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Copy of CEMEX Presentation

CEMEX Cement
by

Emily James

on 22 November 2013

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Transcript of Copy of CEMEX Presentation

MEXICO
Country Profile
The CEMEX Way
Internationalisation
Risk
MEXICO CEMEX
• Mexico is a constitutional republic in North America.
• It comprises of 31 states and a federal district (Capital City)

• It covers 760 thousand square miles and is the 13th largest country in the world.

• Bordered by the United States to the north and Belize and Guatemala to the south.

Economics & Politics
• Current president is Enrique Pena Nieto

• One of the world’s largest economies as it is one of the largest oil producers and the largest silver producer in the world.
• Tourism: 5th biggest source of revenue and is predicted to jump to 3rd by the end of 2018.

• Despite 6200 were killed in the first 18 months of Enrique Nieto’s administration due to drug related incidents.

Economics
• Tourism generated $12.7 billion in foreign exchange inflows in 2012 due to influx of ‘spring breakers’ in resorts such as Cancun ( JPMorgan Chase & Co)
• Mexico is considered an upper middle income country by the World Bank.

Company Background:
Cementos Mexicanos
• 1906: Founded by the grandfather of the Chief executive, Lorenzo Zambrano
• 1931: Cementos Hidalgo & Cementos Portland merged to make CEMEX
• 1976: Company went public on Mexican Stock Exchange
• 1989: top ten largest cement companies in the world
The CEMEX WAY:
controlled fund allocation and forward-looking growth strategy
• Chief executive: Lorenzo Zambrano
• Constantly evolving their flexibility,
creativity, sustainability and efficiency
• Enhancing Value Creation
• Managing their Carbon Footprint
• Long-term relationships
with key stakeholders
Philosophy
• Sustainability Model

• Risk Management

• Materiality Analysis
CEMEX TODAY
Figures :
Annual sales : US$14.98 billion
Employees Worldwide : 44,000
Production Capacity : 96M tons
Annual Production Levels: Aggregates-159M tons
Concrete-55M m3
Geography
Geography
Demographics
• In pre Columbian Mexico there were many civilisations
such as the Toltec, Olmec and Aztec before the Spanish Empire conquered it in 1521.

• Today: population of 113 million, growing at a rate of 1.2%.

• Population density of about 57 people per square km, most of the population situated around the main cities in the centre particularly Mexico City which has a population of 8.9 million.

• The national language is Spanish but 5.4% of the population are said to speak indigenous languages, 1.2% of these are said to be mono lingual.

• About 300,000 Mexican migrants settle in the U.S each year,
half of which are undocumented.

Demographics
Laying the Groundwork; CEMEX Actions Pre 1992
• 1982 : 6,500 employees
• $275 million revenue recorded
• Between 1987 and 1989, spent $1 billion on
solidifying domestic economy position
• Began 'exploring,' opportunities in foreign markets
• Invested in a satellite communication system; CEMEXNET
• In 1989, became largest Mexican cement producer
• Threat: Competition from Holderbank (Holcim)
• Confronted by trade sanctions in the US

Growing Up; CEMEX Between 1996 and 1998
• 1996:moved into the Colombian market
• 54% acquired in Cementos Diamante for
$400 million
• 1997: Expanded into the Philippines
• 1997: Acquired 70% of Rizal for $218 million
• 1998:CEMEX decided to target Indonesia by acquiring a 14% stake in Semen Gresik for
$115 million

Growing Up;
CEMEX Between 1996 and 1999
1999: expanded into the Chilean market
1999 saw CEMEX move into the Egyptian market
CEMEX acquired 77% in Assiut Cement Company, the market leader at the time, for $370 million

Stepping Up;
CEMEX after the Millenium
• 2005: acquisition of RMC, UK based company,
first acquisition of a diversified multinational
• Big step for CEMEX :
created a lot of potential for the company
• Very successful with RMC
• CEMEX acquired Rinker, analysts questioned whether or not they could do the same as they did with RMC by implementing the 'CEMEX Way'

Have CEMEX followed a logical progression?
• The acquisitions followed the market and
generated a lot of market share for the company
• Put them in competition for market leader positioning
• Questions could be asked about
whether CEMEX goals were met
• Aim was to become market leader in each economy and hold a monopoly stake in the market; 25%
• CEMEX also targeted 100% stake in any given company they acquired

"Has the internationalisation process of CEMEX
since 1992 followed a logical progression?"
Stepping Out;
First International Acquisition
• 1992: acquired two Spanish companies;
Valencianna and Sanson, for $1.8 billion
• Spain was one of Europe's largest cement markets at the time
• Strategic response to Holderbank's (Holcim's)
growing market share in Mexico
• "Major European competitors had a very strong position in
Spain and the market had become important for them."
• Gave CEMEX a foothold in the European market
• Domestic interest rates were at 40%
• Also saw an increase in operating margins of 17%

Stepping Out; Expansion into
South America
• In 1994, acquired a 61% stake in Venecemos
for $360 million
• Seemed an illogical move due to market at the time
• Operating margin increased by 32% but saw a decrease in 1998
• By 1998, 12% of CEMEX earnings came from Venezuela
• Also acquired controlling stakes
in the largest cement
producers
in countries :Costa Rica,
the Dominican Republic and Panama

CEMEX Internationalisation timeline
RMC Group
Ready Mix Concrete Ltd
• Founded in 1930
• UK-based multinational ready-mix concrete, quarrying and concrete products company
• Created Thorpe Park

RMC Acquisition
• 1st March 2005 CEMEX finalised its $5.8billion acquisition of RMC
• Largest ever acquisition and it’s first for 3 years
• Had to pay a 39% premium
- Markets didn’t react favourably

- Share price dropped 10% within hours

- Moody’s potentially put CEMEX on Credit Watch

Challenges of RMC
• Size of operation
• Financial insecurity of RMC
• Cultural differences
• Difficulty in integrating into Developed Economies
• Increasing concern on the part of individuals and governments with the potential impact of cement production

Risky?
• Country-Specific Advantages
-Developing economy
- Thrive in difficult markets
-Faced strategic risk before
What is risk?
• “A situation involving exposure to danger”
• Risk Management is the “Management of property, casualty, liability risks all with the intention of avoidance of loss”
• -Operational Risk Management
- Strategic Risk Management

Operational Risk Management
• A formal process, mapped out
in engineering detail

• Clear assignment of
responsibilities

• Measurement of outcomes
These three elements are the core of how
The CEMEX Way is applied to Risk Management.

Strategic Risk Management
• “Objective at the most basic level is to secure
the firm’s viability and maximise it’s economic value rather than simply to limit or reduce it’s risk.”
Risk Management is deeply embedded into the company’s strategic processes

• Not just on an Operational Level

How CEMEX managed risks using Operational Risk Management
• Structural Change
• Behavioural Change
• Cognitive/Emotional Change

Risky?
• Firm-Specific Advantages
- Embrace rather than avoid specific risk
- The CEMEX Way and other core competencies
give CEMEX a source of competitive advantage
- Managing risk is embedded into the company’s
culture


Conclusion
Thank you for listening
Questions?
• What is the CEMEX way?

• Has the Internationalization process of CEMEX since 1992 followed a logical progression?

• Would you consider the acquisition of RMC in 2005 too risky?

Presentation Outline
Country analysis
The CEMEX Way
CEMEX between 1992 and 2007
The progression and internationalisation of CEMEX
RMC acquisition
Risk Management
Conclusion
Aidon Ford, Emily James, Harry Wake, Tim Blake, Sophie Bower
Mexico and CEMEX
Full transcript