An Investors Regional View to 2022 INTERCEM DUBAI | 2018 - PowerPoint PPT Presentation

The Gulf and North Africa An Investor’s Regional View to 2022 INTERCEM DUBAI | 2018

Welcome to Cement Business Research Cement Business Research was set up to provide data and insights to senior professionals interested in assessing investments in the global cement sector. We provide data and insights at a level and granularity that can support significant investment decisions in the industry. Our Resources: Technology including Strategy and Finance environmental expertise Specialist research in the cement Marketing sector Extensive network of cement Operations and Production professionals

The Aspects We Assessed and Why GENERAL CONSIDERATIONS ANALYSIS – BASIC FACTS AND CONCLUSIONS MARKET CHARACTERISTICS ▪ Supply – demand balance ▪ Macroeconomic Considerations ▪ Demand Scenarios ▪ Propensity and ability to ▪ Cement Market Size and past growth ▪ Reality Check: need, capability and funding export / import ▪ Products by type ▪ Further Reality Check: per capita, Cement ▪ Industry profitability Economic Curve ▪ End users ▪ Supply – demand balance considerations, S-D ▪ License to operate ▪ Vertical integration balance and DCUF™ ▪ Distribution chain ▪ International Trading Assessment Matrix (ITAM™) ▪ International trade ▪ Industry Structure and Dynamics (ISD™) ▪ Supply characteristics CBR’s RANKING TOOL ▪ Nature of Market Participants (CBRRT™) ▪ Cement plants data / map ▪ Consolidation Index ▪ Regional v national ▪ Overall market attractiveness ▪ Industry Cost Structure and Dynamics assessment including industry profitability and cost escalation forecasts ▪ Licence to Operate Considerations We We prod oduce e rea eady dy ma made de r rep epor orts ts on on m market ets with h en enou ough gh de depth and d gr granu nularity larity to en o enable le the re e reade der to o asses ess an inves estme ment nt de decision on.

Tools and Metrics Demand Projections, Reality Checks: Need, Capability And Funding Assessment, Per Capita Consumption Comparison and Position On Cement Economic Curve. PLUS PROPRIETARY Cement Business Research ASSESSMENTS: Domestic Capacity International Trading Industry Structure Our Ranking Utilisation Factor Assessment Matrix and Dynamics Tool DCUF™ ITAM™ ISD™ CBBRT™ Propensity to Capability to Nature of Participants, Overall Market Export / Import Consolidation Index, Export / Import Attractiveness Cost Structure and Assessment Industry Profitability

The Gulf and North Africa ALGERIA EGYPT KUWAIT MOROCCO OMAN QATAR SAUDI ARABIA TUNISIA UAE

2017 Basic Facts 900 3500 300 786 248 800 3000 250 700 2500 200 600 2000 500 150 1500 400 94 1000 100 300 240 500 188 50 23 200 21 0 100 0 INTEGRATED PLANTS GRINDING PLANTS 0 POPULATION IN DEMAND IN PER CAPITA IN RELEVANT MILLING CAPACITY IN MILLION MILLION MILLION KG TONNES PERSONS TONNES UAE Grinding plants North African markets significantly higher than ▪ ▪ many regional European markets 2017 DCUF™ - 69% ▪ Average plant 2.6 million tonnes per annum ▪ Varying per capita consumption ▪ capacity Gulf States highest consumers in the world ▪

Industry Structure and Dynamics I AGE OF KILNS SIZE OF KILNS 35% 25% 23% 21% 29% 28% 20% 30% 19% 20% 17% 25% 15% 20% 18% 17% 15% 10% 10% 7% 5% 5% 0% 0% LESS THAN 3000 - 3999 4000 - 4999 5000 - 5999 >6000 TND BEFORE 1980 1980 - 1989 1990 - 1999 2000 - 2009 2010 - 3000 TND TND TND TND PRESENT Region boasts a large number of newly Average size of kilns is high ▪ ▪ installed kilns

Industry Structure and Dynamics II BREAKDOWN OF PRODUCTION COSTS REGIONAL BREAKDOWN OF PRODUCTION COSTS 45% 40% 35% 30% VARIABLE RAW MATERIALS 5% 25% 20% 14% 15% 13% VARIABLE FUELS 10% 5% 0% VARIABLE POWER OTHER VARIABLES 15% 25% FIXED LABOUR FIXED MAINTENANCE 12% 16% ALGERIA EGYPT KUWAIT MOROCCO OTHER FIXED OMAN QATAR SAUDI ARABIA TUNISIA UAE AVERAGE Production costs breakdown differs Regional energy costs at 40% of total ▪ ▪ significantly from industry to industry Cost escalation varies ▪ Energy costs are the largest varying factor ▪

Industry Structure and Dynamics III BAGS VERSUS BULK – REGION AND EUROPE CLINKER RATIO AND AF USAGE INDUSTRY PROFITABILITY 85% 140% 45% 90% 60% 135% 40% 80% 130% 35% 50% 125% 30% 70% 120% 25% 115% 40% 60% 54% 20% 110% 15% 46% 105% 50% 30% 10% 100% 5% 40% 95% 20% 90% 0% 30% 10% 15% 20% 10% 0% 0% BAGS BULK CEMENT FROM CLINKER RATIO REGION EUROPE AF SUBSTITUTION RATE Varying usage of “extenders” – mainly Significant variations in industry profitability ▪ ▪ limestone and some pozzolan. Scarcity of from market to market – why? flyash and slag Minimal usage of alternative fuels – why? ▪

Industry Structure and Dynamics IV CONSOLIDATION INDEX CAPACITY OWNERSHIP ITAM™ 11% 41% 48% INTERNATIONAL LOCAL STATE ▪ Highly fragmented industries lead to volatile ▪ State owned assets significant – particularly in behaviour by participants the North African countries ▪ Industries dominated by locally established ▪ Both exporting and importing is challenging participants due to low ITAM™ scores

2022 Projections GROWTH RATES MILLION TONNES DCUF™ 180% 158% 350 314 160% 139% 300 272 140% CAGR SUPPLY 2017 - 2022 2.9% 233 120% 250 87% 100% 85% 188 75% 74% 200 73% 66% 67% 80% 150 60% 43% 40% 100 20% 50 0% CAGR DEMAND 2017 - 2022 4.4% 0 DEMAND SUPPLY 2017 2022 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% ▪ Demand is expected to grow above supply significant imports or capacity additions ▪ Significantly different DCUF™s for the ▪ Regional DCUF™ improves from 69% in 2017 individual markets to 74% in 2022 ▪ Kuwait and Oman are expected to require

2022 Projections 2022 BASIC PROJECTIONS CEMENT ECONOMIC CURVE 2500 1000 898 2000 800 Kuwait Oman 600 UAE 1500 400 Saudi Arabia 260 233 200 Algeria Egypt 1000 Tunisia 0 POPULATION IN MILLION DEMAND IN MILLION PER CAPITA IN KG PERSONS TONNES 500 Morocco RISK ADJUSTED DEMAND PROJECTIONS 0 0 10000 20000 30000 40000 50000 60000 70000 ▪ Continuing high levels of per capita consumption ▪ All but one market above the CEC trendline ▪ Risk adjusted demand projections, varying profiles UPSIDE RISK DOWNSIDE RISK

Our Ranking Tool CBRRT™ How attractive are the Gulf and North Africa markets from an investor’s point of view? ▪ Attractive Supply – Demand Balance ▪ Attractive Industry Structure and Dynamics ▪ Capability to Export / Import ▪ Industry Projected Profitability ▪ License to Operate ▪ Potential M&A Activity

Conclusions ▪ Significant regional overcapacity expected to ▪ Plants are relatively large and new making improve during the forecasting period (2017 – 2022) significant operational improvements challenging ▪ High per capita consumption compared to many ▪ Low or non-existent usage of alternative fuels other cement markets worldwide ▪ Varying levels of product sophistication ▪ Relative absence of international cement players – ▪ Low levels of vertical integration as compared to Europe and the USA ▪ Large amounts sold in bags ▪ Large proportion of production assets owned by ▪ Varying and complex distribution channels local investors and the State ▪ Generally high levels of authorities’ involvement – ▪ Varying levels of ability to export / import License to Operate issues ▪ Lack of deficit exporting destinations making ▪ Generally low levels of environmental requirements exporting challenging ▪ Significant geopolitical events ▪ Varying levels of industry consolidation, with some ▪ Not all markets exhibit the same level of markets being highly fragmented attractiveness from an investor’s point of view ▪ Significant differences in industry profitability driven by pricing and subsidized (or not) energy

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