Business Context and Reporting Period
This Form 6-K filing by Ternium S.A. (NYSE: TX) serves as a notice of the Annual General Meeting of Shareholders scheduled for May 7, 2014, and furnishes the Company's 2013 Annual Report. Ternium is a leading steel producer in Latin America with operations in Mexico, Argentina, Colombia, the southern United States, and Guatemala. The reporting period covers the fiscal year ended December 31, 2013.
Key Financial Metrics (Year Ended Dec 31, 2013)
| Metric | 2013 Value (USD) | 2012 Value (USD) |
|---|---|---|
| Net Sales | $8,530.0 million | $8,608.1 million |
| Operating Income | $1,109.4 million | $920.6 million |
| EBITDA | $1,486.6 million | $1,291.5 million |
| Net Income (Total) | $592.9 million | $190.9 million |
| Net Income (Attributable to Equity Holders) | $455.4 million | $142.0 million |
| Free Cash Flow | $208.9 million | $32.5 million |
| Capital Expenditures | $883.3 million | $1,022.6 million |
| Total Financial Debt | $2,002.8 million | $2,424.4 million |
| Net Debt Position | $1,526.1 million | $1,703.3 million |
| Basic EPS (per share) | $0.23 | $0.07 |
| Basic EPS (per ADS) | $2.32 | $0.72 |
Material Changes vs. Prior Period
- Profitability Surge: Net income attributable to equity holders increased 221% to $455.4 million, driven primarily by a $328.6 million improvement in the result related to the investment in Usiminas (which included a $275.3 million impairment charge in 2012) and higher operating income.
- Operating Performance: Operating income rose 21% to $1.1 billion, reflecting a higher operating margin (13.0% vs. 10.7%) and a 220,000-ton increase in steel shipments, despite a 1% decline in net sales.
- Debt Reduction: Total financial debt decreased by $421.5 million (17%) to $2.0 billion, aided by the early repayment of a syndicated loan used to finance the Usiminas acquisition.
- Accounting Changes: Starting January 1, 2013, the Company proportionally consolidated the operations of Peña Colorada (mining) and Exiros, changing their presentation from equity method investments to line-by-line consolidation.
Guidance, Outlook, and Risks
- Dividend Proposal: The Board proposes a dividend of USD 0.075 per share (USD 0.75 per ADS), payable on May 16, 2014, totaling approximately $150.4 million. This restores the dividend to previous levels despite a loss of $6.9 million in the Company's standalone annual accounts (offset by consolidated retained earnings).
- Operational Outlook: Management expects GDP growth in Mexico to accelerate in 2014, driving steel demand. The new Pesquería industrial center in Mexico is ramping up to serve the automotive sector. In Argentina, the outlook is more uncertain due to macroeconomic conditions and a slowdown in Brazil.
- Major Risk - Safety Incident: The 2013 results were overshadowed by a tragic explosion at the Guerrero plant in Mexico on July 22, 2013, resulting in 11 fatalities. The Company has launched a significant investment program to improve safety and environmental standards at the facility.
- Market Risks: The steel industry faces global excess capacity, particularly from China, which exported record levels of steel to Latin America in 2013. The Company is working with regional governments to address unfair trade practices.
- Legal Contingencies: The Company is involved in a lawsuit filed by Companhia Siderúrgica Nacional (CSN) regarding the Usiminas acquisition, though a first-instance court decision in September 2013 dismissed the claim.
Investor Verification Checklist
- Usiminas Turnaround: Verify the sustainability of the improved results from Usiminas, which contributed significantly to the 2013 profit recovery after a major impairment in 2012.
- Guerrero Plant Safety: Review the progress and cost implications of the new safety and environmental investment plan at the Guerrero unit following the 2013 accident.
- Dividend Sustainability: Confirm the source of the proposed dividend payment, noting it is drawn from retained earnings reserves despite the parent company's standalone annual account loss.
- Debt Maturity Profile: Assess the impact of the $800 million syndicated loan entered in November 2013 and the repayment schedule of existing debt.
- Consolidation Impact: Understand the financial impact of the proportional consolidation of Peña Colorada and Exiros on future revenue and cost reporting.