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SHANMUGA PILLAIYAN (010194) TAN CHEE HOAW (010120) KAM CHUN HOE (008757) LIM SOK YEN (008715)
Agenda
1. Key assumptions
2. Exchange Rate projection 3. Cost of Capital 4. Project Cash flow 5. Parent Cash flow 6. Sensitivity analysis 7. Real option analysis 8. Final Bid
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Key Assumptions
1. Indonesian withholding tax for dividends is at 15%
2. As the cement business is localized, investment in Indonesia does not cannibalize existing CEMEX sales, especially the Philippines subsidiary. 3. CEMEX utilizes internal funds for the acquisition of Gresik. 4. CEMEX functional currency is USD, Semen Gresik is IDR. 5. 50% of net profits of Gresik are paid out as dividend.
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USA Inflation Rate (%) 4.00 4.00 4.00 4.00 4.00 5.00 5.00 5.00 5.00 5.00
Estimated USD/IDR Exchange Rate 13000 15000 15865 16781 17749 18256 18778 19314 19866 20433
April 2012 Slide 4
rate (%) 29.40 20.00 10.00 10.00 10.00 8.00 8.00 8.00 8.00 8.00
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2. Terminal value estimated based on: II. Earnings multiples The average value of 49,231 Billion is taken as the terminal value.
Terminal Value Valuation Method EV/ Capacity Perpetual Model Average Value (Billion Rupiah) 39,228 59,234 49,231
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2. Terminal growth rate is assumed to be 14.0% 3. WACC is assumed to be 15.76% at year 2002 4. Terminal value = IDR 59,234 Billion 5. Terminal value is very sensitive to the values chosen for WACC & growth rate. Other method shall be carried out for checking purposes.
Terminal
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Value
NOCF (1 + g) k WACC g
April 2012 Slide 8
2. Constant capacity of 17.48 million metric tonne 3. Terminal value of 39,228 billion IND in 2002.
Country Total Market Cap EV/ capacity EV/EBITDA Price/FCF Price/Earning
India Indonesia Thailand Malaysia Philippines Taiwan South Korea Total Market Cap.
Nottingham Malaysia Regional Average
86 52 146 55 58 188 52
126.43
10.14
9.05
13.80
Project Cash Flow The project has a positive NPV and thus profitable
Billions of IDR Assumed Growth Rate EBIT Add Depreciation & Ammortisation EBITDA Less Tax (30% of EBIT) Less Capex Less Change in net working capital Terminal Value Total FCF 496.90 585.70 714.84 804.32 1998 16% 445.00 261.00 706.00 (133.50) (40.00) (35.60) 1999 27% 599.00 276.00 875.00 (179.70) (40.00) (69.60) (65.50) (78.60) (94.30) 49,231.18 50,143.08 2000 20% 720.48 276.00 996.48 (216.15) 2001 20% 867.03 276.00 1,143.03 (260.11) 2002 20% 1,043.14 276.00 1,319.14 (312.94)
0.8048 471.37
0.7463 533.49
0.6447 518.57
0.5570 27,928.78
April 2012 Slide 10
593.2
43,514.02 3.35
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Project Cash Flow 50% of net profits are assumed to be paid out as dividends
Income Statement (Billions of IDR) Sales by Gresik Tonasa Padang Non-cement Total Net Sales Growth in Net Sales (%) COGS Gresik COGS Tonasa COGS Padang Total cost of goods sold Gross profit Gross margin (% of net sales) Less Selling, general & admin expense Less Consulting Services to Cemex Operating Profit Less Net Interest Forex Losses on debt Contributions from subsidiaries Others Non-operating income Pretax Profit Less Indonesian taxes Net Profit Return on Sales (%) Nottingham Malaysia 1998F 874 437 511 20 1842 16% (534) (289) (277) (1,100) 742 40% (284) (13) 445 (788) 5 10 (773) (328) 99 (230) -12% 1999F 1189 522 607 20 2338 27% (734) (345) (317) (1,396) 942 40% (328) (15) 599 (700) (74) 6 10 (758) (159) 48 (111) -5% 2000F 1429 627 729 20 2805 20% (886) (389) (401) (1,676) 1,129 40% (393) (16) 720 (464) (105) 7 10 (553) 168 (50) 117 4% 2001F 1716 753 876 20 3366 20% (1,064) (467) (482) (2,013) 1,353 40% (469) (17) 867 (468) (139) 8 10 (590) 277 (83) 194 6% 2002F 2062 905 1052 20 4039 20% (1,278) (561) (579) (2,418) 1,621 40% (560) (18) 1,043 (472) (175) 9 10 (628) 415 (125) 291 7% April 2012 Slide 12
Parent Cash Flow At USD1.38 a share, the NPV of parent cash flow is positive (USD 28.67 mill) and IRR of 25%
1998 IDR/USD FX rate Dividend Paid (Billions of IDR) Dividends Received by CEMEX - 14% (Billions of IDR) Less indonesian withholding tax (15%) Net Dividend remitted to CEMEC (Billions of IDR) Dividends Received by CEMEX (USD) Consulting services (USD) Total cash flow Purchase of 14% stake in Semen Gresik Port upgrading & capacity expansion Terminal Value (14% stake) Total free cash flow Cost of capital PV NPV Nottingham Malaysia IRR 13,000 0 0 0 0 0.00 1,000,000.00 1,000,000.00 (114,606,240.00) (50,000,000.00) 388,328,239.70 -163,606,240.00 20% -163,606,240.00 28,670,450.05 25% 1,000,000.00 20% 833,333.33 1,440,526.59 20% 1,000,365.69 1,688,733.00 20% 977,276.04 392,876,106.60 20% 189,465,714.99 April 2012 Slide 13 1999 15,000 0 0 0 0 0.00 1,000,000.00 1,000,000.00 2000 15,865 58.73 8.22 1.23 6.99 440,526.59 1,000,000.00 1,440,526.59 2001 16,781 97.12 13.60 2.04 11.56 688,733.00 1,000,000.00 1,688,733.00 2002 17,749 145.26 74.08 11.11 62.97 3,547,866.89 1,000,000.00 4,547,866.89
Parent Cash Flow USD1.72 a share is the maximum price with a positive NPV for the parent cash flow.
1998 IDR/USD FX rate Dividend Paid (Billions of IDR) Dividends Received by CEMEX - 14% (Billions of IDR) Less indonesian withholding tax (15%) Net Dividend remitted to CEMEC (Billions of IDR) Dividends Received by CEMEX (USD) Consulting services (USD) Total cash flow Purchase of 14% stake in Semen Gresik Port upgrading & capacity expansion Terminal Value (14% stake) Total free cash flow Cost of capital PV NPV Nottingham Malaysia IRR 13,000 0 0 0 0 0.00 1,000,000.00 1,000,000.00 (142,842,560.00) (50,000,000.00) 388,328,239.70 -191,842,560.00 20% -191,842,560.00 434,130.05 20% 1,000,000.00 20% 833,333.33 1,440,526.59 20% 1,000,365.69 1,688,733.00 20% 977,276.04 392,876,106.60 20% 189,465,714.99 April 2012 Slide 14 1999 15,000 0 0 0 0 0.00 1,000,000.00 1,000,000.00 2000 15,865 58.73 8.22 1.23 6.99 440,526.59 1,000,000.00 1,440,526.59 2001 16,781 97.12 13.60 2.04 11.56 688,733.00 1,000,000.00 1,688,733.00 2002 17,749 145.26 74.08 11.11 62.97 3,547,866.89 1,000,000.00 4,547,866.89
2. Early mover advantage into Indonesia which is a large (200 million population) and rapidly growing market. 3. To ensure that other competitors dont get a foot hold in Indonesia via Gresik. 4. Potential for export to regional markets (Singapore, Taiwan, etc) if Rupiah exchange rate remains low.
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2. Strong opposition against sale of state assets to foreigners from politicians and the general public. 3. Thread of punitive action by provincial governor to remove certain concessions to Gresik subsidiary. 4. Street demonstrations against sale of Gresik in Jakarta & West Sumatra. 5. Currency risk is minimal as the Rupee is expected to appreciate once the current crisis abates. 6. Implementation of free market reforms under IMF has reduced Transfer risk.
Nottingham Malaysia April 2012 Slide 16
2. Agency risk. With only 14% ownership of the firm, CEMEX doesnt not have control of the board or the management. Risk that managements interest may be in conflict with that of CEMEX. e.g. reducing headcount and dividend payouts. 3. Risk of price war in the Indonesian market. Potential for sales price of drop 10%.
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Purchase of controlling stake (Additional 51% from Government) NVP = USD 593.5 million Purchase (14%) NVP = - 158.6 million 25% Probability
75% Probability Sell shares at market Price NPV = USD 49.2 million
Real Option Analysis NPV of cashflow from the first 5 years is -USD158.6 million
Optioin to purchase 14% in Year 0 IDR/USD FX rate Dividend Paid (Billions of IDR) Dividends Received by CEMEX - 14% (Billions of IDR) Less indonesian withholding tax (15%) Net Dividend remitted to CEMEC (Billions of IDR) Dividends Received by CEMEX (USD) Consulting services (USD) Total cash flow Purchase of 14% stake in Semen Gresik Port upgrading & capacity expansion Total free cash flow Cost of capital PV NPV 1998 13,000 0 0 0 0 0.00 1,000,000.00 1,000,000.00 (114,606,240.00) (50,000,000.00) -163,606,240.00 20% -163,606,240.00 -158,602,042.09 1,000,000.00 20% 833,333.33 1,440,526.59 20% 1,000,365.69 1,688,733.00 20% 977,276.04 4,547,866.89 20% 2,193,222.85 1999 15,000 0 0 0 0 0.00 1,000,000.00 1,000,000.00 2000 15,865 58.73 8.22 1.23 6.99 440,526.59 1,000,000.00 1,440,526.59 2001 16,781 97.12 13.60 2.04 11.56 688,733.00 1,000,000.00 1,688,733.00 2002 17,749 145.26 74.08 11.11 62.97 3,547,866.89 1,000,000.00 4,547,866.89
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Real Option Analysis Option to sell 14% stake NPV of cashflow from share sale is USD 49.2 mill
Key Assumptions: 1. Annual share price appreciation is 5%
Individual share purchase price Annual share price growth rate Individual share purchase price at year 5 Gross preceeds from sales (IDR) Withholding tax (0.1%) Net preceeds from sales (IDR) Sales remitted to CEMEX (USD) 17,940.00 5% 21806.18 1,810,959,813,117.00 181,095,981.31 1,810,778,717,135.69 102,022,528.97
49,200,679.48
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Real Option Analysis Option to buy 51% Positive NVP of USD 593 Million
Value of option to purchase additional 37% to gain controlling stake.
Annual Growth Rate at 8.2% Individual share purchase price (USD) Purchase cost (USD) Terminal Value (65%) Net cashflow Net Present Value 1.89 (572,215,276.37) 1,802,952,541.47 1,230,737,265.10 593,526,844.66
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Real Option Analysis The parent cashflow has a positive NPV and thus profitable
NPV = NPV of cash flow + (NPV of exit option)(probability) + (NVP of option to purchase additional shares)(Probability) = -158,602,042.09+ 49,200,679.48 X (0.75)+ 593,526,844.66 X (0.25) = USD 26,680,178.69
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Final Bid
No. 1 2 3 Item Cash offer of USD$1.38 as share for 14% stake Port upgrading & capacity expansion A five-year put option to the Indonesia government to sell its remaining shares to Cemex at a base price of USD$ 1.38/ share plus an 8.2% annual premium 4 Mutual consent on the operation of Semen Gresik. Cemex to be given right to participate in the decision making of Semen Gresiks operation and investment. TOTAL 164,606,240.00 Value (USD) 114,606,240.00 50,000,000.00 -
The maximum share price will be set at a price of USD 1.72 per share.
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Thank You