Exane BNP Paribas Building Materials & Infrastructures

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[email protected] Pinatel +44 207 039 94 67 [email protected] Touahri +44 207 039 95 23 [email protected]

Jamaica, September 2010

XXVII Technical Congress FICEM-APCAC“From stimuli support to austerity measures ?”

World Cement markets trends

Exane BNP Paribas’s new Scenario for 2010-2011

(Internal use only)

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Arnaud Pinatel (London): ✉ [email protected] ☎ +44 207 039 94 67

Arnaud Pinatel, 44, graduated with a degree in Economics from the Sorbonne University in Paris and went on to gain the French SFAF qualification (French financial analysts’ association). Arnaud began his career at Group Ciments Vicat (1992-1997) where he worked first as a financial controller and later as a strategic assistant to the Chairman and CEO of the Group. In 1997, he moved to Oddo Equities in Paris as an equity analyst covering the Building Materials sector on a Pan-European basis. Arnaud joined BNP Paribas in London in July 2001 and heads the European Building Materials and Construction team at Exane BNP Paribas.

Su Zhang (London): ✉ [email protected] ☎ + 44 207 039 94 18

Su Zhang, 33, received his B.Econ from Fudan University, Shanghai, an MBA from HEC, Paris, and an MSc in Accounting and Finance from the London School of Economics. He started his professional career at PricewaterhouseCoopers as an auditor and at Standard Chartered Bank as a credit analyst. He joined Exane BNP Paribas’s Construction and Metals and Mining teams in January 2007.

Yassine Touahri (London): ✉ [email protected] ☎ + 44 207 039 95 23

Yassine Touahri, 26, received his MSc in Management from Grenoble’s Ecole de Management in 2008 and spent one year studying at the Warwick Business School in 2006/2007. In 2006, Yassine worked in Saint-Gobain’s investor relations department and joined Exane’s Building Materials and Construction team in June 2008.

Nicolas Mora (London): ✉ [email protected] ☎ +44 207 039 95 38

Nicolas Mora, 32, graduated from ESSEC in Paris in 2002. He began his career at Societe Generale in London, as an equity research analyst covering UK Food Retail, and then joined the Hedge Fund Group within Societe Generale, as an analyst on Merger Arbitrage and Special Situations. In 2006, he moved to Ecofin, a London-based Utilities and Infrastructure hedge fund, as a European analyst. Nicolas joined Exane's Building Materials & Infrastructure team in June 2009, with a focus on Infrastructure and Construction stocks.

Stanislas Coquebert (London): ✉ [email protected] ☎ +44 207 039 94 14

Stanislas Coquebert, 26, graduated from HEC Paris in 2007 with a specialization in Macroeconomics. After working in audit in Paris at PricewaterhouseCoopers and in M&A in London at UBS, Stanislas joined Exane BNP Paribas as a telecom operators analyst. He joined the Building Materials and Construction team in 2009 with a focus on Infrastructure and Construction stocks.

European Building Materials and Infrastructure team

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Different regional trends for demand in 2010 - A weak Q1 outside emerging markets…… followed by an improvement in Q2 - Uncertainty exists for H2 and visibility is low - Our demand assumptions for the full year 2010

The discipline is less visible on cement prices in 2010 - Prices were resilient until 2009 - Pressures are visible in most markets in 2010

Our new scenario for Construction markets in 2010-2011- Exane BNP Paribas GDP scenario for 2011- Residential / Non Residential / Infrastructure- A first tentative of scenario for cement volume in 2011

Conclusion

Summary

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Main take-aways from H1 2010 - A weak Q1 outside emerging markets… followed by an improvement in Q2 - Very weak Q1 trends in Northern hemisphere (except Canada) partly due to “bad weather”- Q2 trends have been improving versus Q1 in mature markets (except. Spain)- Emerging countries were, however, supportive, with the exception of Eastern Europe outside Russia

Cement Volumes in Q1 2010-6%e excl. India & China; +9%e incl. China

& India (YoY % change)

Cement Volumes in Q2 2010+5%e excl. India & China; +10%e incl.

China & India (YoY % change)

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RESIDENTIAL scenario: how to assess H2 2010 Housing : differences in regional trends and end of tax incentives?Four main areas standing out:- Improving North America and strong Asia (except Japan)- Contrasted evolution in South America and Europe (gloomy results for countries directly and indirectly impacted by the sovereign debt crisis) => H2 2010 should reflect these trends .

5%< Decline < 15%0% < Decline < 5% Stagnation0%< Growth < 5% 5% < Growth < 15%

Decline > -15%

Growth > 15%

USA:+15% in H1 2010 YTD 2010 housing permits or starts YoY % change

EU 27:-5% Mar YTD (EU 15:-10% Apr)

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NON RESIDENTIAL scenario: how to assess H2 ? Non-Residential : No real sign of improvement -Still dependent on the overall economic environment, and especially the jobs market

YTD 2010 non-residential permits or starts YoY % change

5%< Decline < 15%0% < Decline < 5% Stagnation0%< Growth < 5% 5% < Growth < 15%

Decline > -15%

Growth > 15%

(30%)

(25%)

(20%)

(15%)

(10%)

(5%)

0% McG

rawH

ill

Global

insight

Moody's

FMI

Reed

PCA

Consensus

EU 27:-22% Mar (EU 15:-22% Apr)

USA :-25%e

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Uncertainty exists (outside the emerging markets where growth is expected) and caution is visible within the outlooks posted by International groups :

(i) HeidelbergCement – Q2 press release 30/07/2010 : “…According to all forecasts, uncertainties still remain over the strength and timescale of the economic recovery because of the high level of unemployment and national debt in individual countries...”

(ii) Lafarge 2010 outlook – Q2 press release 30/07/2010: ‘Based on demand trends seen through the second quarter, the Group has reduced its growth estimates in its markets and expects cement demand to be between -1 to +3 percent in 2010 [instead of 0 to +5%] as compared to 2009…”.

(iii) Holcim 2010 outlook – Q2 press release 19/08/2010: “…Certain countries are witnessing signs of economic slowdown and increasing pressure on prices…”. Quote from Q2 conference call : “…I certainly do not believe personally in the mature markets in an upswing in 2011 in the first half maybe in the in the second half hopefully and in 2012…”

(iv) CRH 2010 outlook – Q2 press release 24/08/2010: ”…Our Americas Materials business has experienced weaker than expected volumes and more competitive pricing due to lower than anticipated levels of commercial construction and pull-backs in state and municipally funded projects…” . Quote from Q2 conference call :”…[2011 US] infrastructure, I think, will remain at broadly similar levels [than in 2010]…”

Uncertainty exists for H2 and visibility is low

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Uncertainty exists for H2 and visibility is low Lafarge’s outlook for 2010

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Uncertainty exists for H2 and visibility is lowHeidelbergcement’s outlook for 2010

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Uncertainty exists for H2 and visibility is lowItalcementi’s outlook for 2010

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Cement Volumes trends forecasted for FY 10e as of last update (YoY % change)World: +7%; +2% excluding India & China

Emerging countries: +9%; +4% excluding India & China

Our demand assumptions for the full year 2010 Noticeable contrast between emerging and mature markets (except. Canada)- Strong demand in BRIC countries- Among mature markets, Canada significantly stands out- Difficult picture for highly indebted Southern/Eastern European countries

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Conclusion

Summary

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Prices were resilient until 20092007-2010 average Growth components- Volume collapsed in 2008-2009- Savings and restructuring were visible in 2009- Prices are under pressure in 2010 …following resilience during the recession

Source: Exane BNP Paribas estimates

Sector Growth components (e)Based on international groups results

Sales (e) Operating profit (e)

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

2007

2008

2009

2010

Pricing effect var % Volume effect var %Perimeter effect var % Currencies effect var %

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

2007

2008

2009

2010

Pricing effect var % Volume effect var %Energy impact on OP var % Savings impact on OP var %Perimeter effect var % Currencies effect var %

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Pressures were visible in 2010 Prices weakened in Q1 … and deteriorated further in Q2- Energy Cost deflation, new entrants, surplus , export and low utilization rates - Producers pushed volumes at the expense of prices in most markets- South East Asia (except. China, India and Vietnam) and Brazil/Argentina were resilient

Source: Exane BNP Paribas estimates

Cement Prices in Q1 2010-2.5% excluding China, -1.5% including

China (YoY % change)

Cement Prices in Q2 2010-5% excluding China, -4.5% including

China (YoY % change)

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Conclusion

Summary

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Exane BNP Paribas GDP scenario for 20112011 slightly lower than 2010 worldwide- Only Africa/Middle East should be up from 2010 levels- Asia stronger than Latin America- Emerging countries as a main driver

2010e annual GDP growthWorld: 4.5%; BRIC: 8.5%; Emerging countries: 6.9%

2011e annual GDP growthWorld: 3.8%; BRIC: 7.5%; Emerging countries: 6.1%

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To assess our current position in the cycle and understand inflexion points, we have tried to collect and analyse all leading indicators available for the global construction market.

Our analysis shows that based on observations in the past, there is some correlation between the earliest leading indicators (such as mortgage approvals) and the demand for building materials, with a time lag of at least one year .

Our research is based on the compilation of our economists GDP scenario, trade associations and government statistics, industry interviews and surveys, and the outlooks disclosed by more than 40 homebuilders and contractors, 70 cement and aggregates companies and 80 building products groups .

We have focused, in particular, on the following:– Housing prices, mortgage interest rates and mortgage approvals to understand the conditions of housing credit on the upstream. We

believe that these leading indicators are representative of future demand with a 3–6 months’ time lag for permits and starts and a 12–18 months’ time lag for building materials;

– Inventories and home sales statistics;– Homebuilders’ order books and contractors’ backlogs; – Scenarios and forecasts disclosed by trade associations; – Permits and housing starts. These are historically representative of the future consumption of building materials with a 3–6 months’

time lag. – Outlooks posted by early cyclical companies (or producers of cement, bricks and aggregates); – Outlooks posted by late cyclical companies (or producers of plasterboard, insulation, etc.); – Shipments or production volume statistics to understand base effects and/or inflexion points. As a result, we have updated our scenario by country for residential, non residential, RMI and infrastructure for

2010 and 2011. We have deducted the trends for each of the building materials and products from the end-users’ market assumptions.

Exane BNP Paribas’s Methodology

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European Construction Leading indicators and end users outlook 1) Northern European housing is improving2) Southern and Eastern Europe to remain weak, except in Russia and Poland 3) Infrastructure spending at risk in most markets due to austerity measures => Northern Europe is a better place to be in relative terms but the overall picture is still poor and risks exist in 2011 linked to the Governments austerity measures (Fiscal deficits)

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Americas Construction Leading indicators and end users outlook 1) Canada and Brazil as drivers. US is improving but less than expected. Mexico is stabilising 2) Regional differences exist in the USA. Housing recovery is not as strong asanticipated. High expectation on Infrastructure exist for H2 10.=> Latam should continue to grow. US trends should improve but less than expected previously.Overall visibility is poor , especially on US Infras in 2011.

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RoW Construction Leading indicators and end users outlook 1) Emerging markets remain well oriented especially in Asia (India/China…)2) South Africa is still weak. Australia is improving.3) Egypt is not as strong as expected. Turkey is recovering => Emerging markets growth is still anticipated in 2011 in most regions . Growrth rate in china should be lower than in the previous years.

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Our residential construction scenario1) Better developments than expected in 2010 in Europe but lower in the USA…2) …except Southern/Eastern Europe, revised down in 2011

2010 Residential: +3% excl. China (+8% incl. China) 2011 Residential: +9% excl. China (+8% incl. China)

0%

+17%

+20%+10%

-5%5%-11%

0%

+10%

+15%

+8%+15% +5%+5%

+5%

+10%

+10%

+15%

+6%

+8%

+10%+15%

+15%10%

+10%

+15%+5%

+5%+15%

0%+5%

DecreasePressureStagnationSlight IncreaseStrong IncreaseNot covered

(Sources : Exane BNP Paribas estimates)

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2011 Non residential : +4% excl. China (+6% incl. China)

Our non-residential construction scenario (Revised down since last scenario )1) Lack of financing2) subdued Macro-economic trends

+10%

+3%

+3%+0%

+5%

-5%+5%

-10%

+0%+0%

+5%

-5%

+5%+5%

+2% +5%+5%

+6%+5%

+5%

+0%

+7%

+10%

+5%

+0%+0%

+10%+10%

+3%

+5%

-5%

+1%

-18%-13%

-13%

-13%-8%

-20%-13%

+8%

-20%

-13%-13%

+12%

+5%+5% +5%+5%

+0%+5%

+3%

-10%

+7%

+5%

+5%

-17%-12%

+5%+10%

+5%

-3%

-5%

+1%

-18%-13%

-13%

-13%-8%

-20%-13%

+8%

-20%

-13%-13%

+12%

+5%+5% +5%+5%

+0%+5%

+3%

-10%

+7%

+5%

+5%

-17%-12%

+5%+10%

+5%

-3%

2010 Non residential: -1% excl. China (+3% incl. China)

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DecreasePressureStagnationSlight IncreaseStrong IncreaseNot covered

(Sources : Exane BNP Paribas estimates)

Our scenario for infrastructure spending (Revised down)1) Public finances are under rising scrutiny 2) Decrease of local spending3) Timing issues, especially in US

2011 Infras: +3% excl. China (+2% incl. China)2010 Infras: +4% excl. China (+7% incl. China)

+12%

+2%-15%

+15%

-15%-3%

-6% +14%

+8%

-10%

-3%

+12%

+5%

-11%+5% +10%+5%

+3%

-10%

+3%

-4%

+10%

+9%

+12%+3%

+5%

-5%

+5%

-5%

+5%+3%

+0%

+3%

+12%

+2%-15%

+15%

-15%-3%

-6% +14%

+8%

-10%

-3%

+12%

+5%

-11%+5% +10%+5%

+3%

-10%

+3%

-4%

+10%

+9%

+12%+3%

+5%

-5%

+5%

-5%

+5%+3%

+0%

+3%

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An early tentative of scenario for Cement demand in 2011 Growth in emerging markets and continuing weakness in mature markets- No real Recovery in USA - Weak European trends but more resilient in Northern Europe- Emerging countries are growing but China growth rate is slowing down

Cement Volumes trends forecasted for FY 11e as of last update (YoY % change)World: +3%; +3% excluding India & China

Emerging countries: +4%; +5% excluding India & China

Volu

me

dow

n by

-1%

in W

E +

USA

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Conclusion

Summary

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Conclusion

No major change in our 2010 volumes scenario even if uncertainty prevails Our overall picture for 2010 demand has not materially changed. We continue to expect growth in Emerging markets,

a moderate decline in activity in Europe and slight growth in the US. We have reduced our estimates for US housing (from 660k housing starts to 600k). We have cut our forecast for infrastructure & housing in a couple of Southern European countries particularly impacted by the Euro-crisis. We have adjusted upward our housing forecast in Russia and a couple Northern European markets where trends proved stronger than expected.

For 2011 we have reviewed down our scenario of recovery , postponed to 2012 Europe & US infrastructure assumptions are cut to reflect austerity measures following stimuli support, as well than Europe and US housing forecasts (to a lower extent) in view of the risk created by forthcoming austerity programmes, the high levels of unemployment, and uncertainties over housing prices. In addition to that, we have reviewed downward our estimates for non residential construction and renovation in mature markets to take into account tougher macro-economics trends, even if we expect both to stabilise. Looking at emerging markets, trends have until now been in line with our estimates and we have not materially changed our assumptions as regards volumes. We are still expecting some growth in 2011, in line with 2010 trends. We continue to assume a slowdown in Chinese demand next year.

=> A weak construction recovery outside emerging markets will not gain traction before mid 2011

Contrary to our previous scenario, a weak construction recovery will not gain traction before mid 2011 as the sector moves from “stimuli support to austerity measures” in mature markets. In addition, the return of cost inflation , the lack of discipline on prices and the limited potential of incremental savings after three years of restructuring are unlikely to support a strong earnings momentum within the industry… and 2011 should remain a challenging year outside emerging amrkets

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Gracias / Thank you / Merci

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Disclaimer

Important notice: Please refer to our complete disclosure notice available on www.exane.com/compliance

This research is produced by EXANE SA and / or EXANE LTD (“EXANE”) on behalf of themselves. EXANE SA is regulated by the "Autorité des Marchés Financiers" (AMF) and EXANE LTD is regulated by the "Financial Services Authority" (FSA). In accordance with the requirements of FSA COB 7.16.7R and associated guidances “Exane’s policy for managing conflicts of interest in relation to investment research" is published on Exane’s web site (www.exane.com). Exane also follows the guidelines described in the code of conduct of the AFEI (Association Francaise des Entreprises d'Investissement) on "managing conflicts of interest in the field of investment research". This code of conduct is available on Exane’s web site (www.exane.com).

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