Ternium S A : Announces Second Quarter and First Half of 2022 Results

Sebastián Martí

Ternium - Investor Relations

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[phone] www.ternium.com

Ternium Announces Second Quarter and First Half of 2022 Results

Luxembourg, August 2, 2022 - Ternium S.A. (NYSE: TX) today announced its results for the second quarter and first half ended June 30, 2022.

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 Adjusted EBITDA, Net (Cash) Debt and Free Cash Flow. The reconciliation of these figures to the most directly comparable IFRS measures is included in Exhibit I.

Summary of Second Quarter of 2022 Results

	2Q22		1Q22			2Q21
Steel Shipments (tons)	2,957,000	2,951,000	0%	3,068,000	-4%
Iron Ore Shipments (tons)	837,000	897,000	-7%	906,000	-8%
Net Sales ($ million)	4,438	4,305	3%	3,920	13%
Operating Income ($ million)	1,071	1,059	1%	1,271	-16%
Adjusted EBITDA ($ million)	1,225	1,209	1%	1,420	-14%
Adjusted EBITDA Margin (% of net sales)	28%	28%		36%
Adjusted EBITDA per Ton ($)	414	409		463
Net Income ($ million)	936	878		1,158
Equity Holders' Net Income ($ million)	799	776		1,022
Earnings per ADS1 ($)	4.07	3.95		5.21

• American Depositary Share. Each ADS represents 10 shares of Ternium's common stock. Results are based on a weighted average number of shares of common stock outstanding (net of treasury shares) of 1,963,076,776.
• • Adjusted EBITDA of $1.2 billion on steel shipments of 3.0 million tons, with adjusted EBITDA margin of 28% and adjusted EBITDA per ton of $414.
  • Equity holders' net income of $799.3 million, equivalent to earnings per ADS of $4.07.
  • Net cash used in operating activities of $5.3 million, after a working capital increase of $681.4 million, which included a significant increase in inventory costs, and income tax cash outflows of $617.2 million, reflecting an increase in advance payments for fiscal year 2022 in Mexico and the payment of an outstanding tax balance for fiscal year 2021 in Argentina.
  • Negative free cash flow of $166.1 million after capital expenditures of $160.8 million.
  • Dividends paid to shareholders of $1.80 per ADS, or $353.4 million, following the payment of an interim dividend of $0.80 per ADS in the fourth quarter of 2021, for a total dividend paid to shareholders of $2.60 per ADS for fiscal year 2021.
  • Net cash position of $1.0 billion at the end of June 2022, compared to net cash position of $1.6 billion at the end of March 2022.

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Ternium's steel shipments in the second quarter of 2022 were 3.0 million tons, stable sequentially. On a year-over-year basis, steel shipments decreased 110,000 tons in the second quarter, due to a 208,000-ton decrease in the volume of slabs shipped to third parties, partially offset by a 98,000-ton increase in finished steel shipments reflecting a further integration of Ternium's production system.

Steel volumes in Mexico increased 7% sequentially in the second quarter of 2022 on healthy industrial customer demand. Automobile manufacturers continued experiencing supply chain constraints in the period, which further curtailed their ability to improve vehicle production rates. In addition, steel volumes shipped to commercial customers increased sequentially mainly reflecting a restocking process, as infrastructure investment in the country remained subdued. On a year-over-year basis, shipments in Mexico decreased 3% in the second quarter of 2022 on weaker industrial customer demand, partially offset by the positive effect of commercial customer's restocking in the period.

Shipments in the Southern Region increased 2% sequentially in the second quarter of 2022, reflecting increased steel demand in Argentina following a seasonally low first quarter. On a year-over-year basis, shipments in the Southern Region decreased 5% in the second quarter of 2022 as in the prior-year period demand for Ternium's products in Argentina was prompted by softening pandemic-related restrictions. Argentina's construction and industrial activity continued growing in the second quarter of 2022 despite the persistence of a high level of uncertainty in connection with the country's economic and financial performance.

In the Other Markets region, shipments decreased 14% sequentially reflecting lower volumes of finished steel products and of slabs shipped to third parties. On a year-over-year basis, shipments in the second quarter of 2022 decreased 3% on lower volumes of slabs shipped to third parties that were mostly offset by higher finished steel shipments in Ternium's main markets in the region.

Revenue per ton in the second quarter of 2022 was $1,471, up 3% from the first quarter of 2022 reflecting higher realized steel prices in the Southern Region and in Mexico. On a year-over-year basis, revenue per ton in the second quarter of 2022 increased $221, reflecting higher steel prices in all of Ternium's steel markets and a higher value-added sales mix.

Operating income in the second quarter of 2022 reached $1.1 billion with adjusted EBITDA of $1.2 billion. Adjusted EBITDA per ton increased $5 sequentially to $414, reflecting the net effect of a slight increase in both realized steel prices and cost per ton. On a year-over-year basis, adjusted EBITDA per ton decreased $49 in the second quarter mainly as a result of higher costs of purchased slabs, raw materials and other inputs partially offset by higher realized steel prices.

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Summary of First Half of 2022 Results

	1H22		1H21
Steel Shipments (tons)	5,909,000	6,167,000	-4%
Iron Ore Shipments (tons)	1,734,000	1,940,000	-11%
Net Sales ($ million)	8,743	7,169	22%
Operating Income ($ million)	2,130	2,177	-2%
Adjusted EBITDA ($ million)	2,433	2,478	-2%
Adjusted EBITDA Margin (% of net sales)	28%	35%
Adjusted EBITDA per Ton ($)	412	402
Net Income ($ million)	1,814	1,865
Equity Holders' Net Result ($ million)	1,575	1,625
Earnings per ADS1 ($)	8.02	8.28

• Adjusted EBITDA of $2.4 billion, on steel shipments of 5.9 million tons, with adjusted EBITDA margin of 28% and adjusted EBITDA per ton of $412.
• Equity holders' net income of $1.6 billion, equivalent to earnings per ADS of $8.02.
• Net cash provided by operating activities of $687.0 million, after income tax cash outflows of $1.5 billion, reflecting an increase in advanced payments for fiscal year 2022 and the payment of a substantial outstanding balance for fiscal year 2021, and a working capital increase of $350.0 million, which included the impact of a significant year-over-year increase in steel prices and costs.
• Free cash flow of $401.4 million after capital expenditures of $285.6 million.

Ternium's steel shipments in the first half of 2022 were 5.9 million tons, down 258,000 tons compared to shipment levels in the first half of 2021 due to a 492,000-ton decrease in the volume of slabs shipped to third parties, partially offset by a 234,000-ton increase in finished steel shipments, reflecting the company's increased integration.

Steel shipments in Mexico decreased 5% year-over-year in the first half of 2022, with healthy industrial activity and weak infrastructure investment. Shipments in the Southern Region decreased 6% year-over- year in the first half of 2022 as steel demand in Argentina in 2021 was prompted by softening pandemic- related restrictions. In the Other Markets region, steel shipments remained relatively stable as a lower volume of slabs shipped to third parties was offset by higher finished steel shipments.

Revenue per ton reached $1,449 in the first half of 2022, $313 higher than revenue per ton in the first half of 2021, reflecting a significant increase in steel prices in all of Ternium's markets and a higher value- added sales mix.

Operating income amounted to $2.1 billion in the first half of 2022, with adjusted EBITDA of $2.4 billion. Adjusted EBITDA per ton reached $412 in the first half of 2022, increasing $10 year-over-year as higher realized steel prices were mostly offset by higher costs of purchased slabs, raw materials and other inputs.

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Greenhouse Gas Emissions Assessment Under GHG Protocol Accounting Standard

Ternium has recently completed a company-wide assessment of its greenhouse gas emissions under the GHG Protocol accounting standard. The application of the GHG Protocol standard complements the company's current reporting framework under worldsteel's CO2 emissions reporting methodology. This new assessment included the verification by an independent third party of Ternium's greenhouse gas emissions.

Outlook

The global steel market environment is rapidly normalizing after the disruption caused by Russia's invasion of Ukraine in the first quarter of 2022, which led to higher costs across the industry and a surge in steel prices. This normalization, coupled with increasing inflation, the progression of a monetary tightening cycle in the largest western economies and the COVID-19lockdown-related economic slowdown in China, are causing significant steel price decreases.

Ternium expects these steel price decreases to negatively affect its margins during the third quarter of 2022, as the quarterly reset of contract prices gradually reflects lower average prices. The company also expects cost per ton to increase, primarily due to high raw material and slab costs flowing through the company's inventories. As a result, Ternium anticipates adjusted EBITDA to decrease in the third quarter compared to the second quarter of 2022, mainly due to a lower steel margin and steady shipment levels.

In Mexico, demand from the industrial market remains relatively healthy, although supply chain disruptions continue to prevent the automotive industry from a needed increase in production. In addition, the commercial market is currently seeing lackluster apparent demand due to a destocking process driven by the significant decrease in steel prices over the last few months, as well as inflation and higher interest rates which are impacting end customers.

In Argentina, steel demand may reflect substantial macroeconomic volatility.

Analysis of Second Quarter of 2022 Results

Net sales in the second quarter of 2022 were $4.4 billion, 3% higher than net sales in the first quarter of 2022 and 13% higher than net sales in the second quarter of 2021. The following table outlines Ternium's consolidated net sales for the aforementioned periods:

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				Net Sales
$ million		2Q22	1Q22	Dif	2Q21	Dif
Mexico	2,456	2,262	9%	2,272	8%
Southern Region	990	895	11%	812	22%
Other Markets		905	1,054	-14%	761	19%
Total steel products	4,352	4,212	3%	3,845	13%
Other products*		86	93	-8%	65	32%
Total steel segment	4,438	4,305	3%	3,910	14%
Total mining segment	111	103	8%	112	-2%
Total steel and mining segments		4,548	4,408	3 %	4,022	13 %
Intersegment eliminations	(111)	(103)	8%	(102)	8%
Total net sales		4,438	4,305	3 %	3,920	13 %

*The item "Other products" primarily includes electricity sales in Brazil and Mexico.

				Shipments
Thousand tons		2Q22	1Q22	Dif	2Q21	Dif
Mexico	1,679	1,574	7%	1,735	-3%
Southern Region	601	587	2%	636	-5%
Other Markets		677	791	-14%	697	-3%
Total steel segment	2,957	2,951	0%	3,068	-4%
Total mining segment	837	897	-7%	906	-8%
			Revenue / ton
$/ton		2Q22	1Q22	Dif	2Q21	Dif
Mexico	1,463	1,438	2%	1,309	12%
Southern Region	1,647	1,525	8%	1,276	29%
Other Markets		1,337	1,333	0%	1,093	22%
Total steel segment	1,471	1,427	3%	1,253	17%
Total mining segment	132	115	15%	124	7%

Cost of sales was $3.1 billion in the second quarter of 2022, representing an increase of $74.7 million from the first quarter of 2022, principally due to a $171.4 million increase in other costs, including a $138.1 million increase in labor costs primarily in connection with Ternium Mexico employees' profit sharing scheme, and a $20.3 million increase in maintenance expenses; partially offset by a $96.7 million decrease in raw materials and consumables used, mainly reflecting lower purchased slab costs partially offset by higher energy costs. Compared to the second quarter of 2021, cost of sales increased $643.2 million, principally due to a $488.0 million, or 26%, increase in raw materials and consumables used, mainly reflecting higher purchased slab, raw material and energy costs, partially offset by a 4% decrease in steel volumes; and to a $155.2 million increase in other costs, including a $130.9 million increase in labor costs.

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