ANNUAL
REPORT
2023
TERNIUM S.A.
Annual Report 2023
INDEX
4
5
Company Profile
Consolidated Management Report
5
Performance Indicators
7 Operating and Financial Review and Prospects
14 Research and Development
16 Next Steps
17 Corporate Governance
19 Risks Factors
42 Alternative Performance Measures
45 Consolidated Financial Statements
143 Audited Annual Accounts of Ternium S.A. Société Anonyme
Ternium S.A. is a Luxembourg company (société anonyme) 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, including with respect to certain of our plans and current goals and expectations
relating to Ternium’s future financial condition and performance. Forward looking
statements 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.
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 2023
Certain Defined Terms
In this annual report, unless otherwise specified or if the context so requires:
- References to “Adjusted Net Results”, “Adjusted Equity Holders’ Net Results”, “Adjusted Earnings per ADS”, “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;
- References to “ADSs” are to the American Depositary Shares, which are evidenced by American Depositary Receipts;
- References to “billions” are to thousands of millions, or 1,000,000,000;
- References to the “Company” are exclusively to Ternium S.A., a Luxembourg société anonyme;
- References to “finished steel products” are to steel products other than steel slabs;
- References to “San Faustin” are to San Faustin S.A., a Luxembourg société anonyme and the Company’s controlling
shareholder;
- 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 “Tenaris” are to Tenaris S.A., a Luxembourg société anonyme and a shareholder of the Company;
- 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”, an Argentine
corporation; Ternium Colombia S.A.S., or “Ternium Colombia”, 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; Consorcio Minero Benito Juárez Peña
Colorada S.A. de C.V., or “Consorcio Peña Colorada,” a Mexican corporation, and their respective subsidiaries; and to
Usiminas.
- 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 “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; and
- References to “Usiminas” are to Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS, a listed Brazilian corporation
controlled by Usiminas control group, which is composed by Ternium Investments, Ternium Argentina, and Tenaris’s
subsidiary, Confab Industrial S.A. (all of which conform the T/T Group), NSC, Metal One Corporation and Mitsubishi
Corporation (all of which conform the NSC Group) and Usiminas’ pension fund Previdência Usiminas.
3
TERNIUM S.A.
Company Profile
Company Profile
Ternium is a leading steel producer in the Americas. The
company provides advanced steel products to a wide
range of manufacturing industries and the construction
sector.
We foster a culture of industrial and technological
excellence and promote equal opportunity and equal
treatment. We operate with a strong
focus on
environmental sustainability as we advance Ternium’s
decarbonization
the
development of our communities, specially through
educational programs in Latin America. Finally, we foster
the development of small and medium-sized customers
and suppliers in Argentina and Mexico.
roadmap. We also
support
substitution
Ternium has grown across the Americas through a
strategy mainly based on organic
investments and
its regional markets by
acquisitions, consolidating
its
import
seeking
commercial presence. At the heart of our growth strategy
is our industrial center in Pesquería, Mexico. Built from
the ground and fully based on a sustainability philosophy,
the Pesquería Industrial Center combines the latest
technological developments to achieve efficient, high-
quality production with a strong focus on people's safety
along with an environmentally conscious approach.
expanding
and
control
Also, in July 2023, Ternium increased its participation in
Usiminas
steel
manufacturing company in the Brazilian market, and
entered into new shareholders agreements setting forth a
new governance structure for Usiminas.
leading
group,
flat
a
Climate Change
We set a medium-term goal to reduce our emissions
intensity by 20% by 2030 compared to a 2018 baseline
(scopes 1 and 2) along with a clearly defined roadmap
based on six fundamental axes: energy efficiency; use of
renewable energy; development of new raw materials in
collaboration with business partners to partially replace
coal and traditional iron ore pellets; use of low-emission
technologies; expansion of carbon capture capacity in
existing plants, along with an increase in the use of scrap
in the metal mix. Our new slab steel mill currently being
built in the industrial center in Pesquería will be equipped
with carbon capture capability as well as the possibility
of using green hydrogen when market conditions permit,
allowing Ternium to further advance its decarbonization
roadmap. We continue to explore additional initiatives as
part of our ambition to achieve carbon neutrality.
Environment, Health and Safety
Ternium is committed to protecting the health and safety
of its employees, contractors and the communities where
it operates. We engage our employees as well as our
customers and suppliers to embrace our safety vision and
objectives. We have standardized environment and 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.
Social
The talent and determination of Ternium’s employees are
the cornerstone of our 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 operate a technical school in Mexico,
and we are building a technical school in Brazil. We
provide scholarships, internships, teachers’ training and
infrastructure funding to local schools. 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 more than 20 years, strengthening our industrial
network by enhancing our customers and suppliers’
competitiveness.
Governance
Integrity is key to Ternium’s long term success. 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 and 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 violations to its code of conduct and
principles.
Our compliance department oversees SOX certifications
and related party transactions. The Company’s 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 Company’s
board of directors and, with respect to internal control
over financial reporting, to its audit committee.
4
TERNIUM S.A.
Consolidated Management Report
Performance Indicators
STEEL AND MINING SHIPMENTS (000 tons)
Mexico
Brazil
Southern Region (3)
Other Markets
Total steel products
Mining products
ECONOMIC AND FINANCIAL INDICATORS ($ million)
Net sales
Operating income
Adjusted EBITDA (4)
Net income
Equity holders’ net income
Adjusted net income (4)
Adjusted equity holders’ net income (4)
Capital expenditures (5)
Free cash flow (4)
BALANCE SHEET ($ million)
Total assets
Total liabilities
Capital and reserves attributable to the owners of the parent
Non-controlling interest
Borrowings
Net cash (debt) (4)
STOCK DATA ($ per share/ADS) (6)
Basic earnings per share
Basic earnings per ADS
Adjusted earnings per ADS (4)
Dividend per ADS (7)
Weighted average number of shares outstanding (8)
(million shares)
2023(1)
8,355
2,014
2,271
1,573
14,213
4,128
17,610
2,198
2,740
986
676
2,092
1,686
1,461
1,040
24,179
7,367
12,419
4,393
2,146
1,886
0.34
3.44
8.59
3.30
2022
2021
2020
6,843
723
2,362
1,968
11,896
0
16,414
2,700
3,415
2,093
1,768
2,093
1,768
581
2,172
17,492
3,723
11,846
1,922
1,032
2,597
0.90
9.00
9.00
2.70
6,534
1,160
2,503
1,868
12,065
262
16,091
5,271
5,863
4,367
3,825
4,367
3,825
524
2,154
17,098
4,863
10,535
1,700
1,479
1,155
1.95
19.49
19.49
2.60
1,963
2019(2)
6,305
1,360
1,938
2,908
12,511
0
10,193
865
1,526
630
564
630
564
1,052
595
12,936
5,221
6,612
1,103
5,913
861
1,924
2,662
11,360
508
8,735
1,079
1,525
868
778
868
778
560
1,201
12,856
4,413
7,286
1,157
1,723
(371)
2,189
(1,453)
0.40
3.97
3.97
2.10
0.29
2.87
2.87
—
1,963
1,963
1,963
1,963
(1) Ternium started to fully consolidate Usiminas balance sheet and results of operations in July 2023.
(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 balance at December 31, 2019, nor results or cash flows for the year then ended.
(3) Sales in the Southern Region encompass those made to customers located in Argentina, Bolivia, Chile, Paraguay and Uruguay.
(4) The reconciliation of Adjusted Net Results, Adjusted Equity Holders’ Net Results, Adjusted Earnings per ADS, 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”.
(5) Capital expenditures in 2023 include advance payments to equipment suppliers.
(6) Each ADS represents 10 shares.
(7) Ternium’s board of directors proposed that an annual dividend of $3.30 per ADS ($0.33 per share), or $649 million, be approved at the company’s annual
general shareholders’ meeting, which is scheduled to be held on April 30, 2024. For further details see “Operating and Financial Review and Prospects”.
(8) 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, 2023,
there were 2,004,743,442 shares issued. All issued shares are fully paid. In addition, as of December 31, 2023, the Company held 41,666,666 shares as
treasury shares, representing 2% 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.
* Does not include Usiminas. Ternium started to fully consolidate Usiminas balance sheet and results of operations in July 2023.
6
201920202021202220230.00.20.40.60.81.0201920202021202220230.00.51.01.52.02.5201920202021202220230.01.22.43.64.86.0201920202021202220230.00.71.42.12.83.52019202020212022202305101520252019202020212022202305101520 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, 2023 and 2022 and for the years ended December 31,
2023, 2022 and 2021 (including the notes thereto), which are included elsewhere in this annual report. The Company’s
operational data and consolidated financial statements have been prepared in accordance with IFRS Accounting Standards
(International Financial Reporting Standards) as issued by the International Accounting Standards Board and in conformity
with IFRS Accounting Standards as adopted by the European Union. The information is presented in US dollars ($) and
metric tons, except otherwise indicated. This review includes certain non-IFRS alternative performance measures such as
Adjusted Net Results, Adjusted Equity Holders’ Net Results, Adjusted Earnings per ADS, 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 “Alternative Performance Measures” section. For a detailed description of Ternium's main risks, see the “Risk Factors”
section. For information related to the holding of Company's own shares, see “Performance Indicators”.
Operating and Financial Review
and Prospects
In 2023, Ternium advanced several initiatives aimed at
further strengthening its competitive position in Latin
America. Ternium announced the construction of a new
steelmaking facility and a direct reduction unit in
Pesquería, Mexico, as well as a new port facility for raw
material handling. In addition, Usiminas completed the
relining of its main blast furnace at the Ipatinga facility.
The new projects in Mexico are progressing as planned.
The new downstream lines in Pesquería are expected to
allow the offer of new higher value-added products to our
customers in the region. This capacity will be integrated
with the new steel slab mill, which is currently under
construction. This new facility will have a low carbon
dioxide emission rate and would be able to produce the
most technologically advanced automotive steel products
in the Americas. It is expected to supply the full range of
auto products, from exposed grades to advanced high
strength steels. This slab mill will be based on electric-
arc-furnace technology and includes a direct reduction
iron facility with the capacity to capture carbon dioxide.
In July 2023, we acquired from Nippon Steel Corporation
an additional participation in Usiminas control group. As
a result of this transaction, Ternium holds 51.5% of
Usiminas control group shares and 25.1% of its total
shares. A new shareholders’ agreement was entered into
as a result of the transaction, pursuant to which the T/T
Group (formed by Ternium Investments, Ternium
Argentina and Tenaris’ subsidiary Confab Industrial) has
the right to nominate a majority of the members of
Usiminas’ board of directors, the CEO and four other
members of Usiminas’ board of officers. We began to
fully consolidate Usiminas in July 2023.
The appointment of Usiminas’ new management team
took place in a transformational year for Usiminas, as it
successfully relined its main blast furnace. Usiminas took
bold decisions, including putting out of operation one of
the smaller blast furnaces and one of its coking facilities.
Additional management decisions led to higher efficiency
of the metallic charge in the upstream processes and
lower fuel rate at the blast furnaces. This is part of a
significant management initiative which focuses on the
development of Usiminas’ industrial system, with the aim
at increasing its productivity, and it will continue to be
Usiminas’ focus throughout 2024.
In 2023, Ternium had a positive financial performance.
Adjusted EBITDA, Adjusted Net Income and Cash from
Operations were solid. As a result of these good results
and a strong financial position, the Company’s board of
directors proposed an annual dividend of 3 dollars and 30
cents per ADS, a significant year-over-year increase. This
is the highest annual dividend on record.
Steel Shipments by Region in 2023
Growth in the Mexican steel market in 2023 was
outstanding. According to CANACERO, consumption of
flat steel reached an all-time-high of more than 18 million
tons, equivalent to a yearly increase of 18%. Ternium’s
shipments in the country grew by 22%, with a significant
market share gain, supported by the ramp-up of its new
hot rolling mill in Pesquería. The market environment in
Mexico continues to be healthy. Industrial activity
remains strong and the auto industry is working at high
levels of capacity, rebuilding stocks in the value chain. In
2023, automotive production increased 14%, reaching 3.8
million units. Construction activity in the country also
7
Mexico, 59%Brazil, 14%Southern Region, 16%Other Markets, 11%
TERNIUM S.A.
Consolidated Management Report
infrastructure projects. On
remains at good levels, driven by non-residential projects
like industrial warehouses, natural gas pipelines and
other
the other hand,
residential construction is being negatively affected by an
increase in the prices of construction inputs, and apparent
steel demand in the commercial market is showing short-
term weakness due to a destocking tied to the recent
downturn in steel spot prices in North America.
The nearshoring of manufacturing capacity is clearly one
of the factors contributing to economic activity in the
region. Mexico offers a compelling combination of
geographic proximity, skilled labor, and a supportive
business environment, contributing to increased supply
chain resilience.
The construction of both our slab mill and downstream
lines is progressing as planned, with suppliers already
assigned for the main equipment and works advancing as
expected. We have updated our budget for these projects,
and are now estimating a total investment of 3.5 billion,
up 9% from the 3.2 billion initial estimation disclosed
one year ago. This increase is mainly attributed to
the pricing of equipment and
inflation affecting
fluctuations in foreign exchange rates.
import of
In the Southern Region, steel shipments were relatively
weak in 2023, mainly attributed to government-imposed
restrictions on
inputs, which affected
Ternium’s steel production rates in Argentina. Ternium is
advancing on the construction of a wind farm in
Argentina, which is expected to begin operations by the
end of 2024. As part of our decarbonization roadmap, we
target to use 40% renewable energy for our steel
operations by 2030.
Summary Results
Steel shipments (thousand tons)
Mining shipments (thousand tons)
Net sales ($ million)
Operating income ($ million)
Adjusted EBITDA ($ million)
Adjusted EBITDA margin (% of net sales)
Net income ($ million)
Equity holders’ net (loss) income ($ million)
Basic earnings per ADS ($)
Adjusted net income ($ million)
Adjusted equity holders’ net income ($ million)
Adjusted earnings per ADS ($)
Steel Products Sales
Ternium’s steel shipments in 2023 increased 2.3 million
tons compared
in 2022. The
consolidation of Usiminas added 2.1 million tons to total
steel shipments. Revenue per ton decreased year-over-
year in 2023 reflecting lower realized steel prices in most
of Ternium’s markets, particularly in the USMCA region.
to shipment
levels
As mentioned before, Ternium’s steel shipments in
Mexico increased an outstanding 1.5 million tons year-
over-year in 2023. However, this increase was partially
offset by lower shipments in the Southern Region and in
Other Markets. Our consolidation of Usiminas’
operations resulted in a significant increase in reported
steel volumes in Brazil.
2023
14,213
4,128
17,610
2,198
2,740
2022
11,896
0
16,414
2,700
3,415
16 %
21 %
Dif.
19 %
7 %
-19 %
-20 %
986
676
3.44
2,092
1,686
8.59
2,093
1,768
9.00
2,093
1,768
9.00
Mining Products Sales
Ternium’s iron ore shipments increased by 4.1 million
tons year-over-year in 2023, due to the consolidation of
Usiminas’ shipments to third parties.
In 2022, Ternium’s iron ore production from its mining
activities in Mexico was fully allocated to our Mexican
steelmaking facilities.
8
TERNIUM S.A.
Consolidated Management Report
Consolidated
Net Sales ($ million)
Shipments (thousand tons)
Revenue/Ton ($/ton)
Mexico
Brazil
Southern Region
Other Markets
2023
9,311
2,279
3,569
1,853
2022
8,828
582
3,834
2,848
Dif.
2023
5 %
8,355
292 %
2,014
-7 %
2,271
-35 %
1,573
2022
6,843
723
2,362
1,968
Dif.
2023
22 %
1,114
178 %
1,132
-4 %
1,572
-20 %
1,178
Total steel products
17,013
16,092
6 % 14,213
11,896
19 %
1,197
2022
1,290
804
1,623
1,447
1,353
Dif.
-14 %
41 %
-3 %
-19 %
-12 %
Mining products
Other products (8)
Net sales
329
268
0
323
17,610
16,414
-17 %
7 %
(9) The item “Other products” primarily includes electricity sales in Brazil and Mexico.
4,128
0
80
Operating Income
Ternium’s operating income decreased year-over-year in
2023, reflecting lower realized steel prices partially offset
by a decrease in costs, due mainly to lower purchased
slab, raw material and energy costs. The consolidation of
Usiminas in the second half of 2023 did not add
significant results at the operating income level, due to
Usiminas’ very low level of profitability as it ramped-up
its main blast furnace at its Ipatinga facility.
In $ million
Operating income
Net sales
Cost of sales
SG&A expenses
Other operating income (loss)
2023
2022
2,198
17,610
(14,051)
(1,472)
110
2,700
16,414
(12,487)
(1,144)
(84)
Net Financial Results
In 2023, Ternium recorded a $130 million net interest
gain, reflecting our strong net cash position during the
year. In addition, Ternium recorded a $98 million net
foreign exchange gain mainly due to the impact of the
devaluation of the Argentine Peso versus the U.S. dollar
on Ternium Argentina’s net short local currency position.
Ternium’s divestment of Argentine sovereign bonds in
2023 resulted in a loss of $58 million due to the recycling
of changes in the fair value of financial instruments from
Other Comprehensive Income to Financial Results. As of
December 31, 2023, the balance of Ternium’s Other
Comprehensive Income in connection with its holdings of
Argentine sovereign bonds amounted to a negative $527
In $ million
Net interest results
Net foreign exchange result
Change in fair value of financial assets
Other financial expense, net
Net financial results
2023
2022
130
98
(58)
(47)
123
28
(164)
76
(10)
(70)
9
TERNIUM S.A.
Consolidated Management Report
information on exchange controls
in
million. For
Argentina and on Ternium Argentina’s dividend payment
in kind, see note 30 “Foreign exchange restrictions in
Argentina” to Ternium’s audited consolidated financial
statements included in this annual report; and “—Risks
Relating to the Countries in Which Ternium Operates –
Argentina: Exchange controls
in Argentina could
impact Ternium Argentina’s operations,
negatively
preventing Ternium from
importing raw materials,
paying dividends or transferring cash surpluses abroad, as
a result of its inability to access the foreign exchange
market”.
Equity in Results of Non-Consolidated Companies
Equity in results of non-consolidated companies was a
gain of $105 million in 2023, mainly related to Ternium’s
equity in the results of Usiminas and Techgen. Usiminas
in results of non-
was accounted
consolidated companies in the first half of 2023, as
Ternium started to consolidate Usiminas in July 2023.
for as equity
Effect of the Increase of the Participation in Usiminas
In July 2023, Ternium increased its participation in
Usiminas control group and began to consolidate
Usiminas. For information on the acquisition of the
in Usiminas, see note 3
additional participation
“Acquisition of business - increase of the participation in
Usiminas control group and new governance structure of
Usiminas” to our consolidated financial statements
included in this annual report.
As a result of this transaction, Ternium recorded a $1.1
billion non-cash net loss due to the following items:
In $ million
Current income tax expense
Deferred tax gain
Income tax expense
Result before income tax
Effective tax rate
Recycling of Currency Translation Adjustment (CTA) from
Other Comprehensive Income to Net Results
Ternium recorded a loss of $935 million corresponding to
items recognized as of June 30, 2023,
in Other
Comprehensive Income related to Ternium’s previous
stake in Usiminas. This negative reserve was mainly
related to CTA losses due to the impact on Usiminas
valuation of the depreciation, over the years, of the
Brazilian Real against the U.S. dollar, as Usiminas uses
the Brazilian Real as its functional currency. As a result of
the increase in the participation in Usiminas, items
recognized in Other Comprehensive Income related to
Ternium’s previous stake in Usiminas were recycled to
the results of the period. The resulting $935 million loss is
non-cash, it has no income tax effects and did not change
the value of Ternium’s equity.
Remeasurement of Ternium’s stake in Usiminas
Ternium recorded a net loss of $171 million as a result of
the purchase price allocation related to the business
combination performed in the third quarter of 2023 and
in
the remeasurement of Ternium's previous stake
Usiminas.
Income Tax Expense
Income tax expense was $334 million in 2023. This result
included a deferred tax gain of $231 million. Deferred tax
results reflect the impact of local currency fluctuations
against the U.S. dollar on subsidiaries that use the U.S.
dollar as functional currency, mainly Ternium Mexico,
Ternium Argentina and Ternium Brasil, net of the
positive effect of local inflation.
2023
(565)
231
(334)
1,321
25 %
2022
(600)
27
(574)
2,666
22 %
Net Income
Ternium’s Net Income in 2023 reflected the decrease in
operating results and the negative impact of the $1.1
billion non-cash and non-taxable loss in connection with
the process of fully consolidating Usiminas balance sheet
and results of operations. These were partially offset
mainly by better net financial results.
Non-controlling interest results in 2023 were mainly
related to non-controlling interest in Ternium Argentina
and Usiminas.
Adjusted Net Income equaled the year’s Net Income,
adjusted to exclude a loss of $1.1 billion in connection
with the increase in the participation in Usiminas.
10
TERNIUM S.A.
Consolidated Management Report
$ million
Owners of the parent
Non-controlling interest
Net income
Less: non-cash effects related to the increase in the participation in Usiminas
Adjusted net income
2023
676
310
986
(1,106)
2,092
2022
1,768
325
2,093
—
2,093
Liquidity and Capital Resources
Ternium’s cash from operations in 2023 reached a solid
$2.5 billion. Capital expenditures increased year-over-
year to $1.5 billion (including advanced payments to
equipment suppliers), mainly as a result of Ternium’s
growth projects in Pesquería and the consolidation of
Usiminas in the second half of 2023. In addition to its
growth projects in Pesquería, during the year Ternium
advanced the construction of a new wind farm in
Argentina and several projects aimed at
further
improving environmental and safety conditions at its
facilities. Usiminas’ capital expenditures included those
for the relining of its main blast furnace in Ipatinga.
During 2023, Ternium invested $119 million in the
acquisition of an additional participation in Usiminas,
paid cash dividends to the Company’s shareholders for
$569 million and paid dividends in kind to non-
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, 2023, we held other investments with maturity of
more than three months for a total amount of $2.2
investments, time
billion. We hold money market
deposits and variable-rate or fixed-rate securities.
Operating Activities
Net cash provided by operating activities in 2023 included
a working capital reduction of $321 million, due to a $202
million decrease in inventories and an aggregate $216
million net increase in accounts payable and other
controlling interest in Ternium Argentina for $234
million.
As of the end of 2023, Ternium’s net cash position was
$1.9 billion, decreasing $711 million compared to year-
end 2022. In the year, the fair value of Argentine
securities holdings decreased by $555 million, mostly as a
result of a sharp devaluation of the Argentine Peso
official exchange rate during December 2023. Ternium’s
net cash position as of December 31, 2023 included
Ternium Argentina’s total position of cash and cash
equivalents and other investments of $1.1 billion.
The following table shows the changes in our cash and
cash equivalents for each of the periods indicated:
2023
2022
2,501
(1,470)
(766)
264
(72)
1,653
1,846
2,753
(1,325)
(1,016)
412
(35)
1,277
1,653
liabilities, partially offset by an aggregate $98 million
increase in trade and other receivables.
Investing Activities
Net cash used in investing activities in 2023 was $1.5
billion, primarily attributable to capital expenditures of
$1.5 billion, an increase of $718 million in financial
investments with maturities of more than three months
and a $119 million investment in additional shares of
Usiminas, partially offset by the cash acquired
in
connection with the consolidation of Usiminas, which
amounted to $781 million.
11
TERNIUM S.A.
Consolidated Management Report
Financing Activities
Net cash used in financing activities was $766 million in
2023, attributable to dividends paid in cash to the
Company’s shareholders of $569 million, net repayment
of borrowings of $138 million and finance lease payments
of $59 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 29 “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.
Financial Liabilities
Total financial debt (inclusive of principal and interest
accrued thereon) was $2.1 billion as of December 31,
2023. Our financial liabilities consist mainly of loans with
financial institutions, bonds and debentures. As of
$ million
Date
Borrower
Type
August 2019
July 2019
May 2022
December 2022
Ternium Brasil
Syndicated loan
Usiminas
Usiminas
Usiminas
Bonds
Debentures
Debentures
Ternium has various off-balance commitments, including
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 25(ii) to our
consolidated financial statements included in this annual
facilities were mainly
these
December 31, 2023,
denominated in U.S. dollars and Brazilian reais (76% and
21% of total financial liabilities, respectively). Current
borrowings were 44% of total borrowings, none of which
corresponded to borrowings with related parties. With
cash and cash equivalents of $1.8 billion, other
investments of $2.2 billion and total financial debt of $2.1
billion, Ternium achieved a net cash position of $1.9
billion as of December 31, 2023. This compares to a net
cash position of $2.6 billion as of December 31, 2022.
Ternium’s cost of debt, as measured by the weighted
average interest rate, was 7.28% for bank borrowings,
5.88% for bonds and 12.52% for debentures, which were
43%, 36% and 21% of our total borrowings, respectively.
These rates were 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, 2023. Such
rates do not include the effect of derivative financial
instruments, nor fluctuations
in the exchange rate
between the instrument’s currencies and the U.S. dollar.
Most Significant Borrowings and Financial Commitments
Our most significant borrowings as of December 31,
2023, were those outstanding under Ternium Brasil’s
2019 syndicated loan facility and Usiminas’ bonds and
debentures issued to refinance existing financial debt.
The main covenants in our syndicated loan agreements,
bonds and debentures are limitations on liens and
encumbrances, restrictions to the sale of certain assets
and compliance with financial ratios (e.g., leverage ratio).
As of December 31, 2023, Ternium was in compliance
with all covenants under its financial instruments.
Original principal
amount
Outstanding principal
amount as of
December 31, 2023
Maturity
500
750
145
310
500
750
134
287
August 2024
July 2026
May 2029
December 2032
lease
instruments,
information on our derivative
report. For further
liabilities, borrowings,
financial
contingencies, commitments and restrictions
in the
distribution of profits, and financial risk management,
see notes 22, 23, 24, 25 and 29 to our consolidated
financial statements included in this annual report.
12
TERNIUM S.A.
Consolidated Management Report
Annual Dividend Proposal
On February 20, 2024, the Company’s board of directors
proposed that an annual dividend of $3.30 per ADS
($0.33 per share), or $649 million, be approved at the
Company’s annual general shareholders’ meeting, which
is scheduled to be held on April 30, 2024. The annual
dividend would include the interim dividend of $1.10 per
ADS ($0.11 per share), or $216 million, paid in November
2023. If the Company’s board of directors’ proposal is
approved at the shareholders’ meeting, a net dividend of
$2.20 per ADS ($0.22 per share), or $432 million, will be
paid on May 8, 2024, with record-date on May 3, 2024.
With a dividend yield of approximately 9%, the new
proposed annual dividend would represent a 22%
increase compared to the 2022 annual dividend and
almost three times the 2018 annual dividend of $1.20 per
ADS.
Annual Dividend
$ per ADS
*Board of directors proposal.
13
2.12.62.73.30.80.91.11.81.82.2Interim dividends20192020202120222023*0.00.71.42.12.83.5 TERNIUM S.A.
Consolidated Management Report
Research and Development
Activities
Ternium’s and Usiminas’ research and development
activities focus on the expansion of their offer of
advanced steel products, on the study and testing of new
technologies to decarbonize our operations and on
partnering with customers in the design of manufactured
components containing steel. We aim to further develop
our capabilities in the production and processing of high
value-added steel products and the design of steel-based
components to support the automotive industry’s effort
toward the development of the mobility of the future. We
aim to fulfill the requirements of a wide variety of
manufacturing sectors that are intensifying the use of
advanced steel products to apply to new solutions for the
energy transition.
We devote research and development resources to create
new steel qualities aimed at fulfilling these requirements.
Our research and development activities and our capital
expenditures program are designed to achieve steel
products with increasingly complex functional properties
and lower carbon footprint. We aim to shorten the
development cycle for new products to promptly make
use of the advanced technologies incorporated in our
facilities. We also
leverage on our research and
development capabilities to assist our operating personnel
in delivering solutions to our customers in their day-to-
day operations.
Our research and development areas also focus on
generating knowledge and on training employees to
maximize performance. We are integrating several new
technologies and artificial intelligence solutions to our
research and development processes to leverage on the
product and process knowledge gained over the years and
strengthen our focus on innovation.
Ternium’s Research and Development Facilities
Ternium’s research and development projects are carried
research and
in Ternium Lab, our
out mainly
development center in Pesquería, Mexico. Ternium Lab
features physical modeling, simulation of
industrial
processes, robotized testing, and full-scale welding
processes and advanced characterization. In addition,
Ternium operates research facilities with laboratories in
Brazil and Argentina, where we carry out product
performance tests and simulate production processes.
Usiminas research and development activities are
supported by its research and development center (RDC).
Activities at the RDC include the development of new
products and the testing of steel product performance,
which supports applied engineering activities and
technical assistance to customers in connection with the
optimization of steel product capabilities.
to
Ternium Lab facilities are accredited to certify steel
products according
international standards and
customer specifications, providing a reliable service to
Ternium’s clients, as it has been approved by most of our
customers in the automotive industry for the purpose of
certifying steel products. Since its inauguration, Ternium
Lab has granted approval for more than 100 steel
products designed for industrial applications, enabling
Ternium to swiftly incorporate its new hot-rolling mill in
Pesquería into its products’ processing routes.
In 2024, we expect to incorporate to Ternium Lab a new
state-of-the-art continuous galvanizing simulator, which
will allow us to evaluate new coatings, new product
development and the integral galvanizing process. With
this simulator, we expect to enhance the development
system of advanced hot-rolled galvanized steel products
to be processed in the new galvanizing line that is being
built in the industrial center in Pesquería. The line is
expected to be able to produce high-strength high-gauge
products for the automotive and renewable energy
markets.
Partnering with Research Bodies
Ternium’s and Usiminas’ in-house research activities are
complemented with our involvement in a global network
of industry consortia, universities, and research centers.
During 2023, we continued to actively participate in the
engineering core team of the Steel E-Motive project,
sponsored by WorldAutoSteel, for the design of cost
effective,
sustainable autonomous and
connected electric vehicles using advanced engineering
and high-strength steel technologies.
safe, and
Likewise, Ternium
and Usiminas partner with
universities on joint initiatives, fostering the involvement
of researchers and students from prestigious institutions
in early-stage development projects. During 2023, we
advanced new initiatives together with researchers and
students of recognized institutions with the aim at
expanding and diversifying our capabilities and research
network. These initiatives were centered on initial stage
project development, involving primary steel, metallurgy,
rolling and coating.
Decarbonizing Ternium’s Steel Processes
During 2023, Ternium
continued assessing new
technologies to decarbonize its operations in the long
term. To develop these initiatives, Ternium partners with
including our affiliate Tenova, a
other companies
company focused on the design and development of
technological solutions for metals processing. In addition,
we are building pilot equipment and have enhanced our
computing capabilities to simulate and study fuel
injection mechanisms in a blast furnace and in a direct
14
TERNIUM S.A.
Consolidated Management Report
reduction unit, aimed at injecting renewable fuels to
substitute natural gas. These fuels are obtained from raw
materials or energy sources that are restored or
regenerated at a pace similar to their consumption rate.
Partnering with Customers
Ternium has developed a battery pack for upcoming
electric cars and we shared it with select customers.
Ternium plans to continue increasing its involvement in
the electric vehicle market through joint developments.
To facilitate our early involvement in vehicle design
processes, Ternium Lab has been linked to most of our
customers’ development centers. Vehicle designers can
access the performance parameters of our steel products
through their own design software and assess,
in
designing their next models, our products’ weldability
and their deformation and energy absorption capabilities.
Ternium Lab keeps us connected with the market and our
customers, has become a reference for the industry and is
creating
new
collaboration patterns.
opportunities
business
new
and
Usiminas’ customer technical support focused on advising
and assisting users on issues concerning the product
engineering final application, including the stamping
process, welding, fatigue, corrosion resistance, wear
resistance, zinc and post
treatment coatings and
structural integrity.
and
their
Ternium continued assisting manufacturers of heavy
transport equipment in the design of high-performance
components
associated manufacturing
processes, leveraging on the improved capabilities of new
high-resistance steel products. In this regard, during 2023
our research and development team collaborated in the
design of a new prototype for sand transportation,
achieving a lighter equipment with increased erosion
resistance.
for
together with Tenaris,
In 2023, Ternium and Usiminas developed high-
performance steel
the
manufacturing of welded pipes for energy infrastructure
projects. Through this project, we enhanced the product
range of high-pressure, high-resistance and high-
toughness plate portfolios for natural gas pipelines.
Project development
leading
industrial companies allow us to anticipate market
requirements, plan new processes with new equipment
and technology, and build strong relationships with our
value chain.
in collaboration with
15
In Argentina, a new government administration took
office in December and is poised to introduce much
needed macroeconomic reforms in the country. These
reforms are expected to have a recessionary effect on the
Argentine economy in the first half of 2024 and,
consequently, are likely to negatively affect Ternium
shipments in the local market. In addition, during 2023,
foreign exchange restrictions limited our ability to import
raw materials and
intermediate goods, negatively
impacting Ternium Argentina’s inventory levels and steel
production rates. Consequently, we plan to continue
operating our facilities in the country at relatively low
utilization rates until Ternium Argentina is able to
replenish raw material inventories.
TERNIUM S.A.
Consolidated Management Report
Next Steps
In 2024, Ternium plans to continue capitalizing on
opportunities to serve the Mexican steel market. Steel
demand in the country is expected to expand moderately
on a year-over-year basis, supported by nearshoring
activity and higher infrastructure spending. During the
second half of 2024, we expect to inaugurate the first lines
of our downstream project in Pesquería, with the start-up
of a 550 thousand tons per year pickling line and the first
lines in our new service center; by the end of 2025 we
expect to start-up the new galvanizing line, and shortly
thereafter, the new cold rolling mill. The ramp-up of
these new lines is expected to gradually increase the
added value of Ternium’s shipments.
to be
The new EAF-based steel shop, expected
inaugurated in 2026, will accelerate our progress toward
achieving our decarbonization
target and support
ongoing compliance with the USMCA’s ‘melted and
poured’ requirements. The new DRI module will also
include carbon capture capabilities and readiness to
switch from natural gas to hydrogen use. Also, in
connection with our decarbonization targets, in 2024 we
expect to inaugurate a new wind farm in Argentina. The
new facilities are expected to have a nominal power
capacity of 99 megawatts and, once operational, to
replace approximately 90% of the electricity that
Ternium Argentina currently purchases from third-party
suppliers.
focused on
several projects
increased productivity and
Usiminas’ main blast furnace is expected to stabilize
during the first half of 2024. With the completion of its
ramp-up, the Ipatinga facility is expected to improve its
lower
performance with
production costs. During 2024, Usiminas expects to
advance
efficiency,
occupational health and safety, the environment and
its coking
including repair works at
maintenance,
batteries and a new pulverized carbon injection system at
its main blast furnace. Usiminas expects to strengthen its
leading position as a supplier to the industrial and
automotive sectors with continued focus on product
development. A key issue in the steel market in Brazil
looking
the approval and
is achieving
implementation of adequate trade measures to defend the
steel market from unfair trade, as has already been done
in many other important markets like the United States,
Mexico and Europe. Imports of steel sold below
production costs, are having a negative impact in the
Brazilian steel market. The Brazilian Steel Association
and other industry groups are actively trying to find a
solution to this issue.
forward,
16
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 eight 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 2023, the Company’s board of directors met eight
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 therein.
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
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.
terms, as determined by
On May 2, 2023, the Company’s annual general
shareholders’ meeting resolved to reduce the number of
directors to eight and approved the re-election of Mr.
Roberto Bonatti, Mr. Carlos Alberto Condorelli, Mr.
Vincent Robert Gilles Decalf, Ms. Gioia Ghezzi, Mr.
Daniel Agustín Novegil, Mr. Gianfelice Mario Rocca,
Mr. Paolo Rocca and Ms. Lorenza Martinez Trigueros as
board members, to hold office until the meeting that will
be convened to decide on the 2023 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, Ms.
Gioia Ghezzi and Ms. Lorenza Martinez Trigueros, who
were appointed to the audit committee by the Company’s
board of directors on May 2, 2023. 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
17
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 is in charge of the
interpretation, implementation, control and enforcement
of the Company’s Clawback Policy, which sets forth the
principles for the prompt recovery of erroneously
awarded incentive-based compensation granted to certain
officers of the Company in the event of a restatement of
the Company’s financial statements.
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.
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
statutory auditor for the fiscal year ending December 31,
2024.
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
relations with our contractors, subcontractors, suppliers
and associated persons. In addition, the Company has
adopted certain policies which are
to
supplement the Company’s Code of Conduct, such as a
Policy on Business Conduct prohibiting bribery and
corruption to all directors, officers, employees and any
person or entity representing or acting for or on behalf of
Ternium, and a Code of Ethics for Financial Officers,
which applies specifically to the principal executive
officer, the principal financial officer, the principal
accounting officer or controller, or persons performing
similar functions.
intended
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 2, 2023,
the Company’s
re-appointed PwC Luxembourg as
statutory auditor for the fiscal year ended December 31,
2023. At the next annual general shareholders’ meeting
scheduled to be held on April 30, 2024, it will be proposed
that PwC Luxembourg be re-appointed as the Company’s
18
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
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.
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 the steel
industry generally and specifically on our 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
triggered an
adopted by governmental authorities
unprecedented crisis that resulted in a severe contraction
in gross domestic product and steel consumption
globally, affecting all steel markets in which Ternium had
significant exposure. Global activity levels improved
during the second half of 2020 and steel demand
recovered to pre-COVID levels in 2021. 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, central banks in many countries tightened
monetary conditions during 2022 and 2023 in response to
elevated inflation rates. These factors led to a contraction
in global steel consumption in 2023.
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 the overall steel
business and specifically 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. Steel prices
have been significantly fluctuating in response to market
trends, costs of raw materials and world events
(including,
in recent years, COVID pandemic and
international conflicts, such as the Russian invasion of
Ukraine). For instance, US prices of hot-rolled coils
bottomed in 2020 to USD485 per ton, peaked at
USD2,135 per ton in 2021, and then showed significant
volatility during 2022 and 2023. A protracted fall in steel
prices could result in lower revenues, adversely affecting
Ternium’s operating results.
Furthermore, if raw material costs decline, the resulting
reduction
in steel production costs would not be
immediately reflected in Ternium’s operating results as
we would first consume existing inventories acquired
prior to such raw material cost decrease (First In - First
Out accounting methodology). Similarly, we may be
unable to recover, in whole or in part, increased costs of
raw materials and energy through increased selling prices
on steel 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, overcapacity has been particularly severe in
China. More recently, there have been several new steel
making and steel processing facilities under construction
or ramping-up in the United States and Mexico, 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
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
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Consolidated Management Report
measures and may cause fluctuations in international
steel trade. The imposition of such trade remedies or
temporary tariffs on major steel exporters in significant
steel producing countries could
in turn exacerbate
pressures in other markets, including those to which
Ternium is exposed 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 more than half of worldwide crude steel
production, and Chinese exports of steel products to
many countries, including exports to Europe, the United
States and Mexico, have been subject to the imposition of
antidumping and countervailing duties and other trade
measures. A decrease in steel consumption or an increase
in steel production in China, could cause aggressive
Chinese steel export offers, exerting downward pressure
on sales and margins of steel companies operating in
other markets and regions, including those to which we
are exposed. For example, in 2023 there was a surge in
the
in Brazil of
approximately 42% compared to 2022, mainly consisting
of
imports from China, adversely
affecting Brazilian domestic steel production. Similarly, a
downturn in global or regional economic activity could
encourage unfair steel trade practices adversely affecting
the steel industry and Ternium’s business and results of
operations.
low-priced steel
steel products
import of
flat
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 our customers
can vary significantly from period to period, as they
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 steel products. For example, in 2021 vehicle
production was severely affected by a shortage of
semiconductors that, in turn, affected our steel sales.
More recently, foreign exchange restrictions in Argentina
reduced our customers’ ability to import raw materials
impacting
and
manufacturing activity and, as result, steel demand in the
country. For additional information, please see note 30
“Foreign exchange restrictions in Argentina” to our
consolidated financial statements included in this annual
levels and
in steel
report. Fluctuations
disruptions in customers’ supply chains can temporarily
affect the demand for, and price of, steel products and,
accordingly, Ternium may not be able to increase or
maintain its levels of sales volume or prices.
intermediate
negatively
inventory
goods,
Intense competition could cause Ternium to lose its
market share and adversely affect its revenues.
by making
The market for steel products is highly competitive,
particularly with respect to price, quality and service. In
both global and regional markets, Ternium competes
against other global and local 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. Competitors could use their resources
in a variety of ways that may affect Ternium negatively,
including
acquisitions,
implementing modernization programs, expanding their
production capacity or investing more aggressively in
product development among others. To the extent that
competitors become more efficient, our sales could suffer
as operations confront stronger competition and could
fail to preserve their current share of the relevant
geographic or product markets. In addition, there has
industry
been a
consolidation
current
competitors in the steel market could become larger
competitors in the future.
toward steel
and
in
among
competitors,
additional
the past
trend
Moreover, Ternium and other steel makers compete
including
against suppliers of alternative materials,
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 high-pressure aluminum
obtained through die casting, 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 our 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.
coal
inputs
include
The manufacture of steel products requires substantial
amounts of steelmaking raw materials, slabs, energy and
inputs from domestic and foreign suppliers.
other
Ternium’s raw materials and
large
iron ore, metallurgical coal,
quantities of slabs,
pulverized
ferroalloys,
scrap,
injection,
for
refractories, natural gas, electricity, oxygen and other
gases consumed in operating blast and electric arc
facilities. The
furnaces, as well as downstream
availability and pricing of raw materials, slabs, energy
and other inputs used in our operations are subject to
multiple
conditions,
government regulations or intervention, including import
international sanctions, allocation by
controls and
including market
factors,
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TERNIUM S.A.
Consolidated Management Report
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.
process.
consolidation
Purchased slabs are a key component of Ternium’s
production
and
Industry
integration of slab making facilities into finished steel
products have been reducing the availability of slabs in
the global market. For example, in 2023 ArcelorMittal
acquired Companhia Siderúrgica do Pecém (CSP), a
Brazilian slab maker that used to be a significant supplier
of slabs in the international markets. In addition,
ArcelorMittal gradually integrated its slab facility in
Lázaro Cárdenas, Mexico, with the steel processing
facilities located in Alabama, U.S., that it had acquired
together with Nippon Steel Corporation (NSC)
in
February 2014. Furthermore,
in 2021 ArcelorMittal
inaugurated a new hot-rolling mill in Lázaro Cárdenas
that led to a further integration of its slab facility in that
site. Additionally, 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
in the steel
of slabs and other
production process. New international sanctions against
Russian steel companies or citizens 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.
inputs consumed
We have usually been able to procure sufficient supplies
of raw materials, slabs, energy and other inputs to meet
our production needs; however, we 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 our 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 our business
and results of operations. For further information related
to effects of global events see “- 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.
We depend on a limited number of key suppliers for the
provision of certain key inputs. For example, in 2023
Ternium Argentina and Ternium Brasil purchased iron
ore mainly from Vale, a Brazilian company. There is a
trend in the industry towards consolidation among
suppliers of raw materials, slabs and other inputs. We
have entered into long-term contracts for the supply of
some (but not all) of our principal inputs and expect 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 or sanctions
limit or prohibit purchases from certain suppliers, we
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 our input
requirements from other suppliers.
Risks Relating To Ternium’s Business and Growth
Strategy
Past or
significant
future acquisitions or other
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. Over the last decade, we made
two large acquisitions, one involving a participation in
the control group of Usiminas, the largest flat steel
producer in Brazil, and the other involving CSA, a
Brazilian steel slab producer. Recently announced organic
investments
the construction of a new
steelmaking facility and a direct reduction unit in
Pesquería, as well as a new port facility for raw material
handling. In addition, Ternium is advancing with the
construction of a cold-rolling mill, a hot-dipped
galvanizing line, a push-pull pickling line and finishing
lines in its industrial center in Pesquería.
include
Any acquisition, investment or other growth project will
depend on market and financing conditions. We must
necessarily base any assessment of potential acquisitions
or organic investments on assumptions with respect to
operations, profitability and other matters that may
subsequently prove to be incorrect. In addition, we may
fail to find suitable acquisition targets or fail to
consummate our acquisitions under favorable conditions.
Our acquisitions or other investments may not perform in
accordance with expectations and could have an adverse
impact on our operations and profits. Furthermore, we
may be unable to successfully integrate any acquired
businesses into our 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,
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TERNIUM S.A.
Consolidated Management Report
assets unrelated to its business, and we may not be able to
integrate them or sell them under favorable terms and
conditions. Integration of any acquired businesses would
require a significant amount of time and resources from
management and employees. Finally, the existence of
other minority shareholders at any acquired companies,
including Usiminas and its subsidiaries, could delay or
prevent us from completing our strategy or fully
maximizing our combined competitive strengths. These
risks could have an adverse impact on the ongoing
business and a material adverse effect on our financial
condition and results of operations.
In addition, acquisitions may be subject to challenges or
investigations by governmental authorities, including
antitrust and consumer-protection authorities. The costs
of complying with authorization or
investigation
procedures may be significant. Also, antitrust authorities
are looking very closely at the effects of acquisitions and
may deny authorizations, impose conditions that may
result in significant costs or deprive Ternium from the
advantages and expected synergies of acquisitions, or
initiate investigation upon challenges brought by third
parties. Challenges to acquisitions or other investments,
and failure to obtain, or conditions imposed for the
granting of, authorizations may block or delay
transactions, which could have an adverse effect on our
financial condition and results of operations.
Ternium’s strategic growth projects could be delayed, the
cost of those projects could increase, or Ternium’s
competitiveness could be affected, if the operations of
certain suppliers of heavy equipment are disrupted by
geopolitical risk, adversely affecting Ternium’s growth
opportunities and profitability.
Ternium is expanding its industrial facilities in Mexico to
advance the continued integration of its industrial system
and reinforce its position as a leading steel supplier in the
region. In a market that is increasingly demanding
differentiated products and services, the implementation
of the United States-Mexico-Canada Agreement, or
USMCA, trade agreement and the nearshoring of
manufacturing capacity in the steel value chain have
made Mexico an attractive destination for continued
investment. Ternium’s expansion plan
includes a
steelmaking facility, a cold-rolling mill, a hot-dipped
galvanizing line, a push-pull pickling line and finishing
lines in Pesquería and new port facilities for raw material
handling. These facilities are expected to gradually start-
up during 2024, 2025 and 2026 at a total cost of
approximately $3.5 billion.
The proper execution of this complex expansion plan
relies, among other factors, on timely manufacturing,
delivery and commissioning of the equipment ordered for
the new facilities, especially those related to the new steel
mill, in light of the USMCA’s new “melted and poured”
manufacturing requirements, to become effective in July
2027, for steel to be considered as originating in North
America for USMCA tax purposes. Geopolitical conflicts
may expose some of our suppliers of heavy equipment to
government actions or sanctions preventing them from
shipping the equipment or us to continue purchasing
products from, or making payments to such suppliers,
and we may not be able to promptly procure such
equipment from an alternative facility of such supplier or
from other suppliers, or we may be required to purchase
equipment at increased prices, which could result in
increased expenses and/or a delayed execution of our
growth plans. In addition, delayed compliance with the
new USMCA’s steel manufacturing requirements would
affect our market competitiveness and may hurt our
profitability and net worth.
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 our
assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not
be recoverable. Assets subject to testing include goodwill,
intangible assets,
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
impairment. IFRS requires
Ternium to recognize a charge in an amount equal to any
impairment.
indicators of
investments
the recoverability of our
We review periodically
investments. As of December 31, 2023, goodwill in
connection with our Mexican subsidiaries amounted to
$662.3 million and the carrying value of our investment in
non-consolidated companies amounted to $517.3 million.
If Ternium’s management determines in the future that
the goodwill from its acquisitions, its investments in non-
consolidated companies or the carrying value of its
property, plant and equipment and other long-lived assets
are impaired, Ternium will be required to recognize a
charge against earnings, which could materially adversely
affect our 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, we wrote
down our investment in Usiminas by $275.3 million,
$739.8 million, $191.9 million and $120.4 million,
respectively. In the fourth quarter of 2023, we recorded a
$42.3 million impairment charge of certain mining assets
from Las Encinas. See note 4(e)(2) “Accounting Policies –
Intangible Assets – Mining Assets” to our consolidated
financial statements included in this annual report, and
for information on impairments recorded by Ternium,
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TERNIUM S.A.
Consolidated Management Report
see note 4(f) “Accounting Policies – Impairment” of our
audited consolidated financial statements included in this
annual report.
increased
In addition,
its
in July 2023, Ternium
participation in Usiminas control group and began to
consolidate Usiminas. As a result of this transaction,
Ternium recorded a $1.1 billion non-cash net loss
composed of (i) a loss of $935 million corresponding to
in “Other
items recognized as of June 30, 2023,
Comprehensive Income” related to Ternium’s previous
stake in Usiminas. This negative reserve was mainly
related to CTA losses due to the impact on Usiminas
valuation of the depreciation, over the years, of the
Brazilian Real versus the U.S. dollar, as Usiminas uses the
Brazilian Real as its functional currency. As a result of the
increase
items
recognized in Other Comprehensive Income related to
Ternium’s previous stake in Usiminas were recycled to
the results of the period. The resulting $935 million loss is
non-cash, it has no income tax effects and did not change
the value of Ternium’s equity; and (ii) a net loss of $171
million as a result of the purchase price allocation related
to the business combination performed in the third
quarter of 2023 and the remeasurement of Ternium’s
previous stake in Usiminas. For further information, see
the
note 3 “Acquisition of Business—Increase of
participation
in Usiminas control group and new
governance structure of Usiminas”, to our consolidated
financial statements included in this annual report.
the participation
in Usiminas,
in
companies for corrupt practices undertaken by their
employees or representatives. In addition, we cannot give
any assurance that we will detect all illegal activity that
may have been conducted before the acquisition at any
acquired business.
Labor disputes could result in work stoppages and
disruptions to Ternium’s operations negatively impacting
our results.
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’s subsidiaries could also suffer plant stoppages
or strikes if they were to implement cost reduction plans.
From time to time, we take measures to increase
competitiveness; none of the measures taken in the past
have resulted in significant labor unrest. However, we
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
our costs, thereby affecting our results of operations.
Any further write-downs to or revaluation of Ternium’s
assets or investments could have a material adverse effect
on Ternium’s results of operations or net worth.
Changes in exchange rates or any limitation in Ternium’s
ability to hedge against exchange rate fluctuations could
adversely affect Ternium’s business and results.
If Ternium does not comply with laws and regulations
designed to combat governmental corruption in countries
in which it sells its products, it could become subject to
fines, penalties or other sanctions and Ternium’s sales
and profitability could suffer.
We conduct our 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
in
Combating Bribery of Foreign Public Officials
International Business Transactions such as the U.S.
Foreign Corrupt Practices Act and other anti-corruption
laws adopted by the main countries in which we operate
(including Mexico, Argentina, the United States, Brazil
and Colombia), which impose strict criminal liability on
Our operations expose us 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 Ternium companies’
results as reported in their income statements and
statements of financial position. In the ordinary course of
business, Ternium companies may see fit to enter into
exchange rate derivatives agreements to manage exposure
to exchange rate changes. Future regulatory or financial
restrictions in the countries where we operate may reduce
our ability to manage our exposure to exchange rate
fluctuations, and thus could cause an adverse impact on
our results, financial condition or cash flows.
In addition, Usiminas, which we began to consolidate in
July 2023, uses the Brazilian real as its functional
currency. Accordingly, any fluctuation of the BRL/USD
exchange rate will impact any non-BRL exposure in
Usiminas’ balance sheet and, therefore, impact Ternium’s
net worth, statements of comprehensive income and
results of operations in the form of translation and
transaction risk.
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Cyberattacks could have a material adverse impact on
Ternium’s business and results of operations.
For purposes of carrying out its operations, Ternium
relies heavily on
information systems; and digital
technologies have an increasingly significant role across
the business. Although we devote significant resources to
protect our systems and data, and continually monitor
external developments and available information on
threats and security incidents, we have experienced and
we expect to continue experiencing varying degrees of
cyber incidents in the normal conduct of business, and
also occasionally experience sophisticated cybersecurity
threats including actual or potential unauthorized access
to data and systems, loss or destruction of data, computer
viruses or other malicious code, phishing, spoofing and/or
other cyberattacks. Cybersecurity threats and incidents
often arise from numerous sources, many of which fall
beyond our control, such as fraud or malice from third
parties, including fraud involving business email, failures
of computer servers or other accidental technological
failure, electrical or telecommunication outages or other
damage to its property or assets.
Cybersecurity threats and incidents, such as phishing
attacks, attempts
to compromise user credentials,
attempts to compromise firewall infrastructure, fake
websites,
impersonation and whaling, continued to
increase throughout 2023. The sophistication of these
attacks also grew at a fast pace, with issues such as
remote work bearing a significant concern for companies
in different industries. Microsoft has informed that the
manufacturing sector was the industry most subject to
ransomware attacks
that
cyberattacks are
sophistication and
frequency and call for a global response to cybersecurity
threats, and regulators are placing increased focus on
cybersecurity and its effects.
in 2023. Experts agree
increasing
in
Cyber ecosystem risk is becoming more problematic.
According to the World Economic Forum’s 2024 Global
Cybersecurity Outlook, the gap between organizations
that are cyber resilient and those that are not is widening
at an alarming rate and this phenomenon is particularly
alarming in light of the interconnected nature of the cyber
ecosystem. According to data set forth in such Report,
41% of the organizations that suffered a material incident
in the past 12 months attributed the incidents to a third
party, and 54% of the organizations have insufficient
visibility into the vulnerabilities of their supply chain.
This raises a significant concern as even resilient
companies may be exposed to the vulnerabilities of third-
party suppliers, service providers or clients.
In addition, emerging technologies,
like generative
artificial intelligence (AI), which are becoming available
more widely and faster, are expected to exacerbate cyber
resilience challenges. Approximately half of executives
surveyed at the World Economic Forum’s annual meeting
on cybersecurity stated that advances in adversarial
capabilities (phishing, malware, deepfakes) present the
most concerning impact of generative AI on cybersecurity
concerns.
The cybersecurity incidents we suffered in 2023 were
contained in a timely manner. Four incidents evidenced a
high level of sophistication. None of the cybersecurity
incidents led to any known breaches of business-critical
IT systems and, as such, did not result in any material
business impact to Ternium.
improve
In this context, we continue to seek to
cybersecurity controls, processes and procedures to
monitor, detect, evaluate and respond to hacking,
malware infection, cybersecurity compromise and other
risks. In addition, we carry out cybersecurity awareness
and ethical phishing campaigns aimed at protecting us
against cyberthreats. Given the rapidly evolving nature of
cyber threats, there can be no assurance that the systems
and measures that we have put in place to prevent or limit
the effects of cyber incidents or attacks and the mitigation
actions adopted in connection with such attacks will be
sufficient to prevent or detect such incidents or attacks, to
avoid a material adverse impact on our systems. While we
continue to attempt to mitigate these risks, we remain
vulnerable to additional known or unknown threats,
including
loss of data,
programming errors, employee errors and/or dishonest
behavior that could potentially lead to the compromising
of sensitive information, improper use of our systems or
networks, as well as unauthorized access, use, disclosure,
modification or destruction of such information, systems
and/or networks.
theft, misplacement or
limited
If Ternium’s systems and measures for protecting against
cybersecurity risks are circumvented or breached, this
could result in disruptions to its business and operations
(including but not
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 our reputation
with customers and the market, failure to meet customer
requirements, customer dissatisfaction and/or regulatory
fines and penalties (including for inadequate protection of
personal data and/or failure to notify the competent
authorities for such breach) or other financial costs and
losses. In addition, failure to adequately and timely
monitor and evaluate our hardware and software systems
and applications to prevent or manage technology
obsolescence risks may result in increased costs, increased
operational risk of service failure, loss of technology
competitiveness and reputation.
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TERNIUM S.A.
Consolidated Management Report
any
and/or
In addition, given that cybersecurity threats continue to
evolve, we may be required to devote additional resources
in the future to enhance its protective measures or to
investigate
cybersecurity
remediate
vulnerabilities. Ternium does not currently maintain
cybersecurity insurance and the insurance it carries for
property damage and general liability may not protect
Ternium from damages derived from cyber events.
Moreover, any investigation of a 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).
Furthermore, in response to the increase in the number
and sophistication of ransomware attacks, U.S. and other
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. This would constrain our
ability to deal with ransomware attacks, should they
occur.
The physical risks resulting from climate change,
including extreme weather conditions and shifts in
weather patterns may adversely
impact Ternium’s
business, results of operations and net worth.
our
and
facilities
production
Ternium’s business has been, and in the future could be,
affected by severe weather conditions in areas where
operations are carried out, which could materially
damage
general
infrastructure or affect the normal course of business, and
result in a material adverse effect on Ternium’s 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
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
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 operations in
Mexico, negatively affecting steel production levels.
The communities surrounding our main operation sites in
Argentina, Brazil and Mexico are vulnerable to flooding
due to extreme weather events. In the past, certain
operations in Brazil and Argentina experienced intense
rainfall affecting personnel’s access to the facilities. In
addition, as Ternium Mexico’s facilities are located at
water stressed areas, its operations in the country could
be affected by water shortages and/or increased water
costs, including as a result of measures taken by local
governments in order to prevent or deal with critical
situations caused by severe draughts. For example, in
response to severe draughts affecting the metropolitan
area of Monterrey in the state of Nuevo León, Mexico,
the national water authority suspended new freshwater
use concessions in the Monterrey area in 2022 and 2023.
Although this event did not have a significant impact on
our operations in the region, we cannot predict the
impact of future similar events, in Mexico or elsewhere,
to its operations and financial condition.
Extreme weather events and natural disasters could result
in damage to property, delays in production or shipments
and, in extreme cases, death or injury to persons. Any of
the foregoing could create liability for Ternium.
Also, chronic climate changes, such as changes in
precipitation patterns and rising of temperatures and sea
levels may result in increased operating costs or capital
expenditures, due to supply shortages or damage to
facilities, personnel evacuation,
insurance
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 our financial
condition, results of operations and cash flows.
increased
Ternium does not carry business interruption insurance,
and the insurance that Ternium maintains for property
damage and general liability may not be adequate or
available to protect us under such events, its coverage
may be limited, or the amount of insurance may be less
than the related loss.
Risks Relating to the 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. In addition, Usiminas,
which we began to consolidate in July 2023, holds a 70%
equity interest in Mineração Usiminas, a mining company
located in Brazil. For information related to the risks of
doing business in Brazil and Mexico see “-Risks Relating
to the Countries in which Ternium Operates”. In
addition, Ternium’s mining activities are subject to the
following risks:
accidents
Operational
natural
catastrophes may damage the environment, destroy
properties and affect production or cause injuries and
impact Ternium’s
death, which would adversely
unexpected
and
25
TERNIUM S.A.
Consolidated Management Report
operations and profitability, and result in material
liabilities.
Las Encinas, Consorcio Peña Colorada and Mineração
Usiminas carry out extractive, processing and logistical
operations. Liabilities associated with such 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 processes. The operations involve the
use, handling, storage, discharge and disposal of
hazardous substances and bulk material, 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 injury or
death, and delays in production. For example, in January
2022, unusually heavy rains damaged internal roads and
drainage systems, affecting Mineração Usiminas’ iron ore
production and shipments during that month. By March
2022, Mineração Usiminas was able to fully normalize its
operations.
Although most of the tailings dams used by Las Encinas
and Consorcio Peña Colorada meet
the strictest
international seismic standards, new reinforcements are
expected to be completed by Consorcio Peña Colorada by
year-end 2024 in one of its tailings dams in order to
reduce risks of collapse under a severe earthquake. This
reinforcement project follows recommendations arising
from stability studies conducted with the assistance of
independent consultants. Although Ternium believes
that, once completed, Consorcio Peña Colorada’s
investment project will further mitigate the risk of
incidents or failures at its tailings dam, failures or
breaches may still occur prior to, or after, completion of
reinforcement works. Furthermore, we cannot guarantee
that failures or breaches will not occur in any tailings
dam even when meeting the strictest international seismic
standards.
Mineração Usiminas, Las Encinas and Consorcio Peña
Colorada 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.
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 it currently
injuries arising
from claimed exposure
substances allegedly used,
owns, leased-land sites and third-party waste disposal
sites. We may be held responsible for other sites in the
future. It also could be subject to litigation for alleged
bodily
to
hazardous
released, or
disposed of by Ternium. Environmental damages caused
by mining operations may result in costs and liabilities
that could materially and adversely affect Ternium’s
margins, cash flow and profitability. Third-party claims
based on environmental or physical damages may exceed
the limit of liability of the insurance policies that
Ternium may have in place.
Required governmental concessions could be subject to
prior consultation with native communities in Mexico or
local communities in Brazil, 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.
Increased
authorities.
Mining activities are subject to specific regulations and
depend on concessions and authorizations granted by
governmental
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, may alter the
terms pursuant to which mining companies are 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
example, in December 2011, the Minas Gerais state
created a rate for the controlling, monitoring and
supervision of exploration and mining activities of
mineral resources, the TFRM rate, which determines a fix
value per ton sold. In addition, in 2019, the federal and
state governments issued new regulations for licensing of
new dams, as well as the insertion of conditions for
structures with population in the self-rescue zones,
ranging from the guarantee of stability, expropriation or
relocation of the population and de-characterization of
dams, the implementation of which increased operating
costs.
In April 2023, Mexico approved a significant reform to its
mining laws. Among other changes, future mining
activities have been prohibited in certain areas where
superficial bodies of water exists, and areas declared by
federal or local governments as natural reserves. In
addition, governmental authorities are authorized to
order removal of existing deposits under certain
circumstances of location and risk. The new legislation
prohibits the use of national waters for the transportation
of certain materials, grants to the Mexican geological
service exclusive rights to conduct exploration activities
and provides for mandatory bidding processes in the
26
TERNIUM S.A.
Consolidated Management Report
and
exploitation
exploration
granting of new
concessions, limiting concessions to a 30-year duration
with 25-year automatic extension and a further 25-year
extension through a prior bidding process. Concessions
may be revoked on certain grounds, including for failure
to initiate or interrupt operations within a specified
timeframe or to file a mine closing plan, and any kind of
accidents could be punished with increased fines and
other consequences. In addition, new permits entailing an
increase in water consumption will be subject to several
new conditions related to water availability in the regions
were Las Encinas and Peña Colorada operate. Granting
of new mining rights by the federal government will also
be subject to the granting of new water consumption
permits based on such new conditions. Furthermore, the
new law seeks to regulate royalties or the sharing of
profits with
and mandates
consultation processes with native and Afro-Mexican
communities. The Supreme Court and other federal
courts are analyzing the constitutionality of the new
legislation. Mining companies operating in Mexico,
including Las Encinas and Peña Colorada, expect their
resolutions on the subject during 2024.
communities,
local
For further information on risks, including regulatory
risk, relating to our operations in Mexico, see “- Risks
Relating to the Countries in Which Ternium Operates -
Mexico.”
Iron ore exploration and exploitation concessions in
Brazil and Mexico as well as water concessions in Mexico
may be revoked if the competent government authorities
determine that mining companies do not comply with
their obligations under the respective 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
local
maintain agreements with
communities or landowners, or such agreements may be
excessively onerous.
the native or
If Las Encinas, Consorcio Peña Colorada or Mineração
Usiminas are unable to establish use and occupancy rights
on acceptable terms, their mining activities may be
compromised. In addition, Las Encinas, Consorcio Peña
Colorada or Mineração Usiminas need to obtain, in the
normal course of business, permits to operate new iron
ore bodies at the mines and for the expansion of tailings
deposit capacity in Mexico or areas for stocking piles and
filtered waste in Brazil. 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, Consorcio Peña
Colorada or Mineração Usiminas 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
factors beyond our
mineral production,
including
control. Resource and reserve calculations
involve
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
forecasts and projections
involve assumptions and
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 addition, our 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 our 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 levels
consistent with its reserve estimates. Resource and reserve
estimates may vary in the future, 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
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TERNIUM S.A.
Consolidated Management Report
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 the cost to explore, locate, extract
and process iron ore, we may be required to lower our
reserves become
if certain ore
reserve estimates
uneconomical to mine.
Exploration activities are subject 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.
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 our
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 it may be exploited, we
may incur substantial write-offs.
Inability to complete activities required to maintain iron
ore and pellets production rates over time could increase
Ternium’s steel production cost.
Mining requires continuous investment and activities to
sustain production rates such as the design of mining
projects, the granting of environmental permits, the
development of iron ore reserves and/or tailings dams,
and the successful execution of civil works. A large share
of Mineração Usiminas’s iron ore reserves and resources
are made of an iron ore quality called Compactos, which
is not able to be processed in Mineração Usiminas’s
current facilities or would be processed at substantially
lower rates. To be able to process the Compactos iron ore
quality at a rate similar or higher than current processing
rates, Mineração Usiminas’s is required to deploy a new
project that entails new equipment and facilities and
significant capital expenditures, the so called Compactos
Project. If Mineração Usiminas does not approve or fails
to timely develop this project, Mineração Usiminas’s iron
ore shipments will stop once the reserves of other iron ore
qualities are depleted, negatively affecting Ternium’s net
sales and operating results. On the other hand, if
Ternium’s mining companies in Mexico fail to timely
carry out the activities required to maintain iron ore and
pellets production rates over time, Ternium could have to
substitute lower-cost iron ore produced in its mining
operations with third-party iron ore in order to supply its
steel operations, with a consequent increase in steel
production cost.
Expected costs and capital expenditure requirements for
exploration, exploitation or restoration activities may
vary
financial
condition and expected results of operations.
significantly and affect Ternium’s
to
to
for
several
factors,
including changes
the acquisition of equipment
Ternium may be subject to increased costs or delays
relating
the
exploration and exploitation of ore deposits, or
restoration of exhausted mines. Moreover, we may face
increasing costs or capital expenditure requirements
related
in
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, tailings and waste piles, 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 the ability
to produce the expected quantities of mineral. If this
occurs, our 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, and increasing violence and crime in Mexico
could result in temporary or even permanent shut down
of Ternium’s Mexican mining 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
iron ore
blockades to disrupt our operations or
transportation, or legal proceedings to suspend mining
activity. Although we make significant efforts to maintain
good relationships with such communities, actions taken
by
those
communities), including requesting the government to
revoke or cancel concessions or environmental or other
permits, may hamper our ability to conduct mining
activities as planned, prevent us
fulfilling
agreements reached with the government, or significantly
increase the cost of exploring and/or exploiting the mines,
interest groups within
(or by
them
from
28
TERNIUM S.A.
Consolidated Management Report
thereby adversely affecting our business and results of
operations.
resolve such conflicting claims are largely untried and can
be expected to be very lengthy.
Mexico
In the past, Ternium’s mining operations in Mexico faced
actions by certain native or local communities demanding
higher compensation or other benefits, or seeking to stop
mining activities. Although attempted legal actions 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.
More recently, the security situation in Aquila, where Las
Encinas has its main mining operation, has worsened,
with growing violence in the region being caused by
criminal groups seeking territorial control and the
exploitation of economic resources. In addition, a long-
standing internal dispute between two differentiated
groups of the native community prevented the election of
community representatives and stirred a great deal of
turmoil. In January 2023, two important community
leaders went missing, which triggered an investigation by
the Attorney General’s office that resulted in the arrest of
at least two suspects. The ensuing crisis forced Las
Encinas to keep its main mining operation idled during
the first half of 2023. Similarly, the Jalisco area, where
Consorcio Peña Colorada operates, is not exempt from
the presence of criminal groups and, consequently,
security has also deteriorated in such region in the past
months.
If violence and conflict continue to increase in the regions
where Ternium has its mining operations, Ternium’s
mining activities in Mexico may be partially or totally
suspended, or even permanently shut down.
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 Ternium operates have double tax
treaties with foreign jurisdictions, which provide a
framework for mitigating the impact of double taxation
on Ternium’s results. However, mechanisms developed to
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, or 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
applies 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, or 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 is pending approval. 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 has 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.
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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 their shareholders
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 example,
in
Argentina
impaired Ternium
have
Argentina’s ability to transfer dividends abroad and,
therefore, Ternium Argentina resorted to the payment of
dividends
in kind utilizing US dollar-denominated
Argentine sovereign bonds. For information on exchange
controls in Argentina, see note 30 “Foreign exchange
in Argentina” of Ternium’s audited
restrictions
consolidated financial statements included in this annual
report; and “—Risks Relating to the Countries in Which
Ternium Operates – Argentina: Exchange controls in
Argentina could negatively impact Ternium Argentina’s
operations, preventing Ternium from importing raw
materials, paying dividends or transferring cash surpluses
abroad, as a result of its inability to access the foreign
exchange market”.
regulations enacted
significantly
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 or if the special tax reserve were
to be exhausted.
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, or
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
in the Company's
Existence of other shareholders
subsidiaries and associates 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 29,
2024, 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, 22.75% of
Usiminas’ ordinary shares were held by the NSC Group,
4.85% by Previdência Usiminas and 22.91% were
publicly held, and 0.61% of Usiminas’ preferred shares
were held by the NSC Group and 97.54% were publicly
held. Furthermore, Ternium holds a 51% ownership
interest in Tenigal (with NSC holding the remaining
49%); a 50% equity interest in Consorcio Peña Colorada
(with ArcelorMittal holding the remaining 50%); and a
48% equity interest in Techgen. The existence of other
shareholders
in these companies could prevent the
Company from taking actions that, while beneficial to
Ternium, might not be beneficial to each relevant
subsidiary or associate considered separately. As a result,
the Company could be delayed or prevented from
completing its strategy or fully maximizing Ternium’s
competitive strengths.
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TERNIUM S.A.
Consolidated Management Report
Risks Relating to the Countries in Which Ternium
Operates
Negative economic, political, social and regulatory
developments in certain markets where a significant
portion of Ternium’s operations and assets are located
could disrupt its manufacturing activity, hurt Ternium’s
shipment volumes or prices, or increase its costs, thereby
adversely affecting its results of operations and financial
condition.
regulatory and
Ternium’s results of operations are subject to the 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,
legal
social,
developments, such as nationalization, expropriation or
forced 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. Our 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
the Mexican
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 or there is a future re-
emergence of social instability, political unrest, reduction
in
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 our business,
results of operations, financial condition or liquidity.
Moreover, adverse economic conditions in Mexico could
result in, among other things, higher inflation and interest
rates coupled with reduced opportunities for funding or
refinancing, reduced domestic consumption of our
products, decreased operating results and delays in the
completion of ongoing and future capital expenditures.
government
spending,
increased
Energy or constitutional reforms
in Mexico could
adversely impact Ternium’s results of operations and net
results.
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 cost.
Since December 2018, the Mexican government has
introduced numerous changes to electricity regulations,
including a March 2021 amendment to the Energy
Industry Law, or LIE, and a bill to reform the
Constitution, filed in October 2021 but then rejected by
the Mexican Congress. These changes aimed to revert the
previous administration’s 2013 energy reform and seek to
grant priority to Mexico’s state-owned electric power
generation and distribution company, or CFE, over
private generators in the supply of electric power to the
Mexican market and mandate a revision of power
generation and transaction agreements between CFE and
independent electric power suppliers.
the
Supreme Court
The intended reforms were challenged in court by certain
members of the Senate and by affected companies, many
of which sought and obtained injunctive relief. In January
2024,
the
constitutionality of certain provisions of the LIE reform.
In response, the Mexican President announced a new
proposal for an ambitious constitutional reform, which
covers a wide range of topics, including energy matters,
with the intention of granting state-owned enterprises,
particularly CFE and Pemex, priority over private
companies on electricity dispatch.
against
ruled
31
TERNIUM S.A.
Consolidated Management Report
Uncertainty remains as to whether this new constitutional
reform will be approved or if 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 our operations or those of
Techgen, where Ternium holds a 48% equity interest and
which supplies electricity for most of our Mexican
operations. At this stage, we cannot assess the potential
effects of any new governmental initiative on Ternium’s
operations and the Mexican economy in general and,
consequently, on the results of operations and financial
conditions of our 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 an increasing level of
criminality, which resulted in an alarming deterioration
of security conditions in the region. For more information
on the events affecting our mining operations in Mexico,
see “– Risks Relating to Ternium’s Mining Activities–-
Difficulties in relationships with local communities may
adversely affect Ternium’s mining activities and results of
operations, and increasing violence and crime in Mexico
could result in temporary or even permanent shut down
of Ternium’s Mexican mining operations.” Security
issues could affect our 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 our 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.
Changes in the USMCA, and controversies and disputes
between member countries could adversely
impact
Ternium’s results of operations and net results.
The United States-Mexico-Canada Agreement, or
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
in July 2027),
the
three countries.
melted and poured within
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 claimed that such measures
favored 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 claimed that the
questioned measures undermined climate change goals.
Canada 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 request for the formation of a dispute settlement
panel to review those measures and, eventually, take
retaliatory action.
More recently, the United States has expressed concerns
regarding unfair practices in the U.S. market from steel
produced in third countries that is allegedly being
circumvented through Mexico. In response to such
concerns, in February 2024, Mexico announced that it has
agreed to implement additional measures aimed at
preventing circumvention practices, and
improving
information and transparency in connection with steel
imports into the Mexican market from countries with
which Mexico lacks a formal trade agreement. There is
no guarantee these additional measures will avoid the
reimposition of tariffs to Mexican steel exports to the
U.S. market.
Amendments to, or the termination of, current terms of
trade could adversely and materially affect Ternium’s
shipments, results of operations and net worth.
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
32
TERNIUM S.A.
Consolidated Management Report
were severely affected in different opportunities over the
last decades. For instance, during 2018 and 2019 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; in 2020 the economy was affected by the
COVID-19 outbreak; and in 2023 the economy suffered
as a result of a severe drought, foreign exchange
restrictions, high inflation rates and heightened political
and economic uncertainty during the presidential election
process.
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. In December
2023, a new administration, led by President Javier Milei,
took office in Argentina and announced a series of
emergency measures to address the current critical
economic situation with the objective of reducing fiscal
deficit and removing foreign exchange restrictions. Some
of these measures included cuts in public expenditures,
reduced energy and transportation subsidies, increases in
certain taxes, certain labor reforms, the elimination of
some restrictions on imports and access to the foreign
exchange market and privatization of state-owned
companies. Certain measures were challenged in court by
affected sectors. In addition, the new administration is
struggling to get Congress’s approval for most of its
reform proposals. It is uncertain as to what extent the
Argentine government will be able to implement its
program, which requires major structural reforms, or
adopt the announced measures, marked by a Congress
majority unwilling to endorse and support the new
government’s reforms, heightened conflict between the
national government and provincial governors, court
decisions setting aside some of
the governmental
measures, resistance by social and union leaders and
general political unrest.
In addition, Argentina has in place an agreement with the
International Monetary Fund, or 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. Although in 2023 Argentina failed to achieve
certain targets set under the Extended Fund Facility, or
EFF arrangement, the IMF staff and the Argentine
authorities have recently reached a staff-level agreement
on the latest review under Argentina's EFF arrangement.
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, political and social 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 211.4% in 2023, 94.8% in 2022 and 50.9% in
2021. Sustained high inflation in Argentina without a
matching depreciation of the Argentine peso would
negatively impact our results of operations and financial
position, as ARS-denominated costs (mainly labor-related
costs) at Ternium Argentina increase, thereby affecting
inflation
cost-competitiveness and margins. A high
economy would
foreign
undermine Argentina’s
competitiveness in international markets and negatively
affect economic activity and employment
levels.
Argentine inflation rate volatility makes it 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.
Taxes on Argentine companies have been increasing over
time; a further increase of the tax burden could adversely
affect Ternium’s results of operations, net results and
financial condition.
the
The sustained and significant devaluation of
Argentine peso against the U.S. dollar coupled with high
inflation rates 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 tax purposes is limited and
subject to significant 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 and, in the past, inflation
adjustment has been further limited. If limitations to
inflation adjustment are reinstated, Ternium Argentina
could be subject to increased tax burden. 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.
Provincial and municipal taxes on Ternium Argentina’s
operations have also increased over the last years. In
local
2021,
federal government and various
the
33
TERNIUM S.A.
Consolidated Management Report
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. Furthermore, during 2023, the
Argentine government included in the PAIS tax base the
purchase of foreign currency for the payment of imports
of certain raw materials and intermediate goods. An
initial rate of 7.5% was raised in December 2023 to
17.5%.
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.
Exchange controls in Argentina could negatively impact
Ternium Argentina’s operations, preventing Ternium
from importing raw materials, 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. Between
September 2019 and December 2023, the Argentine
government imposed significant restrictions on foreign
exchange
the new
transactions. Although after
administration took office in December 2023 certain
restrictions were eased and other changes to such
regulation are expected, at the date of this annual report
the scope and timing of upcoming changes remain
unknown. For more information on our foreign exchange
restrictions in Argentina, see note 30 “Foreign exchange
restrictions in Argentina” to our consolidated financial
statements included in this annual report.
in
reserves
Foreign exchange controls currently limit the purchase
and transfer abroad of foreign currency for saving
purposes, restricting Ternium Argentina’s ability to hold
excess cash
foreign bank accounts.
Accordingly, Ternium Argentina holds its cash and
financial investments in the Argentine financial system.
As of December 31, 2023, Ternium Argentina’s cash and
cash equivalents and other investments amounted to
approximately $1.1 billion, a large portion of which
consisted of U.S. dollar-denominated sovereign bonds
issued by the Argentine Government and payable in U.S.
dollars, and Argentine Treasury bonds linked to the
official exchange rate. The U.S. dollar value of these
instruments recorded in Ternium’s consolidated financial
statements is based on their Argentine peso local market
price, converted to the U.S. dollar at the ARS/$ official
the valuation of such
exchange rate. Therefore,
suffered a
the Argentine Peso
investments is subject to the volatility of the Argentine
financial market and currency exchange rates, leading to
a potential significant reduction of such value in our
consolidated financial statements. For example, after a
new administration took office in Argentina in December
significant
2023,
devaluation against the U.S. dollar. This event resulted in
a decrease of $537 million in the fair value of our holdings
of Argentine securities in the fourth quarter of 2023.
fourth quarter of 2023,
Furthermore, during
Ternium’s divestment of Argentine sovereign bonds
resulted in a loss of $58 million due to the recycling of
changes in the fair value of financial instruments from
Other Comprehensive Income to Financial Results. As of
December 31, 2023, the balance of Ternium’s Other
Comprehensive Income in connection with its Argentine
sovereign bond holdings amounted to a negative $527
million.
the
In December 2023,
For the last years, the Argentine authorities have limited
the import of goods and services by Argentine companies,
including Ternium Argentina and other companies in the
steel value chain, by controlling access to the foreign
the new
exchange market.
administration replaced
imports
the
payment system (which required prior governmental
authorization to pay imports of goods or services) with a
new system, applicable to imports accrued (in the case of
services) or cleared by customs (in the case of goods) as
from December 13, 2023, which does not require prior
government approval, but subjects import payments to a
deferred payment schedule.
then existing
Access to the official exchange market to make dividend
payments continue to require prior Argentine Central
bank approval, which is rarely, if ever, granted.
This context of volatility and uncertainty remains in
place as of the date of this annual report. If control
systems are maintained or are tightened, local demand for
steel products and/or Ternium Argentina’s operations or
sales could be adversely affected. Furthermore, additional
regulations or restrictions that could be imposed by the
Argentine government could further restrict Ternium
Argentina’s ability to access the official foreign exchange
market, expose Ternium to the risk of losses arising from
fluctuations in the ARS/$ 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.
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TERNIUM S.A.
Consolidated Management Report
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
Currently, Argentina
gas
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 the second
stage of a new natural gas pipeline in Argentina (the
GPNK pipeline) 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
second stage of 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
fluctuations,
Relating
shortages or disruptions in the supply of raw materials,
slabs, energy and other inputs could adversely affect
Ternium’s profitability. Price fluctuations, shortages or
disruptions in the supply of raw materials, slabs, energy
inputs could adversely affect Ternium’s
and other
profitability” above.
Industry—Price
the Steel
to
Brazil
Ternium has significant manufacturing operations and
assets located in Brazil. Ternium has a participation in
the control group of Usiminas, a
large Brazilian
steelmaker, and began consolidating Usiminas in July
2023. Ternium also owns Ternium Brasil, a company that
has a slab making facility in Rio de Janeiro and exports
most of its production. Ternium’s results and net worth
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, recession and political instability,
may occur in the future, thereby adversely affecting
Ternium’s business results and financial condition.
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 our results
and net worth. The Brazilian government’s policies may
also result in increases in tax payments or tariffs, which
could adversely affect industry profitability. For example,
in 2023 the Brazilian Congress approved major changes to
the Brazilian tax regime, which, among other things,
would replace current federal, state and municipal taxes
levied on the trade of goods and services with a dual
value added tax. Ancillary laws, which will define the
rates and applicability of the new taxes, are expected to
be discussed
federal
government should also submit an income tax reform bill
during 2024. We cannot predict whether the new tax
regime would result in a net tax burden increase for our
operations in Brazil. Any increase in the applicable tax
burden or tariffs would affect our consolidated cash flow
and profitability.
this year. The
in Congress
The Brazilian economy has been affected by inflation,
energy shortages, illiquid lending markets and other
political, diplomatic, social and economic developments.
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. For example, Brazil has experienced
heightened economic and political instability derived
from various investigations into allegations of money
laundering and corruption being conducted by the Office
of the Brazilian Federal Prosecutor, including the Lava
Jato
the
Brazilian economy and political environment and
contributed to a decline in market confidence in Brazil.
investigation, which negatively
impacted
Uncertainty over whether the Brazilian government will
change policies or regulations affecting economic or
political factors may contribute to economic instability in
Brazil. We cannot predict whether political instability
will arise in the future nor its effect on the Brazilian
35
TERNIUM S.A.
Consolidated Management Report
economy and, consequently, on the results of operations
and financial conditions of our 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.
thereby
High levels of inflation have in the past undermined the
Brazilian economy and the government’s ability to
stimulate economic growth. Our results of operations and
financial position could be negatively impacted, as BRL-
denominated costs (mainly labor-related costs) may
increase,
cost-competitiveness.
affecting
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 the business and the ability to finance
operations and capital expenditures, making it impossible
to estimate with reasonable certainty our future results of
operations.
Certain Regulatory Risks And Litigation Risks
Ternium faces a significant loss contingency in Brazil in
connection with its acquisition of a participation in the
control group of Usiminas.
In 2013, Ternium was notified of a lawsuit filed in Brazil
by Companhia Siderúrgica Nacional, or CSN, and
various entities affiliated with CSN against Ternium
Investments, Ternium Argentina and Confab, all of
which compose the T/T Group within Usiminas control
group. 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%.
On September 23, 2013, a first instance court decision
dismissed the CSN lawsuit, and on February 8, 2017, the
court of appeals maintained the understanding of the first
instance court. On August 18, 2017, CSN filed an appeal
to the Superior Court of Justice, or SCJ, seeking the
review and reversal of the decision issued by the Court of
Appeals. On September 10, 2019, the SCJ declared CSN’s
appeal admissible. On March 7, 2023, the SCJ rejected
CSN’s appeal by majority vote. CSN made several
submissions
in connection with the SCJ decision,
including a motion for clarification that challenged the
merits of the SCJ decision. Decisions at the SCJ are
adopted by majority vote, at the date of this report,
voting at the SCJ with respect to the motion for
clarification is ongoing. At an October 17, 2023 session,
two justices voted in favor of remanding the case to the
first instance for it to be retried following production and
assessment of the new evidence, and two justices voted,
without requiring any further evidence, in favor of
granting CSN’s motion for clarification and reversing the
March 7, 2023 decision that rejected CSN’s appeal;
because the fifth member of SCJ excused himself from
voting, a justice from another panel at the SCJ will be
summoned to produce the tie-breaking vote. There are no
specified deadlines for voting to be resumed or the SCJ
decision to be issued. In any event, either party may
appeal against a SCJ decision.
According to the views of the two justices that voted in
favor of CSN’s motion, Ternium and the other members
of the T/T Group should be ordered to pay to CSN an
indemnification amount equal to the difference between
the price paid by the T/T Group in its acquisition and the
market value of the Usiminas shares at signing, plus
monetary adjustment and interest (at a rate of 1% per
month) through the date of payment, plus legal costs
equal to 10% of the compensation payable to CSN’s
lawyers, with CSN retaining ownership of the Usiminas
ordinary shares it currently owns. If that view were to
prevail, and depending on how the indemnification is
calculated by other courts, Ternium Investments and
Ternium Argentina could be ordered
to pay an
indemnification to CSN that, as of December 31, 2023,
amounted to BRL 4.1 Billion (approximately $0.9 billion)
in the aggregate.
For further information on Ternium’s investment in
Usiminas and related risks, see “-Risks Relating to
Ternium’s Business - “Failure to successfully implement
Usiminas’ business strategy could have a material adverse
effect on Ternium’s results, financial condition or net
worth.”
International trade actions or regulations and trade-
related legal proceedings could adversely affect Ternium’s
sales and revenues and the overall business.
International trade-related administrative proceedings,
legal actions and restrictions pose a constant risk for
international operations and sales throughout the world.
Our steel processing activities require 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. For example,
on August 15, 2023, the Mexican government issued a
decree raising a temporary import tariff on steel products
other than semi-finished products from 15% to 25%,
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TERNIUM S.A.
Consolidated Management Report
applicable to imports from countries with which Mexico
had no trade agreement in place. Trade liberalization,
mainly through free trade agreements, can reduce certain
input costs and increase access to foreign markets. On the
other hand, greater trade liberalization in the domestic
markets in which we participate increases competition.
During the last decade, steel exports surged as a
consequence of a global downturn and the economic
slowdown in China, and the number of antidumping,
countervailing, safeguard measures and other trade
restrictive actions increased substantially. Accordingly,
producers that were restricted from certain markets
sought alternative markets for their products. For
example, in 2023 there was a surge of steel exports from
China, which increased approximately 38% year-over-
year. Conversely, flat steel imports in Brazil surged
approximately 42% year-over-year in 2023, mainly due to
the
low-priced Chinese steel products.
Continued increase in steel imports could erode our sales
in domestic markets, and such market share losses may
not be completely offset by increased exports to foreign
markets.
import of
from the tariff, including the 25% tariff on certain steel
imports imposed by the United States under Section 232
of the Trade Expansion Act of 1962.
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 our sales of steel products in 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 our
sales to and potential growth in those markets, and
increasing costs.
The cost of complying with environmental regulations, as
well as potential product and environmental liabilities in
a context of increasing environmental awareness, may
steel production or processing
affect Ternium’s
operations, or may increase Ternium’s operating costs,
negatively
financial
impacting Ternium’s business,
condition, results of operations and prospects.
laws,
related
such as national
Countries or regional blocs may impose restrictive import
duties and other restrictions on imports under various
trade
security,
environmental and intellectual property regulations. For
example, in 2018 the United States imposed, under
Section 232 of the Trade Expansion Act of 1962, a 25%
tariff on steel imports; however, Australia, Canada and
Mexico were exempted from the tariff (though subject to
a continuous monitoring system of their trade flows).
Although Argentina, Brazil and South Korea were also
exempted from the measure, they were subject to quota
system agreements covering steel imports from those
countries. In 2022, the United States shifted the 25% tariff
applicable to the European Union to a Tariff Rate Quota
(TRQ) system for steel products melted and poured in
this region, and Japan and the United Kingdom entered
into similar systems.
The timing and nature of the imposition of trade-related
restrictions potentially affecting Ternium’s sales are
unpredictable. Trade restrictions on exports could
adversely impact our ability to sell our products and, as a
result, the overall business and our profit margins and
financial condition 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 export destination that are relevant to
Ternium, such as the United States, safeguard duties and
other protective measures have been imposed against a
large number of steel imports. While some of those
measures have been withdrawn, there is no assurance that
these protective measures will not be reintroduced in the
future, or that exempted countries will remain exempted
to
Steelmaking and mining activities are subject to a wide
range of local, provincial and national laws, regulations,
permit requirements and decrees relating
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 steel
and mining industries. Laws and regulations protecting
the environment have become increasingly complex and
more stringent
leading to higher
compliance costs.
in recent years,
from
We are required to obtain certain permits, licenses and
authorizations
federal
local, provincial or
authorities
for purposes of carrying out certain
operations. Failure to obtain or renew such permits,
licenses or authorizations, or to comply with their terms,
may result in delays, fines, closure orders or requirements
to halt or curtail our operations, negatively affecting our
results.
for
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
provide
for
joint and several strict
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 adversely
affecting our business, financial condition, results of
operations and prospects.
spills and
liability
37
TERNIUM S.A.
Consolidated Management Report
Our steel operations may also be subject to claims under
federal and local laws and regulations on liability arising
from damages to natural resources, release of toxic
substances or other environmental damages, as well as
for the investigation and clean-up of soil, surface water,
sediments, groundwater and other natural resources.
Claims for damages may arise with respect to current or
former conditions at active or inactive sites that Ternium
currently owns, leases or operates or at leased-land sites
and third-party waste disposal sites. We may also 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 steel operations may result in costs
and liabilities that could materially and adversely affect
Ternium’s margins, cash flow and profitability. Third-
party claims based on environmental or physical damages
may exceed the limit of liability of the insurance policies
that Ternium may have in place.
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, products are also
sold to, and used in, certain safety-critical appliances.
Actual or claimed defects in such products may give rise
to claims for losses suffered by customers and expose
Ternium to financial losses from claims for damages. The
insurance we maintain will not be available in cases of
gross negligence or willful misconduct; in other cases,
insurance may not be adequate or available to protect us
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 the
enterprise value after a loss.
public
addition,
increasing
awareness
including by
In
on
environmental matters put pressure on governmental
authorities, particularly in mostly affected areas, to adopt
measures or take initiatives that show concern for such
matters,
inspecting, monitoring or
sanctioning local industries. Even if we comply with
that
environmental regulations, we cannot assure
governmental authorities will not request Ternium to
suspend or close its operations, which would disrupt
production, adversely affecting Ternium’s business and
results of operations.
the city and metropolitan area of
For example,
Monterrey
evidences
in Nuevo León, Mexico,
unsatisfactory air quality indexes most days of the year,
mainly because of human factors and an arid surrounding
soil enclosed by hills. From time to time, particularly
when the quality of the air
is notoriously below
acceptable rates, public opinion focuses on this matter
and Ternium’s local operations become subject to further
scrutiny. In January 2024, in response to media’s intense
coverage of air quality issues in Monterrey and public
opinion focus on the matter, the local authority inspected
our Guerrero steelmaking facility. Although the authority
concluded that the plant was in compliance with air
emissions standards, air pollution remains a subject of
local concern.
While we incur and will continue to incur expenditures to
comply with applicable laws and regulations, there
always remains a risk that environmental incidents or
accidents may occur that may negatively affect our
operations or reputation,
investigations or
litigation resulting in an obligation to pay damages or
incur remediation costs, or that governmental authorities
or a court order request Ternium to suspend or close its
operations.
trigger
economy,
legislation and
Climate change
increasing climate
regulatory requirements aimed at transitioning to a
lower-carbon
increasing
stakeholder expectations for reduced carbon emissions,
could result in unexpected capital expenditures and costs,
negatively affect Ternium’s competitiveness, reducing its
market share and results of operations, and hampering its
ability to access adequate financial resources.
together with
for
environmentally
There is a growing awareness on greenhouse gas (GHG)
emissions and climate change across different sectors of
society. The Paris Agreement, adopted at the 2015 United
Nations Climate Conference, sets out
the global
framework to limit the planet’s rising temperature and to
strengthen the countries’ ability to deal with the effects of
climate change. The EU Emissions Trading System (ETS)
signaled a major EU energy policy to combat global
warming based on a “cap & trade” program, and the
European Green Deal, launched in 2019, focuses on
adopting the required policies and measures aimed at
achieving zero GHG emissions in Europe by 2050. The
EU Taxonomy Regulation establishes a classification
system
economic
activities,
to businesses,
stakeholders and policymakers on which economic
undertakings
environmentally
sustainable and requiring companies to disclose, in the
annual reports, how environmentally sustainable their
economic activities are. More recently, as part of the
European Green Deal, the EU adopted the Corporate
Sustainability Reporting Directive, which
requires
European large companies and listed issuers to disclose
information on their risks and opportunities arising from
social and environmental issues, and on the impacts of
their activities on people and the environment. In the case
of Ternium, the new EU non-financial disclosure
requirements will apply with respect to the Company’s
2025 annual report. Similarly, CBAM, which was
adopted on May 17, 2023, aims at promoting emissions
laying out definitions
sustainable
considered
can be
38
TERNIUM S.A.
Consolidated Management Report
reductions worldwide by subjecting the import of certain
products, including steel, from countries outside of the
European Union to a carbon levy linked to the carbon
price payable for goods produced in EU countries.
Similarly, in response to an increasing investor focus and
reliance on climate and ESG-related disclosure and
investment, the SEC announced in March 2021 the
creation of a Climate and ESG Task Force to identify
ESG-related misconduct and potential violations, and in
March 2022, the SEC released a proposal to amend its
disclosure rules. In March 2024, the SEC adopted the
final rule on climate-related disclosures, which will
require registrants, including the Company from fiscal
year 2025, to significantly expand the climate-related
including
disclosures
information about climate-related
that are
reasonably likely to have a material impact on their
business, results of operations, or financial condition, and
certain climate-related financial statement metrics in a
note
financial statements. Other
countries are introducing or considering similar measures
or regulations with the aim at lowering emissions as well
the use of
as government
alternative energy sources and substitute existing
products and services with lower emissions alternatives
(with many jurisdictions implementing tax advantages
and other subsidies to promote the development of
renewable energy sources, or even requiring minimum
thresholds for power generation from renewable sources).
reports,
risks
their periodic
their audited
to promote
initiatives
to
in
includes
industrial
Ternium’s
two main
system
technological routes to produce steel: the blast furnace /
basic oxygen furnace route (BF/BOF) and the electric arc
furnace route
(EAF). The BF/BOF route has a
significantly higher carbon emission intensity than the
EAF route. Although several new initiatives and pilot
projects under development seek to significantly reduce
intensity, no
the BF/BOF route carbon emission
technology has yet achieved sufficient
technology
readiness level, nor is any technology available at scale or
economically feasible, and there is no certainty that any
such technology will be available in the near future. This
issue affects most steel companies, as the BF/BOF route
currently represents approximately 72% of global
steelmaking production capacity.
in
In addition, Ternium is developing several projects aimed
at reducing carbon emission intensity in both of its
line with a decarbonization
steelmaking routes,
roadmap to reduce by 20% the intensity of CO2
emissions per ton of steel produced (scopes 1 and 2) by
2030 compared to a 2018 baseline. These projects could
experience delays or higher-than-anticipated costs, or
may not yield the expected results.
Government and international organization’s initiatives
to promote the reduction of GHG emissions, such as the
introduction of a carbon tax or carbon-pricing systems,
the adoption of “cap-and-trade” systems or measures to
avoid carbon leakage or promote the use of renewable
energy sources could affect Ternium’s 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 aimed at reducing GHG emissions, by setting a
cap on emissions and allowing for the trade of emission
certificates. For the time being, there is no regulation for
setting such system nor to determine allowances.
Although existing carbon pricing mechanisms in Mexico
and Argentina do not materially limit or penalize
Ternium’s GHG
carbon pricing
emissions, new
mechanisms could increase Ternium’s production costs.
Particularly in Mexico, the state governments could set
carbon taxes on top of the federal tax regime and the
Emission Trading System. In addition, the Brazilian
Congress has been discussing initiatives to introduce a
carbon tax on industry processes and power generation
facilities, which, if applicable to Ternium Brasil’s and
Usiminas’ operations, would result in incremental costs.
Such increases in costs could affect, in turn, Ternium’s
profitability and net results.
If there is not enough progress in significantly reducing
emissions in the coming years, or emerging technologies
for the reduction of carbon emission intensity of the BF/
BOF route are not commercially available or are not
economically viable, 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 we operate could
result in incremental compliance costs and unexpected
capital expenditures, affect our competitiveness and
reduce our market share and results of operations.
Furthermore, shifts in customer preferences and failure to
respond to stakeholders’ demand for climate-related
measures and environmental standards could adversely
affect the ability or willingness of our customers or
suppliers to do business with us, harm our reputation,
erode stakeholder support and restrict or reduce access to
financial resources.
39
TERNIUM S.A.
Consolidated Management Report
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
investigations or
threat of
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 on operating performance. As an
example of this volatility, a low closing price of $9.84 was
reached 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. Since then, the Company’s ADS recovered and
reached a high closing price of $45.20 on March 6, 2023,
reflecting an upward trend in U.S. steel prices after
bottoming during the fourth quarter of 2022. As of
February 29, 2024, the closing price of Ternium’s ADS
was $40.54. 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 with
operations in Mexico, Brazil, Argentina and Colombia.
Financial and securities markets for companies with a
substantial portion of their assets and exposure 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 and exposure in other emerging
including Mexico, Brazil, Argentina and
markets,
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.
There may be less publicly available information about
the Company than is regularly published by or about U.S.
issuers. Also,
corporate and
securities
domestic
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
Furthermore,
standards
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
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
the Company
recommendations of
proposals or
(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.
40
TERNIUM S.A.
Consolidated Management Report
Holders of shares and ADSs in the United States may not
be able to exercise preemptive rights in certain cases.
to
to Luxembourg corporate
Pursuant
law, existing
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
contributions. Under
the Company’s articles of
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.
Notwithstanding
the waiver of any preemptive
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
share capital shall be subject
the preemptive
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
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).
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
rights or an exemption
from
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
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.
41
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.
Adjusted EBITDA
$ million
Consolidated net income
Adjusted to exclude:
Income tax expense
Equity in earnings of non-consolidated companies
Net financial results
Reversal of Usiminas’ post-retirement liabilities
Contingency reversal - dismissal of public civil action against Usiminas
Non-cash effects related to the increase in the participation in Usiminas
Impairment of Ternium’s investment in Ternium Brasil
Impairment of Las Encinas’ mining assets
Depreciation and amortization
Adjusted to include:
Proportional EBITDA in Unigal (70% participation)
Adjusted EBITDA
Divided by: net sales
Adjusted EBITDA margin (%)
Adjusted net income
$ million
Net income
Less: non-cash effects related to the increase in the participation in Usiminas
Adjusted net income
Adjusted Equity Holders' Net Income and Adjusted Earnings per ADS
$ million
Equity holders’ net income
Less: non-cash effects related to the increase in the participation in Usiminas
Adjusted Equity Holders’ Net Income
Divided by: the outstanding shares of common stock, net of treasury shares (expressed in ADS equivalent)
Adjusted Earnings per ADS ($)
2023
986
2022
2,093
334
(105)
(123)
(109)
(63)
1,106
—
42
658
14
2,740
17,610
574
(37)
70
—
—
—
99
—
616
—
3,415
16,414
16 %
21 %
2023
986
(1,106)
2,092
2023
676
(1,010)
1,686
196
8.59
2022
2,093
—
2,093
2022
1,768
—
1,768
196
9.00
42
TERNIUM S.A.
Consolidated Management Report
Free cash flow
$ million
Net cash provided by operating activities
Less: capital expenditures
Free cash flow
Net cash position
$ billion
Cash and cash equivalents (8)
Plus: other investments (current and non-current) (8)
Less: borrowings (current and non-current)
Net cash
2023
2,501
(1,461)
1,040
2022
2,753
(581)
2,172
For the year ended December 31,
2023
1.8
2.2
(2.1)
1.9
2022
1.7
2.0
(1.0)
2.6
(8) Ternium Argentina’s consolidated position of cash and cash equivalents and other investments amounted to $1.1 and $1.3 billion as of December 31, 2023 and 2022, respectively.
43
Intentionally left blank.
44
TERNIUM S.A.
Consolidated Financial Statements
as of December 31, 2023 and 2022 and
for the years ended on December 31, 2023, 2022 and 2021
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, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Income Statements for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Financial Position as of December 31, 2023 and 2022
Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Index to the Notes to the Consolidated Financial Statements
Page
47
51
52
53
54
57
58
46
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
(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
Effect related to the increase of the participation in Usiminas
Recycling of other comprehensive income related to Usiminas
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
2023
Year ended December 31,
2022
2021
5
6
7
9
10
10
10
14
3
3
11
17,610,092
(14,050,737)
16,414,466
(12,487,282)
16,090,744
(9,895,070)
3,559,355
3,927,184
6,195,674
(1,471,678)
110,337
(1,143,646)
(84,019)
(950,124)
25,586
2,198,014
2,699,519
5,271,136
(125,376)
255,009
(6,179)
105,305
(171,045)
(934,946)
(46,737)
75,145
(98,541)
37,114
—
—
(26,997)
62,912
56,547
400,732
—
—
1,320,782
2,666,500
5,764,330
(334,408)
986,374
(573,728)
(1,397,139)
2,092,772
4,367,191
676,043
310,331
986,374
1,767,516
325,256
2,092,772
3,825,068
542,123
4,367,191
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)
0.34
0.90
1.95
The accompanying notes are an integral part of these consolidated financial statements.
51
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
(All amounts in $ thousands)
Consolidated Statements of Comprehensive Income
Year ended December 31,
2022
2021
2023
Profit for the year
986,374
2,092,772
4,367,191
Items that may be reclassified subsequently to profit or loss:
Currency translation adjustment
Currency translation adjustment from participation in non-consolidated
companies (1)
Changes in the fair value of financial instruments at fair value through other
comprehensive income (2)
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
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
(9,108)
1,253
(484)
980,884
41,455
(39,997)
(554,737)
29,121
(46,859)
(11,045)
22,721
(6,824)
60
(20)
(300)
1,705
—
159
960
(299)
278
(83)
—
(106)
(52,127)
24,567
46,777
4,829
6,013
(6,994)
(13,965)
6,862
1,662
Other comprehensive income (loss) for the year, net of tax
344,492
87,123
(5,257)
Total comprehensive income for the year
1,330,866
2,179,895
4,361,934
Attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income for the year
(1) See note 3 (c).
(2) See note 18.
1,141,928
188,938
1,841,194
338,701
3,818,185
543,749
1,330,866
2,179,895
4,361,934
The accompanying notes are an integral part of these consolidated financial statements.
52
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
(All amounts in $ thousands)
Consolidated Statements of Financial Position
Notes
December 31, 2023
December 31, 2022
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
Current assets
Receivables, net
Current income tax assets
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
12
13
14
18
20
15
15
15
22
17
16
18
18
19
20
21
23
24
21
22
23
24
7,637,687
996,048
517,265
210,930
1,713,385
1,073,245
686,394
486,470
15,406
4,948,376
2,065,499
1,975,646
1,846,013
839,921
170,820
1,148,998
12,030
188,913
1,205,961
137,388
429,713
2,232,654
8,220
52,174
940,453
12,148,560
12,023,804
6,740
12,030,544
24,179,104
12,418,595
4,393,264
16,811,859
3,566,643
3,800,602
7,367,245
6,261,887
944,409
821,571
100,716
200,237
318,690
261,813
400,949
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
8,647,510
8,842,274
1,764
8,844,038
17,491,548
11,845,959
1,922,434
13,768,393
1,506,325
2,216,830
3,723,155
24,179,104
17,491,548
The accompanying notes are an integral part of these consolidated financial statements.
53
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
(All amounts in $ thousands)
Consolidated Statements of Changes in Equity
Attributable to the owners of the parent
Treasury
Capital
shares
stock
(1)
(1)
Initial
public
offering
expenses
Reserves
(2)
Capital
stock issue
discount
Currency
translation
adjustment
(3)
Retained
earnings
Total
Non-
controlling
interest
Total
Equity
Balance as of January 1, 2023
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
13,768,394
Profit for the year
Other comprehensive income (loss) for the period
Currency translation adjustment (4)
Remeasurement of post employment benefit obligations
Cash flow hedges and others, net of tax
Others (5)
676,043 676,043
310,331
986,374
(24,904)
14,188
(418,640)
895,241
895,241
(24,904)
14,188
(418,640)
76,535
(16,381)
1,709
971,776
(41,285)
15,897
(183,256) (601,896)
Total comprehensive income (loss) for the year
—
—
— (429,356)
—
895,241 676,043 1,141,928
188,938
1,330,866
Dividends paid in cash (6)
Dividends paid in kind and in cash to non-controlling
interest
Effects related to the increase of the participation in
Usiminas (7)
(569,292) (569,292)
—
(569,292)
—
—
(294,003) (294,003)
2,575,895
2,575,895
—
Balance as of December 31, 2023
2,004,743 (150,000)
(23,295) 965,211 (2,324,866) (1,963,827) 13,910,629 12,418,595
4,393,264
16,811,859
(1) 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, 2023, there were 2,004,743,442 shares issued. All issued
shares are fully paid. Also, as of December 31, 2023, the Company held 41,666,666 shares as treasury shares.
(2) 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 $ (72.4) million.
(3) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(4) See note 3 (c).
(5) Includes mainly the changes of the fair value of financial instruments at fair value through other comprehensive income, net of tax. See note 18.
(6) Represents $ 0.29 per share ($ 2.90 per ADS). Related to the dividends distributed on May 2 and on October 31, 2023, 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.
(7) See note 3 (f).
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 25 (iii). The accompanying notes are an integral part of these consolidated financial statements.
54
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
(All amounts in $ thousands)
Consolidated Statements of Changes in Equity
Attributable to the owners of the parent
Capital
stock
(1)
Treasury
shares
(1)
Initial
public
offering
expenses
Reserves
(2)
Capital
stock issue
discount
(3)
Currency
translation
adjustment
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 (4)
1,767,516
1,767,516
325,256
2,092,772
39,525
39,525
21,864
20
12,269
3,183
2,571
20
7,671
42,708
24,435
40
19,940
21,864
20
12,269
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 (5)
Dividends paid in kind to non-controlling interest
Acquisition of non-controlling interest (6)
(223)
(530,031)
(530,031)
—
(223)
— (530,031)
(112,293)
(4,216)
(112,293)
(3,993)
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) 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.
(2) 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 $ (72.4) million.
(3) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(4) Includes mainly the changes of the fair value of financial instruments at fair value through other comprehensive income, net of tax.
(5) 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.
(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 25 (iii). The accompanying notes are an integral part of these consolidated financial statements.
55
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
(All amounts in $ thousands)
Consolidated Statements of Changes in Equity
Attributable to the owners of the parent
Treasury
Capital
shares
stock
(1)
(1)
Initial
public
offering
expenses
Reserves
(2)
Capital
stock issue
discount
Currency
translation
adjustment
(3)
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 (4)
Acquisition of non-controlling interest (5)
11
(569,292) (569,292)
11
—
(768)
(569,292)
(757)
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) 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.
(2) 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.
(3) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(4) 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.
(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 25 (iii). The accompanying notes are an integral part of these consolidated financial statements.
56
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
(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
Changes in provisions
Changes in working capital (1)
Net foreign exchange results and others
Non-cash effects related to the increase of the participation in Usiminas
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures and advances to suppliers for PP&E (2)
Increase in other investments
Proceeds from the sale of property, plant and equipment
Dividends received from non-consolidated companies
Acquisition of business
Purchase consideration
Cash acquired
Acquisition of non-controlling interest
Net cash used in investing activities
Cash flows from financing activities
Dividends paid in cash to company’s shareholders
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, (3)
Non-cash transactions:
Dividends paid in kind to non-controlling interest
Acquisition of PP&E under lease contract agreements
Adjustments related to post-retirement benefits and contingencies
Notes
Year ended December 31,
2022
2021
2023
12 & 13
4 (f), 9 & 12
27 (b)
14
27 (b)
19
27 (b)
3
12 & 13
18
3
3
986,374
2,092,772
4,367,191
657,692
42,316
(160,940)
(105,305)
(45,139)
(64,447)
321,081
(236,499)
1,105,991
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
—
2,501,124
2,752,943
2,677,315
(1,460,677)
(717,534)
2,477
43,075
(118,686)
781,072
—
(580,553)
(770,638)
1,912
28,884
—
—
(4,216)
(523,610)
(579,010)
1,752
56,275
—
—
(757)
(1,470,273)
(1,324,611)
(1,045,350)
(569,292)
(58,900)
354,946
(493,111)
(530,031)
(49,410)
285,908
(722,644)
(569,292)
(45,604)
246,046
(485,526)
(766,357)
(1,016,177)
(854,376)
264,494
412,155
777,589
1,653,355
(71,836)
264,494
1,276,605
(35,405)
412,155
537,882
(38,866)
777,589
1,846,013
1,653,355
1,276,605
(233,538)
16,061
171,987
(112,293)
13,961
—
—
13,758
—
(1) The working capital is impacted by non-cash movement of $ 129.3 million as of December 31, 2023 ($ 24.9 million and $ (12.5) million
as of December 31, 2022 and 2021, respectively) due to the variations in the exchange rates used by subsidiaries with functional currencies
different from the U.S. dollar.
(2) It includes capital expenditures of $ 1,201,639 and advances to suppliers for property, plant and equipment of $ 259,048.
(3) It includes restricted cash of $ 3,129, $ 30 and $ 58 as of December 31, 2023, 2022 and 2021, respectively. In addition, the Company had
other investments with a maturity of more than three months for $ 2,186,420, $ 1,975,490 and $ 1,357,484 as of December 31, 2023, 2022
and 2021, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
57
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 General information
2 Basis of presentation
Acquisition of business – Increase of the participation in Usiminas Control Group and new
governance structure of Usiminas
3
4 Accounting policies
5 Segment information
6 Cost of sales
7 Selling, general and administrative expenses
8 Labor costs (included in cost of sales and selling, general and administrative expenses)
9 Other operating income (expenses), net
10 Other financial income (expenses), net
11 Income tax expense
12 Property, plant and equipment, net
13 Intangible assets, net
14 Investments in non-consolidated companies
15 Receivables, net - non-current and current
16 Trade receivables, net - non-current and current
17 Inventories, net
18 Cash, cash equivalents and other investments
19 Allowances and provisions - non-current and current
20 Deferred income tax
21 Other liabilities - non-current and current
22 Derivative financial instruments
23 Lease liabilities
24 Borrowings
25 Contingencies, commitments and restrictions on the distribution of profits
26 Related party transactions
27 Other required disclosures
28 Recently issued accounting pronouncements
29 Financial risk management
30 Foreign exchange restrictions in Argentina
31 Ternium to integrate operations in the USMCA
Page
59
60
63
69
92
95
95
96
96
97
97
100
102
103
105
106
106
107
108
109
110
113
116
117
119
127
128
130
132
140
142
58
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
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, 2023, 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, 2023 and 2022, this special tax reserve amounted to $ 4.7 billion and $ 5.2 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.
59
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
2.
a)
BASIS OF PRESENTATION
Basis of presentation
These consolidated financial statements have been prepared in accordance with IFRS Accounting Standards
(International Financial Reporting Standards) issued and effective or issued and early adopted as at the time of
preparing these statements (February 2024), as issued by the International Accounting Standards Board and in
conformity with IFRS Accounting 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 financial position of Ternium as of
December 31, 2023 and 2022, and the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash
flows for the years ended December 31, 2023, 2022 and 2021.
Elimination of all material intercompany transactions and balances between the Company and its 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 20,
2024. 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.
60
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
2.
BASIS OF PRESENTATION (continued)
Company
Country of
Organization
Main activity
Luxembourg
Luxembourg
Spain
Holding
Holding
Holding and marketing of
steel products
Uruguay
Other services
Netherlands
Marketing of steel products
Ternium S.A.
Ternium Investments S.à.r.l.
Ternium Internacional España S.L. (1)
Ternium Solutions S.A. (1)
Ternium Internationaal B.V. (1)
Ternium USA Inc. (2)
Ternium Argentina S.A. (3)
Prosid Investments S.A. (4)
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)
USA
Argentina
Uruguay
Mexico
Mexico
Mexico
USA
Chile
Mexico
Mexico
Netherlands
Servicios Integrales Nova de Monterrey S.A. de C.V. (9)
Mexico
Ternium Internacional Nicaragua S.A.
Nicaragua
Ternium Internacional Honduras S.A. de C.V.
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)
Soluciones Integrales de Gestión S.A. (14)
Vientos de Olavarría S.A. (15)
Usinas Siderúrgicas de Minas Gerais S.A. (16)
Mineração Usiminas S.A. (17)
Soluções Em Aço Usiminas S.A. (18)
Costa Rica
Guatemala
Colombia
Colombia
Colombia
Uruguay
Uruguay
Brazil
Mexico
Argentina
Argentina
Brazil
Brazil
Brazil
Percentage of ownership
at December 31,
2022
2021
2023
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 %
62.57 %
62.57 %
62.49 %
62.58 %
89.25 %
62.58 %
89.25 %
62.49 %
89.22 %
89.25 %
89.25 %
89.22 %
89.25 %
89.25 %
89.25 %
89.25 %
44.62 %
89.25 %
89.25 %
89.25 %
89.25 %
44.62 %
89.22 %
89.22 %
89.22 %
89.22 %
44.61 %
50.00 %
50.00 %
50.00 %
66.49 %
99.38 %
66.49 %
99.38 %
66.47 %
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 %
Manufacturing and selling
of steel products
Manufacturing and selling
of flat steel products
Holding
Manufacturing and selling
of steel products
Exploration, exploitation
and pelletizing of iron ore
Scrap services company
Scrap services company
Distributing company
Energy services company
Exploration, exploitation
and pelletizing of iron ore
Procurement and trading
services
Medical and Social Services
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
Other services
100.00 %
100.00 %
100.00 %
Renewable energy projects.
Manufacturing and selling
of steel products
Exploration, exploitation
and pelletizing of iron ore
Manufacturing and selling
of steel products
62.57 %
23.30 %
16.31 %
16.05 %
62.57 %
—
—
—
—
—
—
—
61
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
2.
BASIS OF PRESENTATION (continued)
Company
Country of
Organization
Main activity
Usiminas Mecânica S.A. (19)
Rios Unidos logistica e transporte de açõ Ltda. (19)
Brazil
Brazil
Engineering and other services
Logistics and distribution of
steel-derived products
Usiminas Internatioonal S.À R.L. (20)
Luxembourg
Holding
Usiminas Participações E Logística S.A. (21)
Metalcentro Ltda. (22)
Ternium Participaçoes S.A.em liquidaçao (23)
Brazil
Brazil
Brazil
Ternium Siderúrgica de Caldas S.A.S.(24)
Colombia
Logistics and distribution of
steel-derived products
Other services
Holding
Manufacturing and selling of
steel products
Impeco S.A. (25)
Argentina
Manufacturing of pipe
products
Percentage of ownership
at December 31,
2023
2022
2021
23.30 %
23.30 %
23.30 %
17.48 %
23.30 %
—
—
—
—
—
—
—
—
—
—
—
—
—
100.00 %
—
—
100.00 %
100.00 %
62.49 %
(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) Indirectly through Ternium Internacional España S.L. Total voting rights held: 100.00%.
(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) Indirectly through Ternium Investments S.à r.l., Prosid Investments S.A. and Ternium Argentina S.A. Total voting rights held 42,57%.
(17) Indirectly through Usinas Siderúrgicas de Minas Gerais S.A. Total voting rights held 29,80%.
(18) Indirectly through Usinas Siderúrgicas de Minas Gerais S.A. Total voting rights held 29,32%.
(19) Indirectly through Usinas Siderúrgicas de Minas Gerais S.A. Total voting rights held 42,53%.
(20) Indirectly through Usinas Siderúrgicas de Minas Gerais S.A. Total voting rights held 42,57%.
(21) Indirectly through Usinas Siderúrgicas de Minas Gerais S.A. and Mineração Usiminas S.A. Total voting rights held 31,97%.
(22) Indirectly through Usinas Siderúrgicas de Minas Gerais S.A. and Usiminas Mecânica S.A. Total voting rights held 42,53%.
(23) This company was dissolved as of January 2, 2023.
(24) This company was merged into Ternium Colombia S.A.S. as of November 30, 2022.
(25) This company was dissolved as of February 16, 2022.
The most material non-controlling interest is related to the investment in Ternium Argentina S.A. (“Ternium
Argentina”) and Usinas Siderúrgicas de Minas Gerais S.A. (“Usiminas”), being both listed companies in the
Buenos Aires Stock Exchange and in the B3 Brazilian Stock Exchange, respectively.
For more information about Ternium Argentina, see note 30 and information publicly available in the Buenos
Aires Stock Exchange webpage.
Under Usiminas’ annual accounts as of December 31, 2023, and for the year then ended, revenues amounted to $
5,534 million (2022: $ 6,287 million), net profit from continuing operations to $ 328 million (2022: $ 405 million),
total assets to $ 8,296 million (2022: $ 7,666 million), total liabilities to $ 2,812 million (2022: $ 2,705 million) and
shareholders’ equity to $ 5,484 million (2022: $ 4,962 million). Information publicly available related to Usiminas
could be found in the Usiminas Investor Relations webpage.
62
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
3. ACQUISITION OF BUSINESS– INCREASE OF THE PARTICIPATION IN USIMINAS
CONTROL GROUP AND NEW GOVERNANCE STRUCTURE OF USIMINAS
(a) The participation in Usiminas as of June 30, 2023
On January 16, 2012, the Company’s subsidiaries, Ternium Investments and Ternium Argentina (together with
its wholly-owned subsidiary Prosid Investments S.A., or "Prosid", and the Company’s affiliate, Confab Industrial
S.A., a subsidiary of Tenaris, or TenarisConfab), joined the existing control group of Usiminas, a leading steel
company in the Brazilian flat steel market, through the acquisition of 84.7, 30.0, and 25.0 million ordinary shares,
respectively, and formed the so-called Ternium/Tenaris (T/T) Group.
On October 30, 2014, Ternium Investments acquired 51.4 million additional ordinary shares of Usiminas. On
April 20, 2016, Ternium Investments subscribed to 7.0 million preferred shares of Usiminas and Ternium
Argentina, together with Prosid, subscribed to an aggregate 1.5 million preferred shares of Usiminas. On July 19,
2016, Usiminas’ extraordinary general shareholders’ meeting homologated a capital increase, and Ternium
Investments acquired 62.6 million additional ordinary shares, and Ternium Argentina and Prosid acquired an
aggregate 13.8 million additional ordinary shares. As a result of these transactions, Ternium, through its
subsidiaries Ternium Investments, Ternium Argentina and Prosid, owned as of June 30, 2023, 242.6 million
ordinary shares of Usiminas (representing 34.4% of Usiminas’ ordinary shares) and 8.5 million of Usiminas’
preferred shares (representing 1.6% of Usiminas’ preferred shares), representing, in the aggregate, 20.4% of
Usiminas’ share capital.
As of June 30, 2023, the Usiminas control group held, 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 was bound by a long-term shareholders’ agreement that governs the rights and
obligations of Usiminas’ control group members, was composed as of such date 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 held 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 held approximately 45.9% of the total shares held by the
control group; and Previdência Usiminas held the remaining 7%. The corporate governance rules reflected in the
Usiminas shareholders agreement provided, among other things, that Usiminas’ executive board was 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 alternated between Ternium and
NSC at every 4-year interval, with the party that did 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 provided 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.
(b) The acquisition of the additional participation
On March 30, 2023, Ternium S.A. announced that its subsidiaries Ternium Investments and Ternium Argentina,
together with Confab, a subsidiary of its affiliate Tenaris S.A., all of which compose the T/T group within
Usiminas control group, entered into a share purchase agreement to acquire from Nippon Steel Corporation,
Mitsubishi and MetalOne (the “NSC group”), pro rata to their current participations in the T/T group, 68.7
million ordinary shares of Usinas Siderúrgicas de Minas Gerais S.A. – USIMINAS (“Usiminas”) at a price of
BRL10 per ordinary share.
63
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
3. ACQUISITION OF BUSINESS– INCREASE OF THE PARTICIPATION IN USIMINAS
CONTROL GROUP AND NEW GOVERNANCE STRUCTURE OF USIMINAS (continued)
On July 3, 2023, the Company announced the completion of the acquisition of this additional participation.
Pursuant to the transaction, Ternium paid $ 118.7 million in cash for 57.7 million ordinary shares, increasing its
participation in the Usiminas control group to 51.5%.
The Usiminas control group holds the majority of Usiminas’ voting rights. Following the completion of the
transaction, the T/T group holds an aggregate participation of 61.3% in the control group, with the NSC group
and Previdência Usiminas (Usiminas employees’ pension fund) holding 31.7% and 7.1%, respectively. The
Usiminas control group members also agreed a new governance structure, as a result of which the T/T group
nominated a majority of the Usiminas board of directors, the CEO and four other members of Usiminas board of
officers, and ordinary decisions are approved with a 55% majority of the control group shares.
Pursuant to the Usiminas shareholders agreement, as supplemented by the T/T Group shareholders’ agreement,
Ternium started fully consolidating Usiminas balance sheet and results of operations in its consolidated financial
statements beginning in July 2023.
(c) Remeasurement of the previously held interest
As of July 3, 2023, Ternium remeasured its former participation (20.4%) at its fair value as of such date.
Consequently, Ternium valued its previously held interest by means of the market quotation of Usiminas share in
the Brazilian stock market. Such value as of July 3, 2023, was of 7.36 BRL per share, amounting to a total of $
385.9 million. This valuation results in the recognition of a loss of $ 441.4 million, which is included along with
the gain related to the bargain purchase amounting to $ 270.4 million (see note 3 (d)) in the “Effect related to the
increase of the participation in Usiminas” in the income statement for a total of $ 171.0 million.
In addition, IFRS 3, paragraph 42, establishes that the previous interest must be remeasured, and necessary
adjustments made as if it were a disposal of the investment. In this case, items previously recognized in other
comprehensive income, mainly the CTA (currency translation adjustment) should be recycled to results of the
period. The accumulated loss in “Other comprehensive income” as of the acquisition date was $ 934.9 million.
64
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
3.
ACQUISITION OF BUSINESS– INCREASE OF THE PARTICIPATION IN USIMINAS
CONTROL GROUP AND NEW GOVERNANCE STRUCTURE OF USIMINAS (continued)
(d) Fair value of net assets acquired
The fair values determined for the assets acquired and liabilities assumed arising from the acquisition are as
follows:
Fair value of acquired assets and assumed liabilities:
in $ thousands
Property, plant and equipment (note 12)
Investments in non-consolidated companies
Inventories
Cash and cash equivalents
Other investments
Trade receivables
Allowance for doubtful accounts
Other receivables
Deferred tax assets
Borrowings
Provisions
Trade payables
Other assets and liabilities, net
Net assets acquired
Non-controlling interest
Remeasurement of previously held interest in Usiminas
Total Purchase consideration
Bargain purchase gain
Loss on the remeasurement of previously held interest in Usiminas
Net loss effect related to the increase of the participation in Usiminas
904,780
400,037
1,707,311
781,072
247,005
764,257
(44,626)
854,917
1,327,232
(1,224,399)
(856,153)
(758,687)
(509,486)
3,593,260
(2,818,358)
(385,851)
(118,686)
270,365
(441,410)
(171,045)
The purchase price allocation disclosed above was prepared with the assistance of a third-party expert.
Management applied significant judgment in estimating the fair value of assets acquired and liabilities assumed,
which involved the use of significant estimates and assumptions in particular with respect to the estimation of the
loss probability for the contingencies, including revenue forecasts, EBITDA margins, capital expenditures and
discount rate for the cash flow projections. According to the purchase price allocation, the transaction led to the
recognition of a bargain purchase of $ 270.4 million.
Since the acquisition date and to December 31, 2023, revenues and net income from Usiminas amounted to $
2,737 and $ 129 million, respectively. Had the acquisition occurred on January 1, 2023, pro-forma revenue and
net income for the year ended December 31, 2023, would have been $ 5,517 million and $ 237 million,
respectively. These amounts are unaudited and have been calculated considering the valuation of cost of sales
under the FIFO method, the adjustments for changes in the accounting policies and the adjustments related to the
fair value of assets and liabilities calculated for the purchase price allocation and its impact in results.
65
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
3.
ACQUISITION OF BUSINESS– INCREASE OF THE PARTICIPATION IN USIMINAS
CONTROL GROUP AND NEW GOVERNANCE STRUCTURE OF USIMINAS (continued)
(e) Put and call option
In addition to the share purchase and the new governance structure, a “put” and “call” mechanism was
established according to the following scheme:
– NSC group will have the right, at any time after the closing of the transaction, to withdraw its remaining
shares from the control group and sell them in the open market after giving the T/T group the opportunity to
buy them at the 40-trading day average price per share immediately prior to the NSC group’s notice of
withdrawal, as well as the right, at any time after the second anniversary of the closing, to sell such shares to
the T/T group at BRL 10 per share.
– At any time after the second anniversary of the closing of the transaction, the T/T group will have the right to
buy the NSC group’s remaining interest in the Usiminas control group (153.1 million ordinary shares) at the
higher of BRL10 per share and the 40-trading day average price per share immediately prior to the date of
exercising the option.
In the case of the T/T Group, Ternium will decide at its own discretion the execution of the call option,
having Confab and Ternium Argentina the option to acquire the shares owned by NSC pro rata to their
participation.
–
IAS 32 requires a liability to be recognized for written puts over non-controlling interests. The liability reflects
the entity’s obligation to deliver cash or a financial asset. The financial liability is recognized at present value of
the redemption amount and accreted through finance charges in the income statement over the contract period
up to the final redemption amount. Ternium has recognized a liability associated with the put option of $ 242.5
million ($ 249.3 million as of December 31, 2023), accounted for in the statement of financial position under
Other liabilities, with the corresponding debit in the statement of changes in equity under Non-controlling
interest.
(f) Recognition of non-controlling interest
Ternium recognizes non-controlling interests in an acquired entity either at fair value or at the non-controlling
interest’s proportionate share of the acquired entity’s net identifiable assets. This decision is made on an
acquisition-by-acquisition basis. For the non-controlling interests in Usiminas, the Company elected to recognize
the non-controlling interests at its proportionate share of the acquired net identifiable assets, which led to a non-
controlling interest of $ 2,575.9 million.
66
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
3. ACQUISITION OF BUSINESS– INCREASE OF THE PARTICIPATION IN USIMINAS
CONTROL GROUP AND NEW GOVERNANCE STRUCTURE OF USIMINAS (continued)
(g) Main contingencies associated with the acquired business
Contrary to the recognition principles in IAS 37 Provisions, Contingent Liabilities and Contingent Assets, IFRS 3
Business Combinations requires an acquirer of a business to recognize contingent liabilities assumed in a business
acquisition at the acquisition date even if it is not probable that an outflow of resources will be required to settle
the obligation.
Provisions for contingencies recognized by Usiminas before business
combination
Provisions for contingencies recognized as part of the business
combination:
Tax related contingencies
Civil and other related contingencies
Labour related contingencies
Total Provision for contingencies
in $ thousands
(199,677)
(432,488)
(174,333)
(49,655)
(856,153)
Contingencies estimated by Management were related to possible losses arising from administrative proceedings
and litigation related to tax, civil and labour matters and based on the advice and assessment of internal and
external legal advisors.
The main contingencies recognized in the consolidated financial statements pursuant to IFRS 3 Business
Combinations in connection with the acquisition of the additional participation in Usiminas and the full
consolidation of Usiminas include the following:
Description
Status
Labor lawsuits filed by employees, former employees
and outsourced personnel of the Cubatão Plant,
claiming severance pay and social security rights.
Pending judgment by the Labor
Court and administrative bodies, at
different levels.
Tax proceeding in which the tax authorities seek the
reversal of ICMS/SP credits on materials considered
as consumables (refractory items and others).
Awaiting final outcome of the
Appeal to the Superior Court of
Justice (STJ).
Labor lawsuits filed by employees, former employees
and outsourced personnel of the Ipatinga Plant,
claiming severance pay and social security rights.
Pending judgment by the Labor
Court and administrative bodies, at
different levels.
Labor lawsuits filed by former employees
challenging the amount of compensation paid on
dismissals.
Other contingencies
Pending judgment.
Provisions for contingencies recognized by Usiminas before business combination
As of the
acquisition date
(in $ thousands)
As of December
31, 2023
(in $ thousands)
57,343
55,643
29,772
30,440
15,112
13,722
10,837
86,613
199,677
9,809
99,880
209,494
67
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
3.
ACQUISITION OF BUSINESS– INCREASE OF THE PARTICIPATION IN USIMINAS
CONTROL GROUP AND NEW GOVERNANCE STRUCTURE OF USIMINAS (continued)
Description
Objection filed against the decision that recognized
only partially the credit rights established in a final and
unappealable court decision that determined the
exclusion of ICMS amounts from the calculation basis
of PIS/COFINS-Imports.
Tax collection proceedings related to the collection of
ICMS/SP on goods shipped to other countries without
effective proof of export.
Tax proceedings seeking the reversal of ICMS/SP
credits on materials considered as consumables
(refractory items and others).
ICMS – Action for annulment of the tax debt claimed
by the State of Rio Grande do Sul due to failure to
make the advance payment of the tax at the entry of
goods coming from other States (rate differential ).
Tax assessment notice issued by the State of Minas
Gerais concerning alleged reversal of ICMS credits on
sale of electrical energy.
Other tax contingencies
Status
Pending judgment at
administrative level.
Pending judgment by the trial
court.
Several case records, declaratory
actions and tax collection
proceedings, suspended or
pending decision by higher courts.
Pending judgment by the trial
court.
Pending judgment at
administrative level.
Provisions for tax contingencies recognized as part of the business combination
Public Civil Action seeking the reimbursement of the
amounts increased by means of a term of amendment
to the Contractor's Agreement, due to alleged
overbilling in the construction of a bridge in Brasília/
DF.
Public Civil Action seeking compensation for alleged
damages caused to the State of Santa Catarina's
Treasury related to improper expenditures incurred in
the construction of a bridge.
Other civil and other contingencies (1)
As of July 3, 2023, the claim was
deemed groundless and was
pending judgment of appeal. As of
December 31, 2023, the action was
dismissed as unfounded and the
case was archived.
Pending conclusion of the expert
evidence
Provisions for civil and other contingencies recognized as part of the business combination
Labor lawsuits filed by employees, former employees
and outsourced personnel of the Cubatão Plant,
claiming severance pay and social security rights.
Pending judgment by the Labor
Court and administrative bodies,
at different levels.
Other labour contingencies (1)
Provisions for labour contingencies recognized as part of the business combination
(1) Composed of individually non-significative contingencies.
As of the
acquisition date
(in $ thousands)
As of December
31, 2023
(in $ thousands)
94,792
94,359
51,546
51,311
38,640
38,464
28,789
28,658
12,386
12,330
206,335
432,488
199,692
424,814
64,315
—
21,113
21,016
88,905
174,333
27,123
22,532
49,655
59,374
80,390
24,814
20,499
45,313
68
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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 recognition of business combinations requires
the acquirer to measure at the acquisition date components of non-controlling interests in the acquiree that are
present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event
of liquidation at either (a) fair value; or (b) the present ownership instruments’ proportionate share in the
recognized amounts of the acquiree’s identifiable net assets. The Company opted for the proportional share in
the recognized amounts of the identifiable net assets for the recognition described in note 3 related to Usiminas.
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.
69
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4. 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. Accounting policies of non-consolidated companies have been
changed where necessary to ensure consistency with the policies adopted by the 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”.
70
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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 Usiminas and 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, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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.
72
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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 4 (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 29
"Financial Risk management" and Note 4 (y).
Put option valuation method
IFRS presents the following options to recognize the value of a put option:
- Under IFRS 10, the terms of the forward and option contracts should be analyzed to assess whether they
provide the parent or the non-controlling interest with access to the risks and rewards associated with the actual
ownership of the shares. The non-controlling interest should be recognized if risks and rewards associated with
ownership have been retained by the non-controlling interest. A financial liability (recognized at the present value
of the redemption amount) is recorded to reflect the forward or put option.
73
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
- Under IAS 32, a liability is recognized for written puts over non-controlling interests. The liability reflects the
entity’s obligation to deliver cash or a financial asset. The financial liability is recognized at present value of the
redemption amount and accreted through finance charges in the income statement over the contract period up to
the final redemption amount.
(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
5-50 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 2023, 2022 and 2021.
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 4 (f) "Impairment").
Amortization charges are included in cost of sales, selling, general and administrative expenses.
74
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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
1-31 years
1-26 years
1-14 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.
Accounting by the lessor
When the Company is acting as a lessor, each of its leases is classified as either operating or finance lease:
- Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases.
- Leases where all substantial risks and rewards of ownership are transferred by the lessor to the lessee are
classified as finance leases.
75
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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 4
(e) 3); and
(c) Capitalized developmental stripping costs (see note 4 (u)).
Mining licenses were recognized as separate intangible assets upon the acquisition of the investment in Mexico
and in Usiminas and comprise the right to exploit the mines and are recognized at its fair value at acquisition date
less accumulated amortization.
Mexico’s 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.
Usiminas’ mining concessions were granted for an indefinite period and until complete depletion of mineral
reserves and are subject to the procedures set forth in applicable Brazilian 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, 2023, 2022 and 2021, is approximately 13%, 12% and 7% per year, respectively.
Considering that there are no concrete development plans in the short term and for production feasibility in
certain areas of the mining concessions held by Las Encinas S.A. de C.V., the Company decided to recognize an
impairment charge over these assets of $42.3 million.
76
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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, 2023 and 2022, 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, 2023, 2022 and 2021 totaled $ 19.0 million, $ 16.3
million and $ 9.8 million, respectively.
77
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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 the mining
segment and the mining activity developed by Usiminas, 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.
78
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
Considering the macroeconomic situation in Argentina, the increase in the inflation rates, the devaluation of the
Argentine peso and a weaker industrial environment as of December 31, 2023, the Company decided to assess the
recoverability of its investments in Argentina, resulting in no impairment charges to be recognized. As of
December 31, 2023, the post-tax discount rate used to test the investment in Argentine subsidiaries for
impairment was 17.3%.
In the case of the Steel Mexico CGU, considering that there is a value registered for goodwill, the Company
performed the mandatory impairment test over goodwill, resulting in no impairment charges to be recognized.
Also, in the case of the Mining Mexico CGU and considering the registered goodwill, the Company performed
the mandatory impairment test over goodwill, resulting in no impairment charges to be recognized. As of
December 31, 2023, the post-tax discount rate used to test the recoverability of the goodwill in the Steel and
Mining Mexico CGUs for impairment was 12.10% (as of December 31, 2022, 11.28%).
As of December 31, 2022, the Company recognized an impairment charge of $ 99.0 million over the property,
plant and equipment in the Brazil CGU. As of December 31, 2023, Management assessed the business situation as
of such date and concluded that the recovery of impairment indicators was not significantly enough, and that
there were no significant positive events to proceed with a reversal of previously recognized impairment charges.
During the years 2023, 2022 and 2021, no impairment provisions were recorded in connection with assets that
have an indefinite useful life (including goodwill) in the Company’s CGUs.
As of September 30, 2022, the Company recognized an impairment charge of $ 120.4 million over the investment
in Usiminas. On July 3, 2023, the Company acquired an additional participation in Usiminas and started the full
consolidation of assets and liabilities of Usiminas (see note 3). As of December 31, 2023, no impairment triggers
were detected 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.
79
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
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.
(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.
Judicial deposits are those made in a bank account, in connection with legal proceedings, in Brazilian currency
and monetarily restated to ensure the settlement of potential future liabilities. Some judicial deposits that are
linked to taxes payable in installments are presented at their net amount.
(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.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
(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, as of December 31, 2023 and 2022 totals $ 6.7 million and $
1.8 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, including bonds and debentures issued by Usiminas, are recognized initially for an amount equal to
the net proceeds received. In subsequent periods, borrowings, including bonds and debentures, 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.
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.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
(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.
(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.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
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.
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.
Brazil
Usiminas operates various post-employment schemes, including defined benefit pension plans, defined/variable
contribution pension plans and a post-retirement healthcare plan. The retirement plans offer to employees’
supplementary retirement and pension benefits and are managed by Previdência Usiminas, which in line with the
applicable legislation, has as its main purpose the management and running of private pension plans.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
Usiminas has different defined benefit pension plans:
1) Benefit plan 1 (PB1), defined benefit plan, closed for new enrolments since November 1996.
2) Defined benefit plan (PBD), defined benefit plan, closed for new enrolments since December 2000; the
beneficiaries of this plan are also entitled to self-funded retirement plan, vesting, redemption, and portability.
The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the
defined benefit obligation at the balance sheet date minus the market value of plan assets, adjusted for: (i)
actuarial gains and losses; (ii) rules to determine the asset ceiling; and (iii) minimum funding requirements.
Usiminas has taken out debts in connection with the minimum requirements for payment of contributions, for
the purpose of covering the gap in relation to the services already received. In the event of non-recoverable
surplus, the debts taken are recognized as an additional liability in the computation of net actuarial liabilities.
The PBD plan debit balance is determined at the end of each year, based on a direct actuarial revaluation. During
the subsequent year, the liability is adjusted by the monthly surplus or deficit determined in the PBD plan and by
the amount of payments falling due in the period. The debt balance should be repaid in 148 installments.
Also, Usiminas has different defined contribution pension plans:
3) Benefit plan 2 (USIPREV), variable contribution benefit plan, operating since August 1998, provides post-
employment benefits to the employees of the sponsor companies. Currently, this is the only plan accepting new
enrolments.
4) COSIPREV, defined contribution plan has been closed for new enrolments since April 30, 2009. For this
defined contribution plan (COSIPREV), Usiminas pays contributions to a private pension entity on compulsory,
contractual or voluntary bases. The contributions are recognized as finance costs in the period in which they are
due. The entity has no further payment obligations once the contributions have been paid.
USIPREV and COSIPREV plans have a Pension Fund formed from members’ account balances not used in
benefit payouts. As provided for in the plans’ regulations, this Fund may be used to cover the cost of these plans
in the future.
In addition, Usiminas has in place a post-retirement healthcare plan:
(a) CoSaúde, post-retirement healthcare benefits discontinued on November 30, 2021, with the subsequent
restructuring of group plans to be offered to former beneficiaries, in compliance with the legal clauses and
conditions.
(b) Saúde Usiminas, healthcare plan, which opened for enrolments to all employees and retirees in 2010 and was
extinguished as of December 31, 2023, being replaced with two new plans: Usiexato and Usiflex. These two new
plans provide with two different methods of payment to the members of the plans: a mixed method, with the
Company offering the option of bearing 100% of the monthly fee for active employees until the termination of
the labor contracts, or a contributory method, which allows the continuation of the healthcare services after
resignation or retirement of the employees.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
(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, 2023 and 2022, the outstanding liability corresponding to the Program amounts to $ 90.1
million and $ 79.8 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, 2023 and 2022, is $ 94.5 million
and $ 88.6 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.
(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.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
(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.
Usiminas Mecánica S.A., one of Usiminas’ subsidiaries, uses the percentage-of-completion (POC) method to
account for the revenue from orders in progress sold at fixed prices. The use of the POC method requires
Management to estimate the services performed up to the balance sheet date as a proportion of the total services
to be performed.
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. As of December 31, 2023, 2022 and 2021, the capitalized borrowing
costs were nil, $ 0.4 million and $ 6.3 million, respectively.
(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.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
(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.
(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.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
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. As of December 31, 2023 and 2022, the effective portion of designated cash flow
hedges (net of taxes) amounted to $15,9 million and nil, 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 27 (a)).
More information about accounting for derivative financial instruments and hedging activities is included in
Note 29 "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.
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 4(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 as of December 31, 2023 was 12.10%
and no impairment charge resulted from the impairment test performed. See notes 4(f) and 4(e)(4).
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
(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 $ 839.9 million and $ 81.4 million as of December 31, 2023 and 2022,
respectively.
(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.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
ACCOUNTING POLICIES (continued)
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
• whether evidence is available from internal reporting that indicates that the economic performance of an asset
is, or will be, worse than expected.
(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.
(6) Business combinations
The recognition of business combinations requires the excess of the purchase price of acquisitions over the net
book value of assets acquired to be allocated to the assets and liabilities of the acquired entity. The Company
makes judgments and estimates in relation to the fair value of assets acquired and liabilities assumed, including
estimation of cash flow projections with significant assumptions related to revenue forecasts, EBITDA margins,
capital expenditures, discount rate and estimation of loss probability for the contingencies assumed. If any
unallocated portion is positive, it is recognized as goodwill, and if negative, it is recognized in the income
statement. See further information in note 3.
(7) Taxation
At year end, the Company assesses the sufficiency of future taxable income to utilize the recognized deferred tax
assets. The Company uses projections of future taxable income to assess the probability that the deferred tax
assets will be realized. Management applied significant judgment in assessing the recoverability of deferred tax
assets predicting historical profitability, projected future taxable profit, including assumptions related to revenue
forecast and EBITDA margins.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
4.
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 anticipates a change in its emission intensity rate starting in 2025 once the projects
are operational.
In addition, Ternium is also exploring business opportunities such as selling the captured CO2 from its facilities
in Mexico, marketing by-products of the process, and utilizing steel in solutions that promote energy efficiency
and lower emissions in the supply chain. These sales currently represent a relatively small proportion of overall
sales but are expected to increase in the coming years.
The Company intends to continue analyzing and developing measures to decarbonize its operations over the
longer term with the ambition of achieving carbon neutrality. 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, 2023, as well as on the company’s already approved or in
process investment plans.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
5.
SEGMENT INFORMATION
As of December 31, 2023, the Company is organized in three operating segments: Steel, Mining and Usiminas.
The CODM is still reviewing the new business structure to allocate resources and to assess the performance in
future periods.
The Steel segment includes the sales of steel products done by the Company’s subsidiaries, other than Usiminas,
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, done by the Company’s subsidiaries, other than
Usiminas, 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.
The Usiminas segment included in the Company as from July 2023, following the increase of the participation,
includes the sales of steel and mining products done by Usiminas. Usiminas’ activities include iron ore extraction,
steel transformation, production of capital goods and logistics. Usiminas manufactures and sells various products
and raw materials, such as flat steel, iron ore, stamped steel parts for the automotive industry and products for
the civil construction and capital goods industry
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 key 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).
In the case of Usiminas, the use of costs based in the weighted average cost, while, under IFRS, costs are
calculated under the FIFO method.
• Other non-significant differences.
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TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
5.
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
Effect related to the increase of the
participation in Usiminas
Recycling of other comprehensive
income related to Usiminas
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
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, 2023
Steel
Mining
Usiminas
Inter-segment
eliminations
Total
2,404,189
(58,037)
64,423
(6,401)
2,404,174
(206,160)
2,198,014
123,454
105,305
(171,045)
(934,946)
1,320,782
14,909,209
96
2,700,787
—
17,610,092
285,025
500,401
31,620
(817,046)
—
(520,328)
(107,546)
(29,819)
—
(657,693)
Year ended December 31, 2022
Steel
Mining
Usiminas
2,556,949
3,716
—
Inter-segment
eliminations
10,500
Total
2,571,165
128,354
2,699,519
(70,133)
37,114
2,666,500
16,414,334
132
—
(523,818)
410,636
(92,674)
—
—
—
—
16,414,466
(410,636)
—
—
(616,492)
Year ended December 31, 2021
Steel
Mining
Usiminas
4,210,135
204,070
—
Inter-segment
eliminations
1,586
Total
4,415,791
855,345
5,271,136
92,462
400,732
5,764,330
16,043,033
47,711
—
(528,144)
478,559
(63,646)
—
—
—
—
16,090,744
(478,559)
—
—
(591,790)
Information on segment assets is not disclosed as it is not reviewed by the CEO.
93
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
5.
SEGMENT INFORMATION (continued)
GEOGRAPHICAL INFORMATION
The Company has no revenues attributable to the Company’s country of incorporation (Luxembourg) in 2023
and 2022. In 2021 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, 2023
Mexico
Southern
region
Brazil
Other markets
Total
Net sales
9,419,873
3,588,651
2,518,764
2,082,804
17,610,092
Non-current assets (2)
4,965,628
878,642
2,474,178
315,287
8,633,735
Year ended December 31, 2022
Mexico
Southern
region
Brazil (1)
Other markets
Total
Net sales
8,949,104
3,853,390
743,713
2,868,259
16,414,466
Non-current assets (2)
4,769,161
859,351
1,265,013
312,771
7,206,296
Year ended December 31, 2021
Mexico
Southern
region
Brazil
Other markets
Total
Net sales
8,990,868
3,377,596
1,122,518
2,599,762
16,090,744
4,789,273
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.
1,373,377
861,149
310,035
7,333,834
REVENUES BY PRODUCT
Slabs
Hot rolled (1)
Cold rolled
Coated (2)
Roll-formed and tubular (3)
Billets, round bars and others
Other products (4)
TOTAL SALES
Year ended December 31,
2022
2021
2023
177,240
7,913,232
2,379,499
5,708,328
789,255
45,351
597,187
640,231
6,991,466
1,951,702
5,704,765
660,830
142,511
322,961
1,304,437
6,356,576
1,990,143
5,303,394
659,609
167,138
309,447
17,610,092
16,414,466
16,090,744
(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.
94
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
6.
COST OF SALES
Inventories at the beginning of the year
Acquisition of business (Note 3)
Translation differences
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
Year ended December 31,
2022
2021
2023
3,470,214
1,707,311
(22,514)
3,908,305
—
—
2,001,781
—
—
11,193,050
250,333
940,411
556,630
47,374
825,809
14,873
24,867
4,707
(15,333)
(37,186)
38,567
9,773,523
183,003
862,593
532,160
43,947
612,928
10,295
15,184
20,804
15,333
(42,000)
21,421
9,835,504
151,251
689,614
514,746
23,519
582,633
7,741
12,309
3,965
—
(37,597)
17,909
Less: Inventories at the end of the year
(4,948,376)
(3,470,214)
(3,908,305)
Cost of Sales
14,050,737
12,487,282
9,895,070
7.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Year ended December 31,
2022
2021
2023
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
91,853
355,967
16,562
37,126
10,340
164,935
72,426
681,416
12,528
28,525
73,401
299,139
13,990
26,395
8,311
170,216
41,921
499,127
114
11,032
Selling, general and administrative expenses
1,471,678
1,143,646
60,216
250,697
14,153
39,372
6,977
160,254
34,968
365,455
350
17,682
950,124
(1) For the year ended December 31, 2023, it includes fees accrued for professional services rendered by PwC to Ternium S.A. and its
subsidiaries that amounted to $ 5,340, including $ 4,783 for audit services, $ 268 for audit-related services, $ 8 for tax services, and $ 281
for all other services.
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.
95
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
8.
LABOR COSTS (Included Cost of sales and Selling, General and Administrative expenses)
Wages, salaries and social security costs
Termination benefits
Post-employment benefits (Note 21 (i))
Labor costs
Year ended December 31,
2022
2021
2023
1,216,566
23,189
56,623
1,093,105
22,246
46,381
1,296,378
1,161,732
878,347
18,677
43,287
940,311
As of December 31, 2023, 2022 and 2021, the number of employees was 34,458, 20,510 and 20,142, respectively.
9.
OTHER OPERATING INCOME (EXPENSES), NET
Results of sundry assets
Gain from the agreement related to the post-retirement benefits from
Usiminas
Provision for legal claims and other matters (Note 19 and 25 (i) and (ii))
Other operating income (1)
Other operating income
Provision for legal claims and other matters (Note 19 and 25 (i) and (ii))
Impairment charge (2)
Reversal of the asset in connection with the slab commitment agreement
(Note 4 (e) (6))
Other operating expense (1)
Other operating expense
Other operating income (expenses), net
Year ended December 31,
2022
2021
2023
8,165
108,696
59,649
—
176,510
—
(42,316)
—
(23,857)
(66,173)
110,337
8,177
—
1,069
5,735
14,981
—
(99,000)
—
—
(99,000)
(84,019)
8,558
—
—
40,587
49,145
(11,761)
—
(11,798)
—
(23,559)
25,586
(1) For the year ended December 31, 2023, it includes the value update of certain tax liabilities in Usiminas of $10,000. For the year ended
December 31, 2021, it includes the recovery of certain tax credits in Brazil of $27,200.
(2) For the year ended December 31, 2023, see note 4 (e)(2). For the year ended December 31, 2022, see note 4(f).
96
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
10. OTHER FINANCIAL INCOME (EXPENSES), NET
Interest expense
Finance expense
Interest income
Finance income
Net foreign exchange gain (loss)
Change in fair value of financial assets
Derivative contract results
Others
Other financial income (expenses), net
11.
INCOME TAX EXPENSE
Income tax expense for each of the years presented is as follows:
Current tax
Current tax
Recovery of income tax
Deferred tax (Note 19)
Deferred tax
Effect of changes in tax law (1)
Recognition of previously unrecognized deferred tax assets (2)
Recovery of income tax
Income tax expense
Year ended December 31,
2022
2021
2023
(125,376)
(125,376)
255,009
255,009
98,037
1,899
(60,183)
(45,932)
(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
(6,179)
(98,541)
56,547
Year ended December 31,
2022
2021
2023
(578,902)
13,429
(671,016)
—
(1,650,281)
—
102,431
—
128,634
—
80,692
—
—
16,596
185,655
(9,117)
—
76,604
(334,408)
(573,728)
(1,397,139)
(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 unrecognized tax losses and temporary differences in Ternium Brasil Ltda.
97
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
11.
INCOME TAX EXPENSE (continued)
Income tax expense for the years ended December 31, 2023, 2022 and 2021 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:
Income before income tax
Income tax expense at statutory tax rate
Non taxable income
Non deductible expenses
Effect of currency translation on tax base (1)
Recognition of previously unrecognized deferred tax assets
Provision for tax losses
Recovery of income tax
Effect of changes in tax law
Income tax expense
Year ended December 31,
2022
2021
2023
1,320,782
(643,686)
39,755
—
180,582
128,634
(53,122)
13,429
—
(334,408)
2,666,500
(785,888)
—
(45,862)
241,426
—
—
16,596
—
(573,728)
5,764,330
(1,633,556)
37,815
—
131,115
—
—
76,604
(9,117)
(1,397,139)
(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.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) released the Pillar
Two model rules (the Global Anti-Base Erosion rules, or “GloBE”) to reform international corporate taxation.
Following Pillar Two OECD’s initiative, the European Union adopted in December 2022 a directive to impose a
global minimum taxation for multinational companies in the Union, to be effective as from 2024.
In May 2023, the IASB made narrow-scope amendments to IAS 12 setting an exception that provides relief from
the requirement to recognize and disclose deferred taxes arising from enacted or substantively enacted tax laws
that implement the Pillar Two model rules, including tax laws that implement qualified domestic minimum top-
up taxes as per described in those rules.
On December 20, 2023, the Luxembourg Parliament approved the Pillar Two law transposing the EU Pillar Two
Directive into domestic legislation. The law enters into force as from fiscal years starting on or after 31 December
2023.
The Company is within the scope of the rules, and therefore will be required to calculate its GloBE effective tax
rate for each jurisdiction where it operates and will be liable to pay a top-up tax for the difference between its
GloBE effective tax rate per jurisdiction and the 15% minimum rate, as from 2024.
No current tax impacts have arisen in the current Consolidated Financial Statements as of December 31, 2023,
due to the application of Pillar Two rules, as they will be applicable as from 2024 in jurisdictions relevant for the
Company.
98
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
11.
INCOME TAX EXPENSE (continued)
In addition, the Company has applied the exception prescribed by the amendments to IAS 12, and therefore it has
not recognized any deferred tax impact from the Pillar Two application.
The Company is in the process of assessing its exposure to the Pillar Two legislation and testing its situation
under the OECD transitional safe harbor rules and expects no major impacts in relation to top-up tax due to the
application of one or more of the transitional safe harbor rules.
Due to the complexities in applying the legislation and calculating GloBE income, the quantitative impact of the
enacted legislation is not yet reasonably estimable.
99
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
12. PROPERTY, PLANT AND EQUIPMENT, NET
(1) Property, plant and equipment,net
Values at the beginning of the year
Cost
Accumulated depreciation
Net book value as of January 1,
2023
Opening net book value
Acquisition of business (note 3)
Translation differences
Additions
Disposals / Consumptions
Indexation
Transfers
Depreciation charge
Closing net book value
Values at the end of the year
Cost
Accumulated depreciation
Net book value as of December 31,
2023
Values at the beginning of the year
Cost
Accumulated depreciation
Net book value as of January 1,
2022
Opening net book value
Translation differences
Additions
Capitalized borrowing costs
Disposals / Consumptions
Indexation
Transfers
Year ended December 31, 2023
Land
Buildings
and
improvements
Production
equipment
Vehicles,
furniture
and fixtures
Work in
progress
Spare
parts
Right-of-
use
assets
Total
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
607,971
93,842
(41)
70,415
(2,314)
—
4,179
—
2,078,116 2,620,817
407,931
1,810
24,861
(388)
—
343,301
(346,531)
170,609
358
5,333
(409)
—
139,552
(148,406)
53
54,870 547,102 142,867 210,144 6,261,887
20,432 904,780
27,986
10,880 173,100
338
(183)
(790)
16,061 1,078,185
37,437
2,903 921,175
(41,820)
(35,792)
(1,861)
(952)
10,626
—
—
—
(252)
27,825 (517,722)
(3,117)
(56,170) (573,192)
(411)
—
(21,674)
(104)
10,626
—
(869)
774,052
2,245,153 3,051,801
73,905 1,121,004 171,652 200,120 7,637,687
774,052
—
4,407,345 8,514,780
(2,162,192) (5,462,979)
344,859 1,121,004 202,923 438,596 15,803,559
(31,271) (238,476) (8,165,872)
(270,954)
—
774,052
2,245,153 3,051,801
73,905 1,121,004 171,652 200,120 7,637,687
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
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)
—
594,744
2,133,085 2,720,891
54,106 563,082 137,167 228,503 6,431,578
594,744
2,133,085 2,720,891
54,106 563,082 137,167 228,503 6,431,578
139
5,342
—
(953)
—
325
123
23
9
—
—
619
2,423
—
(1,133)
913
—
(1,056)
2,337 433,269
403
(1,162)
—
(842)
28,983
—
(22,210)
13,961 487,228
403
(28,395)
—
(1,039)
—
—
—
—
—
17,945
17,945
8,699
144,914
273,885
18,660 (448,499)
—
—
(2,341)
Depreciation charge
—
(147,863)
(328,574)
(19,414)
—
(1,073)
(49,226) (546,150)
Closing net book value
607,971
2,078,116 2,620,817
54,870 547,102 142,867 210,144 6,261,887
Values at the end of the year
Cost
607,971
4,091,108 7,744,607
309,469 547,102 173,731 395,620 13,869,608
Accumulated depreciation
—
(2,012,992) (5,123,790)
(254,599)
—
(30,864) (185,476) (7,607,721)
Net book value as of December 31,
2022
607,971
2,078,116 2,620,817
54,870 547,102 142,867 210,144 6,261,887
100
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
12.
PROPERTY, PLANT AND EQUIPMENT, NET (continued)
(2) Right-of-use assets
Values at the beginning of the year
Cost
Accumulated depreciation
Net book value as of January 1, 2023
Opening net book value
Translation differences
Acquisition of business (note 3)
Additions
Disposal/Derecognition
Indexation
Depreciation charge
Closing net book value
Values at the end of the year
Cost
Accumulated depreciation
Net book value as of December 31,
2023
Values at the beginning of the year
Cost
Accumulated depreciation
Net book value as of 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 as of December 31,
2022
Right-of-use assets
Land
Buildings
and
improvements
Production
equipment
Vehicles,
furniture and
fixtures
Total
1,339
(4)
1,335
1,335
—
—
—
—
(962)
(26)
347
376
(29)
347
266,330
(118,709)
147,621
147,621
(790)
3,894
3,716
(85)
9,784
(35,178)
128,962
281,250
(152,288)
127,765
(66,639)
61,126
61,126
(79)
16,433
12,304
(19)
1,704
(20,854)
70,615
156,614
(85,999)
128,962
70,615
Right-of-use assets
187
(125)
62
62
—
105
41
—
100
(112)
196
355
(159)
196
395,621
(185,477)
210,144
210,144
(869)
20,432
16,061
(104)
10,626
(56,170)
200,120
438,595
(238,475)
200,120
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)
119,497
(49,321)
70,176
70,176
6,163
(1,039)
3,360
(17,534)
61,126
127,765
(66,639)
174
(44)
130
130
14
—
—
(82)
62
364,971
(136,468)
228,503
228,503
13,961
(1,039)
17,945
(49,226)
210,144
187
(125)
395,621
(185,477)
147,621
61,126
62
210,144
The cost related to variable-lease payments that do not depend on an index or rate amounted to $ 19.1 million
for the year ended December 31, 2023 ($ 14.5 million and $ 20.0 million for the year ended December 31, 2022
and 2021, respectively). 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 $ 2.8
million for the year ended December 31, 2023 ($ 1.9 million and $ 2.0 million for the year ended December 31,
2022 and 2021, respectively).
101
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
13.
INTANGIBLE ASSETS, NET
Information
system
projects
Mining
assets
Year ended December 31, 2023
Customer
relationships
and other
contractual
rights
Exploration
and
evaluation
costs
Trademarks Goodwill
Total
Values at the beginning of the year
Cost
Accumulated depreciation
460,434
(348,260)
358,767
(227,098)
Net book value as of January 1, 2023
112,174
131,669
Opening net book value
Translation differences
Acquisition of business (note 3)
Additions
Disposals / Consumptions
Impairment charge (note 4 (e)(2))
Transfers
Depreciation charge
112,174
(227)
34,451
67,754
(113)
—
3,181
(35,722)
131,669
—
—
32,407
(0)
(42,316)
55,016
(48,434)
29,360
—
29,360
29,360
—
—
40,333
—
—
(55,054)
—
Closing net book value
181,498
128,342
14,639
297,427
(288,528)
73,935
(73,935)
662,307
—
1,882,230
(937,821)
8,899
8,899
—
—
726
(19)
—
—
(344)
9,262
—
662,307
944,409
—
—
—
—
—
—
—
—
662,307
—
—
—
—
—
—
—
944,409
(227)
34,451
141,220
(132)
(42,316)
3,143
(84,500)
—
662,307
996,048
Values at the end of the year
Cost
Accumulated depreciation
Net book value as of December 31,
2023
563,120
(381,622)
403,875
(275,533)
14,639
—
298,134
(288,872)
73,935
(73,935)
662,307
—
2,016,010
(1,019,962)
181,498
128,342
14,639
9,262
—
662,307
996,048
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 as of 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 as of 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
The Company has not registered any impairment charges in connection with Goodwill (see notes 4 (f) and (bb)(1)
and (4)).
102
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
14.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES
At the beginning of the year
Acquisition of business (note 3)
Derecognition related to the increase of the participation in Usiminas
Equity in earnings of non-consolidated companies
Other comprehensive income and other effects
Dividends from non-consolidated companies (1)
At the end of the year
As of December 31,
2022
2023
821,571
400,037
(771,995)
105,305
(2,812)
(34,841)
517,265
751,475
—
—
37,114
48,475
(15,493)
821,571
(1) Mainly related to dividends from Unigal Usiminas Ltda. and MRS Logística S.A.
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
Unigal Usiminas Ltda.
MRS Logística S.A
Other non-consolidated
companies (1)
Brazil
Brazil
Manufacturing
and selling of
steel products
Provision of
electric power
Manufacturing
and selling of
steel products
Logistical
services
Voting rights at
Value at
December
31, 2023
December
31, 2022
December
31, 2023
December
31, 2022
—
34.39 %
—
725,705
48.00 %
48.00 %
116,849
90,559
70.00 %
11.41 %
—
—
124,064
235,268
41,084
—
—
5,307
517,265
821,571
(1) It includes the investments held in Finma S.A.I.F., Recrotek S.R.L. de C.V., Gas Industrial de Monterrey S.A. de C.V.,
Modal Terminal de Graneis Ltda., Usiroll – Usiminas Court Tecnologia em Acabamento Superficial Ltda, Codeme
Engenharia S.A, Terminal de Cargas Paraopeba Ltda., Terminal de Cargas Sarzedo Ltda., and Metalcentro Ltda.
(a) Techgen S.A. de C.V.
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, 2023, that revenues
amounted to $ 444 million ($ 580 million as of December 31, 2022), net profit from continuing operations to $ 55
million ($ 55 million as of December 31, 2022), non-current assets to $ 766 million ($ 766 million as of December
31, 2022), current assets to $ 175 million ($ 131 million as of December 31, 2022), non-current liabilities to $ 466
million ($ 527 million as of December 31, 2022), current liabilities to $ 232 million ($ 181 million as of December
31, 2022) and shareholders’ equity to $ 243 million ($ 189 million as of December 31, 2022).
103
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
14.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
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 $ 136.3 million as of December 31, 2023, and
which are due in June 2026.
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, 2023, the outstanding syndicated loan amount was of $ 267
million and Ternium Investments’ participation was of $ 55 million.
For commitments from Ternium in connection with Techgen, see note 25.
(b) Unigal Usiminas Ltda.
Unigal is a Brazilian joint venture with a plant located in Ipatinga, Minas Gerais, between Usiminas and Nippon
Steel Corporation, which hold 70% and 30% ownership interest, respectively. The main activity of this joint
venture is the transformation of cold-rolled coils, provided only by Usiminas, into hot-dipped galvanized coils.
The plant has a galvanizing production capacity of 1,030 million tons per year. The control of Unigal is shared
between the partners, as provided for in the shareholders’ agreement.
Unigal stated in its unaudited annual accounts, prepared in accordance with IFRS Accounting Standards
(International Financial Reporting Standards), as of December 31, 2023, that non-current assets amounted to $
163 million, current assets to $ 40 million, non-current liabilities to $ 48 million, current liabilities to $ 11 million
and shareholders’ equity to $ 143 million. Revenues amounted to $ 37 million and net profit from continuing
operations to $ 17 million for the six-month period ended December 31, 2023.
(c) MRS Logística S.A.
MRS Logística is a Brazilian railway cargo operator and logistics services provider that manages a 1,634 km
network in the states of Minas Gerais, Rio de Janeiro and São Paulo, a region that concentrates about half of the
Brazilian GDP. Usiminas holds a 11.41% ownership interest, along with CSN (18.6%), Congonhas Minérios
(18.6%), Vale (10.9%), Gerdau (1.3%) and a wide group of small investors (6.5%). These companies, through a
shareholders’ agreement, constitute, through representatives, the Board of Directors, which is responsible, among
other duties, for this company’s overall strategic direction, for the decision on most significant investments and
for the health and longevity of the organization.
MRS Logística stated in its unaudited annual accounts, prepared in accordance with IFRS Accounting Standards
(International Financial Reporting Standards), as of December 31, 2023, that non-current assets to $ 2,779
million, current assets to $ 954 million, non-current liabilities to $ 1,709 million, current liabilities to $ 704
million and shareholders’ equity to $ 1,320 million. Revenues amounted to $ 727 million and net profit from
continuing operations to $ 148 million for the six-month period ended December 31, 2023.
104
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
15.
RECEIVABLES, NET – NON CURRENT AND CURRENT
Receivables with related parties (Notes 26 and 14 (a))
Employee advances and loans
Advances to suppliers for the purchase of property, plant and equipment (1)
Advances to suppliers for the purchase of property, plant and equipment with related
parties (Note 26) (1)
Other tax credits (2)
Judicial deposits and other receivables (2)
Others
Receivables, net – Non-current
Value added tax (2)
Income tax credits
Other tax credits
Employee advances and loans
Advances to suppliers
Advances to suppliers with related parties (Note 26)
Expenses paid in advance
Government tax refunds on exports
Receivables with related parties (Note 26)
Others
Receivables, net – Current
As of December 31,
2023
2022
135,124
28,812
181,962
123,599
356,687
178,602
68,459
1,073,245
127,008
21,729
44,067
2,444
117,111
—
6,331
318,690
As of December 31,
2023
2022
508,318
486,470
41,909
12,592
39,288
3,166
28,207
4,120
11,387
37,407
133,860
400,949
37,461
6,782
22,257
6,089
17,850
1,677
17,154
18,683
1,172,864
662,762
(1) The increase in the year 2023 is related to the ongoing investment plan in the Pesquería plant in Mexico.
(2) The increase in the year 2023 is related to the increase of participation in Usiminas.
105
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
16.
TRADE RECEIVABLES, NET - NON CURRENT AND CURRENT
Trade receivables
Allowance for doubtful accounts (Note 19)
Trade receivables, net – Non-current
Current accounts
Trade receivables with related parties (Note 26)
Allowance for doubtful accounts (Note 19)
Trade receivables, net - Current
As of December 31,
2022
2023
6,430
(6,430)
—
—
—
—
2,092,361
26,183
(53,045)
2,065,499
1,110,481
80,078
(9,870)
1,180,689
Trade receivables, net as of December 31, 2023
Fully
performing
Past due
Total
Guaranteed
Not guaranteed
Trade receivables
Allowance for doubtful accounts (Note 19)
Trade receivables, net
697,001
1,427,973
2,124,974
(59,475)
2,065,499
664,698
1,246,206
1,910,904
—
1,910,904
32,303
181,767
214,070
(59,475)
154,595
Trade receivables, net as of December 31, 2022
Fully
performing
Past due
Total
Guaranteed
Not guaranteed
Trade receivables
Allowance for doubtful accounts (Note 19)
Trade receivables, net
17.
INVENTORIES, NET
Raw materials, materials and spare parts
Goods in process
Finished goods
Goods in transit
Obsolescence allowance (Note 19)
Valuation allowance
Inventories, 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
As of December 31,
2022
2023
1,409,316
2,312,068
947,768
479,248
(200,024)
—
4,948,376
963,732
1,681,239
553,965
365,675
(79,063)
(15,333)
3,470,215
106
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
18. 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,
2022
2023
210,774
156
210,930
100,464
252
100,716
As of December 31,
2022
2023
1,975,646
1,975,646
1,875,026
1,875,026
492,684
3,129
478,778
871,422
371,797
30
772,953
508,575
1,846,013
1,653,355
19. ALLOWANCES AND PROVISIONS - NON CURRENT AND CURRENT
Provisions and allowances - Non current
Year ended December 31, 2023
Values at the beginning of the year
Translation differences
Acquisition of business (note 3)
Additions
Reversals
Uses
As of December 31, 2023
Year ended December 31, 2022
Values at the beginning of the year
Translation differences
Additions
Reversals
Uses
As of December 31, 2022
Deducted from
assets
Liabilities
Liabilities
Allowance for
doubtful
accounts
Legal claims
and other
matters
Asset
retirement
obligation
—
75
6,663
—
(308)
—
6,430
—
—
—
—
—
—
81,422
(4,108)
856,153
37,112
(96,761)
(33,897)
839,921
83,299
2,999
5,889
(6,959)
(3,806)
81,422
38,104
7,558
58,127
828
(162)
—
104,455
32,098
2,735
3,271
—
—
38,104
107
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
19. ALLOWANCES AND PROVISIONS - NON CURRENT AND CURRENT (continued)
Provisions and allowances - Current
Year ended December 31, 2023
Values at the beginning of the year
Translation differences
Acquisition of business (note 3)
Additions
Reversals
Uses
As of December 31, 2023
Year ended December 31, 2022
Values at the beginning of the year
Translation differences
Additions
Reversals
Uses
As of December 31, 2022
Deducted from assets
Allowance for
doubtful
accounts
Obsolescence
allowance
Liabilities
Asset
retirement
obligation
9,870
(771)
37,963
15,639
(2,803)
(6,853)
79,063
(1,521)
77,895
35,215
(30,508)
39,880
53,045
200,024
9,472
544
1,786
(1,672)
(260)
61,476
—
36,666
(15,862)
(3,217)
9,870
79,063
3,304
(217)
1,428
6,946
—
(4,129)
7,332
3,610
(465)
3,558
—
(3,399)
3,304
20. 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
Acquisition of business (note 3)
Translation differences
Recognition of previously unrecognized tax losses
Charges directly to other comprehensive income
Deferred tax credit (note 11)
At the end of the year
As of December 31,
2022
2023
37,495
1,327,232
(4,373)
128,634
(48,854)
102,431
1,542,565
(25,471)
—
330
—
(18,056)
80,692
37,495
108
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
20.
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 assets
(liabilities)
At the
beginning of
the year
Translation
differences
Acquisition
of business
Credits
(Charges)
directly to
OCI
Recognition
of previously
unrecognized
tax losses
Income
statement
credit
(charge)
Total as of
December
31, 2023
Property, plant and
equipment
Inventories
Intangible assets
Provisions
Trade receivables
Tax losses (1)
Other (2)
(200,556)
(69,594)
(22,923)
98,999
15,515
17,400
198,654
(2,360)
(903)
(683)
(698)
—
4,901
(4,630)
412,320
116,290
143,033
255,529
28,510
304,237
67,313
—
—
—
—
—
—
(48,854)
—
—
—
—
—
—
128,634
114,134
(27,962)
14,901
267
(1,351)
56,433
(53,991)
323,538
17,831
134,328
354,097
42,674
382,971
287,126
At the end of the year
37,495
(4,373)
1,327,232
(48,854)
128,634
102,431
1,542,565
(1) As of December 31, 2023, the recognized deferred tax assets on tax losses amount to $ 383.0 million, mainly connected to Ternium
Brasil Ltda. and Usinas Siderúrgicas de Minas Gerais S.A. Additionally, there are net unrecognized deferred tax assets of $ 14.2 million,
connected to Usinas Siderúrgicas de Minas Gerais S.A., and unrecognized tax losses amounting to $ 357.4 million from Usinas Siderúrgicas
de Minas Gerais S.A. and $ 889.4 million from Ternium Brasil Ltda. Under the Luxembourg tax law, tax losses generated before 2017 can
be carried forward indefinitely and are not subject to any yearly consumption limitation, while losses incurred as from 2017 may be carried
forward for a maximum of 17 years. Unrecognized tax losses of Ternium SA as of December 31, 2022 amounted to $ 2.1 billion and the
estimated tax loss for the fiscal year 2023 amounted to $ 30.1 million, with approximately 92% of the referred tax losses generated before
2017. Unrecognized tax losses of Ternium Investments S.à r.l. as of December 31, 2022 amounted to $ 2.6 billion and the estimated tax
result for fiscal year 2023 amounted to $ 0.9 million, with approximately 98% of the referred tax losses generated before 2017.
(2) It corresponds mainly to the deferred tax assets related to post-employment benefits and asset retirement obligations.
Deferred tax assets
(liabilities)
At the
beginning
of the year
Translation
differences
Acquisition
of business
Credits
(Charges)
directly to
OCI
Recognition
of previously
unrecognized
tax losses
Income
statement
credit
(charge)
Total as of
December 31,
2022
Property, plant and
equipment
Inventories
Intangible assets
Provisions
Trade receivables
Tax losses (1)
Other (2)
At the end of the year
(353,420)
49,437
(26,323)
82,139
35,144
3,578
183,975
(25,470)
—
—
—
—
—
—
332
332
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(18,059)
(18,059)
—
—
—
—
—
—
—
—
152,864
(119,031)
3,400
16,860
(19,629)
13,822
32,406
80,692
(200,556)
(69,594)
(22,923)
98,999
15,515
17,400
198,654
37,495
(3) 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.
(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.
109
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
21. OTHER LIABILITIES-NON CURRENT AND CURRENT
(i) Other liabilities - Non current
Post-employment benefits
Other employee benefits
Asset retirement obligation (note 19) (1)
Put option liability (note 3 (e))
Other
Other liabilities – Non-current
As of December 31,
2022
2023
673,453
93,194
104,455
249,264
28,632
1,148,998
405,018
84,028
38,104
—
11,064
538,214
(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 obligations
Fair value of plan assets
Asset ceiling
Net liability (asset) in the statement of financial position
The amounts recognized in the consolidated income statement are as follows:
Current service cost
Interest cost (income), net
Interest on Asset ceiling/ Onerous liability
Reversal of prior service cost - Saúde Usiminas healthcare plan
Total included in income statement
The amounts recognized in other comprehensive income are as follows:
Remeasurements
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Change in asset ceiling
Expected return on assets
Total included in other comprehensive income
Post-employment benefits
As of December 31,
2022
2023
1,975,462
(1,525,330)
223,321
673,453
405,018
—
—
405,018
Post-employment benefits
Year ended December 31,
2023
2022
14,876
30,686
20,973
(108,696)
(42,161)
13,721
32,660
—
—
46,381
Post-employment benefits
Year ended December 31,
2023
2022
(31,024)
26,509
66,817
32,707
(42,882)
52,127
3,990
(36,927)
8,370
—
—
(24,567)
110
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
21.
OTHER LIABILITIES-NON CURRENT AND CURRENT (continued)
Changes in the liability recognized in the consolidated statement of financial position are as follows:
At the beginning of the year
Acquisition of business (note 3)
Transfers, new participants and funding of the plan
Total expense
Remeasurements
Translation differences
Contributions paid
At the end of the year
Changes in fair value of the plan assets are as follows:
At the beginning of the year
Acquisition of business (Note 3) (1)
Expected return on assets
Interest income
Translation differences
Funding of the plan
Contributions paid
At the end of the year
(1) The asset ceiling at the acquisition date amounted to $ 169.7 million.
The major categories of plan assets are as follows:
Usiminas shares
Non-US government securities
Fixed income
Investments funds
Others
At the end of the year
Post-employment benefits
As of December 31,
2022
2023
405,018
1,529,949
30,116
79,396
62,302
40,168
(171,487)
1,975,462
390,942
—
(508)
46,381
(24,567)
21,088
(28,318)
405,018
Fair value of plan assets
As of December 31,
2022
2023
—
1,462,147
42,882
142,529
(5,933)
14,848
(131,143)
1,525,330
Fair value of plan assets
As of December 31,
2022
2023
64,819
1,054,671
99,602
241,481
64,757
1,525,330
—
—
—
—
—
—
—
—
—
—
—
—
—
—
As of December 31, 2023, the pension plan assets included 34,109,762 common shares of Usiminas (34,109,762
common shares of the Usiminas as of December 2022).
111
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
21.
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
Brazil
Discount rate
Compensation growth rate
Long-term increase in medical service costs
Expected return on plan assets
Year ended December 31,
2022
2023
9.00%
6.00% - 7.00%
9.00%
6.00% - 7.00%
Year ended December 31,
2022
2023
6.00% - 7.00%
2.00% - 3.00%
6.00% - 7.00%
2.00% - 3.00%
Year ended December 31,
2022
2023
5.23% - 5.40%
0.50% - 2.90%
4.75%
9.28% - 9.46%
—
—
—
—
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is as follows:
Impact on defined benefit obligation
Increase in
assumption
Change in
assumption
Decrease in
assumption
Discount rate
Compensation growth rate
Pension growth rate
Life expectancy
1.00%
1.00%
1.00%
1 year
-7.6%
0.4%
-1.0%
1.4%
9.1%
-1.0%
-0.5%
-1.4%
The estimated future payments for the next five years will be between $ 178.9 million and $ 197.3 million per
year.
The post-retirement benefits related to Usiminas are guaranteed with property, plant and equipment up to the
amount of $ 275 million.
(ii) Other liabilities - Current
Payroll and social security payable
VAT liabilities
Other tax liabilities
Termination benefits
Related Parties (Note 26)
Asset retirement obligation (Note 19)
Dividends payable
Others
Other liabilities – Current
As of December 31,
2022
2023
174,188
68,178
70,815
100
3,588
7,332
51,249
54,263
429,713
150,378
113,842
55,622
761
515
3,303
—
20,422
344,843
112
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
22.
DERIVATIVE FINANCIAL INSTRUMENTS
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments as of December 31, 2023 and 2022 were as follows:
Contracts with positive fair value
Commodities contracts
Foreign exchange contracts
Contracts with negative fair value
Interest rate swap contracts
Commodities contracts
Foreign exchange contracts
As of December 31,
2022
2023
247
15,159
15,406
—
(6,190)
(2,030)
(8,220)
—
227
227
(1)
(504)
—
(505)
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, 2023, most of the Company’s long-term
borrowings were at variable rates, except for the debentures issued by Usiminas.
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%. These
agreements became effective during July 2014, were due in July 2022 and were accounted for as cash flow hedges.
As of December 31, 2023 and 2022, there were no outstanding cash flow hedge reserve 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:
As of December 31, 2021
(Decrease) / Increase
Reclassification to income statement
As of December 31, 2022
(Decrease) / Increase
Reclassification to income statement
As of December 31, 2023
Cash flow hedges - Interest rate derivatives
Total
Income tax
Gross amount
(60)
1
59
—
—
—
—
20
(1)
(19)
—
—
—
—
(40)
—
40
—
—
—
—
113
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
22. 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 2023, 2022 and 2021, Ternium Colombia S.A.S. has entered into non-deliverable forward agreements to
manage the aggregate exposure arising from its balance sheet position in conjunction with expected future trade
receivables denominated in its local currency. As of December 31, 2023, the notional amount on these agreements
amounted to $ 81.2 million, out of which $ 37.6 million will be settling on January 2, 2024.
During 2023, 2022 and 2021, 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 among
other standard liabilities in EUR. The notional amount hedged as of December 31, 2023, was EUR 556.9 million.
These agreements will be due up to September 2025 and have been accounted for as cash flow hedges. As of
December 31, 2023, the aggregate notional amount on these agreements amounted to $ 605.3 million.
Changes in fair value of derivative instruments designated as cash flow hedges for each of the years presented are
included below:
As of December 31, 2022
(Decrease) / Increase
Reclassification to income statement
As of December 31, 2023
Cash flow hedges - Foreign exchange derivatives
Gross amount
Income tax
Total
—
22,721
—
22,721
—
(6,824)
—
(6,824)
—
15,897
—
15,897
Furthermore, during 2023 and 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, 2023, there is
no notional amount outstanding on these agreements.
During 2023, Ternium Guatemala entered into several non-deliverable forward agreements in order to manage
the exchange rate exposure generated by trade receivables denominated in Guatemalan quetzals. As of December
31, 2023, the notional amount on these agreements amounted to $ 2.0 million.
During 2023, Ternium del Atlántico entered into several non-deliverable forward agreements to manage the
aggregate exposure arising from its balance sheet position in conjunction with expected future trade receivables
denominated in Colombian pesos. As of December 31, 2023, the notional amount on these agreements amounted
to $ 94.7 million, out of which $ 40.0 million will be settling on January 2, 2024.
During 2023, Ternium Procurement entered into specific forward agreements in order to manage the exchange
rate exposure generated by purchases of semi-finished steel products. As of December 31, 2023, the notional
amount on these agreements amounted to $ 1.0 million.
114
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
22. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The net fair values of the exchange rate derivative contracts as of December 31, 2023 and 2022 were as follows:
Currencies
Contract
Notional amount
2023
2022
Fair value at December 31,
EUR/$
COP/$
GTQ/$
MXN/$
Forward - Buy EUR
ND Forward - Sell COP
ND Forward - Sell GTQ
ND Forward - Sell MXN
556.9 million EUR
697.9 billion COP
15.7 million GTQ
15,159
(2,024)
(6)
—
13,129
258
227
—
(258)
227
COP: Colombian pesos; EUR: Euros; $: US dollars; GTQ: Guatemalan quetzales; MXN: Mexican pesos.
(c) Commodities contracts
During 2023 and 2022, Ternium Mexico entered into swap agreements to mitigate the specific impact of the
fluctuation of zinc price fluctuations affecting the manufacturing of galvanized products to be sold with a fixed
zinc price. As of December 31, 2023, Ternium Mexico has several agreements outstanding with an aggregate
notional amount of $ 8.4 million.
During 2023 and 2022, Mineraçao Usiminas, one of Usiminas’ subsidiaries, entered into forward agreements to
manage the impact of the fluctuation of iron ore prices affecting its sales in the foreign market. As of December
31, 2023, Mineraçao Usiminas has several agreements outstanding with an aggregate notional amount of $ 57.8
million.
115
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
23.
LEASE LIABILITIES
Year ended December 31, 2023
Values at the beginning of the year
Translation differences
Net proceeds
Indexation
Repayments
Interest accrued
Interest paid
Reclassifications
As of December 31, 2023
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
Current
Lease liabilities
Non Current
Total
49,015
(750)
2,746
5,755
(58,900)
16,200
(10,783)
40,882
52,174
44,371
(1,506)
3,903
3,107
(49,404)
14,468
(11,605)
45,681
49,015
190,134
4,799
11,810
5,384
—
—
—
(40,882)
188,913
215,250
(4,180)
9,763
14,988
(6)
—
—
(45,681)
190,134
239,149
4,049
14,556
11,139
(58,900)
16,200
(10,783)
—
241,087
259,621
(5,686)
13,666
18,095
(49,410)
14,468
(11,605)
—
239,149
As of December 31,
2023
As of December 31,
2022
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
57,002
159,888
87,557
304,447
(63,360)
241,087
52,174
140,330
48,583
241,087
60,233
151,255
108,191
319,679
(80,530)
239,149
49,015
117,654
72,480
239,149
116
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
24. BORROWINGS
(i) Non-current
Bank borrowings
Bonds
Debentures
Less: debt issue costs
(ii) Current
Bank borrowings
Bonds
Debentures
Less: debt issue costs
Total Financial Debt
As of December 31,
2023
2022
9,353
747,260
454,136
(4,788)
1,205,961
915,989
23,485
4,220
(3,241)
940,453
2,146,414
534,352
—
—
(1,651)
532,701
500,091
—
—
(927)
499,164
1,031,865
The maturity of borrowings is as follows:
Borrowings - Fixed Rate
Borrowings - Floating Rate
Bonds
Debentures
Total
2024
2025
Expected Maturity Date
2026 and
thereafter
At December 31, (1)
2022
2023
315,696
599,727
21,111
3,920
940,454
—
9,335
—
—
9,335
—
—
743,699
452,926
315,696
609,062
764,810
456,846
295,033
736,832
—
—
1,196,625
2,146,414
1,031,865
(1) As most borrowings and the debentures incorporate floating rates that approximate market rates and the contractual repricing occurs
mostly every 1 month, the fair value of the borrowings and the debentures 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.
Regarding the bonds, its fair value approximates the market value.
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
Bonds
Debentures
As of December 31,
2022
2023
7.28%
5.88%
12.52%
6.21%
—
—
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 as of December 31, 2023 and 2022, respectively.
117
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
24. BORROWINGS (continued)
Breakdown of borrowings by currency is as follows:
Currencies
Contract
$
$
BRL
BRL
COP
GTQ
COP
MXN
ARS
Floating
Fixed
Floating
Fixed
Fixed
Fixed
Floating
Floating
Floating
As of December 31,
2022
2023
609,062
1,021,909
456,846
352
53,135
5,110
—
—
—
2,146,414
684,554
197,259
—
—
92,680
5,094
38,934
13,339
5
1,031,865
$: U.S. dollars; ARS: Argentine pesos; BRL: Brazilian reais; COP: Colombian pesos; GTQ: Guatemalan
quetzales; MXN: Mexican pesos.
Ternium’s most significant current borrowings as of December 31, 2023, were those incurred under Ternium
Brasil’s syndicated loan facility, in order to finance solely activities related to its exports of goods, and under
Usiminas’ bonds and debentures issued in order to refinance its financial debt:
Date
Borrower
Type
In $ million
Original
principal
amount
Outstanding
principal amount
as of December 31,
2023
Maturity
August 2019
Ternium Brasil
Syndicated loan
July 2019
Usiminas
Bonds
May 2022
Usiminas
December 2022 Usiminas
Debentures - 8th emission
Debentures - 9th emission
500
750
145
310
500 August 2024
750 July 2026
134 May 2029
287 December 2032
The main covenants on these loan agreements, bonds and debentures 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, 2023, Ternium was in compliance with all of its covenants.
118
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25.
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
The tax claims and other contingencies recognized at the increase of the participation of Usiminas are included in
note 3.
(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
Tenaris’s subsidiary Confab, all of which compose the T/T Group under the Usiminas shareholders agreement..
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%.
119
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25. 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 maintained the understanding of the first instance court. On August 18, 2017, CSN filed an appeal to the
Superior Court of Justice (SCJ) seeking the review and reversal of the decision issued by the Court of Appeals.
On September 10, 2019, the SCJ declared CSN’s appeal admissible. On March 7, 2023, the SCJ, by majority vote,
rejected CSN’s appeal. CSN made several submissions in connection with the SCJ decision, including a motion
for clarification that challenged the merits of the SCJ decision. Decisions at the SCJ are adopted by majority vote
and, at the date of these consolidated financial statements, voting at the SCJ with respect to the motion for
clarification is ongoing. At an October 17, 2023 session, two justices voted in favor of remanding the case to the
first instance for it to be retried following production and assessment of the new evidence, and two justices voted,
without requiring any further evidence, in favor of granting CSN’s motion for clarification and reversing the
March 7, 2023 decision that rejected CSN’s appeal; because the fifth member of SCJ excused himself from voting,
a justice from another panel at the SCJ will be summoned to produce the tie-breaking vote. There are no
specified deadlines for voting to be resumed or the SCJ decision to be issued. In any event, either party may
appeal against a SCJ decision.
According to the views of the two justices that voted in favor of CSN's motion, Ternium Investments and the
other members of the T/T Group should be ordered to pay to CSN an indemnification amount equal to the
difference between the price paid by the T/T Group in its acquisition and the market value of the Usiminas shares
at signing, plus monetary adjustment and interest (at a rate of 1% per month) through the date of payment, plus
legal costs equal to 10% of the compensation payable to CSN, with CSN retaining ownership of the Usiminas
ordinary shares it currently owns. If that unprecedented view were to prevail, and depending on how the
indemnification is calculated by other courts, as of December 31, 2023, the potential aggregate indemnification
payable by Ternium Investments and Ternium Argentina could reach up to BRL 3.1 billion (approximately $ 0.6
billion at the BRL/$ rate as of such date) and BRL 1.1 billion (approximately $ 0.2 billion), respectively.
The Company 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
in February 2012 and December 2016, the first and second instance court decisions and the March 7, 2023 SCJ
decision referred to above. Notwithstanding the foregoing, in light of the votes already issued by two members of
the SCJ on CSN's motion for clarification, the Company cannot predict the ultimate resolution on the matter.
(b) 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 $ 72.8 million and $ 35.6 million, respectively. Ternium Mexico appealed the SAT determinations.
120
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
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 reduced
the 2008 and 2011 tax adjustments downwards to approximately $ 17.5 million and $ 35.8 million, respectively.
The Company had a tax provision of $ 53.3 million already included in its consolidated financial statements as of
September 30, 2023. The payment to the SAT was done on October 9, 2023, and the Company received formal
documentation issued by the SAT with the closure of both audits.
(c) 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 (nil and $ 4.5 million as of December 31, 2023 and 2022, respectively; the decrease in the
provision was mainly due to the favorable outcome for a part of the lawsuits).
(d) 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 ($ 37.5 million
and $ 34.8 million as of December 31, 2023 and 2022, respectively).
121
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25. 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 $ 304.9 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 and transportation of natural gas,
including Tecpetrol and Energy Consulting Services S.A., both related companies of Ternium, assuming firm
commitments for a total of $ 48.6 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 $ 5.3 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, for an aggregate amount of $ 167.1 million, which is due to terminate in 2037.
(d) Ternium Argentina signed various contracts within its investment plan for the future acquisition of Property,
plant and equipment for a total of $ 175.5 million. Also, Vientos de Olavarría, a subsidiary controlled by
Ternium Argentina, subscribed various contracts for the maintenance and the operation of the wind farm for a
total of $ 62.0 million payable until the year 2054.
(e) 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.
122
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25.
CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(f) Ternium México issued a guarantee letter covering up to approximately $28.8 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 $ 19.8 million. As of December 31, 2023, the outstanding amount
under the natural gas trading agreement was $6.5 million, which is below the amount included in the guarantee
letter issued by Ternium México. The contract with NEG was renewed in June 28, 2022, and the guarantee letter
covering up to the above-mentioned amount was issued in January 2023.
(g) 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). On January 12,
2023, Ternium Mexico made a pre-payment of the remaining balance, leaving the loan fully amortized.
(h) Ternium Mexico issued a guarantee letter covering up to approximately $ 59.9 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.
(i) 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, 2023, 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.
(j) 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.
(k) 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.
123
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(l) 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,
2023, the outstanding value of this commitment was approximately $ 179.0 million. Ternium’s exposure under
the guarantee in connection with these agreements amounts to $ 85.9 million, corresponding to the 48% of the
agreements’ outstanding value as of December 31, 2023.
(m) 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, 2023, the outstanding
aggregated amount under the stand-by letters of credit was $ 49.6 million, as a result the amount guaranteed by
Ternium was approximately $ 23.8 million.
(n) 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.
(o) 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.
(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, 2023, the outstanding amount of the mentioned services was
approximately $ 21.3 million and is due to terminate in 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 $ 170.2 million as of December 31, 2023. The contract has minimum
daily-required volumes.
(r) 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, 2023,
the outstanding amount of this commitment was $ 176.9 million.
124
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(s) 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 in December 2019. This agreement
was automatically renewed for another two years, is due to terminate in December 2024 and can be interrupted
by common agreement due to free market conditions’ changes. The outstanding amount was of $ 38.6 million (or
61.3 million m3) as of December 31, 2023. Ternium Brasil is currently purchasing more than the minimum
volume required by the contract, which is 85% of the volume mentioned before.
(t) Ternium Brasil signed on May 2019 a contract with LSI Logistica S.A. for mobile equipment rental. This
agreement is due to terminate in May 2024 and the outstanding amount was $ 1.4 million as of December 31,
2023. The contract only has a penalty in case of anticipated termination.
(u) Ternium Brasil signed in December 2023 a contract with Vix Logística S.A. for logistics supply chain
operations. The start of the activities is scheduled to begin in May 2024. This agreement is due to terminate in
May 2029 and the outstanding amount was $ 49.6 million as of December 31, 2023. The contract has minimum
required volumes and a penalty for early termination.
(v) As of December 31, 2023, Usiminas’ commitments for the acquisition of immobilized assets totaled $ 139.7
million and are intended, mainly, for adaptation, reforms, and improvements in the primary areas of Ipatinga,
increase in quality, reduction of costs, maintenance, technological updating of equipment and environmental
protection.
(w) In July 2011, Usiminas Mineração S.A. subscribed an agreement with MBL Materiais Básicos Ltda, related to
the mining rights adjacent to its mining reserves. On October 15, 2012, the agreement was authorized by the
National Mining Agency (ANM). It has a duration of 30 years, or until the complete depletion of these mineral
reserves. The monthly payments are linked to the volume of iron ore extracted from the areas covered by the
agreement. Since 2015, a minimum annual volume of 3.6 million metric tons was established. If the annual
volume of iron ore extracted is below the minimum volume, a payment under a take-or-pay arrangement will be
due, calculated as the difference between the minimum volume and the volume effectively extracted. The
outstanding amount was approximately $ 336.9 million as of December 31, 2023.
(x) In June 2016, Usiminas S.A. entered into electricity purchase agreement with Cemig S.A. for the Cubatão steel
plant facilities until December 2030. The contract has two ranges: the first range up to 32 MW and the second
range up to 65.4 MW. The entire volume of the first range represents a take-or-pay arrangement, and if
consumption reaches the second band, a lower tariff will be applied. The outstanding amount was approximately
$ 199.2 million as of December 31, 2023.
(y) In February 2021, Usiminas S.A. entered into an electricity purchase agreement with Engie S.A. for the
Ipatinga steel plant facilities until December 2026. The contract is fully take-or-pay; however, Usiminas can sell
this electricity in the market at any time, and even if consumption is lower than contracted, the energy is
automatically sold by the Electric Energy Commercialization Chamber (CCEE). The outstanding amount was
approximately $ 55.1 million as of December 31, 2023.
125
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
25. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS (continued)
(z) In November 2022, Usiminas S.A. entered into an electricity purchase agreement with Enel S.A. for the
Ipatinga steel plant facilities until December 2026. The contract is fully take-or-pay; however, Usiminas can sell
this electricity in the market at any time, and even if consumption is lower than contracted, the energy is
automatically sold by the Electric Energy Commercialization Chamber (CCEE). The outstanding amount was
approximately $ 58.6 million as of December 31, 2023.
(aa) In December 2021, Usiminas S.A. entered into a solar energy purchase agreement with Canadian Solar S.A.
for the supply to the Ipatinga steel plant facilities until December 2039. As of December 31, 2023, the total
outstanding amounted to approximately $ 149.5 million.
(ab) In December 2023, Usiminas S.A. entered into an agreement with Comgas S.A. for the supply of natural gas
to the Cubatão Steel Plant facilities until December 2024. The contracted capacity is 240 thousand cubic meters
per day with a flexibility of plus or minus 5%. Daily, Usiminas S.A. can schedule any volume as needed, with
acceptance conditioned on the availability in the Comgas S.A. pipeline. The flexibility calculation is done on a
daily basis, while the take-or-pay volume is 80% annually. The outstanding amount was approximately $ 53.8
million as of December 31, 2023.
(ac) In December 2023, Usiminas S.A. entered into an agreement with Gasmig S.A. for the supply of natural gas
to the Ipatinga steel plant facilities until December 2024. The contracted capacity is 850 thousand cubic meters
per day with a flexibility of plus or minus 10%. Daily, Usiminas S.A. can schedule any volume as needed, with
acceptance conditioned on the availability in the Gasmig S.A. pipeline. The flexibility calculation is done on a
daily basis, while the take-or-pay volume is 80% annually. The outstanding amount was approximately $ 197.9
million as of December 31, 2023.
(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, 2023, 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.
126
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
26.
RELATED PARTY TRANSACTIONS
As of December 31, 2023, Techint Holdings S.à r.l. (“Techint”) indirectly owned 65.03% of the Company’s share
capital and Tenaris Investments S.à r.l. (“Tenaris”) held 11.46% of the Company’s share capital and voting
rights. 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 25.
The following transactions were carried out with related parties:
Year ended December 31,
2022
2021
2023
(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
(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
(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
163,591
174,869
168
3,932
342,560
491,011
81,404
23,574
103,334
699,323
12,263
(757)
11,506
34,841
34,841
1,396
1,753
3,149
720,137
224,698
177
4,213
949,225
643,494
70,951
13,735
78,899
807,079
8,298
(976)
7,322
15,493
15,493
3,300
682
3,982
950,792
195,636
178
1,496
1,148,102
508,784
65,964
10,279
98,065
683,092
6,256
(1,013)
5,243
82,122
82,122
1,029
879
1,908
As of December 31,
2022
2023
143,292
29,402
2,843
123,921
(149,562)
(27,963)
(1,379)
120,554
180,476
43,765
4,851
3,683
(91,172)
(20,163)
(2,287)
119,153
127
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
26.
RELATED PARTY TRANSACTIONS (continued)
(iii) Officers and Directors’ compensation
During the year ended December 31, 2023, the cash compensation of Officers and Directors amounted to $ 26,608
(2022: $ 22,899). In addition, Officers received 1,064,000 Units for a total amount of $ 6,591 (2022: $ 7,220) in
connection with the incentive retention program mentioned in note 4 (o)(3).
27.
OTHER REQUIRED DISCLOSURES
(a) Statement of comprehensive income
As of December 31, 2021
(Decrease) / Increase
Reclassification to income statement
As of December 31, 2022
(Decrease) / Increase
Reclassification to income statement
As of December 31, 2023
(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 11)
Taxes paid
(iii) Interest accruals less payments
Interest accrued (Note 10 and 23)
Interest received
Interest paid
Cash flow hedges
Gross amount
Income tax
Total
Currency
translation
adjustment
(60)
1
59
—
22,721
—
22,721
20
(1)
(19)
—
(6,824)
—
(6,824)
(40)
(3,918,344)
—
40
—
15,897
—
15,897
42,708
—
(3,875,636)
132,339
839,437
(2,903,860)
Year ended December 31,
2022
2021
2023
202,470
6,342
(104,280)
(64,022)
280,571
321,081
334,408
(495,348)
(160,940)
(113,433)
202,000
(133,706)
(45,139)
438,090
10,888
573,811
46,403
83,306
1,152,498
573,728
(1,769,289)
(1,195,561)
(13,940)
31,880
(42,735)
(24,795)
(1,906,524)
(41,535)
(885,200)
106,223
109,247
(2,617,789)
1,397,139
(818,854)
578,285
(20,948)
62,912
(36,063)
5,901
(1) Changes in working capital are shown net of the effect of exchange rate changes.
128
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
27.
OTHER REQUIRED DISCLOSURES (continued)
(c) Financial debt reconciliation
As of December 31, 2021
Cash flows
Reclassifications
Acquisitions - finance leases
Foreign exchange adjustments
Other non cash movements
As of December 31, 2022
Cash flows
Reclassifications
Acquisitions - finance leases
Acquisition of business (note 3)
Foreign exchange adjustments
Other non cash movements
As of December 31, 2023
Financial debt
Finance
lease
liabilities
Short term
borrowings
Long term
borrowings
Total
(259,621)
61,015
—
(13,666)
5,686
(32,563)
(239,149)
69,683
—
(14,556)
(25,677)
(4,049)
(27,339)
(241,087)
(822,573)
467,014
(124,140)
—
26,093
(45,558)
(499,164)
248,587
(511,723)
—
(26,558)
(30,199)
(121,396)
(940,453)
(656,465)
625
124,140
—
58
(1,059)
(532,701)
12,500
511,723
—
(1,197,841)
2,267
(1,909)
(1,205,961)
(1,738,659)
528,654
—
(13,666)
31,837
(79,180)
(1,271,014)
330,770
—
(14,556)
(1,250,076)
(31,981)
(150,644)
(2,387,501)
129
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
28. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The following amendments, standards and interpretations have been applied on the year starting January 1,
2023:
Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12
The amendments to IAS 12 Income Taxes require companies to recognize deferred tax on transactions that, on
initial recognition, give rise to equal amounts of taxable and deductible temporary differences, and will require
the recognition of additional deferred tax assets and liabilities. The amendment should be applied to transactions
that occur on or after the beginning of the earliest comparative period presented. In addition, entities should
recognize deferred tax assets (to the extent that it is probable that they can be utilized) and deferred tax liabilities
at the beginning of the earliest comparative period for all deductible and taxable temporary differences
associated with right-of-use assets and lease liabilities, and decommissioning, restoration and similar liabilities,
and the corresponding amounts recognized as part of the cost of the related assets.
As of December 31, 2023, 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.
OECD Pillar Two Rules – Amendments to IAS 12
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) released the Pillar
Two model rules (the Global Anti-Base Erosion rules, or “GloBE”) to reform international corporate taxation.
Following Pillar Two OECD’s initiative, the European Union adopted in December 2022 a directive to impose a
global minimum taxation for multinational companies in the Union, to be effective as from 2024. In May 2023,
the IASB made narrow-scope amendments to IAS 12 setting an exception that provides relief from the
requirement to recognize and disclose deferred taxes arising from enacted or substantively enacted tax laws that
implement the Pillar Two model rules, including tax laws that implement qualified domestic minimum top-up
taxes as per described in those rules.
No current tax impacts have arisen in the current Consolidated Financial Statements as of December 31, 2023,
due to the application of Pillar Two rules, as they will be applicable as from 2024 in jurisdictions relevant for the
Company. In addition, the Company has applied the exception prescribed by the amendments to IAS 12, and
therefore it has not recognized any deferred tax impact from the Pillar Two application.
The following standards, amendments to standards and interpretations are not mandatory for the financial year
beginning January 1, 2023, and have not been early adopted:
Classification of Liabilities as Current or Non-current – Amendments to IAS 1 Non-current Liabilities with
Covenants – Amendments to IAS 1
Amendments made to IAS 1 Presentation of Financial Statements in 2020 and 2022 clarified that liabilities are
classified as either current or non-current, depending on the rights that exist at the end of the reporting period.
Classification is unaffected by the entity’s expectations or events after the reporting date (e.g. the receipt of a
waiver or a breach of covenant). The amendments require disclosures if an entity classifies a liability as non-
current and that liability is subject to covenants that the entity must comply with within 12 months of the
reporting date. The disclosures include the carrying amount of the liability, information about the covenants, and
facts and circumstances, if any, that indicate that the entity may have difficulty complying with the covenants.
130
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
28. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (continued)
Lease Liability in a Sale and Leaseback – Amendments to IFRS 16
In September 2022, the IASB finalized narrow-scope amendments to the requirements for sale and leaseback
transactions in IFRS 16 Leases which explain how an entity accounts for a sale and leaseback after the date of the
transaction.
IFRS S1, ‘General requirements for disclosure of sustainability-related financial information
IFRS S1 was issued in June 2023. It sets out overall requirements with the objective to require an entity to disclose
information about its sustainability-related risks and opportunities that is useful to the primary users of general
purpose financial reports in making decisions relating to providing resources to the entity and that could
reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short,
medium or long term. It sets out general requirements for the content and presentation of those disclosures so
that the information disclosed is useful to primary users in making decisions about providing resources to the
entity.
Amendments to IAS 21 - Lack of Exchangeability.
On August 15, 2023, the IASB published Lack of Exchangeability (Amendments to IAS 21), which that contains
guidance to specify when a currency is exchangeable and how to determine the exchange rate when it is not.
Other standards and interpretations non-significant for the Company’s financial statements:
–
–
–
–
Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of accounting policies
Amendments to IAS 8 – Definition of accounting estimates
Amendments to IAS 7 and IFRS 7 - Supplier finance arrangements
IFRS 17 Insurance Contracts
131
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
29.
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 seeks to minimize the impact of fluctuations in the value of other currencies
with respect to the U.S. dollar. Ternium’s subsidiaries monitor their actual and expected short-term net cash
flows in currencies other than the U.S. dollar and analyze potential hedging according to its needs in line with its
derivative policy. This hedging can be carried out either 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.
The following table shows a breakdown of Ternium’s assessed financial position exposure to currency risk as of
December 31, 2023:
Exposure to
functional currency
$ million
BRL million
US dollar ($)
EU euro (EUR)
Argentine peso (ARS)
Mexican peso (MXN)
Brazilian real (BRL)
Colombian peso (COP)
Yenes (JPY)
Other currencies
—
97
(135)
(313)
59
(20)
115
(2)
(469)
(0)
—
—
—
—
—
(0)
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 $ 1.3
million and a pre-tax gain of $ 0.2 million as of December 31, 2023 and 2022, 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 $ 3.1
million and $ 2.6 million as of December 31, 2023 and 2022, respectively.
132
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
29.
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 $
0.2 million and $ 0.9 million as of December 31, 2023 and 2022, 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 $ 5.3
million and a pre-tax loss of $ 0.4 million as of December 31, 2023 and 2022, 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 loss for the year
would have been $ 0.6 million higher ($ 3.3 million higher as of December 31, 2022), 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 $ 2.7 billion, the currency translation adjustment included in total equity would have
been $ 6.1 million lower, arising mainly from the adjustment on translation of the equity related to the Brazilian
real during the year 2023.
(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 8.46% and 6.21% as of
December 31, 2023 and 2022, 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 $ 1,065.9 million (49.7% of total borrowings) as of
December 31, 2023, and $ 736.8 million (71.4% of total borrowings) as of December 31, 2022.
If interest rates on the aggregate average notional of U.S. dollar denominated borrowings held during 2023,
excluding borrowings with derivatives contracts mentioned in Note 22 (a), had been 100 basis points higher with
all other variables held constant, total pre-tax income for the year ended December 31, 2023 would have been $
18.3 million lower ($ 12.1 million lower as of December 31, 2022).
Effect of IBOR reform
Reform and replacement of various inter-bank offered rates (‘IBORs’) became a priority for regulators. Most
IBOR rates stopped being published by December 31, 2022, while certain and most used U.S. dollar LIBOR rates
stopped being published by June 30, 2023.
During 2023 Ternium finished the transition to the alternative interest rates benchmark (mostly SOFR based) for
the remaining outstanding loans that continued to be based in U.S. dollar LIBOR rates as of December 31, 2022.
All newly transacted U.S. dollar floating rate financial liabilities will be linked to an alternative benchmark rate
(e.g. SOFR + spread adjustments).
133
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
9.
FINANCIAL RISK MANAGEMENT (continued)
The Company prepared a sensitivity analysis considering this situation and concluded that no material impacts
derived from this change. The Company also enhanced its 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 34.8% of the Company’s liquid financial assets correspond to investment grade rated
instruments as of December 31, 2023, in comparison with approximately 59.9% as of December 31, 2022. The
investments in financial assets are as follows:
Cash and cash equivalents
Other Investments - Current and Non-Current
Fixed Income (time-deposit, zero-coupon bonds, commercial papers)
Deposit certificates and investment funds
Commercial papers
Other
Bonds and other fixed income
Non - U.S. government securities
U.S. government and corporate securities
Other notes
As of December
31, 2023
As of December
31, 2022
1,846,013
2,186,420
1,025,207
844,428
129,798
50,981
1,160,230
928,419
231,811
983
1,653,355
1,975,490
576,784
204,802
323,386
48,596
1,395,853
651,633
744,220
2,853
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.
134
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
29.
FINANCIAL RISK MANAGEMENT (continued)
As of December 31, 2023, trade receivables total $ 2,065.5 million ($ 1,180.7 million as of December 31, 2022).
These trade receivables are collateralized by guarantees under letter of credit and other bank guarantees of $ 1.4
million ($ 0.1 million as of December 31, 2022), credit insurance of $ 686.2 million ($ 520.6 million as of
December 31, 2022) and other guarantees of $ 9.4 million ($ 7.0 million as of December 31, 2022).
As of December 31, 2023, trade receivables of $ 1,910.9 million ($ 1,089.1 million as of December 31, 2022) were
fully performing.
As of December 31, 2023, trade receivables of $ 214.1 million ($ 101.5 million as of December 31, 2022) were past
due (mainly up to 180 days).
The amount of the allowance for doubtful accounts was $ 59.5 million as of December 31, 2023 ($ 9.9 million as
of December 31, 2022).
The carrying amounts of the Company’s trade and other receivables as of December 31, 2023, 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
1,691
160
34
679
1,667
79
1
4,311
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
2024
2025
2026
2027
Thereafter
Borrowings
Interests to be accrued (1)
Trade payables and other liabilities
Lease liabilities
Total
940
189
2,253
52
3,434
9
164
46
47
266
744
134
18
33
929
94
96
17
31
238
359
153
65
78
655
(1) These amounts do not include the effect of derivative financial instruments.
As of December 31, 2023, total cash and cash equivalents and other current and non-current investments less
borrowings amounted to $ 1,886.0 million.
135
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
29.
FINANCIAL RISK MANAGEMENT (continued)
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 0.11 and 0.07 as of December 31, 2023 and 2022,
respectively. The Company does not have to comply with regulatory capital adequacy requirements as known in
the financial services industry.
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, 2023 (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, 2023 (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, 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
Amortized
cost
Assets at fair
value through
profit or loss
Assets at fair
value through
OCI
Total
472,384
—
2,065,499
883,513
1,367,235
4,788,631
—
15,406
—
142,677
478,778
636,861
—
—
—
1,160,230
—
1,160,230
Liabilities at fair
value through
profit or loss
Amortized
cost
—
—
8,220
—
—
8,220
487,792
2,159,647
—
241,087
2,146,414
5,034,940
472,384
15,406
2,065,499
2,186,420
1,846,013
6,585,722
Total
487,792
2,159,647
8,220
241,087
2,146,414
5,043,160
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
136
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
29.
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, 2023 and
2022:
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, 2023
(in $ thousands):
Total
Level 1
Level 2
Level 3 (*)
478,778
1,302,907
15,406
1,797,091
8,220
8,220
478,778
1,086,319
—
1,565,097
—
—
—
197,743
15,406
213,149
8,220
8,220
—
18,845
—
18,845
—
—
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
—
—
(*) 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, 2023 and 2022,
corresponds to the initial investment and to the changes in its fair value, as follows:
As of December 31, 2022
Disinvestment
Interest accrued
Changes in fair value
Reclassifications
Net foreign exchange gain
At December 31, 2023
Guarantee fund
companies
Non - U.S.
government securities
2,854
(2,169)
—
2,441
—
(2,143)
983
41,163
(5,801)
(4,137)
(3,657)
(9,706)
—
17,862
137
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
29.
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
Depending on the nature of the hedged item, Ternium either recognizes its derivative financial instruments’
transactions in the statement of financial position at cost and subsequently measures changes on a monthly basis
at fair value, or undertakes hedge accounting, classifying these transactions as cash flow hedges. While changes in
fair value are disclosed under “Other financial income (expenses), net” line item in the income statement, changes
in transactions classified as cash flow hedges are disclosed as an equity reserve in the statement of comprehensive
income. 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 capital
expenditures). 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. Once the hedged item gets settled, 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.
138
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
29.
FINANCIAL RISK MANAGEMENT (continued)
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. The Company also documents its assessment, 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. As of December 31, 2023 and 2022, the effective portion of designated cash flow hedges
(net of taxes) amounted to $ 15.9 million and nil, 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 27
(a)).
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 22. 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.
139
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
30.
FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA
Ternium’s Argentine subsidiary, Ternium Argentina S.A., is currently operating in a complex and volatile
economic environment.
Between September 2019 and December 13, 2023, the Argentine government imposed significant restrictions on
foreign exchange transactions. Although after a new administration took office in Argentina in December 2023
certain restrictions were eased and other changes to such regulations are expected, at the date of these
Consolidated Financial Statements the application of existing foreign exchange regulations remains uncertain
and the scope and timing of upcoming changes remain unknown. The main currently applicable measures are
described below:
• Access to the Argentine foreign exchange market (“MULC”) to pay for imports of services rendered by related
and non-related parties (including royalties) on or before December 12, 2023, is subject to Argentine Central
Bank approval. Currently, these approvals are rarely, if ever, granted. Access to the MULC to pay for imports of
services that were rendered or accrued as from December 13, 2023, does not require government approval, but
payment is deferred 30 calendar days as from the date of supply or accrual of the service (if the service was
rendered by a non-related party) or 180 calendar days (if rendered by a related party).
• The Argentine Central Bank is issuing newly created Bonds (“BOPREAL”) with a maturity of 4 years (2027)
that can only be purchased in Argentine Pesos in the primary offerings by debtors under any such import debts
and, then, such bonds can be sold for a price payable in foreign currency that can be used to pay suppliers under
such debts, without having the importer any restriction to enter into any other foreign exchange transaction in
the MULC. The secondary market of the BOPREAL is still in formation. In addition, from April 1, 2024 any such
importer who purchased the bonds in the primary offerings may enter into the securities transactions described
below to obtain foreign currency (for an amount that does not exceed in USD of the difference between the
nominal value of the bonds and market prices when they are sold) to be able to pay the above-mentioned import
debts, without having the importer any restriction to enter into any other foreign exchange transaction in the
MULC. Access to the MULC to pay for imports that have obtained customs clearance as from December 13,
2023, does not require government approval but, it requires that the price is paid in four equal instalments
payable on the 30th, 60th, 90th and 120th day counted from the customs clearance of the good imported.
• Foreign currency proceeds from exports of services must be sold into the MULC and converted into Argentine
pesos within five business days of collection. As from December 13, 2023, up to 20% of export proceeds can be
sold for Argentine pesos through securities transactions resulting in a higher implicit exchange rate, as described
further below. This percentage has changed over time.
• Access to the MULC to make dividend payments requires prior Argentine Central Bank approval. When
required, Argentine Central Bank approvals are rarely, if ever, granted.
Ternium Argentina carries out all of its import and export transactions through MULC. Therefore, assets and
liabilities in foreign currency as of December 31, 2023, have been valued considering the official exchange rates at
the end of the period.
Under Ternium Argentina’s annual accounts as of December 31, 2023, and for the year then ended, revenues
amounted to $ 3,419 million (2022: $3,830 million), net profit from continuing operations to $ 686 million (2022:
$ 756 million), total assets to $ 5,083 million (2022: $ 5,258 million), total liabilities to $ 759 million (2022: $511
million) and shareholders’ equity to $ 4,324 million (2022: $ 4,747 million).
140
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
30.
FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA (continued)
Ternium Argentina’s cash and cash equivalents and other investments amounted to $ 1,094 million as of
December 31, 2023, broken down as follows:
- $ 902 million in U.S. dollars-denominated instruments in sovereign bonds issued by the Argentine Government
and payable in U.S. dollars, and Argentine Treasury bonds related to the official exchange rate. 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 currency exchange rates,
leading to a potential significant reduction of such value in the consolidated financial statements.
- $ 136 million in negotiable obligations and promissory notes issued by Argentine export driven companies in
U.S. dollars and mainly payable in Argentine pesos.
- $ 56 million in Argentine pesos-denominated instruments, mainly mutual funds.
Ternium Argentina’s financial position in ARS as of December 31, 2023, amounted to $ 103 million in monetary
assets and $ 220 million in monetary liabilities. All of Ternium Argentina’s ARS-denominated assets and
liabilities are valued at the prevailing official exchange rate. The Argentine peso devaluated by approximately
55% upon the change of government. In the event of an additional devaluation, Ternium Argentina may be
adversely affected, and will also suffer a loss on deferred tax charge as a result of a deterioration on the tax value
of their fixed assets. At this time, the Company is unable to estimate all impacts of a new devaluation of the
Argentine peso against the U.S. dollar.
On April 24, 2023, Ternium Argentina’s board of directors approved the payment of a dividend in kind in US
dollar-denominated Argentine bonds for a total amount of up to $ 624 million. On May 4, 2023, Ternium
received its share of the dividend in kind. Considering the impact of foreign exchange restrictions in Argentina
and based on the value of the bonds in the international market, Ternium recorded in its equity a negative reserve
as of the collection date. With the disposal of a portion of these instruments, the Company partially reclassified
such reserve to financial results. The equity reserve amounted to approximately $ 113 million as of December 31,
2023, and will be reclassified to financial results upon disposal of the remaining bonds.
This context of volatility and uncertainty remains in place as of the issue date of these Consolidated Financial
Statements. Management continues to monitor closely the evolution of the main variables affecting its business,
identifying the potential impact thereof on its financial and economic situation and determining the appropriate
course of action in each case. The Company’s Consolidated Financial Statements should be read taking into
account these circumstances.
141
TERNIUM S.A.
Consolidated Financial Statements as of December 31, 2023 and 2022
and for the years ended December 31, 2023, 2022 and 2021
31. 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 into the company’s existing downstream facility in Pesquería, Nuevo León, Mexico. 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 $ 2.4 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. Start of operations is anticipated to occur during the first half of 2026.
Pablo Brizzio
Chief Financial Officer
142
TERNIUM S.A.
Société Anonyme
Audited Annual Accounts
as of December 31, 2023
26 Boulevard Royal 4th floor
L-2449 Luxembourg
R.C.S. Luxembourg B-98-668
TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(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
TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(All amounts in USD)
Balance sheet as of December 31, 2023
The accompanying notes form an integral part of these annual accounts.
5
Notes31/12/202331/12/2022USDUSDASSETSC.Fixed assetsIII.Financial assets1.Shares in affiliated undertakings2.4 & 34,511,478,482 5,101,020,648 4,511,478,482 5,101,020,648 D.Current assetsII.Debtors2.52.Amounts owed by affiliated undertakingsa)becoming due and payable within one year48,046,776 5,225,475 4.Other debtorsa)becoming due and payable within one year19,828 50,914 III.Investments2.62.Own shares759,599,747 59,599,747 67,666,351 64,876,136 IV.Cash at bank and in hand2.71,116,980 1,056,541 Total assets4,580,261,813 5,166,953,325 CAPITAL, RESERVES AND LIABILITIESACapital and reserves5I.Subscribed capital2,004,743,442 2,004,743,442 II.Share premium account1,414,121,505 1,414,121,505 IV.Reserves1.Legal reserve6200,474,346 200,474,346 2.Reserve for own shares59,599,747 59,599,747 V.Profit or loss brought forward1,087,644,480 1,646,162,138 VI.Profit or loss for the financial year(31,576,194)(28,486,928)VII.Interim dividends(215,938,445)(176,676,910)4,519,068,881 5,119,937,340 B.Provisions1.Provisions for pensions and similar obligations2.845,832,754 37,185,335 45,832,754 37,185,335 C.Creditors2.96.Amounts owed to affiliated undertakingsa)becoming due and payable within one year411,781,009 6,487,225 8.Other creditorsc)Other creditorsi)becoming due and payable within one year3,579,169 3,343,425 15,360,178 9,830,650 Total capital, reserves and liabilities4,580,261,813 5,166,953,325 TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(All amounts in USD)
Profit and loss account for the year ended December 31, 2023
The accompanying notes form an integral part of these annual accounts.
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Notes31/12/202331/12/2022USDUSD8.Other operating expenses8 (30,277,666) (28,245,083)11.Other interest receivable and similar incomea)derived from affiliated undertakings1,319,083 1,095,699 b)other interest and similar income1,431,235 547,065 14.Interest payable and similar expensesa)concerning affiliated undertakings (4,042,186) (1,879,107)b)other interest and similar expenses- (45)16.Profit or loss after taxation(31,569,534) (28,481,471) 17.Other taxes not shown under items 1 to 169(6,660) (5,457) 18.Profit or loss for the financial year(31,576,194) (28,486,928) TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(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, 2023, 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, 2023 and 2022, this special tax reserve amounted to USD 4.7 billion
and USD 5.2 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.
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TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(All amounts in USD)
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.
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.
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.
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TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(All amounts in USD)
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 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, 2023, the outstanding liability corresponding to the Program amounts to USD 40.5
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.
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TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(All amounts in USD)
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 9, 2023, and December 12, 2023, amounted to USD
367,766,298 and USD 221,775,868, respectively.
The financial assets of the Company as of December 31, 2023, consist of:
Note 4 – Balances with affiliated undertakings
Note 5 - Capital and reserves
(1) As of December 31, 2023, the Company held 41,666,666 shares as treasury shares.
(2) As approved by the Annual General Meeting of Shareholders held on May 2, 2023.
(3) As approved by the Board of Directors held on October 31, 2023.
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Book value at 31.12.2022Net (Decreases) / AdditionsBook value at 31.12.2023Equity at 31.12.2023USDUSDUSDTernium Investments S.à r.l.Luxembourg100.00%5,101,020,648-589,542,1664,511,478,4827,549,359,9475,101,020,648-589,542,1664,511,478,4827,549,359,947CompanyCountry% of beneficial ownershipShares in affiliated undertakingsDecember 31, 2023 - USDDecember 31, 2022 - USDAssetsBecoming due and payable within one yearDebtorsTernium Investments S.à r.l. 7,643,998 4,822,697 Ternium Brasil Ltda. 402,778 402,778 8,046,776 5,225,475 LiabilitiesCreditorsExiros México, S.A. de C.V. - 16,445 Ternium Argentina S.A. 9,526,654 5,354,173 Soluciones Integrales de Gestión S.A. (SIGSA) 2,244,675 1,108,657 Ternium Investments S.à r.l. 9,680 7,950 11,781,009 6,487,225 Subscribed CapitalSharepremiumLegal reserveReserve for own shares or own corporate units (1)Profit or loss brought forwardResult for the financial yearInterim dividendsTotal capital and reservesBalance at December 31, 2022 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 Allocation of previous year results (2) - - - (205,163,838) 28,486,928 176,676,910 - Payment of dividends (2) - - - - (353,353,820) - - (353,353,820)Payment of dividends (3) - - - - - - (215,938,445) (215,938,445)Loss for the year - - - - (31,576,194) - (31,576,194)Balance at December 31, 2023 2,004,743,442 1,414,121,505 200,474,346 59,599,747 1,087,644,480 (31,576,194) (215,938,445) 4,519,068,881
TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(All amounts in USD)
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. As of
December 31, 2023, 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.
Note 8 – Other Operating Expenses
Services and fees are mainly composed of professional, audit and legal services.
Note 9 – Taxes
For the financial year ended December 31, 2023, the Company did not realize any profits subject to tax
charges in Luxembourg.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) released
the Pillar Two model rules (the Global Anti-Base Erosion rules, or “GloBE”) to reform international
corporate taxation. Following Pillar Two OECD’s initiative, the European Union adopted in December
2022 a directive to impose a global minimum taxation for multinational companies in the Union, to be
effective as from 2024. On December 20, 2023, the Luxembourg Parliament approved the Pillar Two law
transposing the EU Pillar Two Directive into domestic legislation. The law enters into force as from
fiscal years starting on or after December 31, 2023.
The Company is within the scope of the rules, and therefore will be required to calculate its GloBE
effective tax rate for each jurisdiction where it operates and will be liable to pay a top-up tax for the
difference between its GloBE effective tax rate per jurisdiction and the 15% minimum rate, as from 2024.
No current tax impacts have arisen in the current Annual Accounts as of December 31, 2023, due to the
application of Pillar Two rules, as they will be applicable as from 2024 in jurisdictions relevant for the
Company.
The Company is in the process of assessing its exposure to the Pillar Two legislation and testing its
situation under the OECD transitional safe harbor rules and expects no major impacts in relation to top-
up tax due to the application of one or more of the transitional safe harbor rules.
Due to the complexities in applying the legislation and calculating GloBE income, the quantitative
impact of the enacted legislation is not yet reasonably estimable.
11
December 31, 2023December 31, 2022USDUSDServices and fees25,092,386 23,309,414 Senior management and board of directors' accrued fees4,491,778 4,354,850 Other expenses693,502 580,820 Total30,277,666 28,245,083
TERNIUM S.A.
Audited annual accounts as of December 31, 2023
(All amounts in USD)
Under the Luxembourg tax law, tax losses generated before 2017 can be carried forward indefinitely and
are not subject to any yearly consumption limitation, while losses incurred as from 2017 may be carried
forward for a maximum of 17 years. Unrecognized tax losses as of December 31, 2022 amounted to
USD 2,139,105,865 and the estimated tax loss for fiscal year 2023 amounts to USD 30,141,096, being
92% of the referred tax losses generated before 2017.
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, 2023, there were 2,004,743,442 shares issued. All
issued shares are fully paid. Also, as of December 31, 2023, the Company held 41,666,666 shares as
treasury shares.
Note 12 – Parent Company
As of December 31, 2023, Techint Holdings S.à r.l. (“Techint”) owned 65.03% 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, 2023, the outstanding value of this commitment was approximately USD 179.0
million. Ternium’s exposure under the guarantee in connection with these agreements amounts to USD
85.9 million, corresponding to the 48% of the agreements’ outstanding value as of December 31, 2023.
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 USD 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, 2023, the outstanding aggregated amount under the stand-by letters of credit was USD
49.6 million, as a result the amount guaranteed by Ternium was approximately USD 23.8 million.
Pablo Brizzio
Chief Financial Officer
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www.ternium.com