Ternium SA (TX) 2006 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Ternium Fourth Quarter 2006 and Full-Year Results Conference Call. My name is Lisa and I'll be your coordinator for today. [OPERATOR INSTRUCTIONS].

I would now like to turn the presentation over to Mr. Sebastian Martí, Director of Investor Relations. Please proceed, sir.

Good morning and thank you for joining us today for Ternium's fourth quarter and full-year 2006 results conference call. My name is Sebastian Martí, and I'm Ternium's Director of Investor Relations. Joining me today is Roberto Philipps, Ternium's Chief Financial Officer and Oscar Montero, the company Planning and Operations General Director.

We issued our earnings press release earlier this morning, which detailed our financial results for the fourth quarter and 12 months ended December 31, 2007. At the conclusions of our prepared remarks we will open up the call to your questions. 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 in our fourth quarter full-year results press release.

Moving to our fourth quarter 2006 performance, Ternium recorded net sales of $1.6 billion, which was 8% higher than the company's net sales during the same period in 2005, but 7% lower compared with the third quarter.

Shipments of flat or long steel products totaled 2.1 million tons, a level similar to that reached in the fourth quarter 2005, but 4% lower than that of the third quarter 2006. Sales of flat or long products in the North America region totaled $634 million similar to sales for this product during the fourth quarter 2005. Shipments totaled approximately 900,000 tons, 10% lower than the in same period in 2005. Revenue per ton was $740, an increase of 10% from the same period in 2005.

EBITDA was $377 million or 24% of net sales compared with $490 million in the fourth quarter of 2005, or 33% of net sales, and $615 million in the third quarter 2006 or 35% of net sales.

The main drivers of these EBITDA decreases were higher raw material prices, uncertain one-time effects related to slowdowns and stoppages at Sidor, the re-aligning of one of Siderar's blast furnaces, and a pension plan charge of $46.9 million related to an increase in Sidor's pension plan benefits.

Net income attributable to our equity holders was $140 million compared with $138 million in the fourth quarter 2005, and compared with $257 million in the third quarter 2006. Net earnings per American Depository Share were $0.70 per ADS.

Sales of flat or long products in the South or Central America region totaled $885 million, an increase of 23% versus the same period in 2005. Shipments totaled approximately 1.3 million tons, an increase of 13% versus the same period in 2005. Revenue per ton was $703, an increase of 9% from the same period in 2005.

Ternium's overall financial position remains strong. Our financial debt decreased by $256 million during the fourth quarter 2006 to $1.1 billion when cash at the end of the year was $643 million. We pre-paid during the fourth quarter 2006 $100 million of the Ternium S.A. syndicated loan and $139 million of the bank loan at Hyslamex.

Before we take your questions I'd like to go over a few developments of note since our last earnings call in November. The work slowdowns and stoppages at Sidor ended on November 8, 2006, after with correction, we turned to normal levels.

In addition, Sidor received the proposed new collective bargaining agreement from the union on February the 2nd. The company is analyzing and proposal and expects to begin negotiations on it with the union in March.

The re-aligning of blast furnace number two at Siderar ended in late January. It took 98 days, 12 days less than planned. The new blast furnace expected to remain operational for the next 20 years has helped increase Siderar's production capacity to 7,200 tons per day and 2.5 million tons per year. Ternium's total investment to align the blast furnace was $125 million.

On December 27, Ternium bought CVRD's 4.85% stake in Siderar for $107.5 million. The price represented a discount of 19% to the market price of Siderar's shares on the day of the transaction.

Ternium now owns 61% of Siderar. Looking ahead moderate increases in cost are expected due to higher prices for raw materials and labor. Iron ore contract prices are going to increase 9.5% in 2007 versus 2006 and coal contract prices are going to decrease by about 16% in 2007.

With that we will be happy to take any questions you might have.

[OPERATOR INSTRUCTIONS]. The first question comes from the line of Rodolfo De Angele with JPMorgan. Please proceed.

Hi, good morning. I have a question on the cost side. In the press release you mention the fact of the increase in the pension plan liability.

Right.

But there were other one-time events like the fact of the stoppages at Sidor, the re-aligning of the blast furnace in Siderar and the effect on productivity. Could you quantify how much of the increase in costs per ton is due to this effect? And how much is should we expect on a normalized basis going forward?

Okay. Starting with work stoppages in Sidor the effect on cost was $29 million in this quarter due to two reasons basically expenses that were incurred and also because of lower production and therefore the absorption of a fixed cost which had a bit higher cost per ton sold.

And also due to the same reason of the stoppages we had lower shipments which had an effect of 43 million. These, of course, are estimates because we estimated the effect segregating that event from all other costs. And our estimation is that the total cost of stoppages was 72 million when compared with the fourth quarter and 2005.

On the realigning again it's our estimate that the total cost of the realigning was $15 million.

Okay thank you very much. And if I would add another question you announced for the first time a dividend payment of around $100 million for this year. But given the outlook you mention also on the press release and given also your bad debt and balance sheet position there seems to be room for more in terms, not only the dividends, but also other events.

Could you just comment on what do you expect for '07 in terms of do you see more acquisitions like what you did with the acquisition of minority stakes at CVRD at Siderar or could we see more dividends coming up or looking at acquisition opportunities. Just an overall -- what to expect in '07 in terms of the use of your strong cash generation?

Okay starting with dividend, the dividend was proposed by the Board as is mentioned in the press release and that dividend will be considered by the shareholders meeting that will be held June 6th. The total amount that we had proposed to the shareholders meeting is $100.2 million and that is the only dividend that will be considered at that time.

As you know dividends are a matter to be considered by shareholders so I wouldn't be able to comment on any further dividends except for the one that has been announced today in the press release.

In terms of plans looking into the future we have a very significant CapEx program which has been made public. We are expanding our production over several years in the southern region and specifically in Argentina. And we also have some investments in Mexico where we expect to work especially on our hot rolling mill and in Venezuela to expand production of slab. So that's one use of funds that we will have.

The other that you mentioned acquisitions is something that we always look at and if something comes up we will obviously consider it. We will look at it but at this time we have nothing to report on any acquisition that we are considering at this time.

Okay, thank you very much.

Your next question comes from the line of Paul Rosenberg with Bear Stearns. Please proceed.

Hi, good morning. I noticed that this quarter there was a rather substantial quarter-over-quarter drop in long product prices. I'm wondering if you can comment on that if that's a mix issue or some other effect.

Hold on Paul because price is generally comparing to the fourth quarter went up. Now let me just check on long products. Hold on a second. I'll get back to that question a little later.

Okay.

Do you have something?

Yes I have one other question. And that is that we've been seeing some data being released from Argentina that shows that while growth is still strong it's weakening slightly. I'm wondering if you're seeing this in your business, and if so what you expect in the coming year?

Well Argentina's economy has been growing strongly and expectations for growth this year are still attractive about 6% GDP growth, so that we expect that the sales volume in Argentina will continue to strengthen, growing as the economy grows and sell more volume to the markets. We are seeing some slowdown compared to last year which growth was close to 9% but still very healthy growth in the country.

Okay, thank you very much.

Our next question comes from the line of Edmo Chagas with UBS. Please proceed.

Okay thank you. My question is also related to what you are seeing in terms of outlook for the Mexican and the West market in 2007 compared to 2006 especially considering the slowdown that we had during the fourth quarter.

In Mexico?

Yes, Mexico and the U.S.

Well in Mexico you know the economy is very much tied into what happens also in the U.S. markets and the sales volume in the Mexican market has decreased as compared to last year and basically that is showing the slower economy that we have seen both in the U.S. and in Mexico especially in those customers which are related to construction and the auto industry.

We expect that if the economy in the U.S. is now forecast to slowdown less or to strengthen that that will also reflect on the Mexican market. We are already seeing a better market in Mexico and we expect that to continue.

Okay you mean better market just first quarter of 2007 compared to the fourth quarter?

Sorry?

When you mention that the Mexico market is getting better are you talking about first quarter compared to the fourth quarter?

No, I'm just talking about a trend. I'm not being that specific. We see that the Mexican market is starting to recover.

Recover. Okay, thank you.

[OPERATOR INSTRUCTIONS].

Could you hold on a second?

Yes, there was a question by Paul Rosenberg -- an answer regarding long products. Basically, yes you're right about the long products prices went down if you compare fourth quarter '06 to third quarter '06 and the may reason was price, not mix, and it was mainly in Mexico and some also -- some of the prices were down on say Colombia and Ecuador sales.

We are ready for the next question please.

Thank you. [OPERATOR INSTRUCTIONS]. The next question comes from the line of Victoria Santaella with Santander.

Good morning gentlemen I have two questions. The first one is, is there any more room for Siderar to continue decreasing exports in order to satisfy the very strong domestic demand in Argentina?

And the second question is what the company doing specifically in Mexico to confront the Chinese imports into that market?

Okay, let me answer the first question, yes we have room to cut back exports and satisfy increasing demand in the domestic market for Siderar. That's what we have been doing and until we expand our capacity there according to our announced plan we will satisfy the increasing demand with lower export sales.

On the second question let me turn it over to Oscar Montero, our Planning Director, to address the second question.

Well we are looking very carefully at the imports and analyzing the situation. We didn't decide yet to take any specific measure against those imports, but we are monitoring carefully so in case we find the [resources] to act internally we think useful institutions that control [inaudible] and those cases.

Is there any possibility that Chinese direct sales volumes to the U.S. market through Mexico?

No, there is no -- unless you transform the steel and the final product, you cannot send steel to Mexico and then to a different country because the origin will still be the original origin.

Excellent and my last question is what is the difference in flat prices between Argentina and international prices?

Well, as you know the prices in the international markets have come down in these last months, while in Argentina, prices have been pretty stable. So that the difference that we had in the international market and the domestic market, which was very substantial has now diminished significantly because the international price has gone up with the domestic market in Argentina. So the differential is now not that significant.

Thank you very much.

There are no additional questions at this time. I would now like to turn the presentation over to Mr. Roberto Philipps for closing remarks.

Okay, if there are no further questions I thank you for participating in this conference. We're always open to your inquiries or if there's anything that comes up we're always glad to talk to you and we'll see you in the next quarter. Thank you very much again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.