Ladies and gentlemen, thank you for standing by, and welcome to the Ternium Second Quarter 2020 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] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sebastián Martí. Thank you. Please go ahead. Sebastián Martí: Good morning, and thank you for joining us today. My name is Sebastián Martí, and I am Ternium’s Investor Relations and Compliance Director. Ternium released yesterday’s financial results for the second quarter and first half of 2020. This call is complementary to that presentation. Joining me today are Ternium’s Chief Executive Officer, Máximo Vedoya; and the company’s Chief Financial Officer, Pablo Brizzio, 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 would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today’s webcast presentation. With that, I turn the call over to Mr. Vedoya. Máximo Vedoya: Thank you, Sebastián. Good morning, and thank you very much for taking the time to join our call today. In my prepared remarks, I would like to review the effects of COVID-19 on our company during the second quarter, our actions to mitigate these effects and also the status and prospects of our main markets. After this, Pablo will comment on the results for the second quarter, and then we will have a Q&A session. The second quarter has been…

Thanks, Máximo, and good morning to all. Let’s go through Ternium’s results for the second quarter and the first half of this year. Let’s start with the company quarterly EBITDA and net results on Page 3 of the webcast presentation. As you can see, Ternium EBITDA decreased sequentially in the second quarter to $224 million, as expected, due to lower shipments and slightly lower EBITDA per ton. Net income in the period was $44 million or $0.22 per ADS. The results compared to net loss of $19 million in the first quarter, a period that included the effect of significant depreciation of the Mexican peso and the Brazilian real to the U.S. dollar as we will analyze in more details in the following slides. As for EBITDA in the third quarter 2020, we expect it to be in line with EBITDA in the second quarter, mainly reflecting higher steel shipments and lower steel prices in the North American market. Let’s now turn to Page 4 to see our steel shipments in the quarter. All of our markets show the effect of the COVID-19 pandemic in steel demand. In Mexico, shipments decreased 25% on a year-over-year basis and 29% on a sequential basis. We are expecting shipment recovery in the country in the third quarter, reflecting a return to activity coupled with improved market share. Shipments in the Southern Region decreased 32% year-over-year in the second quarter and 9% on a sequential basis. Our shipments in the first quarter were already weak, reflecting seasonality low activity. Looking forward in the third quarter, we expect sequential volume increase in the Southern Region and the gradual relaxation of restrictions, mainly in Argentina. In the Other Market region, we can see, on one hand, finished steel shipments in blue, decreasing year-over-year and sequentially in…

[Operator Instructions] Your first question comes from Jens Spiess from Morgan Stanley.

Yes. Hello, thank you for taking my questions. I just wondered, how are you seeing the demand outlook for the different sectors in Mexico? Are there any particular sectors that you’re worried about that could take longer to recover or to return to pre-COVID levels? And second question would be about slabs from your Brazil operations. What’s the outlook for slab exports to the U.S.? Any sense of what the impact would have if the U.S. reduces input quota for slabs from Brazil? And also if you could give us a sense of the current profitability there compared to past quarters. Thank you. Máximo Vedoya: Thank you, Jens. The first question about the Mexican demand and the different sectors. I think that demand in Mexico for the industrial sector is very good today. I mean all the different sectors that produce cars, home appliances, lighting, electrical motors, they are running white goods I don’t know if at full capacity or at capacity before the pandemic, but very near that capacity. And I think they will continue to do that. Unless there is some revival of the COVID pandemic, they are going to continue doing that. The sector that demand is lower is construction. And here, the – I would say the private construction that was one of the drivers for the last couple of years started to go below that number before the pandemic. And of course, with the pandemic, most of the private construction stopped. What we are seeing is that the infrastructure is starting to pick up. Infrastructure was very bad. If you remember, in the last several conference calls, infrastructure in Mexico was very bad. But today, it’s improving with some of these big projects the government has. So overall, industrial production, very, very good; construction, below…

Okay, that’s very helpful. Thank you. Máximo Vedoya: Okay, thank you.

Your next question comes from Rodolfo Angele from J.P. Morgan.

Hi, good afternoon, everyone. Listen, it was a quarter that impressed us, given the very challenging business environment that the industry faced. And in the case of TX, in the case of Ternium, we were particularly impressed with the performance on the cost side. Volumes are down, and yet you were able to reduce costs. So I was just wondering if you could talk a little bit about how you got to that very interesting performance. And how much of that can we expect to remain into the coming quarters? Thanks. That’s all for me. Máximo Vedoya: Thank you, Rodolfo, and thanks for your comments. We will try to continue this way in the future. Of course, our aim, I mean, at all times, is to be able to reduce the run rate of our facility. Or if we have to reduce the run rates of our facility, to do so with the lowest possible impact on production cost. We tried always to have our fixed and semi-fixed cost analyze in a variable way. We are not 100% – we don’t have always 100% beat, but that’s the objective we have. And in part, that was what we accomplished in this quarter. This is possible mainly because our diversified industrial base, which provides operational flexibility, and we can integrate our facilities better or more, depending on the market conditions. We – as you also know, we perform strict control and reduction of general expenses. We reduced our overhead cost in the quarter. We reduced, almost by half, our contractors, our third-party workers, and we replace them with our own employees that were idle because those particular lines were not working. So – and of course, we have a reduction of freight in the quarter as we ship less. So I think that all – those are all the things that we do, but we do it very quickly because our form of managing our fixed and semi-fixed cost are more looking at them as a variable way. So I think that’s the way, Rodolfo, that we try to work and gives these results. I don’t know if I answered the full question, but…

Yes, no, sure. We’ll probably have follow-ups. But we’ll do that with Sebastián after this. Thank you very much. Máximo Vedoya: Thank you. You’re welcome.

Your next question comes from Caio Ribeiro from Credit Suisse.

Yes, hello gentlemen. So my first question is on prices in North America, by which you mentioned will be a headwind for second quarter results. I’m just wondering, if you could talk a little bit more about what you believe are the main reasons that prices are under pressure right now, given that demand seems to be sequentially improving with automakers resuming activities, other export-oriented industrial sectors as well. Is it the addition of the capacity in the U.S., all the expansion that are coming on line that’s driving this pressure in your view. And when do you believe that we could see a rebound for prices there and consequently in Mexico as well? And then my second question, just on the potential impact of these potential infrastructure stimulus packages that are being discussed in the U.S. with numbers ranging from $700 billion to $1 trillion. I just wanted to see if you have any initial assessment, right, on how you could benefit from that? And whether we could see a stimulus package for infrastructure announced in Mexico as well for the coming years, which could help prop-up steel demand? Thank you. Máximo Vedoya: Caio, thank you very much for your questions. I try to answer the first one. But it’s really a good question and it’s the question that we all are having. I think that prices in North America are in a level that we haven’t seen in quite a while. Not the absolute number, but I think today or yesterday – I think it was today that the prices index of the CRU was released for this week. And prices in the U.S. are almost like $30 below domestic prices in China. This has not happened since I don’t remember when. I think the last time about…

No, no, no, that’s very clear. Thank you for that. Máximo Vedoya: Yes. Infrastructure in the U.S., I mean, I think it’s the main issue for all steel demand. Clearly, it’s going to improve demand around North American – around the North American market. If you said, what’s the impact specific to Ternium. We have not yet has an impact or managed to put an impact of this. We don’t sell much to construction or infrastructure programs in the U.S. as you know. But clearly, it’s going to increase demand in the U.S. And that’s clearly is going to favor prices and shipments from all the companies in North America. In Mexico, although infrastructure is much needed, I don’t think that we will have a program in the near future as big as the U.S. I think it’s necessary, but the government is still very cautious of the finance of the public numbers or the public financial numbers of the country. So I don’t think they’re willing to spend much more yet of what they are now spending in their big projects at the Mexican Airport or the refinery in Tabasco. So I am not very optimistic that we’ll have a program like in the U.S. in the near future.

Perfect, that’s very clear. Thank you very much for your answers.

Your next question comes from Timna Tanners from Bank of America.

Yes. Hey, thanks for all the great detail. I always enjoy your candid observations on the market. Wanted to just ask a little bit more about the guidance, if I could, because this sideways EBITDA move was a bit surprising. I understand the lag effects on pricing. But I guess, two questions around that. One is, is it just that the pricing is so much of a decline that it offsets all the positives elsewhere in terms of volume and what could surprised you? And then, just in-line with the comments about market share battles and oversupply in the U.S. market, is it possible for the Mexican market to decouple from what’s happening in the U.S. or do you think they’re all inextricably intertwined? Thanks. Máximo Vedoya: Thank you, Timna and thank you for your initial comment. Yes, I mean, the main driver of our outlook is prices in North America. You’re right, volumes are increasing in all our markets, in Colombia, Mexico, Argentina and even in Brazil slabs – although shipments of slabs, as Pablo said, total shipment from the slab facility are going to improve, but to third-parties are going to be lower. So you’re going to see a lower shipment of slabs in the third quarter. But as overall, shipments are going to improve in Ternium and the main driver is its prices. I mean, we are still working. We will continue to work on the cost base. But again, prices in North America, to-date, you see the index are very, very low. I expect that prices start to rebound quite quickly as I said before, Timna. I think it doesn’t make any sense, these level of prices. But in our outlook, we are cautious not to put a huge increase, because we don’t know if this is going to happen. And again, remember that some of our – or more than 50% of our sales in Mexico are lack in this contract base quarters. So you are going to have in the third quarter the prices of the second quarter. So no increase in that ones.

Yes. Máximo Vedoya: Mexico, decouple, it’s probably that in some sectors, Mexico is going to decouple if prices continue to be down. I mean, again, our main competitors in Mexico are imports from – a little bit from the U.S., but the price driver here was always imports from Asia. And with these prices import from Asia are going to decline. So if this tendency of prices continue in the U.S. is probably than in some of our markets in Mexico, we are going to decouple from the U.S.

Okay, that’s really interesting. Thanks for that. I also apologize if I missed it, I had some connection problems, because of the storm here last night. But I was wondering if you commented on the dividend or your thoughts on that. If you wouldn’t mind repeating if you already talked about that? Máximo Vedoya: No, we don’t comment or nobody asked yet about dividends and it’s a great question. Thank you, Timna. Well, as you know, we suspended the dividends for this year. I believe with the information we have, I still believe that the Board decision to suspend dividend payment was the correct. It still make a lot of sense. And although, as I said in the beginning, I see the third quarter positive and the fourth quarter also positive, uncertainty still persist that the spread of the COVID-19 and its effects in our market will have some rebound. So I think the decision was correct. Having said this, I have no doubt that Ternium will resume payments of dividends next year as we have. And again, if situation or the Board would resume. And I think that the business situation continue to improve as we are seeing today, I wouldn’t rule that the Board’s dividend proposal next February makes up at least a part of what we skipped of the dividend of this year.

So they could compensate for some of the lost dividend you’re saying as early as February, is that what you said? Máximo Vedoya: Yes, Timna. Again, this is a decision – or it’s the Board make the – not the decision, but make the recommendation. And I think that if things continue like this, I think the Board could or I’m sure that would at least compensate in part the skipped dividend.

Okay. Great, thank you very much.

Your next question comes from Jonathan Brandt from HSBC.

Hi, good morning, good afternoon gentlemen. Congratulations on a very strong quarter, given the circumstances. I guess, I wanted to ask you about free cash flow and balance sheet management. We’ve seen a pretty big reduction in working capital this quarter. So I’m just wondering, is that sort of a new sustainable level or should we expect, as volumes increase as you’re expecting in the second half, should we see a rebound in working capital levels? And then, I guess, sort of related to that, given that you’re free cash flow positive in a very difficult quarter, I would expect you to be free cash flow positive in the second half as well. Can you just sort of elaborate on sort of your balance sheet management and should we continue to see net debt continue to the fall? Will the majority of free cash flow generation, at least until you sort of resume dividends be put toward net debt reduction? Thank you. Máximo Vedoya: Thank you, Jon and thank you for your initial comment. Clearly, we have a very strong quarter regarding free cash flow as you well said, part of that was working capital. As shipments and activity start to improve, we have to invest a little bit in working capital in this quarter and next quarter. So we are not going to have all that free cash flow. But break very details, I ask Pablo to give you the details of it.

Yes. Okay, Máximo. Hi, Jon. Clearly, as Máximo was saying, it’s impossible to say or to believe that after a quarter where we have significant reduction in working capital due to the reduction in volumes, we can sustain or achieve a similar number in the following quarter. On the other hand, clearly, we will – as anticipated in our outlook, we are expecting to continue having positive EBITDA generation and consequently positive free cash flow generation. But we will try to sustain at least the level that we have of working capital, it’s very difficult for us to say that we can continue achieving similar reductions in working capital. So on a conservative tone, we could say that that working capital even could increase a little bit because of increased volumes that we have been mentioned during our presentation and Máximo comments. So, probably, we need to invest some money there, but we will try to keep as low as we can this number. On the other side, we will generate positive free cash flow, because the CapEx plan for the following quarter not returning yet to the levels that we have in the – during the first quarter will be more probably in line with the level that we saw during the second quarter. So all-in-all, we could see a little positive news, still in the reduction in net debt during this third quarter, but not coming from further reduction in working capital.

Okay, thanks, Pablo. Thanks, Máximo.

You’re welcome. Máximo Vedoya: You’re welcome.

Your next question comes from Fabian Graimann from Pictet Asset Management.

Thank you very much for taking my question. And you’ll no doubt agree with me that your stock today trades at a significant discount to fundamental value. Despite that, we really see no evidence of you trying to unlock that value. Be it via solid dividend policy linked to free cash flow, management buying back shares, a corporate structure simplification or via other means, why is that?

Okay. Fabian, thanks for your question, let me try, Máximo, you want to tackle this one? First of all, sorry to disagree with your comment. We think that we did a lot to try to unlock this value, if you want. Clearly, we understand that we have a discount against our peers and we can discuss over that. But we have been working quite a lot to simplifying our corporate structure. We have had a history of increasing dividends. The only times, we did not pay dividends were during or preventing years where we have crisis like was the case of 2009 and this year. The company has been working very, very hard to sustain profitability levels. And this is shown in the EBITDA margin that the company was able to sustain during the – at least, during the last 5 to 10 years. And also the reflection of that was the increase of the dividend payment in the last year, specifically in the same period where we almost double the dividend payment from the company in that period. Of course, we are exposed to different markets and we have the risk of being exposed to different markets that probably prevent the value of our company to be completely unlocked. Probably, there are some other reasons that we can discuss on the level of floating of our company, or where we are at least and some other things that we have commented in the past. But be sure that the company is always thinking that, and the company is looking for ways to improve that. And clearly, it’s a goal that we, as a company, has very up in our priorities.

Sorry, just to clarify that. Does that mean we should expect an update on the listing issues as well as formulating a clear dividend policy potentially linked to free cash flow or earnings, it should probably not be our present but any...

Well, we don’t have a written dividend policy, but we have a clear tendency on the way we pay dividend and if you look at what we have done during the last years, clearly, you see the – how we pay dividend, how we increase them, year-over-year, if we see an increase on results. And even not we have an increasing result, we sustain that increased dividend payment. In respect to the issue of listing is a very complex one, difficult to discuss during the call because there is certain restrictions to do that. But it’s also something that we have in our minds and if there is a chance, reasonable chance and feasible chance because sometimes you can do certain things that will not yield the result that you’re looking for. But if there is a chance it’s something that the company has been discussing and analyzing for a very long period of time. Máximo Vedoya: Fabian, that – I mean what you have to take clear is that we are working on this effect. I mean, we are working on – and we know that the price is undervalued for us. For us also, it’s undervalue, and we have been working in trying to see what can be improved. I know the dividend, as I said before, the dividend was not helpful, but I think during the time and what we are seeing was a right decision in a way and if we can, we can compensate part of that next year and we will probably do. So the bottom line is that we are working on that and we will continue to do so.

Perfect. Could I just ask for an update on your project timelines and how this links together with CapEx for 2020, 2021, please? Máximo Vedoya: Yes, of course, Fabian. 2020, we will have a final CapEx of around $600 million, and 2021 will probably be around that number too. These are lower numbers than what we had six months ago. But I think that they are the correct ones. Two projects: Colombia, the project in Colombia is almost finished. The problem we have in Colombia is that the technical people who has to make the commission from the vendors of the equipment, they cannot travel yet. I think they will be in Colombia, in September. And so I think the Colombian mill should start by the fourth quarter of 2020. Regarding Pesqueria project, the big project, we are beginning to start or resume our construction. If you remember, by March, we have more than 4,000 people and we are making plans to start today the hot strip mill by mid-2021. Why this delay? As I said before and as I said in the last call, the safety of the people for us is the most important thing. And to have more than 4,000 people today with the pandemic still very high in the Monterey area, I don’t think is very reasonable for us if we save – that safety is our first concern. So we are making a plan to – as I said, to start the hot-strip mill in mid-2021. And we are making a plan not to have so many people working at the facility. Instead of a peak of 4,000 people, we are probably going to have a peak of 1,500 people I think in November or December. But that’s we are ultimately that detail plan in the next couple of weeks.

Fantastic, thank you. Máximo Vedoya: You’re welcome.

And your next question comes from Isabella Vasconcelos from Bradesco BBI.

Hi, guys. Thiago Lofiego here. Thank you for the question. So, two questions on my end. The first one, Maximo, if you could comment on demand recovery in Argentina. You mentioned that utilization is almost back to normal levels there. But just want to understand what’s your base case in terms of shipments decline for this year on a percentage basis versus last year? And also, what do you think is reasonable to consider for 2021? Second question on the slab side, so the slab production Ternium Brazil, where is it right now and how are you seeing demand in the different markets? And also, if you could comment on where EBITDA per ton levels are at Ternium Brazil, especially considering the new-FX level in the country? Thank you. Máximo Vedoya: Thank you, Thiago. Demand recovery in Argentina, well, that’s a good question. I don’t know if we have a great answer for you. As you know, Argentina, although it has made some significant advance with what happened with the debt agreement. It has – it continue to have challenges in the near future. And it needs reforms and time. So it’s very difficult to see what is going to happen in Argentina in 2021. In the near future, third quarter of – shipments of third quarter or the next third quarter are going to be quite the same as we had the third quarter of last year. So there is a recovery. Remember 2019 was not a great year. I mean – but we are seeing the same level of shipments in the third quarter. There are some sectors in Argentina that are being very better than others, agro business is very high. Construction is very high, especially the private construction. I mean, if you see the cement sales…

No, that’s all clear. Thank you, Máximo. Máximo Vedoya: Thank you.

And that was our last question. At this time, I will turn the call back over to Ternium CEO for closing remarks. Máximo Vedoya: Okay. Thank you very much again for your participation in our conference call today. Please contact us if you have any further questions or you didn’t understand something. I hope to see you all or to hear from you all in the next conference call. And meanwhile, take care of all and stay safe. Thank you very, very much.

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