Ternium Announces Third Quarter and First Nine Months of 2021 Results

Sebastián Martí

Ternium - Investor Relations

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[phone] www.ternium.com

Ternium Announces Third Quarter and First Nine Months of 2021 Results

Luxembourg, November 2, 2021 - Ternium S.A. (NYSE: TX) today announced its results for the third quarter and first nine months ended September 30, 2021.

The financial and operational information contained in this press release is based on Ternium S.A.'s operational data and consolidated condensed interim financial statements prepared in accordance with IAS 34 "Interim financial reporting" (IFRS) and presented in US dollars ($) and metric tons. This press release includes certain non-IFRS alternative performance measures such as EBITDA, Net Debt and Free Cash Flow. The reconciliation of these figures to the most directly comparable IFRS measures is included in Exhibit I.

Summary of Third Quarter of 2021 Results

	3Q21		2Q21			3Q202
Steel Shipments (tons)	3,071,000	3,068,000	0%	2,845,000	8%
Iron Ore Shipments (tons)	850,000	906,000	-6%	869,000	-2%
Net Sales ($ million)	4,592.0	3,919.8	17%	2,138.6	115%
Operating Income ($ million)	1,735.4	1,271.4	36%	7.0
EBITDA ($ million)	1,880.6	1,420.2	32%	353.4	432%
EBITDA Margin (% of net sales)	41%	36%		17%
EBITDA per Ton ($)	612.4	462.9		124.2
Equity in earnings of non-consolidated	84.4	171.1		13.2
companies ($ million)
Income Tax Result ($ million)	(486.0)	(307.1)		(27.5)
Net Result ($ million)	1,366.4	1,158.3		(21.0)
Equity Holders' Net Result ($ million)	1,202.1	1,022.1		(48.5)
Earnings (losses) per ADS1 ($)	6.12	5.21		(0.25)

• EBITDA of $1.9 billion on steel shipments of 3.1 million tons, with EBITDA margin of 41% and EBITDA per ton of $612.4.
• Equity holders' net income of $1.2 billion, equivalent to earnings per ADS of $6.12.
• Net cash provided by operating activities of $586.0 million, including working capital increase of $1.1 billion mainly due to the impact of higher realized steel prices and costs, and higher inventory volumes.
• Free cash flow of $475.4 million after capital expenditures of $110.6 million.
• Net cash position of $0.3 billion at the end of September 2021, up from net debt position of $0.2 billion at the end of June 2021.

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Ternium's shipments in the third quarter of 2021 were 3.1 million tons, stable sequentially as higher finished steel shipments in the US market were offset by slightly lower volumes elsewhere. During the third quarter of 2021, Ternium continued ramping-up its new hot-rolling mill in Pesquería, although at a slower pace than anticipated reflecting energy-related bottlenecks that have already been worked out. The strength of steel prices in the company's main steel markets led to new record-high realized steel prices in the period.

On an year-over-year basis, shipments in the third quarter of 2021 were up by 8%, reflecting a recovery of 17% in Mexico and 14% in the Southern Region as Ternium's markets were affected in 2020 by restrictions implemented to contain the COVID-19 pandemic, partially offset by a 12% decrease in the Other Markets region. The decrease in the Other Markets region was due mainly to lower slab volumes shipped to third parties as the company's slab facility in Brazil increased its integration with other Ternium's mills, partially offset by higher finished steel shipments in Colombia and the US market.

EBITDA per ton in the third quarter of 2021 increased $149.5 sequentially, to $612.4. On an year-over- year basis, EBITDA per ton increased $488.2. The sequential and year-over-year improvements in the third quarter of 2021 were mainly the result of higher realized steel prices, partially offset by higher costs of raw materials and purchased slabs. The company's net income in the third quarter of 2021 was $1.4 billion on operating income of $1.7 billion and an effective income tax rate of 26%.

Summary of First Nine Months of 2021 Results

	9M21		9M202
Steel Shipments (tons)	9,238,000	8,292,000	11%
Iron Ore Shipments (tons)	2,791,000	2,854,000	-2%
Net Sales ($ million)	11,761.1	6,155.8	91%
Operating Income ($ million)	3,912.6	208.2	1,779%
EBITDA ($ million)	4,358.2	879.3	396%
EBITDA Margin (% of net sales)	37%	14%
EBITDA per Ton ($)	471.8	106.0
Equity in earnings (losses) of non-consolidated	302.0	(0.4)
companies ($ million)
Income Tax Result ($ million)	(1,054.7)	(282.5)
Net Result ($ million)	3,231.4	3.2
Equity Holders' Net Result ($ million)	2,827.1	(16.0)
Earnings (losses) per ADS ($)	14.40	(0.08)

• EBITDA of $4.4 billion on steel shipments of 9.2 million tons, with EBITDA margin of 37% and EBITDA per ton of $471.8.
• Equity holders' net income of $2.8 billion, equivalent to earnings per ADS of $14.40.
• Net cash provided by operating activities of $1.5 billion, including a working capital increase of $2.5 billion mainly due to the impact of higher realized steel prices and costs, and higher inventory volumes.
• Free cash flow of $1.1 billion after capital expenditures of $401.7 million.
• Dividends paid to shareholders of $412.2 million.

Ternium's steel shipments in the first nine months of 2021 were 9.2 million tons, up 946,000 tons compared to shipment levels in the same period in 2020 reflecting the impact of the COVID-19 pandemic in the prior-year first nine months. Shipments in the first nine months of 2021 increased 20% in Mexico

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and 48% in the Southern Region, and decreased 19% in the Other Markets region mainly due to lower slab shipments to third parties partially offset by higher finished steel shipments in Colombia.

EBITDA per ton increased $365.7 year-over-year in the first nine months of 2021 to $471.8, mainly due to higher steel prices partially offset by higher costs of raw materials and purchased slabs. The company's net income in the first nine months of 2021 was $3.2 billion on operating income of $3.9 billion and an effective income tax rate of 25%.

Interim Dividend Payment

Ternium's board of directors approved the payment of an interim dividend of $0.08 per share ($0.80 per ADS), or approximately $157.0 million in the aggregate. The dividend will be paid on November 16, 2021, to shareholders on record as of November 15, 2021.

Outlook

Ternium expects to maintain strong performance in the final quarter of 2021, following record EBITDA in the third quarter. The company anticipates a slight sequential decrease in fourth quarter EBITDA, with relatively stable shipments and a lower margin. Ternium anticipates cost per ton to increase in the fourth quarter compared to the third quarter, primarily due to higher raw material and slab costs flowing through the company's inventories. This increase in costs would be partially offset by higher revenue per ton, driven by the quarterly reset of contract prices which reflect, with a lag, higher average prices during the third quarter.

The company anticipates volumes sold in the USMCA region to slightly increase in the fourth quarter. In Mexico, industrial customer steel demand remains solid across the market, with the exception of the automotive industry, which continues to be significantly challenged by global semiconductor scarcity. Steel demand linked to construction activity in the country also continues to weaken into the fourth quarter.

In Argentina, Ternium expects shipments to remain steady in the fourth quarter as compared to shipments in the third quarter, with a slight decrease in December due to seasonality. The country's main steel consuming sectors, including the construction and manufacturing industries, continue to perform well, although unstable macroeconomic variables in Argentina bring uncertainty to this market in 2022.

Looking ahead, after a tight steel market in 2021 the company anticipates a more balanced steel supply- demand environment in 2022, with steady steel demand and a gradual normalization of global supply chains.

Analysis of Third Quarter of 2021 Results

Net sales in the third quarter of 2021 were $4.6 billion, 115% higher than net sales in the third quarter of 2020. The following table outlines Ternium's consolidated net sales for the third quarter of 2021 and the third quarter of 2020:

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			Net Sales				Shipments			Revenue/ton
		(million $)			(thousand tons)				($/ton)
		3Q21	3Q20	Dif.		3Q21	3Q20		Dif.		3Q21	3Q20		Dif.
Mexico		2,594.5	1,065.7	143%		1,697	1,445		17%		1,529	737		107%
Southern Region	936.8	495.6	89%	626	547		14%	1,497	906		65%
Other Markets		984.3	508.0	94%		748	853		-12%		1,316	596		121%
Total steel products	4,515.6	2,069.4	118%	3,071	2,845		8%	1,471	727		102%
Other products*	58.8	45.6	29%
Steel segment		4,574.4	2,114.9	116%
				850	869		-2%	154	105		47%
Mining segment		131.0	91.3	44%
Intersegment	(113.4)	(67.6)
eliminations
Net sales		4,592.0	2,138.6	115%

*The item "Other products" primarily includes Ternium Brasil's and Ternium México's electricity sales.

Cost of sales was $2.6 billion in the third quarter of 2021, an increase of $864.6 million compared to the third quarter of 2020. This was principally due to a $723.6 million, or 52%, increase in raw material and consumables used, mainly reflecting higher purchased slabs, raw material and energy costs and an 8% increase in steel shipment volumes; and to a $140.9 million increase in other costs, mainly including a $65.6 million increase in maintenance expenses, a $58.5 million increase in labor costs and a $14.5 million increase in services and fees.

Selling, General & Administrative (SG&A) expenses in the third quarter of 2021 were $237.4 million, or 5% of net sales, an increase of $54.3 million compared to SG&A in the third quarter of 2020, mainly due to a $23.0 million increase in freight and transportation expenses, an $18.3 million increase in taxes and a $13.2 million increase in labor costs.

Other operating income in the third quarter of 2021 was $1.9 million. In the third quarter of 2020, other operating expense was $192.0 million, mainly reflecting the derecognition of an asset of $194.1 million arising from Ternium's right to recover 50% of a contingency amount from Thyssenkrupp2. This right expired on September 7, 2020.

Operating income in the third quarter of 2021 was $1.7 billion, or 38% of net sales, compared to operating income of $7.0 million, or 0% of net sales, in the third quarter of 2020. The following table outlines Ternium's operating result by segment for the third quarter of 2021 and third quarter of 2020:

								Intersegment
		Steel segment		Mining segment		eliminations		Total
$ million		3Q21	3Q202		3Q21	3Q20		3Q21	3Q20		3Q21	3Q202
Net Sales	4,574.4	2,114.9	131.0	91.3	(113.4)	(67.6)	4,592.0	2,138.6
Cost of sales	(2,668.9)	(1,762.2)	(75.0)	(60.2)	122.7	65.9	(2,621.1)	(1,756.6)
SG&A expenses	(226.5)	(175.4)	(10.9)	(7.7)		-	-	(237.4)	(183.1)
Other operating income	2.0	(192.2)	(0.1)	0.2		-	-	1.9	(192.0)
(loss), net
Operating result		1,681.0	(14.9)		45.0	23.5		9.4	(1.7)		1,735.4	7.0
EBITDA		1,809.8	318.7		61.4	36.4		9.4	(1.7)		1,880.6	353.4

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Net financial results were a gain of $32.7 million in the third quarter of 2021, primarily reflecting net financial interest income of $12.9 million, related to investment returns on the company's liquidity position net of borrowing costs, and a gain of $10.5 million related to changes in the fair value of financial assets. Net financial results in the third quarter of 2020 were a loss of $13.8 million.

Equity in earnings of non-consolidatedcompanies was a gain of $84.4 million in the third quarter of 2021, compared to a gain of $13.2 million in the third quarter of 2020 mainly due to better results from Ternium's investment in Usiminas.

Income tax expense in the third quarter of 2021 was $486.0 million, with a 26% effective tax rate, compared to $27.5 million in the third quarter of 2020.

Analysis of First Nine Months of 2021 Results

Net sales in the first nine months of 2021 were $11.8 billion, 91% higher than net sales in the first nine months of 2020. The following table outlines Ternium's consolidated net sales for the first nine months of 2021 and the first nine months of 2020:

		Net Sales (million $)		Shipments (thousand tons)		Revenue/ton ($/ton)
		9M21	9M20	Dif.		9M21	9M20	Dif.		9M21	9M20	Dif.
Mexico		6,677.2	3,186.1	110%		5,131	4,269	20%		1,301	746	74%
Southern Region	2,429.1	1,129.2	115%	1,885	1,270	48%	1,289	889	45%
Other Markets	2,433.3	1,654.7	47%	2,223	2,753	-19%	1,095	601	82%
Total steel products	11,539.6	5,970.0	93%	9,238	8,292	11%	1,249	720	74%
Other products*	183.5	132.3	39%
Steel segment		11,723.1	6,102.3	92%
				2,791	2,854	-2%	131	100	32%
Mining segment		366.8	284.8	29%
Intersegment	(328.9)	(231.3)
eliminations
Net sales		11,761.1	6,155.8	91%

*The item "Other products" primarily includes Ternium Brasil's and Ternium México's electricity sales.

Cost of sales was $7.2 billion in the first nine months of 2021, an increase of $2.0 billion compared to the first nine months of 2020. This was principally due to a $1.7 billion, or 42%, increase in raw material and consumables used, mainly reflecting higher purchased slabs, raw material and energy costs and an 11% increase in steel shipment volumes; and to a $314.4 million increase in other costs, mainly including a $151.4 million increase in maintenance expenses, a $131.6 million increase in labor costs and a $29.5 million increase in services and fees.

Selling, General & Administrative (SG&A) expenses in the first nine months of 2021 were $692.3 million, or 6% of net sales, an increase of $126.1 million compared to SG&A expenses in the first nine months of 2020, mainly due to a $53.2 million increase in taxes, a $51.6 million increase in labor costs and a $42.2 million increase in freight and transportation expenses, partially offset by a $28.9 million decrease in amortization of intangible assets.

Other operating income in the first nine months of 2021 was $18.9 million. In the first nine months of 2020, other operating expense was $195.6 million2.

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