Ternium S.A. 2023 Sustainability Report Summary
Business Context and Reporting Period
This Form 6-K filing furnishes Ternium S.A.'s Sustainability Report 2023, covering the period ended December 31, 2023. Ternium is a leading integrated steel producer in Latin America, with operations primarily in Mexico, Argentina, Brazil, and Colombia. The report details the company's economic, environmental, social, and governance (ESG) performance, including the consolidation of Usiminas (Brazil) starting in July 2023 following an increased stake acquisition.
Key Financial and Operational Metrics
- Revenue: Net sales totaled $17.6 billion, a 7% increase year-over-year.
- Production Volume: Steel shipments reached 14.2 million tons, a 19% increase from the prior year.
- Profitability: Adjusted EBITDA was $2.7 billion with a margin of 16%. Net income attributable to shareholders (adjusted for non-cash accounting effects) was $1.7 billion.
- Cash Flow & Liquidity: Net cash provided by operating activities was $2.5 billion. Free cash flow was $1.0 billion after capital expenditures of $1.5 billion. The company ended the year with a net cash position of $1.9 billion.
- Dividends: The annual dividend was increased by 22% to $3.30 per ADS.
- Capital Expenditures: Total Capex was $1.5 billion, driven by growth projects in Pesquería (Mexico) and the consolidation of Usiminas.
Material Changes vs. Prior Period
- Usiminas Consolidation: Ternium increased its stake in Usiminas to 51.5% of the control group in July 2023, leading to full financial consolidation. This contributed significantly to the increase in Brazilian steel shipments (2.0 million tons) and total volume.
- Market Dynamics: Mexican shipments grew 22% to a record 8.4 million tons, driven by nearshoring and infrastructure investment. Conversely, shipments in the Southern Region (Argentina) declined due to government restrictions on foreign exchange and import inputs.
- Safety Performance: The Injury Frequency Rate (IFR) increased to 2.45 (from 2.22 in 2022), and the Lost Time Injury Frequency Rate (LTIFR) rose to 0.68. The year recorded two fatalities involving contractors at mining facilities and one fatality at Usiminas.
- Decarbonization Targets: Ternium revised its 2021 emissions target. The new goal is a 15% reduction in emissions intensity by 2030 (vs. a 2023 baseline), now including Scope 3 emissions (raw materials and hot rolling) and utilizing the GHG Protocol methodology.
Outlook, Risks, and Management Commentary
- Investment Strategy: Management is advancing a new cycle of investments at the Pesquería industrial center in Mexico, integrating electric steelmaking (DRI-EAF) and natural gas-based direct reduction to produce low-carbon steel for the automotive sector. Commissioning is expected between 2024 and 2026.
- Renewable Energy: A wind farm in Argentina is under construction and expected to be operational by the end of 2024, providing 90% of the electricity for Argentine operations.
- Key Risks:
- Trade & Competition: Significant risk from unfairly traded steel imports from China, particularly impacting the Brazilian market where Chinese flat steel imports exceeded 80% of total imports.
- Macroeconomic: Argentina faces short-term economic downturns due to fiscal adjustments and inflation control, though long-term stabilization is anticipated.
- Climate & Physical Risks: Exposure to extreme weather events (droughts, heavy rains) affecting raw material supply and operations. Transition risks include evolving carbon pricing and emissions regulations.
- Community Relations: Potential for operational disruptions due to community disputes or violence in mining regions, particularly in Mexico.
Investor Verification Checklist
- Usiminas Integration: Verify the full financial impact and operational synergies of the Usiminas consolidation in upcoming quarterly reports.
- Argentina FX Restrictions: Monitor the impact of Argentina's foreign exchange controls on Ternium's ability to repatriate earnings and import necessary inputs.
- Safety Metrics: Track the effectiveness of new safety protocols following the 2023 fatalities, specifically regarding contractor management in mining operations.
- Decarbonization Progress: Assess the timeline and cost of the Pesquería DRI-EAF project and the Argentina wind farm to ensure alignment with the revised 2030 emissions target.
- Chinese Import Impact: Evaluate the efficacy of Brazilian government measures to curb Chinese steel imports and their effect on Ternium's market share in Brazil.