Ternium(TX) - 2018 Q4 - Annual Report

Financial Performance - Net sales for 2018 reached $11,454.8 million, a 18.1% increase from $9,700.3 million in 2017[42] - Gross profit for 2018 was $2,971.5 million, up 29.3% from $2,297.3 million in 2017[42] - Operating income increased to $2,108.4 million in 2018, representing a 44.6% rise from $1,456.8 million in 2017[42] - Profit for the year attributable to owners of the parent was $1,506.6 million, a significant increase from $886.2 million in 2017[42] - Basic earnings per share for 2018 were $0.77, compared to $0.45 in 2017, reflecting a 71.1% increase[42] Assets and Liabilities - Total assets as of December 31, 2018, amounted to $12,547.9 million, up from $12,122.6 million in 2017[45] - Non-current assets increased to $8,121.8 million in 2018, compared to $7,727.3 million in 2017[45] - Current liabilities decreased to $1,826.5 million in 2018 from $2,827.3 million in 2017, indicating improved financial stability[45] Dividends - The company paid dividends of $0.120 per share in 2018, up from $0.110 in 2017[42] - The ability to pay dividends is contingent on the financial performance of subsidiaries, which could be restricted by legal and regulatory limitations[89] Market Risks - Ternium's sales may decline due to fluctuations in industry inventory levels, affecting demand for its products[58] - The company faces intense competition in the steel market, which could lead to declining margins and reduced sales volumes[60] - Price volatility and shortages of raw materials, such as iron ore and natural gas, could adversely impact Ternium's profitability[61] - Ternium relies on a limited number of key suppliers for essential inputs, which poses risks if these suppliers fail to deliver[62] - Labor disputes could lead to work stoppages, disrupting Ternium's operations and increasing costs[73] Acquisitions and Investments - Ternium has made significant acquisitions, including a $2.2 billion investment in Usiminas, which may not yield expected benefits[69] - As of December 31, 2018, Ternium's investment in Usiminas was valued at $480.1 million, subject to potential impairment charges[71] - Future acquisitions may not perform as expected, potentially impacting Ternium's operations and profits[64] Currency and Economic Factors - Ternium's operations are significantly affected by foreign currency exchange rate fluctuations, with a substantial portion of sales conducted in currencies other than the U.S. dollar, impacting financial results and net worth[74] - Economic conditions in Mexico significantly impact Ternium's revenues, with a majority of sales made in this market[94] - Inflation in Argentina reached 47.6% in 2018, adversely affecting Ternium Argentina's cost-competitiveness[107] - The Argentine government has increased taxes on companies, which could further burden Ternium's operations[108] - Brazil's political instability has historically influenced economic performance, contributing to market confidence issues[102] Regulatory and Compliance Issues - Regulatory changes in Mexico included a 30% corporate income tax and a 10% withholding tax on dividends[96][97] - Compliance with environmental regulations may increase operating costs and negatively impact Ternium's financial condition[115] - Ongoing negotiations related to greenhouse gas emissions could lead to new regulations affecting Ternium's operations[116] Production and Operations - Ternium is Latin America's leading flat steel producer with an annual crude steel production capacity of 12.4 million tons[127] - Ternium's aggregate production capacity of crude steel is approximately 12.4 million tons, while finished steel products capacity is around 11.3 million tons as of December 31, 2018[161] - The company operates through subsidiaries in multiple countries, including Mexico, Brazil, Argentina, Colombia, and the southern United States[127] - Ternium's production facilities include 12 steel production and processing units in Mexico, with a focus on serving the construction sector[165] Strategic Focus - The company plans to enhance its competitive position by focusing on higher margin value-added products and pursuing strategic growth opportunities[63] - Ternium's strategy focuses on enhancing shareholder value while consolidating its position as a leading steel producer in Latin America[145] - Ternium is focusing on higher margin value-added products, including cold-rolled sheets and coated products, and is building a new hot-dip galvanizing line and hot rolling mill in Pesquería, Mexico[27] Mining Operations - Ternium has a 100% interest in Las Encinas and a 50% interest in Consorcio Peña Colorada for iron ore production in Mexico[197] - The total capacity of Ternium's iron ore production facilities includes 4,500 tons per year from two crushing plants at Las Encinas and 18,000 tons from Consorcio Peña Colorada[198] - Ternium is exploring additional mining rights in Michoacán, Jalisco, and Colima, Mexico, to diversify its iron ore sources[208] Challenges and Risks - Ternium's exploration activities are speculative and may not yield expected results, potentially leading to substantial write-offs if deposits are not economically feasible[85] - The company faces risks related to unexpected natural and operational catastrophes, which could lead to environmental damage and significant liabilities[78] - Difficulties in relationships with local communities may adversely affect mining activities, as seen in past incidents where local actions disrupted operations[88]