Ternium SA (TX) 2015 Q4 法說會逐字稿

Good morning. My name is Christie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ternium Fourth Quarter and Full Year 2015 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Sebastian Marti. Please go ahead.

Good morning and thank you for joining us today. My name is Sebastian Marti and I'm Ternium's Investor Relations Director. Ternium issued a press release yesterday detailing its results for the fourth quarter 2015. This call is complementary to that presentation. Joining me today are Mr. Daniel Novegil, Ternium's CEO; Mr. Pablo Brizzio, the Company 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 again added a presentation to the usual audio webcast for you to be able to better follow the CFO's description of our financial performance and that we plan to continue doing this in the future. Those of you that are only connected via telephone may 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.

Thank you, Sebastian. Good morning to everybody, and thank you very much for participating in this Ternium conference call to review the performance in the fourth quarter 2015. I would like to start with some brief comments about some specific topics that I believe are relevant for our business, and right afterwards, Pablo Brizzio will describe our performance in the fourth quarter and the outlook for the coming quarter, the first quarter of 2016. Then we will enter into the Q&A.

So let me begin, as I said, by some highlights about the state of the global steel industry. When we last talked in November conference call, I mentioned the results of the latest short-range outlook for 2015 and 2016 issued by the Economic Committee of the World Steel Association. While at the end of 2015, where steel was forecasting an increase of 1.7% in global steel demand in 2015, it seems that at the end, the reduction will have been higher than these. For example, China demand forecast was minus 3.5% and I guess that it could be closer to minus 6% in last year.

On the other hand, for example, Brazil was minus 12.8% and it will probably be close the year -- it will be close to 16.7% in 2015. On the other hand, I pointed out that Mexico, it was doing well and was forecasted a healthy growth in the steel demand. In this case, the 4.8% growth expected by World Steel will probably end up in a number close to 5.8%, 6%. By that Mexico is becoming in 2015, the largest steel market in Latin America. So that the steel industry continue to show during 2015 a significant overcapacity, mainly located in China, as you know, and this situation, together with a deceleration of China economic growth rate led to an unprecedented level of low priced Chinese steel exports. In many cases, under unfair trade conditions, as it is indicated by the many dumping and countervailing duties, the case is that China is facing all over the world. On the other side of the coin, China is announcing capacity cuts of between 100 million tons and 150 million tons, so if they go in that direction, the capacity will go down in China and excess capacity will go down and it will favor our industry.

In China, steel production was around 800 million tons in 2015. And in January, 2016, the first month of the year, the annualized production rate was -- the annualized production rate again was 744 million tons. On the other side, exports from China remain at very high levels. It was approximately 810 million tons in 2015 in average, and the annualized export rate during December and January, that are the last numbers that we have, the export level is around 120 million tons on an annualized basis.

In this landscape, and as I anticipated, in the conference call that we shared in November together with you, the US government advanced in ongoing investigations on unfair trade practices and announced in December preliminary dumping determinations on corrosion resistant steel imports and also preliminary countervailing determination on cold-rolled steel imports from several sources, from several countries. In addition, I can say that the US government is advancing investigations on imports of hot-roll and cold-roll products from several countries. And preliminary dumping determinations on this cases are expected to follow. We pay the [lock] in detail to the dumping and countervailing duty in the US, we in the case for example, of rectangular tubes, we are expecting final determination around May 9 in the case of cold-rolled coils, we expect the final determination the May 16, this coming May. In coated steel, there is a preliminary resolution from the DOC from the December 21 and we are expecting a final determination on this around the May 24. In the case of hot roll coils, the March 14. Maybe we will have a preliminary determination and afterwards a final determination in the May 30. All in all, I just wanted to put some examples that in the US, the government and the DOC are active, pretty active that they have to control imports coming from overseas in dumping and in -- on a subsidized basis.

In the same fashion, last December, the Mexican government accepted a steel convention investigation on Chinese imports of cold-rolled coils following the position earlier in 2015 of definitive anti-dumping duties in non-coated and cold-rolled. Also during December 2015, Mexico imposed definitive anti-dumping duties on China, Germany and France with imports of hot-rolled coils where involving this dumping cases, and also Mexico accepted a case related to potential dumping of corrosion-resistant steel products that means coated metals, galvanized sheets from China and Taiwan.

In January of this same year, 2016, Mexico authorities confirm anti-dumping duties on Russian and Ukrainian for cold-rolled coils. Again, US and Mexico governments are taking very seriously the unfair trade and are chasing practices of dumping and subsidies in order to go for a playing field, level playing field in the arena. But at the end, in this complex and volatile environment, Ternium was able to achieve record steel shipments of 9.6 million tons in 2015 and what is better is that these shipments were primarily focused on a high value-added products and a good level of networking services, and being very close to the customer and so long which is our differentiation in strategy from our competitors and this strategy, as you know focused -- is supporting, is based upon a very strong manufacturing base in Mexico. As a matter of fact, Ternium shipments in Mexico grew 5% in 2015, against the prior year, although it was not exempt from the downturn in global steel prices. Given that the Company revenue per ton fell 12% in 2015 on a year-over-year basis, including a 15% decrease in Mexico, the market that represents two third of our shipments.

Let me mention here that domestic steel prices in the US finally bottomed out in December as we have predicted in our call in November, and that is slowly recovering as we were expecting to happen last year. The same happened in Europe, it's going on in Europe and in China where prices of hot-rolled coils and cold-rolled coils are growing slowly up. That means that steel prices in the US were supported by a decrease in the service center inventories and a sharp reduction in the import levels giving us the idea, giving us the hope that this increases in the prices of the US, if they are sustained and a strong demand or at least in a standard demand, these prices came to the market to stay or even to go up in an event the situation given the current volatility in pricing is difficult to predict. But I expect that there is a positive trend in the pricing of the steel industry, mainly based upon demand in the US and also a certain -- but a slow recovery in Europe and a strong demand in Mexico as I was commenting before.

Turning to the cost side, the decrease in prices of slabs, raw materials, energy and labor, because mainly the evaluations in Argentina and in Mexico were very important for us and heavily impacted our bottom line even when did not match the significant decrease in revenue per ton. And you know that this was in part as a result of a gradual and slow pass-through of these input prices to Ternium cost of sales on one hand. And on the other hand, as I mentioned, for a weak of pricing level worldwide. In addition to that I can comment that the EBITDA per ton in 2015 was never negatively affected by an increase of local cost of Siderar as a result of a significant inflation level in the country during the year. The EBITDA per ton in 2015 was $112 and EBITDA margin reached 14%, remaining among the highest margins in the industry.

Important to mention that in the case of the fourth quarter, the margin, the EBITDA margin against revenue was 16.4%, that is quite impressive given the situation of our peers and competitors. And I would say, when I would mention that there are several reasons for Ternium to consistently outperform the peers over the years and in that respect, I commented on that in -- mainly in the Investor Day and the calls where I participated, I went through all these issues extensively during the last meeting that we had in New York and in previous conference calls, so that I will not extend on that today, I will keep it short. I will just remind you that the key differentiation in Ternium may be is the production flexibility, cash generation and a strong balance sheet together with our constant effort in development of cost cutting programs, like the one that we were talking about in the past contractor efficiency programs, the logistics streamlining, energy savings and the continuous improvement plans. So that all these programs are in place, are running and they are delivering results and are delivering a good payback to the effort that we are putting in terms of human resources and in terms of investments in order to better off our cost base.

Turning to our balance sheet now, I am happy to comment that this quarter we have again reduced our net debt level as of the end of 2015, Ternium has a net debt of $1.1 billion coming from $1.8 billion, that means that we had a decrease of almost $700 million in the one year in 2015. With that, the net debt is now equivalent to only 1.1 times our last 12 months EBITDA. So I think that also is something to reconsider when comparing our stand, comparing our performance and where we are against our peers. The free cash flow in 2015 reached $854 million. We kept CapEx at a conservative level similar to last year, maybe next year it will be in the same number or similar number. And we decided to propose the shareholders to maintain in 2015, the record dividend level they approve in 2014. That means $0.90 per ADS that is equivalent to a little bit above 7% of dividend yield.

All in all, and at the end, I continue to believe that Ternium is very well positioned in this difficult and volatile environment. I guess, I believe that we will continue showing a distinctive performance in the months and in the quarters to come. And -- but then, before I also wanted to mention another topic, because I know that some of you are interested in knowing from me and from the management what is going on in Usiminas that is a topic that is in the news and in the journals and this and the other. So before I let Pablo make some comments about our core results, I would like to mention very briefly about our investment in Usiminas, where I believe you could have, as I said before, questions, concerns, inquiries and so on.

You know that Usiminas management stated last week in their fourth quarter results conference call, Usiminas is working on determining the future cash flow needs in a difficult environment that they are going through. And also the management is analyzing different ways to improve the cash level. Usiminas management has been evaluating with the creditors way to restructure the debt for some time, and it's also analyzing the feasibility of a sale of non-strategic assets like for example, Usiminas Mecanica or the participation in MRS, the joint venture that we have Usiminas with Sumitomo, whose name is MUSA and then also trying to get rid of some other similar real estate assets that are not dedicated to the core business of Usiminas. Also Usiminas was talking with Sumitomo, the partner of Usiminas in MUSA, the mining division of Usimina for ways to use the excess cash that the MUSA is holding today and these numbers, this excess cash is around $300 million, again, $300 million, cash that was originally dedicated for investments in mining that nowadays are having a very low chance of being carried out as a result of the prospect of depressed iron ore prices.

As you know also, Usiminas holds 70% ownership in MUSA and Sumitomo is having 30%. So out of this $300 million, 70%, that means a little bit above $200 million is for Usiminas. According to the companies in medium-term plan that was the delivered by the management, the difficulties of Usiminas are temporary. That means that what Usiminas management has to do now is to present a viable plan to go through a liquidity tightness and afterwards to restructure the company. Clearly, in these point, Usiminas has a liquidity issue and the problem can be solved with a combination of different ways, different tools, different alternatives, like for example, restructuring of the company further, restructuring of the Company and going deeper in the turnaround process that sometime down the road going backward was interrupted, also renegotiation of the debt terms. Also for example, adequate use of excess cash available in MUSA, as I mentioned before, and sale of non-strategic assets. At the end with this mix of different choices for a cash -- a proper cash management, we believe that there are many things that Usiminas should do before thinking on an equity issuance. So, right now, at this moment, we will not be able to take a position on this issue until we have a chance of analyzing in detail the management plans and the financial -- different financial alternatives that I was mentioning before. That is to say that up to now we are not considering an equity contribution in Usiminas.

Well, all of this is happening as we speak and it is not over yet. So we are not going to be able to talk in detail about the situation until Usiminas Board of Directors present the result of this analysis in how the company is doing and which are the company prospects and how can the company management looking forward in the coming three years, five years and this analysis will be presented as far as we know in the month of March.

In this point, these are the main issues that I wanted to share with you today and then any at this point of time, I would like, before going to the Q&A, again, to pass the word to Pablo to take over and to give a description on our performance in the fourth quarter.

Thanks, Daniel and good morning to everyone. As we usually do, I will briefly describe our performance in the quarter and then we will have our Q&A session. Again, I would like you to remind that today we will have a webcast presentation together with the audio.

Let's begin on page 3 of the presentation. Ternium net sales were $1.8 billion in the fourth quarter, down 7% sequentially. The reason for this decrease was a 6% decrease in shipment together with 1% decrease in revenue per ton. We have anticipated this decrease in shipments in last quarter conference call, mainly as a result of end of the year seasonality in Mexico and the planned 30-day stoppage of one of our hot-rolling mill in this country in connection with another (inaudible) of the line to enable a broader product range.

On page 4 you have the annual sales numbers. In 2015, net sales decreased by 10% to $7.9 billion mainly due to a 12% decrease in revenue per ton, while shipments increased 2% to 9.6 million tons. You can also see in the pie chart of this page, the achievements in Mexico were 62% of Ternium total shipments and shipments in the southern region were 27% of which 25% were shipment in Argentina.

Moving to more details in page 5, our sales in the Mexican market decreased 10% sequentially in the last quarter of the year with a decrease of 8% in shipments to 1.4 million tons and 2% decrease in revenue per ton. Again, seasonality is the main reason in these numbers. We expect shipments in this market to return to previous quarter levels in the first quarter of 2016 supported by healthy sales to the industrial and non-residential construction sectors. The prices in the region halted their downturn trend in December, supported by decreasing service centers inventories due to a significant reduction in capacity utilization rates in the US steel industry and lower import level resulting for the actions taken against unfair trade practices as Daniel mentioned. But unfortunately this should be reflected yet in the first quarter 2016 revenue per ton in the Mexican market. We expect revenue per ton to sequentially decrease in Mexico during this first quarter, reflecting with some lag related to a regular price reset contained in industrial customer sales contracts, the steel price downward trend seen through the fourth quarter of the year.

On page 6 of the presentation, you can see our yearly prospective for Mexico. Basically, we have been consistently growing our shipments throughout the years with a 5% increase in 2015, where revenue per ton have been decreasing and quite -- has been decreasing strongly during last year reaching a 15% reduction equivalent to approximately $130 per ton decrease. Of course, this is the reflection of the price reduction that we have been commented and Daniel commented in the US market.

The southern region net sales, on page 7, were stable in the quarter. Here we expect shipment to decrease in the first quarter of 2016, mainly as a result of the usual seasonality of this market at the beginning of the year. Revenue per ton also decreased in the first quarter 2016 -- will decrease in the quarter, this first quarter, there was a significant devaluation of the local currency in Argentina by the end of December. Steel prices decreased in this market by approximately 24% in US dollar terms between December and February this year. In addition, cost per ton in Argentina should also sequentially decrease in the first quarter 2016 as a result of the effect of the currency depreciation on local cost and on the Company inventories together with a renowned reduction in raw material prices.

In page 8, we have a yearly view of sales in the southern region. Here we can see the shipments remain relatively stable in this market during last year while revenue per ton has been decreasing, hurting the sales level.

Moving now to EBITDA of the Company in page 9. We consider EBITDA grew 19% sequentially, reaching $297 million in the quarter. The main reason for the increase were lower cost of purchased slabs, raw material and energy, partially offset by lower shipments and revenue per ton.

On page 10, you can see that we are back to EBITDA levels seen by the end of 2014 and beginning of 2015. After the second and third quarter of the year that were affected mainly by a global pass-through of substantially lower cost of raw material, purchased slabs and other inputs as Ternium consumes its inventory over time. EBITDA margin reached 16% in the fourth quarter, accrual into an EBITDA per ton of $129. We believe EBITDA in the first quarter of this year will approach the level reached in the fourth quarter of 2015 with lower EBITDA per ton and higher shipments.

I think I just mentioned, we anticipated average realized price will sequentially decrease in our main market in the first quarter, I expect this decrease will be partially offset by a reduction in cost per ton, mainly due to the effect of a revaluation of the Argentine peso and the gradual pass-through of lower raw material and purchased slab prices in Mexico.

Let's go to page 11 now where we can see the net results for the quarter. In the fourth quarter of 2015, we have a net loss of $127 million, affected mainly by $192 million impairment of our investment in Usiminas, partially offset by the $47 million higher EBITDA. The impairment was due to raising the assessment of this investment recoverable value on Usiminas ordinary share average market price for December 2015. We did this as a result of the inclusion in Usiminas auditor report on the financial statement of an emphasis of matters, paragraph which without quantifying their opinion indicated the existence of, and I'm quoting, "a material uncertainty that may cause significant doubts about the company ability to continue as going concern." As a result of this risk of not achieving an action plan defined by Usiminas management, to equalize its financial obligations with the cash generation we were forced to change the way we are valuing our investments. The resulting book value of Ternium's investment in Usiminas as of December 31, 2015 is $240 million.

On page 12, we have the free cash flow for the fourth quarter. We reached $190 million with $49 million reduction of working capital and a $124 million CapEx level in the quarter.

Turning now our yearly view on terms of EBITDA on page 14, we have a graph showing a year-over-year decrease of $398 million from $1.5 billion to $1.1 billion in this year, mainly as a result of substantial revenue per ton reduction that was partially offset by the cost reduction and higher shipments.

Turning now to the cash flow on page 17, you can see that 2015 free cash flow reached $857 million with -- by handing $9 million lower working capital and a $467 million CapEx.

And finally in page 18, you can see that the CapEx in 2015 was similar to the CapEx of the previous year. And as Daniel mentioned, we are expecting to continue this level of CapEx in the coming year, 2016. And also, you can see the dividend payment history of the Company with the proposed dividend for the year of $0.90 per ADS or $180 million distribution.

So I guess that these are all my remarks on the performance of the Company this quarter. And with that, I would like to turn the call to the operator to start the Q&A session. Thanks.

(Operator Instructions) Carlos De Alba, Morgan Stanley.

Thank you very much, gentlemen. Daniel, you provided a lot of details on Usiminas. I just want to ask you a follow on question. Would Ternium be prepared in due course to contribute an equity offering into Usiminas that Nippon seems to be willing to do in order to avoid the company to file for bankruptcy? And then my question maybe either to Daniel or Pablo, would be on the Argentina situation and the impact on profitability. Clearly, there is a lot of moving parts with the negative impact of the Argentine peso devaluation on revenue per ton, partially been offset by the positive impact of that devaluation on cost, also all the accounting and the inventory cycle that we will see in the coming quarters. But net-net, if you can comment, where do you see the profitability of Argentina, say once all these volatility is behind us and also, where do you see the level of demand for steel in Argentina given that the -- probably necessary measures that the country is taking will definitely have a negative impact on the economic activity?

And then finally, question on dividend, Daniel. And the free cash flow generation is very good, very robust, the balance sheet is superb, and really sets Ternium apart from not only Latin American metals and mining companies, but also relative to the global steel peers. So do you -- what is your thoughts -- what are your thoughts in terms of a potential increase in dividends in -- going forward given that 2016 has already been proposed? Thank you very much.

Thank you, Carlos. Thank you for your question. Let me start by Usiminas. Let me give you my straightforward view in what is going on in Usiminas. Usiminas is not doing well, as you know. You know that it's having some financial stress on one hand. On the other hand, Usiminas management has been working with the creditors in order to the restructure the debt. And it's also in the process of producing and putting in black and white some plans in order to, as I said in my introduction, to deepen -- to make a more intense kind of restructuring similar to the one that we have started in the very first year, so this new venture together with Nippon Steel.

I think that, before thinking in, a capital injection, a capital infusion or an equity offering, Usiminas has many things to do, working in restructuring the company, renegotiating the terms of the debt to get -- especially to get, as soon as possible the money that Usiminas has in the joint venture with Sumitomo.

As I said before, there are $300 million over there that are not going to be dedicated to any ex investment or any purpose in the years to come or in the future that we can foresee because of the volatility in prices in iron ore and the logistic cost in Brazil and so on. So that Usiminas should be in a position where it has to recover this money, it has to take this money back. Usiminas has an intake of 70% in MUSA and that means that if Usiminas is able to take the 70% out of $300 million, it will infuse into the company $200 million in order to have a relief, no doubt an important relief in the actual situation, in the situation that it is having nowadays.

The problem now with Usiminas in my view is a liquidity issue, and so that the problem can be solved with a combination of these financings, like the ones that I was mentioning right now. So that at this point of time, we will not be able to take a position on your question on an equity offering and a our eventual participation in a capital infusion until the moment when we have a chance of analyzing in very deep detail the plans, the financial alternatives, the ways out, the management view and the perspective of the company in the medium-term, that means three or five mid-term plan. And putting all these together, we are not considering right now an equity contribution to the company, among other things, because we don't think it's necessary. So that we think that the company will do well, we think that the company will recover, we think that the liquidity problem can be breached through a proper negotiation with the banks and also taking back this money that is in MUSA.

Regarding your second question on Argentina, I would say that we are very positive and very optimistic about Argentina. Argentina is going in an accelerated mode back to normal in all fields; in debt restructuring, in financing, in many fields as you know so that in the pricing system, we are going to be back to the normal value that we had in the past is going back, no more distortions. The Argentine economy was having a relative pricing that was based upon the existence of an official rate and another unofficial rate, so to speak. I don't want to mention this as a black market rate, but this is something very similar. So that many players in the competition arena positioned themselves in a pricing levels that was sometimes somewhere in between sometimes very close to the unofficial rate. So that after the devaluation, we increased, we were able to increase our prices in pesos, but in official dollars, the price went down and we will go back to a normal kind of price level in comparison with other countries as we always did. And we will have in Argentina a margin level that will be similar to the one that we had in the near past. Taking apart what's happening in the last year or last year and a half, where we had all these distortions. I would like Pablo to quote more in detail in this -- in inflation and in all decisions.

Okay. Carlos, as you put it, to understand how the revenue and the result for Argentina will come in the near quarters is quite complicated because, first of all we need to take it to consideration that from our point of view, Ternium's point of view, the functional currency of Argentina is pesos. So this has some difficulties to put together in understanding the numbers. First of all, the big devaluation that we saw in Argentina, first of all devaluated our inventories. So we are starting the year with the devaluated inventory that will benefit the number that we will see in the first quarter and part of the second quarter.

Of course, as already mentioned by Daniel, the price has, after suffering very significant distortions in the Argentine economy going back to normal levels. But of course, we have some impact in the medium run in the profitability numbers of the country. All in all, what we're expecting to see is not having a significant effect during the first quarter of the year. Also take into consideration that it's a quarter in which we will have the seasonal -- or the normal seasonal effect on volumes, we will have a reviews, pricing going through the quarter, but we also have important reduction in cost per ton due to the issue that we will have devaluated cost and also reduced cost in pesos term or in the peso (Technical Difficulty). So putting all together, we are expecting to see much difference entering in the beginning of this year, but of course we will have this impact in the following quarters and as Daniel put it, we are expecting to see Usiminas -- Siderar going back to normal levels as we saw at the beginning of last year or the end of the previous year. So taking out all the distortions that were present in the market.

When you have a process like the one that we are leaving in Argentina, and fortunately for us we leave this -- we saw this first -- this film many times in the cinema, so that we will be hedging and doing whatever dribbling and whatever we can in order to be well positioned in an environment of high inflation and maybe for that the devaluations, I don't know. But at the end, we will have positives and negatives, as always happen in inflation, maybe we would have a decrease in the level of activity in Argentina and will no doubt negatively impact the level of sales in volume of Siderar in Argentina, because the inflation rate is affecting construction and is affecting home appliances and the automotive industry sale in the short run.

On the other hand, we are having very positive effects coming from a decrease in the labor cost in dollar terms. And as you know, we quote in Argentina international prices, Argentina is quoting the price following what is a domestic market, a normal and a standard domestic market and also takes above that into consideration a superb level of service, a very high market share and a very, very quick and fast delivery base and [steady] base and technical assistance and so on that allows us to charge a price premium to our customers that no doubt that they are willing to pay this premium, because they value that they receive is higher than the premium that they have to pay because of this differentiation on one side.

So that at the end, we will have positives and negatives. Going back to my further remark, we are back to normal in Argentina luckily and we are very positive because that at the end we feel that Argentina has very good perspective in agro business investment, infrastructure, consumption, construction and so on. You know that -- I know all of this will come when Argentina finished the negotiation with a holdout and it will bring a new wind, a positive wind to the economy. So we are optimistic and we are very enthusiastic about the process that was opened in Argentina. We feel that it will be very good for the country and no doubt that for Siderar as well.

Regarding your question on dividends, and Ternium has no formal dividend policy. However, it has paid dividends every year consistently. Only I remember that in 2009 the dividend was interrupted because we took a conservative approach toward a global financial crisis that heavily hit our activity and the activity of all our competitors. So that this year we proposed to maintain annual dividend of $180 million, the highest level of all previous years. And this is equivalent, as I mentioned before, to approximately 7% something, 7% plus that is quite high as a dividend yield for a company like the one that we are talking today. Looking forward, we will continue to assess our financial performance and growth plans and also the market perspectives when proposing dividend payment to shareholders and we will keep working. I don't see any important changes looking forward in the policy -- in the non-policy dividend that we have.

Leonardo Correa, BTG Pactual.

Hi, hello everyone. Good morning. Thank you. Just on the first question here. Daniel, moving back to Usiminas, just a couple of questions that have been coming up quite consistently over the past days. First on a potential sale, I mean the media has been reporting that Nippon eventually did even offer to buy out the Ternium stake in Usiminas. So I just wanted to clarify if that is being discussed, if Ternium is really willing to exit? And also as an addition to this question on Usiminas, my question is whether you would be looking to regain the day-to-day control of the company, regain management of the company. So is this a discussion topic of Ternium looking to regain the effective control of the day-to-day at Usiminas, is that being discussed now with Nippon?

Moving down to the second question, again on Argentina, we've been seeing the big impact on steel prices in Argentina when looked at in dollar terms, which is roughly 25%. Just wanted to get a sense on you on whether this is a new normal or over time you would expect to pass through all this recent depreciation that we saw in the peso to final steel prices, guys? So I just want to clarify right, because in steel 100% of your revenues are dollarized in Argentina, but that only applies to normalized markets, right? This is clearly not a normal situation. So I just wanted to get a sense if you can maybe quantify how much the EBITDA contribution in dollar terms from Siderar will vary over the upcoming, maybe second and third quarter, maybe just a comparison based on what was achieved in the second semester of 2015, that would be very helpful, just so we can have an order of magnitude of what the negative impact would be on Siderar's EBITDA contribution in dollar terms?

So those are the questions. Thank you.

All right. Regarding the first question, thank you Leonardo for the question. Regarding the first question, we are not considering right now to sell our stake in Usiminas and it was something that was never talked inside our Company or with our partner in Nippon Steel. We are not interested in selling our stake. You know that Brazil is very important for Ternium and for us, it makes sense to remain in the country and in the Company on a long-term view basis that it continues to be positive even when -- you know, Brazil is not doing that well economically speaking and financially speaking right now, but it will recover, no doubt.

Usiminas will see to refinance the debt and you know, through different tools, as I was mentioning to Carlos and now we are in the process of weighting a serious plan coming from the management and it will be discussed in the Board in the weeks to come. Regarding the management, because we have been talking about that in other conference calls as well as in the Investor Day. In our view, the turnaround and the restructuring and the breakthrough of Usiminas was interrupted a year and a half ago and so right afterwards, some bumps appear in the horizon of the company, but we are always discussing with our partner Usiminas -- with our partner Nippon Steel in good faith how can we -- what can we do together in order to better off the situation of the company through support, through management and whatever is necessary in order to pass these difficulties. So even when we are not talking right now about any changes in the management, it's something that is always there and it's something that we have to discuss, to talk to with our partner, with Nippon Steel.

Regarding Argentina, you know that what you say is right, your diagnosis is okay. I mean is it the new normal or we will be having volatility? I really don't know, maybe we will be having some volatility in Argentina. But if you remember, because you are covering our Company and our sectors for many years, I would say, even when you are very young, but anyway you started when you were in the high school maybe, but you know that we were always able in Argentina, even in very difficult environments and political situations to keep our prices in dollar terms and to keep our prices following our strategy of being similar to the domestic markets of developed countries and afterward to add premiums that pays our efforts in networking and in commercial efforts. And as you know, we have been talking in many occasions. But at the end, we -- I believe that we will be able to pass all these volatility, if it happens, as we did always and we did in the past, at least this is what I hope.

Regarding the impact in EBITDA, we are back to normal. So maybe Pablo, you can quote on that impact looking forward in Argentina.

Okay. Leonardo, I would not characterize the situation in Argentina as a new normal, but as a new start, meaning that after significant distortion on the different buyers in Argentina, we or a new guy when he's trying to put this back in order, so of course (inaudible) will have some impact, but we are having a new start and from there on we should do what we do always in all our markets as Daniel was describing, and the situation should go back to the normal level.

Of course, the impact on the EBITDA coming from Argentina could suffer, we have been discussing this during the last, I would say years. Now that we were seeing some increased participation of the EBITDA coming from Argentina from a normal situation in which the EBITDA from the different region should be much more related to the volumes that we generate in the different markets and Argentina was having a little increase over that.

Of course, by this -- also a situation that Daniel described, our position in Argentina, the product we offer, we could have some -- a little higher EBITDA in comparison to the volume sales in the country. But as I put it before, this is a new start and we should be back on track to a normal situation in Argentina. This could be -- and that we are saying that there will be some reduction, not probably this quarter because of all the issues I described, answering to Carlos' question, but in the coming quarters after the first one, you could see some reduction there.

Marcos Assumpcao, Itau BBA.

Hi, good morning, everyone. First question is related to the free cash flow. If you could comment, if fourth quarter free cash of $190 million is a good indicator for 2016 free cash, if you could elaborate a little bit on the tax expenses that you're expecting for 2016 and also the working capital that we're seeing right now, is it sustainable or not?

Second question also related to the free cash is, what are the options to do with the money or to the excess cash that you will have in 2016? You already at the very low leverage level, you already announced the dividend payment, what are you looking at, where are you going to put or you allocate the capital that you are generating?

The last question on Usiminas. What happens if there is no agreement between the controlling shareholders in next week's meeting? Thank you.

Hi, Marcos, this is Pablo. Let me take the first part of your question, the free cash flow generation of the Company. The Company has been generating cash as every year, because of the EBITDA or the EBITDA generation, which has been very healthy. And especially during 2015, what we have was a significant reduction in working capital, which was mainly due to a reduction in input cost. As you know, we are all aware that the prices of not only iron ore, but cold and slabs were reduced throughout the year. So the renewal of inventories were done at a lower price at the beginning of the -- that continually a significant amount of cash to the Company and you know the number, which was around $500 million. Of course, we have expected to have the similar situation in 2016. So all in all, the free cash flow should be not similar in the sense to 2015. In any case, we're expecting to continue to have a positive free cash flow that we will utilize to pay for our CapEx plans, to continue to pay dividend and if we have excess cash over that to keep reducing the level of debt as we always do. The impairment, as Daniel put it before are very healthy. Of course, you can consider that this -- the dividend that was proposed to the shareholders is similar to last year, but if you take all our measures in which you can compare dividend, dividend deal, payout ratio in comparison to net income or free cash flow is an increase in comparison to you see also in the healthy situation of the financial position of the Company. So all in all, the Company will continue perform as we have been doing in the past. We have a very conservative stance on our financial position and our capital allocation.

Going to your second question, as you know, we do not like to speculate on what could be the situation if there is no (inaudible) as Daniel put before, we have never stopped talking to our partner and at the very end, some solutions should be reached. So it's not something that we would like to comment at this point.

Okay. Pablo, can you give us a rough estimate on tax expenses and CapEx for 2016?

Yes, sure. CapEx should be similar to levels that we saw in 2015, so between $450 million and $500 million, so not different from what we saw in the last two years. In respect to taxes, we are always and we will keep being on real tax payment at levels that are between 30% and 35% of net income, which is the tax rate that we have both in Mexico and Argentina. So it shouldn't be different from that numbers.

All right, perfect. Just one last question to Daniel. You mentioned about a proper negotiation with the banks in the Usiminas case. What do you mean by that? Are you considering extending the maturities or some haircut on the debt as well?

Well, a combination of different things, as it could be done in any restructuring process. At the very beginning, we will have to be very transparent with the banks and to make them feel good that we are doing the right things that the Company is strong, is healthy and then I believe as it happen in other restructurings, financial restructurings, we will ask them to contribute to the process. And you know that what can be contributed is always the same things and the Company at the same time will make the best effort in order to improve the result, to improve the cash generation, to get rid of non-core businesses that are in the Company to reduce cost and then to improve efficiency. To do that, and in order to get a positive response from the banks, the banks have to rely that the numbers are okay and are credible and that the management has the skill and the willingness and the compromise, the commitment and the guts to [overhead] in order to make a good plan, a credible plan is as always. You mentioned you were participating in some of these (Multiple Speakers).

No, I would like to add to that, which is very clear, Daniel, and already as you mentioned during the opening remarks, what we understand and we will see form the numbers of the company, Usiminas is producing that this is a liquidity issue and in order get over that, the scaling of maturity should be natural.

Humberto Meireles, Goldman Sachs.

So a follow-up on Usiminas. So if we digest everything we've discussed this call today, so the interesting long-term fundamentals in Brazil that Ternium is not considering selling further stakes in Usiminas, the early management restructuring halt plus Ternium's view of no needs for capital increase in Usiminas and if you overlay all that with the high price paid for the control in the past and the low price today, do you see any strategic sense of making an offer for the remaining principles of Usiminas at this point?

Humberto, Pablo speaking, no. We have discussed in the past, we believe that with the right level of participation in Usiminas, and we are expecting to increase our participation at the moment in new shares of Usiminas or -- also you know very well that there are some (inaudible) for us to keep increasing our participation. So this is not something we have at the moment as an option.

Renan Criscio, Credit Suisse.

Hi, good morning everyone. Thank you for all the comments on Usiminas. Most of my questions have already been answered. So my last question -- my only question actually would be, regarding Mexico, so if you could comment a little bit on steel price, the trending steel prices and what you're expecting on volumes in the region, that would be extremely helpful. Thank you.

Yes. Well, a good question in order to (inaudible) a little bit the questions on Usiminas, but anyway. Mexico is doing very well. It's growing and we were paying a look to the upper end consumption of steel as a whole during 2015 and the perspective for 2016 is also good. These trends in the market is coming from construction, more transplants that are going from the US to the Mexican border and so on and so forth. Regarding the activity in Mexico, we had somehow low fourth quarter in Mexico that impacted the result of Ternium and the reason for that was something that will be overcome in the first quarter of 2016. And it's a seasonality effect, because of December being shorter than the other months and also we were having some logistic problems to serve the market because of the way the holidays came into the weeks. You remember that the 24 and 25 was Thursday and Friday, Thursday and Friday at the end of the year. So some truck drivers took the week off and these and the other things that happened. But anyway in any event, when we are somehow optimistic about the fourth quarter, this optimism is based upon the fact that in looking forward, we will see better volumes that maybe will be offset by lower prices, but also will be favored by a lower cost because of devaluation in Argentina and devaluation Mexico. And so that putting everything that all these prices going down, and all these situation in the outlook, but because of the flexible configuration and because of all these mix of different factors like labor cost going down, like volumes going up, prices weakening a little bit, all in all we see the first quarter of 2016 with an EBITDA that should approach -- should be going to a similar level of growth to the number that we saw in the fourth quarter. As a result of a lower EBITDA per ton on one hand, but partially offset by effective higher shipment in fact correcting the seasonal effect that I was mentioning at the beginning.

Also in Mexico, we are having positive effect because of the dumping cases that I mentioned in the very beginning and the fact that the Mexican government no doubt is facing with energy and with determination, the situation in the industry and is not allowing the imports coming from abroad on dumping and on unfair trade basis. And that make us optimistic about the future and that's why we are, I would say [cautiously] optimistic about the quarters to come.

Alfonso Salazar, Nova Scotiabank.

Thank you. My question is regarding CapEx, the guidance you just provided for 2016. I was just thinking that with the devaluations that we saw in the Mexican peso and the Argentinean peso, that will translate into more a CapEx in the local currency. So my question is how much of your CapEx is related to the US dollar? How much to the local currencies? And what are your main investment plans for 2016?

And the second question is regarding the numbers that were out yesterday on crude steel production, given by crude steel, it looks like they're preliminary both Mexico and Argentina were down 90%. So my question is how we reconcile -- this is crude steel production, but how we reconcile these numbers with demand especially in Mexico where it seems to be doing well the part of the month. So if you can help us to understand what's going on with the whole industry in Mexico in terms of crude steel production and finished steel demand. Thank you.

Well, indication of CapEx for 2016, we will be around $450 million may be a little bit lower.

Second question, percentage of local currency related cost in an investment on imports of machinery and agreement on spare parts that are dollar nominated, historically it depends on the kind of investment that you are doing. For example, if you are investing your money in equipment like revamping a blast furnace or putting a new continuous caster, I would say that the mix is 65% dollar related and 35% local currency related.

If you talk about investments, like for example, environmental related investments or a streamlining investment related or infrastructure investment related kind of CapEx, you have the opposite, you have 35% of this is coming from abroad in spare parts and 65% coming from the local currency. In the year to come, I see that the mix will go more to these number of -- more related to local currency, I would say that maybe 60-40 or 55% local and 45% import or 60-40, that is good. Because as you mentioned, it will have a positive impact because of the evaluation in Argentina and in Mexico because when you talk about a local currency, you are talking about civil works, you are talking about logistics that are all mainly related to the labor in dollar terms. So both labor cost, either in Argentina or in Mexico are going down because of the devaluations of the currency. So in that respect we will have a very positive effect in Argentina in the year to come and maybe in 2017 as well.

Regarding the crude production in Mexico, I would say that as I mentioned in the beginning, we see very good perspectives, the perspectives are well above the ones that were delivered in November to the econ committee of the World Steel Association, where we had expected a growth rate in steel consumption in Mexico, 4.8% for year 2015 and now we expect 5.8%, close to 6%. That means that the market is good, is doing well, is following the market in the US on one hand and on the other hand it's following the perspectives of Mexico where you have a good driver coming from infrastructure, from construction and so on.

In crude steel, I would say that there you have a different component, given that you have growth coming from both in the form of slab, you have growth coming from the reduction the former Hylsa production and slabs coming from the former Imsa production. So that all in all, I don't see any important change because we're working very close to a full capacity in Mexico. Obviously we have always rooms for opportunity in improving utilization, machine utilization, improving yield rate, improving efficiency that will give us some more production coming from the existing facility without any important investment.

And looking on, or looking forward 2016, we do not expect a growth rate of that high, but in any event, we think that the market will go up from the market side and the supply side will deliver maybe another additional tons coming from the efficiency of our -- additional efficiencies in our plant.

I will now turn the call back over to Ternium CEO for closing remarks.

Well, I really appreciate your interest in the Company, I really appreciate your questions and your inquiries on what we are doing. I hope that we answered as honestly and transparent as possible all the questions that you presented. And I feel very -- thank you with the participation of so many people. And so please feel free to contact us through Sebastian and Pablo for any additional doubt or comment or information that you may have. And I hope to see you in the following call or in the Investor Day that I am not sure we already have the date, we do have the date for Investor Day? In June 16 and so that you will receive all the information -- do we have the venue already on that? In the Guggenheim Museum June 16, 2016. I hope to see you there and to discussing more detail. Thanks a lot again.

And this concludes today's conference call. You may now disconnect.