4.COST OF SALES
| | | | | | | | | | | | | | |
| | Three-month period ended
March 31, |
| | 2023 | | 2022 |
| | (Unaudited) |
| | | | |
| Inventories at the beginning of the year | | 3,470,215 | | | 3,908,305 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Plus: Charges for the period | | | | |
Raw materials and consumables used and
other movements | | 2,290,256 | | | 2,355,542 | |
| Services and fees | | 46,343 | | | 38,322 | |
| Labor cost | | 197,431 | | | 169,465 | |
| Depreciation of property, plant and equipment | | 130,336 | | | 130,519 | |
| Amortization of intangible assets | | 9,076 | | | 9,601 | |
| Maintenance expenses | | 153,525 | | | 145,268 | |
| Office expenses | | 2,711 | | | 1,873 | |
| Valuation allowance | | (15,333) | | | — | |
| Insurance | | 3,791 | | | 3,862 | |
| Change of obsolescence allowance | | (4,537) | | | 4,866 | |
| Recovery from sales of scrap and by-products | | (10,817) | | | (8,358) | |
| Others | | 5,379 | | | 5,462 | |
| | | | |
| Less: Inventories at the end of the period | | (3,297,625) | | | (3,780,542) | |
| | | | |
| Cost of Sales | | 2,980,751 | | | 2,984,185 | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
5.SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
| | | | | | | | | | | | | | |
| | Three-month period ended
March 31, |
| | 2023 | | 2022 |
| | (Unaudited) |
| Services and fees | | 17,609 | | 16,468 |
| Labor cost | | 77,847 | | 74,445 |
| Depreciation of property, plant and equipment | | 3,749 | | 3,225 |
| Amortization of intangible assets | | 7,432 | | 6,184 |
| Maintenance and expenses | | 1,820 | | 2,092 |
| Taxes | | 38,390 | | 40,246 |
| Office expenses | | 12,617 | | 9,540 |
| Freight and transportation | | 118,114 | | 127,927 |
| Increase of allowance for doubtful accounts | | 11,014 | | | 530 | |
| Others | | 4,332 | | 646 |
| | | | |
| Selling, general and administrative expenses | | 292,924 | | | 281,303 | |
6.FINANCE EXPENSE, FINANCE INCOME AND OTHER FINANCIAL INCOME (EXPENSES), NET
| | | | | | | | | | | | | | |
| | Three-month period ended
March 31, |
| | 2023 | | 2022 |
| | (Unaudited) |
| Interest expense | | (16,200) | | | (6,622) | |
| | | | |
| Finance expense | | (16,200) | | | (6,622) | |
| | | | |
| Interest income | | 41,446 | | | 24,317 | |
| | | | |
| Finance income | | 41,446 | | | 24,317 | |
| | | | |
| Net foreign exchange loss (1) | | (15,548) | | | (53,388) | |
| | | | |
| Change in fair value of financial assets | | 19,301 | | | (12,465) | |
| Derivative contract results | | (15,109) | | | (9,395) | |
| Others | | (6,063) | | | (3,319) | |
| | | | |
| Other financial (expenses) income, net | | (17,419) | | | (78,567) | |
(1) Mainly related to the devaluation of the Argentine peso.
7. PROPERTY, PLANT AND EQUIPMENT, NET
| | | | | | | | | | | | | | |
| | Three-month period ended
March 31, |
| | 2023 | | 2022 |
| | (Unaudited) |
| At the beginning of the year | | 6,261,887 | | | 6,431,578 | |
| | | | |
| | | | |
| Currency translation differences | | 769 | | | 274 | |
| Additions | | 168,941 | | | 108,833 | |
| Value adjustments of lease contracts | | 4,580 | | | 6,621 | |
| Disposals | | (7,933) | | | (6,682) | |
| Depreciation charge | | (134,085) | | | (133,744) | |
| Capitalized borrowing costs | | — | | | 403 | |
| Transfers and reclassifications | | 60 | | | (927) | |
| | | | |
| | | | |
| At the end of the period | | 6,294,219 | | | 6,406,356 | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
8. INTANGIBLE ASSETS, NET
| | | | | | | | | | | | | | |
| | | Three-month period ended
March 31, |
| | 2023 | | 2022 |
| | (Unaudited) |
| At the beginning of the year | | 944,409 | | | 902,256 | |
| | | | |
| | | | |
| Currency translation differences | | 5 | | | — | |
| Additions | | 29,508 | | | 16,528 | |
| Amortization charge | | (16,508) | | | (15,785) | |
| | | | |
| | | | |
| Transfers/Disposals | | (60) | | | 927 | |
| | | | |
| At the end of the period | | 957,354 | | | 903,926 | |
9.INVESTMENTS IN NON-CONSOLIDATED COMPANIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Country of incorporation | | Main activity | | Voting rights as of | | Value as of |
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2023 | | December 31, 2022 |
| | | | | | | | | |
| | | | | | | | | | | | |
| Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS | | Brazil | | Manufacturing and selling of steel products | | 34.39% | | 34.39% | | 773,282 | | 725,705 |
| Techgen S.A. de C.V. | | Mexico | | Provision of electric power | | 48.00% | | 48.00% | | 98,832 | | 90,559 |
| Other non-consolidated companies (1) | | | | | | | | | | 5,273 | | 5,307 |
| | | | | | | | | | 877,387 | | 821,571 |
(1) It includes the investments held in Finma S.A.I.F., 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 March 31, 2023, 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 of March 31, 2023, 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%.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
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 March 31, 2023, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL7.97 (approximately $1.57; December 31, 2022: BRL7.41 – $1.42) per ordinary share and BRL7.29 (approximately $1.43; December 31, 2022: BRL7.16 – $1.37) per preferred share, respectively. Accordingly, as of March 31, 2023, Ternium’s ownership stake had a market value of approximately $392.8 million ($356.2 million as of December 31, 2022) and a carrying value of $773.3 million ($725.7 million as of December 31, 2022).
Although as of March 31, 2023, the market value continued to be below the book value, considering the financial results of Usiminas for the quarter and market expectations, there was no other objective evidence of impairment and, consequently, Management concluded that there was no need to recognize any impairment charges and that it would continue to review periodically the recoverability of this investment.
As of March 31, 2023, the value of the investment in Usiminas is comprised as follows:
| | | | | | | | |
| Value of investment | | USIMINAS |
| | |
| As of January 1, 2023 | | 725,705 | |
| Share of results (1) | | 26,804 | |
| Other comprehensive income (2) | | 20,773 | |
| | |
| | |
| | |
| | |
| As of March 31, 2023 | | 773,282 | |
| | |
| (1) It includes the adjustment of the values associated to the purchase price allocation. |
| (2) It includes mainly the effect of the currency translation adjustment. | | |
The investment in Usiminas is based on the following calculation:
| | | | | | | | |
| Usiminas' shareholders' equity | | 4,653,737 | |
| Percentage of interest of the Company over shareholders' equity | | 20.40 | % |
| | |
| Interest of the Company over shareholders' equity | | 949,143 | |
| | |
| Purchase price allocation | | 57,983 | |
| Goodwill | | 204,597 | |
| Impairment | | (438,441) | |
| | |
| | |
| Total Investment in Usiminas | | 773,282 | |
On April 20, 2023, Usiminas issued its consolidated interim accounts as of and for the three-month period ended March 31, 2023.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
9. INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
| | | | | | | | |
| | USIMINAS |
| Summarized balance sheet (in million $) | | As of March 31, 2023 |
| Assets | | |
| Non-current | | 3,934 | |
| Current | | 2,829 | |
| Other current investments | | 248 | |
| Cash and cash equivalents | | 902 | |
| | |
| Total Assets | | 7,913 | |
| Liabilities | | |
| Non-current | | 513 | |
| Non-current borrowings | | 1,174 | |
| Current | | 991 | |
| Current borrowings | | 29 | |
| | |
| Total Liabilities | | 2,707 | |
| | |
| Non-controlling interest | | 552 | |
| | |
| Shareholders' equity | | 4,654 | |
| | | | | | | | |
| | |
| Summarized income statement (in million $) | | Three-month period ended
March 31, 2023 |
| | |
| Net sales | | 1,396 | |
| Cost of sales | | (1,226) | |
| Gross Profit | | 170 | |
| Selling, general and administrative expenses | | (48) | |
| Other operating income (loss), net | | (27) | |
| Operating income | | 95 | |
| Financial income (expenses), net | | 37 | |
| Equity in earnings of associated companies | | 9 | |
| Profit before income tax | | 141 | |
| Income tax expense | | (37) | |
| Net profit before non-controlling interest | | 104 | |
| Non-controlling interest in other subsidiaries | | (13) | |
| Net profit for the period | | 91 | |
Techgen S.A. de C.V.
Techgen stated as of and for the three-month period ended March 31, 2023, that revenues amounted to $114 million ($128 million for the three-month period ended March 31, 2022), net profit from continuing operations to $17 million ($14 million for the three-month period ended March 31, 2022), non-current assets to $776 million ($766 million as of December 31, 2022), current assets to $138 million ($131 million as of December 31, 2022), non-current liabilities to $507 million ($527 million as of December 31, 2022), current liabilities to $200 million ($181 million as of December 31, 2022) and shareholders’ equity to $206 million ($189 million as of December 31, 2022).
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
10. 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, 2022.
(i) Tax claims and other contingencies
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. On March 7, 2023, the Superior Court of Justice, by majority vote, rejected CSN’s appeal. CSN has made several submissions in connection with the Supreme Court of Justice decision, including a motion for clarification. In addition, plaintiffs may appeal against the Superior Court of Justice’s decision. At this time, the Company cannot predict whether CSN will appeal against the decision and, if appealed, the ultimate resolution of the matter.
Ternium continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator (CVM) in February 2012 and December 2016, the first and second instance court decisions and the March 2023 Superior Court of Justice decision referred to above.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
10. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS (continued)
(ii) Commitments
(a) Ternium Argentina also signed various contracts for the provision of natural gas, including Tecpetrol and Energy Consulting Services S.A., both related companies of Ternium, assuming firm commitments for a total of $ 89.4 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 $ 10.2 million payable until April 2028.
(b) Ternium Argentina signed an agreement with Air Liquide Argentina S.A. for the supply of oxygen, nitrogen and argon until 2021, for an aggregate amount of $ 108.5 million, which is due to terminate in 2037.
(c) 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 March 31, 2023, the outstanding amount under the natural gas trading agreement was $7.0 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.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
11. RELATED PARTY TRANSACTIONS
As of March 31, 2023, Techint Holdings S.à r.l. (“Techint”) owned 62.02% of the Company’s share capital and Tenaris Investments S.à r.l. (“Tenaris”) held 11.46% of the Company’s share capital. Each of Techint and Tenaris were controlled by San Faustin S.A., a Luxembourg company (“San Faustin”). Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin (“RP STAK”), a private foundation (Stichting) located in the Netherlands, held voting shares in San Faustin sufficient in number to control San Faustin. No person or group of persons controls RP STAK.
The following transactions were carried out with related parties:
| | | | | | | | | | | | | | |
| | Three-month period ended
March 31, |
| | 2023 | | 2022 |
| | (Unaudited) |
| (i) Transactions | | | | |
| (a) Sales of goods and services | | | | |
| Sales of goods to non-consolidated parties | | 61,615 | | | 187,437 | |
| Sales of goods to other related parties | | 35,575 | | | 61,375 | |
| Sales of services and others to non-consolidated parties | | 43 | | | 45 | |
| Sales of services and others to other related parties | | 1,032 | | | 321 | |
| | | | |
| | 98,265 | | | 249,178 | |
| (b) Purchases of goods and services | | | | |
| Purchases of goods from non-consolidated parties | | 104,743 | | | 143,223 | |
| Purchases of goods from other related parties | | 15,551 | | | 15,539 | |
| Purchases of services and others from non-consolidated parties | | 2,675 | | | 2,022 | |
| Purchases of services and others from other related parties | | 19,450 | | | 16,866 | |
| | | | |
| | | | |
| | 142,419 | | | 177,650 | |
| (c) Financial results | | | | |
| Income with non-consolidated parties | | 3,022 | | | 1,584 | |
| | | | |
| | | | |
| | | | |
| Expenses in connection with lease contracts from other related parties | | (190) | | | (238) | |
| | | | |
| | 2,832 | | | 1,346 | |
| | | | |
| | | | |
| | | | |
| | | | |
| (d) Other income and expenses | | | | |
| Income (expenses), net with non-consolidated parties | | 1,306 | | | 280 | |
| Income (expenses), net with other related parties | | 550 | | | 262 | |
| | | | |
| | 1,856 | | | 542 | |
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | (Unaudited) | | |
| (ii) Period-end balances | | | | |
| (a) Arising from sales/purchases of goods/services | | | | |
| Receivables from non-consolidated parties | | 158,421 | | | 180,476 | |
| Receivables from other related parties | | 13,057 | | | 43,765 | |
| Advances to non-consolidated parties | | 3,791 | | | 4,851 | |
| Advances to suppliers with other related parties | | 3,496 | | | 3,683 | |
| Payables to non-consolidated parties | | (80,241) | | | (91,172) | |
| Payables to other related parties | | (22,097) | | | (20,163) | |
| Lease Liabilities with other related parties | | (1,731) | | | (2,287) | |
| | | | |
| | 74,696 | | | 119,153 | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
12. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| As of March 31, 2023 (in $ thousands) | | Amortized
cost | | Assets at fair value through profit or loss | | Assets at fair value through OCI | | Total |
| | | | | | | | |
| (i) Assets as per statement of financial position | | | | | | | | |
| Receivables | | 208,210 | | | — | | | — | | | 208,210 | |
| Derivative financial instruments | | — | | | 74 | | | — | | | 74 | |
| Trade receivables | | 1,298,161 | | | — | | | — | | | 1,298,161 | |
| Other investments | | 1,013,109 | | | 68,097 | | | 1,565,172 | | | 2,646,378 | |
| Cash and cash equivalents | | 919,631 | | | 285,462 | | | 15,056 | | | 1,220,149 | |
| | | | | | | | |
| Total | | 3,439,111 | | | 353,633 | | | 1,580,228 | | | 5,372,972 | |
| | | | | | | | |
| As of March 31, 2023 (in $ thousands) | | Amortized
cost | | Liabilities at fair value through profit or loss | | | | Total |
| | | | | | | | |
| (ii) Liabilities as per statement of financial position | | | | | | | | |
| Other liabilities | | 67,036 | | | — | | | | | 67,036 | |
| Trade payables | | 1,286,736 | | | — | | | | | 1,286,736 | |
| Derivative financial instruments | | — | | | 3,976 | | | | | 3,976 | |
| Lease liabilities | | 232,674 | | | — | | | | | 232,674 | |
| Borrowings | | 880,332 | | | — | | | | | 880,332 | |
| | | | | | | | |
| Total | | 2,466,778 | | | 3,976 | | | | | 2,470,754 | |
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, 2022 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurement as of March 31, 2023
(in $ thousands): |
| Description | | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
| Financial assets at fair value through profit or loss / OCI | | | | | | | | |
| Cash and cash equivalents | | 300,518 | | | 300,518 | | | — | | | — | |
| Other investments | | 1,633,269 | | | 1,461,988 | | | 125,002 | | | 46,279 | |
| Derivative financial instruments | | 74 | | | — | | | 74 | | | — | |
| | | | | | | | |
| Total assets | | 1,933,861 | | | 1,762,506 | | | 125,076 | | | 46,279 | |
| | | | | | | | |
| Financial liabilities at fair value through profit or loss / OCI | | | | | | | | |
| Derivative financial instruments | | 3,976 | | | — | | | 3,976 | | | — | |
| | | | | | | | |
| Total liabilities | | 3,976 | | | — | | | 3,976 | | | — | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
12. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurement as of December 31, 2022
(in $ thousands): |
| Description | | Total | | Level 1 | | Level 2 | | Level 3 (*) |
| | | | | | | | |
| Financial assets at fair value through profit or loss / OCI | | | | | | | | |
| Cash and cash equivalents | | 772,953 | | | 772,953 | | | — | | | — | |
| Other investments | | 1,492,281 | | | 1,283,284 | | | 164,980 | | | 44,017 | |
| Derivative financial instruments | | 227 | | | — | | | 227 | | | — | |
| | | | | | | | |
| Total assets | | 2,265,461 | | | 2,056,237 | | | 165,207 | | | 44,017 | |
| | | | | | | | |
| Financial liabilities at fair value through profit or loss / OCI | | | | | | | | |
| Derivative financial instruments | | 505 | | | — | | | 505 | | | — | |
| | | | | | | | |
| Total liabilities | | 505 | | | — | | | 505 | | | — | |
(*) 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 three-month period ended March 31, 2023, and the year ended December 31 2022, corresponds to the initial investment and to the changes in its fair value.
13. FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA
Ternium’s Argentine subsidiary, Ternium Argentina S.A., is currently operating in a complex and volatile economic environment. Beginning in September 2019, the Argentine government has imposed and continues to impose significant restrictions on foreign exchange transactions. Restrictions have tightened significantly over time.
Effective November 1, 2022, the Argentine Central Bank put in place a new regulation on import of services rendered by non-related parties, pursuant to which the Argentine Central Bank may clear or not the payment of import of services and, if cleared, may determine a payment term equal or different to that being requested. There are no rules on the conditions upon which the Argentine Central Bank may clear or determine alternative payment terms.
Also effective November 1, 2022, the Argentine government implemented a new system, known as the SIRA system, pursuant to which the Argentine government may clear or not the payment of imports and, if cleared, may determine a payment term equal or different to that being requested. There are no objective conditions upon which the Argentine government may clear the payment of imports or determine alternative payment terms under the SIRA system.
This context of volatility and uncertainty remains in place as of the issue date of these Consolidated Financial Statements. Although as of the date of these financial statements these measures did not have a significant effect on Ternium Argentina’s ability to purchase U.S. dollars at the prevailing official exchange rate for most of its imports of goods and for the acquisition of services from unrelated parties, if such restrictions continue to be maintained, or are further tightened, Ternium Argentina could be restricted from making payment of imports for key steelmaking inputs (which would adversely affect its operations), or would need to resort to alternative, more expensive arrangements (which would adversely affect its results of operations). In addition, access to the Argentine foreign exchange market to distribute dividends or to pay royalties to related parties at the prevailing official exchange rate generally requires prior Argentine Central Bank approval, which is rarely, if ever, granted, thus limiting Ternium’s ability to collect dividends from Ternium Argentina at the prevailing official exchange rate.
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| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
13. FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA (continued)
Ternium Argentina stated in its interim accounts as of March 31, 2023, and for the three-month period then ended, that revenues amounted to $860 million (three-month period ended March 31, 2022: $872 million), net profit from continuing operations to $260 million (three-month period ended March 31, 2022: $178 million), total assets to $5,530 million (December 31, 2022: $5,258 million), total liabilities to $537 million (December 31, 2022: $511 million) and shareholders’ equity to $4,993 million (December 31, 2022: $4,747 million). Ternium Argentina’s cash and cash equivalents and other investments amounted to $1,543 million as of March 31, 2023, broken down as follows:
–$1,409 million in U.S. dollars-denominated instruments, mainly sovereign bonds issued by the Argentine Government and payable in U.S. dollars, Argentine Treasury bonds related to the official exchange rate and negotiable obligations and promissory notes issued by Argentine export driven companies in U.S. dollars and payable in Argentine pesos.
–$68 million in Argentine pesos-denominated instruments, mainly inflation-adjusted bonds and mutual funds.
–$66 million in Argentine pesos-denominated instruments with underlying assets linked to the U.S. dollar.
Ternium Argentina’s financial position in ARS as of March 31, 2023, amounted to $183 million in monetary assets and $239 million in monetary liabilities. All of Ternium Argentina’s ARS-denominated assets and liabilities are valued at the prevailing official exchange rate.
On April 24, 2023, the Board of Directors of Ternium Argentina approved the payment of a dividend in kind of approximately $624 million in US dollar denominated Argentine bonds. Considering the impact of foreign exchange restrictions in Argentina, upon collection of the dividend in kind, Ternium will reduce the U.S. dollar value of such bonds based on their international market price.
14. THE RUSSIA-UKRAINE ARMED CONFLICT
On February 24, 2022, Russia launched a military attack on Ukraine. In response, the United States, the United Kingdom, and the European Union, among other countries, have imposed a wave of sanctions against certain Russian institutions, companies and citizens. As a result of the armed conflict and related sanctions, foreign trade transactions involving Russian and Ukrainian counterparties have been severely affected.
Russia has a significant participation in the international trade of steel slabs, iron ore pellets, metallurgical coal, pulverized coal for injection, which are relevant inputs for Ternium’s operations. In addition, Ukraine traditionally had a relevant participation in the international trade of steel slabs and iron ore pellets. As a result of the armed conflict and the economic sanctions imposed on Russia, Ternium or its contractors (including shipping companies) may not be able to continue purchasing or transporting products from, or making payments to, Ukrainian or Russian suppliers or counterparties; and the Company may be required to purchase raw materials from other sources at increased prices, resulting in limitations to Ternium’s production levels and higher costs, affecting the Company’s profitability and results of operations.
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| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
15. TERNIUM TO INTEGRATE OPERATIONS IN THE USMCA
On February 14, 2023, Ternium's Board of Directors approved the construction of a new upstream production capacity project to integrate its operations in the USMCA region. The increased slab production capacity will complement and support the company’s new state-of-the-art hot rolling mill, which began operations in mid-2021, as well as the previously announced downstream project in Mexico. Ternium expects to invest approximately $2.2 billion toward the construction of an electric arc furnace (EAF)-based steel shop with annual capacity of 2.6 million tons, as well as a direct reduced iron (DRI) module with annual capacity of 2.1 million tons. The slab production capacity program will also include the construction of a port facility for raw material handling. The Company currently expects to commission these facilities in the first half of 2026. As a result of this new upstream production capacity project and the construction of a wind farm in Argentina, Ternium is raising its 2023 expected capital expenditures to $1.1 billion. In addition, the company anticipates the new upstream and ongoing downstream initiatives to add a total of approximately $2.9 billion to Ternium’s capital expenditure over the next four years.
16. TERNIUM TO INCREASE ITS PARTICIPATION IN USIMINAS CONTROL GROUP - NEW GOVERNANCE STRUCTURE OF USIMINAS
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, have 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. Pursuant to the transaction, Ternium would pay approximately $111.0 million in cash for 57.7 million ordinary shares, increasing its participation in the Usiminas control group to 51.5% and in the issued and outstanding share capital to 25.1%. The transaction is subject to approval by Brazil’s antitrust authorities and will be financed with cash on hand.
The Usiminas control group holds the majority of Usiminas’ voting rights. Upon the closing of this transaction, the T/T group will hold 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 have also agreed a new governance structure in the best interest of Usiminas. The T/T group will nominate a majority of the Usiminas board of directors, the CEO and four other members of Usiminas board of officers, and ordinary decisions may be 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, upon closing of the transaction, Ternium would begin consolidating Usiminas into its financial statements.
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| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of March 31, 2023 |
and for the three-month periods ended March 31, 2023 and 2022 |
16. TERNIUM TO INCREASE ITS PARTICIPATION IN USIMINAS CONTROL GROUP - NEW GOVERNANCE STRUCTURE OF USIMINAS (continued)
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 addition, the 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 BRL10 per share.
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| | Pablo Brizzio | | |
| | Chief Financial Officer | | |