Ladies and gentlemen, thank you for standing by. And welcome to Ternium Fourth Quarter 2020 Results. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Sebastián Martí. Please go ahead. Sebastián Martí: Good morning and thank you for joining us today. My name is Sebastián Martí, and I am Ternium’s Investor Relations and Compliance Director. Ternium released yesterday its financial results for the fourth quarter and full year 2020. This call is complementary to that presentation. Joining me today are Ternium’s Chief Executive Officer, Máximo Vedoya; and the company’s Chief Financial Officer, Pablo Brizzio, who will discuss Ternium’s business performance and environment. At the conclusion of our prepared remarks, there will be a Q&A session. 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. Vedoya. Máximo Vedoya: Thank you, Sebastián, and good morning. Thank you very much to all of you for participating in this conference call and your interest in Ternium. I am glad to share with you today a very good set of result for the last quarter of the year, which have been actually been better than the ones we expected on our last conference call. Even though the pandemic continue to impose operating difficulties on all our facilities, in the fourth quarter of 2020, we took steel shipments to pre-pandemic levels, reaching 3.1 million tons, where we were also able to…

Thank you, Máximo, and thank you everybody for participating in our call. Let me review the results for the fourth quarter of 2020. Indeed, our performance in the fourth quarter has been remarkable above our expectations. Higher steel price in our main market, especially in North America, have combined with a boost in demand for the steel products to drive Ternium profitability and results to accelerate the level. We saw a raw material price is not yet fully reaching our cost of sale line. On top of these favorable developments, net income was positively impacted by 2 non-recurrent events that we’ll see later on. Let’s start our presentation on Page 3, with the company EBITDA and net results in the fourth quarter. EBITDA reached $645 million and EBITDA margin of 25% or $210 per ton. The significant improvement by any measure both sequentially and year-over-year. We will see these in more detail in the next slide. Net income in the period was $671 million or $3.06 per ADS, these are strong results in the outcome of strong operating performance, but also includes the positive effects of a $186 million non-cash gain related to the re-recognition of a contingency on certain tax benefits at Ternium Brasil equivalent to $0.95 per ADS. On the net positive effect of a 13% appreciation of the Mexican peso against the U.S. dollar in the fourth quarter. In the next slide, we will review the developments. Our positive expectations for the next period we see sequentially higher margins, driven by a higher EBITDA in the fourth quarter of 2020. Turning now to Page 4, let’s review the performance of our achievements in each region. The Mexico shipments in the fourth quarter fully recovered from the impact of the pandemic affected, shipments volume increased by 14% on…

[Operator Instructions] Your next question will come from Carlos De Alba from Morgan Stanley. Your line is open.

Yeah, thank you very much, gentlemen. Good afternoon. Very good results indeed, congratulations. Just 2 questions for me. Any significant cost or expense impact related to the energy crisis in Northern Mexico side of Texas last week? You did mention that, and it was in your press release the 80,000 tons loss, but anything that we should also model in terms of cost or expenses? And then, clearly the company has done a remarkable job in terms of generating cash flows. Your net debt to EBITDA, now, as you just pointed out, Pablo, is really low. So, I wonder, what is the next step for Ternium in terms of capital allocation or investments. You are also completing in a few months or starting to produce in a few months hot rolled coil in Pesqueria. So what comes next? Is it more dividends potentially, another round of investments? Whatever you can comment, that’ll be great. And regarding CapEx, you can give us an update on your guidance for this year next, that’ll be great. Thank you. Máximo Vedoya: Thank you, Carlos. Any significant cost, well, yes, we have an impact of these 30,000 tons. And we have an increase in the price of natural gas during the 4 or 5 days that the contingency last. We are still discussing the final numbers. But it is a big number. I mean, for the 80,000 tons, probably in the EBITDA will be a hit of $40 million. But again, this is because we won’t be able to replace or to fulfill the shipments, because we are at full capacity. So we are not going to be able to recover these shipments in the quarter. CapEx next year, we expect it to be around $600 million, a little bit more of what we have…

Thank you, Máximo. Good luck. Máximo Vedoya: Thank you, Carlos.

And your next question will come from Caio Greiner from BTG Pactual. Your line is open.

Hi, thank you, good afternoon, everyone. 2 questions from our slide. So first one in North American fuel prices. So we’re still seeing lead times quite elevated in the U.S. especially. And we have been seeing virtually no volumes on the spot market. So I was just wondering if you can share with us your expectations on how long do you really think that prices can be sustained at current levels? And how do you see new capacity in North America impacting those prices in the medium term? And my next question is regarding Pesquería. So I was just wondering if you guys can share with us an update on the project. And I was trying to understand how much of incremental shipment you guys can actually materialize in the project, because this is a 4.4 million tons project. And I do understand that you guys have 2.5 million to 3 million tons, which is not capacity or imports replacing so this is in our calculations, obviously. But I’m just wondering if you guys can have – can provide any guidance regarding how much in terms of incremental shipments you believe you can actually deliver over the coming years. I don’t know if you guys can share a number for 2021, 2022. That would be great. Thank you. Máximo Vedoya: Thank you very much, Caio. First question, North American prices, and clearly, I mean, prices continued to increase. And we are seeing that every day. I remember in the last conference call, we talked about prices, we said that we see that they are continuing to improve. But we thought that in the second quarter, they were going to start, not decreasing, but not increasing. Clearly today, they are much higher than what we expected. And I think one of…

Yeah, yeah, you did. So just so – and I’d see if I understood it correctly. You didn’t believe that by 2023 you will be able to sell 3 million tons more than you’re selling in 2020, is that correct? Máximo Vedoya: Correct. Some of those shipments can be exports. I mean, if you say shipment from Ternium Mexico, not to the Mexican market exactly.

Yeah. Yeah. Okay. Máximo Vedoya: But the facility is going to produce a full capacity replacing inputs that we have.

Okay. That’s clear. Thank you. Máximo Vedoya: You’re welcome.

And your next question will come from Timna Tanners from BofA. Your line is open.

Hey there. Good morning, guys. How’s it going? Máximo Vedoya: Very good. Thank you. Good morning, Timna.

Good morning. I wanted to ask a few questions. One was on shipping to the South America region, I know you mentioned that things were returned to pre-COVID, but even before COVID, obviously, there was a recovery began. So just wondering if you could give us a little bit more color on the southern market if the fourth quarter is a good run rate into 2021 and beyond? Máximo Vedoya: Well, I mean, our sales in the southern region are mostly in Argentina. First, what is going to be a very good quarter that the recovery of the Argentinian market is very good, I mean, to be honest, unexpected. But Argentina has a lot of our challenge going forward, I mean, there’s a renegotiation of the debt with the IMF that has to come. And there are some challenges in the macro economy. So how it’s going to be in the first 2 quarters, I think these volumes will be achieved. As I said, going forward, it depends a lot in [between] [ph] negotiations, and the successful [pathway] [ph] negotiation, and the stability in the macro economy context. I mean, inflation has to come back – it has to come down in Argentina, and stabilize the debt problem. So that’s – I mean, I think that’s going to be what – I mean, you don’t show the results, this can continue forward. But first, we have to see what is happening in this area. I hope I’m clear, Timna.

Yeah. That’s clear as possible. I think we have to stay tuned. But that’s helpful. Thank you. I guess, I forgot people usually ask all their questions at once, if I could ask another 1 or 2? Máximo Vedoya: Probably. Yeah, go ahead.

Okay. Slower these days, I guess. With the fourth quarter – on the third quarter call, you had said that EBITDA margins could get to as much as $200 per ton. So it did and I know that we – you anticipate higher pricing, especially because of the lagged effect into the next couple of quarters. So can that margin be sustained and grow? I mean, are you continuing to grow faster than your cost? That’s my second question. My other question is, following up on the dividend comments from before to Carlos, is it possible that I know that you were compensating for not paying last year? But is it possible the board considered this dividend payment a new starting point going forward if your profitability continues in recent levels? Thanks. Máximo Vedoya: Thank you, Timna. 2 great questions. Pablo, why don’t you answer the first one?

Okay. So you’re right, we were expecting a decrease in EBITDA margins we like to look at our numbers. And that is reflected an increase in the EBITDA return to higher than $200 per ton. Clearly, we are expecting an increase in that number for the first quarter of the year and take into consideration, the big picture than the maximally big hit on prices in the North American market. This would be something in the following one. And then, we’ll need to analyze the area to see which is the impact of the new pricing scenario to reflect the number, again, what we have – we will continue to do I think that Pesquería facility will helps us to continue to result is to sustaining our margins at the highest level possible. And even in this scenario, with a significant level of prices that we assume we keep having and the EBITDA margin related to our competitors and this is what we are looking for and what we are continuing working on. And then year-end we see, but we have very significant difficulties, we have reached the EBITDA margin double failure last year. So we see some facilities to continue incurring very high EBITDA margins, and EBITDA perform during the upcoming quarter. And we’ll keep working very fast in order to sustain as much as we can into these levels. Máximo Vedoya: And the second about the dividends, Timna. I mean, dividends as you know in our company are decided by the shareholders meeting so I cannot comment exactly if this is a new standard or not. Having said that, I see our expectations of a strong performance at least in 2021, so if this continue – there’s no doubt that that these good performance would be reflected in the dividend payment of 2022. I think that would be say, I answer the question.

Yes, definitely. Thank you so much. Best of luck. Máximo Vedoya: Thank you, Timna.

And your next question will come from Andreas Bokkenheuser from UBS. Your line is open.

Thank you very much. Just 2 quick questions from me, a follow-up on the capital allocation. You always mentioned dividends and CapEx. Obviously, you’re very cash generative at the moment. And obviously, your expansion in Mexico has kind of come to an end, any thoughts about being a potential share buyback at this point in time? That is the first question. And secondly, you’ve also mentioned that you expect slab sales to kind of pump down in the first quarter as reallocate volumes in Mexico. Why is it happening so early with the Mexico expansion, not ramping up until that just restocking driven? That’s driving that reallocation of slabs? Those are the 2 questions? Thank you.

Okay, well, let me take the first one, you know that we always look at different alternatives to increase our share price, the issue with the share buyback is that the level of floating that we have, so we will consider everything together in analyzing this type of transactions. So it’s difficult for Ternium to move ahead with that. So what we’ll do in that directions and we probably we will be going for the market, but then we will be generating additional problems in the near future after taking a decision like that. So that’s why we have been reluctant to take a decision like that one in Ternium. And we continue to believe exactly, so why I do not see in the near future, a transaction like that. What we see continuing, as Máximo was claiming our dividend payment, our dividend increase as we have been joined in the last year. So there is where we are working on. Máximo? Máximo Vedoya: Yeah. The second one, Andreas, is a slab. And you’re right. I mean, slabs, we are still buying or using the same amount of slabs, because beginning to start. But 2 things, first of all, this integration is going to happen. So in some sense, we are trying to certify that our slabs in a lot of customers with our own portfolio. But to be ready to improve and to sell from the new hot-rolling mill, just from the beginning. So that’s one of the reasons. And the second reason is more a commercial reason. I mean, we are always looking of what is our best opportunity, as opposed to buy and sell or to transfer to Mexico. So we are always using this, I mean, this equation to see what is and to be honest in the first quarter, the equation given that it was better to ship more to Mexico than to sell from Brazil and shipped and buy from Mexico from other sources. So don’t you want to return, Andreas?

Okay. That’s very clear. I appreciate that. And maybe a quick follow-up. So you can’t – you already answered this question, partly. But, just to clarify for the expansion in Mexico, how many months or quarters you kind of expect it to take them for you to kind of reach the full run rate. And you always talk about 2023 in terms of sales of full nameplate capacity, but presumably it’s not going to take 18 months to ramp it up. So how should we kind of think about the sequential increase in production? The way you’re planning it, right, from the new plant? Máximo Vedoya: Yeah, you’re right. But remember, the new sales, I mean, the hot-rolling mill in Pesquería will probably be at full capacity as soon as possible. I’m not saying in 6 months, but I mean, in next year, we will probably be producing at full capacity. But the thing is that most of all, an important part of the new sales. Our industrial customers which we have to go through a very long period of certifications, which we are advancing some of the customers, but not at all, so you have both, I mean, our Churubusco facility and our Pesquería facility, producing 100%, we probably take the 2023. We will probably, I mean, improve – I mean, both our facility Pesquería at full capacity. And probably for some time that Churubusco facility will decrease a little bit production, it’s a facility older and with a higher cost. So we are going to focus over everything in Pesquería and then increase Churubusco in 2023.

Got it. Máximo Vedoya: It’s a way of being, I mean, it’s conservative. I know. But we want to do it that way. I mean, again, if the market, we are able to certified all our products, we clear, probably, will increase that we will improve that.

Yeah. That’s very clear and conservative is good. I appreciate you take the question. Thank you very much, and congrats on the solid results. Máximo Vedoya: Thank you, Andreas

[Operator Instructions] Your next question comes from Thiago Lofiego. Your line is open.

Thank you. Good morning, gentlemen. 2 questions on my side, the first one on the slab market. Could you comment on the dynamics there supply and demand? We are seeing pretty pressured prices, if you expect this to hold for longer? And the second question on the demand side in Mexico, what are the sectors that you’re seeing, the most positive demand momentum, if you could comment on that as well. And then, very final one, just to double check, you mentioned a $40 million impact, because of the specific issues on the fourth quarter. Is that just production loss or that there are other costs associated there? Máximo Vedoya: Yeah, thank you, Thiago. For the third one being production lost north of it. I mean, there’s not much else, there’s some part of that we purchase natural gas a little bit higher, but the main impact is production lost in a facility that it’s a full capacity. So if we lost production with shipments, we cannot recover today. So with that, I mean, that’s the only thing. The demand side in Mexico, I think, all of the industrial customers are at full capacity here. I mean, all the sectors, as I said, I think in my remarks, I mean, in electronics, I mean, home appliances, HVAC, everything is running at full capacity, all our customers. Even automobile, the auto industry we chat the problems of the semiconductors. I mean, they are also running at a very high level with the stoppage going back and forward, because of this constraint, but they are very, – I mean, at a very high level of production, so all industrial sectors are very high in Mexico. Construction is starting to improve, but it’s not the main driver of the demand in Mexico.

If I may, I’m sorry to interrupt. But on the very strong demand dynamic. How much of that do you attribute to the restocking cycle across different industries, because of the situation created that that pandemic? We’re seeing that in Brazil? That’s why I’m asking. So if you think that’s happening also in Mexico and other regions. Máximo Vedoya: I don’t think it’s happening in Mexico. I think that that all the final goods are really consumption in Mexico, North America. I mean, people are spending much more in improvements in their houses in new houses. I mean – and to be clear, we don’t see a stock in distributors or high stocking distributors or intermediates. We don’t see that service centers don’t have much stock in Mexico. I don’t think they have a lot of stuff in the U.S. So I’m not seeing an increase in that and seeing a real demand at least in the industrial part of our shipments. In construction, again, there are not much talk. But it’s not that high as the industrial sector. I’m not saying it’s not improving. It’s improving a lot since the pandemic, but it’s not as high the demand as it is in the industrial sector.

Understood. Máximo Vedoya: I hope with this it’s clear.

Yeah. Máximo Vedoya: And again, we are not seeing also that in Argentina to be honest. I mean, the increasing stock in a lot of things, in some part, yes, but in others not. Slab market, how hot it is? I mean, all the prices have increased. I think it’s not only this not slab market. I mean, with hot rolled coil, with a price of $1,300 in the U.S., I mean, clearly, slab market is also increased the prices not as much, I think, but it increased the prices. So I think that that it’s a thing of all the market, not of slabs, particularly.

Do you think there is a mismatch between supply and demand and the slab market, meaning some, integrated steel producers, basically, reduce capacity utilization? So they basically started to… Máximo Vedoya: Well, in North America…

…point, yeah, go ahead. Máximo Vedoya: Yeah, in the North America, there’s always a lack of supply of slabs. That’s for sure. Before the pandemic, and clearly now, I mean, there’s not even one producer of slabs, except probably Lázaro Cárdenas, which they are shipping everything to them. So, the lack of slabs in the whole North America – North America economy, it’s a thing that happens, I mean, prior to pandemic and it’s happening today. I mean, that’s reality. In the rest of the market, I think that Brazil and Russia, which are the 2 main suppliers of slabs, I mean, they are producing slabs normally.

Yeah, what I meant, Máximo, is just like the rolled steel demand might have recovered faster than capacity than slab production is recovering. And that created a mismatch. So, steelmakers that used to have their own slabs supplied internally, they are now buying in the market, while these stabilizes their slab production. Máximo Vedoya: I am not seeing that. To be honest. I am not seeing that yet.

Okay. Máximo Vedoya: I’m not saying that it’s not happening, but it shouldn’t be a huge impact on the slab market.

Okay, all right. Thank you, Máximo. Máximo Vedoya: You’re welcome.

And your next question comes from Jonathan Brandt from HSBC. Your line is open.

Hi, good morning, good afternoon. Thanks for taking my question. I just wanted to return back to capital allocation. So, Máximo, you mentioned you have a few different things under study at the moment. I’m just wondering, sort of how does M&A fit into that. Is that something you’re also looking at or are there any other possibilities there? Or is the expectation that it’ll be typically organic growth going forward? And then secondly, just as it relates to some of the internal projects, is it fair to say that this would be sort of more in incremental steel capacity? I’m just wondering sort of how you’re thinking about iron ore at the moment. Would it be possible for you to increase production of iron ore and sell more to third parties given the high price? Is that under consideration? Thank you. Máximo Vedoya: Thank you, Jon. Capital allocation, organic or M&A? I think, I mean, we always look to both to be honest. We analyze both and you see there was, for record, I mean, we have made M&A acquisitions. And part of our growth, our history was through M&A. So that is possible. If you said, well, you have something concrete, no, we don’t. And some of the projects we are analyzing are organic growth for sure. I will know – as you know, we finished a couple of years ago our investment in Peña Colorada. We have some opportunities in iron ore. But the iron ore is still big opportunities. I mean, we are going to increase production, but not in a substantial way yet. I mean, we have to look more for that.

Okay, very good. Thank you. Máximo Vedoya: Thank you, Jon.

At this time, I have no further questions. Thank you. I’ll turn the call back over to the presenters for closing remarks. Máximo Vedoya: Okay. Thank you very much to all of you for attending this conference, for your interest in Ternium. I hope this call has been useful. And if you have any additional question or comments, please contact. Thank you very much and stay safe please.

Thank you, everyone. This will conclude today’s conference call. You may now disconnect.