Ternium SA (TX) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ternium third quarter 2015 earnings conference call. (Operator Instructions). As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Mr. Sebastian Marti. Please go ahead, sir.

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 yesterday detailing its results for the third quarter 2015. 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.

I would like to let you know that, this quarter, we added a presentation to the usual audio webcast for you to be able to better follow the CFO's description of our performance in the quarter. Those of you that are only connected via telephone might want to also connect through the webcast to be able to follow this presentation.

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 yesterday.

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

Good morning to everybody, and thank you very much for participating in today's conference call to review Ternium's performance in the third quarter. As always, I would like to briefly comment about some specific topics that I believe are relevant for Ternium's business, and right afterwards, I will ask Pablo Brizzio to describe our performance in the third quarter 2015, and the outlook for the last quarter of the year. And then we will enter into the Q&A session.

So that let me begin with some highlights about the state of the global steel industry as a whole, given that a couple of weeks ago, in Chicago, the Economic Committee of the World Steel Association in the 2015 Annual Conference issued the last short-range outlook for 2015 and 2016. After the global steel demand growth of only 0.7% in 2014, World Steel is forecasting a decrease of 1.7% in 2015. Right afterwards, they are forecasting also an increase in global steel demand of 0.7% in 2016.

These forecasts, as you know, are heavily influenced by an expected decrease in China's steel demand of 3.5% and 2.0% for 2015 and 2016, respectively, while on the other part of the coin, the world steel demand excluding China is expected to be stagnant in 2015 but to grow 2.9% in 2016.

In my view, it will be very important to follow up the Chinese government announcement regarding the new five-years plan for the period between 2016 and 2020, specifically regarding this issuance that could mean better demand prospects related to infrastructure projects and/or new capacity closures for the target of the period.

There are some countries on the other side that -- in which World Steel is forecasting a healthy growth in steel demand, and among them, I would like to point out especially Mexico. After an 11.7% growth in 2014, Mexico's steel demand is forecasted to increase a healthy 4.8% in 2015 and 4.1% in 2016.

In 2015, Mexico will become the largest steel market in Latin America, surpassing Brazil, a country that has, as you know, 60% more population. The auto industry in Mexico has also surpassed Brazil on car production, and it's expected to reach 5m cars on 2020, based upon its specific announcement made by the auto industry regarding new capacity factories in Mexico, in the country so that Mexico apparent steel use is approaching 200 kilograms per capita, well over all other major steel markets in Latin America, where the average is approximately 110 kilos per capita. And this ratio grew consistently over the last 20 years.

This last quarter, Ternium shipments in Mexico almost reached two-thirds of total Ternium shipments worldwide.

Let me now comment on China. The decrease in China's local steel demand, coupled with a significant excess capacity, results in exports of steel under dumping conditions to the reset of the world. And no doubt that this factor is having a negative effect on steel pricing worldwide.

As an example, the steel prices in the US market decreased by approximately $250 per metric tonne, just in the last 12 months. In this situation, the US government has just announced preliminary countervailing determinations on corrosion-resistant steel imports from several countries and continues the investigation on dumping allegations.

In addition, it has recently determined reasonable indication of material injury to the US steel industry by reason of imports of certain hot roll and cold roll coils from several different countries. Preliminary determination of all these cases are expected to happen in the next few months.

In the same fashion, the Mexican government has been very receptive to the steel industry claims of unfair trade, and both governments have been very active on making sure that there is a level playing field in the USA and Mexico steel markets.

In Mexico, just a few weeks ago, the government implemented a tariff of 15% on imports of certain steel products. This is a temporary tariff though earlier in the year, the Mexican government also imposed definitive anti-dumping duties on Chinese imports and confirmed anti-dumping duties on Russian and Kazakhstan imports of cold roll coils. At the same time, also imposed preliminary anti-dumping duties on Chinese, German and French imports of hot rolled coils.

We will continue paying attention to imports coming in the markets where we operate, and we will denounce to the authorities those made under unfair trade terms and conditions.

Let me now comment on how Ternium is positioned to go with this adverse and volatile steel market scenario. I do believe that there are not many other steel companies like Ternium regarding production flexibility, cash generation and balance sheet strength.

As I commented some months ago in our Investor Day in New York, Ternium benefits from a very flexible and diversified production configuration, having DRI in Mexico, blast furnaces in Argentina and slab rerollings in Mexico, as well. Since the Investor Day, Ternium's main input costs have continued to decrease.

Our DRI and electric-power-furnace-based facilities in Mexico got an additional 35% decrease on scrap prices from $280 to $180 per tonne and a 30% decrease on natural gas spot prices, from $2.90 to $2.10. The prices of slabs for our rerolling business went down by 20%, and iron ore and met coal for our blast furnaces in Argentina decreased by 15% and 10%, respectively. All these numbers are taken on the basis of the last number that we shared when I presented the Company perspectives during the Investor Day.

In addition to that, a further devaluation of the Mexican peso from MXN15.60 to MXN16.60 per dollar is also helping on the portion of costs that are denominated in local currency, in domestic currency. Nowadays, approximately one-third of Ternium shipments are non-integrated, meaning for that that we are buying slabs in the amount of around 3m tonnes per year.

That, considering the state of the industry and the volatility of the steel market, it is not a bad position to be in, especially taking into consideration the gap between the slab price and the hot rolled coil and the cold rolled coil prices. This portion, non-integrated of our business, gives us -- is giving us significant flexibility, not only from a production standpoint but also from a financial point of view, because it's enabling us to reduce working capital when it is needed just by switching production from one facility to the other, for example, to produce slabs in Argentina to be shipped to our needs of rerolling in Mexico.

Also, from a profitability point of view, the non-integrated business -- that means the rerolling of the slabs -- tends to have a more stable margin than the integrated business, as it relies in the spread between the price of the slab and the price of finished products, which tend to move in sync. This spread has been fairly stable, at around $200 per tonne, when compared to hot rolled coil prices -- hot rolled coil prices for a long time now.

On top of this, as we always do, we continue working on our cost-cutting programs, like the contractors efficiency program, the logistic streamlining, the energy saving program and the continuous improvement programs. I would also like to mention that another issue that distinguishes Ternium from the peers is the very strong balance sheet.

As of the end of September, Ternium had a net debt of only $1.3b, a $200m decrease in the quarter and equivalent to only 1.2 times last 12 months of EBITDA. At the end, and all in all, I believe that Ternium nowadays is very well positioned to navigate in this volatile market and difficult world, and Ternium will continue showing these good results in the future.

So there were the main issues that I wanted to share with you today, and I will ask now Pablo to take over and to give you a description on Ternium's performance before going to the Q&A. Please, Pablo, go ahead.

Thanks, Daniel. Good morning to everyone. As we usually do, I will briefly describe our performance in the quarter, and then we will have a Q&A session. I would like to remind you that today we will have a webcast presentation together with this audio. Let's begin on page 3 of the webcast presentation.

Ternium's net sales were almost $2b in the third quarter 2015, down 3% sequentially. The reason for this decrease was a 4% reduction of revenue per tonne, partially offset by a 3% increase in shipments.

As you can see in the charts, this has been the case for most of the year. Shipments has been increasing, while revenue per tonne has been decreasing. Our business in Mexico has a lot to do with this dynamic, as you will see in the following pages.

Let me now just mention that in the third quarter, shipments in Mexico were 62% of Ternium's total shipments, and shipments in Argentina represented 25%.

Moving to page 4, you can see net sales in Mexico. Shipments in the third quarter increased 5% sequentially to 1.5m tonnes, returning to the record levels seen in the first quarter.

As in previous quarter, shipments to the automotive, home appliances and other industrial customers in the country continued to drive Ternium growth in Mexico. Shipments to customers in the construction sector are also growing, although not at the same pace.

We expect to see a sequential decrease in shipments in Mexico in the fourth quarter of this year, related in part to year-end seasonality and also to a planned 30-day stoppage of one of our hot rolling mills in connection with an upgrade of the line that will enable a broader product range. Steel revenue per tonne in Mexico was 8% lower sequentially in the third quarter, equivalent to a decrease of $58 per tonne.

After a relatively stable second quarter 2015, steel prices in the North American market resumed a downward trend by the end of the third quarter. However, we expect to realize sequentially stable steel prices in Mexico in the third quarter.

The reason for this is the lag in our revenue line to reflect changes in steel market prices. As I mentioned in previous calls, this is related to industrial customers' sales contracts, which represent close to half of our shipments in the country.

The Southern Region net sales on page 5 shows more sequential increase to $648m, mainly related to slightly higher revenue per tonne, mostly due to a richer value-added sales mix. As can be seen in the chart on this page, shipments have been relatively stable during the last 12 months in these markets, and revenue per tonne has been decreasing in the same period. We are not anticipating big changes here in the coming quarter.

EBITDA in the third quarter 2015 was a little higher than we expected in our latest press release and conference call. As you can see in page 6, EBITDA was $250m in the third quarter, a $38m sequential increase. This was the result of a higher EBITDA per tonne, as cost per tonne decreased more than revenue per tonne, and higher shipments in Mexico.

On page 7, you can see that EBITDA margin increased from 11% in the second quarter to almost 13% in this quarter. This is equivalent to EBITDA per tonne of $102 in the third quarter 2015, a $13 sequential increase.

Comment a little bit on what we are expecting. We expect that EBITDA will increase in the fourth quarter of this year, compared to the current quarter, and EBITDA per tonne should increase as a result of lower cost per tonne, partially offset by the mentioned lower shipments in Mexico.

We believe that cost per tonne will continue to decrease in the upcoming quarters, with a gradual pass-through to cost of lower prices of raw materials and purchase slabs, as cost per tonne in the third quarter did not reflect yet current input prices.

Net income was $40m in the third quarter, a sequential decrease of $10m, and earnings per ADS were also down from $0.21 to $0.13 in this quarter.

As you can see on page 8 of the presentation, although EBITDA sequentially increased $38m, net revenue was lower, mainly to $46m lower results from our investment in Usiminas.

Coming now to the cash flow statement on page 7 (sic), you can see that the third quarter free cash flow was $136m, with $74m lower working capital and $115m CapEx. On the following page, you can see CapEx for the previous quarters, also. We are anticipating we will end up the year with a CapEx of around $450m, very similar to last year's CapEx.

As Daniel has already mentioned, our financial position continued to get stronger, with a further decrease of net debt, from $1.5b at the end of the quarter in June to $1.34b at the end of September this year. And we maintained a low net debt to last 12 months EBITDA ratio of 1.2 times.

With this -- are all the issues I wanted to discuss with you today. Now, we should start our Q&A session.

Please, operator, let's go to that. Thanks.

(Operator Instructions). Carlos De Alba, Morgan Stanley.

Yes, thank you very much, gentlemen. So my first question is regarding the potential impact of the stoppage in Mexico. Can you give us the volumes that you expect to miss due to this maintenance? And also, is it possible to compensate at least partially with any inventory that you might have built ahead of this event?

Second, also in Mexico, we read news today that Mittal is stopping around 90% of their slab production in Lazaro Cardenas. Does that mean that you will have to import more slabs from outside? What is basically the impact or the potential impact on Ternium, if any?

And then finally, given the reduction in iron ore prices that we have seen, do you have any plans to maybe reduce or adjust the production of iron ore in Mexico? Thank you.

Good. Regarding the first question, I would say that we will have in the [forward] a kind of seasonally reduction in our shipments to the market. And we will take advantage of this small slowdown that is common for this part of the year, because between other factors, December has less days, less working days, than the rest of the months.

We will take advantage for that to make some repairments and to open some of our facility for [wrecks] and for reparations. No impact at all in cost-wise. Not impact at all in revenue base or in the EBITDA rate.

For the second, regarding the Mittal question, we do not know yet which is the timing or specifics about the Mittal announcement. On our part, we are still in the process of sourcing and negotiating with Mittal to continue sourcing ourselves partially from Lazaro Cardenas.

In the case of a slowdown in this production, we will be importing more steel from other sources, and also, we were able to build a good level -- a pretty good and proper level of inventory in the few months ago in order to face such kind of a situation. So I don't see an important impact also in our activity or in our bottom line.

Regarding the iron ore question, Carlos, I would say that we are not in a process of reducing production, even with these low prices. We are still competitive, and we are sourcing ourselves with production of iron ore coming from our mines and also from Pena Colorada that as you know is a joint venture that we do have, 50-50, with Mittal. So I don't see any important reduction in iron ore production because of the iron ore pricing.

All right, thank you very much, Daniel.

Thank you, Carlos.

(Operator Instructions). Marcos Assumpcao, Itau BBA.

Hi. Good morning, everyone. My first question is regarding volumes in Argentina. In the outlook, you mentioned that volumes should remain stable in the fourth quarter, but the conditions in the local market could change in 2016. So if you could, give us some color on what you're expecting for 2016, and also answer if this outlook will depend on the elections, as well.

Last question, on steel prices, what is your view on prices in the US and the impact of the prices in the region, in Mexico, as well, for 2016? Thank you.

Good. Well, regarding Argentina, I would say that we do not expect any impact in our shipments for the rest of the year. We have been having strong sales in Argentina because of an active market, based upon expansion in construction, home appliances and also in other related matters. So we do not expect any impact at all for the rest of the year.

Regarding the election, as you know, there is a runoff between Mr. Scioli and Mr. Macri taking place on November 22. We do believe we understand and we firmly believe that Argentina has an enormous potential for growth in mining, energy, agribusiness, infrastructure, construction, and all these fields no doubt from our perspective will attract investments in the months to come.

It is very important to have access to international debt and finance markets, and you know that both candidates are going to be going in that direction, according with expressions that they had in the last months. Argentina has a relatively high industrialized economy, but on the other hand, Argentina needs to regain competitiveness in many sectors, and so I understand and I believe that both candidates understand the changes that are needed to regain the economic growth in the country.

On the flipside of the coin, today's environment for emerging markets economy is not as good as it used to be, and also, in the specific relationship with Argentina, the need of rebalancing an implementation of economic reform will be very positive in the medium run, but maybe with an initial period of some kind of uncertainty. It is very difficult for us to evaluate if this uncertainty will effectively affect the domestic market sales.

You also -- I also would like to mention that the pricing system in Argentina is based on US dollars, and payments are made in local currency, so that if we have into consideration the very high level of integration that we have in Argentina, and the pricing system is based upon this level of integration, because we are having there just-in-time delivery, cut to length, [slipping], tailor-made products, proprietary specification, added value and so on and so forth, I don't see that the pricing system will be affected, except that it will follow the rest of the economy behavior, price wise and in pesos.

Regarding your question, Marcos, on steel prices in US and -- USA and the impact in 2016, in my view, we are in a situation where because of cost, the prices should be in the bottom or very close to the bottom. There is no big room at all for a further decrease in the pricing system worldwide, as well as in the US.

Obviously, the prices of commodities were affected and impacted by the slowdown in Chinese consumption and also impacted by the excess capacity in China. At the same time, no doubt that the stronger dollar also put some pressure on the pricing system. But also, as we have been discussing with you and your colleagues in the Investor Day, the globalization in my view is turning to regionalization as a consequence of the spread of unfair practices and dumping cases.

So that on one hand -- on one side, on one part, on one hand, we had the Chinese steel industry being affected by a slowdown. On the other side, many companies are taking very seriously the fact that they do not consider China being a free-market economy and are putting anti-dumping duties and countervailing duties, as in the case of the USA and Mexico.

And so I would say that in my view, no room for further deterioration of the prices worldwide, in the export business, as well as in the domestic USA business. And I do see that because of the very long period of very low prices, we are witnessing some cuts in production, upstream and downstream facilities being shut down. And so that I see that maybe we will foresee -- we will be witnessing in 2016 maybe a new level of pricing worldwide. And I don't see an important room for further deterioration.

Perfect, just if I could, a follow up on Argentina. What's the current sales mix between domestic sales volumes and exports?

Maybe 15% export, 85% to 90% domestic market.

And you are running at nearly full capacity?

Yes, we are running at almost full capacity in rerolling. We are in the process of closing down one blast furnace, and we are going to be operating with one continuous cutter, and we are going to be operating at full capacity in the rerolling. We can switch on the blast furnace pretty soon if the conditions are able to do that, because we don't see very good perspectives for exports going out of Argentina, because of the situation in neighbor countries, as well as for the prices in the system.

All right, perfect. Thank you very much.

Appreciate it.

Humberto Meireles, Goldman Sachs.

Hi. Good morning, everyone. Thanks for the call. So the first question is on cost. How should I think about the benefit that we still have from lower slab purchases, meaning what is the difference between your production cost and your cost of goods sold? So if you mark to market your spot raw materials, what would be the cost per tonne benefit that you should have?

And the second question is regarding long-term growth strategy, so we are in the global trough of the cycle, and asset prices are declining, and do you see any potential M&A chance increasing in the future?

Well, in the first part of the question, as you know, we have one-third of our cost coming from the rerolling of slabs, the gap between the slab import price and the hot rolled coiled price is around $200. That is a pretty good value for rerolling, and it's giving us a good advantage and a good strength in our bottom line.

One-third is coming from DRI, where we are enjoying the very low price of gas. As you know, the gas now in Mexico, we are buying the gas in Mexico at $2.10, $2.20 per million BTU, and the third part of our equation is coming from blast furnaces in Argentina, where the iron ore is in $48. It's almost a record low for the last seven, eight years, and also, the coking coal is at a very, very low price.

So all in all, our production base, that is very flexible, and we can switch production from one facility to the other if it's an advantage. And the marginal cost that we do have is very competitive vis-a-vis our competitors. That's one of the main reasons why we do have a distinctive EBITDA when compared with peers.

If you couple this advantage in the cost with all the cost initiatives that we are undertaking regarding efficiency, cost cutting, energy saving, productivity, competitiveness and so on, if you put together the cost advantage of the production base with the cost initiatives and with the fact that our level of vertical integration is allowing us to charge a price premium to our customers because of differentiation, because of being very close to them, because of penetrating the value chain of the customers, because of prompt delivery, just-in-time delivery and so on, we combine three or four things that are giving us an EBITDA ratio that is almost doubling the average of our peers, of our competitive peers.

So that I see that we continue having these advantages in the future, and at the same time, we are not stopping all our cost-cutting initiatives.

Regarding the second part of your question and the long-term growth, as you know, there are three factors that we also discussed in detail in the Investor Day. One is increasing production through debottlenecking efficiency. The second one is -- I call them brownfield. Then the second one is the greenfield. That is expansion through the way of building some new facilities like the one that we built in Mexico whose name is Tenigal that is allowing us to follow up all the developments of the automotive industry.

And then we have the M&A. Regarding the M&A, I would say that nowadays, we are not having any particular consideration in an acquisition, but we are always screening the market to see if an opportunity arises, but I do not see in the near future any good deal in the radar screen, Humberto.

Maybe I will turn to Pablo to [put] more detail in the marginal cost per tonne and benefit per tonne that you mentioned.

Okay. Yes, Humberto, in fact, these days the flexible production of (inaudible) that Daniel was mentioning is yielding us very similar results. The cost of producing through the DRI steel products or the cost of producing steel products through buying slabs is very similar these days. So this gives us the significant improved results that Daniel was mentioning.

And we are also having a very good level of profitability in our operation in Argentina through blast furnaces because of the low cost of the raw material, of course, impacted there by some high cost of peso-denominated portion of our cost structure.

But all in all, we are at the moment kind of balanced in the way of producing steel in the three different ways that we do that.

Yes, thank you very much. Just a quick follow up on the first cost question, so I was more trying to think about your -- given you operate under FIFO accounting, right, your third quarter cost per tonne still reflects some more expensive raw material that you bought throughout this year.

So if we mark to market looking forward, what is more or less the benefits that you're having the difference between third quarter production costs and cost of goods sold?

Yes, that's a very fair question, Humberto. We are still seeing that we have yet to pass through our cost line a further reduction of over $50 per tonne in our slab purchases. So this is why we still believe that entering into the fourth quarter, this will be reflected, and probably depending on the market situation, we will continue to see some not as high as this number in the following quarter.

At the end, Humberto, there's no doubt that the substantial reduction in the steel pricing is negatively impacting the profitability of the industry as a whole, but in our case, the impact is offset in grand part because of the fact that we are buying and enjoying very low costs in our slab rerolling bases.

And also because all the cost-cutting initiatives that I mentioned during the Investor Day are now entering into the bottom line, and we are now enjoying the benefits of these initiatives. And so if you combine that, because of the use of first in, first out to account for inventories, and there is a kind of mismatch between prices and costs on Ternium accounting, we will have these three or four positive effects in the fourth quarter.

And even when on a seasonally basis the shipments could be a little bit lower, no doubt that as we were mentioning in our outlook, we will have a better quarter, and also -- and also, this better quarter from an accounting standpoint will also have a positive impact in the first quarter of the year to come.

Regarding CapEx, in 2015, we will be probably close to $450m. That is a reasonable amount of money for the kind of facility that we do have, and it's a number that is well below what we have been spending in the average in the last four years.

Excellent. Thank you very much.

Thank you.

(Operator Instructions). Rodolfo Angele, JPMorgan.

Hi. Good morning, everyone. So Ternium is quickly deleveraging. It's been able to generate free cash flows, which is great, especially in such a tough environment for the steel industry globally. So we discuss here M&A. It seems to be out of the cards. So how can we think about use of proceeds, whatever cash is accumulated in the Company now? Is it -- should we start considering higher dividend payments in the future? Are there any new projects that are being eventually studied on the CapEx side? So if you could talk a little bit about that, it would be great.

And my second question will be I wanted to hear your thoughts on the current state of affairs at Usiminas. I've been asked a lot about what's going to happen next steps, if there will be eventually an equity offering. So any thoughts there, and if it comes to raising equity, what's the view of Ternium's management in terms of participating on that? Thanks.

Okay, Rodolfo. Let me take the first question that you make. As you clearly pointed out, Ternium is generating a very healthy level of free cash flow. If we consider the last nine months of the year, 2015, we have generated over $600m of free cash flow, also, of course, taking into consideration that the CapEx level that we have is relatively limited to a number of $450m throughout the year.

With that, up to now, we have been doing basically two things. The first one is to pay dividends, and as you know, during this year, during the May/June period, we have been -- we paid a dividend of $180m from Ternium, which was an increase from previous year.

So though this year, we are, as you know, looking at numbers, reducing the total EBITDA and net income generated during the year, we internally are not expecting to see a change, a negative change on the dividend payment. But as you know, we don't have a written dividend policy, but we expect the Company to continue to pay healthy dividends in the coming year, especially taking into consideration what you have been mentioning, that the Company has every quarter reduced debt and has a stronger financial position.

The second part of the free cash flow generation is dedicated basically to do that, to reduce the total level of debt and to keep having and maintaining and sustaining a very strong financial position, as you know that we consider it's important to take opportunities if they appear in the future.

In relationship to projects, we don't have different projects from the one that we already mentioned, and Daniel mentioned during our latest Investor Day. One that was mentioned there, and we are still in the process of final analysis, is the expansion of our facilities in Tenigal to keep increasing the output of our galvanizing line to go with the growth that we are seeing on the automotive demand.

So this is the project that we are seeing closer in the moment, and we are still analyzing all the alternatives. In the meantime, we will continue to do what we have been doing, which is reduce debt and sustain a very healthy level of dividend payments.

So, Daniel, if you would like to take the second one, the second part of the question from Rodolfo?

Yes, to reinforce what you said, and Rodolfo knows, we do not have a formal dividend policy. However, we pay consistently dividends every year, except for 2009, where the dividend was not paid because of having a conservative approach toward a global financial crisis.

The latest annual dividend of $180m, as it was quoted by Pablo, that was paid out in May, was the highest of all the dividends, and meant a 20% increase compared to the dividend payment in the previous year.

Looking forward, I would say that we will continue to assess our financial performance, our growth plans and the market perspective when proposing dividend payments for the shareholders. So I don't see any problem with that.

Regarding your question in Usiminas, you know that after the September 2014 events, that as you know, in our view, were not in the best interest of the company, when three officials were dismissed, we are having a more -- we are having -- we at Ternium is having a more limited role in managing Usiminas. But no doubt that we continue supporting the management efforts to restore the company in this very tough environment.

Usiminas, as you know, also had third quarter results that were very weak. The economic situation in Brazil is not helping, because of the slowdown in the economy and so on and so forth. You know better than me. Also, at the same time, the depreciation of the local currency will help cost wise, because you know that the costs related to local currency will go down in dollar terms.

But, also, more actions are needed to cope with the very severe state of the Brazilian steel industry, and the management we consider is aware about the situation and is presenting plans in order to cope with that and to go ahead with the necessary restructuring.

Our main concern is the wellbeing of Usiminas, so that we are helping Usiminas from our position in the Board of Directors and also in the controlling group. And in the current particular situation of the international markets, also, the situation in the Brazilian economy and the internal Usiminas dynamics, it is and it has to be very important to properly lead the Company and to have a very cohesive management team.

On our side, we are supporting the process as much as we can, given the circumstances. Usiminas, at the same time, has time to deal with the financial situation. The debt level is not that high from a company that size, and also I understand that Usiminas management is already speaking with creditors to extend maturities and to negotiate terms and waivers, so they are working on that.

So it's more or less what I can quote on Usiminas. Regarding the control group situation, the governance issues complicated a little bit the relationship between control group members. We continue to talk with our partners, looking for a solution to solve the situation. It will take some time. I cannot anticipate the outcome or the result, but we are working on that.

Okay, thanks, Daniel.

Carlos De Alba, Morgan Stanley.

Yes, it was about Usiminas, so a lot has been said. Just maybe, Daniel, let me ask you a question that is perhaps tough and hypothetical, but if the situation in Usiminas continues to be as poor as it is and the company did require an equity offering, will Ternium try to keep, maintain its current stake in the company? Or would Ternium perhaps at this stage prefer to see its stake diluted in Usiminas?

Well, to be very, very clear on that, nowadays, today, an equity contribution is not on the table, so we are not considering an equity contribution in Usiminas. But I would say that our commitment for Usiminas is the same that we had in the moment when we made the investment, and also with our commitment with Brazil is also the same.

As you know, Brazil is a major economy in Latin America. As we have been discussing in the past, we had to have a part in this table, and we went ahead with our investment with the hope of having a reasonable return. The facts are in the table. I will not open a new discussion on how -- on which were the results, but the commitment is the same.

I don't see now any equity contribution being needed or being discussed, and the commitment of Ternium is the same. But, Pablo, I also would like to pass some comments on your side.

Oh, I agree. As you know, Carlos, we prefer not to speculate on possible situations that will come up in the future, but I totally agree with Daniel. The Company is working very hard at the moment to try to adjust to the current situation and discuss also with the financial community. So a capital contribution is not discussed at this moment. So prefer not to speculate on what will happen in the future.

All right, thank you very much, Daniel and Pablo.

You've very welcome.

We appreciate your questions. So, gentlemen, any other questions are required?

I'm no showing no further questions on the phone lines at this time.

All right. Okay, so thank you very much, again, for participating in Ternium's conference, for the questions, for your patience to listen to our ideas and our comments. As always, please feel totally free to contact us through Sebastian for any additional doubt or comment or questions that you may have.

So, bye-bye, have a nice day, a nice week, as well.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a wonderful day.