PORTABLE 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 three operating segments: Mexico, Southern Region and Other markets. These three 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 Other markets operating segment includes businesses mainly in Brazil, United States, Colombia, Guatemala, Costa Rica, Honduras, El Salvador and Nicaragua.

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 CODM.



	Year ended December 31, 2017
	Steel		Mining		Inter- segment eliminations		Total
IFRS

Net sales	9,700,260		271,477		(271,441	)	9,700,296
Cost of sales	(7,465,751	)	(212,860	)	275,586		(7,403,025	)

Gross profit	2,234,509		58,617		4,145		2,297,271

Selling, general and administrative expenses	(811,487	)	(12,760	)	—		(824,247	)
Other operating income, net	(17,011	)	771		—		(16,240	)

Operating income - IFRS	1,406,011		46,628		4,145		1,456,784

Management view
Net sales	9,700,260		287,152		(287,116	)	9,700,296
Operating income	1,065,605		66,694		(1,291	)	1,131,008
Reconciliation items:
Differences in Cost of sales							325,776

Operating income - IFRS							1,456,784

Financial income (expense), net							(165,090	)
Equity in (losses) earnings of non-consolidated companies							68,115

Income before income tax expense - IFRS							1,359,809

Depreciation and amortization - IFRS	(424,529	)	(49,770	)	—		(474,299	)



	Year ended December 31, 2016
	Steel		Mining		Inter- segment eliminations		Total
IFRS

Net sales	7,221,751		204,894		(202,670	)	7,223,975
Cost of sales	(5,391,038	)	(192,038	)	198,686		(5,384,390	)

Gross profit	1,830,713		12,856		(3,984	)	1,839,585

Selling, general and administrative expenses	(677,007	)	(10,935	)	—		(687,942	)
Other operating income, net	(9,543	)	(382	)	—		(9,925	)

Operating income - IFRS	1,144,163		1,539		(3,984	)	1,141,718

Management view
Net sales	7,221,751		208,230		(206,006	)	7,223,975
Operating income	936,164		3,871		269		940,303
Reconciliation items:
Differences in Cost of sales							201,415

Operating income - IFRS							1,141,718

Financial income (expense), net							(37,885	)
Equity in (losses) earnings of non-consolidated companies							14,624

Income before income tax expense - IFRS							1,118,457

Depreciation and amortization - IFRS	(361,685	)	(45,205	)	—		(406,890	)



	Year ended December 31, 2015
	Steel		Mining		Inter- segment eliminations		Total
IFRS

Net sales	7,875,161		203,105		(200,817	)	7,877,449
Cost of sales	(6,456,584	)	(214,651	)	193,963		(6,477,272	)

Gross profit	1,418,577		(11,546	)	(6,854	)	1,400,177

Selling, general and administrative expenses	(757,078	)	(13,214	)	—		(770,292	)
Other operating income, net	9,151		303		—		9,454

Operating income - IFRS	670,650		(24,457	)	(6,854	)	639,339

Management view
Net sales	7,875,161		216,095		(213,807	)	7,877,449
Operating income	1,012,282		(3,490	)	(640	)	1,008,152
Reconciliation items:
Differences in Cost of sales							(368,813	)

Operating income - IFRS							639,339

Financial income (expense), net							(99,430	)
Equity in (losses) earnings of non-consolidated companies							(272,810	)

Income before income tax expense - IFRS							267,099

Depreciation and amortization - IFRS	(384,380	)	(49,408	)	—		(433,788	)

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 business combination disclosed in note 3 (a).

For purposes of reporting geographical information, net sales are allocated based on the customer’s location. Allocation of depreciation and amortization is based on the geographical location of the underlying assets.



	Year ended December 31, 2017
	Mexico	Southern region	Other markets (2)	Total

Net sales	5,629,267	2,316,444	1,754,585	9,700,296

Non-current assets (1)	4,042,914	643,411	1,756,007	6,442,332



	Year ended December 31, 2016
	Mexico	Southern region	Other markets	Total

Net sales	4,491,761	1,867,622	864,592	7,223,975

Non-current assets (1)	4,108,539	634,048	235,947	4,978,534



	Year ended December 31, 2015
	Mexico	Southern region	Other markets	Total

Net sales	4,395,273	2,572,723	909,453	7,877,449

Non-current assets (1)	4,166,148	682,705	246,919	5,095,772

(1) Includes Property, plant and equipment and Intangible assets.

(2) Includes the assets related to the business acquisition disclosed in note 3 (a).

REVENUES BY PRODUCT



	Year ended December 31,
	2017	2016	2015

Semi-finished (1)	123,752	19,878	88,264
Slabs	715,513	—	—
Hot rolled (2)	3,366,697	2,763,403	3,049,433
Cold rolled	1,321,663	1,110,671	1,176,019
Coated (3)	3,391,328	2,900,009	3,004,700
Roll-formed and tubular (4)	472,253	413,991	509,034
Other products (5)	309,090	16,023	49,999

TOTAL SALES	9,700,296	7,223,975	7,877,449


(1)	Semi-finished includes billets and round bars.


(2)	Hot rolled includes hot rolled flat products, merchant bars, reinforcing bars, stirrups and rods.


(3)	Coated includes tin plate and galvanized products.


(4)	Roll-formed and tubular includes tubes, beams, insulated panels, roofing and cladding, roof tiles, steel decks and pre-engineered metal building systems.


(5)	Other products include mainly sales of energy and pig iron.