CAPEX and OPEX Selection

and Prioritization

2012 September 13th

CAPEX and OPEX Selection and Prioritization 1

 CAPEX Expenditures
US$ millions

* Planned Expenditures

CAPEX and OPEX Selection and Prioritization 2

 Project Selection Methodology since 2011

Objective

To select CAPEX that add value to Gerdau

Projects aligned with the company strategy and priorities

Projects with the best benefits

Projects with the lowest implementation risks

CAPEX and OPEX Selection and Prioritization 3

Identify, Select and Prioritize CAPEX

Ideas Candidates CAPEX Plan Approved CAPEX

CAPEX (IAs)
(PSs)

Rejections

CAPEX and OPEX Selection and Prioritization 4

3 Criteria for Project Prioritization

CAPEX and OPEX Selection and Prioritization 5

 Alignment with Strategic Direction:

Directions Review Directions Projects classification

Prioritization according to the strategy

Define FOCUS: Define PRIORITY: Classify PSs:

Quantity of directions All BDs Directions Preliminary Studies

reduced from 243 to and Functional must inform the
80. Processes Ranking strategy they are
defined by CEG. linked.

CAPEX and OPEX Selection and Prioritization 6

1. Objective Alignment with Strategic Direction - weight 40%:
Other Strategic Strategic Objective Directions
Objective Local priority CEG Priority

0 100 300 600 1000 points

2. Contribution to Direction / Objective - weight 10%:

High: 1000 points (1 to 3 projects to achieve the objective)
Medium: 500 points (4 to 5 projects to achieve the objective)
Low: 100 points (its necessary many projects)

CAPEX and OPEX Selection and Prioritization 7

 WACC Gerdau : 11,4% p.a.

CAPEX and OPEX Selection and Prioritization 8

 Criticality
The Criticality Matrix considers the impact and the probability of the
occurrence of the event the CAPEX is supposed to eliminate or mitigate;

The table values inform the

different Criticality levels:
CR1 are unacceptable
CR2 are undesirable
CR3 may be accepted
CR4 e CR5 are acceptable

CAPEX and OPEX Selection and Prioritization 9

CAPEX and OPEX Selection and Prioritization 10
CAPEX Prioritization and Approval Process

PLANNING CICLE
PRELIMINARY STUDIES PREPARATION

CAPEX PLAN APPROVAL

CEG NOV

ALIGNMENT WITH STRATEGIC FLOW LIMITS

CEG
Monthly
CAPEX APPROVAL (PAI) Monthly
Meetings

OUT OF PLAN CAPEX REQUEST -

OUT OF CYCLE

BY PRELIMINARY STUDY
REQUEST

CAPEX REPRIORITIZATION

STRATEGIC CASH FLOW SIMULATION

CAPEX and OPEX Selection and Prioritization 11

 Methodology application result in
CAPEX Plan 2012-2014

CAPEX and OPEX Selection and Prioritization 12

- Total budget requested by BDs in the
Preliminar CAPEX Plan 2012 -2014 = US$ 3,8 billion

- Final approved budget = US$ 1,2 billion

CAPEX and OPEX Selection and Prioritization 13

 CAPEX PLAN 2012
Distribution by BD (US$1000)
BUSINESS PLAN
DIVISION 2012

CAPEX and OPEX Selection and Prioritization 14

 CAPEX PLAN 2012
CAPEX Distribution (US$1000)
BD Budget
8%

Strategic
Result 32%
13%

Sustainability
47%

CAPEX and OPEX Selection and Prioritization 15

 CAPEX PLAN 2012
Strategic x BD

CAPEX and OPEX Selection and Prioritization 16

 CAPEX PLAN 2012
Sustainability (US$1000)

CAPEX and OPEX Selection and Prioritization 17

 CAPEX Plan 2013 2015
Improvements

CAPEX and OPEX Selection and Prioritization 18

 CAPEX Plan 2013 2015 Improvements

1. Software EPM 2010 (Enterprise Project

Management) utilization for CAPEX and OPEX projects selection:
Demand, Portfolio and Projects Management
Only projects with Preliminary Studies implemented in EPM are eligible
to the CAPEX Plan 2013-2015 and to the OPEX Plan
All CAPEX Plan 2013-2015 and OPEX Plan will be planned, prioritized
and managed by EPM

2. Strategic Directions:
Directions review focusing 2013-2015 challenges
Strategic priorities reevaluated by CEG

CAPEX and OPEX Selection and Prioritization 19

Scenarios creation in EPM
The EPM allows to simulate many scenarios according to the criteria
established for project prioritization: NPV, strategy, risk, etc.

CAPEX and OPEX Selection and Prioritization 20

 Hildo Alberto Baldasso
Engineering Technical Director Gerdau

Contact:
Phone: 55 51 3323 8431
e-mail: hildo.baldasso@gerdau.com.br

CAPEX and OPEX Selection and Prioritization 21