Ternium SA (TX) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ternium fourth quarter 2014 earnings conference call. (Operator Instructions). I would now like to introduce your host for today's conference, Mr. Sebastian Marti. You may begin.

Good morning, and thank you for joining us today. My name is Sebastian Marti and I am Ternium's Investor Relations Director.

Ternium issued a press release today, detailing its results for the fourth quarter 2014. This call is complementary to that presentation. Joining me today are Mr. Daniel Novegil, Ternium's CEO, and Mr. Pablo Brizzio, the Company's CFO, who will discuss our performance. At the conclusion of our prepared remarks, we will open up the call 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 in our press release issued today.

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

Good morning to everyone, and thank you very much for participating in this conference call. I would like to talk about Ternium performance in 2014, and after that, I will ask Pablo Brizzio to make a comment about Ternium results in the fourth quarter of the year, before entering into the Q&A session.

But let me first make a very brief summary of our results in the quarter. EBITDA was approximately $300 million, somewhat lower than we have expected to see when reporting results in the third quarter.

The main reasons for the difference were, the volume went up slightly -- almost the same volume, only 19,000 tons more than the previous quarter. That means 4 million tons more in EBITDA; but at the same time, the prices went down $35 per ton in average, impacting the EBITDA in $81 million more -- as you know, more than anticipated.

Also, the cost went down from $707 to $703 per ton. This is the average full cost per ton, with no depreciation, having a positive impact in EBITDA of around $9 million. So, as you can see, the main impact -- the main negative impact in our quarter result was the decrease in prices, that went down, as I said before, $35 per ton in average.

So, at the end, the combination of these two effects ended up in a lower EBITDA per ton in the fourth quarter compared to the third quarter, and as a consequence with a somewhat lower EBITDA than expected.

Ternium performance in the full year 2014 was quite good. We had record shipments of 9.5 million tons, with a special mention to growth of our shipments in the Mexican market, which on the flat products side increased a significant 15% in the year, thanks to demand driven by exports of goods manufactured in Mexico, especially to the US.

For you to know, since 2010, the Mexican steel consumption accumulated growth is 27%. Again, since 2010, the Mexican steel consumption has an accumulated growth of 27%.

We were able to get this positive performance in a challenging environment for the steel industry globally, which in 2014 had, as a whole, no growth in steel consumption worldwide.

The Chinese steel consumption decreased approximately 3% in 2014, and exports of steel from this country grew significantly to approximately 43 million tons in 2014. That means around 48% to 50% above the exports of China in the previous year of 2013. About 10% of these Chinese exports were shipped to Latin Americans, on most of the occasions under unfair competition conditions.

At the same time, and paying a look to the markets in Latin America, the steel consumption in Mexico in 2014 went up 11.7%; in Argentina, it was almost even, with a very slight decrease of 1% in 2014, with respect to 2013; and in Colombia, for example, went up 14.9% in 2014 against 2013.

Interesting to note here, and we will mention that in extent in our Investor Relations -- in our Investor Day in the coming June, that the Mexican market has a -- has had significant growth in the last 4 years.

The Mexican steel consumption, that used to be in 2010, 17.8 million tons, is getting a number of 22.5 million tons in 2014. Again, the Mexican market steel consumption in 2010 was 17.8 million tons and went up 27% to 22.5 million tons in 2014.

Turning now to profitability, I am happy to report that in 2014 Ternium has again showed operating results and profitability that compare very well against most of our peers in the industry.

In this difficult environment, Ternium was able to sustain operating income and net income broadly in line with last year levels, with an EBITDA margin of 17% for the year, or an EBITDA per ton of $157, and earnings per ADS of $2.30.

This resilient performance is the result of Ternium flexible production configuration that we have discussed in many occasions. As you know, we have a pretty enjoyable combination of blast furnaces which are iron ore and coal-intensive, direct reduction iron, which is natural gas-intensive, and re-rolling of slabs in thirds.

That means that we are now in a position where we can enjoy the decrease in the pricing of iron ore and coal on the operation in Argentina; the decrease in the cost of gas in our operation in Mexico; and also in the re-rolling of slabs in Mexico, enjoying a very wide kind of gap between hot rolled coils and pricing of the slabs.

So, together with this diversified cost structure, and the cost-cutting initiatives that we are always undertaking and going ahead with, I guess that in general we had a positive and a very good 2014.

So, at the end, we were able to take advantage of the decrease of prices, and we will continue to enjoy an attractive spread between slabs and hot rolled coils in our non-integrated production facility.

These positive pricing conditions for our main raw materials will translate into lowering cost for Ternium production further on, although it is worth noting that these lower (inaudible) costs will enter into our financials gradually as Ternium consumes inventories through the quarter in 2014.

Again, the positive pricing condition in raw materials will go into our balance sheet -- in our balance sheet gradually, as we enter into the different -- the following quarters going forward.

Steel pricing are also something that we have to consider in the 2014 performance, looking ahead. Prices have been going down in our main markets, and especially in the US, and obviously in Mexico. Although the spread between the US and the international market steel prices is lower than -- now, than it had been during the year, these are some issues that we have to follow very closely.

Steel demand and low economic growth coupled with high steel production in China, and obviously -- and a slow and not entirely clear yet, economic recovery in Europe. At the end, the actual USA hot rolled price is around $570, with a gap of $110 in the coupling with the prices in the European domestic market.

This gap was lower in the last 5 months, and is getting to a more reasonable kind of level, showing that -- what some analysts are saying now, that maybe the prices are getting closer to the end of this downturn.

But, as you know, this is difficult to forecast because of the steel oversupply and the weak demand coming from China, as well as from the European market.

It's happening the opposite in the US market, the Mexican market and the Latin America markets as a whole, with the exception of Brazil. So, all in all, many different variables, getting one against the other; but the prices may be getting closer to the end of this downturn kind of cycle.

On the balance sheet aside, we continue to have a very strong financial position, with a net debt of $1.8 billion at the end of the year, equivalent to only around 1.2 times the EBITDA of 2014.

In this environment that I was depicting, a conservative balance sheet is something that pays off, and we foresee a reduction of net debt in the first quarter of 2014, so that I believe -- we believe that we can have good news, also, regarding net debt at the end of the first quarter, and from then on, as there was an increase in the net debt of fourth quarter 2014 due to the $250 million payment for the acquisition we made for the additional Usiminas shares from Previ.

So, taking out this effect, the net debt would have been $1.4 billion, 1.5 billion. That is a quite -- very low level, as you understand.

I am glad also to mention that we have proposed to the shareholders' meeting a 20% increase in Ternium annual dividend for 2014. If approved in May's shareholders' meeting, Ternium will pay a $0.90 per ADS dividend on May 15. Dividend went up from $0.75 to $0.90, or an increase from $150 million to $180 million, implying a dividend yield of around 5%. That means -- and that fact is recognizing that we believe we have, and we are having, a good performance, with an interesting CapEx reduction.

As you know, our CapEx plan in 2012 was around $1 billion; 2013, $880 million; and 2014, it was only $440 million, as we ended with some of the projects that we were undertaking. Again, 2012, $1 billion; 2013, $880 million; and 2014, $440 million.

At the end, we do have a very strong financial position and good perspectives for continue the net debt reduction through working capital reductions in the rest of the year.

After closing the 2014 numbers, Ternium main steel markets had a performance very much in line with the numbers we reviewed in our latest conference call for the first 9 months of 2014.

In the full year 2014, our shipments to Mexico, which represents, as you know, 60% of Ternium total shipments, grew 13%, more on the flat side and on the long side, as demand for high-value-added industrial applications had a better performance than demand for construction and commercial-related products; which also grew, but I would say that, at a lower rate.

This good performance that we saw in the Mexican market is something that we are expecting to continue in 2015. That means that, when we target the high-end products, the industrial applications, and all this stuff, based upon the investments in Pesqueria, in cold rolling, and in the Tenigal facility, will pay back what -- the strategy that we have followed.

Our second biggest market is Argentina, that, as you know, is now accounting for around one-fourth, or 24%, of Ternium shipments in 2014.

In this case, Ternium shipments decreased 6% compared to 2013, showing a very light reduction in flat steel end market; but for the first quarter of [2014] we anticipate good level of sales, taking into consideration the seasonality effect in the quarter that -- as you know, January and February are months of low level of activities in Argentina because of vacation.

Regarding Usiminas, I would also like to mention, or to make some brief comments before we enter into the Q&A. As you know, the Company is still working on the 2015 budget -- some delays in the building of the (inaudible) of the budget, because of market volatility in Brazil, devaluation, and some adjustments in demand and in supply.

We expect the management to present actual plans, mitigations, remediations, because of the deterioration in margins of steel and -- not only in the steel, but also in mining, and also in operating performance, in the quite volatile environment in the Brazilian economy. So, at the end, we expect that management will present on these actions and remediations to mitigate the decrease in the market size.

Finally, just wanted to mention that we continue working in the cost-cutting and efficiency initiatives and, as I have mentioned in the previous calls -- like, for example, the energy-saving programs, the continuous improvement teams, and the programs on working capital reduction, logistics and subcontractors.

All these programs and all these initiatives are doing very well. And so, I will be happy to talk about them in more detail, and to evaluate the impact in the profit of the Company in our Investor Day in New York that, as you know, will take place in 4 months, on June 18 in the Guggenheim Museum as usual. I really hope to see you there, as we believe it is a good opportunity to meet in person and to talk in depth about the Company, and the ideas, and the prospects, and so on and so forth so.

So, these were -- in my opinion, or in my view, these were the main issues I wanted to share with you today. And I will ask Pablo Brizzio to take over and give you a brief description of our performance in the fourth quarter. So, Pablo, please, if you could, go ahead, please.

Thanks, Daniel, and good morning to everyone. As we do every quarter, I will describe our performance and then we will go directly to Q&A.

EBITDA in the fourth quarter was $301 million, $122 million lower than EBITDA in the third quarter, 2014. The third quarter EBITDA included non-recurring [gains] of $48 million, related to incomes --recognitions on an insurance recovery in Ternium subsidiary in Argentina, Siderar.

So, [excluding] this non-recurring gain, EBITDA in the fourth quarter was approximately $64 million lower than in the third quarter. And EBITDA margin went from 16% in the third quarter to 14% in the fourth quarter.

The reaction in EBITDA was mainly related, as Daniel commented, to lower steel prices, partially offset by slightly lower operating cost per ton and slightly higher steel shipments. For the full year 2014, EBITDA was $1.5 billion, stable compared to last year, 2013.

Net sales were $2.2 billion in the fourth quarter, a 3% sequential decrease, as a result of lower revenue per ton and slightly higher shipments, which reached 2.4 million tons. For the full year 2014, net sales reached $8.7 billion, slightly higher year over year.

Shipments were 1.5 million tons in Mexico, 3% higher sequentially. For the full year 2014, shipments in Mexico reached 5.6 million tons, increasing approximately 650,000 tons compared to 2013.

As we mentioned, or commented in previous calls, Mexican consumption of steel has been growing mainly as the result of a healthy demand from a very competitive manufacturing industry, while industrial sectors are slow, although slowly improving, lagged a little behind. We are expecting an increase in shipments in these markets in the first quarter, 2015.

Steel revenue per ton in Mexico was 3% lower sequentially. Steel prices in the US and Mexico began to turn down during the fourth quarter 2014, and have continued to decline in the current quarter in line with the downturn in international steel prices, and a significant increase in imports into the US market.

The significant drop in the price of oil also has negative effect -- negatively affected flat steel prices in the North American market, mainly as a result of a decrease in the energy industry demand for related flat steel products. We expect, as a result, a subsequent reduction of revenue per ton in the Mexican market in the first quarter of 2015.

Shipments in the southern region increased 3% sequentially, and we believe they will remain more or less at these levels during the first quarter of 2015. Realized price in the southern region showed a 3% sequential decrease, as was the case in the -- in Mexico, and we expect them to also have a downturn, or downward trend, in the first quarter of this year.

So, as I mentioned before, excluding the income recognition on an insurance recovery in Siderar, consolidated EBITDA per ton decreased from $157 in the third quarter to $128 in the fourth quarter. This decrease in EBITDA per ton was mainly due to a $35 decrease in revenue per ton, as operating costs per ton decreased only $6, with lower purchased slabs and higher energy costs as well as lower SG&A per ton.

Cost per ton should continue to decrease during the following quarter, although the passthrough to costs of lower raw material and energy prices will be gradual, as Ternium consumes these higher-cost inventories over time.

For the first quarter of the year, we expect operating income would remain at more or less the same levels we showed in the fourth quarter. This will be the result of lower revenue per ton, partially offset by lower cost per ton and slightly higher shipments in Mexico.

As of December 31, 2014, we performed an impairment testing of our investment in Usiminas, and consequently wrote it down by $196 million.

The main changes to our previous estimation of value and use that led to this impairment, were related to expectation of a weaker industrial environment in Brazil, and consequently steel demand, as a result of worsening economic activity as well as a significant downturn in international prices of iron ore, and also prices of steel, both of which lead to diminishing cash flow expectations.

In addition, during the fourth quarter 2014, Ternium applied its purchase price allocation procedures in connection with October 2014 acquisition of additional shares of Usiminas from Previ. We determined a higher value of net assets at fair value versus group value, and accordingly recognize a gain of $189 million.

Let me now make a brief comment about Ternium's effective tax rates, which reached a level of 65% in the fourth quarter of 2014. The cause of this unusual high level was mainly related to non-cash effect on deferred tax of the significant depreciation of the Mexican peso and the Colombian peso during the quarter, which represented 9% and 18% respectively against the US dollar.

The depreciation of local currency reduced in US dollar terms the tax base used to calculate deferred tax to our Mexican and Colombian subsidiaries, which have the US dollar as their functional currency. Expected tax rate in the full year was 38%, compared to 37% in 2013.

So, net income decreased $100 million sequentially in the fourth quarter, mainly as a result of lower operating income and a higher expected tax rate, partially offset by the improving financial results. The full year net income was relatively stable at $596 million. Earnings per ADS were $0.31 in the fourth quarter, sequential decrease of $0.26 per ADS, mainly due to lower operating income and higher effective tax rate, as was mentioned before.

In the full year, earnings per ADS reached $2.30, only $0.02 decrease compared to last year.

Let me now make a brief review of the cash flow statement. Net cash provided by operation activities in the fourth quarter was $208 million, with stable working capital. Capital expenditure were $109 million, reaching a total of $443 million in the full year, a 50% decrease compared to last year, which was, as Daniel mentioned $880 million.

Although Ternium free cash flow reached $100 million in the fourth quarter, net debt increased a bit from $1.7 billion to $1.8 billion. The reason for this increase was a -- the $249 million statement during the fourth quarter, related to the acquisition of the Previ shares. Anyway, our financial position continues to be very strong, with a net debt to the last 12 months EBITDA ratio of 1.2 times.

I believe these are the main issues to comment in respect to the performance -- the (inaudible) performance of the quarter or the year. So, now we can begin the Q&A session. Thanks.

(Operator Instructions). Marcos Assumpcao, Itau BBA.

First question on EBITDA per ton -- if you could comment on your expectations for -- just the trend on EBITDA per ton for the second half of 2015. You already guided for relatively stable operating income in the first quarter.

But considering the lagging effect of your cost -- your cost base into results in the second half of the year, could we expect a higher EBITDA per ton than the current levels that you're generating right now?

Well, it's difficult to say, because as you know the EBITDA per ton is a consequence of mainly three factors. The main factor is the pricing volatility -- the pricing go direct, without any delay -- is going at the point of the EBITDA right at the same moment, in real time.

We do not have, yet, any certainty in the performance of the pricing in the US market, and the impact in the Mexican market. Now, the prices of hot rolled coils in the US market went down to $570. The coupling against the Chinese domestic market and against the European markets is still very impressive and still very high, but decreasing.

Some analysts are saying that we are getting to the bottom. Some other analysts are saying that there is still some room. We really don't know. No doubt that this will impact the EBITDA in real terms.

On the other side, you have that there are very, very good, positive effects to our EBITDA rate -- so, coming from the three factors that are the main drivers of our costs -- the reduction in iron ore price; the reduction of carbon pricing in the Argentine operation; the reduction of gas in the Mexican market that now, as you know, is at $2.80 per million BTU -- it's a record low -- almost a record low level.

And also, you can see that the gap between the hot rolled coils and the slabs coming from overseas, and because of the huge idle capacity and the huge oversupply of steel, are enjoying a very good very good -- for us, a very good, positive gap.

And at the end, the third factor that is impacting our EBITDA is the cost equation, where we are undertaking many initiatives that are having a nice impact in our cost, and we believe that we will continue with that.

Also, it's important to say that we have some devaluation effect and appreciation effect in the different markets that are impacting the cost in the opposite way. For example, in Argentina you -- we have an appreciation of the local currency against the dollar.

And in the Mexican market, we are having the opposite effect of a depreciation of the Mexican peso against the dollar. And no doubt that these factors are also having some impact in our costs.

So -- we're putting everything together, I will pass to Pablo Brizzio to go in more detail, but I guess that we do have good perspectives. But it depends on the speed of the decrease -- the further decrease in price that could happen.

Yes. Just one thing, Daniel, to add to your comment, is that if we -- is the perception that Daniel made during his presentation, which is that probably we will reach a bottom in the decrease in prices.

If this is sustained from now on, Marcos, you're right -- we will be seeing an increase in the margin. Because, as you know, during the second part of the year, we should be reflecting the price reduction in the raw materials.

And if the prices of steel are staying, this should be a -- clearly the picture, moving into the end part of the year, which will -- as we mentioned, will not -- we are not expecting to fully reflect during the first part of the year.

Also, the volumes, Marc, are quite good, and the perspectives are good because of the market where we are in, and we expect to reach 10 million tons of shipments in 2015.

And we are also expecting good volumes in the first quarter, because of the performance in the Mexican economic as well as the performance in the Argentine economy so far, in -- adjusted seasonally. So, the volumes are not going to be -- are going to be good, I would say.

Okay. Perfect. A second question related to the writedown on the Usiminas investment. Would you comment, what is the basis for the writedown? How much you're considering that could be the fair value of your investment right now?

Yes, Marcos. Let me comment on this. We have adjusted our projections in the value use calculation, mainly as a result of the lower raw material pricing and the lower steel pricings that we are seeing, together with the reality on the steel sector and the Brazilian economy.

So, the number that we are reflecting today in our financials is what we consider the value use, reflecting the Usiminas investment. If you look at the numbers, the average price per share is around -- a little higher than BRL22 per share.

So, this is the impact that these new realities that we're seeing in the market, is making us performance-test for an impairment, and reducing the value in use of our investment in Usiminas.

And how frequent do you do the impairment tests? Every end of the year, right? Or, you can do it more frequently?

We -- no. You need to test, of course -- every year, you do it. But if you think that there are impairment test barriers that could cause you to have an additional one, you need to test it -- test will be every quarter, if you consider that it's appropriate to do it.

Okay. Perfect. Thank you very much.

Carlos de Alba, Morgan Stanley.

The first one is an easy one, maybe for Pablo. What is the CapEx expected for 2015?

And the second one, perhaps for Daniel, may not be as easy; but as always, I'm sure it's going to be a straightforward answer.

What, Pablo, would prevent Ternium to divest from Usiminas? I mean, clearly the situation with Nippon is not going well. It's a very messy story. CSN is not contributing. And the share price of Usiminas (inaudible) is above BRL20, which is not that different from what it was when you -- when Ternium bought the shares from Camargo Correa/Votorantim. So, why would not Ternium try to negotiate a good price with Nippon and get out?

It's a nice question. Let me address the first part of the question. We expect for 2015 same level of CapEx programs that we had in 2014.

And the second question, as you know, is more complex, and is difficult to answer. But let me try to give you some insight in -- which is the situation with Nippon Steel and with Usiminas right now.

First, let me address what happened with Usiminas fourth quarter results board meeting, and why, in the first time, the Board decided not to approve the Usiminas financials statement. And after -- they misquote on that, saying that at the February 15 meeting, the Nippon Steel directors included in their vote certain reserves and qualifications which incorrectly interpreted -- did not involve the financial statements at all.

However, you know, in the board, that -- there was an appeal to our Board by telephone -- by teleconference. And the Chairman of the Board interpreted that there was no -- there were no agreement within the controlling group with respect to the approval of the financial statements.

But afterwards, and fortunately, the situation was quickly resolved, and at the new board meeting that was held on Tuesday, all the controlling group members confirmed their approval without reserves or qualifications of the financial statements of Usiminas.

So that, this unfortunate situation could have been a misunderstanding -- a painful misunderstanding at the end. Because all of us agreed upon the necessity to approve the financial results as -- following the proposal of the management, and we did that, with this painful delay, I would say.

Then, trying to answer the second -- the part that related to the divesting, or what is going on in relationship with our investment in Usiminas -- you know that Usiminas' well-being has been, and is, our priority.

And accordingly, over all these years that we have been there, we were always open to discuss with Nippon Steel ways of putting a kind of end to this crisis that the Company -- so to speak, this crisis, so to speak, is having nowadays.

For example, although we will continue working for the [restorement] reinstatement of these (inaudible) executives, we propose the appointment of Mr. Tulio Chipoletti as industrial Vice President of -- in Usiminas. Tulio is a former Tenaris employee. His appointment was unanimously accepted by the controlling group, and he's already taking care of this important position in the Company in an interim fashion, until a definite management team will be appointed.

So, at the end, we will continue talking all possible actions that contribute to Usiminas' best interest with our partner, Nippon Steel. Needless to say that, at the same time, we will also continue taking actions to protect our rights and interest in Usiminas, pursuing the reinstatement of these executives.

But I cannot deny that the relationship with Nippon Steel may be not in the best moment, so to speak; but, no doubt that this -- it is not in a point of no return. And we will continue talking with them to protect our rights and to see ways to negotiate a solution to the deadlock.

I cannot speculate right now about possible scenarios or possible outputs of this dialog, but we continue having a good level of dialog that, at the end, should end up with a solution to the deadlock that the Company is having right now.

Fair enough. Thank you very much.

We are not considering -- we -- sorry, Carlos. We are not considering a divesting of our investment in Usiminas right now, to finish your question. Sorry. Unless there are no further questions.

Thank you, Daniel.

Thiago Lofiego, Merrill Lynch.

I have two questions. If you could please provide some additional color on the Mexican steel market per segment. So, what's the outlook for consumption in 2015?

And if you could also comment on potential impacts of lower oil prices, and consequently lower investments from Pemex on steel demand in Mexico.

The second question is regarding your iron ore business. Ternium posted an operating loss in that division in the fourth quarter. Are you considering shutting down operations at some point, or do you see room for cost-cutting? So, what's the action plan here, at the end of the day, for the iron ore business? Thank you.

All right. So, let me -- well, you presented, Thiago, two questions. And -- the first one being, the state of the market in Mexico. As you know, Mexico market in 2014 has been growing mainly because of the demand of the manufacturing industry and industrial sector.

On top of this, we worked in 2014 very hard, in order to get more contracts with industrial customers in gaining market shares against imports coming from overseas. And these impacted positively our volume in Mexico, and showed a higher volumes sold in Mexico for Ternium. At the same time, the construction continues to be in a rather weak situation right now, although this is slowly improving currently.

On the other side, we have yet to see that the -- what is the effect of the lower oil price on Mexico's government spending?

So, putting all this together, and also expecting a growth in Mexico of 3.5% for 2015, and even if the US market is expected to grow slightly, maybe 1, 1.5 according to different analysts in steel consumption, we expect a very good perspective for demand, that is also being shown in very good numbers for the first quarter of 2014, and will remain the same in 2015. Especially driven, Thiago, by the industrial sector, as I said before.

And in the industrial sector, is driven by exports from Mexico to the USA, and a very good performance of the automotive industry. As you know, the automotive industry in Mexico is doing very well -- now is between the largest five exporters worldwide. And this performance has been consistently going up in the last 10 years. And also, the perspective for the future are very, very good.

So, I would say that I see very good perspectives in 60% of our shipments that are now dedicated to the Mexican market, based upon the development of Mexico in industrial goods and in high-end products coming from our new facilities, Thiago, from Tenigal and the cold rolling mill. Maybe you can mention something about -- Pablo, about our mining operation that is -- presented some (inaudible).

Yes. Thiago -- yes. First of all, let me tell you that we -- even with today iron ore prices, we continue to have very [viable/valuable] operations from the cost point of view. Of course, we need to keep working, and we need to address some issues in order to return to operating profit, and we are working on that.

And, as in the steel segment, there are some cost reductions that will be starting to impact from now on. And also, for example, the valuation in Mexico will have a positive effect in our health in our mining segment.

So, in total, we believe, and we know, that we have a good operation, even with these low prices. So, we are not expecting to close our mining operations. And, of course, we are not even thinking about increasing it; but we believe that was a very specific situation during this quarter, and we'll be able to recover this in the quarter to come.

Thiago, let me mention some numbers on the Mexican market, especially in the automotive sector. There is a nice paper that was written by the consulting firm whose name is Actinver -- all together, Actinver -- with very good analysis, all of what is going on in Mexico productivity, in comparison with the US and China especially, and some dynamics of the sector.

Let me share some very few comments on this paper. First, the automotive sector in Mexico has a market share of the total GDP of Mexico, of around 3%, and 17% of the industrial GDP of Mexico. So, the industrial -- the automotive industry is an important part of the total economy, even taking into account energy and all the other factors -- construction, and all the other factors, and is 17% of the manufacturing of Mexico.

Between 2001 and 2013, the compound growth rate of the automotive industry in Mexico was 7%, against 2% of the GDP and 1% of manufacturing.

The level of productivity of Mexico against China, India, Korea and Brazil is very good. I would say that Mexico, for example, now is the number 7 important manufacturer of automotive, and the 4 exporter of vehicles worldwide.

If you take into consideration the cost competitiveness of Mexico against USA, the cost of manufacturing in Mexico, the automotive industry -- 16% below the total cost in the USA, and 9% below the total cost in China.

So, all in all, I would say, good growth perspectives; a very nice and important potential domestic market that was not developed yet; good perspectives for export; very good cost competitiveness [of vision]; and also, preferential access through other markets. As you know Mexico, has 11 TLCs, including access to USA, Europe, MERCOSUR and Japan.

So, at the end, in 2015 the growth rate is expected to be, in the automotive sector, 7%. And for 2020, the total production could be 5 million cars, with exports of 4 million cars, which represents a compound growth rate of 7.6%.

Sorry for the detail, but I wanted to share with you, and if maybe you are interested (inaudible) you can pay a look to this paper to go deeper in details in these appreciations on competitiveness of Mexico against USA and China.

Thanks, Daniel. Just a quick followup here. I know you guys don't have much of an interest, or much of an exposure to the oil industry, but do you foresee any kind of impacts from lower investments from Pemex into the whole steel industry in Mexico?

Well, you know that Pemex, and in fact the Mexican government, has brought some changes and some new regulations to develop -- to further develop the oil sector. So, of course, we will be impacted by the oil price reductions.

But still, we continue to believe that it will be, at the very end, positive for Mexico and for the development of the oil sector in the country. So -- though with probably reduced impact as before, we continue to believe that this will be positive for the Mexican economy.

Yes. Thiago, in the fundamentals of the energy sector in Mexico, we didn't evaluate, and we don't have the information to evaluate yet, we -- could be an impact of this decrease in oil price and gas price in the projects in Mexico. But no doubt that, from the fundamental standpoint, Mexico is opening; Mexico is looking for development in the energy sector.

As regarding the location of our facility, the location of our facility in Monterrey is in a privileged position regarding the availability of gas coming from North to South, from the USA, with a very cheap logistic, and very low transportation costs.

So, at the end, the energy will bring to Ternium good news. Good news from the market side of development of the energy in (inaudible) Mexico, as well as good news from the cost side, because of our operation in Techint as well as other developments that we could undertake, taking this privileged location regarding the availability of gas reserves in the south of the USA.

Okay. Thank you, Daniel. Thank you, Pablo.

Leonardo Correa, BTG Pactual.

My first question is regarding capital allocation. Daniel, I mean, you were very clear on the CapEx trend declining to potentially similar levels in 2015 versus 2014, which is quite a big drop when compared to 2012 levels. You also spoke about Usiminas and the strategy with Usiminas.

I just wanted to get a sense on where exactly you stand in terms of organic growth. I mean, looking at cash flows, and with this reduced CapEx, I mean, the Company is still in a position to generate quite positive cash flows and continue deleveraging to a level maybe below what would be ideal in terms of the capital structure. So, I just wanted to get a sense on what would be the priority levels in terms of new projects, and where would they be? That's the first question.

The second one -- this is maybe for you, Pablo. Just very quickly on refreshing us with currency exposures -- in terms of revenues and costs in Mexico and in Argentina, I mean, what would be the currency exposures on that side?

And finally, Daniel, given all your involvement with the steel community in Latin America, just wanted to get a sense on whether there could be additional anti-dumping cases being brought back to the discussion table in 2015. I mean, we've been seeing an inflow -- a quite significant inflow of imports, potentially unfairly priced imports.

So, I just wanted to get a sense on whether we could see anti-dumping cases coming back to discussions during the next couple of weeks. That's it. Thank you, guys.

Yes. Thank you, Leonardo. Let me address your question in three different vectors. First, regarding the CapEx programs that we are analyzing for the very short run -- that means 2015 and entering into 2016 as well -- we are working in initiatives that are to mainly dedicated to efficiency, productivity, de-bottlenecking, safety, and environment.

These are the main vectors of our investment plans, so that we will have a reduction in CapEx, but a huge amount, so to speak, of different small projects that we have to be very cautious to manage in order to fulfill our expectations regarding the impact of all these projects in our efficiency. First.

Second, we continue analyzing possible ways of increasing our market share in Mexico, especially regarding the imports that are coming into -- from different sources. And in that respect, we are analyzing different initiatives -- initiatives in hot rolling; initiatives in hot-dip galvanizing; in industrial sector as well as in commercial sector.

And we are in the process of putting together all our ideas, numbers, markets and perspectives, in order to see if we can take any decision.

Maybe -- maybe, but I'm not sure -- I will have some information to share with you about the prospects that we could have for growth, especially in Mexico; and again, taking into consideration the opportunity of imports that we could take over, gaining market share in this market, through downstream integration. And maybe we will be in a position where we could share some of this information with you in the Investor Day; but I'm not sure that we will finish our studies.

Regarding the anti-dumping question that was the last part of your question, we have a great concern about what is going on in the oversupply of steel worldwide. The oversupply of steel is huge -- it went up to more than 600 million tons for the first time in 2014.

This excess capacity is coming mainly from China. You know that, between 2007 and 2015, 851 million tons -- again, 850 million tons of annual capacity was added worldwide. China contributed to this addition of capacity, adding 565 million tons of steel. So that, the difference between the capacity and the consumption reached a record level of more than 600 million tons per year.

So, this -- we have a concern there. Because, as you know, our belief, our understanding, our certainty, is that China is not a free market economy, and China is exporting steel under unfair competition basis -- dumping and subsidies.

So, we will continue our search for solutions in the different markets in order to raise the worries in the authorities to be aware of this situation, and to protect the market of unfair competition, not only in the import of direct steel, but also in the field of importing goods that include steel -- manufacturing like home appliances, and this and the other, and that include steel also being sold to these manufacturers in unfair competition basis, and dumping, and subsidies.

So, it's something that we will continue doing. We are pretty active with this -- with all this awareness in the Mexican market, and we will continue working -- also, we work quite successfully in Argentina to raise concern on these issues, and we will continue working on that in Brazil as well as in Colombia.

In Brazil, the imports coming from China are especially high and are reaching a record level. So, it is a topic that we have to work very hard, and it's a topic that we will dedicate part of our efforts. Because we believe that we can compete against anybody, but in fair competition basis, and in a level arena -- in a level kind of playing field. Pablo, please.

Okay. Going to your effects question, Leonardo, we have in Argentina the exposure to local currencies around 35% of our total cost. In the case of our Mexican operation, it's lower in that we calculate this around 25%.

With the devaluation in Mexico, this will have a positive effect on the total cost of the Company. The case of Argentina -- today, what we are seeing differently from what we saw at the beginning of last year, is a reduced level of devaluation that, with the current deflation in the country, probably will have a negative impact in the cost structure.

But, as you know, we need to -- and we do -- follow this very closely. And so, with the devaluation today, which is much more important, in Mexico, in Argentina, we are expecting to benefit in Mexico, and not that much in the case of Argentina.

Perfect. Thank you very much, Daniel and Pablo.

Milton Sullyvan, Brasil Plural.

I would like -- I have some questions. Actually, first of all, could you talk a little bit about your cost condition, looking forward, and how much of that cost -- how much [of cost] advantages are we going to see, looking forward, coming from -- what part is going to come from slabs -- slab prices, this period? Are you going to -- you were talking about before. How much of that's going to come from --

Sorry, Milton. We cannot hear you very well.

It's -- I would like you guys to talk a little bit about costs, looking forward. How much of the cost advantages are going to come from slab prices, and how much are going to come from lower raw material prices?

And my second question is, if you could talk a little bit more about prices in North America -- if you actually think that you're going to -- what else can you do there, and what are you seeing in prices there? Thank you.

Okay.

Let me first start with a general answer, and then we will go into details with -- in the (inaudible) facts. Fortunately, you ask about these costs. These costs kind of questions -- I love to talk about costs, and I feel sometimes a little bit frustrated because you -- none of you ask about our initiatives in costs.

But at the same time, and following your question, I would say that, as you know, the price of iron ore (inaudible) -- is -- it went down from $190, $180 at the beginning of the year 2011, to $63 right now. That is a record level that is heavily impacting -- favorably impacting our costs in Argentina.

At the same time, and also talking about the same cost base in Argentina, the price of carbon in this same period from the beginning of 2011 to now -- the price of carbon went down from $350 per ton to $103 per ton -- one-third.

So, $180 to $63 in iron ore; $350 to $100 in carbon. And at the same time, the price of natural gas went down, from prices coming from $8, $7, $5, to $2.80 right now.

The -- these prices, as I said at the very beginning of my talk and my introduction, will enter into our balance sheet in the quarters to come. Unfortunately, the speed of the prices is pretty much higher than the speed of the costs because of the accounting system, so that the decrease in prices is impacting heavily our result right now, and the cost base will have a favorable impact in the quarters to come.

Also, we are undertaking some initiatives that I believe that are very, very good, that are innovations that are something -- developments that we are doing, that nobody else is doing, and that make the difference between ourselves and our competitors. These are initiatives that we are undertaking in energy savings.

We are undertaking more than 34 different opportunities in Argentina and 84 different opportunities of energy savings in Mexico. And also, we are entering into a new program of continuous improvement, where we have 227 potential projects for reduction of costs in Mexico. And we are now starting our projects in Argentina.

And we are also undertaking -- they have contractors planned, where we are planning an interesting potential for saving in the years to come, that maybe we will share more in detail in the Investor Day. But at the end, and from the conceptual standpoint, and the fundamental standpoint, I do believe that our stand, from the industrial base, is having now a tremendous advantage vis a vis our competitors.

We are enjoying benefits in the three vectors of our industrial base, in blast furnaces using iron or the or carbon; in gas-intensive [cost] -- iron production in Mexico, and (inaudible) a gap for the slabs in our rolling activity. And this will be reflected in the quarters to come in the balance sheet. And also, I expect some savings coming from the new initiatives.

I cannot quote on which will be EBITDA of 2015, or the EBITDA per ton, because I have factors that are positive and factors that are negative, and in this [compare], you never can evaluate (inaudible) we'll be taking the (inaudible). But, no doubt that we will continue performing, because of having these fundamentals, better that our peers and competitors, as we have done in the past.

Pablo, maybe you can quote on the balance sheet -- effect of these cost reductions.

Oh, yes. Daniel, it's basically the ones you mentioned, we will see positive effect on the different vectors in which we have our cost structure. They will be included in our financial in the quarter to come, so we'll comment in our presentation. And the -- and we're answering previous questions.

So, I believe that we have already included all these effects in our financials, and these will be reflected in the months to come. So, nothing else to add.

Alfonso Salazar, Deutsche Bank (sic - Scotiabank).

I just -- I have a quick question on working capital. I was looking at 2014 and I see that you have an increase in working capital of $550 million. Just want to know what your thoughts are about 2015 with respect for this year, in regards of working capital. Thank you.

Sure, Alfonso. We have been seeing an increase in working capital during the first 9 months of this year. As you saw in the numbers for the last quarter, we were stable, not increasing working capital. There are different factors that impacted the working capital numbers during the year 2014.

First of all, there was a huge impact due to the huge devaluation that we saw in the first quarter in Argentina, that -- the accounting impact of that devaluation is around $150 million. So, the rest -- the $400 million increase -- is mainly due to some increases in the inventory levels, that goes with the increase in shipments and the development or ramp-up of the facilities in Mexico.

Some additional increase also in accounts receivable is due to the same factor. And the one that is probably a little different to explain, which is the reduction in accounts payable. Because, as we reduce or pay the raw materials we were buying with higher prices, we are replacing this with new -- the new invoices with lower prices.

So, the effect of that is a reduction in working capital. But, as I said before, we have not seen this effect coming into the last part of the year, and we expect it to improve, beginning of 2015.

(Inaudible).

Okay. Good. Thank you. So, this is one of -- that shouldn't repeat in 2015, right?

That's right.

Okay. Thank you.

[Rinan Cursillo], Credit Suisse.

My first question is specifically on Argentina. What exactly -- if you could quantify the devaluation you see in the EBITDA [put on], specifically on prices and on volume.

And the second question -- I don't know if you have any update on the investigation of (inaudible) regarding the need for a tender offer on the -- on your acquisition of Usiminas shares back in 2011.

Okay. Let me answer your questions. As I have described during the -- my initial remarks, prices in Argentina declined around 3% during the fourth quarter, the same level that we saw in Mexico. So, as we always describe, we believe that Argentina, as of (inaudible) market, will continue to have a similar trend, going with international pricing.

In respect to Cade, let me clarify a little bit what CSN claim, and ask Cade, basically that -- CSN is alleging that we misled Cade in the time of seeking the antitrust clearance for the January 2012 acquisition. Cade authorities reviewed its approval when there are allegations of them being of misleading information.

As a result of the CSN unfounded allegations, the case must be considered by Cade and (inaudible). We believe -- Ternium believes that CNS claims are incorrect and will be clearly and quickly dismissed by Cade. We understand that CSN is mounting a press campaign trying to confuse the courts and the regulators are wasting their time.

We are confident that this call to decide on the matter will be -- and will not get confused. So, we are confident on these results. And among all, we provide Cade with all the necessary information that -- to appropriately assess the transaction. And there is no reason to revisit Cade's decision that was issued in August 2012.

Let me give you some more insights on what is going on in Argentina that, as you know, accounts for 25% -- one-fourth of our sales.

And I would say that the state of the market in Argentina is -- so far, and in the short run, is quite good. The steel consumption in Argentina in 2014 was even with the numbers of 2013 -- only maybe 1%, or less than 1%, below. And also, we are expecting for the first quarter of 2015, good numbers coming especially from our increasing consumption, perhaps (technical difficulty) because investment is low and -- but consumption is doing quite well.

So, regarding the prices -- steel prices -- we decreased the prices following what is going on in the rest of the world, and following the trend in the international pricing system. (Inaudible) do expect some further reductions in these regions for -- again, following up what is going on in the steel arena, in pricing and competition.

As you know, the price situation in Argentina is less volatile than in the rest of the world. So that, the prices go down slowly -- slower than the rest of the international prices; and also, when the prices go up, go also with a different pace, and go slower up than the rest, so that the volatility is lower than the international markets.

And also, it is interesting to say that, as Pablo was mentioning -- that the cost of Argentina is $35, related with the peso. And so, with this application of the peso against the dollar, we have had a negative impact in our cost equation in the last 6 or 7 months.

As you know, the -- this could be corrected with some changes in the exchange rate in part -- two factors. One is the pricing. As you know, Argentina had a devaluation at the beginning of the year between 25% and 27%, and we were able to pass these devaluations to the market in pricing quite well, and we enjoyed in the first part of the year the positive impact of this devaluation in our cost base.

And also, let me mention, that is important to say that Siderar in Argentina have consistently over the years paid dividends, and the (inaudible) represents in the Argentine government a stake in Siderar, have always vote in favor of Siderar's dividend payments.

As a matter of fact, Siderar Board unanimously proposed last week of this year dividend payment of $85 million, similar to the level of dividends of 2013.

So, again, last Friday, in the Board Meeting, I -- as you know, I am the Chairman of this Company, and the Board unanimously approved this dividend payment of $85 million for 2014. So, we -- I could say that, in total, we are happy with our operation in Argentina and we are doing well.

That's very helpful. Thank you very much.

Andreas Bokkenheuser, UBS.

This is just a twofold question. I'm still trying to understand the acquisition and stake in Usiminas. Can you remind us again, what are the potential synergies and value accretion you hope to obtain from your increasing stake in Usiminas, rather than paying shareholder dividends, for example?

And secondly, relative -- relevant to this, in view of deteriorating steel fundamentals globally, as you mention yourself, alongside deteriorating iron ore fundamentals, what gives you the comfort that you're not going to end up taking another ride down on Usiminas, down the line, in the next couple of years? Thank you.

Okay, Andreas. Let me try to answer your questions. As you know, we have performed two impairments in the last 3 years, the first one in 2012, which was an amount of $272 million; and recently in -- with the year-end financials, of a little more than $190 million.

We believe that the value use calculation now reflects the -- what we consider is the value of the Company. Unfortunately for us, we needed to perform these two impairments, and reducing the value of our investments from the original price to the one that is reflected in our financials today.

It is quite impossible to say if -- how will we be at, if there will be change in the variables that would make us to have a new analysis, and a possible reduction, or an increase in the value that we have in our financials.

As in some other question was asked, we have to perform, if there is an impairment indication in the different variables that are included in the analysis. So, we believe that we performed the test adequately, and reflecting the different changes in the variables that are included in this analysis.

And we are reflecting the real value of investments -- or, the current value of our investments, take consideration the different analysis that we performed, and we are doing as quick as the changes in the [management] require us to do.

And of course, there have been unfair -- unfortunately to us, and differently from what we had expected at the very beginning, changes of -- significant changes in some of the variables.

Like the economic situation in Brazil, that deteriorated from the moment that we acquired the shares as to today, and it's not clear how will be the outcome of this year, and how the Brazilian government will do the [significant] gain in GDP, that we are expecting to see in the coming year.

The second important issue that's changed dramatically from the moment that we entered into Usiminas, is the price of iron ore, which was very high at the beginning, or at moment where we acquired the shares of Usiminas, up to now, when we see a price below $70 per pound.

So, these are the things that we need to reanalyze and adjust to perform our value use calculation, and these were the issues, together with the devaluation of the currency, that is of -- again, having a negative effect on the value of our investment -- the ones that made us to reduce the total value of the investment in the shares of Usiminas, and reflected the value that we have today, which is, as I said, unfortunately, significantly lower than the initial value that we had.

At the end, we still do believe, as we believed when we took the decision of entering into this venture, that Usiminas is a very good company, with good economies of scale, technology, economies of (inaudible), well-located, to serve a market with very good perspectives and potential for growth.

We understood, and we continue understand, that we can create value in Usiminas, because of good management practices, and efficiencies, and productivity, and at the end creating value and the dividend performance that will reflect and will be shown in financial results, on top of what you mention, of possible synergies coming from different fields related with the locations, and areas, and regions, and so on.

So, at the end, we still believe that Usiminas is a good opportunity. We still believe that Usiminas is a good company. And we firmly believe that we were doing very well, and it was -- it has been reflected by all the analysts in the industry, given that we were able to change many things for the better -- many things that improve heavily and impacted heavily the productivity of Usiminas.

So, at the end, Usiminas is a great company, in a great market, in a great country, with very good potential opportunities for and perspectives for growth.

Okay. Thank you very much for your answer.

And I'm not showing any further questions at this time. I would like to turn the call back over to the CEO for closing remarks.

All right. Just -- I wanted to thank you for the attention. Thank you for the participation in this call. I hope to see you in Investor Day, in June 18 in the Guggenheim Museum.

I expect to have answered your questions with -- given the circumstances, and given the constraints, and given the -- all the things that related with these kind of conversations and compliance, and so on and so forth.

So, thanks a lot, again, for your questions and your interest in the Company, and see you soon. Bye-bye, now.

Ladies and gentlemen, that does conclude today's presentation. You may now disconnect, and have a wonderful day.