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Cemex: Strategy for Entering Brazil

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Alex Cartlidge

on 22 April 2010

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Transcript of Cemex: Strategy for Entering Brazil

Body Executive Summary Cemex: Strategy for Brazil Entry Alex Cartlidge
Bill Lustig
Lauren Powell
Sunghye Cemex: Where to Now? We advocate entry into the expanding Brazilian
market through a joint venture with CSN. Cemex, based in Mexico, is the third-largest cement company in the world History Founded by Lorenzo Zambrano as Cementos Hidalgo in 1906
Grandson CEO, Chairman
1931: merged with Cementos Portland Monterrey
renamed Cementos Mexicanos = CEMEX S.A.B de C.V.
Acquisitions 1966: Cementos Maya
1973: Cementos Portland del Bajío
1976: Cementos Guadalajara
1987: Cementos Anáhuac
1989: Cementos Tolteca
1992: Valencia and Sanson (Spain)
1994: Vencemos (Venezuela)
Cemento Bayano (Panama)
Balcones (US)
1995: Cementos Nacionales (Dominican Republic)
2002: Puerto Rican Cement Company
2007: Rinker Materials Finances Revenue: $14,544.2 billion
Gross Profit: $4,274.2 billion
Gross Profit Margin: 29.4%
Operating Margin: 8%
Net Profit Margin: .8%
Current Debt: Approx $15 billion

-Already in a majority of Central America and some factories in South America
-Going into Peru with Blue Rock Cement Holdings S.A.
-Often criticized for not being internationalized enough as other global competitors start to reach into developing nations.
Brazilian market for cement increasing:
Need for 55 million tonnes for 2010
Rise of new middle-income group
World Cup, Olympics Macroenvironment: Recession caused global downturn, but growth is expected to recover within two years

Developing nations are actively growing, while developed nations are stagnating

BRIC Nations (Brazil, Russia, India, China) are growth leaders, due to expanding infrastructure and middle class
Industry Analysis Slightly lower than average profitability
Average Profit Margin: 6% Total Revenue
Five Forces Buyer Power:
Not a large degree of differentiation possible
Oftentimes regional blocs limit buyer choice
Supplier Power
Cement composed of very basic, widely available ingredients (see CSN/Cimpor)
Large companies can be aggressive in defending their market share
No real substitutes available - steel & other construction materials are compliments
Entry Barriers:
Can be high for firms just starting out, as massive economies of scale have driven prices down.
Retribution factor can be high (again, see CSN/Cimpor)
HQ: Switzerland
Revenue: 23.8186 Billion
Profit Margin: 2.1077 Billion (8.849%)
HQ: France
Revenue: 22.7549 Billion
Profit Margin: 1.4984 Billion (6.585%)
HQ: Germany
Revenue:15.5974 Billion
Profit Margin:0.2345 Billion (1.504%)
Global Competitors Brazil Move into 5th largest and 5th most populous Economic The largest national economy in Latin America
The world's tenth largest economy
FDI reserves of $24,575 million
Laws related to Foreign Investment in Brazil:
Article 1 of Law 4.131/62 – Goods, machinery and equipment entering Brazil without an initial outlay of foreign exchange, for use in producing goods or services, as well as financial or monetary resources brought into the country for investment in economic activities, provided that in both cases they belong to natural or juridical persons resident, domiciled or having an office abroad”. Why Brazil? Economy is recovering quickly and
is poised to require 55 million tons of
cement in 2010.
World Cup and Olympics are coming,
construction projects are inevitable.
Lafarge, a major competitor, is actively
seeking opportunities to enter Brazil

Cemex v. Brazil Cemex
Revenue: $14,544.2 million
Gross Profit: $4,274.2 million
Gross Profit Margin: 29.4%
Operating Margin: 8%
97 million tonnes
Mexico: 29.2 million
Net Revenue: $4.2 billion
20.8 million tonnes
40% market share
Net Revenue: $1.14 billion
10.2 million tonnes
9% market share

Votorantim Cement 1918: The Votorantim Group textile company in Votorantim, São Paulo State
Diversified: cement, metals and steel, energy, pulp and paper, concentrated orange juice, electricity
1936: Cement in Votorantim Acquired St. Mary’s Cement in 2001
Brazil, U.S., Canada, Bolivia, Chile
Camargo Corrêa Cimentos S.A. 1939 in São Paulo, Brazil
Goes under the name of Cauê, Cimento Brasil
Publicly traded
In Argentina as Loma Negra. Paraguay, Angola
Cement/concrete, construction, engineering,
energy/highway/railroad concessions; footwear,
steelmaking, real estate
Recently opened Mário Covas Ring Road
Companhia Siderurgica Nacional (CSN) Began as state-owned company in 1941, privatized (92%) in 1993
Nearly full vertical integration is a relic of government ownership
CSN owns its own high-quality ore mines, railroads, and ports.
Its steel plants are energy self-sufficient
Largest Brazilian steelmaker
Revenue: 6.2 Billion
Has pursued entrance into cement manufacturing
Constructed cement plant in summer 2009 on the grounds of its Rio steel plant
Sought to purchase Cimpor (Portuguese cement manufacturer with assets in Brazil) in December 2009
Was repulsed by joint effort of Votorantim Group and Camargo Correa
Still actively pursuing cement manufacturing opportunities
Cimpor 1976: Cimpor – Cimentos de Portugal
2001: becomes a private company
First moved into Spain through acquisitions
Morocco, Tunisia, Egypt, Turkey, Brazil,
Mozambique, South Africa, Cape Verde, India, China
Bought CEMEX’s assets in Canary Islands
Produces 6.4 m tonnes per year
33.5 million tonnes/year worldwide
Revenue: $816 million Entry Strategy We propose that CEMEX enters into a joint venture with CSN to manufacture cement at their Rio plant, with the possibility of becoming equity partners in the construction of new plants and mines.
CEMEX is currently restructuring debt, limiting expansion and capital expenditure.
CEMEX operates plants in many countries, suggesting local production is generally preferable to trade.
Brazilian cement market is important
Growing middle class
2014 World Cup, 2016 Olympics
CSN has already invested capital in construction of plant, is interested in possibly constructing additional plants
CSN is a construction materials supplier and will therefore have standing relationships with buyers
CSN facilities have access to company owned infrastructure (railways and ports)
Strategic Plan After partnering with CSN, aid in
agressive expansion and vertically integration.
Draw on CSN's contacts with builders
and position as lead steel-maker
Build capacity (current plant is around 2.4
million tons/year) to be able to accomodate
World Cup and Olympics contracts. Implications Cemex is a leader in environmentally-friendly production
and CO2 labeling, and plant already exists, so environmental impact
will be low.
Will not add to development of Brazil, just satiating a need that is
a result of Brazil's development. Opportunities Great opportunity for Cemex to enter vital Brazilian market with low exposure. Build familiarity with Brazilian market, which is a new Latin American experience because
of Portuguese background.
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