Ternium S.A. Q1 2022 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports Ternium S.A.'s unaudited results for the first quarter ended March 31, 2022. Ternium is Latin America's leading flat steel producer with operations in Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America. The results are presented in accordance with IFRS and include non-IFRS measures such as EBITDA and Free Cash Flow.
Key Financial Metrics
| Metric | Q1 2022 | Q4 2021 | Q1 2021 |
|---|---|---|---|
| Net Sales ($ million) | 4,304.8 | 4,329.7 | 3,249.3 |
| Operating Income ($ million) | 1,059.0 | 1,358.5 | 905.8 |
| EBITDA ($ million) | 1,208.5 | 1,504.7 | 1,057.4 |
| EBITDA Margin | 28% | 35% | 33% |
| Net Income ($ million) | 877.5 | 1,135.8 | 706.7 |
| Equity Holders' Net Income ($ million) | 775.6 | 998.0 | 602.9 |
| Earnings per ADS ($) | 3.95 | 5.08 | 3.07 |
| Free Cash Flow ($ million) | 567.5 | 1,013.2 | 198.1 |
| Net Cash Position ($ billion) | 1.6 | 1.2 | - |
| Steel Shipments (tons) | 2,951,000 | 2,827,000 | 3,099,000 |
Material Changes vs. Prior Periods
- Revenue: Net sales increased 32% year-over-year (YoY) to $4.3 billion, driven by a 39% increase in revenue per ton ($1,427 vs. $1,026), despite a 5% decline in steel shipment volumes.
- Profitability: Operating income rose 17% YoY but fell 22% sequentially. EBITDA per ton decreased $122.8 sequentially to $409.5 due to lower realized steel prices and higher raw material costs, though it remained 14% higher YoY.
- Costs: Cost of sales increased $845.9 million YoY, primarily due to a 46% rise in raw material and consumables costs.
- Cash Flow: Operating cash flow was $692.3 million, impacted by $867.6 million in income tax payments (mostly a 2021 balance in Mexico). Working capital decreased by $331.4 million.
- Liquidity: The company maintained a net cash position of $1.6 billion, up from $1.2 billion at year-end 2021.
Outlook, Risks, and Management Commentary
- Guidance: Management expects EBITDA to increase sequentially in Q2 2022 due to higher realized steel prices and shipment growth.
- Market Conditions: The Russian invasion of Ukraine has disrupted global supply chains, increasing raw material costs and steel prices while introducing market volatility. Monetary tightening in Western economies is also noted as a risk factor.
- Regional Outlook:
- Mexico: Shipments expected to recover in Q2 due to commercial restocking; automotive demand is gradually improving despite supply chain constraints.
- Argentina: Shipments anticipated to slightly increase, though macroeconomic uncertainty remains a challenge.
- Unusual Items: Net financial results included a $53.4 million foreign exchange loss due to the depreciation of the Argentine Peso and appreciation of the Mexican Peso against the USD.
Investor Verification Checklist
- Verify the reconciliation of non-IFRS measures (EBITDA, Free Cash Flow, Net Debt) to IFRS figures in Exhibit I.
- Confirm the impact of the $867.6 million tax payment on future liquidity and working capital trends.
- Monitor the realization of steel prices in Q2 to validate the sequential EBITDA growth guidance.
- Assess the exposure to currency fluctuations, specifically the Argentine Peso and Mexican Peso, given the $53.4 million FX loss in Q1.
- Review the integration progress of the slab facility in Brazil and its impact on third-party slab shipments.