Q4 2020 Ternium SA Earnings Call
Ladies and gentlemen. This is your operator today's conference is scheduled to begin momentarily until that time. Your line will again be placed on music hold thank you for your patience.
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Yeah.
Ladies and gentlemen, thank you for standing by and welcome to Tony and fourth quarter 2020 results.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero and I would now like to turn the call over to Mr. Sebastian Marti. Please go ahead.
Good morning, and thank you for joining US today My name is Sebastian Marti and I am turning to Investor Relations and compliance director.
Okay.
Yesterdays financial results for the fourth quarter and full year 'twenty and 'twenty.
This call is complimentary to that presentation joining.
Joining me today are Chinese Chief Executive Officer, Maximo and they know.
The company's Chief financial Officer, although retail.
And we will discuss certain speakers per four months and environment.
At the conclusion of our prepared remarks that would be a Q&A 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.
Factors that could affect results are contained in our filings with the securities and Exchange Commission and on page two in today's webcast presentation.
With that.
I'll turn the call over from when we start with Roger.
Thank you Sebastien and good morning, and thank you very much to all of you for participating in this conference call and and.
And your interest in value.
I am glad to share with you today, a very good set of results for the last quarter of the year, we kept me and actually being better and the ones we expected on.
Our last conference call and even though the pandemic continues between post operating difficulties, although nowhere facility in the fourth quarter of 2020, we took she meant to pre pandemic levels, reaching three 1 million tons.
We were also able to take advantage of an attractive business environment, showing a significant increase in our margins to 25% in the fourth quarter, while never losing sight of our strict cost control.
Our current expectation you said that and use margin and EBITDA will continue to increase in the first quarter over there yeah.
And let Pablo elaborate on this later on.
Turning now to full year results in 2020.
And we'd be to EBITDA of $1 $5 billion, we welcomed Ian.
2019.
All of us.
'twenty and 'twenty wassa, particularly difficult.
And to manage and industrial operations like dining rooms, and required the full dedication and commitment of all of our people. The results we were able to obtain shall be successful.
Effort.
Battery performance and results over the second half of 2020 were outstanding.
Taking this into account.
And you've bought announced yesterday the bid and proposal for the year with an amount in line with our comments on previous conference calls of $2.10.
And then there are.
A D to.
To be paid in may after the expected approval of the shareholders meeting.
The return to shareholder and.
Embedded in our company's culture, something that can be reflected in the long track record a profit.
Progressively higher dividend payments over the last 15 years.
And to continue returning capital to our shareholders as we have done in the past while at the same time growing our company profit taboo he.
And when we see and opportunity to do so we trust we are going to be able to do this while maintaining as usual a strong balance sheet.
And yesterday, both meeting the board also discussed in depth cigarette initiative related to sustainability.
They care for the environment is a key aspect of that and use operations. The steel industry like many others has been increasingly allocating resources towards improving its environmental footprint.
Last five years.
And invested approximately $300 million and environmental and energy efficient related projects throughout its facilities.
We have lunch now and additionally, $460 million plan and majority of which will be implemented over the next six to seven years.
Climate change was also a key part of the board's discussions as we have been working for some time now in our plan to reduce our C O.
True emissions.
And the results of this work.
[noise] roadmap to basketball initiation.
Our medium term target of 20% reduction of C. O two emissions per tonne of steel produced by.
Right.
Thank you.
They made me and he said it will tend to pursuit to achieve these targets are increasing the participation of energy from and you will source.
<unk> to approximately 40 per cent English and the scrap share and metallic mix, increasing carbon capture and capacity.
Our derived facilities in Mexico.
Actually replace and met coal with sharp call, and Brazil, and Argentina, and very Dicey zone, where specific and Michelle steelmaking technologies.
And we are also working on plans to continue just couple and sizing our operations beyond 2030.
To better manage all these issues, we have recently put in place a reorganization of our and by environmental functions with two distinct structure, one could tackle with long terms strategic environmental decisions and another to oversee the day to day environmental issues.
In addition, the board of Directors has nominated one representative of the book to oversee and a quarterly basis that means climate change strategy.
Carbon neutrality is a goal that can only be achieved if all parts of society, where to get together I expect there will be many more things in years to come that we will be able to do to improve our carbon footprint. So you will continue hearing more from us on this subject.
And the near future.
Let me now make a quick comment regarding the business environment and our main markets.
And Mexico, we are having strong demand from industrial gas from us mostly driven by finished goods.
<unk> exports, although industrial customers and it proves the man it what east widespread household appliance industry currently stands out as the strongest sector and.
The outdoor industry.
It relatively weakest assets being affected by our semiconductor logistic bottleneck and its supply chain.
Until the beginning of last week, our facilities in the country had been running at full capacity, but extreme weather conditions in the southern U S and northern Mexico.
The three that day.
Sorry cause the interruption of our stable provision of natural gas and energy in this area with a negative effect on production for approximately 80000 tons.
All facilities in the area are currently back to normal operations.
As a result of these events, we expect shipments in Mexico, and the first quarter of this year to remain at levels similar to those of the book.
Fourth quarter of 2020, instead of saying quite and surely growing.
Our expansion project and the country continue advancing as planned with a new coach.
Rolling Mill at the pace Korea facility expected to begin operations in four months.
Mexico is our biggest market and region and we believe we are uniquely positioned to take advantage of the opportunities day U S MCA and especially the re shoring of manufacturing capacity, we know for us in the future.
The decision, we took three years ago to expand our capability to supply sophisticated industrial customers in the region is finally coming to fruit tea on and I really believe this will transform our company.
In Argentina, where she may continue increasing and the fourth quarter, even after significant recovery in the third quarter driven by growing demand for durable goods and building materials. This mostly reflects the shift in consumption patents to a home improvement expenditures as it happened in other.
Markets in the region.
Even though the first quarter of the year is the seasonally weakest in the Argentinian market, we expect shipments in the first quarter of 2021.
And they are kind of levels.
Finally, turning now to Brazil.
This is a market that most quickly recovered activity after the pandemic and dust induced lockdowns.
GAAP facility in Rio de Janeiro is working at full capacity and we are and can be seen between its integration with 10, New Mexico and the first quarter. So we expect lower slab sales of slabs to third parties compared to the fourth quarter of last year.
'twenty 'twenty, one will be our people felt ear for that and you were going to be adding significant stake of yard capacity and Mexico, expanding our product range and at the same time, increasing the cost efficiency of it.
Our operations. This new capacity will also allow us to integrate even more our industrial system in the Americas without a strong steel based in Brazil to better serve customers all over the region and Golar.
Yeah, We recently commissioned our Greenfield rebar facility.
Columbia's President Mr. Even do get was present and P. F N S.
That's why I favor and members of his cabinet.
And now we're at a speech he was very supportive of the commitment of the country's government to prevent prevent and fair trade.
New facility with significant strength, our presence and competitive position and Columbia.
Wrapping up my remarks.
First I would like to acknowledge our people effort last.
Last year, which made possible the amazing results, we show and I'm proud of their commitment and teamwork in these very very difficult year.
Going forward. The following years will be a turning point in pet and use life first and you Hot Rolling mill at Goodyear facility with soups.
And surely increase our capability to serve the market.
Sophisticated product.
I have no doubt day U S. MCA region will continue providing opportunities to developed our company and finally, we will continue working towards sustainability.
Sustainability and Decarbonization and this is Pete to continue delivering value to all of our stakeholders and.
And leave you now with Pablo who will review our performance in the fourth quarter. Please Pablo go ahead.
Thank you Maximo and thank you everybody for participating in our call.
And let me review the results for the fourth quarter of two sources.
Indeed, our performance in the fourth quarter and remark.
A couple above our expectations.
How do you feel prices and our mid market, especially in North America and combined with the boost in demand for these products.
And your profitability and resolve to actor and you live with.
We saw your raw material price not yet fully reach and our cost I'm sorry, Eli.
On top of this party or whatever and development net income was positively impacted by two non recurrent events that we will see later on.
Yeah.
Let's start our.
Presentation on page city with the company EBITDA and net.
Results in the fourth quarter.
EBITDA reached $645 million and.
EBITDA margin of 20 type of thing or $210 per ton.
Significant improvement by any measure both sequentially and year over year.
When we see these in more detail in the next slide.
Net income in the PTO walks and $671 million or $3.06 per ADR.
These outstanding results.
Our strong operating performance, but also includes the positive effect.
$196 million non cash gain related to the recognition of a contingency on certain tax benefits attorneys and have receded equivalents to Singapore and 95 per radius.
And the net positive.
Okay.
And the appreciation of the Mexican peso against the U S dollar.
And in the fourth quarter and next slide we will review these developments too.
Our quarter and photo and expectations for the next video we see sequentially higher medicines.
Driven by the higher EBITDA in the first quarter of 2000 and I'm driving.
Yeah.
Turning now to page four let's review the performance of our achievements in each region.
Yeah.
In Mexico shipments in the fourth quarter food to recover from the impact from the pandemic affected shipment volume increased by 14% on a sequential basis and 6% year over year.
Looking forward into the first quarter, we expect sequentially stable and shipment volume in the country.
Mainly as a result of the described and.
This represents in the production does Maximo COVID-19.
And they sell and resume shipments and the fourth quarter 2020 surpassed pre pandemic levels by a wide margin supported.
Supported by increased demand of durable goods and construction materials and Argentina.
Chip and consumption patterns and hasn't been that continues.
So I'm with you.
And by the COVID-19 pandemic, so looking forward we expect.
And shipments integrations is very strong and the first quarter of the year.
And the other markets from their voices according to our year over year decrease and achievements in the fourth quarter and May.
Mainly of finished steel products.
Spec and carrier integrations are starting and slot facility in Brazil with the company's inducted assistance in the first quarter of 2021 with a consequent and sequential decrease in volume of slab.
Okay.
Turning now to the next day.
Right.
Consolidated and shipments reached three four and 1 million tons a day.
And fourth quarter, but up 8% sequentially, 5% year over year.
Consolidated and shipments in the first quarter 2021, and expect it to be similar to growth of the fourth quarter and relative stable volumes in our key markets as already discussed.
Revenue per total increased sequentially and year over year in the fourth quarter of the year.
And prices in our key markets continue strengthening since our last conference call, especially in North America.
These together with a lag and we set of contract prices in Mexico, with true, which prevented realized price to increase more in the fourth quarter will show, even more strongly in realized price and the FERC quarter four this year.
The combination of higher shipment and revenue per zone in the fourth quarter resulted in a 21% sequential increase in net sales to $2 $6 billion.
We will and two a 15% year over year increase.
Turning to the next page number six let's review the main drivers behind the sequential improvement and fourth quarter EBITDA and net income.
Especially because of the lag effect into the next couple of quarters. So can that margin be sustained and grow I mean are you continuing to grow faster than your costs. That's my second question on my other question of.
Following up on the dividend comments from before the Carlos is it possible that the I know that you were compensating for not paying last year, but is it possible of the board considered this dividend payment of news starting point going forward. If your profitability continues near recent levels. Thanks.
Thanks.
Thank you.
Great question.
Pablo why don't you answer the first one.
Okay.
So you're right we were thinking of a decrease in <unk>.
Martin.
To look at the numbers.
And that the reflected in an.
The increase in the EBITDA per zone two.
$200 per tonne.
Clearly we are expecting an increase in that number for the fourth quarter of a year.
Taking into consideration of the big tender.
On the maximal depicted on price in the North American market.
This will be sustained.
In the in the following one.
Then we need to to analyze clearly on placebo.
The impact of the new pricing scenario.
The two two to reflect the number again.
We will.
We'll continue the rule I think the Korea facility will help us continue to do that is to sustain our Murphy.
Possible.
Even in the scenario.
The significant level of pricing of a theme we keep.
Moving on maybe the most in my carrier on our competitors on this is where we are.
Looking for award we are continually working on.
Even in D C W.
The significant difficulties, we have reached the EBITDA margin.
The last year or so.
We see some of the continuing carrying very high EBITDA margins and EBITDA.
Per ton during the upcoming quarter.
We will keep working moving forward.
So much of what we can do these levels.
And the second the about the dividends.
I mean dividends as you know in our company of decided by the shareholders' meeting so I cannot comment exactly the <unk> standard or not.
Having said that.
I see our our expectations of a strong performance in <unk> 2021 so it does continue.
The.
If there is no doubt the beats good performance will be reflected in the debate on payment of 2021 'twenty two.
I think that with the SEC I answer the question yes.
Yes definitely thank you so much the best of luck.
Thank you Tina.
And your next question will come from Andrea <unk> from UBS. Your line is open.
Thank you very much just two quick questions from me a follow up on the capital allocation, you, obviously mentioned dividend Capex.
Obviously, youre very cash generative at the moment in the overseas.
The expansion of extra close kind of those two of them any thoughts about bringing of potential share buybacks at this point of time.
That is the first question.
And secondly, you've also mentioned that you expect you expect slab sales kind of pumped down in the.
The first quarter should we allocate volume to Mexico.
Why why is it happening so early with the Mexico expansion not ramping up until two that just restocking driven.
That's driving that of the allocation of snaps.
That those are the two questions. Thank you.
Yeah.
Okay.
The the first one.
You know that we.
We always look at different on Thermo King.
Where our share price the.
The issue with the share buyback the east but.
The level of floating that we have so we know we'll consider everything the way.
The other.
The license these type of transactions.
So it's difficult for you into more of a hit with that go into.
And through the election.
Broadly we need.
We go for the market, but then we would be generating additional problems in the near future. After taking the decision like that so that's why we have been reluctant to take a decision.
The other one.
Well.
We continue to relieve the exactly the same so I do most of the future a transaction like that more of what we see continuing of multimodal, explaining our dividend payment of our V. The.
The increase.
In assets have been enjoying in the last year. So that is where we are.
But from that.
Yes, the second one.
If the slot and Youre right I mean.
The slabs we are still.
Buying or you seeing the same amount of slabs because the consuming the the start but two things first of all this integration he is going to happen. So in some sense. We are trying to certify our slabs in a lot of customers, we have been running hot screaming.
But to be ready to improve and to send from the new hot food.
From the beginning so thats one of the reasons and the check.
On the weekend is more of a promotional rate reached on I mean, we are always looking.
What is the what is our best opportunity.
As cost to buy and sell on.
The transfer to Mexico, So we.
Or will you see this this.
The.
The beef equation to see what is and to be honest in the first quarter. The equation given that it was better to ship more to Mexico.
To share from Brazil, and shipped on <unk>.
Type of Mexico from other sources.
So most of where the two return on some of that.
Okay, that's very clear I appreciate that and maybe a quick follow up.
You already answered this question part of it but just to clarify for the expansion in Mexico.
How many months of quarters, you kind of expect it to take from view the kind of reached the full run rate I mean, you always talked about 2023 in terms of of.
Sales of.
Full nameplate capacity, but the.
Presumably it's not going to say 18 months to ramp it up so how should we kind of think about the sequential increase in production.
Of the way you're planning on.
On the new plan.
Yes.
On your right, but remember the new sales I mean, the Hudson meaningful COVID-19, we'd probably be at full capacity.
As soon as possible.
In six months, but I mean in next year, we will probably be producing at full capacity.
The thing is that most of most of them off on important part of the new sales.
Industrial customers.
We have to go through a very long period of simplifications.
Which we are advancing some of the customers, but not on out so.
You've got both.
Our two the luck of facility on our <unk> facility.
Do you see at 100% will probably take the 'twenty 'twenty three we will probably I mean.
The improve.
Both of our facility maturity of full capacity I am probably from some time the geopolitical facility will decrease a little bit production at the facility older and we'd have higher cost. So we are going to focus over everything, but Korea and the.
<unk> increased to the boards going 2023.
Got it.
The way of being I mean, its concern of Ids I know.
But we want to do the.
The way I mean again, if the market on.
We're able to certified all of our programs.
All our products.
We probably.
Probably we will increase that we will improve.
Improve that.
Sure.
Yes, that's very that's very clear and conservative is good I. Appreciate you taking the question. Thank you very much on congrats on the solid results.
Thank you Andrea.
Again, if anybody would like to ask a question. Please press star one on your telephone keypad again that is star one on your telephone keypad. The next question comes from Tiago.
Well. Thank all of your line is open.
Thank you.
Morning, gentlemen, two questions on my side. The first one on slab on the slab market could you comment on the.
Of the dynamics, there supply and demand you are seeing pretty pressured prices.
Do you expect this to hold for for longer and the second question on.
On the demand side in Mexico, what are the sectors that you're seeing you know the most.
Positive demand momentum.
If you could comment on that as well and then the very final one adjusted to double check you mentioned the.
The a $40 million impact because of the specific issues on the fourth quarter is that just production loss or that there are other costs associated there.
Yes. Thank you, yes, I said for the third one being production in the us.
The most of it I mean, there is not.
The metallics some part of that.
Purchase natural gas a little bit higher but.
The main impact is production lost in the facility.
It's a full capacity so if we lost production we lost shipments.
We cannot recover two day, so we've got I mean.
That's the only thing.
On site in Mexico.
Thank most of all of the industrial gas on those.
On.
On the full capacity here I mean, all of the sectors as I said.
I think in my remarks, I mean.
The gain.
The electronics I mean, the home appliances HVAC.
Everything is running at full capacity all of our customers even in the ultra, namely the auto industry, which has these problems of the semiconductors.
I mean, they are also running.
A very high level with the stoppage going back and forward because of these constraints.
But they're very I mean at the very high level of production. So all of the industrial sectors on very Italian Mexico construction.
Started to improve.
But it's not the main driver of the demand in Mexico.
Ah.
If I may I'm, sorry, yes, but on the.
On the <unk>.
Very strong demand dynamics, how much of that do you attribute to the restocking cycle across different industries because of the situation created by the pandemic, we were seeing that in Brazil, Thats why Im asking is do you think that he is happening also in Mexico and other regions.
I don't think it's happening in Mexico, I think that all of the final goods.
I really consumption in Mexico on North America, I mean people are spending much more.
Improvements in their houses in new houses.
And to be clear, we don't see.
As Tom in distributors of high stocking distributors of our intermediates, we don't see that so the centers don't have much stock in the in Mexico I don't think they have another stuck in the U S. So I'm not seeing an increase in that.
On demand at least in the industrial part of the.
Our shipments in construction again theyre not much stock.
But it is not that high as the industrial sector I'm not saying, it's net improving it's improving a lot. So you take on.
The <unk>.
But it's not that kind of demand.
It is in the industrial sector.
I hope that with this it is clear yeah.
And again, we are not seeing most of that in Argentina, so the to be honest.
I mean, the the leasing of stocking in a lot of things in some part, yes, but now that is not as clear.
The market.
How how hard it is I mean, all of the mine all of the prices have increased.
I think it's not only this not the slab market I mean with the.
<unk>.
Corporate Cohen with a price of 13, the Congress in the U S.
I mean, it's.
Clearly the market is social inquiries surprises.
All of that much I think but the.
The increase the price is so and so I think that that is something of all of the market not of slabs, particularly.
Do you think there is the mismatch between.
Supply and amount of the slab market, meaning.
Some integrated.
New producers basically reduce the capacity utilization.
So the basically started to talk to any of them.
In the North American point of him, but yes, the number of marine.
There's always a lack of supply of class that's for sure before the pandemic ideally now I mean, there is not even one producer of flops.
Probably less sort of kind of thing thats, which they are shipping everything to them. So so the lack of collapsing in the <unk>.
Total North America unit.
America economy.
The thing that happens.
I mean.
The year to banana and it's happening today.
That's a reality.
In the rest of the market I think the Brazilian.
And Russia, which are the two main suppliers of slabs.
They are producing slabs of normally.
Yes, what I meant most of it was just like the rolled steel demand.
Might have recovered faster than.
Then capacity than flat production is recovering and that created a mismatch so.
Steelmakers that used to have their own slab supply it internally there.
They are now behind the market while the <unk>.
Is there does that production.
I am not seeing that.
To be honest I am not seeing that yet.
Okay.
I'm, not saying that it's not happening, but it shouldnt be.
A huge impact on the stock market.
Okay, alright, thank you amongst some of them.
Youre welcome.
And your next question comes from Jonathan Brandt from HSBC. Your line is open.
Hi, Good morning. Good afternoon. Thanks for taking my question I, just wanted to return back to capital allocation.
So of maximizing that you mentioned you have a few different things.
On the study at the moment.
Just wondering sort of how does M&A fit into that is that something youre also looking at our other is there any possibilities there.
Or is the expectation that it.
It'll be typically orkin.
Organic growth going forward and then secondly, just as it relates to some of the internal projects is it fair to say that this would be sort of more in.
The incremental steel capacity.
I'm, just wondering sort of how you're thinking about iron ore at the moment would it be possible for you to.
The increased production of iron ore and sell more to third parties given given the high price does that does that under consideration.
Thank you John.
W kind of location of organic or M&A.
I mean, we always look to both to be honest, we analyzed both end and you'll see that was the record I mean, we have made.
M&A acquisitions.
Part of our growth of our history of walk through M&A.
So that is possible. If you said, where you have something concrete to no.
We don't.
And on some of the projects, we are on and I think our organic growth for sure.
The iron ore.
We finished the couple of years of all of our investment in paying of Colorado.
On.
We have some opportunity to narrow narrower but still.
Still big opportunities.
We are going to increase.
Production.
But not in a substantial way yet.
<unk>.
We have to look more for that.
Okay, great great. Thank you.
Thank you John.
At this time I have no further questions. Thank you I'll turn the call back over to the presenters for closing remarks.
Yes.
Okay.
Sure.
Thank you very much true.
Of all of you for attending this conference for your interest in terms of New My Hope this call has been useful.
And if you have any.
Any additional question on the comments. Please contact thank you very much on the.
Stay safe please.
Thank you everyone. This will conclude today's conference call you may now disconnect.
No.
Yeah.
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