4.COST OF SALES
| | | | | | | | | | | | | | |
| | Nine-month period ended
September 30, |
| | 2022 | | 2021 |
| | (Unaudited) |
| | | | |
| Inventories at the beginning of the year | | 3,908,305 | | | 2,001,781 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Plus: Charges for the period | | | | |
Raw materials and consumables used and
other movements | | 7,683,998 | | | 7,343,465 | |
| Services and fees | | 134,544 | | | 112,217 | |
| Labor cost | | 672,257 | | | 520,069 | |
| Depreciation of property, plant and equipment | | 396,286 | | | 385,393 | |
| Amortization of intangible assets | | 29,779 | | | 16,623 | |
| Maintenance expenses | | 460,895 | | | 420,506 | |
| Office expenses | | 7,202 | | | 5,496 | |
| Valuation allowance | | 18,078 | | | — | |
| Insurance | | 11,644 | | | 8,584 | |
| Change of obsolescence allowance | | 26,841 | | | 777 | |
| Recovery from sales of scrap and by-products | | (30,953) | | | (26,634) | |
| Others | | 15,639 | | | 13,167 | |
| | | | |
| Less: Inventories at the end of the period | | (3,966,258) | | | (3,626,356) | |
| | | | |
| Cost of Sales | | 9,368,257 | | | 7,175,088 | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
5.SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
| | | | | | | | | | | | | | |
| | Nine-month period ended
September 30, |
| | 2022 | | 2021 |
| | (Unaudited) |
| Services and fees | | 55,517 | | 44,136 |
| Labor cost | | 229,709 | | 190,631 |
| Depreciation of property, plant and equipment | | 10,269 | | 10,930 |
| Amortization of intangible assets | | 19,734 | | 32,636 |
| Maintenance and expenses | | 6,313 | | 5,195 |
| Taxes | | 128,891 | | 118,021 |
| Office expenses | | 31,798 | | 24,100 |
| Freight and transportation | | 380,268 | | 254,194 |
| Increase of allowance for doubtful accounts | | 590 | | | 73 | |
| Others | | 6,013 | | 12,338 |
| | | | |
| Selling, general and administrative expenses | | 869,102 | | | 692,254 | |
6.FINANCE EXPENSE, FINANCE INCOME AND OTHER FINANCIAL INCOME (EXPENSES), NET
| | | | | | | | | | | | | | |
| | Nine-month period ended
September 30, |
| | 2022 | | 2021 |
| | (Unaudited) |
| Interest expense | | (28,569) | | | (20,551) | |
| | | | |
| Finance expense | | (28,569) | | | (20,551) | |
| | | | |
| Interest income | | 47,033 | | | 54,160 | |
| | | | |
| Finance income | | 47,033 | | | 54,160 | |
| | | | |
| Net foreign exchange loss (1) | | (137,143) | | | (25,400) | |
| | | | |
| Change in fair value of financial assets | | 57,608 | | | 37,698 | |
| Derivative contract results | | (1,610) | | | 3,997 | |
| Others | | (15,959) | | | 21,624 | |
| | | | |
| Other financial (expenses) income, net | | (97,104) | | | 37,919 | |
(1) Mainly related to the devaluation of the Argentine peso.
7. PROPERTY, PLANT AND EQUIPMENT, NET
| | | | | | | | | | | | | | |
| | Nine-month period ended
September 30, |
| | 2022 | | 2021 |
| | (Unaudited) |
| At the beginning of the year | | 6,431,578 | | | 6,504,681 | |
| | | | |
| | | | |
| Currency translation differences | | 129 | | | (173) | |
| Additions | | 360,289 | | | 365,734 | |
| Value adjustments of lease contracts | | 16,031 | | | 4,413 | |
| Disposals | | (18,077) | | | (19,428) | |
| Depreciation charge | | (406,555) | | | (396,323) | |
| Capitalized borrowing costs | | 403 | | | 5,902 | |
| Transfers and reclassifications | | (2,320) | | | (2,281) | |
| | | | |
| | | | |
| At the end of the period | | 6,381,478 | | | 6,462,525 | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
8. INTANGIBLE ASSETS, NET
| | | | | | | | | | | | | | |
| | | Nine-month period ended
September 30, |
| | 2022 | | 2021 |
| | (Unaudited) |
| At the beginning of the year | | 902,256 | | | 908,583 | |
| | | | |
| | | | |
| | | | |
| Additions | | 72,003 | | | 47,208 | |
| Amortization charge | | (49,513) | | | (49,259) | |
| | | | |
| | | | |
| Transfers/Disposals | | 2,321 | | | (9,557) | |
| | | | |
| At the end of the period | | 927,067 | | | 896,975 | |
9.INVESTMENTS IN NON-CONSOLIDATED COMPANIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Country of incorporation | | Main activity | | Voting rights as of | | Value as of |
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| | | | | | | | | |
| | | | | | | | | | | | |
| Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS | | Brazil | | Manufacturing and selling of steel products | | 34.39% | | 34.39% | | 696,654 | | 681,711 |
| Techgen S.A. de C.V. | | Mexico | | Provision of electric power | | 48.00% | | 48.00% | | 81,221 | | 64,140 |
| Other non-consolidated companies (1) | | | | | | | | | | 4,658 | | 5,624 |
| | | | | | | | | | 782,533 | | 751,475 |
(1) It includes the investments held in Finma S.A.I.F., 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 September 30, 2022, 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 of September 30, 2022, 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%.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
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 September 30, 2022, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 8.20 (approximately $ 1.52; December 31, 2021: BRL 14.51 – $ 2.60) per ordinary share and BRL 7.52 (approximately $ 1.39; December 31, 2021: BRL 15.16 – $ 2.72) per preferred share, respectively. Accordingly, as of September 30, 2022, Ternium’s ownership stake had a market value of approximately $ 379.8 million ($ 653.9 million as of December 31, 2021) and a carrying value of $ 696.7 million ($ 681.7 million as of December 31, 2021).
As of September 30, 2022, the Company wrote down its investment in Usiminas by USD 120.4 million. The impairment was mainly due to the lower production availability of Usiminas’ coke facilities, which need further capital investment, along with a worsened global macroeconomic situation that derived in the increase of discount rates used for the calculation of value-in-use. As of September 30, 2022, the discount rate used to test the investment in Usiminas for impairment was 13.5%. Value-in-use was calculated by discounting the estimated cash flows over a five-year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value was calculated based on perpetuity, considering a nominal growth rate of 2%. The discount rates used are based on the weighted average cost of capital (WACC), which is considered to be a good indicator of capital cost. The main factors that could result in impairment charges in future periods would be an increase in the discount rate or a decrease in steel prices. The Company estimates that a decrease of 1.0% in the discount rate, an increase of 0.5% in gross domestic product and an increase of 5.0% in the steel, iron ore and hard coking coal prices would have resulted in an increase of 25.5% in the value-in-use, and an increase of 1.0% in the discount rate, a decrease of 0.5% in gross domestic product and a decrease of 5% in the steel, iron ore and hard coking coal prices would have resulted in a decrease of -17.1% in the value-in-use.
As of September 30, 2022, the value of the investment in Usiminas is comprised as follows:
| | | | | | | | |
| Value of investment | | USIMINAS |
| | |
| As of January 1, 2022 | | 681,711 | |
| Share of results (1) | | 121,748 | |
| Other comprehensive income (2) | | 13,555 | |
| | |
| | |
| Impairment charge | | (120,360) | |
| | |
| As of September 30, 2022 | | 696,654 | |
| | |
| (1) It includes the adjustment of the values associated to the purchase price allocation. |
| (2) It includes mainly the effect of the currency translation adjustment. | | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
9. INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
The investment in Usiminas is based on the following calculation:
| | | | | | | | |
| Usiminas' shareholders' equity | | 4,493,060 | |
| Percentage of interest of the Company over shareholders' equity | | 20.40 | % |
| | |
| Interest of the Company over shareholders' equity | | 915,655 | |
| | |
| Purchase price allocation | | 59,068 | |
| Goodwill | | 192,253 | |
| Impairment | | (470,322) | |
| | |
| | |
| Total Investment in Usiminas | | 696,654 | |
On October 28, 2022, Usiminas issued its consolidated interim accounts as of and for the nine-month period ended September 30, 2022.
| | | | | | | | |
| | USIMINAS |
| Summarized balance sheet (in million $) | | As of September 30, 2022 |
| Assets | | |
| Non-current | | 3,726 | |
| Current | | 2,891 | |
| Other current investments | | 165 | |
| Cash and cash equivalents | | 785 | |
| | |
| Total Assets | | 7,567 | |
| Liabilities | | |
| Non-current | | 530 | |
| Non-current borrowings | | 1,111 | |
| Current | | 907 | |
| Current borrowings | | 17 | |
| | |
| Total Liabilities | | 2,565 | |
| | |
| Non-controlling interest | | 509 | |
| | |
| Shareholders' equity | | 4,493 | |
| | | | | | | | |
| | |
| Summarized income statement (in million $) | | Nine-month period ended
September 30, 2022 |
| | |
| Net sales | | 4,839 | |
| Cost of sales | | (3,876) | |
| Gross Profit | | 963 | |
| Selling, general and administrative expenses | | (180) | |
| Other operating income (loss), net | | (88) | |
| Operating income | | 695 | |
| Financial income (expenses), net | | 78 | |
| Equity in earnings of associated companies | | 30 | |
| Profit before income tax | | 803 | |
| Income tax expense | | (231) | |
| Net profit before non-controlling interest | | 572 | |
| Non-controlling interest in other subsidiaries | | (66) | |
| Net profit for the period | | 506 | |
Techgen S.A. de C.V.
Techgen stated as of and for the nine-month period ended September 30, 2022, that revenues amounted to $ 446 million ($ 286 million for the nine-month period ended September 30, 2021), net profit from continuing operations to $ 36 million ($33 million for the nine-month period ended September 30, 2021), non-current assets to $ 761 million ($ 791 million as of December 31, 2021), current assets to $ 119 million ($ 91 million as of December 31, 2021), non-current liabilities to $ 546 million ($ 614 million as of December 31, 2021), current liabilities to $ 165 million ($ 134 million as of December 31, 2021) and shareholders’ equity to $ 169 million ($ 134 million as of December 31, 2021).
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
10. DISTRIBUTION OF DIVIDENDS
During the annual shareholders’ meeting held on May 3, 2022, the shareholders approved a distribution of dividends of USD 0.26 per share (USD 2.60 per ADS). The annual dividend included the interim dividend of $0.08 per share ($0.80 per ADS) paid in November 2021. A net dividend of $0.18 per share ($1.80 per ADS) was paid on May 11, 2022, or approximately USD 360.9 million in the aggregate.
11. 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, 2021.
(i) Tax claims and other contingencies
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. Decisions at the Superior Court of Justice are taken by simple majority. On October 4, 2022, a 5-judge panel of the Superior Court of Justice began its process for rendering a decision on the merits of the case. The reporting judge of the panel voted in favor of granting CSN’s appeal and ordering the defendants to pay damages to CSN; however, the voting on the case was subsequently adjourned for a future session to be determined by the panel. It is not yet known when the new session will take place or whether all the remaining four judges in the panel will express their votes at that session or seek further adjournments. At this time, the Company cannot predict how each of the other four judges will vote on the matter.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
11. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS (continued)
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 the 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. 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.
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 was submitted to the CVM’s Board of Commissioners. 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. On August 16, 2022, CVM’s Board of Commissioners determined, by unanimous decision, the extinction of the procedure, recognizing that Ternium is not obligated to launch a tender offer as a result of the 2016 capital increase. The CVM decision is final.
(ii) Commitments
(a) In March 2022, Ternium Brasil S.A. entered into a contract with Unicarbo Ltda. for the supply of petcoke. This agreement is due to terminate on March 2023 and the outstanding amount was $ 98.6 million as of September 30, 2022. The contract has minimum monthly-required volumes.
(b) Ternium Argentina signed agreements to cover 80% of its required iron ore, pellets and iron ore fines volumes until December 31, 2024, for an estimated total amount of $ 952.1 million. Although they do not set a minimum amount or a minimum commitment to purchase a fixed volume, under certain circumstances a penalty is established for the party that fails of:
- 7% in case the annual operated volume is between 70% and 75% of the total volume of purchases of the Company; such percentage is applied over the difference between the actual purchased volume and the 80% of the total volume of purchases.
- 15% in case the annual operated volume is lower than 70% of the total volume of purchases of the Company; such percentage is applied over the difference between the actual purchased volume and the 80% of the total volume of purchases.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
12. RELATED PARTY TRANSACTIONS
As of September 30, 2022, 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 private foundation (Stichting) located in the Netherlands, held voting shares 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:
| | | | | | | | | | | | | | |
| | Nine-month period ended
September 30, |
| | 2022 | | 2021 |
| | (Unaudited) |
| (i) Transactions | | | | |
| (a) Sales of goods and services | | | | |
| Sales of goods to non-consolidated parties | | 587,305 | | | 736,753 | |
| Sales of goods to other related parties | | 157,936 | | | 149,025 | |
| Sales of services and others to non-consolidated parties | | 133 | | | 135 | |
| Sales of services and others to other related parties | | 3,258 | | | 1,138 | |
| | | | |
| | 748,632 | | | 887,051 | |
| (b) Purchases of goods and services | | | | |
| Purchases of goods from non-consolidated parties | | 500,705 | | | 332,839 | |
| Purchases of goods from other related parties | | 55,421 | | | 50,875 | |
| Purchases of services and others from non-consolidated parties | | 10,712 | | | 7,154 | |
| Purchases of services and others from other related parties | | 62,055 | | | 75,490 | |
| | | | |
| | | | |
| | 628,893 | | | 466,358 | |
| (c) Financial results | | | | |
| Income with non-consolidated parties | | 5,590 | | | 4,686 | |
| | | | |
| | | | |
| | | | |
| Expenses in connection with lease contracts from other related parties | | (722) | | | (787) | |
| | | | |
| | 4,868 | | | 3,899 | |
| (d) Dividends | | | | |
| Dividends from non-consolidated parties | | 1,007 | | | 48,371 | |
| | | | |
| | 1,007 | | | 48,371 | |
| (e) Other income and expenses | | | | |
| Income (expenses), net with non-consolidated parties | | 2,451 | | | 750 | |
| Income (expenses), net with other related parties | | 529 | | | 693 | |
| | | | |
| | 2,980 | | | 1,443 | |
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | (Unaudited) | | |
| (ii) Period-end balances | | | | |
| (a) Arising from sales/purchases of goods/services | | | | |
| Receivables from non-consolidated parties | | 193,903 | | | 204,329 | |
| Receivables from other related parties | | 20,475 | | | 26,690 | |
| Advances to non-consolidated parties | | 5,911 | | | 5,383 | |
| Advances to suppliers with other related parties | | 3,460 | | | 3,852 | |
| Payables to non-consolidated parties | | (83,721) | | | (72,373) | |
| Payables to other related parties | | (21,964) | | | (16,617) | |
| Lease Liabilities with other related parties | | (2,436) | | | (2,635) | |
| | | | |
| | 115,628 | | | 148,629 | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
13. 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 September 30, 2022 (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 | | 201,389 | | | — | | | — | | | 201,389 | |
| Derivative financial instruments | | — | | | 6,485 | | | — | | | 6,485 | |
| Trade receivables | | 1,487,447 | | | — | | | — | | | 1,487,447 | |
| Other investments | | 403,359 | | | 152,015 | | | 806,000 | | | 1,361,374 | |
| Cash and cash equivalents | | 490,650 | | | 972,889 | | | 10,619 | | | 1,474,158 | |
| | | | | | | | |
| Total | | 2,582,845 | | | 1,131,389 | | | 816,619 | | | 4,530,853 | |
| | | | | | | | |
| As of September 30, 2022 (in $ thousands) | | Amortized
cost | | Liabilities at fair value through profit or loss | | | | Total |
| | | | | | | | |
| (ii) Liabilities as per statement of financial position | | | | | | | | |
| Other liabilities | | 59,149 | | | — | | | | | 59,149 | |
| Trade payables | | 1,081,969 | | | — | | | | | 1,081,969 | |
| Derivative financial instruments | | — | | | 594 | | | | | 594 | |
| Lease liabilities | | 245,641 | | | — | | | | | 245,641 | |
| Borrowings | | 1,080,024 | | | — | | | | | 1,080,024 | |
| | | | | | | | |
| Total | | 2,466,783 | | | 594 | | | | | 2,467,377 | |
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, 2021 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 September 30, 2022
(in $ thousands): |
| Description | | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
| Financial assets at fair value through profit or loss / OCI | | | | | | | | |
| Cash and cash equivalents | | 983,508 | | | 983,508 | | | — | | | — | |
| Other investments | | 958,015 | | | 730,994 | | | 221,388 | | | 5,633 | |
| Derivative financial instruments | | 6,485 | | | — | | | 6,485 | | | — | |
| | | | | | | | |
| Total assets | | 1,948,008 | | | 1,714,502 | | | 227,873 | | | 5,633 | |
| | | | | | | | |
| Financial liabilities at fair value through profit or loss / OCI | | | | | | | | |
| Derivative financial instruments | | 594 | | | — | | | 594 | | | — | |
| | | | | | | | |
| Total liabilities | | 594 | | | — | | | 594 | | | — | |
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
13. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurement as of December 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 | | 692,529 | | | 692,529 | | | — | | | — | |
| Other investments | | 735,654 | | | 668,056 | | | 39,777 | | | 27,821 | |
| Derivative financial instruments | | 4,353 | | | — | | | 4,353 | | | — | |
| | | | | | | | |
| Total assets | | 1,432,536 | | | 1,360,585 | | | 44,130 | | | 27,821 | |
| | | | | | | | |
| Financial liabilities at fair value through profit or loss / OCI | | | | | | | | |
| Derivative financial instruments | | 1,889 | | | — | | | 1,889 | | | — | |
| | | | | | | | |
| Total liabilities | | 1,889 | | | — | | | 1,889 | | | — | |
(*) 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, 2021, corresponds to the initial investment and to the changes in its fair value.
14. FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA
Ternium’s Argentine subsidiary, Ternium Argentina S.A., is currently operating in a complex and volatile economic environment. Beginning in September 2019, the Argentine government has imposed and continues to impose significant restrictions on foreign exchange transactions. Restrictions have tightened significantly over time, including in recent weeks.
Effective October 17, 2022, the Argentine Central Bank put in place a new regulation on import of services rendered by non-related parties, pursuant to which the Argentine Central Bank may clear or not the payment of import of services and, if cleared, may determine a payment term equal or different to that being requested. There are no rules on the conditions upon which the Argentine Central Bank may clear or determine alternative payment terms. This new regulation is scheduled to replace previous rules by November 1, 2022.
Also effective October 17, 2022, the Argentine government implemented a new system, known as the SIRA system, pursuant to which the Argentine government may clear or not the payment of imports and, if cleared, may determine a payment term equal or different to that being requested. There are no objective conditions upon which the Argentine government may clear the payment of imports or determine alternative payment terms under the SIRA system.
This context of volatility and uncertainty remains in place as of the issue date of these Consolidated Condensed Interim Financial Statements. Although as of the date of these financial statements these measures have not had a significant effect on Ternium Argentina’s ability to purchase U.S. dollars at the prevailing official exchange rate for most of its imports of goods and for the acquisition of services from unrelated parties, if such restrictions continue to be maintained, or are further tightened, Ternium Argentina could be restricted from making payment of imports for key steelmaking inputs (which would adversely affect its operations), or would need to resort to alternative, more expensive arrangements (which would adversely affect its results of operations). In addition, access to the Argentine foreign exchange market to distribute dividends or to pay royalties to related parties at the prevailing official exchange rate generally requires prior Argentine Central Bank approval, which is rarely, if ever, granted, thus limiting Ternium’s ability to collect dividends from Ternium Argentina at the prevailing official exchange rate.
| | | | | | | | |
| TERNIUM S.A. | | |
Consolidated Condensed Interim Financial Statements as of September 30, 2022 |
and for the nine-month periods ended September 30, 2022 and 2021 |
14. FOREIGN EXCHANGE RESTRICTIONS IN ARGENTINA (continued)
Under Ternium Argentina’s interim accounts as of September 30, 2022, and for the nine-month period then ended, revenues amounted to $ 2,878 million, net profit from continuing operations to $ 807 million, total assets to $ 5,278 million, total liabilities to $ 541 million and shareholders’ equity to $ 4,737 million. Ternium Argentina’s cash and cash equivalents and other investments amounted to $ 1,073 million as of September 30, 2022, broken down as follows:
–$ 891 million in U.S. dollars-denominated instruments, mainly sovereign bonds issued by the Argentine Government and payable in U.S. dollars, Argentine Treasury bonds related to the official exchange rate and negotiable obligations and promissory notes issued by Argentine export driven companies in U.S. dollars and payable in Argentine pesos.
–$ 105 million in Argentine pesos-denominated instruments, mainly inflation-adjusted bonds and mutual funds.
–$ 77 million in Argentine pesos-denominated instruments with underlying assets linked to the U.S. dollar.
Ternium Argentina’s financial position in ARS as of September 30, 2022, amounted to $ 235 million in monetary assets and $ 170 million in monetary liabilities. All of Ternium Argentina’s ARS-denominated assets and liabilities are valued at the prevailing official exchange rate.
15. THE RUSSIA-UKRAINE ARMED CONFLICT
On February 24, 2022, Russia launched a military attack on Ukraine. In response, the United States, the United Kingdom, and the European Union, among other countries, have imposed a wave of sanctions against certain Russian institutions, companies and citizens. As a result of the armed conflict and related sanctions, energy prices have spiked and foreign trade transactions involving Russian and Ukrainian counterparties have been severely affected.
Russia has a significant participation in the international trade of steel slabs, iron ore pellets, metallurgical coal, pulverized coal for injection, which are relevant inputs for Ternium’s operations. In addition, Ukraine has a relevant participation in the international trade of steel slabs and iron ore pellets. The pricing of these inputs in the international markets have been volatile and could result in limitations to Ternium’s production levels and higher costs, affecting the Company’s profitability and results of operations. As a result of the economic sanctions imposed on Russia, Ternium or its contractors (including shipping companies) may not be able to continue purchasing or transporting products from, or making payments to, Ukrainian or Russian suppliers or counterparties; and the Company may be required to purchase raw materials at increased prices.
| | | | | | | | | | | | | | |
| | Pablo Brizzio | | |
| | Chief Financial Officer | | |