Ternium S.A. 6-K Filing Summary
Business Context and Reporting Period
This Form 6-K, dated May 5, 2010, furnishes the notice of the Annual General Meeting (AGM) and Extraordinary General Meeting (EGM) of Ternium S.A., a leading Latin American steel company. The filing includes the 2009 Annual Report, covering the fiscal year ended December 31, 2009. The meetings are scheduled for June 2, 2010, in Luxembourg to approve financial statements, elect directors, and authorize capital actions.
Key Financial Metrics (Year Ended Dec 31, 2009)
| Metric | 2009 (USD Millions) | 2008 (USD Millions) |
|---|---|---|
| Net Sales | 4,959.0 | 8,464.9 |
| Operating Income | 296.4 | 1,676.0 |
| EBITDA | 708.5 | 2,089.6 |
| Net Income (Total) | 767.1 | 875.2 |
| Net Income (Equity Holders) | 717.4 | 715.4 |
| Free Cash Flow | 953.2 | (70.4) |
| Capital Expenditures | 208.6 | 587.9 |
| Total Financial Debt | 2,326.7 | 3,267.3 |
| Net Financial Debt | 184.1 | 2,111.8 |
| Cash and Cash Equivalents | 2,095.8 | 1,065.6 |
Dividend Proposal: The Board proposes a dividend of USD 0.05 per share (USD 0.50 per ADR), totaling approximately USD 100.2 million, payable on June 10, 2010.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 41% to USD 4.96 billion due to a 16% drop in shipments and a 30% decrease in revenue per ton, driven by the global economic downturn and de-stocking in the steel value chain.
- Profitability: Operating income fell significantly to USD 296.4 million (6.0% margin) from USD 1.68 billion (19.8% margin). However, net income attributable to equity holders remained relatively stable at USD 717.4 million, supported by a USD 428.0 million gain from discontinued operations (Sidor nationalization settlement).
- Balance Sheet Strengthening: Net financial debt was reduced by USD 1.9 billion to USD 184.1 million. This improvement was driven by strong free cash flow generation, inventory reduction, and USD 953.6 million in proceeds from the Sidor financial asset.
- Cost Management: Capital expenditures were reduced by 65% to USD 208.6 million as the company suspended major projects to preserve liquidity.
Guidance, Outlook, and Risks
- Outlook: Management anticipates a gradual recovery in demand led by Mexico's export-oriented industries and South America's commodity-driven growth. Capacity utilization is expected to improve from approximately 85%.
- Strategic Initiatives: The company is pursuing an acquisition of a 54% interest in Colombia-based Ferrasa (USD 74.5 million) to expand its presence in the Colombian and Central American markets. Projects in Mexico to expand cold rolling and coating lines are also underway.
- Risks and Contingencies:
- Sidor Settlement: While USD 1.25 billion has been collected from the Venezuelan government, USD 720 million remains outstanding, subject to payment schedules and potential delays.
- Market Volatility: The company faces exposure to fluctuating steel prices and raw material costs, particularly iron ore and energy, though it mitigates this through proprietary mines and natural gas usage in Mexico.
- Legal: Ongoing arbitration with Corus regarding the termination of a steel slab off-take agreement, with potential damages exceeding USD 150 million on both sides.
Investor Verification Checklist
- Verify the collection status of the remaining USD 720 million receivable from the Venezuelan government (CVG) regarding the Sidor nationalization.
- Confirm the closing timeline and regulatory approval for the acquisition of Ferrasa in Colombia.
- Monitor the impact of rising raw material costs (iron ore, coal) on future margins as global demand recovers.
- Review the terms of the proposed dividend payment and its impact on distributable reserves under Luxembourg law.
- Assess the progress of the Corus arbitration proceedings and potential financial exposure.