Ternium(TX) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q4 2023 was $651 million, a 7% decline from Q3 2023, primarily due to lower steel prices, partially offset by lower costs [21] - Adjusted EBITDA margin remained constant at 13%, affected by the consolidation of Usiminas, which recorded low profitability [10] - Net income increased sequentially, driven by gains from reversals of post-retirement liabilities and a favorable effect from the devaluation of the Argentine peso [12] Business Line Data and Key Metrics Changes - Shipments in Mexico grew by 22% in 2023, indicating substantial market share gain, supported by the ramp-up of the new hot rolling mill in Pesqueria [6][22] - Usiminas' mining operation achieved an all-time high of 9.1 million tons in 2023, but is expected to face challenges in H1 2024 due to temporary stoppages [18] - Steel shipments in Argentina decreased by 7% in Q4 2023 due to government restrictions affecting production rates [11] Market Data and Key Metrics Changes - Mexico's flat steel consumption reached an all-time high of over 18 million tons in 2023, with a yearly increase of 18% [6] - Automotive production in Mexico increased by 14% in 2023, reaching 3.8 million units, contributing to strong industrial activity [6] - Demand in Argentina is expected to decrease by around 10% in 2024 due to macroeconomic reforms and recessionary effects [60] Company Strategy and Development Direction - The company is focused on implementing its strategic plan, which includes the largest growth initiative in its history, particularly in Mexico [9] - The new downstream project in Pesqueria aims to integrate higher value-added products, with a total investment of$ 3.5 billion, up 9% from initial estimates [39] - The company is exploring opportunities for productivity improvements at Usiminas, with a focus on enhancing efficiency and reducing costs [18] Management's Comments on Operating Environment and Future Outlook - Management anticipates lower costs per ton and slightly higher revenue per ton to improve margins in 2024 [10] - The nearshoring of manufacturing capacity in Mexico is expected to contribute positively to economic activity [17] - The new government in Argentina is expected to introduce significant macro reforms, which may initially have a recessionary effect but are seen as positive for the medium to long term [40] Other Important Information - The company proposed an annual dividend of $3.30 per ADS, marking a significant year-over-year increase and the highest annual dividend on record [16][25] - Ternium maintained a solid net cash position of$ 1.9 billion by the end of 2023, despite a decline due to the devaluation of Argentine bonds [24] Q&A Session Summary Question: What are the expectations for long-term EBITDA margins with the new downstream lines at Pesqueria? - Management indicated that the projects are aimed at sustaining and increasing EBITDA margins, but specific numbers are difficult to provide due to market price fluctuations [35][36] Question: What is the timeline for decisions regarding Usiminas mining operations? - Management stated that there is at least a two-year window to make decisions regarding the mining project, with current operations expected to continue until 2028-2029 [37] Question: What are the expectations for demand in Argentina following the peso devaluation? - Demand is forecasted to decrease by around 10%, but infrastructure projects related to oil and gas are expected to continue [60] Question: Will there be further CapEx revisions for the Pesqueria project? - Management confirmed that the current CapEx estimate is accurate, with increases attributed to inflation and currency fluctuations [63] Question: What is the outlook for dividends moving forward? - Management expressed confidence that the proposed dividend of $3.30 is sustainable and represents a new base for future increases [86]