Hello, and thank you for joining us. I would like to welcome everyone to Ternium's First Quarter 2024 Results Conference Call. I will now hand the call over to Sebastian Marti. Please continue.

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 first quarter of 2024. 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 both expressed or implied. Factors that will 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.

Thank you, Sebastian. Good morning to everyone, and thank you very much for participating in today's call. Ternium began 2024 with strong performance and a healthy cash flow generation. We delivered good results across all regions despite some macroeconomic challenges in some of them, as we will discuss later on. Our adjusted EBITDA margin reached a recurring level of 17% driven by higher steel prices and cost efficiency. We also continue showing a strong financial position, increasing our net cash to $2 billion as of the end of March. Our operation in Mexico, our main market, continues to show a positive performance; nearshoring in North America is intensifying as more manufacturing capacity relocates or expands in the region, driven by the advantages of geographical proximity, lower logistic costs, and shorter lead times. The strength, in particular, favors our company as we have a strong presence and a diversified product portfolio in this market. Demand from the industrial sector grew in the first quarter compared to both the previous quarter and the same period last year. The auto industry looks especially healthy with good production levels and expectations of reaching 4 million units in 2024, which would be a new record. On the other hand, the home appliances and electric motor industries face some demand headwinds. Finally, the commercial market is resuming activity after a re-stocking phase in the first quarter, triggered by a downturn in steel benchmark prices in North America. Due to these positive trends, we expect to see a sequential increase in shipments in the second quarter of the year. Another positive development is a recent implementation of a new import tariff by the Mexican government to prevent unfair competition in the local market. Over 500 products across various industries are subject to duties ranging from 20% to 35%. These tariffs target imports from countries that have no trade agreement with Mexico, such as China, and aim to level the playing field for local producers. I believe this is an important development that sets a positive example for other countries in the region. Moving to Brazil, steel consumption started 2024 on a positive note, showing a slight improvement over the previous year. The construction sector is slowly picking up, driven by lower interest rates, improved consumer confidence, and infrastructure projects. In the auto industry, the latest production forecast points to a 6% increase this year. With a medium-term view, this should benefit Usiminas' activity as it is the largest supplier of steel to the automotive industry in Brazil. Usiminas has a competitive edge in terms of quality, service, and logistics as it operates two mills strategically located in the southern region of Brazil, close to the main auto clusters. On the other hand, the Brazilian steel industry faces a significant challenge from the surge of imports in its steel market under unfair trade conditions, increasing by 16% in the first quarter compared to last year. Most of these imports are coming from China. To address this challenge, Brazil's executive management committee recently decided to raise import tariffs to 35% for several steel products that support a certain quota level. This is expected to take effect in 30 days, once officially published, and to be valid for 12 months. This measure is perhaps less comprehensive than what other countries in the region have implemented, but we consider it a first step in the right direction. Together with our domestic market, Usiminas has been focused on restoring its operational efficiency following the restart of its main blast furnace in the last quarter of 2023. This furnace is now operating at the expected level for this stage, resulting in lower steel production costs than in the previous quarters. Despite the challenges that Usiminas faces, it is determined to improve its operational efficiency by applying benchmarking and implementing best practices in various areas across the company. Usiminas' new management has shown remarkable leadership and competence since they took office less than a year ago. However, we must be realistic and acknowledge that this is a gradual process. I am confident that Usiminas will achieve its goal and overcome its difficulties. Usiminas has also announced a decarbonization goal, which is to reduce Scope 1 and 2 emissions intensity rate by 15% by 2030, relative to a 2019 baseline, following the World Steel methodology. This goal reflects its commitment to the global effort to mitigate climate change and to the sustainable development of the steel industry. During 2024, we will work on formulating a consolidated decarbonization roadmap with Usiminas. Turning now to Argentina, shipments declined sharply in the first quarter, reflecting the negative short-term impact of the government's economic stabilization measures on the construction and industrial sectors. Argentina's medium-term outlook still remains uncertain, but we anticipate a gradual recovery in steel shipments as the economy adjusts to the new policy framework and inflation moderates. In the second quarter, we expect the agribusiness and the energy and mining sectors to lead this recovery. We remain confident in the long-term potential of Argentina, a country that has abundant natural resources, a diversified industrial base, and a highly skilled workforce. If the government succeeds in stabilizing the macroeconomic situation and deregulating the economy, Argentina will offer many opportunities for growth and development in various sectors that are relevant for our operation. Before I conclude my remarks, I would like to highlight some key aspects of our strategy and performance that will shape our future in the next few years. A crucial part of our strategic plan is to deliver our upstream and downstream projects at our industrial center in Pesqueria on time and within budget. We are making good progress in building a significant increase in value-added capacity from pickling to galvanizing and customizing. The first stage of this project will come to function in 2024 with a pickling line and the first line in our customized process in the second half of the year. Moreover, the new slab-making mill will complement an integration process that was started more than a decade ago with the construction of the cold wall and galvanized line at Pesqueria, our first greenfield facility in Mexico. The new facility will be capable of producing the whole range of automotive grade steel with the lowest carbon emission level in the Americas. These projects are vital for our long-term success in the region as they will allow us to benefit from the nearshoring of manufacturing capacity, advance our CO2 emissions roadmap, and reinforce our strong competitive position to replace imports in the Mexican steel market. Another key element of our strategy for the coming years is to unlock the full potential for Usiminas. We believe that Usiminas has a great opportunity to enhance its profitability in the long run. It will require a steady and consistent effort, and we will stand by Usiminas management to help them achieve this goal. Okay, Pablo, please give us an overview of Ternium's performance in the first quarter.

Thanks, Maximo, and good morning to everyone. Before we start, I'd like to let you know that Ternium has redefined its operational segments to reflect the integration of Usiminas' operations. The new segments are steel and mining. The steel segment includes the sale of steel and other products. Meanwhile, the mining segment includes the sales of iron ore produced both in Brazil and in Mexico. Now let's review our company's operational and financial results in the webcast presentation for a more detailed picture of our performance. Let's begin with Page #3. Ternium has demonstrated robust performance during the first quarter of this year, marked by the ramp in margins and sustained higher steel sales volume. Adjusted EBITDA for the first quarter was $855 million, up 31% from the prior quarter, representing a higher adjusted EBITDA margin that reached 17%. This positive operating performance was a result of improved pricing, reduced costs, and a $56 million gain related to a readjustment of electricity transmission costs in Mexico. Looking forward to the second quarter of this year, Ternium anticipates a decline in recurring adjusted EBITDA. This is mainly due to a decrease in EBITDA margin, partially offset by increased shipments. The decrease in EBITDA margin results mainly from an expected decline in revenue per ton within the steel segment across most of Ternium's markets. Moving on to results, both net income and earnings per ADS demonstrated significant strength during the first quarter due to a strong operating performance, partially offset by losses associated with foreign exchange results at the divestment of certain Argentine dollar bond holdings. We will go deeper into these results later in the presentation. Let's shift our focus to the performance of our Steel segment. On Page 4, in Mexico, Ternium's steel shipments remained strong during the period. Volume experienced a slight decrease sequentially. This decline is attributed to a transitory destocking in the Mexico commercial steel market. However, it was largely mitigated by a strong demand from industrial customers. Looking forward, Ternium's steel shipments in Mexico are expected to increase in the second quarter. The shipments in Brazil were steady sequentially. The year-over-year increase reflects the consolidation of Usiminas' from the third quarter of last year. In the Southern region, shipments experienced a significant decline in the first quarter of 2024, attributable to the reduced activity level of Argentina and the destocking process in the steel value chain due to the negative short-term effects of the government's economic stabilization measures. The outlook for Argentina remains uncertain, yet Ternium anticipates a gradual recovery in local shipments starting in the second quarter of this year. Let's now zoom into the steel segment profitability on the next page. Focusing on the upper left chart, steel product sales decreased in the first quarter, mainly as a result of the lower shipments, as steel revenue per ton saw a slight sequential increase of 2%. In Mexico, realized steel prices increased by 8%, reflecting the lag effect of industrial contract prices at higher levels. On the other hand, weak market conditions in Argentina led to a 6% sequential decline in realized steel price in the Southern region. Looking ahead, we expect lower realized steel prices in the upcoming quarter, with decreases in most of our markets. In the top right chart, we have included two measures of profitability for the steel segment. Cash operating income per tonne and cash operating income margin. Cash operating income equals operating income adjusted to exclude depreciation and amortization as well as certain non-cash items. You can find a detailed reconciliation of these non-GAAP measures at the end of the quarter result press release issued yesterday. Cash operating income per ton and margins for the steel segment were strong in the first quarter. This was driven by lower cost of purchased slabs, slabs, and raw materials along with improved operating efficiencies at Usiminas' steel facilities in Ipatinga. Furthermore, the previously mentioned gain related to a readjustment of electricity transmission charges in Mexico had a positive impact on the cost of sales. Now let's turn our attention to Page 6 where we will be examining the performance of the mining segment. In the top left chart, we observed that net sales for the mining segment decreased sequentially as a consequence of reduced shipments and lower iron ore prices during the period. This was primarily due to decreased iron ore production levels in Brazil as anticipated. Regarding profitability, the mining segment cash operating income per ton and margin in the first quarter showed attractive levels, although they were lower sequentially, mainly due to a decrease in revenue per ton. Now let's go to the adjusted EBITDA and net income on Page 7. As previously commented in the top chart, the main drivers behind the sequential increase in adjusted EBITDA were a significant reduction in steel costs, an increase in steel revenue per ton, and the gain related to the readjustment of electricity already mentioned. These were partially offset by a lower contribution from the mining segment. The chart at the bottom, net income in the first quarter reflected a sequential increase in operating income, foreign exchange losses due to a fluctuation of the Mexican peso and the Brazilian real compared to FX gains in the prior quarter and better deferred tax results, which caused an unusually low effective tax rate in this quarter. Now let's move on to the next slide to assess our cash flow performance. Cash flow from operations was healthy despite the $256 million increase in working capital related to an increase in inventories and in trade and other receivables during the first quarter. Capital expenditure increased sequentially in the first quarter, primarily due to the completion of the relining of the main blast furnace in Ipatinga, Brazil and a reduction in the advance payment to equipment manufacturers related to the construction of the new facility at the industrial center in Pesqueria. Finally, we continue to have a very solid financial position with net cash that saw a slight increase in the quarter, mainly related to a valuation of Ternium Argentine Holdings of Argentine sovereign bonds. Okay. With this, we have finished with our prepared remarks. Thank you very much for your attention and time, and now we can open to any questions that you may have. Operator, please let's begin with the Q&A session.

Your first question comes from the line of Carlos De Alba.

The first question is just a clarification on the $56 million gain related to the readjustment of electricity transmission charges in Mexico. And maybe, I don't know, Pablo, Maximo, can you provide some color? Is this something that you overpaid in the past or did you pay more than what you should have, and now it's just being reversed back and therefore, you kept it as a sort of an operational item in your reports?

Basically, this was a change of the authorities in Mexico introduced some years ago, but we, of course, did not agree with it. We have a provision on that. And then we went to court in order to challenge that, and finally, we were successful in that. And it’s final by now. So we have reversed 100% of the provision that we had, and this should not be included anymore in our numbers.

All right. Okay. That's clear. And then on Argentina, two questions. One is, I heard that you said that you expect a gradual recovery in volumes. There was a very sharp decline quarter-on-quarter in the first quarter. So can you maybe provide a little bit more color as to how to interpret a gradual recovery? And the other part of the question is on the Argentine bond holdings that the company still has. You sold some in the first quarter, but you highlighted in the release that there is still around $240 million in negative comprehensive income in connection to the bonds that you still hold. What is the expectation there? Are you planning on potentially selling those bonds? Or what is the idea?

I will address the first question regarding Argentina. There is still significant uncertainty there, so I can't provide a specific number, and any figure I give might change due to the circumstances. However, as I mentioned earlier, we believe the direction is positive, and Argentina is taking the necessary steps. The fourth quarter saw a substantial decline, approximately 40%. For the second quarter, I would estimate a decline of about 20% year-over-year, though this is not a comparison to the current quarter. We expect an increase of around 25% quarter-on-quarter based on our current data. This indicates a recovery, but please note that these figures are not fixed, as developments in Argentina can happen rapidly. I hope this answers your question.

That was very clear. Thank you very much, and we will not hold you to it.

Pablo, the second one?

Okay. It's quite a complex explanation, but let me try to be as simple as possible. What we had during the first quarter was that the company was selling all the bonds that we received as a dividend payment from Argentina into the holding company and all the bonds that the government put in place in order to pay suppliers that were not paid by the former government. All of this occurred during the first quarter. So at this point, we needed to reflect the loss in the value of these bonds that have a nominal value and then a real value in dollars going through the financial results of the company. These results were already in the reserves. So at a balance sheet level, there was no change, but this needs to be moved from that reserve to the financial results. On the other side, we have finalized this. So you will see not any other impact of this in the coming quarter. This was not related to the holdings that we have in Argentina as cash in hand. This was related to the bonds that the government issued to pay back suppliers and the bonds that we have related to the dividend paid last year from Argentina. So it was a significant impact during the quarter, but it is finalized. No impact in relationship to that will be seen in the coming quarters. I don't know if I've been clear because as I said, it's not an easy issue to explain.

No, that's clear, I think. So you still then have a loss position in the bonds that you still hold of around $240 million, and it's already recorded in the comprehensive income, right?

Exactly. That's in comprehensive income. And as you have seen, that reserve was reduced from $400 million or $450 million to $250 million, and that will depend on the valuation of the bonds that we have in hand. So if there is a further revaluation of the bonds, that reserve will be reduced. But again, these reserves will not be reflected, or the movement of the reserve will not be reflected in the financial results up to the moment that we had to do something with that bond.

Our next question comes from the line of Caio Ribeiro from Bank of America.

So my first question is on the recently announced quotas and import tariffs for steel products in Brazil. And I know that you commented on that in your initial remarks, but I just wanted to explore it a bit further, and whether you think that the measures that were already announced are sufficient enough to quell the pressure from imports that we've been seeing over the past year, and perhaps also generate an opportunity for price hikes to recompose profitability in Brazil in the short term, so over the next few months. So how do you see that playing out? And then secondly, you mentioned in your press release, right, that there was an unexpected outage at one of your blast furnaces in Brazil. So I just wanted to see if you can share some more details on that, what the timing is on resolving this issue and whether you can share any expected impacts on costs as well.

I'll address both questions. Regarding the measures announced in Brazil, as I mentioned earlier, I view these as a positive first step. However, I'm uncertain if these measures will be sufficient to address unfair trade practices, particularly from China. I believe more action may be necessary. I do not have the precise details on how the implementation will unfold since it was shared during a conference call. Nonetheless, the allowed import quotas for certain products are significant, and I cannot predict their impact on prices. Again, while I see this as a good initial step, we should continue to push forward, as many other governments are doing, including those in the U.S., Mexico, Europe, and Turkey, all taking action in response to China's practices. Last month, China recorded its highest steel exports ever, exceeding 10 million tonnes in a single month, indicating widespread dumping. Countries are starting to restrict these unfair trade imports. As for the blast furnace No. 1 at Ternium's facility in Brazil, it faced a temporary disruption due to an unexpected outage in late March. The furnace is currently in the restart phase, which is a lengthy process when cooling occurs. We have pre-purchased enough slabs to fulfill our customer commitments and do not anticipate any significant impact on our shipments.

Our next question comes from the line of Timna Tanners.

I wanted to probe the guidance commentary a bit more. So you talked about lower prices in most markets. What market might not be seeing lower prices? And then you talked about EBITDA and EBITDA margins, but can we talk about costs a bit more? And specifically, when you might see the benefit of some declines in coking coal prices?

Yes, I mean, in all markets, we are seeing a little bit of lower prices, not exactly in Brazil, but it depends on the exchange rate. That will depend a little bit on the exchange rate when you see it in dollar terms. What we are going to see in Mexico is that you will have a lower price in the contract sales because of the lag from every quarter we have. But prices in the commercial market are increasing right now. So it's a mix between a lower price because of the contract and an increase in prices that we are seeing in our shipments to the commercial market. Overall, the prices will probably be a little lower than those in this quarter.

Okay. If you want to, Timna, going to the cost side of the equation, what we are expecting to see is a sustained level of cost because there are a mixture of different things. We are going to reflect, as usual, the price of slabs that we bought a couple of quarters ago. And then we have not yet seen any decline in the price of that raw material. There is also a change in the cost of iron ore that is more immediate to see that impact in our numbers. The increased profitability in the Usiminas numbers or the Usiminas production will also be reflected during next quarter and the following. As Maximo was explaining, the performance of blast furnace No. 3, after the relining, is starting to get up to the expected levels. Though, as Usiminas presented the numbers yesterday, you will have the impact of the increased price of blast purchasing the market that will be impacting during the second quarter. So all in all, it's why we are expecting to see a relatively stable level of cost for next quarter.

Okay. And coking coal, it sounds like it takes a while to flow through then?

Well, yes, exactly. It's something that we are buying for our operation in Brazil, and it takes a little while for it to be reflected in our cost structure.

Okay. And then I wanted to ask a little bit about the cadence of ramp-up. If you could remind us on Pesqueria, you have the galvanizing lines and you also then, of course, have the DRI-EAF complex. So if you could remind us about the timing and also any update on project costs given that we've seen some broad inflation across many of these types of projects, how are you tracking there?

Yes, Timna. Cost, we don't have any update besides the one we gave last quarter where we increased a little bit, but we are seeing that the cost will be, I think it was $3.4 billion, the total cost of all the Pesqueria 3, as we call it, project. Regarding timing, the first line that is coming online is coming in July with a ramp-up curve. Of course, it's the pickling line. And then the customers' lines are starting one also in July. Going forward, the other four will take two months each. So by the end of the year, we will have the five lines of the customers' lines working. Then we have the galvanized line, the galvanize 2, as we call it, that's going to start by the end of 2025. The cold rolling line, the PLTCM 2, as we call it, is going to start in March of 2026. And then we have the EAF-DRI facility that's going to start, we are targeting for the middle of 2026.

Okay. Massimo, just to clarify, what do you mean by a customized line? I'm just not familiar with that term.

Line for finishing products, I mean, to finish cold-rolled and galvanized products and to serve the customers directly.

Our next question comes from the line of Henrique Marques.

First question regarding capital allocation. We're seeing Ternium delivering strong results. Should we expect an increase in dividends? And also, I understand you're going through an investment cycle. But just, do you guys have anything on the pipeline, or are you thinking of any other opportunities, maybe in other regions outside Mexico, after this investment cycle is completed?

Okay. So let me take the question on dividends. As you know, the company has been increasing the dividend payment; we have increased this year with the result of last year to $3.3 per ADS, and that was an increase in comparison to the one that we paid last year. Though you're right that we have the financial resources in order to sustain this level of dividend payment, you also need to take into consideration all the CapEx plan that we have and all the things that we need to do in our facilities. What we said, and I think we commented on this in the prior conference call, is that whenever we, or the company, decides to increase the dividend payment, it is because we understand and have the resources to sustain at least this level. Then, of course, year after year, the Board of Directors needs to propose to the shareholders' meeting the final number. But with this new increased level of dividend, it's the one that we think that the company can sustain in the medium run. So we are not expecting a specific movement there, but at least to sustain the current level of dividend payments.

And again, what was the second question again because we didn't hear very well here?

Sorry about that. It was just on the pipeline of next investments and other opportunities, maybe in other regions outside Mexico.

Well, we are always analyzing opportunities in Mexico and outside Mexico also. Our pipeline today is very full, as you may well be aware, so we are not seeing any particularly today. But of course, there are regions outside Mexico that are also very important to us. As we always said, our focus has been in the Americas; we are not going to go to other parts of the world. We think there are good opportunities for us to continue growing and implementing all the things that we are doing in this region, in the Americas. But we don't have anything specific to give you today.

Got it. Just a quick follow-up on the last question. The flattish cost outlook, is it already considering the purchase of extra slabs or...

Yes.

Should we see some impact coming from it?

No, no, it's considering the buying of slabs.

There are no further questions at this time. So I'll turn the call back over to Ternium's CEO.

Thank you. Well, we appreciate your interest in and attention to this call. Thank you very much for participating. And if you have any questions, don't hesitate to ask us or call us. Have a great day, and take care. Bye-bye.

This concludes today's conference call. You may now disconnect.