Letter To Our Stockholders | CEMEX Annual Report 2011

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2011 ANNUAL REPORT

transforming to capture
future growth

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Dear fellow stockholders

2011 was an important year for CEMEX. Although many of our markets continued to underperform because of a slow and painful recovery from the global economic recession, we launched a rigorous transformation designed to make us more efficient, more agile, and more customer focused. The changes we made, designed to position the company for a future of profitable growth, are already showing results.

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After five consecutive quarters of top-line growth, our net sales rose 8% to US$15.14 billion in 2011. In addition, our operating EBITDA grew four out the past five quarters, representing an increase of 1% to US$2.33 billion for the full year. Nonetheless, our operating free cash flow after maintenance capital expenditures decreased 25% to US$386 million for the year.

During the year, we saw favorable volume dynamics in Mexico, Northern Europe, and the South, Central America and the Caribbean region. As a result of our pricing strategy, we have more than covered input cost inflation in our ready-mix concrete and aggregates businesses. However, we have only partially mitigated higher input costs with respect to our cement operations. Consequently, we remain focused on our commercial strategies to improve our profitability.

Our transformation is partly designed to change the company’s underlying cost structure. During 2011, those efforts resulted in a recurring improvement in our steady-state EBITDA of US$150 million. We expect a further improvement of US$200 million in 2012, reaching a run rate of US$400 million by the end of the year. In fact, we have already implemented most of the actions necessary to realize those savings, including a more than 6% reduction in our total workforce worldwide—a regrettable, but essential decision.

However, CEMEX’s transformation is about much more than cost savings. It is a far-reaching process that rests on five key pillars:

First, flattening our organization in order to improve efficiency and to position our operations as close as possible to their customers;
Second, decentralizing authority and increasing accountability at local levels;
Third, focusing corporate headquarters on only three tasks: building a solid balance sheet, nurturing world-class human resources, and defining profitable and sustainable strategies;
Fourth, reshaping our portfolio so that we are in the right businesses in the right markets with the right returns; and
Fifth, incentivizing our executives to act like owners.

This is an aggressive agenda, with a single purpose: to generate sustainable, superior shareholder returns.

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An integral part of our transformation was a redefinition and expansion of the Executive Committee, which is the company’s top leadership group. Today their job is to consolidate our recovery and reset the table for future growth. Tomorrow their job will be to renew CEMEX’s industry-leading profitable growth trajectory. I am confident that the nine executives who report to me on the Committee have the skills, the experience, the imagination, and the wisdom to accomplish those tasks.

Getting closer to our customers is central to our future success. Among other initiatives, we are designing services aimed at helping our clients grow faster and more profitably; developing integrated value-added solutions to build municipal, state, and federal roads, highways, and other infrastructure projects; and designing and delivering specialty products that are tailored to customers’ specific requirements. All these efforts also allow us to strengthen our brand equity.

Another important element of our transformation is the deepening of CEMEX’s long-standing commitment to sustainability. This takes many forms—from our steadfast devotion to corporate social responsibility to our unwavering efforts to reduce our carbon footprint. Indeed, one of our most important initiatives is our intensified use of environmentally friendly alternative fuels and renewable sources of clean energy. In 2011, we increased our utilization of alternative fuels to 25% of our cement plants’ total fuel consumption. Based on this performance, we established a new 2015 target of a 35% substitution rate for alternative fuels, by far the most ambitious commitment in the cement industry. The result of these and other efforts—including reducing the clinker content of our cement and utilizing renewable sources of energy such as the Eurus wind farm—is that we have reduced our CO₂ emissions per ton of cement by more than 23% from 1990 levels, thereby avoiding emissions equivalent to those generated by 900 thousand homes per year.

In addition to transforming our organization’s structure, processes, and practices, we are also working to provide increased value to our shareholders by reshaping our portfolio. To this end, we adopted mandatory value-based management metrics to enable us to maximize long-term value creation and to divest unproductive assets. In 2011, we sold assets valued at US$225 million, and expect to sell an additional US$500 million in assets by the end of 2012. All of these sales meet two important criteria: they improve our return on capital employed and de-lever our balance sheet.

Strengthening our balance sheet and regaining our financial flexibility are critical to our future, and we have continued to make good progress on both. We have substantially prepaid all of our debt maturities until December 2013, have kept our interest expense roughly stable, and have maintained sufficient liquidity to support our operations. We have also complied with all our financial covenants and other obligations. Indeed, we have now paid close to US$7.7 billion—or more than half of the original balance outstanding under our main Financing Agreement—and have met the prepayment milestones under that Agreement.

Overall, I am proud of what the 44 thousand CEMEX employees accomplished during 2011. We made considerable progress in fulfilling our commitment to return CEMEX to its long-run path of industry-leading value creation. There is no doubt in my mind that we are on the right track.

On behalf of the board and our management team, I thank our stockholders, employees, customers, banks, note holders, and suppliers for their continued support.

Sincerely,

Lorenzo H. Zambrano
Chairman of the Board and Chief Executive Officer

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we are deeply
committed to
returning cemex to
its long run path of
industry-leading
value creation

Juan Pablo San Agustín
Executive Vice President of Strategic Planning and New Business Development

Juan Pablo San Agustín joined CEMEX in 1994 and has held executive positions in the Strategic Planning, Continuous Improvement, e-Business, and Marketing areas. He is currently Executive Vice President of Strategic Planning and New Business Development. He graduated with a BS from Metropolitan University, and holds an MBA from the Instituto de Empresa.

Joaquín Estrada
President CEMEX Asia

Since he joined CEMEX in 1992, Joaquín Estrada has held several executive positions, including head of operations in Egypt and Spain, as well as head of Trading for Europe, the Middle East, and Asia. He is currently President of CEMEX Asia, and is also responsible for the company's global Trading area. Joaquín graduated with a degree in economics from the University of Zaragoza and holds an MBA from the Instituto de Empresa.

Juan Romero
President CEMEX Mexico

Juan Romero joined CEMEX in 1989, and has held several high-ranking positions within the organization, including President of CEMEX operations in Colombia, Mexico, the South America and the Caribbean region, and the Europe, Middle East, Africa, and Asia region. He is currently President of CEMEX Mexico, and is also in charge of the company's global Technology area. Juan Romero graduated from the University of Comillas, where he studied Law, Economics, and Management.

Jaime Muguiro
President CEMEX Mediterranean

Jaime Muguiro joined CEMEX in 1996, and held several executive positions in the areas of Strategic Planning, Business Development, Ready-Mix Concrete, Aggregates, and Human Resources. More recently, he headed CEMEX operations in Egypt. He is currently President of CEMEX Mediterranean, which includes operations in Spain, Egypt, Croatia, and the Middle East. He graduated with a Management degree from San Pablo CEU University, and holds a Law degree from the Complutense University of Madrid and an MBA from the Massachusetts Institute of Technology.

Lorenzo H. Zambrano
Chairman of the Board and Chief Executive Officer

Mr. Zambrano joined CEMEX in 1968. He was named CEO in 1985 and has served as Chairman of the Board since 1995. Mr. Zambrano holds a BS degree in Mechanical Engineering from Tecnológico de Monterrey and an MBA from Stanford University.

Ignacio Madridejos
President CEMEX Northern Europe

Ignacio Madridejos joined CEMEX in 1996 and after holding management positions in the Strategic Planning area, he headed CEMEX operations in Egypt, Spain, and Western Europe. He is currently President of CEMEX Northern Europe, and is also responsible for the company's global Energy and Sustainability area. Ignacio graduated with a MSc in Civil Engineering from the Polytechnic University of Madrid and holds an MBA from Stanford University.

Karl Watson, Jr.
President CEMEX USA

Karl Watson, Jr. formally joined CEMEX in 2007, after a successful career of more than 22 years in the building materials industry. Since then he has held several senior positions in the company's operations in Florida and the Eastern region of the United States. Before joining CEMEX he headed the ready-mix concrete and concrete products divisions of Rinker in the USA and Australia. He is currently President of CEMEX USA. Karl holds an MBA from the University of Nova Southeastern, Florida.

Jaime Elizondo
President CEMEX South, Central America and the Caribbean

Jaime Elizondo joined CEMEX in 1985, and since then, he has headed several operations, including Panama, Colombia, Venezuela, and, more recently, Mexico. He is the current President of CEMEX South, Central America and the Caribbean, and is also in charge of the company's global Procurement area. He graduated with a BS degree in Chemical and Systems Engineering and an MBA from Tecnológico de Monterrey.

Fernando A. González
Executive Vice President of Finance and Administration

Since joining CEMEX in 1989, Fernando A. González has held several senior management positions, including Corporate Vice President of Strategic Planning; President of CEMEX Venezuela; President of CEMEX Asia; President of CEMEX South America and the Caribbean Region; President of CEMEX Europe; President of CEMEX Europe, Middle East, Africa, Asia, and Australia region; Executive Vice President of Planning and Development; and Executive Vice President of Planning and Finance. He is currently Executive Vice President of Finance (CFO) and Administration. Fernando earned his BA and MBA from Tecnológico de Monterrey.

Luis Hernández
Executive Vice President of Organization and Human Resources

Luis Hernández joined CEMEX in 1996, and has held senior management positions in the Strategic Planning and Human Resources areas. He is currently Executive Vice President of Organization and Human Resources. Luis graduated with a degree in Civil Engineering from Tecnológico de Monterrey, and holds a Master's degree in Civil Engineering and an MBA from the University of Texas at Austin.