Business Context and Reporting Period
This Form 6-K filing by Ternium S.A. presents consolidated financial statements for the years ended December 31, 2011, 2010, and 2009. Ternium is a global steel manufacturer and distributor with operations primarily in South and Central America and North America. The company is organized into three reportable segments: Flat Steel Products, Long Steel Products, and Other. The filing was signed on February 22, 2012.
Key Financial Metrics (Year Ended Dec 31, 2011)
| Metric | 2011 (USD '000) | 2010 (USD '000) |
|---|---|---|
| Net Sales | 9,157,198 | 7,382,004 |
| Gross Profit | 2,062,946 | 1,716,750 |
| Operating Income | 1,265,219 | 1,053,937 |
| Profit for the Year | 649,908 | 779,470 |
| Net Income Attributable to Equity Holders | 513,541 | 622,076 |
| Earnings Per Share (Basic & Diluted) | $0.26 | $0.31 |
| Net Cash Provided by Operating Activities | 647,135 | 806,825 |
| Total Borrowings | 1,990,045 | 1,939,657 |
| Cash and Cash Equivalents | 2,158,591 | 1,779,416 |
Margins: Gross margin was approximately 22.5% in 2011 compared to 23.3% in 2010. Operating margin was approximately 13.8% in 2011 compared to 14.3% in 2010.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 24.1% to $9.16 billion, driven by higher volumes and prices across Flat and Long steel segments.
- Profit Decline: Despite revenue growth, net profit attributable to equity holders decreased 17.4% to $513.5 million. This was primarily due to a significant foreign exchange loss of $236.4 million (compared to a gain of $123.7 million in 2010) and a reduction in interest income from the Sidor financial asset.
- Debt Reduction: While total borrowings remained relatively stable, the company reduced its long-term borrowings significantly from $1.43 billion in 2010 to $0.95 billion in 2011, while current borrowings increased.
- Share Repurchase: In February 2011, the company repurchased 41.7 million shares from Usiminas for $150 million, reducing the weighted average shares outstanding.
Outlook, Risks, and Unusual Items
- Foreign Exchange Risk: The company reported a net foreign exchange loss of $236.4 million in 2011, a material swing from the prior year's gain. Management notes exposure to volatility in the Argentine Peso, Mexican Peso, and Colombian Peso.
- Sidor Receivable: Interest income from the Sidor financial asset (related to the nationalization of Sidor in Venezuela) dropped to $11.4 million in 2011 from $61.0 million in 2010. As of December 31, 2011, a principal amount of $130.3 million remains outstanding and unpaid.
- Legal Contingencies:
- Tax Claims: A Mexican tax assessment of approximately $293 million was notified in January 2012 regarding a 2004 capital reduction; the company believes an obligation is not probable and has not recorded a provision.
- Corus/Tata Settlement: The company settled a dispute with Tata Steel in June 2011 for an aggregate amount of $124 million (Ternium's share was $21.3 million).
- Subsequent Event: On January 16, 2012, Ternium and affiliates acquired a 22.7% stake in Usiminas (Brazil) for approximately $2.2 billion, joining the control group of the Brazilian steelmaker.
Investor Verification Checklist
- FX Sensitivity: Verify the impact of currency fluctuations on future earnings, given the $236 million loss in 2011.
- Sidor Recovery: Monitor the status of the $130.3 million outstanding receivable from the Venezuelan government (CVG).
- Usiminas Integration: Assess the financial impact and strategic benefits of the new 22.7% investment in Usiminas.
- Tax Litigation: Track the outcome of the $293 million Mexican tax assessment notified in January 2012.
- Debt Maturity: Review the liquidity position regarding $1.04 billion in borrowings due in 2012.