You will now complete a case study that contains 8 questions in total.
Once you're ready, we
can start with the case prompt and the first question.
16:01
Our client, Cemio, is an Indonesian cement manufacturer with about $1.5B in revenue. They
have seen a sharp decline in their profitability over the past years, as their EBITDA margin
declined by 8 percentage points to 2% between 2020 and 2022. The board appointed a new
CEO to turn the company around, and the CEO asked us to identify potential recovery
solutions.
(Question 1 of 8)
Before devising our approach, what should we check with the client first? Select the two
most relevant data points.
How many clients does the client serve every year?
What does a successful turnaround stand for in the client’s eyes?
How many different types of cement does the client produce?
These are the answers to your questions:
e The CEO aims to generate more than $500M net cashflow in total in the next 3 years.
e They produce mostly one type of product, which is ordinary Portland cement (OPC).
They used to produce large amounts of white cement, but that makes up a tiny
proportion of their sales today.
Let's proceed to the next question.
(Question 2 of 8)
What should we investigate to solve Cemio’s profitability problem? Select five options.
Cemio’s key customer segments and their size in 2022.
Cemio's headquarter location and staff size.
Cemio's historical price and volume trends per revenue stream
since 2020.
Competitors’ profitability trends across price, volume, fixed and
variable cost since 2020.
Cemio’s fixed and variable cost evolution since 2020.
Change in cement export tariff rate since 2020.
Underlying qualitative reasons behind Cemio’s profitability decline
since 2020.
Number of construction companies and their profit margins in
2022.
That's right.
Below are the areas that we can investigate:
e Cemio's key customer segments and their size in 2022.
Cemio’s historical price and volume trends per revenue stream since 2020.
Competitors’ profitability trends across price, volume, fixed and variable cost since
2020.
Cemio’s fixed and variable cost evolution since 2020.
Underlying qualitative reasons behind Cemio’s profitability decline since 2020.
(Question 3 of 8)
Thanks for listing your questions. Let's start with the top line. You will find Cemio’s sales
volume and price evolution across different customer segments between 2020-2022 in the
following exhibit. Before you analyze this, note that Cemio’s customers are construction
companies. You can segment them as follows:
o Companies working on large infrastructure projects
e Heavy construction companies
e Light construction companies
Based on this exhibit, what might be causing profit decline? And what might be its underlying
drivers?
Exhibit #1: Cemio sales volume and price by customer segment 2020-2022
Cement sold (M tonnes) Price ($ per tonne)
17,8
r 80
14,9 |
13,0 I
L
* * |
5,0
40 3,6 34
3 - 5 -3
2020 2021 2022
- Large infrastructure - Heavy construction Bl Light construction ® Price
(Question 3 of 8)
Thanks for listing your questions. Let’s start with the top line. You will find Cemio’s sales
volume and price evolution across different customer segments between 2020-2022 in the
following exhibit. Before you analyze this, note that Cemio’s customers are construction
companies. You can segment them as follows:
» Companies working on large infrastructure projects
e Heavy construction companies
e Light construction companies
Based on this exhibit, what might be causing profit decline? And what might be its underlying
drivers?
Exhibit #1: Cemio sales volume and price by customer segment 2020-2022
Cement sold (M tonnes) Price ($ per tonne)
18 17,8 80
16 14,9
14 - 13,0 78
12
oy L 76
* *
8 N
74
6 - 5,0
4 4,0 T] 3,4
2 | y
, NN
2020
: B -
2021
N = .n
2022
N K
M Large infrastructure [l Heavy construction M Light construction ¢ Price
Please type your answer
i
All right, here is the next question.
(Question 4 of 8)
Great. It seems that the economic crisis in Indonesia in the past years forced the government
to cut down its budget for such large projects. As a result, the overall cement market
declined.
Let’s switch gears to the costs. Cemio submitted the following information below. How
would you test if variable costs contributed to the profit decline in the past years? Please
select one answer.
Exhibit #2: Cemio P&L breakdown 2020-2022
1,800
1,624
1,600 1,500
Variable costs
Fixed costs
o L
ke
I
-
I
A
L pa
Absolute change in variable costs between 2020 and 2022.
Ratio of variable costs to total costs between 2020 and 2022.
Ratio of variable costs to revenue between 2020 and 2022.
Difference between variable costs and EBITDA between 2020 and
2022.
Exhibit #2: Cemio P&L breakdown 2020-2022
1,800
1,624
1,600 1,500
1,400 +
1,200 + ;
1,000 |
Variable costs
800
600 |
S | 275 Fixed costs
o L I179 B oEBITDA
2020 2021 2022
16:47
That's right. We should take the ratio of variable costs to revenue between 2020 and 2022.
Let's get to the next question.
(Question 5 of 8)
How much did the variable cost-to-revenue ratio increase from 2020 to 2022? You can skip
2021 in this analysis and select the answer for 2020 and 2022 figures, respectively.
65% to 70% 70% to 75% 75% to 80% 85% to 90%
Let's get to the next question.
(Question 5 of 8)
How much did the variable cost-to-revenue ratio increase from 2020 to 2022? You can skip
2021 in this analysis and select the answer for 2020 and 2022 figures, respectively.
16:51
That's correct, and here is the approach:
Total variable cost in 2020/Total revenue in 2020=%1,350M/%$1,800M=75%
Total variable cost in 2022/Total revenue in 2022=$1,200M/$1,500M=80%
(Question 6 of 8)
Cemio procurement team informed us that they
receive their raw materials from suppliers outside
Indonesia. The economic crisis led to a 15%
devaluation in the local currency, hence the total
COGS increased within the analyzed period.
Based on the identified root causes, what recovery
strategies should the client focus on? Please provide
4 strategies the client can explore further.
Type here...
(Question 6 of 8)
Cemio procurement team informed us that they receive their raw materials from suppliers
outside Indonesia. The economic crisis led to a 15% devaluation in the local currency, hence
the total COGS increased within the analyzed period.
Based on the identified root causes, what recovery strategies should the client focus on?
Please provide 4 strategies the client can explore further.
16:56
Possible strategies to turn the company around may include:
o Top-line:
Entering into a new market: Since the Indonesian market has been shrinking, Cemio may
want to enter new geography. This can be done in various ways, such as:
1. Shipping its products to the neighboring countries
2. Building a new production facility
3. Acquiring an established player
Introducing a new product: If Cemio can leverage its capabilities and production facility, it
can start producing a new product for which there is a great expected demand.
e Bottom-line:
Making new procurement deals with local suppliers to lower the unit variable cost.
¢ Balance sheet:
Shrinkage via selling assets: If it is not feasible to serve/invest in a new market, and if Cemio
cannot serve the Indonesian market with an alternative product, then it may consider selling
some of its assets and shrinking its business. Given that the CEO has committed to
generating a $500M cash flow, this can be a viable option.
Let's get to the next one.
(Question 7 of 8)
Based on the team’s assessment, neither growth nor cost initiatives seem viable for the
client, in the current situation. Therefore, we can consider the option of shrinking the client’s
business by selling some of their assets until the economy recovers. Before you conclude,
could you share the risks you see related to that option? Select up to three relevant risks.
A possible pick-up in the Indonesian construction market may
recover the demand for cement, and Cemio may lose the
opportunity to serve that demand with its lower production
capacity.
Ordinary Portland cement (OPC) may become obsolete with new
R&D efforts of global cement producers.
Shrinkage may damage Cemio’s brand name and reputation in the
market.
Asset sales may hurt the company’s market value.
Cemio’s local competitors may further reduce their prices to
increase market demand.
Let's get to the next one.
(Question 7 of 8)
Based on the team’s assessment, neither growth nor cost initiatives seem viable for the
client, in the current situation. Therefore, we can consider the option of shrinking the client’s
business by selling some of their assets until the economy recovers. Before you conclude,
could you share the risks you see related to that option? Select up to three relevant risks.
16:58
That's right, below are the most relevant risks:
» A possible pick-up in the Indonesian construction market may recover the demand for
cement, and Cemio may lose the opportunity to serve that demand with its lower
production capacity.
e Shrinkage may damage Cemio’s brand name and reputation in the market.
e Asset sales may hurt the company’s market value.
(Question 8 of 8)
Let’s wrap up the case. Please summarize your key
findings and recommendations.
]Type here...
