Ternium S.A. Form 6-K Summary
Business Context and Reporting Period
This filing (Form 6-K) dated February 24, 2009, reports Ternium S.A.'s full-year and fourth-quarter 2008 results. Ternium is a leading steel manufacturer in Latin America with principal operations in Mexico and Argentina, serving the Americas. The financial data is presented in U.S. dollars and metric tons in accordance with IFRS.
Key Financial Metrics
| Metric | Full Year 2008 | Full Year 2007 | 4Q 2008 | 4Q 2007 |
|---|---|---|---|---|
| Net Sales (US$ million) | 8,464.9 | 5,633.4 | 1,721.1 | 1,723.1 |
| Operating Income (US$ million) | 1,676.0 | 836.8 | 186.3 | 211.1 |
| EBITDA (US$ million) | 2,089.6 | 1,192.1 | 281.1 | 330.1 |
| EBITDA Margin | 25% | 21% | 16% | 19% |
| Net Income (US$ million) | 875.2 | 995.8 | (348.5) | 221.4 |
| Equity Holders' Net Income (US$ million) | 715.4 | 784.5 | (334.0) | 165.6 |
| Earnings per ADS (US$) | 3.57 | 3.91 | (1.67) | 0.83 |
| Shipments (tons) | 7,543,000 | 6,980,000 | 1,547,000 | 2,044,000 |
| Net Financial Debt (US$ million) | 2,100.0 | N/A | 2,100.0 | N/A |
| Free Cash Flow (US$ million) | (70.4) | 592.1 | 403.6 | N/A |
Material Changes vs. Prior Period
- Full Year 2008 Performance: Net sales increased 50% and operating income doubled (100% increase) compared to 2007. This was driven by the consolidation of Grupo Imsa and higher revenue per ton. However, Net Income decreased 12% due to a $632.7 million non-cash foreign exchange loss and a $422.8 million decline in discontinued operations results.
- Fourth Quarter 2008 Decline: The company reported a net loss of $348.5 million in 4Q 2008, a sharp reversal from the $221.4 million profit in 4Q 2007. Shipments dropped 24% year-over-year due to a sharp decline in demand from construction, automotive, and appliance sectors.
- Foreign Exchange Impact: A significant portion of the 4Q 2008 loss ($622.5 million) was a non-cash foreign exchange loss resulting from the 25% devaluation of the Mexican Peso against the U.S. dollar on the Mexican subsidiary's debt.
- Inventory Write-downs: The company recorded a $200.0 million inventory write-down in the second half of 2008, including $68.3 million in the fourth quarter, related to purchased slabs.
Guidance, Outlook, and Risks
- Q1 2009 Outlook: Management expects lower EBITDA in Q1 2009 compared to Q4 2008 due to lower volumes and average prices. Steel demand in North America is expected to remain at current levels, while South & Central America demand is expected to decrease.
- Capacity Utilization: Average capacity utilization for the first half of 2009 is projected to be approximately 65%.
- Capital Expenditures: 2009 CapEx is expected to total approximately $250 million, a significant reduction from the $587.9 million spent in 2008.
- Liquidity: The company anticipates a lower net debt position at the end of Q1 2009 due to working capital declines and rescheduled CapEx. Management believes available cash and funds from operations are sufficient to fund operations without negotiating additional credit facilities.
- Risks: Key risks include global economic slowdown, cyclicality in steel-consuming industries, and foreign exchange fluctuations.
Investor Verification Checklist
- Non-Cash FX Loss: Verify the impact of the $632.7 million foreign exchange loss on reported net income versus actual cash flow, noting it is offset by currency translation adjustments in equity.
- Discontinued Operations: Confirm the exclusion of Sidor and non-core US assets from continuing operations, which significantly reduced the 2008 net income compared to 2007.
- Inventory Valuation: Review the $200 million inventory write-down and its impact on cost of sales and future margin recovery.
- Debt Maturity: Note that $941.5 million of the $3.3 billion total financial debt matures in 2009.
- Grupo Imsa Integration: Assess the ongoing integration costs and margin profile of the Grupo Imsa acquisition, which drove volume growth but increased cost structures.