TERNIUM S.A.
Annual Report 2022
INDEX
4
5
Company Profile
Consolidated Management Report
5
Performance Indicators
7 Operating and Financial Review and Prospects
13 Research and Development
14 Next Steps
15 Corporate Governance
17 Risks Factors
38 Alternative Performance Measures
40 Consolidated Financial Statements
128 Audited Annual Accounts of Ternium S.A. Société Anonyme
Ternium S.A. is a Luxembourg company and its American Depositary Shares, or ADSs,
are listed on the New York Stock Exchange (NYSE: TX).
This annual report and any other oral or written statements made by us to the public
may contain “forward-looking statements” within the meaning of applicable securities
laws. This annual report contains forward-looking statements, including with respect
to certain of our plans and current goals and expectations relating to Ternium’s future
financial condition and performance, which are provided to allow potential investors
the opportunity to understand management’s beliefs and opinions in respect of the
future so that they may use such beliefs and opinions as one factor in evaluating an
investment in Ternium’s securities. All forward-looking statements are based on
management’s present expectations of future events and are subject to a number of
factors and uncertainties that cause actual results, performance or events to differ
materially from those expressed or implied by those statements. These risks include
but are not limited to risks relating to the steel industry and mining activities, risks
relating to countries in which we operate, risks relating to our business, including
uncertainties as to gross domestic product, related market demand, global production
capacity, tariffs, cyclicality in the industries that purchase steel products, price and
availability of raw materials, risks relating to the Company’s structure and regulatory
and litigation risks, as well as other factors beyond Ternium’s control.
The financial and operational information contained in this annual report is based on
Ternium’s operational data and on the Company’s consolidated financial statements,
which were prepared in accordance with IFRS as issued by the IASB and adopted by the
European Union and presented in U.S. dollars ($) and metric tons. This annual report
includes certain non-IFRS alternative performance measures such as Adjusted EBITDA,
Net Cash, Net Debt and Free Cash Flow. The reconciliation of these figures to the most
directly comparable IFRS measures is included in the section “Alternative Performance
Measures”.
For a detailed description of Ternium’s main risks and uncertainties, please see the
section “Risk Factors” included in this annual report. By their nature, certain
disclosures relating to these and other risks are only estimates and could be materially
different from what actually occurs in the future. As a result, actual future gains or
losses that may affect Ternium’s financial condition and results of operations could
differ materially from those that have been estimated. You should not place undue
reliance on the forward-looking statements, which speak only as of the date of this
annual report. Except as required by law, we are not under any obligation, and
expressly disclaim any obligation, to update or alter any forward-looking statements,
whether as a result of changes of circumstances or management’s estimates or
opinions, new information, future events or otherwise.
2
TERNIUM S.A.
Annual Report 2022
Certain Defined Terms
In this annual report, unless otherwise specified or if the context so requires:
- References to the “Company” are exclusively to Ternium S.A., a Luxembourg société anonyme;
- References to “San Faustin” are to San Faustin S.A., a Luxembourg société anonyme and the Company’s controlling
shareholder;
- References to “Tenaris” are to Tenaris S.A., a Luxembourg société anonyme and a shareholder of the Company;
- References to “Techgen” are to Techgen S.A. de C.V., a Mexican corporation, 48% owned by Ternium, 22% owned by
Tenaris and 30% owned by Tecpetrol International S.A., a wholly owned subsidiary of San Faustin;
- References to “Tenigal” are to Tenigal S.R.L. de C.V., a Mexican company, 51% owned by Ternium and 49% owned by
Nippon Steel Corporation, or NSC;
- References to “Ternium,” “we,” “us” or “our” are to Ternium S.A. and its consolidated subsidiaries;
- References to the “Ternium companies” are to the Company’s manufacturing subsidiaries, namely Ternium México S.A.
de C.V., or “Ternium Mexico,” a Mexican corporation; Ternium Brasil Ltda., or “Ternium Brasil” (formerly, CSA
Siderúrgica do Atlântico Ltda.), a Brazilian corporation; Ternium Argentina S.A., or “Ternium Argentina”, (formerly
Siderar S.A.I.C.), an Argentine corporation; Ternium Colombia S.A.S., or “Ternium Colombia”, (formerly Ferrasa S.A.S.), a
Colombian corporation; Ternium del Atlántico S.A.S., a Colombian corporation; Ternium Internacional Guatemala S.A., a
Guatemalan corporation; Ternium USA Inc., a Delaware corporation; Las Encinas S.A. de C.V., or “Las Encinas,” a
Mexican corporation; and Consorcio Minero Benito Juárez Peña Colorada S.A. de C.V., or “Consorcio Peña Colorada,” a
Mexican corporation, and their respective subsidiaries;
- References to “Ternium Investments” are to Ternium Investments S.à r.l., a Luxembourg société à responsabilité limitée,
and a wholly owned subsidiary of the Company;
- References to “Usiminas” are to Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS, a Brazilian corporation in which
Ternium holds 242.6 million ordinary shares and 8.5 million preferred shares, representing 20.4% of Usiminas’ capital;
- References to “ADSs” are to the American Depositary Shares, which are evidenced by American Depositary Receipts;
- References to “finished steel products” are to steel products other than steel slabs;
- References to “tons” are to metric tons; one metric ton is equal to 1,000 kilograms, 2,204.62 pounds or 1.102 U.S. (short)
tons;
- References to “billions” are to thousands of millions, or 1,000,000,000; and
- References to “Adjusted EBITDA”, “net cash”, “net debt” and “free cash flow” correspond to non-IFRS alternative
performance measures. The reconciliation of non-IFRS alternative performance measures to the most directly comparable
IFRS measures is included in the section “Alternative Performance Measures” of this annual report.
3
TERNIUM S.A.
Company Profile
Company Profile
Ternium is a leading steel company in the Americas. Its
facilities are located in Mexico, Brazil, Argentina, the
southern United States, Colombia and Central America.
In addition, Ternium participates in the control group of
Usiminas, a leading flat steel company in the Brazilian
market.
We have an integral management approach that includes
the interests of our shareholders, employees, customers
and suppliers, as well as those of the communities near
our operations. We foster a culture of industrial and
technological excellence and promote equal opportunity
and equal treatment. We operate with a strong focus on
environmental excellence as we advance Ternium’s
sponsor biodiversity
climate change agenda and
protection
long-standing
have
initiatives. We
relationships with communities near our operations and
have been fostering the development of small and
medium-sized customers and suppliers for the last 20
years. Ternium offers a broad range of value-added
products and services to customers mainly
in the
automotive, home appliances, heat, ventilation and air
(HVAC), construction, capital goods,
conditioning
container, food and energy
its
manufacturing facilities, service center and distribution
networks, and advanced customer integration systems. As
core components of the company’s business strategy, we
strive to offer differentiated products and services,
operate with excellence, and attract and develop talent.
industries through
Environment, Occupational Health and Safety
We have standardized environment and occupational
health and safety (EHS) management systems and devote
significant resources to EHS projects. Our evaluation of
risks and EHS management are integrated in our business
processes and reflected in our policies and procedures.
Ternium is committed to protecting the health and safety
of its employees, contractors and communities where it
operates. We engage our employees as well as our
customers and suppliers to embrace our vision and
objectives.
Social
The talent and determination of Ternium’s employees are
the cornerstone of its leadership. Through Ternium
University, we offer a wide array of training programs to
support our teams’ efforts in their quest for innovation,
continuous improvement and performance excellence.
We work together with local institutions to enhance our
communities’ education and welfare. We are aware that,
to be successful, industrial projects must thrive along
with surrounding communities. We have built and
training
teachers’
internships,
operate a technical school in Mexico. We provide
scholarships,
and
infrastructure funding to local schools and health centers.
We also organize and fund volunteering programs and
health prevention campaigns, and we sponsor sports,
social events and arts exhibitions. Through ProPymes, we
have been supporting small and medium-sized enterprises
in the steel value chain for the last 20 years, strengthening
the industrial network by enhancing our customers and
suppliers’ competitiveness.
Governance
Integrity is key to Ternium’s long term sustainability. The
Company has appointed a business conduct compliance
officer, who reports to the CEO. Ternium has mandatory
training programs on the Company’s Policy on Business
Conduct. The Company has adopted several policies,
codes and procedures to ensure transparency and ethical
behavior. In addition, the Company has put in place a
Compliance Line to report any violation to its code of
conduct and principles. We have a compliance
department that oversees SOX certifications and related
party transactions. The board of directors has an audit
committee solely composed of independent directors. The
internal audit department, which meets organizational
independence and objectivity standards, reports to the
chairman of the board and, with respect to internal
control over financial reporting, to its audit committee.
Climate Change
Ternium takes an active role in the world’s efforts to
address climate change. As a steel company, we
constantly search for alternatives to reduce the carbon
footprint of our operations and that of our value chain.
We partner with suppliers and other companies and
associations to foster the development of low carbon
dioxide emitting technologies, as a successful energy
transition will be key to achieve these goals. We intend to
develop new measures
to continue decarbonizing
Ternium’s operations in the longer term. The main
factors that will determine our success to do so are
related to the further development of emerging steel-
making technologies, prospects for the availability of raw
materials, renewable energy and required infrastructure,
and the enactment of appropriate government regulations
to promote fair trade, among others.
As a company focused on supplying advanced steel
products, Ternium is well positioned to contribute to the
world’s energy transition process. We believe Ternium
will have significant opportunities to develop innovative
products required for renewable energy applications,
emerging electric vehicles
technologies and green
construction strategies, as countries seek to meet their
emission commitments.
4
TERNIUM S.A.
Consolidated Management Report
Performance Indicators
STEEL SALES VOLUME (000 tons)
Mexico
Southern Region (1)
Other markets
Total
ECONOMIC AND FINANCIAL INDICATORS ($ million)
Net sales
Operating income
ADJUSTED EBITDA (3)
Equity in earnings of non-consolidated companies
Profit before income tax expense
Profit for the year attributable to:
Owners of the Parent
Non-controlling interest
Profit for the year
Capital expenditures
Free cash flow (3)
BALANCE SHEET ($ million)
Total assets
Borrowings
Net cash (debt) (3)
Total liabilities
Capital and reserves attributable to the owners of the parent
Non-controlling interest
STOCK DATA ($ per share/ADS) (4)
Basic earnings per share
Basic earnings per ADS
Proposed dividends per ADS
Weighted average number of shares outstanding (5)
(million shares)
2022
2021
2020
2019(2)
2018(2)
6,843
2,362
2,691
11,896
6,534
2,503
3,028
12,065
16,414.5
2,699.5
3,415.0
37.1
2,666.5
1,767.5
325.3
2,092.8
580.6
2,172.4
17,491.5
1,031.9
2,597.0
3,723.2
11,846.0
1,922.4
16,090.7
5,271.1
5,862.9
400.7
5,764.3
3,825.1
542.1
4,367.2
523.6
2,153.7
17,097.9
1,479.0
1,155.1
4,862.9
10,535.0
1,700.0
5,913
1,924
3,523
11,360
8,735.4
1,079.5
1,524.5
57.6
1,159.4
778.5
89.4
867.9
6,305
1,938
4,268
12,511
6,545
2,301
4,105
12,951
10,192.8
864.6
1,525.7
61.0
826.6
564.3
65.8
630.0
11,454.8
2,108.4
2,697.7
102.8
2,031.6
1,506.6
155.5
1,662.1
520.3
1,219.0
560.0
1,201.2
1,052.3
595.4
12,856.2
1,722.9
(371.5)
4,413.1
7,286.1
1,157.0
12,935.5
2,188.7
(1,453.4)
5,220.7
6,611.7
1,103.2
12,547.9
2,037.0
(1,734.9)
5,063.3
6,393.3
1,091.3
0.90
9.00
2.70
1.95
19.49
2.60
0.40
3.97
2.10
0.29
2.87
—
0.77
7.67
1.20
1,963.1
1,963.1
1,963.1
1,963.1
1,963.1
(1) Sales in the Southern Region encompass those made to customers located in Argentina, Bolivia, Chile, Paraguay and Uruguay.
(2) The functional currency of Ternium Argentina changed from the Argentine Peso to the U.S. dollar prospectively from January 1, 2020. This change did
not affect the balances at December 31, 2019 and 2018, nor results or cash flows for the years then ended.
(3) The reconciliation of Adjusted EBITDA, net cash, net debt and free cash flow to the most directly comparable IFRS measures is included in the section
“Alternative Performance Measures”.
(4) Each ADS represents 10 shares.
(5) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2022,
there were 2,004,743,442 shares issued. All issued shares are fully paid. In addition, as of December 31, 2022, the Company held 41,666,666 shares as
treasury shares, representing 3% of the subscribed capital.
5
TERNIUM S.A.
Consolidated Management Report
Lost Time Injuries Frequency Rate
Quantity of day-loss injuries per million hours worked
Injuries Frequency Rate
Total quantity of injuries per million hours worked
Emission Intensity (Scopes 1 and 2)
Tons of CO2 emitted per ton of crude steel produced. Year-end
Energy Intensity
Gigajoules consumed per ton of crude steel produced. Year-end
Co-Products
Million tons
Investment in Product Research and Development
$ million
Refer to materials produced in parallel to or, as a consequence
of, the production of primary products or recovered for reuse
and/or recycling, and poses potential value as defined by the
worldsteel ME indicator.
6
TERNIUM S.A.
Consolidated Management Report
This review of Ternium’s financial condition and results of operations is based on, and should be read in conjunction with,
the Company’s consolidated financial statements as of December 31, 2022 and 2021 and for the years ended December 31,
2022, 2021 and 2020 (including the notes thereto), which are included elsewhere in this annual report. The Company’s
operational data and consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (IFRS) and presented in US dollars ($) and metric tons. This annual report includes certain non-IFRS alternative
performance measures such as Adjusted EBITDA, Net Cash, Net Debt and Free Cash Flow. The reconciliation of these
figures to the most directly comparable IFRS measures is included in “Alternative Performance Measures”. For a detailed
description of Ternium's main risks, see “Risk Factors”. For information related to the holding of Company's own shares,
see “Performance Indicators”.
Operating and Financial Review
and Prospects
In 2022, Ternium’s finished steel shipments reached the
highest level on record. During the year, Ternium
continued ramping-up
in
Pesquería, Mexico. This, together with a strong product
development and certification effort, which leaned on
Ternium’s new state-of-the-art research center, enabled
us to continue gaining share in the Mexican steel market.
its new hot-rolling mill
In February 2022, we announced the construction of new
downstream facilities in Pesquería. Projects include a
push-pull pickling line with annual capacity of 550,000
tons and new finishing lines, currently expected to be
commissioned by mid-2024, and a cold-rolling mill and
hot-dip galvanizing line with annual capacity of 1.6 and
to begin
0.6 million
operations by the end of 2025. These projects are
consistent with Ternium’s strategy to strengthen its
competitive positioning in order to replace imports in the
Mexican market, and better serve its customers with a
broader and more technologically advanced product
portfolio.
tons, respectively, expected
We have recently announced the construction of a new
direct reduced iron and steelmaking facilities in the
USMCA region, with annual production capacity of 2.1
and 2.6 million tons, respectively. This project is expected
to advance the
industrial
system, reinforce its position as a leading steel supplier in
the region and support its ongoing compliance with the
USMCA’s ‘melted and poured’ requirement for the
automotive industry.
integration of Ternium’s
In addition, the new facilities will help advance
Ternium’s decarbonization goals due to its low carbon
dioxide emission intensity. Their readiness to switch from
natural gas to hydrogen, when feasible, would enable
further emission reductions. Furthermore, we announced
the construction of a wind farm in Argentina. This new
facility will enable us to replace approximately 65% of
the electricity currently purchased from third parties for
our operations in Argentina.
In 2022, the global economy was affected by high
inflation levels, increasing interest rates, the deceleration
of the Chinese economy and the impact of the Russian
invasion of Ukraine. This adverse economic and financial
framework, together with the disruption caused to the
steel industry’s supply chain by the war in Ukraine, led to
highly volatile international prices of raw materials and
other steel production inputs, and a deceleration of global
steel consumption. Despite
this difficult context,
Ternium’s results in 2022 were solid. Net sales reached
$16.4 billion on total steel shipments of 11.9 million tons.
Steel revenue per ton was $1,353 in 2022, slightly above
the level recorded in 2021.
Steel Shipments by Country in 2022
During 2022, steel shipments in the Mexican market
represented 57% of total shipments. Volumes sold in the
Southern Region were 20% of total shipments, the
majority of which were destined to the Argentine market.
Shipments in other markets were 23% of total shipments,
with major shipment destinations usually being the
United States, Brazil, Colombia and Central America.
Operating income in 2022 was $2.7 billion. Adjusted
EBITDA was $3.4 billion and adjusted EBITDA per ton
was $287. Adjusted EBITDA per ton decreased $199 year-
over-year in 2022 due to an increase in cost per ton,
mainly as a result of higher purchased slab, raw material,
energy and labor costs, partially offset by slightly higher
realized steel prices. Net income in 2022 was $2.1 billion.
7
Mexico, 57%Argentina, 20%Brazil, 6%USA, 9%Colombia, 5%Other, 3% TERNIUM S.A.
Consolidated Management Report
Equity holders’ net income in 2022 was $1.8 billion,
equivalent to earnings per ADS of $9.00.
Net cash provided by operating activities in 2022 was $2.8
billion, and free cash flow was $2.2 billion after capital
expenditures of $580.6 million. During the year, Ternium
advanced diverse projects throughout its main facilities,
including those for further improving environmental and
safety conditions and additional works in the new hot-
rolling mill at Ternium’s Pesquería industrial center in
Mexico.
Dividends paid to shareholders in 2022 were $530 million.
In addition, the Company paid dividends in kind to non-
controlling interest of $112.3 million. Ternium reached a
net cash position of $2.6 billion at the end of December
2022, compared to $1.2 billion at the end of December
2021.
Summary Results
Steel shipments (tons)
Iron ore shipments (tons)
Net sales ($ million)
Operating income ($ million)
Adjusted EBITDA ($ million)
Adjusted EBITDA margin (% of net sales)
Adjusted EBITDA per ton ($)
Equity in earnings of non-consolidated companies ($ million)
Net income ($ million)
Equity holders’ net income ($ million)
Basic earnings per ADS ($)
Net Sales
Net sales in 2022 were $16.4 billion, 2% higher than net
sales in 2021. Ternium’s steel shipments in 2022 were 11.9
million tons, similar to shipment levels in the prior year.
Sales volumes in Mexico increased 5% year-over-year in
2022. Ternium gained share in the local market aided by
the ramp-up of state-of-the-art new facilities in its
industrial center
the
development and certification of high-end steel products
for industrial customers.
together with
in Pesquería,
The country’s economy continued improving during
2022, undertaking elevated inflation rates and tightening
monetary conditions. Industrial activity
in Mexico
remained healthy, although some sectors softened in
recent months reflecting a weakening US housing market.
Production rates in the automotive industry improved in
2022, supported by pent-up vehicle demand and a gradual
ease of supply chain difficulties during the second half of
the year. The Mexican construction sector also improved,
although activity levels stayed below those prevailing
before the COVID-19 pandemic.
In the Southern Region, shipments were down 6% year-
over-year in 2022. Although activity in Argentina’s
construction sector and demand for industrial products
Dif.
-1 %
-9 %
2 %
-49 %
-42 %
2022
2021
11,896,000
12,065,000
3,457,000
3,809,000
16,415
2,700
3,415
16,091
5,271
5,863
21 %
36 %
287
37
2,093
1,768
9.00
486
401
4,367
3,825
19.49
remained healthy, steel sales in the country moderated
during 2022 reflecting an ease of a pandemic-induced
surge in steel consumption in the prior year. In addition,
shipments decreased year-over-year in other countries in
the region as Ternium reduced
its exports from
Argentina.
In other markets, shipments were down 11% year-over-
year in 2022, reflecting a further integration of Ternium’s
Brazilian slab facility. The volume of slabs shipped to
third parties decreased 793,000 tons year-over-year in
2022, partially offset by a 457,000-ton increase in
shipments to finished steel customers.
Revenue per ton was $1,353 in 2022, up $45 compared to
revenue per ton in the prior year mainly reflecting a
higher value sales mix in connection with the integration
of Ternium’s industrial system.
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TERNIUM S.A.
Consolidated Management Report
Net Sales ($ million)
Shipments (thousand tons)
Revenue/Ton ($/ton)
Mexico
Southern Region
Other Markets
2022
8,828
3,834
3,429
2021
8,872
3,374
3,549
Dif.
2022
-0 %
6,843
14 %
2,362
-3 %
2,691
2021
6,534
2,503
3,028
Dif.
2022
2021
5 %
1,290
-6 %
1,623
-11 %
1,274
1,358
1,348
1,172
1,309
Dif.
-5 %
20 %
9 %
3 %
Total steel products
16,092
15,795
2 % 11,896
12,065
-1 %
1,353
Other products (7)
Steel reporting segment
323
248
16,414
16,043
30 %
2 %
Mining reporting segment
411
526
-22 %
3,457
3,809
-9 %
119
138
-14 %
Intersegment eliminations
(411)
(479)
Net sales
16,414
16,090
2 %
(7) The item “Other products” primarily includes electricity sales in Brazil and Mexico.
Cost of Sales
Cost of sales was $12.5 billion in 2022, an increase of $2.6
billion compared to 2021. This was primarily due to a
$2.3 billion, or 29%, increase in raw materials and
consumables used, mainly reflecting higher purchased
slab, raw material and energy costs, partially offset by a
1% decrease in steel shipments; and to a $281.8 million
increase in other costs, including a $173.0 million increase
in labor cost, mainly in connection with Ternium Mexico
employees’ profit sharing scheme, a $31.8 million increase
in
in services and fees, a $30.3 million
maintenance expenses, a $20.4 million
in
amortization of intangible assets and a $17.4 million
in depreciation of property, plant and
increase
equipment.
increase
increase
Selling, General and Administrative (SG&A) Expenses
SG&A expenses in 2022 were $1.1 billion, or 7% of net
sales, an increase of $193.5 million compared to SG&A
expenses in 2021, mainly due to a $128.9 million increase
in freight and transportation expenses, a $48.4 million
increase in labor cost and a $13.2 million increase in
services and fees.
Other Operating Income and Expense, Net
Other operating income and expense, net, was a loss of
$84.0 million in 2022, compared to a gain of $25.6 million
in 2021. As of December 31, 2022, Ternium performed an
impairment test of its investment in Ternium Brasil and
subsequently wrote down such investment by $99.0
million.
Operating Income
Operating income in 2022 was $2.7 billion, or 16% of net
sales, compared to operating income of $5.3 billion, or
33% of net sales, in 2021.
Net Financial Results
Net financial results were a loss of $70.1 million in 2022,
principally due to a $163.7 million net foreign exchange
loss partially offset by a $78.3 million gain related to
changes in the fair value of financial assets and a gain of
$28.4 million related to investment returns on Ternium’s
liquidity position net of borrowing costs. The net foreign
exchange loss in 2022 mainly reflected the negative
impact of the depreciation of the Argentine Peso (42% in
the period) against the US dollar on Ternium Argentina’s
net long local currency positions. The gain related to
changes in the fair value of financial assets included a
$95.0 million negative fair value adjustment of certain
Argentine securities collected by Ternium as dividend in
kind from Ternium Argentina. Net financial results in
2021 were a gain of $92.5 million.
Equity in Results of Non-Consolidated Companies
Equity in results of non-consolidated companies was a
gain of $37.1 million in 2022, mainly related to Ternium’s
equity in the results of Usiminas and Techgen. Ternium
performed an impairment test of its investment in
Usiminas in 2022, and subsequently wrote down such
investment by $120.4 million. Equity in results of non-
consolidated companies in 2021 was a gain of $400.7
million.
Income Tax Expense
Income tax expense in 2022 was $573.7 million, with a
22% effective tax rate, compared to $1.4 billion in 2021,
with a 24% effective tax rate. Effective tax rate in 2022
included a non-cash gain on deferred taxes at our
Mexican and Argentine subsidiaries.
9
TERNIUM S.A.
Consolidated Management Report
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest in
2022 was $325.3 million, lower than net income of $542.1
million in 2021 mainly reflecting Ternium Argentina’s
lower results.
Liquidity and Capital Resources
During 2022, Ternium’s primary source of funding was
cash provided by operating activities. Cash and cash
equivalents as of December 31, 2022 was $1.7 billion, a
$0.4 billion increase from $1.3 billion at the end of the
prior year. The following table shows the changes in our
cash and cash equivalents for each of the periods
indicated:
In $ million
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Increase in cash and cash equivalents
Effect of exchange rate changes
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
In addition to cash and cash equivalents, as of December
31, 2022, we held other investments with maturity of
more than three months for a total amount of $2.0
billion, increasing $0.6 billion compared to December 31,
2021. We hold money market investments, time deposits
and variable-rate or fixed-rate securities. Ternium’s total
position of cash and cash equivalents and other
investments included $1.4 billion invested in Argentina.
For information on exchange controls in Argentina, see
“Risk Factors –Risks Relating to the Countries in Which
Ternium Operates –Argentina – Argentine exchange
controls could negatively impact Ternium Argentina’s
operations or prevent it from paying dividends or
transferring cash surpluses abroad, as a result of its
inability to access the foreign exchange market”. Our
financial indebtedness decreased in 2022, to $1.0 billion
$ million
Finished steel goods
Steel goods in process
Total steel goods
Raw materials, supplies and allowances
Total inventory
2022
2021
2,753
(1,325)
(1,016)
412
(35)
1,277
1,653
2,677
(1,045)
(854)
778
(39)
538
1,277
at the end of 2022 from $1.5 billion at the end of 2021.
Operating Activities
Net cash provided by operating activities in 2022 were
$2.8 billion. Income tax payments reached $1.8 billion in
the year, mainly due to significant outstanding tax
balances for fiscal year 2021, paid in 2022 in Mexico and
Argentina, and higher advance payments for fiscal year
2022 in Mexico. Working capital decreased $1.2 billion in
2022 as a result of an aggregate $584.7 million decrease in
trade and other receivables, a $438.1 million decrease in
inventories and an aggregate $129.7 million increase in
accounts payable and other liabilities. The inventory
value decrease in 2022 was due to a $407.0 million lower
steel volume and a $133.5 million decrease in raw
materials, supplies and others, partially offset by an
$102.4 million higher cost of steel.
Change in inventory Dec´22 / Dec´21
Price
Volume
Total
15.9
101.9
117.8
(177.4)
(229.6)
(407.0)
(161.6)
(127.6)
(289.2)
(148.9)
(438.1)
10
TERNIUM S.A.
Consolidated Management Report
Investing Activities
Net cash used in investing activities in 2022 was $1.3
billion, primarily attributable to capital expenditures of
$580.6 million and an increase of $770.6 million in
financial investments with maturities of more than three
months. During 2022, Ternium advanced diverse projects
throughout its main facilities, including those for further
improving environmental and safety conditions and
additional works in the new hot-rolling mill at Ternium’s
Pesquería industrial center in Mexico.
Financing Activities
Net cash used in financing activities was $1.0 billion in
2022, attributable to dividends paid in cash to Company’s
shareholders of $530.0 million, net repayment of
borrowings of $436.7 million and finance lease payments
of $49.4 million.
Principal Sources of Funding
Funding Policy
Management’s policy is to maintain a high degree of
flexibility in operating and investment activities by
maintaining adequate liquidity levels and ensuring access
to readily available sources of financing. When feasible,
management bases its financing decisions, including the
election of currency, term and type of the facility, on the
intended use of proceeds for the proposed financing and
financial risk
information on our
on costs. For
management, see note 28 “Financial risk management” to
our consolidated financial statements included in this
annual report.
Ternium has in place non-committed credit facilities and
management believes it has adequate access to the credit
markets. Considering our financial position and the funds
provided by operating activities, management believes
that we have sufficient resources to satisfy our current
working capital needs, service our debt and pay
dividends. Management also believes that our liquidity
and capital resources give us adequate flexibility to
manage our planned capital spending programs and to
address short-term changes in business conditions.
liabilities, respectively). Total financial debt (inclusive of
principal and interest accrued thereon) decreased by $0.5
billion in the year, from $1.5 billion as of December 31,
2021, to $1.0 billion as of December 31, 2022. As of
December 31, 2022, current borrowings were 48% of
total borrowings, none of which corresponded to
borrowings with related parties. With cash and cash
equivalents of $1.7 billion and other investments of $2.0
billion, Ternium achieved a net cash position of $2.6
billion as of December 31, 2022. This compares to net
cash position of $1.2 billion as of December 31, 2021.
Ternium’s cost of debt, as measured by the weighted
average interest rate, was 6.21% in 2022, compared to a
1.45% average interest rate in 2021. This rate was
calculated using the rates set for each instrument in its
corresponding currency and weighted using the U.S.
dollar-equivalent outstanding principal amount of each
instrument as of December 31, 2022. Such rates do not
include the effect of derivative financial instruments, nor
fluctuations
the
exchange
the
instrument’s currencies and the U.S. dollar.
rate between
in
Financial Liabilities
Our financial liabilities consist mainly of loans with
financial institutions. As of December 31, 2022, these
facilities were mainly denominated in U.S. dollars and
Colombian pesos (85% and 13% of total financial
Most Significant Borrowings and Financial Commitments
Our most significant borrowings as of December 31,
2022, were those outstanding under Ternium Brasil’s
2019 syndicated loan facility and Ternium Mexico’s 2018
syndicated loan facility.
$ million
Date
Borrower
Type
Original principal
amount
Outstanding principal
amount as of
December 31, 2022
Maturity
June 2018
August 2019
Ternium Mexico
Ternium Brasil
Syndicated loan
Syndicated loan
1,000
500
125
500
June 2023
August 2024
The main covenants in our syndicated loan agreements
are limitations on liens and encumbrances, limitations on
the sale of certain assets and compliance with financial
ratios (e.g., leverage ratio). As of December 31, 2022,
Ternium was in compliance with all covenants under its
loan agreements.
Ternium has various off-balance commitments, including
11
TERNIUM S.A.
Consolidated Management Report
financial commitments, and commitments to purchase
raw materials, energy (natural gas and electricity),
supplies (air, oxygen, hydrogen, nitrogen and argon),
production equipment and logistic services. Off-balance
sheet commitments are discussed in note 24(ii) to our
consolidated financial statements included in this annual
report.
For further information on our derivative financial
instruments, lease liabilities, borrowings, contingencies,
commitments and restrictions in the distribution of
profits, and financial risk management, see notes 21, 22,
23, 24 and 28 to our consolidated financial statements
included in this annual report.
Annual Dividend Proposal
On February 14, 2023, the Company’s board of directors
proposed that an annual dividend of $0.27 per share
($2.70 per ADS), or $530.0 million in the aggregate, be
approved at the Company’s annual general shareholders’
meeting, which is scheduled to be held on May 2, 2023.
This proposal is 10 cents per ADS higher than the annual
dividend approved for 2021. The annual dividend would
include the interim dividend of $0.09 per share ($0.90 per
ADS), or $176.7 million in the aggregate, paid in
November 2022. If the board of directors’ proposal is
approved at the shareholders’ meeting, a net dividend of
$0.18 per share ($1.80 per ADS), or $353.4 million in the
aggregate, will be paid on May 10, 2023, with record-date
on May 5, 2023.
Declared Dividends
$ per ADS
*Subject to approval by the Annual General Meeting of Shareholders to
be held on May 2, 2023.
12
TERNIUM S.A.
Consolidated Management Report
Research and Development
Activities
to
Ternium’s product development roadmap aims
increase the participation of higher margin value-added
products in its sales mix, with special focus on the
expansion of Ternium’s offering of resistant and
lightweight steel products for low carbon economy
applications. The incorporation of new technologies, the
development of new advanced steel products and the
integration of our industrial system are elements of a
strategy towards this objective.
Ternium’s industrial center in Pesquería strengthened its
positioning in the high-end market sector. The start-up of
our new hot-rolling mill
in 2021 represented a
technological leap forward in Mexico’s steel production
capacity. Consequently, the development of new products
to be processed in the new facilities is expected to give
way to a gradual substitution of imported steel in key
industrial segments. In this sense, the development of
substrates for galvanized exposed parts with very high
drawability requirements
is one of the milestones
achieved during the first months of operation of our new
hot-rolling mill.
In 2022, we intensified our product development activities
to expand Ternium’s high-end product portfolio for
customers in the automotive, metal-mechanic, home
appliance, energy and electric motors industries. We
completed the design of new substrates to replace hot-
rolled steel products procured from third parties. This
development has enabled Ternium to become fully
compliant with the new USMCA rules of origin in
connection with the supply of galvanized products to the
automotive industry. Also, for the automotive industry,
we developed prototypes for new hot-rolled steel
products to replace imported material. In addition, we
developed coiled plates up to one inch, expanding
Ternium’s product range for the structural steel market.
For the construction sector, during 2022 we developed
new coated steel coils combining environmentally
friendly components and energy savings solutions. In
addition, we introduced new features to our pre-painted
products providing for new coating types like the
resemblance to stainless steel. Furthermore, we advanced
our project to incorporate colaminated finishings to our
product offering. This new technology will enable us to
offer steel products with superior aesthetic attributes for
architectural solutions. We are undergoing the product
certification process and expect to start production soon.
and Argentina, where we test product performance and
simulate production processes. In the new R&D center in
Pesquería, Mexico, which was inaugurated in 2021, we
launched the second phase of the investment project,
mainly consisting of the installation of a new galvanizing
simulator. The new equipment, expected to be operative
in the first quarter of 2024, will enable us to perform in-
house simulations that were previously performed at
third-party facilities, speeding up the development cycle
for new coated products.
In addition, in 2022 we installed new state-of-the-art
electronic microscopes in our laboratories in Argentina
and Brazil, enabling us to perform certain analysis of steel
samples that were previously performed at third-party
facilities. With
to speed-up
optimization works related to steelmaking operating
practices, aimed at obtaining more reliable products
based on environmentally friendly steels.
this, we were able
Our in-house research efforts are complemented with our
participation in a broad-based international network of
industry consortia, universities and research centers. For
example, Ternium is a member of WorldAutoSteel, an
organization comprising some of the world’s major steel
producers. We participate actively in the engineering core
team of the Steel E-Motive project sponsored by
WorldAutoSteel. The objective is to design two fully
autonomous and connected electric vehicles that result in
cost-effectiveness, safety, and sustainable transportation
solutions, made possible by state-of-the-art engineering
and advanced high-strength steel technologies.
We are leaning on our new R&D center in Pesquería,
Mexico, to seek steel product approvals for industrial
customers, as the facility has been accredited to certify
such products
international
regulations and customer requirements. We received 82
new product approvals for the automotive industry in
2022, primarily related to Ternium’s new hot-rolling mill
in Pesquería, Mexico, representing a significant increase
over the previous year.
compliance with
in
In 2022, we continued developing joint projects with our
value chain. This included the development of new steel
products with Tenaris for the manufacturing of welded
pipes designed for Monterrey’s new water pipeline in
Mexico and for infrastructure projects at Argentina’s
Vaca Muerta oil and gas shale formation. We have
identified synergies in developing projects with leading
industrial companies, as it enables us to anticipate market
requirements, plan new processes,
incorporate new
equipment and technology, and build strong customer
relationships.
In 2022, Ternium continued investing to enhance the
capabilities of
infrastructure. Ternium’s
research facilities include laboratories in Mexico, Brazil
its R&D
Ternium’s customer technical assistance activities focused
on maximizing the performance of steel products and the
efficiency of manufacturing processes in the steel industry
13
Research initiatives span the entire production cycle from
primary steelmaking and metallurgy to rolling and
coating.
to
incorporating biomass
During 2022, Ternium advanced process development
the
projects aimed at
steelmaking process, to reduce carbon dioxide emission
intensity by partially replacing coal. In a joint effort with
universities, a research center and a heavy equipment
supplier, we completed the pre-feasibility studies to
incorporate biomass in exchange of PCI coal in our
steelmaking facility in Brazil, and advanced our studies in
our pilot plant in Argentina to incorporate biomass in
exchange of metallurgical coal.
TERNIUM S.A.
Consolidated Management Report
value chain, supported by our product R&D capabilities.
In this regard, we have jointly developed new steels with
a customer and a service supplier for a tray prototype
designed for rock transportation. In addition, we jointly
developed structural steels with a plate producer for wind
energy towers, and galvanized steels with a manufacturer
of solar panels for supporting structures.
Ternium’s joint initiatives with universities aimed at
promoting the participation of researchers and students
from some of the world’s most prestigious institutions at
their early stages of development projects. Engaging
universities is one of the components of our efforts to
expand and further diversify our research network and
capabilities.
Next Steps
Ternium’s most recent investment program has resulted
in new steel products that are allowing it to gain market
share against imports. In this positive scenario, Ternium
expects to capitalize opportunities to serve new customers
as the ramp-up of its new hot-rolling mill is well
advanced, and it increases capacity utilization in other
lines.
In 2023, we will continue developing Ternium’s new
downstream projects in Pesquería, Mexico. These new
investments are expected to further expand Ternium’s
advanced high-strength and ultra-high-strength steel
production capabilities for the automotive, transport and
heavy machinery industries.
In addition, we will start building the recently announced
new steelmaking facilities in the USMCA region. The new
electric-arc-furnace-based steel shop and the new DRI
module are expected to produce the highest specification
steels, necessary for the most demanding applications.
The steelmaking facilities will also include an RH
degasser and a slab caster with two lines. These plants
together with a port facility for raw material handling
will require a total investment of $2.2 billion, and are
currently expected to be commissioned in the first half of
2026. The
trade
agreement
nearshoring
manufacturing capacity in the steel value chain, have
made the USMCA region an attractive destination for
continued investment. These projects are expected to
place Ternium in an even better position to take
advantage of attractive market opportunities.
implementation of
recent
and
the USMCA
trends
of
We also expect to advance the construction of Ternium’s
new wind farm in Argentina. The recently announced
new 72-megawatt facility is expected to begin operations
in the second half of 2024, with total investment of $160
million.
14
TERNIUM S.A.
Consolidated Management Report
Corporate Governance
and
laws
securities
applicable
Board of Directors
The Company’s corporate governance practices are
governed by the Luxembourg law of August 10, 1915, on
commercial companies, as amended (the Luxembourg
Company Law), the Company’s articles of association
and
regulations.
Management of the Company is vested in a board of
directors with the broadest power to act on behalf of the
Company and to accomplish or authorize all acts and
transactions of management and disposal that are within
its corporate purpose and not specifically reserved in the
articles of association or by applicable law to the general
shareholders’ meeting. The Company’s articles of
association provide for a board of directors consisting of
a minimum of three and a maximum of fifteen directors;
however, for as long as the Company’s shares are listed
on at least one regulated market, the minimum number of
directors must be five. The Company’s current board of
directors is composed of nine directors. The board of
directors is required to meet as often as required by the
interests of the Company and at least four times per year.
In 2022, the Company’s board of directors met seven
times.
A majority of the members of the board of directors in
office present or represented at the board of directors’
meeting constitutes a quorum, and resolutions of the
board of directors may be adopted by the vote of a
majority of the directors present or represented. In case of
a tie, the chairman is entitled to cast the deciding vote.
Directors are elected at the annual ordinary general
shareholders’ meeting to serve one-year renewable terms,
as determined by the general shareholders’ meeting. The
general shareholders’ meeting may dismiss all or any
member of the board of directors at any time, with or
without cause, by resolution passed by a simple majority
vote.
On May 3, 2022, the Company’s annual general
shareholders’ meeting resolved to increase the number of
directors to nine, approved the re-election of the eight
current members of the board of directors, Mr. Roberto
Bonatti, Mr. Carlos Alberto Condorelli, Mr. Vincent
Robert Gilles Decalf, Ms. Gioia Ghezzi, Mr. Adrian
Lajous Vargas, Mr. Daniel Agustín Novegil, Mr.
Gianfelice Mario Rocca and Mr. Paolo Rocca, and
appointed Ms. Lorenza Martinez Trigueros as new board
member. All board members will hold office until the
meeting that will be convened to decide on the 2022
accounts. The board of directors subsequently re-
appointed Mr. Paolo Rocca as its chairman, Mr. Daniel
Agustín Novegil as vice-chairman and Mr. Máximo
Vedoya as the Company’s chief executive officer.
Audit Committee
Pursuant to the Company’s articles of association, as
supplemented by the audit committee’s charter, for as
long as the Company’s shares are listed on at least one
regulated market, the Company must have an audit
committee composed of at least three members, the
majority of whom must qualify as independent directors,
provided,
and
membership of the audit committee shall satisfy such
requirements as are applicable to, and mandatory for,
audit committees of issuers such as the Company under
any law, rule or regulation applicable to the Company
(including, without limitation, the applicable laws, rules
and regulations of such regulated market or markets).
composition
however,
that
the
The Company’s audit committee currently consists of
three members, Mr. Vincent Robert Gilles Decalf, Mr.
Adrián Lajous Vargas and Ms. Gioia Ghezzi, who were
appointed to the audit committee by the Company’s
board of directors on May 3, 2022. All of them qualify as
independent directors for purposes of the U.S. Securities
Exchange Act Rule 10A-3(b)(1) and under the Company’s
articles of association. Mr. Decalf serves as chairperson
of the audit committee.
in
fulfilling
The Company’s audit committee operates under a charter
that was amended and restated by the board of directors
on November 2, 2021. The audit committee assists the
board of directors
its oversight
responsibilities with respect to the integrity of the
Company’s financial statements, including periodically
reporting to the board of directors on its activity; and the
adequacy of the Company’s systems of internal control
over financial reporting. The audit committee is also
responsible for making recommendations regarding the
appointment, compensation, retention and oversight of,
and for assessing the independence of, the Company’s
external auditors. In addition, the audit committee is
required by the Company’s articles of association and
to review and, where
audit committee’s charter
applicable, approve material transactions between the
Company or its subsidiaries and related parties, as
provided in the Company’s articles of association and
audit committee’s charter, or as may be required by any
law, rule or regulation applicable to the Company, in
order to determine whether their terms are consistent
with the interests of the Company and all its shareholders
and are consistent with market conditions or are
otherwise fair to the Company and its subsidiaries. The
Company has adopted a Related Party Transactions
Policy and Procedure setting forth consolidated guidelines
and procedures for the identification, review, approval
and management of related party transactions, seeking to
assure transparency and substantial and procedural
fairness of such transactions, as well as compliance with
the provisions in the Company’s articles of association
and the audit committee’s charter relating to transactions
15
TERNIUM S.A.
Consolidated Management Report
with related parties, as well as applicable Luxembourg
rules and securities regulations relating to the approval
and disclosure of material related party transactions.
The Company’s audit committee also performs other
duties imposed by applicable laws, rules and regulations
of the regulated market or markets on which the shares of
the Company are listed, as well as any other duty
entrusted to it by the Company’s board of directors.
relations with our contractors, subcontractors, suppliers
and associated persons. In addition, the Company has
adopted a code of ethics for financial officers, which is
intended to supplement the Company’s code of conduct,
and applies specifically to the principal executive officer,
the principal financial officer, the principal accounting
officer or controller, or persons performing similar
functions.
the
fulfillment of
to applicable
The audit committee has the authority to conduct any
investigation appropriate
its
to
responsibilities and has direct access to the Company’s
external auditors as well as anyone in the Company and,
subject
its
subsidiaries. In addition, the audit committee may
engage, at the Company’s expense, independent counsel
and other internal or external advisors to review,
investigate or otherwise advise on, any matter as the
committee may determine to be necessary to carry out its
purposes and responsibilities.
regulations,
laws and
Auditors
The Company’s articles of association require the
appointment of an independent audit firm in accordance
with applicable law. Auditors are appointed by the
general shareholders’ meeting, upon recommendation
from the audit committee, through a resolution passed by
a simple majority vote. The primary responsibility of the
auditor is to audit the Company’s annual accounts and
consolidated financial statements and to submit a report
on each set of accounts to shareholders at the annual
shareholders’ meeting. In accordance with applicable law,
statutory auditors (réviseur d'entreprises) must meet
certain conditions of professional qualification and good
reputation verified by the Luxembourg Financial Sector
Supervisory Commission (Commission de Surveillance du
Secteur Financier) and be registered as members of the
Luxembourg Institute of Independent Auditors (Institut
des réviseurs d’entreprises).
The annual shareholders’ meeting held on May 3, 2022,
the Company’s
re-appointed PwC Luxembourg as
statutory auditor for the fiscal year ended December 31,
2022. At the next annual general shareholders’ meeting
scheduled to be held on May 2, 2023, it will be proposed
that PwC Luxembourg be re-appointed as the Company’s
statutory auditor for the fiscal year ending December 31,
2023.
Code of Ethics
The Company has adopted a general code of conduct
incorporating guidelines and standards of integrity and
transparency applicable to all directors, officers and
employees. As far as the nature of each relation permits,
all principles detailed in the code of conduct also apply to
16
TERNIUM S.A.
Consolidated Management Report
Risk Factors
You should carefully consider the risks and uncertainties
described below, together with all other information
contained in this annual report, before making any
Risks Relating to the Steel Industry
A downturn in global or regional economic activity
would cause a reduction in worldwide or regional
demand for steel, which would have a material adverse
effect on the steel industry and Ternium.
Steel demand is sensitive to trends in cyclical industries,
such as the construction, automotive, appliance and
machinery industries, which are significant markets for
Ternium’s products and are also affected by national,
regional or global economic conditions. A downturn in
economic activity would reduce demand for steel
products, which would have a negative effect on
Ternium’s business and results of operations. In 2020, the
rapid expansion of the SARS-CoV-2 virus, the surfacing
of new strains of the virus in several countries, and the
containment measures
governmental
authorities triggered an unprecedented crisis that resulted
in a severe contraction in gross domestic product and
steel consumption globally, affecting all of Ternium’s
steel markets. In 2022, the Russian invasion of Ukraine
led to higher global prices of certain commodities and
energy, contributing to higher
inflation rates and
negatively affecting economic activity. In addition, as
inflation rates remained elevated, central banks in many
countries are tightening monetary conditions. These
factors led to a significant slowdown in global steel
consumption growth in 2022.
adopted by
Uncertainty regarding global or regional economic
activity remains high. A recession affecting developed
economies, or slower growth or recessionary conditions
in emerging economies would exact a heavy toll on the
steel industry and adversely affect our business and
results of operations.
A protracted fall in steel prices or price volatility would
have a material adverse effect on the results of Ternium.
Steel prices are volatile and are sensitive to trends in steel
demand and raw material costs, such as steel scrap, iron
ore and metallurgical coal costs. Historically, the length
and nature of business cycles affecting steel demand and
raw material costs have been unpredictable. For example,
U.S. steel prices trended down during most of 2018 and
2019, after peaking during the first half of 2018, as a
increased steel
result of softer steel consumption,
production and lower costs of steel scrap. Steel prices
investment decision. Any of these risks and uncertainties
could have a material adverse effect on Ternium's
business, financial condition and results of operations,
which could in turn affect the price of the Company’s
shares and ADSs.
decreased further in 2020 during the early stages of the
COVID-19 pandemic reflecting a depression in steel
consumption. However, steel prices increased steadily
during the rest of 2020 and peaked at historical record
levels in September 2021, as the speed of the recovery in
steel production and in the production of steelmaking
raw materials fell short of steel demand. In the following
few months, steel prices decreased steadily reflecting a
gradual normalization of steel supply-demand balance.
Steel and raw material prices increased rapidly following
the Russian invasion of Ukraine, reflecting a disruption in
these products' supply chains. After reaching a new peak
during the second quarter of 2022, steel and raw material
prices resumed a downward trend. However, during the
first months of 2023, steel and raw material prices started
to increase again. A protracted fall in steel prices could
adversely affect Ternium’s operating results by means of
lower revenues and, eventually, could lead to inventory
write-downs.
If raw material costs declined, the resulting reduction in
steel production costs would not be immediately reflected
in Ternium’s operating results as Ternium would first
consume existing inventories acquired prior to such raw
material cost decrease. Similarly, Ternium may be unable
to recover, in whole or in part, increased costs of raw
materials and energy through increased selling prices on
its products, or it may take an extended period of time to
do so.
Regional or worldwide excess steel production capacity
may lead to unfair trade practices in the international
steel markets and/or to intense competition, hampering
Ternium’s ability to sustain adequate profitability.
The steel industry is affected by economic cycles, as well
as by regional or worldwide production overcapacity.
Historically, the steel industry has suffered, especially on
downturn cycles, from substantial overcapacity. In the
last decade, over-capacity was particularly severe in
China. More recently, there are several new steel making
and steel processing facilities under construction or
ramping-up in North America, which could contribute to
an excess of steel production capacity in the region.
Excess steel production capacity may require several
years to be absorbed by demand and, consequently, may
contribute to an extended period of depressed margins
and industry weakness. International trade of steel
17
TERNIUM S.A.
Consolidated Management Report
products conducted under unfair conditions increases
particularly during downturn cycles and as a result of
production overcapacity. Unfair trade practices may
result in the imposition by some countries (that are
significant producers and consumers of steel) of
antidumping and countervailing duties or other trade
measures and may cause fluctuations in international
steel trade. The imposition of such trade remedies or
temporary tariffs on major steel exporters in significant
in turn exacerbate
steel producing countries could
pressures in other markets, including those in which
Ternium operates, as exporters target such other markets
to compensate, at least partially, for the loss of business
resulting from the imposition of trade remedies or tariffs.
China is the largest steel producing country in the world,
accounting for approximately 55% of worldwide crude
steel production, and Chinese exports of steel products,
including exports to Europe, the United States and
Mexico, were subject to the imposition of antidumping
and countervailing duties and other trade measures. A
decrease in steel consumption in China in the future could
stimulate aggressive Chinese steel export offers, exerting
downward pressure on sales and margins of steel
companies operating in other markets and regions,
including those in which Ternium operates. Similarly, a
downturn in global or regional economic activity could
encourage unfair steel trade practices adversely affecting
Ternium’s business and results of operations.
Sales may fall as a result of fluctuations in industry
inventory levels or disruptions in Ternium customers’
supply chains.
Inventory levels of steel products held by companies that
purchase Ternium’s products can vary significantly from
period to period, as customers either draw from existing
inventory or accumulate further inventory in response to
market conditions and prospects. As a result, purchased
volumes may be irregular. In addition, supply chain
disruptions could reduce customer demand for Ternium’s
products. For example, in 2021 vehicle production was
severely affected by a shortage of semiconductors that, in
turn, affected Ternium’s steel sales. Fluctuations in steel
inventory levels and disruptions in Ternium customers’
supply chains can temporarily affect the demand for, and
price of, Ternium’s products and, accordingly, Ternium
may not be able to increase or maintain its levels of sales
volumes or prices.
Intense competition could cause Ternium to lose its share
in certain markets and adversely affect its revenues.
The market for Ternium’s steel products is highly
competitive, particularly with respect to price, quality
and service. In both global and regional markets,
local
Ternium competes against other global and
producers of steel products, which in some cases have
greater financial and operating resources, or direct and
indirect governmental support. Competition could result
in declining margins and reduced shipments. Ternium’s
competitors could use their resources in a variety of ways
that may affect Ternium negatively, including by making
additional acquisitions,
implementing modernization
programs, expanding their production capacity, investing
more aggressively in product development, and displacing
demand for Ternium’s products in certain markets. To
the extent that these producers become more efficient,
Ternium could confront stronger competition and could
fail to preserve
its current share of the relevant
geographic or product markets. In addition, there has
been a
industry
consolidation among Ternium’s competitors, and current
competitors in the steel market could become larger
competitors in the future.
toward steel
the past
trend
in
Moreover, Ternium and other steel makers compete
against suppliers of alternative materials,
including
aluminum, wood, concrete, plastic and ceramics. In
particular, certain customers, such as the automotive
industry, are increasing their consumption of lighter-
weight materials, such as aluminum, composites and
carbon fiber, sometimes as a result of regulatory
requirements or government
initiatives aimed at
transitioning to a lower-carbon economy. Competition
from these alternative materials could adversely affect the
demand for, and consequently the market prices of,
certain steel products and, accordingly, could affect
Ternium’s sales volumes and revenues.
Price fluctuations, shortages or disruptions in the supply
of raw materials, slabs, energy and other inputs could
adversely affect Ternium’s profitability.
The manufacture of steel-related products requires
substantial amounts of steelmaking raw materials, slabs,
energy and other inputs from domestic and foreign
suppliers. Ternium consumes large quantities of iron ore,
metallurgical coal, pulverized coal for injection, scrap,
ferroalloys, refractories, slabs, natural gas, electricity,
oxygen and other gases in operating their blast and
electric arc furnaces, as well as its downstream facilities.
The availability and pricing of raw materials, slabs,
energy and other inputs used in Ternium’s operations are
subject to multiple factors, including market conditions,
government regulations or intervention, including import
controls and
international sanctions, allocation by
suppliers, interruptions in production, or other events
that can affect continuity of supply and prices, such as
wars, natural disasters, chronic climate changes,
accidents and epidemics.
Slabs are a key input in Ternium’s production process.
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TERNIUM S.A.
Consolidated Management Report
Industry consolidation and/or integration of slab making
facilities into finished steel products are reducing the
availability of slabs in the global market. For example, in
2022 a global steel maker announced the acquisition of
Companhia Siderúrgica do Pecém (CSP), a Brazilian slab
maker that used to be a significant supplier of slabs in the
international markets. Also, in 2021 ArcelorMittal
integrated its slab facility in Lázaro Cárdenas, Mexico,
with a new hot-rolling mill. In the past, such facility was
also a supplier of slabs to third parties in the slab market.
In addition, the Russian invasion of Ukraine in February
2022 and the consequent wave of trade sanctions imposed
by the United States, the United Kingdom, and the
European Union, among other countries, against certain
Russian institutions, companies and citizens, resulted in a
disruption to the global supply of slabs and other inputs
consumed by Ternium in its production processes. New
international sanctions against Russian steel companies
that have not been affected by current sanctions could
result in slab scarcity and/or increases in slab prices in the
market, which would have a material adverse effect on
Ternium’s business and results of operations.
Ternium has usually been able to procure sufficient
supplies of raw materials, slabs, energy and other inputs
to meet its production needs; however, it could be unable
to procure adequate supplies in the future. Any
protracted interruption, discontinuation or other
disruption of the supply of main inputs used in Ternium’s
operations (including as a result of strikes, lockouts,
sanctions and other trade restrictions, accidents or
natural disasters, armed conflicts, worldwide price
fluctuations, the availability and cost of transportation,
global epidemics or other factors) would result in lost
sales and/or lower margins, and would have a material
adverse effect on Ternium’s business and results of
operations. For further information related to effects of
global events see “Risk Factors. Risks Relating to the
Steel Industry – A downturn in global or regional
economic activity would cause a reduction in worldwide
or regional demand for steel, which would have a
material adverse effect on the steel industry and
Ternium”.
Ternium depends on a limited number of key suppliers.
in the
is a trend
Ternium depends on a limited number of key suppliers
for the provision of some of its principal inputs. For
example, in 2022 Ternium purchased almost all of its
third party iron ore from Vale, a Brazilian company. In
general, there
industry towards
consolidation among suppliers of raw materials, slabs
and other inputs. Ternium has entered into long-term
contracts for the supply of some (but not all) of its
principal inputs and expects that such agreements will be
maintained and, depending on
the circumstances,
renewed. However, if any key supplier fails to deliver, or
if existing contracts cannot be renewed in the future, or if
applicable regulations limit or prohibit purchases from
certain suppliers, Ternium could face limited access to
certain raw materials, slabs, energy or other inputs, or
could be subject to higher costs and delays resulting from
the need to obtain its input requirements from other
suppliers.
Risks Relating To Ternium's Business
If Ternium does not successfully implement its business
strategy, its opportunities for growth and its competitive
position could be adversely affected.
Ternium plans to continue implementing its business
strategy, entailing a focus on sophisticated steel products,
the pursuit of strategic growth opportunities and an
its competitiveness through a full
enhancement of
product
excellence,
operational
offering,
range
differentiated services with a strong distribution network
and the attraction and training of talented employees.
Any of these components or Ternium’s business strategy
could be delayed or abandoned or could cost more than
anticipated, any of which could impact its competitive
position and reduce its revenue and profitability. For
example, Ternium could fail to develop its projects and/
or to make acquisitions and/or integrate newly acquired
businesses to increase its steel production capacity; or
may lose market share in its regional markets. Even if
Ternium successfully implements its business strategy or
achieves its medium and long-term goals, such strategy or
goals may not yield the desired results.
Future acquisitions or other significant investments could
have an adverse impact on Ternium’s operations or
profits, and Ternium may not realize the benefits it
expects from these business decisions.
A key element of Ternium’s business strategy is to
identify and pursue growth-enhancing opportunities. As
part of that strategy, Ternium regularly considers
acquisitions, greenfield and brownfield projects and other
significant investments. For example, in 2010 Ternium
formed, together with Nippon Steel Corporation, or
NSC, Tenigal, a company that manufactures and sells
hot-dip galvanized and galvannealed steel sheets for the
Mexican automotive market; in 2012, Ternium acquired
a participation in the control group of Usiminas, the
largest flat steel producer in Brazil, which it subsequently
increased; and in 2017, Ternium acquired Ternium Brasil,
a Brazilian steel slab producer. In 2022, Ternium began
the deployment of a new downstream project in its
Pesquería industrial center including a cold-rolling mill, a
push-pull pickling line, a hot-dip galvanizing line and
new finishing lines, and in February 2023 it announced a
new upstream production capacity project in the USMCA
region including a direct reduced iron module, an electric
arc furnace-based steel shop and a port facility for raw
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TERNIUM S.A.
Consolidated Management Report
material handling.
Any acquisition or other growth project will depend on
market and
financing conditions. Ternium must
necessarily base any assessment of potential acquisitions
or other investments on assumptions with respect to
operations, profitability and other matters that may
subsequently prove to be incorrect. In addition, Ternium
may fail to find suitable acquisition targets or fail to
consummate its acquisitions under favorable conditions.
Ternium’s acquisitions or other investments may not
perform in accordance with its expectations and could
have an adverse impact on its operations and profits.
Furthermore, Ternium may be unable to successfully
integrate any acquired businesses into its operations,
realize expected synergies or accomplish the business
objectives that were foreseen at the time of deciding any
such investment. Moreover, Ternium may also acquire,
as part of future acquisitions, assets unrelated to its
business, and it may not be able to integrate them or sell
them under favorable terms and conditions. These risks,
and the fact that the integration of any acquired
businesses would require a significant amount of time
and
from Ternium’s management and
employees, could have an adverse impact on Ternium’s
ongoing business and a material adverse effect on its
business, financial condition and results of operations.
resources
Ternium may be required to record a significant charge to
earnings if it must reassess its goodwill, other amortizable
intangible assets,
in non-consolidated
companies, property, plant and equipment and other
long-lived assets.
investments
In accordance with IFRS, management must test for
impairment all of Ternium’s assets whenever events or
changes in circumstances indicate that the carrying
amount may not be recoverable. Assets subject to testing
include goodwill, intangible assets, investments in non-
consolidated companies, property, plant and equipment
and other long-lived assets. In addition, management
must test for impairment goodwill at least once a year,
whether or not there are indicators of impairment. IFRS
requires Ternium to recognize a charge in an amount
equal to any impairment.
The Company reviews periodically the recoverability of
its investments. As of December 31, 2022, goodwill in
connection with the Company’s Mexican subsidiaries
amounted to $662.3 million and the carrying value of the
Company’s investment in non-consolidated companies,
mainly related to its investment in Usiminas, amounted to
$821.6 million. If Ternium’s management determines in
the future that the goodwill from its acquisitions, its
the
investments
in non-consolidated companies or
carrying value of its property, plant and equipment and
other long-lived assets are impaired, Ternium will be
required to recognize a non-cash charge against earnings,
which could materially adversely affect Ternium’s results
of operations and net worth. In the past, Ternium
recorded impairment charges several times. For example,
as of December 31, 2012, September 30, 2014, December
31, 2015 and September 30, 2022, Ternium wrote down
its investment in Usiminas by $275.3 million, $739.8
million, $191.9 million and $120.4 million, respectively.
The impairment recorded in 2022 mainly reflected a
lower production availability of Usiminas’ coke facilities,
which need further capital investment, and an increase in
the interest rate. As of December 31, 2022, the carrying
value of Ternium’s investment in Usiminas was $725.7
million and Ternium’s ownership stake had a market
value of approximately $356.2 million. In addition, as of
December 31, 2022, Ternium wrote down its investment
in Ternium Brasil by $99.0 million, mainly reflecting
expectations of lower margins and an increase in the
interest rate. The recoverable value of this investment as
of December 31, 2022, was $1.8 billion. For further
information on the
impairment test of Ternium’s
investment in Ternium Brasil and Usiminas see note 3(f)
“Accounting Policies – Impairment” of our audited
consolidated financial statements included in this annual
report. Any further write-downs to Ternium’s assets
could have a material adverse effect on Ternium’s results
of operations or net worth.
Failure to successfully implement Usiminas’ business
strategy could have a material adverse effect on
Ternium’s results, financial condition or net worth.
Since 2012, Ternium is a member of the control group of
Usiminas, the largest flat steel producer in Brazil. In 2014,
a conflict arose within the Usiminas control group and its
board with respect to the governance of Usiminas,
including with respect to the rules applicable to the
appointment of senior managers, the application of the
shareholders’ agreement in matters involving fiduciary
duties, and the company’s strategy. Such conflict was
resolved in 2018 by an agreement between Ternium, NSC
and Usiminas’ employee pension fund (Previdência
Usiminas), providing for new governance rules for
Usiminas. Under
the new Usiminas shareholders’
agreement (“New SHA”), no control group member can,
without the consent of other shareholder group or
groups, implement any change to Usiminas’ strategy or
business practices.
for
The agreed-upon corporate governance
Usiminas
include, among others, an alternation
mechanism for the nomination of each of the chief
executive officer and the chairman of the board of
directors, as well as a mechanism for the nomination of
rules
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TERNIUM S.A.
Consolidated Management Report
other members of Usiminas’ executive board. The right to
nominate Usiminas’ chief executive officer and chairman
alternates between Ternium and NSC at every 4-year
interval, comprising two consecutive 2-year terms. The
executive board is composed of six members, including
the chief executive officer and five vice-presidents, with
Ternium and NSC nominating three members each.
the New SHA
In addition,
incorporates an exit
mechanism consisting of a buy-and-sell procedure,
exercisable at any time during the term of the New SHA
after November 16, 2022. Such exit mechanism shall
apply with respect to shares held by the NSC Group and
by the group comprising Ternium’s subsidiaries and
Tenaris’s Brazilian subsidiary, Confab Industrial S.A, and
would allow either Ternium or NSC to purchase all or a
majority of the Usiminas shares held by the other
shareholder group.
If the parties fail to reach consensus, or if a new
shareholder conflict were to emerge, Usiminas may not be
successful at implementing the measures required to
achieve
sustainable profitability and, accordingly,
Usiminas’ performance could be adversely affected and
result in a material adverse effect on Ternium’s results,
financial condition or net worth.
If Ternium does not comply with laws and regulations
designed to combat governmental corruption in countries
in which it sells its products, Ternium could become
subject to fines, penalties or other sanctions and its sales
and profitability could suffer.
Ternium conducts business in certain countries known to
experience governmental corruption. Although Ternium
is committed to conducting business in a legal and ethical
manner in compliance with local and international
statutory requirements and standards applicable to its
business, there is a risk that employees or representatives
may take actions that violate applicable laws and
regulations that generally prohibit the making of
improper payments to foreign government officials for
the purpose of obtaining or keeping business, including
laws relating to the 1997 OECD Convention on
Combating Bribery of Foreign Public Officials
in
International Business Transactions such as the U.S.
Foreign Corrupt Practices Act and other anti-corruption
laws adopted by the main countries in which Ternium
operates (including Mexico, Argentina, the United States,
Brazil and Colombia), which impose strict criminal
liability on companies for corrupt practices undertaken
by their employees or representatives.
Labor disputes at Ternium’s operating subsidiaries could
result in work stoppages and disruptions to Ternium’s
operations.
A substantial majority of Ternium’s employees at its
manufacturing subsidiaries are represented by labor
unions and are covered by collective bargaining or similar
agreements, which are subject to periodic renegotiation.
Strikes or work stoppages could occur prior to or during
the negotiations leading to new collective bargaining
agreements, during wage and benefits negotiations or,
occasionally, during other periods for other reasons.
Ternium could also suffer plant stoppages or strikes if it
were to implement cost reduction plans. From time to
time, Ternium
increase
competitiveness; none of the measures taken in the past
have resulted in significant labor unrest. However,
Ternium cannot assure that this situation will remain
stable or that future measures will not result in labor
actions against Ternium companies. Any future stoppage,
strike, disruption of operations or new collective
bargaining agreements could result in lost sales and could
increase Ternium’s costs, thereby affecting its results of
operations.
takes measures
to
Changes in exchange rates or any limitation in the ability
of the Ternium companies to hedge against exchange rate
fluctuations could adversely affect Ternium’s business
and results.
The operations of the Ternium companies expose them
to the effects of changes in foreign currency exchange
rates and changes in foreign exchange regulations. A
significant portion of Ternium’s transactions is carried
out in currencies other than the U.S. dollar. As a result of
this foreign currency exposure, exchange rate fluctuations
impact the Ternium companies’ results and net worth as
reported
income statements, statements of
income and statements of financial
comprehensive
position in the form of both translation risk and
transaction risk. In the ordinary course of business, the
Ternium companies may see fit to enter into exchange
rate derivatives agreements to manage their exposure to
exchange rate changes.
in their
For information on Ternium Argentina's investments and
the effect on financial results of exchange controls
imposed in Argentina, see “—Risks Relating to the
Countries in Which Ternium Operates - Argentina:
Argentine exchange controls could result in a significant
financial loss to Ternium, and could negatively impact
Ternium Argentina’s operations or prevent it from paying
dividends or transferring cash surpluses abroad, as a
result of its inability to access the foreign exchange
market” and note 29 “Foreign exchange restrictions in
Argentina” to our consolidated financial statements
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TERNIUM S.A.
Consolidated Management Report
included in this annual report. Future regulatory or
financial restrictions in the countries where Ternium
operates may reduce its ability to manage its exposure to
exchange rate fluctuations, and thus could cause an
adverse impact on Ternium’s results, financial condition
or cash flows.
Cyberattacks could have a material adverse impact on
Ternium's business and results of operation.
Ternium relies heavily on information systems to conduct
its operations; and digital
technologies have an
increasingly significant role across our business. Although
Ternium devotes significant resources to protect its
systems and data, and it continually monitors external
developments and available information on threats and
security incidents, it has experienced and will continue to
experience varying degrees of cyber incidents in the
normal conduct of its business, which may occasionally
threats such as
include sophisticated cybersecurity
unauthorized access to data and systems,
loss or
destruction of data, computer viruses or other malicious
code, phishing, spoofing and/or cyberattacks. These
threats often arise from numerous sources, not all of
which are within Ternium's control, such as fraud or
malice from third parties, including fraud involving
business email, failures of computer servers or other
accidental
or
telecommunication outages or other damage to its
property or assets. Cybersecurity incidents and cyber-
attack attempts, such as phishing attacks, attempts to
compromise user credentials, attempts to compromise
firewall
fake website, spoofing and
whaling, continued to increase throughout 2022, mainly
due to the adoption of remote work practices among
Ternium’s employees, its customers and suppliers and the
increasing digitalization of work. Of all the cybersecurity
incidents that were detected in 2022, only eight were
highly sophisticated and all of them were contained.
None of the attacks led to any known breaches of
Ternium's business-critical IT systems and, as such, did
not result in any material business impact.
infrastructure,
technological
electrical
failure,
in
to
the
In response
the number and
increase
sophistication of ransomware attacks, U.S. and EU
regulatory agencies have implemented regulations to
prevent victims from making ransomware payments and
to deter third parties from facilitating or processing such
payments to cyber actors. In this context, Ternium
enhanced cybersecurity controls and
implemented
comprehensive processes and procedures to monitor,
detect and respond to hacking, malware infection,
cybersecurity compromise and other risks. In addition,
Ternium has launched awareness and ethical phishing
campaigns aimed at protecting it against cyber-threats
and it regularly trains its executives and employees to
identify and report cybersecurity incidents.
to meet customer
Given the rapidly evolving nature of cyber threats, there
can be no assurance that the systems that Ternium has
designed to prevent or limit the effects of cyber incidents
in
or attacks and the mitigation actions adopted
connection with such attacks will be sufficient to prevent
or detect such incidents or attacks, or to avoid a material
adverse impact on its systems when such incidents or
attacks do occur. If Ternium’s systems for protecting
against cybersecurity risks are circumvented or breached,
this could also result in disruptions to its business
operations (including but not
limited to, defective
products, production downtimes or loss of productivity),
access to financial reporting systems, the loss of access to
critical data or systems, misuse or corruption of critical
data and proprietary information (including intellectual
property and customer data), as well as damage to
Ternium’s reputation with its customers and the market,
failure
requirements, customer
dissatisfaction and/or regulatory fines and penalties
(including for inadequate protection of persona data and/
or failure to notify the competent authorities for such
breach) or other financial costs and losses. In addition,
given that cybersecurity threats continue to evolve,
Ternium will be required to devote additional resources
in the future to enhance its protective measures or to
cybersecurity
investigate
remediate
vulnerabilities. Although Ternium has
considered
contract insurance coverage options for cyber risks, it
does not currently maintain cybersecurity insurance, and
the insurance it carries for property damage and general
liability may not be adequate or available to protect it
from damages derived from cyber events, or coverage
investigation of a
may be
cyberattack would take time before completion, during
which Ternium would not necessarily know the extent of
the actual or potential harm or how best to remediate it,
and certain errors or actions could be repeated or
compounded before duly discovered and remediated (all
or any of which could further increase the costs and
consequences arising out of any cyberattack).
limited. Moreover, any
and/or
any
The physical risks resulting from climate change,
including extreme weather conditions and shifts in
weather patterns may adversely
impact Ternium’s
business.
Ternium’s business has been, and in the future could be,
affected by severe weather in areas where it operates,
which could materially affect its operations and financial
results. Extreme weather events and natural disasters,
such as hurricanes, cyclones, droughts, floods and fires
could affect businesses’ operations, workforce, markets,
infrastructure, raw materials and assets. For example, in
the last few years, low water levels at the Paraguay and
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TERNIUM S.A.
Consolidated Management Report
Paraná waterways disrupted in several occasions the
supply of iron ore from Brazil's iron ore mines in the
Pantanal Region (Mato Grosso do Sul state) to Ternium's
operations in Argentina, requiring from time to time the
procurement of higher-cost iron ore from alternative
sources and an increase of iron ore inventories. In
addition, during the first quarter of 2021, extreme
weather conditions in the southern United States and
northern Mexico disrupted the provision of natural gas
and energy to our operations in Mexico, negatively
affecting steel production levels.
intense
rainfall
experienced
The communities surrounding our main production sites
in Argentina, Brazil and Mexico are vulnerable to
flooding due to extreme weather events. In the past, our
operations in Brazil and certain of our operations in
Argentina
affecting
personnel’s access to Ternium’s facilities. In addition, as
Ternium’s steel shops in Mexico are located at water
stressed areas, its operations in the country could be
affected by water shortages and/or increased water costs,
local
including as a result of measures taken by
governments in order to prevent or deal with critical
situations caused by severe draughts. For example, in
2022 a severe draught affected the metropolitan area of
Monterrey in the state of Nuevo León, Mexico and,
consequently, the national water authority suspended
new freshwater use concessions in the Puebla and
Monterrey areas. Although this particular event did not
have a significant impact on Ternium’s operations in the
region, Ternium cannot predict the impact of future
similar events, in Mexico or elsewhere, to its operations
and financial condition.
in
Chronic climate changes, such as changes in precipitation
patterns and rising of mean temperatures and sea levels
may result
increased operating costs or capital
expenditures, due to supply shortages or damage to
insurance
facilities, personnel evacuation,
premiums or reduced availability of insurance, decreases
in revenue derived from lower sales, disruption of
operations or lower production levels, negative impact on
workforce and write-offs and/or early retirement of
assets, all of which could adversely affect Ternium’s
financial condition, results of operations and cash flows.
increased
Risks Relating To Ternium's Mining Activities
Ternium has equity interests in two iron ore mining
companies: a 100% interest in Las Encinas and a 50%
interest in Consorcio Peña Colorada. Ternium’s mining
activities are located in Mexico. For information related
to the risks of doing business in Mexico see “Risk
Factors. Risks Relating to the Countries in Which
Ternium Operates – Mexico”. In addition, Ternium’s
mining activities are subject to the following risks:
and
accidents
unexpected
natural
Operational
catastrophes may damage the environment, destroy
properties and affect production or cause injuries and
death, which would adversely
impact Ternium's
operations and profitability, and result in material
liabilities.
involve
Ternium carries out extractive, processing and logistical
operations in many geographic locations. Liabilities
associated with Ternium’s mining activities include those
resulting from tailings and sludge disposal, effluent
management, iron ore pulp and fines transportation, and
rehabilitation of
land disturbed during the mining
the use,
processes. Ternium’s operations
handling, storage, discharge and disposal of hazardous
substances and the use of natural resources. The iron ore
mining industry is generally subject to significant risks
and hazards, including environmental pollution, such as
spilling or emissions of polluting substances or other
hazardous materials; operational incidents, such as open-
cut pit wall failures, rock falls, tailings dam breaches or
incidents from the storage, transportation or use of
explosives; transportation incidents, involving mobile
equipment or machinery, slurry pipes and cable
transportation; and may also be subject to unexpected
natural catastrophes. This could result in environmental
damage, damage to or destruction of properties and
facilities, personal
in
production.
injury or death, and delays
seismic
international
from stability studies conducted with
Although most of Ternium’s tailings dams meet the
standards,
strictest
new
reinforcements are expected
to be completed by
Consorcio Peña Colorada in one of its tailings dams in
order to reduce risks of collapse under a severe
follows recommendations
earthquake. This project
arising
the
assistance of independent consultants, and Ternium
expressed its support to Consorcio Peña Colorada in
connection with its efforts to mitigate those risks.
Consorcio Peña Colorada has obtained
the
environmental authorities several of the permits required
to carry out such reinforcements and expects to obtain
the remaining permits in the short term. The completion
of the project would take approximately three years.
that, once completed,
Although Ternium believes
investment project will
Consorcio Peña Colorada’s
further mitigate the risk of incidents at its tailings dam, it
cannot guarantee that failures or breaches will not occur
prior to, or after, completion of reinforcement works.
from
Ternium may also be subject to claims under federal and
local laws and regulations for toxic torts, natural
resource damages and other damages, as well as for the
investigation and clean-up of soil, surface water,
sediments, groundwater and other natural resources.
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TERNIUM S.A.
Consolidated Management Report
Claims for damages and reclamation may arise out of
current or former conditions at sites that Ternium owns,
leases or operates or at inactive sites that Ternium
currently owns, leased-land sites and third-party waste
disposal sites. Ternium may be held responsible for other
sites in the future. Ternium also could be subject to
litigation for alleged bodily injuries arising from claimed
exposure
to hazardous substances allegedly used,
released, or disposed of by Ternium. Environmental
damages caused by Ternium’s operations may result in
costs and liabilities that could materially and adversely
affect margins, cash flow and profitability. Third-party
claims based on environmental or physical damages may
exceed the limit of liability of the insurance policies we
could have in place.
Required governmental concessions could be subject to
prior consultation with native communities, changes or
termination, permits and rights of use and occupancy
could be difficult to obtain or maintain and taxes or
royalties applicable to the mining industry could increase,
all of which could adversely affect Ternium’s mining
activities and operating costs.
on
and
depend
concessions
Ternium’s mining activities are subject to specific
and
regulations
authorizations granted by governmental authorities.
Increased government intervention or amendments to
applicable laws and regulations as well as claims or legal
actions from native or local communities or other third
parties in Mexico, may alter the terms pursuant to which
Ternium is required to pursue exploration, mining and
ore processing activities. Selected mining technologies,
new taxes and/or royalties may be imposed on mining
activities, leading to unexpected capital expenditures and
higher costs. For further information on regulatory risks
in Mexico, see Risk Factors “Risks Relating to the
Countries
in Which Ternium Operates - Mexico:
Regulatory changes in Mexico could adversely impact
Ternium's results of operations and net results.”
Iron ore exploration and exploitation concessions as well
as water concessions may be revoked if the competent
government authorities determine that Ternium does not
comply with
the respective
its obligations under
concession terms and agreements. Furthermore, in order
to explore or exploit mines, it is necessary to obtain the
right of use and occupancy of the land where the mines
are situated. Even
though government regulations
frequently establish provisions intended to facilitate the
establishment of such rights, in some cases it may be
difficult to reach and maintain agreements with the native
or local communities or landowners, or such agreements
may be excessively onerous. If Las Encinas and Consorcio
Peña Colorada are unable to establish use and occupancy
rights on acceptable terms, their mining activities may be
compromised. In addition, Las Encinas and Consorcio
Peña Colorada need to obtain, in the normal course of
business, permits for the preparation of new iron ore
bodies at the mines and for the expansion of tailings
deposit capacity. In particular, Consorcio Peña Colorada
is seeking certain environmental permits in connection
with the operation of its tailing dams, the delay of which
is causing it to adjust, with the assistance of consultant
companies, tailings operations and the deposition design
plan. If Las Encinas and/or Consorcio Peña Colorada are
unable to obtain required permits on a timely basis, they
may need to alter their mining and/or production plans,
which could lead to unexpected capital expenditures,
higher costs and/or a disruption of its mining activities.
Ternium’s resource and reserve estimates may differ
materially from actually recoverable mineral quantities,
or its estimates of mine life may prove inaccurate; and
market price fluctuations and changes in operating and
capital
reserves
render
uneconomical to mine or cause Ternium to revise its
resource or reserve estimates.
certain ore
costs may
Ternium’s resources and reserves are estimated quantities
of ore that it has determined can be economically mined
and processed under present and anticipated conditions
to extract their mineral content. There are numerous
uncertainties inherent in estimating quantities of reserves
and resources and in projecting potential future rates of
mineral production, including factors beyond Ternium's
involve
control. Resource and reserve calculations
estimating deposits of minerals that cannot be measured
in an exact manner, and the accuracy of any resource and
reserve estimate is a function of the quality of available
data and engineering and geological interpretation and
judgment. Resource and reserve estimates also depend on
assumptions relating to the economic viability of
extraction, which are established through the application
of a life of mine plan for each operation or project
providing a positive net present value on a forward-
looking basis, using forecasts of operating and capital
costs based on historical performance, with forward
adjustments based on planned process improvements,
changes in production volumes and in fixed and variable
proportions of costs, and forecasted fluctuations in costs
of raw material, supplies, energy and wages. These
involve assumptions and
forecasts and projections
estimations
that, although Ternium believes are
reasonable at the time of estimating its reserves and
resources, may change in the future and may fail to
anticipate geological, environmental or other factors or
events that could make it difficult or unprofitable to mine
certain ore deposits.
In 2022, Ternium adopted new methodologies to estimate
Las Encinas’ reserves and resources that apply increased
24
TERNIUM S.A.
Consolidated Management Report
intensity in sample drilling and additional modelling and
interpretation protocols, which are expected to increase
estimation accuracy. Consequently, Ternium’s reserve
and resource estimates in the future could differ from
those assessed in the past.
levels consistent with
In addition, Ternium’s reserve estimates are of in-place
material after adjustments for mining depletion and
mining losses and recoveries, with no adjustments made
for metal losses due to processing. As a result, no
assurance can be given that the indicated amount of ore
will be recovered from Ternium’s reserves, or that it will
be recovered at the anticipated rates, or that extracted ore
will be converted into saleable production over the mine
life at
its reserve estimates.
Resource and reserve estimates may vary from those
included in this annual report, and results of mining and
production subsequent to the date of an estimate may
lead to future revisions of estimates. Estimates of mine
life may require revisions based on actual production
figures, changes in resource and reserve estimates and
other factors. For example, fluctuations in the market
prices of minerals, reduced recovery rates or increased
operating and capital costs due to inflation, exchange
rates, mining duties or other factors could affect
Ternium’s mine life projections. To the extent that
market price fluctuations or changes in its operating and
capital costs increase its costs to explore, locate, extract
and process iron ore, Ternium may be required to lower
its reserve estimates if certain ore reserves become
uneconomical to mine.
activities
exploration
Ternium’s
to
uncertainties as to the results of such exploration; even if
the exploration activities lead to the discovery of ore
deposits, the effective exploitation of such deposits
remains subject to several risks.
subject
are
Exploration activities are highly speculative, involve
substantial risks and may be unproductive. Ternium may
incur substantial costs for exploration which do not yield
the expected results. The failure to find sufficient and
adequate ore resources could adversely affect Ternium’s
business. In addition, even if ore deposits are discovered,
the ability to pursue exploitation activities may be
delayed for a long time during which market conditions
may vary. Significant resources and time need to be
invested in order to establish ore resources through
exploration, define the appropriate processes that shall be
undertaken, obtain environmental licenses, concessions
and permits (including water usage permits), acquire
land, build the necessary facilities and infrastructure for
greenfield projects and obtain the ore or extract the
metals from the ore. If a project does not turn out to be
economically feasible by the time Ternium is able to
exploit it, Ternium may incur substantial write-offs.
Inability to complete investment projects required to
maintain iron ore and pellets production rates over time
could increase Ternium’s steel production costs.
investment
Mining requires continuous
to sustain
production rates. Such investments require, among other
things, the design of the project, the awarding of
environmental permits and the successful execution of
civil works. If Ternium fails to timely carry out the
investment projects required to maintain iron ore and
pellets production rates over time, including tailing dams,
Ternium could have to substitute internally produced
iron ore with third party purchases, with a consequent
increase in steel production costs.
Ternium’s expected costs and capital expenditure
requirements for exploration, exploitation or restoration
activities may vary significantly and affect its financial
condition and expected results of operations.
to
several
factors,
including changes
Ternium may be subject to increased costs or delays
relating to the acquisition of adequate equipment for the
exploration and exploitation of ore deposits, or
restoration of exhausted mines. Moreover, Ternium may
face increasing costs or capital expenditure requirements
in
related
environmental regulations, diminished iron ore reserve
grades, deeper pits and operational sections of its mines,
iron ore deposits within the pit area that are more
difficult to locate or extract, additional maintenance
works in dams and ponds, and increased energy supply
requirements that may be difficult to obtain. Adverse
mining conditions and other situations related to the
operation of the mine and related facilities during their
life cycle, whether permanent or temporary, may lead to a
significant increase in projected capital expenditures and
costs, as well as affect Ternium’s ability to produce the
expected quantities of mineral. If this occurs, Ternium’s
financial condition and expected results of operations
may also be negatively affected.
Difficulties in relationships with local communities may
adversely affect Ternium’s mining activities and results of
operations.
Communities or individuals living or owning land near
areas where Ternium operates may take actions to
oppose and interfere with its mining activities. Even if a
community has an agreement in place with Ternium,
internal disputes within that community could result in
blockades to disrupt Ternium operations or iron ore
transportation, or legal proceedings to suspend mining
activity. Although Ternium makes significant efforts to
maintain good relationships with such communities,
actions taken by them (or by interest groups within those
communities), including requesting the government to
25
TERNIUM S.A.
Consolidated Management Report
significant
the mines,
revoke or cancel Ternium’s concessions or environmental
or other permits, may hamper Ternium’s ability to
conduct its mining activities as planned, prevent Ternium
from fulfilling agreements reached with the government,
or significantly increase the cost of exploring and/or
thereby adversely affecting
exploiting
Ternium’s business and results of operations. For
example, during 2022, protesters demanding benefits
started a blockade to Ternium’s iron ore crushing
facilities at El Encino. Although this situation did not
have a
impact on Ternium’s mining
operations, Ternium was required to build at the Palomas
mine new crushing facilities, to replace those at El
Encino, and a new road in order to resume iron ore
deliveries from the site. In addition, the security situation
in San Miguel de Aquila has worsened; a long-standing
internal dispute has disrupted
community’s
governance and, recently, two important community
leaders went missing. Ternium is actively cooperating
with the Mexican authorities in their search of the
missing individuals and assisting local, state and federal
agencies (including security and human rights federal
agencies) in connection with their investigation. These
events have stirred a great deal of turmoil within the
community and have forced us to temporarily shut down
our mining operations in Aquila.
the
Similarly, in the past Ternium faced actions by certain
native or local Mexican communities demanding higher
compensation or other benefits, or seeking to stop
Ternium’s activities. Although attempted legal actions
against Ternium did not succeed, Mexican legislation
affords
judges the power to preemptively suspend
environmental or other permits or concessions and take
certain other measures to protect the “ejidos” (land
jointly owned by native communities) until the claim is
resolved. An adverse
legal decision suspending or
cancelling permits, or the illegal blockade or occupation
of facilities, could adversely impact Ternium’s mining
activities and results of operations.
Risks Relating To The Structure Of The Company
Changes in applicable tax regulations and resolutions of
tax disputes could negatively affect our financial results.
Ternium is subject to tax laws in numerous foreign
jurisdictions where it operates. The integrated nature of
Ternium’s worldwide operations can produce conflicting
claims from revenue authorities in different countries as
to the profits to be taxed in the individual countries,
including disputes relating to transfer pricing. Most of the
jurisdictions in which Tenrium operates have double tax
treaties with foreign jurisdictions, which provide a
framework for mitigating the impact of double taxation
on our results. However, mechanisms developed to
resolve such conflicting claims are largely untried and can
be expected to be very lengthy.
In recent years, tax authorities around the world have
increased their scrutiny of companies’ tax filings and have
become more rigid in exercising any discretion they may
have. As part of this, in 2015, the Organization for
Economic Co-operation and Development (“OECD”)
proposed a number of tax law changes under its Base
Erosion and Profit Shifting (“BEPS”) Action Plans to
address issues of transparency, coherence and substance.
Most of the countries in which Ternium operates have
already implemented those changes within their own
domestic tax legislations.
In 2019, the OECD launched a new initiative on behalf of
the G20 under the format of a two pillars solution
targeting to minimize profit shifting by working towards
a global tax framework that ensures that corporate
income taxes are paid where consumption takes place
(Pillar 1) and targeting to introduce a global standard on
minimum taxation (Pillar 2) both combined with new tax
dispute resolution processes. This project achieved
OECD political consensus in October 2021. Pillar 2 is
scheduled to apply as from 2024, while detailed principles
on Pillar 1 are still under discussion.
At the EU level, the European Commission adopted in
2016 its Anti-Tax Avoidance Directive (“ATAD”), later
updated, modified and expanded by ATAD 2, which
seeks to prevent tax avoidance by companies and to
ensure that companies pay appropriate taxes in the
markets where profits are effectively made and business is
effectively performed.
the European
Commission drafted a directive aiming to avoid the use of
shell entities (ATAD 3), which, if approved and adopted
by all EU members, would become effective as from 2024.
Also, the European Commission adopted in December
2022 another directive to impose a global minimum
taxation for multinational companies in the Union,
following Pillar 2 OECD’s initiative. The new directive
would become effective as from 2024.
In addition,
Ternium’s interpretation and application of the tax laws
could differ from that of the relevant governmental
taxing authority, which could result in the payment of
additional taxes, penalties or interest, negatively affecting
our profitability and financial condition. Significant
uncertainties remain in relation to the potential adoption
of the new regulations that might result from evolving
initiatives like those launched by the OECD and the EU
in relation to international taxation that could impact
negatively our financial condition, results of operations
and cash flows.
26
TERNIUM S.A.
Consolidated Management Report
The Company’s dividend payments depend on the results
of operations and financial condition of its subsidiaries
and could be affected by legal, contractual or other
limitations or tax changes.
The Company is a holding company and conducts all its
operations through subsidiaries. Dividends or other
intercompany transfers of funds from those subsidiaries
are the Company’s primary source of funds to pay its
expenses, debt service and dividends and to repurchase
shares or ADSs.
The ability of the Company’s subsidiaries to pay
dividends and make other payments to us will depend on
their results of operations and financial condition. If
earnings and cash flows of the Company’s operating
subsidiaries are substantially reduced, the Company may
not be in a position to meet its operational needs or to
pay dividends. In addition, such dividends and other
payments could be restricted by applicable corporate and
other laws and regulations, including those imposing
foreign exchange controls or restrictions on the transfer
of money to foreign accounts or the payment of
dividends, and agreements and commitments of such
subsidiaries. For information on exchange controls in
Argentina, see “—Risks Relating to the Countries in
Which Ternium Operates
- Argentina: Argentine
exchange controls could result in a significant financial
loss to Ternium, and could negatively impact Ternium
Argentina’s operations or prevent
from paying
dividends or transferring cash surpluses abroad, as a
result of its inability to access the foreign exchange
market.”; and note 29 “Foreign exchange restrictions in
Argentina” of Ternium’s audited consolidated financial
statements included in this annual report.
it
The Company’s ability to pay dividends to shareholders
is subject to legal and other requirements and restrictions
in effect at the holding company level. For example, the
Company may only pay dividends out of net profits,
retained earnings and distributable
reserves and
premiums, each as defined and calculated in accordance
with Luxembourg law and regulations. In addition, the
Company’s dividend distributions (which are currently
imputed to a special tax reserve and are therefore not
subject to Luxembourg withholding tax) may be subject
to Luxembourg withholding tax if current Luxembourg
tax law were to change.
The Company’s controlling shareholder may be able to
take actions that do not reflect the will or best interests of
other shareholders.
As of the date of this annual report, San Faustin
beneficially owned 65.03% of the Company's shares and
Tenaris, which is also controlled by San Faustin, held
11.46% of the Company’s shares. Rocca & Partners
Stichting Administratiekantoor Aandelen San Faustin,
(“RP STAK”), holds voting rights
in San Faustin
sufficient in number to control San Faustin. As a result,
RP STAK is indirectly able to elect a substantial majority
of the members of the Company’s board of directors and
has the power to determine the outcome of most actions
requiring shareholder approval, including, subject to the
requirements of Luxembourg
law, the payment of
dividends. The decisions of the controlling shareholder
may not reflect the will or best interest of other
shareholders. In addition, the Company’s articles of
association permit the Company’s board of directors to
waive, limit or suppress preemptive rights in certain
cases. Accordingly,
controlling
shareholder may cause its board of directors to approve
in certain cases an issuance of shares for consideration
without preemptive rights, thereby diluting the minority
interest in the Company. See “Risks Relating to the
Company's ADSs – Holders of shares and ADSs in the
United States may not be able to exercise preemptive
rights in certain cases”.
the Company’s
Non-controlling interests in the Company’s subsidiaries
could delay or prevent us from completing our strategy.
The Company does not own 100% of the interests in
certain of the Company’s subsidiaries. As of February 28,
2023, 26.03% of Ternium Argentina was held by
Administración Nacional de la Seguridad Social, or
ANSeS, Argentina’s governmental social security agency,
and 11.40% was publicly held. In addition, Ternium
holds a 51% ownership interest in Tenigal (NSC holds
the remaining 49%); and a 48% equity interest in
Techgen S.A. de C.V. (“Techgen”). Ternium also has a
participation in the control group of Usiminas. The
existence of non-controlling interests in these companies
could prevent Ternium from taking actions that, while
beneficial to Ternium, might not be beneficial to each
relevant subsidiary, considered separately. As a result, the
Company could be delayed or prevented from completing
its strategy or fully maximizing Ternium’s competitive
strengths.
Risks Relating To The Countries In Which Ternium
Operates
Negative economic, political, social and regulatory
developments in certain markets where Ternium has a
significant portion of its operations and assets could hurt
Ternium’s shipment volumes or prices, increase its costs
or disrupt
thereby
adversely affecting its results of operations and financial
condition.
its manufacturing operations,
The results of Ternium’s operations are subject to the
27
TERNIUM S.A.
Consolidated Management Report
risks of doing business in emerging markets, principally
in Mexico, Brazil and Argentina and, to a lesser extent, in
Colombia, and have been, and could in the future be,
affected from time to time to varying degrees by
economic, political, social, and regulatory developments,
forced
such as nationalization, expropriation or
divestiture of assets; restrictions on production, domestic
sales,
imports and exports; travel or trade bans;
interruptions in the supply of essential energy inputs;
restrictions on the exchange or transfer of currency;
inability or increasing difficulties to repatriate income or
capital or
inflation;
to make contract payments;
devaluation; or other events, including wars and other
international conflicts, natural disasters, chronic climate
changes and public health epidemics; civil unrest and
local security concerns that threaten the safe operation of
its facilities and operations; direct and indirect price
controls; tax increases and changes (including retroactive)
in the interpretation, application or enforcement of tax
laws and other claims or challenges; cancellation of
contract rights; and delays or denial of governmental
approvals. Both the likelihood of such occurrences and
their overall effect upon Ternium vary greatly from
country to country and are not predictable. Realization of
these risks could have an adverse impact on the results of
financial condition of Ternium’s
operations and
subsidiaries
the affected country and,
depending on their materiality, on the results of
operations and financial condition of Ternium as a
whole.
located
in
Mexico
Ternium has significant manufacturing operations and
assets located in Mexico and a majority of its sales are
made to customers in this country. Ternium’s business
could be materially and adversely affected by economic,
political, social and regulatory developments in Mexico.
Political, economic and social conditions and government
policies in Mexico could negatively impact Ternium’s
business and results of operations.
In the past, Mexico has experienced several periods of
slow or negative economic growth, high inflation, high
interest rates, currency devaluation and other economic
problems. Furthermore, the Mexican national economy
tends to reflect changes in the economic environment in
the United States and could be affected by changes in the
terms of trade. In addition, actions and policies that could
federal government
be adopted by
concerning the economy could have a significant impact
on market conditions affecting Ternium’s operations in
Mexico. If problems such as deterioration in Mexico’s
economic conditions re-emerge (for example, as a result
of lower revenues due to a decline in the price of oil) or
the Mexican
there is a future re-emergence of social instability,
political unrest, reduction
in government spending,
increased government intervention or other adverse social
or political developments, foreign exchange and financial
markets may exhibit continued volatility, which,
depending on its severity and duration, could adversely
affect the business, results of operations, financial
condition or liquidity of Ternium. Moreover, adverse
economic conditions in Mexico could result in, among
other things, higher inflation and interest rates coupled
with reduced opportunities for refunding or refinancing,
reduced domestic consumption of Ternium’s products,
decreased operating results and delays in the completion
of ongoing and future capital expenditures.
A Mexican energy reform could adversely
Ternium’s results of operations and net results.
impact
In the last few years, the Mexican government made
various attempts
to modify rules and regulations
governing the energy market in Mexico with potential
impact on the energy supply and its costs. The main
initiatives are described below:
Energy Industry Law. In March 2021, the Mexican
Congress approved a significant reform to the energy
market in Mexico. Among other changes, the new Energy
Industry Law (“LIE”) grants priority to Mexico’s state-
owned electric power generation and distribution
company (“CFE”) over private generators in the supply of
electric power to the Mexican market and mandates a
revision of power generation and transaction agreements
between CFE and independent electric power suppliers.
In addition, the LIE eliminates mandatory power supply
auctions for energy supplies requiring the use of CFE’s
distribution network, relaxes the requirements for the
granting of clean energy certificates in favor of CFE, and
imposes serious restrictions on the self-supply renewable
energy generation system, widely used by private
companies.
four
only
The constitutionality of the new LIE was challenged in
court but, on April 7, 2022, the Mexican Supreme Court
of Justice rejected the request in a very tight decision,
the
judges
where
seven
unconstitutionality
request and
the
voted
magistrates
unconstitutionality of the LIE (but eight affirmative votes
were required to invalidate the new law). After the
Supreme Court's decision, several participants continued
seeking injunction reliefs against the LIE on a case-by-
case basis.
the other
declaring
against
voted
favor
of
in
Constitutional reform proposal of the electricity sector.
In September 2021, President Andrés Manuel López
Obrador submitted to Congress a constitutional reform
28
TERNIUM S.A.
Consolidated Management Report
proposal of the electricity sector, which sought to reverse
the legal framework derived from the 2013 constitutional
energy reform that opened the sector to private
investment. On April 18, 2022, The Mexican Congress
rejected the constitutional reform proposal of the
electricity sector, as the ruling party failed to obtain the
required two-third affirmative vote.
Instruction to CENAGAS and CRE. On June 14, 2022,
the Mexican Secretary of Energy (SENER) instructed two
decentralized bodies, the CENAGAS, which regulates the
natural gas storage and transportation system, and the
Energy Regulation Commission (CRE), to adopt certain
measures that would have put pressure on CENAGAS’
customers to buy imported natural gas from CFE, Pemex
or other state-controlled providers, in detriment of
private suppliers. If adopted, those measures would have
affected the purchase of energy for certain natural gas
injection points in the U.S.-Mexican border, including
Ternium’s natural gas supply contracts for its Monclova
unit and a small share of its natural gas supply contracts
for its Puebla unit. Ternium’s Mexican subsidiaries
challenged this initiative in court and obtained an
injunction relief against
those
measures. In January 2023, the Mexican Supreme Court
of Justice confirmed the general suspension of SENER’s
resolution until a final decision is made on the legality of
the government’s measures.
the application of
to whether
Uncertainty remains as
the Mexican
government or any of its decentralized bodies will seek
any new reform of the energy market rules and
regulations or adopt any measure that may negatively
affect the energy supply or increase its cost. Any such new
amendment or measures could negatively affect the
operations of Ternium and/or Techgen, where Ternium
holds a 48% equity interest and which supplies electricity
for most of our Mexican operations. At this stage, we
the potential effects of any new
cannot assess
governmental initiative on Ternium’s operations and the
Mexican economy in general and, consequently, on the
results of operations and
financial conditions of
Ternium’s businesses in Mexico.
Violence and crime in Mexico could negatively impact
Ternium’s business and operations.
Mexico is subject to significant levels of violent crimes
and, notably, the regions where Ternium’s mining
operations are located are subject to a high level of
criminality. For example, in San Miguel de Aquila,
Michoacán, where Ternium has mining operations, in
January 2023 two
local
community went missing. For more information on this
event, see “Risks Relating to Ternium’s Mining Activities
- Difficulties in relationships with local communities may
leaders of the
important
adversely affect Ternium’s mining activities and results of
operation.” Security issues could affect Ternium’s day-to-
day operations and could also result in an economic
slowdown, reducing domestic demand for its products
and thereby having an adverse effect on Ternium’s
business. A deterioration of the security situation could
result in significant obstacles or additional costs to the
implementation of growth plans in Mexico, including
delays in the completion of capital expenditures.
Unexpected changes in the USMCA, and controversies
and disputes between member countries could adversely
impact Ternium’s results of operations and net results.
the
United
in July 2027),
States-Mexico-Canada
The
Agreement
(“USMCA”) became effective in July 2020 replacing the
North American Free Trade Agreement (NAFTA). In
addition, during 2019, Mexico and the United States
agreed to waive a 25% tariff on steel products exported
to the United States (which had been imposed during
2018) subject to an agreed premise of continuous
monitoring for surges in steel imports and transshipment
into the United States of material that was not imported
from Mexico or Canada. Furthermore, in 2019 the United
States, Mexico and Canada agreed to amend the
(with such
definition of “North American steel”
amendment becoming effective
for
purposes of vehicles being awarded preferential treatment
under USMCA, restricting the defined term to steel
melted and poured within
three countries.
Uncertainties about potential new trade conflicts could
adversely affect the investment climate and economic
activity in Mexico. For example, in July 2022, the United
States and Canada triggered the consultation mechanism
with Mexico under the Dispute Settlement chapter of the
USMCA, arguing that a wide range of Mexican energy
policies on energy resources and technologies, including
those relating to natural gas, electricity, renewable
sources and diesel fuel, were inconsistent with the
USMCA. The United States claims that such measures
favor Mexican
state-owned companies over U.S.
companies or U.S.-produced energy, breaching USMCA
regulation on market access, investment, and state-owned
enterprises. The United States also claims that the
questioned measures undermine climate change goals.
Canada has supported the U.S. position and filed a
similar request for consultations with Mexico. As the
parties failed to resolve the dispute through the USMCA
consultation procedure, the United States and Canada
may now request for the formation of a dispute
those measures and,
review
settlement panel
eventually, take retaliatory action. Amendments to, or
the termination of, current terms of trade could adversely
and materially affect Ternium’s shipments, results of
operations and net worth.
to
29
TERNIUM S.A.
Consolidated Management Report
Argentina
A significant portion of Ternium’s sales are made in
Argentina through its subsidiary, Ternium Argentina.
Ternium Argentina’s business could be materially and
adversely affected by economic, political, social, fiscal
and regulatory developments in Argentina.
Economic and political instability in Argentina, which on
several occasions resulted in economic uncertainties and
recession, may adversely affect Ternium’s business,
financial condition and results.
Ternium’s business and results of operations in Argentina
depend on local macroeconomic conditions, among other
factors. Steel shipments to the Argentine domestic market
were severely affected in different opportunities over the
the 2008-2009
last decades. This happened with
downturn in the global economy; in 2016, when the
country faced a significant rebalancing of the economy’s
relative prices; in 2018-2019 as the economy was affected
by a severe downturn resulting from financial market
volatility, high interest rates and heightened political
uncertainty during the presidential election process; and,
more recently, in 2020 as the economy was affected by the
COVID-19 outbreak.
Over the past years, the Argentine economy and capital
investment have been affected by, among other factors,
political, economic and financial uncertainties as well as
government intervention in, or limitations to, the conduct
of business in the private sector and other government
measures affecting investors’ confidence. The Argentine
economy
facing significant challenges,
including high and unpredictable inflation rates and a
high fiscal deficit in a highly indebted economy, which
could affect macroeconomic conditions and economic
growth, and cause a drop in demand for Ternium
Argentina’s products in the domestic market.
is currently
in place an agreement with
Argentina has
the
International Monetary Fund (“IMF”) on a sovereign
debt restructuring process. In January 2022, the IMF and
the Argentine authorities reached an understanding on
key policies as part of their discussions of an IMF-
supported program, and in March 2022 the Argentine
Congress and the IMF's Executive Board approved the
program. Failure to implement any approved program
with the IMF could further adversely affect the country’s
economy and lessened financial sources could impair
Argentina’s ability to foster economic growth.
Ternium’s business and results of operations in Argentina
could be adversely affected by rapidly changing economic
conditions in Argentina or by the Argentine government’s
policy response to such conditions.
Inflation may undermine economic growth in Argentina
and impact Ternium’s costs, thereby adversely affecting
its results of operations and financial position.
In the past, inflation has undermined the Argentine
economy and the government’s ability to stimulate
economic growth. Consumer price inflation in Argentina,
as reported by INDEC, the Argentine statistics and census
bureau, was 94.8% in 2022, 50.9% in 2021 and 36.1% in
in Argentina could
inflation
2020. Sustained high
negatively impact Ternium’s results of operations and
financial position, as ARS-denominated costs (mainly
labor-related costs) at Ternium Argentina
increase,
thereby affecting cost-competitiveness and margins. A
high inflation economy could undermine Argentina’s
foreign competitiveness in international markets and
negatively affect economic activity and employment
it
levels. Argentine
impossible to estimate with reasonable certainty the
extent to which activity levels and results of operations of
Ternium Argentina could be affected in the future.
inflation rate volatility makes
The Argentine government has
increased taxes on
Argentine companies and could further increase the tax
burden in the future, which could adversely affect
Ternium's results of operations, net results and financial
condition.
is
The sustained and significant devaluation of
the
Argentine peso against the U.S. dollar coupled with high
inflation rates over the last decade have resulted in a
material reduction of the real value that Ternium
Argentina can deduct as cost of sales or cost of financial
investments for tax purposes, thus creating artificial gains
that are subject to income tax. Inflation adjustment for
limited and subject to significant
tax purposes
restrictions. For example,
inflation adjustment of
inventories and other current assets is permitted only if
the consumer price inflation rate surpasses 100% in a 36-
month period up to the close of the relevant fiscal year.
Until 2020, even if this threshold were to be achieved,
only one-sixth (or 16.67%) of the effect of the inflation
adjustment could be recorded in the relevant fiscal year,
and the balance had to be recorded, in equal installments,
over the next five fiscal years. Although such limitation is
not currently applicable, it could be reinstated by a new
tax law. Furthermore, because inflation adjustment of
cash positions generated during the current fiscal year is
not permitted, high nominal interest rates, which are
normally expected in high inflation scenarios, materially
overstate the financial income of such cash positions for
tax purposes.
In September 2018, the Argentine government suspended
certain tax refunds and imposed a new tax that currently
levies a 3% rate on exports of goods. Provincial and
30
TERNIUM S.A.
Consolidated Management Report
municipal taxes on Ternium Argentina’s operations have
also increased over the last years. In 2021, the federal
government and various local governments agreed on a
new tax reform, which replaced the 2017 tax reform that
provided for a gradual decrease of tax burden on
Argentine corporations. In addition, the Argentine
Congress passed a new law reinstating a 35% income tax
for corporations and keeping a 7% tax on dividend
distributions applicable to results originated from fiscal
year 2021. Ternium cannot predict whether future
legislation, or any new tax regimes or tax reforms could
result in a further increase of the tax burden on its
operations in Argentina, which would adversely affect
Ternium’s results of operations, net results and financial
condition.
Argentine exchange controls could negatively impact
Ternium Argentina’s operations or prevent it from paying
dividends or transferring cash surpluses abroad, as a
result of its inability to access the foreign exchange
market.
formal and
implemented
From time to time, the Argentine authorities have taken
measures to reduce the volatility of the ARS/$ exchange
rate and have
informal
restrictions on capital inflows and outflows. Beginning in
September 2019, the Argentine government has imposed
and continues to impose significant restrictions on foreign
transactions. Restrictions have
exchange
tightened
significantly over
example, Argentine
time. For
companies are currently required to repatriate all export
proceeds from sales of goods and services (including U.S.
dollars received through advance payment and pre-
financing facilities) and convert such proceeds into
Argentine pesos; the purchase of foreign currency for
saving purposes is restricted, and access to the foreign
exchange market is currently prohibited or limited to
companies and individuals. For more information on our
foreign exchange restrictions in Argentina, see note 29
“Foreign exchange restrictions in Argentina” to our
consolidated financial statements included in this annual
report.
Particularly with respect to dividends, prior approval
from the Argentine Central Bank is required to purchase
foreign currency for payment of cash dividends to foreign
shareholders and for other cash payments to affiliates
abroad. Such approval is rarely (if ever) granted. Because
payment of dividends in kind to local and foreign
shareholders are permitted by law, several Argentine
companies have made in-kind dividend payments in the
past few years. For example, on August 9, 2022, Ternium
Argentina paid a $300 million dividend in kind consisting
of Argentine depositary receipts (CEDEARs) representing
certain U.S. listed ETFs. On the basis of Ternium’s equity
participation in Ternium Argentina, Ternium collected
imposed
significantly
in Argentina, the
$188 million from such in-kind dividend payment.
Considering that, as a result of the foreign exchange
restrictions
international
market value of the U.S. listed securities represented by
the CEDEARs was
lower, Ternium
subsequently adjusted the fair value of the CEDEARs
accordingly, and recorded a loss of $95 million in the
“Change
its
consolidated
the
financial conditions and foreign exchange restrictions
existing in the Argentine market as of the date of this
annual report, any future dividend payment in kind by
Ternium Argentina consisting of securities listed in
foreign securities exchanges would result in the recording
of a financial expense in Ternium’s consolidated financial
statements.
in
statements. Considering
in fair value of financial assets”
financial
Existing foreign exchange controls in Argentina currently
limit the purchase and transfer abroad of foreign
currency
for saving purposes, restricting Ternium
Argentina's ability to hold excess cash reserves in foreign
bank accounts. Accordingly, Ternium Argentina holds its
cash and financial investments in the Argentine financial
system. As of December 31, 2022, Ternium Argentina’s
cash and cash equivalents and other
investments
amounted to $1.4 billion, a large portion of which
consisted of U.S. dollar-payable instruments. The U.S.
dollar value of these instruments recorded in Ternium’s
consolidated financial statements is based on their
Argentine peso local market price, converted to the U.S.
dollar at the ARS/$ official exchange rate. Therefore, the
valuation of such investments is subject to the volatility
of the Argentine financial market and to the effects of
applicable foreign exchange restrictions. If the U.S. dollar
valuation of Ternium Argentina’s financial investments
were to decrease, the Company may be required to record
a significant loss in its consolidated income statements.
In addition, Ternium Argentina has requested the
approval of the Argentine Central Bank to make certain
payments of services to affiliates abroad and, as of the
date of this annual report, no such approval has been
granted. Furthermore, in 2022 the Argentine authorities
started to limit the import of goods and services of
Argentine corporations, including Ternium Argentina
and other companies in the steel value chain, by
controlling access to the Argentine foreign exchange
market. In accordance with the current goods and
services import control system, in place since November
1, 2022, the Argentine authorities may, or may not, clear
certain import payments and, if cleared, may determine a
payment term equal or different to that being requested.
There are no objective conditions upon which Argentine
authorities may clear the payment of
imports or
determine alternative payment terms. If control systems
are maintained or are further tightened, local demand for
31
TERNIUM S.A.
Consolidated Management Report
steel products and/or Ternium Argentina’s operations or
sales could be adversely affected.
slabs, energy and other inputs could adversely affect
Ternium’s profitability” above.
As the context of volatility and uncertainty remains in
place as of the date of this annual report, additional
regulations or restrictions that could be imposed by the
Argentine government could further restrict Ternium
Argentina’s ability to access the official foreign exchange
market, expose Ternium to the risk of losses arising from
fluctuations in the ARS/$ exchange rate, or impair
Ternium Argentina’s ability to make payments to foreign
suppliers or creditors (which could disrupt Ternium
Argentina’s operations), pay dividends or royalties
abroad, or fund investments or other activities offshore.
Restrictions on supply of energy to Ternium Argentina’s
operations could curtail its production and negatively
impact its sales and revenue, and Ternium’s results of
operations.
A significant share of Argentina’s total electricity
resources is based on natural gas-fired power generation.
In the past, Argentina has suffered from an insufficient
level of investment in natural gas and electricity supply
and transport capacity, coupled with a substantial
increase in demand for natural gas and electricity. This,
in turn, resulted in shortages of natural gas and electricity
to residential users and, in particular, to industrial users,
including Ternium Argentina, during seasons of high
demand. Ternium Argentina’s operations experienced
constraints in their natural gas supply requirements and
interruptions in their electricity supply at peak hours on
many occasions.
completes
its natural
gas
Currently, Argentina
requirements through imports from Bolivia and the
seaborn market. Natural gas imports from Bolivia are
expected to decrease significantly in the coming years due
to declining production. The construction of a new
natural gas pipeline in Argentina (the GPNK pipeline),
expected to start-up in 2023, would increase the supply of
natural gas from the country's Vaca Muerta oil and gas
shale formation, offsetting decreasing natural gas imports
from Bolivia and replacing imports of liquefied natural
gas. If natural gas and electricity supply and transport
capacity fail to cover the demand for natural gas and
electricity on a timely basis, including due to failure to
complete the GPNK pipeline or shortages
in the
availability of liquefied natural gas in the seaborne
market, Ternium Argentina’s local production (or that of
its main customers and suppliers) could be curtailed, and
Ternium Argentina’s sales and revenues could decline,
which may adversely affect Ternium Argentina’s results
of operations. For further information, see “—Risks
Relating
fluctuations,
shortages or disruptions in the supply of raw materials,
Industry—Price
the Steel
to
Brazil
Ternium has significant manufacturing operations and
assets located in Rio de Janeiro, Brazil. In addition,
Ternium has a participation in the control group of
Usiminas. Profitability of Ternium’s operations in Brazil
and of Usiminas could be materially and adversely
affected by economic, political, social,
fiscal and
regulatory developments in Brazil.
Changing economic policies and political conditions in
Brazil, which on several occasions in the past resulted in
economic uncertainties and recession, may occur in the
future, thereby adversely affecting Ternium's business,
financial condition and results.
The Brazilian economy has been characterized by
frequent and occasionally extensive intervention by the
Brazilian government. The Brazilian government has
often changed monetary, taxation, credit, tariff and other
policies to influence the course of the country’s economy.
The Brazilian government’s actions to control inflation
and implement other policies have involved hikes in
interest rates, wage and price controls, foreign exchange
controls and devaluation, freezing of bank accounts,
capital controls and restrictions on
imports. Such
governmental policies may adversely affect Ternium’s
results of operations. For example, in 2021 and 2022, the
Brazilian Central Bank repeatedly increased its reference
interest rate to counter inflationary pressures, reaching
13.75% in August 2022 from a low of 2% in August 2020.
The Brazilian government’s policies may also result in
increases
in tax payments or tariffs, which could
adversely affect industry profitability. For example, the
Brazilian congress is discussing major changes to the
Brazilian tax regime, which, among other things, would
replace current federal, state and municipal taxes levied
on the trade of good and services with a single national
value added tax. In addition, the Brazilian congress is
discussing a tax reform proposal focused on income tax.
Ternium cannot predict whether, if approved, the new
tax regime would result in a net tax burden increase for
its operations. Any increase in the applicable tax burden
or tariffs could affect Ternium’s projected cash flow and
profitability. The Brazilian economy has been affected by
inflation, energy shortages, illiquid lending markets and
other political, diplomatic,
social and economic
developments. Uncertainty over whether the Brazilian
government will change policies or regulations affecting
these or other factors may contribute to economic
instability in Brazil. Ternium’s business and results of
operations in Brazil could be adversely affected by rapidly
changing economic conditions in Brazil or by the
32
TERNIUM S.A.
Consolidated Management Report
Brazilian government’s policy
conditions.
response
to
such
sales, revenues and overall business.
Political instability could adversely affect Ternium’s
business, financial condition and results.
from
derived
political
instability
Brazil’s political environment has historically influenced,
and continues to influence, the performance of the
country’s economy. Political crises have affected public
and investor confidence, which resulted in economic
deceleration. Brazil has experienced heightened economic
and
various
investigations into allegations of money laundering and
corruption being conducted by the Office of the Brazilian
Federal Prosecutor, including the Lava Jato investigation,
which negatively impacted the Brazilian economy and
political environment and contributed to a decline in
market confidence in Brazil. In October 2022, former left-
wing president, Luiz Inácio Lula da Silva, was elected
president of Brazil, beating Jair Bolsonaro, in a tight
election, with 50.9% of the votes. In January 2023,
antidemocratic protests by supporters of Bolsonaro ended
in the storming of the Supreme Court, the National
Congress and the presidential palace. Lula decreed federal
intervention of public security in the capital, security
forces soon regained control, and several rioters were
arrested. The Brazilian authorities have
initiated
investigations against Bolsonaro and some of his allies.
Ternium cannot predict whether a new political crisis will
arise in the future nor its effect on the Brazilian economy
and, consequently, on the results of operations and
financial conditions of Ternium’s businesses in Brazil.
Inflation may undermine economic growth in Brazil and
impact Ternium’s costs, thereby adversely affecting its
results of operations and financial position.
labor-related costs) may
High levels of inflation have in the past undermined the
Brazilian economy and the government’s ability to
stimulate economic growth. Ternium’s
results of
operations and financial position could be negatively
impacted, as Ternium Brasil’s BRL-denominated costs
thereby
(mainly
affecting Ternium’s cost-competitiveness. Inflationary
pressures may also lead to the imposition of additional
government policies to combat inflation and hinder
access to Brazilian capital markets, which could adversely
affect Ternium’s business and ability
finance
operations and capital expenditures, making it impossible
to estimate with reasonable certainty Ternium Brasil’s
future results of operations.
increase,
to
Certain Regulatory Risks And Litigation Risks
International trade actions or regulations and trade-
related legal proceedings could adversely affect Ternium’s
International trade-related administrative proceedings,
legal actions and restrictions pose a constant risk for
Ternium’s international operations and sales throughout
the world. Ternium purchases steel products, including
significant quantities of steel slabs, from different foreign
steel suppliers for its operations in Mexico, Colombia
and Argentina. The Mexican, Argentine or Colombian
governments may impose or increase duties on steel
products imports. Trade liberalization, mainly through
free trade agreements, can reduce certain input costs and
increase access to foreign markets. On the other hand,
in Ternium’s domestic
greater
markets increases competition. During the last decade,
steel exports surged as a consequence of a global
downturn and the economic slowdown in China, and the
safeguard
number of antidumping, countervailing,
measures and other trade restrictive actions increased
substantially. Accordingly, producers that were restricted
from certain markets sought alternative markets for their
products. If steel exports were to surge again in the
future, Ternium’s share in domestic markets could be
eroded by imports, and such market share losses may not
be completely offset by increased exports to foreign
markets.
liberalization
trade
trade-related
Countries may impose restrictive import duties and other
restrictions on imports under various trade related laws,
such as national security, environmental and intellectual
property regulations. The timing and nature of the
imposition of
restrictions potentially
affecting Ternium’s exports are unpredictable. Trade
restrictions on Ternium’s exports could adversely impact
Ternium’s ability to sell products abroad and, as a result,
Ternium’s profit margins, financial condition and overall
business could suffer. One significant source of trade
restrictions is unfair competition that could result in the
imposition of “antidumping” and “countervailing”
duties, as well as “safeguard measures”. These duties can
severely limit or altogether prevent exports to relevant
markets. In several of Ternium’s export destinations,
such as the United States, safeguard duties and other
protective measures have been imposed against a large
number of steel imports, such as a 25% tariff on certain
steel imports imposed by the United States in 2018.
In addition, certain domestic producers have filed
antidumping and/or countervailing duty actions against
certain steel imports. Some of these actions have led, or
may lead, to restrictions on Ternium’s sales of steel
products to certain steel markets and result in lower
profit margins. Antidumping and/or countervailing duty
actions and other government actions are
largely
unpredictable and additional duties or restrictions could
be imposed in the future, limiting Ternium’s sales to and
33
TERNIUM S.A.
Consolidated Management Report
potential growth in those markets, and increasing costs.
The cost of complying with environmental regulations
and potential environmental and product liabilities may
increase Ternium’s operating costs and negatively impact
financial condition, results of
Ternium’s business,
operations and prospects.
Ternium’s steelmaking and mining activities are subject
to a wide range of local, provincial and national laws,
regulations, permit requirements and decrees relating to
the protection of human health and the environment,
including laws and regulations relating to hazardous
materials and radioactive materials and environmental
protection governing air emissions, water discharges and
waste management due to the risks inherent in the
industries
in which Ternium operates. Laws and
regulations protecting the environment have become
increasingly complex and more stringent in recent years,
leading to higher compliance costs.
Furthermore, environmental laws and regulations may, in
some cases, impose strict liability for damages to natural
resources or threats to public health and safety without
regard to negligence or fault. Some environmental laws
for
joint and several strict
provide
remediation of
releases of hazardous
substances. Such laws and regulations may expose
Ternium to liability for the conduct of, or conditions
caused by, third parties or for actions that complied with
applicable laws at the time they were performed.
spills and
liability
for
incurs and will continue to
While Ternium
incur
expenditures to comply with applicable
laws and
that
remains a
there always
regulations,
risk
environmental incidents or accidents may occur that may
negatively affect Ternium's reputation or operations.
Some of the activities for which Ternium supplies
products, such as production of food cans, construction
and the automotive industry, are subject to inherent risks
that could result in death, personal injury, property
damage or environmental pollution, and result in product
liability risks that could extend to liability for damages
caused by such products. Furthermore, Ternium’s
products are also sold to, and used in, certain safety-
critical appliances. Actual or claimed defects
in
Ternium’s products may give rise to claims for losses
suffered by customers and expose Ternium to claims for
damages. The insurance Ternium maintains will not be
available
in cases of gross negligence or willful
misconduct; in other cases, insurance may not be
adequate or available to protect Ternium in the event of a
claim, its coverage may be limited, canceled or otherwise
terminated, or the amount of insurance may be less than
the related impact on enterprise value after a loss.
legislation and
increasing climate
Climate change
regulatory requirements aimed at transitioning to a
lower-carbon economy could result in unexpected capital
expenditures and costs, negatively affect the Company's
competitiveness, reducing its market share and results of
operations, and hampering its ability to access adequate
financial resources.
There is an increased attention on greenhouse gas (GHG)
emissions and climate change from different sectors of
society. The Paris Agreement, adopted at the 2015 United
Nations Climate Conference, sets out
the global
framework to limit the rising temperature of the planet
and to strengthen the countries’ ability to deal with the
effects of climate change. The European Green Deal,
launched in 2019, focuses on adopting the required
policies and measures aimed at reaching zero GHG
emissions in Europe by 2050. In 2021, the European
Commission made a formal proposal for an EU Carbon
Border Adjustment Mechanism (CBAM), aimed at
avoiding carbon leakage from the European Union and
promoting emissions reductions worldwide. Negotiations
on the terms of the new CBAM are ongoing, and a final
agreement is expected during 2023. In addition, in a joint
statement released on October 31, 2021, the United States
and the European Union announced their commitment to
negotiate “the world’s
first carbon-based sectoral
arrangement on steel and aluminum trade”.
Government initiatives to reduce GHG emissions, such as
the introduction of a carbon tax or carbon-pricing
systems, the adoption of “cap-and-trade” systems or
other measures to promote the use of renewable energy
sources could affect steel production costs. In Argentina,
the 2017 tax reform introduced a tax on certain fossil
fuels, which did not include natural gas. Metallurgical
coal and petrochemical coke were exempted as long as
they are used as part of an industrial process, other than
for energy generation. Effective since March 2018, the tax
on fossil fuels is set to increase 10% every year until 2028,
when it is expected to reach an average $10 per ton of
carbon dioxide equivalent emitted. Similarly, in 2013,
Mexico approved carbon taxing rules applicable to fossil
fuels (setting a zero tax on natural gas) and in 2019 the
government
implemented a pilot program for the
adoption of an Emissions Trading System (ETS) aimed at
reducing GHG emissions, by setting a cap on emissions
and allowing for the trade of emission certificates.
Although the operational phase is expected to commence
during the third quarter of 2023, as of the date of this
annual report the Company cannot predict the impact of
the new pricing mechanism on its operations and results,
as the applicable rules are not yet known. Although
existing carbon pricing mechanisms in Mexico and
Argentina do not materially limit or penalize Ternium’s
GHG emissions, new carbon pricing mechanisms could
34
TERNIUM S.A.
Consolidated Management Report
increase Ternium’s production costs. In addition, the
Brazilian congress has been discussing initiatives to
introduce a carbon emission tax on industry processes
and power generation facilities, which, if applicable to
Ternium’s steel production in Brazil, would result in
incremental costs. Such increases in costs could affect, in
turn, Ternium’s profitability and net results.
If there is no meaningful progress in lowering emissions
in the years ahead, there is an increased likelihood of
abrupt policy interventions as governments attempt to
meet their environmental goals by adopting policy, legal,
technology and market changes in the transition to a low-
carbon global economy. In addition to incremental
production costs, the adoption of new climate change
legislation in the countries in which Ternium operates
could result
incremental compliance costs and
unexpected capital expenditures, affect Ternium’s
competitiveness and reduce its market share and results
of operations. Shifts in customer preferences and failure
to respond to stakeholders’ demands for climate-related
measures and environmental standards could harm
Ternium’s reputation, adversely affect the ability or
willingness of customers or suppliers to do business with
Ternium, erode stakeholder support and restrict or
reduce access to financial resources.
in
Risks Relating To the Company's ADS
The market price for the Company's ADS could be highly
volatile.
results.
In particular,
the commencement or
Volatility in the price of the Company’s ADS may be
caused by factors within or outside of the Company’s
control and may be unrelated or disproportionate to the
Company’s operating
the
announcement of potentially adverse developments, such
as proposed regulatory changes, new government
threat of
investigations or
litigation against Ternium, as well as the announcement
of transactions, investments, or changes in strategies or
business plans of Ternium or its competitors, could
adversely affect the trading price of the Company’s ADS,
regardless of the likely outcome of those developments.
Broad market and industry factors could adversely affect
the market price of the Company’s ADS, regardless of
their actual effect in operating performance. As an
example of this volatility, a high closing price of $42.19
was reached on April 26, 2018, as steel prices in North
America spiked reflecting the United States’ imposition of
a 25% tariff on certain steel imports, but then fell to a
low closing price of $9.84 on March 18, 2020, as the
COVID-19 outbreak sent stock market prices sharply
down, including the Company’s ADS. Since then, the
Company’s ADS recovered and reached a high closing
price of $56.19 on August 11, 2021, as steel prices reached
record levels in the United States and Mexico reflecting a
recovery in steel demand that consistently outpaced steel
production capacity restarts, but then fell to a low closing
price of $26.75 on September 26, 2022, as steel prices
declined steadily, reflecting a gradual normalization of
supply chains after disruptions caused by the Russian
invasion of Ukraine in February 2022. By February 28,
2023, the closing price of Ternium’s ADS increased to
$42.61, reflecting an upward trend in U.S. steel prices
after bottoming during the fourth quarter of 2022. The
trading price of the Company’s ADSs could also suffer as
a result of developments in emerging markets. Although
the Company is organized as a Luxembourg corporation,
it has substantial assets and operations in Mexico,
Argentina, Brazil and Colombia. Financial and securities
markets for companies with a substantial portion of their
assets and operations in Latin America are, to varying
degrees, influenced by political, economic and market
conditions
in emerging market countries. Although
market conditions are different in each country, investor
reaction to developments in one country can have
significant effects on the securities of issuers with assets
or operations in other emerging markets, including
Mexico, Brazil, Argentina and Colombia. See “Risks
Relating to the Countries in Which Ternium Operates.”
Holders of shares or ADSs may not have access to as
much information about the Company as they would in
the case of a U.S. domestic issuer.
issuers. Also,
corporate and
There may be less publicly available information about
the Company than is regularly published by or about U.S.
domestic
securities
regulations governing Luxembourg companies may not
be as extensive as those in effect in other jurisdictions,
and U.S. securities regulations applicable to foreign
private issuers, such as the Company, differ in certain
respects from those applicable to U.S. domestic issuers.
in
standards
Furthermore,
accordance with which the Company prepares
its
consolidated
in certain
material aspects from U.S. GAAP.
financial statements, differ
the accounting
IFRS,
Holders of ADSs may not be able to exercise, or may
encounter difficulties in the exercise of, certain rights
afforded to shareholders.
Certain shareholders’ rights under Luxembourg law,
including the right to participate and vote at general
meetings of shareholders, to include items on the agenda
for the general meetings of shareholders, to receive
dividends and distributions, to bring actions, to examine
books and records and to exercise appraisal rights may
not be available to holders of ADSs, or may be subject to
restrictions and special procedures for their exercise, as
holders of ADSs only have those rights that are expressly
35
TERNIUM S.A.
Consolidated Management Report
granted to them in the deposit agreement. The Bank of
New York Mellon, or BNY Mellon, as depositary under
the ADS deposit agreement, through its custodian agent,
is the registered shareholder of the deposited shares
underlying the ADSs and therefore only the Depositary
can exercise the shareholders’ rights in connection with
the deposited shares. For example, if the Company makes
a distribution in the form of securities, the Depositary is
allowed, at its discretion, to sell the right to acquire those
securities on your behalf and to instead distribute the net
proceeds to you. Also, under certain circumstances, such
as the Company's failure to provide the Depositary with
voting materials on a timely basis, you may not be able to
vote at general meetings of shareholders by giving
instructions to the Depositary. If the Depositary does not
receive voting instructions from the holder of ADSs by
the prescribed deadline, or the instructions are not in
proper form, then the Depositary shall deem such holder
of ADSs to have instructed the Depositary to vote the
underlying shares represented by ADSs in favor of any
proposals or
the Company
recommendations of
(including any recommendation by the Company to vote
such underlying shares on any given issue in accordance
with the majority shareholder vote on that issue) for
which purposes the depositary shall issue a proxy to a
person appointed by the Company to vote such
underlying shares represented by ADSs in favor of any
proposals or recommendations of the Company. Under
the ADS deposit agreement, no instruction shall be
deemed given and no proxy shall be given with respect to
any matter as to which the Company informs the
Depositary that (x) it does not wish such proxy given, (y)
substantial opposition exists, or (z) the matter materially
and adversely affects the rights of the holders of ADSs.
Holders of shares and ADSs in the United States may not
be able to exercise preemptive rights in certain cases.
to Luxembourg corporate
law, existing
Pursuant
shareholders of the Company are generally entitled to
preferential subscription rights (preemptive rights) in the
event of capital increases and issues of shares against cash
the Company’s articles of
contributions. Under
association, the board of directors has been authorized
for a five-year period (ending in June 2025) to waive,
limit or suppress such preemptive subscription rights.
the waiver of any preemptive
Notwithstanding
subscription rights, for as long as the shares of the
Company are listed on a regulated market, any issuance
of shares for cash within the limits of the authorized
the preemptive
share capital shall be subject
subscription rights of existing shareholders, except (i) any
issuance of shares for, within, in conjunction with or
related to, an initial public offering of the shares of the
Company on one or more regulated markets (in one or
more instances); (ii) any issuance of shares against a
to
contribution other than in cash; (iii) any issuance of
shares upon conversion of convertible bonds or other
instruments convertible into shares of the Company;
provided, however, that the preemptive subscription
rights of the then-existing shareholders shall apply in
connection with any issuance of convertible bonds or
other instruments convertible into shares of the Company
for cash; and (iv) any issuance of shares (including by
way of free shares or at discount), up to an amount of
1.5% of the issued share capital of the Company, to
directors, officers, agents, employees of the Company, its
direct or indirect subsidiaries or its affiliates (collectively
the “Beneficiaries”), including without limitation, the
direct issuance of shares or upon the exercise of options,
rights convertible into shares or similar instruments
convertible or exchangeable into shares, issued for the
purpose of compensation or incentive of the Beneficiaries
or in relation thereto (which the board of directors shall
be authorized to issue upon such terms and conditions as
it deems fit).
from
rights or an exemption
Holders of ADSs in the United States may, in any event,
not be able to exercise any preemptive rights, if granted,
for shares underlying their ADSs unless additional shares
and ADSs are registered under the U.S. Securities Act of
1933, as amended, or the Securities Act, with respect to
those
registration
requirements of the Securities Act is available. The
Company intends to evaluate, at the time of any rights
offering, the costs and potential liabilities associated with
the exercise by holders of shares and ADSs of the
preemptive rights for shares, and any other factors it
considers appropriate at the time, and then to make a
decision as to whether to register additional shares. The
Company may decide not to register any additional
shares, requiring a sale by the Depositary of the holders’
rights and a distribution of the proceeds thereof. Should
the Depositary not be permitted or otherwise be unable to
sell preemptive rights, the rights may be allowed to lapse
with no consideration to be received by the holders of the
ADSs.
It may be difficult to obtain or enforce judgments against
the Company outside Luxembourg.
The Company is a société anonyme organized under the
laws of the Grand Duchy of Luxembourg, and most of its
assets are located in other jurisdictions. Furthermore,
most of the Company’s directors and officers reside in
other jurisdictions. As a result, investors may not be able
to effect service of process upon the Company or its
directors or officers. Investors may also not be able to
enforce against the Company or its directors or officers in
the investors’ domestic courts, judgments predicated
upon the civil liability provisions of the domestic laws of
the investors’ home countries. Likewise, it may be
36
TERNIUM S.A.
Consolidated Management Report
difficult for investors not domiciled in Luxembourg to
bring an original action
in a Luxembourg court
predicated upon the civil liability provisions of other
securities laws, including U.S. federal securities laws,
against the Company, its directors or its officers. There is
also uncertainty with regard to the enforceability of
original actions of civil liabilities predicated upon the civil
liability provisions of securities laws, including U.S.
federal securities laws, outside the jurisdiction where such
judgments have been rendered; and enforceability will be
subject to compliance with procedural requirements
under applicable local law, including the condition that
the judgment does not violate the public policy of the
applicable jurisdiction.
37
TERNIUM S.A.
Consolidated Management Report
Alternative performance measures
These non-IFRS measures should not be considered in isolation of, or as a substitute for, measures of performance prepared
in accordance with IFRS. These non-IFRS measures do not have a standardized meaning under IFRS and, therefore, may not
correspond to similar non-IFRS financial measures reported by other companies.
EBITDA, Adjusted EBITDA, Adjusted EBITDA per ton and Adjusted EBITDA margin
EBITDA equals net income adjusted to exclude net financial results, income tax expense, depreciation and amortization.
Adjusted EBITDA equals EBITDA adjusted to exclude the equity in earnings of non-consolidated companies and, in the
fourth quarter of 2022, the impairment of Ternium’s investment in Ternium Brasil. Adjusted EBITDA per ton equals
adjusted EBITDA divided by steel shipments and Adjusted EBITDA Margin equals adjusted EBITDA divided by net sales:
$ million
Net income
Adjusted to exclude:
Net financial results
Income tax expense
Depreciation and amortization
EBITDA
Adjusted to exclude:
Equity in earnings of non-consolidated companies
Impairment of Ternium’s investment in Ternium Brasil
Adjusted EBITDA
Divided by: steel shipments (000 tons)
Adjusted EBITDA per ton ($)
Divided by: net sales ($ million)
Adjusted EBITDA margin (%)
Free cash flow
Free cash flow equals net cash provided by operating activities less capital expenditures:
$ million
Net cash provided by operating activities
Less: capital expenditures
Free cash flow
2022
2,093
70
574
617
3,354
(37)
99
3,415
11,896
287
16,414
2021
4,367
(92)
1,397
592
6,264
(401)
5,863
12,065
486
16,091
21 %
36 %
2022
2,753
(581)
2,172
2021
2,677
(524)
2,153
Net cash
Net cash equals the consolidated position of cash and cash equivalents and other investments less borrowings:
$ billion
Cash and cash equivalents (8)
Plus: other investments (current and non-current) (8)
Less: borrowings (current and non-current)
Net cash
For the year ended December 31,
2022
1.7
2.0
(1.0)
2.6
2021
1.3
1.4
(1.5)
1.2
(8) Ternium Argentina’s consolidated position of cash and cash equivalents and other investments amounted to $1.4 and $0.9 billion as of December 31, 2022 and 2021, respectively.
38
Intentionally left blank.
39
TERNIUM S.A.
Consolidated Financial Statements
as of December 31, 2022 and 2021 and
for the years ended on December 31, 2022, 2021 and 2020
26 Boulevard Royal, 4th floor
L – 2449 Luxembourg
R.C.S. Luxembourg: B 98 668
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Income Statements for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Financial Position as of December 31, 2022 and 2021
Consolidated Statements of Changes in Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Index to the Notes to the Consolidated Financial Statements
Page
42
46
47
48
49
52
53
41
Audit Report
To the Shareholders of
Ternium S.A.
______________________________________________________________________________________
Report on the audit of the consolidated financial statements
______________________________________________________________________________________
Our opinion
In our opinion, the accompanying consolidated financial statements give a true and fair view of the
consolidated financial position of Ternium S.A. (the "Company") and its subsidiaries (the "Group") as at
31 December 2022, and of its consolidated financial performance and its consolidated cash flows for
the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
What we have audited
The Group’s consolidated financial statements comprise:
•
•
•
•
•
•
the consolidated income statement for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of financial position as at 31 December 2022;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include a summary of significant accounting
policies.
______________________________________________________________________________________
Basis for opinion
We conducted our audit in accordance with the Law of 23 July 2016 on the audit profession (Law of
23 July 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the
“Commission de Surveillance du Secteur Financier” (CSSF). Our responsibilities under the Law of
23 July 2016 and ISAs as adopted for Luxembourg by the CSSF are further described in the
“Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the consolidated financial
statements” section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
including
We are independent of the Group in accordance with the International Code of Ethics for Professional
Accountants,
Independence Standards,
Standards Board for Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with
the ethical requirements that are relevant to our audit of the consolidated financial statements. We have
fulfilled our other ethical responsibilities under those ethical requirements.
International Ethics
International
issued by
the
______________________________________________________________________________________
PricewaterhouseCoopers, Société coopérative, 2 rue Gerhard Mercator, B.P. 1443, L-1014 Luxembourg
T: +352 494848 1, F: +352 494848 2900, www.pwc.lu
Cabinet de révision agréé. Expert-comptable (autorisation gouvernementale n°10028256)
R.C.S. Luxembourg B 65 477 - TVA LU25482518
______________________________________________________________________________________
Other information
The Board of Directors is responsible for the other information. The other information comprises the
information stated in the consolidated management report but does not include the consolidated financial
statements and our audit report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We
have nothing to report in this regard.
______________________________________________________________________________________
Responsibilities of the Board of Directors and those charged with governance for the
consolidated financial statements
The Board of Directors is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with IFRSs as adopted by the European Union, and for such internal
control as the Board of Directors determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing
the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Board of Directors either intends
to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
______________________________________________________________________________________
Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the consolidated financial
statements
The objectives of our audit are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to issue
an audit report that includes our opinion. Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with the Law of 23 July 2016 and with ISAs as
adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.
As part of an audit in accordance with the Law of 23 July 2016 and with ISAs as adopted for Luxembourg
by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the
audit. We also:
•
identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Board of Directors;
• conclude on the appropriateness of the Board of Directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
audit report to the related disclosures in the consolidated financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our audit report. However, future events or conditions may cause the Group to cease
to continue as a going concern;
• evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation;
• obtain sufficient appropriate audit evidence regarding the financial information of the entities and
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the Group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate to them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
Report on other legal and regulatory requirements
The consolidated management report is consistent with the consolidated financial statements and has
been prepared in accordance with applicable legal requirements.
PricewaterhouseCoopers, Société coopérative Luxembourg, 17 March 2023
Represented by
/s/ Magalie Cormier
Magalie Cormier
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
(All amounts in $ thousands)
Consolidated Income Statements
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Other operating (expense) income, net
Operating income
Finance expense
Finance income
Other financial (expenses) income, net
Equity in earnings of non-consolidated companies
Profit before income tax expense
Income tax expense
Profit for the year
Attributable to:
Owners of the parent
Non-controlling interest
Profit for the year
Notes
2022
Year ended December 31,
2021
2020
4
5
6
8
9
9
9
13
10
16,414,466
(12,487,282)
16,090,744
(9,895,070)
8,735,435
(7,099,923)
3,927,184
6,195,674
1,635,512
(1,143,646)
(84,019)
(950,124)
25,586
(762,882)
206,843
2,699,519
5,271,136
1,079,473
(46,737)
75,145
(98,541)
37,114
(26,997)
62,912
56,547
400,732
(46,644)
49,421
19,554
57,555
2,666,500
5,764,330
1,159,359
(573,728)
(1,397,139)
(291,488)
2,092,772
4,367,191
867,871
1,767,516
325,256
3,825,068
542,123
2,092,772
4,367,191
778,468
89,403
867,871
Weighted average number of shares outstanding
1,963,076,776
1,963,076,776
1,963,076,776
Basic and diluted earnings per share for profit
attributable to the owners of the parent (expressed in $
per share)
0.90
1.95
0.40
The accompanying notes are an integral part of these consolidated financial statements.
46
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
(All amounts in $ thousands)
Consolidated Statements of Comprehensive Income
Year ended December 31,
2021
2020
2022
Profit for the year
2,092,772
4,367,191
867,871
Items that may be reclassified subsequently to profit or loss:
Currency translation adjustment
Currency translation adjustment from participation in non-consolidated
companies
Changes in the fair value of financial instruments at fair value through
other comprehensive income
Income tax related to financial instruments at fair value
Changes in the fair value of derivatives classified as cash flow hedges
Income tax relating to cash flow hedges
Other comprehensive income items
Other comprehensive income items from participation in non-
consolidated companies
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of post employment benefit obligations
Income tax relating to remeasurement of post employment benefit
obligations
Remeasurement of post employment benefit obligations from
participation in non-consolidated companies
1,253
(484)
160
41,455
(39,997)
(109,079)
29,121
960
(3,100)
(11,045)
60
(20)
1,705
159
(299)
278
(83)
—
(106)
1,230
(266)
80
(966)
400
24,567
46,777
(36,907)
(6,994)
(13,965)
10,790
6,862
1,662
15,081
Other comprehensive income (loss) for the year, net of tax
87,123
(5,257)
(122,577)
Total comprehensive income for the year
2,179,895
4,361,934
745,294
Attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income for the year
1,841,194
338,701
3,818,185
543,749
666,667
78,627
2,179,895
4,361,934
745,294
The accompanying notes are an integral part of these consolidated financial statements.
47
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
(All amounts in $ thousands)
Consolidated Statements of Financial Position
Notes
December 31, 2022
December 31, 2021
Balances as of
ASSETS
Non-current assets
Property, plant and equipment, net
Intangible assets, net
Investments in non-consolidated companies
Other investments
Deferred tax assets
Receivables, net
Trade receivables, net
Current assets
Receivables, net
Derivative financial instruments
Inventories, net
Trade receivables, net
Other investments
Cash and cash equivalents
Assets classified as held for sale
Total Assets
EQUITY
Capital and reserves attributable to the owners
of the parent
Non-controlling interest
Total Equity
LIABILITIES
Non-current liabilities
Provisions
Deferred tax liabilities
Other liabilities
Trade payables
Lease liabilities
Borrowings
Current liabilities
Current income tax liabilities
Other liabilities
Trade payables
Derivative financial instruments
Lease liabilities
Borrowings
Total Liabilities
Total Equity and Liabilities
11
12
13
17
19
14
15
14
21
16
15
17
17
18
19
20
22
23
20
21
22
23
6,261,887
944,409
821,571
100,716
200,237
318,690
—
662,762
227
3,470,215
1,180,689
1,875,026
1,653,355
81,422
162,742
538,214
1,112
190,134
532,701
135,703
344,843
1,187,600
505
49,015
499,164
6,431,578
902,256
751,475
67,277
160,745
177,803
229
357,705
4,353
3,908,305
1,767,196
1,290,459
1,276,605
8,647,510
8,842,274
1,764
8,844,038
8,491,363
8,604,623
1,921
8,606,544
17,491,548
17,097,907
11,845,959
1,922,434
13,768,393
10,535,019
1,700,019
12,235,038
83,299
186,216
506,886
989
215,250
656,465
873,759
345,123
1,126,049
1,889
44,371
822,573
1,506,325
2,216,830
3,723,155
1,649,105
3,213,764
4,862,869
17,491,548
17,097,907
The accompanying notes are an integral part of these consolidated financial statements.
48
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
(All amounts in $ thousands)
Consolidated Statements of Changes in Equity
Treasury
Capital
shares
stock
(2)
(2)
Attributable to the owners of the parent (1)
Initial
public
offering
expenses
Capital
stock issue
discount
Reserves
(3)
Currency
translation
adjustment
(4)
Retained
earnings
Total
Non-
controlling
interest
Total
Equity
Balance as of January 1, 2022
2,004,743 (150,000)
(23,295) 1,360,637 (2,324,866) (2,898,593) 12,566,393 10,535,019
1,700,019
12,235,038
Profit for the year
Other comprehensive income (loss) for the period
Currency translation adjustment
Remeasurement of post employment benefit obligations
Cash flow hedges and others, net of tax
Others (5)
1,767,516 1,767,516
325,256
2,092,772
21,864
20
12,269
39,525
39,525
21,864
20
12,269
3,183
2,571
20
7,671
42,708
24,435
40
19,940
Total comprehensive income (loss) for the year
—
—
—
34,153
—
39,525 1,767,516 1,841,194
338,701
2,179,895
Dividends paid in cash (6)
Dividends paid in kind to non-controlling interest
Acquisition of non-controlling interest (7)
(223)
(530,031)
(530,031)
—
(223)
—
(112,293)
(3,993)
(530,031)
(112,293)
(4,216)
Balance as of December 31, 2022
2,004,743 (150,000)
(23,295) 1,394,567 (2,324,866) (2,859,068) 13,803,878 11,845,959
1,922,434
13,768,393
(1) Shareholders’ equity is determined in accordance with accounting principles generally accepted in Luxembourg.
(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of $ 1.00 per share. As of December 31, 2022, there were 2,004,743,442 shares issued. All issued
shares are fully paid. Also, as of December 31, 2022, the Company held 41,666,666 shares as treasury shares.
(3) Include mainly legal reserve under Luxembourg law for $ 200.5 million, undistributable reserves under Luxembourg law for $ 1.4 billion, and reserves related to the acquisition of non-controlling interest in
subsidiaries for $ (72.2) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(5) Includes mainly the changes of the fair value of financial instruments at fair value through other comprehensive income, net of tax.
(6) Represents $ 0.27 per share ($ 2.70 per ADS). Related to the dividends distributed on May 3 and on November 2, 2022, and as 41,666,666 shares are held as treasury shares by Ternium, the dividends
attributable to these treasury shares amounting to $ 11.2 million were included in equity as deduction of dividend paid.
(7) Corresponds to the acquisition of non-controlling interest participation of Ternium Argentina S.A..
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated
financial statements may not be wholly distributable. See Note 24 (iii). The accompanying notes are an integral part of these consolidated financial statements.
49
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
(All amounts in $ thousands)
Consolidated Statements of Changes in Equity
Attributable to the owners of the parent (1)
Treasur
Capital
y shares
stock
(2)
(2)
Initial
public
offering
expenses
Reserves
(3)
Capital
stock issue
discount
Currency
translation
adjustment
(4)
Retained
earnings
Total
Non-
controlling
interest
Total
Equity
Balance as of January 1, 2021
2,004,743 (150,000)
(23,295) 1,329,945 (2,324,866) (2,861,029) 9,310,617 7,286,115
1,157,038
8,443,153
Profit for the year
Other comprehensive income (loss) for the period
Currency translation adjustment
Remeasurement of post employment benefit obligations
Cash flow hedges and others, net of tax
Others
3,825,068 3,825,068
542,123
4,367,191
30,447
100
134
(37,564)
(37,564)
30,447
100
134
(2,917)
4,027
95
421
(40,481)
34,474
195
555
Total comprehensive income (loss) for the year
—
—
—
30,681
—
(37,564) 3,825,068 3,818,185
543,749
4,361,934
Dividends paid in cash (5)
Acquisition of non-controlling interest (6)
11
(569,292)
(569,292)
11
— (569,292)
(757)
(768)
Balance as of December 31, 2021
2,004,743 (150,000)
(23,295) 1,360,637 (2,324,866) (2,898,593) 12,566,393 10,535,019 1,700,019
12,235,038
(1) Shareholders’ equity is determined in accordance with accounting principles generally accepted in Luxembourg.
(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of $ 1.00 per share. As of December 31, 2021, there were 2,004,743,442 shares issued. All issued
shares are fully paid. Also, as of December 31, 2021, the Company held 41,666,666 shares as treasury shares.
(3) Include mainly legal reserve under Luxembourg law for $ 200.5 million, undistributable reserves under Luxembourg law for $ 1.4 billion, and reserves related to the acquisition of non-controlling interest in
subsidiaries for $ (72.2) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(5) Represents $ 0.29 per share ($ 2.90 per ADS). Related to the dividends distributed on May 3 and on November 2, 2021, and as 41,666,666 shares are held as treasury shares by Ternium, the dividends
attributable to these treasury shares amounting to $ 12.1 million were included in equity as deduction of dividend paid.
(6) Corresponds to the acquisition of non-controlling interest participation of Ternium Argentina S.A..
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated
financial statements may not be wholly distributable. See Note 24 (iii). The accompanying notes are an integral part of these consolidated financial statements.
50
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
(All amounts in $ thousands)
Consolidated Statements of Changes in Equity
Attributable to the owners of the parent (1)
Treasury
Capital
shares
stock
(2)
(2)
Initial
public
offering
expenses
Reserves
(3)
Capital
stock issue
discount
Currency
translation
adjustment
(4)
Retained
earnings
Total
Non-
controlling
interest
Total
Equity
Balance as of January 1, 2020
2,004,743 (150,000)
(23,295) 1,332,980 (2,324,866) (2,760,046) 8,532,149 6,611,665
1,103,208
7,714,873
Profit for the year
Other comprehensive income (loss) for the period
Currency translation adjustment
Remeasurement of post employment benefit obligations
Cash flow hedges and others, net of tax
Others
778,468 778,468
89,403
867,871
(9,340)
(95)
(1,383)
(100,983)
(100,983)
(9,340)
(95)
(1,383)
(7,936)
(1,696)
(91)
(1,053)
(108,919)
(11,036)
(186)
(2,436)
Total comprehensive income (loss) for the year
—
—
—
(10,818)
—
(100,983) 778,468 666,667
78,627
745,294
Acquisition of non-controlling interest (5)
7,783
7,783
(24,797)
(17,014)
Balance as of December 31, 2020
2,004,743 (150,000)
(23,295) 1,329,945 (2,324,866) (2,861,029) 9,310,617 7,286,115
1,157,038
8,443,153
(1) Shareholders’ equity is determined in accordance with accounting principles generally accepted in Luxembourg.
(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of $ 1.00 per share. As of December 31, 2020, there were 2,004,743,442 shares issued. All issued
shares are fully paid. Also, as of December 31, 2020, the Company held 41,666,666 shares as treasury shares.
(3) Include mainly legal reserve under Luxembourg law for $ 200.5 million, undistributable reserves under Luxembourg law for $ 1.4 billion, and reserves related to the acquisition of non-controlling interest in
subsidiaries for $ (72.2) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(5) Corresponds to the acquisition of non-controlling interest participation of Ternium Argentina S.A..
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated
financial statements may not be wholly distributable. See Note 24 (iii). The accompanying notes are an integral part of these consolidated financial statements.
51
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
(All amounts in $ thousands)
Consolidated Statements of Cash Flows
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortization
Impairment charge
Income tax accruals less payments
Equity in earnings of non-consolidated companies
Interest accruals less payments/receipts, net
ICMS provision recovery, net of reversal of related asset
Changes in provisions
Changes in working capital (1)
Net foreign exchange results and others
Notes
Year ended December 31,
2021
2020
2022
11 & 12
3 (f), 8 & 11
26 (b)
13
26 (b)
8 & 24 (i)(g)
18
26 (b)
2,092,772
4,367,191
867,871
616,492
99,000
(1,195,561)
(37,114)
(24,795)
—
(1,069)
1,152,498
50,720
591,790
—
578,285
(400,732)
5,901
—
11,761
(2,617,789)
140,908
631,051
—
66,561
(57,555)
6,991
(186,010)
623
352,795
78,919
Net cash provided by operating activities
2,752,943
2,677,315
1,761,246
Cash flows from investing activities
Capital expenditures
Increase in other investments
Proceeds from the sale of property, plant and equipment
Dividends received from non-consolidated companies
Acquisition of non-controlling interest
Net cash used in investing activities
Cash flows from financing activities
Dividends paid in cash to company’s shareholders
Finance lease payments
Proceeds from borrowings
Repayments of borrowings
Net cash used in financing activities
Increase in cash and cash equivalents
Movement in cash and cash equivalents
At January 1,
Effect of exchange rate changes
Increase in cash and cash equivalents
Cash and cash equivalents at December 31, (2)
Non-cash transactions:
Dividends paid in kind to non-controlling interest
Acquisition of PP&E under lease contract agreements
11 & 12
17
(580,553)
(770,638)
1,912
28,884
(4,216)
(523,610)
(579,010)
1,752
56,275
(757)
(560,013)
(600,884)
1,044
—
(17,014)
(1,324,611)
(1,045,350)
(1,176,867)
(530,031)
(49,410)
285,908
(722,644)
(569,292)
(45,604)
246,046
(485,526)
—
(42,144)
245,668
(709,778)
(1,016,177)
(854,376)
(506,254)
412,155
777,589
78,125
1,276,605
(35,405)
412,155
537,882
(38,866)
777,589
519,965
(60,208)
78,125
1,653,355
1,276,605
537,882
(112,293)
13,961
—
13,758
—
6,101
(1) The working capital is impacted by non-cash movement of $ 24.9 million as of December 31, 2022 ($ (12.5) million and $ (18.0) million as of December
31, 2021 and 2020, respectively) due to the variations in the exchange rates used by subsidiaries with functional currencies different from the U.S. dollar.
(2) It includes restricted cash of $ 30, $ 58 and $ 54 as of December 31, 2022, 2021 and 2020, respectively. In addition, the Company had other investments
with a maturity of more than three months for $ 1,975,490, $ 1,357,484 and $ 816,157 as of December 31, 2022, 2021 and 2020, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
52
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 General information
2 Basis of presentation
3 Accounting policies
4 Segment information
5 Cost of sales
6 Selling, general and administrative expenses
7 Labor costs (included in cost of sales and selling, general and administrative expenses)
8 Other operating income (expenses), net
9 Other financial income (expenses), net
10 Income tax expense
11 Property, plant and equipment, net
12 Intangible assets, net
13 Investments in non-consolidated companies
14 Receivables, net - non-current and current
15 Trade receivables, net - non-current and current
16 Inventories, net
17 Cash, cash equivalents and other investments
18 Allowances and provisions - non-current and current
19 Deferred income tax
20 Other liabilities - non-current and current
21 Derivative financial instruments
22 Lease Liabilities
23 Borrowings
24 Contingencies, commitments and restrictions on the distribution of profits
25 Related party transactions
26 Other required disclosures
27 Recently issued accounting pronouncements
28 Financial risk management
29 Foreign exchange restrictions in Argentina
30 The Russia-Ukraine Armed Conflict
31 Subsequent events
Page
54
55
58
80
82
83
83
84
84
85
86
88
89
92
93
93
94
94
95
97
99
101
102
104
112
113
115
117
125
126
126
53
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
Notes to the Consolidated Financial Statements
1.
GENERAL INFORMATION
Ternium S.A. (the “Company” or “Ternium”), was incorporated on December 22, 2003 to hold investments in
flat and long steel manufacturing and distributing companies. The Company has an authorized share capital of a
single class of 3.5 billion shares having a nominal value of $ 1.00 per share. As of December 31, 2022, there were
2,004,743,442 shares issued. All issued shares are fully paid.
Ternium’s American Depositary Shares (“ADSs”) trade on the New York Stock Exchange under the symbol
“TX”.
The Company was initially established as a public limited liability company (société anonyme) under
Luxembourg’s 1929 holding company regime. Until termination of such regime on December 31, 2010, holding
companies incorporated under the 1929 regime (including the Company) were exempt from Luxembourg
corporate and withholding tax over dividends distributed to shareholders.
On January 1, 2011, the Company became an ordinary public limited liability company (société anonyme) and,
effective as from that date, the Company is subject to all applicable Luxembourg taxes (including, among others,
corporate income tax on its worldwide income) and its dividend distributions will generally be subject to
Luxembourg withholding tax. However, dividends received by the Company from subsidiaries in high income
tax jurisdictions, as defined under Luxembourg law, will continue to be exempt from corporate income tax in
Luxembourg under Luxembourg’s participation exemption.
As part of the Company’s corporate reorganization in connection with the termination of Luxembourg’s 1929
holding company regime, on December 6, 2010, the Company contributed its equity holdings in all its
subsidiaries and all its financial assets to its Luxembourg wholly-owned subsidiary Ternium Investments S.à r.l.,
or Ternium Investments, in exchange for newly issued corporate units of Ternium Investments. As the assets
contributed were recorded at their historical carrying amount in accordance with Luxembourg GAAP, the
Company’s December 2010 contribution of such assets to Ternium Investments resulted in a non-taxable
revaluation of the accounting value of the Company’s assets under Luxembourg GAAP. The amount of the
December 2010 revaluation was equal to the difference between the historical carrying amounts of the assets
contributed and the value at which such assets were contributed and amounted to $ 4.0 billion. However, for the
purpose of these consolidated financial statements, the assets contributed by Ternium to its wholly-owned
subsidiary Ternium Investments were recorded based on their historical carrying amounts in accordance with
IFRS, with no impact on the financial statements.
Following the completion of the corporate reorganization, and upon its conversion into an ordinary Luxembourg
holding company, the Company voluntarily recorded a special reserve exclusively for tax-basis purposes. As of
December 31, 2022 and 2021, this special tax reserve amounted to $ 5.2 billion and $ 5.8 billion, respectively . The
Company expects that, as a result of its corporate reorganization, its current overall tax burden will not increase,
as all or substantially all of its dividend income will come from high income tax jurisdictions.
54
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
2.
a)
BASIS OF PRESENTATION
Basis of presentation
These consolidated financial statements have been prepared in accordance with IFRS (International Financial
Reporting Standards) issued and effective or issued and early adopted as at the time of preparing these statements
(February 2023), as issued by the International Accounting Standards Board and in conformity with International
Financial Reporting Standards as adopted by the European Union (“EU”). These consolidated financial
statements are presented in thousands of United States dollars (“$”), except otherwise indicated.
These Consolidated financial statements fairly present the consolidated equity and consolidated financial
situation of Ternium as of December 31, 2022 and 2021, and the consolidated results of its operations, the
Changes in the Consolidated Statement of Comprehensive Income, the Changes in Consolidated Net Equity and
the Consolidated Cash Flows of Ternium for the years ended December 31, 2022, 2021 and 2020.
Elimination of all material intercompany transactions and balances between the Company and their respective
subsidiaries has been made in consolidation.
These consolidated financial statements have been prepared under the historical cost convention and certain
financial assets and financial liabilities (including derivative instruments) are at fair value through profit or loss.
These consolidated financial statements have been approved for issue by the Board of Directors on February 14,
2023. The Directors have the power to amend and reissue the consolidated financial statements.
Detailed below are the companies whose financial statements have been consolidated and accounted for interest
in these consolidated financial statements.
55
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
2.
BASIS OF PRESENTATION (continued)
Company
Country of
Organization
Main activity
Percentage of ownership
at December 31,
Ternium S.A.
Ternium Investments S.à.r.l.
Ternium Internacional España S.L. (1)
Luxembourg
Luxembourg
Spain
Holding
Holding
Holding and marketing of
steel products
2022
2021
2020
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
Ternium Solutions S.A. (1)
Uruguay
Other services
100.00 %
100.00 %
100.00 %
Ternium Internationaal B.V. (1)
Netherlands
Marketing of steel products
100.00 %
100.00 %
100.00 %
Ternium USA Inc. (2)
Ternium Argentina S.A. (3)
USA
Argentina
Manufacturing and selling
of steel products
Manufacturing and selling
of flat steel products
100.00 %
100.00 %
100.00 %
62.57 %
62.49 %
62.46 %
Prosid Investments S.A. (4)
Uruguay
Holding
62.58 %
62.49 %
62.46 %
Ternium Mexico S.A. de C.V. (5)
Las Encinas S.A. de C.V. (6)
Ferropak Comercial S.A. de C.V. (6)
Transamerica E. & I. Trading Corp. (6)
Galvacer Chile S.A. (6)
Ternium Gas México S.A. de C.V. (7)
Consorcio Minero Benito Juarez Peña Colorada S.A.de
C.V. (8)
Exiros B.V. (8)
Mexico
Mexico
Mexico
USA
Chile
Mexico
Mexico
Netherlands
Manufacturing and selling
of steel products
Exploration, exploitation
and pelletizing of iron ore
89.25 %
89.25 %
89.22 %
89.22 %
89.21 %
89.21 %
Scrap services company
89.25 %
89.22 %
89.21 %
Scrap services company
89.25 %
89.22 %
89.21 %
Distributing company
Energy services company
Exploration, exploitation
and pelletizing of iron ore
Procurement and trading
services
89.25 %
89.25 %
44.62 %
50.00 %
89.22 %
89.22 %
44.61 %
50.00 %
89.21 %
89.21 %
44.61 %
50.00 %
Servicios Integrales Nova de Monterrey S.A. de C.V. (9)
Mexico
Medical and Social Services
66.49 %
66.47 %
66.47 %
Ternium Internacional Nicaragua S.A.
Ternium Internacional Honduras S.A. de C.V.
Nicaragua
Honduras
Ternium Internacional El Salvador S.A. de C.V.
El Salvador
Ternium Internacional Costa Rica S.A.
Ternium Internacional Guatemala S.A. (10)
Ternium Colombia S.A.S. (11)
Ternium del Cauca S.A.S. (11)
Ternium del Atlántico S.A.S (11)
Ternium Procurement S.A. (11)
Technology & Engineering Services S.A. (11)
Ternium Brasil Ltda. (12)
Tenigal S. de R.L. de C.V. (13)
Costa Rica
Guatemala
Colombia
Colombia
Colombia
Uruguay
Uruguay
Brazil
Mexico
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
Marketing of steel products
and procurement services
Engineering and other
services
Manufacturing and selling
of steel products
Manufacturing and selling
of steel products
99.38 %
99.38 %
99.38 %
99.18 %
99.18 %
99.18 %
99.92 %
99.92 %
99.92 %
99.98 %
99.98 %
99.98 %
99.98 %
99.98 %
99.98 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
51.00 %
51.00 %
51.00 %
Soluciones Integrales de Gestión S.A. (14)
Argentina
Other services
100.00 %
100.00 %
100.00 %
Ternium Participaçoes S.A. em liquidaçao (14)
Brazil
Holding
100.00 %
100.00 %
100.00 %
Vientos de Olavarría S.A. (15)
Ternium Siderúrgica de Caldas S.A.S. (16)
Impeco S.A. (17)
Hylsa S.A. de C.V. (18)
Argentina
Colombia
Argentina
Mexico
Renewable energy project
62.57 %
—
—
Manufacturing and selling
of steel products
Manufacturing of pipe
products
Manufacturing and selling
of steel products
—
—
—
100.00 %
100.00 %
62.49 %
62.49 %
—
89.21 %
56
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
2.
BASIS OF PRESENTATION (continued)
Company
Country of
Organization
Main activity
Percentage of ownership
at December 31,
Técnica Industrial S.A. de C.V. (18)
Peña Colorada Servicios S.A. de C.V. (19)
Ternium Treasury Services S.A. (20)
Mexico
Mexico
Uruguay
Services
Services
Financial Services
2022
2021
2020
—
—
—
—
—
—
89.21 %
44.61 %
100.00 %
(1) Indirectly through Ternium Investments S.à.r.l. Total voting rights held: 100.00%.
(2) Since the second quarter of 2021, indirectly through Ternium Internacional España S.L. Total voting rights held 100.00%. Before that, indirectly through
Ternium Investments S.à.r.l. total voting rights was 100.00% in 2020.
(3) Indirectly through Ternium Internacional España S.L. Total voting rights held 62.57%.
(4) Indirectly through Ternium Argentina S.A. and Ternium Procurement S.A. Total voting rights held 100.00%.
(5) Indirectly through Ternium Argentina S.A. and Ternium Internacional España S.L. Total voting rights held 100.00%.
(6) Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 100.00%.
(7) Indirectly through Ternium Mexico S.A. de C.V. and Tenigal S. de R.L. de C.V. Total voting rights held: 100.00%.
(8) Total voting rights held: 50.00%. The Company recognizes the assets, liabilities, revenue and expenses in relation to its interest in the joint operation.
(9) Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 74.50%.
(10) Indirectly through Ternium Internacional España S.L. and Ternium Mexico S.A. de C.V. Total voting rights held: 100.00%.
(11) Indirectly through Ternium Internacional España S.L. Total voting rights held: 100.00%.
(12) Since the second quarter of 2020, indirectly through Ternium Internacional España S.L. Total voting rights held: 100.00%. Before that, indirectly
through Ternium Investments S.à r.l.
(13) Indirectly through Ternium Internacional España S.L. Total voting rights held: 51.00%.
(14) Indirectly through Ternium Investments S.à r.l. and Ternium Internacional España S.L. Total voting rights held 100.00%.
(15) Indirectly through Ternium Argentina S.A. Total voting rights held: 100.00%.
(16) This company was merged into Ternium Colombia S.A.S as of November 30, 2022.
(17) This company was dissolved as of February 16, 2022.
(18) This company was merged into Ternium Mexico S.A. de C.V. as of August 9, 2021.
(19) This company was merged into Consorcio Minero Benito Juarez Peña Colorada S.A.de C.V. as of July 6, 2021.
(20) This company was dissolved as of April 12, 2021.
The most important non-controlling interest is related to the investment in Ternium Argentina S.A.,which is a
company listed in the Buenos Aires Stock Exchange (see note 29). All the information related to this investment
could be found in the Buenos Aires Stock Exchange webpage.
57
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3. ACCOUNTING POLICIES
The following is a summary of the principal accounting policies followed in the preparation of these
Consolidated Financial Statements:
(a) Group accounting
(1) Subsidiary companies and transactions with non-controlling interests
Subsidiaries are all entities over which the Company has control. The Company controls an entity when the
Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Company. They are deconsolidated from the date that control ceases.
The Company uses the acquisition method of accounting to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the
liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair
value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs
are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at the fair values at the acquisition date. Indemnification assets are
recognized at the same time that the Company recognizes the indemnified item and measures them on the same
basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts. The
Company measures the value of a reacquired right recognized as an intangible asset on the basis of the remaining
contractual term of the related contract regardless of whether market participants would consider potential
contractual renewals in determining its fair value.
The Company recognizes any non-controlling interest in the acquiree at the non-controlling interest's
proportionate share of the acquiree's net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Company's
share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the
income statement.
The measurement period is the earlier of the date that the acquirer receives the information that it is looking for
or cannot obtain the information and one year after the acquisition date. Where the accounting for a business
combination is not complete by the end of the reporting period in which the business combination occurred
provisional amounts are reported.
The Company treats transactions with non-controlling interests as transactions with equity owners of the
Company. For purchases from non-controlling interests, the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses
on disposals to non-controlling interests are also recorded in equity.
58
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3. ACCOUNTING POLICIES (continued)
When the Company ceases to have control or significant influence, any retained interest in the entity is
remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the
initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint
venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in
respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities.
This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or
loss.
Inter-company transactions, balances and unrealized gains on transactions between group companies are
eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the
transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency
with the policies adopted by the group. However, the fact that the functional currency of some subsidiaries is
their respective local currency, generates some financial gains (losses) arising from intercompany transactions,
that are included in the consolidated income statement under Other financial expenses, net.
(2) Investments in non-consolidated companies
Associated companies are those entities in which Ternium has significant influence, but which it does not
control.
Joint arrangements are understood as combinations in which there are contractual agreements by virtue of which
two or more companies hold an interest in companies that undertake operations or hold assets in such a way that
any financial or operating decision is subject to the unanimous consent of the partners. A joint arrangement is
classed as a joint operation if the parties hold rights to its assets and have obligations in respect of its liabilities or
as a joint venture if the venturers hold rights only to the investee's net assets.
Investments in non-consolidated companies (associated companies and joint ventures) are accounted for using
the equity method of accounting. Under this method, interests in joint ventures and associates are initially
recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the
Company’s share of the post-acquisition profits or losses in the income statement, and its share of post-
acquisition changes in reserves recognized in reserves and in other comprehensive income in the income
statement. Unrealized gains on transactions among the Company and its non-consolidated companies are
eliminated to the extent of the Company’s interest in such non-consolidated companies; unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of the transferred asset. When the
Company’s share of losses in a non-consolidated company equals or exceeds its interest in such non-consolidated
company, the Company does not recognize further losses unless it has incurred obligations or made payments on
behalf of such non-consolidated company.
The Company’s investment in associates and joint ventures includes notional goodwill identified on acquisition.
The Company determines at each reporting date whether there is any objective evidence that the investment is
impaired. If this is the case, the group calculates the amount of impairment as the difference between the
recoverable amount of the investment and its carrying value and recognizes the amount within “Equity on
earnings (losses) of non-consolidated companies”.
59
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(b) Foreign currency translation
(1) Functional and presentation currency
Items included in the financial statements of each of the Company's subsidiaries and associated companies are
measured using the currency of the primary economic environment in which the entity operates (the "functional
currency"). Except for the non-consolidated companies whose functional currencies are their local currencies,
Ternium determined that the functional currency of its subsidiaries is the U.S. dollar. Although Ternium is
located in Luxembourg, it operates in several countries with different currencies. The $ is the currency that best
reflects the economic substance of the underlying events and circumstances relevant to Ternium as a whole.
(2) Subsidiary companies
The results and financial position of all the group entities (except for the ones which operated in a
hyperinflationary economy, if any) that have a functional currency different from the presentation currency, are
translated into the presentation currency as follows:
(i) assets and liabilities are translated at the closing rate of each statement of financial position;
(ii) income and expenses for each income statement are translated at average exchange rates (unless this average
is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the dates of the transactions); and
(iii) all resulting translation differences are recognized within other comprehensive income.
In the case of a sale or other disposition of any such subsidiary, any accumulated translation differences would be
recognized in the income statement as part of the gain or loss on sale.
(3) Transactions in currencies other than the functional currency
Transactions in currencies other than the functional currency are translated into the functional currency using
the exchange rates prevailing at the date of the transactions or valuation where items are re-measured.
At the end of each reporting period: (i) monetary items denominated in currencies other than the functional
currency are translated using the closing rates, (ii) non-monetary items that are measured in terms of historical
cost in a currency other than the functional currency are translated using the exchange rates prevailing at the date
of the transactions; and (iii) non-monetary items that are measured at fair value in a currency other than the
functional currency are translated using the exchange rates prevailing at the date when the fair value was
determined.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in currencies other than the functional
currency are recorded as gains and losses from foreign exchange and included in "Other financial income
(expenses), net" in the consolidated income statement, except when deferred in equity as qualifying cash flow
hedges and qualifying net investment hedges. Translation differences on non-monetary financial assets and
liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the
"fair value gain or loss," while translation differences on non-monetary financial assets such as equities classified
as fair value through other comprehensive income are included in other gains/(losses).
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(c) Financial instruments
Non derivative financial instruments
Non derivative financial instruments comprise investments in equity and debt securities, trade and other
receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
The Company classifies its financial instruments in the following measurement categories:
–
Amortized cost: instruments that are held for collection or repayment of contractual cash flows where
those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest
income and expenses from these financial instruments are included in finance income or expense using the
effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and
presented in finance income or expense, together with foreign exchange gains and losses. Impairment losses are
presented as separate line items in the statement of profit or loss.
–
Fair value through other comprehensive income (“FVOCI”): financial instruments that are held for
collection of contractual cash flows and for selling the financial instruments, where the instruments’ cash flows
represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount
are taken through OCI, except for the recognition of impairment gains or losses, interest revenue or expense and
foreign exchange gains and losses which are recognized in profit or loss. When the financial instrument is
derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss
and recognized in other gains/(losses), except for equity instruments, for which there is no reclassification from
OCI to profit or loss. Interest income or expense from these financial instruments is included in finance income
using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses)
and impairment expenses are presented as separate line item in the statement of profit or loss.
–
Fair value through profit or loss (“FVPL”): financial instruments that do not meet the criteria for
amortized cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently
measured at FVPL is recognized in profit or loss and presented net within other gains/(losses) in the period in
which it arises.
The classification depends on the Company’s business model for managing the financial instruments and the
contractual terms of the cash flows.
For financial instruments measured at fair value, gains and losses will either be recorded in profit or loss or OCI.
For investments in equity instruments that are not held for trading, this will depend on whether the group has
made an irrevocable election at the time of initial recognition to account for the equity investment at FVOCI.
At initial recognition, the Company measures a financial instrument at its fair value plus, in the case of a
financial instrument not at FVPL, transaction costs that are directly attributable to the acquisition of the
financial instrument. Transaction costs of financial instruments carried at FVPL are expensed in profit or loss.
Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset
and the cash flow characteristics of the asset.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
The classification depended on the nature and purpose of the financial assets and was determined at the time of
initial recognition.
Financial assets and liabilities were recognized and derecognized on the settlement date.
Financial assets were initially measured at fair value, net of transaction costs, except for those financial assets
classified as financial assets at fair value through profit or loss.
Financial liabilities, including borrowings, were initially measured at fair value, net of transaction costs and
subsequently measured at amortized cost using the effective interest method, with interest expense recognized on
an effective yield basis.
Impairment of financial assets
The Company assesses on a forward-looking basis the expected credit losses associated with its debt instruments
carried at amortized cost and FVOCI. The impairment methodology applied depends on whether there has been
a significant increase in credit risk.
For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognized from initial recognition of the receivables, see note 3 (i) for further details.
For loans and receivables category and for held-to-maturity investments, the amount of the loss was measured as
the difference between the asset's carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the financial asset's original effective
interest rate. The carrying amount of the asset was reduced and the amount of the loss was recognized in the
consolidated income statement.
If, in a subsequent period, the amount of the impairment loss decreased and the decrease could be related
objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized
impairment loss was recognized in the consolidated income statement.
Derivative financial instruments
Information about accounting for derivative financial instruments and hedging activities is included in Note 28
"Financial Risk management" and Note 3 (y).
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(d) Property, plant and equipment
(1) Property, plant and equipment
Land and buildings comprise mainly factories and offices. All property, plant and equipment are recognized at
historical acquisition or construction cost less accumulated depreciation and accumulated impairment (if
applicable), except for land, which is carried at acquisition cost less accumulated impairment (if applicable).
There are no material residual values for property, plant and equipment items.
Major overhaul and rebuilding expenditures are recognized as a separate asset when future economic benefits are
expected from the item, and the cost can be measured reliably.
Ordinary maintenance expenses on manufacturing properties are recorded as cost of products sold in the period
in which they are incurred.
Where a tangible fixed asset comprises major components having different useful lives, these components are
accounted for as separate items. Spare parts are included in property, plant and equipment.
Depreciation method is reviewed at each year end. Depreciation is calculated using the straight-line method to
amortize the cost of each asset to its residual value over its estimated useful life as follows:
Land
Buildings and improvements
Production equipment
Vehicles, furniture and fixtures and other equipment
No depreciation
10-50 years
5-40 years
3-20 years
Property, plant and equipment used in mining activities are depreciated over its useful life or over the remaining
life of the mine if shorter and there is no alternative use possible.
The assets' useful lives are reviewed, and adjusted if appropriate, at each year end. The re-estimation of assets
useful lives by the Company did not materially affect depreciation charges in 2022, 2021 and 2020.
Gains and losses on disposals are determined by comparing the proceeds with the corresponding carrying
amounts and are included in the income statement.
If the carrying amount of an asset were greater than its estimated recoverable amount, it would be written down
to its recoverable amount (see Note 3 (f) "Impairment").
Amortization charges are included in cost of sales, selling, general and administrative expenses.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(2) Right-of-use assets
The Company is a party to lease contracts for:
- Land
- Plants and equipment for the production of industrial gases and other production materials.
- Transportation and maintenance equipment.
- Warehouses and office spaces.
These leases are recognized, measured and presented in accordance to IFRS 16 “Leases”, following the guidelines
described below.
Accounting by the lessee
The Company recognizes a right-of-use asset and a lease liability at the commencement date of each lease
contract that grants the right to control the use of an identified asset during a period of time. The commencement
date is the date in which the lessor makes an underlying asset available for use by the lessee.
The Company applied exemptions for leases with a duration lower than 12 months, with a value lower than
thirty thousand U.S. dollars and/or with clauses related to variable payments. These leases have been considered
as short-term leases and, accordingly, no right-of-use asset or lease liability have been recognized.
At initial recognition, the right-of-use asset is measured considering:
- The value of the initial measurement of the lease liability;
- Any lease payments made at or before the commencement date, less any lease incentives; and
- Any initial direct costs incurred by the lessee.
After initial recognition, the right-of-use assets are measured at cost, less any accumulated depreciation and/or
impairment losses, and adjusted for any re-measurement of the lease liability.
Depreciation of the right-of-use asset is calculated using the straight-line method over the estimated duration of
the lease contract, as follows:
Land
Buildings and facilities
Machinery
1-32 years
1-27 years
1-15 years
If the lease transfers ownership of the underlying asset to the Company by the end of the lease term, or if the cost
of the right-of-use asset reflects that the Company will exercise a purchase option, the Company depreciates the
right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise,
the Company depreciates the right-of-use asset from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term.
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are
Accounting by the lessor
When the Company is acting as a lessor, each of its leases is classified as either operating or finance lease:
–
classified as operating leases.
–
classified as finance leases.
Leases where all substantial risks and rewards of ownership are transferred by the lessor to the lessee are
64
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(e) Intangible assets
(1) Information system projects
Generally, costs associated with developing or maintaining computer software programs are recognized as an
expense as incurred. However, costs directly related to the acquisition and implementation of information
systems are recognized as intangible assets if they have a probable economic benefit exceeding the cost beyond
one year and comply with the recognition criteria of IAS 38.
Information system projects recognized as assets are amortized using the straight-line method over their useful
lives, not exceeding a period of 3 years. Amortization charges are included in cost of sales, selling, general and
administrative expenses.
(2) Mining assets
Mining assets include:
(a) Mining licenses acquired;
(b) Capitalized exploration and evaluation costs, reclassified from exploration and evaluation costs (see note 3
(e) 3); and
(c) Capitalized developmental stripping costs (see note 3 (u)).
Mining licenses were recognized as separate intangible assets upon the acquisition of the investment in Mexico
and comprise the right to exploit the mines and are recognized at its fair value at acquisition date less
accumulated amortization.
These mining concessions were granted for a 50-year period; following the expiration of the initial concession
term, the concessions are renewable for an additional 50-year term in accordance with, and subject to the
procedures set forth in, applicable Mexican mining law.
Amortization charge is calculated by using the unit-of-production method, on the basis of actual mineral
extracted in each period compared to the estimated mineral reserves, and is included in cost of sales. Any change
in the estimation of reserves is accounted for prospectively. The resulting amortization rate for the years ended
December 31, 2022, 2021 and 2020, is approximately 12%, 7% and 4% per year, respectively.
65
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(3) Exploration and evaluation costs
Exploration and evaluation activities involve the search for iron ore resources, the determination of technical
feasibility and the assessment of commercial viability of an identified resource.
Exploration and evaluation costs are measured at cost. Costs directly associated with exploration and evaluation
activities are capitalized as intangible assets until the determination of reserves is evaluated. The costs associated
to the acquisition of machinery and equipment are recognized as property, plant and equipment. If it is
determined that commercial discovery has been achieved, costs incurred are reclassified into Mining assets and
amortization starts once production begins.
Exploration costs are tested for impairment whenever there are indicators that impairment exists. Indicators of
impairment include, but are not limited to:
• Rights to explore in an area have expired or will expire in the near future without renewal;
• No further exploration and evaluation is planned or budgeted;
• A decision to discontinue exploration and evaluation in an area because of the absence of commercial
reserves; and
• Sufficient data exists to indicate that the book value will not be fully recovered from future development and
production.
When analyzing the existence of impairment indicators, the exploration and evaluation areas from the mining
units will be evaluated.
(4) Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of Ternium's participation in acquired
companies' net assets at the acquisition date. Under IAS 36, goodwill is considered to have an indefinite life and
not amortized, but is subject to annual impairment testing.
Goodwill is allocated to Cash-generating units ("CGU") for the purpose of impairment testing. The allocation is
made to those cash-generating units expected to benefit from the business combination which generated the
goodwill being tested. The impairment losses on goodwill cannot be reversed.
As of December 31, 2022 and 2021, the carrying amount of goodwill allocated to the Mexico CGUs was $ 662.3
million, of which $ 619.8 million corresponds to Steel Mexico CGU and $ 42.5 million to Mining Mexico CGU.
(5) Research and development
Research expenditures are recognized as expenses as incurred. Development costs are recorded as cost of sales in
the income statement as incurred because they do not fulfill the criteria for capitalization. Research and
development expenditures for the years ended December 31, 2022, 2021 and 2020 totaled $ 16.3 million, $ 9.8
million and $ 8.3 million, respectively.
66
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(6) Customer relationships acquired in a business combination
In accordance with IFRS 3 and IAS 38, Ternium has recognized the value of customer relationships in connection
with the acquisition of Ternium Staal B.V. as of September 7, 2017. The value of the slab commitment agreement
by which Ternium Investments S.à r.l. was entitled to invoice, under certain conditions, the price difference
between slabs and hot rolled coils has been amortized using the units of slabs sold method. As of December 31,
2021, the asset related to this slab commitment agreement was fully amortized.
(7) Trademarks acquired in a business combination
Trademarks are amortized using the straight-line method over a useful life of between 5 to 10 years.
(f) Impairment
Assets that have an indefinite useful life (including goodwill) are not subject to amortization and are tested
annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. Assets that are subject to amortization and investments in affiliates are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and the value in
use.
To carry out these tests, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (each, a CGU). When evaluating long-lived assets for potential impairment, the Company estimates the
recoverable amount based on the higher of the CGU's fair value less costs to sell and its value in use. The value in
use of each CGU is determined on the basis of the present value of net future cash flows which will be generated
by the assets tested.
Determining the present value of future cash flows involves highly sensitive estimates and assumptions specific to
the nature of each CGU's activities, including estimates and assumptions relating to amount and timing of
projected future cash flows.
Application of the discounted cash flow (DCF) method to determine the value in use of a CGU begins with a
forecast of all expected future net cash flows. Significant assumptions considered in forecasts include the gross
domestic product (GDP) growth rates of the country under study and their correlation with steel demand,
changes in the growth rate for the perpetuity rate, changes in steel prices, changes in certain significant raw
material costs and changes in discount rates.
Ternium uses, for the steel segment impairment tests, cash flow projections over a five-year period based on past
performance and expectations of market development; for the subsequent years beyond the five-year period, a
terminal value was calculated based on perpetuity. The growth rate used for the perpetuity rate is of 2.18%. This
rate does not exceed the average long-term growth rate for the relevant markets. In the case of Mining Mexico
CGU, cash flow projections are prepared until the mines are fully depleted and are based on past performance
and expectations of market development.
Cash flows are discounted at rates that reflect specific country and currency risks associated with the cash flow
projections. The discount rates used are based on the weighted average cost of capital (WACC), which is
considered to be a good indicator of cost of capital.
67
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
Considering the economic situation in Argentina, the increase in the inflation rates, the devaluation of the
Argentine peso and a weaker industrial environment as of June 30, 2020, the Company decided to assess the
recoverability of its investments in Argentina, resulting in no impairment charges to be recognized. As of June 30,
2020, the post-tax discount rate used to test the investment in Argentine subsidiaries for impairment was 14.3%.
As of December 31, 2022 and 2021, no new impairment triggers were detected in this CGU and, consequently, no
impairment test was prepared.
In the case of the Steel Mexico CGU, considering the volatility of macroeconomic indicators, the decrease in the
sales margin per ton, the increase in raw material costs mainly iron ore and slabs, along with the expectations of
higher costs in the upcoming years, partially offset by the increase in steel prices, and the increase in the discount
rate, the Company decided to assess the recoverability of its investments in the Steel Mexico CGU, resulting in no
impairment charges to be recognized. Also, in the case of the Mining Mexico CGU, considering the decrease in the
sales margin per ton, the decrease in the operating income before depreciation and amortization margin and the
increase in the interest rate, the Company decided to assess the recoverability of its investments in the Mining
Mexico CGU, resulting in no impairment charges to be recognized. As of December 31, 2022, the post-tax
discount rate used to test the recoverability of the investments in the Steel and Mining Mexico CGUs for
impairment was 11.28% (as of December 31, 2021, 9.93%). Based on the information currently available, Ternium
believes that it is not reasonably possible that the variation would cause the carrying amount to exceed the
recoverable amount of the Mexico CGUs.
Considering the economic situation in Brazil as of June 30, 2020, the Company decided to assess the recoverability
of its investments in the Brazil CGU, resulting in no impairment charges to be recognized. The Brazil CGU
comprises the manufacturing operations and assets related to a production plant located in Rio de Janeiro, Brazil.
As of June 30, 2020, the post-tax discount rate used to test the investment in the Brazil CGU for impairment was
10.3%. As of December 31, 2021, no new impairment triggers were detected in this CGU and, consequently, no
impairment test was prepared. As of December 31, 2022, considering the volatility of macroeconomic indicators,
the decrease in the sales margin per ton, the increase in raw material costs mainly iron ore and hard coking coal,
along with the expectations of higher costs in the upcoming years, partially offset by the increase in steel prices,
and the increase in the interest rate, the Company decided to assess the recoverability of its investment in the
Brazil CGU, resulting in the recognition of an impairment charge. As the Brazil CGU does not have any recorded
goodwill, this impairment charge needs to be allocated to the other assets of the CGU on the basis of the carrying
amount of each asset in the CGU. Management decided to record this impairment charge of $ 99.0 million over
the property, plant and equipment. After recognizing this impairment charge, the recoverable value of the Brazil
CGU was of $ 1,841 million. This impairment charge impacted the Steel segment. The post-tax discount rate to
test the recoverability of the investment in the Brazil CGU as of December 31, 2022, was 11.91%. The Company
estimates that a decrease of 0.5% in the discount rate, an increase of 5.0% in steel sales volumes and an increase of
5.0% in the operating income before amortization and depreciation per ton would have resulted in an increase of
29.3% in the value-in-use, and an increase of 0.5% in the discount rate, a decrease of 5.0% in steel sales volumes
and a decrease of 5.0% in the operating income before amortization and depreciation per ton would have resulted
in a decrease of 28.8% in the value-in-use.
During the years 2022, 2021 and 2020, no impairment provisions were recorded in connection with assets that
have an indefinite useful life (including goodwill) in the Company’s CGUs.
68
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
In connection with investments in non-consolidated companies, as of September 30, 2022, the Company wrote
down its investment in Usiminas by $ 120.4 million. The impairment was mainly due to the lower production
availability of Usiminas’ coke facilities, which need further capital investment, along with a worsened global
macroeconomic situation that derived in the increase of discount rates used for the calculation of value-in-use. As
of September 30, 2022, the post-tax discount rate used to test the investment in Usiminas for impairment was
13.5%. The Company estimates that a decrease of 1.0% in the discount rate, an increase of 0.5% in gross
domestic product and an increase of 5.0% in the steel, iron ore and hard coking coal prices would have resulted in
an increase of 25.5% in the value-in-use, and an increase of 1.0% in the discount rate, a decrease of 0.5% in gross
domestic product and a decrease of 5% in the steel, iron ore and hard coking coal prices would have resulted in a
decrease of -17.1% in the value-in-use. As of December 31, 2022, no new impairment triggers were detected over
this investment and, consequently, no impairment test was prepared.
(g) Other investments
Other investments consist primarily of investments in financial debt instruments and equity investments where the
Company holds a minor equity interest and does not exert significant influence.
All purchases and sales of investments are recognized on the settlement date, which is not significantly different
from the trade date, which is the date that Ternium commits to purchase or sell the investment.
Income from financial instruments at fair value through profit or loss is recognized in Other financial income
(expenses), net in the consolidated income statement. The fair value of quoted investments is based on current bid
prices. If the market for a financial investment is not active or the securities are not listed, the Company estimates
the fair value by using standard valuation techniques. Dividends from investments in equity instruments are
recognized in the income statement when the Company's right to receive payments is established.
Certain fixed income financial instruments purchased by the Company have been categorized as at fair value
through other comprehensive income. The results of these financial investments are recognized in Finance Income
in the Consolidated Income Statement using the effective interest method. Unrealized gains and losses other than
impairment and foreign exchange results are recognized in Other comprehensive income. On maturity or disposal,
net gain and losses previously deferred in Other comprehensive income are recognized in Finance Income in the
Consolidated Income Statement.
(h) Inventories
Inventories are stated at the lower of cost (calculated using the first-in-first-out "FIFO" method) or net realizable
value. The cost of finished goods and goods in process comprises raw materials, direct labor, depreciation, other
direct costs and related production overhead costs. It excludes borrowing costs. Goods acquired in transit at year
end are valued at supplier's invoice cost.
The cost of iron ore produced in our mines comprises all direct costs necessary to extract and convert stockpiled
inventories into raw materials, including production stripping costs, depreciation of fixed assets related to the
mining activity and amortization of mining assets for those mines under production.
The Company assesses the recoverability of its inventories considering their selling prices, if the inventories are
damaged, or if they have become wholly or partially obsolete.
69
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(i) Trade receivables and other receivables
Trade and other receivables are recognized initially at fair value, generally the original invoice amount. The
Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables are
grouped based on shared credit risk characteristics and the days past due. The Company keeps an allowance for
trade receivables, recorded in an asset account to offset the trade receivables in an amount estimated sufficient to
cover the losses resulting from the impossibility for the debtors to cancel the amounts owed. This allowance for
trade receivables is recorded with a charge to selling expenses.
(j) Cash and cash equivalents
Cash and cash equivalents and highly liquid short-term securities are carried at fair market value or at a historical
cost which approximates fair market value.
For purposes of the cash flow statement, cash and cash equivalents comprise cash, bank current accounts and
short-term highly liquid investments (original maturity of three months or less at date of acquisition) and
overdrafts.
In the consolidated statement of financial position, bank overdrafts are included in borrowings within current
liabilities.
(k) Assets (disposal groups) classified as held for sale
Assets (disposal groups) are classified as assets held for sale, complying with the recognition criteria of IFRS 5, and
stated at the lower of carrying amount and fair value less cost to sell if their carrying amount is recovered
principally through a sale transaction rather than through continuing use.
The carrying value of assets classified as held for sale, at December 31, 2022 and 2021 totals $ 1.8 million and $ 1.9
million, respectively, which corresponds principally to land and other real estate items. Sale is expected to be
completed within a one-year period.
(l) Borrowings
Borrowings are recognized initially for an amount equal to the net proceeds received. In subsequent periods,
borrowings are stated at amortized cost following the effective interest method.
(m) Lease liabilities
The lease liability is initially measured at the present value of the lease payments that are not paid at such date,
including the following concepts:
– Fixed payments, less any lease incentives receivable;
– Variable lease payments that depend on an index or rate, initially measured using the index or rate as of the
commencement date;
– Amounts expected to be payable by the lessee under residual value guarantees;
– The exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
– Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to
terminate the lease.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
Variable lease liabilities with payments dependent on external factors, such as minimum volumes sold or used,
are not included in the initial measurement of the lease liabilities and such payments are recognized directly in
profit and loss.
Lease payments are discounted using incremental borrowing rates for the location and currency of each lease
contract or, if available, the rate implicit in the lease contract.
The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest
on the remaining balance of the liability for each period.
The lease term determined by the Company comprises:
– Non-cancelable period of lease contracts;
– Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
– Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that
option.
After the commencement date, the Company measures the lease liability by:
– Increasing the carrying amount to reflect interest on the lease liability;
– Reducing the carrying amount to reflect lease payments made; and
– Re-measuring the carrying amount to reflect any reassessment or lease modifications.
(n) Income taxes - current and deferred
The current income tax charge is calculated on the basis of the tax laws in force in the countries in which
Ternium and its subsidiaries operate. Management evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation could be subject to interpretation. A liability is recorded for tax
benefits that were taken in the applicable tax return but have not been recognized for financial reporting.
Deferred income taxes are calculated using the liability method on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. The
principal temporary differences arise on fixed assets, intangible assets, inventories valuation and provisions for
pensions. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period
when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or
substantially enacted at year end. Under IFRS, deferred income tax assets (liabilities) are classified as non-current
assets (liabilities).
Deferred tax assets are recognized to the extent it is probable that future taxable income will be available to
offset temporary differences.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associated
companies, except where the timing of the reversal of the temporary difference is controlled by the Company and
it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are re-estimated if tax rates change. These amounts are charged or credited to
the consolidated income statement or to the item “Other comprehensive income for the year” in the consolidated
statement of comprehensive income, depending on the account to which the original amount was charged or
credited.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(o) Employee liabilities
(1) Post-employment obligations
The Company has defined benefit and defined contribution plans. A defined benefit plan is a pension plan that
defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or
more factors such as age, years of service and compensation.
The liability recognized in the statement of financial position in respect of defined benefit pension plans is the
present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets.
The defined benefit obligation is calculated annually (at year end) by independent actuaries using the projected
unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in
which the benefits will be paid, and that have terms to maturity approximating to the terms of the related
pension obligation. In countries where there is no deep market in such bonds, the market rates on government
bonds are used.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged
or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are
recognized immediately in income.
For defined benefit plans, net defined benefit liability/asset is calculated based on the surplus or deficit derived by
the difference between the defined benefit obligations less plan assets.
For defined contribution plans, the Company pays contributions to publicly or privately administered pension
insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment
obligations once the contributions have been paid. The contributions are recognized as employee benefit expense
when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Mexico
Ternium Mexico has defined benefit and defined contribution plans.
The valuation of the liabilities for the defined benefit employee retirement plans (pensions and seniority
premiums) covers all employees and is based primarily on their years of service, their present age and their
remuneration at the date of retirement. The cost of the employee retirement plans (pension, health-care expenses
and seniority premiums) is recognized as an expense in the year in which services are rendered in accordance with
actuarial studies made by independent actuaries. The formal retirement plans are congruent with and
complementary to the retirement benefits established by the Mexican Institute of Social Security. Additionally,
the Company has established a plan to cover health-care expenses of retired employees. The Company has
established a commitment for the payment of pensions and seniority premiums, as well as for health-care
expenses.
The defined contribution plans provide a benefit equivalent to the capital accumulated with the company's
contributions, which are provided as a match of employees' contributions to the plan. The plan provides vested
rights according to the years of service and the cause of retirement.
72
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
Argentina
Ternium Argentina implemented an unfunded defined benefit employee retirement plan for certain senior
officers. The plan is designed to provide certain benefits to those officers (additional to those contemplated under
applicable Argentine labor laws) in case of termination of the employment relationship due to certain specified
events, including retirement. This unfunded plan provides defined benefits based on years of service and final
average salary.
(2) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes
termination benefits when it is demonstrably committed to either: (i) terminating the employment of current
employees according to a detailed formal plan without possibility of withdrawal or (ii) providing termination
benefits as a result of an offer made to encourage voluntary redundancy.
(3) Other compensation obligations
Employee entitlements to annual leave and long-service leave are accrued as earned.
During 2007, Ternium launched an incentive retention program (the "Program") applicable to certain senior
officers and employees of the Company, who will be granted a number of Units throughout the duration of the
Program. The value of each of these Units is based on Ternium's shareholders' equity (excluding non-controlling
interest). Also, the beneficiaries of the Program are entitled to receive cash amounts based on (i) the amount of
dividend payments made by Ternium to its shareholders, and (ii) the number of Units held by each beneficiary to
the Program. Units vest ratably over a period of four years and will be redeemed by the Company ten years after
grant date, with the option of an early redemption at seven years after grant date. From 2018 units were vest
ratably over the same period and will be mandatorily redeemed by the Company seven years after grant date. As
the cash payment of the benefit is tied to the book value of the shares, and not to their market value, Ternium
valued this long-term incentive program as a long term benefit plan as classified in IAS 19.
As of December 31, 2022 and 2021, the outstanding liability corresponding to the Program amounts to $ 79.8
million and $ 67.7 million, respectively. The total value of the units granted to date under the program,
considering the number of units and the book value per share as of December 31, 2022 and 2021, is $ 88.6 million
and $ 72.1 million, respectively.
Under Mexican law, Ternium's subsidiaries are required to pay their employees an annual benefit which is
determined as a percentage of taxable profit for the year.
(4) Social security contributions
Social security laws in force in the countries in which the Company operates provide for pension benefits to be
paid to retired employees from government pension plans and/or private fund managed plans to which employees
may elect to contribute. As stipulated by the respective laws, Ternium Argentina and Ternium Mexico make
monthly contributions calculated based on each employee's salary to fund such plans. The related amounts are
expensed as incurred. No additional liabilities exist once the contributions are paid.
73
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(p) Provisions
Ternium has certain contingencies with respect to existing or potential claims, lawsuits and other proceedings.
Unless otherwise specified, Ternium accrues a provision for a present legal or constructive obligation as a result
of a past event, when it is probable that future cost could be incurred and that cost can be reasonably estimated.
Generally, accruals are based on developments to date, Ternium's estimates of the outcomes of these matters and
the advice of Ternium's legal advisors.
(q) Trade payables
Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method.
(r) Revenue recognition and other income
Revenue is recognized at a point of time from sales to direct customers upon the satisfaction of performance
obligations, which occurs when control of the goods transfers to the customer and the customer obtains the
benefits from the goods, the potential cash flows and the transaction price can be measured reliably, and it is
probable that the Company will collect the consideration in connection with the exchange of the goods. The
control over the goods is obtained by the customer depending on when the goods are made available to the
shipper or the customer takes possession of the goods, depending on the delivery terms. The Company considers
that it has completed its performance obligations when the goods are delivered to its customers or to a shipper
who will transport the goods to its customers. The revenue recognized by the Company is measured at the
transaction price of the consideration received or receivable to which the Company is entitled to, reduced by
estimated returns and other customer credits, such as discounts and volume rebates, based on the expected value
to be realized and after eliminating sales within the group.
Interest income is recognized on an effective yield basis.
(s) Borrowing Costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or production
of a qualifying asset are capitalized during the period of time that is required to complete and prepare the asset
for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get
ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
Other borrowing costs are expensed in the period in which they are incurred.
The amount of borrowing costs that Ternium capitalized during a period will not exceed the amount of
borrowing costs incurred during that period. At December 31, 2022, 2021 and 2020, the capitalized borrowing
costs were of $ 0.4 million, $ 6.3 million and $ 13.1 million, respectively.
74
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(t) Cost of sales, selling, general and administrative expenses
Cost of sales and expenses are recognized in the income statement on the accrual basis of accounting.
Commissions, freight and other selling expenses, including shipping and handling costs, are recorded in Selling,
general and administrative expenses in the Consolidated Income Statement.
(u) Stripping costs
Stripping costs are the costs associated with the removal of overburden and other waste materials and can be
incurred before the mining production commences (“development stripping”) or during the production stage
(“production stripping”).
Development stripping costs that contribute to the future economic benefits of mining operations are capitalized
as intangible assets (Mining assets). Production stripping costs which are part of on-going activities are included
in the cost of the inventory produced (that is extracted) at each mine during the period in which they are
incurred.
Capitalization of development stripping costs finishes when the commercial production of the mine commences.
At that time, all development stripping costs are presented within Mining assets and depreciated on a unit-of-
production basis. It is considered that commercial production begins when the production stage of mining
operations begins and continues throughout the life of a mine.
(v) Mining development costs
Mining development costs are the costs associated to the activities related to the establishment of access to the
mineral reserve and other preparations for commercial production. These activities often continue during
production.
Development expenditures are capitalized and classified as Work in progress. On completion of development, all
assets included in Work in progress are individually reclassified to the appropriate category of property, plant
and equipment and depreciated accordingly.
(w) Asset retirement obligations
Ternium records asset retirement obligations (“ARO”) initially at the fair value of the legal or constructive
obligation in the period in which it is incurred and capitalizes the ARO by increasing the carrying amount of
property, plant and equipment. The fair value of the obligation is determined as the discounted value of the
expected future cash flows and is included in Provisions. The liability is accreted to its present value through net
financing cost and the capitalized cost is depreciated based in the unit of production method.
(x) Earnings per share
Earnings per share are calculated by dividing the net income attributable to shareholders by the daily weighted
average number of ordinary shares issued during the year, excluding the average number of shares of the parent
Company held by the Group. There are no dilutive securities for the periods presented.
75
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(y) Derivative financial instruments and hedging activities
Ternium designates certain derivatives as hedges of a particular risk associated with a recognized asset or liability
or a highly probable forecast transaction. These transactions are classified as cash flow hedges (mainly interest
rate swaps, collars, currency forward contracts on highly probable forecast transactions and commodities
contracts). The effective portion of the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in OCI. Amounts accumulated in OCI are recognized in the income statement in the same
period as any offsetting losses and gains on the hedged item. The gain or loss relating to the ineffective portion is
recognized immediately in the income statement. The fair value of Ternium derivative financial instruments
(asset or liability) continues to be reflected in the statement of financial position.
For transactions designated and qualifying for hedge accounting, Ternium documents the relationship between
hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking
various hedge transactions. At December 31, 2022 and 2021, the effective portion of designated cash flow hedges
(net of taxes) amounted to nil and $ (0.04) million, respectively, and were included under "changes in the fair
value of derivatives classified as cash flow hedges" line item in the statement of comprehensive income (see Note
26 (a)).
More information about accounting for derivative financial instruments and hedging activities is included in
Note 28 "Financial risk management".
(z) Treasury shares
Acquisitions of treasury shares are recorded at acquisition cost, deducted from equity until disposal. The gains
and losses on disposal of treasury shares are recognized under "Reserves" in the consolidated statement of
financial position.
(aa) Cash flow
The consolidated statements of cash flows have been prepared using the indirect method and contain the use of
the following expressions and their respective meanings:
a) Operating activities: activities that constitute ordinary Group revenues, as well as other activities that cannot
be qualified as investing or financing.
b) Investing activities: acquisition, sale or disposal by other means of assets in the long-term and other
investments not included in cash and cash equivalents.
c) Financing activities: activities that generate changes in the size and composition of net equity and liabilities
that do not form part of operating activities.
(bb) Critical Accounting Estimates
The preparation of financial statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and
liabilities. Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
Management makes estimates and assumptions concerning the future. Actual results may differ significantly
from these estimates under different assumptions or conditions.
76
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
The principal estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are addressed below.
(1) Goodwill impairment test
Assessment of the recoverability of the carrying value of goodwill requires significant judgment. Management
evaluates goodwill allocated to the operating units for impairment on an annual basis or whenever there is an
impairment indicator.
Goodwill is tested at the level of the CGUs. Impairment testing of the CGUs is carried out and the value in use
determined in accordance with the accounting policy stated in Note 3(f). The discount rates used for these tests
are based on Ternium's weighted average cost of capital adjusted for specific country and currency risks
associated with the cash flow projections. The post-tax discount rate used at December 31, 2022 was 11.28% and
no impairment charge resulted from the impairment test performed. See notes 3(f) and 3(e)(4).
(2) Income taxes
Management calculates current and deferred income taxes according to the tax laws applicable to each subsidiary
in the countries in which such subsidiaries operate. However, due to uncertain tax positions, certain adjustments
necessary to determine the income tax provision are finalized only after the balance sheet is issued. In cases in
which the final tax outcome is different from the amounts that were initially recorded, such differences will
impact the income tax and deferred tax provisions in the period in which such determination is made.
Also, when assessing the recoverability of tax assets, management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning strategies.
(3) Loss contingencies
Ternium is subject to various claims, lawsuits and other legal proceedings that arise in the ordinary course of
business, including customer claims in which a third party is seeking reimbursement or indemnity. The
Company's liability with respect to such claims, uncertain tax positions, lawsuits and other legal proceedings
cannot be estimated with certainty. Periodically, management reviews the status of each significant matter and
assesses potential financial exposure. If the potential loss from the claim or proceeding is considered probable
and the amount can be reasonably estimated, a liability is recorded. Management estimates the amount of such
liability based on the information available and the assumptions and methods it has concluded are appropriate,
in accordance with the provisions of IFRS. Accruals for such contingencies reflect a reasonable estimate of the
losses to be incurred based on information available, including the relevant litigation or settlement strategy, as of
the date of preparation of these financial statements. As additional information becomes available, management
will reassess its evaluation of the pending claims, lawsuits and other proceedings and revise its estimates. The loss
contingencies provision amounts to $ 81.4 million and $ 83.3 million as of December 31, 2022 and 2021,
respectively.
77
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(4) Useful Lives and Impairment of Property, Plant and Equipment and Other Long-lived Assets
In determining useful lives, management considered, among others, the following factors: age, operating
condition and level of usage and maintenance. Management conducted visual inspections for the purpose of (i)
determining whether the current conditions of such assets are consistent with normal conditions of assets of
similar age; (ii) confirming that the operating conditions and levels of usage of such assets are adequate and
consistent with their design; (iii) establishing obsolescence levels and (iv) estimating life expectancy, all of which
were used in determining useful lives. Management believes, however, that it is possible that the periods of
economic utilization of property, plant and equipment may be different than the useful lives so determined.
Furthermore, management believes that this accounting policy involves a critical accounting estimate because it is
subject to change from period to period as a result of variations in economic conditions and business
performance.
When assessing whether an impairment indicator may exist, the Company evaluates both internal and external
sources of information, such as the following:
•
whether significant changes with an adverse effect on the entity have taken place during the period, or
will take place in the near future, in the technological, market, economic or legal environment in which the entity
operates or in the market to which an asset is dedicated;
•
whether market interest rates or other market rates of return on investments have increased during the
period, and those increases are likely to affect the discount rate used in calculating an asset's value in use and
decrease the asset's recoverable amount materially;
whether the carrying amount of the net assets of the entity is more than its market capitalization;
•
whether evidence is available of obsolescence or physical damage of an asset.
•
•
whether significant changes with an adverse effect on the entity have taken place during the period, or
are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is
expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the
operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and
reassessing the useful life of an asset as finite rather than indefinite; and
•
asset is, or will be, worse than expected.
whether evidence is available from internal reporting that indicates that the economic performance of an
(5) Post-employment obligation estimates
The Company estimates at each year-end the provision necessary to meet its post-employment obligations in
accordance with the advice from independent actuaries. The calculation of post-employment and other employee
obligations requires the application of various assumptions. The main assumptions for post-employment and
other employee obligations include discount rates, compensation growth rates, pension growth rates and life
expectancy. Changes in the assumptions could give rise to adjustments in the results and liabilities recorded and
might have an impact on the post-employment and other employee obligations recognized in the future.
78
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
3.
ACCOUNTING POLICIES (continued)
(cc) Climate Change
Ternium is committed to the UN Global Compact Initiative, its sustainable development goals, and the world's
efforts to address Climate Change.
The Company is determined to find ways to reduce the carbon footprint of its operations and the steel value
chain. In February 2021, Ternium announced a medium-term target to reduce its carbon dioxide emissions
intensity rate by 20% in 2030, compared to its 2018 base rate of 1.7 tons of carbon dioxide per ton of steel. The
Company’s strategy to achieve this 2030 reduction target consists of a multi-faceted approach that includes
increasing the use of renewable energy and the development of energy efficiency strategies, increasing the
participation of scrap in the metallic mix, improving the carbon capture capacity at its Direct Reduction Iron
("DRI") facilities, replacing coking coal with charcoal and prioritizing lower specific-emission steelmaking
technologies.
The Company intends to continue analyzing and developing measures to decarbonize its operations over the
longer term. This endeavor will require significant long-term investments, conditioned by technology innovation,
cooperation within the value chain, government regulations, and capital availability for decarbonization projects.
Factors like access to abundant and affordable clean energy, appropriate energy infrastructure, local and global
regulation that guarantee fair trade and carbon capture storage, access to sustainable finance for low emissions
steel-making technologies, and changes in consumer behavior will be key in the development of solutions and the
outcomes in the next decades.
Given that Ternium’s climate-change-related decarbonization plans span over many years and are subject to
significant uncertainty as described above, they have not been included as part of the assumptions used to
calculate future cash flows of the recoverable amount of the company’s CGUs, except for those plans that are
already approved or in process. Estimates and assumptions related to the impairment test over long-lived assets
and goodwill, useful lives of assets, capital and research and development expenditures, inventory valuation,
recovery of deferred tax assets and provisions, and contingent liabilities are based on available information and
government regulations in place as of December 31, 2022, as well as on the company’s already approved or in
process investment plans.
79
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
4.
SEGMENT INFORMATION
The Company is organized in two operating segments: Steel and Mining.
The Steel segment includes the sales of steel products, which comprises mainly slabs, hot and cold rolled
products, coated products, roll-formed and tubular products, billets, bars and other products.
The Mining segment includes the sales of mining products, mainly iron ore and pellets, and comprises the mining
activities of Las Encinas, an iron ore mining company in which Ternium holds a 100% equity interest and the
50% of the operations and results performed by Peña Colorada, another iron ore mining company in which
Ternium maintains that same percentage over its equity interest.
Ternium’s Chief Executive Officer (“CEO”) functions as the Company’s Chief Operating Decision Maker
(“CODM”). The various geographic regions operate as an integrated steel producer. The CEO allocates
resources and assesses performance of the Steel Segment as an integrated business and of the Mining Segment.
The CEO uses “Operating income – Management view” as per the below table as the performance measure
which differs from operating income determined in accordance with IFRS principally as follows:
• The use of direct cost methodology to calculate the inventories, while under IFRS is at full cost, including
absorption of production overheads and depreciation.
• The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are
calculated at historical cost (with the FIFO method).
• Other non-significant differences.
Operating income - Management view
Reconciliation:
Differences in Cost of sales
Operating income - Under IFRS
Financial income (expense), net
Equity in earnings (losses) of non-consolidated
companies
Income before income tax expense - IFRS
Net sales from external customers
Net sales from transactions with other operating
segments of the same entity
Depreciation and amortization
Operating income - Management view
Reconciliation:
Differences in Cost of sales
Operating income - Under IFRS
Financial income (expense), net
Equity in earnings (losses) of non-consolidated
companies
Income before income tax expense - IFRS
Net sales from external customers
Net sales from transactions with other operating
segments of the same entity
Depreciation and amortization
Year ended December 31, 2022
Inter-segment
eliminations
10,500
Mining
3,716
Steel
2,556,949
Total
2,571,165
128,354
2,699,519
(70,133)
37,114
2,666,500
16,414,334
132
—
16,414,466
(523,818)
410,636
(92,674)
(410,636)
—
—
(616,492)
Year ended December 31, 2021
Inter-segment
eliminations
1,586
204,070
Mining
Steel
4,210,135
Total
4,415,791
855,345
5,271,136
92,462
400,732
5,764,330
16,043,033
47,711
—
16,090,744
(528,144)
478,559
(63,646)
(478,559)
—
—
(591,790)
80
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
4.
SEGMENT INFORMATION (continued)
Operating income - Management view
Reconciliation:
Differences in Cost of sales
Operating income - Under IFRS
Financial income (expense), net
Equity in earnings (losses) of non-consolidated
companies
Income before income tax expense - IFRS
Net sales from external customers
Net sales from transactions with other operating
segments of the same entity
Depreciation and amortization
Year ended December 31, 2020
Inter-segment
eliminations
689
101,937
Mining
Steel
1,046,623
8,679,513
55,922
—
Total
1,149,249
(69,776)
1,079,473
22,331
57,555
1,159,359
8,735,435
(580,807)
334,619
(50,244)
(334,619)
—
—
(631,051)
Information on segment assets is not disclosed as it is not reviewed by the CEO.
GEOGRAPHICAL INFORMATION
The Company has no revenues attributable to the Company’s country of incorporation (Luxembourg) in 2022. In
2021 and 2020 the Company had revenues attributable to Luxembourg related to a contract acquired as part of
the acquisition of the participation in Ternium Brasil Ltda.
For purposes of reporting geographical information, net sales are allocated based on the customer’s location.
Allocation of depreciation and amortization is based on the geographical location of the underlying assets.
Year ended December 31, 2022
Mexico
Southern region
Brazil and Other
markets (1)
Total
Net sales
Non-current assets (2)
8,949,104
4,769,161
3,853,390
859,351
3,611,972
1,577,784
16,414,466
7,206,296
Year ended December 31, 2021
Mexico
Southern region
Brazil and Other
markets
Total
Net sales
Non-current assets (2)
8,990,868
4,789,273
3,377,596
861,149
3,722,280
1,683,412
16,090,744
7,333,834
e
Year ended December 31, 2020
Mexico
Southern region
Brazil and Other
markets
Total
Net sales
4,660,278
1,762,785
2,312,372
Non-current assets (2)
(1)The non-current assets value includes the impact of the impairment charge of $ 99.0 million recognized in the Brazil CGU.
(2) Includes Property, plant and equipment and Intangible assets.
4,726,342
919,490
1,767,432
8,735,435
7,413,264
81
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
4.
SEGMENT INFORMATION (continued)
REVENUES BY PRODUCT
Year ended December 31,
2021
2020
2022
Slabs
Hot rolled (1)
Cold rolled
Coated (2)
Roll-formed and tubular (3)
Billets, round bars and others
Other products (4)
TOTAL SALES
640,231
6,991,466
1,951,702
5,704,765
660,829
142,512
322,961
1,304,437
6,356,576
1,990,143
5,303,394
659,609
167,138
309,447
1,047,311
2,880,055
1,101,963
3,015,132
413,337
3,632
274,005
16,414,466
16,090,744
8,735,435
(1) Hot rolled includes hot rolled flat products, merchant bars, reinforcing bars, stirrups and rods.
(2) Coated includes tin plate and galvanized products.
(3) Roll-formed and tubular includes pre-engineered metal building systems, tubes, beams, insulated panels, roofing and cladding, roof
tiles, and steel decks.
(4) Other products include mainly sales of energy and pig iron..
5.
COST OF SALES
Year ended December 31,
2021
2020
2022
Inventories at the beginning of the year
3,908,305
2,001,781
2,158,298
Plus: Charges for the year
Raw materials and consumables used and
other movements
Services and fees
Labor cost
Depreciation of property, plant and equipment
Amortization of intangible assets
Maintenance expenses
Office expenses
Insurance
Change of obsolescence allowance
Valuation allowance
Recovery from sales of scrap and by-products
Others
9,773,523
183,003
862,593
532,160
43,947
612,928
10,295
15,184
20,804
15,333
(42,000)
21,422
9,835,504
151,251
689,614
514,746
23,519
582,633
7,741
12,309
3,965
—
(37,597)
17,909
5,359,938
112,924
546,045
527,283
14,624
371,368
6,131
10,641
(1,279)
—
(20,892)
16,623
Less: Inventories at the end of the year
(3,470,215)
(3,908,305)
(2,001,781)
Cost of Sales
12,487,282
9,895,070
7,099,923
82
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
6.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Services and fees (1)
Labor cost
Depreciation of property, plant and equipment
Amortization of intangible assets
Maintenance and expenses
Taxes
Office expenses
Freight and transportation
Increase (decrease) of allowance for doubtful
accounts
Others
Year ended December 31,
2021
2020
2022
73,401
299,139
13,990
26,395
8,311
170,216
41,921
499,127
114
11,032
60,216
250,697
14,153
39,372
6,977
160,254
34,968
365,455
350
17,682
53,220
192,854
15,920
73,224
4,275
97,075
27,314
283,808
336
14,856
Selling, general and administrative expenses
1,143,646
950,124
762,882
(1) For the year ended December 31, 2022, it includes fees accrued for professional services rendered by PwC to Ternium S.A. and its
subsidiaries that amounted to $ 3,991, including $ 3,681 for audit services, $ 272 for audit-related services and $ 38 for all other services.
For the year ended December 31, 2021, it includes fees accrued for professional services rendered by PwC to Ternium S.A. and its
subsidiaries that amounted to $ 3,241, including $ 3,157 for audit services, $ 78 for audit-related services and $ 6 for all other services.
For the year ended December 31, 2020, it includes fees accrued for professional services rendered by PwC to Ternium S.A. and its
subsidiaries that amounted to $ 3,289, including $ 3,132 for audit services, $ 41 for audit-related services, $ 95 for tax services and $ 21 for
all other services.
7.
LABOR COSTS (Included Cost of sales and Selling, General and Administrative expenses)
Wages, salaries and social security costs
Termination benefits
Post-employment benefits (Note 20 (i))
Labor costs
Year ended December 31,
2021
2020
2022
1,093,105
22,246
46,381
1,161,732
878,347
18,677
43,287
940,311
677,541
25,265
36,093
738,899
As of December 31, 2022, 2021 and 2020, the number of employees was 20,510, 20,142 and 20,173, respectively.
83
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
8.
OTHER OPERATING INCOME (EXPENSES), NET
Results of sundry assets
Provision for legal claims and other matters (Note
18 and 24 (i) and (ii))
Recovery of provision related to the ICMS action
of unconstitutionality (Note 24 (i) (f)) (1)
Other operating income (2)
Other operating income
Provision for legal claims and other matters (Note
18 and 24 (i) and (ii))
Impairment charge (Note 3 (f))
Reversal of the asset in connection with the slab
commitment agreement (Note 3 (e) (6))
Reversal of the asset in connection with the ICMS
provision (Note 24 (i) (f)) (1)
Year ended December 31,
2021
2020
2022
8,177
1,069
—
5,735
14,981
—
(99,000)
—
—
8,558
1,363
—
—
—
40,587
49,145
380,075
20,093
401,531
(11,761)
(623)
(11,798)
—
—
(194,065)
Other operating expense
Other operating income (expenses), net
(99,000)
(84,019)
(23,559)
(194,688)
25,586
206,843
(1) For the year ended December 31, 2020, it includes the gain generated by the recovery of the provision for contingencies related to the
ICMS action of unconstitutionality ($ 380,075), partially compensated by the reversal of the related credit ($ 194,065). For more
information about this case, see note 24 (i)(f).
(2) For the year ended December 31, 2021, it includes the recovery of certain tax credits in Brazil of $ 27,200.
9.
OTHER FINANCIAL INCOME (EXPENSES), NET
Year ended December 31,
2021
2020
2022
Interest expense
Finance expense
Interest income
Finance income
Net foreign exchange gain (loss) (1)
Change in fair value of financial assets
Derivative contract results
Others
(46,737)
(46,737)
75,145
75,145
(163,740)
78,309
(2,132)
(10,978)
(26,997)
(26,997)
62,912
62,912
(36,761)
75,801
1,485
16,022
Other financial income (expenses), net
(98,541)
56,547
(1) Mainly related to the devaluation of the Argentine peso.
(46,644)
(46,644)
49,421
49,421
3,379
6,104
11,933
(1,862)
19,554
84
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
10.
INCOME TAX EXPENSE
Income tax expense for each of the years presented is as follows:
Current tax
Current tax
Deferred tax (Note 19)
Deferred tax
Effect of changes in tax law (1)
Recovery of income tax (2)
Income tax expense
Year ended December 31,
2021
2020
2022
(671,016)
(1,650,281)
(338,408)
80,692
—
16,596
185,655
(9,117)
76,604
39,895
—
7,025
(573,728)
(1,397,139)
(291,488)
(1) For 2021, it includes the modification of the tax rate in Argentina enacted in 2017 and modified in 2019 and 2021, setting the corporate
income tax rate to 35% for the year 2021 going forward.
(2) It includes the recovery of tax credits in Ternium Brasil Ltda.
Income tax expense for the years ended December 31, 2022, 2021 and 2020 differed from the amount computed by applying
the statutory income tax rate in force in each country in which the company operates to pre-tax income as a result of the
following:
Year ended December 31,
2021
2020
2022
Income before income tax
2,666,500
5,764,330
1,159,359
Income tax expense at statutory tax rate
Non taxable income
Non deductible expenses
Effect of currency translation on tax base (1)
Recovery of income tax
Effect of changes in tax law
(785,888)
—
(45,862)
241,426
16,596
—
(1,633,556)
37,815
—
131,115
76,604
(9,117)
(350,896)
118,540
—
(66,157)
7,025
—
Income tax expense
(573,728)
(1,397,139)
(291,488)
(1) Ternium applies the liability method to recognize deferred income tax on temporary differences between the tax bases of assets and
their carrying amounts in the financial statements. By application of this method, Ternium recognizes gains and losses on deferred income
tax due to the effect of the change in the value on the tax basis in subsidiaries, which have a functional currency different to their local
currency, mainly Mexico and Argentina.
Tax rates used to perform the reconciliation between tax expense (income) and accounting profit are those in effect at each
relevant date or period in each applicable jurisdiction.
85
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
11. PROPERTY, PLANT AND EQUIPMENT, NET
(1) Property, plant and equipment,net
Year ended December 31, 2022
Land
Buildings
and
improvements
Production
equipment
Vehicles,
furniture
and fixtures
Work in
progress
Spare
parts
Right-of-
use
assets
Total
Values at the beginning of the year
Cost
Accumulated depreciation
594,744
—
4,023,271 7,707,052
(1,890,186) (4,986,161)
294,356 563,082 166,959 364,971 13,714,435
(29,792) (136,468) (7,282,857)
(240,250)
—
Net book value at January 1, 2022
594,744
2,133,085 2,720,891
54,106 563,082 137,167 228,503 6,431,578
Opening net book value
Translation differences
Impairment charge (note 3 (f))
Additions
Capitalized borrowing costs
Disposals / Consumptions
Indexation
Transfers
Depreciation charge
Closing net book value
Values at the end of the year
Cost
Accumulated depreciation
Net book value at December 31,
2022
594,744
139
—
5,342
—
(953)
—
8,699
—
2,133,085 2,720,891
123
(45,365)
913
—
(1,056)
—
273,885
(328,574)
325
(53,635)
2,423
—
(1,133)
—
144,914
(147,863)
23
—
—
—
54,106 563,082 137,167 228,503 6,431,578
619
(99,000)
13,961 487,228
403
(28,395)
17,945
(2,341)
(49,226) (546,150)
9
—
2,337 433,269
403
(1,162)
—
18,660 (448,499)
—
(19,414)
—
—
28,983
—
(22,210)
—
—
(1,073)
—
(1,039)
17,945
—
—
(842)
—
607,971
2,078,116 2,620,817
54,870 547,102 142,867 210,144 6,261,887
607,971
—
4,091,108 7,744,607
(2,012,992) (5,123,790)
309,469 547,102 173,731 395,620 13,869,608
(30,864) (185,476) (7,607,721)
(254,599)
—
607,971
2,078,116 2,620,817
54,870 547,102 142,867 210,144 6,261,887
Year ended December 31, 2021
Land
Buildings
and
improvements
Production
equipment
Vehicles,
furniture
and fixtures
Work in
progress
Spare parts
Right-of-
use
assets
Total
Values at the beginning of the year
Cost
Accumulated depreciation
592,761
—
3,567,732 7,179,626
(1,754,476) (4,714,976)
289,877 1,203,362 143,309 349,003 13,325,670
(92,633) (6,820,989)
(231,719)
(27,185)
—
Net book value at January 1, 2021
592,761
1,813,256 2,464,650
58,158 1,203,362 116,124 256,370 6,504,681
Opening net book value
Translation differences
Additions
Capitalized borrowing costs
Disposals / Consumptions
Indexation
Transfers
592,761
1,813,256 2,464,650
58,158 1,203,362 116,124 256,370 6,504,681
(70)
—
—
—
—
(161)
1,874
—
(7,439)
—
(43)
282
—
(801)
—
(11)
(18)
—
—
(303)
1,285 418,736
6,294
(1,915)
—
(1,276)
38,800
—
(15,150)
13,758 474,735
6,294
(28,576)
—
(1,995)
—
—
—
—
4,523
4,523
—
(877)
2,053
461,377
585,186
13,884 (1,063,377)
Depreciation charge
—
(135,822)
(328,383)
(17,934)
—
(2,607)
(44,153) (528,899)
Closing net book value
594,744
2,133,085 2,720,891
54,106 563,082 137,167 228,503 6,431,578
Values at the end of the year
Cost
594,744
4,023,271 7,707,052
294,356 563,082 166,959 364,971 13,714,435
Accumulated depreciation
—
(1,890,186) (4,986,161)
(240,250)
—
(29,792) (136,468) (7,282,857)
Net book value at December 31,
2021
594,744
2,133,085 2,720,891
54,106 563,082 137,167 228,503 6,431,578
86
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
11. PROPERTY, PLANT AND EQUIPMENT, NET (continued)
(2) Right-of-use assets
Values at the beginning of the year
Cost
Accumulated depreciation
Net book value at January 1, 2022
Opening net book value
Additions
Disposal/Derecognition
Indexation
Depreciation charge
Closing net book value
Values at the end of the year
Cost
Accumulated depreciation
Net book value at December 31, 2022
Values at the beginning of the year
Cost
Accumulated depreciation
Net book value at January 1, 2021
Opening net book value
Additions
Disposal/Derecognition
Indexation
Depreciation charge
Closing net book value
Values at the end of the year
Cost
Accumulated depreciation
Net book value at December 31, 2021
Right-of-use assets
Land
Buildings
and
improvements
Production
equipment
Vehicles,
furniture and
fixtures
Total
—
—
—
—
1,339
—
—
(4)
1,335
1,339
(4)
1,335
245,300
(87,103)
158,197
158,197
6,445
—
14,585
(31,606)
147,621
266,330
(118,709)
147,621
119,497
(49,321)
70,176
70,176
6,163
(1,039)
3,360
(17,534)
61,126
127,764
(66,638)
61,126
174
(44)
130
130
14
—
—
(82)
62
187
(125)
62
364,971
(136,468)
228,503
228,503
13,961
(1,039)
17,945
(49,226)
210,144
395,620
(185,476)
210,144
Right-of-use assets
Land
Buildings
and
improvements
Production
equipment
Vehicles,
furniture and
fixtures
Total
—
—
—
—
—
—
—
—
—
—
—
—
239,211
(58,052)
181,159
181,159
2,732
(353)
4,027
(29,368)
158,197
245,300
(87,103)
158,197
109,792
(34,581)
75,211
75,211
10,852
(1,642)
496
(14,741)
70,176
119,497
(49,321)
70,176
—
—
—
—
174
—
—
(44)
130
174
(44)
130
349,003
(92,633)
256,370
256,370
13,758
(1,995)
4,523
(44,153)
228,503
364,971
(136,468)
228,503
The cost related to variable-lease payments that do not depend on an index or rate amounted to $ 14.5 million
for the year ended December 31, 2022 ($ 20.0 million for the year ended December 31, 2021).
The expenses related to leases for which the Company applied the practical expedient described in paragraph 5
(a) of IFRS 16 (leases with contract term of less than 12 months) amounted to $ 1.9 million for the year ended
December 31, 2022 ($ 2.0 million and $ 0.8 million for the year ended December 31, 2021 and 2020, respectively).
87
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
12.
INTANGIBLE ASSETS, NET
Information
system
projects
Mining
assets
Year ended December 31, 2022
Customer
relationships
and other
contractual
rights
Exploration
and
evaluation
costs
Trademarks Goodwill
Total
Values at the beginning of the year
Cost
Accumulated depreciation
402,387
(322,595)
326,269
(184,766)
Net book value at January 1, 2022
79,792
141,503
Opening net book value
Additions
Transfers
Depreciation charge
79,792
57,689
2,348
(27,655)
141,503
—
32,498
(42,332)
11,231
—
11,231
11,231
50,627
(32,498)
—
Closing net book value
112,174
131,669
29,360
295,597
(288,174)
73,935
(73,935)
662,307
—
1,771,726
(869,470)
7,423
7,423
1,831
—
(355)
8,899
—
662,307
902,256
—
—
—
—
662,307
—
—
—
902,256
110,147
2,348
(70,342)
—
662,307
944,409
Values at the end of the year
Cost
Accumulated depreciation
Net book value at December 31,
2022
460,434
(348,260)
358,767
(227,098)
29,360
—
297,427
(288,528)
73,935
(73,935)
662,307
—
1,882,230
(937,821)
112,174
131,669
29,360
8,899
—
662,307
944,409
Information
system
projects
Mining
assets
Year ended December 31, 2021
Customer
relationships
and other
contractual
rights
Exploration
and
evaluation
costs
Trademarks Goodwill
Total
Values at the beginning of the year
Cost
Accumulated depreciation
369,468
(293,627)
275,912
(163,298)
Net book value at January 1, 2021
75,841
112,614
Opening net book value
Additions
Disposals / Consumptions
Transfers
Depreciation charge
75,841
29,066
—
3,929
(29,044)
112,614
2,864
—
47,493
(21,468)
26,221
—
26,221
26,221
32,520
—
(47,510)
—
604,929
(573,329)
31,600
31,600
—
(11,798)
—
(12,379)
Closing net book value
79,792
141,503
11,231
7,423
73,935
(73,935)
662,307
—
2,012,772
(1,104,189)
—
662,307
908,583
—
—
—
—
—
—
662,307
—
—
—
—
908,583
64,450
(11,798)
3,912
(62,891)
662,307
902,256
Values at the end of the year
Cost
Accumulated depreciation
Net book value at December 31,
2021
402,387
(322,595)
326,269
(184,766)
11,231
—
295,597
(288,174)
73,935
(73,935)
662,307
—
1,771,726
(869,470)
79,792
141,503
11,231
7,423
—
662,307
902,256
The Company has not registered any impairment charges in connection with Goodwill (see notes 3 (f) and (bb)(1) and (4)).
88
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
13.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES
At the beginning of the year
Equity in earnings of non-consolidated companies
Other comprehensive income
Dividends from non-consolidated companies
At the end of the year
As of December 31,
2021
2022
751,475
37,114
48,475
(15,493)
821,571
471,306
400,732
(38,441)
(82,122)
751,475
The principal investments in non-consolidated companies, all of which are unlisted, except for Usiminas, are:
Country of
incorporation
Main activity
Usinas Siderurgicas de Minas
Gerais S.A. - USIMINAS
Brazil
Techgen S.A. de C.V.
Mexico
Other non-consolidated
companies (1)
Manufacturing
and selling of
steel products
Provision of
electric power
Voting rights at
Value at
December
31, 2022
December
31, 2021
December
31, 2022
December
31, 2021
34.39 %
34.39 %
725,705
681,711
48.00 %
48.00 %
90,559
64,140
5,307
5,624
821,571
751,475
(1) It includes the investment held in Finma S.A.I.F., Recrotek S.R.L. de C.V. and Gas Industrial de Monterrey S.A. de C.V.
(a) Usinas Siderurgicas de Minas Gerais S.A. – USIMINAS
As of December 31, 2022, Ternium, through its subsidiaries, owns a total of 242.6 million ordinary shares and 8.5
million preferred shares, representing 20.40% of the issued and outstanding share capital of Usinas Siderurgicas
de Minas Gerais S.A. – USIMINAS (“Usiminas”), the largest flat steel producer in Brazil for the energy,
automotive and other industries.
Ternium, through its subsidiaries, together with Tenaris S.A.’s Brazilian subsidiary Confab Industrial S.A.
(“TenarisConfab”), are part of Usiminas’ control group, comprising the so-called T/T Group. As at December
31, 2022, the Usiminas control group holds, in the aggregate, 483.6 million ordinary shares bound to the
Usiminas shareholders’ agreement, representing approximately 68.6% of Usiminas’ voting capital. The Usiminas
control group, which is bound by a long-term shareholders’ agreement that governs the rights and obligations of
Usiminas’ control group members, is currently composed of three sub-groups: the T/T Group; the NSC Group,
comprising Nippon Steel Corporation (“NSC”), Metal One Corporation and Mitsubishi Corporation; and
Usiminas’ pension fund Previdência Usiminas. The T/T Group holds approximately 47.1% of the total shares
held by the control group (39.5% corresponding to the Ternium entities and the other 7.6% corresponding to
TenarisConfab); the NSC Group holds approximately 45.9% of the total shares held by the control group; and
Previdência Usiminas holds the remaining 7%.
89
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
13.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
The corporate governance rules reflected in the Usiminas shareholders agreement provide, among other things,
that Usiminas’ executive board will be composed of six members, including the chief executive officer and five
vice-presidents, with Ternium and NSC nominating three members each. The right to nominate Usiminas’ chief
executive officer alternates between Ternium and NSC at every 4-year interval, with the party that does not
nominate the chief executive officer having the right to nominate the chairman of Usiminas’ board of directors
for the same 4-year period. The Usiminas shareholders agreement also provides for an exit mechanism consisting
of a buy-and-sell procedure—exercisable at any time after November 16, 2022 and applicable with respect to
shares held by NSC and the T/T Group—, which would allow either Ternium or NSC to purchase all or a
majority of the Usiminas shares held by the other shareholder.
As of December 31, 2022, the closing price of the Usiminas ordinary and preferred shares, as quoted on the
BM&F Bovespa Stock Exchange, was BRL 7.41 (approximately $ 1.42; December 31, 2021: BRL 14.51 – $ 2.60)
per ordinary share and BRL 7.16 (approximately $ 1.37; December 31, 2021: BRL 15.16 – $ 2.72) per preferred
share, respectively. Accordingly, as of December 31, 2022, Ternium’s ownership stake had a market value of
approximately $ 356.2 million ($ 653.9 million as of December 31, 2021) and a carrying value of $ 725.7 million
($ 681.7 million as of December 31, 2021).
As of December 31, 2022 and 2021, the value of the investment in Usiminas is comprised as follows:
Value of investment
At the beginning of the year
Share of results (1)
Other comprehensive income
Dividends
Impairment charge (note 3 (f))
At the end of the year
(1) It includes the adjustment of the values associated to the purchase price allocation.
The investment in Usiminas is based in the following calculation:
Usiminas' shareholders' equity
Percentage of interest of the Company over shareholders' equity
Interest of the Company over shareholders' equity
Purchase price allocation
Goodwill
Impairment
Total Investment in Usiminas
USIMINAS
As of
December 31,
2022
As of
December 31,
2021
681,711
130,696
48,145
(14,487)
(120,360)
725,705
422,948
379,067
(38,680)
(81,624)
—
681,711
4,437,784
20.40%
905,444
56,255
199,213
(435,207)
725,705
On February 10, 2023, Usiminas issued its annual accounts as of and for the year ended December 31, 2022.
90
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
13.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
Summarized balance sheet (in million $)
As of December 31,
2022
As of December 31,
2021
Assets
Non-current
Current
Other current investments
Cash and cash equivalents
Total Assets
Liabilities
Non-current
Non-current borrowings
Current
Current borrowings
Total Liabilities
Non-controlling interest
Shareholders' equity
Summarized income statement (in million $)
Net sales
Cost of sales
Gross Profit
Selling, general and administrative expenses
Other operating income (loss), net
Operating income
Financial expenses, net
Equity in earnings of associated companies
Profit (Loss) before income tax
Income tax benefit
Net profit (loss) before non-controlling interest
Non-controlling interest in other subsidiaries
Net profit (loss) for the year
b) Techgen S.A. de C.V.
3,764
2,930
413
559
7,666
508
1,163
1,009
25
2,705
523
4,438
3,491
2,325
75
1,184
7,075
477
1,098
1,104
31
2,710
468
3,897
Year ended
December 31, 2022
Year ended
December 31, 2021
6,297
(5,187)
1,110
(237)
(386)
487
114
43
644
(231)
413
(93)
320
6,270
(4,168)
2,102
(199)
197
2,100
158
41
2,299
(426)
1,873
(185)
1,688
Techgen is a Mexican natural gas-fired combined cycle electric power plant in the Pesquería area of the State of
Nuevo León, Mexico. The company started producing energy on December 1, 2016 and is fully operational. As
of February 2017, Ternium, Tenaris, and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin
S.A., the controlling shareholder of both Ternium and Tenaris) completed their investments in Techgen. Techgen
is currently owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris. Ternium and Tenaris also agreed
to enter into power supply and transportation agreements with Techgen, pursuant to which Ternium and
Tenaris will contract 78% and 22%, respectively, of Techgen’s power capacity of 900 megawatts.
Techgen stated in its unaudited annual accounts as of and for the year ended December 31, 2022, that revenues
amounted to $ 580 million ($ 419 million as of December 31, 2021), net profit from continuing operations to $ 55
million ($45 million as of December 31, 2021), non-current assets to $ 766 million ($ 791 million as of December
31, 2021), current assets to $ 131 million ($ 91 million as of December 31, 2021), non-current liabilities to $ 527
million ($ 614 million as of December 31, 2021), current liabilities to $ 181 million ($ 134 million as of December
31, 2021) and shareholders’ equity to $ 189 million ($ 134 million as of December 31, 2021).
During 2017 and 2016, Techgen’s shareholders made additional investments in Techgen, in the form of
subordinated loans, which in the case of Ternium amounted to $ 126.8 million as of December 31, 2022, and
which are due in June 2026.
91
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
13.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
On February 2019, Techgen S.A. de C.V. entered into syndicated loan agreement with HSBC Mexico, Natixis,
Credit Agricole, BNP, Santander, Intesa SP and Norinchukin (the “Syndicated Loan”), according to the following
terms: (i) Libor + 170 bps; (ii) maturity on February 13, 2026; (iii) average life 4,30 years; and (iv) guaranteed by:
assets, shares, a debt service reserve account - which represents 10% of the outstanding amount- and the fix
capacity charge cash-flow.
On August 5, 2021, Ternium Investments completed the purchase of a participation in this Syndicated Loan for
an amount of $ 68 million. As of December 31, 2022, the outstanding syndicated loan amount was of $ 344
million and Ternium Investments’ participation was of $ 51 million.
For commitments from Ternium in connection with Techgen, see note 24.
14. RECEIVABLES, NET – NON CURRENT AND CURRENT
Receivables with related parties (Notes 25 and 13 (b))
Employee advances and loans
Advances to suppliers for the purchase of property, plant and equipment
Advances to suppliers for the purchase of property, plant and equipment with related
parties (Note 25)
Other tax credits
Others
Receivables, net – Non-current
Value added tax
Income tax credits
Other tax credits
Employee advances and loans
Advances to suppliers
Advances to suppliers with related parties (Note 25)
Expenses paid in advance
Government tax refunds on exports
Receivables with related parties (Note 25)
Others
Receivables, net – Current
As of December 31,
2021
2022
127,008
21,729
44,067
2,444
117,111
6,331
318,690
126,860
23,147
14,435
2,075
9,803
1,483
177,803
As of December 31,
2021
2022
133,860
400,949
37,461
6,782
22,257
6,089
17,850
1,677
17,154
18,683
195,070
44,544
24,402
5,703
16,700
7,160
11,785
7,639
26,743
17,959
662,762
357,705
92
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
15.
TRADE RECEIVABLES, NET - NON CURRENT AND CURRENT
Trade receivables
Trade receivables, net – Non-current
Current accounts
Trade receivables with related parties (Note 25)
Allowance for doubtful accounts (Note 18)
Trade receivables, net - Current
As of December 31,
2021
2022
—
—
229
229
1,110,481
80,078
(9,870)
1,180,689
1,699,252
77,416
(9,472)
1,767,196
Trade receivables, net as of December 31, 2022
Fully
performing
Past due
Total
Guaranteed
Not guaranteed
Trade receivables
Allowance for doubtful accounts (Note 18)
Trade receivables, net
527,700
662,859
1,190,559
(9,870)
1,180,689
498,962
590,093
1,089,055
—
1,089,055
28,738
72,766
101,504
(9,870)
91,634
Trade receivables, net as of December 31, 2021
Fully
performing
Past due
Total
Guaranteed
Not guaranteed
Trade receivables
Allowance for doubtful accounts (Note 18)
Trade receivables, net
16.
INVENTORIES, NET
Raw materials, materials and spare parts
Goods in process
Finished goods
Goods in transit
Obsolescence allowance (Note 18)
Valuation allowance
Inventories, net
838,798
938,099
1,776,897
(9,472)
1,767,425
795,466
886,079
1,681,545
—
1,681,545
43,332
52,020
95,352
(9,472)
85,880
As of December 31,
2021
2022
963,732
1,681,239
553,965
365,675
(79,063)
(15,333)
3,470,215
990,360
1,848,181
737,650
393,590
(61,476)
—
3,908,305
93
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
17. CASH, CASH EQUIVALENTS AND OTHER INVESTMENTS, NON-CURRENT AND
CURRENT
Investments in debt instruments and other
Other investments
Other investments, net – Non-current
(i) Other investments
Other deposits with maturity of more than three months
Other investments - Current
(ii) Cash and cash equivalents
Cash and banks
Restricted cash
Short-term bank deposits
Other deposits with maturity of less than three months
Cash and cash equivalents
As of December 31,
2021
2022
100,464
252
100,716
67,025
252
67,277
As of December 31,
2021
2022
1,875,026
1,875,026
371,797
30
772,953
508,575
1,653,355
1,290,459
1,290,459
305,136
58
692,529
278,882
1,276,605
18. ALLOWANCES AND PROVISIONS - NON CURRENT AND CURRENT
Provisions and allowances - Non current
Year ended December 31, 2022
Values at the beginning of the year
Translation differences
Additions
Reversals
Uses
At December 31, 2022
Year ended December 31, 2021
Values at the beginning of the year
Translation differences
Additions
Reversals
Uses
At December 31, 2021
Liabilities
Liabilities
Legal claims
and other
matters
Asset
retirement
obligation
83,299
2,999
5,889
(6,959)
(3,806)
81,422
80,570
(5,898)
15,802
(4,041)
(3,134)
83,299
32,098
2,735
3,271
—
—
38,104
41,673
(1,084)
(8,491)
—
—
32,098
94
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
18. ALLOWANCES AND PROVISIONS - NON CURRENT AND CURRENT (continued)
Provisions and allowances - Current
Year ended December 31, 2022
Values at the beginning of the year
Translation differences
Additions
Reversals
Uses
At December 31, 2022
Year ended December 31, 2021
Values at the beginning of the year
Translation differences
Additions
Reversals
Uses
At December 31, 2021
Deducted from assets
Allowance for
doubtful
accounts
Obsolescence
allowance
Liabilities
Asset
retirement
obligation
9,472
544
1,786
(1,672)
(260)
61,476
—
36,666
(15,862)
(3,217)
9,870
79,063
10,500
(721)
775
(425)
(657)
58,610
(5)
15,968
(12,003)
(1,094)
9,472
61,476
3,610
(465)
3,558
—
(3,399)
3,304
4,515
(323)
5,909
—
(6,491)
3,610
19. DEFERRED INCOME TAX
Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rate of the
applicable country.
Changes in deferred income tax are as follows:
At the beginning of the year
Translation differences
Effect of changes in tax law (note 10)
Credits directly to other comprehensive income
Deferred tax credit (note 10)
At the end of the year
(25,471)
330
—
As of December 31,
2021
2022
(187,782)
(69)
(9,117)
(14,158)
185,655
(25,471)
(18,056)
80,692
37,495
95
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
19. DEFERRED INCOME TAX (continued)
The changes in deferred tax assets and liabilities (prior to offsetting the balances within the same tax jurisdiction) during the
year are as follows:
Deferred tax liabilities
PP&E
Inventories
Intangible
assets
Other
Total at
December 31,
2022
At the beginning of the year
(353,420)
49,437
(26,323) (10,959)
Income statement credit (charge)
152,864
(119,031)
3,400
13,270
At the end of the year
(200,556)
(69,594)
(22,923)
2,311
Deferred tax assets
Provisions
Trade
receivables
Tax
losses (1)
Other
(2)
At the beginning of the year
Translation differences
Credits directly to other comprehensive income
Income statement credit (charge)
At the end of the year
82,139
—
—
16,860
98,999
35,144
3,578
194,934
—
—
(19,629)
—
—
13,822
330
(18,056)
19,136
15,515
17,400
196,343
(341,265)
50,503
(290,762)
Total at
December 31,
2022
315,795
330
(18,056)
30,189
328,257
(1) As of December 31, 2022, the recognized deferred tax assets on tax losses amount to $ 17.4 million and there are net unrecognized
deferred tax assets of $ 202.0 million and unrecognized tax losses amounting to $ 879.0 million. These two last effects are connected to the
acquisition of Ternium Brasil Ltda.
(2) It corresponds mainly to the deferred tax assets related to post-employment benefits and asset retirement obligations.
Deferred tax liabilities
PP&E
Inventories
Intangible
assets
Other
Total at
December 31,
2021
At the beginning of the year
Income statement credit (charge)
At the end of the year
(426,140)
(30,187)
(20,710)
(2,021)
72,720
(353,420)
79,624
49,437
(5,613)
(8,938)
(26,323) (10,959)
(479,058)
137,793
(341,265)
Deferred tax assets
Provisions
Trade
receivables
Tax
losses (3)
Other (4)
Total at
December 31,
2021
At the beginning of the year
Translation differences
Credits directly to other comprehensive income
Effect of changes in tax law
Income statement credit (charge)
At the end of the year
52,342
—
—
—
29,797
82,139
9,186
31,084
198,664
—
—
—
25,958
35,144
—
—
—
(69)
(14,158)
(9,117)
(27,506) 19,613
3,578
194,934
291,276
(69)
(14,158)
(9,117)
47,862
315,795
(3) As of December 31, 2021, the recognized deferred tax assets on tax losses amount to $ 3,6 million and there are net unrecognized
deferred tax assets of $ 0.1 billion and unrecognized tax losses amounting to $ 0.8 billion. These two last effects are connected to the
acquisition of Ternium Brasil Ltda.
(4) It corresponds mainly to the deferred tax assets related to post-employment benefits and asset retirement obligations.
Deferred tax assets and liabilities are offset when the entity a) has a legally enforceable right to set off the
recognized amounts; and b) intends to settle the tax on a net basis or to realize the asset and settle the liability
simultaneously.
96
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
20. OTHER LIABILITIES-NON CURRENT AND CURRENT
(i) Other liabilities - Non current
Post-employment benefits
Other employee benefits
Asset retirement obligation (note 18) (1)
Other
Other liabilities – Non-current
As of December 31,
2021
2022
405,018
84,028
38,104
11,064
538,214
390,942
74,787
32,098
9,059
506,886
(1) The asset in connection with this liability is included in Property, plant and equipment.
Post-employment benefits
The amounts recognized in the consolidated statement of financial position are determined as follows:
Present value of unfunded obligations
Liability in the statement of financial position
The amounts recognized in the consolidated income statement are as follows:
Current service cost
Interest cost
Total included in labor costs
Post-employment benefits
As of December 31,
2021
2022
405,018
405,018
390,942
390,942
Post-employment benefits
Year ended December 31,
2022
2021
13,721
32,660
46,381
13,624
29,663
43,287
Changes in the liability recognized in the consolidated statement of financial position are as follows:
At the beginning of the year
Transfers, new participants and funding of the plan
Total expense
Remeasurements
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Translation differences
Contributions paid
At the end of the year
Post-employment benefits
As of December 31,
2021
2022
390,942
(508)
46,381
(24,567)
3,990
(36,927)
8,370
21,088
(28,318)
405,018
432,648
1,255
43,287
(46,777)
710
(82,243)
34,756
(11,720)
(27,751)
390,942
97
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
20. OTHER LIABILITIES-NON CURRENT AND CURRENT (continued)
The principal actuarial assumptions used were as follows:
Mexico
Discount rate
Compensation growth rate
Argentina
Discount rate
Compensation growth rate
Year ended December 31,
2022
9.00%
2021
8.00%
6.00% - 7.00% 6.00% - 7.00%
Year ended December 31,
2022
2021
6.00% - 7.00% 6.00% - 7.00%
2.00% - 3.00% 2.00% - 3.00%
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is as follows:
Discount rate
Compensation growth rate
Pension growth rate
Life expectancy
Impact on defined benefit obligation
Increase in
assumption
-8.1%
3.3%
-1.0%
-2.3%
Change in
assumption
1.00%
1.00%
1.00%
1 year
Decrease in
assumption
9.5%
-2.8%
1.1%
2.4%
The estimated future payments for the next five years will be between $ 31.4 million and $ 39.9 million per year.
(ii) Other liabilities - Current
Payroll and social security payable
VAT liabilities
Other tax liabilities
Termination benefits
Related Parties (Note 25)
Asset retirement obligation (Note 18)
Others
Other liabilities – Current
As of December 31,
2021
2022
150,378
113,842
55,622
761
515
3,303
20,422
344,843
161,303
107,453
53,378
787
28
3,610
18,564
345,123
98
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
21. DERIVATIVE FINANCIAL INSTRUMENTS
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments at December 31, 2022 and 2021 were as follows:
Contracts with positive fair value
Foreign exchange contracts
Contracts with negative fair value
Interest rate swap contracts
Commodity contracts
Foreign exchange contracts
As of December 31,
2021
2022
227
227
(1)
(504)
—
(505)
4,353
4,353
(163)
—
(1,726)
(1,889)
Derivative financial instruments breakdown is as follows:
(a) Interest rate contracts
Fluctuations in market interest rates create a degree of risk by affecting the amount of the Company’s interest
payments and the value of its floating-rate debt. As of December 31, 2022, most of the Company’s long-term
borrowings were at variable rates.
During 2012 and 2013, Tenigal entered into several forward starting interest rate swap agreements in order to fix
the interest rate to be paid over an aggregate amount of $ 100 million, at an average rate of 1.92%. As of
December 31, 2022 there are no outstanding balances. These agreements became effective during July 2014, were
due in July 2022 and were accounted for as cash flow hedges. As of December 31, 2022, there is no cash flow
hedge reserve outstanding related to these agreements.
Changes in fair value of derivative instruments designated as cash flow hedges for each of the years presented are
included below:
Gross amount
Cash flow hedges
Income tax
Total
At December 31, 2020
(Decrease) / Increase
Reclassification to income statement
At December 31, 2021
(Decrease) / Increase
Reclassification to income statement
At December 31, 2022
(338)
—
278
(60)
1
59
—
103
—
(83)
20
(1)
(19)
—
(235)
—
195
(40)
—
40
—
99
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
21. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
(b) Foreign exchange contracts
From time to time, Ternium’s subsidiaries enter into derivative agreements to manage their exposure to
currencies other than the $, in accordance with the Company’s policy for derivative instruments.
During 2022, 2021 and 2020, Ternium Argentina entered into several non-deliverable forward agreements in
order to manage the exchange rate exposure generated by Argentine peso-denominated financial assets and
liabilities. As of December 31 2022, there is no outstanding notional amount in Argentine pesos.
Furthermore, during 2022, 2021 and 2020, Ternium Colombia S.A.S. has entered into non-deliverable forward
agreements to manage the exposure of certain actual and future trade receivables denominated in its local
currency. As of December 31, 2022, the notional amount on these agreements amounted to $ 90.6 million.
During 2022, 2021 and 2020, Ternium Mexico entered into several forward agreements mainly to manage the
exchange rate exposure generated by future payables in EUR related to the investment plan in Pesquería and
other standard liabilities in EUR. Furthermore, a minor part of the forward agreements were carried out in order
to manage the exchange rate exposure arising from sales in EUR. As of December 31, 2022, the aggregate
notional amount on these agreements amounted to $ 28.5 million.
Furthermore, during 2022, Ternium Mexico has entered into non-deliverable forward agreements to manage the
exposure of certain tax credits denominated in its local currency. As of December 31, 2022, the notional amount
on these agreements amounted to $ 120.0 million.
During 2021 and 2020, Ternium Investments S.à r.l., entered into several forward agreements in order to manage
the exchange rate exposure generated by the consolidated financial position in EUR. As of December 31, 2022,
there is no outstanding notional amount in EUR. In addition, during 2021 and 2020, Ternium Investments S.à
r.l. entered into non-deliverable forward agreements to manage the exchange rate exposure generated by actual
and future trade receivables denominated in Colombian pesos related to the commissioning of the plant and the
business of its subsidiary, Ternium del Atlántico. As of December 31, 2022, there is no outstanding notional
amount in Colombian pesos.
The net fair values of the exchange rate derivative contracts as of December 31, 2022 and 2021 were as follows:
Currencies
Contract
Notional amount
2022
2021
Fair value at December 31,
EUR/$
COP/$
MXN/$
EUR/$
ARS/$
Forward - Buy EUR
ND Forward - Sell COP
ND Forward - Sell MXN
Forward - Sell EUR
ND Forward - Buy ARS
26.8 million EUR
441.8 billion COP
2.4 billion MXN
3.0 million EUR
10.9 billion ARS
258
227
(258)
—
—
227
245
4,038
—
70
(1,726)
2,627
COP: Colombian pesos; EUR: Euros; $: US dollars; ARS: Argentine pesos; MXN: Mexican pesos.
c) Commodities contracts
During 2022, Ternium Mexico entered into swap agreements to manage the impact of the fluctuation of zinc
price when manufacturing galvanized products. As of December 31, 2022, Ternium Mexico several agreements
outstanding with an aggregate notional amount of $ 5.8 million.
100
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
22.
LEASE LIABILITIES
Year ended December 31, 2022
Values at the beginning of the year
Translation differences
Net proceeds
Indexation
Repayments
Interest accrued
Interest paid
Reclassifications
As of December 31, 2022
Year ended December 31, 2021
Values at the beginning of the year
Translation differences
Net proceeds
Indexation
Repayments
Interest accrued
Interest paid
Reclassifications
As of December 31, 2021
Current
Lease liabilities
Non Current
Total
44,371
(1,506)
3,903
3,107
(49,404)
14,468
(11,605)
45,681
49,015
42,486
(2,187)
3,334
1,810
(45,604)
14,967
(12,252)
41,817
44,371
215,250
(4,180)
9,763
14,988
(6)
—
—
(45,681)
190,134
251,617
(5,878)
8,319
3,009
—
—
—
(41,817)
215,250
259,621
(5,686)
13,666
18,095
(49,410)
14,468
(11,605)
—
239,149
294,103
(8,065)
11,653
4,819
(45,604)
14,967
(12,252)
—
259,621
Commitments in relation to finance leases are payable as
follows:
Within one year
Later than one year but not later than five years
Later than five years
Minimum lease payments
Future finance charges
Total Financial lease liabilities
The present value of finance lease liabilities is as follows:
Within one year
Later than one year but not later than five years
Later than five years
Total minimum lease payments
As of December 31,
2022
As of December 31,
2021
60,233
151,255
108,191
319,679
(80,530)
239,149
49,015
117,654
72,480
239,149
52,803
156,538
128,435
337,776
(78,155)
259,621
44,371
122,966
92,284
259,621
101
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
23. BORROWINGS
(i) Non-current
Bank borrowings
Less: debt issue costs
(ii) Current
Bank borrowings
Less: debt issue costs
Total Borrowings
The maturity of borrowings is as follows:
Fixed Rate
Floating Rate
Total
2023
295,033
204,108
499,141
As of December 31,
2022
2021
534,352
(1,651)
532,701
500,091
(927)
499,164
1,031,865
659,999
(3,534)
656,465
825,139
(2,566)
822,573
1,479,038
Expected Maturity Date
2025 and
thereafter
2024
—
523,366
523,366
—
9,358
9,358
At December 31, (1)
2021
2022
174,965
295,033
1,304,073
736,832
1,479,038
1,031,865
(1) As most borrowings incorporate floating rates that approximate market rates and the contractual repricing occurs mostly every 1
month, the fair value of the borrowings approximates their carrying amount and it is not disclosed separately. Fixed rate borrowings are
uncommitted short-term revolving loans and their fair value approximates to their carrying amount.
The weighted average interest rates - which incorporate instruments denominated mainly in U.S. dollars and
which do not include the effect of derivative financial instruments nor the devaluation of these local currencies -
at year-end were as follows:
Bank borrowings
As of December 31,
2021
2022
6.21 %
1.45 %
The nominal average interest rates shown above were calculated using the rates set for each instrument in its
corresponding currency and weighted using the dollar-equivalent outstanding principal amount of said
instruments at December 31, 2022 and 2021, respectively.
102
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
23. BORROWINGS (continued)
Breakdown of borrowings by currency is as follows:
Currencies
Contract
$
$
ARS
MXN
COP
COP
GTQ
Floating
Fixed
Floating
Floating
Floating
Fixed
Fixed
As of December 31,
2021
2022
1,252,543
129,000
—
16,310
35,220
40,783
5,182
1,479,038
684,554
197,259
5
13,339
38,934
92,680
5,094
1,031,865
$: U.S. dollars; ARS: Argentine pesos; COP: Colombian pesos; GTQ: Guatemalan quetzales; MXN: Mexican
pesos.
Ternium’s most significant borrowings as of December 31, 2022, were those incurred under Ternium México’s
syndicated loan facilities, in order to finance the construction of its hot rolling mill, hot-dip galvanizing and
painting lines in Pesquería, and under Ternium Brasil’s syndicated loan facility, in order to finance solely
activities related to its exports of goods:
Date
Borrower
Type
In $ million
Original
principal
amount
Outstanding
principal
amount as of
December 31,
2022
Maturity
June 2018
August 2019
Ternium Mexico
Ternium Brasil
Syndicated loan
Syndicated loan
1,000
500
125 June 2023
500 August 2024
The main covenants on these loan agreements are limitations on liens and encumbrances, limitations on the sale
of certain assets and compliance with financial ratios (i.e. leverage ratio). As of December 31, 2022, Ternium was
in compliance with all of its covenants.
103
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS
Ternium is from time to time subject to various claims, lawsuits and other legal proceedings, including customer,
employee, tax and environmental-related claims, in which third parties are seeking payment for alleged damages,
reimbursement for losses, or indemnity. Management with the assistance of legal counsel periodically reviews the
status of each significant matter and assesses potential financial exposure.
Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues
are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are
difficult to ascertain. Accordingly, with respect to a large portion of such claims, lawsuits and other legal
proceedings, Ternium is unable to make a reliable estimate of the expected financial effect that will result from
ultimate resolution of the proceeding. In those cases, Ternium has not accrued a provision for the potential
outcome of these cases.
If a potential loss from a claim, lawsuit or other proceeding is considered probable and the amount can be
reasonably estimated, a provision is recorded. Accruals for loss contingencies reflect a reasonable estimate of the
losses to be incurred based on information available to management as of the date of preparation of the financial
statements and take into consideration litigation and settlement strategies. In a limited number of ongoing cases,
Ternium was able to make a reliable estimate of the expected loss or range of probable loss and has accrued a
provision for such loss but believes that publication of this information on a case-by-case basis would seriously
prejudice Ternium’s position in the ongoing legal proceedings or in any related settlement discussions.
Accordingly, in these cases, the Company has disclosed information with respect to the nature of the contingency
but has not disclosed its estimate of the range of potential loss.
The Company believes that the aggregate provisions recorded for potential losses in its consolidated financial
statements are adequate based upon currently available information. However, if management’s estimates prove
incorrect, current reserves could be inadequate and Ternium could incur a charge to earnings which could have a
material adverse effect on Ternium’s results of operations, financial condition, net worth and cash flows.
(i) Tax claims and other contingencies
(a) Companhia Siderúrgica Nacional (CSN) - Tender offer litigation
In 2013, the Company was notified of a lawsuit filed in Brazil by Companhia Siderúrgica Nacional, or CSN, and
various entities affiliated with CSN against Ternium Investments, its subsidiary Ternium Argentina, and
TenarisConfab. The entities named in the CSN lawsuit had acquired a participation in Usiminas in January 2012.
The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a
tag-along tender offer to all non-controlling holders of Usiminas ordinary shares for a price per share equal to
80% of the price per share paid in such acquisition, or BRL 28.8, and seeks an order to compel the acquirers to
launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary
shares of Usiminas not belonging to Usiminas’ control group; Ternium Investments and Ternium Argentina’s
respective shares in the offer would be 60.6% and 21.5%.
104
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
On September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of
appeals of São Paulo maintained the understanding of the first instance court. On March 6, 2017, CSN filed a
motion for clarification against the decision of the court of appeals, which was rejected on July 19, 2017. On
August 18, 2017, CSN filed with the court of appeals an appeal seeking the review and reversal of the decision
issued by the court of appeals by the Superior Court of Justice. On March 5, 2018, the court of appeals ruled that
CSN’s appeal did not meet the requirements for review by the Superior Court of Justice and rejected such appeal.
On May 8, 2018, CSN appealed against such ruling and on January 22, 2019, the court of appeals rejected such
appeal and ordered that the case be submitted to the Superior Court of Justice. On September 10, 2019, the
Superior Court of Justice declared CSN’s appeal admissible. On March 7, 2023, the Superior Court of Justice, by
majority vote, rejected CSN’s appeal. Plaintiffs may still appeal against the Superior Court of Justice’s decision.
At this time, the Company cannot predict whether CSN will appeal against the decision and, if appealed, the
ultimate resolution of the matter.
Ternium continues to believe that all of CSN’s claims and allegations are groundless and without merit, as
confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator
(CVM) in February 2012 and December 2016, the first and second instance court decisions and the March 2023
Superior Court of Justice decision referred to above. Accordingly, no provision has been recorded in these
Consolidated Financial Statements.
(b) Shareholder claims relating to the October 2014 acquisition of Usiminas shares
On April 14, 2015, the staff of the CVM determined that an acquisition of additional ordinary shares of Usiminas
by Ternium Investments made in October 2014, triggered a requirement under applicable Brazilian laws and
regulations for Usiminas’ controlling shareholders to launch a tender offer to all non-controlling holders of
Usiminas ordinary shares. The CVM staff’s determination was made further to a request by NSSMC and its
affiliates, who alleged that Ternium’s 2014 acquisition had exceeded a threshold that triggers the tender offer
requirement. On April 29, 2015, Ternium filed an appeal to be submitted to the CVM’s Board of Commissioners.
On May 5, 2015, the CVM staff confirmed that the appeal would be submitted to the Board of Commissioners
and that the effects of the staff’s decision would be stayed until such Board rules on the matter.
On June 15, 2015, upon an appeal filed by NSSMC, the CVM staff changed its earlier decision and stated that the
obligation to launch a tender offer would fall exclusively on Ternium. Ternium’s appeal was submitted to the
CVM’s Board of Commissioners. On April 18, 2018, Ternium filed a petition with the CVM’s reporting
Commissioner requesting that the applicable threshold for the tender offer requirement be recalculated taking
into account the new ordinary shares issued by Usiminas in connection with its 2016 BRL 1 billion capital
increase and that, in light of the replenishment of the threshold that would result from such recalculation, the
CVM staff’s 2015 determination be set aside. On August 16, 2022, CVM´s Board of Commissioners determined,
by unanimous decision, the extinction of the procedure, recognizing that Ternium is not obligated to launch a
tender offer as a result of the 2016 capital increase. The CVM decision is final.
105
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(c) Potential Mexican income tax adjustment
In March 2015, as part of a tax audit with respect to fiscal year 2008, the Mexican tax authority (“SAT”)
challenged the deduction by Ternium Mexico of a tax loss arising from an intercompany sale of shares in
December 2008. In addition, in September 2018, as part of a tax audit for fiscal year 2011, the SAT objected to
the deduction by Ternium Mexico of the remainder of the 2008 tax loss. Ternium Mexico requested an
injunction from the Mexican courts against the SAT claims and filed its defense and supporting documents with
the SAT. After Ternium Mexico obtained an injunction in August 2020, in November 2020 the SAT issued a new
preliminary audit report in which it reiterated its objections to the deduction of the 2008 tax loss. In June 2021,
the SAT determined income tax adjustments with respect to 2008 and 2011 for amounts currently estimated at
approximately $ 64.7 million and $ 31.7 million, respectively. Ternium Mexico appealed the SAT determinations.
More recently, however, Ternium Mexico withdrew its appeals and agreed to provide further information and
documentation to the SAT. With all of the above-mentioned information and documentation, the SAT should
reduce the 2008 and 2011 tax adjustments downwards to approximately $ 15.5 million and $ 31.7 million,
respectively. As a result, the Company recognized a tax provision of $47.2 million in its Consolidated Financial
Statements as of December 31, 2022. Should the audits be not ultimately closed by the SAT on the above terms,
Ternium Mexico could initiate litigation to challenge the tax adjustments.
(d) Fishermen associations’ claims
Civil contingencies include lawsuits brought by a number of fishermen associations on behalf of their associates,
alleging that the dredge of Ternium Brasil’s deep-water port has had a negative impact on fish farming and
exploitation activities in the Sepetiba Bay area in Rio de Janeiro and that, as a result, fishermen in that area had
suffered damages. A provision in the amount of $ 24.5 million was recorded at the acquisition date in connection
with this matter ($ 4.5 million and $ 8.8 million as of December 31, 2022 and 2021, respectively; the decrease in
the provision was mainly due to the favorable outcome for a part of the lawsuits).
(e) Tax assessments relating to the use of certain ICMS tax credits
The Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços, or ICMS, is a Brazilian value-
added tax on the services (inter-states) and the transfer of goods in Brazil. Payment of ICMS generates tax credits
that, subject to applicable law, rules and regulations, may be either used to offset ICMS payment obligations
generated in connection with domestic sales of products and services, or sold and transferred to third parties.
The Rio de Janeiro State Treasury Office is challenging the use by Ternium Brasil of ICMS tax credits generated
in connection with purchases of refractory materials in the period from December 2010 through December 2016,
and intends to assess taxes and impose fines on Ternium Brasil on the argument that such materials may not be
qualified as “raw materials” or “intermediary products” but as “goods for consumption” and, accordingly, ICMS
tax credits generated in connection with their purchase are not available and may not be used to offset ICMS
payment obligations generated in connection with Ternium Brasil’s domestic sales of carbon steel slabs. Ternium
Brasil has appealed against the Rio de Janeiro State Treasury Office tax assessments and fines. A provision in the
amount of $ 57.7 million was recorded as of the acquisition date in connection with this matter ($ 34.8 million
and $ 32.5 million as of December 31, 2022 and 2021, respectively).
106
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(f) ICMS deferral tax benefit – Action of Unconstitutionality
On March 31, 2005, through State Law No. 4,529 (Law RJ 4529), the State of Rio de Janeiro granted Ternium
Brasil a tax incentive consisting of a deferral of ICMS payable by Ternium Brasil in connection with the
construction and operation of the company’s Rio de Janeiro steelmaking complex. The incentive applies in
respect of the acquisition of fixed assets and certain raw materials (i.e. iron ore, pellets, alloys, coke, coal and
scrap) and significantly reduces input ICMS credit accumulation by Ternium Brasil. The tax incentive was
granted for a period of 20 years from the commencement of the construction works for Ternium Brasil’s Rio de
Janeiro steel complex.
In 2012, a Brazilian political party filed a direct action of unconstitutionality against Law RJ 4529 before the
Brazilian Federal Supreme Court, claiming that the State Law should be declared unconstitutional because the
tax incentive granted pursuant to Law RJ 4529 had not been approved by Brazil’s National Council of Fiscal
Policy (Conselho Nacional de Política Fazendária, or CONFAZ).
In August 2017, the Brazilian Congress enacted Supplementary Law No. 160/2017, instituting a mechanism
through which the States may confirm any ICMS incentives they had granted in prior years without CONFAZ
approval. In furtherance of such Supplementary Law, in December 2017 the Brazilian States adopted ICMS
Convention 190/2017, establishing the applicable rules and deadlines for confirming such ICMS incentives. In
accordance with the ICMS Convention 190/2017, the State of Rio de Janeiro published its list of ICMS incentives,
including, among others, the ICMS benefit granted to Ternium Brasil, and filed with CONFAZ all relevant
documents concerning such incentives. On July 27, 2018, the Governor of Rio de Janeiro issued Decree No.
46,378, pursuant to which the State of Rio de Janeiro reconfirmed, in accordance with ICMS Convention
190/2017, the ICMS tax benefits listed in its official gazette publication made pursuant to the Convention,
including, among others, Ternium Brasil’s ICMS tax benefits.
In October 2018, the State of Rio de Janeiro and the Federation of Industries of the State of Rio de Janeiro filed
petitions arguing that the action of unconstitutionality against Law RJ 4529 could not be judged by the Brazilian
Federal Supreme Court since, following the revalidation of such law under Supplementary Law No.160/17 and
the ICMS Convention 190/2017, such action of unconstitutionality had lost its purpose. On October 20, 2020, the
Reporting Justice Minister of the Brazilian Federal Supreme Court in charge of the case ruled that the action of
unconstitutionality against Law RJ 4529 was impaired by the supervening loss of its object, and on November 17,
2020, the Reporting Justice Minister’s ruling became final and not subject to any further recourses or appeals.
The tax benefits accumulated under Ternium Brasil’s ICMS incentive amounted to approximately $ 1,089 million
as of the acquisition date of Ternium Brasil on September 7, 2017. In accordance with the guidance in IFRS 3, the
Company recorded as of the acquisition date a provision of $ 651.8 million (including estimated penalties and
interest) in connection with this matter, together with an asset of $ 325.9 million arising from its right to recover
50% of the contingency amount from Thyssenkrupp.
As at December 31, 2020, both the asset, which expired on September 7, 2020, of $ 194.1 million recorded in the
Company’s financial statements arising from its right to recover 50% of the contingency amount from
Thyssenkrupp and the contingent liability of $ 380.1 million recorded in its financial statements in connection
with this matter have been derecognized. Accordingly, the Company recognized in the year ended December 31,
2020, a net gain in the amount of $ 186.0 million.
107
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(ii) Commitments
The following are Ternium’s main off-balance sheet commitments:
(a) Ternium Argentina signed agreements, mainly with Vale S.A. and Mineração Corumbaense Reunida S.A., to
cover 80% of its required iron ore, pellets and iron ore fines volumes until December 31, 2024, for an estimated
total amount of $ 688.8 million. Although they do not set a minimum amount or a minimum commitment to
purchase a fixed volume, under certain circumstances a penalty is established for the party that fails of:
7% in case the annual operated volume is between 70% and 75% of the total volume of purchases of the
–
Company; such percentage is applied over the difference between the actual purchased volume and the 80% of
the total volume of purchases.
–
15% in case the annual operated volume is lower than 70% of the total volume of purchases of the
Company; such percentage is applied over the difference between the actual purchased volume and the 80% of
the total volume of purchases.
(b) Ternium Argentina also signed various contracts for the provision of natural gas, including Tecpetrol and
Energy Consulting Services S.A., both related companies of Ternium, assuming firm commitments for a total of
$ 62.5 million payable until April 2025. Additionally, Ternium Argentina signed contracts for gas transportation
with Transportadora de Gas del Norte S.A., a related company of Ternium, assuming firm commitments for a
total of $ 13.4 million payable until April 2028.
(c) Ternium Argentina signed an agreement with Air Liquide Argentina S.A. for the supply of oxygen, nitrogen
and argon until 2021, for an aggregate amount of $ 72.5 million, which is due to terminate in 2037.
(d) On April 24, 2017, Ternium Mexico entered into a 25-year contract (effective as of December 1, 2016, through
December 1, 2041) with Techgen, S.A. de C.V. for the supply of 699 MW (which represents 78% of Techgen’s
capacity) and covers most of Ternium Mexico’s facilities electricity needs. Monthly payments are determined on
the basis of capacity charges, operation costs, back-up power charges, and transmission charges. As of the
seventh contract year (as long as Techgen’s existing or replacing bank facility has been repaid in full), Ternium
Mexico has the right to suspend or early terminate the contract if the rate payable under the agreement is higher
than the rate charged by Comisión Federal de Electricidad (“CFE”) or its successors. Ternium Mexico may
instruct Techgen to sell to any affiliate of Ternium Mexico, to CFE, or to any other third party all or any part of
unused contracted energy under the agreement and Ternium Mexico will benefit from the proceeds of such sale.
108
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(e) Ternium México issued a guarantee letter covering up to approximately $ 16.6 million of the obligations of
Gas Industrial de Monterrey, S.A. de C.V. (“GIMSA”), under the natural gas trading agreement between GIMSA
and NEG Natural S.A. de C.V. (“NEG”). The credit line granted by NEG in connection with this natural gas
trading agreement amounted to approximately $ 17.0 million. As of December 31, 2022, the outstanding amount
under the natural gas trading agreement was $ 17.0 million, which is below the amount included in the guarantee
letter issued by Ternium México. Due to recent volatility in natural gas prices, the contract with NEG was
renewed in June 28, 2022, and a guarantee letter covering up to approximately $ 28.8 million was requested and
would be issued in January 2023.
(f) In June, 2018, Ternium Mexico entered into a loan agreement with a syndicate of banks for a $ 1,000 million
syndicated loan facility for the purpose of financing capital expenditures, the repayment or prepayment of
existing debt, and other general corporate purposes. The Company entered the Facility on June 12, 2018, and the
final maturity date is on June 12, 2023, being payable in eight consecutive and equal semi-annual installments
commencing on December 13, 2019. The main financial covenant that the Facility requires to meet is the
consolidated net senior leverage ratio to be not greater than 3.5 to 1.00. During 2019, the facility was fully
disbursed ($ 400 million was disbursed during 2018 and $ 600 million by the end of June 2019). As of December
31, 2022, the outstanding value of this loan agreement was $ 125 million and the Company was in compliance
with all of its covenants. On January 12, 2023, Ternium Mexico made a pre-payment of the remaining balance,
leaving the loan fully amortized.
(g) Ternium Mexico issued a guarantee letter covering up to approximately $ 62.0 million of the obligations of
Techgen, S.A. de C.V. (“Techgen”), under the Clean Energy Certificates trading agreement between Techgen and
Enel Green Power (“ENEL”). The amount equals the remnant balance if Techgen decides to terminate the
agreement prior to the expiration date (and decreases as time of the contract passes). The contract was signed on
May 25, 2018 and terminates on June 30, 2041.
(h) In June 2008, Ternium Mexico entered into an industrial gas supply agreement with Praxair Mexico for the
Guerrero and Juventud facilities until December 2024, for a total amount of $ 421 million. In 2011, an
amendment agreement added the purchase of hydrogen for the Juventud and Universidad facilities valid until
April 2025. As of December 31, 2022, the agreement considers a minimum annual oxygen consumption of 96
million cubic meters, valued at approximately $ 4.5 million per year. The Company is in compliance with the
minimum annual quotas established, which represent less than half of the average annual consumption.
(i) On May 9, 2018, Ternium Mexico entered into a 10-year contract (effective as of July 1, 2018) with Kinder
Morgan Texas Pipeline L.L.C., Kinder Morgan Tejas Pipeline L.L.C. and Kinder Morgan Border Pipeline L.L.C.
for the transportation of natural gas in the United States of America (Texas). The contracted capacity is 60,000
MMBTU/day and the annual cost is approximately $ 3.7 million.
(j) On December 30, 2019, Ternium Mexico entered into a 15-year contract (effective as of July 1, 2021) with
Kinder Morgan Texas Pipeline L.L.C., Kinder Morgan Tejas Pipeline L.L.C. and Kinder Morgan Gas Natural de
México S. de R.L. de C.V. for the transportation of natural gas in the United States of America (Texas) and in
Mexico. The contracted capacity is 31,000 MMBTU/day and the annual cost is approximately $ 4.8 million.
109
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(k) Techgen is a party to gas transportation capacity agreements with Kinder Morgan Gas Natural de Mexico, S.
de R.L. de C.V., Kinder Morgan Texas Pipeline LLC and Kinder Morgan Tejas Pipeline LLC for the whole
transportation capacity starting on August 1, 2016 and ending during the second half of 2036. As of December 31,
2022, the outstanding value of this commitment was approximately $ 193.2 million. Ternium’s exposure under
the guarantee in connection with these agreements amounts to $ 92.8 million, corresponding to the 48% of the
agreements’ outstanding value as of December 31, 2022.
(l) Ternium issued two stand-by letters of credit covering 48% of the funding of a debt service reserve account
under a syndicated loan agreement between Techgen and several banks led by Citigroup Global Markets Inc.,
Credit Agricole Corporate and Investment Bank, and Natixis, New York Branch acting as joint bookrunners.
The loan agreement dated as of February 13, 2019, amounted to $ 640 million and the proceeds were used by
Techgen to refinance in full all amounts owed under a previous syndicated loan between Techgen and several
banks, which funds were used in the construction of the facility. As of December 31, 2022, the outstanding
aggregated amount under the stand-by letters of credit was $ 46.8 million, as a result the amount guaranteed by
Ternium was approximately $ 22.4 million.
(m) During 2006, CSA, the predecessor of Ternium Brasil, has entered into a 15-year contract denominated
“Contrato de comercialização de energia elétrica no ambiente regulado – CCEAR por disponibilidade” to
provide electric energy to 24 distributors starting on 2011. Under this contract, Ternium Brasil has to provide 200
MW average per year and the price is adjusted by the Brazilian inflation index. The penalty for not delivering the
volume of energy of the contract is the difference between the spot price and the unit variable cost (calculated
and published by the Agéncia Nacional de Energía Elétrica), calculated per hour.
(n) Ternium Brasil signed an exclusivity agreement with Vale S.A. for the purchase of iron ore (pellets, sinter feed
and lump ore), which is due to terminate in 2029. The total purchased volume, in accordance with the actual
production capacity, is of approximately 8.0 million tons per year. Ternium Brasil has not the obligation to take
or pay the mentioned volume and only should pay logistic costs in case of not purchasing the contracted volume.
(o) Ternium Brasil, for its activity of energy generation through gas and steam turbines, signed on March 2017 a
contract with GE Global Parts and Products GMBH, General Electric International Inc. and Alstom Energia
Térmica e Indústria Ltda. for the maintenance services of such turbines (including the supply of spare parts) for a
period of 20 years. This agreement was extended for an additional period of 4 years. As of December 31, 2022,
the outstanding amount of this commitment was $ 192.1 million.
(p) Ternium Brasil also signed on November 2007 a contract with Primetals Technologies Brazil Ltda. for the
provision of maintenance services at a central workshop for the entire steel mill complex, including caster
maintenance for the steel plant. As of December 31, 2022, the outstanding amount of the mentioned services was
approximately $ 38.9 million and is due to terminate on November 2024. Ternium Brasil is currently using more
hours than the minimum quantity of contracted hours.
(q) Ternium Brasil is a party to a long-term contract with the Consortium formed by Air Liquide Brasil Ltda.,
AirSteel Ltda., White Martins Gases Industriais Ltda., White Martins Steel Ltda. and ThyssenKrupp MinEnergy
GmbH for the supply of air, oxygen, nitrogen and argon to satisfy the requirements up to January 2029. The
outstanding amount was approximately $ 190.0 million as of December 31, 2022. The contract has minimum
daily-required volumes.
110
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
24. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(r) Ternium Brasil signed on January 2015 a contract with Naturgy (formerly Companhia Distribuidora de Gás
do Rio de Janeiro) for the supply of natural gas, which was due to terminate on December 2019. This agreement
was automatically renewed for another two years, is due to terminate on December 2023 and can be interrupted
by common agreement due to free market conditions’ changes. The outstanding amount was of $ 39.4 million (or
61.3 million m3) as of December 31, 2022. Ternium Brasil is currently purchasing more than the minimum
volume required by the contract, which is 85% of the volume mentioned before.
(s) Ternium Brasil signed on May 2019 a contract with LSI Logistica S.A. for mobile equipment rental. This
agreement is due to terminate on May 2024 and the outstanding amount was $ 4.5 million as of December 31,
2022. The contract only has a penalty in case of anticipated termination.
(t) In March 2022, Ternium Brasil S.A. entered into a contract with Unicarbo Ltda. for the supply of petcoke.
This agreement is due to terminate on March 2023 and the outstanding amount was $ 40.9 million as of
December 31, 2022. The contract has minimum monthly-required volumes.
(u) The acquisition of Ternium Brasil Ltda. was mainly financed through an unsecured 5-year syndicated facility
in the principal amount of $ 1.5 billion granted to the Company’s subsidiary, Ternium Investments S.àr.l., by a
syndicate of banks. The facility is to be repaid in eight consecutive and equal semi-annual installments,
commencing on March 5, 2019, and has been guaranteed by the Company’s subsidiary, Ternium México, S.A. de
C.V. The borrower and the guarantor are subject to certain covenants customary for transactions of this type,
including limitations on liens and encumbrances, transactions with affiliates, consolidations and mergers and
restrictions on investments. The guarantor is additionally subject to limitations on the sale of certain assets and
compliance with a leverage ratio. There are no limitations to the payment of dividends applicable to the
borrower or the guarantor, except, with respect to the borrower, upon an event of default under the facility.
During 2018 and 2019, the Company made prepayments of principal for $ 375 million and $ 725 million,
respectively. As of December 31, 2022, this syndicated facility was fully repaid.
(iii) Restrictions on the distribution of profits
In accordance with Luxembourg Law, the Company is required to transfer a minimum of 5% of its net profit for
each financial year to a legal reserve until such reserve equals 10% of the issued share capital.
As of December 31, 2022, this reserve is fully allocated and additional allocations to the reserve are not required
under Luxembourg law. Dividends may not be paid out of the legal reserve.
The Company may pay dividends to the extent, among other conditions, that it has distributable retained
earnings calculated in accordance with Luxembourg law and regulations.
111
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
25. RELATED PARTY TRANSACTIONS
As of December 31, 2022, Techint Holdings S.à r.l. (“Techint”) owned 62.02% of the Company’s share capital
and Tenaris Investments S.à r.l. (“Tenaris”) held 11.46% of the Company’s share capital. Each of Techint and
Tenaris were controlled by San Faustin S.A., a Luxembourg company (“San Faustin”). Rocca & Partners
Stichting Administratiekantoor Aandelen San Faustin (“RP STAK”), a private foundation (Stichting) located in
the Netherlands, held voting shares in San Faustin sufficient in number to control San Faustin. No person or
group of persons controls RP STAK.
For commitments with Related parties, see note 24.
The following transactions were carried out with related parties:
(i) Transactions
(a) Sales of goods and services
Sales of goods to non-consolidated parties
Sales of goods to other related parties
Sales of services and others to non-consolidated parties
Sales of services and others to other related parties
(b) Purchases of goods and services
Purchases of goods from non-consolidated parties
Purchases of goods from other related parties
Purchases of services and others from non-consolidated parties
Purchases of services and others from other related parties
Purchases of goods and services in connection with lease contracts
from other related parties
(c) Financial results
Income with non-consolidated parties
Expenses in connection with lease contracts from other related
parties
(d) Dividends received
Dividends from non-consolidated parties
(e) Other income and expenses
Income (expenses), net with non-consolidated parties
Income (expenses), net with other related parties
Year ended December 31,
2021
2020
2022
720,137
224,698
177
4,213
949,225
950,792
195,636
178
1,496
1,148,102
643,494
70,951
13,735
78,899
508,784
65,964
10,279
98,065
432,511
15,972
173
1,009
449,665
347,638
83,738
9,421
75,483
—
—
201
807,079
683,092
516,481
8,298
6,256
7,182
(976)
(1,013)
(1,484)
7,322
5,243
15,493
15,493
3,300
682
3,982
82,122
82,122
1,029
879
1,908
5,698
6,299
6,299
765
1,042
1,807
112
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
25. RELATED PARTY TRANSACTIONS (continued)
(ii) Year-end balances
(a) Arising from sales/purchases of goods/services and other transactions
Receivables from non-consolidated parties
Receivables from other related parties
Advances from non-consolidated parties
Advances to suppliers with other related parties
Payables to non-consolidated parties
Payables to other related parties
Lease liabilities with other related parties
(iii) Officers and Directors’ compensation
As of December 31,
2021
2022
180,476
43,765
4,851
3,683
(91,172)
(20,163)
(2,287)
119,153
204,329
26,690
5,383
3,852
(72,373)
(16,617)
(2,635)
148,629
During the year ended December 31, 2022, the cash compensation of Officers and Directors amounted to $ 22,899
(2021: $ 18,137). In addition, Officers received 1,221,909 Units for a total amount of $ 7,220 (2021: $ 6,276) in
connection with the incentive retention program mentioned in note 3 (o)(3).
26. OTHER REQUIRED DISCLOSURES
(a) Statement of comprehensive income
At December 31, 2020
(Decrease) / Increase
Reclassification to income statement
At December 31, 2021
(Decrease) / Increase
Reclassification to income statement
At December 31, 2022
Cash flow hedges
Gross amount
Income tax
Total
Currency
translation
adjustment
(338)
—
278
(60)
1
59
—
103
—
(83)
20
(1)
(19)
—
(235) (3,877,863)
(40,481)
—
—
195
(40) (3,918,344)
42,708
—
—
40
(3,875,636)
—
113
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
26. OTHER REQUIRED DISCLOSURES (continued)
(b) Statement of cash flows
(i) Changes in working capital (1)
Inventories
Receivables and others
Trade receivables
Other liabilities
Trade payables
(ii) Income tax accrual less payments
Tax accrued (Note 10)
Taxes paid
(iii) Interest accruals less payments
Interest accrued (Note 9 and 22)
Interest received
Interest paid
Year ended December 31,
2021
2020
2022
438,090
10,888
573,811
46,403
83,306
1,152,498
(1,906,524)
(41,535)
(885,200)
106,223
109,247
(2,617,789)
573,728
(1,769,289)
(1,195,561)
1,397,139
(818,854)
578,285
(13,940)
31,880
(42,735)
(24,795)
(20,948)
62,912
(36,063)
5,901
156,517
(29,539)
(12,110)
37,517
200,410
352,795
291,488
(224,927)
66,561
13,339
49,421
(55,769)
6,991
(1) Changes in working capital are shown net of the effect of exchange rate changes.
(c) Financial debt reconciliation
At December 31, 2020
Cash flows
Reclassifications
Acquisitions - finance leases
Foreign exchange adjustments
Other non cash movements
At December 31, 2021
Cash flows
Reclassifications
Acquisitions - finance leases
Foreign exchange adjustments
Other non cash movements
At December 31, 2022
Finance
lease
liabilities
(294,103)
57,856
—
(11,653)
8,059
(19,780)
(259,621)
61,015
—
(13,666)
5,686
(32,563)
(239,149)
Financial debt
Short term
borrowings
Long term
borrowings
Total
9,210
662,708
—
—
(1,094)
—
7,643
(25,728)
(822,573)
467,014
(124,140)
(395,604) (1,327,289) (2,016,996)
320,890
253,824
—
(662,708)
(11,653)
15,702
(46,602)
(656,465) (1,738,659)
528,654
—
(13,666)
31,837
(79,180)
(532,701) (1,271,014)
625
124,140
—
58
(1,059)
—
26,093
(45,558)
(499,164)
114
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
27. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The following amendments, standards and interpretations have been applied on the year starting January 1,
2022:
International Financial Reporting Standard 7, “Financial Instruments: Disclosures”, International Financial
Accounting Standard 9, “Financial Instruments” and International Accounting Standard 39, “Financial
Instruments: Recognition and Measurement” - Interest Rate Benchmark Reform
The IASB has issued amendments to IFRS 7 “Financial Instruments: Disclosures”, IFRS 9 “Financial
Instruments” and IAS 39 “Financial Instruments: Recognition and Measurement” which provide certain reliefs in
relation to interest rate benchmark reforms. The reliefs relate to hedge accounting and have the effect that the
reforms should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness should
continue to be recorded in the income statement.
As of December 31, 2021, the Company's management had already assessed the effects of applying these
amendments on the Company’s financial statements and had not identified any material impact in the
application of these amendments.
International Financial Reporting Standard 16, “Leases” – Amendments on Covid-19-related Rent Concessions
In May 2020, the IASB made an amendment to IFRS 16 “Leases” in the context of the COVID-19 pandemic and
its impact on rent concessions granted to lessees. Such concessions might take a variety of forms, including
payment holidays and deferral of lease payments, which provides lessees with an option to treat qualifying rent
concessions in the same way as they would if they were not lease modifications. In many cases, this will result in
accounting for the concessions as variable lease payments in the period in which they are granted. Entities
applying the practical expedients must disclose this fact, whether the expedient has been applied to all qualifying
rent concessions or, if not, information about the nature of the contracts to which it has been applied, as well as
the amount recognized in profit or loss arising from the rent concessions.
As of December 31, 2021, the Company's management had already assessed the effects of applying this
amendment on the Company’s financial statements and had not identified any lease agreements which may be
impacted by the application of this amendment.
The following standards, amendments to standards and interpretations are not mandatory for the financial year
beginning January 1, 2022, and have not been early adopted:
International Accounting Standard 12, “Income taxes” - Amendments
The IASB has issued amendments to IAS 12 “Income taxes”, which introduce a further exception from the initial
recognition exemption. Under the amendments, an entity does not apply the initial recognition exemption for
transactions that give rise to equal taxable and deductible temporary differences. Depending on the applicable
tax law, equal taxable and deductible temporary differences may arise on initial recognition of an asset and
liability in a transaction that is not a business combination and affects neither accounting nor taxable profit.
The Company's management has assessed the effects of applying these amendments on the Company’s financial
statements and has not identified any material impact in the application of these amendments.
115
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
27. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (continued)
Other standards and interpretations non-significant for the Company’s financial statements:
– Amendments to IFRS 10 and IAS 28 - Sale or contribution of assets between an investor and its associate or
joint venture
– Amendments to IAS 1 - Classification of Liabilities as Current or Non-current
– Amendments to IFRS 3 - Reference to the Conceptual Framework
– Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before intended use
– Amendments to IAS 37 - Onerous Contracts – Cost of Fulfilling a Contract
– Annual Improvements to IFRS Standards 2018–2020 cycle
– Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting policies
– Amendments to IAS 8 – Definition of accounting estimates
116
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT
1) Financial risk factors
Ternium’s activities expose the Company to a variety of risks: market risk (including the effects of changes in
foreign currency exchange rates, interest rates and commodities prices), credit risk and liquidity risk.
Ternium’s overall risk management program focuses on the unpredictability of financial markets and seeks to
minimize potential adverse effects on the financial performance. Ternium’s subsidiaries may use derivative
financial instruments to hedge certain risk exposures.
1.1) Market Risk
(i) Foreign exchange rate risk
Ternium operates and sells its products in different countries, and as a result is exposed to foreign exchange rate
volatility. Ternium’s subsidiaries may use derivative contracts in order to hedge their exposure to exchange rate
risk derived from their trade and financial operations.
Ternium’s foreign exchange policy is to minimize the negative impact of fluctuations in the value of other
currencies with respect to the U.S. dollar. Ternium’s subsidiaries monitor their short-term net cash flows in
currencies other than the U.S. dollar, and analyze potential hedging according to market conditions. This
hedging can be carried out by netting positions or by financial derivatives. However, regulatory or legal
restrictions in the countries in which Ternium’s subsidiaries operate, could limit the possibility of the Company
carrying out its hedging policy.
Ternium has foreign operations, whose net assets are exposed to foreign currency translation risk, some of which
may impact net income.
The following table shows a breakdown of Ternium’s assessed financial position exposure to currency risk as of
December 31, 2022:
Exposure to
functional currency
$ million
EU euro (EUR)
Argentine peso (ARS)
Mexican peso (MXN)
Brazilian real (BRL)
Colombian peso (COP)
Other currencies
(29)
(22)
(260)
39
(94)
(2)
The main relevant exposures correspond to:
(a) Argentine peso vs. U.S. dollar
If the Argentine peso had weakened by 1% against the U.S. dollar, it would have generated a pre-tax gain of $ 0.2
million and a pre-tax loss of $ 3.2 million as of December 31, 2022 and 2021, respectively.
(b) Mexican peso vs. U.S. dollar
If the Mexican peso had weakened by 1% against the U.S. dollar, it would have generated a pre-tax gain of $ 2.6
million and $ 12.5 million as of December 31, 2022 and 2021, respectively.
117
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT (continued)
(c) Colombian peso vs. U.S. dollar
If the Colombian peso had weakened by 1% against the U.S. dollar, it would have generated a pre-tax gain of $
0.9 million and $ 0.5 million as of December 31, 2022 and 2021, respectively.
(d) Brazilian real vs. U.S. dollar
If the Brazilian real had weakened by 1% against the U.S. dollar, it would have generated a pre-tax loss of $ 0.4
million and $ 0.5 million as of December 31, 2022 and 2021, respectively.
We estimate that if the Argentine peso, Mexican peso, Colombian peso and Brazilian real had weakened
simultaneously by 1% against the U.S. dollar with all other variables held constant, total pre-tax income for the
year would have been $ 3.3 million higher ($ 9.4 million higher as of December 31, 2021), as a result of foreign
exchange gains/losses on translation of U.S. dollar-denominated financial position, mainly local currency cash,
trade receivables, trade payables, tax credits and liabilities, lease liabilities, borrowings and other liabilities.
Considering the same variation of the currencies against the U.S. dollar of all net investments in foreign
operations amounting to $ 725.7 million, the currency translation adjustment included in total equity would have
been $ 7.2 million lower, arising mainly from the adjustment on translation of the equity related to the Brazilian
real during the year 2022.
(ii) Interest rate risk
Ternium manages its exposure to interest rate volatility through its financing alternatives and hedging
instruments. Borrowings issued at variable rates expose the Company to the risk of increased interest expense in
the event of a raise in market interest rates, while borrowings issued at fixed rates expose the Company to a
variation in its fair value. The Company’s interest-rate risk mainly arises from long-term borrowings that bear
variable-rate interest that could be partially fixed through different derivative transactions, such as interest rate
swaps.
Ternium’s nominal weighted average interest rate for its debt instruments, which do not include neither the effect
of derivative financial instruments, nor the devaluation of the local currencies, was 6.21% and 1.45% as of
December 31, 2022 and 2021, respectively. These rates were calculated using the rates set for each instrument in
its corresponding currency and weighted using the dollar-equivalent outstanding principal amount of each
instrument.
Ternium’s total variable interest rate debt amounted to $ 737 million (71.4% of total borrowings) at December
31, 2022 and $ 1,304 million (88.2% of total borrowings) at December 31, 2021.
If interest rates on the aggregate average notional of U.S. dollar denominated borrowings held during 2022,
excluding borrowings with derivatives contracts mentioned in Note 21 (a), had been 100 basis points higher with
all other variables held constant, total pre-tax income for the year ended December 31, 2022 would have been
$ 12.1 million lower ($ 17.3 million lower as of December 31, 2021).
Effect of IBOR reform
Reform and replacement of various inter-bank offered rates (‘IBORs’) has become a priority for regulators. Most
IBOR rates stopped being published by December 31, 2021, while certain U.S. dollar LIBOR rates would stop
being published by June 30, 2023.
118
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT (continued)
Ternium started the transition to alternative interest rate benchmarks in some of its outstanding loans during
2022. During the first half of 2023, Ternium will continue with the transition to the alternative interest rates
benchmark (mostly SOFR for the remaining outstanding loans that continued to be based in U.S. dollar LIBOR
rates as of December 31, 2022. All newly transacted floating rate financial liabilities will be linked to an
alternative benchmark rate (e.g. SOFR + spread adjustments).
Under any specific requests of any of its counterparties in these outstanding borrowings, Ternium will negotiate
to perform a transition of legacy IBOR-based financial instruments to alternative benchmark interest rates. The
Company has prepared a sensitivity analysis considering this situation and concluded that no material impacts
could derive from this change. The Company is also enhancing its IT systems and internal processes to ensure
smooth transition from IBOR to alternative benchmark interest rates.
1.2) Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit
exposures to customers, including outstanding receivables and committed transactions. Ternium’s subsidiaries
have credit guidelines in place to ensure that derivative and treasury counterparties are limited to high credit
quality financial institutions.
Ternium invests in financial assets with a minimum credit rating of investment grade established by an
international qualification agency renowned in the financial market, in line with corporate investment portfolio
policies. Approximately 59.9% of the Company’s liquid financial assets correspond to investment grade rated
instruments as of December 31, 2022, in comparison with approximately 57.3% as of December 31, 2021. The
investments in financial assets are as follows:
At December
31, 2022
At December
31, 2021
Cash and cash equivalents
Other Investments - Current and Non-Current
Fixed Income (time-deposit, zero-coupon bonds, commercial papers)
Deposit certificates
Commercial papers
Other
Bonds and other fixed income
Non - U.S. government securities
U.S. government and corporate securities
1,653,355
1,975,490
576,784
204,802
323,386
48,596
1,395,853
651,633
744,220
2,853
1,276,605
1,357,485
863,416
710,996
92,729
59,691
490,806
367,333
123,473
3,263
Other notes
Ternium has no significant concentrations of credit risk from customers. No single customer accounts for more
than ten percent of Ternium’s sales. Ternium’s subsidiaries have policies in place to ensure that sales are made to
customers with an appropriate credit history, and that credit insurances, letters of credit or other instruments are
requested to reduce credit risk whenever deemed necessary. The subsidiaries maintain allowances for potential
credit losses. The utilization of credit limits is regularly monitored.
Trade and other receivables are carried at face value less allowance for doubtful accounts, if applicable. This
amount does not differ significantly from fair value. The other receivables do not contain significant impaired
assets.
As of December 31, 2022, trade receivables total $ 1,180.7 million ($1,767.4 million as of December 31, 2021).
These trade receivables are collateralized by guarantees under letter of credit and other bank guarantees of $ 0.1
million ($ 30.3 million as of December 31, 2021), credit insurance of $ 520.6 million ($ 800.1 million as of
December 31, 2021) and other guarantees of $ 7.0 million ($ 8.4 million as of December 31, 2021).
119
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT (continued)
As of December 31, 2022, trade receivables of $ 1,089.1 million ($ 1,681.5 million as of December 31, 2021) were
fully performing.
As of December 31, 2022, trade receivables of $ 101.5 million ($ 95.4 million as of December 31, 2021) were past
due (mainly up to 180 days).
The amount of the allowance for doubtful accounts was $ 9.9 million as of December 31, 2022 ($ 9.5 million as of
December 31, 2021).
The carrying amounts of the Company’s trade and other receivables as of December 31, 2022, are denominated in
the following currencies:
Currency
$ million
US dollar ($)
EU euro (EUR)
Argentine peso (ARS)
Mexican peso (MXN)
Brazilian real (BRL)
Colombian peso (COP)
Other currencies
1.3) Liquidity risk
1,102
25
26
594
338
76
1
2,162
Management maintains sufficient cash and marketable securities and credit facilities to finance normal
operations. Management monitors rolling forecasts of the group’s liquidity reserve on the basis of expected cash
flow.
The table below analyses financial liabilities into relevant maturity groups based on the remaining period at the
date of the statement of financial position to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows.
$ million
2023
2024
2025
2026
Thereafter
Borrowings
Interests to be accrued (1)
Trade payables and other liabilities
Lease liabilities
499
38
1,117
49
524
14
8
34
9
1
6
28
44
Total
(1) These amounts do not include the effect of derivative financial instruments.
1,703
580
—
—
3
28
31
—
—
33
100
133
As of December 31, 2022, total cash and cash equivalents and other current and non-current investments less
borrowings amounted to $ 2,597.0 million.
1.4) Capital risk
Ternium seeks to maintain an adequate debt/equity ratio considering the industry and the markets where it
operates. The year-end ratio debt over debt plus equity is 0.07 and 0.11 as of December 31, 2022 and 2021,
respectively. The Company does not have to comply with regulatory capital adequacy requirements as known in
the financial services industry.
120
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT (continued)
2) Financial instruments by category and fair value hierarchy level
The accounting policies for financial instruments have been applied to the line items below. According to the
scope and definitions set out in IFRS 7 and IAS 32, employers’ rights and obligations under employee benefit
plans, and non-financial assets and liabilities such as advanced payments and income tax payables, are not
included.
As of December 31, 2022 (in $ thousands)
(i) Assets as per statement of financial position
Receivables
Derivative financial instruments
Trade receivables
Other investments
Cash and cash equivalents
Total
As of December 31, 2022 (in $ thousands)
(ii) Liabilities as per statement of financial
position
Other liabilities
Trade payables
Derivative financial instruments
Finance lease liabilities
Borrowings
Total
As of December 31, 2021 (in $ thousands)
(i) Assets as per statement of financial position
Receivables
Derivative financial instruments
Trade receivables
Other investments
Cash and cash equivalents
Total
Amortized
cost
Assets at fair
value through
profit or loss
Assets at fair
value through
OCI
Total
197,686
—
1,180,689
483,209
880,402
2,741,986
—
227
—
96,428
772,953
869,608
—
—
—
1,395,853
—
1,395,853
Liabilities at
fair value
through profit
or loss
Amortized
cost
—
—
505
—
—
505
64,968
1,102,264
—
239,149
1,031,865
2,438,246
197,686
227
1,180,689
1,975,490
1,653,355
5,007,447
Total
64,968
1,102,264
505
239,149
1,031,865
2,438,751
Amortized
cost
Assets at fair
value through
profit or loss
Assets at fair
value through
OCI
Total
202,123
—
1,767,425
621,831
584,076
3,175,455
—
4,353
—
244,848
692,529
941,730
—
—
—
490,806
—
490,806
As of December 31, 2021 (in $ thousands)
(ii) Liabilities as per statement of financial
position
Other liabilities
Trade payables
Derivative financial instruments
Finance lease liabilities
Borrowings
Total
Liabilities at
fair value
through profit
or loss
Amortized
cost
—
—
1,889
—
—
1,889
56,595
1,078,448
—
259,621
1,479,038
2,873,702
202,123
4,353
1,767,425
1,357,485
1,276,605
4,607,991
Total
56,595
1,078,448
1,889
259,621
1,479,038
2,875,591
121
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT (continued)
Fair Value by Hierarchy
Following the requirements contained in IFRS 13, Ternium categorizes each class of financial instrument
measured at fair value in the statement of financial position into three levels, depending on the significance of the
judgment associated with the inputs used in making the fair value measurements:
– Level 1 comprises financial assets and financial liabilities whose fair values have been determined on the basis
of quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2 includes financial assets and financial liabilities for which fair values have been estimated using inputs
other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
– Level 3 comprises financial instruments for which inputs to estimate fair value of the assets or liabilities are
not based on observable market data (unobservable inputs).
The following table presents the assets and liabilities that are measured at fair value as of December 31, 2022 and
2021:
Description
Financial assets at fair value through profit or loss / OCI
Cash and cash equivalents
Other investments
Derivative financial instruments
Total assets
Financial liabilities at fair value through profit or loss / OCI
Derivative financial instruments
Total liabilities
Description
Financial assets at fair value through profit or loss / OCI
Cash and cash equivalents
Other investments
Derivative financial instruments
Total assets
Financial liabilities at fair value through profit or loss / OCI
Derivative financial instruments
Total liabilities
Fair value measurement as of December 31, 2022
(in $ thousands):
Total
Level 1
Level 2
Level 3 (*)
772,953
1,492,281
227
2,265,461
505
505
772,953
1,283,284
—
2,056,237
—
—
—
164,980
227
165,207
505
505
—
44,017
—
44,017
—
—
Fair value measurement as of December 31, 2021
(in $ thousands):
Total
Level 1
Level 2
Level 3 (*)
692,529
735,654
4,353
692,529
668,056
—
1,432,536
1,360,585
1,889
1,889
—
—
—
39,777
4,353
44,130
1,889
1,889
—
27,821
—
27,821
—
—
(*) The fair value of financial instruments classified as level 3 is not obtained from observable market information, but from measurements of the asset
portfolio at market value provided by the fund manager. The evolution of such instruments during the years ended December 31, 2022 and 2021,
corresponds to the initial investment and to the changes in its fair value, as follows:
At December 31, 2021
Disinvestment
Interest accrued
Changes in fair value
Reclassifications
Net foreign exchange gain
At December 31, 2022
Guarantee fund
companies
Non - U.S. government
securities
Corporate
securities
3,263
(74)
—
2,158
—
(2,493)
2,854
7,863
(2,237)
(1,578)
875
36,240
—
41,163
16,695
(12,502)
(339)
(3,854)
—
122
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT (continued)
There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy, there were no
transfers from Level 1 to Level 3 and there were transfers of Non-U.S. Government securities from Level 2 to
Level 3.
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting
date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by
Ternium is the current mid-price. These instruments are included in Level 1 and comprise primarily corporate
and sovereign debt securities.
The fair value of financial instruments that are not traded in an active market (such as certain debt securities,
certificates of deposits with original maturity of more than three months, forward and interest rate derivative
instruments) is determined by using valuation techniques which maximize the use of observable market data
when available and rely as little as possible on entity specific estimates. If all significant inputs required to value
an instrument are observable, the instrument is included in Level 2. Ternium values its assets and liabilities
included in this level using mid prices, interest rate curves, broker quotations, current exchange rates and
forward rates volatilities obtained from market contributors as of the valuation date.
If one or more of the significant inputs are not based on observable market data, the instruments are included in
Level 3. Ternium values its assets and liabilities in this level using observable market inputs, information
provided by fund managers and management assumptions which reflect the Company’s best estimate on how
market participants would price the asset or liability at measurement date.
3) Accounting for derivative financial instruments and hedging activities
Derivative financial instruments are initially recognized in the statement of financial position at cost and
subsequently measured at fair value. Changes in fair value are disclosed under “Other financial income
(expenses), net” line item in the income statement. Ternium does not hedge its net investments in foreign entities.
Ternium designates certain derivatives as hedges of a particular risk associated with a recognized asset or liability
or a highly probable forecast transaction. These transactions are classified as cash flow hedges (mainly interest
rate swaps). The effective portion of the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized within other comprehensive income. Amounts accumulated in other comprehensive income
are recognized in the income statement in the same period than any offsetting losses and gains on the hedged
item. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The
fair value of Ternium derivative financial instruments (asset or liability) continues to be reflected on the
statement of financial position.
For transactions designated and qualifying for hedge accounting, Ternium documents at inception the
relationship between hedging instruments and hedged items, as well as its risk management objectives and
strategy for undertaking various hedge transactions. The Company also documents its assessment, both at hedge
inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. At December 31, 2022, there is no
outstanding effective portion of designated cash flow hedges.
123
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
28.
FINANCIAL RISK MANAGEMENT (continued)
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 21. The full fair
value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the
hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged
item is less than 12 months.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are
recognized immediately in the income statement.
4) Fair value estimation
The estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or liquidation sale.
For the purpose of estimating the fair value of financial assets and liabilities with maturities of less than one year,
the Company uses the market value less any estimated credit adjustments. For other investments, the Company
uses quoted market prices.
As most borrowings incorporate floating rates that approximate market rates and the contractual repricing
occurs mostly every one month, the fair value of the borrowings approximates their carrying amount and it is not
disclosed separately.
In assessing the fair value of derivatives and other financial instruments, Ternium uses a variety of methods,
including, but not limited to, estimated discounted value of future cash flows using assumptions based on market
conditions existing at each year-end.
124
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
29.
FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA
Ternium’s Argentine subsidiary, Ternium Argentina S.A., is currently operating in a complex and volatile
economic environment. Beginning in September 2019, the Argentine government has imposed and continues to
impose significant restrictions on foreign exchange transactions. Restrictions have tightened significantly over
time.
Effective November 1, 2022, the Argentine Central Bank put in place a new regulation on import of services
rendered by non-related parties, pursuant to which the Argentine Central Bank may clear or not the payment of
import of services and, if cleared, may determine a payment term equal or different to that being requested.
There are no rules on the conditions upon which the Argentine Central Bank may clear or determine alternative
payment terms.
Also effective November 1, 2022, the Argentine government implemented a new system, known as the SIRA
system, pursuant to which the Argentine government may clear or not the payment of imports and, if cleared,
may determine a payment term equal or different to that being requested. There are no objective conditions upon
which the Argentine government may clear the payment of imports or determine alternative payment terms
under the SIRA system.
This context of volatility and uncertainty remains in place as of the issue date of these Consolidated Financial
Statements. Although as of the date of these financial statements these measures did not have a significant effect
on Ternium Argentina’s ability to purchase U.S. dollars at the prevailing official exchange rate for most of its
imports of goods and for the acquisition of services from unrelated parties, if such restrictions continue to be
maintained, or are further tightened, Ternium Argentina could be restricted from making payment of imports for
key steelmaking inputs (which would adversely affect its operations), or would need to resort to alternative, more
expensive arrangements (which would adversely affect its results of operations). In addition, access to the
Argentine foreign exchange market to distribute dividends or to pay royalties to related parties at the prevailing
official exchange rate generally requires prior Argentine Central Bank approval, which is rarely, if ever, granted,
thus limiting Ternium’s ability to collect dividends from Ternium Argentina at the prevailing official exchange
rate.
Under Ternium Argentina’s annual accounts as of December 31, 2022, and for the year then ended, revenues
amounted to $ 3,830 million (2021: $3,425 million), net profit from continuing operations to $ 756 million (2021:
$ 930 million), total assets to $ 5,258 million (2021: $ 4,798 million), total liabilities to $ 511 million (2021: $ 541
million) and shareholders’ equity to $ 4,747 million (2021: $ 4,257 million). Ternium Argentina’s cash and cash
equivalents and other investments amounted to $ 1,363 million as of December 31, 2022, broken down as
follows:
- $ 1,152 million in U.S. dollars-denominated instruments, mainly sovereign bonds issued by the Argentine
Government and payable in U.S. dollars, Argentine Treasury bonds related to the official exchange rate and
negotiable obligations and promissory notes issued by Argentine export driven companies in U.S. dollars and
payable in Argentine pesos.
- $ 145 million in Argentine pesos-denominated instruments, mainly inflation-adjusted bonds and mutual funds.
- $ 66 million in Argentine pesos-denominated instruments with underlying assets linked to the U.S. dollar.
Ternium Argentina’s financial position in ARS as of December 31, 2022, amounted to $ 261 million in monetary
assets and $ 254 million in monetary liabilities. All of Ternium Argentina’s ARS-denominated assets and
liabilities are valued at the prevailing official exchange rate.
125
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2022 and 2021
and for the years ended December 31, 2022, 2021 and 2020
30. THE RUSSIA-UKRAINE ARMED CONFLICT
On February 24, 2022, Russia launched a military attack on Ukraine. In response, the United States, the United
Kingdom, and the European Union, among other countries, have imposed a wave of sanctions against certain
Russian institutions, companies and citizens. As a result of the armed conflict and related sanctions, foreign trade
transactions involving Russian and Ukrainian counterparties have been severely affected.
Russia has a significant participation in the international trade of steel slabs, iron ore pellets, metallurgical coal,
pulverized coal for injection, which are relevant inputs for Ternium’s operations. In addition, Ukraine
traditionally had a relevant participation in the international trade of steel slabs and iron ore pellets. As a result
of the armed conflict and the economic sanctions imposed on Russia, Ternium or its contractors (including
shipping companies) may not be able to continue purchasing or transporting products from, or making payments
to, Ukrainian or Russian suppliers or counterparties; and the Company may be required to purchase raw
materials from other sources at increased prices, resulting in limitations to Ternium’s production levels and
higher costs, affecting the Company’s profitability and results of operations.
31. SUBSEQUENT EVENTS
Ternium to Integrate Operations in the USMCA
On February 14, 2023, Ternium's Board of Directors approved the construction of a new upstream production
capacity project to integrate its operations in the USMCA region. The increased slab production capacity will
complement and support the company’s new state-of-the-art hot rolling mill, which began operations in
mid-2021, as well as the previously announced downstream project in Mexico. Ternium expects to invest
approximately $2.2 billion toward the construction of an electric arc furnace (EAF)-based steel shop with annual
capacity of 2.6 million tons, as well as a direct reduced iron (DRI) module with annual capacity of 2.1 million
tons. The slab production capacity program will also include the construction of a port facility for raw material
handling. The Company currently expects to commission these facilities in the first half of 2026. As a result of
this new upstream production capacity project and the construction of a wind farm in Argentina, Ternium is
raising its 2023 capital expenditures guidance to $1.1 billion. In addition, the company anticipates the new
upstream and ongoing downstream initiatives to add a total of approximately $2.9 billion to Ternium’s capital
expenditure over the next four years.
/s/ Pablo Brizzio
Pablo Brizzio
Chief Financial Officer
126
Intentionally left blank.
127
TERNIUM S.A.
Société Anonyme
Audited Annual Accounts
as at December 31, 2022
26, Boulevard Royal 4th floor
L-2449 Luxembourg
R.C.S. Luxembourg B-98-668
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
INDEX TO THE ANNUAL ACCOUNTS
Audit report
Balance sheet
Profit and loss account
Notes to the annual accounts
Page
2
5
6
7
�
pwc
We communicate
scope and timing of the audit and significant
internal
with those charged with governance
contro'I that we identify
during our audit.
audit findings,
including
regarding, among
the planned
other matters,
any significant
deficiencies
in
those charged
We also provide
ethical
matters
taken to eliminate
requirements
that may reasonably
threats
regarding
with governance
independence,
with a statement
and communicate
to bear on our independence,
with relevarnt
that we have complied
and other
to them all relationships
and where applicable, actions
be thought
or safeguards applied.
PricewaterhouseCoopers,
Represented
Societe
cooperative
by
/s/ Magalie
Magalie Cormier
Cormier
Luxembourg,
2023
14 February
4
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
Balance sheet as at December 31, 2022
ASSETS
C. Fixed assets
II. Tangible assets
3. Other fixtures and fittings, tools and equipment
III. Financial assets
1.
Shares in affiliated undertakings
D. Current assets
II. Debtors
2. Amounts owed by affiliated undertakings
a) becoming due and payable within one year
4. Other debtors
a) becoming due and payable within one year
Investments
III.
2. Own shares
IV. Cash at bank and in hand
Total assets
CAPITAL, RESERVES AND LIABILITIES
Subscribed capital
Share premium account
A Capital and reserves
I.
II.
IV. Reserves
1.
2. Reserve for own shares
V. Profit or loss brought forward
VI. Profit or loss for the financial year
VII. Interim dividends
Legal reserve
B.
1.
Provisions
Provisions for pensions and similar obligations
C. Creditors
6. Amounts owed to affiliated undertakings
a) becoming due and payable within one year
8. Other creditors
c) Other creditors
i) becoming due and payable within one year
Total capital, reserves and liabilities
Notes
31/12/2022
USD
31/12/2021
USD
2.3
-
20.449
2.4 & 3
5.101.020.648
5.101.020.648
5.643.899.754
5.643.920.203
2.5
4
2.6
7
2.7
5
6
2.8
2.9
4
5.225.475
7.837.903
50.914
47.336
59.599.747
64.876.136
1.056.541
5.166.953.325
59.599.747
67.484.986
501.624
5.711.906.813
2.004.743.442
1.414.121.505
2.004.743.442
1.414.121.505
200.474.346
59.599.747
1.646.162.138
(28.486.928)
(176.676.910)
5.119.937.340
200.474.346
59.599.747
2.183.211.885
(26.649.785)
(157.046.142)
5.678.454.998
37.185.335
37.185.335
28.900.899
28.900.899
6.487.225
1.685.755
3.343.425
9.830.650
5.166.953.325
2.865.161
4.550.916
5.711.906.813
The accompanying notes form an integral part of these annual accounts.
5
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
Profit and loss account for the year ended December 31, 2022
Notes
31/12/2022
USD
31/12/2021
USD
8. Other operating expenses
11. Other interest receivable and similar income
a) derived from affiliated undertakings
b) other interest and similar income
14. Interest payable and similar expenses
a) concerning affiliated undertakings
b) other interest and similar expenses
16. Profit or loss after taxation
8
(28.245.083)
(27.202.364)
1.095.699
547.065
1.021.660
8.203
(1.879.107)
(45)
(476.634)
(72)
(28.481.471)
(26.649.207)
17. Other taxes not shown under items 1 to 16
9
(5.457)
(578)
18. Profit or loss for the financial year
(28.486.928)
(26.649.785)
The accompanying notes form an integral part of these annual accounts.
6
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
Notes to the annual accounts
Note 1 – General information
Ternium S.A. (hereafter the “Company” or “Ternium”), was incorporated on December 22, 2003 to hold
investments in flat and long steel manufacturing and distributing companies for an unlimited period. The
Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD 1,00
per share. As of December 31, 2022, there were 2.004.743.442 shares issued. All issued shares are fully paid.
Following a corporate reorganization carried out during fiscal year 2005, in January 2006 the Company
successfully completed its registration process with the United States Securities and Exchange Commission
(“SEC”). Ternium’s ADSs began trading on the New York Stock Exchange under the symbol “TX” on February 1,
2006. The Company’s initial public offering was settled on February 6, 2006.
The Company was initially established as a public limited liability company (société anonyme) under
Luxembourg’s 1929 holding company regime. Until termination of such regime on December 31, 2010, holding
companies incorporated under the 1929 regime (including the Company) were exempt from Luxembourg corporate
and withholding tax over dividends distributed to shareholders.
On January 1, 2011, the Company became an ordinary public limited liability company (société anonyme) and,
effective as from that date, the Company is subject to all applicable Luxembourg laws and taxes (including, among
others, corporate income tax on its worldwide income) and its dividend distributions will generally be subject to
Luxembourg withholding tax. However, dividends received by the Company from subsidiaries in high income tax
jurisdictions, as defined under Luxembourg law, will continue to be exempt from corporate income tax in
Luxembourg under Luxembourg’s participation exemption.
As part of the Company’s corporate reorganization in connection with the termination of Luxembourg’s 1929
holding company regime, on December 6, 2010, the Company contributed its equity holdings in all its subsidiaries
and all its financial assets to its Luxembourg wholly-owned subsidiary Ternium Investments S.à r.l., or Ternium
Investments, in exchange for newly issued corporate units of Ternium Investments. As the assets contributed were
recorded at their historical carrying amount in accordance with Luxembourg GAAP, the Company’s December
2010 contribution of such assets to Ternium Investments resulted in a non-taxable revaluation of the accounting
value of the Company’s assets under Luxembourg GAAP. The amount of the December 2010 revaluation was equal
to the difference between the historical carrying amounts of the assets contributed and the value at which such
assets were contributed and amounted to USD 4,0 billion.
Following the completion of the corporate reorganization, and upon its conversion into an ordinary Luxembourg
holding company, the Company voluntarily recorded a special reserve exclusively for tax-basis purposes. As of
December 31, 2022 and 2021, this special tax reserve amounted to USD 5,2 billion and USD 5,8 billion, respectively.
The Company expects that, as a result of its corporate reorganization, its current overall tax burden will not
increase, as all or substantially all of its dividend income will come from high income tax jurisdictions.
The financial year of the Company starts on January 1 and ends on December 31 of each year.
The Company also prepares consolidated financial statements, which are published according to the provisions of
the Luxembourg Law.
Note 2 - Summary of significant accounting policies
2.1
Basis of presentation
These annual accounts have been prepared in accordance with Luxembourg legal requirements and accounting
standards under the historical cost convention.
Accounting policies and valuation rules are, besides the ones laid down by the law of December 19, 2002 as
amended on December 18, 2015, determined and applied by the Board of Directors.
7
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
The preparation of annual accounts requires the Board of Directors to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets
and liabilities. Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
Management makes estimates and assumptions concerning the future. Actual results may differ significantly from
these estimates under different assumptions or conditions.
The figures for the year that has ended December 31, 2021 relating to the amounts owed to affiliated undertakings
have been reclassified from "becoming due and payable after more than one year" to "becoming due and payable
within one year" to ensure comparability with the figures for the year ended December 31, 2022.
2.2
Foreign currency translation
The Company maintains its books and records in USD. Transactions expressed in currencies other than USD are
translated into USD at the exchange rate effective at the time of the transaction. Formation expenses and long-term
assets expressed in currencies other than USD are translated into USD at the exchange rate effective at the time of
the transaction. At the balance sheet date, these assets remain translated at historical exchange rates. Cash at bank
is translated at the exchange rate effective at the balance sheet date. Exchange losses and gains are recorded in the
profit and loss account of the year. Other assets and liabilities are translated separately respectively at the lower or
at the higher of the value converted at the historical exchange rate or the value determined on the basis of the
exchange rates effective at the balance sheet date. Solely the unrealized exchange losses are recorded in the profit
and loss account. The exchange gains are recorded in the profit and loss account at the moment of their realization.
Where there is an economic link between an asset and liability, these are valued in total according to the method
described above and the net unrealized losses are recorded in the profit and loss account whereas the net unrealized
exchange gains are not recognized.
2.3 Tangible assets
Tangible assets are recognized at purchase price or construction cost less accumulated depreciation; purchase price
includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated for each
asset over its estimated useful life, which is, in average, 10 years for buildings and 5 years for other fixtures and
fittings, tools and equipment.
Where the Company considers that a tangible fixed asset has suffered a durable depreciation in value, an additional
write-down is recorded to reflect this loss. These value adjustments are not continued if the reasons for which the
value adjustments were made have ceased to apply.
2.4
Financial assets
Shares in affiliated undertakings are valued at purchase or contribution price including the expenses incidental
thereto. Loans to affiliated undertakings are stated at nominal value.
Whenever necessary the Company conducts impairment test on its financial assets in accordance with Luxembourg
regulations.
In the case of durable depreciation in value according to the opinion of the Board of Directors, value adjustments
are made in respect of financial assets, so that they are valued at the lower figure to be attributed to them at the
balance sheet date. These value adjustments are not continued if the reasons for which the value adjustments were
made have ceased to apply.
2.5 Debtors
Amounts owed by affiliated undertakings and other debtors are valued at nominal value. They are subject to value
adjustments when their recovery is compromised. These value adjustments are not continued if the reasons for
which the value adjustments were made have ceased to apply.
2.6
Investments
Investments are valued at the lower of purchase price, including expenses incidental thereto and calculated on the
8
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
basis of weighted average prices, or market value, expressed in the currency in which the annual accounts are
prepared. A value adjustment is recorded where the market value is lower than the purchase price. These value
adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply.
2.7 Cash at bank and in hand
Cash at bank and in hand also comprise cash equivalents, liquidity funds and short-term investments with a
maturity of less than three months at the date of purchase. Assets recorded in cash and cash equivalents are carried
at fair market value or at historical cost which approximates fair market value.
2.8
Provisions for pensions and similar obligations
During 2007, Ternium launched an incentive retention program (the “Program”) applicable to certain senior
officers and employees of the Company, who will be granted a number of Units throughout the duration of the
Program. The value of each of these Units is based on Ternium’s shareholders’ equity (excluding non-controlling
interest). Also, the beneficiaries of the Program are entitled to receive cash amounts based on (i) the amount of
dividend payments made by Ternium to its shareholders, and (ii) the number of Units held by each beneficiary to
the Program. Units vest ratably over a period of four years and will be redeemed by the Company ten years after
grant date, with the option of an early redemption at seven years after grant date. As the cash payment of the
benefit is tied to the book value of the shares, and not to their market value, Ternium valued this long-term
incentive program as a long term benefit plan. Actuarial gains and losses are charged or credited in the profit or
loss in the period in which they arise.
As of December 31, 2022, the outstanding liability corresponding to the Program amounts to USD 32,6 million.
2.9 Creditors
Creditors are recorded at their reimbursement value. When the amount repayable on account is greater than the
amount received, the difference is shown as an asset and is written off over the period of the debt based on a linear
method.
Note 3- Financial Assets
On December 7, 2010, the Company entered into a master credit agreement with Ternium Investments S.à r.l.
(“Ternium Investments”) pursuant to which, upon request from Ternium, Ternium Investments may, but shall not
be required to, from time to time make loans to Ternium. Any loan under the master credit agreement may be
repaid or prepaid from time to time through a reduction of the capital of Ternium Investments by an amount
equivalent to the amount of the loan then outstanding (including accrued interest). As a result of the cancellations
of loans granted to Ternium, the reductions in the capital of Ternium Investments made on June 13, 2022, and
December 7, 2022, amounted to USD 360.758.700 and USD 182.120.406, respectively.
The financial assets of the Company as at December 31, 2022, consist of:
Company
Country
% of beneficial
ownership
Book value at
31.12.2021
Net (Decreases)
/ Additions
Book value at
31.12.2022
Equity at
31.12.2022
USD
USD
USD
Ternium Investments S.à r.l.
Luxembourg
100.00%
5.643.899.754
-542.879.106
5.101.020.648
7.443.565.148
Shares in affiliated undertakings
5.643.899.754
-542.879.106
5.101.020.648
7.443.565.148
9
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
Note 4 – Balances with affiliated undertakings
Assets
Becoming due and payable within one year
Debtors
Ternium Investments S.à r.l.
Ternium Brasil Ltda.
Liabilities
Creditors
December 31, 2022 -
USD
December 31, 2021 -
USD
4.822.697
402.778
7.435.125
402.778
5.225.475
7.837.903
Exiros México, S.A. de C.V.
Ternium Argentina S.A.
Soluciones Integrales de Gestión S.A. (SIGSA)
Ternium Investments S.à r.l.
16.445
5.354.173
1.108.657
7.950
6.487.225
-
1.132.085
545.680
7.990
1.685.755
Note 5 - Capital and reserves
Subscribed Capital
Share
premium
Legal reserve
Reserve for own
shares or own
corporate units (1)
Profit or loss
brought forward
Result for the
financial year
Interim dividends
Total capital and
reserves
Balance at December 31, 2021
Allocation of previous year results (2)
Payment of dividends (2)
Payment of dividends (3)
Loss for the year
Balance at December 31, 2022
2.004.743.442
-
-
-
-
2.004.743.442
1.414.121.505
-
-
-
-
1.414.121.505
200.474.346
-
-
-
-
200.474.346
59.599.747
- (353.353.820)
-
5.678.454.998
2.183.211.885 (26.649.785) (157.046.142)
-
(183.695.927) 26.649.785 157.046.142
-
- (353.353.820)
- (176.676.910) (176.676.910)
- (28.486.928)
5.119.937.340
-
- (28.486.928)
1.646.162.138 (28.486.928) (176.676.910)
59.599.747
(1) As of December 31, 2022, the Company held 41.666.666 shares as treasury shares.
(2) As approved by the Annual General Meeting of Shareholders held on May 3, 2022.
(3) As approved by the Board of Directors held on November 2, 2022.
Note 6 – Legal Reserve
In accordance with Luxembourg law, the Company is required to set aside a minimum of 5% of its annual net
profit for each financial period to a legal reserve. This requirement ceases to be necessary once the balance of the
legal reserve has reached 10% of the Company’s issued share capital. At December 31, 2022, this reserve reached
the above-mentioned threshold, the legal reserve is not available for distribution to shareholders.
Note 7 – Reserve for own shares
In accordance with the law, the company has created a non distributable reserve included in the account "reserve
for own shares" for an amount of USD 59.599.747.
10
TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
Note 8 – Other Operating Expenses
Services and fees
Senior management and board of directors' accrued fees
Other expenses
Total
December 31, 2022
USD
23.309.414
4.354.850
580.820
28.245.083
December 31, 2021
USD
23.328.944
3.848.599
24.821
27.202.364
Services and fees are mainly composed of professional, audit and legal services.
Note 9 – Taxes
For the financial year ended December 31, 2022 the Company did not realize any profits subject to tax charges in
Luxembourg.
Note 10 – Income from financial fixed assets derived from affiliated undertakings
During the period, the Company did not receive any dividends.
Note 11 – Own shares
The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of
USD 1.00 per share. As of December 31, 2022, there were 2,004,743,442 shares issued. All issued shares are fully
paid. Also, as of December 31, 2022, the Company held 41,666,666 shares as treasury shares.
Note 12 – Parent Company
As of December 31, 2022, Techint Holdings S.à r.l. (“Techint”) owned 62.02% of the Company’s share capital and
Tenaris Investments S.à r.l. (“Tenaris”) held 11.46% of the Company’s share capital. Each of Techint and Tenaris
were controlled by San Faustin S.A., a Luxembourg company (“San Faustin”). Rocca & Partners Stichting
Administratiekantoor Aandelen San Faustin (“RP STAK”), a private foundation (Stichting), located in the
Netherlands, held voting shares in San Faustin sufficient in number to control San Faustin. No person or group of
persons controls RP STAK.
Note 13 – Contingencies and commitments
13.1. Commitments
Techgen S.A. de C.V is a Mexican natural gas-fired combined cycle electric power plant owned by Ternium (48%),
Tenaris S.A. (22%) and Tecpetrol International S.A. (30%) (a wholly-owned subsidiary of San Faustin S.A., the
controlling shareholder of both Ternium and Tenaris).
Techgen is a party to gas transportation capacity agreements with Kinder Morgan Gas Natural de Mexico, S. de
R.L. de C.V., Kinder Morgan Texas Pipeline LLC and Kinder Morgan Tejas Pipeline LLC for the whole
transportation capacity starting on August 1, 2016 and ending during the second half of 2036. As of December 31,
2022, the outstanding value of this commitment was approximately $ 193.2 million. Ternium’s exposure under the
guarantee in connection with these agreements amounts to $ 92.8 million, corresponding to the 48% of the
agreements’ outstanding value as of December 31, 2022.
Ternium issued two stand-by letters of credit covering 48% of the funding of a debt service reserve account under a
syndicated loan agreement between Techgen and several banks led by Citigroup Global Markets Inc., Credit
Agricole Corporate and Investment Bank, and Natixis, New York Branch acting as joint bookrunners. The loan
agreement dated as of February 13, 2019, amounted to $ 640 million and the proceeds were used by Techgen to
refinance in full all amounts owed under a previous syndicated loan between Techgen and several banks, which
funds were used in the construction of the facility. As of December 31, 2022, the outstanding aggregated amount
under the stand-by letters of credit was $ 46.8 million, as a result the amount guaranteed by Ternium was
approximately $ 22.4 million.
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TERNIUM S.A.
Audited annual accounts as at December 31, 2022
(All amounts in USD)
Note 14 – The Russia-Ukraine armed conflict
On February 24, 2022, Russia launched a military attack on Ukraine. In response, the United States, the United
Kingdom, and the European Union, among other countries, have imposed a wave of sanctions against certain
Russian institutions, companies and citizens. As a result of the armed conflict and related sanctions, foreign trade
transactions involving Russian and Ukrainian counterparties have been severely affected.
Russia has a significant participation in the international trade of steel slabs, iron ore pellets, metallurgical coal,
pulverized coal for injection, which are relevant inputs for Ternium’s operations. In addition, Ukraine traditionally
had a relevant participation in the international trade of steel slabs and iron ore pellets. As a result of the armed
conflict and the economic sanctions imposed on Russia, Ternium or its contractors (including shipping companies)
may not be able to continue purchasing or transporting products from, or making payments to, Ukrainian or
Russian suppliers or counterparties; and the Company may be required to purchase raw materials from other
sources at increased prices, resulting in limitations to Ternium’s production levels and higher costs, affecting the
Company’s profitability and results of operations.
/s/ Pablo Brizzio
Pablo Brizzio
Chief Financial Officer
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