Ternium (TX) Q4 2021 Earnings Call Transcript

Ternium (TX 0.83%)
Q4 2021 Earnings Call
Feb 16, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ternium fourth quarter 2021 earnings conference call. [Operator instructions] Sebastian Marti, you may begin your conference.

Sebastian Marti -- Investor Relations and Compliance

Thank you. Good morning. Thank you all for joining us today. My name is Sebastian Marti, and I am Ternium's global investor relations and compliance senior director.

Ternium released yesterday its financial results for the fourth quarter and full year 2021. This call is complementary to that presentation. Joining me today are Ternium's chief executive officer, Mr. 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 the 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 of today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday.

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

Maximo Vedoya -- Chief Executive Officer

Thank you, Sebastian. Good morning, and thank you all for joining us today. 2021 was an amazing year for Ternium. EBITDA reached $4.9 billion, close to four times the previous year's level.

Net income was $4.4 billion and earnings per ADS were $19.5, almost five times earnings in 2020. All of these are record levels. Last year, Ternium also finished latest expansion program with the start-up of new state-of-the-art hot rolling mill at the Pesqueria facility in Mexico and rebar rolling mill greenfield project in Colombia. On top of these very positive results, the company had significant cash generation with free cash flow at $2.1 billion, which took our balance sheet to a net cash position.

Taking into consideration the company's strong performance and its solid financial position, Ternium's board of directors proposed a dividend for the year of $2.60 per ADS, equivalent to $510 million. This represents an increase of 24% compared to 2020, and it is the highest annual dividend on record, being more than double the annual dividend level the company was paid pre COVID pandemic. Another development is the company's recent offer to acquire from Ternium Argentina, the minority participation in Ternium Mexico that Ternium does not own directly. This transaction is primarily aimed at streamlining our corporate structure.

A simplified corporate structure allows for both a more straightforward management of our operations and an easier analysis of our performance and results by our stakeholders. The offer is still being analyzed by Ternium Argentina's board of directors, and if deemed attractive, it would need to be put to the vote of its shareholders. I'll turn now to the status of our main markets, beginning with Mexico. Ternium's shipments in Mexico decreased in the fourth quarter, more than what we expected in our last conference call.

Even though the fourth quarter of the year is seasonally weak, there were additional factors that intensified the sequential fall in volumes. During the first nine months of 2021, steel consumption grew significantly in Mexico. In an environment of increasing steel prices with the local steel industry working at full capacity, there was a large increase in import orders to cover for the extra need of the market. In the fourth quarter, where steel prices began to fall, imports arriving with a longer lead time as a result of supply chain disruption caused an increase in inventories and a decrease in apparent demand by the end of the year.

In addition, an unexpected persistence of the semiconductor shortage for vehicles manufactured continue impacting Ternium's shipment, as the auto industry represents about a quarter of our sales volume. This was not the only affected sector, as other industrial customers have been dealing with a similar environment. Our current view is that steel imports into the region will decrease in part due to the significant steel correction over the last few months. In addition, further normalization of the availability of semiconductor should support a recovery in apparent steel demand and a consequent increase in Ternium's volume, something that we're already seeing in the first quarter of the year.

The company is ready for such scenario as its new hot rolling mill in Pesqueria continues to ramp up with the first million tons of production milestone already behind us, and with a whole new range of products at its disposal to run any subsequent imports in the Mexican market. Let's review now the situation of the Argentinian market. Shipments in Argentina have been steady during 2021, with a very healthy sales level, especially in agribusiness, the automotive industry and construction, and we expect this to continue for the rest of the first quarter. Having said this, there is a high degree of uncertainty regarding Argentina's macroeconomic environment in... [Technical Difficulty]

Questions & Answers:

Operator

Ladies and gentlemen, this is the operator. There is a slight technical delay. Please remain on the line.

Sebastian Marti -- Investor Relations and Compliance

Hello. Can you hear us now, Maximo?

Operator

Sebastian, you are live. We have lost Maximo.

Sebastian Marti -- Investor Relations and Compliance

Thank you.

Pablo Brizzio -- Chief Financial Officer

Hello, can you hear us? OK. Sorry, I think we have an issue with the communications. I don't know if it's Maximo. We'll work out.

As Maximo has been cut off now so let me start with my remarks. And then when we have Maximo back on line, we will continue to hear his opening remarks. So good morning to everybody. And let me start by going to the presentations and review the performance of Ternium for the full year 2021.

Sorry, Maximo, you are back in line.

Maximo Vedoya -- Chief Executive Officer

Yes. I'm sorry about that guys. Something happened here in Mexico. So I was speaking, I think, about Argentina.

I mean regarding Argentina's macroeconomic environment in 2022, although the country has recently agreed with the IMF, I think IMF, on roadmap to refinance the debt. Argentina has very low levels of international reserves, a significant fiscal deficit and high inflation. If this imbalances are not addressed appropriately, instability in the main macroeconomic variables in the country could have a negative effect in Ternium sales in the market in the year ahead. I would like now to make a quick comment regarding Ternium's sustainability initiatives.

In the last quarter's conference, I mentioned the company's carbon capture and usage capacity expansion projects in the Guerrero and Puebla facilities in Mexico. Since then, we launched the second phase of the project at the Guerrero facility with the aim at increasing by 42% our current capacity. This will result in a total CO2 capture and usage capacity of over 400,000 tons per year in Mexico, equivalent to the yearly emission of almost 90,000 cars. Let me remind you that the technology we have installed at our DRI facilities is by no means common worldwide.

These DRI models are among the greenest in the world. We have also launched a project at our slab facility in Rio de Janeiro to increase the scrap yard processing capacity with the aim at reducing the CO2 emissions rate of steel making in this location. In addition, Ternium reported its decarbonization strategy to CDP for the first time in 2020 and received a big score on the topic of climate change, in line with the steel sector average. Ternium's effort to improve its safety performance were recognized by worldsteel with the safety and excellence recognition.

And diversity, equality and inclusion continues to be a strategic topic in Ternium's ESG agenda. In December, the Human Rights Campaign Foundation, certified Ternium for the second consequent year as one of the best places to work in Mexico for the LGBT community. Wrapping up, after an outstanding year in 2021, the company expects to deliver solid performance in 2022 in a business environment, with gradually normalizing steel prices and margin. Ternium plans to leverage on its new hot rolling mill in Pesqueria and healthy apparent steel demand in its main market in the USMCA.

This, together with positive expectation for [Inaudible] in the year to come, should put the company in a position to sustain attractive returns to its shareholders and to analyze opportunity for further profitability growth initiatives. OK. I'll finish my remarks here. And Pablo, please go ahead with the review of the quarter and the full year performance.

Pablo Brizzio -- Chief Financial Officer

Thank you, Maximo, and good morning to everybody. I'm sorry for the inconvenience we had. So let me go back to comment on the presentation that we have today and reviewing Ternium performance for the full year 2021 and then I will be analyzing the performance of the quarter. So if you go to Page 3 in the webcast presentation, in this slide, you can assess the magnitude by which Ternium results in 2021 outpaced those of previous years.

Regarding consolidated steel shipments volumes were higher year over year in 2021, although they remain below the levels achieved in 2018 and 2019. The reason behind this was significant volume of slabs shipped to third party that followed the acquisition of Ternium Brasil in September 2017, as you can see in the chart. Ternium progress with the integration of the slab facility in Brazil, its volumes eventually [Inaudible]. The increase in finished steel shipments in 2021 reflected the ramp-up of Ternium's new facilities in Colombia and Mexico and the recovery in steel demand.

Looking forward, we believe that large ships to third-parties will stay at current or slightly lower levels, while finished steel shipments will continue growing as we increase our presence in our main markets particularly in the USMCA region. The EBITDA margin in 2021 reflected increase in steel prices along the year. Plate and pipe steel prices reached record levels in September 2021 and then started to decline, yet the prices remained at very good levels, with enough space for healthy margin despite increase in cost. Good profitability levels and continued strength in the steel demand supports our expectation for an overall solid performance for Ternium during this year 2022.

In the bottom right chart, you can review the increase in dividend during the last few years. As for the year, the current year that we're discussing, in 2021, the company has already paid an interim dividend of $0.80 per ADS in November last year. This means that if the proposed net dividend of $0.026 that Maximo commented, ADS is approved at the annual shareholders meeting, a net dividend of $1.8 per ADS will be paid on May 11, 2022, with record date of May 6, 2020. We expect to pay an interim dividend again in November of this year.

Cap review on Page 4, the cash flow generation of 2021. Cash flow from operations was the strongest ever even after factoring in a working capital increase of the same magnitude. A large period of the increase in working capital was related to higher steel prices, but it has an effect on the value of trade receivables and also the increase in raw material costs with an effect on the value of inventories. That is also reflected in increase in the volume of steel products related in part to the ramp-up of Ternium's new facility and also to the recovery of the demand.

Turning now to the free cash flow. The figures for 2021 was also the strongest on record. Capital expenditures during the year remained within Ternium's usual range. The company concluded the expansion plan during the first half of last year.

And for this year 2022, we expect Ternium's capital expenditure to increase a little bit compared to last year, with a base of approximately $600 million without considering any further expansion plan. Let's turn now to Ternium's performance in the fourth quarter in the following page. EBITDA in the last quarter of the year was down sequentially, but remarkably strong by historical standards. The result led to net income per ADS of $5.08, also a solid performance.

Looking forward, Ternium expects EBITDA to remain at healthy levels by historical standards in the first quarter of 2022. The sequential decrease reflecting lower margin partially offset by higher consolidated steel shipments. Going out to achievements, let's analyze the performance in each of our markets on Page 6. In Mexico, you can clearly see how is the situation, we have already described effective volumes in the last quarter.

Again, we believe that by nature, this is a short-term situation. In the Southern Region, shipments were relatively stable and the asset that market had [Inaudible]. And in the Other Markets region, shipments increased sequentially, mainly due to higher finished steel shipments in all of Ternium markets, partially offset by lower shipments of slabs to third party. Looking forward, we expect finished steel shipments increase in the USMCA region in the first quarter of this year.

The slabs volumes, on the other hand, should decrease a little bit more in the coming period. Next page, Page 7. You can see that combining the development, we have consolidated with reshipment of 2.8 million tons in the fourth quarter, down 8% compared to the third quarter and the prior year same period. Let's analyze now steel prices and net sales.

The fourth quarter, there was a light sequential increase in revenue per ton with increases in all of markets because of the reasons that we have just described. In Mexico, contract prices sequentially increased in the fourth quarter, more than offsetting a decrease in benchmark steel prices that began back in September. While in Other Markets region, there was a positive impact of the higher participation of finished steel shipments over slabs, an environment of lower spot fuel prices in these markets. Looking forward, we expect sequentially lower realized steel prices in the third quarter of the year, with revenue per ton reflecting recent decreases in spot prices, a partial offset of the longer-dated contracts that we present as usual with [Inaudible].

Moving on to the next page. We knew now the main drivers behind the sequential changes in EBITDA and net income. The EBITDA chart on top shows the impact on EBITDA of lower shipments and higher cost per ton. Costs were higher as a result of an increase in raw material and purchased slab prices that, as usual, are reflected in our cost structure with the last [Inaudible] accounting methodology.

These negative effects were partially offset by an increase in revenue per ton as already discussed. Just below shows that the sequential decrease in net income in the fourth quarter was mainly driven by changes in operating income and its impact on income tax. Now to finish the presentation, let's turn to Page 9 to review Ternium's cash flow and balance sheet performance on a quarterly basis. Cash flow operations in the fourth quarter was strong $1.1 billion as working capital increased much less than in previous quarters.

There was an increase in inventory, volume of steel products in the quarter, but it was partially offset by a decrease in trade receivables. Strong cash from operations, significant increase in free cash flow in the fourth quarter with capex remains relatively stable, as a result, the net cash position of $1.2 billion by the end of the year in December. Our current expectation is that Ternium will continue showing healthy cash generation during 2022. All right.

Thank you very much for your attention, and we are now ready to take any questions that you might have. Please, operator, proceed with the Q&A session. 

Operator

[Operator instructions] The first question is from Caio Greiner with BTG Pactual. Thank you. Please go ahead. Your line is open. 

Caio Greiner -- BTG Pactual -- Analyst

Yes. Hi. Thank you. Good afternoon, everyone.

So I have two questions. The first one, I wanted to explore your outlook for the first quarter. So on the release, you mentioned an expectation of lower sequential EBITDA and I wanted to get a little more color on two topics regarding that, which is cost and realized prices. And so on costs, I was wondering if you can maybe share your expectations for the first quarter, if you still see rising cost pressuring your results and where is the pressure mostly coming from.

And on prices, I mean, we do have a good visibility on your revenue per ton one quarter ahead. So if you could just maybe share your impressions of flat steel prices in North America, if you are already seeing any signs of a bottom anytime soon, it would be very helpful. And my second question, on capital allocation. I mean the company generated very strong free cash flow in the quarter.

You guys are already at a $1 billion net cash position. And I think the main question here is, what can the company do to move back to a more efficient capital structure? We have seen your dividend proposal. I mean -- and I was wondering if this is not the time to maybe be more aggressive, become more aggressive on cash returns considering the company is at such a solid financial position. Are there any plans to maybe have a formal written down dividend policy, maybe even based on free cash flow generation? And if this is not the case, it would be great to hear management's capital allocation plans for 2022.

Thank you very much.

Maximo Vedoya -- Chief Executive Officer

Well, thank you very much, Caio, and good morning. The first question, regarding cost, which -- I mean, the cost -- in the fourth quarter, the costs increased by roughly $100 per ton. Mainly the cost issues of that increase was slab purchases, iron ore, coke or carbon coke or metallurgic coke. As you know, the inventory put in free fall rate, so it's a little bit of luck.

What we are saying for the first quarter is that we are not going to have an increase or a substantial increase in cost. It's a very small increase. Regarding prices and the quarter now, I think, we talked of this in the several conference calls, in the last two conference calls, we were seeing that prices, especially in the USMCA region, we're going to discrete. I mean the gap between the USMCA prices and the rest of the world was very, very high.

And we even talked, I think, in one of the conferences that we were going to see a new normal bottom price of around 1,000 tons. We are still seeing the same thing. I think the decrease was a little bit more steep than what we thought, to be honest, but we are seeing the same thing. And another issue, so it's kind of coming to the bottom, I think, in this quarter or early next quarter.

I am not -- we are not seeing a decrease much longer than that. For the other -- on the other hand, prices in Europe and in Asia are starting to increase a little bit, and raw material costs are high. So I don't think there's room for decreases more than that. The second question, Pablo?

Pablo Brizzio -- Chief Financial Officer

Yes. The second question, Maximo, is related to capital allocation. Let me start with just one comment, and then I'll pass over to you for further comments. We have been -- I think that the company has been growing its intention to reinforce the distribution of dividends and allocating to shareholders part of the return that we have been generating during this year and trying to come up with something that is sustained over longer time.

So as we have described in our opening remarks, both Maximo and myself, we have been -- or the board of directors proposed a dividend that it is reflecting a dividend yield of more 6% or more. And of course, because of the extraordinary level of results, probably the payout ratio is below the traditional one that we paid, but we have also introduced biannual dividend payment. So an interim dividend around November, and the full dividend announced by now paid in May. So all in all, we have reconfirmed the increase of the level of dividend paid and as was mentioned during the opening remarks, is more than double the level of dividend that we had prior to the pandemic levels.

And as we always mentioned, we have a track record of increasing and sustaining our dividends, and this should be the case for Ternium in the coming years. So this is in relationship to dividend payment. And it's important for Maximo to mention on certain things in relationship to capital allocation for the coming years. Just one small thing before turning the word to Maximo is that this year also, we will have important payments that we will need to make, basically tax payments that will reflect the good results that we had last year.

So it will be some need of cash that we will have for this year. But I think that the most important part is how we are envisioning capital allocation and projects for the coming year. So Maximo, I think on this topic, you would like to comment.

Maximo Vedoya -- Chief Executive Officer

Yes. And taking your question, Caio, of capital allocation, let me comment something. As you know, and you asked you guys in the last -- about some projects of what we were thinking. And we are continuing analyzing process of growth.

We think we have a very solid operation in Brazil, in Mexico and Argentina, and there's a lot of opportunity to grow. So as you may have seen in the Mexican press, yes, today, we are in the final stage of launching a new expansion initiative to complement all these capabilities we have in the Pesqueria facility. This particularly new expansion would include pickling line, a second cold rolling mill, a third galvanizing mill, and several finishing lines. The capex that was put in the press is around $1 billion, which is what we expected this particular capex to take.

And this will bring us the ability to increase our value-added products that today we have with the new hot rolling mill. So today, we have a 4.5 million state-of-the-art hot rolling mill. Part of that material is going to go to our own. Part of that material is going to go to the market, because we didn't have that capability.

But also these new facilities will allow us to increase our value added significantly in the future. So that's another thing that I wanted to comment, because there are several projects on the pipeline. This is one of them. I hope with this, Caio, we answered the question.

It was a little bit long. Sorry about that.

Caio Greiner -- BTG Pactual -- Analyst

No, no. No problem at all. I'll leave the other questions to the other analysts. Thank you so much, gentlemen. 

Operator

Your next question comes from Rodolfo De Angele of J. P. Morgan. Please go ahead.

Your line is open. 

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

OK. Hi, everyone. My first question is on the volumes in Mexico. My understanding is, while there was the impact of imports arriving in the fourth quarter.

And Maximo, you mentioned inventory levels going higher in Mexico. So I just wanted to ask you how do you see this situation of imports and inventories into the first half of the year or maybe better, how -- when do you expect to see it normalizing? A second question I have is just -- this is a short one. On the increase in capex, is that related to the fact that now with Pesqueria, you have a bigger kind of sustaining capex? Or is there anything in addition to that? And my final question is on -- still on capital allocation. If you look at just the past.

The story of Ternium was marked by many important transformations, right? And the company grew to have a footprint now in the key markets in the Americas, so very present in Mexico and Brazil, which was a gap in the beginning and in other regions in Latin America, including Argentina. And when you sit down with your board today, is that -- aside from opportunities like adding value to the Pesqueria plant. Is this kind of the final drawing, the final picture that you foresee for the company? Or aside from opportunities like increasing value at existing lines, is there anything else? Is there a new geography? Is there something else that is an ambition for the company as we look forward?

Maximo Vedoya -- Chief Executive Officer

Thank you, Rodolfo. Let me start with the volumes in Mexico and try to explain it a little bit what happened and where we see 2022. As I said in my initial remarks, consumption in Mexico recovered very strongly. I mean, if you take 2020 to 2021, apparent consumption of steel increased more than 20%.

And if you take apparent consumption in the U.S., which is also kind of an integrate market, increased 22%. So there's a huge increase in consumption and this increase in consumption, both in the U.S. and in Mexico happened mainly in the first nine months of the year. So our customers and customers of our competitors, they -- we couldn't as an industry fulfill all the needs of our [Inaudible].

I mean our ramp-up of Pesqueria started in July. And so we couldn't get that capacity on time. So most customers in both sides of the border in the U.S. and Mexico started importing more probably than what they needed.

And there was a huge lack in imports. I mean, imports usually takes four to five months. And in some cases, because of the disruption of the supply chain, because of vessels and ports congestion, this went to six, seven or eight months. So lot of the imports that were supposed to come in the second or third quarter arrived in the fourth quarter.

And so that's for our customers, the way of putting inventories normal was not receiving shipments from the local suppliers. And I think this happened to all the companies in the region. Additionally, what all -- that the fourth quarter also the automotive industry has problems with semiconductors and that [Inaudible] in any plan, not even in the auto companies. We are seeing that this is stabilizing.

I mean, imports are coming down. In January, they were down, probably they're going to be down in February and March. In December also, they were down. And we are seeing an increase in our book orders for the first quarter and also for the second quarter, so I think all this is normalizing, and we are going to see, at least from the first -- the fourth quarter, an increase in the first quarter and the second quarter.

I think with that -- another issue is that both in the U.S. and Mexico are going to grow in consumption in 2022, although not at the rate of last year, but at least 4%, 5% increase in consumption. So volumes are normally starting to increase. So we are very confident that we are going to be able to attack these imports much better now that we have the capacity.

The second question was about capex. Pablo?

Pablo Brizzio -- Chief Financial Officer

Yes. yes. The second question was in relationship to the level of normalized capex. So, Rodolfo, here, in fact, if you look at the capex in the last couple of years without taking into consideration the expansion plan that we finished beginning of last year, we are basically over what was normalized capex of around $600 million per year.

This is, of course, not only maintenance capex, as you are right, with the new facility, we will have an extra additional maintaining capex, but this also is including some other small projects that we usually have. And some announcement that we made in the past in the process of decarbonization or some safety initiatives that we have. So in a regular basis, $600 million is a normalized capex. And again, this is not included for just Maximo mentioned on the final stage of the new capex plan that we have.

So this is -- we would say the normalized capex. So Maximo, the third question was in relation to capital allocation. So I'll pass it over to you.

Maximo Vedoya -- Chief Executive Officer

Yes. Thank you, Pablo. And Rodolfo, capital allocation, as I said, besides this new plant in Pesqueria, which is pointed out to make more value-added products, which I think there's a huge opportunity. The -- I mean we are seeing more opportunities.

Clearly, you talk about new regions. Ternium -- are you listening? Yes. No?

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

I can hear you. Yes, I can hear you.

Maximo Vedoya -- Chief Executive Officer

Perfect. Sorry, sorry. So we think Ternium as a company that's going to be dedicated probably to Americas. I remember some conference calls ago that if we are going to seeing things in Europe or other regions.

No, we are seeing a lot of opportunities, and I think we have a lot of opportunities in North America. Mexico clearly with nine million tons of imports is a huge place where we have to grow. As I said before, in 2027, we have to be compliant in the melted and poured for the automotive industry. So we are going to be compliant to that.

We announced a couple of months ago, our new investment in the U.S. for almost doubling the capacity in our Shreveport facility in Louisiana. So I mean, our growth, but it's regarding the Americas, and as I said, we see several opportunities. I hope with that I answered the question, Rodolfo.

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

Yeah, I know you do. Thank you very much. 

Operator

Your next question is from Caio Ribeiro of Bank of America. Please go ahead. Your line is open. 

Caio Ribeiro -- Bank of America Merrill Lynch -- Analyst

Yes. Good morning, everyone. Thank you for taking my questions. So my first question, moving back to cash returns.

And I know that this has been a recurring theme for the company and over the past quarters. But with Ternium, net cash at $1.2 billion, that seems like a very conservative level for the company, right? And even with steel prices continuing to drop ahead, we still see the company generating significant free cash flow this year. So this net cash position should increase further. And I know you aren't looking to implement a formal dividend payout policy, but why not set a net debt target for the company, right? In that way, whatever net debt levels are delivered below that target can be interpreted as excess cash by the market.

And this could potentially provide more visibility on what to expect in terms of cash returns ahead without committing to a dividend payout policy. So I just wanted to get your thoughts on that and whether you have a level of net debt in mind today that you consider a sustainable long-term target for the company. And then secondly, still on cash returns, I just wanted to hear from you whether it could make sense to announce a buyback program, especially given that your shares are trading well below historical average multiples? Thank you. 

Pablo Brizzio -- Chief Financial Officer

OK. Let me take, if you allow me, Maximo, all these questions. In relationship to cash returns, of course, there is always the possibility of doing what you said. But I'm believing or we believe that the company is directly or indirectly moving into that direction, but by being quite consistent in the way it distributes returns to the shareholders without having a specific scenario on percentages of net income or a targeted net debt, above that distributing what we have.

This has not been what we have done in the past, because as you look at the numbers of the company, looking at the industry, as you know the industry with the volatility, the thing that they have is difficult to have, especially the target on net debt as a way to manage the company. What the board of directors or the company is trying to do is that we have a way in distributing and returning to the shareholders in a sustainable way and whenever we can increase, we have do that. And now with the good results of the company and the perspective of sustainable results, of course, not at the level of 2021, we more than doubled the level of returns and dividend payments. And we are -- and we, of course, need to sustain these new efforts.

We have never had a targeted net debt because -- well, this is not the way we believe a company like ours should work. We have -- this is not the first time that we are in a position to be net cash. As I was mentioned in the prior question, this year, we have different payments that we need to make in relationship to not only capex, but also taxes, dividend. So the allocation of funds for the year, I think, are quite clear and taking also into consideration what Maximo mentioned in relationship to the capex plan that's in the last stage of being implemented.

And we do not forget that we have also have an offer in place in to buy back shares of Ternium Argentina holdings in Ternium Mexico. So this is another transaction that is still in the table. And if this transaction moves forward will be very positive for Ternium and will require some additional cash utilization. So all in all, this is the way the company has been working with bank, and we took in the past, recommendations from your side.

And that's why we have been increasing and sustaining the dividend [Inaudible]. The issue of buybacks, which is another issue that we frequently discussed with you, clearly, is something that we never rule out as a possibility, but then we have the issues of the level of floating that the company has, and you need to factor in everything to take this into consideration. So it's something that the company can do at some point. Again, we will not rule out that.

We also need to take some other things into consideration because if we pull into that direction, we will need to do it in a manner with which we will not turn the level of floating that this company would need. We don't have the high number of floating. So it's something that we need to take also into consideration. So again, summarizing something that we can do at some point, but we need to take other things into consideration to sustain the good viability of the company to the market.

Caio Ribeiro -- Bank of America Merrill Lynch -- Analyst

OK, understood. Thank you, Pablo.

Pablo Brizzio -- Chief Financial Officer

You're welcome. 

Operator

Your next question comes from Carlos De Alba of Morgan Stanley. Please go ahead. Your line is open.

Carlos De Alba -- Morgan Stanley -- Analyst

Yeah. Thank you very much, everyone. Happy to hear. So the question I have is a follow-up maybe to the investment programs.

So this one, how much is the total investment in dollars that you expect for these finishing lines that I guess would add value to the new hot-rolled coil? And also, I guess how does this affect in any way the timing of a potential electrical furnace in Mexico? Can you comment on that, Maximo. How are you seeing that investment to increase not only the value-added to what you currently have, which is what you just mentioned, but also increased crude steel capacity in the region? And then a couple of other ones. Just -- could you give us a color on the mix by hot-rolled coil, cold-rolled coil, galvanized, rebar of Ternium Mexico operation given how prices have moved, I think this is relevant. And then finally, in terms of the transaction with Ternium Argentina for their stake in Ternium Mexico.

Any update on the potential timing of this transaction, when -- if everything goes well, when would this be closed?

Maximo Vedoya -- Chief Executive Officer

OK. Thank you very much for your questions, Carlos. Let me take the one -- the first one, the investment. The investment we think is $1 billion to this Pesqueria facility.

The rationale behind this investment is that the market -- I mean, we have now the hot-rolled mill. We have the availability to produce any product in hot-rolled mill, but also the market is needing value-added products like cold rolled, peaking or galvanized. So the rationale is -- I mean, putting -- I mean, going after the imports of hot rolled -- those also were us from -- for the Ternium facility, remember. But also going to the rest of the imports, usually in automotive and industrial customers.

So it's going to be pickling line, which is roughly 500,000 tons. It will be a new PLTCM, which is around 1.5 million tons. And it will be a new galvanized line for the industry at around 500,000 tons. That's the idea -- and then finishing line for those products.

That's the idea of this investment. Regarding the investment in steel shop, as we discussed in the past, that's something that we -- this plant is not putting a stop for that plant or anything. We are still analyzing with addition, the need to supply our automotive customers in 2027 with melted and poured in the region. So we have to comply with them.

We still have time, and that's why we are taking our time to be, which is the best way of complying that or supplying that. But I mean, there are two different plants, and we are launching this one in the next few weeks. Timing of the Argentina transaction, Pablo?

Pablo Brizzio -- Chief Financial Officer

Yes. OK, Maximo. Carlos, the transaction moves through from all the process that needs to be achieved. But the -- we haven't yet the confirmation from Ternium Argentina board of directors that needs to recommend the transaction that at the very end, will need to be approved by the shareholders of Ternium Argentina.

And this will require shareholder meeting that usually or takes around demand after the approval or a recommendation from the board of directors. And then after that, because of the complexity of the transaction and the different steps that transaction is having, it would take an additional 15 to 30 days for completion. So if the transaction is, let's say, approved at some point in the next month, it will take in total around two months for this transaction to be fully performed. But we need the first step, which is an important one, is to have the recommendation from Ternium Argentina board of directors.

So -- and this is something that the board of directors of Ternium Argentina did not yet take, and they are still considering the proposal. So we are expecting to receive comments from them. And from there, this is the timing the transaction can take. I don't know if that's clear, Carlos?

Carlos De Alba -- Morgan Stanley -- Analyst

That's helpful. So just basically most likely the second quarter, right?

Pablo Brizzio -- Chief Financial Officer

Yes. Most likely -- it's approved, most likely in the second quarter

Maximo Vedoya -- Chief Executive Officer

Yes. And Carlos, sorry, you asked also about the share of products in Mexico, I think. So if you took in years numbers, rebar [Inaudible] long product is about 1.2 million tons. Then the capacity of galvanized and painting products, it's around -- I mean, 2.4 million to 2.5 million galvanized.

And then 0.8 million tons of prepainted products, but they use galvanized, those prepainted products, and the rest is cold rolled and hot rolled.

Carlos De Alba -- Morgan Stanley -- Analyst

And the total capacity just in Ternium Mexico is around what eight million tons or nine million tons.

Maximo Vedoya -- Chief Executive Officer

Yes. The total capacity of hot roll today -- of course, we are in the ramping up of the hot rolled in Pesqueria. It's -- the cold rolled capacity is 10 million tons and rebars and wire rod, 1.2 million tons of hot rolled.

Carlos De Alba -- Morgan Stanley -- Analyst

And is it fair to assume that you aim to maximize, run at full capacity, the painting line, the galvanizing line and then whatever you cannot use there, you produce cold-rolled coil?

Maximo Vedoya -- Chief Executive Officer

Exactly. We usually run full capacity [Inaudible] as line. Galvanized also supply the full capacity of repainting products. Cold rolled capacity is around four million tons, a little bit less than four million tons.

We used to run the -- we, most of the time, run the cold rolled mills up to full capacity. And today, we are aiming to run the Pesqueria mill at full capacity, to run the long products facilities at full capacity, to run the [Inaudible] at full capacity. And the cold rolling mill meaning to [Inaudible] is the one that is going to not be run at full capacity, at least in the year -- in this year, but we are thinking that in 2023 or 2024, should be running at least very close to full capacity.

Carlos De Alba -- Morgan Stanley -- Analyst

Thank you very much. 

Operator

Your next question is from Timna Tanners of Wolfe Research. Please go ahead. Your line is open. 

Timna Tanners -- Wolfe Research -- Analyst

Yeah. Hey. Good morning, everyone. Hope you're doing well.

Maximo Vedoya -- Chief Executive Officer

Yeah. Thank you, Timna. Good morning.

Timna Tanners -- Wolfe Research -- Analyst

Good morning. I just wanted to follow up a little bit on the Pesqueria comments and understand a little better. First off, I wanted to ask you about how you see the addressable market of that mill. There's been definitely a Ternium tons shipped into the U.S.

makes perfect sense. The U.S. has shipped to Mexico. But just thinking, is that the addressable market and entire North American market? Or is this just kind of a temporary situation until the downstream is expanded? And then how do you think about the full production? In the past you talked about ramping up gradually, but I just heard you say full capacity.

Is that 4.5 million, is that a little less that you're shutting? Just wanted to clarify that. And then finally, if you could just discuss the timing of when we should be expecting some of these lines to come on and the capex to come through? Thanks a lot.

Maximo Vedoya -- Chief Executive Officer

OK. Thank you very much. Timna, I try to answer all of them. I mean cost projects are thinking mainly for the Mexican market and some exports to the U.S.

But our main objective is the Mexican market. As I said, if you take 2021, Mexico imported nine million tons -- I don't know if you hear me well, because I'm hearing some noises.

Timna Tanners -- Wolfe Research -- Analyst

I hear you. I've put myself on mute since I'm in the conference. Yes, I hear you.

Maximo Vedoya -- Chief Executive Officer

OK. Perfect. Sorry. So Mexico imports nine million tons of flat products.

Of those, roughly four million are hot-rolling products, 2.5 million galvanized, and the rest cold rolled basically. So there's a huge market for us, and that's the main aiming of that. U.S.A., for us, it's also an important market, although we are not seeing that we are going to take our investment case to export everything to the U.S. But some of our products are going there, and we expect it to grow a little bit there, probably some of the U.S.

mill wanted to grow a little bit in Mexico. Regarding the second question, we are expecting the hot rolling mill in Pesqueria to be running at full capacity, at least at 80% of utilization, which is a normal thing for this around July, August, September. But as I said, we were going to decrease a little bit the production of the [Inaudible] mill. In overall, we should increase hot mill production in 2022 by around 1.8 million tons.

Of that, some is going to market and some is going to replace our imports from Japan. So I think that's the second question. And the third question, Timna, sorry, I forgot.

Timna Tanners -- Wolfe Research -- Analyst

Yes, It was just about the timing of the investments and when we should start thinking about the additional value add to come through to greater average realized selling prices?

Maximo Vedoya -- Chief Executive Officer

Yes. As I said, -- when I answered the first question, I think, was Caio. We are in the final stage of this. We didn't have yet the board approval, although we discussed it in deeply yesterday and it's probably going to be approved shortly.

And we expect that this is coming online in around three years. I think some of them are coming a little bit earlier and some of them probably because of the equipment delivery a little bit later, but roughly three years.

Timna Tanners -- Wolfe Research -- Analyst

OK. Thanks again, and thanks always for your candor. I appreciate it. 

Operator

Your next question is from Isabella Vasconcelos of Bradesco BBI. Please go ahead. Your line is open.

Isabella Vasconcelos -- Bradesco BBI -- Analyst

Hi. Good morning, everyone. I have just one question. I think most of the points have already been addressed.

But also in terms of capital allocation, and I had some connection issues, so hopefully, I'm not making you repeat yourself. But just to understand, it seems that you're going to the organic growth line in terms of future capacity, but are you analyzing inorganic growth opportunities in the Americas, Brazil or even in Mexico and the U.S. That's my question.  Thank you.

Maximo Vedoya -- Chief Executive Officer

Thank you. Yes. Thank you, Isabella. As we always said, we are always analyzing opportunities, and we have a track record of doing this in a very, I said, responsible way.

If you add today, we have nothing special in our pipeline today, but these things arouse, and we always are analyzing these opportunities.

Operator

Your next question is from Leonardo Correa. Please go ahead. Your line is open.

Leonardo Correa -- BTG Pactual -- Analyst

Yes. Hello. Good morning, gentlemen. I hope you can hear me.

Good morning, Maximo, Pablo, Sebastian. Thanks for the follow-up here. OK. So just a quick one for me.

I think most of the issues have been addressed. Thanks for all the color and visibility guys. Just on -- still on the topic of rerating, right, we've been seeing -- I mean, we've been covering the company for a while, and it's always a similar level, which is highly depressed. Now we're going through a global movement, which is a significant derating.

So Ternium is not alone, right? We see guys like Mittal and others, trading at 40%, 50% discounts. I mean you guys announced a move in December, which was somewhat unexpected, right, the buyout of minorities in Mexico. I mean what else is on the agenda, if you can elaborate a bit? I know that the dividends and buyback story is quite clear to me from what you guys have been indicating. But is there anything else on the potential corporate simplification still that's pending? Or there's always the issue of [Inaudible] Argentina, right, where there is a minority stake, I think, from the pension funds, which could be bought out.

The dual listing issue has been historically also a pending issue. I mean, is there anything that you guys have been considering at this point to try to change the situation on the company.

Pablo Brizzio -- Chief Financial Officer

Let me take this question, Maximo. We have different ideas of different possibilities. The ones that we consider feasible are the ones that we are trying to achieve. Here, we are not in relationship to the transaction in Argentina is trying to have 100% of the closing of Ternium Mexico by Ternium and not having part of that holding directly owned by Ternium Argentina.

So this will very much simplify the corporate structure of Ternium, if this transaction moves forward. You know that is something that we have been discussing many times. After and if this transaction is completed, Ternium corporate structure will be basically what we would like to have. We have been simplifying the corporate structure for many, many years now.

Since we started growing internationally, we acquired many different companies. So it has been a constant work to simplify the corporate structure. And this step was an important step for us. And we think that we have the chance and the possibility of achieving that, but we would need to see if this is happening.

We have been analyzing and of course, we have been discussing with a lot of you in this call, these alternatives. They do a listing, unfortunately, it's not an opportunity at the [Inaudible], because of the reason that you know. And just [Inaudible] now probably the only place where we can achieve that in Argentina, and clearly, it's not the path to follow at the moment. But we are open, as we have discussed in the past, the idea of moving from one year dividend to at least twice a year.

The payment, we already did that and we did that. So we are analyzing alternatives, possibilities. And you need to see when are these alternatives [Inaudible]. So we are open and we have been always trying to analyze, which is the best way for us to have a better not only corporate structure, but a better relationship with all our stakeholders.

So -- we are open. We are open. We are always analyzing alternatives, but we need to see if that is achievable or not. So up till now, we are, at this point, we think that we are moving in the right direction and anything that help in the future, clearly, we will keep analyzing.

Operator

Your next question comes from Caio Greiner of BTG Pactual.

Caio Greiner -- BTG Pactual -- Analyst

My question has been answered. Thank you.

Operator

There are no further questions at this time. I will now turn the call over to the CEO for closing remarks.

Maximo Vedoya -- Chief Executive Officer

OK. Thank you very much to everybody for the interest and for the very good questions. I really appreciate your participation. And as usual, if you have any additional questions, any feedback, please don't hesitate to call us.

I see you in around three months in the next conference call. Have a nice day. Thank you very much.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Sebastian Marti -- Investor Relations and Compliance

Maximo Vedoya -- Chief Executive Officer

Pablo Brizzio -- Chief Financial Officer

Caio Greiner -- BTG Pactual -- Analyst

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

Caio Ribeiro -- Bank of America Merrill Lynch -- Analyst

Carlos De Alba -- Morgan Stanley -- Analyst

Timna Tanners -- Wolfe Research -- Analyst

Isabella Vasconcelos -- Bradesco BBI -- Analyst

Leonardo Correa -- BTG Pactual -- Analyst

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