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Q1 2007 Ternium SA Earnings Conference Call - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

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

(OPERATOR INSTRUCTIONS).

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

SEBASTIAN MARTI, DIRECTOR - IR, TERNIUM S.A.: Good morning and thank you for joining us today for Ternium's first quarter 2007 results conference call. My name is Sebastian Marti and I am Ternium's Director of Investor Relations.

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

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

On today's call Mr. Novegil will address the IMSA transaction after which I'll provide some commentary on our first quarter results. At the conclusion of the prepared remarks we will open up the call to your questions.

I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and in our first quarter press release.

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

DANIEL NOVEGIL, CEO, TERNIUM S.A.: All right, thank you Sebastian and good morning to everyone.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

All in all IMSA has an annual production capacity of let's say 2.2 million...

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