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Cemex's aggressive global expansion through acquisitions led to a cash crunch as the company struggled with high debt from its acquisitions. The document discusses Cemex's history of acquisitions from the 1980s onwards that transformed it from a Mexican company into a global cement producer. However, the strategy of rapid expansion through acquisitions left the company highly leveraged, which caused financial difficulties when the economic recession hit in 2008.

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CEMEX’S COST OF ‘GLOBALISED’ GROWTH – THE CASH CRUNCH? Group 7 Deru R. Indika 29110301 Nisham Fiksriyoso 29110309 Erika Paraminda 29110310 Josia Prananta Tarigan 29110345
Presentation Framework Company Strategy Summary • Business-Level Recommend • History Strategy Acquisition ation & Leadership • External • Corporate Issues Lessons Strategy Environment Learned • Internal Environment
HISTORY Year Event 1906 Cementos Hidalgo established, begins operating cement plant. 1920 Lorenzo Zambrano open cement plan named Cementos Portland 1931 Cementos Hidalgo & Xcementos Portland merged into Cemex 1976 Cemex goes public, become largest cement maker in Mexico and acquire Cementos Guadalajara 1985 Grandson founder name Lorenzo Zambrano as a CEO and have ambitious program expansion. 1989 Acquisition of Cementos Tolteca, give Cemex 65% Mexican market 1992 Buys 2 largest cement company in Spain, Valenciana and Sanson 1994 Controlling stake in Vencemos (Large cement company in Venezuela)
HISTORY Year Event 1995 Expand to Dominican Republic and Caribbean market 1996 Expand to Colombia and Panama to consolidate Caribbean market 1997 Take its first direct investment in Asia, purchasing 30% stake in Rizal Cement Company, Inc. of the Philippines 1999 Majority stake in Assiut Cement Company, leading cement market in Egypt. 2000 Houston Based Inc. (Second Largest U.S. Cement producer acquired 2002 Write-down from currency-hedging operations foreshadow company loss, Expand Puerto Rico. 2005 Acquisitation RMC that enhaced its position to world 3rd producer of sement 2007 Acquires Rinker, Australian company with major operation in US 2008 Stocks crumble as cement sales decline, company in huge debt crises trying to refinance.
PESTEL POLITICS ECONOMY SOCIAL • Different countries • Economic Recession in • Different culture and policy about FDI US and Europe language • Trade barriers • High growth Emerging • Community market  BRIC contribution • Different market • Social Media demand between developed and developing country
PESTEL TECHNOLOGY ENVIRONMENT LEGAL • ICT innovation and development • Climate change (rehabilitation, air • CSI (Cement Sustainability • Real time and direct pollution, waste mgt) Initiative) for audit global carbon communication • Alternative fuels and renewable emissions energy energy • Health and safety work • Regulatory by national and regional trade associations such as the European Cement Association (CEMBUREAU) and industry forums such as the World Business Council for Sustainable Development (WBCSD) and the Portland Cement Association
INDUSTRY ANALYSIS • Low barriers entry, • Decrease the use of capital intense cement in construction Threat of • Limited FDI by Threat of New • Proportion to use other Entrants Substitutes government material in construction • Highly regulated but more expensive MODERATE LOW • Company can own raw materials • Consumer is • Concentrate supplier price taker especially in China because the demand of cement is high ATTRACTIVE INDUSTRY • Strong multinational company, and many regional and national company • Pace of acquisition • Pace to entry potential emerging market
The Cement Product Cement Aggregates Ready Mix Concrete
Market Needs By Construction Stages Development • High demand for Cement, low BASIC demand for aggregates and ready mix concrete • Demand for cement and ready mix INTERMEDIATE concrete is balance but low demand for aggregates • More high demand for aggregates, ADVANCE and moderate demand for cement and ready mix concrete
World Cement Production And Consumption Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
World Cement 2008 by Region Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
World Expected Cement Demand by Region Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
Current Share Of Capacity Of The Multinational Cement Majors By Region Opportunity To Entry Source: FINANCIAL COMPETITIVENESS OF CEMENT COMPARED WITH OTHER BUILDING MATERIALS, Cementing the foundations of growth, J.P. Morgan, Estimates, Michel Folliet
Growth in World Cement Consumption Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
Cost Of Cement The cost of imported cement may be considered low, but the operating expenses make the final price 50% more costly. This follows from the cost of fuel, freight, manpower, the dependence on transport (logistics) and the electric power used in the operational process. Source: Philippe Lasserre- Globalisation Cement Industry-2007
Financial Competitiveness Of Cement Compared With Other Building Materials “cement remaining the most profitable compare to different building material segments” Source: FINANCIAL COMPETITIVENESS OF CEMENT COMPARED WITH OTHER BUILDING MATERIALS, Cementing the foundations of growth, J.P. Morgan, Estimates, Michel Folliet
Financial Statistics for The Leading Global Cement Companies For 2009 Source: Cementing the foundations of growth, International Finance Corporation, Michel Folliet
CORE COMPETENCY Competence Category Lafarge Cemex Core Competence • Low Cost Production and Better • Low Cost Production Product • IT leadership Distinctive Competence • Personalized product according • Relationship with clients region • Delivery Time • Research based on sustainable • Client Satisfaction assessment development system Organizatioal Competence • Investment in HR • Logistic R&D in products and processes • People • IT and Knowledge Management Supportive Competence • Financial Management for • Post-Acquisition integration team Investment • Frequent trainings • Firm Acquistion • Standardization of proesses through IT Dynamic Capability • Develop the capability to • Multi cultural adaptability research aligned with centers of Global mindset and the excellence centers of education comprehension that cemment is and research not a commodity but a dream HR management focus on High mobility, Allowing a dynamic sharing of experience and Best Practices Source: http://www.scielo.oces.mctes.pt/scielo.php?pid=S0873-74442009000100005&script=sci_arttext
CEMEX SUSTAINABLE COMPETITIVE ADVANTAGE Resources Valuable Rare Costly to Nonsubstituable Competitive Attribute Immitate Consequences Learning Yes Yes Yes/No Yes SCA Organization Expansion Strategy Yes No Yes Yes TCA IT Leadership Yes No Yes Yes TCA
Lorenzo Zambrano Biography • Educational Background: – Bachelor in mechanical enginering from Tecnologico de Monterrery (ITESM) 1966 – MBA from Stanford Business School in 1968 • Career: – Joined CEMEX in 1968 – CEMEX CEO in 1985 – CEMEX Chairman Board since 1995 • Others: – Member of IBM BOD and the Citigroup International Advisory Board – Chairman of the Board of Sistema Tecnológico de Monterrey – Council of Daimler Chrysler AG until July 2005 Mexico (1945 -Present ) • Honor: – Woodrow Wilson Award for Corporate Citizenship The CEMEX – the Americas Society's Gold Medal for Distinguished Service Founder’s – the Excellence in Leadership Award from the Stanford Graduate Grandson Business School, – Ernest C. Arbuckle Award for Managerial Excellence from the Stanford Business School's Alumni Association.]
Lorenzo Zambrano Leadership Style Visionary Leader "He's a very sweet man. He has a rare combination of abilities to lead and mobilize and has a clear, long-term vision.“ Peter Schwartz, founder and chairman of Global Business Network Agresive "If there's an opportunity, either you grab it or you let go,“ he says. "If you let go, you don't grow.“ Zambrano Coach (Situational Leadership Theory) CEMEX came to rely less on command-and-control and more on senior management's setting goals and then letting employees figure out the best ways to reach them.
Lorenzo Zambrano in ACTION • Going Global.. • He imposed worldwide standards on business practices • He shed subsidiaries to concentrate on cement • He made English the company's official language • Hire Cyber Visionary : Gelacio Liguez (1987) • Launch CEMEX Way
Lorenzo Zambrano Step Of CHANGE • The company's Create a sense of urgency prime resource was its people • To reach its Working with a team of Arthur D. Little goals, the consultants company Basic would have to Assu convince its employees that CEMEX asked employees to identify barriers mpti they had to to change and improvement on improve their performance constantly, and Employees at all levels were asked to they'd have to undertake a "visioning exercise." be equipped with the means to do that Employees looked at external benchmarks, but they also identified particularly effective practices inside the company
CEMEX Remuneration Remuneration package1 • Median salary : $70,924 Life and health • Average salary : $68,649 • Salary Range : $40,000 - insurance $141,918 Cafeteria System, World business travel • Hot Meal Voucher insurance is offered for • Holiday Voucher those who travel. • BKV Pass • Internet Contribution, etc. (1) http://www.salarydom.com/company-cemex-salaries-view-5.htm (USA Based) (2) http://www.cemexssc.eu/culture/benefits
Five Growth Phases
CEMEX Organizational Structure Chairman of the Board and Chief Executive Officer Chairman of CEMEX Latin Executive Advisor to American Advisory Board and the Chairman and Advisor to the CEO on CEO Institutional Relations Executive Vice Executive Vice President of President of Finance Organization and and Administration Human Resources Executive Vice President of Strategic Planning and New Business Development President CEMEX South, Central President CEMEX President CEMEX President CEMEX President CEMEX President CEMEX America and the Asia Northern Europe Mediterranean Mexico USA Caribbean
CEMEX Executive Lorenzo H.Zambrano CEO/Chairman of the Board/Director Rafael Garza Chief Accounting Officer Juan Romero President, Geographical Fransisco Garza President, Geographical Ramiro G. Vilarreal General Counsel/secretary Rodrigo Trevino CFO Fernando Gonzalez Executive VP, Divisional Roberto Zambrano Villarreal Director Dionisio Garza Medina Director Rodolfo Garcia Muriel Director
• Mr. Zambrano is a first cousin of Lorenzo Milmo Zambrano and Rogelio Zambrano Lozano • Both members of our board of directors, as well as of Rodrigo Trevi, our Chief Financial Officer. He is also a second cousin of Roberto Zambrano Villarreal and second uncle of Tomas Milmo Santos, both members of our board of directors
Hey! CEMEX is a family Business
Rafael Garza (47 Years Old) •Joined CEMEX in 1985 and has served as chief accounting officer since 1999. •certified public accountant and •master degree in administration and finance from ITESM. •attended executive programs at ITAM, IPADE and Harvard University Francisco Garza (55 Years Old) •graduate in business administration from ITESM •M.B.A. from the Johnson School of Management at Cornell University in 1982. Ramiro G. Villarreal (62 Years Old) •He is a graduate of the Universidad Autnoma de Nuevo Len with a degree in law. •Master of Science degree in finance from the University of Wisconsin Ramiro G. Villarrea (65 Years Old) •Member of our board of directors since 1987 •President of finance committee since 2009. •Cousin of Lorenzo H. Zambrano and our chief executive officer, a first cousin of Lorenzo Milmo Zambrano, a member of CEMEX board of directors and uncle of Tom’s Milmo Santos, a member of our board of directors Dionisio Garza Medina (56 Years Old) •Member of the advisory board of the Mexican Minister of Economy •the advisory committee of the David Rockefeller Center for Latin American Studies at Harvard. •Chairman of the Harvard Business School Latin American advisory board • the Advisory Council of Stanford Engineering School Family connections didn't assure him a fast rise, however. He toiled 18 years in all aspects of the company. Then in 1985, at age 41, he was named chairman and CEO.
BUSINESS STRATEGY Focus on core business Provide customers Strengthen capital of cement, ready-mix with the best value structure and regain concrete, and proposition. financial flexibility. aggregates. Recruit, retain, and Maximize operating Foster sustainable cultivate world-class efficiency. development. managers.
Porter Generic Strategies Advantage Uniqueness Low Cost Position Strategic Broad Differentiation Cost Leadership Target Narrow Focus Differentiation Focus Low Cost Cemex business strategy is a combination of DIFFERENTIATION and COST LEADERSHIP strategy. Differentiation Cost Leadership • By providing customer • Implementing Operating with the best value Efficiency : proposition. • Through IT • Initiating program that give value to the customer.
Treacy & Wiersema Value Discipline Operational Excellence • Through IT Implementation, Epod, GPS system in delivery truck. Customer Intimacy • Through IT Implementation, GPS system in delivery truck, construmex, track shipment online.
INDUSTRY LIFE CYCLE & MARKET TURBULANCE IN CEMEX CEMEX Net Sales Growth Cemex is in the mature 100% stages due because the 50% sales are stagnant. Growth 0% The type of market -50% turbulance that Cemex face is equilibrium CEMEX Net Sales where the environment 30000000 is characterized by long 20000000 10000000 periods of competence- Net Sales 0 destroying turbulance. 2000 2001 2002 2003 2004 2005 2006 2007 1999
Corporate Strategy • Corporate Strategy: Acquisition • Parenting Propositions: – Build Propositions – Stretch Propositions
BUSINESS STRUCTURE
ACQUISITION STEP Post Merger Pra-Merger Integration Superior Integration (Cemex Value Way)
PRA-Merger Integration Provide ROI well above the Cost of Capital Enable to Maintain its financial strength and credit quality Able to Increase acquired company’s value
Post Merger Integration System and process standardization A new Governance Model e-Enabling Process
CEMEX WAY Manage Our Global Knowledge Base More Efficiently Identify and disseminate best practices Standardize our business processes Implement key information and Internet based technologies, and foster innovation Source: www.cemex.com/MediaCenter/Files/Winning_Globally.pd
CULTURE INTEGRATION ACQUIRED COMPANY CORPORATE 20% PARENT Retained E- groups practices CORPORATE 80% “CEMEX WAY” Parenting Proposition PARENT Best practice (benchmarked again local practices)
LEARNING ORGANIZATION (CULTURE) A culture that embraces constant change and is enthusiastic about incorporating the latest information technology in all aspects of business GLOBAL LEADERSHIP PROGRAM Strategic Alliance with Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) CEMEX’S TECHNOLOGY CENTER, located in Monterrey, Mexico
CEMEX INTERNATIONAL STRATEGY International Cemex Global Transnational Strategy Strategy Strategy Organizational Factor • The role of senior management team. International Multidomesti • Firm Specific Factors Strategy c Strategy Environmental Factor • The ‘Bandwagon’ Effect • Export • Acquisition • Wholy-owned subsidiary Entry Mode Strategy
DIAMOND MODEL OF NATIONAL ADVANTAGE
DIAMOND MODEL OF NATIONAL ADVANTAGE Related & Supporting Firm Strategy Factor Condition Demand Condition Industry Structure & Rivalry • Capital • In Cemex Annual • Industries in Mexico • The rivalry for Cemex • GDP : 872.088 Report for year 2009, provide support in in Mexico is relatively Million US$ Mexico still hold 21 Cemex operation, low since Cemex • Labour percent of Cemex especially to fulfill already dominate the sales. This data show resources that Mexico market for • Population in 2009, that Mexico still have needed for the 66%. 109.610 people.1 a high demand in company operation. • High participation Cemex product. of labour force come from men. • Mexico only produce 3500 to 6000 per year student from institute. • Technology • Technological readiness in Mexico is rank of 71 from the whole country.2
GEOGRAPHIC LOCATION • L 6 • H 6 • L 8 • C 6 • H 9 • L 2 • C 5 • H 2 • L 9 • C 1 • L 15 • H 10 • H 6 • C 2 • C 2 • L 5 • H 9 • C 6 L : Lafarge H: Holcim C: Cemex
The Cash Crunch • Issues : (external issues) – Recession in 2008  US financial crisis  economic slow down  distressed market  decreasing demand  ….. • Issues : (internal issues) – …..  decreasing sales + higher cost – Wrong in Rinker Acquisition  overvalued – Foreign Exchange Loss due to Falling Dollar & Mexican peso devaluation • Huge currency swaps and related devaluation  hedging
Financial Highlights Financial Highlights In millions of US dollars, except per-ADR data 2006 % 2007 % 2008 % 2009 % 2010 % 2011 Net Sales 18.429 18 21.673 0 21.696 (33) 14.544 (3) 14.069 8 15.139 Operating Income 2.946 1 2.971 (16) 2.487 (53) 1.165 (27) 856 12 960 EBITDA 4.138 11 4.586 (5) 4.343 (39) 2.657 (13) 2.314 1 2.332 Consolidated Net Income 2.488 (1) 2.467 (92) 203 (49) 104 N/A (1.304) (18) (1.533) Earnings (loss) per ADR 3,31 (3) 3,22 (92) 0,27 (52) 0,13 N/A (1,30) (13) (1,47) FCF after maintenance CAPEX 2.689 (4) 2.578 1 2.600 (53) 1.215 (58) 512 (25) 386 Total Assets 29.972 66 49.662 (9) 45.387 (2) 44.483 (6) 41.675 (6) 39.276 Net Debt 5.811 225 18.904 (5) 17.908 (16) 15.053 18 17.729 2 18.067 Total Stockholders' Equity 12.859 16 14.942 (7) 13.879 18 16.339 (4) 15.710 (13) 13.683 Debt 17.113 34.720 31.508 28.144 25.965 25.593 Net-Debt-to-EBITDA ratio 1,4043 4,1221 4,1234 5,6654 7,6616 7,7474 Equity 42,9% 30,1% 30,6% 36,7% 37,7% 34,8% Debt 57,1% 69,9% 69,4% 63,3% 62,3% 65,2% DER 1,33 2,32 2,27 1,72 1,65 1,87 ROA 8,3% 5,0% 0,4% 0,2% -3,1% -3,9% ROE 19,3% 16,5% 1,5% 0,6% -8,3% -11,2%
Financial Highlights Financing What did Agreement happen with Major Highlights of CEMEX Financial here ? What did implications 25,000 Creditors had lay there ? What Cemex How can net extended term should do ? debt increase20,000 maturity Net Sales significantly ? 15,000 million USD Consolidated Net Rinker’s 10,000 Income Acquisition CEMEX sales still not Net Debt were 5,000 enough to pay the debt overvalued therefore CEMEX EBITDA and CEMEX - should increase sales 2006 2007 2008 2009 2010 2011 2012 significantly get excessive-5,000 debt Year Why were net income going Source: Analysis, 2012 decrease ?
The biggest areas which generated cash are from Europe and US (more than 58%), both of regions affected by Recession so that CEMEX decrease in sales significantly Source: Cemex 2009 SUSTAINABLE DEVELOPMENT REPORT 6% Europe 34% North 29% America Latin America Asia Pasific 15% 16% Africa & Middle East Source: Holcim AR 2009 Source: Lafarge AR 2009
Rinker Acquisitionby Lafarge-French Influence and Holcim-Swiss which are Affect by Southdown- not focus in Aggregate US and RMC-UK industry Rinker’s Acquisition Rinker acquisition CEMEX + Rinker penetrate were overvalued and increase cost due to market in US and Europe CEMEX get excessive higher energy, electricity while Financial Crisis debt and transportation Source: Cemex 2006 SUSTAINABLE DEVELOPMENT REPORT
BENCHMARKING BY PRODUCT DIVERSIFICATION Source: Cemex 2009 SUSTAINABLE DEVELOPMENT REPORT Source: Holcim AR 2009 Source: Lafarge AR 2009
Rinker Acquisition Influence by Lafarge-French and Holcim-Swiss which are not focus in Aggregate industry Source: Cemex 2006 SUSTAINABLE DEVELOPMENT REPORT CEMEX diversified in aggregate industry by Rinker aquisition, in the other hand CEMEX became not focus and STUCK IN THE MIDDLE
Financial Highlights Net-Debt-to-EBITDA ratio of CEMEX 9 8 7.7474 7.6616 7 6 Too High !! 5.6654 5 4 4.1221 4.1234 3 2 1.4043 1 0 2006 2007 2008 2009 2010 2011 2012 year Source: Analysis, 2012 Net debt to EBITDA  company’s ability The net debt to EBITDA ratio is a debt to decrease its debt ratio that shows how many years it would take for a company to pay back its Ratio > 4 company less likely handling debt if net debt and EBITDA are held its debt burden  less likely taking constant. If a company has more cash additional debt than debt, the ratio can be negative Source: www.investopedia.com
Financial Highlights Financial Highlights of CEMEX 60,000 50,000 million USD 40,000 Total Assets 30,000 Debt 20,000 Total Stockholders' Equity 10,000 Net Debt - 2006 2007 2008 2009 2010 2011 2012 year Source: Analysis, 2012
LOSS IN FOREIGN EXCHANGE AND FINANCIAL INSTRUMENT • Incurred a US$386 million foreign- exchange loss – Depreciation of MXN, EUR and GBP • Loss in financial instrument of US$1,35 billion – MXN/USD cross-currency swaps and equity forward derivatives Source: Cemex 2009 Annual Report
Restructurisation • Close Davenport Plan in California due to sharp decline in new home construction • November 2008, Cemex’s Spanish unit offloaded operations in the Canary Islands for $211 million, (grossly undervalued according to industry analysts) • November 2008, sold assets in Hungary and Austria for $100 million • Nasionalisation in Venezuela, government seized Cemex’ assets • 2009, sell some Australian operations to competitor Holcim for $1,62 billion (consideration to serve its payment till mid 2011)
Credit Restructuring • Refinancing large debt nearly $2,2 billion in debt maturing in 2009 to through 2010 – Citi group Inc., Banco Bilbao Vizcaya Argentaria SA, Banco Santander SA, HSBC Holdings and Royal Bank of Scotland Group • CEMEX get extent $1,5 billion of the total $3 billion due in December 2009 • Restructure the debt of $4 billion in January 2009 and further $15,5 billion on August 2009 • CEMEX would still require additional refinancing in near future
Credit Rating Financing Agreement Source : www.cemex.com Source : www.cemex.com
FINANCIAL STATISTICS FOR THE LEADING GLOBAL CEMENT COMPANIES FOR 2009 Source: Cementing the foundations of growth, International Finance Corporation, Michel Folliet
World expected cement demand by region Market Market Development Development Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
Recommendation Questions • Would banks allow it to come to negotiations or would it be forced to offload some of its acquired assets in distressed? • The cash crunch? In order to solve crash crunch and win-win negotiation with bank, CEMEX should to : • Focus in Cement and Ready Mix industry • Develop Asian and Middle-East market Acquire Asia company • Prepare Global Leader especially for Asian market development • Improve Credit Rating by execute Good Corporate Governance in supervising risk management conducted by Victor Romo, especially in hedging strategies • Penetrate existing market
7 cemex (uneditted)
7 cemex (uneditted)

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7 cemex (uneditted)

  • 1.
    CEMEX’S COST OF‘GLOBALISED’ GROWTH – THE CASH CRUNCH? Group 7 Deru R. Indika 29110301 Nisham Fiksriyoso 29110309 Erika Paraminda 29110310 Josia Prananta Tarigan 29110345
  • 2.
    Presentation Framework Company Strategy Summary • Business-Level Recommend • History Strategy Acquisition ation & Leadership • External • Corporate Issues Lessons Strategy Environment Learned • Internal Environment
  • 3.
    HISTORY Year Event 1906 Cementos Hidalgo established, begins operating cement plant. 1920 Lorenzo Zambrano open cement plan named Cementos Portland 1931 Cementos Hidalgo & Xcementos Portland merged into Cemex 1976 Cemex goes public, become largest cement maker in Mexico and acquire Cementos Guadalajara 1985 Grandson founder name Lorenzo Zambrano as a CEO and have ambitious program expansion. 1989 Acquisition of Cementos Tolteca, give Cemex 65% Mexican market 1992 Buys 2 largest cement company in Spain, Valenciana and Sanson 1994 Controlling stake in Vencemos (Large cement company in Venezuela)
  • 4.
    HISTORY Year Event 1995 Expand to Dominican Republic and Caribbean market 1996 Expand to Colombia and Panama to consolidate Caribbean market 1997 Take its first direct investment in Asia, purchasing 30% stake in Rizal Cement Company, Inc. of the Philippines 1999 Majority stake in Assiut Cement Company, leading cement market in Egypt. 2000 Houston Based Inc. (Second Largest U.S. Cement producer acquired 2002 Write-down from currency-hedging operations foreshadow company loss, Expand Puerto Rico. 2005 Acquisitation RMC that enhaced its position to world 3rd producer of sement 2007 Acquires Rinker, Australian company with major operation in US 2008 Stocks crumble as cement sales decline, company in huge debt crises trying to refinance.
  • 5.
    PESTEL POLITICS ECONOMY SOCIAL • Different countries • Economic Recession in • Different culture and policy about FDI US and Europe language • Trade barriers • High growth Emerging • Community market  BRIC contribution • Different market • Social Media demand between developed and developing country
  • 6.
    PESTEL TECHNOLOGY ENVIRONMENT LEGAL • ICT innovation and development • Climate change (rehabilitation, air • CSI (Cement Sustainability • Real time and direct pollution, waste mgt) Initiative) for audit global carbon communication • Alternative fuels and renewable emissions energy energy • Health and safety work • Regulatory by national and regional trade associations such as the European Cement Association (CEMBUREAU) and industry forums such as the World Business Council for Sustainable Development (WBCSD) and the Portland Cement Association
  • 7.
    INDUSTRY ANALYSIS • Low barriers entry, • Decrease the use of capital intense cement in construction Threat of • Limited FDI by Threat of New • Proportion to use other Entrants Substitutes government material in construction • Highly regulated but more expensive MODERATE LOW • Company can own raw materials • Consumer is • Concentrate supplier price taker especially in China because the demand of cement is high ATTRACTIVE INDUSTRY • Strong multinational company, and many regional and national company • Pace of acquisition • Pace to entry potential emerging market
  • 8.
    The Cement Product Cement Aggregates Ready Mix Concrete
  • 9.
    Market Needs ByConstruction Stages Development • High demand for Cement, low BASIC demand for aggregates and ready mix concrete • Demand for cement and ready mix INTERMEDIATE concrete is balance but low demand for aggregates • More high demand for aggregates, ADVANCE and moderate demand for cement and ready mix concrete
  • 10.
    World Cement ProductionAnd Consumption Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
  • 11.
    World Cement 2008by Region Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
  • 12.
    World Expected CementDemand by Region Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
  • 13.
    Current Share OfCapacity Of The Multinational Cement Majors By Region Opportunity To Entry Source: FINANCIAL COMPETITIVENESS OF CEMENT COMPARED WITH OTHER BUILDING MATERIALS, Cementing the foundations of growth, J.P. Morgan, Estimates, Michel Folliet
  • 14.
    Growth in WorldCement Consumption Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
  • 15.
    Cost Of Cement Thecost of imported cement may be considered low, but the operating expenses make the final price 50% more costly. This follows from the cost of fuel, freight, manpower, the dependence on transport (logistics) and the electric power used in the operational process. Source: Philippe Lasserre- Globalisation Cement Industry-2007
  • 16.
    Financial Competitiveness OfCement Compared With Other Building Materials “cement remaining the most profitable compare to different building material segments” Source: FINANCIAL COMPETITIVENESS OF CEMENT COMPARED WITH OTHER BUILDING MATERIALS, Cementing the foundations of growth, J.P. Morgan, Estimates, Michel Folliet
  • 17.
    Financial Statistics forThe Leading Global Cement Companies For 2009 Source: Cementing the foundations of growth, International Finance Corporation, Michel Folliet
  • 18.
    CORE COMPETENCY Competence Category Lafarge Cemex Core Competence • Low Cost Production and Better • Low Cost Production Product • IT leadership Distinctive Competence • Personalized product according • Relationship with clients region • Delivery Time • Research based on sustainable • Client Satisfaction assessment development system Organizatioal Competence • Investment in HR • Logistic R&D in products and processes • People • IT and Knowledge Management Supportive Competence • Financial Management for • Post-Acquisition integration team Investment • Frequent trainings • Firm Acquistion • Standardization of proesses through IT Dynamic Capability • Develop the capability to • Multi cultural adaptability research aligned with centers of Global mindset and the excellence centers of education comprehension that cemment is and research not a commodity but a dream HR management focus on High mobility, Allowing a dynamic sharing of experience and Best Practices Source: http://www.scielo.oces.mctes.pt/scielo.php?pid=S0873-74442009000100005&script=sci_arttext
  • 19.
    CEMEX SUSTAINABLE COMPETITIVE ADVANTAGE Resources Valuable Rare Costly to Nonsubstituable Competitive Attribute Immitate Consequences Learning Yes Yes Yes/No Yes SCA Organization Expansion Strategy Yes No Yes Yes TCA IT Leadership Yes No Yes Yes TCA
  • 20.
    Lorenzo Zambrano Biography • Educational Background: – Bachelor in mechanical enginering from Tecnologico de Monterrery (ITESM) 1966 – MBA from Stanford Business School in 1968 • Career: – Joined CEMEX in 1968 – CEMEX CEO in 1985 – CEMEX Chairman Board since 1995 • Others: – Member of IBM BOD and the Citigroup International Advisory Board – Chairman of the Board of Sistema Tecnológico de Monterrey – Council of Daimler Chrysler AG until July 2005 Mexico (1945 -Present ) • Honor: – Woodrow Wilson Award for Corporate Citizenship The CEMEX – the Americas Society's Gold Medal for Distinguished Service Founder’s – the Excellence in Leadership Award from the Stanford Graduate Grandson Business School, – Ernest C. Arbuckle Award for Managerial Excellence from the Stanford Business School's Alumni Association.]
  • 21.
    Lorenzo Zambrano Leadership Style VisionaryLeader "He's a very sweet man. He has a rare combination of abilities to lead and mobilize and has a clear, long-term vision.“ Peter Schwartz, founder and chairman of Global Business Network Agresive "If there's an opportunity, either you grab it or you let go,“ he says. "If you let go, you don't grow.“ Zambrano Coach (Situational Leadership Theory) CEMEX came to rely less on command-and-control and more on senior management's setting goals and then letting employees figure out the best ways to reach them.
  • 22.
    Lorenzo Zambrano inACTION • Going Global.. • He imposed worldwide standards on business practices • He shed subsidiaries to concentrate on cement • He made English the company's official language • Hire Cyber Visionary : Gelacio Liguez (1987) • Launch CEMEX Way
  • 23.
    Lorenzo Zambrano Step Of CHANGE • The company's Create a sense of urgency prime resource was its people • To reach its Working with a team of Arthur D. Little goals, the consultants company Basic would have to Assu convince its employees that CEMEX asked employees to identify barriers mpti they had to to change and improvement on improve their performance constantly, and Employees at all levels were asked to they'd have to undertake a "visioning exercise." be equipped with the means to do that Employees looked at external benchmarks, but they also identified particularly effective practices inside the company
  • 24.
    CEMEX Remuneration Remuneration package1 •Median salary : $70,924 Life and health • Average salary : $68,649 • Salary Range : $40,000 - insurance $141,918 Cafeteria System, World business travel • Hot Meal Voucher insurance is offered for • Holiday Voucher those who travel. • BKV Pass • Internet Contribution, etc. (1) http://www.salarydom.com/company-cemex-salaries-view-5.htm (USA Based) (2) http://www.cemexssc.eu/culture/benefits
  • 25.
  • 26.
    CEMEX Organizational Structure Chairman of the Board and Chief Executive Officer Chairman of CEMEX Latin Executive Advisor to American Advisory Board and the Chairman and Advisor to the CEO on CEO Institutional Relations Executive Vice Executive Vice President of President of Finance Organization and and Administration Human Resources Executive Vice President of Strategic Planning and New Business Development President CEMEX South, Central President CEMEX President CEMEX President CEMEX President CEMEX President CEMEX America and the Asia Northern Europe Mediterranean Mexico USA Caribbean
  • 27.
    CEMEX Executive Lorenzo H.Zambrano CEO/Chairman of the Board/Director Rafael Garza Chief Accounting Officer Juan Romero President, Geographical Fransisco Garza President, Geographical Ramiro G. Vilarreal General Counsel/secretary Rodrigo Trevino CFO Fernando Gonzalez Executive VP, Divisional Roberto Zambrano Villarreal Director Dionisio Garza Medina Director Rodolfo Garcia Muriel Director
  • 28.
    • Mr. Zambranois a first cousin of Lorenzo Milmo Zambrano and Rogelio Zambrano Lozano • Both members of our board of directors, as well as of Rodrigo Trevi, our Chief Financial Officer. He is also a second cousin of Roberto Zambrano Villarreal and second uncle of Tomas Milmo Santos, both members of our board of directors
  • 29.
    Hey! CEMEX isa family Business
  • 30.
    Rafael Garza (47Years Old) •Joined CEMEX in 1985 and has served as chief accounting officer since 1999. •certified public accountant and •master degree in administration and finance from ITESM. •attended executive programs at ITAM, IPADE and Harvard University Francisco Garza (55 Years Old) •graduate in business administration from ITESM •M.B.A. from the Johnson School of Management at Cornell University in 1982. Ramiro G. Villarreal (62 Years Old) •He is a graduate of the Universidad Autnoma de Nuevo Len with a degree in law. •Master of Science degree in finance from the University of Wisconsin Ramiro G. Villarrea (65 Years Old) •Member of our board of directors since 1987 •President of finance committee since 2009. •Cousin of Lorenzo H. Zambrano and our chief executive officer, a first cousin of Lorenzo Milmo Zambrano, a member of CEMEX board of directors and uncle of Tom’s Milmo Santos, a member of our board of directors Dionisio Garza Medina (56 Years Old) •Member of the advisory board of the Mexican Minister of Economy •the advisory committee of the David Rockefeller Center for Latin American Studies at Harvard. •Chairman of the Harvard Business School Latin American advisory board • the Advisory Council of Stanford Engineering School Family connections didn't assure him a fast rise, however. He toiled 18 years in all aspects of the company. Then in 1985, at age 41, he was named chairman and CEO.
  • 31.
    BUSINESS STRATEGY Focus oncore business Provide customers Strengthen capital of cement, ready-mix with the best value structure and regain concrete, and proposition. financial flexibility. aggregates. Recruit, retain, and Maximize operating Foster sustainable cultivate world-class efficiency. development. managers.
  • 32.
    Porter Generic Strategies Advantage Uniqueness Low Cost Position Strategic Broad Differentiation Cost Leadership Target Narrow Focus Differentiation Focus Low Cost Cemex business strategy is a combination of DIFFERENTIATION and COST LEADERSHIP strategy. Differentiation Cost Leadership • By providing customer • Implementing Operating with the best value Efficiency : proposition. • Through IT • Initiating program that give value to the customer.
  • 33.
    Treacy & WiersemaValue Discipline Operational Excellence • Through IT Implementation, Epod, GPS system in delivery truck. Customer Intimacy • Through IT Implementation, GPS system in delivery truck, construmex, track shipment online.
  • 34.
    INDUSTRY LIFE CYCLE& MARKET TURBULANCE IN CEMEX CEMEX Net Sales Growth Cemex is in the mature 100% stages due because the 50% sales are stagnant. Growth 0% The type of market -50% turbulance that Cemex face is equilibrium CEMEX Net Sales where the environment 30000000 is characterized by long 20000000 10000000 periods of competence- Net Sales 0 destroying turbulance. 2000 2001 2002 2003 2004 2005 2006 2007 1999
  • 35.
    Corporate Strategy • CorporateStrategy: Acquisition • Parenting Propositions: – Build Propositions – Stretch Propositions
  • 36.
  • 37.
    ACQUISITION STEP Post Merger Pra-Merger Integration Superior Integration (Cemex Value Way)
  • 38.
    PRA-Merger Integration Provide ROI well above the Cost of Capital Enable to Maintain its financial strength and credit quality Able to Increase acquired company’s value
  • 39.
    Post Merger Integration System and process standardization A new Governance Model e-Enabling Process
  • 40.
    CEMEX WAY Manage OurGlobal Knowledge Base More Efficiently Identify and disseminate best practices Standardize our business processes Implement key information and Internet based technologies, and foster innovation Source: www.cemex.com/MediaCenter/Files/Winning_Globally.pd
  • 41.
    CULTURE INTEGRATION ACQUIRED COMPANY CORPORATE 20% PARENT Retained E- groups practices CORPORATE 80% “CEMEX WAY” Parenting Proposition PARENT Best practice (benchmarked again local practices)
  • 42.
    LEARNING ORGANIZATION (CULTURE) Aculture that embraces constant change and is enthusiastic about incorporating the latest information technology in all aspects of business GLOBAL LEADERSHIP PROGRAM Strategic Alliance with Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) CEMEX’S TECHNOLOGY CENTER, located in Monterrey, Mexico
  • 43.
    CEMEX INTERNATIONAL STRATEGY International Cemex Global Transnational Strategy Strategy Strategy Organizational Factor • The role of senior management team. International Multidomesti • Firm Specific Factors Strategy c Strategy Environmental Factor • The ‘Bandwagon’ Effect • Export • Acquisition • Wholy-owned subsidiary Entry Mode Strategy
  • 44.
    DIAMOND MODEL OFNATIONAL ADVANTAGE
  • 45.
    DIAMOND MODEL OFNATIONAL ADVANTAGE Related & Supporting Firm Strategy Factor Condition Demand Condition Industry Structure & Rivalry • Capital • In Cemex Annual • Industries in Mexico • The rivalry for Cemex • GDP : 872.088 Report for year 2009, provide support in in Mexico is relatively Million US$ Mexico still hold 21 Cemex operation, low since Cemex • Labour percent of Cemex especially to fulfill already dominate the sales. This data show resources that Mexico market for • Population in 2009, that Mexico still have needed for the 66%. 109.610 people.1 a high demand in company operation. • High participation Cemex product. of labour force come from men. • Mexico only produce 3500 to 6000 per year student from institute. • Technology • Technological readiness in Mexico is rank of 71 from the whole country.2
  • 46.
    GEOGRAPHIC LOCATION • L 6 • H 6 • L 8 • C 6 • H 9 • L 2 • C 5 • H 2 • L 9 • C 1 • L 15 • H 10 • H 6 • C 2 • C 2 • L 5 • H 9 • C 6 L : Lafarge H: Holcim C: Cemex
  • 47.
    The Cash Crunch •Issues : (external issues) – Recession in 2008  US financial crisis  economic slow down  distressed market  decreasing demand  ….. • Issues : (internal issues) – …..  decreasing sales + higher cost – Wrong in Rinker Acquisition  overvalued – Foreign Exchange Loss due to Falling Dollar & Mexican peso devaluation • Huge currency swaps and related devaluation  hedging
  • 48.
    Financial Highlights Financial Highlights Inmillions of US dollars, except per-ADR data 2006 % 2007 % 2008 % 2009 % 2010 % 2011 Net Sales 18.429 18 21.673 0 21.696 (33) 14.544 (3) 14.069 8 15.139 Operating Income 2.946 1 2.971 (16) 2.487 (53) 1.165 (27) 856 12 960 EBITDA 4.138 11 4.586 (5) 4.343 (39) 2.657 (13) 2.314 1 2.332 Consolidated Net Income 2.488 (1) 2.467 (92) 203 (49) 104 N/A (1.304) (18) (1.533) Earnings (loss) per ADR 3,31 (3) 3,22 (92) 0,27 (52) 0,13 N/A (1,30) (13) (1,47) FCF after maintenance CAPEX 2.689 (4) 2.578 1 2.600 (53) 1.215 (58) 512 (25) 386 Total Assets 29.972 66 49.662 (9) 45.387 (2) 44.483 (6) 41.675 (6) 39.276 Net Debt 5.811 225 18.904 (5) 17.908 (16) 15.053 18 17.729 2 18.067 Total Stockholders' Equity 12.859 16 14.942 (7) 13.879 18 16.339 (4) 15.710 (13) 13.683 Debt 17.113 34.720 31.508 28.144 25.965 25.593 Net-Debt-to-EBITDA ratio 1,4043 4,1221 4,1234 5,6654 7,6616 7,7474 Equity 42,9% 30,1% 30,6% 36,7% 37,7% 34,8% Debt 57,1% 69,9% 69,4% 63,3% 62,3% 65,2% DER 1,33 2,32 2,27 1,72 1,65 1,87 ROA 8,3% 5,0% 0,4% 0,2% -3,1% -3,9% ROE 19,3% 16,5% 1,5% 0,6% -8,3% -11,2%
  • 49.
    Financial Highlights Financing What did Agreement happen with Major Highlights of CEMEX Financial here ? What did implications 25,000 Creditors had lay there ? What Cemex How can net extended term should do ? debt increase20,000 maturity Net Sales significantly ? 15,000 million USD Consolidated Net Rinker’s 10,000 Income Acquisition CEMEX sales still not Net Debt were 5,000 enough to pay the debt overvalued therefore CEMEX EBITDA and CEMEX - should increase sales 2006 2007 2008 2009 2010 2011 2012 significantly get excessive-5,000 debt Year Why were net income going Source: Analysis, 2012 decrease ?
  • 50.
    The biggest areaswhich generated cash are from Europe and US (more than 58%), both of regions affected by Recession so that CEMEX decrease in sales significantly Source: Cemex 2009 SUSTAINABLE DEVELOPMENT REPORT 6% Europe 34% North 29% America Latin America Asia Pasific 15% 16% Africa & Middle East Source: Holcim AR 2009 Source: Lafarge AR 2009
  • 51.
    Rinker Acquisitionby Lafarge-French Influence and Holcim-Swiss which are Affect by Southdown- not focus in Aggregate US and RMC-UK industry Rinker’s Acquisition Rinker acquisition CEMEX + Rinker penetrate were overvalued and increase cost due to market in US and Europe CEMEX get excessive higher energy, electricity while Financial Crisis debt and transportation Source: Cemex 2006 SUSTAINABLE DEVELOPMENT REPORT
  • 52.
    BENCHMARKING BY PRODUCT DIVERSIFICATION Source: Cemex 2009 SUSTAINABLE DEVELOPMENT REPORT Source: Holcim AR 2009 Source: Lafarge AR 2009
  • 53.
    Rinker Acquisition Influence by Lafarge-French and Holcim-Swiss which are not focus in Aggregate industry Source: Cemex 2006 SUSTAINABLE DEVELOPMENT REPORT CEMEX diversified in aggregate industry by Rinker aquisition, in the other hand CEMEX became not focus and STUCK IN THE MIDDLE
  • 54.
    Financial Highlights Net-Debt-to-EBITDA ratio of CEMEX 9 8 7.7474 7.6616 7 6 Too High !! 5.6654 5 4 4.1221 4.1234 3 2 1.4043 1 0 2006 2007 2008 2009 2010 2011 2012 year Source: Analysis, 2012 Net debt to EBITDA  company’s ability The net debt to EBITDA ratio is a debt to decrease its debt ratio that shows how many years it would take for a company to pay back its Ratio > 4 company less likely handling debt if net debt and EBITDA are held its debt burden  less likely taking constant. If a company has more cash additional debt than debt, the ratio can be negative Source: www.investopedia.com
  • 55.
    Financial Highlights Financial Highlights of CEMEX 60,000 50,000 million USD 40,000 Total Assets 30,000 Debt 20,000 Total Stockholders' Equity 10,000 Net Debt - 2006 2007 2008 2009 2010 2011 2012 year Source: Analysis, 2012
  • 56.
    LOSS IN FOREIGNEXCHANGE AND FINANCIAL INSTRUMENT • Incurred a US$386 million foreign- exchange loss – Depreciation of MXN, EUR and GBP • Loss in financial instrument of US$1,35 billion – MXN/USD cross-currency swaps and equity forward derivatives Source: Cemex 2009 Annual Report
  • 57.
    Restructurisation • Close DavenportPlan in California due to sharp decline in new home construction • November 2008, Cemex’s Spanish unit offloaded operations in the Canary Islands for $211 million, (grossly undervalued according to industry analysts) • November 2008, sold assets in Hungary and Austria for $100 million • Nasionalisation in Venezuela, government seized Cemex’ assets • 2009, sell some Australian operations to competitor Holcim for $1,62 billion (consideration to serve its payment till mid 2011)
  • 58.
    Credit Restructuring • Refinancinglarge debt nearly $2,2 billion in debt maturing in 2009 to through 2010 – Citi group Inc., Banco Bilbao Vizcaya Argentaria SA, Banco Santander SA, HSBC Holdings and Royal Bank of Scotland Group • CEMEX get extent $1,5 billion of the total $3 billion due in December 2009 • Restructure the debt of $4 billion in January 2009 and further $15,5 billion on August 2009 • CEMEX would still require additional refinancing in near future
  • 59.
    Credit Rating Financing Agreement Source : www.cemex.com Source : www.cemex.com
  • 60.
    FINANCIAL STATISTICS FORTHE LEADING GLOBAL CEMENT COMPANIES FOR 2009 Source: Cementing the foundations of growth, International Finance Corporation, Michel Folliet
  • 61.
    World expected cementdemand by region Market Market Development Development Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009
  • 62.
    Recommendation Questions • Would banksallow it to come to negotiations or would it be forced to offload some of its acquired assets in distressed? • The cash crunch? In order to solve crash crunch and win-win negotiation with bank, CEMEX should to : • Focus in Cement and Ready Mix industry • Develop Asian and Middle-East market Acquire Asia company • Prepare Global Leader especially for Asian market development • Improve Credit Rating by execute Good Corporate Governance in supervising risk management conducted by Victor Romo, especially in hedging strategies • Penetrate existing market