Ternium S.A. Q1 2010 Financial Summary
Business Context and Reporting Period
This Form 6-K filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the three-month period ended March 31, 2010. Ternium is a Luxembourg-based corporation engaged in the manufacturing and marketing of flat and long steel products, with operations primarily in South and Central America, North America, and Europe.
Key Financial Metrics
| Metric (USD Thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Sales | 1,650,599 | 1,174,655 |
| Gross Profit | 436,954 | 130,083 |
| Operating Income | 293,499 | (26,483) |
| Profit for the Period | 245,117 | (117,018) |
| Profit Attributable to Equity Holders | 205,238 | (93,182) |
| Earnings Per Share (Basic & Diluted) | $0.10 | ($0.05) |
| Net Cash from Operating Activities | 313,172 | 409,323 |
| Cash and Cash Equivalents (End of Period) | 2,386,960 | 1,080,417 |
| Total Borrowings | 2,040,667 | 4,031,434 (Total Liabilities) |
Note: Total Borrowings for Q1 2010 consist of Non-current borrowings ($1,534,850) and Current borrowings ($505,817). Q1 2009 borrowing data is not explicitly broken out in the provided text, though total liabilities were $4,031,434.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 40.5% year-over-year, driven by higher volumes and improved pricing in the steel market.
- Profitability Turnaround: The company moved from a net loss of $117 million in Q1 2009 to a net profit of $245 million in Q1 2010. Operating income improved from a loss of $26.5 million to a profit of $293.5 million.
- Financial Income: A significant contributor to the profit was "Other financial income (expenses), net," which swung from a $165 million expense in 2009 to a $96 million income in 2010, largely due to net foreign exchange gains of $101 million.
- Sidor Asset: The company recorded $27.2 million in interest income related to the financial asset from the nationalization of Sidor (Venezuela).
- Balance Sheet: Cash and cash equivalents increased by approximately $1.3 billion compared to the prior year period. Total borrowings decreased significantly from the prior year's levels.
Outlook, Risks, and Unusual Items
- Dividend Proposal: The Board proposed a dividend of $0.05 per share ($0.50 per ADS), totaling approximately $100.2 million, subject to shareholder approval at the June 2, 2010 meeting.
- Subsequent Acquisition: On April 8, 2010, Ternium agreed to acquire a 54% interest in Colombia-based Ferrasa for $74.5 million, expected to close in Q3 2010.
- Legal Contingency (Corus): An ongoing arbitration with Corus UK regarding the termination of a steel supply contract remains unresolved. Corus claims damages exceeding $150 million; Ternium has filed counterclaims of similar magnitude. The outcome is currently unforeseeable.
- Sidor Nationalization: The company continues to receive payments from the Venezuelan government (CVG) for the expropriated Sidor assets. As of March 31, 2010, the carrying amount of the Sidor financial asset was $691.4 million.
- Commitments: Siderar has commitments for raw material purchases totaling $733 million and equipment acquisitions of $145.7 million, though some investment plans have been rescheduled due to market conditions.
Investor Verification Checklist
- Verify the sustainability of the $101 million foreign exchange gain, which heavily influenced the bottom line.
- Monitor the status of the Corus arbitration and potential liability exposure exceeding $150 million.
- Confirm the timeline and regulatory approval for the $74.5 million acquisition of Ferrasa in Colombia.
- Track the payment schedule of the Sidor financial asset receivable from the Venezuelan government.
- Review the proposed dividend payout of $100.2 million against distributable retained earnings under Luxembourg law.