Ternium S.A. Form 6-K Summary: Q4 and Full Year 2006 Results
Business Context and Reporting Period
This Form 6-K, dated February 27, 2007, reports Ternium S.A.'s financial and operational results for the fourth quarter and full year ended December 31, 2006. The data is presented in U.S. dollars in accordance with International Financial Reporting Standards (IFRS). Ternium is a leading steel producer in the Americas with operations in Mexico, Argentina, and Venezuela.
Key Financial Metrics
| Metric | Q4 2006 | Q4 2005 | Full Year 2006 | Full Year 2005 |
|---|---|---|---|---|
| Net Sales (US$ million) | 1,587.5 | 1,467.8 | 6,569.0 | 4,447.7 |
| Operating Income (US$ million) | 259.2 | 367.0 | 1,636.6 | 1,392.2 |
| EBITDA (US$ million) | 376.8 | 489.7 | 2,074.3 | N/A |
| EBITDA Margin | 24% | 33% | 32% | N/A |
| Net Income (US$ million) | 158.2 | 168.7 | 996.0 | 1,072.8 |
| Equity Holders' Net Income (US$ million) | 140.4 | 137.5 | 795.4 | 704.4 |
| Earnings per ADS (US$) | 0.70 | 0.69 | 4.11 | 3.61 |
| Shipments (million tons) | 2.1 | 2.1 | 9.0 | 6.6 |
| Net Debt (US$ million) | 413.7 | N/A | 413.7 | N/A |
| Cash from Operations (US$ million) | 306.4 | 343.6 | 1,245.0 | 1,262.5 |
Material Changes vs. Prior Period
- Revenue Growth: Q4 2006 net sales increased 8% year-over-year to $1.59 billion, driven by a 9% increase in revenue per ton ($716/ton) despite flat shipment volumes (2.1 million tons).
- Profitability Decline: Operating income fell 29% to $259.2 million, and EBITDA dropped 23% to $376.8 million. Margins compressed due to higher raw material costs and operational disruptions.
- Operational Disruptions: Shipments were reduced by an estimated 170,000 tons due to work slowdowns and stoppages at Sidor (Venezuela) and the relining of a blast furnace at Siderar (Argentina).
- One-Time Charges: A $46.9 million charge was recorded for an increase in Sidor's pension plan benefits liability, impacting operating income and net income.
- Debt Reduction: Net debt decreased significantly to $413.7 million as of December 31, 2006, following the prepayment of $239 million in loans during the quarter.
Outlook, Risks, and Management Commentary
- Market Outlook: Management expects steel demand to continue growing in South & Central America. In North America, inventory normalization is expected to support demand and price increases.
- Cost Pressures: Moderate cost increases are anticipated due to higher raw material and labor prices. Q4 costs were elevated by the aforementioned operational events and pension charges.
- Dividend Proposal: The Board proposes an annual dividend of $0.05 per share ($0.50 per ADS), totaling approximately $100.2 million, subject to shareholder approval on June 6, 2007.
- Risks: Forward-looking statements highlight risks related to GDP uncertainty, market demand, global production capacity, tariffs, and industry cyclicality.
Key Facts for Investor Verification
- Verify the impact of the $46.9 million Sidor pension charge on future liability estimates and cash flow requirements.
- Confirm the timeline for the resumption of full production at Siderar (blast furnace relining completed Jan 31, 2007) and Sidor (stoppages ended Nov 8, 2006).
- Monitor the normalization of steel inventory levels in North America to validate the outlook for price and demand recovery.
- Track the execution of the proposed $100.2 million dividend payment and its effect on liquidity.
- Assess the sustainability of the 24% EBITDA margin given the projected increases in raw material and labor costs.