Q4 2019 Earnings Call

This time all participants are in listen only mode. After the speakers presentation, there will be a question and answer session.

Question during the session you'll need to press star one on your telephone if you're a fire any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Sebastian Marti director of Investor Relations. Thank you. Please go ahead.

[music].

Good morning. Thank you for your time on participation or we'll go first quarter.

My name is supposed to about the I'm terms investor relations.

Correct.

Yes, the Ternium issued a press release containing its financial results for 2019 discard is complimentary to that presentation.

Joining me today are MCSI mobility, Ternium seal and probably nobody chill Terniums CFO, who will discuss done its business environment them performance.

Okay shows our prepared remarks, there would be acuity session.

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 I don't page two in today's webcast presentation.

With that.

No. We're told me some of those thank you for about 10.

Moving on thank you all for joining us today.

So we always do I briefly go through some prepared remarks, and then Pablo will review the Fortunately, we started IDN, we'd have a Q and a session.

Let me begin with performance 2019, Wassa challenging yeah for the steel industry steel consumption in the Americas degree.

Steel prices went down during most of the year.

And the these difficult circumstances, we were able to report an AB death.

$1.4 billion or shipments of 12.5 million tons, and EBIT and EBITDA margin of 15% again, among the highest in the region.

These performance led to earnings Brady.

<unk>, an 87 cents.

Even though we doubled topics in 2019, reaching a peak a $1.1 billion.

We were able to generate free cash flow.

$595 million and to reduce net debt to $1.5 billion or a net debt to EBITDA ratio of only one.

Goes here in the strengths of our balance sheet. The performance during the year and I will go into expansion program in Mexico, and Colombia. The board of director proposed and then we'll leave it end of $1.20 cents Bear ABS deal you should keep adding to our dividend yield of 6% or the current.

Bryce.

And to appear Rachel a 42%.

Some DC Beatty didn't know where last call result recorded in the fourth quarter show I, rather low margin import Oh, sorry shot of one you some development in this deal but good overall.

The over the years, especially in the last quarter I like Bob look to expand them decent during his presentation, but I expect the fourth quarter to be the lowest point on the train to change from the first quarter onwards.

Certainly know what to what is happening industrial markets in the Americas in the last couple of years. We were we had significant the uncertainty coming from section 232 targets the renegotiation of NAFTA and the trade war between the United States and Sheena. These.

So where the with strong from trade shows in inventory levels in North America due in 2019.

A great deal volatility to steel prices, we believe steel prices should know eat a narrower range in twentytwenty.

Certain D caused by global and regional trade renegotiations appears to have moderate in addition apartment consumption in the Americas is expected to increase.

In Brazil, and Colombia and to at least to extent in the U.S. and in Mexico.

Something to also going to either for the performance I want to see marketing Twentytwenty easily go to nobody knows outbreak for the time being we're not seeing any significant the impact on our steel valued changing the region.

Even epidemic is contain an decline so but over the next few months there could be no merger effect on seed market seem to be America. Although this is not clear yet.

Let me review, Mexico, the seed market in Mexico watched week last year still apparent consumption went down 6%, mainly due to a degree seem to commercial markets.

I was shocked about very weak construction activity.

There were social declining investment by our industrial customers in Mexico. After several years of continued growth of their production capacity driven by the current level of uncertainty related to the trade issues I have just mentioned.

I, where she mentioned the country decreased by four cents last year, reflecting these lower demand.

Deal demand environment.

For the less we were able to increase our market share in Mexico, So shipments decreased less than the reduction of the steel consumption.

Looking forward I believe there conditions for a slightly better steel market sentiment in Mexico public construction is beginning to show signs of activity, although slow as Mexicos government has proved to be very cautious with the government spending on the macro site the Mexican peso.

Most recently I appreciate and interest rates are declining.

No doubt that one of their most important develops meant in the year has been the ratification of the U.S.M.C.A. agreement by the U.S. and the Mexican government. After several years of fees dense negotiations we have no very close to the unit of these new trade agreement.

These are very well she did.

Development for the steel industry in North America region, it's probably about your change and I think but ciccarelli foot sudden Neil.

Use of origin foreseen caffeine strengthen it and this means that did you change from other regions. We've got funny incentive doing best or relocate capacity to the U.S.M.C. eight countries disagreement with Brean will should any bring a reduction in trade uncertainties, which should wadley Forster.

Investment and economic activity in Mexico in the years took them.

Turning to Argentina.

In 2019 shipments into southern region decreased 16% compare.

2018 in these market the economy has been weakening over the past few years.

We saw the public finance imbalance east and their consequent to function on inflation interest rate I look at local currency value.

Well, we acted to be difficult environment I know for the last couple of yes, we have been adjusting the operational setting of <unk> industrial facility in the country for efficient production continuously lower level. So if they months. So we can sustain our <unk> profitable operation looking for what they perform.

Most of Argentina state markets will be very dependent on the Gulf countries macroeconomic situation, we believe.

Then she mentioned I didn't see no which.

I've already at a very low level could remain limited relatively stable in twentytwenty subject to the Argentina government being able to achieve a success with restructuring of the public debt as a first necessary steps to normalize the public finance.

Let me know give you a quick review of the performance of our slot facility embracing.

After a very profitable ear.

In 2018, there was a significant increase of iron ore prices in 2019, together with the record levels of pellet premium due to the effect of the world I don't know supply abolish dumb collapse and the subsequent closure of.

No capacity.

These difficult situation.

Well, we that degrees of slide prices, so multiyear lows.

Sure on the profit based on the profitability of our facility. Consequently during the second half of last year, we adjust the Brazilian mill production level to achieve an overall lower production cost minimizing the use of I don't know pellet I'm purchase coke.

As well as putting in place other got cost cutting initiatives.

The market conditions have improved since then.

We then increase in seaborne Scott crises I know degrees you never know I'm coking.

Oh gosh, two more reasonable level in these better context, we're bringing production back to its normal level.

This is an example of how we can move to adopt our operations weren't sequences. Each change. So we can protect profitability in difficult times and makes you might see when things improve.

Another point is that the Brazilian economy east turning a steel consumption improving their deep Basi depot tenure as local companies in Brazil, We think we slept purchases from our facilities there.

Okay, Let me wrap up my remarks with some final comments in 2019, we were able to show industry level margins in a difficult market environment.

2020, I expect to see where margins gradually improving in the quarters to come with a reversion of they don't print.

Downward trend, we got seen during 2019.

Are the same time, we will continue growing our business with the completion of our book our expansion projects.

The second half of last year, we started the new painting line in Mexico.

In December we started then you've got about nice line also there.

For this year in they bring we'll have the start up of the new rebar meal in Colombia embody the end of the year the commissioning of the new Hot Rolling mill at the <unk> facility.

Then you called Rolling Mill will enable a significant integration of our facility in Brazil.

I will consolidate our world class production system with the latest technology to maximize efficiency and productivity.

This line was set up to start in December of this year, but we're working hard to do get it ready a couple of months earlier than our initial estimation.

We cannot wait to take advantage affords the opportunity for improvement of our product range I related services that these new facilities will provide.

Okay I stop here, so Pablo please take over to comment over the performance.

[noise], saying maximo good morning tool.

Let me review over performance.

With the webcast presentation page three.

You can see there in 2019, we reported to be viewed or $1.5 billion when shipments of 12.5 million tones.

She mens was somewhat low reflecting we'd be mcglynn vicious hasn't dina listen in Mexico.

It would be managing their vote on tour decreased to 50% we became more sustainable level. After the 30 year in 2018.

Let's now review the next stage or what makes up the last reported <unk>.

Oh.

It was $263 million into fourth quarter.

Oh I read the margin decreased to 200% midsize for $90 per call I know figure that reflected the low prevailing price environment in North America. During the sickle cell for 2019, and some first the first out the effect of higher cost inventory.

The fourth quarter of these last few years should be the low was born.

Among other things, it's seasonally low volume in Mexico, low production rate Brasil.

Hello realize steel price Liberty, Mexico that did not reflect yet the recovery embrace this november due to the contract price lag.

It goes but on that did not deeply yet as I mentioned, that's always felt was the first in first stuck on doing well purchasing slot.

Together with a particular margin squeeze in Brazil that is not phasing out as Maxime explain finally, some they were negative impact related to inflation adjustment in Argentina.

So we now expect.

I mean do sequentially in the first quarter two so centstwenty.

We beside your shipments that somebody Gabardines democracies, mainly assembly, so slightly lower cost.

We expect it to.

Recover in the second quarter OVC.

Oh subordinate didn't come in the fourth quarter would reported $90 million or 36 cents, but ABS.

Compared to a third quarter earnings Brady's decreased 13 cents, reflecting lower operating income, partially offset by lower effective tax rates or we will discuss later on.

On page five we've got to review our shipments per forma immediately.

As you can see.

The fourth quarter shipments in Mexico.

An increased slightly but it's the same fourth or the previous year.

After the seasonally weak fourth quarter, we anticipate an goosen shipments the first quarter, Oh 2020 was David that's a market than demand.

I'm kind of from just stopping after that it really low levered up here, but.

The Americas region.

We can see the treatment decreased 4% the main driver Bisha disagrees with the $65000. They give you since love Phase two third party as we have already expected partially offset by sell your finished steel shipments as much of a managed from the university facilities being as low production back to its normal level.

After the decrease in the end of 2019.

[noise] supported by improved margins for the production of steel slots.

In the southern region. She mystic is 4% sequentially in the fourth quarter and also decreased 4% compared to the same period the previous year.

Still demand in the hasn't they markets remains low.

Looking forward to the seasonally low first quarter shipments it hasn't been aspect to the agrees to live with similar to those recorded in the same BBU of 2019.

Turning to page six.

We can see the total demand declined 5% sequentially fourth quarter.

2% <unk> year over year basis looking for a conservative will lose has already discussed we spent 60 settlements in the first quarter two sequentially.

Well, we know two is steel prices.

We can see there's a pretty nice price continue decreasing the fourth quarter over a year I suspect it they've been by weak pricing environment in North America in the second half of 2019.

Although we see prices rebound.

From the lows so hopefully over the last year in the first quarter two twentytwenty, we should not be fully reflected.

Yep.

In our revenue, but phones in Mexico, Oscar you haven't realized price for this border market will be offset by the lag effect of lower contract prices.

Finally, we can see in the lower lift on site job, but net sales decreased sequentially, 8%, reflecting the 5% because in shipments together with a 3% decrease in revenue.

Yes.

Let's turn now to page seven to really more beat this the driver offer VVA [noise].

That's because in the fourth quarter of the.

Well you got to maybe did I wish I saw the Epicentral, that's made changes where the decrease in maybe the but boom, mostly as a result of lower revenue, but them onto a lesser extend the decrease in shipments on a year DNA.

Well the second job, we can see that the lower operating income was partially offset by lower effective tax rate embed oversight from usiminas.

The effective tax rates in the fourth quarter included non cash positive effect on deferred taxes.

Due to amortization of the Mexican peso against the U.S. dollar.

The opposite happen in the previous quarter of the Mexican peso depreciated.

Before we go into the list light on her presentation I'd like to come into of the change in this functional currency all of our subsea tree nuts in Vienna.

From January 1st 2020, doubling lunch and dinner, we'll use the U.S. dollar functional currency instead of the local currency I see it used to do until then.

This is a prospective Jay so does not affect they'd be able lesion number until December 31st 2019.

Jason functional governance feminism dinner, we significantly to review the volatility of the company's earnings that was due to the foreign exchange movements on the application off inflation adjustment.

Let's now turn to page.

To finish our presentation.

We can see.

Free cash flow in 2019 reached $595 million capital expenditure, reaching a strong $1.1 billion I would expect it brought him broadus Uh huh.

Capital expenditures should remain high during 2020.

<unk> illiberal, approximately $800 million, we're still having him well foster completion by year end of the new quarter only mean in our fiscal year, you'll need the mix.

As much momentum building that did continue decreasing 2019, you would that [laughter] by $282 million to 1.5 billion.

And of December under one.

And on 20 cents.

Yes, maybe they propose for the are basically went into a free cash flow yield of 15%.

[noise]. So thanks very much for for your time now we are ready to take any questions your myself.

So operator lets Brazil.

Decision.

This time, we would like to take any questions. You may have for us. They ask a question. Please press star one on your telephone keypad withdraw your question. Please press the pound key.

Our first question is from.

Lastly, I'll go with Bradesco.

So bad.

Hi, Thank you good morning, everyone I'm asking we'll have two questions. The first one more medium to long term thinking about the company the strategy.

So you do Guy you you guys have do have we're going to growth on the pipeline.

But we also know that there may be some M&A opportunities, especially in Mexico. So could you comment on capital allocation and then how.

<unk>.

We expect to a two to spend money and in the coming years or thinking about the different regions and different up or change.

Or or in other words do you see more room for further organic expansions in the next five years or do you think that Oh, we might see some some M&A down the road. The second question is on Mexico, what what is your expectation regarding when construction.

David infrastructure began to rebound. So did you see that as more of a 2021 story at this point or could we see a more consistent rebound or radio mining 2020, and also Oh Gee do you see is concerned the new capacities coming on stream I know we've.

Discussed isn't it.

Just to get an update on your view.

I bought a new capacities coming on stream.

Next can market.

Thank you.

Yeah, well. Thank you very much let me start.

And by the second question about the construction activity in Mexico as you know.

I I mean, the trend of the construction.

In Mexico.

Yes, two sites for the last several years I think at least four or five years infrastructure, which is what led by the government decrease every year I think for the last four or five years, but was compensated and even worse I need to be tire by construction by day Bye.

By the private sector.

But this change last year.

So the private sector now decrease hours so both.

Main drivers of construction were bought in 2019.

I think the they are two sites I think twentytwenty, he's going to be a little bit better than 2019.

I think that we encourage you to do one will be a little bit better and we will see the trend by them.

Yep.

Investment he over the government is started.

To to improve but then this is going to take sometimes there are some project I mean and in Mexico every time the government change the reset stop in all the infrastructure projects. It happens in 20 in 2012 I need happened in 2019 with the change of the government.

But I think that yeah dcs or.

Getting a little bit it's not gonna be huge but he's going to be a change in trend regarding these men and the private sector.

This stoppage wassa lot in in India industry, I mean, most of the investment coming to the I see industry, where relocated in Mexico stopped because of the NAFTA and every negotiation and this is going to start changing it's gonna take awhile, but some of that effect. We are also going to see.

This year. So overall, it's nothing going to be a huge improve but there is gonna be any bruce.

And I think it twentytwenty what as you said this improved is gonna be.

Stronger even stronger.

Regarding the capacity, Mexico, which was your third question.

I don't see a problem in Mexico imports almost 8 million tons of of steel.

And we are putting a capacity we have that we bought almost 1 million of that we are increasing capacity.

I need to be less than 4 million tons. So.

Said another project.

I don't know when it's going to be completed.

Off of 2 million tons. So so we have the capacity to two.

To fight all those imports, which I think we'll have a very competitive restructure of cost to fight that imports to supply all the customers that today, we cannot.

And that there are customers that need to be supply.

By a U.S.M.C. country after the sign of the U_s_m_c a treatment. So I think we are in a perfect situation.

To book is the perfect timing to put this capacity on the market in Mexico, So I am not very much concern.

Of the increase of capacity of course, we have to fight for the customers, but anything that we have a very good.

<unk> cost structure very great commercial team and we know the customers. So I think they are eager.

To accept us.

That we supplied that volume to them again, we don't have capacity to date to do it with this we are going to have the capacity to do it. So I think again, it's a very very good timing on the signing of the U.S.M.C. was perfect.

Yes, because it's going to starting July or August depending on when Canada signing.

And so we're going to be just in the moment to start supplying these customers. That's good that's going to need North American steel.

Now to the first part of the questions under long term strategy I I will discuss it along but sometimes in some of the calls.

We were focus or we are focused today in finishing disinvestment $1.1 billion of Capex. This year as Pablo say $800 million of Capex next year is directly tied for that and you know the history. So we were much focus on that.

What that the next step for four or 4000, Yume clearly there they're going to be some organic growth. We are projects that we're now analyzing in Mexico in Colombia embraced Cetone show again Brasil, Lisa it's a country that it's going to growth and and we have a very solid industrial.

Base in Brazil so.

But those are coming.

I I after the completion and the startup of all our project.

M&A.

I'm and my name we are always.

Looking for four or four acquisitions, I mean, and the need for those type where she shops are in the Americas, we're going to look for them.

So that could be a possibility.

But we don't have anything today that I can say.

We are going to do that acquisition or not other mm.

But.

And I regarding acquisitions.

It's also important that that that that I added that day.

Although the mcginnis it is easy looking better in Twentytwenty.

There are guaranteed a lot of uncertainties in the market. So we need to be extremely cautious.

When we analyze any M&A acquisitions, we're going to be extremely cautious when analyzing and M&A acquisition.

I hope this.

I answer everything you ask do you have I don't know as I forgot something.

It did just a very quick follow up Masimo, you mentioned potential future investments in Mexico, Colombia in Brazil. So one would think about Brazil are we thinking about potential new role like new rolling facilities.

Tied to.

I see.

Brazil, there or would that be like the rational.

Just sell into the no no.

No I think that no breast feeding has rolling capacity in excess.

As you know we are a investor Energy me NASA and it was only Minas has I rolling capacity very knee our planned Oh I, we're planting in indefinitely Brasil they call what that will blend is very very near and so one of the.

Growth opportunities to supply more slabs to do what all facility, which has an excess capacity I mean, we've got a capacity did that it's not using.

And I think those are the growing opportunity that we should analyzing in Brazil.

Okay. That's okay. Thank you muscle.

Oh. Thank you do you have the hour.

Our next question is from Alex.

Okay.

Yes. Good morning. Thanks for the question I just have one question.

Which is around the a new facility in Colombia, how are you thinking about EBITDA per ton.

Through the cycle for that facility.

Or I guess kind of a range of EBITDA per ton I'm, not particularly familiar with Columbia rebar market, if I'm not sure how margin structures there operate and I guess you. Let me ask one more you know you mentioned you potentially pulling pesqueria forward buy up by a couple of months so congratulations on that.

Any indication about how much volume you would expect to ship from that facility.

At the end of this year and any indication about you know what utilization rate you kind of be targeting by the end of 2021 would you be looking to be at 100% utilization rate by the end of year or to be a more gradual ramp up. Thank you very much.

Thank you Alex I answered the second question I leave the difficult went to Pablo the first one.

It's good yeah, it's gonna start.

I mean, the timing the official timing is still December so not much production from that from the country me.

This year, but we're very confident that we can start late in October this are going to be only two months for this year I remember. These are it's a 1.1 billion dollar investment. So he has a along.

I long started up so not much.

<unk> and and the first two month they are dedicated to to make in the task for all the different products that this country mill has to do so all the running test for the different products and that takes a lot of time.

For the commissioning of the country mean, but by the end of 2021, we expect to be 100%. That's for sure. This along curve of often.

But by the end of Twentytwenty, when I think it'll it'll be down earlier, it should be by October or September should be by 100%.

Okay. Thanks, Mike for [laughter] questions, Let me so.

Alec.

They they Columbia facility basically seen line without a pressure, but without like likes you say at the moment of acquisition, which is increasing their participation on the value chain overproduction of Steve.

Up to now we think of.

Excess capacity in Colombia in the long product and market and we were limited.

With the local production that we have.

We we were importance on some product to supply the market. So what we're doing with this facility is not only expand the my read that we got seven substitute imports as we view even older markets, where we are but also big advantage or further increasing.

The margin that we can extract out of our production because we will be moving from finished book to bill It Oh gosh, a funny input for for the Bush, Ohio facility. So there's clearly should improve their machines or the Colombian operation.

Moving the spin off of the Colombian operation closer to the arrows merging Oh, Oh start anew actually hold so clearly the that's that vision that we want to follow that the target of these are all these investment and the.

Good though the volume in comparison to two turn you don't Yummies last year producer on sold 12.2 million tones.

Thank you know for next bunch on took it off an expansion of our own half a million dollars not a minor one but these will contribute to.

To sustain and to get the Mark This afternoon in the range that we always wants to be which is we do in 15 and 20% on P.L.D. These type of expansion of these type of projects.

Or putting done you mean, they better position to sustain these live it appropriately.

Perfect very helpful. Thanks, Pablo and also maximum.

You're welcome.

Our next question.

Yeah.

Hey, good morning, everyone I'm I just have one question I would like.

To your thoughts on working capital was one of the reasons why because flow a strong last year or so just wanted to hear from you as you know what is a sustainable level, if there should be a hike and in the first quarter or any thoughts.

On working capital Thanks, guys.

Okay. Let me let me think these questions all four.

Clearly as you mentioned on key contributor to the free cash flow generation was the reduction in working capital.

There are two size Oh these reduction in working copies of the first one was a real.

Volume production you working capital.

As we always manage on on I think.

Maximum maybe it's very clear the beginning of the or one of the targets of the company was to be more efficient easy to decision or working capital and the second one which is clear and of course.

If you use the price Oh, the raw materials and they see this is probably going away.

Please.

Then they got the cycle that is if we use our to mediate possibly cycle that is that the reviews the value of our inventories clearly the second.

I will not be person there.

Anymore, because we are not expecting to see there be.

Fluctuation of prices are we so during last year. So be it we will continue to work in inefficiencies in the management of our inventories, but also we need to take into consideration Doug we are expanding production during the <unk> 2020, we have.

Well, if I see there wouldn't be if we utilized by the end of the here, which is the Columbia, one, but we will it start working we'd be equal the Mexican facility, because here, which is a significant weather will require some liver enough inventory so all in all.

The nish expectation you see that should not fluctuate that much the liver documentaries and probably will not be a contributor to this division of free cash flow during 2020.

Okay. Thanks, Phil.

You're welcome.

Your next question.

Yeah.

So.

Hi, good morning, Thanks for the questions. My first question is regarding the long term strategy on Ternium, a four year stadiums was first effects one being short on his labs and have an excess capacity on rolling then after this acquisition eat it became the opposite reward long gone into his labs.

And now Weve, then you're just give me I'm you.

Lightly I'm sure it again.

How should we think you know I found your view on these would you do you mean that you mentioned that you know you're mentioning blast.

In your projects would still be more towards like rolling capacity, and it's particularly with the Skinny and you know me I assume you. After this is online how should we consider a cost going forward.

How did.

Structural cost you shift in Mexico. Thank you.

Yeah. Thank you very much yeah go I I will answer the first one and then as usual that if you go to one for Bob.

No. It sure at I mean, we we are as we always said we want to fix it we like the flexibility.

And and and before I wear acquisition of of of the plant in Riocan eight or the decent that she is a blend.

We said we have the three we have the natural gas.

Reduction for one side, we have blast furnace.

<unk> for one third the natural gas one thirtys wasn't blast furnace and then one third right it'll be more we were shut downs labs.

And we buy slots from the market and that was give gave us a lot of flexibility.

And.

We think we sell off of the complexity.

Of the Mexican market and the complexity of that brought up being so.

Short on snaps, let me put it this way being so short of slabs started to develop some problems.

Because we couldn't have the capacity of the been up into steel for the needs.

For more sophisticated customers.

So I think the acquisition of see aside when which brought us long island on Slops.

What's that.

But what's very good while the timing and of course for for the price We Bay.

I wasn't much.

Smaller than the investment than if we have to build that capacity.

And and and second give us the ability to work with our sophisticated plus customers into the vitamin double this teams that we are doing today.

No that we are investing in the in the country meal DC is gonna be even better because we're going to be able to produce the full range of older brother.

Oh, the most sophisticated steels that are produced around the world and give us the facility to working to development of the customers without.

But we're going to be short of lapse of at least two two to 3 million tons.

Which for us.

It's quite a comfortable level.

So if you have to think of what we are going to do forward to what we're thinking.

I said, we like this arrangement.

And if we do we are going to group given space that we do have to bite collapsing the market.

Remain a little bit flexible, especially for the downtown off of a market that that could happen sometimes.

Okay. Let me let me take there the second the second question.

Clearly they pesqueria project cost different in effect, we understand all of them are positive perspective margins of the company. The first one is that they want the maxi momentum, which is we'll be able to substitute.

Or produced in our own facilities. The high end product that up to now were not able to to produce. So this is improving the martino Oh I would own products from the second one these substituting off of imports, though we are who we know some products that then we produce.

The new facility in Pesqueria and this is not a minor minor amount even maximum during the opening remarks mentioned that these close to where me dogs. So there will be gaming the marching all.

It's still buying the finished product.

Producing that product and gaining the tough formation.

But on the product of course, the third portion is that we will increase our product offering we because we were having a how you're living off all of production.

The total level or shipments and the Mexican market you've increased.

Not so putting another thing they said he thinks to where clearly there should be and increase and the margins in our operation in Mexico.

Clearly would you like to have a number two up but the only thing like I say that this season again in the same line of improving the margins of the company on sustaining.

The the profitability level within the range that we consider that that's telling them as you have which is between the famous 15 to 20 person.

Thank you.

Youre welcome.

Our next question.

With Morgan Stanley Your line is open.

Yes, good morning, everyone.

The first question is.

On a on Brasil, you mentioned a maximum of that you expect the company to turn in Brazil to go back to two higher levels of production is this around 1.2 million tones or or or higher on a quarterly basis.

Then just to clarify you could clarify the comments on Brasil potential investments.

I understood that the company is not interested in adding rolling capacity to see assai.

So does that mean that the company could potentially expand only the slab production.

Or.

Do you want to to do something we do see Minas Incubus style.

If you could clarify that will be great and then Uh huh.

Still own on on the capital allocation on investment plans.

Do you how do you see that if the expansions in Mexico.

Going forward do you do expect that after this current cycle is completed any fully ramp up Ternium, Mexico would add.

More downstream or perhaps it is time to two also add.

Upstream capacity in the country.

Final question on dividends the company.

Board decided to maintain the dividend payment of 1.2 dollars sprayed yes after.

This is the first year in several that where the company Dawson increased dividends.

You could argue that the company has the space or how to space to pay more certainly balance sheet remains a strong even though net debt to EBITDA increase I need a bit.

But quarter on quarter.

And and you are arguably pass the current.

Have they have them going cycle capex cycle. So if you could maybe.

Putting context was the rationale do you think that the board.

Had when when they decided to keep their dividend flat.

Okay. Thank you Carlos no West show, So I tried to not forget anything but plus interest me.

If I do [laughter] I said, we'd Brasil.

As you know Brasil produce.

I'm going to talk about yearly basis.

Because because of the.

And.

How the Brazilian operate the Brazilian media has to go into the Relining solve the convert to doors.

Talking about orders.

One order gun gun change with another because it has these these relining. So so it's very difficult due to jump border by quarter. So I put the production in years 2018, what bought four point taste 4.6 million tons.

2019, we produced 4.4 million tons, what do we expect to produce again in 2020 is 4.7, which watch what do we did expect into and 2019 remember we did we weren't in Greece, the production and that by 2020 122.

And you do we have.

Expecting to reach nearly 5 million, which is very hard, but but that's our goal but in 2019 were expecting to a produced 4.7 and we produced 4.4 because of the sound trained over the market. So twentytwenty, our new estimation is 4.7 I hope with.

Yes, I answered the question, but we are not full capacity factor in our Brazilian operation.

Yeah, that's good.

Yeah, I I regarding the investment in Brasil, let me be clear because I I don't want to Miss lead you, we have nothing concrete yet I.

I mean, what do we have instead, we have an investment in Usiminas. We are one of the main shareholders of Usiminas.

And I know she means he is doing better and brushy lease is easy growing so that's a very good.

It's very good for us I, we have a huge facility one of the most modern facility for slept production in in in Brazil, I think that this roll off the market.

Oh this improvement in the breast in Brasil is indeed Brazilian economy.

We are going to take advantage of that and and so we want the precedence in Brazil.

But we don't have any complete us what are the next steps in the Brazilian operation.

We are.

Analyzing different projects some of them.

Yes, it based on reduction of costs huge reduction of cost.

Like once that we made in in Mexico, but again they are very initial step of finalizing the different alternative for the differing views of the Brazilian market. So.

Don't expect anything in our balance sheeting twentytwenty about the Brazil.

And then you ask about the investment in Mexico, Australia upstream or downstream.

I mean, I think the Mexican market casting a great opportunity for us I mean, there Steve growth opportunity for growth.

The opportunity for growth in both upstream and downstream I think that we are looking for some downstream.

Future investments again.

I don't think that didn't twentytwenty, we're going to start any of those but we're looking and then in the upstream.

I mean, you know they U.S.M.T.A.

When when when he disapprove, it's very good because the rule of origins are much stronger and it benefits us a lot but for some part of the market. The D.V. The terminal how you said in exactly the automobile manufacturers.

They are in seven years from the the time its sign there ruler foraging has to change and he has to be melted and poor for only that part of the market.

So.

Today, we we I mean in seven years, we're going to accomplish part of that with our facility in you Gotta NATO, but not all so thinking about an expansion upstream is also a logical.

Situation for us, but again, we're not going to see anything of that didn't twentytwenty, we're going to think of that.

Through this year, but yes, it's one of the projects we are analyzing in a very small scale only to provide.

That melted I'm pool.

HM two to two this automic customers in seven years snow. So we have a lot of time to analyze and see what our best option piece.

And the last but then I was wondering what's it even in that that you said.

No.

I don't think I I answered the first three they didnt.

You did.

Okay, so that either [laughter] and this is a question that usually pablo answers, but I'm not going to let Pablo tissue answer is no. Okay [laughter] I mean.

I think that even in yield oh that even great year that that that we are.

Paying it is higher I do I acknowledged that we have a discussion if we got to increase it or not.

But I think that the numbers.

I mean are having a dividend yield of 6% I think it's one of the highest in the industry no doubt about or a payout ratio of 42% is sold so I think I pay a retro very high so yeah. I know, we don't have a dividend yield our dividend policy.

But with this we want to sign out that we continue committed to paying dividends every year.

I think we did decrease of all of the margin. So maybe delve this year and I understand next year would be probably better but I think with these decrease maintaining the dividend is have very good sign for four or four on our investors and and we continue committed without.

Alright. Thank you very much hope I call I answer your question without.

Yes.

Very clear thank you very much.

Our final question is from higher.

Credit Suisse. Your line is open.

Yes, good morning, and thank you for the opportunity. So my first question is regarding the outlook that you mentioned for first quarter 20 in second quarter 20.

You mentioned that you expect to be that's increased sequentially, mainly as a function of stronger shipments and a slightly lower cost.

But I wanted to see what you're expecting in terms of prices right. There had been a recent pickup in HRC prices in the U.S.

Even though that seems to have a somewhat reverse lately.

But I was just wondering if you expect to be able to somewhat reflect a recent increase in the U.S. and your prices in Mexico as well and then secondly, I just wanted to see if you could provide a little bit more details on the SGN. They increase that you had in this quarter on a sequential basis and on a yearly basis as well just if you could explain what was the.

Main driver for that thank you.

Thank you Okay, all I said with the first one outlook.

And you mentioned prices.

That's really different prices bracey, she yeah, I mean in the in in our first quarter, you're gonna be reflecting the increasing prices seen celebs.

The sales are flat from our and Brazilian operation and a low prices in the U.S.R.R., increasing as you said.

Not the full effect is gonna be seeing in the shipments of Mexico, because remember in Mexico, we have.

I I say haven't half, but have our shipments are that's where customers are there a little bit more and usually those are contract base prices on a quarterly basis. So the prices of those customers are probably going to decrease from the fourth quarter, two a first quarter, but the customer.

All of the spot basis, the other 50% are going to Greece in the first quarter.

So so they know that it could be highly ALLETE would be better, but not much better in the second quarter. The contract base prices are gonna be higher so you're going to see the full effect in the second quarter of this increase.

Volumes, though are going to be hiring in Mexico, that's for sure.

I mean, I say said, Mexico fourth quarter and the whole year, what's not very good year for apparent consumption of steel consumption in Mexico, but in the first quarter, we are seeing <unk> I read.

An increase in you know customer shoulders, and we expect to continue that way in the second quarter. So volumes are going to increase on prices not that much in the first quarter, but we're going to take advantage into second quarter.

I think I don't know if I answer I know you have the second.

Yeah.

Thanks for your question because it's important for us to verify these these boeing.

In fact, we didn't know kind of an increase in normalized <unk>, we have specific or particular issues that reflected a number is higher than the previous quarter and the two of them are the first one is the increase Oh, an asset tax in Argentina.

I have to last year these or before the end doesn't have a new government. These acid tax was.

Sito about 25%.

New government boss low increasing at these are battling these.

Tax too.

0.5 person so for 4 million dollar of Oh that increases related to that so we need to register so this will not be less either a tonight them.

The following cool.

The second one.

You know that we have a contract that we acquire together with acquisition, though obviously you say now turning Brasil two supplies labs to the color facility or easily the U.S. sees was a long term.

Doug we need to accounted for.

In our purchase price allocation. So after that we need to our Moatize. These contract by the volume that we should.

Since we got your volume in the fourth quarter in comparison to the third quarter them, what they say Unlevered wants Collier on this is the effect that.

Show.

Here is yesterday by the realities DNA or the expenditure in the DNA basically they were in line in both quarters.

I see that's very clear thank you.

You're welcome.

I'll now turn our call over their chief Executive Officer for closing remarks.

Okay.

Thank you are very much from being part of our conference call. Today, Please give us a cause for any questions so comments or anything.

And if not we'll see you next conference call. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.

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