Results and transition: Continuity guaranteed

6 Nov 2017

A day after announcing the CEO succession, Ternium explains to analysts the company’s economic results for the third quarter of the year and says that the change guarantees a continuity in strategy, leadership style and operational excellence.

With a positive outlook and on the eve of a new stage of growth, Ternium presented its results for the third quarter of the year (full results here), which underscored the recovery of demand in Argentina, the integration of operations in Brazil and a sound level of activity in Mexico, though affected by seasonality and uncertainty over the fate of the NAFTA.

The call with market analysts was led by Daniel Novegil, the CEO of Ternium, along with Chief Financial Officer Pablo Brizzioand Investor Relations Director Sebastián MartíMáximo VedoyaTernium Mexico Executive Vice-President, who will become Ternium’s CEO starting March 2018, joined the call for the first time.

“Ternium continued showing very good results in the third quarter of 2017,” said Novegil.

Shipments totaled 3.07 million tons, 16% more than in the second quarter and reaching a new record, and sales went up 10%. The company’s EBITDA (earnings before interests, taxes, depreciations and amortizations) went down 6% to 466.1 million dollars. EBITDA per ton decreased to 152 dollars, a decline that reflects in part the integration of operations in the Rio plant, which increases the total output of Ternium but reduces the average level of EBITDA per ton.

“We started to consolidate the operations of CSA, now Ternium Brasil, in September 2017, which translates in larger shipment volumes but a decline in margin,” Brizzio explained.

A guarantee of continuity

At the start of the call, Novegil said that Vedoya, who will succeed him as CEO of Ternium on March 1, is “the right person” to steer Ternium through “a new phase of growth” and that he “guarantees a continuity” in the company’s differentiation strategy.

“Máximo’s appointment as CEO guarantees the continuity of Ternium’s strategy of differentiation, focus on high-end and value-added products, operational excellence, continuous improvement and cost reduction, to generate long-term shareholder value,” said Novegil.

“I am ready for this next opportunity, and I am looking forward to continuing to execute our strategy with the rest of the leadership team and with the support of you and the entire board of directors,” noted Vedoya.

Novegil also talked about the “adventure and the privilege” of serving as CEO of Ternium over the last 12 years, thanked Paolo Rocca for the support and said that he would work closely with Vedoya in the transition over the next months and beyond, in his new role as vice-president of the Board of Directors.

NAFTA: little impact, despite the uncertainty

Although there is still uncertainty looming over the renegotiation of the North American Free Trade Agreement (NAFTA) underway, Ternium believes that in the long haul the trade relations between the US and Mexico will continue to be positive, Vedoya said.

“The treaty can be improved, and the negotiations can make it better and more modern.”

But even in the eventual scenario that there is no agreement, Ternium’s management believe that trade between the North American partners would continue to be positive even if they were to be conducted under the rules of the World Trade Organization (WTO). In the case of steel, in particular, Vedoya said that the United States should have little interest in blocking trade with Mexico, as it actually has a surplus of around 1.7 million tons in the exchange of flat products.

Despite the competitive context in the Mexican steel market, Novegil said that Ternium has room for growth replacing imports, which in the segment of flat steel go as high as 50%.

Argentina: an important engine

The outlook is promising for Argentina, thanks to the recovery of steel demand, driven by several sectors including the car industry, infrastructure, farming, renewable energy, and oil and gas, among others.

“We are expecting a 12.5% increase in steel consumption for 2017 compared to the previous year and some 10% in 2018,” detailed Novegil. “For the first half of 2018 we are forecasting record levels of production for our operations in Argentina.”

Investments underway

Ternium announced in September investments for 1.2 billion dollars for the construction of a new hot strip mill in Pesquería, Mexico, and a new steel bar production facility in Colombia.

Regarding the company’s CAPEX plans, 450 million dollars will be invested this year and some 600 million dollars in 2018. The peak of investment on these new projects will be in 2019.

“As with all of our investments over the last years, with each additional step we intend to advance our differentiation strategy, and support our industry-leading profitability,” said Novegil.