IMPORTANT NOTICE IMPORTANT: You must read the following before continuing Confirmation of your Representation

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1 IMPORTANT NOTICE THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) U.S. PERSONS WHO ARE QUALIFIED INSTITUTIONAL BUYERS ( QIBs ) (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT of 1933, AS AMENDED (THE SECURITIES ACT ) AND (2) NON-U.S. PERSONS (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) OUTSIDE THE U.S. IMPORTANT: You must read the following before continuing. The following applies to the offering memorandum following this page, and you are advised to read this carefully before reading, accessing or making any other use of the offering memorandum. By accessing the offering memorandum, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE LAWS OF OTHER JURISDICTIONS. THE OFFERING MEMORANDUM AND THE OFFER OF THE ORDINARY SHARES ARE ONLY ADDRESSED TO AND DIRECTED AT PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA WHO ARE "QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC) AND RELATED IMPLEMENTATION MEASURES IN MEMBER STATES ( QUALIFIED INVESTORS ). IN ADDITION, IN THE UNITED KINGDOM THE OFFERING MEMORANDUM IS ONLY BEING DISTRIBUTED TO PERSONS WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AND OTHER PERSONS TO WHOM IT MAY OTHERWISE LAWFULLY BE COMMUNICATED (ALL SUCH PERSONS TOGETHER REFERRED TO AS RELEVANT PERSONS ). ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS OFFERING MEMORANDUM RELATES IS AVAILABLE ONLY TO (I) IN THE UNITED KINGDOM, RELEVANT PERSONS, AND (II) IN ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA OTHER THAN THE UNITED KINGDOM, QUALIFIED INVESTORS, AND WILL BE ENGAGED IN ONLY WITH SUCH PERSONS. IN ADDITION, NO PERSON MAY COMMUNICATE OR CAUSE TO BE COMMUNICATED ANY INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY, WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (THE FSMA ), RECEIVED BY IT IN CONNECTION WITH THE ISSUE OR SALE OF THE ORDINARY SHARES OTHER THAN IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT APPLY TO US. THE FOLLOWING OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. Confirmation of your Representation: In order to be eligible to view this offering memorandum or make an investment decision with respect to the securities, an investor must be either (1) a U.S. Person who is a QIB or (2) a non-u.s. person (within the meaning of Regulation S under the Securities Act) outside the United States. This offering memorandum is being sent at your request and by accepting the and accessing this offering memorandum, you shall be deemed to have represented to us that (1) you and any customers you represent are either (a) QIBs or (b) non-u.s. persons (within the meaning of Regulation S under the Securities Act) and that the electronic mail address that you gave us and to which this offering memorandum has been delivered is not located in the U.S., and (2) that you consent to delivery of such offering memorandum by electronic transmission. You are reminded that this offering memorandum has been delivered to you on the basis that you are a person into whose possession this offering memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this offering memorandum to any other person. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the initial purchasers or any affiliate of the initial purchasers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the initial purchasers or such affiliate on behalf of the issuers in such jurisdiction. This offering memorandum has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission, and consequently neither the initial purchasers, nor any person who controls them or any of their directors, officers or employees, nor any of their agents nor any affiliate of any such person accept any liability or responsibility whatsoever in respect of any difference between this offering memorandum distributed to you in electronic format and the hard copy version available to you on request from the initial purchasers.

2 OFFERING MEMORANDUM CONFIDENTIAL 201,000,000 Shares Elementia, S.A.B. de C.V. Ordinary Shares Pesos per share This is the initial offering of our shares. We are offering 201,000,000 shares of our common stock in a global offering. Concurrently with this international offering of 38,808,695 shares, we are offering 162,191,305 shares in Mexico in a public offering approved by the Comisión Nacional Bancaria y de Valores (Mexican National Securities and Banking Commission, or CNBV ), conducted through certain Mexican underwriters referred to herein, to the general public in Mexico; for these purposes, we are registering our shares with the Registro Nacional de Valores RNV maintained by the CNBV and listing our shares on the Bolsa Mexicana de Valores (the Mexican Stock Exchange, or BMV ). The Mexican offering commenced on the same date as this international offering and shares sold in the Mexican offering will be sold at the same price as the price per share offered hereby. The closings of the international and Mexican offerings are conditioned upon each other. This offering includes a public offering to retail and institutional investors in Mexico and an international offering to institutional investors outside of Mexico. The shares of our common stock that are being offered may be reallocated between the Mexican offering and the international offering, depending upon the existing demand in the different markets. See Plan of Distribution. We refer to the international offering and the Mexican offering collectively as the global offering. We have granted the initial purchasers an option to purchase an aggregate of up to 5,821,305 additional shares in the international offering and the Mexican underwriters an option to purchase an aggregate of up to 24,328,695 additional shares in the Mexican offering. There is currently no market for our shares. We have applied to have our shares listed on the BMV under the symbol ELEMENT. Investing in the shares involves risks. See the Risk Factors section beginning on page 27 of this offering memorandum. The shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended or Securities Act. Prospective purchasers that are qualified institutional buyers are hereby notified that the sellers of the shares are relying on an exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A under the Securities Act. Outside the United States, the offering is being made in reliance on Regulation S under the Securities Act. Delivery of the shares in book-entry form will be made on or about July 15, 2015 through the book-entry system of S.D. Indeval Institución para el Depósito de Valores, S.A. de C.V., or Indeval, the central securities depositary system located in Mexico City, Mexico. Joint Global Coordinators and Joint Bookrunners Credit Suisse Morgan Stanley Citigroup Joint Bookrunners HSBC Santander BBVA July 9, 2015

3 TABLE OF CONTENTS Notice to Prospective Investors in the United States... ii Notice to New Hampshire Residents... iii Notice to Prospective Investors in the United Kingdom... iii Service of Process and Enforcement of Civil Liabilities... iii Available Information... iii Forward-Looking Statements... iv Presentation of Financial and Certain Other Information... vi Glossary of Terms and Definitions... ix Summary... 1 The Global Offering Summary Consolidated Financial and Other Information Risk Factors Use of Proceeds Capitalization Dilution Dividends and Dividend Policy Exchange Rates Selected Consolidated Financial and Other Information Management s Discussion and Analysis of Our Results of Operations and Financial Condition Industry Business Management Principal Shareholders Related Party Transactions Description of Our Capital Stock and By-Laws The Mexican Securities Market Taxation Plan of Distribution Transfer Restrictions Validity of the Shares Independent Auditors Index to Consolidated Financial Statements... F-1 Page All references to we, us, our, our company or the issuer in this offering memorandum are to Elementia, S.A.B. de C.V., and, unless otherwise indicated or the context requires otherwise, its consolidated subsidiaries. All references to Mexico in this offering memorandum are to the United Mexican States. All references to the United States or U.S. in this offering memorandum are to the United States of America. APPLICATION HAS BEEN MADE TO REGISTER THE SHARES IN MEXICO WITH THE RNV MAINTAINED BY THE CNBV, WHICH IS A REQUIREMENT UNDER THE MEXICAN SECURITIES MARKET LAW (LEY DEL MERCADO DE VALORES OR LMV ) TO PUBLICLY OFFER SUCH SHARES IN MEXICO. SUCH REGISTRATION IS EXPECTED TO BE OBTAINED ON OR BEFORE THE CLOSING OF THE GLOBAL OFFERING AND DOES NOT IMPLY ANY CERTIFICATION AS TO THE INVESTMENT QUALITY OF THE SHARES OFFERED PURSUANT TO THIS OFFERING MEMORANDUM, OUR SOLVENCY OR THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM, AND SUCH REGISTRATION DOES NOT RATIFY OR VALIDATE ACTS OR OMISSIONS, IF ANY, UNDERTAKEN IN CONTRAVENTION OF APPLICABLE LAW. IN MAKING AN INVESTMENT DECISION, ALL INVESTORS, INCLUDING ANY MEXICAN INVESTOR WHO MAY ACQUIRE SHARES FROM TIME TO TIME, MUST RELY ON THEIR OWN EXAMINATION OF US. i

4 This offering memorandum is confidential. We have prepared this offering memorandum solely for use in connection with the proposed offering of the securities described in this offering memorandum. This offering memorandum is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire securities. You are authorized to use this offering memorandum solely for the purpose of considering the purchase of our shares. Distribution of this offering memorandum to any person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized, and any disclosure of any of its contents, without our prior written consent, is prohibited. Each prospective investor, by accepting delivery of this offering memorandum, agrees to the foregoing and to make no photocopies of this offering memorandum or any documents referred to in this offering memorandum. We are relying upon an exemption from registration under the Securities Act for an offer and sale of securities that do not involve a public offering in the United States. By purchasing the shares, you will be deemed to have made the acknowledgements, representations and agreements described under Transfer Restrictions in this offering memorandum. You should understand that you may be required to bear the financial risks of your investment for an indefinite period of time. In making an investment decision, prospective investors must rely on their own examination of the company, our business and the terms of the offering, including the merits and risks involved. Prospective investors should not construe anything in this offering memorandum as legal, business or tax advice. Each prospective investor should consult its own advisors as needed to make its investment decision and to determine whether it is legally permitted to purchase the securities under applicable legal investment or similar laws or regulations. We have furnished the information in this offering memorandum. You acknowledge and agree that the initial purchasers make no representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this offering memorandum is, or shall be relied upon as, a promise or representation by the initial purchasers. This offering memorandum contains summaries believed to be accurate with respect to certain documents, but reference is made to the actual documents for complete information. All such summaries are qualified in their entirety by such reference. Copies of documents referred to herein will be made available to prospective investors upon request to us or the initial purchasers. The distribution of this offering memorandum and the offering and sale of the shares in certain jurisdictions may be restricted by law. We and the initial purchasers require persons into whose possession this offering memorandum comes to inform themselves about and to observe any such restrictions. This offering memorandum does not constitute an offer of, or an invitation to purchase, any of the shares in any jurisdiction in which such offer or sale would be unlawful. No one has taken any action that would permit a public offering to occur in any jurisdiction other than Mexico. We reserve the right to withdraw the global offering at any time and, to the extent permitted by law, we and the initial purchasers reserve the right to reject any commitment to subscribe for the shares in whole or in part and to allot to any prospective investor less that the full amount of shares sought by that investor. The initial purchasers and certain related entities may acquire for their own accounts a portion of the shares. NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES Neither the U.S. Securities and Exchange Commission, or SEC, nor any state securities commission has approved or disapproved of these securities or determined if this offering memorandum is truthful or complete. Any representation to the contrary is a criminal offense. The shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and the applicable state securities laws pursuant to registration or exemption therefrom. As a prospective purchaser, you should be aware that you may be required to bear the financial risks of this investment for an indefinite period of time. Please refer to the sections in this offering memorandum entitled Plan of Distribution and Transfer Restrictions. ii

5 NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES, OR RSA, WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE IMPLIES THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT ANY EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM Our shares may not be offered or sold to any person in the United Kingdom, other than to persons whose ordinary activities involve the acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom. SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES We are a sociedad anónima bursátil de capital variable (variable capital public stock corporation) organized under the laws of Mexico. All of our directors, officers, controlling persons and certain other persons named in this offering memorandum reside outside the territory of the United States and all or a significant portion of the assets of the directors and officers and certain other persons named in this offering memorandum and substantially all of our assets are located outside the territory of the United States. As a result, it may not be possible for you to effect service of process within the United States upon such persons or to enforce against them or against us in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Mexico, either in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated on the U.S. federal securities laws. See Risk Factors Risk Factors Relating to the Shares and this Offering It may be difficult to enforce civil liabilities against us or our directors, executive officers and controlling persons. AVAILABLE INFORMATION We are not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. For so long as any of the shares remain outstanding and are restricted securities within the meaning of Rule 144(a)(3) under the Securities Act, we agree to furnish upon the request of any shareholder of the shares, to the holder or beneficial owner or to each prospective purchaser designated by any such holder of the shares or interests therein who is a qualified institutional buyer within the meaning of Rule 144A(a)(1), information required by Rule 144A(d)(4) under the Securities Act, unless we either maintain the exemption from reporting under Rule 12g3-2(b) of the Securities Act or furnish the information to the SEC in accordance with Section 13 or 15 of the Exchange Act. Any such request may be made to us in writing at our corporate offices located at Poniente 134, No. 719, Col. Industrial Vallejo, C.P , Del. Azcapotzalco, México, Distrito Federal, Attention: Mr. Juan Francisco Sánchez Kramer. For so long as the shares are registered with the RNV and listed with the BMV, we will be required periodically to furnish certain information, including quarterly and annual reports, to the CNBV and to the BMV, which will be available in Spanish for inspection on the BMV s website at and on the CNBV s website at iii

6 FORWARD-LOOKING STATEMENTS This offering memorandum contains forward-looking statements. Examples of such forward-looking statements include, but are not limited to: (i) statements regarding our results of operations and financial position; (ii) statements of plans, objectives or goals, including those related to our operations; and (iii) statements of assumptions underlying such statements. Words such as aim, anticipate, believe, could, estimate, expect, forecast, guidance, intend, may, may have, plan, potential, predict, seek, should, will, would and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution investors that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed or implied in such forward-looking statements, including the following factors: general economic, political and business conditions in Mexico and the other markets in which we operate; the performance of the global financial markets and economic crises, as well as our ability to refinance our financial obligations, as necessary; competition in our industry and markets; management s expectations and estimates regarding our future financial performance and our funding plans and programs; limitations on our access to sources of financing on competitive terms or otherwise, and compliance with covenants by which we are bound; our ability to service our debt; our capital expenditure plans; fluctuations in exchange rates, market interest rates or rates of inflation or the conversion of currencies; existing and future laws and governmental regulations, including environmental laws, and liabilities or obligations arising thereunder and adverse administrative or judicial rulings relating to us; policies and interpretations in respect of acquisitions; increases in insurance premiums; changes in market prices, demand and consumer preferences and competitive conditions; cyclicality and seasonality in our results of operations; our ability to implement our strategy; increases in the prices of goods and/or services supplied to us and fluctuations in the prices of raw materials in commodities markets; the imposition of price controls on the products we sell; trade barriers; technological innovations; the costs, difficulties, uncertainties and regulations related to mergers, acquisitions or joint ventures; our ability to complete acquisitions, for regulatory or other reasons, and to successfully integrate the operations of our acquired businesses; iv

7 liability claims including claims related to health, safety and environmental matters and claims arising from class action laws in Mexico or other jurisdictions in which we operate; failures in our information technology systems, including our data and communications systems; the effect of changes in accounting principles, new legislation, actions by regulatory authorities, government bulletins and monetary or fiscal policy in Mexico and the other markets in which we operate; declines in sales of our products by independent distributors; our ability to retain certain key personnel and to hire additional key personnel; our ability to realize synergies from our mergers and acquisitions activity; delays by our suppliers or the inability to source, on terms acceptable to us or otherwise, inputs required by us to produce the products which we sell; investigations by governmental authorities; and other risk factors discussed under Risk Factors. Should one or more of these factors or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, forecast or intended. Prospective investors should read the sections of this offering memorandum entitled Summary, Risk Factors, Selected Consolidated Financial and Other Information, Management s Discussion and Analysis of Our Results of Operations and Financial Condition, Business and Management for a more complete discussion of the factors that could affect our future performance and the markets and industry sectors in which we operate. In light of these risks, uncertainties and assumptions, the forward-looking statements described in this offering memorandum may not occur. These forward-looking statements speak only as to the date of this offering memorandum and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information or future events or developments. Additional factors affecting our business emerge from time to time and it is not possible for us to predict all of these factors, nor can we assess the impact of all such factors on our business or the extent to which any factor, or the combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Although we believe the plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that those plans, intentions or expectations will be achieved. In addition, you should not interpret statements regarding past trends or activities as assurances that those trends or activities will continue in the future. All written, oral and electronic forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. v

8 Financial Statements PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION This offering memorandum includes our audited annual consolidated financial statements as of and for the years ended December 31, 2014, 2013 and 2012, together with the notes thereto, and our unaudited interim condensed consolidated financial statements as of March 31, 2015 and for the three-month periods ended March 31, 2015 and 2014, together with the notes thereto, prepared in accordance with IFRS and IAS 34, respectively. See Selected Consolidated Financial and Other Information and Management s Discussion and Analysis of Our Results of Operations and Financial Condition. The financial statements included in this offering memorandum have been prepared in accordance with IFRS, as required commencing on January 1, 2012, for public entities in Mexico in accordance with the amendments to the Rules for Public Companies and other Market Participants in the Mexican Securities Market, established by the CNBV on January 27, In May 2015, we made certain internal changes to our reporting divisions, in order to evaluate the performance of our divisions and the allocation of resources to them, and in order to reflect a new operating strategy. As a result of these changes, our division dedicated to the production and marketing of expandable and extruded polystyrene, as well as the transformation of polypropylene, polyethylene, polycarbonate resins and PVC (formerly the Plastics Division) has been absorbed by our Building Systems Division. We now have three divisions: the Cement Division, the Building Systems Division and the Metal Products Division. We have restated our division information based on our new structure for the three months ended March 31, 2015 and 2014 and for the years ended December 31, 2014, 2013 and We have not adjusted any division information for any period prior to January 1, Thus the division information presented in this offering memorandum is not directly comparable with the division information as of any date or any period prior to January 1, Acquisitions and Comparability of Our Financial Statements Certain of our financial information may not be comparable as a result of various acquisitions and dispositions consummated during the periods covered in this offering memorandum that may affect any analysis of our financial information. See Risk Factors. In 2009, we acquired a majority stake in Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V., or Trituradora, which built a plant for the manufacture and marketing of cement. The new cement plant commenced operations in On January 8, 2013, Trituradora and ELC Tenedora Cementos, both of which are subsidiaries of Elementia, and Elementia entered into an agreement, or the Contribution Agreement, with Lafarge and Lafarge Cementos (entities engaged in the manufacture and marketing of cement) whereby, among other things, we agreed to create a joint venture, through ELC Tenedora Cementos, for cement production in Mexico beginning on July 31, Pursuant to the Contribution Agreement, the share capital of each of Trituradora and Lafarge Cementos was transferred to ELC Tenedora Cementos and we acquired a 53% ownership in ELC Tenedora Cementos, which gave us control over ELC Tenedora Cementos and its subsidiaries, Trituradora and Lafarge Cementos, and Financière Lafarge, S.A.S. retained a 47% shareholding in the joint venture. This transaction generated goodwill in the amount of approximately Ps$1,150 million. For purposes of this offering memorandum, the term Lafarge Joint Venture refers to ELC Tenedora Cementos, our subsidiary, in which we owned 53% and Lafarge owned 47% of the capital stock prior to our purchase of Lafarge s 47% non-controlling interest. On September 19, 2014, we signed a share purchase agreement to acquire Lafarge s 47% non-controlling interest in the Lafarge Joint Venture for a purchase price of US$225 million. We agreed to make payments in two installments: (i) an initial payment of US$180 million at the close of the transaction, and (ii) a second payment of US$45 million, without interest, on the first anniversary of the closing date of the transaction. On December 16, 2014, following the receipt of approval from the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) and the initial payment of US$180 million using part of the proceeds from our offering of the 2025 notes, we became the holder, directly or indirectly, of 100% of the shares of ELC Tenedora Cementos. Pursuant to the terms of the share purchase agreement, Lafarge is required to indemnify us for any breach of their representations made pursuant to such contract during a period of one year from the acquisition. Elementia, in turn, is required to maintain the confidentiality of the information obtained from Lafarge during the Lafarge Joint Venture until September 19, vi

9 On December 19, 2013, our subsidiary Plycem USA LLC signed an acquisition agreement with Saint-Gobain to acquire the production assets of the fiber cement business of its subsidiary, CertainTeed Corporation, a significant manufacturer of construction materials in the United States. This acquisition was completed on January 31, The amount paid in connection with this acquisition was US$25.2 million, equivalent to Ps$329.1 million, generating a bargain purchase gain in the amount of Ps$434.6 million, which was recorded as other income in the statement of comprehensive income. The financial information for the years ended December 31, 2013 and 2012 may not be comparable to the financial information for the year ended December 31, 2014 or prior periods as a result of our acquisition of the Lafarge Joint Venture in July 2013 and the acquisition of the assets of the fiber cement business of CertainTeed in January EBITDA References to EBITDA are to consolidated net income for the period, plus or minus: losses from discontinued operations, income tax expense, equity in income of associated entities, exchange rate results, interest income, interest expense, banking fees and depreciation and amortization. EBITDA should not be interpreted as a substitute for net income, cash flow from operations or other measures of our liquidity or financial performance. Our presentation of EBITDA may not be comparable to similarly titled measures provided by other companies either in Mexico or in other jurisdictions. EBITDA is not a measure recognized under IFRS and does not have a standardized meaning. In addition, we have not calculated EBITDA in accordance with the guidelines adopted by the SEC on presentation of non-gaap financial measures. See Selected Consolidated Financial and Other Information and Management s Discussion and Analysis of Our Results of Operations and Financial Condition. Currency and Other Information Unless otherwise stated, the financial information appearing in this offering memorandum is presented in Mexican pesos. References herein to pesos or Ps$ are to Mexican pesos, and references to U.S. dollars or US$ are to U.S. dollars. Solely for the convenience of the reader, certain amounts presented in Mexican pesos in this offering memorandum as of and for the three months ended March 31, 2015 and as of and for the year ended December 31, 2014 have been translated into U.S. dollars at specified exchange rates. Unless otherwise indicated, the exchange rate used in translating Mexican pesos into U.S. dollars to calculate these convenience translations was determined by reference to the exchange rate published by the Mexican Central Bank (Banco de México) as the rate for the settlement of liabilities denominated in U.S. dollars payable in Mexico on March 31, 2015, which was Ps$ per U.S. dollar. You should not construe these convenience translations as representations that the Mexican peso amounts actually represent the U.S. dollar amounts presented, or that they could be converted into U.S. dollars at the rate or at the dates indicated. See Exchange Rates. In this offering memorandum, information is presented in thousands, millions or billions of pesos or thousands, millions or billions of U.S. dollars. Amounts lower than a thousand, a million or a billion, as the case may be, have been rounded unless specified otherwise. All percentages are rounded to the nearest percent, a tenth of one percent or one hundredth of one percent, as appropriate. In some cases, the amounts and percentages in the tables in this offering memorandum may not add up due to these rounding adjustments. We own or have rights to trademarks or trade names that we use in conjunction with the operation of our business. Solely for convenience, trademarks and trade names referred to in this offering memorandum may appear without the or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent of the law, our rights or the rights of the applicable licensor to these trademarks and trade names. In this offering memorandum, we also refer to product names, trademarks, trade names and service marks that are the property of other companies. Each of the trademarks, trade names or service marks of other companies appearing in this offering memorandum belongs to its owners. Our use or display of other companies product names, trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship by us of, the product, trademark, trade name or service mark owner, unless we otherwise indicate. Industry and Market Data The market information as well as other statistical information (other than information relative to our financial results and performance) used throughout this offering memorandum is based on independent industry publications, government publications, reports issued by market research firms or other published independent sources. Certain vii

10 information is also based on our estimates, which are derived from our review of internal surveys and analyses, as well as from independent sources. Although we believe these sources to be reliable, we have not independently verified the information and cannot guarantee its accuracy or completeness. In addition, these sources may use different definitions for relevant markets to those presented by us. viii

11 GLOSSARY OF TERMS AND DEFINITIONS Unless otherwise indicated by the context, the following terms will, for purposes of this offering memorandum, have the meanings ascribed to them below, whether used in singular or plural form notes means the US$425 million aggregate principal amount of senior unsecured notes due 2025 bearing interest of 5.500% per year that we issued in November ASTM means the American Society for Testing and Materials. Autoclave Process means a curing technology based on the use of high pressure and temperature in order to accelerate the chemical reaction between cement and silica in the curing process, which allows the use of cellulose fibers as the only reinforcing fibers and the elimination of the moisture of the matrix. A very stable matrix is obtained in crystalline form in comparison to other technologies. Banco Inbursa means Banco Inbursa, S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa. BASC means the Business Alliance for Secure Commerce. BMV or Mexican Stock Exchange means the Bolsa Mexicana de Valores, S.A.B. de C.V. Building Systems Division means the Elementia subsidiaries and operations related to the production and marketing of fiber cement products, including sheets, roofing tiles, panels, boards, trims and pipes, among others, and of expandable and extruded polystyrene used in construction, agriculture and food industries as well as the manufacture of roofing materials and water tanks, primarily, from polypropylene, polyethylene and polycarbonate resins. CAGR means compound annual growth rate. Cast and roll means the process that our Metal Products Division uses in the production of copper tubing in order to improve the metal yield. Cathode means the negative terminal in an electrolytic cell where copper is deposited during the electrolytic refining process. Copper so deposited is referred to as the cathode and is typically 99.99% pure. Cement Division means the Elementia subsidiary and operations related to the production and marketing of cement. Certificados Bursátiles Program means the revolving bond program established by the Company and authorized by the CNBV (reference no. 153/3778/2010) on September 24, 2010, in the amount of up to Ps$5,000 million. CERTIMEX means Certificación Mexicana, S.C. CNBV means Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores). COMECOP means Compañía Mexicana de Concreto Pretensado Comecop, S.A. de C.V. COMEX means Commodity Exchange Inc. CONAGUA means the Mexican National Water Commission (Comisión Nacional del Agua). CONAPO means the Mexican National Population Council (Consejo Nacional de Población). CONAVI means the Mexican National Housing Commission (Comisión Nacional de Vivienda). Corporations Law means the Mexican General Corporations Law (Ley General de Sociedades Mercantiles). ix

12 CPVC means Chlorinated Polyvinyl Chloride. CSTB means the Scientific and Technical Center for Building (Centre Scientifique et Technique du Batimênt). ELC Tenedora Cementos means ELC Tenedora Cementos, S.A.P.I. de C.V. Elementia, the Company or the issuer means Elementia, S.A.B. de C.V. and its subsidiaries. El Palmar means the cement plant constructed in Santiago de Anaya, in the State of Hidalgo, Mexico. EIU means the Economist Intelligence Unit. EU means the European Union. Fiber cement a composite material created through the bonding of natural and synthetic fibers and other minerals into a cement matrix, used in the manufacture of roofing tiles, pipes, panels, boards, trims and pipes, among others. Fibraforte means Industrias Fibraforte, S.A. Fibraforte Acquisition means the acquisition of Fibraforte, a company engaged in the manufacture and marketing of marketing of polypropylene and polycarbonate roofs in accordance with the share purchase and sale agreement dated July 22, 2010, which became effective on that date. Frigocel means Frigocel, S.A. de C.V. Frigocel Acquisition means the acquisition of Frigocel and Frigocel Mexicana, companies engaged in the manufacture and sale of plastic products, in accordance with the share purchase and sale agreement dated December 8, 2009, which became effective on that date. Frigocel Mexicana means Frigocel Mexicana, S.A. de C.V. General Issuers Rules means certain general regulations applicable to issuers and other securities market participants (Disposiciones de carácter general aplicables a las emisoras de valores y otros participantes del mercado de valores) issued by the CNBV. Group means Elementia, S.A.B. de C.V. and its subsidiaries. Grupo Carso means Grupo Carso, S.A.B. de C.V. Grupo Kaluz means Kaluz, S.A. de C.V. Holding means Elementia, S.A.B. de C.V. and subsidiaries that do not belong to or are grouped with one of the three divisions described in this offering memorandum and are presented as corporate entities together with Elementia, S.A. de C.V. IAS 34 means International Accounting Standard No. 34, Interim Financial Reporting, issued by the International Accounting Standards Board. IFRS means International Financial Reporting Standards as issued by the International Accounting Standards Board. IMPI means the Mexican Patent and Trademark Office (Instituto Mexicano de la Propiedad Industrial). Independent Auditors means Galaz, Yamazaki, Ruiz Urquiza, S.C. (member of Deloitte Touche Tohmatsu Limited). Indeval means S.D. Indeval Institución para el Depósito de Valores, S.A. de C.V., a Mexican securities depository institution. x

13 INEGI means Mexico s National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía). ISR means Mexican Income Tax (Impuesto Sobre la Renta). IVA means value-added tax in Mexico (Impuesto al Valor Agregado). Lafarge means, collectively, Lafarge S.A. and Financière Lafarge, S.A.S. Lafarge Cementos means Lafarge Cementos, S.A. de C.V. LGSM means the Mexican General Law of Business Corporations (Ley General de Sociedades Mercantiles). LMV means the Mexican Securities Market Law (Ley del Mercado de Valores). Metal Products Division means the Elementia subsidiaries and companies related to the production and marketing of copper and copper alloys used in the construction, refrigeration and air conditioning, automotive, electric and electronics industries, white goods, ammunition and minting industries. Mexalit Industrial means Mexalit Industrial, S.A. de C.V. México means the United Mexican States (Estados Unidos Mexicanos). Nacobre means Nacional de Cobre, S.A. de C.V. Nacobre Acquisition means the acquisition of the Nacobre Subsidiaries, companies engaged in the manufacture and sale of copper and aluminum, in accordance with the share purchase and sale agreement dated November 7, 2008, which became effective on June 1, Nacobre Subsidiaries means, jointly, Nacional de Cobre, S. A. de C. V., Aluminio Holdings, S. A. de C. V., Almexa Aluminio, S. A. de C. V. (these last two subsidiaries were sold in April 2012), Operadora de Inmuebles Elementia, S. A. de C. V., Grupo Aluminio, S. A. de C. V. (until its merger into Elementia, S. A. B. de C. V. in November 2011), Productos Nacobre, S. A. de C. V. (until its merger with Nacional de Cobre, S. A. de C. V. in August 2011), Copper & Brass International, Industrializadora Conesa, S. A. de C. V. and Aluminio Conesa, S. A. de C. V. (these last two subsidiaries were sold in June 2011). NAFTA means the North American Free Trade Agreement (Tratado de Libre Comercio de América del Norte). NCPI means the Mexican National Consumer Price Index (Índice Nacional de Precios al Consumidor). OECD means the Organization for Economic Co-Operation and Development. OSHA means the U.S. Occupational Safety and Health Administration. ONNCCE means the Mexican National Standardization and Certification Organization for Building and Construction (Organización Nacional de Normalización y Certificación de la Construcción y Edificación, S.C.). Peso, Pesos, Ps, Ps$ or $ means Mexican Pesos, the legal tender of Mexico. Plycem means The Plycem Company, Inc. PROFEPA means the Mexican Attorney General for Environmental Protection (Procuraduría Federal de Protección al Ambiente). PVA means polyvinyl alcohol. RNV means the National Securities Registry (Registro Nacional de Valores) maintained by the CNBV. xi

14 SEMARNAT means the Mexican Ministry of Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales). SHF means the Mexican Federal Mortgage Agency (Sociedad Hipotecaria Federal). Tenedora means Tenedora de Empresas de Materiales de Construcción, S.A. de C.V. (previously known as Industrias Nacobre, S.A. de C.V.). TIIE means the Mexican benchmark interbank money market rate published daily by the Bank of Mexico in the Official Gazette or any successor or substitute rate. Trituradora means Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V., engaged in the manufacture of cement and concrete. Trituradora Acquisition means the acquisition of Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V., which is currently part of the Cement Division. U.S. means the Unites States of America. U.S. dollars, Dollars or US$ means dollars, the legal tender of the United States of America. xii

15 SUMMARY This summary highlights selected information contained elsewhere in this offering memorandum. This offering memorandum includes a description of our business and detailed financial information. Unless otherwise expressly indicated, the terms we, our, the Company and Elementia each refer to Elementia, S.A.B. de C.V., and its subsidiaries. This summary does not contain all of the information you should consider before investing in our shares. You should read the entire offering memorandum carefully, especially the risks of investing in our shares discussed under Risk Factors, our audited annual consolidated financial statements and the notes thereto and our unaudited interim condensed consolidated financial statements and the notes thereto included elsewhere in this offering memorandum. Our Business We are a manufacturer and distributor of products and solutions primarily focused on the construction materials industry, and a leader in Latin America based on installed capacity, according to internal estimates and publicly available information. Through our regional divisions, Mexico, the United States, Central America and South America, we manufacture and sell a wide range of products, based primarily on cement, fiber cement, plastics and copper, used throughout all stages of construction, from the early structural and unfinished construction stages through the installation of interior and exterior finishes, repairs and remodeling. Through our involvement in all stages of construction and our diversified product mix we are able to maintain close relationships with our customers and distributors. Additionally, we are focused on end users for industrial applications, whereby we provide our clients with highly-specialized, value-added products. The industrial sector represents approximately 24% of our sales. Our network of independent distributors, through which we market and offer the various products and solutions of our three divisions, consists of more than 4,300 independent distributors and customers throughout the 42 countries in which we sell that use and offer our diverse products and solutions to a broad client base. We have a total of 26 manufacturing plants located in nine countries in the Americas: Mexico, the United States, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru. We offer products that are used in each step of the construction process: Our primary markets are located in Mexico and the United States, which represent 59% and 21% of our net sales in 2014, respectively. The Central American and South American markets represent 5% and 14% of our net sales in 2014, respectively, although we also export our products to more than 40 countries. We serve all of our markets through six distribution centers, twelve warehouses, a distribution center in Laredo, Texas and a sales office located in Houston, Texas, which we intend to expand in order to meet the expected increase in demand that we will 1

16 satisfy with the production of our plants in North Carolina and Oregon in the United States and, if necessary, with the reactivation of our plant in Indiana. We market our products using our own brands, which we believe have an established track record and a high level of market recognition. Such brands include Mexalit, Eureka, Allura, Maxitile, Plycem, Eternit, Duralit, Fibraforte, Nacobre and Fortaleza, which we introduced to the Mexican market in 2013 and which allowed us to become the first new participant in the Mexican cement industry in 65 years. The introduction of the Fortaleza brand allowed us to expand our range of product offerings and thereby strengthen our presence in the market. We believe our brand positioning, along with our diverse offering of solutions, our efficient network of independent distributors (present throughout the value chain in the construction industry) and our focus on customer service, create significant competitive advantages that distinguish us in the construction materials industry. Our business strategy, focused on continued processes optimization, operations integration and organic and inorganic growth, has allowed us to grow in a sustained and disciplined manner while maintaining strong levels of profitability. In 2007, under Mexican Financial Reporting Standards ( MFRS ), the accounting standards under which we reported at that time, our EBITDA was Ps$291 million. In 2014, on an IFRS basis, our EBITDA was Ps$2,675 million, a nine-fold increase, which represented a CAGR of 37%. During the last three years, our net sales and EBITDA grew at a compound annual rate of 7% and 19%, respectively, an increase from Ps$13,506 million and Ps$1,877 million, respectively, in 2012 to Ps$15,331 million and Ps$2,675 million, respectively, in During the three months ended March 31, 2015, we generated net sales of Ps$4,070 million and EBITDA of Ps$707 million, which represents an increase of 12% and 16%, respectively, compared to net sales and EBITDA during the same period in During 2014, we generated net sales of Ps$15,331 million and EBITDA of Ps$2,675 million, representing an increase of 19% and 40%, respectively, compared to net sales and EBITDA in We operate our businesses through three divisions: Cement Division. Through our Cement Division, we produce and sell gray cement, white cement, mortar and concrete using the Fortaleza brand. Our products are geared toward the self-construction sector. We currently sell more than 70% of our production to a large number of customers in 50 kg bags, allowing us to obtain better prices and greater profit margins than if we sold cement in bulk. We distribute our products through a network of close to 120 distributors and 50 bulk customers, through more than 500 points of sale in 15 states located primarily in the central region of Mexico. These states have a combined population of 74 million people, or 66% of the total Mexican population, and account for 66% of the total cement consumption in Mexico, according to information published by INEGI and CONAPO, as well as our internal estimates. Our Cement Division commenced operations in March 2013 with the start of commercial operations of the El Palmar cement plant in Santiago de Anaya, State of Hidalgo, Mexico, with an approximate capacity of 1 million tons per year. Subsequently, on July 31, 2013, we established the Lafarge Joint Venture, whereby we contributed our El Palmar plant and Lafarge contributed its operations in Tula and Vito, State of Hidalgo, Mexico. In exchange for our contribution, we received an ownership stake of 53% in such joint venture, enabling us to expand our installed capacity from 1 million to 2 million tons. On September 19, 2014, we entered into a share purchase agreement to acquire Lafarge s 47% non-controlling interest in the Lafarge Joint Venture for US$225 million. On December 16, 2014, following the receipt of approval from the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) and the initial payment of US$180 million, we closed the acquisition and acquired 100% of the shares of ELC Tenedora Cementos (including the Fortaleza brand), consolidating our position in the cement industry in Mexico. Currently, the Cement Division operates three plants with a production capacity of approximately 2 million tons of cement per annum. Notwithstanding the Cement Division s recent commencement of operations, we estimate that in 2014 our market share within our target region (based on the 15 states in which we operate) was approximately 7%. Additionally, in 2014 we sold approximately 1.5 million tons of cement, which represents a utilization capacity close to 74%, considering 12 months of operations. The use of the distribution network developed by our Building Systems and Metal Products Divisions was key in obtaining a meaningful market share in only our second year of operations. This is a clear example of the competitive advantage that our distribution network represents. We currently sell all of our production to external customers, but we have the flexibility to use a portion of our cement production as input for the production of fiber cement in our 2

17 Building Systems Division. Our Building Systems Division is currently able to obtain its necessary supply of cement under favorable market conditions by being a major consumer of cement in the country. One of our principal strategies is to grow the Cement Division. We expect to invest approximately US$250 million during through 2017 to increase the production capacity of our Tula plant, which we estimate will increase our total production capacity from 2.0 million to 3.5 million tons of cement per annum. On May 28, 2015, through our subsidiary Trituradora, we executed an agreement with the French company, Fives FCB, for the design, supply, construction, installation, and start up (under a turnkey scheme) of the production of 3,300 daily tons of clinker in the Tula Plant. We expect completion of capacity expansion and commencement of commercial operations by mid We anticipate that part of such investment will come from the net proceeds of the Global Offering. The Cement Division generated net sales of Ps$509 million and EBITDA of Ps$202 million during the three months ended March 31, 2015, representing an increase of 26% and 113%, respectively, compared to net sales and EBITDA recorded during the same time period in 2014, primarily due to the increase in volume and the sales price, as well as the optimization of production costs. The Cement Division represented 13% and 11% of our total net sales for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. The Cement Division represented 28% and 21% of our consolidated EBITDA for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. Based on our internal financial information, for the last twelve months ended March 31, 2015, the Cement Division contributed 12% of our net sales and 25% of our EBITDA (excluding revenues and EBITDA attributable to the Company as parent company and eliminations). Building Systems Division. Through our Building Systems Division we manufacture and sell solutions based on fiber cement and plastics for the lightweight construction materials industry, including corrugated roofing sheets, flat boards, siding, building systems, pipes and water tanks (or cisterns), among others. The Building Systems Division operates 20 plants across Mexico, the United States, Colombia, Peru, Bolivia, Ecuador, Costa Rica, El Salvador and Honduras. We distribute our Building Systems Division products using brands that, in some cases, have had a presence of more than 80 years in the markets in which we operate. Our main brands include Mexalit, Eureka, Eternit, Duralit, Fibraforte, Maxitile, Allura and Plycem. Our products are distributed through our network of approximately 2,480 independent distributors, wholesalers and retailers, which allow us to reach a broad customer base in our target markets, including the self-construction and construction sectors in Latin America and the United States. The Building Systems Division s products are exposed to trends that we believe favor their use, including the change from traditional to lightweight construction systems and the replacement of horizontal development for vertical development in urban areas. We believe that due to our broad product portfolio, product quality, brand and distribution network, we are well positioned to continue to benefit from such trends. In January 2014, we acquired the production assets of the fiber cement business of a subsidiary of Saint- Gobain, significantly expanding our presence in the United States, the largest lightweight building materials market worldwide. This acquisition provided us with access to a national distribution network in the United States that we consider strategic for our future growth plans. In 2014, in connection with our implementation of initiatives to increase the profitability of such operation, we concentrated production at two of the three plants we acquired, and we believe that additional installed capacity we hold (mainly by reactivating the third plant), along with the continued recovery of the housing market in the United States, represent a high potential for production growth that will require a minimal investment. Within the Building Systems Division, we continue to implement measures to optimize our operations and value offerings, including: (i) the robotization of certain of our operations such as Plycem Salvador and Costa Rica (this automation plan is intended to increase baking capacity by 10%, reduce costs by 5%, decrease the manufacturing workforce and improve working conditions); and (ii) the development of high value added products that we call the wood of the future, which we manufacture within Plycem. An example of such products would be Plydeck a floor that has the same appearance as a wooden deck but has the properties of fiber cement (resistance to humidity, low maintenance and durability, among others). 3

18 The Building Systems Division generated net sales of Ps$1,547 million and EBITDA of Ps$253 million during the three months ended March 31, 2015, representing an increase of 8% and 2%, respectively, compared with net sales and EBITDA recording during the same time period in 2014, mainly due to the increase in sales volume in the United States, which partially offset the decrease in the sales volume in the Central American and South American regions. The Building Systems Division represented 38% and 40% of our total net sales for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. The Building Systems Division represented 36% and 42% of our consolidated EBITDA for the three months ended March 31, 2015 and year ended December 31, 2014, respectively. Based on our internal financial information, for the last twelve months ended March 31, 2015, the Building Systems Division contributed 40% of our net sales and 42% of our EBITDA (excluding revenues and EBITDA attributable to the Company as parent company and eliminations). Metal Products Division. Through our Metal Products Division, we manufacture and sell pipes, tubes, coils and sheets, bars and rods, fittings, wires and forged and machined parts, primarily based on copper and its alloys. Our principal value added products are fittings, forged and machined parts, connectors, plugs, preformed and preassembled tubes, collectors, returns, accumulators, flexible hoses for water and gas, regulators and valves, among others, mainly made of copper and its alloys, under the Nacobre and Cobrecel brands. We sell our products primarily to customers in the construction and industrial sectors. In 2014, the construction and industrial sectors each accounted for approximately 50% of the Metal Products Division s net sales. Through the Metal Products Division, we operate three vertically integrated (from casting to the finished product) manufacturing plants in Mexico, with a total production capacity of approximately 74 thousand tons per annum. We operate one of the few manufacturing plants in Latin America for copper products and its alloys such as brass, brass with lead, copper and nickel, nickel silver and bronze, all with a minimum copper content of 60% (Brass Mill), and we are the only producer of copper-nickel-alloy tubes in the Americas, and one of the principal global producers according to internal estimates. We are also one of the main suppliers of copper-nickel tubing used by the United States defense industry, a strategic supplier for the Mexican currency-minting industry and the largest producer of special brass and refractory alloys and copper and copper alloy strips in Latin America, according to information received from our clients and certain reports prepared by independent companies such as Urunet and Penta Transaction. Our products are sold in Mexico and exported to the United States, Latin America and Europe through more than 1,064 distributors and through direct sales to final consumers. In 2014, 62% of the Metal Products Division s net sales were to customers in Mexico, 22% to customers in the United States, 12% to customers in Latin America (excluding Mexico) and 3% to customers in Europe. The commercial strategy (cost plus) of the Metal Products Division allows for any variations in the cost of raw materials to generally be transferred to the final sale price of the product, thus achieving a stable target nominal margin per ton. This reduces the risks associated with fluctuations in the price of copper and its alloys. Within the Metal Products Division, we continue to implement measures that allow us to optimize our operations and improve the profitability of the division, including: (i) the adoption of new production technologies, such as the cast and roll process for the production of copper tubing and the continuous casting of brass ingot for the production of bars, among others, and (ii) the development of high-value added products tailored to meet our customers needs. The Metal Products Division generated net sales of Ps$1,936 million and EBITDA of Ps$253 million during the three months ended March 31, 2015, representing an increase of 10% and 16%, respectively, compared with net sales and EBITDA recorded during the same period in 2014, due to the increase in sales volume and the change in exchange rate, as well as greater sales of value added products and improved production costs resulting from our cost optimization initiatives and our more efficient use of metal. The Metal Products Division represented 48% and 47% of our total net sales for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. The Metal Products Division accounted for 36% and 32% of our consolidated EBITDA for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. 4

19 Based on our internal financial information, for the last twelve months ended March 31, 2015, the Metal Products Division contributed 48% of our net sales and 33% of our EBITDA (excluding revenues and EBITDA attributable to the Company as parent company and eliminations). The following tables show our net sales and EBITDA by division and as a percentage of the consolidated totals for the periods indicated. Net sales in millions of pesos Three months ended March 31, Year ended December 31, EBITDA in millions of pesos Three months ended March 31, Year ended December 31, Cement Division... $509 $405 $1,747 $1,046 $8 $202 $95 $572 $238 $(3) Building Systems Division... $1,547 $1,438 $6,074 $4,724 $4,959 $253 $248 $1,119 $943 1,005 Metal Products Division... $1,936 $1,759 $7,218 $6,919 $8,085 $253 $219 $855 $ Holdings and eliminations (1)... $78 $37 $292 $240 $454 $(1) $47 $129 $ Total... $4,070 $3,639 $15,331 $12,929 $13,506 $707 $609 $2,675 $1,913 $1,877 (1) Includes income from corporate services, recovery of expenses and rent charged to our subsidiaries, as well as intercompany eliminations. Net sales as % of total Three months ended March 31, Year ended December 31, EBITDA as % of total Three months ended March 31, Year ended December 31, Cement Division... 13% 11% 11% 8% 0% 28% 16% 21% 12% 0% Building Systems Division... 38% 40% 40% 37% 37% 36% 41% 42% 49% 54% Metal Products Division... 48% 48% 47% 54% 60% 36% 36% 32% 34% 38% Holdings and eliminations (1)... 1% 1% 2% 1% 3% 0% 7% 5% 4% 8% Total % 100% 100% 100% 100% 100% 100% 100% 100% 100% (1) Includes income from corporate services, recovery of expenses and rent charged to our subsidiaries, as well as intercompany eliminations. Our Competitive Strengths We consistently focus on generating superior value for our shareholders, customers, suppliers, employees, collaborators and the communities in which we are present by leveraging the following competitive strengths: Diversified Products and Market Sectors Through our three divisions, we have a diversified product portfolio that allows us to have a presence throughout the value chain of the construction industry, from the early structural and unfinished construction stages through the installation of interior and exterior finishes, repairs and renovations, offering solutions that enable us to meet the needs of, and maintain a close relationship with, a wide range of customers and markets. In particular, approximately 50% of the Metal Products Division s sales, and therefore 24% of our net sales, are intended for industrial applications, mitigating construction industry cycles. Our broad product portfolio includes cement, mortar and concrete, as well as fiber cement and plastic-based lightweight construction materials, including corrugated roofing sheets, flat boards, water tanks and cisterns. Additionally, we provide comprehensive solutions in copper products and its alloys such as tubes, sheets, forged and machined parts, wires and fittings. Due to this wide range of products and our focus on the self-construction segment, no one customer represents more than 4% of our consolidated net sales. In 2014, approximately 64% of our net sales corresponded to the construction sector and 24% to the industrial sector. 5

20 Product Portfolio of Leading and Well-Recognized Brands We market our products using brand names that we believe have a long history and high level of recognition in the self-construction industry in the markets where we operate. Additionally, we believe that the strength of our brands, along with our network of independent distributors and the quality of our products, are a key to our growth and a factor that is difficult to replicate, which differentiates us within the construction materials industry. We believe that our brands are well positioned among consumers and distributors, some to the extent of having become a product category in their sector (for example, Eternit, Duralit and Plycem), and are associated with features like high quality, excellent performance, reliability and service. For example, in Colombia, lightweight roofs are generally referred to as Eternit. Fortaleza, the cement brand we introduced in 2013, is one of the newest brands in our portfolio and according to internal estimates has achieved a high level of recognition among consumers and distributors, evidenced by its wide distribution and presence in the Mexican cement market, and our own market share in the Mexican cement market of approximately 4% in Such results stem from a marketing strategy that highlights product attributes and brand message to the target market, self-construction, and in particular looking to position the Fortaleza brand as the preferred brand among masons. Nacobre, the flagship brand of our Metal Products Division, has a strong presence in more than 36 countries and, according to internal estimates, a market share in Mexico of 65% in our key product categories. The Nacobre brand has been recognized by FERREPRO (a publication specializing in the hardware industry) as the fourth most influential brand in the Mexican hardware industry. Among our leading brands are the following: Brand Cement Division Product Years in the Market Geographic Region Market Position (1) Cement 2 Mexico #5 in the Mexican market Building Systems Division Fiber cement products: roofs, panels, tiles and pipes Fiber cement products: roofs, panels, PVC tiles, plastic tanks, paint and putties Fiber cement products: tiles and roofs Fiber cement products: roofs, panels and tiles Flat products (siding and fiber cement roofs) Polyethylene water tanks and cisterns, and polypropylene corrugated sheets 73 Mexico #1 in fiber cement roofs Colombia Bolivia #1 in fiber cement products in Colombia, Ecuador, Bolivia and Central America #3 in water tanks in Colombia 11 (3) Central America 1 15 United States #2 in fiber cement (2) 80 Mexico #2 in water tanks 6

21 Brand Product Polypropylene corrugated sheets Years in the Market Geographic Region Market Position (1) 25 Peru #1 in plastic roofs Metal Products Division Copper and copper alloys (tubes, sheets, bars, connections and others) 65 Mexico #1 in Mexico (1) From January 1, 2014 to December 31, Information provided based on internal estimates. (2) Market share of approximately 11%, below the principal player in the market which has a market share of approximately 80%. (3) Plycem as a company has been in existence for 50 years. Geographic Diversification and Presence in Countries with Favorable Macroeconomic Fundamentals and Demographics We have a presence across the Americas, with 26 production plants in 9 different countries, giving us exposure to different countries and currencies and thereby allowing us to mitigate the effects of any cyclicality in the markets, countries or regions where we operate. In addition, we are continuing to diversify geographically with clients in over 40 countries into which we export our range of products. In 2014, 59%, 21%, 5% and 14% of our net sales were made to clients in Mexico, the United States, Central America and South America, respectively. Additionally, in 2014, 59%, 23%, 8% and 10% of our net sales were generated in Mexican pesos, U.S. dollars, Colombian pesos and other currencies, respectively. 7

22 We believe that most countries in which we operate have favorable estimated future growth prospects, based on factors such as the increase in foreign, public and private direct investment, the growth in consumer spending, a greater proportion of an economically active population, a growing middle class and a controlled inflationary environment. According to the Global Insight, the annual GDP growth rate expected in 2015 for Mexico, the United States, our principal markets in Central America (Costa Rica, Honduras and El Salvador) and our principal markets in South America (Bolivia, Colombia, Ecuador and Peru) will be 2.7%, 3.1%, 3.6% and 3.9% respectively. In comparison, the growth rates expected for European Union and OECD member states for the same period are 1.7% and 2.3%, respectively. Furthermore, the recent economic recovery in Europe and Japan, if sustained, may have a positive impact on the Mexican economy (including its construction industry). We believe that the growing middle class will continue to be an important factor for the growth in demand for construction materials in the countries in which we operate. In Mexico, for example, the middle class expanded by 11 million people, representing 30% of the total population in 2000 and 36% of the total population in 2012, according to statistics of INEGI. Similarly, other countries in Latin America, such as Colombia and Peru, have also experienced growth in the size of their middle classes in the last decade. Other factors which we believe have supported the growth of the construction sector in the countries in which we operate are: (i) the housing deficit in Latin America, where approximately 37% of households lack adequate housing infrastructure and conditions for construction according to the Inter-American Development Bank, (ii) the recovery in housing construction in the United States, (iii) the move away from traditional construction systems to lightweight construction, (iv) the replacement in urban areas of horizontal development with vertical development and (v) favorable demographics in Mexico, including an increase in life expectancy which stimulates demand for housing, vacation homes, retirement homes and healthcare facilities. Additionally, several countries in Latin America, such as Mexico, Colombia, Peru and Ecuador, have announced important national infrastructure plans which could increase demand for construction materials. For example, in 2013, Mexico released its National Infrastructure Plan which contemplates US$596 billion of investment in 740 projects to be developed between 2014 and 2018 in areas including energy, urban development and housing, telecom and transport, water utilities, tourism and health. Wide Distribution Network that Covers our Three Divisions, Allowing for Cross-Selling and Marketing of Complementary Products We have developed an extensive distribution network linking our three divisions, comprised of over 4,300 independent distributors and customers, 6 distribution centers, 12 warehouses (located in Guadalajara, Puebla, Ciudad Juárez, Monterrey, Mexico City, Celaya and San Luis Potosí in Mexico; in Savannah, Georgia and Oakland, California in the United States; in Lima, Peru and in Cochabamba, Bolivia), one distribution center in Laredo, Texas, and one sales office strategically located in Houston, Texas, which we intend to expand in order to meet the expected increase in demand that we will satisfy with the production of our plants in North Carolina and Oregon. Our high quality and diverse product offerings, as well as our focus on innovation and customer service, have allowed us to build long-standing relationships with our distributors, many of which have grown together with us and offer our products exclusively. Through our network of independent distributors, we are able to offer a wide range of products for the construction market, which enables cross selling and marketing of complementary products. In the three-month period ended March 31, 2015, 35% of our sales were made through distributors that sell products from at least two of our three divisions. This percentage was 31% and 35% for the year ended December 31, 2014 and the cumulative period from 2012 to date, respectively. To expand our distribution network we continue to improve our service and make sure that our distributors know the full range of our product offerings. Additionally, we believe our network of independent distributors appreciates our capacity to offer a wide range of integrated products as adequate solutions for the needs of final customers in the construction chain, unlike most of our competitors who offer only a single type of product. Even though we continually focus on integrating and creating synergies between our divisions, we maintain a specialized and independent sales force for each of them with the ultimate objective of having a multi-product sales force. 8

23 We estimate that we have increased cross-selling to distributors from our divisions from Ps$1,220 million in 2013 to Ps$1,891 million in 2015 (on an annualized basis based on our sales in the first four months of 2015). The following figure shows an example of the cross-selling efforts we are undertaking in order to have a multi-product sales force: Through our network of independent distributors, we have been able to increase our product offerings with only a minimal incremental increase in cost, which has allowed us to maintain operating flexibility and access new markets quickly and efficiently. For example, our Cement Division, which began operations in 2013, has already achieved wide market penetration through the use of the existing distribution network of the Building Systems and Metal Products Divisions. Through our acquisition of the fiber cement business in the United States of a subsidiary of Saint-Gobain in 2014, we significantly expanded our presence there to a network of 97 independent distributors with nationwide coverage, a strategic acquisition with a view toward future growth. Such distribution network not only allows us to market products that are produced within the United States but also those products we produce in Mexico and Latin America, thereby creating important opportunities to expand our product offerings in the United States. 9

24 We believe that our network of independent distributors also allows us to provide better customer service to large customers with broad geographic scopes and helps us identify opportunities and respond quickly to their needs. Likewise, many of our distributors, ranging from small materials houses, large retailers and even construction companies, have grown with us and have become our strategic partners, given their detailed knowledge of our products, among other reasons. The following table shows the approximate number of independent distributors and customers for each of our divisions: Division Region Distributors Customers Cement Division... Mexico Building Systems Division... Mexico 1, Building Systems Division... Central America Building Systems Division... United States 97 0 Building Systems Division... South America Mexico and the Metal Products Division... United States 1, Subtotals... 3, Total... 4,373 Successful Track Record of Organic and Inorganic Growth Supported by our Financial Discipline Our growth during the previous decades has been focused in three stages: First Stage: (Consolidation): We started with the integration of our Building Systems Division with the leading producers and sellers of fiber cement and plastic in the regions of Mexico and Central and South America. Second Stage: (Diversification): We finalized the Nacobre acquisition, establishing the Metal Products Division in order to have a presence along the value chain of the construction industry, strengthen our cash flow generation and increase diversification by entering the industrial market. Similarly, we entered the cement industry in 2010 by beginning the construction of our El Palmar plant in order to be a part of the Mexican cement industry and consolidate our presence along the value chain of the construction industry. Third Stage: 2015 (Expansion): Our main focus on growth will be on the Cement Division and expansion in the United States market. We have achieved this through our management team s successful development and implementation of the operational methodology that we now call the Fifth Element, which seeks to improve the operating performance of our divisions through operational integration and process efficiency, as well as having efficient teams to integrate operations rapidly. Some examples of the benefits we have obtained through the application of our Fifth Element methodology to integrate acquisitions include: (i) increased profitability of Plycem, which once registered a loss of US$3 million in 2007, the same year we acquired it, and had a profit of US$12 million in 2014; (ii) the operating efficiencies achieved in the fiber cement business in the United States, which we acquired from a subsidiary of Saint Gobain in 2014, resulting in an increase of US$14 million in gross income, and transitioning from incurring losses to generating profits in only a year under our management; (iii) the substantial increase in the EBITDA margins of our Cement Division from 29% to 40% during the first quarter of 2015, once the acquisition of the non-controlling interest in the Lafarge Joint Venture was concluded in 2014; and (iv) steps undertaken at Eternit such as investments in technology to improve quality, restructuring of personnel and the vertical integration of raw materials such as silica and calcium bicarbonate, as a result of which EBITDA increased from US$1 million in 1999 to US$17 million in Similarly, through the implementation of the Fifth Element, we have increased our participation in the domestic and international markets through the use of synergies (for example, we increased our market share of water tanks in Mexico, from 12% in 2012 to 16% in 2014, as a result of the synergy with Nacobre which gave us access to the hardware distribution channel), entry into new product categories (plastic roofs) and the development of high valueadded products, notably the strategic investments made in (i) the optimization of production processes in the 10

25 Building Systems and Metal Products Divisions; (ii) the innovation of products and processes such as the smelting and pressing technology (cast and roll) in the Metal Products Division; and (iii) expansions in operational capacity. Our focus on growth is accompanied by financial discipline and constant evaluation of our liquidity and leverage levels. We seek to maintain adequate levels of liquidity and sources of funding to take advantage of future investment opportunities. Our corporate policy targets a net debt to EBITDA ratio for the medium term of approximately 2.00x. As of March 31, 2015, we had a net debt to EBITDA ratio of 2.66x after giving effect to the issuance of the 2025 notes at the end of As of December 31, 2014, our net debt to EBITDA ratio was 2.69x and we anticipate a return to our internal policy target by mid Highly Experienced Management Team and Strong Shareholder Base Our senior management team has an average of more than 20 years of experience in the building materials industry and has been instrumental in developing and implementing the business strategies that have resulted in improvements in our operating and financial performance as well as integrating our acquisitions (twelve successful mergers and acquisitions transactions completed in the past fifteen years). We believe that our senior management has also proved to be highly capable in their ability to respond promptly and effectively to the challenges posed by the recent global economic crisis. We maintain a focus on the development of internal talent, which has enabled us to create a strong management team through extensive internal training and develop future generations of managers. We benefit from the longstanding support of our principal shareholders, who have a proven track record of value creation across different industries and geographic areas. Our principal shareholders are Kaluz, S.A. de C.V., or Grupo Kaluz, and Tenedora, which is indirectly controlled by Grupo Carso, S.A.B. de C.V., or Grupo Carso. Grupo Kaluz and Grupo Carso are among the most representative, experienced and respected business groups in Mexico and Latin America. Grupo Kaluz, which is controlled by the del Valle family, operates a diversified group of companies in the industrial and petrochemical sectors, including Mexichem, S.A.B. de C.V. Grupo Kaluz has a global presence with businesses in the Americas, Europe, Asia and Africa. The del Valle family also participates in the real estate (through Kaluz Inmobiliaria) and financial (including Banco Ve por Más S.A., Instituición de Banca Múltiple, Grupo Financiero Ve por Más, Byline Bancorp Inc. and Byline Bank) sectors. The Slim family controls Grupo Carso and controls a diversified group of companies in the telecom, finance, industrial, mining, retail and infrastructure sectors including América Móvil S.A.B. de C.V., Grupo Financiero Inbursa S.A.B. de C.V., Minera Frisco, S.A.B. de C.V., Grupo Sanborns S.A.B. de C.V., and Impulsora del Desarrollo y el Empleo en América Latina, S.A.B. de C.V., among others. Our Key Strategies Our objective is to achieve sustained yet disciplined growth in sales, earnings and market share by developing and offering integrated, high-quality solutions for the construction materials industry. We focus on achieving that objective through organic and inorganic growth and the maximization of operating efficiencies, innovation and high quality standards. Focus on the Growth of our Cement Division We intend to focus our expansion efforts on our Cement Division in the coming years, given that according to our business plan the El Palmar plant will reach its maximum production capacity in the next few years. Consequently, we are in the process of increasing the production capacity of our Tula plant by 1.5 million tons per annum, which will require an investment of approximately US$250 million to achieve a total approximate capacity in the Cement Division of 3.5 million tons per annum. On May 28, 2015, through our subsidiary Trituradora, we executed an agreement with the French company, Fives FCB, for the design, supply, construction, installation, and start up (under a turnkey scheme) of the production of 3,300 daily tons of clinker in the Tula Plant. We expect that this expansion will be complete and we will begin commercial operations by mid We believe that this investment will allow us to increase our market share in the Mexican cement sector. Additionally, we are analyzing potential alternatives to foster our growth in this division, including operations, logistics, distribution and marketing, as well as potential expansions, acquisitions and/or the construction and development of new facilities (greenfields / brownfields). 11

26 Grow Organically and Inorganically through Mergers and Acquisitions We are taking certain steps focused on expanding our production capacity in accordance with demand. In our Cement Division, we are in the process of increasing the production capacity of our Tula plant by 1.5 million tons per annum in order to maintain our market share given the increase in demand and achieve incremental sales of approximately 2 to 3 points in the market. In our Building Systems Division, particularly our production assets located in the United States, we are focusing production on two of the three plants we have acquired. We believe that the additional installed capacity, primarily through the reactivation of the third plant, will allow us to efficiently respond to market needs by meeting the potential growth in demand for our products. We are also investing close to US$19 million to relocate and expand our Fibraforte plant in Peru, which we estimate will increase its production capacity by 42%. Therefore, the Fibraforte plant could reach a production capacity of 13,613 tons per annum in the second quarter of This project s approach includes strengthening the local market and increasing our coverage in the export market to Chile, Uruguay, Ecuador, Bolivia and Brazil. The new plant will be located in Chilca, Peru, on a 45,284 m 2 parcel of land. In our Metal Products Division, we expect to capitalize on the benefits of capital investments made in recent years, including the optimization of raw material consumption and the improvement of our indices, focusing on continued improvement, perfecting inventory levels, and increasing sales of higher valueadded products, as well as the launch of cast and roll equipment for the production of copper tubing with improved metal yields. Through this initiative we intend to carry out the following: Cement Division. Increase our sales of 50 kg cement bags from 70% to 80% to further increase our margin, continuing to focus on the self-construction market. Building Systems Division. Strengthen our position as a leading provider of solutions in building systems through the development of highly specialized, value-added products and solutions to capitalize on the opportunities generated by the trend toward lightweight construction. We will focus on the development of urban and green construction markets with new and innovative solutions and on developing new products that add value to the consumer and avoid maintenance and adjustment costs. In the United States, we intend to boost our market share through our fiber cement business by consolidating the current business and adding value added products to our portfolio (Plydeck, mezzanine slab and others). Additionally, we will continue to achieve capacity expansion to be able to efficiently meet market needs and respond to the potential increase in demand for our products. Thus, we are continually exploring opportunities to eliminate dependence on third parties during our production process. Currently, we have vertically integrated various raw materials such as silica and calcium carbonate, with mills in several of our Building Systems operations. We also use recycled polypropylene to produce plastic roofs in Peru, in addition to having the option to use the cement that we produce at any time. Additionally, we have been able to generate energy in our Honduras plant through biomass fuel plants. We intend to continue increasing the efficiency of the operations in our divisions by increasing the use of alternative fuels, as is the case in our Tula plant where 35% of fossil fuels have been replaced with such alternative fuels. Metal Products Division. Focus on offering innovative, value-added solutions for our clients (currently, approximately 65% of our metal products manufacturing is produced according to customer specifications). For example, in the Metal Products Division, we have the ability to produce new metal alloys required by our customers through technological innovations and by adapting processing technologies, such as new alloys to be used in several industries such as minting, nuclear submarines, oil and gas, among others. Also, we will continue to undertake strategic investments in technologies such as cast and roll, forge presses and new steel profiles and leverage our production capabilities (through the increase of our production capacity of added value products, among other things) and network of independent distributors to increase our penetration and market share in key markets. In short, we will continue to pursue the growth of our divisions market share through entry into new product categories and development of higher value-added products. We will also continue to analyze new opportunities for mergers and acquisitions in support of our initiatives as they arise. 12

27 Strengthen our Competitive Position through Continuous Optimization of Processes and Innovation in Products and Solutions We intend to continue applying the Fifth Element with a view to further increase our profitability and further successfully and efficiently integrate acquisitions into our platform. The Fifth Element is an operating methodology which we have developed based on broad experience and trajectory to standardize processes and achieve a continuous improvement in our operations, be it through the incorporation of new business, the development of new products or the optimization of existing business. This methodology is based, among other things, on the following elements: implementation, standardization and optimization of processes; integration of new operations and/or acquisitions of information and control systems; incorporation, development and implementation of best practices; realization of synergies; establishment of strategic management; and introduction of the Fifth Element in the businesses acquired or created. By implementing the Fifth Element, we have achieved (i) a continuous optimization of processes, consumption, costs, margins and inventory throughout our divisions; (ii) the reduction in production resources, cost and time (lean manufacturing); (iii) the automation of processes in certain of our plants; (iv) the increase in use of recycled materials; (v) the modernization of technologies and teams through investments; and (vi) the integration of Information Technology (IT) and control systems, primarily through the SAP system. We intend to continue applying the Fifth Element with the aim of improving our profitability and to keep expanding our platform in an organic manner and through the incorporation of new businesses. The initiatives which we are implementing include the development of new solutions that match the requirements of our clients and of the market, such as products based on special made to measure metal alloys, by relying on the support of our product development and engineering departments and of our technological partners such as Centro de Investigación y Desarrollo Carso (the Carso Research and Development Center); the optimization of our energy costs through the use of alternative fuels, such as tires and industrial waste from our operations in the three divisions or using coke with a higher sulfur content than what is widely available in Mexico in the Cement Division; and leveraging our scale and that of our shareholders to obtain better input prices, like we did with the electric energy supply contract that we signed with Iberdrola in 2015 and that we estimate will lead to savings of between 5% and 15% compared to the rate obtainable from the Federal Electricity Commission (Comisión Federal de Electricidad). Use our Distribution Network to Maximize Synergies Between Divisions and Commercialize Complementary Products under our own Brands We believe that our wide network of independent distributors with coverage throughout the countries in which we operate is difficult to replicate and constitutes one of our main competitive advantages. The combination of this distribution network with our wide portfolio of products creates important opportunities to broaden our offering of solutions to the construction industry and maximize the synergies between our divisions. We intend to use our distribution network to increase our market share through the marketing of our products in markets in which we are not currently present, such as for example the sale of plastics-based products like tanks and cisterns in the United States; the introduction of new products which meet market demands; and the sale of complementary products manufactured by third parties, potentially under our brand names, which could result in our possible integration into the manufacturing of these products. Our entry into the Mexican cement industry, in which we achieved, according to internal estimates, a market share of approximately 4% in 2014 just two years after launching our Fortaleza brand, is a clear example of the benefits which we can obtain through the use of our distribution network to broaden our product offering. 13

28 We continue to seek synergies among our divisions, similar to those we have already identified and adopted, in order to achieve a better cost structure and more efficient operations. Such efforts include the use of our databases and information technology to facilitate cross selling and the centralized management of areas such as treasury, credit line analysis and billing. Using our network of independent distributors, we intend to significantly increase the marketing of complementary third party products, possibly under our brands, which has the potential to create additional product integrations. We currently sell products which we buy from third parties, making the most of the strength of our network of independent distributors, such as chromed products (e.g. keys and bath accessories), valves for the control of gas supply, roofing sheets made from recycled materials and flexible hoses. We centralize key processes to allow communication and coordination among our three divisions sales efforts throughout our distribution networks. These processes include cash management and evaluation of credit limits. Through these processes and our centralized database, we continue to optimize the collection process to support our working capital. Our Corporate Structure Prior to the global offering, Grupo Kaluz and members of the del Valle family owned 51% of our share capital and Tenedora, which is indirectly controlled by Grupo Carso, owned 46%, with the remaining shares (3%) held by two minority investors. Grupo Kaluz, which is controlled by the del Valle family and led by Daniel Martínez-Valle (who has more than twenty years of experience in the industry and over five years at Grupo Kaluz), is a Mexican conglomerate with significant investments in the petrochemical and industrial sectors. Grupo Carso, which is controlled by the Slim family, belongs to one of the world s largest conglomerates. In addition, the Slim family participates in the retail, industrial, telecommunications and manufacturing, and infrastructure and construction sectors. We are a holding company and conduct our business through our subsidiaries. The following chart shows our current corporate structure and our principal operating subsidiaries. 14

29 Elementia, S.A.B. de C.V. Metal Products Division Building Systems Division Cement Division Nacional de Cobre Mexico United States Central America South America ELC Tenedora Cementos Nacobre USA, LLC Mexalit Industrial Maxitile LLC Plycem Construsistemas Honduras Eternit Colombiana Trituradora Frigocel Plycem USA LLC Plycem Construsistemas El Salvador Eternit Atlántico 1 Concretos TPM- Fortaleza Plycem Construsistemas Costa Rica Eternit Pacífico 1 Industrias Duralit Eternit Ecuatoriana Industrias Fibraforte 1 In the process of merging. Our History We were incorporated on April 28, 1952 in Mexico City, with a duration of 99 years under the name Productos Mexalit, S.A., in accordance with Mexican law. Our name was changed to Mexalit, S.A. in 1979 and then to Elementia, S.A. in February 2009, as a result of branding changes aimed at reflecting recent acquisitions. On June 13, 2011, we became a variable capital corporation, and since then we have operated under the name of Elementia, S.A. de C.V. Since 1952, when we commenced our business as a fiber cement roofing products manufacturer, we have grown by building up our manufacturing capacity and acquiring other fiber cement and other products manufacturers throughout North, Central and South America. Through several acquisitions between 2001 and 2009, we expanded our product offerings in what is now our Building Systems Division. Between 2000 and 2008 we acquired Eternit Colombiana, Eternit Pacífico, Eternit Atlántico, Eureka Servicios Industriales, Eternit Ecuatoriana, Industrias Duralit and Plycem, all industry leaders in the production and manufacture of fiber cement roofing and water tanks in the South American and Central American regions. Continuing our expansion, in 2006 we built the Nuevo Laredo plant where we develop products that are mainly marketed in the United States using the Allura brand. Through these acquisitions and capital investments we have greatly diversified our fiber cement product offerings for the Building Systems Division. 15

30 In 2009, we commenced the construction project for the El Palmar cement plant, resulting in the creation of our Cement Division. Beginning on the same year, we have further expanded our product portfolio and geographic reach through several strategic acquisitions. On June 1, 2009, we purchased the Nacobre Subsidiaries, which manufactured and distributed copper and aluminum products, providing the basis for what is now our Metal Products Division. As a result of the acquisition, Grupo Carso, the ultimate parent of the Nacobre Subsidiaries, indirectly acquired 49% of our share capital, which has been reduced to 46% as of the date of this offering memorandum. During the course of 2011 and 2012, we sold our interests in the Nacobre Subsidiaries that produced aluminum products, and now the Nacobre Subsidiaries produce and distribute only copper, copper alloys and steel products. On December 8, 2009, we acquired Frigocel, S.A. de C.V., or Frigocel, and Frigocel Mexicana, S.A. de C.V, or Frigocel Mexicana, in Mexico, both of which manufacture plastic products, and on July 22, 2010, we acquired Fibraforte, a Peruvian company dedicated to the manufacture of polypropylene and polycarbonate roofing. Through these acquisitions, we developed and strengthened our Building Systems Division. In 2012, we decided to discontinue our fiber cement A.C. piping line from our Mexalit Industrial plant in Chihuahua, Mexico. Today, it only produces water tanks and cisterns. In the second half of 2013, our subsidiary Trituradora opened our new El Palmar cement plant. On January 8, 2013, we entered into the Lafarge Joint Venture for the production of cement in Mexico which became effective on July 31, During the existence of the Lafarge Joint Venture, we held an interest of 53%, while Lafarge held the remaining 47% interest through ownership of the capital stock of ELC Tenedora Cementos. On September 19, 2014, we entered into a share purchase agreement to acquire the remaining 47% stake in the Lafarge Joint Venture. On December 16, 2014, following the receipt of approval from the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) and the initial payment of US$180 million, we became the holder, directly or indirectly, of 100% of the shares of ELC Tenedora Cementos. During 2013, we commenced operations at a second autoclave in Colombia, increasing our annual production of fiber cement sheet products by 1,200 tons. We also transferred our copper operations at our former plant in Toluca, State of Mexico, Mexico to our plant at Celaya, Guanajuato, Mexico, as part of a process of integration. On January 31, 2014, our subsidiary Plycem USA acquired the assets of the fiber cement business of CertainTeed Corporation, an affiliate of Saint-Gobain and one of the principal manufacturers of construction materials in the United States. Through this transaction we acquired various assets related to the fiber cement business and strengthened our coverage and United States presence. Today, we are a diversified company with over 6,000 employees, offering integrated solutions in metals, fiber cement, cement and plastics products manufactured at our 26 plants located in Mexico, the United States, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru. By promoting participation in sustainable projects in our communities through our Elementia Foundation (Fundación Elementia), we consider ourselves to be a socially responsible company. Such projects include housing support, community centers (schools, clinics and others), as well as support in the context of natural disasters. Additionally, we follow national and international environmental and social responsibility standards in order to rate our performance in such matters, such as the Global Reporting Initiative (GRI) in sustainability matters. General Information The marketing name for our company is Elementia and our principal executive offices are located at Poniente 134, No. 719, Col. Industrial Vallejo, C.P , Del. Azcapotzalco, México, Distrito Federal, and our phone number is +52 (55)

31 THE GLOBAL OFFERING This summary highlights information presented in greater detail elsewhere in this offering memorandum. This summary is not complete and does not contain all the information you should consider before investing in our shares. You should carefully read this entire offering memorandum before investing in our shares, including the section entitled Risk Factors and our consolidated financial statements. For more information on our shares, see Description of Our Capital Stock and By-Laws. Issuer... Offering price per share... Shares offered in the global offering... The international offering... The Mexican offering... Initial purchasers... Mexican underwriters... Elementia, S.A.B. de C.V. Ps$17.00 per share (US$1.07 per share, at the exchange rate published by the Bank of Mexico for July 9, 2015 of Ps$ per U.S. dollar). 201,000,000 shares of our common stock, no par value, or the shares. See Plan of Distribution. We are offering 38,808,695 shares through the initial purchasers, in the United States to qualified institutional buyers as defined in Rule 144A under the Securities Act, in transactions exempt from registration thereunder, and in other countries outside Mexico and the United States, to non-u.s. persons in reliance on Regulation S under the Securities Act. Concurrently with the international offering, we are offering 162,191,305 shares in Mexico, all of which are registered with the RNV, in a public offering approved by the CNBV, conducted through the Mexican underwriters to the general public in Mexico. Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Santander Investment Securities Inc. and BBVA S.A. Casa de Bolsa Credit Suisse (Mexico), S.A. de C.V., Grupo Financiero Credit Suisse (México), Morgan Stanley México, Casa de Bolsa, S.A. de C.V., Acciones y Valores Banamex, S.A. de C.V., Casa de Bolsa, integrante del Grupo Financiero Banamex, Casa de Bolsa Ve por Más, S.A. de C.V., Grupo Financiero Ve por Más, Inversora Bursátil, S.A. de C.V., Casa de Bolsa, Grupo Financiero Inbursa, Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander México, HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC, and Casa de Bolsa BBVA Bancomer, S.A. de C.V., Grupo Financiero BBVA Bancomer. 17

32 Reallocations... Overallotment options... Shares outstanding after the global offering... Use of proceeds... The number of shares being offered in the global offering (including any shares placed pursuant to the overallotment options) may be reallocated between the international offering and the Mexican offering, depending upon demand and other factors applicable in the Mexican market and the international markets where our shares are being offered and, as a result, the number of shares placed in the Mexican offering and the international offering may vary. Independent options have been granted to the initial purchasers and to the Mexican underwriters, exercisable within 30 days counted from the date of this offering memorandum, to purchase up to an aggregate of 15% of the shares offered in both the international offering and the Mexican offering from us at the initial offering price thereof, to cover overallotments on the offering date, if any. See Plan of Distribution. The overallotment options may be exercised only once, in whole or in part, on a coordinated basis, but may be exercised independently by the Mexican underwriters and the initial purchasers, depending upon circumstances affecting each market and stabilization conducted in respect of each such market. Immediately following the global offering, we will have an aggregate of 843,593,820 shares outstanding, assuming no exercise of the overallotment options granted by us, and 873,743,820 shares if the overallotment options are exercised in full by both the initial purchasers and the Mexican underwriters. We estimate that the net proceeds to us from the sale of the shares being offered by us in the global offering will be approximately Ps$3,276 million, or approximately US$207 million (at the July 9, 2015 exchange rate of Ps$ per US$1.00), after deducting all estimated underwriting discounts and commissions and other expenses we must pay in connection with the global offering, assuming no exercise of the overallotment options. We intend to use (i) approximately Ps$2,594 million (approximately US$164 million), or 79.18% of the net proceeds of the global offering (assuming no exercise of the overallotment options), for capital expenditures principally within the next 24 months to increase production capacity in the Cement Division; and (ii) approximately Ps$682 million (approximately US$43 million), or 20.82% of the net proceeds of the global offering (assuming no exercise of the overallotment options), for the final payment relating to the purchase of Lafarge s non-controlling interest in the Lafarge Joint Venture. 18

33 Listing... BMV symbol... An application has been filed to register the shares with the RNV maintained by the CNBV, and to list the shares for quotation on the BMV under the symbol ELEMENT. We expect that simultaneously with the consummation of the global offering, such registration and listing will have been effected. Prior to the global offering, there has been no trading market for the shares in Mexico, the United States or elsewhere. We cannot assure you that a trading market will develop or will continue if developed. ELEMENT Offering date... July 9, Settlement date... July 15, Payment, settlement and delivery... Settlement of the shares will be made on July 15, 2015 through the book-entry settlement and custody system of Indeval. The initial purchasers will deliver the shares in book-entry form only through the facilities of Indeval, in Mexico City, Mexico, on or about July 15, Investors must settle their purchase of shares in Pesos. Depository... Dividends... Voting rights... Principal shareholders... Change of control and shareholders agreements... S.D. Indeval Institución para el Depósito de Valores, S.A. de C.V., the Mexican licensed central securities depositary. See Dividends and Dividend Policy. All of our issued and outstanding shares have full voting rights. See Description of Our Capital Stock and By-Laws Share Capital and Voting Rights. After giving effect to the global offering, and assuming no exercise of the over-allotment options, our principal shareholders will own approximately 77.8% of our outstanding shares. See Principal Shareholders. Provisions of our by-laws and the LMV may make it difficult and costly for a third-party to pursue a tender offer or takeover attempt resulting in a change of control. Our by-laws contain provisions which, among other things, require approval of our board of directors prior to any person or group of persons acquiring, directly or indirectly, 8% or more of our shares. In accordance with the LMV and our by-laws, if a person or group of persons intends to acquire 30% or more of our shares, such persons are required to conduct a tender offer to purchase the corresponding shares and, if their intention is to obtain control of the Company a tender offer for 100% of our shares must be conducted. Our board of directors is required to opine over the price to be offered in any tender offer, which opinion may be based upon the advice of a financial advisor. These provisions could substantially impede the ability of a third party to control us, and could be detrimental 19

34 to shareholders willing to benefit from any change of control premium paid on the sale of the Company in connection with a tender offer. See Description of Our Capital Stock and By-Laws Change of Control Provisions. If any person or group of persons acquires shares representing 8% of more our total share capital without the prior approval of our board of directors, the Company will not recognize such acquisition nor will it register the acquirer as a shareholder for the purposes of the exercise of voting rights and other corporate rights attaching to the acquired shares. As a result of the global offering, a shareholders agreement among the current principal shareholders of the Company (Grupo Kaluz, members of the del Valle family and Tenedora) shall come into force. Such agreement includes provisions relative to: (i) preferential subscription rights; (ii) possible transfers of rights to subscribe for shares between affiliates and third parties; (iii) a reciprocal option to purchase shares as among the current principal shareholders, in the case of transfers of shares in equal or greater than 5% blocks; and (iv) voting in common to (a) appoint the number of directors corresponding to each of the blocks of controlling shareholders and (b) for certain other matters, including increases or reductions in capital, amendments to bylaws, mergers, dividend payments and material investments and divestitures. Transfer restrictions... Lock-up period... The international offering is being made in accordance with Rule 144A and Regulation S under the Securities Act. The shares have not been and are not expected to be registered under the Securities Act or with any securities regulatory authority of any U.S. state or other jurisdiction and, accordingly, may not be offered, sold, pledged or otherwise transferred or delivered within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except as set forth in Transfer Restrictions. As a result of these restrictions, investors are advised to consult legal counsel prior to making any reoffering, resale, pledge or transfer of the shares. We and our current shareholders have agreed, subject to certain exceptions, for a period of 180 days from the date of this offering memorandum, without the prior written consent of the representatives of the initial purchasers and Mexican underwriters, not to issue, sell or transfer, the shares of our capital stock or any securities convertible into or exchangeable for, or that represent the right to receive shares of our capital stock. See Plan of Distribution. 20

35 Taxation... Approval of the global offering by our shareholders... Risk factors... Under Mexican law, dividends paid by us to holders of our shares who are not residents of Mexico for tax purposes, will be subject to a 10% Mexican withholding tax imposed on the relevant dividend payment. Sales of our shares effected through the BMV or through any other securities market recognized by the Mexican Tax Administration Service (Servicio de Administración Tributaria) by holders who are not residents of Mexico for tax purposes are generally subject to a 10% Mexican withholding tax, withheld by the applicable Mexican custodian through which the sale is conducted. See Taxation for a discussion of certain U.S. federal and Mexican federal tax consequences of purchasing, holding and disposing of our shares. The registration of the shares with the RNV and the listing for quotation of such shares with the BMV, the increase in the variable portion of our capital stock relating to the issuance of the shares to be offered in the global offering and the amendment of our by-laws (estatutos sociales) in order to give effect to the requirements of the LMV necessary to conduct a public offering in Mexico, including the adoption of the form of a listed corporation (sociedad anónima bursátil), were approved by ordinary and extraordinary general meeting of our shareholders held on June 26, Investing in our shares involves risks. See Risk Factors beginning on page 27 and the other information in this offering memorandum for a discussion of factors you should carefully consider before deciding to invest in the shares. 21

36 SUMMARY CONSOLIDATED FINANCIAL AND OTHER INFORMATION The following tables set forth our summary consolidated financial and other information, which has been derived from our consolidated financial statements prepared in accordance with IFRS. The financial information as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 was obtained from the interim unaudited condensed consolidated financial statements included elsewhere in this offering memorandum. The financial information as of and for the years ended December 31, 2014, 2013 and 2012 was obtained from our audited consolidated financial statements included elsewhere in this offering memorandum. The U.S. dollar amounts provided below are translations from the Mexican peso amounts, solely for the convenience of the reader, at the exchange rate of Ps$ per U.S. dollar, which is the exchange rate published by the Mexican Central Bank (Banco de México) as the rate for the settlement of liabilities denominated in U.S. dollars payable in Mexico on March 31, You should not construe these convenience translations as representations that the Mexican peso amounts actually represent the United States dollar amounts presented, or that they could be converted into U.S. dollars at the rate or at the dates indicated. See Exchange Rates. The financial information for the years ended December 31, 2013 and 2012 may not be comparable to the financial information for the year ended December 31, 2014 or prior periods as a result of our acquisition of the Lafarge Joint Venture in July 2013 and the acquisition of the assets of the fiber cement business of CertainTeed in January The consolidated financial information contained herein must be read in conjunction with our audited annual consolidated financial statements and the notes thereto and our unaudited interim condensed consolidated financial statements and the notes thereto included elsewhere in this offering memorandum. Furthermore, this summary information should be read in conjunction with the explanations provided in Management s Discussion and Analysis of Our Results of Operations and Financial Condition. For the three months ended March 31, For the year ended December 31, (in millions of U.S. dollars) (in millions of pesos) (in millions of U.S. dollars) (in millions of pesos) Profit or Loss Data: Continuing operations: Net sales ,070 3,639 1,012 15,331 12,929 13,506 Cost of sales ,073 2, ,683 9,908 10,273 Gross profit ,648 3,021 3,233 Operating expenses ,228 2,125 1,888 Other income, net(1)... (0) (6) (162) (12) (184) (301) (21) Exchange loss (income) (9) Interest income... (2) (33) (18) (5) (80) (46) (31) Interest expense Banking fees Equity in income of associated entity... (4) (35) Income before income taxes and discontinued operations Income tax expense (benefit) (38) Income from continued operations Discontinued operations(2): Loss from discontinued operations, net Consolidated net income Non-controlling interest... (0) (1) (10) Consolidated net income attributable to the owners of the Company (1) See note 22 to our consolidated financial statements for more details. (2) See note 25 to our consolidated financial statements for more details. 22

37 For the three months ended March 31, For the year ended December 31, 2015(2) 2015(2) 2014(2) 2014(2) 2014(2) 2013(2) 2012(2) (in millions of U.S. dollars, except per share amounts) (in millions of pesos, except per share amounts) (in millions of U.S. dollars, except per share amounts) (in millions of pesos, except per share amounts) Basic income per share (in thousands of pesos): From continuing operations From discontinued operations... (0) (0.01) (0.01) (0) (0.14) (0.09) (0.85) Basic income per share Weighted average shares outstanding (in thousands) , , , , , , ,850 EBITDA(1) ,675 1,913 1,877 (1) EBITDA is not a financial measure recognized by IFRS. EBITDA is included in this offering memorandum because we believe that it is useful to certain investors as a supplemental measure of our financial performance and our ability to service our debt and fund capital expenditures. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. The presentation of EBITDA may not be comparable to similarly entitled measures used by other companies. (2) These figures have been restated to take into account the stock split that was approved by our ordinary and extraordinary general meeting of shareholders on June 26, The stock split was applied retroactively to all periods presented. Weighted average shares outstanding and earnings per share as shown in this table do not coincide with our annual or interim financial statements included elsewhere this offering memorandum, as the stock split took place after the issuance of such financial statements. 23

38 As of March 31, As of December 31, (in millions of U.S. dollars) (in millions of pesos) (in millions of U.S. dollars) (in millions of pesos) Statement of Financial Position: Current assets: Cash and cash equivalents , ,193 1,973 1,762 Derivative financial instruments Accounts receivable Net , ,150 3,506 2,926 Due from related parties Inventories Net , ,471 2,250 2,471 Prepaid expenses Total current assets , ,992 8,087 7,760 Non-current assets: Property, machinery and equipment Net... 1,032 15,646 1,037 15,711 14,608 11,823 Investment in shares of associated companies and others Net plan assets for employee benefits at retirement Intangibles and other assets Net , ,184 3,174 1,108 Long-term receivables due from related parties and other long-term accounts receivable Total non-current assets... 1,267 19,208 1,273 19,287 18,136 14,248 Total assets... 1,887 28,600 1,866 28,279 26,223 22,008 Current liabilities: Notes payable to financial institutions and current portion of long-term debt , , Trade accounts payable , ,482 2,663 2,330 Financière Lafarge, S.A.S Direct employee benefits Provisions Accrued expenses and taxes Due to related parties Current portion of income tax liabilities from consolidation Advances from customers Derivative financial instruments Total current liabilities , ,555 3,976 3,520 Long-term liabilities: Notes payable to financial institutions and long-term debt , ,282 6,185 5,926 Long-term due to related parties Deferred income taxes , ,155 1,080 1,490 Income taxes liabilities from consolidation Other long-term liabilities Total long-term liabilities , ,117 7,810 7,499 Total liabilities... 1,115 16,902 1,100 16,672 11,786 11,019 Total stockholders equity , ,607 14,437 10,989 Total liabilities and stockholders equity... 1,887 28,600 1,866 28,279 26,223 22,008 24

39 For the three months ended March 31, For the year ended December 31, (in millions of U.S. dollars, except turnover days and sales volume) (in millions of pesos, except turnover days and sales volume) (in millions of U.S. dollars, except turnover days and sales volume) (in millions of pesos, except turnover days and sales volume) Other Data: Purchase of property and equipment... (8) (128) (40) (613) (2,059) (2,113) Depreciation and amortization for the period , Accounts receivable turnover (in days) Accounts payable turnover (in days) Inventory turnover (in days) Consolidated sales volume (in thousands of tons) ,422 2,422 1, EBITDA is not a financial measure recognized by IFRS. EBITDA is included in this offering memorandum because we believe that it is useful to certain investors as a supplemental measure of our financial performance and our ability to service our debt and fund capital expenditures. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. The presentation of EBITDA may not be comparable to similarly entitled measures used by other companies. The following tables reconcile consolidated net income to EBITDA: For the three months ended March 31, For the year ended December 31, Consolidated EBITDA Reconciliation (in millions of U.S. dollars) (in millions of pesos) (in millions of U.S. dollars) (in millions of pesos) Consolidated net income (loss)... $ 4 $ 59 $ 179 $ 35 $ 530 $ 492 $ 315 Plus (Less): Loss from discontinued operations, Net Income tax expense (benefit) (38) Equity in income of (4) (35) associated entity Financing result, net(1) Depreciation and amortization for the period , EBITDA... $ 46 $ 707 $ 609 $ 177 $ 2,675 $ 1,913 $ 1,877 (1) Includes the net amount of interest income, interest expense, banking fees and exchange loss (income). 25

40 For the year ended December 31,(2) Consolidated EBITDA Reconciliation (in millions of U.S. dollars) (in millions of pesos) Consolidated net income (loss) $ 6 $ 89 Plus (Less): Loss from discontinued operations, Net... (4) (61) Income tax expense (benefit) Equity in income of associated entity... Financing result, net(1) Depreciation and amortization for the period EBITDA... $ 19 $ 291 (1) Includes the net amount of interest income, interest expense, banking fees and exchange loss (income). (2) Based on MFRS, which were the financial reporting standards applicable and effective in Mexico in

41 RISK FACTORS An investment in our shares involves risks. Before deciding to purchase our shares, you should carefully consider the risks described below, as well as the additional information contained in this offering memorandum. Any of the risks described below may materially affect our operations, business plans, financial condition or results of operations. In such cases, the price or liquidity of our shares could decrease and you may lose part or all of your investment. The risks described below are those which we currently believe could adversely affect us. Additional risks not currently known or not considered material on the date hereof could also adversely affect our business results of operations and financial condition. Risk Factors Related to Our Business The industries in which we operate are highly competitive and any increased competition could adversely affect our financial condition. A high degree of competition exists in the markets in which we participate. We compete with several large and small manufacturers of construction materials, many of which are larger than us in terms of production and sales capacity and have greater financial resources. We usually compete on quality, price, product performance, sales, service and marketing support. In addition, we compete with a large number of distributors of construction materials. We also face competition in our various production divisions from Mexican and non-mexican producers of alternative materials, such is the case with respect to producers of galvanized steel roofs, plastic, cardboard or fibrobitumen, cement and gypsum panels in our Building Systems Division and producers of products similar to plastics that are manufactured with different resins and products such as chlorinated polyvinyl chloride, or CPVC, polypropylene plastic pipes and other plastics in the Metal Products Division. In Mexico, increased competition between national and transnational manufacturers and with alternative construction materials could adversely affect our business, results of operations and financial condition. We may be unable to complete or integrate our completed or prospective acquisitions successfully, which could adversely affect our results of operations and financial condition. We have acquired and, as part of our strategy, intend to continue acquiring in the future, businesses in Mexico and in other countries. See Summary Our Key Strategies and Summary Our History. We are unable to predict whether or when additional acquisitions will occur, or the likelihood of a material transaction being completed on terms and conditions favorable to us. Our ability to continue to expand successfully through acquisitions depends on many factors, including the availability of potential targets, and our ability to identify acquisitions and negotiate, finance and close transactions. Even if we complete future acquisitions, these transactions involve risks, including the following: the acquired businesses failing to achieve expected results; inability to successfully integrate the operations, services and products of any acquired company, or the inability to achieve expected synergies and/or economies of scale; unanticipated liabilities; failure to effectively plan or manage acquisitions; antitrust considerations and other regulatory requirements; diversion of attention of our management; and possible inability to retain or hire key personnel for the acquired businesses. 27

42 If we are unable to integrate or manage our acquired businesses successfully, we may not realize anticipated cost savings, revenue growth, synergies and levels of integration, or be able to operate efficiently acquired businesses, which may have an adverse effect on our business, results of operations and financial condition. Further, approval by the Mexican Economic Competition Commission (Comisión Federal de Competencia Económica) or other antitrust regulators in the different countries where we may pursue any other acquisition, is required for us to acquire or sell significant businesses and to enter into significant joint ventures. We cannot assure you that the Mexican Economic Competition Commission or such other agencies or equivalent authorities in other jurisdictions, will authorize our proposed joint ventures or acquisitions in the future, or that it will authorize transactions without imposing conditions or requiring that we divest portions of our business, which may adversely affect our business, results of operations and financial condition. Our business is subject to the risks generally associated with international business operations. We engage in manufacturing and other business activities throughout the United States, Mexico, Central America and South America. Our principal manufacturing facilities are located in Latin America and the United States. As a result, our business is and will continue to be subject to the risks generally associated with international manufacturing and other business operations, including: governmental regulations applicable to manufacturing operations, including environmental regulations; changes in social, political and economic conditions; transportation delays; power and other utility shutdowns or shortages; disparity in currency conversion and volatility of foreign exchange markets; limits on the supply of skilled labor and changes in local labor conditions; changes in administrations and their policies; guidelines and policies in respect of foreign investment and competition; changes in tax and other laws and regulations; and natural disasters. Some of the countries in which we operate have been subject to social and political instability, and interruptions in operations in our foreign manufacturing facilities could occur in the future. Our sales could be adversely affected by many of the foregoing factors, as well as by government regulations applicable to the import, export or sale of our products and trade protection measures or to governmental taking or expropriations. Our operations depend on the building materials and infrastructure sectors. A reduction in the activities of these sectors could adversely affect our operations. In 2014, our net sales were derived primarily from our sales to the building materials and infrastructure sectors, respectively, in Mexico, the United States and Latin America. A decline in the building materials industry in the countries in which we operate or a negative change in economic and demographic factors influencing the building materials industry, all of which have occurred in the past, may have a material adverse effect on our results of operations, cash flows and financial condition. Similarly, our historical performance has been partially tied to public sector spending on infrastructure and housing projects and our ability to bid successfully for such contracts. Sales to the public sector represented 14% of total sales for the Building Systems division in Public sector spending, in turn, generally has been dependent on the relative health of the economies of the countries in which we operate. A decrease in public sector spending or a negative change in the economic and demographic factor influencing this industry could have a material adverse effect on our business, results of operations and financial condition. 28

43 The lack of development of new products and production technologies and the inability to operate efficiently may damage our competitive position. Our customers require ongoing advances in quality and performance, and we need to develop and market products that meet market needs in a timely manner in order to remain competitive. If new technologies were to emerge to which we did not have access or we are not able to produce or provide products that meet market needs in a timely manner and at competitive prices, our results of operations could be significantly and adversely affected. Furthermore, if our products are no longer purchased (for example, in the event that new technologies or valueadded products are developed), the costs of research and development or capital expenditures related to specific products would not be recovered, which could adversely affect our business, results of operations and financial condition. Although we spend a portion of our resources in research and development, no assurances may be given that the monies and resources devoted would be sufficient for us to maintain state-of-the art technologies. Increases in the price and decreases in the availability of raw materials may adversely affect our financial condition. Our results of operations are significantly affected by the cost and availability of our raw materials, including copper (and recycled copper), pulp and plastics resins. Prices for copper are subject to market conditions, demand by other Mexican and international manufacturers of construction materials, freight costs and prices in the international market. All of these factors are beyond our control. Although we are currently able to pass on the cost of these raw materials to our customers, we may not be able to pass on higher copper costs to our customers, or other costs of raw materials that are significant and change suddenly, and there is no guarantee that we will be able to continue passing on these costs to our customers in the future. In addition, we enter into derivative financial instruments (such as forward and futures contracts) to hedge financial risks associated with our exposure to metals prices. However, our hedging strategy may be insufficient or not successful. Although we have strong business relationships with suppliers of plastics resins, the price of these resins is denominated in U.S. dollars and depends on two hydrocarbons derived from petroleum, benzene, ethylene and other natural gas derivatives. Therefore, the price of these resins depends on the price of oil, natural gas and exchange rate fluctuations. Although we are generally able to pass on increases in the prices of these resins to our end customers, there are no assurances that we will be able to pass on higher costs to our customers in the future. Reliable access to, and consistent quality in the supply of, pulp from the United States, Canada and Chile are critical to our production of fiber cement building materials. The main suppliers of cellulose fiber are located in Chile and Canada. We manage our supply by means of negotiations based on annual forecasts, with quarterly reviews, monitoring our inventories according to logistical cycles. Availability of this raw material, because it is of a particular specification, is subject to production volumes in the factories. Even though its availability in the market is limited, there are few industries that consume pulp with this specification. Although this raw material is readily available at prices prevailing in the global market, there is no guarantee that these materials will be readily available in the future. Any increase in the price of raw materials which cannot be passed on to our customers, or cannot be passed on quickly, or mitigated through derivative financial instruments, or a reduction in the availability of such raw materials due to market shortages or conflicts with suppliers, could adversely affect our business, results of operations and financial condition. In addition, no assurance can be given that cost increases will not have a larger adverse impact on our financial condition and profitability than currently anticipated. Maintenance, upgrading and improvements related to our production capacity require significant investment, without being able to ensure that we can achieve the expected return on these investments. We are currently considering expanding and improving our existing facilities. See Summary Our Key Strategies. We may not obtain our expected return on our investments, particularly if certain adverse events were to occur, including changes in the markets for our products, inaccurate projections, including projections regarding future market demands, on which decisions were made regarding the timing or manner of these investments or an inability to obtain sufficient resources to make necessary capital expenditures. This could have a material adverse effect on our results of operations, including asset impairment charges. Furthermore, there is a possibility that existing projects will not be completed in a timely manner or at all, due to factors such as the inability to obtain financing, regulatory changes, failure to perform or the lack of availability of contractors and subcontractors and 29

44 logistical problems, which could hinder or prevent us from implementing our business strategy, which in turn could adversely affect our business, results of operations and financial condition. Our inability to effectively manage our growth could adversely affect our business and results of operations. We have experienced rapid growth in our operations and employee headcount, which has required and will continue to require a major effort by management with respect to our administrative, operational and financial infrastructure. We anticipate requiring additional growth to continue expanding the scope of our operations and the size of our customer base. Our continued success will depend in part on the ability of our key executives to effectively manage this growth, including causing employees to continue to perform in accordance with our standards and specifications. In order to effectively manage our business and growth, we must continue to improve our internal controls, information technology systems, operational, financial and management procedures and generally map and improve our various processes. Furthermore, new employee hires will increase our spending, which could, in the short term, offset increases in net sales. In the event that we fail to efficiently manage our planned growth, our costs could increase more than expected, net sales may decrease or increase at a slower rate than anticipated and we may not be able to implement our business strategy, which could adversely impact our business, results of operations and financial condition. The inability to obtain adequate capital to fund acquisitions or expansions could delay or prevent the implementation of our business strategy. It is expected that the expansion and continuous development of our operations will require significant capital expenditures and operating expenses, including working capital requirements, which may not be obtainable on acceptable terms or at all. It is possible that we will not generate sufficient cash flow from operations to meet cash requirements. In addition, capital requirements could vary significantly as compared to our current estimates, if, for example, revenue does not reach expected levels, or we have to incur unforeseen capital expenditures and investments to maintain our competitive position. If this is the case, we may require additional financing sooner than expected, certain development and expansion plans may need to be delayed or we could miss market opportunities. We may not be able to obtain financing or debt capital in the future and even if obtained, it may not be on favorable terms or on terms that are competitive to those that may be obtained by our competitors. It is likely that future lending instruments, such as lines of credit, will contain various affirmative and negative covenants, and may require us to provide assets as collateral. This could limit our ability to obtain additional financing to conduct acquisitions and use funds on capital expenditures and to fund our strategy. The inability to raise additional capital on satisfactory terms may delay or prevent the expansion of our operations and the taking of advantage of available opportunities, which could adversely affect our business, results of operations and financial condition. The lack of capacity to meet customer orders may adversely affect our competitive position and could have a negative effect on our results of operations. The lack of capacity to meet customer orders may adversely affect our competitive position and have a negative effect on our results of operations. If for any reason we cannot continue with our expansion and growth plans, our ability to market and sell our products will be limited by the production capacity of our 26 existing operating plants. If we are continuously unable to meet customer demands, this fact will have an impact on our franchise and is likely to adversely affect our business and results of operations. We rely on our network of independent distributors to sell and distribute our products. If the sales of those distributors are low or if they give preference to products of our competitors, our results of operations and financial condition could be adversely affected. Most of the sales of our products are made through independent distributors who sell these products to the commercial, industrial and retail markets. Any substantial decrease in the sales of our independent distributors could adversely affect the sales of our products sold through such distributors. Independent distributors also often carry products that directly compete with our products. Our independent distributors may give higher priority to products of, and/or form alliances with our competitors. If a substantial portion of our independent distributors fail to purchase our products, or fail to provide our products with promotional support, our results of operations and financial condition are likely to be adversely affected. Developing our own distribution network is costly and may not happen rapidly as a means to substitute current distributors. 30

45 Price increases or shortages in the supply of electricity and fuel could adversely affect our results of operations. We consume significant amounts of electricity, gas and fuel in our operations, the cost of which has significantly fluctuated in recent years. Energy and gas costs are affected by several factors, including weather, product mix and price increases during peak-demand hours. In 2014, energy and gas costs collectively represented approximately 7% of our production costs. Our financial condition or results of operations could be materially affected by future increases in energy and fuel costs or shortages in the supply of electricity and fuel. We depend on a limited number of suppliers. We depend on a limited number of key suppliers to meet our raw material requirements. For example, we obtain our raw materials, such as chrysotile fiber used in the production of certain of our Building Systems Division products, from suppliers in Colombia, Brazil, Russia, China and Kazakhstan, among others. If any of our key suppliers fails to deliver or to deliver timely, we could face limited access to raw materials, higher costs and delays resulting from the need to obtain our raw material requirements from other suppliers. Any such situation could adversely affect our production, net sales, business, results of operations and financial condition. Labor disruptions could affect our results of operations. We have entered into 26 collective bargaining agreements with various unions. Almost all of these collective bargaining agreements are renegotiated yearly, except for the collective bargaining agreement in Colombia, which is renegotiated every three years. Approximately 63% of our total employees are represented by labor unions. An inability to successfully negotiate renewals may adversely affect our business and results of operations. Also, in the event we encounter adverse financial conditions, we may have difficulty meeting the terms of such agreements, which could have a negative impact on our business and results. We occasionally experience pressure from unions to increase the benefits paid to our employees, which could affect our results of operations. Similarly, there is no guarantee that relations with unionized workers will be free from individual or collective disputes. A collective dispute accompanied by a temporary interruption or prolonged strike by our employees could have a negative impact on our business and results of operations and may expand throughout the different facilities in which we operate. Our success depends on our ability to retain certain key personnel and our ability to hire additional key personnel. We depend on the performance of our senior management and key employees. In particular, our senior officers have considerable experience in our business, and the loss of any of them or in our ability to attract and retain sufficient replacements or additional qualified officers, could adversely affect our ability to continue to operate efficiently, implement our business strategy or obtain results of operations that are consistent with prior returns. Our future success also depends on our continued ability to identify, hire, train and retain qualified sales, marketing, operations and administration personnel. Competition for such qualified personnel is intense. If we are unable to attract, integrate or retain such qualified personnel, our business, financial condition and results of operations are likely to be adversely affected. We may be unable to protect the reputation of our brands and our intellectual property rights. Our net sales are derived from sales of products under brands owned by us. These brand names are key business assets. Maintaining the reputation of these brands is essential to our future success and loss of reputation could have a material adverse effect on our business, results of operations and financial condition. We have also obtained patents and submitted patent applications on our products, including Maxi-Therm fiber cement roofing, multiconnectors for water tanks and mineral fiber manufacturing process, which we believe distinguishes our products from those of our competitors. We cannot assure you that we will be able to maintain the value of our brands or that our patent applications will be successful or will not be challenged. Our principal trademarks and patents are registered in Mexico and in the relevant countries where these trademarks and patents are used. Even if we enforce our rights against third-party offenders, we cannot assure that our actions to establish and protect our intellectual property rights are adequate to prevent imitation of our products 31

46 or use of our production systems and processes by others or to prevent others from seeking to block sales of our products on grounds that they violate their trademarks and proprietary rights. If a competitor were to infringe our trademarks, enforcement by us of our rights would likely be costly and would divert resources that would otherwise be used to operate and develop the business. Although we intend to actively defend the trademark and patents in our portfolio, we cannot assure you that we will be successful in enforcing these intellectual property rights. See Business Intellectual Property. Unexpected equipment failures may lead to production curtailments or shutdowns. Interruptions in our production capabilities could increase our production costs and reduce our sales and earnings for the affected period. Our plants are subject to the risk of catastrophic loss due to unanticipated events. Our manufacturing processes are dependent upon critical pieces of equipment, which could reduce our production capacity or incur downtime as a result of unanticipated failures. In the future we could experience inoperability or reduced production capabilities in our plants due to equipment failure. Unexpected interruptions in our production capabilities would adversely affect our business, productivity and financial condition. Moreover, any interruption in our production capability may require significant capital expenditures to remedy the problem, which would reduce the amount of cash available for our operations. Our insurance may not cover such losses. In addition, a long-term disruption could harm our reputation and result in a loss of customers, which could adversely affect our business, results of operations and financial condition. Natural disasters, production hazards and other events could adversely affect our business. Natural disasters, such as torrential rains, hurricanes and earthquakes, could impede operations, damage our infrastructure or adversely affect our production facilities. We could also be subject to acts of vandalism or civil disturbances, which could affect our infrastructure and/or our distribution network. Any of these events could increase our capital expenditures for repairs. Our operations are subject to hazards, such as fires, explosions and other accidents, associated with the use of chemicals and the storage and transportation of our products. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment, and environmental damage. A significant accident at one of our plants or storage facilities could force us to suspend our operations temporarily and result in significant remediation costs, governmental penalties or fines and lost sales. Notwithstanding that we have insured our plants against damages caused by natural disasters, accidents or other similar events and resulting consequential damages, if losses occur we cannot assure you that losses caused by damage to our plants will not exceed policy limits or will be covered by our policies. Damages significantly in excess of our insurance policy limits or that were not foreseeable and covered by our policies could have a material adverse effect on our business, results of operations, financial condition and prospects. In addition, even if we receive insurance proceeds as a result of a natural disaster, facilities could suffer interruptions in production as we complete repairs, which could materially and adversely affect our business, results of operations, financial condition and prospects. We are subject to stringent environmental laws and regulations which may impose significant costs on us. We are subject to various environmental protection, health and safety laws and regulations governing, among other things, the production, storage, handling, use, remediation, disposal and transportation of hazardous materials, the emission and discharge of hazardous materials into the ground, air or water, and the health and safety of our employees. We are required to obtain permits from governmental authorities for certain operations and have voluntarily obtained certifications from national and international organizations for certain of our production plants. We cannot assure you that we have been or will be at all times in compliance with such laws, regulations, permits and certifications. If we violate or fail to comply with these laws, regulations or permits, we could be fined, be subject to administrative and criminal procedures, have our facilities be shut down or otherwise be sanctioned by regulators. Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at our or our predecessors past or present facilities and at third party waste disposal sites. We may also be held liable for any and all consequences arising from human exposure to hazardous substances or other environmental damage. 32

47 Environmental laws are complex, change frequently and have become more stringent over time. Furthermore, certain governments interpret the applicable laws more strictly than others. While we have budgeted resources for future capital requirements and operating expenditures to comply with environmental laws, we cannot assure you that environmental laws will not change, become subject to stricter interpretations by authorities or become more stringent in the future. Changes or additions to existing laws or regulations, or stricter enforcement or application of such laws or regulations, could force us to make significant additional capital expenditures or to operate differently, which could affect our profitability, financial condition and results of operations, and even compel us to reformulate our processes. We cannot assure that our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to hazardous substances will not adversely affect our business, results of operations and financial condition. See Business Regulation Environmental Matters and Regulation. Certain of our fiber cement products contain chrysotile fiber. Certain of our fiber cement products manufactured in our Building Systems Division in Mexico and South America contain chrysotile fiber, which is a form of asbestos. Asbestos (including chrysotile asbestos) is one of the 113 substances that are included on the International Agency for Research on Cancer s list of carcinogenic substances. As a result, our use of chrysotile fiber is subject to various health and safety standards in the countries in which we operate. National and international health and safety standards could become stricter in the future, which would require us to make substantial additional capital expenditures to be able to substitute the use of chrysotile fiber for other synthetic fibers, as well as increase our operating costs. Our use of chrysotile fiber may also limit the marketability of, or demand for, our fiber cement products and therefore adversely affect our growth prospects. Certain of our customers, including some customers in Mexico, Colombia, Bolivia and Ecuador, avoid purchasing products that contain chrysotile fibers. In the United States, it is not forbidden to sell products that contain chrysotile fibers. Nevertheless, the products we manufacture and/or sell in that country do not contain such fibers and neither do any of the products that we manufacture in South America. We are able to substitute other fibers such as cellulose fiber, polypropylene or PVA (polyvinyl alcohol fiber) for chrysotile fiber, but our use of chrysotile fiber overall remains significant. Such substitution would result in our inability to continue manufacturing some of our products, such as fiber cement tubing in Mexico. This use of chrysotile fiber also subjects us to the risk of litigation in the future, where an adverse ruling or judgment could have a material adverse effect on our financial condition or results of operations. See Risk Factors Risk Factors Related to Our Business We may be subject to claims and potential liabilities related to the products we manufacture or distribute, or to our operations and Business Legal Proceedings. We may be subject to claims and potential liabilities related to the products we manufacture or distribute, or to our operations. We have been subject, and may be exposed in the future, to product liability claims in the event that the use of our products is alleged to have caused injury or had other adverse effects. Currently, we maintain product liability insurance coverage, but we may not be able to obtain such insurance on acceptable terms in the future, or such insurance may not provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert management and employee resources for months or years, regardless of the ultimate outcome. Similarly, such claims may adversely affect our reputation, which could result in a loss of customers. An unsuccessful product liability defense could have a material adverse effect on our business, results of operations and financial condition and may subject us to class actions that are expensive and difficult to defend. See Business Legal Proceedings. Our insurance coverage may be insufficient to cover damages that we may incur. Our insurance coverage may be insufficient to cover damages that we may incur if the amount of damages surpasses the amount of coverage of our insurance policy or policies or if the damage is not covered by such policy or policies. In addition, we cannot assure you that we will maintain our current insurance coverage or that we will be able to contract insurance at our current cost. Uninsured losses could cause us to suffer significant unanticipated expenses resulting in an adverse effect on our business, results of operations and financial condition. 33

48 We engage in hedging activity from time to time, which may not be successful and may result in losses to us. We use derivative financial instruments to mitigate the volatility of prices for certain raw materials used in our production processes, such as nickel, copper and zinc, and financial transactions we enter into from time to time. Our materials hedging activity could cause us to lose the benefit of a decrease in raw materials prices if such prices drop below the level of our hedge positions and the cash flows from the materials hedges can be affected by the market price of the raw materials, which are not under our control. Similarly, our financial hedging activity could cause us to lose the benefit of a decrease in interest rates. In addition, we cannot assure you that we will be adequately protected by our hedging activities or that such hedging activities will not result in significant losses that affect our business, financial condition and results of operations. We hold debt that could significantly impact our strategic development. As of March 31, 2015, our total indebtedness was Ps$10,552 million and our shareholders equity was Ps$11,698 million. The level of our indebtedness and the terms and conditions of such indebtedness, may have significant consequences, including: limit our ability to use our cash flow or obtain additional financing in the future to fund working capital, capital expenditures, acquisitions and future general corporate requirements; restrict our ability to pay dividends; restrict our ability to make certain payments; restrict our ability to incur additional indebtedness; restrict our ability to use the proceeds from the sale of assets as we see fit; require a substantial portion of cash flow from operations to service debt payments, particularly in the event of a default under one of our other debt instruments; require that we use cash flows as a means to make prepayments instead of using such cash flow for our capital expenditures and operations; increase our vulnerability to adverse economic and industry conditions, including increases in interest rates, foreign currency exchange rate fluctuations and market volatility; limit our flexibility in planning for, or reacting to, changes in our business and industry conditions; limit our ability to carry out additional acquisitions; and place us at a competitive disadvantage compared to other less-leveraged competitors. There is no guarantee that we will continue to generate sufficient cash flows to cover our debt, meet our working capital requirements and capital expenditures or carry out our expansion plans. To the extent that we are not able to generate sufficient operating cash flow, or in the event of our inability to apply for loans or additional funding, we will likely be required to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional funding through the issuance of equity or debt, which may impact our growth and our results of operations and financial condition. In such cases, we cannot assure you that we will be able to refinance our debt, sell assets or obtain additional financing on terms acceptable to us. Additionally, our ability to incur additional debt will be limited as stipulated in our credit agreements and the indenture governing our 2025 notes. See Management s Discussion and Analysis of Our Results of Operations and Financial Condition Liquidity and Capital Resources. If changes in our financial debt cause us to breach the terms of our credit agreement terms, the indenture governing our 2025 notes or other debt instruments, this could lead to, among other things, restrictions in our ability to make future acquisitions or enter into other operations (including future financing operations or refinancing of our debt), or accelerate the repayment of our indebtedness, which could have a negative impact on our operations, results of operations and prospects. 34

49 We are parties to several credit agreements and have issued debt in the Mexican and international securities markets, for which we have committed to comply with restrictive covenants and maintain certain financial ratios. If we fail to satisfy the covenants or maintain the financial ratios set forth in these agreements, our outstanding indebtedness could be accelerated and become immediately due and payable, thus potentially requiring us and our subsidiaries to restructure such indebtedness, which is likely to impact our flexibility and to have an adverse impact in our financial condition and results of operations. We cannot provide any assurance that we will remain in compliance with said covenants and financial ratios. We are a holding company and hold no significant assets other than shares of our subsidiaries. We are a holding company and conduct our operations through a series of operating subsidiaries and controlling operating companies. Accordingly, we depend on the results of operations of our subsidiary companies. Our ability to pay dividends and service our debt and other obligations depends on the generation of cash flow by our subsidiaries and their ability to make such cash available to us in the form of interest payments, debt repayment, dividends and capital reimbursements, among others. All assets used to provide technical and administrative services and the various concessions are held by our subsidiaries. As a result, we have no significant assets other than the shares of our subsidiaries. Any dividends or payments that we decide to issue will be subject to the availability of cash provided by our subsidiaries. Cash transfers from subsidiaries to us may be further limited by corporate and legal requirements, including having absorbed losses from previous financial years, by the terms of subordinated indebtedness or by adverse tax consequences, among others. As a result, if our subsidiaries do not pay dividends or other distributions, we may not have sufficient funds to meet our obligations or pay dividends, which could affect our financial condition and the market price of the shares. As a holding company, our ability to meet our creditors claims depends on the payments we receive from our subsidiaries and our capacity to participate in the distribution of their income. In some cases, our right, and therefore the right of our creditors, to participate in the income distribution of our subsidiaries, may be subordinated to the claims of certain creditors of our subsidiaries pursuant to applicable financial agreements and applicable law. As of March 31, 2015, our subsidiaries Trituradora and ELC Tenedora Cementos collectively hold approximately 13% of the debt of our consolidated company. Our presentation of EBITDA may not be comparable to similarly titled measures used by other companies. EBITDA is not a financial measure recognized by IFRS. EBITDA is included in this offering memorandum because we believe that it is useful to certain investors as a supplemental measure of our financial performance and our ability to service our debt and fund capital expenditures. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be comparable to similarly entitled measures used by other companies. Our completed acquisitions and divestitures may affect the comparability of our financial information. The financial information for the three months ended March 31, 2015 and fiscal years 2014, 2013 and 2012 included in this offering memorandum may not be comparable due to the acquisitions and divestitures we have completed during those periods. See Management s Discussion and Analysis of Our Results of Operations and Financial Condition. Risk Factors Relating to Mexico and Other Countries Where We Operate Downturns in the Mexican economy, which has historically been volatile, may adversely affect us. The majority of our customers are Mexican companies or individuals and as of March 31, 2015, 71% of our assets and 61% of our operations were located in Mexico. For these reasons, our operations, business, results of operations and financial condition are dependent on the level of economic activity in Mexico. Our net sales are highly affected by the level of economic activity in Mexico and the general purchasing power of Mexican individuals and companies. Accordingly, declines in the spending of our Mexican customers could have negative effects on our net sales, financial condition and results of operations. Economic slowdowns in Mexico may have, and in the case of the current slowdown, have had, additional consequences that impact our business. We also face risks associated with the impact of economic downturns on third parties such as suppliers, financial institutions and other parties with whom we do business. If these parties experience negative effects on their businesses due to an economic downturn, this could adversely affect our business, our results of operations and financial condition. 35

50 Historically, Mexican inflation rates have been extremely high, although they have decreased in recent years. In 2014, 2013 and 2012, Mexico s annual inflation, as measured in terms of the changes in the Mexican National Consumer Price Index, or NCPI, was 4.1%, 3.8% and 4.1%, respectively. In addition, although Mexican GDP has increased at the rates of 2.1%, 1.4% and 4.0% in 2014, 2013 and 2012, respectively, Mexico s economy has historically been volatile and GDP growth in the future may be slow or flat. The Mexican consumer confidence index reached an eight-year low in October 2009, when it registered 77.0 points, subsequently closing the year at 80.1 points. In 2011 to 2014, there was a steady improvement in the index, and consumer confidence at the end of that period was at points. The global recessionary environment has an impact on consumption. Consequently, consumer purchasing power may continue to decrease and demand for our products may therefore decrease. A decrease in demand could affect our operations to the extent that we are not able to reduce our costs and expenses in response to falling demand. These factors could result in a decrease in our net sales and could adversely affect our business, results of operations and financial condition. Mexico may continue to suffer a period of violence and criminal activity which could affect our operations. Mexico has recently experienced periods of violence and crime due to the activities of organized crime. In response, the Mexican government has implemented various security measures and has strengthened its police and military forces. Despite these efforts, organized crime (especially drug-related crime) continues to exist in Mexico. These activities, their possible escalation and the violence associated with them may have a negative impact on the Mexican economy or on our operations in the future. The social and political situation in Mexico could adversely affect the Mexican economy, which in turn could have a material adverse effect on our business, financial condition, results of operations and prospects. Political and economic events in Latin American countries where we operate could adversely affect us. Our business strategies, results of operations and financial condition could be adversely affected by changes in government policies in Mexico or other Latin American countries in which we have a presence and other political events that affect those countries, as well as changes in laws or administrative practices which are beyond our control. These may include, but are not limited to: government regulation applicable to the manufacture or distribution of our products or supplies; existence and interpretation of environmental laws and regulations and liabilities and obligations arising thereunder; policies relating to foreign investment; complications in transportation or roads; shortages or outages of power and other services or on the availability of raw materials, including oil and gas; restrictions on currency conversion or devaluation of currencies; the nationalization or expropriation of assets; restrictions on the repatriation of funds; and limitations on the supply of qualified personnel. Similarly, recent GDP growth in some of these countries may not continue, and future events that affect their economies could impair our ability to execute our business plan, or could adversely affect our business, results of operations or financial condition. The countries in which we operate have been exposed to political and social instability in the past. Social and political uncertainty and instability as well as other adverse social or political developments that affect those countries could adversely affect our business, results of operations and financial condition, as well as the market price of our shares. 36

51 In the past, some Latin American countries in which we operate have experienced high inflation rates. A return to higher rates of inflation could adversely affect our business, results of operations and financial condition. In addition, the countries in which we operate have devalued their currency several times in the past and could do so in the future. These measures and others that these countries could adopt may adversely and significantly affect our business, results of operations and financial condition. Mexican federal governmental policies could adversely affect our results of operations and our financial condition. We are incorporated in Mexico and a significant portion of our assets and operations are located in Mexico. As a result, we are subject to political, legal and regulatory risks specific to Mexico. The Mexican federal government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican federal governmental actions and policies concerning the economy and the federal public administration entities influence the activity of financial institutions. This could have a significant impact on private sector entities in general and us in particular, as well as on market conditions, prices and returns on Mexican securities. In addition, government housing and infrastructure expenditures affect our results as we are dependent on these sectors. We cannot provide any assurance that future policy developments in Mexico over which we exercise no control will not have an unfavorable impact on our business, results of operations or financial condition. Social and political uncertainty and instability in Mexico and other adverse social or political events that influence Mexico could affect our business, results of operations and financial condition, as well as the market price of our shares. Political developments in Mexico could significantly affect the Mexican economy, and consequently, our operations. Significant changes in laws, policies and regulations, which could affect Mexico s economic and political situation, could adversely affect our business. A depreciation of the peso relative to the U.S. dollar and other currencies could negatively affect our business and results of operations. The value of the peso and other Latin American currencies relative to the U.S. dollar and other currencies has been and may be subject to significant fluctuations resulting from crises in international markets, crises in Mexico, speculation and other circumstances. In order to consolidate the financial statements of foreign subsidiaries, their financial statements are translated from the local currency to the currency of presentation, pursuant to the following methodology: (i) the closing exchange rate in effect at the balance sheet date for all assets and liabilities; and (ii) historical exchange rates for stockholders equity, as well as net sales, cost and expenses. Translation effects are recorded under other comprehensive income (loss) within stockholders equity. Translation effects are reclassified from equity to profit or loss upon the partial or complete sale of the investment. 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 of the transaction. 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 financing result in the statements of income, except for 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 considering them as an adjustment to interest cost on those foreign currency denominated loans. Non-monetary 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. The recording of non-monetary items calculated in terms of historical cost in foreign currency are not translated. As of March 31, 2015 and December 31, 2014, we had liabilities denominated in U.S. dollars or other currencies amounting to US$583 million and US$558 million, respectively. Therefore, any significant depreciation of the peso versus the U.S. dollar or other currencies could affect our liquidity, results of operations and financial condition. Also, if a significant depreciation of the peso versus the U.S. dollar or other currencies were to occur, this depreciation could cause interest rates to rise, which could in turn affect our results of operations and financial condition. For example, a 10% devaluation of the peso against the U.S. dollar, based on the exchange rate and our outstanding dollar-denominated indebtedness at December 31, 2014, would result in a liability position of US$687 37

52 million compared to the liability of US$558 million that we had as of December 31, See note 9.e to our consolidated financial statements for more details. An increase in inflation may increase our operating costs. High levels of inflation may cause our operating costs to increase while the prices charged for our products, due to the competitive environment, may not. Most of our operating expenses are based on short-term contracts which may be subject to inflationary pressures. During most of the 1980s and during 1995, Mexico experienced periods of very high levels of inflation. Inflation has led to high interest rates, devaluations of the peso and, during the 1980s, substantial government controls over exchange rates and prices. A return to higher levels of inflation could adversely affect our business, results of operations and financial condition. Political events in Mexico could adversely affect our operations. The Mexican government s actions and policies concerning the economy, the regulatory environment or social or political context, state-owned enterprises and state controlled, funded or influenced financial institutions could have a significant impact on private sector entities in general and on us in particular, as well as on market conditions, prices and returns on Mexican securities. Such actions have involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls, limits on imports and other actions. Our business, results of operations, financial condition and dividend payments may be adversely affected by changes in governmental policies or regulations involving or affecting our management, our operations and our tax regime. Beginning in 2013, the Mexican Congress has approved various reforms relating to labor, education, telecommunications, local government indebtedness, transparency, financial, tax and energy matters. We cannot predict whether these or potential changes in Mexican governmental and economic policy will adversely affect economic conditions in Mexico or the sector in which we operate and therefore have an adverse effect on us. We cannot assure you that future changes in Mexican governmental and economic policies, will not adversely affect our business, results of operations and financial condition. There can be no assurance as to whether the government will make changes to any existing political, social, economic or other policies, whose changes may have a material adverse effect on our business, results of operations, financial condition or prospects or adversely affect the market price of our shares. High interest rates in Mexico could increase our operating and financial costs. Mexico historically has had high real and nominal interest rates. The interest rate on the 28-day Mexican interbank rate (Tasa de Interés Interbancaria de Equilibrio, or TIIE ) averaged 3.51%, 4.28% and 4.79% for 2014, 2013 and 2012, respectively, according to the Mexican Central Bank (Banco de México). We cannot assure you that interest rates will remain at current levels. Thus, if we contract peso-denominated or variable interest rate debt in the future, it may be at interest rates higher than current rates. See note 9.d to our consolidated financial statements for more details. An increase in the interest rate we pay on our indebtedness would adversely affect our financial condition and results of operations. We obtain financing under different conditions. If the rate of interest is variable, we enter into interest rate swaps to reduce our exposure to rate volatility risk, thus converting the interest payment profile from variable to fixed. See Risk Factors Related to Our Business We engage in hedging activity from time to time, which may not be successful and may result in losses to us. As of December 31, 2014 we had entered into financing instruments with interest rates based on LIBOR and TIIE in the amount of Ps$4,477 million. As an example, if LIBOR (London InterBank Offered Rate) and TIIE interest rates during 2014 registered an increase of 100 basis points, and all other variables remained constant, the payment of interest expense in 2014 would have increased from Ps$506 million to Ps$610 million. Changes in Mexican tax laws may adversely affect us or our shareholders. The Mexican Congress approved several tax reforms with the objective of increasing public sector revenues. On December 11, 2013, certain reforms to Mexican tax laws were published in the Mexican Federal Official Gazette (Diario Oficial de la Federacíon), which became effective as of January 1, While the corporate income tax rate remained at 30%, the tax reforms (i) resulted in several amendments to corporate tax deductions, among others, 38

53 by eliminating deductions that were previously allowed for related-party payments to certain foreign entities and narrowing tax deductions for fringe benefits paid to employees, (ii) added a 10% withholding income tax on dividends paid by corporations, including our company, to shareholders who are Mexican resident individuals or foreign residents, (iii) repealed the possibility of paying taxes on a consolidated basis, (iv) increased the value-added tax from 11% to 16% in the border Mexican region, (v) introduced the requirement to use electronic invoices and new monthly tax reports to be provided to governmental tax authorities and (vi) established a 10% income tax payable by Mexican resident individuals and foreign residents on the sale of stock listed on the BMV (such as our shares). Although we cannot currently predict the impact of these reforms or calculate their effects on our tax obligations in future years, these changes and future changes in Mexican tax laws may increase our tax obligations and tax payments which may affect our results of operations and financial condition. Antitrust laws in Mexico and other countries where we operate may limit our ability to expand our operations. In Mexico, the Federal Economic Competition Law and related provisions could adversely affect our ability to buy and sell companies or assets, as well as perform operations or joint ventures. Approval by the Mexican Federal Economic Competition Commission may be required to carry out significant acquisitions, divestments or associations. Failure to obtain approval from the antitrust authority could restrict our ability to complete a transaction, condition any such transaction or result in the requirement that we divest our assets. There is no guarantee that Mexico s antitrust authorities or those of any country in which we are to carry out future acquisitions, will approve any or all acquisitions under review or that arise in the future or that will do so on satisfactory terms or on terms that would not result in our obligation to divest assets. Any unfavorable or conditional decision of any authority with regards to antitrust issues may have an adverse and significant impact on our growth opportunities, including on acquisitions to integrate our businesses. A violation of laws by us or the issuance of more stringent government regulations could negatively affect us. We are subject to various federal, state and municipal laws and regulations in the countries where we operate, including those relating to the manufacture, use and handling of hazardous materials, environmental protection, health protection, labor, taxes, workplace safety and consumer protection. In order to implement projects, we are required to obtain, maintain and regularly renew licenses, permits and approvals from various government authorities. We seek to comply with these laws and regulations at all times. Failure to comply with such laws would subject us to fines, penalties, plant closings, cancellation of licenses, revocation of licenses or concessions or other restrictions on the ability to operate, which could have an adverse impact on our results of operations or financial situation. We cannot assure you that new, stricter and even prohibitive standards will not be adopted or become applicable, or that more stringent interpretations will not be given to existing laws and regulations. Any of these events may require us to incur additional costs to comply to the extent possible with these new requirements, which would increase our operating costs and could adversely and significantly affect our operations. Developments in other countries could adversely affect the Mexican economy, the market price of the shares and of other securities, as well as our results of operations. The Mexican economy and the market price of securities of Mexican companies are affected by economic and market conditions in developed countries and other emerging market countries. Although economic conditions in those countries may differ significantly from economic conditions in Mexico, adverse economic conditions may expand regionally, or investors reactions to developments in any of these other countries may have an adverse effect on the market values of Mexican issuers. In recent years, for example, the prices of Mexican debt and equity have sometimes suffered substantial declines as a result of events occurring in other countries. Moreover, the correlation between economic conditions in Mexico and the U.S. has sharpened in recent years as a result of NAFTA and an increase in economic activity between the two countries. As a result, a slowing in the U.S. economy, the termination of NAFTA and other related events could have a material adverse effect on the Mexican economy, which in turn could affect our financial condition and results of operations. These events could have an adverse effect on our operations and revenues, which could in turn affect the liquidity and the market price of our shares. 39

54 Risk Factors Relating to the Shares and this Offering Our shares have never traded on any stock market. An active market for the shares may not develop, and the market price of the shares could decline after this offering. Prior to this offering, there has not been a public market for our shares. Although we have applied for the listing of our shares for trading on the BMV, an active market in our shares may not develop on the BMV or on other markets, or if developed, it may not be maintained. The Mexican stock market, consisting of the BMV, is substantially smaller, less liquid, more volatile, has a smaller base of institutional investors and is more concentrated than main international stock markets such as those of the United States. These market characteristics may substantially limit your ability to sell our shares, or sell at a desired price and time, and this may adversely affect the market price and liquidity of our shares, as well as opportunities for shareholders to recoup the amount invested in our shares. The market price of the shares may fluctuate significantly after this offering. The price per share indicated in this offering memorandum may not be indicative of the price for our shares that will prevail in the market after the conclusion of the global offering. Future share prices may be volatile and may be subject to significant fluctuations in response to various factors, including the following: changes in market valuations of companies offering similar products; economic, regulatory, political and market conditions in Mexico, the United States and other countries; industry conditions or trends; emergence of technological innovations that could make our products and services less attractive or obsolete, or not economically viable; the introduction of new products and services by us or our competitors; the quarterly, annual historical and estimated results of operations; variations between actual and estimated results as well as analyst and investor expectations; issuer or third party announcements and events affecting operations; investor perceptions of us or our services; changes in financial or economic estimates by securities analysts; environmental events, consumer perceptions regarding environmental matters and compliance with, or liabilities under, environmental laws; regulatory provisions or prohibitions, such as those relating to the manufacturing, use and handling of dangerous materials, environmental protection, health protection, labor, fiscal, civil protection and consumer protection matters, as well as the interpretation of the aforementioned provisions, the existence of litigation, including class action lawsuits in connection with such provisions, or fines, suspensions or other sanctions relating to such provisions; regulations affecting Mexico or the Mexican securities market; regulations and interpretations thereof affecting our ability to complete acquisitions or engage in joint ventures, including regulations regarding competition, or our activities in the ordinary course; the announcement of significant operations or capital commitments made by us; currency devaluations and the imposition of capital controls; additions or departures of key management personnel; or future sales of shares. 40

55 Many of these factors are beyond our control. In addition, the stock market and the securities markets of Mexican and Latin American companies, in particular, have experienced extreme fluctuations in prices and volumes, which have often been unrelated or disproportionate to the issuers operating performance. Many market and industry factors may materially and adversely affect the price of our shares, regardless of actual operating performance. If additional shares are issued in the future, investors could be diluted, and the price of the shares could decline. As part of our business strategy, future acquisitions or corporate needs and other expenses may be financed by issuing additional equity. The issuance of equity could result in the dilution of our investors. In addition, future offerings or sales of shares by controlling shareholders, or an announcement of the intent to make such an offering or sale, could result in a decrease in the market price of our shares. Substantial sales of our shares after this offering could cause the price of such shares to decrease. We and our current shareholders have agreed, subject to certain exceptions described under Plan of Distribution, for a period of 180 days after the date of this offering memorandum, not to issue, sell or transfer, any shares of our capital stock or any securities convertible into or exchangeable for, or that represent the right to receive, shares of our capital stock. After this lock-up period expires, the shares subject to such lock-up period will be eligible for sale in the market. The market price of our shares could drop significantly, and have an impact on the liquidity of our shares, if a substantial number of our shares are sold or if the market expects such sales to occur. Future offerings of securities ranking senior to our shares may limit our operating and financial flexibility and may adversely affect the market price of, and dilute the value of, our shares. If in the future we decide to issue debt securities ranking senior to our shares or otherwise incur additional indebtedness, it is possible that such debt securities or indebtedness will be governed by an indenture or other instrument containing covenants restricting our operating flexibility, limiting our ability to make distributions to holders of our shares or limiting our ability to incur debt, undertake acquisitions or incur capital expenditures, including with regards to any payments of dividends. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences or privileges, including with respect to distributions, more favorable than those of our shares and may result in dilution to holders of our shares. Because our decision to issue securities in any future offering or otherwise incur indebtedness will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or financings, any of which could reduce the market price of our shares and dilute the value of your shares. Our principal shareholders and their related parties, who will continue to control us upon the conclusion of the global offering, may have interests that differ from those of the minority shareholders. After completion of the global offering, our principal shareholders will continue to be Grupo Kaluz, members of the del Valle family and Tenedora (indirectly controlled by Grupo Carso), and, having participated in the Mexican offering as described in this offering memorandum, they will collectively own 77.80% of our share capital and voting rights, assuming no exercise of the over-allotment options. These shareholders have entered into a shareholders agreement (see Description of Our Capital Stock and By-Laws ) which includes provisions relative to: (i) preferential subscription rights; (ii) possible transfers of rights to subscribe for shares between affiliates and third parties; (iii) a reciprocal option to purchase shares as among the current principal shareholders, in the case of transfers of shares in equal or greater than 5% blocks; and (iv) voting in common to (a) appoint the number of directors corresponding to each of the blocks of controlling shareholders and (b) for certain other matters, including increases or reductions in capital, amendments to bylaws, mergers, dividend payments and material investments and divestitures. If these shareholders were to vote in the same manner, as contemplated in the shareholders agreement, they would have the capacity to determine the outcome of substantially all actions requiring shareholder approval, including the election of the majority of our directors. The interests of these shareholders may not be consistent with the interests of minority shareholders, including the interests of any investors participating in the global offering. 41

56 Preemptive rights may be unavailable to non-mexican shareholders. Under current Mexican law, whenever we issue new shares for cash, subject to certain exceptions (including exceptions related to public offerings, mergers or conversions of convertible debt securities), we may grant preemptive rights to our shareholders, giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. If we decide to grant preemptive rights, we may not be able to offer shares to non-mexican shareholders pursuant to preemptive rights granted to our shareholders in connection with any future issuance of shares, unless a registration statement under the Securities Act or a similar registration document under other applicable laws is effective or a similar procedure is followed with respect to such rights and shares or an exemption from the registration requirements of the Securities Act or a similar exemption is available. At the time we decide to conduct a preemptive rights offering, we intend to evaluate the costs and potential liabilities associated with a registration statement to enable United States shareholders to exercise their preemptive rights, the indirect benefits of enabling United States shareholders to exercise preemptive rights and any other factors that we consider appropriate at the time. We will then decide whether to file such a registration statement. Such a registration statement may not be filed. As a result, United States shareholders may not be able to exercise their preemptive rights in connection with future issuances of our shares, while Mexican shareholders may exercise such rights. In this event, the economic and voting interest of United States shareholders in our total equity would decrease in proportion to the size of the issuance. Depending on the price at which shares are offered, such an issuance could result in dilution to United States shareholders. The protections afforded to minority shareholders in Mexico are not as comprehensive or as developed as those in the United States. Under Mexican law, the protections afforded to minority shareholders and the fiduciary duties of officers and directors are, in certain respects, not as comprehensive or as developed by court decisions as those in other jurisdictions. Although Mexican law permits any shareholder owning 5% or more of our outstanding shares to file a stockholder derivative suit, for our benefit and not the benefit of our stockholders, and provides specific duties of care and loyalty applicable to our directors and to our principal officers, the Mexican legal regime concerning fiduciary duties of directors and officers is not as comprehensive as in other jurisdictions and has not been subject to extensive judicial interpretation. Further, although Mexico recently enacted procedures for class actions, these procedures have not been extensively used to date, and there are uncertainties in respect of how they may be interpreted or implemented by Mexican courts. As a result, in practice it may be more difficult or less predictable for our minority shareholders to enforce their rights against us or our directors or officers than it would be for shareholders of a U.S. company. Under Mexican law, shareholders actions are derivative as opposed to direct, meaning that suits are brought for the benefit of the corporation rather than particular shareholders. We are subject to different disclosure and accounting standards than companies in other countries. A principal objective of the securities laws in the United States, Mexico, and other countries is to promote full and fair disclosure of all material corporate information, including accounting information. However, there may be less or different publicly available information about foreign issuers of securities than is regularly published by or about issuers in other markets. We will be subject to reporting obligations in respect of the shares to be listed on the Mexican Stock Exchange. The disclosure standards imposed by the Mexican Stock Exchange may be different than those imposed by securities exchanges in other countries, including the United States. As a result, the level of information that is available may not correspond to what non-mexican holders of our shares receive in other jurisdictions. In addition, accounting standards and disclosure requirements in Mexico differ from those of the United States. We have made no attempt to quantify the impact of those differences by a reconciliation of our financial statements or other financial information in this offering memorandum to U.S. GAAP. We cannot be certain that a reconciliation would not identify material quantitative or qualitative differences between our financial statements or other financial information as prepared on the basis of IFRS if such information were to be prepared on the basis of U.S. GAAP. Provisions of our by-laws make a takeover more difficult, which may impede the ability of holders of our shares to benefit from a change in control or to change our management and board of directors. Provisions of our by-laws and the LMV may make it difficult and costly for a third party to pursue a tender offer or takeover attempt. Holders of our shares may desire to participate in one of these transactions, but may not 42

57 be able to do so. For example, our by-laws contain provisions which, among other things, require board approval prior to any person or group of persons acquiring, directly or indirectly, 8% or more of our shares. In accordance with the LMV and our by-laws, if a person or group of persons intends to acquire 30% or more of our shares, such person or group of persons would be required to conduct a tender offer to purchase the corresponding shares, and, if their intention is to obtain control of the Company, a tender offer for 100% of our shares is required to be conducted. The board of directors is required to opine over the price to be offered in any tender offer, which opinion may be based upon the advice of a financial advisor. If any person or group of persons acquires shares that represent 8% or more of our capital stock without the prior authorization of our Board of Directors, we will not recognize such acquisition nor will the acquirer be registered as a shareholder for the purpose of the exercise of the rights corresponding to such shares. These provisions could substantially impede the ability of a third party to control us, and be detrimental to shareholders desiring to benefit from any change of control premium paid on the sale of the company in connection with a tender offer. See Description of Capital Stock Change of Control Provisions. It may be difficult to enforce civil liabilities against us or our directors, executive officers and controlling persons. We are a sociedad anónima bursátil de capital variable (variable capital public stock corporation) organized under the laws of Mexico. Substantially all of our directors, executive officers, controlling persons and experts named in this offering memorandum are non-residents of the United States, and substantially all of the assets of such non-resident persons and substantially all of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States or in any other jurisdiction outside of Mexico upon such persons or us or to enforce against them or us in courts of any jurisdiction outside of Mexico judgments predicated upon the laws of any such jurisdiction, including any judgment predicated upon the civil liability provisions of United States federal and state securities laws. There is doubt as to the enforceability in Mexican courts, in original actions or in actions for enforcement of judgments obtained in courts of jurisdictions outside Mexico, of civil liabilities arising under the laws of any jurisdiction outside Mexico, including any judgment predicated solely upon United States federal or state securities laws. Mexican law may restrict our ability to pay dividends. As required by Mexican law and our by-laws, we and our subsidiaries can only declare and pay dividends based on financial statements approved at our general shareholders meeting, provided that our legal and statutory reserves are covered, losses for prior fiscal years have been paid, and if our shareholders have also approved the payment of such dividends. The amount of such dividends must be approved at our general shareholders meeting and all losses from previous years must be fully paid or absorbed and all reserves must be properly constituted and registered. We will not be able to distribute dividends until we have covered our accumulated losses. The ability of our subsidiaries to make payments to us corresponding to dividends and for other reasons is limited by Mexican law and applicable restrictions included in certain contracts, including agreements evidencing indebtedness. In the event that these financial constraints are not met, a waiver is not received or the modification of said financial limitations is not effected, we will not be able to issue dividends in respect of our shares, including shares sold as part of the global offering. See Dividends and Dividend Policy. Dividend distributions to holders of our shares will be made in Mexican pesos. We will make dividend distributions to holders of our shares in Mexican pesos. Any significant fluctuations in the exchange rates between Mexican pesos to U.S. dollars or other currencies could have an adverse impact on the U.S. dollar or other currency equivalent amounts holders of our shares receive from the conversion. In addition, the amount paid by us in Mexican pesos may not be readily convertible into U.S. dollars or other currencies. While the Mexican government does not currently restrict the ability of Mexican or foreign persons or entities to convert pesos into U.S. dollars or other currencies, the government could institute restrictive exchange control policies in the future. Future fluctuations in exchange rates and the effect of any exchange control measures adopted by the government on the Mexican economy cannot be predicted. 43

58 The requirements of being a public company may strain our resources, divert management s attention and affect our ability to attract and retain qualified board members. As a public company in Mexico, we will incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers and may divert management s attention. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our shares from the Mexican Stock Exchange, fines, sanctions and other regulatory action and potentially civil litigation. We may prove unable to remain compliant with the registration and listing requirements imposed by the RNV and the BMV. As a company whose shares will be listed on the BMV, we will be subject to certain listing requirements, including periodic reporting and maintaining a certain minimum capitalization, in order to maintain our shares listed on such exchange. However, if we prove unable to comply with such requirements for any reason, the listing and registration of our shares with the BMV and RNV, respectively, could be cancelled, and we may also be subject to fines, sanctions and/or administrative or regulatory actions. 44

59 USE OF PROCEEDS We estimate that the net proceeds to us from the sale of the shares being offered by us in the global offering will be approximately Ps$3,276 million, or approximately US$207 million (at the July 9, 2015 exchange rate of Ps$ per US$1.00), after deducting all estimated underwriting discounts and commissions and other expenses we must pay in connection with the global offering, assuming no exercise of the overallotment options. We intend to use (i) approximately Ps$2,594 million (approximately US$164 million at an exchange rate of Ps$ per US$1.00), or 79.18% of the net proceeds of the global offering (assuming no exercise of the overallotment options), for capital expenditures in the next 24 months to increase production capacity in the Cement Division; and (ii) approximately Ps$682 million (approximately US$43 million at an exchange rate of Ps$ per US$1.00), or 20.82% of the net proceeds of the global offering (assuming no exercise of the overallotment options), for the final payment relating to the purchase of Lafarge s non-controlling interest in the Lafarge Joint Venture. 45

60 CAPITALIZATION The following table sets forth our capitalization (i) as of March 31, 2015, (ii) as adjusted to reflect the receipt of the net proceeds of the global offering, assuming no exercise of the over-allotment options and (iii) as further adjusted to reflect the receipt of the net proceeds from the global offering, assuming full exercise of the overallotment options and a price per share equal to Ps$ You should read this table together with the information under the section entitled Use of Proceeds, Management s Discussion and Analysis of Our Results of Operations and Financial Condition and our financial statements included elsewhere in this offering memorandum. As of March 31, 2015 As Adjusted As Further As Adjusted As Further Actual (1) Adjusted (2) Actual (1) Adjusted (2) (in millions of pesos) (in millions of U.S. dollars)(3) Cash and cash equivalents... 3,169 6,445 6, Current portion of long-term debt... 3,098 3,098 3, Long-term debt: Notes payable to financial institutions and longterm debt(4)... 7,454 7,454 7, Long-term debt due to related parties Other long-term liabilities Total debt... 10,553 10,553 10, Total stockholders equity(5)... 11,698 15,026 15, ,025 Total capitalization... 22,251 25,579 26,082 1,468 1,688 1,721 (1) The adjusted columns included in the table above are merely illustrative and have been calculated using the offering price of Ps$17.00 per share and a global offering of 201,000,000 shares, assuming no exercise of the over-allotment options (net of offering expenses). (2) The as further adjusted columns included in the table above are merely illustrative and have been calculated using the offering price of Ps$17.00 per share and a global offering of 231,150,000 shares, assuming full exercise of the over-allotment options (net of offering expenses). (3) Converted, for convenience purposes only, using the exchange rate for pesos into U.S. dollars of Ps$ to US$1.00 reported by the Mexican Central Bank for March 31, (4) Includes the current issuance of the Certificados Bursátiles ELEM 10 (currently, ELEMENT 10) for Ps$3,000 million and the 2025 notes, with the remainder in bank debt. (5) Total stockholders equity in the as adjusted and as further adjusted columns included in the table above take into account the expected tax benefits from the global offering. 46

61 DILUTION Existing shareholders prior to the global offering will suffer a dilution of their investment. Dilution is the difference between the book value prior to the global offering and the book value after the global offering, with reference to the financial statements at March 31, 2015, as adjusted to reflect the global offering. As of March 31, 2015, our net book value was Ps$ per share, or Ps$18.20 per share after giving effect to the stock split approved at the ordinary and extraordinary general shareholders meeting held on June 26, The net book value per share represents the book value of our total assets less our total liabilities, divided by the number of our shares subscribed and outstanding. Our pro forma net book value per share at March 31, 2015 would decrease by Ps$0.39 per share (or Ps$0.43 if the initial purchasers and Mexican underwriters were to exercise the overallotment options in full): after giving effect to the subscription of 201,000,000 shares (or 231,150,000 shares if the initial purchasers and Mexican underwriters were to exercise the over-allotment options in full) at the offering price of Ps$17.00 per share, after deducting underwriting commissions and other expenses related to the global offering, and after adjusting the amount of total assets to take into account the expected tax benefits from the global offering. This amount represents to our new investors who acquired shares at the initial offering price of Ps$17.00 per share an immediate gain of Ps$0.81 in net book value per share (or Ps$0.77 in net book value per share if the initial purchasers exercise their over-allotment option in full). The following table sets forth the dilution in the net book value excluding the over-allotment option: Per share Initial offering price... Ps$ Net book value before the global offering Decrease in net book value attributable to the sale of the shares... (0.39) Net book value after the global offering Gain in net book value to new investors As of March 31, 2015, after giving effect to the stock split approved at the ordinary and extraordinary general shareholders meeting on June 26, 2015, our net income per share over the immediately preceding twelve months, assuming an offering of 231,150,000 shares (if the initial purchasers and the Mexican underwriters exercise their over-allotment option in full), would be Ps$0.47. Prior to the global offering, our shares had not been offered to any person other than our current shareholders. 47

62 DIVIDENDS AND DIVIDEND POLICY Under Mexican law, subject to the satisfaction of quorum requirements, the favorable vote by the majority of our shareholders present at an ordinary general shareholders meeting determines the declaration, amount and payment of dividends. Dividends may only be paid (i) from retained earnings included in financial statements that have been approved by our shareholders meeting, (ii) if losses for prior fiscal years have been fully paid or absorbed, and (iii) after allocation of at least 5% of net income for legal reserves, up to an amount equal to 20% of our paid-in capital stock. Payment of dividends could be limited by covenants in debt instruments we enter into in the future and by our subsidiaries, which may adversely affect our ability to make dividend payments. Since 2006, we have not paid any dividends as we have decided to reinvest the profits of the Company to increase our business. The dividend policy is proposed by the board of directors and any payment of dividends must then be approved in an ordinary general shareholders meeting. As a result, in some years the Company may not pay dividends, while in others dividends are paid per shareholder approval. The nature of the dividend policy proposed by the board of directors depends on a variety of factors, including results of operations, financial condition, cash requirements, business perspectives, taxes and financial covenants of any indebtedness we may have limiting the payment of dividends and other factors. Our principal shareholders currently have and after the consummation of the global offering will continue to have the power to determine matters related to the payment of dividends. Our capacity to make dividend payments, or payments of any other nature, is limited by certain restrictive covenants to which we are subject. See Management s Discussion and Analysis of Our Results of Operations and Financial Condition Liquidity and Capital Resources Indebtedness. 48

63 EXCHANGE RATES The following table sets forth, for the periods indicated, the period-end, average, high and low exchange rates published by the Mexican Central Bank (Banco de México) expressed in pesos per U.S. dollar. The average annual rates presented in the following table were calculated by using the average of the exchange rates on the last day of each month during the relevant period. The rates shown below are in nominal pesos that have not been restated in constant currency units. No representation is made that the peso amounts referred to in this offering memorandum could have been or could be converted into U.S. dollars at any particular rate or at all. We cannot assure you that the Mexican government will maintain its current policies with respect to the peso or that the peso will not appreciate or depreciate significantly in the future. On July 9, 2015 the Mexican Central Bank (Banco de México) exchange rate expressed in pesos per U.S. dollar was Ps$ to US$1.00. Banco de México Exchange Rate(1) Period-End Average High Low (pesos per U.S. dollar) Year ended December 31, Month Ended July 31, 2015 (through July 9, 2015) June 30, May 31, April 30, March 31, February 28, January 31, December 31, Source: Banco de México. 49

64 SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION The following tables set forth our selected consolidated financial and other information, which has been derived from our consolidated financial statements prepared in accordance with IFRS. The financial information as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 was obtained from the interim unaudited condensed consolidated financial statements included elsewhere in this offering memorandum. The financial information as of and for the years ended December 31, 2014, 2013 and 2012 was obtained from our audited consolidated financial statements included elsewhere in this offering memorandum. The U.S. dollar amounts provided below are translations from the Mexican peso amounts, solely for the convenience of the reader, at the exchange rate of Ps$ per U.S. dollar, which is the exchange rate published by the Mexican Central Bank (Banco de México) as the rate for the settlement of liabilities denominated in U.S. dollars payable in Mexico on March 31, You should not construe these convenience translations as representations that the Mexican peso amounts actually represent the United States dollar amounts presented, or that they could be converted into U.S. dollars at the rate or at the dates indicated. See Exchange Rates. The financial information for the years ended December 31, 2013 and 2012 may not be comparable to the financial information for the year ended December 31, 2014 or prior periods as a result of our acquisition of the Lafarge Joint Venture in July 2013 and the acquisition of the assets of the fiber cement business of CertainTeed in January The consolidated financial information contained herein must be read in conjunction with our audited annual consolidated financial statements and the notes thereto and our unaudited interim condensed consolidated financial statements and the notes thereto included elsewhere in this offering memorandum. Furthermore, this selected information should be read in conjunction with the explanations provided in Management s Discussion and Analysis of Our Results of Operations and Financial Condition. For the three months ended March 31, For the year ended December 31, (in millions of U.S. dollars) (in millions of pesos) (in millions of U.S. dollars) (in millions of pesos) Profit or Loss Data: Continuing operations: Net sales ,070 3,639 1,012 15,331 12,929 13,506 Cost of sales ,073 2, ,683 9,908 10,273 Gross profit ,648 3,021 3,233 Operating expenses ,228 2,125 1,888 Other income, net(1)... (0) (6) (162) (12) (184) (301) (21) Exchange loss (income) (9) Interest income... (2) (33) (18) (5) (80) (46) (31) Interest expense Banking fees Equity in income of associated entity... (4) (35) Income before income taxes and discontinued operations Income tax expense (benefit) (38) Income from continued operations Discontinued operations(2): Loss from discontinued operations, net Consolidated net income Non-controlling interest... (0) (1) (10) Consolidated net income attributable to the owners of the Company (1) See note 22 to our consolidated financial statements for more details. (2) See note 25 to our consolidated financial statements for more details. 50

65 For the three months ended March 31, For the year ended December 31, 2015(2) 2015(2) 2014(2) 2014(2) 2014(2) 2013(2) 2012(2) (in millions of U.S. dollars, except per share amounts) (in millions of pesos, except per share amounts) (in millions of U.S. dollars, except per share amounts) (in millions of pesos, except per share amounts) Basic income per share (in thousands of pesos): From continuing operations From discontinued operations... (0) (0.01) (0.01) (0) (0.14) (0.09) (0.85) Basic income per share Weighted average shares outstanding (in thousands) , , , , , , ,850 EBITDA(1) ,675 1,913 1,877 (1) EBITDA is not a financial measure recognized by IFRS. EBITDA is included in this offering memorandum because we believe that it is useful to certain investors as a supplemental measure of our financial performance and our ability to service our debt and fund capital expenditures. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. The presentation of EBITDA may not be comparable to similarly entitled measures used by other companies. (2) These figures have been restated to take into account the stock split that was approved by our ordinary and extraordinary general meeting of shareholders on June 26, The stock split was applied retroactively to all periods presented. Weighted average shares outstanding and earnings per share as shown in this table do not coincide with our annual or interim financial statements included elsewhere this offering memorandum, as the stock split took place after the issuance of such financial statements. 51

66 As of March 31, As of December 31, (in millions of U.S. dollars) (in millions of pesos) (in millions of U.S. dollars) (in millions of pesos) Statement of Financial Position: Current assets: Cash and cash equivalents , ,193 1,973 1,762 Derivative financial instruments Accounts receivable Net , ,150 3,506 2,926 Due from related parties Inventories Net , ,471 2,250 2,471 Prepaid expenses Total current assets , ,992 8,087 7,760 Non-current assets: Property, machinery and equipment Net... 1,032 15,646 1,037 15,711 14,608 11,823 Investment in shares of associated companies and others Net plan assets for employee benefits at retirement Intangibles and other assets Net , ,184 3,174 1,108 Long-term receivables due from related parties and other long-term accounts receivable Total non-current assets... 1,267 19,208 1,273 19,287 18,136 14,248 Total assets... 1,887 28,600 1,866 28,279 26,223 22,008 Current liabilities: Notes payable to financial institutions and current portion of long-term debt , , Trade accounts payable , ,482 2,663 2,330 Financière Lafarge, S.A.S Direct employee benefits Provisions Accrued expenses and taxes Due to related parties Current portion of income tax liabilities from consolidation Advances from customers Derivative financial instruments Total current liabilities , ,555 3,976 3,520 Long-term liabilities: Notes payable to financial institutions and long-term debt , ,282 6,185 5,926 Long-term due to related parties Deferred income taxes , ,155 1,080 1,490 Income taxes liabilities from consolidation Other long-term liabilities Total long-term liabilities , ,117 7,810 7,499 Total liabilities... 1,115 16,902 1,100 16,672 11,786 11,019 Total stockholders equity , ,607 14,437 10,989 Total liabilities and stockholders equity... 1,887 28,600 1,866 28,279 26,223 22,008 52

67 For the three months ended March 31, For the year ended December 31, (in millions of U.S. dollars, except turnover days and sales volume) (in millions of pesos, except turnover days and sales volume) (in millions of U.S. dollars, except turnover days and sales volume) (in millions of pesos, except turnover days and sales volume) Other Data: Purchase of property and equipment... (8) (128) (40) (613) (2,059) (2,113) Depreciation and amortization for the period , Accounts receivable turnover (in days) Accounts payable turnover (in days) Inventory turnover (in days) Consolidated sales volume (in thousands of tons) ,422 2,422 1, EBITDA is not a financial measure recognized by IFRS. EBITDA is included in this offering memorandum because we believe that it is useful to certain investors as a supplemental measure of our financial performance and our ability to service our debt and fund capital expenditures. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. The presentation of EBITDA may not be comparable to similarly entitled measures used by other companies. The following tables reconcile consolidated net income to EBITDA: For the three months ended March 31, For the year ended December 31, Consolidated EBITDA Reconciliation (in millions of U.S. dollars) (in millions of pesos) (in millions of U.S. dollars) (in millions of pesos) Consolidated net income (loss)... $ 4 $ 59 $ 179 $ 35 $ 530 $ 492 $ 315 Plus (Less): Loss from discontinued operations, Net Income tax expense (benefit) (38) Equity in income of associated entity... (4) (35) Financing result, net(1) Depreciation and amortization for the period , EBITDA... $ 46 $ 707 $ 609 $ 177 $ 2,675 $ 1,913 $ 1,877 (1) Includes the net amount of interest income, interest expense, banking fees and exchange loss (income). 53

68 For the year ended December 31,(2) Consolidated EBITDA Reconciliation (in millions of U.S. dollars) (in millions of pesos) Consolidated net income (loss) $ 6 $ 89 Plus (Less): Loss from discontinued operations, Net... (4) (61) Income tax expense (benefit) Equity in income of associated entity... Financing result, net(1) Depreciation and amortization for the period EBITDA... $ 19 $ 291 (1) Includes the net amount of interest income, interest expense, banking fees and exchange loss (income). (2) Based on MFRS, which were the financial reporting standards applicable and effective in Mexico in

69 Overview MANAGEMENT S DISCUSSION AND ANALYSIS OF OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION We are a manufacturer and distributor of products and solutions primarily focused on the construction materials industry, and a leader in Latin America based on installed capacity, according to internal estimates and publicly available information. Through our regional divisions, Mexico, the United States, Central America and South America, we manufacture and sell a wide range of products, based primarily on cement, fiber cement, plastics and copper, used throughout all stages of construction, from the early structural and unfinished construction stages through the installation of interior and exterior finishes, repairs and remodeling. Through our involvement in all stages of construction and our diversified product mix we are able to maintain close relationships with our customers and distributors. Additionally, we are focused on end users for industrial applications, whereby we provide our clients with highly-specialized, value-added products. The industrial sector represents approximately 24% of our sales. Our network of independent distributors, through which we market and offer the various products and solutions of our three divisions, consists of more than 4,300 independent distributors and customers throughout the 42 countries in which we sell that use and offer our diverse products and solutions to a broad client base. We have a total of 26 manufacturing plants located in nine countries in the Americas: Mexico, the United States, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru. Our primary markets are located in Mexico and the United States, which represent 59% and 21% of our net sales in 2014, respectively. The Central American and South American markets represent 5% and 14% of our net sales in 2014, respectively, although we also export our products to more than 40 countries. We serve all of our markets through six distribution centers, twelve warehouses, a distribution center in Laredo, Texas and a sales office located in Houston, Texas, which we intend to expand in order to meet the expected increase in demand that we will satisfy with the production of our plants in North Carolina and Oregon in the United States and, if necessary, with the reactivation of our plant in Indiana. We market our products using our own brands, which we believe have an established track record and a high level of market recognition. Such brands include Mexalit, Eureka, Allura, Maxitile, Plycem, Eternit, Duralit, Fibraforte, Nacobre and Fortaleza, which we introduced to the Mexican market in 2013 and which allowed us to become the first new participant in the Mexican cement industry in 65 years. The introduction of the Fortaleza brand allowed us to expand our range of product offerings and thereby strengthen our presence in the market. We believe our brand positioning, along with our diverse offering of solutions, our efficient network of independent distributors (present throughout the value chain in the construction industry) and our focus on customer service, create significant competitive advantages that distinguish us in the construction materials industry. Our business strategy, focused on continued processes optimization, operations integration and organic and inorganic growth, has allowed us to grow in a sustained and disciplined manner while maintaining strong levels of profitability. In 2007, under MFRS, our EBITDA was Ps$291 million. In 2014, on an IFRS basis, our EBITDA was Ps$2,675 million, a nine-fold increase, which represented a CAGR of 37%. During the last three years, our net sales and EBITDA grew at a compound annual rate of 7% and 19%, respectively, an increase from Ps$13,506 million and Ps$1,877 million, respectively, in 2012 to Ps$15,331 million and Ps$2,675 million, respectively, in During the three months ended March 31, 2015, we generated net sales of Ps$4,070 million and EBITDA of Ps$707 million, which represents an increase of 12% and 16%, respectively, compared to net sales and EBITDA during the same period in During 2014, we generated net sales of Ps$15,331 million and EBITDA of Ps$2,675 million, representing an increase of 19% and 40%, respectively, compared to net sales and EBITDA in Significant Events and Factors Affecting Comparability of Our Results for Each Reporting Period Acquisitions and Dispositions On April 20, 2012, we sold 100% of the shares of Almexa Aluminio, S.A. de C.V. to Industria Mexicana del Aluminio, S.A. de C.V., a subsidiary of Grupo Vasconia, S.A. de C.V. In 2012, we decided to discontinue certain operations because we determined that the projects of certain entities were not viable in accordance with our business plans. The following entities were dedicated to the manufacture and marketing of reinforced and pre-stressed concrete pipes: Compañía Mexicana de Concreto Pretensado Comecop, S.A. de C.V., Construsistemas Servicios Administrativos, S.A. de C.V. and Operadora de Aguas, S.A. de C.V. Similarly, 55

70 we decided to discontinue the operations of our Mexalit Industrial, S.A. de C.V. plant located in the State of Chihuahua, Mexico. On January 8, 2013, Trituradora and ELC Tenedora Cementos, both of which are subsidiaries of Elementia, signed the Contribution Agreement with Lafarge and Lafarge Cementos (engaged in the manufacturing and marketing of cement) whereby, among other things, it was agreed to create the Lafarge Joint Venture for cement production in Mexico. Pursuant to the Contribution Agreement, the share capital of each of Trituradora and Lafarge Cementos was transferred to ELC Tenedora Cementos and we acquired a 53% ownership in ELC Tenedora Cementos, which gave us control over the Lafarge Joint Venture, and Financière Lafarge, S.A.S. retained a 47% shareholding. This transaction generated goodwill in the amount of approximately Ps$1,150 million. This transaction was subject to the fulfillment of several conditions set forth in the Contribution Agreement, which were met on July 31, On that date, several annexes to the Contribution Agreement were finalized and a shareholders meeting of ELC Tenedora Cementos was held which gave rise to the Lafarge Joint Venture. Beginning on August 1, 2013, we commenced operations and the results of the Lafarge Joint Venture were included in our consolidated financial statements. Subsequently, on September 19, 2014, we entered into a share purchase agreement to acquire the remaining 47% stake in the Lafarge Joint Venture, which was consummated on December 16, 2014, following the receipt of approval from the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) and the initial payment of US$180 million out of a total consideration of US$225 million. On December 17, 2013, we sold our 42.5 million shares in Grupo Cuprum, S.A.P.I. de C.V. for Ps$584 million, representing 20% of Cuprum s share capital. The sale was made in equal proportions (50% and 50%) to Tenedora and Controladora GEK, S.A.P.I. de C.V. On December 19, 2013, we signed an acquisition agreement with the external products division of Saint-Gobain to acquire the assets of the fiber cement business of its affiliate, CertainTeed Corporation, a significant manufacturer of construction materials in North America. On January 31, 2014, we completed the acquisition of the assets of the fiber cement business of CertainTeed Corporation. We subsequently rebranded this business under our new Allura brand. We expect that this acquisition will strengthen our presence in the United States upon the integration of the operations of three production plants to increase our coverage and growth in that country. Principal Factors Affecting Our Financial Condition and Results of Operations Optimization of Operations In recent years, we have made investments to increase our capacity and to modernize and streamline our production processes, which has resulted in significant savings for us. In 2013, we completed the construction and launch of our El Palmar cement plant, which began operations in 2013 and gave rise to the creation of our Cement Division. We strengthened this division by adding the synergies of the three plants that currently comprise it. The investments made in this division in 2014 totaled Ps$115 million. Similarly, we have invested in the Building Systems Division, acquiring businesses in Latin America and acquiring the assets of the fiber cement business of CertainTeed Corporation, a subsidiary of Saint-Gobain, in January This acquisition significantly expanded our presence in the U.S. market, which has permitted us to strengthen our presence through CertainTeed Corporation s brands and the quality of their products. We have also strengthened the Building Systems Division through the acquisition in the last five years of the operations of Frigocel and Frigocel Mexicana in Mexico and Fibraforte in Peru. Furthermore, we have continued to make investments in the production facilities in order to modernize and expand its production lines, and to make profits once such investments are complete. The Building Systems Division made investments totaling Ps$187 million in In 2012, the Company divested its aluminum operations to focus on its copper business where it believes it has a significant competitive advantage. We have made significant investments in machinery and equipment in the Metal Products Division in recent years. These investments have improved and modernized the production processes of our plants, for example by means of the continuous casting process, which implies having constant metal smelting 24 hours per day, 365 days per year. This division made investments in 2014 totaling Ps$310 million. 56

71 Process Improvements We distinguish ourselves by our continuous improvements in our processes, not only on the production side, but also in areas such as sales, logistics, purchasing and administration. For example, we have made investments since 2011 to adopt SAP as an ERP system, with which we have been able to integrate the operations, marketing and distribution of our products, as well as the administration and reporting thereof, thereby having reliable and timely information for decision-making. Global Macroeconomic Conditions Our business is affected by general economic conditions of several industries, including the building materials, manufacturing, infrastructure, automotive and refrigeration industries. We have manufacturing and distribution operations in a number of countries throughout the Americas, including Mexico, Colombia, Bolivia, Costa Rica, Ecuador, El Salvador, Honduras and the United States. As a result, our activities, business, financial condition and results of operations are largely dependent upon the general economic and financial environment in each of the countries in which we operate. The countries that contribute most significantly to our results of operations are Mexico, the United States and Colombia. In 2014, our sales derived from these countries represented 59%, 21% and 8%, respectively, of our consolidated sales. In the past, the economies of these countries have been affected by a number of factors, including: Each country s economic cycles in the commercial, building materials, automotive and agricultural industries, among others. The following table shows real GDP growth for these countries since GDP Growth Colombia % 4.9% 4.0% 6.6% United States % 2.2% 2.3% 1.6% Mexico % 1.4% 4.0% 4.0% Source: World Bank Uncertainty with respect to future political, social and economic conditions, particularly during the years immediately preceding presidential and legislative elections; Volatility and uncertainty in the global credit and capital markets; The potential devaluation of local currencies with respect to the United States dollar or the euro, and the potential imposition of foreign exchange restrictions; and Significant increases in inflation and interest rates in these countries. In addition, in recent years, countries such as Colombia, Ecuador and Bolivia have experienced significant growth in the housing industry, similar to that experienced by Mexico. Pricing Strategy We sell metal products on a cost-plus mark-up basis. Our pricing strategy consists of maintaining strong margins throughout the various stages of the relevant production cycles and adjusting our product prices periodically to compensate for short-term disparities between the price of our principal raw materials and the price of our finished products. With respect to our Metal Products Division exports, we enter into financial derivatives (such as forward and futures contracts) to hedge financial risks associated with the prices of certain metal products, such as copper, zinc and nickel. These transactions are not speculative in nature and are based on the actual requirements of our customers. The hedging instruments that we enter into relating to copper are quoted primarily on COMEX, and those relating to zinc and nickel are quoted primarily on the London Metal Exchange. 57

72 For example, when a customer submits a purchase order for products affected by the prices of relevant metals, we request a COMEX quote for such metals prices and provide the customer with a price based on the COMEX quote plus a margin. If the customer agrees to the price, we then execute the COMEX contract. We conduct daily reviews of our contracts against the price of each metal daily and make adjustments to our accounts as necessary. Foreign Sales Our reporting currency is the Mexican peso. However, our net sales are generated and denominated in various currencies. Our transactions denominated in U.S. dollars include net sales derived from our operations in the United States, Ecuador and El Salvador, which accounted for 24% and 22% of our consolidated net sales in the three months ended March 31, 2015 and 2014, respectively. Net sales denominated in Mexican pesos accounted for 59% and 59% of our consolidated net sales in the three months ended March 31, 2015 and 2014, respectively. In addition, 7% and 9% of our net sales were denominated in Colombian pesos in the three months ended March 31, 2015 and 2014, respectively, 3% and 3% of our net sales were denominated in Costa Rican colones in the three months ended March 31, 2015 and 2014, respectively. Net sales denominated in other currencies represented 7% and 7% of our net sales in the three months ended March 31, 2015 and in 2014, respectively. Nevertheless, taking into account the sales made in different currencies, but which are referenced to U.S. dollars and therefore do not reflect or have an impact linked to variations in exchange rates against the U.S. dollar, 63% of net sales during the three months ended March 31, 2015 were in U.S. dollars or were linked to prices in U.S. dollars, 24% of net sales were in Mexican pesos, 7% were in Colombian pesos and 6% were in other currencies. Impact of Foreign Currency Fluctuations Fluctuations in currency exchange rates relative to the Mexican peso expose us to foreign currency translation risk. As of December 31, 2014 and March 31, 2015, 79% and 80%, respectively, of our total indebtedness was denominated in U.S. dollars while 21% and 20%, respectively, was denominated in Mexican pesos. Interest expense on our U.S. dollar-denominated indebtedness, as expressed in Mexican pesos in our financial statements, varies with currency exchange fluctuations. Given that the Mexican peso is our functional currency, we are exposed to the risk of foreign currency translation, the depreciation of our results and increases in our interest expense on a Mexican peso basis. We record currency exchange gains or losses with respect to the U.S. dollar-denominated net monetary position of assets and liabilities when the peso appreciates or depreciates in relation to the U.S. dollar. Our foreign exchange results were a loss of Ps$169 million in the three months ended March 31, 2015 and losses of Ps$192 million, Ps$49 million and Ps$345 million in 2014, 2013 and 2012, respectively. Competition Some of the markets in which we and our subsidiaries operate are highly competitive. For example, we compete with manufacturers in the Mexican cement market, where we are the newest market participant. We usually compete on price, product performance, sales, service and marketing support. In our Building Systems Division, we compete with many large and small manufacturers. We also face competition in our various business divisions from alternative materials: (i) in the Building Systems Division, from products such as natural wood and its derivatives, vinyl, stucco, masonry, plaster, plates, cups and cardboard packaging, and (ii) in the Metal Products Division, from products such as polystyrene and polypropylene plastic pipes. We also face competition in Mexico from foreign manufacturers, however, we estimate that high importation and transportation costs increase the costs of foreign manufacturers products, thereby giving us a competitive advantage. Some of our most important competitors, among others, are: Cemex, Cementos Moctezuma, Cementos Cruz Azul, James Hardie, Etex, Rotoplas, Mueller Industries, Inc., KME, IUSA and Olin Brass. Critical Accounting Policies We have identified the policies below as critical to our business operations and to understanding our results of operations. Preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the period. Actual results may differ 58

73 from those estimated. We believe the following accounting policies used in the preparation of our consolidated financial statements involve significant judgments and estimates. Inventory and Accounts Receivables We use estimates to determine inventory and accounts receivables. The factors that we consider for purposes of determining inventory reserves are production and sales volumes, as well as changes in demand for certain products. The factors that we consider in estimating uncollectible accounts receivable are principally the risk relating to the client s financial situation, unsecured accounts and significant delays in collection according to the established credit limits. Property, Machinery and Equipment We review the estimated useful life of property, machinery and equipment at the end of each annual period. The level of uncertainty related to the estimates of useful lives is related to the changes in the market and the use of assets according to production volumes, as well as technological developments. Fair value of property, plant and equipment Certain classes of fixed assets of the Company are measured at fair value in the consolidated financial statements of the Company. In measuring the fair value of an asset, the Company uses available market data. The Company also appoints a qualified independent appraiser to conduct the valuation, with whom the Company works to establish the valuation methods and appropriate data inputs for the model. Impairment of Long-lived Assets The carrying value of long-lived assets is reviewed for impairment if there are situations or changes in circumstances indicating that the carrying value is not recoverable. If there is evidence of impairment, we perform a review to determine if the carrying value of the asset exceeds its recoverable value and is impaired. To perform impairment testing of assets, we estimate the value-in-use assigned to our property, machinery and equipment, and cash generating units in the case of certain assets. The value-in-use calculations require us to determine the future cash flows that are expected to arise from the cash generating units and the appropriate discount rate to calculate the present value. We use revenue cash flow projections using estimates of market conditions, pricing, and production and sales volumes. Valuation of Derivative Financial Instruments We use valuation techniques for our derivative financial instruments, which include information that is not always based on observable market data, in order to estimate the fair value of certain financial instruments. Note 10 to our audited financial statements includes detailed information about the key assumptions we consider in determining fair value of our financial instruments, as well as a detailed sensitivity analysis relating to these assumptions. Our management considers that the valuation techniques and the assumptions used are appropriate for determining the fair value of our financial instruments. Contingencies Due to the nature of our operations, we are subject to transactions and contingent events with respect to which we must utilize our professional judgment in developing estimates of the probability of occurrence. The factors that we consider in making such estimates are the actual legal situation at the date of estimate and the opinion of our legal advisors. Employee Benefit Retirement Assets We use assumptions to determine employee retirement benefits and to calculate the best estimate of these benefits on an annual basis. These estimates, as well as the assumptions, are established in conjunction with independent actuaries. These assumptions include demographic assumptions, discount rates and the expected increases in salaries and future service, among others. Although we estimate that the assumptions we have used are appropriate, a change in them could affect the value of the assets (liabilities) for these employee benefits and the statement of comprehensive income in the period in which they occur. 59

74 Net Tax Losses The Company reviews the carrying amounts of deferred tax assets and liabilities, which are determined based on the tax rates that are expected to apply at the time the liabilities are paid or the assets are realized (as applicable). The expected rates are based on the rates (and tax laws) that have been enacted or substantially enacted as of the end of the reporting period to which the financial statements relate. In addition, the Company evaluates the probability of recovery of deferred income tax assets at the end of each reporting period. Financial Information by Division, Region, Destination and Sector The following tables set forth our sales volumes and net sales by division, region and destination for the periods presented below. The information by division presented below differs from that presented in note 27 to our audited financial statements included elsewhere in this offering memorandum as a consequence of the criteria used for eliminating intercompany transactions. Sales by Division Three months ended March 31, % Change Volume Net Sales Volume Net Sales Volume Net Sales (in thousands of tons and millions of pesos) Cement Ps$ Ps$ % 26% Building Systems , ,438 3% 8% Metal Products , ,759 6% 10% Holding and eliminations % Total Ps$ 4, Ps$ 3,639 14% 12% Year ended December 31, Volume Net Sales Volume Net Sales Volume Net Sales (in thousands of tons and millions of pesos) Cement... 1,548 Ps$ 1, Ps$ 1,046 Ps$ 8 Building Systems , , ,959 Metal Products , , ,085 Holding and eliminations Total... 2,422 Ps$ 15,331 1,507 Ps$ 12, Ps$ 13,506 Three months ended March 31, Year ended December 31, (as a percentage of net sales) Cement... 13% 11% 11% 8% 0% Building Systems... 38% 40% 40% 37% 37% Metal Products... 48% 48% 47% 54% 60% Holding and eliminations... 1% 1% 2% 1% 3% Total % 100% 100% 100% 100% Sales by Region The following tables set forth our net sales by region both in value and as a percentage for the periods indicated below. 60

75 Three months ended March 31, Year ended December 31, (in millions of pesos) Mexico (1)... Ps$ 2,392 Ps$ 2,155 Ps$ 9,014 Ps$ 7,527 Ps$ 7,276 United States (2) ,253 2,355 2,499 Central America (3) South America (4) ,074 2,124 2,461 Holding and eliminations Total... Ps$ 4,070 Ps$ 3,639 Ps$ 15,331 Ps$ 12,929 Ps$ 13,506 Three months ended March 31, Year ended December 31, (as a percentage of total net sales) Mexico (1)... 59% 59% 59% 58% 54% United States (2)... 22% 20% 21% 18% 19% Central America (3)... 5% 5% 5% 5% 6% South America (4)... 12% 15% 14% 16% 18% Holding and eliminations... 2% 1% 1% 3% 3% Total % 100% 100% 100% 100% (1) Includes the results of our Cement Division, Building Systems Division and our Metal Products Division in Mexico. (2) Includes the results of our Building Systems Division and our Metal Products Division in the United States. (3) Includes the results of the Central American region of our Building Systems Division, which covers Costa Rica, El Salvador and Honduras. (4) Includes the results of the South American region of our Building Systems Division, which covers Bolivia, Colombia and Ecuador. Sales by Destination The following tables set forth our domestic and export sales (excluding sales among our subsidiaries) on a consolidated basis in terms of volume and net sales, and as a percentage of our total net sales: Volume(2) Three months ended March 31, Net Sales(3) % of Total Net Sales Volume(2) Net Sales(3) % of Total Net Sales Domestic (1) Ps$ 3,569 88% 553 Ps$ 3,121 86% Exports % % Holding and eliminations % 37 1% Total Ps$ 4, % 572 Ps$ 3, % Volume(2) Year ended December 31, Net Sales(3) % of Total Net Sales Volume(2) 61 Net Sales(3) % of Total Net Sales Volume(2) Net Sales(3) % of Total Net Sales Domestic (1)... 2,352 Ps$ 13,103 85% 1,429 Ps$ 10,979 83% 663 Ps$ 11,175 83% Exports ,936 13% 78 1,710 15% 90 1,877 14% Holding and eliminations % 240 2% 454 3% Total... 2,422 Ps$15, % 1,507 Ps$12, % 753 Ps$13, % (1) Includes products sold domestically within each country where they are manufactured or produced. (2) In thousands of tons. (3) In millions of pesos.

76 For the three months ended March 31, 2015, during which net sales were Ps$4,070 million, 53% of the net sales were in Mexico, 22% in the United States, 18% in South America, 6% in Central America and 2% in other regions of the world, principally in Europe. Sales by Sector For the three months ended March 31, 2015, 63% of the net sales were generated within the construction sector, 28% within the industrial sector, 7% within the infrastructure sector and 2% within the homebuilding sector. Results of Operations Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014 The following table sets forth certain financial information with respect to our results of operations for the periods indicated. 62 Three months ended March 31, % Change (in millions of pesos) Net sales... Ps$ 4,070 Ps$ 3,639 12% Cost of sales... 3,073 2,809 9% Gross profit % Operating expenses (9)% Other income, net(1)... (6) (162) (96)% Exchange income (loss), net (9) (1,978)% Interest income... (33) (18) 83% Interest expense % Banking fees % Income before income taxes and discontinued operations (63)% Income taxes (60)% Income from continued operations (64)% Loss from discontinued operations, Net (11)% Consolidated net income... Ps$ 59 Ps$ 179 (67)% EBITDA(2)... Ps$ 707 Ps$ % (1) See note 14 to our consolidated financial statements for more details. (2) EBITDA is not a financial measure recognized by IFRS. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be comparable to similarly titled measures provided by other companies. Net Sales Net sales in the three months ended March 31, 2015 amounted to Ps$4,070 million, an increase of 12% compared to net sales of Ps$3,639 million during the same period in This increase was due to consistent growth in sales across all divisions. Consolidated sales volumes in the three months ended March 31, 2015 were 650 thousand tons, representing an increase of 14% over the same period in By business division, volumes performed as follows: in the Cement Division, 439 thousand tons, an increase of 19%, due to the commencement of operations at the El Palmar cement plant and the positioning of the Fortaleza brand; in the Building Systems Division, 194 thousand tons, an increase of 3%, mainly as a result of an increase in sales volume in the United States due to the inclusion of the Allura brand; and in the Metal Products Division, 17 thousand tons, an increase of 6% due to greater sales of copper tubing and alloys, as well as the sale of steel, which was initiated in As a percentage of net sales, in the three months ended March 31, 2015, the Cement Division represented 13%, the Building Systems Division 38%, and the Metal Products Division represented 48%, while in the three months ended March 31, 2014, the Cement Division represented 11%, the Building Systems Division 40%, and the Metal Products Division 48%. We expect to continue experiencing constant growth across all of our divisions through organic growth or potential future acquisitions.

77 Net sales by business division in the three months ended March 31, 2015 were for the Cement Division Ps$509 million, Ps$1,547 million for the Building Systems Division, and Ps$1,936 million for the Metal Products Division, an increase compared with the following amounts for the same period in 2014: Ps$405 million for Cement, Ps$1,438 million for the Building Systems Division, and Ps1,759 million for the Metal Products Division. In the Cement Division, the increase in net sales was primarily due to an increase in volume of 19% in line with the increase in the utilization of installed capacity, as well as the higher sales price. Net sales in the Building Systems Division increased due to an increase in volume primarily in the United States, which offset a decrease in sales volume in the South America region. The increase in net sales in the Metal Products Division in the three months ended March 31, 2015 was due to an increase in the sales volume of 6% compared to the same period in 2014, which offset the decrease in the value of the price of the metals, primarily copper, which decreased by 18% between the two periods. Cost of Sales Cost of sales in the three months ended March 31, 2015 was Ps$3,073 million, an increase of 9% or Ps$264 million as compared with Ps$2,809 million in the three months ended March 31, The increase in cost of sales was mainly due to an increase in the volume sold due to the operation of the Cement Division in the three months ended March 31, 2015, whose variable costs increase or decrease relative to the volume in terms of raw materials, labor, fuel, energy and manufacturing costs. The cost of sales as a percentage of net sales improved by one percentage point to 76% in the three months ended March 31, 2015 as compared to 77% in the three months ended March 31, 2014, due to the better margin of the products in the Cement Division. Additionally, we can experience significant changes in our cost of sales due to the peso-u.s. dollar exchange rate or fluctuations in the price of metals, which are generally passed through proportionally in net sales. Gross Profit The increase in the utilization of installed capacity in the Cement Division led to an increase in volume and net sales as compared to our other divisions, which drove gross profit in the three months ended March 31, 2015 to Ps$997 million, an increase of 20% compared to gross profit of Ps$830 million in the same period in The margin with respect to net sales improved in the three months ended March 31, 2015, reaching 24% as compared to 23% in the three months ended March 31, Our higher gross margins are attributable primarily to the Cement Division. Operating Expenses Operating expenses (including selling expenses, and distribution, marketing and administrative costs) in the three months ended March 31, 2015 were Ps$569 million, a decrease of 9% or Ps$59 million as compared to operating expenses of Ps$628 million in the same period in This decrease in operating expenses was mainly due to the reduction in marketing costs in the operations of the Cement Division, as well as the decreases in expenses of the Metal Products Division. Other Income, Net In the three months ended March 31, 2015, we recorded other income, net of Ps$6 million, a decrease compared to Ps$162 million recorded in the same period in This decrease in other income, net was primarily due to the bargain purchase gain from the acquisition of the assets of the fiber cement business of CertainTeed Corporation recognized in the three months ended March 31, Financing Result, Net The financing result, net for the three months ended March 31, 2015 was Ps$337 million, an increase of Ps$236 million compared to Ps$101 million for the same period in The increase in net financing expense was due to: (i) the exchange loss, net of Ps$169 million in the three months ended March 31, 2015, resulting primarily from the depreciation of the peso against the U.S. dollar, which affected the Company due to the net liability position as of the close of that period, compared to an exchange gain, net of Ps$9 million in the three months ended March 31, 2014, and (ii) an increase in interest expenses of Ps$72 million resulting from the effect of exchange rate changes on the U.S. dollar interest payments relating to the 2025 notes. 63

78 The following table shows a breakdown of the net financing result for the periods indicated: Three months ended March 31, % Change (in millions of pesos) Interest income... (33) (18) 83% Interest expense % Banking fees % Exchange loss (gain), net (9) (1,978)% Total financing result, net % Income Taxes Current and deferred income taxes amounted to Ps$30 million in the three months ended March 31, 2015, a decrease of Ps$45 million compared to current and deferred income taxes of Ps$75 million for the same period in This decrease was a consequence of the increase in financing expenses in the 2015 period. Consolidated Net Income Consolidated net income in the three months ended March 31, 2015 was Ps$59 million, a decrease of Ps$120 million compared to consolidated net income in the three months ended March 31, 2014, which amounted to Ps$179 million. This decrease in consolidated net income was primarily due to the effect of changes in the exchange rate on our debt position. EBITDA EBITDA in the three months ended March 31, 2015 was Ps$707 million, an increase of 16% compared to Ps$609 million for the same period in The EBITDA margin to net sales was 17.4% in the three months ended March 31, 2015 as compared to a margin of 16.7% in the three months ended March 31, This increase was generated by the greater sales volume and the better EBITDA margin in the Cement Division. Division Information for Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014 Three months ended March 31, Cement Building Systems Metal Products Three months ended March 31, Three months ended March 31, (millions of pesos, except for EBITDA margin) (% change) (millions of pesos, except for EBITDA margin) (% change) (millions of pesos, except for EBITDA margin) (% change) Net sales % 1,547 1,438 8% 1,936 1,759 10% Operating income % (7)% % Add: Depreciation and amortization EBITDA(1) % % % EBITDA margin... 40% 23% 16% 17% 13% 12% (1) EBITDA is not a financial measure recognized by IFRS. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be comparable to similarly titled measures provided by other companies. 64

79 Cement Division The volume of sales for the three months ended March 31, 2015 of the Cement Division was 439 thousand tons, an increase of 19% compared to 368 thousand tons in the same period in The increase in volume as compared to the same period in 2014 was due to the increase in the utilization of installed capacity. Sales in the three months ended March 31, 2015 amounted to Ps$509 million, compared to Ps$405 million in the same period in The price of cement per ton increased by 5%. The Cement Division in the three months ended March 31, 2015 recorded operating income of Ps$128 million, an increase of 412% or Ps$103 million compared to the operating income generated in the three months ended March 31, 2014 of Ps$25 million. This was a result of the growth in net sales in the Cement Division and the optimization of the costs of production (reduction in the consumption and cost of electric energy), as well as a reduction in marketing costs. EBITDA in the three months ended March 31, 2015 was Ps$202 million, an increase of Ps$107 million or 113% compared to the same period in The EBITDA margin to net sales amounted to 40% for the three months ended March 31, 2015 compared to 23% for the three months ended March 31, Building Systems Division Net sales in the three months ended March 31, 2015 were Ps$1,547 million, an 8% increase compared to Ps$1,438 million in the same period in 2014, mainly due to the growth in sales volume in the United States, which partially offset the decrease in sales volume in the Central American and South American regions. In addition, we achieved an improved mix of volume and sales price for our products, with growth primarily in cisterns and tanks in the Mexico and South American regions. The Building Systems Division in the three months ended March 31, 2015 recorded operating income of Ps$175 million, compared to operating income recorded in the three months ended March 31, 2014 of Ps$189 million, which represents a 7% decrease, as a result of the increase in production costs mainly due to an increase in the depreciation expenses of our operations in the United States. The margin of operating income to net sales was 11% in the three months ended March 31, 2015 compared to a margin of 13% for the same period in EBITDA for the three months ended March 31, 2015 amounted to Ps$253 million, an increase of Ps$5 million or 2% compared to the same period in 2014, a result of higher sales volume due to the penetration of the U.S. market. The EBITDA margin to net sales was 16% in the three months ended March 31, 2015, compared to a margin of 17% for the three months ended March 31, Metal Products Division For the three months ended March 31, 2015, the Metal Products Division reported a sales volume of 17 thousand tons, an increase of 6% compared to the volume in the three months ended March 31, 2014, mainly due to the increased sales volume in sheets and piping. Net sales amounted to Ps$1,936 million, an increase of 10% as compared to the amount in the same period in The increase in the sales volume achieved in this division, as well as the effect of the exchange rate, offset the decrease in the value of the metals, primarily copper, the average international price of which in the three months ended March 31, 2015 was US$2.66 per pound, compared to US$3.24 per pound during the same period in 2014, which represents a decrease of 18%. Operating income in the three months ended March 31, 2015 of the Metal Products Division was Ps$136 million compared to Ps$109 million for the same period in This increase was mainly due to the increase in sales volume, as well as the greater efficiency in the production process and better use of the metal. EBITDA in the three months ended March 31, 2015 amounted to Ps$253 million, compared to Ps$219 million in the three months ended March 31, 2014, representing an increase of 16%. This increase in EBITDA is mainly due to the increase in sales volumes of higher value added products, a lower production cost derived from cost optimization initiatives and an improvement in the performance of the use of metal. In addition, the EBITDA margin increased by one percentage point to 13% in March

80 Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 The following table sets forth certain financial information with respect to our results of operations for the periods indicated. Year ended December 31, % Change (in millions of pesos) Net sales... Ps$ 15,331 Ps$ 12,929 19% Cost of sales... 11,683 9,908 18% Gross profit... 3,648 3,021 21% Operating expenses... 2,228 2,125 5% Other income, net(1)... (184) (301) (39)% Exchange loss, net % Interest income... (80) (46) 74% Interest expense % Banking fees % Participation in the results of associated entities... (4) (100)% Income before income taxes and discontinued operations % Income taxes % Income from continued operations % Discontinued operations: Loss from discontinued operations, Net % Consolidated net income for the year... Ps$ 530 Ps$ 492 8% EBITDA (2)... Ps$ 2,675 Ps$ 1,913 40% (1) See note 22 to our consolidated financial statements for more details. (2) EBITDA is not a financial measure recognized by IFRS. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be comparable to similarly titled measures provided by other companies. Net Sales Net sales in 2014 were Ps$15,331 million, an increase of 19% compared to net sales of Ps$12,929 million in Net sales increased primarily due to increase in sales in the Cement Division, as well as the increases in volume in the Building Systems Division and the Metal Products Division, which partly offset the fall in the international price of copper by 6.6% during Consolidated sales volumes in 2014 were 2,422 thousand tons, representing an increase of 61% over the same period in By business division, volumes performed as follows: in Cement, 1,548 thousand tons, an increase of 89%, due to the commencement of operations at the El Palmar cement plant and the consolidation of the Lafarge Joint Venture, which commenced in August 2013; in Building Systems, 810 thousand tons, an increase of 29%, mainly as a result of an increase in sales volume in the United States due to the inclusion of the Allura brand; and in Metals, 64 thousand tons, an increase of 7%. As a percentage of net sales, in 2014, the Cement Division represented 11%, the Building Systems Division 40%, and the Metal Products Division represented 47%, while in 2013, the Cement Division represented 8%, the Building Systems Division 37%, and the Metal Products Division 54%. Net sales by business division in 2014 were for Cement Ps$1,747 million, Ps$6,074 million for Building Systems, and Ps$7,218 million for Metals, compared with the following amounts in 2013: Ps$1,046 million for Cement, Ps$4,724 million for Building Systems, and Ps$6,919 million for Metals. In the Cement Division, the increase in net sales in 2014 was primarily due to the commencement of operations at the El Palmar plant and the consolidation of the Lafarge Acquisition. Net sales in the Building Systems Division increased due to a 29% increase in volume, while the average price of the products remained constant. The increase in net sales in the Metal Products Division was due to an increase in the sales volume of 7% compared to

81 Cost of Sales The cost of sales in 2014 was Ps$11,683 million, an increase of 18% or Ps$1,775 million compared to Ps$9,908 million in Cost of sales increased mainly due to: (i) the increase in the sales volume due to the operations of the Cement Division in 2014, the variable costs of which increase or decrease relative to volume in terms of raw materials, workforce, fuel, energy and manufacturing costs, and (ii) the expansion of our operations in the United States, primarily of our Allura brand. The cost of sales in relation to net sales improved slightly, representing 76% in 2014 and 77% in 2013, due to the better income margin of the products in the Cement Division. In addition, we may experience significant changes in our cost of sales due to the peso-u.s. dollar exchange rate and/or fluctuations in the price of metals, which would be reflected proportionally in net sales. Gross Profit The incorporation of the Cement Division, along with its better margins and the consequent increase in volume and net sales as compared to our other divisions drove gross profit in 2014 to Ps$3,648 million, an increase of 21% compared to gross profit of Ps$3,021 million in The margin with respect to net sales improved in 2014, reaching 24% as compared to 23% in Our higher gross margins are driven primarily by volume growth in the Cement Division. However, the increase experienced in the prior period will be difficult to replicate unless we engage in additional business acquisitions or invest in capacity expansion. Operating Expenses Operating expenses (including selling expenses, and distribution, marketing and administrative costs) in 2014 were Ps$2,228 million, an increase of 5% or Ps$103 million as compared to operating expenses of Ps$2,125 million in The increase in operating expenses was mainly due to the fact that the Cement Division operated for a full 12 months in 2014 compared to approximately six months in 2013, as well as the increase in expenses of the Building Systems Division due to the incorporation of the operations in the United States. This increase is partially offset by a reduction in operating expenses in the Metals Division. Other Income, Net In 2014, we recorded other income, net of Ps$184 million, primarily due to a one-time bargain purchase gain of Ps$435 million from the acquisition of the assets of the fiber cement business of CertainTeed Corporation, offset by litigation expenses, asset retirement costs and others. In 2013, other income corresponded primarily to the gain from the sale of property, plant and equipment and the recovery of taxes in our favor. Financing Result, Net The financing result, net in 2014 was Ps$735 million, an increase of Ps$263 million compared to Ps$472 million in The increase in net financing expense was primarily due to: (i) the increase in interest expense by Ps$85 million, primarily due to the issuance of the 2025 notes, and the capitalizing of interest in 2013 relating to the construction of the El Palmar plant, which were included as part of the asset (this capitalization concluded on June 30, 2013); (ii) the exchange loss, net of Ps$192 million, primarily due to the depreciation of the peso in relation to the U.S. dollar in 2014, corresponding to the net position in dollars that we had as of the close of 2014, compared to the exchange loss, net of Ps$49 million in 2013; and (iii) banking fees of Ps$117 million deriving from the majority of the debt that was prepaid and which had to be amortized in its totality in December 2014, compared to banking fees of Ps$48 million in

82 The following table shows a breakdown of the net financing result for the periods indicated: Year ended December 31, % Change (in millions of pesos) Interest income... (80) (46) 74% Interest expense % Banking fees % Exchange loss, net % Total financing result, net % Income Taxes Current and deferred income taxes amounted to Ps$246 million in 2014, an increase of Ps$69 million compared to current and deferred income taxes of Ps$177 million in This increase was a consequence of the increase in income before income taxes in 2014 period, due to the better results of the divisions. Consolidated Net Income Consolidated net income in 2014 was Ps$530 million, an increase of 8% or Ps$38 million compared to consolidated net income in 2013, which amounted to Ps$492 million. The increase in consolidated net income was due to a full year of operations as described above. EBITDA EBITDA in 2014 was Ps$2,675 million, an increase of Ps$762 million or 40% compared to The EBITDA margin to net sales was 17% in 2014 as compared to a margin of 15% in This increase was generated by the greater EBITDA margin in all three of our divisions. In 2014, there were certain events that affected EBITDA both positively and negatively. Division Information for Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Year ended December 31, Cement Building Systems Metal Products Year ended December 31, Year ended December 31, (millions of pesos, except for EBITDA margin) (% change) (millions of pesos, except for EBITDA margin) (% change) (millions of pesos, except for EBITDA margin) (% change) Net sales... 1,747 1,046 67% 6,074 4,724 29% 7,218 6,919 4% Operating income % % % Add: Depreciation and amortization EBITDA(1) % 1, % % EBITDA margin... 33% 23% 18% 20% 12% 10% (1) EBITDA is not a financial measure recognized by IFRS. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be comparable to similarly titled measures provided by other companies. 68

83 Cement Division Net sales in the Cement Division in 2014 amounted to Ps$1,747 million, compared to Ps$1,046 million in 2013, representing an increase of 67%. This increase was derived from the increase in the sales volume by 89% compared to Pre-mixed concrete operations commenced in October Operating income in 2014 in the Cement Division amounted to Ps$291 million, an increase of 188% or Ps$190 million compared to Ps$101 million in This increase was a result of the growth in volume reflected in net sales due to the consolidation of the Lafarge Joint Venture within the operations of the Cement Division. EBITDA in 2014 was Ps$572 million, an increase of Ps$334 million or 140% compared to This increase was due to the increase in the sales volume mentioned previously. In 2014, the operating income margin to net sales was 17%, an increase of 7 percentage points compared to In addition, the EBITDA margin, increased by 10 percentage points to 33%, for the reasons previously described. Building Systems Division Net sales in 2014 amounted to Ps$6,074 million, an increase of 29% or Ps$1,350 million compared to Ps$4,724 million in 2013, as a result of the greater sales volume. The sales volume in 2014 in the Building Systems Division was 29% greater than the volume in 2013, mainly due to greater volume sold in the United States due to the inclusion of the Allura brand, the increase in the distribution network and the sales contract with the government of Mexico, as well as the increase in the volume of sales of tanks and roofing products in Mexico and South America. In 2014, the Building Systems division had operating income of Ps$817 million, an increase of 14% or Ps$103 million compared to operating income of Ps$714 million in 2013 as a result of the growth in volume reflected in net sales and improved margins relative to cost. The operating income margin to net sales was 13% in 2014 compared to 15% in This was a result of a lower operating income margin in the United States where the operating margin is lower than in other regions of this division. EBITDA in 2014 amounted to Ps$1,119 million, an increase of Ps$176 million or 19% compared to 2013, as a consequence of the greater volume of sales, which was derived from the incorporation of the operations of the Allura brand in the United States. The EBITDA margin to net sales was 18% in 2014, compared to 20% in Metal Products Division This division reported net sales of Ps$7,218 million in 2014, an increase of 4% compared to Ps$6,919 million in This increase was the result of the mix of the increase in volume and the increase in the exchange rate, partially offset by the decrease in the price of metals, primarily copper, whose average international price in 2014 was US$3.12 per pound, compared to US$3.34 per pound in 2013, representing a decrease of 6.6% in the price of that metal and causing a decrease in the average sales price of our products by 2%. Operating income in 2014 for the Metal Products Division increased by 18% or Ps$61 million compared to Ps$332 million in 2013 due to the reduction in the cost of sales resulting from greater efficiency in the use of metal, an improvement in the production process from having implemented continuous casting (24 hours per day, 365 days per year), and synergies from the closing of the plant in Toluca, in the State of Mexico and the transfer of such plant s operations to the Celaya plant in Guanajuato, Mexico. We had a significant decrease in operating expenses in this division. EBITDA in 2014 amounted to Ps$855 million compared to Ps$658 million in 2013, representing an increase of 30% or Ps$197 million. This increase in EBITDA was primarily due to the increase in volume, the efficiencies in production costs and the synergies in costs and expenses between the Toluca and Celaya plans, as mentioned previously. In 2014, the operating income margin to net sales was maintained at 5% and the EBITDA margin increased by two percentage points to 12%, for the reasons previously described. 69

84 Year Ended December 31, 2013 Compared to Year Ended December 31, 2012 The following table sets forth certain financial information with respect to our results of operations for the periods indicated. Year ended December 31, % Change (in millions of pesos) Continued operations: Net sales... Ps$ 12,929 Ps$ 13,506 (4)% Cost of sales... 9,908 10,273 (4)% Gross profit... 3,021 3,233 (7)% Operating expenses... 2,125 1,888 13% Other income, net(1)... (301) (21) 1,333% Exchange loss (86)% Interest income... (46) (31) 48% Interest expense % Banking fees % Participation in the results of associated entities... (4) (35) (89)% Income before income taxes and discontinued operations (6)% Income taxes (38) 566% Income from continued operations (32)% Discontinued operations: Loss from discontinued operations, Net (88)% Consolidated net income for the year... Ps$ 492 Ps$ % EBITDA (2)... Ps$ 1,913 Ps$ 1,877 2% (1) See note 22 to our consolidated financial statements for more details. (2) EBITDA is not a financial measure recognized by IFRS. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be comparable to similarly titled measures provided by other companies. Net Sales Net sales in 2013 were Ps$12,929 million, a decrease of 4% compared to Net sales decreased primarily due to a fall in the prices of metals. The average price of copper decreased 7.5% in 2013 as compared to 2012, which directly impacted the sales prices of our Metal Products Division products. In addition, the volume of sales decreased 6% in the Metal Products Division, where we experienced a consistent decrease in sales, both domestically and in exports, mainly with regard to sheets. The decrease in net sales was also due the governments of Mexico and Colombia continuing to delay their infrastructure and construction projects, which negatively affected sales volume and in turn caused a proportionate decrease in net sales and cost of sales in the Building Systems Division. Also in this division, the selling prices of our products increased 4% in 2013 relative to The decrease in net sales in the two aforementioned divisions was offset in part by the incorporation of the results of the new Cement Division. Cost of Sales The cost of products sold on a consolidated basis in 2013 was Ps$9,908 million, a decrease of 4% compared to Cost of sales decreased in the same proportion as sales, such that we were able to maintain gross margins. Gross Profit Gross profit decreased by Ps$212 million mainly due to the decrease in net sales. Gross profit represented 23% of sales in 2013, a margin which is almost unchanged from 24% in

85 Operating Expenses In 2013, operating expenses amounted to Ps$2,125 million, an increase of 13% compared to Ps$1,888 million in 2012, due to the expenses for the commencement of operations of the new Cement Division, for which we incurred significant marketing expenses, including with respect to a significant marketing campaign to position the Fortaleza brand in a competitive market, as well as the development of more than 700 distributors. For the same reason, wages and salary expenses also increased as well as depreciation and amortization charged to expenses. Other Income, Net Other income increased by Ps$280 million in 2013 compared to 2012, primarily due to the sale of property, plant and equipment (see note 22 to our consolidated financial statements for more details) and similarly due to income from recovery of the Tax on Assets (Impuesto al Activo) and other income from cancellation of balance sheet accounts from reconciliation thereof. The composition of other income, net in 2013 and 2012 was as follows: Year ended December 31, (in millions of pesos) Sale of property, plant and equipment... (215) (118) Recovery of the Tax on Assets... (26) Discharge of debt... (22) Deterioration of long-term assets Cancellation of balance sheet accounts... (60) 29 Provision for contingencies Total... (301) (21) Financing Result, Net The financing result, net in 2013 was Ps$472 million, a decrease of Ps$151 million compared to Ps$623 million in The net financing expense decreased primarily due to a decrease in the exchange loss in the amount of Ps$296 million, from the effect of conversion of the functional currency of the Metal Products Division, and an increase of Ps$132 million in the expense for payment of interest, which was due to the capitalizing of interest and commissions paid to financial institutions for the construction of the El Palmar plant during 2012 and up to the first half of During the second half of 2013, after the commencement of operations at El Palmar, these interest payments were recognized within results as interest expense. The following table shows a breakdown of the net financing result for the periods indicated: Year ended December 31, % Change (in millions of pesos) Interest income... (46) (31) 48% Banking fees % Interest expense % Exchange loss, net (86)% Total financing result, net (24)% Income Taxes Income taxes increased mainly due to the current income tax in 2013 in the amount of Ps$616 million, compared to the tax of Ps$229 million in 2012, due to the effect of tax deconsolidation which was recognized and should be paid in the five fiscal years beginning in fiscal year This effect was offset by the increase in the recording of a deferred tax benefit of Ps$394 million, due to the benefit from amortization of the loss from the sale of shares that was obtained in 2012, as a result of which this tax asset benefit was recognized. 71

86 Consolidated Net Income Consolidated net income in 2013 amounted to Ps$492 million, an increase of 56% compared to Ps$315 million in Consolidated net income increased due to the decrease in losses from discontinued operations from a loss of Ps$501 million in 2012 to a loss of Ps$60 million in 2013 (see note 25 to our consolidated financial statements for more details), as well as an increase in net income in the Cement Division. The net income margin in 2013 was 4% compared to 2% in EBITDA EBITDA in 2013 was Ps$1,913 million, an increase of 2% compared to Ps$1,877 million in 2012 and with a margin to sales of 15% and 14%, respectively. This was due to the commencement of operations of the Cement Division in In 2013, there were certain events which affected EBITDA both positively and negatively. Division Information for Year Ended December 31, 2013 Compared to Year Ended December 31, 2012 Cement Building Systems Metal Products Year ended December 31, Year ended December 31, Year ended December 31, (millions of pesos, other than EBITDA margin) (% change) (millions of pesos, other than EBITDA margin) (% change) (millions of pesos, other than EBITDA margin) (% change) Net sales... 1, ,975% 4,724 4,959 (5)% 6,919 8,085 (14)% Operating income (3) (3,467)% (11)% (22)% Add: Depreciation and amortization EBITDA(1) (3) 8,033% 943 1,005 (6)% (8)% EBITDA margin... 23% (38)% 20% 20% 10% 9% (1) EBITDA is not a financial measure recognized by IFRS. EBITDA should not be considered as a substitute for net income, cash flow provided by operations or other measures of financial performance or liquidity under IFRS. Our presentation of EBITDA may not be comparable to similarly titled measures provided by other companies. Cement Division The Cement Division commenced operations in 2013 upon the conclusion of the construction of the El Palmar cement plant. Similarly, the Lafarge Joint Venture was consolidated, which commenced in August The sales volume in this division amounted to 818 thousand tons, translating into net sales of Ps$1,046 million. Operating income in the first year of operations amounted to Ps$101 million, representing a margin to net sales of 10%. Operations in 2013 of the Cement Division resulted in EBITDA of Ps$238 million with a margin to net sales of 23%. Building Systems Division The sales volume in 2013 in the Building Systems Division amounted to 629 thousand tons compared to 689 thousand tons in The decrease in sales volume was mainly due to the fact the governments of Mexico and Colombia postponed certain infrastructure and construction projects, which affected net sales in the Building Systems Division, which were Ps$4,724 million and Ps$4,959 million in 2013 and 2012, respectively. In 2013, the Building Systems division had operating income of Ps$714 million compared to operating income in 2012 of Ps$800 million as a result of the decrease in the sales volumes, primarily in Mexico and Colombia, and the increase in operating expenses due to annual inflation and the change in the sales structure. EBITDA was Ps$943 million with a margin of 20% and Ps$1,005 million with a margin of 20% in 2013 and 2012, respectively, decreasing primarily due to the lower sales in this division. 72

87 Metal Products Division This division reported net sales of Ps$6,919 million in 2013, a decrease of 14% compared to Ps$8,085 million in In general, the Metal Products Division decreased its volume of sales, from 64 thousand tons in 2012 to 60 thousand tons in 2013, or a decrease of 6%. In addition, the sales prices decreased significantly by 9% on average, a reflection of the international prices of metals during The greater participation in plastic tubing in the building materials sector and the price of copper compared to the price of plastic generated the main decrease in volume of this division. On the other hand, we were able to offset this effect in part by increasing our participation in different sectors of the market, including the building materials and automotive sectors. Operating income in 2013 for the Metal Products Division was Ps$332 million compared to Ps$423 million in EBITDA in 2013 amounted to Ps$658 million compared to Ps$716 million in 2012, due principally to the decreased volume in this division. Liquidity and Capital Resources Our financial condition and liquidity is and will continue to be influenced by a variety of factors, including: our ability to generate cash flow from our operations; the level of our outstanding indebtedness and the interest we are obliged to pay on this indebtedness; changes in exchange rates which will impact our generation of cash flows from operations when measured in U.S. dollars; and our capital expenditure requirements. Our main sources of financing consist of bank facilities and capital contributions carried out by our shareholders. We have generated cash flows from operations in the normal course of our business, and have made use of credit facilities and issued debt securities traded and listed on the BMV, as well as received capital contributions from our shareholders. In addition to the Ps$3,000 million five-year term notes raised through issuance of ELEMENT 10 Certificados Bursátiles, we have access to long-term capital markets financing of up to Ps$2,000 million through our Certificados Bursátiles Program. As of March 31, 2015, our financial liabilities consisted of Ps$3,140 million of short-term liabilities and Ps$7,724 million of long-term liabilities. As of December 31, 2014, our financial liabilities consisted of Ps$3,138 million of short-term liabilities and Ps$7,564 million of long-term liabilities. In November 2014, we issued US$425 million aggregate principal amount of the 2025 notes. In accordance with the terms of the indenture relating to the 2025 notes, we may, from time to time, issue additional notes of the same series as the 2025 notes offered at a future date. We intend to enter into foreign exchange hedging arrangements with regards to the 2025 notes. The table below sets forth our liquidity ratios as of the dates indicated. As of March 31, As of December 31, Liquidity Ratios Current assets / current liabilities Current assets inventories / current liabilities Current assets / total liabilities Liquid assets(1) / current liabilities (1) Liquid assets include cash and cash equivalents. 73

88 Indebtedness The following table presents our indebtedness as of March 31, 2015 and December 31, 2014 in Mexican pesos, unless otherwise noted. For the column showing indebtedness as of December 31, 2014, we have used the exchange rate published by the Mexican Central Bank (Banco de México) as the rate for the settlement of liabilities denominated in U.S. dollars payable in Mexico on such date, which was Ps$ per U.S. Dollar. March 31, 2015 December 31, 2014 (in thousands of pesos) 2025 notes in the amount of US$425 million. The 2025 notes mature on January 15, 2025, unless previously redeemed. The interest is payable semiannually on January 15 and July 15 of each year, beginning on July 15, Ps$ 6,440,535 Ps$ 6,255,150 Certificados Bursátiles (CEBUR) in the amount of Ps$3 billion, accruing monthly interest at a rate of TIIE plus 2.75 basis points, maturing on October 22, ,000,000 3,000,000 Banco HSBC (ELC Tenedora Cementos) promissory notes accruing quarterly interest at a rate of TIIE plus 1.5 basis points and maturing in Elementia, S.A. de C.V., Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V. and Lafarge Cementos, S.A. de C.V. are guarantors , ,000 Banco HSBC PLC Sucursal España HSBC (Trituradora y Procesadora de Materiales Santa Anita, S.A. de C.V.) promissory notes in U.S. dollars accruing interest on a biannual basis at a fixed rate of 3.05% (tranche A) and 6-month LIBOR plus 1.3 basis points (tranche B), payable in a maximum term of 10 years after the date of launch of the project. Elementia, S.A. de C.V. and subsidiaries are guarantors , ,514 Banco BX+ (Elementia, S.A. de C.V.) Revolving credit facility through promissory notes accruing monthly interest at a rate of TIIE plus 1.5 basis points and maturing in 2015, renewable annually. Mexalit Industrial, S.A. de C.V. is a guarantor... 50,000 50,000 Total debt... Ps$ 10,863,961 Ps$ 10,701,664 Less Short-term bank loans and current portion of debt... 3,140,428 3,137,826 Expenses for placement of short-term debt... (42,849) (35,643) Short-term debt, excluding expenses for placement... 3,097,579 3,102,183 Long-term debt... 7,723,533 7,563,838 Less Expenses for placement of long-term debt... (269,186) (281,635) Long-term debt, excluding current portion and expenses for placement... Ps$ 7,454,347 Ps$ 7,282,203 We are up to date in all scheduled principal and interest payments for our loans and liabilities Notes In November 2014, we issued US$425 million aggregate principal amount of the 2025 notes. The 2025 notes mature on January 15, 2025, unless previously redeemed. Interest will be paid semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, The terms and conditions of the 2025 notes, subject to certain exceptions, limit our ability and the ability of our restricted subsidiaries to, among other things: incur additional indebtedness; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make investments; create liens; create any consensual limitation on the ability of restricted subsidiaries to pay dividends, make loans or transfer property; 74

89 engage in transactions with affiliates; sell assets; and consolidate, merge or transfer assets. All of these covenants, limitations and restrictions are subject to a number of significant qualifications and exceptions, as set forth in the indenture relating to the 2025 notes. At our option, on or after January 15, 2020, we may redeem the 2025 notes, in whole or in part, at the applicable redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, plus additional amounts payable to the date of redemption. Prior to January 15, 2020, we may redeem the 2025 notes, in whole or in part, by paying the principal amount of the notes, plus the applicable make-whole premium and accrued and unpaid interest. Prior to January 15, 2018, we may also redeem up to 35% of the 2025 notes with the proceeds of certain equity offerings. If a change of control triggering event occurs, we may be required to offer to purchase the 2025 notes from the holders. In addition, we may only redeem the 2025 notes in whole, at a price equal to 100% of their outstanding principal amount, plus any additional amounts then payable, and accrued and unpaid interest, in the event of certain changes in Mexican tax laws applicable to the 2025 notes. In accordance with the terms of the indenture relating to the 2025 notes, we may, from time to time, issue additional notes of the same series as the 2025 notes offered at a future date. Refinancing Transactions On March 21, 2013, we announced the repayment of our syndicated loan in the amount of Ps$2,593 million, through the refinancing with a new syndicated loan in the amount of approximately Ps$3,730 million. The new loan has a more favorable interest rate and maturity profile, resulting in greater financial flexibility. As of December 20, 2013, we had prepaid Ps$1,700 million of the loans under the syndicated loan. On December 22, 2014, we fully prepaid the remaining outstanding balance of the syndicated loan in the amount of Ps$2,150 million using a portion of the net proceeds from the 2025 notes. Restrictions Relating to Indebtedness Certain of our debt instruments contain restrictive covenants, that if violated could result in the acceleration of repayment of our respective indebtedness. Among these restrictions are limitations on the payment of dividends, limitation on the incurrence of additional indebtedness, limitation on restricted payments, limitation on liens, limitation on transactions with affiliates, compliance with certain financial ratios, insurance of secured assets, limitations on merger, consolidation and sale and disposal of assets and limitations on the acquisition of contingent liabilities or other contractual liabilities. The table below shows our financial ratios as of March 31, 2015 and December 31, 2014: Financial Ratios of Loans March 31, 2015 December 31, 2014 Leverage Ratio Interest Coverage Ratio Consolidated Equity (millions of pesos)... Ps$11,698 Ps$11,607 Certificados Bursátiles ELEMENT 10. The Certificados Bursátiles ELEMENT 10 impose the following terms on us, in accordance with their terms as well as the modifications approved by the general meetings of holders that took place on July 21, 2011, December 4, 2012 and September 3, 2013: Unless the holders of a majority of the Certificados Bursátiles ELEMENT 10 consent to in writing: The proceeds from the issuance must be used exclusively for the specified use of proceeds. We must deliver to the CNBV, the BMV and the other applicable governmental authorities and institutions, the information and documentation required by applicable law and regulations. 75

90 We must comply with the following financial ratios, as applicable: Period Maximum leverage ratio (1) From and including January 1, 2012 until March 31, x to 1.0 From and including April 1, 2014 until March 31, x to 1.0 From and including April 1, 2015 until the maturity date x to 1.0 (1) Modified in accordance with the meeting of holders held on September 3, Ratio is equivalent to: (a) the total consolidated net debt of the Company and its subsidiaries as of the relevant date; and (b) consolidated EBITDA (income from operations plus depreciation and amortization) of the Company and its subsidiaries corresponding to the four prior calendar quarters. Applicable Quarter Minimum interest coverage ratio(1) From the issuance date until the second quarter of to 1.0 From July 1, 2011 until and including June 30, to 1.0 From July 1, 2012 to maturity to 1.0 (1) Modified in accordance with the meeting of holders held on July 21, Ratio is equivalent to: (a) the consolidated EBITDA (operating income plus depreciation and amortization) of the Company and its subsidiaries for such period; and (b) the consolidated financing expense of the Company and its subsidiaries for such period. In 2012, due to our corporate restructuring, including mergers of several subsidiaries with our Company, and the sale of several other subsidiaries, the holders of the Certificados Bursátiles ELEMENT 10 approved that the Certificados Bursátiles ELEMENT 10 be guaranteed by Nacional de Cobre, S.A. de C.V., Mexalit Industrial, S.A. de C.V., The Plycem Company Inc., Compañía Mexicana de Concreto Pretensado Comecop, S.A. de C.V. and Frigocel. Syndicated loan. We are required to maintain the following consolidated financial ratios: Interest Coverage Ratio, on a consolidated basis, greater than 3.0:1.0. Net Debt to Consolidated EBITDA Ratio (a) less than 3.5:1.0 from the closing date to and including March 31, 2014; (b) less than 3.3:1.0 from and including April 1, 2014 to and including March 31, 2015; and (c) less than 2.75:1.0 from and including April 1, 2015 to and including the maturity date. Consolidated Equity not less than Ps$10,695 million; such sum may be adjusted to reflect the net effect from a sale or permitted disposition in accordance with the Crédito Sindicado The syndicated loan also includes several affirmative and negative covenants that restrict some of our activities. As of the date of this offering memorandum, we are in compliance with the financial ratios and covenants. As of December 20, 2013, we had prepaid Ps$1,700 million of the loans under the syndicated loan and on December 22, 2014, we fully prepaid its remaining balance. ELC Tenedora Loan. ELC Tenedora Cementos has a loan agreement with Banco HSBC, which at December 31, 2013, had an outstanding balance of Ps$650 million and a 10 year maturity from the date of launch of the new cement plant project, El Palmar. The loan is guaranteed by us, Trituradora and Lafarge Cementos, S.A. de C.V. Under the loan contract, we and our subsidiaries must comply with affirmative and negative covenants, including maintaining the following financial ratios: Interest Coverage Ratio greater than 3.0:1.0; Net Debt to Consolidated EBITDA Ratio (a) less than 4.75:1.0 from the closing date to and including March 31, 2014; (b) less than 4.50:1.0 from and including April 1, 2014 to and including June 30, 2014; (c) less than 3.50:1.0 from and including July 1, 2014 to and including September 30, 2014; (d) less than 3.30:1.0 from and including October 1, 2014 to and including March 31, 2015; and (e) less than 2.75:1.0 from and including April 1, 2015 to and including the maturity date; and Consolidated Equity of ELC Tenedora Cementos not less than Ps$3,900 million. 76

91 The loan to ELC Tenedora Cementos also includes various affirmative and negative covenants applicable to ELC Tenedora Cementos and its co-guarantors, among them Elementia (applying on a consolidated basis), including restrictions on (i) the transfer or sale of assets, (ii) mergers, splits or transformations of their line of business, (iii) the creation of mortgages, liens or other security interests (other than permitted liens), (iv) entering into derivative financial instruments for speculative purposes, (v) payment of dividends or other distributions, and (vi) transactions with related parties. As of the date of this offering memorandum, we are in compliance with the financial ratios and covenants. Cash Flows Sources and Uses of Cash The following table sets forth our cash flows for the periods indicated: For the Three Months Ended March 31, 77 For the Years Ended December 31, (in millions of pesos) Net cash flow provided by (used in) operating activities ,788 1,592 (1,974) Net cash flow provided by (used in) investing activities... (96) (399) (944) (278) (943) Net cash provided by (used in) financing activities... (226) (26) 415 (1,272) 867 Net cash flow provided by (used in) operating activities The increase in net cash flow provided by operating activities in the three months ended March 31, 2015 to Ps$298 million from Ps$134 million provided by operating activities in the comparable period of 2014 was primarily the result of improved EBITDA which reached Ps$707 million, a decrease in inventory of Ps$31 million and an increase in suppliers of Ps$99 million. The increase in net cash flow provided by operating activities in 2014 compared to 2013 was net cash flow provided by operating activities of Ps$1,788 million in 2014 compared to net cash flow provided by operating activities of Ps$1,592 million in 2013, primarily resulting from a 40% increase in EBITDA and a decrease in the client portfolio of Ps$358 million. The increase in net cash flow provided by operating activities in 2013 compared to 2012 was net cash flow provided by operating activities of Ps$1,592 million in 2013 compared to net cash flow used in operating activities of Ps$1,974 million in 2012, primarily resulting from an increase in EBITDA to Ps$1,913 million, a decrease in inventory of Ps$300 million and an increase in suppliers of Ps$220 million. At December 31, 2012, net cash flow used in operating activities in 2012 was Ps$(1,974) million, mainly due to certain events and transactions that occurred in 2012, principally the payment of certain liabilities of Almexa Aluminio for Ps$341 million, payments to suppliers of Ps$994 million for the renegotiation of a suppliers factoring contract with Banco Santander, a payment of Ps$423 million for payments in advance for the construction of the El Palmar plant and the acquisition of an ERP, SAP, and Ps$215 million paid upon the execution of a purchase commitment for a piece of land. Net cash flow used in investing activities Net cash flow used in investing activities in the three months ended March 31, 2015 and 2014 was Ps$96 million and Ps$399 million, respectively, representing in both periods investments in property, plant and equipment, as well as divestments in those same items. In the three months ended March 31, 2014, net cash flow used in investing activities was also used for the acquisition of the assets of the fiber cement business of CertainTeed Corporation in the United States in January The capital expenditures represented in net cash flow used in investing activities in 2014, 2013 and 2012 amounted to Ps$944 million, Ps$278 million and Ps$943 million, respectively. In 2014, these represented mainly investments in property, plant and equipment and the acquisition of the assets of the fiber cement business of CertainTeed Corporation in the United States in In 2013, these represented mainly investments in property,

92 plant and equipment in the divisions, primarily for the construction of the El Palmar cement plant, as well as divestments in property. With respect to 2012, these represented investments in property, plant and equipment, primarily the construction of the El Palmar cement plant and sales of property, plant and equipment. Net cash (used in) provided by financing activities Net cash used in financing activities in the three months ended March 31, 2015 amounted to Ps$226 million and mainly represented interest payments and the disposition and payment of bank loans. Net cash flow used in financing activities in the three months ended March 31, 2014 amounted to Ps$26 million, mainly from the disposition and payment of loans and interest corresponding to the service of debt. Net cash provided by financing activities was Ps$415 million in 2014, net cash used in financing activities was Ps$1,272 million in 2013, and net cash provided by financing activities of Ps$867 million in In 2014, these represent primarily the incurrence of net bank loans, the placement of the 2025 notes and the payment of certain loans in the amount of Ps$2,030 million, the payment for the acquisition of the 47% non-controlling interest of Lafarge and interest paid. With respect to 2013, it primarily represents the restructuring of the syndicated loan, which was substituted with another loan in a greater amount with a better term and interest rate, as well as the payment of loans with related parties. With respect to 2012, it represents the disposition and payment of loans and interest for servicing debt, net of a capital increase of Ps$1,159 million from our shareholders in Contractual Obligations and Capital Expenditures Contractual Obligations Our contractual obligations mainly consist of our outstanding debt. We also have commitments under certain related party agreements; see Related Party Transactions. The maturities of the long-term portion of our debt as of March 31, 2015 are as set forth in the following table. Debt Maturities (in millions of pesos) To be paid from: April 2016 to March Ps$ 46 April 2017 to March April 2018 and later... 7,362 Total... Ps$ 7,454 The following table sets forth the breakdown of our debt obligations by term of maturity as of March 31, 2015: As of Short-term Long-term Total (in millions of pesos) March 31, Ps$ 3,097 Ps$ 7,454 Ps$ 10,551 Capital Expenditures Estimated Capital Expenditures (in millions of pesos) Year: Ps$ 2, , Our principal capital expenditures include investments in new technologies and upgrades to our manufacturing plants, as well as the expansion of our existing production capacity. 78

93 In the three months ended March 31, 2015, we made capital expenditures totaling Ps$128 million primarily for the improvement and efficiency of machines and equipment. In 2014, we made capital expenditures totaling Ps$613 million primarily for the acquisition of property, plant and equipment in the divisions. In 2013, we made capital expenditures totaling Ps$2,059 million for the acquisition of fixed assets, primarily relating to new technologies, equipment upgrades and efficiency improvements. In 2012, we made capital expenditures totaling Ps$2,113 million, primarily related to the construction of the El Palmar cement plant, which commenced operations in 2013, investments in property, plant and equipment in the divisions. We have authorized the investment of Ps$2,590 million in 2015, which will be applied mainly to expand the installed capacity of the Tula plant in our Cement Division. Off-Balance Sheet Arrangements As of March 31, 2015, no transactions have been effected by us or our subsidiaries that have not been adequately recorded in our accounting records, which serve as a basis to prepare our individual and consolidated financial statements. Furthermore, no events have occurred after the date of our financial statements and through the date of this offering memorandum that could require adjustments or disclosures in the individual and consolidated financial statements. Research and Development We continually strive to develop new and advanced production processes to improve our operating efficiency and so that our products satisfy the changing needs of our clients. The planning and budget for research and development is prepared in accordance with the strategy determined by our Board of Directors. The plans and budget are prepared and approved in three-year cycles and the budget for the following year is approved during the third quarter of the year, prepared through the combined effort of the officers of the various business areas. Our technical management department centralizes our research and development activities and sets our budget and priorities. During the three months ended March 31, 2015, we invested Ps$3 million in research and development. We invested Ps$18 million and Ps$13 million in research and development in 2014 and 2013, respectively. We did not make significant investments in research and development during Risk Management Our risk management policy is aimed at maintaining healthy finances with sufficient liquidity to ensure the necessary investments to enable us to have the most efficient and modern technology focused on lower cost and higher quality production. Due to the nature of our operations, we maintain bank and investment accounts in local currencies and in U.S. dollars, according to the countries in which we operate. Some of our internal control policies and procedures include: procedures aimed at obtaining financial resources, including loans, sales collection, shipments, transfers and international trade, among others; procedures for monitoring accounts receivable, including origin, collection management and registration; procedures for cash flow and accounts payable management; and guidelines for making investments, wire transfers and check writing, defining authorization levels and requisite supporting documentation. In relation to derivative financial instruments, we use valuation techniques, which include information that is not always based on observable market data, in order to estimate the fair value of certain financial instruments. Note 11 to our audited financial statements includes detailed information about the key assumptions we consider in 79

94 determining fair value of our financial instruments, as well as a detailed sensitivity analysis relating to these assumptions. Our management considers that the valuation techniques and the assumptions used are appropriate for determining the fair value of our financial instruments. Our internal policies dictate that we limit the use of derivative financial instruments for hedging purposes only. We use derivative financial instruments to hedge certain price exposures arising from movements in metal prices that could affect the value of our assets or liabilities or our future cash flows. Specifically, we use hedges for changes in the prices of copper, zinc and nickel. Copper is the main raw material for the production of products in our Metal Products Division. The price of copper may experience price volatility. Given its importance to our production costs, we entered into fixed price contracts to hedge our cash flows with certain clients. Our goal for the use of hedging instruments is to obtain a price level of such metals that allows us to maintain a predictable cost of production and achieve the profitability level established in our strategic plan. We use futures and swaps for the purchase of certain metals. See Principal Factors Affecting Our Financial Condition and Results of Operations Pricing Strategy. On September 20, 2013, an interest rate swap derivative contract was entered into to manage the risk of longterm bank debt. For this hedging instrument, our objective is to manage interest rates in order to reach the level of profitability established in our strategic plan. Until October 2013, the Cement Division used forward currency contracts to partially cover the financial risks of currency fluctuations related to the sales of petroleum derivatives, though they were contracted to hedge from an economic perspective, as these were already contracted for with its previous holding entity. At the moment, due to the diversification of our business it has not been necessary to contract for forwards as our diversification serves as a natural hedge. Our finance department determines for what amounts and for which primary positions it believes prudent to contract for a derivative hedging instrument, with the aim of mitigating the possible risks generated by transactions associated with the primary positions, taking into account market conditions. Negotiation with derivatives is carried out only with institutions which are considered solvent and principally with those with which there is an existing business relationship. It should be mentioned that the derivatives we use are for common use in the markets and thus can be listed with two or more financial institutions in order to ensure the best procurement conditions. The hedging instruments relating to copper are principally listed on COMEX and those relating to zinc and nickel are principally listed on the London Metal Exchange. To obtain the calculation or valuation of the derivatives, we have a policy of obtaining the valuation of the counterparty with whom we have entered into the derivatives agreement as well as, in some cases, obtaining an independent third party valuation, using prestigious and well-known institutions in the market. Our risk management staff also analyzes the valuations and revises them as necessary. The contracting of, and use of, derivatives, is carried out in accordance with established internal policies. Prior to the execution of a contract of this type, our finance department and the client determine the amount and targets on the primary positions for which it is believed suitable to contract for a derivative hedging instrument. The evaluation and definition are presented to the client for their final review and approval. At the end of the prescribed period the client is responsible for the decision on said contract and for the subsequent delivery of their order. In accordance with applicable regulations, we are required to have an independent external auditor opine on our annual financial statements. General description of valuation techniques We have a department which continuously calculates and evaluates the current position of the aforementioned hedges. Due to the simplicity of those instruments and the aim of having a fixed or maximum input price, valuation of the instruments generally represents the intrinsic value of the related instrument. The fair value is determined using acceptable market practices. Hedging instruments valuation is performed by the counterparty and validated by our risk management department. 80

95 The effectiveness of hedging is measured by changes in fair value or cash flow of the hedging instruments within a certain range. To comply with financial practices, we measure the efficiency of the derivative financial instruments on a monthly basis. For accounting purposes, the Company applies the provisions of IAS 39 Financial Instruments. IAS 39 establishes the characteristics financial instruments must meet in order to be considered derivatives and hedging instruments, as well as defines the concept of effectiveness and designates the valuation rules and accounting treatment for changes in their value. We recognize all assets and liabilities that result from transactions with derivative financial instruments in the balance sheet at fair value. Since derivatives are contracted for the purpose of hedging risks and satisfy all of the hedging requirements, they are designated as such at the beginning of the hedging transaction, and we document their objective, characteristics, accounting treatment and how the measurement of effectiveness will be carried out. Liquidity sources Ultimate responsibility for liquidity risk management rests with our Board of Directors, which has established appropriate policies for the control of such risk through the monitoring of working capital, allowing management of our short, medium, and long-term funding requirements. We maintain 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. Exposure, risks and contingencies The identified risks are related to the variations in the pricing of the commodities market. Given the direct relationship that exists between the primary positions and the hedging instruments, and that the latter do not have contractual optionality elements which could affect the effectiveness of the hedge, we are not, to date, exposed to any risk with which these hedges differ from the purpose for which they were entered into. Risk emanates from the agreed price of the hedge. We would be negatively impacted in a scenario where the market price is less than the one agreed to in the hedging contract. Another risk we face is related to the demand for the underlying commodity in the contract. The effectiveness of the hedge would be negatively impacted if the demand is less than the amounts agreed to in our hedging contract. In our hedging transactions, we limit our risk to the maximum payment of the price agreed upon. Quantitative information The amount represented by our derivative financial instruments is not significant. On March 31, 2015, the fair value of the derivative financial instruments, which are in a liability position, is approximately Ps$202 million, a sum that is less than 0.71% of our total assets, 1.20% of our total liabilities, 1.73% of our total capital and 4.96% of our quarterly sales (for the quarter ending on March 31, 2015). On December 31, 2014, the fair value of the derivative financial instruments, which are in a liability position, is approximately Ps$146 million, a sum that is less than 0.52% of our total assets, 0.88% of our total liabilities, 1.26% of our total capital and 0.95% of our annual sales (for the year ending on December 31, 2014). On December 31, 2013, the fair value of the derivative financial instruments, which are in an asset position, is approximately Ps$10 million, a sum that is less than 0.04% of our total assets, 0.08% of our total liabilities, 0.07% of our total capital and 0.08% of our annual sales (for the year ending on December 31, 2013). On December 31, 2012, the fair value of the derivative financial instruments, which are in an asset positon, is approximately Ps$8.5 million, a sum that is less than 0.04% of our total assets, 0.08% of our total liabilities, 0.08% of our total capital and 0.06% of our annual sales (for the year ending on December 31, 2012). We have not had margin calls on March 31, 2015 for the contracted financial instruments and have not defaulted under those instruments. 81

96 The following tables summarize our derivative financial instruments as of March 31, 2015: Instrument Designated as Notional Value at March 31, 2015 Amount (thousands) Units Maturity Liability Other comprehensive income Copper future... Hedging 3,867 Tons Feb to Dec 2015 Ps$ (5,197) Ps$ (3,638) Copper future... Hedging 261 Tons Feb to Oct Zinc future... Hedging 425 Tons Jan to Oct Nickel future... Hedging 42 Tons Jan to Apr 2015 (1,028) (720) Total at March 31, 2015 Ps$ (5,766) Ps$ (4,037) Instrument Designated as Notional Value at March 31, 2015 Amount (thousands of Other comprehensive U.S. dollars) Unit Maturity Liability income Currency swap (for which the Entity exchanges pesos for dollars) and obtains a preferential interest rate of 4.05%... Hedging US$1,500,000 U.S. dollar Oct-15 Ps$ (196,185) Ps$ (120,163) Sensitivity analysis For derivatives whose only purpose is hedging, sensitivity analysis is not applied. For additional information about our risk management, including our use of derivative financial instruments and our treasury policy, see notes 9, 10, and 11 to our consolidated financial statements. 82

97 INDUSTRY Sector Overview Our operations are primarily focused on manufacturing products used in the building materials, housing infrastructure and industrial sectors. Our production processes are oriented toward different segments of the industry and are classified according to product type. Building Materials Sector The building materials sector represents a very important market for our products, particularly for the Building Systems Division. In 2014, approximately 76% of our net sales were derived from the building materials sector. We believe there are significant opportunities to continue to grow our business through our lightweight building systems products for the building materials sector. Continued government support for reducing the housing deficit in Mexico and other key target markets, lower interest rates, and supportive frameworks to promote mortgage financing contribute to what we believe are promising growth opportunities. Mexican Housing Market The housing market in Mexico is determined by various social, economic, political and industry factors, including housing supply, demographics, government policies and the availability of mortgage financing. Ongoing Housing Deficit. According to information published by the Consejo Nacional de Población (National Population Council, or CONAPO ), existing housing in Mexico totaled 28.6 million households as of the 2010 census. Nevertheless, in 2012 the Inter-American Development Bank estimated that Mexico had a housing deficit of approximately 34% of total households, which represents approximately 11 million homes. Favorable and Sustainable Demographic Trends. Demographic trends in Mexico also contribute to increased demand for housing. Mexico s population as of December 31, 2014 was estimated at approximately 120 million, according to INEGI information. According to CONAPO and INEGI information, the total population of Mexico increased 1.1% between 2012 and Moreover, according to the same institutions, Mexico s population in the 25 to 50 age range is forecasted to grow from 42.2 million in 2014 to 47.9 million in 2030, which is expected to contribute to an increased demand for housing in Mexico. By 2030 more than 70% of Mexico s population will be below 50 years of age. In addition, this is accompanied by an increase in life expectancy which stimulates demand for housing, vacation homes, retirement homes and other healthcare facilities. Mexico s Population Pyramid (Age ranges on vertical axis and population in millions on horizontal axis) Source: CONAPO. Based on estimates by the World Bank and the population growth rate trend in the countries in which we operate, it is estimated that approximately 69 million people will enter the Economically Active Population ( EAP ) in the next 34 years. The combination of increased purchasing power and the need for housing, infrastructure and services 83

98 for these 69 million people will result in increased demand for the products we manufacture and sell. Elementia is ready to capture this additional demand. Favorable Demographic Trends (Millions of persons estimated to be added to the Economically Active Population (1) in the period from 2010 to 2050) 69 million people are expected to join the EAP (1) in our markets by 2050, representing an increase of 24% from 2015E USA Elementia South America Average (2) Mexico Elementia Central America Average (3) Source: World Bank. (1) People within the ages of 20 and 59 years. (2) Includes Bolivia, Colombia, Ecuador and Peru. (3) Includes Costa Rica, Honduras and El Salvador. Supportive Government Policies. In order to address the housing deficit in Mexico, the Mexican federal government has implemented certain policies designed to increase affordable housing supply. In Mexico, mortgage financing for affordable and middle-income housing has been made available primarily through government social housing programs or government-sponsored institutions, such as the Instituto del Fondo Nacional de la Vivienda para los Trabajadores (National Fund for Workers Housing, or INFONAVIT ), the SHF and the Fondo de la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (Housing Fund of the State s Employees Social Security and Social Services Institute, or FOVISSSTE ), and to a lesser extent by commercial and mortgage banks and loan providers, including limited-purpose and multi-purpose finance companies. According to CONAVI, the target of the various housing programs for 2014 is 1 million home loans. Furthermore, INFONAVIT and other mortgage providers have launched several mortgage securitization programs in order to increase liquidity in the mortgage industry through the capital markets. 84

99 U.S. Housing Market Home Construction Recovery in the U.S. (New housing units completed in thousands of units) Source: US Census Bureau The U.S. economy has shown slow but steady grow in the last couple of years, after emerging from one of the worse recessions in its history. According to the World Bank, the U.S. economy grew 2.8% in 2012, 1.9% in 2013 and 2.4% in 2014, while the Bureau of Labor Statistics indicates that the primary unemployment rate stands at 5.5% as of March 2015, the lowest in the last five years. Housing starts rose 0.9% year-over-year through December 2014 to an annual rate of approximately 1.1 million units. Fannie Mae s Economic & Strategic Research forecasts that total housing starts will recover to a normal level of approximately 1.6 million units per year in The Housing Market in Other Countries in Which We are Present Considerable housing deficits are an issue present in most of the countries in Latin America and represent a future growth opportunity for our company. According to the Inter-American Development Bank, the housing deficit in the Central American countries in which we are present affects 44.3% of homes, and in the South American countries in which we are present it affects 58.5% of homes. Such markets represent an attractive prospect for future growth for our Building Systems Division. 85

100 Housing Deficit in Latin America (% of homes that suffer from a lack of infrastructure and adequate conditions) More than 28 million homes lack adequate conditions in Elementia s markets % 45.1% 44.3% 34.0% Elementia Avg. South America Elementia Avg. Latin America Elementia Avg. Central America Mexico Estimate of millions of families without homes or living in inadequate housing conditions. (3) Source: Inter-American Development Bank (Room for Development: Housing Markets in Latin America and the Caribbean 2012), World Bank and national censuses. (1) (2) Includes Bolivia, Colombia, Ecuador and Peru. Includes Costa Rica, Honduras and El Salvador. (3) Assuming four persons per home for Bolivia, Ecuador, El Salvador and Honduras, 3.82 for Colombia, 3.38 for Costa Rica, 3.85 for Mexico and 3.92 for Peru. Colombian Housing Market The Colombian economy has experienced among the lightest levels of homes economic growth in the South American region. According to the World Bank, the Colombian economy expanded 4.0% in 2012, 4.7% in 2013 and 4.7% in Colombia s strengthening economy has led to a growing demand for new housing and an increase in investment in social housing programs. This momentum led to an 8.2% year-over-year growth in the construction industry, including an 11.5% growth for homebuilders, in Despite these tailwinds, according to the Departamento Administrativo Nacional de Estadística (DANE) and current population estimates, there is a housing deficit of approximately 4.5 million houses in the country. Industrial Growth We operate in a broad range of industries that we consider part of the building materials sector, including the oil and gas, HVAC (heating, ventilation and air conditioning), equipment, defense, minting and transportation industries, among others. Industrial demand for our products is highly correlated with the macroeconomic environment in the countries in which we operate. The World Bank estimates that Latin America will experience moderate growth in coming years, particularly in markets targeted by our company. Given these conditions, we believe that industrial demand for our products will continue to increase. 86

101 The following chart shows estimates of real GDP growth estimated for GDP Growth Above Average 3.9% 3.6% 3.1% 2.7% 2.3% 1.7% Elementia South Elementia Central America Average(1) America Average(2) USA Mexico OECD EU Source: Global Insight. (1) (2) Includes Bolivia, Colombia, Ecuador and Peru. Includes Costa Rica, Honduras and El Salvador Mexico s industries accounted for over approximately 33% of its GDP in EIU estimates that Mexico will experience a 3.6% real GDP CAGR through Depending on the rate of growth of the U.S. economy, Mexico s proximity to, and strong correlation with the, U.S. economy could cause Mexico s growth to be slightly lower than the rates of other emerging economies in the region, such as Colombia, Chile and Peru. However, acceleration in the U.S. economy could have a significant positive impact on Mexico, as the Mexican economy is dependent on exports, and the United States is the destination for approximately 70% of its exports. Furthermore, the recent economic recovery in Europe and Japan, if sustained, may have a positive knock-on effect on the Mexican economy (including its construction industry). The Mexican political outlook for 2015 is promising after the presidential administration was able to pass a slate of critical reforms through congress energy, education, telecom, banking, fiscal, among others leading to a sovereign credit rating upgrade both from Moody s and Standard and Poor s, making Mexico the second country in Latin America with an A rating. In Colombia and Peru, domestic demand and consumption coupled with increasing public and private spending are the main drivers of the economies continued growth. Consumer confidence remains strong and unemployment is showing a clear downward trend, according to EIU, thus supporting the expectation that consumption will grow in coming years. The growth of the industrial and business sectors has been driven by economic stability; however, there are strong appreciation pressures on the local currency, due primarily to an increase in foreign direct investment and the weakness of the U.S. dollar. The size of the markets in which we participate is 1.14 times the size of the construction market in China. Construction GDP in China is $694 billion and the sum of the GDP of the countries in which we operate is US$791 billion, i.e., 1.14 times the size of China. The following chart shows the construction GDP of China and the various countries in which we operate, comparing the relative size of the sum of the countries in which we operate to China. 87

102 Large Scale Markets (2014 GDP; US$Bn) , x 17,41 1, ,52 3,145 10,33 USA Mexico Other Elementia Countries All Elementia Countries Rest of S. America Elementia Countries + S. America China Source: Global Insight The amount of debt (calculated as gross debt divided by 2014 GDP) of the countries in which we operate is currently at very healthy levels, providing economic stability, thus promoting economic growth and consequently, consumption. We believe these markets will continue to grow at rates similar to the current rates. The following chart shows the rate of indebtedness of the countries in which we operate compared to other economies such as the EU and the OECD according to the following 2014 calculation: Economic Stability Caused by Financial Prudence (Gross Debt in % of GDP; 2014) 104.8% 82.1% 72.7% 50.1% 39.9% 38.0% USA OECD EU MEX Elementia Central Elementia South America average (2) America average (1) Source: World Bank (1) Includes Bolivia, Colombia, Ecuador and Peru. (2) Includes Costa Rica, Honduras and El Salvador. 88

103 Infrastructure Sector In order to continue their economic development and increase their competitiveness, Latin American countries will need to make a substantial investment in infrastructure, and to that end, several Latin American governments have implemented public investment initiatives in recent years and have established tax incentives and favorable financing structures for investment in infrastructure projects. Currently, the governments of Brazil, Colombia, Mexico, Panama and Peru, among others, have devoted significant resources to modernizing their infrastructure in order to keep pace with other emerging regions. These policies represent opportunities for sales of our products. The following chart provides information on infrastructure levels in Latin America as compared to the rest of the world. Quality of Infrastructure (Index of quality and quantity of infrastructure; 7 = extensive and efficient) World 4.2 Switzerland Germany USA Mexico Central America Average Elementia (1) South America Average Elementia (2) Source: WEF Global Competitiveness Report (1) Includes Costa Rica, Honduras and El Salvador (2) Includes Bolivia, Colombia, Ecuador and Peru The governments of Mexico and other Latin American countries are actively promoting policies to grant concessions to private enterprises for the construction, operation and maintenance of infrastructure projects. The granting of these concessions allow governments to promote infrastructure development without committing public sector resources, while stimulating private investment in their economies. In 2013, President Enrique Peña Nieto announced a national six-year National Infrastructure Plan which included an investment of US$102 billion in thousands of miles of new roads, railways, telecom infrastructure and ports and airports in an aim to boost competitiveness for exporters and stimulate growth. The stated goal of this plan is to deploy the telecom and transportation infrastructure by The plan calls for significant public and private investment, both domestic and foreign, and could add up to 1.9% of GDP growth between 2014 and

104 Mexico s National Infrastructure Plan (US$ in billions) Source: Plan Nacional de Infraestructura. Along with the Telecom and Transportation Investment plan, the government announced a US$300 billion Energy Investment plan backed up by an extensive Energy Reform. This reform is considered the most significant overhaul of the country s energy industry since These changes became law in December In May 2014, the administration introduced into congress the proposed secondary laws that would implement the reforms, which were approved in August According to World Bank estimates, in the 2014 to 2050 period, approximately 19 million people will be integrated into urban areas in the markets in which we operate. Continuous Shift Towards Vertical Construction (% of population living in urban areas) E = in the regions in which Elementia operates, approximately 19 million people are moving to urban areas 87.4% 86.4% 81.4% 79.0% 73.7% 66.3% 54.8% 71.5% 81.1% 79.2% 40.7% 65.4% USA MEX Elementia South America average Elementia Central America average (1) (2) USA MEX E Source: World Bank (1) Includes Bolivia, Colombia, Ecuador and Peru. (2) Includes Costa Rica, Honduras and El Salvador. 90

105 Market Overview In general, our operations focus on industries that use cement, fiber cement, plastic and copper. The following is a brief description of the markets for the various types of products we manufacture. Cement Products Cement is the key ingredient in concrete. Modern cement is made from mixtures of naturally occurring minerals that contain calcium oxide (usually from limestone) and silicon dioxide (usually from clay). The minerals are heated to extremely high temperatures (1450 C), which chemically transforms them into hard marble-like nodules called clinker. The clinker is then ground into an extremely fine powder; between 4,500 and 6,500 cm 2 /kg of cement. When cement is mixed with water, it forms very strong bonds with sand and other aggregates. Cement is a binding agent, which, when mixed with sand, stone or other aggregates and water, produces either ready-mix concrete or mortar. The raw materials used for cement are limestone, clay, gypsum, granulated slag, pyrinite cinder and coal. Cement Industry Outlook The construction industry, and specially the cement industry, is closely tied to the general economic activity of the country and in particular the development of construction GDP. All of our sales occur in Mexico, therefore there is a high correlation between our revenues and the Mexican economy. The combination of Mexican construction GDP and increasing private and foreign investments, as well as the flow of remittances, are expected to support cement consumption growth in Mexico during the next few years. The following table shows projected cement consumption in Mexico is lower than in other emerging markets and the world. Per Capita Consumption of Cement in Emerging Countries (Cement Consumption per Capita in 2013; kg) 1, World China Turkey Russia Brazil Mexico India Source: Morgan Stanley Global Cement Markets Report 91

106 Fiber Cement Products The Building Systems Division s main fiber cement products include flat and ondulated panels used for roofing, walls, façades, tiles, floors and other applications, and pipes, among other products, and this division represented 47.3% of our net sales for Fiber Cement in the Construction Industry Fiber cement products are used in the residential and commercial construction industries, in applications such as exterior siding, interior walls, roofing, ceilings, floors and soffits, among other products. The commercial and residential construction industries represent the principal market for fiber cement products and the demand for fiber cement products is affected by many factors such as the level of new home construction, renovation activity and government expenditures. Fiber cement products provide increased performance, consistency and cost advantages as compared to its substitutes. The primary attribute of fiber cement is its durability in outdoor applications, especially in comparison to galvanized metal, plastic, wood and wood-based alternatives. Fiber cement creates a similar aesthetic to wood or wood-based products, but with greater resistance to the damaging effects of moisture, heat, wear and tear and termites. Although vinyl coated products generally have better durability than wood products, they usually are less aesthetically appealing than wood or fiber cement products. We believe that fiber cement has good potential for long-term growth due to the benefits of lightweight construction products and framing construction as compared to traditional (brick and mortar) construction. We also believe that the option of replacing wood, vinyl and metal products with fiber cement products will appeal to consumers aesthetically and economically. Fiber Cement Industry in the United States In the United States, the largest demand for fiber cement products is found in the exterior siding industry. Siding usually occupies more square footage than any other construction component. The selection of siding materials is based on several factors, including the cost of installation, durability, aesthetics, strength, weather resistance, maintenance requirements and cost, and insulating properties. Different regions in the United States show marked preferences for certain siding materials according to economic conditions, climate, availability of materials and local preferences. The primary siding materials are vinyl, stucco, fiber cement, brick and solid wood. Vinyl has the largest share of the U.S. siding market according to The Freedonia Group in their Siding to 2018 report. In recent years, fiber cement has been gaining market share as compared to vinyl for several reasons, including its aesthetic appeal and durability. Plastics Products Plastics Industry Outlook Plastics are used in a variety of products, but have become crucial in the home construction industry. With the evolution of technology, plastics have gained ground against other natural components such as wood and steel. The U.S. Department of Energy estimates that the use of plastic foam insulation in homes and building each year could save over 60 million of barrels of oil over other kinds of insulation. Sales of our plastics products in our Building Systems Division are highly correlated to economic activity; most of our sales in the plastic industry are derived from the construction of houses. Economic growth results in higher housing construction spending, which may cause an increase in sales of our plastics products. The housing deficits remain a focal issue for local governments in our markets and housing starts are expected to grow significantly in the coming years, as governments implement housing programs in order to increase the construction of houses. Copper Products In the Metal Products Division, we produce copper and copper alloy, strips and sheets, rods, tubes, pipe fittings, forged and machined parts used in the construction, remodeling, refrigeration, HVAC, automotive, electrical, electronics, minting, ammunition, white goods and personal products industries. In 2014, copper and copper alloy products represented approximately 47% of our net sales. To manufacture these products, we acquire newly refined 92

107 copper and scrap copper from a variety of suppliers in Mexico and other parts of the world. As we sell the majority of our products at a cost-plus markup basis, our customers bear the risk of volatility in copper prices. The copper industry can be affected by different variables, many of which are beyond our control. These variables include general trends in economies, population, construction and infrastructure sector activity and the automotive industry, among others. Copper is used in residential and commercial building projects, which in turn are affected by interest rates, consumer confidence and general business cycles. Copper consumption also depends on growth in energy consumption and the production of manufactured products, such as industrial machinery and electronics. The use of alternative materials, such as bimetallics, aluminum, iron and plastics, also affects copper demand. The retail and general merchandise sectors are a key factor driving the current demand for copper, and one of the leading causes is the increased global production of air conditioners. It is estimated that the copper used in air conditioners covers about half of the copper tubing market. Copper consumption can be divided into three main segments: wire, copper products and copper alloy products. Wire represents approximately 55% of the global consumption of copper. Due to its high electrical conductivity, copper is often used for cabling and wiring. Wire is used in construction, electrical and electronic products, industrial machinery and transportation equipment among others. Of these, construction is the largest segment, accounting for 31% of total copper consumption. The following table shows the primary uses of copper in 2014 by end use region and sector. Primary Uses for Copper: Use by End Use Region and Sector, 2014 Thousands of Tons China... 12,315 Japan... 1,524 South Korea... 1,152 India Taiwan North America... 2,682 LatAm & Caribbean... 1,159 Mexico Europe... 4,941 Russia Africa Global Total... 28,126 Base: Copper content, thousands of metric tons Construction 32.9% Plumbing 6.0% Industrial Construction 0.6% Other Commercial / Residential 1.5% Communications 0.9% Electric generation & transmission 23.9% Infrastructure 14.8% Electric Supply 11.5% Telecommunications 1.2% Other 2.0% Equipment Manufacturing 52.3% Industrial 12.4% Automotive 7.2% Other Transportation 4.4% General and Consumer Products 8.2% Refrigeration 6.0% Other 0.04% Electronics 1.2% Other 12.9% Source: Wood Mackenzie. Note: Breakdown by final use based on 2010 International Copper Study Group report. 93

108 According to Brook Hunt, the consumption of copper in the United States and the European Union is expected to increase over the next 15 years. Global consumption grew by 5.0% during 2014, greater than the rate of 3.4% in In Latin America, the consumption of copper is expected to grow at an annual average rate of 3.1% from 2015 to 2025, which would represent an increase in consumption from approximately 1,159 thousand tons in 2015 to approximately 1,641 thousand tons in In the case of Mexico, consumption is expected to increase at an annual rate above 3.2% during the same period, from approximately 364 thousand tons in 2015 to approximately 498 thousand tons in E 2016E 2017E 2018E 2019E 2020E 2025E CAG R Copper Consumption (thousands of tons) Brazil % Chile % Mexico % Other % Total Latin America... 1,159 1,207 1,254 1,297 1,340 1,383 1,426 1, % Year-over-year change % 4.2% 3.9% 3.4% 3.3% 3.2% 3.1% 2.7% % of global consumption % 4.2% 4.2% 4.2% 4.3% 4.3% 4.3% 4.6% Source: Wood Mackenzie Trends in the Consumption of Secondary (Recycled) Copper Definition of Recycled Copper Recycled copper is classified into two main categories, new and old recycled copper. New recycled copper is generated during the manufacture of copper products and returned to production lines to be reused or sold, but is not considered a new supply source. A copper-producing plant can generate up to 60% recycled copper in its various processes. If the new recycled copper is generated internally and reused, it is not included in statistics regarding acquisition of recycled copper. Old recycled copper is derived from obsolete or deteriorated products and is considered a new source of supply. The supply of old recycled copper is linked to the volume of copper and the life cycle of products destined for recycling. The overall average lifespan of copper is 15 to 20 years, but it varies depending on its specific use. For example, the average lifespan of copper is 30 to 35 years in electronic equipment and machinery, 15 years in nonelectronic equipment, 35 to 37 years in residential construction and 10 years in transportation. The value of old recycled copper and its availability depends not only on the life cycles of copper products, but is also affected by the sensitivity of recycled prices in relation to market prices. Over the past 20 years, the volume of new recycled copper has not kept pace with industrial demand because the sector has become much more efficient and the generation of new recycled copper has fallen by 50% during this period. Use of Recycled Copper The majority of old recycled copper must be processed again through smelting, refining, and, where appropriate, electronic extraction in order to achieve a purified copper product. Certain products, such as brass rods may contain a high amount of recycled copper compared to other products, although they can still maintain the basic quality of the product. Others, like wire, must contain fewer impurities (usually 5%) because impurities could compromise their structure and cause them to warp. New recycled copper is usually ready for use in producing copper and brass pipes. Because recycled copper requires very little maintenance for reuse, it is also known as direct smelt or recycled 1. In general, recycled 1 is present in recycled copper products and copper alloys, but not in wiring. The purchase of recycled copper is based on the production levels of the target regions and on the price differential between cathode and recycled 1, and not on the actual price of copper. In positive economic cycles, the supply of recycled copper increases, since industrial production levels also increase, and during negative economic cycles, recycled copper supply decreases, and producers are forced to purchase more cathodes given the restricted supply. Low copper prices from 1997 to 2003 led to a reduction in the availability of high quality recycled copper and a significant decrease in demand, especially in the United States and Europe. In China, however, the use of high quality recycled copper has been increasing. Environmental factors have also played an important role, with the cost 94

109 of environmental compliance often resulting in the closure of plants, especially in the United States, even though the cost of retrieving a ton of recycled copper is approximately half that of traditional copper processing. Duties on Foreign Trade NAFTA became effective on January 1, NAFTA provided for the progressive elimination over a period of ten years of duties formerly in effect on raw materials imported into Mexico from the United States and Canada, and on the finished goods exported to those markets. There is currently no duty applicable to the imports of our raw materials from the United States or Canada, nor to the imports of our finished products to such countries, particularly of our metal products. The Mexico-European Union Free Trade Agreement, or MEFTA, became effective on July 1, MEFTA provides for the progressive elimination of Mexican duties for steel producers that are members of the European Union over a period of 6.5 years. Although we do not have imports from this region, this agreement provided an opportunity to increase our exports to European countries that are parties to MEFTA, following elimination of their duties on the imports of our finished products, particularly of our metal products. Mexico has also signed several free trade agreements with certain Latin American countries under which imports of our fiber cement products into those countries are exempt from import duties. Certain of our markets, however, are not under free trade agreements, and various duties and tariffs apply. 95

110 BUSINESS Our Business We are a manufacturer and distributor of products and solutions primarily focused on the construction materials industry, and a leader in Latin America based on installed capacity, according to internal estimates and publicly available information. Through our regional divisions, Mexico, the United States, Central America and South America, we manufacture and sell a wide range of products, based primarily on cement, fiber cement, plastics and copper, used throughout all stages of construction, from the early structural and unfinished construction stages through the installation of interior and exterior finishes, repairs and remodeling. Through our involvement in all stages of construction and our diversified product mix we are able to maintain close relationships with our customers and distributors. Additionally, we are focused on end users for industrial applications, whereby we provide our clients with highly-specialized, value-added products. The industrial sector represents approximately 24% of our sales. Our network of independent distributors, through which we market and offer the various products and solutions of our three divisions, consists of more than 4,300 independent distributors and customers throughout the 42 countries in which we sell that use and offer our diverse products and solutions to a broad client base. We have a total of 26 manufacturing plants located in nine countries in the Americas: Mexico, the United States, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru. We offer products that are used in each step of the construction process: Our primary markets are located in Mexico and the United States, which represent 59% and 21% of our net sales in 2014, respectively. The Central American and South American markets represent 5% and 14% of our net sales in 2014, respectively, although we also export our products to more than 40 countries. We serve all of our markets through six distribution centers, twelve warehouses, a distribution center in Laredo, Texas and a sales office located in Houston, Texas, which we intend to expand in order to meet the expected increase in demand that we will satisfy with the production of our plants in North Carolina and Oregon in the United States and, if necessary, with the reactivation of our plant in Indiana. We market our products using our own brands, which we believe have an established track record and a high level of market recognition. Such brands include Mexalit, Eureka, Allura, Maxitile, Plycem, Eternit, Duralit, Fibraforte, Nacobre and Fortaleza, which we introduced to the Mexican market in 2013 and which allowed us to become the first new participant in the Mexican cement industry in 65 years. The introduction of the Fortaleza brand allowed us to expand our range of product offerings and thereby strengthen our presence in the market. We believe our brand positioning, along with our diverse offering of solutions, our efficient network of independent distributors (present throughout the value chain in the construction industry) and our focus on customer service, create significant competitive advantages that distinguish us in the construction materials industry. 96

111 Our business strategy, focused on continued processes optimization, operations integration and organic and inorganic growth, has allowed us to grow in a sustained and disciplined manner while maintaining strong levels of profitability. In 2007, under MFRS, our EBITDA was Ps$291 million. In 2014, on an IFRS basis, our EBITDA was Ps$2,675 million, a nine-fold increase, which represented a CAGR of 37%. During the last three years, our net sales and EBITDA grew at a compound annual rate of 7% and 19%, respectively, an increase from Ps$13,506 million and Ps$1,877 million, respectively, in 2012 to Ps$15,331 million and Ps$2,675 million, respectively, in During the three months ended March 31, 2015, we generated net sales of Ps$4,070 million and EBITDA of Ps$707 million, which represents an increase of 12% and 16%, respectively, compared to net sales and EBITDA during the same period in During 2014, we generated net sales of Ps$15,331 million and EBITDA of Ps$2,675 million, representing an increase of 19% and 40%, respectively, compared to net sales and EBITDA in We operate our businesses through three divisions: Cement Division. Through our Cement Division, we produce and sell gray cement, white cement, mortar and concrete using the Fortaleza brand. Our products are geared toward the self-construction sector. We currently sell more than 70% of our production to a large number of customers in 50 kg bags, allowing us to obtain better prices and greater profit margins than if we sold cement in bulk. We distribute our products through a network of close to 120 distributors and 50 bulk customers, through more than 500 points of sale in 15 states located primarily in the central region of Mexico. These states have a combined population of 74 million people, or 66% of the total Mexican population, and account for 66% of the total cement consumption in Mexico, according to information published by INEGI and CONAPO, as well as our internal estimates. Our Cement Division commenced operations in March 2013 with the start of commercial operations of the El Palmar cement plant in Santiago de Anaya, State of Hidalgo, Mexico, with an approximate capacity of 1 million tons per year. Subsequently, on July 31, 2013, we established the Lafarge Joint Venture, whereby we contributed our El Palmar plant and Lafarge contributed its operations in Tula and Vito, State of Hidalgo, Mexico. In exchange for our contribution, we received an ownership stake of 53% in such joint venture, enabling us to expand our installed capacity from 1 million to 2 million tons. On September 19, 2014, we entered into a share purchase agreement to acquire Lafarge s 47% non-controlling interest in the Lafarge Joint Venture for US$225 million. On December 16, 2014, following the receipt of approval from the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) and the initial payment of US$180 million, we closed the acquisition and acquired 100% of the shares of ELC Tenedora Cementos (including the Fortaleza brand), consolidating our position in the cement industry in Mexico. Currently, the Cement Division operates three plants with a production capacity of approximately 2 million tons of cement per annum. Notwithstanding the Cement Division s recent commencement of operations, we estimate that in 2014 our market share within our target region (based on the 15 states in which we operate) was approximately 7%. Additionally, in 2014 we sold approximately 1.5 million tons of cement, which represents a utilization capacity close to 74%, considering 12 months of operations. The use of the distribution network developed by our Building Systems and Metal Products Divisions was key in obtaining a meaningful market share in only our second year of operations. This is a clear example of the competitive advantage that our distribution network represents. We currently sell all of our production to external customers, but we have the flexibility to use a portion of our cement production as input for the production of fiber cement in our Building Systems Division. Our Building Systems Division is currently able to obtain its necessary supply of cement under favorable market conditions by being a major consumer of cement in the country. One of our principal strategies is to grow the Cement Division. We expect to invest approximately US$250 million during through 2017 to increase the production capacity of our Tula plant, which we estimate will increase our total production capacity from 2.0 million to 3.5 million tons of cement per annum. On May 28, 2015, through our subsidiary Trituradora, we executed an agreement with the French company, Fives FCB, for the design, supply, construction, installation, and start up (under a turnkey scheme) of the production of 3,300 daily tons of clinker in the Tula Plant. We expect completion of capacity expansion and commencement of commercial operations by mid We anticipate that part of such investment will come from the net proceeds of the Global Offering. 97

112 The Cement Division generated net sales of Ps$509 million and EBITDA of Ps$202 million during the three months ended March 31, 2015, representing an increase of 26% and 113%, respectively, compared to net sales and EBITDA recorded during the same time period in 2014, primarily due to the increase in volume and the sales price, as well as the optimization of production costs. The Cement Division represented 13% and 11% of our total net sales for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. The Cement Division represented 28% and 21% of our consolidated EBITDA for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. Based on our internal financial information, for the last twelve months ended March 31, 2015, the Cement Division contributed 12% of our net sales and 25% of our EBITDA (excluding revenues and EBITDA attributable to the Company as parent company and eliminations). Building Systems Division. Through our Building Systems Division we manufacture and sell solutions based on fiber cement and plastics for the lightweight construction materials industry, including corrugated roofing sheets, flat boards, siding, building systems, pipes and water tanks (or cisterns), among others. The Building Systems Division operates 20 plants across Mexico, the United States, Colombia, Peru, Bolivia, Ecuador, Costa Rica, El Salvador and Honduras. We distribute our Building Systems Division products using brands that, in some cases, have had a presence of more than 80 years in the markets in which we operate. Our main brands include Mexalit, Eureka, Eternit, Duralit, Fibraforte, Maxitile, Allura and Plycem. Our products are distributed through our network of approximately 2,480 independent distributors, wholesalers and retailers, which allow us to reach a broad customer base in our target markets, including the self-construction and construction sectors in Latin America and the United States. The Building Systems Division s products are exposed to trends that we believe favor their use, including the change from traditional to lightweight construction systems and the replacement of horizontal development for vertical development in urban areas. We believe that due to our broad product portfolio, product quality, brand and distribution network, we are well positioned to continue to benefit from such trends. In January 2014, we acquired the production assets of the fiber cement business of a subsidiary of Saint- Gobain, significantly expanding our presence in the United States, the largest lightweight building materials market worldwide. This acquisition provided us with access to a national distribution network in the United States that we consider strategic for our future growth plans. In 2014, in connection with our implementation of initiatives to increase the profitability of such operation, we concentrated production at two of the three plants we acquired, and we believe that additional installed capacity we hold (mainly by reactivating the third plant), along with the continued recovery of the housing market in the United States, represent a high potential for production growth that will require a minimal investment. Within the Building Systems Division, we continue to implement measures to optimize our operations and value offerings, including: (i) the robotization of certain of our operations such as Plycem Salvador and Costa Rica (this automation plan is intended to increase baking capacity by 10%, reduce costs by 5%, decrease the manufacturing workforce and improve working conditions); and (ii) the development of high value added products that we call the wood of the future, which we manufacture within Plycem. An example of such products would be Plydeck a floor that has the same appearance as a wooden deck but has the properties of fiber cement (resistance to humidity, low maintenance and durability, among others). The Building Systems Division generated net sales of Ps$1,547 million and EBITDA of Ps$253 million during the three months ended March 31, 2015, representing an increase of 8% and 2%, respectively, compared with net sales and EBITDA recording during the same time period in 2014, mainly due to the increase in sales volume in the United States, which partially offset the decrease in the sales volume in the Central American and South American regions. The Building Systems Division represented 38% and 40% of our total net sales for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. The Building Systems Division represented 36% and 42% of our consolidated EBITDA for the three months ended March 31, 2015 and year ended December 31, 2014, respectively. Based on our internal financial information, for the last twelve months ended March 31, 2015, the Building Systems Division contributed 40% of our net sales and 42% of our EBITDA (excluding revenues and EBITDA attributable to the Company as parent company and eliminations). 98

113 Metal Products Division. Through our Metal Products Division, we manufacture and sell pipes, tubes, coils and sheets, bars and rods, fittings, wires and forged and machined parts, primarily based on copper and its alloys. Our principal value added products are fittings, forged and machined parts, connectors, plugs, preformed and preassembled tubes, collectors, returns, accumulators, flexible hoses for water and gas, regulators and valves, among others, mainly made of copper and its alloys, under the Nacobre and Cobrecel brands. We sell our products primarily to customers in the construction and industrial sectors. In 2014, the construction and industrial sectors each accounted for approximately 50% of the Metal Products Division s net sales. Through the Metal Products Division, we operate three vertically integrated (from casting to the finished product) manufacturing plants in Mexico, with a total production capacity of approximately 74 thousand tons per annum. We operate one of the few manufacturing plants in Latin America for copper products and its alloys such as brass, brass with lead, copper and nickel, nickel silver and bronze, all with a minimum copper content of 60% (Brass Mill), and we are the only producer of copper-nickel-alloy tubes in the Americas, and one of the principal global producers according to internal estimates. We are also one of the main suppliers of copper-nickel tubing used by the United States defense industry, a strategic supplier for the Mexican currency-minting industry and the largest producer of special brass and refractory alloys and copper and copper alloy strips in Latin America, according to information received from our clients and certain reports prepared by independent companies such as Urunet and Penta Transaction. Our products are sold in Mexico and exported to the United States, Latin America and Europe through more than 1,064 distributors and through direct sales to final consumers. In 2014, 62% of the Metal Products Division s net sales were to customers in Mexico, 22% to customers in the United States, 12% to customers in Latin America (excluding Mexico) and 3% to customers in Europe. The commercial strategy (cost plus) of the Metal Products Division allows for any variations in the cost of raw materials to generally be transferred to the final sale price of the product, thus achieving a stable target nominal margin per ton. This reduces the risks associated with fluctuations in the price of copper and its alloys. Within the Metal Products Division, we continue to implement measures that allow us to optimize our operations and improve the profitability of the division, including: (i) the adoption of new production technologies, such as the cast and roll process for the production of copper tubing and the continuous casting of brass ingot for the production of bars, among others, and (ii) the development of high-value added products tailored to meet our customers needs. The Metal Products Division generated net sales of Ps$1,936 million and EBITDA of Ps$253 million during the three months ended March 31, 2015, representing an increase of 10% and 16%, respectively, compared with net sales and EBITDA recorded during the same period in 2014, due to the increase in sales volume and the change in exchange rate, as well as greater sales of value added products and improved production costs resulting from our cost optimization initiatives and our more efficient use of metal. The Metal Products Division represented 48% and 47% of our total net sales for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. The Metal Products Division accounted for 36% and 32% of our consolidated EBITDA for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. Based on our internal financial information, for the last twelve months ended March 31, 2015, the Metal Products Division contributed 48% of our net sales and 33% of our EBITDA (excluding revenues and EBITDA attributable to the Company as parent company and eliminations). The following tables show our net sales and EBITDA by division and as a percentage of the consolidated totals for the periods indicated. 99

114 Net sales in millions of pesos Three months ended March 31, Year ended December 31, EBITDA in millions of pesos Three months ended March 31, Year ended December 31, Cement Division... $509 $405 $1,747 $1,046 $8 $202 $95 $572 $238 $(3) Building Systems Division... $1,547 $1,438 $6,074 $4,724 $4,959 $253 $248 $1,119 $943 1,005 Metal Products Division... $1,936 $1,759 $7,218 $6,919 $8,085 $253 $219 $855 $ Holdings and eliminations (1)... $78 $37 $292 $240 $454 $(1) $47 $129 $ Total... $4,070 $3,639 $15,331 $12,929 $13,506 $707 $609 $2,675 $1,913 $1,877 (1) Includes income from corporate services, recovery of expenses and rent charged to our subsidiaries, as well as intercompany eliminations. Net sales as % of total Three months ended March 31, Year ended December 31, EBITDA as % of total Three months ended March 31, Year ended December 31, Cement Division... 13% 11% 11% 8% 0% 28% 16% 21% 12% 0% Building Systems Division... 38% 40% 40% 37% 37% 36% 41% 42% 49% 54% Metal Products Division... 48% 48% 47% 54% 60% 36% 36% 32% 34% 38% Holdings and eliminations (1)... 1% 1% 2% 1% 3% 0% 7% 5% 4% 8% Total % 100% 100% 100% 100% 100% 100% 100% 100% 100% (1) Includes income from corporate services, recovery of expenses and rent charged to our subsidiaries, as well as intercompany eliminations. Our Competitive Strengths We consistently focus on generating superior value for our shareholders, customers, suppliers, employees, collaborators and the communities in which we are present by leveraging the following competitive strengths: Diversified Products and Market Sectors Through our three divisions, we have a diversified product portfolio that allows us to have a presence throughout the value chain of the construction industry, from the early structural and unfinished construction stages through the installation of interior and exterior finishes, repairs and renovations, offering solutions that enable us to meet the needs of, and maintain a close relationship with, a wide range of customers and markets. In particular, approximately 50% of the Metal Products Division s sales, and therefore 24% of our net sales, are intended for industrial applications, mitigating construction industry cycles. Our broad product portfolio includes cement, mortar and concrete, as well as fiber cement and plastic-based lightweight construction materials, including corrugated roofing sheets, flat boards, water tanks and cisterns. Additionally, we provide comprehensive solutions in copper products and its alloys such as tubes, sheets, forged and machined parts, wires and fittings. Due to this wide range of products and our focus on the self-construction segment, no one customer represents more than 4% of our consolidated net sales. In 2014, approximately 64% of our net sales corresponded to the construction sector and 24% to the industrial sector. Product Portfolio of Leading and Well-Recognized Brands We market our products using brand names that we believe have a long history and high level of recognition in the self-construction industry in the markets where we operate. Additionally, we believe that the strength of our brands, along with our network of independent distributors and the quality of our products, are a key to our growth and a factor that is difficult to replicate, which differentiates us within the construction materials industry. We believe that our brands are well positioned among consumers and distributors, some to the extent of having become a product category in their sector (for example, Eternit, Duralit and Plycem), and are associated with features like high quality, excellent performance, reliability and service. For example, in Colombia, lightweight roofs are generally referred to as Eternit. 100

115 Fortaleza, the cement brand we introduced in 2013, is one of the newest brands in our portfolio and according to internal estimates has achieved a high level of recognition among consumers and distributors, evidenced by its wide distribution and presence in the Mexican cement market, and our own market share in the Mexican cement market of approximately 4% in Such results stem from a marketing strategy that highlights product attributes and brand message to the target market, self-construction, and in particular looking to position the Fortaleza brand as the preferred brand among masons. Nacobre, the flagship brand of our Metal Products Division, has a strong presence in more than 36 countries and, according to internal estimates, a market share in Mexico of 65% in our key product categories. The Nacobre brand has been recognized by FERREPRO (a publication specializing in the hardware industry) as the fourth most influential brand in the Mexican hardware industry. Among our leading brands are the following: Brand Cement Division Product Years in the Market Geographic Region Market Position (1) Cement 2 Mexico #5 in the Mexican market Building Systems Division Fiber cement products: roofs, panels, tiles and pipes Fiber cement products: roofs, panels, PVC tiles, plastic tanks, paint and putties Fiber cement products: tiles and roofs Fiber cement products: roofs, panels and tiles Flat products (siding and fiber cement roofs) Polyethylene water tanks and cisterns, and polypropylene corrugated sheets Polypropylene corrugated sheets 73 Mexico #1 in fiber cement roofs Colombia Bolivia #1 in fiber cement products in Colombia, Ecuador, Bolivia and Central America #3 in water tanks in Colombia 11 (3) Central America 1 15 United States #2 in fiber cement (2) 80 Mexico #2 in water tanks 25 Peru #1 in plastic roofs Metal Products Division Copper and copper alloys (tubes, sheets, bars, connections and others) 65 Mexico #1 in Mexico (1) From January 1, 2014 to December 31, Information provided based on internal estimates. (2) Market share of approximately 11%, below the principal player in the market which has a market share of approximately 80%. (3) Plycem as a company has been in existence for 50 years. 101

116 Geographic Diversification and Presence in Countries with Favorable Macroeconomic Fundamentals and Demographics We have a presence across the Americas, with 26 production plants in 9 different countries, giving us exposure to different countries and currencies and thereby allowing us to mitigate the effects of any cyclicality in the markets, countries or regions where we operate. In addition, we are continuing to diversify geographically with clients in over 40 countries into which we export our range of products. In 2014, 59%, 21%, 5% and 14% of our net sales were made to clients in Mexico, the United States, Central America and South America, respectively. Additionally, in 2014, 59%, 23%, 8% and 10% of our net sales were generated in Mexican pesos, U.S. dollars, Colombian pesos and other currencies, respectively. We believe that most countries in which we operate have favorable estimated future growth prospects, based on factors such as the increase in foreign, public and private direct investment, the growth in consumer spending, a greater proportion of an economically active population, a growing middle class and a controlled inflationary environment. According to the Global Insight, the annual GDP growth rate expected in 2015 for Mexico, the United States, our principal markets in Central America (Costa Rica, Honduras and El Salvador) and our principal markets in South America (Bolivia, Colombia, Ecuador and Peru) will be 2.7%, 3.1%, 3.6% and 3.9% respectively. In comparison, the growth rates expected for European Union and OECD member states for the same period are 1.7% and 2.3%, respectively. Furthermore, the recent economic recovery in Europe and Japan, if sustained, may have a positive impact on the Mexican economy (including its construction industry). We believe that the growing middle class will continue to be an important factor for the growth in demand for construction materials in the countries in which we operate. In Mexico, for example, the middle class expanded by 11 million people, representing 30% of the total population in 2000 and 36% of the total population in 2012, according to statistics of INEGI. Similarly, other countries in Latin America, such as Colombia and Peru, have also experienced growth in the size of their middle classes in the last decade. Other factors which we believe have supported the growth of the construction sector in the countries in which we operate are: (i) the housing deficit in Latin America, where approximately 37% of households lack adequate housing infrastructure and conditions for construction according to the Inter-American Development Bank, (ii) the recovery in housing construction in the United States, (iii) the move away from traditional construction systems to lightweight 102

117 construction, (iv) the replacement in urban areas of horizontal development with vertical development and (v) favorable demographics in Mexico, including an increase in life expectancy which stimulates demand for housing, vacation homes, retirement homes and healthcare facilities. Additionally, several countries in Latin America, such as Mexico, Colombia, Peru and Ecuador, have announced important national infrastructure plans which could increase demand for construction materials. For example, in 2013, Mexico released its National Infrastructure Plan which contemplates US$596 billion of investment in 740 projects to be developed between 2014 and 2018 in areas including energy, urban development and housing, telecom and transport, water utilities, tourism and health. Wide Distribution Network that Covers our Three Divisions, Allowing for Cross-Selling and Marketing of Complementary Products We have developed an extensive distribution network linking our three divisions, comprised of over 4,300 independent distributors and customers, 6 distribution centers, 12 warehouses (located in Guadalajara, Puebla, Ciudad Juárez, Monterrey, Mexico City, Celaya and San Luis Potosí in Mexico; in Savannah, Georgia and Oakland, California in the United States; in Lima, Peru and in Cochabamba, Bolivia), one distribution center in Laredo, Texas, and one sales office strategically located in Houston, Texas, which we intend to expand in order to meet the expected increase in demand that we will satisfy with the production of our plants in North Carolina and Oregon. Our high quality and diverse product offerings, as well as our focus on innovation and customer service, have allowed us to build long-standing relationships with our distributors, many of which have grown together with us and offer our products exclusively. Through our network of independent distributors, we are able to offer a wide range of products for the construction market, which enables cross selling and marketing of complementary products. In the threemonth period ended March 31, 2015, 35% of our sales were made through distributors that sell products from at least two of our three divisions. This percentage was 31% and 35% for the year ended December 31, 2014 and the cumulative period from 2012 to date, respectively. To expand our distribution network we continue to improve our service and make sure that our distributors know the full range of our product offerings. Additionally, we believe our network of independent distributors appreciates our capacity to offer a wide range of integrated products as adequate solutions for the needs of final customers in the construction chain, unlike most of our competitors who offer only a single type of product. Even though we continually focus on integrating and creating synergies between our divisions, we maintain a specialized and independent sales force for each of them with the ultimate objective of having a multiproduct sales force. We estimate that we have increased cross-selling to distributors from our divisions from Ps$1,220 million in 2013 to Ps$1,891 million in 2015 (on an annualized basis based on our sales in the first four months of 2015). The following figure shows an example of the cross-selling efforts we are undertaking in order to have a multi-product sales force: 103

118 Through our network of independent distributors, we have been able to increase our product offerings with only a minimal incremental increase in cost, which has allowed us to maintain operating flexibility and access new markets quickly and efficiently. For example, our Cement Division, which began operations in 2013, has already achieved wide market penetration through the use of the existing distribution network of the Building Systems and Metal Products Divisions. Through our acquisition of the fiber cement business in the United States of a subsidiary of Saint-Gobain in 2014, we significantly expanded our presence there to a network of 97 independent distributors with nationwide coverage, a strategic acquisition with a view toward future growth. Such distribution network not only allows us to market products that are produced within the United States but also those products we produce in Mexico and Latin America, thereby creating important opportunities to expand our product offerings in the United States. We believe that our network of independent distributors also allows us to provide better customer service to large customers with broad geographic scopes and helps us identify opportunities and respond quickly to their needs. Likewise, many of our distributors, ranging from small materials houses, large retailers and even construction companies, have grown with us and have become our strategic partners, given their detailed knowledge of our products, among other reasons. The following table shows the approximate number of independent distributors and customers for each of our divisions: Division Region Distributors Customers Cement Division... Mexico Building Systems Division... Mexico 1, Building Systems Division... Central America Building Systems Division... United States 97 0 Building Systems Division... South America Mexico and the Metal Products Division... United States 1, Subtotals... 3, Total... 4,

119 Successful Track Record of Organic and Inorganic Growth Supported by our Financial Discipline Our growth during the previous decades has been focused in three stages: First Stage: (Consolidation): We started with the integration of our Building Systems Division with the leading producers and sellers of fiber cement and plastic in the regions of Mexico and Central and South America. Second Stage: (Diversification): We finalized the Nacobre acquisition, establishing the Metal Products Division in order to have a presence along the value chain of the construction industry, strengthen our cash flow generation and increase diversification by entering the industrial market. Similarly, we entered the cement industry in 2010 by beginning the construction of our El Palmar plant in order to be a part of the Mexican cement industry and consolidate our presence along the value chain of the construction industry. Third Stage: 2015 (Expansion): Our main focus on growth will be on the Cement Division and expansion in the United States market. We have achieved this through our management team s successful development and implementation of the operational methodology that we now call the Fifth Element, which seeks to improve the operating performance of our divisions through operational integration and process efficiency, as well as having efficient teams to integrate operations rapidly. Some examples of the benefits we have obtained through the application of our Fifth Element methodology to integrate acquisitions include: (i) increased profitability of Plycem, which once registered a loss of US$3 million in 2007, the same year we acquired it, and had a profit of US$12 million in 2014; (ii) the operating efficiencies achieved in the fiber cement business in the United States, which we acquired from a subsidiary of Saint Gobain in 2014, resulting in an increase of US$14 million in gross income, and transitioning from incurring losses to generating profits in only a year under our management; (iii) the substantial increase in the EBITDA margins of our Cement Division from 29% to 40% during the first quarter of 2015, once the acquisition of the non-controlling interest in the Lafarge Joint Venture was concluded in 2014; and (iv) steps undertaken at Eternit such as investments in technology to improve quality, restructuring of personnel and the vertical integration of raw materials such as silica and calcium bicarbonate, as a result of which EBITDA increased from US$1 million in 1999 to US$17 million in Similarly, through the implementation of the Fifth Element, we have increased our participation in the domestic and international markets through the use of synergies (for example, we increased our market share of water tanks in Mexico, from 12% in 2012 to 16% in 2014, as a result of the synergy with Nacobre which gave us access to the hardware distribution channel), entry into new product categories (plastic roofs) and the development of high valueadded products, notably the strategic investments made in (i) the optimization of production processes in the Building Systems and Metal Products Divisions; (ii) the innovation of products and processes such as the smelting and pressing technology (cast and roll) in the Metal Products Division; and (iii) expansions in operational capacity. Our focus on growth is accompanied by financial discipline and constant evaluation of our liquidity and leverage levels. We seek to maintain adequate levels of liquidity and sources of funding to take advantage of future investment opportunities. Our corporate policy targets a net debt to EBITDA ratio for the medium term of approximately 2.00x. As of March 31, 2015, we had a net debt to EBITDA ratio of 2.66x after giving effect to the issuance of the 2025 notes at the end of As of December 31, 2014, our net debt to EBITDA ratio was 2.69x and we anticipate a return to our internal policy target by mid Highly Experienced Management Team and Strong Shareholder Base Our senior management team has an average of more than 20 years of experience in the building materials industry and has been instrumental in developing and implementing the business strategies that have resulted in improvements in our operating and financial performance as well as integrating our acquisitions (twelve successful mergers and acquisitions transactions completed in the past fifteen years). We believe that our senior management has also proved to be highly capable in their ability to respond promptly and effectively to the challenges posed by the recent global economic crisis. We maintain a focus on the development of internal talent, which has enabled us to create a strong management team through extensive internal training and develop future generations of managers. We benefit from the longstanding support of our principal shareholders, who have a proven track record of value creation across different industries and geographic areas. Our principal shareholders are Kaluz, S.A. de C.V., or Grupo Kaluz, and Tenedora, which is indirectly controlled by Grupo Carso, S.A.B. de C.V., or Grupo Carso. 105

120 Grupo Kaluz and Grupo Carso are among the most representative, experienced and respected business groups in Mexico and Latin America. Grupo Kaluz, which is controlled by the del Valle family, operates a diversified group of companies in the industrial and petrochemical sectors, including Mexichem, S.A.B. de C.V. Grupo Kaluz has a global presence with businesses in the Americas, Europe, Asia and Africa. The del Valle family also participates in the real estate (through Kaluz Inmobiliaria) and financial (including Banco Ve por Más S.A., Instituición de Banca Múltiple, Grupo Financiero Ve por Más, Byline Bancorp Inc. and Byline Bank) sectors. The Slim family controls Grupo Carso and controls a diversified group of companies in the telecom, finance, industrial, mining, retail and infrastructure sectors including América Móvil S.A.B. de C.V., Grupo Financiero Inbursa S.A.B. de C.V., Minera Frisco, S.A.B. de C.V., Grupo Sanborns S.A.B. de C.V., and Impulsora del Desarrollo y el Empleo en América Latina, S.A.B. de C.V., among others. Our Key Strategies Our objective is to achieve sustained yet disciplined growth in sales, earnings and market share by developing and offering integrated, high-quality solutions for the construction materials industry. We focus on achieving that objective through organic and inorganic growth and the maximization of operating efficiencies, innovation and high quality standards. Focus on the Growth of our Cement Division We intend to focus our expansion efforts on our Cement Division in the coming years, given that according to our business plan the El Palmar plant will reach its maximum production capacity in the next few years. Consequently, we are in the process of increasing the production capacity of our Tula plant by 1.5 million tons per annum, which will require an investment of approximately US$250 million to achieve a total approximate capacity in the Cement Division of 3.5 million tons per annum. On May 28, 2015, through our subsidiary Trituradora, we executed an agreement with the French company, Fives FCB, for the design, supply, construction, installation, and start up (under a turnkey scheme) of the production of 3,300 daily tons of clinker in the Tula Plant. We expect that this expansion will be complete and we will begin commercial operations by mid We believe that this investment will allow us to increase our market share in the Mexican cement sector. Additionally, we are analyzing potential alternatives to foster our growth in this division, including operations, logistics, distribution and marketing, as well as potential expansions, acquisitions and/or the construction and development of new facilities (greenfields / brownfields). Grow Organically and Inorganically through Mergers and Acquisitions We are taking certain steps focused on expanding our production capacity in accordance with demand. In our Cement Division, we are in the process of increasing the production capacity of our Tula plant by 1.5 million tons per annum in order to maintain our market share given the increase in demand and achieve incremental sales of approximately 2 to 3 points in the market. In our Building Systems Division, particularly our production assets located in the United States, we are focusing production on two of the three plants we have acquired. We believe that the additional installed capacity, primarily through the reactivation of the third plant, will allow us to efficiently respond to market needs by meeting the potential growth in demand for our products. We are also investing close to US$19 million to relocate and expand our Fibraforte plant in Peru, which we estimate will increase its production capacity by 42%. Therefore, the Fibraforte plant could reach a production capacity of 13,613 tons per annum in the second quarter of This project s approach includes strengthening the local market and increasing our coverage in the export market to Chile, Uruguay, Ecuador, Bolivia and Brazil. The new plant will be located in Chilca, Peru, on a 45,284 m 2 parcel of land. In our Metal Products Division, we expect to capitalize on the benefits of capital investments made in recent years, including the optimization of raw material consumption and the improvement of our indices, focusing on continued improvement, perfecting inventory levels, and increasing sales of higher valueadded products, as well as the launch of cast and roll equipment for the production of copper tubing with improved metal yields. Through this initiative we intend to carry out the following: Cement Division. Increase our sales of 50 kg cement bags from 70% to 80% to further increase our margin, continuing to focus on the self-construction market. Building Systems Division. Strengthen our position as a leading provider of solutions in building systems through the development of highly specialized, value-added products and solutions to capitalize 106

121 on the opportunities generated by the trend toward lightweight construction. We will focus on the development of urban and green construction markets with new and innovative solutions and on developing new products that add value to the consumer and avoid maintenance and adjustment costs. In the United States, we intend to boost our market share through our fiber cement business by consolidating the current business and adding value added products to our portfolio (Plydeck, mezzanine slab and others). Additionally, we will continue to achieve capacity expansion to be able to efficiently meet market needs and respond to the potential increase in demand for our products. Thus, we are continually exploring opportunities to eliminate dependence on third parties during our production process. Currently, we have vertically integrated various raw materials such as silica and calcium carbonate, with mills in several of our Building Systems operations. We also use recycled polypropylene to produce plastic roofs in Peru, in addition to having the option to use the cement that we produce at any time. Additionally, we have been able to generate energy in our Honduras plant through biomass fuel plants. We intend to continue increasing the efficiency of the operations in our divisions by increasing the use of alternative fuels, as is the case in our Tula plant where 35% of fossil fuels have been replaced with such alternative fuels. Metal Products Division. Focus on offering innovative, value-added solutions for our clients (currently, approximately 65% of our metal products manufacturing is produced according to customer specifications). For example, in the Metal Products Division, we have the ability to produce new metal alloys required by our customers through technological innovations and by adapting processing technologies, such as new alloys to be used in several industries such as minting, nuclear submarines, oil and gas, among others. Also, we will continue to undertake strategic investments in technologies such as cast and roll, forge presses and new steel profiles and leverage our production capabilities (through the increase of our production capacity of added value products, among other things) and network of independent distributors to increase our penetration and market share in key markets. In short, we will continue to pursue the growth of our divisions market share through entry into new product categories and development of higher value-added products. We will also continue to analyze new opportunities for mergers and acquisitions in support of our initiatives as they arise. Strengthen our Competitive Position through Continuous Optimization of Processes and Innovation in Products and Solutions We intend to continue applying the Fifth Element with a view to further increase our profitability and further successfully and efficiently integrate acquisitions into our platform. The Fifth Element is an operating methodology which we have developed based on broad experience and trajectory to standardize processes and achieve a continuous improvement in our operations, be it through the incorporation of new business, the development of new products or the optimization of existing business. This methodology is based, among other things, on the following elements: implementation, standardization and optimization of processes; integration of new operations and/or acquisitions of information and control systems; incorporation, development and implementation of best practices; realization of synergies; establishment of strategic management; and introduction of the Fifth Element in the businesses acquired or created. By implementing the Fifth Element, we have achieved (i) a continuous optimization of processes, consumption, costs, margins and inventory throughout our divisions; (ii) the reduction in production resources, cost and time (lean manufacturing); (iii) the automation of processes in certain of our plants; (iv) the increase in use of recycled materials; (v) the modernization of technologies and teams through investments; and (vi) the integration of Information Technology (IT) and control systems, primarily through the SAP system. 107

122 We intend to continue applying the Fifth Element with the aim of improving our profitability and to keep expanding our platform in an organic manner and through the incorporation of new businesses. The initiatives which we are implementing include the development of new solutions that match the requirements of our clients and of the market, such as products based on special made to measure metal alloys, by relying on the support of our product development and engineering departments and of our technological partners such as Centro de Investigación y Desarrollo Carso (the Carso Research and Development Center); the optimization of our energy costs through the use of alternative fuels, such as tires and industrial waste from our operations in the three divisions or using coke with a higher sulfur content than what is widely available in Mexico in the Cement Division; and leveraging our scale and that of our shareholders to obtain better input prices, like we did with the electric energy supply contract that we signed with Iberdrola in 2015 and that we estimate will lead to savings of between 5% and 15% compared to the rate obtainable from the Federal Electricity Commission (Comisión Federal de Electricidad). Use our Distribution Network to Maximize Synergies Between Divisions and Commercialize Complementary Products under our own Brands We believe that our wide network of independent distributors with coverage throughout the countries in which we operate is difficult to replicate and constitutes one of our main competitive advantages. The combination of this distribution network with our wide portfolio of products creates important opportunities to broaden our offering of solutions to the construction industry and maximize the synergies between our divisions. We intend to use our distribution network to increase our market share through the marketing of our products in markets in which we are not currently present, such as for example the sale of plastics-based products like tanks and cisterns in the United States; the introduction of new products which meet market demands; and the sale of complementary products manufactured by third parties, potentially under our brand names, which could result in our possible integration into the manufacturing of these products. Our entry into the Mexican cement industry, in which we achieved, according to internal estimates, a market share of approximately 4% in 2014 just two years after launching our Fortaleza brand, is a clear example of the benefits which we can obtain through the use of our distribution network to broaden our product offering. We continue to seek synergies among our divisions, similar to those we have already identified and adopted, in order to achieve a better cost structure and more efficient operations. Such efforts include the use of our databases and information technology to facilitate cross selling and the centralized management of areas such as treasury, credit line analysis and billing. Using our network of independent distributors, we intend to significantly increase the marketing of complementary third party products, possibly under our brands, which has the potential to create additional product integrations. We currently sell products which we buy from third parties, making the most of the strength of our network of independent distributors, such as chromed products (e.g. keys and bath accessories), valves for the control of gas supply, roofing sheets made from recycled materials and flexible hoses. We centralize key processes to allow communication and coordination among our three divisions sales efforts throughout our distribution networks. These processes include cash management and evaluation of credit limits. Through these processes and our centralized database, we continue to optimize the collection process to support our working capital. Our Corporate Structure Prior to the global offering, Grupo Kaluz and members of the del Valle family owned 51% of our share capital and Tenedora, which is indirectly controlled by Grupo Carso, owned 46%, with the remaining shares (3%) held by two minority investors. Grupo Kaluz, which is controlled by the del Valle family and led by Daniel Martínez-Valle (who has more than twenty years of experience in the industry and over five years at Grupo Kaluz), is a Mexican conglomerate with significant investments in the petrochemical and industrial sectors. Grupo Carso, which is controlled by the Slim family, belongs to one of the world s largest conglomerates. In addition, the Slim family participates in the retail, industrial, telecommunications and manufacturing, and infrastructure and construction sectors. 108

123 We are a holding company and conduct our business through our subsidiaries. The following chart shows our current corporate structure and our principal operating subsidiaries. Elementia, S.A.B. de C.V. Metal Products Division Building Systems Division Cement Division Nacional de Cobre Mexico United States Central America South America ELC Tenedora Cementos Nacobre USA, LLC Mexalit Industrial Maxitile LLC Plycem Construsistemas Honduras Eternit Colombiana Trituradora Frigocel Plycem USA LLC Plycem Construsistemas El Salvador Eternit Atlántico 1 Concretos TPM- Fortaleza Plycem Construsistemas Costa Rica Eternit Pacífico 1 Industrias Duralit Eternit Ecuatoriana Industrias Fibraforte 1 In the process of merging. Our History We were incorporated on April 28, 1952 in Mexico City, with a duration of 99 years under the name Productos Mexalit, S.A., in accordance with Mexican law. Our name was changed to Mexalit, S.A. in 1979 and then to Elementia, S.A. in February 2009, as a result of branding changes aimed at reflecting recent acquisitions. On June 13, 2011, we became a variable capital corporation, and since then we have operated under the name of Elementia, S.A. de C.V. Since 1952, when we commenced our business as a fiber cement roofing products manufacturer, we have grown by building up our manufacturing capacity and acquiring other fiber cement and other products manufacturers throughout North, Central and South America. Through several acquisitions between 2001 and 2009, we expanded our product offerings in what is now our Building Systems Division. Between 2000 and 2008 we acquired Eternit Colombiana, Eternit Pacífico, Eternit Atlántico, Eureka Servicios Industriales, Eternit Ecuatoriana, Industrias Duralit and Plycem, all industry leaders in the production and manufacture of fiber cement roofing and water tanks in the South American and Central American regions. Continuing our expansion, in 2006 we built the Nuevo Laredo plant where we develop products that are mainly marketed in the United States using the Allura brand. Through these acquisitions and capital investments we have greatly diversified our fiber cement product offerings for the Building Systems Division. 109

124 In 2009, we commenced the construction project for the El Palmar cement plant, resulting in the creation of our Cement Division. Beginning on the same year, we have further expanded our product portfolio and geographic reach through several strategic acquisitions. On June 1, 2009, we purchased the Nacobre Subsidiaries, which manufactured and distributed copper and aluminum products, providing the basis for what is now our Metal Products Division. As a result of the acquisition, Grupo Carso, the ultimate parent of the Nacobre Subsidiaries, indirectly acquired 49% of our share capital, which has been reduced to 46% as of the date of this offering memorandum. During the course of 2011 and 2012, we sold our interests in the Nacobre Subsidiaries that produced aluminum products, and now the Nacobre Subsidiaries produce and distribute only copper, copper alloys and steel products. On December 8, 2009, we acquired Frigocel, S.A. de C.V., or Frigocel, and Frigocel Mexicana, S.A. de C.V, or Frigocel Mexicana, in Mexico, both of which manufacture plastic products, and on July 22, 2010, we acquired Fibraforte, a Peruvian company dedicated to the manufacture of polypropylene and polycarbonate roofing. Through these acquisitions, we developed and strengthened our Building Systems Division. In 2012, we decided to discontinue our fiber cement A.C. piping line from our Mexalit Industrial plant in Chihuahua, Mexico. Today, it only produces water tanks and cisterns. In the second half of 2013, our subsidiary Trituradora opened our new El Palmar cement plant. On January 8, 2013, we entered into the Lafarge Joint Venture for the production of cement in Mexico which became effective on July 31, During the existence of the Lafarge Joint Venture, we held an interest of 53%, while Lafarge held the remaining 47% interest through ownership of the capital stock of ELC Tenedora Cementos. On September 19, 2014, we entered into a share purchase agreement to acquire the remaining 47% stake in the Lafarge Joint Venture. On December 16, 2014, following the receipt of approval from the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) and the initial payment of US$180 million, we became the holder, directly or indirectly, of 100% of the shares of ELC Tenedora Cementos. During 2013, we commenced operations at a second autoclave in Colombia, increasing our annual production of fiber cement sheet products by 1,200 tons. We also transferred our copper operations at our former plant in Toluca, State of Mexico, Mexico to our plant at Celaya, Guanajuato, Mexico, as part of a process of integration. On January 31, 2014, our subsidiary Plycem USA acquired the assets of the fiber cement business of CertainTeed Corporation, an affiliate of Saint-Gobain and one of the principal manufacturers of construction materials in the United States. Through this transaction we acquired various assets related to the fiber cement business and strengthened our coverage and United States presence. Today, we are a diversified company with over 6,000 employees, offering integrated solutions in metals, fiber cement, cement and plastics products manufactured at our 26 plants located in Mexico, the United States, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Honduras and Peru. By promoting participation in sustainable projects in our communities through our Elementia Foundation (Fundación Elementia), we consider ourselves to be a socially responsible company. Such projects include housing support, community centers (schools, clinics and others), as well as support in the context of natural disasters. Additionally, we follow national and international environmental and social responsibility standards in order to rate our performance in such matters, such as the Global Reporting Initiative (GRI) in sustainability matters. Cement Division General During 2013, our new El Palmar cement plant began operations. Its cost of construction was US$315 million. We began distribution of the cement product in the Mexican market under the trade name Fortaleza, with the goal of meeting demand in the self-construction sector of the central Mexican region. This plant has a production capacity of approximately one million tons per year. With the startup of a new cement plant, capacity utilization is expected to ramp up over a period of time, and during 2014 and the three months ended March 31, 2015, the El Palmar plant continued to increase production. We estimate that the plant will operate at or close to full capacity in In 2013, we and Financière Lafarge S.A.S. entered into Contribution Agreement for the production of cement in México. In accordance with the Contribution Agreement, all of the shares of capital stock of Trituradora and Lafarge Cementos were transferred to ELC Tenedora Cementos, and Elementia assumed control of 53% of the shares, with Financière Lafarge, S.A.S., retaining 47%. We anticipate the Lafarge Joint Venture will service between 4% and 5% of the national market, reinforced by the launching of the new Fortaleza brand and marketing campaign. The combination of cement assets from the Lafarge Joint Venture parties allows them to have a production capacity of approximately two million tons of cement per year. On September 19, 2014, we entered into a share purchase 110

125 agreement in which we agreed to purchase Lafarge s remaining 47% of the shares in the Lafarge Joint Venture for a price of US$225 million. On December 16, 2014, following the receipt of approval from the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica), and our initial payment of US$180 million, we became the holder, directly or indirectly, of 100% of the shares of ELC Tenedora Cementos, through which its Fortaleza brand consolidates our position in the Mexican cement industry. In 2014, this division had net sales of Ps$1,747 million and EBITDA of Ps$572 million, representing 11% and 21%, respectively, of our consolidated totals for the period. In the three months ended March 31, 2015, this division had net sales of Ps$509 million and EBITDA of Ps$202 million, representing 13% and 28%, respectively, of our consolidated totals for the period. Products The Cement Division produces a portfolio of products including: Portland compound cement CPC30R, a rapid resistance class 30 cement, suitable for the construction of structural elements, in situations where there are no special requirements, demonstrating a good performance with respect to setting, resistance and yield. It meets the Mexican cement quality standards set forth in NMX-C- 414-ONNCCE. Portland compound cement CPC40, a resistant class 40 cement, suitable for the construction of concrete elements and structures, demonstrating good performance with respect to setting and yield, highlighted by its initial and final resistance. It meets the Mexican cement quality standards set forth in NMX-C-414-ONNCCE. Portland ordinary white cement CPO30R, a resistant class 30 cement, suitable for the manufacture of (i) white or clear cement, (ii) ceramic adhesives and (iii) sinks, tiles and mosaics. It meets the Mexican cement quality standards set forth in NMX-C-414-ONNCCE. Mortar or masonry cement, suitable for masonry work related to the construction industry. It meets the Mexican cement quality standards set forth in NMX-C-021-ONNCCE. Premixed concrete focused on the production and marketing of structural concrete for the housing, commercial and urban infrastructure construction markets. It meets the concrete quality standards set forth in NMX-C-155- ONNCCE. Our Cement Division reported net sales of Ps$1,747 million for white, gray and mortar cement in its second year of operations in The following table sets forth our sales volumes and net sales from our principal cement products for the periods indicated. Three months ended March 31, Year ended December 31, Volume Net Sales Volume Net Sales Volume Net Sales (in thousands of tons and millions of pesos) Gray Cement $ $ 313 1,278 $ 1,400 White Cement Mortar Others Total $ $ 405 1,548 $ 1,747 Raw Materials and Suppliers The principal raw material used in the cement production process is limestone, which represents approximately 80% of the volume. Iron ore, clay, gypsum, plaster and pozzolana are also used in the production of cement. 111

126 The majority of the raw materials that we used in our Cement Division are sourced through mines and fields owned by Elementia. These mines and fields are fully integrated with our cement production facilities. We estimate that we have enough resources to last for more than 50 years at current production capacity. The principal energy sources utilized to transform raw materials into clinker and clinker into cement are electric energy and petroleum coke. In addition to the limestone which we obtain from our own quarries, our major suppliers of raw materials are the Comisión Federal de Electricidad (Federal Electric Commission), TPC Petcoke Corporation and Mondi México, S. de R.L. de C.V. Facilities Our Cement Division uses three facilities: El Palmar, Tula and Vito, all of which are located in Hidalgo, Mexico. El Palmar was completed and inaugurated in 2013 by Elementia, while Tula (completed in 2006) and Vito (completed in 1946, with renovations in the 1980s) were contributed by Lafarge. Product Quality Our Cement Division products comply with the technical and quality standard requirements of the Mexican national market. Our cement production facilities have obtained the following certifications: Cement Division Facilities Certifications El Palmar... N/A Tula... Clean Audit Industry (PROFEPA) Vito... Clean Audit Industry (PROFEPA) Efficient Industrial Processes Our production process allows us to achieve high levels of quality and efficiency, achieving among other benefits, a quicker resistance generation process due to the use of our cement in concrete and mortar. In addition to emphasizing environmental safety by investing in dust collection and water treatment systems since commencing operations, we have implemented the following processes: Exploitation of raw materials: our quarries have rehabilitation plans, including reforestation and species relocation efforts undertaken since we began operations. Grinding and homogenization of raw powders: effectively using the heat from the clinkerization process to dry raw materials. Clinker production: optimization of electric and heat energy to maximize equipment performance. Container: our customers have several different container size delivery options (50 kg bags, 25 kg bags, big bags and bulk). Cement Plant Specifications El Palmar Total capacity: 1 million tons per annum, or TPA. Process: Uses a dry process, featuring a short rotary kiln and five-story preheat tower, with a capacity of 2,400 tons per day, or TPD, capacity. Inputs: Inputs include oil (195 tons per hour or TPH ), solid fuels (11 TPH) and rawmix (130 TPH). Packing: The process consists in a packing machine for white cement with 50 TPH capacity, a mortar packaging machine with 30 TPH capacity, a white cement silo with a total capacity of 2,500 tons, a bulk loader, two mortar cement silos each with a capacity of 200 tons and a bulk loader. Cement products: The plant produces three types of gray cement: CPC30R, CPC40 and mortar. 112

127 Tula Total capacity: 720 thousand TPA. The planned investments (approximately US$250 million) will permit us to increase capacity by 1.5 million additional tons per year by mid Process: Uses a dry process, featuring a short rotary kiln and five-story preheat tower, with a 1,800 TPD capacity. Inputs: Inputs include oil (140 TPH), solid fuels (11 TPH) and rawmix (84 TPH). 35% of energy consumption comes from the coprocessing of tires. Packing: Has a cement packing process capable of 2,300 TPD. The process features two packing machines, each with a 120 TPH; one palletizer; one bulk loader; and two cement silos, each with a 4,000 ton capacity. Cement products: The plant produces CPC30R, CPC30RRS, CPC40 and CPC40RS gray cements. Vito Total capacity: 288 thousand TPA (156 thousand TPA of mortar cement and 132 thousand TPA of white cement). Process: Uses a dry process, featuring a long rotary kiln and one-story preheat tower, with a 435 TPD capacity. Inputs: oil (60 TPH); white rawmix (26 TPH) or mortar rawmix (22 TPH) Packing: The process features one packing machine for white cement with 50 TPH capacity; one packing machine for mortar cement with 30 TPH capacity (without bag applicator); one silo for white cement with 2,500 ton total capacity and a bulk loader; two silos for mortar cement with 200 ton capacity each and a bulk loader. Cement products: The plant produces mortar cement and CPO30RB white cement. Building Systems Division General Our Building Systems Division manufactures and markets solutions based on fiber cement and plastic for the lightweight building materials industry including corrugated roofing products, panels, sidings, construction systems and pipes, among other products, and transforms polystyrene (GPPS, HIPS and EPS) utilizing thermoforming extrusion, expansion and molding processes, polyethylene (rotomolding and injected), polypropylene and vinyl polychloride products in a wide variety of measures, colors, dimensions, densities and capacities. This division s products are sold to customers in the building materials and infrastructure industries. The Building Systems Division is divided into four regions: United States, Mexico, Central America and South America. We manufacture and market our Building Systems products through the following subsidiaries: Mexico Region: Mexalit Industrial, S.A. de C.V. (Mexico) Frigocel, S.A. de C.V. (Mexico) United States Region: Maxitile LLC Plycem USA LLC 113

128 Central American Region: Plycem Construsistemas Honduras, S.A. de C.V. (Honduras) Plycem Construsistemas El Salvador, S.A. de C.V. (El Salvador) Plycem Construsistemas Costa Rica, S.A. (Costa Rica) South American Region: Eternit Colombiana, S.A. (Colombia) Eternit Atlántico, S.A. (Colombia) Eternit Pacífico, S.A. (Colombia) Eternit Ecuatoriana, S.A. (Ecuador) Industrias Duralit, S.A. (Bolivia) Industrias Fibraforte, S.A. (Peru) This division has 20 manufacturing plants across 9 countries: Peru, Mexico, Colombia, Ecuador, Costa Rica, Honduras, El Salvador, Bolivia and the United States. Our Building Systems products are sold through approximately 2,741 distributors and customers. This division had net sales of Ps$6,074 million and EBITDA of Ps$1,119 million in 2014, representing 40% and 42%, respectively, of our consolidated totals for the year. In the three months ended March 31, 2015, this division had net sales of Ps$1,547 million and EBITDA of Ps$253 million, representing 38% and 36%, respectively, of our consolidated totals for the period. Our revenue from the sale of building systems has usually followed the trends of the construction industry. Historically, our Building Systems Division has had higher sales during the summer and lower sales during the winter, reflecting the seasonality of construction activity. On December 19, 2013, we signed an acquisition agreement with the external products division of Saint-Gobain to acquire the assets of the fiber cement business of its affiliate, CertainTeed Corporation, one of the principal manufacturers of construction materials in the United States. On January 31, 2014, we completed the acquisition of the assets of the fiber cement business of CertainTeed Corporation. We subsequently rebranded this business under our new Allura brand. We expect that this acquisition will strengthen our presence in the United States. These plants will geographically complement the operations of our Nuevo Laredo plant, which is focused on the U.S. market. Pursuant to the acquisition agreement relating to the assets of the fiber cement business of CertainTeed Corporation, we will not be liable for, among other things, (i) any liabilities arising from, or relating to, claims made by any person due to, or attributable to, the actual or alleged exposure to asbestos that occurred prior the purchase or (ii) any environmental liabilities relating to, or arising from, events or circumstances occurring or existing prior to the consummation of the agreement, including all liabilities relating to environmental, health and safety laws. We are in the process of relocating and expanding our fiber cement plant in Peru, which will permit us to increase our production capacity by approximately 42%, to approximately 13,613 tons per year. We estimate that the works will be concluded during the first half of The focus of the project is to consolidate the local market and increase our coverage in the export market (Chile, Uruguay, Ecuador, Bolivia and Brazil). The new plant will be located in the area of Chilca, on a 45,284 m 2 site, with a total investment of approximately US$19 million. 114

129 Products The primary Building Systems products that we manufacture are the following: Corrugated roofing sheets from fiber cement, which are used primarily in residential construction and which can also be used as decorative ornaments. These roofing sheets are cost-effective, versatile and an architectural solution. We manufacture different sizes and profiles of corrugated sheets for different applications. We produce the most common profiles used in the market (P3, P4, P7, P10 and Channel C90) in various lengths ranging from 1.22 to 3.66 meters with widths ranging from 0.91 to 1.1 meters and thicknesses ranging from 4 to 6 millimeters. We manufacture corrugated sheets for the local construction business and the export market, and our management system has been certified based on the requirements specified in ISO 9001:2008. Roofs or suspended ceilings from fiber cement flat sheets, which are used primarily in residential and commercial construction. We manufacture flat sheets in lengths of 0.61 meters, 1.22 meters and 2.44 meters, with widths of 1.22 meters and thicknesses from 4 to 20 millimeters. We manufacture flat sheets to different local and/or ASTM mechanical specifications, such as ISO 8336 and ASTM-C Siding fiber cement boards, which are used primarily in the housing and construction industries to weatherproof and enhance the aesthetic quality of facades and for modern architectural designs. These products have a high level of dimensional stability, resistance and durability. The boards come in a variety of shapes and sizes, may be used for interiors and exteriors. Trims, which are used primarily in the residential and commercial construction industries. Trims come in a variety of shapes and sizes and may be used for corners, fascia, windows, doors, column wraps, rakes, friezes, decorative trim and other non-structural architectural elements to add decorative elements to homes and buildings. We manufacture trims to different local and/or ASTM mechanical specifications, such as ISO 8336 and ASTM-C Fiber cement panels for internal and external walls, and floors, which are used primarily in residential and commercial construction. We produce panels in lengths of 2.44 meters, with widths of 1.22 meters and thicknesses ranging from 6.0 to 20.0 millimeters. The panels are versatile and can be used in a broad spectrum of buildings and construction types. Our panels offer resistance to moisture, are immune to wood-boring insects, are load-bearing, are non-combustible and are available in different finishes. We manufacture panels to different local and/or ASTM mechanical specifications, such as ISO 8336 and ASTM-C Fiber cement pipes, which are used primarily in the infrastructure industry for water and sewage systems. We manufacture pipes in A and B classes in lengths of 5 meters, widths of 1.07 meters and thicknesses ranging from 2.4 to 27.4 centimeters for class A pipes, and from 2.8 to 16.7 centimeters for class B pipes. F.C. pipes are manufactured to different local/astm mechanical specifications, such as NMX-C-012-ONNCCE-2007 and NMX-C-039-ONNCCE Polystyrene rolls, which are primarily used in the food industry. We sell polystyrene in rolls and the customer produces its own thermoformed containers or pots, injecting the product into the interior of the formed container and subsequently sealing it. We produce these rolls to different local and mechanical specifications according to custom specifications. These products are manufactured using extrusion. Polystyrene plastic sheet, which is mainly used in advertising stands. We produce the sheeting according to custom specifications. These products are manufactured using the extrusion process. Disposable polystyrene products, such as cups and plates, which are used primarily for bulk consumption and are sold under the Festy brand. These products are manufactured using extrusion and are thermoformed. Coffers, slabs, plates, panel strips, medium rods and expandible polystyrene moldings, which are mainly used in the construction industry. We manufacture these products in different densities and to different specifications according to the requirements of the product and its end use, depending on whether it is used for filler, thermal insulation, sound insulation, packing or decorative use. These products are manufactured using expansion, molding and cutting processes. 115

130 Refrigerated storage room panels, which are used primarily in the industrial sector. We produce panels for industrial refrigeration chambers for thermal insulation. These panels are manufactured to different specifications according to the characteristics of the client s refrigerated storage chambers. These products are manufactured using expansion, molding, cutting and foil incorporation processes. Trays or seed trays, which are used primarily in the agricultural industry, mainly in greenhouses. We produce trays and seed trays to different custom specifications. These products are manufactured using expansion and molding processes. Polypropylene sheeting, which is used in the construction industry. In Mexico, in the fourth quarter of 2013, we invested in modern extrusion and thermoforming equipment to commence the production of polypropylene corrugated sheets. We also invested in injection equipment in order to produce water tank covers. Polyethylene water tanks and cisterns, which are primarily used in the housing industry for the storage of water. We produce water tanks and cisterns in a variety of sizes, ranging from a capacity of 450 liters to 10,000 liters. We manufacture tanks to different local and/or ASTM mechanical specifications, such as NMX-C-374- ONNCCE We also manufacture a range of fiber cement products based on customer specifications, such as light building systems and remodeling accessories, as well as a range of energy saving products, such as Maxi-Therm fiber cement sheets. Below are images of some of the products in our Building Systems Division: 116

131 The following tables set forth our sales volumes and sales from our principal Building Systems products for the periods indicated. Three months ended March 31, Volume Sales Volume Sales (in thousands of tons and millions of Ps$) Mexico Sheets, tiles and moldings $ $ 736 Panels Trims/Sidings Water tanks Others Mexico Subtotal $ 1, $ 1,326 Foreign Sheets, tiles and moldings... 4 $ 24 6 $ 35 Panels Trims/Sidings Water tanks... Others Foreign Subtotal $ $ 112 Total $ 1, $ 1,438 Year ended December 31, Volume Sales Volume Sales Volume Sales (in thousands of tons and millions of pesos) Mexico Sheets, tiles and moldings $ 2, $ 2, $ 2,313 Panels Trims/Sidings , Water tanks Others Mexico Subtotal $ 5, $ 4, $ 4,

132 Year ended December 31, Volume Sales Volume Sales Volume Sales (in thousands of tons and millions of pesos) Foreign Sheets, tiles and moldings $ Panels Trims/Sidings... Water tanks Others Foreign Subtotal $ $ $ 492 Total $ 6, $ 4, $ 4,959 Raw Materials and Suppliers The principal raw materials used in the manufacture of products in the Building Systems Division are cement, demineralized water, calcium carbonate, silica, chrysotile, other natural/synthetic fibers, aluminum, mineral pigments, polystyrene crystal resin, high-impact polystyrene resin, expandable polystyrene resin, polypropylene resin and polyethylene resin, depending on the type of product. These raw materials represented approximately 60% of this division s production costs in We obtain the raw materials used in our Building Systems Division from a large number of suppliers, and we are not dependent on any individual source for the raw materials that we purchase. Our principal suppliers (i) for chrysotile fiber are Sama-Mineração de Amianto, Ltda., JSC Ural Asbest and Minera Las Brisas, S.A.; (ii) for cement are Cemex, S.A.B. de C.V., Holcim México, S.A. de C.V. and Cementos Argos, S.A. in Mexico, Central America and South America, and Giant Cement Company in the United States; and (iii) for cellulose fiber are Arauco and Constitución, S.A., Canfor Pulp and Paper S.A., Domtar Paper Company LLC and GP Cellulose International Marketing S.R.L.; (iv) for polystyrene crystal resin and high-impact polystyrene resin are Styrolution Mexicana SA de CV, Resirene S.A. de C.V. and Polímeros Nacionales S.A. de C.V.; (v) for polystyrene expandable resin is Poliestireno y Derivados, S.A. de C.V.; (vi) for polyethylene resin, are Polímeros Mexicanos S.A. de C.V. and Polímeros Nacionales S.A. de C.V.; (vii) for polypropylene resin, are Polímeros Nacionales S.A. de C.V., Polipetrosur, S. de R.L de C.V. and Arpema Plásticos S.A. de C.V.; and (viii) fiber from PVA Kinoshita Fishing Net MFG. CO., LTD. Cement. Currently, we do not have long-term supply agreements for cement, but we set prices on a yearly basis and obtain discounts and special prices for specific government export and infrastructure projects. This raw material is readily accessible in global markets, showing low volatility in recent years. Chrysotile Fiber. In Mexico and South America, chrysotile fiber is used to manufacture certain fiber cement products that are marketed locally. Products that are exported to the United States are manufactured using other fibers such as cellulose fiber and PVA and we have never exported products manufactured using chrysotile into the United States. Chrysotile fiber is acquired from suppliers located in Colombia, Brazil and Russia. Our use of chrysotile fiber is compliant with the local health and safety regulations in the countries in which we operate as well as international standards such as the Responsible Use of Chrysotile Asbestos. This raw material is difficult to access in the market and prices have increased approximately 36% during the past three years, derived from the deficit in the production of the fiber. We have entered into a supply contract with JSC Uralbest that assures the required volume. Cellulose Fiber. The market availability of this product, the competitive prices that we can obtain due to the volume that our division consumes, in addition to quality assurance, are important factors that allow us to have access to providers in Chile, the United States and Canada. We do not have supply agreements with our cellulose fiber suppliers. However, our orders are based on the needs of our production plants and are usually placed two months in advance. This raw material is readily available at prices prevailing in the global market. PVA Fiber. We acquire PVA fiber from suppliers located in Asia. PVA fiber is used in the manufacture of fiber cement products. Although the current price of this raw material is higher than that of the mineral fiber, there are various suppliers worldwide. 118

133 Silica. We obtain silica from local suppliers and from the different regions where silica is used. We have traditionally negotiated and set prices on an annual basis, and we currently have vertically integrated in Mexico a silica mine located in Nuevo Laredo, Tamaulipas. Silica is a readily available material with a number of suppliers available to us. In some of our plants, we have invested in silica mills in order to decrease the cost of the material. Polystyrene and polyethylene resins. We have access to raw resins without restrictions as we have strong business relationships with polystyrene and polyethylene suppliers, they have a surplus of installed capacity and we have access to this material as a preferred customer. The price is denominated in U.S. dollars and depends on two hydrocarbons derived from petroleum, benzene and ethylene. Therefore, the price of these resins depends on the price of oil, natural gas and exchange rate fluctuations. However, we are generally able to pass on increases in the cost of raw materials to our end customers. Polypropylene resin. Polypropylene resin is the thermoplastic polymer, partially crystalline, obtained from the polymerization of propylene (or propane). It belongs to the group of polyolefins and is used in a broad range of applications including food packaging, textiles, laboratory equipment, automotive components and transparent films. Polypropylene has strong resistance to several chemical solvents as well as alkalis and acids. Principal suppliers include Polipropileno del Caribe (Cartagena Colombia); Muehlstein (United States, Asia); and Petroquim (Chile). In recent years, there has been an over-supply in the market, although its price has been affected by the market price of oil. Virgin polypropylene is widely available, but there is limited supply for recycled polypropylene due to the specifications that are required. Manufacturing Plants The manufacturing operations of the Building Systems Division are located in several countries, including the United States of America, Mexico, Peru, El Salvador, Costa Rica, Honduras, Colombia, Ecuador and Bolivia, which makes us an integrated producer with a truly regional platform. Product Quality Each of our manufacturing plants in the Building Systems Division has a quality assurance department responsible for ensuring the compliance with our raw material and finished product specifications, and for overseeing the production process, allowing us to develop products with significant brand value. Additionally, these departments supervise the manufacturing processes. All of our testing methods are based on international norms, such as the ASTM and Mexican NMX. Our manufacturing plants in this division have, or operate pursuant to, certifications under national and international norms, including certifications from the ISO for quality management (ISO-9001) and environmental quality and safety (ISO-14001), and from the Occupational Safety and Health Administration, or OSHA, for occupational health and safety management (OSHAS-18000). Moreover, many of our manufacturing plants are certified by the Organización Nacional de Normalización y Certificación de la Construcción y Edificación (National Organization of Standardization and Certification of Building and Construction, or ONNCCE ), Comisión Nacional del Agua (National Water Commission, or CONAGUA ), Certificación Mexicana, S.C., or CERTIMEX, Centre Scientifique et Technique du Bâtiment (International Code Council, or CSTB ) and Business Alliance for Secure Commerce, or BASC. In addition, PROFEPA has granted many of our manufacturing plants in Mexico the Industria Limpia certification, which certifies full compliance with Mexican environmental laws. Manufacturing Plants in the Building Systems Division Certifications Santa Clara...ISO 9001:2008, ISO 14001:2004, Clean Industry, NMX-C-012, NMX-C-039, NMX-C-374, NOM-006-CONAGUA, ICC, CSTB, Pacto Global Guadalajara...ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007, Clean Industry, NMX-C-374, NOM-006-CONAGUA, ICC, Pacto Global Nuevo Laredo...ISO 9001:2008, ICC Villahermosa...ISO 9001:2008, Pacto Global 119

134 Manufacturing Plants in the Building Systems Division North Carolina...ISO (expired) Certifications Oregon...ISO Indiana...N/A Cartago...ISO 9001, ISO 14001, OSHAS San Pedro Sula...ISO 9001, ISO 14001, OSHAS El Salvador...ISO 9001, ISO 14001, OSHAS Eternit Colombiana...ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007, BASC Version Eternit Pacífico...ISO 9001:2008, ISO 14001:2004, OSHAS 18001:2007 (Bureau Veritas), BASC V (WBO), BASC V Eternit Atlántico...Bureau Veritas, ISO 9001, ISO 14001, OSHAS 18000, BASC V Eternit Ecuatoriana...INEN 1320 Tipo III, INEN 1320 Tipo IV, ISO 9001, ISO 14001, OSHAS:18001 Duralit Bolivia...ISO 9001:2000, IBNORCA (Instituto Boliviano de Normalización y Calidad, Certificado de Sello de Producto NB 673:2010, Certificado de Aprobación. Renewed on 02/07/2011) Expansion La Luz...NOM-018, Pacto Global Extrusion Cuamalta...Pacto Global Industrias Fibraforte...ISO 9001:2000 ICONTEC Chihuahua...Pacto Global Monterrey...Pacto Global Manufacturing Processes Our Building Systems Division currently offers the broadest portfolio of solutions for lightweight building systems in fiber cement. The manufacturing plants in the Building Systems Division have production lines for manufacturing roofing sheets, sidings, pipes and panels. The manufacturing process begins with the mixing of raw materials. The production lines then stretch the mixture using rollers, in order to form slabs that will subsequently be shaped into the desired product. These plates are then subjected to various processes: Autoclaving, which cures the cement at an accelerated pace under high pressure and temperature. Carbonation, which accelerates the curing of cement, but which does not result in the final baking. Natural, whereby the cement sets by itself in the shade. Painting, whereby the product is brought to a painting line. 120

135 In addition, our Building Systems Division also manufactures plastics products. For this purpose, the Building Systems Division acquires a diversity of raw materials and through the processes of rotomolding transformation, extrusion, thermoforming, expansion and injection, obtains and markets, among its principal products, deposits (water tanks, cisterns, tanks), laminate (sheets and rolls), disposable (cups and plates), lightening and isolation (block, coffer, plate, slab, cooling panel for cameras) and packaging (seedling and forest nurseries) products which are primarily used in the construction, food, publicity, agricultural, decorative and refrigeration industries. These products are manufactured and distributed through ten plants located in Mexico (five), Colombia (three), Bolivia (one) and Peru (one). Extrusion process. We use polystyrene resin (GPPS and HIPS) as a raw material for the manufacture of plastic laminates (rolls and sheets). The polystyrene resin is fed into an extruding machine that applies mechanical heat and friction. As a result of this process, a soft material is obtained that passes through a die and rollers which give the product the desired thickness and physical characteristics. In the case of sheet plastic, this sheet is cut into the desired dimensions and colors to produce the final product and, in the case of roll, it is coiled and packed for delivery. Expansion process. We use polystyrene beads (EPS) as a raw material to manufacture expandable polyethylene block. The expandable polystyrene bead is inserted into a pre-expansion machine, which adds friction, pressure and temperature. The product obtained is cooled in silos to later be fed into a model which through steam and pressure forms the material into a solid molded block. This block undergoes a cutting process to produce various products made to measure for our customers, such as coffers, slabs, plates, moldings, panel strips and slabs, among others. Polypropylene or PVC plastic tiles extrusion process. The manufacturing process for corrugated polypropylene and PVC roofing consists of: (1) feeding into the extruder the raw material; (2) extruding and obtaining the laminate, controlling the thickness with the rollers; (3) thermoforming the laminate to obtain the required corrugation; and (4) cutting the sheet automatically, according to standard lengths. Metal Products Division General Our Metal Products Division manufactures a variety of copper and copper alloys, flats, laminates in rolls and sheets, bars and rods, wires, tubes, fittings, forged and machined parts used in the construction, air conditioning, refrigeration, automotive, electrical, electronics, minting, ammunition, white goods, crafts, petrochemicals, heat exchangers and textile industries, among other industries. We established the Metal Products Division in June 2009 following the Nacobre Acquisition. We manufacture our products in three plants located in Mexico and distribute them through eight warehouses in Mexico and one distribution center in Laredo, Texas. We have one sales office in Houston, Texas in the United States to serve to the United States and Canadian markets. From our central office in Mexico City, we market our products throughout more than 36 countries in the world. The Metal Products Division had net sales of Ps$7,218 million and EBITDA of Ps$855 million in 2014, representing 47% and 32%, respectively, of our consolidated totals for the year. In the three months ended March 31, 2015, the Metal Products Division generated net sales of Ps$1,936 million and EBITDA of Ps$253 million, representing 48% and 36%, respectively, of our consolidated totals for the period. Revenues from the sale of metal products are generally not affected by seasonality, although they do tend to track the activity levels of the building materials sector. In addition, because our metals products are sold on a costplus mark-up basis, we are generally able to adjust pricing to maintain our margins independent of the volatility of international copper prices. 121

136 Products Our Metal Products Division manufactures a variety of copper and copper alloy products, which are used by our customers in the manufacturing processes of their finished products. We believe we have a competitive advantage over our competitors due to our rigorous quality standards and strong technical know-how, which allow us to develop higher value-added, higher margin products. We believe we also have a leading market position in copper and copper alloy products: we are one of the primary global manufacturers in the world of copper-nickel tubes, which are highly specialized products sold to the petrochemical, energy and naval sectors, among others, primarily in the United States as well as Europe. Copper We currently produce various specifications of copper and copper alloys, flats in rolls and sheets, bars and rods, wires, tubes, connections and fittings, forged and machined parts used in the building materials, air conditioning, refrigeration, automotive, electrical, electronics, minting, ammunition, white goods, crafts, petrochemicals, heat exchangers and textile industries, among others, varying in length, thickness and size. Our copper products are used primarily in the construction and industrial sectors. Our principal copper products include: Tubes, which are used primarily in construction, refrigeration and air conditioning, in the electrical, petrochemical, and water and gas transportation (in various pressures and temperatures) sectors. We produce various sizes of copper tubes ranging from to 10 in diameter. We manufacture copper tubes according to different local and/or international standards, including the American Society for Testing and Materials, or ASTM, mechanical specifications, including NOM, EN, DIN, JIS and MIL-T. Flats in rolls and sheets. We produce a large selection of flat rolled products using copper-based alloys, which are used primarily in the electronics, automotive, decorative, electricity, key blanks and minting industries. We produce these products in various gauges with widths of up to 36 inches, all in compliance with ASTM standards. 122

137 Solid copper products, such as bars and rods, which are used primarily in the industrial manufacturing and automotive industries. We manufacture solid copper products in round, square, hexagonal and special shapes, to different local and/or ASTM mechanical specifications, including ASTM B-455, ASTM B-152 and ASTM B Wires, which are used primarily in the electronics, telecommunications, electricity, apparel, musical instruments and personal products industries. We produce various types of wires, including square, half-round, flat, round and electro-erosion wires. We manufacture wires to different local and/or ASTM mechanical specifications, including ASTM B-134, ASTM B-206 and ASTM B-187. Fittings, which are used primarily in the building materials and manufacturing industries. We produce various types of copper and brass fittings, including threaded and wrought fittings for water, gas and industrial uses. Our line of products also includes valves for use in the building materials sector. We manufacture fittings to different local and/or ASTM mechanical specifications. 123

138 The following table sets forth sales volumes and net sales from our principal copper products for the periods presented. Three months ended March 31, Year ended December 31, Volume Net Sales Volume Net Sales Volume Net Sales Volume Net Sales Volume Net Sales (in thousands of tons and millions of pesos) Mexico and USA Tubes... 6 $ $ $ 2, $ 2, $ 2,818 Sheets , , ,974 Solid copper Wires Fittings Others Subtotal $ 1, $ 1, $ 5, $ 5, $ 6,700 Exports Tubes... 2 $ $ $ 1,032 6 $742 6 $925 Sheets Solid copper Wires Fittings Other Subtotal... 3 $ $ $ 1,568 8 $ 1,309 9 $ 1,385 Total $ 1, $ 1, $ 7, $ 6, $ 8,085 Raw Materials and Suppliers The primary raw materials used in the manufacture of our metal products are copper, nickel, zinc and lead, which together accounted for approximately 85% of this division s production costs in We have two sources of raw materials for our metal products: newly refined virgin metal and recycled metal, both of which are sourced from Mexican suppliers. No single metal supplier accounted for more than 15% of the total amount of metal raw materials purchased by us in 2014 and we are not dependent on any individual supplier for our metal raw materials. Our primary recycled metal suppliers are Grupo de Metales Tultepec, S.A. de C.V., Recuperaciones Industriales Internacionales, S.A. de C.V., Victor Systems, S.A. de C.V., Texsisa and Válvulas y Aceros del Norte; however, we obtain recycled metal from a large number of suppliers. Our primary suppliers of newly refined virgin metal (cathode) are Recuperaciones Industriales Internacionales, S.A. de C.V., Industrial Minera Mexico, S.A. de C.V., Cobre de México, S.A. de C.V., Operadora de Minas e Instalaciones, Vale Americas Inc. and Gerald Metals Mexico, S. de R.L. de C.V. Our Metal Products Division products are sold on a metal cost-plus mark-up basis, which means that customers absorb the risk of price volatility of raw materials. Manufacturing Plants We manufacture our copper products at our Vallejo, San Luis Potosí and Celaya plants, all of which are located in Mexico. During 2013, we concluded our transition from the Toluca plant to Celaya, consolidating our operations in the three manufacturing plants mentioned above. Product Quality Our Metal Products Division s manufacturing plants have quality control departments responsible for ensuring compliance with our raw material and finished product specifications and for overseeing the production process. All of our testing methods are based on international standards, such as the ASTM, as well as Mexican standards developed by technical committees under the direction of Mexican federal agencies, or NMX. Our Metal Products Division products comply with the technical standards and quality required by domestic and foreign markets. Applicable standards and specifications vary according to product type and are established by 124

139 various international institutions and associations. Our manufacturing plants in this division have certifications from the ISO for quality management (ISO-9001). In addition, PROFEPA has granted some of our manufacturing plants the Industria Limpia (Clean Industry) certification, which certifies full compliance with Mexican environmental laws. Our manufacturing plants in our Metal Products Division have the following certifications: Manufacturing Plants in the Metal Products Division Certifications Vallejo... Clean Industry, ISO 9001:2008, ISO 14401:2004 Celaya... ISO 9001:2008; UL certification for Pigtail MH and Regulators: Environmental Management System ISO 14001:2004 San Luis Potosí... ISO 9001:2000, Clean Industry Manufacturing Processes We utilize several manufacturing processes, ranging from metal casting, to lamination or extrusion, to reach the final product which can be flat rolled, tube or a custom shape according to customer specifications. Smelting Process: In this part of the process, the raw material, whether in pure or recycled form, is melted in order to produce blocks or 8-inch thick cakes made of copper or copper alloys (which can be copper-nickel, brass, zinc or nickel-silver). These blocks are melted into a sheet or coil. There are two types of casting: Caster or continuous smelting, from which rolls and mother tube are made, or Semi-continuous casting, from which a cake/ingot is produced. Lamination Process: In this part of the process, the block or billet obtained by smelting the raw material is subjected to high temperatures and passed through rollers, which fashion it into a sheet or coil. The sheet or coil is immersed in chemicals to remove rust, and then cold force and pressure are applied to it to reach a specified thickness. Extrusion Process: In this part of the process, the block obtained by smelting the raw material is subjected to high temperatures and placed in an extrusion press, where pressure is applied to generate a tube. The outside and inside diameters of this tube are then adjusted through an extrusion process. The manufacturing process for copper piping and its alloys includes smelting and extruding the metal in order to produce water pipes, tubes for air conditioning and refrigeration, capillary tubes and fittings, among other products. The manufacturing process for copper, coil and sheeting and its alloys includes smelting and sheeting, after which the customer processes it to mint coins and produce cartridges for the military industry, electrical terminals, keys and automotive parts, transformers, appliances and other products. Subsidiaries The following table lists our primary direct and indirect subsidiaries as of March 31, 2015, indicating the percentage of our direct or indirect holding in each: Name of Subsidiary Nacional de Cobre, S.A. de C.V. Operadora de Inmuebles Elementia, S.A. de C.V. (formerly Almexa, S.A. de C.V.) Country Year of Incorporation Percentage Owned Products/Services Mexico % Manufacture of copper products for the construction industry Mexico % Asset leasing 125

140 Name of Subsidiary Nacobre USA LLC (previously Copper & Brass International Corp.) Mexalit Industrial, S.A. de C.V. Mexalit Servicios Administrativos, S.A. de C.V. (formerly Eureka Servicios Industriales, S.A. de C.V.) Distribuidora Promex, S.A. de C.V. and subsidiaries Country Year of Incorporation Percentage Owned Products/Services U.S % Distribution and sale of copper and aluminum products for the construction industry in the United States of America Mexico % Manufacture and distribution of fiber cement construction products Mexico % Administrative services Mexico % Investments in shares of fiber cement construction products and pipes. Eternit Atlántico, S.A. Colombia % Manufacture and distribution of fiber cement construction products Eternit Colombiana, S.A. Colombia % Manufacture and distribution of fiber cement construction products Eternit Pacífico, S.A. Colombia % Manufacture and distribution of fiber cement and construction products Eternit Ecuatoriana, S.A. Ecuador % Manufacture and distribution of fiber cement and construction products Maxitile LLC (previously Maxitile Inc.) Nacobre Servicios Administrativos, S.A. de C.V. (formerly Maxitile Servicios Industriales, S.A. de C.V.) Compañía Mexicana de Concreto Pretensado Comecop, S.A. de C.V. U.S % Manufacture and distribution of fiber cement construction products Mexico % Administrative services Mexico % Manufacture and sale of pre-stressed concrete pipes. The Plycem Company Inc. Costa Rica and Central America % Holding Entity of Central America entities and production of light construction systems (construsistemas) in Latin America. Plycem USA LLC (previously Plycem USA Inc.) U.S % Commercialization of fiber cement products Frigocel, S.A. de C.V. Mexico % Distribution and sale of plastic products ELC Tenedora Cementos, S.A.P.I. de C.V. Mexico % Holding company 126

141 Name of Subsidiary Country Year of Incorporation Percentage Owned Products/Services General de Bebidas y Alimentos, S.A. and subsidiaries Panama % Holding company Elementia USA Inc. U.S % Holding company Industrias Fibraforte, S.A. Peru % Manufacture of light polypropylene and polycarbonate covers Elementia USA LLC U.S % Administrative services We provide financing to certain of our subsidiaries for their investment or working capital needs. These loan documents are drafted on similar terms and conditions to those used by us for financing or on market terms and conditions. Similarly, through certain of our subsidiaries, we provide technical assistance, financial and treasury, legal, accounting and tax services, economic studies, human resources and corporate planning to other subsidiaries. Distribution Channels We sell our products through an extensive distribution network of over 4,300 independent distributors and end users who comprise a large network of points of sale for our products, supported by six company-operated distribution facilities in Mexico. The following table shows a breakdown of our independent distributors in our divisions and the markets in which we operate: Our distributors are not only an important part of our distribution strategy, but are also considered one of our most important customer groups. In addition to enhancing our ability to penetrate the markets in which we operate, our distributors allow us to understand the evolving needs of the end consumers for our products. Independent distributors form the industry s primary distribution channel for our products. Our distribution partners are carefully selected based on their ability to drive sales of our products, deliver high-quality customer service and meet other performance criteria. While we do not enter into distribution agreements with our independent distributors, we have a strict credit policy and require that our independent distributors document their creditworthiness and provide guarantees in the form of promissory notes. We use our own transportation, as well as third-party trucking companies to transport all of our products from our manufacturing plants to distribution centers, independent distributors and customers. We believe that our use of independent distributors provides us with a high level of operational flexibility, because it allows us to penetrate key markets and expand our geographic reach without incurring the expense of a company-operated distribution network. This reach also allows us to service larger customers with a broader geographic scope, as these independent distributors have their own formal and structured distribution network and their own distribution centers. In addition, this allows us to reach the greatest number of clients, some of which prefer to visit the distribution facility directly to purchase their products. We support our network of independent 127