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
GCC Cement

Introduction of additional measures to boost cement demand in GCC

The ongoing political turmoil happening in the Middle East has forced some governments to introduce
additional measures on top of huge development plans already in place to pacify an agitated
population. Saudi Arabia announced 21 Royal Orders in March 2011 which includes building of
500,000 housing units worth SAR250bn. Bahrain also announced plans to build 50,000 homes at a
cost of USD5.3bn in response to the protests taking place in the country. In addition, most of the GCC
countries announced one-time generous handouts and increased unemployment allowances for their
citizens. All these measures are likely to trickle down into improved demand for cement.

Sector profitability improved marginally

GCC 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 in
2010. Net margins witnessed an 450.6bps increase during the period due to the fact, other income
segment grew strongly by 55% to reach USD224.9mn, attributed to better capital markets performance
as compared to last year.

Positioning Gross Margins & ROE Non-Core Income as % of Net Inc. & Net Margins
20.0% 50.0%
KSA KSA
Oman Qatar
16.0% 40.0% Oman
GCC
Return on Equity

Kuwait GCC
Qatar Kuwait
Net Margin

12.0% 30.0%

8.0% 20.0%

10.0% UAE
4.0% UAE
0.0%
0.0%
Faisal Hasan, CFA 0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
0.0% 20.0% 40.0% 60.0%
Head of Research Non-Core Income as % of Net Income
Gross Margin
fhasan@global.com.kw
Source: Company Reports & Global Research
Tel: (965) 2295-1270
* Performance of 23 Listed Companies as of 2010
Hettish Karmani
Senior Financial Analyst Realization prices prolong their tumult
hkumar@global.com.kw Cement prices in the GCC averaged around USD68.3/ton in 2010, as compared to USD73.8/ton
Tel: (965) 2295-1281 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 a 2005-2010 CAGR basis, average cement
Umar Faruqui prices in GCC increased 1.5%. All cement prices in the GCC witnessed a decrease, however UAE
Financial Analyst marked the largest decline of prices by 26.9%. Kuwait average realization prices reached USD80.2/ton
ufaruqui@global.com.kw in 2010 as compared to USD83.3/ton in 2009, while Qatar realization prices decreased from
Tel: (965) 2295-1438 USD71.4/ton in 2009 to USD68.7/ton in 2010.

Turki O. AlYaqout Recommendation

Financial Analyst Within GCC, we are POSITIVE on Oman & Saudi Arabian cement sector due to better demand supply
tyaqout@global.com.kw situation as compared to other countries in GCC. Global Research outlook is Neutral for Qatar and
Tel: (965) 2295-1295 Negative for UAE.

Global Investment House

www.globalinv.net
Global Research – GCC GCC Cement Quarterly Report

Global Research Cement Universe - 2011e

Yamama Saudi Eastern Qassim Yanbu Arabian Oman Raysut Arkan Build. Gulf Fujairah RAK Qatar
Cement Cement Province Cement Cement Cement Cement Cement Material Cement Cement Cement Cement

Symbol YSCC SCC EPCC QCC YNCC ACC OCC RCC ARKAN GCEM FCI RAKCC QNCC
Code/Symbol

Country KSA KSA KSA KSA KSA KSA Oman Oman UAE UAE UAE UAE Qatar

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.QA

Bloomberg YACCO AB SACCO AB EACCO AB QACCO AB YNCCO AB ARCCO AB OCOI OM RCCI OM ARKAN UH GCEM KK FCEM KK RAKCC UH QNCD QD

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 0.74 101.80
Price Data

Market Capitalization (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 1,372.5

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%
Profitability Ratios

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 16.4

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 84.1 260.8
Valuation Ratios

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 4.6

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 8.5

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 11.4

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 2.2
Source: Global Research , U/R - Under Review
Market Price, Market Capitalization & Enterprise Value as of 28 March 2011
FCEM Price has been taken from Kuwait Stock Exchange and converted to AED

March 2011 2
Global Research – GCC GCC Cement Quarterly Report

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

Introduction of additional measures to boost cement demand in GCC
The ongoing political turmoil happening in the Middle East has forced some governments to introduce additional measures on
top of huge development plans already in place to pacify an agitated population. Saudi Arabia announced 21 Royal Orders in
March 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 for
their citizens. All these measures are likely to trickle down into improved demand for cement. Bahrain has announced plans to
build 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 Bahrain

Meanwhile the GCC countries launched an USD20bn aid program for Bahrain and Oman in a show of regional solidarity. Both
the countries will get USD10bn each to upgrade their housing and infrastructure over ten years.

GCC economy expected to grow by 5.9% in 2011

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

Saudi Arabia- Five year plan focuses on infrastructure development

The 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 on
infrastructure development. We expect Saudi Arabia to be the vanguard of cement demand growth with demand expected to
grow at a 3-year CAGR of 5.5% to 52.1mn tons by 2013.

Oman announces eight five year plan

The government of Oman announced the eight five-year plan in January 2011. The plan is underpinned by the objective to
diversify the economy. The total expenditure under the plan amounts to OMR43bn (USD112bn) which is more than double the
OMR20.9bn (USD54.3bn) for the seventh five-year plan. Development projects related to infrastructure projects will take the
major chunk of the plan of around OMR12bn (USD31.2bn) which bodes well for the cement demand.

Kuwait development plan

In February 2010, the Parliament approved the proposed economic plan, called the Kuwait Development Plan (KDP), which
allows the government to spend an estimated KWD37bn (USD125bn). A development plan has been called for from almost all
sections of the society (the last development plan was approved in 1986) in order to revive Kuwait’s 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 Security Benefits USD100.0bn
Qatar World Cup 2022 Spending USD50.0
Bahrain 50,000 homes USD5.3bn GCC Aid Program for Housing and Infrastructure USD10.0bn
UAE Abudhabi Five Year Plan (2008-12) USD275
Kuwait Kuwait Development Plan (2010-14) USD125.0bn One-off Handouts for Citizens 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 Qatar

Qatar has promised to spend USD50.0bn on infrastructure upgrades and USD4.0bn to build nine stadiums to host the FIFA
World Cup 2022. An expected USD6.0bn will be spent on construction related projects which will generate an additional 3-4mn
tons 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 mixed
use projects construction activity is likely to see the highest increase ahead of 2022 in order to meet the expected demand.

UAE development plan

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

March 2011 3
Global Research - GCC GCC Cement Quarterly Report

GCC Cement Sector Profitability

GCC Cement sector continued to witness a top line decline two years following the credit crisis wave that halted major real
estate activity and construction projects affecting cement and building materials companies. GCC cement companies came out
with weak 11.7% decline in top line revenue, however it announced a mere 0.4% increase in profits for the 2010. Net profits
increased from USD1,440mn in 2009 to USD1,446mn in 2010. Net margins witnessed an 450.6bps increase during the period
due 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% as
compared 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

(USD 000) 2009 2010 Chg (%)
Sales Revenue 4,367,070 3,856,982 -11.7%
Cost of Sales 2,616,015 2,286,534 -12.6%
Financial Performance

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 Assets 2.1% 1.8% -35.8bps
Non-Core Income as % of PAT 10.1% 15.6% 547.7bps
Ratio Analysis

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% 146.8bps
Equity 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
Source: Company Reports & Global Research
* Consolidated Financials of 24 Listed Companies, Result of UCC has not been announced

Country wise, UAE, Oman, Kuwait and Qatar continue to be pressured by declining sales revenues. UAE dominated the list and
is likely that it hasn’t reached the bottom yet. Sales revenue of UAE decreased 28.4% to reach USD736.8mn bringing gross
margin 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 in
sales 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 is
considered the most stable cement market throughout the crisis posted a 3.6% increase in sales revenue and a 0.3% increase in
net profits.

Strong financial strength of cement companies continue to help the sector weather the storm in the cement market as assets and
equity increased 6.5% and 4.5% respectively during 2010. On the other hand, debt witnessed a 28.9% increase to reach
USD2,437mn, noticeably Raysut Cement finalized a deal to takeover Pioneer Cement of UAE which resulted in Raysut Cement
taking a USD250mn debt to finance the deal. Debt to equity which is considered a strong ratio during the crisis witnessed a
450bps increase in FY2010 to reach 23.7%. Cement companies should benefit from the recent measures by the government in
the region to stimulate economic activity and provide housing which will help prop up demand, and hence profitability of the
cement companies and will allow them to reduce their current debt levels.

March 2011 4
Global Research - GCC GCC Cement Quarterly Report

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 a
2005-2010 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 as
compared 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 in
Kuwait as a part of the development plan, cement prices in Kuwait might have reached a bottom and might witness an increase
going forward. Also, Qatar cement prices are expected to increase as demand is expected to reach 5-8mn tons per annum
during the period 2010-2017.

Average Realization Prices

85.0 0.0%

80.0 -5.0%
75.0
-10.0%
(USD/Ton)

70.0
-15.0%
65.0
-20.0%
60.0

55.0 -25.0%

50.0 -30.0%
KSA UAE Oman Kuwait Qatar GCC
Average
2009 2010 Change

Source: Industry Reports & Global Research

Oman, the country which started to feel the pinch of the crisis by posting lower sales revenue and declining profits for 2010
witnessed a mere 1.4% decrease in cement prices in 2010, the lowest among other GCC peers. But on a CAGR basis, Oman
witnessed 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 in
2009.

As for the second largest cement producer in the GCC, UAE witnessed a 26.9% decrease in cement prices because of the
excess supply and low demand due to halted real estate and construction projects. Value of projects planned in UAE decreased
15.8% reaching USD815.3bn, of which USD403.9bn are on hold. In addition, new cement companies have flooded the market
bringing more pressure to cement companies. As per Fujairah Cement, demand of cement in UAE dropped to merely 19mn in
2010. UAE continues to face pressure on its cement industry which is proved by decline sales, demand, profits and higher
inventories. However UAE is a strong economy backed by higher oil prices and strong development plans, time will heal the
cement 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 reach
USD61.3/ton. The continuation of cement export ban and additional cement capacity has kept pressure on cement prices. On a
CAGR basis, KSA cement prices achieved a 0.8% increase during the period 2005-2010.

March 2011 5
Global Research - GCC GCC Cement Quarterly Report

Country Performance

Saudi Arabia

 Domestic demand increased by 10.0%YoY to 10.9mn tons in 4Q10 reflecting the increased pace of economic and
construction 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 determine
whether the slowdown in 3Q10 points to an imminent trend or is just an aberration. On a QoQ basis, the sales dispatches
increased by 22.5% in 4Q10. The increase can be partly attributed to seasonal factors with the Ramadan season falling in
the 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 and
Najran Cement which increased their total local dispatches by 98.7%YoY to 0.47mn tons in 4Q10 absorbing 48.1% of the
total growth in total cement and clinker dispatches during 4Q10 compared to the corresponding quarter last year. The
newly 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 to
1.64mn tons as the efficiency of the two new production lines launched in April 2009 with a capacity of 7.0mn tons
allowed it to follow a more aggressive sales strategy. On the other hand, Yamama Cement and Tabuk Cement saw a
decline 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%YoY
decline to USD61.6 per ton in 3Q10. Strong domestic demand is mitigating the impact of cement export ban and increase
in domestic cement capacity. We expect realization prices to remain flat or even show a slight increase in 1Q11 as
construction activity picks up.

 Saudi Arabia listed cement companies excluding Al-Jouf Cement posted an increase of 5.4% in sales revenue to
USD508.7mn in 4Q10 from USD482.7mn in 4Q09. Net profits also witnessed an increase of 12.1% to USD214.8mn in
4Q10 as compared to USD191.7mn during 4Q09.

KSA Cement Price KSA Projects Value

70.0 1,000.0

68.0 800.0
(USD/Ton)

(USD Bn)

66.0 600.0

64.0 400.0

62.0 200.0

60.0 -
2008

1H-09

2009

2010
Sep-10
2008

2009

2010
1H-09

1H-10

1Q-10
1Q-10

9M-09

Apr-10
9M-09

9M-10

Source: Company Reports, MEED & Global Research

The increase in sales and profitability has been driven increase in volumes sold. However the increase in volume sales
has 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 exporters
are being forced to sell in the domestic market while other major cement players are extending their reach to other
regions 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 in
stocks.

March 2011 6
Global Research - GCC GCC Cement Quarterly Report

Saudi Arabia Cement Sector

60.0% 6.0%

58.0% 5.0%

56.0% 4.0%

54.0% 3.0%

52.0% 2.0%

50.0% 1.0%
2009 2010 2009 2010

Gross Margins (%) Non-Core Income as % of PAT

50.0% 50.0%

49.0% 49.0%

48.0% 48.0%

47.0% 47.0%

46.0% 46.0%

45.0% 45.0%
2009 2010 2009 2010

Operating Margins (%) Net Margins (%)

2.0% 15.0%

1.8% 14.0%

1.6% 13.0%

1.4% 12.0%

1.2% 11.0%

1.0% 10.0%
2009 2010 2009 2010

Financial Charges as % of Debt Debt as % of Assets

24.0% 76.5%

23.9% 76.4%

23.8% 76.3%

23.7% 76.2%

23.6% 76.1%

23.5% 76.0%
2009 2010 2009 2010

Liabilities as % of Assets Equity as % of Assets

20.0% 15.2%

19.0% 15.0%

18.0% 14.8%

17.0% 14.6%

16.0% 14.4%

15.0% 14.2%
2009 2010 2009 2010

Return on Equity (%) Return on Assets (%)

Source: Company Reports & Global Research

* Combined Financials of Eight Listed Companies

March 2011 7
Global Research - GCC GCC Cement Quarterly Report

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 during
the 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 revenue
at 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 of
22.1%. 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 was
USD79.4/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/cement
and were also able to import cement at very cheap prices. Gross margins went up to 49.5% in 2010 as compared to
45.6% in 2009.

 Non-core income portion continued to add to the bottom line of the sector. Non-core income as percentage of net income
grew 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

85.0 120.0

81.0 100.0
(USD/Ton)

(USD Bn)

77.0 80.0

73.0 60.0

69.0 40.0

65.0 20.0
1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010 1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010

Source: Company Reports, MEED & Global Research

 During 2010, debt of the Omani cement sector rose due to an increase in the leverage by Oman Cement Company due to
its upcoming expansion and a huge debt piled up by Raysut Cement over its acquisition of UAE’s 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 the
total projects, 6.6% amounting to USD6.7bn have either been postponed or being put on hold. Country holds 5th rank in
terms of projects market.

March 2011 8
Global Research - GCC GCC Cement Quarterly Report

Oman Cement Sector

50.0% 30.0%

49.0% 24.0%

48.0% 18.0%

47.0% 12.0%

46.0% 6.0%

45.0% 0.0%
2009 2010 2009 2010

Gross Margins (%) Non-Core Income as % of PAT

35.0% 40.0%

33.0% 38.0%

31.0% 36.0%

29.0% 34.0%

27.0% 32.0%

25.0% 30.0%
2009 2010 2009 2010

Operating Margins (%) Net Margins (%)

1.5% 25.0%

1.2% 20.0%

0.9% 15.0%

0.6% 10.0%

0.3% 5.0%

0.0% 0.0%
2009 2010 2009 2010

Financial Charges as % of Debt Debt as % of Assets

35.0% 100.0%

28.0% 80.0%

21.0% 60.0%

14.0% 40.0%

7.0% 20.0%

0.0% 0.0%
2009 2010 2009 2010

Liabilities as % of Assets Equity as % of Assets

25.0% 25.0%

20.0% 20.0%

15.0% 15.0%

10.0% 10.0%

5.0% 5.0%

0.0% 0.0%
2009 2010 2009 2010

Return on Equity (%) Return on Assets (%)

Source: Company Reports & Global Research
* Combined Financials of Two Listed Omani Companies

March 2011 9
Global Research - GCC GCC Cement Quarterly Report

United Arab Emirates

 UAE cement sector continued its poor performance. During 2010 consolidated revenues of the sector went down by
28.4% to USD736.8mn as compared to USD1.0bn in 2009. Reason for the decline in revenue was because of decline in
cement 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 financials
yet.

 Consolidated net income of listed cement companies in UAE for 2010 declined by 28.3% to USD86.1mn as compared to
USD120.1mn 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. Gross
margins 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 as
percentage of assets increased from 14.7% earlier to 15.9% in 2010 .

UAE Cement Price UAE Projects Value

100.0 1,100.0

90.0 1,000.0
(USD/Ton)

(USD Bn)
80.0 900.0

70.0 800.0

60.0 700.0

50.0 600.0
1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010 1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010

Source: Company Reports, MEED & Global Research

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

 Unlike other countries, UAE witnessed an equity wipe out as well as the overall equity balance of the sector went down by
2% to USD2.53bn as compared to USD2.59bn in 2009. Equity as percentage of assets dropped to 77.3% in 2010 as
compared to 78.4% in 2009.

March 2011 10
Global Research - GCC GCC Cement Quarterly Report

UAE Cement Sector

35.0% 50.0%

28.0% 40.0%

21.0% 30.0%

14.0% 20.0%

7.0% 10.0%

0.0% 0.0%
1H-09 1H-10 1H-09 1H-10

Gross Margins (%) Non-Core Income as % of PAT

30.0% 25.0%

24.0% 20.0%

18.0% 15.0%

12.0% 10.0%

6.0% 5.0%

0.0% 0.0%
1H-09 1H-10 1H-09 1H-10

Operating Margins (%) Net Margins (%)

3.0% 15.7%

2.4% 15.6%

1.8% 15.5%

1.2% 15.4%

0.6% 15.3%

0.0% 15.2%
1H-09 1H-10 1H-09 1H-10

Financial Charges as % of Debt Debt as % of Assets

25.0% 80.0%

24.0% 79.0%

23.0% 78.0%

22.0% 77.0%

21.0% 76.0%

20.0% 75.0%
1H-09 1H-10 1H-09 1H-10

Liabilities as % of Assets Equity as % of Assets

5.0% 5.0%

4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0%
1H-09 1H-10 1H-09 1H-10

Return on Equity (%) Return on Assets (%)

Source: Company Reports & Global Research
* Combined Financials of Nine Listed UAE Companies

March 2011 11
Global Research - GCC GCC Cement Quarterly Report

Qatar
 Qatar cement sector continued to witness low demand during the period. Country was also hurt by influx of cheaper
cement from neighboring countries. Sector witnessed a bottom line growth of 10.5%. Out of the two listed cement
companies, Qatar Cement out performed with a bottom line growth of 12% while Al Khalij Holding Company reported an
increase 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 the
projects amounting to 88.6% (USD217.2bn) are continuing as planned because of the persistent gas based liquidity in the
country.

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

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

Qatar Cement Price Qatar Projects Value

80.0 255.0

76.0 235.0
(USDTon)

(USD Bn)
72.0 215.0

68.0 195.0

64.0 175.0

60.0 155.0
1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010 1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010

Source: Company Reports & Global Research

 Consolidated net income of the two listed cement companies in Qatar for 2010 increased to USD147.8mn as compared to
USD133.7mn 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 the
same 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 debt
as percentage of assets increased from 22.7% earlier to 28.0% in 2010. Increase in the debt levels can be attributed to
increase 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 assets
was because of the increase in debt of the sector by 44.6% along with an 8.3% increase in the equity in 2010.

March 2011 12
Global Research - GCC GCC Cement Quarterly Report

Qatar Cement Sector in Charts

50.0% 60.0%

40.0% 50.0%

30.0% 40.0%

20.0% 30.0%

10.0% 20.0%

0.0% 10.0%
2009 2010 2009 2010

Gross Margins (%) Non-Core Income as % of PAT

40.0% 45.0%

34.0% 42.0%

28.0% 39.0%

22.0% 36.0%

16.0% 33.0%

10.0% 30.0%
2009 2010 2009 2010

Operating Margins (%) Net Margins (%)

5.0% 30.0%

4.0% 28.0%

3.0% 26.0%

2.0% 24.0%

1.0% 22.0%

0.0% 20.0%
2009 2010 2009 2010

Financial Charges as % of Debt (%) Debt as % of Assets (%)

35.0% 75.0%

33.0% 71.0%

31.0% 67.0%

29.0% 63.0%

27.0% 59.0%

25.0% 55.0%
2009 2010 2009 2010

Liabilities as % of Assets (%) Equity as % of Assets (%)

13.2% 10.0%

13.1% 9.6%

13.0% 9.2%

12.9% 8.8%

12.8% 8.4%

12.7% 8.0%
2009 2010 2009 2010

Return on Equity (%) Return on Assets (%)

Source: Company Reports & Global Research

* Combined Financials of Two Listed Qatari Companies

March 2011 13
Global Research - GCC GCC Cement Quarterly Report

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
Listed Companies 33.0 38.0 38.0 41.2 41.2 43.6 45.4
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
Listed Companies 2.5 2.5 2.5 2.5 5.4 5.4 5.4
Unlisted Companies - - - - - - -
Total Kuwait 2.5 2.5 2.5 2.5 5.4 5.4 5.4

Oman
Listed Companies 4.5 5.4 5.4 5.4 5.4 5.4 5.4
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
Listed Companies 2.8 2.8 5.9 5.9 5.9 5.9 5.9
Unlisted Companies 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Total Qatar 3.1 3.1 6.2 6.2 6.2 6.2 6.2

Bahrain
Listed Companies - - - - - - -
Unlisted Companies 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Total Bahrain 0.5 0.5 0.5 0.5 0.5 0.5 0.5

GCC
Listed Companies 60.3 66.3 71.8 79.5 82.3 84.8 86.6
Unlisted Companies 6.9 18.4 23.1 29.5 30.5 30.5 31.5
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%

Source: Company Reports & Global Research

March 2011 14
March 2011
107.5
120.0
100.0

132.5

95.0
70.0
82.0
88.0
94.0

70.0
82.5
76.0

180.0
210.0
240.0
270.0

150.0
300.0
1,500.0
2,100.0
2,700.0
3,300.0
3,900.0
4,500.0

Dec-09 Dec-09 Dec-09

Jan-10 Jan-10 Jan-10 Dec-09

Global Research - GCC

Jan-10
Feb-10 Feb-10 Feb-10
Feb-10
Mar-10 Mar-10 Mar-10
Mar-10
Apr-10 Apr-10 Apr-10
Apr-10
May-10 May-10 May-10
May-10
Jun-10 Jun-10 Jun-10
Jun-10

Source: World Bank Pink Sheets & Bloomberg

Jul-10 Jul-10 Jul-10
Jul-10
Baltic Dry Index (x)

Raw Material Index (x)

Aug-10 Aug-10 Aug-10
Aug-10

Coal South Africa (USD/ton)

Crude Oil, Avg, Spot (USD/bbl)
Sep-10 Sep-10 Sep-10 Sep-10
Oct-10 Oct-10 Oct-10 Oct-10
Factors Influencing Cement Prices

Nov-10 Nov-10 Nov-10 Nov-10

Dec-10 Dec-10 Dec-10 Dec-10

4.0
5.0
6.0

2.0
3.0
7.0

74.0
78.0
82.0
86.0

70.0
90.0
100.0

70.0
82.0
88.0
94.0

76.0
100.0
110.0
120.0

70.0
90.0

80.0

Dec-09 Dec-09 Dec-09 Dec-09

Jan-10 Jan-10 Jan-10 Jan-10
Feb-10 Feb-10 Feb-10 Feb-10
Mar-10 Mar-10 Mar-10 Mar-10
Apr-10 Apr-10 Apr-10 Apr-10
May-10 May-10 May-10 May-10
Jun-10 Jun-10 Jun-10 Jun-10
Jul-10 Jul-10 Jul-10 Jul-10
Aug-10 Aug-10 Aug-10 Aug-10

Crude Oil, WTI (USD/bbl)

Coal, Australia (USD/ton)

Crude Oil, Brent (USD/bbl)

Natural Gas, US (USD/mmbtu)

Sep-10 Sep-10 Sep-10 Sep-10
Oct-10 Oct-10 Oct-10 Oct-10
Nov-10 Nov-10 Nov-10 Nov-10

Dec-10 Dec-10 Dec-10 Dec-10

GCC Cement Quarterly Report

15
Global Research - GCC GCC Cement Quarterly Report

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%
Weighted Average of GCC 14.5% 3.9% 9.4% 12.4% 14.6% 4.2% 8.1% 11.1% 14.1%

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%
Weighted Average of GCC 10.8% 2.7% 7.0% 9.5% 11.1% 3.1% 6.1% 8.3% 10.4%

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%
Weighted Average of GCC 14.9% 18.8% 18.0% 15.8% 14.6% 15.8% 16.6% 17.2% 17.6%

Liabilities as % of Assets
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%

Equity as % of Assets
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%
Weighted Average of GCC 74.4% 70.7% 74.5% 76.7% 75.8% 73.5% 75.3% 74.9% 74.4%
Source: Company Reports & Global Research

March 2011 16
Global Research - GCC GCC Cement Quarterly Report

Disclaimer
This material was also produced by Global Investment House KSCC (‘Global’),a firm regulated by the Central Bank of Kuwait. This document is
not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent
permitted by law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicit
business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted
by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to
recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global
has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and
no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document.
Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This
document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability
whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person
and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this
document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions
and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This
document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained
herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be
reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait
where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such
restrictions. By accepting this report you agree to be bound by the foregoing limitations.

March 2011 17

Research
Faisal Hasan, CFA
(965) 2295-1270
fhasan@global.com.kw
Wealth Management -
Kuwait
Rasha Al-Qenaei
(965) 2295-1380
alqenaei@global.com.kw
Global Kuwait
Tel: (965) 2 295 1000
Fax: (965) 2 295 1005
P.O.Box 28807 Safat, 13149
Kuwait
Global Abu Dhabi
Tel: (971) 2 6744446
Fax: (971) 2 6725263/4
P.O.Box 127373 Abu Dhabi,
UAE
Global Egypt
Tel: (202) 24189705/06
Fax: (202) 22905972
24 Cleopatra St., Heliopolis,
Cairo
Global Wealth Manager
E-mail: contactus@global.com.kw
Tel: (965) 1-804-242
Global Investment House
Website: www.globalinv.net
Global Tower
Sharq, Al-Shuhada Str.
Tel. + (965) 2 295 1000
Fax. + (965) 2 295 1005
P.O. Box: 28807 Safat, 13149 Kuwait
Index Brokerage
Rasha Al-Huneidi Fouad Fahmi Darwish
(965) 2295-1285 (965) 2295-1700
huneidi@global.com.kw fdarwish@global.com.kw
Wealth Management -
International
Fahad Al-Ibrahim
(965) 2295-1400
fahad@global.com.kw
Global Bahrain Global Dubai
Tel: (973) 17 210011 Tel: (971) 4 4477066
Fax: (973) 17 210222 Fax: (971) 4 4477067
P.O.Box 855 Manama, P.O.Box 121227 Dubai,
Bahrain UAE
Global Saudi Arabia Global Qatar
Tel: (966) 1 2994100 Tel: (974) 4967305
Fax: (966) 1 2994199 Fax: (974) 4967307
P.O. Box 66930 Riyadh P.O.Box 18126 Doha,
11586, Qatar
Kingdom of Saudi Arabia
Global Jordan
Tel: (962) 6 5005060
Fax: (962) 6 5005066
P.O.Box 3268 Amman 11180,
Jordan