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Low-Income Market Development

July 2010

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CEMEX, one of the world’s leading building materials companies

Annual sales of US$14.5 Billion

Presence in 50 countries

Close to 47,000 employees

Global supplier of

Ready-mix 2,016 sites

Cement 63 plants

Aggregates 391 quarries

Source: 2009 Annual Report

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Social Innovation. We seek to identify social needs and provide opportunities to develop local capabilities

Global Social Investment priorities: Housing and infrastructure Education Environmental conservation and improvement

Social programs that…

are designed in collaboration with communities

contribute, without replacing the government

go beyond legal compliance

keep a long-term perspective

help to build trust and establish partnerships

leverage our core competencies and assets

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Patrimonio Hoy. Background

A significant housing deficit of 4 million houses affecting 20 million people in Mexico

An attractive informal low-income market

– about 30-40% of demand for bagged cement – less affected by economic crisis

Little understanding of low-income building practices and barriers

“When we first started we were told to forget everything we knew about cement, and see the market with a clean slate, leaving out any prejudices that we may have had”

CEMEX Sales by sector at the outset of Patrimonio Hoy, 1993 -1996

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Exploration (’98 - ’99)

A multidisciplinary team A low-income area in Guadalajara Goal: To learn about low-income families’ way of

life in general, and about their self-construction practices

Lack of: formal savings formal credit sources technical knowledge supply of materials organization

Area: 9 m2 room Time: 4 to 5 years Investment: US$1,500

Initial Research

Main barriersAn average project

“Families were often deceived by sellers of building materials. They paid high prices, were treated poorly, often got the wrong or lower-quality materials late, and were cheated in the weight of what they received. Many were expert masons but had no skills to develop a reasonable floor plan”

A sense of resignation, frustration

“I can not manage this issue, it’s so difficult”

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An affordable and integral value proposition empowering the poor to build their house

Micro-Credit Scheme

Micro-Credit Scheme

Delivery of Materials

Delivery of Materials

Technical Advice

Technical Advice

On average, families pay <20% of the budget per cycle

80% is financed by CEMEX, no requisites

Delivery of materials by local retailers Fixed prices and one year storage

A building plan and budget developed by professionals according to families’ needs

Agreements

Technical Advice Delivery

Contributing to families’ well-being Self-construction process

Target clients: low-income families (from 2 to 4 minimum wages) who want to build, expand, or remodel their houses in urban or semi-urban marginalized areas

PromotersPromoters Program promotion by community members, mainly women responsible for inviting families

Weekly FeesWeekly Fees Weekly installments 200 MXP (US$15)

US$12.50 for materials

US$2.50 services fee

Public SchoolsPublic

Schools

Improvement of local public schools and local infrastructure

Community promoters

Program features

“We realized that selling them more cement would not fix their lives”

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An array of benefits

Tangible Building 3 times faster and at 1/3 of average costs Better quality and functionality, results in a higher market value by about 30% Access to the credit market and to a credit history (formality!) Job creation among promoters and local masons

Intangible Additional space and privacy for families Promotion of family unity and solidarity among neighbors Promotion of long-term thinking, savings, and planning skills Better learning conditions at public schools

Before… Family at work… After!

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-

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Thou

sand

s

Over 100 offices in Latin America 85 throughout Mexico, also launched in:

Colombia Costa Rica Dominican Republic Nicaragua

Coverage and Results

Results (In Mexico) Over US$140 MM micro-credits granted Repayment rate above 99% More than 1.30 MM m2 built Client satisfaction of over 90% 60% say they would not have been able

to build their house without PH 30% use new space to start or develop

their own business 55% of participants hire local masons 95% of promoters female, 51% with no

previous working experience >500 local schools improved

Coverage: 280,000 families More than 1.4 million people

Coverage: 280,000 families More than 1.4 million people

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Lessons Learned

Developing a deep understanding of the segment’s needs and perceptions is crucial

A flexible management culture open to change needed

Embedding social capital in the business model is key

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Testimonials

For 8 years María Diega and her family of six lived in a single room

With PH they added seven rooms and a set of stairs in five years. They could have spent their entire lifetime to build this

For 5 years Rosa Magaña, her husband, and 2 children lived in a 10 m2 carton shed with no bathroom.

Now, they live in their own 120 m2 house and they are about to finish building another two rooms which will add 50 m2, plus a soldering workshop.

“Without PH we would be still crowded, uncomfortable, and upset. Since we are part of the program my husband and I are more united, as he stays home during the weekends to keep building our house. We see the PH team as part of our family”- Ma. Diega

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Portfolio of initiatives

Mejora tu Calle

Self-Employment Productive Centers

Following PH, CEMEX has developed other low-income housing and infrastructure initiatives

Strengthen market share and

community development

through innovative

building solutions

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6.86.6

6.1

5.1 5.1

3.9 3.8

3.12.7

2.42.1

3.33.5

6.0

0

1

2

3

4

5

6

7

Switz

erland (1

)

Germany (3

)

USA (9)

Canad

a (10)

Spain

(27)

Chile (2

9)

China (58)

Guatemala

(63)

Honduras (72)

Mexic

o (76)

Colombia (84)

Brazil (9

8)

Peru (1

13)

Nicara

gua (

125)

Note : 7 = world’s best, 1 = least developed

Source: The Global Competitiveness Report 2009-2010, World Economic Forum

Infrastructure Quality Index

Mexico’s infrastructure index is below world average, this results in a negative

impact in the country’s relative competitiveness

Average 3.8

Mejora tu Calle

13Note: Does not include Mexico’s City Delegations.

Source: State and Municipal Public Finances 2005-2008. INEGI

35,85441,640

46,65952,455

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

2005 2006 2007 2008

Municipalities’ Local Income 2005-2008

21.6%

21.6%22.8%

20.5%

Total % of Income

Annual average growth rate 2005-2008: 13.5%MXP million

Municipalities’ Local Income is generally very low in relation to total

budget

Mejora tu Calle

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Mejora tu Calle

Supporting local governments through community micro-credits for the improvement of streets and sidewalks

Promotion of concrete pavement (in contrast to asphalt) Micro-credits granted to 7,000 families More than 320,000 m2 paved in 12 municipalities Repayment rate higher to 90% Supported by IADB’s Opportunities for Majority Program (US$10M Credit,

Guarantee facility)Before… After!

video

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In this low income neighborhood paving program, the government pays for the

network services and the neighbors pay for the project through a microfinance

agreement established with CEMEX and guaranteed by the Interamerican

Development Bank

Government & Neighbors

Mejora tu calle

PROJECT ACCOUNT- Charges the beneficiaries- Pays paving to Mejora tu

calle

BENEFICIARYPays to Mejora tu calle

COLLECTION OF MONEY STRUCTURE

- Mejora tu calle- Government

GUARANTEE

0.0%

13.0%

100.0%

Mejora tu calle+

BID

Government &Beneficiary

Project of Urban Infrastructure

STREETSIDEWALK

BASE

PAVEMENT

Framework

Mejora tu Calle

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For families making less than 2 minimum wages

Production of concrete blocks (instead of clay bricks) In partnership with local governments/communities We provide the materials, equipment, training, maintenance, and supervise quality Communities contribute their labor, they get 50% of the product, the rest is sold Operating in Mexico, Panama, Costa Rica and soon in Colombia We built more than twenty six hundred rooms in Mexico (10 m2)

Self-Employment Productive Centers