Ladies and gentlemen thank you for standing by and welcome to the Ternium Fourth Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today Sebastián Martí, Director of Investor Relations. Thank you. Please go ahead. Sebastián Martí: Good morning. Thank you for your time and participation in our conference call. My name is Sebastián Martí. I'm Ternium's Investor Relations and Compliance Director. Yesterday Ternium issued a press release containing its financial results for 2019. This call is complementary to that presentation. Joining me today are Máximo Vedoya, Ternium's CEO; and Pablo Brizzio, Ternium's CFO who will discuss Ternium's business environment and performance. At the conclusion of our prepared remarks, there will be a Q&A session. Before we begin, I'd 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. With that I'll turn the call over to Mr. Vedoya. Máximo Vedoya: Thank you, Sebastián. Good morning and thank you all for joining us today. As we always do I'll briefly go through some prepared remarks and then Pablo will review the quarterly result. At the end, we'll have a Q&A session. Let me begin with performance. 2019 was a challenging year for the steel industry. Steel consumption in the Americas decreased and steel prices went down during most of the year. Under these difficult circumstances, we were able to report an EBITDA of $1.] billion on shipments of 12.5 million tons and an EBITDA…

Thanks, Máximo. Good morning to all and let me review our performance together with the webcast presentation in page 3. You can see there in 2019, we reported EBITDA of $1.5 billion on shipments of 12.5 million tons. Shipments were somewhat low reflecting weak demand conditions in Argentina and to a lesser degree in Mexico. EBITDA margin in the bottom left chart decreased to 15% within a more sustainable level after returning the year in 2018. Let's now review in the next page our results in the last reported period. Starting with EBITDA was $263 million in the fourth quarter and EBITDA margin decreased to 12% of net sales, or $90 per ton. A low figure that reflected the low prevailing pricing environment in North America during the second half of 2019 and some first-in first-out effect of higher cost inventories. The fourth quarter of the last year should be the lowest point as it has among other things, a seasonally low volume in Mexico and low production rate in Brazil. A low realized steel price level in Mexico that did not reflect yet the recovery in prices in November is due to the contract price lag. A cost per ton that did not decrease yet as I mentioned as a result of the first-in first-out accounting of purchasing slot together with a particular margin squeeze in Brazil that is now fading out as Máximo explained. And finally some negative impact related to inflation adjustment in Argentina. So we now expect EBITDA to increase sequentially in the first quarter of 2020 with higher shipments and some recovery in steel margins, mainly as a result of slightly lower costs. We expect it to further recover in the second quarter of this year. As for net income in the fourth quarter, we…

At this time, we would like to take any questions you may have for us today. [Operator Instructions] Our first question is from Thiago Lofiego with Bradesco BBI. Your line is open.

Hi. Thank you. Good morning, everyone. Máximo, I have two questions. The first one, more medium to long term, thinking about the company's strategy. So you do -- you guys have -- do have organic growth on the pipeline, but we also know that there may be some M&A opportunities, especially in Mexico. So could you comment on capital allocation and how the company expect to spend money in the coming years, thinking about the different regions and different opportunities that you guys see? Or in other words, do you see more room for further organic expansions in the next five years? Or do you think that we might see some M&A down the road? The second question is on Mexico. What is your expectation regarding when construction activity infrastructure begins to rebound? So did you see that as more of a 2021 story at this point? Or could we see a more consistent rebound already unwinding in 2020? And also, do you see as a concern the new capacity is coming on stream? I know we've discussed this in the past, but just to get an update on your view about the new capacities coming on stream in the Mexican market vis-à-vis demand growth. Thank you. Máximo Vedoya: Thiago, thank you very much. Let me start by the second question about the construction activity in Mexico. As you know, I mean the trend of the construction in Mexico has two sides. For the last several years, I think, at least four or five years, infrastructure, which is -- was led by the government, decreased every year, I think, for the last four or five years, but was compensated and even was a little bit higher by construction by the private sector. But this changed last year. So the private…

It did. Just a very quick follow-up Máximo. You mentioned potential future investments in Mexico, Colombia and Brazil. So when we think about Brazil are we thinking about potential new -- like new rolling facilities tied to CSA Ternium Brazil there? Or would that be like the rationale to sell into the… Máximo Vedoya: No, no. I think that -- no. Brazil has rolling capacity in excess. As you know we are an investor in Usiminas and Usiminas has a rolling capacity very near our plant in Ternium Brazil. The Cubatao plant is very, very near. And so one of the growth opportunities is to supply more slabs to the Cubatao facility which has an excess capacity -- I mean with a capacity that is not using. And I think those are the growing opportunities that we should analyze in Brazil.

Okay, that’s clear. Thanks Máximo.

Our next question is from Alex Hacking from Citi. Your line is open.

Thanks for the question. I just have one question which is around the new facility in Colombia. How are you thinking about EBITDA per ton through the cycles for that facility or I guess kind of a range of EBITDA per ton? I'm not particularly familiar with Colombia rebar market, so I'm not sure how margin structures there operate. And I guess actually let me ask one more. You mentioned, you're potentially pulling Pesqueria forward by a couple of months. So congratulations on that. Any indication about how much volume you would expect to ship from that facility at the end of this year? And any indication about what utilization rate you would kind of be targeting by the end of 2021? Would you be looking to be at 100% utilization rate by the end of the year or to be a more gradual ramp-up? Thank you very much. Máximo Vedoya: Thank you, Alex. I'll answer the second question and I'll leave the difficult one to Pablo, the first one. Pesqueria is going to start – I mean, the timing – the official timing is still December, so not much production from that – from the hot mill this year but we are very confident that we can start late in October. These are going to be only two months for this year. And remember, these are – it's a $1.1 billion investment, so it has a long start-up. So not much. And the first two months, they are dedicated to making the test for all the different products that this hot strip mill has to do, so all the running tests for the different products and that takes a lot of time for the commissioning of the hot strip mill. But by the end of 2021, we expect to be 100%. That's for sure. There's a long curve of task. But by the end of 2021, I think it's a little bit earlier, it should be by October or September, should be by 100%.

Okay. Thanks Máx for the question. So Alex, the Columbia facility basically is in line with our projects that we have like CSA at the moment of acquisition, which is increasing the participation in the value chain of the production of steel. Up to now, we have excess capacity in Colombia, in the long product market and we were limited with the local production that we have. And we were importing some products to supply the market. So what we are doing with this facility is not only expand the market reach that we can have and substitute imports as we live in all the markets where we are but also take advantage of further increasing the margin that we can strike out of our production because we will be moving from finished product to bill it as an input for the production of our facilities. So this clearly should improve the margins of the Colombian operation and moving the margin of the Colombian operation closer to the average margin of Ternium as a whole. So clearly that relation that we want to follow, that's the target of this investment. And again, though the volume in comparison to Ternium, Ternium is – last year produced and sold 12.2 million tons here. We are thinking of an expansion of around 0.5 million ton not a minor one, but this will contribute to sustain and to get the markets of Ternium in the range that we always want to be, which is between 15% and 20%. And clearly this type of expansion or these type of projects are putting Ternium in a better position to sustain this level of profitability.

Perfect. Very helpful. Thanks Pablo and also Máximo. Máximo Vedoya: You are welcome.

You are welcome.

Our next question is from Rodolfo De Angele with JPMorgan. Your line is open.

Hey, good morning, everyone. I just have one question. I would like to hear your thoughts on working capital was one of the reasons why the cash flow was strong last year. So I just wanted to hear from you what is a sustainable level, if there should be a hike in the first quarter or any thoughts on working capital? Thanks, guys.

Okay. Let me take this question Rodolfo. Clearly, as you mentioned, a key contributor to the free cash flow generation was the reduction in working capital. And there are two sides of this reduction in working capital. The first one was a real volume reduction in working capital. As we always mention and I think Máximo made it very clear at the beginning of the year, one of the targets of the company was to be more efficient in utilization of working capital. And the second one, which is clear and of course is the price of the raw materials and the finished product that we have in our inventories. The negative side of that is to reduce our EBITDA. The positive side of that is that reduce the value of our inventories. Clearly, the second part will not be present there anymore, because we are not expecting to see the big fluctuation of prices that we saw during last year. So the – we will continue to work in efficiencies in the management of our inventories. But also we need to take into consideration that we are expanding production during this year 2020. We have one facility will be fully utilized by the end of the year which is a Colombian one, but we will start working with the Mexican facility in Pesqueria, which is a significant one and will require some level of inventory. So all-in-all, the initial expectation is that should not fluctuate that much the level of inventories and probably will not be a contributor to the generation of free cash flow during 2020.

Okay. Thanks, Pablo.

You're welcome.

Your next question is from Thiago Ojea with Goldman Sachs. Your line is open.

Hi. Good morning. Thanks for the questions. My first question is regarding the long-term strategy on Ternium. For years Ternium was versus excellent being short on its slabs and have an excess capacity on rolling. Then after the CSA acquisition it became the opposite. You were long on the slabs. And now with the new Pesqueria mill you were slightly short again. How do we should be think in 10-year view this – would you still invest – you mentioned that you're going to invest in new projects? Would still be more towards like rolling capacity? And specifically, on the Pesqueria Nuevo new mill after this is on line how should we consider costs going forward? How the structure and cost would shift in Mexico? Thank you. Máximo Vedoya: Thank you very much, Thiago. I'll answer the first one and then as usual the difficult one for Pablo. No. Sure. I mean, we – as we always said, we want the – we like the flexibility. And before our acquisition of the plant in Rio de Janeiro the decent – the CSA plant, we said we have the three – we have the natural gas reduction from one side. We have blast furnace for on-third the natural gas, one-third was blast furnace and then one-third or a little bit more we were short on slabs and we buy slabs from the market. And that was – give – gave us a lot of flexibility. With the increase of the complexity of the Mexican market and the complexity of the product being so short on slabs, let me put it this way, being so short of slabs started to develop some problems, because we couldn't have the capacity of developing the steel for the needs of our more sophisticated customers. So…

Okay. Let me take the second question. Clearly, the Pesqueria project has different effects. We understand all of them are positive in respect to the margins of the company. The first one is the one that Máximo mentioned, which is we will be able to substitute or produce in our own facilities, the high-end products that up to now we are not able to produce. So this is improving the margin of our own production. The second one is substituting of imports that we are doing of some products that then will be produced in the new facility in Pesqueria and this is not a minor amount. Even Máximo during the opening remarks mentioned that this is close to one million tons. So there we'll be gaining the margin of -- instead of providing the finished product, producing that product and gaining the transformation part of the product. And, of course, the third portion is that we will increase our product offering because we will be having higher level of production and the total level of shipments in the Mexican market should increase quite a lot. So putting all the three things together, clearly there should be an increase in margins in our operation in Mexico. Clearly you would like to have a number to that, but the only thing I can say is that this is again in the same line of improving the margins of the company and sustaining the profitability level within the range that we consider that Ternium should have, which is between the famous 15% to 20%.

Thank you.

You're welcome.

Our next question is from Carlos De Alba with Morgan Stanley. Your line is open.

Yeah. Good morning, everyone. So the first question is on Brazil. You mentioned Máximo that you expect the company to -- Ternium Brazil to go back to higher levels of production, is this around 1.2 million tons or higher on a quarterly basis? And then just to clarify, if you could clarify the comments on Brazil's potential investment. I understood that the company is not interested in adding rolling capacity to CSA. So does that mean that the company could potentially expand only the slab production? Or do you want to do something with Usiminas in Cubatão? If you could clarify that would be great? And then still on the capital allocation investment plans. Do you -- how do you see the expansions in Mexico going forward? Do you expect that after this current cycle is completed and is fully ramped up, Ternium Mexico would add more downstream or perhaps it is time to also add upstream capacity in the country? And then final question on dividends. The company or the Board decided to maintain the dividend payment of $1.2 per ADS after -- this is the first year in several where the company doesn't increase dividends. You could argue that the company has a space or had a space to pay more. Certainly balance sheet remains strong even though net debt-to-EBITDA increased a little bit but -- quarter-on-quarter. And you are arguably past the current peak of the ongoing cycle, CapEx cycle. So if you could maybe put it in context what was the rationale, do you think that the Board -- it had when they decided to keep the dividend flat? Máximo Vedoya: Okay. Thank you, Carlos. Long question. So I'll try to not forget anything, but please interrupt me if I do. I start with Brazil. As you know Brazil produced -- and I'm going to talk about yearly basis and I'm going to talk about yearly basis because of the -- how the Brazilian mill has to go into the relining of the convertibles talking about quarters, one quarter can change with another because it has this relining. So, it's very difficult to talk quarter-to-quarter. So, I put the production in years. 2018 was 4.6 million tons. 2019 we produced 4.4 million tons. What we expect to produce again in 2020 is 4.7 million which was what we did expect in 2019. Remember we did -- we're going to increase the production. And that by 2021, 2022, we are expecting to reach near the five million which is very hard, but that's our goal. But in 2019 we're expecting to produce 4.7 million and we produced 4.4 million because of this downtrend of the market. So, 2020 our new estimation is 4.7 million. I hope with this I answered the question, but we are at full capacity in our Brazilian operation.

Thank you. Máximo Vedoya: And regarding the investment in Brazil, let me be clear because I don't want to mislead you. We have nothing concrete yet. I mean what we have is that we have an investment in Usiminas. We are one of the main shareholders of Usiminas and Usiminas is doing better and Brazil is growing. So, that's a very good it's very good for us. We have a huge facility one of the most modern facility for slab production in Brazil. And I think that this growth of the market of this improvement in Brazil in the Brazilian economy we are going to take advantage of that. And so we want a presence in Brazil. But we don't have any concrete of what are the next steps in the Brazilian operation. We are analyzing different projects. Some of them are based on reduction of costs -- huge reduction of costs like ones that we made in Mexico. But again they are very initial step of analyzing the different alternatives the different views of the Brazilian market. So, don't expect anything in our balance sheet in 2020 about Brazil. Then you ask about the investment in Mexico upstream or downstream. I mean I think the Mexican market has still a great opportunity for us. I mean there's still growth -- opportunity for growth. And the opportunity for growth in both upstream and downstream. I think that we are looking for some downstream future investments. Again I don't think that in 2020, we're going to start any of those but we are looking. And then in the upstream I mean you know the USMCA when it is approved it's very good because the rule of origins are much stronger and it benefits us a lot. But for some part of the market the terminal how you said in English the automobile manufacturers in seven years from the time it's signed the rule of origin has to change and it has to be melted and poured for only that part of the market. And so today we -- I mean in seven years we are going to accomplish part of that with our facility in Rio de Janeiro, but not all. So, thinking about an expansion upstream is also a logical situation for us. But again we are not going to see anything of that in 2020. We're going to think of that through this year. But yes, it's one of the projects we are analyzing in a very small scale only to provide that melted and poured to these automated customers in seven years. So, we have a lot of time to analyze and see what our best option is. And the last one was the dividend that you said. Carlos I don't think I answered the first three, didn't?

You did. Yes. Máximo Vedoya: So, the dividend. And this is a question that usually Pablo answers, but I'm not going to let Pablo Brizzio answer that. So I mean, I think the dividend yield or the dividend ratio that we are paying is higher. I do acknowledge that we have a discussion, if we had to increase it or not. I think that the numbers -- I mean having a dividend yield of 6% I think it's one of the highest in the industry, no doubt about or a payout ratio of 42% is also I think a payout ratio very high. So I know we don't have a dividend yield -- dividend policy. But with this we want to sign out that we are continue committed to paying dividends every year. I think with the decrease of the margins of EBITDA this year and I understand next year will be probably better. But I think with this decrease maintaining the dividend is a very good sign for all our investors and we are continue committed with that.

Thank you very much. Máximo Vedoya: I hope I answered your question with that.

Yes you did. Thank you very much.

Our final question is from Caio Ribeiro with Credit Suisse. Your line is open.

Yes. Good morning and thank you for the opportunity. So my first question is regarding the outlook that you mentioned for first quarter '20 and second quarter '20. You mentioned that you expect EBITDA to increase sequentially mainly as a function of stronger shipments and slightly lower cost. But I wanted to see what you're expecting in terms of prices, right? There had been a recent pickup in HRC prices in the U.S. even though that seems to have somewhat reversed lately. But I was just wondering if you expect to be able to somewhat reflect that recent increase in the U.S. and your prices in Mexico as well? And then secondly I just wanted to see if you could provide a little bit more details on the SG&A increase that you had in this quarter on a sequential basis and on a yearly basis as well. Just if you could explain what was the main driver for that? Thank you. Máximo Vedoya: Thank you, Caio. I start with the first one; outlook, and you mentioned prices. There are 3 different prices. Prices in -- I mean in our first quarter you're going to be reflecting the increase in prices in slabs, the sales of slabs from our Brazilian operation. And the log prices in the U.S. are increasing as you said. Not the full effect is going to be seeing in the shipments of Mexico because remember in Mexico we have, I say half-and-half but half our shipments are industrial customers they're a little bit more. And usually those are contract-based prices on a quarterly basis. So the prices of those customers are probably going to decrease from the fourth quarter to the first quarter. But the customers of the spot basis the other 50% are going to increase in the first quarter. So the net prices would be highly -- a little bit better but not much better. In the second quarter the contract-based prices are going to be higher. So you're going to see the full effect in the second quarter of this increase. Volumes though are going to be higher in Mexico. That's for sure. I mean as I said Mexico fourth quarter -- and the whole year was not a very good year for apparent consumption -- of steel consumption in Mexico. But in the first quarter, we are seeing an increase in our customers' orders and we expect to continue that way in the second quarter. So volumes are going to increase and prices not that much in the first quarter but we are going to take advantage in the second quarter. I think – I don't know if I answer – do you have the second part?

I have the second part. Caio the same for your question because it's important for us to clarify this point. In fact, we did not have an increase in normal G&A. We have specific or particular issues that reflected a number is higher than the previous quarter. And the two of them are – the first one is the increase of an asset tax in Argentina. Up to last year this or before the interest of the new government, this asset tax was 0.25% and the new government passed a law increasing this or doubling this tax to 0.5%. So $4 million of that increase is related to that. So we needed to register. So this will not be register as an item in the following quarter. And the second one, you know that we have a contract that we acquired together with the acquisition of CSA now Ternium Brazil to supply slabs to the Calvert facility of little in the U.S. Since it was a long-term contract, we needed to account it for in our purchase price allocation. So after that we need to amortize this contract by the volume that we shipped. Since we have higher volume in the fourth quarter in comparison to the third quarter, the amortization level was higher and this is the other affect that show a higher G&A, right. The real G&A or the expenditure and G&A basically were in line in both quarters.

I see. That’s very clear. Thank you.

You are very welcome.

We will now turn our call over to our Chief Executive Officer for closing remarks. Máximo Vedoya: Okay. Thank you all very much for being part of our conference call today. Please give us a call for any questions or comments or anything. And if not, we'll see you next conference call. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.