Good morning. My name is Krissy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ternium Fourth Quarter 2016 Results Conference Call. [Operator Instructions] Mr. Sebastián Martí, you may begin your conference, sir. Sebastián Martí: Thank you. Good morning. Thank you for joining us today. My name is Sebastián Martí, and I am Ternium's Investor Relations Director. Ternium issued 2 press releases yesterday detailing its results for the fourth quarter and full year 2016, as well as announcing the agreement with thyssenkrupp to acquire CSA in Brazil. This call is complementary to that -- to this presentation. Joining me today are Mr. Daniel Novegil, Ternium's CEO; and Mr. Pablo Brizzio, the company's CFO, who will discuss our performance and the characteristics of the deal. At the conclusion of our prepared remarks, we will open up the call 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 are on Page 2 in today's webcast presentation. With that, I'll turn the call over to Mr. Novegil.

Thank you, Sebastián, and good morning to everybody. Thank you very much. I do appreciate your participation in today's conference call. Well, as you already know, yesterday, we announced our fourth quarter and full year 2016 results and we also announced that we agreed with thyssenkrupp the acquisition of the Steel Americas business, that is to say the CSA facility in Rio de Janeiro, Brazil. Today, we do have a lot of issues and things to cover, so that I will try to keep my initial remarks as short as possible in order to be able to have some more time for the Q&A session. Let's begin with the results of the year. I am glad to say that 2016 was a very good year for Ternium. We shipped almost 10 million tons of steel. The EBITDA reached $1.5 billion. We had an EBITDA margin of 21% and an EBITDA per ton of $160, as you know, well above our peers and competitors. The net income of Ternium was $700 million and earnings per share were $3.03. On the cash flow side, we also did very well. Our free cash flow was $660 million after CapEx of $440 million for 2016. And I would say that, last but not least, the company net debt-to-EBITDA ratio went down again to reach a number of 0.6x at the end of December 2016. Again, 0.6x, bringing the total debt of approximately $900 million, a little bit below this number, down $250 million from December of the previous year, that means December of 2015. At the end, I'm very proud of these results and with these numbers, I -- we believe that these numbers are about the best in the industry and in comparison with peers and competitors. Pablo Brizzio will afterwards comment on…

Thanks, Daniel. Good morning to everybody and thanks for participating in this conference call. As Daniel mentioned, we have a very important issue to discuss during this call, so I also will try to be very brief on the comments. If we go to Page 3 of the webcast presentation, let me comment starting over here. EBITDA in the fourth quarter 2016 was $351 million. As anticipated in the third quarter press release, Ternium EBITDA decreased from the very high level it had in the third quarter. But nevertheless, EBITDA in the fourth quarter 2014 was 18% higher than in the fourth quarter previous year. The chart on the lower left side of this slide shows that EBITDA per ton was a healthy $147 in the fourth quarter. This is equivalent to a 19% EBITDA margin. The reason for the sequential decrease in EBITDA per ton was a higher cost per ton, mainly as a higher purchased slab cost went through our inventories, combined with a lower revenue per ton mainly due to lower realized price in Mexico as steel prices decreased in the third quarter of the year that were reflected in the fourth quarter as a result of the regular price reset, index base quarterly contract with industrial customers. We expect to show a sequential increase in EBITDA in the first quarter 2017 as we will have higher shipments in Mexico and higher realized price in all our markets. In the following page, we can see shipments in Mexico were stable in the fourth quarter and revenue per ton went down 3%, mainly as a regular -- excuse me, as a result of the regular price reset of quarterly contracts, which reflected in the fourth quarter the decrease in market prices that happened during the third quarter. We…

[Operator Instructions] And your first question comes from Karel Luketic with Bank of America Merrill Lynch.

I have 2 questions regarding the acquisition of CSA. The first one on the side of the strategy. The question is, if this in any way changes Ternium's focus in Brazil? And in any manner, the dynamic of the situation that we are currently ongoing in Usiminas? That's the first question. And the second question, Daniel, you mentioned in your opening remarks that CSA could generate an EBITDA of $280 million to $290 million without synergies. Can you please comment on what the potential synergies can be here through this acquisition and where they could come from? That would be great. Those are my questions.

Thank you, Karel. So regarding the first part of the question, there is no relationship at all between the acquisition of CSA and our activities in Usiminas. On top of saying that, we still consider and we do consider Brazil as a good ground for opportunity for Ternium. And what is going on here is that we found an opportunity and we went for it. You know that this -- the replacement cost of this plant would be around $5 billion. We are buying state-of-the-art, brand-new and very well-run asset at $1.5 billion, so that -- with a multiple of 5 to 6 over the $280 million that we expect with no synergies. We believe that we will have a good rate of payback and a good rate of return. So we are going for that because we believe that we will have -- we will create value for Ternium. Regarding the synergies, there is a -- the synergies within our facilities are going to come from opportunities to improve production coordination, quality, product range at a consolidated level. Being the acquisition 100% ownership on our side, we will be able to complement our supply chain management and no doubt that this will produce an important and positive impact in the productivity level of our facilities because of production combinations, production planning, inventory levels and so on. We have not disclosed any quantification yet of expected synergies, but we are in the process of analyzing that and maybe we can quote more in detail during the Investor Day that will happen to be on the 28th of June in -- 29th of June in New York. Having a larger crude steel production base in the region, meaning by the region of Argentina, Mexico and Brazil, will also give us more…

And your next question comes from the line of Jon Brandt with HSBC.

So, I guess, I had 2. First, in my understanding, CSA has been available for sale for a while. So, I guess, I'm wondering what the rationale for doing the acquisition now is and not in the past [indiscernible] or do you think the slab market is expected to tighten over the coming years. I guess, that's my first question. And then second, I know your balance sheet is still in very good shape, but historically, you've always had a very conservative balance sheet. So I'm wondering if this acquisition precludes you from doing further investments in the coming years? And if not, so what are your priorities now? Investing in Mexico? I know Tenigal is working above capacity and would you look to expand those operations?

Good. Well, let's start by the rationale and the slab market situation. No doubt that these as we have mentioned in other calls and we also discussed in detail and in depth in the Investor Day, there is overcapacity still in the steel making globally. And -- but the rerolling of slabs is a business that on one hand is doing very well for us and did very well in the last 5, 6 years because the gap between the hot-rolled coils and the slab prices was historical -- in record level on a GAAP basis. Over the years, we increased our needs of slabs to 3.7 million tons per year because of increases in productivity on our mill, so that, now, at this point of time, we are the #1 buyer of slabs worldwide. At the same time, we noticed that some of our suppliers, that are few, were also going downstream so that maybe in the future, we could face a scenario of limited excess capacity for exports. And at the end, there are -- there is no additional capacity of the slabs for exports being built nowadays. It's to share with you some numbers. As you know, the total production or upper end consumption of the steel worldwide is 1.6 billion tons of steel. The total trade of slabs in the world is around only 30 million tons, 3-0, 30 million tons. Half of that is trade between related parties -- or it's not related parties and the long-term agreements, joint ventures and so on. So the dependence of buying 3.7 million tons on our side out of a total supply base worldwide of only 15 million, 16 million tons per year of slabs was raising some concern on our side. As I said in the previous…

Yes, of course, Daniel. So you're right that our financial statements look extremely strong and this transaction will, of course, increase the level of debt that the company will have but, in any case, we'll sustain and maintain Ternium in very healthy and regional levels. We, of course, will continue with the way of seeing the financials and trying to sustain a very healthy position and being conservative on that respect. Daniel kind of answered the other part of your question, which is that we need first to digest -- we need first to digest the current acquisition. It will take some months. You know that we are expecting closing on the CSA transaction by the third quarter prior to September 30 this year, so we need to do some work in order to finalize this acquisition. And also as Daniel mentioned, this gives us the possibility of analyzing which will be the investment that we can have in the future. As he said, we continue seeing opportunities especially in Mexico to increase our participation in that market. So we will continue with the same policy we have in our -- the way we manage our financials and we will have time to carefully analyze which are the things in which, if any, we will need to invest. So we are not in a rush to do that. We have time. We will carefully analyze and you will know, in due course, which will be the opportunities that we will be taking.

Yes. To be more specific, John, and to answer your question, we do see, no doubt, that we do have very good opportunity to expand our downstream integration in Mexico, to cover more market share, and to gain market share against imports. That means, that as I said before, we do have very advanced analysis, and paybacks, and profitability analysis, and internal rate of returns for expansions in galvanizing, and expansions in painting line, so that in some point of time we will go for this market opportunity. As you know, 38% of the Mexican market is being imported and coming from a road, so that being in the area, being in Mexico, having a very sophisticated commercial network, working very, very close with customers, and being able to serve this market very efficiently, we will also, no doubt, will take opportunity of this room that we have to expand our downstream, our aggregation of value in coating.

And your next question comes from the line of Marcos Assumpção with Itau BBA. Marcos Assumpção: Congratulations on the CSA deal. Two questions here. One on the potential tax benefits that you could enjoy in this operation. We know that CSA was accumulating ICMS or VAT taxes. Could you quantify that to us? And also mention if there's any potential income tax benefit that you could have in this operation? And eventually, what would be the potential to invest in rolling capacity in Brazil, considering the tax benefits that you have? A second question, if you -- if there is an opportunity to debottleneck CSA's crude steel capacity with marginal investments in the future?

Well, first, let's start with the tax loss carryforward on the transaction. CSA has tax loss carryforwards of approximately $1.5 billion. And this was not considered when determining the price to be paid and the value of the company, so that they are an upside for the future, and the capacity to use or to be able to use these carryforwards, these tax loss carryforwards will depend on, as you know, on different factors. Marketing performance, being able to sell in the domestic markets to local players, and so on. I anticipate that the net effect of consolidating these assets into our financials will be positive from the beginning, and we will improve our results. Regarding the ICMS and PIS, COFINS, another tax credits kind, CSA tracks tax credits from ICMS and PIS, COFINS declared amount approximately, I would say, $300 million in the case of ICMS, and $160 million in the case of PIS, COFINS. So there is a possibility, obviously up to certain limitations that you already know, to request the tax return of the PIS, COFINS credit, what is not possible in the case of the ICMS. Unless the applicable tax regulations change, the only way to recover the ICMS would be by selling the slabs locally to local producers, to local customers. So having seen that up to some extent, CSA has been doing over the last years with part of the production and the output of the facility. I cannot tell you right now at this point of time what will be the level of local sales or the share of local sales, late sales out of the total capacity in the future. It will depend on many factors and it is a decision that we will take together with a gradual relocation of CSA…

Your next question comes from the line of Alessandro Abate with Berenberg.

Daniel and Pablo and team, really, congratulations on this deal, that I think is probably the deal of the century related to the potential synergy you have across your supply chain and the price that you paid. I have a few questions. Just allow me to be a little bit against your view on the potential contribution in terms of EBITDA you might actually generate without a synergy because it seems that $290 million, $300 million, the markup that you're taking on each ton of slab sheet is mostly conservative because it implies the profitability probably in commercial quality grade, so I think there might be an upside from that level. The second question is related to Usiminas, because if I pay the potential recovery of Brazil from the economic recession, also that if we were looking on the outlook on a cash flow discounted basis, Usiminas should increase. What is the potential reevaluation in case of Usiminas if the market gives signs of continuous improvement in Brazil? The third one is related to Argentina. Clearly, I think, that the recovery in Brazil might benefit Argentina because Brazil is shipping a lot to Argentina. If you could give us an indication in terms of potential EBITDA contribution from your asset in Argentina, on a year-over-year basis, what the upside will be? And the last question is related to Mexico. Clearly, Mexico is a net importing country. You're going to get almost a super fully integrated supply chain that should push you also taken in consideration of the weak currency, a little bit in the same condition that Russians were last year where they were basically churning enough free cash flow like crazy because of the currency. If, let's say, there is a deterioration of the market in Mexico, and considering the fact that Mexico is any way a net importing market, what is actually is the visibility you have on the supply-demand balance in the next 2 years? So you can also rely on balance and supply demand situation despite potential worsening of the trade situation with the U.S.

Well, thank you for your comment, Alessandro. I do appreciate. I do -- I believe we view that maybe the $280 million, $290 million or $60 per ton of the capacity of 5 million tons is conservative. But either way we are doing the numbers. We feel that we have upside potential -- an upside potential coming from different factors: Efficiency, productivity, streamlining of the operation, inventories, the taxes, loss carryforwards and so on. Synergies in the system with Ternium. And second, regarding the market -- regarding Brazil as a whole, we do also -- I do also agree with you that the market is bottoming up. We are looking at some signs of recovery in pricing and in demand, and this will be positively impacting the activity of Usiminas and the activity of CSA. No doubt that there are also important avenues, so to speak, of complementation between CSA and Usiminas, especially regarding the -- or taking into consideration the proximity between CSA and the Cubatao plant where, as you know, we decided some time ago to close, to shut down. The upstream now is rerolling, buying slabs from a third party so that both companies, Usiminas and CSA, could enjoy a good relationship from a commercial standpoint in the benefits, obviously, of both companies and [indiscernible] also and I feel that there is an upside potential over there. Regarding the Argentine market, let me comment that I am really very positive about Argentina. I am very positive about Argentina because the market is recovering. We are expecting an increase in 2017 of 7% on a year basis against the previous year for steel consumption. The recovery will continue in the months to come until the end of the year and maybe also in 2018, we will -- Argentina…

Daniel, just a follow-up question if I may, on Usiminas. I just wanted to know whether you see a potential revaluation of your stake in Usiminas? Because on your balance sheet book value went from $1.6 billion to about $400 million. And then considering the clear synergy between Usiminas, especially because of the just rolling and not producing slabs and CSA, do you think that in the future, I mean, there is enough motivation for you to basically try at least like an hypothesis to recover the stake in Usiminas via assignment of the asset in Cubatao?

Okay. Alessandro, let me take the first part of your question. You are right that we need to prepare our investment in Usiminas due to different issues that took too long to comment here, we could have the opportunity to recover part of that. But it's a process in which you will need to be clear and certain that the buyer will return them to more normal levels. And if this is the case, that we agree with you that at some point, this will be the case, we will be able to do it. So I don't know, Daniel, if you want to take the second part? You know, I can...

You can go ahead.

We are -- as we said before, Alessandro, we are concentrating now in digesting this investment. We are not expecting to pursue with what you were proposing. This investment has been performed in order to reduce our dependency on third-party slabs and this was the main driver on why we did this analysis, and why we signed the contract with Thyssen to acquire CSA. So this is the main and we are not licensing anything further in relationship to what you have explained.

And your next question comes from the line of Thiago Lofiego from Bradesco BBI.

I have 2 questions. First, if you could update us on how the controlling shareholder situation at Usiminas is evolving? What can we expect from here? Is there any kind of potential agreement within the parties that we can expect? That's the first question. Second, regarding the slab supply agreement with ArcelorMittal in U.S., I'm sorry if you already answered on this one, but for how long will that agreement be valid? And do you intend once it expires not to renew? I mean what are the options there?

Well, regarding the first part of your question, the controlling group situation in Usiminas and the relationship with Nippon Steel. I would say that the relationship with Nippon Steel is good. I mean, we have a partnership in Mexico that is going very well that is Tenigal one. We continue in the case of Usiminas working with Nippon Steel towards finding a way for both parties to solve our differences regarding the governance of Usiminas in the controlling group. As we have discussed some time ago and in some other occasions, the main source of our misunderstanding -- misunderstandings are, it is public in the mechanism for the nomination of the Usiminas' CEO, and Chairman, and some other governance issues related with the management. As you know, in the current shareholders agreement, we have a consensus mechanism stated that rules the nomination of CEO and Chairman. The Nippon Steel had a proposition -- has proposed to change this consensus mechanism for an alternation mechanism, where CEO's and Chairman's are being nominated by -- are going to be nominated by each of us for a certain period of time. Even when, over the last year, we didn't agree and we still don't agree that maybe this is the best way to manage a company the size of Usiminas, the technology of Usiminas. But at the end, and in order to reach an agreement with them, together with them, and to continue working together as we have been doing, in Usiminas, we would be willing to accept a mechanism like that, if at the same time, we have a way to find a solution to situations like in past or permanent conflicts between the 2 main shareholders. So that we would be willing to accept the alternation at the extent that there's…

If I may very quickly, does CSA have a contract with Usiminas in terms of slab supply? And could you tell us details?

CSA was supplying Usiminas, especially to be -- the slabs to be rerolled in the Cubatao plant, in the former [indiscernible] plant. And has been doing this very well, the products did well, the logistics are very efficient, and you know, it's very convenient obviously for Usiminas to buys slabs in the domestic market as opposed to receiving this from the road. So that even when there is no formal contract on a contractual basis, so to speak, they are buying, they are negotiating on a quarterly basis, and I see that there is ground for opportunity for both companies there, in this relationship.

And your next question comes from the line of Carlos De Alba with Morgan Stanley.

Daniel, 2 questions for you. You mentioned that today, at least, Ternium is not thinking on integrating CSA downwards on producing more finished steel products. What is the rational for that? And why wouldn't the company pursue that strategy if that is basically what Ternium has been focused on in the last few years? And second, are there any -- what are the important questions or issues that might arise in the CADE revision of this transaction?

Well, regarding the first part of the question, we believe that there is excess capacity of hot rolling in Brazil, and the Brazilian market is being served properly by the other competitors, and the other players, so that entering into adding capacity, downstreaming the operation will not make any sense from an internal rate of return standpoint, because we would have to spend a huge amount of money in a rolling facility, just to be adding capacity in a market that is being very properly serviced by the other players. So that will not make sense from a payback standpoint. So that in that respect, we will keep as it is. We will concentrate our efforts in gaining efficiency, and we will be selling the output in the open market, in the Brazilian market to local players, in the U.S. market to Calvert or some other customer, and to our Mexican operation. We will still be having an important presence in the third kind of supply market, because we will be buying some needs of slabs from third parties. Regarding the CADE, there is no competition at all between CSA and any of our facilities in any place, so we really do not see any issues. Neither important nor unimportant I would say. There are no -- it's a nonissue for us, because there is no -- any competition at all. The products are different and everything is different.

Very clear. And just -- does this transaction in any way reduces the willingness of Ternium to remain as a controlling shareholder of Usiminas?

Yes, I would say so. It's a good question and it's a proper question because it could raise some concerns that maybe because we invested in CSA is because we don't feel -- no, no, it's not the way it is. I mean, this opportunity that we found, as I said at the very beginning, it is something that we got in our way. We went for it, and we believe that it will add value from economic as well as from a strategic standpoint, and it will create value for shareholders in Ternium. And it will depend in our activity in Usiminas. In Usiminas, we still have the same passion, the same enthusiasm that we had at the beginning, so that we will continue there, making all our efforts in helping and in coordinating with our shareholders, in order to improve the performance of the company. We do believe that Brazil is bottoming up. I mean, we do believe that Brazil cannot go further down. I mean, Brazil will have a rebound, but Usiminas will benefit from this rebound from a market as well as from a pricing standpoint.

All right. Excellent. And just final question. What is that capital that Ternium is expecting now for 2017?

Carlos, as we said before, without any further announcement or plan, we were expecting to have the 2017 CapEx a little higher than what we had last year, that was $430 million. We were expecting to have CapEx in the range of $500 million, a little higher on that, continues to be very limited. But as we said, we need to reevaluate all our plans. We need to see which is a way -- -- where is the best way to continue investing our resources. So just to let you know, without taking into considerations anything that I've said before, our plans were to be a little higher over $500 million.

And your next question comes from the line of Caio Ribeiro of BTG.

I was wondering if you guys could comment on what you consider a normalized EBITDA per ton for the company going forward? And how much this number could improve with the CSA acquisition? And secondly, on working capital, there was a reduction in the quarter, and I'm just wondering how much more work you think that you can do here going forward? And if there is any way to quantify any potential benefits that there could be in this metric from the CSA acquisition, perhaps in less inventory requirements, for example, which could lead to less working capital requirements for Ternium?

Yes, let me first tackle the issue of working capital. The working capital in the year has been sustaining at regular level. And, of course, it depends a lot on the prices of the different materials that we have in our inventory, especially slabs. In the case of this acquisition of CSA, first of all, you know that the closing of this is expected by the third quarter, so the impact on -- during this year won't be that significant. But clearly, one of the achievements that we're seeing, and Daniel already mentioned that, is that we will be able to have a better supply chain management, and we will be able to reduce, most probably, the level of inventories that we need to have in Mexico, to supply our hot rolling mills there. So this clearly is a synergy, it's an advantage. We prefer not to start to give numbers on this issue. We will be very careful to analyze this, and probably in later meetings we will be commenting on that. In respect to the EBITDA per ton, you know that this year has been a very good year. We were able to sustain an EBITDA per ton of over $150 per ton on a yearly basis, which is something that we always are looking to sustain. You know that it is very difficult in line all of or in view of the pricing scenario. This specific figure depends a lot on the final price of the product. High price could allow you to have a high EBITDA per ton, lower prices works the other way around. That is why we are always looking to numbers of EBITDA per -- EBITDA margin, which is for us, a better reflection of the reality of the company because independent on -- or kind of independent on the price of the product, sustaining a level of EBITDA margin over '16 -- or at the levels that we see now is a key goal of this company. So we believe -- firmly believe that the acquisition of CSA will help us to sustain, maintain and increase this level.

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

Well most of my questions have been answered, so just have one question on dividends. You are increasing the dividend for 2017, which I think is a good sign, especially considering that you already knew that this acquisition was coming. So just wondering what's your plan for dividends in the coming years? We see an increase year-on-year since 2012 in your presentation. Even with the acquisitions, your net debt to EBITDA will still remain at a comfortable level, and the CapEx number that you mentioned looks also reasonable. So what to expect in terms of dividends? And what's your plan for future dividend payments?

Alfonso, let me say first say that clearly, we as a company and our Board of Directors is showing significant confidence in our business to increase the dividend payment even as you said, knowing that we are investing an amount of money, which will be important. But it is clear that we believe that this company will continue to generate money and continue to generate very good results. So it's very important from our side to propose this level of dividend that is an increase after 2 years of paying $0.90 per ABS and prior to that, a little lower number. So we, as we always said, we do not have a dividend policy. The dividend that we are proposing right now is a dividend yield of more than 4%, a payout ratio of more than 30%, which is a number you should look in the future. We don't have a specific estimate for that because this is decided once a year, in our Board of Directors as a proposal. But you should see the trend of dividend that this company is paying which has been very, very healthy, very good numbers of dividend payment, and at least, our intention is to sustain what we have been doing up to now.

I would now like to turn the call over to your CEO, Daniel. You may go ahead, sir.

Right. Well, again, thanks a lot for participating in the conference. Let me quote one last topic. In anticipation of the talks that we will have on the 28th of June meeting in New York, and in related with the uncertainties or volatilities related with the NAFTA issues, and the USA and Mexico relationship, that I think that could be relevant when addressing the situation, and the impact of some changes that could happen in the Mexican market. Let me be very brief, on my views, on what is going on in this respect. First, I don't see any relevant change in demand or prices in the Mexican market in the short or medium run. Medium, meaning the rest of the year, short meaning the coming quarter and the one that follows. The demand in Mexico stays strong. We have a 38% market share coming from imports. That means that even in a slowdown, we do have a tremendous growth for opportunity of gaining market share in competing with imports coming sometime with very, very far from sources. The facilities that -- we are running the facilities at total -- full capacity, I would say, very high levels of utilization. And we see very healthy steel demand and prices coming from the domestic market as well as from the pricing system worldwide. And that's the reason it has been very efficient to take a step to defend our region from fair trade, especially from China. And so that we foresee or we see or we estimate some changes in trading or tax regulations, that type of things that we have to address very properly when they come. I addressed at this time being, I don't see any important risk for our activity. We are following the situation, and actively participating in all the institutions that are in the process of negotiating and talking with authorities in the U.S. in order to assign a proper solution for the trading issues remaining open. But you know, these could stay for a while and at the end, not necessarily bad for Ternium, well thought renegotiation of the NAFTA agreement. A huge trade between U.S. and Mexico are making both countries very dependent, one to the other. And very sophisticated, mutually dependent supply chain ways are going to prevail at the end. And both countries are facing a threat, a common threat, that is China. So I see the U.S. and Mexico complementing each other, working together, coordinating trade policies, and facing other threats coming from unfair trade and coming from subsidies, especially from China. So that's the remark that I wanted to finish our call. I hope to see you -- most of you in New York, on the 28th, and we will see you also -- we will may be talking on the next call.

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