Ternium S.A. Form 6-K Summary: Q4 and Full Year 2010 Results
Business Context and Reporting Period
This filing reports the fourth quarter and full-year 2010 results for Ternium S.A., a leading steel manufacturer in Latin America with principal operations in Mexico and Argentina. The reporting period covers the twelve months ended December 31, 2010. Financial statements are prepared under IFRS and presented in U.S. dollars.
Key Financial Metrics
| Metric | Q4 2010 | Q4 2009 | Full Year 2010 | Full Year 2009 |
|---|---|---|---|---|
| Net Sales (US$ million) | 1,927.5 | 1,365.2 | 7,382.0 | 4,959.0 |
| Operating Income (US$ million) | 133.7 | 216.1 | 1,053.9 | 296.4 |
| EBITDA (US$ million) | 237.0 | 315.9 | 1,437.2 | 708.5 |
| EBITDA Margin | 12.3% | 23.1% | 19.5% | 14.3% |
| Net Income (US$ million) | 102.8 | 194.8 | 779.5 | 767.1 |
| Equity Holders' Net Income (US$ million) | 77.5 | 159.3 | 622.1 | 717.4 |
| Earnings per ADS (US$) | 0.39 | 0.79 | 3.10 | 3.58 |
| Shipments (tons) | 2,106,000 | 1,655,000 | 8,055,000 | 6,361,000 |
| Free Cash Flow (US$ million) | 95.3 | 9.7 | 456.7 | 953.2 |
| Net Cash Position (US$ billion) | 0.75 (as of Dec 31, 2010) |
Material Changes vs. Prior Period
- Quarterly Decline: Q4 2010 operating income and net income dropped significantly compared to Q3 2010 (down 50% and 49% respectively) and Q4 2009 (down 38% and 47% respectively). This was driven by higher raw material and purchased slab costs, which outpaced revenue per ton increases.
- Annual Growth: Full-year 2010 operating income surged 256% year-over-year, and EBITDA increased 103%. This growth was fueled by a 27% increase in shipments and an 18% increase in revenue per ton, reflecting a recovery from the 2009 global economic downturn.
- Discontinued Operations: Full-year 2009 included a one-time $428.0 million gain from the transfer of Sidor shares to Venezuela. No such gain occurred in 2010, impacting the year-over-year comparison of net income attributable to equity holders.
- Working Capital: Operating cash flow for the full year decreased to $806.8 million from $1.2 billion in 2009, primarily due to a $448.0 million increase in working capital (higher inventory and receivables) compared to a decrease in 2009.
Outlook, Commentary, and Risks
- Management Outlook: Ternium expects operating income to improve in Q1 2011 compared to Q4 2010, driven by a recovery in operating margins in North America due to higher prices and shipment levels. The company anticipates continued economic growth in South America and accelerated growth in the NAFTA region in 2011.
- Dividend Proposal: The Board proposed an annual dividend of $0.075 per share ($0.75 per ADS), totaling approximately $150.4 million, subject to shareholder approval at the June 1, 2011 meeting.
- Capital Structure: Following a secondary public offering by Usiminas and subsequent repurchases by Ternium and Techint, the free float of shares increased from 13.65% to 24.44%.
- Risks: Forward-looking statements are subject to risks including global GDP uncertainty, market demand fluctuations, production capacity, tariffs, and cyclicality in steel-consuming industries.
Investor Verification Checklist
- Verify the impact of rising raw material and slab costs on future margins, given the Q4 compression.
- Confirm the approval of the proposed $150.4 million annual dividend at the June 2011 shareholder meeting.
- Monitor the realization of the projected Q1 2011 margin recovery in the North America region.
- Review the sustainability of the $0.75 billion net cash position amidst increased capital expenditures ($350.1 million in 2010).
- Assess the volatility of foreign exchange results, specifically the non-cash gains from Mexican Peso revaluation on USD-denominated debt.