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Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This Form 6-K filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the nine-month period ended September 30, 2019. Ternium is a global steel and mining company organized into two reportable segments: Steel (flat and long steel products) and Mining (iron ore and pellets). The company operates primarily in Mexico, Brazil, and the Southern Cone (Argentina, Paraguay, Chile, Bolivia, Uruguay), with additional markets in the U.S. and Central America. The financial statements are prepared in accordance with IFRS and reflect the adoption of IFRS 16 (Leases) effective January 1, 2019.

Key Financial Metrics (Nine Months Ended Sept 30, 2019)

Note: All figures are in USD thousands unless otherwise noted. Borrowings include current and non-current portions.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 11% year-over-year, driven by lower volumes and price realizations in the steel segment, partially offset by the mining segment.
• Profitability Compression: Operating income fell by 55% to $766.9 million. Gross margin declined from 27.2% in 2018 to 18.0% in 2019.
• Foreign Exchange Impact: Significant currency translation adjustments negatively impacted comprehensive income. The "Other financial income (expenses), net" line item improved significantly from a loss of $154.2 million in 2018 to $17.2 million in 2019, largely due to inflation adjustments in Argentina (IAS 29) and reduced foreign exchange losses.
• Balance Sheet Strength: Total borrowings decreased by approximately $870 million compared to year-end 2018, while cash and cash equivalents more than doubled to $637.7 million.
• Capital Expenditure Increase: Capital expenditures rose to $748.4 million, more than double the $346.5 million spent in the same period in 2018.

Guidance, Outlook, and Risks

Management Commentary & Outlook: The filing does not contain specific forward-looking guidance or numerical targets for the full year 2019. Management notes that the Argentine subsidiaries operate in a context of high economic volatility and political uncertainty. However, the company tested long-lived assets in Argentina for impairment as of September 30, 2019, and recorded no impairment charges, believing the carrying amounts are recoverable.

Accounting Changes: The adoption of IFRS 16 resulted in the recognition of right-of-use assets of $280.5 million and lease liabilities of $280.5 million on January 1, 2019. This change reclassified operating lease commitments onto the balance sheet.

Material Risks and Contingencies:

• CSN Litigation: A lawsuit filed by Companhia Siderúrgica Nacional (CSN) regarding a tender offer for Usiminas shares is pending before the Superior Court of Justice in Brazil. Ternium believes the claims are groundless and has recorded no provision.
• Usiminas Tender Offer: A regulatory determination by Brazil's CVM regarding a 2014 acquisition of Usiminas shares is under appeal. If unsuccessful, Ternium may be required to sell excess shares or launch a tender offer.
• ICMS Tax Benefit: A challenge to the constitutionality of a tax incentive in Rio de Janeiro remains pending before the Brazilian Federal Supreme Court. A provision of $651.8 million (including penalties/interest) was recorded at acquisition, with a corresponding asset for recovery rights.
• Class Action: A putative class action in the U.S. District Court for the Eastern District of New York alleges improper payments related to the expropriation of Sidor in Venezuela. Management believes it has meritorious defenses.

Investor Verification Checklist

• Argentina Exposure: Verify the impact of ongoing inflation and currency volatility in Argentina on future cash flows and asset recoverability, despite the current lack of impairment charges.
• Usiminas Investment: Review the status of the CSN litigation and CVM regulatory appeal, as a negative outcome could trigger significant tender offer costs or forced share sales.
• Capital Allocation: Assess the sustainability of the increased capital expenditure run rate ($748M in 9 months) against the backdrop of reduced operating income.
• Debt Profile: Confirm the maturity profile of the remaining $2.37 billion in borrowings and the company's ability to service debt given the compression in operating margins.
• Tax Contingency: Monitor the Brazilian Federal Supreme Court's ruling on the ICMS tax benefit, which could impact the $651.8 million provision and related asset.