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 Third Quarter 2024 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Sebastian Marti. You may begin.

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 third quarter and first nine months 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 will discuss Ternium's business environment and performance. We will open up 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 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. You will 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'll turn the call over to Mr. Vedoya.

Good morning, and thank you very much for participating in today's Ternium third quarter earnings call. Ternium reported an adjusted EBITDA of $368 million and a net income of $93 million for the third quarter. We experienced increased shipments across all our primary markets and, as anticipated in the last quarter's call, our margins declined, primarily due to the decrease in realized price in our main market. Let's review the status of these markets. The steel market in Mexico remains healthy, operating at consistent levels after last year's significant 14% year-over-year increase in apparent steel consumption. In fact, in the third quarter of 2024, we had record high shipments in this market. For the fourth quarter, we expect a decline in shipments as a result of this period being the seasonally weak of the year. Additionally, public investment has been soft recently, which is common in Mexico following a change of administration. Once this process is completed, we expect demand from infrastructure projects to return as the new government has announced plan to launch several projects aimed at enhancing the competitiveness of Mexican industry. Looking ahead, our outlook has several bright spots. In the first quarter of next year, we expect sequential shipment growth in this market. In part, this will be the result of our new pickling line, which is boosting our capacity for automotive and industrial markets as it ramp-up production. Furthermore, I am optimistic about the Mexican market in the year to come. Automotive production increased by 7% year-over-year in the first nine months of 2024 and is expected to reach 4.2 million units in 2025, which could be a record high. Finally, nearshoring trends are expected to persist, benefiting the steel markets on both sides of the border. The new administration in Mexico recognized this opportunity…

Thanks, Maximo, and thanks everybody for participating in our conference call. Let's move to the webcast presentation for a detailed overview of our operations and financial results. If we start by Page 3, we see that, as anticipated, our adjusted EBITDA declined this quarter. The main factors driving this result were lower realized steel prices across our main markets, which were partially offset by a small decline in steel cost per ton, and an increase in shipments. Looking ahead to the fourth quarter, we expect a more sequential increase in adjusted EBITDA, driven by slightly better margins, although this will be partially offset by a seasonal decrease in shipments. Turning to the next slide, net income for the third quarter was $93 million. When comparing second quarter adjusted net income to the third quarter net income, we see lower deferred tax losses and improved financial results in the third quarter, partially offset by a decline in operating income. The FX gain in the quarter reflects the favorable effect of the Mexican peso depreciation and the Brazilian real appreciation against the US dollar, causing an FX gain on Ternium Mexico net short local currency position and Usiminas' US dollar nominated debt. Let's turn to our Steel segment performance on Page 5. This quarter, we significantly increased shipments in our key markets. Looking ahead, we anticipate a decrease in shipments in the fourth quarter due to usual year-end seasonality both in Mexico and in Brazil. Now, let's take a look at the consolidated sales and profitability of the Steel segment on the next page. Despite an increase in steel shipment, sales held steady compared to the previous quarter due to the decline in revenue per ton, driven by a decrease in realized steel prices in our primary market, which affected our margins.…

[Operator Instructions] Our first question comes from the line of Marcio Farid with Goldman Sachs. Your line is open.

[Technical Difficulty] A couple of questions on my side. Yes, can you hear?

Sorry. Marcio?

Yeah.

Yeah, now yes, I think.

All right. Let me know if it's not good. Yeah, good morning. Thanks for the opportunity. A couple of things on my side. I think we started the call by showing still good conviction on Mexico's demand going into next year and somewhat profitability improvement as well at lower costs. Argentina seems to be performing well and you also showed some good conviction as well. I understand, obviously, [indiscernible] prices, benchmark prices have been lower and that's the main reason for weaker earnings in the third quarter, right? But then, the surprise was the dividend cut. Our initial understanding is that you would sustain stable to growing dividends through the cycle even if the cycle turns and that's one of the reason why balance sheet leverage has been kept at low levels to allow you to execute CapEx and, at the same time, keep the commitment on a flat to growing dividends, right? So, it was a bit of a surprise to us. And when we hear about the constructive outlook, we're just trying to understand the reason why you've -- the Board decided to cut dividends this year. And if you can assume eventually will resume the $3.30 a share that you paid last year as well? And secondly, I mean, probably big topic today is the outcome of the US election. I think you've laid out some of the important actions that the Mexican administration is taking to support industrial activity in Mexico, to some extent, nearshoring, but also [important institution] (ph) as well. So, obviously, we've seen some of the headlines suggesting higher taxation and potentially a tougher instance on Mexico as it relates to renegotiation of the USMCA agreement. So, if you can talk about that as well, your initial thoughts and risks and opportunities for Ternium being in Mexico, directly and indirectly exposed to the US and North America, that would be great. Thank you.

Thank you very much, Marcio. I will start with the second part of your question and then we'll go to the dividend if you allow me. The outcome of the US election, and you were very clear, I mean I see this as an opportunity to be honest. I think, first of all, we are out of the uncertainty. We have two new administrations, one in Mexico that already is a month in the job. And now, we will have -- now one in the US. So, I think that's something good because now people can start talking and can start working together. I think from the Mexican point of view, the new administration, President Sheinbaum, I think she understands and share very much the concern than the US and the Trump Administration, President Trump, have with China unfair trade. She has been very clear and very vocal about this. As you know -- we probably know, several weeks ago, we participated in the US-Mexico CEO Dialogue, which is a dialogue that's been going on for quite a few years between CEOs of Mexico and the US, and this was with the new administration in Mexico. I think there was a big consensus of all the participants that the opportunity to strengthen the North American region and to safeguard against violations of trade, especially by Asia. And in that meeting also, people were very positive about the good outcome of the new USMCA. I mean, the new USMCA, which was negotiated in 2018 bring a lot of benefits both from Mexico, but also from the US, which increased exports to Mexico by more than 30% in that period of time. The other thing that the President of Mexico show up and said in that meeting was, she was very firm about the vision she had of again strengthening North America and reducing -- I'm using her words, the trade deficit that Mexico has with Asia, well about $200 billion. So, I think the alignments are quite similar. I think that it's positive. The discussion has to start. There is going to be a revision of the USMCA, which again, I think is very good, the USMCA, but clearly, it has room to improve. So, I'm positive about the outcome of these elections. I hope I answered the question -- that part of the question, Marcio.

That was great. Thank you. Very detailed.

And Pablo, why don't you call about dividend?

Yeah. Okay. Yes, Max, I will do that. So, if you want -- the Board decision was for a nominal reduction of dividend payment, but if you consider on the broader spectrum, you will see that the dividend that was proposed and that was approved is a dividend that not only maintain or increase the dividend yield of the company, but significantly increase the payout ratio that the company is or -- is having and will have. Taking into consideration not only that the company has reduced the EBITDA generation during this year, but also has reduced a little bit the total net cash position, but also taking into consideration that we are entering into the part of the CapEx plan next year, which will be higher as you know than this year. So, all-in-all, what the company is doing is sustaining a very strong dividend payment with very high level of distribution. And as I said in the opening remarks, this is possible because, as you know, we discussed many times the strong financial position that the company is having that allow us to sustain a very strong financial position while we are doing a very, very important and transformational type of CapEx like the one that we're doing in Pesquería. So, in our view, the work we have done with this approval of the dividend payment is basically sustaining the high level of dividend payments that the company is having. We have increased substantially dividend payments in the last three or four years and this continues to be the case. Of course, if you look just by the nominal number, there has been more reduction on that one, but if you look at the all comparisons and all ratios, the dividend payment continues to be very high. Again, hope we answered your question, Marcio?

Yeah. No, that's great. Is it fair to assume that we then should look at more of the dividend yields? Because obviously share price is down by about 20% year-to-date and that's helping the yields, right? But is it fair to say we should look more at the yields and the payouts rather than the nominal term...

Exactly, because, again, the payout ratio basically is about around 70%, which is quite high in comparison to any other companies and what we have done in the past three or four years. So, we are distributing significant amount of what we have generated during the year.

Okay. That's great. Thank you very much.

You're welcome.

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

Yes. Thank you for the call and for taking the question. Maximo, I have another question for you. And this is regarding the steel industry in North America, not only in Mexico. What is the outlook here? Because what we know is that North America is a big net importer of steel. There is more capacity needed for all these efforts for reshoring and nearshoring, but at the same time, we have this overcapacity problem globally and it's only getting worse as China weakens, demand in China is weakening. There are tariffs that could be implemented, but that is going to impact competitiveness in the region. And even there is a risk that there are tariffs within the North American region, we cannot rule out that possibility. So, how do you see the global steel market going to balance? Are we going to have two separate steel markets globally, one by China and another one by North America and Europe? Or how this is going to unfold over the next three to five years? I would like to...

Alfonso, that's a great question. I don't know if I have a great answer for you, but clearly, there is an overcapacity in China. There is an overall capacity in China that was made, not because of market forces, but because of a Chinese government policy or you can call it industrial policy, whatever you want, but it was a government incentives that create an overcapacity, not only steel, on many industries. So that's a problem in itself. And as I always said, it's impossible to compete with China with all the subsidies and all the schemes that the Chinese state-owned enterprises has in steel or in many, many other products. What will happen or what is happening is that most of the regions are reacting to this. North America is reacting to this. The US, Canada, and Mexico has implemented a series of actions. Brazil is starting to react. Europe has already reacted. So, I think we are going to have many regional markets, and that's how it's going to operate in the future. In the case of North America, particularly, I think the North America region is a very competitive region to produce steel, especially low-carbon intensity steel. I mean, as you know, Mexico, probably of the big markets, of the big producer, is the lowest of CO2 emission per ton followed by the US. So -- and in a competitive way. So, I think that North America in itself is very competitive. And again, most -- some of the companies in North America, including Ternium, is investing in more capacity, is investing in being able to supply all the needs of the region in a competitive way. Again, no one can compete with a state like China, and I think that it's because of that, that reaction is that the governments are taking place. I hope I gave a short answer of a very long topic, Alfonso.

Yes, thank you. That helps. Just one question on this. The risk of tariffs for steel going to enter in the US, there is a risk, in your view. What can Ternium does -- do to -- if that happens or what could be the strategy?

Look, I cannot speculate today about tariff in the US. I think, as I said in the beginning, I think that this is more of an opportunity to strengthen all the North American supply chain. And I think that the administration in Mexico and the new administration or the future administration in the US has a common objective in this. I'm very confident that, of course, there will be discussions and negotiations, but at the end, they are looking the same. So, I guess, things are going to be resolved.

Okay. So basically, what North America needs is to reduce imports from other regions, that would be the goal?

Well, that's a clear objective of the President of Mexico. She was very public about this in several things and she even put the number of $200 billion in the public. I think it's also the objective of the new or the future administration of the US. I think President Trump was very clear about this. And the US, in general, is very clear that the dependence of China, it's not the way to go. And the strength of North America supply chain, I think is beneficiary for everyone. I mean, there's a lot of positive things to discuss. Integration of the energy sector in the North America, that's also a very important subject that can benefit a lot the US and Mexico. So, I think there are very positive things to discuss, which I think will be the way. So, I'm very positive about this.

Okay. Last one I promise. This question is, in the near-term, the region will need to continue importing steel from elsewhere, from other countries. There is no way around it, right? So, it may not be China...

I'm not sure about that. I mean, I think the region, if you count Canada, US, and Mexico, I think we can supply most of the steel that is consumed in the region.

Yeah, but net import was [$44 million] (ph) last year. So, it's a big amount.

But there you have the imports of -- between both countries.

Right.

So, you have to discount that.

Correct.

So, the net imports -- you are talking about net imports of steel of less than [15 million tons, 20 million tons] (ph). And I think if we increase capacity, most of that comes on -- and some of the imports come from Europe and Japan and that's things that you can manage.

Correct. Okay. Yeah, that's just what I wanted to understand. Thank you so much, Maximo.

No, thank you to you, Alfonso.

And your next question comes from the line of Henrique Braga with Morgan Stanley. Your line is open.

Hello, everyone. Good morning. Thanks for taking my question. I have two questions on my side. First one is regarding the steel imports in Brazil. I know you mentioned that in your initial thoughts Maximo about the -- how the government is now studying and making -- revisiting the quota system. I just wanted to know from you, what are the -- what is the company doing now? If you're working closely with the government? And what's the outcome that you expect from that? If the quota system is going to reduce somehow, if it's going to extend for a longer period of time, or if the tariffs are going to increase in some way? And the other one is about the future investments. I know you have an ongoing CapEx plan, but if you have some thoughts about what's the next step for Ternium after the investments in Mexico? Will you plan to continue in the Americas, or an expansion in any other regions is a possibility? Thank you.

Thank you, Henrique, steel imports in Brazil, I mean the government implement this quota systems. It is implemented in June, so it's very early. But I don't know -- I mean, maybe you know it, but it's a system that you have a quota -- a four-month quota. So, you cannot surplus supposedly that quota. And let me give you an example, these are real numbers. The quota for the flat product was around 400,000 tons. That's the quota for the four first months. The imports, mainly from China, because 80% of that is China, of that quarter, instead of 400,000 tons was 900,000 tons. So, it's more than double and most of those didn't pay taxes -- this tariff of 25%. So, what we're saying to the government, not Ternium in particular, the association is saying to the government is, as it is implemented, it's a good -- I mean -- I don't know, it's a good first step, but it's not working because there are some loopholes in the system. So, for one side, we are saying, okay, we should continue working to close off those loopholes. The second thing that Ternium and other companies are doing is filing dumping cases. I think that's the long-term view as most of the countries are doing, but that takes long-time, but we are doing that as a second step. I hope this is clear from the first question, Henrique?

Just very clear.

Yeah. Future investments, I mean, as we always said, we are going to be focused in America. We are not going to go to other regions. I think, we have a place or opportunities in the Americas, in the countries, especially in Latin America where we are, to continue growing, to continue investment. Today, as you know, we are focused mainly in the increase of the Pesquería project, as you know is the biggest project we have ever had in our history. So, we are lot focused in the next two years in completing this project on time, and with the quality. As you know, it's going to be really the first steel shop of their kind. So, we are very focused on completing this and be successful in this.

[Operator Instructions] Our next question comes from the line of Camilla Barder with Bradesco BBI. Your line is open.

Hi, good morning. Thank you for the opportunity for taking my questions. Just two quick questions. First on CapEx. Not sure it's too early to say, but is there any estimate for CapEx in 2024 -- '25? And on cost, for Q4, you mentioned you -- we could expect a drop as lower raw material inventories flow through results, but looking at 2025, what can we expect in terms of cost? And also, if you could provide your expectation for free cash flow in the coming quarters, it would be great as well. Thank you.

Thank you, Camila, very much for your questions. CapEx in 2025, I think that was your first question?

Yes.

Our total CapEx will be around $2.3 billion. This is including Usiminas. A big part of that is going to the Pesquería project, of course. 2025 will be probably the year of more CapEx in our history because of the Pesquería project.

Then, yeah, sorry, but we didn't hear that well your questions, but I think the second one was in respect to our expectation for free cash flow generation in the coming quarters. Let me take that one, Maximo.

Yeah, please.

Cost and free cash flow.

Okay. Yeah. You're right, that was your question. So, in respect to free cash flow, what we are expecting is, first of all, to continue increasing our CapEx investment as you have already asked and Maximo gave you the amount. So, without taking that into consideration, which clearly is a very significant amount, we shouldn't have that significant changes in working capital. It was quite special, the increase in working capital this quarter was basically account payouts, an increase in account payouts and nothing else, no increase in inventories or in our account receivables. So, shouldn't be that the -- we shouldn't have that case in the coming quarters. So, we should have a positive operating cash flow and then continue increasing in the CapEx. So, all-in-all, should be in a better position than the one that we have this quarter. Secondly, and we are -- as we already mentioned, both Maximo and myself, our expectation is to continue reducing cost in different ways to do that. One of them is something that we discuss almost every quarter, which is that we are still utilizing raw material and special slab bought in prior quarters, but have a higher price than the current one. And that's why we should see a reduction in cost coming in the next and the following quarter. So that was -- that is one of the reasons why we said that we have -- or we can have a slightly better EBITDA generation in the coming quarter. And also, as was mentioned, we are always and we, especially in this situation, working very hard in continuing our cost reduction program in all the facilities where we are operating. So, we tend to be positive in that respect with the numbers that we already mentioned for the fourth quarter and especially for 2025.

Very clear. Thank you.

Thank you, Camilla.

And there are no further questions at this time. I would like to turn the call back over to the CEO, Maximo Vedoya.

Thank you very much all for joining us in this call. We welcome your feedback, and have a great day. See you in three months.

This concludes today's conference call. You may now disconnect.