Ternium S.A. (TX) Q4 2021 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ternium Fourth Quarter 2021 Earnings 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] Thank you. Sebastian Marti, you may begin your conference.

Thank you. Good morning. Thank you all for joining us today. My name is Sebastian Marti and I’m Ternium’s Global Investor Relations and Compliance Senior Director. Ternium release yesterday’s financial results for the fourth quarter and full year 2021. This call is complementary to that presentation. Joining me today we -- are Ternium’s Chief Executive Officer, Mr. 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 two 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. Good morning and thank you all for joining us today. 2021 was an amazing year for Ternium. EBITDA reached $4.9 billion, close to four times the previous year’s level. Net income was $4.4 billion and earnings per ADS were $19.5, almost five times earnings in 2020. All of these are record levels. Last year Ternium also finishes latest expansion program with the start up of its new state-of-the-art hot-rolling mill at Pesqueria facility in Mexico and of the Ribera rolling million greenfield projects in Colombia. On top of these very positive results, the company had significant cash generation with free cash flow at $2.1 billion, which took our balance sheet to a net cash position. Taking into consideration the company’s strong performance and a solid financial position, Ternium’s Board of Directors proposed a dividend for the year of $2.60 per ADS, equivalent to $510 million. This represents an increase of 24% compared to 2020 and it is the highest annual dividend on record, being more than double the annual dividend level the company was paid pre-COVID pandemic. Another development is a company’s recent offer to acquire from Ternium Argentine, a minority participation in Ternium Mexico that Ternium does not own directly. This transaction is primarily aimed at streamlining our corporate structure. A simplified corporate structure allow for both a more straightforward management of our operations and an easier analysis of our performance and results by our stakeholders. The offer is still being analyzed by Ternium Argentina’s Board of Directors and if deal is attractive, it would need to be put to the vote of its shareholders. I’ll turn now to the status of our main markets beginning with Mexico. Ternium’s shipments in Mexico decreased in the fourth quarter more than what we expected in our last conference call. Even though the fourth quarter of the year officially weak, there were additional factors that intensified the sequential fall in volumes. During the first nine months of 2021, steel consumption grew significantly in Mexico in an environment of increasing steel prices. With the local steel industry working at full capacity, there was a large increase in input orders to cover for the extra need of the markets. In the fourth quarter, where steel prices begin -- began to fall, imports arriving with a longer lead time as a result of supply chain disruption caused an increase in inventories and a decrease in apparent demand by the end of the year. In addition, an unexpected persistence of the semiconductor shortage for vehicle goods, manufacturers continue impacting tonnage shipments, as the auto industry represents about a quarter of our sales volume. This was not the only affected sector, as other industrial customers have been dealing with a similar environment. Our current view is that steel imports into the region will decrease in part due to the significant steel correction over the last few months. In addition, as well as the normalization of the ability of semiconductor should support a recovering in apparent steel demand and a constantly increase in Ternium volume, something that we are already seeing in the first quarter of the year. The company is ready for such scenarios as it hot -- as its new hot-rolling mill in Pesqueria continues to ramp up with a 30 million tonnes of production milestone already behind us and with a whole new range of products at its disposal to gradually substitute inputs in the Mexican market. Let’s review now the situation of the Argentinean market. Shipments in Argentina has been steady during 2021, with a very healthy state level, especially in agribusiness, the automotive industry and constructions, and we expect this to continue for the rest of the first quarter. Having said this, there is a high degree of uncertainty regarding Argentina’s macroeconomic environment in 20...

Ladies and gentlemen, this is the, Operator. We -- there is a slight technical delay, please remain on the line.

Yeah. We can. Hello. Can you hear us now Máximo?

Sebastian, you are alive. We have lost Máximo.

Thank you.

Hello. Can you hear us? Okay. Sorry, I think, we have an issue with the communications. I know that Máximo will return. I know that Máximo has been cutoff now. So let me start with my remarks and then when we have Máximo back in line, we will continue to hear his opening remarks. So, good morning, everybody. Let me start by going to the presentations and… Máximo Vedoya: Hello?

… give you the performance of Ternium for the full year 2021. Sorry, Máximo, you are -- I think you are live. Máximo Vedoya: Yeah, I’m sorry about that, guys. Something happened here in Mexico. So, I was speaking I think about Argentina, I mean, the -- regarding Argentina’s macroeconomic environment in 2022, although the country has recently agree with IMSA, I think, IMSA on the proper roadmap to refinancing its debt. Argentina has very low levels of international reserve, a significant fiscal deficit and slight inflation. If these imbalances are not addressed appropriately, instability in the main macroeconomic variables in the country could have a negative effect in Ternium sales in the market in the year ahead. I would like now to make a quick comment regarding Ternium’s sustainability initiatives. In the last quarter’s conference, I mentioned the company’s carbon capture and usage capacity expansion projects in Guerrero and Puebla facilities in Mexico. Since then we have the second phase of the project at the Guerrero facility, with the aim of increasing by 42% our current capacity. This will result in a total CO2 capture and usage capacity of over 400,000 tonnes per year in Mexico, equivalent to the yearly initial about the of almost 90,000 tonnes. Let me remind you that the technology we have installed at our DRI facilities is by no means common worldwide. These DRI models are among the greenest in the world. We have also launched a project at our slab facility in Rio de Janeiro to increase its slab processing capacity, with the aim at reducing the CO2 emissions rate of steelmaking in these locations. In addition, Ternium reported its built-in organization strategy to CDP for the first time in 2020 and receive a big score on the topic of climate change in line with the steel sector average. Ternium’s effort to improve its safety performance were recognized by worldsteel with the safety and excellence recognitions, and diversity, equality and inclusion continue to be strategic topic in Ternium’s ESG agenda. In December, The Human Rights Campaign Foundation Certified Ternium for the second consequence year as one of the Best Places to Work in Mexico for the LGBT community. Wrapping up, after an outstanding year in 2021, the company expects to deliver solid performance in 2022 in a business environment with gradually normalizing steel prices and margin. Ternium plans to leverage on its new hot-rolling mill in Pesqueria and have the apparent steel demand in its main market in the USMCA. These together with positive expectation for [Technical Difficulty] in the year to come should put the company in a position to sustain attractive return to its shareholders and to analyze opportunity for further profitability growth initiatives. Okay, I finished my remarks here. And Pablo, please go ahead with a review of the quarter and the full year performance.

Thank you, Máximo, and good morning to everybody, and sorry for the inconvenience we have it in the last. So, let me go back to the comment on the presentation that we have today and review Ternium performance for the full year 2021 and then I will be analyzing the performance of the quarter. So, if you go to page three in the webcast presentation, in this slide, you can assess the magnitude by which Ternium performance in 2021 outpace those of industry peers. Regarding consolidated steel shipments, volumes were higher year-over-year in 2021, although they remained below the levels achieved in 2018 and 2019. The reason behind these was significant volumes slabs shipped to third-party that follows acquisition of Ternium Brasil in September 2017, as you can see in the chart. Ternium progress, with the integration of the slab facility in Brasil, these volumes eventually increased. The increase in finished steel shipments in 2021 reflected the ramp up of Ternium new facilities in Colombia and Mexico, and the recovery in steel demand. Looking forward, we believe that slab shipped to third-parties will stay current or slightly lower levels, while finished steel shipments will continue growing as we increase our presence in our main markets, particularly in the USMCA region. EBITDA margin in 2021 reflected increase in a steel prices all of the year. The spot [ph] steel prices reached record levels in September 2021 and then started to decline. Yet, steel prices remain at very good level, with enough space for healthy margins despite increase in cost. Good profitability levels and continuous trends in a steel demand support our expectation for an overall solid performance for Ternium during this year 2022. In the bottom right chart, you can review the increase in dividend in the last few years. And for the year -- the current year, we are discussing 2021 the company has already paid an interim dividend of $0.80 per ADS in November last year. This means that is the proposed annual dividend of $2.06 that Mexico -- Máximo commented, if this is approved at the Annual Shareholders Meeting, and the dividend of $1.08 in the dollar this year will be paid on May 11, 2022, with record date on May 6, 2022. We expect to pay an interim dividend again in November of this year. Let’s review on page four the cash flow generation of 2021. Cash flow from operations was the strongest ever even after factoring in working capital increase of the same month. A large area of increase in working capital was related to higher steel prices and it has an effect on the value of trade receivables and also the increase in raw material costs with an effect on the value of inventory. The net cash also reflecting an increase in the volume of steel products related in part in the ramp up of Ternium’s new facility and also due to recovery of steel demand. Coming now to the free cash flow, the figures for 2021 was also the strongest on record. Capital expenditure in the year remain within Ternium usual rates. The company concluded its expansion plans during the first half of last year and for this year 2022 we expect Ternium capital expenditures to increase a little bit compared to last year, in the phase of approximately $600 million without considering any further expenses. Let’s turn now to Ternium performance in the fourth quarter in the following pace. EBITDA in the last quarter of the year was down sequentially, but remarkably strong by historical standards. The results lead to net income per ADS of $5.08, also a solid perform. Looking forward, Ternium expects EBITDA to remain at healthy level by historical standards in the first quarter of 2022. The sequential decrease reflect lower margin, partially offset by higher consolidated steel shipment. Moving now to steel shipments, let’s analyze the performance in each of our markets on page six. In Mexico, you continue to see how the situation was already described affected volumes in the last quarter. Again, we believe that by nature, this is a short-term situation. In the southern region steel demand will slightly decrease and [inaudible] sales decrease. And in the other market region, shipments increased sequentially, mainly due to higher steel shipments in all of Ternium market partially offset by lower shipments of slabs to third parties. Looking forward, we think steel shipment increase in the USMCA region in the first quarter of this year. The slab volumes on the other hand should decrease a little bit more in the coming year. In next page, page seven, you can see that combined in development, we are able to consolidated steel shipments of 2.8 million tonnes in the fourth quarter, down 8% compared to the third quarter and the prior year same period, and so right now, steel prices and FX. The fourth quarter there was slight equation increase in revenue per tonne with increases in all of markets, because of everything -- the reason that I have just described. In Mexico, contract prices sequential increase in the fourth quarter, moreover slightly a decrease in average steel prices that began back in September. While there is market pressure there was a positive impact of the higher participation of finished steel shipments over slabs, the environmental lower spot steel prices in these markets. Looking forward, we expect sequentially lower realized steel prices in the first quarter of the year, with revenue per tonne reflecting recent decreases in the spot prices, the partial offsets of longer dated contracts that we expect as usual we rely. Moving on to the next page, let me give you now the main drivers behind the sequential changes in EBITDA and net income. The EBITDA chart on top of -- on top shows the impact on EBITDA of lower shipment and higher cost per tonne. Costs were higher as a result of an increase raw material and finished steel prices that, as usual, are reflected in our costs structure with a lot [inaudible] accounting methods. These negative effects were partially offset by an increase in revenue per tonne as already discussed. The chart below showed the sequential decrease in net income in the fourth quarter was mainly driven by changes in operating income and impact from income tax. Now, to finish the presentation, let’s turn to page nine to review Ternium cash flow and balance sheet performance on a quarterly basis. Cash Flow operations in the fourth quarter were strong $1.1 billion, as working capital increase much less than in previous quarter. There was an increase in inventory, volume of steel products in the quarter and it was partially offset by a decrease in trade receivables. The strong cash from operations and significant increase in free cash flow in the fourth quarter, the CapEx remained relatively stable. As a result, the net cash position of $1.2 billion by the end of the year in this year. Our current expectation is that Ternium will continue strong healthy cash generation during 2022. All right. Thank you very much for your attention. We are now ready to take any questions you may have. Please, Operator, proceed with a Q&A session.

Thank you. [Operator Instructions] The first question is from Caio Greiner of BTG Pactual. Please go ahead. Your line is open.

Yes. Hi. Thank you. Good afternoon, everyone. So I have two questions. The first one, I wanted to explore your outlook for the first quarter. So in the release, you mentioned an expectation of the lower sequential EBITDA and I wanted to get a little more color on two topics regarding that, which is cost and realized prices. And so on costs, I was wondering if you can maybe share your expectations for the first quarter, if you still see rising cost pressure in your results and where’s the pressure mostly coming from? And on prices, I mean, we do have a good visibility on your revenue per tonne one quarter ahead. So if you could just maybe share your impressions reflect through prices in North America. If you’re already seeing signs of a bottom anytime soon, it would be very helpful. And my second question on capital allocation, I mean, the company generated very strong free cash flow in the quarter, you guys are already at a $1 billion net cash position. And I think the main question here is, what can the company do to move back to a more efficient capital structure? We have seen your dividend proposal, I mean, and I was wondering if this is not the time to maybe be more aggressive, become more aggressive on cash returns, considering the company, let’s say that, such a solid financial position? Are there any plans to maybe have a formal written down dividend policy, maybe even based on free cash flow generation? And if this is not the case, it would be great to hear management’s capital allocation plans for 2022? Thank you very much. Máximo Vedoya: Thank you very much, Caio, and good morning. The first question, regarding cost, which -- I mean, the cost in -- in the fourth quarter the cost increased by roughly $100 per tonne. Mainly the cost issues of that increase were slab purchases, iron ore, coke or carbon coke or metallurgic coke? And as you know, the events are recorded in a fee for rates. So it’s a little bit of luck. What we are saying for the first quarter is that, we are not going to have an increase or a substantial increase in costs. It’s a very small increase. Regarding prices and it was announced. I think I -- we talked about this in the several conference call -- in the last two conference calls. We were seeing that the prices especially in the USMCA region were going to decrease. I mean the gap between the USMCA prices and the rest of the world was very, very high. And we even talked I think in one of the conference that we were going to see a new normal total price of around 1000 tonnes. We are still seeing the same thing. I think the decrease was a little bit more steep than what we thought, to be honest. But we are seeing the same thing. And another issue, so it’s kind of coming to the bottom, I think, in this quarter or early next quarter. I am not -- we are not seeing a decrease much longer than that. For the other -- on the other current prices in Europe and in Asia are starting to increase a little bit. And raw material costs are high. So I don’t think there’s room for decreases more than that. The second question, Pablo?

Yeah. Second question on… Máximo Vedoya: I think it was on…

… Máximo more related to capital allocation? Let me start with more comments and then I pass over to you to do further comments. Máximo Vedoya: Okay.

Caio, hi. How are you? So, we have been, I think, that the company has been drawing attention to reinforce the distribution of dividends and allocating to shareholders part of the return on cash generating during this year and try to come up with something that is sustainable over time. So, as we have described in our opening remarks from Máximo and myself, we have been proposed, the Board of Directors proposed a dividend that really is a increase slight in dividend yield of 6% or more. And of course, because of the target 11% payout ratio is below the traditional one that we pay, but we have also introduced a biannual dividend payment. So an interim dividend around November and therefore the dividend announced by now and pay in May. So, all in all, we have reconfirm the increase of the level of dividend pay and as was mentioned during the opening remarks, is more than double the level of dividend that we have prior to the pandemic levels. And as we always mentioned, we have a current record of increasing and sustaining our dividends and this should be the case for Ternium in the coming year. So this is in relationship to dividend payment. And I guess that is important for Máximo to mention certain things in relationship to capital allocation for the coming years. And just one more thing before turning the word to Máximo is that this year also we have important payments that we will need to make, basically tax payments that will reflect move shelter [ph] we have last year. So it will be a same legal price that we will have for this year. But I think that the most important part is how we are envisioning a capital allocation projects for the coming year. So much of I think that’s this taxable will like to come. Máximo Vedoya: Yeah. I’m taking your question, Caio of capital allocation. Let me comment some things. As you know, and you asked, you guys in the last some -- about some projects or what we were thinking, and we are continuing analyzing project of growth. We think we have a very solid operation in Brasil, in Mexico and Argentina, and there’s a lot of opportunity to grow. And so, as you may have seen in the Mexican press yesterday, we are in the final stage of launching a new expansion initiative to complement all these capabilities we have in the Pesqueria facilities. These particularly new expansion would include pretty nice our second hot-rolling mill, a third galvanizing mill and several finishing lines. The CapEx that was put in the press is around $1 billion, which is what we expected this particular CapEx to take. And this will bring the ability to increase our value-added products that today we have with the new Pesqueria mill. So today we have a 4.5 million state-of-the-art Pesqueria mil, part of that material is going to go to our roll, part of our material is going to go to the market because we didn’t have that capability. But also these new facilities will allow us to increase level of value-added significantly in the future. So that’s another thing that I wanted to comment, because there are several projects on the pipeline. This is one of them. I hope with this color we answered the question. it was a little bit long. Sorry about that.

No. No problem at all. I’ll leave the other questions to the other analysts. Thank you so much, gentlemen.

Your next question comes from Rudolph De Angele [ph] of JPMorgan. Please go ahead. Your line is open.

Okay. Hi, everyone. My first question is on the volumes in Mexico. My understanding is, while there was the impact of imports arriving in the fourth quarter, and Máximo, you mentioned, the inventory levels going higher in Mexico. So I just wanted to ask you, how do you see this situation of imports and inventories into the first half of the year or maybe better, how -- when do you expect to see it normalizing. A second question I have is just, this is short one, on the increase in CapEx? Is that related to the fact that now you with Pesqueria you have a bigger kind of sustaining CapEx or is there anything in addition to that? And my final question is on -- still on capital allocation, if you look at the past, the story of Ternium was marked by many important transformations, right? And the company grew to have a footprint now in the key markets in the America, so very present in Mexico, in Brasil, which was a gap in the beginning and in other regions of Latin America, including Argentina. And when you sit down with your Board today, is that aside from opportunities, like adding value to the Pesqueria plant, is this kind of the final drawing, the final picture that you foresee for the company or aside from opportunities, like increasing value-add existing lines, is there anything else, is there new geography, is there something else that is an ambition from the -- for the company as we look forward? Thanks. Máximo Vedoya: Thank you, Rodolfo. Let me start with the volumes in Mexico and try to explain it a little bit what happens and where we see 2022. As I said in my initial remarks, our consumption in Mexico recovered very strongly. I mean, if you take 2022, 2021, apparent consumption of steel increased more than 20%. And if you take apparent consumption in the U.S., which is also kind of an integrated market increased 22%. So there is a huge increase in consumption and these increasing consumption both in the U.S. and in Mexico happened mainly in the first nine months of the year. So our customers and our customers of our competitors, they -- we couldn’t as an industry fulfill all the needs of our, I mean, our ramp up of Pesqueria started in July and so we couldn’t get that capacity in time. So most customers in both sides of -- in both sides of the border, in the U.S. and Mexico start importing more probably than what they needed and there was a huge lack in imports. I mean, imports usually take four months to five months, and in some cases, because of this disruption of supply chains, because of vessels and ports congestion, these go to six months, seven months or eight months. So, some of the inputs that were supposed to come in the second quarter or third quarter arrived in the fourth quarter and so that -- for our customers a way of putting inventories normal was not receiving shipments from the local suppliers and I think this happened to all the companies in the region. Additionally what all that the fourth quarter also the automotive industry has problems with semiconductors and that will -- in any plan, not even in the auto companies. We are seeing that this is stabilizing. I mean inputs are coming down. In January they were down, probably, they are going to be down in February and March, and December also they were down. And we are seeing an increase in our book orders for the first quarter and also for the second quarter. So I think all these is normalizing and we are going to see at least from the first quarter -- the fourth quarter and increase in the first quarter and the second quarters. I think we got - another issue is that both in the U.S. and Mexico are going to grow in consumption in 2022. Although note that at the rate of last year, but at least 4% or 5% with increase in consumption. So, volumes are normally starting to increase. So, we are very confident that we are going to be able to attack these imports much better now that we have the capacity. The second question was about CapEx, Pablo.

Yes. Yeah. The second question was in relationship to the level of normalized CapEx. So what we will see here. In fact, if you look at the CapEx in the last couple of years, without taking into consideration, the expansion plan that will finish beginning of last year, we are basically only -- what we normalized CapEx of around $600 million per year. This is of course, not only maintaining CapEx, as you’re right, with the new facility, we have an extradition and maintaining CapEx, but this also including some more projects that we all usually have and some announcement that we made in the past in the in the process of decarbonization or some safety initiatives that we have. So in a regular basis the $600 million is normalized CapEx, and again, this is not including as Máximo mentioned on the final stage of the new CapEx plan that we have, so this is we would say the normalized CapEx. So, Máximo, the third question was, again to capital allocations, so I pass over to you again. Máximo Vedoya: Yes. Thank you, Pablo. And Rodolfo capital allocation, as I said, besides these new planning fiscal year, which is pointed out to make more value-added products, which I think there’s a huge opportunity. The -- I mean, we are seeing more opportunities. Clearly, you talk about your regions, Ternium -- are you listening, yes, no?

I can hear you. Máximo Vedoya: Hello?

Yes. I can hear you. Máximo Vedoya: Perfect. Sorry, sorry. So we think Ternium is a company that’s going to be dedicated probably to Americas. I remember some conference call ago that if we are going to be seeing things in Europe or other regions, no we are seeing a lot of opportunities. And I think we have a lot of opportunities in North America. Mexico clearly with 9 million tonnes of imports is a huge place where we have to grow. As I said before, in 2027 we have to be compliance in the USMCA rule for the automotive industry. So we are going to be compliance to that. We announced a couple of months ago our new investments in the U.S. for almost doubling the capacity in our Shreveport facility in Louisiana. So, I mean, our growth, but it’s regarding the Americas. And as I said, we see several opportunities. I hope with that I answered the…

Yeah. That… Máximo Vedoya: …the question Rodolfo.

Yeah. No. You did. Thank you very much.

Your next question is from Caio Ribeiro of Bank of America. Please go ahead. Your line is open.

Yes. Good morning, everyone. Thank you for taking my questions. So my first question, moving back to the cash returns and I know that this has been a recurring theme for the company in over the past quarters, but with Ternium net cash at $1.2 billion. That seems like a very conservative level for the company, right? And even with steel prices continuing to drop ahead, we still see the company generating significant free cash flow now this year? So this net cash position now should increase further. And I know you aren’t looking to implement a formal dividend payout policy, but why not set a net debt target for the company, right, in that way, whatever net debt levels are delivered below that target can be interpreted as excess cash by the market. And this could potentially provide more visibility on what to expect in terms of cash returns ahead, without committing to a dividend payout policy? So I just wanted to get your thoughts on that and whether you have, a level of net debt in mind today that you consider a sustainable long-term target for the company? And then secondly, still on cash returns, I just wanted to hear from you, whether it could make sense to announce a buyback program, especially given that your shares are trading well below historical average multiples? Thank you.

Okay, Caio. How are you? Let me take if you allow me Máximo these questions. In relation to cash return, of course, there is always the possibility of doing what you said. But I believe or we believe that the company is directly or indirectly moving into that direction. But by being quite consistent in the way distributes returns to the shareholders, without having a specific scenario on percentages of net income or a target when debt is above that, distributing all which happens. This does not be what we have done in the past, because as you look at the numbers of the company, looking at the industry, as you know the industry with the volatility that they have is difficult to have it specially the target on net debt, as a way to manage the company. We will work -- the Board of Directors or what the company is trying to do is that, we have a way in distributing and returning to the shareholders in sustainable way and whenever we can increase, we have built that and now with a good result of the company compared to -- of sustainable results, of course not at the level of 2021, we more than doubled the level of returns and dividend payments and we are -- we of course into sustaining these new effort. We have never had a targeted mandate, because, right, this is not the way we believe a company like ours to work. We have -- this is not the first time that we are in a position to be net cash. As I was mentioning in a prior question, well, this year we have different payments that we need to make in relationship to not only CapEx but also taxes, dividends. So the allocation of funds for the year, I think, are quite clear and taking also into consideration what Máximo mentioned in relationship to the CapEx plan that’s in the last stage of being implemented. And we’ll not -- do not forget that we have also have an offer in place being to buy back shares of Ternium Argentina holdings in Ternium Mexico, so this scenario but it’s actually stealing the table and this transaction move forward will be very positive for Ternium and will require some additional cash utilization. So, all in all, this is the way the company has been working with a capital to on the first recommendation from your side and that’s why we have been increasing and sustaining the level of this. The issue of buybacks, which is another issue that we frequently discuss with you, clearly is something that we’ll never rule out as a possibility. But then we have the issues of the level of floating that the company has and you need to factor in everything to take this into consideration. So it’s something that the company can do at some point. Again, we will not rule out that. But we also need to take some other things into consideration, because if we do it in another direction, we’ll need to leave the amount we reach. We will not have the level of floating that this company will need. We will have the highest number of floating, so it’s something that we need to take also into consideration. So, again, summarizing something that we can do at some point, but we need to take other things into consideration to be -- to sustain the good viability of the company.

Okay. Understood. Thank you, Pablo.

You’re welcome.

Your next question comes from Carlos De Alba of Morgan Stanley. Please go ahead. Your line is open.

Yeah. Thank you very much, everyone, Happy New Year. So the question I have is a follow-up maybe to the investment programs. So this one, how much is the total investment in dollars that you expect for these finishing lines that I guess would add value to the new hot-rolled coil? And also, I guess, how does this affect in any way, the timing of a potential electrical furnace in Mexico? Can you comment on that Máximo how you’re seeing that investment to increase not only the value added to what you currently have, which is what you just mentioned, but also increase crude steel capacity in the region? And then a couple of other ones, just could you give us a color on the mix by hot-rolled coil, cold-rolled coil, galvanizd, rebars, of your New Mexico operation? You’re given even how prices can move I think this is relevant? And then, finally, in terms of the transaction with the Ternium Argentina for their stake in Ternium Mexico. Any update on the potential timing of these transaction when -- if everything goes well when will this be closed? Máximo Vedoya: Okay. Thank you very much for your question, Carlos. Let me take the one, the first one, the investment. The investment we are thinking is $1 billion to this Pesqueria facility. The rationale behind this investment is that the market, I mean we have now the hot-rolled mill. We have the ability to produce any product in hot-rolled mill. But also the market is needing value-added products like cold-rolled, pickling [ph] or galvanized. So, the rationale is, I mean, putting -- I mean going up to the inputs of hot-rolls some of one -- some of those also were up from -- for the technical facility remember, but also going to the rest of the inputs for usually in automotive and industrial customers. So it’s going to be pretty nice which is roughly 500,000 tonnes, it will be a new piece this year, which is around 1.5 million tonnes and it will be a new galvanized line for the industry at around 500,000 tonnes that’s the idea -- and then finishing line for those products. That’s the idea of this investment. Regarding the investment in steel shop as we discussed in the past, that’s something that we this plant is not putting a stop for that plant or anything. We are still analyzing with the vision we need to supply our automotive customers in 2027 with melted and poured in the region. So we have to comply with them. We still have time and that’s why we are taking our time to be which is the best way of complying that or supplying that. But I mean there are two different plants and we are launching this one in the next few weeks. Timing of the Argentina transaction Pablo?

Yeah. Okay, Máximo. Yeah. Hi Carlos. How are you? The transaction moved through the process that needed to be achieved. But the -- without getting the confirmation from Ternium Argentina Board of Directors needs to recommend the transaction that a dividend will need to be approved by the shareholders of Ternium Argentina. And this will require a shareholder meeting that usually or takes around a month after the approval or recommendation from the Board of Directors. And then after that, because of the complexity of the transaction and the different steps the transaction is having could take an additional 15 days to 30 days for completion. So if the transaction is let’s say approved at some point in the next month it will take in total around two months for this transaction to be to be fully performed. But we need the first step which is an important one is to have the recommendation from Ternium Argentina Board of Directors. So and this is something that the Board of Directors of Argentina did not yet take and they are still considering the proposal. So we are expecting to receive comments from them and from there this is a timing the transaction can take [inaudible] Carlos.

Yes. Pablo, so just basically, most likely the second quarter right?

Yes. Most likely it’s approved, most likely in the second quarter. Máximo Vedoya: Yes.

Thanks. Máximo Vedoya: And Carlos you asked also about the share of products in Mexico, I think. So, if you took in year’s numbers, rebars and wire rods 1.2 million tonnes then the capacity of galvanized and painting products it’s around 2 point -- I mean 2.4 million, 2.5 million galvanized and then 0.8 million tonnes of pre-painting products, but they use galvanized, those pre-painting products and the rest is cold-rolled and hot-rolled.

And the total capacity Ternium Mexico is around what 8 million tonnes… Máximo Vedoya: Hot-rolled…

… or 9 million tonnes? Máximo Vedoya: Yeah. The total capacity of hot-rolled today. Of course we are in the ramping map of the hot-rolling mill in Pesqueria. It’s -- the hot-rolled capacity stands 10 million tonnes, I mean, rebars wire rods 1.2 million tonnes also of hot-rolled.

All right. It’s very fair to assume that you aim to maximize run at full capacity, the painting line the galvanizing line and then whatever you cannot use there, you could use hot-rolled coil? Máximo Vedoya: Exactly. We usually run full capacity. At time galvanized also supply the full capacity of the painting products, cold-rolled capacity is around 4 million tonnes, a little bit less than 4 million tonnes, we used to run the fleet. We most of the time, run the cold-rolled mills at full capacity. And today, we are aiming to run the Pesqueria mill at full capacity to run the long products, facilities at full capacity to run the mill at full capacity and the Moline [ph] hot-rolling mill in [inaudible] is the one that is going to not be run at full capacity, at least in the year, in this year. But we are thinking that in 2023 or 2024 should be running at least very close to full capacity.

All right. Thank you very much. Máximo Vedoya: You’re welcome.

Your next question is from Timna Tanners of Wolfe Research. Please go ahead. Your line is open.

Yes. Hey. Good morning, everyone. Hope you’re doing well. Máximo Vedoya: Yes. Thank you, Timna. Good morning.

Good morning. Yeah. I just wanted to follow-up a little bit on the Pesqueria comments and understand a little better. First off, I wanted to ask you about how you see the addressable market about mill. There’s been definitely Ternium tonnes shipped into the U.S. makes perfect sense the U.S. has shipped to Mexico. But just thinking is that the addressable market in the entire North American market or is this just kind of a temporary situation until the downstream is expanded? And then how do you think about the full production in the past you talked about ramping up gradually, but I just heard you say full capacity is that 4.5 million? Is that a little less that you’re shutting, just want to clarify that? And then finally, if you could just discuss the timing of when we should be expecting some of these lines to come on and the CapEx to come through? Thanks a lot. Máximo Vedoya: Okay. Thank you very much, Timna. I’ll try to answer all of them. I mean for projects, thinking maybe in -- for the Mexican market and some exports to the U.S. But our main objective is the Mexican market. As I said, if you take 2021, Mexico imported 9 million tonnes. We see -- I don’t know if you hear me well, because I’m hearing some noises.

Yeah. I hear you also I’m in another conference. Yes, I hear you. Máximo Vedoya: Okay. Perfect. Sorry. So, Mexico imports 9 million tonnes of flat products, of those roughly 4 million are hot-rolling products, 2.5 million galvanized and the rest cold-rolled, basically. So there’s a huge market for us and that’s the main aiming of that. USA for us it’s also an important market, although we are not seeing that we are going to take our investment gauge to export everything to the U.S. But some of our products are going there, and we expect it to grow a little bit there. Probably some of the U.S. mills wanted to grow a little bit in Mexico. Regarding the second question, we are expecting the hot-rolled mill in Pesqueria to be running at full capacity at least at 80% of realization, which is a normal thing for this around July, August, September. But as I said, we were decreasing -- we were going to decrease a little bit the production of the [inaudible] mill. In overall, we should increase hot-rolled production in 2022 by around 1.8 million tonnes, of that some is going to the market and some is going to replace our imports from Japan. So I think that’s the second question. And the third question, Timna, sorry, I forgot.

Yes. It was just about the timing of the investments and when we should start thinking about the additional value-add to come through to you know, greater average lifetime prices? Thanks. Máximo Vedoya: Yeah. As I said, when I answer the first question, I think, was Caio, we’re in the final stage of this. It didn’t have yet the Board approval. Although, we discuss it in deeply yesterday and probably going to be approved shortly, and we expect that this is coming online in around three years. And if some of them are coming a little bit earlier and some of them probably because of the equipment delivery a little bit later, but roughly three years.

Okay. Thanks again and thanks so much for your candor. Appreciate it. Máximo Vedoya: No. Thank you to you Timna.

Your next question is from Isabella Batalha Vasconcelos of Bradesco BBI. Please go ahead. Your line is open.

Hi. Good morning, everyone. I have just one question. I think most of the points have already been addressed. But also in terms of capital allocation and I had some connection issues. So hopefully, I’m making you repeat yourself. But just understand -- to understand it’s seems that you’re going to the organic growth line in terms of future capacity. But are you analyzing inorganic growth opportunities in the Americas, Brazil or even in Mexico, in the U.S.? That’s my question, thank you. Máximo Vedoya: Yes. Thank you, Isabella. As we always said, we are always analyzing opportunities and we have a track record of doing this in a very, I would say, responsible way. If you ask today, we have nothing special in our pipeline today. But these things arouse and we are always are analyzing these opportunities.

Your next question is from Leonardo Correa. Please go ahead. Your line is open.

Yes. Hello. Good morning, gentlemen. I hope you can hear me. Good morning, Máximo, Pablo Sebastian. Thanks for the follow-up here. Máximo Vedoya: Yes. Finally, Leonardo we can hear you well.

Okay. Perfect. Thanks, Máximo. So just a quick one from me I think most of the issues have been addressed. Thanks for all the color and visibility guys. Just on -- still on the topic of de-rating, right? We’ve been seeing, I mean, we’ve been covering the company for a while and it’s always a similar level, which is highly depressed. Now we’re going to a global movement, which is a significant de-rating. So Ternium is not alone right we see guys like Mittal and others trading at 40%, 50% discounts. I mean, you guys announced a move in December, which was somewhat unexpected, right, the buyout of minorities in Mexico. I mean, what else is on the agenda? If you can elaborate a bit, I know that the dividends and buybacks story is quite clear to me from what you guys have been indicating. But is there anything else on the potential corporate simplification still that’s pending or there’s always the issue we see in Argentina, right, whether there is a minority stake, I think, from the pension funds, which could be bought out, the dual listing issue has been historically also a pending issue. I mean is there anything that you guys have been considering at this point to try to change the situation on the company? Thank you.

Hi, Leonardo. Let me take this question, Máximo. And we have different ideas or different possibilities. The one that we consider are that, feasible are the ones that we are trying to achieve. Here we are not in relationship to the transaction. Argentina is trying to have 100% of the holding of Ternium Mexico by Ternium and not having part of that holding directly owned by Ternium Argentina. So, this will very much simplify the corporate structure of Ternium, if this transaction moves forward, you know, that is something that we’ll be discussing many times. After and if the transaction is completed, Ternium corporate structure will be basically what we would like to have. We have been simplifying the corporate structure for many years now. We expect growing internationally. We acquire many different companies. So, it has been a constant work to simplify the corporate structure and this step was an important step for us. We think that we have the chance of the possibility of achieving that, but we will need to see if this is happening. We have been analyzing, and of course, we have been discussing with a lot of you in this call, these are derivatives the dual listing, unfortunately, is not an opportunity and open because of the reason as you know, and start briefly now probably the only place where we can achieve that in Argentina and clearly is not the path to follow at the moment. But we are all trained as we have discussed in the past the idea of moving from one yearly dividend to at least twice a year the payment we already did that and we did that. So, we are analyzing alternative possibilities and we need to see when are these internal decision are done. So, we are open and we have been always trying to analyze which is the best way for us to have a better not only corporate structure, but better relationship with all our stakeholders. So we are open, we are open we are always analyzing alternatives, but we need to see if there is achievable or not. So up to now we are at this point, we think that we are moving in the right direction and anything that have in the future, clearly will we keep analyzing.

Okay. Thank you very much, Pablo.

You’re welcome.

Your next question comes from a Caio Greiner of BTG Pactual. Please go ahead. Your line is open.

My question has been answered. Thank you.

There are no further questions at this time. I will now turn the call over the CEO for closing remarks. Máximo Vedoya: Okay. Thank you very much to everybody for the interest and for the very good questions. I really appreciate your participation, and as usually if you have any additional questions, any feedback, please don’t hesitate to call us. See you in around three months in the next conference call. Have a nice day. Thank you very much.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.