Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would now like to welcome everyone to the Ternium Third Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Sebastian Marti. Please go ahead.

Good morning. Thank you for joining us today. My name is Sebastian Marti and I am Ternium's Global IR and Compliance Senior Director. Ternium released yesterday its financial results for the third quarter and the first nine months of 2023. This call is complementary to that presentation. Joining me today are Chinese Chief Executive Officer Maximo Valeria and the Company's Chief Financial Officer, Pablo Brizzio who will discuss the risk 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 measure in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya.

Thank you, Sebastian. Good morning. And thank you all for participating in Ternium's conference call today. I'm glad to report we have healthy third quarter with the consolidation of Usiminas. For the first time we had a margin of 13%. As you may know, Usiminas main blast furnace has been offline for a realigning, and its operating results in the quarter were affected accordingly. When considering Ternium operations, before the consolidation, we had a margin of approximately 17% in the quarter, which is within our usual margin range. With steel prices recently increasing in the USMCA region. And Usiminas starting the ramp up of its main blast furnace, I am positive that from the beginning of next year, we will see more normalized improved margin performance. With this in mind, we announced yesterday an interim dividend payment of $1.10 per eight ADS equivalent to $216 million to be paid on November 16. These represent an increase of $0.20 per ADA or 22% more compared to last year interim dividend payments. After my initial remarks, Pablo will go through the details of our performance in the quarter and the explanations for the following ones. Let's now review the business environment in our main markets begin with Mexico. Apparent steel demand in Mexico remain strong. As we have been discussing during the last conference calls, nearshoring is happening and its developed [Ph] is positive for the USMCA consumption of steel. I see this trend as giving sustainability to steel demand in the regions for the years to come. In this context, the new capacity and high end products we can offer now as a result of investment programs we developed during the last few years enabled us to increase our shipment by 25% in the first month of 2023 compared to the…

Thanks, Maximo, and good morning to everybody, and thanks again for participating today in our conference call. In today's presentation, we will review our operations and financial performance and the effect of the consolidation of Usiminas in the first -- for the first time in the third quarter of this year. If we go to page three of the presentation, you will see that Ternium's operating results were relatively strong in the third quarter, in line with operating results in the same period of last year. Excuse me. And decreasing more on a sequential basis as expected. As you can see in the chart at the top, adjusted EBITDA reached $698 million in the third quarter, up 2% versus the same period of last year, and down 22% versus the second quarter. The sequential decrease in adjusted EBITDA was mainly the result of low realized prices and higher costs, partially offset by higher steel shipments. Adjusted EBITDA margin in the third quarter was 13%, down from 23% in the second quarter. As Maximo mentioned, this margin was affected on one side by a decrease in realized steel prices in the USMCA market, and on the other side by the consolidation of Usiminas operating results as Usiminas recorded almost no margin level in the period. Looking forward, we expect adjusted EBITDA to decrease in the fourth quarter due to a decrease in operating margin, partially offset by slightly higher steel shipments. We will analyze this in more detail in the coming slides. Moving on to net results, adjusted net income and adjusted earnings per ADS decreased sequentially to $323 million and $1.38 respectively, reflecting the decrease in operating results and lower deferred tax results. Adjusted net income was calculated as net result adjusted to exclude a $1.1 billion non-cash loss related…

Thank you. [Operator Instructions] Your first question comes from Carlos de Alba with Morgan Stanley. Please go ahead.

Yes, good morning, gentlemen. Thank you very much. So the first question is very simply. Do you have a number for turning EBITDA ex-Usiminas?

Okay, Carlos, I was expecting for your second question.

Yes, I'll ask just maybe one at a time.

We have seen the analysis that the different analysts have been doing. It's not exactly the same, the number ex-Usiminas, because you know that we need to reflect the number of Usiminas accordingly to the adjustment of the purchase price allocation. So the number that we have been reflecting our numbers of Usiminas is a little above $25 million. In any case, it's a very minor number that we have received from Usiminas consolidation during this quarter. And as we have already mentioned, both Maximo and myself, we are not expecting to see any different number in the first quarter of next year, where we will be starting to see more normalized level of EBITDA generation.

All right, but you're not going to disclose what was EBITDA before Usiminas?

No, no. From now on, we need to be consolidating the numbers all together.

All right, good. And then the other question I have is, when do you expect to come up with a plan for Usiminas? Clearly, a lot of things are going on besides just stabilizing the operations. You need to decide whether you're going to invest on repairing the coking oven batteries, if you're going to invest in the mining business, if you're going to restart the Cubatão blast furnaces, or maybe perhaps you're going to do an electric car furnace there. What do you have in mind and when should we expect you to announce the plans for Usiminas?

Carlos, hello, Maximo. How are you? Thanks for the question. We don't have a date to announce the plans. Some of the plans we are already taking care of and some of the other things we are still analyzing. Clearly, MUSA is a very interesting project that, as you know, we haven't decided going through, but in some cases, we are making all the progress so that we can decide if we go through to start it right immediately. There is a team working on that project in particular. The blast furnace in Cubatão will never come online again. I mean, we will have a plan probably for Cubatão, but in the long-term, but we will not include blast furnace for sure. For the coke, we have been doing some progress in the coke. We shut down old facilities that we were spending a lot of money on, and in the near future, we are going to have the solution for the coke in a much smaller scale than when we have to. So, all these things we are going through in the day-to-day work. The objective, as you know, is that all the facilities reach the standard level that we have at Ternium at the end. I mean, we have opportunities in most of the lines of Usiminas, and our objective and our plan is to do that, to have the same standards as in Ternium. I hope I put some of that.

That was good. Very good color Maximo. Thank you very much. And just one final question on my end, and I'll get back on the queue. From the world's cities, it's around almost $3.6 billion in cash and cash equivalents plus other investments that you reported. $1.3 billion are in Argentina, and given what we have seen happening there with the currency, how do you market this cash position that you have in Argentina? What more color can you add there, given that obviously there is a key concern from the market on this significant amount of cash that you have or equivalents that you have in Argentina?

Yes, Carlos, let me talk a little bit about that because it's an important thing to mention. As you said, we have, as of September, $1.25 billion in cash based in Argentina. Of that, we have different instruments. As we have mentioned in the past, the way we want to hedge or cover this exposure that we have in Argentina is to the dollar. In order to do that, we need to use the limited instruments that are available these days in the country. So we are having a small fraction of that, which is related to peso-dominated instruments, which are basically for the day-to-day operation of the company. A significant portion of around $800 million that are based on bonds, Argentine bonds that are quoted in dollars or are denominated in dollars, better said, and other instruments that are directly dollar-denominated instruments like corporate bonds. So this last one, I'm not exposed to any devaluation on the currency or any situation because at the very end are directly dollar instruments. The issue is in relationship to the Argentine bonds that we need to account for them at the official exchange rate. So there, we are exposed to any devaluation, any fluctuation of the value, the dollar value of that bond in international markets, and also in the gap that is there between the official exchange rate and the financial exchange rate. So we found that as the best instrument to protect our money in the country. We are not, let's say, we are marketing that bond, but taking into consideration the official exchange rate, which is the only one that you can use in the country. I don't know if I clarified your point, but if you have any other specific clarification on this point, please let me know and we will try to do that.

Just one follow-up there. What is it of the $800 million, more or less, that are in bonds, in U.S. dollar denominated bonds, how much is Argentine government bonds and how much is private companies' bonds?

Of this $800 million, this is 100% Argentine bonds. We have an additional $200 million on corporate bonds.

Okay. All right. And then about $300 in peso denominated instruments.

A little bit less, yes.

A little bit less because they are dollar linked peso denominated instruments, among other things. But yes.

Okay. Thank you.

You're welcome.

Thank you. Your next question comes from the line of Timna Tanners with Wolfe Research. Please go ahead.

Hey, good morning.

Good morning.

Good morning. I want to ask a little bit more about costs. Obviously, things are a little muddied with the addition of Usiminas, but not as close to that story and would be helpful to get a sense of what the cadence of costs could look like once the blast furnace reline is done. Just looking at the per ton number, if you have it in that format or whatever way you can share with us how you think of those costs falling off. And specifically, any thoughts on the fourth quarter costs with the prices coming down? Are we going to see any relief on costs?

Okay. Hi, Timna. How are you? Let me tell first the issue of the cost and then, Maximo, you can comment on the pricing environment.

Yes.

So let me first give you a direct answer and then we will try to deepen on that. We are expecting to see very similar costs coming into the fourth quarter. Why? First of all, because we are not seeing much changes in the price of the different raw materials and the prices of slabs that will go through our financials in the fourth quarter. Though we have finished the relining of the blast furnace in Usiminas, we are not expecting yet to see the impact of that during the fourth quarter and we are expecting to start to see that during the first quarter of next year. So clearly, we are not reflecting the cost of producing our own slabs in Usiminas, but the cost of imported or purchased slabs. So all-in-all, we are not expecting to see much changes in the different parts of Ternium in relationship to cost coming into the fourth quarter and we are expecting to see in the first quarter a decrease in price in the whole Ternium on a consolidated basis.

The other one was prices? Yes. Sorry, Timna.

I was just wondering about the order of magnitude about how to think about the reline, the magnitude of that cost coming up. I heard that it was going to be lower. I'm just wondering if there was any color there.

Clearly, it will be much lower because as you know, we are at this moment, Usiminas at this moment is purchasing slabs. So the whole margin of buying slab against producing slab will be gained by the company entering into the first quarter of the year. So whatever number you would like to put that, it's a quite significant number that will be helping Ternium to recover the profitability and to grow a much lower number or a lower number on cost on the cost side, together with other things that we need to consider like the impact of some reduced price on slabs and cost and raw material.

And the other thing, Timna, is that currently Usiminas is working with two, the other two, blast furnace number 1 and number 2, which are very small and not very efficient. Number 3 is much bigger and much more competitive. So you are going to change at least one of these small glass solids for the big one.

Got it. That makes sense. Okay. So then the other part of my question is really to your point on prices. So the price hikes that are being announced now in the U.S. are really more of a first quarter. So for Ternium given it often lags a quarter because of the contract structure. Does that mean these price hikes that are announced now are more of a second quarter story? Or are they also going to be lagging into the first quarter like typical delays?

Yes, for Ternium, and we are talking about Mexico now. Remember, 40% of our shipments in Mexico are commercial spot markets. So we are seeing from the last two or three weeks an increase in prices. How much of that is going to be in the fourth quarter is not much. But November and December, we are going to have higher prices than September and October. On the other side, the 60% of our shipments are contracts. So you're clear, we are not going to have any effect on the fourth quarter and prices in the industrial sector in the fourth quarter are going to be lower. But for the first quarter, we are going to see increases. The amount of those increases still depends a little bit on the increases that we are going to receive in the next several weeks. I think, I think everybody thinks that prices at least in the next couple of months are going to continue to improve in the USMCA region. So we are going to see an increase in the first quarter for sure.

Makes sense. Okay, if I could squeeze one more in to ask about the demand story. In Mexico, the demand story sounds really good on reshoring of course, and manufacturing. But are you not seeing any impact from higher interest rates? Some of the color in the U.S. is certainly some weaker construction activity and concern over automotive. So any impact from spill over of the higher interest rates that you can point to in the Mexican region?

Yes, to be honest, we are not seeing that yet. And I put yet because we have been talking for the last couple of conference calls that we were expecting some kind of impact. But still, the money is still very robust in the U.S. to be honest. And we are not seeing a decline on demand that is going for industrial sectors that are also dependent on the U.S. Production of car increased like 7% or 8% in the year. And all the other industrial sectors are guiding in the same line as last year, without any decrease on that. And the commercial market in Mexico is also very strong. Although interest rate has increased also in Mexico, construction is coming back. Inventory in the commercial markets are low. So we are not seeing this effect yet. I think that in some point, we are going to see that. But this is taking much longer, thanks God [Ph] that is what we thought. So for now, we are seeing very robust demand in both markets.

Okay, good stuff. Thanks again.

Thank you.

Thank you. Your next question comes from the line of Gabriel Simões with Goldman Sachs. Please go ahead. Gabriel Simões: Hi, thank you for the presentation. Thank you for taking my questions. First question, I would like to piggyback on Tina's question in the Mexican market. So you mentioned you're still seeing strong demand for the market as a whole. But I just wanted to understand how much room you see for turning to continue to gain market share from its competitors in the near term. And if you've seen the dynamics change in the market, since the implementation of the higher import tariffs, given that gaining share from imports was also one of the goals here with the higher investments in the country. And the second question here would be on dividends. So you announced higher interim dividends this quarter than you did for the same period last year. And we wanted to better understand how we should think about cash returns going forward, given that you still have a very comfortable cash position at Ternium, but at the same time, sizable investments to make in the Pesquería facility, and potentially higher investments at Usiminas as well. So just wanted to understand how we can factor all these things in to think about cash returns in the future. Thank you.

Okay, thank you, Gabriel. I'll start with the first question, and it's demand in Mexico. I mean, the demand in Mexico as you said is very robust. If you take the nine months of the year, we are at least 7% higher than last year. So it's a huge increase in demand. Of course, our shipments increase much more for several reasons. First, our market share against imports, of course increase. And also one of our competitors is not producing in the market. So that's also helpful. Now, on what can we gain more? I think we have still a very huge amount of the market that we can gain. Our problem is how we increase production, because most of our lines today are working at rather full capacity. We have some production in the hot spring meeting to the Busco [Ph] and we are increasing that production. And we have to, I mean, imports today are still at high demand, even though the increase in the tariff, although we have seen some decrease in September from July and August, there is a big decrease in September. But there's still some import share that we can gain with the capacity we have. So we are very confident that we can continue gaining this market share in Mexico, and we have room for that. I hope I clarified a little bit your question Gabriel with this. Gabriel Simões: You did. Thank you.

Okay, Gabriel, let me – how are you, let me take your second question. Let me mention first of all, that the dividend that was announced is just an interim dividend. And in the last two years, though, you know that [Indiscernible] is meeting needs to approve the final dividend in the last two years. The interim dividend represented one third of the total dividend for the year. So there you have an expectation of the dividend that will be paid on a yearly basis, which as already mentioned, will be around 22% higher than we paid last year. So there you have one reflection of what the company is doing in relationship to capital allocation. So outside the normal usage of cash as the company has and we have already mentioned many times that the expectation of CapEx for next year is around $1.5 billion without including the CapEx of Usiminas. That we are expecting to see an additional $300 million or around that number for 2024 in Usiminas. So besides that, we are increasing the dividend payment and as we always mentioned, the company is in a position to continue to follow that trend. So basically what we are doing is, first of all, financing the CapEx that the company is having. There is a significant level of CapEx coming in next and the following years to finalize the project in Mexico. And then sustaining and increasing the level of dividend payment. Besides that, we will continue and we are in a position to continue having a very strong financial position. We think it's important for the years to come in time. Gabriel Simões: That's perfect. Thank you very much for the answers.

Thank you.

Thank you. Your next question comes from the line of Rodolfo Adriano De Angele. Please go ahead.

Hi, good morning. I have a few questions. My first question is, in this scenario that we are seeing, you mentioned that increased steel imports in Brazil, we have been hearing the local industry discussing lobbying for increasing taxation of imports. I wanted to hear your thoughts around that. That's my first question.

Yes, Rodolfo, I think it's something that the Brazilian government has to do. I mean, as I said in my initial remarks, Rodolfo, most of countries U.S., Mexico, Europe, some Asian countries, they are all protecting against unfair trade especially from China. I mean, so if you want to have an industry, which I think is very important in Brazil, you have to have some defense of that industry. It's impossible today if you don't have that. So I think it's very important that the government takes into account, and I'm very supportive of what the local Brazilians are saying. I fully agree with them.

Okay. Second question is more about how do you see mining in this environment? Because we saw Chinese steel hurting steel margins for a number of years in the past. And during that period, it was always challenging for the steel makers, but the ones that had some type of backward integration, especially to iron ore, kind of feared, came out a little bit better than the rest. You already have exposure to iron ore. So I just wanted to hear your thoughts on how do you see iron ore overall? And what's the, we know about the expansion of MUSA, you mentioned that there isn't a decision yet, but how do you go about it? What are the, and what do you need to see to make a decision to go ahead with that? And then I have a final question after this.

Okay well, I mean it's not that we have to take the decision today. We are working and in order to analyze and to go all the steps we have before having to have make a decision. This doesn't, as I said, this doesn't, does not mean that we are not working. I mean we are working and the decision has to be made I think, between one and two years, because we are going through from the permission and the environmental permission, we are going through with all the analysis and the quotations and the engineering of the equipment. So we are going through the project, through the project of MUSA, as if the project is going through, but the approval of the project, we have to take it in, I think it's a little bit more than that one year and a half. So that's the only reason why we are not saying a year and a half from now when we have all the engineering, when we do realize what are the different issues of the reserves of the equipment, the final cost of all the engineering, we should make an announcement if we go through or not.

Okay, makes sense. My final question is a question I got from an investor and we of course, know about the changes between the control and shareholder group and with Nippon selling out and leaving gradually more room for the Tequint group in Usiminas. The question I got was about Unigal, if there is any discussion eventually about Nippon Steel selling also their stake there to you or to Usiminas itself, anything changes there or not?

No, no, there has not been. Unigal is still, and I think it will be, 70% Usiminas, 30% Nippon Steel. I don't think we're going to change that or there's any plan to change that. Remember, we also have the same facility in Mexico where we have 51% and Nippon has 49% of that. So, for that particular market for that particular type of line, a galvanized and galvanized line for the automotive industry, we are very comfortable with this. So I don't see any changes.

Okay. Thank you very much.

Thank you. [Operator Instructions] Your next question comes from the line of Carlos de Alba with Morgan Stanley. Please go ahead.

Thank you very much. I just wanted to follow up, Maximo, on the discussion of potential steel imports in Brazil. Thinking about this, what is the level that you believe could be feasible for import tariffs in Brazil? Because I hear you and I hear the Brazilian executives talking about Mexico and the U.S., Canada, 20%, 25%. But none of these countries export to China as much as Brazil does. So how can the Brazilian government go and tell the Chinese, we don't want your steel, but we want you to take our iron ore and our proteins and our grains? So it's I think a much more complex discussion than it is for Mexico and the U.S. So, is it realistic that we can get the 20% or is it more likely that we stay maybe at 15% if we're lucky?

I think there are two different things Carlos, and make me clear. I mean, going in the primary sector, as you said, grains and iron ore, I think it's more of a commodity market. And so, it's not that China is doing Brazil any favor or Argentina buying the grains. I mean, it's a commodity market where the price is set in a very different environment and has nothing to do with Brazil, China, or anything. In the industrial sector, I think it's very different because what you cannot permit or what you cannot compete with is unfair trade. And what we're talking here is about unfair trade. And that is important. I mean, Canada exports to China a lot. Europe exports to China a lot of equipment and everything. Nevertheless, what we have to do is respect the rule of law and respect the rule that you cannot sell into a market with unfair practices of trade. And that's the thing that the Brazilian steel industry and I think other industries should start fighting in Brazil. If you see what the story of USMCA or the story of Mexico, it's a story of reindustrialization, of relocalization, but reindustrialization, where clearly you have much more higher salaries for people from the primary sector. And Brazil has gone for the last 10 years in a very different road. And I think that's some of the problems that Brazil is having. And so making a case for unfair trade, for defending from unfair trade, it's a very valid case for Brazil. And it's a thing that the government should go back to the thinking several years ago, where they did that. So I think it's a completely different position. I don't know if I'm clear about this. Carlos.

Very clear.

And again, it's something that it's making very huge. I mean, I have a lot of people from Brazil asking me, what is Mexico doing very well? Because Mexico is doing very well, to be honest. And what Mexico is doing very well is exactly this. It's the near showing is fighting unfair trade. It's no other thing than that. And for Brazil to go this way to have increasing in demand to have increasing in growth, you have to go this way, you have to defend your industry. If not, you're going to primarize even more the economy, which everybody knows is not very good.

Thank you very much, Maximo.

You're welcome, Carlos.

Thank you. Your next question comes from the line of Caio Greiner with BTG Pactual. Please go ahead.

Hi, good morning, guys. Just a confirmation from my side, the call quality is a little poor here. You guys mentioned your CapEx estimates for 2024. Can you please repeat that?

We didn't. I don't know if we mentioned. We did…

We mentioned that we are expecting to have a CapEx for 2024 of $1.5 billion at Ternium and around $300 million for using it. Remember, Caio, our expected CapEx for Ternium in 2023 was $1 billion. But because of some of the delays in the contract of Pesquería, that CapEx is going to be $850 million in only Ternium. This $850 is going to go to $1.5 billion because all the investment in Pesquería starts coming in. And in Usiminas, it's going to decline from $650 this year to $300.

All right. That's perfect. Thank you very much.

You're welcome, Caio.

Thank you. Your next question comes from the line of Camilla Barder with Bradesco. Please go ahead.

Hi. Good morning, guys. I think most of my questions have been answered right now. So I just wanted to answer a quick question, Capital Allocation Front. There has been a large working capital release this quarter. So I just wanted to get some more color on what you are expecting in terms of working capital in the coming quarters. Thank you.

Okay. Camila, let me comment into that because a significant portion of the working capital release during this quarter was coming from Usiminas. As we were discussing, in order to prepare the relining of the blast furnace, Usiminas needed to build up the inventories of slabs. So as the month ago, in the relining process, they started to use that slab. So there was a capital -- a working capital reduction in relationship to it. In the case of turning, there was also some working capital reduction. And we are expecting to sustain a similar level of working capital in the coming quarters. As we mentioned, we are not expecting to see much difference in the cost of our product, in the cost of our raw material, and some decrease in the price of our product. So similarly, or in line with what you saw this quarter in Ternium, is what we are expecting to see next quarter in Ternium 2.

Okay, thank you.

You're welcome.

Thank you. I would now like to turn the call back over to Ternium's CEO for closing remarks. Please go ahead.

Thank you. And thank you all very much for participating on today's call. As usual, feel free to contact us if you have any questions. Thank you again, and goodbye.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.