Ternium S.A. Form 6-K Summary
Business Context and Reporting Period
This filing contains the unaudited consolidated condensed interim financial statements for Ternium S.A. for the nine-month period ended September 30, 2013. Ternium is a global steel manufacturer organized into two reportable segments: Steel and Mining. The company operates primarily in Mexico, the Southern Cone (Argentina, Paraguay, Chile, Bolivia, Uruguay), and other markets including the United States and Central America.
Key Financial Metrics (Nine Months Ended Sept 30, 2013)
| Metric | 2013 (USD millions) | 2012 (USD millions) |
|---|---|---|
| Net Sales | 6,414.0 | 6,537.1 |
| Gross Profit | 1,423.9 | 1,401.6 |
| Operating Income | 813.9 | 797.2 |
| Profit for the Period | 421.9 | 422.1 |
| Profit Attributable to Equity Holders | 329.8 | 355.8 |
| Basic EPS (USD) | 0.17 | 0.18 |
| Net Cash Provided by Operating Activities | 845.5 | 778.6 |
| Cash and Cash Equivalents (Ending) | 323.4 | 327.6 |
| Total Borrowings (Current + Non-current) | 2,095.9 | 2,428.1 |
Note: All figures are in USD thousands in the source; converted to millions for summary. Gross margin for the nine-month period was approximately 22.2% in 2013 versus 21.4% in 2012.
Material Changes vs. Prior Period
- Revenue: Net sales decreased by 1.9% year-over-year, driven primarily by a decline in the Mexico operating segment (down 7.6%) partially offset by growth in the Southern Region (up 7.2%).
- Profitability: While total profit for the period remained flat, profit attributable to equity holders decreased by 7.3% due to a higher share of profit allocated to non-controlling interests.
- Cost Structure: Cost of sales decreased by 2.8%, outpacing the revenue decline, resulting in an improved gross profit margin.
- Debt Reduction: Total borrowings decreased by approximately $332 million compared to the prior year, reflecting net repayments of $218 million during the period.
- Accounting Changes: Starting January 1, 2013, the company applied IFRS 11 to its 50% interest in Peña Colorada and Exiros, moving these from equity method accounting to line-by-line consolidation within the Mining segment.
Outlook, Risks, and Unusual Items
- Strategic Investment: Ternium, Tenaris, and Tecpetrol announced a memorandum of understanding to jointly build a 850-900 MW natural gas-fired power plant in Mexico with an estimated investment of $1.0 billion, expected to be operational in Q4 2016.
- Tax Contingencies:
- Argentina: A new 10% withholding tax on dividends enacted in September 2013 resulted in a $24.0 million deferred tax provision.
- Mexico: A tax assessment regarding a 2004 capital reduction was settled in May 2013 for approximately $34 million under a tax amnesty program.
- Argentina (Siderar): A tax claim by AFIP for fiscal years 1995-1999 remains under appeal; a provision of $1.6 million has been recorded.
- Legal Proceedings: A lawsuit filed by CSN in Brazil regarding a tender offer requirement for Usiminas shares was dismissed by a first-instance court in September 2013, though the decision is subject to appeal. No provision was recorded.
- Dividends: The company paid dividends of $0.065 per share ($0.65 per ADS) totaling approximately $130.3 million in May 2013.
Investor Verification Checklist
- Verify the impact of the new Argentine 10% dividend withholding tax on future cash distributions.
- Monitor the status of the CSN lawsuit in Brazil and potential appeal outcomes.
- Review the progress and regulatory approvals for the $1.0 billion Mexico power plant joint venture.
- Assess the sustainability of the improved gross margin given the decline in net sales volume in the Mexico segment.
- Confirm the classification and liquidity of the $161 million in "other investments" with maturities over three months.