Ternium S.A 6-K, filed Apr 28, 2021
Ternium S.A. (TX)
6-K
2021-04-28
For: 2021-03-31
View Original
Added on
April 07, 2026
About this 6-K
Ternium S.A filed this 6-K on April 28, 2021.
FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
As of 4/27/2021
Ternium S.A.
(Translation of Registrant's name into English)
Ternium S.A.
26 Boulevard Royal – 4th floor
26 Boulevard Royal – 4th floor
L-2449 Luxembourg
(352) 2668-3152
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F.
Form 20-F a Form 40-F __
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.
Yes __ No a
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Not applicable
The attached material is being furnished to the Securities and Exchange Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934, as amended.
This report contains Ternium S.A.’s consolidated financial statements as of March 31, 2021.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TERNIUM S.A.
By: /s/ Pablo Brizzio | By:/s/ Máximo Vedoya | |||||||
| Name: Pablo Brizzio | Name: Máximo Vedoya | |||||||
| Title: Chief Financial Officer | Title: Chief Executive Officer | |||||||
Dated: April 27, 2021
 | |||||
| TERNIUM S.A. | |||||
| Consolidated Condensed Interim Financial Statements | |||||
as of March 31, 2021 | |||||
| and for the three-month periods | |||||
ended on March 31, 2021 and 2020 | |||||
26 Boulevard Royal, 4th floor | |||||
L – 2449 Luxembourg | |||||
R.C.S. Luxembourg: B 98 668 | |||||
INDEX
| Page | ||||||||
Consolidated Condensed Interim Statements of Financial Position | ||||||||
Consolidated Condensed Interim Statements of Changes in Equity | ||||||||
Consolidated Condensed Interim Statements of Cash Flows | ||||||||
Notes to the Consolidated Condensed Interim Financial Statements | ||||||||
| 1 | General information and basis of presentation | |||||||
| 2 | Accounting policies | |||||||
| 3 | Segment information | |||||||
| 4 | Cost of sales | |||||||
| 5 | Selling, general and administrative expenses | |||||||
| 6 | Finance expense, Finance income and Other financial income (expenses), net | |||||||
| 7 | Property, plant and equipment, net | |||||||
| 8 | Intangible assets, net | |||||||
| 9 | Investments in non-consolidated companies | |||||||
| 10 | Contingencies, commitments and restrictions on the distribution of profits | |||||||
| 11 | Related party transactions | |||||||
| 12 | Financial instruments by category and fair value measurement | |||||||
| 13 | The Covid-19 pandemic and its impact on Ternium | |||||||
| 14 | Foreign exchange restrictions in Argentina | |||||||
Page 1 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
| (All amounts in $ thousands) | ||||||||
Consolidated Condensed Interim Income Statements
| Three-month period ended March 31, | ||||||||||||||||||||||||||||||||
| Notes | 2021 | 2020 | ||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Net sales | 3 | 3,249,296 | 2,271,355 | |||||||||||||||||||||||||||||
| Cost of sales | 3 & 4 | (2,138,251) | (1,920,477) | |||||||||||||||||||||||||||||
| Gross profit | 3 | 1,111,045 | 350,878 | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 3 & 5 | (210,367) | (211,591) | |||||||||||||||||||||||||||||
| Other operating income (expenses), net | 3 | 5,095 | (3,611) | |||||||||||||||||||||||||||||
| Operating income | 3 | 905,773 | 135,676 | |||||||||||||||||||||||||||||
| Finance expense | 6 | (7,228) | (16,293) | |||||||||||||||||||||||||||||
| Finance income | 6 | 16,313 | 7,948 | |||||||||||||||||||||||||||||
| Other financial income (expenses), net | 6 | 6,884 | 114,500 | |||||||||||||||||||||||||||||
| Equity in earnings of non-consolidated companies | 9 | 46,519 | 6,086 | |||||||||||||||||||||||||||||
| Profit before income tax expense | 968,261 | 247,917 | ||||||||||||||||||||||||||||||
| Income tax expense | (261,593) | (267,282) | ||||||||||||||||||||||||||||||
| Profit (loss) for the period | 706,668 | (19,365) | ||||||||||||||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||||||||
| Owners of the parent | 602,928 | (11,582) | ||||||||||||||||||||||||||||||
| Non-controlling interest | 103,740 | (7,783) | ||||||||||||||||||||||||||||||
| Profit (loss) for the period | 706,668 | (19,365) | ||||||||||||||||||||||||||||||
| Weighted average number of shares outstanding | 1,963,076,776 | 1,963,076,776 | ||||||||||||||||||||||||||||||
| Basic and diluted earnings (losses) per share for profit (loss) attributable to the equity holders of the company (expressed in $ per share) | 0.31 | (0.01) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2020.
Page 2 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
| (All amounts in $ thousands) | ||||||||
Consolidated Condensed Interim Statements of Comprehensive Income
| Three-month period ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| Profit (loss) for the period | 706,668 | (19,365) | ||||||||||||||||||||||||
| Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||
| Currency translation adjustment | (503) | (3,152) | ||||||||||||||||||||||||
| Currency translation adjustment from participation in non-consolidated companies | (38,711) | (110,161) | ||||||||||||||||||||||||
| Changes in the fair value of financial instruments at fair value through other comprehensive income | (20,725) | 69 | ||||||||||||||||||||||||
| Income tax related to financial instruments at fair value | 4,934 | — | ||||||||||||||||||||||||
| Changes in the fair value of derivatives classified as cash flow hedges | 84 | (407) | ||||||||||||||||||||||||
| Income tax related to cash flow hedges | (25) | 122 | ||||||||||||||||||||||||
| Other comprehensive income items from participation in non-consolidated companies | 33 | — | ||||||||||||||||||||||||
| Items that will not be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||
| Remeasurement of post employment benefit obligations | (186) | — | ||||||||||||||||||||||||
| Income tax relating to remeasurement of post employment benefit obligations | 17 | — | ||||||||||||||||||||||||
| Remeasurement of post employment benefit obligations from participation in non-consolidated companies | (1,446) | (57) | ||||||||||||||||||||||||
| Other comprehensive loss for the period, net of tax | (56,528) | (113,586) | ||||||||||||||||||||||||
| Total comprehensive income (loss) for the period | 650,140 | (132,951) | ||||||||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||
| Owners of the parent | 555,185 | (116,621) | ||||||||||||||||||||||||
| Non-controlling interest | 94,955 | (16,330) | ||||||||||||||||||||||||
| Total comprehensive income (loss) for the period | 650,140 | (132,951) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2020.
Page 3 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
| (All amounts in $ thousands) | ||||||||
Consolidated Condensed Interim Statements of Financial Position
| Balances as of | ||||||||||||||||||||||||||||||||
| Notes | March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||
| Non-current assets | ||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | 7 | 6,488,527 | 6,504,681 | |||||||||||||||||||||||||||||
| Intangible assets, net | 8 | 893,157 | 908,583 | |||||||||||||||||||||||||||||
| Investments in non-consolidated companies | 9 | 477,702 | 471,306 | |||||||||||||||||||||||||||||
| Other investments | 2,861 | 2,881 | ||||||||||||||||||||||||||||||
| Deferred tax assets | 151,600 | 158,703 | ||||||||||||||||||||||||||||||
| Receivables, net | 200,723 | 8,214,570 | 243,306 | 8,289,460 | ||||||||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||||||||||
| Receivables, net | 345,609 | 288,609 | ||||||||||||||||||||||||||||||
| Derivative financial instruments | 1,421 | 1,572 | ||||||||||||||||||||||||||||||
| Inventories, net | 2,345,038 | 2,001,781 | ||||||||||||||||||||||||||||||
| Trade receivables, net | 1,368,694 | 918,438 | ||||||||||||||||||||||||||||||
| Other investments | 637,524 | 813,527 | ||||||||||||||||||||||||||||||
| Cash and cash equivalents | 835,384 | 5,533,670 | 537,882 | 4,561,809 | ||||||||||||||||||||||||||||
| Non-current assets classified as held for sale | 4,996 | 4,966 | ||||||||||||||||||||||||||||||
| 5,538,666 | 4,566,775 | |||||||||||||||||||||||||||||||
| Total Assets | 13,753,236 | 12,856,235 | ||||||||||||||||||||||||||||||
| EQUITY | ||||||||||||||||||||||||||||||||
| Capital and reserves attributable to the owners of the parent | 7,841,311 | 7,286,115 | ||||||||||||||||||||||||||||||
| Non-controlling interest | 1,251,225 | 1,157,038 | ||||||||||||||||||||||||||||||
| Total Equity | 9,092,536 | 8,443,153 | ||||||||||||||||||||||||||||||
| LIABILITIES | ||||||||||||||||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||||||||||||||
| Provisions | 78,999 | 80,570 | ||||||||||||||||||||||||||||||
| Deferred tax liabilities | 333,890 | 346,485 | ||||||||||||||||||||||||||||||
| Other liabilities | 537,913 | 551,856 | ||||||||||||||||||||||||||||||
| Trade payables | 1,118 | 1,145 | ||||||||||||||||||||||||||||||
| Derivative financial instruments | 318 | 523 | ||||||||||||||||||||||||||||||
| Lease liabilities | 242,063 | 251,617 | ||||||||||||||||||||||||||||||
| Borrowings | 1,125,250 | 2,319,551 | 1,327,289 | 2,559,485 | ||||||||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||||||||||||
| Current income tax liabilities | 225,538 | 110,499 | ||||||||||||||||||||||||||||||
| Other liabilities | 316,482 | 249,836 | ||||||||||||||||||||||||||||||
| Trade payables | 1,179,083 | 1,049,337 | ||||||||||||||||||||||||||||||
| Derivative financial instruments | 616 | 5,835 | ||||||||||||||||||||||||||||||
| Lease liabilities | 42,918 | 42,486 | ||||||||||||||||||||||||||||||
| Borrowings | 576,512 | 2,341,149 | 395,604 | 1,853,597 | ||||||||||||||||||||||||||||
| Total Liabilities | 4,660,700 | 4,413,082 | ||||||||||||||||||||||||||||||
| Total Equity and Liabilities | 13,753,236 | 12,856,235 | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2020.
Page 4 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
| (All amounts in $ thousands) | ||||||||
Consolidated Condensed Interim Statements of Changes in Equity
| Attributable to the owners of the parent (1) | |||||||||||||||||||||||||||||||||||||||||
| Capital stock (2) | Treasury shares (2) | Initial public offering expenses | Reserves (3) | Capital stock issue discount (4) | Currency translation adjustment | Retained earnings | Total | Non-controlling interest | Total Equity | ||||||||||||||||||||||||||||||||
| Balance as of January 1, 2021 | 2,004,743 | (150,000) | (23,295) | 1,329,945 | (2,324,866) | (2,861,029) | 9,310,617 | 7,286,115 | 1,157,038 | 8,443,153 | |||||||||||||||||||||||||||||||
| Profit for the period | 602,928 | 602,928 | 103,740 | 706,668 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) for the period | |||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | (36,363) | (36,363) | (2,851) | (39,214) | |||||||||||||||||||||||||||||||||||||
| Remeasurement of post employment benefit obligations | (1,511) | (1,511) | (104) | (1,615) | |||||||||||||||||||||||||||||||||||||
| Cash flow hedges and others, net of tax | 30 | 30 | 29 | 59 | |||||||||||||||||||||||||||||||||||||
| Others | (9,899) | (9,899) | (5,859) | (15,758) | |||||||||||||||||||||||||||||||||||||
| Total comprehensive income for the period | — | — | — | (11,380) | — | (36,363) | 602,928 | 555,185 | 94,955 | 650,140 | |||||||||||||||||||||||||||||||
| Acquisition of non-controlling interest (5) | 11 | 11 | (768) | (757) | |||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 (unaudited) | 2,004,743 | (150,000) | (23,295) | 1,318,576 | (2,324,866) | (2,897,392) | 9,913,545 | 7,841,311 | 1,251,225 | 9,092,536 | |||||||||||||||||||||||||||||||
(1) Shareholders’ equity is determined in accordance with accounting principles generally accepted in Luxembourg.
(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of $ 1.00 per share. As of March 31, 2021, there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of March 31, 2021, the Company held 41,666,666 shares as treasury shares.
(3) Include legal reserve under Luxembourg law for $ 200.5 million, undistributable reserves under Luxembourg law for $ 1.4 billion and reserves related to the acquisition of non-controlling interest in subsidiaries for $ (72.2) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(5) Corresponds to the acquisition of non-controlling interest participation of Ternium Argentina S.A..
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated condensed interim financial statements may not be wholly distributable.
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2020.
Page 5 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
| (All amounts in $ thousands) | ||||||||
Consolidated Condensed Interim Statements of Changes in Equity
| Attributable to the owners of the parent (1) | |||||||||||||||||||||||||||||||||||||||||
| Capital stock (2) | Treasury shares (2) | Initial public offering expenses | Reserves (3) | Capital stock issue discount (4) | Currency translation adjustment | Retained earnings | Total | Non-controlling interest | Total Equity | ||||||||||||||||||||||||||||||||
| Balance as of January 1, 2020 | 2,004,743 | (150,000) | (23,295) | 1,332,980 | (2,324,866) | (2,760,046) | 8,532,149 | 6,611,665 | 1,103,208 | 7,714,873 | |||||||||||||||||||||||||||||||
| Loss for the period | (11,582) | (11,582) | (7,783) | (19,365) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) for the period | |||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | (104,913) | (104,913) | (8,400) | (113,313) | |||||||||||||||||||||||||||||||||||||
| Remeasurement of post employment benefit obligations | (51) | (51) | (6) | (57) | |||||||||||||||||||||||||||||||||||||
| Cash flow hedges, net of tax | (145) | (145) | (140) | (285) | |||||||||||||||||||||||||||||||||||||
| Others | 70 | 70 | (1) | 69 | |||||||||||||||||||||||||||||||||||||
| Total comprehensive loss for the period | — | — | — | (126) | — | (104,913) | (11,582) | (116,621) | (16,330) | (132,951) | |||||||||||||||||||||||||||||||
| Acquisition of non-controlling interest (5) | 4,786 | 4,786 | (9,258) | (4,472) | |||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 (unaudited) | 2,004,743 | (150,000) | (23,295) | 1,337,640 | (2,324,866) | (2,864,959) | 8,520,567 | 6,499,830 | 1,077,620 | 7,577,450 | |||||||||||||||||||||||||||||||
(1) Shareholders’ equity is determined in accordance with accounting principles generally accepted in Luxembourg.
(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of $ 1.00 per share. As of March 31, 2020 ,there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of March 31, 2020, the Company held 41,666,666 shares as treasury shares.
(3) Include legal reserve under Luxembourg law for $ 200.5 million, undistributable reserves under Luxembourg law for $ 1.4 billion, and reserves related to the acquisition of non-controlling interest in subsidiaries for $ (75.2) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(5) Corresponds to the acquisition of non-controlling interest participation of Ternium Argentina S.A..
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated condensed interim financial statements may not be wholly distributable.
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2020.
Page 6 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
| (All amounts in $ thousands) | ||||||||
Consolidated Condensed Interim Statements of Cash Flows
| Three-month period ended March 31, | ||||||||||||||||||||
| Notes | 2021 | 2020 | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||
| Profit (loss) for the period | 706,668 | (19,365) | ||||||||||||||||||
| Adjustments for: | ||||||||||||||||||||
| Depreciation and amortization | 7 & 8 | 151,585 | 166,392 | |||||||||||||||||
| Income tax accruals less payments | 114,328 | 223,997 | ||||||||||||||||||
| Equity in earnings of non-consolidated companies | 9 | (46,519) | (6,086) | |||||||||||||||||
| Interest accruals less payments | 1,697 | 1,303 | ||||||||||||||||||
| Changes in provisions | 4,400 | (651) | ||||||||||||||||||
| Changes in working capital (1) | (666,182) | 181,767 | ||||||||||||||||||
| Net foreign exchange results and others | 61,860 | (104,582) | ||||||||||||||||||
| Net cash provided by operating activities | 327,837 | 442,775 | ||||||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||
| Capital expenditures | 7 & 8 | (129,701) | (257,582) | |||||||||||||||||
| Decrease in other investments | 149,306 | 97,054 | ||||||||||||||||||
| Proceeds from the sale of property, plant and equipment | 567 | 156 | ||||||||||||||||||
| Acquisition of non-controlling interest | (757) | (4,472) | ||||||||||||||||||
| Net cash provided by (used in) investing activities | 19,415 | (164,844) | ||||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||
| Finance lease payments | (10,964) | (10,511) | ||||||||||||||||||
| Proceeds from borrowings | 18,137 | 190,615 | ||||||||||||||||||
| Repayments of borrowings | (36,653) | (60,709) | ||||||||||||||||||
| Net cash (used in) provided by financing activities | (29,480) | 119,395 | ||||||||||||||||||
| Increase in cash and cash equivalents | 317,772 | 397,326 | ||||||||||||||||||
| Movement in cash and cash equivalents | ||||||||||||||||||||
| At January 1, | 537,882 | 519,965 | ||||||||||||||||||
| Effect of exchange rate changes | (20,270) | (10,900) | ||||||||||||||||||
| Increase in cash and cash equivalents | 317,772 | 397,326 | ||||||||||||||||||
| Cash and cash equivalents as of March 31, (2) | 835,384 | 906,391 | ||||||||||||||||||
| Non-cash transactions: | ||||||||||||||||||||
| Acquisition of PP&E under lease contract agreements | 3,650 | 1,157 | ||||||||||||||||||
(1) The working capital is impacted by non-cash movements of $ (10.6) million as of March 31, 2021 ($ (27.4) million as of March 31, 2020) due to the variations in the exchange rates used by subsidiaries.
(2) It includes restricted cash of $ 61 and $ 91 as of March 31, 2021 and 2020, respectively. In addition, the Company had other investments with a maturity of more than three months for $ 637,524 and $ 118,218 as of March 31, 2021 and 2020, respectively.
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2020.
Page 7 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
Notes to the Consolidated Condensed Interim Financial Statements
1.GENERAL INFORMATION AND BASIS OF PRESENTATION
Ternium S.A. (the “Company” or “Ternium”), was incorporated on December 22, 2003 to hold investments in flat and long steel manufacturing and distributing companies. The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of $ 1.00 per share. As of March 31, 2021, there were 2,004,743,442 shares issued. All issued shares are fully paid.
Ternium’s American Depositary Shares (“ADS”) trade on the New York Stock Exchange under the symbol “TX”.
The name and percentage of ownership of subsidiaries that have been included in consolidation in these Consolidated Condensed Interim Financial Statements are disclosed in Note 2 to the audited Consolidated Financial Statements for the year ended December 31, 2020.
The preparation of Consolidated Condensed Interim Financial Statements requires management to make estimates and assumptions that might affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the statement of financial position, and also the reported amounts of revenues and expenses for the reported periods. Actual results may differ from these estimates. The main assumptions and estimates were disclosed in the Consolidated Financial Statements for the year ended December 31, 2020, without significant changes since its publication.
2. ACCOUNTING POLICIES
These Consolidated Condensed Interim Financial Statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” and are unaudited. These Consolidated Condensed Interim Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in conformity with International Financial Reporting Standards as adopted by the European Union (“EU”). Recently issued accounting pronouncements were applied by the Company as from their respective dates.
These Consolidated Condensed Interim Financial Statements have been prepared following the same accounting policies used in the preparation of the audited Consolidated Financial Statements for the year ended December 31, 2020.
None of the accounting pronouncements issued after December 31, 2020, and as of the date of these Consolidated Condensed Interim Financial Statements have a material effect on the Company’s financial condition or result or operations.
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| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
3. SEGMENT INFORMATION
REPORTABLE OPERATING SEGMENTS
The Company is organized in two reportable segments: Steel and Mining.
The Steel segment includes the sales of steel products, which comprises slabs, hot rolled coils and sheets, cold rolled coils and sheets, tin plate, welded pipes, hot dipped galvanized and electro-galvanized sheets, pre-painted sheets, billets (steel in its basic, semi-finished state), wire rod and bars and other tailor-made products to serve its customers’ requirements. It also includes the sales of energy.
The Steel segment comprises four operating segments: Mexico, Southern Region, Brazil and Other markets. These four segments have been aggregated considering the economic characteristics and financial effects of each business activity in which the entity engages; the related economic environment in which it operates; the type or class of customer for the products; the nature of the products; and the production processes. The Mexico operating segment comprises the Company’s businesses in Mexico. The Southern region operating segment manages the businesses in Argentina, Paraguay, Chile, Bolivia and Uruguay. The Brazil operating segment includes the business generated in Brazil. The Other markets operating segment includes businesses mainly in United States, Colombia, China and Guatemala.
The Mining segment includes the sales of mining products, mainly iron ore and pellets, and comprises the mining activities of Las Encinas, an iron ore mining company in which Ternium holds a 100% equity interest and the 50% of the operations and results performed by Peña Colorada, another iron ore mining company in which Ternium maintains that same percentage over its equity interest. Both mining operations are located in Mexico. For Peña Colorada, the Company recognizes its assets, liabilities, revenue and expenses in relation to its interest in the joint operation.
Ternium’s Chief Operating Decision Maker (CEO) holds monthly meetings with senior management, in which operating and financial performance information is reviewed, including financial information that differs from IFRS principally as follows:
-The use of direct cost methodology to calculate the inventories, while under IFRS is at full cost, including absorption of production overheads and depreciation.
-The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are calculated at historical cost (with the FIFO method).
-Other timing and non-significant differences.
Most information on segment assets is not disclosed as it is not reviewed by the CEO.
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| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
3.SEGMENT INFORMATION (continued)
| Three-month period ended March 31, 2021 (Unaudited) | ||||||||||||||||||||||||||
| Steel | Mining | Inter-segment eliminations | Total | |||||||||||||||||||||||
| IFRS | ||||||||||||||||||||||||||
| Net sales | 3,238,990 | 123,368 | (113,062) | 3,249,296 | ||||||||||||||||||||||
| Cost of sales | (2,170,770) | (75,378) | 107,897 | (2,138,251) | ||||||||||||||||||||||
| Gross profit | 1,068,220 | 47,990 | (5,165) | 1,111,045 | ||||||||||||||||||||||
| Selling, general and administrative expenses | (206,230) | (4,137) | — | (210,367) | ||||||||||||||||||||||
| Other operating income, net | 4,816 | 279 | — | 5,095 | ||||||||||||||||||||||
| Operating income - IFRS | 866,806 | 44,132 | (5,165) | 905,773 | ||||||||||||||||||||||
| Management view | ||||||||||||||||||||||||||
| Net sales | 3,238,990 | 147,682 | (137,376) | 3,249,296 | ||||||||||||||||||||||
| Operating income | 682,144 | 69,760 | (10,643) | 741,261 | ||||||||||||||||||||||
| Reconciliation items: | ||||||||||||||||||||||||||
| Differences in Cost of sales | 164,512 | |||||||||||||||||||||||||
| Operating income - IFRS | 905,773 | |||||||||||||||||||||||||
| Financial income (expense), net | 15,969 | |||||||||||||||||||||||||
| Equity in earnings of non-consolidated companies | 46,519 | |||||||||||||||||||||||||
| Income before income tax expense - IFRS | 968,261 | |||||||||||||||||||||||||
| Depreciation and amortization - IFRS | (136,376) | (15,209) | — | (151,585) | ||||||||||||||||||||||
| Three-month period ended March 31, 2020 (Unaudited) | ||||||||||||||||||||||||||
| Steel | Mining | Inter-segment eliminations | Total | |||||||||||||||||||||||
| IFRS | ||||||||||||||||||||||||||
| Net sales | 2,254,104 | 94,265 | (77,014) | 2,271,355 | ||||||||||||||||||||||
| Cost of sales | (1,913,761) | (85,488) | 78,772 | (1,920,477) | ||||||||||||||||||||||
| Gross profit | 340,343 | 8,776 | 1,758 | 350,878 | ||||||||||||||||||||||
| Selling, general and administrative expenses | (207,786) | (3,805) | — | (211,591) | ||||||||||||||||||||||
| Other operating income, net | (3,766) | 155 | — | (3,611) | ||||||||||||||||||||||
| Operating income - IFRS | 128,792 | 5,126 | 1,758 | 135,676 | ||||||||||||||||||||||
| Management view | ||||||||||||||||||||||||||
| Net sales | 2,254,104 | 93,481 | (76,230) | 2,271,355 | ||||||||||||||||||||||
| Operating income | 191,189 | 26,214 | 1,611 | 219,015 | ||||||||||||||||||||||
| Reconciliation items: | ||||||||||||||||||||||||||
| Differences in Cost of sales | (83,339) | |||||||||||||||||||||||||
| Operating income - IFRS | 135,676 | |||||||||||||||||||||||||
| Financial income (expense), net | 106,155 | |||||||||||||||||||||||||
| Equity in earnings of non-consolidated companies | 6,086 | |||||||||||||||||||||||||
| Income before income tax expense - IFRS | 247,917 | |||||||||||||||||||||||||
| Depreciation and amortization - IFRS | (155,095) | (11,297) | — | (166,392) | ||||||||||||||||||||||
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| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
3. SEGMENT INFORMATION (continued)
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.
| Three-month period ended March 31, 2021 (Unaudited) | ||||||||||||||||||||||||||
| Mexico | Southern region | Other markets | Total | |||||||||||||||||||||||
| Net sales | 1,846,973 | 681,003 | 721,320 | 3,249,296 | ||||||||||||||||||||||
| Non-current assets (1) | 4,742,361 | 903,503 | 1,735,820 | 7,381,684 | ||||||||||||||||||||||
| Three-month period ended March 31, 2020 (Unaudited) | ||||||||||||||||||||||||||
| Mexico | Southern region | Other markets | Total | |||||||||||||||||||||||
| Net sales | 1,300,293 | 340,947 | 630,115 | 2,271,355 | ||||||||||||||||||||||
| Non-current assets (1) | 4,703,796 | 993,373 | 1,866,948 | 7,564,117 | ||||||||||||||||||||||
| (1) Includes Property, plant and equipment and Intangible assets. | ||||||||||||||||||||||||||
4.COST OF SALES
| Three-month period ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (Unaudited) | ||||||||||||||
| Inventories at the beginning of the year | 2,001,781 | 2,158,298 | ||||||||||||
| Plus: Charges for the period | ||||||||||||||
| Raw materials and consumables used and other movements | 2,045,434 | 1,426,087 | ||||||||||||
| Services and fees | 31,614 | 32,735 | ||||||||||||
| Labor cost | 158,055 | 145,074 | ||||||||||||
| Depreciation of property, plant and equipment | 128,227 | 132,345 | ||||||||||||
| Amortization of intangible assets | 4,874 | 3,167 | ||||||||||||
| Maintenance expenses | 112,514 | 106,058 | ||||||||||||
| Office expenses | 1,540 | 1,677 | ||||||||||||
| Insurance | 2,845 | 2,515 | ||||||||||||
| Change of obsolescence allowance | (145) | (1,927) | ||||||||||||
| Recovery from sales of scrap and by-products | (7,507) | (6,147) | ||||||||||||
| Others | 4,057 | 4,179 | ||||||||||||
| Less: Inventories at the end of the period | (2,345,038) | (2,083,584) | ||||||||||||
| Cost of Sales | 2,138,251 | 1,920,477 | ||||||||||||
Page 11 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
5.SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
| Three-month period ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (Unaudited) | ||||||||||||||
| Services and fees | 12,757 | 16,791 | ||||||||||||
| Labor cost | 54,807 | 52,011 | ||||||||||||
| Depreciation of property, plant and equipment | 3,826 | 4,057 | ||||||||||||
| Amortization of intangible assets | 14,658 | 26,823 | ||||||||||||
| Maintenance and expenses | 1,453 | 1,039 | ||||||||||||
| Taxes | 33,628 | 22,008 | ||||||||||||
| Office expenses | 7,325 | 7,786 | ||||||||||||
| Freight and transportation | 76,290 | 77,423 | ||||||||||||
| Increase of allowance for doubtful accounts | 208 | 204 | ||||||||||||
| Others | 5,415 | 3,449 | ||||||||||||
| Selling, general and administrative expenses | 210,367 | 211,591 | ||||||||||||
6.FINANCE EXPENSE, FINANCE INCOME AND OTHER FINANCIAL INCOME (EXPENSES), NET
| Three-month period ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (Unaudited) | ||||||||||||||
| Interest expense | (7,228) | (16,293) | ||||||||||||
| Finance expense | (7,228) | (16,293) | ||||||||||||
| Interest income | 16,313 | 7,948 | ||||||||||||
| Finance income | 16,313 | 7,948 | ||||||||||||
| Net foreign exchange (loss) gain | (9,378) | 109,220 | ||||||||||||
| Change in fair value of financial assets | 8,789 | 1,580 | ||||||||||||
| Derivative contract results | 2,831 | 15,895 | ||||||||||||
| Others | 4,642 | (12,195) | ||||||||||||
| Other financial income (expenses), net | 6,884 | 114,500 | ||||||||||||
7. PROPERTY, PLANT AND EQUIPMENT, NET
| Three-month period ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (Unaudited) | ||||||||||||||
| At the beginning of the year | 6,504,681 | 6,539,581 | ||||||||||||
| Currency translation differences | (316) | (2,047) | ||||||||||||
| Additions | 119,231 | 245,036 | ||||||||||||
| Value adjustments of lease contracts | 3,018 | (6,978) | ||||||||||||
| Disposals | (6,646) | (7,138) | ||||||||||||
| Depreciation charge | (132,053) | (136,402) | ||||||||||||
| Capitalized borrowing costs | 2,396 | 4,514 | ||||||||||||
| Transfers and reclassifications | (1,784) | (227) | ||||||||||||
| At the end of the period | 6,488,527 | 6,636,339 | ||||||||||||
Page 12 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
8. INTANGIBLE ASSETS, NET
| Three-month period ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (Unaudited) | ||||||||||||||
| At the beginning of the year | 908,583 | 943,838 | ||||||||||||
| Additions | 14,120 | 13,703 | ||||||||||||
| Amortization charge | (19,532) | (29,990) | ||||||||||||
| Transfers/Disposals | (10,014) | 227 | ||||||||||||
| At the end of the period | 893,157 | 927,778 | ||||||||||||
9.INVESTMENTS IN NON-CONSOLIDATED COMPANIES
| Company | Country of incorporation | Main activity | Voting rights as of | Value as of | ||||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS | Brazil | Manufacturing and selling of steel products | 34.39% | 34.39% | 423,274 | 422,948 | ||||||||||||||||||||||||||||||||
| Techgen S.A. de C.V. | Mexico | Provision of electric power | 48.00% | 48.00% | 48,764 | 42,625 | ||||||||||||||||||||||||||||||||
| Other non-consolidated companies (1) | 5,664 | 5,733 | ||||||||||||||||||||||||||||||||||||
| 477,702 | 471,306 | |||||||||||||||||||||||||||||||||||||
(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 March 31, 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 March 31, 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%.
Page 13 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
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, 2021, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 17.89 (approximately $ 3.14; December 31, 2020: BRL 15.69 – $ 3.02) per ordinary share and BRL 17.10 (approximately $ 3.00; December 31, 2020: BRL 14.61 – $ 2.81) per preferred share, respectively. Accordingly, as of March 31, 2021, Ternium’s ownership stake had a market value of approximately $ 787.3 million and a carrying value of $ 423.3 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 March 31, 2021, the value of the investment in Usiminas is comprised as follows:
| Value of investment | USIMINAS | |||||||
| As of January 1, 2021 | 422,948 | |||||||
| Share of results (1) | 40,211 | |||||||
| Other comprehensive loss | (39,885) | |||||||
| As of March 31, 2021 | 423,274 | |||||||
| (1) It includes the adjustment of the values associated to the purchase price allocation. | ||||||||
The investment in Usiminas is based on the following calculation:
| Usiminas' shareholders' equity | 2,767,168 | |||||||
| Percentage of interest of the Company over shareholders' equity | 20.41 | % | ||||||
| Interest of the Company over shareholders' equity | 564,325 | |||||||
| Purchase price allocation | 44,391 | |||||||
| Goodwill | 182,443 | |||||||
| Impairment | (367,885) | |||||||
| Total Investment in Usiminas | 423,274 | |||||||
On April 23, 2021, Usiminas issued its consolidated interim accounts as of and for the three-month period ended March 31, 2021.
Page 14 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
9. INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
| Summarized balance sheet (in million $) | As of March 31, 2021 | |||||||
| Assets | ||||||||
| Non-current | 3,192 | |||||||
| Current | 1,593 | |||||||
| Other current investments | 105 | |||||||
| Cash and cash equivalents | 703 | |||||||
| Total Assets | 5,593 | |||||||
| Liabilities | ||||||||
| Non-current | 551 | |||||||
| Non-current borrowings | 1,090 | |||||||
| Current | 780 | |||||||
| Current borrowings | 11 | |||||||
| Total Liabilities | 2,432 | |||||||
| Non-controlling interest | 394 | |||||||
| Shareholders' equity | 2,767 | |||||||
| Summarized income statement (in million $) | Three-month period ended March 31, 2021 | |||||||
| Net sales | 1,289 | |||||||
| Cost of sales | (839) | |||||||
| Gross Profit | 450 | |||||||
| Selling, general and administrative expenses | (39) | |||||||
| Other operating income (loss), net | (23) | |||||||
| Operating income | 388 | |||||||
| Financial expenses, net | (69) | |||||||
| Equity in earnings of associated companies | 7 | |||||||
| Profit before income tax | 326 | |||||||
| Income tax expense | (106) | |||||||
| Net profit before non-controlling interest | 220 | |||||||
| Non-controlling interest in other subsidiaries | (50) | |||||||
| Net profit for the period | 170 | |||||||
Techgen S.A. de C.V.
Techgen stated as of and for the three-month period ended March 31, 2021, that revenues amounted to $ 83 million ($ 314 million for the year ended December 31, 2020), net profit from continuing operations to $ 13 million ($44 million for the year ended December 31, 2020), non-current assets to $ 823 million ($ 833 million as of December 31, 2020), current assets to $ 64 million ($ 59 million as of December 31, 2020), non-current liabilities to $ 691 million ($ 709 million as of December 31, 2020), current liabilities to $ 94 million ($ 95 million as of December 31, 2020) and shareholders’ equity to $ 102 million ($ 89 million as of December 31, 2020).
Page 15 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
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, 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.
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.
Page 16 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
10. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS (continued)
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.
Page 17 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
11. RELATED PARTY TRANSACTIONS
As of March 31, 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:
| Three-month period ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (Unaudited) | ||||||||||||||
| (i) Transactions | ||||||||||||||
| (a) Sales of goods and services | ||||||||||||||
| Sales of goods to non-consolidated parties | 217,658 | 137,865 | ||||||||||||
| Sales of goods to other related parties | 22,562 | 3,128 | ||||||||||||
| Sales of services and others to non-consolidated parties | 44 | 44 | ||||||||||||
| Sales of services and others to other related parties | 314 | 338 | ||||||||||||
| 240,578 | 141,375 | |||||||||||||
| (b) Purchases of goods and services | ||||||||||||||
| Purchases of goods from non-consolidated parties | 110,261 | 87,632 | ||||||||||||
| Purchases of goods from other related parties | 14,975 | 31,247 | ||||||||||||
| Purchases of services and others from non-consolidated parties | 2,081 | 1,929 | ||||||||||||
| Purchases of services and others from other related parties | 20,228 | 30,605 | ||||||||||||
| 147,545 | 151,413 | |||||||||||||
| (c) Financial results | ||||||||||||||
| Income with non-consolidated parties | 1,559 | 2,088 | ||||||||||||
| Expenses in connection with lease contracts from other related parties | (256) | (414) | ||||||||||||
| 1,303 | 1,674 | |||||||||||||
| (d) Other income and expenses | ||||||||||||||
| Income (expenses), net with non-consolidated parties | 291 | 206 | ||||||||||||
| Income (expenses), net with other related parties | 179 | 128 | ||||||||||||
| 470 | 334 | |||||||||||||
| March 31, 2021 | December 31, 2020 | |||||||||||||
| (Unaudited) | ||||||||||||||
| (ii) Period-end balances | ||||||||||||||
| (a) Arising from sales/purchases of goods/services | ||||||||||||||
| Receivables from non-consolidated parties | 224,556 | 227,074 | ||||||||||||
| Receivables from other related parties | 16,862 | 3,674 | ||||||||||||
| Advances to non-consolidated parties | 8,354 | 6,647 | ||||||||||||
| Advances to suppliers with other related parties | 6,570 | 7,732 | ||||||||||||
| Payables to non-consolidated parties | (40,567) | (30,407) | ||||||||||||
| Payables to other related parties | (25,155) | (29,095) | ||||||||||||
| Lease Liabilities with other related parties | (3,185) | (3,550) | ||||||||||||
| 187,435 | 182,075 | |||||||||||||
Page 18 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
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, 2021 (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 | 154,315 | — | — | 154,315 | ||||||||||||||||||||||
| Derivative financial instruments | — | 1,421 | — | 1,421 | ||||||||||||||||||||||
| Trade receivables | 1,368,694 | — | — | 1,368,694 | ||||||||||||||||||||||
| Other investments | 391,210 | 2,609 | 246,313 | 640,132 | ||||||||||||||||||||||
| Cash and cash equivalents | 453,823 | 381,561 | — | 835,384 | ||||||||||||||||||||||
| Total | 2,368,042 | 385,591 | 246,313 | 2,999,946 | ||||||||||||||||||||||
| As of March 31, 2021 (in $ thousands) | Amortized cost | Liabilities at fair value through profit or loss | Total | |||||||||||||||||||||||
| (ii) Liabilities as per statement of financial position | ||||||||||||||||||||||||||
| Other liabilities | 76,113 | — | 76,113 | |||||||||||||||||||||||
| Trade payables | 1,129,448 | — | 1,129,448 | |||||||||||||||||||||||
| Derivative financial instruments | — | 934 | 934 | |||||||||||||||||||||||
| Lease liabilities | 284,981 | — | 284,981 | |||||||||||||||||||||||
| Borrowings | 1,701,762 | — | 1,701,762 | |||||||||||||||||||||||
| Total | 3,192,304 | 934 | 3,193,238 | |||||||||||||||||||||||
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:
| Fair value measurement as of March 31, 2021 (in $ thousands): | ||||||||||||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Financial assets at fair value through profit or loss / OCI | ||||||||||||||||||||||||||
| Cash and cash equivalents | 381,561 | 381,561 | — | — | ||||||||||||||||||||||
| Other investments | 248,922 | 246,313 | — | 2,609 | ||||||||||||||||||||||
| Derivative financial instruments | 1,421 | — | 1,421 | — | ||||||||||||||||||||||
| Total assets | 631,904 | 627,874 | 1,421 | 2,609 | ||||||||||||||||||||||
| Financial liabilities at fair value through profit or loss / OCI | ||||||||||||||||||||||||||
| Derivative financial instruments | 934 | — | 934 | — | ||||||||||||||||||||||
| Total liabilities | 934 | — | 934 | — | ||||||||||||||||||||||
Page 19 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
12. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT (continued)
| Fair value measurement as of December 31, 2020 (in $ thousands): | ||||||||||||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 (*) | ||||||||||||||||||||||
| Financial assets at fair value through profit or loss / OCI | ||||||||||||||||||||||||||
| Cash and cash equivalents | 259,020 | 259,020 | — | — | ||||||||||||||||||||||
| Other investments | 236,240 | 233,611 | — | 2,629 | ||||||||||||||||||||||
| Derivative financial instruments | 1,572 | — | 1,572 | — | ||||||||||||||||||||||
| Total assets | 496,832 | 492,631 | 1,572 | 2,629 | ||||||||||||||||||||||
| Financial liabilities at fair value through profit or loss / OCI | ||||||||||||||||||||||||||
| Derivative financial instruments | 6,358 | — | 6,358 | — | ||||||||||||||||||||||
| Total liabilities | 6,358 | — | 6,358 | — | ||||||||||||||||||||||
(*) 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.
13. 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 for a significant portion of white collar 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 yet in their early stages.
With total borrowings less cash and cash equivalents and other current and non-current investments of $ 229 million as of March 31, 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 revised 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.
Page 20 of | ||||||||
| TERNIUM S.A. | ||||||||
Consolidated Condensed Interim Financial Statements as of March 31, 2021 | ||||||||
and for the three-month periods ended March 31, 2021 and 2020 | ||||||||
14. FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA
Ternium’s Argentine subsidiary, Ternium Argentina S.A., is currently operating in a complex and volatile economic environment. The recession the Argentine economy was going through at the end of 2019 coupled with the effects of the COVID-19 outbreak in March 2020 significantly affected economic activity and macroeconomic variables in the country.
Starting in September 2019, the Argentine Central Bank has been imposing increasingly restrictive regulations on foreign exchange transactions, aimed at avoiding further deterioration of a low level of foreign currency reserves. These measures have not had a significant effect on Ternium Argentina’s ability to access the foreign exchange market for commercial payments. Access to the Argentine foreign exchange market to pay dividends and services to related parties requires prior central bank approval, which is granted on a very restricted basis. Current Argentine Central Bank regulations deter companies from converting its Argentine Pesos (ARS) holdings via alternate means due to consequent loss of access to the official foreign exchange market.
Ternium Argentina stated in its interim accounts as of and for the three-month period ended March 31, 2021, that revenues amounted to $ 681 million, net profit from continuing operations to $ 174 million, total assets to $ 3,509 million, total liabilities to $ 439 million and shareholders’ equity to $ 3,070 million.
Our Argentine subsidiary’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 March 31, 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 Argentine Central Bank regulations that could be imposed in the future could further restrict our Argentine subsidiary’s ability to access the official foreign exchange market.
| Pablo Brizzio | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
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