Ternium Announces Fourth Quarter and Full Year 2013 Results

LUXEMBOURG--(Marketwired - Feb 19, 2014) -  Ternium S.A. ( NYSE : TX ) today announced its results for the fourth quarter and full year period ended December 31, 2013.

The financial and operational information contained in this press release is based on Ternium S.A.'s operational data and consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and presented in U.S. dollars (USD) and metric tons.

Summary of Fourth Quarter 2013 Results

                   
    4Q 2013 1     3Q 2013 1     4Q 2012 2  
                               
Steel Shipments (tons)   2,232,000     2,302,000     -3 %   2,168,000     3 %
Iron Ore Shipments (tons)   994,000     930,000     7 %   497,000     100 %
Net Sales (USD million)   2,116.0     2,143.8     -1 %   2,071.0     2 %
Operating Income (USD million)   295.6     266.1     11 %   123.4     139 %
EBITDA (USD million)   390.0     358.4     9 %   227.6     71 %
EBITDA per Ton 3 (USD)   174.7     155.7           105.0        
EBITDA Margin (% of net sales)   18.4 %   16.7 %         11.0 %      
Equity in Losses of Non-Consolidated Companies   (4.5 )   (0.9 )         (295.8 )      
Net Income (Loss)(USD million)   171.1     136.0           (231.2 )      
Equity Holders' Net Income (Loss) (USD million)   125.6     97.8           (213.8 )      
Earnings per ADS (USD)   0.64     0.50           (1.09 )      
                               
  • EBITDA 4 of USD390.0 million in the fourth quarter 2013, 9% higher than EBITDA in the third quarter 2013 as a result of higher EBITDA per ton partially offset by seasonally lower steel shipments.
  • Earnings per American Depositary Share (ADS) 5  of USD0.64 in the fourth quarter 2013
  • Capital expenditures of USD158.2 million in the fourth quarter 2013, down from USD217.5 million in the third quarter 2013.
  • Net debt position of USD1.5 billion at the end of December 2013, down from USD1.6 billion at the end of September 2013.

Ternium's operating income in the fourth quarter 2013 was USD295.6 million, USD29.5 million higher than in the third quarter 2013 as a result of a higher operating margin partially offset by seasonally lower steel shipments. Operating margin in the fourth quarter 2013 increased sequentially mainly due to higher steel revenue per ton in Mexico and Other Markets and a slight reduction in operating cost per ton 6 resulting principally from a lower cost of purchased slabs and raw materials.

Compared to the fourth quarter 2012, the company's operating income in the fourth quarter 2013 was USD172.1 million higher due to improved operating margin and steel shipments. The year-over-year increase in operating margin was mainly due to a lower operating cost per ton principally from a lower cost of purchased slabs and raw materials. In addition, operating income in the fourth quarter 2012 reflected the decreased productivity caused by the stoppage of a blast furnace in Argentina.

Net income was USD171.1 million in the fourth quarter 2013, USD35.0 million higher than net income in the third quarter 2013 mainly due to the above mentioned higher operating income. Relative to the prior-year period, net income in the fourth quarter 2013 increased by USD402.3 million mainly due to the above mentioned higher operating income and a USD298.0 million better result related to the investment in Usiminas, which in the fourth quarter 2012 included a USD275.3 million impairment charge.

Summary of Full Year 2013 Results

             
    FY 2013 1     FY 2012 2  
                   
Steel Shipments (tons)   8,988,000     8,768,000     3 %
Iron Ore Shipments (tons)   4,243,000     1,863,000     128 %
Net Sales (USD million)   8,530.0     8,608.1     -1 %
Operating Income (USD million)   1,109.4     920.6     21 %
EBITDA (USD million)   1,486.6     1,291.5     15 %
EBITDA per Ton (USD)   165.4     147.3        
EBITDA Margin (% of net sales)   17.4 %   15.0 %      
Equity in Losses of Non-Consolidated Companies   (31.6 )   (346.8 )      
Net Income (USD million)   592.9     190.9        
Equity Holders' Net Income (USD million)   455.4     142.0        
Earnings per ADS (USD)   2.32     0.72        
                   
  • EBITDA 7 of USD1.5 billion in 2013, 15% higher than EBITDA in 2012 as a result of higher EBITDA per ton and steel shipments.
  • Earnings per ADS 8  of USD2.32 in 2013.
  • Capital expenditures of USD883.3 million in 2013, down from USD1.0 billion in 2012.

Operating income in 2013 was USD1.1 billion, 21% higher than in 2012 mainly due to higher operating margin and a 220,000 ton increase in steel shipments, as well as higher iron ore shipments to third parties as a result of the proportional consolidation in 2013 of Peña Colorada's mining operations. Operating margin in 2013 increased principally due to lower operating cost per ton, which resulted mainly from a lower cost of purchased slabs and raw materials, partially offset by lower steel revenue per ton in Mexico and Other Markets.

Net income in 2013 was USD592.9 million, USD402.0 million higher than net income in 2012, mainly due to a USD328.6 million better result related to the investment in Usiminas, which in 2012 included a USD275.3 million impairment charge, and a USD188.8 million higher operating income, partially offset by higher net financial and income tax expenses.

Mexican Power Plant Investment

Following the execution of an August 2013 memorandum of understanding for the construction and operation of a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico, as of February 2014, Ternium, Tenaris and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Ternium and Tenaris) have completed their initial investments in Techgen, S.A. de C.V., a Mexican project company owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris. Tenaris and Ternium have also agreed to enter into power supply and transportation agreements with Techgen, pursuant to which Ternium and Tenaris will contract 78% and 22%, respectively, of Techgen's power capacity of between 850 and 900 megawatts.

Annual Dividend Proposal

Ternium's board of directors proposed that an annual dividend of USD0.075 per share (USD0.75 per ADS), or approximately USD150.4 million in the aggregate, be approved at the company's annual general shareholders' meeting, which is scheduled to be held on May 7, 2014. If the annual dividend is approved at the shareholders' meeting, it will be paid on May 16, 2014, with record-date of May 13, 2014.

Outlook

Ternium expects steel shipments to increase sequentially in the first quarter 2014, with an improvement in sales to industrial customers in Mexico partially offset by seasonally weaker volumes in Argentina. The company anticipates a relatively stable operating income in the first quarter 2014 compared to the fourth quarter 2013, as a result of the above mentioned increase in shipments being offset by a slightly lower operating margin, with a decrease in revenue per ton and stable operating cost per ton.

Analysis of Fourth Quarter 2013 Results

Net income attributable to Ternium's equity holders in the fourth quarter 2013 was USD125.6 million, compared to a net loss of USD213.8 million in the fourth quarter 2012. Including non-controlling interest, net income for the fourth quarter 2013 was USD171.1 million, USD402.3 million higher in comparison with the fourth quarter 2012. Earnings per ADS in the fourth quarter 2013 were USD0.64 compared to losses per ADS of USD1.09 in the fourth quarter 2012.

Net sales in the fourth quarter 2013 were USD2.1 billion, 2% higher than net sales in the fourth quarter 2012, mainly as a result of higher steel products net sales in Southern Region and Mexico, partially offset by lower steel products net sales in Other Markets. The following table shows Ternium's total consolidated net sales for the fourth quarter 2013 and 2012:

       
    Net Sales (million USD)  
    4Q 2013     4Q 2012     Dif.  
  Mexico   1,080.1     1,041.1     4 %
  Southern Region   747.1     691.5     8 %
  Other Markets   270.6     323.8     -16 %
Total steel products net sales   2,097.8     2,056.4     2 %
  Other products 1   10.9     7.9     38 %
Total steel segment net sales   2,108.7     2,064.3     2 %
                   
Total mining segment net sales   110.1     47.1     134 %
Intersegment eliminations   (102.8 )   (40.4 )   155 %
Total net sales   2,116.0     2,071.0     2 %
                   
1 The item "Other products" primarily includes pig iron and pre-engineered metal buildings.
                   

Cost of sales was USD1.6 billion in the fourth quarter 2013, a decrease of USD120.7 million compared to the fourth quarter 2012. This was principally due to a USD152.1 million, or 11%, decrease in raw material and consumables used, mainly reflecting a decrease in raw material and purchased slabs costs, partially offset by a 3% increase in shipment volumes and higher energy costs; and a USD31.4 million increase in other costs, including a USD24.5 million increase in labor cost and a USD14.5 million increase in maintenance expenses.

Selling, General & Administrative (SG&A) expenses in the fourth quarter 2013 were USD210.4 million, or 9.9% of net sales, an increase of USD13.5 million compared to the fourth quarter 2012, mainly due to higher taxes and contributions (other than income tax) and labor expenses, partially offset by lower services expenses.

Operating income in the fourth quarter 2013 was USD295.6 million, or 14.0% of net sales, compared to operating income of USD123.4 million, or 6.0% of net sales, in the fourth quarter 2012. The following table shows Ternium's operating income by segment for the fourth quarter 2013 and the fourth quarter 2012:

                 
  Steel segment   Mining segment   Intersegment eliminations   Total  
USD million 4Q 2013   4Q 2012   4Q 2013   4Q 2012   4Q 2013   4Q 2012   4Q 2013   4Q 2012  
Net Sales 2,108.7   2,064.3   110.1   47.1   (102.8 ) (40.4 ) 2,116.0   2,071.0  
Cost of sales (1,646.3 ) (1,745.8 ) (66.4 ) (25.1 ) 102.5   40.0   (1,610.2 ) (1,730.9 )
SG&A expenses (205.5 ) (196.6 ) (4.9 ) (0.4 ) -   -   (210.4 ) (197.0 )
Other operating income, net 0.4   (19.7 ) (0.2 ) 0.0   -   -   0.2   (19.7 )
Operating income (expense) 257.2   102.3   38.7   21.6   (0.3 ) (0.4 ) 295.6   123.4  
                                 
EBITDA 340.2   202.1   50.1   25.9   (0.3 ) (0.4 ) 390.0   227.6  
                                 

Steel reporting segment

The steel segment's operating income was USD257.2 million in the fourth quarter 2013, an increase of USD154.9 million compared to the fourth quarter 2012, reflecting higher sales and lower operating cost. In addition, other income & expenses included in the fourth quarter 2012 non-recurring charges of USD19.9 million related to write-downs of PP&E.

Net sales of steel products in the fourth quarter 2013 increased 2% compared to the fourth quarter 2012, reflecting an USD8 decrease in revenue per ton, mainly due to lower steel prices in the Southern Region and Mexico. Shipments increased 64,100 tons, or 3%, compared to the fourth quarter 2012, mainly due to higher sales volume in the Southern Region and Mexico, partially offset by lower sales volume in Others Markets.

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