Q1 2021 Ternium SA Earnings Call
Quarter 2021 results call.
I'd now like to turn the conference over to Sebastian Marti. Please go ahead Sir.
Good morning, and thank you for joining us today.
My name is robust the largely on the insurance Investor relations on compliance director.
Turning to release yesterday, its financial results for the first quarter of 'twenty 'twenty. One this call is complementary to that for sensation.
Joining me today are turning to the Chief Executive Officer of Maxim of at all yet on the company's Chief Financial Officer, Pablo <unk>, who will discuss <unk> business environment on performance.
At the conclusion of our prepared remarks, there will 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 that could affect results are contained in our filings with the securities and Exchange Commission on on page two in today's webcast the presentation.
With that I'll turn the call over to Mr of any of them.
Okay.
Thank you sort of RCI and good morning, and thank you all for participating participating today internally on this conference call.
Revenue reported outstanding results in the first quarter of the year with record EBITDA and EBITDA margins still benchmark prices around the globe, perhaps significant increases over the last nine months. Following a pandemic induced decreased during the first half of last year demand for steel.
Significantly outpacing the speed of recovery in global steel production.
Result of this.
Inventories at the value of change reached very low levels.
This umbrella unbalanced supply demand conditions happened not only with steel, but also with iron ore and with many other products along the world markets affecting supply chains across different industries.
We expect steel prices will remain around current levels for the rest of the second quarter on.
Could decrease during the second half of this year of steel capacity utilization gradually catches up with the month on the.
There are some positive factors that can continue to support healthy steel demand net the continuous deployment of government stimulus programs on the progress on the different countries vaccination efforts.
Yes in the press release, we guided for sort of sequentially higher EBITDA and margins in the second quarter of 2021 the.
The main driver for these guidance of higher realized realized steel prices, partially offset by a higher cost per ton.
It is worth noting that as more than half of our sales in Mexico are under contract realized steel prices in the second and third quarters should remain tight with thread, reflecting prevailing steel prices in the first on second quarter of 2021.
Do you really.
In addition, the cost of many of our raw materials like iron ore and scrap.
Are also showing elevated levels on the same is happening with slips.
Higher cost.
Not yet been totally reflected in our cost per ton as we consume inventories overtime. So during the rest of the year you should see cost per tonne regularly increasing.
Let's review now the state of our main markets during February extreme weather conditions in the southern U S. On.
North of Mexico disrupted production at our facilities in Monterrey with the negatively impact the shipments of approximately 80000 tons in the first quarter. Since then our facilities have been running at high capacity levels.
Demand from exports net industrial customers in Mexico continued to be strong on activity at the commercial market is steady.
Consequently, if market conditions remains as the currently are we expect to subsequent to the increased shipments in Mexico in the second quarter.
After that during the second half of the year shipments should continue to gradually increase as we expect our new cultural Rolling mill at the Pesky Industrial center for start up.
In the mapping of months from now.
Turning now to Argentina industrial activity in the country remains strong during the first quarter of the year as these.
Deep the construct.
The sector.
Shipments in the first quarter at a slightly sick of hearing.
Sequential decrease as the.
Each of the seats.
Currently weak quarter for the region.
Although we expect shipments to remain stable during the second quarter supported by continued domestic demand for durable goods and building material. It is worth noting that the second wave of COVID-19 pandemic is currently underway across South America.
For the time being there has not been any government mandated lockdowns of industrial facilities as it happened last year, but if conditions deteriorate, we cannot rule this out.
Our operations of <unk> slapped facility in Rio Colorado on.
Answer of working at high capacity levels at most facilities are doing the.
And currently in <unk> industrial system slab prices increased subsequent actually doing 2021, reflecting the increase in iron ore price.
On better steel market conditions. This facility, which is capable of manufacturing the highest specification steels is providing a very strong steel production base for Chinese operations in the region on.
It was intended when we acquired <unk> back in 2017.
On today's high steel price environment revenue in Brazil is key for <unk> competitive position as it integrated further with our facilities across Latin America.
In Colombia that millions of new facility in primarily the barilla is doing better than we expected. The local market is recovering strongly on the ramp up process.
Progressing faster than anticipated with a third ship been incorporated ahead of <unk>.
Time for this production configuration, the new facility is providing <unk> in Colombia with approximately 20000 tonnes extra shipments per month. In addition to the substitution of 10000 tons of steel that were previously previously purchased to third parties.
Alright, I would like to give some final remarks before going into Pablo Fabulous analysis of our performance in the first quarter.
As I mentioned, we are very close now to put into operations the new Hot Rolling Mill in Mexico in the shorter term the state of the <unk>.
Capacity will become very challenging.
At the time of imbalance in the steel market as it increases our market offering.
The expanded product range on enable higher productivity throughout our facilities.
As we ramp up these new line our current expectation is to achieve total incremental shipments in the north American market. The U S. MCA of more than 4000 400000 tonnes in the second half of this year.
But with a longer term view.
Truly believe this will be of significant made some interims life and it will make us ready for further steps in the country's development.
Another issue I would like to mention is our long term development in the global steel industry and has the potential to be very beneficial for all steel companies plans to Decarbonize steelmaking operations around the world of taking hold in our case, we announced on medium term the can range of roadmap.
On February <unk>.
China. The government is gradually mandate the guts of steel production with the aim at.
Progressing towards the country's decarbonization targets it for.
Flow through this could have a relevant effect in the future of word steelmakers.
It would have the potential to solve the country's chronic still excess capacity and it's detrimental effects in the world steel market today's news about the <unk> genius announcement that it will reduce the export rebates for many steel projects and it will get.
The producing of pig iron crude steel on a recycled steel to zero are clearly steps on the right direction.
And finally, a quick note of cautions the covenant the pandemic is net over as vaccination programs in many of the countries in which we operate are not progressing as fast.
They are doing the developed countries.
So most probably we will have to continue billing for some more time with the pandemic effect in these markets our personal lives and those of the people in our communities.
If this is the case you can rest assure that we will continue committed working at the team doing our best for our business on.
For our communities as we have done until now.
Okay. Pablo Please go ahead with the slide presentation.
So on maximal and good morning to everybody.
Yes.
You will see throughout through the slides that follow and the very strong fourth quarter volume as result of profitability in the first quarter has been outstanding.
The truck the Austin market environment, the maximal describing his finisher for Mark is reflective of permanence of economic and financial performance.
We've historically held Madison significant cash generation on a consistent of the strengthening of our balance sheet.
Let's start on page three in the webcast presentation for renewables.
EBITDA in the first quarter of consultants with the one was $1 $1 billion on.
On the EBITDA margin of 33% or $341 per ton.
Net income in the period was $707 million for $3 seven for <unk>.
Yes.
We expect on even a stronger set of results in the second quarter of the year.
Discuss this in more details in the coming slides.
Let's turn now to page four for on the lifestyle shipment.
Mexico in the first quarter increases 3% both sequentially.
On the year over year basis.
We expect volume in the country the increase in the second quarter.
Shipments record from first quarter of extreme weather conditions impact on our production.
In the southern region shipments in the third quarter of 2021 decreased 5%.
Sequentially and grew significantly year over year.
Let me remind you debt.
I think of it in the first quarter of 2020 was affected by Lockdowns related to the COVID-19 pandemic.
Looking forward into the second quarter, we expect the shipments in the region to remain at relatively similar levels.
In the other market vision, you can see that the volume of flux shipped to third parties in light Gray decreased in the first quarter, both sequentially and on the year over year basis.
These reductions reflect the increasing integration of 30 in the slot facility in Brazil with the company industrial system. We expect the last this last integration level to continue increasing in the second quarter of the CEO offsetting the expected volume increase in Mexico.
Now at the same time in dark Blue you can see finished shipments in this region, which increased in the first quarter of 2021.
Of note.
In the figure we are ramping up starting in the new facility upon the matter of anybody in the in Colombia, which have contributed to higher shipments in the.
The cash.
So combining these development you can see in the next stage, we would like to consolidated free shipments of three one times in the first quarter.
One per for the failure sequentially and 3% year over year.
Looking forward summarizing all of the has been discussed we expect stable consolidated the shipments in the second quarter, we sell your shipments in Mexico offsetting the lower slab.
Sales to third parties.
Now turning to prices revenue per zone increased sequentially and year over year the for the quarter of this year.
If the prices and networking markets continuous strengthening since our last conference call, especially in North America.
This together with the lack of a set of contract.
Prices in Mexico anticipate these trends to continue in the second quarter of commented by Maximo.
Moving on to net sales the bottom chart. The combination of Ratably during that there'd be a state of the shipments and realized price resulted in the 26 sequential increase in the first quarter to three $2 billion.
Compared to on the same period last year net sales increased 43% in the first quarter.
Now for the next page number six let's review the main drivers behind the sequential changes in the first quarter EBITDA and net income.
The chart on the top shows the significant influence of the realized price on the EBITDA increase which was partially offset by higher cost per ton as the result of higher raw material and purchased slab prices.
We expect the new sequential increase in EBITDA in the second quarter the Sierra.
Our realized prices of <unk>.
Clearly the discussed partially offset by higher cost per ton.
On the inpatient raw material prices continue to flow through the company's inventory.
The challenge.
So a slight sequential increase in net income in the first quarter as a result of significant increase in operating income that cannot be seen in the is entirely due to the 186 million nonrecurring gain in the fourth quarter last year related to the recognition of the cash.
Additionally, in connection with the idea of SMS.
Great.
This gain was excluded from the calculation of EBITDA in the fourth quarter.
Well for having the first quarter better net financial results, mainly due to a 3% depreciation of the Mexican peso against the U S dollar compared for 13% appreciation in the fourth quarter over the nature Mexican peso provision.
The significant appreciation of the Mexican peso on the fourth quarter also impacted the effective tax rate.
We're down to one percentage of fourth quarter compared to 27 in the first quarter of this year around what should be expected when they're on.
No significant fluctuations of exchange rates.
To finish the presentation, let's now turn to our cash flow on balance sheet quarterly performance on page seven.
Cash flow from operations in the first quarter were $328 million DRAM up that we expected increases in working capital in this period.
Note in the working capital increase we have an extra $555 million in trade another of receipt.
Due to higher realized realized steel prices.
And of $316 million inside of value of raw material suppliers on others.
In the cost of sales in our event the.
This was partially upset by carrier accounts.
Looking forward into the second quarter respectful of the increase increases in working capital reflecting carrier.
The nice price and cost of theatres these cash.
The free cash flow the company managed to generate $198 million. After the capital expenditure of one standard of $3 million and the mentioned investment in working capital debt. Mrs enabled revenue to federal revenue of net debt to $229 million at the end.
End of March the equivalent of Cedar point of one times net debt to 12 months EBITDA.
Let me remind you that the spirit of announced that means board of director of has proposed the dividends of $400 million equivalent to $2 and Tencent the avs in support of the company.
On a meeting of shareholders. It will be paid on May 11 from shareholders on record as of May six.
Okay with this we finished our prepared remarks as always we appreciate very much of your time and attention. We are now ready to take your questions. Please operator proceed with the Q&A session.
If you would like to ask the question. Please press star one on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
And your first question comes from Kai for Barrow with Credit Suisse.
Hi, Good morning, everyone. Thank you for the opportunity so.
So my first question on the flat steel prices in the U S and Mexico.
Clearly prices have been trending very favorably year to date on the marketing of on appears to be very tight right now.
But there is considerable incoming new capacity both in the U S and Mexico.
Coming online this year and next so I was wondering what are your expectations on the impact that this new capacity will have on prices.
The prices normalizing on a lower base once this new capacity comes on line.
And if so when do you see this happening.
And then secondly, I was just wondering if you could talk about where you see the inventory levels for steel throughout the whole supply chain in Mexico right now.
How you think that the compared to normalized levels. Thank you.
Thank you very much carrier on a very good question I'll start with the second one because it's a little bit more inventory levels, our abilities and industrial customers are very very low today, they are not yet a normalize level and on the.
Not even you can see the or even more of low <unk>.
Do you see the the high rate of hotel the creation that all of our industrial customer cash and the production base. So yes inventories of Mexico, very very low prices in the U S.
And as I said in my remarks, I think perhaps prices in the U S are going to continue during the second quarter as as of yesterday.
And the.
And in the <unk> in the third and fourth quarter each day.
They should decrease somehow although I don't see.
Ah something that is going to decrease.
Price is too much I don't see on <unk>.
Because the demand is very strong.
And and.
And the new capacity is not going to be in line in the near future.
So I don't see a.
And then debt is going to diminish prices.
In the near future on the second third quarter of fourth quarter buy much in the long term.
And I don't know the your question was more of the long term on the new capacity that probably next year.
With the with steel dynamics another of its going to be on line.
But if you are talking about the long term.
I don't see these new capacity coming on line as a very.
Problematic.
And I am going to take a little bit younger Guy Im sorry, but this is a very good question.
<unk>.
Yes, so the things that are moving the market in USA the U S and Mexico first conceptually is going to grow.
I mean.
Mexico has a consumption that is the 160 kilos or having debt. That's a very low consumption. Each Mexico is going to develop is going to start consuming more skus. So that's consumption is going to growth in Mexico on the following.
The strength that.
The re shoring issue this is happening.
It's happening at a pace that probably is going to incrementally in the next few years and this is going to be more consumption on the third thing is infrastructure, which we didn't have in the past, but it is.
One of the U S is going to be it is also going to have on.
On impacting infrastructure so.
The capacity that's coming on line is coming to fulfill the.
The committees.
And compete with imports because shedding.
If you take day of 2020.
The imports.
From finish at the flat products in the U S on Mexico.
Somehow 50 means 15 million tons.
It'll be more of a little bit less and this is a year, which is not the typical year.
So you have of net of room to compete with the seen boats.
So the question is if the capacity we are building at Liza one that we'd be Lee.
It's able to compete with imports and Thats why we are building our capacity, we have very competitive cost position.
So we think that we are more than able to compete so I don't see.
That these new the.
The new capacity is going to have a huge impact on prices.
I Hope I answered your question from Kyle.
So a little bit longer.
No no debt that's perfect I really appreciate the look of the full answer in a very complete I mean that was just trying to understand exactly on the momentum in the short term on how that's going to flow through on the medium to long term. So that was a very complete answer. Thank you very much if I might just follow up with one thing very quickly on the inventory levels, Yes, how long do you think.
It could take from.
Normalized inventory levels.
Aye.
To be on net.
Just on commercial.
In Mexico on the commercial market I think it's gone on a normalize in the near future.
The industrial customers I think it's going to take a little more longer.
Demand continue these way.
I think he is not going to be over until the net and in the <unk>.
Last on the and then the find the month of the year.
Understood very clear thank you again on them.
Thank you Cai of.
And your next question comes from the line of Thiago <unk> with Bradesco <unk>.
Thank you.
Good morning.
Guys a couple of questions here on the capital allocation side usual question here that you guys get every quarter, but you are.
Cash flow generation will be significant in the coming quarters right.
Likely yes.
The coming year or two years.
So what what should we think about here in terms of capital allocation for Geranium should we see you guys, beating up on the M&A agenda.
Any other significant organic growth of opportunities that you guys might consider or should we just really see more more dividend just just to understand how your mindset is at this point given the new scenario given the.
High level of steel prices globally, and if that persists, how should how will turn him approach Disney World.
The second question is on a more specific on on your third party of the slab shipments for the second half of this year.
Where where should we see that level.
As you ramp up that the city of Neil Thank.
Thank you.
Well I start with the <unk> and Tiago.
The second one.
The other one is also easy but third.
Third party slabs.
Sure.
Two day in Mexico, we consume.
Around 3 million tons of slabs.
More or less.
We didn't ramp up.
On.
Of the new facility, probably next year, we are going to consume a leader of meet more of 5 million tons.
In the fourth quarter of probably we're going to the pace that we.
We are going to run out of the pace of 4 million tons of year next year, probably of 5 million tons of needs of slabs for Mexico.
And then probably the least anymore.
On the other side, we have had revenue.
Panama City is running almost at 5 million tonnes of little bit less of that at almost <unk> 5 million tons and as you know we finished our contract with the caveat. So we don't have to sell anything to the U S.
<unk> in the beginning of May.
So.
You see that the way we are almost balance in our slot production of our slabs.
Nevertheless, we are going to buy from third parties, because we intend to sell from Brazil from our slab facility in Brazil, particularly to the local market.
But it's going to depend on that.
On the alone.
What are the opportunities to buy from third parties and to sell to third parties, but the.
Revenue is almost balance today.
GAAP seats.
I hope that answered the question, yes, most of them on just a quick follow up so when you say you're going to buy from third parties.
Because you want to sell to the market in Brazil. So.
That's solely because of.
Like better economics for you guys to sell in Brazil at a premium on what is the rationale there.
Exactly exactly free I mean, you don't have the trade.
Exactly frame, we currencies a premium because we ship just in time to the customers I mean, instead of shipping instead of them receiving a vessel on a once a month with and he had strength at times, we ship by train every day for these customers and so they pay of pre new money you don't have the trait.
So we kind of economic analysis.
The analysis Bureau of economic analysis.
Got it.
The first question on capital allocation.
Well in the short term.
We are going to have of capex of around 600 medium donors in in this year.
We are going to still increase working capital we have a huge investment in working capital in the first SKU of.
For almost $700 million.
In the second on burn in the third quarter, we think increasing prices and volumes probably we are going to also invest in working capital on next month, we're going to pay for $112 million in.
In the dividends.
Now in a little bit more further which was your question the speed it up.
Organic growth dividends.
I think the answer is that they are on an all in in the table the.
So for us I mean.
The we always.
I mean.
We always have.
Yes.
Aim to analyze.
Any opportunity that strength is our strategic position in our markets and that is what we are continue doing today.
We have to we have plans to continue developing our industrial platform in the region as long as these straining us our position in this market.
There are opportunities in Mexico, you know we are very.
I'm very confident in the future of Mexico.
To grow and there are also opportunities that we have seen in other markets, where we are strong today.
And Thats, what we are going to do.
Okay, that's pretty of optimal thank you.
And your next question comes from the line of Kyle cleaner with BTG.
Thank you.
Good afternoon, everyone.
So my first question would be on on the guidance EBITDA per ton.
I understand on your guidance and then you would probably increase EBITDA in the coming quarters. The I was just trying to understand how of this equation shaping out to be over the next one or two quarters ahead, because on one hand to prices in the U S more than doubled.
Year over year, and if we look at the <unk> revenue per ton only rising by 50% that's something that called our attention that I didn't understand that net turning has those industrial contracts and that price might take one.
One quarter in average to flow through his notes. So I was just trying to understand how that's going to shape the shape.
Keep out over the next coming quarters and on the other hand, you also have.
Higher raw material costs.
Raw material cost inflation that should also starts flowing through the results as they are.
So flow through.
The entries so and.
Also on top of that you also have fiscal year coming on line, which is something that you guys also mentioned that should increase during the start the ability. So looking at the all of those all of those issues I was just trying to understand how you guys are thinking about.
The upward trend levels over the coming quarters does it make sense for us to look at hernia.
With an EBITDA per ton of the.
$400 over the coming quarters, maybe into the at the end of the year.
So just trying to see if you guys can help us with.
And for testing.
The numbers for the end of the year and my second question just a quick one.
As a follow up.
One of the previous ones, maybe the maximum me can you share with us how.
The <unk> lead times, Mexico, Nowadays, if you can share with us how many months later months of you guys taking to actually deliver.
Spot volumes.
Great. Thank you.
Our lead times for spot volume are similar to those from the U S. Today. So for our hot rolled you are more than eight weeks.
Or a little bit more to be honest.
Of course for us.
Volume I mean, you know we of contracts and we also have regular.
The customers.
Monthly base prices.
Those have no program, but.
There is a spot volume that somewhat once it's a little bit more of of eight weeks.
Maximo.
I'll take the first part of the San please guidance yet.
Okay.
So yes.
But at one of your your question there are some moving parts in trying to analyze a weeks of EBITDA per ton, we will have in the coming quarters clear.
Clearly we have guided.
Is that the increase in prices that we will be seeing the.
In the second and even in the third quarter.
We outpaced the cost increase that we're seeing for specifically this coming quarter. So clearly what we are guiding that we are looking.
For the.
On EBITDA per ton the increase during the second quarter.
Moving forward toward that debt.
The start to retain a little bit.
On the <unk>.
In the scenario that you would like to the pulp here.
It will follow what we have what maximo impairment on on what we are on order we have seen in the market is that in the second semester of the year they'll release on price adjustment, but we are not seeing signs at the moment that these price investments good reviews of price.
To levels that we saw last year. So we are expecting.
It would level of pricing in the second the second semester, you're also right that we will continue to see some cost of moving to our numbers even during the third quarter. We of course price yourself, specifically fluff continued to increase and continue to work through our numbers, but in the third quarter with the expectation of that.
We have.
We should sustain.
Good level of EBITDA.
The platform.
On the fourth quarter clearly with the pain.
A lot in the pricing scenario of that that you would see would return to more normalized level of pricing even be in a very good level of prices. Since cost then will take sometimes to the views of to follow of the iron ore for example of snap a.
All of the same trends that the prices. So you could see some reduction there but in any case, we are seeing the scenario that we have today is that we will continue to see very low level of EBITDA per ton throughout the year.
Alright, thank you so much.
Your next question comes from the line of Carlos de Alba with Morgan Stanley.
Great. Thank you very much for good morning, everyone.
So my question really is coming back to the capital allocation.
In the past of I don't think that we hadn't seen turning paying a special dividend.
So as elaborated before the level of cash in the balance sheet of news is remarkable on that.
The menu, we have seen that before.
But at the described.
Quite good and so is there a implicit policy.
I would stand from doesn't like to pay the special dividends in the scripts to a regular more or less.
Sustainable dividend the.
You see that changing and then on on the same the vein.
When you talk maximum of about the macro about the.
The pension on markets, where you could do a greenfield project for a brownfield project of the model Greenfield annual of M&A.
Yes.
The as you guys are going to speak to the Americas.
The specific regions in the Americas, where U.
We'd like to focus maybe getting more into the U S directly with more of manufacturing capacity, there and they may be creating capacity in the U S.
And then finally.
Coming back to the skin, yes, Ron Paul.
Let me repeat.
You said 400000 tons of.
The incremental volumes in Mexico on the second half of the year could you confirm that number and maybe elaborate on kind of you see the progression of capacity utilization in the.
In the nuclear on call line Nick.
In the coming quarters already for years.
Yes. Thank you very much kind of low I started with the last one it's more easy again, yes.
Yes, I said 400000 tons of incremental shipments because of the CT screening the new cost for new remember the cost free country music is going to start.
Our first call on June 1st.
The program and you need to be the earlier, but.
These are very complex equipment, so the ramp up curve eight salon ramp up curve.
So that's what we are seeing today is not that it's going to produce more for sure but remember that we are also in booking products to fulfill all of our needs. We were importing hot rolled coils from different countries in Mexico to fulfill the needs in the left or the so each one of the rig.
The exact.
On incrementally, we're going to sell 400000 tons more in the North America.
This could be a little bit higher is the ramp of Kirby is this.
Is better but remember also that.
And one final comment this holds true media is going to for.
<unk>.
On the range of products that you've kind of imagined.
On any and for doing that.
We have to make all of the certification process with the provider of equipment and this takes a lot of time. So as you know that the ramp up growth only.
It's just on producing on you start where do you see you have to make sure that you can produce on the range of products and that takes a lot of time of of trying on.
Stopping the line and making adjustments so that.
Finally, the provider of the supply of equipment certified all of these range of products and that's.
With that I answered that question.
Carlos.
The capital allocation and especially the dense we don't have a policy against that but.
I don't know I mean, we like to debt very consistent.
Amy do you see our track record of accent.
In 2000.
'twenty, one when I think.
We didn't pay dividends on I think it was more than justified for what we know at that time.
We want to continue with the space, I mean, increasing or leaving.
The sustainable dividends in the long term and you can see how we were moving in the different years.
The potential market yes.
The market easy of America C. We are not thinking on ongoing.
Two other continents to be honest the existing piece of the U S. We yes, we have on operation in the U S.
And we had had in the past the analyze net.
Some new facility in the U S.
I said before.
On the three options, we always analyze the three options on where do we need now but for coach in the Americas Carlos.
Alright.
Thank you very much like the work for that and if I may just.
The squeeze in another one.
Could you tell me the most of our level.
Right.
Could you tell us what is more of the is the level or the.
The volume of ex labs that there are number of theories is now sending to Mexico.
How much of your strength for the year.
In the last quarter I think the level of exactly was 700 tonnes on tonnes.
Yeah, that's first.
Quarter of the year, and it's going to be around that.
At least around that.
For the next quarter of Snake.
Great. Thank you very much.
So we are welcome Carlos.
You too.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Your next question comes from Alfonso Salazar with Scotiabank.
Hello on a good day.
From the line on Pablo.
Some of the habit and without the messy governments the market.
If you can elaborate more on your constructive view on Mexico beyond the rebound of the expecting the GDP the hip.
Because of consumption per capita as you mentioned very low both the why the increase in the future because.
What we read in the breadth and scale of.
<unk> reforms like the energy reform debt hydrocarbons reform, the outsourcing of reform, having creating uncertainty on investments happening the declining.
The declining for the two years now.
The gross capital formation, whereas the low propane.
So why do you think this is going to change.
On wind and also if you can comment on the expected impact on of the energy reform of the outsourcing of reforming in your results. Thank you.
So very good question.
Let me start with the.
Energy reform on the label.
Neighbor.
The reform, which of the main objective is to to to cancel the outsourcing.
Energy reform is not very good reform I mean, it was a very bad for reform.
But to be honest I don't think its going to go through as you know there are more than 120, I don't know, but probably you know.
The third 20 demands.
<unk> already put on the low has been suspended.
The secretary of energy already suspended the low I don't think it's going to go through.
The rationale of the low of course is to give.
More.
Balance or to give.
A little bit more to Pemex and cfe the.
The end of the the state oil company.
But I think that what day, what people are getting realized in the government debt.
Debt that is not very good for the competitive and now the people are realizing that.
Enable reform does not have any impact on us.
To be on it I think it's the vetting the owner had.
A small positive impact from from us and we used to pay.
The the performance bonus as the low require to all of our employees. So I am not seeing any any.
Any affection for asking.
In this reform.
The first question I think I'll touch on that I answered. The first of the second question I don't know if anything is left on the second question No no no.
No I think Thats fine.
Yes.
Why are we confident in Mexico.
Again, you are right that the <unk>.
The numbers are not very good.
In the what the government is doing in kind of spending on helping.
After the effects of the pandemic.
The first of all I think industrial base is going to continue growing.
Again reassuring is something that is happening we are seeing it every day, it's happening in the U S on in Mexico.
And on most of these.
So on achievements of these plans that we're supplying the north American market from production base in China. The I'm not going to go on to the U S. I mean, Mexico has a very.
Very strong competitive advantage on some of them are coming here. So.
The consumption.
Because of these in the next year is going to grow and.
And it's going to continue growing for us.
On the other parties.
The Mexico has a very I know of you say hey.
The IDC in English, but it has a very balance financing situation I mean, the depth of the country is very low compared to others.
On the needs of infrastructure, a very tight I know the government cash.
Concentrated in three projects only.
But once a day.
Sometime in the next year on the following day of going to realize that the needs of the infrastructure in Mexico are huge.
On that mix you have the means to do it.
And so those two things are going to increase consumption in Mexico.
Of steel because all of those things.
<unk> taken a lot of steel so that's why we think.
Mexico is going to grow again is not going on it's not going to be in the near future I don't see next year, a huge infrastructure bill of.
But in the next two or three years Mickey on has to make a huge infrastructure Bill us the U S is doing.
Yeah.
I hope I answered the question there on a bunch of.
Yes, yes.
We can debate on.
How fast this is going to happen, but yes. Thank you very much.
Sure Yes.
Timing is the issue here, but I think that in the rehearing the timing is going to be much faster debt.
What we are thinking we are seeing.
On the other one it's a huge the debate.
Fair enough. Thank you very much Michael.
Thank you.
Our final question comes from the line of saving Bremen with Peaky ex debt.
Management.
Thank you very much.
This is more of a request on a question on a bit of of repeat.
And as a shareholder what I struggle with discipline.
Disappointed about the clear communication about capital allocation longer term when I look at your basket on tiers of customers from the market for example.
Marcia.
There is a key of leverage targets and the dividend during the two.
Free cash flow off the Capex.
And I am really not arguing against Capex here.
And so for the question is why do we not have a clear message on.
Holy Trinity of.
The leverage Capex and cash returns.
Just to state of my preferences of samples of with Keeley like ex dividend policy linked to free cash flow in the key of leverage targets.
Yeah.
I would now like to pay for I don't know Youre on mute.
Yes, sorry, I think.
On <unk>.
For for the question, let me, let me try to answer your question.
The.
There are two different things in your question on the first one is leery of target something we do not believing.
And let me explain the reason of Hawaii.
We are the company in the sector, where we are with the.
The volatility that the sector of hub.
We believe in all of those having tighter.
Try to have a strong financial position in order to.
First of all manner of things.
EBITDA to sustain our maybe the policy silicon to be able to take advantage of opportunities if the appear in the market and even doing cash.
The six year life for example, last year or maybe the NFC on the happened in the past.
We are concentrating on the auto business and developing our own business on our own plan without the need to.
The need to do some restructuring on or issuance of capital or different instrument that you have to have all of your car of difficult time. So.
That's why we believe you're kind of in a strong financial position of poorly.
Cannot are you on.
With the right that the ones that we have at this moment is too strong but this is why we believe in kind of in this without forgetting first of all of us.
As we said.
Staying on the increasing dividend.
Fulfilling the needs of our Capex plans and we know of.
It was really due to to have to take opportunities if we can.
The day or accepting of that was our last acquisition.
Back in 2017, if you remember when we were on a license the acquisition of of facility many companies in our sector, where the building.
Capital issuance or restructuring the debt, we're having the means to move forward with this acquisition of debt because we improve.
We have great acquisition for.
The second point.
Which is.
One of the key our dividend policy.
The right is something that we do not have a formal written the policy.
But what we have.
<unk>.
The.
The contract, it's a very core.
The way of formalizing the way, we pay our dividend on sustaining and increasing on a niche thing.
A portion of the entity income debt.
We call it through we've got the third.
That is for the when we're taking from from your question.
He is a cornerstone of the company but.
It is clear is that we have been paying a significant portion of our net income of every year.
The track record, we salaries of increasing the.
The dividend payment.
As much as of we can year after year so.
Probably not the answer that you were looking for.
But the issue.
If what we are doing at the company on we take your.
Youre concerned to discuss.
Internally because.
Good to hear.
Our our sort of forward with our offering.
And thank you for that maybe just a quick follow up on.
On the Capex there was talks about expanding capacity of test Korea could you I think for from that tells me pumps can you comment on that from sort of the.
Yeah.
Women, how the decision of opinion.
And what type of coffee.
No.
I don't think you mean in these conference calls of the comment of these 400000 non.
I felt separately.
Potential to expand.
And then for that capacity.
Got it.
No I don't know if we make any comment to expand the capacity of <unk>. Although you know the best get EBITDA site.
That has a lot of potential add on.
One of the things that we are analyzing is clearly.
The add on.
Kind of growing in Mexico on East vs go through that organic growth should be in basket of yet.
And when should we have an update here on what could the expansion project.
They are different.
Different sites.
Clearly one of them and we come in one of EPS and you know that in 2027.
The rule of origins of U S MCA change.
In order to be considered a low count you have to.
Half of melted on pulling the region for the automotive sector as we said.
The et cetera times in 2027, we are going to be we need to be compliant with U S. MCA. So.
One of the options is to invest in pursuit of yet to be compliant.
The other options they are all on under analysis.
This is one thing that we.
Ken.
The interest of Korea.
Got it okay and sorry, maybe just a last question just on on the current count.
And what I think what I really struggle to put in my model and I think from most of it.
Well with us.
How does that impact the split between the two.
Total uplift in volume in the.
The increase in EBITDA, given the the sort of the downstream integration can you sort of guidance how much do you think.
I'll say through the cycle EBITDA per ton should lift.
Given the ruling on Shannon.
The growth.
Well.
Yes.
Another question on I think the awards.
The filer for cash.
<unk> your question, but I'll try to explain how we see the moving through our numbers clearly as we explained during the call.
We are working on high capacity the decision. So that's why we cannot increase the masks the shipments as you saw during the last quarter.
The next quarter, we are all we are guiding again for the.
Turning it on achievements that debt.
Because we are we don't have that much.
For two to keep selling into the market. So the increase the maximum range on them.
We have been commentary clearly on the increase of volume that we will be.
Doing into the second quarter two of the level that we are having today so the.
If we add on the level of five of three 1 million tons in the quarter with that let's say will not be the case, but let's say of evenly distributed in every quarter. So we can say that we will move in the next semester of 233 million tons.
And.
We all sort of guiding that.
With the governor on level of prices, we are expecting to increase.
The increase of the.
EBITDA margin for the EBITDA per ton in the in the second of neither in the third quarter, and then will depend a little bit on the pricing.
One through the life in your model too to know exactly or to have an idea of which will be the madison somewhat of a lot of.
All in all the.
The the messages.
The Korea will allow us to increase the shipments starting next semester.
On this in the coming couple of quarters, we will be able to increase of sustained on the Madison debt. What we are producing at the moment.
Okay. Thank you very much.
Thank you for everyone.
I would now like to turn the conference sounds like attorney and CEO for final remarks.
On the right.
Thank you all again very much for interest in our company I Hope this call has been useful.
We remain safe and healthy and to you all in three months of our next conference call. Thank you very much.
This does conclude today's conference call. Thank you for your participation you may now disconnect your lines.
Yeah.
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