Business Context and Reporting Period
Company: Ternium S.A.
Filing Type: Form 6-K (Annual Report 2024)
Reporting Period: Year ended December 31, 2024
Overview: Ternium is a leading steel producer in the Americas, operating primarily in Mexico, Brazil, and Argentina. The 2024 reporting period reflects the full consolidation of Usiminas (Brazil) results, which began in July 2023. The company continued its major expansion program in Pesquería, Mexico, and commissioned a new wind farm in Argentina.
Key Financial Metrics
| Metric ($ million) | 2024 | 2023 |
|---|---|---|
| Net Sales | 17,649 | 17,610 |
| Operating Income | 1,263 | 2,198 |
| Adjusted EBITDA | 2,038 | 2,740 |
| Net Income | 174 | 986 |
| Owners of the Parent's Net Income | (54) | 676 |
| Adjusted Owners of the Parent's Net Income | 316 | 1,686 |
| Free Cash Flow | 41 | 1,040 |
| Capital Expenditures | 1,865 | 1,461 |
| Total Borrowings | 2,230 | 2,146 |
| Net Cash Position | 1,644 | 1,886 |
Note: Adjusted metrics exclude non-recurring items such as litigation provisions and non-cash effects related to the Usiminas acquisition.
Material Changes vs. Prior Period
- Revenue Stability: Net sales remained flat year-over-year ($17.6 billion) despite a 10% increase in steel shipments. This was driven by lower realized steel prices and a 20% decline in shipments in the Southern Region (Argentina), partially offset by the full-year consolidation of Usiminas in Brazil.
- Profitability Decline: Operating income fell 43% to $1.3 billion. Adjusted EBITDA decreased 26% to $2.0 billion, with the margin compressing from 16% to 12% due to lower steel prices and cost structures lagging behind raw material price reductions.
- Significant Litigation Provision: The company recorded a net provision of $410 million related to ongoing litigation regarding the 2012 acquisition of a participation in Usiminas. This charge significantly impacted reported Net Income and Owners' Net Income, resulting in a reported loss for the parent company of $54 million.
- Regional Performance:
- Mexico: Shipments were stable; revenue declined 8% due to lower prices.
- Brazil: Shipments surged 96% and revenue grew 76% due to full Usiminas consolidation, despite pressure from Chinese steel imports.
- Southern Region (Argentina): Shipments dropped 20% and revenue fell 33% due to economic stabilization measures and weak local demand.
Guidance, Outlook, and Risks
Outlook and Management Commentary
Management expects to continue strengthening its competitive position in Mexico through the Pesquería expansion, with new galvanizing and cold-rolling lines expected to start up by year-end 2025. In Brazil, Usiminas will focus on efficiency projects and decarbonization. In Argentina, the company anticipates a gradual recovery in demand following government deregulation efforts, though risks remain regarding imports and economic volatility.
Dividend Proposal
The Board of Directors proposed an annual dividend of $2.70 per ADS ($530 million total), representing a yield of approximately 9% based on the February 18, 2025 market price. This includes an interim dividend of $0.90 per ADS already paid in November 2024.
Key Risks and Contingencies
- Trade Policy: Significant uncertainty exists regarding U.S. trade actions, including the imposition of 25% tariffs on steel imports and potential across-the-board tariffs on products from Mexico, Canada, and China. This poses a risk to Ternium's Mexican operations and export markets.
- Argentina Economic Environment: High inflation (118% in 2024) and foreign exchange restrictions continue to impact operations. Ternium Argentina holds significant cash in local sovereign bonds, which are subject to valuation volatility.
- Litigation: The $410 million provision for the Usiminas acquisition litigation remains a material contingency. Ternium has filed an extraordinary appeal with the Supreme Federal Tribunal in Brazil.
- Raw Materials & Energy: Fluctuations in the cost and availability of slabs, iron ore, and energy, as well as potential supply chain disruptions, remain key operational risks.
Investor Verification Checklist
- Litigation Outcome: Monitor the status of the extraordinary appeal filed with the Brazilian Supreme Federal Tribunal regarding the $410 million Usiminas acquisition provision.
- U.S. Tariff Impact: Assess the final implementation details of the new U.S. tariffs on steel and Mexican imports and their specific impact on Ternium's export volumes and pricing power.
- Argentina FX Restrictions: Verify the evolution of foreign exchange controls in Argentina and the company's ability to repatriate cash or pay dividends from its Argentine subsidiary.
- Capital Expenditure Execution: Track the progress and cost of the Pesquería expansion project (new steelmaking and direct reduction plants) to ensure it remains on schedule and within budget.
- Adjusted vs. GAAP Metrics: Reconcile the significant difference between reported Net Income (loss) and Adjusted Net Income to understand the true operational performance excluding one-time charges.