Gerdau S.A. (NYSE:GGB) Q2 2024 Earnings Call Transcript

Gerdau S.A. (NYSE:GGB) Q2 2024 Earnings Call Transcript August 1, 2024

Mariana Velho Dutra: Good morning, everyone, and welcome to Gerdau’s Video Conference Call for the Second Quarter of ‘24. I am Mariana Dutra, Head of Investor Relations, and participating in our video conference today are Gustavo Werneck, the CEO of Gerdau, and Rafael Japur, the CFO. We would like to remind you that the broadcast of this video conference is being done with simultaneous translation, and to choose your preferred language, simply click in the interpretation button via the globe icon at the bottom of the screen. For those of you listening to the video conference in English, there is the option to mute your regional audio in Portuguese by clicking on mute original audio. During the company’s presentation, all participants will have their microphones disabled.

Later on, we will begin the Q&A session. Analysts and investors may be able to join the queue via the Q&A button and can open their microphone and camera if they so prefer. The business prospects, projections, and targets contained in this presentation are based on the beliefs and assumptions of the company’s management, as well as on information currently available. Forward-looking statements are no guarantees of performance and dependent circumstances that may or may not occur. Investors could understand that general economic and market conditions and other operating factors may impact the company’s future results, and the actual performance may differ from the outlook presented. I will now turn the floor to Gustavo Werneck to initiate the presentation.

Gustavo, you may proceed.

Gustavo Werneck: Hello, everyone. I hope you are well. And thank you for the opportunity to meet with you during this video conference to announce Gerdau’s results for the second quarter of 2024. I am joined by our CFO, Rafael Japur, and it is always a pleasure for both of us to talk to you about our performance and also to answer questions that may arise during our presentation. I will start by talking about the macro business environment, the highlights of the overall results, and next I will detail the performance of our business operations in the quarter. Next, Japur will share some information about our financial performance. And then finally, we will move on to our Q&A session. Well, I start my presentation by saying that we ended the second quarter of 2024 with an accident frequency rate of 0.67, a historically low figure, reinforcing our commitment to the health and safety of our people.

At Gerdau, safety always comes first, since no result is more important than people’s lives. Before we move on to the presentation of the results, I would like to express once again, on behalf of all Gerdau employees, our solidarity with the people of Rio Grande do Sul, who are still going through a very difficult period due to the heavy rains that hit the state in May. Since then, Gerdau, a centennial company founded in Porto Alegre 123 years ago, has been active on various fronts in support of Rio Grande do Sul. We have already contributed more than BRL 26 million to a series of initiatives to support, recover and rebuild the state. These actions seek to support emergency and structuring projects so that Rio Grande do Sul can reclaim its leading role and the strength that is inherited to the people of Rio Grande do Sul.

Q&A Session

Among these initiatives, I would highlight the partnership with the UN Refugee Agency, UNHCR, to provide 100 emergency housing units to benefit up to 600 people affected by the rains in the metropolitan region of Porto Alegre. The project is part of a fund set up by the company and the NGO Gerando Falcões to raise funds to rebuild homes in the state of Rio Grande do Sul. Over the next three slides, I will emphasize that Gerdau continues to deliver solid financial results to its shareholders and investors, and also a transparent business strategy based on strong discipline in cost management and its assets in Brazil continue to show increasing competitiveness. We constantly seek opportunities to adapt the company’s structure to the current global business scenario.

Also, I would like to point out that in the last 12 months, the monthly average of steel imports into Brazil was 396,000 tons, 66% above the historical average, totaling 4.8 million tons according to data from the Brazil Steel Institute. The penetration rate in the same period was 19.2%. We expect that in the second half of the year, the domestic steel market should begin to feel the effects of the trade remedies recently implemented by the Brazilian government with the mixed tariff rate quota system. Finally, regarding our sustainability highlights, I would like to point out that Gerdau has become the first company in the steel industry to be certified as a B Corporation in North America, representing another step in our journey of sustainability and value creation with our stakeholders.

The certification of our long steel and special steel operations in the U.S. and Canada reaffirms Gerdau’s century-old commitment to contribute to solving society’s challenges and grandeurs while promoting a positive impact in the regions where we are present. Moving now to the next slide, I will comment on the highlights of each of our business divisions and the outlook for the coming months. In the second quarter of 2024, the performers of the North America business division remained unchanged from previous periods. The results reflect the resilience of the North American market, which contributed to keeping local demand for steel at healthy levels, with our backlog stable at a high level of around 50 days, even despite lower prices in the period.

The U.S. market will continue to be positively impacted by government measures such as the Inflation Reduction Act, IRA, the Public Infrastructure Investment Package, in addition to reshoring movement and the maintenance of Section 232. As a point of attention, we are closely monitoring the uncertainties linked to the presidential elections in November and also the dynamics of the economy in general, including inflation and interest rates. In parallel, we continue to invest in improving operating efficiency and modernizing our units in North America in order to improve the competitiveness of these operations and provide a portfolio of innovative products and solutions that meet the current and future needs of our customers, like, for example, the future demand for steel brought about by the major infrastructure investments planned in the country.

Moving on to the next slide, I will now talk about our special steel business division. The automotive market in the U.S. continues to recover, with the production of light and heavy vehicles projected to exceed 16 million units in 2024. There is still room, however, for a more intense recovery in the coming periods, returning to pre-pandemic levels. The heavy vehicle and oil and gas segments should face a scenario of slight deceleration in the year to date. In turn, the outlook for the special steel market in Brazil is cautiously more optimistic, as a result of some signs that point to a rebound in automotive activity, especially in the heavy-duty segment. Heavy-duty production in 2024 is expected to grow by 32.1%, according to data from ANFAVEA, mainly driven by the performance of bus production.

The market, however, remains attentive to the uncertainties linked to access to credit lines, high interest rates, and the excessive entry of imported vehicles. As a highlight, we recently completed the certification of all the steel produced from the new continuous casting process at the Pindamonhangaba plant, which allows us to offer products with higher added value to the market and optimize the performance of our operation in terms of productivity. We now move on to the next slide, to talk about the South America business division. In Argentina, meanwhile, the local steel market reached its lowest point ever in the second quarter, following inflationary pressure and the economic measures taken by the new administration, such as depreciation of the Argentine peso.

Steel demand in the country is expected to recover slowly in the short term, with a stronger upturn expected in the fourth quarter of the year. The outlook for Uruguay remains positive, reflecting good levels of steel consumption, particularly from the agribusiness sector and public and private investments. In Peru, GDP has exceeded market expectations in recent months and has risen by 5.5%, boosted by a good performance in the fishing, manufacturing, and construction sectors. The construction sector even reported a similar rise of 5.5% in the period, driven by investments in public works. Moving to the next slide, I will now talk about the long and flat steel scenario in Brazil, whose performance in the second quarter continued to be impacted by the strong inflow of imported steel in the country, since the trade remedies I mentioned earlier have not yet taken effect in the local market.

In addition, during this period, our shipments were impacted by production capacity readjustment initiatives and were also partially affected by the temporary shutdown of our unit in Rio Grande do Sul and the logistical restrictions imposed by the heavy rains that hit the state in May. I would also point out that we expect to see some positive indicators come to fruition in the Brazilian market, especially with regard to the construction industry and a more significant drop in interest rates. One example is the forecast of an 8.5% increase in the number of new housing launches in 2024 compared to the previous year, according to ABRAINC. Furthermore, I would like to mention that the GDP of the construction industry is expected to increase by 1.7% this year, reversing the slight drop recorded last year, according to IBGE.

Now, I will hand over to Japur, who will give some more details on the Brazil business division, and afterwards, I will be back to answer your questions. Over to you.

Rafael Japur: Thank you, Gustavo. Hello, everyone. It’s always a great pleasure to be here with you for our earnings release conference call. As you can see in the blue highlight on the slide, in the quarter, we had BRL 131 million of one-off costs related to the hibernation of some industrial units in Brazil, as Gustavo has mentioned previously. Excluding this impact, EBITDA in the second quarter would have been BRL 665 million, 12% higher than in Q1 2024. Moving on to the next slide, I will give you more details about our cost reduction initiatives. Since the end of last year, we have been carrying out a series of initiatives in our business divisions with the aim of optimizing our cost base. The expectation is that at the start of 2025, we will have a cost and expense base approximately BRL 1.5 billion lower than that posted in 2023.

Looking at the left-hand side of the slide, we detail the initiatives coming from the Brazil BD, where we expect to see savings of approximately BRL 1 billion in annualized terms. In the first half of 2024, we have already saved around BRL 150 million through initiatives to readjust production capacity in Brazil and efficiency improvement projects. For the second half of the year, we expect to save another BRL 400 million, focusing on increasing the operating leverage of our plants due to hibernations, optimizing maintenance costs, and a lower consumption of specific materials. At the start of 2025, we anticipate the annualization of these earnings that I have just mentioned. On the right-hand side of the slide, we present the initiatives of the other business divisions, where we intend to save around BRLs 0.5 billion on an annualized basis.

These initiatives primarily contemplate improvements in productivity of our operations and stabilization of gains from some CapEx that we have recently executed. Therefore, without taking into account the possible impacts from shipments, inflation, exchange rate variations and fluctuations in raw material prices, and focusing only on what we can actually control, we expect to see the reduction in our costs and expenses reflected in the full year 2025. Now, let’s move to the financial results in our EBITDA. We ended the quarter with an EBITDA of BRL 2,624,000,000 with a margin of 15.8%, down 1.6 percentage points from the first quarter. The reduction in EBITDA in the period was mainly driven by lower sales prices in the North America BD due to the rollover of higher raw material costs compared to the first quarter.

And as already explained, the impact or the non-recurring impact associated with the hibernations in Brazil. We now move to the next slide where we’ll talk about our cash flow. In the second quarter, we allocated BRL 259 million to working capital, mainly as a result of the preparation for the reallocation of production capacity of our units in Brazil. The working capital line, when we look at our balance sheet, rose by another BRL 800 million due to the 11% exchange rate variation between March and June. But it is important to highlight that this exchange rate variation has no cash effect. We spent approximately BRL 1.2 billion on CapEx in line with our guidance. In addition, it is important to remember that, historically, the second quarter of every year sees a more substantial concentration of income tax payments.

But even with significant cash outflows, we had a positive free cash flow of BRL 89 million in the second quarter. We ended the second quarter with gross debt of BRL 12,500 million and a healthy leverage level of 0.53 times. The increase in the company’s debt was a result of the conclusion of the issuance of BRL 1,500 million in debentures with a five-year maturity, plus the effect of the exchange rate variation on our foreign currency debt in the period corresponding to BRL 839 million. The chart on the right shows the new maturity schedule of our debt and our robust liquidity position of BRL 11,500 million, considering the sum of our cash position of BRL 6,600 million and the $875,000,000 of our revolver line, which is fully available and undrawn by the company.

Now let’s talk about our CapEx. In the second quarter, our investment in CapEx totaled BRL 1,420 million, 50% of which was remarked for growth and competitiveness projects. To date, we have already invested 47% of the BRL 11,900 million foreseen in Gerdau’s strategic CapEx for the 2021-2026 cycle. In Brazil, investments in mining and flat steel in Minas Gerais have reached around 55% of the physical and financial plan and their schedules remain unchanged as planned. Moving on to the next slide, let’s talk about the return to our shareholders. In addition to the dividend of BRL 0.12 cents of per share at Gerdau SA and BRL 0.08 cents per share at Metalurgica Gerdau, the Board of Directors of both companies approved a new share buyback program.

At Gerdau, up to 68 million preferred shares and approximately 1,800,000 common shares may be acquired. Considering the prices of the last few weeks, the buyback program represents an investment of approximately BRL 1,300 million. At Metalurgica Gerdau, up to 33 million preferred shares may be acquired, which represents an investment of approximately BRL 350 million. Both programs will be valid for 12 months, starting now on August 1, 2024.

Gustavo Werneck: Thank you, Japur. Well, I’d like to thank you all for listening to our initial comments and remarks, and we’ll be happy to answer any questions you may have now and perhaps go over any points of interest that you might have. Thank you.

Mariana Velho Dutra: Thank you, Gustavo and Japur. We will now initiate the Q&A session. As a reminder, once your name is called to ask your question, you have to accept the pop-up in your screen. So, first question is from Daniel Sassoon from Itaú BBA. You may proceed, sir.

Daniel Sasson: Thank you, Mari. Good morning, and thank you for taking my question. First of all, I would like to thank you for being so transparent, because you gave us a roadmap about how are you going to reach your target this year, and I think the market in general is not fully aware of the potential that is gained through these models. If you can, please remind us what is the potential of the Brazil cost in dollar terms so that we can have an idea of the dollar amount or the depreciation of our currency. This would be very helpful. And if I’m not mistaken, the guidance or this expectation of BRL 1 billion is also in actual base, in real base, because is it reasonable to consider IPCA in this math? Because your costs seem to have a different inflationary calculation when compared to IPCA.

Could you help us think about the main drivers that impact this account? My second question is on CapEx. I think in the first half, your CapEx was 2.3 billion. So, do you think we should expect an acceleration in the second half so you reach that 6 billion of guidance for the year, or maybe the number for this year should be slightly below, probably rolling over to 2025 and onwards? I think this is what I have. Thank you.

Gustavo Werneck: Daniel, thank you for your excellent questions. I think Japur can give you more details.

Rafael Japur: First of all, welcome. Let’s welcome Mariana Dutra. She is now a new addition to our IR team. I mean, she’s been with us for a long time. She had experiences in other companies also. So, we’re very pleased to have you with us today. Daniel, in terms of your first question regarding cost composition, as part of our Brazil cost structure, may be unlike other companies that are probably more focused on integrated measures or more dollar-denominated costs. Let’s take a typical year of the company and let’s think about the dollar-denominated accounts like coal that we import or from third parties that sometimes we have to buy. And even though it is in Brazil, it is denominated in U.S. dollars. And also alloys that are acquired in the international markets.

So, approximately between 20% to 25% of the Brazil operation, not the entire operation, but more specifically the Brazil BD, I would say that there is a very strong relationship with the U.S. dollar. On the other hand, when we think about our revenues, between 10% to 15%, depending on the mix and international prices, between 10% to 15% of our revenues are also directly linked to that foreign currency without even considering possible moves that may occur due to the parity of the imported good. So, specifically regarding to foreign exchange exposure, these would be the percentages that should be taken into account. Now, when we think in terms of inflation based in the IPCA index or other indexes, our expense costs, SG&A and personnel salaries, these are very much correlated to IPCA index.

So, I think that it will be closer for us to have a relationship with IPCA. Other costs, like variable costs, like utilities, raw materials, scrap, the dynamic of costs are very peculiar and depend on market dynamics. That’s why when we talk about BRL 1 billion in the Brazil operation, what we expect to gain in terms of competitiveness is based on the costs that we can control, that it’s in our hands without mentioning things that are out of our managerial control. So, I think this quarter we are able to deliver part of these gains, but the part that is linked to the hibernations would be more clearly seen in the second half of the year, but we are very confident that we will be able to deliver things in line with what we plan. And so, in 2025, we will be more in line with what we were in 2023.

Now, to answer your second question on CapEx, in the last few years, our disbursements have been stronger in the second half of the year when compared to the first half. That’s where we typically have our maintenance downtime. There is a typical seasonality that comes in the third and fourth quarter, mostly in the fourth quarter. And as the bulk of our CapEx investments, they are not greenfield, they are brownfield. So, we have to stop some critical equipment so that we can have some more serious interventions in these CapEx. That’s why typically in the second half of the year, we spend more CapEx when compared to the first half.

Gustavo Werneck: Daniel, I just have an additional comment. Cost has been very relevant for us here in Brazil. It was relevant in the last quarters and continues to be very relevant. We made an important change in our Brasil BD. We promoted one of our leaders, his name is Mauricio. He is the number one person in charge of long stills and mining. He has been with us for several years. He worked with me on several occasions with me. He was a rolling mill manager, melt shop manager, and more recently, he was a corporate officer for the engineering operations. He had the opportunity to travel around the world and be very familiar with the cost operations from several competitors, competitors that are very bold in that regard. So, in terms of cost and performance, these are subjects that are quite relevant to us, especially throughout the journey that Japur just referred to before.

So, he’s a new leader in our Brasil BD. And in the right moment, I will formally introduce him to you so you can talk to him in more depth. But certainly, he is an individual that could escalate our operations in Brazil, and we will attain a level never seen before. So, I would like just to highlight that everything that Japur said should be translated in practical examples. But like one example of our commitment is that we brought to our Brazil operation an individual that is very knowledgeable about performance and competitiveness.

Daniel Sasson: Thank you. Thank you very much, Gustavo. And welcome back, Mari.

Mariana Velho Dutra: Thank you, Daniel. Our next question is from Marcio Farid from Goldman Sachs.

Marcio Farid: Thank you, Mari. Good morning, Japur, Gustavo, and thank you for taking my question. My question relates to the North America BD. I think our recent interactions with investors, people were a bit scared with the performance of HRC and rebar this year. So, what we see on our end is that merchant bars, it’s almost 80% of your volume, is much more resilient, not only this year but in the past two years as well. And historically, the correlation with rebar has been quite strong. But since the end of 2022, we’ve seen a detachment, especially of metal spreads, which remains to this date. So, if we could probably elaborate a bit more on that gap and how much do you think would be sustainable looking forward and what would be the main data points for us to look at?

In terms of the Brazil BD, there was some recent news and the first one being import tariffs. I think, Gustavo, you were very vocal about the importance of these tariffs. And partially, we saw that things are already being implemented. But it’s still a bit confusing in terms of the actual impact once the tariffs are put in place. So, it would be nice if you could educate us further in terms of the impact of the tariffs and consequently the recent price increases that came on the trail blade of the depreciation of the foreign exchange? Cost is a relevant aspect as well, just trying to understand how much of that is incremental EBITDA? Because if you assume that you lose revenue with shipments and zero margin, I mean, the margins improve, but not necessarily your incremental EBITDA follows suit.

So, if you could also elaborate on that, I would appreciate it.

Gustavo Werneck: These are excellent points for our debate. So, connecting North America and Brazil, we were very confident maybe, also at the end of the third quarter, because we were overcoming the most difficult quarter of the year. And a few weeks ago, we had a very strong outlook that starting the third quarter results in general for Gerdau would improve. And when we look at these two important geographies for the company, we were maybe slightly more concerned with the points that you raised. I mean, how much these drops that we saw in terms of flat steel and rebars could really hit our main products, I mean, large structural alloys and structural profiles. And we had already anticipated that it would be a drop, but it will be more than compensated by the recovery of the Brazil BD in such a way that the second quarter would be the most difficult one for us this year.

So, what happened now, and we already start seeing the results, the results that occurred in July are just proving that our thesis was in the right direction. First of all, because in North America, there was a lower reduction than we imagined in our business in these specific categories or products, which are the focus of the company. In July, therefore, we didn’t notice such a drastic drop as we envisioned, because things remained very solid, our business, our backlog, our spreads. We assume that there will probably be a slight drop in the next coming months, especially because of the coming election and volatility, but we think that it will be lower than planned. Therefore, everything there remains very solid in terms of backlog and spreads.

I was very optimistic with the results from North America, and even so more now. And another good thing that leads us to say that we will see a continuous improvement of our results are things related with Brazil. In July, we saw things performing better than we imagined, and a good part of it comes from the cost part that Japur mentioned. We are now reaping the benefits of all of the internal moves we made, like hibernating some operations and this continuous search for being more competitive. But again, we start seeing some changes in the perspective related to imports. Of course, Marcio, it’s still too soon to tell, because the tariffs have been in place in July, but I was very pleased to see the results that came in terms of imports. I think it will need a few more months to be more certain about the results, but I’m very optimistic, and I know that we are moving in the right direction.

I’m not saying that this will solve everything, because probably not, but the dialogue with the Brazilian government authorities has been quite open. So, if this doesn’t solve the issue, we will continue to debate, or maybe we will include other items in that mechanism of tariff rate quota system and the anti-dumping process. But we have to carefully look at this move, and probably there will be a reduction in productive capacity in general. I think all the factors are becoming more aligned in terms of North America, Brazil, and special states. In fact, I think that the most difficult moment is already in the past, and now it’s time for a rebound that recovery will be slow. There will not be any out of the ordinary effect that will lead us to a very sudden change, but certainly everything that is happening is proof that our results will improve starting in the third quarter.

Now, Japur, maybe you can talk about that cost part of the question.

Rafael Japur: Hi, Marcio. So, let me do a quick follow-up. The idea is that with this, the reduction of our base of costs and expenses, particularly in the Brazil BD, where this is more significant, we will see a good increment in our EBITDA, very close to the numbers. Of course, there are other situations like price policy, raw materials, and other things are also very representative in terms of the composition of that number. But these are things that we can control. But if we think about maintenance expenses, expenses with specific materials, expenses with travel and other SG&A topics, real estate expenses and service providers, our idea is to have a leaner operation, more efficient, and also capable of navigating through a better scenario. Then we would have better results when compared to this last quarter. Thank you.

Marcio Farid: Thank you, Gustavo, Japur and Mari.

Gustavo Werneck: Thank you, Marcio.

Mariana Velho Dutra: Our next question from Leonardo Correa with BTG Pactual.

Leonardo Correa: Good afternoon, everyone. Mari, Werneck, Japur. So, Werneck, I’m going to get away of the usual protocol of differentiated questions and I’ll go back to the same tone of the recent conversation of the last question. So, just to check if I understood everything well or if there’s anything we should think about. You see, when we look at the last guidances of U.S. steel companies, your peers, we understand that there is a huge difference in the product mix of Gerdau. We observe that flat price in the U.S. collapsed 40% and in your best scenario, this is not applicable to you. I do understand the mix, but the general message has been kind of this. The Q3 will get worse, that there will be a margin compression of metal spreads.

In the front line, we see a lot of macro indicators showing a more marked worsening. There’s also the political issues that you mentioned in the introduction. So, I just would like to confirm with you, are you observing a different scenario than your peers? One that is more resilient and stable in the United States, coupled with a Brazilian scenario that would improve sequentially, given all the successful work that you have been doing of cutting costs, so the result tends to improve quarter after quarter? So, I just would like to confirm with you, with a focus on the next quarter. We always try to look a little farther ahead, but kind of your message is different than the message of your peers. I just want to check if I understood this well, what kind of progression you see in Q3?

So, that’s number one. Now, moving to another point regarding prices. Unfortunately, we didn’t have a lot of help from the government regarding long stills. There was nothing in the MCNs [ph] regarding the tariff rate quota. You’re trying to approve this increase. I know that flats [ph] is imperfect, but it kind of captured some of this increase, 1-2% have passed through. So, I would like to understand, how do you see the scenario of recomposing your margins and passing through prices? You spoke about civil construction, Werneck. I just want to confirm that the prices are being passed through well.

Gustavo Werneck: What you understood is correct. When we look at public information and when we hear the earnings calls of our U.S. peers, just like our call here today, these are all public interactions that we follow, so we can understand how they’re seeing the U.S. scenario. And to compare with the way we see things, and your interpretation was very precise. In the last earnings calls in the United States, we see that they’re being very vocal regarding their plans, increasing imported products. They start talking about this triangulation via Mexico. We start seeing some progress in the USMCA of putting some pressure. So, indeed, the flats segment is very much impacted. And the flats segment, not just because of the imported products and a moment of recussion, they use prime scrap.

We don’t use prime scrap. We use obsolete scrap. So, yes, there is a gap, but not just now, Leo. It has been happening for a while because the market demands are different, the supply and demand dynamic in our segment. We don’t have new capacities, greenfield capacities being built. It’s all very stable. So, the theme of using obsolescence scrap, not using prime scrap, the fact that we don’t have new capacities. But a theme that has been helping a lot is a strong demand in recent months of two incentive programs of the federal government, what they call CHIPS Act and IRA. They haven’t had an impact on our backlog. CHIPS Act, this relocation of productive capacity of semiconductors, $450 billion right now in the United States. If I’m not mistaken, 25 new semiconductor plants that are being built.

This has a direct impact on our product mix. So, there is this gap, this detachment, but we are looking at this carefully, Leo, because the presidential elections are coming up. There might be some volatilities along the way. But in the month of July, these volatilities did not really have an impact as we had expected. So, there’s this detachment. And looking at one third of the Q3, I guess that in the next two months we can actually sell better than we imagined. So, that’s what’s happening. A number of small factors that are leading to this detachment in the market of structural profiles from rebar and others. So, you were very accurate in your understanding. And you asked about costs, and I’ll give the floor to Japur. But before that, you spoke about prices.

We’re recomposing the margins. In our plans, we never included these commercial defense remedies that were implemented as of June 1st. We never considered this to significantly change the pricing scenario. We have to be very careful about this topic. We don’t want to speculate. We just want to recompose prices considering inflation and costs. The impact of imported raw materials is lower for us at Gerdau as Japur mentioned. But it does have an impact. So, there’s a narrative in the market right now that is being well absorbed and digested i.e. that we can, through prices, recompose our margins. So, this is unfolding. It is a slow process, but it is moving in the right direction, Leo. And in this quarter, most likely in the next one as well, we can expect an evolution of the margins coming from adjustments for inflation and for increased prices of raw materials that we had in recent months.

So, overall, our visibility of the market is very similar to yours. I just reinforced that in terms of demand, everything is very stable. Of course, I would like the still demand in Brazil would increase from 100 to 150 or 200. This is not happening. But compared to previous years, it’s very solid. In civil construction, it’s easy to observe. We have our cut and bend operations. When a new real estate launch happens, we are demanded to help with the detailed engineering, calculating the demand of steel that will be necessary. So, the backlog is rather healthy. And in other segments as well. And now for our special steels operation, we start seeing an increase in the number of orders placed for special steels, particularly for the heavy-duty industry in Brazil and coming a lot from the manufacturing of buses, to be more specific.

This recovery in special steels in Q2 came from this, and we are optimistic because this segment was suffering with the huge arrival of imported vehicles from China. This is being reversed. And it is very likely that we will have progress in our deliveries of special steels in Q3. But overall, the interpretation is very similar to ours at this point. And this is sustained by what happened in July.

Leonardo Correa: Excellent. Thank you. And Japur has spoken a lot about cost, Werneck. And I think that you perfectly answered my questions. But, Japur, of course, feel free to add.

Rafael Japur: Just to add very quickly, the main topic to observe as a trend in Q3 should be variation of prices in North America. In floods, we see some recovery, some announcements of increasing in HRC, this normally matches scrap. And as we have more visibility in maintenance of this price differential between our prices and other long products, perhaps the expectation will be that we’ll maintain our margins.

Gustavo Werneck: And, Japur, perhaps you could tell Leo about the fact that we have been implementing these measures of hibernation to increase utilization of our mills. And also, this wind change. Now that we have a slightly more positive scenario, I think that this will help us in Q3 also regarding the increase in imports, because this will help us dilute costs, increase of our exports, actually.

Rafael Japur: Well, this is a thing that we are looking up close. We see an exchange rate totally different, 11% increase quarter on quarter. This was out of our radar, but we understand it as a positive upside to reassess our contribution margins and explore some opportunistic volumes of exports during Q3 and Q4.

Leonardo Correa: Thank you very much, everyone.

Rafael Japur: Thank you, Leo. We’re always here for you guys.

Mariana Velho Dutra: Thank you, Leo. Next question from Rafael Barcellos with Bradesco BBI.

Rafael Barcellos: Good morning, everyone. Thank you, Werneck, Japur, for the presentation. Mari, welcome back to Gerdau. I wish you a lot of success and luck. Regarding my questions, I think the first point that was not mentioned here regards capital allocation in 2019. You had a gross debt target of BRL 2 billion from 2019 to now. The real depreciated about 40%. And we know that more than 50% of Gerdau’s results come from the US, North America. So, do you think this level of BRL 12 billion of gross debt is still adequate for the company to pursue, or do you think it could be a little higher? In addition, perhaps you could remind us of the appropriate level of minimum cash for the company. And in this context, the main dividend in recent years has been announced as a result of Q3.

Having said all that, and about this context of minimum cash, gross debt, and after the announcement of the buyback program, how much room do you see for more cash returns to investors this year, particularly after the results of Q3, considering that you have a more positive outlook for the second half of the year? And my second question would be about the Brazil BD. Just to follow up on the release, you mentioned the one-off effect of re-adaptation of the operations with BRL 131 million as a fact. And it would be interesting if you could elaborate on until what quarter we should have these non-recurring events impacting the result? What is the magnitude of order so that you can achieve a reduction of BRL 1 billion in costs and expenses.

Gustavo Werneck: So, Rafael Japur will answer Rafael Bracellos.

Rafael Japur: Well, for capital allocation, capital structure, it didn’t change a lot when we spoke a lot. BRL 12 billion gross debt is the debt target in our cash. At the same time, internally, we’ve always spoken about dollars, the corresponding amounts in dollars. So, our net debt, we’re trying to get it close to $1 billion and our cash of around $1 billion, between BRL 5-6 billion. So, materially, there’s no change regarding what we see today as an ideal capital structure for the company. Looking at not just today’s results, but in the long run, regarding capital allocation, it is true for a number of reasons, particularly due to our greater capacity to generate cash in the second half of the year compared to the first half of the year.

Normally, our main capital allocation for buyback or extraordinary dividend payout always tend to happen in Q3 of this year as our balance sheet continues with capital structure very close to what we consider to be optimal. And as long as we can have a more robust cash generation in the coming quarters, the idea is that we’ll probably repeat this trend that we saw in recent years. Regarding the second question about capturing cost reductions, on the slide, we tried to give a little more color about that. And, of course, considering that the hibernations we had in Brazil happened in the month of June, and they continue to happen, because we’ll finish rolling intermediate materials that we produced before in the chain and the mills over time.

So, over the second half, we’ll see these expenses that were deferred, and we’ll start seeing the benefits of a greater operating leverage of the mills that are receiving these volumes from the mills that were hibernated. So, generating more concrete effects on the results. That’s why we understand that in the second half we’ll be capturing more cost reductions in our plan to optimize our cost and expenses based in Brazil of around BRL 1 billion in the comparison. In 2025, we expect to achieve a normalized base compared to 2023.

Mariana Velho Dutra: Our next question from Rodolfo Angele from JPMorgan. You may proceed, Rodolfo.

Rodolfo De Angele: Thank you. I have just one question. Hi, Gustavo. The question is to you. You were answering one of the questions. Also during the beginning of your presentation, you referred to the fact that the government measures have not yet had the material effect, and I believe that the industry is very close to the government authorities, but do you think there is a possibility of some further adjustments and then include more long stills? I would also like to hear from you, because I was quite skeptical about any kind of measure, but they came. So, I know that you are very close to the government, and you’ve been talking to the government, so what should we expect going forward?

Gustavo Werneck: Rodolfo, I do believe that there will be some adjustments. Everyone in Brasilia is very open about it. We talk about this topic twice a week. We talk to people from the Ministry of Industry and Development, and they were responsible for the initial debate and the implementation of the measures. So, this control mechanism, how you measure the quotas through import licenses, what kind of visibility the numbers have the advance in the quotas. There is a better understanding now about how we control that and because of that, the conversation is very good. We are on the same page. So the entire technical team from the ministry, they understand the relevance of the steel industry in Brazil, and they understand what is happening in terms of a fair competition.

And since Brazil exports a lot of iron ore, there is a lot of price competition, and they understand that once the ore goes, it comes back at a lower price. They have a very clear understanding of the market. Everybody is very open. But we hope to overcome a cycle of four months. Two months have already passed, June and July. And so, once we look at the numbers at the end of this four-month period, and we realize that there is still some mismatch and some lack of control and if we see an increase in imports, there is a possibility of adding more things. I mean, the most difficult part has been done to define the mechanism and find out how things would operate. But since we already have the base, other measures can be easily deployed. So, the process is under control.

So, my objective answer is yes, I remain very optimistic, and other measures may follow soon.

Mariana Velho Dutra: Thank you, Rodolfo. Our next question is from Carlos de Alba from Morgan Stanley.

Carlos de Alba: Thank you very much, Mariana. Welcome back. Good to see you in Gerdau. Good morning, Gustavo and Japur. First question is on the share buybacks. Congratulations on the announcement. I just want to make sure, Gustavo, Japur that the intention is to execute the buyback. Just to be clear, the board approved the program and you guys will execute it over the next 12 months, right?

Gustavo Werneck: Can you answer that, Japur?

Rafael Japur: The idea is, yes, to execute the program. In the previous occasion, when we executed the program, we fully executed the buyback program. So, yes, we are approving the program with the intention of executing it in the maximum period of 12 months, both Gerdau SA and Metalurgica Gerdau.

Carlos de Alba: How do you see, I mean clearly, the second half of the year, you anticipate some improvement, right? What I could depict from the message was clearly an improvement of EBIDA performance towards the third and fourth quarters. And this contrasts very strongly with what other peers mentioned. Basically, I just want to confirm that information, because this is very different from what we’ve heard from other steel companies in the industry.

Rafael Japur: I think that our cost structure is different. And as I said, in our case, between 20% to 25% of our costs are exposed to US dollars. Other companies are probably more exposed to the US dollars, because maybe they depend on more imported inputs, which is not our case. And we also understand that the market has been positive, as Gustavo mentioned. Demand is there. It’s not the ideal demand, but we are seeing demand growth and growth in domestic sales. Therefore, we understand that there is a room for improvements in the Brazil results in the second half of the year, be it through better economic market conditions, but mostly due to incremental results that we will have due to our initiatives to optimize costs and the hibernations that we did in the month of June.

Gustavo Werneck: Thank you, Carlos.

Mariana Velho Dutra: Thank you. Next question from Caio Ribeiro with Bank of America.

Caio Ribeiro: Good afternoon. Thank you for the opportunity. The first place, going back to the order book in the United States, particularly that link to the infrastructure package. Werneck, you spoke a lot about the favorable dynamic of IRA, CHIPS Act. And the question is, would there be any component that you believe is missing to generate this effect of positive demand for longs in the US? Perhaps you could speak more about other components that would help. Secondly, we see a relevant reduction in the sales mix abroad and in Brazil as a percentage of the whole, with a clear trend in the last three quarters. And I understand that historically this tends to happen in the dynamic of realized prices, margin, even the mix of products exported, which historically, traditionally, have been semi-finished steel products.

And you mentioned that you see an opportunity to take advantage of the exchange rate depreciation to have a more opportunistic export. So my question is, regarding the difference in profitability between these shipments abroad and domestically, if there is still a big difference, or whether the mix of exported products has been changing, and what percentage do you think that exports should stabilize at?

Gustavo Werneck: Thank you, Caio. I’ll start, speaking about North America, and then you’ll help me detail the Brazil BD. I’ll just take some steps back. Now taking the current profitability and that was the result of the market. We went through an intense transformation in our footprint of assets in the last seven years in North America. So this process now of hibernating some plants, we went through that. Just as an example, we shut down our St. Paul plant that was not productive. We transferred products to other mills. We made relevant investments in at least five mills in North America. The latest one of these would be plant in Canada to have a more complete mix of products, a more profitable mix of products. So everything we did is reaping the fruits of all that now.

Also the fact that we don’t use prime scrap. This is a five-year strategy to work very structurally with obsolescence scrap, which is cheaper. There’s not a lot of competition. Our ability to compete in North America, we’ve been working a lot in recent years, and now we’ve been working more recent quarters to add more downstream capacity, the IRA. A practical result is the racks of metal structures that support solar panels. So, we have added some downstream aiming to prepare this steel racks already cut and drilled. Our capability of supplying a better mix of products and services to our customers in the segments where we operate. All of that has evolved a lot in the last seven years. So what’s happening now is that these packages that were mentioned, they’re directly linked from product mix, a practical example.

It’s impressive the growth right now of steel for data centers that we’ve built in the US. We can consider artificial intelligence and the need to store more and more data. We have a lot of orders for steel for data centers. Another qualitative change we saw is that there’s a lot of investment in health care in the United States, and this is directly linked to our product mix. So these are examples that are peaking in the United States, and they’ve been helping us quite a lot. In terms of infrastructure, the infrastructure package is moving slowly. We see an impact. We believe that the impact will materialize even more along the next quarters. I’d like to draw your attention to one last thing. We always comment on this. You know about the sales of our rebar assets.

We maintain our rebar production capacity in the United States. There is a momentous reduction in demand, so we have our most reducing rebar. We can have a very good level of utilization. We continue to have a dilution of fixed costs, which is very effective. This has been contributing for us to maintain our performance level. So it’s not just the packages. It’s couple of factors that we have been working on in the last seven years and the market situation that we’re going through right now, Caio. Altogether, this is what is allowing us to positively detach ourselves from our competitors. Japur, anything to add about the specific topic? You can speak about the Brazilian operation.

Rafael Japur: All right, so regarding the mix. We cannot compare the margins between domestic market and exports because these are very different products. We’re very much focused on exporting semi-finished products, sometimes subsidiaries abroad or old subsidiaries in the case of Colombia and Dominican Republic. But yes, overall, we have a better margin because we have a better added value product here in Brazil. We believe with the current exchange rate level and our cost structure, we have room to export some extra tons than we had before. Considering these volumes that we have now, the exchange rate in our available capacity, considering possible prices and the exchange rate fluctuation looking forward. It’s something that we have to monitor month after month. And as regards to [indiscernible] Gustavo.

Gustavo Werneck: Well, we’re very optimistic in the coming months of the entry of the second phase of our HRC in Ouro Preto. In the coming weeks, we’ll start testing the equipment and that will add 250,000 tons of HRC. Our rolling mill has been working at a limit. We have differentiated capacity of delivering these products via Gerdau Comercial and some customers that require a more complex mix of products. So this is just one example of how we change our product mix to a higher added value product mix. And yes, I’d like to add to that because I think a super relevant point, Caio, and I think that this is kind of common in commodities companies, that normally the market does not consider face value and does not consider expansion and growth project.

But we are in the eve, think about cyclical sectors like ours. Six to 18 months, that’s a short term. If we consider the investments, the arrival of the coil, the hot road strips, the conclusion of our investment in Monroe, in special steels in North America, and the entry of our mining capacity in the end of next year. So if we think about it, about strategic projects, but the company, we’re thinking about a 6 to 18 months’ time frame. We’ll have a set of projects, we’ll start the ramp up of a set of projects. They have the potential to generate up to BRL 2 billion in result in the midtime. So, we’re talking about expanding, if you think about the numbers that the analysts have that oscillate between BRL 10 billion and BRL 11 billion actually growth itself of EBITDA.

They talk about an expansion of 15% to 20% in the potential of creating value and results for Gerdau in the midterm. These are important things of concept to pay attention to short term opportunities such as how to capture more volume with higher contribution margins, but we’re about to have an important transformation in the intrinsic quality of our assets in Gerdau’s results.

Caio Ribeiro: Thank you very much. I would just like to ask for a clarification, Japur, because when you were talking about increasing exports, there was a sound cut. We could not hear the number. If you could repeat that, we would appreciate it.

Rafael Japur: Of course. We see the potential of exporting 100,000 to 200,000 more tons than we would imagined this year considering this level of high exchange rate. Of course, we will not go back to turning on other capacities to do this. We’re thinking about opportunistic exports considering our cost structure, capacity availability, and this more positive moment we are seeing regarding the exchange rate favoring exports.

Caio Ribeiro: Thank you very much.

Gustavo Werneck: Thank you, Caio.

Mariana Velho Dutra: Thank you, Caio. Next question from Ricardo Monegaglia from Safra Bank.

Ricardo Monegaglia: Good afternoon to both of you. Welcome back, Maria. It seems that the balance of the longs market improved more recently. It’s a little more tight than in flats. I’d like to know do you share this perception that perhaps we have an opportunity increase prices in longs than in flats? That’s my first question. The second question about Gerdau Next. If you could comment on your investees, if there is any news expected for the second half of the year or new news coming? These are my questions. Thank you for the opportunity.

Rafael Japur: Of course, regarding the market, particularly in Q2 there was an important topic regarding the floods in Rio Grande do Sul state which impacted our volume of shipments in Rio Grande do Sul state where because of our history we have a substantial market share. We believe there is more room for recovery of volumes in longs in the second half of the year. As regards to Gerdau Next, we don’t have a lot of news compared to what we have disclosed. Basically, the big investments we have now will start energizing some of our number. Park Arinos in the north of Minas Gerais that should start operating in the second half of the year, part of that park. Our investment in [indiscernible] is progressing well in recent months. These are the main capital allocations. At the moment, we haven’t got any new front opening at Gerdau Next.

Ricardo Monegaglia: I had a problem with my camera. I don’t know if you could see me. But thank you very much. My questions were answered.

Mariana Velho Dutra: Thank you, Ricardo. Next question is from Lucas Laghi from XP.

Lucas Laghi: Good afternoon. My question relates to something that Japur already mentioned, but my question has to do with incremental return in terms of strategic CapEx. You talked about the 2 billion in results. I just want to confirm whether this 2 billion is total or whether we can think about this ramp up from 16 to 18 months that you mentioned. Maybe thinking about 1 billion or half of that amount given that you have already allocated half of that strategic CapEx? Just running some quick math, 2 billion result considering taxes will be 10% to 20% of ROIC considering that is strategic CapEx. Whether this would be the ongoing rate for new projects. I think this is important for me in terms of capital allocation.

Rafael Japur: Lucas, I don’t think we should refer to it that way because the largest project which is the mining expansion will be concluded only at the end of 2025. Its ramp up will occur throughout the year of 2026. That’s why unfortunately I would say we cannot do that same math. I think the return that is coming is the expansion of the HRC which occur at the end of this year. In 2025 we will have the ramp up of the project. And we already mentioned to you that before. That should be around BRL 400 million of incremental EBITDA related to the additional production volume. When we think about hurdle rate of our product, we think about IRR and that will be about 20% typically for projects that we approve at Gerdau.

Lucas Laghi: Thank you.

Gustavo Werneck: Thank you, Lucas.

Mariana Velho Dutra: Our next question from Yuri Pereira from Santander.

Yuri Pereira: Thank you. In fact, you just talked about IRR and specifically in the HRC projects and given the fact that rolling mill operation is at its limit. Are you expanding the rolling mill? What are the plans of the company? I know that your main target is IRR but once you translate that into the EBITDA margin, do you have any golden rule in terms of what you think would be healthy for Brazil? Thank you.

Rafael Japur: Hi, Yuri. It’s a pleasure to talk to you. We don’t have any pocket rule for the margin. Sometimes this is translated in different ways in the results. There are some other projects that do not grow revenue but they promote a substantial reduction in our costs such as the case of the Miguel Burnier mining expansion project. So we do not have an EBITDA margin as a target. This is not the main driver.

Gustavo Werneck : Yuri, I would just like to add to what Japur said. Our Ouro Branco mill is the main transformation platform for Gerdau in the next coming years. And when we think about an integrated mill such as Ouro Branco, and if you look at all of the other companies that have still productive assets that work in an integrated way, mining is important. So access to high quality ore is complex. Logistics is becoming increasingly complex. Therefore, I believe that if you don’t have access to your own ore, very competitive ore, the companies will have a difficult time to compete. So this investment in the mining project should be seen as a guarantee of competitiveness for Ouro Branco in the long run. So, this is an asset certified for over 40 years.

The mining operation is 13 kilometers from Ouro Branco mill. The investment in the operation that will start up in November of next year, it will be crucial for us to transform mining in Ouro Branco. The transformation has already begun. Ouro Branco was a mill, it was built many years ago by [indiscernible] and the mill has been [indiscernible] to produce semi-finish for export. But once Gerdau acquired that that mill, the transformation has been taken place since then. But will be more so now we will accelerate the transformation for HRC. We will not only no longer have exports of semi-finished, but we will focus on the domestic market in terms of that product. When you asked about the market of flat and long steel, at the moment, as Japur said it is very likely that our growth in terms of increasing deliveries will come from longs because our capacity to produce and deliver HRC is at its limit.

Therefore, this expansion project comes in a very timely fashion because once it starts producing, we will be able to deliver that additional capacity and then generate that additional EBITDA or revenue that you mentioned. Ouro Branco has many other options. We could also increase HRC. We already have an additional equipment for the third phase, and in the future we could also produce more rolling products, and there is also the option to increase the production of structural profiles. This is the only rolling mill of structural profiles in Latin America. Therefore, we have lots of different options to promote the growth of Ouro Branco in the future. We are now discussing which investment should come first. Once we finalize the studies, we will certainly announce them to you.

But rest assured that once the mining project is concluded and once we switch the key from finished products to rolling products, things will be changed.

Yuri Pereira: Thank you.

Mariana Velho Dutra: Thank you, Yuri. Our next question is from Igor Guedes from Genial.

Igor Guedes: Good afternoon, everyone. Thank you for taking my questions. We saw an export volume dropping about 40% quarter on quarter and I would like to understand how much of that has to do with the impact related to the hibernation of Barão de Cocais? From what I understood, this is a mill that you used for exports partly. And by hibernating mills that possibly had this possibility of having products exploited. Given the exchange rate that you mentioned, how much do you think you can shift the volume that you mentioned in the call? That’s my first question. And my second question has to do with the debate I had previously with Japur about CapEx. 70% of the CapEx is being executed in Brazil. This is no news that your strategic plan is to invest more in Brazil.

But still North America has a margin which is about three times higher than Brazil. Of course, as the cost reduction package starts coming to fruition, we tend to see the margin of the Brazil operation expanding a lot. But I still want to check, do you believe that you have arrived at a level that you think is competitive in the United States to the point of investing CapEx massively in Brazil, considering that Brazil has to deal with the government, this mixed tariff rate quota system, it still entails a lot of doubts, actually, on whether it’s going to work? The United States are being more vocal in trying to help the demands of the industry, particularly with Section 232. Is it possible that in the future you will relocate more CapEx to the United States in the profitability level or do you believe that Brazil [indiscernible]

Gustavo Werneck: Thank you, Igor. I will start answering the question more conceptually. And Japur will dive in. It has been a long time now has now been exporting. It is a mill dedicated to manufacturing light profiles for the domestic market. We transferred Metalurgica’s production capacity to [indiscernible] in Rio de Janeiro. What we are doing now as Japur mentioned to improve the volume of exports. We’re stepping on the gas of our Ouro Branco mill. Ouro Branco had additional capacity. We were working at reduced capacity at Ouro Branco, so these additional exports volume will practically all come from our Ouro Branco mill. That’s the general concept. The Barão de Cocais hibernation, the goal was to redistribute capacity to other assets in Brazil, particularly Cosigua, so as to increase production, dilute fixed costs of Cosigua, so we can be more competitive.

It is a very differentiated mill in general aspects, and in terms of competitiveness. Regarding the CapEx in Brazil, when we look at it in detail, basically, it does not involve growing the volume of crude steel. It is a transformation in Brazil regarding the product mix. That is why we need CapEx. This includes a demand from the mining project. This is a project that is developing now, but it has a life cycle of more than 40 years, as I mentioned. Investments that needed to be made in Ouro Branco the coming years to retrofit, this was a long cycle mill with the blast furnace, and in some years we will have to retrofit the coke unit. The mill has been operating with differentiated quality. It is not by chance that we announced for a while that this maintenance downtime of blast furnace one that was going to happen in 2025 was postponed most likely to 2027.

We will need CapEx in Brazil to requalify our assets to make them more competitive and to maintain an integrated mill like Ouro Branco. But we do have a wish to continue to invest continuously in North America, and we include Mexico here. As announced, we continue with our feasibility study for greenfield special steel mill in Mexico to supply the automotive market, which is strongly growing. Several customers of special steel in Brazil and in the United States are building their units, and this cycle of relevant investments in the last seven years, as I mentioned in Caio’s question, it’s not over yet. There are many opportunities there. Our biggest mill in Texas, our middle European mill, still requires some investment. Understand that there is an important cycle there to increase capacity and make it more productive.

So as soon as we finish this cycle in Brazil of maintenance for Ouro Branco and investment for higher added value products manufactured at Ouro Branco, this Brazil-U.S. mix of CapEx tends to be more balanced. That’s the general concept. Japur, anything you’d like to add?

Igor Guedes: Hi, Igor. Just to add very briefly, on the same slide where we showed the Brazil operation, if you look to the left, we see what we invested in North American operations. That’s where we started. A part of the homework was done in past years. This is being executed now with the conclusion of the investments just to mention two in [indiscernible] and in Jackson in Tennessee, investments that we completed in recent quarters. And we have a big challenge, beautiful project that we are executing, which is the expansion of our main unit, the United States, the [indiscernible]mill, where we have the expectation in which to expand it to about 2 million tons in the coming years as Gustavo mentioned. As soon as we are over this stronger cycle in Brazil, we’ll reach more balanced CapEx. The margins in the U.S. are higher than in Brazil.

The idea is to bring the margins of Brazil up closer to those of the United States. CapEx will be dedicated not necessarily to the more profitable geographies, but to those where we believe we have a better potential of return.

Mariana Velho Dutra: Well, then, the Q&A session has come to an end. I will turn the floor to Gustavo for his final statements. The investor relations team will be available for any further clarification you might need.

Gustavo Werneck: All right, Mari and Japur. Mari, Japur, and myself, Mari, we wish you a lot of success. Now that you have returned to Gerdau, we are very happy to have you on board again. Together with the whole team, we would like to wish each other will be very happy in Gerdau’s long-term history. On our behalf, Mari, Japur, and myself, I would like to thank all of you for joining us in this earnings conference call. It’s always a pleasure and a delight to debate these themes with you. So now I would like to invite you for our Investor Day that will happen on October 3rd in the city of Sao Paulo. Very soon you will receive more information. I have to remind you that on November 6th I hope to see you all again for our earnings conference call referring to Q3 2024. Thank you very much to all of you. Take care and I hope to see you soon.