Ternium S.A.

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Turnium 4th Quarter 2022 Earnings Results 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 1 on your telephone keypad. If you would like to withdraw your question, again press the star 1. Thank you. Sebastián Martí, you may begin your conference.

Good morning. Thank you for joining us today. My name is Sebastián Martí and I'm Chairman of Global Investor Relations and Compliance Senior Director. Chairman released yesterday its financial results for the fourth quarter and full year 2022 and announced new investment projects. 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. Thank you Sebastián, good morning to all and thanks

Thank you very much for your interest in this conference call. Tarnium had a strong performance in 2022. EBITDA reached $3.4 billion, net income was $2.1 billion, and earnings per ADS were $9. On top of these very positive results, the company had significant cash generation, with free cash flow of $2.2 billion. which increased our net cash position to $2.6 billion. Considering these good results and Ternium's solid financial position, the company's board of directors proposed an annual dividend for 2022 of $2.70 per ADS, equivalent to $530 million. This represents an increase of 10 cents Paredes, compared to 2021's annual dividend. Another thing I would like to share today is that yesterday we approved several projects that are very significant to our company. First, we launched a project to build a new slab facility in the USMCA region. We talked about this plan several times in previous calls. and we are excited to be able to give you the details about this project today. I believe this initiative will be very positive for our company. It will include the construction of an electric furnace based steel shop with annual capacity of 2.6 million tons as well as a DRI module with annual capacity of 2.1 million tons. Together with this, we will also build a port facility for raw materials handling. We currently expect to commission these facilities in the first half of 2026 with a total capex of $2.2 billion. The exact location of the facilities will be disclosed in due course. After careful consideration, we choose to install a technology that we believe have several advantages against other alternatives. The steel shop will have only one large EAS instead of two smaller units. This lowers the capex of the project as well as its operating expenses. The facility will also have a vacuum degassing facility and a slab caster with two lines. All of this will enable us to produce the highest specifications still necessary for the most demanding applications like those of customers from the auto industry. In addition, this increased lab production capacity will complement and support our new state-of-the-art hot rolling mill which began operation in 2021 and the downstream project in Mexico that we announced in February of 2022. The implementation of the USMCA trade agreement and the recent trends of nearshoring manufacturing capacity in the steel value chain have made the USMCA region an attractive destination for continued investment. This new project will advance the integration of our industrial system and reinforce Ternium's position as a leading steel supplier in the region. This initiative will also support Our ongoing compliance with the USMCAs melt and pour requirements for the auto industry. Another significant aspect of this new project is related to the decarbonization of our operations. The technology we decide to use for the steel shop is the most modern and greener currently available. Also, the new direct reduction model will include carbon capture capabilities. as all of our DRI models do, and it will be ready to switch from natural gas to green hydrogen whenever this is feasible in the future. Wrapping up this announcement of this new project, we expect it to be very beneficial for Ternium, not only from a business aspect, but also from a sustainability of its operation in the years to come. and with sustainability in mind, I'm also very excited to announce that Permian will build a wind farm in Argentina from which it will source electricity. We expect to invest $160 million in this project, which will have a nominal power capacity of 72 MW and will begin operations in the second half of 2024. This will allow us to replace 65% of the electricity that our Argentine subsidy currently purchases from external providers. We have already secured access to the national grid to transport this power to our facilities in the country. This wind farm will be our first company-owned renewable energy project. and we plan to expand its capacity if we see opportunities for doing so in the future. We are thrilled with these announcements we are sharing with you today, as I believe this project are a proof of the commitment of Ternium has to make its operation more and more sustainable over time. As you know, Another top priority for Ternium is safety in our operations. In this aspect, as we close 2022, I'd like to report that we had a lost time injury frequency rate of 0.6 accidents per million hours worked in the year. This is the lowest rate in the history of the company. The safety of our people has always been a priority in our agenda, and we keep incorporating the best safety practice and make awareness of its importance to all levels. Let's turn now to the state of our main markets. We have positive expectations regarding turn-use performance in 2023. During the first half of the year, we expect margins to normalize as cost per ton should decrease and steel prices in the USMCA region are recovering. The second half of 2023 is a bit more difficult to forecast considering the ongoing interest rate tightening cycle, which introduces some uncertainty regarding its impact on the economy down the road. In Mexico, we anticipate a continuing increase in steel volumes during the first half of the year. Since the end of 2022, when steel prices in the region become recovering, we are seeing a restock in the commercial market. On the other hand, industrial market demand is slightly improving, and Ternium's most recent investment program is yielding new steel products that are allowing us to gain market share against imports.