Ternium S.A.

Thank you for standing by. My name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Turnium fourth quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Sebastian Marti, you may begin your conference.

Thank you. Good morning.

Thank you all for joining us today. My name is Sebastian Marti, and I'm Terence Global Investor Relations and Compliance Senior Director. Terence released yesterday its financial results for the fourth quarter and full year 2021. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Mr. Maximo Medoja, and the company's Chief Financial Officer, Pablo Grillo, 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 more 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. 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. Belichick. Thank you, Sebastian.

Good morning and thank you all for joining us today. 2021 was an amazing year for Ternium. EBITDA reached $4.9 billion, close to four times the previous year's level. Net income was $4.4 billion and earnings per ADS were $19.5, almost five times earnings in 2020. All of these are record levels. Last year, Fermium also finished its latest expansion program with the start-up of its new state-of-the-art hot rolling mill at the Pesqueria facility in Mexico and of the River Rolling Mill Greenfield project in Colombia. On top of these very positive results, The company had significant cash generation with free cash flow at $2.1 billion. We took our balance sheet to a net cash position. Taking into consideration the company's strong performance and its solid financial position, Tarrio's board of directors proposed a dividend for the year of $2.60 per ADS. equivalent to 510 million dollars. This represents an increase of 24% compared to 2020 and it is the highest annual dividend on record, being more than double the annual dividend level the company was paying pre-COVID pandemic. Another development is the company's recent offer to acquire from Terminium Argentina the minority participation in Terminium Mexico that Terminium does not own directly. This transaction is primarily aimed at streamlining our corporate structure. A simplified corporate structure allows for both a more straightforward management of our operations and an easier analysis of our performance and results by our stakeholders. The offer is still being analyzed by Ternium Argentina's Board of Directors and, if deemed attractive, it would need to be put to the vote of its shareholders. I'll turn now to the status of our main markets, beginning with Mexico. Stardust shipments in Mexico decreased in the fourth quarter more than what we expected in our last conference call. Even though the fourth quarter of the year is seasonally weak, there were additional factors that intensified the sequential fall in volumes. During the first nine months of 2021, steel consumption grew significantly in Mexico in an environment of increasing steel prices. With the local steel industry working at full capacity, there was a large increase in import orders to cover both the extra need of the markets. In the fourth quarter, where steel prices began to fall, imports arriving with a longer lead time as a result of supply chain disruption caused an increase in inventories and a decrease in apparent demand by the end of the year. In addition, an unexpected persistence of the semiconductor shortage for vehicles manufactured continued impacting turning shipments, as the auto industry represents about a quarter of our sales volume. This was not the only affected sector, as other industrial customers have been dealing with a similar environment. Our current view is that steel imports into the region will decrease in part due to the significant steel correction over the last few months. In addition, a gradual normalization of the availability of semiconductors should support a recovery in apparent steel demand and a consequent increase in terms of volume, something that we are already seeing in the first quarter of the year. The company is ready for such scenario, as its new hot rolling mill in Pesqueria continues to ramp up with the first million tons of production milestone already behind us, and with a whole new range of products at its disposal to gradually substitute imports in the Mexican market. Let's review now the situation of the Argentinian market. Shipments in Argentina has been steady during 2021, with a very healthy sales level, especially in agribusiness, the automotive industry, and construction. And we expect this to continue for the rest of the first quarter. Having said this, there is a high degree of uncertainty regarding Argentina's macroeconomic environment in 2020.

Ladies and gentlemen, this is the operator. There is a slight technical delay. Please remain on the line.

Let me start with my remarks, and then when we get Maximo back in line, we will continue to hear his opening remarks. So, good morning to everybody, and let me start by going to the presentations and reviewing the performance of Ternium for the full year 2021. Sorry, Maximo, you're back in line.

Yeah, I'm sorry about that, guys. Something happened here in Mexico. So I was thinking, I think, about Argentina. I mean, regarding Argentina's macroeconomic environment in 2022, although the country has recently agreed with the IMF, I think I was saying, on the topic of a roadmap to refinancing debt, Argentina has very low levels of international reserve, a significant fiscal deficit, and high inflation. If these imbalances are not addressed appropriately, instability in the main economic variables in the country could have a negative effect in turning sales in the market in the year ahead. I would like now to make a quick comment regarding Ternium's sustainability initiatives. In the last quarter's conference, I mentioned the company's cargo capture and usage capacity expansion projects in the Guerrero and Puebla facilities in Mexico. Since then, we launched the second phase of the project at the Guerrero facility with the aim of increasing by 42% our current capacity. This will result in a total CO2 capture and usage capacity of over 400,000 tons per year in Mexico, equivalent to the yearly emission of almost 90,000 cars. Let me remind you that the technology we have installed at our DRI facilities is by no means common worldwide. These DRI models are among the greenest in the world. We have also launched a project at our slab facility in Rio de Janeiro to increase the scrapyard processing capacity, with the aim of reducing the CO2 emissions rate of steelmaking in this location. In addition, Ternium reported its deuteronization strategy to CDP for the first time in 2020, and received a B score on the topic of climate change, in line with the steel sector average. Tarnio's efforts to improve its safety performance were recognized by WorldSkills with a Safety and Health Excellence recognition. And diversity, equality and inclusion continue to be a strategic topic in Tarnio's ESG agenda. In December, the Human Rights Campaign Foundation certified Ternium for the second consequent year as one of the best places to work in Mexico for the LGBT community. Wrapping up, after an outstanding year in 2021, the company expects to deliver solid performance in 2022 in a business environment with gradually normalizing steel prices and margins. Ternium plans to leverage on its new hot rolling mill in Pesqueria and healthy apparel and steel demand in its main market in the USMCA. This, together with positive expectations for innovation in the year to come, should put the company in a position to sustain attractive returns to its shareholders and to analyze opportunities for further profitability growth initiatives. Okay, I'll finish my remarks here, and Pablo, please go ahead with the review of the quarter and the full year performance.

Thank you, Maximo, and good morning to everybody.

I'm sorry for the inconvenience that we're having in the lab. So let me go back to comment on the presentation that we have today and review the performance for the full year 2021. and then I will be analyzing the performance of the quarter. So if you go to page three in the webcast presentation, in this slide, you can assess the magnitude by which turning results in 2021 outpaced those of previous years. Regarding consolidated steel shipments, volumes were higher year over year in 2021, although they remain below the levels achieved in 2018 and 2019. The reason behind this was a significant volume of slab sheets to third parties that followed the acquisition of Ternium Brazil in September 2017, as you can see in the chart. As Ternium progressed with the integration of this slab facility in Brazil, these volumes eventually helped. The increase in finished steel shipments in 2021 reflected the ramp-up of Ternium's new facilities in Colombia and Mexico, and the recovery in steel demand. Looking forward, we believe that last shift to third parties will stay at current or slightly lower levels, while finished steel shipments will continue growing as we increase our presence in our main market, particularly in the USMCA region. The VTA margin in 2021 reflected increase in steel prices along the year. Paid max steel prices reached record levels in September 2021 and then started to decline. Yet, steel prices remained at very good levels, with enough space for healthy margins despite increase in costs. Good profitability levels and continuous strength in steel demand support our expectation for an overall solid performance for Ternium during this year, 2022. In the bottom right chart, you can review the increase in dividend during the last few years. As for the year, the current year that we are discussing, 2021, the company has already paid an interim dividend of $0.80 per ADS in November last year. This means that if the proposed annual dividends of 2.6 cents, that's maximum comment, per ADS is approved at the annual shareholders meeting, an end dividend of 1.8 cents, excuse me, dollars per ADS will be paid on May 11, 2022, with record day on May 6, 2022.

We expect to pay an interim dividend again in November of this year.

On page 4, the cash flow generation of 2021. Cash flow from operation was the strongest ever, even after factoring in a working capital increase of the same magnitude. A large share of the increase in working capital was related to higher steel prices, and it has an effect on the value of trade receivables and also the increase in raw material costs, with an effect on the value of inventories. The inventory also reflected an increase in the volume of steel products related in part to the ramp-up of Ternium's new facility and also to the recovery of steel demand. Turning now to the free cash flow, the figures for 2021 was also the strongest on record. Capital expenditure during the year remained within Ternium's usual range. The company concluded its expansion plan during the first half of last year And for this year, 2022, we expect turning of capital expenditure to increase a little bit compared to last year, with a base of approximately $600 million without considering any further expansion plans.

Let's turn now to turning performance in the fourth quarter.

In the following page, the BDA in the last quarter of the year was down sequentially, but remarkably strong by historical standards. The result led to net income per ABS of $5.08, also a solid performance. Looking forward, TANU expects the VBA to remain at healthy levels by historical standards in the first quarter of 2022, with a sequential decrease reflecting lower margins, partially offset by higher consolidated steel shipments. Going now to the shipments, let's analyze the performance in each of our markets on page six. In Mexico, you can clearly see how the situation we have already described affected volumes in the last quarter. Again, we believe that by nature this is a short-term situation. In the southern region, shipments were relatively stable as the asset market held pretty well. And in the other market region, shipments increased sequentially. mainly due to higher finished seedings in all of the new markets, partially upset by lower seedings of slabs to third parties. Looking forward, in fact, finished seedings increased in the USMCA region in the first quarter of this year. Slab volumes, on the other hand, should decrease a little bit more in the coming period. The next page, page seven, you can see that combining these developments, we arrived at a consolidated feed shipments of 2.8 million tons in the fourth quarter, down 8% compared to the third quarter and the prior year same period. Let's analyze now the prices and net sales. The fourth quarter, there was a light sequential increase in revenue per ton, with increases in all of markets because of the reasons that we have just described. In Mexico, Contract prices sequentially increased in the fourth quarter, more than offsetting a decrease in benchmark steel prices that began back in September. While in the end market vision, there was a positive impact of the higher participation of finished steel shipments over slabs, an environment of lower spot steel prices in this market. Looking forward, to expect sequentially lower realized steel prices in the third quarter of the year, with revenue per ton reflecting recent decreases in spot prices, a partial offset of longer-dated contracts that we received, as usual, with a lag. Moving on to the next page, we'll review now the main drivers behind the sequential changes in the VTA and net income. The VTA chart on top shows the impact on the VTA of lower ship and higher cost per ton. Costs were higher as a result of an increase in raw material and purge lab prices that, as usual, are reflected in our cost structure with the lag due to the new first-in-first-out accounting methodology. These negative effects were partially offset by an increase in revenue per ton, as already discussed. The chart below shows that the sequential decrease in net income in the fourth quarter was mainly driven by changes in operating income and its impact on income tax. Now, to finish the presentation, let's turn to page 9 to review turning cash flow and balance sheet performance on a quarterly basis. Cash flow operations in the fourth quarter was strong $1.1 billion as working capital increased much less than in previous quarters. There was an increase in inventory, volume of street products in the quarter, but it was partially offset by a decrease in trade receivables. Strong cash flow operations a significant increase in free cash flow in the fourth quarter, with CapEx remaining relatively stable. As a result, in the net cash position of $1.2 billion by the end of the year, in December. Our current expectation is that premium will continue, showing healthy cash generation during 2022. All right. Thank you very much for your attention, and we are now ready to take any questions you may have.

Thank you. To ask a question, please press star 1 on your telephone keypad. The first question is from a coyote runner of BTG Paxil. Please go ahead. Your line is open.

Yes. Hi. Thank you. Good afternoon, everyone.

So I have two questions. The first one, I wanted to explore your outlook for the first quarter. So on the release, you mentioned an expectation of lower sequential EBITDA. And I wanted to get a little more color on two topics regarding that, which is cost and realized prices. And so on cost, I was wondering if you can maybe share your expectations for the first quarter, if you still see rising cost pressure in your results. And where is the pressure mostly coming from? And on prices, I mean, we do have a good visibility on your revenue per ton one quarter ahead. So if you could just maybe share your impressions of flat steel prices in North America, if you are already seeing signs of a bottom anytime soon, it would be very helpful. And my second question on capital allocation, I mean, the company generated very strong free cash flow in the quarter last You guys are already at a $1 billion net cash position. And I think the main question here is, what can the company do to move back to a more efficient capital structure? We have seen your development proposal. And I was wondering if this is not the time to maybe be more aggressive, become more aggressive on cash returns, considering the company is such a... such a solid financial position. Are there any plans to maybe have a formal written down dividend policy, maybe even based on free cash flow generation? And if this is not the case, it would be great to hear management's capital allocation plans for 2022. Thank you very much.

Well, thank you very much, Caio, and good morning.

The first question, regarding cost,

which, I mean, the cost in the fourth quarter, the cost increased by roughly $100 per ton. Mainly the cost issues of that increase were slab purchases, iron ore, coke, or carbon coke, or metallurgic coke. As you know, the inventory put in a C4 tank So it's a little bit of lag. What we are saying for the first quarter is that we are not going to have an increase or a substantial increase in cost. It's a very small increase. Regarding prices and the bottom-up, I think we talk of this in the several conference calls, in the last two conference calls. We were seeing that prices, especially in the USMCA region, were going to decrease. I mean, the gap between the USMCA prices and the rest of the world was very, very high. And we even talked, I think, in one of the conferences, that we were going to see a new normal bottom price of around 1,000 tons. We are still seeing the same thing. I think the decrease was a little bit more steep than what we thought, to be honest. But we are seeing the same thing. And another issue, so it's kind of coming to the bottom, I think, in this quarter or early next quarter. We are not seeing a decrease much longer than that. On the other hand, prices in Europe and in Asia are starting to increase a little bit. And raw material costs are high, so I don't think there's room for decreases more than that. The second question, Pablo?

Yes, the second question is to capital allocation. Let me start with just one comment, and then I pass over to you to further comment. Okay. Hi, how are you? So we have been, I think that the company has been drawing its attention to reinforce the distribution of dividends and allocating to shareholders part of the return that we've been generating during this year and trying to come up with something that is sustainable over time. So as we have described in our opening remarks, both Maximo and myself, we have been proposed, or the Board of Directors proposed a dividend that it is reflecting a dividend yield of 6% or more. And of course, because of the extraordinary level of results, probably the payout ratio is below the traditional one that we pay. But we have also introduced a biannual dividend payment, so an interim dividend around November, and the full dividend announced by now and paid in May. So all in all, we have reconfirmed the increase of the level of dividend paid, and as was mentioned during the opening remarks, is more than double the level of dividend that we had prior to the pandemic levels. And as we always mention, we have a track record of increasing and sustaining our dividends, and this should be the case for Ternium in the coming years. So this is in relationship to dividend payment, and I guess that it's important for Maximo to mention certain things in relationship to capital allocation for the coming years. And just one small thing before turning the work to Maximo, is that this year also we will have important payments that we will need to make, basically tax payments that will reflect the good results that we have last year. So this will be some need of cash that we will have for this year. But I think that the most important part is how we are envisioning capital allocation and projects for the coming year. So, Maxime, I think that this is something that you would like to comment.

Yeah, and taking your question, Caio, of capital allocation, let me comment some things. As you know, and you asked you guys in the last, about some projects of what we were thinking, and we are continuing analyzing projects of growth. We think we have a very solid operation in Brazil, in Mexico, in Argentina, and there's a lot of opportunity to grow. And so, as you may have seen In the Mexican press, yes, today, we are in the final stage of launching a new expansion initiative to complement all these capabilities we have in the pesquería facility. This particularly new expansion would include a plicking line, a second cold rolling mill, a third galvanizing mill, and several finishing lines. The capex that was put in the press is around $1 billion, which is what we expected this particular capex to take. And this would bring us the ability to increase our value-added products that today we have with the new hot-free meal. So today we have a 4.5 million state-of-the-art hot-free meal. Part of that material is going to go to our own stores. Part of that material is going to go to the market because we didn't have that capability, but also these new facilities will allow us to increase our value added significantly in the future. So that's another thing that I wanted to comment because there are several projects on the pipeline. This is one of them. I hope with this, Caio, we answered the question. It was a little bit long. Sorry about that.

No, no problem at all. I'll leave the other questions to the other analysts. Thank you so much, gentlemen.

Your next question comes from Rodolfo Adriano Ronce de Angel of JP Morgan. Please go ahead. Your line is open.

Okay. Hi, everyone. My first question is on the volumes in Mexico. My understanding is, well, there was the impact of Imports arriving in the fourth quarter. And Massimo, you mentioned inventory levels going higher in Mexico. So I just wanted to ask you, how do you see this situation of imports and inventories into the first half of the year? Or maybe better, when do you expect to see it normalizing? uh a second question i have is just you know this is a short one on the increasing topics is that related to the fact that now you with pesqueria you have a bigger kind of sustaining topics or is there anything uh in addition to that and and my final question uh is on still on on capital location um if you look into this you know the past uh the story attorney him uh was marked by many important transformations right and um the company grew to have a footprint now uh in the key markets in the america so very present in mexico in brazil which was a gap in the beginning and you know in other regions in america including argentina um and when you sit down with your board today is that you know, aside from opportunities like adding value to the Pesqueria plant? Is this kind of the final drawing, the final picture that you foresee for the company? Or, you know, aside from opportunities like increasing value at existing lines, is there anything else? Is there a new geography? Is there something else that is an ambition for the company as we look forward? Thanks.

Thank you, Rodolfo. Let me start with the volumes in Mexico and try to explain it a little bit, what happened and where we see 2022. As I said in my initial remarks, consumption in Mexico recovered very strongly. Take 2020 to 2021, apparent consumption of steel increased more than 20%. And if you take apparent consumption in the U.S., which is also kind of an integrated market, increased 22%. So there's a huge increase in consumption. And this increase in consumption, both in the U.S. and in Mexico, happened mainly in the first nine months of the year. So our customers and customers of our competitors, we couldn't, as an industry, fulfill all the needs of our customers. I mean, our ramp up of pesqueria started in July, and so we couldn't get that capacity in time. So most customers in both sides of the border, in the U.S. and Mexico, started importing more probably than what they needed. And there was a huge lack in imports. I mean, imports usually take four to five months. And in some cases, because of this disruption of the supply chain, because of vessels and ports congestion, these go to six, seven, or eight months. So all of the imports that were supposed to come in the second or third quarter arrive in the fourth quarter. And so that's all, for our customers, the way of... of putting inventories normal was not receiving shipments from the local suppliers. And I think this happened to all the companies in the region. Additionally was that the fourth quarter also the automotive industry has problems with semiconductors, and that wasn't in any plan, not even in the other companies. We are seeing that this is stabilizing. I mean, imports are coming down. In January, they were down. Probably, they're going to be down in February and March. In December, also, they were down. And we are seeing an increase in our book orders for the first quarter and also for the second quarter. So I think all this is normalizing. And we are going to see, at least from the fourth quarter, an increase in the first quarter and the second quarter. I think with that, another issue is that both in the U.S. and Mexico are going to grow in consumption in 2022, although not at the rate of last year, but at least 4-5% with an increase in consumption. So volumes are normally starting to increase. So we are very confident that we are going to be able to attack these inputs much better now that we have the capacity. The second question was about CAPEX, Pablo.

Yes, the second question was in relationship to the level of normalized CAPEX. So, over here, in fact, if you look at the CAPEX in the last couple of years, without taking into consideration the expansion plan that we finished at the beginning of last year, We are basically going to normalize CAPEX of around $600 million per year. This is, of course, not only maintaining CAPEX, as you are right, with the new facility, we will have an extra additional maintaining CAPEX, but this also is including some other small projects that we usually have, and some announcements that we made in the past in the in the process of decarbonization or some safe initiatives that we have. So in a regular basis, $600 million is a normalized capex. And again, this is not included much as Maximo mentioned on the final stage of the new capex plan that we have. So this is, we would say, the normalized capex. The third question was to capital allocation, so I'll pass over to you.

Yes, thank you, Pablo. And, Rodolfo, capital allocation, as I said, besides this new plan in Pesqueria, which is pointed out to make more value-added products, which I think there's a huge opportunity, the I mean, we are seeing more opportunities. Clearly, you talk about new regions. Thermium, are you listening? Yeah. No?

I can hear you. Yes, I can hear you.

Ah, perfect. Sorry, sorry. So we think Thermium is a company that's going to be dedicated probably to America. I remember some conference call ago that if we're going to be seeing things in Europe, or other regions. No, we are seeing a lot of opportunities and I think we have a lot of opportunities in North America. Mexico clearly with 9 million tons of imports is a huge place where we have to grow. As I said before, in 2027 we have to be compliant in the melted and poor for the automotive industry, so we are going to be compliant to that. We announced a couple of months ago our new investment in the U.S. for almost doubling the capacity in our Shreveport facility in Louisiana. So, I mean, our growth, but it's regarding the Americas.

And as I said, we see several opportunities. I hope with that I answered the question really well. Yeah, I know you did. Thank you very much.

Your next question is from Kyle Ribeiro of Bank of America. Please go ahead. Your line is open.

Yes, good morning, everyone. Thank you for taking my questions. So my first question, moving back to cash returns, and I know that this has been a recurring theme for the company over the past quarters. But with Ternium, you know, net cash at $1.2 billion, you know, that seems like a very conservative level for the company, right? And even with steel prices continuing to drop ahead, we still see the company generating significant free cash flow, you know, this year. So this net cash position should increase further. And I know you aren't looking to implement a formal dividend payout policy, but why not set a net debt target for the company, right? In that way, whatever net debt levels are delivered below that target can be interpreted as excess cash by the market. And this could potentially provide more visibility on what to expect in terms of cash returns ahead without committing to a dividend payout policy. So I just wanted to get your thoughts on that and whether you have a level of net debt in mind today that you consider a sustainable long-term target for the company. And then secondly, still on cash returns, I just wanted to hear from you whether it could make sense to announce a buyback program, especially given that your shares are trading well below historical average multiples.

Thank you.

Okay, Caio, how are you? Let me take, if you allow me, Maximo, these questions.

In relationship to cash returns, Of course, there is always the possibility of doing what you said, but I believe, or we believe, that the company is directly or indirectly moving into that direction, but by being quite consistent in the way it distributes returns to the shareholders without having a specific scenario percentages of net income or targeting net debt, and above that, distributing what we have. This has not been what we have done in the past, because as you look at the numbers of the company, looking at the industry, as you know, the industry with the volatility that they have is difficult to have, especially the targets on net debt as a way to manage the company. What the board of directors or the company is trying to show is that we have a way in distributing and returning to the shareholders in a sustainable way. And whenever we can increase, we have to do that. And now, with the good results of the company, the perspective of sustainable results, of course not at the level of 2021, we more than doubled. the level of return and dividend payment. And we are of course to sustain this new level. We have never had a targeted net debt because this is not the way we believe a company like ours should work. This is not the first time that we are in a position to be net cash. As I was mentioning in a prior question, this year we have different payments that we need to make in relationship to not only CAPEX but also taxes, dividends. So the allocation of funds for the year I think are quite clear and taking also into consideration what Maximo mentioned in relationship to the CAPEX plan that is in the last stage. of being implemented. And we do not forget that we also have an offer in place to buy back shares of Ternium Argentina holdings in Ternium Mexico. So this is another transaction that is still on the table. And if this transaction moves forward, it will be very positive for Ternium and will require some additional cash utilization. So all in all, this is the way the company has been working. We take, as we took in the past, recommendations from your side, and that's why we have been increasing and sustaining the development of this. The issue of buybacks, which is another issue that we frequently discuss with you, clearly is something that we will never rule out as a possibility. But then we have the issues of the level of floating that the company has, and you need to factor in everything to take this into consideration. So it's something that the company can do at some point. Again, we will not rule out that, but we also need to take some other things into consideration because if we move into that direction, we need to do it in a moment in which we will not term the level of floating that this company will need. We don't have the high number of proteins, so it's something that we need to take also into consideration. So again, summarizing something that we can do at some point, but we need to take other things into consideration to sustain the good viability of the company.

Okay, understood. Thank you, Pablo. You're welcome.

Your next question comes from Carlos de Alba of Morgan Stanley. Please go ahead. Your line is open.

Yeah, thank you very much, everyone. Happy New Year. So the question I have is a follow-up maybe to the investment programs. So this one, how much is the total investment in dollars that you expect for these finishing lines that I guess would add value to the new Horo coil? And also... I guess, how does this affect in any way the timing of a potential electric car furnace in Mexico? Can you comment on that, Maximo, how you see that investment to increase not only the value added to what you currently have, which is what you just mentioned, but also increase crude steel capacity in the region? A couple of other ones. Could you give us a color on the mix by coral coil, coral coil, galvanized rebars of your Ternium Mexico operation? Given how prices have moved, I think this is relevant. Then finally, in terms of the transaction with Ternium Argentina for their stake in Ternium Mexico, Any update on the potential timing of this transaction? If everything goes well, when would this be closed?

Okay, thank you very much for your question, Carlos. Let me take the first one, the investment. The investment, I think, is $1 billion to this pesquería facility. The rationale behind this investment is that the market, I mean, we have now the hot roll mill, we have the availability to produce any product in hot roll mill, but also the market is needing value-added products like cold roll, pickling, or galvanized. So the rationale is, I mean, putting pressure, I mean, going after the imports of hot rolls, some of one, some of, Those also were asked for the technical facility, remember, but also going to the rest of the imports, usually in automotive and industrial customers. So it's going to be a PLEAK-IN line, which is roughly 500,000 tons. It will be a new PLTCM, which is around 1.5 million tons, and it will be a new galvanized line for the industry at around 500,000 tons. That's the idea. And then finishing line for those products. That's the idea of this investment. Regarding the investment in a steel shop, as we discussed in the past, that's something that this plant is not putting a stop for that plant or anything. We are still analyzing with the with the vision that we need to supply our automotive customers in 2027 with melted and poor in the region so we have to comply with them we still have time and that's why we we are taking our time to be which is the best way of of complying that or supplying that. But, I mean, there are two different plans, and we are launching this one in the next few weeks. Timing of the Argentina transaction, Pablo?

Yeah, okay, Maximo. Hi, Carlos, how are you? The transaction moves through the process that needs to be achieved. But we haven't yet the confirmation from Ternium Argentina Board of Directors that needs to recommend the transaction that at the very end will need to be approved by the shareholders of Ternium Argentina. And this will require a shareholder meeting that usually takes around a month after the approval or recommendation from the Board of Directors. And then after that, because of the complexity of the transaction and the different steps the transaction is having, it would take an additional 15 to 30 days for completion. So if the transaction is, let's say, approved at some point in the next month, it will take in total around two months for this transaction to be fully performed. But we need the first step, which is an important one, is to have the recommendation from the Argentine Board of Directors. And this is something that the Board of Directors of Argentina did not yet take, and they are still considering the proposal. So we are expecting to receive comments from them. And from there, this is the timing the transaction can take.

I don't know if it was clear, Carlos. So just basically, most likely the second quarter, right?

Yes, most likely it's approved. Most likely it will be the second quarter.

Yeah, and Carlos, sorry, you asked also about the share of products in Mexico, I think. So if you took in years numbers, Rivers and water, long products, it's about 1.2 million tons. Then the capacity of galvanized and painted products, it's around 2.4, 2.5 million galvanized, and then 0.8 million tons of pre-painted products, but they use galvanized, no? Those pre-painted products. And the rest is cold-rolled and hot-rolled.

Mm-hmm. And the total capacity just here in Mexico is around, what, 8 million tons, 9 million tons?

Yeah, the total capacity of hot rolls today, of course, we are in the ramping map of the hot-free meat in Pesquería. The hot roll capacity is 10 million tons, and in rivers and water roads, 1.2 million tons of hot rolls.

All right. It's fair to assume that you aim to maximize, run at full capacity, the painting line, the galvanizing line, and then whatever you cannot use there, you produce coral coil.

Exactly. We usually run full capacity. Galvanize also supply the full capacity of pre-painting products. Coral capacity is around 4 million tons, a little bit less than 4 million tons. We use to run the... We most of the time run the Cold War Meals at full capacity. And today we are aiming to run the Pizqueria Meal at full capacity, to run the long products facilities at full capacity, to run the Mini Meal at full capacity. And the Pot Tree Meal in Churubusco is the one that is going to not be run at full capacity, at least in this year. But we are thinking... that in 2023 or 2024 should be running at least very close to full capacity.

All right, thank you very much.

You're welcome.

Your next question is from Tina Tanners of Wolf Research. Please go ahead. Your line is open. Yeah, hey, good morning, everyone.

Hope you're doing well. Yeah, thank you, Tina. Good morning.

Good morning.

I just wanted to follow up a little bit on the Pesqueria comments and understand it a little better. First off, I wanted to ask you about how you see the addressable market of that milk. You know, there's been definitely trinium tons shipped into the U.S. Makes perfect sense. The U.S. is shipped to Mexico. But just thinking, is that the addressable market, the entire North American market, or is this just kind of a temporary situation until the downstream is expanded? And then how do you think about the full production? In the past, you talked about ramping up gradually, but I just heard you say full capacity. Is that four and a half million? Is that a little less that you're shutting? Just wanted to clarify that. And then finally, if you could just discuss the timing of when we should be expecting some of these lines to come on and the CapEx to come through. Thanks a lot.

Okay, thank you very much, Tim. I tried to answer all of them. I mean, all our projects are thinking mainly for the Mexican market and some exports to the U.S. But our main objective is the Mexican market. As I said, if you take 2021, Mexico imported 9 million tons. I don't know if you hear me well because I'm hearing some noises. Oh, I hear you.

I'll put myself on mute.

I'm sorry.

I'm in a conference. Yep, I hear you.

Okay, perfect. Sorry. Mexico imports nine million tons of flat products. Of those, roughly four million are hot rolling products, two and a half galvanized and the red cold roll, basically. There's a huge market for us, and that's the main aiming of that. USA, for us, it's also an important market, although we are not seeing that we are going to make our investment case to export everything to the U.S. But some of our products are going there, and we expect it to grow a little bit there, as probably some of the U.S. mill wanted to grow a little bit in Mexico. Regarding the second question, we are expecting the... hot-free mill in Pesteria to be running at full capacity, at least at 80% of utilization, which is a normal thing for this, around July, August, September. But as I said, we were going to decrease a little bit the production of the Churubusco mill. In overall, we should increase hot-free mill production in 2022 by around 1.8 million tons. Of that, some is going to the market, and some is going to replace our imports from Japan. So I think that's the second question. And the third question, Tina, sorry, I forgot.

Oh, yeah, I was just about the timing of the investments and when we should start thinking about the additional value add to come through to, you know, greater average realized selling prices. Thank you.

Yeah, as I said earlier, When I answered the first question, I think it was Caio, we are in the final stage of this. It didn't have yet the board approval, although we discussed it deeply yesterday and it's probably going to be approved shortly. And we expect that this is coming online in around three years. Some of them are coming a little bit earlier, and some of them probably because of the equipment delivery. A little bit later, but roughly three years.

Okay. Thanks again, and thanks always for your candor. Appreciate it.

No, thank you too, Simna.

Your next question is from Isabella Bajala Vasconcelos of Bradesco BBI. Please go ahead. Your line is open.

Hi, good morning, everyone. I have just one question. I think most of the points have already been addressed. But also in terms of capital allocation, and I had some connection issues, so hopefully I'm not making you repeat yourself. But just to understand, it seems that you're going to the organic growth line in terms of future capacity. But are you analyzing inorganic growth opportunities in the Americas, Brazil, or even in Mexico and the U.S.? That's my question. Thank you.

Yes, thank you, Isabella. As we always say, we are always analyzing opportunities, and we have a track record of doing this in a very, how I said, responsible way. If you ask today, we have nothing special in our pipeline today, but these things arouse and we always are analyzing these opportunities.

Your next question is from Leonardo of Correa. Please go ahead. Your line is open.

Yes. Hello, good morning, gentlemen. I hope you can hear me. Good morning, Maximo, Pablo, Sebastian. Thanks for the follow-up here. Just a final one.

We can hear you well.

Okay, perfect. Thanks, Maximo. So just a quick one for me. I think most of the issues have been addressed. Thanks for all the color and visibility, guys. Just still on the topic of re-rating, right? We've been seeing, I mean, we've been covering the company for a while, and it's always a similar level, which is highly depressed. Now we're going through a global movement, which is a significant D rating. So turning is not alone, right? We see guys like metal, um, and others, uh, trading at 40, 50% discounts. Um, I mean, you guys announced a move in December, which was somewhat unexpected, right? The buyout of minorities and, and in Mexico, I mean, what else is on the agenda? If you can elaborate a bit. I know that the dividends and buyback story is quite clear to me from what you guys have been indicating. But is there anything else on the potential corporate simplification still that's pending? Or there's always the issue of seeded out in Argentina, right, where there is a minority stake, I think, from the pension funds, which could be bought out. The dual listing issue has been historically also a pending issue. I mean, is there anything that you guys have been considering at this point to try to change the situation on the company? Thank you.

Let me take this question, Maximo.

We have different ideas and different possibilities. The ones that we consider that are feasible are the ones that we are trying to achieve. Here we are not in relationship to the transaction in Argentina. is trying to have 100% of the holding of Ternium Mexico by Ternium and not having part of that holding directly owned by Ternium Argentina. So this would very much simplify the corporate structure of Ternium if this transaction moves forward. You know that it's something that we have been discussing many times. after if after and if this transaction is is is completed telling you corporate structure will be basically what we would like to have we have been simplifying the corporate structure for many many many years now since we start growing internationally we acquire many different companies so it has been a constant work to simplify the corporate structure and this step was an important step for us And we think that we have the chance and the possibility of achieving that, but we will need to see if this is happening. We have been analyzing and, of course, we have been discussing with a lot of you what we call these alternatives. The dual listing, unfortunately, is not an opportunity at the moment because of the reasons that you know. just briefly, now probably the only place where we can achieve that in Argentina, and clearly is not the path to follow at the moment. But we are open, as we have discussed in the past, the idea of moving from one yearly dividend to at least twice a year dividend payment. We already did that, and we did that. So we are analyzing alternatives, possibilities, and You need to see when are these alternatives feasible or not. So we are open, and we have been always trying to analyze which is the best way for us to have a better, not only corporate structure, but a better relationship with all our stakeholders. So we are open. We are open. We are always analyzing alternatives, but we need to see if there is achievable or not. So up to now, we are at this point. We think that we are moving in the right direction.

And anything like that in the future, clearly we will keep analyzing. Okay. Thank you very much, Pablo.

Your next question comes from Makayo Grenner of BTG Patchwell. Please go ahead. Your line is open.

My question has been answered. Thank you.

There are no further questions at this time. I will now turn the call over to the CEO for closing remarks.

Okay, thank you very much to everybody for the interest, for the very good questions. I really appreciate your participation, and as usual, if you have any additional questions, any feedback, please don't hesitate to call us. I'll see you in around three months in the next conference call. Have a nice day. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.