Ternium S.A. Form 6-K Summary
Business Context and Reporting Period
This filing contains the unaudited consolidated condensed interim financial statements for Ternium S.A. for the six-month period ended June 30, 2010. Ternium is a global steel manufacturer organized into flat steel, long steel, and other product segments. The report was signed on August 3, 2010.
Key Financial Metrics (Six Months Ended June 30, 2010)
| Metric | Amount (USD Thousands) |
|---|---|
| Net Sales | 3,577,239 |
| Gross Profit | 964,605 |
| Operating Income | 652,686 |
| Profit for the Period | 475,785 |
| Profit Attributable to Equity Holders | 392,885 |
| Net Cash Provided by Operating Activities | 532,301 |
| Cash and Cash Equivalents (Ending) | 2,637,196 |
| Total Borrowings (Current + Non-current) | 2,044,744 |
| Total Assets | 10,795,649 |
Earnings Per Share (Basic & Diluted): $0.20 for the period attributable to equity holders.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 54.5% to $3.58 billion from $2.31 billion in the prior year period, driven by higher volumes and prices in both flat and long steel segments.
- Profitability Surge: Operating income turned from a loss of $78.6 million in 2009 to a profit of $652.7 million in 2010. This improvement is largely due to the recovery in steel markets and the absence of a $27.0 million impairment charge recorded in the prior year.
- Discontinued Operations: The prior year period included a one-time gain of $428.0 million from the disposal of Sidor (Venezuela), which is not present in the 2010 period. Despite this, 2010 continuing operations profit significantly exceeded 2009 continuing operations profit.
- Debt Reduction: Total borrowings decreased by approximately $828 million compared to December 31, 2009, reflecting significant repayments of $297.3 million during the period.
- Sidor Financial Asset: The company recorded $45.1 million in interest income related to the receivable from the Venezuelan government (CVG) for the nationalized Sidor assets.
Outlook, Risks, and Unusual Items
- Acquisition Activity: Ternium agreed to acquire a 54% interest in Ferrasa S.A.S. (Colombia) for $74.5 million, expected to close in Q3 2010. This expands long and flat steel processing capabilities.
- Legal Contingency (Corus): An ongoing arbitration with Corus UK regarding the termination of a steel slab off-take agreement remains unresolved. Corus claims damages exceeding $150 million; Ternium has filed counterclaims. The outcome is currently unforeseeable.
- Sidor Receivable Risk: The company holds a receivable of $446.0 million from CVG (Venezuela) for the nationalized Sidor assets. While payments are being received, the filing notes that rights are reserved in the event of non-compliance by CVG.
- Commitments: Siderar (Argentina) has commitments for raw material purchases totaling $736.5 million and equipment acquisitions of $137.6 million, though some investment plans have been rescheduled due to market conditions.
- Dividends: A dividend of $0.05 per share ($100.2 million total) was approved and paid in June 2010.
Investor Verification Checklist
- Verify the status and payment schedule of the $446 million receivable from the Venezuelan government (CVG) regarding Sidor.
- Monitor the progress of the arbitration with Corus UK and potential liability exposure exceeding $150 million.
- Confirm the closing date and integration costs for the Ferrasa S.A.S. acquisition in Colombia.
- Review the impact of raw material price fluctuations on the $736.5 million in firm purchase commitments held by Siderar.
- Assess the sustainability of the gross margin expansion (from 9.6% in 2009 to 27.0% in 2010) given global steel market volatility.