TX

Business Context and Reporting Period

This Form 6-K filing contains the Consolidated Management Report for Ternium S.A., a Luxembourg-based holding company and Latin America's leading flat steel producer, for the fiscal year ended December 31, 2021. The report was signed on March 18, 2022. Ternium operates manufacturing facilities in Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America, serving industries such as automotive, construction, and energy. The financial statements are prepared in accordance with IFRS and presented in U.S. dollars.

Key Financial Metrics

Note: Negative Net Cash Position indicates a net cash surplus.

Material Changes vs. Prior Period

• Revenue Surge: Net sales increased 84% to $16.1 billion, driven by a 75% increase in revenue per ton ($1,309 in 2021 vs. $748 in 2020) due to record global steel prices. Steel shipments rose 6% to 12.1 million tons.
• Profitability Expansion: Operating income jumped 388% to $5.3 billion, and EBITDA increased 285% to $5.9 billion. The EBITDA margin expanded to 36% from 17% in 2020.
• Cost Pressures: Cost of sales rose $2.8 billion, primarily due to a 44% increase in raw materials and consumables (purchased slabs and raw materials) and higher labor and maintenance costs.
• Balance Sheet Strength: The company transitioned from a net debt position of $371.5 million in 2020 to a net cash position of $1.2 billion in 2021. Total financial debt decreased by $244 million.
• Equity Earnings: Equity in earnings of non-consolidated companies (primarily Usiminas) surged to $400.7 million from $57.6 million, aided by a favorable Brazilian Supreme Court ruling on tax credits.

Guidance, Outlook, and Risks

Management Commentary and Outlook

Management highlighted record profitability and significant cash generation. Key strategic initiatives include:

• Decarbonization: A target to reduce CO2 emission intensity by 20% by 2030 (vs. 2018 baseline) via renewable energy, scrap usage, and carbon capture. A $460 million environmental investment plan was announced.
• Expansion: Ongoing ramp-up of the new hot-rolling mill in Pesquería, Mexico, and a new cold rolling mill and galvanizing line with a total investment of approximately $1 billion expected to start in 2024.
• Dividends: The Board proposed an annual dividend of $2.60 per ADS ($0.26 per share), subject to shareholder approval.

Risks and Contingencies

• Geopolitical Conflict: The invasion of Ukraine and subsequent sanctions pose risks to the supply and pricing of steelmaking inputs (slabs, coal, iron ore) and energy costs.
• Argentina Exchange Controls: Strict foreign exchange restrictions in Argentina limit the repatriation of cash. As of Dec 31, 2021, Ternium Argentina held $965 million in cash and investments, with limited access to the official foreign exchange market for dividends or imports.
• Raw Material Volatility: Prices for iron ore, metallurgical coal, and energy remain volatile. Supply chain disruptions (e.g., semiconductor shortages affecting automotive demand) continue to be a risk.
• Regulatory Risks: Potential changes in Mexican energy laws and tax regimes in Brazil and Argentina could impact operations and profitability.

Investor Verification Checklist

• Argentina Liquidity: Verify the status of foreign exchange restrictions and the ability to repatriate the $965 million held by Ternium Argentina.
• Usiminas Valuation: Review the carrying value ($681.7 million) vs. market value ($653.9 million) of the Usiminas investment and monitor for potential impairment triggers.
• Input Cost Sustainability: Assess the sustainability of high steel prices versus rising raw material and energy costs, particularly given the Ukraine conflict.
• Dividend Approval: Confirm the outcome of the Annual General Meeting regarding the proposed $2.60 per ADS dividend.
• Capital Expenditure Execution: Monitor the timeline and cost of the $1 billion Pesquería expansion project scheduled for 2024.