Ternium S.A. Form 6-K Summary
Business Context and Reporting Period
This filing presents the unaudited consolidated condensed interim financial statements of Ternium S.A. for the nine-month period ended September 30, 2024. Ternium is a global steel producer with operations primarily in Mexico, Brazil, and the Southern Cone. The reporting period reflects the full consolidation of Usiminas, following the increase in participation completed in July 2023, and the reorganization of operating segments into "Steel" and "Mining."
Key Financial Metrics
| Metric (Nine Months Ended Sep 30, 2024) | Value ($ thousands) |
|---|---|
| Net Sales | 13,772,805 |
| Gross Profit | 2,438,594 |
| Operating Income | 1,220,875 |
| Profit (Loss) Before Tax | 331,064 |
| Net Profit (Loss) for the Period | (158,990) |
| Net Profit Attributable to Owners of Parent | (334,525) |
| Basic EPS (Attributable to Owners) | (0.17) |
| Cash and Cash Equivalents (Sep 30, 2024) | 1,614,253 |
| Total Borrowings (Sep 30, 2024) | 2,186,955 |
| Net Cash Provided by Operating Activities | 1,434,617 |
Material Changes vs. Prior Period
- Net Sales: Increased 8.6% to $13.77 billion from $12.68 billion in the prior year period, driven by higher volumes and the full-year impact of Usiminas consolidation.
- Operating Income: Decreased 24.5% to $1.22 billion from $1.62 billion. This decline is primarily due to higher costs of sales and increased selling, general, and administrative expenses.
- Net Loss: The company reported a net loss of $159 million for the nine-month period, compared to a net profit of $433 million in the same period of 2023. This reversal is largely attributable to a non-cash provision of $814 million for ongoing litigation related to the Usiminas acquisition and a $210 million net loss in other financial items.
- Liquidity: Cash and cash equivalents decreased significantly to $1.61 billion from $1.85 billion at the start of the year, reflecting capital expenditures of $1.30 billion and dividend payments of $432 million.
- Debt: Total borrowings decreased to $2.19 billion from $3.57 billion at year-end 2023, indicating a reduction in leverage.
Guidance, Outlook, Risks, and Unusual Items
Unusual Items: The financial results for the nine months ended September 30, 2024, were heavily impacted by a $814 million provision for ongoing litigation regarding the 2012 acquisition of a participation in Usiminas. This follows a June 2024 decision by Brazil's Superior Court of Justice (SCJ) reversing a previous favorable ruling, potentially requiring indemnification payments to CSN. Additionally, "Other financial (expense) income, net" recorded a loss of $210 million, largely due to the recycling of other comprehensive income from the sale of investments.
Risks and Contingencies:
- Usiminas Litigation: The outcome of the CSN lawsuit remains uncertain. While Ternium believes the claims are groundless, the potential indemnification could reach approximately $601 million for Ternium Investments and $213 million for Ternium Argentina, depending on final calculations.
- Argentina Foreign Exchange: Ternium Argentina operates under significant foreign exchange restrictions. Access to the foreign exchange market (MULC) for imports and dividend payments remains restricted or deferred. The Argentine peso devalued by approximately 55% following the change in government, creating volatility in the valuation of local assets and liabilities.
- Other Litigation: An arbitration award against Ternium Mexico subsidiaries regarding gas supply was settled in October 2024, with a provision of $34.2 million recognized in the period.
Outlook: Management continues to monitor the economic environment in Argentina and the resolution of the Usiminas litigation. No specific forward-looking financial guidance was provided in this filing.
Investor Verification Checklist
- Usiminas Litigation Status: Verify the current status of the SCJ motion for clarification and the potential final indemnification amount, as this $814 million provision is the primary driver of the net loss.
- Argentina FX Exposure: Assess the impact of ongoing foreign exchange restrictions and potential further devaluation of the Argentine peso on Ternium Argentina's $1.19 billion in cash and investments.
- Capital Expenditures: Review the $1.30 billion in capital expenditures for the nine-month period to understand future capacity and maintenance requirements.
- Dividend Policy: Note the payment of $432 million in cash dividends despite the net loss, and review the sustainability of this payout given the liquidity position and litigation risks.
- Segment Performance: Analyze the "Operating income - Management view" for the Steel ($1.25 billion) and Mining ($-131 million) segments to understand underlying operational performance before non-cash adjustments.