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Ternium SA (NYSE:TX)
Q2 2020 Earnings Call
Aug 5, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Ternium Second Quarter 2020 Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Sebastian Marti. Thank you. Please go ahead.

Sebastian Marti -- Investor Relations and Compliance Director

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

Ternium released yesterday financial results for the second quarter and first half of 2020. This call is complementary to that presentation. Joining me today are Ternium's Chief Executive Officer, Maximo Vedoya; and the company's Chief Financial Officer. Pablo Brizzio, who will discuss Ternium's business environment and performance. At the conclusion of our prepared remarks, there will be a Q&A session.

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 on Page 2 in today's webcast presentation.

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

Maximo Vedoya -- Chief Executive Officer

Thank you, Sebastian. Good morning and thank you very much for taking the time to joining our call today. In my prepared remarks, I would like to review the effects of COVID-19 on our company during the second quarter, our actions to mitigate these effects and also the status and prospects of our main markets. After this, Pablo will comment on the results for the second quarter and then we will have a Q&A session.

The second quarter has been one of the most challenging quarters I can remember. Lockdowns or restrictions to operate were in effect in most of our markets during the quarter. Not without effort, we were able to adapt the company to this difficult market situation. In a very short period, we totally redesigned the way we operate our facilities in the current sanitary context with the aim at mitigating contagious risks to the extent possible with the health and safety of our employees, customers and suppliers as our main concern.

In this regard, in addition to the sanitary measures I commented on our last quarter conference call, we continue developing innovative tools to increase the compliance with our protocols. Just as an example, during July, we implemented the use of artificial intelligence system to verify compliance with sanitary protocols within our industrial facilities to help prevent the spread of COVID-19. More than 400 cameras at Ternium's facilities in Mexico, Brazil and Argentina are able to reinforce social distance policies and the use of face mask through video analytics that use in-house developed algorithm.

Yet, our efforts in favor of mitigating the effects of COVID-19 pandemic are not stopping at our facilities' gate. The field hospital we build in Monterrey, Mexico with 100 beds and a fully equipped intensive care unit has been very actively supporting the health needs of the local community in these difficult times. We also supplied 25 Intensive Care Units to two hospitals in Rio de Janeiro, Brazil, and 100 beds to a field hospital in Ensenada, Argentina as well as intensive care equipments. Our aim was to help all of our communities in the regions. To maximize the effectiveness of our help, we worked together with directors of key hospitals in each of Ternium's locations to determine the specific needs in it -- in each case.

All-in-all, with a $5.5 million dedicated fund, we were able to build a field hospital and donated beds, intensive care unit equipments, ventilators and other medical equipments as well as safety kits for health professional to 16 hospitals and healthcare facilities in four countries. Our global procurement platform had a key role in this effort, as it was able to purchase the requirement -- the required equipment and have it delivered to each location. Additionally, to foster the sharing of knowledge of treatment of COVID-19, we created a network of medical professionals. 70 doctors from local communities in Mexico, Argentina, Brazil and Colombia participate in the virtual meeting with their colleagues at Humanitus, an Italian network of hospitals. Through this platform Humanitus experience of dealing with COVID-19 outbreak in Italy is available at a public virtual campus.

I'm very proud of all we have been able to do to support our communities in such a short period. Many of our initiatives in this regards, and all efforts of our activity can be found in our new sustainability report, which was issued two weeks ago. The redesigned report intended to be an integral discussion of our progress toward achieving our objectives in a sustainable way. This is the first edition of our sustainability report to follow the global reported initiative or GRI reporting guidelines. We believe GRI guidelines enable us -- enable our reporting to deliver a higher level of transparency and data comparability.

Additionally, we have committed ourselves to the UN Global Compact and to the advance its Sustainable Development Goals or SDGs. You will also be able to find more about our contribution to the UN SDGs in our latest sustainability report.

Let's turn to our operation now. This has been times of swift and decision action. We usually say that our industrial system has significant operation flexibility. With steel demand dipping during the second quarter, we saw many steel companies in the region in need of taking the costly decision of shutting down blast furnaces until demand recovers. In contrast, our blast furnaces in Brazil and Argentina were able to keep operating as they reduced production to technical minimums and increased shipments to other Ternium facilities in the region, which in turn adjust their steel procurement and production lines. The cost competitiveness of our facilities and the capacity to rapidly change the degree of integration among Ternium means allows for this quick adaptations to change in market environment.

In addition, with the aim at sustaining our margins, we work hard on optimizing production and overhead cost and then reducing general expenses and extraordinary maintenance works across our facility. As a result of all these factors, in a very difficult environment in the second quarter when ships declined 18% sequentially, we were able to show a 13% EBITDA margin, and EBITDA per ton of $91, just a slight decrease compared to our first quarter.

Another aspect of our company on which we concentrate our efforts was the balance sheet and cash flows. Faced with significant uncertainty regarding the extent and duration of the effect of the pandemic on the global economy and particularly on our market, we took immediate action to increase liquidity and strengthen our financial position. We minimized inventory buildups, reduced purchase of raw material, third parties steels and other items. We worked with our supply chain to reduce working capital and we postponed several capital expenditure project across our facilities. The result of these actions was more than $300 million working capital release in the second quarter and a reduction of capital expenditure to less than half the level we had in the first quarter.

Consequently, we had free cash flow of $393 million in the second quarter, taking net debt down to a little over $900 million at the end of June. This is equivalent to a net debt to last 12-months EBITDA ratio of only 0.8 times. For the time being, we will continue taking a conservative stance regarding the management of our balance sheet. As while the effects of the pandemic seems to be abating in several parts of the globe, there is still no clarity regarding an end to the -- to its disruptions to the global economy and to our market.

Let me now make a quick description of the status of our main market. In our Mexican facilities, we are approaching normal rates of production. The easing of operation restrictions in the country is enable a gradual return of activity in the outdoor industry as well as in other manufacture industries, including this household appliances and lighting. Coupled with an improvement in market share, this return to activity should support a recovery of shipments in Mexico during the third quarter.

In the construction sector, after being mostly shut down during a good part of the second quarter is beginning to slowly come back, although it remains weak. In Brazil, we have seen significantly increased production in our slab facility from the minimum technical levels reached during the second quarter due to the reduction in steel demand. This increased production rate is supported by higher level of integration with the company's industrial system. Additionally, improvements in economy activity in Brazil are driving current recovery in local steel industry slab demand, which got close to disappeared during the second quarter.

In Argentina, following record low shipments in the second quarter, we expect a sequential volume increase mainly driven by higher activity levels in construction. The agribusiness sector and the canning and white goods industries. Steel production in Argentina has also been able to return closer to normal level as restrictions in many parts of the country are gradually being relaxed. In this context, the recent announcement of an agreement with international creditors for the restructuring of Argentina's debt government debt is a positive development, this was a necessary step for a macroeconomic program to be successful.

Alright, just a note of health precaution before I finish. I am very proud of the achievement our management team and all of Ternium employees have made so far during this unusual time. Their commitment and results were admirable.

And I would like to thank them for their hard work. However, we are not back to normal yet. While all of our markets in Americas are showing signs of improvement and our expectation for demand and production rate in the third quarter are positive.

And sensitivity proceeds regarding a possible resurge of COVID-19 and its effects in the economy. You can rest assure, we will continue striving to make our company stronger and to mitigate the effects of the pandemic on the company and its stakeholders.

Okay. These were the main points I wanted to touch today before we review the second quarter results and answer your questions. Please Pablo, go ahead.

Pablo Brizzio -- Chief Financial Officer

Thanks, Maximo. Good morning to all. Let's go through Ternium results for the second quarter and the first half of this year. Let's start with the company quarterly EBITDA and net results on Page 3 of the webcast presentation. As you can see, Ternium EBITDA decreased sequentially in the second quarter to $224 million, as expected, due to lower shipments and slightly lower EBITDA per tonne.

Net income in the period was $44 million or $0.22 per ADS. The results compared to net loss of $19 million in the first quarter. A period that including the effect of significant appreciation of the Mexican peso and the Brazilian real to the U.S. dollar. As we will analyze in more details in the following slides. And for EBITDA in the third quarter 2020, we expect it to be in-line with EBITDA in the second quarter, mainly reflecting higher steel shipments and lower steel prices in the North American market.

Let's now turn to Page 4 to see how our steel shipments in the quarter. All of our market showed the effect of the COVID-19 pandemic in steel demand. In Mexico, shipment decreased 25% on a year-over-year basis, and 29% on a sequential basis. We are expecting shipments recovery in the country in the third quarter, reflecting a return to activity capital with improved market share.

Shipment in the Southern region decreased 32% year-over-year in the second quarter and 9% on a sequential basis. Shipments in the first quarter were already weak reflecting seasonality low activity. Looking forward, in the third quarter, we expect sequential volume increase in the Southern region and the greater relaxation or restrictions mainly in Argentina.

In the other market region, we can see, on one hand, finished these shipments in blue decreasing year-over-year sequentially in the second quarter. And on the other hand slabs shipped to third-parties in grey with slight sequential increase. The sequential increase in slab volumes in the second quarter reflects higher slab exports from Ternium Brazilian facility to third-parties, partially offset by lower volumes shipped to third-parties in Brazil.

Looking forward, we expect Ternium slab facility in Brazil to have a sequential high utilization rate in the third quarter and to increase its integration with company's industrial system, reducing in turn the volume of slabs shipped to third-party.

The development, as you can see in the next page, resulted in consolidated shipment of 2.44 million tonnes, decreasing 18% sequentially. Summarizing what we have discussed, we expect these shipments to increase sequentially in the third quarter in our key markets, with some offsetting from lower sales of slabs to third-parties.

Turning now to the upper right-hand side chart. We see that the average analyzed price decreased 6% in the second quarter. This reflected lower realized price at Ternium's main markets. In Mexico, revenue per tonne decreased in the second quarter, reflecting mainly lower steel prices in the spot market. On a sequential basis, we expect lower average realized price in Mexico in the third quarter, with weaker industrial contract realized price as a result of the lag price reset.

Let's review now in the following page, the main sequential changes in EBITDA and net result in the second quarter of this year. EBITDA decreased as a result of lower shipments and EBITDA per tonne. The decrease in EBITDA per tonne was mainly due to lower revenue per tonne, partially offset by lower operating cost per tonne. Regarding changes in net result, on the bottom chart, the $19 million loss in the first quarter include a significant effect in connection with the 20% depreciation of the Mexican peso and 23% depreciation of the Brazilian real against the U.S. dollar. This effect in the first quarter included a loss of $189 million on the first tax results, Ternium's Mexico subsidiary and a gain of $109 million in net results of foreign exchange on the consolidated basis. The foreign exchange fluctuation decreased significantly in the second quarter, making the size of this effects decreasing as well in this period.

Let's review now the main changes in the first half of 2020 on a year-over-year basis in Page 7. As shown in this chart on top, the year-over-year changes in EBITDA in the first half were the result of lower shipments and EBITDA per tonne. The year-over-year decrease in EBITDA per tonne in the first half reflects mainly lower steel prices, partially offset by lower slab, raw material, energy, maintenance, labor and services costs.

Finally, before we go to the Q&A, let's review Ternium free cash flow, capital expenditure and net financial debt on Page 9 of this presentation. After strong set of numbers in the first quarter, we reported an even stronger set of second quarter 2020 number as Maximo anticipated. These numbers that reflects the measures taken to adjust the company operations to the reduction in sales and a decision to slow or postpone several projects across Ternium facilities enable us to further strengthen our balance sheet. With free cash flow in the first half of 2020 of $578 million, we reduced net debt by 40% in the semester to $917 million to the end of June 2020, reaching the already mentioned number of 0.8 times of last 12 months EBITDA.

Alright. Once again, thanks very much for your time and attention. We are now ready to take your questions. Please operator, proceed with the Q&A session. Thanks.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from James Pearce from Morgan Stanley.

James Pearce -- Morgan Stanley -- Analyst

Yes, hello. Thank you for taking my questions. I just wondered how are you seeing the demand outlook for your different sectors in Mexico, are there any particular sectors that you're worried about, that could take longer to recover or to return to pre-COVID levels? And second question would be about slabs from your Brazil operations, what's the outlook for slab exports to U.S., any sense of what the impact would have if the U.S. reduces the import quota for slabs from Brazil? And also if you could give us a sense of the current profitability there compared to past quarters? Thank you.

Maximo Vedoya -- Chief Executive Officer

Thank you, James. The first question about the Mexican demand on the different sectors, I think that demand in Mexico for the industrial sector is very good today. I mean all of the different sectors that produce cars, home appliances, lighting, electrical motors, they are running white goods. I don't know if at full capacity or at capacity before the pandemic, but very near that capacity. And I think they will continue to do that unless there are some revival of the COVID pandemic, they are going to continue doing that.

The sector that demand is lower is construction. And here the -- I would say the private construction that was one of the drivers for the last couple of years, started to go below that number before the pandemic, and of course with the pandemic, most of the private construction stop.

What we are seeing is that the infrastructure is starting to pick up. Infrastructure was very bad, if you remember in the last several conference calls infrastructure in Mexico was very bad. But today, it's improving with some of these big project the government has. So overall, industrial production very, very good, construction below what we expected and -- but with infrastructure improving but private construction not improving at all. I think that answer the first question, James.

James Pearce -- Morgan Stanley -- Analyst

Yeah.

Maximo Vedoya -- Chief Executive Officer

Second, slabs exports to the U.S. we are not seeing anything -- we are not seeing a change yet in anything of the quarter from slabs to the U.S. Nevertheless, I would say that with the prices, how the prices are today in the U.S., I think it's more profitable to export slabs somewhere else than to the U.S. And so we are not extremely worried of what is -- will happen with the U.S., if there is a change in -- as you said in slabs, in the agreement the -- that the government of Brazil and the government of U.S. has regarding slabs. I know there has been some press article about a proposal to change this agreement and put in some quota or reduce the level of the quota. I don't think that this -- I mean it's very reasonable because they have an agreement. And I don't think that they should change it, but if that happens there is not going to be a lot of changes in our view for the third and fourth quarter because of the price difference today is very minimal.

James Pearce -- Morgan Stanley -- Analyst

Okay, that's very clear. Thank you.

Maximo Vedoya -- Chief Executive Officer

Okay, thank you.

Operator

Your next question comes from Rudolfo Angele from J.P. Morgan.

Rodolfo De Angele -- J.P. Morgan -- Analyst

Hi, good afternoon, everyone. Listen, it was a quarter that impressed us given the very challenging business environment that the industry faced. In the case of TX, in the case of Ternium, we were particularly impressed with the performance on the cost side. Volumes are down and yet you were able to reduce cost. So I was just wondering if you could talk a little bit about how you got to that very interesting performance and how much of that can we expect to remain into the coming quarters? Thanks, that's all from me.

Maximo Vedoya -- Chief Executive Officer

Thank you, Rodolfo and thanks for your comments. We will try to continue this way in the future. Of course our aim, I mean, at all times is that, to be able to reduce the run rate of our facility, if we have to reduce the run rate of our facility, to do so with the lowest possible impact on production cost. We tried always to have our fixed and semi-fixed cost analyzing a variable way. We are not 100% -- we don't have always 100% this, but that's the objective we have and in part, that was what we accomplished in this quarter.

This is possible, mainly because our diversified industrial base, which provide operational flexibility and we can integrate our facilities better or more depending on the market conditions. We -- as you also know, we perform strict control and reduction of general expenses, we reduced our overhead costs in the quarter. We reduced almost by half, our contractors, our third-party workers and we replace them with our own employees that were idle because those particular lines were not working. So -- and of course we have a reduction of freight in the quarter as we ship less.

So I think that all -- those are all the things that we do, but we do it very quickly because our form of of managing our fixed and semi-fixed cost are more looking at them as a viable way. So I think that's the way result for that that we try to work and give these results. I don't know if I answer the full question, but...

Rodolfo De Angele -- J.P. Morgan -- Analyst

Yeah, no, sure, we'll probably have follow-ups. But we'll do that with Sebastian after this. Thank you very much.

Maximo Vedoya -- Chief Executive Officer

Thank you. You are welcome.

Operator

Your next question comes from Caio Ribeiro from Credit Suisse.

Caio Ribeiro -- Credit Suisse Group -- Analyst

Yes, hello gentlemen. So my first question is on prices in North America, which you mentioned will be a headwind for the second quarter results. I'm just wondering, if you could talk a little bit more about what you believe are the main reasons that prices are under pressure right now given that demand seems to be sequentially improving with automakers resuming activities, other export-oriented industrial sectors as well. Is it the addition of the capacity in the U.S., all the expansion that are coming on line that's driving this pressure in your view. And when do you believe that we could see a rebound for prices there and consequently in Mexico as well?

And then my second question just on the potential impact of these potential infrastructure stimulus packages that are being discussed in the U.S. with numbers ranging from $700 billion to $1 trillion I just wanted to see if you have any initial assessment right on how you could benefit from that? And whether we could see a stimulus package for infrastructure announced in Mexico as well for the coming years, which could help prop-up steel demand? Thank you.

Maximo Vedoya -- Chief Executive Officer

Caio, thank you very much for your questions. I try to answer the first one. But it's really a good question and it's the question that we all are having. I think that prices in North America are in a level that we haven't seen in quite a while, not at the absolute number. But I think today or yesterday -- I think it was today that the prices -- the prices index of the CRU was released for this week. And prices in the U.S. are almost like $30 below domestic prices in China. This has not happened since I don't remember when, I think the last time about 2009. So clearly, prices in the U.S. are in a point that should change quite quickly.

Why is this, why are the price is so low in the U.S.? I think it's clearly that it's not a problem of import material as it was in the past, it's mainly the competition between domestic steel mills. And of course the problem that demand was very depressed. Some of the steel mills reduced capacity and some others did not. And this fight for market share produces the reduction of prices.

My expectation and again, I don't think this has to be with the additional capacity that is being build in the U.S., because this has not come to realization yet. So this is more a problem of weak demand, which is improving as you said, but still very weak and the fight for market share of some of the companies.

Having said that, again prices in the U.S. should improve, rather soon than later, because it doesn't make any sense, these prices compared with prices in the rest of the world. Infrastructure in the U.S., I don't think -- I think Caio I answered, but I don't know if it's a full answer or you need any more of these prices in North America.

Caio Ribeiro -- Credit Suisse Group -- Analyst

No, no, no, that's very clear. Thank you for that.

Maximo Vedoya -- Chief Executive Officer

Yeah. Infrastructure in the U.S., I mean, I think it's the main issue for all steel demand. Clearly, it's going to improve demand around North American -- around the North American market. If you said, what's the impact specific to Ternium. We have not yet has an impact or managed to put an impact of this. We don't sell much to construction or infrastructure programs in the U.S. as you know. But clearly, it's going to increase demand in the U.S. And that's clearly is going to favor prices and shipments from all the companies in North America.

In Mexico, although infrastructure is much needed, I don't think that we will have a program in the near future as big as the U.S. I think it's necessary, but the government is still very cautious of the finance of the public numbers or the public financial numbers of the country. So I don't think they're willing to spend much more yet of what they are now spending in their big projects at the Mexican Airport or the refinery in Tabasco. So I am not very optimistic that we'll have a program like in the U.S. in the near future.

Caio Ribeiro -- Credit Suisse Group -- Analyst

Perfect, that's very clear. Thank you very much for your answers.

Operator

Your next question comes from Timna Tanners from Bank of America.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Yeah. Hey, thanks for all the great detail. I always enjoy your candid observations on the market. Wanted to just ask a little bit more about the guidance, if I could, because the sideways EBITDA move was a bit surprising. I understand the lag effects on pricing. But I guess two questions around that. One is, is it just that the pricing is still much of a decline, that it offsets all the positives elsewhere in terms of volume and what could surprised you? And then, just in-line with the comments about market share battles and oversupply in the U.S. market, is it possible for the Mexican market to decouple from what's happening in the U.S. or do you think they're all inextricably intertwined? Thanks.

Maximo Vedoya -- Chief Executive Officer

Thank you, Timna and thank you for your initial comment. Yeah, I mean, the main driver of our outlook is prices in North America. You're right, volumes are increasing in all our markets, in Colombia, Mexico, Argentina and even in Brazil slabs although shipments of slabs as Pablo said total shipment from the slab facility are going to improve, but to third-parties are going to be lower. So you're going to see a lower shipment of slabs in the third quarter.

But as overall shipments are going to improve in Ternium and the main driver is prices. I mean, we are still working. We will continue to work on the cost base. But again, prices in North America, to-date, you see the index are very, very low. I expect that prices start to rebound quite quickly as I said before, Timna. I think it doesn't make any sense, these level of prices.

But in our outlook, we are cautious not to put a huge increase, because we don't know if this is going to happen. And again, remember that some of our -- or more than 50% of our sales in Mexico are lack in this contract base quarters. So you are going to have in the third quarter the prices of the second quarter. So no increase in that ones.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Yeah.

Maximo Vedoya -- Chief Executive Officer

Mexico decouple, it's probably that in some sectors, Mexico is going to decouple if prices continue to be down. I mean, again, our main competitors in Mexico are imports from -- a little bit from the U.S., but the price driver here was always imports from Asia. And with these prices import from Asia are going to decline. So if this tendency of prices continue in the U.S. is probably than in some of our markets in Mexico, we are going to decouple from the U.S.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Okay, that's really interesting. Thanks for that. I also apologize if I missed it, I had some connection problems, because of storm here last night. But I was wondering if you commented on the dividend or your thoughts on that if you wouldn't mind repeating if you already talked about that?

Maximo Vedoya -- Chief Executive Officer

No, we don't comment or nobody asked yet about dividends and it's a great question. Thank you, Timna. Well, as you know, we suspended the dividends for this year. I believe with the information we have, I still believe that the Board decision to suspend dividend payment was the correct and it still make a lot of sense.

And although, as I said in the beginning, I see the third quarter positive and the fourth quarter also positive. Uncertainty still persist that the spread of the COVID-19 and its effects in our market will have some rebound. So I think the decision was correct.

Having said this, I have no doubt that Ternium will resume payments of dividends next year as we have. And again, if situation or the Board would resume. And I think that the business situation continue to improve as we are seeing today, I wouldn't rule that the Board's dividend proposal next February makes up at least a part of what we skipped of the dividend of this year.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

So they could compensate for some of the lost dividend you're saying as early as February, is that what you said?

Maximo Vedoya -- Chief Executive Officer

Yes, Timna. Again, this is a decision -- or it's the Board make the -- not the decision, but make the recommendation. And I think that if things continue like this, I think the Board could or I'm sure that would at least compensate in part this skipped dividend.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Okay. Great, thank you very much.

Operator

Your next question comes from Jonathan Brandt from HSBC.

Jonathan Brandt -- HSBC -- Analyst

Hi, good morning, good afternoon gentlemen. Congratulations on a very strong quarter, given the circumstances. I guess, I wanted to ask you about free cash flow and balance sheet management. We've seen a pretty big reduction in working capital this quarter. So I'm just wondering, is that sort of a new sustainable level or should we expect, as volumes increase as you're expecting in the second half, should we see a rebound in working capital levels?

And then, I guess, sort of related to that, given that you're free cash flow positive in a very difficult quarter, I would expect you to be free cash flow positive in the second half as well. Can you just sort of elaborate on sort of your balance sheet management and should we continue to see net debt continue to the fall? Will the majority of free cash flow generation, at least until you sort of resume dividends be put toward net debt reduction? Thank you.

Maximo Vedoya -- Chief Executive Officer

Thank you, Jon and thank you for your initial comment. Clearly, we have a very strong quarter regarding free cash flow as you well said, part of that was working capital. As shipments and activity start to improve, we have to invest a little bit in working capital in this quarter and next quarter. So we are not going to have all that free cash flow. But break very details, I ask Pablo to give you the details of it.

Pablo Brizzio -- Chief Financial Officer

Yeah. Okay, Maximo. Hi, Jon. Clearly as Maximo was saying, it's impossible to say or to believe that after a quarter where we have significant reduction in working capital due to the reduction in volumes, we can sustain or achieve a similar number in the following quarter. On the other hand, clearly we will, as anticipated in our outlook, we are expecting to continue having positive EBITDA generation and consequently positive free cash flow generation. But we will try to sustain at least the level that we have of working capital is very difficult for us to say that we can continue achieving similar reductions in working capital.

So on a conservative tone, we could say that that working capital even could increase a little bit because of increased volumes that we have been mentioned during our presentation and Maximo comments. So, probably, we need to invest some money there, but we will try to keep as low as we can this number.

On the other side, we will generate positive free cash flow, because the capex plan for the following quarter not returning yet to the levels that we have in the -- during the first quarter will be more probably in line with the level that we saw during the second quarter. So all-in-all, we could see a little positive news, still in the reduction in net debt during this third quarter, but not coming from further reduction in working capital.

Jonathan Brandt -- HSBC -- Analyst

Okay, thanks, Pablo. Thanks, Maximo.

Pablo Brizzio -- Chief Financial Officer

You're welcome.

Maximo Vedoya -- Chief Executive Officer

You're welcome.

Operator

Your next question comes from Fabian Graimann from Pictet Asset Management.

Fabian Graimann -- Pictet Asset Management -- Analyst

Thank you very much for taking my question. And you will no doubt agree with me that your stock today trades at a significant discount to fundamental value. Despite that, we really see no evidence of you trying to unlock that value. Be it via solid dividend policy linked to free cash flow, management buying back shares, a corporate structure simplification or via other means, why is that?

Pablo Brizzio -- Chief Financial Officer

Okay. Fabian, thanks for your question, let me try, Maximo, you want to tackle this one? First of all, sorry to disagree with your comment. We think that we did a lot to try to unlock this value, if you want. Clearly, we understand that we have a discount against our peers and we can discuss over that but we have been working quite a lot to simplifying our corporate structure. We have had a history of increasing dividends. The only times, we did not pay dividends were during or preventing years where we have crisis like was the case of 2009 and this year.

The company has been working very, very hard to sustain profitability levels. And this is shown in the EBITDA margin that the company was able to sustain during the -- at least, during the last five to 10 years. And also the reflection of that was the increase of the dividend payment in the last year, specifically in the same period where we almost double the dividend payment from the company in that period. Of course, we are exposed to different markets and we have the risk of being exposed to different markets that probably prevent the value of our company to be completely unlocked. Probably, there are some other reasons that we can discuss on the level of floating of our company, or where we are at least and some other things that we have commented in the past.

But be sure that the company is always thinking that and the company is looking for ways to improve that. And clearly the goal that we as a company has very up in our priorities.

Fabian Graimann -- Pictet Asset Management -- Analyst

Sorry, just to clarify that, does that mean we should expect an update on the listing issues as well as formulating a clear dividend policy potentially linked to free cash flow or earnings, it should probably not be our present but any...

Pablo Brizzio -- Chief Financial Officer

Well, we don't have a written dividend policy, but we have a clear tendency on the way we pay dividend and if you look at what we have done during the last years, clearly, you see the -- how we pay dividend, how we increase them, year-over-year, if we see an increase on results. And even not we have an increasing result, we sustain that increased dividend payment.

In respect to the issue of listing is a very complex one, difficult to discuss during the call because there is certain restrictions to do that, but is also something that we have in our minds and if there is a chance, reasonable chance and feasible chance because sometimes you can do certain things that will not yield the result that you're looking for, but if there is a chance it's something that the company has been discussing and analyzing for a very long period of time.

Fabian Graimann -- Pictet Asset Management -- Analyst

Perfect. So one...

Maximo Vedoya -- Chief Executive Officer

Fabian, that -- I mean what you have to take clear is that we are working on this effect. I mean, we are working on -- and we know that the price is undervalued for us, for us also it's undervalued and we have been working in trying to see what can be improved. I know the dividend, as I said before, the dividend was not helpful, but I think during the time and what we are seeing was a right decision in a way and if we can, we can compensate part of that next year and we will probably do. So the bottom line is that we are working on that and we will continue to do so.

Fabian Graimann -- Pictet Asset Management -- Analyst

Perfect. Could I just ask for an update on your project timelines and how this links together with capex for 2020-2021, please?

Maximo Vedoya -- Chief Executive Officer

Yes, of course Fabian. 2020 we will have a final capex of around $600 million and 2021 will probably be around that number too. These are lower numbers than what we had six months ago. But I think that they are the correct ones, Two projects, Colombia, the project in Colombia is almost finished. The problem we have in Colombia is that the technical people who has to make the commission from the vendors of the equipment, they cannot travel yet. I think they will be in Colombia, in September. And so I think the Colombian mill should start by the fourth quarter of 2020. Regarding Pesqueria project, the big project, we are beginning to start, resume our construction. If you remember, by March, we have more than 4,000 people and we are making plans to start today the hot-rolling mill by mid-2021. Why this delay? As I said before and as I said in the last call, the safety of the people for us is the most important thing. And to have more than 4,000 people today with the pandemic still very high in the Monterey area, I don't think is very reasonable for us if we save -- that safety is our first concern.

So we are making a plan to -- as I said to start the hot rolling mill in mid-2021. And we are making a plan not to have so many people working at the facility. Instead of a peak of 4,000 people, we are probably going to have a peak of 1,500 people I think in November or December. But that's we are ultimately that detail plan in the next couple of weeks.

Fabian Graimann -- Pictet Asset Management -- Analyst

Fantastic, thank you.

Maximo Vedoya -- Chief Executive Officer

You're welcome.

Operator

And your next question comes from Isabella Batalha Vasconcelos from Bradesco BBI.

Thiago Lofiego -- Bradesco BBI -- Analyst

Hi, guys. Thiago Lofiego here. Thank you for the question. So, two questions on my end. The first one, Maximo, if you could comment on demand recovery in Argentina. You mentioned that utilization is almost back to normal levels there. But just want to understand what's your base case in terms of shipments decline for this year on a percentage basis versus last year? And also, what do you think is reasonable to consider for 2021?

Second question on the slab side, so the slab production Ternium Brazil, where is it right now and how are you seeing demand in the different markets? And also, if you could comment on where EBITDA per tonne levels are at Ternium Brazil, especially considering the new-FX level in the country? Thank you.

Maximo Vedoya -- Chief Executive Officer

Thank you, Thiago. Demand recovery in Argentina, well, that's a good question. I don't know if we have a great answer for you. As you know, Argentina, although it has made some significant advance with what happened with the debt, the debt agreement. It has -- it continue to have challenges in the near future. And it needs reforms and time. So it's very difficult to see what is going to happen in Argentina in 2021. In the near future, third quarter of -- shipments of third quarter or the next third quarter are going to be quite the same as we had the third quarter of last year.

So there is a recovery. Remember 2019 was not a great year. I mean -- but we are seeing the same level of shipments in the third quarter. There are some sectors in Argentina that are being very better than others, agro business is very high. Construction is very high, especially the private construction. I mean, if you see the cement sales in Argentina, when you see the small sales impacts, there are more than -- they are better than they were last year.

But the big ones are lower, because infrastructure in Argentina is not very good. But construction in general is very good, agro business is very good. Energy and automobile productions are not very good. So there are different scenarios in the different sectors. Slabs side, the facility is running at almost full capacity today for two reasons. One is, demand in our own facilities improving. So we are shipping from -- more from Brazil today. And the second reason is that the demand is improving in other regions. Surprisingly, China is buying slabs, Turkey is buying slabs. So we are shipping slabs and all the manufacturers of Brazil are shipping slabs to China and to other markets.

Also as demand is improving in Brazil, other steel producers in Brazil are needing a little bit more slabs. So we are resuming shipment to them I think in September or October. So, I think in general, slab demand, it's quite good right now and that's why we increased the production rate in our slab facility in Brazil. I don't know if I missed something of the two questions Thiago.

Thiago Lofiego -- BBI -- Analyst

No, that's all clear. Thank you, Maximo.

Maximo Vedoya -- Chief Executive Officer

Thank you.

Operator

And that was our last question. At this time, I will turn the call back over to Ternium CEO for closing remarks.

Maximo Vedoya -- Chief Executive Officer

Okay. Thank you very much again for your participation in our conference call today. Please contact us if you have any further questions or you didn't understand something. I hope to see you all or to hear from you all in the next conference call. And meanwhile, take care of all and stay safe. Thank you very, very much.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Sebastian Marti -- Investor Relations and Compliance Director

Maximo Vedoya -- Chief Executive Officer

Pablo Brizzio -- Chief Financial Officer

James Pearce -- Morgan Stanley -- Analyst

Rodolfo De Angele -- J.P. Morgan -- Analyst

Caio Ribeiro -- Credit Suisse Group -- Analyst

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Jonathan Brandt -- HSBC -- Analyst

Fabian Graimann -- Pictet Asset Management -- Analyst

Thiago Lofiego -- Bradesco BBI -- Analyst

Thiago Lofiego -- BBI -- Analyst

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