Report of Foreign Issuer (6-k)

Date : 10/31/2018 @ 6:29AM
Source : Edgar (US Regulatory)
Stock : Ternium S.A. Ternium S.A. American Depositary Shares (Each Representing Ten Shares, USD1.00 Par Value) (TX)
Quote : 31.28  -0.03 (-0.10%) @ 2:55PM

Report of Foreign Issuer (6-k)

FORM 6 - K



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934


As of 10/30/2018



Ternium S.A.
(Translation of Registrant's name into English)


Ternium S.A.
29 Avenue de la Porte-Neuve – 3rd floor
L-2227 Luxembourg
(352) 2668-3152
(Address of principal executive offices)


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F.

Form 20-F a Form 40-F __

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.

Yes __ No a


If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Not applicable



The attached material is being furnished to the Securities and Exchange Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934, as amended.

This report contains Ternium S.A.’s press release announcing third quarter 2018 results.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


TERNIUM S.A.


By: /s/ Pablo Brizzio                 By: /s/ Máximo Vedoya     
Name: Pablo Brizzio                Name: Máximo Vedoya
Title: Chief Financial Officer            Title: Chief Executive Officer


Dated: October 30, 2018




TERNIUMLOGOA02.GIF
 
PRESSRELEASEA02.GIF

Sebastián Martí
Ternium - Investor Relations
+1 (866) 890 0443
+54 (11) 4018 8389
www.ternium.com


Ternium Announces Third Quarter and First Nine Months of 2018 Results

Luxembourg, October 30, 2018 – Ternium S.A. (NYSE: TX) today announced its results for the third quarter and first nine months ended September 30, 2018 .

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 (USD) and metric tons.

Summary of Third Quarter 2018 Results

 
3Q 2018
 
2Q 2018 1
 
3Q 2017
 
 
 
 
 
 
 
 
Steel Shipments (tons)
3,143,000

 
3,322,000

-5
 %
 
3,070,000

2
 %
Iron Ore Shipments (tons)
914,000

 
916,000

0
 %
 
938,000

-3
 %
Net Sales (USD million)
2,903.0

 
2,936.2

-1
 %
 
2,535.0

15
 %
Operating Income (USD million)
689.3

 
563.1

22
 %
 
349.8

97
 %
EBITDA 2  (USD million)
831.7

 
712.4

17
 %
 
466.1

78
 %
EBITDA Margin (% of net sales)
28.6
%
 
24.3
%


 
18.4
%


EBITDA per Ton 3  (USD)
264.6

 
214.5



 
151.8



Income Tax Expense (USD million)
(75.9)

 
(189.6)



 
(103.8)



Net Income (USD million)
523.4

 
304.2



 
232.7



Equity Holders' Net Income (USD million)
488.5

 
305.9



 
194.9



Earnings per ADS 4  (USD)
2.49

 
1.56



 
0.99




EBITDA of USD 831.7 million, 17% higher sequentially, with higher EBITDA margin and lower shipments.
Earnings per ADS of USD 2.49 , an increase of USD 0.93 p er ADS.
Free cash flow in the third quarter 2018 of USD 340.0 million after capital expenditures of USD 116.5 million.

Ternium’s operating income in the third quarter 2018 was USD 689.3 million, a USD 126.2 million increase compared to operating income in the second quarter 2018 mainly due to a USD 40 increase in steel revenue per ton and a USD13 decrease in the steel segment’s operating cost per ton 5 , partially offset by lower steel shipments. The company's shipments were 179,000 tons lower sequentially as a result of a 196,000 tons decrease in Mexico and a 58,000 tons decrease in the Southern Region, partially offset by an increase of 76,000 tons in Other Markets.

Compared to the third quarter 2017 , the company’s operating income in the third quarter 2018 increased USD 339.5 million, due mainly to a 73,000-ton increase in shipments, an USD 89 increase in steel revenue per

1




ton and a USD16 decrease in the steel segment’s operating cost per ton. The increase in shipments mainly reflected the consolidation of Ternium Brasil as from September 2017, partially offset by lower demand for steel products in the Southern Region and Mexico. Revenue per ton increased mainly as a result of higher realized prices in Mexico and Other Markets, partially offset by lower revenue per ton in the Southern Region.

The company’s net income in the third quarter 2018 was USD 523.4 million, compared to USD 304.2 million in the second quarter 2018 . The USD 219.1 million increase in net income was mainly due to the above-mentioned higher operating income and a lower effective tax rate, partially offset by higher net financial expenses. Significant changes in the value of the Mexican peso versus the US dollar (appreciation of 6% in the third quarter 2018 compared to depreciation of 8% in the previous quarter) produced sequential fluctuations in the effective tax rate due to changes on deferred taxes.

Relative to the prior-year-period, net income in the third quarter 2018 increased USD 290.6 million, mainly due to higher operating income and lower effective tax rate (mostly as a result of the effect of foreign exchange rate fluctuations), partially offset by higher net financial expenses.


Summary of First Nine Months of 2018 Results

 
9M 2018
 
9M 2017
 
 
 
 
 
Steel Shipments (tons)
9,987,000

 
8,186,000

22
%
Iron Ore Shipments (tons)
2,759,000

 
2,676,000

3
%
Net Sales (USD million)
8,551.9

 
6,932.8

23
%
Operating Income (USD million)
1,701.0

 
1,106.8

54
%
EBITDA (USD million)
2,144.9

 
1,428.8

50
%
EBITDA Margin (% of net sales)
25.1
%
 
20.6
%


EBITDA per Ton (USD)
214.8

 
174.5



Net Income (USD million)
1,210.8

 
824.9



Equity Holders' Net Income (USD million)
1,137.4

 
706.0



Earnings per ADS (USD)
5.79

 
3.60




EBITDA 6 of USD 2.1 billion in the first nine months of 2018 , a 50% year-over-year increase mainly as a result of higher EBITDA per ton and higher shipments.
Earnings per ADS of USD 5.79 , a year-over-year increase of USD 2.20 per ADS.
Capital expenditures of USD 344.4 million, up from USD 282.9 million in the first nine months of 2017 .
Net debt position of USD 2.1 billion at the end of September 2018, down from USD 2.7 billion at the end of December 2017 and equivalent to 0.8 times net debt to last twelve months EBITDA.

Operating income in the first nine months of 2018 was USD 1.7 billion, a USD 594.2 million increase compared to operating income in the first nine months of 2017 mainly due to a 1.8 million-ton increase in steel shipments, stable steel revenue per ton and a USD 24 lower steel operating cost per ton. The increase in volume was mainly a result of the increase in Other Market's shipments, due to the consolidation of Ternium Brasil's slab sales since September 2017. Cost per ton decreased mainly reflecting higher integration in our operations and lower semi-fixed costs, partially offset by higher purchased slab costs.


2




Net income in the first nine months of 2018 was USD 1.2 billion, compared to net income of USD 824.9 million in the first nine months of 2017 . The USD 385.9 million increase in the year-over-year comparison was mainly due to higher operating income, partially offset by higher net financial expenses and slightly higher effective tax rate mostly as a result of the effect of foreign exchange rate fluctuations.


Application of IAS 29 in financial reporting of Argentine subsidiaries and associates

IAS 29 requires that the financial statements of entities whose functional currency is that of a hyperinflationary economy be adjusted for the effects of changes in a suitable general price index and be expressed in terms of the current unit of measurement at the closing date of the reporting period. As previously anticipated, Ternium applied IAS 29 as from July 1, 2018 to the financial reporting of its subsidiaries and associates located in Argentina, and adjusted accordingly the previously reported figures for the first and second quarters of 2018.


Outlook

Ternium expects EBITDA to remain healthy in the fourth quarter 2018, although lower than the record level reported in the third quarter of the year. The company anticipates a slight sequential decrease of steel shipments in a seasonally weak quarter, including a reduction of slab sales to third parties mainly due to lower shipments to the United States and higher internal sales.

In Mexico, industrial markets continue showing steady demand, while commercial markets, usually driven by construction activity, remain weak. The company anticipates sequentially lower revenue per ton in the country in the fourth quarter 2018, reflecting a decrease of steel prices over the last three months. Ternium also expects cost per ton to rise sequentially at its Mexican subsidiary, as higher prices of previously purchased slabs gradually flow through cost of sales.

In Argentina, financial market volatility and high interest rates continue to have a negative impact on the industrial sector’s production rates and in construction activity and, consequently, in steel demand. These macroeconomic events, together with a value chain destocking process caused by the high financing costs, will affect the level of steel shipments in the country in the fourth quarter 2018.


Analysis of Third Quarter 2018 Results

Net gain attributable to Ternium’s equity owners in the third quarter 2018 was USD 488.5 million, compared to net gain attributable to Ternium’s equity owners of USD 194.9 million in the third quarter 2017 . Including non-controlling interest, net gain for the third quarter 2018 was USD 523.4 million, compared to net gain of USD 232.7 million in the third quarter 2017 . Earnings per ADS in the third quarter 2018 were USD 2.49 , compared to earnings per ADS of USD 0.99 in the third quarter 2017 .
Net sales in the third quarter 2018 were USD 2.9 billion, or 15% higher than net sales in the third quarter 2017 . The following table outlines Ternium’s consolidated net sales for the third quarter 2018 and the third quarter 2017 :

3










 
Net Sales (million USD)
 
 
 
 
3Q 2018
3Q 2017
Dif.
 
Mexico
 
1,518.4
1,348.6
13
%
 
Southern Region
 
415.8
618.8
-33
%
 
Other Markets
 
865.8
495.4
75
%
 
Total steel products net sales
 
2,800.0
2,462.8
14
%
 
Other products 1  
 
102.8
72.2
42
%
 
Steel segment net sales
 
2,902.8
2,535.0
15
%
 
 
 
 
 
 
 
Mining segment net sales
 
66.6
84.3
-21
%
 
Intersegment eliminations
 
(66.4)
(84.3)
 
 
Net sales
 
2,903.0
2,535.0
15
%
 
1 The item "Other products" primarily includes Ternium Brasil’s and Ternium México’s electricity sales.

Cost of sales was USD 2.0 billion in the third quarter 2018 , an increase of USD 40.2 million compared to the third quarter 2017 . This was principally due to a USD30.7 million, or 2%, increase in raw material and consumables used, mainly reflecting a 2% increase in steel shipment volumes and higher purchased slabs, scrap and zinc costs; and to a USD9.5 million increase in other costs, mainly including a USD21.7 million increase in depreciation of property, plant and equipment, a USD10.1 million increase in services and fees, partially offset by a USD10.3 million decrease in maintenance expenses, a USD5.5 million decrease in labor costs and a USD3.1 million decrease in amortization of intangible assets.

Selling, General & Administrative (SG&A) expenses in the third quarter 2018 were USD 206.0 million, or 7.1% of net sales, a decrease of USD 5.3 million compared to SG&A expenses in the third quarter 2017 .

Operating income in the third quarter 2018 was USD 689.3 million, or 23.7% of net sales, compared to operating income of USD 349.8 million, or 13.8% of net sales in the third quarter 2017 . The following table outlines Ternium’s operating income by segment for the third quarter 2018 and third quarter 2017 :









 
Steel segment
 
Mining segment
 
Intersegment
eliminations
 
Total
USD million
 
3Q 2018
3Q 2017
 
3Q 2018
3Q 2017
 
3Q 2018
3Q 2017
 
3Q 2018
3Q 2017
Net Sales
 
2,902.8

2,535.0
 
66.6

84.3
 
(66.4)

(84.3)

 
2,903.0
2,535.0
Cost of sales
 
(2,014.8)

(2,007.4)
 
(62.2)

(54.6)
 
64.4

89.5

 
(2,012.6)
(1,972.5)
SG&A expenses
 
(202.7)

(207.4)
 
(3.3)

(3.9)
 


 
(206.0)
(211.2)
Other operating income (expense), net
 
4.7

(1.9)
 
0.1

0.5
 


 
4.8
(1.5)
Operating income (expense)
 
690.1

318.3
 
1.2

26.3
 
(2.1)

5.3

 
689.3
349.8
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA
 
819.9

421.4
 
13.9

39.4
 
(2.1)

5.3

 
831.7
466.1










4




Steel reporting segment

The steel segment’s operating income was USD 690.1 million in the third quarter 2018 , an increase of USD 371.8 million compared to the third quarter 2017 , reflecting higher net sales, partially offset by slightly higher operating costs.

Net sales of steel products in the third quarter 2018 increased 14% compared to the third quarter 2017 , reflecting a higher revenue per ton and a 73,000-ton increase in shipments. Revenue per ton increased 11% , mainly as a result of higher realized steel prices in Other Markets and Mexico, partially offset by a lower price in the Southern Region. Shipments increased 2% year-over-year mainly as a result of higher volumes in Other Markets due to the consolidation of Ternium Brasil in 2018 (which started in September 2017), partially offset by lower shipments in the Southern Region and Mexico.

 
 
Net Sales
(million USD)
 
Shipments
(thousand tons)
 
Revenue/ton
(USD/ton)
 
 
3Q 2018
3Q 2017
Dif.
 
3Q 2018
3Q 2017
Dif.
 
3Q 2018
3Q 2017
Dif.
Mexico
 
1,518.4

1,348.6

13
 %
 
1,525.2

1,625.0

(6
)%
 
995

830

20
 %
Southern Region
 
415.8

618.8

(33
)%
 
546.5

666.3

(18
)%
 
761

929

(18
)%
Other Markets
 
865.8

495.4

75
 %
 
1,071.3

778.8

38
 %
 
808

636

27
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Total steel products
 
2,800.0

2,462.8

14
 %
 
3,143.0

3,070.2

2
 %
 
891

802

11
 %
 Other products 1  
 
102.8

72.2

42
 %
 





 






 
 
 
 
 
 
 
 
 
 
 
 
 
Steel segment
 
2,902.8

2,535.0

15
 %
 






 






1  The item "Other products" primarily includes Ternium Brasil’s and Ternium México’s electricity sales.

Operating cost remained stable due to a 2% decrease in cost per ton, offset by the above mentioned 2% increase in shipments.


Mining reporting segment

The mining segment’s operating income was USD 1.2 million in the third quarter 2018 , compared to USD 26.3 million in the third quarter 2017 , mainly reflecting lower iron ore sales and higher operating costs.

Mining products net sales in the third quarter 2018 decreased USD 17.6 million, mainly as a result of a 19% decrease in revenue per ton and 3% lower shipments.

 
 
Mining segment
 
 
 
3Q 2018
3Q 2017
Dif.
 
Net Sales (million USD)
 
66.6
84.3
-21
 %
 
Shipments (thousand tons)
 
914.5
938.3
-3
 %
 
Revenue per ton (USD/ton)
 
73
90
-19
 %
 

Operating cost increased 12% year-over-year, mainly due to an increase of 15% in operating cost per ton, partially offset by the above-mentioned 3% decrease in shipments.

EBITDA in the third quarter 2018 was USD 831.7 million, or 28.6% of net sales, compared to USD 466.1 million, or 18.4% of net sales, in the third quarter 2017 .


5




Net financial results were a USD 112.6 million loss in the third quarter 2018 , compared to a USD 28.8 million loss in the third quarter 2017 . During the third quarter 2018 , Ternium’s net financial interest results totaled a loss of USD31.7 million, compared to a loss of USD24.0 million in the third quarter 2017 .

Net foreign exchange results were a loss of USD99.0 million in the third quarter 2018 compared to a loss of USD5.8 million in the third quarter 2017 . The net loss in the third quarter 2018 was mainly due to the negative non-cash impact of the Argentine peso’s 30% depreciation against the U.S. dollar on Ternium Argentina’s US dollar financial position (which uses the Argentine peso as its functional currency) and the negative impact of the Mexican peso's 6% appreciation against the US dollar on a net short local currency position in Ternium's Mexican subsidiaries.

Change in fair value of financial instruments included in net financial results was a USD29.4 million loss in the third quarter 2018 compared to a USD2.8 million gain in the third quarter 2017 . The loss in the third quarter 2018 was mainly related to certain derivative instruments entered into to compensate for the interest rate charges derived from Ternium’s Argentine subsidiary's local currency denominated financial debt.

The effect of inflation on Ternium’s Argentine subsidiaries and associates’ short net monetary position was a gain of USD49.7 million as a result of the application of IAS 29 from 2018.

Equity in results of non-consolidated companies was a gain of USD 22.6 million in the third quarter 2018 , compared to a gain of USD 15.5 million in the third quarter 2017 mainly due to better results from Ternium's investment in Usiminas.

Income tax expense in the third quarter 2018 was USD 75.9 million, or 13% of income before income tax expense, compared to an income tax expense of USD 103.8 million in the third quarter 2017 , or 31% of income before income tax expense. The unusually low effective tax rate in the third quarter 2018 was mainly the result of the non-cash gain on deferred taxes due to the 6% appreciation of the Mexican peso against the U.S. dollar, which increases, in U.S. dollar terms, the tax base used to calculate deferred tax at our Mexican subsidiaries (which have the U.S dollar as their functional currency).

Net gain attributable to non-controlling interest in the third quarter 2018 was USD 34.8 million, compared to net gain of USD 37.8 million in the same period in 2017 .


Analysis of First Nine Months of 2018 Results

Net income attributable to Ternium’s equity owners in the first nine months of 2018 was USD 1.1 billion, compared to USD 706.0 million in the first nine months of 2017 . Including non-controlling interest, net income for the first nine months of 2018 was USD 1.2 billion, compared to net income of USD 824.9 million in the first nine months of 2017 . Earnings per ADS in the first nine months of 2018 were USD 5.79 , compared to earnings of USD 3.60 in the first nine months of 2017 .
Net sales in the first nine months of 2018 were USD 8.6 billion, 23% higher than net sales in the first nine months of 2017 . The following table outlines Ternium’s consolidated net sales for the first nine months of 2018 and the first nine months of 2017 :


6




 
 
 Net Sales (million USD)
 
 
 
 
 
 
 
9M 2018
9M 2017
 Dif.
 
 
 
 
 
Mexico
 
4,691.1

4,072.6

15
 %
 
 
 
 
 
Southern Region
 
1,198.6

1,693.7

(29
)%
 
 
 
 
 
Other Markets
 
2,367.1

990.2

139
 %
 
 
 
 
 
Total steel products net sales
 
8,256.8

6,756.4

22
 %
 
 
 
 
 
Other products 1  
 
294.2

176.3

67
 %
 
 
 
 
 
Steel segment net sales
 
8,551.0

6,932.8

23
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mining segment net sales
 
210.1

202.4

4
 %
 
 
 
 
 
Intersegment eliminations
 
(209.1
)
(202.4
)

 
 
 
 
 
Net sales
 
8,551.9

6,932.8

23
 %
 
 
 
 
 
1 The item “Other products” primarily includes includes Ternium Brasil’s and Ternium México’s electricity sales.

Cost of sales was USD 6.2 billion in the first nine months of 2018 , an increase of USD 1.0 billion compared to the first nine months of 2017 . This was principally due to a USD810.5 million, or 20%, increase in raw material and consumables used, mainly reflecting a 22% increase in steel shipments and to a USD169.0 million increase in other costs, mainly including a USD78.5 million increase in depreciation of property, plant and equipment, a USD44.8 million increase in services and fees, a USD32.3 million increase in maintenance expenses and a USD31.7 million increase in labor cost, partially offset by a USD9.3 million decrease in amortization of intangible assets.

Selling, General & Administrative (SG&A) expenses in the first nine months of 2018 were USD 644.4 million, or 7.5% of net sales, an increase of USD 71.8 million compared to SG&A expenses in the first nine months of 2017 mainly due to the consolidation of Ternium Brasil and related transactions in 2018 (which started in September 2017).

Other net operating income in the first nine months of 2018 was a USD 5.1 million gain, compared to a USD 21.3 million loss in the first nine months of 2017 mainly related to a donation for the construction of the Roberto Rocca technical school in Pesquería, Nuevo León, Mexico.

Operating income in the first nine months of 2018 was USD 1.7 billion, or 19.9% of net sales, compared to operating income of USD 1.1 billion, or 16.0% of net sales, in the first nine months of 2017 . The following table outlines Ternium’s operating income by segment for the first nine months of 2018 and the first nine months of 2017 :
 
 
Steel segment
 
Mining segment
 
Intersegment
eliminations
 
Total
USD million
 
9M 2018
9M 2017
 
9M 2018
9M 2017
 
9M 2018
9M 2017
 
9M 2018
9M 2017
Net Sales
 
8,551.0

6,932.8

 
210.1

202.4

 
(209.1)

(202.4)

 
8,551.9

6,932.8

Cost of sales
 
(6,255.0)

(5,281.9)

 
(170.0)

(156.9)

 
213.3

206.8

 
(6,211.6)

(5,232.1)

SG&A expenses
 
(632.4)

(563.5)

 
(12.0)

(9.1)

 


 
(644.4)

(572.6)

Other operating income (expense), net
 
4.4

(22.1)

 
0.7

0.8

 


 
5.1

(21.3)

Operating income (expense)
 
1,667.9

1,065.3

 
28.9

37.2

 
4.2

4.4

 
1,701.0

1,106.8

 
 
 


 
 
 
 
 
 
 
 
 
EBITDA
 
2,071.8

1,350.8

 
68.9

73.6

 
4.2

4.4

 
2,144.9

1,428.8






7




Steel reporting segment

The steel segment’s operating income was USD 1.7 billion in the first nine months of 2018 , an increase of USD 602.7 million compared to the operating income in the first nine months of 2017 , reflecting higher net sales, partially offset by higher operating cost.

Net sales of steel products in the first nine months of 2018 increased 22% compared to the first nine months of 2017 , reflecting a 1.8 million-ton increase in shipments. Shipments increased 22% year-over-year mainly due to higher shipments in Other Markets mostly due to the consolidation of Ternium Brasil in 2018 (which started in September 2017). Revenue per ton in the first nine months of 2018 remained stable compared to the same period last year as a result of higher steel prices in Ternium Mexico and in Other Markets, offset by lower revenue per ton in the Southern Region.
 
 
Net Sales
(million USD)
 
Shipments
(thousand tons)
 
Revenue/ton
(USD/ton)
 
 
9M 2018
9M 2017
 Dif.
 
9M 2018
9M 2017
 Dif.
 
9M 2018
9M 2017
 Dif.
Mexico
 
4,691.1

4,072.6

15
 %
 
5,021.5

5,008.4

0
 %
 
934

813

15
 %
Southern Region
 
1,198.6

1,693.7

(29
)%
 
1,796.0

1,810.8

(1
)%
 
667

935

(29
)%
Other Markets
 
2,367.1

990.2

139
 %
 
3,170.0

1,366.5

132
 %
 
747

725

3
 %
 
 
 
 
 
 
 
 
 
 
 
 

 
Total steel products
 
8,256.8

6,756.4

22
 %
 
9,987.5

8,185.8

22
 %
 
827

825

0
 %
Other products 1  
 
294.2

176.3

67
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steel segment
 
8,551.0

6,932.8

23
 %
 
 
 
 
 
 
 
 
1  The item “Other products” primarily includes includes Ternium Brasil’s and Ternium México’s electricity sales.

Operating cost increased 18% due to the above-mentioned 22% increase in shipment volumes partially offset by a 3% decrease in operating cost per ton.


Mining reporting segment

The mining segment’s operating income was a gain of USD 28.9 million in the first nine months of 2018 , compared to a gain of USD 37.2 million in the first nine months of 2017 , reflecting higher iron ore sales partially offset by higher operating cost.

Net sales of mining products in the first nine months of 2018 were 4% higher than those in the first nine months of 2017 , reflecting 3% higher shipments and 1% higher revenue per ton and.
 
 
 Mining segment
 
 
 
9M 2018
9M 2017
 Dif.
 
Net Sales (million USD)
 
210.1

202.4

4
%
 
Shipments (thousand tons)
 
2,759.3

2,676.3

3
%
 
Revenue per ton (USD/ton)
 
76

76

1
%
 

Operating cost increased 10% year-over-year mainly due to the above -mentioned 3% increase in shipment volumes and a 6% increase in operating cost per ton.

EBITDA in the first nine months of 2018 was USD 2.1 billion, or 25.1% of net sales, compared with USD 1.4 billion, or 20.6% of net sales, in the first nine months of 2017 .

Net financial results were USD 244.9 million loss in the first nine months of 2018 , compared to USD 135.8 million loss in the first nine months of 2017 . During the first nine months of 2018 , Ternium’s net financial

8




interest results totaled a loss of USD 79.4 million, compared with a loss of USD 60.4 million in the first nine months of 2017 , reflecting higher average indebtedness.

Net foreign exchange results included a USD85.2 million negative year-over-year difference mainly related to the effect of the fluctuations of the Argentine and Mexican peso against the US dollar. In the first nine months of 2018 , the Argentine peso depreciated 55% against the US dollar compared to 8% in the first nine months of 2017 , resulting in a non-cash negative impact in Ternium Argentina’s US dollar financial position (which uses the Argentine peso as its functional currency). This was partially offset by a positive impact of the Mexican peso’s 5% appreciation against the US dollar on a net short local currency position in Ternium’s Mexican subsidiaries compared to a 14% appreciation in the first nine months of 2017 .

Change in fair value of financial instruments included in net financial results was a USD103.1 million loss in the first nine months of 2018 compared to a USD12.3 million gain in the first nine months of 2017 . The loss in the first nine months of 2018 was mainly related to certain derivative instruments entered into to compensate for the interest rate charges derived from Ternium’s Argentine subsidiary's local currency denominated financial debt.

The effect of inflation on Ternium’s Argentine subsidiaries and associates’ short net monetary position was a gain of USD97.9 million as a result of the application of IAS 29 from 2018.

Equity in results of non-consolidated companies was a gain of USD 54.9 million in the first nine months of 2018 , compared to a gain of USD 52.1 million in the first nine months of 2017 mainly due to better results from Ternium's investment in Techgen.

Income tax expense in the first nine months of 2018 was USD 300.3 million, or 20% of income before income tax, compared to an income tax expense of USD 198.2 million, or 19% of income before income tax in the first nine months of 2017 . The difference is mainly due to the consolidation of Ternium Brasil in 2018 (which started in September 2017), partially offset by the non-cash impact on deferred taxes due to the fluctuation of the Mexican peso against the U.S. dollar (5% appreciation in the first nine months of 2018 compared to a 14% appreciation in the first nine months of 2017 ).

Net gain attributable to non-controlling interest in the first nine months of 2018 was USD 73.4 million, compared to a net gain of USD 118.9 million in the first nine months of 2017 .


Cash Flow and Liquidity

Net cash provided by operating activities in the first nine months of 2018 was USD 1.2 billion. Working capital increased by USD 394.8 million in the first nine months of 2018 as a result of a USD310.6 million increase in inventories and an aggregate USD234.9 million net increase in trade and other receivables, partially offset by an aggregate USD150.7 million increase in accounts payable and other liabilities. The net increase in trade and other receivables in the first nine months of 2018 mainly reflected higher steel prices. The inventory value increase in the first nine months of 2018 was mainly due to net USD108.2 million higher costs of slabs, goods in process and finished goods principally as a result of the pass-through of higher purchased slab, scrap, coal and iron ore prices; USD163.6 million higher volume and price of raw materials, supplies and other; and USD38.9 million net higher steel volume.

Capital expenditures in the first nine months of 2018 were USD 344.4 million, USD 61.5 million higher than in the first nine months of 2017 mainly due to the consolidation of Ternium Brasil. The main investments carried out during the first nine months of 2018 included those made for new hot-rolling, hot-dipped galvanizing and pre-painting production capacity in the company’s Pesquería industrial center, improvement of environmental and safety conditions at certain facilities, the upgrade and expansion of two hot strip mills, the expansion of connectivity and equipment automation, and those made in Peña Colorada’s iron ore operations.

9





In the first nine months of 2018 , Ternium's free cash flow 7 was USD 847.1 million. Net repayment of borrowings in the first nine months of 2018 reached USD 543.0 million. Net dividends paid to shareholders were USD 215.9 million and net dividends paid by subsidiaries to non-controlling interest were USD 32.0 million. As of September 30, 2018 , Ternium’s net debt position 8 was USD 2.1 billion.

Net cash provided by operating activities in the third quarter 2018 was USD 456.5 million. Working capital increased by USD 83.2 million in the third quarter 2018 as a result of an USD84.8 million increase in inventories and an aggregate USD26.7 million net decrease in accounts payable and other liabilities, partially offset by an aggregate USD28.3 million decrease in trade and other receivables. The inventory value increase in the third quarter 2018 was mainly due to a net USD99.1 million higher steel volume; and a net USD5.3 million higher value of raw materials and supplies; partially offset by a net USD19.6 million lower costs of slabs, goods in process and finished goods. In the third quarter 2018 , Ternium's free cash flow 9 was USD 340.0 million.


Conference Call and Webcast

Ternium will host a conference call on October 31, 2018, at 9:00 a.m. ET in which management will discuss third quarter 2018 results. A webcast link will be available in the Investor Center section of the company’s website at www.ternium.com .


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 Latin America’s leading flat steel producer, with operating facilities in Mexico, Brazil, Argentina, Colombia, the southern United States and Central America. The company offers a broad range of high value-added steel products for customers active in the automotive, home appliances, construction, capital goods, container, food and energy industries through its manufacturing and service center network and advanced customer integration systems. More information about Ternium is available at www.ternium.com .


Notes

1  
Figures for the second quarter 2018 have been adjusted to reflect the application of IAS 29 to the financial reporting of Ternium’s Argentine subsidiaries.
2  
EBITDA in the third quarter 2018 equals operating income of USD 689.3 million adjusted to exclude depreciation and amortization of USD 142.4 million.
3  
Consolidated EBITDA divided by steel shipments.
4  
American Depositary Share (ADS). Each 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 .
5  
Operating cost per ton is equal to cost of sales plus SG&A, divided by shipments.

10




6  
EBITDA in the first nine months of 2018 equals operating income of USD 1.7 billion adjusted to exclude depreciation and amortization of USD 443.9 million.
7  
Free cash flow in the first nine months of 2018 equals net cash provided by operating activities of USD 1.2 billion less capital expenditures of USD 344.4 million.
8  
Net debt position at September 30, 2018 equals borrowings of USD2.5 billion less cash and equivalents plus other investments of USD0.5 billion.
9  
Free cash flow in the third quarter 2018 equals net cash provided by operating activities of USD 456.5 million less capital expenditures of USD 116.5 million.

11





Consolidated Income Statement

USD million
 
3Q 2018
 
3Q 2017
 
9M 2018
 
9M 2017
 
 
(Unaudited)
 
(Unaudited)
Net sales
 
2,903.0

 
2,535.0

 
8,551.9

 
6,932.8

Cost of sales
 
(2,012.6
)
 
(1,972.5
)
 
(6,211.6
)
 
(5,232.1
)
Gross profit
 
890.4

 
562.6

 
2,340.3

 
1,700.7

Selling, general and administrative expenses
 
(206.0
)
 
(211.2
)
 
(644.4
)
 
(572.6
)
Other operating income (expenses), net
 
4.8

 
(1.5
)
 
5.1

 
(21.3
)
Operating income
 
689.3

 
349.8

 
1,701.0

 
1,106.8

 
 
 
 
 
 
 
 
 
Finance expense
 
(36.7
)
 
(29.2
)
 
(94.5
)
 
(74.7
)
Finance income
 
5.0

 
5.3

 
15.1

 
14.3

Other financial expenses, net
 
(80.9
)
 
(4.8
)
 
(165.6
)
 
(75.5
)
Equity in earnings of non-consolidated companies
 
22.6

 
15.5

 
54.9

 
52.1

Profit before income tax expense
 
599.3

 
336.6

 
1,511.0

 
1,023.1

Income tax expense
 
(75.9
)
 
(103.8
)
 
(300.3
)
 
(198.2
)
Profit for the period
 
523.4

 
232.7

 
1,210.8

 
824.9

 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
Owners of the parent
 
488.5

 
194.9

 
1,137.4

 
706.0

Non-controlling interest
 
34.8

 
37.8

 
73.4

 
118.9

Profit for the period
 
523.4

 
232.7

 
1,210.8

 
824.9




12




Consolidated Statement of Financial Position

USD million
 
 
September 30,
2018
 
 
 
December 31,
2017
 
 
 
 
(Unaudited)
 
 
 
(Audited)
 
Property, plant and equipment, net
 
 
5,594.9

 
 
 
5,349.8

 
Intangible assets, net
 
 
1,006.1

 
 
 
1,092.6

 
Investments in non-consolidated companies
 
 
443.0

 
 
 
478.3

 
Deferred tax assets
 
 
118.2

 
 
 
121.1

 
Receivables, net
 
 
652.4

 
 
 
677.3

 
Trade receivables, net
 
 
5.8

 
 
 
4.8

 
Derivative financial instruments
 
 
1.2

 
 
 

 
Other investments
 
 
14.9

 
 
 
3.4

 
Total non-current assets
 
 
7,836.4

 
 
 
7,727.3

 
 
 
 
 
 
 
 
 
 
Receivables, net
 
 
266.4

 
 
 
362.2

 
Derivative financial instruments
 
 
3.4

 
 
 
2.3

 
Inventories, net
 
 
2,670.5

 
 
 
2,550.9

 
Trade receivables, net
 
 
1,257.0

 
 
 
1,006.6

 
Other investments
 
 
61.0

 
 
 
132.7

 
Cash and cash equivalents
 
 
399.1

 
 
 
337.8

 
Total current assets
 
 
4,657.3

 
 
 
4,392.5

 
 
 
 
 
 
 
 
 
 
Non-current assets classified as held for sale
 
 
2.2

 
 
 
2.8

 
 
 
 
 
 
 
 
 
 
Total assets
 
 
12,495.9

 
 
 
12,122.6

 
 
 
 
 
 
 
 
 
 
Capital and reserves attributable to the owners of the parent
 
 
5,939.6

 
 
 
5,010.4

 
Non-controlling interest
 
 
939.1

 
 
 
842.3

 
 
 
 
 
 
 
 
 
 
Total Equity
 
 
6,878.7

 
 
 
5,852.8

 
 
 
 
 
 
 
 
 
 
Provisions
 
 
632.4

 
 
 
768.5

 
Deferred tax liabilities
 
 
530.9

 
 
 
513.4

 
Other liabilities
 
 
378.3

 
 
 
373.0

 
Trade payables
 
 
1.1

 
 
 
2.3

 
Financial Lease liabilities
 
 
66.6

 
 
 
69.0

 
Borrowings
 
 
1,689.6

 
 
 
1,716.3

 
Total non-current liabilities
 
 
3,299.0

 
 
 
3,442.5

 
 
 
 
 
 
 
 
 
 
Current income tax liabilities
 
 
116.6

 
 
 
52.9

 
Other liabilities
 
 
359.0

 
 
 
357.0

 
Trade payables
 
 
957.8

 
 
 
897.7

 
Derivative financial instruments
 
 
18.4

 
 
 
6.0

 
Financial Lease liabilities
 
 
8.7

 
 
 
8.0

 
Borrowings
 
 
857.6

 
 
 
1,505.6

 
Total current liabilities
 
 
2,318.2

 
 
 
2,827.3

 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
5,617.2

 
 
 
6,269.8

 
 
 
 
 
 
 
 
 
 
Total equity and liabilities
 
 
12,495.9

 
 
 
12,122.6

 



13




Consolidated Statement of Cash Flows

USD million
 
3Q 2018
 
3Q 2017
 
9M 2018
 
9M 2017
 
 
(Unaudited)
 
(Unaudited)
 
 
 
 
 
 
 
 
 
Profit for the period
 
523.4

 
232.7

 
1,210.8

 
824.9

 
 
 
 
 
 
 
 
 
Adjustments for:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
142.4

 
116.3

 
443.9

 
321.9

Equity in earnings of non-consolidated companies
 
(22.6
)
 
(15.5
)
 
(54.9
)
 
(52.1
)
Changes in provisions
 
0.3

 
0.6

 
1.3

 
1.9

Net foreign exchange results and others
 
(48.7
)
 
9.5

 
88.0

 
119.5

Interest accruals less payments
 
(5.9
)
 
5.9

 
(13.0
)
 
7.9

Income tax accruals less payments
 
(49.1
)
 
(7.4
)
 
(89.7
)
 
(317.0
)
Changes in working capital
 
(83.2
)
 
(96.8
)
 
(394.8
)
 
(555.3
)
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
456.5

 
245.3

 
1,191.5

 
351.8

 
 
 
 
 
 
 
 
 
Capital expenditures
 
(116.5
)
 
(100.4
)
 
(344.4
)
 
(282.9
)
Proceeds from the sale of property, plant & equipment
 
0.2

 
0.4

 
0.6

 
0.7

Acquisition of business
 
 
 
 
 
 
 
 
    Purchase consideration
 

 
(1,891.0
)
 

 
(1,891.0
)
    Cash acquired
 

 
278.2

 

 
278.2

Dividends received from non-consolidated companies
 

 

 

 
0.1

Loans to non-consolidated companies
 
(24.5
)
 

 
(24.5
)
 
(23.9
)
Decrease (Increase) in Other Investments
 
52.3

 
(1.3
)
 
58.6

 
(9.5
)
 
 
 
 
 
 
 
 
 
Net cash used in investing activities
 
(88.5
)
 
(1,714.1
)
 
(309.6
)
 
(1,928.3
)
 
 
 
 
 
 
 
 
 
Dividends paid in cash to company's shareholders
 

 

 
(215.9
)
 
(196.3
)
Dividends paid in cash to non-controlling interest
 

 

 
(32.0
)
 
(30.6
)
Financial Lease Payments
 
(1.2
)
 

 
(5.0
)
 
(1.1
)
Proceeds from borrowings
 
579.2

 
1,953.9

 
1,105.2

 
2,812.2

Repayments of borrowings
 
(762.9
)
 
(279.0
)
 
(1,648.2
)
 
(806.3
)
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by financing activities
 
(184.9
)
 
1,674.8

 
(795.9
)
 
1,778.0

 
 
 
 
 
 
 
 
 
Increase in cash and cash equivalents
 
183.2

 
206.0

 
86.0

 
201.5







14




 
 
Shipments
 
Shipments
Thousand tons
 
3Q 2018
2Q 2018
1Q 2018
3Q 2017
 
9M 2018
9M 2017
 
 
 
 
 
 
 
 
 
Mexico
 
1,525.2
 
1,721.7
 
1,774.5
 
1,625.0
 
 
5,021.5
 
5,008.4
 
Southern Region
 
546.5
 
604.2
 
645.3
 
666.3
 
 
1,796.0
 
1,810.8
 
Other Markets
 
1,071.3
 
995.8
 
1,103.0
 
778.8
 
 
3,170.0
 
1366.5
 
Total steel segment
 
3,143.0
 
3,321.6
 
3,522.8
 
3,070.2
 
 
9,987.5
 
8,185.8
 
 
 
 
 

 
 
 
 
 
Total mining segment
 
914.5
 
915.6
 
929.3
 
938.3
 
 
2,759.3
 
2,676.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue / ton
 
Revenue /ton
USD/ton
 
3Q 2018
2Q 2018
1Q 2018
3Q 2017
 
9M 2018
9M 2017
 
 
 
 
 
 
 
 
 
Mexico
 
995
 
963
 
854
 
830
 
 
934
 
813
 
Southern Region
 
761
 
650
 
604
 
929
 
 
667
 
935
 
Other Markets
 
808
 
781
 
656
 
636
 
 
747
 
725
 
Total steel segment
 
891
 
851
 
746
 
802
 
 
827
 
825
 
 
 
 
 

 
 
 
 
 
Total mining segment
 
73
 
81
 
75
 
90
 
 
76
 
76
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
Net Sales
USD million
 
3Q 2018
2Q 2018
1Q 2018
3Q 2017
 
9M 2018
9M 2017
 
 
 
 
 
 
 
 
 
Mexico
 
1,518.4
 
1,657.4
 
1,515.4
 
1,348.6
 
 
4,691.1
 
4,072.6
 
Southern Region
 
415.8
 
393.0
 
389.8
 
618.8
 
 
1,198.6
 
1,693.7
 
Other Markets
 
865.8
 
777.3
 
723.9
 
495.4
 
 
2,367.1
 
990.2
 
Total steel products
 
2,800.0
 
2,827.7
 
2,629.1
 
2,462.8
 
 
8,256.8
 
6,756.4
 
 Other products 1  
 
102.8
 
107.9
 
83.4
 
72.2
 
 
294.2
 
176.3
 
Total steel segment
 
2,902.8
 
2,935.6
 
2,712.6
 
2,535.0
 
 
8,551.0
 
6,932.8
 
 
 
 
 

 
 
 
 
 
Total mining segment
 
66.6
 
73.7
 
69.7
 
84.3
 
 
210.1
 
202.4
 
 
 
 
 

 
 
 
 
 
Total steel and mining segments
 
2,969.5
 
3,009.3
 
2,782.3
 
2,619.3
 
 
8,761.1
 
7,135.2
 
 
 
 
 

 
 
 
 
 
Intersegment eliminations
 
(66.4)
 
(73.1)
 
(69.6)
 
(84.3)
 
 
(209.1)
 
(202.4)
 
 
 
 
 

 
 
 
 
 
  Total net sales
 
2,903.0
 
2,936.2
 
2,712.7
 
2,535.0
 
 
8,551.9
 
6,932.8
 
1 The item “Other products” primarily includes Ternium Brasil’s and Ternium México’s electricity sales.















15




Consolidated Income Statements adjusted to reflect the application of IAS 29 to the financial reporting of Ternium’s Argentine subsidiaries.

USD million
 
2Q 2018
 
1Q 2018
 
 
 
(Unaudited)
 
Net sales
 
2,936.2

 
2,712.7

 
Cost of sales
 
(2,143.6
)
 
(2,055.3
)
 
Gross profit
 
792.5

 
657.4

 
Selling, general and administrative expenses
 
(224.0
)
 
(214.4
)
 
Other operating (expenses) income, net
 
(5.5
)
 
5.7

 
Operating income
 
563.1

 
448.7

 
 
 
 
 
 
 
Finance expense
 
(29.6
)
 
(28.2
)
 
Finance income
 
5.3

 
4.8

 
Other financial expenses, net
 
(57.2
)
 
(27.4
)
 
Equity in earnings of non-consolidated companies
 
12.4

 
20.0

 
Profit before income tax expense
 
493.8

 
417.9

 
Income tax expense
 
(189.6
)
 
(34.7
)
 
Profit for the period
 
304.2

 
383.2

 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
Owners of the parent
 
305.9

 
342.9

 
Non-controlling interest
 
(1.7
)
 
40.3

 
Profit for the period
 
304.2

 
383.2

 
 
 
 
 
 
 
EBITDA 1
 
712.4

 
600.9

 
 
 
 
 
 
 
1  EBITDA equals operating income of USD563.1 million in the second quarter 2018 and USD448.7 million in the first quarter 2018, adjusted to exclude depreciation and amortization of USD149.3 million and USD152.2 million, respectively.


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