gcc-cement-032011

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Global Research

Sector - Cement

March 2011

GCC Cement Sector Quarterly

Incessant support by the non-core income sources

Raw material prices on the rise

UAE underperformer by all aspects

Neutral to Positive stance on Saudi Arabia & Oman

Introduction of additional measures to boost cement demand in GCCThe ongoing political turmoil happening in the Middle East has forced some governments to introduceadditional measures on top of huge development plans already in place to pacify an agitatedpopulation. Saudi Arabia announced 21 Royal Orders in March 2011 which includes building of500,000 housing units worth SAR250bn. Bahrain also announced plans to build 50,000 homes at acost of USD5.3bn in response to the protests taking place in the country. In addition, most of the GCCcountries announced one-time generous handouts and increased unemployment allowances for theicitizens. All these measures are likely to trickle down into improved demand for cement.

Sector profitability improved marginallyGCC cement companies reported 11.7% decline in top line revenue, however it recorded a mere 0.4%increase in profits for the 2010. Net profits increased from USD1,440mn in 2009 to USD1,446mn in2010. Net margins witnessed an 450.6bps increase during the period due to the fact, other incomesegment grew strongly by 55% to reach USD224.9mn, attributed to better capital markets performanceas compared to last year.

Positioning Gross Margins & ROE Non-Core Income as % of Net Inc. & Net Margins

Source: Company Reports & Global Research

* Performance of 23 Listed Companies as of 2010

KSAOman

UAE

KuwaitQatar

GCC

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

0.0% 20.0% 40.0% 60.0%

Return

onEquity

Gross Margin

KSA

Oman

UAE

Kuwait

Qatar

GCC

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Net

Margin

Non-Core Income as % of Net Income

Realization prices prolong their tumultCement prices in the GCC averaged around USD68.3/ton in 2010, as compared to USD73.8/tonenjoyed in 2009, a 7.5% decrease due to the fact that demand went down considerably, andcompanies started to slash prices to win contracts. On a 2005-2010 CAGR basis, average cement

prices in GCC increased 1.5%. All cement prices in the GCC witnessed a decrease, however UAEmarked the largest decline of prices by 26.9%. Kuwait average realization prices reached USD80.2/tonin 2010 as compared to USD83.3/ton in 2009, while Qatar realization prices decreased fromUSD71.4/ton in 2009 to USD68.7/ton in 2010.

RecommendationWithin GCC, we are POSITIVE on Oman & Saudi Arabian cement sector due to better demand supplysituation as compared to other countries in GCC. Global Research outlook is Neutral for Qatar andNegative for UAE.

G

CCCem

ent

Faisal Hasan, CFAHead of [email protected]: (965) 2295-1270

Hettish KarmaniSenior Financial [email protected]: (965) 2295-1281

Umar FaruquiFinancial [email protected]: (965) 2295-1438

Turki O. AlYaqoutFinancial [email protected]: (965) 2295-1295

Global Investment Housewww.globalinv.net

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Global Research GCC GCC Cement Quarterly Repo

March 2011 2

Global Research Cement Universe - 2011e

Yamama

Cement

Saudi

Cement

Eastern

Province

Qassim

Cement

Yanbu

Cement

Arabian

Cement

Oman

Cement

Raysut

Cement

Arkan Build.

Material

Gulf

Cement

Fujairah

Cement

RAK

Cement

Qat

Ceme

Symbol YSCC SCC EPCC QCC YNCC ACC OCC RCC ARKAN GCEM FCI RAKCC QNC

Country KSA KSA KSA KSA KSA KSA Oman Oman UAE UAE UAE UAE Qat

Reuters 3020.SE 3030.SE 3080.SE 3040.SE 3060.SE 3010.SE OCCO.OM RAYC.OM ARKAN.AD GCEM.AD FCEM.KW RAKCC.AD QANC.Q

Bl oom be rg YAC CO AB SACC O AB EACC O AB QACC O AB YN CCO AB AR CCO AB OC OI OM R CC I OM AR KAN U H GCEM KK FCEM KK RAKC C UH QN CD Q

Price (Local Currency) 54.00 53.00 47.90 60.75 45.90 31.60 0.56 1.19 1.70 1.29 0.83 0.74 101.8

Market Capital iza tion (USDmn) 1 ,944.0 2,162.4 1,098.5 1,458.0 1,285.2 674.1 482.8 620.0 810.0 288.4 80.7 97.5 1,372

1-m Performance 12.5% 12.7% 13.0% 12.4% 19.2% 8.6% 9.5% 7.3% 40.2% -5.3% -9.9% 21.3% 5.9

3-m Performance 8.2% 13.8% 12.0% 2.0% 11.9% -8.4% -5.7% -4.2% -5.8% -12.9% -26.4% -12.9% 0.2

12-m Performance 12.6% 18.6% 2.8% -13.2% 0.3% -24.8% -11.3% -27.1% -24.8% -35.0% -48.1% -23.7% 54.3

Gross Margins (%) 56.3% 49.7% 46.7% 56.2% 51.9% 42.0% 44.6% U/R 42.4% 14.0% 15.0% 12.0% 45.0

Operating Margins (%) 52.2% 43.6% 42.0% 52.6% 48.8% 36.0% 38.6% U/R 20.9% 12.0% 10.8% 5.8% 40.1

Net Margins (%) 52.5% 43.3% 42.0% 51.8% 45.6% 35.0% 40.0% U/R 27.7% 14.4% 10.0% 7.4% 43.0

Debt as % of Assets 2.6% 8.0% 1.0% 0.0% 28.2% 25.5% 3.7% U/R 31.1% 1.3% 32.5% 0.0% 3.1

Liabilities as % of Assets 10.0% 25.0% 9.1% 8.8% 40.3% 35.3% 11.7% U/R 33.2% 6.1% 39.1% 6.0% 7.8

Equity as % of Assets 90.0% 75.0% 90.9% 91.2% 59.1% 64.7% 88.3% U/R 66.8% 93.9% 60.9% 94.0% 92.2

Return on Equity (%) 20.8% 20.4% 15.9% 26.4% 16.0% 10.8% 14.0% U/R 4.9% 5.3% 4.5% 2.0% 19.1

Return on Assets (%) 18.4% 15.1% 14.3% 24.1% 9.6% 6.7% 12.2% U/R 3.1% 4.9% 2.6% 1.9% 17.6

Asset / Share (USD) 7.2 8.2 7.3 2.9 11.8 14.0 1.4 U/R 0.4 0.5 1.3 0.5 16

EV/Ton (USD) 282.0 262.0 293.5 392.0 333.2 164.9 188.6 U/R 183.4 99.1 52.0 84.1 260

Cash Return On Capital Invested (%) 18.2% 15.7% 17.5% 31.9% 9.5% 6.9% 17.9% U/R 7.5% 5.5% 4.9% 5.2% 24.0

Dividend Yield (%) 7.4% 7.5% 7.3% 8.2% 4.4% 3.2% 8.0% U/R 0.0% 6.8% 5.5% 5.7% 5.4

EV / Revenues (x) 5.2 5.2 4.8 5.7 6.5 4.5 3.6 U/R 13.0 1.8 2.0 1.7 4

EV / EBITDA (x) 10.0 11.5 11.3 10.6 13.6 12.3 6.8 U/R 29.1 12.1 17.6 8.7 8

P / E Ratio (x) 10.9 11.6 12.2 11.0 11.5 9.0 8.7 U/R 37.2 13.6 6.6 27.8 11

P / BV Ratio (x) 2.2 2.3 2.2 2.9 1.8 0.9 1.2 U/R 1.7 0.7 0.3 0.6 2

Source: Global Researc h , U/R - Under Review

Market Price, Market Capitalization & Enterpris e Value as of 28 March 2011

FCEM Price has b een taken from Kuwait Stock Exchange and converted to AED

Code/Symbol

PriceD

ata

ProfitabilityRatios

ValuationRatios

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Global Research GCC GCC Cement Quarterly Report

March 2011 3

GCC Development Plans & Economic/Political Reforms to benefit the Sector

Introduction of additional measures to boost cement demand in GCCThe ongoing political turmoil happening in the Middle East has forced some governments to introduce additional measures ontop of huge development plans already in place to pacify an agitated population. Saudi Arabia announced 21 Royal Orders inMarch 2011 which includes building of 500,000 housing units worth SAR250bn.

In addition, most of the GCC countries announced one-time generous handouts and increased unemployment allowances fortheir citizens. All these measures are likely to trickle down into improved demand for cement. Bahrain has announced plans tobuild 50,000 homes at a cost of USD5.3bn in response to the protests taking place in the country.

USD20.0bn announced for Oman and BahrainMeanwhile the GCC countries launched an USD20bn aid program for Bahrain and Oman in a show of regional solidarity. Boththe countries will get USD10bn each to upgrade their housing and infrastructure over ten years.

GCC economy expected to grow by 5.9% in 2011Based on IMF projections, the region is forecasted to post a strong growth in 2011. The real GDP growth for the GCC in 2011 isprojected to reach 5.9%, with Qatar leading the way yet again at 20.0%. With a continued focus on diversification andinfrastructure building, the demand is likely to remain strong for the foreseeable future.

Saudi Arabia- Five year plan focuses on infrastructure developmentThe expansionary 2011 budget of more than USD154.7bn, an increase of 7.4%YoY, shows the intention of the GCC s largest

consumer market to focus on infrastructure development. This follows the announcement of the Ninth Development Plan (2010-14) which witnessed an increase of 67.2% to USD385.2bn from USD230.3bn in the Eighth Development Plan with focus oninfrastructure development. We expect Saudi Arabia to be the vanguard of cement demand growth with demand expected togrow at a 3-year CAGR of 5.5% to 52.1mn tons by 2013.

Oman announces eight five year planThe government of Oman announced the eight five-year plan in January 2011. The plan is underpinned by the objective todiversify the economy. The total expenditure under the plan amounts to OMR43bn (USD112bn) which is more than double theOMR20.9bn (USD54.3bn) for the seventh five-year plan. Development projects related to infrastructure projects will take themajor chunk of the plan of around OMR12bn (USD31.2bn) which bodes well for the cement demand.

Kuwait development planIn February 2010, the Parliament approved the proposed economic plan, called the Kuwait Development Plan (KDP), whichallows the government to spend an estimated KWD37bn (USD125bn). A development plan has been called for from almost allsections of the society (the last development plan was approved in 1986) in order to revive Kuwaits economy. A major portion of

KWD25bn (USD87bn) has been allocated to the construction of Silk city.

Country Development plans Amount Additional measures Amount

Saudi Ninth Development Plan (2010-14) USD385.2bn Housing and Social Securi ty Benefi ts USD100.0bn

Qatar World Cup 2022 Spending USD50.0

Bahrain 50,000 hom es USD5.3bn GCC Aid Program for Hous ing and Infras tructure USD10.0bn

UAE Abudhabi Five Year Plan (2008-12) USD275

Kuwait Kuwai t Development Plan (2010-14) USD125.0bn One-off Handouts for Ci tizens USD4.0bn

Oman Eight Five Year Plan (2011-15) USD112.0bn GCC Aid Program for Housing and Infrastructure USD10.0bn

Source: Media reports & Global Research FIFA World Cup 2022 to drive development in QatarQatar has promised to spend USD50.0bn on infrastructure upgrades and USD4.0bn to build nine stadiums to host the FIFAWorld Cup 2022. An expected USD6.0bn will be spent on construction related projects which will generate an additional 3-4mntons of demand in Qatar. To bring the plans to fruition, construction activity in Qatar is expected to witness a significant surge.This will catalyze many infrastructure projects that have been progressing slowly or waiting to take off. Commercial and mixeduse projects construction activity is likely to see the highest increase ahead of 2022 in order to meet the expected demand.

UAE development planAbu Dhabi in its five year plan which was unveiled in 2008 planned to spend USD275bn in the period up to 2012. Abu Dhabi isexpected to drive growth in the UAE as it contains around 90.0% of the oil reserves of UAE. Meanwhile, Dubai is in the processof slow recovery after the financial crisis which took a heavy toll on the emirate. The slowdown in construction and real estateactivity is being reflected in the cement dispatches.

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Global Research - GCC GCC Cement Quarterly Report

March 2011 4

GCC Cement Sector Profitability

GCC Cement sector continued to witness a top line decline two years following the credit crisis wave that halted major realestate activity and construction projects affecting cement and building materials companies. GCC cement companies came outwith weak 11.7% decline in top line revenue, however it announced a mere 0.4% increase in profits for the 2010. Net profitsincreased from USD1,440mn in 2009 to USD1,446mn in 2010. Net margins witnessed an 450.6bps increase during the perioddue to the fact, other income segment grew strongly by 55% to reach USD224.9mn, attributed to better capital markets which

witnessed the S&P GCC index increase of 17%. However, gross margins witnessed a 62bps increase in 2010 to reach 40.7% ascompared to 40.1%, this was due to a lower cost of sale which decreased by 12.6% in 2010 to reach USD2,286mn.

GCC Cement Sector Consolidated Financials

2009 2010 Chg (%)

Sales Revenue 4,367,070 3,856,982 -11.7%

Cost of Sales 2,616,015 2,286,534 -12.6%

Gross Profit 1,751,057 1,570,448 -10.3%

Opt. Expense 275,205 243,605 -11.5%

Non-Core Income 145,149 224,918 55.0%

Operating Profit 1,475,853 1,326,843 -10.1%

Financial Charges 57,244 38,642 -32.5%

Net Profit 1,440,862 1,446,351 0.4%

Assets 12,992,784 13,841,349 6.5%Equity 9,851,455 10,291,651 4.5%

Debt 1,890,919 2,437,659 28.9%

Liabilities 3,141,329 3,549,698 13.0%

2009 2010 Chg

Gross Margins (%) 40.1% 40.7% 62.0bps

Operating Exp as % of As sets 2.1% 1.8% -35.8bps

Non-Core Income as % of PAT 10.1% 15.6% 547.7bps

Operating Margins (%) 33.8% 34.4% 60.6bps

Net Margins (%) 33.0% 37.5% 450.6bps

Financial Charges as % of Debt 3.0% 1.6% -144.2bps

Debt as % of Assets 14.6% 17.6% 305.8bps

Liabilities as % of Assets 24.2% 25.6% 146.8bpsEquity as % of Assets 75.8% 74.4% -146.8bps

Return on Equity (%) 14.6% 14.1% -57.2bps

Return on Assets (%) 11.1% 10.4% -64.0bps


* Consolidated Financials of 24 Listed Companies, Result of UCC has not been announced

(USD 000)

Fina

ncialPerformance

RatioAnalysis

Country wise, UAE, Oman, Kuwait and Qatar continue to be pressured by declining sales revenues. UAE dominated the list andis likely that it hasnt reached the bottom yet. Sales revenue of UAE decreased 28.4% to reach USD736.8mn bringing grossmargin to all time low of 10.7%.

However Net profit margins are stable at 11.7% as compared to the previous year. Oman as well witnessed a 25.9% decrease insales revenue reaching USD303.5mn. Qatar and Kuwait witnessed decreasing sales revenue but outperformed Oman, KSA,

and UAE in net profits. Kuwait posted a 48.5% increase in net profits while Qatar posted a 10.5% increase. KSA which isconsidered the most stable cement market throughout the crisis posted a 3.6% increase in sales revenue and a 0.3% increase innet profits.

Strong financial strength of cement companies continue to help the sector weather the storm in the cement market as assets andequity increased 6.5% and 4.5% respectively during 2010. On the other hand, debt witnessed a 28.9% increase to reachUSD2,437mn, noticeably Raysut Cement finalized a deal to takeover Pioneer Cement of UAE which resulted in Raysut Cementtaking a USD250mn debt to finance the deal. Debt to equity which is considered a strong ratio during the crisis witnessed a450bps increase in FY2010 to reach 23.7%. Cement companies should benefit from the recent measures by the government inthe region to stimulate economic activity and provide housing which will help prop up demand, and hence profitability of thecement companies and will allow them to reduce their current debt levels.

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March 2011 5

Cement Realization Price

Cement prices in the GCC averaged around USD68.3/ton in 2010, as compared to USD73.8/ton enjoyed in 2009, a 7.5%decrease due to the fact that demand went down considerably, and companies started to slash prices to win contracts. On a2005-2010 CAGR basis, average cement prices in GCC increased 1.5%. All cement prices in the GCC witnessed a decrease,however UAE marked the largest decline of prices by 26.9%. Kuwait average realization prices reached USD80.2/ton in 2010 ascompared to USD83.3/ton in 2009, while Qatar realization prices decreased from USD71.4/ton in 2009 to USD68.7/ton in 2010.

On a CAGR basis, Kuwait cement prices increased 3.2% during the period 2005-2010. With major projects being implemented inKuwait as a part of the development plan, cement prices in Kuwait might have reached a bottom and might witness an increasegoing forward. Also, Qatar cement prices are expected to increase as demand is expected to reach 5-8mn tons per annumduring the period 2010-2017.

Average Realization Prices

Source: Industry Reports & Global Research

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

KSA UAE Oman Kuwait Qatar GCCAverage

(USD/Ton)

2009 2010 Change

Oman, the country which started to feel the pinch of the crisis by posting lower sales revenue and declining profits for 2010witnessed a mere 1.4% decrease in cement prices in 2010, the lowest among other GCC peers. But on a CAGR basis, Omanwitnessed a 4.7% increase during the period 2005-2010, which is considered the highest among the GCC. Oman average

realization cement prices reached USD79.4/ton in 2010, the highest in the GCC. Cement prices decreased from USD80.5/ton in2009.

As for the second largest cement producer in the GCC, UAE witnessed a 26.9% decrease in cement prices because of theexcess supply and low demand due to halted real estate and construction projects. Value of projects planned in UAE decreased15.8% reaching USD815.3bn, of which USD403.9bn are on hold. In addition, new cement companies have flooded the marketbringing more pressure to cement companies. As per Fujairah Cement, demand of cement in UAE dropped to merely 19mn in2010. UAE continues to face pressure on its cement industry which is proved by decline sales, demand, profits and higherinventories. However UAE is a strong economy backed by higher oil prices and strong development plans, time will heal thecement industry slowdown as the real estate activity picks up and more liquidity flows into the economy.

However, the largest cement producer in the GCC, KSA, witnessed a decrease in cement prices by 2.4% in 2010 to reachUSD61.3/ton. The continuation of cement export ban and additional cement capacity has kept pressure on cement prices. On aCAGR basis, KSA cement prices achieved a 0.8% increase during the period 2005-2010.

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March 2011 6

Country Performance

Saudi Arabia

Domestic demand increased by 10.0%YoY to 10.9mn tons in 4Q10 reflecting the increased pace of economic andconstruction activity. The increase came as demand seemed to have cooled in the previous quarter to 5.0%YoY to 8.9mn

tons compared to 14.5%YoY growth in 2Q10 to 11.4mn tons. We will have to wait for the next few quarters to determinewhether the slowdown in 3Q10 points to an imminent trend or is just an aberration. On a QoQ basis, the sales dispatchesincreased by 22.5% in 4Q10. The increase can be partly attributed to seasonal factors with the Ramadan season falling inthe 3Q10 which usually sees a slowdown in construction activity.

Most of the increase in total cement demand in 4Q10 has been accounted for by unlisted players Riyad Cement andNajran Cement which increased their total local dispatches by 98.7%YoY to 0.47mn tons in 4Q10 absorbing 48.1% of thetotal growth in total cement and clinker dispatches during 4Q10 compared to the corresponding quarter last year. Thenewly listed player Al-Jouf Cement also managed to dispatch 227,000 tons in the first year of its operations.

Among the listed players, Saudi Cement Company witnessed the largest increase in dispatches by 221,000 tons to1.64mn tons as the efficiency of the two new production lines launched in April 2009 with a capacity of 7.0mn tonsallowed it to follow a more aggressive sales strategy. On the other hand, Yamama Cement and Tabuk Cement saw adecline in their total dispatches by 4.5%YoY and 2.9%YoY respectively to 1.35mn and 0.3mn tons respectively.

The pace of decline in average realized prices slowed down to 1.1%YoY to USD61.3 per ton in 4Q10 after a 2.1%YoYdecline to USD61.6 per ton in 3Q10. Strong domestic demand is mitigating the impact of cement export ban and increasein domestic cement capacity. We expect realization prices to remain flat or even show a slight increase in 1Q11 asconstruction activity picks up.

Saudi Arabia listed cement companies excluding Al-Jouf Cement posted an increase of 5.4% in sales revenue toUSD508.7mn in 4Q10 from USD482.7mn in 4Q09. Net profits also witnessed an increase of 12.1% to USD214.8mn in4Q10 as compared to USD191.7mn during 4Q09.

KSA Cement Price KSA Projects Value

Source: Company Reports, MEED & Global Research

60.0

62.0

64.0

66.0

68.0

70.0

2008

1H-09

9M-09

2009

1Q-10

1H-10

9M-10

2010

(USD/Ton)

-

200.0

400.0

600.0

800.0

1,000.0

2008

1H-09

9M-09

2009

1Q-10

Apr-10

Sep-10

2010

(USDBn

)

The increase in sales and profitability has been driven increase in volumes sold. However the increase in volume saleshas been accompanied by a small decline in 4Q10 gross margins to 49.8% as compared to 50.7% in 4Q09. Intensification

of competition in the aftermath of export ban is putting pressure on gross and net margins as traditional cement exportersare being forced to sell in the domestic market while other major cement players are extending their reach to otherregions to increase their sales.

The clinker and cement stocks have increased to 10.8mn tons at the end of 4Q10 from 10.4mn tons at the end of 3Q10.This is the second consecutive quarterly increase in clinker and cement stocks after witnessing a decline since 4Q09.Arrival of Al-Jouf cement along with increase in Yamama cement stocks by 45.7% to 1.5mn tons has led to the increase instocks.

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March 2011 7

Saudi Arabia Cement Sector


* Combined Financials of Eight Listed Companies

50.0%

52.0%

54.0%

56.0%

58.0%

60.0%

2009 2010

Gross Margins (%)

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2009 2010

Non-Core In come as % of PAT

45.0%

46.0%

47.0%

48.0%

49.0%

50.0%

2009 2010

Operating Margins (%)

45.0%

46.0%

47.0%

48.0%

49.0%

50.0%

2009 2010

Net Margins (%)

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2009 2010

Financ ial Charges as % o f Debt

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

2009 2010

Debt as % o f Assets

23.5%

23.6%

23.7%

23.8%

23.9%

24.0%

2009 2010

Liabilities as % of Assets

76.0%

76.1%

76.2%

76.3%

76.4%

76.5%

2009 2010

Equity as % o f Assets

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

2009 2010

Return on Equity (%)

14.2%

14.4%

14.6%

14.8%

15.0%

15.2%

2009 2010

Return on Assets (%)

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March 2011 8

Oman

Net income for Omani cement companies for 2010 was USD118.8mn while the same during 2009 was USD137.4mn,decline of 13.5%. Reason for the decline in the bottom line was because of more than 25% decline in the top line.

Sales revenue of the sector in 2010 witnessed a decline of 25.9% to USD303.5mn as compared to USD409.4mn duringthe corresponding period of last year. Out of the two, least drop in the top line was posted by Oman Cement at 24.0%

while the same reported by Raysut Cement was 27.3%. In terms of quarterly performance, 4Q10 reported lowest revenueat USD68.4mn while the most was recorded in 2Q10 at USD85.4mn.

Both the companies were able to roll out 3.8mn tons of cement in 2010 as compared to 4.9mn tons in 2009, decline of22.1%. Sales of Oman Cement went down by 17.6% as compared to 25.5% decline by Raysut Cement.

Cement price in Oman declined when compared to their average prices in 2009. In 2010 average cement prices wasUSD79.4/ton (OMR30.6/ton) as compared to an average price of USD80.5/ton (OMR31/ton) during 2009.

Gross margins of the sector witnessed an increase as the players discontinued the import of high priced clinker/cementand were also able to import cement at very cheap prices. Gross margins went up to 49.5% in 2010 as compared to45.6% in 2009.

Non-core income portion continued to add to the bottom line of the sector. Non-core income as percentage of net incomegrew from 15.1% in 2009 to 25.4% in 2010. Higher contribution is because of better cash management by the Companies

along with better performance of their subsidiaries.

Oman Cement Price Oman Projects Value


65.0

69.0

73.0

77.0

81.0

85.0

1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010

(USD/Ton)

20.0

40.0

60.0

80.0

100.0

120.0

1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010

(USDBn)

During 2010, debt of the Omani cement sector rose due to an increase in the leverage by Oman Cement Company due toits upcoming expansion and a huge debt piled up by Raysut Cement over its acquisition of UAEs Pioneer Cement.Overall sector debt rose from USD18.0mn (2.5% of assets) to USD197.0mn (20.8% of assets) in 2010.

Oman projects market value at the end of December 2010 stood at USD101.9bn, 4.7% of the project value in GCC. Of thetotal projects, 6.6% amounting to USD6.7bn have either been postponed or being put on hold. Country holds 5th rank interms of projects market.

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March 2011 9

Oman Cement Sector


* Combined Financials of Two Listed Omani Companies

45.0%

46.0%

47.0%

48.0%

49.0%

50.0%

2009 2010

Gross Margins (%)

0.0%

6.0%

12.0%

18.0%

24.0%

30.0%

2009 2010

Non-Core Income as % of PAT

25.0%

27.0%

29.0%

31.0%

33.0%

35.0%

2009 2010


30.0%

32.0%

34.0%

36.0%

38.0%

40.0%

2009 2010

Net Margins (%)

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

2009 2010

Financ ial Charges as % o f Debt

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2009 2010

Debt as % o f Assets

0.0%

7.0%

14.0%

21.0%

28.0%

35.0%

2009 2010

Liabilities as % o f Assets

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2009 2010

Equity as % of Assets

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2009 2010


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2009 2010


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March 2011 10

United Arab Emirates

UAE cement sector continued its poor performance. During 2010 consolidated revenues of the sector went down by28.4% to USD736.8mn as compared to USD1.0bn in 2009. Reason for the decline in revenue was because of decline incement sales volume as well as a sharp decline in cement realization prices.

Cement price in UAE were down by 26.9% to USD51.8/ton in 2010 as compared to an average price of USD70.8/ton in

2009. Recently the players gathered to stop further decline in the prices, however, that has not been seen in the financialsyet.

Consolidated net income of listed cement companies in UAE for 2010 declined by 28.3% to USD86.1mn as compared toUSD120.1mn in 2009. During 4Q10, the sector managed to add only USD4.7mn as compared to USD37.0mn in 3Q10.

Gross margins of the sector were also hit significantly as the prices as well as volume went down significantly. Grossmargins went down to 10.7% in 2010 as compared to 22.3% in 2009.

Debt levels of the sector rose by 7.1% to USD521.4mn in 2010 as compared to USD486.9mn in 2009. Debt aspercentage of assets increased from 14.7% earlier to 15.9% in 2010 .

UAE Cement Price UAE Projects Value


50.0

60.0

70.0

80.0

90.0

100.0

1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010

(USD/Ton)

600.0

700.0

800.0

900.0

1,000.0

1,100.0

1H-09 9M-09 2009 1Q-10 Apr-10Sep-10 2010

(USDBn)

UAE project value of December 2010 is USD815.3bn, 37.5% of the project value announced in GCC. However majority ofthe projects amounting to 49.5% (USD403.9bn) have been put on hold making it second biggest projects market in theGCC after Saudi Arabia.

Unlike other countries, UAE witnessed an equity wipe out as well as the overall equity balance of the sector went down by2% to USD2.53bn as compared to USD2.59bn in 2009. Equity as percentage of assets dropped to 77.3% in 2010 ascompared to 78.4% in 2009.

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March 2011 11

UAE Cement Sector


* Combined Financials of Nine Listed UAE Companies

0.0%

7.0%

14.0%

21.0%

28.0%

35.0%

1H-09 1H-10

Gross Margins (%)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

1H-09 1H-10

Non-Co re Income as % of PAT

0.0%

6.0%

12.0%

18.0%

24.0%

30.0%

1H-09 1H-10


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1H-09 1H-10

Net Margins (%)

0.0%

0.6%

1.2%

1.8%

2.4%

3.0%

1H-09 1H-10

Financ ial Charges as % of Debt

15.2%

15.3%

15.4%

15.5%

15.6%

15.7%

1H-09 1H-10

Debt as % of Assets

20.0%

21.0%

22.0%

23.0%

24.0%

25.0%

1H-09 1H-10


75.0%

76.0%

77.0%

78.0%

79.0%

80.0%

1H-09 1H-10


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1H-09 1H-10


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1H-09 1H-10

Return o n Assets (%)

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March 2011 12

Qatar

Qatar cement sector continued to witness low demand during the period. Country was also hurt by influx of cheapercement from neighboring countries. Sector witnessed a bottom line growth of 10.5%. Out of the two listed cementcompanies, Qatar Cement out performed with a bottom line growth of 12% while Al Khalij Holding Company reported anincrease of 1.7% during 2010.

Qatar project value of December 2010 was USD245.1bn, 11.3% of the project value announced in GCC. Majority of theprojects amounting to 88.6% (USD217.2bn) are continuing as planned because of the persistent gas based liquidity in thecountry.

Consolidated revenues of the sector declined by 22.8% to USD343.1mn during 2010 as compared to USD424.6mn at theend of 2009. Reason for the decline in revenue was because of decline in cement sales volume as well as fall in cementprices .

Cement price in Qatar have remained mostly constant since last couple of years. In 2010, average cement prices in Qatardeclined by 3.8% to USD68.7/ton as compared to an average price of USD71.4/ton in 2009. We believe cement prices toremain flat in Qatar because of lesser local players and government control over prices.

Qatar Cement Price Qatar Projects Value


60.0

64.0

68.0

72.0

76.0

80.0

1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010

(USDTon)

155.0

175.0

195.0

215.0

235.0

255.0

1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010

(USDBn)

Consolidated net income of the two listed cement companies in Qatar for 2010 increased to USD147.8mn as compared toUSD133.7mn in 2009, up by 10.5%. This increase in the net income resulted from increase in the gross margins to 43.5%in 2010 as against 27.6% in 2009.

Non-core income segment continued to add to the bottom line but it was significantly lesser than the contribution in thesame period last year. Contribution during 2010 was 16.4% as compared to 51.6% in 2009.

Debt levels of the sector rose by 44.6% to USD468.8mn in 2010 as compared to USD324.3mn in 2009. As a result debtas percentage of assets increased from 22.7% earlier to 28.0% in 2010. Increase in the debt levels can be attributed toincrease in the leverage taken by Al Khalij Holding Company.

Assets of the sector increased by 17.4% to USD1.67bn in 2010 as compared to USD1.42bn in 2009. Increase in assetswas because of the increase in debt of the sector by 44.6% along with an 8.3% increase in the equity in 2010.

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March 2011 13

Qatar Cement Sector in Charts


* Combined Financials of Two Listed Qatari Companies

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2009 2010

Gross Margins (%)

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2009 2010

Non-Co re Income as % of PAT

10.0%

16.0%

22.0%

28.0%

34.0%

40.0%

2009 2010


30.0%

33.0%

36.0%

39.0%

42.0%

45.0%

2009 2010

Net Margins (%)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2009 2010

Financ ial Charges as % of Debt (%)

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

2009 2010

Debt as % o f Assets (%)

25.0%

27.0%

29.0%

31.0%

33.0%

35.0%

2009 2010

Liabilities as % of Assets (%)

55.0%

59.0%

63.0%

67.0%

71.0%

75.0%

2009 2010

Equity as % of Assets (%)

12.7%

12.8%

12.9%

13.0%

13.1%

13.2%

2009 2010


8.0%

8.4%

8.8%

9.2%

9.6%

10.0%

2009 2010


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March 2011 14

APPENDIX

GCC Cement Sector Current & Future Capacity

(mtpa) 2007 2008 2009 2010 2011e 2012e 2013e

UAE

Listed Companies 17.7 17.7 20.0 24.5 24.5 24.5 24.5

Unlisted Companies 6.1 11.8 14.3 16.3 16.3 16.3 16.3

Total UAE 23.7 29.5 34.3 40.8 40.8 40.8 40.8

KSA


Unlisted Companies - 5.8 8.0 11.6 12.6 12.6 13.6

Total KSA 33.0 43.8 46.0 52.8 53.8 56.2 59.0

Kuwait


Unlisted Companies - - - - - - -

Total Kuwait 2.5 2.5 2.5 2.5 5.4 5.4 5.4

Oman


Unlisted Companies - - - 0.8 0.8 0.8 0.8

Total Oman 4.5 5.4 5.4 6.2 6.2 6.2 6.2

Qatar



Total Qatar 3.1 3.1 6.2 6.2 6.2 6.2 6.2

Bahrain

Listed Companies - - - - - - -


Total Bahrain 0.5 0.5 0.5 0.5 0.5 0.5 0.5

GCC



Total GCC 67.2 84.7 94.9 109.0 112.9 115.3 118.1

Listed Companies (% of Total) 89.8% 78.2% 75.6% 72.9% 73.0% 73.5% 73.3%

Un-Listed Companies (% of Total) 10.2% 21.8% 24.4% 27.1% 27.0% 26.5% 26.7%


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March 2011 15

Factors Influencing Cement Prices

Source: World Bank Pink Sheets & Bloomberg

1,500.0

2,100.0

2,700.0

3,300.0

3,900.0

4,500.0

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Baltic Dry Index (x)

70.0

80.0

90.0

100.0

110.0

120.0

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Coal, Australia (USD/ton)

70.0

76.0

82.0

88.0

94.0

100.0

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Crude Oil, Avg, Spot (USD/bbl)

70.0

76.0

82.0

88.0

94.0

100.0

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Crude Oil, Brent (USD/bbl)

70.0

82.5

95.0

107.5

120.0

132.5

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Coal South Africa (USD/ton)

2.0

3.0

4.0

5.0

6.0

7.0

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Natural Gas, US (USD/mmbtu)

150.0

180.0

210.0

240.0

270.0

300.0

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Raw Material Index (x )

70.0

74.0

78.0

82.0

86.0

90.0

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Crude Oil, WTI (USD/bbl)

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March 2011 16

Country Ratios

(Unit / Country) 2008 1Q-09 1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010

Gross Margins (%)

Saudi Arabia 56.9% 65.0% 56.0% 55.2% 54.1% 52.5% 52.7% 52.6% 51.9%

Oman 40.0% 40.7% 44.9% 45.4% 45.6% 52.6% 52.5% 50.5% 49.5%

UAE 27.5% 29.2% 29.4% 26.0% 22.3% 12.5% 11.9% 11.6% 10.7%

Kuwait 21.0% 23.3% 25.2% 19.5% 26.3% 33.2% 29.8% 30.5% 28.2%

Qatar 20.2% 19.2% 22.7% 22.9% 27.6% 34.5% 41.6% 43.8% 43.5%

Weighted Average of GCC 38.9% 43.5% 41.0% 38.9% 40.1% 40.2% 40.5% 40.4% 40.7%

Non-Core Income as % of PAT

Saudi Arabia 6.5% 3.0% 3.6% 3.5% 5.2% 2.2% 3.1% 3.1% 3.0%

Oman 8.0% 8.3% 9.4% 8.3% 15.1% 13.6% 26.7% 25.2% 25.4%

UAE -149.2% -72.7% 3.6% 13.3% -8.8% 70.7% 71.5% 83.6% 91.7%

Kuwait 561.3% 136.5% 54.0% 52.0% 18.2% 41.5% 47.2% 44.4% 49.6%

Qatar 48.9% 56.0% 43.8% 46.6% 51.6% 33.4% 22.8% 16.3% 16.4%

Weighted Average of GCC -10.8% -8.6% 11.8% 12.7% 10.1% 16.4% 14.8% 15.7% 15.6%

ROE (%)

Saudi Arabia 23.2% 6.1% 11.9% 16.5% 19.8% 5.8% 11.2% 15.4% 19.0%

Oman 18.4% 6.2% 13.0% 17.6% 21.8% 6.2% 13.2% 16.6% 17.9%

UAE 4.4% 1.3% 4.8% 5.7% 4.6% 1.5% 1.6% 2.8% 3.4%

Kuwait -2.0% -4.7% 9.5% 12.1% 11.8% 4.7% 9.5% 11.5% 14.5%

Qatar 17.8% 5.8% 8.9% 10.7% 12.9% 3.4% 7.6% 10.5% 13.2%


ROA (%)

Saudi Arabia 17.7% 4.4% 9.0% 12.5% 15.1% 4.2% 8.4% 11.7% 14.5%

Oman 15.8% 5.0% 11.5% 15.7% 19.1% 5.0% 11.6% 14.6% 12.6%

UAE 3.5% 1.0% 3.8% 4.6% 3.6% 1.2% 1.2% 2.2% 2.6%

Kuwait -1.2% -2.7% 6.4% 8.5% 7.4% 3.2% 6.1% 7.9% 9.9%

Qatar 9.9% 2.9% 5.5% 7.6% 9.4% 2.4% 5.6% 6.8% 8.8%


Debt as % of Assets

Saudi Arabia 14.1% 15.8% 15.8% 15.7% 12.0% 16.2% 16.5% 16.1% 14.1%

Oman 2.3% 2.2% 2.1% 1.7% 2.5% 3.7% 3.5% 3.2% 20.8%

UAE 8.0% 15.8% 15.2% 13.5% 14.7% 13.4% 15.6% 15.3% 15.9%

Kuwait 31.8% 35.6% 28.2% 22.8% 25.8% 21.5% 23.2% 19.6% 24.2%

Qatar 31.9% 37.0% 32.5% 23.4% 22.7% 21.7% 20.6% 30.5% 28.0%



Saudi Arabia 23.7% 27.2% 24.6% 24.4% 23.7% 27.8% 24.7% 24.3% 23.5%

Oman 13.8% 19.1% 11.6% 10.7% 12.3% 19.1% 12.4% 12.0% 29.6%

UAE 20.9% 23.8% 21.7% 19.7% 21.6% 22.0% 23.0% 22.4% 22.7%

Kuwait 37.7% 42.4% 32.4% 30.4% 37.4% 33.4% 35.3% 31.1% 31.8%

Qatar 44.4% 50.6% 38.7% 28.8% 27.3% 29.9% 27.0% 35.2% 32.9%Weighted Average of GCC 25.6% 29.3% 25.5% 23.3% 24.2% 26.5% 24.7% 25.1% 25.6%


Saudi Arabia 76.3% 72.8% 75.4% 75.6% 76.3% 72.2% 75.3% 75.7% 76.5%

Oman 86.2% 80.9% 88.4% 89.3% 87.7% 80.9% 87.6% 88.0% 70.4%

UAE 79.1% 76.2% 78.3% 80.3% 78.4% 78.0% 77.0% 77.6% 77.3%

Kuwait 62.3% 57.6% 67.6% 69.6% 62.6% 66.6% 64.7% 68.9% 68.2%

Qatar 55.6% 49.4% 61.3% 71.2% 72.7% 70.1% 73.0% 64.8% 67.1%



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March 2011 17

Disclaimer

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