil. There is still a lot of things to be done, short-term adjustments. But also when we look in the midrange, we do believe that there is still a lot of room to improve and enhance our operations in Brazil. Somehow in North America, we have to continue to operate with a lot of discipline to do what we've been doing so far. Well, that's my general view. Maybe if you have any further questions, I can answer that further. But now Japur, over to you.

Well, speaking about Brazil, qualitatively speaking, and looking at the results of this quarter, when we think about apparent consumption demand looking still in Brazil, there was a 6% decline in the consumption of long steels when compared to last year. And part of that is attributed to I mean we don't give you a lot of details, but that can be attributed to the consumption of special steels because we monitor ANFAVEA numbers. I know that you also look at the numbers posted by ANFAVEA. But January and February were weak months in terms of heavy vehicles. And -- that's an area that is very important to the consumption of SBQ or special steels, and that's an important market for us. And this in that -- and that puts prices upwards because price per tonne is higher when compared to regular loans, and this impacts our realized net revenue or net sales because we sold less special steels because January and February were weak months in terms of heavy vehicles. On the other hand, thinking about potential upsides and risks. In March, there was an important rebound in the production of heavy vehicles by ANFAVEA. And then if we continue to see this rebound in the coming months for this particular line of products, we believe that this will also boost our shipments in terms of special steels because the prices and margins are interesting, and this can lead to more constructive margins in our Brazil operation going forward. In addition to all the projects we mentioned before that will contribute to an improvement in our operations in Brazil. Certainly, there are still many uncertainties. There is the issue of freight and impact in terms of coal to complete, I mean, the metallurgical coal that comes to Brazil. But this is something systemic. It's nothing very specific of the company. Therefore, these are some positive points for short and midterm and other points of attention in relation to our business. infrastructure activities are going okay there. We haven't seen any major quantitative changes in this segment. I think what changed a bit the profile of realized prices and cost structure was mostly attributed to the lower volume of vehicles in the first part of the year.

Next question from Leonardo Correa with BTG Pactual. .

I have 2 questions. Perhaps the first 1 is about the top line. In the quarter, we saw the average price realized in Brazil dropping A little more than what we expected. 5% quarter-on-quarter, I understand there are a number of effects there. The mix, perhaps some effect related to seasonality impacting prices. And we have heard about all these attempts to pass through to 6% increases happening in the production chain. So I would like to hear your expectation regarding implementation. I know that this is competitive market with a lot of players competing for market share and imports are still hurting. So what about this attempt? Platts is not showing a lot of pass-through. 2.3% increase. I don't know whether this number is accurate or not. So I'd like to add more detail on the top line. And my second question, Werneck is kind of a more comprehensive one. I know you've been an advocate and you've been very vocal asking for equal conditions, trade defense mechanisms, fairness to compete in we see imports of long steel more controlled imports of flat steel that seem to be reducing the freight problem is going to make imports more expensive. We have antidumpings for BF galvanized in HRC, becotus,but in the stock market, we see some excitement. People kind of pricing results and thinking that things will improve in the future. And there will be a consistent recovery of results. So what are you thinking? How excited are you about what the government is doing and what kind of impact are you seeing in your operations. Do you think that this idea of a substantial improvement in the second half of the year? Do you think it's exaggerated optimism in the market? Or do you see these green shoots? Did you see -- do you think that the worst is behind us and that things are on the right track to improve in Brazil. These are my 2 questions.

Good questions, good opportunities to debate. When we talk about cost pressure in price, when we look at the profit pool of the several chains in which we operate, the sector under the most pressure is ours. This is changing from time to time. It's different than in the post COVID pandemic time. But I mean -- we cannot avoid passing through this cost pressure to prices, this will happen. And Japur monitors this daily. And if he disagree is regarding Platts, he has all of the numbers in his head. But I mean, this will happen. Many of our clients have been working with a little more leeway in their balance sheet with a little higher margins, but this dynamic has been constant. Every day, somebody is knocking on our doors, suppliers of electrodes, inputs and others here knocking on our doors. So I think that testing through a cost, which is well known, a global cost, a pressure that comes from a complex global situation or it will happen. If this were related to inefficiency in the sector [indiscernible], it would be difficult to create a narrative in the rationale that would allow us to pass through the cost increase. But this will happen. We have different segments, distribution, civil construction and civil construction, they work by contract per project. So I'm not worried that this will not happen. It will. My main concern is that when we pass through this cost increase, we'll need to improve the margins, deploy more improvements in the short term, which is something we're doing. Logistics is one, the amount of material being handled in Brazil, we are optimizing that, reducing that. So there are things to be done -- homework to be done in-house. In terms of trade defense mechanisms. I'm optimistic as well because this is something that is developing over time. The fact that Minister Alcami left and [indiscernible] will be conducting this area of trade defense mechanism. He's very knowledgeable. He knows about all the damage caused to the chain. The numbers are clear. The evidence became very clear over the last 2 years. evidence of the terrible damage made to the sector. You look at our balance sheet, but not ours only. All of the companies in Brazil, we cannot continue to invest. It's not possible to survive that way. So I believe that these 2 mechanisms, the cotariff system will continue in effect. I don't know whether they are going to broaden it, expand it to other products, but what we know of the quota tariff system in the last quarters, we'll be confident. And we believe that the antidumping investigations that took a little longer than normal, a little longer than expected, are unfolding -- the evidence is very clear. So I'm very optimistic at this point because we see that the trade defense will be broadened with a more entire dumping quota tariff system. This is what I'm thinking. Anything else you want to ask Japur?

No, I think you said it all.

Next question from Gabriel Barra with Citi.

Can you hear me now?

Yes, we hear you super well. We can see you and hear you.

I have -- 2 points of clarification. The first about Miguel Burnier, if I'm not mistaken, in the last earnings call, Q4 '25, we spoke a little about the ramp-up. And the expectation of the BRL 400 million in EBITDA for this year. I'd like to hear from you Werneck perhaps Japur as well about your expectations regarding that. I think we have maintained this kind of "soft guidance". So that is for BRL 400 million for this year remain the project seems to be a little delayed or is it on time to be delivered? So if you could elaborate on the company's expectations regarding the earnings for this year and how this can impact next year's EBITDA? My second question is about potential one-off actions for cash generation. I don't know if considering possible investments in real estate, land, -- the company has a lot of real estate that could be monetized. So I'd like to hear with you thinking about that -- can you wait -- can we wait for extraordinary dividends? Are you thinking about divesting? How are you looking at that given that the company has a more deleveraged balance sheet, a very sound balance sheet. -- in an environment of rising margins with the United States operation, very healthy Brazil with a positive trend for the second half. So I'd like to hear from you, investments and extraordinary dividend payout.

Right, Gabriel. Let's start with Miguel Burnier. That's exactly it. we released a soft guidance with our expectation. In our Investor Day in October of last year, we said we are expecting to generate BRL 400 million and specifically coming from the Miguel Burnier project this year. but we expected a ramp-up in start of operations. Operations haven't started. We are proceeding with caution. This is the largest investment in BRL in the history of the company. an investment for 40 years. So it's not because it's taking a few months more than we are going to do something that will sacrifice. So hinder the long-term return that we expect on the capital invested. We understand that we have typically this mining project, and it will be hard to have all the BRL 400 million. This year, we are working internally to calculate the impact, what will be the specific guidance for Miguel Burnier project, how much EBITDA it will generate this year. But in parallel to that, we have a number of other initiatives with a recovery plan to offset that loss margin. the with internal, improved operating efficiencies or through strategic alternative purchase more competitive ore in the region of [indiscernible]. And in that regard, we are very well positioned geographically speaking to buy or from other suppliers in the region. As a way to mitigate, part of this EBITDA that we will not see flowing in this year for our result. But we understand that in 2027, we should have a normalized ramp-up line or ramp-up curve. We're in keeping with what we expect with the mining project in the long term, okay? Gabriel. Now as regards real estate and other one-off actions that we might have to improve liquidity, free cash flow via divestments, we continue to progress with our internal analysis of our real estate assets. In here, I think it's good to have controlled leverage so that we don't -- we are not forced to sell something or to expedite a sale, so that we won't hurt the long-term value created for our shareholders. And in terms of cash allocation, that these businesses might generate this year and in the coming years, I think the commodities company is good when it is boring and predictable. We are not going to radically change our preferences in terms of capital allocation. We have been distributing dividends above the minimum set forth in our bylaws. If there's a surplus of capital when we are not hurting our liquidity, we are allocating for share buyback when we understand that the market is not really understanding the long-term value of our assets. And that's how we intend to proceed if everything else remains constant. So borrowing is good for a capital-intensive company like ours, okay, Gabriel?

Next question from Lucas Laghi with XP.

I have 2 points, and I'll start with a follow-up from the previous question, thinking about the optimization of your Brazil assets. I mean that you can focus on investments of high returns or reduce investments to optimize return. My question is, how do you view the market in terms of investing and divesting. You talked a lot about anti-damping and protection is few. And looking at a competitive scenario, I would just like to understand how this can impact your decision of investing more in Brazil or maybe seized with the divestment project in this current market scenario. And we also talk a lot about Miguel Burnier, CapEx, et cetera. If you could just revisit the company's expectation. In terms of capturing incremental EBITDA from the projects, maybe -- I mean, -- you don't -- we just want to make sure that we are considering these marginal returns given the fact that CapEx is very clear, given your guidance for 2026. So these are my 2 questions.

Well, Lucas, thank you for your questions. I will start and then Japur will continue. What we will probably see in the future is a concentration or a combination of assets that is different from what we had a few years back. That business model, the traditional business model with mini mills where you have a small scale mill and you serve a very regional market and you buy scrap nearby and you turn scrap into steel and also serving customers in that region. This is a model that we reviewed in the U.S. We shut down plants. We concentrated our production in a lower number of mills, but highly competitive. Now speaking about the market in the future, I think speaking about divestment or investments, it's not a very good explanation because it seems like the business model remains the same. It will be a transformational issue going forward, and we will focus our investments in the winning mills. We have some of those winning mills in Brazil. So it's very likely that the mills that were shut down. Maybe they are not competitive enough to resume production. And we are not willing to write -- to go too far away to serve customers. And the speed of things will follow our possibility of CapEx allocation without entering into debt, it will be a transformation of the kind that happens from time to time. Our way of operating in Brazil will change. And there is also the issue of [indiscernible] the mill was initially built to serve the export market. And we were gradually reducing our export sales because we believe that in the future, we will find better opportunities to export at more attractive margins. So our operations in Brazil will go through a transformation, not only this one of short-term cost reduction, but it will be something more radical. And as soon as we have more detailed plans, we can show it to you. But we believe that we will have to change the way we operate because what we did in North America may be an example of what we would do here. We shut down some mills. We removed the last competitive mills. And so that now we have an industrial hub that is highly competitive, low cost, very reliable. So that's the general outlook. And adding to what he said, and you also talked about projects that increase denominator or decreases the denominator, meaning that we have to invest in projects that improve our numerator. And gradually, we have to empty out our backpack because if you were running long distances, you have to run with a less heavy or a lighter backpack. We have a lot of real estate assets. And today, they are not being fully utilized. And eventually, the person that operates that asset doesn't really see that they are paying they're not paying rent. So okay, it's my own. But the capital is paying for it. The cost of capital is there. So there are 2 things. And I think you already answered your own question when you talked about excess or I mean anything that is over is not good. If you have excess of forest is not good, if you have excess productive capacity, it's not good either. So the focus is having an operation just like the fact that we have a very healthy balance sheet, you have to look not only at the liability, but also assets. So we have to seek for a different balance compared to what we have today. I think you answered your own question. Now in terms of the projects on the institutional side, we gave you a little bit of details out of the 3 major projects we have this year, they will go into a ramp-up process throughout the year. the recycling center in Pindamonhangaba is a new project and the investment in Miguel Burnier is more transformational also considering the scale of the project. As I said earlier, since we are talking about a delay I mean, thinking about returns of the project this year is probably that we don't see the $400 million in full that we had anticipated in last October, but we are also taking for other efficiency initiatives in Ouro Branco to compensate for what -- for the returns that we will probably not see this year coming from the mining project. But in 2027, and in the next 40 years of the Miguel Burnier lifespan, we will certainly see good results in the numerator, generating more value to our shareholders. Look, I would just like to add that while Japur was speaking, I would like to say that Rest assured that we will not raise the company's debt. We will not disburse a lot of CapEx or much higher than what we're doing now. A good part of the resources that will be allocated in Brazil to promote the transformation will come from our decision to operate with lower number of commercial assets. So the amount of CapEx that goes into production will be reduced, and this will bring us more breadth to make more transformational investments. And our operation in Ouro Branco has been very successful in terms of efficiency. And this has allowed us to postpone major reforms in the blast furnace or the coke plant, the mill is very healthy. So we are moving forward that investment level. And this creates a buffer in terms of the disbursement levels that we've seen in the past years. And this will also lead to greater transformation. And we do not want to accelerate transformation in Brazil by increasing CapEx or increasing our leverage. We know it quite well, and it's becoming more and more apparent the need we have to keep our CapEx dispersed and leverage at very healthy levels.

Next question from Daniel Sasson Hi.

My question, I think Gustavo already mentioned in his early comments, he talked about antidumping and the competition with imported goods. Maybe for us, it's a bit easier to understand the impact. and the importance to the flat market, maybe for logs with the eventual antidumping measures, I know that we have wire rod. So if you can tell us about the results of this investigation, Concerning other products also, also loan products and whether this will change the pace of the market. Okay. In addition to anti-dumping, how do you think that the long steel players are behaving. I think at some time last year, more or less at this time, you decided to lose market share in rebar and just start the fight. So how do you think this competitive dynamics, particularly regarding longs is shaping up the market? And my second question, and maybe this is a follow-up related to Gustavo's last comment on CapEx. And now I know we understand that half cannot give us a CapEx guidance for '27. It's not even what we are expecting. But if we think about the opportunities in addition to BRL 3 billion in maintenance, the other projects. What are the priorities? Last year, you said that maybe it would make sense to allocate BRL 1 in the U.S. versus allocating that same amount in Brazil. So you even referred to a project in Mexico at the moment because you saw an increase in the auto parts market in the region and things changed. And even there, the market became more protectionist. So if you could tell us more about the priorities, maybe specifying it per region or types of projects related to competitiveness and growth? And so maybe that could help us think about where this will stand in the next coming months or years.

Okay. Japur can give you more details on the antidumping matter. But I will give you an overview of the topics you mentioned. Unlike North America, in Brazil, whenever we talk about trade defense, there lots of rumors in the consumer section. But in the U.S., since the days of Section 232, whenever they talk about trade defense or whenever they talk about defending the country. Everybody understands that that's important for the company -- for the country and that the industry matters for the country. maybe the members or the data is not so evident, but we are constantly talking to our customers there. So I'm very convinced that in the next coming quarters, we'll be able to have a better reading that the North American industry is going back to the game. In Brazil, these debates take years and then the industry loses its size. And it's very much influenced by what happened in the last few years. And when we started noticing high penetration of imported, still, this has never been seen in Brazil. It came right after the pandemic and the sales industry was delivering results, had high margins. And 2 years ago, nobody talked about whether that was right or wrong, if that was here to stay and whether the trade defense would continue to deteriorate margins in other segments. But after 2 years, the topics became much more mature. There are many balance sheets that have been published from clients and even steel companies and it's becoming very apparent from the discussions in Brazilia that if the country does not utilize more intense rate measures the steel industry cannot survive in the long run. So there are many sectors that are questioning the anti-dumping measures. More recently, they talked about the maintenance of margins by renegotiating prices with the sector, we saw discussions in manifestos and letters. The debate is intense. But I think they have to defend their beliefs in Brazil. I think we struggled a lot in the past 2 years. All of our discussions in Brazilia and at the ministry, we I see that the environment now is quite different when it comes to implementing these mechanisms. I mean, for 2 years, the topic has become more mature. Many analysis have been done. We saw the good penetration of imported goods and also wire rod was also another product that was heavy penalized. But I see a better environment now that will lead to probably some more important trade defense measures.

Well, Daniel, my perspective here, it's far for me the truth, but what I think about what it means, especially for wire rod. In a rough approximation, whenever we think about lung, we have something between 10% to 20%, depending on the time of the year that is equivalent to wire rod, national production. And the proportion vis-a-vis rebar is approximately 3.5 to 1 or 4 to 1. What happens is that oftentimes, the producers of road products, they also produce rebar. And when you have a lot of wire rod entering the country with dumping margins of $550 per tonne of dumping, and this is what was verified by the Ministry of Industry and Trade. And this then leads productive companies that they don't want to sit idle. It leads them to produce prices for contribution margin, so they produce rebars or other products. Therefore, this is not specifically about rebars, but it is also about the spillover, the tripling effect coming from a massive entry of wire rod, which leads producers to produce something else. And since this can be an input for other products like cutting band, profiles, coms, -- this has a detrimental effect in the entire margin of the long steel segment in general. So we have -- there are 2 investigations going on like China with a margin of $550 per tonne and Russia with $100 per ton approximately. It is a significant amount that leads to a great impact in competitiveness. So what we are asking for is fair trade, we should conduct a technical analysis and say, okay, there is dumping, there is damage, there is nexus, and we cannot ignore the facts because the facts do not matter to us at the moment A or B. So we should be mature enough as a democratic country that the rules that have been set up, they have to be enforced. Those who are selling to Brazil, they should also abide by the same rules. So we should be able to enforce them. So in the second half of the year, we expect to see the conclusion of this investigation related to wire rod dumping, and we have the potential to improve not only wire rod specifically, but also other long products that grab-ate around this portfolio of products. And my last point on this competitive dynamics is that I see that somehow the market share in Brazil is very stable. Now we still have further opportunities to be captured because it doesn't matter if I have all of my assets in the South, and I have a 30% share, but only in the north of Brazil because this is inefficient, logistically speaking, but we have a very encompassing product portfolio. And I think now this market share among more stable players gives us a very unique opportunity, which is improving our efficiency on the way that we serve our customers, and we started capturing these opportunities, and I see a very good avenue of opportunity going forward. We do have a market share that was redefined last year with all of our recent initiatives. But once given our share of the market, it is not being served the most efficient way possible. I mean, from which mill we will serve the way we will serve, whether it's via [indiscernible] Gerdau or via a distributor. So there are things that are up to us to do or to decide the most rational possible way to serve the share that it has been given.

Our last question from Carlos De Alba with Morgan Stanley.

The cash flow generation in the quarter was particularly strong and working capital contribute definitely to that as well as low cash tax payments. Can you comment maybe what are you expecting for the second quarter, maybe the second half of the year in those 2 items? And then I have another question on projects.

Carlos, great. Well, regarding these working capital line items this quarter in terms of tax were 2 effects. The first Well, we do not generate property in Brazil. We have a loss. So our effective tax rate ended up being lower, because basically, profit of the United States operation, and we had more income tax, withholding tax on the distribution of results from the United States to Brazil, which we did most strongly in the end of last year. This contributed to a tax line item that was higher in Q4 than we had now. But over the year, we expect a normalization. Typically, we have a greater disbursement of taxes in Q4 paying in April, the income tax and corporate tax of the United States. But along the year, this should be normalized. For the second half of the year, we expect to have a positive free cash flow generation, both due to our operating results and also because of working capital. all remain operating as important. We had almost BRL 1 billion of working capital in Q1 quarter-on-quarter. So we believe that this is relatively normalized for the second half of the year. And throughout the year, we believe that -- again, I'd like to remind you, we are going to have a lower investment of CapEx than last year. So we expect that we will have a stronger this year than in 2025, both because of an EBITDA that we are generating, which is by comparison, stronger in this past Q1 and also because of CapEx reduction. So there is a double benefit there.

Gustavo, Japur on the iron ore division or the iron ore business. First, on Miguel Burnier, can you give us any more color on what caused the slight delays this year in terms of EBITDA generation that the company was expecting? And then maybe longer term, as you transform the business strategy in Brazil, is investing in iron ore to increase the third-party shipments an option. I think Gustavo in the last Investor Day, you have mentioned the possibility of that investment taking place. So I don't know if you can add more color at this time.

Perfect Carlos, the problems that we faced at Miguel Burnier that led to the delays are quite well-known issues, which are the current difficulty of carrying out civil construction and electronic and electric assembly. The project is very robust. We had a schedule that started on time. And historically, the schedule was aligned with the traditional productivities that we have in the civil construction segment and electromechanical assembly sector. But this Brazilian companies are finding it hard to hire people. in finding it difficult to have a more technical and skilled labor. These sectors are facing difficulties. So our difficulties were 100% related to productivity issues in civil construction and the electromechanical assembly. This is a theme which I believe will need to be addressed differently in the future by Brazilian companies. or else, we will continue to find it hard to have these projects in Brazil, it's becoming more and more complex to make investments because of civil construction and assembly points. That was the main reason. -- and we continue to wish to monetize our mining rights in the state of Minas Gerais. I think the success of this first operation, it's a big operation. BRL 5.5 million. And once it's in operation, and it is successful as we expect, it will give us not only safety but it will give us more time to have more in-depth studies in terms of what should be the next steps for us to increase our production of ore. We have a lot of mining rights. The chronology of which 1 we should tap into first, that's being analyzed. But once this project is implemented and starts producing successfully will give us an opportunity to accelerate our plans for a second stage. And once this is more clear, we commit to give you more detail on that, all right?

We are now ending the Q&A session. And now I will turn the floor back to Gustavo Werneck.

Thank you, Ari. I'd like to thank everyone for joining us today. And on my behalf, and on Japur behalf, I'd like to say goodbye, and I'd like to take this opportunity to invite you to our next earnings conference call for the second quarter '26, which will be held on August 5. Thank you very much. Warm regards and take care.RECONNECT