SOURCE: Ternium S.A.

Ternium S.A.

May 04, 2011 16:00 ET

Ternium Announces First Quarter 2011 Results

LUXEMBOURG--(Marketwire - May 4, 2011) - Ternium S.A. (NYSE: TX) today announced its results for the first quarter ended March 31, 2011.

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 (USD) and metric tons.

Summary of First Quarter 2011 Results

                              1Q 2011        4Q 2010           1Q 2010

Shipments (tons)             2,172,000  2,106,000      3% 1,908,000     14%
Net Sales (USD million)        2,146.9    1,927.5     11%   1,650.6     30%
Operating Income (USD
 million)                        291.0      133.7    118%     293.5     -1%
EBITDA (USD million)             393.7      237.0     66%     384.8      2%
EBITDA Margin (% of net
 sales)                           18.3%      12.3%             23.3%
EBITDA per Ton, Flat & Long
 Steel (USD)                       172        109     58%       190    -10%
Net Foreign Exchange Result
 (USD million)                    70.5       23.5             101.0
Net Income (USD million)         243.2      102.8    137%     245.1     -1%
Equity Holders' Net Income
 (USD million)                   204.7       77.5    164%     205.2      0%
Earnings per ADS (USD)            1.03       0.39    167%      1.02      1%

-- EBITDA(1) of USD393.7 million in the first quarter 2011, up 66%
   compared to the fourth quarter 2010 mainly as a result of higher
   revenue per ton and shipments.
-- Earnings per American Depositary Share (ADS)(2) of USD1.03 in the
   first quarter 2011, including a USD0.19 after-tax non-cash foreign
   exchange gain per ADS on Ternium's Mexican subsidiary's US dollar
   denominated net debt.
-- Net cash position of USD0.8 billion as of March 31, 2011.

Ternium's operating income in the first quarter 2011 was USD291.0 million, USD157.3 million higher than the fourth quarter 2010. Revenue per ton increased 7% in the first quarter 2011 compared to the fourth quarter 2010 mainly as a result of an 11% increase in the North America Region and a 2% increase in the South & Central America Region. Shipments were 65,900 tons higher in the first quarter 2011 than they were in the fourth quarter 2010. The increase in revenue per ton and shipments was partially offset by a moderately higher operating cost per ton.

Operating income in the first quarter 2011 was relatively stable when compared to the first quarter 2010, as higher revenue per ton and shipments were offset by higher operating cost due mainly to higher raw material and purchased slab costs.

Ternium's net income in the first quarter 2011 was USD243.2 million, an increase of USD140.3 million compared to the fourth quarter 2010 mainly due to the above mentioned USD157.3 million increase in operating income.

Events Concerning Ternium's Argentine Subsidiary Siderar

Following the events described in Ternium's April 18, 2011 press release, Siderar challenged in court the CNV resolution voiding Siderar's shareholders meeting and Ternium took legal action against Decree 441/2011.

On May 2, 2011, Siderar received notice of a preliminary injunction issued at ANSeS's request by a Commercial Court in the City of Buenos Aires, suspending the execution of certain resolutions taken by Siderar's shareholders' meeting (including the allocation of results for fiscal year 2010), and ordering Siderar to refrain from disposing, in whole or in part, of certain reserves and retained earnings accounts recorded in its net equity, except for the purpose of paying dividends. Siderar announced that it will file an appeal against certain aspects of this injunction. Upon receipt of further clarifications from the commercial court as to the scope of the injunction, Siderar also confirmed that it will make its USD370 million dividend payment on May 11, 2011.

Outlook

Ternium anticipates that industrial activity in Mexico will continue to drive demand for steel products and that demand in Argentina will recover after a seasonally slow first quarter 2011. Ternium also expects a higher operating income in the second quarter 2011 compared to the first quarter 2011, mainly as a result of an improved operating margin and higher shipments.

Analysis of First Quarter 2011 Results

Net income attributable to Ternium's equity holders in the first quarter 2011 was USD204.7 million, compared to USD205.2 million in the first quarter 2010. Including minority interest, net income for the first quarter 2011 was USD243.2 million, compared to USD245.1 million in the first quarter 2010. Earnings per ADS in the first quarter 2011 were USD1.03, compared to USD1.02 in the first quarter 2010.

Net sales in the first quarter 2011 were USD2.1 billion, 30% higher than net sales in the first quarter 2010. Shipments of flat and long products were 2.2 million tons during the first quarter 2011, an increase of 14% compared to shipments in the first quarter 2010, mainly due to an increase in demand in Ternium's main steel markets and Ternium's increased participation in the Colombian steel market. Revenue per ton shipped was USD968 in the first quarter 2011, an increase of 15% compared to the same quarter in 2010, mainly as a result of higher prices.

             Net Sales (million   Shipments (thousand     Revenue / ton
                     USD)                tons)              (USD/ton)

             1Q 2011 1Q 2010 Dif. 1Q 2011 1Q 2010 Dif. 1Q 2011 1Q 2010 Dif.

  North
   America   1,015.2   834.8  22% 1,051.5   990.8   6%     965     843  15%

  South &
   Central
   America     822.8   585.3  41%   782.3   628.5  24%   1,052     931  13%

  Europe &
   other        10.3     7.1         12.9    12.6          799     559
             ------- ------- ---  ------- ------- ---  ------- ------- ---
Total flat
 products    1,848.3 1,427.1  30% 1,846.7 1,631.9  13%   1,001     874  14%

  North
   America     184.9   144.1  28%   238.9   218.8   9%     774     658  18%

  South &
   Central
   America      69.3    28.2 146%    86.8    56.7  53%     798     498  60%

  Europe &
   other         0.0     0.4          0.0     0.7        1,507     540
             ------- ------- ---  ------- ------- ---  ------- ------- ---
Total long
 products      254.2   172.7  47%   325.7   276.2  18%     781     625  25%

Total flat
 and long
 products    2,102.5 1,599.7  31% 2,172.4 1,908.1  14%     968     838  15%

Other
 products
 (1)            44.3    50.9 -13%
             ------- ------- ---

Total Net
 Sales       2,146.9 1,650.6  30%

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

Sales of flat products during the first quarter 2011 were USD1.8 billion, an increase of 30% compared with the same quarter in 2010. Net sales increased as a result of higher shipments and revenue per ton. Shipments of flat products were 1.8 million tons in the first quarter 2011, an increase of 13% compared with the same period in 2010, mainly due to an increase in demand in Ternium's main steel markets and Ternium's increased participation in the Colombian steel market. Revenue per ton shipped increased 14% to USD1,001 in the first quarter 2011 compared with the same period in 2010, mainly due to higher prices.

Sales of long products were USD254.2 million in the first quarter 2011, an increase of 47% compared to the same period in 2010 mainly due to higher shipments and revenue per ton. Shipments of long products totaled 325,700 tons in the first quarter 2011, an 18% increase versus the same quarter in 2010 mainly due to Ternium's increased participation in the Colombian steel market. Revenue per ton shipped was USD781 in the first quarter 2011, an increase of 25% compared to the first quarter 2010, mainly due to higher prices in Ternium's main steel markets.

Sales of other products totaled USD44.3 million during the first quarter 2011, compared to USD50.9 million during the first quarter 2010, mainly due to lower sales of pre-engineered metal buildings and iron ore, partially offset by higher sales of pig iron.

Sales of flat and long products in the North America Region were USD1.2 billion in the first quarter 2011, an increase of 23% versus the same period in 2010. Shipments in the region totaled 1.3 million tons during the first quarter 2011, or 7% higher than in the same period in 2010, mainly reflecting higher demand for flat steel products. Revenue per ton shipped in the region increased 15% in the first quarter 2011 over the same quarter in 2010 to USD930, mainly due to higher prices.

Flat and long product sales in the South & Central America Region were USD892.1 million during the first quarter 2011, an increase of 45% versus the same period in 2010 as a result of higher shipments and revenue per ton. Shipments in the region totaled 869,100 tons during the first quarter 2011, or 27% higher than in the first quarter 2010, mainly due to higher demand for steel products and Ternium's increased participation in the Colombian steel market. Revenue per ton shipped in the region was USD1,026 in the first quarter 2011, an increase of 15% compared to the same quarter in 2010, mainly due to higher prices.

Cost of sales was USD1.7 billion in the first quarter 2011 compared to USD1.2 billion in the first quarter 2010. Cost of sales increased mainly due to higher shipments and higher cost per ton. Cost per ton increased mainly as a result of higher raw material and purchased slab costs.

Selling, General & Administrative (SG&A) expenses in the first quarter 2011 were USD189.1 million, or 9% of net sales, compared with USD144.3 million, or 9% of net sales, in the first quarter 2010. The USD44.8 million year-over-year increase was mainly due to higher freight expenses and taxes related to higher activity levels and the impact of the consolidation of Ferrasa in the first quarter 2011, and also included a USD4.9 million one-off loss related to a tax on net equity in Ferrasa.

Operating income in the first quarter 2011 was USD291.0 million, or 13.6% of net sales, compared with an operating income of USD293.5 million, or 17.8% of net sales, in the first quarter 2010.

EBITDA in the first quarter 2011 was USD393.7 million, or 18.3 % of net sales, compared with USD384.8 million, or 23.3% of net sales, in the first quarter 2010.

Net financial results were a USD64.8 million gain in the first quarter 2011, compared with a USD108.7 million gain in the first quarter 2010.

During the first quarter 2011, Ternium's net interest expenses totaled USD8.8 million, which was USD6.0 million lower than in the first quarter 2010, mainly due to lower net indebtedness.

Net foreign exchange result was a gain of USD70.5 million in the first quarter 2011 compared to a gain of USD101.0 million in the same period in 2010. The first quarter 2011 gain was primarily due to the impact of the Mexican Peso's 3.15% revaluation 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 México'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 México prepares its financial statements in Mexican Pesos and registers foreign exchange results on its net non-Mexican Peso positions when the Mexican Peso revaluates or devaluates relative to other currencies.

Interest income on the Sidor financial asset was USD3.8 million in the first quarter 2011 compared to USD27.2 million in the first quarter 2010. These results are attributable to the Sidor financial asset in connection with the transfer of Sidor shares on May 7, 2009.

Income tax expense for the first quarter 2011 was USD112.8 million or 32% of income before income tax and minority interest, compared with an income tax expense of USD156.8 million in the same period in 2010, or 39% of income before income tax and minority interest.

Income attributable to minority interest for the first quarter 2011 was USD38.5 million, similar to that of the first quarter 2010.

Cash Flow and Liquidity

Net cash provided by operating activities in the first quarter 2011 was USD248.6 million. Working capital increased USD56.4 million in the first quarter 2011 as a result of a USD160.2 million increase in trade receivables and a USD74.3 million increase in inventory, partially offset by an aggregate USD173.2 million increase in accounts payable and other liabilities. Inventories increased in the first quarter 2011 reflecting higher inventory volume and costs of finished goods, goods in process and raw materials.

Capital expenditures in the first quarter 2011 were USD109.7 million. Ternium's ongoing projects included, among others, in Mexico the construction of a greenfield facility for the manufacture of cold rolled and galvanized steel products, the enhancement of defuse emission control equipment at a steel shop and the development of mining activities, and, in Argentina, the expansion of the hot strip mill, repairs and enhancements in the coking facilities and the enclosure of a basic oxygen furnace.

In the first quarter 2011, Ternium generated free cash flow(3) of USD139.0 million. Ternium's net repayment of borrowings in the first quarter 2011 was USD169.4 million, related to the scheduled repayments of Ternium México's outstanding debt partially offset by net proceeds from short-term debt, while repurchases of Ternium's own shares were USD150.0 million, related to the repurchase from Usiminas of 41,666,666 shares at a price per share of USD3.6 (equivalent to USD36 per ADS). As of March 31, 2011, Ternium's net cash position was USD0.8(4) billion.

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 México 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 ten million tons of finished steel products. More information about Ternium is available at www.ternium.com.

(1) EBITDA in the first quarter 2011 equals operating income of USD291.0 million plus depreciation and amortization of USD102.7 million.

(2) 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 1,984,373,072 in the first quarter 2011 and 2,004,743,442 in the fourth quarter 2010 and first quarter 2010.

(3) Free cash flow in the first quarter 2011 equals net cash provided by operating activities of USD248.6 million less capital expenditures of USD109.7 million.

(4) Net cash position at March 31, 2011 equals cash and equivalents plus other investments of USD2.5 billion less borrowings of USD1.8 billion.

Consolidated income statement

           USD million                        1Q 2011   1Q 2010     Dif.

  Net sales                                    2,146.9   1,650.6     496.3

  Cost of sales                               (1,675.1) (1,213.6)   (461.4)
                                              --------  --------  --------
Gross profit                                     471.8     437.0      34.8

  Selling, general and administrative expenses  (189.1)   (144.3)    (44.8)
  Other operating income (expenses), net           8.3       0.9       7.4
                                              --------  --------  --------
Operating income                                 291.0     293.5      (2.5)

  Interest expense                               (15.4)    (18.9)      3.5
  Interest income                                  6.6       4.1       2.5
  Interest income - Sidor financial asset          3.8      27.2     (23.4)

  Other financial income (expenses), net          69.8      96.2     (26.5)

  Equity in earnings (losses) of associated
   companies                                       0.1      (0.2)      0.4
                                              --------  --------  --------
Income before income tax expense                 356.0     401.9     (46.0)

Income tax expense                              (112.8)   (156.8)     44.0

Profit for the period                            243.2     245.1      (2.0)

Attributable to:
  Equity holders of the Company                  204.7     205.2      (0.5)
  Non-controlling interests                       38.5      39.9      (1.4)
                                              --------  --------  --------
                                                 243.2     245.1      (2.0)



Consolidated balance sheet

                   USD million                    March 31,    December 31,
                                                     2011          2010

  Property, plant and equipment, net                  4,342.5       4,262.9
  Intangible assets, net                              1,157.9       1,129.3
  Investment in associated companies                      8.3           8.2
  Sidor financial asset                                     -          74.5
  Other investments                                      31.4          35.6
  Deferred tax assets                                    12.3          12.4
  Receivables, net                                       91.8          56.5
                                                ------------- -------------
Total non-current assets                              5,644.3       5,579.4

  Receivables                                            95.9          94.6
  Derivative financial instruments                        0.3           0.2
  Inventories, net                                    2,053.0       1,953.4
  Trade receivables, net                                834.1         663.5
  Sidor financial asset                                 223.5         183.4
  Other investments                                     796.8         848.4
  Cash and cash equivalents                           1,714.1       1,779.4
                                                ------------- -------------
Total current assets                                  5,717.7       5,522.9

Non-current assets classified as held for sale           10.6          10.0

Total assets                                         11,372.5      11,112.3

Capital and reserves attributable to the
 company's equity holders                             5,987.1       5,880.7
Non-controlling interests                             1,191.0       1,135.4

Total Equity                                          7,178.1       7,016.1

  Provisions                                             20.1          16.1
  Deferred income tax                                   885.5         877.7
  Other liabilities                                     216.8         201.3
  Derivative financial instruments                        9.0          18.8
  Borrowings                                          1,184.6       1,426.6
                                                ------------- -------------
Total non-current liabilities                         2,315.9       2,540.6

  Current tax liabilities                               364.0         294.9
  Other liabilities                                     149.1         123.6
  Trade payables                                        747.0         588.1
  Derivative financial instruments                       29.8          36.0
  Borrowings                                            588.6         513.1
                                                ------------- -------------
Total current liabilities                             1,878.5       1,555.6

                                                ------------- -------------
Total liabilities                                     4,194.4       4,096.2

Total equity and liabilities                         11,372.5      11,112.3



Consolidated cash flow statement

             USD million                         1Q 2011  1Q 2010    Dif.

  Profit for the period                            243.2    245.1     (2.0)
   Adjustments for:
  Depreciation and amortization                    102.7     91.3     11.4
  Equity in (earnings) losses of associated
   companies                                        (0.1)     0.2     (0.4)
  Changes in provisions                              4.9      2.0      2.9
  Net foreign exchange results and others          (91.0)   (82.4)    (8.6)
  Interest accruals less payments                   (6.4)    (9.6)     3.2
  Interest income - Sidor financial asset           (3.8)   (27.2)    23.4
  Income tax accruals less payments                 55.6    116.8    (61.2)
  Changes in working capital                       (56.4)   (23.0)   (33.4)
                                                 -------  -------  -------

Net cash provided by operating activities          248.6    313.2    (64.5)

  Capital expenditures                            (109.7)   (54.5)   (55.1)
  Proceeds from sale of property, plant &
   equipment                                         0.3      0.7     (0.4)
  Change in trust funds                                -        -        -
  Acquisition of business
    Purchase consideration                             -        -        -
    Cash acquired                                      -        -        -
  Income tax credit paid on business acquisition       -        -        -
  Investments in associated companies                  -        -        -
  Dividends received from associated companies         -        -        -
  Contributions in associated companies                -        -        -
  Decrease in Other Investments                     55.8     19.6     36.2
  Proceeds from Sidor financial asset               38.2    300.2   (262.0)
                                                 -------  -------  -------

Net cash (used in) provided by investing
 activities                                        (15.4)   266.0   (281.3)

  Contributions from non-controlling
   shareholders in consolidated subsidiaries        19.6        -     19.6
  Repurchase of treasury shares                   (150.0)       -   (150.0)
  Proceeds from borrowings                          87.1      1.4     85.7
  Repayment of borrowings                         (256.5)  (290.5)    34.0
                                                 -------  -------  -------

Net cash used in financing activities             (299.8)  (289.0)   (10.7)

(Decrease) Increase in cash and cash equivalents   (66.5)   290.1   (356.6)



                                Shipments

         Thousand tons                        1Q 2011    1Q 2010    4Q 2010

  North America                             1,051.50      990.8      979.6
  South & Central America                      782.3      628.5      773.7
  Europe & other                                12.9       12.6       16.1
                                           ---------- ---------- ----------
Total flat products                           1,846.7    1,631.9    1,769.3

 North America                                  238.9      218.8      252.3
 South & Central America                         86.8       56.7       64.8
 Europe & other                                     0        0.7       20.1
                                           ---------- ---------- ----------
Total long products                             325.7      276.2      337.1

Total flat and long products                  2,172.4    1,908.1    2,106.4


                              Revenue / ton
            USD/ton                           1Q 2011    1Q 2010    4Q 2010

 North America                                    965        843        878
 South & Central America                        1,052        931      1,032
 Europe & other                                   799        559        619
                                           ---------- ---------- ----------
Total flat products                             1,001        874        943

 North America                                    774        658        677
 South & Central America                          798        498        742
 Europe & other                                 1,507        540        490
                                           ---------- ---------- ----------
Total long products                               781        625        678

Total flat and long products                      968        838        900

                                Net Sales
            USD million                       1Q 2011    1Q 2010    4Q 2010

North America                                1,015.20      834.8      859.8
South & Central America                         822.8      585.3      798.3
Europe & other                                   10.3        7.1        9.9
                                           ---------- ---------- ----------
Total flat products                           1,848.3    1,427.1    1,668.1

North America                                   184.9      144.1      170.7
South & Central America                          69.3       28.2       48.1
Europe & other                                      0        0.4        9.8
                                           ---------- ---------- ----------
Total long products                             254.2      172.7      228.6

                                           ---------- ---------- ----------
Total flat and long products                  2,102.5    1,599.7    1,896.7

Other products (1)                               44.3       50.9       30.9
                                           ---------- ---------- ----------

Total net sales                               2,146.9    1,650.6    1,927.5

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