CONSTRUCTION IS OUR FORTALEZA

Transcription

1 ANNUAL REPORT 2013 CONSTRUCTION IS OUR FORTALEZA I

2 TABLE OF CONTENTS 2 Financial highlights 3 Relevant events 4 Message to the shareholders 6 Message from the CEO 10 Elementia at a glance 12 Fortaleza based on integral solutions 14 Fortaleza with efficiency and innovation 16 Fortaleza of our brands 18 Fortaleza with solid financials 20 Sustainable Fortaleza 22 Analysis and discussion of results 25 Board of Directors and Officers 26 Corporate governance 27 Report of the Audit Committee 28 Financial statements 81 Contact information Elementia is a leading company in the manufacturing and distribution of construction products, including cement, fibercement, copper products, and polystyrene and polypropylene products. The company has four business divisions: Cement, Metals, Building Systems, and Plastics. We have 24 plants distributed throughout Mexico, the United States, Colombia, Ecuador, Bolivia, PERFIL DE LA EMPRESA Costa Rica, El Salvador, Honduras, and Peru. And through an extensive network of points-of-sale and 10 distribution centers, we serve our more than six thousand clients in 45 countries in the Americas and Europe. II

3 INTEGRAL BUILDING SOLUTIONS WITH FORTALEZA We offer integral, advanced technology solutions through our leading companies in the industrial and construction sectors. This latter sector is the force that promotes the group s growth, by offering a solid foundation for geographic and market expansion. 1

4 FINANCIAL HIGHLIGHTS ELEMENTIA, S.A. DE C.V Var. % Net sales 12,929 13,506 (4.3) Gross profit 3,021 3,233 (6.5) Consolidated net income EBITDA 1 1,914 1, Total assets 26,224 22, Cash and investments 1,973 1, Clients 2,382 1, Inventories 2,250 2,471 (8.9) Other current assets 1,483 1,701 (12.9) Noncurrent assets 18,136 14, Total liabilities 11,788 11, Current liabilities 3,978 3, Noncurrent liabilities 7,810 7, Consolidated stockholders equity 14,436 10, Minority stockholders equity 3, N/A Majority stockholders equity 11,235 10, Figures in millions of Mexican pesos as of December 31, 2013 and EBITDA: Earnings before interest, taxes, depreciation, and amortization. 2

5 SALES millions of Mexican pesos RELEVANT EVENTS 11,072 12,968 14,505 13,506 12,929 08/01/2013 We signed a 53/47% co-investment agreement with Lafarge France to create Cementos Fortaleza, which is the merge between Elementia s cement assets and Lafarge Mexico s assets. Elementia and Lafarge began operating under this framework in August Elementia consolidates the operation. 3, With this agreement, we will reach commercial, distribution channel, costs, logistic, administration, and management synergies among others. The agreement strengthens our market position and prepares us to continue increasing our market share. OPERATING INCOME millions of Mexican pesos 03/20/2013 The Company prepaid the syndicated debt for an amount close to MXN2.5 billion, which was substituted by a new syndicated loan with which Elementia improved its financial position in terms of rate and term ,271 1,366 1,198 12/17/2013 The Company sold all of the shares it held in Grupo Cuprum, S.A.P.I. de C.V. (Cuprum, an associated company), which represented 20% of Cuprum s equity. The sale was done in the same proportion for Tenedora de Empresas de Materiales de Construcción, S.A. de C.V. and for Controladora GEK, S.A.P.I. de C.V /19/2013 We signed an agreement with the Construction Products Division of Saint-Gobain to acquire the fibercement business of its subsidiary CertainTeed Corporation (CertainTeed); one of the most important producers of building materials in North America. EBITDA millions of Mexican pesos 12/20/2013 We prepaid MXN1.7 billion of the syndicated loans the Company had ,244 1,193 1,748 1,877 1,914 SUBSEQUENT EVENTS 01/31/2014 Elementia acquired the CertainTeed fibercement business, one of the most important manufacturers of building materials in North America. With this acquisition, Elementia strengthen its presence in the United States by integrating into its operations three production facilities that will boost coverage and growth in that country

6 MESSAGE TO THE SHAREHOLDERS DEAR SHAREHOLDERS: I am pleased to inform you that we had another year of positive results at Elementia. It was possible because we seized favorable opportunities in the countries where we operate, holding our position as a key supplier in the construction industry and now as a solid competitor in the cement industry. We began operations at our first cement production facility, which has an installed capacity of one million tons per year; the Fortaleza brand received a very positive acceptance in the Mexican construction market. We continued our strategy for growth and expansion in the cement market, and in August we consolidated a co-investment agreement with one of the largest cement companies in the world, which will further strengthen our presence by doubling our installed capacity and expanding our markets and distribution channels. Results were influenced by the economic situation in Mexico and other countries in which we participate, where there has been a slow reactivation of the economy. In Mexico, for example, the 2013 Gross Domestic Product (GDP) grew 1.1%, the slowest growth in four years, to MXN trillion at year end. The construction market reflected the great weakness in housing construction and public spending in infrastructure. Although Mexico s GDP in 2013 was positive, the construction GDP registered a negative annual variation of (-)4.5%. Nonetheless, our figures show continuous improvement and, therefore, are favorable: At Elementia, confident on our quality and innovation, and strengthening our knowledge of the construction market in Latin America, we are now expanding our operations in the U.S. market by acquiring three manufacturing plants from the fibercement business of CertainTeed, thus increasing our presence in this important market and positioning ourselves in a unique position to take advantage of future growth in the U.S. SALES In 2013, sales registered MXN12.93 billion, lesser than the MXN13.51 billion reported in This was mainly due to a 7% fall in the price of copper vis-a-vis 2012 s, and lesser government-backed construction projects in Mexico and Colombia during the first half of the year, this was partially offset by the startup of sales and operations of the Cement Division in mid this year. 4

7 We continue fostering our growth trend and the businesses consolidation process. EBITDA EBITDA increased by 2%, from MXN1.88 billion in 2012 to MXN1.91 billion in As a result of improvements in processes and cost reductions programs, the EBITDA to revenues margin improved to 14.8%, from 13.9% of the prior year. CONSOLIDATED NET INCOME The Company reported a consolidated net income of MXN492 million in 2013, 56% higher than the MXN315 million reported in 2012, mainly due to a lower financial costs. The figures presented in this report are evidence of the effort, dedication, and commitment of everyone in Elementia. I would like to take this opportunity to thank each and every one who works at Elementia. I also wish to thank our shareholders, customers, and suppliers, whose support and commitment have been key for the success and growth of the Company. Francisco Javier del Valle Perochena Chairman of the Board of Directors Relevant figures at year-end 2013: (millions of Mexican pesos) Sales 12,929 13,506 EBITDA 1,914 1,877 Net debt 4,405 4,620 Net debt/ebitda (times) Employees (Nº of people) 5,984 5,883 5

8 MESSAGE FROM THE CEO DEAR SHAREHOLDERS: I hereby present the report on the operations and results of Elementia, S.A. de C.V. and its subsidiaries (Elementia) for fiscal year 2013, which reflects positive trend, consolidation, and operations expansion. MACROECONOMIC ENVIRONMENT During 2013 Mexico showed economic stability; in the following years the country will need to consolidate this balance at the macroeconomic level, and urge the implementation of the structural reforms that are needed to modernize the country, stimulate economic growth, and promote job creation. The construction sector showed a considerable weakness in housing construction and public spending in infrastructure. Even though Mexico s GDP in 2013 was positive, the construction industry registered a negative annual variation of (-)4.5%. The slowdown in the Mexican economy in 2013 resulted in a 48% lower new jobs creation to those created in The foreign exchange rate registered a 0.5% increase during the year, from MXN per US$ at the end of 2012 to MXD per US$ at the end of Mexico s international reserves increased by US$13 billion in 2013 to US$176.5 billion by year end, an increase of 7.95% vis-a-vis In 2013, the Gross Domestic Product (GDP) grew 1.1%, the smaller growth in four years, to MXN16.1 trillion by year end. GDP growth was mainly driven by the tertiary activity, which annual variation was 2.1%, including 2.8% for trade, 1.5% for transportation and storage, 3.8% for financial services and insurance, and 1.5% for real estate and rentals. Primary activities contributed an annual variation of 0.3%, whereas, in contrast, secondary activity decreased by (-)0.7%, mainly in the mining and construction industries. Foreign Direct Investment (FDI) came to US$35.2 billion in 2013, 178% higher than the US$12.7 billion of During 2013, revenues from family remittances amounted US$21.6 billion, 3.8% lower than the US$22.5 billion of The current account balance of payments registered a US$22.3 billion deficit in 2013, an amount equivalent to 1.8% of the GDP. This balance resulted from the combination of the balance of a US$12.9 billion deficit in goods and services and US$31.2 billion in income taxes, and a US$21.8 billion surplus in the balance of transfers. 6

9 The results of the year reflect positive trends for improvement, consolidation and expansion of our operations. The National Consumer Price Index increased 3.97% during 2013, resulting in a higher inflation rate than that in 2012, which was 3.57%. Underlying inflation, which doesn t include the prices of volatile products and services, such as energy and food, and is considered a better parameter to measure the price trajectory, showed an annual variation of 2.78%. The 28-day CETES (Mexican treasury certificates) rate presented an average level of % in 2013, closing the year at %, while in 2012, the average was % and the closing was %; and the 28-day TIIE (Interbank Equilibrium Interest rate) closed at % in 2013, vs the % of RESULTS Expansion of operations In August 2013, Elementia started consolidating a co-investment agreement with Lafarge France, one of the world s largest cement companies, this agreement that has the added value of having a technical and strategic partner in this business segment, also implies a stronger presence in the market, by doubling the installed capacity, expanding our markets and distribution channels. Value to the Shareholders 2013 consolidated net income was MXN492 million, 56% higher than the MXN315 million reported in 2012, mainly due to higher profits and lower financial costs. Eduardo Musalem Younes, Chief Executive Officer 7

10 Balance sheet In 2013, cash and cash equivalents reached MXN 2.0 billion, 12% higher than the MXN1.8 billion of 2012, mainly due to better management of the working capital. Net debt was reduced by 4.7%, when comparing the MXN4.4 billion at year end 2013 to the MXN4.6 billion of The net-debt-to-ebitda ratio was 2.3 times, better than the 2.46 times of the prior year. It is important to highlight that only 3% of our debt with financial institutions is short-term. Capital stock At year-end 2013, the Company s shareholders equity was MXN14.4 billion, an increase of MXN3.4 billion, resulting from accumulated net income and the impact of the joint venture with Lafarge. Revenues Consolidated sales for the year reached MXN12.9 billion, lesser than MXN13.5 billion reported in This was mainly due to a 7% lower price of copper, impacting the sales price of our products in the Metals Division. However, this reduction was offset by the inclusion of the Cement Division, which revenues reached MXN1.1 billion. Efficiency and productivity Operating income at the end of 2013 was MXN1.2 billion, lower than the MXN1.4 billion reported in This reduction was mainly due to a 40% increase in depreciation and amortization. EBITDA was MXN1.9 billion, 2% higher than the figures of On the other hand, the EBITDA to revenues margin improved from 13.9% in 2012 to 14.8% in Income taxes Total income tax in 2013 was MXN177 million; in 2012 we received a reimbursement of MXN39 million from taxes, due to the loss reported on the sale of shares in one of our subsidiaries. RESULTS BY DIVISION Cement Sales in 2013 came to MXN1.046 billion, an 8% of the consolidated sales. Volume sold was 818 thousand tons. EBITDA was MXN238 million, with EBITDA to margin of 22.8%. Metals This division reported sales of MXN6.9 billion, lower than the MXN8.1 billion reported in 2012, due to lower selling price resulting from the considerable fall in the reference price of copper. EBITDA in 2013 was MXN658 million, lower than the MXN706 million of

11 The acquisition of CertainTeed in the United States will increase our footprint and growth in that country. Building Systems Sales for 2013 were MXN3.98 billion, lower than the MXN4.45 billion reported in 2012, mainly due to a decrease in the volume sold. EBITDA for the year was MXN806 million, while in 2012 amounted MXN885 million, which led to a margin expansion to reach 19% in 2013, from 18% in Plastics Sales for 2013 for this division were MXN743 million, while in 2012 they were MXN797 million. EBITDA was roughly the same as the previous year, reaching MXN137 million; EBITDA to revenues margin improved to 18.4%, from 17% in INTERNAL CONTROL In order to strengthen and monitor best corporate and operating practices throughout the organization s policies, procedures, and processes, Elementia integrated the internal control department into its structure in SUBSEQUENT EVENTS On January 31, 2014, Elementia acquired the fibercement business of CertainTeed, one of the most important producers of building materials in the United States. With this acquisition, Elementia will strengthen its presence in the United States, by integrating three facilities and thus boosting its market presence and growth. On behalf of the Board of Directors, I wish to thank all our officers and employees for their commitment and effort in achieving our goals; and also thank our shareholders for their trust. Sincerely, Eduardo Musalem Younes Chief Executive Officer 9

12 ELEMENTIA AT A GLANCE CEMENT Products: Cement Markets: Construction and self-construction industry EBITDA millions of Mexican pesos $238 * SALES VOLUME BY PRODUCT percentage 11 5 Gray cement Mortar White cement *This division began operations in 2013, also the co-investment with Lafarge began in August of that year. 84 METALS Products: Copper and copper-alloys sheets, pipes, strips, wire, and fittings Markets: Automotive, electric and electronics industries, air-conditioning and refrigeration, heat exchangers, petrochemical industry, and the industry in general EBITDA millions of Mexican pesos SALES VOLUME BY PRODUCT percentage Pipes Sheets Strips Fittings Other BUILDING SYSTEMS Products: Tiles, ceilings, interior/exterior panels, and finishing materials Markets: Construction, self construction, and infrastructure industries EBITDA millions of Mexican pesos SALES VOLUME BY PRODUCT percentage Sheets, tiles, and molded products Panels Trims Ceilings Other PLASTICS Products: Water tanks, cisterns, septic tanks, translucent sheets, and laminated and thermoformed products Markets: Construction, food, and advertising industries EBITDA millions of Mexican pesos SALES VOLUME BY PRODUCT percentage Water tanks Laminated and thermoformed products Other 10

13 WORLDWIDE PRESENCE MEXICO EL SALVADOR HONDURAS COSTA RICA COLOMBIA ECUADOR PERU BOLIVIA NET SALES DISTRIBUTION percentage EBITDA DISTRIBUTION percentage Cement Metals Building Systems Plastics Other 11

14 Fortaleza based on INTEGRAL SOLUTIONS Through a broad product portfolio, an extensive distribution network, and a vertical integration strategy, we offer integral solutions to meet the needs of our clients, from self-construction to large industrial and government projects. The strength supported by our broad product portfolio, which includes materials for the cement, fibercement, concrete, polyethylene, styrene, and copper markets, enables us to reach a wide spectrum of clients with integral solutions to serve the community with decent housing and basic services. To fulfill this purpose and capitalize the opportunities in our markets, we constantly work on three aspects, which are reflected in the strategies implemented during the year: Organic growth of existing products Developing new products within the current lines and market niches Constant identification and analysis of opportunities for new business units, through acquisitions or partnerships The main input for the Building Systems Division is cement, and Cementos Fortaleza represents the vertical integration of this division giving the control of the key strategic elements in the business. Plycem has worked on consolidating a complete and comprehensive portfolio of building solutions that meet several industry needs and respond to the tastes and preferences of every niche we serve-from the residential segment to large construction firms, all with a differentiating added value. This has been achieved based on the strategy of aligning our solutions offering, the loyalty of the construction masters, and the support of our strong distribution network. Water storage and improvement systems were complemented with a 10 thousand liter cistern and ecological septic tanks. Correspondingly, the roofing line was complemented with polypropylene roofs, delivering greater value-added solutions. We expect to increase our presence in the coming years by providing customers with integral solutions, with a strong emphasis on water tanks and accessories. Based on our strategy of focusing on greater value-added products such as forged and machined copper fittings, we concluded the relocation of the Toluca operations to Celaya, achieving a significant reduction in costs, inventories, and freight charges. By vertically integrating the processes from smelting to the elaboration of the finished products, we made our production processes more efficient, which in turn resulted in greater competitiveness and share in the existing markets and in gaining access to new ones. At the same time, we increased efficiency and/or competitiveness in other value-added products. 12

15 2 million tons/year is our cement production capacity. 13

16 +2,500 distributors in Mexico, Central and South America. 14

17 Fortaleza with EFFICIENCY AND INNOVATION We work with a clear productivity goal, focusing on developing greater value-added products. We look for investment projects that strengthen the production units and optimize the installed capacity and the distribution chain. With this focus on operational excellence, throughout the year we carried out several projects in the Andean Region to strengthen production units and support their growth with operational efficiency and flexibility. To seize opportunities and supply to our customers the products they need, we worked continuously on the organic growth of our current portfolio, ensuring the highest-quality standards and incorporating a customer service area to guarantee satisfaction and loyalty. Furthermore, we developed new products within existing lines and niches, with competitive prices, while at the same time seeking synergies that generate sustained profitable growth by identifying and analyzing opportunities for new business units that contribute to complementing or expanding the portfolio through acquisitions or partnerships. Over the past four years, the Building Systems Division has developed an aggressive capital investment strategy for its Northern region in order to improve the yields of its raw materials, generate savings in energy consumption, increase efficiency in the use of fuels, and increase the performance of its main equipment. We have also invested in technology to better handle our products and offer a more competitive portfolio that offers greater added value. To meet the demand for water storage and improvement systems in the northern region of Mexico, Eureka started a rotary-molding facility in Monterrey, incorporating three production lines to produce 30 tons per month. Frigocel upgraded its extrusion equipment to produce concentrates and flat sheets, automated the counting and packaging of thermoformed products (sheets), and will continue researching new plastic solutions for the construction sector. In its sheet facility, located in Vallejo, the Metals Division implemented a new production process that improves the yields of metal and the quality of our products. In the San Luis Potosí facility we continued developing new products made of brass and copper-nickel alloys, in addition to accessing new markets for specialty pipes, such as modern petrochemical, the military industry, oil extraction, and the electricity industry. 15

18 Fortaleza of our BRANDS The strength of our brands, as well as market recognition, help us go beyond geographical borders to deliver integral solutions that meet the needs of our customers in the United States, Latin America, and Europe. Our strength is founded on the market leadership we have achieved, a large network of points-of-sale, and our broad product portfolio that offer integral solutions, as well as brand recognition. Cementos Fortaleza was born as a premium brand which was inspired in the image of a Mexican construction master, as a tribute of his dedication, tenacity, and hard work. Because of this, we deliver the support of products made with the highest-quality standards, which comply and exceed Mexican regulations. A year after its launch, we have positioned ourselves in the mind of consumers as a premium brand. Mexalit, with 75 years of market recognition, recently renewed its image in order to evolve in line with the current market and to reflect its dynamism; Cempanel did the same, with an innovation and relaunching strategy in the light- construction category; Colorcel was refreshed, reinforcing our commitment to innovation for applications on large projects. Plycem, reaffirming its strategy of consolidating an integral solutions portfolio, currently has 15 trademarks, including: Eureka, Fibrolit, Plystone, Plyrock, Siding, Fachada Tek, Molducem, Fibrocel, Plydeck, Plydekor, and Plycolor, each one offering added and unique value, which will allow us to continue strengthening competitiveness and position ourselves as leaders in the industry in the medium term. Eternit and Duralit, with more than 70 and 35 years of market leadership, respectively, reflect the promise of products that have value for life. Their product portfolio and technology expansion has become a symbol for Colombian, Ecuadorian, Bolivian, and Peruvian families, to whom we offer not only products but also protection, durability, economy, and tradition. Because we have fulfilled these promises, we have been able to maintain leadership in these markets: 57% in Colombia, 69% in Ecuador, 99% in Bolivia, and 85% in Peru. Through Nacobre one of our most iconic brands due to its recognition and its extensive network of distributors we have been able to maintain our presence in the most important Mexican construction projects as well as in the 37 countries to which we export. 16

19 12% market share in water storage systems. 17

20 11.4% EBITDA compound annual growth rate ( ). 18

21 Fortaleza with solid FINANCIALS Our financial strength is reflected in the continued growth in both EBITDA and cash flow, based on which we have been able to invest in new businesses, such as Cementos Fortaleza, prepay debt syndicated loans and make acquisitions. Elementia s financial strenght is reflected in our sustained growth from 2009 through 2013, both in EBITDA (with a CAGR of 11.4%) and cash flow, which is based on a financial discipline that has allowed us to continue with the policy of reinvesting profits in order to grow. We invested in the construction of a new cement facility including state of the art technology to create Cementos Fortaleza, which not only represents the vertical integration of the Building Systems Division to its main raw material, but also is the beginning of our participation in the cement market. Due to the business potential, we were also able to establish a joint venture with Lafarge Mexico. We restructured our debt by prepaying loans and getting a new one, which improved the company s financial situation, both in term and interest rate. Additionally, we used the available cash flow to make a partial prepayment on this new loan, thus improving our financial ratios in line with our financial discipline. Also, in early 2014, we concluded the acquisition of the assets of the fibercement business of CertainTeed Corporation, which complements our product portfolio and gives us access to the fibercement market in the United States. The sum of a portfolio of products aimed to supplying integral solutions, efficiency in our operation, innovation, and strong brands, pose a scenario for sustained growth. NET DEBT millions of Mexican pesos NET DEBT/EBITDA Times 4, , One of the key mechanisms for the Metals Division is Elementia s ability to implement dynamic pricing strategies that allow us to efficiently cover exposure to fluctuations in the price of commodities

22 SUSTAINABLE Fortaleza Commitment and social responsibility are an integral part of our culture and our values. At Elementia, we are committed to sustainable growth, because we know that it is the only way to achieve long-term viability as a company and as a country. Therefore, we have developed programs to support the communities neighboring our production facilities, and we ve reached agreements with leading universities in these regions to develop joint relationships and training programs. Complying its social responsibility, Elementia gives Kaluz Foundation a monthly donation to help the less fortunate. Kaluz Foundation uses the donations for projects that benefit communities aiming to meet basic needs like food, clothing, and housing and for activities to foster and support development: knowledge, education, health, sports, arts, and entertainment, focused on improving the quality of life. In order to promote that social responsibility becomes everyone s commitment, we have developed programs to support the community through a fund known as United Fund (Fondo Unido), this is a fund to which employees of our companies, who are aware of the needs of the communities, make voluntarily contributions. Employees themselves are responsible for creating awareness campaigns, and they determine, based on the regulations of Fondo Unido, how the donations will be used, all of which is verified through committees. Year after year, both the percentage of participation and the amount collected has increased, thereby benefiting our communities and, most importantly, making us part of the solution. As a socially responsible company, we have adhered to the principles of the United Nations Global Accord. These principles correspond to four topics: human rights, labor standards, environment, and anticorruption. Like us, the companies that adhere to the Global Accord share the conviction that business practices based on universal principles contribute to building a more stable, fairer, and inclusive global market that promotes more prosperous societies

23 11 of our companies are ISO certified. 21

24 ANALYSIS AND DISCUSSION OF RESULTS ELEMENTIA, S.A. DE C.V. Financial statements Var.% Net sales 12,929 13,506 (4.3) Cost of sales 9,908 10,273 (3.6) Gross profit 3,021 3,232 (6.5) SG&A expenses 2,125 1, Other income (301) (21) N/A Operating income 1,198 1,366 (12.3) Interest paid (421) (289) 45.7 Interest gained Exchange rate loss (49) (345) (85.9) Other financial costs (49) (19) Comprehensive financing cost (473) (623) (24.0) Minority interest 4 35 (87.9) Profit before taxes (6.3) Income taxes (177) 39 N/A Profit from continuing operations (32.4) Loss from discontinued operations (60) (501) (88.0) Consolidated net income EBITDA 1 1,914 1, Figures in millions of Mexican pesos as of December 31, 2013 and EBITDA: Earnings before interest, taxes, depreciation and amortization. During 2013, consolidated sales reached MXN12.9 billion, lower than those for This was due mainly to the fall in the prices of metals, which had an impact on the sales price of our products. It was also the result of delays by the Mexican and Colombian governments in their infrastructure and construction projects. However, we foresee that in 2014 we will register growth in the countries where we operate, mainly in the construction sector, which is the driver behind the economy in developing countries. MARGIN Gross profit for 2013 was MXN3.0 billion, representing 23.4% of sales, constant as compared to

25 EBITDA The cumulated Earnings Before Taxes Depreciation and Amortization (EBITDA) for the year came to MXN1.9 billion, 14.8% to sales margin. This was 2% higher than in GROWTH Net income in 2013 was MXN492 million, 56% higher than LEVERAGE Total debt at year end 2013 came to MXN6.4 billion, very similar to the figures reported in Net debt was reduced by 4.7%, when comparing the MXN4.4 billion at year end 2013 with the MXN4.6 billion of The net-debt-to-ebitda ratio improved to 2.3 times, as compared to the 2.46 times of the prior year. It is important to highlight that only 3% of our debt with financial institutions is short-term. ELEMENTIA AND SUBSIDIARIES Cement Division Operating results In its first year, the Cement Division reported sales of MXN1.1 billion, or 8% of the consolidated sales. Volume sold was 818 thousand tons. EBITDA was MXN238 million, with an EBITDA to sales margin of 22.8%. Markets The original plan for this division was to supply the self- consumption demand of the Building Systems Division of 300,000 tons per year of cement. However, taking into consideration the attractiveness of this segment in Mexico, Elementia decided to expand the original project capacity to one million tons of cement and extend the existing distribution network to reach new customers. Thus, the company will have the ability to penetrate the growing local market through operational and distribution synergies, which will result in lower costs and higher profitability. During 2013, we established the co-investment with Lafarge Mexico, in order to build a stronger presence in the local market. Lafarge, the world leader in the cement industry, has two plants in central Mexico. Together, both companies will achieve synergies in costs, distribution channels, logistics, administration, and management, among others. The commercial strategy for more than 80% of the annual production is focused on distributing cement in bags aiming the self-construction segment, particularly in the Central Region of the country. Metals Division Operating results The division reported sales of MXN6.9 billion, lower than the MXN8.1 billion reported in This was due to lower selling prices, which were the result of the significant drop in the prices of metals (mainly copper -7%). EBITDA in 2013 was MXN658 million, 7% lower than the MXN706 million of Markets Nacional de Cobre is the leading manufacturer in Latin America for pipes, sheets, bars and profiles, wire, forged and machined parts, as well as copper and copper- alloy 23

26 fittings. The increased use of plastic piping in construction, due to the high price of copper, led us to increased our share in several selected market segments, including the automotive, electrical - electronics, and construction industries, keys and locks, air-conditioning and refrigeration, mints, ammunition, jewelry and crafts, among others. Building Systems Division Operating results Sales for 2013 were MXN3.9 billion, lower than the MXN4.5 billion reported in This was due mainly because a lower sales volume. EBITDA for the year was MXN806 million, down from the MXN885 million in 2012, with a sales margin of 19% in 2013, higher than the 18% of Colombia, Ecuador, and Bolivia. The products are sold mainly in the construction sector, through independent distributors, wholesalers, retailers, and government agencies under the following brands: Mexalit, Eureka, Maxitile, Comecop, Eternit, Duralit, and Plycem. Markets The Building Systems Division is the leading manufacturer of building materials in Latin America. Our markets are concentrated in North and Central America, as well as the Andean region. The main products include tiles, sheets, panels, boards, moldings, and pipes. The company manufactures its fibercement products in 12 facilities in Mexico, Costa Rica, Honduras, El Salvador, Plastics Division Operating results In 2013, sales for this division registered MXN743 million, lower than the MXN797 million reported in EBITDA is roughly the same as the prior year, reaching MXN137 million, and the EBITDA-to-sales margin improved to 18.4%, as compared to 17% in Markets The Plastics Division is integrated by Frigocel in Mexico and Fibraforte in Peru, and is dedicated to both manufacturing and selling plastic products, such as expanded and extruded polystyrene and polypropylene water tanks and roofing sheets, used primarily in the construction, agriculture, and food industries. The main brands of this division are Frigocel, Eternit, Fibraforte, Mexalit, Eureka, Plycem, and Duralit. 24

27 BOARD OF DIRECTORS Chairman of the Board Francisco Javier del Valle Perochena Secretary Juan Pablo del Río Benítez (not a member) Series A Directors Juan Pablo del Valle Perochena Antonio del Valle Ruiz Antonio del Valle Perochena Francisco Javier del Valle Perochena Armando Santacruz González Jaime Ruiz Sacristán Eduardo Domit Bardawil Series B Directors José Kuri Harfush Juan Antonio Pérez Simón Gerardo Kuri Kaufmann Alfonso Salem Slim Antonio Gómez García Series A Alternate Director Ricardo Gutiérrez Muñoz Series B Alternate Directors María José Pérez Simón Juan Rodríguez Torres Audit Committee Fernando Ruiz Sahagún Chairman Francisco Moguel Gloria Gerardo Kuri Kaufmann EXECUTIVE OFFICERS Chief Executive Officer: Eduardo Musalem Younes Chief Financial Officer: Víctor Hugo Ibarra Alcázar Director, Investor Relations: Juan Francisco Sánchez Kramer Director, Legal: Santiago Bernard Covelo Director, Internal Audit: Luis Antonio García Lima Director, Cement Division: Antonio Taracena Sosa Director, Metals Division: Gustavo Arce del Pozo Director, Building Systems and Plastics Division, North and Central Region: Fernando Benjamín Ruiz Jacques Director, Building Systems and Plastics Division Andean Region: Milton Barrera Sánchez 25

28 CORPORATE GOVERNANCE At Elementia, we are ruled by principles of corporate governance that frame our operations and support our results. As a company listed on the Mexican Stock Exchange (BMV) regarding debt position, we comply with Mexican legislation and, specifically, with the Securities Market Law. We adhere to the principles of the Code of Corporate Best Practices endorsed by the Mexican Business Coordinating Council. To carry out its functions, namely determining the corporate strategy, defining and supervising the implementation of the values and vision that characterize us, as well as approving transactions between related parties and those carried out in the ordinary course of business, based on our corporate bylaws, the Board of Directors relies on the Audit Committee, whose members, including the chairman, are all independent directors. AUDIT COMMITTEE The duties of the Audit Committee are to: evaluate the company s internal control and audit systems in order to identify any significant shortcomings; monitor corrective or preventive measures applied with respect to noncompliance with operational and accounting guidelines and policies; evaluate the performance of external auditors; describe and evaluate services performed by the external auditors, other than auditing; review the company s financial statements; evaluate the effects of any modifications made to the accounting policies approved during the fiscal year; monitor any measures taken with regard to observations made by stockholders, directors, executive officers, employees, or third parties regarding accounting, internal control systems, and internal and external audits, as well as any complaints regarding irregularities in management, including anonymous and confidential methods used for handling complaints made by employees; oversee compliance with the resolutions of the General Shareholders meetings and of the Board of Directors. INFORMATION FOR INVESTORS In order to offer our shareholders and investors enough information for them to be able to evaluate the company s performance and progress, we have a division that is in charge of maintaining open and transparent communication with them

29 April 2013 to April 2014 REPORT OF THE AUDIT COMMITTEE TO THE BOARD OF DIRECTORS OF ELEMENTIA, S.A. DE C.V. As Chairman of the Audit and Corporate Practices Committees of Elementia, S.A. de C.V., I hereby report the following: The Committee met three times during the course of the year on the following dates: July 11 and October 17, 2013, and April 11, 2014; the meetings were attended by the members of the Committee, the external and internal auditors, and the Elementia executive officers that were asked to attend. The activities and resolutions issued were recorded in the corresponding minutes. This is the report for the fiscal year ending December 31, I. Transactions with related parties Transactions conducted between related parties were reviewed to ensure that they were conducted in accordance with the policies previously approved by the Committee, and no irregularities were found. II. Evaluation of the Internal Control System We have reviewed the assessments done by the internal auditor, the external auditor, and the CEO, and, consequently, the Committee has determined that Elementia s internal accounting control system complies with the objectives established by management and offers reasonable assurance that it will prevent or detect errors and material irregularities in the normal course of business. However, given its recent implementation, it is still under consolidation and standardization processes at all the company s locations. III. Evaluation of the Internal Audit Functions The Audit Committee has been responsive to the needs of the Internal Audit division to make sure it has the necessary human and material resources to adequately perform its functions. In this respect, we complied satisfactorily with the work programs and activities established during the 2013 fiscal year. Likewise, the members of the Committee met with the internal audit director, with no other executive officers present, to receive and discuss information deemed pertinent. IV. Evaluation of the performance of the external audit We continued to employ the services of Galaz, Yamazaki, Ruiz Urquiza, S.C. (Deloitte) as external auditors for the company. The fees for fiscal year 2013 were duly reviewed and approved. The members of the Committee have met with the external auditors, with no other executive officers present, to receive additional information about matters covered in the cases in which it was requested. V. Financial Information The company s financial statements were discussed during the Committee s meetings with the executives responsible for drafting and reviewing them, with no comments made to the information presented. Similarly, the audited financial statements corresponding to the fiscal year ended December 31, 2013, were reviewed and discussed, and since there were no observations submitted, they were approved by the Committee. VI. Significant events During the Committee sessions, the report regarding the progress of the implementation of the SAP system was reviewed. Likewise, the Committee reviewed the analysis regarding the acquisition of the assets of CertainTeed as well as the plan to reduce the debt of the Company. VII. Accounting policies The accounting policies followed by Elementia were reviewed and approved in terms of the information received as a result of new regulations. The accounting and information policies and criteria followed by Elementia are considered adequate and sufficient. VIII. Report from the Chief Executive Officer The report from the Chief Executive Officer on the activities for the 2013 fiscal year was received and approved. IX. Legal Report The report made by counsel on the state of legal matters and litigation was received. X. Proposal Pursuant to the work done, it is recommended that the Board of Directors submit the Elementia audited financial statements for the year ended December 31, 2013, for approval by the Shareholders Meeting. We received the audited financial statements as of December 31, 2013, from the external auditor. Similarly, the work of the external auditors Galaz, Yamazaki, Ruiz Urquiza, S.C. (Deloitte), and of Mr. José A. Rangel Sánchez, partner in charge, was found to be satisfactory. External auditors confirmed their independence. Fernando Ruíz Sahagún Chairman of the Audit Committee 27

30 CONSOLIDATED FINANCIAL STATEMENTS 29 Independent Auditors Report 30 Consolidated Statements of Financial Position 31 Consolidated Statements of Profit or Loss and other Comprehensive Income 32 Consolidated Statements of Changes in Stockholders Equity 34 Consolidated Statements of Cash Flows 35 Notes to Consolidated Financial Statements 28

31 Elementia, S.A. de C.V. and Subsidiaries (Subsidiary of Kaluz, S.A. de C.V.) INDEPENDENT AUDITORS REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ELEMENTIA, S. A. DE C. V. We have audited the accompanying consolidated financial statements of Elementia, S. A. de C. V. and Subsidiaries (the Entity ), which comprise the consolidated statements of financial position as of December 31, 2013 and 2012, and the consolidated statements of Profit or Loss and other comprehensive income, consolidated statement of changes in stockholders equity and consolidated statements of cash flows for the years ended December 31, 2013 and 2012, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Elementia, S. A. de C. V. and Subsidiaries as of December 31, 2013 and 2012 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Galaz, Yamazaki, Ruiz Urquiza, S. C. A Member of Deloitte Touche Tohmatsu Limited Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. 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 auditor s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Entity s preparation and fair presentation of the 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 management, as well as evaluating the overall presentation of the financial statements. C. P. C. José A. Rangel Sánchez April 21,

32 Elementia, S. A. de C. V. and Subsidiaries (Subsidiary of Kaluz, S. A. de C. V.) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 31, 2013 and 2012 (In thousands of Mexican pesos) Note Assets Current assets: Cash and cash equivalents 6 $ 1,972,934 $ 1,761,935 Derivative financial instruments 11 9,810 8,549 Accounts receivable Net 7 3,506,269 2,926,398 Due from related parties Net 24 40,944 - Inventories Net 8 2,250,371 2,471,265 Prepaid expenses 307, ,029 Total current assets 8,087,426 7,760,176 Long-lived assets: Property, machinery and equipment Net 12 14,608,087 11,822,531 Investment in shares of associated companies and others 14 11, ,415 Asset for the employee benefits , ,068 Intangibles and other assets Net 13 3,174,174 1,107,855 Long-term due from related parties 24 53,851 50,553 Accounts receivable, long-term - 214,774 Total long-lived assets 18,136,491 14,248,196 Total $ 26,223,917 $ 22,008,372 Liabilities and Stockholders equity Current liabilities: Notes payable to financial institutions and current portion of long-term debt 17 $ 192,533 $ 456,267 Trade accounts payable 15 2,663,274 2,330,471 Direct employee benefits 30,742 19,163 Provisions , ,371 Accrued expenses and taxes 168, ,015 Due to related parties , ,918 Current deferred benefit tax from consolidation ,948 5,057 Advances from customers 157,863 45,023 Total current liabilities 3,978,325 3,520,285 Long-term liabilities: Long-term debt 17,18 6,185,182 5,926,129 Long-term due to related parties 24 18,075 40,462 Deferred income taxes 19 1,079,537 1,490,324 Income taxes liabilities from tax consolidation benefits ,845 17,530 Other long-term liabilities 14,087 24,725 Total long-term liabilities 7,809,726 7,499,170 Total liabilities 11,788,051 11,019,455 Commitments and contingencies (Note 28) Stockholders equity: Capital stock 21 2,012,905 2,012,905 Subscribed capital exhibited - (5,825) Additional paid-in capital 4,598,877 4,598,877 Retained earnings 3,608,669 3,338,951 Translation effects of foreign operations other than functional currency 1,132, ,345 Valuation effects of hedging financial instruments 6,867 5,984 Surplus on revaluation of property, machinery and equipment 84, ,535 Actuarial loss (209,247) (144,650) Controlling interest 11,235,386 10,967,122 Noncontrolling interest 3,200,480 21,795 Total Stockholders equity 14,435,866 10,988,917 Total $ 26,223,917 $ 22,008,372 See accompanying notes to consolidated financial statements. 30

33 CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME For the Years Ended December, and 2012 (In thousands of Mexican pesos, except earnings (loss) per share) Elementia, S. A. de C. V. and Subsidiaries (Subsidiary of Kaluz, S. A. de C. V.) Notes Continuing operations: Net sales 29 $ 12,929,454 $ 13,505,892 Cost of sales 26 9,908,158 10,273,432 Gross profit 3,021,296 3,232,460 Operating expenses 26 2,124,788 1,887,734 Exchange loss 48, ,400 Interest income (45,455) (31,019) Interest expense 420, ,745 Bank charges 49,282 19,478 Other income Net 23 (301,347) (21,054) Equity in income of associated entity 14 (4,220) (34,760) Income before income taxes 729, ,936 Income tax expense ,443 (38,621) Income before discontinued operations 551, ,557 Discontinued operations: Loss from discontinued operations, Net 27 60, ,152 Consolidated net income 491, ,405 Other comprehensive income net of income taxes: Items that will not be reclassified subsequently to profit or loss: Actuarial loss (64,202) (79,260) Surplus on revaluation of property, machinery and equipment (175,730) (8,907) Items that may be reclassified subsequently to profit or loss: Valuation effects of financial instruments 883 6,732 Translation effects of foreign operations 232, ,757 Total other comprehensive (loss) income (6,628) 234,322 Net consolidated comprehensive income $ 484,875 $ 549,727 Consolidated net income (loss) attributable to: Controlling interest $ 488,018 $ 325,256 Non-controlling interest 3,485 (9,851) $ 491,503 $ 315,405 Comprehensive income (loss) attributable to: Controlling interest $ 480,739 $ 558,777 Non-controlling interest 4,136 (9,050) $ 484,875 $ 549,727 Basic income (loss) per share: From continuing operations $ $ From discontinued operations $ (2.0588) $ ( ) Basic income (loss) per share $ $ Weighted average shares outstanding 29,208,810 26,675,385 See accompanying notes to consolidated financial statements. 31

34 Elementia, S. A. de C. V. and Subsidiaries (Subsidiary of Kaluz, S. A. de C.V.) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY For the years ended December 31, 2013 and 2012 (In thousands of Mexican pesos) Other Translation effects of Subscribed Additional foreign operations Capital capital paid-in Retained other than functional stock not exhibited capital earnings currency Balances at January 1, 2012 $ 847,815 $ - $ 4,598,877 $ 3,013,695 $ 584,588 Additional capital contribution 1,165,090 (5,825) Comprehensive income , ,757 Balances as of December 31, ,012,905 (5,825) 4,598,877 3,338, ,345 Additional capital contribution - 5, Loss on sale of shares in associated (218,300) - Comprehensive income , ,421 Acquisition of Noncontrolling interest Balances as of December 31, 2013 $ 2,012,905 $ - $ 4,598,877 $ 3,608,669 $ 1,132,766 See accompanying notes to consolidated financial statements. 32

35 comprehensive income Surplus on Valuation revaluation of effects of property, Total Total Total hedging financial machinery Actuarial controlling noncontrolling stockholders instruments and equipment loss interest interest equity $ (748) $ 269,299 $ (64,446) $ 9,249,080 $ 30,845 $ 9,279, ,159,265-1,159,265 6,732 (8,764) (80,204) 558,777 (9,050) 549,727 5, ,535 (144,650) 10,967,122 21,795 10,988, ,825-5, (218,300) - (218,300) 883 (175,986) (64,597) 480,739 4, , ,174,549 3,174,549 $ 6,867 $ 84,549 $ (209,247) $ 11,235,386 $ 3,200,480 $ 14,435,866 33

36 Elementia, S. A. de C. V. and Subsidiaries (Subsidiary of Kaluz, S. A. de C.V.) CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2013 and 2012 (In thousands of Mexican pesos) Items related to operating activities: Consolidated comprehensive net income $ 491,503 $ 315,405 Income tax recognized in profit 177,443 (38,621) Items related to investing activities: Depreciation and amortization 715, ,782 Interest income (45,455) (31,019) Impairment of long-lived assets - 40,010 Equity in income of associated entity (4,220) (34,760) Loss on sale of subsidiary - 456,496 Items related to financing activities: Interest expense 420, ,745 1,755,604 1,507,038 Items related to operating activities: (Increase) decrease in: Accounts receivable Net (497,962) 341,145 Due from related parties (44,242) 54,979 Accounts receivable, long-term 214,774 (214,774) Inventories Net 311,988 (285,179) Prepaid expenses 292,135 (395,306) Direct employee benefits Net (103,211) (105,218) Increase (decrease) in: Trade accounts payable 332,803 (890,251) Due to related parties (54,947) 19,221 Advances from customers 112,840 21,424 Provisions 216,444 46,660 Accrued expenses and taxes 165,942 (1,723,428) Derivative financial instruments (378) (2,885) Income taxes paid (477,188) (347,566) Effect of joint venture in operating activities 108,805 - Net cash flow provided by (used in) operating activities 2,333,407 (1,974,140) Items related to investing activities: Acquisition of property, machinery and equipment (2,059,324) (2,112,575) Sale of property, machinery and equipment 644,397 1,132,694 Net cash flow generated from the sale of subsidiaries 582, ,966 Acquisition of other investments 5,399 (1,367) Acquisition of other assets 10,712 (334,128) Interest received 45,455 31,019 Acquisition of noncontrolling interest 3,174,549 - Acquisition of goodwill (1,330,127) - Effect of joint venture in investing activities (2,941,583) - Net cash flow used in investing activities (1,867,704) (943,391) Items related to financing activities: Proceeds from bank loans 5,196, ,405 Borrowings (5,201,050) (180,390) Interest paid (420,585) (288,745) Additional capital contribution 5,825 1,159,265 Net cash (used in) provided by financing activities (419,441) 866,535 Effects of exchange rates on cash and cash equivalents 164, ,394 Net increase (decrease) in cash and cash equivalents 210,999 (1,777,602) Cash and cash equivalents at beginning of year 1,761,935 3,539,537 Cash and cash equivalents at end of year $ 1,972,934 $ 1,761,935 See accompanying notes to consolidated financial statements. 34

37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and 2012 (In thousands of Mexican pesos, unless otherwise stated) Elementia, S. A. de C. V. and Subsidiaries (Subsidiary of Kaluz, S. A. de C.V.) 1. Activities Elementia, S. A. de C.V. and Subsidiaries (the Entity or Elementia ) is subsidiary of Kaluz, S.A. de C.V. ( Holding Entity ); it was constituted with a duration of 99 years, and its main address is Poniente 134 No 719, Industrial Vallejo, 02300, México, D.F. The Entity is engaged in the manufacture and sale of fiber-cement products, copper, cement, aluminum products and plastic for the construction industry. 2. Significant events a. On January 8, 2013, the Entity, Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V. (TPM) and ELC Tenedora Cementos, S.A.P.I. de C.V. (ELC), both subsidiaries of the Entity, signed with Lafarge, S.A., Financière Lafarge, S.A.S. and Lafarge Cementos, S.A. de C.V. (Lafarge) (entities engaged in the manufacturing and marketing of cement) the contract entitled: Contribution Agreement whereby, among other things, it was agreed to create a joint venture among the industries for cement production in Mexico. Due to the above, the Entity absorbed the 53% of shareholding, as well as the control, and Financière Lafarge, S.A.S. kept the 47%. The union will allow them to encompass between 4% and 5 % of the national market, enforced by the launch of the ad campaign image of Cementos Fortaleza (branch of the Entity). The combination of cement assets of the two entities will allow them to produce about two million tons of cement per year. This transaction generated a goodwill of the order of $ 1,150 million of pesos (See Note 22). The joint venture was subject to the fulfillment of several conditions specified in the Joint Venture Agreement, which were met on July 31, 2013 ( Closing date of the Joint Venture ), date on which several contracts were signed, annexes to the Joint Venture Agreement and related assemblies were held, so that all shares were transferred to ELC Tenedora de Cementos, S.A.P.I. de C.V., a subsidiary of the Entity. b. On March 20, 2013, the Entity settled in advance, the syndicated loans that had contracted with different banks in the amount of $2,593,050, same that were replaced by a new loan under a scheme of Syndicated loan, with five different banks, better interest rates, better maturity profile and greater financial flexibility for an approximate amount of $3,730,170. c. On December 17, 2013, the Company sold 100% of its shares of Grupo Cuprum, S.A.P.I. (Cuprum, associated entity), equivalent to 20% of the shares of such entity, to Tenedora de Empresas de Materiales de Construcción, S. A. de C. V. and Controladora GEK, S.A.P.I. de C.V., for the amount of $ 45 million U.S. dollars (equivalent to $584 million at that date), generating a loss of $ 218 million, which was recorded directly in stockholders equity of the Entity since it was a transaction performed among shareholders. The loss on the sale of shares was mainly due to the difference between the carrying amount of the investment and the selling price. 3. Basis of presentation a. New and revised IFRSs affecting amounts reported and/or disclosures in the financial statements In the current year, the Group has applied a number of new and revised IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after January 1, Amendments to IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities The Group has applied the amendments to IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities for the first time in the current year. The amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement. The amendments to the IFRS 7, have been applied retrospectively. As the Group does not have any offsetting arrangements in place, the application of the amendments has had no material impact on the disclosures or on the amounts recognized in the consolidated financial statements. New and revised Standards on consolidation, joint arrangements, associates and disclosures In May 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued comprising IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 (as revised in 2011) Separate Financial Statements and IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures. Subsequent to the issue of these standards, amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional guidance on the first-time application of the standards. In the current year, the Group has applied for the first time IFRS 10, IFRS 11, IFRS 12 and IAS 28 (as revised in 2011) together with the amendments to IFRS 10, IFRS 11 and IFRS 12 regarding the transitional guidance. IAS 27 (as revised in 2011) is not applicable to the Group as it deals only with separate financial statements. 35

38 The impact of the application of these standards is set out below. Impact of the application of IFRS 10 IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and SIC-12 Consolidation Special Purpose Entities. IFRS 10 changes the definition of control such that an investor has control over an investee when a) it has power over the investee, b) it is exposed, or has rights, to variable returns from its involvement with the investee and c) has the ability to use its power to affect its returns. All three of these criteria must be met for an investor to have control over an investee. Previously, control was defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee. Some guidance included in IFRS 10 that deals with whether or not an investor that owns less than 50% of the voting rights in an investee has control over the investee is relevant to the Entity. Impact of the application of IFRS 11 IFRS 11 replaces IAS 31 Interests in Joint Ventures, and the guidance contained in a related interpretation, SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers, has been incorporated in IAS 28 (as revised in 2011). IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified and accounted for. Under IFRS 11, there are only two types of joint arrangements joint operations and joint ventures. The classification of joint arrangements under IFRS 11 is determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the arrangement. Previously, IAS 31 contemplated three types of joint arrangements jointly controlled entities, jointly controlled operations and jointly controlled assets. The classification of joint arrangements under IAS 31 was primarily determined based on the legal form of the arrangement (e.g. a joint arrangement that was established through a separate entity was accounted for as a jointly controlled entity). The initial and subsequent accounting of joint ventures and joint operations is different. Investments in joint ventures are accounted for using the equity method (proportionate consolidation is no longer allowed). Investments in joint operations are accounted for such that each joint operator recognizes its assets (including its share of any assets jointly held), its liabilities (including its share of any liabilities incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint operation) and its expenses (including its share of any expenses incurred jointly). Each joint operator accounts for the assets and liabilities, as well as revenues and expenses, relating to its interest in the joint operation in accordance with the applicable Standards. Impact of the application of IFRS 12 IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the application of IFRS 12 has resulted in more extensive disclosures in the consolidated financial statements. IFRS 13 Fair Value Measurement The Group has applied IFRS 13 for the first time in the current year. IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The scope of IFRS 13 is broad; the fair value measurement requirements of IFRS 13 apply to both financial instrument items and non-financial instrument items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value (e.g. net realizable value for the purposes of measuring inventories or value in use for impairment assessment purposes). IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair value under IFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique. Also, IFRS 13 includes extensive disclosure requirements. IFRS 13 requires prospective application from January 1, In addition, specific transitional provisions were given to entities such that they need not apply the disclosure requirements set out in the Standard in comparative information provided for periods before the initial application of the Standard. In accordance with these transitional provisions, the Group has not made any new disclosures required by IFRS 13 for the 2012 comparative period (please see note 10 for the 2013 disclosures). Other than the additional disclosures, the application of IFRS 13 has not had any material impact on the amounts recognized in the consolidated financial statements. Amendments to IAS 1 Presentation of Items of Other Comprehensive Income The Group has applied the amendments to IAS 1 Presentation of Items of Other Comprehensive Income for the first time in the current year. The amendments introduce new terminology, whose use is not mandatory, for the statement of comprehensive income and income statement. Under the amendments to IAS 1, the statement of comprehensive income is renamed as the statement of profit or loss and other comprehensive income, the amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis the amendments do not change the option to present items of other comprehensive income either before tax or net of tax. The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes. Other than the above mentioned presentation changes, the application of the amendments to IAS 1 does not result in any impact on profit or loss, other comprehensive income and total comprehensive income. 36

39 IAS 19 Employee Benefits (as revised in 2011) In the current year, the Group has applied IAS 19 Employee Benefits (as revised in 2011) and the related consequential amendments for the first time. IAS 19 (as revised in 2011) changes the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the corridor approach permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. All actuarial gains and losses are recognized immediately through other comprehensive income in order for the net pension asset or liability recognized in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net interest amount under IAS 19 (as revised in 2011), which is calculated by applying the discount rate to the net defined benefit liability or asset. These changes have had an impact on the amounts recognized in profit or loss and other comprehensive income in prior years (see the tables below for details). In addition, IAS 19 (as revised in 2011) introduces certain changes in the presentation of the defined benefit cost including more extensive disclosures. Specific transitional provisions are applicable to first-time application of IAS 19 (as revised in 2011). The Entity has applied the relevant transitional provisions and restated the comparative amounts on a retrospective basis (see the tables below for details). b. New and revised IFRSs in issue but not yet effective The Entity has not applied the following new and revised IFRSs that have been issued but are not yet effective: IFRS 9, Financial Instruments 3 Amendments to IFRS 9 and IFRS 7, Mandatory Effective Date of IFRS 9 and Transition Disclosures ² Amendments to IFRS 10, IFRS 12 and IAS 27, Investment Entities ¹ Amendments to IAS 32, Offsetting Financial Assets and Financial Liabilities ¹ ¹ Effective for annual periods beginning on or after January 1, 2014, with earlier application permitted. ² Effective for annual periods beginning on or after January 1, 2015, with earlier application permitted. 3 Effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. IFRS 9 Financial Instruments IFRS 9, issued in November 2009, introduced new requirements for the classification and measurement of financial assets. IFRS 9 was amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition. Key requirements of IFRS 9 are described as follows: All recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in net income (loss). With regard to the measurement of financial liabilities designated as of fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss. The Entity s management anticipate that the application of IFRS 9 in the future may have a significant impact on amounts reported in respect of the Entity s financial assets and financial liabilities (e.g. the Entity s investments in redeemable notes that are currently classified as availablefor-sale investments will have to be measured at fair value at the end of subsequent reporting periods, with changes in the fair value being recognized in profit or loss). However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review has been completed. Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities The amendments to IFRS 10 define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. To qualify as an investment entity, a reporting entity is required to: Obtain funds from one or more investors for the purpose of providing them with professional investment management services. Commit to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both. Measure and evaluate performance of substantially all of its investments on a fair value basis. The Entity s management does not anticipate that the investment entities amendments will have any effect on the Entity s consolidated financial statements as the Entity is not an investment entity. 37

40 Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of currently has a legally enforceable right of set-off and simultaneous realization and settlement. The Entity s management does not anticipate that the application of these amendments to IAS 32 will have a significant impact on the Entity s consolidated financial statements as the Entity does not have any financial assets and financial liabilities that qualify for offset. 4. Significant accounting policies a. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards released by the International Accounting Standards Board (IASB). b. Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. The financial statements are prepared in Mexican pesos, legal currency of Mexico and are presented in thousands, except when indicated. i. Historical cost Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. ii. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 or value in use in IAS 36. In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. c. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Elementia, S. A. de C. V. and its subsidiaries controlled by it. Control is achieved when the Entity: Has power over the investee; Is exposed, or has rights, to variable returns from its involvement with the investee; and Has the ability to use its power to affect its returns. The Entity reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. 38

41 When Elementia, S. A. de C. V. has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Entity considers all relevant facts and circumstances in assessing whether or not the Entity s voting rights in an investee are sufficient to give it power, including: The size of the Entity s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; Potential voting rights held by the Entity other vote holders or other parties; Rights arising from other contractual arrangements; and Any additional facts and circumstances that indicate that the Entity has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings. Consolidation of a subsidiary begins when the Entity obtains control over the subsidiary and ceases when the Entity loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Entity gains control until the date when the Entity ceases to control the subsidiary. Net income (loss) and each component of other comprehensive income are attributed to the owners of the Entity and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Entity and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Entity are eliminated in full on consolidation. 1. Changes in the Entity s ownership interests in existing subsidiaries Changes in the Entity s ownership interests in subsidiaries that do not result in the Entity losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Entity s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Entity. When the Entity loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. 39

42 As of December 31, 2013 and 2012 and for the years then ended. Elementia s shareholding percentage in the capital stock of its significant subsidiaries and their activities are set forth below. Country December December México: 31, , 2012 Activity Mexalit Industrial, S.A de C. V. (Mexalit Industrial) ) 100% 100% Manufacture and distribution of fiber-cement construction products. Distribuidora Promex, S. A. de C. V. 100% 100% Investments in shares and distribution of fiber y Subsidiaries (Promex) cement construction products and pipes. Mexalit Servicios Administrativos (formerly Eureka 100% 100% Administrative services. Servicios Industriales, S.A. de C.V. (Mexalit Servicios) Nacobre Servicios Administrativos 100% 100% Administrative services (formerly Maxitile Servicios Industriales, S.A. de C.V.) (Nacobre Servicios). Compañía Mexicana de Concreto Pretensado 99.96% 99.96% Manufacture and sale of pre-stressed Comecop, S.A. de C.V. (Comecop) concrete pipes. Nacional de Cobre, S.A. de C.V. (Nacobre) 100% 100% Manufacture of copper products for the construction industry. Operadora de Inmuebles Elementia, S.A. de C.V. (formerly Almexa, S.A de C.V.) (Operadora) 99.99% 99.99% Assets leasing. Frigocel, S. A. de C. V. y subsidiaria (Frigocel) 100% 100% Distribution and sale of plastic products. ELC Tenedora de Cementos, 53% 100% Holding entity. S. A. P. I. de C. V. y Subsidiarias (ELC) General de Bebidas y Alimentos, S.A. de C.V. 100% 100% Holding entity. and Subsidiaries (General de Bebidas) Colombia: Eternit Colombiana, S.A (Colombiana) 93.41% 93.41% Manufacture and distribution of fiber-cement construction products. Eternit Pacífico, S.A. (Pacífico) 98.20% 98.20% Manufacture and distribution of fiber-cement construction products. Eternit Atlántico, S.A. (Atlántico) 96.52% 96.52% Manufacture and distribution of fiber-cement construction products. United States of America: Maxitile Inc. (Maxitile Inc) 100% 100% Manufacture and distribution of fiber-cement construction products. Cooper & Brass Int. Corp. (Cooper) 100% 100% Distribution and sale of copper and aluminum products for the construction industry in the United States of America. Costa Rica and Central America: The Plycem Company, Inc. 100% 100% Holding entity of Central America entities and (Plycem y subsidiarias) production of light construction systems (construsistemas) in Latinamerica Perú: Industrias Fibraforte, S.A. (Fibraforte) 100% 100% Manufacture of slight covers of polypropylene and polycarbonate. Ecuador: Eternit Ecuatoriana, S.A. (Ecuatoriana) 100% 100% Manufacture and distribution of fiber-cement construction products. (1) Maxitile Industries, S.A. de C.V. merged with Mexalit Industrial, S.A. de C.V. on January 2, 2012 the latter prevailing as the merged entity. 40

43 d. Transactions in foreign currency The consolidated financial statements of foreign operations are translated from functional currency to presentation currency, using the following methodology: (i) the closing exchange rate in effect at the balance sheet date for monetary assets and liabilities; and (ii) historical exchange rates for non-monetary assets and liabilities and stockholders equity, as well as revenues cost and expenses. Translation effects are recorded under comprehensive financing income (loss). Differences in exchange rate, from items of financial instruments which are initially recognized in comprehensive financing income (loss) are reclassified from equity to profit or loss when selling wholly or partially the net investment. Nonmonetary items carried at fair value denominated in foreign currencies are retranslated at the exchange rates prevailing at the date on which the fair value was determined. Non-monetary items calculated in terms of historical cost, in foreign currency, are not retranslated. The exchange differences are recognized in income for the period, except by exchange rate differences from foreign currency denominated loans relating to assets under construction qualifying for capitalization of interest, which are included in the cost of such assets when considered as an adjustment to interest cost on those foreign currency denominated loans. The adjustments to goodwill and fair value generated in the acquisition of a foreign operation are treated as assets and liabilities of the operation and translated at the exchange rate prevailing at the end. Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into Mexican pesos at the applicable exchange rate in effect at the balance sheet date. Exchange fluctuations are recorded as a component of net comprehensive financing result in the statements of income. The functional currency of the entity registration and all its subsidiaries is the Mexican peso, except for the subsidiary whose currencies registration and / or function are different as follows: Subsidiary Recording currency Functional currency Report currency Pacífico Colombian peso Colombian peso Mexican peso Atlántico. Colombian peso Colombian peso Mexican peso Colombian Colombian peso Colombian peso Mexican peso Maxitile US dollar US dollar Mexican peso Cooper US dollar US dollar Mexican peso Plycem and subsidiaries US dollar US dollar Mexican peso Fibraforte Soles Soles Mexican peso Ecuadorian US dollar US dollar Mexican peso Nacobre Mexican peso US dollar Mexican peso Therefore these subsidiaries are considered foreign operations under IFRS. In preparing the financial statements of the individual entity, transactions in currencies other than the entity s functional currency (foreign currencies) are recorded using the exchange rates prevailing at the dates of transactions are conducted. e. Cash and cash equivalents Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term investments that a) are highly liquid and easily convertible into cash, b) mature within three months from their acquisition date and c) are subject to low risk of material changes in value. Cash is stated at nominal value and cash equivalents are valued at fair value; any fluctuations in value are recognized in comprehensive financing (cost) income of the period. Cash equivalents are comprised mainly of investments in investment funds. f. Inventories and cost of sales Inventories are stated at the lower of cost and net realizable value. Costs of inventories are determined on an average basis including the cost of materials, direct costs and an appropriate portion of fixed and variable overhead costs that are incurred in the transformation process. Reductions in value of inventories are compound of reserves that represent the impairment of inventories. g. Property, machinery and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the consolidated statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each reporting period. Any revaluation increase arising on the revaluation of such land and buildings is recognized in other comprehensive income and accumulated in equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such land and buildings is recognized in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is recognized in profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings. Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group s accounting policy. Such properties are classified to the appropriate categories of property, machinery and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. 41

44 Freehold land is not depreciated. Depreciation is recognized to write off the cost or valuation of assets (other than properties under construction) less their residual values over their useful lives using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each year, and the effect of any changes in the estimate recorded is recognized on a prospective basis. Depreciation is calculated under the straight-line method based on the useful lives of the assets, as follows: % Average years of useful life residual value December 2013 December 2012 Buildings - 40 and and 60 Industrial machinery and equipment - 20 to to 30 Vehicles 5 4 and 5 4 and 5 Computers Office furniture and equipment Any gain or loss arising on the disposal or retirement of an item of property, machinery and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. h. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognized as assets of the Entity at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Entity s general policy on borrowing. Contingent rentals are recognized as expenses in the periods in which they are incurred. Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. i. Borrowing costs Costs for general loans or directly attributable the acquisition or construction of assets for use by the Entity and constitute qualifying assets that require a substantial period of time until they are ready and useful, are added to the cost of those assets during that time until the time they are ready for use. The income derived from the temporary investment of specific borrowings pending funds to be used in qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in income in the period incurred. j. Investments in associates and joint ventures An associate is an entity over which the Entity has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with IFRS 5. Under the equity method, an investment in an associate or a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Entity s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Entity s share of losses of an associate or a joint venture exceeds the Entity s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Entity s net investment in the associate or joint venture), the Entity discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Entity has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Entity s share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Entity s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognized immediately in profit or loss in the period in which the investment is acquired. The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Entity s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. 42

45 The Entity discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment is classified as held for sale. When the Entity retains an interest in the former associate or joint venture and the retained interest is a financial asset, the Entity measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39. The difference between the carrying amount of the associate or joint venture at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the Entity accounts for all amounts previously recognized in other comprehensive income in relation to that associate or joint venture on the same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by that associate or joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. The Entity continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. When the Entity reduces its ownership interest in an associate or a joint venture but the Entity continues to use the equity method, the Entity reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. When a group entity transacts with an associate or a joint venture of the Entity, profits and losses resulting from the transactions with the associate or joint venture are recognized in the Entity s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Entity. k. Goodwill Goodwill arising from a business combination is recognized as an asset at the date that control is acquired (the acquisition date) less impairment losses recognized, if any. Goodwill is the excess of the consideration transferred, the amount of any noncontrolling interest in the acquire over the fair value of the acquirer s interest in the equity of the acquired and / or on the net at the date of acquisition identifiable assets acquired and liabilities assumed. When the fair value of the identifiable net assets acquired exceeds the sum of the consideration transferred, the amount of such excess is recognized in the income statement as a gain on purchase. Goodwill is not amortized and is subject to annual impairment testing. For purposes of impairment testing, goodwill is allocated to each cashgenerating unit for which the entity expects to obtain benefits. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of goodwill allocated to the unit and then to the other assets of unit, proportionately, based on the carrying amount of each asset in the unit. The impairment loss recognized for goodwill purposes cannot be reversed in a subsequent period. The availability of a subsidiary, the amount attributable to goodwill is included in determining the gain or loss on disposal. l. Intangible assets and other assets 1. Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. 2. Internally-generated intangible assets - research and development expenditure Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated: The technical feasibility of completing the intangible asset so that it will be available for use or sale. The intention to complete the intangible asset and use or sell it. The ability to use or sell the intangible asset. How the intangible asset will generate probable future economic benefits. The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. 43

46 3. Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. 4. Derecognition of intangible assets An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized. m. Impairment of tangible and intangible assets The Entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. n. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Entity, liabilities incurred by the Entity to the former owners of the acquiree and the equity interests issued by the Entity in exchange for control of the acquiree. Acquisitionrelated costs are generally recognized in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that: i. Deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively; ii. Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Entity entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share based payments at the acquisition date; and iii. Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests proportionate share of the recognized amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS. When the consideration transferred by the Entity in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. 44

47 The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss. When a business combination is achieved in stages, the Entity s previously held equity interest in the acquiree is remeasured to its acquisitiondate fair value and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date o. Financial instruments Financial assets and financial liabilities are recognized when an Entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the issue of financial liabilities (other than financial liabilities at fair value through profit or loss) are deducted from the fair value of the financial liabilities on initial recognition. Transaction costs directly attributable to the acquisition of financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. i. Financial assets - All financial assets are recognized and derecognised for accounting at the trade date and are measured initially at fair value plus transaction costs except for those financial assets classified at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss, investments held to maturity, financial assets available for sale and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at fair value through profit or loss Financial assets are classified at fair value through profit or loss when the financial asset is held for trading or is designated as a financial asset at fair value through profit or loss. A financial asset is classified as held for trading if: It is bought primarily for the purpose of selling in the near term, or Upon initial recognition it is part of a portfolio of identified financial instruments that the Entity managed together and for which there is recent actual pattern making short-term profits, or It is a derivative that is not designated and effective as a hedging instrument A financial asset other than a financial asset held for trading may be designated as a financial asset at fair value through profit or loss upon initial recognition if: With such designation eliminates or significantly reduces a measurement or recognition inconsistency valuation that would otherwise arise, or The financial asset forms part of a Entity of financial assets, financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with a risk management strategy and investment Documented Institution and information is provided internally on that Entity, on the basis of their fair value or It forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire hybrid contract (asset or liability) to be designated as fair value through profit or loss. Financial assets at fair value through profit or loss are measured at fair value, recognizing any gain or loss arising from the remeasurement loss. The net gain or loss recognized in the statement includes any dividend or interest earned on the financial asset and is included in the caption Other (income) expense in the consolidated statements of income and other comprehensive income. The fair value is determined in the manner described in Note 10. Held to maturity investments The investments held to maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Entity plans and can hold to maturity. After initial recognition, investments held to maturity are valued at amortized cost using the method of effective interest rate less any impairment exists. Financial assets available for sale The shares listed on the stock exchange that maintains the entity and that are traded in an active market are classified as held for sale and recorded at fair value. The fair value is determined in the way described in Note 10. Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in investment revaluation reserve, except for impairment losses, interest calculated using the effective interest method, and gains and losses on changes, which are recognized in the results. Where an investment is available or determined impairment, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to other comprehensive income. Dividends on equity instruments available for sale are recognized in income when establishing the right of the Entity to receive dividends. 45

48 The fair value of monetary assets available for sale denominated in foreign currency is determined in that foreign currency and converted at the spot exchange rate at the end of the reporting period. Gains and losses on foreign exchange are recognized in the results, are determined based on the amortized cost of the monetary asset. Other gains and losses on changes recognized in other comprehensive income. Loans and receivables The loans, accounts receivable and other receivables with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. It recognizes a provision for loan losses in income when there is objective evidence that the receivables are impaired. Interest income is recognized by applying the effective interest rate, except for the receivables in the short term in the event that the recognition of interest would be minor. Method of the effective interest rate It is a method of calculating the amortized cost of a financial instrument and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash flows receivable or payable (including fees, points of interest paid or received, transaction costs and other premiums or discounts included in the calculation the effective interest rate) over the expected life of the financial instrument (or, when appropriate, a shorter period), with the net carrying amount of the asset or financial liability on initial recognition. Impairment of financial assets Financial assets other than financial assets at fair value through profit or loss, are subject to testing for impairment purposes at the end of each period being reported. It is considered that financial assets are impaired when there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been affected. For listed equity instruments classified as available for sale, a significant or prolonged fair value of securities below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include: Significant financial difficulties of the issuer or counterparty, Non-payment of interest or principal, or It is probable that the borrower will enter bankruptcy or financial reorganization. For certain categories of financial assets, such as accounts receivable, assets that have been subjected to for the purpose of impairment testing and have not been individually impaired are included in the assessment of impairment on a collective basis. Among the objective evidence that a portfolio of receivables could be impaired, it could include the Entity s past experience regarding the collection, an increase in the number of delayed payments in the portfolio that exceed the average credit period 90 days, as well as observable changes in national and local economic conditions that correlate with default on payments. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset s carrying value and the present value of future receipts discounted at the original effective interest rate of the asset financial asset. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets, except for accounts receivable, where the carrying amount is reduced through an allowance account for doubtful accounts. When you consider that a receivable is uncollectible, it is eliminated against the estimate. Subsequent recoveries of amounts previously written off loans becomes against the allowance. The changes in the carrying value of the account of the estimate are recognized in income. When you consider that a financial asset available for sale is impaired, the cumulative gain or loss previously recognized in other comprehensive income are reclassified to profit or loss. Except for equity instruments available for sale, whether in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying value of the investment at the date the impairment is reversed does not exceed the amortized cost would have been if no impairment had been recognized. With respect to equity instruments available for sale, impairment losses previously recognized in income are not reversed through them. Any increase in fair value after recognition of the impairment loss is recognized in other comprehensive income. Derecognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in net income. 46

49 On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. ii. Financial liabilities and equity instruments issued by the Entity Classification as debt or equity - The debt and equity instruments are classified as liabilities or equity, according the substance of the contractual arrangement. Equity instruments - An equity instrument is any contract that evidences a residual interest in the net assets of an entity. Equity instruments issued by the Entity are recorded at the proceeds received, net of direct issue costs. Financial liabilities - Financial liabilities are classified as financial liabilities at fair value through profit or loss or other financial liabilities. At fair value through profit or loss A financial liability at fair value through profit or loss is a financial liability is classified as held for trading or designated as at fair value through profit or loss: A financial liability is classified as held for trading if: Acquired principally for the purpose of repurchasing in the near future, or It is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of making short-term profits, or It is a derivative that is not designated as effective hedging instrument. A financial liability other than a financial liability held for trading may be designated as a financial liability at fair value through profit or loss upon initial recognition if: This eliminates or significantly reduces an inconsistency in the valuation or recognition that would otherwise arise, or The performance of an Entity of financial assets, financial liabilities or both is managed and evaluated on a fair value basis, in accordance with an investment strategy or risk management that the entity s documented, and is provided internally information on this Entity, on the basis of their fair value or Be part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire hybrid contract (asset or liability) to be designated as at fair value through profit or loss. Financial liabilities at fair value through profit or loss are measured at fair value, recognizing any gain or loss arising from remeasurement in the income statement. The net gain or loss recognized in the income includes any interest paid on the financial liability and is included under the heading of other (income) expense in the consolidated statements of income and other comprehensive income. The fair value is determined in the manner described in Note 10. Other financial liabilities Other financial liabilities, including loans, are recognized at fair value initially, net of transaction costs; subsequently, are valued at amortized cost using effective interest rate, and are recognized in interest expense on an effective yield basis. Derecognition of financial liabilities The Entity derecognizes financial liabilities when, and only when, the Entity s obligations are discharged, cancelled or they expire. The difference between the carrying amount and the financial liability derecognized considering the portion paid and payable is recognized in income. p. Financial derivative instruments In order to hedge the financial risks derived from fluctuation in prices of natural gases and some metals such as copper, aluminum, zinc, and nickel, the Entity selectively uses derivative financial instruments such as swaps and futures (future contracts) on those underlying instruments. Note 11 includes further detail about derivative financial instruments. When derivatives are contracted for hedging risk and meet all the requirements to qualify for hedge accounting, their classification is documented as of the beginning of the hedge transaction, describing the objective thereof, the hedging strategy, the risk or primary position to hedge, the characteristics of the derivative financial instrument designated as a hedge, how the effectiveness of the hedge will be measured, and how the accounting recognition will be made in connection the overall heading relationship. Derivatives are initially recognized at fair value at the date of the derivative contract subscribe and subsequently measured at fair value at the end of the reporting period. The gain or loss is recognized in income unless the derivative is designated and is effective as a hedging instrument, in which event the timing of the recognition in the results depend on the nature of the hedge relationship. The Entity designates certain derivatives as either fair value hedges of recognized assets or liabilities or firm commitments (fair value hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (hedging cash flows). A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. A derivative is presented as an asset or a liability in the long term if the maturity date of the instrument is 12 months or more and not expected to make or cancel within those 12 months. Other derivatives are presented as current assets and current liabilities. 47

50 Hedge accounting The Entity designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives with respect to foreign currency risk, as either fair value hedges, cash flow hedges or hedges of a net investment in a foreign operation. The coverage of the foreign currency risk of a firm commitment is accounted for as cash flow hedges. At the inception of the hedge, the entity documents the relationship between the hedging instrument and the hedged item, as well as the objectives of risk management and management strategy for undertaking various hedge transactions. Additionally, the inception of the hedge and on an ongoing basis, is documented if the hedging instrument is highly effective in offsetting the exposure to changes in fair value or changes in cash flows of the hedged item. Note 11 includes details on the fair value of derivatives used for hedging purposes. Cash flow hedges Entity coverage at the beginning of the relationship documented and objective coverage and risk management strategy of the organization, such documentation shall include the manner in which the entity shall measure the effectiveness of the hedging instrument to offset the value of changes in the fair value of the hedged item or changes in cash flows attributable to the hedged risk. The Entity recognizes all assets or liabilities that arise from transactions with derivative financial instruments in the statement of financial position at fair value, regardless of the purpose for holding. Fair value is determined based on recognized market prices when quoted market prices are not, based on valuation techniques accepted in the financial field. The decision to take economic or accounting coverage reflects market conditions and expectations expected in the domestic and international economic context. The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. Gains and losses relating to the ineffective portion of the hedging instrument are recognized in the results, and are included under Other (income) expense. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to earnings in the periods in which the hedged item is recognized in income in the same area of the statement of comprehensive income of the hedged recognized. However, when a forecasted transaction that is covered results in the recognition of a non-financial asset or non-financial liability, the gains or losses previously recognized in other comprehensive income and accumulated in equity are transferred and included in the initial measurement of the cost of non-financial asset or non-financial liability. Hedge accounting is discontinued when the hedging relationship reverses when the hedging instrument expires or is sold, terminated, or exercised, or no longer meet the criteria for hedge accounting. Any cumulative gain or loss on the hedging instrument that has been recognized in equity remain in equity until the forecast transaction is ultimately recognized in the results. When no longer expects the forecast transaction occurs, the gain or loss accumulated in equity is reclassified to the results immediately. Fair value hedges Changes in fair value of derivatives that are designated and qualify as fair value hedges are recognized in the results, together with any changes in fair value of the hedged asset or liability that are attributable to the hedged risk. The change in fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in the heading of the statement of comprehensive income relating to the hedged item. Hedge accounting is discontinued when the Entity revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or no longer meet the criteria for hedge accounting. The fair value adjustment to the carrying value of the hedged item arising from the hedged risk is amortized to income as of that date. Hedges of a net investment in a foreign operation Hedges of a net investment in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income and accumulated in the translation reserve of foreign operations. The gain or loss relating to the ineffective portion is recognized in earnings and included in the caption Other (income) expense. Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the translation reserve of foreign operations, are reclassified to the income in the same way that the exchange differences relating to the foreign operation The debt and equity instruments are classified as financial liabilities or as equity in accordance with the substance of the contractual arrangement. Embedded Derivatives The Entity carried out the review of contracts held to identify embedded derivatives to be separated from the host contract for purposes of valuation and accounting records. When identifying an embedded in other financial instruments or other contracts (hosts) are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts as such contracts are not carried at fair value changes through income. An embedded derivative is presented as assets or liabilities in the long term if the remaining maturity of the hybrid instrument which is relative, is 12 months or more and are not expected to undertake or divest during those 12 months. Other embedded derivatives are presented as current assets or current liabilities. The Entity has no fair value hedges of net investment in a foreign operation or derivatives embedded in the reporting period. 48

51 q. Provisions Are recognized for current obligations (legal or implicit) that arise from a past event, that will probably result in the probable use of economic resources, and that can be reasonably estimated. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period under review, considering the risks and uncertainties surrounding the obligation. When a provision is valued using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows When it is expected to recover some or all of the economic benefits required to settle a provision, it is recognized a receivable as an asset if it is virtually certain that they will receive the payment and the amount of the receivable can be measured reliably. - Restructuring- A provision is recognized when the Entity restructuring has developed a detailed formal plan restructuring and has raised a valid expectation in those affected that it will carry out the restructuring, either by starting the implementation of the plan or announcing its main features to those affected by it. The restructuring provision should include only the direct expenditures arising from the same, which include amounts arising restructuring necessarily, and not associated with the continuous activities of the Entity. r. Direct employee benefits Direct employee benefits are calculated based on the services rendered by employees, considering their most recent salaries. The liability is recognized as it accrues. These benefits include mainly statutory employee profit sharing (PTU) payable, compensated absences, such as vacation and vacation premiums, and incentives. s. Employee benefits from termination, retirement and other Liabilities from seniority premiums, pension plans and severance payments are recognized as they accrue and are calculated by independent actuaries based on the projected unit credit method using nominal interest rates. Actuarial gains and losses are recognized immediately in other comprehensive income items net of deferred income taxes, according to the net asset or liability recognized in the statement of financial position to reflect the surplus (or deficit) of the employee benefit plan, while the past service costs are recognized in income when performing the modification of the plan or when restructuring costs recognized. The retirement benefit obligation recognized in the statement of financial position represents the present value of the defined benefit obligation, adjusted for gains and losses and past service costs, less the fair value of plan assets. When plan assets exceed the liabilities of the defined benefit plan, such assets will be valued at the lesser of: i) the surplus in a defined benefit plan, and ii) the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to it. t. Income taxes Income tax expense represents the sum of the tax currently payable and deferred tax. - Current taxes Current income taxes, calculated as the higher of the regular Mexican income tax ( ISR ) or the Business Flat Tax ( IETU ), are recorded in the results of the year in which they are incurred. - Deferred taxes Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill. As a consequence of the 2014 Tax Reform, as of December 31, 2013 deferred IETU is no longer recognized. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Entity is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 49

52 For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The Entity s management reviewed the Entity s investment property portfolios and concluded that none of the Entity s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. Therefore, the Entity s management have determined that the sale presumption set out in the amendments to IAS 12 is not rebutted. As a result, the Entity has not recognized any deferred taxes on changes in fair value of the investment properties as the Entity is not subject to any income taxes on the fair value changes of the investment properties on disposal. - Current and deferred tax for the year Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. - Tax on assets - The tax on assets (IMPAC) that is expected to be recovered is recorded as a recoverable tax. u. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. - Sale of goods Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: The Entity has transferred to the buyer the significant risks and rewards of ownership of the goods; The Entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; The amount of revenue can be measured reliably; It is probable that the economic benefits associated with the transaction will flow to the Entity; and The costs incurred or to be incurred in respect of the transaction can be measured reliably. - Dividend and interest income Dividend income from investments is recognized when the shareholder s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Entity and the amount of income can be measured reliably). Interest income is recognized when it is probable that the economic benefits will flow to the Entity and the amount of income can be measured reliably. Interest income is recorded on a periodic basis, with reference to capital and the effective interest rate applicable. - Services - Revenues from services are recognized in the period in which such services are rendered. - Rentals - Rentals are recognized monthly as leasing services and are provided and maintenance charges are recognized in the period of the length of the lease agreement from which they come. v. Earnings per share (i) Basic earnings per common share are calculated by dividing consolidated net income of controlling interests by the weighted average number of common shares outstanding during the year., (ii) Basic earnings per common share from discontinued operations are calculated by dividing net income of discontinued operations by the weighted average number of common shares outstanding during the year. 5. Critical accounting judgments and key sources of estimation uncertainty To apply the accounting policies, the Entity s management uses its judgment, estimates, and assumptions regarding certain asset and liability amounts in the consolidated financial statements. The associated estimates and assumptions reflect a quantitative and qualitative analysis based on an understanding of the various businesses considered relevant to the Entity. Actual results may differ from such estimates. The estimates and assumptions are reviewed regularly. Such accounting estimates are recognized in the period and future periods if the revision affects both the current and subsequent periods. The critical accounting judgments and key uncertainty aspects used when applying the estimates made as of the date of the financial statements, and have a significant risk of deriving an adjustment to the carrying amounts of assets and liabilities during the next financial period is as follows: Critical accounting judgments a. Classification of Lafarge as a joint venture - The contractual agreement between TPM and ELC, subsidiaries of the Company and Lafarge, does not mention that the parties to the joint venture have rights to the assets and obligations for the liabilities of the joint venture. Accordingly, Lafarge is classified as a joint venture of the Entity. See Note 2a. b. Allowances of inventories and accounts receivable - The Entity uses estimates to determine allowances of inventories and accounts receivable. The factors considered by the Entity in allowances of inventory are the production and sales volumes as well and movements on the demand for some products. The factors considered by the Entity in the estimation of doubtful accounts are mainly the risk of the customer s financial situation, unsecured accounts and significant delays in the collection according to established credit limits. 50

53 c. Property, machinery and equipment - The Entity reviews the estimated useful lives of property, machinery and equipment at the end of each annual period. During 2012, based on a detailed analysis of the Entity management made some changes to the life of certain components of property, machinery and equipment. The degree of uncertainty associated with estimates of useful lives is related to changes in the market and asset utilization for production volumes and technological development. d. Impairment of long-lived assets - The carrying value of non-current assets are reviewed for impairment if there are situations or changes in circumstances indicate that the carrying value is not recoverable. If there is evidence of impairment, carried out a review to determine if the carrying value exceeds its carrying value and is impaired. When performing impairment testing of assets, the Entity requires to make estimates on the value assigned to use its property, machinery and equipment, and cash generating units, in the case of certain assets. The value in use calculation requires the entity to determine future cash flows that should arise from the cash-generating units and an appropriate discount rate to calculate the present value. The Entity uses cash flow projections of revenue using estimates of market conditions, pricing, and production and sales volumes. e. Valuation of financial instruments - The Entity uses valuation techniques for its derivative financial instruments, which include information that is not always based on observable market data to estimate the fair value of certain financial instruments. Note 11 shows detailed information about the key assumptions considered in determining the fair value of its financial instruments, as well as detailed analyzes of sensitivity on these assumptions. The management of the Entity believes that the valuation techniques and assumptions used are appropriate to determine the fair value of its financial instruments. f. Contingencies - Due to the nature of its operations, the Entity is subject to transactions or events contingent on which uses professional judgment in developing estimates of probability of occurrence, the factors considered in these estimates are the current legal situation to date estimation and the opinion of legal counsel. g. Employee retirement benefits asset - Assumptions are used to determine retirement benefits of employees, assumptions used to calculate the best estimate of these benefits annually. These estimates, as alleged, are established in conjunction with independent actuaries. These assumptions include demographic assumptions, discount rates and expected increases in salaries and future permanence, among others. Although it is estimated that the assumptions used are appropriate, a change in them could affect the value of assets (liabilities) for these benefits and the statement of comprehensive income in the period in which it occurs. 6. Cash and cash equivalents For the purposes of the statements of cash flows, cash and cash equivalents include cash on hand and in banks and investment funds, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown in the statements of cash flows, can be reconciled to the related items in the statement of financial position as follows: December 31, December 31, Cash $ 1,496,814 $ 859,840 Cash equivalents - Debt instruments - Certificados de la Tesorería de la Federación (CETES) and Cash Market 476, ,095 $ 1,972,934 $ 1,761, Accounts receivable December 31, December 31, Trade accounts receivable $ 2,620,355 $ 2,002,616 Allowance for doubtful accounts (238,758) (176,853) 2,381,597 1,825,763 Recoverable taxes (mainly Value Added Tax (VAT)) 1,019, ,716 Other receivables 105, ,919 $ 3,506,269 $ 2,926,398 a. Trade accounts receivable The average credit period on sales of goods is between 30 and 60 days. No interest is charged on trade receivables. Allowances for doubtful accounts are recognized against trade receivables for 100% of all trade accounts receivable with high possibilities of not been collectable based on estimated unrecoverable amounts. To accept any new customer, the Entity requested financial information for the last two years and subsequently supports it with an external credit rating system to evaluate their potential client s financial support and defines credit limits by customer. The limits and qualifications attributed to customers are reviewed every two months through the Credit Committee established by the Entity. No single customer represents more than 5% of the total balance of accounts receivable. Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period for which the Entity has not recognized an allowance for doubtful accounts because there has not been a significant change in credit quality and the amounts are still considered recoverable. The Entity does not hold any specific guarantees or any other credit improvements on those amounts, nor does it have any legal right to compensate them against any amounts payable. 51

54 Entity tracks the payment s performance of the clients without any guarantees and that the only document supporting payment are promissory notes without protest, and in some cases with support of the client s owner, in case of delay in accordance with its policies. In these cases, the Entity suspended the use of line of credit for future purchases. Further delays lead to judicial and extrajudicial (legal) actions aimed to recover the balance. If the collection is still not accomplished, the Entity cancels the credit line and the account receivable. The Entity has recognized an allowance for doubtful accounts for 100% of all accounts receivable collectibility no high possibilities. b. Allowance for doubtful accounts is the following: December 31, December 31, National trade receivables $ 223,621 $ 168,482 Export trade receivables 15,137 8,371 $ 238,758 $ 176,853 c. Change in the allowance for doubtful accounts: December 31, December 31, Balance at beginning of the year $ 176,853 $ 158,064 Allowance of the period 257,222 90,652 Cancellations and applications (195,317) (71,863) Balance at the end of the year $ 238,758 $ 176,853 In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period. Concentration of credit risk is limited due to the customer base is large and independent. 8. Inventories December 31, December 31, Raw materials and auxiliary materials $ 613,152 $ 668,795 Work in process 464, ,947 Finished goods 938, ,109 Goods in transit 65,562 84,965 Spare parts and other inventories 302, ,468 2,383,828 2,634,284 Less- allowance for obsolete and slow movement items (133,457) (163,019) $ 2,250,371 $ 2,471,265 The allowance for obsolete and slow movement is determined based on the experience of previous years, considering the movement of goods in the market. An increase to the reserve is recorded if items lack of movement, until it is considered the total cost as a loss for impairment. The allowance for decrease of goods is determined based on the experience of the physical inventories which are performed cyclically, adjusting it with variable rates in the different plants. Movements in the allowance for obsolete, slow moving inventories are presented below: December 31, December 31, Balance at beginning of the year $ 163,019 $ 99,436 Estimation of period 287, ,496 Cancellations and applications (317,552) (113,913) Balance at the end of the year $ 133,457 $ 163, Risk management The Entity has exposure to market risks, operation and use derivative financial instruments such as interest rate, credit, liquidity and risk, which are administered centrally by Corporate Treasury. The Entity seeks to minimize its exposure to these risks through the use of hedging with derivative financial instruments. The use of financial derivatives is regulated by the policies of the Entity, approved by the Board of Directors, which establish the principles to acquiring them. The internal audit area reviews annually the compliance with these policies and exposure limits. The Board of Directors establishes and monitors policies and procedures to measure other risks, which are described below: a. Capital Risk Management The Entity manages its capital to ensure that it will continue as a going concern while maximizing the return to shareholders through the optimization of debt and equity balances. The Elementia s capital structure is made up of net debt (mainly bank loans and intercompany stock certificates, as seen in Notes 17, 18 and 24) and stockholders equity of the Entity (issued capital, capital reserves, retained earnings and noncontrolling participation, as detailed in Note 21). The capital structure of the Entity is not subject to any capital requirements. The overall strategy of the Entity has not been modified in comparison to

55 The Entity is not subject to any externally imposed requirements for managing capital. The administration of the entity revises monthly net debt and borrowing costs and their relation to UAFIRDA (Operating income, plus depreciation, amortization, other income and expenses and statutory employee profit sharing), this is done when files its financial projections as part of the business plan to the Board of Directors and shareholders of the Entity. The entity has a practice of borrowing no more than 3.50 times UAFIRDA determined as the ratio of net debt and interest and capital. The net debt ratio over the period reported is as follows: December 31, December 31, Debt with financial institutions $ 3,377,715 $ 3,382,396 Stock certificates 3,000,000 3,000,000 Cash and cash equivalents (1,972,934) (1,761,935) Net debt with financial institutions 4,404,781 4,620,461 UAFIRDA 1,913,603 1,876,562 Debt ratio b. Categories of financial instruments December 31, December 31, Financial assets Cash and cash equivalents $ 1,972,934 $ 1,761,935 Derivative financial instruments in hedge accounting relationships 9,810 8,549 Accounts receivable, and long-term accounts receivable 2,674,206 2,267,943 Equity investments held to maturity 11,118 12,297 Financial liabilities At amortized cost: Loans to financial institutions $ 3,377,715 $ 3,382,396 Stock certificates 3,000,000 3,000,000 Trade accounts payable 2,663,274 2,330,471 Due to related parties 173, ,918 Due to related parties long term 18,075 40,462 Other long-term liabilities 14,087 24,725 c. Objectives of financial risk management The treasury function provides services to the Entity s business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Parent Entity through internal risk reports, which analyze the exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rates on fair value and price risk), credit risk, liquidity risk and the risk of interest rate cash flow. The Entity seeks to minimize the effects of these risks by using derivative financial instruments to hedge exposures to risk. The use of financial derivatives is governed by the policies of the Parent Entity approved by the Board of Directors, which provide written principles on currency risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivatives and investment of excess liquidity. Internal auditors regularly review compliance with policies and exposure limits. The Entity does not subscribe or trade financial instruments, among which includes derivative financial instruments, for speculative purposes. At the end of the reporting period, there are no concentrations of significant credit risk for loans and receivables designated at fair value through profit or loss. The carrying amount reflected above represents the maximum credit risk exposure of the Entity s for such loans and receivables. d. Interest rate risk management The Entity is mainly exposed to interest rate risks because it has entered into debt at variable rates. This risk is managed by maintaining an appropriate combination between fixed and variable rate loans. Hedging activities are evaluated regularly so they align with interest rates and defined risk, ensuring that more profitable hedging strategies are applied. The Entity s exposures to interest-rate risk are mainly related to changes in the TIIE and LIBOR with respect to the Entity s financial liabilities. - Sensitivity analyses for interest rates: The following sensitivity analysis have been determined based on the exposure to interest rates on its total financial indebtedness unhedged, variable rate sustained, an analysis is prepared assuming that the amount of outstanding liability at the end of the reporting period has been the outstanding liability for the whole year. The Entity reports internally to the Board of Management about the risk in interest rates If the interest rates are between 100 and 200 basis points (BPS) greater/lower and all the other variables remained constant, interest expense for the year 2013 would have increased from $420,585 to $482,437 with 100 BPS and to $544,289 with 200 BPS and 2012 from $467,192 to $558,776 with 100 BPS and $622,640 with 200 BPS. This is mainly attributable to the exposure of the Parent Entity to interest rates TIIE and LIBOR on its loans. 53

56 2013 Maximum Minimum Average TIIE 28 Rate % % % TIIE 91 Rate % % % LIBOR 6 months Rate % % % 2012 Maximum Minimum Average TIIE 28 Rate % % % TIIE 91 Rate % % % LIBOR 6 months Rate % % % e. Exchange risk management The functional currency of the Entity is the Mexican peso. because the Entity had investments in foreign subsidiaries, whose functional currency is the Mexican peso is exposed to the risk of foreign currency translation, the coverage of this risk is mitigated conversion primarily functional currency each of the subsidiaries caring than monetary assets are equal or greater monetary liabilities. Certain subsidiaries generate U.S. Dollars and in turn hold assets exceed its liabilities. The Entity performs an analysis of variation in the exchange rates which serves to identify sales opportunities in the market for corporate treasury dollars. The following table details the Entity s sensitivity to an increase and decrease of 10% in weight against dollars. The 10% is the sensitivity rate used when reporting foreign exchange risk internally to key management personnel and represents management s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding monetary items denominated in foreign currency and adjusts their translation at the period end for a 10% change in exchange rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the entity where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive (as shown in the table below) indicates an increase in the results and other items of equity capital where the weight is strengthened by 10% against USD. If you submit a weakening of 10% in weight with respect to the reference currency, there would be a comparable impact on the results and other comprehensive income, and the balances below would be negative. Increasing effect Decrement effect exchange rate US dollar exchange rate US dollar Asset (liability) position (Thousands of US dollar) (6,412) 69,054 (6,412) 69,054 Projected exchange +(-)10% $ $ $ $ Income (loss) results (Thousands Mexican pesos) $ (8,385) $ 89,839 $ 7,622 $ (81,677) At December 31, 2013 foreign currency position by country is summarized as follows: Thousands of US dollar Mexico Colombia Costa Rica US dollars: Monetary assets 45,511 12,779 6,843 Monetary liabilities (73,806) (3,462) (1,220) Position asset (liability), net (28,295) 9,317 5,623 Thousands of US dollar Ecuador Bolivia Perú US dollars: Monetary assets 5,077 4, Monetary liabilities (358) (987) (1,044) Position asset (liability), net 4,719 3,153 (929) At December 31, 2012 foreign currency position by country is summarized as follows: Thousands of US dollar Mexico Colombia Costa Rica US dollars: Monetary assets 56,676 25,924 19,322 Monetary liabilities (25,221) (4,648) (13,718) Position asset (liability), net 31,455 21,276 5,604 Thousands of US dollar Ecuador Bolivia Peru US dollars: Monetary assets 18,151 4, Monetary liabilities (5,977) (3,788) (2,266) Position asset (liability), net 12, (1,932) 54

57 Entity sensitivity to foreign currency has remained at a low level during the last periods mainly due to an active position has been maintained as noted in Note 25. f. Credit Risk Management Credit risk refers to the risk that one party fails to meet its contractual obligations resulting in financial loss to the Entity, and arises principally on accounts receivables and liquid funds. The credit risk on cash and cash equivalents and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by credit rating agencies. The maximum exposure to credit risk is represented by its carrying amount. The Entity provides credit primarily to customers in Mexico, after assessing their creditworthiness, which constantly evaluates and follows up accordingly to credit policies as explained in Note 7. Accounts receivable consist of a large number of customers spread across diverse geographical areas. Continuous assessment of credit is made on the financial condition of accounts receivable and there are no concentrations of credit risk in its customer base, since the balances of these accounts receivable are represented by approximately 3,310 customers in 2013 and in 2012, which do not represent a concentration of risk in the individual. The Entity has credit guarantees to cover its credit risk associated with financial assets. Such guarantees are represented by an insurance policy covering 90% of the portfolio of export customers and are effective from 1 June The estimated insurable turnover is $ 56,000,000 USD with a rate of 0.125% annual premium on various countries and an annual estimated premium of $ 70,000 USD and a minimum premium from $ 56,000 USD. 55

58 g. Liquidity Risk Management Ultimate responsibility for liquidity risk management rests with Board of Director of the Entity, which has established appropriate policies for the control of such risk through the monitoring of working capital, allowing management of the Entity s short-, medium-, and long-term funding requirements. The Entity maintains cash reserves and available lines of credit lines, continuously monitoring projected and actual cash flows, reconciling the profiles of maturity of financial assets and financial liabilities. The following table details the remaining contractual maturities of the Entity s financial liabilities, based on contractual repayment periods. The table has been designed based on un-discounted projected cash flows of financial liabilities based on the date on which the Entity makes payments. The table includes both projected cash flows related to interest and capital on financial debt in the consolidated statements of financial position. Where the contractual interest payments are based on variable rates, the amounts are derived from interest rate curves at the end of the period. The contractual maturity is based on earliest date in which the Entity is required to make the payment. The amounts included for debt with financial institutions includes both fixed and variable interest rate instruments as is detailed in Note 17. The financial liabilities at variable rates are subject to change if the changes in variable rates differ from the estimates of rates determined at the end of the reporting period is presented at fair value. The Entity expects to meet its obligations with cash flows from operations and resources received from the maturity of financial assets. In addition, the Entity has access to revolving credit lines with several banking institutions. Average weighted interest As of December 31, 2013 rate 3 months 6 months Debt with financial institutions % $ 43,565 $ 49,558 Stock Certificates % 44,178 50,471 Trade accounts payable 2,663,274 - Due to related parties 173,358 - Other long-term liabilities - - Total $ 2,924,375 $ 100,029 Average weighted interest As of December 31, 2013 rate 3 months 6 months Debt with financial institutions % $ 76,274 $ 89,750 Stock Certificates % 58,107 58,106 Trade accounts payable 2,330,471 - Due to related parties 205,918 - Other long-term liabilities - - Total $ 2,670,770 $ 147, Fair value of financial instruments The fair value of financial instruments presented below has been determined by the Entity using information available in the markets or other valuation techniques that use assumptions that are based on market conditions existing at each reporting date, but require judgment with respect to their development and interpretation. As a result, the estimated amounts presented below are not necessarily indicative of the amounts that the Entity could obtain in a current market exchange. The use of different assumptions and/or estimation methods could have a material effect on the estimated amounts of fair value. Following is a discussion of the hierarchy of fair values, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). At December 31, 2013, financial assets at fair value as follows: Level 1 Level 2 Level 3 Total Financial assets at fair value Hedging derivative financial instruments $ - $ (9,810) $ - $ (9,810) Total $ - $ (9,810) $ - $ (9,810) At December 31, 2012, financial assets at fair value are as follows: Level 1 Level 2 Level 3 Total Financial assets at fair value Hedging derivative financial instruments $ - $ (8,549) $ - $ (8,549) Total $ - $ (8,549) $ - $ (8,549) 56

59 More than 1 year 1 year Total $ 743,281 $ 3,160,384 $ 3,996, ,908 3,176,207 3,372, ,663,274-18, ,433-14,087 14,087 $ 845,189 $ 6,368,753 $ 10,238,346 More than 1 year 1 year Total $ 367,299 $ 3,892,074 $ 4,425, ,214 3,417,450 3,649, ,330,471-40, ,380-24,725 24,725 $ 483,513 $ 7,374,711 $ 10,676,850 57

60 The Entity considers that the carrying amount of cash and cash equivalents, accounts receivable and accounts payable from third parties and related parties and the current portion of bank loans approximate their fair values because they have short-term maturities. The Entity s long-term debt is recorded at amortized cost and incurs interest at fixed and variable rates that are related to market indicators. The long-term debt of the Entity is recorded at amortized cost and debt is interest at fixed and variable rates that are related to market indicators. To obtain and disclose the fair value of long-term debt, quoted market prices or quotations for similar instruments operators are used. To determine the fair value of financial instruments, other techniques such as estimated cash flows are used, considering the dates of flow in the market intertemporal curves and discounting these flows with rates that reflect the risk of the counterparty, as well as the risk of the Entity by itself for the reference period. The carrying amounts of financial instruments by category and their related fair values at each date are as follows: December 31, 2013 December 31, 2012 Carrying amount Fair value Carrying amount Fair value Financial assets: Cash and cash equivalents $ 1,972,934 $ 1,972,934 $ 1,761,935 $ 1,761,935 Instruments available for sale: Other investments in shares 11,118 11, , ,415 1,984,052 1,984,052 2,575,080 2,575,080 Loans and account receivable Accounts receivable $ 2,620,355 $ 2,620,355 $ 2,002,616 $ 2,002,616 Due from related parties 53,851 53,851 50,553 50,553 Accounts receivable long term , ,744 2,674,206 2,674,206 2,267,913 2,267,913 $ 4,658,258 $ 4,658,258 $ 4,842,993 $ 4,842,993 Debt with financial institutions Bank loans including current portion of long-term debt $ 3,377,715 $ 4,717,800 $ 3,382,396 $ 3,024,695 Stock Certificates 3,000,000 3,044,280 3,000,000 3,062,280 Hedged derivative financial instruments (asset) liability (9,810) (9,810) (8,549) (8,549) Suppliers discounted in factoring 1,198,073 1,198,073 1,301,000 1,301,000 7,565,978 8,950,343 7,674,847 7,379,426 Accounts payable: Due to related parties $ 191,433 $ 191,433 $ 246,380 $ 246,380 $ 7,757,411 $ 9,141,776 $ 7,921,227 $ 7,625,806 Fair values shown as of December 31, 2013 and 2012, are no different from their carrying values, except for the long-term debt, since the values observed in the market are very similar to those recorded in this period. The fair value of the receivables and liabilities at amortized cost are fair value hierarchy Level 3. During the period there were no transfers between Level 1, 2 and Derivative financial instruments The purpose of entering into contracts with derivative financial instruments is: to partially cover the financial risk exposures in the prices of some metals such as copper, zinc and nickel. The decision to cover a position is due to market conditions, waiting to be taken on it at a given date, as well as national and international economic context of economic indicators that influence the operations of the Entity. The contracted hedging instrument relating to copper are traded mainly in the Commercial Metal Exchange, and related to zinc and nickel are mainly quoted on the London Metal Exchange. Transactions performed with futures and hedging swaps are summarized below: Notional Instrument Designed as Amount ( 000) Unit Copper futures Hedging 1,678 Tons Zinc futures Hedging 283 Tons Nickel futures Hedging 31 Tons Total as of December 31, 2013 Notional Instrument Designed as Amount ( 000) Unit Copper futures Hedging 1,678 Tons Copper futures Hedging 23 Tons Zinc futures Hedging 283 Tons Nickel futures Hedging 31 Tons Total as of December 31,

61 Valuation as of December 31, 2013 Gain (loss) on Asset settlement Financial cost Maturity (Liability) Comprehensive income Cost of sales (income) Feb to Dec 2013 $ 9,188 $ 6,432 $ 32,480 $ (2,144) Jan to Dec ,132 (141) Jan to Feb (4) $ 9,810 $ 6,867 $ 34,679 $ (2,281) Valuation as of December 31, 2013 Gain (loss) on Asset settlement Financial cost Maturity (Liability) Comprehensive income Cost of sales (income) Feb to Dec 2013 $ 7,779 $ 5,445 $ (11,462) $ (2,447) Jan Jan to Dec (200) Jan to Feb ,783 (5) $ 8,549 $ 5,984 $ (9,440) $ (2,652) 59

62 12. Property, machinery and equipment - net a. For the period ended December 31, 2013 and 2012: Balance as of December 31, 2012 Revaluations Business Acquisitions Direct Additions Investment: Land $ 2,545,425 $ 161,786 $ 181,957 $ 31,178 Buildings and constructions 3,835, , ,216 58,157 Machinery and equipment 10,015,270 (260,701) 2,734, ,528 Vehicles 268,155 (126,565) 13,127 10,234 Office furniture 81,649-6,345 2,610 Computers 92,126-17,784 27,115 Constructions in process 3,703,332-17,199 1,508,502 Total investment 20,541,198 (123,073) 3,688,269 2,059,324 Accumulated depreciation: Buildings and constructions (2,001,879) (177,488) (205,208) (39,227) Machinery and equipment (6,537,692) 169,405 (1,344,609) (568,933) Vehicles (46,581) (22,319) (8,491) (6,432) Office furniture (56,906) - (3,361) (1,609) Computers (75,609) - (15,011) (16,031) Total accumulated depreciation (8,718,667) (30,402) (1,576,680) (632,232) Net investment $ 11,822,531 $ (153,475) $ 2,111,589 $ 1,427,092 Balance as of December 31, 2011 Revaluations Acquisitions Investment: Land $ 2,470,503 $ 129,814 $ 15,939 Buildings and constructions 3,986, ,269 32,236 Machinery and equipment 12,836,377 (82,448) 287,304 Vehicles 262, ,766 Office furniture 91,334-8,229 Computers 119,672-3,303 Constructions in process 2,191,852-1,754,798 Total investment 21,958, ,820 2,112,575 Accumulated depreciation: Buildings and constructions (2,104,660) (177,406) (60,791) Machinery and equipment (8,428,721) (127,700) (361,240) Vehicles (68,189) 19,458 (11,017) Office furniture (73,637) - (1,925) Computers (96,585) - (5,901) Total accumulated depreciation (10,771,792) (285,648) (440,874) Net investment $ 11,186,892 $ (12,828) $ 1,671,701 Depreciation recorded in results amounted to $632,232 and $440,874 as of December 31, 2013 and 2012, respectively and in inventories amounted to $40,021 and $22,044 in 2013 and 2012, respectively. Balance as of December 31, Increase to Reversal to Layout Accumulated losses by impairment 2011 impairment impairment assets Land Buildings and constructions $ 148,552 $ - $ - $ - Machinery and equipment 93,572 40, Vehicles Office furniture Computers Constructions in process 8, Development costs (Trituradora) Installation costs Total investment $ 251,938 $ 40,010 $ - $ - During 2013, the Entity did not identify evidence of impairment. At December 31, 2013 and 2012, the Entity and certain of its subsidiaries serve as credited, guarantors, sureties and / or guarantors in the credits shown in Notes 17 and 18, the subsidiaries are integrated as follows: December 31, 2013 December 31, 2012 Elementia Elementia Nacobre Nacobre Mexalit Industrial Mexalit Industrial Trituradora Comecop Frigocel Frigocel Duralit Duralit Lafarge Trituradora - Plycem and Subsidiaries 60

63 Transfers to Balance as of related assets Impairment Disposals Translation effect December 31, 2013 $ 80,975 $ - $ (592,008) $ (117,464) $ 2,291, ,916 - (540,326) (185,640) 4,723,971 3,090,301 - (25,593) 35,339 16,010,785 3,287 - (6,479) (4,775) 156,984 5,955 - (1,195) (28,566) 66,798 56,623 - (4,195) 9, ,370 (3,974,057) ,022 1,328, (1,169,796) (217,167) 24,778, , ,295 (1,614,248) ,799 (76,266) (8,327,296) - - 5,107 (10) (78,726) - - 1,153 18,874 (41,849) - - 3,570 (5,468) (108,549) , ,425 (10,170,668) $ - $ - $ (666,908) $ 67,258 $ 14,608,087 Transfers to Balance as of related assets Impairment Disposals Translation effect December 31, 2013 $ - $ - $ (63,834) $ (6,997) $ 2,545,425 8,271 - (406,510) (10,737) 3,835, ,008 (40,010) (3,306,217) 136,256 10,015,270 4,426 - (9,015) (441) 268, (17,464) (688) 81, (30,814) (63) 92,126 (196,971) - (38,120) (8,227) 3,703,332 - (40,010) (3,871,974) 109,103 20,541, ,684 8,294 (2,001,879) - - 2,348,826 31,143 (6,537,692) , (46,581) , (56,906) , (75,609) - - 2,739,280 40,367 (8,718,667) $ - $ (40,010) $ (1,132,694) $ 149,470 $ 11,822,531 Balance as of Balance as of December 31, Increase to Reversal to Layout December 31, 2012 impairment impairment assets 2013 $ 148,552 $ - $ - $ - $ 148, , , , , $ 291,948 $ - $ - $ - $ 291,948 61

64 The property, machinery and equipment relating to those entities have a carrying value of $ 12,486,115, and $ 10,404,136 at December 31, 2013 and 2012, respectively. The Entity is obligated to maintain these fixed assets insured and can sell up to $ 25 million a year, in the event that the Entity plan to sell or terminate a higher amount must request permission from the creditors. 13. Intangible assets and other assets - Net Intangible assets with a definite life and long-term prepaid expenses and others are comprised as follows: Years of amortization December 31, 2013 December 31, 2012 Indefinite-lived intangible: Goodwill (1) Indefinite $ 1,658,382 $ 507,507 Quarries (2) Indefinite 813,300 - Client Portfolio (3) Indefinite 179,252-2,650, ,507 Assets with definite lives: Exclusive distribution rights 2 years $ 164,517 $ 164,517 Trademarks and other rights (4) Various 80,438 79,125 Advertising agreement (5) 10 years 13,099 12,065 SAP implementation 5 years 352, ,630 Non-compete contract (Fibraforte) 10 years 46,986 46,986 Software licenses 2 years 79,092 51,856 Installation costs 5 years 39,096 31,308 Accumulated amortization (353,464) (269,948) 422, ,539 Long-term prepaid expenses fixed assets 81, ,815 Assets held for sale 8,021 9,625 Guarantee deposits 7, Others 3, , ,809 Net investment $ 3,174,174 $ 1,107,855 (1) Includes goodwill generated by the acquisition of Fibraforte, S.A., Trituradora y Procesadora de Metales Santa Anita, S.A. de C.V., Frigocel, S.A. de C.V., Frigocel Mexicana, S.A. de C.V., Nacional de Cobre, S.A. de C.V., and a joint venture with Lafarge en (2) Cement plants Tula and Vito located in the State of Hidalgo, acquired through the joint venture with Lafarge in (3) Customer relationships, acquired through the joint venture with Lafarge in (4) Includes the indefinite-lived trademark of Nacobre and Fibraforte, both arising from acquisitions, among others. (5) On February 27, 2012, one of the Entity subsidiaries signed a services contract and sponsorship advertising media with Club Pachuca to carry advertising and promotional activities, which consists in the placement of the logo and name of Cementos Fortaleza in the uniform of teams Tuzos del Pachuca and Leon. Club Pachuca is obliged to deliver to the Entity fortnightly reports that will include specific details of the promotional activities. The parties agree that the subsidiary will pay Pachuca as total consideration for carrying out promotional activities in the amount of $ 101,000 and that amount will be paid as follows: $ 11,000 on signing the contract and as of June 30, 2013 and until 30 June 2016 will be held partial payments. Exclusive distribution Trademarks and Advertising Cost rights other rights agreement Balances as of January 1, 2012 $ 164,517 $ 79,125 $ 12,065 Translation effect Additions Disposals Balances as of December 31, ,517 79,125 12,065 Others - (25) 880 Additions Business Additions - 1, Disposals Balances as of December 31, 2013 $ 164,517 $ 80,438 $ 13,099 Exclusive distribution Trademarks and Advertising Accumulated amortization: rights other rights agreement Balances as of January 1, 2012 $ (164,517) $ (14,299) $ - Amortization expenses Disposals Balances as of December 31, 2012 (164,517) (14,299) - Amortization expenses Balances as of December 31, 2013 $ (164,517) $ (14,299) $ - Amortization recorded in results amounted to $83,516 and $69,908 in 2013 and 2012, respectively. 62

65 SAP Non-compete Software Installation implementation contract licenses costs Total $ 296,630 $ 46,986 $ 51,856 $ 31,309 $ 682, ,630 46,986 51,856 31, ,488 (226) - (178) (24) , ,694 39,619-27,414 7,759 76, $ 352,665 $ 46,986 $ 79,092 $ 39,096 $ 775,893 SAP Non-compete Software Installation implementation contract licenses costs Total $ (60,514) $ (11,346) $ (8,811) $ (10,461) $ (269,948) (60,514) (11,346) (8,811) (10,461) (269,948) (64,361) (4,700) (10,535) (3,920) (83,516) $ (124,875) $ (16,046) $ (19,346) $ (14,381) $ (353,464) 63

66 14. Investment in shares of associated companies and other permanent investments a. At December 31, 2013 and 2012, the balance of investment in shares is comprised as follows: Ownership percentage Associated Activity Group Cuprum, S. A. P. I. de C. V. and Subsidiaries Manufacture and sale of aluminum products Shares held to maturity Activity Others investment in shares from entities in Various Various Various services Colombia and South America b. The recognition of the equity method over the associate was as follows: 2013 Stockholders Comprehensive Ownership Investment Equity in equity income percentage in shares income Group Cuprum, S. A. P. I. de C. V. and Subsidiaries (1) $ 2,520,000 $ 21, $ - $ 4,220 Others investment in shares from entities in Colombiaand South America Various Various Various 11,118 Total $ 11,118 $ 4,220 (1) As is mentioned in Note 2b, on December 10, 2013, the Company sold 100% of its shares of Grupo Cuprum, S.A.P.I. (Cuprum, associated entity), equivalent to 20% of the shares of such entity, to Tenedora de Empresas de Materiales de Construcción, S.A. de C.V. and Controladora GEK, S.A.P.I. de C.V., for the amount of $ 45 million U.S. dollars (equivalent to $ 582 million at that date), generating a loss of $ 218 million, which was recorded directly in stockholders equity of the Entity since it was a transaction performed among shareholders. The loss on the sale of shares was mainly due to the difference between the carrying amount of the investment and the selling price Stockholders Comprehensive Ownership Investment Equity in equity income percentage in shares income Group Cuprum, S. A. P. I. de C. V. and Subsidiaries (1) $ 2,520,000 $ 174, $ 801,118 $ 34,760 Others investment in shares from entities in Colombia and South America Various Various Various 12,297 - Total $ 813,415 $ 34,760 (1) Investment in shares includes a full fair value of approximately $308,

67 15. Financial factoring to vendors As from May 17, 2010, the Entity has entered into financial factoring to vendors with several banking institutions. The operation consists in buying documents to such vendors by the Entity, up to an amount of $ 3,287,000 and 650,000 USD. As of December 31, 2013, vendors have made use of this instrument in the amount of $ 1,269,000 and 32,000 USD, which the Entity includes within the suppliers line in the accompanying balance sheet. Integration by each bank as of December 31, 2013 is shown below: 2013 Banamex Santander HSBC (MXN) HSBC (USD) Total Total (Thousands of pesos) (Thousands of pesos) (Thousands of pesos) (Thousands of pesos) (Thousands of pesos) (USD) Threshold $ 1,087,000 $ 1,200,000 $ 1,000,000 $ 650,000 $ 3,287,000 $ 650,000 Balance used $ - $ 979,664 $ 183,374 $ 35,035 $ 1,163,038 $ 35,035 Balance available $ 1,087,000 $ 220,336 $ 816,626 $ 614,965 $ 2,123,962 $ 614,965 Integration by each bank as of December 31, 2012 is shown below: 2012 Banamex Santander HSBC (MXN) HSBC (USD) Total Total (Thousands of pesos) (Thousands of pesos) (Thousands of pesos) (Thousands of pesos) (Thousands of pesos) (USD) Threshold $ 1,087,000 $ 1,200,000 $ 1,000,000 $ 650,000 $ 3,287,000 $ 650,000 Balance used $ 1,010,000 $ 31,000 $ 228,000 $ 32,000 $ 1,269,000 $ 32,000 Balance available $ 77,000 $ 1,169,000 $ 772,000 $ 618,000 $ 2,018,000 $ 618, Provisions The provisions presented below represent charges incurred during 2013 and 2012, or contracted services attributable to the year, which is expected to be settled within a period not exceeding one year. Final amounts to be paid as well as the schedule of outflow of economic resources, involve uncertainty and could therefore change, which the Entity includes within the accrued expenses and taxes other than income taxes line in the accompanying balance sheet Beginning Ending balance Additions Applications Balance Administrative services $ 109,126 $ 1,087,865 $ (1,046,666) $ 150,325 Services 51, ,481 (528,845) 38,369 For supplies or consumables and energetic 19, ,763 (977,274) 40,982 Others 24,019 1,000,992 (833,872) 191,139 $ 204,371 $ 3,603,101 $ (3,386,657) $ 420, Beginning Ending balance Additions Applications Balance Administrative services $ 84,095 $ 631,331 $ (606,300) $ 109,126 Services 54, ,960 (736,574) 51,733 For supplies or consumables and energetic 1,854 17,905 (265) 19,493 Others 17,415 1,573,449 (1,566,845) 24,019 $ 157,711 $ 2,956,645 $ (2,909,984) $ 204,371 65

68 17. Long-term debt At the dates indicated, bank loans are comprised as is shown below: December 31, 2013 December 31, 2012 Stock Certificates (CEBUR for its acronym in Spanish) for Ps.3,000,000 bearing monthly interest rate at the Mexican Interbank Equilibrium Offered rate ( TIIE ) plus 2.75 basis points, with maturity on October 22, $ 3,000,000 $ 3,000,000 Banamex (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S. A. de C. V.) notes to the TIIE rate applicable to each interest period (monthly) plus 1.5 percentage points, payable the principal from June 2015 and the interest in monthly installments from April 2013 due in Elementia, S. A. de C. V. and Frigocel, S. A de C. V. subsidiary entities are involved in the mortgage as collateral. 406,034 - BBVA Bancomer (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S. A. de C. V.) notes to the TIIE rate applicable to each interest period (monthly) plus 1.5 percentage points, payable the principal from June 2015 and the interest in monthly installments from April 2013 due in Elementia, S. A. de C. V. and Frigocel, S. A de C. V. subsidiary entities are involved in the mortgage as collateral. 406,034 - Banco HSBC (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S. A. de C. V.) notes to the TIIE rate applicable to each interest period (monthly) plus 1.5 percentage points, payable the principal from June 2015 and the interest in monthly installments from April 2013 due Elementia, S. A. de C. V. and Frigocel, S. A de C. V. subsidiary entities involved in the mortgage as collateral. 406,034 - Banco Inbursa (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S. A. de C. V.) notes to the TIIE rate applicable to each interest period (monthly) plus 1.5 percentage points, payable the principal from June 2015 and the interest in monthly installments from April 2013 due Elementia, S. A. de C. V. and Frigocel, S. A de C. V. subsidiary entities involved in the mortgage as collateral. 406,034 - Banco Santander (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S. A. de C. V.) notes to the TIIE rate applicable to each interest period (monthly) plus 1.5 percentage points, payable the principal from June 2015 and the interest in monthly installments from April 2013 due Elementia, S. A. de C. V. and Frigocel, S. A de C. V. subsidiary entities involved in the mortgage as collateral. 406,034 - Banco HSBC (ELC Tenedora de Cementos, S.A.P.I. de C.V.) promissory notes to the TIIE rate applicable to each interest period (quarterly) plus 1.5 percentage points, due in Elementia, S. A., Ltd.., Trituradora y Procesadora de Materiales Santa Anita, SA DE CV and Lafarge Cementos, S. A. de C.V. involved in home equity as collateral. 650,000 - Promissory notes with HSBC Bank PLC HSBC Branch Spain (Trituradora y Procesadora de Materiales Santa Anita, S. A. de C. V.) denominated in USD bearing interest at the 6-month London Interbank Offered Rate ( LIBOR ) applicable to each interest period (6 months) plus 130 basis points, payable over a maximum period of 10 years from the date of commencement of the project. Elementia, S. A. de C. V. and subsidiaries provide certain guarantees as collateral. 761, ,307 Banco BX + (Elementia, S. A. DE C. V.). Current account credit by promissory notes to the TIIE rate applicable to each interest period (monthly) plus 1.5 percentage points, due in Mexalit Industrial, S. A. de C. V., participates in the mortgage as collateral. 90,000 - Simple credit issued by Industrias Duralit, S. A. (foreign subsidiary) with Banco Bisa amounting to $1.9 million maturing through 2014, bearing interest at a rate of 5.50% plus the average TRE (reference rate calculated by Banco Central of Bolivia), requiring quarterly payments. 3,281 10,489 Promissory notes with HSBC Bank (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S. A. de C. V.), bearing interest at the TIIE rate applicable to each interest period (three months) plus 1.5 basis points, with principal payable beginning in September 2013 and quarterly interest repayments beginning in September 2012, maturing in The Entity s subsidiaries Maxitile Industries, S. A de C. V. and Frigocel, S. A de C. V. subsidiary entities, which have provided mortgage guarantees as collateral. - 1,300,550 Promissory notes with BBVA Bancomer (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S. A. de C. V.) bearing interest at the TIIE rate applicable to each interest period (three months) plus 1.5 basis points, with principal payable beginning in September 2013 and quarterly interest repayments beginning in September 2012, maturing in The Entity s subsidiaries Maxitile Industries, S. A de C. V. and Frigocel, S. A de C. V., subsidiary entities, which have provided mortgage guarantees as collateral ,750 Promissory notes with Banamex (Nacional de Cobre, S. A. de C. V. and Mexalit Industrial, S.A. de C.V.) bearing interest at the TIIE rate applicable to each interest period (three months) plus 1.5 basis points, with principal payable beginning in September 2013 and quarterly interest repayments beginning in September 2012, maturing in The Entity s subsidiaries Maxitile Industries, S. A. de C. V. and Frigocel, S. A. de C. V. subsidiary entities, which have provided mortgage guarantees as collateral ,250 6,534,865 6,398,346 Less Notes payable to financial institutions and current portion of long-term debt (192,533) (456,267) Long-term debt 6,342,332 5,942,079 Less-placement expenses on short-term debt (157,150) (15,950) Long-term debt, excluding current maturities and placement expenses $ 6,185,182 $ 5,926,129 66

69 (1) At December 31, 2013 maturities of long-term debt are as follows: 2015 $ 3,460, , and thereafter 2,142,336 $ 6,342,332 Certain loan agreements contain restrictive covenants under which if the Entity is not compliant, the banks could demand payment. The most significant covenants relate to the payment of dividends, compliance with certain financial ratios, insuring of assets provided as guarantees, prohibition on the sale or disposition of assets, prohibition on acquiring any other contingent liabilities or contractual liabilities. At December 31, 2013 the Entity was in compliance with all covenants. On March 21, 2013, the Entity informed the public that settled in advance syndicated loans that had contracted with different banks in the amount of $ 2,593,050, which were replaced by a new loan under a scheme of Club Deal, with five different banks, better interest rates, better maturity profile and greater financial flexibility for an approximate amount of $ 3,730,170. On June 30, 2012, the Entity informed the public that it settled, in advance, syndicated loans it held with various banks totaling approximately $2,700,000, which were replaced by a new loan under a Club Deal scheme, which had improved interest rates, maturity profile and financial flexibility that would allow the Entity to reduce its interest expense by an estimated USD$11.4 million. Additionally, the early settlement helped the Entity resolve its non-compliance with respect to certain covenants that limited its financial leverage abilities and for which the Entity obtained a waiver dated March 15, Stock certificates The Entity issued on October 22, 2010 under a 5 year program, stock certificates in pesos, specifically unsecured interest rate discount ranging between % and %, maturing in 28 days revocable, up to an amount of $ 5,000,000. At December 31, 2013, the outstanding amount was $ 3,000,000 maturing on May 25, The bonds contain obligations to do and not do, and compliance with certain financial ratios, which have been met to date. 19. Income taxes ISR is based on taxable income, which differs from the profit reported in the statement of comprehensive (loss) income due to the items of income or expenses taxable or deductible in other years and items that are never taxable or deductible. The liability of the Parent Entity for the concept of current tax is calculated using tax rates enacted or substantially approved at the end of the reporting period for the respective countries applicable to the Entity and its subsidiaries. The Entity is subject to ISR and through December 31, 2013 to IETU. ISR -The rate was 30% in 2013 and 2012 and as a result of the new 2014 ISR law (2014Tax Law), the rate will continue at 30% in 2014 and thereafter. The Entity caused ISR until 2013 on a consolidated basis with its Mexican subsidiaries. Because the Income Tax Law in force was repealed until December 31, 2013, the tax consolidation regime was removed, therefore the Entity and its subsidiaries have the obligation to pay the deferred tax determined at that time over the next five years from 2014, as shown below. Pursuant to Transitory Article 9, section XV, subsection d) of the 2014 Law, given that as of December 31, 2013 the Entity was considered to be a holding company and was subject to the payment scheme contained in Article 4, Section VI of the transitory provisions of the ISR law published in the Federal Official Gazette on December 7, 2009, or article 70-A of the ISR law of 2013 which was repealed, it must continue to pay the tax that it deferred under the tax consolidation scheme in 2007 and previous years based on the aforementioned provisions, until such payment is concluded. IETU IETU was eliminated as of 2014; therefore, up to December 31, 2013, this tax was incurred both on revenues and deductions and certain tax credits based on cash flows from each year. The respective rate was 17.5%. The current income tax is the greater of ISR and IETU up to Until 2012, based on its financial projections, the Entity determined that it will basically pay ISR. Therefore, it only recognizes deferred ISR. From 2013, only deferred ISR is calculated due to IETU was repealed. a. Income taxes are as follows: December 31, 2013 December 31, 2012 Current ISR $ 844,669 $ 229,002 Current IETU - 4,931 Deferred ISR (667,226) (272,554) $ 177,443 $ (38,621) 67

70 b. The income tax rates in foreign companies were as follows: December 31, 2013 December 31, 2012 Costa Rica 30% 30% El Salvador 30% 30% Colombia 34% 33% Ecuador 23% 24% United States of America 35% 35% Bolivia 25% 25% Perú 30% 30% c. Deferred income taxes and benefit in tax consolidation are as follows: December 31, 2013 December 31, 2012 Deferred income tax $ 1,079,537 $ 1,490,324 d. The reconciliation of the statutory and effective tax rate on amounts expressed as a percentage of income before income taxes is as follows: 2013 % 2012 % Income before income taxes $ 729, $ 777,936 (5) More (less) effect of permanent differences: Non-deductible expenses 88, ,963 4 Non-taxable income (26,260) (18) - - Effects of inflation Net 127, ,254 7 Equity in income of associated Entity (4,220) - (34,760) (1) Income in sale shares subsidiaries -Net - - (1,292,367) (50) IETU effect - - 4,931 - Tax effect due to tax rate changes ,201 1 Others (48,053) (2) 102,106 4 Total of permanent differences (137,604) (6) (906,672) (35) Income (loss) basis of income taxes $ 591, $ (128,736) 30 e. The main items that give rise to a deferred ISR liability are: Recognized Other comprehensive in income income December 31, 2013 Deferred ISR asset: Effect of tax loss carryforwards $ 941,267 $ - $ 941,267 Allowance for doubtful accounts 58,033-58,033 Provisions 160, ,449 Advances from customers 47,358-47,358 Tax advances 60,258-60,258 PTU liability 3,409-3,409 Allowance for obsolete inventories 35,204-35,204 Other assets 1,438-1,438 Deferred ISR asset 1,307,416-1,307,416 Deferred ISR (liability): Property, machinery and equipment, net (2,066,070) 84,962 (1,981,108) Inventories, net (54,635) - (54,635) Employee benefits (95,608) (38,788) (134,396) Derivative financial instruments - (2,943) (2,943) Prepaid expenses (27,115) - (27,115) Intangibles and other assets (165,994) - (165,994) Others (20,762) - (20,762) (2,430,184) 43,231 (2,386,953) Net deferred ISR liability $ (1,122,768) $ 43,231 $ (1,079,537) 68

71 Recognized Other comprehensive in income income December 31, 2012 Deferred ISR asset: Effect of tax loss carryforwards $ 140,058 $ - $ 140,058 Recoverable IMPAC Allowance for doubtful accounts 52,562-52,562 Provisions 1,170-1,170 Advances from customers 11,440-11,440 PTU liability (459) - (459) Allowance for obsolete inventories 31,577-31,577 Intangible assets 40,864-40,864 Other assets 8,504-8,504 Deferred ISR asset 285, ,716 Deferred ISR (liability) Property, machinery and equipment (1,200,635) (112,433) (1,313,068) Inventories (81,495) - (81,495) Employee benefits (229,952) 61,242 (168,710) Excess of the book value of the subsidiaries (141,873) - (141,873) Derivative financial instruments - (2,565) (2,565) Prepaid expenses (61,084) - (61,084) Others (7,245) - (7,245) (1,722,284) (53,756) (1,776,040) Net deferred ISR liability $ (1,436,568) $ (53,756) $ (1,490,324) f. Tax consolidation The balances of deferred tax liabilities are as follows: December 31, 2013 December 31, 2012 Liabilities from consolidated tax loss $ 683,793 $ 22,587 Less - Deferred tax liabilities short-term fiscal (170,948) (5,057) Deferred tax liabilities long-term fiscal $ 512,845 $ 17,530 g. The benefits from tax loss carryforwards and for those who already partially recognized deferred tax liabilities and prepaid ISR, respectively, can be recovered subject to certain conditions. The maturity date of the tax losses of the individual entities, and restated amounts to December 31, 2013 are: Year of maturity Tax loss carryforwards 2014 $ 42, , , and thereafter 2,241,439 Total (1) $ 2,294,401 Liabilities from consolidated tax loss $ 693,472 Less historical partial payments (9,679) Liabilities payable from consolidated tax loss $ 683,793 (1) Excludes benefits of restated tax loss carryforwards for those nonconsolidated subsidiaries by the amount of approximately $252,

72 20. Retirement employee benefits a. Defined contribution plans In the Mexican subsidiaries payments on integrated workers plan defined contribution system of retirement savings statutory salary. In certain subsidiaries of the Entity benefit plans to defined contribution retirement for all employees who qualify are handled. The assets of the plans are held separately from the assets of the Entity in funds under the control of trustees. If the employee leaves the plan before fully acquiring contributions, the amount payable by the Entity will be reduced by the amount of lost contributions. The defined benefit plans contributions are paid monthly. b. Defined benefit plans In certain subsidiaries of the Entity there are funded defined benefit plans for qualifying employees of its subsidiaries. The defined benefit plans are administered by a legally separate fund of the Institution. There board of the pension fund that is responsible for investment policy in relation to the assets of the fund. In the Mexican subsidiaries of the Entity a plan that also covers seniority premiums, which consist of a lump sum payment of 12 days per year worked based on final salary, not to exceed twice the minimum wage established by law is handled. The related liability and annual cost of benefits is calculated by an independent actuary on the basis of formulas defined in the plans using the method of projected unit credit. The Entity manages defined benefit plans for eligible employees in its Mexican subsidiaries. Under these plans, employees are entitled to retirement benefits at the end to meet the normal retirement age of 65 years; with 10 or more years of service. There is also the option of early retirement when the sum of worked years, plus the workers age, equals 55 years; with 10 years or more of service. Other postretirement benefits are not granted The plans typically expose the Entity to actuarial risks such as: Investment risk, interest rate, longevity and salary. Investment risk The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the return on plan asset is below this rate, it will create a plan deficit. Currently the plan has a relatively balanced investment in equity securities, debt instruments and real estates. Due to the long-term nature of the plan liabilities, the board of the pension fund considers it appropriate that a reasonable portion of the plan assets should be invested in equity securities and in real estate to leverage the return generated by the fund. Interest risk A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan s debt investments. Longevity risk The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan s liability. Salary risk The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan s liability. The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as of December 31, 2013, by independent actuaries. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method. The principal assumptions used for the purposes of the actuarial valuations were as follows: % % Discount of the projected benefit obligation at present value Salary increase Expected yield on plan assets In the Colombian entities, the liability corresponds mainly to the legal obligations those entities have with their personnel which are adjusted at year end in accordance with the legal requirements of each country and the labour obligations in effect. In accordance with the local law of the countries where the Entity operates, necessary provisions have been recorded for the corresponding amounts taking into consideration the related obligations. Net cost for the period includes the following items: Service (income) cost $ (25,586) $ 14,721 Interest cost 30,829 32,542 Expected yield on plan assets (51,673) (57,656) Net cost (income) for the period $ (46,430) $ (10,393) 70

73 The current service cost and the net interest expense for the year are included in the employee benefits expense in profit or loss, has been included in profit or loss as cost of sales and the remainder has been included in administration expenses. The remeasurement of the net defined benefit liability is included in other comprehensive income. The amount included in the consolidated statement of financial position arising from the entity s obligation in respect of its defined benefit plans is as follows: Defined benefit obligation $ (408,038) $ (510,815) Plan assets at fair value 697, ,883 Projected net asset $ 289,261 $ 239,068 Changes in the present value of the defined benefit obligation: Present value of defined benefit obligation at beginning of period $ 510,815 $ 452,505 Service cost (25,586) 14,721 Interest cost 30,829 32,542 Benefits paid (46,571) (60,163) Acquisition / disposal or demerger of business (5,000) (22,818) Actuarial losses (56,449) 94,028 Present value of defined benefit obligation at end of period $ 408,038 $ 510,815 Changes in the present value of plan assets in the current period: Opening fair value of plan assets $ 749,883 $ 771,879 Expected return on plan assets 51,673 57,656 Actuarial losses (73,973) (18,508) Sale of business - (15,097) Benefits paid (30,284) (46,047) Closing fair value of plan assets $ 697,299 $ 749,883 Major categories of assets plan, and the expected rate of return at the end of the reporting period is reported for each category: Expected return Fair value of plan assets % % Equity instruments $ 226,496 $ 261,393 Debt instruments , ,490 Weighted average expected $ 697,299 $ 749,883 The overall expected rate of return is a weighted average of the expected returns of the various categories of plan assets. The evaluation of the directors on the expected returns based on historical return trends and analysts predictions on the market for assets over the life of the related obligation. The current yield on plan assets amounted to $51,673 and $57,656 at December 31, 2013and 2012, respectively. The Entity has not quantified the amount of contributions that it will make to defined benefit plans during Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. If the discount rate is 1% higher, the defined benefit obligation would decrease by $22,780. If the discount rate is 1% decreases, the defined benefit obligation would increase by $26,272. The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years. Employee benefits granted to key management personnel (and / or directors of the Entity) were as follows: Postretirement benefits $ 41,696 $ 68,035 Termination benefits Short and long term benefits $ 42,086 $ 68,740 71

74 21. Stockholders equity a. Common stock at par value (historical pesos) as of December 31, 2013 and 2012 is as follows: Number of shares Amount Serie A 4,855,533 4,855,533 $ 269,853 $ 269,853 Serie A sub-series L 10,917,191 10,917, , ,736 Serie B 4,136,221 4,136, , ,875 Serie B y sub-series L 9,299,865 9,299, , ,851 Total capital stock (historical pesos) 29,208,810 29,208,810 1,623,315 1,623,315 Effects of restatement for inflation through , ,590 Total 29,208,810 29,208,810 $ 2,012,905 $ 2,012,905 b. At the General Meeting of Shareholders on December 20, 2012, it was decided to carry out a capital increase variable $ 582,545, by issuing 1,788,300 common shares, nominative, without par value Class II, representing the variable portion capital of the Entity at a subscription price of $ pesos each. The subscribed capital not exhibited as of December 31, 2012 for $5,825, was paid on January 17, c. At the General Meeting of Shareholders on July 13, 2012, it was decided to carry out a capital increase variable 582,545, by issuing 1,788,300 common shares, nominative, without par value Class II, representing the variable portion capital of the Entity at a subscription price of $ pesos each. d. Retained earnings include the statutory legal reserve. The General Corporate Law requires that at least 5% of net income of the year be transferred to the legal reserve until the reserve equals 20% of capital stock at par value (historical pesos). The legal reserve may be capitalized but may not be distributed unless the entity is dissolved. The legal reserve must be replenished if it is reduced for any reason. As of December 31, 2013 and 2012, the legal reserve, in historical pesos, was $4,401. e. Stockholders equity, except for restated paid-in capital and tax retained earnings will be subject to ISR payable by the Entity at the rate in effect upon distribution. Any tax paid on such distribution may be credited against annual and estimated ISR of the year in which the tax on dividends is paid and the following two fiscal years. f. The balances of the stockholders equity tax accounts as of are: December 31, 2013 December 31, 2012 Contributed capital account $ 7,642,879 $ 7,350,815 Net tax income account 5,594,044 3,048,677 $ 13,236,923 $ 10,399, Business combinations a. Joint venture Lafarge Cementos, S.A. de C.V. (Lafarge) Proportion of Transferred Principal activity Date of acquisitión ownership (%) compensation Manufacture and distribution of fibercement construction products July 31, $ 3,409,000 $ 3,409,000 The Entity made this business to continue its expansion activities and move into the segment of Cement. b. Transferred consideration (at fair value at acquisition date) Lafarge Transfer of properties and equipment $ 2,111,589 Transfer of quarries 813,300 Working capital 304,859 Customer relationships 179,252 Total $ 3,409,000 72

75 c. Acquired assets and assumed liabilities at acquisition date Lafarge Current assets Cash and cash equivalents $ 260,025 Accounts receivable Net 62,387 Inventories Net 78,930 Prepaid expenses 5,631 Financial instruments 1,227 Long-lived assets Mining fund Net 35,008 properties and equipment Net 1,663,220 Guarantee deposits 446 Other assets 1,316 Current liabilities Trade accounts payable (113,052) Accrued expenses and others accounts payable (51,549) Due to related Elementia, S.A. (850,000) Long-term liabilities Deferred income taxes (218,621) Direct employee benefits (19,134) $ 855,834 d. Goodwill determined on acquisition Lafarge Transferred consideration $ 3,409,000 Add: Noncontrolling interest 855,834 Less: Fair value of net assets acquired (3,113,959) Goodwill determined on acquisition $ 1,150,875 e. Net cash flows over the acquisition of joint venture Lafarge Transferred consideration paid in cash $ - Less: Balances of cash and cash equivalents acquired 260,025 $ (260,025) f. Effect of the acquisitions in the Entity s results The result for the year ended December 31, 2013 includes a net profit of $ 43,151 attributable to the additional business generated by Lafarge. Revenues for the period corresponding to the year ended December 31, 2013, include $ 319,488 related with Lafarge. 23. Other expenses and income Net The balances of other income are as follows: Sale of property, machinery and equipment $ (215,092) $ (117,697) Recovery of IMPAC (26,260) - Debt forgiveness - (22,216) Impairment of long-lived assets - 40,010 Others, mainly balances depuration (59,995) 78,849 $ (301,347) $ (210,054) 73

76 24. Transactions and balances with related parties a. Transactions with related parties, carried out in the ordinary course of business, were as follows: December 31, 2013 December 31, 2012 Income: Sales $ 6,668 $ 15,866 Sales of shares 582,818 - Sale of fixed assets 156,533 37,562 Interests received Leasing 1, IMPAC 74,351 - Contractual penalties 18,664 - Services 80 5,312 $ 840,604 $ 59,618 Expenses: Technical assistance $ 130,267 $ 162,802 Purchase of materials 60,594 3,422 Freight 79 - Interests paid 54 25,322 SAP implementation 22,991 21,519 Leasing 6,333 - Administrative services 7,763 - Purchase of fixed assets - 37,867 Plant construction 79,941 27,573 Insurances 8,592 8,537 Paid services 37,714 7,121 $ 354,327 $ 294,163 Related parties are comprised of Kaluz, S.A. de C.V., Fundación Kaluz, A.C., Inmobiliaria Patriotismo, S.A., Grupo Carso, S.A.B. de C.V., Mexichem Servicios Administrativos, S.A. de C.V., Logtec, S.A. de C.V., Servicios Condumex, S.A. de C.V., Cobre de México, S.A. de C.V., Pochteca Materias Primas, S.A. de C.V, Precitubo, S.A. de C.V., PAM PAM, S.A. de C.V., Mexichem Soluciones Integrales, S.A. de C.V., Nacional de Conductores Eléctricos, S.A. de C.V., Mexichem Compuestos, S.A. de C.V., Mexichem Colombia, S.A.S, Mexichem Honduras, S.A., Mexichem Guatemala, S.A., Mexichem El Salvador, S.A., Mexichem Panamá, S.A., Mexichem Costa Rica, S.A., and Grupo Financiero Inbursa, S.A. de C.V. As of December and 2012, the Entity performed financial factoring transactions with Banco Ve por Más, S.A. and Casa de Bolsa Arka, S.A. Such transactions were carried out based on existing market conditions. b. Balances with related parties are as follows: December 31, 2013 December 31, 2012 Due from related parties: Inmuebles General, S.A. de C.V. $ 40,000 $ - Others $ 40,944 $ - Long-term accounts receivable Long-term accounts receivable represent amounts owed from Grupo Carso, S.A.B. de C.V. for $53,851 and $50,553, at December 31, 2013 and 2012, respectively, which correspond to asset tax that Productos Nacobre, S. A. de C. V., Grupo Aluminio, S. A. de C. V. and Almexa Aluminio, S. A. de C. V. paid to Grupo Carso for the majority participation in tax consolidation through 2009, same as to stop consolidating, have the right to recover in the future, when the minority tax asset is recovered. 74

77 December 31, 2013 December 31, 2012 Due to related parties: Kaluz, S.A. de C.V. $ 6,926 $ 6,543 Fundación Kaluz, A.C. - 1,000 Inmobiliaria Patriotismo, S.A Grupo Carso, S.A.B. de C.V.(2) 125, ,266 Cobre de Mexico, S.A. de C.V Radiomovil Dipsa, S.A. de C.V. - 5,034 PAM PAM, S.A. de C.V Conductores Mexicanos Eléctricos y de Telecomunicación, S.A. de C.V. - 9,083 Precitubo, S.A. de C.V. - 7,730 Pochteca Materias Primas, S.A. de C.V Conticon, S.A. de C.V Telgua, El salvador, Honduras y Nicaragua Nacional de Conductores Eléctricos, S.A. de C.V Mexichem Soluciones Integrales, S.A. de C.V Mexichem Compuestos, S.A. de C.V Mexichem Colombia, S.A.S Mexichem Servicios Administrativos, S.A. de C.V. (1) 20,598 19,895 Mexichem Honduras, S.A Mexichem Costa Rica, S.A Mexichem, S.A.B. de C.V. 1,455 1,392 Cordaflex, S.A. de C.V. 2,580 - Logtec, S.A. de C.V Others Kaluz 13,901 2,214 Total short-term $ 173,358 $ 205,918 December 31, 2013 December 31, 2012 Accounts payable-long term - Mexichem Servicios Administrativos, S.A. de C.V. (1) $ 18,075 $ 40,462 Total long-term $ 18,075 $ 40,462 (1) The account payable to Mexichem Servicios Administrativos, S.A. de C.V. corresponds to the use of SAP licenses indefinitely which fully billed in February 2013 and will be paid over a period of five years in quarterly maturities. (2) The account payable to Grupo Carso, S.A.B. de C.V. asset tax includes $120,129 and $145,687 at December 31, 2013 and December 31, 2012, respectively. 25. Foreign currency balances and transactions a. Foreign currency monetary position is as follows: Thousands of U.S. dollars December 31, 2013 December 31, 2012 U.S. dollar: Monetary assets 74, ,672 Monetary liabilities (80,877) (55,619) Net monetary (liability) asset position (6,412) 69,053 Equivalent in Mexican pesos $ (83,847) $ 898,399 b. Transactions denominated in foreign currency were as follows: Thousands of U.S. dollars December 31, 2013 December 31, 2012 Sales 42,230 21,348 Purchases 34,256 39,633 Industrial machinery and equipment 34, Interest Services 7,613 2,058 Spare parts SAP amortization 2, Technical assistance Withholding assumed Air services 1,

78 Thousands of Euros December 31, 2013 December 31, 2012 Industrial machinery and equipment 2,406 15,150 Purchases 5,151 - Sales 2,930 - c. Mexican peso exchange rates in effect at the dates of the consolidated statement of financial position and at the date of issuance of these consolidated financial statements were as follows: December 31, December 31, April 21, Mexican pesos per one U.S. dollar $ $ $ Main operating cost and expenses 2013 Concept Cost of sales Operating expenses Wages and salaries $ 816,971 $ - Raw materials 7,792,030 - Other expenses output 271,939 - Repair and maintenance 355,350 - Selling and administrative salaries - 559,385 Others - 678,102 Leasing - 33,595 Taxes and rigths - 29,343 PTU liability - 21,982 Advertising - 76,644 Insurances 27,870 50,946 External services 148, ,451 Depreciation and amortization 495, ,340 $ 9,908,158 $ 2,124, Concept Cost of sales Operating expenses Wages and salaries $ 773,949 $ - Raw materials 8,193,423 - Other expenses output 260,864 - Repair and maintenance 352,625 - Selling and administrative salaries - 467,261 Others - 729,259 Leasing - 39,187 Tax and rigths - 45,793 PTU liability - 63,079 Advertising - 8,430 Safe 27,076 31,349 External services 250, ,322 Depreciation and amortization 414,728 96,054 Total $ 10,273,432 $ 1,887, Discontinued operations The Entity decided to discontinue certain operations as it determined that they are not viable operations given the Entity s new business prospects. The operations of the following legal entities, engaged in manufacturing and marketing concrete pipe within the Fibre-Cement segment were discontinued:: Compañía Mexicana de Concreto Pretensado Comecop, S.A. de C.V., and Gypsopanel Industries, S.A. de C.V., Additionally, the Entity decided to discontinue the operations of Nacional de Cobre, S.A. de C.V. plant located in the state of México (Toluca). As mentioned in Note 3, on March 24, 2012, the Entity sold 100% of the shares of Almexa Aluminio, S. A. de C. V. with Grupo Vasconia, (Vasconia) this transaction was completed on April 24, 2012 when approved by de stockholders assembly of Vasconia. Due to the above income statements are presented net of the loss generated by the sale under the heading of discontinued operations. 76

79 Combined condensed financial information for the aforementioned discontinued operations is as follows: December 31, 2013 December 31, 2012 Statements of comprehensive income: Net sales $ 115,974 $ 233,921 Cost of sales (100,464) (228,993) Operating expenses (48,213) (27,893) Other expenses Net (28,893) (552) Comprehensive financing cost Net (3,077) (12,661) Income taxes 4,539 (6,873) Loss on discontinued operations (60,134) (43,051) Loss on sale of shares - (456,496) Loss from other discontinued operations - (1,605) Loss from discontinued operations Net $ (60,134) $ (501,152) 28. Contingencies and commitments a. As of December 31, 2013 and 2012, one of the subsidiaries of the Company is part of a preliminary anti-dumping investigation initiated by the government of the United States, against Mexico and China, to determine if there is reasonable doubt that the copper tubing industry in this country has been materially injured by reason of the imports by Mexico and China. On November 15, 2010 the government of the United States sued in the first instance a tariff of 27.16%. Subsequently, in June 2013 the U.S. government decided to apply a rate of 0%, however this decision was challenged by the plaintiffs producers in that country. The Entity is currently at the rate of 0% under non-existent to date, an opinion of the applicant s appeal. The Entity is currently in the process of reviewing the period November 2012 to October b. On December 17, 2013, one of the subsidiaries of the Entity (Seller), signed a promise of sale of a property with Inmuebles de General, S.A. de C.V. (Buyer) where forced to hold at most by January 31, 2014 a definitive purchase agreement of the property, the agreed price is $240,000 plus value added tax corresponding to the constructions. The Buyer gave an advance of $200,000, of which the amount of $166,000 corresponding to the ratio of the price of land and $34,000 correspond to the proportion of the price of the buildings, generating a Value Added Tax (VAT) on the advance of the price constructs to $5,440, the Seller delivering the invoice duly filled in terms of law. c. On November 8, 2013, one of the subsidiaries of the Entity through a tender signed a contract for the purchase and distribution of packages ( 130 thousand ) of meters of usable area of fiber cement sheet, for fixed roof, by the Secretariat of Social Development (Ministry of Federal Government ) (the Secretariat). This project represents gross revenues amount to approximately $ 483,243 plus Value Added Tax. The model for sale is made under a scheme of free on board and delivered according to the needs of the Secretariat, which will be controlled by the unit Microrregiones. Entity has reserved the right to change prices for the project and will be considered fixed until the contractual relationship is finalized, any extra cost cannot be added and prices must be unchanged, there is an obligation to pay a deposit of 10 % name of the Federal treasury to release this bond shall be required by written by the Secretariat. In case that the Entity presents a delay in fulfilling any of its obligations agreed, The Secretariat may apply a penalty equivalent to 0.5% per each calendar day of delay, on the amount of goods or services delivered. This contractual penalty does not rule out that The Secretariat appropriate to the rescission of the contract, considering the severity of the delay and the damage it could cause to the same interests Secretariat. The penalty will aim to compensate the damages caused to the unit Microrregiones. d. On August 1, 2013, one of the subsidiaries of the Entity signed a contract for the provision of commercial mediation for fiber cement sheet with Administradora Central de Materiales, S. de R.L de C.V., expenditure for this concept in 2013 amounted to approximately $ 88,833. e. On March 22, 2012, one of the Entity subsidiaries signed a contract of sale with reservation of title and ad corpus of a building, with San Martin Tulpetlac, S. A. de C.V. (San Martin), where the subsidiary reserved the ownership of the property while the price stated in the contract is not paid. In this sense, the price shall be paid by San Martin within 12 months from the date on which the subsidiary conducted the regularization of property. The agreed purchase price in the amount of $ 15,000 thousand of USD equivalent, at the date of the contract, to $ and $ of Land and Building plus VAT, respectively. In this sense, the price was paid by San Martín within the 12 following months after the date that such subsidiary regularized the Property.. f. On February 27, 2012, one of the Entity subsidiaries signed a services contract and sponsorship advertising media with Club Pachuca to carry advertising and promotional activities, which consists in the placement of the logo and name of Cementos Fortaleza in the uniform of teams Pachuca and Leon. Club Pachuca is obliged to deliver to the Entity fortnightly reports that will include specific details of the promotional activities. The parties agree that the subsidiary will pay Pachuca as total consideration for carrying out promotional activities in the amount of $ 101,000 and that amount will be paid as follows: $ 11,000 on signing the contract and as of June 30, 2013 and until 30 June 2016 will be held partial payments. g. On February 27, 2012, one of the Entity subsidiaries signed a services contract with Mexichem Servicios Administrativos, S. A. de C.V. (related party), in which the latter undertakes among other things the implementation of SAP system including licensing, use of infrastructure and other software and generally any other kind of technology services subsidiary information required for the operation thereof. h. The Entity is involved in various trials and claims arising in the normal course of its operations, which are not expected to have a material effect on its financial condition and future operating results. i. According to the Income Tax Law, companies carrying out transactions with related parties are subject to certain limitations and requirements in terms of the determination of prices, since they must be equivalent to the ones used with or between independent parties in comparable transactions. 77

80 29. Business segment information Segment information is presented according to the productive sectors, which are grouped according to the vertical integration of raw materials. Based on this segmentation, operating decisions are made for the purpose of allocating resources and assessing performance of each segment. The following are the segments of the Entity Construsystems, Metals, Plastic and Cement. Construsystems sector includes the production of Fibrocement, Plastics sector includes the production of plastic; the Metals segment includes the production of copper and aluminum; and the Cement segment includes mining, milling and calcination of nonmetallic minerals for the production of clinker. The products of the four segments are mainly used in the construction industry. Below is a summary of the most significant line items in each segment included in the consolidated financial statements: December 31, Building Systems Plastics Metals Net sales $ 4,262,389 $ 743,250 $ 6,918,911 Cost of sales (2,510,311) (566,160) (6,227,411) Operating expenses (1,185,321) (78,952) (507,934) 566,757 98, ,566 Other (expenses) income Net 153, ,275 Comprehensive financing result Net (75,736) 4,681 (334,955) Equity in income (loss) of associated entity 799, Income (loss) before income taxes 1,443, ,893 3,114 Income taxes (140,830) (19,235) 46,194 Loss on discontinued operations (33,396) - (26,738) Consolidated net (loss) income 1,268,918 83,658 16,342 Current assets 13,602, ,477 6,414,718 Property, machinery and equipment Net 3,488, ,756 4,548,497 Investment in shares of associated entity 12,208,096 4,427 60,110 Employee benefits asset (188,504) - 482,934 Goodwill and intangibles and other assets - Net 684, , ,805 Long-term due from related parties 53, Total assets 29,848,788 1,253,428 11,898,064 Total liabilities $ 15,512,956 $ 553,358 $ 6,747,006 December 31, Building Systems Plastics Metals Net sales $ 4,931,457 $ 797,113 $ 8,084,637 Cost of sales (2,674,698) (565,107) (7,065,556) Operating expenses (1,395,307) (128,612) (670,643) 861, , ,438 Other (expenses) income Net (50,420) ,936 Comprehensive financing result Net (27,281) 3,895 (571,067) Equity in income (loss) of associated entity 483,739 3,372 - Income (loss) before income taxes 1,267, ,539 (147,693) Income taxes 79,673 (26,584) 5,900 Loss on discontinued operations (494,294) - (2,944) Consolidated net income (loss) 852,869 84,955 (144,737) Current assets 8,865, ,236 6,220,196 Property, machinery and equipment Net 3,474, ,506 5,047,260 Investment in shares of associated entity 9,582,250 9,230 60,001 Employee benefits asset (185,155) (2,550) 429,208 Intangibles and other assets - Net 558, , ,139 Long-term due from related parties 50, Accounts receivable, long-term ,774 Total liabilities 22,345, ,716 12,287,578 Total liabilities $ 8,249,839 $ 242,952 $ 6,967,390 78

81 2013 Cement Eliminations Total $ 1,045,812 $ (40,908) $ 12,929,454 (594,536) (9,740) (9,908,158) (350,235) 2,346 (2,124,788) 101,041 (52,994) 896,508 - (6) 301,347 (66,985) - (472,995) 50 (794,949) 4,220 34,106 (847,949) 729,080 (63,572) - (177,443) - - (60,134) (29,466) (847,949) 491, ,543 (13,262,077) 8,087,426 6,221,895 (165,449) 14,608,087 - (12,261,515) 11,118 (5,169) - 289,261 2,181,559 (210,150) 3,174, ,851 9,122,828 (25,899,191) 26,223,917 $ 2,393,958 $ (13,419,227) $ 11,788, Cement Eliminations Total $ 8,176 $ (315,491) $ 13,505,892 (1,665) 33,594 (10,273,432) (8,663) 315,491 (1,887,734) (2,152) 33,594 1,344,726 (501) (3,839) 21,054 (30,320) 2,169 (622,604) (53,531) (398,820) 34,760 (86,504) (366,896) 777,936 (20,368) - 38,621 - (3,914) (501,152) (106,872) (370,810) 315, ,595 (8,043,173) 7,760,176 3,206,586 (62,472) 11,822,531 (6,441) (8,831,625) 813,415 (2,435) - 239, ,234 (15,950) 1,107, , ,774 3,629,539 (16,953,220) 22,008,372 $ 3,647,114 $ (8,087,840) $ 11,019,455 79

82 30. New accounting pronouncements The Issuer Board of International Accounting Standards Board (IASB, for its acronym in English) has promulgated a series of new International Financial Reporting Standards (IFRS) and amendments to International Accounting Standards (IAS), which were issued but not yet implemented at the date of these consolidated financial statements: - IFRS 9 Financial Instruments. Effective for annual periods beginning on or after January 1, IFRS 10 Consolidated Financial Statements. Effective for annual periods beginning on or after January 1, IFRS 11 Joint Arrangements. Effective for annual periods beginning on or after January 1, IFRS 12 Disclosure of Interests in Other Entities. Effective for annual periods beginning on or after January 1, IFRS 13 Fair Value Measurement. Effective for annual periods beginning on or after January 1, IAS 27 (revised in 2011), Separate Financial Statements. Effective for annual periods beginning on or after January 1, IAS 28 (revised in 2011), Investments in Associates. Effective for annual periods beginning on or after January 1, The Entity expects that these standards are adopted in the consolidated financial statements of Entity for the financial year starting on 1 January 2013, and the application of these standards will have no material impact on the amounts reported in the consolidated financial statements. 31. Subsequent events On January 31, 2014, the Entity acquired the cement business of CertainTeed Corporation, one of the leading manufacturers of building materials in North America. With this acquisition, the Entity will strengthen its presence in the United States to integrate its three production operations which reinforced their coverage and growth in this country. 32. Financial statement issuance authorization On April 21, 2014, the issuance of the accompanying consolidated financial statements was authorized by C.P. Victor Hugo Ibarra Alcázar, Corporate Controller and Administrative Director; consequently, they do not reflect events which occurred after that date. These consolidated financial statements are subject to the approval of the Entity s ordinary shareholders meeting, where they may be modified, based on provisions set forth in the Mexican General Corporate Law. 80

83 CONTACT INFORMATION HEADQUARTERS Poniente 134 # 719, Colonia Industrial Vallejo México, D.F. INDEPENDENT AUDITOR Galaz. Yamazaki, Ruiz Urquiza, S.C. member of Deloitte Touche Tohmatzu INVESTOR RELATIONS Juan Francisco Sánchez Kramer Investor Relations Director Phone: 52 (55) Fax: 52 (55) jsanchezk@kaluz.com FPO This document contains certain statements related to the general information about Elementia, S.A. de C.V., (Elementia) regarding its activities to date. This document includes a summary of the information regarding Elementia and is not intended to convey all the information related to the company. Such information has not been included for the purpose of giving specific advice to investors. The statements contained herein reflect the current picture of Elementia with respect to future events and are subject to certain risks, uncertainties, and assumptions. Various factors could cause Elementia s future results, performance, or achievements to differ from those expressed or implied in these statements. If one or more of these risks or uncertainties occur, or should the underlying assumptions prove to be incorrect, actual future results may vary materially from those described herein as anticipated, assumed, estimated, or expected. Elementia does not intend to update the statements presented herein, nor does it assume any obligation to do so. DESIGN: SIGNI.COM.MX 81

84 Poniente 134 # 71 9 Colonia Industrial Vallejo México, D.F. 82