Business Context and Reporting Period
This Form 6-K filing, dated June 18, 2015, contains the presentation materials from Ternium S.A.'s 2015 Investor Day held at the Solomon R. Guggenheim Museum. Ternium is a leading steel company in Latin America with operations primarily in Mexico, Argentina, and Colombia, and a participation in the control group of Usiminas in Brazil. The presentation covers strategic positioning, market outlooks, and operational performance through the first quarter of 2015.
Key Financial Metrics and Operational Data
- Shipments: 9.4 million tons of steel products shipped in 2014.
- EBITDA Margin: Reported at 17% for 2014.
- Net Debt to EBITDA: Ratio of 0.90x as of 2014.
- Dividends: Dividends per ADS increased by 20% in 2014, resulting in a dividend yield of 4.8%.
- Capital Expenditures: The company indicated it is at the end of its capex cycle, reinforcing net debt reduction.
- Cost Savings Targets:
- Logistics management program: Target of $40 million annual savings.
- Contractors management program: Target of $30 million annual savings.
- Energy saving program: Target of $30 million annual savings starting in 2016 (requiring $75 million capex).
Material Changes and Market Outlook
Market Dynamics: The global steel market faces significant overcapacity, particularly from China and the CIS. Trade remedy cases (antidumping and countervailing duties) are at their highest levels since 2001. While China's steel use is projected to decline, the outlook for "World ex-China" is improving, with expected growth in Latin America in 2016.
Regional Performance:
- Mexico: Identified as the most promising market in the region with a CAGR of 4.2% (2005-2015). It accounts for 60% of Ternium's shipments. Growth is driven by the automotive sector and infrastructure plans.
- Argentina: Shipments remain stable despite a mixed economic environment. The construction and oil & gas sectors show positive trends.
- Brazil (Usiminas): The investment in Usiminas is not performing as initially expected due to the Brazilian recession, weakening steel consumption, and falling iron ore prices. This has led to a carrying value impairment. There is also noted controversy within Usiminas' Control Group regarding the turnaround process.
Guidance, Risks, and Management Commentary
Strategic Focus: Management emphasizes expansion in North America (mainly Mexico), increasing the offering of high-end products, and maintaining operational excellence. The company aims to leverage its flexible production configuration (mix of DRI/EAF and BF/BOF) to support margin stability.
Risks and Contingencies:
- Forward-Looking Statements: Actual results may vary due to economic conditions, interest rates, inflation, exchange rates, and raw material prices.
- Usiminas Impairment: The Brazilian subsidiary faces a challenging competitive scenario with increased imports and de-industrialization, impacting Ternium's investment value.
- Trade Barriers: Ongoing antidumping investigations in Mexico and the USA regarding Chinese steel products.
Investor Verification Checklist
- Verify the extent of the carrying value impairment related to the Usiminas investment and its impact on future earnings.
- Confirm the progress of the $75 million capital expenditure required for the energy saving program and the realization of the $30 million annual savings target starting in 2016.
- Monitor the resolution of the controversy within Usiminas' Control Group and its effect on the turnaround process.
- Assess the impact of ongoing antidumping investigations in Mexico and the USA on Ternium's competitive position and pricing power.
- Validate the projected growth in Latin American steel consumption for 2016 against actual market data.