Ternium S.A. Q4 FY2025 Earnings Call

Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to Ternium S.A. Fourth Quarter 2025 Results 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. If you would like to ask a question during this time, simply press star, followed by the number one, on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Sebastián Martí. Please go ahead.

Good morning, and thank you for joining us. My name is Sebastián Martí, and I am Ternium S.A.'s Global IR Compliance Senior Director. This morning, we released our results for the fourth quarter and full year 2025. Today’s call is intended to add context to that presentation. Joining me today are Maximo Vedoya, our Chief Executive Officer, and Pablo Daniel Brizzio, the company’s Chief Financial Officer, who will review Ternium S.A.'s operating environment and performance. Following 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 two in today’s webcast presentation. You will also find any references to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued today. With that, I will now turn the call over to Maximo Vedoya.

Thank you, Sebastián, and good morning, everyone. We appreciate you being here today in our conference call. We delivered resilient results in 2025, overcoming challenging market conditions by adapting rapidly and acting decisively to protect profitability. The company's cost reduction and efficiency program generated $250 million in savings in 2025 over 2024. Key initiatives included enhancing blast furnace stability, negotiating service contracts, optimizing iron ore sourcing, and improving logistics. As a result, our EBITDA margin reached 10%. Our performance, however, was affected by a fatal accident at Turnure Mexico in 2025 and another at Ternium Brazil during this quarter. Usiminas also experienced a fatality in 2025. We take safety extremely seriously and consider these events a significant setback. Such outcomes are unacceptable, prompting us to reinforce our safety programs. In response, we are ramping up preventive actions with a special focus on critical risk. Let me now review the latest changes in the global trade environment. The United States took significant trade measures in 2025 to counter unfair trade practices from China and other Asian countries. This is reshaping the global steel market, as other countries around the world are following a similar path. In Mexico, the government recently raised import tariffs on more than 1,400 tariff lines for countries without a free trade agreement. In the case of steel, import tariffs increased from 25% to 35%. Meanwhile, negotiations surrounding the North American region trade framework are ongoing. Many stakeholders from both sides of the border continue to engage in discussions. We have taken an active role in sharing the concerns and priorities of the manufacturing industry throughout this process. I see broad support for public policies that promote greater regional integration. The aim is to keep trade fair, address imbalances, avoid transshipment, and reinforce rules of origin. It is important to mention that an agreement to intensify trade flows should evolve restrictions on intra-regional trade, like those based on Section 232. As a USMCA joint review is taking place, removing restrictions to trade among its members will be essential to ensuring the benefits of deeper integration. Ternium is also doing its part in this process of greater regional integration. Since our arrival in Mexico over twenty years ago, we have significantly expanded our footprint in the country, investing in state-of-the-art technology to offer a wider range of high-value-added products to our customers in the region’s manufacturing industry. In this line, I am pleased to share some exciting news. We have started production in our new cold rolling and galvanized lines at the Pesqueria facility. This achievement completes our downstream expansion at the site made possible by outstanding teamwork. The entire project also added a pickling line and a finishing line center. All these facilities are now operational with the cold rolling and galvanized lines starting the ramp-up phase. Meanwhile, construction of the slab plant is moving ahead as planned. We expect to start up the facility by the end of the year. This new plant will allow us to produce high-quality automotive steel with lower CO2 emissions per ton in the industry. Adding to our positive developments, in 2025, we secured a $1.25 billion loan through a green financing facility to support this project. The loan received several awards last quarter, including IFR's Sustainable Loan of the Year, the GBM awards Sustainable Loan Deal of the Year in Latin America and the Caribbean, and an honorable mention from Latin Finance. Coming to Brazil, the recent implementation of anti-dumping measures and the increase in import taxes on nine steel products represent a significant shift in the market environment. These decisive actions signal a stronger government commitment to support local producers and achieve a balanced competitive landscape. Looking ahead, it will be key to monitor the market closely to prevent attempts to circumvent these measures, ensuring that these new regulations continue to support fair competition. In Argentina, growing concerns have emerged regarding unfair trade practices from China. In this situation, the new trade agreement between Argentina and the United States is important because both countries have agreed to work together to address unfair trade policies from other nations. While we believe Argentina should further integrate with the global economy, it is crucial to approach this process with caution, particularly given China's excess production capacity and predatory trade tactics. Overall, I am optimistic about Ternium's outlook for the coming years. I expect Ternium's profitability to improve in 2026, starting from the first quarter. On one hand, we will continue working on reducing costs and enhancing operational efficiency. On the other hand, although there are still several important trade issues to be resolved, I am encouraged by the growing support of market economy governments around the world for addressing unfair trade practices. As discussions between the United States and Mexico advance, I am confident that a mutually beneficial agreement will be reached, as a well-structured agreement is good for all parties involved. Mexico has demonstrated its commitment to reinforcing regional defenses against unfair trade practices and encouraging investment within the region, aligning its strategy with that of the United States in ongoing negotiations. In addition, promising changes in the Brazilian steel market environment and advancing economic reform in Argentina give us hope for the future in South America. In this context, we have reached an important milestone in the largest industrial expansion in our company's history. Together, these developments will put us in a unique position, as they will help create a stronger foundation for growth across the region. Thank you all for your attention. Before I hand it over to Pablo, let me extend my gratitude to our colleagues in Brazil, especially all the analysts, for joining us during the Carnival season. I hope you all have a very good holiday. So, Pablo, please go ahead.

Thanks, Maximo. Thanks, everybody, for being with us today on this conference call. Let me begin with a review of our operational and financial performance. If we move to page three in the webcast presentation, you can see that adjusted EBITDA declined slightly sequentially in the fourth quarter. It was in line with our expectations. EBITDA margin remained relatively stable, and there was a small seasonal decrease in shipment. As we move into 2026, we anticipate a sequentially higher adjusted EBITDA, mainly driven by an increase in EBITDA margin as well as growth in our shipments. Let’s move to the next slide. Net income for the fourth quarter totaled $171 million. In the fourth quarter, we report a lower operating income, mainly impacted by one-time charges, mostly related to an impairment in one of our mining operations in Mexico. On the other hand, we had a better income tax refund along with stronger financial results. In the sequential comparison, we benefited from a deferred tax write-down registered in the third quarter. Let’s turn to page five to review the performance of our steel segment. Shipments declined mostly during the quarter, primarily due to weaker volumes in other markets, mainly in the US and Brazil, reflecting seasonally slower activity. These effects were mostly offset by higher volumes in Mexico and in the southern region. In Mexico, we observed better volumes for the commercial market as a result of government measures aimed at curbing unfair trade practices. Looking forward to the first quarter, we anticipate a sequential increase in shipments, mainly as a result of the stronger demand in Mexico. Turning to page six, steel cash operating income decreased sequentially, driven by slightly lower sales volume and a decline in realized steel prices, which was partially offset by reduced raw material purchase costs together with efficiency gains. Turning to the next slide, the mining cash operating income increased sequentially, driven by stronger shipments and higher realized iron ore prices, partially offset by higher unit costs. We will review our cash performance and balance sheet performance on page eight, where we see that in the fourth quarter, we recorded another solid level of cash generation from operations, supported by a reduction in working capital primarily driven by a decrease in trade and other receivables. This was also offset by a decrease in trade payables and other liabilities. We are now past the peak of our capital expenditures, which in the fourth quarter totaled $463 million, primarily reflecting continued progress in the construction of new facilities at the Turner Industrial Center in Pesqueria, Mexico. Our net cash position remains stable in the fourth quarter of the year, and we have a neutral free cash flow. In addition, dividend payments to shareholders and minority interest were largely offset by an increase in the value of financial security. Let’s now turn to the final slide to summarize our full year performance. In a challenging year for the steel industry, we were able to defend profitability as we proactively mitigated the impact of the drop in steel prices and volumes. As a result, our EBITDA margin achieved a two-digit level. In 2025, cash generated by operations reached a strong $2.3 billion, allowing us to finance demanding CapEx requirements as we completed the downstream project in Pesqueria and continued working on the slab facility. Looking forward, we anticipate a decrease in CapEx in 2026 to a level of around $2 billion. In this context, Ternium's board of directors has proposed an annual dividend of $2.7 per ADS for the fiscal year 2025, keeping it at the same level as for the year 2024. Of this total, we have already anticipated and paid 90 cents as an interim dividend in November. The proposal shows our confidence in the company's prospects, even though we are currently undergoing a phase of significant capital expenditure. As the current market price of 10 new ADS implies a dividend yield of over 6%. With this, we conclude our prepared remarks. I will now turn the call over to the operator to begin the Q&A session. Thanks.

At this time, I would like to remind everyone, in order to ask a question, press star and one on your telephone keypad. Your first question comes from the line of Rafael Barcellos from Bradesco BBI. Your line is live.

Hello. Good morning, and thanks for taking my questions. So firstly, I would like to get a bit more color on your outlook for the Mexican market. Demand today is still running well below the peak levels we saw a few years ago. So I am trying to better understand how do you see the recovery path from here. Specifically, I mean, with the recently announced TRC Mexico, how should we think about the potential impact on demand growth for 2026? And other than that, I mean, how are you thinking about the likelihood of the timing of a USMCA deal? What showing impact if a significant part of this impact could be captured in 2026 or if it is a war story for 2027 and beyond? Could be helpful. And as a second question, turning to Brazil, I would like to get your thoughts on the recently announced anti-dumping measures. How do you expect these measures to play into pricing dynamics? Should we think about a relatively quick pass-through into domestic prices, or is the impact to be more gradual depending on inventories and competitive behavior? And if you could even give some color on the magnitude of potential hikes here. Thanks.

Thank you, Rafael. Let’s start with the first question regarding the Mexican market and demand. You are quite right, demand is very low. It was very low in Mexico in 2025. Apparent consumption of steel decreased by 10%. That is a huge decrease. I have never seen something like that in Mexico, to be honest. This was even worse if you separate long products and flat products. The apparent consumption in flat products, which is our main market, was 14% below that of 2024. So this is a huge decrease. Ternium's shipments in Mexico were a little bit better, as we managed to gain market share in flat products. This was an important measure. I think in 2026, the estimate from Canacero is that the market is going to grow by 4%. All these measures will allow the local steel mills to gain more market share against imports. You have to remember that in Mexico, there is still a significant amount, almost 9 million tons of finished products, that are re-imported into Mexico. Our target with all these measures is to gain more market share as we did in 2025. Although the market is not growing as much as we expect, we can gain in our shipments through this market share.

Regarding the timing for the USMCA agreement, it is very difficult at the moment. There is a target that in July, the USMCA should be renewed. I really do not know at this moment if that is going to be achievable. In our projections, we are not seeing a lot of increase in the timing of the USMCA for 2026, and we are placing that more in 2027. Of course, we hope that this is sooner, but we have to expect or we are making our plans in order that it is a little bit later. The second question was regarding Brazil and the dumping measures. This is a very important step. If you remember, Brazil has not been very active in the last years in defending industries against unfair trade policies, particularly the predatory tactics by China. But this change occurred with four dumping cases, the plate ones, the repainting, and last week, the cold rolled. This is very important news and represents a significant first step as Brazil joins most of the rest of the economies, from Europe to India to Mexico to the US, which are all fighting against unfair trade from China and from Asia. In terms of impact on prices, I think the effect will be gradual. I do not expect a huge increase in prices because of this. Again, this is a first step. But it is going to be a more gradual, as you said, impact in the future.

Thank you very much. That is perfect.

Your next question comes from the line of Carlos de Alba from Morgan Stanley. Your line is live.

Good morning, everyone. Thank you very much. Maybe, Maximo, first of all, clarification. You said that Canacero sees demand up 4% or down 4% in 2026?

Up 4% in 2026.

Great. Thank you. And then my two questions will be first, on USMCA. What would be the plan in the event that there is not a renewal of USMCA, and Mexico cannot reach a commercial agreement stand-alone with the US?

I mean, we operated all of 2025 with these premises. There is no renewal of the USMCA agreement. The great benefit is that Section 232 is going to disappear between Mexico and the US. I do not see a renewal of the agreement with Section 232 on board. That would be the biggest benefit of the renewal. So in 2025, we operated without it being a USMCA, with the two-three-two in steel derivatives and a lot of products.

The volumes for 2026, we are expecting volumes to start increasing already through the first quarter, mainly coming from Mexico. Let me divide the answer to this question by the different markets where we are. In South America, the first quarter is the seasonally lowest quarter of the year, so you are not seeing any increase during the first part of the year. In contrast, in Mexico, seasonality is coming at the last part of the fourth quarter. So taking into consideration what Maximo said, the expectation is at least an increase of 4% in peak consumption for the year and the possibility of further increases in our market share due to the volumes that we will be able to increase and produce with the new facilities. Even without considering the possible outcome of the USMCA renewal and its consequences, we are certain that the increase in Mexican shipments will be above the numbers that Maximo mentioned.

Great. Thank you.

Your next question comes from the line of Timna Tanners from Wells Fargo. Your line is live.

Yeah. Hey. Good morning. I want to drill down, if I could, please, on the EBITDA margin. In the past, you have guided to a normalized level of 15 to 20%. In the second quarter call, you had said you expected 15% at the low end by the fourth quarter. I am just wondering, you know, last two years have been challenging. I acknowledge that. But just trying to get a sense of what it takes to get back to that 15 to 20%. Could we see that in 2026? What are going to be the puts and takes to get there again? Thanks.

Hi, Timna. This is Pablo. How are you? So let me try to answer your question. First of all, you are right. We were expecting further recovery in the last part of last year that did not materialize because, among other things, the impact of certain events are happening in the different markets, especially the impact on Brazil because of imports, particularly from China, and the lack of anti-dumping measures at the moment that depressed prices in the market. The impact of the changes in the new rules of trade coming from the US, which impacted especially the industrial sector during the second semester of the year, and the increase of the two-three-two margin during that year, put a lot of pressure on margins and did not allow us to reach the original expectation. In the meantime, taking that into consideration, we implemented a cost reduction program that, as Maximo explained, gained more than around $250 million during the year, and clearly, we will continue doing that. Hence, that is an explanation for why we were not able to reach the number that we were expecting. I have taken a more cautious approach, but we will work in this direction to reach the target margins.

So again, hopefully, this year, we will do right.

Okay. Very helpful. If I could follow up on that, I saw with interest in the DIO CCIL yesterday, you have the announcement that Mexico is doing a dumping investigation into cold rolled imports from the US. I guess it just prompted me to think that, you know, is it enough to have the trade action so far in Mexico and Brazil, especially when you have 50% tariffs in the US, but also the 50% coming in steel action plans in Europe?

You made a very good point. I think all the things that you are saying are very positive. Again, I think that, as I said before, Brazil's actions represent a very good first step. As you mentioned, the US, Canada, Europe, and even Mexico are much more ahead in implementing trade measures against unfair trade than Brazil. However, it has changed significantly from last quarter to this one. All these changes in mood in both Brazil and Mexico are encouraging. The dumping case against the cold rolled is not only from the US, but also from Malaysia and China. And I believe we will continue presenting dumping cases if we see merit in pursuing them. The Mexican government accepted the petition to open this investigation, indicating that they see some merit in this. However, Mexico will likely continue with measures that align with the US market.

Okay. Great. Thank you.

Your next question comes from the line of John Brandt from HSBC. Your line is live.

Hey, good morning, guys. Thanks for taking my question. First wanted to ask about CapEx. I know you said $2 billion for 2026. Presumably that continues to fall as we go into 2027 and 2028. So I am hoping you can give us a little bit of guidance as to what those numbers might be or what a normalized CapEx number might be as the major CapEx is rolling off and the projects are completed. And then what does that mean for the additional free cash flow that you have? You painted a good picture of increasing demand, increasing prices, improving profitability, and falling CapEx means there is some free cash flow. I am wondering about capital allocation if we should see your net cash position as also fallen over the years as these CapEx have ramped up. Should we expect the net cash position to rise? Or are there other alternatives for this cash? And I guess my second question is kind of related to that. Now that you have sort of completed the acquisition of Nippon stake in Usiminas, is there any sort of additional consideration about potentially taking out the minorities in Usiminas? Have you analyzed what sort of benefits or cost savings you would have if you owned that 100%? Anything you could tell us there would be great. Thanks.

Thank you, John. Good morning. For CapEx, as you said, $2 billion this year would be around $2 billion. In 2027, it will be around $1.2 billion. So it is decreasing. In 2028, we do not have an exact number, but it will be around $800 million for regular CapEx. This includes our stake in Usiminas. So you are right. The capital allocation will likely provide a different view. For 2026, we are still going to have a huge CapEx, and probably we have to increase our working capital. Given the last three quarters, we have experienced a decrease in working capital. So I do not think it will change much, but it could have some impact.

Let me add a little bit to that because 2026 for sure will be a year in which we will be using cash and capital because if you add up the $2 billion in CapEx, the dividends we are paying, and the amount we have already paid for the shares of Usiminas from Nippon, these add up to more than $3 billion. Most probably the cash generation we were describing will be at or even higher levels, but take into consideration that we will reverse the reduction in working capital and probably we will need to allocate certain cash there. For sure, this year will have a reduction in our net cash position; we end up in 2025 with $700 million of net cash, which will be reversed as we will move into a net debt position, but again at very low levels.

At this moment, we are not considering launching a tender offer or buying the rest of the shares of Usiminas. Brazil is a very important market for us, and we already have a significant footprint there with our stake in Usiminas and our operation in the state of Rio de Janeiro. We also have a huge commitment to the community, investing $45 million in a new technical school for the community near our plant. We will continue looking for further opportunities in Brazil, but we do not have any plans today to do anything regarding Usiminas.

Great. Thank you very much.

Your next question comes from the line of Henrique Marquez from Goldman Sachs. Your line is live.

Hi, everyone. Thanks for taking my question. Just wanted to get more details on the upstream project in Pesqueria. I think that, in the end, increasing volumes relies a lot on the market situation. But do you think there is room for higher steel volumes when you finish the project? And also, if you could share more details on how much you expect to save in terms of cost, with your own slab production versus third-party purchases, that would also be great. Thank you.

Remember, the Pesqueria project is focused on the automotive industry. As you remember, when the USMCA was negotiated, there was a clause for 2027 where most of the automotive industry has to have melt and pour to gain origin. This project is going to allow us to sell even more volume to the automotive industry than we are selling today. Our footprint for the automotive industry is around 2 million tons, and this project could considerably enhance that volume. This 2 million tons today comes from slabs that we produce in Brazil and ship to Pesqueria for hot rolling, cold rolling, and galvanizing. By producing more slabs locally, we not only save on logistics costs but also increase our capacity in the automotive segment.

As I was explaining, we are replacing slabs that we are currently sourcing from other locations, allowing us to gain part of the margin by moving from buying to producing. This will provide significant savings in logistics and production efficiency. It also enhances our capacity to produce products that we were not able to produce before, which will add savings in various ways. Overall, this is a key project for Ternium for many different reasons.

Your final question comes from the line of Caio Greiner from UBS. Your line is live.

Hello. Good morning. Thank you, everyone. Two follow-ups from me. The first on Timna’s question. I wanted to understand what you see in terms of margin potential for Ternium that does not rely on the US removing or lowering Section 232. What level of margin upside do you see Ternium reaching over the next couple of quarters assuming that Section 232 is not withdrawn or lowered by the US? The second question, also a follow-up on capital allocation. Thanks for the visibility provided for 2026 and 2027. However, it would be interesting to hear your thoughts on Ternium post-2027. What are management’s priorities? We do know that in the past, you have mentioned corporate simplification, especially with a focus on Argentina. Are these still priorities, or do you have other plans going forward?

Thank you, Caio. As already mentioned, the real impact of a good negotiation of USMCA is something we expect to figure out for 2027. But I believe we can work on enhancing our margins even without that scenario. In this sense, we could see Ternium reaching the lower end of the normalized margin range without any support from USMC negotiations.

Capital allocation for us will still prioritize returning money to shareholders and exploring growth opportunities in our primary markets with potential for better profitability. We will continue evaluating all opportunities, including simplification efforts and other strategic projects in Brazil and Mexico as they arise.

We actually have one more question from John Brandt from HSBC. Your line is live.

No.

That concludes the question-and-answer session. I would now like to turn the call back over to Ternium S.A. CEO for closing remarks.

Okay. Thank you all for joining us today, and please feel free to share any comments with us. Goodbye and have a good day. Thank you very much.

Thank you, everyone. Goodbye.

That concludes today’s meeting. You may now disconnect.