Q2 2020 Ternium SA Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Ternium second quarter 2020 results conference call. At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer recession, you ask a question during the session, we'll need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to have the conference over to your speaker today Sebastian Marti. Thank you. Please go ahead.
Good morning, and thank you for joining us today.
My name is Sebastian Marti and I am attorneys Investor Relations Noncompliance director.
Turning released yesterday, I know 70, south for the second quarter first half of Twentytwenty.
This call is complimentary to that presentation.
Joining me today I turn its chief Executive Officer, Maxime only those yet until the company's Chief Financial Officer, Bob Nobody's here.
Well, we discuss starting this business environment on performance I.
I think I'll finish it up our prepared remarks that wouldn't be a <unk> session.
Before we begin I would like to remind you that this conference call contains forward looking information that actual results may vary from those expressed or implied.
Factors that could affect me socs are contained in our filings with the Securities and Exchange Commission on page two in today's webcast presentation.
With that I'd turn the call it over to Mr. Tomatoes.
Thank you won't see about the I'm good morning, and thank you very much for taking the time to joining our call today in my prepared remarks I'd like to review the effect of probably 19, when our company during the second quarter.
Our actions to mitigate these effect.
And also they start to prospects of our main markets. After these.
<unk> will comment on the results for the second order.
And then when we have like you in a session.
The second order has been one of the most challenging orders I can remember.
Dumbed or restrictions to operate wearing effect in most of our markets during the quarter.
Nor did we doubt it for.
We were able to adapt to the company to these difficult market to duration.
Very short period, we totally redesigned the way we operate our facilities in the current sanitary context, we the aim at mitigating contagious risks to the extent possible, we the health and safety of I wouldn't please customers and suppliers I saw one main concern.
In this regard.
In addition to the sanitary Micheaux's I commented on our last quarters conference call. We continue developing innovative tools to increase their compliance with our protocols Justice. On example during July we implemented do you feel for Steve artificial intelligence system to verify compliance we.
Sanitary protocols within our industrial facilities to cut prevent the spread of coffee 19, more about 400 cameras attorneys facilities in Mexico breast feed in Argentina, I raised it to reinforce social distance policies and they use a face much to video analytics that use in house develop.
I agree.
Yet our efforts in favor of mitigating the effects of Koby 19, pandemic I not stopping at our facilities gate.
It feels hospital, we building Monterrey, Mexico with 100 beds.
40 equipped intensive care unit has been very actively supporting the health needs of the local community in these difficult times.
We also supply Ptwenty five intensive care units due to cost because in Rio de Janeiro, Brazil, and 100 beds to a field hospital in say now that Argentina, as well I've intensive care equipment.
Our aim was to cover all of our communities in the regions.
To maximize the effectiveness of our help we work together, we directors of key cost because in each of that means locations to determine the specific needs you need in each case.
Oh, you know, we're fine point with a 5.5 million dollar dedicated funds, we were able to build a field hospital and donated beds intensive care unit equipment, then teenagers another medical equipment as well a safety kits for health professionals.
To 16 hospitals and health care facility.
In four countries.
Our global acumen, that's a one kinda key role in these airport.
It was able to purchase the requirement the required equipment and have it de lever to each location.
Additionally to foster the sharing of knowledge of treatment of probably 19, we created a network of medical professionals 70 doctors from local communities in Mexico, Argentina, Brazil, and Colombia participate in the virtual meeting with your colleagues at humanity to us and Italian network across it does.
Reveals platinum phone humane tax experience of dealing with coffee 19 outbreak in Italy is available at the public virtual compass.
I'm very proud of all we have been able to do to support our communities you shut a show a short period.
Many of our initiatives in these regardless I know this fears of our activity can be found in our new sustainability report, which was issued two weeks ago.
There are already signed report intended to be an integrated discussion of our progress towards achieving our objectives in a sustainable way.
This is a first edition of our suspended sustainability report to follow the global reported initiative or G. right reporting guidelines.
We believe you're right guidelines enabled us.
Enabled our reporting to deliver a higher level of transparency and that and that that compatibility.
Additionally, we kept comedic our subs. So you end global compact onto the advance it's sustainable development goals or as the Gees.
Also be able to find more about how contributes.
Contribution to the UN as the Geez, you know latest sustainability report.
Let's turn to our operation now.
This has been times of street.
Suites and the she should action, we usually say that's our industrial system has significant operational flexibility.
We still demand dipping during the second quarter, we so many steel companies in the region you need of taking the Coskey decision of shutting down blast furnaces until demand recovers in contracts, our blast furnace season in Brazil, and Argentina, we're able to keep operating as they.
Reduced production to technique on minimums and increased shipments to other 10, new facilities in the region, which in turn adjust their still procurements and production lines.
The cost competitiveness of our facilities and they capacity to rapidly change the degree of integration among top news means allow.
For this quick adaptations to change in market environment.
In addition, with the aim.
Sustaining our margins, we work hard on optimizing production and overhead cost and then reducing general expenses and extraordinary maintains works across our facility.
As a result.
Well for these factors.
You know very difficult environment in the second quarter when ships declined 18% sequentially, we were able to show a 13% EBITDA margin and I beat their per ton of $91, just a slight decrease compared to our first quarter.
Another aspect of our company on which we concentrate our efforts what their balance sheet and cash flows face with significant uncertainty regarding the extent and duration of the FX of their funding mix on the global economy, any particular any or markets.
We took immediate action to increase liquidity and strengthen our financial position.
We minimize inventory build ups reduced purchase of raw material third party steels and other items, we work with our supply chain to reduce working capital and we postponed separate capital expenditure project across our facilities.
The result of resections, what's more than $300 million working capital release in the second quarter.
I know the reduction of capital expenditure to less than half the level, we had in the first quarter.
Consequently, we had free cash flow of $393 million in the second quarter, taking net debt down to a little over 900 million at the end of June.
This you should keep talent to our net debt to last 12 month EBITDA ratio of only do you have 0.8 times.
For the time beam, we will continue taking a conservative stance regarding the management of our balance sheet.
US while the FX of their pandemic seems to be about team you several parts of the club.
There is still no clarity regarding.
And two d. today, it's disruptions to the global economy and to our markets.
Let me now make acquitted description of the status of our main markets. You know were Mexican facilities, we're approaching new money rates of production.
Leasing of operational restrictions in the country you see neighborhood I grew up your return of activity in the outdoor industry as well I see another manufacturer industries, including its household appliances. Unlike anything.
Coupled with an improvement in market share. These we tend to activity should support a recovery of shipments in Mexico during the third quarter.
In the construction sector appealing mostly shutdown during a good part of the second quarter is beginning to slowly come back although it remains quick.
In Brazil, we've gotten significantly increase production in our slept facility from their minimum technical levels reached during the second quarter.
Due to the reduction in steel demand.
This increase production rate is supported by higher lever of integration with the Companys industrial system.
Additionally, improvements in economy activity in Brasil at driving our current recovery in local steel industry Slough demand, which got close to disappeared during the second quarter.
In Argentina following record low shipments in the second quarter, we expect as soon as sequential volume increased mainly driven by higher activity levels is construction, the agribusiness sector and the Canning and white good industries.
Good production units and Tina has also been able to return closer to normal level as restrictions in many parts of the country are gradually being relaxed in.
In this context, the recent announcement of an agreement with international Accreditors for the restructuring of Argentina death.
Government death is a positive development are these what's it's necessary step for a macroeconomic program to be successful.
All right just to note of healthy caution before I finish.
I'm very proud of the achievements, our Moneyman management team I note of Ternium employees have made so far during this unusual time, yeah commitment unresolved, where on mobile and I would like to thank them for their hard work. However, we're not back to normal yet.
Well all of our marketing Americas are showing signs of improvement.
And our expectation for the month and production rates in the third quarter a positive.
And since the cheaper seats regarding a possible research of coffee 19, and if it and its effect in the economy.
You can rest assure we will continue striving to make our company stronger and to mitigate the effects of their pandemics on the company and its stake holders.
Okay. These were the main points I wanted to touch today before we review the second quarter results and answer your question. Please Pablo go ahead.
[laughter], saying I'm actually more go more into all let's go through talking for sell for the second quarter and the first half of this year.
Let's start with the company quarterly EBITDA and net result.
On page three of the webcast presentation.
As you can see studying maybe the a decrease sequentially in the second quarter, two $224 million I suspect due to lower shipments and slightly lower EBITDA, but.
Net income in the P to Europe was $44 million or 27, 22 cents, but ideas.
The other side compared to net loss of $19 million in the first quarter barrier that including the effect of significant reputation off the Mexican peso and they were affiliate react to the U.S. dollar.
As we will analyze in more details in the following slides.
I for EBITDA in the third quarter 220, we expected to be in line with EBITDA in the second quarter, mainly reflecting capabilities shipments and lower steel prices in the North American market.
Let's now turn to page four to see or whether it's in shipments in the quarter all of all our market showed the effect of the koby 19 by the mix in steel demand.
In Mexico shipment decreased 25% on a year over year basis, I don't denying person on a sequential basis.
We are expecting shipment recovery in the country, the third quarter, reflecting never turn to activity coupled with improved market here.
Jim and in the southern region decreased 32% year over year in the second quarter, a 9% on a sequential basis.
I shipments in the first quarter, where really weak reflecting seasonality lower activity.
Looking forward in the third quarter, we expect sequential volume increasing the size of visual undergraduate realization or the actual mainly in Argentina.
In the other markets, we enjoy them, we can see on one can finish the gym and T Mo decreasing year over year sequentially in the second quarter.
There are.
Lub cheap to third parties in gray with slight sequential increase the sequential increase in flat volumes in the second quarter reflect how your Philip exports from dozens Brasilia facility to third parties, partially offset by lower volume ships to third parties embassy compute.
<unk>, we expect Sevenm slot facility in Brazil to cover sequence ACA utilization right in the third quarter and to increase its integration with the companys indices system, reducing them the volume of slabs ships to setup.
This development and as you can see in the next page resulted in consolidated statement of $2.4 million to $544 million decrease in 18% sequentially summarizing what we have discussed we expect these shipments to increase sequentially in the third quarter.
Our key markets with some offsetting from lower sales of slabs to third parties.
[laughter] certainly no to be up or license I turn it.
We see that the evidence I realized price decreased 6% in the second quarter.
This reflected lower realized price that news make market.
Mexico revenue per ton decrease in the second quarter, reflecting mainly lower steel prices in the spot market on sequential basis, we expect lower the Alberta realized price in Mexico in the first quarter, we weaker industrial contract realized price as a result of their like right because it.
[laughter] living you know the following Bates their main sequential changes in the media never itself in the second quarter of this year.
Every day, the cases every sort of lower shipments and maybe the button.
The decrease in EBITDA per ton was mainly due to lower revenue, but partially offset by lower operating cost per ton.
But he got to intensify the net result on the bottom chart.
19 million dollar loss in the fourth quarter, including significant effect in connection with the 20% depreciation of the Mexican peso and 23% depreciation of EBITDA Sealy unreality against the U.S. dollar.
This effect in the first quarter included a loss or $189 million on the first taxes itself.
Revenues, Mexico subsidiary and again, a one kind of their $9 million inevitably side.
Foreign exchange.
The consolidated basis.
Foreign exchange fluctuation decreased significantly the second quarter, making the size of this affects decreasing as well in this period.
Definitely you know they made changes in the first call for good of 2020 on and year over year basis in page seven.
As shown in that in the judge from top the are we and changes in EBITDA in the first Gulf War of the result of lower Siemens and maybe the purple.
The year over year vacation I read the April tone in the first cost, reflecting mainly lower if the prices partially offset by lower.
But really a and has maintained a label and service costs.
Finally, before we go to work you are they less when you turn your free cash flow capital expenditure on net financial debt on page nine of these presentations.
After a strong set of numbers in the first quarter would report an even stronger set of second quarter 2002 and the.
Number of maximum anticipated. These numbers that reflects the message take into just the company operations to live action assays and the decision to a slower perform syrup project, a cross docking facilities and they will last two photos to them our way last year.
We faced with free cash flow in the first cause of 2020 of $578 million will reduce net debt by 40% in the semester to $970 million to the end of June 2020, bridging the really mentioned number off to your 0.8 times or.
Last 12 mile it'd be da.
All right once again, thanks, thanks, very much for your time and attention. We're now ready to take your question. Please operator procedure. We like you are nice session sex.
At this time I would like to remind everyone in order to ask a question you will need to press star one on your telephone.
Withdraw your question press, the pound or hash key.
Please standby well, we compile the acuity roster.
Your first question comes from Chen speeds from Morgan Stanley.
Yes, Hello, and thank you for taking my questions.
I just wondered how are you seeing the demand outlook for two different sectors in Mexico are there any particular sectors that you're worried about the could take longer to recover or two to return to pre called at levels.
And second question would be about slabs, how many resumed.
Operations.
What's the outlook for slap exports the U.S. any sense of what the impact would have if the U.S. reduces put quotas for slabs from Brazil and also if you could give us a sense of the current profitability there compared to past quarters. Thanks.
[noise]. Thank you James the first question about the Mexican demand and and the different sectors I think that demand in Mexico for the industry sector is very good today I mean, all all the different sectors that produce.
Cars home appliances lightning.
Electric motors, they're running.
White goods.
I don't know if not at full capacity or at capacity before they pandemic, but very near that capacity.
And I think there will continue to do that unless there are some revival of if I have a coffee pandemic definitely there they're going to continue doing that.
Okay.
So the sector that demand is its lowest construction.
And and here the D.
I would say the private construction that was one of the drivers for the last couple of years.
It started to show to go below that number before that pandemic and of course with a pandemic most of that private construction stop.
What do we are seeing.
Is that the infrastructure.
Starting to pick up infrastructure, what vary but if you remember in the last several conference calls infrastructure in Mexico was very bought.
But today, it's improving with some of these big project. The government has so overall industrial production very very good construction below with different below what what we expected and but with a infrastructure improving but private construction not improve it at all I think that answer the first.
Question on gens.
Second slaps exports due to the U.S.
We're not seeing anything we're not seeing a change yet in anything of the quota from slabs to to the U.S. ER. Nevertheless, I would said that.
We the prices how the prices are today in the U.S.
I think it's more profitable to export slaps somewhere else down to the U.S.
And so we're not.
Extremely worried of what it is is it will happen with the U.S.
Even the restart at changing in.
As you said 18 slaps, India agree men the that that the government of resi Len and.
And and the government of U.S. Hass, regardless lapse I I know there has been some press article.
About a proposal to change each agreement.
And putting some poor tower, reducing the level of the quota.
I don't think that these.
Yeah, I mean, it's very reasonable because they haven't agreement and I don't think they should change it but if that happens or.
There's not going to be a lot of changes in our.
In our view for the third and fourth quarter because of the price difference today is very minimal.
Okay, that's very clear thank you.
Okay. Thank you.
Your next question comes from Philadelphia, and Jelly from JP Morgan.
Hi.
Good afternoon, everyone listen he was a quarter that impressed us given.
The very challenging business environment or the industry phase.
In on indicators of T X and because of through knew.
We were particularly impressed with the performance on the costs.
Volumes are down year to able to reduce costs. So I was just wondering if you could.
Talk a little bit about a you know how you you got to that you know very interesting performance and how much of that can we expect.
To remain into the coming quarters and thanks, that's all for me.
[laughter]. Thank you rosone upon and thanks for your comment.
We will try to continue these way in the future.
And of course, I I wear aim I mean, I told times is that it to be able to reduce the run rates of our facility or if we have to reduce the run rates of our facility.
To do so we the lowest possible to embark on production cost we tried to always.
Two half hour fixed and semi fixed cost.
Hi, analyzing a viable way, we're not 100%.
And we don't have to always hundred percent.
These but that's the objective we have an import that was what do we accomplishing this quarter.
This is pat possible.
Mainly because our debt diversified industrial base.
We will provide a operational flexibility and and we can integrate our facilities.
Better or more depending on the market conditions.
We I asked you also know we perform strict control and reduction of generate expensive, we did reduce our overhead cost in the quarter.
We reduce.
Almost by half hour contractors, our third party workers and we replaced them with with that we're all employees.
That were idle because those particular lines were not working so and of course, we have a reduction of freight in the quarter as we ship less.
So I think that's all those are all the things that we do.
But we do it very quickly because our if I were form of managing our fixed and semi fixed cost I'm more looking at them as a viable way. So I think that's the way. It was all for that that we try to work and gifts. They these results I don't always I answered the phone question, but.
Yeah, I'm not sure yeah, we'll.
We'll probably have follow up so, but we'll do that with a question. After this us. Thank you very much.
Thank you your telephone.
Your next question comes from a town rebel from credit Suisse.
[noise], Yes, Hello, gentlemen, so my first question is on a prices in North America, My which you mentioned will be a headwind for second quarter results. I'm. Just wondering if you could talk a little bit more about what do you believe are the main reasons that prices are under pressure right now.
Given the demand seems to be sequentially, improving with automakers was only activities other export oriented industrial sectors as well.
Is that the addition of the capacity in the U.S. all the expansions that are coming on line. That's driving this pressure in your view.
And when do you believe that we could see a rebound for prices there and consequently in a in Mexico as well.
And then my second question just on the potential impact of these potential infrastructure stimulus packages or you know that are being discussed in the U.S. a wouldn't numbers ranging from $700 billion to one trillion dollars I just wanted to see if you have any initial assessment right on how you could benefit from that.
And whether we could see you know what stimulus package for infrastructure announced in Mexico as well as for the coming years, which could help you know prop up a steel demand.
Thank you.
Okay. Thank you very much for your questions I tried to answer the first one but.
It's really good question and answer the question that that that we ought to having I think that ad.
[laughter] brightness in North America or are in a level that we haven't seen in quite a while not the absolute number but.
I think today or yesterday I think it was today that the prices the the price index of the C are you.
Watch release for this week.
Prices in the U.S. are almost like $30 below domestic prices in China. These costs not happens here I don't remember when I think the last time, but 2009, so clearly prices or a in the U.S. Irene.
In a point that should change quite quickly. While these why are the price is so low in the U.S. I think it's clearly that the.
The it's not a problem of imported material I I said, what's in the past.
And it's mainly there then the competition between domestic steel mills.
And of course, the problem that them on what's very deep breath.
Some of the steel mills reduce capacity and some other steep not and these fight for market share produces that the reduction of prices my expectation and again I don't think this has to be with with the additional capacity that is being built.
In the U.S. because this has not come to reality station yet. So this is more.
Problem off of weak demand, which is improving as you said, but still very weak and and and then they fight for market share of some of the company.
HM.
Having said that.
Again, Bryce he's in the U.S. should improve.
Rather soon that later.
Because it doesn't make any sense these prices compared with prices in the rest of the world.
Infrastructure in the U.S. I don't think I, I think I O I answer, but I didn't know if it's a full answer or you need to any more of these prices in North America.
No no no that's that's very clear.
Thank you move that even yeah infrastructure in the U.S. I mean, I think it's a main issue for all stages or demand clearly its garneau improved demand.
Am I wrong, North America and.
I run the North American market.
If you said, what what's the impact that specific to Tony we have not.
Ah, Yes, Tas and in fact.
Or managed to to put any impact of these.
We don't sell much to construction or infrastructure programs in the U.S. as you know, but clearly or it's going to increase the amount in the U.S. and that's clearly it's going to favor prices and shipments from all the companies in North America.
In Mexico.
Although infrastructure is much needed.
I don't think that we will have a program in the near future Ass.
Got the U.S. I think it's necessary.
But the government is still very cautious of refinance of Oh, they have read public numbers or the public finance a number of sort of the country. So I don't think.
Yeah willing to spend much more.
Yet of what they are still there now spending in their big project.
Mexican airport or the refinery in Tabasco, a show I I am not very optimistic that we'll have a programmed liking the U.S. in the near future.
Okay.
Perfect. That's very clear thank you very much for your answers.
HM.
Your next question comes from Timna Tanners from Bank of America.
Yeah, Hey, thanks for all that great detail and Alison enjoy your candida.
So based on the market.
Let me just ask a little bit more about the guidance, if I could and 'cause that's sideways EBITDARM is with a bit surprising I understand the lag effects on pricing, but I guess two questions around that one is on is it just sit there that pricing itself and so much of that decline that it offsets all the positive.
Elsewhere in terms of buying what surprised you and then you know just in line with that comments about marketshare battles and oversupply in the U.S. market as possible for the Mexican market to decouple.
So on what's happening in the U.S. anything at all you know in Phoenix inextricably intertwined. Thanks.
[laughter]. Thank you all Tina and thank you for your initial comment.
Yep I I mean, the main driver of our outlook if prices in North America, you're right volumes are increasing you know what our <unk> markets in Colombia, Mexico, Argentina, and uneven in Brazil, slaps, although shipments of slap says a popular said.
Total shipment from the slept facility are going to improve.
But but talk to third parties are gonna be lower so you're going to see a lower shipment was flat in the third cool, but I still overall shipments are going to improve.
Into new and the main driver east.
It's prices I mean, we're still working or we will continue to work on the cost base.
But again pricing in North America.
Today you.
You see the index are very very low <unk>.
I expect that prices start to rebound quite quickly as I said before Tina I think that it doesn't make any sense.
At this level of prices.
Correct.
But in our outlook.
We are cautious not to put a huge increase.
Because we don't.
No weve, even she's going to happen and again remember that some of our or.
More than 50% over sales in Mexico.
Our lack in this contract base order. So so you're not going to have in the third quarter. The prices of the second quarter, So no increasing in that ones.
In Mexico the couple.
It's probably that that in cement sectors, Mexico Easco knows the couple if prices continue to be down I mean again.
ER, our main competitors in Mexico, our imports.
It would be from from the U.S., but.
But the price driver.
Always imports from Asia.
With these prices import from Asia, I'm going to decline. So weve. These are.
Tendency of these tenants of prices continue in the U.S. is probably than in some of our.
Our kids in Mexico, we're gonna decoupled from the U.S.
Okay. That's really interesting. Thanks for that I also I apologize if I missed that I had to connect and I'm sorry, but I was wondering if you commented on the dividend or your thoughts on that he wouldn't mind repeating again, if you already talked about that.
No, we don't comment or nobody ask yet about dividends and it's a great question. Thank you Tina.
Well as you know we suspended that did evidence for this year.
I believe we the information we have I keep believed that the board decision to spend these dividends.
Payment Wassa correct it make it still make another offense.
And I know what I said in the beginning I see that said board are positive and the fourth quarter also positive uncertainty still persist that the spread of the Colby 19, and its FX in our market.
We have some.
Some rebound so so I think the decision was correct.
Having said this I have no doubt that 10 in will receive payments of evidence next deanna us as as we have on and I got any situation or the board would wish him now and I think that they business you tuition country to improve as as we're seeing today I wouldn't rule.
All that deport Stephen and proposed next February makes Sop at least a part of what do we skipped of the dividend.
Of this.
Of this year.
Yeah. So they can compensate for some of the last dividend you're seeing is currently it's likely that lets yet.
Yes, Tina I guess this is that the t. shirt on Orissa, they bought make they're not the decision maker, but make the recommendation.
And and on and I think that if things continue like D. I.
I think they bought quote.
Right I'm sure that that would at least compensating part D skip leaving.
Okay, great. Thank you name it.
Your next question comes from Johnson Brandt from HSBC.
Hi, good morning, good afternoon gentlemen.
Congratulations on a very strong quarter given the circumstances.
I guess I wanted to ask you about a free cash flow and balance sheet management, we've seen a a pretty big reduction and working capital. This quarter. So I'm. Just wondering you know are is that sort of a news sustainable level or should we expect.
As volumes increase as you're expecting in the second half.
Should we see a a rebound and working capital levels, and then I guess sort of related to that you know like given that your free cash flow positive in a very difficult quarter I would expect you to be free cash flow positive in the second half as well can you just sort of elaborate on on your balance sheet management and should we continue to see.
You know not that continued to fall one of the majority of free cash flow generation or at least in so you sort of resume dividends or be put towards or not that production. Thank you.
Thank you John and thank you for your initial comment.
Clearly, we have a very strong quarter regarding free cash flow as you well said part of that was working capital.
I guess.
Hi, shipments and a TV de start to improve.
We have to invest a little bit in working capital in this quarter and next quarter. So we're not going to have all that free cash flow, but to make very detailed say ask Pablo two to two to give you that each day.
Okay.
Okay, Okay, I'm actually more I don't.
Clearly as marketing or saying, it's impossible to do to say or two relieved that after a quarter, where we have a significant reaction on the working capital due to the was actually in volumes. We cut we can sustain or a t. with seemed a member in the following quarterback.
On the other hand, clearly, we Ah I said dissipate in our you know when I look we're expecting to continue having possibly be diligently at age on that and consequently positive free cash flow generation, but if we don't who tried to sustain at least the level that we have a working capital is.
Did you pick up for us to say that we can continue achieving a similar reactions in the working capital. So on on the Conservative told we could say that.
Yeah.
That working capital.
Even with increasingly we because of the greatest volume's up that would have been mentioning during during busy during our presentation that maxemail comments, so broadly we need to best some money there, but we will try to keep us low Oh, we can these number on the other side, we will today it possibly.
Free cash flow.
Because they they capex plan for the following quarter note.
It doesn't yet to the 11th though.
In the in the during the first quarter will be more broadly in line with a lever that we saw during the second quarter. So all in all we could see illegally positive news steel in the reduction in net debt during this third quarter, but not coming from.
For the reaction in working capital.
Okay. Thanks, Pablo Thanks Maxwell.
You're welcome.
Uh huh.
Your next question comes from Fabian.
Great then from Pictet asset management.
[noise] for taking my question.
Yeah no doubts.
With me just your stock today, it's significant discount to fundamental value.
Despite that we really see no evidence that you're trying to unlock that sounds you.
<unk>.
Oh, you know solodyn solid dividend policy linked to free cash flow management buying back shares.
Corporate structure simplification Leviathan means lifestyle.
Okay.
Thanks for your question, let me try Maxsimil you want to do to pack to these wells.
First of all 42 weeks I agree with your common.
We we think that we we leave a lot.
To to try to unlock the.
Well you if you want clearly understands that we cover these count against our peers.
We can discuss over that but we have been working quite a lot is simplifying our corporate structure, we've had a history of increasing a D.V. then.
The only times, we did not pay dividends when viewed in or preventing you guys were weaker crises like was the case of 2009 D.C. here.
The company has been working very very hard to stay in the profitability levels.
And this is shown in the read the Miocene does the company will submit to stay in.
During during the they at least during the last five to 10 years.
And also reflect that was the increase of the dividend payment in the last the last PRC, specifically with the same period, where we almost double the dividend payment from the company.
That in that period of course, we are we ought to expose to different markets and we are the release covina spokes supposed to be for the market that broadly prevent the value of our company do we completely unlocked a broadly there are some of that recent a week or discuss on.
On on on on the level of all floating of our company. All aware. We are listed on some of things always have commented in the past, but it appears you what about the Companys always thinking Doug and the company's looking for ways to improve that.
And clearly say goal that we as a company are very up in our priorities.
[noise] [laughter] doesn't mean, we should expect an update on the.
No the listing issues as well as formulating your tier dividend policy.
No that's missing link to free cash flow or no earnings.
Probably not be on [laughter].
Well, we will have a recent dividend policy, but we have a clear tendency on on the way we pay dividend.
If you look at what do you have done during the last years.
Clearly you see the whoa, how we pay the read into how we increased them. Yeah. We are if we see an increase on on besides a and even no. We have an increasing for cell we sustain that that increase the me then payment with respect to the usual or at least in its a very complex one difficult to discuss.
During the call because they sometimes certain for things to do that.
But is also something that we felt we never mind on these they said John I recently with Johnson <unk> Johnson, because sometimes you can do certain things that will not drill there we felt that you're looking for but if there is a chance is something that the company has been discussing on the lysine for a very lumpy of time.
[laughter], but I think I want one that I've yet no.
Yeah I mean.
What do you have to take clear is that we are.
Working on this effect I mean, we're working on on the on and we know that the prices and the value for us for US all choice and the value and we have been working in trying to see what can be improved I know that dividend as I said before that even in was not helpful. But I think.
During the time and what do we are seeing Wassa right decision in a way and if we can we can compensate part of that next year and we will probably do show that they put on 90 is that we're working on that.
And.
We will continue to do so.
[laughter], an update on project timelines and other things together with Capex for 2020 2021.
Please.
Yes of course hobby and Twentytwenty, we we'd have a final capex of around $600 million.
And 2021 will probably be around that number to decide to lower numbers that are what do we had six month ago, but I think that the other correct, one or two projects Colombia or.
Yeah.
The project in Colombia is almost finished the problem. We have in Colombia is that the that I think people who has to make the commission.
From the vendors have equipment they cannot troubled yet I think there will be in Colombia, I know in September and so I think the Colombian needed should start by the fourth quarter of Twentytwenty regarding Pesqueria project, the Big Big project.
We are beginning to start.
Or a human our construction if you remember abide by March we have more than 4000 people.
And we are making plans to start today that the team they got three meal by mid 2021.
And why these delay as I said before and I said it in the last call.
The safety of the people for US is the most important thing I too have more than 4000 people today with a pandemic still very high eat in the Monterrey area I don't think it's very reasonable for us if we say that safety either for our first concern.
So we're making a plan to as I said to start the country meal in meat 2021, and we are making a plan not to have so many people working at the facility instead of a peak of 4000 people, we're probably going to have a peak of 1500 people I think.
In November and December but that's we are also made it that detailed planning the next couple of weeks.
Perfect. Thank you.
You're welcome.
Your next question comes from Isabella, Okay, I can tell us from or lets go BB I.
Hi, guys T. I go look Diego here. Thank you for the question so.
Two questions on my end or the first one a maximum if you could comment on demand recovery in Argentina, you mentioned that utilization is almost back to normal levels. There, but just wanted to understand what's your base case in terms of a shipment decline for for this year on a percentage basis versus last year and also what well do you think it's reasonable to consider.
Sure well for 2021 second question or on the lab side or so slab production and turned in Brazil, where where is it right now and how are you seeing demand in the different markets and also.
You could comment on a where EBITDA per ton levels are at Union, Brazil, especially considering the new FX level in the country. Thank you.
[laughter]. Thank you T. I go demand recovery in Argentina, well, that's a good question.
Well I don't know what you'll have a a great answer for you I you know Argentina.
Although it has to make some significant they advance with ER.
With what happened with the the death.
The Denver agreement.
The Cascade continued to have challenges.
In the near future.
I I mean, its reform sometime so it's very difficult to see what he's going to happen in Argentina, 2021, and in the near future third quarters of shipments of third quarter.
The next third quarter are going to be quite the same actually we had the third quarter of last year. So the recent recover remember.
2019 was another great year, I mean, there, but we are seeing the same level of shipment indirect when there are some.
Some sectors in Argentina that are.
Being very better than others.
I go businesses is very high construction is very high, especially the private construction I mean, if you see that segment safety in Argentina. When you see the small safety inbox, they're more than damn better than they are they were last year.
But they did their peak once our little where because infrastructure in Argentina is not very good by construction injury. Good I business is very good.
Energy and automobile reductions are not very good so there are different.
Hey scenarios here in the different sectors slips.
Club site they facilities, it's running.
Oh.
Almost full capacity today.
For two reasons why knees.
Demand in the now we're on facilities improving.
So we're shipping from more from Brazil.
Today.
And the second recently is that the demand is improving in other regions.
Surprisingly, China is buying slaps turkeys buying slots and show. So we are shaping snaps and and all that manufacturer, So Brazil shipping class to China, and <unk> and two other markets.
Also us as the monies improving it in Brazil.
Other steel producers in Brazil are needing a little bit more slabs. So we are resuming shipments to them I think in September or October. So I think generally <unk> slap demand, it's quite a good right now and that's why we increased the production.
Rating.
In our slot facility Brazil.
No if I Miss something of of the two questions Jago.
No. That's that's all clear thank you much more.
Thank you.
That was our last question at this time I will turn the call back over to Ternium CEO for closing remarks.
Okay. Thank you very much again for your participation in our conference call today.
Please contact us if you have any.
Other questions or or you didn't understand something I hope to see you all know to hear from you all in the next Compressco and Meanwhile.
Take care of all and stay safe. Thank you very very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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