Good day, and welcome to Ternium Fourth Quarter 2023 Results Call. Participants will be able to listen only until the question-and-answer portion of this call. Please note that today's call is being recorded. [Operator Instructions] I'd like to introduce the call to Sebastian Marti. You may now proceed. Thank you.

Good morning, and 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 fourth quarter and full year 2023. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Maximo 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 turn the call over to Mr. Vedoya.

Thank you, Sebastian. Good morning to everyone, and thank you very much for participating today in our conference call. 2023 was a key year for Ternium. We made good progress in several fronts following the transformation path we envisioned a couple of years ago. The new projects in Mexico are firmly under development. The new downstream lines in Pesqueria will enable us to offer new high value added products to our customers in the region. This capacity will be integrated with an upstream project, a new steel slabs mill currently under construction. This will be the greenest and most technologically advanced automotive steel -- product steel mill in the Americas. It will be able to supply the full range of auto products from exposed grade to advanced high strength steel. This slab mills will be based on electric arc furnace technology that could be supplied with renewable energy. In addition, the project includes a direct reduction iron facility with capability to capture CO2. On the other hand, Ternium's new role in Usiminas is already showing good results for the company. The new management team there is taking decisions that are having a significant positive impact on its performance. In addition to these strategic developments, in 2023 Ternium had a solid year from a financial performance point of view, adjusted EBITDA, and net income was strong as well as cash generation. As a result of these good results and strong financial position, Ternium’s Board of Directors proposed an annual dividend of $3.30 per ADS, a significant year-over-year increase. This is the highest annual dividend on record. As we continue to develop a consistent growth path for our return to shareholders. Let me now review the latest developments in our main markets. Growth in Mexico's steel market has been strong. Consumption of…

Thanks, Maximo, and good morning to everyone. Let's review our company operating and financial results and the webcast presentation for a more detailed picture of our performance. If you want, let's start by Page 3, please. Ternium delivered strong results in the fourth quarter of this year, 2023. Margins in the period were slightly above our last quarter expectations, mainly due to lower costs. Adjusted EBITDA for the fourth quarter was $651 million, a 7% decline from the third quarter 2023. This decrease was primarily driven by lower steel prices, partially offset by lower costs. In addition, the profitability of Usiminas mining operation increased sequentially during the period. Adjusted EBITDA margin stayed constant at 13%, mirroring the prior quarter performance. This relatively low level was again affected by the consolidation of Usiminas steel operation, which continued to record low profitability as it ramped up its main blast furnaces at Ipatinga facility. Looking forward, we anticipate an increase in adjusted EBITDA for the first quarter of 2024, primarily driven by an improvement in our margins, resulting from lower steel costs per ton and slightly higher revenue per ton. Going now to the results. Both net income and adjusted earnings per ADS drove notable strength during the fourth quarter. The results include non-cash positive effects from Usiminas post-retirement liabilities and contingencies reversals, along with a net foreign exchange gain related to a substantial devaluation of the Argentine peso against the U.S. dollar. We will go deeper into this on the upcoming slides. Let's turn now to our shipments performance on Page 4. In Mexico, Ternium shipments remain strong in a seasonally weaker period, aided by continued growth of commercial customer demand. Equally remarkable, as Maximo mentioned, Ternium shipments in the country for the full year 2023 surged by 22% over the prior…

Ladies and gentlemen, we are now opening the floor for question-and-answers. [Operator Instructions] Our first question comes from Carlos de Alba from Morgan Stanley. Your line is now open.

Yes. Good morning, Maximo, Pablo and Sebastian. So two questions. First one is very straightforward. How much of the $3.2 billion CapEx has been spent already? And how should we think about the distribution between 2024 and 2025 of the remaining portion that has not yet been spent?

Yes. Hello, Carlos. How are you? So, I give you first the numbers for 2024 and 2025, if you want. The total CapEx we are seeing in 2024 is around $1.8 billion. This includes Usiminas. And the total CapEx of 2023 is probably going to be around $2.5 billon, also including Usiminas.

2025.

2025, yes. Of 2025 is $2.5 billion. If you're talking about the $3.5 billion in particularly of the project, this year it's around $200 million, I mean 2023 was around $200 million. Sorry, no, it's $400 million. It's $400 million because there is some payment we make with equipment. Next year, it's going to be around $800 million. And the big part is going to be around $1.5 billion in 2025.

All right. Okay. Thank you very much. And the second question is, so now that you have been operating Usiminas for about six months or so, what are the plans that you have for the operation? In particular, regarding - do you know what you're going to do in Cubatao? Are you going to restart [indiscernible] production there? What is the overall total CapEx that you see for the company? And third point there is, what is the timing for you or for the company to reach, I think, the $150 per ton EBITDA target that I think you mentioned in the past that you wanted to bring that operation too?

Yes, we have been operating in Usiminas for the last -- now we have been -- new management team has been operating Usiminas for the last six months, and they are making a lot of changes, as I've already mentioned in my remarks. I think that from your questions, there's still no answer for the Cubatao question. I mean, it's clear that Cubatao is a great asset. It has a wonderful hot strip mill and a very solid cold strip mill. Putting the upstream capacity there is not an option with the equipment. I mean, we are not going to put a blast furnace operation again. But there could be some alternatives. But we are going to take a little bit of time before taking a decision over Cubatao. I think that the focus today in Usiminas is the industrial facility as a whole, Cubatao and Ipatinga, and how we make much more productivity or more competitive that operation. As I said, we are seeing a lot of opportunities to increase the productivity of Usiminas in both facilities, and we are going to focus, I think this year, in that [cell] (ph). CapEx will be around $360 million in 2024. That's the number we are seeing today. It's lower than the number of 2023, because, of course, of the relining of the blast furnace. But that's the idea. And I think, I don't know if you have another one.

Yes, the other question was related to when you are expecting to [indiscernible] of Usiminas. Shall I take it?

Yes.

As you know, Carlos, we always work with the idea of getting Ternium to a margin of around 15% to 20%. We were able to achieve that during last year, the year end 2023 margin and EBITDA was 15.6% for the year, clearly we've reduced percentages during the last quarter, clearly because of the consolidation of Usiminas and the reduced margins that Usiminas had during the second semester of 2023 due to the relining of the blast furnace and the lack of that production. So we are expecting to start recovering from that situation. And hopefully by the end of this year, we should be able to reach better margins and reaching the number of around 15% EBITDA margins, all together in Ternium, of course, and also in Usiminas. So that's the expectation, a very high expectation that we have for that. And we are working on that front together with the -- or the management of Usiminas is working in order to achieve this in the coming quarters.

Thank you, Pablo and Maximo. Just one, maybe -- what I wanted to get at, Maximo, with the CapEx question on Usiminas is, if you have already a ballpark, maybe a range, of the amount of CapEx that needs to be invested in Usiminas in order to really bring that operation, both Cubatao and Ipatinga, to a level that you think is more close to the Ternium standard?

No, I think that the $320 million is part of that project. And several years around that number, Usiminas has to do three or four things. Some environmental in Ipatinga, we have to take a decision, but part of our decision is already in the numbers that we are expecting of the [indiscernible] and some onshore improvement in the downstream operation. But with that level of CapEx in the following years, I think we are going to be okay. The other issue in the long term is the mining operation. That's a completely different number of course. But as you know, we are in the process of analyzing and preparing all the necessary studies and engineering this project so that we can go forward if we approve that project.

All right, okay. And I don't want to take too much time, but just in Cubatao, given the location of the facility, plus what you mentioned, the downstream operation or assets there, are you considering -- is it a possibility for Usiminas down the road to invest in an electric car furnace maybe together with a [indiscernible] DRI in Cubatao?

I think that it's partially, yes, I would say. And why partially? I think that an electric car furnace is an option there, of course. DRI facility is a different matter because of the cost of natural gas in Brazil. If you have cost of $16 in Brazil of million BTU, it's not possible to put a DRI facility. But you can put an electric car furnaces without the DRI facility. But again, this is in the medium-long term. We are not today saying anything about that.

Thank you very much.

You're welcome.

Thank you. Our next question comes from Guilherme Rosito from Bank of America. Your line is now open.

Thank you. Good morning, everyone. Thank you for taking my questions. So I have two questions. My first one is, on the second half we started the downstream lines at Pesqueria. So I want to understand what does that mean for your long-term EBITDA margins? What kind of increase should we expect in terms of EBITDA per ton or maybe the percentage, just to get a sense of remodel going forward? And my second one is on mining at Usiminas. I know you guys don't have a decision yet and you're still studying, but I mean, what timeline should we expect considering that the life of the mine – the end of the life of mine is quite close? So when should we expect a decision? And considering Ternium’s current portfolio of assets across Latin America and current cost of mining, does it make sense for Usiminas to remain an iron ore exporter going forward? Thank you.

Hi, Guilherme. This is Pablo. Let me take your first question. Clearly, every investment plan that we are doing, especially the one that you mentioned, are in order to sustain and increase our EBITDA margins. Here we are talking about projects that will be up and ready by the end of next year. So it's difficult to tell you a number exactly on that because we need to see exactly which is the environment of prices. But as we always say, any project that we develop needs to contribute to position Ternium in the upper part of the range that we want to be in. As we always mention, this is between 15% to 20%. And clearly, this project of adding value to the project line that we have today, remember that these plans that we are currently putting forward are to increase the value added after the big investment that we did to have a new cold rolling mill. So with the new CapEx and the new plans that we will have in Mexico, we will be able to supply full range of product for the auto industry, as Maximo mentioned, at the opening remarks and clearly increase our margins. It's very difficult to give you an exact number on how the margin will improve, but clearly this will position Ternium to be closer to the upper side of the range where we want to be.

Yes, Guilherme, hi. Regarding Usiminas mining or MUSA and the new project, we have at least two years to make the decision. I mean, MUSA is going to continue the actual production with the ups and downs that are normal in a mining operation until 2028-2029. So to decide on the project, we have time. What Usiminas management is doing now is, putting forward a team and analyzing in very detail all the projects, which so far seems very attractive. But I cannot tell you more than that because the decision is going to be taken in at least more than one year. But again, once we make the decision, we're going to go forward quickly, and that's why Usiminas is putting a team together and making all the studies that are necessary and even asking some permissions.

That's perfect. Thanks a lot.

You're welcome.

Thank you. Our next question comes from Enrique Marquez from Goldman Sachs. Your line is now open. Enrique?

Can you hear me?

Yes.

Hi. Yes. Thank you for taking my question. Just wanted to understand a little bit better the perspectives for demand in Argentina after the whole devaluation from the Argentinian peso. If you guys can comment a little bit more on the expectations for demand and even any impacts from public infrastructure projects, that would be great. Thank you.

Yes, thank you Enrique. Yes, I mean the numbers we are putting up in our forecast, we are seeing a decrease in demand for the year around 10%. This is a high decrease and probably could be a little bit less than that. But in doing our planning of the production facility, we are putting that number as the number in demand. Infrastructure projects, we didn't have a lot of sales to infrastructure projects in Argentina, except those of oil and gas. And the ones of oil and gas, I don't think they are decreasing those projects. So we are not seeing demand for [indiscernible] for the reversion of the north gas pipe. They are continuing forward. So we don't see a decrease in demand of infrastructure. But of course, the recession that we speak is going to take some decrease in the demand in the market. Probably with this number we are being a little bit cautious, and by July or August things could start doing better. Again, if the government has succeeded in implementing all these reforms, that as I said, are very well-needed reforms in Argentina. I hope I answered your question, Enrique.

Yes, thank you.

[Operator Instructions] Our next question comes from Marcio Farid from Goldman Sachs. Your line is now open.

Thank you. Good morning everyone. Good morning Maximo and Pablo. Thanks for taking my questions. A couple of follow-ups from me. The first one, there was a marginal increase in CapEx for Pesqueria. So just trying to understand if you're confident that no more CapEx revisions are going to be needed? And if timing for the project is still on track? And secondly, I think we've talked about the outlook for the demand for Mexico and the US, but if you can give us some visibility into expectations going into the first quarter and maybe into the year as well. I know there are some structural drivers that seem to be quite interesting for [indiscernible] positions, but anything else that you can provide in terms of details, that would be great. And last, in terms of dividend, obviously, $3.3 announced for the year in total, trying to understand if you still have the view of continuous increase in dividend and if the one that we have seen for 2023 is now a new base to think about for 2024 onwards? Thank you.

Thank you very much, Marcio. Let me start with the Pesqueria CapEx question. I think it's the correct number today. There are two things that, as I said, changed the number. First, when we did the project more than one year ago, there was an inflation in equipment, and also some inflation in the construction. So I mean, it's some part logic to improve -- to increase a little bit. The other important issue is that, when we approved the project, some of the equipment that we bought or a lot of equipment that we bought were in euros. And the euros in that time was $1, EUR1. And today it's $1.09, EUR1.08. So there is an increase also there. Those are the two main factors that make us increase the CapEx. We don't see so far something else that can move that number. Of course, we can have some bumps in the road, but to be honest, we don't see it today. And I think it's a quite safe number to put the $3.5 billion. The…

To add to that, we are perfectly on time. So we are not taking any delay on the project, which was the second part of that question.

Yeah, no delays in any of the lines. Then you have the dividend question, the $3.3. I mean, this is, as we always said. I mean, we want to take steps, but steps that we can't sustain in the future. And so, we think that the $3.3 is something that we can sustain in the future, so that's why we're putting. And if you see our track record, it is a big increase in the last five or six years. If you remember, before the pandemic, I think the number was $1.2. And today, five, six years later, we are in $3.3. So I think it's safe to say, except something's certainly happening, that the $3.3 is a new level. And we are going to analyze, or the board is going to analyze, as it always does, if we can increase a little bit less. And you have a question in the middle about Mexico. I don't remember exactly what was the question, Marcio, about Mexico.

Just about overall demand and prices within Mexico, please.

Okay. I mean, demand in Mexico -- and I said demand not only in Mexico, but in North America is good. I mean, because it's very linked North America to Mexico. I mean, in the last several conference call, we were always talking about when the recession is coming. And to be honest, today we don't see that in the demand. We see healthy demand in both countries, in the US and in Mexico. Mexico is of course driven by industrial production. Construction is a little bit low, and it's going to be a little bit low, the commercial market for the next probably one or two months before prices settle down and start probably increasing a little bit again. But the money in general, you see activity pretty much good. Of course, I don't think the increase in consumption is going to be that much as it was in 2023. The last number of world steel was that demand -- the consumption of steel in Mexico was going to grow by 2% more or less. And as I remember in my remarks, it grew up by 14% in 2023. But again, we are seeing healthy demand.

Perfect. Thanks a lot.

I hope that answers all the questions, Marcio.

It does. It does. Thank you very much.

You're welcome.

Our last question comes from Caio Greiner from BTG Pactual. Your line is now open.

Yes, good morning, everyone. Thank you. So two questions. One quick one on HRC prices in North America. Just wanted to hear your thoughts on what do you think the next short-term move is going to be? Prices are trading at a relevant premium to other regions. I mean, we have been seeing some players trying to announce even further price hikes, but the point is that we're seeing prices trending down. Even lead times are moving lower. So I just wanted to hear your thoughts on what you think that the next move for HRC prices is going to be. What can we expect for the first quarter and even into the second quarter of 2024? And my second question, guys, on just a broader one on Ternium's evaluation and corporate simplification. I remember some time ago, a few years ago, you guys attempted a corporate simplification in Argentina which didn't really move forward. I just wanted to hear an update on that. I mean, we have a new administration in Argentina. Have you guys been in talks whatsoever with the new president and with the new administration so maybe we can, so Ternium could try and address that issue? And one more thing on corporate simplification may be, do you guys think that Usiminas could also be a part of this in the future? Because when we think about valuation for both stocks, I mean, it's interesting to see that Ternium, the controller is actually trading at a discount to Usiminas. So when you think about the company's corporate structure, I mean, there could be maybe some room to simplify all that and try to get a re-rating for the stock. So I just wanted to hear your thoughts on the latest updates on corporate simplification on those two items. Thank you very much.

Thank you very much, Caio. I will start with the second one and also if Pablo wants to add something, please do Pablo. And then the first one, Caio. Corporate simplification is still on our agenda, at least on the agenda of Ternium management and the board. We don't have anything to inform about that yet. We haven't talked with the new government of this issue. I mean, the government has a lot of things -- going on in their hands, the new government. But I think it's something that at some point this government should be able to analyze. As I always said, this is a transaction that favors Ternium, it favors Ternium Argentina, and it favors the government. So if we reason with that in mind, it should be something that at some point can happen. But to be honest, we haven't talked anything like that. Usiminas is kind of different because as you remember, we have an agreement with our partner, Nippon Steel there. And so we are not going to do anything for the next year or year and a half. In the future it could be something. But today I think we are happy on where we are in Usiminas and working to improve Usiminas.

Yes, Caio. Hi, how are you Caio?

Just 1 follow-up on the -- Yes, sorry, Pablo. Go ahead.

No, no, just wanted to say, as you said, we have been discussing this for a very long period of time. Clearly it is part of our strategy, it is in our minds. And as soon as we see the chances to move forward with this, it is clearly something that we consider important for the future of Ternium from different standpoints and clearly evaluation is one of that.

Just one follow up on the corporate simplification. I mean, how do you guys view the possibility of delisting Usiminas two years down the road when the agreement with Nippon gets pretty much expires?

That's a difficult question to answer, Caio, because not only we have an agreement that Maximo mentioned, that will take some time for us to move forward, then there are other shareholders in Usiminas and the corporate laws and regulations in Brazil are a little particular, so they are quite complicated. We know there are some possibilities of refurbish that regulations, but it's not something that we are seeing at the moment. As I said, corporate simplification is in our mind, So it's something that we are always thinking about. But it is not something that we can move forward right now, so it's very difficult to speculate on that at this moment. Clearly it's something for us to start to think in the future in relationship to that. The closer one that we have, and hopefully we will have the chance to analyze it more in depth is the Argentine one, which is probably the new government easier to do than in the past.

Great. Thank you.

So hot oil prices in the US, yes, you're right, Caio, that prices has been coming down in the recent three weeks, in the last three, four weeks. As I said, it's not a problem of the demand, but it is a problem of imports that are coming mainly to the US and some part also to Mexico. So that's the main reason. The good news is that demand is still there. And I think this is going to be something that it's going to stabilize in the near future. I don't see prices going much further down. As I always said, there is a new floor or a new standard of prices in North America that is around or a little bit higher of 900 at least. So I don't think prices are going to change. Again, because the demand is there, and we know imports for the following months, in May, June, July, are coming much more lower. So I am positive about that.

Thank you very much, guys.

You're welcome, Caio.

We don't have any pending questions as at the moment. I'd now like to hand back over to Ternium's CEO for closing remarks.

Okay, thank you again all for participating in today's call. As usual, please feel free to contact us for any questions or comments. Thank you very much and goodbye.

Ending today's call. Have a wonderful day.