Ternium S.A. Form 6-K Summary
Business Context and Reporting Period
This filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the nine-month period ended September 30, 2021. 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 of South America.
Key Financial Metrics (Nine Months Ended Sept 30, 2021)
| Metric | 2021 (USD Millions) | 2020 (USD Millions) |
|---|---|---|
| Net Sales | 11,761.1 | 6,155.8 |
| Gross Profit | 4,586.0 | 969.9 |
| Gross Margin | 38.9% | 15.8% |
| Operating Income | 3,912.6 | 208.2 |
| Net Profit (Total) | 3,231.4 | 3.2 |
| Net Profit (Attributable to Owners) | 2,827.1 | (16.0) |
| Diluted EPS (Attributable to Owners) | $1.44 | ($0.01) |
| Operating Cash Flow | 1,542.2 | 1,406.4 |
| Total Borrowings | 1,500.5 | 3,096.6 (Dec 31, 2020) |
| Cash and Cash Equivalents | 947.6 | 537.9 (Dec 31, 2020) |
Material Changes vs. Prior Period
- Revenue Surge: Net sales increased 91% year-over-year, driven by higher steel prices and volumes across all regions. Mexico contributed $6.77 billion in sales, followed by Brazil and other markets ($2.56 billion) and the Southern Region ($2.43 billion).
- Profitability Expansion: Operating income jumped from $208.2 million in 2020 to $3.91 billion in 2021. Gross margin expanded significantly from 15.8% to 38.9%.
- Turnaround in Net Income: The company moved from a net loss of $16.0 million attributable to owners in the prior period to a net profit of $2.83 billion.
- Debt Reduction: Total borrowings decreased significantly from $3.10 billion at year-end 2020 to $1.50 billion as of September 30, 2021, reflecting strong cash generation and debt repayment.
- Investment Income: Equity in earnings of non-consolidated companies (primarily Usiminas) contributed $302.0 million, compared to a negligible loss in the prior year.
Outlook, Risks, and Contingencies
- Management Commentary: Management notes that negative pandemic effects on steel demand have passed, with facilities operating at normal levels. The company maintains adequate liquidity and access to credit markets.
- Argentina FX Restrictions: Significant foreign exchange restrictions in Argentina limit the ability to distribute dividends or pay royalties to related parties at the official exchange rate. However, these restrictions have not materially impacted the ability to import goods or services.
- Legal Contingencies:
- CSN Litigation: A lawsuit regarding a tender offer for Usiminas shares is pending before the Superior Court of Justice in Brazil. Ternium believes the claims are groundless and has recorded no provision.
- ICMS Tax Benefit: A long-standing dispute regarding an ICMS tax deferral in Brazil was resolved in late 2020. Comparative 2020 figures were adjusted to reflect the finalization of this matter, removing a previously recognized gain.
- Dividends: A dividend of $0.21 per share ($2.10 per ADS) was approved and paid in May 2021, totaling approximately $421 million.
Investor Verification Checklist
- Verify the sustainability of the 38.9% gross margin given the cyclical nature of steel pricing.
- Monitor the status of the CSN tender offer litigation and potential financial exposure.
- Assess the impact of Argentine foreign exchange controls on the repatriation of earnings from Ternium Argentina.
- Review the reconciliation between IFRS operating income and the "Management view" operating income, which utilizes direct cost methodology.
- Confirm the valuation of the Usiminas investment ($633.4 million carrying value vs. $726.3 million market value) and the terms of the shareholders' agreement.