Q2 2025 Ternium SA Earnings Call
Maximo Vedoya: Hello, and welcome to Ternium S.A. second quarter 2025 results conference call. Please note that this call is being recorded. I would now like to hand the call over to Sebastian Marti. Please go ahead, sir.
Hello and welcome to Ternium's second quarter 2025 results conference call.
Please note that this call is being recorded.
I would now like to hand the call over to Sebastian me.
Please go ahead, sir.
Pablo Brizzio: Good morning, and thank you for joining us. My name is Sebastian Marti, and I'm Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the second quarter and the first half of 2025. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Vedoya, Ternium's Chief Executive Officer, and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's business environment and performance. After our prepared remarks, we will open up the floor to your questions. 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 and on page two in today's webcast presentation.
Good morning, and thank you for joining us. My name is Sebastian Mart, and I'm here as the Compliance Director. Martin and I are turning this globe.
yesterday, we announced our financial results for the second quarter and the first half of 2025,
this call is meant to provide additional context to that presentation. I'm joined today by Maximo turning chief executive officer and parlo Rico, the company's Chief Financial Officer who will discuss attorney's business environmental performance,
After our prepared remarks, we will open up the floor to your questions.
Before we begin, I would like to remind you that this conference call contains 4 looking information and that action results May Vary from those expressed or implied.
Pablo Brizzio: You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya.
Factors that could affect results are contained in our filings with the Securities and Exchange Commission. And on page 2 in today's webcast presentation,
You will also find any reference to non i4s Financial measures reconciled to the most directly comparable ifs measures in the press release issued yesterday.
That has done the call over to Mr.
Maximo Vedoya: Good morning, and welcome to Ternium's conference call. In the second quarter of the year, we delivered an improved EBITDA relative to the first quarter. This better performance was mainly driven by higher realized prices in Mexico and a relatively stable cost per ton, despite a slight dip in shipments. The operating environment remains uncertain and volatile, and our main markets are no strangers to these developments. In this context, our focus is on reducing costs to strengthen the competitiveness of our company. We are positive on the outcome of these initiatives and on the future of Ternium. In line with this, we are already anticipating a sequential improvement in EBITDA. In the third quarter, we expect a slight increase in shipments, led primarily by Mexico, with the possibility of some additional support from Argentina and relatively stable volumes in Brazil.
Good morning and welcome to T's conference call in the second quarter of the year. We delivered an improved FDA relative to the first quarter. This better performance was mainly driven by higher realized prices in Mexico and a relatively stable cost per ton despite a slight deep is shipments.
The operating environment remains uncertain and volatile.
And our main markets are no strangers to these developments.
In this context.
Our focus is on reducing cost to strengthen the competitiveness of our company.
We are positive on the outcome of this initiatives and on the future of terium.
In line with this, we are already anticipating as sequential Improvement and Ava.
In the third quarter, we expect a slightly increasing shipments, lead primarily by Mexico with the possibility of some additional support from Argentina and relatively stable volumes in Brazil.
Maximo Vedoya: In Mexico, the business environment is currently marked by caution, pending clearer information regarding U.S. trade policy and the conclusion of ongoing tariff negotiations with the United States. In response to this volatile environment, the Mexican government has taken some measures to increase domestic production defense against unfair trade practices, especially from Asian countries. These actions have recently contributed to some decrease in seed imports in Mexico, creating a more level playing field in local markets. This supports our expectations of higher sequential shipments in Mexico in the third quarter. I remain confident that ongoing negotiations between the U.S. and Mexico will eventually yield a reasonable and mutually beneficial agreement. This conviction strengthens our commitment to the steady progress of our expansion project in Pesqueria, which continues as planned and serves as a cornerstone of our growth strategy.
In Mexico, the business environment is currently marked by cautious pending clearer information, regarding us, trade policy, and the conclusion of ongoing terrorist negotiations with the United States.
In response to this volatile environment. The Mexican government has taken some measures to increase domestic production defense against unfair, Trade Practices, especially from Asian countries. These actions have recently contributed to some decrease in Imports in Mexico. Creating a More Level Playing Field in local markets.
The supports our expectations of higher sequential achievements in Mexico in the third quarter.
I remain confident that ongoing negotiations between the US and Mexico will eventually yield a reasonable and mutually beneficial agreement.
This conviction strengthens our commitment to the steady progress of our Expansion Project in PesquerÃa. We continue as planned and serve as a cornerstone of our growth strategy.
Maximo Vedoya: Unlike the recent developments in Mexico, the Brazilian steel market is facing significant challenges due to a surge of unfair imported steel. Imports continue to flow to this market, undermining the competitiveness of local manufacturers and rising their margins. It is crucial, in our view, that the Brazilian government responds precisely to this unfair trade practice. The impact expands well beyond the steel industry, affecting the wider manufacturing sector and putting at risk investments, jobs, and the long-term stability of these industries. Concrete measures are urgently needed to defend Brazil's industrial base, ensure a level playing field, and foster a sustainable market environment. In this challenging context, Usiminas is actively working on its cost structure in order to improve its competitiveness. Moving to Argentina, the country has experienced a significant increase in shipments during the second quarter, driven by seasonal factors as well as a gradually recovering macroeconomic environment.
Unlike the recent developments in Mexico, the Brazilian steel Market is facing significant challenges due to a surge of unfair imported Steel.
Imports continue to flow. This market is undermining the competitiveness of local manufacturers and reducing their margins.
It is crucial in our view that the Brazilian government response. Decisive to this unfair trade practice.
Risk Investments jobs and the long term stability of this Industries.
Concrete measures are urgently needed to defend Brazil. Industrial base ensure a Level Playing Field and Foster a sustainable Market environment.
In this challenging context is actually be working on its cost structure in order to improve its competitiveness.
Moving toward Argentina. The country has experienced a significant increase in shipments during the second quarter.
Driven by C factors as well as a gradually recovering, macroeconomic environment.
Maximo Vedoya: The automotive industry continues to operate at a healthy level of activities, and the agricultural machine sector is experiencing good demand. By contrast, the construction sector is not improving significantly, and certain market segments such as home appliances and packaging are being affected by an increase in imports of finishing goods. In the face of ongoing uncertainty and volatility in global trade, we continue to focus on strengthening the operation efficiency and improving margins. Throughout 2025, we have concentrated our strategic approach to cost management, seeking opportunities to optimize Ternium S.A.'s production process and supply chain and eliminate inefficiencies. Our competitive improvement plan centers on optimizing our logistic network to streamline transportation and reduce costs, improving our procurement through a better supplier negotiation and cost control, enhancing production facility process for a greater efficiency, and boosting labor productivity by incorporating technology and innovation across our pre-production lines.
The automotive industry continues to operate at a healthy level of activities and the agricultural machine sector is experiencing good, demand.
By contrast.
The construction sector is not improving significantly, and certain market segments, such as home, appliances, and packaging, are being affected by an increase in imports of finishing goods.
In phase.
Of ongoing uncertainty and volatility.
In global trade, we continue to focus on, strengthening the operation, efficiency, and improving margins.
Throughout 2025, we have concentrated our strategy approach to cost management, seeking opportunities to optimize ternion production process and supply, chain, and eliminate inefficiencies.
Maximo Vedoya: These measures support our goal of strengthening profitability and fortifying our competitive position in a dynamic market environment. Before I wrap up my remarks, I would like to take a moment to highlight the release of our sustainable report, reaffirming our commitment to the creation of a long-term value throughout sustainable industrial development. The report details our efforts to advance environmental performance, foster social responsibility, and promote transparency across our operations. I encourage you to review it for a comprehensive overview of Ternium S.A.'s strategies supporting long-term sustainability. In conclusion, trade policy continues to evolve rapidly. We are seeing the United States adopt a more assertive approach in negotiating bilateral agreements and implementing targeted trade actions. While this shift has introduced a high degree of volatility, we recognize the U.S.
Our competitors Improvement, plan centers of optimizing. Our logistic Network to streamline transportation and reduce cost in improving. Our procurement flow, better, Supply, and negotiation and cost control enhancing production facility process for a greater efficiency and boosting labor productivity by incorporating technology and Innovation across our queue production lines.
This measures support our goal of strengthening profitability and fortifying our competitive position in a dynamic Market environment.
Before I wrap up my remarks, I would like to take a moment to highlight.
The release of our sustainable Report. With affirming our commitment to the creation of a long-term value throughout sustainable, Industrial Development. The report details our efforts to advance environmental performance
Foster social responsibility and promote transparency across our operations.
Our encourage you to review it for a comprehensive overview of terms. Strategies supporting long-term sustainability.
In conclusion.
Straight policy continued to evolve roughly.
We are seeing the United States adopt a more assertive approach in negotiating bilateral agreements and implementing targeted trade action.
Maximo Vedoya: government's intention to address predatory trade practices by many Asian countries, most notably China, and to work towards restoring fair competition across the region. Mexico shares this perspective and is following a similar path. Even in this uncertain environment, Ternium S.A.'s strong position in the region helps us face this challenge. I expect that our ongoing project and focus on improving operations will enable Ternium S.A. to adjust to market changes and reach our goals. All right, this concludes my prepared remarks. Pablo, please go ahead with your comments about our performance last quarter.
While this ship has introduced a high degree of volatility. We recognize the US, government's intention to address predatory Trade, Practices by many, Asian countries, most notable in China and to work towards restoring. Fur competition across the region. Mexico shares this perspective and is following a similar path.
Even in this uncertain environment 30 strong position in the regional help us face this challenge.
I expect.
That our ongoing project and focus on improving operations will enable turning to adjust to Market changes and reach our goals.
Pablo Brizzio: Thanks, Maximo, and thanks, everybody, for being here today with us in this call. Let us start looking at the webcast presentation for a closer look at the operational and financial performance of the company. Beginning on page three, we note that Ternium S.A.'s adjusted EBITDA increased by 25% in the second quarter, mainly driven by stronger realized steel prices in Mexico, as well as by a slight increase in cost per ton. The effect of this positive trend continues into the third quarter, mainly supported by ongoing cost efficiency measures and operational improvements. Turning to the next page, net income for the second quarter of 2025 amounted to $259 million. These figures include a $40 million provision adjustment related to the ongoing litigation associated with the acquisition of a participation in Usiminas back in 2012.
All right, this concludes my prepared remarks. Pablo, please go ahead with your comments about our performance last quarter.
since 1917 for being here today, with us in this call,
So let's start looking at the webcast presentation for a closer look at the operational and financial performance of the company.
Being on page 3. We know the Turning adjusted the vda increased by 25% in the second quarter?
Mainly driven by stronger realized steel prices in Mexico. Partial upset by slight increase in cost of to
Give positive trend to continue to the third quarter, mainly supported by ongoing cost efficiency measures and operational improvements.
Turning to the next page. Net income for the second quarter of 2025 amounted to 2559 million.
Pablo Brizzio: The adjustment reflects both excess sales and the appreciation of the Brazilian real against the U.S. dollar during the quarter. Adjusted net income excluding this provision amounted to $299 million. This was mainly supported by a better operational performance and favorable deferred tax results due to a 7.5% revaluation of the Mexican peso during the period. On the other hand, we have a decline in net financial results, primarily driven by the same Mexican foreign exchange fluctuation. Now, turning to page five, let us review the performance of our steel segment. During the quarter, shipments declined primarily in Mexico and the U.S. This was partially mitigated by higher volumes in our southern region. For the third quarter, we anticipate a mixed performance across our key markets. In Mexico, we expect some sequential growth in shipments, supported by recent government measures aiming at curbing unfair trade practices.
These figures include a $40 million permission adjustment related to the ongoing litigation associated with the acquisition of a participation back in 20 trials.
Against the US dollar during the quarter.
Adjusting the income excluding this provision amount to 299 million.
It was mainly supported by a very operational performance and favorable deferred tax return.
Due to a 7.5, revaluation of the Mexican peso During the period.
On the other hand, we have a decline in net Financial result by driven by the same Mexican foreign exchange last week.
Now, turning to page 5, let's review the performance of our steel segment.
The quarter shipments declined, Primary in Mexico and the US, this was partially mitigated by higher volumes in our southern region.
For the third quarter, we anticipated a mixed performance across our key markets in Mexico. We respect some sequential growth in shipments, supported by government measures aimed at curbing unfair trade practices.
Pablo Brizzio: In contrast, Usiminas in Brazil continues to face headwinds. The Brazilian market remains under pressure due to a sharp increase in unfair trade steel imports, primarily from China, which is undermining local competitiveness and impacting demand. Meanwhile, in Argentina, following a strong increase in the second quarter, driven by seasonal demand and gradual macroeconomic improvement, we are expecting somewhat shipments to hold steady on the positive side. Let us now turn to page six of the presentation. In the second quarter, there was an increase in average selling price, especially in Mexico, although this was offset by lower shipments. Margins improved, supported by the higher price with the most impact from increased cost per ton. Turning to slide seven, we will now review the performance of our mining segment. Iron ore shipments rose quarter over quarter, driven by increased production levels.
In contracts, using minus in Brazil, continues to face headwinds, the Brazil, the Brazilian Market remains on the pressure due to the sharp increase in and fair trade still Imports, primarily from China, which is undermining local competitiveness and impacted demand. Meanwhile in Argentina following strong increase in the second quarter driven by seasonal, demand and gradual, microeconomic Improvement. We expecting somewhat uh cheapness to hold a steady on
Positive side.
Let's now turn to page 6.
Of the presentation. In the second quarter, there was an increase in average selling price especially in Mexico, although this was offset by lower shipments.
Margins improved supported by the higher price with the most impact from increased cost per ton.
Pablo Brizzio: Despite these high volumes, net sales remained broadly unchanged in the second quarter, as lower realized iron ore prices offset volume gains. The segment margins slightly declined, reflecting the impact of winter prices, although this was partially offset by lower operating cost per ton. Let's proceed to the finance slide of the presentation to review our cash flow performance and balance sheet positions. Cash flow operations in the second quarter totaled $1 billion, aided by a significant reduction in working capital. This reflects our work on adjusting inventory volume, as well as a decrease in trade residual. In addition, a high level of CAPEX contributed to an increase in commercial debt. CAPEX increased this quarter as a result of ongoing expansion at the Pesqueria Industrial Center in Mexico. This trend is consistent with the project expenditure forecast, which identified 2025 as the peak year for the investments.
Turning to the slide 7. We will not review the performance of our mining segment. But you know achievements goes quarter over quarter driven by increased production levels despite this High volumes. Let's say you remember, broadly unchanged in the second quarter as low or realize iron, ore prices offset, volume games,
The segments matching slightly declined, reflecting the impact of winter prices, although this was partially offset by lower operating costs.
Let's proceed to the finance. Slide of the presentation to review our cash flow, performance and balance sheet position.
Cash from operations. In the second quarter Total, 1 billion dollars, a device, significant reduction in working capital, this reflects our work on adjusting inventory volume as well. A decrease in Fair receivables. In addition, high level of capex contributed to an increase in commercial debt.
Topics increase this quarter, as a result of ongoing expansion at the Pia industry Center in Mexico. This training consisted consistent with the project expenditure forecast, which the identified 2025 as a peak year for the Investments.
Pablo Brizzio: Finally, Ternium S.A.'s net cash position decreased in the second quarter, primarily as a result of the elevated CAPEX level and the distribution of the $353 million dividend during the period. This was partially offset by the robust operational cash flow generation. Nevertheless, the cash position of the company continues to be very, very solid, totaling $1 billion at the end of June. Okay, this also concludes my prepared remarks. We are ready now to take your questions. Please, operator, go ahead with the Q&A session. Thanks.
Finally T, net cash position. Decreasing the second quarter primarily as a result of the elevated Capac level and the distribution of
The 3653 million dividend during the previous.
This was partially upset but there was Operation cash flow generation. And nevertheless
The cash position of the company continues to be very, very solid, totaling $1 billion at the end of June.
Okay, this also concludes my prepared remarks. We are ready now to take your questions, please operator, go ahead with the Q&A session. Thanks.
Maximo Vedoya: If you would like to ask a question, please press star and the number one on your telephone keypad. Additionally, if you would like to withdraw your question, please press star one again. Our first question comes from the line of Kyle Greiner from UBS. Please go ahead.
If, if you'd like to ask a question please press star and the number 1 on your telephone keypad. Additionally, if you'd like to withdraw your question, please press star 1 again.
And our first question comes from the line of Kyle Grinder from UBS.
Please go ahead.
Sebastian Marti: Hello. Good morning, everyone. Thank you. My first question on the state of steel supply in Mexico. Can you guys elaborate a bit better on the supply picture in the country, touching on two points? The first one, as you mentioned, Mexico's recent implementation of trade measures, which eventually led to lower imports. The second one, ArcelorMittal reported an incident over these last few days at the steelworks, which is supposed to impact 30% of their production. Touching on those two points, do you think that these are enough to rebalance steel markets in Mexico? To what extent are they actually going to help the supply-demand picture, help to raise prices back to normalized levels? Is Ternium S.A. well-positioned to capture the higher market share from these two events?
Can you guys elaborate a bit better on the supply picture in the country touching on two points. The first one is you mentioned Mexico as recent implementation of trade measures, which eventually led to lower imports and the second one obviously what <unk>.
Reported an incident.
Or these last few days at <unk> at.
At the steelworks, which is supposed to impact 30% of their production. So touching on those two points are do you think that these are enough to rebalance steel markets in Mexico to what extent.
Are they actually going to help the supply demand picture helped to raise prices back to.
To normalized levels and his journey and are well positioned to capture a higher market share from these two events.
Sebastian Marti: The second question on the cost outlook that you provided, you mentioned that you expected cost reduction to drive higher margins for the third quarter. Can you elaborate a bit more on those operational enhancement and cost reduction initiatives that you discussed? How much of the cost decline that you anticipate is coming from these bottom-up initiatives versus lower raw material costs? We are seeing coal prices declining. We are seeing slab prices declining. Breaking that down would be really helpful. Maybe if you could also quantify the level of cost reduction that we should expect into the third quarter. Thank you very much.
The second question on the cost outlook that you provided.
And that you expected cost reduction to drive higher margins for the third quarter can you elaborate a bit more on those operational enhancement and cost cost reduction initiatives that you discuss how much of the cost.
Klein that you that you anticipate is coming from these bottom up initiatives versus lower raw material costs. So we're seeing coal coal prices declining and receive slab prices declining so maybe break that down would be really helpful.
And maybe if you could also quantify the level of cost reduction that we should expect into the third quarter. Thank you very much.
Okay. Thank you, let's start with the first one Mexico as you know Mexico Ah.
Maximo Vedoya: Okay. Thank you, Kyle. Let's start with the first one, Mexico. As you know, Mexico, let me split it in two. One is the slab products. Slab products have an import around 40% of market share in Mexico is from imported steel. As you know, apparent consumption in Mexico decreased a little bit this year. In the third part, with all the investment we have been doing and the increase in productivity, today we have capacity to start gaining market share, and it's what we are doing. I think we are going to improve this in the following quarters. That's because of the lower imports and the effort, for one side, the government is doing in this, fighting unfair trade, and on the other side, our own job in trying to be a good alternative for all these customers.
We split it into one is the flat products.
That product has had an impact.
Yeah.
Yeah.
And 40% of market share in Mexico is from imported steel.
And as you know apparel consumption in Mexico decreased a little bit.
This year.
And in the third part with all the investment we have been doing and the increasing productivity today, we have capacity to start gaining market share.
What we are doing and I think we are going to improve these.
In the following quarters that because of.
The lower imports and the effort.
For one side the government is doing in these fighting unfair trade and on the other side our wrong.
Drop in.
Trying to two to be a good alternative for all these customers. So I think from the flat side products I think.
Maximo Vedoya: I think from the flat side products, you are going to see an increase in market share. You're not going to see a huge increase in shipments because, as I said, compared to last year, the consumption in Mexico, because of all the things we discussed, is a little bit low. Regarding ArcelorMittal, we just found out yesterday or Monday about the problem in ArcelorMittal. I don't know exactly what the problem is yet, but that is in the long products. Yes, we are probably going to gain a little bit of share when this problem arouses in the long product market. As you know, long products, there are not a lot of imports in long products, and there are several players in the long product market in Mexico. That gain is going to be only marginal, I guess.
You are going to see an increase in market share.
This is youre not going to see a huge increase in shipment because as I said compared to last year.
Consumption and messy, Mexico, because all the things we discussed is a little bit low.
Regarding addison or meet.
We just found out yesterday or Monday about they're probably unnecessarily metal I don't know exactly what the problem is yet.
But that is in the long products. So yes, we are probably going to gain a little bit share. While these problems are out.
In the long run.
Market, but as you know lung products another level of imports in long products and there are several players in the long product market in Mexico, So that gain is.
Going to be only marginally I guess.
Maximo Vedoya: The gain is going to be in the flat products, which is our main market. So that's for the first question. The second question, cost reduction. Additionally to the decrease in iron ore, in slabs, we anticipate, I think, in our analysts' day in June, that we are seeking an additional $300 million increase in cost efficiency during the whole year. Part of that, we already have realized in the first quarter, almost a third of that, and two-thirds of that volume is going to be realized in these next two quarters. This is several initiatives from our procurement front, but expecting renegotiations and new suppliers and enhanced controls. It's almost $70 million. Improving through different initiatives, the stability in several of our processes is also $50 million. A change in the supplier of metallic in the EIFs, rebalancing.
But the gain is going to be in the flat products, which is our main market.
So that's for the first question. The second question cost reduction so additionally to the decreasing.
And as you said in iron ore and flaps and.
Yeah, we.
Anticipate I think in in our analyst day in June that we are seeking an additional $300 million decrease in.
Cost efficiency during the whole year part of that we already have realized in the first quarter almost a third of that.
And this.
Two thirds.
Of that volume is going to be realized in these next two quarters.
And in D C.
Several initiatives are from.
From our procurement from but expecting renegotiations, and new suppliers and enhanced control, it's almost $70 million.
Improving through different initiatives.
<unk>.
Yeah.
Stability in several of our process is also $50 million.
I change in supplier of metallic India, yes.
Yeah.
Rebalancing you said in Mexico, we are rebalancing the production and we are shutting some of the lines and improving productivity in other with decrease in AR.
Maximo Vedoya: As you said, in Mexico, we are rebalancing the production, and we are shutting some of the lines and improving productivity in other with a decrease in cost. There are several the wind farm in Argentina, which, of course, is giving energy much at a much lower cost than we used to. All these, in total, are the $300 million we set besides the decrease in raw materials that you mentioned. I hope with this, Caio Ribeiro, it is clear the numbers.
In cost. So there are several the wind farm in Argentina, which of course is giving energy much at a much lower cost and we used to so all of these in total of the $300 million we said.
Besides the decreasing.
Raw materials that you mentioned.
I hope that with this guide or it is clear.
The numbers.
Yeah.
Sebastian Marti: Yes, Maximo, thank you very much. Maybe if I can, just a quick follow-up on the import, on the trade, import measures that Mexico took. I just wanted to understand if you think these are sufficient to balance local steel markets in Mexico. Thank you.
Yes, Massimo. Thank you very much maybe if I can just a quick follow up.
On the import.
The chain.
Important measures that the Mexico took just went in to understand if you think these are sufficient to balance our locals to markets in Mexico. Thank you.
Oh. Thank you very good question I think it's a good start.
Maximo Vedoya: Oh, thank you, Kyle. Very good question. I think it is a good start, a very good start. Mexico is analyzing more measures. I think in the sense as the U.S. is doing and Canada also doing. At the end, I am expecting that the whole North American market will have a defense mechanism similar in each country. If you compare Mexico's measures to the U.S. measures, I think there is still a gap, but I understand that the Mexican government is analyzing to reduce that gap.
Very good start.
But clearly Mexico east analyzing more measures.
I think in the sense as the U S is doing in Canada are also doing so.
And I'm expecting that.
The whole North American market.
We have.
Our defense mechanism similar in each country. So if you compare Mexico measure to the U S marshals.
They stack up.
But.
I understand that the Mexican government is analyzing to reduce that gap.
Hum.
Thank you very much really helpful.
Sebastian Marti: Thank you very much, Maximo. Really helpful.
Maximo Vedoya: are welcome, Kyle.
Youre welcome Kyle.
Yeah.
Thank you.
Sebastian Marti: Thank you.
Maximo Vedoya: Our next question comes from the line of Carlos De Alba from Morgan Stanley.
Our next question comes from the line of Carlos de Alba from Morgan Stanley.
Sebastian Marti: The line is open.
One is open.
Maximo Vedoya: Yes. Hello. Good morning, gentlemen. Just a couple of questions, if I may. First, on EBITDA, one short-term and one long-term. Can you maybe give us a better sense of the magnitude of the potential improvement sequentially, given that you already seem to have bottomed out and started improvement? The step up in that recovery that you see ahead will be important. A little bit more longer term, can you maybe quantify, give us a range of the expected boost in EBITDA in millions of dollars that you see coming from the ongoing and recent investments in Mexico?
Hello, Good morning, gentlemen.
A couple of questions.
If I may 1st on EBITDA.
One short term and one long term yeah.
Can you maybe give us.
A better sense of the magnitude of the potential improvement sequentially.
Given that you already.
It seems to have bottomed out and start improvement and the step up in that recovery that you see ahead will be important and a little bit more longer term.
Can you, maybe quantify or give us a range of the expected.
Boost in EBITDA in millions of dollars.
That you see coming from the ongoing and recent investments in Mexico.
Okay.
Okay.
Pablo Brizzio: Okay, Carlos, let me take at least the first part of your question. Clearly, as we have described in recent calls, we have borrowed out from the lowest levels of our EBITDA generation. Clearly, there was an important increase during this quarter. Our expectation is for this to continue. There are a lot of variables, of course, moving around, but the expectation is something that we already mentioned in the past, to reach by the fourth quarter an amount of an average EBITDA margin closer to around 15%. As you know, has been our goal for the company in the short run. We believe that with all the measures that Maximo Vedoya described on our plans to reduce costs and be more efficient, we will be able to achieve that in a normal market environment. We are working for that.
Let me take.
The first part of your question clearly.
As we have described.
Cause.
We have bought them out.
The lowest levels of I V.
The Asian region clearly our most important introduced this quarter our expectation is for this to continue.
There are a lot of body of evidence of course moves around but the.
The expectation is.
That we already mentioned in the past to reach by the fourth quarter.
On average.
The EBITDA margin closer to around 15%, but as you know because we don't want to go for the.
The company in the short run so we believe that with all the nurses that marketing will describe.
Our plans to reduce cost and be more efficient, we will be able to achieve but.
In a normal market environment, and we are working for us.
Pablo Brizzio: The third quarter should be the case, and the following should be an additional increase in order to achieve these levels. In the longer-term view, I think, Maximo, you can take it.
Third quarter should be the case on the follow up we should be.
Increase in order to achieve these these levels.
In the longer term view I think.
You can tell yeah, Carlos Hello, how are you.
Maximo Vedoya: Carlos, hello. How are you? Longer-term view of the project. Remember, the project, at the end of this year, we are going to start the galvanized line and the new cold rolling mill, the PLTCM2. This is going to increase, or it is going to give 1.5 million tons a year of new capacity. Remember that all this equipment has a very long ramp-up period. You are not going to see in 2026 a huge increase. It is 1.5 million of that, probably half a million tons. We are going to close very old capacity. Remember the Guerrero cold rolling mills or the Universidad cold rolling mills are very old capacity with one single stand, so very, very inefficient. Part of that is going to have an increased margin of EBITDA of $30, $40 because of the cost efficiency.
Longer term view of the projects are remember the project.
At the end of this year, we're going to start the galvanized line and the new Cold Rolling mill, the PL TCM too.
This is going to increase its going to give.
One 5 million tons, a year of new capacity.
But remember that all this equipment has a very long.
Ryan ramp up period, so you are not going to see.
In the 2026.
Huge increase.
But it's $1 5 million of that.
Probably half a million tons, we're going to close very old capacity remember they've got little cold rolling meaningfully when you've got a few that really means a very old capacity with one single.
<unk>.
Right.
So very very inefficient so.
So part of that is going to have an increase.
Margin or EBITDA of 30, $40 because of the cost efficiency and the other part probably we have an EBITDA per ton of around 150 to $200 a ton. So you can make the math, but again.
Maximo Vedoya: The other part, probably we have an EBITDA per ton of around $150 to $200 a ton. You can make the math. Again, they have a long ramp-up period.
They have a long ramp up period.
Pablo Brizzio: I'm sorry. Let me add, Maximo, this is just the part that we are.
Got it.
We have much more ambitious as a part of it we are not yeah youre right.
Maximo Vedoya: You are right.
Pablo Brizzio: By the end, then we have the second part of the action plan, but that it will be 2027.
Then we have the second part of the action plan.
V 22022nd accepted.
Maximo Vedoya: 2027, exactly.
Okay Alright.
Sebastian Marti: Okay. All right. So, okay, got it. In 2027, it would be the EIF?
But I'm trying to understand that it would be that yes, yes.
Yeah and again Brian.
Maximo Vedoya: Yeah, and again, a long ramp-up period, even longer.
On a long ramp up period.
Even longer.
Okay Alright.
Sebastian Marti: Okay. All right. That's helpful. Thank you. The two short ones, hopefully, one is not that short, but we will see. On the CSN litigation or the Usiminas alleged shareholder control changing in control, where do we stand and what will be the next steps in that litigation? One small one, the shipper facility in the U.S., you typically import material from, I think, Mexico into that plant for the processing with a 50% tariff. What is the strategy there?
That's helpful. Thank you and then.
Then.
The two short ones.
Hopefully one is not that sharp, but we'll see.
Yes and litigation.
Or do you mean us.
Our niche shareholder control.
Changing and control, Yeah, where do we stand and what would be the next steps in that in that litigation.
And then one small one at the Shreveport facility in the U S and you pick out of import material from Mexico into that plan to for the processing with a 50% type why does the strategy there.
Yeah.
Maximo Vedoya: Let me start with the second one, which is very simple. Today, we are buying most of our supply from local suppliers. Clearly, the 50% tariff makes us buy more locally. Brazil and CSN, regarding the litigation with CSN, to be honest, there haven't been significant development later. The last development we reported in the fourth quarter of last year. In that quarter, I think was that we changed, we adjusted the provision we had because of that development. Since then, there hasn't been much update to that.
Yeah.
Let me start with the second one which is very simple I mean today, we are buying most of.
Yes.
Our supply from local suppliers.
Nearly 50% tariff.
It's it's.
Make us buy more local loop.
At Brazil in CSN, I mean regarding the litigation with CSN.
To be honest there haven't been significant develop later the less developed we reported in the fourth quarter.
Of last year.
So.
There haven't been we in that in that quarter I think was that we change we adjust the.
The provision we had because of that development, but since then.
There hasn't been much update to that.
So.
Sebastian Marti: What are the next steps in the legal process for eventually getting a final resolution on this?
And going forward what are the next steps in the legal process for eventually get final resolution on this.
Got it.
No no we already appealed and the Supreme Court of Justice has to.
Maximo Vedoya: To be honest, no, we already appealed, and the Supreme Court of Justice has to decide if our appeal is going to the Supreme Federal Tribunal, the STF, as you call it in Brazil. This is still pending.
Decide if.
The our appeal is going to the.
Supreme Federal treatment.
Yes, yes, as you call it in.
In Brazil.
This is still pending.
Right got it. Thank you. Thank you very much.
Sebastian Marti: All right. Got it. Thank you. Thank you very much.
Maximo Vedoya: To be clear, I mean, we filed an extraordinary plea against the STJ decision, and we are waiting for that appeal. That was, I think, in February.
To be clear I mean, we find an extraordinary playing against the U S is it.
Carter.
No decision.
<unk>.
And we are waiting for that appealed.
That was I think in February.
Okay excellent. Thank you very much I'm actually more of a problem.
Sebastian Marti: Okay. Excellent. Thank you very much, Maximo and Pablo.
Youre welcome.
Maximo Vedoya: You're welcome.
Yeah.
Thank you.
Sebastian Marti: Thank you.
Maximo Vedoya: Our next question comes from the line of Emerson Vieira from GF. The line's open.
Next question comes from the line of Amazon, India from Ges.
Your line is open.
Uh huh.
Hey, guys.
Sebastian Marti: Hey, guys. Good morning, and thank you for the opportunity. I have two follow-ups. The first one is on the corporate dividend target of $300 million. I just want to understand if that's compared to 2024's figures or to a run-rate figure from the Q4 of 2024. I just understand what is the comparison base for this cost reduction and if that includes Usiminas. A second question is just on the impact that this lower import into Mexico is having on steel prices. Do you guys believe that this should support further increases going into the Q3? That's it. Thank you.
Good morning, and thank.
Thank you for the opportunity. So I have two follow ups. The first one is on the.
The cost reduction target of $300 million just wanted to understand if that's called prior to.
2020 cars figures are totally run rate figure.
From the fourth Q2 thousand 24, so it just depends on what is the comparison base part D is cost reduction and if that includes you mean us.
Second question is just.
On the impact that this lower imports into.
Into Mexico.
Beam on steel prices and so you guys believe that this should support further increases going into the third Q.
That's it thank you.
Thank you Omar so on the first question this 300 million or compared to 2024.
Maximo Vedoya: Thank you, Emerson. The first question, these $300 million are compared to 2024 without the effect of the change of raw material prices, of course. To see it in the ship balance, it's a little bit difficult, but we are continuously following that and making these improvements compared to 2024. Usiminas is not included on this number. We are making Usiminas a very aggressive competitive plant, but it's not included in this number. The second part of prices in Mexico, prices in Mexico will probably increase a little bit. As I said, we are probably going to gain market share, but the change in prices, they are not going to improve radically. It's going to be a mild improvement.
Without the effect of the change of raw material prices of course so.
To seeding indeed.
In the ship balance, it's a little bit difficult, but we have continuous following that and making these improvements.
Compared to 2024, well see me that is not included on this number or do you mean that we are making in <unk>.
A very aggressive competitive plant.
But it is not included in this number.
The second part of prices in Mexico, primarily Mexico, we'd probably increase a little bit but.
As I said, we are probably going to gain market share.
But the change in prices.
They are not going to improve a radical liam is going to be a mild improvement.
Yeah.
Sebastian Marti: Okay. Just a follow-up on the Mexican measures as well. Can you elaborate a little bit on it? Are we talking about quota systems, incident pin, and if you can provide us some insights into the next measures that the government is analyzing, as you mentioned, that would be helpful. Thank you.
Okay and just to.
A follow up on the Mexico measures as well can you just elaborate a little bit telling me that I mean are we talking about quarter two times into the MP <unk> and then if you can provide us some insights into the next measures that the government is analyzing as you mentioned that would be helpful. Thank you.
Maximo Vedoya: They are revising all the several abuses that were in the system, in the imports in Mexico, not only from steel. The tax authority and the Secretary of Economy are doing different schemes to shut down all the loops that were for dumping cases and the tariffs that Mexico today is. For example, all temporary imports. They are revising because a lot of that was clearly a loophole that people were using. They are closing all those loopholes. Also, they are taking. We are seeing a much more analyzing in new dumping cases. They are enhancing the capability of analyzing all different dumping cases. I hope soon we will have good news about that.
But what they're doing is revising all the.
Several of the abuses that were in the system in the inputs in Mexico, not only from steel.
And the tax authority and the economy Minister or the secretary of economy are doing different all different.
Schemes to.
Shut down all the loops that were for dumping cases, and the theory that Mexico. Today is for example, all temporary imports boy they are revising it because a lot of that.
Yes.
Clearly.
I look around people, where you are seeing.
And so they are closing all those loopholes and also they are taking.
We are seeing a much more.
Much more analyzing the new dumping cases, so they are enhancing the capability of analyzing all different dumping cases.
Soon we will have.
Good news about that.
So clear thank you very much.
Sebastian Marti: Thank you very much.
Okay.
Thank you or something.
Maximo Vedoya: Thank you, Emerson.
Thank you.
Sebastian Marti: Thank you.
Maximo Vedoya: Again, if you would like to ask a question, please press star and the number one on your telephone keypad. Our next question comes from the line of Rafael Barcellos from the desk of Bradesco BBI. The line is open.
Again, if you'd like to ask a question. Please press star and the number one on your telephone keypad.
And our next question comes from the line of Ralph and our channels from the VESCO BVI.
Your line is open.
Hey, good morning, Thanks for taking my questions I have two questions related to capital allocation. So the first one.
Pablo Brizzio: Hey, good morning. Thanks for taking my questions. I have two questions related to capital allocation. The first one, if you could please elaborate further on your CapEx cycle. I mean, whether we should see the peak of the CapEx level closer to the end of this year or more to the beginning of next year. If you could give us a sense of when you are planning to post the peak of this CapEx level. On this point, also, if you could provide more color on the execution of the Pesqueria project, it could be interesting as well. The second question, it is a broader question in the sense of I wanted to hear from you, what are your thoughts on the overall capital allocation strategy going forward? I mean, whether you believe you could increase dividends in the coming years.
If you could please elaborate further on your Capex cycle, I mean, whether we should see.
Each of the Capex level closer to the end of this year or more to the beginning of next year. If you could give us a sense of when you're planning to post the peak of the Capex level and on this point also if you could provide more color on the execution of the pits Korea project.
Be interesting as well.
Then the second question.
It's a more you know it's it's a broader question in the sense of Ah I wanted to hear from you what are your thoughts on the overall, our capital allocation strategy going forward.
I mean, whether you believe you could increase dividends in the coming years, yeah and give them their ongoing difficulties in Brazil. Following the recent increase in imports.
Pablo Brizzio: Given the ongoing difficulties in Brazil following the recent increase in imports, I mean, how is your appetite to keep investing in the country? Thank you.
How is your appetite to keep investing in the country. Thank you.
Yeah.
Thank you Rafael.
Maximo Vedoya: Thank you, Rafael. CapEx, probably this quarter, the $800 million of CapEx of this quarter will probably be, or definitely will be, the top quarter of this cycle. For the remaining of the year, our projection is to be between the $2.5 billion and the $2.6 billion of CapEx that we set last conference call. With that, the next two quarters are going to be very high, on the order of $700 million, but lower than this quarter. Next year, 2025, will probably be around $1.9 billion, and 2027 will probably be around $1.1 billion, $1.2 billion. As you see, this year is the peak, and this quarter particularly will be probably the peak of all this CapEx investment. The execution in Pesqueria, to be honest, is doing very good. As I said, the PLTCM and the galvanized are going to start the ramp-up in December.
Capex.
Probably this quarter be the $810 million of Capex of this quarter, we'll probably be well definitely will be the top order of the cycle.
For the remaining of the year, our fears that there needs to be between the two five and $2 6 billion.
Billions of dollars of Capex that we said last conference call with that.
The next two quarters are going to be very shy on the order of 700.
<unk> million dollars, but lower than this.
Quarter.
Next year, 2025 will probably be around $1 9 billion.
In 2027 will probably be at around 111 2 billion. So as you see this year is the peak and this quarter, particularly will be priority. The peak of all this capex.
Investment the execution in <unk>.
To be honest it is doing very good.
As I said.
The PL TCM as the galvanize are going to start the ramp up in December.
That was the original date for the galvanized and we are move.
Maximo Vedoya: That was the original date for the galvanized, and we are moving forward two months, the one in the PLTCM. I mean, very comfortable with that. The steel shop and the direct reduction unit, they're going well. If you like, there are some videos in our web pages or in the media which you realize how the investment is going through, the size of the investment, and the challenge. But as you would see from the videos, it's going very, very well and on time. With that, we are very comfortable today. Of course, looking, making a lot of efforts to deliver that in time and in budget. The third one, Brazil, you are very correct. Brazil has to, as a country, they have to take some measures because if not, clearly, not only steel industry, but a lot of industries cannot compete with unfair from China.
Moving forward to mine there.
The one in the in the PL TCM so very.
Very comfortable with that.
The steel shop in the directory that reduction unit, but they're going well.
If you like there are some videos in.
In our webpage discerning in our media, which you realize D.
How the investment is going through the size of the investment and the challenge that as you would see from the videos, it's going very very well.
And in time, so with that we are very comfortable today.
Of course.
Looking.
I mean, making a lot of effort.
To deliver that in time and in budget.
The third one.
Brazil.
You are very correct I mean.
Brazil has too.
<unk>.
Yeah.
I mean as a country.
They have to take some measures because it's not clearly not only steel industry, but a lot of industries.
Cannot compete with unfair from China, not is still not the automotive anybody I know the the automotive industry in Brazil, just released.
Maximo Vedoya: Not the steel, not the automotive, anybody. I know the automotive industry in Brazil just released a very tough memo about all this. This is something that probably Brazil has to figure out before investments are going there. But the long-term dividends, Pablo?
A very tough.
More about all these so this is something.
Thats, probably Brazil has to figure out before investments are going there.
But the long term dividends Pablo yeah. The question.
Pablo Brizzio: Yeah, yeah. The question, of course, was including dividends and also the capital allocation of the company. As you know, we are in the middle of a very, very significant CAPEX plan for Ternium S.A., $4 billion. We are in the middle of that. As Maximo mentioned, this year, the total CAPEX is $2.5 billion. Next year, close to $2 billion. So we are in the middle of significant capital allocation that we need to cover. With this level of CAPEX, we also mentioned that we also confirmed that we will sustain our level of dividend payment, and we have been doing that lately. So we have a significant outflow of capital to be allocated within the project and within the dividend that we are planning to have.
Washington, D and promotional capital efficient as a company.
As you know we are in the middle of a very very significant capex planning for $4 million.
We are in the middle of that I've mentioned and maximum mentioned D. C. Our total capex to five next year close to $2 billion. So we are in the need of significant capital allocation.
That we need to cover.
<unk>.
With this level of Capex. You also mentioned that we also confirm that was the thing that what level of dividend payment and we have been doing that lately. So.
We saw significant outflows.
<unk> capital to be unabated.
Within the projects on the deals that we are driving.
Two two.
Uh huh.
Of course as usual is happening with our big Capex plan, then we take a year or more to digest all the business that we have been doing as much as I mentioned before the ramp up video. These capex plans significant especially these ones that are very very sophisticated so we think that we.
Pablo Brizzio: Of course, as usually happens with our big CAPEX plan, then we take a year or a little more to digest all the investment that we have been doing. As Maximo mentioned before, the ramp-up period of these CAPEX plans are significant, especially these ones that are very, very sophisticated. So we think that we have a very, very clear view on what we are doing in the near future. We have, as you know, other plans. They are feasible for the future. But the main focus of the company, at least for the next couple of years, is to, of course, get a better level of EBITDA, better level of margins for the company to sustain our dividend payment and to sustain all the CAPEX plans that we are performing right now.
Yeah.
If he really clear view of where we were.
Doing.
Yeah.
In the near future.
As you know while the plants they are fees.
Feasible for the future where the main focus of the company at least for the next couple of year two.
To of course get Nevada.
Level of EBITDA level better level of margins for the company to sustain our dividend payment and to sustain all the Capex plan that we are performing right now.
Okay.
Okay. Thank you just a quick follow up so just to confirm so you mentioned that the peak of the Capex was a second tier wrestling to coming quarters. Your capex levels should should go imbalance likely right.
Sebastian Marti: Okay. Thank you. Just a quick follow-up. Just to confirm, you mentioned that the peak of the CapEx was the second year, right? So in the coming quarters, your CapEx levels should go down slightly, right?
Exactly we are.
Maximo Vedoya: Exactly. We are putting the number at $1.54 billion for the next semester, around $700 million each quarter, a little bit more or less. But that is a number, approximately, compared to the $800 million of this quarter.
We're putting the number at the 115 4 billion for the next semester.
Around 700, each quarter little bit more or less but it's that is the number.
Approximately.
Compared to the eight hundreds of fish oil.
Okay. Thank you.
Sebastian Marti: Okay. Thank you.
Youre welcome.
Maximo Vedoya: You're welcome.
Yeah.
Thank you there are no further questions.
Sebastian Marti: Thank you. There are no further questions. I will now turn the call back over to our CEO for closing remarks.
Turn the call back over to our CEO for closing remarks.
Maximo Vedoya: Okay. Thank you very much all for joining us in today's call. As usual, we value very much your feedback, so call us with any doubt, and have a great day. Thank you very much.
Okay. Thank you very much all for joining us in today's call.
Should we value very much your feedback and so call us with any doubt and have a great day. Thank you very much.
The meeting is now concluded. Thank you all for joining you may now disconnect.
Sebastian Marti: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Yeah.