Good morning, my name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone, to the Ternium First Quarter 2017 Results Conference call. [Operator Instructions] Thank you, Sebastian Marti, you may begin your conference. Sebastián Martí: Thank you. Good morning, thank you for joining us today. My name is Sebastian Marti, and I'm Ternium's Investor Relations director. Ternium issued a press release yesterday detailing its results for the first quarter 2017. This call is complementary to that presentation. Joining me today is Mr. Pablo Brizzio, Ternium's Chief Financial Officer, who will discuss our performance. At the conclusion of our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. With that, I'll turn the call over to Mr. Brizzio.

Thank you, Sebastian. Good morning, and thank you very much for participating in this conference call. We will first give a quick look of our results for the quarter and then we will go to the Q&A section. First of all, let me say that we are very happy to say that Ternium continues to show an excellent performance quarter-after-quarter, focusing in regional markets and providing high value-added product and services following the strategy of differentiation and cost reduction. Our efforts have been showing that we consistently report higher margins than our peers in the region. Also, we are positive about the future of our main market. We remain confident in the future performance of the Mexican market, and we are seeing a gradual recovery of Argentine's economy. Regarding the agreement to acquire CSA, we continue on working in the necessary steps for the closing of the transaction and expect we should close as anticipated by the third quarter of the year. With that, let's begin on Page 3 of the webcast presentation. EBITDA in the first quarter 2017 was for $465 million, 33% higher than in the fourth quarter of 2016. The chart on the upper right side of the slide shows that EBITDA margin was 23% in the first quarter. This is equivalent to an EBITDA per ton of $188. The reason for the sequential increase in EBITDA per ton was a $46 increase in revenue per ton as operating costs per ton remained relatively stable. We expect to maintain in the second quarter of the year the strong EBITDA level of the first quarter with higher shipments and slightly lower EBITDA per ton. In the first quarter of the year, we have net income of $310 million, equivalent to earnings per ADS of $1.33, a $0.73 sequential…

[Operator Instructions] Your first question comes from Ivano Westin with Crédit Suisse.

The first point on this quarter -- for the quarter, on a consolidated basis, EBITDA per ton of $188 million. This is one of the highest worldwide. You also provided a very healthy outlook for volumes, where you're operating in the main regions in Mexico and Argentina, especially in quarter 2. So I wonder whether you can comment what expect in terms of a normalized EBITDA per ton moving forward. If you think this range that we've seen, EBITDA for $200 per ton is something which is feasible, to be delivered on a normalized basis? That would be the first point. On the second one, I wonder whether you can comment on Usiminas and how you expect its relationship with Nippon Steel to evolve. What is the end game and what is the final outcome of the discussions that you're having with Nippon? And also if you could comment on steel in Brazil, when you expect this approval of CSA acquisition should be concluded.

Thanks, Ivano, for the question. Let's start with the issue of EBITDA per ton. As we mentioned, a level of $188 per ton is already a very high number. We are expecting to sustain the level of EBITDA generated for the second quarter, though we are also saying that there are -- would be a small decrease in this value because we are expecting higher prices due to the reset of contracts, mainly in Mexico, but we are also expecting an increase in cost. And these should be compensated by the expected higher volume that we are seeing for the coming quarter. So we are not expecting to increase this ratio, we are trying to sustain it, but it should be around these levels. It's nothing that we can expect at the moment to arrive or overpass $200 per ton components as you mentioned. In any case, being in a range of over $150 per ton is already a very healthy number, reflecting all our efforts in the performance of the company, and the cost reduction mechanism and programs that we are always trying to implement. So this should be already a very good number to achieve. Second, in relationship to Usiminas, first of all, let me comment that the performance of the company has been very good, has been very healthy and the numbers for the first quarter is reflecting that the company is in the good -- in good path to take advantage and opportunity of the change of the situation of the -- the economic situation in Brazil, which is very important. Regarding the differences that we have with our partners, we'll continue working on trying to achieve a good solution to that, always taking into consideration and being the main driver of that will be Usiminas and to sustain and maintain the good performance of the company. Difficult to comment yet on the final outcome. We are talking, we are discussing, we are having meetings, so this is positive. At the very end, we, at some point, need to find a solution to the differences that we have. Regarding the question of CSA. We continue working on the processes that we need to work through especially the antitrust entities in different countries. The one that most probably will take longer is clearly the one in Brazil, CADE, and we are still expecting to achieve that by the third quarter of this year where we should be closing -- the date. The longest date if you want or the further date that we have here is September 30, and we are still having this date as the closing date. And we feel we can achieve a date prior to that, we will try to have it. But we'll always be dependent on the CADE resolution. But we are working well in trying to obtain this. As you know, it's not the only one. We have others that we are also working to get them.

Your next question comes from Karel Luketic with Bank of America Merrill Lynch.

I have 2 questions. The first one is if can provide an outlook of what you're seeing in terms of prices in Mexico and in Argentina, and specifically in Argentina, if you've seen any price pressure given the recent decline in international prices. That will be great. And the second point is on the demand environment, especially in Mexico. We were surprised to see a strong guidance for the second quarter and for the year actually in terms of shipments, and we were wondering if you've seen -- what's mainly driving that in spite of a weaker economic environment this year there and if you see anything that could put that at risk, that will be great.

Okay, thanks, Karel. Let's talk about the demand. As we anticipated in our press release, we are seeing healthy -- very healthy demand in the industrial sector in Mexico. You'll need to consider also that, traditionally, the fourth quarter of the year, especially the last month of the year, is seasonally the lowest period in Mexico. So the recover was expected because of that reason. But we are also seeing that the demand continues to be strong in this market. Clearly, the situation in the commercial-related sectors is not that good as in the industrial sector, and we are seeing good demand there. We also saw during this quarter, and we're expecting to see this during the coming quarter, a restocking in the value chain in the commercial sector. But at the very end, the commercial sector will be more related to the [ revolving ] of the general economy. And we are, as everybody, seeing that probably the growth of the Mexican economy is a little lower than expected last year, but we are still seeing positive growth in the Mexican economy as a whole. So putting together these things, we are seeing that the demand is -- continue to be good in the industrial sector, a little weak in the commercial sector. And at the very end, the total is having a positive impact in the demand in the Mexican market. Going to Argentina, after a year where the transitional economic period was taking place, we are starting to see positive results in the Argentine economy, and we see it being reflected in the growth of the demand of steel. Clearly, as I mentioned, in Mexico and Argentina, the seasonally lowest period is the first quarter because -- well holidays during January and February mainly. So that was…

Your next question comes from Jon Brandt with HSBC.

First, I wanted to ask you about the higher raw material prices that we saw come through the income statement in the first quarter, specifically on coal and slab prices. How much of -- I guess, the increase that we saw in coal prices and slabs at the end of third quarter last year, how much of that sort of impacted first quarter results and how much is going to impact second quarter results? And depending on what happens with spot prices, should we expect a significant reduction in -- at least coal prices in the third quarter? If you could sort of help me quantify that, it will be appreciated. And secondly, I wanted to ask you about Mexico and capacity utilization. If you could talk briefly about sort of where general utilization rates are in your Mexican operations and if there's a risk that if Mexican demand continues to grow in the next few years, do you run up against some capacity constraints there?

Okay, Jon, let me comment first on the cost issue that you mentioned. Clearly, Jon, it's a topic that we need to comment because it is something that makes the analysis of our number a little complicated because of the difference when we buy these raw materials in the moment they are reflected on our financials. We have been seeing, as we mentioned, an increase in slab price that we are starting to reflect in our numbers but not that significantly during the first quarter. That's why we are guiding for an increase in cost during the second quarter, mainly due to the impact of increases in the prices of slab. We are expecting these to be reflected not only in the second quarter but also in the third. And then from thereon to start to normalize. In relationship to coal, it's a very particular and different situation because what we have seen is a strong increase in price of coal due to natural events. We had floods last year in Australia. And now unfortunately, last month, we had a typhoon also in Australia that complicated the operation of the coal mines. So prices in last year increases to a level of $300 per ton. But after this situation was -- we're going back to normal, we saw prices moving back to a level of $150, $170 per ton. What we saw also with the typhoon was that prices went again to a level of $300 per ton. And after the situation normalized, which is already normalized, we started to see also a plan to decrease in prices to more normal levels. The price of coal, after reaching $300 just a couple of weeks ago, now we are seeing it going back to $250 per ton, and most probably, we should be -- this trend should continue to go back to more normal levels. In any case, we have seen some impact in our Argentine subsidiary of the increased cost of coal, and we are still expecting to see some of that in the second quarter. Then we'll be normalized because prices went down quite significantly, and we need to see, since we are expecting to buy new shipments of coal at these new prices, we need to see if these prices will normalize in the next couple of months when we will need to buy more coal for Argentina.

And just a follow-up to that, are you seeing the recent price increase in coal from the typhoons, has that impacted the slab market at all? Are you seeing increased pricing for slabs?

We are not seeing that impact that -- we are -- the impact on that probably could be on one spot basis. But as we saw, and I was commenting, the spike that we saw in price during the last events was reduced very, very quickly. So the expectation probably is that this is the same case, this time, so should not affect the real price of slabs. We have not seen any impact on the price of slab at the moment because of this effect because this spike in price should be very -- for a very short period of time. And Jon, going to your second question in capacity utilization in Mexico, we have a strong capacity utilization in Mexico, we have announced, because what you said is very clear -- we believe that market will continue to have a healthy demand especially in the value-added products. We have announced last quarter, that we revealed a new galvanizing line. And this will help us to keep up with the demand of our customers. And clearly, you know that we continue to have positive views on the future of Mexico. And if we consider it appropriate, we will analyze what will be the need, and we will have more new products or new volumes. And if this is a case, of course, we will need to analyze if we need to move further CapEx in this market. Clearly, with the capacity that we increased some years ago, with the capacity that was announced and with the possibilities of, if we can finalize the acquisition of CSA, we will have new ground for keep increasing our production. And I would also -- of different products in the Mexican market. So it's something that we need to clearly analyze, but we are working very positively and we're working with a strong capacity utilization at the moment.

Your next question comes from Thiago Ojea with Citibank.

I have a quick question on CapEx. Capital was below normalized level, at least for the -- compared to the past few quarters. What's your CapEx guidance for the year? And if you can briefly touch base on the expansions in Mexico on galvanizing facilities. And my second question would be around working capital. Also, we saw a big use of working capital this quarter. You had some description on your presentation, but if you can see also give us a guidance on what you think would be working capital on the coming quarters, it would be great.

Okay, Thiago, thanks. In CapEx, you are right. And we mentioned during the opening remarks that probably the level of CapEx during this first quarter was a little lower than normal, but we continue to have the same guidance for the year. We are expecting to reach a level of $500 million of CapEx during this year. And the increase that we are expecting in comparison to last year is in relationship to basically your second question which is the expansion of the galvanizing line. We are working on that, it was already approved, by -- it will take a little more than 2 years to build this facility. So during -- mostly during the second part of the year, you should to start to see some increase in CapEx in relationship to that new facility. So the works on that facility is up and running and, as usual, we are expecting to perform that on time and on budget as we did in our latest CapEx plan. So for us, it's a very positive move to continue increasing our galvanizing capacity, to continue to offer to our customers this type of product which is high demand in Mexico. I want to expand a little bit on this issue of the working capital which clearly increased significantly during the quarter due to 2 main reasons. First of all, we have, as you saw, an increase in volume during the quarter and the expectation was a further increase in the second quarter, so the level of inventories in most of our lines increased in relationship to that. And the second part of that -- excuse me -- but also this increase in volumes and this increase in sales is also increasing the level of the receivables because we are dealing basically…

Your next question comes from Leonardo Correa with BTG.

My only question, Pablo, just maybe returning to the capital allocation side of the story, with which CSA clearly thinks -- from a historical perspective you managed to close that slab gap that historically has been an issue and that you historically talked about. You also announced a small project in Mexico, a galvanizing line and prepainting line, so just wanted to get a sense and I know that you have a lot on the table at this point. But just to get a sense of what are the next pillars for Ternium in terms of capital allocation, right? I mean even if we incorporate CSA, the leverage would still be quite manageable and quite low, so this is a company that will have the option really to reassess growth and rethink projects. So just from a more strategic standpoint, what are the next steps that you could potentially consider? And I know that nothing has been formally approved but just as a view for the next maybe 5, 10 years?

Okay, Leonardo, thanks for the question. We need to digest what we have at the moment. We are in the process of closing the transaction of CSA, we have announced already CapEx plans in Mexico. Clearly, the acquisition of CSA and the performance that we're seeing in the Mexican and the Argentine market would put us in a position of having opportunities, so we will need to carefully analyze them and see which are the best opportunities that we have. You are right that our policy on our financial structure is, I would say, is quite conservative or good in the sense that even with the acquisition that we have already announced or we -- the CapEx that we have already approved, the total debt we continue be manageable. In any case, we need to go through this process. We need to analyze carefully our options and probably, the Investor Day that we will have in a couple of months, it will be the venue to discuss our long-term strategy if you want, and to discuss further which project could be the most desired one for Ternium in the coming year.

Your next question comes from Thiago Lofiego with Bradesco BBI.

Can you hear me?

Yes, very low but we can year you.

All right, Pablo. So, I have few questions. The first one, have you reevaluated the potential impacts of the political environment in the U.S.? And how that could impact Mexican steel demand? I mean I know this is a tough question and there's a lot of uncertainties but definitely it's been a few months since the new President has been elected. So just wondering whether you guys have reassessed what the path can be going forward? Second question, back to Leonardo's question, I'm not sure if that was very clear. Now you've taken your decisions in terms of the CSA deal, further growth projects in Mexico and -- but still you have an under-leveraged balance sheet. And you just mentioned that you're focused on digesting what you've been announcing in the last few months. Could we expect Ternium to start seeing higher dividends from here? I mean materially higher dividends so that your balance sheet would have a more optimal leverage structure or that's not the case?

Okay, Thiago. Regarding your first question which is the impact of the change in government on the U.S. and the impact that this will have in the economies in Latin America, especially in Mexico, what we can say is that, first of all, we will need to see, which policy is implemented because we don't have still yet concrete announcement and most probably, there will be negotiations between the different countries with respect to the NAFTA or the trade agreements. But we have not seen yet them clearly. What we can say -- what we have been seeing in the market and we have seen 2 different impacts. First of all, after the general election in the U.S, we have seen a very big devaluation of the Mexican peso, reaching almost the level of 22 pesos per dollar. And now we are seeing that the price of the peso is back at the levels that we had pre-election in the U.S, so below 19 pesos per dollar. And this clearly is reflecting that the sense in the market is that the doubts that the market has are now -- or the expectations of the possible changes will not affect that significantly, the macro of Mexico, that's why we are seeing this appreciation -- important appreciation of the Mexican peso, or at least, this is the evaluation that we are doing of these changes in the situations. The second one is that clearly you have seen or you will see a reduction in the expected growth of the Mexican economy last year, the expectation where over 2% -- if you look of the IMF, and the bank of different economies, that are predicting the growth Mexico, what you are seeing is small reaction of that number and now when you look…

Your next question comes from Marcos Assumpção with Itau. Marcos Assumpção: 2 questions. The first one, we're actually seeing a pickup in auto exports from Brazil to Argentina. The question is if you have a business concerning the company regarding domestic demand in Argentina in the future? Second question, we saw an increase in profitability in the mining division. Do you have room to increase volumes in this division if the profitability remains at high levels?

Okay, Marcos. Basically in Mexico, what we are producing in our mining divisions is in relationship to our consumption in Mexico. And we are working at a very strong capacity utilization, so it's -- we are not expecting to see an increase in our mining business in Mexico. We continue to reflect what we are seeing today, which is a production related to the demand of our Mexican operations so, no changes over there. In relationship to prices, you're right. We have seen some increase in imports in Brazil, that will affect the prices scenario. As I said before, we continue to monitor prices in the international markets and what's going on, on the price environment in Brazil. So we will be very careful on our -- as usual as is the case for us in our pricing environment, on our pricing policy in both markets. We are perfectly aligned -- our pricing and our prices to today are perfectly aligned with other markets. So we are not seeing any further pressure on that. But clearly something that we need to be very cautious.

Your next question comes from Carlos De Alba with Morgan Stanley.

Could you talk a little bit about how do you see free cash flow for the entire year because only in the first quarter, it was basically very small. And in the second quarter, as you commented, Pablo, that working capital may increase again, plus we see seasonal effects of trends and taxes and dividends will also keep the cash flow generation relatively low. And then CapEx is going to ramp up in the next few quarters. So can you comment just, what are you expecting -- what can you -- how do you see the free cash flow generation this year? And then the second is may be a minor issue but -- minor topic, but what was the reason of the $23 million loan to Techgen? And what is the -- what are the terms for the repayment, and everything that the company is charging to that related entity?

Okay, Carlos. As you said, first of all, in relationship to the free cash flow, when you say that free cash flow generation or the cash flow generation of the company is quite high, the uses that we will see in this first semester was important because, first of all, the one that we already saw during the first quarter, working capital, as I mentioned answering our questions, is that we are expecting to see a further increase on that, not as significant as we saw. But the second quarter, traditionally, reflects an increase in the uses of capital and cash because of dividend payment and tax payment. So we should be normalized and we should have positive free cash flow in the second part of the year because the CapEx that we are spending is, of course, would be little higher than what we are seeing today but still we are expecting a total CapEx of $500 million. So, all we -- less than free cash flow generation that -- with respect to the same situation last year because CapEx at the very end was $60 million or $70 million below the expectation of this year. But we should have after normalization of the working capital, positive free cash flow generation in the second part of the year. I'm sorry, and the second question, it was related to Techgen?

Yes.

Techgen was financed through syndicated loans but that was close to 80% of the total cost of building that facility. The second part of the financing of the facility was inter-company loans or contribution for the main shareholders. And this is -- this number is reflecting. We first utilized fully the syndicated loans and then the second part -- and the last part of that CapEx was financed by the main shareholders of Techgen. Techgen is already up and running and Techgen should continue without any new contribution for -- from the shareholders in the coming quarters. That's the ramp-up period. This should be over and we should continue all potential work on a stand-alone basis. But this clearly -- this amount that you mentioned is reflecting this contribution.

[Operator Instructions] Your next question comes from Alessandro Abate with Berenberg.

Sorry, just I did not start following the conference call from the beginning so apologies if my questions has been already asked. I have a few questions. As you basically mentioned before, Pablo, I mean the Mexican peso is -- the first indication of potential risk related to harsher trade relationship between U.S. and the Mexico. And secondly, [indiscernible] said in the conference call that we go ahead with the 400,000 tons, a galvanizing plant in Mexico. Steel Dynamics has related again that Mexico is such a strong and well-balanced market on a supply demand basis that is an opportunity on its own, even though, for example there might be the risk that trade relationship might actually deteriorate. I think, personally that this seems to be really overblown, this kind of risk, also because the currency. Probably is also implying -- this is the question that I'm asking you, that the outlook for 2017 in terms of demand might probably be a slightly better than the one you mentioned during Q4 conference call because you were expecting a kind of softening, and Daniel, you also stated that even though there could have been a risk of some softening domestic demand, the favorable supply demand would actually offset any kind of decline of demand because you're net importer of steel anyway. So if -- everything seems to be panning out extremely well, the currency's reflecting probably a much better situation at the political level. [indiscernible] Steel Dynamics are going ahead . Do you see the possibility that actually the demand in 2017 will be better than you actually initially thought? The second one is Argentina, this seems to be not coming up to visibility as Mexico, the U.S. are at the moment. You ship 24% of total volume there. Brazil domestic…

Okay, Alessandro. Let me try to summarize the answer on the questions that you have. I agree with the fact that the macro environment of Mexico is reflecting that the tensions probably are not that significant as expected at the very beginning. And the volume of the peso is a clear reflection of that. Even though, we continue to believe that the performance of Mexico in the relation to GDP growth, will be lower than expected last year. We feel that Mexico will continue to grow, will continue to have an important industrial sector and the investment that we mentioned that were confirmed is a reflection of that. But at the end, probably we were expecting a growth on GDP last year of over 2% or up to 2.5%, now the expectation of the market is to have a growth of closer to 1.5% or between 1.5% or 2%. So in the very end, there is a reaction of the expectation in the growth. And this is why we will review our expectation for the growth of or the demand of the Mexican market that should reflect these specifics. Clearly, as you say, also there is -- Mexico is still importing -- exporting -- importing steel, so it is a product, so if we can even in this tighter growth scenario that we're seeing from Mexico -- the market's seeing from Mexico, we can keep increasing our sales if we can gain the participation over the imports in the Mexican market. And as you know, this has been the strategy through investing in the different facilities to increase our product base and the type of product that we are [indiscernible]. And in relationship to Argentina, we keep being very optimistic on the possibilities of the [ Argentine ] market to…

And your next question comes from Jon Brandt with HSBC.

Thanks for the follow-up. I just wanted to come back to that Techgen issue. Could you remind us how much in aggregate Ternium has lent to Techgen? And I know you don't disclose the interest rate that you are charging but could you tell us what the repayment terms are in terms of, is this a 5-year payback, 10-year loan repayment?

Well, the total cost of building Techgen was in the lower $1 billion, of that around $800 million was with the syndicated loan, a 5-year syndicated loan. So the difference is what the shareholders needed to finance. We, as the 48% shareholder, financed 48% of that amount and this loan of course, is subordinated to the syndicated loan of 5 year. [ So it's smaller 5 year ] loans that we have to Techgen. At the very end, it's not significant amount of money. We're talking about the amount of around $100 million in total that we lent to Techgen. So, not a big issue in relationship.

There are no further questions at this time. I'll turn the call back over to Pablo Brizzio for closing remarks.

Okay, thank you very much for participating, again to show an interest in our company. And I hope to see you in our Ternium Investor Day in New York that will take place in June 29. So hope to see you there, and as usual anything that you would like to know us, please let us know. Thank you. Bye-bye.

This concludes today's conference call. You may now disconnect.