TX

Business Context and Reporting Period

This Form 6-K filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the six-month period ended June 30, 2023. 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 its American Depositary Shares (ADS) trade on the NYSE under the symbol "TX".

Key Financial Metrics

Margins: Gross margin for the six-month period was approximately 22.3% ($1.67B / $7.49B). Operating margin was approximately 14.5% ($1.09B / $7.49B).

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by 14.3% to $7.49 billion from $8.74 billion in the same period of 2022. This was driven by lower volumes and pricing in the steel market.
• Profitability Compression: Operating income fell 49% to $1.09 billion from $2.13 billion. Net profit attributable to owners of the parent decreased 36% to $1.00 billion from $1.57 billion.
• Cost Structure: Cost of sales decreased to $5.82 billion from $6.04 billion, but the reduction was insufficient to offset the revenue decline, leading to a significant drop in gross profit (from $2.70B to $1.67B).
• Financial Items: Finance income increased significantly to $83.5 million (from $40.0 million) due to higher interest rates, partially offset by a net foreign exchange loss of $40.4 million, primarily related to the devaluation of the Argentine peso.
• Investment in Usiminas: The carrying value of the investment in Usiminas increased to $827.1 million from $725.7 million, driven by the share of results and currency translation adjustments, despite the market value remaining below book value.

Outlook, Management Commentary, and Risks

Strategic Developments

• USMCA Integration: Ternium approved a $2.2 billion investment to build a new electric arc furnace (EAF) and direct reduced iron (DRI) module in Pesquería, Mexico. Construction is expected to begin in December 2023, with operations starting in H1 2026.
• Usiminas Consolidation: On July 3, 2023, Ternium completed the acquisition of additional shares in Usiminas, increasing its participation in the Usiminas control group to 51.5%. Ternium will fully consolidate Usiminas' results starting July 2023.

Risks and Contingencies

• Argentina Foreign Exchange Restrictions: Significant restrictions on foreign exchange transactions in Argentina continue. Ternium Argentina received a dividend in kind (US dollar-denominated Argentine bonds) valued at $624 million, but Ternium recorded a negative reserve of approximately $183 million due to the discount on these bonds in the international market. A new 7.5% tax on imports of raw materials and freight was also implemented in July 2023.
• Russia-Ukraine Conflict: Ongoing sanctions and trade disruptions affect the supply of steel slabs, iron ore, and coal, potentially increasing input costs and limiting production levels.
• Legal Litigation: The Superior Court of Justice in Brazil rejected CSN's appeal regarding a tender offer dispute in March 2023. However, CSN may still appeal to the Supreme Court, creating ongoing uncertainty.

Investor Verification Checklist

• Usiminas Consolidation Impact: Verify the full-year 2023 financial impact of consolidating Usiminas, given the transaction closed in July 2023.
• Argentina Liquidity: Monitor the ability of Ternium Argentina to repatriate earnings and the valuation of the "dividend in kind" bonds held.
• USMCA Project Execution: Track the timeline and capital expenditure progress of the $2.2 billion Mexico expansion project.
• Steel Market Dynamics: Assess the sustainability of the revenue decline and margin compression in the context of global steel demand and raw material costs.
• CSN Litigation Status: Confirm if CSN files an appeal to the Brazilian Supreme Court following the March 2023 ruling.