Ternium S.A. Form 6-K Summary: Six Months Ended June 30, 2021
Business Context and Reporting Period
This Form 6-K reports the unaudited consolidated condensed interim financial statements for Ternium S.A., a global steel and mining company, for the six-month period ended June 30, 2021. The company operates primarily through two reportable segments: Steel (flat and long products) and Mining (iron ore and pellets). Operations are geographically concentrated in Mexico, the Southern Region (Argentina, Paraguay, Chile, Bolivia, Uruguay), Brazil, and other markets including the U.S. and China.
Key Financial Metrics
| Metric (Six Months Ended June 30, 2021) | Amount ($ thousands) |
|---|---|
| Net Sales | 7,169,060 |
| Gross Profit | 2,615,117 |
| Gross Margin | 36.5% |
| Operating Income | 2,177,214 |
| Profit for the Period (Net Income) | 1,864,932 |
| Net Income Attributable to Owners | 1,625,036 |
| Diluted EPS | $0.83 |
| Operating Cash Flow | 956,247 |
| Total Borrowings | 1,572,570 |
| Cash and Cash Equivalents | 768,691 |
| Total Assets | 14,850,579 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 78.5% to $7.17 billion from $4.02 billion in the prior year period, driven by higher steel prices and volumes.
- Profitability Surge: Operating income jumped to $2.18 billion from $201 million in the prior year. Net income attributable to owners rose to $1.63 billion from $32 million.
- Margin Expansion: Gross margin improved significantly from 14.6% in the prior year to 36.5%.
- Debt Reduction: Total borrowings decreased by approximately $1.0 billion year-over-year (from $2.56 billion to $1.57 billion), reflecting strong cash generation and debt paydown.
- Investment Income: Equity in earnings of non-consolidated companies (primarily Usiminas) contributed $217.6 million, compared to a loss of $13.6 million in the prior year.
Outlook, Risks, and Contingencies
Management Commentary: Management notes that the negative effects of the pandemic on steel demand have passed, with facilities operating at normal production levels. The company maintains a manageable debt schedule and believes it has adequate access to credit markets.
Dividends: A dividend of $0.21 per share ($2.10 per ADS), totaling approximately $421 million, was approved and paid in May 2021.
Risks and Contingencies:
- Argentina FX Restrictions: Ternium Argentina faces complex foreign exchange regulations. While commercial payments are accessible, dividend repatriation requires central bank approval, which is rarely granted. The subsidiary reported $379 million in net profit for the period.
- Usiminas Litigation: Ongoing litigation with Companhia Siderúrgica Nacional (CSN) regarding a tender offer from 2012 remains pending before Brazil's Superior Court of Justice. Ternium believes the claims are groundless and has recorded no provision.
- Usiminas Regulatory Matter: A CVM staff determination regarding a 2014 share acquisition is under appeal, with a ruling expected in 2021. Ternium may elect to sell excess shares if the appeal fails.
Investor Verification Checklist
- Verify the sustainability of the 36.5% gross margin given the cyclical nature of steel pricing.
- Monitor the status of the CSN tender offer litigation and the CVM appeal regarding Usiminas shares.
- Assess the impact of Argentine foreign exchange restrictions on the ability to repatriate the $379 million profit generated by Ternium Argentina.
- Review the reconciliation between IFRS operating income ($2.18 billion) and management's view ($1.65 billion) to understand internal performance metrics.
- Confirm the trajectory of debt reduction and capital expenditure plans ($291 million in the first half of 2021).