Elementia S.A.B. de C.V.

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1 CREDIT OPINION Elementia S.A.B. de C.V. Update following change in rating outlook to positive from stable Update Summary RATINGS Elementia S.A.B. de C.V. Domicile Mexico City, Ciudad de Mexico, Mexico Long Term Rating 2 Type LT Corporate Family Ratings - Dom Curr Outlook Positive Elementia s 2 rating reflects the company's track record of de-levering following sizeable investments and acquisitions. The reduction in leverage not only evidences the company's ability to integrate new businesses but its commitment to improve its credit profile following acquisitions. The rating is also supported by its solid market position in Latin America and ample product diversification. lancing these positives is the volatile nature of the construction segment and raw materials, resulting in business cyclicality. Event risk given the company s high acquisitive profile also constrains the rating. Exhibit 1 Elementia is expected to quickly reduce leverage following acquisition Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Debt / EBITDA Trigger for Upgrade Trigger for downgrade Contacts 3.0 Sandra Beltran AVP-Analyst sandra.beltran@moodys.com Marianna Waltz, CFA MD-Corporate Finance marianna.waltz@moodys.com CLIENT SERVICES Americas Asia Pacific Japan EMEA LTM (09/17) 2017E 2018E 2019E Note: All metrics including Moody's standard adjustments where applicable as projected by Moody's Source: Source: Historical leverage from Moody's Financial Metrics FMTM Credit strengths» Leading market position widely spread through Latin America and increasing footprint in the US with the acquisition of Giant.» Diverse product portfolio and vertical integration» Track record of de-lever following sizeable investments and acquisitions Credit challenges» Business cyclicality given the volatile nature of the construction sector and raw material prices» Track record of aggressive expansion plans entails integration risk and threatens cash generation

2 » Credit metrics deterioration following acquisition of controlling stake in a US cement company Rating outlook Elementia's rating outlook is positive reflecting that in the upcoming year credit metrics should materially improve as incremental capacity ramps up and the company fully integrates Giant operations, concluding its plan to reach nominal capacity in the US. Factors that could lead to an upgrade Elementia's ratings could be upgraded if the company's profitability improves as a result of a successful implementation of the plan to increase efficiency in the US cement plans and additional capacity in Mexico s cement division ramps up according to Elementia s plan. Quantitatively, an upgrade would require adjusted EBITA margin above 10% on a sustained basis and adjusted debt/ebitda declining towards 3.0 times. An upgrade will also require positive free cash generation and adequate cushion under existing covenants. Factors that could lead to a downgrade The outlook could stabilize if the company's margins deteriorates such that EBITA margin falls below 10%, or if leverage increases, for example due to a debt-finance acquisition, above 3.5x on a sustained basis with no clear plan to de-lever. Likewise, the ratings could be downgraded if as a result of a weaker than anticipated operating environment, leverage remains close to 4.0 times on a sustained basis. A deterioration in liquidity or an acquisition that is not accretive could also lead to a downgrade. Key indicators Exhibit 2 Elementia, S.A.B. de C.V. Revenue (USD Billion) EBITA Margin 9/30/2017(L) 12/31/ /31/ /31/2014 $1.3 $1.0 $1.1 $1.2 12/31/2013 $ % 12.8% 11.4% 9.8% 7.3% EBITA / Interest Expense 2.8x 3.7x 2.7x 2.9x 2.2x Debt / EBITDA 4.3x 4.6x 2.7x 4.0x 3.8x Retained Cash Flow / Net Debt 17.0% 25.1% 39.7% 23.8% 21.3% Free Cash Flow / Debt -7.2% -1.6% -0.8% 7.1% -13.0% [1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. [2] As of 9/30/2017(L) [3] This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divestitures. Source: Moody s Financial Metrics Profile Elementia is a major manufacturer of semi-finished copper, alloy, fiber cement, cement, and plastic products with consolidated revenues of MXN25.1 billion for the 12 months ended September 30, The company has three business segments: metals, building systems (including fiber cement products and plastics) and cement. Although the majority of Elementia's operations are in Mexico, it also has presence in the US and in seven Latin American countries (Peru, Ecuador, Bolivia, Costa Rica, Honduras, El Salvador and Colombia). Elementia is majority owned and controlled by the Del Valle family through Grupo Empresarial Kaluz (not rated). Grupo Carso (not rated) is the second largest shareholder and a 22.93% float is listed in the Mexican Stock Exchange. Detailed credit considerations BUSINESS DIVERSITY AND OPERATING EFFICIENCIES OFFSET EXPOSURE TO THE CYCLICALITY OF THE CONSTRUCTION INDUSTRY Since the beginning of its operations in 2009, Elementia has been able to grow revenues at an annual compound rate of 12.3%, even incorporating periods of sluggish construction activity. In recent years, Elementia's operation has been also more stable despite a challenging operating environment thanks to the company's gradual expansion into new products, end markets and geographies. This improved business diversity supports stability longer term. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Additionally, Elementia has remained focused on profitability, investing in its productive facilities, maintaining a focus on cost controls and implementing periodic price increases. During the first nine months of 2017 Elementia presented solid consolidated growth in both revenues (44%) and EBITDA (32%) despite negative impact from natural disasters in the US and Mexico. In the US, the third quarter results were affected by preventive shutdown of the South Carolina facility due to poor weather conditions resulting from hurricanes Irma and Maria, that also affected Puerto Rico. Likewise, a 7.1 magnitude earthquake in Mexico City resulted in intermittent shutdowns during that week at the Vallejo Metals plant, ultimately affecting volume in the 3Q17. Accordingly, growth was mainly due to higher sale prices and volumes in cement and building systems, the integration of the US cement operations and the startup of operations of the capacity expansion at the Tula facility. This positive trend is expected to continue in the following years as maintenance works intended to bring US assets up to industry standards conclude. Although Elementia s cement division started operations only in 2013, it has become a relevant cash contributor, providing increased operating resiliency. For the nine months ended in September 2017, cement EBITDA margin reached 43% from 44% in the same period of 2016, the highest margin generator among all product divisions. With the integration of Giant, which margins are around 13% given the higher cost structure in the US, the expected profitability for the cement division will decline even once the maintenance program is concluded. Still, the cement division, will continue to be Elementia's focus over the next years. In 2018, Elementia will be mostly focused in integrating Giant and in the capacity expansion ramp-up in Tula. Elementia's short term strategic plan also includes the reopening of Terre Haute, a building systems division plant in the US. Longer term the company should continue to concentrate efforts in achieving increased capacity utilization, operational efficiencies, vertical integration and market alignment with the building system division, as well as in potential additional future acquisitions. STRONG MARKET POSITION PROTECTS PROFITABILITY For the last twelve months ended in September 2017, Elementia has posted a 11% EBITA margin as adjusted by Moody's. Although somewhat volatile, the company's profitability has been historically adequate for its rating, averaging 10.3% in the last five years. Elementia's strong market position results in barriers to entry, protecting profitability from competitive threats. Around 33% of the company's revenues are related with the building systems division, operating in Mexico, the US, Central America and South America. In the US, the company faces stronger competition and holds a 12% market share, positioning it as the second largest fiber-cement player. In Mexico, competition is also stiff, but Elementia continues to be the market leader in roofs and metal products and is the second largest player in water tanks. It also holds leading positions in the fiber-cement markets in Colombia, Ecuador, Bolivia and Central America. Additionally, a diverse product portfolio allows the company to better attend its customer base resulting in a higher wallet share. POSITIVE BUSINESS PROSPECTS IN THE US AND SOUTH AMERICA SHOULD OFFSET A MORE CHALLENGING OPERATING ENVIRONMENT IN MEXICO A strong operating performance in the upcoming year supports our expectations of improved credit metrics. In July 2017, Elementia concluded its capacity expansion in the Mexican cement plant at Tula. The expansion added 1.5 million ton capacity per year for a total amount of 3.5 million ton per year in Mexico. Therefore, we expect the division to have an around 10% revenue growth in 2018, as the additional capacity ramps up. Additionally, we expect profitability to remain high at around 40% EBITDA margin, following the recent recovery. Since the end of 2016, EBITDA margin weakened, due to increase in energy and fuel costs and the ramp up of expansion capacity at Tula plant. Profitability has surged during the second half of the year, as Elementia internally sourced clinker that was previously acquired from third-parties during the startup of grinding operations, part of the ramp-up at Tula. 3

4 Exhibit 3 Mexico Cement Division improved following ramp up of expansion capacity Cement MX 1,400 Net Sales 60% EBITDA Margin 1,235 49% 1,200 1,000 39% 38% 39% % 42% % % 39% % 1,043 42% 42% 40% 30% % % 200 0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Source: Elementia In the US, recent investments also support revenue growth and better profitability going forward. Due to financial distress of former controlling group, Giant plants lacked proper maintenance for several years. Accordingly, Elementia set 2017 as a transitional year, with operations constantly being interrupted by maintenance works, in order to bring assets back to industry standards, implying investments in both capex and opex. For 2018, Elementia expects to invest some USD million in maintenance and bolt-on expansions capex, still focusing in reaching nominal capacity at Giant plants. Moreover, opex will remain high as Elementia undergoes commercial efforts to regain customers and market share. The company also plans to reopen a 259 thousand ton per year plant in Indiana in the 1Q18, that remained closed due to capacity rationalization. Main challenges for the upcoming year include political instability in some of Elementia's main markets that could affect investment and consumption. That s the case of Mexico - Elementia's still largest market accounting for 44% of total revenues in and Colombia, that will have presidential elections in Also in both markets, modest oil prices have kept public spending subdued since 2015, a trend we expect to continue in Furthermore, the Odebrecht scandal that started in Brazil, has spread through-out the region, with still uncertain implications for countries with more positive prospects like Peru. In addition to low oil prices and presidential elections, in Mexico infrastructure growth will remain subdued as investors take wait and see attitude towards NAFTA negotiations. Somewhat offsetting the weak infrastructure sector is the more stable residential and commercial construction that should continue to support cement demand a sector in which Elementia has historically been focused, as there is currently, ample availability of mortgage loans and private-bank credit in the country. Also, remittances in Mexico are strong, following a more than 30% peso depreciation in the last three years, ultimately benefiting cement demand. Exhibit 4 Engineering and construction activity set to rise across most major Latin American economies which supports cement demand 4 Colombia Ecuador Mexico Peru 29% 28% 27% 26% 26% 26% 25% 24% 23% 22% 22% 21% 20% % E 2018E Source: Moody s Investors Service 4

5 In the US, business prospects are more favorable. Currently, the US cement market has positive volume and pricing growth dynamics. Since the economic downturn in 2007, housing starts have consistently grown at a CAGR of 12.3% in However, there is still room for improvement as current housing starts still lag behind pre-crisis levels. Also evidencing positive outlook in the US is the Architecture Billing Index (ABI), an index that sets 50 points as threshold with anything above it reflecting a positive trend in architecture billings. As of October 2017, the ABI in the North East and South regions of the US, where Giant plants are located, was 54 and 50.8, respectively. Exhibit 5 Exhibit 6 Recovering Housing Starts in the US Still Provide Opportunities Architecture Billing Index (ABI)Source: American Institute of Architects Highest growing construction activity regions are the NE and the MW where Elementia gained exposure with the acquisition of Giant New Housing Units Started average 2,500 Thousands of Units 2,000 1,500 1, Note: New privately owned units started, not seasonality adjusted Source: US Census Bureau to November 2017, INCREASED LEVERAGE FOLLOWING ACQUISITION OF GIANT, BUT PROSPECTS FOR RAPID DECLINE In December 2016, Elementia closed the acquisition of a 55% stake and control in US cement company Giant Cement Holding Inc. The acquisition was funded with the proceeds from a rights offering, about USD 305 million debt outstanding at Giant were refinanced at Elementia's level with proceeds from a committed syndicated credit line that was used as a bridge loan. Following the transaction, Elementia s adjusted Debt-to-EBITDA reached 4.6 times as of September 30, 2017, which was below the 5.0 times we were anticipating by the time the acquisition was closed. We expect leverage to continue to decline towards 3.7 times by the end of 2017 as a result of a full year consideration of Giant in Elementia's consolidated results, the ramp up of capacity expansion in Mexico cement segment and as efficiencies and synergies in the US are achieved. For 2018, leverage should further drop towards 3.5 times. Longer term, leverage will likely continue to move down, considering the company's 2.0 times net debt / EBITDA target (currently 2.8 times). Decline in leverage will follow additional EBITDA generation stemming from efficiencies in Giant's operation, synergies in the US operations and increased capacity in Mexico's cement segment. Currently, Elementia has some flexibility to reduce leverage given a strong cash position of MXN 5.8 billion (USD 323 million) as of the end of September Although integration of Giant still poses some execution risk, the rating considers Elementia's track record of successfully executing its growth strategies. Since the beginning of 5

6 its operations in 2013, the cement division has become a relevant revenue and cash contributor. Moreover, the company was able to position its Fortaleza brand in the competitive Mexican cement market. Elementia s prudent financial policies are also supportive of its expansionary plans. Although not a formal policy, the company has never declared dividends, which in our view reflects shareholders support to the company's growth strategy. Liquidity analysis Overall, Elementia's liquidity is strong, but tight covenant compliance is affecting our assessment. The company's cash in hand reached USD 323 million (vs. USD 190 million as of YE16) as of September 2017 compared to current portion of long term debt of USD 62 million. A strong liquidity will continue to be mainly supported by additional cash related with the recent start-up of the Tula operations expansion, soon to restart operations at the Indiana facility (Building Systems) and as capex requirements continue to gradually decline to around USD million in 2018 and to around USD million the subsequent years. During 2017, Elementia remained focused in refinancing the USD 305 million bridge loan used to refinance Giant's debt. As of December 2017, the company successfully concluded the refinancing, resulting in a comfortable maturity profile. As of September 30, 2017, debt maturities amount to USD 15 million in 2018, USD 32 million in 2019 and USD 56 million from 2020 to The next relevant debt related payment is until 2025, when the USD 425 million global bond matures. Since the bulk of Elementia s debt is the global bond denominated in US dollar, the company has swapped a portion of the principal to Mexican pesos to better match cash generation. After giving effect to derivatives, around 66% of Elementia s debt is denominated in Mexican peso and the balance in US. Also supporting liquidity is the MXN 4,900 million ($ 260 million) committed credit line due in 2020, that is currently fully available. The main threat to Elementia s liquidity profile is the tight compliance with covenants under the syndicated credit line. Elementia s reported net debt to EBITDA of 2.99 times as of September 2017, close to the 3.3 times covenant. However, starting October 2017, the threshold under the covenant fell to 2.75 times, creating uncertainty regarding Elementia s ability to comply with it. We expect the company to reduce covenant compliance risk, considering its commitment to maintain a strong financial profile. Exhibit 7 Elementia displays a comfortable after the acquisition of Giant USD Million Cash as of 3Q Source: Elementia. 6

7 Rating methodology and scorecard factors Exhibit 8 Rating Factors Elementia, S.A.B. de C.V. Rating Factors Elementia S.A.B. de C.V. Manufacturing Industry Grid [1][2] Current LTM 9/30/2017 Measure Score Moody's Month Forward View As of 12/20/2017 [3] Measure $1.3 B $1.5 B 11.1% 10.4% a) EBITA / Interest Expense 2.8x 2.7x b) Debt / EBITDA 4.3x 3.5x c) Retained Cash Flow / Net Debt 17.0% 22.5% d) Free Cash Flow / Debt -7.2% Ca 6.2% Factor 1 : Business Profile (20%) a) Business Profile Score Factor 2 : Scale (20%) a) Revenue (USD Billion) Factor 3 : Profitability (10%) a) EBITA Margin Factor 4 : Coverage and Leverage (40%) Factor 5 : Financial Policy (10%) a) Financial Policy Rating: a) Indicated Rating from Grid 2 b) Actual Rating Assigned 1 2 [1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. [2] As of 9/30/2017(L) [3] This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divestitures Source: Moody's Financial Metrics Ratings Exhibit 9 Category ELEMENTIA S.A.B. DE C.V. Outlook Corporate Family Rating -Dom Curr Moody's Rating Positive 2 Source: Moody's Investors Service 7

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9 Contacts Sandra Beltran AVP-Analyst CLIENT SERVICES Marianna Waltz, CFA MD-Corporate Finance 9 Mura Mihailescu Associate Analyst Americas Asia Pacific Japan EMEA