Ternium : (English) Ternium Announces Seconod Quarter and First Half 2017 Results Annex 2Q17

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Luxembourg, August 1, 2017 - Ternium S.A. (NYSE: TX) today announced its results for the second quarter and first half ended June 30, 2017.

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 U.S. dollars (USD) and metric tons.

• EBITDA of USD497.9 million in the second quarter 2017, 7% higher sequentially, with higher shipments and slightly lower EBITDA margin.

• Earnings per American Depositary Share (ADS)3 of USD1.27 in the second quarter 2017, a sequential decrease of USD0.06 per ADS.

1 EBITDA in the second quarter 2017 equals operating income of USD392.8 million adjusted to exclude depreciation and amortization of USD105.0 million.

2 Consolidated EBITDA divided by steel shipments.

1

• Capital expenditures of USD98.6 million in the second quarter 2017, up from USD83.9 million in the first quarter 2017.

• Net debt position of USD1.2 billion at the end of June 2017, up from USD0.9 billion at the end of March 2017 and equivalent to 0.7 times net debt to last twelve months EBITDA. Of note in the second quarter 2017 were dividend payments of USD226.9 million.

  Ternium's operating income in the second quarter 2017 was USD392.8 million, a USD28.7 million increase compared to operating income in the first quarter 2017 due mainly to higher shipments. The company's shipments were 166,000 tons higher compared to the first quarter 2017, as a result of a 57,000-ton increase in Mexico, a 54,000-ton increase in the Southern Region and a 54,000-ton increase in Other Markets. Operating margin4 was relatively stable, with a USD33 increase in steel revenue per ton, mainly due to higher realized prices in Mexico, mostly offset by an increase in operating cost per ton5 mainly related to higher raw material and purchased slab costs.

  Compared to the second quarter 2016, the company's operating income in the second quarter 2017 increased USD99.3 million, with higher operating margin and slightly higher shipments. Operating margin in the second quarter 2017 increased year-over-year principally due to USD142 higher steel revenue per ton partially offset by USD100 higher steel operating cost per ton. Steel revenue per ton increased as a result of higher realized prices in all of Ternium's markets. The increase in operating cost per ton was mainly related to higher raw material and purchased slab costs. Shipments were 33,000 tons higher compared to the second quarter 2016, mainly as a result of a 50,000-ton increase in the Southern Region and a 16,000-ton increase in Other Markets, partially offset by a 34,000-ton decrease in Mexico.

  The company's net income in the second quarter 2017 was USD281.8 million, compared to USD310.4 million in the first quarter 2017. The USD28.6 million decrease in net income was mainly due to higher net financial expenses and an increase in the effective tax rate, partially offset by the above mentioned higher operating income. The effective tax rate in the first and second quarters of 2017 was significantly reduced by the non-cash effect on deferred taxes of the appreciation of the Mexican peso against the US dollar, of 10% and 5%, respectively.

  Relative to the prior-year-period, net income in the second quarter 2017 increased USD107.5 million mainly due to higher operating income and a decrease in effective tax rate, partially offset by higher net financial expenses. Net income in the second quarter 2017 included a net foreign exchange loss of USD37.5 million, compared to a gain of USD19.8 in the same quarter in 2016. The net foreign exchange loss in the second quarter 2017 was mainly due to the non-cash negative impact of the Argentine peso's 7% depreciation against the U.S. dollar on Siderar's U.S. dollar financial position, which is offset by changes in Ternium's net equity position in the currency translation adjustments line, and to the negative impact of the Mexican peso's 5% appreciation against the U.S. dollar on a net short local currency position in Ternium's Mexican subsidiaries.

  3 Each American Depositary Share (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.

  4 Operating margin is equal to revenue per ton minus operating cost per ton.

  5 Operating cost per ton is equal to cost of sales plus SG&A, divided by shipments.

  Summary of First Half 2017 Results

  1H 2017	1H 2016
  Steel Shipments (tons)	5,116,000	5,038,000	2%
  Iron Ore Shipments (tons)	1,738,000	1,646,000	6%
  Net Sales (USD million)	4,302.7	3,518.3	22%
  Operating Income (USD million)	757.0	495.9	53%
  EBITDA (USD million)	962.6	695.8	38%
  EBITDA Margin (% of net sales)	22.4%	19.8%
  EBITDA per Ton (USD)	188.2	138.1
  Net Income (USD million)	592.2	297.8
  Equity Holders' Net Income (USD million)	511.0	248.4
  Earnings per ADS (USD)	2.60	1.27

  • EBITDA6 of USD962.6 million in the first half 2017, a 38% year-over-year increase mainly as a result of higher EBITDA per ton and slightly higher shipments.

  • Earnings per ADS7 of USD2.60 in the first half 2017, a year-over-year increase of USD1.34 per ADS.

  • Capital expenditures of USD182.5 million in the first half 2017, down from USD230.2 million in the first half 2016.

Operating income in the first half 2017 was USD757.0 million, a USD261.1 million increase compared to operating income in the first half 2016 due to higher operating margin and slightly higher shipments. Operating margin increased, mainly reflecting USD143 higher steel revenue per ton partially offset by USD94 higher steel operating cost per ton. Steel revenue per ton increased as a result of higher prices in all of Ternium's steel markets. The increase in operating cost per ton was mainly due to higher raw material and purchased slab costs. Shipments were 77,000 tons higher compared to the first half 2016, mainly as a result of a 36,000-ton increase in the Southern Region, a 33,000-ton increase in Mexico and an 8,000-ton increase in Other Markets.

Net income in the first half 2017 was USD592.2 million, compared to net income of USD297.8 million in the first half 2016. The USD294.3 million increase in the year-over-year comparison was mainly due to higher operating income and a lower effective tax rate, partially offset by higher net financial expenses, which included a USD79.9 million negative year-over-year difference in net foreign exchange results mainly related to the effect of the fluctuations of the Mexican peso against the U.S. dollar on a net short local currency position in Ternium's Mexican subsidiaries.

6 EBITDA in the first half 2017 equals operating income of USD757.0 million adjusted to exclude depreciation and amortization of USD205.6 million.

7 Each American Depositary Share (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.

Steel market fundamentals in the North American region remain healthy, with steady end-user demand, adequate steel inventory levels and a higher than 75% capacity utilization rate. Ternium expects these factors to be supportive for steel prices in the region. At the same time, China's steel domestic demand and production levels continue growing. In addition, finished steel imports in the U.S. are reaching 30% of the steel market. Many of these imports are being made under unfair terms, and the company is confident the governments in the region will continue working toward achieving a level playing field for the steel industry.

In Argentina, signals of recovery in many sectors of the economy point to a strong second half of the year, and as a result GDP in the country could grow more than 2.5% in 2017. Good operating conditions in the agribusiness industry, a pick-up in public infrastructure investment and the gradual deployment of resources for the development of shale oil and gas fields by local and international oil companies are fostering an increase in steel demand. The company believes these developments could support a 10% growth in flat steel consumption in Argentina in 2017.

Ternium expects a sequential decrease of operating income in the third quarter 2017 compared to the second quarter 2017, as a result of lower shipments and operating margin. Following record steel shipments in the second quarter 2017, the company anticipates lower volumes in the third quarter 2017 as a result of a seasonal decrease in Mexico, especially in the automotive and HVAC industries, partially offset by an increase in Argentina. Ternium expects slightly lower revenue per ton in the third quarter 2017 compared to the second quarter 2017 mainly as a result of lower realized prices in Mexico in connection with the usual lag effect of regular price resets contained in industrial customer sales contracts, and higher operating cost per ton due to higher purchased slab and raw material costs.