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Ternium S.A. (NYSE:TX)

Q4 2012 Earnings Call

February 20, 2013, 8:30 a.m. ET

Executives

Sebastian Marti – Director of IR

Daniel Novegil – Executive President

Pablo Brizzio – CFO

Analysts

Diego LaSaga – Merrill Lynch

Ivano Westin – Credit Suisse

Carolos De Alba – Morgan Stanley

Marcos Assumpcao – Itau

Alexander Hacking – Citibank

Marcelo Aguiar – Goldman Sachs

Rodrigo Barros – Deutsche Bank

Operator

Good day, everyone and welcome to the Ternium fourth quarter 2012 earnings results conference call. This call is being recorded. At this time, I would like to turn the call over to Mr. Sebastian Marti. Please go ahead, Sir.

Sebastian Marti

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

Ternium issued a press release earlier today detailing its' results for the fourth quarter and full year, 2012. This call is complimentary to that presentation.

Joining me today are Ternium's CEO, Mr. Daniel Novegil and Ternium's CFO, Mr. Pablo Brizzio who will discuss our performance. At the conclusion of our prepared remarks, we will open up the call to your questions.

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

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

Daniel Novegil

All right, thank you, Sebastian. Good morning to everyone.

I just would like to start by doing some remarks about our results in 2012. And after a while and before we enter into the Q&A session, Pablo Brizzio will comment on our quarterly results and the outlook that we foresee for the first quarter of 2013.

Ternium net income in 2012 was $187 million or $0.71 per share compared to $650 million in 2011 or $2.61 per share. The two main reasons for this yearly decrease in net income were a $364 million loss related to our investment in Usiminas, including a $275 million impairment and in our lowering operating income that we will discuss afterwards.

We performed an impairment taste of the investment in Usiminas. And subsequently, we wrote down this investment by $275 million. This charge was included in the fourth quarter, 2012 that we are discussing today. The impairment was mainly due to expectations of a weaker industrial environment in Brazil where industrial production and consequently steel demand have been suffering downward adjustments.

In addition, a higher degree of uncertainty regarding future prices of iron ore led to a reduction in our forecast of long-term iron ore prices that affected the cash flow expectations.

I do remain totally convinced that the Brazilian market continues to offer great opportunities and prospects for Usiminas. And also I remain totally convinced that the turnaround of [inaudible] through Usiminas is doing very well. And it will end up turning over Usiminas into a very competitive and efficient company with a capacity to offer high value added products and services in Brazil and the whole Latin American market also taking advantage of turning commercial network and capabilities in the region.

As Usiminas' CEO mentioned in yesterday's conference call, Usiminas is performing an industrial [inaudible] configuration. This is a profound process of change of an industrial company. And is one that will be gradual, but at the beginning of this – as I mentioned at the beginning of the year and also last year in our investor day, this process will take a while. We mentioned at that time that we had a target period of maybe three years. And so this process, that will be gradual. But we'll not stop until Usiminas gets to the full potential of its' capabilities.

In 2012, Usiminas made relevant progress in many very important fields. Operational efficiency, rationalization of our [inaudible] processes, reduction of working capital, increase of labor productivity both through increases in volume and reduction in number of employees, reduction of CapEx, modernization of product portfolio, replacement of imports and so increasing the market share, and all these are fields that we think Usiminas has been working with success during the year. I am confident that they will continue doing well. And we will continue hearing good news from them in the future regarding the process of the turnaround process and project in Usiminas.

Turning now to our operating performance in the year, Ternium [inaudible] in 2012 reached $1.3 billion. In a challenging and volatile year for the [inaudible] worldwide, we were able to have an [inaudible] margin of 15%, lower than the 18% margin that we achieved in 2011. But it's still on a high level especially [inaudible] our competitors in the steel arena.

Shipments of Ternium were stable at 8.8 million tons with higher shipments in the Mexican market mainly offset by lower volumes in Argentina because of the realigning of the largest blast furnace that brought about decreasing exports due to low margin contribution of exports.

Steel prices went down during most of the year as the increased level of uncertainty about the global economy made the steel value change very cautious on the [inaudible] level.

Revenue per ton went down 4% compared to 2011. I will say that this could not be totally upset by a year-over-year reduction in turning steel operation cost per ton. In part due to the delay as a result of people accounting in reflecting the decreasing prices of raw material in the cost of sales lines, an effect that will be adjusted in the quarters to come.

With a net debt of $1.7 billion, we continue to have a quite sound financial position equivalent to 1.3 times of EBITDA at the end of December, 2012. Net cash provided by operating activities was $1.1 billion in the year. And CapEx was on a scale and right on our billion dollar target.

The project that required the lion's share of the CapEx, around 50% of the total, was a Greenfield facility that we are building in Mexico for the production of coral steel and high specification galvanized products. We talked about this in our previous results conference call as well as in our latest investor day. This facility will make higher products with a special focus on the auto industry in Mexico. As you may know, we are doing this in a partnership with [inaudible]. The mill is expected to begin operations in the third quarter of the current year. And the critical part continues to be in time and in budget with no overruns.

In Argentina, the largest project in which we are working on are related to the expansion of a (slat) capacity by half a million tons, a scale to begin operating in the first quarter of 2014. The steel shop will not so be effective with a new [inaudible] station to be able to produce [inaudible] steel grades in Argentina. This project will enable us to produce new specialty steel targeting the automotive industry in Mexico as well as in Argentina.

From a macroeconomic standpoint, I believe that overall, steel consumption in Latin America was able to grow during 2012 despite the difficult context worldwide. And it's expected to continue growing in 2013 even at rate higher than those of the previous two years.

We expect the steel demand in the Americas to increase in 2013 as a result of continuing growth in most of the continent. The economy in the U.S. shows a slow recovery path during 2012 affected by the financial crisis in Europe and the uncertainly around the Brazil elections. The elections are now over. And the financial crisis in Europe seems to have been stabilized or at least in a better perspective than it was six months ago.

On the other hand, the Brazilian economy show a fairly weak industrial performance in 2012, must weaker than expected at the beginning of the year. The Brazilian government at the same token has been talking and announcing several measures to counter these trends. And I am confident that they will succeed in putting the economy in the growth path again during 2013 and 2014 when we look forward what is important not only for Brazil but also for the level of activity in Argentina as well.

Of note, during 2012 was the 9.7% expansion of Mexican steel consumption, a market that accounted for more than 50% of our total shipments during the year. In 2013, we expect to see an expansion of the Mexican steel consumption, this time at rates in line with those of other measures like in American markets. The industrial and construction sectors are expected to drive increased demand for the steel products in the country. And that was the reason why we plan to expand our activity in Mexico and to build there and organize the line to serve the needs of the automotive industry as well as a new [inaudible] mill to expand the coverage of the market at the expense of imports coming from overseas.

In addition, the Mexican government has announced multiple infrastructure projects to increase [inaudible] capacity of natural gas and water in the country. These projects are expected to increase demand for flat steel products particularly for the manufacturing of large diameter product lines.

Important to mention at this point of time that we have been working with our customers in the pipe manufacturing sector on product developments or [inaudible] developments that we have been doing in the last two years in relationship with the automotive industry and home appliances. Especially take into consideration the expectation of the building of the Tenigal plant as well as the [inaudible] mill in Mexico. So we are doing well in Mexico. We expect foreign expansion in the marketplace during 2013. And also we will be taking advantage of our projects in Mexico and [inaudible]. The new galvanized line in [inaudible] will be positive. And the coral mill that we are building standing alone.

In the southern region, the Argentine economy activity is expected to accelerate in 2013 as a result of higher activity levels in Latin America, particularly in Brazil. And also a better performance of the Argentine [inaudible] sector.

Let me remind you that during 2012, we witnessed a decrease in steel consumption in Argentina in part related to the de-acceleration of the Brazilian economy and by overt kind of the country's [inaudible] activity. In 2013, that situation is expected to improve. And so we will be taking advantage of this improvement.

At this point of time, these were the main issues that I wanted to comment on you. And I will ask Pablo Brizzio to take over and give you a brief description of our performance in the fourth quarter. So please Pablo, go ahead, and then we will enter into the Q&A part.

Pablo Brizzio

Thanks Daniel and good morning to everybody.

I would like now to provide a brief comment on our performance in the fourth quarter of 2012 and the outlook for the following quarter.

But before that, I would like to mention the changing segment reporting that Ternium is taking. Following a new internalization and reporting Ternium, we changed the reporting of the operating segments from flat long [inaudible] product to steel mining. In addition, we changed the reporting of [inaudible] information from North America, South, and Central America, and Europe, and others to Mexico, Southern Region, and other markets. The Southern Region excludes [Inaudible] Argentina, Bolivia, Chile, Paraguay, and Uruguay. And other markets covers the rest of the world, although the majority of it is usually Columbia, the U.S., and Central America.

Let me remind you here Ternium had two mining companies, Las Encinas and Peña Colorada. Ternium owns 100% of Las Encinas. And consequently, Las Encinas is rated in Ternium financials. On the other hand, Ternium owns 50% of Peña Colorada. So according to how we operate, Peña Colorada is not considered in Ternium financial and is accounted for under the equity methods. The consequences of this is that Ternium mining segments all includes the Las Encinas operations. So you will see [inaudible] about two million tons per year in the mining segment. While the other approximately two million tons we got from Peña Colorada are not included in the segment.

Let's go back to the performance of the company. [Inaudible] in the fourth quarter, 2012, was $227 million. $113 million lower than the [inaudible] in the third quarter 2012 mainly as a result of 6% lower net sales and 3% higher steel operating cost per ton, which increased mainly due to higher cost of third part [inaudible] in Mexico and efficiency losses resulting from a [inaudible] in Argentina.

In addition, the other income expenses line include in this quarter non-recurring losses of $20 million related to write-downs of property plan equipment. Without the impact of this non-recurring loss, the [inaudible] for the fourth quarter, 2012, would have been around $247 million.

Steel shipments were especially low in the quarter with a 4% decrease compared to the third quarter, 2012. And revenue per ton went down $19 mainly due to a 4% decrease in Mexico. In the region, operating cost per ton has sequential increase of $20 due to the reasons I just have mentioned.

Net income in the fourth quarter, 2012, was $275 million loss equivalent to losses during the year of $1.29. This quarter net loss was driven by a $345 million loss related to [inaudible] investment in Usiminas and a $130 million lower operating income. This loss related to investment in Usiminas was mainly the result of a $235 million impairment, a $2 million charge related to the precision of difference between the fair volume book value of Usiminas asset and $19 million loss from net losses in the quarter.

Turning now to our financial position at the end of the year, Ternium continued to enjoy a strong balance sheet with $1.7 billion net debt position, down from $1.8 billion at the end of the third quarter.

Net cash provided by operation activity in the fourth quarter was $277 million including a decrease in working capital of $104 million. In addition, capital expenditures were $312 million. And we got the last payment from Venezuela of $137 million.

I will finalize the remarks with our outlook for the first quarter of 2013. As we stated in today's press release, we are expecting a higher operating income in the first quarter, 2013, compared to the fourth quarter, 2012 mainly as a result of higher [inaudible] driven by an increase in steel shipments and a reaction in the steel cost per ton due to lower [inaudible] as well as the result of [inaudible] number two in Argentina.

This concludes our prepared remarks. We are happy to take any questions you may have. Thanks.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the Diego LaSaga of Merrill Lynch. Your line is open.

Diego LaSaga – Merrill Lynch

Thank you. I have two questions. First one, you continue to evaluate options to close your [inaudible] in Mexico, so in this context, is TSA still an option for Ternium or are you evaluating other options and what would those be?

The second question, if you could give us some additional color on the North American steel market performance in the first quarter. Are you seeing any signs of [inaudible] recovery and what’s the price tend from here in your view?

And then if you could tell us about specific factors that you’re seeing any kind of signs of recovery, that would be great. Thank you.

Daniel Novegil

All right. So firstly related to this lab, to the lab issue, the first I mentioned in my opening remarks that we are expanding capacity of the lab in Argentina, in [inaudible] ½ a millon tons because of entering operation in [inaudible]. As I said in the opening remarks, we’ll start of in first quarter of 2014. As you know, CSA in Brazil is a lab producer and we are a big buyer of [inaudible] in the market, maybe the largest worldwide. So that makes sense for us to check the integration opportunity for there. In this respect, we are following the process.

Let me mention on the same token that we are not looking at dis-enrolling in facilities in the U.S., Alabama. We are looking not looking. So at the end, we are following the process, we are participating in the process and at least what I have to say right now because, you know, because of confidentiality issues.

Second, regarding the U.S. as well as the Mexican market that also has to – it would influence coming from the U.S., we see an expansion in the marketplace first coming from the automotive industry. That also means that the U.S. market will be in 2013 at the same level or slightly over the record levels that the automotive industry had in 2007 before the last economic crisis in North America. So these markets is performing quite well as well as other [inaudible] effectors like [inaudible] home appliances.

The real estate market is – the construction market has not recovered in years but is having a good [inaudible] first because of a decrease in inventory levels because no houses can be built in residential as well as industrial or in building spaces in the last four years, so this inventory went down and so maybe we will see a rebound in this market in 2013 and 2014.

So we are optimistic first in a recovery in the U.S. market because of the growth in the GDP and second, in a [inaudible] related [inaudible], we are doing well. We see a good performance. Automotive/Home Appliance is maybe a rebound of residential housing on housing as a whole during 2013.

Regarding prices, it is quite difficult nowadays to make a forecast in the long run. You know, in the medium run because of the volitility. But at the same token, I’m doing China, I’m looking – I’m seeing China doing well with a projected GDP growth according with INMF and according with the private estimate of about 8% for 2013. I see the U.S. market doing well. I see the Latin American market doing very well. And so I’m cautiously optimistic on the pricing perspective even when, you know, uncertainty is still the king in the market and maybe in the long run it’s difficult to estimate a concrete increase in pricing.

So I see if the pricing probably being around the fourth quarter of year 2012 or maybe about this number a little bit.

Regarding the perspective and the outlook for the first quarter of 2013, I’m following what Pablo Brizzio was mentioning. I am positive we are expecting for [inaudible] increase in shipments in the first quarter of 2013 and also in addition to that we are going to see a reduction in cost per ton due to lower price of the labs and raw materials that we’ll enter now because of, you know, of our accounting system of a first-in/first-out. So we see good perspective for the first quarter and we are looking at the rest of the year with optimism.

Diego LaSaga – Merrill Lynch

That’s perfect. Then just getting back to the first question, would you consider a partnership with any local players to – in the potential CSA acquisition? Would you consider a partnership with Usiminas, for example?

Daniel Novegil

Yes. No, no, we are [inaudible] the TSA standing alone up to this moment. You know that Usiminas – really, it’s not a target now is starting in turning around and [inaudible] through and also, you know, any factors that you know. So we are announcing the CSA as a standing alone project of Ternium and we are not looking at the [inaudible].

Diego LaSaga – Merrill Lynch

All right. Thank you.

Daniel Novegil

Thank you.

Operator

Daniel Novegil

We did not do that, but we always have a chance of doing that, even that close relationship that we have had with them over the years.

Carolos De Alba – Morgan Stanley

All right, thank you.

Daniel Novegil

Thank you, Carolos.

Operator

Our next question will come from Marcos Assumpcao of Itau. Your line is open.

Marcos Assumpcao – Itau

Hi, good morning, everyone. My first question, if you could comment the difference between, or the possibility between increasing the lab capacity max now that natural gas has becoming increasingly available there versus buying the asset from scratch like CSA for example, how do you compare the two options?

Daniel Novegil

Well, the two options can be compared, you know, on different fields, Marcos. First, in order to have a right, a proper supply of labs to our needs in Mexico, it will require either to make an acquisition of a manufacturing facility in Mexico, the only one is the one that [inaudible] and as we know, they are not as [inaudible]. The second one would need to be in build a new facility in Mexico, that, you know, four years, five years to do so and to be capacity you see rate of reduction to supply our needs of this lab.

In the case of CSA, we have a new facility we can adapt from the very beginning to [inaudible] to fit our needs and also a facility of CSA in Mexico in Brazil is ready to produce high-end kind of products. So the difference would be, one the difference in building against buying, price per ton, and second, the timing getting into the market with both projects with weather. Having said that, we consider that facility is not in sale and so we have either two choices to go for CSA to cover our lack of [inaudible] or to be in a brand new facility and it would take, as I said before, four years at least.

Marcos Assumpcao – Itau

Perfect. And can you give us – can you provide us an idea of timing for this deal because we heard it was a little bit delayed but the buying offers should be submitted by February 15th and then now it’s going to be delayed. Can we have a sense of when this deal could be finalized?

Daniel Novegil

Marcos, as you know in every process, this is settled by the seller, so what we are doing is following the process. So in time this process will have an end, but this is dependant of the time scale that the seller has put in place.

Marcos Assumpcao – Itau

All right. Thanks.

Daniel Novegil

It will take some time, Marcos. It will take some time.

Marcos Assumpcao – Itau

Okay, all right. Last question; regarding the write off of the [inaudible] investment, you mentioned that you are also considering a lower forecast for long-term iron-ore prices. Can you provide us the long-term price that you are using now in your models and if you also use it lower long term iron ore, if you consider that also to write down the asset?

Daniel Novegil

Regarding the permit of Usiminas, we were explaining to you in the call, the write down we performed was based upon mainly two reasons, two main reasons. The first one being weaker growth forecast than the one that we had originally inspected in that production in Brazil. At the same token, we’ve considered that measures are being taken by the facility and the government and so we expect today that they are going to cover it beneficial and possible effect from the [inaudible] industry in the future. But you know, we have been expecting better volumes in Brazil in 2013 in matters related in industrial development of Brazil.

The second reason, you know, is the increasing and uncertainty and volatility in the pricing of iron ore during 2013. These brought about a lower long-term price of iron ore in our projections. And that impacted is our cash flow expectations. You asked me which are the numbers which we are using in our model in dollars [inaudible].

Regarding volumes, we didn’t make any important consideration in volume production. The main reason of the permit was the low expectation in iron ore prices that we put in our model.

Marcos Assumpcao – Itau

Perfect. Thank you very much.

Daniel Novegil

Thank you, Marcos.

Operator

Our next question comes from Alex Hacking of Citibank. Your line is open.

Alexander Hacking – Citibank

Hi. Good morning. Thanks for the call and taking questions. First question is, whether you have any update on the potential of the palletizing facility in Brazil or should we assume that this decision is on hold until CSA is resolved?

And then the second question is a technical question. Do you require any certification from automotive companies for the new galvanized product or you could effectively start selling to them immediately? Thanks.

Daniel Novegil

Well, related to the [inaudible] project, we have written down in this quarter that we are announcing today – we have been [inaudible] this project. And the reason for doing that is that as I mentioned in our last investor day as well as in some of our calls is because this project was based upon first their ability of natural gas in the area because if you remember, we – at one point of time we said that we switch in some sense from – on licensing the blast furnace against [inaudible] reductions. And second, also this project was based upon the ability of iron ore in quantity and in quality in the area. Now, as you also know, there have been delays and investment overruns, important overruns in the American and [inaudible] project. So for these two reasons, we consider that we had to make a write up or write down of the expenses that we have committed in relationship with Port De Su. Even when – even when – and at the end of everything, I know it’s taking into consideration what happened with CSA and so on and so forth, we will maintain for a while our options open. I mean, we will not close the page because it’s – that’s not – we will not be entering into expenses for doing so and so as you know we also like to have flexibility and options open for the future.

Regarding the automotive industry, we have been working in these last two years, when we do the decision of going ahead with the investment together with Nippon Steel, we have been working very actively in Mexico in product specification, high-end developments, research and development, visiting customers, adjusting the logistics needed to serve a sophisticated market because as you know, after their participation in Usiminas we changed the scope of Ternium from commercial quality kind of company to a more high-end driven kind of company looking for needs of specialties or more sophisticated problems with better logistics, with better adjustment time, with certification of products, with you know, very close relationships with customers and penetration in the value chain of the customer.

So in this new commercial approach, we have been working a lot in the last two or three years in relationship with the automotive industry, that’s why I am optimistic that in the operation of Tenigal we will be taking advantage of this work that we have been doing during the last two or three years and we will have a ramp up period that we will be, you know, accelerated and [inaudible].

It’s not the case, we will be starting from scratch to enter into a new market like the one of the automotive industry with higher specifications and other requirements. It’s something that we have been working a lot in the last two or three years.

Also, you have to take into consideration that we are also entering into the market in Argentina where we are being [inaudible] facility that we enter into operation next August, August 2013, that will give us a chance of selling high-end products for the automotive industry and other high-end applications in Argentina or [inaudible].

Alexander Hacking – Citibank

Okay, thanks. So there’s no [inaudible].

Daniel Novegil

I will say yes. I would say to compliment my answer to your question, Alex, that you know, we have a certification process that we have to follow, no doubt. You have to work in [inaudible] the customer to improve the performance of our samples to go back and forth to make adjustments. But we have been working on that. And also, because of having these [inaudible] it will give us a very good support and a very good back half to this activity where we are working together in a normal 50/50. As I said, with Nippon Steel, they have been in this market for years and it may be the number one company in the world. Though I would say that we are pretty optimistic that the ramp up will be recent and we’ll be able to pass this certification process at a good speed, you know. A reasonable speed.

Alexander Hacking – Citibank

Thank you. It’s very clear and thank you for all the detailed answer that you give.

Daniel Novegil

Thank you, Alex, thank you for your questions.

Operator

Our next question comes from Marcelo Aguiar with Goldman Sachs. Your line is open.

Marcelo Aguiar – Goldman Sachs

Hi, good morning. Thank you for the opportunity. A quick question again on CSA. Can you share some thoughts, I suspect you guys have visited the facility. Just, I mean, first to have a sense of – in your view, do you guys need to make additional investments to make that facility feasible for your operations? And if you can show it as least a ballpark number or a range, you know, that’s the first question.

Pablo Brizzio

As you know, we are – as we said, we are following the process in the capacity of the moment to [inaudible] to answer these types of questions. We are [inaudible] and at some point in time if this moves ahead, of course we will run the full disclosure of these issues.

Marcelo Aguiar – Goldman Sachs

Okay. The other questions will be more related to the fourth quarter results given. Some of my questions have already been made. Regarding your higher cost of flats, I didn’t understand, I mean, if you look to the lab prices having fallen, it seems, I think, mid-year, and you have the higher cost of those labs in the fourth quarter, we expect you’re going to have lower costs lab given [inaudible]. So is that because of the accident in Argentina not receiving [inaudible] for Argentina and having to buy more on the market? What happened there?

Daniel Novegil

I believe we anticipated this in a prior call. We are still receiving due to FIFO due to fourth quarter flats that we worked basically in the second quarter of the year that were higher priced as the ones that we are seeing today. That’s why we are saying that we are optimistic in moving to the third quarter in which we will start to see or going through the [inaudible] line, the flats of lower prices of flats which are more related what you see today in the market. So this was something expected, of course, it’s also included in this increasing cost, the less efficient operation in Argentina due to the stoppage of one blast furnace.

Marcelo Aguiar – Goldman Sachs

Can you quantify the impact of Argentina side? I remember you didn’t expect anything major.

Daniel Novegil

In fact, so we are still behind the same assumptions. There is not a significant impact [inaudible]. In both cases we are expected to recover entering into 2013.

Marcelo Aguiar – Goldman Sachs

Okay, but you don’t have a number for Argentina?

Daniel Novegil

No because, in fact, it was not that big, the difference that we saw in the fourth quarter in comparison to the third quarter and between – these are the two main issues that impacted increase in cost and basically all the issues impacting the cost line into the quarter.

Marcelo Aguiar – Goldman Sachs

Okay, thanks.

Operator

(Operator Instructions). Our next question comes from Rodrigo Barros with Deutsche Bank. Your line is open.

Rodrigo Barros – Deutsche Bank

Yes, thanks for taking my questions. I have a couple of questions. The first one on CSA again, one issue that concerns me somewhat is that it’s probably going to be a difficult operation to turn around otherwise they would have done it and I wonder if you feel comfortable that you have the people to turn around CSA and finish the [inaudible] project, do the expansion in Argentina. So my first question is do you have such a number of engineers to do all those projects together?

And my second question is on the synergies between [inaudible], how well they are doing. If you can talk a little bit about the share distribution matchbook project that you had. Anything that you can say on it would be great.

Daniel Novegil

Well, the first question is CSA, as I said in my remarks, we are following that the process. You know, we couldn’t do that if [inaudible] in the right place and we are the largest buyer of flats worldwide, so we – so that’s why we are entering into this analysis. [Inaudible] and we did all the homework and we do have it with a staff of people either to go ahead with these project or to educate these people in a facility or to [inaudible]. So we have very good professionals, we have covered the most important area for the most important areas of [inaudible] we have a good [inaudible] of alternatives in people. This is the kind of facility that is familiar to us and to our history. I don’t see any special requirement there where we do not have people available, even to follow up these or to enter into [inaudible].

As I said in my remarks, we are very happy with the activity on the turnaround of Usiminas. They are doing well, they are working very hard, they are working in reducing working capital and increasing labor productivity and so on. So we expect that Usiminas will break through, will turn around and these will be reflected in the quarters to come. Maybe we can talk about this issue on our Investor Day on the 27th of June because this question about Usiminas and the synergies and then [inaudible] is a question that you like.

Rodrigo Barros – Deutsche Bank

That’s great. Thank you very much.

Operator

Thank you. I’ll know hand the call back to Pablo Brizzio for closing remarks.

Pablo Brizzio

Okay, thank you for your interest in Ternium for your time today. We look forward to remaining in touch with you. As always, please contact us is you have any other questions. Thanks a lot. Bye, bye.

Daniel Novegil

I appreciate the questions and I hope to see you on the 27th of June. Before that we will be having another call on April, April the 28th or 29th. So good luck and thank you for your questions.

Operator

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect.

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