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 2, 2013. The filing includes the Company's 2012 Annual Report, covering the fiscal year ended December 31, 2012. Ternium is a leading steel producer in Latin America with operations in Mexico, Argentina, Colombia, the southern United States, and Guatemala. The Company also holds a significant participation in Usiminas, a major Brazilian steelmaker.
Key Financial Metrics (Year Ended Dec 31, 2012)
| Metric | 2012 (USD) | 2011 (USD) |
|---|---|---|
| Net Sales | $8,608.1 million | $9,122.8 million |
| Operating Income | $915.9 million | $1,251.8 million |
| EBITDA | $1,286.8 million | $1,647.8 million |
| Net Income (Total) | $187.2 million | $649.9 million |
| Net Income (Attributable to Equity Holders) | $139.2 million | $513.5 million |
| Free Cash Flow | $32.5 million | $45.4 million |
| Total Financial Debt | $2,424.4 million | $1,996.1 million |
| Net Debt Position | $1,703.3 million | ($443.6 million) Net Cash |
| Capital Expenditures | $1,022.6 million | $577.0 million |
| Basic EPS (per share) | $0.07 | $0.26 |
| Proposed Dividend (per ADS) | $0.65 | $0.75 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 6% year-over-year to $8.6 billion, driven by lower steel prices and reduced shipments in the Southern Region and Other Markets, partially offset by volume growth in Mexico.
- Profitability Impact: Operating income fell 27% to $915.9 million. Net income attributable to equity holders dropped 73% to $139.2 million.
- Usiminas Impairment: A significant non-cash impairment charge of $275.3 million was recorded on the investment in Usiminas due to a weaker industrial outlook in Brazil and uncertainty regarding future iron ore prices. This contributed to a total loss of $363.9 million in equity results from non-consolidated companies.
- Debt Increase: Total financial debt increased by $428.2 million to $2.4 billion, primarily due to a new $700 million syndicated term loan used to finance the acquisition of additional shares in Usiminas.
- Cash Flow: Free cash flow decreased to $32.5 million, impacted by a significant increase in capital expenditures ($1.0 billion vs. $577 million in 2011) and the Usiminas acquisition.
Guidance, Outlook, and Risks
- Operational Outlook: Management expects GDP growth in Mexico to remain healthy, driving steel demand. In Argentina, economic activity is expected to accelerate in 2013. The Company anticipates bringing new cold-rolling and galvanizing facilities in Pesquería, Mexico, into operation in the second half of 2013.
- Dividend Proposal: The Board proposes a dividend of $0.065 per share ($0.65 per ADS), payable on May 10, 2013, funded from retained earnings.
- Legal Contingency: A lawsuit was filed in Brazil by Companhia Siderúrgica Nacional (CSN) alleging that Ternium and its affiliates were required to launch a tag-along tender offer for minority Usiminas shareholders following their 2012 acquisition. Ternium believes the allegations are groundless and intends to defend vigorously.
- Market Risks: The Company faces risks related to global steel price volatility, currency fluctuations (particularly in Argentina, Mexico, and Brazil), and the economic slowdown in key Latin American markets.
Key Facts for Investor Verification
- Usiminas Exposure: Verify the magnitude of the $275.3 million impairment charge and the ongoing legal dispute regarding the tag-along tender offer in Brazil.
- Debt Structure: Confirm the terms of the new $700 million syndicated loan and the Company's ability to service increased debt levels given the decline in free cash flow.
- Dividend Sustainability: Assess the impact of the proposed $0.65 per ADS dividend on liquidity, noting that the Company's annual accounts (Luxembourg GAAP) showed a loss of $7.3 million for 2012, though consolidated IFRS results were profitable.
- Capital Expenditure Plan: Review the progress and funding requirements for the new greenfield facility in Pesquería, Mexico, and expansion projects in Argentina.