Ternium S.A.

Global IR and Compliance Senior Director. Yesterday, Ternin released its financial results for the third quarter and first nine months of 2024. This call is intended to complement that presentation. I am joined today by Maximo Bedoya, Ternin's Chief Executive Officer, and Pablo Grillo, Ternin's Chief Financial Officer, who will discuss Ternin's business environment and performance. We will open up 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 findings with the Securities and Exchange Commission and on page 2 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. I'll turn the call over to Mr. Bedoya.

Good morning, and thank you very much for participating in today's Sternium third quarter earning calls. Sternium reported an adjusted EBITDA of $368 million and a net income of $93 million for the third quarter. We experienced increased shipments across all our primary markets and, as anticipated in the last quarter's call, our margins declined, primarily due to the decrease in realized price in our main market. Let's review the status of these markets. The steel market in Mexico remains healthy, operating at consistent levels after last year's significant 14% year-over-year increase in apartment steel consumption. In fact, in the third quarter of 2024, we had record high shipments in this market. For the fourth quarter, we expect a decline in shipments as a result of this period being the seasonally week of the year. Additionally, public investment has been soft recently, which is common in Mexico following a change of administration. Once this process is completed, we expect demand from infrastructure projects to return as a new government has announced plans to launch several projects aimed at enhancing the competitiveness of the Mexican industry. Looking ahead, our outlook has several bright spots. In the first quarter of next year, we expect sequential shipment growth in this market. In part, this will be the result of our new peak in 2009, which is boosting our capacity for automotive and industrial markets as it ramps up production. Furthermore, I am optimistic about the Mexican market in the year to come. Automatic production increased by 7% year-over-year in the first nine months of 2024 and is expected to reach 4.2 million units in 2025, which would be a record high. Finally, nearshoring trends are expected to persist, benefiting the steel markets on both sides of the border. The new administration in Mexico recognized this opportunity for the country and has stated its commitment to pursuing a policy of industrialization and import substitution very much in line with what we have been advocating for many years. Moving to Brazil, we see healthy industrial activity and a dynamic distribution market. Steel consumption in Brazil market has been growing during the year, increasing 9% year over year in the first nine months of this year. Vehicle production is growing as well, with an expected 5% increase in 2024. On the other hand, flat steel imports jumped 20% year over year in these first nine months, mainly from China, as this country significantly increases steel shipments to the international markets. As It has already happened in other countries. The Brazilian government noticed this increase in unfair trade from China and as a result of their still excess capacity and put in place a one year quote system under which still imports above certain quarter are subject to a 25% tariff. Unfortunately, These measures haven't yielded the expected results. Following this, several anti-dumping investigations have been initiated over imports of cold-walled steel, coached steel, and pre-painted steel, mainly from China. These measures are promising. We encourage the Brazilian government to continue this path to prevent more decentralization in Brazil. Finally, let's review Argentina. Steel volumes in Argentina market has shown a recovery over the past several quarters, both within the industrial and the commercial market. In the fourth quarter, we expect to maintain a stable level of steel shipments, despite the seasonally slowdown in activity towards the end of the year. With a long-term view, I think Argentina's industrial and construction activity will improve in 2025, favoring a recovery in local steel demand. The Argentine government is implementing an ambition reform program that we expect will promote investment in the country. However, there is a risk in this market of an increase in imports of unfair trade and products made with steel. This will be an important issue to follow up with the Argentine authorities during next year. Our wind farm in Argentina will begin operation by year-end, boosting our use of self-generated renewable energy and reducing reliance on external sources. The project is progressing as planning, with the completion of 22 bases and the installation of 14 wind turbines to date. We anticipate that the first unit will begin delivering energy in December, with the project expected to reach full completion by January. This represents a significant milestone in our commitment to renewable energy and decarbonization. Let me now give you an update on the progress of our expansion projects. The clipping line and three of the five lines in the new finishing center in Pesqueria has started operation and are currently ramping up. These lines are at 550,000 tons per year of plicking capacity and 310,000 tons a year of customized products capacity. During the next two months, we plan to start up the two remaining lines in the finishing center. In addition, we are making steady progress on the 600,000 tons per year galvanizing line and the 1.6 million tons per year cold rolling mill. We plan to start this operation at the end of 2025 and early 2026, respectively. We have completed the soil movement and the civil work, and assembly of structure and buildings are advancing rapidly. Equipment shipments have already come in. Lastly, for the construction of the 2.6 million ton per year slab-making facility in Pesqueria, we have completed the cleaning and soil movement in most areas. We are making progress in the civil work, foundation, and structural installations. Also, key operational contracts have been awarded and are underway. We expect to start up this lab facility by mid-2026. The new production lines in Pesquería project will enable the company to enhance its product offerings with a broader range of high-quality steel products to deliver diverse customer needs more effectively, meeting the high-quality requirements of the automotive and appliance sectors. Moreover, the new slab facility is expected to significantly increase ternium's raw steel production capacity in Mexico, ensuring a steady supply of slabs from downstream processing. This facility will also enhance ternium operation efficiency and reduce the tendency on external suppliers, leading to cost savings and improved profit margins. Finally, I would like to highlight the publications of Ternium's latest sustainability report. This report includes, among other new features, an update on Ternium's decarbonization target, detailing several enhancements introduced since our initial target was set in 2021. For the first time, our target includes Scope 3 emissions, which are not directly associated with our company. These include Company 1 emissions related to the production of semi-finished products such as slabs and billets produced from third parties, and Category 10 emissions generated by our customers during the processing of our slabs and billets. We are expanding the boundaries of our CO2 emissions reporting beyond crude steel to include hot-rollet steel production. And we migrate to GHG protocols methodology to improve comparability with other indices and prepare for future regulatory requirements. The update target is a 15% reduction in emissions intensity by 2030, using 2023 as a baseline. As in previous years, our greenhouse inventory for 2023 was audited by a third party following, as I said, both GHG protocols and war steel methodology. With these changes to our reporting, we are among the very few companies that include Scope 3 emissions in their target. with this decision is to significantly increase transparency and accuracy in our mission report. We invite you to download the report from our website and review the extensive information on our sustainability initiatives. The detailed insights will offer a comprehensive understanding of our commitment to sustainable practices. To wrap up my initial remarks, I'd like to say I'm confident in Ternium's performance in 2025. I believe our main markets will offer several opportunities for our company, with the strength of the neutral market in Mexico, the recovery of steel consumption in Brazil, and the significant reforms to Argentina's economy. In addition, I expect our margins to gradually improve during the year, with lower costs of raw material and slabs, and our continued work in cost-cutting initiatives. With this, please, Pablo, you can now proceed with the review of standard performance of the third quarter.

Thanks, Maximo, and thanks, everybody, for participating in our conference call. Let's move to the webcast presentation for a detailed overview of our operations and financial results. If we start by page three, we see that, as anticipated, our adjusted VDA declined this quarter. The main factors driving this result were lower realized steel prices across our main market, which were partially upset by a small decline in steel costs per ton and an increase in shipments. Looking ahead to the fourth quarter, we expect a more frequent increase in adjusted EDA, driven by slightly better margins, although this will be partially upset by a seasonal decrease in shipments. Turning to the next slide, Net income for the third quarter was $93 million. When comparing second quarter adjusted net income to the third quarter net income, we see lower deferred tax losses and improved financial results in the third quarter. Partial offset by a decline in operating income. The effects gained in the quarter reflect the favorable effects of the Mexican peso depreciation and the Brazilian real appreciation against the U.S. dollar, Costing effects gain on TANUS Mexico, net short local currency position, and Lusimina's U.S. dollar-nominated debt. Let's turn to our steel segment performance on page five. This quarter, we significantly increased in our key markets. Looking ahead, we anticipate a decrease in achievements in the fourth quarter due to usual ERN seasonality, both in Mexico and in Brazil. Now let's take a look at the consolidated sales and profitability of the field segment on the next page. Despite an increase in the achievement, sales held steady compared to the previous quarter due to the decline in revenue per ton, driven by a decrease in realized field prices in our primary market, which affected our margins. The price decline was partially upset by a small decrease in field cost per ton, as we continue to use previously bought raw material and slab during the third quarter. And turning, using mined dust furnace, operations recorded efficiency gains in the period, particularly in fuel consumption. In addition, labor and maintenance costs decreased sequentially in the third quarter. Let's move on to slide seven to review the performance of our mining segment. In the third quarter, shipments rose by 13% sequentially. driven by higher production in our Mexican and Brazilian operations. Despite this quarter-over-quarter growth, net sales were relatively stable due to the upset of lower iron ore market prices. Our margins in the mining segment decreased in this quarter, mainly due to this drop in iron ore prices, while slight reduction in cost per ton helped to soften the impact of this decrease. on to the next slide to review our cash flow performance. As of the end of September, turning net cash position declined to $1.7 billion. We decreased in cash flow from operation compared to the second quarter, primarily due to a decrease in the VBA and an increase in working capital together with higher capital expenditure. Moving to the final slide, we can see a summary of our performance over the past five years. In the first nine months of 2024, our capital expenditure shows a significant year-over-year increase. We continue making progress, as Maxime explained, in the construction of new facilities in our Cascadia Industrial Center, as well as in the new wind farm in Argentina. We expect to have a total capex of between $1.7 to $1.8 billion in 2024. To conclude this presentation, I would like to highlight that yesterday, terms with the Board of Directors, announced the payment of an interim dividend of $0.90 per ABA, totaling $177 million. Over the past three years, the company has structured its dividend so that the interim payment in November represents roughly a third of the total annual amount, with the remaining third distributed in May following shareholders' approvals. We expect this time to follow the similar approach. So our total dividend payment corresponding to the fiscal year 2024 would represent a dividend yield of about 8% based on the current share price and a 68 payout ratio based on adjusted net income for the past 12 months. Over the past three years, Additionally, the Board has consistently decided to distribute a substantial dividend annually. The current dividend decision aligns with this established practice of providing an attractive dividend yield and allocating a significant portion of net income. even during periods of increased capital expenditure. This capability is a result of Ternium's solid financial position. With this, we have concluded our initial prepared remarks. We would like now to go and to take any questions you may have. Operator, please begin the Q&A session. Thanks.