Ternium S.A. 2020 Annual and Q4 2020 Results Summary
Business Context and Reporting Period
This Form 6-K filing reports Ternium S.A.'s fourth quarter and full-year 2020 results, covering the period ended December 31, 2020. Ternium is Latin America's leading flat steel producer with operations in Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America. The 2020 fiscal year was characterized by the impact of the COVID-19 pandemic, which caused a demand trough in the second quarter followed by a steady recovery in the second half of the year.
Key Financial Metrics
| Metric | Full Year 2020 | Full Year 2019 | Q4 2020 | Q4 2019 |
|---|---|---|---|---|
| Net Sales ($ million) | 8,735.4 | 10,192.8 | 2,579.7 | 2,250.0 |
| Operating Income ($ million) | 1,079.5 | 864.6 | 677.2 | 92.2 |
| EBITDA ($ million) | 1,524.5 | 1,525.7 | 645.2 | 263.1 |
| EBITDA Margin (%) | 17% | 15% | 25% | 12% |
| Net Result ($ million) | 867.9 | 630.0 | 670.6 | 89.9 |
| Equity Holders' Net Result ($ million) | 778.5 | 564.3 | 600.4 | 70.5 |
| Earnings per ADS ($) | 3.97 | 2.87 | 3.06 | 0.36 |
| Free Cash Flow ($ million) | 1,200.0 | Filing text does not provide clear value | 234.4 | Filing text does not provide clear value |
| Net Debt ($ million) | 371.5 | 1,500.0 | Filing text does not provide clear value | Filing text does not provide clear value |
| Steel Shipments (tons) | 11,360,000 | 12,511,000 | 3,067,000 | 2,917,000 |
Material Changes vs. Prior Period
- Revenue and Volume: Full-year net sales decreased 14% to $8.7 billion, driven by a 9% decline in steel shipments to 11.4 million tons. Mexico shipments fell 6%, while the Southern Region remained flat at 1.9 million tons. Other Markets shipments declined 17%.
- Profitability: Despite lower sales, Operating Income increased 25% to $1.1 billion. EBITDA remained flat year-over-year at $1.5 billion, but the EBITDA margin expanded from 15% to 17% due to lower raw material and energy costs and favorable currency impacts.
- Q4 Performance: The fourth quarter showed significant recovery with a 15% increase in net sales and a 634% increase in operating income compared to Q4 2019. EBITDA per ton surged to $210.3 in Q4 2020 from $90.2 in Q4 2019.
- Liquidity and Debt: Net debt improved significantly, dropping from $1.5 billion in 2019 to $371.5 million in 2020. The net debt to LTM EBITDA ratio stands at 0.2 times. Capital expenditures decreased 47% year-over-year to $560.0 million.
Guidance, Outlook, and Unusual Items
- Unusual Items: Both full-year and Q4 2020 results include a significant non-cash gain of $186.0 million related to the derecognition of a contingency on certain tax benefits at Ternium Brasil. This gain contributed $0.95 per ADS to earnings.
- Outlook: Management expects higher EBITDA in Q1 2021 compared to Q4 2020, driven by increased realized steel prices and steady shipments, partially offset by higher costs per ton. Shipments in Mexico are expected to remain stable, while the Southern Region is expected to maintain high levels.
- Operational Disruptions: Extreme weather in the southern US and northern Mexico disrupted natural gas and energy supply in Q1 2021, negatively affecting production by approximately 80,000 tons. All facilities have since returned to normal operations.
- Decarbonization: Ternium announced a target to reduce carbon dioxide emissions intensity by 20% in 2030 compared to a 2018 base rate.
- Dividends: The board proposed an annual dividend of $0.21 per share ($2.10 per ADS), totaling approximately $412.2 million, subject to shareholder approval.
Investor Verification Checklist
- Verify the sustainability of the $186.0 million non-cash tax benefit gain in future periods, as it is a one-time item significantly boosting reported net income.
- Monitor the impact of the Mexican Peso's appreciation on future financial results, which caused a $55.5 million loss in Q4 2020 financial results.
- Assess the recovery trajectory of the "Other Markets" region, which saw a 17% volume decline in 2020, particularly regarding slab shipments to third parties.
- Review the capital expenditure schedule, noting the 47% reduction in 2020 due to project delays and the conclusion of expansion projects.
- Confirm the approval of the proposed $2.10 per ADS dividend at the May 3, 2021, annual general shareholders' meeting.