Exane BNP Paribas Building Materials XXI General Assembly and - PowerPoint PPT Presentation

Equities Equities Exane BNP Paribas Building Materials XXI General Assembly and Congress of Partners FICEM “World Cement markets trends ” Exane BNP Paribas’s new Scenario for 2011-2012 Quito, October 2011 (INTERNAL USE ONLY) construction@exanebnpparibas.com Yassine Touahri +44 207 039 95 23 yassine.touahri@exanebnpparibas.com Team construction@exane.com

European Building Materials: Introduction Equities 2 Paul Roger CFA (London): ✉ paul.roger@exanebnpparibas.com ☎ +44 203 430 84 15 Paul Roger, 34, graduated from Durham University in 1998 and has a decade’s experience covering the Building Materials sector at HSBC, ABN AMRO, Deutsche Bank and ING. He has also managed money for a top London hedge fund and spent a year working for Renaissance Capital in Russia, covering global infrastructure markets. Paul is a Chartered Financial Analyst and Chartered Accountant. He joined as Sector Head of Exane’s Building Materials Team in 2010. Yassine Touahri (London): ✉ yassine.touahri@exanebnpparibas.com ☎ + 44 207 039 95 23 Yassine Touahri, 28, graduated with a MsC in Management from Grenoble’s Ecole de Management 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 2007. Rohit Bhatia (London): ✉ rohit.bhatia @exanebnpparibas.com ☎ + 44 203 430 84 33 Rohit Bhatia, 25, graduated from Leeds University in 2007, and started his career at WestLB as a Debt Origination Analyst. Subsequently, he worked as an Equity Research Associate at Société Générale within the Telecoms Team. Rohit has completed his CFA exams and is awaiting his charter. He joined Exane’s Building Materials Team in 2011. > We work closely with the Infrastructure Team of Nicolas Mora and Stanislas Coquebert (contactable on infrastructure@exane.com )

Summary Equities 3 What’s changed during the past few months? - Main take-aways from H1 2011 - Increased pressure on mature markets banks and governments - Deteriorating confidence - Lower growth prospect in emerging markets Our New Scenario for construction markets in 2011-2012 - Residential / Non Residential / Infrastructure - Our Scenario for cement volumes in 2011 - A first tentative of scenario for cement volume in 2012 Challenging price-cost dynamics in 2011 and a question mark for 2012 - Price hikes in 2011 were often not sufficient to fully pass on cost inflation - Cost pressures may however abate in 2012 - But new entrants in the cement indutry create a question mark on pricing in emerging markets ? An overview of the relationship between the steel and cement industry - Should the steel Industry invest in cement ? - Many steel industry players are facing cash-flow constraints as margins are under pressure - However some degree of integration in cement make sense in some emerging markets Conclusion

Main take-aways from H1 2011 -Demand was very strong in Q1 11 (favourable base effect because Q1 10 was heavily impacted by bad weather in Europe and North America) - In contrast, trends in Q2 11 have been relatively disappointing (tough weather in the US, and Canada, lacklustre demand in India, very weak volumes in Southern Europe) Equities 4 Q211 cement volume trends (YoY) Q111 cement volume trends (YoY)

What’s changed over the last few months: increased pressure on mature markets banks and governments - European governments have come under renewed pressure to reduce debt - Investors are also starting to question the strength of banks’ balance sheets Equities 5 European sates have been facing increasing European banks are now facing market pressure to reduce debt increasingly high financing costs European sovereign CDS spread have increased by more than 50 European bank CDS have also continued to surge to an bps on average since June unhealthy level this summer 350 600 300 250 500 200 150 400 100 50 300 0 -50 200 -100 -150 100 Hungary Italy Latvia Slovenia Slovakia Germany Czech Republic Sweden Switzerland Norway Greece Croatia Ukraine Lithuania Romania Belgium Poland Austria France Bulgaria Denmark Spain Estonia Netherlands Iceland Australia United Kingdom Portugal Ireland 0 Dec 05 Apr 06 Aug 06 Dec 06 Apr 07 Aug 07 Dec 07 Apr 08 Aug 08 Dec 08 Apr 09 Aug 09 Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Change in CDS spread between end June & end August 2011 EU BANKS SECTOR CDS INDEX 5Y - CDS PREM. MID

What’s changed over the last few months: deteriorating confidence - In Europe both business and consumer confidence deteriorated this summer - In the ISM (US business climate) was clearly disappointing and consumer confidence remains Equities well below its pre-crisis level 6 Negative inflection in consumer confidence Deteriorating business confidence 10 0.0 (5.0) 0 (10.0) -10 Europe (15.0) -20 (20.0) -30 (25.0) -40 (30.0) (35.0) -50 Jan 05 May 05 Sep 05 Jan 06 May 06 Sep 06 Jan 07 May 07 Sep 07 Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Business Climate Indicator in Europe Europe consumer confidence indicator 65 120 110 60 100 55 90 80 50 USA 70 45 60 50 40 40 35 30 30 20 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Jan 05 May 05 Sep 05 Jan 06 May 06 Sep 06 Jan 07 May 07 Sep 07 Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 US ISM PURCHASING MANAGERS INDEX (MFG SURVEY) SADJ US consumer confidence index

What’s changed over the last few months: Lower growth prospect in emerging markets - Monetary tightening (need to control inflation) - Lower world GDP growth (potential stagnation of some large mature markets). Equities 7 Exane economists now expected a marked slowdown Tightening monetary policy in emerging markets in emerging market GDP growth 2012 Change in central bank reference rates since 2010 Emerging and Developing Economies GDP forecasts for 2011 & 2012 4.0 7.1 2012 3.5 6.9 3.0 2011 2.5 6.7 2.0 2011 1.5 6.5 2012 1.0 6.3 0.5 2011 0.0 6.1 (0.5) (1.0) 5.9 (1.5) Mexico Brazil India Nigeria China Australia Phillipines Indonesia Russia Egypt South Africa 2012 5.7 5.5 May Scenario Aug. Scenario Sep. Scenario Current Central bank interest rates vs. 2010 rates

Summary Equities 8 What’s changed during the past few months? - Main take-aways from H1 2011 - Increased pressure on mature markets banks and governments - Deteriorating confidence - Lower growth prospect in emerging markets Our New Scenario for construction markets in 2011-2012 - Residential / Non Residential / Infrastructure - Our Scenario for cement volumes in 2011 - A first tentative of scenario for cement volume in 2012 Challenging price-cost dynamics in 2011 and a question mark for 2012 - Price hikes in 2011 were often not sufficient to fully pass on cost inflation - Cost pressures may however abate in 2012 - But new entrants in the cement industry create a question mark on pricing in emerging markets ? An overview of the relationship between the steel and cement industry - Should the steel Industry invest in cement ? - Many steel industry players are facing cash-flow constraints as margins are under pressure - However some degree of integration in cement make sense in some emerging markets Conclusion

Residential construction: Potential weakness in Europe / Slow recovery in the US - In Europe, 2011 housing trends have so far developed in line with our expectations - However, banks’ woes, austerity and unemployment put the recovery at risk - US housing permits and starts have been hovering around 500-600k per year since early 2009 and there is a large underlying need for housing (over 1m per year) Equities -However unemployment failed to abate and excess inventory remains very high 9 US housing still hovers around the bottom European housing permits are resilient but lending 1,850 60% activity is likely to slowdown 1,650 40% 30 20% 1,450 20% 1,250 20 0% 1,050 10% 10 (20%) 850 0 (40%) 650 0% -10 450 (60%) Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 -20 (10%) USA- Housing Permits ('000s) USA- Housing Starts ('000s) -30 YoY % Change - Permits YoY % Change - Starts -40 (20%) ...and excess inventory remains high -50 2,500 -60 (30%) 2,000 -70 1,500 -80 (40%) Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 1,000 500 Impact of housing market prospects on mortgage demand (LHS) 0 Housing Permits EU27 YoY % change (RHS) Q1 2002 Q3 2002 Q1 2003 Q3 2003 Q1 2004 Q3 2004 Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Estimated excess level of vacant home for sale or for rent ('000)