Global Strategy Of Cemex 4t4yv

IBS Project

EPGDIB 2011-12 Batch

Submitted By: Group - 11 Nilesh Kothari Amrita Tripathy Aloke Sharma Abhishek Jain

- 41 - 07 - 04 - 02

History and Background  CEMEX is one of the world's largest building materials suppliers and cement producers. Founded in Mexico in 1906, the company is based in Monterrey, Mexico. CEMEX has operations extending throughout the world, with production facilities spanning 50 countries in North America, the Caribbean, South America, Europe, Asia, and Africa. About one-third of the company's sales come from its Mexico operations, a quarter from its plants in the U.S., 15% from Spain, and smaller percentages from its plants around the world.  CEMEX currently operates on four continents, with 66 cement plants, 2,000 ready-mix-concrete facilities, 400 quarries, 260 distribution centers and 80 marine terminals.[The company's world headquarters are in San Pedro Garza García, a city that is part of the Monterrey metropolitan area in the north-eastern Mexican state of Nuevo León.  In 1992, CEMEX began its push into the international landscape with the purchase of Spain's two largest cement companies, Valenciana de Cementos (Valcem, currently head of CEMEX Spain) and Cementos SANSON. Venezuela's largest cement company, VENCEMOS, was acquired by CEMEX in 1994, plants were purchased the same year in the US and in Panama. In 1995 CEMEX acquired a cement company in the Dominican Republic, and with the purchase of a majority stake in a Colombian cement company in 1996, CEMEX became the third largest cement company in the world. In 1997-1999, the company expanded its scope to include Asia and Africa, making major purchases in the Philippines, Indonesia and Egypt, as well as Costa Rica. The acquisition of U.S. based Southdown made CEMEX the largest cement company in North America, and further international purchases were made in the following two years—a Thai company in 2001, and in 2002, a Puerto Rican company.  In2005, CEMEX acquired London-based RMC Group at $5.8 billion which made CEMEX the worldwide leader in ready-mix concrete production and increased its exposure to Europe.

Specification of Core Business Strategy  BUSINESS – Building material – Cement, Ready Mix

concrete  REGION/COUNTRY - Mexico, USA  Date Completed - 01.12.2012

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1. BUSINESS DEFINITION – To maintain the world leader position in Providing customized building material solutions Globally by Sustainable development, operational efficiency and opportunistic diversification through continued acquisitions.

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Customer Needs Addressed: CEMEX provides solutions for home and commercial construction, improvement, and renovation to infrastructure, agricultural, industrial, and other specialty applications. It fosters long-term customer relationships by providing them with reliable, high-quality service and consistent product quality and constantly adapts to its customers’ needs through innovative products and financing schemes, providing them with solutions for the challenges they face in their specific market and business climate. Technologies Used: CEMEX’s Global Center for Technology and Innovation is in Switzerland and their laboratories work to develop more efficient and sustainable products and processes that meet customer needs for more sustainable building materials. As a result of research and development efforts, a range of innovative products being developed that can be used to design and construct more energy efficient, sustainable, and accessible buildings.The following product innovations help to improve the sustainability of buildings and other structures: Insulating concrete forms, made primarily from polystyrene and filled with concrete to help keep heat out in hot climates and to retain it in cold weather. Self-compacting concrete, which has a dense formulation, improves the strength, durability, and life of a structure, while reducing labor costs, energy use, and health risks during construction and maintenance costs throughout its life. Pervious concrete, which allows rainwater to filter through, reduces flooding and heat concentration by up to 4°C, and helps to prevent skidding on wet roads. Rapid-setting concrete, which contains up to 80% fly ash, is a low-carbon alternative to conventional concrete. Concrete with high acid resistance is robust and durable for uses such as cooling towers or for storing silage on livestock farms. Antibacterial concrete, which controls bacteria growth, is used to help maintain clean environments in structures such as hospitals, laboratories, and farms.

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 Customer Segments Served: Housing / Residential, Institutional / Commercial, Infrastructure/Urban, Specialty.

 Products Offered: Cement, Aggregates, Concrete, Trading  Geographic Scope – Presence across all the continents, almost 50 countries.

2. STRATEGIC THRUST  Direction: Grow in expanding emerging markets and maintain the existing presence in developed countries.

 Rate: The world’s need for housing is urgent and unrelenting. According to the United Nations: Worldwide, an estimated 1.1 billion people in urban areas alone live in inadequate housing. Between 2000 and 2030, urban areas in developing countries will absorb 95 percent of the world’s population growth. During the last decade, the annual need for housing in developing countries’ urban areas was an estimated 35 million units.

Nearly 95,000 new urban housing units must be constructed each day in developing countries in order to relieve overcrowding and substandard living conditions. The market scope is for building affordable housing and better, more modern, and durable community infrastructure such as roads and sidewalks, schools, hospitals, parks, and other public spaces. Considering above facts if expanding markets of developing countries is properly approached then the rate of growth can be expected to be at least 15 % even in presence of Global and local competitors’ presence in these countries.

 Performance Priorities: 1st Maintaining Lowest Cost 2nd Maintaining Quality and services to Global level 3rd Continual Improvement & Innovations and sustainable developments

 3. FINANCIAL TARGETS – Revenue Target of 20 Billion dollar as per 15 % growth defined above in emerging markets.

Size of business  Worldwide Presence Presence in more than 50 countries

worldwide Annual production capacity of more than 96 million metric tons of cement Annual production levels of approximately 55 million cubic meters of ready-mix concrete and more than 160 million metric tons of aggregates 61 cement plants, 1,921 ready-mix concrete facilities, and a minority participation in 12 cement plants 377 aggregates quarries, 226 land-distribution centers, and 70 marine terminals

SOURCES OF COMPETITIVE ADVANTAGE  Patents Name of Company CEMEX Trademarks Worldwide

No of Patents 2

Ltd. Brugg Bei Biel, CH

Details 1) Process to produce Portland cement clinker 2) Clinker and white Portland cement with a high sulfur content

CEMEX UK Operations Ltd

1

Wall lining method and system

CEMEX Research Group AG

2

1) Concrete & mortar additive, process for the preparation 2) Universal hydraulic binder based on fly ash type F

CEMEX, Inc.

5

1) Concrete pavement system and method 2 ) Apparatus and method for injecting waste tires through the burner end of a kiln 3) Rapid hardening hydraulic cement from sub bituminous fly ash and products thereof

4) Apparatus for oxygen enrichment of cement kiln system 5) Oxygen enrichment of cement kiln system combustion

Depth of product line Cement  Gray Ordinary Portland Cement  White Portland Cement  Masonry or Mortar  Oil-well Cement  Blended Cement

Aggregates  Crushed Stone and Manufactured Sand

These products are obtained by mining rock and breaking it down to a preferred size. In the case of manufactured sand, the product is obtained by crushing rock to the selected shape or texture, ensuring product and project specifications are met. Sources of crushed stone can be igneous, sedimentary, or metamorphic.  Gravel

Gravel deposits are produced through a natural process of weathering and erosion. It can be used for roads, for concrete manufacturing, or for decorative purposes.  Sand

Sand occurs naturally and is composed of fine rock material and mineral particles. Its composition is variable depending on the source. It can be used for roads, for concrete manufacturing, or sanitation.

Types of Concrete  Recycled Concrete

 Standard Ready-Mix Concrete  Architectural and Decorative Concrete  Rapid-setting Concrete

 Fiber-reinforced Concrete  Fluid-fill Concrete  Roller-compacted Concrete

 Self-consolidating Concrete (SCC)  Pervious Concrete  Antibacterial Concrete

Other products  Asphalt - a wide range of cost effective, high performance asphalt products, from our standard hot mix asphalt, which is made by combining crushed stone with liquid asphalt cement, to highly technical products that can be used on major highway systems, driveways, commercial parking lots, or rural country roads. Designed for consistency and

reliability, our asphalt products are designed to withstand different weight loads, traffic volumes, and weather conditions.

 Concrete block Standard concrete block—sometimes referred to as gray block, concrete masonry unit (CMU), or cinder block—is one of the most practical and long-lasting materials

used in building. Its strength, durability, and versatility, including its energy efficiency, excellent fire and high wind resistance, and noise insulation, make concrete block a compelling alternative to many other building materials.  Roof tiles We offer a comprehensive range of concrete roof tiles and fittings, designed to meet the requirements of most roofing applications. Available in a wide selection of sizes, shapes, and colors, our roof tiles serve residential and commercial needs.

Other Products Contd..  Architectural products - Its high-end architectural concrete

products offer a range of styles for different building or landscaping projects. Specialty rock products, as well as architectural block, in an array of colors, sizes, and textures, take our customers’ design to a new level. Block paving solutions and decorative paving provide an ideal range of applications for any hard landscaping project.  Pipe – CEMEX designs and manufactures standard and

special concrete pipe for various applications such as storm and sanitary sewers. Offered in diverse types, sizes, and lengths, pipe products meet or exceed applicable standards and customer requirements throughout different operations.  Other precast products Among other precast products, it

offers rail products, concrete floors, box culverts, bridges, drainage basins, barriers, and parking curbs.

 Research capability  Global Center for Technology and Innovation in Switzerland houses a state-of-the-art research laboratory. This laboratory has a unique and broad range of investigation tools and novel in-house testing methods that are available to the CEMEX community. Its research center has considerable expertise in the following areas: new and enhanced construction materials; sustainable construction; cementations materials (cement, fly ash, and slag); concrete and mortar products; ixture formulations; and aggregates.

Product or service quality  Won various National and International Awards for High Quality products offered by CEMEX world over.  2009

United Nations's Habitat Business Award in the category of Accessible Housing Solutions for Patrimonio Hoy and Centros Productivos de Autoempleo; CEMEX was also recognized in the UN Habitat Scroll of Honour UN Habitat  2008

Contribution for the Implementation of a quality culture National Office of istration and Personnel (ONAP)

Alignment of offering with critical needs of customers  ATM-like Bulk Cement Dispatch

System This service offers our customers greater flexibility and efficiency. It enables them to get cement at their convenience, shortening their logistics schedules by minimizing loading and unloading times and also cutting back on more traditional transactional practices.

Access to lower cost or more effective factors of production 

Carbon Strategy

 Climate change is considered one of the most critical global challenges. CEMEX acknowledges the local and global challenges posed by climate change, and is committed to applying skills, technologies, and determination to reduce the contribution of their operations and the industry to climate change.  The global cement industry produces about five percent of all manmade CO2 emissions.1 This greenhouse gas is generated chiefly in the production of clinker (the main ingredient in cement). Clinker is produced in large rotary kilns by processing limestone, clay, and other minerals under very high temperatures (>1,400 °C or 2,500 °F). CO2 results from the fuel combustion required to achieve such high temperatures and from the chemical decomposition of limestone into lime and CO2. Compared to these emissions, other sources, mainly the transport of raw materials and final products and emissions related to the generation of electricity that CEMEX consumes, are very small, but still offer an opportunity to reduce our total footprint. CEMEX is focusing on following as a means to reduce environmental damage      

Alternative Fuels Renewable Energy Alternative Raw Materials Energy Efficiency CO2 Disclosure CO2 Offset Mechanisms

Unique manufacturing technology  High Scale Infrastructure

The intelligent use of concrete as a building material can reduce key environmental impacts that contribute to climate change and other significant environmental issues. Concrete's inherent properties—extreme durability, rigidity, and high reflectivity—make it ideal for large scale infrastructure projects. Concrete pavements, as compared to those built with asphalt, offer the following potential benefits: Greater Durability: Since concrete pavements can be designed to last over 40 years, concrete is the best long-term pavement solution.

Better Traffic Flows: The durability of concrete minimizes the need for extensive repairs or annual maintenance of roads and highways, thereby avoiding traffic problems for their s. When repairs are necessary, they are typically smaller in scope than those for asphalt pavements. Reduced Life Cycle Costs: Although the initial investment in concrete pavements is marginally higher than asphalt pavements, concrete pavements require less maintenance over their lifetime, making them the more cost-effective solution.

Reduced Temperature: Concrete pavements provide reflective surfaces that minimize the "urban heat island" effect. Their lighter color has higher solar reflective qualities—albedo—making the environment up to 15°C cooler than asphalt pavements. Better Light Reflection: Concrete reflects 33 percent to 50 percent more light than asphalt. This is especially important for driving safely at night and for reducing street lighting costs. Reduced Rolling Resistance: Due to its rigidity, concrete paving offers significantly less resistance for a vehicle's wheels to roll.

Consequently, concrete paving requires lower fuel consumption for vehicles traveling faster than 30 km/h, compared to a flexible pavement such as asphalt. On any given roadway where concrete is used, the higher the traffic volumes, the greater the savings in fuel consumption. Increased Safety: Concrete pavements reduce the probability of road accidents. They not only provide better visibility at night, but also are easily textured during construction to create a surface that provides superior traction and a quiet ride.

Vertical Integration  Affordable Housing CEMEX’s housing strategy is designed to address the significant housing deficits in developing countries, chiefly Mexico and the countries of South and Central America, the Caribbean, and Asia. Our goal is to demolish building and development paradigms that limit the affordability of home ownership for low-income families by establishing cooperative relationships among low income communities, government agencies, developers, and the financial sector.

 Working with communities CEMEX’s low-income housing strategy is based on the notion that lower-income people are capable of paying for their own homes. Through their financing programs, including private microfinance, it enables low-income individuals and communities to buy building materials on favorable as a step toward homeownership. CEMEX then provides training programs, equipment, technology, and their expertise to help customers build homes, businesses, and stronger communities.

 Working with developers CEMEX works hand-in-hand with private developers to bring needed resources, technology, and know-how to the development of low income housing. Where public policies facilitate financing to low income home buyers—such as Mexico and Colombia—developers have shown avid interest in the low-income segment of the housing market. Their has helped to significantly boost the supply of housing. More financing is needed, however, in order for small and medium-sized developers to make further progress. To encourage developers to build more and better housing, it provides through the CEMEX Vivenda initiative. Through this partnership it provides assessment, expertise, and introduce construction systems and financial programs that benefit both the developer and the end-, promoting the building of more sustainable communities and more affordable housing that offer a higher quality of life. As of today, the CEMEX Vivienda initiative has ed developers’ construction of approximately 5,000 houses throughout Latin America.

 Operating efficiency – The Shared Service Center centralizes high-volume

transactions in one of three centralized hubs, which provide end-to-end, value-added customer-oriented processes. The centers permit simple, scalable, and flexible local decision making guided by corporate rule making. This strategy allows us to mobilize global initiatives much faster, in parallel rather than in sequence.

 Access to distribution channels - Supply chain diversity is a key

consideration for our organization; it allows to answer the needs of final clients more efficiently. Additionally, it enjoys a wider range of options that allows it greater flexibility to compete in a constantly changing market, providing the most effective and efficient ways to satisfy market needs.

 Physical distribution capability –

CEMEX partners with cement distribution network to offer customers an extensive range of brand-name products at competitive prices. Its retailers also receive integral training to better manage all aspects of their business—including inventory management, product promotion, sales force programs, and product-delivery and sourcing logistics.

Technical Strength • It strives to provide its customers with top-level technical assistance through state-of-the-art equipment and highly professional, well-trained technical services staff. It goes the extra mile and provide value above and beyond fulfilling its customers’ need for cement, aggregates, ready-mix concrete, and related products such as mortar. • In each market and locality in which it operates does its best to provide its customers with the most compelling integrated building solutions. For example, to solve infrastructure needs in major cities, it not only provides ready-mix concrete, but also designs the project, defines the best technical solution, offers different financial schemes, and executes the project in collaboration with local builders.

 We suit our customers’ needs by providing them not only with high quality and tailor-

made products, but also with the most reliable and cost-efficient service. For inquiries, your local CEMEX representative.

Customer Service  24/7 LOAD®

CEMEX ‘s delivery service offers customers the ease of receiving products whenever they need them, allowing its customers to optimize their project schedules according to their specific needs.  Construction Financing Services

Customers can receive financing on certain projects and product purchases through various innovative financing programs that vary from country to country. For example, our UN awardwinning low-income housing program, Patrimonio Hoy, has assisted more than 260,000 families with affordable services and building materials through financing mechanisms and technical assistance. Additionally, in certain countries such as Mexico, we offer turn-key solutions for developers and partner with governments and local authorities to identify, coordinate, and develop public infrastructure projects.  Online Services

Customers have all day online access to information, from balances to new products and services releases. They can place online cement orders, and in some countries, they are able to review their order status at any time during the day or night. The online service is also an open communication channel to receive from our customers.

Superior Financial Resources  Debt, Private placement Notes and Equity being financial resources.  On September 17, 2012, CEMEX announced that it has successfully completed the previously announced refinancing of its Financing Agreement, dated as of August 14, 2009, as amended.  Pursuant to the refinancing, participating creditors representing approximately 92.7% of the aggregate principal amount outstanding under the existing Financing Agreement agreed to extinguish their existing loans and private placement notes and to receive in place thereof: approximately U.S.$6.155 billion in aggregate principal amount of new loans and new U.S. Dollar private placement notes issued pursuant to a New Facilities Agreement and a New Note Purchase Agreement, both dated as of September 17, 2012; and U.S.$500 million of new 9.5% senior secured notes due 2018, issued pursuant to an indenture dated as of September 17, 2012, which notes were delivered by the exchange agent to recipients.  Upon transition to IFRS, deferred financing costs under MFRS associated with CEMEX’s Financing Agreement for approximately US$514 million did not meet all the requirements for capitalization and deferral under IAS 39 and were immediately recognized upon transition against retained earnings, decreasing CEMEX’s deferred charges under IFRS.  In connection with this adjustment, for the nine‐month and the three‐month periods ended September 30, 2011, the amortization of deferred financing costs under IFRS recognized in the statements of operations decreased for approximately US$125 million and US$40 million, respectively, as compared to the amounts recognized under MFRS.

Debt Information  Debt information as of September 30, 2012  Debt under Financing Agreement & New Facilities Agreement  U.S. Dollar and Euro Denominated Notes**  Mexican Peso Denominated Notes

 WC lines & other bank debt  Total debt  Perpetual Notes**  Total debt plus perpetual notes

 Consolidated funded debt/EBITDA*  Interest coverage*

6,594 10,054 44 488 17,180 471 17,651 5.98 2.03

Important Sources of Competitive Advantage of CEMEX  Research and Innovations  Information technology  Tailor made Solutions & Product variety

 Strong Distribution network due to Global Presence  Operational efficiency  Sustainable Development  Customer Service  Vertical Integration and technical

Strategy Elements  Technology - At CEMEX, sustainability is incorporated in its strategy and its day-to-day operations. The goal is to provide building solutions that meet the needs of a resourceconstrained world, to minimize the ecological footprint of its operations, and to foster closer relationships with its stakeholders.

Among its priorities, CEMEX looks to take the lead in sustainable construction through the development of products, services, and building solutions for a low-carbon economy. It also actively participates in low-income housing programs and high-scale infrastructure projects. Moreover, as part of efforts to reduce ecological footprint, they increase use of alternative fuels and raw materials, improve energy efficiency, and contract renewable power where feasible. Additionally, optimizes air quality, waste management, and recycling; diminish disturbances from noise and dust; and implement biodiversity action plans at its quarries.

 Manufacturing & operations : It constantly look for ways to reduce our costs and

maximize operating efficiency. In a rapidly changing, challenging global business environment, it continually adapts global operations network to meet current market dynamics. They are also seizing every opportunity to drive down costs at both the operating and corporate levels. As a result of their transformation process, they achieved a recurring improvement of steady state EBITDA of US$150 million in 2011. In addition, expects an incremental improvement of US$200 million in 2012, reaching a run rate of US$400 million by the end of that year.

 Distribution – Covered in Slide no 12  Customer Service – covered in Slide no. 19

Competitive Strategy  Competitors Lafarge –

Lafarge’s Global market has improved much more in last decade in developing countries like India and other Asian countries so Entry and expansions in developing countries emerging markets with its Tailored products and lowering costs.

Heidelberg – It has taken over Hanson, one of the leading aggregates

companies worldwide and improved its position as a global, integrated supplier of building materials so Product differentiation in Aggregates considering costs in Global markets and Acquisition of Lowest cost Aggregate producer in the world should be the strategy adopted by CEMEX.

Holcim- Holcim’s focus is on Geographic diversification, Standardization and

Operational efficiencies in Manufacturing and Distribution so CEMEX has to use all its IT tools and techniques for achieving highest operational efficiencies at lowest cost. Recently CEMEX has signed a strategic agreement with IBM to provide business process outsourcing and IT services.

3 Important Lessons from Global Strategy of Cemex  Best and Customized Value Proposition to Customers

so called as “THE CEMEX WAY”  Innovative in Technology front by best usage of IT in

Operations and Distribution  Horizontal and vertical Integrations with sustainable

development focusing Low carbon strategies.

3 Recommendations to CEO of Cemex  Infrastructure

development

demands

highest

building

material

requirements as compared to housing and commercial buildings. Large scale Infrastructure projects are going on in Developing countries which

creates a very big market for building material so it is recommended to have a Greenfield manufacturing facility in these countries to offer its all types of Tailored products with proper distribution network.  Acquiring Low cost Aggregate producers to compete with large Global

Players like Heidelberg.  Strengthening the capital structure and regaining financial flexibility by

divesting in less performing Assets, reducing debt, Optimizing maintenance and Capital expenditures.

Thank You