Q3 2019 Earnings Call
I didn't answer session to ask a question during the session you'll need to press star one on your telephone if you require any further assistance. Please press star Zero I would now like a hand the conference over to your speakers today Sebastian Marti. Please go ahead.
Good morning, Thank you for joining us today.
My name is Sebastian Marti, and I am Terniums Investor Relations director.
Turning to issued a press release yesterday selling its results for the third quarter first nine months of health I liked in.
This call is complimentary to that person patients.
Joining me today are Mr., MCSI mobility up starting CEO and Mr. Pablo wait till doubling CFO , who will discuss starting his business environment a performance.
Oh, the completion of our prepared remarks, we would open up the quote to your question.
Before we begin I would like to remind you that this conference call contain 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 I don't think too in todays webcast presentation.
With that I'll turn the call over to Mr. William.
I think you said about the and good morning to everyone and thank you very much for participating in our conference call.
Usually I will go through some highlights of our business I'm Pablo will describe our performance in detail what or what he goes through a webcast presentation at the end what do you have like you and AG session.
We reported a good they'd be the leveling effect water with 16% margin. These what's car you're done what we had expected on the last conference call.
But we because we had better results you know jumpy now I'm Pablo will go through the details of these during the webcast presentation.
The first night nine month of 2019 that immune say beat that was $1.3 billion, we got 16% it'd be done margin, if you're going into two I be debt burden over 130 daughters.
They would operation operating performance that Im sure when indeed for first nine months of the year translated in earnings for E D as of $2.53.
Free cash flow generating has also been strong reaching $513 million in their first nine month of this year.
Net debt decreased to 1.5 billion.
Oh, the end of September or just 0.9 times last 12 months it'd be dear.
Even though capex more than doubled to $748 million from the first nine month old failure as we develop our expansion project at the <unk> facility in Mexico.
It works in fiscal <unk> are progressing well as we continue to expect the new accord Rolling mill to begin operations, but by the end of next year.
Turning to our business in Mexico, we had a good performance in these markets during the third quarter I suspect. It we were able to increase our shipments in the country.
Which reached 1.6 million tons Indic border.
Yeah Mexican market has not changed much from our last conference call construction sector remained soft I shipments to industrial customers have been relatively stable.
She admits in these markets are going to decrease in the fourth workload quarter, mainly due to seasonality.
Now about steel prices well now we're lucky comfort scope, we expect the prices in the NAFTA region to recover as they weren't bottone out at the time.
They did so briefly but then rich you downward trend and reach new logos in October .
Bryce is now what levels.
Going back in 2016, when gone are the main raw materials were lower.
Dan.
What they are today are difficult environment for the steel industry.
On the positive side.
Ducs in the value change are not high on many steel companies in the region have recently announced price increases a trend that main finally take steel prices to more reasonable levels.
We've done your my word position for adverse price environments like this today, our integrate facility in Mexico, I basing electric arc furnaces operating a mix of the Ryan's crop goes human energy that we produce with natural gas purchase at very convenient.
[noise] prices I never know that we're mindful mo own mining operations in the country.
These are very competitive facilities that got sustain good prefer we deeply in all kind of environment.
Regarding our known integrate facility in Mexico. This facility rely in apart on slot provided from our Brazilian merely the production of barrage of slaps you Brasil is currently having some pressure on margins I've always thought of weak global Slopped price environment.
I'm right piece of real materially, but equally iron ore. In addition, local club safe Accordingly week as growing station in Brazil are taking longer to materialize that expected.
We are adjusting the Brazilian meals production level to achieve an overall lower production cost minimizing the use of iron ore pellets a purchased.
Oh external coke as well as deploying other cost cutting initiatives.
In the fourth quarter Slough shipment to third party are going to degrees.
A bit more mainly due to lower slop save on the lower production I had just mentioned.
Let's review, Argentina, now visionaries and in Argentina change materially from our expectations on last quarters Conference call. Following August primary elections, there was significant location of the country main microrna macroeconomic variables, we got to.
26 exchange rate devaluation, and an increase in inflation in the third quarter.
These volatility effect that Argentina steel market the mine and as a result, our shipments did not continue recovering in the third quarter of 2019 as they did in the second quarter. In this scenario. We have picked we expect shipments to remain at low level in the last.
Water Oh.
Of the year as well.
We have already adjusted our facility in Argentina to allow a lower level of them on and we continue to adopt this operation to the incremental increased level of uncertainty Argentina's it's going to me is groin is going through now.
Next step.
In this market will be a change of government administration in December to have a better view of 2020 , we will need to wait until the new government introduces a new set of policy to tackle the current economic situation.
So wrapping up we.
We are currently in a challenging price environment that could begin.
To slowly turn better in the meantime, we're working fast to adapt the economy to the current situation there from what the fourth quarter of this year will show I lower margin than the third quarter.
But or do you know, we expect to report I could fall.
2019.
And I am cautiously optimistic regarding 2020 in if this price recovery get some grip over the following.
I'll stop here and asks Pablo to go ahead with the comments regarding the results of the third quarter. Thank you.
Thanks maximal good morning, Thank you again for participating in our conference call.
Let's review the performance.
The third quarter 2019, starting on page three in the webcast presentation.
As you can see the first job in the third quarter 2019, what do we put the VVA of $382 million is slightly lower sequentially.
Above our expectation for the quarter back in July .
Now you may be the margin in the third quarter increased to 16% of net sales or one country and $25, but talk.
Dina the market volatility related to the literally process curb steel demand.
During the period as maximum engine on the I have caused a significant depreciation of the local currency the club the positive impact on margins in Ternium Argentina.
Oh, sorry, I'm told us the problem with Ppt version of the webcast presentation. Please if your updated connected via webcast you can open the PDF version that networks.
Okay good to know.
So going back to two two got restart of the company.
You got to the net income in the third quarter of 2019 will report $111 million or 48 cents per year.
When compared to the second quarter 2019 earnings below the previous decreased 58 cents.
Including noncash foreign exchange related result, though we'll analyze with more details in the following slides and an increase in the effective tax rate.
Let's now review in the next page our shipment performance in each region.
As you can see shipments in Mexico in the third quarter increased 4% sequentially and 7% on a year over year basis, as we have but.
Looking forward, we anticipate the slight decrease in shipments in the fourth quarter, mainly due to seasonality and the domestic construction sector, but that remains soft.
In the other markets region in the upper like I'm sure shipment decreased 26%.
The main driver behind the decrease was 27000 tons lower love sales to third parties.
We increase interim shipments to our would own operations in Mexico, So again as we suspect.
Looking forward to the fourth quarter.
Love shipments to sort of parties are expected to increase the little more.
In the southern region shipments remained relatively stable sequentially in the third quarter.
Looking forward to the fourth quarter achievements in the region are expected to remain at these low levels of volatility doesn't buy markets continue.
Turning to buy two phase five.
You can see in the first turn that the combination of these developments resulted in consolidated the adjustment in the third quarter, decreasing 8% sequentially and 3% on a year over year basis.
Before I, considering where we celebrate skus with fig.
The shipments in the fourth quarter, two sequentially decrease mainly due to the lower shipments in the Mexican market and lower lumber shipments to third parties.
Well, we know to realize crisis in the appetite light truck you can see that already has a nice price continue decreasing the third quarter of a year.
Mainly driven by lower steel prices in Mexico and other market.
As much momentum steel prices currently appear to be bottoming out yet Darren you expect lower realized prices in Mexico in the fourth quarter due to the lag related to contract price resets.
No the lower live concert chart shows the net sales decreased sequentially, 11%.
Oh, the 8% decrease in shipments to were then we'd be 4% decrease in consolidated revenue per phone.
Let's now turn to page six to review in more detail the drivers of EBITDA and net result in the third quarter of the year.
We gotta heavy D.A. The maintains is where the decrease in Germany, we shot so partially offset by slight improvement in the with the bottom.
During the third quarter of the or cost per ton decreased sequentially, mainly as a result of lower per slot and raw material costs.
Lower demand thing Benson.
No what labour cost.
These changes include net positive accounting effect on the cost per ton of Argentina, excuse me of Ternium ours intensity as you know you see Argentine peso functional currency. So result of the 26% depreciation of the Argentine peso.
12% inflation rate recorded in the third quarter.
The or whatever cost per tonne improvement was partially offset by the decrease in revenue per tonne we successful.
As maximum anticipated in the fourth quarter 2019, we expect to report lower with the 11 was a decrease in shipments and lower revenue per ton in Mexico as well as a decrease in slump shipments to third parties as already discussed.
On the second job, we can see the main factor behind the decrease in third quarter net income.
In addition to slide decreasing operating income revenue net income was affected by.
The negative non cash impact of the Argentine peso depreciation against the U.S. dollar on Terniums us in time U.S. dollar financial position.
A lower equity in earnings of Usiminas an.
Effective tax rate.
It's mainly due to the noncash effect on deferred taxes of the depreciation of the Mexican peso stuff happened during the third quarter.
Compared to a low effective tax rate in the second quarter when the Mexican peso appreciated against the U.S. dollar.
On page seven you can see the drivers of the first nine month year over year changes in Nvidia and everything.
The decrease in every day in the first my math was mostly related to the decrease in EBITDA per ton and the decrease in it.
Income was mainly due to lower operating income, partially offset by better financial results.
Let's turn now to great Hey.
This is the last page in the presentation, where are we can see the performance of cash flow operations.
Excuse me customer operational capital expenditure free cash flow our net debt.
Free cash flow in the third quarter reached 244 and $54 million in this period. The decrease in working capital contributed with $208 million and capital expenditures were strong 257 million as with our respective.
The capital expenditure should remain high in the fourth quarter of this year and during next year, considering our expected protesting the construction of of the new meal in Pesqueria.
All in all done your net debt decreased to $1.5 billion at the end of September birds with $1.7 billion of the end of June equivalent to a comfortable level of 0.9 time last 12 month EVD.
Okay. Thank you very much for your attention, we're not ready to pick your question.
So operator proceed with the Q analysis, if you'd like to ask a question at this time. Please press star one on your telephone keypad, if you'd like to withdraw your question press. The Panky. Your first question comes from a line of Kira barrel with credit Suisse.
It's good morning, everyone and thank you for the opportunity. So first of all I wanted to see whether you could provide us some more color on what your expectations are for steel demand growth in Argentina and 2020.
In light of the recent results of the elections.
And then secondly on the cost side in this quarter, there was a pretty significant drop in labor and maintenance costs I.
I just wanted to see if you could but provide a little bit more color on what drove that and whether this is sustainable going forward. Thank you.
Thank you very much guy or how you take the first one.
Though it's a very difficult to I said today I mean election has just happened.
And to in Argentina and to be honest, there's still no.
No plan no economic planned at the new government has put together at least nobody knows if the race.
I'm sure they're working on on one so knowing what the demand will be in Argentina in 2020 still have it a little bit difficult.
We have prepare our operation.
And running our operation I feel if demand will continue in the levels. They are today, which are levels below.
The what we expected a couple of months ago.
And so what we're preparing for AIDS to stabilize our company in this level of shipments that data around 150000 tons every month.
Roughly a little bit more maybe Bob but that's why do we think today of 2020 .
At the second part Yeah, I think is much more if you want the you're right carryover that that do have a reaction in the cost mainly driven by.
Couple of visual one is as you mentioned labor cost a month in cost in unit to conceal that not only in Argentina, we have a devaluation of the currency, which was very significant but we have also evaluation of the currency in the other two main markets which are.
Mexico.
In Brazil, so the effect of that is positive take into consideration that part of our cost or our input cost is based in local currency. So that clearly positive effect, both month payments and labor costs in the case of specifically Argentina.
The big devaluation than there would you need took around taking into consideration inflation accounting and the functional currency whenever you have a big devaluation has always.
The positive impact.
In the in both of your Joe when asked cost.
Looking forward to the fourth quarter.
Clearly, we need to see ought to spec.
Outweighed, sorry, which will be the this effect coming forward.
The most if you got one to two to two pretty will be the case over to de now were very difficult to maximum also was mentioning very difficult to know exactly which will be the situation by by the end of the year, which of course is the end of the fourth quarter, where we need to report our new data but.
But also I think it's important to confirm over from what maximal was saying that we continue working very very hard to review our cost as much as we can.
Clearly.
Though we hub.
We want the health of the devaluation of the currency clearly the result of showing that we are in the good direction in order to pick these advantage of working very hard on reducing costs.
Perfect that's very clear thank you gentlemen.
Thank you.
A question comes from July John Brandt from HSBC.
Hi, Good morning, gentlemen, thank you for taking my questions I first wanted to ask you about the slab and the impact of that had on on margins during the quarter. So obviously you sold less slab.
During the quarter and you bought less third party swaps on.
Wondering if you can sort of quantify how much that that help margins and and.
Make some comments around.
The cost level of your Brazil human at first the cost of slap from from third parties, I guess I'm trying to get a sense of.
How much more this could help margins in the future and trying to understand where margins could be and the next couple of quarters.
And then secondly, just back on Argentina, I understand it's it's a difficult.
Moment.
But are you also preparing for.
Maybe going back to.
The.
Hold constant levels, where there were there were price controls and import restrictions and things like that is.
Is that.
Under your consideration thank you.
Okay.
Okay, if you want.
I'd take the first part of which was the cost.
The one because doing that as you know and I think we commenced on these are the very beginning after acquisition of or the facility in Brazil that due to the recent that Dan.
The Brazilian operation mix or sales to third parties.
Two indefinitely, though we're opening is on these we make our total leave it up shipment to fluctuate.
Quite a lot depending on the mix of these days clearly the sales that we are due into our own facilities in Mexico, I remember flaky that size because they are consolidated so we're all only reflecting the say to third parties.
Depended on these and level of space is.
The case that will be reflected in the recent for for the quarter. That's why there's significant electronics lapse shipments to third party, which does not mean that we.
We reduced the total shipments out of Brazil.
Reflect was reflected in an important degrees on on the number going forward.
We are expecting.
Further small decrease on on shipments to third parties and also asked us as Maxi momentum we are working very hard to adjust the the cost structure of the production level of our for affiliate unit unit.
Two.
With the reduction on the margins due to lower prices of laugh that are basically in line with a reaction on the prices of still.
In the markets, especially in the U.S.
What do we saw in the past, which is an increased level of mainly iron ore cost.
Cone costs, both of them have been reducing and later on so.
We are expecting to see a sustained and level of shipments on in the coming year to third parties. We will continue to that following the contract that we have on the shipments to the local the local market.
Putting together the reaction in cost that Maximo was mentioning.
The possible increasing prices issue hover prospective for for next year.
John I think what it and adding add to what probably saying the important thing of the facility in Brazil piece that we have to be flexible to what is happening in the market.
And so if you remember 2018, we produce roughly 4.6 million tons in that facility and we were expecting to reach DCR 4.7, 4.8 million tons, that's not going to happen because the what we had done in these last.
Water when conditions.
Started going down because of the decreasing prices and the increase of the raw material, especially around or is that will reduce our marginal cost.
Production that means that this year, we're going to reach the 4.3 million tons.
And we are now producing at a level and annually level of 4.1 million tons does allow us to two to put in the blast furnace is much much less pellet.
So the cost of the cold facility.
He is going down.
And.
And of course in the cost sense, we are doing a much more things, but that is one of the important things that we are doing so we try to adapt very quickly to the market conditions and let and leave the the Brazilian facility to be very very competitive against the war.
Growth in producing slabs and this is the way.
The second question washing, Argentina, and whats coming and the we up repair or not.
As I said, we don't know what is coming in Argentina, I mean, there's a lot of it speculations and we don't want to speculate clearly that if you look at the history of the last 10 12 years.
Argentina when.
Through a series of economic policies.
Which we were able to manage and so we think that week on each of these comes and we don't know I mean, if this is come in we don't have any certainty or we don't have any insight that that some of the things that you mentioned a coming.
But if we see scamming, we think we have prepared because we had had it in the past.
Okay helpful. Thank you very much.
Next question comes from Carlos Vela with Morgan Stanley .
Hello, Good morning judgment.
The first question [laughter], maybe you kind of Allied yes, exactly new lastly, [laughter].
So.
If you could provide an update on the break in Mexico, and if you could be if I may as you how.
Yes, there were some news that that a company a competitor of yours in northern Mexico, maybe opt for sales or for sale or for a joint venture how would that feed your portfolio in the country I know, we're rolling in Ternium and then if I may just follow up on some of the questions on Ternium Brasil I can you give us a rate.
Range of the level of profitability, which that plant is operating right now, which if I understood correctly Massimo it is running at around 4.1 million tons per year.
As we speak thank you.
Okay, a lot of question Carlos I tried to answer them.
The first one was about prices in Mexico I believe.
No Fred the projects the projects.
Project Project came project in Mexico are going well.
Banked in line is already running.
We studied I need to be delayed the than what we thought.
We would like.
We did wanted to studied in July it studied.
In August September , but the core is much higher so today, we approved we had produced almost the same as we expected in the business plan, because it's producing much faster than than than what are we seeing what we thought galvanized flying.
It's coming online as we speak.
We didnt have yet the first gold, but it's coming in any in any moment.
And and the big one caught screen meal.
I, it's I mean, our plenty to studied in the first of December .
But we're very confident that we can studied earlier because in that case I think we are ahead of of the planning so if everything goes well.
We will we will study that it'll be earlier.
Mm regarding to your your second.
West year on.
About.
The what is happening with competitor of ours.
Well.
As you know Tony has a long history of growing through organic growth and acquisitions.
This is always part of the strategy and you know or our every hour of interest easing in the Americas.
So any opportunities that arise over there.
We will always analyse.
Yeah that opportunity.
Ed.
Now having said that.
About about equally company, we don't have anything to report at this time regarding any potential transaction.
Regarding the feed because you also asked about the company and the feet.
That that this company will have to us.
Again, I cannot speak with the we've.
In anything, particularly the about these companies are generally but.
But let me give me your view on the subject what is my opinion and you know there too.
There are two trends that that's going on.
That is happening in the in the world of in the steel Wars market.
The first one is that they still low end market is shifting from a global perspective to be more regionalized, that's something that is happening in the last years I think all these.
Dumping Casey send to three tools.
All the safeguards.
Our going in these directionally if you say if you take the the share of international trade steel in the last 10 years declined from 36% to almost.
26%, so it's a huge declining so.
The steel market is getting regional.
And the other than all the other thing the other trend. So the other challenge of the industry is they overcapacity I mean, the overcapacity still here. It has been here for the last several years.
So for those those two things.
Consolidation is a good thing so.
If somebody of the region pursues.
This company.
It could be a good thing for the steel industry in general So my opinion is that it should feet some of the participants in the region.
Couple of your third question was related to Brazil, I will not yet on the production level that we are expecting to profitability, yes, yes the profitability.
If you can give a sense of the profitability, yes, sorry, there wasn't noise. When you were asking your questions.
If we got to them.
Yeah the profitability.
With respect to the to the Brazilian operation.
No because im very very very positive even last year in relationship to the very good prices that we saw slower market.
Coupled with the reaction level or reduced level of raw material cost lately, we have.
The.
The opposite situation, which was a reduction in the price level on an increase broadly on inspected.
If you if you want.
Normally increase in central material, meaning basically iron ore that puts some pressure on margins, where we are positive in the sense that.
Through initiative, we are taking the changes at the moment prices on both of steel and raw material. The profitability of these company. We go back to normal more normal levels clearly not at the levels. We saw the 2018, because the price limit there was a.
As you where do you will know very very high but.
Very profitable level.
On more normalized levels.
Okay. Thank you much on problem.
Well I can tell what comes next question comes from Seattle, Seattle with Beady eye.
Thank you gentlemen, Masimo you mentioned you expect.
Meant.
Remain at current levels in Argentina.
So just wondering your I mean, why not expect a retraction on demand in 2020, and what would be a rationale for for for this flattish demand outlook.
Second question still on the demand front when do you expect construction activity on any infrastructure projects to to begin to rebound in Mexico and what's your your demand outlook for 2024 for Mexico as well. Thank you.
Thank you Tim Argo, Yeah, the two questions, Argentina, and retraction of the demand.
To be honest demos in Argentina is very very low.
So if you remember Argentina went through our crises starting I think in September October of last year, and and and and and shipments were reduced dramatically.
When we did our expectations a couple of months ago.
We thought that the demand what's going to increase to levels.
Of 170 175000 tons in the domestic market.
The only in Argentina, Im not counting some export that Argentina, 270 170000 tons.
But today, we are under 150. This is a very very low level. So it's very hard to see except for December and January which are seasonally low month.
To see a demand less than that in Argentina remember that in the last crises.
2000.
So 2003 long time ago.
Demand the lowest man was a little bit higher than hundred so I mean, it's very difficult to.
To go below this number I thing so that's why we are expecting.
The demand should stay at these levels.
And.
Matt Miksic, just give us the on the number you mentioned so the lowest level in the last crisis was 100000 tons. You mentioned I think it's a lot crisis was in 2003 remember what yeah more than 15 years ago and it reached one Mount I think 90000 tons and from that study.
The two to two increased again.
There is our level of consumption that should stay.
There is in Argentina, it's a country that some of the.
The markets have continued to two two to grow I mean energy back I'm worried that all that investment I don't think the new government is gone destroyed I mean, it doesn't make any sense agriculture that is another.
Sector that that we do business a lot.
Social going continue to continue Argentina is very competitive in that so.
Very sad level of demand that is there.
That.
Although the crises will continue.
It's difficult to see lower than that.
At least in the steel consumption.
Im saying.
Next year.
Hey, Mexico.
Yes.
Our expectations is that consumption in Mexico will stay the same in 2020.
That if you see there the last report that.
There was still need a couple of weeks ago in our annual meeting.
The board members of war still ended up we this outlook of the Mexican steel consumption I think it was a growth of 1% only but mainly flat.
Mainly flat.
There are some tweak us that I think.
Good.
Increase this demand and the first of all Ace.
What do we happened with infrastructure I.
I mean infrastructure has been declining for the last.
Six or seven years, the investment infrastructure from the government.
The new government in Mexico, but it's not that new but but the new government.
Each realize in DC and is trying to work with the private sector to see if there can be an incremental investment in for infrastructure in Mexico, which is not needed.
I don't know.
If this is going to eat all of us are going to be able to do this in 2020 for sure in 2020 one.
But if they're able to demand should increase in 2020 , a little bit more the second thing that is very very positive east is the new NAFTA the of the U_s_m_c.
Before we are able as region to approve the u_s_m_c, a this year, which I think they're still possibilities.
That can happened.
That would also be a trigger to increased consumption of steel in Mexico and in the North American region.
So for us.
As I said again, what we expect the demand to be almost flat.
But there are some positive things.
That we're looking that can increase the number.
Great. Thank you my smart.
Oh, you're welcome.
Next question comes from Timna Tanners, what the away Merrill Lynch.
Hey, good morning.
Two questions. So one is on given that as you point out your balance sheet is looking really steady and strong cash flows even with increasing capex I know M&A is that sensitive topic, maybe you could just remind us about your priorities for cap allocation Petski has a big project.
Types of things are you thinking.
And what other priorities for cash.
And the second question was done just in the in the case that.
Don't recover much from current levels.
Absent obviously currency moves can you talk is still a little bit more what kind of triggers you can pull on cost savings and what kind of other specific plans you might have there. Thanks.
Yes. Thank you let me start.
With.
Capex allocation and.
And what else.
As you know we are undergoing this expansion project in Pesqueria.
We said it before the Capex of 2019 will be around $1 billion, and 2020 will be around $800 million.
And and that's.
And then our expectation in 2021 is back to our normal levels Sadara around 450 $500 million to sustain the production to make improvements.
Today, we are not.
Thinking of other things, yes, I mean, we don't have the.
The.
The the plants.
To do.
Anything else I mean anything any new investments today, we as I said, we analyze a little things, but we don't see today they need to.
To increase.
Or to invest.
In other areas except of the normal capex.
Also take into consideration come within Colombia, Yes, we are investing the new we feel it's a little bit smaller $90 million.
Columbia tool.
Mm.
Second question if prices don't go up.
The question.
Clearly sorry.
Just what triggers you can pull in terms of further cost savings and absent devaluation and assuming not a lot of change to prices.
Yes.
We are going to continue making more.
Competitive our operation they knew Pesqueria facility remember, it's a very completed one that is not only going to subsidiary of some of the.
Imports are coming to Mexico, but we're also going to substitute.
I think that we buy because we don't have enough capacity.
And we are going to close some of the line the very old ones small you know that's what he calls that has much higher cost.
Dan Dan the Pesqueria new facility. So our strategy is to continue working in making our operations much more competitive we think they are very competitive considering all our competitors, but we're going to continue working in that sense regardless.
Of the prices I mean, if prices go up we are also always.
Working on how competitive how productive our operations are.
Clearly bacteria nuclear facilities, the trigger continue or moving forward, our goal or target of sustaining.
Margins in the range the who are working that we continued work. So these two other couple of we want you were saying the cost saving Ccs for ice, whereas Huskies part of what we do looking for I remember that also the new pesqueria facilities. It enables us to produce products said, we're not able to.
Produced before this progress.
Got it will be produced with less cost because all the pesqueria facilities has much lower costs than the old one.
But also has cable value I'd add prices I mean, there are high value added products. Most sophisticated products that has better prices. So we're going to increase both on a decrease cost.
Increased not prices.
Relative prices I mean, the the amount of extra that we can charge these more sophisticated steels.
Gotcha, Okay. Thank you very much.
Once again, if you like ask a question. Please press star one on your telephone keypad and we have a question from Alex hacking with Citi.
Yes, good morning I'm just.
Just following up on the projects can you remind us when the new Galv line and the new paint line Pesqueria will get to their full production rates what quarter do you estimate that would be.
And then second question.
Hi.
I assume that you have some annual contracts in Mexico awesome, some annually price contracts in Mexico was the automakers.
I guess my question is what.
What percentage of your total sales in Mexico is on annual contracts. Thank you.
The second first is very simple very very few we don't have much on oil prices. We we don't like it. So we have very very few we have prices on annual basis, but change.
Regarding deferring to indicators, but.
But we don't have a fixed and while price.
Very very little.
So it's.
Not very significant due to our operation.
Projects when other projects coming.
The painting Nineish already producing.
I think it's gonna be producing by the end of this year at full capacity governance line at full capacity will be producing the first quarter.
And as I said, the country meal, we'll take a little bit longer, but it's going to start at the end of November .
And we'll start producing.
Regular coils.
By the February .
2000 2021.
Thanks.
Once again, if you'd like to ask a question. Please press star one on your telephone keypad.
And we do not have any telephone questions. At this time I will turn the call over to the presenters.
Okay. Thank you very much.
For your participation today don't hesitate to contacts for any additional support or comments, but by and thank you very much to all again.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.