INVESTMENTS IN NON-CONSOLIDATED COMPANIES

12 Months Ended

Dec. 31, 2020

Disclosure of interests in other entities [Abstract]

INVESTMENTS IN NON-CONSOLIDATED COMPANIES


	As of December 31,
	2020	2019

At the beginning of the year	513,648	495,241

Equity in earnings of non-consolidated companies	57,555	60,967
Other comprehensive income	(93,598)	(39,449)

Dividends from non-consolidated companies	(6,299)	(3,111)




At the end of the year	471,306	513,648

The principal investments in non-consolidated companies, all of which are unlisted, except for Usiminas, are:


Company	Country of incorporation	Main activity	Voting rights at				Value at

			December 31, 2020		December 31, 2019		December 31, 2020	December 31, 2019

Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS	Brazil	Manufacturing and selling of steel products	34.39	%	34.39	%	422,948	486,643
Techgen S.A. de C.V.	Mexico	Provision of electric power	48.00	%	48.00	%	42,625	21,573
Other non-consolidated companies (1)							5,733	5,432






							471,306	513,648

(1) It includes the investment 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.

(a)Usinas Siderurgicas de Minas Gerais S.A. – USIMINAS

As of December 31, 2020, 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”), the largest flat steel producer 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 December 31, 2020, 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%.

13. 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 December 31, 2020, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 15.69 (approximately $3.02; December 31, 2019: BRL9.87 - $2.45) per ordinary share and BRL14.61 (approximately $2.81; December 31, 2019: BRL9.51 - $2.36) per preferred share, respectively. Accordingly, as of December 31, 2020, Ternium’s ownership stake had a market value of approximately $756.3 million ($614.1 million as of December 31, 2019) and a carrying value of $422.9 million ($486.6 million as of December 31, 2019).

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 December 31, 2020 and 2019, the value of the investment in Usiminas is comprised as follows:


	USIMINAS
Value of investment	As of December 31, 2020	As of December 31, 2019

At the beginning of the year	486,643	480,084
Share of results (1)	35,580	48,502
Other comprehensive income	(93,237)	(38,896)
Dividends	(6,038)	(3,047)




At the end of the year	422,948	486,643

(1) It includes the adjustment of the values associated to the purchase price allocation.

The investment in Usiminas is based in the following calculation:


Usiminas' shareholders' equity	2,860,944
Percentage of interest of the Company over shareholders' equity	20.41	%

Interest of the Company over shareholders' equity	583,799

Purchase price allocation	46,664
Goodwill	200,018
Impairment	(407,533)

Total Investment in Usiminas	422,948

On February 12, 2021, Usiminas issued its annual accounts as of and for the year ended December 31, 2020.

13. INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)



Summarized balance sheet (in million $)	As of December 31, 2020	As of December 31, 2019

Assets
Non-current	3,487	4,336
Current	1,339	1,721
Other current investments	276	166
Cash and cash equivalents	661	311

Total Assets	5,763	6,534

Liabilities
Non-current	540	718
Non-current borrowings	1,122	1,237
Current	836	687
Current borrowings	26	30

Total Liabilities	2,524	2,672

Non-controlling interest	378	378

Shareholders' equity	2,861	3,484



Summarized income statement (in million $)	Year ended December 31, 2020	Year ended December 31, 2019

Net sales	3,133	3,790
Cost of sales	(2,509)	(3,312)
Gross Profit	624	478
Selling, general and administrative expenses	(161)	(181)
Other operating income (loss), net	61	(100)
Operating income	524	197
Financial expenses, net	(234)	(132)
Equity in earnings of associated companies	30	46
Profit (Loss) before income tax	320	111
Income tax benefit	(97)	(16)
Net profit (loss) before non-controlling interest	223	95
Non-controlling interest in other subsidiaries	(117)	(41)
Net profit (loss) for the year	106	54

(b)Techgen S.A. de C.V.

Techgen is a Mexican natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. The company started producing energy on December 1st, 2016 and is fully operational. As of February 2017, Ternium, Tenaris, and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Ternium and Tenaris) completed their investments in Techgen. Techgen is currently owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris. Ternium and Tenaris also agreed to enter into power supply and transportation agreements with Techgen, pursuant to which Ternium and Tenaris will contract 78% and 22%, respectively, of Techgen’s power capacity of 900 megawatts.

Techgen stated in its annual accounts as of and for the year ended December 31, 2020, that revenues amounted to $314 million ($344 million as of December 31, 2019), net profit from continuing operations to $44 million ($24 million as of December 31, 2019), non-current assets to $833 million ($875 million as of December 31, 2019), current assets to $59 million ($48 million as of December 31, 2019), non-current liabilities to $709 million ($791 million as of December 31, 2019), current liabilities to $95 million ($87 million as of December 31, 2019) and shareholders’ equity to $89 million ($45 million as of December 31, 2019).

During 2017 and 2016, Techgen’s shareholders made additional investments in Techgen, in the form of subordinated loans, which in the case of Ternium amounted to $127.4 million as of December 31, 2020, and which are due in June 2026. For commitments from Ternium in connection with Techgen, see note 24.