[Foreign Language] [Call Starts Abruptly] …years of experience in logistics and allocation. So now in the next slides, we'll talk a little bit more about the highlights of each one of our business operations and the outlook for the markets in which Gerdau operates, so that later on we can talk more about it during the Q&A.

On Slide 6, I would like to begin by talking about North America.

I would like to highlight that the adjusted EBITDA of our North American business operation totaled BRL2.6 billion with an adjusted margin of 32.9%, both historical records for our third quarter and above the margins achieved by our local competitors confirming that our strategy and position in North America has been successful over the last few years.

When the bulk -- well, I think you'll remember that you had margins that were single digit margins. I also highlight that the metallic spread remains at a historically high level, and that's the trend for the coming months.

Volumes remained at high levels in the third quarter, reflecting strong demand from the non-residential and manufacturing and energy sectors. The outlook for the fourth quarter remains very positive, even despite seasonality of the period since our order backlog remains at normal levels and very positive.

Considering this scenario, we will continue to operate our mills in the region at capacity utilization levels above 90%. We also remain optimistic about the demand for steel in North America, especially from the construction sector.

We follow some indicators like the Architectural Billing Index, which measures the activity of the non-residential construction sector in the country, and the Institute for Supply Management Index, which monitors the performance of the manufacturing sector remain accommodated at positive levels above the 50 point line.

Data from the US Census Bureau show that the total spending on domestic non-residential construction reached a record high of almost $80 billion in August this year.

I would also stress the reshoring phenomenon that has continually brought in new customer orders and also infrastructure investment package valued at $1 trillion to $2 trillion, which should begin to generate additional steel demand of up to 5 million tons in the US market through 2023 as states move forward with their projects.

In this context, we continue investing in digital transformation and improving the productivity and profitability of our units in North America, making our steel even more competitive and generating more value to our customers. For the next cycle, I'd like to highlight investment in the Whitby mill in Canada.

whose new melt shop will start operating the first half of next year, and the expansion of the product mix offer in our Jackson unit in Tennessee, meeting the new needs of our local customers.

Other points of attention that Japur is monitoring very closely in North America, they include labor shortages, which is still an issue for us, and inflation and interest rates, energy costs, the pace of the economy in general, and the logistical challenges of global value chains, which have impacted not only Gerdau but many other companies and organizations in the region.

I'll jump to now on Slide number 7 to talk about our special steel operations, and I'd like by highlighting the financial aspects. We reported third quarter adjusted EBITDA 17% higher than the same period last year, driven by current profitability levels.

While in North America, the impact of chip shortage in the light vehicle market has been decreasing by logistical challenges and labor shortages have affected local light vehicles production. Anyway, light vehicles in the country should reach 14.4 million units of volume much higher than the figures reported in the last two years.

For 2023, the expectation is that production should be above 15 million units confirming the recovery of the light vehicles market when compared to historical levels.

With the recent approval by the American Congress of the so-called CHIPS Act, there will be a significant localization in the United States over the next few years of the manufacturer of semiconductors definitely solving this problem that has been impacting the production of vehicles in recent years. Now, in regards to heavy vehicles.

The market remains positive with truck production expected to total about 300,000 units this year or more than 320,000 units by 2023.

The oil and gas sector in turn continues to expect growth, influenced by fuel prices in the international market, and the rig counts, for example, should reach an average of 901 units this year when compared to 603 last year.

I would also like to highlight the approval of an additional investment of around BRL200 million in our specialty steel mill in Monroe, Michigan for the modernization and technological upgrade of the rolling mill as part of an investment plan of approximately BRL2 billion aimed at making our special steel operations in the US, especially in Monroe, one of the most modern plants in the world.

With this new investment, Monroe will become one of the most technological SBQ bar producing plants, one of the most technological ones in the global market, with a goal to continue meeting the future needs of our customers and also to pursue solutions for the potential demand of the electric and hybrid car segment.

While the special steel market in Brazil continues to be affected by the lack of semiconductors and other inputs, but anyway, there has been a recovery in the light vehicles market in this third quarter, whose production volume rose 34% year-on-year according to ANFAVEA.

For 2022, the production of light vehicles should grow around 4.4% according to the same association. Meanwhile, the heavy vehicle market remains positive with a 16% increase in production between July and September on a year-on-year comparison, especially in the bus segment.

The agricultural machinery sector should advance 4% this year when compared to 2021 to reach approximately 100,000 units, reflecting the expectation of a record harvest in Brazil according to ANFAVEA.

I would also like to emphasize that the sectors that consume special steels, especially auto parts, have shown to be very competitive in the global market, also generating good export opportunities starting in Brazil.

I would like to point out something very important, because we have recently started the operations of the new continuous casting of blooms and billets in the Pindamonhangaba mill in Sao Paulo.

This equipment will allow the special steel unit in Pinda to have a much more automated process with better yield producing cleaner steels and also resulting in the delivery of differentiated products, and in an even higher level of quality to suit the needs of our demanding clients.

Also, the technological updating of the unit in Pindamonhangaba is more aligned with the future prospects for a growing number of electric and hybrid vehicles in Brazil. Well now, I'll move to Slide number 8, and here I will talk about the long and flat steel landscape in Brazil.

And in the third quarter, the performance reflects an accommodation of demand for steel from the different sectors in which we operate. With shipments of steel from our Brazil BD growing 2% between July and September when compared to the second quarter of this year, and I see that this is the most important comparison to be made.

The steel consumption in the industry remains high, which is reflected in the number of active construction sites in Brazil that once again reached historic record in October. I'd also mentioned here some other points that make us confident about the future of the sector.

For instance, the FGV's Civil Construction Confidence Index reached its highest value in the last six years in September with 101.7 points.

Furthermore, I would like to highlight that the analysis of civil construction GDP for the second quarter of '22 when compared to the same period of 2021 shows a strong performance in the sector, growing 9.9% according to the latest survey conducted by the Brazilian industry. This reflects an increase of 3% of construction GDP in 2022.

Now speaking about retail. Sales are flat, impacted by inflation, the decline in Brazilians’ average household income. So I think by 2022 that consumer confidence index should reach 2.8% increase. And this shows higher investments in infrastructure and investments are supposed to be over BRL151 billion by 2022 according to BNDES.

In addition, there is a demand for steel coming from the industrial sector that remains at high level. This reflects a good performance coming from agribusiness, capital goods, machinery and equipment and especially yellow line and the energy segments.

Still talking about energy, I think it's important to mention what has been recently announced that Brazil -- the installed capacity exceeded 20 gigawatts from solar sources. This is an increase of 44% between January and October 2022, placing photovoltaic energy as the third power source in the Brazilian electricity matrix.

In addition, I would like to emphasize the launching of our new business platform called Gerdau Mais..

This solution is an important milestone in our digital transformation journey since it allows our customers to follow their entire journey of their relationship with Gerdau through the platform, which will bring us deeper insights that will allow us to offer more personalized services, and this is what we've been doing in the past few years trying to serve our clients even better.

Now moving to the next slide, I will talk about South America, starting with Argentina. In Argentina, the demand for steel from the construction, agribusiness, energy and mining sectors remains strong, which has boosted sales in the local market.

The Argentinian construction sector grew 6.4% between January and August in an year-on-year comparison according to the latest data from InTech. For 2022, the forecast is quite positive as well. And this is the same scenario that is repeated in the Uruguayan steel market.

In Peru, the demand for steel continues at good levels, driven by the construction industry, which continues to evolve, resulting in a 6% increase in sales in the local market in the third quarter when compared to the previous year.

I mean, according to the central bank's estimate, there is -- this is in line with the estimate from the central bank of that country, and their GDP should grow by 2% in 2022. Now I'll give the floor to Japur, and we will discuss those items further on. So Japur will now talk about our financial performance. So Japur, the floor is yours..

Thank you, Gustavo. Good afternoon to all and everyone. It is a great pleasure to be here with you once again in our earnings conference call. I hope everybody is fine and healthy and safe. So let us talk about our financial performance for the quarter.

Now we have the best first nine months of our track record, like Gustavo said, very well during the highlights of the period. So let us talk about cash flow and work in capital. Like Gustavo said, this quarter was generated an EBITDA of BRL5.4 billion.

This is the second best EBITDA for a third quarter in our history and confirms the resilience of our performance in different scenarios. We invested in this first part around BRL1 million in working capital, very much in line with what we said in the previous quarter, and we invested BRL1.1 billion in CapEx disbursement.

Let me give you more color on the investments that we made and that we are assessing and performing, and I'll be detailing this later on in the presentation. What about operating cash flow? Take into account what we had in costs and obligations for our debt and income tax paid.

We have free cash flow of BRL3.1 billion this quarter, equivalent to nearly 60% of EBITDA or 15% of our net revenue for the period transformed into free cash flow.

During this quarter, if we take into account this BRL1.2 billion that we paid in the third quarter related to dividends paid in the second quarter plus BRL600 million that we invested in share buyback of [GGBR4] we’ll have nearly 60% of our free cash flow of the quarter invested in return to shareholders.

Moving on to the chart below, now focusing more on working capital. We can see that basically we didn't have a lot of working capital used this quarter.

It remained flat at a level very close that we had in the previous period with the cash conversion cycle, which is measured as a function of revenues for each quarter, because we had a drop of 8%, like Gustavo said early in the presentation.

We had an increase in the number of days, 64 to 70 days, but within a very comfortable level, and taking into account the seasonality that we naturally have for the year in normal levels according to the company's track record. Now moving on to our investments and how we've been allocating capital in our CapEx.

Like we said in the previous slide, this quarter, we had disbursement of BRL1.1 billion CapEx. Of this amount, BRL400 million were invested in competitiveness projects, trying to increase our capacity to generate results over this cash conversion cycle in the long run. For 2022, we follow the same projection of CapEx disbursement of BRL4.5 billion.

And the chart below, we would like to take this opportunity of being with our investors and the markets in general to bring more color on the main initiatives that we've been performing, and which have already been approved by our Board of Directors, or which are being studied in house. Naturally, there are in different stages of maturity.

As you can see, the major focus behind these projects are in three categories; first, assure competitiveness access to raw materials in the long run, improve our production capacity or to cater to our customers’ needs and add increasingly more products or added value in our portfolio to our customers.

In the earnings conference call of the fourth quarter of 2022, which will be in early 2023, we are going to go deeper into these initiatives and we'll give you an update on the forecast of CapEx disbursement for year 2023. Now on Slide number 13, let us address our cash position and indebtedness.

This quarter, we reach the lowest level of net debt over EBITDA in our history at point 16 times. This stems from the deleverage process achieved in previous years and also the strong result generated within the first nine months of year 2022 like Gustavo highlighted.

We closed the third quarter with a cash position that is very robust of BRL8.6 million, very close to what we had a year before around 2% higher than the same period last year. We closed the third quarter with a gross debt of BRL12.9 billion.

This increase of around BRL500 million is mostly explained by foreign exchange variation of 3.2%, taking into account a portion -- a significant portion of our debt, which is denominated in dollars due to the bonds that we issued in the capital markets.

It's important to highlight that the company continues and pursuing this level of gross debt below BRL12 billion, not only maintain but also to reduce the portion of our debt, which is effectively denominated in dollars.

So considering this, we would like to remind you that in the coming days, now on November 21st, we are going to have the maturity of the 15th issuance of our debenture from 2019 with a principal amount of BR1.5 billion. So with that, we basically go back to a level below BRL12 billion of gross debt.

The lower chart shows our debt profile with an average maturity term of 18 years and distributed with amortization overtime, and with a long term profile. I’ll also highlight that in this third quarter, we made use of the strong results that we have been posting and our solid cash position to renew our global credit line.

It used to be $800 million and now is $875 million, which further increases our resilience, our financial flexibility, and we will make the most of this moment to extend the term. This line would be due in October 2024 and now it will be due in October 2027. We would like to thank our partners, our banks that allowed us to extend this term.

I’ll highlight that in the closing of this quarter, this line is absolutely operational and fully available and not withdrawn by Gerdau or by any of its subsidiaries. Moving now to Slide number 14. Let us talk about return to our shareholders.

Owing to the significant cash generation in the first nine months of the year accruing more than BRL9 billion and taking into account the solid financial position, the Board of Directors of the company has a dividend payout and interest on capital of approximately BRL3.6 billion or just to round it up, BRL2.15 per share to be paid to our shareholders on the 14th of 2022.

At Metalúrgica Gerdau, we're also going to have interest on capital and dividends amounting to approximately BRL517 million or [50 cents] per share. The payment of proceeds in Metalúrgica will happen on December 15th and both for Gerdau S.A. and Metalúrgica, we will consider the position of this year’s held now on December 2022.

With that, we highlight the payment of proceeds and accrued for the first nine months of the year, we declare almost BRL5.8 billion as dividends at Gerdau, equivalent to more than 60% of the free cash flow generated over this period. Moving from dividends into our share buyback program, which was launched this May.

In Gerdau S.A., we have 81% of the program performed or more than 45 million share buyback for BRL24.08. Taking into account not only in the first quarter but also up to the beginning of the quiet period on October 24. With that, over the year, over year 2022, we have nearly BRL1.1 billion invested in share buyback.

As for Metalúrgica Gerdau, we performed nearly 70% of the program announced. As a reminder, at Metalúrgica, it is greater than Gerdau S.A. accounting for 5% of preferred shares and Metalúrgica has 10% of free flow of preferred shares at Metalúrgica.

So until the closing before the quiet period, almost 70% of Metalúrgica was performed or nearly 47 million shares of GOAU4, which were bought for an average price of BRL10.36. As already announced in a material fact early on, the Board of Directors of Gerdau S.A.

decided to cancel all GGBR4 shares in the share buyback and a lot of 1.7 billion common stock, which were already in the company -- in the program.

As for Metalúrgica Gerdau, we will also cancel all the shares in the share buyback program and also an additional lot of 6 million preferred stock, which were also at the company's [treasure] before the program started. So taking into account share buyback and dividends, we go to the upper chart and we come for the last 12 months.

If we put together everything we did when it comes to return to shareholders, we come to a level that is very significant of BRL7 billion return to our shareholders. Taking into account adjusted profit for the period, a payout of nearly 55% in our results weigh above the 30% that were stated by our bylaws.

In the lower part of the slide, there is a chart that we always like to show. Showing how the combination of better results and ongoing reduction in indebtedness in recent years allowed us to have a very positive impact on the dividend yield growth for our securities moving from 3.6% dividend yield in 2018 to 14.1% for the last 12 months.

So thank you again for your attention. And now, I turn the floor back to Gustavo, who will make comments on our ESG initiatives for the quarter, and I'll come back in the Q&A session. Over to Gustavo..

Thank you, Japur. Well, about the three final slides, I would like to comment some relevant aspects related to our ESG agenda.

Well, starting with some piece of information that has been already disclosed, because in August, we receive certification for Gerdau Summit, which is our JV with a Japanese Sumitomo Corporation and JSW for the supply of rolling mill roll and parts for wind power generation as a B Company.

As a result, Gerdau Summit became the first two manufacturer in the world to become a B Corporation. The certification reflects our commitment to the B Movement Builders program and it's ambition to certify all of our operations in all of the countries where we operate as a B Company by 2025.

As part of our sustainability agenda, the certification recognizes that Gerdau follows good sustainability practices and effectively connects our businesses with our purpose of empowering people who build the future living a legacy for society.

I should also mention that the certification as a B Company is given by an independent international nonprofit organization, called B Lab, represented in Brazil by Sistema.bio, which was able to verify in a very tangible and measurable way how Gerdau Summit has worked to build an even more sustainable, diverse and inclusive business environment.

Furthermore, I would like to mention that we received a certification from the World Steel Association for our reporting on greenhouse gases in line with the institutional agenda.

Through our participation in the Climate Action Program, we are included among the 15% of companies with the best performance in CO2 intensity, which is a result of our governance and investments in the improvement of environmental practices.

We are the largest recycler of steel crap in Latin America, and our greenhouse gas emissions rate is about half of the global average for the steel sector. But as previously announced, we want to go even further.

So this year we committed to new targets to reach 8.83 tons per CO2 equivalent of ton of steels by 2031, and we aim at being carbon neutral by 2050. Finally, I would like to point out that in September this year, we were present at Hawkin Hill, Brazil 2022, being the official steel supplier of the festival.

We supplied 200 tons of 100% recyclable Gerdau steel for the construction of the largest world stage in the history of Rock in Rio, bringing the concepts of sustainability, circular economy and innovation, not only to the event but to the entire Brazilian society. So I would like to conclude by thanking all of you for listening to our remarks.

And now we are available to take your questions and elaborate further on any point of greater interest to you. So now, Renata, I'll give the floor to you so you can help us organize this Q&A session..

Thank you, Werneck. So now we will begin the question-and-answer session [Operator Instructions]. We already have a couple of questions via chat. We have Leo Correa, analyst with BTG Pactual..

I have two questions. With regards to dividends at GOAU, we noticed a dividend payout, which is lower at GOAU vis-à-vis GBBR. I would like to understand the rationale behind this difference. There is a second question also from Correa about trends of profitability in Brazil.

He says, we have come to a level that is lower this call in terms of EBITDA margin around 18%. I would like to learn more about profitability trends for the coming quarters, considering the drop of raw materials prices and one-off adjustments of price in the domestic market..

Let me answer in the sequence. First about Galdau Metalúrgica S.A. dividends, okay? Leo, excellent question. It gives me the chance to bring an important clarification about this recurrent topic. There are many questions by analysts, so some reminders.

We opened the share buyback program, because we strongly believe our shares are depreciated vis-à-vis intrinsic value. And we keep on working on the share buyback both at Gerdau S.A. and Metalúrgica, which is larger at Metalúrgica compared to Gerdau S.A.

Considering the cash at Metalúrgica, if we do the math, we reasonably have today funds enough in Metalúrgica to conclude the buyback program, which is already open at Metalúrgica Gerdau. When we started the share buyback program, we started from historical levels of the intrinsic level of Metalúrgica vis-à-vis Gerdau S.A., so from 24% to 26%.

And even though we perform a program, which is twice the size of Metalúrgica vis-à-vis Gerdau S.A., we keep on having discount, which is very significant, around 20%. And the company's management doesn't consider to be adequate considering the nature of Metalúrgica Gerdau, which is a holding company carries a single asset, which is Gerdau S.A.

So the intrinsic value of the participation of Metalúrgica and Gerdau S.A. is not a reason to have such a significant discount, considering that Metalúrgica has very low costs, very little expenses, basically no carryover costs to take this portion at Gerdau S.A.

So to summarize, if we take into account the level of price, we continue to consider adequate as a long term investment to shareholders to allocate value to keep on having share buyback at Gerdau S.A., and it makes more sense to keep on buying back shares from Metalúrgica Gerdau.

So part of the dividends that will be received at Metalúrgica from what is proposed by Gerdau S.A. to all its shareholders, this will be used over the coming quarters to follow the share buyback program of shares issued by Metalúrgica Gerdau. I know it's a long answer, but I just wanted to make it very clear. And I hope I've answered Leo's question.

Gustavo, let's talk about profitability..

Leo, about Brazil. Let us focus on the main points of the business, addressing Q3 onwards. Think about demand. Demand is very solid. It remains solid in the third quarter and you keep on being solid in our opinion over 2023. The segment that has more difficult now with a slight drop in our portfolio is retail.

Very much affected by the level of ineptness of the family, family and household and income generation. And there is some growth in infrastructure. Sanitation is an example of progress in Brazil converted into demands for us right now. Demand from the industrial segment or agribusiness and also from construction in general, demand is very resilient.

I also mention in my opening remarks one important indicator, which is the level of construction sites active in Brazil and once again a record in October. I keep on showing this indicator in our calls as something very relevant for us for the resilience of this sector.

So demand in general in the domestic market is okay, and to keep on being at this level, I would say positive in the future. What about profitability level in the domestic market? They are also adequate. It's not by chance our import premium increases a lot. Prices in Brazil do not follow the drop in prices in the international market.

I would say that when it comes to profitability, this is okay, pretty okay, and will remain as such in the future. And now I come with the main points which explain the margins in Q3. This will be important drivers if we consider margins for the future. The first highlight is what just happened in Q3 about coal.

So coal increased a lot in the first and second quarters this year. This is purchase and transport to Brazil and the costs happen in the third quarter. So when it comes to the rising cost, this is happening owing to the coal. Coal prices remain very volatile in the world. In latest weeks we had a rising coal.

We cannot tell exactly how the price will behave over 2023, but that's a driver that might explain higher margins or lower margins next year.

A second highlight happening the second quarter, which is a maintenance shutdown in Ouro Branco unlike other mills we have based in EAF and scrap life cycle is shorter and some pieces of equipment are being in maintenance and we keep on going under maintenance over the next five years.

So it had maintenance of blast furnace number two with results in the second quarter. Blast furnace is now up and running again, and maybe a factor that should bring more attention. It had an impact and it may on keep in impacting positively these margins in Brazil. I'm referring to exports.

Margins in the domestic market, like I said, remain very solid. However, exports are driving down, driving margins down as we speak. We are preparing the operation for the coming quarters, including 2023. So we can keep on exporting despite lower margins. So we don't intend to have any demobilization of our capacity.

It's not clear yet whether prices and international margins will remain at this levels. So in the short term, there is an impact. We slightly reduce our export levels in the third quarter around 22%, which was our traditional number to 9% now.

We keep on exporting a little particularly for our sister companies in order to have an operation levels that will bring opportunities for exports in the future. So these are the drivers behind the margins achieved in the current quarter and to some extent the factors that will guide general margins of our operations in Brazil in the coming quarters.

But just highlighting that in the domestic market only margins remain pretty solid. We believe they'll keep on being solid because the main factors that contribute to these margins remain stable. They will continue to be solid down the road. So overall speaking low, these are our answers to your questions. I give you the floor back. .

Our next question from Danielle Sasson, sell-side analyst from Itaú BBA. Danielle asks for his video to be enabled. So Danielle, you can accept the authorization to go live on video. .

My first question in terms of capital allocation is whether you could give me a little bit more detail about the way you arrived at that extraordinary dividend to be distributed? Now you said that you don't want to change the, the rule of 30% of buyout also because you wanted to have more flexibility throughout the cycles.

But what was behind that view? I mean, do we have any view about gross debt for the end of this year or the end of next year? That could probably put a ceiling in terms of a leverage target because now in addition to that 12 billion of gross debt, your leverage would be 1.1, 1.2 times net debt over EBITDA.

So if you could please give me a little bit more color. And now my second question relates to the US market. You had a quarter where shipments were not as strong, but prices were strong.

Is this just a temporary dynamic because lower demand at the end or was it something more deliberate when you look at your policy of value per volume so that looking forward you would really, it will really be okay to lose a little bit more so that you could still remain posting high profitability levels. .

Well, thank you Daniel. Well, let's start with our capital structure. It's important that we make a distinction because we didn't do any extraordinary dividends because we didn't move forward on the reserves of the company. In 2022, we have more than BRL10 billion of net profit.

So when we look at net profit in our base, we are not advancing towards our reserves. So we are not using that to pay out dividends or even to execute our buyback program that is coming around the corner.

I mean, our philosophy or mindset is pretty much in keeping with what I said earlier on, which is to maintain net debt over EBITDA levels close to BRL8 billion in our cash.

Also, considering the different countries where we operate different businesses and the needs to be flexible and also considering our financial soundness, this would be around BRL 6 billion bureaus as well. Therefore at the moment, we do not anticipate any structural change in our capital structure. This is not in the radar.

I think that we missed a little bit of the beginning of your question. So if I fail to answer your question completely, please let me know. And now I turn the floor over to Gustavo to talk about the North America part of your question..

Well, Daniel, in terms of volumes in the U.S., we had some maintenance downtime and we had to use some windows of opportunities to take advantage of making some investments. We had to make some maintenance downtime to invest and invest in our profitability. Demand remains very sound.

The backlog today is lower when compared to 2021, but even though it's a very healthy backlog. And so right now and even looking towards 2023, we can operate at our full capacity, but probably our bottleneck in terms of operating with our productive capacity in our rolling mills, automation over 95%. So the problem is labor.

There was a slight improvement in July and August. But now, we still suffer with scarcity of labor. We have to deal with that difficulty even though we did not stop our productive capacity due to lack of people. We haven't done that yet. But if we look at the flex market in the U.S, I mean, in Brazil, these are two different things.

If we look at longer periods, 10, 15, even 20 and if you look at the longs market in the U.S. the margins are higher. And it's more stable in general and it has less volatile when compared to the flats market. In addition, another thing that we should take into account. And then longs does not have capacity delivers.

I mean, there are three well established suppliers. Each one of us have one-third of the market, there is no new entries of capacity. There are things that we are noticing in the short run and things that we anticipate that will probably happen in the mid-range. So this reassuring is something that is already happening in an important period for us.

If you -- there is just one example that I mentioned during your presentation, but there are other things happening, the approval by the U.S. Congress of the Chip Act that will increase the production -- productive capacity of chips in the U.S. and they are already demanding long steels. The infrastructure investment of BRL1.3 trillion.

This has not yet been translated into demand. We haven't seen anything coming from that new act. But I would say that, in general, this is still in the executive phase in different U.S. states. And this could probably be materializing to stronger demand maybe in the first half of next year.

So all-in-all, the longs market is much better prepared to deal with this inflationary scenario when compared to other markets in North America as well. The level of metallic spread remains very consistent. Scrap right now is at lower prices and transportation due to that extreme drought in the Mississippi River.

I mean, we do not rely too much on the Mississippi River to transport our scrapping products because we do that from our mill in Jackson, Tennessee. But there are some logistic pressures that have an impact on the price of scrap. But even with lower scrap prices, the maintenance of long prices, the spreads are still at very high levels.

Therefore, all in all, our operation is very healthy in the U.S., not only if you look at the market but everything that has been happening in the past five years in terms of our transformation.

I remember that five years ago when I talked to you about that, when our margins were below to -- the gap that we had in terms of operating costs and also in terms of updating our mills. I mean, the gap has been closed. So in general, speaking about the North America market, what I could tell you it was just that okay. .

Thank you. Next question. Gabriel Simmons, sell-side analyst with Goldman Sachs. He has a couple of questions. .

First question, we saw a very significant acceleration in dividends announced this quarter in addition to fast performance of the buyback program. I would like to understand how you see the leverage of the company down the road.

You often speak of the target of BRL 12 billion as gross debt and investors had in mind a target close to 5 billion for net debt.

Does it make sense to continue in the debt in these terms or are you working with an optimum leverage level expected by year end? What is the best way to consider this?.

Werneck, would you like to answer. There are other questions from Gabriele, and then I can ask you later. Maybe that's easier. .

Okay, great. Hi, Gabrielle. Well, we don't see major changes when it comes to our philosophy about our balance sheet or our capital structure. The same applies to BRL 12 billion as gross debt, something around these numbers. We wouldn't like to have it downwards or upwards. And we also have some tactics about debt rollover over time.

As for dividends, they are result of our capacity to generate profit and cash over time in a resilient basis. So this is why we accelerated this quarter, because we have more visibility in our cash generation capacity until the end of the year, more than BRL 9 billion as free cash flow.

With regards to the leverage, we are not piloting the balance sheet to come to position A or B when it comes to the year-end position. We have some obligations, some payments to be made there are some questions in the Q&A. So we have debenture maturity that we are going to fully pay in April next year.

We also have 2023 with a maturity and the idea is to have it now and owe into the high volatility of markets of bonds. It doesn't seem the most adequate moment for a new issuance. Maybe we can have a short-term operation with a commercial bank.

Our debt ratio today is pretty much concentrating capital markets with a lot of room with commercial banks with slightly shorter lines take into account that the average term today is around eight years, which is way above the six years, which is the minimum for our target of our debt maturity term.

So I tried to answer your question and also questions from other analysts. .

Gabrielle, has some questions here. I'll pull all the questions. So, he says that the U.S. operation delivered increasingly strong numbers this quarter with a very strong margin. I think it would be a call for you to give us more color on the outlook for this segment.

We used to speak of a margin, stable margin close to 10% or 20% or 12% for this business front.

Does this levels do make sense considering normal level? If the answer is yes, when do you expect to see this normal phenomenon? And then he also made comments on, well, he would like to understand how we think about investments in orders and expectations about the timeline for these investments to flow in the company's earnings results.

I give the flow back to you. .

I think this is what I answered to Danielle. If we think about the expression normalization in a world that is no normal anymore, makes no sense, so many things that will keep on happening in the world.

I don't think it makes sense to talk about normalizing, I think it makes more sense to say that we are absolutely prepared as a company to grab all opportunities that are brought to us from the market. This is the transformation that we've been going through seven years. It didn't start yesterday.

The company is very light, very agile, SG&A, our revenues with historical levels this year, this is evidence. So I don't know exactly what will happen over 2023 or what the world will bring us in terms of surprises.

But if you focus on what we can see now in the short-term or what we envisage about the margins for 10% or 12% today, they are not on our radar. We expect to work with higher margins.

Like I said, we have demand backlog and possibilities, new orders in terms of new production capacities in the U.S., our customers, the infrastructure package and also the transformations performed in our plan. So we strongly believe that we'll be working with margins that are way above this level in the coming quarters.

There will be seasonality at the end of the year, not only in the US but also in Brazil. Seasonality has been different after the pandemic.

But considering this, well, then we may go back to normal by year end with collective or blanket vacations or maintenance shut down, vacations, holidays, and this year more specifically the World Cup, which affects some markets. So we have lower seasonality in December.

And I'd like to say that December, whatever happens when it comes to seasonality, this will be a decisive month. How close will be to the historical level we achieved next or last year? We closed the first nine months of the year above historical year last year.

So let's see, November and December, how close we will get to the results achieved in 2021. So overall speaking, when we consider North America, maybe the resilience and optimism, this is what drives us now and that's how we are getting ready to be on 2023. Back to you, Renata..

Next question Thiago Lofiego, Bradesco BBI. He would like to use the camera. So, please, accept the camera enablement..

Thank you, Renata, Japur and Werneck. I would just like to -- I would like you to elaborate a bit more on the Brazil BD and looking at the market dynamic going forward. On the demand side, you already said, Werneck, that there is some seasonality -- the natural seasonality of the business in the fourth quarter.

I would just like to understand whether this drop in potential volume in the fourth quarter, is it within that normality or that seasonality thing? Or you understand that it could be a bit different than the normal trend? And also second question is whether you could tell me something about how costs will evolve in Brazil.

We see that prices of scrap were down substantially in the past few months. On the other hand, the coal prices in the market are going up.

So what -- how do you factor in the pricing dynamics? And my other question, now looking at the company as a whole, not only Brazil, is there any maintenance CapEx that is unusual probably out of your radar that could be relevant, coming forward in the next two, three years? I'm saying that because we saw some of your competitors announcing unexpected CapEx, not only in the steel milling industry, but we have seen also in other industries, companies re-evaluating their maintenance CapEx.

Is this the possibility that you see at Gerdau as well, not only in Brazil but also in your other BDs outside Brazil?.

Okay, Thiago. Thank you very much for all your important points.

Seasonality is just normal as we all know for many, many years, with the inception of the specialty steel markets, because probably there will be more inventory throughout the chain because with all of these downtimes from our manufacturers throughout the past two years it was difficult to maintain a continuous flow throughout the chain.

And this has its impact. So I understand that industry will rather work with a more stable flow in terms of working capital. I mean, higher working capital requirements. So for specialty steels, we won't have so many downtimes as we usually have just to get prepared for the recovery in the market, especially in regards to heavy trucks and buses.

These are things that we have been talking about with our customers. So I think seasonality will not apply to this particular case. But it depends on how you look at it. If you look at demand as being something positive. The cost of the mini mills have been quite stable and somehow we were able to maintain profitability.

Of course, there are issues like increased energy prices and a decline in scrap prices. I mean, the cost of mini mills are very flat. There is nothing out of the radar. The only thing is cold. And this -- it's not something that we can control. So the expectation now is how prices of coal will perform going forward.

The coal -- there is some coal that we bought at lower prices that will have an impact in the next coming months. And this peak that occurred in the past few weeks, we are not sure how that price will behave going forward. So I think what will impact us at the Ouro Branco mill is the coal issue. In terms of CapEx, there are no surprises.

I mean, I understand your comments, because you are probably talking about maybe some larger greenfield plant. We do not have similar CapEx’s when compared to what you've been seeing in the market in general. What we have is the needs to invest more in Ouro Branco, but that won't happen in only one year. This will cover a period of 5, 6, 7 years.

We have to refurbish the blast furnace one. So there may be some CapEx spending, but this is pretty much in line with our cash position. So but now in terms of new large capacities or maybe some very serious maintenance issue, none of that is in our radar. .

Well great, thank you. I just have a very quick follow up related to call. So in the fourth quarter, maybe we should consider that what is part of your cost, I mean you will not have any large cost pressure especially, coming from coal and scrap prices are coming down.

So the net of your production cost, I mean when you look at COGS in the fourth quarter, whether you anticipate something better or still flat?.

I mean it's still very flat, because the coal that we acquired is still being used in this quarter, and there will be still some seasonality and downtime. So more specifically, referring to coal, we will see lower costs impacting this throughout. But this is more in terms of COGS. Japur wants to add something. .

I mean, when you look at the demand dynamics and downtime, I mean we have some expectations that not -- it may not be materialized and this relates to a higher or lower decline of fixed costs. So the fourth quarter, I mean this change in the level of operation may be something important if you think in terms of BRLs per ton.

Now referring to CapEx, I would just like to say the opposite of what I said when I was presenting it. In the third quarter BRL1.1 billion that we spent in CapEx, I mean BRL400 million was invested in competitiveness and growth and 70% of that amount was dedicated for maintenance.

Still very much concentrated in some of our operations in Brazil like Ouro Branco. It's not something that will happen that will change overnight, but as Gustavo was saying, it will take a few years. I mean, we will continue doing what we've started doing last year when we increased significantly our CapEx investments in 2022 when compared to 2021. .

Next question, Carlos de Alba, sell-side analyst with Morgan Stanley. .

Your comments in the press release were relatively optimistic on coming quarters in 2023, yet your shipments have declined quarter-over-quarter and global demand, including U.S. and Brazil with a slight slow-down, and probably, Brazil we also have a slow-down.

How can we reconcile this? What do you expect in terms of working capital in the coming months? Is it correct to assume that only the investment in would be will add net steel volumes to Gerdau with all other only improving product mix?.

Let's break this question down, Japur and myself. So we're very comfortable when it comes to demand, Carlos, not only in Brazil but also in the US. Wherever we look, all the signs we read, all the clients we talk to, all the investments made, all the deals already closed, we keep on being very optimistic demand wise for 2023.

As we speak, we cannot precisely predict however we try to get prepared. Think about costs we don't manage, well we don't know the impact on our production. Maybe a clear example is call and to some extent energy costs as well. So to some extent, this is how we look at this.

I don't consider demand specifically in our case for geographies where we are or our product mix in the U.S. and the way how we set our operations in Brazil, I don't think it should be a problem. Maybe the most important issue about volume shipment is how much we will export from Brazil as to speak. We are not dismantling any production capacity.

We're not de any mill. We believe today. There are possibilities, concrete possibilities, early next year to see some recovery or resumption and maybe we can have a more positive export margin favoring the average margin in Brazil. So in terms of production capacity and shipment, this is what we see.

Japur, anything to add?.

Just adding the second part of the question about working capital, considering maintenance shut down and our normal operations as usual, we expect over Q4, I'm not guarantee, but that's what we expect to see a cash release coming from working capital, a reduction in inventory and finish goods.

So we have maintenance shut down and we consider to start selling again. When it comes to investment CapEx, maybe we could consider the list on this slide, Carlos, about the proceeds and the expansion capacity that I mentioned.

I would -- well, not only would be that we understand to add capacity because some of our operations, for example Michigan and Morrow, we have investment to expand the casting operation. Today, we don't sell billets or blooms from this operation. So there is some lack of balance between the rolling capacity and the melt shop.

So when we increase the rolling capacity, we have an addition, an effective addition in the volume to the market. Because maybe today, we don't have a market in North America, which is relevant for billets or rounded billets coming from the Monroe operation.

So if you check the list of projects, I would say that the Ouro Bronco coiled hot roll strips is more related to a change in mix rather than added capacity because in Ouro Branco we will eventually bring more value to shareholders.

But top of mind, there are other projects, nearly all of them to a greater or lesser extent will bring an increase in shipment by the company.

Gustavo, anything to add?.

Overall, speaking in North America more specifically, we don't focus mainly on shipment growth in our plants. Maybe Midlothian is an exception. There will be a slight growth. But a focus on North America is competitiveness and catering to our customers' needs by expanding the product mix and becoming a one-stop shop in most of our mills.

Maybe the most important example of investments is Jackson, in Tennessee. We are expanding this important mill we have there in Tennessee to be very much focused on -- as being -- meeting all our customers' needs. So putting it simply, I would say that this is how we intend to make progress in our investments in North America. Back to you, Renata..

Thank you. Our next question from Guilherme Rosito, a sell-side analyst from Bank of America..

Well, he would like you to give him an outlook about volumes for the second quarter in 2023 -- for the second half and 2023 in Brazil and as well as regarding prices? And how is competition with imported volumes in Brazil?.

Okay. Imports in Brazil, it's quite flat. It has an 11% historical level. It was up a little bit in 2020 during the pandemic or 2021, and it reached 15%. This year, it should be around 13%. And next year, you should go back to historical levels of 11%. So steel imports in Brazil, that's not a problem.

Our outlook for volumes for this next quarter is slightly lower due to seasonality, all the holidays and the World Cup. But in January, we should resume to regular demand levels that we have experienced throughout the year.

So for us and still to reinstate the comment for 2023, this will be a year where demand is not the main issue that we should manage. Profitability levels in the Brazilian domestic market are very stable and flat, I would say. We don't see major, I mean, large possibilities of growing profitability because of price issues.

But we don't see any pressure right now for further reductions of our profitability level. So in general, this is what I can tell you..

Thank you. Next question Alejandra Andrade, sell-side analyst with JPMorgan..

You discussed the payment of 2022 debentures, what are the plans for U.S.

dollar bonds maturing in 2023?.

Alejandra, how are you? We talked about debentures in the previous question, but at first, we don't see a very -- we don't think it's a timely or a good moment for new bonds. We're interested in lowering our dollar denominated debt close to $1.5 billion. Today, we are around $1 billion so with maturity in 2023 in April next year.

So getting to the level of debt that we want to see denominated in dollars to fully pay with cash and settle this issue. Thank you for your question. .

Well, in case you have still any more questions, please send them through the Q&A icon of the platform.

As there are no further questions that were posted through the platform, in case you have any other questions or if you would like us to answer anything else, please send us your questions in writing or give us a call and then we will get back to you because it will be a pleasure for us to get back to you. So now I turn the floor back to Werneck. .

Thank you, Renata. I just have a few final remarks. Because we are constantly trying to increase the relationship we have with the market in general, so any point that probably was missed during this conference call, please let us know.

Because all of us, we will always be available to you because our intention is to be fully transparent and to give you all of the details about our operations. Thank you so much for joining us today. It's always a pleasure to talk to you.

And I would like to take this opportunity to invite you to join us again in our next earnings release call for the fourth quarter and end of year of 2022, which will take place March 1st, 2023. Thank you all very much. Please take care and have a great holiday season. Thank you very much..