Your Investment Reference

THE LEBANON BRIEF

ISSUE 714 Week of 28 February – 05 March, 2011

ECONOMIC RESEARCH DEPARTMENT Rashid Karame Street, Verdun Area P.O.Box 11-1540 Beirut, Lebanon T (01) 747802/12 F (+961) 1 737414 research@blominvestbank.com

www.blom.com.lb

S A L

The Lebanon Brief Table Of Contents Page 2 of 14

ISSUE 714; Week of 28 February – 05 March, 2011

S A L

TABLE OF CONTENTS

FINANCIAL MARKETS 3 Equity Market 3 

Foreign Exchange Market 5 

Money & Treasury Bills Markets 5 

Eurobond Market 6 

ECONOMIC STATISTICS & INDICATORS 7 

BdL Foreign Assets Stand at $30.19B by end-February 7 

Airport Passengers Reached 739,470 up to February 2010 7 

ECONOMIC AND FINANCIAL NEWS 8 

Lebanon’s Trade Deficit Widens in January on Spiking International Prices 8 

Insurance Sales Climb 8% in 2010, Led by 10 Major Companies 8 

CORPORATE DEVELOPMENTS 9 

Alpha Banks’ Profits Surge 24% in 2010 9 

Societe General to Merge with Lebanese Canadian Bank 9 

MTN Issuance Earns Best Deal Award for the Ministry of Finance and Byblos Bank 9 

FOCUS IN BRIEF 10 

Overview of the Food & Beverages Industry in Lebanon 10 

This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient.

I

FE

The Lebanon Br

SSUE 714; Week

FINANCEquity Mark

Stock Mark

BLOM StockAvg Traded Avg Traded

*22 January 1996

Banking Se

BLOM (GDRBLOM ListedBLOM (GDRAudi (GDR) Audi Listed Audi (GDR) Byblos (C) Byblos PriorByblos (GDRBank of BeirBLC (C) Fransabank BEMO (C)

Banks’ PrefeShares IndeBLOM PrefeBLOM PrefeBEMO PrefeAudi Pref. DAudi Pref. E Byblos PrefeByblos PrefeBank of BeirBank of Beir

* 25 August 200

1300

1500

1700

Feb-10

BLOM St

rief Financi

k of 28 Februar

CIAL Mket

et

k Index* Volume Value

6 = 1000

ctor

M

R) Bd B

R) LBB

Brity BR) rut (C) B

B(B) O

B

Merred x *

erred 2004 Berred 2005 Berred 2006 BD B

Berred 08 Berred 09 Brut Pref. D Brut Pref. E B

6 = 100

Apr-10 Ju

tock Index HI: 1652.4

ial Markets

ry – 05 March, 20

MARKET

05/03/11 1413.00 250,160

1,871,773

Mkt 05/03

BSE $10.0BSE $9.1LSE $9.9BSE $7.6BSE $7.1LSE $7.7BSE $1.9BSE $1.9LSE $100.BSE $19.0BSE $1.6OTC $30.0BSE $6.1

Mkt 05/03/

105.1

BSE $10.4BSE $10.5BSE $100.BSE $10.7BSE $100.BSE $104.BSE $104.BSE $26.5BSE $25.5

un-10 Aug-10

42

LO: 1401.83

011

TS

25/02/111417.36182,663

1,010,717

/11 25/02/

00 $9.980 $9.00

97 $9.9661 $7.83

5 $7.0371 $7.6692 $1.9091 $1.89.00 $100.000 $19.0

66 $1.6600 $30.00 $6.10

/11 25/02/1

13 104.87

49 $10.4950 $10.5000 $100.070 $10.7050 $100.500 $103.000 $103.750 $26.5050 $25.50

0 Oct-10

1 % Cha -0.31 36.957 85.19

/11 % Chan

8 0.20%0 1.11%6 0.15%3 -2.81%3 1.71%6 0.60%0 1.05%9 1.06%00 0.00%0 0.00%6 0.00%0 0.00%0 0.00%

11 % Chan

7 0.25%

9 0.00%0 0.00%00 0.00%0 0.00%50 0.00%00 0.97%70 0.29%0 0.00%0 0.00%

Dec-10 Fe

nge % % %

The formin thsentleadidowcloseNoveits yedaily$1.87182,6averamark$10.8 On aLebaComto 10regioabovthe highthe Athe Morgclimb Lebathe mtotalcamissueregainflunotewith as aGDRadva2.811.71stocrose (BPSby Bincrethe 0.15$7.7

nge

% % % % % % % % % % % % %

nge

%

% % % % % % % % %

eb-11

unclear politicmation as well he region hadiment. The BLing index, ntrend, decline at 1413 ember 2010. ear-to-date pe

y traded volum7M, 36.95% h663 shares, age volume ket capitalizat81B.

a comparativeanese gauge

mposite LargeM05 points amon. Saudi bouvementioned iweek to a 22er worries thaArab world wregion. Howegan Stanley bed 3.71% to

anese banks market this we value tradede after Centraed a statemerding the Leence the se that the Leb Société Génénnounced by added 0.2% nced 1.11% % to $7.61,% to $7.15. Ak gained 1.05 1.06% to $1.

SI) inched 0.25yblos preferre

eased 0.97% London Stoc% to $9.97, .

cal situation re as the escal

d a negative iLOM Stock Intracked the

ning 0.31% opoints, its lConsequently

erformance tome reached 2higher than labut still beloof 321,442

tion, it fell by

e scale, the outperformed

MidCap Indexmid growing turse was the index, plumm2-month low at revolts tha

would spread tever, the BS (MSCI) em 1,127 points.

extended theek, accounti

d. The rebounal Bank Gove

ent, reassurinebanese Canaector’s internabanese Canadérale de Banq

y Riad Salame to $10, while to $9.1. A, whereas AAs for Byblos

5% to $1.92, .91. BLOM pr5% up to 105ed stock class and 0.29% tck Exchange, while Audi G

Page

S A L

elating to the ating politicalimpact on invdex (BSI), Leb regional e

on a weekly blowest closey, the BSI ex

o -3.9%. The a50,160 shares

ast week’s volow the year-shares. As fy $32.48M to

performance d the S&P Pax that tumbledurmoil in the main dragger

meting 15.02% of 5,323 pot have swept to other counI failed to be

merging inde.

eir dominancng for 62.36%

nd in banking ernor, Riad Sag that controadian Bank wational dealindian Bank willque au Liban eh. In details, e BLOM liste

Audi GDR reAudi listed cs bank, its coand its prioritreferred share5.15 points, bs 2008 and 20to align at $1 BLOM GDR

GDR gained 0

3 of 14

cabinet l unrest vestors’ banon’s equities basis to e since xtended average s worth lume of -to-date for the o reach

of the an Arab d 8.92% MENA r of the

% during ints on across

ntries in eat the

ex that

ce over % of the shares alameh, oversies will not ngs. To merge (SGBL), BLOM d stock

etreated climbed ommon ty stock es index boosted 009 that 04. On added

0.6% to

I

R

M

F

R

T

The Lebanon Br

SSUE 714; Week

Real Estate

Solidere (A) Solidere (B) Solidere (GDR

Manufacturin

HOLCIM LibaCiments BlanCiments Blan

Funds

Beirut PreferrBLOM Cedars Fund Tranche BLOM Cedars Fund Tranche BLOM Cedars Fund Tranche

BLOM Bond F

Retail Sector

RYMCO ABC (New)

Tourism Sec

Casino Du LibSGHL

rief Financi

k of 28 Februar

M

BSBS

R) LS

ng Sector

M

n BScs (B) BScs (N) BS

Mred Fund BBalanced “A”

--

Balanced “B”

--

Balanced “C”

--

Fund --

r

MBSO

ctor

M

ban OTOT

ial Markets

ry – 05 March, 20

Mkt 05/03/

SE $18.3SE $18.2SE $19.4

kt 05/03/

SE $16.5SE $2.64SE $0.50

Mkt 05/03/

BSE $103.5

---- $6,585

---- $5,569

---- $5,001

---- $10,008

Mkt 05/03/SE $2.70TC $23.0

Mkt 05/03/

TC $515.0TC $6.00

011

/11 25/02/

37 $18.728 $18.840 $19.3

11 25/02/

1 $16.54 $2.640 $0.50

/11 25/02/

50 $102.

.72 $6,592

.93 $5,575

.90 $5,006

8.68 $9,991

/11 25/02/0 $2.700 $23.0

/11 25/02/

00 $470.00 $6.00

/11 % Cha

70 -1.7683 -2.9230 0.52

/11 % Cha

51 0.00%4 0.00%0 0.00%

/11 % Cha

50 0.98

2.38 -0.10

5.56 -0.10

6.96 -0.10

1.37 0.17

/11 % Chan0 0.00%00 0.00%

/11 % Chan

00 9.57%0 0.00%

ange

6% 2% %

The pweigstockto $12.92%0.52%

ange

% % %

Lookexpewith the fo

ange

%

0%

0%

0%

%

nge % %

nge

% %

political tensioh negatively ok with Solider18.37, while % to $18.28. I% up to $19.4

ing ahead, cted to remainvestors sta

ormation of a

ons in the couon the performre Class A deits B counterIn London, So4.

the BLOM ain volatile in aying on the s new governm

Page

S A L

untry continuemance of Soleclining by 1.rpart retreate

olidere GDR ed

Stock Indethe coming w

sidelines aheament.

4 of 14

ed to idere .76% d by dged

x is week ad of

I

M

The Lebanon Br

SSUE 714; Week

Foreign ExLebanese F

Dollar / LP Euro / LP Swiss FrancYen / LP Sterling / LPNEER Index

*Close of GMT 0**Nominal Effec**The unadjustemajor currenciesthe approximate

Nominal Eff

Money & Tre

Money Mar

Treasury Yi

3-M TB yield

6-M TB yield

12-M TB yie

24-M TB cou

36-M TB cou

60-M TB cou

Overnight InBDL 45-d

BDL 60-d

90.00

92.00

94.00

96.00

98.00

100.00

Mar-10

rief Financi

k of 28 Februar

xchange MaForex Market

0

c / LP

P ** 09:00+2 ctive Exchange Raed weighted averas being traded wit relative price a co

fective Exch

easury Bills

rket Rates

ields

0

d

d

eld

upon

upon

upon

0

nterbank day CD

day CD

Apr-10 Jun-10

ial Markets

ry – 05 March, 20

arket

t 05/03/11 2

1507.50 12104.62 21620.62 118.27

2448.33 292.80

ate; Base Year Janage value of a couthin a pool of curronsumer will pay

ange Rate (N

s Markets

05/03/11 2

3.89%

4.42%

4.57%

5.34%

5.94%

6.18%

05/03/11 2

2.75% 4.40%

4.89%

Jul-10 Sep-10

011

25/02/11 %

1507.50 2083.37 1625.34 -18.38 -

2427.98 93.21 -

n 2006=100 ntry’s currency reencies. The NEER for an imported g

NEER)

25/02/11 Ch

3.89%

4.42%

4.57%

5.34%

5.94%

6.18%

5/02/11 Ch

2.75% 4.40%

4.89%

Nov-10 Jan-11

%Change

0.00% 1.02% -0.29% -0.60% 0.84% -0.44%

elative to all R represents good.

Teads$tedc

InaoteJssa$cFt9

hange bps

0

0

0

0

0

0

hange bps

0 0

0

BLr1lermadt5i

IwmF(Tfpttmaa5d

1 Mar-11

The US dollar exchange markacross the regdollar. The estagnated tow$/LP1,514.5 wihe Central Ba

end of Februdollarization ratcompared to 62

n international as the price outweighing thhe US. The eu

end of the weean-Claude Tr

soon as April tsingle currencyagainst the do$/€1.3820 last wcurrency deprFriday 04/03/11he Nominal Eff

92.8 from 93.2

Broad money MLP747B ($496Mreach LP138,810.65% y-o-y bevel. M1 wentrise in demandmoney in circuadded $475.5deposits and Lhe dollarizatio

59.75%. The Cnterbank rate a

n February, thworth LP2,011maturing TBs February 24, 2TBs) worth LPinance the ma

paper capturedotal subscriptihe remaining

maturities remaverage discouaverage coupo5.34% and 5.9department co

remained theket over the pgion impelled xchange rateards the higheth a mid-pricenk (excluding

uary comparete of deposits 2.86% recorde

markets, the eof oil continu

he effect of theuro was also bek, after the ichet hinted thto rein in on thy thus broke aollar, rising 1week. Accordieciated to LP. Gains made fective Exchan a week earlier

M3 grew for thM) during the 35B ($92.1B).but still 0.15%t up by LP30Bd deposits outlation. Total deM following LP49B ($32.5Mn rate of broa

Central Bank cat 2.75%.

e Ministry of 1B ($1,334M), valued LP2,42011 TBs auctP415B ($275.3Maturing TBs of d the bulk of ions, while the34.03% and 0ained the sam

unt rate for theon rate for the94% respectivntinued to und

e currency ofpast two wee demand for

e between Ler band of th

e of $/LP1, 51gold) fell by 0

ed to previou reached 63.24

ed in Novembe

euro pushed uued to surgee positive em

backed with hehead of the Ehat interest rahe region’s soan almost four.02% to closngly, the US dP/€2,104.62 f by the euro wnge Rate (NEEr, down by 1.74

he second con week ending. Consequentl

% below its eB ($19.9M) as tpaced the LP8eposits (excluda $443M rise

M) climb in LPad money addcontinued to m

Finance (MoF, less than 428B ($1,610tion, the MoFM), less than t LP478B ($317demand, acco

e 24M and 120.65% respectme as the preve 12M paper ke 24M and 36vely. Worth nodertake all acce

Page

S A L

f choice on teks, as rising the secure-p

Lebanese banhe peg at $/LP2.5. Foreign a

0.8% to $30.2us month, w4% in Decemb

er 2010.

p against the Ue on MENA tployment repoeavy purchaseEuropean Centtes could be r

oaring prices. r year resistanse at $/€1.39ollar-pegged Lrom LP/€2,08

weighed negativR) that fell by 04% since year

nsecutive week February 17, y, M3 augmend of Decembthe LP113B ($83B ($55.05Mding demand de in foreign deposits. As

ded a weekly 1maintain the o

F) issued Treasneeded to co

0M). With resF issued Treasthe amount req7M). The 36M ounting for 65M papers reptively. Yields avious auction kept at 4.57%,6M papers retoting that the epted bids.

5 of 14

the local tensions

perceived nks thus P1,510.5-assets of B by the

while the ber 2010

US dollar tensions, orts from es by the tral Bank raised as Europe’s

nce point 61 from

Lebanese 83.37 on vely over 0.44% to start.

k, adding 2010 to ented by ber 2010 $74.95M) ) drop in deposits) currency a result, 16bps to overnight

sury Bills over the spect to sury Bills quired to maturity 5.32% of resented

across all with the

, and the tained at Treasury

I

E

DsinpbmA LInala

The Lebanon Br

SSUE 714; Week

Eurobond M Eurobonds

Lebanese G

Matu

2012, 2012, 2013, 2013, 2014, 2014, 2015, 2015, 2016, 2016, 2017,2018,2020,2021, 2022,

2024, • Mid P

Demand for Lesessions, but nvestors keptproblems. By benchmark yiemarkets’ bondAmerican coun

Lebanon’s cren regional ecoand remained ast trading at

4.00%

4.50%

5.00%

5.50%

6.00%

Ma

We

rief Financi

k of 28 Februar

Market

Index and Y

BLOM WeightWeight*Base Ye** The c

Government

rity - Coupon

Mar - 7.500%Sep - 7.750%Mar - 9.125%Jun - 8.625%Apr - 7.375%May - 9.000%Jan - 5.875%Aug - 8.500%Jan - 8.500%May - 11.625%, Mar - 9.000%, Nov - 5.150%, Mar - 6.375%Apr - 8.250%, Oct - 6.100%Dec - 7.000%

Prices ; BLOMINV

ebanese Euro only lost 0.1t their interescontrast, the

eld, it narrowd index that ntries, which

dit default swonomies, insu almost the s 113-114bps a

ar-10

ighted Effect

ial Markets

ry – 05 March, 20

Yield

Bond Index (Bted Yield** ted Spread***ear 2000 = 100; i

change is in basis

Eurobonds

n 05/03/11 Price*

% 103.50 % 105.25 % 109.00 % 109.00 % 107.88 % 112.75 % 102.00 % 112.50 % 112.75 % 128.25

% 115.75 % 96.88 % 102.00 % 114.88

% 97.00 % 101.50 VEST bank

obonds contin3% to close st in Lebanes portfolio’s w

wed 12bps dogained 0.92%earned appea

wap for 5 yearurance premiuame in Dubai

and 167-171bp

May-10

tive Yield of E

011

BBI)*

* includes US$ sov points ***

25/02/1Price*

103.50105.25109.00109.00107.88112.75102.63113.00113.00127.50116.0096.75102.25115.0097.00101.78

ued to wane at 109.67 po

se debt, but weighted yieldown to 340bp% to 523.38 l with the sur

rs (CDS) was lums on sover at 447-462bp

ps respectivel

Jul-10

Eurobonds

05/03/11 109.671 5.23%

340 vereign bonds tra*Against US Treas

1 WeeklyChange%

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% -0.61% -0.44% -0.22% 0.59% -0.22%

0.13% -0.24% -0.10%

0.00% -0.28%

over the past ints on Fridaysimply took t

d also contracps. In comparpoints. The lge in the price

last trading onreign debt narps. As for emly.

Se

25/02/11 109.814 5.27%

352 ded on the OTC msuries (in basis po

y %

05Y

4 4 4 4 4 4

5 5 5

5 5

5 6 6

6 6

week, as they. The markethe sidelines

cted by 4bps rison, the BBatter index’s e of the comm

n Friday at 34rrowed an ave

merging econo

ep-10

Change Y-0.13%

-4 -12

marketoints)

/03/11 Yield

2

4.02% 4.11% 4.40% 4.43% 4.62% 4.60%

.30%

.29%

.48%

.31%

.86%

.66%

.09%

.24%

.47%

.83%

Blom bond int’s slow descto wait out to 5.23%. AsI lagged behmovers were

modity.

47-366bps, doerage of 9bpsomies, CDS qu

Nov-10

Year to Date -2.13%

67 51

25/02/11 Yield

4.08% 4.15% 4.44% 4.46% 4.63% 4.63% 5.12% 5.18% 5.43% 5.47% 5.83% 5.68% 6.05% 6.23% 6.47% 6.80%

ndex (BBI) slidcent was a clthe reigning

s for the spreind the JP Me bonds in o

own from 348-s in Saudi Arauotes in Braz

Jan-11

Page

S A L

Weekly Change bps

-6 -4 -4 -3 -1 -3 18 11 5

-16 3 -2 4 1 0 3

d in four out oear indicationlocal and reg

ead against thMorgan’s emeoil producing

-378bps last wabia to 129-13il and Turkey

Mar

6 of 14

of five n that gional he US erging

Latin

week. 39bps were

r-11

The Lebanon Brief Economic Statistics & Indicators Page 7 of 14

ISSUE 714; Week of 28 February – 05 March, 2011

S A L

ECONOMIC STATISTICS & INDICATORS BdL Foreign Assets

Source: BdL

BdL Foreign Assets Stand at $30.19B by end-February The Lebanese Central Bank’s (BdL) total assets reached $63.49B by the end of February this year, up by 1.43% from the previous month. On one hand, BdL’s foreign assets (excluding gold) fell by 0.8% to $30.2B, due to higher local demand for US dollars amid market uncertainties. The value of gold reserves conversely jumped 5.4% to $12.97B, from January’s figure as global tensions and spiking oil prices boosted the price of the commodity from $1331.8 to $1411.3 by the end of February. Furthermore, Loans to the local financial sector surged by a monthly 55.2% to $0.5B. On the liabilities side, financial sector deposits, constituting 70.1% of total liabilities, rose 1.86% to $44.52B. These include the outstanding certificates of deposits issued by BdL in the domestic currency that decreased to $18.45B by end of December 2010, and the BdL certificates of deposits denominated in foreign currencies that remained at $5.4B. Public sector’s deposits with 8.1% of total liabilities fell by 11.4% to $5.18B.

Airport Passengers

Source: Rafic Hariri International Airport

Airport Passengers Reached 739,470 up to February 2010 The total number of airport passengers increased 4.9% y-o-y to 739,470 up to February 2010, according to statistics published by Rafic Hariri International Airport. Total arrivals reached 311,066, while departures attained 420,070. Moreover, 8,334 passengers were in transit. In February alone, passenger activity increased by 9% to 369,735 compared to the same month last year. However, it seems that Lebanon is getting affected by the region’s unrest in addition to the drag, internally, in the formation of the new government, as total arrivals fell 7.13% to 155,533, whereas departures surged 24.13% to 210,035 passengers. In terms of airline traffic, MEA topped the list with 132,742 passengers on board, accounting 35.9% of total passengers in February. Emirates Airlines and Fly Duabi came in second and third places with a respective stake of 6.12% and 4.36%.

17.76

20.84

29.44 30.19

2008 2009 2010 2011

By February ($B)

213,845

276,825

339,237369,735

2008 2009 2010 2011

In February

The Lebanon Brief Economic & Financial News Page 8 of 14

ISSUE 714; Week of 28 February – 05 March, 2011

S A L

ECONOMIC AND FINANCIAL NEWS Lebanon’s Trade Deficit

Source: Lebanese Customs

Lebanon’s Trade Deficit Widens in January on Spiking International Prices Lebanon’ trade deficit widened to $1.43B in January this year, up by a staggering 53.6% from the same month in 2010, according to the latest figures from the Customs Department. This drastic change in the balance was due to a 39% surge in imports to $1.73B and a simultaneous 5% decline in exports to $239M. Imports were primarily defined by a 31% rise in the value of mineral fuel and oil purchases to $0.54B, with the international prices of crude oil increasing by almost 20% y-o-y to an average $89.4 in January. Similarly, the continuing global rise in prices of consumer products and food materials pushed the value of their imports to Lebanon between 1% and 3% to a total of $200M. Lebanon’s exports on the other hand suffered a minor setback during the month on changing market dynamics, related to rising production costs and international competition of subsidized products, according to Lebanese industrialists and farmers. Furthermore, they were negatively influenced by the destabilized political situation in the MENA region during the last week of the month.

BMI Forecats: Insurance Premiums

Source: BMI

Insurance Sales Climb 8% in 2010, Led by 10 Major Companies The value of insurance premiums in Lebanon jumped 13% to $1.16B in 2010, after having increased by only 6% in 2009 according to data submitted by insurance companies to the audit committee of the National Social Security. Sales of insurance policies increased by 8% y-o-y to reach 3.47M, with life insurance taking a 23% share of the total volume. Furthermore, 64% of sales were concentrated in 10 of the 50 registered companies. The favorable performance by the sector, according to the Association of Insurance Companies chairman, Ibrahim Matosian, moved in line with the country’s economic condition, improving during the first half of the year and slightly waning down after June. Matosian added that the sector, including 2 foreign firms and employing more than 1,100 employees, was getting positioned for growth this year, prior to the current political crisis. Separately, and according to Business Monitor International (BMI), the sector’s premiums will likely reach $2.1B by 2015. 

698

844786

932

1,432

2007 2008 2009 2010 2011

In January ($M)

0

500

1000

1500

2000

2500

2007 2008 2009 2010 2011 2012 2013 2014 2015

Non-Life Life

In billions of $

I

C

The Lebanon Br

SSUE 714; Week

CORPO Alpha Bank

Total Assets

Customer D

Loans and A

Shareholde

Net Profit

Source: BankDa

SGBL and L

Total Assets

Customer D

Loans & Ad

ShareholdeEquity

Net Profit

Source: BankDa

Public Debt

Source: Ministry

20.025.030.035.040.045.050.055.0

2005

Total Debt ($M)

Gr

rief Corpora

k of 28 Februar

ORATE

ks’ Financials

s

Deposits

Advances

ers' Equity

ta Financial Serv

LCB Financia

L

s 6,1

Deposits 5,2

vances 1,7

ers' 43

5

ta Financial Serv

t o/w Market

y of Finance

2006 2007

ross Public Deb

ate Developme

ry – 05 March, 20

DEVEL

s for 2010

2010 200

134.1 120

112.1 99.

36.2 28.

12.0 10.

1.61 1.3

ices

als in 2010 ($

LCB SGB

197.5 5,125

288.1 3,975

772.9 1,410

37.6 397.6

58.2 85.6

ices

t Debt

2008 2009 2

bt Mark

nts

011

LOPME

09 % ch

0.6 11.2%

.9 12.2%

.8 25.7%

.6 13.9%

30 24.0%

$M)

L Merged

Bank

.4 11,322.9

.7 9,263.8

.8 3,183.7

6 835.2

6 143.9

56.00%

58.00%

60.00%

62.00%

64.00%

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Page 1

S A L

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The Lebanon Brief Focus In Brief Page 11 of 14

ISSUE 714; Week of 28 February – 05 March, 2011

S A L

Dairy, Al Wadi Al Akhdar, Al Rifai Roastery, Khoury Dairy, PepsiCo, Bonjus, ManyFood, Ghandour, Libby’s, Chateau Ksara, Brasserie Almaza, Château Kefraya, and Château Massaya. The spread of Mass Grocery Retail (MGR) contributed significantly to F&B industry’s growth and development. The total MGR sales grew at a CAGR of 12.3% between 2007 and 2010, reaching a value of $2.11B, according to Business Monitor International (BMI). Supermarkets continue to dominate the sector, representing 85.32% of sector sales in 2010, while Hypermarkets accounted for the remaining 14.68%. The Key players in the Lebanese MGR sector are: Co-op, Bou Khalil Hypermarkets & Drugstore, Le Charcutier Aoun, Spinneys, Casino Groupe, Metro, and the Sultan Center. The Lebanese retail sector is highly fragmented with the country’s political instability discouraging international retailers from entering the market. The 2006 Lebanese War combined with import shortages forced the country’s retailer Spinneys to close its store in Tyre. However, the scenario is starting to change as in August 2008, Kuwaiti retailer, the Sultan Center (TSC), announced the acquisition of food retailers Monoprix and Géant Casino from local company Admic. BMI forecasts the Lebanese organized retail segment to grow to almost $3B by 2013, a 76.4% increase over 2008. The soft and alcoholic drinks sales experienced a strong growth during the past few years, benefiting from a booming tourism industry. The Soft drinks sales rose 36.25% in 2010 to $0.427M compared to 2007. As for the Bottled water, it was the third fastest growing category in the MENA region in 2008, increasing at a rate of 6.7% after energy drinks and instant tea products. Lebanon is among the world’s top 20 in the list of per capita consumption of bottled water, while the UAE topped the list in the region and ranked third globally with over 150 liters per year. Unlike the entire MENA region, Lebanon has an established alcoholic drinks industry that is led by the wine segment. The per capita annual alcoholic drinks consumption is estimated at 5 liters a year, which is considered very high compared to other Arab countries. Food imports outweigh food exports in Lebanon, causing a negative food and beverages trade balance. Food industry imports increased at a CAGR of 15.53% to $1.52B between 2005 and 2009. Imports of agriculture products rose at a CAGR of 11.11% to $610.28M, while imports of livestock products grew at a CAGR of 15% to $334.32M. During 2010, Brazil captured the lion’s share of Lebanese imports of F&B products with a stake of 16%, accounting for 40,937 tons. France ranked second, representing 14.77% of the total or 37,135 tons. Average prices of these imports fluctuated between US$2,536 and US$3,444 per ton between 2007 and 2010. Worth pointing out that over 90% of the food in the Middle East is met through imports with an annual import bill of over $12B. As for exports, food industry exports climbed at a CAGR of 14.21% to $397.34M between 2005 and 2010. Exports of agriculture products rose at a CAGR of 6.86% to $27.6M, whereas exports of livestock products surged at a CAGR of 18.92% to $27.86M. Iraq constituted the main destination for Lebanese exports of F&B products with 10,821 tons or 70% of total F&B exports in 2010. Qatar and UAE came in second and third places, accounting for a combined 1,081 tons or 7% of total F&B exports. Average prices of these exports hovered between US$768 and US$1,096 per ton between 2007 and 2010. Consumption of food accelerated significantly over the past five years. Total Household consumption of food rose by 51.77% to $6.68B in 2009 compared to $404B in 2005. 24.71% or $1.65B of 2009’s food consumption is agriculture products (cereals, fruits, vegetable, etc.), 9.9% or $662.02M is livestock and fisheries, while 65.38% or $4.37 is food industry products (fresh meat, grains and cereals, dairy products, fats and oils, etc.). Prices of food in Lebanon have been increasing more than the Consumer Price Index (CPI) that shows a very close correlation between food prices and inflation. The average of Food & non-alcoholic beverages and Alcoholic beverages & tobacco sub-indices, which account for 22% of the overall CPI components, rose 6.56% and 7.34% respectively between 2008 and 2010, while the average CPI increased 4.92%, according to the Central Administration of Statistics (CAS). Lebanon is one of the most agriculturally productive markets in the region, capable of self-sufficiency in many subsectors mainly due to its climate. The Lebanese agriculture sector contribution to GDP was the second highest among the MENA region in 2009, employing around 15% of the active population. At a time where the world is shifting towards higher investment in agriculture to meet its future food demand, Lebanon benefited from the growth of the agriculture sector, the third most important sector after the tertiary and industrial sectors. In most countries, contribution to GDP is less than 2-3% compared to a 5.6% in Lebanon and 13.7% in Egypt.

The Lebanon Brief Focus In Brief Page 12 of 14

ISSUE 714; Week of 28 February – 05 March, 2011

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Lebanon has the highest proportion of cultivable land in the Arab world with almost one-fourth of the land available for cultivation. The availability of arable land is a critical factor for the F&B industry. Land area in Lebanon is estimated at 1.02 million hectares, of which 67.17% is agriculture land. 16.35% of the available land is arable, while 1,040 Km2 is irrigated land. 13.75% are permanent crops with main crops including cereals like wheat and barley, fruits and vegetables, olives, grapes, and tobacco, along with sheep and goat herding. The agricultural production per capita rose over the past five years. The per capita agriculture production index provided by the Food & Agriculture Organization (FAO) shows that the net production (excluding deductions for feed and seed) per person rose 6.45% in 2009 compared to 2005, but dipped 19.51% when compared to 1996. Livestock production in Lebanon recorded higher growth than crops production. Crops production rose 2.39% in 2009 to $642.2M compared to 2005, while Livestock production climbed 25.43% to $287.4M. The outlook for the food & beverages industry in Lebanon is positive as long as the local economy is continuing to record a strong growth. However, there is a need for more government intervention as the local distribution market suffers from the absence of government quality control, a lack of marketing regulations as well as low cost import competition.

Your Investment Reference

S A L

Research Department: Marwan Mikhael marwan.mikhael@blominvestbank.com Cynthia Zeilah cynthia.zeilah@blominvestbank.com Malak Hawa malak.hawa@blominvestbank.com Walid Sayegh walid.sayegh@blominvestbank.com Gaelle Khoury gaelle.khoury@blominvestbank.com