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Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This filing contains the unaudited consolidated condensed interim financial statements for Ternium S.A. for the six-month period ended June 30, 2018. Ternium is a global steel and mining company with operations primarily in Mexico, Brazil, Argentina, and other Latin American markets. The company operates through two reportable segments: Steel and Mining. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).

Key Financial Metrics (Six Months Ended June 30, 2018)

Note: All figures are in USD thousands in the source; converted to millions for readability.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased by approximately 38.6% year-over-year, driven by higher volumes and favorable pricing, particularly in the Steel segment.
• Profitability: Operating income rose by 55% to $1.17 billion. Gross margin improved significantly due to operational efficiency and market conditions.
• Financial Expenses: "Other financial income (expenses), net" showed a significant loss of $172.5 million in 2018 compared to $70.6 million in 2017, largely due to net foreign exchange losses ($110.9 million) and derivative contract results ($73.6 million).
• Cash Flow: Net cash provided by operating activities surged to $742.2 million from $106.5 million in the prior year, reflecting strong earnings and working capital management.
• Debt Reduction: Total borrowings decreased slightly from $2.83 billion to $2.78 billion, despite significant repayments of $885.4 million, offset by new proceeds of $526.0 million.

Outlook, Risks, and Unusual Items

• Acquisition Impact: The company completed the acquisition of thyssenkrupp's Brazilian steel assets (CSA) in September 2017. This acquisition is fully consolidated in the 2018 results and contributed to the growth in sales and capacity.
• Hyperinflation in Argentina: Management concluded that Argentina is a hyperinflationary economy effective July 1, 2018. Consequently, IAS 29 will be applied to Argentine subsidiaries starting from that date, which may impact future financial reporting.
• Contingencies:
  • Usiminas Litigation: Ongoing legal disputes regarding tender offers in Brazil (CSN lawsuit and CVM staff determination). No provision has been recorded as the company believes claims are groundless.
  • Tax Matters: A potential Mexican income tax adjustment of approximately $58.6 million is under audit; no provision recorded as an unfavorable outcome is deemed not probable.
  • Acquisition Contingencies: Provisions were recorded for the CSA acquisition regarding fishermen claims ($20.0 million) and ICMS tax credits ($47.1 million).
• Dividends: A dividend of $0.11 per share ($1.10 per ADS) was approved and paid in May 2018, totaling approximately $220.5 million.

Key Facts for Investor Verification

• Foreign Exchange Volatility: Verify the impact of currency fluctuations on "Other financial income (expenses)," which resulted in a $172.5 million net loss for the period.
• Argentina Accounting Change: Monitor the application of IAS 29 (Hyperinflation) starting July 1, 2018, and its effect on the restatement of Argentine assets and liabilities in future filings.
• Usiminas Investment: Review the carrying value ($425.0 million) versus market value ($722.7 million) of the 20.5% stake in Usiminas and the status of the shareholder agreement with NSSMC.
• Debt Covenants: Confirm compliance with the leverage ratio covenant (max 3.5 to 1.00) on the new $1.0 billion syndicated loan facility entered in June 2018.
• Acquisition Integration: Assess the performance of the newly acquired Ternium Brasil (formerly CSA) operations and the status of the slab off-take agreements.