News

A new phase of growth

30 Jun 2017
Print this pageEmail this to someoneShare on FacebookTweet about this on TwitterShare on Google+Pin on PinterestShare on TumblrShare on LinkedIn

At the company’s annual Investor Day in New York, Daniel Novegil and his team presented the results of the last years’ expansion and differentiation strategy. Shreveport results highlighted.

Ternium is entering into a new phase of growth, which will keep the main aspects of its regional expansion and differentiation strategy, but add new opportunities following the incorporation of the Brazilian steelmaker CSA.

This was the core message of the company’s management, headed by Daniel Novegil, during the annual Investor Day held on June 29 at the Guggenheim Museum in New York. The event was hosted by Sebastián Martí, Director of Investor Relations, and attended by more than 100 analysts and investors.

“(The incorporation of CSA) opens the door to new scenarios that complement our capabilities in Mexico and Argentina,” said Novegil, “to reinvent and rethink Ternium.”

Ternium’s management said that the strategy pursued by the company in recent years, based on growth in the North American market (focused in Mexico) and on the production of high value-added products, coupled with technological innovation and IT, has been successful.

“Our performance was consistently superior to that of our competitors,” said Novegil, who was accompanied by Martín Berardi, Argentina Area Manager; Máximo Vedoya, Mexico Area Manager; Chief Financial Officer, Pablo Brizzio; and the Planning and Operations Director, Oscar Montero. While the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) on sales was 21% in 2016, the industry average was 13%, they said. “Our strategy delivered the results we expected.”

Markets improving

Steel consumption is growing in the world, except in China, where it is expected to remain flat this year. According to the World Steel Association, apparent steel use is growing at 3% in the United States and remains steady in Mexico, therefore the North American market continues to drive Ternium’s activity.

Novegil and Vedoya explained that they are optimistic about the possible renegotiation of the North American Free Trade Agreement (NAFTA) promoted by the new US government, as it could be a good opportunity to improve the conditions of the agreement, especially regarding rules of origin.

“The problem with the US trade deficit is not Mexico but China,” said Novegil. And then explained that Mexico is, in fact, a net importer of US steel. The US Department of Commerce is expected to issue a ruling regarding steel imports and their possible impact on domestic industry in the coming days.

“The idea that having a strong business relationship is in the best interest of both countries is growing on both sides of the border,” said Vedoya. “And consensus is growing that a renegotiation of NAFTA would be an opportunity to strengthen the treaty and not a threat.” Novegil also said that Ternium operations in the US, based in Shreveport, are getting excellent results.

Mexico represented two thirds of the total sales of Ternium’s offices in 2016. Vedoya said that the market and Ternium’s growth will continue, led by the automotive, home appliances and construction sectors. Ternium also seeks to increase its market share through import substitution, in a context in which the Mexican government has been active in its fight against unfair trade.

After a year of economic reforms, Argentina is also recovering, although gradually. Berardi said that the expansion of the economy, which is expected to be around 3% this year and in 2018, is led by the farming sector, infrastructure and construction, plus unconventional energy production (especially Vaca Muerta). “The transition of the Argentine economy is over and we see a favorable scenario for this year and the next one,” said Berardi. Steel consumption, he estimated, is to grow 10% in 2017 and likewise in 2018.

The Argentine market will also benefit from the expected recovery in Brazil, Novegil said. “We are optimistic about Brazil and the investments we are making there.” When asked, he explained the situation in Usiminas, where Ternium is locked in a boardroom conflict with its partner, Nippon Steel. Under the professional leadership of Sergio Leite, he said, the company is improving its results. Concerning the conflict with Nippon Steel, he said: “I am cautiously optimistic.”

A new growth stage

After the 2008/09 global economic crisis, Ternium had slowed down its vertical integration drive upstream, as it was cheaper to purchase inputs such as slabs from third parties. Between 2012 and 2016, the amount of slabs purchased by Ternium per year went from 2.5 to 3.7 million tons.

“The slab industry has been consolidating since then, and it is to be expected that the margins we obtained will gradually narrow,” explained Montero.

The acquisition of CSA in Brazil is aimed at compensating that deficit and to kick off a new phase of growth for the company, added Novegil. Ternium expects to complete the merger in August, he said. CSA has the capacity to produce 5 million tons of slabs per year.

“CSA opens up the possibility of rethinking and reinventing our company,” said Novegil. “The activity at CSA brings about growth in different directions, which we are currently considering.”