Business Context and Reporting Period
This Form 6-K filing, dated September 7, 2018, contains the presentation materials from Ternium S.A.'s 2018 Investor Day. The document outlines the company's strategic direction, market outlook, and operational plans for the Americas, led by CEO Máximo Vedoya and CFO Pablo Brizzio. The reporting context focuses on the company's performance through the first half of 2018 and its long-term development strategy.
Key Financial Metrics
The filing provides specific financial data points primarily for the 2017 fiscal year and the first half of 2018 (1H18), though it does not present a full audited income statement for the period.
- Profitability: Ternium reported an EBITDA margin of approximately 25% in 1H18, significantly above the peer range of 15-20%.
- Liquidity and Debt: The company maintained a net debt-to-EBITDA ratio of 1x as of 2017.
- Dividends: Annual dividends per ADS increased to $1.10 in 2017, up from $0.90 in 2016.
- Capital Expenditures (Capex): Total Capex for 2017 was $1.2 billion.
- Revenue/Shipments: Steel shipments reached 11.6 million tons in 2017. The filing does not provide a specific total revenue figure for 2017 or 1H18.
- Usiminas (Brazil): Adjusted EBITDA for Usiminas was 2.1 billion BRL in 2017, with shipments of 1.9 million tons.
Material Changes and Market Conditions
The filing highlights several material changes in the operating environment and company performance compared to prior periods:
- Global Trade Environment: Increased global barriers against unfair steel trade, including Section 232 tariffs in the US (25% on most imports) and ongoing NAFTA renegotiations.
- Mexico: Steel shipments grew at a 7% CAGR from 2013-2017. While the construction market remains subdued due to lower government spending, the industrial sector (automotive, home appliances) remains resilient. Light vehicle production in Mexico hit a record 3.9 million units in 2017.
- Argentina: Flat steel consumption is expected to decrease by 5% in 2018 due to adverse weather affecting the agribusiness sector and high interest rates. However, the energy sector (Vaca Muerta shale) shows positive growth with over $12 billion in announced investments.
- Brazil: Apparent steel use is projected to rebound with a 6% increase in 2018. Usiminas is showing improved operational performance and continued leverage reduction.
- Colombia: Identified as a growth opportunity in the long steel market, with Ternium planning a new rebar facility to capture import substitution opportunities.
Guidance, Outlook, and Strategic Initiatives
Management outlined a strategy focused on "Sustainable Profitability" and expanding high-value product offerings. Key initiatives include:
- Capacity Expansion:
- Mexico (Pesquería): A new hot-rolling mill with 4.1 million tons annual capacity, expected to start up by end of 2020 ($1.1 billion investment). This will increase hot-rolled coil capacity by 50%.
- Mexico (Galvanizing/Painting): New lines for galvanizing (350,000 tons) and painting (120,000 tons) expected to start in 2019 ($280 million investment).
- Colombia: A greenfield rebar facility with 520,000 tons capacity, starting up in 2019 ($90 million investment).
- Operational Excellence: Implementation of centralized industrial management, new R&D labs in Pesquería, and a focus on reducing product development cycles.
- Outlook: Management expects growing global steel consumption to support healthy margins. The company aims to become a stronger competitor through differentiated products and services, targeting import substitution in Mexico's flat steel market.
- Risks: Forward-looking statements are subject to risks including changes in economic/political conditions, interest and inflation rates, exchange rates, steel demand/prices, and raw material/energy costs.
Key Facts for Investor Verification
- Verify the timeline and capital cost realization for the new Pesquería hot-rolling mill and the Colombia rebar facility.
- Monitor the impact of NAFTA renegotiation outcomes on Mexican steel demand and trade barriers.
- Track the recovery of the Argentine agribusiness sector and its effect on local steel consumption in 2018.
- Confirm the progress of Usiminas' leverage reduction and operational improvements in Brazil.
- Assess the company's ability to maintain its 25% EBITDA margin amidst global trade volatility and raw material price fluctuations.