CEMEX

CEMEX

PESTEL ANALYSIS

PESTEL ANALYSIS

Industry Analysis

Threat of New Entrants

MODERATE

Threat of Substitutes

LOW

• Low barriers entry, capital intense

• Limited FDI by government

• Highly regulated

• Decrease the use of cement in construction

• Proportion to use other material in construction but more expensive

• Consumer is price taker because the demand of cement is high

• Company can own raw materials

• Concentrate supplier especially in China

• Strong multinational company, and many regional and national company

• Pace of acquisition• Pace to entry potential emerging market

ATTRACTIVEINDUSTRY

Source: International Energy Agency, “Cement Technology Roadmap 2009”.pdf

CEMENT INDUSTRY

The Cement Product

Ready Mix Concrete

Cement Aggregates

Market needs by construction stages development

Source: Lafarge AR 2009

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

Growth in World cement consumption

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

Facts• Emerging markets (notably China, India, Latin America, Central and

Eastern Europe, Middle East and Africa) represent 77% of the worldwide market

• The cement demand in a country is generally driven by the growth in per capita income. Demographic growth, industrialization and urbanization progress tend to trigger a rapid growth in housing and infrastructure needs, leading to increased cement consumption

• Cement is a product that is costly to transport over land. Consequently, the radius within which a typical cement plant is competitive extends for no more than 300 kilometers for the most common types of cement. However, cement can be shipped economically by sea and inland waterway over great distances, significantly extending the competitive radius of cement plants with access to waterborne shipping lanes.

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 STATISTICS FOR THE LEADING GLOBAL CEMENT COMPANIES FOR 2009

Source: Cementing the foundations of growth, International Finance Corporation, Michel Folliet

Cemex (million US) Lafarge (million euros)

Holcim (million US)

2008 2009 2008 2009 2008 2009

ROE 10.4% 8.6%

EBITDA 4080 2657 3.542 2.477 4.938 4.248

Net Income 1.409 2.278 1.939 1.046 1.650 1.350

Debt Ratio

Free Cash Flow 2.600 1.215 2.113 2.834 3.429 3.567

Sales 20.131 14.544 19.033 15.844 23.294 19.387

Ebitda Margin 20.3% 18.3% 18.6% 15.6% 21.19% 21.9%

Cement Sales 65 Mt 141 Mt 132 Mt

# of Country 25 45 44

Source: Annual Report 2009

• Cemex– Overvalued Rinker Acquisition that sale again to

Holcim– Nationalization Cemex Venezuela– Lack presence in Emerging Market– Debt maturity– Focus to increase market in maturity country

where low growth in cement demand

• Holcim– Plants in Europe and North America in particular

were shut down permanently – The successful acquisition of Cemex Australia – now

Holcim Australia – is a significant achievement. The transaction also included the increase in the shareholding in Cement Australia from 50 to 75 percent.

– capacity expansion program targeted at strategically important areas such as the plant expansions and new facilities in the cement sector were concentrated on growth markets, in particular the Indian subcontinent

• Lafarge– strategy focuses on opportunities in emerging

markets. 69% of the 2009 consolidated sales of Lafarge Cement Division came from these markets

– 3.1 billion euro reduction in net debt in 2009– Significant acquisitions• acquired several small-to-medium sized businesses

(India, Middle East and Greece)

– Significant divestitures in maturity and low growth market

Source: Cemex 2009 SUSTAINABLE DEVELOPMENT REPORT Source: Holcim, AR 2009

Source: Cemex 2009 SUSTAINABLE DEVELOPMENT REPORT

Source: Holcim, AR 2009

Source: Lafarge AR 2009

Cemex Globalization Strategy

PRA-Merger Integration

Post Merger Integration

Cemex Way

Source: www.cemex.com/MediaCenter/Files/Winning_Globally.pd

CORPORATEPARENT

Parenting Advantage in Cemex

CORPORATEPARENT

“CEMEX WAY”

20%Retained practices

80%Best practice (benchmarked

again local practices)

Parenting Proposition

ACQUIRED COMPANY

e- groups

Learning Organization (Culture)

Source Of The Problem

• Rinker Acquisition overvalued• Debt Maturity in 2008 & 2009• Homogenous BOD• Not focus in cement but chase aggregate market• Lack presence in emerging market• Too many different systems, practices, and

technologies, company risked becoming regionalized, instead of globalized—efficient

Goals globally

• Have more operations and more customers in more countries.

• A single platform of operation, and standardized business processes around the world.

• Aggressively share best practices throughout a well-integrated, global network.

• Develop an even stronger global brand, supplemented by a portfolio of product brands that are based in local markets.

• Increasingly flexible, increasingly capable, and increasingly diverse in management team

Expantion Strategy

• High Production and Demand

• Opportunity to acquired local companies

World expected cement demand by region

Source: Global Research: Egypt Cement Sector, Global Investment Hose, July 2009

Geographic Location

• L 6• H 6• C 6

• L 8• H 9• C 5

• L 15• H 6• C 2

• L 9• H 10• C 2

• L 2• H 2• C 1

• L 5• H 9• C 6

L : LafargeH: HolcimC: Cemex

LAFARGE HOLCIM CEMEXEurope France

UKGreeceSpainGermanyAustria

FranceUKSpainGermanySwitzerlandItaly

FranceUKSpainGermanyAustriaIreland

North America USCanada

USCanada

US

Central and Eastern Europe PolandRomaniaRussiaMoldaviaUkraineSerbiaSloveniaCzech Republic

Czech RepublicSlovakiaHungaryCroatiaSerbiaRomaniaBulgariaRussiaAzerbaijan

PolandCroatiaCzech RepublicHungaryLatvia

Latin America BrazilMexicoEcuadorHondurasFrench West Indies/Guyana

BrazilMexicoEcuadorEl SavadorNicaraguaCosta RicaColumbiaArgentinaChile

MexicoCosta RicaColumbiaPanamaDominican RepublicPuerto Rico

Geographic Location

LAFARGE HOLCIM CEMEXAfrica and Middle East Morocco

AlgeriaNigeriaIraqJordanZambiaEgyptUAESouth AfricaTanzaniaKenyaUgandaCameroonBeninMalawi

Morocco GuineaIvory CoastLebanonLa ReunionRepublic of Yemen

IsraelUEA

Asia ChinaPhilippinesMalaysiaSouth KoreaIndiaIndonesiaPakistanBangladeshVietnam

IndiaSri LankaIndonesiaBangladeshThailandSingaporeVietnamPhilippinesAustraliaNew Zealand

PhilippinesThailand

Geographic Location

Source: http://setis.ec.europa.eu/newsroom-items-folder/world-cement-production-2009/image

CURRENT SHARE OF CAPACITY OF THE MULTINATIONAL CEMENT MAJORS BY REGION

Source: FINANCIAL COMPETITIVENESS OF CEMENT COMPAREDWITH OTHER BUILDING MATERIALS, Cementing the foundationsof growth, J.P. Morgan, Estimates, Michel Folliet

Opportunity to entry

Opportunity to entry

FINANCIAL COMPETITIVENESS OF CEMENT COMPAREDWITH OTHER BUILDING MATERIALS

“cement remaining the

most profitable compare to different

building material segments”

Source: FINANCIAL COMPETITIVENESS OF CEMENT COMPAREDWITH OTHER BUILDING MATERIALS, Cementing the foundationsof growth, J.P. Morgan, Estimates, Michel Folliet

CEMENT PRICE RANGE BY COUNTRY IN 2009

Source: CEMENT PRICE RANGE BY COUNTRY IN 2009, Cementing the foundationsof growth, J.P. Morgan, Estimates, Michel Folliet

AVERAGEPRICE

lower absolute cost and a lower opportunity cost

Recommendation:

• Restructurisation of debt maturity (divestiture asset, financial agreement with stockholders)

• Presence in BRIC and other emerging countries

• Flexible PMI to handle cultural and language barriers