Business Context and Reporting Period
Company: Ternium S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: April 30, 2015
Reporting Period: This filing primarily addresses the status of the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2014, and provides updates on financial statements as of March 31, 2015. The Company is a leading steel producer in Latin America with operations in Mexico, Argentina, Colombia, the United States, and Guatemala.
Key Financial Metrics
Revenue and Profit (Fiscal Year 2014):
- Net Sales: USD 8.73 billion (2% increase from 2013).
- Operating Income: USD 1.06 billion (12.1% margin).
- Profit for the Year: USD 588.8 million.
- Profit Attributable to Owners of the Parent: USD 452.4 million.
- Basic Earnings Per Share: USD 0.23.
- Total Assets: USD 10.25 billion.
- Total Liabilities: USD 4.00 billion.
- Cash and Cash Equivalents: USD 213.3 million.
- Total Borrowings: USD 2.16 billion (Current: USD 1.26 billion; Non-current: USD 0.90 billion).
- September 30, 2014: USD 1,301.5 million.
- December 31, 2014: USD 1,390.7 million.
- March 31, 2015: USD 1,020.0 million (following a USD 109.7 million impairment).
Material Changes vs. Prior Period
Operational Performance:
- Steel Shipments: Increased by 4% (647,000 tons) in Mexico, offset by decreases in the Southern Region and Other Markets.
- Revenue per Ton: Decreased by USD 14 overall, driven by lower prices in the Southern Region, partially offset by higher prices and value-added mix in Mexico.
- Cost of Sales: Increased by USD 324.9 million, primarily due to higher raw material, slab, and energy costs.
- Usiminas Impairment: Recorded a USD 196.4 million impairment in Q4 2014 and an additional USD 109.7 million impairment as of March 31, 2015, due to weaker Brazilian economic conditions and lower steel/iron ore prices.
- Usiminas Acquisition: Acquired additional shares in October 2014 for USD 249.0 million, resulting in a bargain purchase gain of USD 188.9 million.
- Ferrasa Acquisition: On April 7, 2015, acquired the remaining 46% minority interest in Colombian subsidiary Ferrasa for USD 74 million.
- Dividend Proposal: Board proposed an annual dividend of USD 0.090 per share (USD 0.90 per ADS), totaling approximately USD 180.4 million.
Guidance, Outlook, Risks, and Unusual Items
Unresolved Staff Comments (Critical Risk):
The SEC Staff has issued comments regarding the carrying value of Ternium's investment in Usiminas, specifically questioning the "value in use" calculations versus fair value indicators. The Company is unable to file its 2014 Form 20-F until these comments are resolved. If the SEC determines an additional impairment is required for 2014, the Company may be forced to restate its 2014 financial statements and potentially the Q1 2015 statements.
Outlook and Capital Expenditures:- 2015 CapEx: Expected to range between USD 500 million and USD 600 million, focusing on environmental/safety projects, capacity expansion in Mexico and Argentina, and the Consorcio Peña Colorada mining project.
- Market Conditions: Outlook remains sensitive to global steel overcapacity, Chinese economic slowdown, and volatile raw material prices.
- Usiminas Governance: Ongoing controversy within the Usiminas control group regarding governance and senior management appointments.
- Argentina: High inflation, exchange controls, and restrictions on capital outflows and imports.
- Mexico: Security issues and potential regulatory changes.
- Trade: Antidumping duties and safeguard measures in key export markets (U.S., Europe).
Investor Verification Checklist
- Usiminas Valuation: Verify the resolution of SEC Staff comments regarding the Usiminas investment impairment and the potential for financial restatement.
- Argentina Liquidity: Assess the impact of Argentine exchange controls on the repatriation of dividends and cash flows from Siderar.
- Usiminas Governance: Monitor the status of the internal control group dispute and its effect on Ternium's ability to influence Usiminas strategy.
- Dividend Approval: Confirm shareholder approval of the proposed USD 0.090 per share dividend at the May 6, 2015 meeting.
- Steel Prices: Track international steel and iron ore price trends, which directly impact margins and impairment testing assumptions.