TX

Ternium S.A. Q1 2025 Financial Summary (Form 6-K)

Business Context and Reporting Period

This filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the three-month period ended March 31, 2025. Ternium is a global steel producer organized into two operating segments: Steel (flat and long steel products) and Mining (iron ore and pellets). The company is incorporated in Luxembourg and trades on the NYSE under the symbol "TX".

Key Financial Metrics

Note: Borrowings decreased significantly from Q4 2024 ($7.34B) to Q1 2025 ($2.47B) due to repayments exceeding proceeds.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by 17.7% to $3.93 billion, driven primarily by a drop in the Steel segment (Mexico and Southern Region) and Mining segment sales.
• Profitability Compression: Operating income fell 80.5% to $131.8 million. Gross margin contracted from 23.1% to 13.5% due to higher cost of sales relative to revenue.
• Significant Litigation Provision: A one-time provision of $45.3 million was recorded for ongoing litigation related to the Usiminas acquisition (CSN lawsuit), which did not exist in the prior year period.
• Financial Income: Other financial income improved significantly to $48.5 million (vs. a $200.2 million expense in Q1 2024), largely due to favorable foreign exchange results and changes in fair value of financial assets.
• Debt Reduction: Total borrowings were reduced by approximately $4.8 billion compared to the end of 2024, reflecting aggressive debt repayment.

Outlook, Risks, and Contingencies

• Usiminas Litigation (CSN): The Superior Court of Justice (SCJ) in Brazil reversed a previous decision, ordering Ternium to pay indemnification to CSN regarding the 2012 Usiminas acquisition. The potential liability is estimated at approximately $336.4 million (Ternium's share). Ternium has filed an extraordinary appeal with the Supreme Federal Tribunal and maintains the claims are without merit.
• Argentina Foreign Exchange Restrictions: Ternium Argentina operates under strict foreign exchange controls. While some flexibility was introduced in April 2025, restrictions on repatriating profits and paying for imports remain. The company holds significant assets in Argentine sovereign bonds, which are subject to valuation volatility based on local market prices and exchange rates.
• U.S. Tariffs: New U.S. tariffs announced in early 2025 include a 25% tariff on steel imports and reciprocal tariffs on trading partners. While USMCA-compliant products may be exempt, the company states it cannot currently quantify the impact on its business.
• Dividends: The Board proposed an annual dividend of $0.27 per share ($2.70 per ADS). A payment of $0.18 per share is expected in May 2025 if approved.

Key Facts for Investor Verification

• Litigation Exposure: Verify the status of the appeal filed with the Brazilian Supreme Federal Tribunal regarding the CSN indemnification claim (~$336M potential liability).
• Argentina Liquidity: Assess the impact of ongoing foreign exchange restrictions on Ternium Argentina's ability to repatriate cash and service debt, noting the $1.18 billion in local investments.
• Tariff Impact: Monitor the final implementation details of U.S. steel tariffs and reciprocal tariffs to determine exposure for Ternium's North American operations.
• Debt Profile: Confirm the sustainability of the reduced debt load ($2.47B) against future capital expenditure needs and working capital requirements.
• Margin Recovery: Evaluate whether the 13.5% gross margin is a temporary anomaly or indicative of a structural shift in the steel market pricing environment.