Ternium S.A. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K filing, dated February 24, 2009, presents the consolidated financial statements of Ternium S.A., a Luxembourg-based holding company for flat and long steel manufacturing and distribution operations. The report covers the fiscal years ended December 31, 2009, 2008, and 2007. The company operates primarily in South and Central America and North America.
Key Financial Metrics (Year Ended Dec 31, 2009)
| Metric | 2009 (USD '000) | 2008 (USD '000) |
|---|---|---|
| Net Sales | 4,958,983 | 8,464,885 |
| Gross Profit | 848,613 | 2,336,858 |
| Operating Income | 296,383 | 1,676,047 |
| Profit for the Year | 767,124 | 875,164 |
| Profit Attributable to Equity Holders | 717,400 | 715,418 |
| Net Cash from Operating Activities | 1,161,758 | 517,513 |
| Cash and Cash Equivalents (Year End) | 2,095,798 | 1,065,552 |
| Total Borrowings | 2,326,729 | 3,267,327 |
| Total Assets | 10,292,673 | 10,671,247 |
Margins: Gross margin declined to 17.1% in 2009 from 27.6% in 2008. Operating margin fell to 6.0% from 19.8%.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased by 41.4% to approximately $4.96 billion, driven by the global financial crisis and reduced steel demand.
- Discontinued Operations Impact: The 2009 profit includes a significant gain of $428.0 million from the disposal of Sidor (Venezuela) and $97.5 million from the prior sale of non-strategic U.S. assets. Without these discontinued operations, continuing operations profit was $339.1 million, a decrease from $718.1 million in 2008.
- Debt Reduction: Total borrowings decreased by $940.6 million (28.8%) to $2.33 billion, reflecting aggressive deleveraging.
- Liquidity Improvement: Cash and cash equivalents nearly doubled to $2.10 billion, supported by strong operating cash flow of $1.16 billion and proceeds from the Sidor transaction.
- Impairment Charges: The company recorded a $27.0 million impairment charge related to an intangible asset (Corus agreement) in 2009.
Outlook, Risks, and Contingencies
- Sidor Compensation Receivable: Following the nationalization of Sidor, Ternium holds a receivable of approximately $964.4 million (carrying value) from the Venezuelan government (CVG). As of the filing date, a payment of $298.9 million (principal and interest) due in February 2010 had not been received. The company reserves rights to pursue claims under international law if payments are not made.
- Corus Arbitration: Ternium is involved in ongoing arbitration with Corus UK regarding the early termination of a steel slab off-take agreement. Corus claims damages exceeding $150 million; Ternium has filed counterclaims. The outcome remains uncertain.
- Market Risks: The company faces exposure to foreign exchange volatility (primarily Mexican Peso and Argentine Peso) and commodity price fluctuations. A 1% weakening of the MXN and ARS against the USD would reduce pre-tax income by approximately $19.6 million.
- Investment Plan Adjustments: Due to the financial crisis, Siderar (Argentina) has rescheduled its investment plan and renegotiated raw material purchase commitments.
Investor Verification Checklist
- Sidor Receivable Status: Verify the collection status of the $1.02 billion outstanding Sidor compensation payments and any subsequent legal developments regarding the Venezuelan government's compliance.
- Continuing Operations Profitability: Analyze the sustainability of earnings from continuing operations ($339 million) excluding the one-time gains from discontinued operations.
- Corus Litigation Exposure: Monitor the progress of the arbitration with Corus and potential liability caps or counterclaim outcomes.
- Debt Covenants: Review compliance with financial covenants (leverage and interest coverage ratios) given the reduced operating income in 2009.
- Raw Material Commitments: Assess the impact of renegotiated raw material contracts where purchase prices may exceed current market conditions.