Ternium SA (TX) 2007 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Ternium First Quarter 2007 Results Conference Call. My name is Carissa and I will be your coordinator for today.

(OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's conference, Mr. Sebastián Martí, Director of Investor Relations. Please proceed, sir.

Good morning and thank you for joining us today for Ternium's first quarter 2007 results conference call. My name is Sebastián Martí and I am Ternium's Director of Investor Relations.

Joining me today is Daniel Novegil, Ternium's Chief Executive Officer and Roberto Philipps, the company's Chief Financial Officer.

We issued our first quarter earnings press release yesterday afternoon and this past Monday we issued a press release announcing our agreement to obtain control of Grupo IMSA.

On today's call Mr. Novegil will address the IMSA transaction after which I'll provide some commentary on our first quarter results. At the conclusion of the 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 first quarter press release.

With that I'll turn the call over to Mr. Novegil.

All right, thank you Sebastián and good morning to everyone.

I remember that the last time we had a chance of talking with many of you was in the New York meeting during the Investor Day the 12th of March and we know that some important things have happened from then on that I wanted to comment to you.

Though my idea was that I was thinking about sharing some ideas about IMSA and its implication from a strategic standpoint for Ternium. But I believe that given the circumstances I would also address and I would also talk about what is going in Venezuela before we enter in Q&A.

But before doing that, before talking about IMSA and Venezuela let me give some remarks, some comments on what are the highlights of our first quarter year 2007 results.

As you already know Ternium had a very good first quarter. We achieved net sales of $1.8 billion, an all-time record of 2.5 million tons of shipments on a quarterly basis.

The EBITDA was $531 million or 30% of net sales, and we had a net positive cash position at the end of the quarter.

In addition to that we had a very high level of cash generation starting from the IPO last year allowing us to achieve a very strong financial position nowadays which gives us the leverage we need to go for our growth strategy that we discussed with many of you during the Investor Day.

As we commented during this session on March the 12th in New York we have many good growth opportunities before us and starting from the marketplace the global steel demand is very strong.

In fact the International Iron and Steel Institute are meeting in India in New Delhi just three weeks ago forecasting the continued growth in the steel demand worldwide this year 2007 and well into -- we go into Year 2008.

And last but not least as you know we have the announcement of the agreement to gain control of Grupo IMSA from a total around -- for a total of around $1.7 billion for the company equity.

Before going on some detail on the transaction on IMSA let me now enter into Sidor and Venezuela. Like you I have read yesterday the press reports on the statements made by President Chavez.

As we commented in many other opportunities we have had over the years a very good working business relationship with the government, that [Dasima Delopac] is our shareholder with 20% ownership on Sidor and our lines of communication with the government, with government officials starting with the government as a whole remain open.

I believe that today this matter has be viewed, has to be analyzed as a business or a commercial matter, a commercial issue more than an ideological or a contractual one.

It is my understanding that during a recent visit of President Chavez to a steel (inaudible) facility in Venezuela the President heard some complaints about Sidor commercial policy. And this may have led the President to make the statement he did yesterday about Sidor.

We are now currently looking for additional information on the matter and it is also important maybe to keep in mind that President Chavez yesterday said, "These are Latin American [capitals]. Let's talk. These are Argentine and Brazilian capitals. This is not a common, a normal standard in multi-nationals."

And President Chavez at this time was making the statements asked two of his ministers to meet with Sidor management team to clarify this situation, this commercial situation that was around his visit.

We had -- we already had this meeting last evening and together with the government officials, with the two ministers we prepare a memorandum to be sent to President Chavez this same morning detailing the situation.

So the lines of communication are open and we are in the process of talking and exchanging information with them regarding this commercial policy and the misunderstanding that happened to be yesterday.

We will go in further detail if you wish during the Q&A. Let me now jump again to some transaction details on IMSA.

We firmly believe that our offer to acquire all of the outstanding shares of IMSA for a share price of $6.40 represents a reasonable and sensible value for IMSA shareholders as well as for Ternium shareholders.

At this point we are pleased that IMSA majority shareholders who own around 90% of the company's outstanding shares have agreed to redeem their shares at this price.

And now if we look forward with speaking with the shareholders who hold the rest of IMSA shares and hope that they will also recognize the value we are offering to them.

At this point of time we have secured bank commitments to finance the total purchase price and the process is now subject to Mexican and U.S. anti-trust clearances, approval by the Mexican Securities regulator and other common closing conditions. We expect to complete the transaction in the third quarter of year 2007.

Afterwards and upon finishing the transaction IMSA will become part of Ternium and as a result of that Ternium will have a team of more than 13,000 highly trained and committed employees in Mexico and the U.S. At that time we will derive around 60% of our revenues from North America.

As we have discussed during the Investor Day, IMSA has a great, a very good entertaining field with Ternium and it will no doubt strengthen our position to capitalize on the many growth opportunities in Mexico as well as in NAFTA.

In [Sacas] headquarters in Monterey, Mexico just across the street in fact from our old headquarters and has other operations in the U.S. and Guatemala and an extensive customer base throughout Mexico and also make some exports to the southern part of the U.S.

All in all IMSA has an annual production capacity of let's say 2.2 million tons of cold rolled coils, 1.8 million tons of cold rolled coils, 1.7 tons of galvanized and coated metals, and 0.9 million tons of pre-painted steel.

IMSA has product base, a product line complements our own basis and by combining our two companies customer networks we will be able to strengthen our position as a medium flat steel producer in Mexico as well as to increase our market share of the larger North America market.

So IMSA fits quite well into our existing production structure which includes plans to expand our flat production capacities in Argentina and in Venezuela and as such IMSA will help us to optimize our plans across a number of products and specialties while also increasing our total production capacity through optimizing our supply chain model.

So finally and very important IMSA shares our values, our industrial approach and our commitment to providing high quality steel and to service sophisticated customers.

We will take additional debt to finance the transaction and this will drive our net debt to a ratio around 1.5 times a ratio that is comfortable for us on our prospective. And this compare to our net positive cash position as of March 31 year 2007.

So having said all that let me turn the call back over to Sebastián for a review of our first quarter results and I will be back for the Q&A session. So go ahead, Sebastián, please.

Thank you, Daniel. Okay moving to our first quarter 2007 performance Ternium recorded net sales of $1.8 billion.

It was 17% higher than the companies net sales during the same period in 2006 and 13% higher compared with net sales in the fourth quarter 2006.

Shipments of flat and long steel products totaled 2.5 million tons, 11% higher than that reached in the same period in 2006 and 16% higher than that achieved in the fourth quarter 2006.

Net income attributable to our equity holders was $222 million in the first quarter 2007, compared with $165 million and $140 million in the first quarter 2006 and fourth quarter 2006 respectively.

Earnings per American Depository Share totaled $1.11 in the first quarter 2007.

EBITDA was $531 million or 30% of net sales, compared with $501 million in the first quarter 2006 or 33% of net sales and $377 million in the fourth quarter 2006 or 24% of net sales.

The main drivers of the increases were higher product volumes and prices partially offset by higher raw material and labor expenses.

The sales of flat or long products in the South and Central America region totaled $987 million, an increase of 21% versus the same period in 2006 and 11% versus the fourth quarter 2006.

Shipments totaled approximately 1.4 million tons, an increase of 10% versus the same period in 2006 and 11% versus the fourth quarter 2006.

Revenue per ton was $702, an increase of 11% from the same period 2006 and relatively the same when compared to the fourth quarter 2006.

Sales of flat and long products in the North America region totaled $715 million, an increase of 10% versus the same period in 2006 and 13% versus the fourth quarter 2006.

Shipments in this region totaled approximately 1 million tons, 8% higher than the same period 2006 mainly to an increased shipments of slabs.

Revenue per ton was $707 which reflected the higher than normal level of slabs in the product mix during the first quarter 2007.

This total represented an increase of 2% over the same period in 2006 and a decrease of 4% when compared to the fourth quarter 2006.

Ternium's overall financial position remains strong. Our financial debt decreased by $92 million during the first quarter 2007 to $960 million.

Cash at the end of March was $984 million providing us with a net cash position of $24 million. The outlook for our business in each of our core markets remains positive.

As the year progresses we expect slightly higher demand in prices and moderate increases in expenses due to higher raw material and labor costs.

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

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Marcelo Aguiar of Merrill Lynch. Please proceed.

Hi good morning, Mr. Daniel and Sebastián. First of all congratulations on first quarter results -- pretty solid ones. A couple of questions on results, IMSA and Venezuela. Let's start from Venezuela.

I mean the challenge if the news on Bloomberg and Newswire are correct I mean Chavez was complaining that you're not selling steel in the Venezuelan domestic market to certain businesses.

Can you talk about which business you do not operate in Venezuela and why you're not operating? And which are the size of this business more or less in terms of shipments in the domestic market?

All right, thank you Marcelo for your comments -- just for a second. I guess that the reason there's a misunderstanding in all these situations because our commercial policy from Sidor is totally transparent and we sell every customer in this broad customer base than we have in Venezuela.

So we don't know precisely what's the issue here. So that's why we are trying to understand better what is going on. And it was referenced that the President was doing on a commercial issue.

As a matter of fact we didn't recognize -- we don't recognize any particular request coming from a customer that was not fulfilled by our commercial structure. But in any event we are analyzing and we are trying to get the information in order to answer more properly.

As a matter of fact right after the meeting the President's quotation we had a meeting with the Minister of Mines and also the Labor Minister, the Minister in charge Labor Affairs. And we had this meeting yesterday.

We exchanged the information and we were preparing together with these two ministers a paper that was supposed to be delivered to the President yesterday morning. And we hope, we expect, that this situation is going to be ratified with all the information that we provided yesterday.

I really don't know and nobody knows in Sidor which was the problem with the customer because Sidor is serving the customer base very efficiently and very properly and we don't have any claim at all.

Regarding the general situation on Venezuela let me go back to some of the things that we were discussing during Investor Day either in the General Meeting or in the large meeting that we had right afterwards.

And in that respect we are exactly in the same mood regarding Venezuela. We have been shareholders. We have shared the shareholder base with the government from the very beginning of the venture in Venezuela.

We develop over the years ups and downs but all and all a very good, a very proper and very respectful kind of relationship with the government.

The government is having now only 20% of the shares outstanding of Sidor. The other 60% is in the hand of Ternium through Amazonia and 20% is the in hand of 15,500 individuals, individual shareholders. You know that we are not an actual resource kind of company.

We are not a service provider as a telephone company. We add value buying natural resources from the government companies on a market price basis.

And we represent at the same time maybe the best of the mercosour. We represent one of the most prestigious companies in Argentina, we represent and we have in our shareholder base one of the most prestigious and popular companies in steel, in the steel arena.

And though we -- Sidor is the mercosour -- I mean our representatives Sidor, Venezuela, Argentina and Brazil though we feel quite confident that we are going to be clarifying this matter with the government and we will continue business as usual in Venezuela.

And you know put it altogether we feel exactly the way we felt when we had this meeting in New York last 12th of March. We feel confident that we are doing the right thing.

We feel confident that we have a transparent and very clear and very respectful kind of commercial policy and always we will have in Venezuela with the government this situation where we have to clarify within, at the end of the year 2005.

I don't know if you remember, Marcelo, we were in the position to really appreciate the price of iron ore using -- closing in the same iron ore contract.

So we go ahead and we will overcome this situation, and we have opened and totally normal kind of communications with the government, you know.

Mr. Daniel, just to follow on on this matter. And so this means that your company and executives from Sidor had with the government executives, I mean I think you were mentioned yesterday that was really the first time that you're really dealing directly with this issue since Chavez start to talk about nationalization.

So this is the first time that you really are directly negotiating with them right?

Well not negotiating. We are just clarifying. The President said I'm going to report following 24 hours to clarify the situation and to see what happened with this and he has contracted two ministers to get in touch with us.

They did that and we went to this meeting to participate and to clarify all the things that they wanted to know. We made all these clarifications and we ended up in a situation where they ask us to write down a paper together.

Together your officials, the Ministers, we did that yesterday night and this paper was supposed to be delivered to the President the same morning. And it was on a specific issue and a specific commercial issue as I said at the very beginning of my presentation this is a commercial matter.

It's not an ideological kind of discussion or neither a renationalization kind of a statement. It was a discussion on a commercial dispute, a commercial matter, a commercial issue and was with him that we clarify that, our commercial policy. Not more than that.

We were never asked either by President Chavez in his statements nor in the visit that we had with two ministers we didn't have any discussion at all regarding any subject different than the commercial issue of the President's visit to this particular customer. We did not talk any single word about nationalization or things like that.

Okay going to IMSA first can you talk a little bit or in more details about the potential synergies.

I mean usually as we saw in several bidding process I mean usually the company we probably already estimating more or less which is the analyst's synergy that you can extract and usually this is a conservative approach in the beginning, but can you kind of share with us which are the synergies and the amount in dollars that you can extract and when?

Well, you know we are in the process now of putting all the numbers, all the data together. You know that we are very precise, very proficient when doing a process like the one that we are pursuing now.

We are now 100% dedicated to the closing of the transaction though we have a parallel team that is working in the 100-days plant area by area talking by areas, administration, finance, production, commercial matters, IT, IS, Human Resources and so on and so forth. It is too early maybe to speak about the concrete and quantitative numbers regarding synergies.

As you remember when we acquire Hylsamex in less than one year we were able to obtain synergies of around $100 million per year. I don't know really right now which are going to be the numbers in IMSA but no doubt as we have talked many times with some of you that the synergies are huge.

I mean really important but not only from a commercial standpoint but also from the standpoint of they specialize in the facilities in order to increase productivity, efficiency and afterwards and consequently by production by the way of specializing each one of the facilities in the best they can do, it is one of the positive base on one side.

On the other side you know that we are organized on a kind of an organization that these are firmly based in supply chain management. That means optimizing a model that allocates production and markets on a very efficient way.

And we will exploit all these opportunities coming from these models including IMSA if we are successful in closing the process in our general model.

Though we are expecting important synergies we cannot quote today precise numbers we will discuss these more in advance and maybe we will organize a meeting right after the closing date to talk in more detail about the things and the findings that we are now working on.

Okay just another question on IMSA, I mean based on the company's press release I mean they sold in 2006 3.1 million tons of steel products, and then you say that the company has an annual production capacity of 2.2 million.

So I suspect the company buys like hot-rolled coil in the market probably in the U.S. to fulfill their rolling mills in the U.S. and I don't know probably Guatemala. Is that the case?

Yes.

That happens in IMSA?

Yes it is the case because IMSA was used to complement its own production base with a third-party kind of supply. So all the operation in the U.S. was paid also in an important procurement base from third parties, from third companies.

That's why there is no fit between the numbers that they are reporting on total sales compared with the production in controlling base.

Okay I'm going to ask one question for the first quarter and then going back to the queue because I have other questions on IMSA.

Related to the first quarter I mean your [suit] had been backed in the first quarter I think for the last time in the realign of the blast furnace in Argentina. I mean in the fourth quarter you quantify more or less which was this impact.

Can you quantify which was the negative impact on the cost in their [retindum] business because of the realign. And can we -- do we going to have an impact from this realign in a negative way in the second quarter?

No, no in the second quarter. Yes no doubt in the first quarter and the fact of the realigning is around let me take a look at the number is around $8 million.

Okay so there's no -- and there's what, any other, like spillover of the non-recurring issues between the fourth into the first? This would be the biggest non-recurrent issue in the cost and the figures?

I would say so, Marcelo, no added important non-recurring items that I have in mind impacting the first quarter results or in IMSA the impact in the (inaudible).

The further impact of the realigning in the Blast Furnace number two in Sideras that as I said before had a total impact of around $8 million in our bottom line for the first quarter.

Okay thank you very much. Again congratulations on the solid first quarter results and then I'll get back to the queue. Thank you.

Thanks a lot for your remarks and also for your questions, Marcelo.

Your next question comes from the line of Darío López of Banif. Please proceed.

Okay good morning. First of all congratulations on your results. Well my question comes in line if you could please give us a qualitative description about the potential synergies regarding the acquisition of IMSA and specifically by how much the Sidor weight in this potential synergies?

All right, Darío, let me go to your first quarter and as I said before we are now in the process of working within two parallel teams. One is in charge of fulfilling all the requirements to go as fast as possible to the closing date.

On the other hand we have another team that is working together with IMSA in finding synergies and in finding facts to work on and with the idea to have right, 15 days, 20 days before the closing date a 100-days plan area by area. I mean by area industrial, commercial, IT, IS, administration, finance, Human Resources and so on and so forth.

Talking in general I would say that many synergies are going to be coming from the integration of IMSA inside our system.

First a better position in the NAFTA steel market that offers us an important opportunity to gain market share and to broaden our customer base.

Second, we are also be finding no doubt important reductions in general as well as in administrative expenses.

Third, a final integration in the supply chain model that we have by supplying the slabs from the South American operations to the system as well as the specializes the plans, the different plans including IMSA in what they do better and they do serve better reducing logistics expensing and reducing inefficiencies and [externalities] in the total system.

A better distribution of risk among the region and also a reduction, an important reduction in cost of capital. Sidor and Siderar afterwards after the investment plan that we have in operation, now investment plans that are going to be reanalyzed at the light of this integration of IMSA will supply slabs to the operation of IMSA in Mexico.

And though we feel that with all this matter, with all this integration we will have a better Ternium, we will have a stronger Ternium and we will continue being no doubt a leader in the steel producer in Latin America.

As I said at the very beginning we're going to be concentrated 60% of our sales of our marketing efforts in the North America market, that is the market that is growing very well and where we feel that we have also a very important growth opportunity.

IMSA also integrates quite well in our strategy in downstream integration. As you know Darío we are mainly the most integrated steel firm in the region.

We have mines in IMSA, in Mexico, iron ore mines and we are going to be fully integrated to the customer value chain through panels, through forms, through painted steel though we feel that we are going ahead with the same strategy that we were following up to now and we will do better with that.

Regarding the question that was behind your question on Sidor let me quote that, if we take the year 2006 numbers that are the ones that we have consolidated, on a consolidated basis Sidor maybe will represent or represented again the year 2006 real numbers, actual numbers around 30%, 31% of the total EBITDA of Ternium, including IMSA in a theoretical exercise.

If we do the same for the majority interest instead of the consolidated company the share of Sidor on EBITDA would be around 24% less than one quarter of the total EBITDA of the whole entity including on a theoretical base the operation of IMSA.

Regarding revenues the share of Sidor would be around 21%, 20%, around 20% -- it's hard to speak but a majority investment base.

So these are some rough numbers and some ideas and as I said before when we go ahead and we go developing the learning curve and the experience curve to be achieved to IMSA we will share all this information with you and with the rest of the markets through either a rough show or another Investor Day maybe before the end of the year.

Okay just to address maybe a little better my question should Sidor not be able to export slabs to Mexico, how would you measure the impact on synergies regarding the acquisition of Grupo IMSA?

If it like is necessary, a necessary condition so as to synergies be fully exploited or do you consider like a secondary issue?

I'm going to make speculations on that Darío because as a matter of fact Sidor is where it is and always will have the need Sidor as well to export to Mexico and because Mexico is the most important market out of Venezuela though we will always a Sidor to support the activity in IMSA and IMSA and Sidor will always be a good complementation.

But as a matter of fact let me clarify to you that we didn't -- we didn't pursue the acquisition of IMSA because of the complementation with Sidor. It's a totally different kind of approach.

We are going ahead with this venture with IMSA because we firmly believe that we have to grow, that we have a very strong balance sheet. That we have a tremendous leverage in our balance sheet because we don't have any debts.

We have a positive cash position in our balance sheet. And we have the strength, we have the management, we have the commitment, we have the passion to go ahead to grow and IMSA was a good opportunity to fulfill this strategy.

Sidor fits with this strategy but if it's not Sidor we could supply from Siderar or from third parties as IMSA has been served over many years from many other suppliers like [Tuberas], like [Inexa], like the same (inaudible) that is also expanding capacity in slabs and will no doubt also complement our supply base for IMSA.

Though all and all I would say that the strategy in pursuing and going ahead with this venture of IMSA was not based on the fact that we had the supply from Sidor.

More sophisticated was more broad was the fact that we wanted to grow. We had the strength to grow. We had the financial opportunity to grow and we had the passion and the commitment and the management to go ahead and to create shareholder value through the acquisition of IMSA. And no doubt we will do that, and we did it in the past.

Okay well thank you very much, and again congratulations on your results.

Thank you, Darío. Thank you for your questions.

(OPERATOR INSTRUCTIONS). And your next question comes from the line of [Rafael Digiorno] of Deutsche Bank. Please proceed.

Good morning, Daniel, a question on Venezuela. Apparently President Chavez said that steel companies in Venezuela will be kind of encouraged to sell at local prices instead of selling abroad at international prices.

And I know that this was like kind of yesterday but at this point do you have an estimation of the loss in terms of revenues that this policy will cost to the company?

No, I don't have an estimation because there are no difference between. We are selling in Venezuela at reasonable prices at sensible prices.

So I don't see any important changes. We need more information on what he's thinking about, what is behind his comment if something is behind. Because maybe there is nothing behind.

I mean was a comment on a visit and was a commercial concern that he had that was all the information that we delivered yesterday.

So I couldn't quote Rafael on any damage to Sidor results on the basis of changing our current policy regarding the domestic market you know. So I didn't see that he made some comments that could affect our pricing in the total market.

He was just mentioning some general idea and we submitted all the information that these two ministers asked to deliver. And as I said before this information was focused on the commercial side on this particular customer.

So in my view up to now with the information that we have had and the information that I have after talking with the Sidor official is that this was a very focused kind of matter, you know? It was not a problem of pricing of the general market.

It was not a problem on nationalization in general. Just was a matter related with this particular customer with information that I have and we are open in these discussions and communications with the government and we believe from the very beginning on an open basis and we still remain having very good different sources of relationship with the government.

Perfect thank you very much Daniel.

Thank you, Rafael for your question.

And your next question comes from the line of Debbie Bobovnikova of JPMorgan. Please proceed.

Yes, hi good morning. Just one follow-up question on Sidor when you calculate the EBITDA contribution that Sidor has for the combined entity how do you account for transfer pricing?

On market price basis.

I'm sorry.

Market price basis.

Okay and the second question is with the IMSA acquisition if you do succeed and close the field how do you see the progression of the sourcing of slabs and hot-rolled going from external suppliers to internal Ternium production facilities?

Right now you mentioned IMSA has a lot external suppliers and at the same time you have excess supply and you're also building up those capacities.

So I'm just wondering how you see the progression of the synergies there to integrate that production?

Yes this is a very good question, Debbie, because as a matter of fact on the Ternium system before IMSA we were exporting out of the system and so now we have the opportunity to allocate some of this production on the same system including IMSA though no doubt that we will take advantage of this situation and we will go ahead in two vectors.

One, optimizing the production facilities through the bottlenecking within that trade, intra-trade among the different plants in order to increase production so their facility is through the bottlenecking.

The second vector would be to complement the product portfolio. We are now in the process of reevaluating the impact in the bottom line of the total Ternium with and without IMSA but we don't have the exact number to share with you yet.

We will have this number during the coming two, three weeks and a month and we will be able maybe before the integration to have a better quotation, a better number regarding the impact of this intra-trade as well as the product complementation in the portfolio base in IMSA.

And then just one last final question -- this should be an easy one. Do you happen to know who the main suppliers are for IMSA right for slabs and hot rolled?

Yes the main supplier for slab are [Imexa], CSD, [Tside] from the UK, some Russia producers, different, Sidor as well but that's the main suppliers of slabs.

And for hot rolled?

Hot rolled they negotiate on a convenient basis, on a quarterly basis though there are different according with the opportunities and according with the situation in the marketplace. So they don't have as far as I know I don't know at least if they have a regular supplier of cold rolled coils. I guess that they do that on market convenience basis.

Okay great. Thank you for your answers.

Thank you, Debbie.

Your next question comes from the line of Marcelo Aguiar of Merrill Lynch. Please proceed.

Okay a couple of follow ups, Daniel. Let's get back to the slab or change agreement. I know that you just mentioned Tside which is owned by [Coras] and then they have -- I think IMSA has this off-take agreement with Tside.

And they were expecting to buy from Tside somewhere around 500,000 tons through this off-take agreement 2007.

How difficult it could be IMSA to break this off-take and can you give more details about this off-take agreement between IMSA and Coras?

Well first of all we give you a discuss of the second question and then I don't have enough information yet, Marcelo, on to decide an agreement.

I guess according with the information that we have and according with the discussion that we had with IMSA when in the process of renegotiating and deciding the contract that we signed.

We believe that Tside agreement is (on a trend) though pragmatically speaking I don't see any reason why we should go ahead breaking this agreement because I hear it's convenient for the company, very convenient for the company and it's on a trend on the supplier base.

So I don't see any important changes with the information that we have with respect to the Tside supply contract.

Okay I apologize but I didn't get the EBITDA stake of Sidor assuming IMSA in the first quarter would be Ternium's. Is it quite possible?

No, no what I did the exercise that we did when thought that maybe it could be a concern from our Investor Day is the numbers that we did was for the whole year 2006 because with the information that we had for all the companies, and in that respect we made two numbers -- one the consolidated numbers of EBITDA of Ternium with the theoretical exercise of including inside the statement and we found that the share of Sidor in total was 31% consolidated. It would take the majority interest instead of the consolidated.

That is the number that we are more familiar with because in the number that we work internally in our company the share of Sidor in the same total including the integration, the theoretical integration of IMSA and taking again the numbers of year 2006 is 24%, 22, 24, two four.

Okay all right. Let's talk about Ternium on some guide -- if you can provide some guidance for 2007. What can you say about volumes in 2007 for the whole year and if you can give a rough breakdown for North America?

I cannot give you this information but we don't have this information. We have a general forecast and I couldn't quote on these numbers ahead. If you want I can give you some information regarding for example a split on IMSA.

IMSA is selling around 28% of its sales in the U.S. market through the operation of the facilities and the assets that they through the region, through the U.S.

But I couldn't quote right now, Marcelo, on the numbers -- the forecast of sales either for Ternium, isolated as a sole entity or including IMSA for the rest of the year.

Okay, and related to the price environment what can we expect for pricing in your main markets which is Mexico, Venezuela and Argentina if you can draw a very fast comment on each of these markets in terms of pricing the very short term, let's say second and third quarter?

Well we see quite good pricing prospective for the months to come let's say in the short run and maybe also in the medium run.

According with analysis that we are doing internally as well as the information that we are receiving from the analysts, the main analysts in the steel market as market, the pricing that we have in Argentina, Mexico and Venezuela are reflected by -- we follow the international prices even though as far as we copy the international prices we have ahead of us a very good perspective.

China is very active in the market, is doing some important changes in the export system, (inaudible) in the export side put in licenses for exports that means that China is concerned on the level of exports that they are having and is trying to control the situation and is doing concrete steps on controlling the exports from their side, this class will have -- and it's having a good impact in the general steel pricing.

Overall the market in the U.S. is doing very well. You know the inventory level in the service center sectors is going down in tons as well as in amount of sales.

The market share of the imports in the U.S. are going down as well from 26%, 27% to 22% in March though generally speaking, and as we can see most of the report that we are receiving from different analysts the prospects for prices are very good in the short run and in the medium run for the steel industry as a whole, and it will have a good impact in our structures as well.

Yes because I'm asking that because in Argentina you had the depreciation of the currency rate compared to the last year. So probably you're going to have a double impact if you can increase the prices in Argentina in that level.

So you are saying that you can maintain transparency to international prices of depreciation of the currency occurs in Venezuela and Argentina the tendency is that to be reflected in your local, in your domestic prices, right? With some lag, is that correct?

I could say that maybe, maybe I don't see an important affect on the appreciation on the pricing. Maybe it could have an impact more in the cost base in general expenses and contractors. But I couldn't quote that being important. It's going to be having an impact.

If we have an appreciation on the local currency against the dollar in Argentina and in Venezuela it will impact the cost base especially what is fixed costs, that means general expenses, administration expenses and so on and so forth.

In pricing I couldn't be that assertive. I would say that there is no impact. We feel that we will be able to pass this to the market price.

Okay last question, I promise. Related to the funding of the condition of IMSA will you intend to do something that you did when you bought Hylsamex, which is I mean you used Siderar to buy some or are you going to use only Ternium, the holding company to buy 100% of IMSA or are you going to use Siderar, for example, as a vehicle?

No, impact in Siderar but let me pass you to Roberto Philipps that is right close to me.

Marcelo, as we said we secured the financing. We're still working on the structure of the financing so we don't have a final structure yet to communicate. But Siderar's debt today does not allow for significant increases and we will not put more debt on Siderar at this time.

Okay fair enough. Thank you very much, gentlemen.

Thank you.

Our last question will come from the line of Francisco Schumacher from Raymond James. Please proceed.

Well, hi everybody and congratulations on the results. I have a follow-up question recently asked. Does it make sense for you to acquire IMSA through Hylsa, not from Siderar from Hylsa where it's in the same country and probably also will reduce your tax expenses?

As I said those considerations are being taken into account. We're looking at different possibilities. We have not yet finalized the financing structure so we will work on that now and at this time I cannot comment on that.

Okay and then the increase in sales of slabs in North America is it that you started increasing your sales to IMSA already?

No, no the increase in slabs is mainly related to reducing inventory in Sidor that accumulated during the fourth quarter in Sidor during the fourth quarter of last year and were sold to a North American market.

So what is a quarterly normalized sales volume shipments obviously before an IMSA acquisition.

Today we are exporting about 500,000 tons of slabs from Sidor to Mexico mainly for the use in Hylsa. And as we mentioned before we are making some investments to increase the sales from 500,000 a year to 1 million a year.

And as consolidated total volumes?

On an annual basis.

Annual basis sales or slabs from Venezuela to Mexico, yes.

No, no I mean total sales of the company because you reached 2.5, but this was a little bit skewed because of the slab sales. So probably 2.4 or 2.3.

Yes about 2.4 -- 2.4 would be right, yes.

Okay and the last question is regarding the investments on the upgrading of the hot strip mill in Mexico if this is finished or for when are you expecting it to be finished, and how is the schedule for the --?

We are now in the process of reanalyzing all the investments planned taking into consideration that we had to wait these two, three months in order to see. We will have in our system [inside the rate] or not.

And this no doubt that will have some impact in our investment plans though this is a matter that is going to be discussed more in detail in July/August year 2007.

Perfect, okay thank you very much.

Thank you, Francisco, for your questions and gentlemen thanks a lot for your attention, for your patience and we hope to see you sometime down the road in a new Investor's Day or in a new conference and good luck to everybody and I'll see you.

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

Bye now, thank you.