Good morning. My name is Emma and I will be your conference operator today. At this time I would like to welcome everyone to the Ternium Third Quarter 2021 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] Sebastian Marti, you may begin your conference.

Good morning, and thank you for joining us today. My name is Sebastian Marti and I'm Ternium's Global Investor Relations and Compliance Senior Director. Turning to release yesterday's financial results for the third quarter of 2021. 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 environment and performance. 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. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that I'll turn the call over to Mr. Vedoya. Máximo Vedoya: Thank you, Sebastian and thank you all for joining us today. Ternium reported outstanding results in the third quarter with a record EBITDA sales margins and net income. With a strong performance expected also for the fourth quarter, we are headed to a record year in 2021. Let's now review the state of our steel markets. The global steel business environment remains healthy. The USMCA market continues to be relatively tight, although there are some signs this situation is moderating. Steel inventories in the US are increasing but continue to be at relatively low levels and lead tanks are also slowly normalizing. And a recent development the US and Europe announced, an agreement to relieve the European steel imports from Section 232 tariffs subject to certain conditions including a specified maximum…

Ladies and gentlemen, this is the operator. We are currently having technical difficulties. Your call will resume shortly. Until that time, your lines will be placed on music hold. Thank you for your patience. [Technical Difficulty]

Ladies and gentlemen, we apologies for the delay. The conference will now resume.

Okay. Sorry about that. We are back here. So, good morning to everybody. And let me discuss Ternium's performance for the third quarter and the expectations for the last quarter of this year. Ternium delivered a very strong set of results, actually the strongest in the company's history. We have a very high starting point here, but yet the results the company expects to achieve in the fourth quarter should be very solid again. You can see on the page three of the webcast presentations EBITDA is reaching $1.9 billion in the third quarter, representing 41% EBITDA margin and $612 EBITDA per ton and net income reaching $1.4 billion or $6.12 per ADS. For the fourth quarter, we expect a sequential increase in cost per ton, partially offset by an increase in revenue per ton. With shipments remaining relatively stable this should try to a slight decrease in EBITDA quarter-over-quarter. Let's analyze this in more details starting with steel shipments in the next page of the webcast presentation. On a sequential basis, Ternium shipments in Mexico and in the southern region decreased slightly in the third quarter. In the other market region, shipments increased 7% sequentially mainly due to higher finished steel shipments as slab sales to third-party remained relatively stable. In the next page, number five, you can see that combined in these developments we are try to consolidate steel shipments of 3.1 million tons in the third quarter. This volume is the same as in the second quarter and 8% higher year-over-year. Looking into the fourth quarter, we expect shipments to remain relative stable with slight finished steel increase in the other market region offset by lower sales of slabs to third-parties and lower shipments in Argentina and Mexico, in part affected by seasonality at the year-end of…

[Operator Instructions] Your first question comes from the line of Caio Greiner with BTG Pactual. Your line is now open.

Thank you. Good morning. So my first question on your outlook. So you mentioned you expect slightly lower EBITDA for the fourth quarter. And I just wanted you to elaborate a bit more on, what you're seeing in terms of realized prices and costs for the coming quarter. On prices, you already have a good visibility on the rare adjustment of your contracts. I do understand that. But what do you expect for the commercial side and other shipments based on spot prices for the fourth quarter? And on the cost side, you mentioned raw materials cost inflation driving up costs. And I would assume this is mostly coal prices on the rise flowing through the results. But on the other hand you also have iron ore prices materially dropping over the third quarter. So if you could please provide some more details on this equation that would be very helpful. And my second question, if I may, on Pesqueria. I mean, you guys mentioned the project has been ramping up at a slower pace. So I just wanted to see if you can maybe update what you expect in terms of shipments for the project, that equation of incremental shipments that you guys have been sharing with us over the last quarter. So, if you can maybe share what you expect for the fourth quarter and for 2022 in terms of incremental shipments from Pesqueria that would be very helpful. Thank you very much gentleman. Máximo Vedoya: Thank you, Caio, for your questions. Let me first try to answer your questions. Regarding the cost, the increase in cost is from the slabs, from the purchases of slabs, because as you said iron ore is decreasing and it compensate by the cost of carbon, which increased dramatically. So both those…

Just to clarify, Caio, we are referring to 2022 volume -- Máximo Vedoya: 2022, yes. From the year.

Okay. That's great. Understood. Thank you very much Máximo and Pablo.

Your next question comes from the line of Jonathan Brandt with HSBC. Your line is now open.

Hi. Good morning, gentlemen. My first question relates to I guess pricing and auto demand. So you mentioned that auto demand wasn't great. I'm hoping you could quantify that a bit what you've been seeing over the past few weeks and what your expectation is for 2022? And if this is at least in your view, why you think steel prices in the US have been coming down? And sort of how much further do you think they could come down given the loosening of the steel supply-demand environment that you're seeing? My second question just relates to, the natural gas that you have in the Mexican facilities. If you could just sort of help me understand, how much of the natural gas price increase that we've seen in the spot market, how much of that will increase your cost base? Are you on contracts, or are you supposed to spot? Any data you could give around that would be appreciated. And then just a quick third one if you'd allow me, just on the dividend payment. Could you just sort of elaborate as to why you decided to change the policy or why the Board decided to change this policy from annual to semiannual? Thank you. Máximo Vedoya: Thank you, Jonathan. Well a lot of questions. I'll start with the natural gas because it's very simple. All our -- we have contracts for the volume of all the natural gas but that contracts are always based on the Centrica. So yes, with a little bit of luck, but the increase in can recap not in LNG. In Centrica, we suffered that on our cost. That probably is also -- I forgot to mention in the cost part in the first question. Thank you, Jonathan. Second, automotive industry, but the automotive suffered more than what we thought. I mean the third quarter production in Mexico, I think the number was 220,000 ton per month in the third quarter. And that's -- and the affection was almost like 70,000 units every month because of this -- because of this chips. This was much bigger than the one in the second quarter. So that was a little surprise for most of the market, even for the automotive makers in Mexico. Things as we are seeing are starting to get a little bit better not still normalizing. And what we are hearing is that normalization will come in the first, second quarter of the year. But to be honest, last few months before this was three month they expected this much earlier. So yes we have an impact. The numbers these are I mean from 220,000 to 70,000 these are monthly numbers. And this could have an effect on the price also, because some of this volume is in storage. I think Jonathan another question of you was about the steel prices in general. I can -- I don't remember very well.

Correct. I'm just wondering, what your expectation is of US steel prices given sort of the auto industry issues with the chips? Máximo Vedoya: Well, I don't think that the automotive industry in the chips is affecting -- so it's one more factor in an enormous amount of factors that affect the US prices. And again the US prices are at a level at a very high level. I mean we repeat this in most of our conference calls. I think the drivers that are set that the price is going to decrease. I can tell I mean, clearly, US capacity is back to pre-pandemic steel capacity. It is back or even higher than pre-pandemic levels. Inventories in the country are increasing and lead times are still far away from normalized, but a much shorter than they were a couple of months ago. I mean, lead times of hot-rolled coils now are between five and seven weeks. Normal of that is four weeks or three weeks, but it's far away from the 12 weeks it was. Steel imports are high yet. And some new capacity, it's coming on board in the next couple of months. So those are drivers that said that the price is going to decrease in December -- in the next month. But on the other hand, the drivers that doesn't speak to that I mean demand is very, very good. I mean, if you see this year Mexico is going to increase consumption by 13%. That's a huge number. US by 15%. Other countries in the region even by more Brazil by 24%. This is the demand increase. We are seeing in 2022 also demand very kind in a lot of sectors and if the chip problem is resolved there is a lot of unsatisfied demand that I think -- those companies are going to produce more cars. Disruption in the global supply chains, I mean, it's still there. And I know a lot of consumers of steel are thinking of importing even less for next year. And freight costs are continue increasing, so this getting much more expensive to move steel. So, I think, as you said, another factor also two other factors, I think, Jonathan is, one, China production. I mean, in May, China produced almost 100 million tons, and September that was 73 million tons. That's a huge decrease in the production, which was always a factor that changed the dynamics of the market. And as we heard, this is going to continue to decrease, and so several factors that we see that we are going to have a healthy steel demand in 2022. So, prices as I said are slowly moving down, but they're going to move slowly down, not at high speed, because of all these things I'm telling, I don't know if I answer or correct the question Jonathan. I take a little bit of time.

No, that's perfect. Thank you very much. Máximo Vedoya: So, I ask Pablo to answer the question of the dividend.

Okay. Yes. Good. Hi, Jonathan. So I think that the move taken by the Board, this is a natural move after increasing the level of dividend paid with the results of 2020 at the beginning of 2021 and as was commented during different conference call since this new level is reflecting the strong position of Ternium and the free cash flow generation of the company. And so we consider it is natural in order -- or in way of sustaining this new level of dividend that this one is divided into an interim dividend in advance, which is a portion of the dividend that then will be decided or proposed during the quarter of February. So it's clearly as a way knowing or sustaining this new level of dividend that the company decided to be valued into two portion in advance as an interim dividend and then the full confirmation of the full dividend announced by February.

Okay. So we shouldn't look at this as just split equally in half. So it won't be up 1.6% for the whole year. It's just some portion of it?

Exactly. Yeah. You shouldn't take as a half. It's just a portion of the dividend that then will be discussed analyzed by the Board of Directors and then approved by the shareholders meeting in May, in April or May and this will be the one. So yes, you're right.

Perfect. Thank you very much gentlemen.

Your next question comes from the line of Thiago Lofiego from Bradesco BBI. Your line is now open.

Thank you. Good morning, everyone. Two questions. Back on the dividend question. Two questions within that. So why are you not more aggressive on the dividend side given your net cash position and the positive outlook for the business? Even if steel prices are potentially going down, you guys are doing an excellent job. Steel margins are still pretty healthy. So why not more aggressive on the dividend front? And within that same question what should we expect in terms of average payout? Historically, you've paid more like 30% level, would it be reasonable to think about a 50% payout or something within a 50% to 60%? I'm not sure. And then my other question is on the impact of the US, Europe on the S232. What is the impact that you're expecting from that if any? And what do you guys think the next steps will be in terms of the S232 per se? Thank you.

Thank you, Tiago. I'll start with the second one. We are not seeing a lot of impact from this arrangement. I mean, Europe was already importing or exporting materials to the US paying the 25% tariff. I think the numbers are very similar. So I don't think that much, much more volume from Europe is going to the US. I think what we are going to see is probably that Europe increases a little bit of prices, so that they don't have to pay now the 25%. Second on the dividend. Well, we thought we were a little bit aggressive because our policy was always to pay once a year. And now within this interim, we are kind of -- I don't know making forward at least a portion of that interest that dividend that we paid in May. But for the second part of the answer, I ask Pablo to answer it.

Okay. Yeah. Let me add to that Maximo. Clearly, the company showed an increase in the dividend payment during this year with the results of 2020. And clearly, we understand that what we are showing today is that this is a new normal or a new level that is reflecting, if you want more aggressive dividend payment from the company to reflect the return that we are returning to the shareholders. And on the long run the numbers will be basically very similar Tiago. The dividend yield or the dividend payout in the long run will continue to reflect probably the number that you mentioned in a specific year probably is not exactly the same, but the company has been showing a sustained increase in dividend payment. We pick up last year with the dividend, we paid in May 2021. And what we are doing right now is sustaining this new level of this distribution of dividend to shareholders. So, we understand that of course you can always be more aggressive on dividend payment, but the company is showing that as the results of the company are where the dividend payments have increased and sustained. And in general, the payout ratio in the long run should be sustained.

Okay Pablo so if I may for modeling purposes looking into 2022 would it be fair to assume a payout ratio above the 30% which is the normal payout ratio for you guys? And then as we normalize the model, we should continue to assume 30%. Is that fair?

I think that you need to take in the long run this 3% probably this year is different because the numbers you basically -- you know the numbers that we will be or will we be proposing to pay a dividend in the next vote. And again, probably this year the results of 2021 will be extraordinary in comparison to the normalized level of the company. And probably there you have a difference. But in general this would be -- I mean if you look at the history of the company, you will be you will see that in average that was our dividend yield.

Okay. All right, thank you Pablo, thank you Máximo.

Thank you, Thiago.

Your next question comes from the line of Carlos De Alba with Morgan Stanley. Your line is open.

Thank you very much. I just want to follow. So just to clarify then the dividend policy is based on a percentage payout ratio or more than a dividend yield? That will be my first question. The second question is, if you could comment as to the levels of profitability that you are experiencing in Brazil, given the different moving pieces slab prices raw material costs and coking coal and natural gas and the currency? The third question if I may if you could comment on any potential plans to restructure the corporate structure has to change, improve, modify the corporate structure of the company in terms of who owns what and potentially making it more transparent or more easy to understand, less convoluted and therefore easy for the market to value the company? And then finally and I apologize for all these questions, but I'll just put them all out there at once. If in terms of the timing of the potential next big projects, I mean you are a company that is always investing sometimes improving technology the cost trying to reduce cost sometimes expanding capacity or adding value. Could you comment as to what are the potential next projects on the timing? And then any update on CapEx for this year and next year? Thank you.

Thank you very much, Carlos. If you allow me, I will start with the last one, which is very interesting. As you said, we are always looking for new or big projects. And as I said in the last conference call, we are – we don't have any particularly now to announce, but as you know the ramp-up of the new hot-rolling mill in Mexico, which took us two months more than what I expected, because of these problems in Mexico open ups very – a lot of opportunities for you. I mean, and you're going to ask me like, what? I am going to say like an additional in picking line a cold rolling mill a galvanized capacity, all are those things that we are analyzing in Mexico. There are also other things that are in the process, where we should support the growth we have in the Metal Building segment platform in the south of the US. And so we should increase our pre-painting capacity we have there. And also, I mentioned in the last conference call, and I think you asked me about, if it was going to be blast furnace or no. But we are going to be USMCA compliance in six years. So, we are going to require to expand our upstream capacity, and we are analyzing today how where. So these are all things that, we are analyzing right now, opportunities that, I think will strengthen our strategic position in the market. And it's going to be a good return on investments. So those are the things we are looking at right now Carlos. And for the dividend part of the other question, Pablo, can you answer them?

Yeah. Sure. No issues. And just to complement on that one Carlos, you asked on the amount of CapEx. We are keeping exactly the same numbers, because as Maximo is mentioning, we are still studying which are our moves. So we will be close to $600 million of CapEx for this year and without any new CapEx, as the ones that Maximo mentioned that we are analyzing continuously to be exactly the same. So go into your questions, let me clarify, first, that we as a company do not have a recent dividend policy. So it's not that, I can tell you that exactly, which will be the number. What we have is a very clear track record of dividend payment with very important increases and sustaining or moving around certain levels. And as I was answering with Tiago's questions, well, we have a payout ratio of around 30% on the long run. But again, probably, when you have some years, where you have a higher result, or a lower result it's not exactly, because again, we don't have a great dividend policy and this is defined by a proposal from the Board of Directors, and then approved by the shareholders meeting. But in general, you need to look at the change and what we are doing and with the changes that, we're doing to reflect the results from the company. The other question that you asked was in relationship to the corporate structure, which is something that we pay very significant attention, and if you look at again at the history of Ternium, we have done a lot of things and we have reduced the level of intermediate companies. Whenever we have an acquisition we try to simplify as much as we can the corporate structure. We are still…

Thank you. Just one final question on Ternium Brazil. I think in the past the normalized level the normal long-term level of profitability was mentioned about $50 EBITDA per ton. Is this still something that applies today or has it moved higher?

Fortunately for us, it's not -- because the number as you know is much higher these days having more than $60 per ton of EBITDA. In general the numbers of Brazil is much higher than this number. And you are right that this was a number at the very beginning that we were looking for because it was the typical margin of slab producer. I think that that improves and will sustain at a higher level than this one. But of course, I don't want to repeat what Máximo was saying because we understand that pricing environment will be adjusting a little bit, but we will continue to have -- and this is our expectation, at least, enter into next year better margins than expected.

Thank you very much. Máximo Vedoya: Thank you, Carlos.

Your next call comes from the line of Alex Hacking with Citi. Your line is now open.

Yes, good morning Máximo and Pablo. I appreciate the questions. So, my first question is around pricing. A couple of the US steel mills on their conference calls this quarter are targeting that they should realize higher steel prices next year than this year. And this is even considering the HRC forward curve which is in a steep backwardation. And the reason for that is obviously the lagged effects of higher contracts rolling over. So could you just remind us for Ternium, how exposed are you to lag contracts particularly annual contracts in Mexico? And I know you don't give any -- I know you don't give forward guidance on pricing. But I mean is this something that could be realistic for Ternium as well, but actually even as US prices roll over that you could be better next year because of the lagged effect of contracts? Thank you. Máximo Vedoya: Thank you, Alex. A very good question. I try to answer. But I mean you are right. What the US producers or our competitors are saying is in the industrial market. The contracts, they have a lot of contracts that are annually based contracts. To be honest, we don't have -- our main contracts are quarterly basis or every six months. And we don't have a lot of annual contracts in our industrial base customers. So, it's true that our contracts for the fourth quarter are going to -- the quarter contracts for the fourth quarter are going to be higher. And for next year probably, most of our first six months are going to have contracts that are higher than the ones of this year. But as we have a huge amount of contracts that are quarterly based, it is going to depend in general of what the price would be in the second quarter of next -- in the third quarter of next year. So again, it's -- it probably is true, but it's not as strong as in the US I think.

Okay, thanks. So we should be thinking… Máximo Vedoya: To be honest, I prefer to have contracts every three months.

Okay. So we should be thinking more of like three to six months lags. Máximo Vedoya: Exactly.

Okay. And then my second question which is a bit random actually is around prime scrap. So you just mentioned in your answer to one of Carlos' questions. But you -- at some point, you'll be looking to add upstream capacity. I'm sure you know that that's a spirit debate in the US steel market right now about prime scrap, which some people think is going to get quite tight. It would seem like Mexico is a good source of prime scrap, right? You have this big build-out of the manufacturing base, particularly automotive. I know that the new mill in Texas is looking to Mexico for prime scrap. Is this something that Ternium is looking at? Because it would seem like, you could maybe have a first-mover advantage in getting access to that. Thank you. Máximo Vedoya: Alex, you are completely right. This is one of the things that we are looking at also.

Okay. Thanks.

Your next question comes from the line of Lucas Yang with JPMorgan. Your line is now open.

Hi, good morning. Thank you for taking my questions. I have two quick ones. First one would be, would you consider hedging through prices given like more balanced outlook for next year? And the second question would be…. Máximo Vedoya: Sorry Lucas, I couldn't hear the first question.

Sure. Would you consider hedging steel prices for next year? And the second one would be that the future curve is pointing to prices around $1,000 per ton by mid-2022, right? How does this curve compares to your expectations? Thanks.

Okay. Maximo, let me take the -- let the first part of the question, on prices. Because of the structure of prices that we have, we think that we have kind of a natural hedge and we are not planning to further increase the hedging of our structure beyond what we have today. And you know that in -- I think this is an advantage of Ternium, the different raw materials that we have, for example, in Mexico we are fully hedged on that. In natural gas, we are exposed to the – you can recall, as Maximo explained, and this is yielding, of course, an increase but we are still at regular levels. And then this is reflected in the price of the finished product. And again, we are exposed to different raw material. But in general we consider that we are in a good position. We have got of course, hedging strategies in the past in relationship to this infra material but we don't think that we are now in this moment to go back to this level or this hedging of strategies again. Máximo Vedoya: And so Lucas, what was the second question? Lucas -- sorry.

Yeah, the future curve is pointing to prices around $1,000 per ton by mid next year, like how does the curve compares to your expectations? Máximo Vedoya: Well, I think those are very, very low. I mean without -- what I said about prices, Lucas I am not seeing prices going down to that level.

Okay. Very clear.

That concludes today's question-and-answer section. Maximo, you may -- I turn the call back to you. Máximo Vedoya: Okay. Thank you everyone for your interest in -- interest and participation today. Please keep in touch and contact us, if you have any comments, any additional questions. Have a nice day and we see you back in three months.