Business Context and Reporting Period
This Form 6-K filing, dated March 21, 2017, serves as a report of a Foreign Private Issuer for Ternium S.A., a leading steel producer in Latin America. The filing primarily notifies shareholders of the Annual General Meeting scheduled for May 3, 2017, and furnishes the Company's 2016 Annual Report. The financial data presented covers the fiscal year ended December 31, 2016, with comparative figures for 2015 and 2014.
Key Financial Metrics (Year Ended Dec 31, 2016)
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Net Sales | $7,224.0 million | $7,877.4 million | -8.3% |
| Operating Income | $1,141.7 million | $639.3 million | +78.6% |
| EBITDA | $1,548.6 million | $1,073.1 million | +44.3% |
| Net Profit (Consolidated) | $706.9 million | $59.8 million | +1,082% |
| Net Profit (Parent) | $595.6 million | $8.1 million | N/A |
| Free Cash Flow | $664.1 million | $856.8 million | -22.5% |
| Net Financial Debt | $884.3 million | $1,132.3 million | -21.9% |
| Steel Shipments | 9.76 million tons | 9.60 million tons | +1.7% |
Note: The Company's annual accounts under Luxembourg law reported a loss for 2016, while consolidated IFRS statements reported a profit of $706.9 million.
Material Changes vs. Prior Period
- Profitability Surge: Operating income increased by 79% and consolidated net profit rose significantly from $59.8 million to $706.9 million. This improvement was driven by a 17% decrease in operating cost per ton, which offset a 9% decrease in revenue per ton.
- Regional Performance: Mexico was the primary growth driver, with shipments increasing 8% to 6.4 million tons. Conversely, the Southern Region (primarily Argentina) saw shipments decline 13% due to macroeconomic adjustments and recession in neighboring Brazil.
- Debt Reduction: Total financial debt decreased by $302.4 million to $1.2 billion, and net financial debt fell to $0.9 billion (0.6x EBITDA).
- Usiminas Investment: Equity in earnings of non-consolidated companies turned positive ($14.6 million gain) compared to a $272.8 million loss in 2015, which included a significant impairment charge on the Usiminas investment.
Guidance, Outlook, and Material Events
- Dividend Proposal: The Board proposes an annual dividend of USD 0.10 per share (USD 1.00 per ADR), totaling approximately $196 million, payable on May 12, 2017, subject to shareholder approval.
- Major Acquisition: On February 21, 2017, Ternium signed a definitive agreement to acquire CSA Siderúrgica do Atlântico (CSA) from thyssenkrupp AG for an enterprise value of €1.5 billion. The transaction is expected to close by September 30, 2017, and will be financed entirely with debt.
- Capital Expenditures: The Company announced a new investment plan for hot-dip galvanizing and pre-painting lines in Pesquería, Mexico, with an estimated cost of $260 million.
- Risks: Management highlights risks related to global steel overcapacity (specifically from China), currency volatility (notably the Argentine peso), and the potential impact of trade measures on steel imports.
Investor Verification Checklist
- Dividend Approval: Confirm the outcome of the May 3, 2017, shareholder vote regarding the proposed $1.00 per ADS dividend.
- CSA Acquisition Status: Monitor regulatory approvals (Brazil, Germany, U.S.) and the final closing date of the €1.5 billion CSA acquisition.
- Argentina Exposure: Review the impact of Argentine peso devaluation and local economic recovery on the Southern Region's future shipments and margins.
- Debt Capacity: Assess the impact of the planned debt-financed CSA acquisition on the Company's leverage ratios and liquidity position.
- Usiminas Performance: Track the financial recovery of Usiminas following its capital increase and debt restructuring to ensure continued positive equity earnings.