Ternium S.A.

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. At this time, I will turn the call over to Mr. Marty. Please proceed.

Good morning and thank you for joining us. My name is Sebastian Marty and I am Ternan's Global IR and Compliance Senior Director. Yesterday Ternan released its financial results for the fourth quarter and full year 2024. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Velloria, Ternan's Chief Executive Officer, and Pablo Grisio, Ternan's Chief Financial Officer, who will discuss the company's business environment and performance. After our prepared remarks, we'll open up the floor to any questions. Before we begin, I would like to remind you that this conference call contains forward-looking information 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 turn the call over to Mr. Velloria.

Thank you, Sebastian. Good morning and thanks everybody for joining us today. Ternan reported shipments of 16 million tons for 2024 with adjusted EBDA of 2 billion on a 12% margin. In a challenging year for the steel industry, our operation generated 2 billion in cash. The company's net cash position remains strong at 1.6 billion by the end of December, even though CapEx was close to 2 billion dollars in the year, and we paid dividend of more than 600 million dollars. During the quarter, we made significant progress on our downstream expansion project in Mexico. The plicking line at Pesqueria along with the finishing center started operations and are steadily advancing in the ramp-up process. We currently have two remaining lines under construction for the completion of this project. A cold rolling mill whose planned startup has been advanced to December of 2025 and a hot deep galvanized line, which will also commence operation by the end of the year. Another positive development of the fourth quarter is that the wind farm in Argentina began generating electricity in December. All of the 22 wind turbines have already been installed. The wind farm is expected to deliver approximately 480 gigawatt-hour per year, replacing the majority of our purchase of third-party electricity in the country. This initiative provides substantial economic benefits and assists the company in achieving its decommunization goals. I would like now to address the latest developments in international trade. A surge in US trade actions during the last few weeks has been creating substantial uncertainty in the global market. Mexico, together with Canada, are among the countries that have been singled out by the recently announced trade measures. In addition, steel has been a specific target. As the US announced, it will revoke all country-specific exceptions to the 25% tariff on steel import under Section 232. I'm a strong believer in the advantages of the USMCA. There is a deeply complementary relationship among USMCA members, which has led to increased trade, investment, and job creation within the North American region. The USMCA has played a critical role in enhancing the competitiveness of the whole area. Therefore, we believe that the value chains among these nations will continue to thrive. Further deepening commercial integration among the three countries is the way to go, and it will be beneficial for all of them. Perneum is well equipped to navigate any potential trade scenarios due to its ability to adapt the structure in response to changes in the landscape. As always, we will continue our effort to enhance the efficiency of our operations to reduce costs. We are ready to compete effectively in today's uncertain environment. Now, let's review our main steel markets. In Mexico, shipments in the fourth quarter decreased due to a weaker than expected commercial market. The industrial market in Mexico is showing steady activity levels, following an increase of 6% in auto industry's production in 2024. On the other hand, weak government infrastructure investment and uncertainties surrounding trade actions are affecting volumes in the commercial market. This will probably continue to happen until a definitive understanding of the final trade measures is achieved. Moving now to Brazil, 2024 was a positive year with flat steel apparent consumption increasing a healthy 10%. Vehicle production grew strongly as well, with a 10% increase compared to 2023. 2024 saw significant operation improvement in Uximinas, resulting from investments made in recent years, particularly the relining of blast furnace number three. As a result, Uximinas produced 3.2 million tons of crude steel among the highest volume levels of the last 10 years. On the other hand, imports of flat steel exceeded 3 million tons in 2024, setting a new record. China remains a destabilizing factor in the international steel market. The construction of steel consumption in its domestic market in recent years has led to a disproportionate increase in export under unfair trade conditions. Imports from China have significantly disrupted the Brazilian market, accounting for approximately 80% of flat steel imports. The import water system implemented last year did not achieve its goal. We look forward to more effective trade measures from the Brazilian government. Especially as other countries strengthen their defense against unfair trade, potentially causing a diversion of China's export to other markets. On a different subject, we are very proud to share that last week, the Roberto Roca Technical School in Santa Cruz, located near Ternium Brasil facility, began its first classes. This is the second technical school that Ternium built and operated, with the first one active since 2000 near our Pesquedia facility in Monterrey, Mexico. The school will provide high quality technical education to its initial cohort of 192 students in the community, and will accommodate close to 600 students over the next three years. All students at the Roberto Roca Technical School network receive scholarships based on their family financial needs, ensuring equal access to education. This initiative reflects Ternium's dedication to supporting the development of the communities near its production site, and creating transformative opportunities for their youth. Turning now to Argentina, in 2024, children experience a -over-year decline of approximately 20%. This reduction was primarily due to the implementation of macroeconomic measures by the Argentine government, which aimed to address substantial economic imbalance. Although Argentina still demands recovery throughout 2024, it is starting from a low base and has yet to return to historic sales volumes. The authorities in Argentina are advancing the transformation of the local economy through a process of the regulation, reducing public spending and taxes, and opening up trade. Although we welcome this transformation, uneven progress in this area could increase the risk of higher import of unfair trade products in the steel value chains. I would like to close my prepared comments with a few thoughts. US trade measures against imports are currently fluid. During the first half of 2025, it is likely that we will continue to navigate this uncertain scenario in the North American region. We trust that, at the conclusion of the negotiations, rational decision-making will prevail, resulting in a region experiencing significant growth and improved defense against unfair trade practice. In the same line, the Plan Mexico recently announced by the Mexican government aims to address issues related to regional integration with a focus on industrializing for import substitution. The plan outlines strategies to attract investment and increase the local and regional content of manufactured goods throughout near-shoring infrastructure development and support for MSEs. In this context, our expansion projects in Mexico are crucial for strengthening Ternanese integration into the North American market. As rule of origin, melted and poor steel products are expected to become stricter. In Brazil, Uximena's manufacturing facility achieved significant efficiency improvements in 2024, a trend we expect will continue in 2025 as operations are further streamlined. Finally, given the improvements in microeconomic conditions in Argentina, I expect our shipment will continue recovering throughout this year. This concludes my remarks. Pablo, please proceed with the review of Ternanum's performance in the fourth quarter.

Thanks, Maximo, and good morning to everybody, and thanks for being with us today. Let's start with the webcast presentation for a detailed look at our operations and financial results. If we begin in phase three, we see that adjusted VDA decreased these quarters. The key factors behind these results include lower real estate prices in our main market and the reduction in shipments. These were partially upset by a decrease in steel costs for tone. As we look ahead to the first quarter of this year, 2025, we anticipate a sequential increase in adjusted VDA, supported by a margin improvement and small increase in volumes. Moving to the next slide, net income for the fourth quarter was $333 million. The company recognized a $404 million provision reversal following overlitigations related to the 2012 acquisition of stake in Uximena. The main difference between net income in the fourth quarter and the third quarter was a decline in operating income, as we have already seen, along with a negative effect of changes in foreign exchange results. On the other hand, we record lower income tax charges and the provision mentioned, provision and reversal. Regarding the changes in foreign exchange results, it's important to point out the impact of the Brazilian real 12% depreciation against the U.S. dollar due in the fourth quarter on Uximena's U.S. dollar denominated financial debt. This is because Uximena's use is the real as a factual currency, not the U.S. dollar. Now let's review the performance of our steel segments on page 5. In this quarter, steel segments across all of Ternan's key markets declined, primarily due to a typical seasonal reduction in demand by the end of the year, and additionally, the commercial market in Mexico experienced a downturn as Maximo already explained. Looking ahead, we expect some increase in shipments in Brazil during the fourth quarter, excuse me, during the next quarter of the year, first quarter of 2025, when shipments in Mexico and Argentina are expected to remain stable. In the following page, the steel segment net sales declined sequentially by 14% in the fourth quarter. In addition to lower shipments, this decrease was driven by a reduction in real estate prices across all markets. The decline in prices was partially offset by a reduction in cost per ton, which however was not enough to avoid a decrease in margins. It's worth noting that the pace of course reduction in our books is slower than the decline in raw materials and last prices in the market, as the companies consuming high-priced inventories acquire in earlier periods. Next, let's turn to slide seven for the overview of our mining segment performance. Mining shipments remain stable during the quarter, but year over year, there were around 9% in the fourth quarter, mainly due to lower production levels both in Mexico and in Brazil. On the other hand, margins improved, mainly driven by lower costs. Let's move on to the next slide to review our casual performance. Tarnio reported gross cash flow from operations in the fourth quarter, supported by a decrease in working capital, mainly driven by lower trade receivables. Capacity increased as we advanced the expansion project in Texaguilla and finished the wind farm in Argentina. And additionally, we paid interim dividends in November. Even though we have these significant cash environments in the fourth quarter, our financial position remains strong. With 1.6 million net cash at the end of December, helped by a 2 million increase in the fair value of financial instruments. Let's now shift our focus to page nine to assess our full year performance. The VBA declined in the last two years, primarily due to the consolidation of luciminas and the downward pressure of lighting steel prices. These factors have affected our results and reflected in net income. The decline also incorporates the net provision I mentioned earlier, together with negative tax results and the impact of the significant depreciation of the Brazilian real during the year on luciminas foreign exchange results. Tarnio's cash from operations was solid in 2024, allowing us to finance the increased level of capex in the year. Looking ahead, we expect capex to peak in 2025, reaching around $2.5 billion. Important to mention, the board of directors put forward a proposal for an annual dividend of 2.7 cents per ADS. This represents a dividend deal of approximately 9%. We have already distributed an interim dividend of 90 cents in November. And subject to shareholders approval, the remaining $1.80 will be paid out in May. All right, this concludes our prepared remarks. We are now ready to take your questions. Operator, please begin the Q&A session.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. And our first question comes from Carlos de Alba with Morgan Stanley. Please go ahead.

Yeah, good morning, everyone. Thank you very much. So the first question is, I'm going to try to press a little bit on the outlook for the first quarter. I know it's a lot of uncertainty out there, but how did you define a slight improvement? There is a wide range of consensus forecast, and so it would really help if you can provide a little bit more details as to how you see the quarter evolving. And then I wanted to also ask an update on the different ramp ups and the electrical furnace project in Pesqueria. You can maybe be a little bit, when do you expect the ramp up of the finishing lines to be completed? And when do you expect the coral and the hot deep galvanizing new lines to be running at close to this year? Thank you very much. Thank

you, Carlos. I will start with the second, which is much more direct, and then try to answer the first one. Ramp up of Pesqueria. So you know, in the finishing lines or in the downs, we have four projects, let's put it that way. The plicking line and are a little bit ahead of what was the plan. And I guess for the next two or three months, they will be at full capacity. I will put it. Then we have the hot galvanized line, which was supposed or is supposed to start in December. We are not seeing any delay in the ramp up curve that starts in December of this year. I mean, all the equipment are there in Pesqueria, and we have all the people working in the construction and putting those equipment in the cold roll facility in the PLDCM2. We were expected to start in February, March of 2026, but we are seeing some improvements and some better advance in the construction of the equipment and the facility. So we are expected to start in December of this year. So we are advanced the ramping curve a couple of months. And so on those projects, we don't see any problem. And we're going forward at full speed. The other one is the steel shop and the reduction unit. That is supposed to start in mid 2026, we are still having that date. But as you know, in that facility, we don't have yet all the contracts finalized. I mean, we are finalizing in this quarter some of the contracts for equipment. And more important, most of the contracts for the construction, although the construction is going through. So by the end of next quarter, we will probably have an idea exactly of when we will start. But we are still holding the time for mid 2026.

And just maybe to clarify, when do you expect the coral coal and the whole deep galvanized to be reaching full capacity?

Well, the ramp up curve in this project are usually between nine months and one year. But they are steady producing, starting producing from day one. And for example, in the case of the cold roll to get the 120 or 130,000 tons a month, would get between nine and one year. That's what we have in our plans. So we will try harder to get that closer to December of 2025. But for now, between nine and 12 months. I hope that answers the question. Or this is the second question. So outlook,

Pablo? OK. Carlos, as we said, we are expecting to see an increase,

more

increase in the VDH invasion for the first quarter of the year. And this is the sum up of three different things that will happen during the quarter. First, volumes, as we have described, and Maximo also described in the opening remarks, we are expecting to see a steady level of shipment in the different markets where we are. This coupled with the issues that Maximo mentioned, and also some seasonality. So we are expecting to sustain a level of shipment during the first quarter. That's the first point. The second point is that though prices are moving, we will see some decline in the average price of the company due to the issue that you know very well, which is that prices are reset every quarter. So all changes in prices are not reflected immediately. And the most important part is that during the first quarter, we will see a decline in cost. Differently from what we saw during the fourth quarter, this decline in cost will be higher than what we were expecting to see over the declining prices. So we are expecting to see a better margin during the first quarter. We continue, or we continue to see the same situation that we saw during the fourth quarter of the year, which is that there is a delay in reflecting the prices throughout our cost structure due to the -first-out methodology that we utilize. So we are expecting to continue seeing the evolution of the cost reduction throughout the semester and having a better picture in the second quarter of this year in that respect.

Your next question comes from the line of Caio Ribeiro of Bank of America. Please go ahead.

Yes, good morning. Thank you for the opportunity. So my first question on your stake in Uzi Minas, right? Later this year, you have the option to purchase Nippon stake within the control block, and Nippon has the option to sell that stake to Ternium. So my question is, is adding to your stake in the company something that you are contemplating right now? And is there any color that you can share on how both sides see this particular transaction? And then secondly, with the blast furnace revamp completed, what are the next priorities that you see for the company? Do you see a potential to green light the CAPEX and the mining division this year or next? And if so, how would the company fund that CAPEX? Thank you.

Thank you, Caio, for the two questions. Regarding the first one, I mean, the only thing that happened, as you said, in July is that both Nippon Steel and Ternium, we have the option, the options to sell or buy, and they become exercisable. I mean, we can exercise those from July. That's the only thing that changed in Uzi Minas. I clearly cannot speak of what Nippon is thinking of this, but from our side, I can say that, as you saw in the results, I am very pleased with how Nippon Steel and our partnership with Nippon Steel are performing today. So we will, for now, we will keep working with the goal of bringing Uzi Minas to the highest potential. Regarding the priorities in Uzi Minas, clearly the CAPEX and mining is one of the things that we're working. As I said in some other calls, we have to take the decision by the end of this year or the beginning of next year, but in the meantime, we're working very hard to get to the point of having to make the decision with most of the things done so that we don't have any delays if we go through that project. The other priorities of Uzi Minas are clearly improving the performance of Ipatin as mill. That's clearly a priority of the management. There are some investments that we have to do and that we are doing in order to decrease costs and increase productivity. And the second is the commercial side where we have all the challenges with the import for China and how we approach customers and give more value to customers. So those are the priorities that we are working in Uzi Minas right now. I hope it answers the question, Caio.

Thank you, Maximo.

You're welcome.

Your next question comes from the line of Alejandro de Mattelis with Jefferies. Please go ahead.

Good morning, gentlemen. Thank you very much for taking my questions. A couple of questions, please. The first one is, Maximo, you talk about turning and being prepared to navigate the situation on the tariffs and so on. Would that also include, say, putting on hold some of your new investments in Mexico or any of the rest of the regions? That's the first question. And then the second question is, in the case of Argentina, you talk about the situation about volumes, recovering and so on. Could you please talk also about the situation of the scrap exports and how that could impact also your cost base over there?

Yeah, the second one, the scrap export, is not very significant for us. As you remember, in Argentina, we don't use much scrap. It's different than in Mexico. And so the amount of scrap we bought from the market every month is around 8,000 tons. It's clearly not an issue, the scrap. Probably it's an issue for other steel companies in Argentina that has a much more scrap basis in their inputs. But remember, us in Argentina, I know. Regarding the call of new investment, no, we are not thinking of stopping or postponing any investment. As I said, the PLTCM, the Cold Rolling Mill, and the galvanized are almost completed. I know that in the next couple of years, they are going to be completed. And if you see what is happening in the Mexican market, the Mexican market has a huge amount of imports from third countries, which we are not able to really attack the police or substitute. That's better, substitute because we don't have enough capacity, probably, to do so in the technical issue. So we are going to forward and it's very rational to continue. The other one is the steel shop. And the steel shop, again, probably in all these that is happening, as you mentioned, in this uncertainty in the North American market, one thing that sure is going to happen is that the rule of origin are going to be strengthened even more. So melted and poor requirements are going to, we are going to need the melted and poor. And so for that, I think that strong, the Pesquerea project strong deposition of Ternium. I hope Alejandro, it's clear.

You know, it is very clear. And if I can follow up a little bit on that. So on the discussions that you're having with your main customers, particularly the automotive industry for the rest of the year, how are they indicating volumes, say, between now and the end of the year?

They don't have any changes in the volumes. Remember, the auto industry in Mexico ended up an year with growth and they are not indicating any changes. What they are doing is clearly working on changing some of the inputs they have from third countries. So we are working with them to start changing or making running changes of inputs they have from Asia mainly. Thank you. Thank you. Thank you, Alejandro.

Your next question comes from line of Timna Tanners with Wolf Research. Please go ahead.

Yeah. Hey, good morning. I wanted to, Massimo, I wanted to pick your brain really on the theme, I feel like of the introductory remarks was really that China continues to be a big problem for the three main regions where you operate. So do you have any level of optimism that those countries, Argentina, Brazil, Mexico, can implement enough barriers or will be interested in doing so to help prevent some of those problems of imports that you've been talking to any time soon?

Yes, I am optimistic in different levels depending on the country. I mean, let me put the perspective of China a little bit and then I talk specific of what the three countries are doing. China or the steel industry in China, but it's not only applied to the steel industry, it's applied to a lot of industry. So China have been decreasing consumption for the last three years, apparent consumption in the country. So it reduced, I think, in average, 4% each year for the last three years. But on the contrary, production has been the same. So this is a huge debalance of the Chinese steel industry. Export from China in steel increased in 2024 by 25%. That's an enormous amount of steel. And then if you see the balance of what is happening in the steel industry in China, well, most of the companies are burning money. So it's not a sustainable situation. Having said that, they are still exporting and doing all these things that have no sense. In our countries, I think Mexico is the one that's a hit piece. Clearly, they understand very well what is going on in China. They understand the importance of defending the industry against unfair trade, and they are working in this sense. So they are putting the dumping cases, they are putting some tariffs, and I think that they are starting to work in other issues that are fighting for a hitman that is happening in Mexico, in the US, in Canada. So China is looking for ways to evade this tariff, and I think Mexico has a very clear path of how to work. In the Middle East, Brazil, which they made measures of this quota, but clearly this quota, as I said, is not working. So the dumping cases have been presented. I think the government, I mean, I'm quite positive that the government is going to go through these dumping cases, which will be a much-affected barrier to fair trade. Argentina, I think, is the one that is a little bit behind all this. Sorry, because Argentina is still trying to stabilize the macro economy. But again, I think that some part of this year, they're going to start realizing that if we want to sustain an industry, we have to fight against unfair trade. That's the reason. So I'm optimistic that in some part of this year, they're going to realize this, and we are going to work together doing this. Timna, I hope I understand. I answered part of your question.

Timna Riegel Yes, that was helpful. Thanks, Timna. In the past, you've also talked about how any tariff on Mexican steel could be positive for turn-in because any retaliatory tariff would keep—because the U.S. is a net importer of steel. So if there were a retaliatory tariff, then that steel would stay in Mexico, and you could fill the gaps and take share right from imports. But on the other hand, now that those tariffs look to be applied to the downstream side, some downstream customers could be affected, and of course, you already addressed auto. So any updated thoughts on retaliation or if the tariffs are in place as it is, is it more negative just because of your customer impact than the positive of no longer receiving U.S. imports? Thanks again.

Juan Felipe Herrera Thank you, Timna. It's a very uncertain question to answer because clearly I don't know where this is going to end. What I can tell you is, first of all, at Pernium, as of today, we don't export significant volume to the U.S. So 4% of our flat-rollet products goes to the U.S. It's not a very significant amount. And as you said, in the relationship, steel relationship between Mexico and the U.S., Mexico has a huge steel trade deficit. I think that this is the only country, Mexico is the only country where the U.S. steel industry has a surplus, and a surplus that is very big compared to between exports and imports. So, I mean, as I said, the challenge that both the U.S. and Mexico are working, are facing today, is not the trade between these two countries, but it's a trade we have in Mexico that they have in the U.S. with all these other countries. So at the end, I think that the U.S. and Mexico are going to reach a reasonable agreement in this situation. I am not seeing a scenario where it goes further, as you were telling, of tariffs in both sides, because again, it should be a reasonable agreement, given the situation. But again, it's difficult to speculate on all these negotiations that are going through between the U.S. and Mexico today.

No, we appreciate that. Thank you, Massimo. Sorry to put you on the spot.

No, no, it's not on the spot. But I mean, it's negotiations that are happening right now. And again, when you see the numbers, when you see the... Especially still, it's very easy to reach an agreement. It shouldn't go further than reaching an agreement. And I think that's the best for all outcomes, from the U.S., from Mexico, from the government.

Your next question comes from the bank. Please go ahead.

Yes, thank you. Massimo, you mentioned in your presentation that we hope that rational decision-making will prevail. I think we all agree with you on that. Now, the question that I have is regarding how is the U.S. planning to balance the supply and demand without imports in the U.S.? I mean, it doesn't look to me that something that would be easy to do is the appetite to invest in more capacity, given that there is a global overcapacity. What would be the implications for end users of steel? Also, for the global scrap markets in North America, there is more need of scrap in the U.S. It seems that it's going to have lots of ratifications that eventually would be severe. And we can end in a world in which basically we have this bifurcation of trade with China, selling more to other countries and other countries, selling more steel. You know, and then you have a sanctuary not in North America anymore, but in only the U.S. But that doesn't seem to be a situation that could stay for long. So any color that you can provide, especially how do you envision a market that is properly supplied without imports in the U.S.? Thank you. And the implications of the scrap markets as well.

Yeah, Alfonso, thank you very much. It's a very good question. I don't know if I have the answer to that. I think it's a question for other companies. But you're right about, I mean, I don't think that the outcome of all these negotiations could be that what you are saying. But as I said in the initial remarks, I don't know against the rest of the world. And I'm not capable of saying what would be the relationship between the U.S. and China or Asia or Europe. But I am a strong believer in the advantage of the USMCA. If you see the story of the USMCA, which is not a very long story, the trade among the members of the three countries grew significantly over the last year in every way. I mean, from Mexico to the U.S., but the Mexico also almost in the same amount. And the USMCA play a role in enhancing the competitive of the area. I mean, it's very reasonable to think of the USMCA as a way of strengthening the supply chain there to get competitiveness for fighting or for not fighting, but defending or competing with other regions like China.

So for

me, again, I think that the USMCA is beneficial for the three countries. On the other side, I see how Mexico is reacting. Before all this trade, even before all this trade, if you see the Mexico plan, the plan Mexico that President Schoenbach announced, I think at the beginning of the year, it's very focused on what we have been saying for a long time in how we must focus on industrializing import substitution for Asia, strengthening North American supply chain. I mean, if you hear to what Mexico is doing, the plan Mexico has, it's also going the same way. So again, it's I am optimistic that region will prevail. I can tell you that, Afonso.

Thank

you. Just any comment on the global scrap trade, and how you see that changing or unfolding given what we know about the tariffs and this idea to produce more in the US in particular?

Well,

I

think to produce more in the US, it's a long time. So at least any new capacity will be three, four, five years to come in, except of what we are already seeing in the US. So I don't think that there's going to be a lot of change. Of course, crop, it's going to be, but we know this. I mean, it's going to be a market where more people are going to use crop because we are changing the route from blast furnace to electrical art. But this is taking a long way. So I don't foresee any major changes in the next two years. Excellent. Thank you so

much, Maxwell.

There are no further questions at this time. I will now turn the call back over to Ternium CEO for closing remarks.

Okay. Thank you very much all for participating. Very good questions. Always your feedback is much appreciated if you have any. Have a good day and we'll see how we talk in the next three months. Thank you.

This concludes today's conference call. Thank you for joining. You may now dis-