Ternium S.A. 2022 Sustainability and Financial Summary
Business Context and Reporting Period
This Form 6-K filing furnishes Ternium S.A.'s 2022 Sustainability Report to the SEC. Ternium is a leading flat and long steel producer with operations across the Americas (Mexico, Brazil, Argentina, Colombia, and the U.S.). The reporting period covers the fiscal year ended December 31, 2022. The company operates under a strategy focused on organic growth, import substitution, and decarbonization, highlighted by significant investments in its Pesquería Industrial Center in Mexico and increased control over Usiminas in Brazil.
Key Financial Metrics
- Net Sales: $16.4 billion (Steel products: $16.1 billion; Iron ore: $410.8 million).
- Shipments: 11.9 million tons of steel and 3.5 million tons of iron ore.
- Profitability:
- Operating Income: $2.7 billion.
- Adjusted EBITDA: $3.4 billion ($287 per ton).
- Net Income: $2.1 billion.
- Net Income Attributable to Owners: $1.8 billion ($9.00 per ADS).
- Cash Flow & Liquidity:
- Free Cash Flow: $2.2 billion.
- Net Cash Position: $2.6 billion (Net debt of -$2.6 billion).
- Capital Expenditures (CAPEX): $581 million.
- Dividends: $2.70 per ADS approved for the year.
Material Changes vs. Prior Period
- Revenue Stability: Net sales remained similar to 2021 ($16.4B vs. $16.1B) despite a slight decrease in total steel shipments (11.9M tons vs. 12.1M tons), driven by a higher value sales mix and integration of slab production.
- Profitability Decline: Adjusted EBITDA decreased significantly from $5.9 billion in 2021 to $3.4 billion in 2022. EBITDA per ton dropped by $199 due to higher costs, partially offset by higher realized steel prices.
- Market Mix: Shipments in Mexico increased 5% to 6.8 million tons (57% of total), while shipments in the Southern Region (primarily Argentina) decreased to 2.4 million tons.
- Strategic Acquisitions: In March 2023, Ternium increased its stake in Usiminas' control group to 51.5%, gaining management control of the Brazilian flat steel producer.
Guidance, Outlook, and Risks
- Investment Outlook: Management announced a $2.2 billion investment over the next three years for a new Electric Arc Furnace (EAF) and Direct Reduction of Iron (DRI) facility in Pesquería, Mexico, with a capacity of 2.6 million tons of slabs and 2.1 million tons of DRI. Operations are expected to begin in 2026.
- Decarbonization Targets: Ternium aims to reduce CO2 emission intensity by 20% by 2030 (vs. 2018 baseline). A $160 million wind farm in Argentina is planned to supply 65% of the company's electricity needs in that country by late 2024.
- Strategic Focus: The company is positioning itself to benefit from nearshoring trends and USMCA "melted and poured" rules, which require 70% of steel for automotive parts to be produced in the USMCA region by 2027.
- Risks & Contingencies:
- Safety: Three fatalities occurred in 2022/early 2023 (one employee, two contractors), prompting a review of safety protocols and a restructuring of EHS reporting lines.
- Geopolitical/Economic: Volatility from the war in Ukraine, inflation, and economic instability in Argentina continue to pose challenges.
- Climate: Physical risks from extreme weather and transitional risks from carbon pricing regulations are actively monitored.
Investor Verification Checklist
- Verify the execution timeline and capital allocation for the $2.2 billion Pesquería upstream project (EAF/DRI).
- Monitor the integration progress and financial impact of the increased 51.5% control stake in Usiminas.
- Assess the impact of rising input costs on EBITDA margins, given the $199 per ton decline in 2022.
- Review safety performance metrics and the effectiveness of new protocols following the 2022/2023 fatalities.
- Track progress on the 2030 decarbonization roadmap, specifically the 20% emission intensity reduction target and renewable energy adoption.