TX Ternium SA

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.

Dated: March 21, 2017

March 21, 2017

Dear Ternium Shareholders and ADR holders,

I am pleased to invite you to attend the Annual General Meeting of Shareholders (the “Meeting”) of TERNIUM S.A. (the “Company”), to be held on Wednesday, May 3, 2017, at the Company’s registered office in 29, avenue de la Porte-Neuve, L-2227, Luxembourg, at 2:30 p.m. (Luxembourg time).

At the Meeting, you will hear a report on the Company’s business, financial condition and results of operations and will be able to vote on various matters, including the approval of the Company’s financial statements, the election of the members of the board of directors and the appointment of the independent auditors.

The convening Notice and Agenda for the Meeting (which contains the procedures for attending and/or voting at the Meeting ), the Shareholder Meeting Brochure and Proxy Statement, the Company’s 2016 annual report (which includes the Company’s consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014, together with the board of directors’ and independent auditors’ reports thereon, and the Company’s annual accounts as at December 31, 2016, together with the independent auditor’s report thereon), will be available on our website at http://www.ternium.com/irhome beginning on March 21, 2017. Copies of such documents will also be available, free of charge, to ADR holders and shareholders registered in the Company’s share register at the Company’s registered office in Luxembourg, between 10:00 a.m. and 5:00 p.m., Luxembourg time, beginning on March 21, 2017. In addition, beginning on March 21, 2017, shareholders registered in the Company’s share register may obtain, also free of charge, electronic copies of such documents by sending an e-mail request to the following electronic address: ir@ternium.com.

Even if you only own a few shares or ADRs, I hope that you will exercise your right to vote or instruct voting at the Meeting. If you are a holder of shares on April 28, 2017, you can attend and/or vote, personally or by proxy, at the Meeting. If you are a holder of ADRs, please see the letter from The Bank of New York Mellon, the depositary bank, or contact your broker/custodian, for instructions on how to give voting instructions in respect of the shares underlying your ADRs.

Please note the requirements you must satisfy to attend and/or vote your shares at the Meeting.

Yours sincerely,

Paolo Rocca

Chairman

Re: TERNIUM S.A.

The Company has announced that its Annual General Meeting of Shareholders (the “Meeting”) will be held on May 3, 2017 at 2:30 p.m. (Luxembourg time). The Meeting will take place at the Company’s registered office in Luxembourg, located at 29, avenue de la Porte-Neuve, L-2227, Luxembourg. A copy of the Company’s Notice of Annual General Meeting of Shareholders, which includes the agenda for the Meeting, is available on the Company’s website at http://www.ternium.com/en/irhome.

The enclosed dedicated proxy form is provided to allow you to give voting instructions in respect of the Shares represented by your ADRs. The Notice of the Meeting, the Shareholder Meeting Brochure and Proxy Statement and the Company’s 2016 annual report (which includes the Company’s consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014, together with the board of directors’ and the independent auditors’ reports thereon; and the Company’s annual accounts as at December 31, 2016, together with the independent auditors’ report thereon), are available on the Company’s website at http://www.ternium.com/irhome. ADR holders may also obtain, free of charge, copies of such materials upon request at +1-800-555-2470 (toll free if you call from the United States) or at the Company’s registered office in Luxembourg, between 10:00 a.m. and 5:00 p.m. (Luxembourg time).

Each holder of ADRs as of April 3, 2017 (the “ADRs Record Date”), is entitled to instruct The Bank of New York Mellon, as Depositary (the “Depositary”), as to the exercise of the voting rights pertaining to the Shares represented by such holder’s ADRs. Any eligible holder of ADRs who desires to give voting instructions in respect of the Shares represented by such holder’s ADRs must complete, date and sign a proxy form and return it to The Bank of New York Mellon at Proxy Services, P.O. Box 8016 CARY, NC 27512-9903, by 12:00 p.m., New York City time, on April 27, 2017 (the “Voting Deadline”). If the Depositary receives properly completed and signed instructions by the Voting Deadline, then it shall endeavor, insofar as practicable, to vote or cause to be voted the Shares underlying such ADRs in the manner prescribed by the instructions. However, if by the Voting Deadline, the Depositary receives no instructions from the holder of ADRs, or the instructions received by the Depositary are not in proper form, then the Depositary shall deem such holder to have instructed the Depositary to give, and the Depositary shall give, a discretionary proxy to a person designated by the Company with respect to that amount of Shares underlying such ADRs to vote such Shares in favor of any proposals or recommendations of the Company (including any recommendation by the Company to vote such Shares on any issue in accordance with the majority shareholders’ vote on that issue) as determined by the appointed proxy . No instruction shall be deemed given and no discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary that (x) it does not wish such proxy given, (y) substantial opposition exists, or (z) the matter materially and adversely affects the rights of the holders of ADRs.

Any holder of ADRs is entitled to revoke or revise any instructions previously given to the Depositary by filing with the Depositary a written revocation or duly executed instructions bearing a later date at any time prior to the Voting Deadline. No instructions, revocations or revisions thereof will be accepted by the Depositary after the Voting Deadline.

In order to avoid the possibility of double vote, the Company’s ADR books will be closed for cancellations from the ADRs Record Date until the Voting Deadline. However, holders of ADRs need not have their ADRs blocked for trading on the New York stock exchange.

IF YOU WANT YOUR VOTE TO BE COUNTED, THE DEPOSITARY MUST RECEIVE YOUR VOTING INSTRUCTIONS PRIOR TO 12:00 P.M. (NEW YORK CITY TIME) ON April 27, 2017 .

THE BANK OF NEW YORK MELLON

Depositary

March 21, 2017

New York, New York

Notice of the Annual General Meeting of Shareholders to be held in Luxembourg on May 3, 2017 at 2:30 p.m. (Luxembourg time).

Notice is hereby given to shareholders of TERNIUM S.A. (the “Company”) that the Annual General Meeting of Shareholders of the Company (the “Meeting”) will be held on May 3, 2017, at 2:30 p.m. (Luxembourg time) at the Company’s registered office located at 29, Avenue de la Porte Neuve, L-2227 Luxembourg. At the Meeting, shareholders will vote on the items listed below.

Agenda for the Annual General Meeting of Shareholders

Procedures for attending and voting at the Meeting

Any shareholder registered in the Company’s share register on April 28, 2017 (the “Shareholders Record Date”), shall be admitted to the Meeting. Such shareholder may attend the Meeting in person or vote by proxy. To vote by proxy, such shareholder must file a completed proxy form with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017, at the Company’s registered office in Luxembourg, located at 29, avenue de la Porte-Neuve, L-2227, Luxembourg.

Any shareholder holding shares through fungible securities accounts wishing to attend the Meeting in person must present a certificate issued by the financial institution or professional depositary holding such shares, evidencing deposit of the shares and certifying the number of shares recorded in the relevant account as of the Shareholders Record Date. Certificates certifying the number of shares recorded in the relevant account as of a date other than the Shareholders Record Date will not be accepted and such shareholder will not be admitted to the Meeting. Certificates must be filed with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017 at the Company’s registered office in Luxembourg.

Shareholders holding their shares through fungible securities accounts may also vote by proxy. To do so, they must present the above referred certificate, together with a completed proxy form. Such certificate and proxy form must be filed with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017, at the Company’s registered office in Luxembourg.

Shareholders who wish to be represented and vote by proxy at the Meeting may obtain, free of charge, a proxy form at the Company’s registered office in Luxembourg, between 10:00 a.m. and 5:00 p.m., Luxembourg time, beginning on March 21, 2017. In addition, beginning on March 21, 2017, shareholders may obtain, also free of charge, an electronic copy of such proxy form by sending an e-mail request to the following electronic address: ir@ternium.com . All proxy forms must be received by the Company, properly completed and signed, at the Company’s registered office in Luxembourg not later than 5:00 p.m. (Luxembourg time) on April 28, 2017.

In the event of shares owned by a corporation or any other legal entity, individuals representing such entity who wish to attend the Meeting in person and vote at the Meeting on behalf of such entity, must present evidence of their authority to represent the shareholder at the Meeting by means of a proper document (such as a general or special power-of-attorney) issued by the relevant entity. A copy of such power of attorney or other proper document must be filed with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017, at the Company’s registered office in Luxembourg. The original documentation evidencing the authority to attend, and vote at the Meeting, or a notarized and legalized copy thereof, must be presented at the Meeting.

Shareholders and proxy holders attending the Meeting in person will be required to identify themselves with a valid official identification document (e.g., identity card, passport).

Those shareholders who have sold their shares between the Shareholders Record Date and the date of the Meeting may not attend nor be represented at any of the Meeting. In case of breach of such prohibition, criminal sanctions may apply.

Holders of American Depositary Receipts (the “ADRs”) as of April 3, 2017 , are entitled to instruct The Bank of New York Mellon, as Depositary, as to the exercise of the voting rights pertaining to the Company’s shares represented by such holder’s ADRs. Eligible holders of ADRs who desire to give voting instructions in respect of the shares represented by their ADRs must complete, date and sign a proxy form and return it to The Bank of New York Mellon at Proxy Services, P.O. Box 8016 CARY, NC 27512-9903, by 12:00 p.m., New York City time, on April 27, 2017 . Holders of ADRs maintaining non-certificated positions must follow voting instructions given by their broker or custodian bank, which may provide for earlier deadlines for submitting voting instructions.

Copies of the Shareholder Meeting Brochure and Proxy Statement, the Company’s 2016 annual report (which includes the Company’s consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014, together with the board of directors’ and independent auditors’ reports thereon, and the Company’s annual accounts as at December 31, 2016, together with the independent auditor’s report thereon), are available on our website at http://www.ternium.com/irhome beginning on March 21, 2017. Copies of such documents are also available, free of charge, to ADR holders and shareholders registered in the Company’s share register at the Company’s registered office in Luxembourg, between 10:00 a.m. and 5:00 p.m., Luxembourg time, beginning on March 21, 2017. In addition, beginning on March 21, 2017, shareholders registered in the Company’s share register may obtain, also free of charge, electronic copies of such documents by sending an e-mail request to the following electronic address: ir@ternium.com.

Arturo Sporleder

Secretary to the Board of Directors

March 21, 2017

Luxembourg

Shareholder Meeting Brochure

and Proxy Statement

Ternium

Shareholder Meeting Brochure and Proxy Statement

Annual General Meeting of Shareholders to be held in Luxembourg on May 3, 2017 at 2:30 p.m. (Luxembourg time)

This Shareholder Meeting Brochure and Proxy Statement is furnished by TERNIUM S.A. (the “Company”) in connection with the Annual General Meeting of Shareholders of the Company (the “Meeting”) to be held on May 3, 2017, at 2:30 p.m. (Luxembourg time), at the Company’s registered office located at 29, avenue de la Porte-Neuve, L-2227 Luxembourg, for the purposes set forth in the convening Notice of the Meeting (the “Notice”).

As of the date hereof, there are issued and outstanding 2,004,743,442 ordinary shares, USD 1.00 par value each, of the Company (the “Shares”), including Shares (the “Deposited Shares”) deposited with The Bank of New York Mellon (the “Depositary”) under the Deposit Agreement, dated as of January 31, 2006 (the “Deposit Agreement”), among the Company, the Depositary and owners and beneficial owners from time to time of American Depositary Receipts (the “ADRs”) issued thereunder. The Deposited Shares are represented by American Depositary Shares, which are evidenced by the ADRs (one ADR equals ten Deposited Shares). The Company currently holds 41,666,666 shares (the “Treasury Shares”).

Each Share entitles the holder thereof to one vote at general meeting of shareholders of the Company. However, voting rights on the Treasury Shares shall be suspended for so long as such Shares are so held.

Any shareholder registered in the Company’s share register on April 28, 2017 (the “Shareholders Record Date”), shall be admitted to the Meeting. Such shareholder may attend the Meeting in person or vote by proxy. To vote by proxy, such shareholder must file a completed proxy form with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017, at the Company’s registered office in Luxembourg.

Any shareholder holding shares through fungible securities accounts wishing to attend the Meeting in person must present a certificate issued by the financial institution or professional depositary holding such shares, evidencing deposit of the shares and certifying the number of shares recorded in the relevant account as of the Shareholders Record Date. Certificates attesting the number of shares recorded in the relevant account as of a date other than the Shareholders Record Date will not be accepted and such shareholders will not be admitted to the Meeting. Certificates must be filed with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017, at the Company’s registered office in Luxembourg.

Shareholders holding their shares through fungible securities accounts may also vote by proxy. To do so, they must present the above referred certificate, together with a completed proxy form. Such certificate and proxy form must be filed with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017, at the Company’s registered office in Luxembourg.

Shareholders who wish to be represented and vote by proxy at the Meeting may obtain, free of charge, a proxy form at the Company’s registered office in Luxembourg, between 10:00 a.m. and 5:00 p.m., Luxembourg time, beginning on March 21, 2017. In addition, beginning on March 21, 2017, shareholders may obtain, also free of charge, an electronic copy of such proxy form free of charge by sending an e-mail request to the following electronic address: ir@ternium.com. All proxy forms must be received by the Company, properly completed and signed, at the Company’s registered office in Luxembourg not later than 5:00 p.m. (Luxembourg time) on April 28, 2017.

Ternium

In the event of Shares owned by a corporation or any other legal entity, individuals representing such entity who wish to attend the Meeting in person and vote on behalf of such entity, must present evidence of their authority to represent the shareholder by means of a proper document (such as a general or special power-of-attorney) issued by the relevant entity. A copy of such power of attorney or other proper document must be filed with the Company not later than 5:00 p.m. (Luxembourg time) on April 28, 2017, at the Company’s registered office in Luxembourg. The original documentation evidencing the authority to attend, and vote, at the Meeting, or a notarized and legalized copy thereof, must be presented at the Meeting.

Shareholders and their proxies attending the Meeting in person will be required to identify themselves with a valid official identification document (e.g., identity card, passport).

Those shareholders who have sold their shares between the Shareholders Record Date and the date of the Meeting may not attend nor be represented at any of the Meeting. In case of breach of such prohibition, criminal sanctions may apply.

Each holder of ADRs as of April 3, 2017 (the “ADRs Record Date”), is entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the Shares represented by such holder’s ADRs. Any eligible holder of ADRs who desires to give voting instructions in respect of the Shares represented by such holder’s ADRs must complete, date and sign a proxy form and return it to The Bank of New York Mellon at Proxy Services, P.O. Box 8016 CARY, NC 27512-9903, by 12:00 p.m., New York City time, on April 27, 2017 (the “Voting Deadline”). If the Depositary receives properly completed instructions by the Voting Deadline, then it shall endeavor, insofar as practicable, to vote or cause to be voted the shares underlying such ADRs in the manner prescribed by the instructions. However, if by the Voting Deadline, the Depositary receives no instructions from the holder of ADRs, or the instructions received are not in proper form, then the Depositary shall deem such holder to have instructed the Depositary to give, and the Depositary shall give, a discretionary proxy to a person designated by the Company with respect to that amount of Shares underlying such ADRs to vote such Shares in favor of any proposals or recommendations of the Company (including any recommendation by the Company to vote such Shares on any issue in accordance with the majority shareholders’ vote on that issue) as determined by the appointed proxy. No instruction shall be deemed given and no discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary that (x) it does not wish such proxy given, (y) substantial opposition exists, or (z) the matter materially and adversely affects the rights of the holders of ADRs.

Any holder of ADRs is entitled to revoke or revise any instructions previously given to the Depositary by filing with the Depositary a written revocation or duly executed instructions bearing a later date at any time prior to the Voting Deadline. No instructions, revocations or revisions thereof will be accepted by the Depositary after that time.

In order to avoid the possibility of double vote, the Company’s ADR books will be closed for cancellations from the ADRs Record Date until the Voting Deadline. However, holders of ADRs will not have their ADRs blocked for trading on the New York stock exchange.

Holders of ADRs maintaining non-certificated positions must follow voting instructions outlined by their broker or custodian bank, which may provide for earlier deadlines for submitting voting instructions than that indicated above.

The Meeting will appoint a chairperson pro tempore to preside over the Meeting. The chairperson pro tempore will have broad authority to conduct the Meeting in an orderly and timely manner and to establish rules, (including rules for shareholders (or proxy holders) to speak and ask questions at the Meeting); the chairperson may exercise broad discretion in recognizing shareholders who wish to speak and in determining the extent of discussion on each item of the agenda.

Pursuant to the Company’s articles of association and Luxembourg law, resolutions at the Meeting will be passed by a simple majority of the votes cast, irrespective of the number of Shares present or represented.

Ternium

The Meeting is called to address and vote on the following agenda:

The Company’s consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 (comprising the consolidated balance sheets of the Company and its subsidiaries and the related consolidated income statements, consolidated statements of changes in shareholders’ equity, consolidated cash flow statements and the notes to such consolidated financial statements) and the reports from the Company’s Board of Directors and the Company’s independent auditor on such consolidated financial statements are included in the Company’s 2016 annual report, a copy of which is available on the Company’s website at http://www.ternium.com/irhome beginning on March 21, 2017. Copies of the Company’s 2016 annual report are also available to ADR holders and shareholders registered in the Company’s share register, free of charge, at the Company’s registered office in Luxembourg, between 10:00 a.m. and 5:00 p.m., Luxembourg time, beginning on March 21, 2017. In addition, beginning on March 21, 2017, shareholders registered in the Company’s share register may obtain, also free of charge, an electronic copy of the Company’s 2016 annual report by sending an e-mail request to the following electronic address: i r@ternium.com .

Draft resolution proposed to be adopted : “ the Meeting resolved to approve the Company’s consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014. ”

The Company’s annual accounts as at December 31, 2016 (comprising the balance sheet, the profit and loss account and the notes to such annual accounts) and the report from the Company’s independent auditor on such annual accounts are included in the Company’s 2016 annual report, a copy of which is available on our website at http://www.ternium.com/irhome beginning on March 21, 2017. Copies of the Company’s 2016 annual report are also available to ADR holders and shareholders registered in the Company’s share register, free of charge, at the Company’s registered office in Luxembourg, between 10:00 a.m. and 5:00 p.m., Luxembourg time, beginning on March 21, 2017. In addition, beginning on March 21, 2017, shareholders registered in the Company’s share register may obtain, also free of charge, an electronic copy of the Company’s 2016 annual report by sending an e-mail request to the following electronic address: ir@ternium.com .

Draft resolution proposed to be adopted : “ the Meeting resolved to approve the Company’s annual accounts as at December 31, 2016. ”

In accordance with applicable Luxembourg law and the Company’s articles of association, the Company is required to allocate 5% of its annual net income to a legal reserve, until this reserve equals 10% of the subscribed capital. As indicated in the Company’s 2016 annual accounts, the Company’s legal reserve already amounts to 10% of its subscribed capital, and, accordingly, the legal requirements in that respect are satisfied.

The Board of Directors proposes that a dividend payable in U.S. dollars on May 12, 2017, in the amount of USD 0.10 per Share (or USD 1.00 per ADR), which represents an aggregate sum of approximately USD 196 million (which is net of the Company’s Treasury Shares), be approved and that the Board of Directors be authorized to determine or amend, in its discretion, the terms and conditions of the dividend payment, including the applicable record date. Accordingly, if this dividend proposal is approved, the Company will make, or cause to be made, a dividend payment on May 12, 2017, in the amount of USD 0.10 per Share (or USD 1.00 per ADR).

Ternium

While the Company’s annual accounts as at December 31, 2016 show a loss for 2016, the Company’s consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 show a profit of 2016 of USD 706,929,000. Considering the Company’s retained earnings and other distributable reserves, the Company has distributable amounts which exceed the proposed dividend.

The aggregate amount of USD 196,307,677.6 (which is net of the Company’s Treasury Shares) to be distributed as dividend on May 12, 2017, is to be paid from the Company’s retained earnings reserve. The loss of the year ended December 31, 2016, would be absorbed by the Company’s retained earnings account.

Upon approval of this resolution, it is proposed that the Board of Directors be authorized to determine or amend, in its discretion, any of the terms and conditions (including payment date) of the dividend payment.

Draft resolution proposed to be adopted : “ the Meeting resolved (i) to approve a dividend, payable in U.S. dollars, on May 12, 2017, in the amount of USD 0.10 per share issued and outstanding (or USD 1.00 per ADR), (ii) to authorize the Board of Directors to determine or amend, in its discretion, any of the terms and conditions of such dividend payment, including the applicable record date, (iii) that the aggregate amount of USD 196,307,677.6 (which is net of the Company’s Treasury Shares) to be distributed as dividend on May 12, 2017, be paid from the Company’s retained earnings reserve, and (iv) that the loss of the year ended December 31, 2016, be absorbed by the Company’s retained earnings account. ”

In accordance with applicable Luxembourg law and regulations, it is proposed that, upon approval of the Company’s annual accounts as at December 31, 2016, all those who were members of the Board of Directors during the year ended December 31, 2016, be discharged from any liability in connection with the management of the Company’s affairs during such year.

Draft resolution proposed to be adopted : “ the Meeting resolved to discharge all those who were members of the Board of Directors during the year ended December 31, 2016, from any liability in connection with the management of the Company’s affairs during such year. ”

Pursuant to article 7 of the Company’s articles of association, the annual general meeting must elect a Board of Directors of not less than five and not more than fifteen members, who shall have a term of office of one year, but may be reappointed.

Pursuant to article 11 of the Company’s articles of association and applicable securities laws and regulations, the Company must have an audit committee (the “Audit Committee”) composed of three members who shall qualify as “independent directors”.

The current Board of Directors consists of eight Directors, three of whom (Messrs. Ubaldo Aguirre, Adrian Lajous and Vincent Robert Gilles Decalf) qualify as “independent directors” under the Company’s articles of association and applicable law, and are members of the Audit Committee.

It is proposed that (i) the number of members of the Board of Directors be maintained at eight, and that (ii) Messrs. Ubaldo Aguirre, Roberto Bonatti, Carlos Alberto Condorelli, Vincent Robert Gilles Decalf, Adrian Lajous, Gianfelice Mario Rocca, Paolo Rocca, and Daniel Agustin Novegil be re-elected as members of the Board of Directors, each to hold office until the next annual general meeting of shareholders that will be convened to decide on the Company’s 2017 annual accounts.

Ternium

Set forth below is summary biographical information of each of the candidates:

1) Mr. Ubaldo José Aguirre. Mr. Aguirre has served on the Board of Directors since 2006. He is a managing director of Aguirre y Gonzalez S.A., an Argentine financial services firm, and serves as chairman of the board of directors and as a member of the audit committee of Holcim Argentina S.A., a subsidiary of Lagarge Holcim Group, the Swiss cement producer. Since 2005, he also serves as chairman of the board of directors of Permasur S.A., an Argentine winery, and of Editorial Sur S.A. Since 2000, he is a member of the board of directors of AECOM Argentina S.A., the Argentine subsidiary of the U.S. corporation. He is a member of the Administrative Board of Universidad Católica Argentina. Mr. Aguirre formerly served as director and chairman of the audit committee of Siderar S.A.I.C. Mr. Aguirre began his career at the World Bank in Washington, D.C. In addition, Mr. Aguirre has been a member of the boards of each of Argentina’s Central Bank —where he was responsible for that country’s external borrowing program and financial negotiations— Banco de la Nación Argentina and Banco Nacional de Desarrollo. He also served as the Republic of Argentina’s financial representative for Europe in Geneva and as negotiator on behalf of the Republic of Argentina with the Paris Club. Mr. Aguirre, aged 68, is an Argentine citizen.

2) Mr. Roberto Bonatti. Mr. Bonatti has served as a director of the Company since 2005. Mr. Bonatti is a grandson of Agostino Rocca, founder of the Techint Group, a group of companies controlled by San Faustin. Throughout his career in the Techint group he has been involved specifically in the engineering and construction and corporate sectors. He was first employed by the Techint Group in 1976, as deputy resident engineer in Venezuela. In 1984, he became a director of San Faustin and, since 2001, he has served as its president. In addition, Mr. Bonatti currently serves as president of Sadma Uruguay S.A. He is also a member of the board of directors of Tenaris. Mr. Bonatti, aged 67, is an Italian citizen.

3) Mr. Carlos Alberto Condorelli. Mr. Condorelli has served as a director of the Company since 2005. He is also a member of the board of directors of Tenaris since 2007. He began his career within the Techint group in 1975 as an analyst in the accounting and administration department of Siderar. He has held several positions within Tenaris and other Techint group companies, including chief financial officer of Tenaris, finance and administrative director of Tubos de Acero de México, S.A. and president of the board of directors of Empresa Distribuidora La Plata S.A., an Argentine utilities company. Mr. Condorelli, aged 66, is an Argentine citizen.

4) Mr. Vincent Robert Gilles Decalf. Mr. Decalf has served as a director of the Company since September 2015. He is also a member of the board of directors of the Luxembourg Stock Exchange (Bourse de Luxembourg) and the Luxembourg Institute for Directors and Managers (Institut Luxembourgeois des Administrateurs) as well as a non-executive director of Foyer International S.A. and other private Luxembourg companies. From 1989 to 2008, Mr. Decalf held various executive positions with Société Générale and has extensive experience in the financial industry. Mr. Decalf , aged 54, is a French citizen.

5) Mr. Adrian Lajous. Mr. Lajous has served as a director of the Company since 2006. Mr. Lajous currently serves as chairman of the Oxford Institute for Energy Studies, a fellow at the Center for Global Energy Policy at Columbia University, president of Petrométrica, S.C. and non-executive director of Trinity Industries Inc. Mr. Lajous began his career teaching economics at El Colegio de México and in 1977 was appointed director general for energy at Mexico’s Ministry of Energy. Mr. Lajous joined Petróleos Mexicanos (Pemex) in 1983, where he held a succession of key executive positions including executive coordinator for international trade, corporate director of planning, corporate director of operations and director of refining and marketing. From 1994 until 1999, he served as chief executive officer of Pemex and chairman of the boards of the Pemex Group of operating companies. In addition, he served as non-executive director of Schlumberger Ltd. between 2002 and 2014. Mr. Lajous, aged 73, is a Mexican citizen.

Ternium

6) Mr. Gianfelice Mario Rocca. Mr. Rocca has served as a director of the Company since 2006. He is a grandson of Agostino Rocca. He is chairman of the board of directors of San Faustin, a member of the board of directors of Tenaris, president of the Humanitas Group and president of the board of directors of Tenova S.p.A. In June 2014, he was elected president of Assolombarda, the largest territorial association of entrepreneurs in Italy and part of Confindustria (Italian employers’ organization). In addition, he sits on the board of directors or executive committees of several companies, including Allianz S.p.A., Brembo, Buzzi Unicem and Bocconi University. He is a member of the Advisory Board of Allianz Group, of the Aspen Institute Executive Committee, of the Trilateral Commission and of the European Advisory Board of the Harvard Business School. Mr. Rocca, aged 69, is an Italian citizen.

7) Mr. Paolo Rocca. Mr. Rocca has served as chairman of the Board since 2005. He is a grandson of Agostino Rocca. He is also chairman and chief executive officer of Tenaris, a member of the board of directors and vice president of San Faustin, chairman of Tubos de Acero de México S.A. and a director of Techint Financial Corporation. In addition, he is a member of the Executive Committee of the World Steel Association. Mr. Rocca, aged 64, is an Italian citizen.

8) Mr. Daniel Agustin Novegil. Mr. Novegil has served as a director and chief executive officer of the Company since 2005. With almost 40-years of experience in the steelmaking industry, he was appointed managing director of Siderar in 1993 and was a member of the board of directors of Usiminas from 2013 until 2015. He is also member of the board of directors of the World Steel Association and former president of Alacero (Latin American Steel Association). Since 1999 he has been a member of the advisory board of the Sloan Masters Program at Stanford University. Mr. Novegil, aged 64, is an Argentine citizen .

The Board met eight times during 2016. On January 12, 2006, the Board of Directors created an Audit Committee pursuant to Article 11 of the Company’s articles of association. As permitted under applicable laws and regulations, the Board of Directors does not have any executive, nominating or compensation committee, or any committees exercising similar functions.

Draft resolution proposed to be adopted : “ the Meeting resolved maintain at eight the number of members of the Board of Directors and to reappoint Messrs. Ubaldo Aguirre, Roberto Bonatti, Carlos Alberto Condorelli, Vincent Robert Gilles Decalf, Adrian Lajous, Gianfelice Mario Rocca, Paolo Rocca, and Daniel Agustin Novegil to the Board of Directors, each to hold office until the next annual general meeting of shareholders that will be convened to decide on the 2017 accounts. ”

It is proposed that each member of the Board of Directors receives an amount of USD 115,000.00 as compensation for his services during the fiscal year 2017, and that the Chairman of the Board of Directors receives, further, an additional fee of USD 295,000.00. It is further proposed that each of the members of the Board of Directors who are members of the Audit Committee receive an additional fee of USD 55,000.00, and that the Chairman of such Audit Committee receives, further, an additional fee of USD 10,000.00. In all cases, the proposed compensation would be net of any applicable Luxembourg social security charges.

Draft resolution proposed to be adopted : “ the Meeting resolved that each of the members of the Board of Directors receive an amount of USD 115,000.00 as compensation for his services during the fiscal year 2017, and that the Chairman of the Board of Directors receive, further, an additional fee of USD 295,000.00; and that each of the members of the Board of Directors who are members of the Audit Committee receive an additional fee of USD 55,000.00, and that the Chairman of such Audit Committee receive, further, an additional fee of USD 10,000.00. In all cases, the approved compensation will be net of any applicable Luxembourg social security charges.”

The Audit Committee has recommended the appointment of PricewaterhouseCoopers, Société coopérative, Cabinet de révision agréé (PricewaterhouseCoopers’ Luxembourg member firm) as the Company’s independent auditors for the fiscal year ending December 31, 2017, to be engaged until the next annual general meeting of shareholders that will be convened to decide on the Company’s 2017 accounts.

Ternium

In addition, the Audit Committee has recommended the approval of the independent auditors’ fees for audit, audit-related and other services to be rendered during the fiscal year ending December 31, 2017, broken-down into eight currencies (Argentine Pesos, Brazilian Reais, Colombian Pesos, Euro, Mexican Pesos, Swiss Francs, Uruguayan Pesos, and U.S. Dollars), up to a maximum amount for each currency equal to ARS 23,533,573.00; BRL 23,604.00; COP 239,684,753.00; EUR 531,587.00; MXN 12,482,112.00; CHF 15,500.00; UYU 3,844,882.00 and USD 62,400.00. Such fees would cover the audit of the Company’s consolidated financial statements and annual accounts, the audit of the Company’s internal controls over financial reporting as mandated by the Sarbanes-Oxley Act of 2002, other audit-related services, and other services rendered by the independent auditors. It is proposed that the Audit Committee be authorized to approve any increase or reallocation of the independent auditors’ fees as may be necessary, appropriate or desirable under the circumstances.

Draft resolution proposed to be adopted : “ the Meeting resolved to (i) appoint PricewaterhouseCoopers Société coopérative, Cabinet de révision agréé, as the Company’s independent auditors for the fiscal year ending December 31, 2017, to be engaged until the next annual general meeting of shareholders that will be convened to decide on the Company’s 2017 accounts; and (ii) approve the independent auditors’ fees for audit, audit-related and other services to be rendered during the fiscal year ending December 31, 2017, broken-down into eight currencies (Argentine Pesos, Brazilian Reais, Colombian Pesos, Euro, Mexican Pesos, Swiss Francs, Uruguayan Pesos, and U.S. Dollars), up to a maximum amount for each currency equal to ARS 23,533,573.00; BRL 23,604.00; COP 239,684,753.00; EUR 531,587.00; MXN 12,482,112.00; CHF 15,500.00; UYU 3,844,882.00 and USD 62,400.00 , and to authorize the Audit Committee to approve any increase or reallocation of the independent auditors’ fees as may be necessary, appropriate or desirable under the circumstances. ”

It is proposed that the Board of Directors be authorized to delegate the management of the Company’s day-to-day business and the authority to represent and bind the Company with his sole signature in such day-to-day management to Mr. Daniel Agustin Novegil, and to appoint Mr. Novegil as chief executive officer ( administrateur délégué ) of the Company.

Draft resolution proposed to be adopted : “ the Meeting resolved to authorize the Board of Directors to delegate the management of the Company’s day-to-day business and the authority to represent and bind the Company with his sole signature in such day-to-day management to Mr. Daniel Agustin Novegil, and to appoint Mr. Novegil as Chief Executive Officer (Administrateur Délégué) of the Company. ”

In order to provide for the necessary flexibility in the management of the Company’s affairs, it is proposed to authorize the Board of Directors to appoint any or all members of the Board of Directors from time to time as the Company’s attorney-in-fact, delegating to such directors any management powers (including, without limitation, any day-to-day management powers) to the extent the Board of Directors may deem appropriate in connection therewith, this authorization to be valid until expressly revoked by the Company’s general meeting of shareholders, it being understood, for the avoidance of doubt, that this authorization does not impair nor limit in any way the powers of the Board of Directors to appoint any non-members of the Board of Directors as attorneys-in-fact of the Company pursuant to the provisions of article 10.1(iii) of the Company’s articles of association.

Ternium

Draft resolution proposed to be adopted : “ the Meeting resolved to authorize the Board of Directors to appoint any or all members of the Board of Directors from time to time as the Company’s attorney-in-fact, delegating to such directors any management powers (including, without limitation, any day-to-day management powers) to the extent the Board of Directors may deem appropriate in connection therewith, this authorization to be valid until expressly revoked by the Company’s general meeting of shareholders; it being understood, for the avoidance of doubt, that this authorization does not impair nor limit in any way the powers of the Board of Directors to appoint any non-members of the Board of Directors as attorneys-in-fact of the Company pursuant to the provisions of article 10.1(iii) of the Company’s articles of association. ”

___________________________________

The Company anticipates that the next Annual General Meeting of Shareholders will be held on May 2, 2018. Any shareholder who intends to present a proposal to be considered at the next Annual General Meeting of Shareholders must submit the proposal in writing to the Company at the Company’s registered office located at 29, avenue de la Porte-Neuve, L-2227 Luxembourg, Grand Duchy of Luxembourg, not later than 4:00 P.M. (Luxembourg time) on February 1, 2018, in order for such proposal to be considered for inclusion on the agenda for the 2018 Annual General Meeting of Shareholders. PricewaterhouseCoopers, s ociété coopérative, Cabinet de révision agréé, are the Company’s independent auditors. A representative of the independent auditors will be present at the Meeting.

Arturo Sporleder

Secretary to the Board of Directors

March 21, 2017

Luxembourg

Ternium S.A.

Annual Report 2016

Company Profile and Strategy

Ternium is a leading steel producer in Latin America. We manufacture and process a broad range of value-added steel products, including galvanized and electro-galvanized sheets, pre-painted sheets, tinplate, welded pipes, hot-rolled flat products, cold-rolled products, bars and wire rods as well as slit and cut-to-length offerings through our service centers.

Our customers range from large global companies to small businesses operating in the construction, automotive, home appliances, capital goods, container, food and energy industries. We aim to build close relationships with our customers and recognize that our success is closely linked with theirs.

Ternium has a deeply ingrained industrial culture. With approximately 16,700 employees and an annual production capacity of 11 million tons of finished steel products, Ternium has production facilities located in Mexico, Argentina, Colombia, the southern United States and Guatemala, as well as a network of service and distribution centers throughout Latin America that provide it with a strong position from which to serve its core markets. In addition, Ternium participates in the control group of Usiminas, a leading steel company in the Brazilian steel market, and has recently agreed to acquire CSA Siderúrgica do Atlântico, a Brazilian manufacturer of steel slabs.

Our proximity to local steel consuming markets enables us to differentiate ourselves from our competitors by offering valuable services to our customer base across Latin America. Our favorable access to iron ore sources and proprietary iron ore mines in Mexico provide operational flexibility, and our diversified steel production technology enables us to adapt to fluctuating input-cost conditions.

We operate with a broad and long-term perspective, and we regularly work towards improving the quality of life of our employees, their families and the local communities where we operate.

Chairman’s Letter

In 2016, Ternium celebrated its tenth year as a publicly listed company. It has been an eventful period, in which it has consolidated itself as a leading steelmaker in the Latin American region. With its strategy of developing high value steels for industrial and construction applications and working closely with its customers, Ternium is now the leading steel producer in Mexico and a key protagonist in the fast-growing Pesquería industrial community, where it has constructed modern, highly efficient cold rolling and galvanizing facilities, participated in the construction of a new electric power generation facility and established a technical school.

In addition to building our position in Mexico and strengthening the competitiveness of our Argentine operations, we have established a leading position in Colombia and entered the Brazilian market through a participation in Usiminas. Now, we are taking a further step with the agreement to acquire, subject to regulatory and other clearances, the advanced steel slab making facilities of CSA in Brazil. This will provide us a highly competitive source of high quality slabs, which will allow us to further integrate and expand our production of high value products for the industrial sector across Latin America.

Ternium is advancing on many fronts and performed well in 2016. In a market, where global consumption remained flat and consumption in Latin America declined, shipments increased to 9.8 million tons, registering a fourth consecutive year of growth. Although net sales were affected by lower revenues per ton, EBITDA rose by 44% to $1.5 billion with a margin of 21% on net sales. Cash flow from operations amounted to $1.1 billion and net debt was reduced to $0.9 billion. Earnings attributable to shareholders rose to $596 million, or $3.03 per ADS.

In Mexico, shipments increased by 8% year on year, as Ternium strengthened its market position by expanding its product range and displacing imports. The industrial sector continues to expand in Mexico, where steel consumption per capita is significantly higher than in other Latin American economies, and we continue to increase capacity to serve this demanding market. Over the past year, we increased the annual processing capacity of our Churubusco mill by 230,000 tons, and, this month, we announced an investment plan to add new hot-dip galvanizing and pre-painting lines in our facility in Pesquería. A new 900MW combined cycle natural gas-fired power plant, in which Ternium has a 48% interest, was commissioned in Pesquería, which will secure a reliable source of electric power and further integrate operations.

In Argentina, shipments declined by 13% year on year, as the economy began a necessary period of adjustment and rebalancing of relative prices under a new government. The construction market was affected by lower public and private investment while the automotive and industrial sectors were affected by the ongoing recession in Brazil. The economy is, however, showing signs of recovery and shipments increased in the fourth quarter.

In Brazil, we subscribed to a capital increase at Usiminas, investing $111 million and increasing our participation to 20.5% from 16.8%. We expect that the capital increase, in which Usiminas raised BRL1.0 billion, together with the completion of an ongoing debt restructuring process, should improve the financial situation of the company, which returned to profit on operations in the fourth quarter of the year following significant losses in 2015.

In other regions, we increased shipments to the southern USA where we have galvanizing and pre-painting facilities in Shreveport, Louisiana and we participate in the market for advanced construction and various industrial applications. In Colombia, we consolidated our operations and market position under the Ternium brand, following our previous buy out of minority shareholders, and invested in new scrap processing facilities to reduce the environmental impact of our operations.

Despite the advances we are making, the global steel industry continues to be affected by the extent of China’s excess production capacity and falling domestic consumption. Chinese exports of steel products remained above 100 million tons, well in excess of Latin America’s total steel consumption. Without effective trade actions, unfairly traded imports affect steel pricing and threaten even the most competitive domestic manufacturing and industrial value chains, with the consequent impact on employment and skills. Many governments, including those in the USA and Mexico, are taking actions to limit the amount of unfairly traded imports, but constant vigilance is necessary.

Our efforts to strengthen our safety and environmental management systems are a constant priority. Over the last five years our main safety indicators have improved around 25% and this year we completed the certification of our main facilities under the ISO 14001 environmental management standard. We continue to introduce new safety training routines for our employees and those of contractors and started the second stage of our assessment of critical production processes. In 2016, we completed many environment related investments, particularly in our Guerrero and San Nicolas plants, modernizing technology and processes and reducing the environmental impact of our operations with lower emissions, energy efficiency initiatives and increased material recycling and processing of by-products.

To strengthen steel demand and the industrial value chain in the countries where we operate, we offer support and training initiatives for small and medium enterprises (SMEs). In 2016, we introduced innovation as a new focus in this program, which has gained adherents year after year and now has over 1,200 companies participating. Among this year’s achievements were the increase in ISO certifications obtained by participants related to safety and quality systems, the development of strategies to counter unfair trading practices and record participation levels in training activities.

In August, we inaugurated the purpose-built Roberto Rocca Technical School in Pesquería. The school, which shares teacher training programs and a curriculum with its sister school in Campana, Argentina, has capacity for 380 students and welcomed 128 students in its first academic year. For the fast-growing industrial center of Pesquería, where the development of appropriate infrastructure is essential for further development, the new school will promote excellence in technical education, strengthening local employment opportunities for the existing community and attracting employees and their families from further afield.

Over the past year, we have made solid progress in strengthening our market position and building on the achievements of previous years. Considering our solid financial results and financial condition, and a favorable outlook, we are proposing to increase our annual dividend to shareholders to $1.00 per ADS.

Throughout the company, we are working to differentiate ourselves from our competitors and to sustain a position of leadership through industrial excellence, product development and customer service. I would like to thank our employees for their efforts and achievements during the past year. I would also like to thank our customers, suppliers and shareholders for their continuing support and confidence in our company.

Paolo Rocca

Chairman

March 20, 2017

Business Review

Ternium achieved record steel shipment volumes of 9.8 million tons in 2016, and continued to lead the Mexican and Argentine flat steel markets, while keeping a significant position in the Colombian steel market. Mexico was the company’s driving force, as Ternium’s steel shipments in that country achieved a sound 8% year-over-year expansion and a 66% share in total sales volumes. Shipments in the Southern Region decreased 13% year-over-year with most sectors pulling back in 2016. Ternium’s steel shipments in Other Markets increased 2% year-over-year in 2016, as shipments increased in the U.S. steel market, but decreased in Colombia and Central America.

Steel consumption in the Americas decreased in 2016, as most regional steel markets contracted, to varying degrees and with few exceptions. In the U.S. market, steel consumption decreased slightly in 2016, reflecting a struggling manufacturing industry and lower investments in the oil & gas sector. The Mexican steel market ended on a positive tone in 2016, with modest year-over-year construction and industrial expansion and weak oil & gas activity. Argentina’s steel market was relatively weak in 2016, as significant changes were made to long-term macroeconomic policies and the economy was affected by a severe recession in the neighboring Brazilian market, where steel consumption levels decreased for the third consecutive year.

Ternium achieved very strong results in 2016. Although shipments grew only 2% year-over-year, as higher shipments in Mexico and Other Markets were mostly offset by lower shipments in the Southern Region, the company’s profitability improved compared to 2015 as a result of lower costs (only partially offset by lower revenue per ton). During the year, we continued developing programs under a comprehensive approach to increase differentiation, through the extensive use of best practices and innovation. During 2016 our programs focused on integration with our customers and improvements in labor productivity, logistic costs, contractors’ efficiency, energy efficiency, process productivity and optimization of working capital.

The use of innovative information technology (IT) integrated systems helped increase labor productivity in the commercial area, including supply chain management and technical assistance, and raised customer relationships to new levels of integration and loyalty. Electronic transactions are the option of choice for most of our customers in Argentina and have been growing in Mexico, where they still have strong growth potential. With full cycle service and order tracking, this differentiating customer service tool has also enabled a streamlining of the sales back office function.

Among other innovative tools, new IT systems include those for demand forecasting, smart inventory planning, optimization models for order management and intelligent product catalogs. New quality-control related systems include those for the prediction and improvement of quality performance of advanced materials and industrial processes based on big data projects. In addition, the new inventory planning systems resulted in lower inventories in terms of days of shipments.

Ternium’s productivity improvement programs enabled the company to achieve several production records during 2016. More than 1,000 employees participate in these programs, under teams that include personnel from all levels and disciplines. A higher degree of automation, the implementation of best practices and benchmarking, investments to increase equipment productivity and personnel training programs, as well as demanding productivity targets, usually result in most production lines breaking production records every one or two years and, in some cases, more than once a year. Improvements in logistic costs included those obtained from a new traffic monitoring center, which reduced truck stay hours in our facilities.

During 2016, Ternium achieved meaningful progress in all its main projects on safety and environment management initiatives, including the DuPont technical assistance program, aimed at strengthening safe management of critical processes, the safety facilities’ certification program under OHSAS 18001 (which is close to completion) and the environmental facilities’ certification project under ISO 14001 (also close to completion). Commissioned safety and environmental care equipment during the year included those for the improvement of air emissions such as a secondary de-dusting system for steel shop furnace emissions cleaning and a new briquetting facility for iron ore dust recycling in the Guerrero unit in Mexico; a new by-products plant for coke oven-generated gas cleaning in the San Nicolás unit in Argentina; and a new scrap shredder for the supply of cleaner and dimensioned steel scrap that reduces emissions in the steel shop in our Manizales unit in Colombia. In addition, in 2016 Ternium commissioned a new hydrochloric acid regeneration plant in the Guerrero unit in Mexico to reduce the generation of hazardous by-products and to enhance its quality and process control.

To foster steel demand in its main markets, during 2016 Ternium continued supporting a program to strengthen small- and medium-sized customers and suppliers. The number of companies involved in the program grew in Mexico and Argentina during 2016, now encompassing approximately 1,240 participants. The program, launched in the past decade, contributed to a growing and strengthening network of industrial companies, technical schools, universities, business schools and government institutions, working together to foster high management standards, growth and innovation in the steel industry value chain. Among the achievements of the program during 2016 were the ISO certifications obtained by several small and medium-sized enterprises (SMEs) related to their quality and safety systems, the development of defense strategies against unfair trade practices and new record-high participation levels in our training activities, consolidating a broad educational offer targeting SME’s top managers, middle managers, supervisors, technicians and workers.

Steel Segment

Ternium’s shipments of steel products reached 9.8 million tons in 2016, a 1.7% increase compared with the 9.6 million tons achieved in the previous year. GDP in Latin America contracted 0.6% in the year, affected mainly by the weak performance of the Brazilian and Argentine economies, while the U.S. economy grew 1.6% in 2016, lower than its 2.6% expansion rate in 2015.

GDP performance - Latin America ⁸                                     GDP performance - United States ⁸

Apparent demand for finished steel in Latin America decreased 6.2% year-over-year in 2016, reflecting lower steel consumption in every major steel consuming market in the region except for the Mexican steel market. Mexican industry-driven multi-year expansion in apparent steel demand has increased local per capita steel consumption to levels that double those of its Latin American peers. In the United States, apparent demand for finished steel decreased 1.2% year-over-year. While the economy continued to expand, steel demand in the U.S. lagged behind due to a weak manufacturing industry, affected by a strong currency and lower activity in the oil & gas sector.

Apparent steel use - Latin America ⁹                                      Apparent steel use - United States ⁹

Mexico

During 2016, Ternium was the leading supplier of flat steel products in Mexico. Shipments to this market increased 8.0% year-over-year to a new record of 6.4 million tons, representing 66% of Ternium’s total steel shipments. Our shipment growth in Mexico outpaced the country’s apparent steel use year-over-year expansion of 1.6%. Ternium’s performance was driven by incrementally improved local manufacturing and construction activity and a weaker oil & gas sector. In addition, government trade measures in Mexico against unfair steel trade practices and the renewal of a 15% import tariff on several steel product groups coming from certain countries, provided Ternium with a level playing field in the Mexican steel market.

With approximately 24.6 million tons of apparent steel use, the country’s steel market was the largest in Latin America in 2016. Mexico’s GDP grew 2.3% year-over-year, in line with growth rates in the previous two years.

GDP performance – Mexico ⁸                                                   Apparent steel use – Mexico ⁹

Mexican motor vehicle production continued growing in 2016, though at a slower pace. New vehicle manufacturing facilities were commissioned during the year, as the country consolidates its position as the world’s seventh largest motor vehicle manufacturing hub.

Ternium’s differentiation strategy during 2016 continued to rely on the expansion of manufacturing capacity of high-end steel products and on the development of value-adding services. Following the completion of the first stage of our investment project in the Churubusco hot strip mill, which enabled the production of advanced high-strength and dual-face steels, during 2016 Ternium developed new products to meet customers’ high-quality product requirements in the automotive, metal mechanic, home appliances, oil & gas and electric motor industries. In addition, during the year we launched the second stage of the project, completed during the first quarter of 2017, which is expected to increase the annual processing capacity of the hot strip mill by approximately 230,000 tons.

Construction activity in Mexico grew 1.3% year-over-year in 2016, slower than the 2.6% expansion rate recorded in 2015, as a result of low government infrastructure spending and a deceleration of private construction growth. Ternium’s efforts in this market continued focusing on offering a full range of steel products and enhancing customer services, including the development of local presence, logistics management and the introduction of new information technology tools. Of note during 2016 was the installation of a second slitting line in our Churubusco service center, which enabled an increase in Ternium’s annual processing capacity of slit steel products by approximately 200,000 tons.

Construction – Mexico ¹⁰                                          Motor vehicle production - Mexico ¹¹

Steel prices in the U.S., which are a significant driver of steel prices in Mexico, rebounded during the first half of 2016 and remained at levels that were above those prevailing in 2015. Service center steel inventories in the U.S. decreased year-over-year in 2016, as apparent steel use remained relatively stable, resulting in lower month-of-supply inventory ratios. Several government trade measures in the U.S. and Mexico against unfair steel trade practices resulted in a significant year-over-year decrease in steel imports during the year.

During 2016, Ternium continued running its integrated steelmaking facilities in Mexico at high levels of capacity utilization, while achieving new record production levels in several facilities. We continued to maximize the use of direct reduced iron in the metallic mix of our steel shops (produced in our natural-gas-based iron ore direct reduction units), which continued to be a cost efficient input despite higher natural gas costs, as steel scrap prices rebounded from the lows seen during the fourth quarter of 2015. Our downstream facilities, including our re-rolling facilities, showed significant increases in production rates in 2016 compared with those of the previous year, in line with a growing demand for Ternium’s steel products during the year.

Power supply to our facilities in Mexico was further secured starting from the fourth quarter of 2016 with the commissioning of Techgen’s new 900 megawatts power plant in Pesquería, Nuevo León state, Mexico. Ternium has a 48% equity interest in this natural-gas-based facility. Built at a cost of $1.1 billion, the plant is a competitive and reliable supply of electricity and has the best available environmental care technology, including zero liquid discharge.

Ternium’s capital expenditures in the steel segment in Mexico amounted to $197 million in 2016. The main investments carried out during the period included those made for the mentioned upgrade and expansion of the hot strip mill at the Churubusco unit, the expansion of service center processing capacity, and the improvement of environmental and safety conditions at certain facilities of the Guerrero and Puebla units. Ternium’s ongoing investment plan in the steel segment in Mexico focuses on projects aimed at increasing the value added to production, including the new galvanizing and pre-painting facilities in Pesquería announced in March 2017, and on projects aimed at enhancing quality and productivity, reducing costs, and improving environmental and safety conditions.

Looking forward, steel consumption in Mexico could soften in 2017, as lingering uncertainties over NAFTA’s future terms of trade may affect construction activity and the investment climate in the country. Notwithstanding this, Ternium is confident that its leadership in the market and the opportunity to substitute imports, which are significant in Mexico, will support its growth in shipments into 2017.

Southern Region

The Southern Region encompasses the steel markets of Argentina, Bolivia, Chile, Paraguay and Uruguay. During 2016, Ternium was the leading supplier of flat steel products in Argentina. Shipments in the Southern Region reached 2.2 million tons in 2016, lower than shipment levels in 2015, representing 23% of Ternium’s consolidated steel shipments.

Argentina’s steel market was relatively weak in 2016, with apparent steel demand decreasing 18.0% year-over-year to approximately 4.3 million tons. The country faced a significant rebalancing of the economy’s relative prices in a year of macroeconomic policy changes, coupled with a recession in the neighboring Brazilian economy. Lower public infrastructure investment affected activity levels in the construction sector, as the new government’s public infrastructure plan, launched during the first half of 2016, began to gain momentum only by the fourth quarter of the year. On the other hand, the severe recession that the Brazilian economy experienced during 2016 affected activity levels in some export-driven industrial sectors in Argentina.

Construction activity in Argentina decreased 17.0% in 2016, as a result of the mentioned decline in public infrastructure expenditure and lower private investment. Motor vehicle production decreased a further 10.3% in 2016, as a continued downward trend in vehicle exports to the Brazilian market could not be compensated with higher local shipments, despite the recovery in vehicle sales evidenced in the Argentine market in 2016.

Construction – Argentina ¹²                                        Motor vehicle production – Argentina ¹³

Our efforts in Argentina continued to focus on fostering steel demand through our program to help SMEs in the steel industry value chain to grow, and on further strengthening our offering of steel products and related services so as to fulfill our customers’ current and new requirements. New market opportunities in 2016 arose from the emergence in Argentina of a promising wind farm industry, the launch of new vehicle models, requirements for esthetically superior products for high-end home-appliances, and the manufacturing of lighter transport equipment.

Ternium’s shipments to the Paraguayan and Bolivian markets increased in 2016, while shipments to the Chilean and Uruguayan markets decreased slightly compared to shipment levels in the previous year. During 2016, the economies of these countries continued showing resilience against adverse conditions in the region’s major economies, extending a healthy multi-year expansion cycle.

In 2016, Ternium reduced steel production rates in Argentina compared with the production rates achieved in 2015. Blast furnace #1 was blown down in November 2015 for programmed maintenance and remained off during 2016. The resulting decrease in pig iron production was partially offset by increased production rates in blast furnace #2, mitigating the consequent decrease in steel production volumes. Downstream facilities also experienced lower production levels during 2016 compared to production levels in 2015, including those used for the production of customized products, as a result of lower steel demand levels in the local Argentine market.

Ternium’s capital expenditures in the Southern Region, mainly in Argentina, amounted to $133 million in 2016. During the year, we started up a new by-products plant in the coking facilities, enabling an increased processing capacity of metallurgical coal and cleaner coal by-product gases, and enhanced a galvanizing facility, resulting in higher processing capacity and improved product quality. In addition, we made progress on several projects, including those for the upgrading of the steel shop facilities, the revamping of the hot-rolling mill and the improvement of environmental and safety conditions.

Looking forward, as Argentina’s steel demand started to rebound in the fourth quarter of 2016, Ternium believes it will gradually recover during 2017. Some of Argentina’s steel consuming sectors started to show positive signs and there are improved expectations for the Brazilian economy. Public infrastructure investment continues to gain momentum and light vehicle exports in the fourth quarter of 2016 were the highest of the last five quarters, although light vehicle exports declined 21% year-over-year in 2016. Ternium expects to increase steel shipments in Argentina as a result and to reduce shipments to other countries in the Southern Region, keeping utilization rates relatively unchanged, both in its upstream and downstream facilities. Capital expenditures in the Southern Region are planned to continue focusing on projects aimed at increasing operating efficiency, enhancing process technology and reliability, broadening our product range and improving environmental and safety conditions in our facilities.

Other Markets

Ternium’s sales to the rest of the world are shown under “Other Markets,” including major shipment destinations such as Colombia, the United States and Central America. During 2016, Ternium was a leading supplier of steel products in Colombia. In addition, Ternium continued serving customers in the southern United States, Central America and in other regions throughout Latin America, Europe and Asia. Shipments to the Other Markets region, which represent 12% of Ternium’s total steel shipments, increased 2.1% year-over-year in 2016, to 1.1 million tons.

Ternium’s steel shipments in Colombia decreased year-over-year in 2016. The company’s crude steel production in the country recovered during the year, growing 12% compared to 2015. Although Colombia’s GDP continued growing in 2016, the pace of expansion was the lowest in several years given a mixed performance, with healthy manufacturing expansion, decelerating construction activity and a weak oil & gas sector. Following certain trade measures enacted by the Colombian Government in response to unfair trade practices, steel market conditions improved in Colombia during 2016, although prices remained at relatively low levels compared to prevailing prices in other regional markets.

In the U.S. steel market, Ternium’s shipments increased in 2016 as the company’s galvanized steel production in the country grew 21% year-over-year. Although apparent steel use in the country decreased slightly on slowing economic growth, steel prices improved significantly during 2016, particularly in the first half of the year, following the U.S. Government enactment of several trade measures against unfair trade practices. In Central America, economic activity continued to grow at a solid pace during 2016. Despite a 44% year-over-year increase in galvanized steel production during the year, Ternium’s steel shipments in the region decreased as a result of lower steel exports from our Mexican facilities.

Mining Segment

Ternium has iron ore production facilities in Mexico. We conduct our mining activities through Las Encinas, a company in which we have a 100% equity interest, and Consorcio Peña Colorada, a company in which we have a 50% interest (with ArcelorMittal having the other 50% interest). ArcelorMittal and Ternium each receive 50% of total iron ore production of Consorcio Peña Colorada. Most of our iron ore production is consumed internally at Ternium’s steelmaking facilities in Mexico. In 2016, Ternium’s mining segment reported shipments of 3.3 million tons of iron ore, a 9% decrease compared to 2015 due to lower iron ore production by Consorcio Peña Colorada.

Las Encinas

Las Encinas produces iron ore pellets and magnetite concentrate. As of the end of 2016, Las Encinas was operating the Aquila open pit iron ore mine, located in Michoacán. The Las Encinas facilities include two crushing plants located close to each of the Aquila and El Encino mines, and a concentration and pelletizing plant located in Alzada, Colima.

Las Encinas’ saleable production (pellets and concentrates) reached 1.9 million tons in 2016, similar to saleable production reached in 2015. Iron ore reserves as of December 31, 2016, were 22 million tons on a run-of-mine basis (with a 41% average iron grade). Las Encinas’ combined active mines life was estimated at eight years as of the end of 2016. Capital expenditures during the year amounted to $7 million, mainly related to maintenance activities. During 2017, Las Encinas expects to start commercial operations in Las Palomas, a small open pit iron ore mine located in Jalisco.

Consorcio Peña Colorada

Consorcio Peña Colorada produces iron ore pellets and magnetite concentrate. As of the end of 2016, it was operating the Peña Colorada open pit iron ore mine, located in Colima. The Consorcio Peña Colorada facilities include a concentration plant located at the mine and a two-line pelletizing plant located near the Manzanillo seaport on the Pacific coast in Colima.

Consorcio Peña Colorada’s saleable production was 2.9 million tons in 2016, lower than saleable production of 3.5 million tons achieved in 2015, mainly as a result of a decrease in the ore’s iron grade. Iron ore reserves as of December 31, 2016, were 242 million tons on a run-of-mine basis (with a 21% average iron grade). Consorcio Peña Colorada’s combined active mines life was estimated at 16 years as of the end of 2016. Ternium’s share in Peña Colorada’s capital expenditures during the year amounted to $85 million, mainly related to the expansion of its iron ore crushing, grinding and concentration facilities, completed during December 2016, and preparation works at a new iron ore body in the Peña Colorada mine. During 2017, Consorcio Peña Colorada is expected to ramp up its new facilities to raise iron ore concentrate production levels back to 4.5 million tons per year.

Support Program for Small and Medium-Sized Enterprises

As it has been doing for several years, with the aim at bolstering growth of its domestic steel markets, Ternium continued sponsoring a SME support program called ProPymes . The program is focused on helping SMEs in the steel industry’s value chain grow through the enhancement of competitiveness and the stimulus of investments in this sector. To achieve this, ProPymes provides a variety of services, including training, industrial assistance, institutional assistance, commercial support and financial aid. Through these means, ProPymes has helped create an industrial network that encourages the professionalization and quest for excellence of SMEs which, based on knowledge sharing, reciprocal learning and exchange of experiences, aims at the implementation along the whole value chain of the best practices utilized in the industry. ProPymes currently assists approximately 1,240 SMEs in Mexico and Argentina. Ternium supervises the execution of the ProPymes programs through two departments operating in Mexico and Argentina.

Mexico

ProPymes in Mexico selects participating SMEs according to their ability to increase their competitiveness as suppliers, along with their capability to add value to steel products and their potential to increase exports or substitute imports as customers. Approximately 440 SMEs participate in ProPymes in Mexico.

During 2016, ProPymes consolidated its training program for SME middle managers, supervisors, technicians and workers. Launched during 2015, the program focuses on leadership and occupational training. Sponsored by the Instituto Nacional del Emprendedor (National Entrepreneur Institute), or INADEM , and ProPymes , it has been jointly designed by ProPymes and a local university . Likewise, during 2016 the training program for SME managers continued. Also sponsored by INADEM and ProPymes , it has been jointly designed by ProPymes and a local graduate school.

ProPymes carried out industrial assistance programs related to technology upgrades, production capacity expansions and specialized training and consultancy. In 2016, certain participating SMEs obtained quality and safety systems ISO certifications under a program launched in 2014. These initiatives and their associated capital expenditure plans were supported by INADEM , as part of its cooperation agreement with ProPymes. Commercial support for SMEs continued during 2016, with ProPymes promoting initiatives aimed at making selected SMEs become suppliers of large companies. To this purpose, a development committee, composed of members of the manufacturing industry’s chamber, Monterrey’s center for competitiveness and ProPymes , advanced a program aimed at developing new industrial suppliers for their members. Furthermore, ProPymes continued participating in selected conferences and conventions intended to facilitate commercial ties between SMEs and potential customers in the automotive sector and other industries in the steel industry value chain.

In 2017, ProPymes’ industrial assistance programs are planned to focus on the support of innovation initiatives, expected to help SMEs accelerate their learning curves and enhance their competitive positioning. In addition, ProPymes will seek to further expand the number of participating SMEs and sponsor SME employee and manager training programs, as well as commercial assistance initiatives. ProPymes expects to organize its second convention in Mexico, an event in which businessmen and representatives from the government, universities and industrial clusters and chambers share know-how and successful SME experiences, and foster the implementation of the best practices in the value chain.

Argentina

Approximately 800 SMEs participate in ProPymes in Argentina. During 2016, SMEs faced a slow local market and weaker exports, following decreased economic activity in the region. Notwithstanding the foregoing, ProPymes’ training programs achieved new record-high participation levels during the year.

The SME support program for technical schools also expanded at a solid pace. During 2016, fifty-one SMEs participating in ProPymes sponsored twenty-two technical schools, up significantly compared to nine SMEs and five technical schools participating in the program in 2013, the year in which the initiative was launched. Under this program, SMEs offer internships and training to students and teachers, respectively, with the aim of improving overall technical education. ProPymes coordinates these activities through its corporate social responsibility program, an initiative aimed at helping SMEs build and consolidate long-term community relations, and the development of a qualified labor force in the medium-term.

New subjects under ProPymes’ training program during 2016 included innovation, aimed at fostering the implementation of innovative initiatives within the companies, and renewable energies, a subject that was particularly valued by participants. ProPymes’ courses, performed in-house or at local educational institutions, cover an expanding range of SMEs needs and are continuously updated and broadened in order to adapt to employees’ requirements of all levels. The approximately 3,700 participants in ProPymes ’ training program during 2016 represented a 5% increase compared to the record level achieved in the previous year.

The program’s consulting area, one of ProPymes’ pillars, continued to prepare diagnostic reports and provide assistance, reaching activity levels that were similar to those recorded during 2015. Subjects during 2016 continued to focus on the use of automation technology, the development of health and safety protocols, the development of tools for training and human resources management, the implementation of management control systems, assistance for the utilization of competitive financing lines and the implementation of maintenance management.

As for ProPymes’ commercial and institutional assistance efforts, during 2016 the program helped SMEs develop strategies aimed at ensuring a level playing field for competition, given the potential threat of increased unfairly traded imports. Assistance efforts included those for the setting of industry chambers, the development of technical standards for industrial products and institutional initiatives aimed at improving SME competitiveness.

In 2017, ProPymes intends to consolidate a new training program specialized in renewable energy, aimed at helping SMEs adapt to the emerging requirements of recently approved legislation, and to expand its management development program. In addition, it expects to intensify its assistance activities related to capital expenditure financing, in response to an expected rise in financing requirements related to a surge in new SME projects.

Product Research and Development

Product research and development activities at Ternium are conducted through a central Product Development Department in coordination with local teams that operate in several of our facilities. Applied research efforts are carried out in-house, in some cases including the participation of strategic customers, through joint efforts together with recognized universities or research centers, or through our participation in international consortiums.

We have been increasingly engaging universities in our research efforts in order to expand and further diversify Ternium’s research network and capabilities. This initiative fosters the development of fundamental knowledge and know-how at participating universities while enabling the optimization of Ternium’s in-house research resources. The program includes the development of thesis and presentations in symposiums organized by Ternium, with the participation of more than forty under-graduate and post-graduate students pursuing degrees in engineering, materials science and metallurgy.

The installation of state-of-the-art cooling technology in a hot strip mill in Mexico, during the fourth quarter 2015, opened up the possibility to develop and process new advanced high-strength steel (AHSS) grades, including dual phase, ferrite-bainite, martensitic and complex phase steel grades. Based on those new capabilities, during 2016 we widened our high-end product portfolio for customers in the automotive, metal mechanic, home appliances, oil & gas and electric motors industries.

New Products

During 2016, we began the development of highly formable AHSS for several applications, and developed high-strength steel wire for high-tensile coil springs, initiatives that will enable us to increase our share in the high-value automotive and metal mechanic steel markets. In addition, we continued certifying steel products with vehicle manufacturers, including high formability special steels and steel products required for the assembling of new pickup truck models in Argentina, a product line that has outperformed in the Southern Region in an overall weak automotive market.

In addition, during the year we widened our product portfolio of high-resistance micro alloyed steel products for the manufacturing of transport equipment. Those steel grades enable the design of lighter equipment yielding lower fuel consumption per transported tonnage that result in decreased freight costs.

Ternium targeted the capital goods sector through the development of high-strength steel slabs for plates. In this regard, during 2016 we made progress, in a combined effort with a strategic customer, on the development of certain plate qualities suitable for the manufacturing of road machine blades and windmill towers. In addition to gaining market share, with these new products we expect to strengthen our participation in a new steel market segment that is emerging in Argentina associated with the expansion of the local wind farm industry.

Among oil & gas industry applications, during 2016 Ternium developed heat treatable qualities suitable for coiled tubing, a product required in the development of shale fields. Product developments for home appliance customers in Mexico and Argentina included a new generation of advanced metallic paint systems. The new products are esthetically superior and incorporate the required attributes for their processing in newly developed manufacturing equipment, enabling Ternium to offer higher-value steel products while providing its customers a competitive edge in the high-end appliance market.

Applied Research

Ternium’s product research and development plans are based on current and expected customer requirements for steel products. Research and development activities are carried out in close collaboration with leading steel customers and institutions, seeking improved performance and new applications. Complementarily, we seek to develop of new processes and to anticipate the new technologies that will be required at our facilities associated with the new products.

During 2016, we continued working with the Colorado School of Mines and the University of Pittsburgh, through a consortium, on the development of the next generation of AHSS for welded pipe manufacturing and automotive industry applications. Through the International Zinc Association, our research projects focused on new steel coatings, seeking further gains in workability and performance in order to reduce home-appliance manufacturers’ production costs and improve the final product’s quality. With Canadian McMaster University, research projects during 2016 focused on the development of AHSS production processes to be implemented in our steelmaking facilities.

Our projects together with the Mexican Centro de Investigaciones y Estudios Avanzados (Cinvestav-Advanced Studies and Research Center) sought the optimization of AHSS performance for automotive industry applications and basic research on surface states for coatings and phase transformation of steels. With the Argentine Instituto Argentino de Siderurgia (IAS-Argentine Steel Institute) research projects focused on the development of production processes for AHSS casting and hot-rolling for a wide array of applications in the automotive, transportation, agricultural and oil & gas industries. In addition, we developed with IAS and Tenaris Research new prototype tools to improve the process control required to ensure steel cleanliness.

Joint projects with universities during 2016 included the Universidad Autónoma de Nuevo León (Nuevo León Autonomous University - Mexico) basic research on steel and steel coatings mechanical and chemical performance; the Universidad de Monterrey (Monterrey University - Mexico) applied research on paints systems with nano-additives for improved corrosion protection and the design of testing equipment for the evaluation of steel performance at low temperatures; the Universidad Autónoma de San Luis Potosí (San Luis Potosí Autonomous University - Mexico) research and development of iron ore production processes related to the concentration and direct reduction of iron ore; the University of Sheffield (UK) basic research on steel development; and the Universidad Politecnica de Cataluña (Cataluña’s Politecnic University - Spain) development of first and third generation AHSS.

Prospective Developments

During 2017, Ternium expects to continue developing high-end steel products to increase shipment volumes to industrial customers, through the optimization and expansion of its product portfolio. Our research and development efforts during the year are planned to obtain enhanced first-generation high strength steel products and make progress on projects related to third-generation high strength steel products. In addition, we intend to make further progress on the co-development of plate qualities suitable for the manufacturing of windmill towers and to intensify our early-involvement product development strategy in association with our customers. Particularly for the automotive industry, we intend to develop new products suitable for hot stamping. Furthermore, we will continue our research and development efforts on new esthetically superior surface finishings, targeting the home-appliance market and the construction market’s panel segment.

Human Resources and Communities

Ternium had approximately 16,700 employees as of December 31, 2016, a figure similar to that at year-end 2015. During 2016, the company continued its medium-term personnel recruitment plans in the different regions, leaning mainly on the program for recently- graduated professionals, a program that has contributed a majority of our current management and technologist positions. In addition, a number of students from various Latin American universities continued carrying out internships in different areas of the company. The purpose of these internships is to offer students and the universities a professional experience within an actual business environment, and to serve as a tool to identify talent and to promote acquaintance between the company and its potential employees.

During 2016, Ternium’s training programs continued adapting to the specific needs of different business areas. Of note in the year was the strengthening of our safety training program, including the redesign of activities targeting factory personnel and the implementation of activities for personnel in leadership positions, focused on safety management leadership. These initiatives contributed to further Ternium’s objective of involving personnel of all Ternium’s areas and of all ranks, aimed at ensuring a proactive profile on safety behavior. Ternium also carried on with its “leaders training program”, which in 2016 included new activities focused on industrial management. This program aims at consolidating the development of specific skills required by personnel carrying leadership positions. Furthermore, the program for recently-graduated professionals incorporated new teaching methodologies during 2016, including new technical training and language learning activities based on online course formats.

During 2016, we carried out a training activity for supervisors, focused on the analysis of the new features of their role. In addition to creating new effective management tools, this program fosters professional networks and enables a first-hand interaction with the company’s top managers. Ternium continued funding postgraduate studies in management and technology to meet the requirements of employees’ career plans. For example, in 2016 we added, together with traditional training programs from University of Manchester (UK), Instituto Argentino de Siderurgia and Universidad Austral (Argentine steel institute and Austral university - Argentina), the prestigious master in metallurgy from the University of Sheffield (UK), under a format that combines on-site and on-line learning activities.

Furthermore, Ternium continued promoting financial support and contributions to various joint industry and university programs, including the endowment of Chairs at certain universities and the funding of scholarships and fellowship grants to talented undergraduate and graduate students of engineering and applied sciences in selected countries. Throughout the year, the company continued to host various courses for graduate and undergraduate students and fostered conferences on technical subjects related to the steel industry.

During 2016, Ternium continued its work attendance program in Argentina, aimed at increasing work attendance and strengthening workers’ commitment and industrial culture. Since the program’s initiation in 2012, attendance indicators improved 20%, including a 7% increase in 2016. In addition, perfect attendance awards increased 8% year-over-year. To foster the quality of life of its employees inside and outside the workplace, during 2016 Ternium expanded its flexible working programs, including, among other initiatives, the opening of a new office for remote connection and the lengthening of its flexible timetable program, encompassing every Monday and Friday, that now runs all year round instead of in summertime only. Moreover, the company launched a new program focused on addictions control and carried on with its traditional programs, including those for fostering of sports activity, clinical examination and disease prevention campaigns, scholarship and leisure programs for the employees’ children, and loan programs for home improvement and special situations.

In addition, during 2016 Ternium made progress in the implementation of new programs aimed at the improvement of labor climate in different areas. These programs address several opportunities identified from the analysis of a labor climate survey carried out in 2015. Ternium also conducted its first labor climate survey for blue collar workers at its Mexican units.

Community Development Activities

Ternium’s community development programs in 2016 kept their focus of previous years, i.e., to help strengthen our neighboring communities and sustain deepening ties with them. We continue working together with local institutions to determine priorities and develop projects in the areas of education and social integration, health and sports, and culture dissemination.

During 2016, Ternium continued supporting local technical schools in Mexico, including activities such as development of teachers’ skills and school management, expansion and improvement of school infrastructure, and cash contributions for the purchase of new equipment or the enhancement of existing equipment. Likewise, in the Ramallo and Ensenada industrial areas of Argentina, we continued supporting a program aimed at strengthening local technical schools, an endeavor initiated in 2006 involving the Argentine government, Ternium, and several technical schools near Ternium’s facilities. Under this program, which contributed to a significant improvement of the graduates’ training, Ternium continued providing technical internships at its workshops and training at its operating areas in the industrial centers, and carried on with its technical training programs in schools. In addition, we improved the infrastructure of two technical schools, under a joint program with the Hermanos Agustín y Enrique Rocca foundation, including the expansion of workshops, a new workshop, provision of related technological equipment, a new cafeteria and refurbishment of administrative offices.

Ternium continued to fund programs aimed at improving basic education. In Mexico, we supported basic schools located in San Nicolás de los Garza and Pesquería, and workshop academies in Pihuamo, Aquila and Alzada. Likewise, in Argentina, we continued supporting a program launched in 2013 in an elementary school located in Ramallo. Through its volunteer program, in 2016 Ternium’s employees and their families, students’ relatives, school teachers and managers, as well as neighbors, worked on the maintenance, restoration and enhancement of the infrastructure of certain community educational centers located in Aquila and Monterrey, Mexico, in San Nicolás, Argentina, and in Barranquilla and Manizales, Colombia. Since the program was launched in 2014, a total of 14 educational centers located in different cities were revamped under this initiative. The program was jointly supported and financed by Ternium and the Hermanos Agustín y Enrique Rocca foundation, as well as by other companies operating in the steel industry value chain.

Also together with the Hermanos Agustín y Enrique Rocca foundation, Ternium maintain its policy of financing scholarships for high performance students from local communities in several countries. During 2016, this program was also implemented in Barranquilla, Cali, Manizales and Medellín, Colombia.

During 2016, Ternium organized health fairs in several cities aimed at increasing the community’s awareness and gaining a basic understanding of how to prevent and take care of various health issues. In addition, Ternium continued supporting a basic health care unit in Aquila, Mexico, and helped finance the infrastructure refurbishing of a hospital in San Nicolás, Argentina. Among other traditional activities, the company organized, together with local institutions, annual local marathons, cinema festivals and sport championship leagues involving schools in its facilities’ neighboring communities.

Escuela Técnica Roberto Rocca – ETRR (Roberto Rocca Technical School)

During 2016, Ternium inaugurated the Escuela Técnica Roberto Rocca - ETRR (Roberto Rocca Technical School) in Pesquería, with 128 students at the start of the 2016-2017 school year. The school, which is a part of Ternium industrial center at Pesquería, is the first of its kind in Mexico, offering specializations in electro-mechanics and other disciplines, and scholarships for all students. Once fully completed, the school will have capacity for 360 students, with 12 classrooms, 17 workshops, two labs, a library, a gym, an auditorium, a cafeteria and other facilities. Ternium gifted $11.1 million to the school during the fourth quarter of 2016, and expects to spend in this endeavor a total of approximately $28.0 million.

Pesquería, formerly a rural area located in Nuevo León, Mexico, has become a fast growing industrial center. Back in 2013, Ternium founded its industrial center at Pesquería, a $1.1 billion greenfield investment to manufacture high-end steel for the auto industry. In addition, Techgen, a joint venture owned by Ternium and its affiliates Tenaris and Tecpetrol, inaugurated a new power plant. Other smaller industries also sought to settle in the area, sparking the construction and retail sectors. As a result of such an industrial boom, many families from nearby districts moved to Pesquería in search of opportunities and other families came from elsewhere in the country. The requirements for infrastructure development multiplied, including a need for higher quality roads and new schools and hospitals, among other facilities.

Unlike its peers, the ETRR includes all-day activities with a more comprehensive and technically-focused curriculum that we believe increases employability. In addition, students are given access to internships at industrial facilities in the region. In a low-income community were only 20% of the children complete high school education, the ETRR’s two-year educational plan enables more children to access this key education stage towards university studies. The ETRR is an example of Ternium’s community development initiatives, which aim at fostering technical skills and knowledge in the communities in which Ternium operates.

Environment, Health and Safety

Environmental protection and the individual’s health and safety is a paramount value for Ternium, and its personnel has a mandate to observe this value and to promote and share related policies with the company’s value chain and with the communities where it operates. Ternium’s environment, health and safety policies abide by the World Steel Association’s policy statement and its principles for excellence in safety and occupational health, and by the ISO 14000 environmental management international standard directives.

Ternium participates in the World Steel Association forums. These forums, which are focused on sustainable development, environment, safety and occupational health, develop consistent measurements, statistics and databases of selected variables aiming to enable steelmaking companies to benchmark performance, share state-of-the-art best practices and ultimately set industrial process improvement plans. These forums include the Climate Change Policy, Life Cycle Assessment, Carbon Dioxide Data Collection Program, Water Management, Sustainability Reporting, and Safety and Occupational Health Committee groups and their working subgroups. In addition, during 2016, Ternium hosted the annual air quality workshop and participated in the fellowship program in the sustainability reporting expert group of the World Steel Association.

Ternium’s operations in Mexico revalidated in 2016 their clean industry certificates under the Mexican Government’s National Environmental Voluntary Program, including its steel and in-use mining facilities. In addition, we made progress on our environmental and safety investment plans at our Guerrero and San Nicolás units and we are in our way to complete our ISO 14001 certification program. Furthermore, during the year, we continued developing our energy efficiency program, we completed the diagnosis and identification of process hazards at critical processes and made progress on our OHSAS 18001 certification project.

Environmental and safety investments

During 2016, Ternium completed the installation of a secondary de-dusting system in the steel shop at our Guerrero unit in Mexico, which enhanced emission control, and commissioned a new briquetting facility, which enabled the recycling of metallic fines generated in several processes. In addition, during the year, Ternium commissioned a new hydrochloric acid regeneration plant, which stores and processes acid used by the pickling lines of the cold-rolling mills, resulting in reduced by-product rates and improved product quality and process control.

Ternium also made progress on other improvement projects and complementary investments in the Guerrero unit, including projects related to processing and handling of steel slag in the steel shop, replacement of pickling tanks, improvement in the treatment of sludge and upgrading of raw material storage yards, and improvement for vehicular traffic. The resulting improvements in industrial safety and environmental sustainability, together with those resulting from the upgrade of feeding systems of the iron ore direct reduction units completed during 2015, are helping the Guerrero unit achieve the most stringent environmental norms and standards in the world.

Siderar’s San Nicolás unit in Argentina completed the installation of a new by-products plant in the coal coking facilities that resulted in cleaner coke oven gases. In addition, Siderar made progress on several improvement projects in the San Nicolás unit related to the reduction of water consumption in the blast furnace, additional emission control systems in the steel shop and the capture and treatment of runoff water in the coal and coking coal yards. Ternium also commissioned a new scrap shredder at our Manizales unit in Colombia that resulted in cleaner emissions due to increased availability of properly dimensioned steel scrap for the steel shop.

Ternium continues to monitor its facilities through ongoing programs aimed at maximizing the efficient use of energy resources, the re-use of by-products and the appropriate treatment and disposal of wastes, air emissions and wastewater.

ISO 14001 certification project

Under our ISO 14001 certification project, we made significant progress during 2016. We are in our way to complete the project as certificates were already granted to Ternium’s Guerrero, Pesquería, Puebla, San Luis, Tenigal and Universidad units in Mexico, all of its production units in Argentina, its Manizales and Barranquilla units in Colombia, and its Villa Nueva unit in Guatemala. The standard was created by ISO, the International Organization for Standardization, an international network of national standardization institutes that work together with governments, the industry and consumer representatives, with the purpose of supporting the implementation of an environment management plan in any public and private organization.

Greenhouse Gas Emissions and Energy Efficiency

The accompanying chart shows Ternium’s estimated emission of carbon dioxide per ton of liquid steel produced, as reported to worldsteel. We support the steel industry’s ongoing efforts to develop innovative solutions to reduce greenhouse gas (GHG) emissions over the lifecycle of steel products. According to the Intergovernmental Panel on Climate Change, the steel industry accounts for approximately 6-7% of total world GHG emissions.

Under Ternium’s energy efficiency program, launched during 2014, one hundred fifteen energy-saving projects were completed. In addition, fifty-nine additional energy-saving projects are being developed or undergoing the approval process. Ternium's energy efficiency program is a long-term cost reduction initiative, resulting in lower GHG emissions, encompassing all of Ternium’s facilities.

Safety management improvements for critical production processes

During 2016, Ternium completed the first stage of this project, consisting of the diagnosis and identification of process hazards at critical processes in our mining, steelmaking and steel processing facilities in Mexico, Argentina and Colombia. Following the completion of this first stage, which let us consolidate a safe administration of critical processes, Ternium started during the year the second stage of the project, centered in sustainability. The implementation of the program, which counts with the assistance of DuPont, a renowned authority in industrial safety that was retained by Ternium during 2013, has also contributed to the development of new safety management tools for critical processes.

OHSAS 18001 certification project

Ternium continued developing its OHSAS 18001 certification program, a project that helped us find new opportunities to improve our safety management systems and ensure their compliance with our health and safety policy. By year-end 2016, we achieved under this program the full certification of Siderar’s facilities in Argentina and the certification of most of our industrial facilities in Mexico. In addition, during 2016, we started the certification process in our industrial facilities in Guatemala, in our Manizales unit in Colombia and, more recently, we started the certification process at our mining facilities and the two remaining industrial facilities in Mexico. The Occupational Health and Safety Assessment Series (OHSAS) standard is the result of a concerted effort from a number of the world’s leading national standards bodies, certification bodies and specialist consultancies to help develop safety management systems with the highest level of excellence.

Ternium’s safety indicators in 2016

In the last five years, consolidated average injury rates showed significant improvements, as shown in the charts. Our average injuries frequency rate ¹⁴ and lost-time injuries frequency rate ¹⁵ were 3.0 and 1.0, respectively, in 2016. These measurements include both our personnel and the personnel of third-party contractors, and cover all of Ternium’s facilities. Our safety initiatives during the year included the implementation of a new safety program targeting personnel of third-party contractors, and the intensification of safety training programs for our employees.

Corporate Governance

The Company

The Company is a public limited liability company ( société anonyme ) organized under the laws of the Grand Duchy of Luxembourg. Its object and purpose, as set forth in Article 2 of its articles of association, is the taking of interests, in any form, in corporations or other business entities, and the administration, management, control and development thereof. The Company is registered under the number B98 668 in Luxembourg’s  Registre du Commerce et des Sociétés .

Shares; Shareholders’ Meetings

The Company’s authorized share capital is set by the Company’s articles of association, as amended from time to time, with the approval of shareholders at an extraordinary general shareholders’ meeting. 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. The general extraordinary meeting of shareholders held on May 6, 2015, renewed the validity of the Company’s authorized share capital until 2020. As of December 31, 2016, there were 2,004,743,442 shares issued and outstanding, of which 41,666,666 are held in the Company’s treasury.

The Company’s articles of association authorize the board of directors or any delegate(s) duly appointed by the board of directors, to issue shares within the limits of its authorized share capital against contributions in cash, contributions in kind or by way of incorporation of available reserves, at such times and on such terms and conditions as the board of directors or its delegates may determine. The extraordinary general meeting of shareholders held on May 6, 2015 renewed this authorization through 2020.

Under Luxembourg law, the Company’s existing shareholders have a pre-emptive right to subscribe for any new shares issued for cash. The Company’s shareholders have authorized the board of directors to waive, suppress or limit such pre-emptive subscription rights and related procedures to the extent it deems such waiver, suppression or limitation advisable for any issue or issues of shares within the authorized share capital. However, our articles of association provide that, if and from the date the Company’s shares are listed on a regulated market (and only for as long as they are so listed), any issuance of shares for cash within the limits of the authorized share capital shall be subject to the pre-emptive subscription rights of the then-existing shareholders, except in the following cases (in which cases no pre-emptive rights shall apply):

Our articles of association provide that our annual ordinary general shareholders’ meetings must take place in Luxembourg on the first Wednesday of every May at 2:30 p.m., Luxembourg time. At these meetings, our annual financial statements are approved and the members of our board of directors are elected. No attendance quorum is required at annual ordinary general shareholders’ meetings and resolutions are adopted by a simple majority vote of the shares represented at the meeting. There are no limitations currently imposed by Luxembourg law on the rights of non-resident shareholders to hold or vote the Company’s shares.

On May 4, 2016, the annual general meeting of shareholders of Ternium authorized the board of directors to delegate the management of the Company’s day-to-day business and the authority to represent and bind the Company with his sole signature in such day-to-day management to Mr. Daniel Agustin Novegil, and to appoint Mr. Novegil as chief executive officer ( administrateur délégué ) of the Company. Following the adjournment of such annual general meeting, the board of directors resolved to delegate such management and representation authority to Mr. Novegil and to reappoint Mr. Novegil as chief executive officer ( administrateur délégué ) of the Company.

American Depositary Shares (ADSs)

Each ADS represents ten shares. Holders of ADSs only have those rights that are expressly granted to them in the deposit agreement dated January 31, 2006, among the Company, The Bank of New York Mellon (formerly The Bank of New York), as depositary, and all owners and beneficial owners from time to time of ADRs of the Company. ADS holders may not attend or directly exercise voting rights in shareholders’ meetings, but may instruct the depositary how to exercise the voting rights for the shares which underlie their ADSs. Holders of ADSs maintaining non-certificated positions must follow instructions given by their broker or custodian bank.

Share and ADS Repurchases

The Company may repurchase its own shares in the cases and subject to the conditions set by the Luxembourg law of August 10, 1915, as amended. The ordinary general shareholders’ meeting held on May 6, 2015 authorized the Company and the Company’s subsidiaries to acquire shares of the Company, including shares represented by American Depositary Shares, or ADSs, at such times and on such other terms and conditions as may be determined by the board of directors of the Company or the board of directors or other governing body of the relevant Company subsidiary, provided that, among other conditions, the maximum number of shares, including shares represented by ADSs, acquired pursuant to the authorization may not exceed 10% of the Company’s issued and outstanding shares or, in the case of acquisitions made through a stock exchange in which the shares or ADSs are traded, such lower amount as may not be exceeded pursuant to any applicable laws or regulations of such market, and that the purchase price per ADS to be paid in cash may not exceed 125% (excluding transaction costs and expenses), nor may it be lower than 75% (excluding transaction costs and expenses), in each case of the average of the closing prices of the ADSs in the New York Stock Exchange during the five trading days in which transactions in the ADSs were recorded on the New York Stock Exchange preceding (but excluding) the day on which the ADSs are purchased. In the case of purchases of shares other than in the form of ADSs, the maximum and minimum per share purchase prices shall be equal to the prices that would have applied in case of an ADS purchase pursuant to the formula above divided by the number of underlying shares represented by an ADS at the time of the relevant purchase.

As of the date of this report, Ternium held 41,666,666 of its own shares. Those shares were purchased from Usiminas on February 15, 2011, concurrently with the closing of an underwritten public offering by Usiminas of Ternium ADSs.

Board of Directors

The Company’s articles of association provide for a board of directors consisting of a minimum of five members (when the shares of the Company are listed on a regulated market, as they currently are) and a maximum of fifteen. The board of directors is vested with the broadest powers to act on behalf of the Company and accomplish or authorize all acts and transactions of management and disposition that are within its corporate purpose and are not specifically reserved in the articles of association or by applicable law to the general shareholders’ meeting.

The board of directors is required to meet as often as required by the interests of the Company and at least four times per year. In 2016, the Company’s board of directors met eight times. A majority of the members of the board of directors in office present or represented at each board of directors’ meeting constitutes a quorum, and resolutions may be adopted by the vote of a majority of the directors present or represented. In case of a tie, the chairman is entitled to cast the deciding vote.

Directors are elected at the annual ordinary general shareholders’ meeting to serve one-year renewable terms, as determined by the general shareholders’ meeting. The general shareholders’ meeting may dismiss all or any one member of the board of directors at any time, with or without cause, by resolution passed by a simple majority vote. The Company’s current board of directors is composed of eight directors, three of whom are independent directors.

Audit Committee

The board of directors has an audit committee consisting of three independent directors. The members of the audit committee are not eligible to participate in any incentive compensation plan for employees of the Company or any of its subsidiaries. Under the Company’s articles of association and the audit committee charter, the audit committee:

The audit committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and has direct access to the Company’s internal and external auditors as well as the Company’s management and employees and, subject to applicable laws, its subsidiaries.

Auditors

The Company’s articles of association require the appointment of at least one independent auditor chosen from among the members of the Luxembourg Institute of Independent Auditors. Auditors are appointed by the general shareholders’ meeting, on the audit committee’s recommendation, through a resolution passed by a simple majority vote. Shareholders may determine the number and the term of the office of the auditors at the ordinary general shareholders’ meeting, provided however that an auditor’s term shall not exceed one year and that any auditor may be reappointed or dismissed by the general shareholders’ meeting at any time, with or without cause. As part of their duties, the auditors report directly to the audit committee.

PricewaterhouseCoopers, Société coopérative (formerly PricewaterhouseCoopers S.àr.l.),  Cabinet de révision agréé , was appointed as the Company’s independent auditor for the fiscal year ended December 31, 2016, at the ordinary general shareholders’ meeting held on May 4, 2016.

Board of Directors and Senior Management

Board of Directors

Chairman

Paolo Rocca

Ubaldo Aguirre (*)

Roberto Bonatti

Carlos Condorelli

Vincent Decalf (*)

Adrián Lajous (*)

Daniel Novegil

Gianfelice Rocca

Secretary

Arturo Sporleder

(*) Audit Committee Members

Senior Management

Chief Executive Officer

Daniel Novegil

Chief Financial Officer

Pablo Brizzio

Mexico Area Manager

Máximo Vedoya

Siderar Executive Vice President

Martín Berardi

International Area Manager

Héctor Obeso Zunzunegui

Planning and Global Business Development Director

Oscar Montero

Engineering and Environment Director

Ricardo Miguel Alí

Human Resources Director

Rodrigo Piña

Chief Information Officer

Roberto Demidchuck

Quality and Product Director

Rubén Herrera

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The review of Ternium’s financial condition and results of operations is based on, and should be read in conjunction with, the Company’s consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 (including the notes thereto), which are included elsewhere in this annual report.

The financial and operational information contained in this annual report is based on the operational data and consolidated financial statements of the Company, which were prepared in accordance with IFRS and IFRIC interpretations as issued by IASB and adopted by the EU, and presented in U.S. dollars ($) and metric tons.

Overview

Operating income in 2016 was $1.1 billion, 79% higher than operating income in 2015. Steel shipments reached 9.8 million tons in 2016, slightly higher year-over-year mainly as a result of a 472,000 ton increase in Mexico, partially offset by a 331,000 ton decrease in the Southern Region. Operating margin increased, mainly reflecting $133 lower operating cost per ton partially offset by $77 lower revenue per ton. The decrease in operating cost per ton was mainly due to lower purchased slabs, raw material, energy and labor costs. Steel revenue per ton decreased as a result of lower steel prices in Ternium’s main steel markets, partially offset by a higher value added product mix.

Net income in 2016 was $706.9 million, compared to net income of $59.8 million in 2015. The $647.1 million increase in the year-over-year comparison was mainly due to higher operating income, better results from non-consolidated companies and lower net financial expenses, partially offset by consequently higher income tax expenses.

Cost of sales

Cost of sales was $5.4 billion in 2016, a decrease of $1.1 billion compared to 2015. This was principally due to a $969.6 million, or 20%, decrease in raw material and consumables used, mainly reflecting lower iron ore, coking coal, scrap, energy and purchased slabs costs; and to a $123.3 million decrease in other costs, mainly including a $50.2 million decrease in maintenance expenses, a $39.5 million decrease in labor cost, a $28.9 million decrease in depreciation of property, plant and equipment and amortization of intangible assets, and a $9.2 million decrease in services and fees, partially offset by a 2% increase in steel shipments volume.

Selling, general and administrative expenses (SG&A)

SG&A expenses in 2016 were $687.9 million, or 9.5% of net sales, a decrease of $82.3 million compared to SG&A expenses in 2015, mainly due to lower taxes and contributions (other than income tax), labor costs, freight and transportation expenses, and services and fees expenses.

Other net operating income

Other net operating expense in 2016 was a $9.9 million loss, compared to a $9.5 million gain in 2015. Other net operating expense in 2016 included an $11.1 million gift related to the Roberto Rocca technical school in Pesquería.

Operating income

Operating income in 2016 was $1.1 billion, or 15.8% of net sales, compared to operating income of $639.3 million, or 8.1% of net sales, in 2015. The following table outlines Ternium’s operating income by segment for 2016 and 2015.

Steel reporting segment

The steel segment’s operating income was $1.1 billion in 2016, an increase of $473.5 million compared to operating income in 2015, reflecting lower operating cost, partially offset by lower net sales.

Net sales of steel products in 2016 decreased 8% compared to net sales in 2015, reflecting a $77 decrease in steel revenue per ton, partially offset by a 164,000 tons increase in shipments. Revenue per ton decreased 9% reflecting lower steel prices in Ternium’s main steel markets, partially offset by a better product mix. Shipments increased 2% year-over-year in 2016 mainly due to higher shipments in Mexico and Other Markets, partially offset by lower shipments in the Southern Region.

Operating cost decreased 16% due to a 17% decrease in operating cost per ton partially offset by the above-mentioned 2% increase in shipment volumes. The decrease in operating cost per ton was mainly due to lower raw material, purchased slabs, energy and labor costs.

Mining reporting segment

The mining segment’s operating income was a gain of $1.5 million in 2016, compared to a loss of $24.5 million in 2015, mainly reflecting lower operating cost, with iron ore sales remaining relatively stable. Net sales of mining products in 2016 were 1% higher than those in 2015, with 11% higher revenue per ton offset by 9% lower shipments.

Operating cost decreased 11% year-over-year, mainly due to the above mentioned 9% decrease in shipment volumes and 2% decrease in operating cost per ton.

EBITDA ²

EBITDA in 2016 was $1.5 billion, or 21.4% of net sales, compared with $1.1 billion, or 13.6% of net sales, in 2015.

Net financial results

Net financial expenses were $37.9 million in 2016, compared to $99.4 million in 2015. During 2016, Ternium’s net interest results totaled a loss of $75.8 million, compared with a loss of $81.5 million in 2015.

Net foreign exchange results was a gain of $20.3 million in 2016 compared to a loss of $5.2 million in 2015. Change in fair value of financial instruments included in net financial results was a $19.3 million gain in 2016 compared to a $10.2 million loss in 2015.

Equity in results of non-consolidated companies

Equity in results of non-consolidated companies was a gain of $14.6 million in 2016, compared to a loss of $272.8 million in 2015. The equity in results of non-consolidated companies in 2015 included a $191.9 million loss related to an impairment of Ternium’s investment in Usiminas. For further information on our investment in Usiminas, see note 3 to our consolidated financial statements included elsewhere in this annual report.

Income tax expense

Income tax expense in 2016 was $411.5 million, or 37% of income before income tax, compared to an income tax expense of $207.3 million, or 78% of income before income tax, in 2015. Effective tax rate in 2016 included a non-cash charge on deferred taxes due to the 17% devaluation of the Mexican peso against the U.S. dollar during the period, which reduces, in U.S. dollar terms, the tax base used to calculate deferred tax at our Mexican subsidiaries (which have the U.S dollar as their functional currency). Effective tax rate in 2015 was mainly affected by the impact of non-taxable losses stemming from the investment in Usiminas, among other non-cash effects on deferred taxes.

Net gain attributable to non-controlling interest

Net gain attributable to non-controlling interest in 2016 was $111.3 million, compared to a net gain of $51.7 million in 2015.

Liquidity and capital resources

We obtain funds from our operations, as well as from short-term and long-term borrowings from financial institutions. These funds are primarily used to finance our working capital and capital expenditures requirements, as well as our acquisitions. We hold money market investments, time deposits and variable-rate or fixed-rate securities. During 2016 we decreased our financial indebtedness, from $1.5 billion at the end of 2015 to $1.2 billion at the end of 2016.

Ternium has in place non-committed credit facilities and management believes it has adequate access to the credit markets. Considering this fact and the funds provided by operating activities, management believes that it has sufficient resources to satisfy our current working capital needs, service our debt and pay approved dividends. Management also believes that our liquidity and capital resources give us adequate flexibility to manage our planned capital spending programs and to address short-term changes in business conditions.

The following table shows the changes in our cash and cash equivalents for each of the periods indicated below:

During 2016, Ternium’s primary source of funding was cash provided by operating activities. Cash and cash equivalents as of December 31, 2016 were $183.5 million, a $32.0 million increase from $151.5 million at the end of the previous year. The increase is mainly attributable to net cash provided by operating activities of $1.1 billion, partially offset by net cash used in investing activities of $554.7 million and net cash used in financing activities of $508.7 million. In addition to cash and cash equivalents, as of December 31, 2016 we held other investments with maturities of more than three months for a total amount of $150.9 million, decreasing $86.3 million compared with December 31, 2015.

Operating activities

Net cash provided by operating activities was $1.1 billion in 2016, lower than the $1.3 billion recorded in 2015, including an increase in working capital of $162.4 million in 2016 and a decrease in working capital of $509.1 million in 2015.

The increase in working capital during 2016 was the result of an aggregate $149.7 million increase in trade and other receivables and a $114.7 million increase in inventories, partially offset by an aggregate $102.0 million increase in accounts payable and other liabilities.

Inventories increased as shown in the table below:

Investing activities

Net cash used in investing activities in 2016 was $554.7 million, primarily attributable to the following:

Financing activities

Net cash used in financing activities was $508.7 million in 2016, primarily attributable to the following:

Principal sources of funding

Funding policy

Management’s policy is to maintain a high degree of flexibility in operating and investment activities by maintaining adequate liquidity levels and ensuring access to readily available sources of financing. We obtain financing primarily in U.S. dollars, Argentine pesos and Colombian pesos. Whenever feasible, management bases its financing decisions, including the election of currency, term and type of the facility, on the intended use of proceeds for the proposed financing and on costs. For information on our financial risk management please see note 28 “Financial risk management” to our consolidated financial statements included in this annual report.

Financial liabilities

Our financial liabilities consist of loans with financial institutions and some pre-accorded overdraft transactions. As of December 31, 2016, these facilities were mainly denominated in U.S. dollars (76.5% of total financial liabilities) and Argentine pesos (19.2% of total financial liabilities). Total financial debt (inclusive of principal and interest accrued thereon) decreased by $302.4 million in the year, from $1.5 billion as of December 31, 2015, to $1.2 billion as of December 31, 2016. As of December 2016, current borrowings were 67.4% of total borrowings, none of which corresponded to borrowings with related parties. Net financial debt (total financial debt less cash and cash equivalents plus other investments) decreased by $248.0 million in 2016, from $1.1 billion as of December 31, 2015, to $0.9 billion as of December 31, 2016. Net financial debt as of December 31, 2016, equaled 0.6 times 2016 EBITDA.

Ternium’s weighted average interest rate for 2016 was 6.92%, an increase compared to the 3.37% average interest rate in 2015. This rate was calculated using the rates set for each instrument in its corresponding currency and weighted using the U.S. dollar-equivalent outstanding principal amount of each instrument as of December 31, 2016. The year-over-year increase in average interest rates was due mainly to higher participation of Argentine Peso denominated debt in the currency mix, as nominal interest rates in Argentina reflect high local inflation rates.

Most significant borrowings and financial commitments

Our most significant borrowings as of December 31, 2016 were those incurred under Ternium México’s 2013 syndicated loan facility and under Tenigal’s syndicated loan facility, in order to finance the construction of a hot-dipped galvanizing mill in Pesquería.

$ million

The main covenants in our syndicated loan agreements are limitations on liens and encumbrances, limitations on the sale of certain assets and compliance with financial ratios ( e.g ., leverage ratio and interest coverage ratio). As of December 31, 2016, we were in compliance with all covenants under our loan agreements.

Our most significant financial commitments as of December 31, 2016, were

For further information on our derivative financial instruments, borrowings and financial commitments please see notes 22, 23, 24 and 28 to our consolidated financial statements included in this annual report.

Recent Developments

Acquisition of CSA Siderúrgica do Atlântico

On February 21, 2017, Ternium S.A. entered into a definitive agreement with thyssenkrupp AG (“tkAG”) to acquire a 100% ownership interest in thyssenkrupp Slab International B.V. (“tkSI”) and its wholly-owned subsidiary CSA Siderúrgica do Atlântico Ltda. (“CSA”). In addition, tkAG will assign to Ternium an agreement to supply 2.0 million tons per year of slabs to thyssenkrupp’s former Calvert re-rolling facility in Alabama, U.S. (“Calvert”). The price of the transaction was set using €1.5 billion as enterprise value and September 30, 2016 as a locked-box date, and is subject to agreed-upon adjustments at closing. The transaction, which will require antitrust clearance in several jurisdictions, including Brazil, Germany and the U.S., and other conditions, is expected to close on or before September 30, 2017. Ternium intends to finance this acquisition entirely with debt.

In calendar year 2016 the assets to be acquired had consolidated annual sales of €1.6 billion, shipments of 4.3 million tons and EBITDA of €256 million. CSA is a steel slab producer with a steelmaking facility located in the state of Rio de Janeiro, Brazil, and has an annual production capacity of 5 million tons of high-end steel slabs, a deep-water harbor and a 490 MW combined cycle power plant.

New galvanizing and pre-painting lines in Mexico

On March 1, 2017, Ternium announced its plans to build a hot-dip galvanizing line and a pre-painting line in its facility in Pesquería. The new lines will target Mexico’s household appliances, lighting and metal-mechanic industries in Mexico, deepening the company’s import substitution strategy. Ternium’s new hot-dip galvanizing and pre-painting lines will have annual production capacity of 300,000 and 120,000 metric tons, respectively, and is expected to require a total investment of approximately USD260 million.

Annual dividend proposal

On February 21, 2017, the Company’s board of directors proposed that an annual dividend of $0.10 per share ($1.00 per ADS), or approximately $196.3 million in the aggregate, be approved at the Company’s annual general shareholders’ meeting, which is scheduled to be held on May 3, 2017. If the annual dividend is approved, it will be paid on May 12, 2017.

TERNIUM S.A.

Consolidated Financial Statements

as of December 31, 2016 and 2015 and

for the years ended on December 31, 2016, 2015 and 2014

29 Avenue de la Porte-Neuve, 3 ^rd floor

L – 2227

R.C.S. Luxembourg: B 98 668

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Audit report

To the Shareholders of

Ternium S.A.

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of Ternium S.A. and its subsidiaries, which comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated income statement, consolidated statement of comprehensive income, consolidated changes in equity and consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information.

Board of Directors’ responsibility for the consolidated financial statements

The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Responsibility of the “Réviseur d’entreprises agréé”

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the judgment of the “Réviseur d’entreprises agréé” including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the “Réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

PricewaterhouseCoopers, Société coopérative, 2 rue Gerhard Mercator, B.P. 1443, L-1014 Luxembourg

T : +352 494848 1, F : +352 494848 2900, www.pwc.lu

Cabinet de révision agréé. Expert-comptable (autorisation gouvernementale n°10028256)

R.C.S. Luxembourg B 65 477 - TVA LU25482518

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of Ternium S.A. and its subsidiaries as of 31 December 2016, and of its consolidated financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Other information

The Board of Directors is responsible for the other information. The other information comprises the information included in the management report but does not include the consolidated financial statements and our audit report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard.

Report on other legal and regulatory requirements

The management report, is consistent with the consolidated financial statements and has been prepared in accordance with the applicable legal requirements.

Represented by

Marc Minet

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

(1) Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 24 (iii).

(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD 1.00 per share. As of December 31, 2016, there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of December 31, 2016, the Company held 41,666,666 shares as treasury shares.

(3) Include mainly legal reserve under Luxembourg law for USD 200.5 million, undistributable reserves under Luxembourg law for USD 1.4 billion, hedge accounting reserve, net of tax effect, for USD 0.1 million and reserves related to the acquisition of non-controlling interest in subsidiaries for USD (88.5) million.

(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.

(5) Represents USD 0.090 per share (USD 0.90 per ADS). Related to the dividends distributed on May 4, 2016, and as 41,666,666 shares are held as treasury shares by Ternium, the dividends attributable to these treasury shares amounting to USD 3.7 million were included in equity as less dividend paid.

(6) Corresponds to the dividends paid by Siderar S.A.I.C.

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 financial statements may not be wholly distributable. See Note 24 (iii). The accompanying notes are an integral part of these consolidated financial statements.