The outlook revision reflects our opinion that Gerdau S.A. will continue to improve its credit metrics over the medium term, even under a scenario of weaker steel prices and margins. The company made an equity offering in April 2011, the proceeds of which were used to pay down debt, improve its debt amortization schedule by reducing short-term debt, and reinforce cash reserves. Although operating profitability has weakened in 2011 because of fierce competition, especially from imported steel in its domestic market, we believe that Gerdau will continue to gradually deleverage. This is because we project that the company will sustain positive free operating cash flows (FOCF), even assuming higher capital expenditures in the next few years. The ratings on Gerdau
