Investment project study at ESCP Europe Paris. This project has been done during my educational program of international project management at ESCP Europe Paris

1. Saint Gobain in Iran
MSP - Risks Analysis
Prof : E. Griette
Group : U2 - Green
Zélie Bosshardt
Long Hong
Tam Le
Fanny Natier
Mathieu Pierre

2. Country presentation : Iran
• 1,648,195 km2 Land Area
(2nd largest country in the middle-east)
(17th largest in the world)
• 81 million inhabitants
(18th most populous in the world)
• GDP 439 billions $ in 2018 (27th)
• 99,4% of the country is Muslim
• Government – Unitary
Khomeinist Presidential Islamic Republic
Source : World Bank

3. Saint Gobain Presentation
French firm specialized in the production, transformation and distribution of materials
Founded in 1665 under the name “Manufacture royale des glaces”, presence in 66 countries and employs in 2017 more than
180000 people
Revenue : 40,8 billions of euros (2017)
Operating income: 267 millions of euros (2017)
Global presence of Saint Gobain

4. MAIN COMPETITORS
Wacker Neuson
German company, founded in 1848. Global manufacturer of high-quality
light and compact construction equipment.
Employees: 5,064 in 2017
Revenue: 1,533 millions of euros ( 2017)
Boral
Multinational company founded in Australia, manufacturing and supplying
building and construction materials.
Employees: 15,994 in 2017
Revenue: 4,39 A$ billions (2017)
Operating income: A$ 267 millions (2017)
AGC Glass Europe
Belgian company, founded in 1961. International
glass manufacturer
Employees: 14,500 in 2017
Revenue: 4 millions of euros ( 2017)

5. SWOT ANALYSIS
STRENGTHS WEAKNESSES
- Pioneer worldwide for glass fabrication
- Strong branding and marketing exercises
- Strong commitment to environmental issues
- High number of research centers
- Brands are still establishing in the emerging
economies
- Risk of being a market leader
OPPORTUNITIES THREATS
- High growth rate of real estate sector
- Company can leverage operations across
sectors for higher sectors
- Continuous innovation and more research
- New customers from online channel
- Strong competition in the operating sectors
- Pricing wars might impact the business
- Fluctuating global economies can affect
international business
- SOURCES: XERFI, ECOLINE

6. Profitability Ratios
● ROE not very high, no alert needed on
the risk of the firm
But increase of ROE, maybe the firm is facing
more debts, or losses.
● ROCE is stable and rise a little
following the years, around 8 and 10%
of the capital is generated into
operating profits. But ROCE<WACC,
lack of profitability.
● Increase of ROS: the company is
growing more efficiently

7. Liquidity Ratios
● Current ratio beyond 1, the higher the
current ratio , the more capable the
company is of paying its obligations
● Quick ratio : less than 1. The company
may not be able to fully pay off its
current liabilities in the short term

8. Solvency Ratios
● Equity ratio : high equity ratio, the
company pays its bills on time,
conservatively managed
● Net gearing ratio : under 50%, always
between 40 and 25%. The company is
not at financial risk.

9. Country risk analysis for Iran : FITCH
● Inflation forecast upward
● Lower oil price
● ECONOMIC RISKHIGH
● Non WTO member
● FATF (Financial Action Task Force) blacklist● FINANCING RISKHIGH
● OPERATIONAL RISKLOW
● Labour market risk : lack of skilled workers,
higher cost
● Logistics: sanctions impact
● OPERATIONAL RISKMED
IUM
● COMMERCIAL RISKLOW
● Governments in Europe support
President Rouhani
● Breakdown in the agreement over the nuclear
(GDP growth forecasts sharply downward)
● U.S. sanction
● High unemployment
● POLITICAL RISKHIGH

10. Country risk analysis for Iran : COFACE
● Catch-up effect wanes: oil price
● High cost of living and corruption
● ECONOMIC RISKMED
IUM
● Limited FDI caused by U.S. sanction
● Restriction on the use of dollars of trade transaction
● FINANCING RISKMED
IUM
● Social tensions inside the country and with USA
● Waves of arrests
● Weaken government position: conflict between
regime & government
● POLITICAL RISKHIGH
● Diversify trading partners, signing a
range of cooperation with countries in
Eastern Europe and Asia
● COMMERCIAL RISKLOW

11. Country risk analysis for Iran : WORLD BANK
● High unemployment, lack of job creating growth
● Inflation (20%-31% for next 3 years)
● ECONOMIC RISKHIGH
● Global banks re-engagement with national banks, pressure
on invast investment
● Market exchange rate issue
● Debt issue, increasing borrowing cost and undermine the
sustainability of government finance
● FINANCING RISKMED
IUM

12. Country risk analysis for Iran : Euler Hermes
● Inflation >10% since 1990, except 2018
● Lack of diversification
● High unemployment rate (>12%)
● Heavily depend on oil and gas
● ECONOMIC RISKMED
IUM
● Payment
● Fiscal deficit worsened (-3.5% GDP on 2016)
● Few financing sources available (western banking)
● FINANCING RISKHIGH
● Conflict between the government and the theocracy
● Negative regional dynamics
● Nuclear deal - U.S. Sanction
● POLITICAL RISKHIGH
● Robust GDP growth
(+4% in 2016 / +3.8% in 2017)● COMMERCIAL RISKLOW

13. Cultural and institutional risks
● Corruption: serious problem in Iran, in
2017 ranked by Corruption Perception
Index 130 out of 180
Social tensions :
● In the country : waves of arrests,
high cost of living, high
surveillance by police
● With the USA: no diplomatic
relations, influence on the global
relations of the country

14. Cultural and institutional
risks
● Religion influence : politics and
religion are linked, theocracy
● Ali Khamenei is the current
Supreme Leader of Iran, the
highest institution for politics and
religion in the country
● Many historic shake-ups,
included the 1979
revolution
● Fragile republic
● Social tensions
● Unfavourable business
climate

15. Systemic Risks
Monetary Policy : medium risk
● No currency peg : Central bank has greater power
● Greater rial stability : reduce price pressure
● Milder depreciation : inflation will stabilize at 8%/year
Fiscal Policy & Public Debt : medium risk
● 9%/year increase in tax revenue + increase
hydrocarbons revenue : balance fiscal position
● Rising medium-term debt but decreasing long-term debt
Source : Iran Country Risk Report - BMI Research (Fitch Group)

16. Systemic Risks
Currency forecast : medium risk
● Short term : depreciation trend will continue
● Long term : rial will be as weak than in the previous 5
years but no big devaluation
● Removal of sanction : rebound in investment inflows
● Resumption in oil export : dollar flow to come
Source : Iran Country Risk Report - BMI Research (Fitch Group)

17. Political Risk
Complex theocracy
/ political system :
Supreme Leader is the highest
decisioner in the country and
is not directly elected by the
electorate

18. Political Risk
Nationalisation risk
2 LEADERS STRUGGLING WITH UNCERTAINTY FOR FUTURE
RELATIONS WITH OCCIDENT
• Rohani has been reelected in 2017 for 4 years. He wants to continue to
reintegrate Iran into international community. He was very close to
Barack Obama for cancelling Iran’s sanctions.
• Khamenei (in the left) is currently diagnosticted with a cancer and his
successor might be Ebrahim Raeisi (in the right) a very conservative
Imam and former rival of Rohani for the election.
He might become the most powerful man in the country.

19. Political Risk
Transfer Risk
The USA are preventing Iranians to buy
dollars.
Iran Banks are disconnected from the
SWIFT since early November 2018 (Society
for Worldwide Interbank
Financial).
The SWIFT shares informations and
transactions between 11 000 financial
institutions worldwide.

20. Political Risk
Sovereign Risk
Sovereign Rating (Fitch, 2018)
B+
The annual inflation rate in Iran jumped to 31.4
percent in September of 2018 from 24.2 percent in
the previous month. It is the highest inflation rate
since November of 2013.
US SANCTIONS
In 2018 president Donald Trump decided to
withdraw from the Iran nuclear accord of 2015 and
push economic sanctions
Companies trading with Iran could still be
designated as societas non grata by America.
Leading French companies, including Peugeot
parent PSA and oil group Total, have already
announced plans to curb their Iran activities.

21. Global Risks
Anti-globalization movement:
Huntington theory of civilization clash
1. Differences among civilization are too basics (language,
history, culture, tradition, religion).
2. World becoming a smaller place, interactions are
increasing.
3. Due to economic modernization, people are separated from
long standing local identity, and religion has replaced this gap.
4. Dual role of the West. The West is at a peak
of power. Non-western countries have the desire, the will and
the resources to shape the world in non- western ways.
5. Cultural differences are less easily compromised than
political and economic ones.
6. Economic regionalism is increasing.

22. Global Risks
World Economies risk
● Break up of the Eurozone
- BREXIT
- Anti euro / far right is rising in Italia, Greece, Eastern Europe
etc.
● USA Vs China Commercial war led by Trump politics
● Currency and Political Crisis in
Turkey and Brazil

23. Local Net Present Value
*Detailed calculation to the EBIT are available on the
attached excel sheet. M IRR stands for millions of Riels
The Net Present Value is negative and represents 34,6% of the initial investment

24. Local Internal Rate of Return
*Detailed calculation are available on the attached excel
sheet. M IRR stands for millions of Riels
The Internal Rate of Return is lower than the local Kwacc
We apply the interpolation method through simulations. We define:
● Kwacc1 the rate that gives NPV(Kwacc1) > 0
● Kwacc2 the rate that give NPV(Kwacc2) < 0
● NPV(Kwacc1) the NPV calculated with Kwacc1
● NPV(Kwacc2) the NPV calculated with Kwacc2

25. We asked Saint-Gobain former CEO
We had the opportunity to meet Jean-Louis Beffa, CEO of Saint-Gobain from
1986 to 2007 and current Honorary Chairman, at the Europe Day organized
by ESCP on November 16th, after his intervention at the conference
addressing the European economic identity.
We asked him the question about a potential investment in Iran :
“Regarding the current situation in Iran with the US embargo, it would be
very difficult for Saint-Gobain to justify a 2 billion € investment in the region
today. French industrial companies, business partners and clients are
decelerating their expansion in Iran or leaving the market, challenged by the
US economic sanctions threats”
Jean-Louis Beffa, Saint-Gobain Honorary Chairman

26. Investment Decision
POSITIVE
- Potential opportunities
- Low commercial risk
NEGATIVE
- NEGATIVE NPV
- IRR < Kwacc
- Very high political risk,
Example: US Embargo
- Medium to high financing
and economic risks
- No major opportunities
in
Iran in the upcoming
years
We do NOT
recommend to invest
in IRAN immediately