Ternium S.A. Form 6-K Summary: Fourth Quarter and Full Year 2021 Results
Business Context and Reporting Period
This Form 6-K, filed on February 15, 2022, reports the fourth quarter and full-year 2021 results for Ternium S.A., Latin America's leading flat steel producer. The company operates facilities in Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America. Financial statements are prepared in accordance with IFRS and presented in US dollars.
Key Financial Metrics
Full Year 2021 Performance:
- Net Sales: $16.1 billion (up 84% year-over-year).
- Operating Income: $5.3 billion (up 388% year-over-year).
- EBITDA: $5.9 billion (up 285% year-over-year), representing a record 36% margin.
- Net Income: $4.4 billion; Equity holders' net result was $3.8 billion.
- Earnings per ADS: $19.49.
- Steel Shipments: 12.1 million tons (up 6% year-over-year).
- Free Cash Flow: $2.2 billion.
- Liquidity: Net cash position of $1.2 billion at year-end (improved from net debt of $0.4 billion in 2020).
Fourth Quarter 2021 Performance:
- Net Sales: $4.3 billion (up 68% year-over-year; down 6% sequentially).
- Operating Income: $1.4 billion (up 56% year-over-year; down 22% sequentially).
- EBITDA: $1.5 billion (up 133% year-over-year; down 20% sequentially).
- EBITDA Margin: 35%.
- Steel Shipments: 2.8 million tons (down 8% year-over-year and sequentially).
- Free Cash Flow: $1.0 billion.
Material Changes vs. Prior Period
The full-year 2021 results were driven by record-high steel prices, which increased revenue per ton to $1,309 (up 75% from 2020). This price increase significantly outpaced the 44% rise in raw material and consumable costs. Operating income surged to $5.3 billion, the highest on record.
In the fourth quarter, sequential declines in shipments and profitability were observed. Shipments dropped 8% sequentially, primarily due to a 17% decrease in Mexico caused by semiconductor shortages affecting the automotive sector and higher steel imports. EBITDA per ton decreased to $532.3 from a record $612.4 in Q3, reflecting higher costs for purchased slabs and raw materials.
Equity in earnings of non-consolidated companies increased significantly to $400.7 million for the full year, largely due to improved results from Ternium's investment in Usiminas and a favorable Brazilian Supreme Court ruling regarding sales tax credits.
Guidance, Outlook, and Risks
Outlook for 2022: Management expects solid performance in 2022 despite gradually normalizing steel prices and margins. The outlook is supported by the ramp-up of the new hot-rolling mill in Pesquería, Mexico. In the USMCA region, supply chain disruptions and semiconductor scarcity are expected to gradually adjust, potentially stabilizing steel prices in the first half of the year. The Argentine market outlook remains uncertain due to unstable macroeconomic variables.
Q1 2022 Expectation: The company anticipates a sequential decrease in EBITDA in the first quarter of 2022, primarily due to lower margins, partially offset by higher shipments in the USMCA region.
Dividend Proposal: The board proposed an annual dividend of $0.26 per share ($2.60 per ADS), totaling $510.4 million. This includes an interim dividend of $0.08 per share already paid in November 2021. The remaining net dividend of $0.18 per share is proposed for payment on May 11, 2022.
Risks: Key risks include macroeconomic uncertainty in Argentina, global production capacity, tariffs, cyclicality in steel-consuming industries, and ongoing supply chain disruptions (specifically semiconductor scarcity).
Investor Verification Checklist
- Verify the sustainability of the 36% EBITDA margin as steel prices normalize in 2022.
- Monitor the impact of semiconductor shortages on Mexican automotive shipments and inventory levels.
- Assess the macroeconomic stability of Argentina and its effect on the Southern Region's performance.
- Confirm the timeline and production ramp-up of the new Pesquería hot-rolling mill in Mexico.
- Review the reconciliation of non-IFRS measures (EBITDA, Free Cash Flow) in Exhibit I against IFRS statements.
- Track the approval of the proposed annual dividend at the May 3, 2022, shareholders' meeting.