Ternium S.A.

Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Turnium second quarter 2024 results. 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'd 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 and one. I would now like to turn the call over to Sebastian Marti. You may begin.

Thank you. Good morning and thank you for joining us. My name is Sebastian Marti, Chairman Global IR and Compliance Senior Director. Yesterday, Turing released its financial results for the second quarter and the first half of 2024. This call is intended to complement that presentation. I'm joined today by Maximo Belogia, Terence's Chief Executive Officer, and Pablo Grillo, Terence's Chief Financial Officer, who will discuss Terence's business environment and performance. We will open the floor to questions following our prepared remarks. 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. Venegas.

Good morning, and thank you for joining us today for our second quarter's earnings call. Terrium posted a healthy adjusted EBITDA of $545 million for the second quarter, maintaining stable shipments with a 12% margin during a weak steel price environment. The company generated strong cash from operation of $656 million, which contributed to maintaining a solid net cash position of $1.9 billion, even after distributing record dividends during the quarter and sustaining significant capital expenditures due to ongoing expansion initiatives. In addition, net income during the quarter was affected by the recording of an accounting provision that we were required to make as a result of an adverse Brazilian court decision issued in last June related to our acquisition of a stake in Eusimina's back in 2012. Ternium believes that such decision is contrary to applicable substantive and procedural law. We did not acquire sole control over Ximena when we joined the control group. The courts changed in their previous view, now finding that the change of control occurred contradicts both the terms of the Ximena shareholder's agreement and how Ximena's governance worked in reality. Consequently, we plan to strongly defend our position, which has been confirmed by a long line of precedents and court decisions, and file all motions and appeals available to us. All such notions and appeals will need to be resolved before the case becomes final. and the determination of an actual payment amount, if any, should be made by a lower court in a separate proceeding. Let me now give you an update on our growth projects. I am glad to say that we just started up the first line in the downstream project, a 550,000 ton splitting line, and also the first line in our new finishing center in Pesqueria. The rest of the finishing lines should be ready by the end of the year, and the cold rolling mill and galvanized lines are on track to be delivered between the end of next year and the beginning of 2026. In addition, in early July, we introduced a new galvanized simulator in our R&D center in Mexico. This will enable us to shorten certification times and improve the assessment of our product quality. With the downstream project in Mexico and our new R&D center, we are adding more value-added products that will enable us to better serve our customers in the automotive, renewable energy, and oil appliance industries, as well as in the construction and agriculture sectors. These new lines are a great opportunity for us to consolidate our position as a leading steel supplier in the region as we continue to meet the demand for high-end steel products in Mexico displacing steel imports and benefiting from nearshoring. In addition, the new 2.6 million tons steel slab mill in Pesqueria continues to advance with completion expected by mid-2026. This project will enhance our capabilities in the USMCA region and position us as a leader in low-emission steelmakers. This is the largest expansion project in our history, and we are thrilled about its progress. Let me now make some comments about our main steel markets. The steel market in Mexico remains healthy, operating at good levels after last year's significant 14% year-over-year increase in apparent steel consumption. The industrial steel market is stable and strong, with the auto industry showing healthy steel demand. Automotive production in Mexico in the first half of this year increased 5% year over year. The commercial market has been a little more affected by the steel prices downturn during the quarter, which induces a stocking process. In addition, construction activity was impacted by a tropical storm by the end of the quarter. On the other hand, activity related to warehousing and logistics infrastructure continue to be strong, as well as natural gas pipeline projects. A recent development in this market was the implementation by the US administration of a 25% duty under Section 232 on imports from Mexico of steel produced, not melted, and poured in the USMCA region. Following this, Mexico's president announced that export of steel products made with Brazilian steel would be exempted from this duty. This exception is in process of being formal. Regarding this subject, there has been much discussion in the U.S. market about a supposed surge of Mexican steel imports and about the need to control transshipments of Chinese steel through Mexico. Let me be clear, this view is mistaken, and trade data indicates even the opposite situation. Steel trade between Mexico and the U.S. is mutually beneficial, with a surplus for the U.S. In 2023, the U.S. exports 4.1 million metric tons of finished steel to Mexico. On the other hand, Mexico exported 2.3 million tons of finished steel to the U.S. This is 43% less than what the U.S. exported to Mexico. Looking at these numbers in terms of market share, steel from the U.S. represents 14% of Mexico's market share, while Mexico's steel represents only 2.5% of U.S. market share. Regarding the surge in imports from Mexico, when comparing the first five months of this year, U.S. exports of finished steel to Mexico increased by 7% compared to the same period in 2023. In contrast, Mexican exports to the U.S. decreased by 12%. This followed the trend observed in 2023 when U.S. export of finished steel to Mexico rose by 11%, while Mexican export to the U.S. declined by 28% year over year. And regarding China's transshipment, U.S. statistics published in CIMA shows that in 2023, 144,000 tons of steel melted in China enter the U.S. via third countries. Of that volume, 52 percent come from Thailand, 15 percent from Oman, 13 percent from Canada. Mexico was responsible for only 0.2 percent of that volume, almost nothing. Mexico has shown a strong commitment to fight against unfair trade practice, mainly from Asia countries, which truly harmed the USMCA economy, and it continues, and Mexico continues to work on this issue. So to avoid misconception, USA trade data plainly show that there's neither a surge nor China's transhuman in Mexico still exports to the US market. Moving now to Brazil, The operational issues we had with one blast furnace in our Rio de Janeiro facility, the slab facility, were resolved, and the furnace is back to full capacity now, although this had an impact on our shipment in Mexico during the second quarter. On the other hand, Usimina's shipment in Brazil grew by 6%, with growth in all segments, especially in the automotive industry and manufacturing sector, reflecting growth in apparent consumption of flat steel in the country during the second quarter. Crude steel production increased 17% in the second quarter. This is due to the stabilization of Usimina's blast furnace number three, which has now finished its ramp up. In June, this blast furnace was able to achieve the highest monthly production of the last 11 years. There are significant efficiency gains being achieved, as Guadalquivir has done today with two blast furnaces. In the past, it was done with three blast furnaces. On the other hand, as we have talked in the past, the Brazilian steel sector faces a serious threat from imports in the domestic market and the predatory conditions monthly from China. The recent increase in import tariffs to 25% for some steel products that exceed a certain quarter is a positive, but until now inefficient measure. It falls short of what other countries in the region has adopted to save what their local producers. And we have not seen any significant decline in imports during the second quarter. We have faith that the authorities will acknowledge the situation and maintain their course of action with introduction of additional trade measures down the road. In Argentina, shipments began to recover after the significant decrease in the first quarter, reflecting a gradual improvement in till demand, although they continue to be affected by short-term impact of Argentina's government economic stabilization measures on the construction and industrial sectors. On our climate change initiative, our climate change initiatives are advancing with the with the unscheduled construction of our first wind farm in Buenos Aires province in Argentina, which should be operational by year end. In addition, our technical school in Pesqueria was recognized by the Mexican government in the voluntary national reports towards United Nations Agenda for Sustainability Development. Our technical school was considered an institution that served as a model of how companies can positively impact their communities and sustainability. Since its inception in 2016, the school has graduated more than 600 students, with 83% either studying or employed. We are extending this practice to Brazil with the construction of our second technical school in Santa Cruz near our plant in Rio de Janeiro, which with activities set to commence next week. Finally, I am positive regarding Ternius' performance as we move through the following orders. After an expected bottom of margins in the third quarter related to the lack of a set of contract price at lower levels, we anticipate Shimmer to continue growing with healthy demand in our main market and margins to increase as steel prices are beginning to rise and costs are showing downtrends. Okay, Pablo, please proceed now with your comments about our performance in the second quarter.