EMR mainly for investments in the rolling mill and melt shop in the North America operation, in the casting and finishing capacities in the specialty steel operation, and naturally, needless to say, important investments in our operation in Brazil. Here we highlight investments in mining and processing of iron ore, and the expansion of the coiled hot rolled rolling mill in Ouro Branco, displayed in the cover of this quarter’s presentation, showing a little bit of our progress and the status of the construction works. Guys, thank you very much. I’ll give the floor back to Gustavo, who will talk about some ESG initiatives, and I’ll come back at the end for the Q&A section.
Gustavo Werneck: Thank you, Japur. On the next slide, I’ll dive deeper into our investments in renewable energy. Gerdau holds a 33.33% stake in Newave Energia. This company, through its new business division, Gerdau Next, concluded the acquisition of the Arinos Solar farm in Minas Gerais from the Voltalia Group. The transaction is another important step in the company’s strategy of expanding the generation of clean, renewable energy, seeking greater competitiveness and sustainability in its operations. The future project, to be completed by the end of 2024, will have a total investment in construction of around R$1.4 billion. The new solar energy cluster will have an installed generation capacity of approximately 420 megawatts and will include a power substation.
I highlight that the photovoltaic capacity installed at the plant is equivalent to 7% of Gerdau’s annual energy consumption in the country based on 2022 production and provides for an estimated reduction of up to 22,000 tonnes of CO2 per year. Once fully operational, 30% of the renewable energy produced at the Arinos Solar farm will be used to manufacture Gerdau Steel in Brazil, in the self-production mode. This volume of energy accounts for approximately 34 megawatts, equivalent to the use of a steel plant with an annual capacity of approximately 400,000 tonnes. Finally, I would like to point out that for the second year in a row, Gerdau won the 14th edition of the Steelie Awards 2023 in the Excellence in Communication category. The award ceremony, organized by the World Steel Association, is the greatest in the global steel industry and acknowledges the contributions of its member companies.
We won the award of a brand case study that tells the story of our partnership with Rock in Rio Brazil 2022, whose main forum, the World Stage, was built with over 200 tonnes of 100% recyclable Gerdau steel. The initiative also shows our journey to transform the image and the global reputation of the steel sector. Well, thank you all for listening to our comments. From now on, we’ll be available to answer questions and dive deeper into subjects of interest to you.
A – Renata Oliva Battiferro: Thank you, thank you all. So now we will open the Q&A session. As a reminder, if you want to ask questions, please click on the Q&A icon at the bottom of your screen and type your question to be on the queue. When you are announced, there will be a request to unmute. At this time, please unmute so you can ask your question. Should you need to open your cameras, please let us know so we can enable your camera. We kindly ask you to ask all your questions at once. Let’s move on to the first question via the Q&A icon. The question comes from Edgard Pinto de Souza, sell-side analyst from Itaú BBA.
Edgard Pinto de Souza: My first question refers to capital allocation. We saw the dividend payout from GOAU above Gerdau with yield of almost 9% in the quarter versus 2% in GGBR. Looking forward, I mean, looking towards the future, could we expect that the GOAU’s dividend payout should be at a higher level when compared to Gerdau’s giving the balance sheet position of the holding? The second question is, in relation to the U.S. results, the margin remained very sound, very close to 25% in the quarter. What is the margin level that Gerdau has in mind for the 2024 budget? What do you expect in terms of shipments for the region? Thank you.
Renata Oliva Battiferro: I’ll turn it out the floor to Gustavo and Japur.
Rafael Japur: Hi, Edgard. In terms of Gerdau’s and Metalurgica’s dividend payout, I would like to remind you that Metalurgica Gerdau in the third quarter of last year, Gerdau S.A. had a dividend payout way above the other quarters, R$3.6 billion. And back then, Metalurgica Gerdau paid out R$663 million, meaning that it retained an important amount of the dividends in its cash throughout the year and throughout the quarters taking into account the macroeconomic landscape and the potential tax reforms and the current interest levels, we look at the situation and now routinely we allocate capital. And at the time, we thought that it was good to pay out an important part of our dividends, which will now be paid in the third quarter.
In terms of the future perspectives, as Metalurgica Gerdau has one single asset, which are Gerdau S.A.’s shares, we don’t think that there is a lot of room in the long run for Metalurgica to pay out dividends above the levels of Gerdau S.A. Of course, it still has a good amount of cash. It is not distributing all of it, but this is not something that there will be very freaking throughout the years. And now Gustavo will talk about the outlook going forward.
Gustavo Werneck: Hi, Edgard. It’s a pleasure to talk to you. In relation to our North America operation, we remain very optimistic because we will still experience a very sound business environment in 2024. Our North America BD involves also Mexico, the U.S. and Canada, and more specifically in the U.S. When we look at the business environment, not only now at the end of 2023, but also 2024 and going forward, we look at the scenario in a very positive way. At the moment, we are seeing a slight slowdown in our order backlog. I think this is something I’ve been mentioning in other quarters, but it’s according to expected. Our backlog remains sound. Spread is still at high levels. We haven’t yet used all of the incentive packages in terms of steel consumption provided by the federal government.
Infrastructure packages have been a cause of constant review and our order number will increase. Our Mexico operation, as I said before, is demonstrating very good performance. This, I mean, reshoring and nearshoring are now being translated into a higher demand for steel in Mexico. We are also working with our operations in Mexico with rebars and profiles with good penetration. So therefore, North America right now, it is not in our — it’s not part of our concern. We remain with a very strong operation in that geography.
Edgard Pinto de Souza: Thank you, Gustavo.
Renata Oliva Battiferro: Our next question comes from Leonardo Correa, sell-side analyst from BTG Pactual. Please allow him to use his camera.
Leonardo Correa: Hi, guys. Can you hear me?
Gustavo Werneck: Yes, Leo. We can hear and see you very well.
Leonardo Correa: Hello, Werneck, Japur and Renata. My first question. Well, I’m sorry for being so insistent, but given that this is a hot subject, I will go back to the capital allocation in leverage levels. In terms of Metalurgica Gerdau, I think this is pretty much in line with what we had in mind. There is an extraordinary cash in the company that was distributed. I mean, you had an excessive cash and could be distributed in the form of extraordinary payout. In terms of GGB, we had the feeling, we had the impression that the company’s leverage would be around R$6 billion or R$7 billion, I mean, net debt, which would give about R$12 billion of gross debt and about R$6 billion of cash. Therefore, we thought about R$6 billion to R$7 billion.
And maybe you could calibrate dividends according to that target. Now, this quarter, you announced an additional deleveraging, and your net debt remained at R$5.5 billion. And this was like a negative surprise of the dividends paid by GGB, which was 50% below what we thought it would be. So, I would just like to hear from you, what led you to make such a conservative decision in terms of dividend payout? And a lot of people are asking, I mean, given the fact that there is no M&A in that calculation and your CapEx, it’s quite predictable and very well outlined by you. You even said that in your stakeholder day. The only thing that I can think is that you’ve been very cautious in terms of the current landscape, and in a way, the current landscape is bad.
