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

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:

Welcome to Cement Business Research

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The Aspects We Assessed and Why

BASIC FACTS ▪ Macroeconomic Considerations ▪ Cement Market Size and past growth ▪ Products by type ▪ End users ▪ Vertical integration ▪ Distribution chain ▪ International trade ▪ Supply characteristics ▪ Cement plants data / map ▪ Regional v national ANALYSIS – MARKET CHARACTERISTICS ▪ Demand Scenarios ▪ Reality Check: need, capability and funding ▪ Further Reality Check: per capita, Cement Economic Curve ▪ Supply – demand balance considerations, S-D balance and DCUF™ ▪ International Trading Assessment Matrix (ITAM™) ▪ Industry Structure and Dynamics (ISD™) ▪ Nature of Market Participants ▪ Consolidation Index ▪ Industry Cost Structure and Dynamics including industry profitability and cost escalation forecasts ▪ Licence to Operate Considerations GENERAL CONSIDERATIONS AND CONCLUSIONS ▪ Supply – demand balance ▪ Propensity and ability to export / import ▪ Industry profitability ▪ License to operate CBR’s RANKING TOOL (CBRRT™) ▪ Overall market attractiveness assessment

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Tools and Metrics

Domestic Capacity Utilisation Factor DCUF™

Propensity to Export / Import

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:

International Trading Assessment Matrix ITAM™

Capability to Export / Import

Industry Structure and Dynamics ISD™

Nature of Participants, Consolidation Index, Cost Structure and Industry Profitability

Our Ranking Tool CBBRT™ Overall Market Attractiveness Assessment

The Gulf and North Africa

ALGERIA EGYPT KUWAIT MOROCCO OMAN QATAR SAUDI ARABIA TUNISIA UAE

2017 Basic Facts

500 1000 1500 2000 2500 3000 3500 94 21 248 23 50 100 150 200 250 300 INTEGRATED PLANTS GRINDING PLANTS RELEVANT MILLING CAPACITY IN MILLION TONNES 240 188 786 100 200 300 400 500 600 700 800 900 POPULATION IN MILLION PERSONS DEMAND IN MILLION TONNES PER CAPITA IN KG

▪ UAE Grinding plants ▪ 2017 DCUF™ - 69% ▪ Varying per capita consumption ▪ Gulf States highest consumers in the world ▪ North African markets significantly higher than many regional European markets ▪ Average plant 2.6 million tonnes per annum capacity

Industry Structure and Dynamics I

▪ Region boasts a large number of newly installed kilns ▪ Average size of kilns is high

7% 18% 17% 28% 29% 0% 5% 10% 15% 20% 25% 30% 35% BEFORE 1980 1980 - 1989 1990 - 1999 2000 - 2009 2010 - PRESENT

AGE OF KILNS

20% 17% 19% 23% 21% 0% 5% 10% 15% 20% 25% LESS THAN 3000 TND 3000 - 3999 TND 4000 - 4999 TND 5000 - 5999 TND >6000 TND

SIZE OF KILNS

Industry Structure and Dynamics II

▪ Production costs breakdown differs significantly from industry to industry ▪ Energy costs are the largest varying factor ▪ Regional energy costs at 40% of total ▪ Cost escalation varies

BREAKDOWN OF PRODUCTION COSTS REGIONAL BREAKDOWN OF PRODUCTION COSTS

14% 25% 16% 12% 15% 13% 5% VARIABLE RAW MATERIALS VARIABLE FUELS VARIABLE POWER OTHER VARIABLES FIXED LABOUR FIXED MAINTENANCE OTHER FIXED 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% ALGERIA EGYPT KUWAIT MOROCCO OMAN QATAR SAUDI ARABIA TUNISIA UAE AVERAGE

Industry Structure and Dynamics III

▪ Varying usage of “extenders” – mainly limestone and some pozzolan. Scarcity of flyash and slag ▪ Minimal usage of alternative fuels – why? ▪ Significant variations in industry profitability from market to market – why?

BAGS VERSUS BULK – REGION AND EUROPE

54% 46% 15% 85% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% BAGS BULK REGION EUROPE

INDUSTRY PROFITABILITY CLINKER RATIO AND AF USAGE

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 90% 95% 100% 105% 110% 115% 120% 125% 130% 135% 140% CEMENT FROM CLINKER RATIO AF SUBSTITUTION RATE 0% 10% 20% 30% 40% 50% 60%

Industry Structure and Dynamics IV

▪ Highly fragmented industries lead to volatile behaviour by participants ▪ Industries dominated by locally established participants ▪ State owned assets significant – particularly in the North African countries ▪ Both exporting and importing is challenging due to low ITAM™ scores

CONSOLIDATION INDEX ITAM™ CAPACITY OWNERSHIP

41% 48% 11% INTERNATIONAL LOCAL STATE

2022 Projections

▪ Demand is expected to grow above supply ▪ Significantly different DCUF™s for the individual markets ▪ Kuwait and Oman are expected to require significant imports or capacity additions ▪ Regional DCUF™ improves from 69% in 2017 to 74% in 2022

GROWTH RATES DCUF™ MILLION TONNES

4.4% 2.9% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% CAGR DEMAND 2017 - 2022 CAGR SUPPLY 2017 - 2022 188 272 233 314 50 100 150 200 250 300 350 DEMAND SUPPLY 2017 2022 43% 66% 67% 73% 74% 75% 85% 87% 139% 158% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180%

2022 Projections

▪ Continuing high levels of per capita consumption ▪ All but one market above the CEC trendline ▪ Risk adjusted demand projections, varying profiles

2022 BASIC PROJECTIONS

Algeria Egypt Kuwait Morocco Oman Saudi Arabia Tunisia UAE 500 1000 1500 2000 2500 10000 20000 30000 40000 50000 60000 70000

CEMENT ECONOMIC CURVE

260 233 898 200 400 600 800 1000 POPULATION IN MILLION PERSONS DEMAND IN MILLION TONNES PER CAPITA IN KG

RISK ADJUSTED DEMAND PROJECTIONS

UPSIDE RISK DOWNSIDE RISK

Our Ranking Tool CBRRT™

▪ Attractive Supply – Demand Balance ▪ Attractive Industry Structure and Dynamics ▪ Capability to Export / Import ▪ Industry Projected Profitability ▪ License to Operate ▪ Potential M&A Activity

How attractive are the Gulf and North Africa markets from an investor’s point of view?

Conclusions

▪ Significant regional

• vercapacity

expected to improve during the forecasting period (2017 – 2022) ▪ High per capita consumption compared to many

• ther cement markets worldwide

▪ Relative absence of international cement players – as compared to Europe and the USA ▪ Large proportion of production assets owned by local investors and the State ▪ Varying levels of ability to export / import ▪ Lack

• f

deficit exporting destinations making exporting challenging ▪ Varying levels of industry consolidation, with some markets being highly fragmented ▪ Significant differences in industry profitability driven by pricing and subsidized (or not) energy ▪ Plants are relatively large and new making significant operational improvements challenging ▪ Low or non-existent usage of alternative fuels ▪ Varying levels of product sophistication ▪ Low levels of vertical integration ▪ Large amounts sold in bags ▪ Varying and complex distribution channels ▪ Generally high levels of authorities’ involvement – License to Operate issues ▪ Generally low levels of environmental requirements ▪ Significant geopolitical events ▪ Not all markets exhibit the same level

• f

attractiveness from an investor’s point of view

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