GEOGRAPHICAL INFORMATION
The Company has revenues attributable to the Company’s country of incorporation (Luxembourg) related to a contract acquired as a 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 non-current assets is based on the geographical location of the underlying assets.
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Nine-month period ended September 30, 2021 (Unaudited)
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Mexico
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Southern region
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Brazil and other markets
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Total
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Net sales
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6,769,705
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2,430,006
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2,561,356
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11,761,067
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Non-current assets (1)
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4,785,029
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879,198
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1,695,273
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7,359,500
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Nine-month period ended September 30, 2020 (Unaudited)
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Mexico
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Southern region
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Brazil and other markets
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Total
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Net sales
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3,257,628
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1,129,844
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1,768,287
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6,155,759
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Non-current assets (1)
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4,688,232
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949,935
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1,795,957
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7,434,124
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(1) Includes Property, plant and equipment and Intangible assets.
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4.COST OF SALES
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Nine-month period ended
September 30,
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2021
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2020
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(Unaudited)
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Inventories at the beginning of the year
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2,001,781
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2,158,298
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Plus: Charges for the period
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Raw materials and consumables used and
other movements
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7,343,465
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3,541,850
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Services and fees
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112,217
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82,713
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Labor cost
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520,069
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388,421
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Depreciation of property, plant and equipment
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385,393
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391,592
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Amortization of intangible assets
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16,623
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11,875
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Maintenance expenses
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420,506
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269,098
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Office expenses
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5,496
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3,874
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Insurance
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8,584
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7,845
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Change of obsolescence allowance
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777
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197
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Recovery from sales of scrap and by-products
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(26,634)
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(14,920)
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Others
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13,167
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12,281
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Less: Inventories at the end of the period
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(3,626,356)
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(1,667,284)
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Cost of Sales
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7,175,088
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5,185,840
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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5.SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
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Nine-month period ended
September 30,
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2021
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2020
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(Unaudited)
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Services and fees
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44,136
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39,835
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Labor cost
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190,631
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139,067
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Depreciation of property, plant and equipment
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10,930
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12,059
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Amortization of intangible assets
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32,636
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61,528
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Maintenance and expenses
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5,195
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3,023
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Taxes
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118,021
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64,802
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Office expenses
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24,100
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20,428
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Freight and transportation
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254,194
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212,107
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(Decrease) Increase of allowance for doubtful accounts
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73
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656
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Others
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12,338
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12,630
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Selling, general and administrative expenses
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692,254
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566,135
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6.FINANCE EXPENSE, FINANCE INCOME AND OTHER FINANCIAL INCOME (EXPENSES), NET
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Nine-month period ended
September 30,
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2021
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2020
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(Unaudited)
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Interest expense
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(20,551)
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(38,857)
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Finance expense
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(20,551)
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(38,857)
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Interest income
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54,160
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30,895
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Finance income
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54,160
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30,895
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Net foreign exchange (loss) gain
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(25,400)
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72,246
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Change in fair value of financial assets
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37,698
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4,952
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Derivative contract results
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3,997
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17,101
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Others
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21,624
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(8,548)
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Other financial income (expenses), net
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37,919
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85,751
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7. PROPERTY, PLANT AND EQUIPMENT, NET
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Nine-month period ended
September 30,
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2021
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2020
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(Unaudited)
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At the beginning of the year
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6,504,681
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6,539,581
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Currency translation differences
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(173)
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(1,654)
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Additions
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365,734
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408,231
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Value adjustments of lease contracts
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4,413
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(9,543)
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Disposals
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(19,428)
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(17,476)
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Depreciation charge
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(396,323)
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(403,651)
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Capitalized borrowing costs
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5,902
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10,890
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Transfers and reclassifications
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(2,281)
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(579)
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At the end of the period
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6,462,525
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6,525,799
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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8. INTANGIBLE ASSETS, NET
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Nine-month period ended
September 30,
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2021
|
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2020
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(Unaudited)
|
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At the beginning of the year
|
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908,583
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943,838
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Additions
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47,208
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37,311
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Amortization charge
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(49,259)
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(73,403)
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Transfers/Disposals
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(9,557)
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|
579
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At the end of the period
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896,975
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908,325
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9.INVESTMENTS IN NON-CONSOLIDATED COMPANIES
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Company
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Country of incorporation
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Main activity
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Voting rights as of
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Value as of
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September 30, 2021
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December 31, 2020
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September 30, 2021
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December 31, 2020
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Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS
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Brazil
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Manufacturing and selling of steel products
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34.39%
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34.39%
|
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633,420
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422,948
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Techgen S.A. de C.V.
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Mexico
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Provision of electric power
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48.00%
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48.00%
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|
58,559
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|
42,625
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|
Other non-consolidated companies (1)
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|
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|
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|
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5,367
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5,733
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|
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|
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697,346
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471,306
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(1) It includes the investments held in Finma S.A.I.F., Techinst S.A., Recrotek S.R.L. de C.V. and Gas Industrial de Monterrey S.A. de C.V.
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS
As of September 30, 2021, Ternium, through its subsidiaries, owns a total of 242.6 million ordinary shares and 8.5 million preferred shares, representing 20.4% of the issued and outstanding share capital of Usinas Siderurgicas de Minas Gerais S.A. – USIMINAS (“Usiminas”), one of the main producers of flat steel products in Brazil for the energy, automotive and other industries.
Ternium, through its subsidiaries, together with Tenaris S.A.’s Brazilian subsidiary Confab Industrial S.A. (“TenarisConfab”), are part of Usiminas’ control group, comprising the so-called T/T Group. As at September 30, 2021, the Usiminas control group holds, in the aggregate, 483.6 million ordinary shares bound to the Usiminas shareholders’ agreement, representing approximately 68.6% of Usiminas’ voting capital. The Usiminas control group, which is bound by a long-term shareholders’ agreement that governs the rights and obligations of Usiminas’ control group members, is currently composed of three sub-groups: the T/T Group; the NSC Group, comprising Nippon Steel Corporation (“NSC”), Metal One Corporation and Mitsubishi Corporation; and Usiminas’ pension fund Previdência Usiminas. The T/T Group holds approximately 47.1% of the total shares held by the control group (39.5% corresponding to the Ternium entities and the other 7.6% corresponding to TenarisConfab); the NSC Group holds approximately 45.9% of the total shares held by the control group; and Previdência Usiminas holds the remaining 7%.
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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9.INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
The corporate governance rules reflected in the Usiminas shareholders agreement provide, among other things, that Usiminas’ executive board will be composed of six members, including the chief executive officer and five vice-presidents, with Ternium and NSC nominating three members each. The right to nominate Usiminas’ chief executive officer alternates between Ternium and NSC at every 4-year interval, with the party that does not nominate the chief executive officer having the right to nominate the chairman of Usiminas’ board of directors for the same 4-year period. The Usiminas shareholders agreement also provides for an exit mechanism consisting of a buy-and-sell procedure—exercisable at any time after November 16, 2022 and applicable with respect to shares held by NSC and the T/T Group—, which would allow either Ternium or NSC to purchase all or a majority of the Usiminas shares held by the other shareholder.
As of September 30, 2021, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 15.72 (approximately $ 2.89; December 31, 2020: BRL 15.69 – $ 3.02) per ordinary share and BRL 16.12 (approximately $ 2.96; December 31, 2020: BRL 14.61 – $ 2.81) per preferred share, respectively. Accordingly, as of September 30, 2021, Ternium’s ownership stake had a market value of approximately $ 726.3 million and a carrying value of $ 633.4 million.
The Company reviews periodically the recoverability of its investment in Usiminas. To determine the recoverable value, the Company estimates the value in use of the investment by calculating the present value of the expected cash flows or its fair value less costs of disposal.
As of September 30, 2021, the value of the investment in Usiminas is comprised as follows:
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Value of investment
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USIMINAS
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As of January 1, 2021
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422,948
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Share of results (1)
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286,057
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Other comprehensive income
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(27,713)
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Dividends
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(47,872)
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As of September 30, 2021
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633,420
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(1) It includes the adjustment of the values associated to the purchase price allocation.
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The investment in Usiminas is based on the following calculation:
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Usiminas' shareholders' equity
|
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3,707,090
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Percentage of interest of the Company over shareholders' equity
|
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20.41
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%
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Interest of the Company over shareholders' equity
|
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755,971
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Purchase price allocation
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53,139
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Goodwill
|
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191,093
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Impairment
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(366,783)
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|
|
|
|
|
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Total Investment in Usiminas
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633,420
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On October 29, 2021, Usiminas issued its consolidated interim accounts as of and for the nine-month period ended September 30, 2021.
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TERNIUM S.A.
|
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|
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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9. INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
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USIMINAS
|
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Summarized balance sheet (in million $)
|
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As of September 30, 2021
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Assets
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Non-current
|
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3,304
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Current
|
|
2,511
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Other current investments
|
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295
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Cash and cash equivalents
|
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1,045
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|
|
|
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Total Assets
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7,155
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Liabilities
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|
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Non-current
|
|
578
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Non-current borrowings
|
|
1,107
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Current
|
|
1,240
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|
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Current borrowings
|
|
11
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|
|
|
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Total Liabilities
|
|
2,936
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|
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Non-controlling interest
|
|
512
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|
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Shareholders' equity
|
|
3,707
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|
|
|
|
|
|
|
|
|
|
|
|
|
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USIMINAS
|
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Summarized income statement (in million $)
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Nine-month period ended
September 30, 2021
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|
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|
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Net sales
|
|
4,829
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|
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Cost of sales
|
|
(3,091)
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Gross Profit
|
|
1,738
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Selling, general and administrative expenses
|
|
(143)
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|
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Other operating income (loss), net
|
|
115
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|
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Operating income
|
|
1,710
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|
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Financial income (expenses), net
|
|
103
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|
|
Equity in earnings of associated companies
|
|
31
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|
|
Profit before income tax
|
|
1,844
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Income tax expense
|
|
(416)
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Net profit before non-controlling interest
|
|
1,428
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|
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Non-controlling interest in other subsidiaries
|
|
(171)
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Net profit for the period
|
|
1,257
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Techgen S.A. de C.V.
Techgen stated as of and for the nine-month period ended September 30, 2021, that revenues amounted to $ 286 million ($ 314 million for the year ended December 31, 2020), net profit from continuing operations to $ 33 million ($44 million for the year ended December 31, 2020), non-current assets to $ 802 million ($ 833 million as of December 31, 2020), current assets to $ 70 million ($ 59 million as of December 31, 2020), non-current liabilities to $ 633 million ($ 709 million as of December 31, 2020), current liabilities to $ 117 million ($ 95 million as of December 31, 2020) and shareholders’ equity to $ 122 million ($ 89 million as of December 31, 2020).
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|
|
|
|
|
|
|
|
|
TERNIUM S.A.
|
|
|
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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10. DISTRIBUTION OF DIVIDENDS
During the annual shareholders’ meeting held on May 3, 2021, the shareholders approved a distribution of dividends of USD 0.21 per share (USD 2.10 per ADS), or approximately USD 421.0 million in the aggregate. The dividend was paid on May 11, 2021.
11. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS
Contingencies, commitments and restrictions on the distributions of profits should be read in Note 24 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2020.
Companhia Siderúrgica Nacional (CSN) - Tender offer litigation
In 2013, the Company was notified of a lawsuit filed in Brazil by Companhia Siderúrgica Nacional, or CSN, and various entities affiliated with CSN against Ternium Investments, its subsidiary Ternium Argentina, and TenarisConfab. The entities named in the CSN lawsuit had acquired a participation in Usiminas in January 2012. The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all non-controlling holders of Usiminas ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition, or BRL 28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas’ control group; Ternium Investments and Ternium Argentina’s respective shares in the offer would be 60.6% and 21.5%.
On September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of appeals of São Paulo maintained the understanding of the first instance court. On March 6, 2017, CSN filed a motion for clarification against the decision of the court of appeals, which was rejected on July 19, 2017. On August 18, 2017, CSN filed with the court of appeals an appeal seeking the review and reversal of the decision issued by the court of appeals by the Superior Court of Justice. On March 5, 2018, the court of appeals ruled that CSN’s appeal did not meet the requirements for review by the Superior Court of Justice and rejected such appeal. On May 8, 2018, CSN appealed against such ruling and on January 22, 2019, the court of appeals rejected such appeal and ordered that the case be submitted to the Superior Court of Justice. On September 10, 2019, the Superior Court of Justice declared CSN’s appeal admissible. The Superior Court of Justice will review the case and will then render a decision on the merits. The Superior Court of Justice is restricted to the analysis of alleged violations to federal laws and cannot assess matters of fact.
Ternium continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator (CVM) in February 2012 and December 2016, and the first and second instance court decisions referred to above. Accordingly, no provision has been recorded in these Consolidated Condensed Interim Financial Statements.
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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11. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS (continued)
Shareholder claims relating to the October 2014 acquisition of Usiminas shares
On April 14, 2015, the staff of CVM, determined that an acquisition of additional ordinary shares of Usiminas by Ternium Investments made in October 2014, triggered a requirement under applicable Brazilian laws and regulations for Usiminas’ controlling shareholders to launch a tender offer to all non-controlling holders of Usiminas ordinary shares. The CVM staff’s determination was made further to a request by NSSMC and its affiliates, who alleged that Ternium’s 2014 acquisition had exceeded a threshold that triggers the tender offer requirement. In the CVM staff’s view, the 2014 acquisition exceeded the applicable threshold by 5.2 million shares. On April 29, 2015, Ternium filed an appeal to be submitted to the CVM’s Board of Commissioners. On May 5, 2015, the CVM staff confirmed that the appeal would be submitted to the Board of Commissioners and that the effects of the staff’s decision would be stayed until such Board rules on the matter.
On June 15, 2015, upon an appeal filed by NSSMC, the CVM staff changed its earlier decision and stated that the obligation to launch a tender offer would fall exclusively on Ternium. Ternium’s appeal has been submitted to the CVM’s Board of Commissioners and it is currently expected that such Board will rule on the appeal in 2021. In addition, on April 18, 2018, Ternium filed a petition with the CVM’s reporting Commissioner requesting that the applicable threshold for the tender offer requirement be recalculated taking into account the new ordinary shares issued by Usiminas in connection with its 2016 BRL 1 billion capital increase and that, in light of the replenishment of the threshold that would result from such recalculation, the CVM staff’s 2015 determination be set aside. In the event the appeal is not successful, under applicable CVM rules Ternium may elect to sell to third parties the 5.2 million shares allegedly acquired in excess of the threshold, in which case no tender offer would be required.
ICMS deferral tax benefit – Action of Unconstitutionality
On March 31, 2005, through State Law No. 4,529 (Law RJ 4529), the State of Rio de Janeiro granted Ternium Brasil a tax incentive consisting of a deferral of ICMS payable by Ternium Brasil in connection with the construction and operation of the company’s Rio de Janeiro steelmaking complex. The incentive applies in respect of the acquisition of fixed assets and certain raw materials (i.e. iron ore, pellets, alloys, coke, coal and scrap) and significantly reduces input ICMS credit accumulation by Ternium Brasil. The tax incentive was granted for a period of 20 years from the commencement of the construction works for Ternium Brasil’s Rio de Janeiro steel complex.
In 2012, a Brazilian political party filed a direct action of unconstitutionality against Law RJ 4529 before the Brazilian Federal Supreme Court, claiming that the State Law should be declared unconstitutional because the tax incentive granted pursuant to Law RJ 4529 had not been approved by Brazil’s National Council of Fiscal Policy (Conselho Nacional de Política Fazendária, or CONFAZ).
In August 2017, the Brazilian Congress enacted Supplementary Law No. 160/2017, instituting a mechanism through which the States may confirm any ICMS incentives they had granted in prior years without CONFAZ approval. In furtherance of such Supplementary Law, in December 2017 the Brazilian States adopted ICMS Convention 190/2017, establishing the applicable rules and deadlines for confirming such ICMS incentives. In accordance with the ICMS Convention 190/2017, the State of Rio de Janeiro published its list of ICMS incentives, including, among others, the ICMS benefit granted to Ternium Brasil, and filed with CONFAZ all relevant documents concerning such incentives. On July 27, 2018, the Governor of Rio de Janeiro issued Decree No. 46,378, pursuant to which the State of Rio de Janeiro reconfirmed, in accordance with ICMS Convention 190/2017, the ICMS tax benefits listed in its official gazette publication made pursuant to the Convention, including, among others, Ternium Brasil’s ICMS tax benefits.
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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11. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS (continued)
In October 2018, the State of Rio de Janeiro and the Federation of Industries of the State of Rio de Janeiro filed petitions arguing that the action of unconstitutionality against Law RJ 4529 could not be judged by the Brazilian Federal Supreme Court since, following the revalidation of such law under Supplementary Law No.160/17 and the ICMS Convention 190/2017, such action of unconstitutionality had lost its purpose. On October 20, 2020, the Reporting Justice Minister of the Brazilian Federal Supreme Court in charge of the case ruled that the action of unconstitutionality against Law RJ 4529 was impaired by the supervening loss of its object, and on November 17, 2020, the Reporting Justice Minister’s ruling became final and not subject to any further recourses or appeals.
The tax benefits accumulated under Ternium Brasil’s ICMS incentive amounted to approximately $ 1,089 million as of the acquisition date of Ternium Brasil on September 7, 2017. In accordance with the guidance in IFRS 3, the Company recorded as of the acquisition date a provision of $ 651.8 million (including estimated penalties and interest) in connection with this matter, together with an asset of $ 325.9 million arising from its right to recover 50% of the contingency amount from Thyssenkrupp.
As at December 31, 2020, both the asset, which expired on September 7, 2020, of $ 194.1 million ($ 254.4 million as of December 31, 2019) recorded in the Company’s financial statements arising from its right to recover 50% of the contingency amount from Thyssenkrupp and the contingent liability of $ 380.1 million ($ 508.9 million as of December 31, 2019) recorded in its financial statements in connection with this matter have been derecognized. Accordingly, the Company recognized in the year ended December 31, 2020, a net gain in the amount of $ 186.0 million.
As of September 30, 2021, 2020 comparative information has been adjusted to reflect only the effect over the asset related to its expiry date on September 7, 2020, and the subsequent finalization of the legal proceeding on ICMS in November 2020, reflected in the last quarter of 2020.
The adjustment mentioned above involved the cancellation of a gain of $ 194.1 million in Other operating income (expenses), net, affecting:
•Profit before income tax expense, the Profit for the period, and the Total comprehensive income in the Income Statement, in the Statement of Comprehensive Income and the Statement of Changes in Equity for the three-month and nine-month periods ended September 30, 2020.
•Basic and diluted earnings per share with a lower earning of $ 0.10 per share in the three-month and nine-month periods ended September 30, 2020.
•Statement of Cash Flows in the Profit for the period line against the line “ICMS reversal of related asset”, with no effect in the net cash provided by operating activities.
Subsequently, in the fourth quarter of 2020, the derecognition of the liability confirmed in November 2020 generated a non-cash gain effect during such quarter of $ 380.1 million.
The adjustment mentioned above did not affect the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows as of and for the year ended December 31, 2020.
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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12. RELATED PARTY TRANSACTIONS
As of September 30, 2021, Techint Holdings S.à r.l. (“Techint”) owned 62.02% of the Company’s share capital and Tenaris Investments S.à r.l. (“Tenaris”) held 11.46% of the Company’s share capital. Each of Techint and Tenaris were controlled by San Faustin S.A., a Luxembourg company (“San Faustin”). Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin (“RP STAK”), a Dutch private foundation (Stichting), held voting rights in San Faustin sufficient in number to control San Faustin. No person or group of persons controls RP STAK.
The following transactions were carried out with related parties:
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Nine-month period ended
September 30,
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2021
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2020
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(Unaudited)
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(i) Transactions
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(a) Sales of goods and services
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Sales of goods to non-consolidated parties
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736,753
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260,785
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Sales of goods to other related parties
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149,025
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10,043
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Sales of services and others to non-consolidated parties
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135
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131
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Sales of services and others to other related parties
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1,138
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760
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887,051
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271,719
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(b) Purchases of goods and services
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Purchases of goods from non-consolidated parties
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332,839
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253,486
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Purchases of goods from other related parties
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50,875
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66,295
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Purchases of services and others from non-consolidated parties
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7,154
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6,998
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Purchases of services and others from other related parties
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75,490
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57,106
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Purchases of goods and services in connection with lease contracts from other related parties
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—
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159
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466,358
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384,044
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(c) Financial results
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Income with non-consolidated parties
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4,686
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5,583
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Expenses in connection with lease contracts from other related parties
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(787)
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(1,244)
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3,899
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4,339
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(d) Dividends
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Dividends from non-consolidated parties
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48,371
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262
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48,371
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262
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(e) Other income and expenses
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Income (expenses), net with non-consolidated parties
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750
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550
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Income (expenses), net with other related parties
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693
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930
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1,443
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1,480
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September 30, 2021
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December 31, 2020
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(Unaudited)
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(ii) Period-end balances
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(a) Arising from sales/purchases of goods/services
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Receivables from non-consolidated parties
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295,583
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227,074
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Receivables from other related parties
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31,408
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3,674
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Advances to non-consolidated parties
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6,374
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6,647
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Advances to suppliers with other related parties
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4,664
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7,732
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Payables to non-consolidated parties
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(47,436)
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(30,407)
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Payables to other related parties
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(24,640)
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(29,095)
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Lease Liabilities with other related parties
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(3,072)
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(3,550)
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262,881
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182,075
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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13. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT
1)Financial instruments by category
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.
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As of September 30, 2021 (in $ thousands)
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Amortized
cost
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Assets at fair value through profit or loss
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Assets at fair value through OCI
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Total
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(i) Assets as per statement of financial position
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Receivables
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223,892
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—
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—
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223,892
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Derivative financial instruments
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—
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1,450
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—
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1,450
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Trade receivables
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2,066,894
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—
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—
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|
2,066,894
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Other investments
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469,100
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3,082
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351,765
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823,947
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Cash and cash equivalents
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554,732
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381,427
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11,416
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947,575
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Total
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3,314,618
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385,959
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363,181
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4,063,758
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As of September 30, 2021 (in $ thousands)
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Amortized
cost
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Liabilities at fair value through profit or loss
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Total
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(ii) Liabilities as per statement of financial position
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Other liabilities
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64,189
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—
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64,189
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Trade payables
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1,183,019
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—
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1,183,019
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Derivative financial instruments
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—
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|
1,068
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|
|
|
1,068
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Lease liabilities
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272,044
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—
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272,044
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Borrowings
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|
1,500,463
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—
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1,500,463
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Total
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3,019,715
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1,068
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3,020,783
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2)Fair Value by Hierarchy
IFRS 13 requires for financial instruments that are measured at fair value, a disclosure of fair value measurements by level. See note 28 of the Consolidated Financial Statements as of December 31, 2020 for definitions of levels of fair values and figures at that date.
The following table presents the assets and liabilities that are measured at fair value:
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Fair value measurement as of September 30, 2021
(in $ thousands):
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Description
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Total
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Level 1
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Level 2
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Level 3
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Financial assets at fair value through profit or loss / OCI
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Cash and cash equivalents
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392,843
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|
392,843
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—
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—
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Other investments
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354,847
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|
|
351,765
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|
|
—
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3,082
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Derivative financial instruments
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|
1,450
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|
|
—
|
|
|
1,450
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|
|
—
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|
|
|
|
|
|
|
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Total assets
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749,140
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|
744,608
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|
1,450
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|
|
3,082
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|
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|
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|
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|
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Financial liabilities at fair value through profit or loss / OCI
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|
|
|
|
|
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Derivative financial instruments
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|
1,068
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|
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—
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|
1,068
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|
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—
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|
|
|
|
|
|
|
|
|
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|
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Total liabilities
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1,068
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|
|
—
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|
|
1,068
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|
|
—
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|
|
|
|
|
|
|
|
|
|
|
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TERNIUM S.A.
|
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|
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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13. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT (continued)
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|
|
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Fair value measurement as of December 31, 2020
(in $ thousands):
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Description
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Total
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Level 1
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Level 2
|
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Level 3 (*)
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|
|
|
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Financial assets at fair value through profit or loss / OCI
|
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|
|
|
|
|
|
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Cash and cash equivalents
|
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259,020
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|
|
259,020
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|
|
—
|
|
|
—
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Other investments
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|
236,240
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|
|
233,611
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|
|
—
|
|
|
2,629
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|
|
Derivative financial instruments
|
|
1,572
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|
|
—
|
|
|
1,572
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
496,832
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|
|
492,631
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|
|
1,572
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|
|
2,629
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|
|
|
|
|
|
|
|
|
|
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Financial liabilities at fair value through profit or loss / OCI
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
6,358
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|
|
—
|
|
|
6,358
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|
|
—
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|
|
|
|
|
|
|
|
|
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Total liabilities
|
|
6,358
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|
|
—
|
|
|
6,358
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|
|
—
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|
(*) 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 year ended December 31, 2020, corresponds to the initial investment and to the changes in its fair value.
14. THE COVID-19 PANDEMIC AND ITS IMPACT ON TERNIUM
A novel strain of coronavirus (SARS-CoV-2) was reported to have surfaced in China in December 2019, spreading to the rest of the world in the first quarter of 2020. In March 2020, the World Health Organization declared COVID-19, the disease caused by the SARS-CoV-2 virus, a global pandemic. The COVID-19 outbreak is impacting economic activity worldwide.
In order to safeguard the health and safety of its employees, customers and suppliers, Ternium continues to apply preventive measures, including remote working under a hybrid work scheme for salaried employees, implementing a special operations protocol to ensure social distancing and providing medical assistance and supplies to onsite employees. As of the date of these consolidated condensed interim financial statements, remote work and other work arrangements have not materially adversely affected Ternium's ability to conduct operations. In addition, these alternative working arrangements have not adversely affected our financial reporting systems, internal control over financial reporting or disclosure controls and procedures.
Even though the negative effects of the pandemic in steel demand are behind us, and as of the issue date of these consolidated condensed interim financial statements all of Ternium’s industrial facilities continued working at normal production levels, there remains considerable uncertainty about the future duration and extent of the pandemic with new and more contagious variants of the virus appearing and the vaccination programs not yet completed.
With total cash and cash equivalents and other current and non-current investments less borrowings of $ 0.3 billion as of September 30, 2021 and a manageable debt amortization schedule, Ternium has in place non-committed credit facilities and management believes it has adequate access to the credit markets. Considering its financial position and the funds provided by operating activities, management believes that the Company has sufficient resources to satisfy its current working capital needs and service its debt. Management also believes that Ternium's liquidity and capital resources give adequate flexibility to manage the capital spending programs and address short-term changes in business conditions, and that it is unlikely that Ternium will not be able to meet its financial covenants. Similarly, management does not expect to incur any material COVID-19-related contingencies.
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of September 30, 2021
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and for the nine-month periods ended September 30, 2021 and 2020
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15. FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA
Ternium’s Argentine subsidiary, Ternium Argentina S.A., is currently operating in a complex and volatile economic environment. Beginning in September 2019, the Argentine government has imposed and continues to impose significant restrictions on foreign exchange transactions. Restrictions have tightened over time. These measures, however, have not had a significant effect on Ternium Argentina’s ability to purchase USD at the prevailing official exchange rate for all of its imports of goods and for the acquisition of services from unrelated parties. By contrast, access to the Argentine foreign exchange market to distribute dividends or to pay royalties to related parties at the prevailing official exchange rate generally requires prior Argentine Central Bank approval, which is rarely, if ever, granted.
Ternium Argentina stated in its interim accounts as of September 30, 2021, and for the nine-month period then ended, that revenues amounted to $ 2,486 million, net profit from continuing operations to $ 678 million, total assets to $ 4,403 million, total liabilities to $ 510 million and shareholders’ equity to $ 3,893 million.
All of Ternium Argentina’s ARS-denominated assets and liabilities are valued at the prevailing official exchange rate. Although most of Ternium Argentina’s cash holdings are either denominated or payable in ARS, our exposure to the ARS as of September 30, 2021, was diminished due to hedging strategies using derivative instruments as well as the investment in US dollar and inflation-linked securities.
As the context of volatility and uncertainty remains in place as of the issue date of these consolidated condensed interim financial statements, additional regulations that could be imposed in the future by the Argentine government could further restrict Ternium Argentina’s ability to access the official foreign exchange market.
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Pablo Brizzio
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Chief Financial Officer
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