Hello, and welcome to Ternium's Second Quarter 2025 Results Conference Call. Please note that this call is being recorded. I would now like to hand the call over to Sebastián Martí. Please go ahead, sir.

Good morning, and thank you for joining us. My name is Sebastián Martí, and I am Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the second quarter and the first half of 2025. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Vedoya, Ternium's Chief Executive Officer; and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's business environment and performance. After our prepared remarks, we will open up the floor to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya.

Good morning, and welcome to Ternium's conference call. In the second quarter of the year, we delivered an improved EBITDA relative to the first quarter. This better performance was mainly driven by higher realized prices in Mexico and a relatively stable cost per ton despite a slight dip in shipments. The operating environment remains uncertain and volatile, and our main markets are no strangers to these developments. In this context, our focus is on reducing costs to strengthen the competitiveness of our company. We are positive on the outcome of these initiatives and on the future of Ternium. In line with this, we are already anticipating a sequential improvement in EBITDA. In the third quarter, we expect a slight increase in shipments, led primarily by Mexico with the possibility of some additional support from Argentina and relatively stable volumes in Brazil. In Mexico, the business environment is currently marked by cautiousness, pending clearer information regarding U.S. trade policy and the conclusion of ongoing tariff negotiations with the United States. In response to this volatile environment, the Mexican government has taken some measures to increase domestic production to defend against unfair trade practices, especially from Asian countries. These actions have recently contributed to a decrease in steel imports in Mexico, creating a more level playing field in local markets. This supports our expectations of higher sequential shipments in Mexico in the third quarter. I remain confident that ongoing negotiations between the U.S. and Mexico will eventually yield a reasonable and mutually beneficial agreement. This conviction strengthens our commitment to the steady progress of our expansion project in Pesqueria, which continues as planned and serves as a cornerstone of our growth strategy. Unlike the recent developments in Mexico, the Brazilian steel market is facing significant challenges due to a surge of unfair imported steel. Imports continue to flow into this market, undermining the competitiveness of local manufacturers and rising their margins. It is crucial in our view that the Brazilian government responds decisively to this unfair trade practice. The impact expands well beyond the steel industry, affecting the wider manufacturing sector and putting at risk investments, jobs, and the long-term stability of these industries. Concrete measures are urgently needed to defend Brazil's industrial base, ensure a level playing field, and foster a sustainable market environment. In this challenging context, Usiminas is actively working on its cost structure in order to improve its competitiveness. Moving to Argentina, the country has experienced a significant increase in shipments during the second quarter, driven by seasonal factors as well as a gradually recovering macroeconomic environment. The automotive industry continues to operate at a healthy level of activities, and the agricultural machine sector is experiencing good demand. By contrast, the construction sector is not improving significantly, and certain market segments such as home appliances and packaging are being affected by an increase in imports of finished goods. In the face of ongoing uncertainty and volatility in global trade, we continue to focus on strengthening operational efficiency and improving margins. Throughout 2025, we have concentrated our strategic approach to cost management, seeking opportunities to optimize Ternium's production process and supply chain and eliminate inefficiencies. Our competitiveness improvement plan is centered on optimizing our logistics network to streamline transportation and reduce costs, improving our procurement through better supplier negotiation and cost control, enhancing production facility processes for greater efficiency, and boosting labor productivity by incorporating technology and innovation across our three production lines. These measures support our goal of strengthening profitability and fortifying our competitive position in a dynamic market environment. Before I wrap up my remarks, I would like to take a moment to highlight the release of our sustainability report, reaffirming our commitment to the creation of long-term value through sustainable industrial development. The report details our efforts to advance environmental performance, foster social responsibility, and promote transparency across our operations. I encourage you to review it for a comprehensive overview of Ternium's strategies supporting long-term sustainability. In conclusion, trade policy continues to evolve rapidly. We are seeing the United States adopt a more assertive approach in negotiating bilateral agreements and implementing targeted trade actions. While this shift has introduced a high degree of volatility, we recognize the U.S. government's intention to address predatory trade practices by many Asian countries, most notably China, and to work towards restoring further competition across the region. Mexico shares this perspective and is following a similar path. Even in this uncertain environment, Ternium's strong position in the region helps us face this challenge. I expect that our ongoing projects and focus on improving operations will enable Ternium to adjust to market changes and reach our goals. All right, this concludes my prepared remarks. Pablo, please go ahead with your comments about our performance last quarter.

Thanks, Maximo, and thanks, everybody, for being here today with us in this call. So let's start looking at the webcast presentation for a closer look at the operational and financial performance of the company. Beginning on Page 3, we note that Ternium's adjusted EBITDA increased by 25% in the second quarter, mainly driven by stronger realized steel prices in Mexico, partially offset by a slight increase in cost per ton. We expect this positive trend to continue into the third quarter, mainly supported by ongoing cost efficiency measures and operational improvements. Turning to the next page. Net income for the second quarter of 2025 amounted to $259 million. These figures include a $40 million provision adjustment related to the ongoing litigation associated with the acquisition of a participation in Usiminas back in 2012. The adjustment reflects both a discretionary consideration and the appreciation of the Brazilian real against the U.S. dollar during the quarter. Adjusted net income, excluding this provision, amounted to $299 million. This was mainly supported by better operational performance and favorable deferred tax results due to a 7.5% revaluation of the Mexican peso during the period. On the other hand, we had a decline in net financial results, primarily driven by the same Mexican foreign exchange fluctuation. Now turning to Page 5, let's review the performance of our Steel segment. During the quarter, shipments declined primarily in Mexico and the U.S. This was partially mitigated by higher volumes in our Southern region. For the third quarter, we anticipate a mixed performance across our key markets. In Mexico, we expect some sequential growth in shipments supported by recent government measures aimed at curbing unfair trade practices. In contrast, Usiminas in Brazil continues to face headwinds. The Brazilian market remains under pressure due to a sharp increase in unfair trade steel imports, primarily from China, which is undermining local competitiveness and impacting demand. Meanwhile, in Argentina, following a strong increase in the second quarter driven by seasonal demand and gradual macroeconomic improvement, we are expecting shipments to hold steady on the positive side. Let's now turn to Page 6 of the presentation. In the second quarter, there was an increase in average selling price, especially in Mexico, although this was offset by lower shipments. Margins improved, supported by higher prices with a modest impact from increased cost per ton. Turning to Slide 7, we will now review the performance of our Mining segment. Iron ore shipments rose quarter-over-quarter, driven by increased production levels. Despite these higher volumes, net sales remained broadly unchanged in the second quarter as lower realized iron ore prices offset volume gains. The segment margin slightly declined reflecting the impact of weaker prices, although this was partially offset by lower operating costs per ton. Let's proceed to the final slide of the presentation to review our cash flow performance and balance sheet position. Cash from operations in the second quarter totaled $1 billion, aided by a significant reduction in working capital. This reflects our work on adjusting inventory volumes as well as a decrease in trade receivables. In addition, a high level of CapEx contributed to an increase in commercial debt. CapEx increased this quarter as a result of ongoing expansion at the Pesqueria Industrial Center in Mexico. This trend is consistent with the project expenditure forecast, which identified 2025 as the peak year for investments. Finally, net cash position decreased in the second quarter, primarily as a result of the elevated CapEx level and the distribution of the $353 million dividend during the period. This was partially offset by the robust operational cash flow generation. Nevertheless, the cash position of the company continues to be very solid, totaling $1 billion at the end of June. Okay, this also concludes my prepared remarks. We are ready now to take your questions. Please, operator, go ahead with the Q&A session. Thanks.

And our first question comes from Caio Greiner from UBS.

So my first question on the state of supply, steel supply in Mexico. Can you guys elaborate a bit better on the supply picture in the country, touching on two points. The first one, as you mentioned, Mexico's recent implementation of trade measures, which eventually led to lower imports. And the second one, ArcelorMittal reported an incident over these last few days at the steel works, which is supposed to impact 30% of their production. So touching on those two points, do you think that these are enough to rebalance steel markets in Mexico? To what extent are they actually going to help the supply-demand picture, help to raise prices back to normalized levels? And is Ternium well positioned to capture a higher market share from these two events? The second question on the cost outlook that you provided. You mentioned that you expected cost reduction to drive higher margins for the third quarter. Can you elaborate a bit more on those operational enhancement and cost reduction initiatives that you discussed? How much of the cost decline that you anticipate is coming from these bottom-up initiatives versus lower raw material costs? We're seeing coal prices decline. We're seeing slab prices declining. So maybe break that down would be really helpful. And maybe if you could also quantify the level of cost reduction that we should expect into the third quarter.

Okay. Thank you, Caio. Let's start with the first one, Mexico. As you know, let me split it into two parts. One is the flat products. Flat products have an import share of around 40% in the Mexican market. And as you know, steel consumption in Mexico decreased a little bit this year. In the third part, with all the investments we have been doing and the increasing productivity, today, we have the capacity to start gaining market share, and it's what we are doing. I think we are going to improve this in the following quarters. That is because of the lower imports and the effort on one side, the government is making in fighting unfair trade. And on the other side, our own effort in trying to be a good alternative for all these customers. So from the flat product side, I think you are going to see an increase in market share. You're not going to see a huge increase in shipments because, as I said, compared to last year, consumption in Mexico is somewhat low due to all the factors we discussed. Regarding ArcelorMittal, we just found out yesterday or Monday about the problem in ArcelorMittal. I don't know exactly what the problem is yet, but that is in the long products segment. So yes, we are probably going to gain a little bit of share while this problem arose in the long product market. But as you know, in long products, there are not a lot of imports, and there are several players in the long product market in Mexico. So that gain is going to be only marginal, I guess. But the gain is going to be in the flat products, which is our main market. So that's for the first question. The second question, cost reduction. In addition to the decrease, as you said, in iron ore, we anticipated, I think, in our Analyst Day in June that we are seeking an additional $300 million decrease in cost efficiency during the whole year. Part of that, we already realized in the first quarter, almost one-third of that, and two-thirds of that volume is going to be realized in the next two quarters. This is several initiatives from our procurement front, with expected renegotiations and new suppliers and enhanced controls, providing almost $70 million. Improving various stability in some of our processes will account for an additional $50 million. We are rebalancing production in Mexico, shutting down some of the lines, and improving productivity in others, which will decrease costs. There are several aspects contributing to the anticipated cost reductions, including our wind farm in Argentina, which is providing energy at much lower costs than we used to. All these initiatives total the $300 million we mentioned, in addition to the decrease in raw materials that you pointed out. I hope this clarifies the numbers, Caio.

Maybe if I can, just a quick follow-up on the import trade measures that Mexico took. I just wanted to understand if you think these are sufficient to balance local steel markets in Mexico.

Thank you, Caio. Very good question. I think it's a good start, a very good start. But clearly, Mexico is analyzing more measures. I think in the sense as the U.S. is doing and Canada is also doing. So at the end, I'm expecting that the whole North American market will have a defense mechanism similar in each country. If you compare Mexico's measures to the U.S. measures, I think there's still a gap. However, I understand that the Mexican government is reviewing ways to reduce that gap.

Our next question comes from the line of Carlos De Alba from Morgan Stanley.

Just a couple of questions, if I may. First, on EBITDA, one short term and one long term. Can you maybe give us a better sense of the magnitude of the potential improvement sequentially, given that you already seem to have bottomed out and started improvement? The step-up in that recovery that you see ahead will be important. And a little bit more longer term, can you maybe quantify, give us a range of the expected boost in EBITDA in millions of dollars that you see coming from the ongoing and recent investments in Mexico?

Carlos, let me take at least the first part of your question. Clearly, as we have described in recent calls, we have bottomed out from the lowest level of EBITDA generation. There was a significant increase during this quarter. Our expectation is for this to continue. There are a lot of variables, of course, moving around, but the expectation is something that we already mentioned in the past to reach by the fourth quarter, an average EBITDA margin closer to around 15%, as you know has been our goal for the company in the short run. We believe that with all the measures that Maximo described on our plans to reduce cost and be more efficient, we will be able to achieve that in a normal market environment. The third quarter should mirror this trend, followed by an additional increase in order to achieve these levels. In the longer-term view, I think Maximo can take that.

Longer-term view of the projects. By the end of this year, we are going to start the galvanized line and the new cold rolling mill, the PLTCM 2. This is going to increase our capacity by 1.5 million tons a year. However, remember that all this equipment has a very long ramp-up period, so you're not going to see a huge increase in 2026. But it is 1.5 million tons. Of that, probably 0.5 million tons will close very old capacity. Remember, the Guerrero cold rolling mills or the Universidad cold rolling mills are very old capacity with one single stance and are very inefficient. So part of that is going to have an increased margin or EBITDA of $30 million to $40 million because of the cost efficiency. The other part will probably yield an EBITDA per ton of around $150 to $200 per ton. So you can do the math. But again, there is a long ramp-up period.

Let me add more. This is just the part that we are anticipated through year-end. Then we have the second part of the plan, but it will be executed in 2027.

Okay. Got it. 2027 will be the year, yes.

Yes. And again, a long ramp-up period, even longer.

Okay. All right. That's helpful. Then the two short ones, hopefully, one is not that short, but we'll see. On the CSN litigation or the Usiminas alleged change in control, where do we stand? And what would be the next steps in that litigation? And then one small one. The Shreveport facility in the U.S., you typically import material from, I think, Mexico into that plant for processing. With the 50% tariff, what is the strategy there?

Yes. Let me start with the second one, which is very simple. Today, we are buying most of our supply from local suppliers. Clearly, the 50% tariff makes us buy more locally. Regarding Brazil and CSN, I mean, regarding the litigation with CSN, to be honest, there haven't been significant developments lately. The last development we reported in the fourth quarter of last year was that we adjusted the provision we had because of that development. But since then, there hasn't been much of an update to that.

And going forward, what are the next steps in the legal process for eventually getting a final resolution on this?

No, we already appealed, and the Supreme Court of Justice has to decide if our appeal is going to the Supreme Federal Tribunal, the STF, as you call it, in Brazil. This is still pending. To be clear, we filed an extraordinary appeal against the quota, and there has been no decision. We are waiting for that appeal. That was, I think, in February.

Our next question comes from the line of an analyst from GS.

I have two follow-ups. The first one is on the cost reduction target of $300 million. I just wanted to understand if that compares to 2024 figures or to a run rate figure from Q4 2024. So I just understand what the comparison base for this cost reduction is and if that includes Usiminas. The second question is just on the impact that these lower imports into Mexico are having on steel prices. Do you believe that this should support further increases going into the third quarter?

Thank you. On the first question, this $300 million comparison is to 2024 without factoring in the change of raw material prices, of course. To see it in the ship balance, it's a little bit difficult, but we are continuously monitoring and making improvement compared to 2024. Usiminas is not included in this number. Usiminas, we are making it a very aggressive competitiveness plant, but it's not included in this number. On the second question regarding prices in Mexico, prices will probably increase a little bit. However, as I said, we are likely going to gain market share, but the change in prices is not going to improve radically. It will be a mild improvement.

Okay. And just a follow-up on the Mexican measures as well. Can you elaborate a little bit? I mean, are we talking about quota systems, antidumping? And if you can provide us some insights into the next measures that the government is analyzing, as you mentioned, that would be helpful.

Well, what they are doing is revising several abuses that have occurred in the system regarding imports in Mexico, not only for steel. The tax authority and the Secretary of Economy are implementing different schemes to shut down all the loopholes that were exploited for dumping cases. The tariff that Mexico is currently reviewing is with respect to all temporary imports. They are analyzing this because a lot of that was clearly manipulated. So they are closing these loopholes and also analyzing new dumping cases. I hope soon we will have good news about that.

Our next question comes from Rafael Barcellos from Bradesco BBI.

I have two questions related to capital allocation. So first, if you could please elaborate further on your CapEx cycle. I mean, whether we should see the peak of the CapEx level closer to the end of this year or more toward the beginning of next year. If you could give us a sense of when you're planning to post the peak of this CapEx level? And on this point, if you could provide more color on the execution of the Pesqueria project, that would be interesting as well. The second question is broader in the sense of I wanted to hear from you your thoughts on the overall capital allocation strategy going forward. I mean, whether you believe you could increase dividends in the coming years? Given the ongoing difficulties in Brazil following the recent increase in imports, how is your appetite to keep investing in the country?

Thank you, Rafael. Regarding CapEx, probably this quarter—the $800 million of CapEx of this quarter will probably be or definitely will be the top quarter of this cycle. For the remaining of the year, our projection is to be between $2.5 billion and $2.6 billion of CapEx that we discussed in the last conference call. The next two quarters are going to be very high on the order of $700 million, but lower than this quarter. Next year, 2026, will probably be around $1.9 billion, and 2027 will probably be around $1.1 billion to $1.2 billion. So as you see, this year is the peak, and this quarter particularly will be the peak of all this CapEx investment. The execution in Pesqueria is going very well. As I mentioned, the PLTCM and the galvanized line will start ramping up in December. That was the original date for the galvanized line, and we are moving forward the one in the PLTCM by two months. So I feel very comfortable with that. The steel shop and the direct reduction unit are proceeding well. If you like, there are some videos on our web pages or in the media showing the size and progress of the investment and the challenges we face. But as you will see from the videos, it's going very well and on time. Of course, we are making a lot of efforts to deliver that on schedule and within budget. The third issue is Brazil. You're right. Brazil has to take measures because, as a country, many industries cannot compete with unfair practices from China, not just steel, but automotive, and many others. I know the automotive industry in Brazil recently released a very tough memo about all this. So this is something Brazil has to resolve before it will attract investments.

Yes. The question, of course, was regarding dividends and the capital allocation of the company. As you know, we are in the middle of a significant CapEx plan for Ternium, totaling $4 billion. We are in the midst of that. As Maximo mentioned, this year total CapEx will be around $2.5 billion, next year close to $2 billion. We are in the middle of significant capital allocation that we need to cover. With this level of CapEx, we also affirmed that we will sustain our level of dividend payments, which we have been doing lately. So we have significant outflows of capital to be allocated within the project and dividends we are planning to have. Of course, as is usually the case with our large CapEx plans, we typically take a year or a little more to digest all our investments. As Maximo mentioned, the ramp-up period for these CapEx plans is significant, especially for these sophisticated projects. We believe that we have a very clear view of our plans for the near future.

Okay. Just a quick follow-up. So just to confirm, you mentioned that the peak of the CapEx was in the second quarter, right? So in the coming quarters, your CapEx level should go down slightly, right?

Exactly. We are estimating CapEx at $1.4 billion for the next semester, around $700 million each quarter, a little more or less, but that is approximately compared to the $800 million of this quarter.

There are no further questions. I will now turn the call back over to our CEO for closing remarks.

Okay. Thank you very much all for joining us in today's call. As usual, we value very much your feedback. So reach out to us with any questions, and have a great day. Thank you very much.

The meeting has now concluded. Thank you all for joining. You may now disconnect.