Ternium S.A. Q1 2022 Financial Summary
Business Context and Reporting Period
This Form 6-K filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the three-month period ended March 31, 2022. Ternium is a global steel manufacturer organized into two reportable segments: Steel (flat and long products) and Mining (iron ore and pellets). The company operates primarily in Mexico, Brazil, and the Southern Cone region (Argentina, Chile, etc.).
Key Financial Metrics
| Metric ($ thousands) | Q1 2022 | Q1 2021 |
|---|---|---|
| Net Sales | 4,304,829 | 3,249,296 |
| Gross Profit | 1,320,644 | 1,111,045 |
| Operating Income | 1,059,015 | 905,773 |
| Profit for the Period | 877,518 | 706,668 |
| Profit Attributable to Owners | 775,621 | 602,928 |
| EPS (Basic & Diluted) | $0.40 | $0.31 |
| Net Cash from Operating Activities | 692,289 | 327,837 |
| Cash and Cash Equivalents (End of Period) | 1,790,325 | 835,384 |
| Total Borrowings | 1,362,211 | 2,821,584 (Q4 2021) |
Note: Gross margin for Q1 2022 was approximately 30.7% compared to 34.2% in Q1 2021.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by 32.5% year-over-year, driven by higher steel prices and volumes across all geographical regions (Mexico, Southern Region, Brazil).
- Profitability: Profit for the period rose 24.2% to $877.5 million. Operating income increased 16.9% despite higher costs of sales.
- Financial Expenses: Other financial expenses, net, turned negative at $(78.6) million in Q1 2022 compared to income of $6.9 million in Q1 2021, primarily due to a net foreign exchange loss of $53.4 million.
- Debt Reduction: Total borrowings decreased significantly from $2.82 billion at year-end 2021 to $1.36 billion as of March 31, 2022, following net repayments of $122.9 million in the quarter.
- Investments: Investments in non-consolidated companies increased to $936.7 million, largely due to the equity method share of results and currency translation adjustments related to Usiminas.
Outlook, Risks, and Contingencies
- Geopolitical Risks: The Russia-Ukraine conflict has caused volatility in energy prices and supply chains for key inputs (steel slabs, iron ore, coal). Management notes potential limitations on production levels and higher costs.
- Argentina FX Restrictions: Ternium Argentina faces significant foreign exchange restrictions. While imports are currently covered, restrictions on distributing dividends or paying royalties to related parties remain. Further tightening could adversely affect operations.
- Legal Contingencies:
- CSN Litigation: A lawsuit regarding a 2012 tender offer for Usiminas shares is pending before Brazil's Superior Court of Justice. Ternium believes claims are groundless and has recorded no provision.
- Usiminas Shareholder Claims: A CVM staff determination regarding a 2014 acquisition of Usiminas shares is under appeal. Ternium may be required to sell excess shares or launch a tender offer if the appeal fails.
- Commitments: Significant purchase commitments exist for petcoke ($247.6 million outstanding) and iron ore/pellets in Argentina ($1.34 billion estimated total).
Investor Verification Checklist
- Verify the sustainability of steel pricing and volume growth given the volatility in raw material costs (iron ore, coal) linked to the Russia-Ukraine conflict.
- Monitor the status of foreign exchange restrictions in Argentina and their potential impact on Ternium Argentina's ability to repatriate earnings or service debt.
- Review the progress of the CSN tender offer litigation and the CVM appeal regarding Usiminas shares for potential future cash outflows.
- Assess the impact of the significant foreign exchange loss ($53.4 million) on future earnings, particularly given the company's multi-currency exposure.
- Confirm the recoverability of the investment in Usiminas, where market value ($692.8 million) remains below carrying value ($859.7 million), though no impairment was recognized.