EQUITIES
BUILDING MATERIALS: OUTPERFORM
NOT RATED CIMPOR CIMENTOS PORTUGAL TARGET PRICE N/A
Brazilian cement players expand overseas
Camargo Correa and Votorantim acquire the 7th largest European cement producer 26 JUNE 2012 On 20 June 2012 Votorantim and Camargo Correa (Brazil’s largest and third largest cement Rohit Bhatia producers, respectively) confirmed their acquisition of a further 40% of Cimpor’s shares. They now (+44) 203 430 8433 effectively control 95% of Cimpor. The EUR 5.4bn bid values Cimpor at 9.0x 2012e EBITDA – [email protected] slightly less than the average transaction multiple over the last decade (9.6x). The assets of Yassine Touahri Cimpor are to be split between the two Brazilian groups. (+44) 207 039 9523 [email protected] Brazilian consolidation and geographical expansion Paul Roger, CFA The deal allows Camargo Correa to establish itself as the second largest cement producer in Brazil (+44) 203 430 8415 [email protected] and takes the market share of the top 5 producers to 81% (vs. 75% pre-deal). This compares favourably versus other large emerging market consuming nations such as China, India and Russia. Consolidation could be positive for the industry in general. There is limited risk of the deal running into anti-trust concerns in Brazil, in our view. The transaction enables Camargo Correa to expand in Africa (the group already had a cement project in Angola). It also facilitates Votorantim’s geographical diversification by adding potential growth platforms in the Mediterranean Rim and Asia to its existing footprint (Latin America, US and Canada).
New paradigm in international cement markets: a challenge and an opportunity Industry dynamics were mostly shaped by the European majors last cycle. Now, as evidenced by this sizeable deal, emerging market players are becoming more ambitious and starting to influence the landscape. They are playing an increasingly large part in sector M&A and capacity expansion. This new paradigm presents both a challenge and an opportunity for the sector. It means there are buyers for majors like Lafarge looking to divest assets. Established and rational cement producers such as Camargo Correa and Votorantim could also help improve returns in emerging markets via consolidation. On the other hand, these growing players pose a potential challenge to the existing industry order and some new entrants could also adopt disruptive strategies.
Price (25 June 2012) EUR3.79 Performance* (%) 1w 1m 3m 12m Market cap (EURbn) 2.5 Absolute (31) (30)(23) (28) Free float (EURbn) 0.5 Rel. Building Mat. (31) (29) (11) (15) EV (EURbn) 4.2 Rel. MSCI Europe (31) (30) (17) (25) 3m avg volume (EURm) 10.4 Reuters / Bloomberg CPR.LS / CPR PL Country / Sub Sector Portugal / Heavy Building Materials * In listing currency, with dividend reinvested
Financials 12/11 12/12e 12/13e 12/14e Valuation metrics* 12/11 12/12e12/13e 12/14e EPS, Adjusted (EUR) 0.29 0.29 0.34 0.38 P/E (x) 17.2 13.2 11.0 9.9 EPS, IBES (EUR) 0.30 0.35 0.39 0.46 Net yield (%) 3.3 4.3 5.1 5.7 Net dividend (EUR) 0.17 0.16 0.19 0.22 FCF yield (%) 8.9 9.4 10.0 10.8 EV/Sales (x) 2.3 1.8 1.7 1.5 Sales (EURm) 2,275 2,300 2,457 2,606 EV/EBITDA (x) 8.4 7.1 6.2 5.7 EBITA, Adj. (EURm) 373 348 396 428 EV/EBITA (x) 13.8 12.1 10.4 9.3 Net profit, Adj.(EURm) 198 193 232 258 EV/CE (x) 1.2 1.0 0.9 0.9 Please refer to important disclosures ROCE (%) 6.1 5.7 6.4 6.9 at the end of this report Net Debt/EBITDA, Adj. (x) 2.7 2.6 2.2 1.9 * Yearly average price for FY ended 12/11
Takeover of the 7th largest cement player in Europe
Camargo Correa and Votorantim confirmed that together they had acquired a further 40% of Cimpor’s shares. They now effectively control c. 95% of the stock.
What is Cimpor? Cimpor is the largest cement producer in Portugal and also has a significant presence in more than eleven other countries, many of which are emerging markets. Cimpor is the fifth largest cement player in Brazil with an estimated 8% market share.
Cimpor has a capacity of 36.5mt. It is the 7th largest integrated cement producer headquartered in Europe, after Buzzi Unicem, CRH, Italcementi, HeidelbergCement, Holcim and Lafarge. In 2011 Cimpor posted sales of EUR2.2bn and EBITDA of EUR0.6bn.
Figure 1: World rankings by cement capacity (including 100% of minority stakes) mt
300.0
250.0
200.0
150.0
100.0
50.0
0.0 China Italy Holcim - Holcim Russia Germany China Switzerland Thailand - India Heidelberg - CR Cement - CR Cement Eurocement - CRH - Ireland CRH - Conch - China CNBM - China - CNBM Jidong - China Siam Cement - Buzzi Unicem - Sinoma - China Cemex - Mexico Cemex Taiheiyo - Japan Lafarge - France Italcementi - Italy Italcementi - Taiwan Cement - Cimpor - Portugal Aditya Birla Group Votorantim - Brazil
Source: Exane BNP Paribas estimates from company data
Cimpor currently derives around 60% of its EBITDA from Brazil, Portugal and South Africa. Cimpor has some vertically integrated positions in concrete & aggregates, but still makes most of its revenues in cement. It is less vertically integrated than groups such as Lafarge, Holcim, Cemex and HeidelbergCement.
The map below illustrates the breakdown of Cimpor’s sales in 2011. The charts thereafter provide Cimpor’s EBITDA breakdown and sales split by division. We show Cimpor’s market shares by country in the Appendix.
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Figure 2: Cimpor - 2011 sales breakdown
15% 10% 7% 5% 3% 4% 7% 2%
27%
> 15% 10% to 15% 5% 5 to 10% 6% < 5%
(Sources : Exane BNP Paribas estimates) Source: Cimpor, Exane BNP Paribas estimates
Figure 3: Cimpor – geographical EBITDA and divisional breakdown (2011) EBITDA breakdown by country Sales breakdown by division
South Africa Others Portugal 10% 6% 15% Egypt RMC & 8% Precast 22% Morocco 7% Spain 6% Brazil Turkey 5% 33% Tunisia Cement 4% 72% Mozambique India 4% 1% Cape Verde China Other 1% 3% 3%
Source: Exane BNP Paribas estimates
Between 2006 and 2009 Cimpor increased capacity by 45% through an ambitious capex programme and acquisitions in China, Turkey, India and the Canary Islands.
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Figure 4: Cimpor – cement capacity evolution since 2002 mt
40.0
35.0
30.0
25.0
20.0
15 . 0
10 . 0
5.0
0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Portugal Brazil Egypt Spain Tunisia South Africa Morocco Mozambique China Turkey India
Source: Cimpor, Exane BNP Paribas estimates
In early 2010, Cimpor was the target of a failed takeover attempt by Companhia Siderurgica Nacional (CSN) – Brazil’s third largest steelmaker. CSN’s efforts were thwarted by Votorantim and Camargo Correa who between them acquired c. 54% of Cimpor’s shares (see note from 25 February 2010 titled “Cimpor ownership upheaval: what are the implications?”).
Structure of the deal - Cimpor’s assets to be split between Camargo Correa and Votorantim Camargo Correa launched a new takeover bid for Cimpor on 30 March 2012. It offered EUR5.5 per share for the c. 67% of the shares that it did not already own. Caixa Geral de Depositos (CGD – 9.7% shareholder) and Banco Comercial Portugues (BCP – 10.1% shareholder) indicated their willingness to accept the offer. Manuel Fino (10% shareholder) eventually agreed to the deal in early June. Votorantim (holder of a 21.4% stake) was originally uninterested in a cash offer. In order to persuade Votorantim to tender its shares, Camargo Correa announced its intention to split Cimpor’s assets with Votorantim post the completion of the deal. Votorantim agreed to this proposal, with the two groups effectively bidding together for Cimpor. The split is intended to take place in a two stage transfer process. The deal will result in Votorantim taking control of Cimpor’s operations in China, Spain, India, Morocco, Tunisia, Turkey and Peru and 21% of Cimpor’s net debt. Votorantim will then transfer its 21.4% shareholding in Cimpor’s shares to Camargo Correa. The assets in Portugal, Egypt, Brazil, Mozambique and South Africa will come under Camargo Correa’s control, with the group also set to assume c.79% of the remaining net debt. On completion, Votorantim will control Cimpor’s Mediterranean Rim and Asian assets, whereas Camargo Correa takes ownership of Cimpor’s Brazilian and African operations. The map below illustrates the split of Cimpor’s assets between Votorantim and Camargo Correa.
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Figure 5: Asset split post deal completion
7mt 3.2mt 6mt 6mt 1.8mt 1.3mt 4mt 1.2mt
6.6mt
Votorantim Camargo Correa 0.9 mt
1.6mt
(Sources : Exane BNP Paribas estimates) Source: Cimpor, CMVM
Valuation – slightly below average transaction multiples The deal was completed at a FY12 EV/EBITDA of 9.0x on our numbers. This is slightly below the year-one forward average transaction multiples of deals over the past decade (9.6x). The chart below presents a sample of the major deals between 2000 and 2012 along with Camargo Correa’s proposed offer for Cimpor.
Figure 6: Camargo Correa’s deal for Cimpor compared to previous M&A deals in the sector
15.0
14.0
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0 2007 2006 2007 2006 2006 2004 2012 2006 2000 Agg. Ind. by Ind. Agg. Holcim 2005 Lafarge 2001 Blue Circle by APAC by CRH Hanson by HC Southdown OCI by Lafarge Cimpor 2012 LNA by Lafarge Uniland by CPV RMC by Cemex by Holcim 2009 Cemex Australia Cemex By 2007 Vulcan Secil by Semapa Florida Rock Ind. Rinker by Cemex Camargo offer on offer Camargo Spohn Cement by Cement by Cemex HeidelbergCement
Source: Exane BNP Paribas estimates
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The deal’s implied 2013 EV/EBITDA multiple of 8.1x is a c. 30% premium over the current heavyside 2013e multiple of 6.2x. Note, however, that prior to the announcement of the bid Cimpor was trading at a premium of 12% to the sector average (reflecting the speculative appeal of the shares).
The tables below presents the valuation multiples implied by the transaction.
Figure 7: Multiples implied by Camargo Correa’s offer Value of equity and EV implied by Camargo Correa's offer Price Offered (EUR/share) 5.5 Number of Cimpor shares (m) 672 Implied value of equity 3,696 + Adjusted net debt 1,578 + Other liabilities 199 + Minority interests 157 - Revalued investments 254 = Implied enterprise value 5,376 Exane BNPP forecasts for Cimpor 2012e EBITDA 593 2012e EBIT 348 2013e EBITDA 659 2013e EBIT 396 Implied multiples Implied 2012e EV/EBITDA 9.0 Implied 2012e EV/EBIT 15.4 Implied 2013e EV/EBITDA 8.0 Implied 2013e EV/EBIT 13.5
Source: Exane BNP Paribas estimates
On an EV/tonne basis we estimate Camargo Correa is paying USD 175/tonne for Cimpor. This is a discount of c.13% compared to the USD 200/tonne paid by Cementos Argos for Lafarge’s South-eastern US assets (2011) and a c. 19% discount to the USD 215/tonne implied by Semapa’s purchase of CRH’s stake in Secil (2012).
Figure 8: EV per tonne of cement capacity implied by Camargo Correa’s offer (EURm) EV implied by Camargo Correa’s offer 5,366 RMC, Precast & other businesses – 2011 revenues 492 Estimated EV/Sales valuation multiples (RMC, Precast & other) 0.6 Estimated value of RMC, precast & other businesses 295.2 Estimated EV offered for cement 5,071 Cimpor cement capacity 2012 36.5 Cement asset valuation implied by the offer (EUR/t) 139 USD/EUR rate 1.26 Cement asset valuation implied by the offer (USD/t) 175
Source: Exane BNP Paribas estimates
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Implications of the deal for the Brazil market
A slight consolidation of the market in Brazil Brazil is the only country where Cimpor has any asset overlap with either Votorantim or Camargo Correa. The deal will lead to a slight market consolidation with Camargo Correa expected to control c. 18% of overall cement capacity versus c. 10% prior to the transfer. We estimate that post the transfer the top 3 cement producers would be responsible for c. 66% of the market (vs. 58% before). This compares favourably to other emerging markets such as Russia (60%), India (50%) and China (10%). We believe this is a slight positive for the structure of the Brazilian cement market.
Figure 9: Brazil – Top 3 producer’s capacity share in the major cement consuming emerging markets
Nigeria
S. Africa
Indonesia
Mexico
Brazil (post-deal)
Poland
Brazil (pre-deal)
Russia
Egypt
India
China
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Exane BNP Paribas estimates
Camargo Correa establishes itself as Brazil’s second largest cement player We believe the transfer of assets in Brazil to Camargo Correa will help the group to firmly establish itself as the second largest cement producer after Votorantim (third largest earlier). Cimpor’s plants in the North East and the South suitably complement Camargo Correa’s operations in the Middlewest and the South-Eastern regions of the country (see the map of Brazil appended below). This immediate increase in capacity will allow Camargo Correa to take full advantage of a good market environment in Brazil.
In the medium term, Votorantim mentioned it expects volumes to remain strong given the expected thrust in infrastructure spending (FIFA World Cup in 2014, 2016 Olympic Games) and the potential boom in residential construction (government’s efforts to reduce the housing deficit problem).
Camargo Correa will also benefit from Cimpor’s capacity expansion plans that are underway in the country - 3.3mt of new capacity is expected to come onstream by 2014. This would lead to Camargo Correa’s capacity increasing to c.19mt.
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Figure 10: Brazil cement market shares pre and post the deal Top 7 cement producers pre deal Top 7 cement producers post deal
40% 40%
35% 35%
30% 30%
25% 25%
20% 20%
15% 15% 10% 10% 5% 5% 0% 0% CSN CSN Holcim Lafarge Nassau Holcim Cimpor Lafarge Nassau Cimpor) Camargo Votorantim Votorantim Cimentos Liz Camargo (inc Camargo Votorantim Votorantim
Source: Exane BNP Paribas estimates
Figure 11: Brazil – cement map
Northeast
North
Middlewest
Votorantim Lafarge Camargo Cimpor Joao Santos Holcim Itambe Ciplan Other South CSN clinker furnace project
Source: Exane BNP Paribas estimates
Limited risk of the deal facing Brazilian anti-trust issues Despite the deal allowing Camargo Correa to strengthen its position in Brazil whilst also bringing about a slight consolidation of the cement industry, we believe there is limited risk of anti-trust concerns. This is because Camargo Correa primarily operates in the Southeast and Middlewest regions, while Cimpor’s plants are situated in the South and Northeast of the country. There is minimal overlap in the Middlewest (both Cimpor and Camargo Correa operate one plant each) and South region (Cimpor operates three plants while Camargo Correa has one plant).
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We also note that on 15 May 2012 CADE, Brazil’s anti-trust authority, released a statement approving Camargo Correa’s initial purchase of a stake in Cimpor in 2010. CADE concluded that the deal did not bring about a significant increase in the concentration in the Brazilian market.
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International expansion of two emerging market players
Camargo Correa bolsters its position in Brazil and forays into Africa Camargo Correa is a Brazilian conglomerate operating in 20 countries. The group operates via several divisions: Engineering and Construction, Cement, Footwear, Textiles and Steel, Concessions, and Real Estate Development, Environment and Corporate. The group generated EBITDA of c.EUR0.9bn in 2011.
In cement, Camargo Correa is the leader in Argentina and the third largest player in Brazil. The cement division accounted for c. 33% of group EBITDA in 2011.
The group had already announced its first foray into Africa via a new 1.9mt plant in Angola. This is set to come onstream in 2014. With this deal, Camargo Correa has instantly expanded its footprint in this fast growing region – taking control of new positions in Portugal, Egypt, Brazil, Mozambique and South Africa, as shown below.
Figure 12: Camargo Correa’s cement assets post the deal
7mt (64%)
6mt acquired in 4mt 15mt (17%) Brazil (6%)
1.9mt** 0.4mt *
Camargo Correa Position 1st 0.9mt 9mt (52%) 2nd (100%) 1.5mt (8%) 3rd Assets acquired as a result of the 4th deal 5th or worse Plant under construction *due March 2013, **due December 2014 Source: Company, Exane BNP Paribas estimates
Cement could be the cash generator to deleverage the balance sheet We estimate Camargo Correa’s proforma cement business (inc. Cimpor’s assets) generated an EBITDA of c. EUR750m in FY 2011.
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Figure 13: EBITDA of Camargo Correa + Cimpor assets in FY 2011 (proforma) EURm
2011 Cement business Revenues at Camargo Correa 1,196 2011 Cement business EBITDA at Camargo Correa 288 Revenue being added as a result of Cimpor deal 1,499 EBITDA being added as a result of Cimpor deal 464 o/w Portugal 99 o/w Egypt 50 o/w Brazil 210 o/w Mozambique 24 o/w South Africa 60 o/w Cape Verde 4 o/w Trading / Shipping 12 o/w Other 5 Pro-forma Camargo Correa + Cimpor assets revenue 2,695 Pro-forma Camargo Correa + Cimpor assets EBITDA 752 Source: Exane BNP Paribas estimates
Following the bid for Cimpor in March, Fitch placed Camargo Correa’s BB+ rating on negative watch. Fitch highlighted that Camargo Correa's capital structure was already under pressure and the deal could further deteriorate the group’s Net Debt / EBITDA (5.1x in June 2011). Camargo Correa Group’s net debt / EBITDA is comparable to that of the leveraged heavy side names (Heidelberg, Lafarge and Cemex).
Given the cash generative profile of the expanded cement business and the leveraged state of Camargo Correa’s balance sheet, we believe the group initially use cash from its cement operations to deleverage.
Using the cash from Brazil to venture into Africa longer term We believe the group could use the cash from its operations in Brazil to expand across Africa in the longer term.
In South Africa, post the deal the group will be the fourth largest operator (8% market share). With the entry of Sephaku cement (backed by Dangote group), utilisation rates are set to come under pressure. There is limited room to consolidate the market given the existence of cement majors and large established local groups. Afrisam (5mt capacity) has, however, been going through recent difficulties and this might prove an interesting opportunity for the group.
Camargo Correa’s position in Mozambique, where it is the only producer, could be threatened by the entry of PPC (largest cement producer in South Africa). However, investment might be made to use the country a hub to supply countries such as Zimbabwe, Zambia and Malawi. Cimpor in its strategy update in February, highlighted that it was keen on making investments in new clinker capacity in Mozambique to avoid the expensive issue of having to transport clinker.
Given the macroeconomic and political instability in Portugal and Egypt, we believe the group could adopt a “wait and watch” approach in these markets.
Votorantim – the largest Brazilian cement player enters the Med Rim and Asia region Votorantim is a Brazilian conglomerate present in 16 countries. The group has assets in cement, mining and metallurgy (aluminium, zinc and nickel), steel, pulp and paper, concentrated orange juice and self-generation of electricity. The group generated EUR2.2bn EBITDA in 2011.
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The group has cement assets in Brazil (leader with 37% market share), USA and Canada. Votorantim has also made investments in cement groups across South American countries such as Chile, Argentina and Uruguay. The cement business accounted for 52% of total group EBITDA last year (EUR 1.2bn).
Cimpor’s operations in China, Spain, India, Morocco, Tunisia, Turkey and Peru will be transferred to Votorantim under this deal. Votorantim now enters the Med Rim and Asian regions. The below map illustrates the new global footprint.
Figure 14: Votorantim’s cement assets post the deal
2mt (12%)
4mt 3mt (3%) (4%)
3.2mt (7%) 6mt 1.3mt* (<1%) (6%) 1.8mt (21%) 1.2mt (<1%)
30mt (37%)
0.2mt (7%) Assets acquired as a result of the deal
1st 2nd 3rd 4th 5th or worse Plant under construction *0.8mt new plant due 2014 Source: Company, Exane BNP Paribas estimates
Prospects for Votorantim from this deal We estimate Cimpor’s operational assets would have added EUR152m of EBITDA to Votorantim’s cement business in 2011.
Figure 15: EBITDA generation of Votorantim + Cimpor assets acquired in FY 2011 EURm
2011 Cement business Revenues at Votorantim 3,689 2011 Cement business EBITDA at Votorantim 1,161 Revenue being added as result of Cimpor deal 779 EBITDA being added as result of Cimpor deal 152 o/w China 18 o/w Spain 35 o/w India 3 o/w Morocco 41 o/w Tunisia 24 o/w Turkey 31 Pro-forma Cement business Revenue 4,468 Pro-forma Cement business EBITDA 1,313 Source: Exane BNP Paribas estimates
In March 2012 Fitch upgraded Votorantim’s rating to BBB from BBB-. The upgrade reflected the group’s deleveraging efforts and the prospect of better balance sheet ratios. Fitch forecasts net debt/EBITDA to fall from 3.3x in 2011 to 2.5x this year.
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Given the increased cash generation and relative strength of the balance sheet, we consider below Votorantim’s options in cement in the Med Rim and Asia regions.
The group could consolidate in Turkey and India Cimpor’s operations across the Med Rim and Asia have quite low market shares. Votorantim will not be a price leader in these markets. Therefore, where possible, it may make sense for the group to consider acquisitions to strengthen its competitive position. This could especially be the case in Turkey, India and Morocco.
In Turkey, the group will only control a c3% market share in a growing but fragmented market. Votorantim could consider the acquisition of a local player. Past attempts to consolidate the Turkish market by the global cement majors have not been successful, however (Lafarge and Italcementi have exited the market).
In India, Votorantim has acquired a 1.2mt plant in Gujarat. Despite being fragmented, the Indian market possesses strong long term growth potential. Local cement players believe capacity additions are slowing down and the medium term returns profile is turning positive. In this context, Votorantim could consider consolidating its position in the Western region.
In Morocco, Cimpor has a new 0.8mt plant under construction in Ain Jemaa (due in 2014). We believe the group could focus on the construction of this new plant in the near term whilst also waiting for the new capacity announced by Ciments de l’Atlas to be absorbed by the market before considering acquisitions / further investments.
The group could adopt a wait and see approach concerning the operations in Spain, China (both on account of macroeconomic visibility) and Tunisia (wait for better political stability), in our view.
Expansion across Asia, Med Rim and potentially the Middle East? The group may also consider expanding into other attractive countries within the Med Rim and Asia region.
In Iraq, massive reconstruction efforts are underway and market output is insufficient to meet demand. The country is currently reliant on imports from Turkey and Iran to satisfy demand. Given the long term growth potential of the market, Votorantim could potentially make investments in the country.
Given its existing positions in Morocco and Tunisia, Votorantim may also try to venture into the attractive Algerian market. We note, however, that there are strict foreign ownership rules in the country and it is difficult to repatriate cash.
Additionally, Votorantim could review expansion opportunities in the South East Asian region, in our view.
Deal highlights the ambitions of emerging market producers Since 2006, emerging markets have experienced a strong increase in cement volumes. Conversely the crisis caused demand to come under serious pressure in the developed world. We illustrate this point in the map below.
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Figure 16: Development of global cement volumes between 2006 and 2011
+4% NA WE -40% -22% -5% EE -7%
Med +63% Asia Rim +52% +39% +42%
Mideast +54% +6% +53% Latin America +43% Oceania +18% Strong Increase: > 30% Slight Increase: 0 to 30% Africa Stagnation Small decrease: 0 to -20% +31% Big decrease: < -20% Not covered (Sources : Exane BNP Paribas estimates) Source: Exane BNP Paribas estimates In this context, emerging market cement producers have had the firepower to invest in capacity and gain market share. Examples of emerging market producers that have increased share include Ultratech (India), Anhui Conch (China), Dangote (Nigeria), Semen Gresik (Indonesia) and Eurocement (Russia). The chart below shows the top global cement producers. It highlights the significant presence the emerging market players now have in world cement.
Figure 17: Top emerging markets cement producers 300
250
200
150
100
50
0 Portugal Cimpor - Brazil China Italy Holcim - Holcim Russia Germany - China Switzerland Thailand Aditya Birla Aditya Heidelberg - Votorantim - Group - India CR Cement - CR Cement Eurocement - CRH - Ireland CRH - Conch - China CNBM - China - CNBM Jidong - China Siam Cement - Buzzi Unicem - Buzzi Unicem Sinoma - China Taiwan Cement Cemex - Mexico Cemex Lafarge - France Taiheiyo - Japan Italcementi - Italy
Developed Market Players Emerging Market Players
Source: Exane BNP Paribas estimates This acquisition of Cimpor provides evidence of the global ambitions harboured by emerging market players. This was also highlighted in 2011 with the acquisition of Lafarge’s Southeastern US assets by Cementos Argos (Colombian cement producer). We believe this trend of emerging market players foraying abroad is set to continue.
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Appendix
Estimated Cimpor’s cement capacity shares in key markets being taken over by Votorantim
Figure 18: Estimated cement capacity shares in Cimpor’s key markets being acquired by Votorantim Tunisia (c. 4% of 2011 EBITDA) Morocco (c. 7% of 2011 EBITDA)
Cimpor Ciment Blanc 6% Ciments 7% Uniland Ciments de Lafarge Oum El Kheil 22% L'Atlas Maroc 12% 8% 34% Ciments de Bizerts Holcim 12% Maroc Secil 25% 15% Colacem 12% Cimpor Italcementi 20% 27%
Source: Exane BNP Paribas estimates
Figure 19: Estimated cement capacity shares in Cimpor’s key markets being acquired by Votorantim Spain (c. 6% of 2011 EBITDA) Turkey (c. 5% of 2011 EBITDA)
Molins Italcementi 4% Oyak 8% Valderivas 17% Others Cimpor 25% 30% 8% Limak Tudela 10% Veguin 9% Vicat Heidelberg Holcim 4% 9% 10% Cimko Cemex Cement Sabanci 22% Lafarge 4% 6% 14% Cimpor AS Cimento 3% Nuh Cimento 6% Cementir 6% 5%
Source: Exane BNP Paribas estimates
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Estimated Cimpor’s cement capacity shares in key markets being taken over by Camargo Correa.
Figure 20: Estimated cement capacity shares in Cimpor’s key markets being acquired by Camargo Portugal (c. 16% of 2011 EBITDA) Brazil (c. 34% of 2011 EBITDA)
CP Cimento Others 3% 7% Cimentos Liz 4%
Secil CSN Votorantim 36% 5% 37% Holcim 6%
Cimpor Cimpor 64% 8% Lafarge Nassau 9% Camargo 11% Correa 10%
Source: Exane BNP Paribas estimates
Figure 21: Estimated cement capacity shares in Cimpor’s key markets being acquired by Camargo Egypt (c. 8% of 2011 EBITDA) South Africa (c. 10% of 2011 EBITDA)
PPC Lafarge 47% Cemex 15% 7% Titan Italcementi 7% Cimpor 18% 6% Vicat 5% National Cement Cimpor 5% 8% Afrisam 28% Cementos La Others Union 32% 5% Lafarge 17%
Source: Exane BNP Paribas estimates
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Forthcoming events
Date Event 31 Jul. 2012 H1 2012 Results 13 Nov. 2012 Q3 2012 Results
Commitment of transparency (see www.exane.com/disclosureequitiesuk for details. Complete disclosures available on www.exane.com/compliance), including a specific disclaimer concerning analysts located in Spain.
Exane is independent of BNP Paribas (BNPP) and the agreement between the two companies is structured to guarantee the independence of Exane's research, published under the brand name “Exane BNP Paribas”. Nevertheless, to respect a principle of transparency, we separately identify potential conflicts of interest with BNPP regarding the company/(ies) covered by this research document.
Exane Analyst’s Amended after Additional Investment Liquidity Corporate Equity stake Distributor personal Disclosure to material banking provider links interest US Law French Law company conflicts NO NO NO NO NO NO NO NO NO Source: Exane
BNP Paribas Potential conflicts of interest: None. Source: BNP Paribas
17 CIMPOR CIMENTOS PORTUGAL │ 26 June 2012
Price at 25 Jun. 12 / 12m Target Price EUR3.79 / NS CIMPOR CIMENTOS PORTUGAL (NS) Reuters / Bloomberg: CPR.LS / CPR PL Analyst: Paul Roger, CFA (+44) 203 430 8415 Heavy Building Materials | Building Materials (NS) - Portugal Company Highlights EURm Enterprise value 4,217 8.0 Market capitalisation 2,547 Free float 476 6.0 3m average volume 10 5.0 Perform ance (*) 1m 3m 12m 4.0 Absolute (30%) (23%) (28%) Rel. Sector (29%) (11%) (15%) 3.0 Rel. MSCI Europe (30%) (17%) (25%) 12m Hi/Lo (EUR) : 5.6 -33% / 3.79 +0%
CAGR 1995/2012 2012/2014 2.0 EPS restated (**) 13% 16% 1. 6 CFPS NC 9% Price 6.4*CFPS Relative to M SCI Europe Price (yearly avg from Dec. 01 to Dec. 11) 4.7 3.8 3.5 4.2 4.5 5.4 6.5 4.8 4.8 5.1 5.1 3.8 3.8 3.8 PER SHARE DATA (EUR) De c. 01 De c. 02 De c. 03 De c. 04 De c. 05 De c. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12e Dec. 13e Dec. 14e No of shares year end, basic, (m) 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 Avg no of shares, diluted, excl. treasury stocks (m) 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 672.000 EPS, company definition 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 EPS restated, fully diluted 0.28 0.40 0.35 0.38 0.40 0.42 0.45 0.34 0.35 0.36 0.29 0.29 0.34 0.38 % change (7.2%) 41.2% (12.2%) 8.3% 4.4% 7.2% 6.5% (24.9%) 3.9% 2.0% (18.1%) (2.4%) 19.8% 11.4% CFPS 0.57 0.58 0.69 0.27 0.68 1.01 0.81 0.81 0.81 0.86 0.75 0.73 0.80 0.86 Book value (BVPS) (a) 1.6 1.4 1.4 1.7 2.3 2.4 2.7 2.2 2.7 3.2 3.0 3.1 3.3 3.4 Net dividend 0.12 0.03 0.17 0.18 0.19 0.22 0.23 0.19 0.20 0.21 0.17 0.16 0.19 0.22 STOCKM ARKET RATIOS Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12e Dec. 13e Dec. 14e P / E (P/ EPS restated) 16.7x 9.4x 9.9x 11.1x 11.3x 12.7x 14.4x 14.0x 13.5x 14.2x 17.2x 13.2x 11.0x 9.9x P / E relative to MSCI Europe 74% 54% 74% 88% 89% 103% 101% 97% 98% 123% 148% 131% 123% 120% P / CF 8.3x 6.5x 5.0x 15.5x 6.6x 5.3x 8.1x 5.9x 5.8x 5.9x 6.7x 5.2x 4.7x 4.4x FCF yield 6.6% 12.4% 12.7% 9.0% 10.4% 9.1% 6.7% 4.7% 11.7% 10.5% 8.9% 9.4% 10.0% 10.8% P / BVPS 2.91x 2.66x 2.41x 2.43x 1.98x 2.29x 2.43x 2.13x 1.74x 1.61x 1.72x 1.23x 1.16x 1.10x Net yield 2.6% 0.9% 4.9% 4.3% 4.3% 4.0% 3.5% 3.9% 4.3% 4.0% 3.3% 4.3% 5.1% 5.7% Payout 43.3% 8.0% 48.5% 47.4% 48.0% 50.6% 50.8% 54.5% 57.4% 57.0% 56.3% 56.3% 56.3% 56.3% EV / Sales 3.20x 2.91x 2.63x 2.73x 2.46x 2.75x 2.94x 2.48x 2.38x 2.31x 2.27x 1.83x 1.67x 1.53x EV / Restated EBITDA 9.1x 7.8x 7.2x 8.5x 7.7x 8.0x 9.5x 8.8x 8.2x 8.2x 8.4x 7.1x 6.2x 5.7x EV / Restated EBITA 13.9x 11.2x 10.3x 11.6x 10.6x 11.2x 13.2x 13.2x 13.2x 12.6x 13.8x 12.1x 10.4x 9.3x EV / OpFCF 11.9x 10.1x 8.5x 12.3x 9.8x 10.0x 13.5x 19.3x 9.6x 10.2x 11.0x 10.6x 9.7x 8.9x EV / Capital employed (incl. gross goodw ill) 1.8x 1.5x 1.3x 1.5x 1.3x 1.5x 1.5x 1.3x 1.2x 1.2x 1.2x 1.0x 0.9x 0.9x ENTERPRISE VALUE (EURm ) 4,433 3,833 3,580 3,732 3,775 4,510 5,784 5,181 4,968 5,171 5,155 4,217 4,112 4,000 Market cap 3,176 2,525 2,319 2,820 3,000 3,617 4,368 3,203 3,194 3,428 3,404 2,547 2,547 2,547 + Adjusted net debt 1,048 1,170 1,239 1,172 986 1,086 1,614 2,098 1,805 1,646 1,649 1,568 1,463 1,351 + Other liabilities and commitments 10 19 19 19 42 43 43 43 43 195 199 199 199 199 + Revalued minority interests 324 235 188 155 129 170 250 236 161 157 157 157 157 157 - Revalued investments 126 117 186 433 382 407 492 399 236 254 254 254 254 254 P & L HIGHLIGHTS (EURm) Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12e Dec. 13e Dec. 14e Sales 1,386 1,317 1,361 1,366 1,535 1,639 1,966 2,089 2,086 2,239 2,275 2,300 2,457 2,606 Restated EBITDA (b) 489 494 495 438 493 563 607 586 606 630 616 593 659 707 Depreciation (171) (151) (147) (115) (138) (155) (169) (194) (229) (221) (243) (246) (263) (279) Restated EBITA (b) (**) 318 343 348 322 355 401 438 393 377 409 373 348 396 428 Reported operating profit (loss) 270 284 289 322 355 401 438 393 377 409 373 348 396 428 Net financial income (charges) (56) (23) (36) (7) (38) (61) (56) (48) (63) (61) (81) (62) (56) (50) A f f iliates - - 0 0 35 19 8 (87) 0 (1) (1) (1) (1) (1) Other (5)(38)1200000000000 Tax (64) (41) (73) (52) (76) (60) (69) (25) (68) (97) (86) (82) (98) (109) Minorities (7) (5) (7) (8) (10) (14) (17) (17) (9) (10) (8) (8) (9) (9) Goodw ill amortisation (48) (59) (59) ------Net attributable profit reported 138 177 186 255 266 285 304 217 237 241 197 193 232 258 Net attributable profit restated (c) 142 209 176 255 266 285 304 228 237 242 198 193 232 258 CASH FLOW HIGHLIGHTS (EURm ) Dec. 01 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12e Dec. 13e Dec. 14e EBITDA (reported) 489 494 495 438 493 557 607 586 606 630 616 593 659 707 EBITDA adjustment (b) 000(0)0600000000 Other items 47 (60) 88 (215) 41 254 85 107 86 103 62 62 56 50 Change in WCR 35 130 (161) 248 (3) (205) (49) (119) 63 (54) 34 (3) (22) (21) Operating cash flow 571 563 422 470 531 612 643 575 755 679 712 652 693 736 Capex (199) (183) 0 (167) (145) (162) (215) (306) (237) (170) (243) (254) (270) (285) Operating free cash flow (OpFCF) 372 381 422 303 386 450 428 269 518 508 469 398 423 451 Net financial items + tax paid (139) (37) (105) (35) (61) (107) (120) (109) (126) (131) (151) (144) (154) (159) Free cash flow 233 344 317 268 325 343 308 160 393 378 317 255 270 293 Net financial investments & acquisitions (55) (268) (220) (137) 79 (43) (542) (344) 118 (17) (40) 0 0 0 Other (89) (107) (55) 48 (101) (273) (140) (127) (83) (56) (135) (62) (56) (50) Capital increase (decrease) 11(3)0230(10)(20)(12)(13)(10)000 Dividends paid (92) (87) (111) (113) (120) (127) (144) (153) (123) (133) (136) (112) (109) (130) Increase (decrease) in net financial debt (8) 122 69 (67) (186) 100 528 484 (293) (159) 3 (81) (105) (112) Cash flow, group share 383 389 464 182 455 677 542 545 546 578 506 490 541 577 BALANCE SHEET HIGHLIGHTS (EURm ) Dec. 01 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12e Dec. 13e Dec. 14e Fixed operating assets, incl. gross goodw ill 2,283 2,562 2,450 2,657 2,885 2,827 3,557 3,693 3,914 4,068 3,993 4,000 4,007 4,013 WCR 128 (53) 233 (187) (12) 192 241 360 355 385 358 361 383 404 Capital employed, incl. gross goodwill 2,411 2,510 2,683 2,470 2,872 3,019 3,798 4,052 4,269 4,453 4,351 4,362 4,391 4,417 Shareholders' funds, group share 1,091 950 961 1,159 1,519 1,580 1,796 1,505 1,831 2,133 1,983 2,065 2,188 2,315 Minorities 111 88 78 64 65 74 103 111 92 97 101 110 119 128 Provisions/ Other liabilities 56 119 226 143 315 322 411 373 413 466 597 499 499 499 Net financial debt (cash) 1,048 1,170 1,239 1,172 986 1,086 1,614 2,098 1,805 1,646 1,649 1,568 1,463 1,351 FINANCIAL RATIOS (%) Dec. 01 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12e Dec. 13e Dec. 14e Sales (% change) 5.1% (4.9%) 3.3% 0.4% 12.4% 6.8% 20.0% 6.2% (0.2%) 7.3% 1.6% 1.1% 6.8% 6.1% Organic sales grow th Restated EBITA (% change) (**) (11.9%) 7.8% 1.5% (7.3%) 10.2% 13.0% 9.1% (10.4%) (4.0%) 8.6% (8.9%) (6.8%) 14.0% 8.0% Restated attributable net profit (% change) (**) (7.2%) 41.2% (12.2%) 8.3% 4.4% 7.2% 6.5% (24.9%) 3.9% 2.0% (18.1%) (2.4%) 19.8% 11.4% Personnel costs / Sales 10.8% 11.6% 11.6% 11.9% 11.9% 11.9% 10.5% 9.9% 9.9% 9.3% 9.1% 9.0% 8.4% 7.9% Restated EBITDA margin 35.3% 37.5% 36.4% 32.1% 32.1% 34.3% 30.9% 28.1% 29.0% 28.1% 27.1% 25.8% 26.8% 27.1% Restated EBITA margin 23.0% 26.0% 25.6% 23.6% 23.2% 24.5% 22.3% 18.8% 18.1% 18.3% 16.4% 15.1% 16.1% 16.4% Tax rate 24.8% 14.5% 22.4% 16.6% 21.5% 16.7% 17.8% 9.6% 21.7% 27.8% 29.5% 29.0% 29.0% 29.0% Net margin 10.5% 13.8% 14.2% 19.2% 18.0% 18.3% 16.3% 11.2% 11.8% 11.2% 9.0% 8.8% 9.8% 10.3% Capex / Sales 14.3% 13.9% NC 12.2% 9.5% 9.9% 10.9% 14.6% 11.3% 7.6% 10.7% 11.0% 11.0% 10.9% OpFCF / Sales 26.9% 28.9% 31.0% 22.2% 25.1% 27.5% 21.8% 12.9% 24.9% 22.7% 20.6% 17.3% 17.2% 17.3% WCR / Sales 9.2% (4.0%) 17.1% (13.7%) (0.8%) 11.7% 12.3% 17.2% 17.0% 17.2% 15.7% 15.7% 15.6% 15.5% Capital employed (excl. gross goodwill) / Sales 101.6% 94.7% 104.8% 93.0% 101.3% 105.8% 108.6% 113.3% 119.0% 114.9% 113.0% 112.3% 106.3% 101.2% ROE 17.4% 28.3% 24.5% 22.0% 17.5% 18.1% 16.9% 15.2% 13.0% 11.3% 10.0% 9.4% 10.6% 11.1% Gearing 87% 113% 119% 96% 62% 66% 85% 130% 94% 74% 79% 72% 63% 55% EBITDA / Financial charges 8.7x 21.2x 13.9x 59.6x 12.8x 9.2x 10.8x 12.3x 9.6x 10.4x 7.6x 9.6x 11.8x 14.1x Adjusted financial debt / EBITDA 2.1x 2.4x 2.5x 2.7x 2.0x 1.9x 2.7x 3.6x 3.0x 2.6x 2.7x 2.6x 2.2x 1.9x ROCE, excl. gross goodw ill 17.0% 23.5% 18.9% 21.2% 17.9% 19.3% 16.9% 15.0% 11.9% 11.5% 10.2% 9.6% 10.8% 11.5% ROCE, incl. gross goodw ill 9.9% 11.7% 10.1% 10.9% 9.7% 11.1% 9.5% 8.8% 6.9% 6.6% 6.1% 5.7% 6.4% 6.9% WACC 7.4% 7.2% 6.8% 7.1% 6.4% 6.6% 6.6% 7.0% 15.9% 16.6% 17.7% 18.1% 18.1% 18.1% Latest Model update: 26 Jun. 12 (a) Intangibles: EUR1,413.98m, or EUR2 per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost (c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, w ith div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gw ill for pre IFRS year
18 CIMPOR CIMENTOS PORTUGAL │ 26 June 2012
LONDON PARIS BRUSSELS FRANKFURT Exane Ltd Exane S.A. Branch of Exane S.A. Branch of Exane S.A. 1 Hanover Street 16 Avenue Matignon Ravenstein 29 Europa-Allee 12, 3rd floor London W1S 1YZ 75008 Paris 1000 Brussels 60327 Frankfurt UK France Belgium Germany Tel: (+44) 207 039 9400 Tel: (+33) 1 44 95 40 00 Tel: (+32) 2 400 3750 Tel: (+49) 69 42 72 97 300 Fax: (+44) 207 039 9440 Fax: (+33) 1 44 95 40 01 Fax: (+32) 2 400 3751 Fax: (+49) 69 42 72 97 301
GENEVA MADRID MILAN NEW YORK Branch of Exane S.A. Branch of Exane S.A. Branch of Exane S.A. Exane Inc. Rue du Rhône 80 Calle Serrano 73 Via dei Bossi 4 640 Fifth Avenue 1204 Geneva 28006 Madrid 20121 Milan 15th Floor Switzerland Spain Italy New York, NY 10019 Tel: (+41) 22 718 65 65 Tel: (+34) 91 114 83 00 Tel: (+39) 02 89 63 17 13 USA Fax: (+41) 22 718 65 00 Fax: (+34) 91 114 83 01 Fax: (+39) 02 89 63 17 01 Tel: (+1) 212 634 4990 Fax: (+1) 212 634 5171
SINGAPORE STOCKHOLM Branch of Exane Ltd Representative office of Exane SA 20 Collyer Quay Nybrokajen 5 #07-02 Tung Centre 111 48 Stockholm Singapore 049319 Sweden Tel: (+65) 6212 9059 Tel: (+46) 8 5629 3500 Fax: (+65) 6212 9082 Fax: (+46) 8 611 1802
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