CEMENT 091130stirnimann.ppt

Product Initiatives –
Maximizing Financial Contribution
Course for Cement Applications 2008
Daniel Stirnimann
HGRS/CS

2
Holcim Group Support Course for Cement Applications 04.09.2022
Content
 Overview
 Impact of product initiatives on financial contribution
 Prioritization of product initiatives
 Summary

3
Learning objectives
 How can product initiatives contribute to
Holcim financial targets
 How can we maximize the benefit from the
value creation of product initiatives
 How to prioritize product initiatives

4
Holcim Group financial targets
- Operating EBITDA: Operating Earnings Before Interest, Taxes and Depreciation/Amortization
- Operating EBITDA margin = Operating EBITDA / Net Sales
- HVA: Holcim Value Added
- HVA: Incremental HVA vs. previous year
- All according to HARP
KPI ORM Target 2007 YTD 2008
Operating
EBITDA
margin
[%]
CEM > 33 32.6
AGG > 27 20.3
OCM > 8 7.0
Overall 25.6 22.6
HVA [CHF] 200 Mio.

5
Overview of KPI calculation
Operating EBITDA
Margin
.
_
.
Operating Profit (EBIT)
Deprec. & Amortization -
CAPEX +
Other Oper.
Assets
Expected RONOA
(exp. Return on Net
Operating Assets)
HVA
-
Average Net
Oper. Assets
Standard Cost
of Capital
x
Value added
from Oper.
Assets
Value added
from …
Value added
from …
+
According to HARP
Net Sales
Operating EBITDA
Net Price
Volume
Production
Cost of Goods Sold
Distribution Cost
Marketing &
Sales Expenses
Admin. Expenses
-
-
-
Gross Profit
-
x

6
Overview of KPI calculation
Net Sales
x
Operating EBITDA
Net Price
Volume
Production
Cost of Goods Sold
Distribution Cost
Marketing &
Sales Expenses
Admin. Expenses
-
-
-
Gross Profit
-
Operating EBITDA
Margin
.
_
.
Operating Profit (EBIT)
Deprec. & Amortization -
CAPEX +
Other Oper.
Assets
Expected RONOA
(exp. Return on Net
Operating Assets)
HVA
-
Average Net
Oper. Assets
Standard Cost
of Capital
x
Value added
from Oper.
Assets
Value added
from …
Value added
from …
+
According to HARP
Net Price
Volume
Production
Cost of Goods Sold
CAPEX +
Other Oper.
Assets

7
Possible impacts of product initiatives on
Operating EBITDA
Product A
USD/t
Volume / % of sales
Net Price
Production cost
Other cost (Distribution, Marketing, Administration)
Increase of net price
Reduction of
production cost
Volume
increase
Operating EBITDA
Product B

8
Different leverages
in Product Portfolio Management
Product C
Product D
Product A
Product B
Product C
Product D
New
Product E
e.g.
from 5% to
15%
limestone
from 15%
puzzolan to
25% fly ash
from 0% to
20% slag
from 35% FA to
65% slag
Product A
Product C
Product D
Product B
Product A
Product B
Leverage - Product Mix
Extension /
reduction
Product
composition
Current
PP

9
Content
 Overview
 Increase of price
 Reduction of production cost
 Increase of sales volume
 Summary

10
Product A
USD/t
Volume / % of sales
Net Price
Production cost
Other cost (Distribution, Marketing, Administration)
Operating EBITDA
Product B
New products with added value for end-user can
achieve price premiums
New Product
Price Premium

11
Value Proposition created to deliver Value to
targeted customers
Cement constituents
Fineness
Admixtures
Alkali level
Low C3A
Product
characteristics
Improved workability
Longer service life
Less cracking
Easier to spread
Good for stucco / plasticity
Reduced mould formation
Aesthetic finishing
Easy to mix
Less exhausting for mason
Less wasted material
Less skin irritation
Less shrinkage
Good workmanship
Less efflorescence
Light color wall
Benefits
High water retention
Improved ball bearing effect
Improved
adhesion/cohesiveness
Less water penetration
Less chromium content
Longer board life
Good air void distribution
Proper bond strength
Less bleeding
Features
Product Design
and Production

12
Examples of value proposition of
new products initiatives
Product Product features Product benefits
Target end user/
decision maker
Masonry
cement
 Limestone based composite
cement
 Very good workability
 Extended setting time
Mason,
Contractor
Block
cement
 High early strength
 Composite cement
 Increase of production rate
 Smoother surface / easier
demolding
Pre-cast
Pavement
cement
 Composite cement
(~ 30% gbfs)
 Gbfs enhances durability
 Optimize logistics and workflow
Paving
contractor
Silica Fume
(SF) blend
 Pre-blend SF and OPC
 Easy to handle solution for SF
specifications (less hazardous)
 Durability enhancement
RMX
Off-white
cement
 Light color cement
(60% gbfs content)
 Cost effective alternative to white
cement for colored products
Pre-cast
Soil binder
 Tailor made binder with high
MIC content
 Increase compressive strength of
soil / road life duration
 Savings of aggregates
Specifier,
Contractor

13
Example of value proposition in mortar
applications
GU cement + sand
(+admixtures, fibres)
Masonry cement
+ sand
Dry-mix
mortar
Value
proposition
 Use of admixtures or
fibres is required to
avoid cracks
 Improvement, but
only with good sand
and controlled
working practices
 Quality assurance
 Crack-free results
 Smooth finishing
 Simplified logistics
Target price - higher highest

14
Price positioning – Value based pricing is key
Net Price
Production
+ other costs
Current product /
solution
Operating
EBITDA /
Commercial
margin
 Cost-based pricing gives away created value
 Value-based pricing captures created value and contributes to EBITDA
Cost-based
pricing
Value-based
pricing
New product /
solution
Value
perceived
by end-
user

15
Quantifying the value supplied to the customer
Cost [THB / m2]
Time [Min]
Mixed cement
INSEE -TONG
Saving
Material
Cost
Labor
cost
Time
Repair 17.6
17.6
14.50
12.75
1.75
40.0
38.4
1.6
17 min.
14.5 min.
2.5 min.
Cost (THB/sq-m)
Overall cost saving
72.10
51.15
20.95
29% Cost Saving
12% Cost
Saving
4% Cost
Saving
15% Time
Saving
100% Cost
Saving
0
Savings
compared
with mixed
cement
Pricing: Quantifying and knowing the value of our
products/services for our customers

16
Content
 Overview
 Summary

17
Reduction of production cost by adaptation of
product compositions
Fulfillment of application
requirements by Product A
Workability
Short
setting
Strength
LH
Durability
1d 28d Cl- SO4
Residential
Foundation = = + ++ - / = - +
Beam/column/slab - = + ++ = - +
= Matches minimum requirement
- Insufficient + Exceeds requirements
 Over-fulfillment of application requirements
 Utilize existing potential / room given by standards
 Think “outside of the box” / long-term standard modification
 MIC often present potential for cost reduction
 Utilize opportunities that a competitive benchmarking provides
Fully exploit potential for cost reduction by
providing adequate performance

18
Concrete application requirements
RMX concrete Batched on site
 15 to 25 MPa as RMX GU concrete (~90%)
 Tendency to shift to higher strength classes
 Early strength 3-5 MPa @ ~14-18hrs for demolding
columns/walls and setting time for finishing / walk on slab
 Placing: Mainly pumped concrete, pumping by RMX
 No specification of cement type
 28d strength only requirement
 Slump chosen according to placing (pumped or crane)
 Mix designs mostly through certification labs
 I 42.5R in PE market and for binder unit cost reduction
CEM II 42.5N fulfills RMX concrete requirements
Shift I 42.5R for RMX to II 42.5N
 Very limited volume of
concrete batched on site
with bag cement: Only
remote areas with no
access to RMX concrete
and small renovation works
 No special early strength
requirement: ‘Rapid’
characteristic not known /
not perceived as necessary
Bag CEM II 32.5 adequate
 CEM II 32.5R
 CEM II 42.5N
 (CEM I 42.5R, CEM II 32.5R)
Cement
used
Requirement/
working
practice

19
0
10
20
30
40
0
10
20
30
40
3.7
[USD/t]
23.4
Clk
KY
TK
LK
Material in cement mill
Cost reduction potential by use of mineral
components
Clk FA
Kota
Gyp LS
HG
LS
CG
 Use of mineral components (MIC) can reduce production cost
 Cost reduction potential of MIC combined with superior properties
can provide considerable EBITDA contribution
35.5 1.5
Grinding+Drying Transport/handling
 var.  var.
(26.5) (32.9)
(18.2)
Gyp
nat
FA
Unchahar
FA
CPP
8/2006
FA
CPP
(18.1)(22.8)
LS
own
(12.2)
(20.4)

20
Content
 Overview
 Summary

21
Current volume
Increase of market share /
penetration in segment
“Grow the pie”
 Increase of market share / penetration
 Competitive product performance is pre-requisite
 “Grow the pie” / substitution of other construction materials
 Soil binders vs. aggregates
 Cement blocks vs. clay bricks
 Fiber cement roof vs. metal sheets
 Masonry cement vs. Traditional cement + lime solution
Potential for volume increase
cementitious
materials
clay
others
aggregates
asphalt
lime
steel

22
Example for “growing the pie” - Geotechnical
Special Binders (SB) for road applications
Soil stabilization
 Improvement of bearing
capacity
 Frost and water resistance
Soil improvement
 Reduce water content and
improve ‘trafficability’ soils
sensitive to water
 Improve bearing capacity
Subbase stabilization
 Improvement of strength
and bearing capacity
 In-situ asphalt recycling
(cold recycling)
Pavement
 Asphalt
 Concrete pavement
“Grow the pie”
“Grow the pie”
or substitution
depending on
market
Substitution

23
Impact of different parameters on EBITDA
contribution
Price increase with highest potential
for contribution to operating EBITDA
1) constant commercial margin assumed
Actual situation
10%
improvement
EBITDA
contribution
Net price
[USD/t]
60 + 6 0.6 Mio
Cost
[USD/t]
40 - 4 0.4 Mio
Commercial
margin
[USD/t]
20 - -
Sales
volume [t/y]
100’000 +10’000 0.2 Mio 1)

24
Content
 Overview
 Introduction effort
 CAPEX
 Postponing capacity extensions
 Evaluation
 Summary

25
Contribution to EBITDA versus
complexity / time / cost for market implementation
Complexity / time for market implementation
Contribution
to EBITDA
Low High
Product initiative A
Product initiative B
Product initiative C
Low
High
Priorities for product initiatives have to combine
contribution to EBITDA and ease of implementation
1st priority
last priority

26
Content
 Overview
 CAPEX
 Evaluation
 Summary

27
Possible CAPEX requirement for product initiatives
Clinker
Cement Mill
Cement Silos
MIC Storage
Blending
Facility
Feeding / weigh
system
Slag dryer
Cement Terminal
Cement &
MIC Silo
Blending
Facility
Cement Plant
Product Initiatives have also to consider higher logistic
complexity in case of increased number of products
Bagging
Facility
Conveying
system

28
Evaluating CAPEX for a product initiative –
IRR vs. Net present value (NPV)
2006 2007e 2008e 2009e 2010e
Sales (kt/y) - 70 139 209 209
Cash Flow (Mio USD/y) (0.8) 0.2 0.3 0.5 0.5
 Installation of cement silo for 3rd product: CAPEX 0.8 Mio USD
CAPEX: 0.8 Mio USD
IRR: 35%
Payback: <3 years
Cumulated Cash Flow
Cash Flow
CAPEX
1
0
-1
2004 2005 2006 2007
2003
Mio USD
CAPEX: 0.8 Mio USD
IRR: 35%
Payback: <3 years
Cumulated Cash Flow
Cash Flow
CAPEX
1
0
-1
2004 2005 2006 2007
2003
Mio USD
 Assuming NPV = 0
 Indication for efficiency / yield of
a CAPEX
 Good for short-term
consideration
 Not to be used as single criteria
IRR calculation NPV calculation
 Future stream of benefits and cost
converted into equivalent values today
 Use country specific interest rate (e.g.
WACC)
 High NPV = high added value of
investment

29
Content
 Overview
 CAPEX
 Evaluation
 Summary

30
Impact of product initiatives on utilization of
manufacturing set-up
 Lower CF or use of different MIC can have considerable impact on
plant utilization
 Delay of capacity extensions is particularly profitable in case of
insecure market growth situations (higher flexibility)
Clinker capacity Cement capacity
time time
kt/y kt/y
clinker
required
Max. clk capacity
clinker deficit can
be compensated
by MIC
trigger
point
delay of clinker
capacity extension /
import / kiln restart
cement
capacity
required
Max. cement cap.
trigger
point
delay of mills
upgrade /
cement import
extension of cement capacity by
Product Portfolio changes

31
Example of capacity extension through product
initiatives
Adaptation of Product Portfolio leading to lower
clinker factor and therefore extending capacities /
delaying capacity extensions
Clk
Legend: Other (e.g. MIC)
Sales Gap
CAGR 7.0%
CAGR 10.3%
ACC Business Plan Estimation
2005 2010 2015
Gap ~1.8 Mio t/y
~6.6 Mio t/y gap to meet
estimated sales 2015
[y]
LK
KY
GL
TK
CF
69.4
2
4
6
8
10
12
14
16
18
[Mio t/y]
Clk
Sales Gap
CAGR 7.0%
CAGR 10.3%
2005 2010 2015
Gap ~1.8 Mio t/y
[y]
LK
KY
GL
TK
CF
69.4
2
4
6
8
10
12
14
16
18
[Mio t/y]
CAGR 7.0%
CAGR 10.3%
Gap ~0.7 Mio t/y
2005 2010 2015 [y]
CF
62.0
LK
KY
GL
TK
2
4
6
8
10
12
14
16
18
[Mio t/y]
Clk
Sales Gap
CAGR 7.0%
CAGR 10.3%
Gap ~0.7 Mio t/y
2005 2010 2015 [y]
CF
62.0
LK
KY
GL
TK
2
4
6
8
10
12
14
16
18
[Mio t/y]
Clk
Sales Gap

32
Content
 Overview
 CAPEX
 Evaluation
 Summary

33
Evaluation of product initiatives in terms of…
38
 EBITDA vs.
Reference scenario1)
[Mio USD/y]
Overview total incremental EBITDA of corrective
actions and new initiatives – 2011
Legend
1) Current product split, volumes 2011
1.3
- 0.1 1.3
1.2
‘Min
CF’
‘FA
flexibility’
‘Max
FA’
‘Ideal
PP’
1.4
1.0
0.5
1.5
‘Appl.
based’
80
100
-
0.7
72.4
95
-
250
-
[‘000 t/y]
Gbfs
20
170
0.7
70.6
80
35
155
LS
-
-
75.7
60
-
FA
1.5 2) + 0.7
66.1
1.5 2)
59.2
CF [% pt]
CAPEX [Mio USD]
CPM
GU RMX
GU bag
1.1
1.0
-0.2
0.8
1.0
0.2 0.3
0.2
0.3
0.2
0.1
-0.1
0.1
0.1
2) Covered storage for Gbfs, min. 18’000t (min. shipment size), dryer, feeding system
…Quantitative figures (ΔEBITDA, CAPEX, etc.)
39
‘Appl.
based’
76
‘Max
FA’
75
170
‘FA
flexibility’
75
100
‘Ideal PP’
76
60
95
‘Min
CF’
91
250
All options feasible, Gbfs with highest impact on mill utilization
Impact of main options on manufacturing 2011
Grinding
capacity
utilization [%]
Free
Utilized
OEE (92% of BDP)
Gbfs usage
[‘000 t/y] 200
FA usage
[‘000 t/y]
200
0
0
...Manufacturing feasibility
40
Qualitative option evaluation
o Balance
between own
and competitor
 Completely
depending on
competitor
o Balance
between own
and competitor
 Independent
 Gbfs cost
subject to high
volatility
 None
MIC supply risk
66.1
70.6
72.4
59.2
75.7
CF [%pt]
1.3
sensitive to MIC
cost
1.2
sensitive to MIC
cost
1.3
sensitive to MIC
cost
-0.1
sensitive to MIC
cost
1.4
 EBITDA
[Mio USD/t]
1.5 + 0.7
0.7
0.7
1.5
-
CAPEX
[Mio USD]
 Market pull
supports
introduction
 3 MIC will lead
to product
inconsistencies
‘Ideal PP’
Manufacturing
 Max. FA volume
absorbed
 High utilization
of mill
 CF potential
exploited
 Status quo
 CF potential not
exploited
 Flexibility in
compositions
 Big effort in
industrial
segment
required
 Limited effort
 Products known
in the market
 Slag cements
with negative
perception in the
market
 Products already
introduced
Implementation
effort
‘Max FA’
‘FA flexibility’
‘Min CF’
‘Application
based’
 
  
Advantage

 Disadvantage
o Neutral
Transition Recommendation
…Qualitative arguments

34
Content
 Overview
 Summary

35
Key messages
 Product initiatives can have a direct contribution to
Holcim financial targets
 Value based pricing is key to capture the value creation
of new products
 Fully exploit potential for reduction of production cost
by providing adequate performance
 New products and existing ones can increase volume via
growth of market share and growing the pie
 Priorities for product initiatives should combine
quantitative as well as qualitative arguments

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