Ternium S.A.

Ladies and gentlemen, thank you for standing by, and welcome to the Turnium first quarter 2023 results call. I would now like to turn the call over to Sebastian Marti. Please go ahead.

Good morning, and thank you for joining us today. My name is Sebastian Marti, and I am Turnium's Global Investor Relations and Compliance Senior Director. Turnium released yesterday its financial results for the first quarter of 2023. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Maximo Bedoya, and the company's Chief Financial Officer, Pablo Brizio, 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 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. Redosa.

Thank you, Sebastian. Good morning to everyone, and thank you for your participation in today's conference call. Ternium recorded a good set of results in the first quarter of 2023 with an EBDI slightly over half a billion dollars. This is equivalent to $166 per ton and to a 14% margin. We also have had a healthy cash generation with free cash flow of $414 million in the quarter. Further on, Pablo will go more in depth on our performance in the first quarter. Let's review the business environment in our main markets, beginning with Mexico. Apparent still demand in the Mexican market remains healthy. In the commercial market, a restocking in the value chain, which began in the fourth quarter of last year, continues into the first quarter of this year. and we are not seeing signs of it finalizing yet. In the industrial markets, we are seeing steady steel demand with less volatility than what we see in the commercial market. The auto industry supply chain disruptions eased significantly, and most OEMs plan to increase production. On the other hand, manufacturing industries driven by U.S. housing market like white goods and HVAC industries are currently softer. We are increasing our market share, especially in the automotive industry, as the certification process of new products from the new hot rolling mill in Pesquería advances. As an example, in the first quarter of 2023, we shipped 2.1 million tons in the Mexican market, This is half a million tons more than what we shipped in the first quarter of 2022 when the hot free meal was in the first stage of the startup. This is an increase of more than 30%. And we expect shipments to continue growing in this market in the second quarter. In addition, The downstream projects currently under development at this facility will enable us to complement this new capacity and go deeper into new value-added products to offer to the market. Since our previous conference call, we have also been making progress in our upstream project. This is the new slab mill we announced in February. Although we are not ready to disclose its exact location yet, we are very close to do itself. Something that has been lately calling investors' attention is the increasing near-showing trend in the region. This is due to the need of closer and more reliable supply chains to serve and market. Mexico is a beneficiary of this dynamic as a result of its many advantages. It's a membership to the USMCA. It has an exceptional experience and technical qualified labor force, and it offers shorter lead times and lower transportation costs to end markets. And this is being reflected in demand for industrial real estate in the country. According to the Mexican Association of Industrial Parks, the industrial real estate sector has a national occupancy rate of 97%. If we just measure this in the north of the country, the availability rate is even lower at 1% or 99% of occupancy rate. As an example, one of the latest and highest profile investment announcement is Tesla's new factory in Mexico, which will be built in Monterey, our hometown. Let me now make some comments about Argentina, our second largest market with 18% of total shipments. Our business in Argentina continues to do relatively well, although there is a considerable level of uncertainty in this market. Argentina suffered from a very strong drought this year that is adversely affecting grain export revenue and consequently, Argentina's central bank hard currency reserve. This coupled with a high inflation level and a significantly unstable macroeconomic environment is expected to impact economic activity and still demand in the country during the second half of 2023. I would like now to make a brief comment about our recent announcement regarding the increase in pernium participation in Usiminas control group. Pernium has had a participation in Usiminas since 2012 when it joined Nippon Steel and Previdencia Usiminas in Usiminas control group. During the past 11 years, pernium and Nippon Steel have shared Usiminas management on an equal footing without either partner having the ability to impose decision on the other. On March 30th, we agree with our control group partners to take on different roles. We will have a more direct involvement in Usimina's management and the implementation of its strategy, while Nippon Steel will maintain a say in all key decisions outside the ordinary course of business and will continue contributing their technology expertise to the company. Pernium is Latin America's largest flat steel producer and has a proven track record of successfully managing steel assets in the region. This put us in a perfect position to assume after more than a decade in the company a leadership position in Usiminas. To put this change into action, Nippon Steel agreed to sell to Ternium and our affiliate, Tenaris, a portion of its participation in Usiminas' control group, as well as to make some changes to the shareholders' agreement. We will appoint the CEO, a majority of the other members of the Board of Officers, and a majority of the board. Nippon Steel and Previdencia, Usiminas, will retain one officer each. As for next steps, first, we are going to need the approval of CADE, Brazil's antitrust authority, to be able to close the transaction. Until we have received CADE's approval for the transaction, we cannot go further into our plans to Usiminas. Because of this, I hope you understand we won't be able to act in the Q&A section much more information on the matter than we have already disclosed. Turning now to ESG topics, we are proud to have been recognized last week as sustainability champions by World Steel for the fifth year in a row. This industry recognition demonstrates that we are on the right track in our efforts to make our operations more sustainable. One of the things I'm very proud of is that we are launching the construction of a new technical school in Santa Cruz, Brazil, near our Ternius Lab facility. For this, we plan to leverage on the experience of staying with our technical school in Pesqueria, Mexico. This technical school, the one of Pesqueria, which is now on the seventh year of successful operation, was launched to educate high school students from our community using innovative teaching methods and the latest technology in both classrooms and laboratories. The results of these initiatives has been remarkable. These students, all of which receive scholarships, comes from underprivileged communities where the opportunity to assist to high school is very rare. Today, more than 50% of graduates from this school are going through their university studies. We expect Brazil's new technical school to bring technical education with the latest learning tools and technology to close to 600 students with the start of classes in the first quarter of 2025. Over the years, the company has developed educational programs covering the entire school cycle, from elementary to postgraduate levels, helping children and youngsters fulfill their potential and become active contributors to society. We believe that Ternium Industrial Project can only be sustainable if the communities where we operate grow alongside the company, and education plays a key role in this endeavor. Let me now make some final comments to close my prepared remarks. Even though there continues to be uncertainty regarding the macro environment during the second half of the year, I am confident Ternius will have a good performance in 2023. With our latest investments, We have put the company in a strong competitive position and there is more to come with the upstream and downstream project under development. We believe Ternium will have ample opportunity to grow its business in the following years and we are ready to take advantage of these opportunities. On the other hand, as you have heard us saying many times in the past, we have always been committed to Brazil. This is one of the largest steel markets in America, and we believe it will offer many opportunities to grow our business in the future. In this respect, we are very excited with the change in Usimina's control group. I believe our recent agreement with Nippon Steel will give us a renewed base from which to contribute to Usimina's success, benefiting all of Usimina's stakeholders. Okay, Pablo, you can now go ahead with your presentation on Ternius performance in the first quarter.