Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Ternium Second Quarter 2024 Results. 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. You may begin.

Thank you. Good morning and thank you for joining us. My name is Sebastian Marti, Ternium’s Global IR and Compliance Senior Director. Yesterday Ternium released its financial results for the second quarter and the first half of 2024. This call is intended to complement that presentation. I'm joined today by Maximo Vedoya, Ternium’s Chief Executive Officer and Pablo Brizzio, Ternium’s Chief Financial Officer, who’ll discuss Ternium business environment and performance. We'll open the floor to questions following our prepared remarks. Before we begin, I would like to remind you that this conference call contains forward-looking information and the 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. You'll also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I will turn the call over to Mr. Vedoya.

Good morning and thank you for joining us today for our second quarter's earnings call. Ternium posted a healthy adjusted EBITDA of $545 million for the second quarter, maintaining stable shipments with a 12% margin during a weak steel price environment. The company generated strong cash from operation of $656 million, which contributed to maintaining a solid net cash position of $1.9 billion even after distributing record dividends during the quarter and sustaining significantly capital expenditures due to ongoing expansion initiatives. In addition, net income during the quarter was affected by the recording of an accounting provision that we were required to make as a result of an adverse Brazilian court decision issued in last June, related to our acquisition of a stake in Usiminas back in 2012. Ternium believes that such decision is contrary to applicable substantive and procedural law. We did not acquire sole control of Usiminas, when we joined the control group. The court’s changed in their previous view, now finding that the change of control occurred, contradicts both the terms of the Usiminas shareholders agreement and how Usiminas governance worked in reality. Consequently, we plan to strongly defend our position, which has been confirmed by a long line of precedence and court decisions and file all motions and appeals available to us. All such notions and appeals will need to be resolved before the case becomes final and the determination of an actual payment amount, if any, should be made by a lower court in a separate proceeding. Let me now give you an update on our growth projects. I am glad to say that we just started up the first line in the downstream project, a 550,000 tons split in line and also the first line in our new finishing center in Pesqueria. The rest…

Thanks Maximo, and good morning to everyone. Let's now look at the webcast presentation for detailed review on of our company operating on financial results. If we start with Page 3, we'll review the second quarter performance. Our adjusted EBITDA achieved $545 million. The primary driver of sequential change were lower realized prices in our key market together with a price in cost per ton. Consequently, our adjusted EBITDA margin shows slight decrease settling at 12%. Looking ahead to the third quarter, Ternium expected decline in adjusted EBITDA that is mainly due to the decrease in -- EBITDA margins although increased shipments across key markets will partially offset this impact. We anticipate lower realized steel prices in the third quarter, primarily because contract prices in Mexico will adjust to lower levels as a result of soft support prices conditions during the second quarter. Net income during the quarter was negatively affected by a recurring of a $783 million provision for the ongoing litigation related to acquisition of participation in Usiminas in 2012. That Maximo already mentioned. We were required to make as a result of the reverse Brazilian court decision issued in June. Excluding this provision adjusted net income decreased sequentially to $40 million, reflecting a significant change in deferred taxes of $191 million, due to the 9% depreciation of the Mexican peso against the U.S. dollar during the quarter. Now let's turn our attention to the performance of our steel segment from Page 4. In our last earning release call, we guided for an increase in shipment in Mexico. In fact, timing shipment in Mexico experienced slight decline in the second quarter. As already explained by Maximo in the commercial market demand was negatively affected by the downturn in steel prices during the whole quarter. In addition, shipments were…

[Operator Instructions] Our first question comes from the line of Kayo Rivero with Bank of America.

So my first question is more market related. I just wanted to see if you could provide an update on HRC prices in the U.S. right, which have been under pressure over the last month, and whether you see any green shoots emerging ahead, which could support a rebound. And then secondly more specific to MUSA, I just wanted to see if you have any updates on that front, any revised CapEx expectations regarding that potential expansion at the MUSA asset, and when you would expect to take a decision with that project or not? And then on a similar note, still related to MUSA, would the recent correction in iron ore prices to a hundred dollars per ton, whether there would be any changes to your plan production levels in the asset and if not, if there would be a certain price level where you would contemplate reducing your third party iron ore sales from that asset.

The first one, prices in North America or in the U.S., I mean, I said it in my initial remarks, certain policy in the U.S. were down to around $700 per metric ton by the end of last month. But we are seeing today that these prices -- by the end of July, not last month by the last week I guess, but we are seeing increasing prices. So we feel that this is a bottom of the price. Of course, in our pricing some part of this, you're not going to realize it in the third quarter because of the lack of the contract part of our business. But yes, we are seeing this to be the bottom part and we are seeing some indication that this is coming up. In a more medium or long-term, as I always said, I think that demand both in the U.S. and in Mexico is still very strong in different sectors. But I see Mexico, although it grow by 14% last year, the apparent consumption of steel is still growing in Mexico. And I see robust demand in the U.S. Again, I think that what impact prices the last couple of months was the excess production of China, which that production for the last five or six months, China has been on a record of export of steel and this is coming down and it has to come down. It's not that this volume is coming to the U.S. or Mexico, but clearly this is affecting other markets which then are shipping to Mexico and the U.S. So on the bottom, I think, yes, it is a bottom and we are seeing clear evidence that prices are going up and will be going up in the near future. I hope what with this guide, I answer your question, the first one at least.

Yes, definitely. That's very clear. Thank you, Maximo.

Second MUSA, I think we took in the past, but I don't remember but the decision of the MUSA project should be taken by the end of next year. We are working on the project, we are working in advancing in all the things that we are advancing engineering, which will be the technology, the permission -- all the permissions that we need, the scope of the project, there is a team working in everything. But the decision we are not going to make the decision this year. Probably, it should be by the end of next year. And regarding the production, we are not seeing today a decline or a huge decline in production. As you well mentioned, prices have been a little bit volatile, but they are decreasing to 100, then going up a little bit, then decreasing again to 100, then going up a little bit. So it seems that 100 is kind of the bottom of the spectrum of the prices of iron ore. It's not the price that we are very, very comfortable, but MUSA can work with that price. So we are not expecting a huge decline in volumes in MUSA, but probably apart or a small part, we are revising the marginal cost of some of the production at MUSA, but it shouldn't be huge.

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

Just a question, Maximo, maybe on the 25% import tariffs that the U.S. put on Mexican steel exports into the U.S. that are not melted in the country. The 25% the exemption for Brazil, is that official and a done deal or still subject to negotiations and final decision, because I haven't really seen an official document or announcement and in fact, there is talks that maybe the U.S. officials are having cold feet on that.

I think it's official. I mean, the President of Mexico announced it. So I don't know if -- and then there is a formal proclamation from the Mexican government saying this. So, I guess, it is sufficient. I think that what has happened, it has to be implemented, remember, when they announced the 25%, the implementation came two weeks later and I think this is happening now, but we are working under that assumption.

What I'm hearing is that the U.S. officials have not signed up on that. And the fact that Mexican President has said it doesn't necessarily mean that the U.S. is going to follow. But anyway, I mean, something to monitor clearly because of the relevance that it will have on turning your business. And then on Usiminas, how do you see the evolution of this lawsuit from CSN? Can you mention a little bit on your prepared remarks, but if you can elaborate a little bit more on what would be the next steps and that will be one point. And the second point on the same topic is, apparently there is a court decision that is forcing CSN to sell the shares that they own in Usiminas in the short-term, I guess. Would Ternium negotiate with CSN and acquire those shares? Is that a possibility? Or you are not interested in increasing further your stake in Usiminas at this time?

I answer the second question first. The second part of that question, the answer is no. And the first part of the question regarding the status of the CSN Ternium judicial process, let me say that, I mean, this is a judicial process that is ongoing right now, this week and the following week. So to be honest, I prefer not to add much more of what I have said already in my preferred remarks because -- I mean, as I said, it's something that is ongoing and there's a lot of things going on. So I stick to what I said in my initial remarks, Carlos, I hope you understand.

Yes, for sure. And then just a follow-up, on the first part of my second question, why wouldn't you negotiate with CSN more on similar shares? If you can add any color there, that would be great.

This is Pablo. First of all, as you know, this is a process that, you're right, it is going on in Brazil, but the process in Brazil are long. So we cannot count that this will be the case immediately. So it's not in -- we are not in any position to say what will happen and what will do in respect to that. So it's happening in Brazil. But it's nothing that we can do at this moment.

And your next question comes from the line of Timna Tanners with Wolfe Research.

Regarding the situation with the Brazilian imported slabs, it's all very interesting, but at the end of the day, does it really matter that much for Ternium, if indeed, as you pointed out very nicely, Mexico doesn't export that much to the U.S. And also, it seems like you're pretty busy with good demand in Mexico, Altos Hornos isn't going to produce much in the third quarter if any. Are you seeing opportunities to take share? Can you talk a little bit more about any opportunity from AHMSA potentially declaring bankruptcy?

You're a little bit right, but of course, I mean, nobody likes to have something taken away. I mean, and remember, we are not the only ones exporting to the U.S. So I mean, the sense is having a restriction in the export from Mexico to U.S, for the Mexican import from Brazil, when both countries, the U.S. and Mexico, both imports left from the U.S. -- from Brazil, doesn't make any sense. It's clearly for more -- the volume is maybe not big volume as the volume as a whole in Permian, but it's volume important for what Mexico exports to the U.S. So putting a restriction, small as it may be from the U.S. -- from the Mexico to the U.S., when the U.S. exports that much more to Mexico, it doesn't make any sense. And that's our position, to be honest. You are right, that compared to all the volume that Mexico sells and our opportunities in the domestic market is not that big, but we need to fulfill our customers in the U.S. also. So that's the first part of the question. You asked something about AHMSA. To be honest, we don't know much of AHMSA besides what's in the press that supposedly there's a deadline for the -- I think it's 4th of August, where AHMSA should go to the bankruptcy process because there was no agreement. Nevertheless, I think it's still a long process, the bankruptcy process it's not going to be something immediately. I mean, there's a -- it's not a very easy bankruptcy process.

So I recognize it's more about the principal. That's a really fair point. If you could also touch on any opportunity with lots of cardinals. And then if I could, a second question. If the price in the U.S. is just starting to stabilize here for September, is that still enough to help the Q4 cadence for tightening, just because I'm trying to think about the timing. And if you could also talk about the magnitude of the margin opportunity with some of the raw materials decreases.

Yes. I think the prices in the Q4, yes, should improve, sorry, because of this increase in the prices that we are starting to see this week and should continue a little bit through this month and the following month. So yes, the magnitude of the increase, it's very difficult to say right now, then I always said that a normal price in the North American region should be between $800 and $900 of course, with the volatility we are accustomed to. So I mean that's our view, but I'm not saying that is going to be in the Q4 yet, but it's going to be increased.

Timna, this is Pablo. You asked in relationship to the possibility of a recoverability of the margins entering into the fourth quarter. As we always try to say is always the volatility could be there, but in the long run, we should be achieving certain level of margin. If you took together the first semester of this year, we are still at the level of 15%. So clearly, we will have a reduction during the third quarter because of all the things that we said. And if the prices that you mentioned and Maximo confirmed are increased and these are reflected together with some reduction in cost that we need to see during the Q4 because of the first time methodology that we utilized should recover our margins to a higher level than what we see or what we will see during the Q3. So yes, we have the chance to recover at the full year after all this effect, if we are correct, should position us in a very reasonable level of margin.

Timna, let me put, yes, let me add something more, because I don't want to sound with this problem of the U.S. melted and poured. I mean, Mexico and this is not Ternium. Mexico as a whole export something like 1.2 tons to 1.4 tons of flat products, which is finishing flat products, around that 1 million, 1.2 million, of that, more than in volume or in price, something like half of that comes from not melted and poured. So semi-finished products, labs that come from different parts, some of them from Brazil. It's not a huge volume, but it's very important for what Mexico exports to the U.S. So it doesn't make any sense to have these restriction in, as I said, the numbers I said before in my remarks.

And your next question comes from the line of Marcio Farid with Goldman Sachs.

I have a question on the demand side. You obviously mentioned that demand is quite strong both in the U.S. and in Mexico as well, shipments for the quarter relatively weak. My understanding is that that's basically buyers holding back purchases on a declining pricing environment. Just wanted to check with you if you're already seeing clients coming back and buying since you're already seeing some initial signs of price stabilization and potentially HRC price recovery as well? And secondly, just a follow-up on the tax station risk. I know you've talked a lot about the interdependence between U.S. and Mexico for the trade flows. And it does feel like, U.S. is a lot more aggressive than Mexico is at the moment, right? But with U.S. elections just around the corner, what are the potential risks you are assessing that is even suggestions by one of our competitors that USMCA should end and this kind of things. But I mean, what are the kind of potential risks you are seeing on a new U.S. administration into next year?

The first part of the question demand. Yes, we are seeing a pickup in Mexico. Part of that is also because for external -- for different reasons also, we ship little bit less than what we should have shipped in the second quarter. Not only because of the demand, but also because of the tornado Alberto, we were so weak with a lot of problems. Also, the slab and shipments from Brazil to Mexico also had problems because of the Brownsville port and some other issues. And the problem we have with the glass furnace. So we are seeing both things, a pickup in our shipments because of this and a pickup of our shipment because people are realizing the ones that we had stocks that prices are starting to go up. So both things we are seeing, as you mentioned. Regarding U.S., Mexico and USMCA. I mean, I don't see -- I mean my view it's going to be the same regardless of who is in the U.S. government. I think Mexico and U.S. relationship, it's a very strong one. And it's both sides. I mean, I don't see -- I mean, I see the USMCA as an excellent agreement for the three countries, not only for Mexico, for Canada or for the U.S. The three countries has benefited a lot from the U.S., from the USMCA. I mean, if you put, also -- let me give you some advice, but there's a lot of evidence about this. But if you take from 2019 to 2023 exports from the U.S. to Mexico, increased by 26%. So export of the U.S. and this is only in VNS, in goods, not services, which is much more, 36%. Mexico also increased export to the U.S. by 30%, but both numbers are similar.…

And your next question comes from the line of Alex Hacking with Citi.

I just wanted to ask quickly on Siderar. When I look at the financial statements for the quarter, they seem to be reporting an operating loss and that's not including the provision, right? So that would seem to be an underlying operating loss. Is that just FX accounting or is this something more fundamental that's happened at Siderar? And I guess, how would you see profitability there evolving in the Q3? And am I even correct that there was an operating loss in the Q2?

Alex, you're kind of correct. It's almost zero. I mean the main issue and Pablo then elaborate a little bit more. But the main issue is that the second quarter was a quarter where we -- the volumes were very low. Remember, first quarter and second quarter were the lowest level of Ternium Argentina in a long time. We are seeing now an increase in the volumes due to the situation of the Argentine market or the whole economy market. But I don't know, Pablo, if you want to elaborate a little bit more.

Alex, you are totally right. It was unfortunately not the best quarter for Ternium Argentina, because not only what Maximo explained, we also had some cost increased due to first time methodology that impacted all today in the same quarter. Again, as we discussed before in the -- at the very end, we then sum up the fourth quarter for the year. We should see a different result. We are expecting to see higher volumes during the coming quarters. We should see also some reduction in cost in the coming quarter. So this situation that you clearly saw during the second quarter should be reversed during the third and the fourth quarter.

That's clear. It just caught my eye because, it was the worst quarter since 2012.

And your next question comes from the line of Leo Correa with BTG Pactual.

So a couple of quick ones more detailed here, but hopefully you can help a bit. So first on, for you Pablo, the dividend situation, right? I mean Ternium has been consistently increasing the dividend over the past year. We're now, I mean, you guys still have a bit of a high CapEx program going forward given the projects in Mexico, and this is somewhat messy situation with Japan and this litigation, which we don't know exactly how this ends. Of course there are, you guys have great arguments, but you never know how to predict these things. And I can imagine there's a high level of uncertainty and as a consequence you're increasing your provision, right? So just wanted to double check if there's any risks that you guys reevaluate the dividend going forward. I know this is important decision, but anyway, just given how conservative you guys are on balance sheet management, I just wanted to double check on that. Second point, we've been talking a lot about steel prices over this call. Clearly the situation in China is the key culprit. Not sure anything changes anytime soon. Looking at slab prices specifically, right? I mean the price has obviously collapsed close to $500. Just curious to hear you on how, I mean, how does CSA, right, how does Ternium grow slab plans? How can it operate in this environment? I mean, what type of economics are you generating? Is the plan breakeven at these levels? Just wanted to hear you a bit more on that.

Let me start with the first question regarding dividend. We see no reason to change the -- what we have been doing in relationship to dividends. And let me expand a little bit on that. As you mentioned a couple of things in your question. We continue to generate a very positive free cash flow that was reflected in the numbers during this quarter and the semester. And also even though that we pay the record dividend during this first semester, the reduction in the total cash position of the company was, very much not affected. So a very minor change in the level of net cash that the company continues to have. The CapEx plan that we have is online on track. So nothing that could there because that was something that was expected before and that we will continue to do. So shouldn't be anything in relationship to that. And then what we have been discussing on the recoverability of margins and results together with the pricing and increased volumes in the coming quarters again, put us in the position to really in what we said we're doing there. We see no reason to change what we've been doing up to now with dividend payments. Maximo, you can take the second one.

Yes, the situation of prices especially in slabs. First of all, remember Ternium is a net buyer of slabs. Ternium plus Usiminas is even greater. So it's not a bad thing the prices of slabs. Ternium Brazil sends I mean, sells, if you can say this, everything to our own companies either Usiminas or either Ternium Mexico or either Ternium Argentina. So we are not seeing a problem in the production of Ternium Brazil. As you know, Ternium Brazil is very efficient, so it can work at this level of prices. But again, for Ternium as a whole, we are net buyer of slabs.

And your next question comes from the line of [Rodolfo Angele].

Just wanted to confirm that the overall message from the call in terms of outlook was that things are bottoming, prices should be getting better in North America. But in the guidance, in the release, you mentioned EBITDA weaker into the next quarter. So know there is a bit of a timing difference, but I just wonder if you could comment on this with a bit more details.

Well, yes, I start and then Pablo. But yes, the message, [Rodolfo], you are right. Next quarter, the outlook we gave for the next quarter is the one that you just recall. Prices should decrease, especially in Mexico because of the contract prices, not the spot prices, but the contract prices, the lack in the contract prices. So our price overall will see probably an increase in spot prices from the ones we have in July -- in June, sorry not June, in July. But overall in the quarter, prices because of industrial prices are going to be down. Volume in Mexico a little bit higher and then an increase in volume from Argentina and a little bit from Brazil. Overall, the outlook is a decrease in the EBITDA regarding the second quarter. And we are seeing that this is a bottom and an increase following this bottom.

Yes, let me add a [Rodolfo]. Let me add to what Maximo said that we will also be continue to see certain level of cost that will be reflecting the purchased glass and the purchased raw material we made in the past. So it's still reflecting higher prices than what we are seeing today, that's why when we mentioned that the fourth quarters start to reflect a better scenario for Ternium, reflecting not only the price increases that we are seeing right now, but also a reduction in cost that we are also seeing. It was mentioned also over here that iron ore is going down, coal prices are going down. So prices are also reducing from [indecipherable]. We'll not see that during yet fully during the third quarter. This is more for the fourth quarter and year end. That's why we always like to look at a longer period than a quarter because usually you could have the lag and the timing difference on the cost of the prices. And this could lead to that. But in general, yes, we're clearly seeing the bottom during the third quarter, recovery in the fourth and entering into next year.

And there are no further questions at this time. I will now turn the call back over to the CEO.

Thank you and thank you to all, we appreciate your participation on this call and all the questions you ask. We welcome any feedback you may have. So thank you again and have a nice day. Bye-Bye.

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