Ternium S.A.

Good morning, ladies and gentlemen. Welcome to Turnium's conference call to discuss the results for the second quarter 2026. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. We would like to remind you that this conference call is intended exclusively for investors and market analysts. We request you that any questions from journalists be dedicated to the media relations through our website in the press section. With this, I would like now to turn the floor over to Mr. Sebastián Martí. You may proceed.

Thank you for watching!

Hello. Okay. It seems we have some technical issues. I hope you can hear us now. Okay, let's go again. Good morning. Thank you for joining us today. My name is Sebastián Martí and I am Terns Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the second quarter and first half of 2026. Today's call is intended to provide additional context to that presentation. I'm joined by Maximo Vedoya, Ternium's chief executive officer, and Pablo Brizzio, the company's chief financial officer, who will discuss Ternium's operating environment and performance. Following our prepared remarks, we will open up the call 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 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. Vedoya.

Good morning, everyone, and thank you for joining us. Yesterday, we reported a significant increase in ternium's result in the second quarter. Adjusted EBDA was 50% higher sequentially, and our EBDA margin reached 16.5%. Our balance sheet remains strong, with a net debt of only 112 million dollars. And with the peak of our investment program in Mexico behind us, we expect capital expenditures to keep declining further down the road. Before turning to our markets, let me say a few words on safety. Two weeks ago, we held Terranium Safety Week, which we run every year across all of our operations. We stopped our production lines and more than 21,000 people took part in safety awareness routines. Stopping production across the company sends a clear message of our priority. Moving to Mexico, shipments increased and margin expanded. The business environment is slowly getting better. Government measures against unfair trade are already helping steel volumes recover, and the country continues to strengthen its trade defenses. The commercial market improved during the quarter, supported by restocking along the value change, which is bringing inventories back to a more balanced level. We are also gaining market share in this segment, helped by lower imports and by our stronger performance versus peers, as customers continue to value Ternium's reliability, service, and ability to respond quickly. Still demand in the industrial market did not grow at the same pace. The auto sector remains healthy and HVAC is improving on demand from data centers. But Section 232 tariffs are affecting our customers in these and other manufacturing sectors. We expect volumes to continue recovering gradually in the third quarter. We are supplying steel for new gas pipeline projects and replacing Asia imported steel from several automotive OEMs. Public infrastructure projects under the agreement to promote the Mexican steel industry should add further demand ahead. Moving to trade, the U.S. and Mexico has held three meetings in the last month to work towards a new framework. These talks... have advanced, although they have not yet produced concrete results. For the Mexican government, Section 232 remains a top priority. These tariffs are hard to justify in the case of steel, as the U.S. runs a large trade surplus with Mexico, and it's by far its largest external supplier. At the same time, there is still excess steel capacity in the world, and this makes it necessary to keep working on the trade front. A fourth round of talks will take place in Washington in early September. Turning to pesquería, our new downstream lines continue to ramp up. and the SLAP facility is progressing well with startup expected in early 2027. This new capacity positions Ternium well for a more integrated and better defended North American market, where local supplies become a competitive advantage. Ternium is prepared to serve that demand with local capacity, short lead times, and the technical support that industrial customers require. On top of that, the steel from our new slab mill will reach the automotive industry with a carbon footprint well below that of the blast furnace-based steel that still supplies most of the region's automotive products. Before moving on to other markets, let me mention two recognitions we received in Mexico since our last call. Caterpillar distinguished Ternium through its supplier excellence recognition program for the fourth year in a row. And we also received Trinity's premier supplier award in the steel category. Awards repeated over time and across industries show that our customers value the quality of our products and the service of our team. Turning to Brazil, trade defense is advancing. In June, the steel quota system was renewed until June, 2027, and the anti-dumping case on hot-roll coils from China should reach a final decision during the remainder during this year. More is still needed, but the direction is positive. Demand across the consumer sector remains uneven. Automotive is solid, with production expected to grow by 6% this year. And road and infrastructure equipment remains dynamic. Other sectors are weaker, affected either by slow demand or unfair competition from imported finished goods. Against this backdrop, Usimina has improved its profitability over the last few quarters. This came from better industrial performance, strict cost control, and higher productivity. A key milestone for these competitors was the completion of the Pulverized Cold Injection Project, a structural step We also receive important customer recognitions. General Motors named us supplier of the year in the industrialization and trust category, and Honda Motors granted us a gold best supplier award. In Argentina, shipments increased sequentially in the second quarter, mostly for seasonal reasons. Our view on this market has not changed. We continue to expect energy, mining, and agriculture to be the most dynamic sectors, with construction recovering gradually from still low levels. Manufacturing remains weak, held back by soft demand and strong competition from imports. In July, we published Tornium's 2025 sustainability report. One of the main updates in this revision is the revision of our 2030 decarbonization target, which now includes Usiminas and uses 2024 as a new base year. We are committed to reducing emissions intensity per ton of hot-rollet steel by 50% covering scope 1, 2 and 3 under GHE protocol methodology. The report also covers our progress in energy efficiency, environmental management, safety and the community engagement. I encourage you to read it. It gives a complete view of the work Tornium is doing in all these fronts. This was a quarter with a solid recovery in profitability and a balance sheet that remains very strong. Looking ahead, we expect performance to continue showing good results in the third quarter, supported by the recovery in Mexico, a more balanced trade environment in Brazil, and steady progress on our strategic projects. All of this rests on the daily work and commitment of all our people, and I want to thank them all. With this, I'd like to move to a review of our quarterly performance. Pablo, please go ahead.

Thanks, Maximo, and thanks everybody for participating in this poll. So let me turn to operational and financial performance for the second quarter of this year. Adjusted VDA rose in the second quarter driven by higher volumes and bear margin, with adjusted VDA margin expanding to 16.5% from 12.2% in the first quarter. Performance benefited from the strengthened market fundamentals in Mexico and more constructive steel market environment in Brazil. The key drivers behind this result was improvement in realistic prices, mainly in Mexico and Brazil. Looking ahead, we expect adjusted VDA to increase sequentially in the third quarter, driven by higher achievements and an improved adjusted VDA margin. This margin expansion should reflect higher revenue per ton, partially offset by an increase in cost per ton across our markets. Net income reached $465 million in the second quarter, primarily driven by strong operating performance. Compared to the first quarter, The improvement in operating income was partially offset by lower net financial results, mainly from foreign exchange losses and lower deferred tax gains. Let's review the steel segment shipments now. Consolidated shipments increased by 4% sequentially in the second quarter. In Mexico, volumes continued to rise, supported by strengthening in the commercial market. Lower input from more effective trade defense against unfair trade practices and efforts to improve market share, as already was explained by Maximo. In Brazil, sales volume has broadly stayed steady versus the first quarter, with Yusiminas maintaining its focus on margin rather than volume. In the southern region, volume picked up in a typical seasonal recovery, even as the underlying demand continues to hold steady. Looking ahead, we expect shipments to keep recovering, mainly in Mexico, supported by sustained commercial market momentum, and also in Brazil, as trade measures take hold and inventories normalize. Moving to the steel segment performance, steel cash operating income rose by $240 million sequentially. with higher volume and realized steel prices, where the cost per ton increased slightly. We should see revenue per ton and margins to continue improving in the first quarter. Turning now to the mining segment, shipments normalized in the second quarter, reflecting the seasonal recovery of iron shipments in the Brazilian operations. Cash operating income declined slightly sequentially as low-realized iron ore prices were partially offset by higher sales volume. Let's review now the cash flow and balance sheet. Although we had a significant increase in operating results, this was partially offset by a $418 million build-up in working capital, consistent with higher sales and increased raw material prices and steel costs. Capital expenditures reflect our progress in the expansion of the industrial center in Pesquería, now mostly focused on the construction of the new slab facility. During the quarter, we also paid a dividend to shareholders of $255 million, corresponding to the balance of the total dividend declared for the fiscal year 2025. With this, we end June 2026 with a net debt position of $112 million, compared to a net cash position of $327 million at the end of March. Finally, let me close with a quick look at our first half performance. In the first six months, Adjusted EVDA was $1.2 billion, raising 65% year-over-year, with EVDA margins expanding to 14% from 9% in the same period of last year. Net income for the first half amounted to $837 million, resulting in shareholders earning of 2.84 per ADS, almost double the prior year level, supported by stronger operation results on higher steel margins. Cash from operations totaled $473 million, with an year-over-year decline mainly driven by higher working capital needs. With higher inventory values and higher receivables associated with an increase in steel prices as well as higher raw material costs. Capital expenditure reached $837 million in the first half, reflecting continuing investment in the pesquería expansion. With this, we are leaving behind the peak of our investment cycle. and expect capex of 1.6 billion for the full year 2026, moderating to around 1.2 billion next year. With this, we conclude our prepared remarks, so we would like now to welcome your questions. Please, operator, go ahead.

Thank you. We will now begin the question and answer session. To ask a question, please press raise hand. To withdraw your question, you can leave the queue by clicking put hand down. Our first question. Our first question comes from Mr. Rafael Barcelos from Bradesco BBI. Please go ahead.

Good morning and thanks for taking my questions and congratulations for the results. So, looking at your price realization in the second Q, I mean, it was very strong, but looking at how Mexican steel prices have performed over the past few months and given the contract lags, I mean, it seems that your second Q Thank you very much. And on top of that, if you can comment a bit on the overall market environment in Mexico, I mean, how do you see prices evolving from now on? And as a second question regarding the USMCA discussion, I mean, we are understanding that the likelihood of seeing deals made by like sector by sector are like more likely than a broader USMCA revision. So just wanted to understand whether you believe this statement is correct and what is the likelihood of seeing any sort of agreement with the US happening before the year end. Thank you.

Thank you, Rafael. The first question about prices. So, and the prices in Mexico in particularly. One of the things that's happening, and as I said in the initial remarks, we are having more shipments in the commercial market than in the industrial market. So the mix that we're selling is different of what it was In the past, I mean, as I said, the 2-3-2... Thank you very much. I guess your comment on the relation price are a little bit lower of what you expect. We expect some changes in the third quarter, but don't expect huge movements because this dynamic is still going on in Mexico. And regarding market environmental in Mexico, I think that that resumes also. I mean, Mexico is improving demand, but the demand in Mexico is not that it's increasing very much. I mean, World Steel released the other day what the Thank you very much. that still needs to improve more. And I think part of this is the discussions US and Mexico are having. Regarding USMCA, there's a lot of speculations of all the talks that are being held between the US and Mexico. I mean, I don't want to speculate more of of all the things that have been said. What I think is happening also is, I mean, for one part, being several deals or making a huge deal, priorities for Mexico is the 232 in all the sectors, which is very correct. And priority for the U.S. is that Mexico step up its defense against unfair trade, not only in steel, but in other products, which I think is also correct. And both things, I mean, how we move in both directions, I think both of them are positive for us and for the Mexican market. So I hope that they start making some new steps in the direction of these objectives really soon. I hope with this, Rafael, I answered a little bit your questions.

Yes, just as a quick follow-up, just to clarify. So on the first part, on the first question, on the price side, you mentioned that we should not expect many changes, but I understand in terms of mix, right? So the mix should not change. Thank you very much.

Thank you. Our next question comes from Emerson Vieira from Goldman Sachs. Please go ahead.

Good morning, everyone. Thank you for the opportunity. I have two questions as well. One on volumes in Mexico. I think one of the most difficult parts here is trying to estimate what could be the incremental volumes that the company is perceiving right now. due to the infrastructure projects, right? So can you share any sensitivity here in terms of what could be the incremental still demand for churnium because of those projects that are being delivered or actually are starting, right? By PMAX, CFE, and et cetera. What could be the upside here to volumes in your view? And is it correct my understanding that this impact is coming earlier than anticipated If I'm right, in the last quarter you guys mentioned that you could expect those higher volumes only coming in the end of the year, and now this is being anticipated. So this is the first question, and then I will move on to the second one later on.

Thank you. Thank you, Emerson, for your question. What is happening with all the infrastructure is that infrastructure is starting to pick up. You know, if you see the numbers of Mexican economy and consumption in infrastructure, it decreased in 2025. It didn't move up in 2026 much, but now there are some projects gaining momentum. Infrastructure projects are not projects that you're going to start one quarter later. and improve a lot to the other quarter. I mean, they are taking some time. We are discussing and this is a number, but you cannot put it in our projections, but With this agreement that we make with the Mexican administration, the steel industry, we are discussing projects of around 600,000 to 700,000 tons. But this is not coming in one quarter. This is a project at least for one year and a half. How much of that we realize in the following quarters? Not much of that. This is taking time. I hope I kind of clarified that, Emerson.

All right, so 600 to 700 is considered all projects that you guys have entered into partnerships, right?

Yeah, yeah, but you have to take at least one or two years to develop all that.

All right, thank you. And then my second question, please, is just on capital allocation. In May, the company revised down the proposed dividends, right, when the geopolitical scenario was more uncertain. Of course, uncertainty is to exist, but I mean, we are seeing earnings improving at a faster pace. So would it make sense to believe that dividends could be raised? and maybe return to prior leverage or even above. I mean, what is the company's view here on the dividend payments going forward in light of those changes? Thank you.

Thank you, Emerson. That's a great question. I mean, let me put a view first on our capital allocation and then specific on the dividends. Probably Pablo can answer that. But I mean, If you see our capex, I mean, we are coming out of a period of a significant capex for us. You know all this, all the Pequeria project, all the investment we have to do in Yusiminas, in the different operations. So, I mean, in 2027, CAPEX is going to decrease. I think Pablo mentioned the number, 1.2, 1.3 billion U.S. from a CAPEX of this year of around 1.6. So the priority probably next year in this CAPEX allocation would be to take advantage and consolidate all that we have made Thank you very much. but the amount of uncertainty in the world economy is not over yet and we are monitoring that very deeply. Nevertheless, we continue having the return of investment or the return to shareholders as a key part of our capital allocation. I don't know, Pablo, if you want to put a little more In the numbers.

Yes, yes, yes, Maximo, yes. It's very clear what you said, that some things that we have seen in the past are still there, but it's also very clear, as Emerson, you have put there, that the returns of the company are improving, that is a very good piece of news, and that we are moving into a coming year in which we will have improved results and reduced capex. So, As we have seen in the past, this company has a tradition and have shown that at the moment that we increase result and we believe that we could sustain an increase in dividend, this is a possibility that the company will put forward. So the conditions are there. We need to see if there is changes in the near future because we are not yet at the moment of a definition of dividend, but clearly what you mentioned is clearly a possibility.

All right, thank you, Maximo, Pablo, Sebastián. You're welcome.

Our next question comes from Caio Ribeiro from Bank of America. Please go ahead.

All right, good morning. Thank you for the opportunity. So I have two questions on the trend of North America steel markets. So first off, looking at the HRC prices in Mexico and the U.S., There's quite a large gap, right, of around $300 per ton, which has been expanding over the past year. So, you know, just curious to hear from you if you can talk a little bit about how lead times, inventory levels look in Mexico, just to try and understand, you know, how they compare to the U.S., where lead times are well above average at nine weeks, inventory is quite low. And on this note, you know, if the trigger to narrow that spread is really, you know, just a reduction in tariffs for Mexico or if you see any other triggers here. And then secondly, HRC prices in the U.S. have clearly had a strong run over the past year. And as you look ahead, I just wanted to see how you view the restart of that large blast furnace, Gary Works, that was idled for maintenance and the startup of Nucor's new capacity later this year and whether you see those as risks that could generate a price inflection point. and if current price levels are already encouraging a pickup in imports. Those are my questions. Thank you.

Thank you, Caio. I mean, from the first, the gap between Mexico and U.S. prices, I don't think the gap is due to these different lead times on inventory. If you see the price in Mexico, Price in Mexico are following the same trend as in the U.S. They are increasing, and I think lead times inventory are quite similar to what is happening in the U.S. There is a difference, of course, is the 232 in the U.S., and that the trade measures in Mexico are not as effective as the ones in the U.S., notably this 232. So the trend in Mexico is going to continue as it's Thank you very much. Get rid of the 232 between Mexico and the U.S. And U.S. is asking to put more tough trade measures in Mexico. And as I said, both are quite good and both have reasons to ask that. And so an agreement can be reached, I think, in those sense. And in that part, the gap between both prices will probably reduce. So that's regarding Mexican prices. The increasing capacity in the U.S., I don't think, I mean, the U.S. is decreasing the import volume But if you see the demand, it's still not picking up demand in the U.S. The consumption of steel in the U.S. is still the same this year than last year. It should increase. And the new capacity should be swallowed by this increase in demand and the decrease in imports. I don't see a huge risk There, Caio. Clearly, it could be some moments when prices decrease or it's a little bit more offer than demand, but I don't see a huge impact of this restart of capacity. I hope that answered the question, Caio.

Yes, that's very clear. Thank you very much. You're welcome.

Our next question comes from Alfonso Salazar from Scotiabank. Please go ahead.

Thank you. Two questions for you, Maximo. The first one, and they both are regarding the Mexican market. The first one is, can you share what's the move among clients in Mexico? You know, we saw the decision of Toyota moving part of the production of the Tacoma to the U.S., So I want to hear, you know, what is the mood regarding, you know, when you have conversations with your clients in Mexico, what they are thinking, what are the challenges that they are facing? For example, if there is the 232 goes away, you know, they will face higher prices for steel. So just wondering, you know, what are the conversations that you're having with them? The second question that I have is your view on the On Mexico, regarding where it stands in the new global auto market, the new global auto arena, because we see the U.S. buys pickups and SUVs. China leads the electric vehicle and the low-cost auto markets. and OEMs are losing market share basically everywhere except in the U.S. So what is the future for the U.S.? I think it's a good time to rethink about that now that the Pesquería plant, the new slab facility is close to complete.

Thank you, Alonso. I mean, what is the mood of our customers? And I guess you are talking about and the industrial customers in Mexico. As I said, I think customers, especially those of US origin, they are expecting to have a resolution in the 232 and in these USMCA discussions. I think that most of the customers I think that there is going to be a solution or an agreement and they are waiting for that because they have a huge supply chain operation in Mexico and the U.S. And I think that the objective that the Trump administration is moving in reducing the trade deficit that they have with Asia, they They are going to do it with an agreement with Mexico. So they are in this mood of waiting. And I think the bigger challenge is the 232. I don't think that customers think that without the 232, the cost economy increase. What they think is without the 232, they can have really the opportunities to produce in Mexico and the U.S. and have a more strong economy. and many more. Producing around 4 million units a year. They are not decreasing the production. The production is quite the same year 2025 to 2026. So they are expecting to solve 232 and have a regional market strong. If you go to the U.S. market, U.S. are producing a little bit more of 8 million units, sort of 8 million units. So there's a huge opportunity there for integration between Mexico and the U.S. And I think that they are expecting that. But of course, this should take effect when conversation between U.S. and Mexico move forward. Alonso, I hope I answered your question with this.

Yes, just a follow-up. So, yes, for the industrial customers, for sure, you're right with the 232. For commercial market or your commercial customers, they may face higher steel prices, right? That would be the implication of not 232?

I don't know if they're going to face higher prices, Alfonso. I think they're going to fare better. They're going to have the prices of the market that doesn't reflect unfair competition. They know that, and they're okay with that. I think for commercial customers today, the main issue is how demand and how growth pick up in Mexico. Mexico has not been growing very much, as I said. Last year, steel consumption decreased by 10%. That's a huge number. This year, Still consumption is expected to increase by 4%, still way back of our peak in 2023. So what the commercial customers are expecting is a grow in construction, a grow in infrastructure programs, a growth in the demand of steel, and they're expecting that, waiting for that. That's the biggest challenge they have today. And that's the usual talk we have with all our customers in the commercial market.

Fair enough. Thank you very much, Maximo.

Thank you, Afonso.

We remind you to use the raise hand feature if you'd like to ask a question. Our next question comes from Daniel Sasson from Itaú BBA. Please go ahead.

Hi, everyone. Thank you so much for taking my questions. Congrats on the results. My first question is actually related to your capital allocation decisions. After you've mentioned Pesqueria a number of times during the call and we are nearing Thank you very much. Maybe you guys that have always been conservative in regards to your balance sheet position now think that it's better to keep more cash on hand in light of the geopolitical turbulences and things like that. So that would be great to understand how you're thinking about capital allocation and if that could include, for instance, buying all remaining Usiminas shares, if it would make sense at all for you to unlist or delist the company in Brazil. And my second question is actually related to Pesqueria. If you could give a little bit more color on how we should model your reduced needs for Slab purchases from third parties after the project starts up versus other additional costs like related to your energy matrix, related to iron ore needs and so on and so forth. That would be nice for us to understand the delta in EBITDA coming exclusively from Pesqueria in 2027 versus 2026, everything else kept equal. Those are my questions. Guys, thank you so much for your time.

Hi, Daniel. Thank you very much for the questions. I'll start with the second one first. Pesquería, remember, Pesquería is going to start, the slab facility is going to start at the beginning of the year, but it's a very complex and huge project. So the ramp-up Thank you very much. to our automotive customers with melt and pour still melt and pour in the region that are needed with the change of the USMCA. And to do that, we need not only to ramp up our facility, but to cover all the certification process. and many more. Thank you very much. It takes a lot of time. So that's the focus in 2027. I hope that answers the second question, Daniel. For the first question, capital allocation, I think, Pablo, you answered a little bit, but give it more detail, please. Yes, okay.

Hi, Daniel, how are you? Okay, let me summarize a little bit what do we do in respect to capital allocation. And clearly we have different things. First of all, you're right that our results are improving. Second, as Maximo was just explaining, we are at the very end of our big capex plan, but we need to take one or two years to digest everything that we are doing. and as Maximo explained, it's a very complex process to ramp up the new facility and to obtain and achieve all the certification to fully take advantage of the new facility that we have. So why we are saying that or why I'm saying that is because it's very difficult for Ternium at this point to have or to launch any new big CAPEX project in the real near future. Of course, we have certain things to mention, like all the capex, as maintaining capex and things that we're doing. We already mentioned that we will be doing $1.2 billion in capex next year. At some point, we will take a decision in respect to the mining activity in Brazil. So we have certain things to move around. But we will have room to take that. And two things. One, to increase dividends if the sustain in better results is confirmed. And secondly, something that you mentioned, and you're right, that we tend to be a little more conservative than some companies. And we prefer to have a very strong financial position in order to support future alternatives that could happen. You mentioned things like acquiring shares. You know that the theoretical answer to that in the long run is the answer is yes, because we have as a goal to simplify our corporate structure. But there are certain conditions yet, especially in respect to that shares, that makes it a little difficult to move forward in the short run. But again, as a general point of view, we, of course, we would like to sustain a strong financial position. We would like to sustain a positive and, if possible, growing dividend payment and take advantage of all the things that we have been doing up to now. In that respect, things can happen in the future and we will be prepared to take advantage of that.

Thank you so much, you guys. Super clear. Thank you, Daniel.

Thank you. That concludes the question and answer session. I would like to turn it back over to Mr. Maximo Vedoya for closing remarks.

Thank you all of you for joining us today. We welcome any feedback you have or any additional questions and have a great day. See you in a couple of months.

The earnings conference call has now concluded. Thank you for attending today's presentation. You may now disconnect and have a good day.