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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, 2019. Ternium is a global steel and mining company with operations primarily in Mexico, Brazil, and the Southern Cone (Argentina, Paraguay, Chile, Bolivia, Uruguay). The company operates two reportable segments: Steel and Mining. The financial statements are prepared in accordance with IFRS and reflect the adoption of IFRS 16 (Leases) effective January 1, 2019.

Key Financial Metrics (Six Months Ended June 30, 2019)

Note: All figures are in USD millions unless otherwise stated. The filing does not explicitly state gross margin or operating margin percentages, though they can be derived from the table above.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 3.8% year-over-year, driven primarily by lower volumes and price realizations in the Steel segment, partially offset by the Mining segment.
• Profitability Compression: Operating income fell significantly by 46.3% to $545.7 million. Gross profit declined by 31.1% to $1,015.4 million, reflecting higher cost of sales relative to revenue.
• Net Income Drop: Profit for the period decreased by 35.4% to $429.9 million. This was influenced by lower operating income and a significant reduction in "Other financial income (expenses), net," which swung from a loss of $99.3 million in 2018 to a loss of only $2.1 million in 2019 (a favorable variance, but offset by lower operating results).
• Balance Sheet Strength: Cash and cash equivalents increased substantially to $777.5 million from $229.8 million in the prior year, aided by strong operating cash flows and net borrowing proceeds. Total borrowings decreased by approximately $681 million.
• Accounting Policy Change: 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 as of January 1, 2019.

Outlook, Risks, and Contingencies

Management Commentary & Guidance: The filing does not contain explicit forward-looking guidance or management commentary regarding future earnings or production targets beyond the historical data presented.

Key Risks and Contingencies:

• Usiminas Litigation (CSN): A lawsuit filed by Companhia Siderúrgica Nacional (CSN) regarding a tender offer obligation from a 2012 acquisition remains pending before the Superior Court of Justice in Brazil. Ternium believes the claims are groundless and has not recorded a provision.
• Usiminas Regulatory Matter (CVM): The Brazilian securities regulator (CVM) staff determined in 2015 that a 2014 acquisition by Ternium triggered a tender offer requirement. Ternium is appealing this decision. If unsuccessful, Ternium may be required to sell 5.2 million shares to third parties.
• ICMS Tax Benefit: A challenge to the constitutionality of a tax incentive (ICMS deferral) granted by the State of Rio de Janeiro is pending before the Brazilian Federal Supreme Court. While the state has reconfirmed the benefit under new legislation, the final ruling is awaited. A provision of $651.8 million (including penalties/interest) was recorded as of the acquisition date, with a corresponding asset of $325.9 million for potential recovery.
• Class Action: A putative class action was filed in the U.S. District Court for the Eastern District of New York alleging inflated ADS prices due to undisclosed improper payments related to the Sidor expropriation. Management believes it has meritorious defenses but cannot predict the outcome.
• Hyperinflation: The company continues to apply IAS 29 for its Argentine subsidiaries, which impacts financial reporting through inflation adjustments.

Investor Verification Checklist

• Margin Compression: Verify the drivers behind the 31% drop in gross profit and 46% drop in operating income, specifically regarding raw material costs vs. steel pricing in key markets (Mexico, Brazil, Southern Region).
• Usiminas Valuation: Review the market value ($684.5 million) vs. carrying value ($513.1 million) of the Usiminas investment and the status of the ongoing legal/regulatory disputes that could impact this asset.
• Argentina Exposure: Assess the impact of hyperinflation adjustments (IAS 29) on the Southern Region segment's reported results and future cash flows.
• Debt Profile: Confirm the maturity profile of the remaining $2.56 billion in borrowings and the sustainability of the increased capital expenditure ($485 million) in the current environment.
• Legal Provisions: Monitor the status of the ICMS tax benefit litigation and the CVM tender offer appeal, as adverse outcomes could result in significant cash outflows or share dilution.