Ternium S.A.

Ladies and gentlemen, thank you for standing by and welcome to Turnian Third Quarter 2020 results. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and then one on your telephone keypad. If you require any further assistance, please press star zero. I would now like to hand the conference over to Sebastián Martí. Thank you. Please go ahead.

Good morning. Thank you for joining us today. My name is Sebastián Martí and I'm Turing's investor relations and compliance director. Turing released yesterday's financial results for the third quarter of the first nine months of 2020. This call is complementary to that presentation. Joining me today are Turing's chief executive officer, Maximo Vedoya, and the company's chief financial officer, Pablo Brizzio, 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 turn the call over to Mr. Vedoya. Thank you, Sebastián.

Good morning, and thank you very much for your participation. We really appreciate your time and your interest in our company, and I think especially today when I think some other things are happening which keep us a little bit busy or our mind there. Since our last conference call, there have been significant advances toward a more normal environment in the skin industry. Still demand increased as lockdowns and restrictions to operate for different industries were relaxed in the third quarter in all our markets. We continue to operate our facilities under strict sanitary protocols. As discussed in previous calls and in this scenario, we have been able to increase operating rates to close to full capacity. In situations like this, is when tournium can demonstrate its operational flexibility. During the second quarter, at the worst of the pandemic-related restrictions, we reduced tournium screwed steel production by almost 30% compared to the first quarter. Then, in the third quarter, we took production back up to an even higher level than that of the first quarter of the year. and I'm proud of how quickly our people was able to react to these big changes in the market environment. Steel prices in North American markets has also been helping as they recovered strongly from a very low base back three months ago when we had our last conference call. The higher shipment made possible by Ternium's operational excellence Together with improvements in the pricing scenario enabled us to report third quarter results that were significantly better than what we anticipated in our last conference call. Shipments increased 16% to 2.8 million tons, not yet back to pandemic levels, to pre-pandemic levels, but on our way there. The data was $353 million, with a margin of 17% or $124 per ton, also a significant increase, with expectations of more to come in the fourth quarter of the year. Free cash flow remained at a very high level, as they did in the previous quarter, with $389 million in this quarter. Driving another decrease of net debt, we reached just $562 million at the end of September. During the third quarter, we were able to restart our main CAPEX projects, including the new hot rolling mill in Mexico, of which we continue to expect a commissioning by mid-next year. We also resumed the final commissioning of the Greenfield River Facility in Colombia, In this regard, I am very glad to announce that on Monday, two days ago, we produced the first bar out of this new facility. The new mill will enable us to substitute imports of reinforcing bars in Colombia, with total capacity equivalent to approximately a third of the market. With this facility, we will be the only producer of river in the north of the country. This new capacity will also contribute to an increase in competitiveness with a lower cost of production than our existing facility. And we will also be able to broaden our product offering, integrating this new capacity with our existing facilities in the country. Let me now make a quick description of the situation In Mexico, we recovered in the third quarter a little over half of the volume we lost in the second quarter. We now expect shipments to return to pre-pandemic levels in the fourth quarter. We are seeing a continued recovery of shipments to the automotive, household, appliances, and HVAC industries driven by solid end-user demand in the U.S. market. We also expect shipments to the construction market to subsequently improve with steady demand from small construction and various government infrastructure projects like the new airport in Mexico City and the new refinery. In Argentina, following record low shipments in the second quarter of the year, volumes recovered in the third quarter to levels similar to those seen in the same quarter two years ago. Although the Argentina government successfully restructured its debt, uncertainty in Argentina continues to be high. The country continues to have macroeconomic challenges that it will need to overcome with reforms and time. If there are no negative news at the macro level, We could have an additional sequential shipment increase in the fourth quarter as the steel end markets continue to advance purchases. In Brazil, the steel market environment improved significantly over the last month and this has supported increased slab orders levels in the domestic market. The auto industry is recovering nicely in Brazil and the performance of the country's GDP in 2020 is going to be the less affected by the pandemic among the Latin American economies. Our slab facility in Rio is currently working at full capacity and we expect it to maintain in the fourth quarter of the year a high level of integration with our mills in the region it had in the third quarter. Prices of slabs in the global market has also improved and many more. All right, I keep it short this time so we have more time for Q&A section and the review of the quarter. Summarizing, the profitability of the company is improving and we have positive expectations for our performance in the fourth quarter of the year. Needless to say, Although shipment levels in all our markets are currently strong, uncertainty persists about the future course of the COVID-19 pandemic and the measures governments around the world could take to contain it. As we are seeing in Europe, it is evident that the pandemic is not over, so we will continue to take a cautious stand. We also continue working hard to help our communities endure the effects of the pandemic with all the initiatives I detailed on our previous calls. I am particularly proud of how the field hospital we built and operate in Monterrey is supporting the health of those in need in the local community. Looking ahead into next year, We are very much looking forward to the commissioning of our new hot rolling mill in Mexico. I believe this will be a game changer for Ternium, not only from a growth perspective, but also from a competitiveness point of view, always with the goal of sustaining our high profitability levels related to our competitors. I am also very positive about the future of the steel market in the USMCA region. With our expansion projects in the last stage of development, I believe Tarnium will be a unique position to take advantage of the USMCA's many benefits. All right, we're ready now to review in more detail the third quarter results.