Assignment

Multinational Financial Management

Case 3

CEMEX ENTERS INDONESIA

Lecturer: Erni Ekawati, Ph.D

By: GROUP 5
Ariefka Sari Dewi

12/341231/PEK/17320

Dwi Wahyu R.S

12/341246/PEK/17335

Hartatiek

12/341257/PEK/17346

Niken Andry

12/341279/PEK/17368

Rifqa

12/341295/PEK/17384

PROGRAM MAGISTER MANAJEMEN

FAKULTAS EKONOMIKA DAN BISNIS
UNIVERSITAS GADJAH MADA
YOGYAKARTA
2013

A. FACTS
Cementos Mexicanos (Cemex) is a multinational company that produces cement in
Mexico. Cemex is the largest cement manufacturer in the Americas, and third largest in
the world. Cemex began its international expansion in an effort to reduce its reliance on
the Mexican market to capitalize on demand in many countries. Cemex competes in the
global marketplace for both market share and capital. The international cement market,
like markets in other commodities such as oil, is a dollar-based market. For this reason
and for comparisons against its major competitors in both Germany and Switzerland, so
Cemex considers the U.S. dollar its functional currency. Cemex wants to increase its
market capitalization through global expansion and entering in Asia market. In the year
1998, Cemex was considering the construction a cement manufacturing facility on the
Indonesian island of Sumatra. The project, Semen Indonesia, would be a wholly owned
greenfield investment with a total installed capacity of 20 million metric tons per year
(mmt/y). There were three driving reasons for this project:
1. Initiate a productive presence in Southeast Asia.
2. Favorable long-term prospects for Asian infrastructure development and growth.
3. Positive prospects for producing and exporting from Indonesia due to the depreciation
of the Indonesian rupiah (Rp) in 1997.
In analyzing feasibility of this project, Cemex make a road map of the complete
multinational capital budgeting to enter in Indonesia market.

Figure 1: a Road Map of to the Construction of Semen Indonesias Capital Budget

The basic principle is that, the parent company invests US$-denominated capital in
FDI project, project capital budget evaluated, and then project cash flows are remitted to
Cemex in order to make parent viewpoint capital budget. The first step to construct
capital budget, Cemex was analyzing a set of pro forma financial statements for Semen
Indonesia, all in Indonesian rupiah (Rp). The next step is to create two capital budgets
like project viewpoint and parent viewpoint. The following analysis was conducted
assuming that purchasing power parity (PPP) holds for the Rp/US$ exchange rate for
analysis this project. The projected inflation rates for Indonesia was 30% per annum and
3% per annum for United States inflation.

B. SITUATION ANALYSIS
1. Financial Assumption
This project would be held in Indonesia so the calculation was in Indonesian
Rupiah. Before the capital budgets (NPV and IRR) were calculated, financial assumptions
must be made. Based on the case, the financial assumption will be explained below.
a. Capital Investment
Cemex had production capacity of 20 million metric ton per year (mmt/y) with cost of
installed capacity $110/tonne. Cemex assumed exchange rate of Rp 10,000/US$ in the
year 1 and would be change consistent with inflation rate. Therefore, cost of initial
investment can be calculated by 20 million mmt/y*$110/tonne = $2.2 billion or Rp 22
trillion. The amount cost of plant and equipment were Rp 17,6 trillion and Cemex
assumed an annual depreciation charge of Rp 1.76 million (10 years straight-line
depreciation schedule).
b. Foreign Exchange Rate
This project was assuming that PPP holds for the Rp/US$ exchange rate. The spot rate
in year 0 was Rp 10.000/US$. The projected inflation rates for Indonesia were 30%
per annum and 3% per annum for United States. This table below shows that
calculation of spot rate Indonesian Rupiah against U.S. Dollar
Table 1: Spot Rate (Rp/US$)
Project year

1
(1.3/1.03)*
10,000

2
((1.3/1.03)^2)*
10,000

10,000

12,621

15,930

Calculation
Spot rate
(Rp/US$)

3
4
((1.3/1.03)^3)* ((1.3/1.03)^4)*
10,000
10,000
20,106

5
((1.3/1.03)^5)*
10,000

25,376

32,028

c. Financing
Capital structure was used by project viewpoint consists of 50% equity and 50% debt.
All equity form Cemex, 75% debt from Cemex, and 25% from a bank consortium
arranged by the Indonesian government. When, capital structure was used by parent
viewpoint consist of 60% equity and 40% debt. The loan is denominated in U.S.
dollars and Indonesian Rupiah. In U.S. dollars, the loan has 10% of annual interest
with maturity 5 years. In Indonesia Rupiah, the loan has 35% of annual interest with
maturity 8 years. This capital structure makes the difference of weighted average cost
of capital (WACC) between project viewpoint (used in Indonesian Rupiah) and parent
viewpoint (used in U.S. Dollar). This is calculation of WACC from project and parent
viewpoint:
Table 2: Calculation of WACC from Parent Viewpoint
Information
Risk-free rate
Credit spread
Cost of debt
Cost of debt, after-tax
Debt proportion
Cemex Beta
Equity premium
Cost of equity
Equity proportion

Calculation

8%*(1 0.35)

(13% - 6%)
(6% + 7%)*1.5

Result
6%
2%
8%
5.2%
40%
1.5
7%
16.5%
60%

WACC = (0.4)*(5.2%) + (0.6*16.5%) = 11.98%

2

Table 3: Calculation of WACC from Project Viewpoint

Information
Calculation
Risk-free rate
Credit Premium
Cost of debt in Rupiah
Cost of debt, after-tax
35%*(1 - 0.3)
Cost of debt, after tax to be paid
(24.5%*0.25)
Cost of US$ debt
Cost of US$ debt, after-tax
38.835%*(1 0.3)
Cost of debt, after tax to be paid
(27.184%*0.75)
Total Cost of debt
6.125% + 20.388%
Debt Proportion
Cemex Indonesia of beta
Equity premium
(40% - 33%)
Cost of equity
(33% + 7%)*1
Equity Proportion
WACC = (0.5*26.513%) + (0.5*40%) = 33.527%

Result
33%
2%
35%
24.5%
6.125%
38.835%
27.184%
20.388%
26.513%
50%
1
7%
40%
50%

d. Revenues
Cemex assumes that the 20 mmt/y facility is expected to operate at only 40% capacity
(producing, 8 million metric tonnes). Sales price of cement was $58/tonne and would
remain constant over the life project. Capacity is expected to be 50% in year 2 and
60% from year 3 on.
e. Costs
Costs of this project consist of manufacturing cost, production costs, and loading
costs. Manufacturing costs (labor, materials, power, etc.) were estimated at Rp
115,000 per tonne for 1999 and increasing in accordance with inflation rate of 30%
per year. Production costs are estimated Rp 20,000 per tonne for 1999 and increasing
in accordance with inflation rate of 30% per year.
2. Project Viewpoint Capital Budget
Evaluation of a project from local viewpoint serves some useful purposes, but it
should be subordinated to be evaluated from the parents viewpoint. In evaluating a
foreign projects performance relative to the potential of a competing project in the same
host country, we must pay attention to the projects local return. Almost any project
should at least be able to earn cash return equal to the yield available on host government
bonds (with the same maturity as projects economic life).
For project viewpoint, net cash flow or free cash flow is calculated by summing
EBITDA, recalculated taxes, and changes in net working capital. Capital budgeting is
estimated by using EBITDA, not EBT, which contains both depreciation and interest
expense. Furthermore, taxes are recalculated on the basis of EBITDA. The firms cost of
capital used in discounting also includes the deductibility of debt interest in its
calculation.
The initial investment of Rp 22 trillion is the total capital invested to support these
earnings. Although receivables average 50 to 55 days sales outstanding (DSO) and
inventories 65 to 70 DSO, payable and trade credit are also relative long at 114 DSO in
the Indonesian cement industry. Semen Indonesia expects to add approximately 15 net
DSO to its investment with sales growth.
The terminal value (TV) of project represents the continuing value of the cement
manufacturing facility in the years 5, last year of detailed pro forma financial analysis.
3

TV calculated as perpetual net operating cash flow after year 5. TV from Semen
Indonesia can be estimated by using form below.

Terminal Value

NOCF5 (1 g) 6,547,059 (1 0)

RP19,686,258
k WACC g
0.33257 0

The result of the capital budget from the project viewpoint indicate a negative
present value (NPV) of Rp 9,443,460 million or about Rp 9,4 trillion and internal rate of
return (IRR) of only 15.4% less than cost of capital about 33.257%. According to this
calculation, the project is not acceptable.
Tabel 4: Capital Budget: Cemex Indonesia (millions RP)
Project Year
Spot Rate (Rp/$)
EBITDA
Recalculated taxes
(@30%)
Net Operating
cash flow

Year 0
10,000

Additions to NWC
Initial Investment
Terminal Value

(22,000,000)

Free Cash Flow

(FCF)

(22,000,000)

NPV @ 33.257%
IRR

($9,443,460)
15.4%

Year 1
12,621
2,979,029

Year 2
15,930
4,499,067

Year 3
20,106
6,504,982

Year 4
25,376
7,813,589

Year 5
32,028
9,352,941

(893,709)

(1,349,720)

(1,951,495)

(2,344,077)

(2,805,882)

2,085,320

3,149,347

4,553,487

5,469,512

6,547,059

(240,670)

(139,028)

(436,049)

(289,776)

(625,314)
19,686,258

1,844,650

3,010,319

4,117,438

5,179,736

25,608,003

3. Parent Viewpoint Capital Budgeting

All incremental earnings to Cemex from the prospective investment project in
Indonesia are important in parent viewpoint. For Cemex, investment must be analyzed in
terms of US dollar cash inflows and outflows associated with the investment over the life
of project, after-tax, discounted at its appropriate cost of capital.
Parent viewpoint capital budget can be estimated in two ways. First, isolate
individual cash flows, adjusted for any withholding taxes imposed by the Indonesia
government and converted to US dollars. In the case of Semen Indonesia, dividends will
be charged a 15% withholding tax, 10% on interest payments, and 5% license fees.
Mexico does not repatriated earnings since they have already been taxed in Indonesia.
After isolate individual cash flows the second step is to calculate the actual parent
viewpoint capital budget, combines these US dollar after-tax cash flows with initial
investment to determine the net present value of proposed Semen Indonesia subsidiary
eyes of Cemex. A specific peculiarity of this parent viewpoint capital budget is that only
the capital invested into the project by Cemex itself, $1,925 million, is included the initial
investment, $1,100 million in equity and $825 million loan. The Indonesia debt of Rp
2.75 billion ($275 million) is not included in the Cemex parent viewpoint capital budget.

Table 5: Semen Indonesias Remittance and Capital Budget: Parent Viewpoint

(millions of Rp and US$)
Project Year
Spot Rate (Rp/$)

Year 0
10,000

Dividend Remittance
Dividends paid (RP)
Withholding tax @ 15%
Net dividend remitted (RP)
Net dividend remitted ($)
License Fees Remittance
Fees remitted
Withholding tax @ 5%
Net dividend remitted (RP)
Net license fees remitted ($)
Debt Service Remittance
Promised interest paid ($)
Withholding tax @ 10%
Net interest remitted ($)
Principal payments remitted
($)

Year 1
12,621

Year 2
15,930

Year 3
20,106

Year 4
25,376

Year 5
32,028

0
0
0
0

0
0
0
0

560,423
(84,063)
476,360
24

555,757
(83,364)
472,393
19

651,450
(97,717)
553,732
17

117,126
(5,856)
111,270
8.8

184,787
(9,239)
175,547
11.0

279,871
(13,994)
265,877
13.2

353,235
(17,662)
335,573
13.2

445,831
(22,292)
423,539
13.2

82.5
(8.25)
74.3

69.0
(6.90)
62.1

54.1
(5.41)
48.7

37.8
(3.78)
34.0

19.8
(1.98)
17.8

135.1

148.6

163.5

179.9

197.8

0.0
8.8
209.4
218.2

0.0
11.0
210.7
221.8

23.7
13.2
212.2
249.1

18.6
13.2
213.9
245.7

17.3
13.2
215.7
246.2

Capital Budget: Parent Viewpoint

(US$ million)
Dividends
License fees
Debt service
Total
Initial Investment
Terminal Value
Free Cash Flow (FCF)
NPV @ 17.98%
IRR

(1,925)
614.66
(1,925)
(925.62)
-1.84%

218.2

221.8

249.1

245.7

860.8

In order to evaluate the projects cash flows that are returned to the parent
company, Cemex must discount these at the corporate cost of capital. If Cemex were
undertaking an investment of the same relative degree of risk of the firm itself, a simple
discount rate of 11.98% might me adequate. Cemex, however, requires new investment to
yield an additional 6% over the cost of capital for international projects. The discount rate
for Semen Indonesias cash flows repatriated to Cemex will therefore be discounted at
11.98% + 6%, or 17.98%. From the parent viewpoint capital budgeting, it is indicated a
negative NPV of US$925.6 million with IRR -1.84%. Based on this result yhis
investment is unacceptable from the parents viewpoint.
Multinational firm should invest only if they can earn a risk-adjusted return greater
than locally based competitors can earn on the same project. If they are unable to earn
superior returns on foreign projects, their stockholders would be better off buying shares
in local firms, where possible, and letting those companies carry out the local projects.
5

Most firms appear to evaluate foreign projects from both parent and project NPV and the
overall effect on consolidated earning of the firm. For foreign projects, must adjust for
agency cost and foreign exchange rate risks and costs.
B. KEY ISSUES
Cemex was using traditional capital budgeting for considering expansion in
Indonesia. From traditional capital budgeting, Cemex got negative NPV and IRR that is
less than WACC, not only from project viewpoint but also from parent viewpoint. These
calculations meant the investment should be rejected. Is there any wrong assumption that
Cemex use?
Cemex was considering expansion to Indonesia yet Cemex did not consider the
additional risk or sensitivity analysis from both project viewpoint and parent viewpoint.
From project viewpoint, sensitivity analysis could be measured from foreign exchange
risk and other sensitivity variable such as the capacity utilization rate. Furthermore, from
parent viewpoint, the additional risk can be measured in at least two ways, adjusting the
discount rates or adjusting the cash flows. What will happen if Cemex considers these
additional risks?
C. ALTERNATIVE SOLUTIONS
1. Changing in Foreign Exchange Rate
Cemex should consider additional risks for both project viewpoint and parent
viewpoint. Cemex should consider whether if the rate of rupiah was depreciated or
appreciated. We try to make some estimation based on this consideration, rupiah
depreciate and appreciate.
a. Rupiah depreciate
When the rate of rupiah depreciation were greater than US dollar at the PPP it
would make the assumed cash flows to Cemex worth less in dollars and the cheaper
rupiah made Semen Indonesia more competitive. It will happen caused by cash flow of
Semen Indonesia both cash inflows (export to Taiwan) and outflows (imported
components from parent company) are denominated in foreign currencies. Rupiah
depreciation would make higher inflation, so we would like to forecast the capital budget
with Indonesia inflation rate 40% (>30%). And the result is capital budget have the
negative NPV of Rp -6,435,034 and IRR of 24.5%, compared to 36.06%. This result
shows that the project should be rejected.
b. Rupiah appreciate
Rupiah appreciates because of the decreasing of inflation rate. For this estimation,
we assume that inflation Indonesia decrease 10% or become 20%, inflation America stays
the same or 3%, WACC for project is 30.45% and 17.98% for parent. Based on these
assumptions, we try to estimate NPV and IRR for both project viewpoint and parent view
point. For project viewpoint, we got a negative NPV of Rp 12,126,108 million and IRR
6.1% that is less than WACC. And for parent viewpoint, we got a negative NPV of
$921.83 million with a negative IRR 1.65%. Based on this estimation, we can assume that
this investment should be rejected.
c. Real Option
We can find the NPV and IRR based on the financial assumptions. When the NPV
value is negative, for example $-614.710 it mean that the project must be rejected. In this
6

session, we use several assumptions, whether we got changes on inflation rate or at

capacity amount.
When the inflation rate is assumed very high than 30% like 40%. The NPV value is
($6,435,034). So that when inflation rate higher to 40% and capacity volume of sales
increased became 12,000 on year 1, then 14,000 on year 2, then 16,000 in year 3-5, the
NPV value is still negative ($-614.710).
And if inflation rate is still on 30% but we changes on the capacity as telling above,
it shown at exhibit 4 and we can see that NPV value is ($4,650,934). It is better than cash
flow without changes on capacity but it still got negative value and the project has to
reject.

Inflation rate 40%

NPV= Rp -6,435,034

p=33,3%

Inflation rate 30%

Project

NPV= Rp -9,443,460

p=33,3%

Inflation rate 20%

NPV= Rp -12,126,108
p=33,3%
Total NPV = (0,333 x Rp -6,435,034) + (0,333 x Rp -9,443,460) + (0,333 x Rp 12,126,108)
= Rp -9,325,532
Figure 2: Real Option for Changing in Foreign Exchange Rate
Actually we dont know exactly the probability so we assume that the probability is
about 33.3% each inflation rate (we divided into 40%, 30% and 20% without change on
capacity). Based on those analyses, the total NPV is Rp -9,325,532. When the inflation
rate going higher or lower, but NPV value is still negative. From these analyses we can
conclude that the project still must be rejected because the NPV is still negative.
2. Changing in Capacity
Furthermore, we try to estimate NPV and IRR for project and parent by increasing
the capacity utilization rate. We assume that capacity for year 1 is 50%, year 2 is 60%,
year 3 is 70%, year 4 is 80%, and year 5 is 90%. We use the same inflation rate from the
case, 30%. Based on this assumption, we got the results of the capital budget from the
project viewpoint indicate a negative NPV of Rp -4,677,058 million and an IRR of only
25.4%, compared to the 33.257 % cost of capital. Even we optimist with the condition is
different, which means that the production capacity is higher than that so NPV will be
positive. But this projects NPV is still negative and would not acceptable. Then we use
probability 50% on each condition (project of 30% inflation rate and project of 30%
inflation rate plus change in capacity), the total NPV is Rp 7,060,259. The project still
must be rejected.
7

Pesimist
NPV= Rp -9,443,460
p=50%

Project

Optimist

NPV= Rp -4,677,058

p=50%
Total NPV = (0.5 x Rp -9,443,460) +(0.5 x Rp -4,677,058)

= Rp -7,060,259

Figure 3: Real Option for Changing in Capacity

3. Real Market Condition
From inflation rate data on the appendix, we are assuming that the Indonesian
inflation rate is expected to normalize. Therefore, we are using inflation rate decrease in
30% every year. Based on IMF data, Indonesian inflation rate in 1998 was 77.54% and
we are assuming that it is expected to normalize, so it will decrease into 54.28% then
37.99% in year 2000. While the inflation rate of United States is expected 2%/year with
Indonesian Rupiah exchange rate Rp 10,375 against U.S dollar. Therefore, changing in
the inflation rate will affect in Indonesian Rupiah exchange rate against U.S dollars.
Cemex allocated production capacity was 20,000 mmt/y, but it would not
maximizing the production capacity. It only used 40% from maximum capacity in year 1.
Cemex can use 50% from maximum production capacity in year 1 and it capacity will
increase 10%/year. Thus, Cemex production capacity is 60% in year 2, 70% in year 3,
80% in year 4, and 90% in year 5. We are assuming that Cemex has increased in export
sales because one of Cemex purpose to build plant in Indonesia was global expansion
especially in Southeast Asia market. We believe that the plant can operate at optimum
capacity. Then we used the same additional expenses include license fees, general
administrative expenses and depreciation as the case assumed. We also build this parent
view point capital budget. Dividends are not distributed in the first and second year but it
will distribute at a 50% rate in the year 3-5. Dividends will be charged a 15% withholding
tax, 10% interest payments and 5% license fees. This is illustrated in the Appendix 5
which shows all incremental earnings to Cemex from the prospective investment project.
Based on World Bank data, the components of cost of capital will be changed in
accordance with market condition. The components of cost of capital will describe in the
appendix. We found that the new WACC or WACC adjusted is 16.26% from parent
viewpoint and 46.87% from project viewpoint. The new WACC or WACC adjusted and
exchange rate will affect in free cash flow (FCF) and capital budgets (NPV and IRR) for
Cemex. Based on our calculation, we found that NPV is Rp -3,983,785 million and IRR is
37.7% form project viewpoint. This negative NPV indicates that Cemex should reject this
project. An IRR calculation is less that cost of capital 45.29%, so this project is not
acceptable (reject) from project viewpoint. While NPV and IRR from parent viewpoint
also rejected because of NPV has negative value and IRR less than cost of capital.
8

Therefore, using the real inflation rate and cost of capital data, this project is not
acceptable. Cemex should not build plant and equipment in Indonesia.
D. RECOMMENDATION
From all of our estimate with sensitivity analysis, this project should be rejected.
We adjusts increase and decrease in inflation rate, the project should not acceptable. We
also adjusts the sales volume into 50%-90%, but still the NPV is negative and IRR still
less than WACC. And we adjust the NPV and IRR by using real market condition, the
result stays the same, NPV still negative and IRR still less than WACC. This investment
could not applied in Indonesia and also the timing of investment was not in good
condition because Indonesia was suffering crisis during 1997-1998.
If Cemex really want to make a greenfield investment in Indonesia, there are
several recommendations that we can give for Cemex:
1. Cemex should use optimist assumption for calculating capital budgeting, both project
viewpoint and parent viewpoint.
2. Cemex should use Rupiah for the all debt. Cemex use US dollar as functional
currency, so the all revenue will be in US Dollar. At that time Rupiah was
depreciated, Cemex will get more Rupiahs if Cemex converted US Dollar to Rupiah.
3. In 1998, Indonesia faced economic crisis, but the crisis will not last forever. Cemex
should make assumption that crisis and hyperinflations are expected to normalize.

E. BIBLIOGRAPHY
Saphiro, Alan C. (2010). Multinational Financial Management 9th Edition. John Wiley
& Sons, Inc.
http://www.bps.go.id/aboutus.php?inflasi=1
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weorept.aspx?sy=1997&ey=2
003&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=85&pr1.y=8&c=536%2C111&
s=PPPEX%2CPCPI%2CPCPIPCH%2CPCPIE%2CPCPIEPCH&grp=0&a=
http://data.worldbank.org/indicator/FR.INR.RINR?page=3

Appendix
Exhibit 1: Semen Indonesia Debt Service Schedule
Project Year
Spot Rate (Rp/$)

Year 0
10,000

Year 1
12,621

Year 2
15,930

Year 3
20,106

Year 4
25,376

Year 5
32,028

Indonesian Loan @ 35% for 8

years (million Rp)
Loan Principal
2,750,000
Interest Payment
Principal Payment
Total Payment

2,654,061
(962,500)
(95,939)
(1,058,439)

2,524,543
(928,921)
(129,518)
(1,058,439)

2,349,694
(883,590)
(174,849)
(1,058,439)

2,113,648
(822,393)
(236,046)
(1,058,439)

1,794,985
(739,777)
(318,662)
(1,058,439)

Cemex Loan @ 10% for 5 years

(million US$)
Loan Principal
825
Interest Payment
Principal Payment
Total Payment

689.9
(82.5)
(135.1)
(217.6)

541.2
(69.0)
(148.6)
(217.6)

377.7
(54.1)
(163.5)
(217.6)

197.8
(37.8)
(179.9)
(217.6)

0.0
(19.8)
(197.8)
(217.6)

Cemex loan converted to Rp

(million Rp)
Scheduled @
Rp10,000/$
Interest Payment
Principal Payment
Total Payment

(825,000)
(1,351,329)
(2,176,329)

(689,867)
(1,486,462)
(2,176,329)

(541,221)
(1,635,108)
(2,176,329)

(377,710)
(1,798,619)
(2,176,329)

(197,848)
(1,978,481)
(2,176,329)

Actual (@ current
spot rate)
Interest Payment
Principal Payment
Total Payment

(1,041,262)
(1,705,561)
(2,746,823)

(1,098,949)
(2,367,915)
(3,466,864)

(1,088,160)
(3,287,494)
(4,375,654)

(958,480)
(4,564,190)
(5,522,670)

(633,669)
(6,336,691)
(6,970,360)

(2,746,823)

(3,466,864)

(4,375,654)

(5,522,670)

(6,970,360)

(409,082)

(546,940)

(580,770)

(435,821)

(881,453)

(1,652,385)

(2,765,571)

(4,358,210)

(1,290,535)

(2,199,325)

(3,346,341)

(4,794,031)

Year 4
25,376
16,000
58
1,471,813

Year 5
32,028
18,000
58
1,857,627

Cash flow in RP on Cemex Loan

(million RP)
Total Actual Cash
Flow
8,250,000
IRR of cash flow:
39%

Foreign Exchange Losses on Cemex Loan (million

RP)
Forex Loss on
Interest:
(216,262)
Forex Loss on
Principal:
(354,232)
Total Forex Loss on
Debt:
(570,494)

Exhibit 2: Semen Indonesia Pro Forma Income Statement

Project Year
Spot Rate (Rp/$)
Sales Volume
Sales Price ($)
Sales Price (RP)

Year 0
10,000

Year 1
12,621
10,000
58
732,039

Year 2
15,930
12,000
58
923,933

Year 3
20,106
14,000
58
1,166,128

10

Total Revenue ('000)

7,320,388

11,087,190

16,325,798

23,549,001

33,437,295

(1,150,000)
(200,000)
(252,427)
(1,262,136)
(2,864,563)

(1,794,000)
(312,000)
(393,786)
(1,968,932)
(4,468,718)

(2,720,900)
(473,200)
(597,243)
(2,986,214)
(6,777,556)

(4,042,480)
(703,040)
(887,332)
(4,436,660)
(10,069,512)

(5,912,127)
(1,028,196)
(1,297,723)
(6,488,616)
(14,726,662)

Gross Profit

4,455,825

6,618,472

9,548,241

13,479,489

18,710,633

License Fees
General & Admin
Expenses
EBITDA

(146,408)

(221,744)

(326,516)

(470,980)

(668,746)

(585,631)
3,723,786

(997,847)
5,398,881

(1,632,580)
7,589,146

(2,590,390)
10,418,119

(4,012,475)
14,029,412

(1,760,000)
1,963,786

(1,760,000)
3,638,881

(1,760,000)
5,829,146

(1,760,000)
8,658,119

(1,760,000)
12,269,412

Interest on Cemex Debt

Forex Losses on Debt
Interest on Local Debt
EBT

(825,000)
(570,494)
(962,500)
(394,208)

(689,867)
(1,290,535)
(928,921)
729,557

(541,221)
(2,199,325)
(883,590)
2,205,010

(377,710)
(3,346,341)
(822,393)
4,111,675

(197,848)
(4,794,031)
(739,777)
6,537,756

Income taxes (30%)

Net Income (RP)
Net Income ($ million)

0
(394,208)
(31)

0
729,557
46

0
2,205,010
110

1,995,610
2,116,064
83

1,961,327
4,576,429
143

Cash costs ('000)

Additional production costs ('000)
Loading costs ('000)
Shipping costs ('000)
Total

Depreciation &
Amortization
EBIT

Exhibit 3: Rupiah Depreciates

Project Year
Spot Rate (Rp/$)
Sales Volume
Sales Price ($)
Sales Price (RP)
Total Revenue ('000)

Year 1
13.592
8.000
58
788.350
6.306.796

Year 2
18.475
10.000
58
1.071.543
10.715.430

Year 3
25.111
12.000
58
1.456.466
17.477.595

Year 4
34.132
12.000
58
1.979.663
23.755.954

Year 5
46.393
12.000
58
2.690.804
32.289.647

(920.000)

(1.610.000)

(2.704.800)

(3.786.720)

(5.301.408)

(160.000)
(217.476)
(1.087.379)
(2.384.854)

(280.000)
(380.583)
(1.902.913)
(4.173.495)

(470.400)
(639.379)
(3.196.893)
(7.011.472)

(658.560)
(895.130)
(4.475.650)
(9.816.061)

(921.984)
(1.253.182)
(6.265.911)
(13.742.485)

Gross Profit

3.921.942

6.541.935

10.466.123

13.939.894

18.547.162

License Fees
General & Admin
Expenses
EBITDA

(126.136)

(214.309)

(349.552)

(475.119)

(645.793)

(504.544)
3.291.262

(964.389)
5.363.238

(1.747.760)
8.368.812

(2.613.155)
10.851.620

(3.874.758)
14.026.611

(1.760.000)
1.531.262

(1.760.000)
3.603.238

(1.760.000)
6.608.812

(1.760.000)
9.091.620

(1.760.000)
12.266.611

Cash costs ('000)

Additional production
costs ('000)
Loading costs ('000)
Shipping costs ('000)
Total

Depreciation &
Amortization
EBIT

Year 0
10.000

11

Interest on Cemex Debt

Forex Losses on Debt
Interest on Local Debt
EBT

(825.000)
(781.788)
(962.500)
(1.038.026)

(689.867)
(1.844.413)
(928.921)
140.037

(541.221)
(3.288.757)
(883.590)
1.895.244

(377.710)
(5.251.943)
(822.393)
2.639.573

(197.848)
(7.920.352)
(739.777)
3.408.635

Income taxes (30%)

Net Income (RP)
Net Income ($ million)

0
(1.038.026)
(76)

42.011
98.026
5

299.176
1.596.067
64

1.091.048
1.548.525
45

1.022.590
2.386.044
51

Year 1
13.592
3.291.262

Year 2
18.475
5.363.238

Year 3
25.111
8.368.812

Year 4
34.132
10.851.620

Year 5
46.393
14.026.611

(987.379)

(1.608.971)

(2.510.644)

(3.255.486)

(4.207.983)

2.303.883

3.754.266

5.858.168

7.596.134

9.818.628

(240.670)

(139.028)

(436.049)

(289.776)

(625.314)

Capital Budget: Cemex Indonesia (million RP)

Project Year
Spot Rate (Rp/$)
EBITDA
Recalculated taxes
(@30%)
Net Operating
cashflow

Year 0
10.000

Additions to NWC
Initial Investment
Terminal Value

(22.000.000)

Free Cash Flow (FCF)

(22.000.000)

NPV @ 36,06%
IRR

27.228.531
2.063.213

3.615.238

5.422.119

7.306.358

36.421.845

(Rp6.435.034)
24,5%

Semen Indonesias Remittance and Capital Budget: Parent Viewpoint (million RP & million
US$)
Project Year
Spot Rate (Rp/$)
Dividend Remittance
Dividends paid (RP)
Withholding tax @ 15%
Net dividend remitted (RP)
Net dividend remitted ($)
License Fees Remittance
Fees remitted
Withholding tax @ 5%
Net dividend remitted (RP)
Net license fees remitted ($)
Debt Service Remittance
Promised interest paid ($)
Withholding tax @ 10%
Net interest remitted ($)
Principal payments remitted ($)

Year 0
10.000

Year 1
12.621

Year 2
15.930

Year 3
20.106

Year 4
25.376

Year 5
32.028

0
0
0
0

0
0
0
0

798.034
(119.705)
678.329
34

774.263
(116.139)
658.123
26

1.193.022
(178.953)
1.014.069
32

126.136
(6.307)
119.829
9,5

214.309
(10.715)
203.593
12,8

349.552
(17.478)
332.074
16,5

475.119
(23.756)
451.363
17,8

645.793
(32.290)
613.503
19,2

82,5
(8,25)
74,3
135,1

69,0
(6,90)
62,1
148,6

54,1
(5,41)
48,7
163,5

37,8
(3,78)
34,0
179,9

19,8
(1,98)
17,8
197,8

Capital Budget: Parent

Viewpoint (US$ million)
12

Dividends
License fees
Debt service
Total

0,0
9,5
209,4
218,9

Initial Investment
Terminal Value

0,0
12,8
210,7
223,5

33,7
16,5
212,2
262,5

25,9
17,8
213,9
257,6

31,7
19,2
215,7
266,5

(1.925)
586,91
(1.925)
(912,79)
-2%

Free Cash Flow (FCF)

NPV @ 17.98%
IRR

218,9

223,5

262,5

257,6

853,4

Exhibit 4: Rupiah Appreciates

Cost of Capital: Cemex Indonesia
Risk-free rate
Credit Premium
Cost of debt in Rupiah
Cost of debt, after-tax
Cost of US$ debt
Cost of US$ debt, after-tax
% debt

33%
2%
35%
24.50%
28%
19.71%
50%

Cemex Indonesia
Equity premium
Cost of equity
% equity

1
7%
40%
50%

WACC

30.4533%

Capital Budget: Cemex Indonesia (million RP)

Project Year
Spot Rate (Rp/$)
EBITDA
Recalculated taxes
@30%
Net Operating cash
flow

Year 0
10,000

Additions to NWC
Initial Investment
Terminal Value

(22,000,000)

Free Cash Flow (FCF)

(22,000,000)

NPV @30.4533%
IRR

Year 1
11,650
2,666,796

Year 2
13,573
3,708,909

Year 3
15,814
4,936,898

Year 4
18,424
5,457,526

Year 5
21,464
6,009,723

(800,039)

(1,112,673)

(1,481,070)

(1,637,258)

(1,802,917)

1,866,757

2,596,237

3,455,829

3,820,268

4,206,806

(240,670)

(139,028)

(436,049)

(289,776)

(625,314)
13,813,958

1,626,087

2,457,209

3,019,780

3,530,492

17,395,450

($12,126,108)
6.1%

Capital Budget: Cemex Indonesia (million RP & million US$)

Project Year
Spot Rate (Rp/$)
Dividend Remittance
Dividends paid (RP)
Withholding tax @ 15%
Net dividend remitted (RP)
Net dividend remitted ($)
License Fees Remittance
Fees remitted
Withholding tax @ 5%

Year 0
10,000

Year 1
12,621

Year 2
15,930

Year 3
20,106

Year 4
25,376

Year 5
32,028

0
0
0
0

0
0
0
0

798,034
(119,705)
678,329
34

774,263
(116,139)
658,123
26

1,193,022
(178,953)
1,014,069
32

126,136
(6,307)

214,309
(10,715)

349,552
(17,478)

475,119
(23,756)

645,793
(32,290)
13

Net dividend remitted (RP)

Net license fees remitted ($)
Debt Service Remittance
Promised interest paid ($)
Withholding tax @ 10%
Net interest remitted ($)
Principal payments remitted ($)

119,829
9.5

203,593
12.8

332,074
16.5

451,363
17.8

613,503
19.2

82.5
(8.25)
74.3
135.1

69.0
(6.90)
62.1
148.6

54.1
(5.41)
48.7
163.5

37.8
(3.78)
34.0
179.9

19.8
(1.98)
17.8
197.8

0.0
9.5
209.4
218.9

0.0
12.8
210.7
223.5

33.7
16.5
212.2
262.5

25.9
17.8
213.9
257.6

31.7
19.2
215.7
266.5

Capital Budget: Parent

Viewpoint (US$ million)
Dividends
License fees
Debt service
Total
Initial Investment
Terminal Value

(1,925)
586.91
(1,925)
(912.79)
-2%

Free Cash Flow (FCF)

NPV @ 17.98%
IRR

218.9

223.5

262.5

257.6

853.4

Exhibit 5: Changing in Capacity

Semen Indonesia Pro Forma Income Statement
Project Year
Spot Rate (Rp/$)
Sales Volume
Sales Price ($)
Sales Price (RP)
Total Revenue ('000)

Year 0
10,000

Year 1
12,621
10,000
58
732,039
7,320,388

Year 2
15,930
12,000
58
923,933
11,087,190

Year 3
20,106
14,000
58
1,166,128
16,325,798

Year 4
25,376
16,000
58
1,471,813
23,549,001

Year 5
32,028
18,000
58
1,857,627
33,437,295

(1,150,000)
(200,000)
(252,427)
(1,262,136)
(2,864,563)

(1,794,000)
(312,000)
(393,786)
(1,968,932)
(4,468,718)

(2,720,900)
(473,200)
(597,243)
(2,986,214)
(6,777,556)

(4,042,480)
(703,040)
(887,332)
(4,436,660)
(10,069,512)

(5,912,127)
(1,028,196)
(1,297,723)
(6,488,616)
(14,726,662)

Gross Profit

4,455,825

6,618,472

9,548,241

13,479,489

18,710,633

License Fees
General & Admin
Expenses
EBITDA

(146,408)

(221,744)

(326,516)

(470,980)

(668,746)

(585,631)
3,723,786

(997,847)
5,398,881

(1,632,580)
7,589,146

(2,590,390)
10,418,119

(4,012,475)
14,029,412

(1,760,000)
1,963,786

(1,760,000)
3,638,881

(1,760,000)
5,829,146

(1,760,000)
8,658,119

(1,760,000)
12,269,412

(825,000)
(570,494)
(962,500)

(689,867)
(1,290,535)
(928,921)

(541,221)
(2,199,325)
(883,590)

(377,710)
(3,346,341)
(822,393)

(197,848)
(4,794,031)
(739,777)

Cash costs ('000)

Additional production costs ('000)
Loading costs ('000)
Shipping costs ('000)
Total

Depreciation &
Amortization
EBIT
Interest on Cemex
Debt
Forex Losses on Debt
Interest on Local Debt

14

EBT

(394,208)

729,557

2,205,010

4,111,675

6,537,756

Income taxes (30%)

Net Income (RP)
Net Income ($
million)

0
(394,208)

0
729,557

0
2,205,010

1,995,610
2,116,064

1,961,327
4,576,429

(31)

46

110

83

143

Year 1
12,621
3,723,786

Year 2
15,930
5,398,881

Year 3
20,106
7,589,146

Year 4
25,376
10,418,119

Year 5
32,028
14,029,412

(1,117,136)

(1,619,664)

(2,276,744)

(3,125,436)

(4,208,824)

2,606,650

3,779,217

5,312,402

7,292,683

9,820,588

(240,670)

(139,028)

(436,049)

(289,776)

(625,314)

Capital Budget: Cemex Indonesia (million RP)

Project Year
Spot Rate (Rp/$)
EBITDA
Recalculated taxes
(@30%)
Net Operating cash
flow
Additions to NWC
Initial Investment
Terminal Value

Year 0
10,000

(22,000,000)
29,529,388

Free Cash Flow

(FCF)

(22,000,000)

NPV @ 33.257%
IRR

($4,677,058)
25.4%

2,365,980

3,640,189

4,876,353

7,002,907

38,724,662

Capital Budget: Cemex Indonesia (million RP & million US$)

Project Year
Spot Rate (Rp/$)

Year 0
10,000

Dividend Remittance
Dividends paid (RP)
Withholding tax @ 15%
Net dividend remitted
(RP)
Net dividend remitted ($)
License Fees Remittance
Fees remitted
Withholding tax @ 5%
Net dividend remitted
(RP)
Net license fees remitted
($)
Debt Service Remittance
Promised interest paid ($)
Withholding tax @ 10%
Net interest remitted ($)
Principal payments
remitted ($)

Year 1
12,621

Year 2
15,930

Year 3
20,106

Year 4
25,376

Year 5
32,028

0
0

0
0

1,102,505
(165,376)

1,058,032
(158,705)

2,288,215
(343,232)

0
0

0
0

937,129
47

899,327
35

1,944,982
61

146,408
(7,320)

221,744
(11,087)

326,516
(16,326)

470,980
(23,549)

668,746
(33,437)

139,087

210,657

310,190

447,431

635,309

11.0

13.2

15.4

17.6

19.8

82.5
(8.25)
74.3

69.0
(6.90)
62.1

54.1
(5.41)
48.7

37.8
(3.78)
34.0

19.8
(1.98)
17.8

135.1

148.6

163.5

179.9

197.8

Capital Budget: Parent Viewpoint

(US$ million)
15

Dividends
License fees
Debt service
Total

0.0
11.0
209.4
220.4

Initial Investment
Terminal Value
Free Cash Flow (FCF)
NPV @ 17.98%
IRR

0.0
13.2
210.7
224.0

46.6
15.4
212.2
274.3

35.4
17.6
213.9
266.9

60.7
19.8
215.7
296.2

(1,925)
921.98
(1,925)
(739.57)
3.54%

220.4

224.0

274.3

266.9

1,218.2

Exhibit 5: Real Market Condition

Indonesian Inflation Rate
Year

Changing

598,54%

-30,00%

-30,00%

-30,00%

-30,00%

-30,00%

Inflation Rate

77,54%

54,28%

37,99%

26,60%

18,62%

13,03%

Calculation of WACC from Parent Viewpoint

Calculation

Information
Risk-free rate
Credit spread
Cost of debt
Cost of debt, after-tax
Debt proportion
Cemex Beta
Equity premium
Cost of equity
Equity proportion

11.5%*(1 0.35)

(9.5% + 8.41%)*1.5

Result
9.5%
2%
11.5%
7.48%
40%
1.5
8.41%
22.12%
60%

WACC = (0.4)*(7.48%) + (0.6*22.12%) = 16.26%

Calculation of WACC from Parent Viewpoint

Information
Calculation
Risk-free rate
Credit Premium
Cost of debt in Rupiah
Cost of debt, after-tax
50.28%*(1 - 0.3)
Cost of debt, after tax to be paid
(35.2%*0.25)
Cost of US$ debt
Cost of US$ debt, after-tax
50.49%*(1 0.3)
Cost of debt, after tax to be paid
(35.34%*0.75)
Total Cost of debt
9.79% + 26.51%
Debt Proportion
Cemex Indonesia of beta
Equity premium
(58.44% - 48.28%)
Cost of equity
(10.16% + 48.28%)*1
Equity Proportion
WACC = (0.5*35.31%) + (0.5*58.44%) = 46.87%

Result
48.28%
2%
50.28%
35.2%
8.79%
50.49%
35.34%
26.518%
35.31%
50%
1
10.16%
58.44%
50%

Semen Indonesias Debt Service Schedules and Foreign Exchange Losses (millions of Rp and
US$)
Project Year

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5
16

Spot Rate (Rp/$)

10,375

15,692

21,230

26,349

30,642

33,956

Indonesian Loan @ 35% for 8

years (million Rp)
Loan Principal
2,750,000
Interest Payment
Principal Payment
Total Payment

2,654,061
(962,500)
(95,939)
(1,058,439)

2,524,543
(928,921)
(129,518)
(1,058,439)

2,349,694
(883,590)
(174,849)
(1,058,439)

2,113,648
(822,393)
(236,046)
(1,058,439)

1,794,985
(739,777)
(318,662)
(1,058,439)

Cemex Loan @ 10% for 5 years

(million US$)
Loan Principal
825
Interest Payment
Principal Payment
Total Payment

689,9
(82,5)
(135,1)
(217,6)

541,2
(69,0)
(148,6)
(217,6)

377,7
(54,1)
(163,5)
(217,6)

197,8
(37,8)
(179,9)
(217,6)

0,0
(19,8)
(197,8)
(217,6)

Cemex loan converted to Rp

(million Rp)
Scheduled @ Rp10,000/$
Interest Payment
Principal Payment
Total Payment

(825,000)
(1,351,329)
(2,176,329)

(689,867)
(1,486,462)
(2,176,329)

(541,221)
(1,635,108)
(2,176,329)

(377,710)
(1,798,619)
(2,176,329)

(197,848)
(1,978,481)
(2,176,329)

Actual (@ current spot rate)

Interest Payment
Principal Payment
Total Payment

(1,294,619)
(2,120,553)
(3,415,172)

(1,464,577)
(3,155,736)
(4,620,313)

(1,426,066)
(4,308,356)
(5,734,422)

(1,157,364)
(5,511,256)
(6,668,619)

(671,806)
(6,718,058)
(7,389,864)

(3,415,172)

(4,620,313)

(5,734,422)

(6,668,619)

(7,389,864)

Cash flow in RP on Cemex Loan

(million RP)
Total Actual Cash
8,250,000
Flow
IRR of cash flow:
50%
Foreign Exchange Losses on
Cemex Loan (million RP)
Forex Loss on Interest:
Forex Loss on
Principal:
Total Forex Loss on
Debt:

(469,619)
(769,224)

(774,710)
(1,669,274)

(884,845)
(2,673,248)

(779,654)
(3,712,637)

(473,958)
(4,739,577)

(1,238,843)

(2,443,984)

(3,558,093)

(4,492,290)

(5,213,535)

Semen Indonesia Pro Forma Income Statement

Project Year
Spot Rate (Rp/$)
Sales Volume
Sales Price ($)
Sales Price (RP)
Total Revenue ('000)

Year 0
10,375

Cash costs ('000)

Additional production costs ('000)
Loading costs ('000)
Shipping costs ('000)

Year 1
15,693
10,000
58
910,176
9,101,764

Year 2
21,230
12,000
58
1,231,326
14,775,910

Year 3
26,350
14,000
58
1,528,293
21,396,098

Year 4
30,643
16,000
58
1,777,314
28,437,032

Year 5
33,957
18,000
58
1,969,508
35,451,151

(1,150,000)
(200,000)
(313,854)

(1,752,600)
(304,800)
(524,800)

(2,012,500)
(350,000)
(782,728)

(2,244,800)
(390,400)
(1,071,514)

(2,463,300)
(428,400)
(1,375,882)

(1,569,270)

(2,623,998)

(3,913,641)

(5,357,571)

(6,879,411)
17

Total

(3,233,124)

(5,206,197)

(7,058,870)

(9,064,285)

(11,146,993)

Gross Profit

5,868,640

9,569,713

14,337,228

19,372,747

24,304,158

License Fees
General & Admin
Expenses
EBITDA

(182,035)

(295,518)

(427,922)

(568,741)

(709,023)

(728,141)
4,958,464

(1,329,832)
7,944,363

(2,139,610)
11,769,696

(3,128,074)
15,675,932

(4,254,138)
19,340,997

Depreciation &
Amortization
EBIT

(1,760,000)
3,198,464

(1,760,000)
6,184,363

(1,760,000)
10,009,696

(1,760,000)
13,915,932

(1,760,000)
17,580,997

Interest on Cemex Debt

Forex Losses on Debt
Interest on Local Debt
EBT

(825,000)
(1,238,918)
(962,500)
172,046

(689,867)
(2,443,965)
(928,921)
2,121,610

(541,221)
(3,558,271)
(883,590)
5,026,614

(377,710)
(4,492,673)
(822,393)
8,223,156

(197,848)
(5,213,841)
(739,777)
11,429,531

Income taxes (30%)

Net Income (RP)
Net Income ($ million)

51,614
120,432
8

636,483
1,485,127
70

2,196,081
2,830,533
107

4,663,028
3,560,128
116

3,428,859
8,000,672
236

Capital Budget: Cemex Indonesia (million RP & million US$) Project Viewpoint
Project Year
Spot Rate (Rp/$)
EBITDA
Recalculated taxes
(@30%)
Net Operating cashflow

Year 0
10,375

Additions to NWC
Initial Investment
Terminal Value

(22,000,000)

Free Cash Flow (FCF)

(22,000,000)

NPV @ 45,29%
IRR

Year 1
15,693
4,958,464

Year 2
21,230
7,944,363

Year 3
26,350
11,769,696

Year 4
30,643
15,675,932

Year 5
33,957
19,340,997

(1,487,539)
3,470,925

(2,383,309)
5,561,054

(3,530,909)
8,238,787

(4,702,780)
10,973,153

(5,802,299)
13,538,698

(240,670)

(139,028)

(436,049)

(289,776)

(625,314)
40,709,318

3,230,255

5,422,026

7,802,738

10,683,377

53,622,702

(Rp3,983,785)
37.7%

Capital Budget from Parent Viewpoint

Project Year
Spot Rate (Rp/$)
Dividend Remittance
Dividends paid (RP)
Withholding tax @ 15%
Net dividend remitted (RP)
Net dividend remitted ($)
License Fees Remittance
Fees remitted
Withholding tax @ 5%
Net dividend remitted (RP)
Net license fees remitted ($)

Year 0
10,000

Year 1
12,621

Year 2
15,930

Year 3
20,106

Year 4
25,376

Year 5
32,028

0
0
0
0

0
0
0
0

1,415,267
(212,290)
1,202,977
60

1,780,064
(267,010)
1,513,055
60

4,000,336
(600,050)
3,400,286
106

182,035
(9,102)
172,934
13,7

295,518
(14,776)
280,742
17,6

427,922
(21,396)
406,526
20,2

568,741
(28,437)
540,304
21,3

709,023
(35,451)
673,572
21,0
18

Debt Service Remittance

Promised interest paid ($)
Withholding tax @ 10%
Net interest remitted ($)
Principal payments remitted
($)

82,5
(8,25)
74,3

69,0
(6,90)
62,1

54,1
(5,41)
48,7

37,8
(3,78)
34,0

19,8
(1,98)
17,8

135,1

148,6

163,5

179,9

197,8

0,0
13.7
209.4
223.1

0.0
17.6
210.7
228.4

59,8
20.2
212.2
292.3

59.6
21.3
213.9
294.8

106.2
21.0
215.7
342.9

Capital Budget: Parent Viewpoint

(US$ million)
Dividends
License fees
Debt service
Total
Initial Investment
Terminal Value
Free Cash Flow (FCF)
NPV @ 22.26%
IRR

(1,925)
614,70
(1,925)
(947,35)
0.97%

223.1

228.4

292.3

294.8

957.6

19