Ternium S.A.

Hello everyone and welcome to turn your first quarter 2025 results call. Please note that this call is being recorded. After the speakers prepared remarks, there will be a questioning and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Sebastian and Marty. Please go ahead.

Good morning and thank you for joining us. My name is Sebastian Marty and I am turning screw while I am a compliance senior director. Yesterday turning released its financial results for the first quarter of 2025. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Medoya, turning chief executive officer and Pablo Richio, turning chief financial officer who discusses the company's business environment and performance. After our prepared remarks, we will open up the floor to your questions. 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 filing with the Security and Exchange Commission and on page two in today's webcast presentation. You will also find any references 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. Medoya.

Thank you Sebastian. Good morning and thank you all for joining Sternium conference call. In the first quarter of the year, we reported a sequential increase in ABDA driven by improved margins and slightly higher shipments. Trade tensions in recent months have created a climate of uncertainty, basing business confidence and posing risk to global economic growth. On the other hand, there is a consensus that uncertain trade practices in recent decades have adversely impacted manufacturing around the world. Many countries are now addressing this issue, which is a promising development. In this content, the operating environment in Mexico has been challenging as uncertainty is affecting investment and consumption. However, the current administration has shown support for reducing reliance on Asian suppliers within the North American regional market. And my view is that they are doing a very good job in this front. In this line, the recent announcement of the Plan Mexico aims to enhance industrialization and import substitution to strengthen North American supply chains. The plan includes strategic strategies to attract investment and increase the local and regional content of manufactured goods through new sharing, infrastructure development and support for SMEs. In addition, the future renegotiation of USMCA presents a significant opportunity for Mexico to further align its trade strategy with that of the United States, while also enhancing the defense of the Mexican market against unfair trade practices from Asian countries. Moving now to Brazil, the local market is showing resilient steel demand, but the issue of unfair trade practices persists with a significant year of a re-increase in imports during the first quarter of this year. Brazilian trade authorities recently released preliminary results of an anti-dumping investigation on imports from China of coal-drawered steel and corrosion-resistant steel, identifying substantial dumping margins. But unlike the usual practice in many countries, the authorities did not recommend the preliminary imposition of anti-dumping tariffs. A final determination is expected to be made in October. In Argentina, the microeconomic situation is showing signs of improvement, which provides optimism for our shipment in this market in the upcoming quarters. In this demanding trade environment, our goal is to enhance Ternium's competitiveness by increasing operational efficiency and reducing costs. Specifically in recent quarters, we have been focusing on several initiatives that have already yielded good results on Ternium's numbers. We will continue to implement similar actions in the coming quarters to maximize the profitability of our operations during these uncertain times. For the second quarter, we anticipate achieving a double-digit ABDA margin supported by the increase in realizes prices in Mexico, as well as by our post-reduction initiatives. I would now like to provide an update on our expansion project in Mexico following the completion of our most recent review. The pickling and finishing lines have already started operation, and their cold rolling mill and galvanized lines are scheduled to begin on time by the end of December. The steel-slab mill and DRI facilities, known as the Upstream project, are now anticipated to be operational by the fourth quarter of 2026, which represents a slight delay from the original schedule. In this review, the total capex for the whole expansion project has been revised to $4 billion, representing an increase of approximately 16% compared to our previous estimate disclosure in February of 2024. The primary focus contributing to the project's cost increase were higher assembly and construction prices and larger volume of structures and civil works. The project will put Fernium in a whole new competitive position. The integration of advanced technology in our pickling, finishing, cold rolling, and galvanizing lines will not only increase operation efficiency, but also enhance product quality and expand our product range. In addition, by completing the Upstream project, we will be able to provide our customers with a complete product range, up to the most demanding industrial applications. This will be the first time that an electric arc furnace-based mill will be able to produce exposed material, automotive steel, with significantly lower CO2 emissions than previously possible. In addition, this expanded steel capacity will enable us to meet our expectation of ongoing melted and pooled requirements in the USMCA region. Let me conclude by my preferred comments with some final remarks. Global trade is currently undergoing major changes, resulting in considerable market uncertainty. However, adjustments were necessary, as China's progress through low competitive trade practices has contributed to declining manufacturing, employment, and value addition over the past two decades. In North America, both the US and Mexican administrations are working to address this issue. Therefore, it would be reasonable to expect an agreement on trade issues between the two countries. Although uncertainty and volatility are currently affecting consumption and investment, impacting steel demand in Mexico market, we expect implementation of Plan Mexico to work together with a better alignment of Mexico trade strategy with that of the US, will enable these countries to better defend the region against unfair trade. This would result in a gradual shift in production from Asia and other countries to the USMCA region. All in all, I expect the USMCA to become stronger and better prepared to continue growing. Now Pablo, please go ahead with the review of standing performance in the first quarter of this year.

Thanks, Maximo, and thanks everybody for being today in this conference call. Let's now move to the webcast presentation for a detailed review of our operating and financial results. If you look to page 3, you will see the adjusted EVDA improvement this quarter. This was driven mainly by better margins on higher steel and iron ore shipments. The main contributor to the slight improvement in the margins was a decrease in steel cost per ton, which was partially offset by a decline in realized steel prices. Looking ahead, we expect a sequential increase in adjusted EVDA in the second quarter, supported by higher realized steel prices and another slight decrease in cost per ton, which together should help our adjusted EVDA margins get to double digit territory as Maximo mentioned. Now, moving to next slide, net income for the first quarter of 2025 stood at $142 million. This figure includes a 45 million provision adjustment charge related to the ongoing litigation in connection with the acquisition of our participation in using EVDA. The adjustment reflects both interest accruals and appreciation of the Brazilian real against the US dollar during the quarter. Attractive net income, excluding the measured charge, was $188 million, marking a significant improvement over the prior quarter. Among the main differences, net financial results improved by $130 million, mainly due to the foreign exchange gain and realized gain from the partial diversions of bonds holdings in Argentina. Now, let's take a look at the performance of our steel segment on page 5. This quarter, we saw higher shipments in Brazil and other markets, passing upset by lower sales volumes in Mexico. Entering the second quarter, we expect the steel shipments to remain relatively stable on a sequential basis. In Mexico, volumes are anticipated to remain subdued due to the ongoing tariff situation. In Argentina, shipments are anticipated to increase during the second quarter, supported by a improving macroeconomic environment. Meanwhile, in Brazil, using mean of anticipation sequential steel shipments in the second quarter, we'll receive a steel demand. And in the other markets, we will probably see a decrease in shipments to the US market. Moving on, net sales in the steel segment were slightly higher in the third quarter, although revenue per ton declined mostly, the sequential drop in raw material costs and purchase loss costs, as well as efficiency improvement in our facilities supported by better marketing. Let's move to slide 7 for the summary of the mining segment performance. Shipments increased slightly quarter over quarter and rose 14% year over year, driven by higher production levels in Mexico and in Brazil. The sequential decrease in margins in the first quarter was due to the high cost per ton, which was partially offset by higher realized iron ore prices. Moving to the final slide of the presentation, we can review the cash flow performance and balance sheet. We continue to show significant capping level this quarter, as we make progress on the construction of a new facility at Tardinus-Pequería Industrial Center. As Maximo mentioned earlier, the total cost of the project was increased compared to our latest review, which was in February last year. Of the 4 billion new estimates, 1.4 billion had already been invested as of March this year. Looking ahead, the remaining capex is expected to be roughly 1.4 billion over the next nine months of 2025, 1 billion next year and 200 in the rest. Considering both the expansion plan and the rest of our capex investment, we project Tarnium to continue to have a capex in 2025 to be around 2.5 billion dollars. Finally, this period of high capex is supported by a very strong balance sheet, with a net cash position of 1.3 billion dollars at the end of March 2025. So with this, we conclude our prepared remarks. And we are ready to take any questions you may have. Please, operator, begin with the Q&A session. Thanks.

We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in. Your first question comes from the line of Carlos de Alba of Morgan Stanley. Your line is now open.

Thank you very much and good morning. So first question is regarding the situation in NACA. We'll see what happens with GDP this morning. I think it's going to be announced. But most likely, Mexico is in a technical recession or a very, very low growth environment. And so I hear your comments on the industrial customers still doing all right. And it's hard to believe that they're not making adjustments. So if you can share a little bit more colors, the color around what ahead, maybe beyond just the next second quarter or the ongoing quarter, what sort of measures are they taking, taking or planning on taking given the uncertainty of the entire auto supply chain and also the impact that it will have on other businesses in the Mexican economy? And then the second question has to do with the level of margins and profitability overall that the company is experiencing for the second consecutive quarter. And actually last year, in the past, we've only seen these level of margins. And if I remember correctly, 2009, 2015 and 2019. So in those instances, we had a severe crisis, not only in one of the countries that you operate like Argentina. And to be fair, Argentina exposure in your business overall has decreased dramatically. So how do you, what can you tell us here? When do you expect things to really improve because prices in your biggest market are not necessarily low in Mexico. So I really am struggling to understand when we can see an improvement in operation, operating markets.

Yes, Carlos. Hello. How are you? Well, let me start with Mexico and what is happening in Mexico. I don't know the numbers of the GDP of the first quarter, so I'm not going to comment on that. What I can say is what is happening in the steel industry. And you're right. I mean, apparent consumption of steel decreased almost five percent in 2024 last year. So we are operating at a level of consumption that is lower than in the past. This is mainly due for the commercial market. I mean, the infrastructure and construction in Mexico, part because of the new government and the change of government. Usually, big infrastructure projects end with the ongoing or the outgoing administration. And the new administration always take time to this. And also construction is not doing very well in Mexico. So that's what is happening in Mexico is still demand. I expect that demand is going to start increasing in the following quarters, especially in the commercial market. Construction has to pick up and the numbers are not going to be a significant increase, but they are going to be good enough to be better. And the other part is that imports are coming down and we are gaining. We're going to start gaining market share with the new lines that are coming up to date in the Pesquedia project. So I think overall consumption is not very good, as you said. But I think our shipments are going to start moving forward in the second half of the year because of all this. So I hope I answered Mexico's question with this. You talk also about industrial customers. Clearly, this is an uncertainty and it has to do or it's going to be resolved when the trade discussions between Mexico and the U.S. are finished. I don't know when this is going to happen in time, but it's going to happen in some moment. And as I said in my initial remarks, we are operating on the assumption that the USMCA is not only going to go forward, but it's going to be stronger. So we continue thinking that that's the ultimate outcome of these negotiations. Second question was the level of margin.

Hi, Carlos. How are you? Let me make a couple of comments in relation to that. You're right that there was a decrease in margins in the latest quarters. But let me point out that the situation that we saw in 2024 was a decrease of margin through the year. So we started with very good margins and then we decreased them through the year until the fourth quarter where we reached probably lowest in the series, which was seven percent. Going with the decline in prices in the market. Now, what we are seeing is probably, and this is the expectation, the opposite situation. We have already a margin in the third quarter, which is not only higher, of course, not significantly compared to the fourth quarter, but it is in line with the margin that we have in the third quarter last year. Secondly, we have already said, and Maximo mentioned this at the very beginning, that our expectation is for a better margin in the second quarter, which is, of course, if we took the opposite position or the opposite situation as last year, would be better than the third quarter last year. So, and then there is a lot of uncertainty, things to be clarified, issues to be negotiated. But the expectation is for this to sustain or even be a little better moving forward. So if that trend is followed, we should be able to increase our margins through the rest of the year and be in a position to be at least or above the levels that we saw last year. So if that situation is the one that at the very end we will see during the coming quarter, we will return to more or more reasonable margins that we have seen in the last two quarters, the fourth and the first quarters of the year. So that's our view

as

the situation that we can predict from now on. Hopefully answering your question,

Carlos. Your next question comes from the line of Tania Tanner of Wolf Research. Your line is now open.

Hello. Good morning. Good morning. I wanted to ask about cost a little bit further. You talked about more cost declining into Q2. So could you elaborate and is that going to be the lowest or are there still areas to continue to cut costs?

Hi, Tania. How are you? There are issues that are moving because of, you know, that we have 15,000 metrologies. So we are still seeing the reduction in cost that we saw in the last quarter, especially the slab or the some raw materials that you know that have been producing in the last couple of quarters. And this has been reflected during and we continue to expect to see that coming to the second quarter and further on. And also, Maximum mentioned in his remarks, that we are going through a program of cost reduction and that has an important

impact

during the first quarter. And we are expecting this to continue. So again, we are saying already that our margins will move to a double digit region. That, of course, the most significant part of that will be the impact of price reset in our face, especially in the Mexican market, but also an impact to the cost reduction program. We, or our expectation is that to continue, of course, we need to see how the raw materials and slab move further on in the coming quarter to have a full answer to your question. But it's not that we have finalized our plans. We will continue to work in that. And the expectation for us is to continue having some reduction costs in the coming quarters.

Okay, great. Thank you. And then with regards to volumes, I know you gave volume guidance for Q2, but broadly speaking, I think you have still quite a bit of spare capacity in Mexico. Assuming a bit better demand and clarity, can you talk about what order of magnitude volumes could grow to to take some share? Are we still getting imports from the U.S. or has the trade flow kind of stopped both ways lately? Just wondering if you can elaborate on the opportunity for further volumes even before, well, the expansion will just be upstream, I guess. But just talk about maybe some market share opportunities that you might see as the year progresses.

Yes, of course, we are in a capacity to increase volumes in Mexico today. The imports have decreased from, I'm going to take rough numbers, but 500,000 tons for flat products in the middle of 2024 to today 400,000 tons every month. So there is a huge possibility of increase in that sales. Most of those imports are industrial customers. So we are going through the process of certifying all our products in that customers. Seventy percent of that imports come from the U.S., from Japan and from Korea. So I think there are places or customers that we will be able to get a share of that imports. So again, we have the capacity today and we are working in trying to increase. So there is opportunities. It's up to us how much we get.

Got it. Appreciate that. Thank you.

You're welcome.

Your next question comes from the line of Shail Rivero of Bank of America. Your line is now

open. Yes, good morning. Thank you for the opportunity. So my first question is on cash returns. Right. And Ternium has been consistently increasing its dividend per share ratio over the past years. Right. Yet in 2020, with the pandemic, the company to suspend those dividend payments. So I wanted to see if you could discuss how the trade tension escalation via the announced tariffs could impact those decisions in regards to the DPS, if at all, going forward. And then secondly, I just wanted to see if you can focus a little bit more on Argentina in light of the recent IMF agreement, how you see the outlook for the steel sector changing the country. And if those macro improvements could lead you to eventually expand capacity in Argentina. Thank you.

How are you? Let me make sure to take the first question in relation to the cash return. First of all, your comment was right. We have been increasing our dividend yield over cash payments in relation to that, besides the year of the pandemic. If you remember what we have always said is that whenever we took that decision of increasing our dividend ratios, it's because we believe that we can sustain that during this long period or reasonable period. And we continue to say the same. You know that even though we are in the middle of a big capex plan, the largest capex plan that we have in our history, we continue to have a very solid financial position. And this should support and sustain dividend payments. Of course, we are in the middle of an uncertain period. We are in the middle of trade negotiations. We don't know exactly how this will end and the impact or the real impact that this will have in growth, both in the US or in Mexico or worldwide, or the real impact that we have specifically to our company. But taking into consideration everything that we have said, that Maximo mentioned during the opening remarks on the view that we have on this process, as of today, we continue to have exactly the same position of sustaining dividend yields. And we continue to have these kinds of dividends.

Good morning, Caio. Argentina. The outlook is improving for the steel sector and for the economy in general. I think that what the Argentina government is doing, it's clearly positive. There's still a lot of risk in Argentina. So I don't want to say that we are over the problem. Inflation is still high. But in a sense, shipments of Argentina, probably Q1 would be the lowest in the last Qs. And following Qs are going to increase projection. It's at least 20% next Q of increasing shipments. And we don't see any decrease in the third and fourth Q. So, yeah, expansion in Argentina, we are not seeing yet that. We have spare capacity in our Argentina meals. So I think we are going to be able to sustain or to grow those shipments with the spare capacity we have.

Thank you. That's very clear, Maximo and Pablo.

Welcome, Caio.

Your next question comes from the line of Henrique and Marquez of Goldman Sachs. Your line is now open.

Hi. Thanks for taking my question. I just wanted to better understand the key reasons to the increase on the CAPEX and the extended deadline. Just to understand if it was one of the mistakes on the budget planning or was there any operational issue during the construction? And just to make sure, when should we see this increase in CAPEX? Should this hit this year? This additional 500 minutes, should it be next year or should we just distribute that over the two years? Thank you.

Yes, thank you, Henrique. I mean, the CAPEX, you're going to see that over the project. I mean, this year, just to give you an idea, this year is going to be one, well, no, the total CAPEX of terramium. This year is going to be 2.5. Next year is going to be around two. And in 2027, around one. That's the total. From the project, I would say that this year, from that, what I tell you, the project is indeed, it's 1.4. We are 1.4 already invested in the project until March of this year. The rest of the year, the nine months, the rest of the year is going to be around 1.4. 2026, around one. And 2027, 200 million. So that's the idea of the CAPEX. The increase, as I said, we received different budgetary process. And then when we start negotiating the reality, a lot of contracts came with inflation and came with increase in some of the prices. And that's the main reason why we are increasing the CAPEX. There is also some increase in the structure, in the amount of structure that we have to have, especially in the DRI facility and the steel shop. But the main reason is the increase in prices of the vendors and of all the construction.

Thank you. You're welcome.

If you'd like to ask a question, please press star followed by one on your telephone keypad. Press star followed by one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in. Your next question comes from the line of Xiao Grignere of UBS. Your line is now open.

Hi, good morning, everyone. Thank you. So two questions here. The first one circling back to the U.S.-Mexico relationship. Maximo, I know that you mentioned that your base case is currently that the USMCE agreement is going to get stronger and that this is going to positively impact the outlook for the region as a whole. But the fact is that for steel, it has been negative for Mexico, right? I mean, we're seeing the US-Mexico prices for HRC specifically decoupling. And I wanted to see how do you all see this going forward? Because at the end of the day, Mexico also has a 25% tariff, but it also has several trade agreements with its partners. So I'm not really sure how to interpret the recent moves to the Mexican supply demand balance for steel. And more specifically, where do you see the new pricing equilibrium at this new market environment? The second question, and again, I know that the base case is for a stronger USMCE agreement, but I wanted to explore a little bit more the downside or the bare case as to how does Ternium see its capital allocation in a scenario that the Mexican economy slows down, that the US in fact restricts imports of several goods coming from Mexico. I mean, how would Ternium position itself in a bare case in a scenario which the US-Mexico relationship is actually not the same as it has been? And I'm really sorry if I may squeeze in a final, real quick one. How do you see the recent changes in FX controls in Argentina impacting your ability to pay dividends from Ternium at Argentina to the controlling company? Thank you.

Thank you, Caio. Well, I start, I try to answer the first and second question altogether, US-Mexico relationship in steel particularly. As I said, one thing is a global picture and where we think are going. You're right about steel. Steel is still a problem between the US and Mexico. My view is that, I think this is the view of the Mexican authority, of the Mexican government, is that steel and aluminum has to be solved more quickly than in the long term. I mean, when you see what is happening with the steel industry between Mexico and the US, I mean it's clearly that Mexico is not a problem for the US steel industry. If you take the numbers of the new 232 of steel, where you put steel and steel derivatives, the US has a huge surplus in the export to Mexico than the export from Mexico to the US. I mean, rough numbers, I think there are that the US exports $17 billion in 2024, a little bit more, and Mexico exports $11 billion, steel and steel derivatives, I'm talking about. So it doesn't make sense to put tariffs to Mexico or that Mexico has to put tariffs to the US. I hope we don't get to there, but at the end, if we have to get there, I mean we are going to be better off. Again, it's not the idea and we are working very close with Mexican administration, with the Mexican government, to try to make this a very reasonable negotiation. So I think that in the end, because the logical is to have an agreement, is that we are going to have an agreement. I mean, I think it's in the best interest of the US steel industry also to have an agreement in this. The other issue is that we have to work together as a steel industry to try to enhance the market. I mean, there are roughly speaking 11, 12 million tons of finishing products that today are finishing steel products, and this is not, I'm not taking account derivative products, that are coming to the US and to Mexico from Asian countries. What the agreement has to do is that we have to work together to enhance the market and defend their region against those imports and not put tariffs between Mexico and the US both ways. So I think that's where we have to go. In a better scenario of Mexico, I would say there's still a lot of market to gain in Mexico and we are working to that. So we are going to have the capacity. We are going to have, in some cases we don't have today the product or the quality of the product to go to some market, and with the new investment we are starting to get that. So we are going to go little by little gaining market share of those 400,000 tons of flat products that today, every month, they are imported to Mexico. So we have a huge market to grow, Caio. The third

one, Pablo. Hi, Caio, how are you? So you mentioned the effects measures implemented in Argentina. First of all, it's very positive to have this because you know that that was one of the uncertainties that the Argentinian market had, how the Argentine government would implement getting out from the capital control or a better scenario. So that's on the very positive side. So you have these uncertainties

over.

You know that the program that was implemented in Argentina is a complete openness of the market for the general population, but there is still some limitation for companies. The government has introduced also specifically, which was your question on dividend payment, a couple of things that you can do as a company in Argentina. But clearly that is not an open market, as we speak. So the first thing that the government allowed was for research generating during this year that will be freely available to be paid in dollars if you want. So all the results that the company in Argentina is generating during 2025 will be able to be paid after these numbers are released, let's say in April next year. So from now on, with all the results generated by any company in Argentina, they are free to be paid as dividends, so no restrictions from there. There is some stock of dividend not being paid in the last year, and the government is announced, but we don't have yet the final details. The insurance of a bond, similar to the one the government issued to solve the question of unpaid commercial debt with suppliers to Argentina, that was at the very beginning of the government, that was very successful. So the government is planning to do exactly the same and allowing companies to buy these bonds to pay dividends. So all in all, there are still certain restrictions, the original ticket to consideration, the situation in Argentina, but there is a path for companies to move in the direction of paying dividends in the near future. Hopefully answering your question, Caio.

Yes, thank you both so much. Thank

you,

Caio.

There are no further questions and no life to hand the call back to our CEO. Please go ahead.

Okay, thank you very much. We appreciate very much your participation in today's call, and we welcome your feedback. And I hope to talk to you in the next conference call. Thank you very much.

Thank you for attending today's call. You may now disconnect.