1. The document presents a case study analysis of CEMEX's potential acquisition of Semen Gresik, Indonesia's largest cement producer. 2. Key assumptions and projections are made regarding exchange rates, costs of capital, cash flows, and terminal values to value the acquisition. 3. The analysis finds that acquiring a 14% stake in Semen Gresik for $1.38 per share would provide a positive NPV and IRR of 25% for CEMEX's parent cash flows, indicating the acquisition would be profitable.

1. International Finance
CEMEX CASE STUDY
17 April 2012
SHANMUGA PILLAIYAN (010194)
TAN CHEE HOAW (010120)
KAM CHUN HOE (008757)
LIM SOK YEN (008715)

2. Agenda
1.
Key assumptions
2. Exchange Rate projection
3. Cost of Capital
4. Project Cash flow
5. Parent Cash flow
6. Sensitivity analysis
7.
Real option analysis
8. Final Bid
Nottingham Malaysia
April 2012
Slide 2

3. Key Assumptions
1.
Indonesian withholding tax for dividends is at 15%
2. As the cement business is localized, investment in Indonesia does
not cannibalize existing CEMEX sales, especially the Philippines
subsidiary.
3. CEMEX utilizes internal funds for the acquisition of Gresik.
4. CEMEX functional currency is USD, Semen Gresik is IDR.
5. 50% of net profits of Gresik are paid out as dividend.
Nottingham Malaysia
April 2012
Slide 3

4. Exchange Rate Projection
IDR/USD
Indonesian
USA
Estimated
Inflation
Inflation
USD/IDR
Year
rate (%)
Rate (%)
Exchange Rate
2. Hyper-inflation in Indonesia
is expected to normalize.
1998
29.40
4.00
13000
1999
20.00
4.00
15000
3. The United States inflation
rate is forecasted to be
stable.
2000
10.00
4.00
15865
2001
10.00
4.00
16781
2002
10.00
4.00
17749
2003
8.00
5.00
18256
2004
8.00
5.00
18778
2005
8.00
5.00
19314
2006
8.00
5.00
19866
2007
8.00
5.00
20433
1. Projection done based on
Purchasing Power Parity
theorem.
Nottingham Malaysia
April 2012
Slide 4

5. Cost of Capital
CEMEX
1. Assumption is that CEMEX uses internal funds for the purchase of
Gresik.
2. CEMEX Cost of capital is taken to be the average ROE of CEMEX
from 1993 to 1998, 13.1% .
3. As the Indonesian project is viewed as risky, a risk premium of 6.9%
is included.
4. Final CEMEX cost of capital of 20.0% for the duration of the
project.
Nottingham Malaysia
April 2012
Slide 5

6. Cost of Capital
Semen Gresik
1.
Equity to debt ratio is 50% - 50%.
2. Assumed that Indonesian Government maintained real interest rate
of 4.3%.
3. Assumption is all debt is raised internally in Indonesia.
4. WACC is calculated for each year.
Year
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
6
6
6
6
6
6
6
6
6
6
Inflation Rate
29.4
20.00
10.00
10.00
10.00
8.00
8.00
8.00
8.00
8.00
Risk Free Rate
33.7
24.30
14.30
14.30
14.30
12.30
12.30
12.30
12.30
12.30
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
40.9
31.5
21.5
21.5
21.5
19.5
19.5
19.5
19.5
19.5
After-tax cost of debt
23.59
17.01
10.01
10.01
10.01
8.61
8.61
8.61
8.61
8.61
Weighted cost of capital
32.25
24.26
15.76
15.76
15.76
14.06
14.06
14.06
14.06
Equity risk premium
Beta
Cost of Equity
Nottingham Malaysia
14.06
April 2012
Slide 6

7. Terminal Value – Semen Gresik
Semen Gresik
1.
Terminal value is calculated for the continuing value of the plant
after year 5.
2. Terminal value estimated based on:
I.
Discounted perpetual cash flow
II. Earnings multiples
3.
The average value of 49,231 Billion is taken as the terminal value.
Terminal Value Valuation Method
Value (Billion Rupiah)
EV/ Capacity
Perpetual Model
59,234
Average
Nottingham Malaysia
39,228
49,231
April 2012
Slide 7

8. Terminal Value – Semen Gresik
Semen Gresik
1.
Terminal value is calculated for the continuing value of the plant
after year 5
2. Terminal growth rate is assumed to be 14.0%
3. WACC is assumed to be 15.76% at year 2002
4. Terminal value = IDR 59,234 Billion
5. Terminal value is very sensitive to the values chosen for WACC &
growth rate. Other method shall be carried out for checking
purposes.
T erminalValue
Nottingham Malaysia
NOCF (1 g)
k WACC g
April 2012
Slide 8

9. Terminal Value
Earnings Multiples
1.
Multiples of enterprise/ capacity, regional average multiple of
126.43 USD per metric tonne
2. Constant capacity of 17.48 million metric tonne
3. Terminal value of 39,228 billion IND in 2002.
Country
Total Market Cap
EV/ capacity
EV/EBITDA
Price/FCF
Price/Earning
India
1094
86
7.2
10.4
41.4
Indonesia
1468.4
52
8.9
9.2
9
Thailand
1336.6
146
10.7
4.3
-2.2
Malaysia
417.9
55
11.5
8.4
-26.9
Philippines
254.2
58
4.1
4.2
5.5
Taiwan
3059.9
188
12.1
11.5
19.7
South Korea
185.7
52
6.1
2
9.9
Total Market Cap.
7816.7
126.43
10.14
9.05
13.80
Nottingham Malaysia
Regional Average
April 2012
Slide 9

10. Project Cash Flow
The project has a positive NPV and thus profitable
Billions of IDR
Assumed Growth Rate
1998
1999
2000
2001
2002
16%
27%
20%
20%
20%
EBIT
445.00
599.00
720.48
867.03
1,043.14
Add Depreciation & Ammortisation
261.00
276.00
276.00
276.00
276.00
EBITDA
706.00
875.00
996.48
1,143.03
1,319.14
Less Tax (30% of EBIT)
(133.50)
(179.70)
(216.15)
(260.11)
(312.94)
Less Capex
(40.00)
(40.00)
Less Change in net working capital
(35.60)
(69.60)
(65.50)
(78.60)
(94.30)
Terminal Value
49,231.18
Total FCF
496.90
585.70
714.84
804.32
50,143.08
Present value factor
1.0000
0.8048
0.7463
0.6447
0.5570
Present value of cash flow
496.90
471.37
533.49
518.57
27,928.78
Nottingham Malaysia
NPV
29,949.12
April 2012
Slide 10

11. Project Cash Flow
Semen Gresik is valued at USD$3.35 per share
Enterprise Value
29,949.12
Less net debt
(4,113.50)
Less Minority Interest
(23.10)
Equity Value
25,813
Shares Outstanding (millions)
Fair Value of equity per share (IRD)
In US Dollar
Nottingham Malaysia
593.2
43,514.02
3.35
April 2012
Slide 11

12. Project Cash Flow
50% of net profits are assumed to be paid out as dividends
Income Statement (Billions of IDR)
Sales by
Gresik
Tonasa
Padang
Non-cement
Total Net Sales
Growth in Net Sales (%)
COGS Gresik
COGS Tonasa
COGS Padang
Total cost of goods sold
Gross profit
Gross margin (% of net sales)
Less Selling, general & admin expense
Less Consulting Services to Cemex
Operating Profit
Less Net Interest
Forex Losses on debt
Contributions from subsidiaries
Others
Non-operating income
Pretax Profit
Less Indonesian taxes
Net Profit
Return on Sales (%)
Nottingham Malaysia
1998F
1999F
2000F
2001F
2002F
874
437
511
20
1842
16%
(534)
(289)
(277)
(1,100)
742
40%
(284)
(13)
445
(788)
5
10
(773)
(328)
99
1189
522
607
20
2338
27%
(734)
(345)
(317)
(1,396)
942
40%
(328)
(15)
599
(700)
(74)
6
10
(758)
(159)
48
1429
627
729
20
2805
20%
(886)
(389)
(401)
(1,676)
1,129
40%
(393)
(16)
720
(464)
(105)
7
10
(553)
168
(50)
1716
753
876
20
3366
20%
(1,064)
(467)
(482)
(2,013)
1,353
40%
(469)
(17)
867
(468)
(139)
8
10
(590)
277
(83)
2062
905
1052
20
4039
20%
(1,278)
(561)
(579)
(2,418)
1,621
40%
(560)
(18)
1,043
(472)
(175)
9
10
(628)
415
(125)
(230)
(111)
117
194
291
-12%
-5%
4%
6%
7%
April 2012
Slide 12

13. Parent Cash Flow
At USD1.38 a share, the NPV of parent cash flow is positive
(USD 28.67 mill) and IRR of 25%
1998
IDR/USD FX rate
1999
2000
2001
2002
13,000
15,000
15,865
16,781
17,749
Dividend Paid (Billions of IDR)
0
0
58.73
97.12
145.26
Dividends Received by CEMEX - 14%
(Billions of IDR)
0
0
8.22
13.60
74.08
Less indonesian withholding tax (15%)
Net Dividend remitted to CEMEC
(Billions of IDR)
0
0
1.23
2.04
11.11
0
0
6.99
11.56
62.97
Dividends Received by CEMEX (USD)
Consulting services (USD)
Total cash flow
0.00
1,000,000.00
1,000,000.00
0.00
1,000,000.00
1,000,000.00
440,526.59
1,000,000.00
1,440,526.59
688,733.00
1,000,000.00
1,688,733.00
3,547,866.89
1,000,000.00
4,547,866.89
Purchase of 14% stake in Semen Gresik
(114,606,240.00)
Port upgrading & capacity expansion
Terminal Value (14% stake)
(50,000,000.00)
Total free cash flow
-163,606,240.00
1,000,000.00
1,440,526.59
1,688,733.00
392,876,106.60
20%
20%
20%
20%
20%
-163,606,240.00
833,333.33
1,000,365.69
977,276.04
189,465,714.99
Cost of capital
PV
NPV
Nottingham Malaysia
IRR
388,328,239.70
28,670,450.05
25%
April 2012
Slide 13

14. Parent Cash Flow
USD1.72 a share is the maximum price with a positive NPV
for the parent cash flow.
1998
IDR/USD FX rate
1999
2000
2001
2002
13,000
15,000
15,865
16,781
17,749
Dividend Paid (Billions of IDR)
0
0
58.73
97.12
145.26
Dividends Received by CEMEX - 14%
(Billions of IDR)
0
0
8.22
13.60
74.08
Less indonesian withholding tax (15%)
Net Dividend remitted to CEMEC
(Billions of IDR)
0
0
1.23
2.04
11.11
0
0
6.99
11.56
62.97
Dividends Received by CEMEX (USD)
Consulting services (USD)
Total cash flow
0.00
1,000,000.00
1,000,000.00
0.00
1,000,000.00
1,000,000.00
440,526.59
1,000,000.00
1,440,526.59
688,733.00
1,000,000.00
1,688,733.00
3,547,866.89
1,000,000.00
4,547,866.89
Purchase of 14% stake in Semen Gresik
(142,842,560.00)
Port upgrading & capacity expansion
Terminal Value (14% stake)
(50,000,000.00)
Total free cash flow
Cost of capital
PV
NPV
Nottingham Malaysia
IRR
388,328,239.70
-191,842,560.00
1,000,000.00
1,440,526.59
1,688,733.00
392,876,106.60
20%
20%
20%
20%
20%
-191,842,560.00
833,333.33
1,000,365.69
977,276.04
189,465,714.99
434,130.05
20%
April 2012
Slide 14

15. Strategic Reasons for Investing
1. Inline with CEMEX’s corporate strategies:
I.
To leverage its core cement and ready-mix concrete franchise
II.
To concentrate on developing markets
III.
To maintain high growth by applying free cash flow towards selective
investments that further its geographic diversification
2. Early mover advantage into Indonesia which is a large (200 million
population) and rapidly growing market.
3. To ensure that other competitors don’t get a foot hold in Indonesia
via Gresik.
4. Potential for export to regional markets (Singapore, Taiwan, etc) if
Rupiah exchange rate remains low.
Nottingham Malaysia
April 2012
Slide 15

16. Sensitivity Analysis
Country Specific risk is perceived to be high
1.
High risk of future policy change due pressure from public
opinion. Indonesian government succumb to pressure and
modified its offer from 35% to 14% of the company.
2. Strong opposition against sale of state assets to foreigners from
politicians and the general public.
3. Thread of punitive action by provincial governor to remove
certain concessions to Gresik subsidiary.
4. Street demonstrations against sale of Gresik in Jakarta & West
Sumatra.
5.
Currency risk is minimal as the Rupee is expected to appreciate
once the current crisis abates.
6. Implementation of free market reforms under IMF has reduced
Transfer risk.
Nottingham Malaysia
April 2012
Slide 16

17. Sensitivity Analysis
Firm Specific risk is perceived to be high
1.
Fear of lay off’s resulted in street remonstrations in Jakarta and
West Sumatra. Gresik management has guaranteed that no one
would be laid off. Seriously limiting options.
2. Agency risk. With only 14% ownership of the firm, CEMEX
doesn’t not have control of the board or the management. Risk
that management’s interest may be in conflict with that of
CEMEX. e.g. reducing headcount and dividend payouts.
3. Risk of price war in the Indonesian market. Potential for sales
price of drop 10%.
Nottingham Malaysia
April 2012
Slide 17

18. Real Option Analysis
Year 0
Year 5
Purchase of controlling stake
(Additional 51% from Government)
Purchase (14%)
NVP = - 158.6 million
NVP = USD 593.5 million
25% Probability
75% Probability
Sell shares at market Price
NPV = USD 49.2 million
Option to exit
in 5 years
Don’t Purchase,
NVP =0
April 2012
Slide 18

19. Real Option Analysis
NPV of cashflow from the first 5 years is -USD158.6 million
Optioin to purchase 14% in Year 0
IDR/USD FX rate
Dividend Paid (Billions of IDR)
Dividends Received by CEMEX - 14%
(Billions of IDR)
Less indonesian withholding tax (15%)
Net Dividend remitted to CEMEC (Billions of
IDR)
Dividends Received by CEMEX (USD)
Consulting services (USD)
Total cash flow
1998
1999
2000
2001
2002
13,000
15,000
15,865
16,781
17,749
0
0
58.73
97.12
145.26
0
0
0
0
8.22
1.23
13.60
2.04
74.08
11.11
0
0.00
1,000,000.00
1,000,000.00
0
0.00
1,000,000.00
1,000,000.00
6.99
440,526.59
1,000,000.00
1,440,526.59
11.56
688,733.00
1,000,000.00
1,688,733.00
62.97
3,547,866.89
1,000,000.00
4,547,866.89
Purchase of 14% stake in Semen Gresik
Port upgrading & capacity expansion
(114,606,240.00)
(50,000,000.00)
Total free cash flow
-163,606,240.00
1,000,000.00
1,440,526.59
1,688,733.00
4,547,866.89
20%
20%
20%
20%
20%
PV
-163,606,240.00
833,333.33
1,000,365.69
977,276.04
2,193,222.85
NPV
-158,602,042.09
Cost of capital
Nottingham Malaysia
April 2012
Slide 19

20. Real Option Analysis – Option to sell 14% stake
NPV of cashflow from share sale is USD 49.2 mill
Key Assumptions:
1.
Annual share price appreciation is 5%
Individual share purchase price
17,940.00
Annual share price growth rate
5%
Individual share purchase price at year 5
Gross preceeds from sales (IDR)
Withholding tax (0.1%)
Net preceeds from sales (IDR)
Sales remitted to CEMEX (USD)
NPV of sales (USD)
Nottingham Malaysia
21806.18
1,810,959,813,117.00
181,095,981.31
1,810,778,717,135.69
102,022,528.97
49,200,679.48
April 2012
Slide 20

21. Real Option Analysis – Option to buy 51%
Positive NVP of USD 593 Million
Value of option to purchase additional 37% to gain controlling stake.
Annual Growth Rate at 8.2%
Individual share purchase price (USD)
1.89
Purchase cost (USD)
(572,215,276.37)
Terminal Value (65%)
1,802,952,541.47
Net cashflow
1,230,737,265.10
Net Present Value
Nottingham Malaysia
593,526,844.66
April 2012
Slide 21

22. Real Option Analysis
The parent cashflow has a positive NPV and thus profitable
NPV
= NPV of cash flow + (NPV of exit option)(probability)
+ (NVP of option to purchase additional shares)(Probability)
= -158,602,042.09+ 49,200,679.48 X (0.75)+
593,526,844.66 X (0.25)
= USD 26,680,178.69
Nottingham Malaysia
April 2012
Slide 22

23. Final Bid
No.
Item
Value (USD)
1
Cash offer of USD$1.38 as share for 14% stake
114,606,240.00
2
Port upgrading & capacity expansion
50,000,000.00
3
A five-year put option to the Indonesia government to sell its remaining
-
shares to Cemex at a base price of USD$ 1.38/ share plus an 8.2% annual
premium
4
Mutual consent on the operation of Semen Gresik. Cemex to be given
-
right to participate in the decision making of Semen Gresik’s operation
and investment.
TOTAL
164,606,240.00
The maximum share price will be set at a price of USD 1.72 per share.
Nottingham Malaysia
April 2012
Slide 23

24. Thank You
All rights reserved @ 2012