Ternium S.A.

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 speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Sebastián Martí. Thank you. Please go ahead.

Good morning and thank you for joining us today. My name is Sebastián Martí and I am Turing's investor relations and compliance director. Turing 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, Maximo 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'll turn the call over to Mr. 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. This second quarter has been one of the most challenging quarters I can remember. Lockdowns or restrictions to operate were in effect in most of our markets during the quarter. Not without effort, we were able to adapt the company to this difficult market situation. In a very short period, we totally redesigned the way we operate our facilities in the current sanitary context with the aim at mitigating contagious risks to the extent possible with the health and safety of our employees, customers and suppliers as our main concern. In this regard, In addition to the sanitary measures I commented on our last quarter conference call, we continue developing innovative tools to increase the compliance with our protocols. Just as an example, during July, we implemented the use of artificial intelligence system to verify compliance with sanitary protocols within our industrial facilities to help prevent the spread of COVID-19. More than 400 cameras at Ternium's facilities in Mexico, Brazil, and Argentina are able to reinforce social distance policies and the use of face masks through video analytics that use in-house developed algorithms. Yet, our efforts in favor of mitigating the effects of COVID-19 pandemic are not stopping at our facilities gate. The field hospital we build in Montero, Mexico, with 100 beds, and a fully equipped intensive care unit has been very actively supporting the health needs of the local community in these difficult times. We also supply 25 intensive care units to two hospitals in Rio de Janeiro, Brazil, and 100 beds to a field hospital in Ensenada, Argentina, as well as intensive care equipment. Our aim was to help all of our communities in the region, to maximize The effectiveness of our help, we worked together with directors of key hospitals in each of Ternium's locations to determine the specific needs in each case. All in all, with a $5.5 million dedicated fund, we were able to build a field hospital and donated beds, intensive care equipment, ventilators, and other medical equipment. as well as safety kits for health professionals to 16 hospitals and healthcare facilities in four countries. Our global procurement platform had a key role in this effort as it was able to purchase the required equipment and have it delivered to each location. Additionally, to foster the sharing of knowledge of treatment We created a network of medical professionals. 70 doctors from local communities in Mexico, Argentina, Brazil and Colombia participate in the virtual meeting with their colleagues at Humanitas, an Italian network of hospitals. Through this platform, Humanitas' experience of dealing with COVID-19 outbreak in Italy is available at a public virtual campus. I am very proud of all we have been able to do to support our communities in such a short period. Many of our initiatives in these regards and in all the spheres of our activity can be found in our new sustainability report which was issued two weeks ago. The redesigned report intended to be an integral discussion of our progress towards achieving our objectives in a sustainable way. This is the first edition of our sustainability report to follow the Global Reported Initiative, or GRI, reporting guidelines. We believe GRI guidelines enable our reporting to deliver a higher level of transparency and data comparability. Additionally, we have committed ourselves to the UN Global Compact and to the advanced It's Sustainable Development Goals, or SDGs. You will also be able to find more about our contribution to the UN SDGs in our latest sustainability report. Let's turn to our operation now. This has been times of swift and decision action. We usually say that our industrial system has significant Operational Flexibility. With steel demand dipping during the second quarter, we saw many steel companies in the region in need of taking the costly decision of shutting down blast furnaces until demand recovers. In contrast, our blast furnaces in Brazil and Argentina were able to keep operating as they reduced production to technical minimums and increased shipments to other tenured facilities in the region, which in turn The cost competitiveness of our facilities and the capacity to rapidly change the degree of integration among ternious means allows for these quick adaptions to change in market environment. In addition, with the aim of sustaining our margins, we work hard on optimizing production and overhead costs and on reducing general expenses and extraordinary maintenance works across our facility. As a result of all these factors, in a very difficult environment in the second quarter, when ships declined 18% sequentially, we were able to show a 13% EBITDA margin and EBITDA per ton of $91, just a slight decrease compared to our first quarter. Another aspect of our company on which we concentrate our efforts was the balance sheet and cash flows. Faced with significant uncertainty regarding the extent and duration of the effects of the pandemic on the global economy and in particular on our markets, we took immediate action to increase liquidity and strengthen our financial position. We minimized inventory build-ups, Reduce purchase of raw material, third-party stills, and other items. We work with our supply chain to reduce working capital, and we postpone several capital expenditure projects across our facilities. The result of these actions was more than $300 million working capital release in the second quarter, and a reduction of capital expenditure Thank you very much. We will continue taking a conservative stance regarding the management of our balance sheet, as while the effects of the pandemic seems to be abating in several parts of the globe, there is still no clarity regarding an end to its disruptions to the global economy and to our markets. Let me now make a quick description of the status of our main market. In our Mexican facilities, we are approaching normal rates of production. The easing of operation restrictions in the country is enabling a gradual return of activity in the auto industry as well as in other manufacturing industries, including household appliances and lighting. Coupled with an improvement in market share, this return to activity should support a recovery of shipments in Mexico during the third quarter. in the construction sector, after being mostly shut down during a good part of the second quarter, is beginning to slowly come back, although it remains weak. In Brazil, we have seen significantly increased production in our slab facility from the minimum technical levels reached during the second quarter due to the reduction in steel demand. This increased production rate is supported by a higher level of integration with the company's industrial system. Additionally, improvements in economy activity in Brazil are driving a current recovery in local steel industry slab demand, which had close to disappeared during the second quarter. In Argentina, following record low shipments in the second quarter, we expect a sequential volume increase mainly driven by higher activity levels in construction, the agribusiness sector, and the canning and white goods industries. Teal production in Argentina has also been able to return closer to normal level as restrictions in many parts of the country are gradually being relaxed. In this context, the recent announcement of an agreement with international creditors for the restructuring of Argentina's government debt is a positive development, as this was a necessary step for a macroeconomic program to be successful. All right, just a note of healthy caution before I finish. I am very proud of the achievements our management team and all of Ternium employees have made so far during this unusual time. Their commitment and results were admirable, and I would like to thank them for their hard work. However, we are not back to normal yet. While all of our markets in America are showing signs of improvement and our expectation for demand and production rates in the third quarter are positive, uncertainty persists regarding a possible research of COVID-19 and its effects in the economy. You can rest assured we will continue striving to make our company stronger and to mitigate the effects of the pandemics on the company and its stakeholders. Okay, these were the main points I wanted to touch today before we review the second quarter results and answer your question. Please, Pablo, go ahead.