CEMEX (US$24.03) Positive 3Q03 Operating Results and Advances on the Financial Front TARGET PRICE: US$27.00

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1 Latin America Quarterly Earnings Report CEMEX (US$24.03) (CX) Mexico Cement & Construction Mexico City, October 9, 2003 U.S. investors inquiries should be directed to Santander Central Hispano Investment at (212) BUY TARGET PRICE: US$27.00 Positive 3Q03 Operating Results and Advances on the Financial Front Gonzalo Fernández (5255) On October 9, 2003, before the market opened, Cemex reported better-than-expected third-quarter 2003 results. However, net earnings fell below expectations due to higher-than-expected foreign exchange losses. In addition, the company reported a significant reduction in leverage and advances in refinancing debt maturing in the short term. Net sales were US$1.83 billion, 7% year over year in U.S. dollar terms, which was above expectations. Among the positives, we note a 3% increase in cement volumes in the U.S. (there were a lot of concerns about this market because of bad weather conditions in September), which surpassed company guidance of 2% growth. Nevertheless, the company maintains its conservative expectation of a 1% contraction in volume in full-year Operations in Colombia were also a positive surprise, posting a 12% year-over-year increase in cement volume and 39% in ready-mixed concrete volume, reflecting heavy investments in transportation infrastructure. On the negative side, operations in Mexico reported a modest 1% year-overyear increase in cement volume, below the company s guidance and our expectations of 3% growth, due to heavy rains in September. However, a 2% increase in prices and a 10% increase in ready-mix volume offset the low cement volume growth. We believe that cement volume could return to a 2%-3% growth rate in 4Q03 once the rain season is over, as the housing market should enter into a more active quarter. Operations in Spain maintained their healthy trend, with cement volume increasing 2% year over year and ready-mix up 9%. Finally, operations in Venezuela continued to reflect a difficult environment, with cement volume and ready-mix down 11% and 6%, respectively. EBITDA also surpassed expectations in 3Q03, reaching US$570 million, up 13% year over year and above company guidance of US$560 million. The EBITDA margin was 220 basis points higher than our expectations because of further cost-cutting efforts. The main improvements in margins came from Mexico (320 basis points), Venezuela (960 basis points), Egypt (up 24%), and the Philippines, where margins turned from negative to positive. Finally, a 24% reduction in corporate expenses not attributed to specific countries (reported under the line elimination and other ) contributed to the improvement in margins. Earnings per ADR were US$0.43, below our expectations of US$0.69 and consensus expectations of US$0.66. Higherthan-expected forex losses were responsible for the difference. Third-Quarter 2003 Results (U.S. Dollars in Millions a ) 3Q03 SCHI Est Consensus % vs SCHI E % vs Cons 2Q03 % Ch Q/Q 3Q02 % Ch Y/Y Sales 1,834 1,836 1, % 3.0% 1, % 1, % Op.Profit % 5.5% % % Op Margin 22.1% 21.6% 21.6% 0.4% 0.5% 21.0% 1.1% 20.6% 1.5% EBITDA % 5.0% % % EBITDA Margin 31.1% 30.3% 30.5% 0.8% 0.6% 29.8% 1.3% 29.3% 1.7% Net Income % -34.3% % % EPADR % -34.8% % % Free Cash Flow NA 19.8% % % Change in Net Debt NA -30.6% NA % % Net Debt 5,676 5,609 NA 1.2% NA 5, % 6,311 NM Net Debt/EBITDA (x) NA NA EPADR EBITDA FV/ CE Div Div M$ US$ P/E per ADR EBITDA per ADR P/CE per ADR Yield (%) % % 2003E % 2004E % a Except per share/adr amounts. NA Not available. NM Not meaningful.

2 Cemex: 3Q03 Results FCF also beat expectations reaching US$384 million, 77% up year on year and above the company guidance for US$330 million. Positive working capital and lower maintenance capex explain the improvement in FCF. Of this amount, US$215 million was used to reduce net debt after investments of US$120 million. The latter included the acquisition of Dixon Marquette Cement in Cement in the U.S., with a total capacity of 560,000 tons (an acquisition price of US$150 per ton, which is fair, in our opinion). However, because of movements in the foreign exchange rate, the net effect decreased only US$153 million. Total debt decreased US$456 million compared with 2Q03 and the net debt/ebitda ratio reached 2.8 times. Cemex maintains a positive trend in terms of FCF generation and reduction in net debt. During the conference call, Mr. Lorenzo Zambrano CEO, stated that now that Cemex is close to its 2003 leverage targets, the company could have more room in 2004 to look for acquisitions, according to Cemex s historical growth strategy. However, these acquisitions are expected to be accretive and the additional leverage should not compromise Cemex s debt ratings. If Cemex is not able to find acquisitions that meet these conditions, Mr. Zambrano mentioned the possibility of using excess FCF to repurchase shares. In its press release, Cemex announced the issue of US$1.55 billion of medium-term debt, which would be used to refinance debt maturing in 2003 and We view this refinancing as positive. The company announced the amendment and increase of its existing U.S. Commercial Paper program to US$400 million until August In addition, Cemex launched a new two and three-year loan denominated in euros, U.S. dollars, and yens amounting to US$1.15 billion. The transaction is not yet closed but the proceeds are to be applied to the repurchase of the remaining US$650 million in Preferred Equity and to refinance a US$400- million Revolving Credit facility maturing in In addition to the refinancing, the payment of the Preferred Equity is slated to be used to reduce off-balance sheet debt. With these transactions, Cemex has already refinanced close to 60% of the US$2.5 billion of debt maturing in Although net earnings fell below expectations, we view Cemex s third-quarter results as positive because EBITDA and FCF surpassed expectations and could indicate a return to strong growth at the operating level. Cemex maintains its commitment to using a major proportion of its FCF to reduce debt and is gradually returning to comfortable leverage ratios, which we believe opens the possibility to an upgrade from the rating agencies. The return to positive growth rates in cement volumes in the U.S. is another positive surprise in the report. Cemex ADR has dropped 5.7% since the announcement of the secondary offer for 25.5 million ADRs on October 1. The stock is currently trading at an estimated FV/EBITDA multiple of 6.4 times for 2003E, a level similar to Lafarge. For 2004, Cemex trades at 6.0 times. We consider the current valuation levels attractive based on the good third-quarter results and prospects for further improvement and additional reduction in net debt. We maintain our positive view on the stock. Our year-end 2003 target price of US$27.00 per ADR is based on a discounted free cash flow valuation with a 9.4% discount rate and a 1.5% terminal growth rate. At our target price, the stock would be trading at an estimated FV/EBITDA of 7.1 times for 2003E, similar to the current trailing 12-month ratio. Our WACC for Cemex considers a 4.50% risk-free rate (the U.S. 10-year note), a 1.93% country risk spread for Mexico, a 5.50% equity risk premium, a beta of 0.90, and a debt/equity ratio of 0.91 times. Our estimates and target price for Cemex are based largely on the current conditions in the construction markets in which the company operates. Any changes in these conditions could affect cement demand, prices, and our estimates and target price for Cemex. Another key assumption is that Cemex will use two-thirds of its 2003 estimated free cash flow to reduce net debt and that acquisitions during this year will not exceed US$400 million. Any acquisition above this amount would result in a higher net debt level and would imply changes in our 2 U.S. investors inquiries should be directed to Santander Central Hispano Investment at (212)

3 valuation. In addition, Cemex through its derivatives operations is exposed to variations in exchange rates (yen, euro, and peso) and interest rates, as well as to changes in Cemex s stock price. Under current market conditions, we estimate that these operations will result in a negative mark to market of derivatives of US$340 million for full-year 2003, 50% below the losses reported in However, higher-than-expected changes in these variables could imply higher losses in derivatives and changes in our estimates. Figure 1. Cemex FCF and Leverage (U.S. Dollars in Millions) Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03E FCF Net Debt / EBITDA Source: Santander Central Hispano Investment estimates. Figure 2. Cemex Sales by Region (U.S. Dollars in Millions) Mexico % -7% USA % 4% Venezuela / DR % 0% Colombia % 19% CA and Caribean % -2% Spain % -4% Philippines % -7% Egypt % 28% Eliminations and Others % 32% Consolidated 1, ,859 1, % -1% Figure 3. Cemex EBITDA by Region (U.S. Dollars in Millions) Mexico % -5% USA % 21% Venezuela/DR % -6% Colombia % 20% CA and Caribean % 15% Spain % -6% Philippines % 6% Egypt % 26% Eliminations and Others % -11% Consolidated % 3% U.S. investors inquiries should be directed to Santander Central Hispano Investment at (212)

4 Cemex: 3Q03 Results Figure 4. Cemex EBITDA Margin by Region (U.S. Dollars in Millions) Mexico 46.4% 45.5% 43.3% 3.2% 0.9% USA 23.6% 20.3% 26.0% -2.3% 3.3% Venezuela/DR 49.5% 52.4% 39.9% 9.6% -2.9% Colombia 60.7% 60.2% 62.3% -1.6% 0.5% CA and Caribean 24.7% 21.1% 24.9% -0.2% 3.6% Spain 27.1% 27.7% 30.1% -3.0% -0.6% Philippines 11.2% 9.9% -2.1% 13.3% 1.3% Egypt 49.6% 50.4% 25.6% 24.0% -0.8% Eliminations and Others % % % 4.4% 63.0% Consolidated 31.1% 29.8% 28.9% 2.2% 1.3% Figure 5. Cemex Consolidated Income Statement (U.S. Dollars in Millions) 3Q03 3Q02 2Q03 3Q03E YoY % Chg QoQ % Chg Sales 1,721 1,859 1, Cost of Good Sold wo Depreciat Gross Profits Gross Margin Depreciation Operating Expenses Operating Profits Operating Margin EBITDA EBITDA Margin Net Interest Costs Exchange Losses (Gain) na na Monetary Position Net Financial Cost ,078-1,980 Profit after N.F.C Other Expenses Earnings before Taxes Income Tax and Employee Benefits Earn. of non-consolidates Subs Extraordinary Costs (Gains) n.a. n.a. Earn. before Minority Interest Minority Interest Net Earnings U.S. investors inquiries should be directed to Santander Central Hispano Investment at (212)

5 LOCAL OFFICES New York Bogotá Buenos Aires Caracas Tel: Tel: Tel: Tel: Fax: Fax: Fax: Fax: Lima Mexico City Santiago São Paulo Tel: Tel: Tel: Tel: Fax: Fax: Fax: Fax: Madrid Lisbon London Hong Kong Tel: Tel: Tel: Tel: Fax: Fax: Fax: Fax: Tokyo Sydney Tel: Tel: Fax: Fax: Key to Investment Codes (12- to 24-Month Horizon) % of Companies Covered with This Rating % of Companies Provided Investment Banking Services in the Past 12 Months Rating Definition Strong Buy Expected to outperform the local market more than 15% % 26.67% Buy Expected to outperform the local market 5%-15% % 20.00% Hold Expected to perform within a range of 5% above or below the local market % 53.33% Underperform Expected to underperform the local market 5%-15%. 9.09% -- Sell Expected to underperform the local market more than 15%. 4.13% -- The numbers above reflect our Latin America universe. Target prices are current year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. The benchmark used for establishing Argentina recommendations is our forecast of the year-end Argentina IFCI index. For the Andean countries, our benchmark is the simple average of the country risk of each country plus the 10 year U.S. T-Bond yield plus 5.5% of equity risk premium. For additional information about our rating methodology, please call (212) This report has been prepared by Santander Central Hispano Investment Securities Inc. ( SCHI ) (a subsidiary of Santander Investment S.A., which is wholly owned by Banco Santander Central Hispano, S.A. ("Santander"), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Central Hispano Bolsa, Sociedad de Valores, S.A. (SCH Bolsa), and in the United Kingdom by Santander Central Hispano S.A., London Branch (Santander London), which is regulated by the Financial Services Authority in the conduct of investment business in the UK. This report is not being issued to private customers. SCHI, Santander London, and SCH Bolsa are members of Grupo Santander. I, Gonzalo Fernandez, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject companies and their securities. I also certify that I have not been promised compensation, either directly or indirectly, for expressing the recommendations in this report. Within the past 12 months, Grupo Santander has managed or co-managed a public offering of securities of Cemex. Within the past 12 months, Grupo Santander has received compensation for investment banking services from Cemex. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. From time to time, Grupo Santander and/or any of its officers or directors may have a long or short position in, or otherwise be directly or indirectly interested in, the securities, options, rights or warrants of companies mentioned herein. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SCHI, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States. U.S. recipients of this report should be advised that this research has been produced by a non-member affiliate of SCHI and, therefore, by rule, all disclosures required under NASD Rule 2711 do not apply by Santander Central Hispano Investment Securities Inc. All Rights Reserved 2003