Operator Good morning. My name is Christie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ternium Fourth Quarter and Full Year 2015 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Sebastian Marti. Please go ahead.

Good morning and thank you for joining us today. My name is Sebastian Marti and I'm Ternium's Investor Relations Director. Ternium issued a press release yesterday detailing its results for the fourth quarter 2015. This call is complementary to that presentation. Joining me today are Mr. Daniel Novegil, Ternium's CEO; Mr. Pablo Brizzio, the company CFO, who will discuss our performance. At the conclusion of our prepared remarks, we will open up the call to your questions. I would like to let you know that this quarter we again added a presentation to the usual audio webcast for you to be able to better follow the CFO's description of our financial performance and that we plan to continue doing this in the future. Those of you that are only connected via telephone may want to also connect through the webcast to be able to follow this presentation. 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 in our press release issued yesterday. With that, I'll turn the call over to Mr. Novegil.

Thank you, Sebastian. Good morning to everybody, and thank you very much for participating in this Ternium conference call to review the performance in the fourth quarter 2015. I would like to start with some brief comments about some specific topics that I believe are relevant for our business and right afterwards, Pablo Brizzio will describe our performance in the fourth quarter and the outlook for the coming quarter, the first quarter of 2016. Then, we will enter into the Q&A. So let me begin, as I said, by some highlights about the state of the global steel industry. When we last talked in November conference call, I mentioned the results of the latest short-range outlook for 2015 and 2016 issued by the Economic Committee of the World Steel Association. While at the end of 2015, where steel was forecasting an increase of 1.7% in global steel demand in 2015, it seems that at the end the reduction will have been higher than these. For example, China demand forecast was minus 3.5% and I guess that it could be closer to minus 6% in last year. On the other hand, for example, Brazil was minus 12.8% and it will probably be close the year -- it will be close to 16.7% in 2015. On the other hand, I pointed out that Mexico, it was doing well and was forecasted a healthy growth in the steel demand. In this case, the 4.8% growth expected by World Steel will probably end up in a number close to 5.8% to 6%. By that Mexico is becoming in 2015, the largest steel market in Latin America. So that the steel industry continue to show during 2015 a significant overcapacity, mainly located in China, as you know, and this situation together with a deceleration of…

Thanks, Daniel and good morning to everyone. As we usually do, I will briefly describe our performance in the quarter and then we will have our Q&A session. Again, I would like you to remind that today we will have a webcast presentation together with the audio. Let's begin on page 3 of the presentation. Ternium net sales were $1.8 billion in the fourth quarter, down 7% sequentially. The reason for this decrease was a 6% decrease in shipment together with 1% decrease in revenue per ton. We have anticipated this decrease in shipments in last quarter conference call, mainly as a result of end of the year seasonality in Mexico and the planned 30 day stoppage of one of our hot rolling mill in this country in connection with another [indiscernible] of the line to enable a broader product range. On page 4 you have the annual sales numbers. In 2015, net sales decreased by 10% to $7.9 billion mainly due to a 12% decrease in revenue per ton, while shipments increased 2% to 9.6 million tons. You can also see in the pie chart of this page, the achievements in Mexico were 62% of Ternium total shipments and shipments in the southern region were 27% of which 25% were shipment in Argentina. Moving to more details in page 5, our sales in the Mexican market decreased 10% sequentially in the last quarter of the year with a decrease of 8% in shipments to 1.4 million tons and 2% decrease in revenue per ton. Again, seasonality is the main reason in these numbers. We expect shipments in this market to return to previous quarter levels in the first quarter of 2016 supported by healthy sales to the industrial and nonresidential construction sectors. If prices in the region halted their…

[Operator Instructions] And our first question comes from the line of Carlos De Alba from Morgan Stanley. Your line is open.

Daniel, you provided a lot of details on Usiminas. I just want to ask you a follow on question. Would Ternium be prepared in due course to contribute an equity offering into Usiminas that Nippon seems to be willing to do in order to avoid the company to file for bankruptcy? And then my question maybe either to Daniel or Pablo, would be on the Argentina situation and the impact on profitability. Clearly, there is a lot of moving parts with the negative impact of the Argentine peso devaluation on revenue per ton, partially been offset by the positive impact of that devaluation on cost, also all the accounting and the inventory cycle that we will see in the coming quarters. But net-net, if you can comment, where do you see the profitability of Argentina, say once all these volatility is behind us and also where do you see the level of demand for steel in Argentina given that the probably necessary measures that the country is taking will definitely have a negative impact on the economic activity? And then finally, question on dividend, Daniel. And the free cash flow generation is very good, very robust, the balance sheet is superb, and really sets Ternium apart from not only Latin American metals and mining companies, but also relative to the global steel peers. So do you -- what are your thoughts in terms of a potential increase in dividends in -- going forward given that 2016 has already been proposed? Thank you very much.

Let me start by Usiminas. Let me give you my straightforward view in what is going on in Usiminas. Usiminas is not doing well, as you know. You know that it's having some financial stress on one hand. On the other hand, Usiminas management has been working with the creditors in order to the restructure the debt. And it's also in the process of producing and putting in black and white some plans in order to, as I said in my introduction, to deepen, to make a more intense kind of restructuring similar to the one that we have started in the very first year so this new venture together with Nippon Steel. I think that, before thinking in a capital injection a capital infusion or an equity offering, Usiminas has many things to do, working in restructuring the company, renegotiating the terms of the debt to get, especially to get, as soon as possible the money that Usiminas has in the joint venture with Sumitomo. As I said before, there are $300 million over there that are not going to be dedicated to any ex-investment or any purpose in the years to come or in the future that we can foresee because of the volatility in prices in iron ore and the logistic cost in Brazil and so on. So that Usiminas should be in a position where it has to recover this money, it has to take this money back. Usiminas has an intake of 70% in MUSA and that means that if Usiminas is able to take the 70% out of $300 million, it will infuse into the company $200 million in order to have a relief, no doubt an important relief in the actual situation, in the situation that it is having nowadays. The problem now…

Okay. Carlos, as you put it, to understand how the revenue and the result for Argentina will come in the near quarters is quite complicated because, first of all we need to take it to consideration that from our point of view, Ternium's point of view, the functional currency of Argentina is pesos. So this has some difficulties to put together in understanding the numbers. First of all, the big devaluation that we saw in Argentina, first of all devaluated our inventories. So we are starting the year with the devaluated inventory that will benefit the number that we will see in the first quarter and part of the second quarter. Of course, as already mentioned by Daniel, the price has after suffering very significant distortions in the Argentine economy going back to normal levels. But of course, we have some impact in the medium run in the profitability numbers of the country. All in all, what we're expecting to see is not having a significant effect during the first quarter of the year. Also take into consideration that it's a quarter in which we will have the seasonal or the normal seasonal effect on volumes, we will have a reviews, pricing going through the quarter, but we also have important reduction in cost per ton due to the issue that we will have devaluated cost and also reviewed cost in pesos term or in the peso [Indiscernible]. So putting all together, we are expecting to see much difference entering in the beginning of this year, but of course we will have this impact in the following quarters and as Daniel put it, we are expecting to see Usiminas Siderar going back to normal levels as we saw at the beginning of last year or the end of the previous year. So taking out all the distortions that were present in the market.

When you have a process like the one that we are leaving in Argentina, and fortunately for us we leave this we saw this first this film many times in the cinema, so that we will be hedging and doing whatever dribbling and whatever we can in order to be well positioned in an environment of high inflation and maybe for that the devaluations, I don't know. But at the end, we will have positives and negatives, as always happen in inflation, maybe we would have a decrease in the level of activity in Argentina and will no doubt negatively impact the level of sales in volume of Siderar in Argentina, because the inflation rate is affecting construction and is affecting home appliances and the automotive industry sale in the short run. On the other hand, we are having very positive effects coming from a decrease in the labor cost in dollar terms. And as, we quote in Argentina international prices, Argentina is quoting the price following what is a domestic market, a normal and a standard domestic market and also takes above that into consideration a superb level of service, a very high market share and a very, very quick and fast delivery base and steady base and technical assistance and so on that allows us to charge a price premium to our customers that no doubt that they are willing to pay this premium, because they value that they receive is higher than the premium that they have to pay because of this differentiation on one side. So that at the end, we will have positives and negatives. Going back to my further remark, we are back to normal in Argentina luckily and we are very positive because that at the end we feel that Argentina has very…

Our next question comes from the line of Leonardo Correa from BTG Pactual. Your line is open.

Just on the first question here. Daniel, moving back to Usiminas, just a couple of questions that have been coming up quite consistently over the past days. First on a potential sale, I mean the media has been reporting that Nippon eventually did even offer to buy out the Ternium stake in Usiminas. So I just wanted to clarify if that is being discussed, if Ternium is really willing to exit? And also as an addition to this question on Usiminas, my question is whether you would be looking to regain the day-to-day control of the company, regain management of the company. So is this a discussion topic of Ternium looking to regain the effective control of the day-to-day at Usiminas, is that being discussed now with Nippon? Moving down to the second question, again on Argentina, we've been seeing the big impact on steel prices in Argentina when looked at in dollar terms, which is roughly 25%. Just wanted to get a sense on you on whether this is a new normal or over time you would expect to pass through all this recent depreciation that we saw in the peso to final steel prices, guys? So I just want to clarify right, because in steel 100% of your revenues are dollarized in Argentina, but that only applies to normalized markets, right? This is clearly not a normal situation. So I just wanted to get a sense if you can maybe quantify how much the EBITDA contribution in dollar terms from Siderar will vary over the upcoming, maybe second and third quarter, maybe just a comparison based on what was achieved in the second semester of 2015, that would be very helpful, just so we can have an order of magnitude of what the negative impact would be on Siderar's EBITDA contribution in dollar terms?

Regarding the first question, we are not considering right now to sell our stake in Usiminas and it was something that was never talked inside our company or with our partner in Nippon Steel. We are not interested in selling our stake. You know that Brazil is very important for Ternium and for us, it makes sense to remain in the country and in the company on a long term view basis that it continues to be positive even when -- you know, Brazil is not doing that well economically speaking and financially speaking right now, but it will recover, no doubt. Usiminas will see to refinance the debt and through different tools, as I was mentioning to Carlos and now we are in the process of weighting a serious plan coming from the management and it will be discussed in the Board in the weeks to come. Regarding the management as you know because we have been talking about that in other conference calls as well as in the Investor Day in our view, the turnaround and the restructuring and the breakthrough of Usiminas was interrupted a year and a half ago. And so right afterwards, some bumps appear in the horizon of the company. But we are always discussing with our partner Usiminas, with our partner Nippon Steel in good faith how can we -- what can we do together in order to better off the situation of the company through support, through management and whatever is necessary in order to pass these difficulties. So even when we are not talking right now about any changes in the management, it's something that is always there and it's something that we have to discuss, to talk with our partner, with Nippon Steel. Regarding Argentina, you know that what you say is right your diagnosis is okay. I mean is it a new normal or we will be having volatility? I really don't know, maybe we will be having some volatility in Argentina. But if you remember, because you are covering our company and our sectors for many years, I would say, even when you are very young, but anyway you started when you were in the high school maybe. But you know that we were always able in Argentina, even in very difficult environments and political situations to keep our prices in dollar terms and to keep our prices following our strategy of being similar to the domestic markets of developed countries, and afterward to add premiums that pay our efforts in networking and in commercial efforts. And as you know as we have been talking in many occasions. But at the end, I believe that we will be able to pass all these volatility, if it happens, as we did always and we did in the past, at least this is what I hope. Regarding the impact in EBITDA, we are back to normal. So maybe Pablo, you can quote on that impact looking forward in Argentina.

Okay. Leonardo, I would not characterize the situation in Argentina as a new normal, but as a new start. Meaning that after significant distortion on the different buyers in Argentina, we or a new guy when he's trying to put this back in order, so of course there’re terms in that will have some impact, but we are having a new start and from there on we should do what we do always in all our markets as Daniel was describing, and the situation should go back to the normal level. Of course, the impact on the EBITDA coming from Argentina could suffer. We have been discussing this during the last, I would say years. Now that we were seeing some increased participation of the EBITDA coming from Argentina from a normal situation in which the EBITDA from the different region should be much more related to the volumes that we generate in the different markets and Argentina was having a little increase over that. Of course, by this, also a situation that Daniel described, our position in Argentina, the products we offer, we will have some -- a little higher EBITDA in comparison to the volume sales in the country. But as I put it before, this is a new start and we should be back on track to a normal situation in Argentina. This could be, I know we are saying that, that there will be some reduction, not probably this quarter because of all the issues I described, answering to Carlos' question, but in the coming quarters after the first one, you could see some reduction there.

Our next question comes from the line of Marcos Assumpcao from Itau BBA. Your line is open.

Hi, good morning, everyone. First question is related to the free cash flow. If you could comment, if fourth quarter free cash of $190 million is a good indicator for 2016 free cash, if you could elaborate a little bit on the tax expenses that you're expecting for 2016 and also the working capital that we're seeing right now, is it sustainable or not? Second question also related to the free cash is, what are the options to do with the money or to the excess cash that you will have in 2016? You already at the very low leverage level, you already announced the dividend payment, what are you looking at, where are you going to put or you allocate the capital that you are generating? The last question on Usiminas. What happens if there is no agreement between the controlling shareholders in next week's meeting? Thank you.

Hi, Marcos, this is Pablo. Let me take the first part of your question, the free cash flow generation of the company. The company has been generating cash as every year, because of the EBITDA or the EBITDA generation, which has been very healthy. And especially during 2015, what we have was a significant reduction in working capital, which was mainly due to a reduction in input cost. As, we are all aware that the prices of not only iron ore, but cold and slabs were reduced throughout the year. So the renewal of inventories were done at a lower price at the beginning of the that continually a significant amount of cash to the company and the number, which was around $500 million. Of course, we have expected to have the similar situation in 2016. So all in all, the free cash flow should be not similar in the sense to 2015. In any case, we're expecting to continue to have a positive free cash flow that we will utilize to pay for our CapEx plans, to continue to pay dividend and if we have excess cash over that to keep reducing the level of debt as we always do. The impairment, as Daniel put it before are very healthy. Of course, you can consider that this the dividend that was proposed to the shareholders is similar to last year, but if you take all our measures in which you can compare dividend, dividend deal, payout ratio in comparison to net income or free cash flow is an increase in comparison to you see also in the healthy situation of the financial position of the company. So all in all, the company will continue perform as we have been doing in the past. We have a very conservative stance on our financial position and our capital allocation. Going to your second question, as we do not like to speculate on what could be the situation if there is no [indiscernible] as Daniel put before, we have never stopped talking to our partner and at the very end some solutions should be reached. So it's not something that we would like to comment at this point.

Okay. Pablo, can you give us a rough estimate on tax expenses and CapEx for 2016?

Yes, sure. CapEx should be similar to levels that we saw in 2015, so between $450 million and $500 million, so not different from what we saw in the last two years. In respect to taxes, we are always and we will keep being on real tax payment at levels that are between 30% and 35% of net income, which is the tax rate that we have both in Mexico and Argentina. So it shouldn't be different from that numbers.

All right, perfect. Just one last question to Daniel. You mentioned about a proper negotiation with the banks in the Usiminas case. What do you mean by that? Are you considering extending the maturities or some haircut on the debt as well?

Well, a combination of different things, as it could be done in any restructuring process. At the very beginning, we will have to be very transparent with the banks and to make them feel good that we are doing the right things that the company is strong, is healthy and then I believe as it happen in other restructurings, financial restructurings, we will ask them to contribute to the process. And that what can be contributed is always the same things and the company at the same time will make the best effort in order to improve the result, to improve the cash generation, to get rid of noncore businesses that are in the company to reduce cost and then to improve efficiency. To do that, and in order to get a positive response from the banks, the banks have to rely that the numbers are okay and are credible and that the management has the skill and the willingness and the compromise, the commitment and the guts to overhead in order to make a good plan, a credible plan is as always. You mentioned you were participating in some of these meetings.

No, I would like to add to that, which is very clear, Daniel, and already as you mentioned during the opening remarks, what we understand and we will see form the numbers of the company, Usiminas is producing that this is a liquidity issue and in order get over that, the scaling of maturity should be natural.

And your next question comes from the line of Humberto Meireles from Goldman Sachs. Your line is open.

So a follow-up on Usiminas, so if we digest everything we've discussed this call today, so the interesting long term fundamentals in Brazil that Ternium is not considering selling further stakes in Usiminas, the early management restructuring halt plus Ternium's view of no needs for capital increase in Usiminas and if you overlay all that with the high price paid for the control in the past and the low price today, do you see any strategic sense of making an offer for the remaining principles of Usiminas at this point?

No, we have discussed in the past, we believe that with the right level of participation in Usiminas, and we are expecting to increase our participation at the moment in new shares of Usiminas or also you know very well that there are some [indiscernible] for us to keep increasing our participation. So this is not something we have at the moment as an option.

Your next question comes from the line of Renan Criscio of Credit Suisse. Your line is open.

Thank you for all the comments on Usiminas. Most of my questions have already been answered. So my last question -- my only question actually would be, regarding Mexico, so if you could comment a little bit on steel price, the trending steel prices and what you're expecting on volumes in the region, that would be extremely helpful.

Yes. Well, a good question in order to [indiscernible] a little bit the questions on Usiminas, but anyway. Mexico is doing very well. It's growing and we were paying a look to the upper end consumption of steel as a whole during 2015 and the perspective for 2016 is also good. These trends in the market is coming from construction, more transplants that are going from the U.S. to the Mexican border and so on and so forth. Regarding the activity in Mexico, we had somehow low fourth quarter in Mexico that impacted the result of Ternium and the reason for that was something that will be overcome in the first quarter of 2016. And it's a seasonality effect, because of December being shorter than the other months and also we were having some logistic problems to serve the market because of the way the holidays came into the weeks. You remember that the 24th and 25th was Thursday and Friday, Thursday and Friday at the end of the year. So some truck drivers took the week off and these and the other things that happened. But anyway in any event, when we are somehow optimistic about the fourth quarter, this optimism is based upon the fact that in looking forward, we will see better volumes that maybe will be offset by lower prices, but also will be favored by a lower cost because of devaluation in Argentina and devaluation Mexico. And so that putting everything that all these prices going down, and all these situation in the outlook, but because of the flexible configuration and because of all these mix of different factors like labor cost going down, like volumes going up, prices weakening a little bit, all in all we see the first quarter of 2016 with an EBITDA that should approach -- should be going to a similar level of growth to the number that we saw in the fourth quarter. As a result of a lower EBITDA per ton on one hand, but partially offset by effective higher shipment in fact correcting the seasonal effect that I was mentioning at the beginning. Also in Mexico, we are having positive effect because of the dumping cases that I mentioned in the very beginning and the fact that the Mexican government no doubt is facing with energy and with determination, the situation in the industry and is not allowing the imports coming from abroad on dumping and on unfair trade basis. And that make us optimistic about the future and that's why we are, I would say cautiously optimistic about the quarters to come.

And your next question comes from the line of Alfonso Salazar with Scotiabank. Your line is open.

Thank you. My question is regarding CapEx, the guidance you just provided for 2016. I was just thinking that with the devaluations that we saw in the Mexican peso and the Argentinean peso that will translate into more a CapEx in the local currency. So my question is how much of your CapEx is related to the U.S. dollar? How much to the local currencies? And what are your main investment plans for 2016? And the second question is regarding the numbers that were out yesterday on crude steel production, given by crude steel, it looks like they're preliminary both Mexico and Argentina were down 90%. So my question is how we reconcile, this is crude steel production. But how we can reconcile these numbers with demand especially in Mexico where it seems to be doing well the part of the month. So if you can help us to understand what's going on with the whole industry in Mexico in terms of crude steel production and finished steel demand? Thank you.

Well, indication of CapEx for 2016, we will be around $450 million may be a little bit lower. Second question, percentage of local currency related cost in an investment and imports of machinery and equipment and spare parts that are dollar nominated, historically it depends on the kind of investment that you are doing. For example, if you are investing your money in equipment like revamping and a blast furnace or putting a new continuous caster, I would say that the mix is 65% dollar related and 35% local currency related. If you talk about investments, like for example, environmental related investments or a streamlining investment related or infrastructure investment related CapEx, you have the opposite. You have 35% of this is coming from abroad in spare parts and 65% coming from the local currency. In the year to come, I see that the mix will go more to these number of -- more related to local currency, I would say that maybe 60-40 or 55% local and 45% import or 60-40, that is good. Because as you mentioned, it will have a positive impact because of the evaluation in Argentina and in Mexico because when you talk about a local currency, you are talking about civil works, you are talking about logistics that are all mainly related to the labor in dollar terms. So both labor cost either in Argentina or in Mexico are going down because of the devaluations of the currency, so in that respect we will have a very positive effect in Argentina in the year to come and maybe in 2017 as well. Regarding the crude production in Mexico, I would say that as I mentioned in the beginning, we see very good perspectives, the perspectives are well above the ones that were delivered in…

I will now turn the call back over to Ternium CEO for closing remarks.

Well, I really appreciate your interest in the company, I really appreciate your questions and your inquiries on what we are doing. I hope that we answered as honestly and transparent as possible all the questions that you presented. And I feel very thank you with the participation of so many people. And so please feel free to contact us through Sebastian and Pablo for any additional doubt or comment or information that you may have. And I hope to see you in the following call or in the Investor Day that I am not sure we already have the date, we do have the date for Investor Day, on June 16. And so that you will receive all the information do we have the venue already on that, in the Guggenheim Museum, June 16, 2016. I hope to see you there and to discussing more detail. Thanks a lot again.

And this concludes today's conference call. You may now disconnect.