building a STRONGER foundation - Cemex

Cement in Mexico is sold principally through distributors, with the remaining balance sold through ready-mix concrete
producers, manufacturers of pre-cast concrete products and construction contractors. Cement sold through distributors is mixed with
aggregates and water by the end user at the construction site to form concrete. Ready-mix concrete producers mix the ingredients in
plants and deliver it to local construction sites in mixer trucks, which pour the concrete. Unlike more developed economies, where
purchases of cement are concentrated in the commercial and industrial sectors, retail sales of cement through distributors in 2010
accounted for approximately 65% of Mexico’s demand. Individuals who purchase bags of cement for self-construction and other basic
construction needs are a significant component of the retail sector. We estimate that about 30% of total demand in Mexico comes from
individuals who address their own construction needs. We believe that this large retail sales base is a factor that significantly
contributes to the overall performance of the Mexican cement market.
The retail nature of the Mexican cement market also enables us to foster brand loyalty, which distinguishes us from other
worldwide producers selling primarily in bulk. We own the registered trademarks for our brands in Mexico, such as “Tolteca,”
“Monterrey,” “Maya,” “Anáhuac,” “Campana,” “Gallo,” and “Centenario.” We believe that these brand names are important in
Mexico since cement is principally sold in bags to retail customers who may develop brand loyalty based on differences in quality and
service. In addition, we own the registered trademark for the “Construrama” brand name for construction material stores.
Competition. In the early 1970s, the cement industry in Mexico was regionally fragmented. However, over the last 40 years,
cement producers in Mexico have increased their production capacity and the Mexican cement industry has consolidated into a
national market, thus becoming increasingly competitive. The major cement producers in Mexico are CEMEX; Holcim Apasco, an
affiliate of Holcim Ltd.; Sociedad Cooperativa Cruz Azul, a Mexican operator; Cementos Moctezuma, an associate of Ciments
Molins; Grupo Cementos Chihuahua, a Mexican operator in which we own a 49% interest; and Lafarge Cementos, a subsidiary of
Lafarge. The major ready-mix concrete producers in Mexico are CEMEX, Holcim Apasco, Sociedad Cooperativa Cruz Azul and
Cementos Moctezuma.
Potential entrants into the Mexican cement market face various impediments to entry, including:
the time-consuming and expensive process of establishing a retail distribution network and developing the brand
identification necessary to succeed in the retail market, which represents the bulk of the domestic market;
the lack of port infrastructure and the high inland transportation costs resulting from the low value-to-weight ratio of
cement;
the distance from ports to major consumption centers and the presence of significant natural barriers, such as mountain
ranges, which border Mexico’s east and west coasts;
the extensive capital expenditure requirements; and
the length of time required for construction of new plants, which is approximately two years.
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