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Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the nine-month period ended September 30, 2020. Ternium is a global steel manufacturer with operations primarily in the Americas, organized into Steel and Mining segments. The report covers the impact of the COVID-19 pandemic, which caused significant demand reductions in Q2 2020, followed by a recovery in Q3 2020 where facilities returned to normal production levels.

Key Financial Metrics (Nine Months Ended Sept 30, 2020)

Note: Borrowings decreased significantly from year-end 2019 ($4,415.9M) to $1,866.2M as of September 30, 2020.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 22.5% year-over-year, driven by lower demand and production volumes in Q2 due to the pandemic, partially offset by a recovery in Q3.
• Profitability: Profit attributable to owners dropped 64% to $178.1 million. This was influenced by lower operating income and a significant increase in income tax expense ($282.5M in 2020 vs. $200.4M in 2019).
• Financial Income: Other financial income improved significantly to $85.8 million (vs. a loss of $23.5M in 2019), largely due to a net foreign exchange gain of $72.2 million and the cessation of inflation adjustment losses in Argentina.
• Argentina Accounting Change: Effective January 1, 2020, Ternium Argentina changed its functional currency from the Argentine Peso to the US Dollar, ceasing the application of IAS 29 (Hyperinflationary Economies).
• Investment in Usiminas: The carrying value of the investment in Usiminas decreased to $351.4 million due to the share of results and other comprehensive income losses recorded by the associate.

Outlook, Risks, and Contingencies

• COVID-19 Recovery: Management states that all industrial facilities are back to normal production levels as of the filing date. Liquidity remains strong with $562 million in net debt and access to credit markets.
• Dividend Policy: The Company withdrew the annual dividend payment for the 2019 fiscal year to preserve cash during the pandemic.
• Legal Contingencies:
  • CSN Litigation: A lawsuit regarding a tender offer for Usiminas shares is pending review by the Brazilian Superior Court of Justice. No provision has been recorded as management believes claims are groundless.
  • ICMS Tax Benefit: A Brazilian court ruling in October 2020 impaired the object of an unconstitutionality action against a tax incentive. The Company partially wrote off a provision of $194.1 million, with a remaining $181.8 million provision to be written off once the court decision is final.
  • Class Action: A putative class action regarding the "Notebooks Case" was dismissed with leave to amend; the deadline for an amended complaint is November 13, 2020.
• Argentina FX Restrictions: Foreign exchange restrictions in Argentina limit the ability to convert Pesos for dividend payments, though commercial payments remain unaffected.

Investor Verification Checklist

• Verify the sustainability of the Q3 2020 production recovery and demand trends in the Americas steel market.
• Confirm the finality of the Brazilian Supreme Court decision regarding the ICMS tax benefit to assess the timing of the remaining $181.8 million gain recognition.
• Monitor the status of the CSN tender offer litigation and the potential impact on Usiminas ownership structure.
• Review the impact of the functional currency change in Argentina on future financial reporting and volatility.
• Assess the Company's ability to resume dividend payments given the current cash flow generation and debt reduction strategy.