Ternium S.A. 2019 Sustainability Report Summary
Business Context and Reporting Period
This Form 6-K filing furnishes Ternium S.A.'s 2019 Sustainability Report to the SEC. Ternium is Latin America's leading flat steel producer, operating manufacturing, service, and distribution centers across Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America. The company is a Luxembourg entity with American Depositary Shares (ADS) listed on the NYSE (TX). The report covers the fiscal year ended December 31, 2019, and was filed on July 20, 2020.
Key Financial Metrics (2019)
| Metric | Value |
|---|---|
| Net Sales | $10.2 billion |
| EBITDA | $1.5 billion |
| EBITDA Margin | 15% |
| Net Income (Attributable to Owners) | $564.3 million |
| Earnings Per ADS | $2.87 |
| Free Cash Flow | $595.4 million |
| Capital Expenditures (CapEx) | $1.1 billion |
| Net Debt | $1.5 billion |
| Net Debt / EBITDA Ratio | 1.0x |
| Steel Shipments | 12.5 million tons |
Material Changes vs. Prior Period
- Revenue and Profit Decline: Net sales decreased to $10.2 billion from $11.5 billion in 2018. EBITDA dropped significantly to $1.5 billion from $2.7 billion in 2018, driven by softer market conditions and declining steel prices in North America.
- Increased Investment: Capital expenditures rose to $1.1 billion in 2019, up from $520 million in 2018, reflecting progress on expansion projects including new galvanizing and painting lines in Mexico.
- Operational Volume: Total steel shipments decreased slightly to 12.5 million tons from 12.95 million tons in 2018. Shipments in the Southern Region (primarily Argentina) declined due to macroeconomic deterioration in the region.
- Dividend Suspension: Management elected to suspend the annual dividend payment for the 2019 fiscal year to preserve financial stability amidst the emerging COVID-19 crisis.
Guidance, Outlook, and Risks
COVID-19 Impact and Adjustments: The Chairman's Letter details significant operational adjustments due to the pandemic. Ternium reduced its 2020 capital expenditure guidance from $850 million to $600 million. Key projects, including the new hot-rolling mill in Pesquería, Mexico, and the rebar mill in Colombia, were delayed to 2021 and the second half of 2020, respectively.
Strategic Outlook: Management remains focused on high-margin value-added products and import substitution in Mexico, leveraging the USMCA agreement. The company is investing in digital transformation (Industry 4.0) and environmental initiatives, including carbon capture and water management.
Risks and Contingencies:
- Pandemic: Ongoing uncertainty regarding global economic recovery and demand.
- Environmental: Continued investment in tailings dam reinforcement ($19 million in 2019) and carbon emission reduction to meet Paris Agreement goals.
- Market Cyclicality: Exposure to cyclical industries such as automotive and construction, and volatility in raw material prices.
Investor Verification Checklist
- Verify the impact of the suspended 2019 dividend on shareholder returns and future payout policies.
- Confirm the revised timeline and cost estimates for the delayed Pesquería hot-rolling mill and Colombia rebar mill projects.
- Monitor the company's ability to maintain liquidity and manage debt levels given the reduction in 2020 CapEx and potential revenue headwinds.
- Review the status of tailings dam reinforcement projects and environmental compliance in Mexico and Brazil.
- Assess the effectiveness of the ProPymes program in stabilizing the supply chain during economic downturns.