InvestmentRecommendation: WerecommendgoinglongvarioussecureddebtofCEMEX(CemexSABdeCV)that yieldnorthof13%.Specifically,welikethe2015FloatingRateNote(L+500) tradingat74withyieldtoworstof14.2%andtheseniorsecured9.5%2016bonds tradingat87withYTWof13%.Wealsolikethe9.25%2020bondsthatistrading at80withYTWof13.2%.Webelieveallthesebondsarewellcoveredbythe enterprisevalueofthecompanyandwedontforeseeanyliquidityissuebeforethe maturityofitsbankloansin2014. BusinessOverview: CEMEXisthethirdlargestglobalcementmanufacturersfoundedinMexicoin1906. Thecompanyoperatesinmorethan50countriesinNorthAmerica,Europe,Africa, theMiddleEastandAsia.Thecompanysproductsincludecement,readymix concrete,aggregateandclinker.

In2010,theCompanygenerated49%ofsalesfrom Cement(88%ofEBITDA),34%ofsalesfromReadyMix(1%ofEBITDA),14%of salesfromAggregates(8%ofEBITDA),and3%ofsalesfromotherproducts(3%of EBITDA).Duetohightransportationcost,cementisalocalbusinesswheremost companieshavelimitedcompetition.Historically,companieshaveenjoyedgood pricingpower.Inlightofrecentfinancialcrisis,mostcompanieshavebeen challengedbyvolumedeclinesandrisingenergycosts. CEMEXMexico:BusinessinMexicoisfairlystabledespitenothavingfully recoveredfrom2008.Demandforcementandcementrelatedproductshasbeen moreresilientinMexicothanincompanysotherregions.Governmentspendingfor infrastructurerelatedproductsandgovernmentsubsidizedlowincomehousing programshavehelped.TheCompanygeneratesapproximately50%ofitsEBITDA fromMexico. CEMEXUS:ThissegmenthasnotbeencontributingtotheCompanysoverall EBITDA.Recentlyreleaseddataisshowingcementintensiveprivateconstruction activityremainsweak.Thisisdrivenbylargeoverhangofforeclosedanddistressed propertiesthatrestrainnewconstructions.IntheforecastpublishedonJuly15, 2011,thePortlandCementAssociation(PCA)expectsflatvolumegrowthforcement consumptionin2011and2012.In2013,cementconsumptionisexpectedto increase16%from2012.TheCompanybelievesmidcycleEBITDAisnorthof$1.0 billionforitsUSoperations. CEMEXEurope:RecentlytheCompanysawstrongperformanceinGermany, AustriaandFrancewhiletheUKandSpainhasbeenadrag. CEMEXSouth/CentralAmerica,AfricaandAsia:Emergingmarketshavebeenmore resilientduringandafterthefinancialcrisis.Theseregionsareshowinginall segmentsastrongpricingenvironmenthelpingtooffsetsmalllossesonvolume.In AfricaandtheMiddleEastthemaindriverforrevenuesisdomesticgraycement, mainlyfromoperationsinEgypt.InAsia,CEMEXsoperationsaremainlyoperating inthePhilippines,ThailandandMalaysia.


Net Revenues (US$) Mexico USA Europe South and Central America Afric a and ME/Mediterranean Asia Others 2005 15321 3176 4040 5686 1316 535 297 270 2006 18249 3635 4170 7495 1586 705 346 311 2007 21673 3829 4930 8326 2024 758 1255 552 2008 21673 3823 4698 7654 2023 1071 2055 371 2009 14547 3113 2827 5360 1368 1049 474 356 2010 14070 3435 2491 4793 1444 1035 515 357 2011E 14900 3570 2400 4830 1650 1550 500 400 2012E 16230 3690 2640 5390 1800 1710 550 450 2013E 17290 3880 2900 5700 1950 1790 580 490

EBITDA Mexico USA Europe South and Central America Afric a and ME/Mediterranean Asia Others FCF

3557 1280 1015 937 382 148 60 -265 2198

4138 1391 1207 1094 472 167 75 -270 2689

4587 1405 1120 1207 679 175 238 -237 2455

4344 1453 702 1022 658 296 355 -142 2600

2658 1160 143 596 494 333 116 -184 1215

2310 1153 -45 431 454 369 122 -174 512

2180 1160 -95 425 445 425 80 -260 20

2570 1120 15 640 480 440 90 -215 350

2885 1100 190 760 550 450 95 -260 750

Capitalstructure: The2014FA(bankloans)arethehighestrankedsecuritiesinCemexscapital structure.ThesearefollowedbytheUS$1.75billion9.5%Notesdue2016andthe Euro350million9.625%Notesdue2017.Thethirdhighestrankedbondsarethe 2015,2018and2020NotesinUSDandtheEuro115million8.865%Notesdue 2017.

Facility 2014 FA (bank loans) Cemex SAB '15 FRN (L+500) Cemex Finance 9.5% '16 Cemex Finance Euro 9.625% '17 Cemex Spain Euro 8.875% '17 Cemex SAB 9% '18 Cemex Spain 9.25% '20 Senior Secured Bonds Mexican local market Working capital lines Perpetual Perpetual Perpetual Perpetual 6.196% '11 6.64% '14 6.722% '16 Euro 6.277% '17

Amount US$ in MM

Collateral

7,450 Share pledge plus all corporate guarantees 800 1,750 497 164 1,650 1,193 6,054 Share Share Share Share Share Share pledge pledge pledge pledge pledge pledge plus plus plus plus plus plus some corporate guarantees all corporate guarantees all corporate guarantees some corporate guarantees some corporate guarantees some corporate guarantees

375 Share pledge plus some corporate guarantees 200 Share pledge plus some corporate guarantees 147 369 449 208 1,277 150 125 1,983 18787 Share Share Share Share pledge pledge pledge pledge plus plus plus plus some some some some corporate corporate corporate corporate guarantees guarantees guarantees guarantees

Cemex Finance Euro 4.75% '14 Cemex Materials 7.7% '25 Other unsecured Convertible bonds Total debt

Valuation: Approach1:MultipleofNormalizedEBITDA.WebelieveCemexwillgenerate EBITDAintherangeof$3.5$4.25billioninmidcycle.Usingmultiplesrangefrom 57xEBITDA,wearriveatenterprisevaluationrangebetween$17.5billionand $29.75billionwithmidpointvaluationof$23.6billion. Approach2:Comparabletransactions.TherecentCementosArgos/Lafargedeal servesasadatapointforvaluatingCemexsassets.Thisdealisvaluingcementplant andcementgrindingunitat$200/ton,ReadyMixplantsandtrucksat$120k/truck and$600k/plant,andTerminalat$5million/terminal.Ifweapplythesenumbers toallofCemexsoperations,wearriveatvaluationof$23.5billion.Obviouslysome assetswilltradehigherandsomewilltradelowerthanthevaluationfromthe CementosArgos/Lafargedeal.However,thisprovidesareferenceforpotential enterprisevalueofCemex. Basedonthesevaluations,purchasingthesecureddebtatadiscountprovidesus withagoodmarginofsafety. Management:

CurrentCEOLorenzoZambranoisthegrandsonofCompanysfounderandthe familyholdsapproximately10%oftheequity.WebelieveCemexisrunbycapable managementteamastheteamhasasuccessfultrackrecordofusingitsstrongcash flowtomakeacquisitionsandgrewthecompany.Thecompanytookonsubstantial debtwhenitacquiredtheRinkersassetsintheUnitedStatesin2006.Global recessionin2008andsubsequentperiodshavebeenchallengingforthecompany. Risks: 1. Failuretocomplywithcovenantsonitsbankdebt.DebttoEBITDAhasto staybelow7.0xbyyearend2011. 2. Debtmaturityin2014of~$8.3billion. 3. Furtherslowdownoftheglobaleconomy. 4. Intheeventofdefaultorrestructuring,thebankruptcyprocessinMexicois lengthyandmayfavorequityshareholdersdespitesecuredbondholdersare atthetopofthecapitalstructure.