Ternium S.A.

Ladies and gentlemen, thank you for standing by and welcome to the turn on first quarter 2020 results conference call. At this time, all participants are on a listen only mode. After this presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Sebastián Martí. Thank you. Please go ahead, sir.

Thank you. Good morning. Thank you for your participation in our conference call today. My name is Sebastián Martí, and I am Turing's investor relations and compliance director. Yesterday, Turing issued a press release containing its financial results for the first quarter to 2020. This call is complementary to that presentation. Joining me today are Maximo Vedoya, Turing's CEO, and Pablo Brizzio, the company's CFO, who will discuss Turing'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 two in today's webcast presentation. With that, I'll tell the call over to Mr. Vedoya.

Thank you, Sebastián. Good morning to everyone and welcome to our first quarter 2020 conference call. Thanks again for your interest in our company and taking time to be with us today, especially in these unprecedented circumstances. I hope all of you and your families are well and keeping safe. I would like to dedicate my initial remarks to share with you our view regarding how the COVID-19 outbreak is affecting the steel market and our company and what we are doing to mitigate these effects. After this, Pablo will make a brief review of our quarterly results before going into the Q&A session. Since last quarter's conference call, the rapid spread of COVID-19 throughout the Americas has suddenly changed the business environment and is affecting steel demand across the region. And it is still uncertain What the impact of COVID-19 will be on the global economy at the nature of this crisis is different from what we have seen in the past. Our number one priority during the outbreak is to safeguard the health and safety of our employees throughout our industrial system. All of our employees who can perform their tasks remotely are today working from home. For those employees that has to be on site, we have been very fast to implement best practices to minimize conditions that comply with or in many cases exceed local authorities' directives. We are adopting strict social distancing policies and exhaustive contagious prevention measures as wearing face masks all the time, Temperature checks and disinfection policies at all transportation, site admissions, working post, and cafeteria locations. All employees at high risk of developing serious complications from the virus are today at home. We are making a very active monitoring of suspicious cases and implementing quarantine not only for them, but also for anyone that was in close contact with them. We are carrying out extensive communication programs across our facilities regarding ways to work safely and to prevent contagions at work and at home. There is actually a long list of measures we are implementing to mitigate this risk at our facilities and we keep analyzing new ones. And the response has been incredible. We are very proud of how our people are dealing with this demanding situation. They are showing strength, solidarity, and resilience and making big efforts to make sure everyone stays safe and healthy. The COVID-19 outbreak is affecting also all of our communities, and we are helping to support and strengthen the infrastructure of key hospitals within our communities with the donations of ventilator, equipment for intensive care, and safety keys for all health professionals. We also built and we are operating a field hospital for the community in Monterrey, Mexico with 100 beds and an intensive care unit with 10 fully equipment places. Another thing to consider during this outbreak is the health of our value chains. We are working very closely with customers and suppliers to go through this difficult time together. Our robust custom integration IT systems prove to be a valuable tool when mobility restrictions were imposed in many of our markets. We have always seen our company as a part of a bigger system, and this has never been more evident than in the situation like today's. In this short period of time in which COVID-19 spread throughout the region, we have been actively implementing several measures to prepare the company for these uncertain times. On the production side, our diversified industrial base provides significant operation flexibility, which enables us to integrate our facility across the Americas in different ways to reduce run rates, with the lowest possible impact of production cost. We are also optimizing production and overhead cost and reducing general expenses and extraordinary maintenance works. On the working capital side, we work very fast to reduce purchase of raw material, third-party seals, and other materials and spare parts, minimizing inventory build-ups. We have also been working with our supply chain to optimize our procurement activities to reduce working capital. And to preserve cash, we are slowing down or postponed several capital expenditure projects across our facilities. For example, we currently expect to delay the startup of our new hot rolling mill in Pesqueria unit in Mexico to April of 2021. And our new steel bar mill in Palmar de Varela unit in Colombia to the second half of 2020. In addition, considering the significant uncertainty around the effects of the recession on the industry and on their impact on our company in the medium term, Turing's board of directors decided to withdraw the annual dividend proposal for fiscal year 2019 they had made in February. The regular payment of dividend is not something Turing's board and many more. The board takes lightly as it demonstrates over more than 10 years of increasingly higher dividend payments. But the board considered it prudent to withdraw its proposal until there is a more certainty of the effects this unprecedented situation will have on the company's business. Let me turn now to the current state of our markets and operations. We continue to operate our main production line. But the spread of COVID-19 in the country impacts shipments beginning in late March. The automotive industry in Mexico is currently closed and is expected to gradually reopen during May. This industry value change between Mexico and the U.S. is highly integrated and demands synchronized productions both sides of the border. So a reopening of operations is an important issue for both countries. Other industrial customers in Mexico, as the white goods and electronic motor industries, are operating by gradually scaling back production in anticipation of weakening end customer demands. The construction sector began showing weaker demand in April. as it was subject to strict operation restrictions which could gradually begin to be lifted during May. In Brazil, our slab facility in Rio is operating at technical minimums due to weak global demand for slabs. In the Brazilian market, demand for slabs from local producers has also significantly decreased since steel consumption in the country is getting weaker and we are making up for this decrease in sales in the second quarter with higher slab shipments to other markets. All in all, we currently expect to subsequently ship more or less the same tonnage of slabs to third parties in the second quarter and balance the lower production rate with lower intercompany shipments to our facility in Mexico. In Argentina, the mandatory lockdown imposed in late March by the authorities has been very strict from the beginning. The San Nicolas facility, our main plant there, is currently operating at technical minimums as it considers a non-interruptible operation. The rest of the plants are not operating but only for shipments to essential sectors. The lockdown of operations in Serbientina is beginning very slowly to loosen up. As a result, After very weak shipments in April, we expect a gradual volume increase over the rest of the second quarter. All right. The COVID-19 outbreak is affecting economic activities and the operation of our facility in all our markets, and the effect of this situation in our business will show in the second quarter of the year and beyond. but we can rest assured we are very quickly adapting our company to this new scenario and working very hard to minimize this effect as much as possible. This is the value we can add at these difficult times as we have done in other market crises over the history of our company. With that, I let Pablo make a very quick comment about our performance in the first quarter and then we go to the Q&A. Thank you. Please, Pablo, go ahead.