Ternium S.A.

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the Turnium third quarter 2023 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 one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. 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'm Turing's Global IR and Compliance Senior Director. Turing released yesterday its financial results for the third quarter and the first nine months of 2023. This call is complementary to that presentation. Joining me today are Attorney's Chief Executive Officer, Maximo Bedoya, and the Company's Chief Financial Officer, Pablo Grillo, who will discuss their 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. Redon.

Thank you, Sebastian. Good morning, and thank you all for participating in Ternium's conference call today. I am glad to report we have healthy third quarters. With the consolidation of Usiminas, for the first time, we had a margin of 13%. As you may know, Usiminas' main blast furnace has been offline for a relining, and its operating results in the quarter were affected accordingly. When considering ternium operations before the consolidation, we had a margin of approximately 17% in the quarter, which is within our usual margin range. With field prices recently increasing in the USMCE region and Usiminas starting to ramp up of its main blast furnace, I am positive that from the beginning of next year, we will see more normalized, improved margin performance. With this in mind, we announced yesterday an interim dividend payment of $1.10 per ADF. equivalent to $216 million, to be paid on November 16. This represents an increase of $0.20 per ADA, or 22% more compared to last year's interim dividend payment. After my initial remarks, Pablo will go through the details of our performance in the quarter and the explanations for the following ones. Let's now review the business environment in our main markets, beginning with Mexico. Apparent steel demand in Mexico remains strong. As we have been discussing through the last conference calls, nearshoring is happening and it's developed, is positive for the USMCA consumption of steel. I see this trend as giving sustainability to steel demand in the region for the years to come. In this context, the new capacity and high-end products we can offer now as a result of the investment programs we developed during the last few years enable us to increase our shipments by 25% in the first month of 2023 compared to the same period of 2022. We are expecting turning shipments in Mexico to continue increasing in the fourth quarter as we have been working on solving certain supply chain bottlenecks which affected the previous quarters. We expect this to happen even though this is the seasonally weakest quarter in the year. Steel prices recently buttoned up in this region, and this is fueling a restocking in the value chain in the commercial market due to low inventory levels. On the other hand, industrial markets continue to show rather healthy steel demand. The auto industry in Mexico has not been affected by the strikes in the U.S. The positive pricing dynamics we are seeing in the USMCA region will be more notable in the first quarter of next year, as the last effect of contract prices in Mexico will be a drag on the fourth quarter realized prices. Moving to Brazil, in this quarter, we fully consolidated Usiminas into terminal financing for the first time. So let me review the latest developments in Brazilian market. We have always believed the potential of this market is outstanding, but Brazil has recently been going through some challenges. Still demand in the country is at reasonable levels, but still imports in Brazil increased by 57% in the first nine months of the year, reaching the highest level in more than 10 years as a percentage of steel consumption. And about 80% of flat steel imports are coming from China. This is a big concern, not only for Osiminas, but for the whole industrial sector in Brazil. With the surge of steel imports from China, the government of several countries in the Americas, as in the U.S. and Mexico, have taken trade measures to avoid being flooded by unfairly traded Chinese steel. Brazil should follow this same path. The local steel industry has been vocal about the need to defend the country from this dangerous dynamic, and we plan to be very active in this front. In this difficult context, Usiminas has just finished the relining of its blast furnace in Ipatinga. This lengthy investment process, together with a deteriorating steel pricing environment, have certainly cut the toll on Eusimina's profitability in the third quarter, and we will not see a significant improvement until early next year, when the new facilities are ramped up. Let me finish my comments about Brazil by stating that we are fully committed to Seminas. In this new stage, we have reinforced Seminas management teams since we entered the company four months ago. This new team in Seminas has been working around the clock to bring the company to its full potential. Many efficiency-increasing initiatives are being designed and put in place. The focus today is on the industrial operations, the heart of the company. We expect this process to be a marathon, not a sprint, but I'm confident that Susiminas will be able to increase its competitiveness and regain its position in the Brazilian market. Let me turn to Argentina. Although our operation in Argentina continues to perform well in the third quarter with relatively stable shipments, the constraints of input for production for our company and our value chain have been worsening over time and will likely impact economic activity in the company and in the country. The microeconomic in Argentina is currently extremely unstable and the high degree of uncertainty regarding the outcome of presidential electives to be held in three weeks make it hard to have a clear picture of the measures the next administration is going to take to tackle this unsustainable situation. The new administration would likely have to put in place a series of needed reforms during 2024, which will probably have a toll in economic activity at the beginning. The sectors with potential to weather the storm and prosper in A better post-reform scenario remains being the energy, vaca muerta, mining, and agribusiness sector. Moving now to our sustainability agenda, we are proud to announce that we recently won a bid to extend our wind farm project in Argentina from 72 megawatts of annual capacity to 99 megawatts. This expansion will enable us to replace 90% of the purchased energy for our facilities in the country, reducing a total of over 127,000 tons of CO2 emissions per year. This additional expansion will align seamlessly with our current construction schedule. We are proceeding with preparatory work, including roads, and expect to initiate the foundation of works this week. We anticipate installing the first turbines by May next year. In Mexico, we are also making progress with our project to build a steelmaking facility in Pesqueria using DRI EIF technology. The facility's emission intensity will be almost 70% lower than the world's average for the BF-BOF route. and will be able to produce all qualities of steel demanded by the auto industry. We have already closed most of the most important equipment procurement contracts for the DRI facility, the EIF, and also for the downstream lines like the new coal rolling mill and the galvanized lines. Let me now make a few final comments to close these prepared remarks. I am very positive with what Sternium has said what's ahead of fortinium. Although the fourth quarter is going to show a decline due to the works in the blast furnace in Usiminas and the down reset of contract prices in Mexico, which we should see improvement beginning the first quarter next year. One, the blast furnace in Usiminas has ramped up and the new pricing scenario in Mexico reflects on our financials. With a longer term view, we will be working on deepening the synergies of our industrial system in the region with the capability to serve our industrial customers seamlessly across the continent. Also, we will be focused on the expansion of our facility in Pizqueria, which will turn into the most sophisticated and sustainable steel industry system in the Americas. All right. Please, Pablo, go ahead now. with your analysis of turning performance in the third quarter.