Cemex October 16 2017 partial - learnfrombarryprework · Asset Profile (2016) 0.0% 20.0% 40.0%...

Executive Summary Company Overview

–  Leading cement manufacturer in the world

–  Market Cap of $13.0Bn & Annual Revenues of $13.4Bn

–  Current rating is BB (September 25th 2017)

–  History of domestic acquisitions starting in 1966

–  International expansions since the 1990s

–  Trying to return to investment grade through Deleveraging

1

Overview of CEMEX Customers

Competitors Management Team

Revenues:

US 16%

Mexico 37%

SAC 34%

Europe 12%

AMEA 23%

EBITDA Margin:

Nature of the Business

Brand Driven: Quality & Price Driven:

Brand Driven

60%25% 10% 5%

Housing Infrastructure ComercialConstruc9on

Industrial

The Team

•  Family founded

business

•  Board of Directors:

5/15 ~ Zambrano

•  Chairman: Zambrano

Cement Ready-Mix Aggregates

45% 39% 16% 13.4 Bn in 2016

•  Cyclical Industry •  Capital Intensive •  Energy Intensive

•  High Transport Cost •  Local Competition •  Few Global Players

•  Commodity product •  Except in LATAM

Informed Buyers Quality

•  Family Influenced •  Against Equity

Issuance - Dilution

The Strategy

•  From Growth by

Acquisitions to

Deleveraging to go back to

investment grade

Source: Company Filings

2 Overview of CEMEX

Perceptions of the Market

0

200

400

600

800

1,000

1,200

1,400

1,600

0

5

10

15

20

25

30

35

1/1/2000 1/1/2002 1/1/2004 1/1/2006 1/1/2008 1/1/2010 1/1/2012 1/1/2014 1/1/2016

bps

MXN

$/share

SharePrice 5-YearCDS

Stock Price vs CDS

Expand to Asia & Africa

Acquisition of

Southdown

Becomes largest Cement company

in US

$5.8 Bn acquisition

of RMC Group

Becomes world ready-mix leader Grows in Europe

$12.8 Bn offer to acquire Rinker Group

Anti-trust lawsuit blocks Rinker’s Acq. Sells 40+

plants

CEMEX Venezuela

Sells Australian

Ops to Holcim

to refinance $14 Bn Debt

Financial crisis &

upcoming debt

maturities

Debt Repayment Concerns

Successful Refinancing

BBB- BBB BBB- BB+ B BB- BB B- B B- B+

2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

M&A South down RMC Rinker

Divest AUS Latam Holns

Germany, US

US, AMEA

Rate BBB- BBB BBB- BB+ B- B B- B B+ BB- BB

Successful Refinancing

Source: Company Filings, FactSet

3 Overview of CEMEX

Risk Evaluation & Mitigants

Risk Probability Loss Mitigants

Economic Conditions & Cyclicality

Sales depend on performance of cyclical construction industry

High Large

Partially mitigated by diverse global presence Focus on infrastructure clients (transportation, public works)

Country Exposure

High concentration of earnings in one single Country

High Large Diverse global earnings (Mexico, U.S., & Europe)

Foreign Exchange

Currency mismatch between cash flows and debt

High Large

Interest Rates

Raising interest rates might affect borrowing for construction industry

High Low

Environmental Regulations

Regulations affecting plant efficiency and increasing production costs

Medium Large Increased use of alternative fuels and raw materials

Managers Degree of independence: insiders and outsiders Medium Low Clear articulation and execution of

business strategy (gain IG rating)

4 Overview of CEMEX

100%

80%

60%

40%

20%

0%

0

5,000

10,000

15,000

20,000

25,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Earnings Profile

Sales, EBITDA, Net Income

•  Declining sales due to FX changes & Divestitures

•  Financial crisis in 2008 affected global sales (especially in the US Market)

Growth Financial Crisis Recovery Period Declining Sales

EBITDA

BBB BBB- BB+ B- B B- B B+ BB BB-

23% 21%

15%

20% 18%

16% 17% 17% 17% 19% 20%

EBITDA/Sales

•  Cost Composition¹:

Increasing Margin: Brand power in Mexico & SAC

DM EM

Transport Transport

Raw Materials

Raw Materials

Energy

Energy

Labor

Labor

SG&A

SG&A

+19%

-33%

-10% -5%

-3% +8%

Sales

1. Source: Company Data, Morgan Stanley Research Report

Source: Company Filings, FactSet

5 Understanding Earnings, Liquidity & Solvency

Earnings Profile – CEMEX vs Peers

EBITDA Margin

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

CEMEX US

CEMEX Mexico

CEMEX SAC

CEMEX AMEA

CEMEX Europe

Brand Driven Markets

Growth Financial Crisis Recovery Period Declining Sales



Asset Profile – Capital and Intangibles Intensity

Investing vs Financial Analysis (% of Total Assets)

Capital Intensive

Intangible Intensive

5.59%

41.19%

37.88%

4.58%2.98%5.85%1.93%

30.69%

48.28%

14.34%

6.70%Cash

Receivables Inventory Other CA

PPE

Intangibles

Other NC Assets

Payables

Other Liabilities

Debt

Equity

87.3% 87.2% 81.7%

2014 2015 2016

83.2% 89.7% 88.9%

2014 2015 2016

Capital & Intangible Intensity (% of Total Sales)



Asset Profile – Peer Analysis Asset Profile (2016)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

OWC/Sales PPE/Sales Int/Sales

Cash Cycle

The cement industry has a short CCC.

Best in class peer Heidelberg

Capital Intensive

Intangibles Intensive

The Cement industry is Very Capital Intensive.

CEMEX is Very Intangible Intensive compared to its peers, due to acquisition strategy.

WC Needs / Sales

Source: Company Filings, Capital IQ, FactSet


Cash Flow Profile

EBITDA, Funds Flow, OCF

Funds Flow

EBITDA

OCF

Despite lower sales numbers, higher EBITDA margins in Regions like Mexico and SAC. This stabilized drops in profitability in markets like USA

Increasing Funds Flow despite stable EBITDA fueled by lower interest - Due to deleveraging efforts and lower interest rates

With declining working capital requirements, OCF is higher than Funds Flow, as the company improves their ability to finance its daily operations with working capital efficiencies

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2012 2013 2014 2015 2016

EBITDA Funds Flow Op CF

EBITDA

OCF

Funds Flow



Legal Entity, Debt Profile and Capital Structure

Source: Company’s Investor Presentation

CEMEX Mexico SA de CV

Operating HoldCo

CEMEX S.A.B DE C.V HoldCo

(Mexico) $1.135Bn Sen. Sec RCF &

$2.915Bn USD, EUR, GBP TL due ‘22

Sen. Sec. & Conv Notes due ‘17-’25

Citi’s exposure ranks pari-passu to the Senior Secured Notes of the Group. Citi’s exposure (hold in the Syndicated Loan and Revolving facilities) is located at the HoldCo (CEMEX S.A.B de C.V.). It is approved to be used by subsidiaries globally, some of which also act as guarantors.

CEMEX Materials LLC

$150MM Sen. Sec 7.7% Bond due ’25 Downstream G’tee (CEMEX Corp, US)

CEMEX LATAM Holdings S.A.

OpCo

75%

21%

1% 3%

USD EUR MXN Other

72%

28%

Debt Structure

Debt Composition

CEMEX Finance LLC

(New York) $1.5Bn

Sen. Sec. Notes due ‘21-’24

$444MM Perpetual debentures issued by

SPVs

51%

30%

4%

7% 7% Senior Secured Debt

$4.05Bn RCF + TL

Perpetual Notes

Subordinated Convertible Debt

Capital Leases / Other

Floating

Fixed


Debt Maturity Profile

628

1,970

997

98

646

1,693

1,267

718

998

2,754

0

500

1,000

1,500

2,000

2,500

3,000

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

$MM

Fixed Income Other Bank Debt Term Loan (3) Convertible Subordinated Notes (4) Revolver

•  Manageable Debt Maturity Profile: As of 2Q17, there are no significant debt maturities in the next 2 years

•  CEMEX’s access to capital and debt markets is strong

•  CEMEX has sufficient headroom under its maximum leverage and interest coverage covenants (4.0x and 3.4x as of June 30, 2017)

FY’16 Cash Flow Available for Debt Repayment (after disposals)

LR Cash for Debt Repayment

Source: Investor Presentation 2Q17


Business & Financial Risk Profile: Path to Investment Grade

Financial Risk Profile

Business Risk Profile Minimal Modest Intermediate Significant Aggressive Highly Leveraged

Excellent AAA AA A A- BBB -

Strong AA A A- BBB BB BB-

Satisfactory A- BBB BB BB+ BB- B

Fair - - BB+ BB BB- B-

Weak - - BB BB- B+ B-

Vulnerable - - - B+ B CCC+

Total Debt / EBITDA

EBITDA / Interest Expense

EBIT / Interest Expense

FFO/ Total Debt

Total Debt / Capitalization

LTM 2Q17 LTM 2Q16



Summary of Scenarios Management

Macro

•  Increased economic activity in Mexico and USA drives up housing & infrastructure demand, lifting revenues.

•  The incipient recovery in Europe materializes, powering sales growth in the region.

Internal / Repayment ability

•  Increased pricing power among the regions, driven by favorable economic conditions and increased capacity utilization, improve margins across the board.

•  Positive share price results in convertibles being exercised at maturity: financial flexibility.

14 Looking into the Future

Management Case - Projections

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2016 2017 2018 2019 2020 2021 2022

Annual Revenues

Total Debt

EBITDA

FCF

Higher revenues driven by higher housing & infrastructure spending in Mexico / the US, and an economic recovery in Europe Debt pay-down by using

cash flows generated by the business, refinancing debt and asset sales

Increasing EBITDA in every region – Mostly driven by accelerated EBITDA growth in the US and Europe.

Stable Capex No Dividends

Source: Management Guidance May 2017

15 1. Management Case

Management Case - Projections Management Projections ($MM) 2016 2017 2018 2019 2020 2021 2022Total Revenue $13,403 $13,887 $14,577 $15,254 $16,008 $16,741 $17,498% Growth 3.6% 5.0% 4.6% 4.9% 4.6% 4.5%

Total EBITDA $2,747 $2,864 $3,099 $3,326 $3,597 $3,855 $4,130% Margin 20.5% 20.6% 21.3% 21.8% 22.5% 23.0% 23.6%% Growth 4.3% 8.2% 7.3% 8.1% 7.2% 7.1%

Cash Interest (1,148) (841) (662) (591) (505) (410) (323) Cash Taxes (166) (315) (348) (383) (424) (463) (504) (Increase)/Decrease in Working Capital 572 87 (23) (19) (17) (18) (17) Other (137) - - - - - - Levered CFO (Core Operations) $2,090 $1,666 $1,935 $2,200 $2,514 $2,825 $3,146Maintenance Capital Expenditures (434) (518) (568) (597) (629) (663) (679) Strategic Capex (251) (212) (350) (350) (350) (350) (350) Dividends - - - - - - - Levered FCF (Core Operations) $1,405 $936 $1,017 $1,253 $1,535 $1,812 $2,117Asset Sales 240 150 100 75 50 25 (Acquisitions) / Divestitures 904 (100) (100) (100) (100) (100) Other Sources / (Uses) 132 (4) (9) (1) (24) (6) Levered FCF before Debt Repayment $1,405 $2,212 $1,063 $1,244 $1,509 $1,738 $2,036

Cumulative Levered FCF before Debt Repayment $2,212 $3,275 $4,519 $6,029 $7,767 $9,802% of Total Debt Amortized 18.7% 27.7% 38.2% 50.9% 65.6% 82.8%

Debt (Repayment) / Issuance (2,072) (1,063) (1,244) (1,509) (1,738) (2,036)Additional Paid-In Capital - - - - - - Change in Cash Balance $140 $0 $0 $0 ($0) ($0)

Total Debt $11,837 $10,184 $9,135 $8,013 $6,578 $4,891 $2,897

Beginning Cash Balance $360 $500 $500 $500 $500 $500Change in Cash Balance 140 0 0 0 (0) (0)Ending Cash Balance $500 $500 $500 $500 $500 $500

Credit M etricsTotal Debt / EBITDA 3.6x 2.9x 2.4x 1.8x 1.3x 0.7xEBITDA / Interest Expense 3.4x 4.7x 5.6x 7.1x 9.4x 12.8xTotal Debt Repayment Capacity Ratio 1.2x 1.4x 1.6x 1.8x 2.1x 2.4xFixed Charge Coverage Ratio 1.0x 1.1x 1.1x 1.1x 1.1x 2.7x

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16 1. Management Case

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