Ternium S A : Announces Fourth Quarter and Full Year 2020 Results

Sebastián Martí

Ternium - Investor Relations [phone] [phone]www.ternium.com

Ternium Announces Fourth Quarter and Full Year 2020 Results

Luxembourg, February 23, 2021 - Ternium S.A. (NYSE: TX) today announced its results for the fourth quarter and full year ended December 31, 2020.

The financial and operational information contained in this press release is based on Ternium S.A.'s operational data and consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and presented in US dollars ($) and metric tons.

Summary of 2020 Results

2020	2019
Steel Shipments (tons)	11,360,000	12,511,000	-9%
Iron Ore Shipments (tons)	3,797,000	3,576,000	6%
Net Sales ($ million)	8,735.4	10,192.8	-14%
Operating Income ($ million)	1,079.5	864.6	25%
EBITDA1 ($ million)	1,524.5	1,525.7	0%
EBITDA Margin (% of net sales)	17%	15%
EBITDA per Ton2 ($)	134.2	121.9
Financial Result, Net ($ million)	22.3	(99.0)
Income Tax Result ($ million)	(291.5)	(196.5)
Net Result ($ million)	867.9	630.0
Equity Holders' Net Result ($ million)	778.5	564.3
Earnings per ADS3 ($)	3.97	2.87

• • EBITDA of $1.5 billion on steel shipments of 11.4 million tons, with EBITDA margin of 17% and EBITDA per ton of $134.2.

• • Equity holders' net income of $778.5 million, equivalent to earnings per ADS of $3.97, including a non-cash gain related to the derecognition of a contingency on certain tax benefits at Ternium Brasil, equivalent to $0.95 per ADS.

• • Net cash provided by operating activities of $1.8 billion, including a working capital reduction of $352.8 million.

• • Capital expenditures of $560.0 million, down 47% year-over-year reflecting the conclusion of some expansion projects and changes to the investment schedule of other projects across its facilities due to the COVID-19 pandemic.

• • Free cash flow4 of $1.2 billion.

• • Net debt position5 of $371.5 million at the end of December 2020, down from $1.5 billion at the end of December 2019, with net debt to last twelve months EBITDA ratio of 0.2 times.

Ternium's main steel markets stepped back in 2020, negatively affected by the impact of the COVID-19 pandemic on economic activity. A trough in steel demand during the second quarter, however, gave way to a steady recovery during the second half of the year, helped by a gradual rebuilt of inventories and certain shift in consumption patterns toward consumer durables and housing. Consequently, total steel shipments in 2020 reached 11.4 million tons, down 1.2 million tons compared to 2019, mainly reflecting lower shipments of slabs to third parties and of finished steel in the Mexican market.

Shipments in Mexico, the company's main steel market, decreased 6% year-over-year to 5.9 million tons. The country's manufacturing industries gradually ramped up production during the second half of 2020, following a trough in the second quarter, and achieved pre-pandemic levels during the fourth quarter.

Ternium's shipments in the Southern Region reached 1.9 million tons in 2020, down 1% year-over-year. Activity in the construction and industrial sectors recovered during the second half of 2020, supported by increased demand of durable goods and construction materials in Argentina. This shift in consumption patterns led to a high level of shipments in the fourth quarter, above those prevailing before the COVID-19 outbreak.

In the Other Markets region, Ternium's finished steel shipments in 2020 were slightly down year-over-year with lower shipments in Colombia, due to the impact of the pandemic, and higher shipments in the US market. During the second half of 2020, the company's slab facility in Brazil returned to full capacity from minimum utilization rates in April, and increased its integration with other Ternium's mills.

EBITDA per ton increased $12 year-over-year to $134, mainly reflecting lower purchased slab, raw material and energy costs, and the positive impact on costs of weak local currencies vis-a-vis the US dollar, partially offset by lower revenue per ton and the negative impact on costs of lower mill utilization rates.

The company's net income in 2020 was $867.9 million on operating income of $1.1 billion. Operating income in 2020 included a $186.0 million non-cash gain related to the derecognition of a contingency on certain tax benefits at Ternium Brasil.

Summary of Fourth Quarter of 2020 Results

4Q2020

Steel Shipments (tons)

3,067,000

Iron Ore Shipments (tons)

943,000

Net Sales ($ million)

2,579.7

3Q2020	4Q2019
2,845,000	2,917,000
869,000	917,000
2,138.6	2,250.0

8% 5%

9% 3%

21% 15%

Operating Income ($ million)

677.2

201.0 237% 92.2 634%

EBITDA6 ($ million)

645.2

353.4 83% 263.1 145%

EBITDA Margin (% of net sales)

25%

17% 12%

EBITDA per Ton ($)

210.3

124.2 90.2

Financial Result, Net ($ million)

(55.5)

(13.7) (30.0)

Income Tax Result ($ million)

(9.0)

(27.5) 3.8

Net Result ($ million)

670.6

173.0 89.9

Equity Holders' Net Result ($ million)

600.4

145.6 70.5

Earnings per ADS ($)

3.06

0.74 0.36

• • EBITDA of $645.2 million on steel shipments of 3.1 million tons, with EBITDA margin of 25% and EBITDA per ton of $210.3.

• • Equity holders' net income of $600.4 million, equivalent to earnings per ADS of $3.06, including a non-cash gain related to the derecognition of a contingency on certain tax benefits at Ternium Brasil, equivalent to $0.95 per ADS.

• • Net cash provided by operating activities of $354.9 million, including a working capital increase of $275.3 million.

• • Free cash flow7 of $234.4 million after capital expenditures of $120.5 million.

Ternium's steel shipments in the fourth quarter of 2020 reached 3.1 million tons, up 222,000 tons on a sequential basis as activity fully recovered from the pandemic impact. Shipments increased by 14% in Mexico and 20% in the Southern Region, and decreased 10% in the Other Markets region mainly reflecting lower finished steel shipments and relatively stable slab shipments to third parties. On an year-over-year basis, shipments in the fourth quarter of 2020 were up 150,000 tons compared to those in the same period in 2019, with a 6% increase in Mexico and a 35% increase in the Southern Region, partially offset by a 13% decrease in the Other Markets region mainly reflecting lower slab shipments to third parties.

The company's EBITDA per ton in the fourth quarter of 2020 was $210, $86 higher sequentially mainly due to higher revenue per ton, partially offset by a slight increase in cost per ton. On an year-over-year basis, EBITDA per ton increased $120 mainly reflecting higher revenue per ton and a higher value added product mix, lower purchased slab, raw material and energy costs, and the positive impact on costs of weak local currencies vis-a-vis the US dollar.

The company's net income in the fourth quarter of 2020 was $670.6 million on operating income of $677.2 million. Operating income in the fourth quarter included a $186.0 million non-cash gain related to the derecognition of a contingency on certain tax benefits at Ternium Brasil. The Mexican Pesos' 13% appreciation against the US dollar in the fourth quarter of 2020 had a negative impact on Ternium's foreign exchange financial results and a positive impact on deferred tax results at Ternium's Mexican subsidiaries.

Roadmap to Decarbonization

Ternium has announced the adoption of a new decarbonization strategy with the medium-term target of reducing the company's carbon dioxide emissions intensity rate by 20% in 2030, compared to its 2018 base rate of 1.7 tons of carbon dioxide per ton of steel. The company's strategy to achieve this 2030 reduction target is based upon a multi-faceted approach, including the pursuit of intensifying the use of renewable energy at the company's facilities, increasing the participation of scrap in the metallic mix, augmenting carbon capture capacity at its DRI facilities in Mexico, partially replacing met coal with charcoal at its operations in Brazil and Argentina, and prioritizing lower specific-emission steelmaking technologies.

The company has also communicated it will continue analyzing and developing measures to decarbonize its operations over the longer term, based upon current and emerging steel-making technologies, prospects for the availability of raw materials, renewable energy and required infrastructure, and appropriate government regulations to promote fair trade, among other guiding factors.

Annual Dividend Proposal

Ternium's board of directors proposed that an annual dividend of $0.21 per share ($2.10 per ADS), or approximately $412.2 million in the aggregate, be approved at the company's annual general shareholders' meeting, which is scheduled to be held on May 3, 2021. If the annual dividend is approved at the shareholders' meeting, it will be paid on May 11, 2021, with record-date of May 5, 2021.

Outlook

Ternium expects a higher EBITDA in the first quarter of 2021 compared to the fourth quarter of 2020, primarily driven by an increase in realized steel prices and steady shipments, and partially offset by a higher cost per ton.

In Mexico, the company expects steel shipments to remain stable in the first quarter, with strong demand from industrial customers mainly driven by finished goods exports. The commercial market in the country, which is primarily driven by construction activity, is expected to remain relatively unchanged. Extreme weather conditions in the southern United States and northern Mexico disrupted the stable provision of natural gas and energy in these markets, negatively affecting production in the first quarter for approximately 80 thousand tons. All of the company's facilities in the area have returned to normal operations.

In the Southern Region, following a significant third quarter recovery in the Argentine market with a 59% sequential shipment increase in the region, shipments increased an additional 20% in the fourth quarter 2020 driven by growing demand for durable goods and building materials. This increase reflects a shift in consumption patterns toward home improvement expenditures, which is similar to trends seen in other markets in the region. Ternium expects shipments in the Southern Region during the first quarter of 2021 to remain at high levels.

The company anticipates third-party shipments from its slab facility in Brazil to decrease sequentially in the first quarter of 2021, primarily due to a significant increase in intercompany transfers.

Analysis of 2020 Results

Net sales in 2020 were $8.7 billion, 14% lower than net sales in 2019. The following table outlines Ternium's consolidated net sales for 2020 and 2019:

Net Sales (million $)Shipments (thousand tons)Revenue/ton ($/ton)

Mexico Southern Region Other Markets

Total steel products Other products*

Steel segment

Mining segment

Intersegment eliminations

Net sales

2020	2019	Dif.	2020	2019	Dif.	2020	2019	Dif.
4,568.3	5,326.7	-14%	5,913	6,305	-6%	773	845	-9%
1,761.9	1,696.6	4%	1,924	1,938	-1%	916	875	5%
2,171.6	2,866.7	-24%	3,523	4,268	-17%	616	672	-8%
8,501.8	9,890.1	-14%	11,360	12,511	-9%	748	790	-5%
177.7	296.1	-40%
-15%
7%	3,797	3,576	6%	103	102	1%
-14%

8,679.5 10,186.2

390.5 364.0

(334.6) (357.4)

8,735.4 10,192.8

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

Cost of sales was $7.1 billion in 2020, a decrease of $1.4 billion compared to 2019. This was principally due to a $1.2 billion, or 18%, decrease in raw material and consumables used, mainly reflecting a 9% decrease in steel shipment volumes and lower purchased slabs, raw material and energy costs; and to a