Ternium S.A. Form 6-K Summary: Q4 and Full Year 2022 Results
Business Context and Reporting Period
This Form 6-K, filed on February 14, 2023, reports the fourth quarter and full-year 2022 results for Ternium S.A., Latin America's leading flat steel producer. The company operates facilities in Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America. Financial data is presented in US dollars and metric tons in accordance with IFRS.
Key Financial Metrics
| Metric | Full Year 2022 | Full Year 2021 | Q4 2022 | Q4 2021 |
|---|---|---|---|---|
| Net Sales ($ million) | 16,414 | 16,091 | 3,546 | 4,330 |
| Operating Income ($ million) | 2,700 | 5,271 | 43 | 1,359 |
| Adjusted EBITDA ($ million) | 3,415 | 5,863 | 303 | 1,505 |
| Adjusted EBITDA Margin | 21% | 36% | 9% | 35% |
| Net Income ($ million) | 2,093 | 4,367 | 59 | 1,136 |
| Equity Holders' Net Income ($ million) | 1,768 | 3,825 | 40 | 998 |
| Earnings per ADS ($) | 9.00 | 19.49 | 0.20 | 5.08 |
| Steel Shipments (tons) | 11,896,000 | 12,065,000 | 3,020,000 | 2,827,000 |
| Free Cash Flow ($ million) | 2,172 | 2,154 | 873 | 1,013 |
| Net Cash Position ($ billion) | 2.6 | 1.2 | N/A | N/A |
Material Changes vs. Prior Period
- Profitability Decline: Full-year Operating Income fell 49% and Adjusted EBITDA dropped 42% compared to 2021. Q4 2022 saw a sequential 92% drop in Operating Income and an 80% year-over-year decline in Adjusted EBITDA.
- Margin Compression: Adjusted EBITDA per ton decreased $199 year-over-year to $287 in 2022, driven by higher costs for purchased slabs, raw materials, energy, and labor, partially offset by higher realized steel prices.
- Volume Trends: Total steel shipments were relatively flat year-over-year (-1%). Mexico shipments increased 5%, while the Southern Region and Other Markets declined 6% and 11%, respectively.
- Impairments: The company recorded significant non-cash impairments: $120.4 million for Usiminas and $99.0 million for Ternium Brasil in 2022.
- Liquidity: Despite lower earnings, the company maintained a strong net cash position of $2.6 billion at year-end, up from $1.2 billion in 2021, supported by a $2.8 billion operating cash flow.
Guidance, Outlook, and Strategic Initiatives
- Outlook: Management expects margins to normalize in coming quarters as cost per ton decreases and steel prices in the USMCA region recover. Mexico volumes are anticipated to increase in H1 2023 due to restocking and nearshoring trends. Argentina faces macroeconomic uncertainty and a seasonal Q1 decline.
- Capital Expenditures: 2023 CapEx guidance raised to $1.1 billion (from $1.0 billion). A total of $2.9 billion in CapEx is anticipated over the next four years for new projects.
- New Investments:
- USMCA Upstream Project: Approved $2.2 billion investment for a new Electric Arc Furnace (EAF) and Direct Reduced Iron (DRI) module with 2.6 million tons and 2.1 million tons capacity, respectively. Commissioning expected H1 2026.
- Argentina Wind Farm: $160 million investment to build a 72 MW wind farm, operational H2 2024, to reduce CO2 emissions and replace 65% of purchased electricity.
- Dividends: Proposed annual dividend of $0.27 per share ($2.70 per ADS), totaling $530.0 million, representing a 10 cent per ADS increase over 2021.
- Risks: Key risks include macroeconomic uncertainty in Argentina, cyclicality in steel demand, global production capacity, tariffs, and foreign exchange volatility (specifically the Argentine Peso).
Investor Verification Checklist
- Verify the reconciliation of Adjusted EBITDA to Net Income in Exhibit I to understand the impact of the $219.4 million in total impairments.
- Confirm the timeline and regulatory approvals for the $2.2 billion USMCA upstream project and its impact on future debt levels.
- Monitor the Argentine Peso exchange rate and its impact on the valuation of local assets and future repatriation of cash.
- Review the specific breakdown of "Other Markets" volume decline to assess the extent of the Brazilian slab facility integration impact.
- Validate the $2.6 billion net cash position against the proposed $530 million dividend and upcoming $1.1 billion CapEx guidance.