LUXEMBOURG / ACCESSWIRE / August 1, 2023 / Ternium S.A. (NYSE:TX, Financial) today announced its results for the second quarter and first half ended June 30, 2023.
The financial and operational information contained in this press release is based on Ternium S.A.'s operational data and consolidated condensed interim financial statements prepared in accordance with IAS 34 "Interim financial reporting" (IFRS) and presented in US dollars ($) and metric tons. This press release includes certain non-IFRS alternative performance measures such as Adjusted EBITDA, Net Cash and Free Cash Flow. The reconciliation of these figures to the most directly comparable IFRS measures is included in Exhibit I.
Summary of Second Quarter of 2023 Results
2Q23 1Q23 2Q221 American Depositary Share. Each ADS represents 10 shares of Ternium's common stock. Results are based on a weighted average number of shares of common stock outstanding (net of treasury shares) of 1,963,076,776.
Adjusted EBITDA of $882.6 million on steel shipments of 3.0 million tons, with adjusted EBITDA margin of 23% and adjusted EBITDA per ton of $296.Equity holders' net income of $626.9 million, equivalent to earnings per ADS of $3.19.Net cash provided by operating activities of $47.9 million, after a working capital increase of $604.9 million primarily reflecting higher inventory volumes and the impact on trade receivables of higher steel prices.Negative free cash flow of $149.6 million, after capital expenditures of $197.5 million.Dividends paid to Ternium's shareholders of $1.80 per ADS, or $353.4 million, and dividends in kind paid to non-controlling interest of $233.5 million.Net cash position of $2.2 billion at the end of June 2023, compared to $3.0 billion at the end of March 2023.Ternium's steel shipments in the second quarter of 2023 were 3.0 million tons, down 3% sequentially and up 1% compared to the prior-year second quarter.
In Mexico, shipments were 2.0 million tons in the period, down 2% from a first quarter all-time-high, and up 21% versus the second quarter of 2022. Shipments to Ternium's Mexican industrial customers increased in the period, particularly to home appliance manufacturers and the automotive industry. Commercial market steel demand remained healthy. However, Ternium's sales to commercial customers decreased in the second quarter reflecting lower utilization rates at its facilities, mainly in connection with certain logistic constraints during the period.
In the Southern Region, steel volumes increased 4% sequentially in the second quarter of 2023, mainly reflecting higher shipments in Argentina following a seasonally slow first quarter. On a year-over-year basis, shipments in the second quarter decreased 6%, reflecting lower steel demand in Argentina and reduced sales to other countries in the Southern Region.
In other markets, shipments decreased 15% on a sequential basis and 43% year-over-year due to lower sales to finished steel customer and slabs to third parties.
Revenue per ton in the second quarter of 2023 was $1,276, increasing $177 sequentially mainly as a result of higher realized steel prices in Mexico and other markets. On a year-over-year basis, revenue per ton decreased $195 in the second quarter reflecting lower realized steel prices in Ternium's main steel markets.
Operating income in the second quarter of 2023 was $731.7 million. Ternium's adjusted EBITDA in the period was $882.6 million with adjusted EBITDA per ton of $296. On a sequential basis, adjusted EBITDA per ton increased $130 in the second quarter mainly reflecting higher realized steel prices and slightly lower cost per ton. On a year-over-year basis, adjusted EBITDA per ton decreased $118 due to lower realized steel prices, partially offset by a decrease in cost per ton. Net income in the second quarter of 2023 was $735.9 million.
Summary of First Half of 2023 Results
1H23 1H22Ternium's steel shipments in the first half of 2023 were 6.0 million tons, up 139,000 tons compared to shipment levels in the first half of 2022 due to a 399,000-ton increase in finished steel shipments, partially offset by a 260,000-ton decrease in the volume of slabs shipped to third parties, reflecting the company's increased integration.
Sales volumes in Mexico increased 26% year-over-year in the first half of 2023, as Ternium gained share in the local flat steel market supported by the company's new state-of-the-art facilities in PesquerÃa. In the Southern Region, shipments were down 7% year-over-year reflecting lower steel demand in Argentina and lower shipments to other countries in the Southern Region. In other markets, steel volumes decreased 43% reflecting lower shipments of slabs to third parties and lower sales of finished steel products, as the company increased sales in Mexico.
Revenue per ton was $1,217 in the first half of 2022, a $232 decrease compared to revenue per ton in the first half of 2022, mainly reflecting lower realized steel prices in Mexico and other markets.
Operating income amounted to $1.1 billion in the first half of 2023, with adjusted EBITDA of $1.4 billion. Adjusted EBITDA per ton was $230 in the period, decreasing $182 year-over-year due to lower realized steel prices partially offset by lower cost per ton. Net income in the first half of 2023 was $1.2 billion.
Consolidation of Usiminas
The third quarter of 2023 will be the first quarter in which Ternium will have fully consolidated Usiminas into its financial statements. As a result, Ternium's consolidated third quarter of 2023 financial information will be materially different when compared to the second quarter of 2023.
For context, Usiminas reported steel shipments of 972 thousand tons, iron ore shipments of 2.4 million tons, net sales of $1.4 billion, operating income of $13.8 million and net income of $58.1 million for its second quarter of 2023. Currently, Ternium has an economic participation of 23.3% in Usiminas. Consequently, beginning in the third quarter of 2023, Ternium's profit attributable to non-controlling interest will also include results from the 76.7% economic participation in Usiminas that is not owned by Ternium's shareholders.
Outlook
Excluding the impact of the consolidation of Usiminas on Ternium's financial results, Ternium expects third quarter EBITDA to decrease compared to the second quarter, with higher shipments partially offset by a lower EBITDA margin that will result from a decrease in international prices and slightly higher cost per ton.
In Mexico, the company anticipates higher sequential shipments in the third quarter, driven by continued strength in the automotive and white-goods industrial sectors. In addition, Mexico's commercial market remains stable, with no significant accumulation of inventories in the commercial value chain.
In Argentina, Ternium expects shipments in the third quarter to remain at the same level as in the second quarter. However, the company anticipates that high inflation, constraints to imports of raw materials, the significantly unstable macroeconomic environment and upcoming election-related uncertainty would negatively impact domestic steel market activity and demand in the second half of 2023.
Analysis of Second Quarter of 2023 Results
Net sales
in the second quarter of 2023 were $3.9 billion, 7% higher than net sales in the first quarter of 2023 and 13% lower than net sales in the second quarter of 2022. The following table outlines Ternium's consolidated net sales for the aforementioned periods:| Net Sales | ||||||||||||||||
$ million | 2Q23 | 1Q23 | Dif | 2Q22 | Dif | |||||||||||
Mexico | 2,457 | 2,206 | 11 | % | 2,456 | 0 | % | |||||||||
Southern Region | 870 | 854 | 2 | % | 990 | -12 | % | |||||||||
Other markets | 480 | 494 | -3 | % | 905 | -47 | % | |||||||||
Total steel products | 3,806 | 3,554 | 7 | % | 4,352 | -13 | % | |||||||||
Other products* | 65 | 69 | -7 | % | 86 | -24 | % | |||||||||
Total steel segment | 3,871 | 3,623 | 7 | % | 4,438 | -13 | % | |||||||||
Total mining segment | 110 | 85 | 29 | % | 111 | -1 | % | |||||||||
Total steel and mining segments | 3,981 | 3,708 | 7 | % | 4,548 | -12 | % | |||||||||
Intersegment eliminations | (110 | ) | (85 | ) | 29 | % | (111 | ) | -1 | % | ||||||
Total net sales | 3,871 | 3,623 | 7 | % | 4,438 | -13 | % | |||||||||
*The item "Other products" primarily includes electricity sales in Brazil and Mexico.
| Shipments | ||||||||||||||||||||
Thousand tons | 2Q23 | 1Q23 | Dif | 2Q22 | Dif | |||||||||||||||
Mexico | 2,031 | 2,066 | -2 | % | 1,679 | 21 | % | |||||||||||||
Southern Region | 563 | 544 | 4 | % | 601 | -6 | % | |||||||||||||
Other markets | 388 | 455 | -15 | % | 677 | -43 | % | |||||||||||||
Total steel segment | 2,982 | 3,065 | -3 | % | 2,957 | 1 | % | |||||||||||||
Total mining segment | 867 | 799 | 8 | % | 837 | 4 | % | |||||||||||||
Revenue / ton | ||||||||||||||||||||
$/ton | 2Q23 | 1Q23 | Dif | 2Q22 | Dif | |||||||||||||||
Mexico | 1,209 | 1,068 | 13 | % | 1,463 | -17 | % | |||||||||||||
Southern Region | 1,545 | 1,570 | -2 | % | 1,647 | -6 | % | |||||||||||||
Other markets | 1,237 | 1,085 | 14 | % | 1,337 | -7 | % | |||||||||||||
Total steel segment | 1,276 | 1,159 | 10 | % | 1,471 | -13 | % | |||||||||||||
Total mining segment | 127 | 106 | 19 | % | 132 | -4 | % | |||||||||||||
Cost of sales was $2.8 billion in the second quarter of 2023, $141.3 million lower sequentially, principally due to a $187.0 million, or 8%, decrease in raw materials and consumables used, mainly reflecting lower purchased slab and energy costs, and a 3% decrease in steel shipments; partially offset by a $45.7 million increase in other costs, including a $34.1 million increase in maintenance expenses and a $6.4 million increase in services and fees. Compared to the second quarter of 2022, cost of sales decreased $219.5 million, principally due to a $138.0 million, or 6%, decrease in raw materials and consumables used, mainly reflecting lower raw material and energy costs; and to a $81.4 million decrease in other costs, including a $107.2 million decrease in labor costs primarily in connection with Ternium Mexico employees' profit sharing scheme, and a $22.0 million increase in maintenance expenses.
Selling, General & Administrative (SG&A) expenses in the second quarter of 2023 were $304.3 million, or 8% of net sales, an increase of $11.3 million compared to SG&A in the first quarter of 2023, and a decrease of $6.2 million compared to SG&A in the second quarter of 2022.
Operating income in the second quarter of 2023 was $731.7 million, or 19% of net sales, compared to operating income of $357.4 million, or 10% of net sales, in the first quarter of 2023, and operating income of $1.1 billion, or 24% of net sales, in the second quarter of 2022.
Net financial results were a loss of $18.0 million in the second quarter of 2023, including a net foreign exchange loss of $24.9 million primarily related to the negative impact of the appreciation of the Mexican Peso and Colombian Peso against the US dollar (6% and 10% in the period, respectively) on Ternium's Mexican and Colombian subsidiaries net local currency positions. Net financial results in the first quarter of 2023 and the second quarter of 2022 were a gain of $7.8 million and a gain of $37.2 million, respectively.
The equity in the results of non-consolidated companies was a gain of $27.3 million in the second quarter of 2023, lower than a gain of $34.9 million in the first quarter of 2023 and a gain of $49.3 million in the prior-year second quarter, mainly reflecting a decrease in the results of Ternium's investment in Usiminas.
Income tax expense in the second quarter of 2023 was $5.2 million, with a 1% effective tax rate, mainly due to positive deferred tax results at Ternium's Mexican subsidiaries, as the Mexican Peso appreciated against the US dollar in the period. Income tax results in the first quarter of 2023 and the prior-year second quarter were a gain of $79.4 million and an expense of $221.4 million, respectively.
Analysis of First Half of 2023 Results
Net sales
in the first half of 2023 were $7.5 billion, 14% lower than net sales in the first half of 2022. The following table outlines Ternium's consolidated net sales for the first half of 2023 and 2022:| Net Sales (million $) | Shipments (thousand tons) | Revenue/ton ($/ton) | ||||||||||||||||||||||||||
| 1H23 | 1H22 | Dif. | 1H23 | 1H22 | Dif. | 1H23 | 1H22 | Dif. | ||||||||||||||||||||
Mexico | 4,663 | 4,719 | -1 | % | 4,098 | 3,252 | 26 | % | 1,138 | 1,451 | -22 | % | ||||||||||||||||
Southern Region | 1,724 | 1,886 | -9 | % | 1,107 | 1,188 | -7 | % | 1,557 | 1,587 | -2 | % | ||||||||||||||||
Other markets | 974 | 1,960 | -50 | % | 843 | |||||||||||||||||||||||
