SOURCE: Ternium S.A.

May 04, 2009 16:00 ET

Ternium Announces First Quarter 2009 Results

LUXEMBOURG--(Marketwire - May 4, 2009) - Ternium S.A. (NYSE: TX) today announced its results for the first quarter ended March 31, 2009.

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

Summary of First Quarter 2009 Results(1)


                              1Q 2009    4Q 2008           1Q 2008

Shipments (tons)             1,504,000  1,547,000     -3% 2,088,000    -28%

Net Sales (US$ million)        1,174.7    1,721.1    -32%   1,942.6    -40%
Operating Income (Loss) (US$
 million)                        (26.5)     186.3   -114%     359.4
EBITDA (US$ million)              95.0      281.1    -66%     464.4    -80%
EBITDA Margin (% of net
 sales)                              8%        16%               24%
EBITDA per Ton, Flat & Long
 Steel (US$/ton)                    55        158    -65%       212    -74%
Net Foreign Exchange Result
 (US$ million)                  (160.5)    (622.5)             40.2
Discontinued Operations
 Result (US$ million)                -          -             159.9
Net Income (Loss) (US$
 million)                       (117.0)    (348.5)            480.7
Equity Holders' Net Income
 (Loss) (US$ million)            (93.2)    (334.0)            422.1
Earnings (Loss) per ADS
 (US$)                           (0.46)     (1.67)             2.11

--  EBITDA(2) of US$95.0 million in the first quarter 2009, down 66%
    quarter-over-quarter, as revenue per ton decreased US$301 compared to the
    fourth quarter 2008, while operating cost per ton decreased US$197.
--  Loss per American Depositary Share (ADS)(3) of US$0.46 in the first
    quarter 2009, which includes a US$0.86 non-cash foreign exchange loss per
    ADS on Ternium's Mexican subsidiary's US dollar denominated debt.
--  Positive free cash flow(4) of US$341.0 million in the first quarter
    2009, as Ternium reduced its steel inventories by 366,000 tons and its
    capital expenditures by 60% compared to the fourth quarter 2008.
--  Net financial debt(5) of US$1.8 billion at the close of the first
    quarter 2009, a decrease of US$345.4 million compared to the close of the
    fourth quarter 2008.
    

Ternium's operating result in the first quarter 2009 was a loss of US$26.5 million, compared to a gain of US$186.3 million in the fourth quarter 2008, mainly due to lower gross margin. Additionally, the operating loss in the first quarter 2009 included a US$123.1 million loss related to the write-down of Ternium's inventory compared to a US$68.3 million inventory related write-down in the fourth quarter 2008. Revenue per ton decreased US$301 in the first quarter 2009 when compared to the fourth quarter 2008, while operating cost per ton decreased US$197.

The operating result in the first quarter 2009 was US$385.9 million lower than that of the first quarter 2008, mainly due to a 28% decrease in shipments and a 16% decrease in revenue per ton. There was no write-down of inventories recorded in the first quarter 2008.

Ternium had a net loss of US$117.0 million in the first quarter 2009, compared to a net loss of US$348.5 million in the fourth quarter 2008. The quarter-over-quarter improvement was mainly due to a US$462.0 million reduction in net foreign exchange loss, partially offset by a US$212.8 million reduction in operating income and a US$49.3 million reduction in income tax benefit.

The first quarter 2009 net loss compared to a net gain of US$480.7 million in the first quarter 2008. This year-over-year decrease was mainly due to a US$385.9 million lower operating result, a US$200.8 million lower net foreign exchange result and the absence in the first quarter 2009 of a US$159.9 million discontinued operations gain present in the first quarter 2008, partially offset by a US$106.4 million reduction in income tax expense.

Net foreign exchange result during the first quarter 2009 was a loss of US$160.5 million, compared to a loss of US$622.5 million in the fourth quarter 2008 and a gain of US$40.2 million in the first quarter 2008. The net foreign exchange losses in the first quarter 2009 and fourth quarter 2008 were primarily due to the Mexican Peso's 6% and 25% devaluation, respectively, on Ternium's Mexican subsidiary's US dollar denominated debt. These results are non-cash when measured in US dollars and are offset by changes in Ternium's net equity position in the currency translation adjustments line.

Ternium's financial debt at the end of the first quarter 2009 was US$2.9 billion, while the company's cash, cash equivalents and other liquid investments totaled US$1.2 billion as of March 31, 2009. The company's net financial debt of US$1.8 billion at the close of the first quarter 2009 decreased by US$345.4 million from its net financial debt position as of December 31, 2008.

Outlook

Ternium expects apparent demand in its main markets to remain weak in the second quarter 2009 as a result of the continued reduction of steel inventories. In the second half of 2009, the company anticipates shipments to gradually increase, prices to remain weak due to the steel industry's low capacity utilization in Ternium's regions and costs to be reduced by lower price of steel making inputs and the initiatives that Ternium is carrying out to adjust to the current environment.

The company anticipates a lower net debt position at the close of the second quarter 2009, mainly as a result of a continuing decline in working capital needs and a low level of capital expenditures. Ternium plans to achieve a balance between inventory levels and expected demand in the third quarter 2009.

Analysis of First quarter 2009 Results

Net loss attributable to Ternium's equity holders in the first quarter 2009 was US$93.2 million, compared with net income attributable to the company's equity holders of US$422.1 million in the first quarter 2008. Including minority interest, net loss for the first quarter 2009 was US$117.0 million, compared with net income of US$480.7 million in the first quarter 2008. Loss per ADS for the first quarter 2009 was US$0.46, compared with earnings per ADS of US$2.11 in the first quarter 2008.

Net sales in the first quarter 2009 were US$1.2 billion, 40% lower than net sales in the first quarter 2008. Shipments of flat and long products were 1.5 million tons during the first quarter 2009, a decrease of 28% compared to shipment levels in the first quarter 2008, mainly due to a decrease in demand in Ternium's main steel markets. Revenue per ton shipped was US$761 in the first quarter 2009, a decrease of 16% compared to the same quarter in 2008, mainly as a result of lower prices and a less favorable market mix.



               Net Sales (million   Shipments (thousand    Revenue / ton
                       US$)                tons)             (US$/ton)
                                                          1Q    1Q
               1Q 2009 1Q 2008 Dif. 1Q 2009 1Q 2008 Dif. 2009  2008    Dif.

  South &
   Central
   America       358.0   635.8 -44%   363.7   673.0 -46%  984   945      4%
  North
   America       545.6 1,021.0 -47%   704.0 1,080.0 -35%  775   945    -18%
  Europe &
   other          93.3     4.8        170.9     4.8       546 1,008    -46%
               ------- ------- ---  ------- ------- ---  ---- ----- ------
Total flat
 products        996.8 1,661.6 -40% 1,238.5 1,757.7 -30%  805   945    -15%

  South &
   Central
   America        11.4    36.4 -69%    23.1    56.7 -59%  493   643    -23%
  North
   America       134.8   186.4 -28%   239.4   265.3 -10%  563   703    -20%
  Europe &
   other           2.0     5.2 -61%     3.0     8.8 -66%  666   587     14%
               ------- ------- ---  ------- ------- ---  ---- ----- ------
Total long
 products        148.2   228.0 -35%   265.5   330.7 -20%  558   689    -19%

Total flat and
 long products 1,145.0 1,889.6 -39% 1,504.1 2,088.5 -28%  761   905    -16%

Other
 products(1)      29.7    53.0 -44%
               ------- ------- ---

Total Net
 Sales         1,174.7 1,942.6 -40%


(1) Primarily includes iron ore, pig iron and pre-engineered metal
    buildings.


Sales of flat products during the first quarter 2009 totaled US$1.0 billion, a decrease of 40% compared with the same quarter in 2008. Net sales decreased as a result of lower shipments and revenue per ton. Shipments of flat products totaled 1.2 million tons in the first quarter 2009, a decrease of 30% compared with the same period in 2008, mainly due to a decrease in demand in Ternium's main steel markets. Revenue per ton shipped decreased 15% to US$805 in the first quarter 2009 compared with the same period in 2008, mainly due to lower steel prices and a less favorable market mix.

Sales of long products were US$148.2 million in the first quarter 2009, a decrease of 35% compared to the same period in 2008 mainly due to lower volumes and prices. Shipments of long products totaled 266,000 tons in the first quarter 2009, a 20% decrease versus the same quarter in 2008, due to lower demand in Ternium's billet markets in the South & Central America Region. Revenue per ton shipped was US$558 in the first quarter 2009, a decrease of 19% compared to the first quarter 2008, mainly due to lower steel prices.

Sales of other products totaled US$29.7 million during the first quarter 2009, compared to US$53.0 million during the first quarter 2008. The decrease was mainly driven by lower iron ore shipments and reduced revenue from other items including pig iron and metal building components.

Sales of flat and long products in the North America Region were US$680.4 million in the first quarter 2009, a decrease of 44% versus the same period in 2008, due to lower shipments and prices. Shipments in the region totaled 943,000 tons during the first quarter 2009, or 30% lower than in the same period in 2008 as a result of lower demand in the region's main markets. Revenue per ton shipped in the region decreased 20% to US$721 in the first quarter 2009 over the same quarter in 2008, mainly due to lower prices.

Flat and long product sales in the South & Central America Region were US$369.3 million during the first quarter 2009, a decrease of 45% versus the same period in 2008. This decrease was mainly due to lower shipments. Shipments in the region totaled 387,000 tons during the first quarter 2009, or 47% lower than in the first quarter 2008, due to the lower overall steel demand in the region. Revenue per ton shipped was US$955 in the first quarter 2009, an increase of 4% compared to the same quarter in 2008, mainly due to a higher priced product mix.

Cost of sales totaled US$1.0 billion in the first quarter 2009 compared to US$1.4 billion in the first quarter 2008. Cost of sales decreased mainly as a result of lower shipments. The relatively stable cost per ton year-over-year was due to higher raw material costs and a US$123.1 million inventory write-down during the first quarter 2009, offset by lower energy costs, the effect in the first quarter 2009 on cost of sales from inventory write-downs performed in previous quarters and the impact of the reduction in the US dollar value of inventories at the beginning of the year and purchased during the period, which resulted mainly from the devaluation of the Mexican Peso and Argentine Peso relative to the US dollar.

In the first quarter 2009 the average price of scrap and energy in Mexico and the average price of zinc in the international markets were lower than in the first quarter 2008, reflecting the continued steep reduction in commodity prices that began in the second half of 2008. Coal and third party iron ore prices were higher during the first quarter 2009 than they were in the same period in 2008, mainly as a result of higher annual contract prices.

Selling, General & Administrative (SG&A) expenses in the first quarter 2009 were US$136.2 million, or 12% of net sales, compared with US$145.5 million, or 8% of net sales, in the first quarter 2008. The decrease in SG&A was mainly due to the impact of the Mexican Peso's and Argentine Peso's devaluation relative to the US Dollar on local currency denominated costs, partially offset by higher lay off charges and higher freight and logistical costs as a result of higher export volumes.

Operating results in the first quarter 2009 were a loss of US$26.5 million, compared with a gain of US$359.4 million, or 19% of net sales, in the first quarter 2008.

EBITDA in the first quarter 2009 was US$95.0 million, or 8% of net sales, compared with US$464.4 million, or 24% of net sales, in the first quarter 2008.

Net financial expenses were US$187.6 million in the first quarter 2009, compared with US$29.2 million in the first quarter 2008. During the first quarter 2009, Ternium's net interest expenses totaled US$22.6 million, a decrease of US$9.6 million compared to the first quarter 2008 due to lower indebtedness and interest rates.

Net foreign exchange result was a loss of US$160.5 million in the first quarter 2009 compared to a gain of US$40.2 million in the same period in 2008. The first quarter 2009 loss was primarily due to the impact of the Mexican Peso's 6% devaluation on Ternium's Mexican subsidiary's US dollar denominated debt. This result is non-cash when measured in US dollars and is offset by changes in Ternium's net equity position in the currency translation adjustments line, as the value of Ternium Mexico's US dollar denominated debt is not altered by the Mexican Peso's fluctuation when stated in US dollars in Ternium's consolidated financial statements. In accordance with IFRS, Ternium Mexico prepares its financial statements in Mexican Pesos and registers foreign exchange results on its net non-Mexican Pesos positions when the Mexican Peso revaluates or devaluates relative to other currencies.

Fair value of derivatives result was a loss of US$1.4 million in the first quarter 2009 compared to a loss of US$20.9 million in the first quarter 2008. This result was related to some derivative instruments entered into by Ternium mainly to mitigate the impact of interest rate fluctuations.

Income tax benefit for the first quarter 2009 was US$96.5 million, compared with an income tax expense of US$9.9 million in the same period in 2008. The first quarter 2009 result included a gain of US$35.4 million due to a favorable resolution on a tax related dispute in Mexico, while the first quarter 2008 result included a non-recurring gain of US$96.3 million on account of lower deferred tax liability.

There was no net result of discontinued operations registered for the first quarter 2009. Net result of discontinued operations in the first quarter 2008 was a gain of US$101.4 million related to the results from the sale of non-core US assets and a gain of US$58.6 million related to Sidor.

Loss attributable to minority interest for the first quarter 2009 was US$23.8 million, compared to income attributable to minority interest of US$58.6 million in the first quarter 2008, mainly due to a lower result attributable to minority interest in Siderar.

Cash Flow and Liquidity

Net cash provided by continuing operations in the first quarter 2009 was US$409.3 million, higher than the US$1.7 million in net cash provided by continuing operations in the first quarter 2008 mainly as a result of a working capital decrease of US$371.3 million in the first quarter 2009 compared to a working capital increase of US$230.1 million in the first quarter 2008, partially offset by lower operating results. The decrease in working capital in the first quarter 2009 resulted mainly from a US$379.8 million inventory reduction and a US$57.1 million decrease in trade receivables, partially offset by a US$19.8 million decrease in tax liabilities and a US$19.5 million decrease in accounts payable. Inventories decreased principally as a result of a lower volume of finished goods, goods in process and raw materials, as Ternium implemented a de-stocking process in response to lower demand for steel products, and lower costs. Trade receivables decreased due to lower volumes and sale prices during the first quarter 2009. In the first quarter 2008, working capital increased by US$230.1 million mainly as a result of higher inventory levels of goods in process and raw materials.

Capital expenditures in the first quarter 2009 were US$68.3 million, compared to US$100.5 million in the first quarter 2008. Capital expenditures during the first quarter 2009 were mainly related to the relining of a blast furnace and revamping of two coking batteries in Argentina.

In the first quarter 2009, Ternium had a positive free cash flow(6) of US$341.0 million compared to negative free cash flow(6) of US$98.8 million in the first quarter 2008. Ternium's net repayment of borrowings in the first quarter 2009 was US$321.7 million, mostly related to the payment upon maturity of some of the company's Mexican subsidiaries' outstanding debt.

As of March 31, 2009, Ternium's financial debt was US$2.9 billion, while the company's cash, cash equivalents and other investments totaled US$1.2 billion. Ternium's net financial debt(7) of US$1.8 billion at the close of the first quarter 2009 decreased US$345.4 million compared to the company's net financial debt position as of December 31, 2008. The company believes that its available cash and marketable securities and funds from operations will be sufficient to finance its operations. The company has not negotiated additional credit facilities.

Forward-Looking Statements

Some of the statements contained in this press release are "forward-looking statements." Forward-looking statements are based on management's current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements. These risks include but are not limited to risks arising from uncertainties as to gross domestic product, related market demand, global production capacity, tariffs, cyclicality in the industries that purchase steel products and other factors beyond Ternium's control.

About Ternium

Ternium is a leading steel company in Latin America, manufacturing and processing a wide range of flat and long steel products for customers active in the construction, home appliances, capital goods, container, food, energy and automotive industries. With its principal operations in Mexico and Argentina, Ternium serves markets in the Americas through its integrated manufacturing system and extensive distribution network. The Company has an annual production capacity of approximately nine million tons of finished steel products. More information about Ternium is available at www.ternium.com.

(1) Sidor's results of operations are shown as Discontinued Operations. Discontinued Operations also include results from the non-core US assets that were sold during the first quarter 2008.

(2) EBITDA in the first quarter 2009 equals operating loss of US$26.5 million plus depreciation and amortization of US$94.4 million and impairment charges related to intangible assets of US$27.0 million.

(3) Each American Depositary Share (ADS) represents 10 shares of Ternium's common stock. Results are based on a weighted average number of shares of common stock outstanding of 2,004,743,442.

(4) Free cash flow for the first quarter 2009 equals net cash provided by continuing operations of US$409.3 million less capital expenditures of US$68.3 million.

(5) Net financial debt in the first quarter 2009 equals borrowings of US$2.9 billion less cash and cash equivalents of US$1.1 billion and other investments of US$90.9 million.

(6) Free cash flow for the first quarter 2009 equals net cash provided by continuing operations of US$409.3 million less capital expenditures of US$68.3 million, while negative free cash flow for the first quarter 2008 equals net cash provided by continuing operations of US$1.7 million less capital expenditures of US$100.5 million.

(7) Net financial debt in the first quarter 2009 equals borrowings of US$ 2.9 billion less cash and cash equivalents of US$1.1 billion and other investments of US$90.9 million.


Consolidated income statement


                  US$ million                  1Q 2009   1Q 2008      Dif.

  Net sales                                    1,174.7   1,942.6    (768.0)
  Cost of sales                               (1,044.6) (1,447.7)    403.2
                                              --------  --------  --------
Gross profit                                     130.1     494.9    (364.8)
  Selling, general and administrative
   expenses                                     (136.2)   (145.5)      9.3
  Other operating (expenses) income, net         (20.4)     10.0     (30.4)
                                              --------  --------  --------
Operating (loss) income                          (26.5)    359.4    (385.9)

  Interest expense                               (27.7)    (44.3)     16.6
  Interest income                                  5.1      12.1      (7.0)
  Other financial (expenses) income, net        (165.0)      3.0    (168.0)

  Equity in earnings of associated companies       0.5       0.4       0.1
                                              --------  --------  --------
(Loss) income before income tax expense         (213.6)    330.6    (544.2)
Income tax benefit (expense)
  Current and deferred income tax benefit
   (expense)                                      96.5    (106.2)    202.7
  Reversal of deferred statutory profit
   sharing                                           -      96.3     (96.3)
Discontinued operations                              -     159.9    (159.9)
Net (loss) income for the period                (117.0)    480.7    (597.7)

Attributable to:
  Equity holders of the Company                  (93.2)    422.1    (515.3)
  Minority interest                              (23.8)     58.6     (82.4)
                                              --------  --------  --------
                                                (117.0)    480.7    (597.7)





Consolidated balance sheet



                                                    March 31,  December 31,
                        US$ million                   2009         2008

  Property, plant and equipment, net                   3,935.6      4,212.3
  Intangible assets, net                               1,036.1      1,136.4
  Investment in associated companies                       6.0          5.6
  Other investments, net                                  16.5         16.9
  Receivables, net                                       116.3        120.2
                                                   -----------  -----------
Total non-current assets                               5,110.6      5,491.4

  Receivables                                            296.7        249.0
  Derivative financial instruments                           -          1.5
  Inventories, net                                     1,345.0      1,826.5
  Trade receivables, net                                 549.1        623.0
  Available for sale assets                            1,318.9      1,318.9
  Other investments                                       90.9         90.0
  Cash and cash equivalents                            1,080.4      1,065.6
                                                   -----------  -----------
Total current assets                                   4,680.9      5,174.5

Non-current assets classified as held for sale            16.5          5.3
                                                   -----------  -----------

Total assets                                           9,808.1     10,671.2

Shareholders' equity                                   4,364.7      4,597.4
Minority interest in subsidiaries                        887.1        964.1

Minority interest & shareholders' equity               5,251.9      5,561.5

  Provisions                                              21.3         24.4
  Deferred income tax                                    701.8        810.2
  Other liabilities                                      144.9        148.7
  Derivative financial instruments                        51.3         65.8
  Borrowings                                           2,074.1      2,325.9
                                                   -----------  -----------
Total non-current liabilities                          2,993.4      3,375.0

  Current tax liabilities                                124.1        194.1
  Other liabilities                                       90.5        103.4
  Trade payables                                         411.1        438.7
  Derivative financial instruments                        73.6         57.2
  Borrowings                                             863.5        941.5
                                                   -----------  -----------
Total current liabilities                              1,562.8      1,734.8


                                                   -----------  -----------
Total liabilities                                      4,556.2      5,109.8

Total liabilities, minority interest &
 shareholders' equity                                  9,808.1     10,671.2






Consolidated cash flow statement



               US$ million                1Q 2009     1Q 2008      Dif.

Net (loss) income from continuing
 operations                                 (117.0)      320.8      (437.8)
   Adjustments for:
   Depreciation and amortization              94.4       105.0       (10.6)
   Equity in earnings of associated
    companies                                 (0.5)       (0.4)       (0.1)
   Changes in provisions                      (1.2)        1.2        (2.4)
   Net foreign exchange and others           182.8       (39.7)      222.5
   Interest accruals less payments             0.6       (87.7)       88.3
   Income tax accruals less payments        (148.0)      (67.3)      (80.7)
   Impairment charge                          27.0           -        27.0
   Changes in working capital                371.3      (230.1)      601.4
                                         ---------   ---------   ---------

Net cash provided by operating
 activities                                  409.3         1.7       407.6

   Capital expenditures                      (68.3)     (100.5)       32.2
   Proceeds from sale of property, plant
    & equipment                                0.3         0.7        (0.3)
   Acquisition of business                    (0.2)          -        (0.2)
   Income tax credit paid on business
    acquisition                                  -           -           -
   Investments in associated companies           -           -           -
   Decrease in Other Investments              (0.9)       (0.8)       (0.1)
   Proceeds from sale of discontinued
    operations                                   -       722.5      (722.5)
   Discontinued operations                       -        32.2       (32.2)
                                         ---------   ---------   ---------

Net cash (used in) provided by
 investing activities                        (69.0)      654.0      (723.1)

   Proceeds from borrowings                   74.2       105.0       (30.8)
   Repayment of borrowings                  (395.9)     (891.2)      495.3
                                         ---------   ---------   ---------

Net cash used in financing activities       (321.7)     (786.2)      464.5

Increase (Decrease) in cash and cash
 equivalents                                  18.6      (130.4)      149.0





Shipments
       Thousand tons                       1Q 2009     1Q 2008     4Q 2008

  South & Central America                     363.7       673.0       559.9
  North America                               704.0     1,080.0       642.2
  Europe & other                              170.9         4.8        36.0
                                         ----------  ----------  ----------
Total flat products                         1,238.5     1,757.7     1,238.1

  South & Central America                      23.1        56.7        91.9
  North America                               239.4       265.3       213.2
  Europe & other                                3.0         8.8         3.6
                                         ----------  ----------  ----------
Total long products                           265.5       330.7       308.7

Total flat and long products                1,504.1     2,088.5     1,546.8

Revenue / ton
         US$/ton                           1Q 2009     1Q 2008     4Q 2008

  South & Central America                       984         945       1,147
  North America                                 775         945       1,146
  Europe & other                                546       1,008         834
                                         ----------  ----------  ----------
Total flat products                             805         945       1,137

  South & Central America                       493         643         780
  North America                                 563         703         749
  Europe & other                                666         587         884
                                         ----------  ----------  ----------
Total long products                             558         689         760

Total flat and long products                    761         905       1,062

Net Sales
        US$ million                        1Q 2009     1Q 2008     4Q 2008

South & Central America                       358.0       635.8       642.4
North America                                 545.6     1,021.0       735.7
Europe & other                                 93.3         4.8        30.0
                                         ----------  ----------  ----------
Total flat products                           996.8     1,661.6     1,408.1

South & Central America                        11.4        36.4        71.7
North America                                 134.8       186.4       159.7
Europe & other                                  2.0         5.2         3.1
                                         ----------  ----------  ----------
Total long products                           148.2       228.0       234.5

                                         ----------  ----------  ----------
Total flat and long products                1,145.0     1,889.6     1,642.6

Other products (1)                             29.7        53.0        78.5
                                         ----------  ----------  ----------

Total net sales                             1,174.7     1,942.6     1,721.1

(1) Includes iron ore, pig iron and metal buildings.

Contact Information

  • Sebastián Martí
    Ternium - Investor Relations
    +1 (866) 890 0443
    +52 (81) 8865 2111
    +54 (11) 4018 2389
    www.ternium.com