Egypt Cement Sector by plu17302

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									         Global Research      Sector

Egypt

        Egypt Cement Sector
        Against All Odds...   July 2009
Global Investment House KSCC
Global Tower,
P.O. Box 28807 Safat
13149 Kuwait
Tel: (965) 22951000
Fax: (965) 22951299
Email: research@global.com.kw
http://www.globalinv.net

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Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Phone No:(965) 22951270

Mahmoud Soheim
Manager-Egypt Research
msoheim@globalinv.com.eg
Phone No: (202) 37609526

Ahmed Abu Hussein, CFA
Financial Analyst
aabuhussein@globalinv.com.eg
Phone No: (202) 37609526

Radwa Weshahy
Financial Analyst
rweshahy@globalinv.com.eg
Phone No: (202) 37609526
                               Table of Contents

Investment Summary                                  1

Global Cement Industry                              5

MENA Cement Industry                               14

Egypt Cement Industry                              28

Valuation and Recommendation                       60

Players Profile                                    63

Sinai Cement Company                               64

Misr Cement Qena                                   81

Misr Beni Suef Cement                              98
Global Research - Egypt                                                   Global Investment House



Investment Summary
The structure of the world cement industry has become more globalized with a small
number of multinational companies dominating the world cement manufacturing capacities.
Moreover, the interaction between the cement market’s supply and demand forces on the
national , regional and international arena, created a new world order.

The world cement industry experienced a period of rapid growth during the past decade,
where the world aggregate cement consumption increased at a CAGR of 7.3% over the period
from 2003-2008. The robust growth in the cement industry came on the back of strong global
economic performance, which was mainly attributable to the vigorous economic activity and
developments in emerging markets, growing at a CAGR of 7.5% over the same period.

The cement industry situation has changed considerably after the global financial crisis,
where the added cement capacities during the past couple of years and the announcement of
multiple new capacities coming on-stream in the next 4 years, mainly in emerging markets,
coupled with the expected slow-down in the construction sector will create an inevitable
oversupply situation in the global cement markets.

The world map of cement has changed dramatically over the past 60 years, where the center of
gravity has been moving steadily away from the west toward the East or developing economies.
North America and Europe (developed market) share in world cement consumption has been
declining from around 80% in the 50’s to around 20% recently. This trend is attributable
to developing countries’ large population growth, as well as the continuous construction
development plans, including large scale infrastructure and real estate projects and cheap
labor and raw materials.

On the regional level, the MENA region’s cement industry has been expanding remarkably
over the past five years, on the back of the high activity witnessed in the construction sector to
undertake large scale real estate and infrastructure developments, including housing, tourism,
industrial and public projects. MENA region cement consumption has been expanding at a
CAGR of 9.6%, reaching 258.7mn ton in 2008, whereas cement production reached 255.6mn
ton in 2008, achieving a CAGR of 7.6% over the same period.

The MENA region cement production capacity in 2008 is estimated at around 376mn ton,
which is forecasted to increase by 40.5%, reaching around 529mn ton in 2012, according to
the announced expansion plans. Arab Countries cement annual production capacity stood
at 222mn ton, representing 59% of the MENA region’s cement annual production capacity.
Arab Countries cement annual production capacity is expected to increase by 99mn ton over
the next 4 years, reaching 321mn ton.

These huge cement capacities addition in the MENA region coming on stream over the next
years, unluckily coincided with the global economic slowdown and a declining activity in the
construction sector. This situation is expected to create an over-supply in the regional cement
market and trigger price wars, in addition to possible delays in the planned commissioning
dates of the new capacities, shutdowns of some of the inefficient existing capacities and
lower utilization rates.




July 2009                              Egypt Cement Sector                                      
Global Research - Egypt                                                              Global Investment House


Therefore, we believe that countries with low cash cost of production per ton will be better
positioned to survive the declining global cement prices and export their excess capacities at
competitive prices.

With respect to the local market, the Egyptian cement industry has been growing vigorously
over the past 5 years, on the back of the high activity experienced in the construction and real
estate sectors. Egypt’s cement consumption has been growing at a CAGR of approximately
6% over the past 40 years. Despite the declining global demand, resulting from the global
financial crisis, cement demand in Egypt continued its robust growth fueled by lower steel
prices, which triggered higher construction activity.

The Egyptian grey cement sector consists of 13 cement manufacturing companies, of which 9
companies are controlled by 6 multinational companies. At the end of 2008, Egypt’s cement
production capacity reached 43.3mn tons, compared to 41.8mn ton in 2007, recording a
growth rate of 3.9%. Egypt cement production capacity is expected to add around 18.5mn tons
between 2009 and 2011, growing at a CAGR of 12.6% over the next 3 years. Accordingly,
Egypt cement production capacity will come very close to 62mn ton.

The government intervention in the cement industry through increasing energy prices for
energy intensive industries, including cement, harmed the competitive edge of the Egyptian
cement sector, for its relatively low cost of production. In addition, banning cement exports
could jeopardize the position of the Egyptian cement in export markets, yet we believe the
negative effect will be marginal, as Europe, which represents Egypt’s main export market, is
witnessing a severe decline in demand.

Finally, we believe that Egypt’s cement sector outlook is positive, on the back of the continuing
activity in the construction sector. The growth in the construction sector is expected to be
driven by the government plan to boost investments in infrastructure projects, as well as low
income housing and industrial development projects, in addition to the improvement of under
developed areas in Egypt. Furthermore, the private sector investments in the residential,
commercial and hospitality real estate segments are expected to support the construction
sector, as well.

Table 01: “Global” Valuation Matrix
                                           Target
                                   Price    Price               Upside BVPS*         EPS*     PBV^        PE^
Company Name                        (LE)     (LE)     Reco.   potential  (LE)         (LE)      (x)        (x)
Sinai Cement                       71.98    107.3      Buy       49.0% 23.77           9.20    1.51       7.83
Misr Cement Qena                   78.00      91.3     Buy       17.1% 22.62         11.38     3.46       6.86
Misr Beni Suef Cement              88.49    162.8      Buy       83.9% 42.60         19.29     2.08       4.59
* 2009 projected EPS & BV
^ Multiples are based on projected EPS, BVPS & last market prices as of June 30th, 2009.
Source: Global Research




2                                            Egypt Cement Sector                                      July 2009
Global Research - Egypt                                                   Global Investment House



Introduction
The world cement industry experienced a period of rapid growth during the past decade,
where the world aggregate cement consumption increased at a CAGR of 7.3% over the period
from 2003-2008. The robust growth in the cement industry came on the back of strong global
economic performance, which was mainly attributable to the vigorous economic activity and
developments in emerging markets, growing at a CAGR of 7.5% over the same period.

The global front has changed dramatically since mid 2008, as the US economy went into
recession. A liquidity squeeze appeared in the horizon, on the back of defaulting sub-
prime mortgage borrowers, due to easy credit granted to home buyers with a low credit-
worthiness.

In mid-September, the situation deteriorated rapidly all over the world, where a series of
defaults in many financial institutions occurred simultaneously, leading to the world’s worst
financial crisis. Huge stocks sell-off wave hit the world’s markets triggered by investors’
panic, leading to tremendous losses on the global stock exchanges. Although the world
governments’ efforts to curb the downward trend to avoid recession, through adopting
expansionary policies, including lowering interest rates and injecting money in the world
economy, the global financial crisis still persists to date.

The global concurrent economic slow-down will negatively affect consumer demand, which
in turn will drag the growth of the entire sectors of the world economy. The construction
sector, which drives demand on building materials, will not be different and will be adversely
affected by the slowing world economy. In addition, tight credit conditions will act as an
obstacle to real estate developers in the implementation of their planned projects on all fronts,
leading to delay or cancellation of these projects. Consequently, the double effect of a slower
world economy and dry credit markets will negatively affect demand on building materials,
including cement.

The cement industry situation has changed considerably after the global financial crisis,
where the added cement capacities during the past couple of years and the announcement of
multiple new capacities coming on-stream in the next 4 years, mainly in emerging markets,
coupled with the expected slow-down in the construction sector will create an inevitable
oversupply situation in the global cement markets.

Consequently, this will lead to delay in the planned commissioning dates of the new capacities,
shutdowns of some of the inefficient existing capacities and lower utilization rates. However,
there is some good news represented in lower oil and natural gas prices, resulting from
reduced oil demand, which will have the effect of lowering the cement production cost.

Cement demand growth in developed markets, Western Europe and North America, is
expected to decelerate. Whereas, emerging markets cement demand growth is forecasted
to remain positive, although at a slower pace than previously projected before the global
financial crisis.




July 2009                              Egypt Cement Sector                                     
Global Research - Egypt                                                 Global Investment House


Therefore, the majority of the new capacities additions are directed to emerging economies,
which are still under-developed and needs a lot of spending on infrastructure projects, in
addition to emerging markets comparative advantage in terms of cost differential, where labor
and energy cost are cheaper and CO2 emission restrictions are lower than in the developed
economies. This will somehow alleviate the pressure on the construction sector, resulting
from the slow-down in the housing sector and mitigate the negative effect on the growth of
the global cement consumption created by developed countries.

Given the new set of circumstances, a new competitive environment will emerge, where
countries with lower cash cost of production will be better positioned to survive the declining
global cement prices and export their excess capacities at competitive prices.

The purpose of this report is to assess the position of Egyptian cement industry within the
context of the global and regional cement industry. We will apply a top-down approach by
exploring the cement market dynamics in each respective market.




                                     Egypt Cement Sector                              July 2009
Global Research - Egypt                                                                                                                                                                   Global Investment House



Global Cement Industry
The structure of the world cement industry has become more globalized with a small
number of multinational companies dominating the world cement manufacturing capacities.
Moreover, the interaction between the cement market’s supply and demand forces on the
national, regional and international arena, created a new world order.

The cement consumption is cyclical and closely related to the construction industry business
cycle, which in turn is largely determined by the overall macro economic growth. However,
cement is to some extent protected from extreme cycles in the construction industry, because
it is almost used in every type of construction. That is why the cement demand as a building
material is the last to be influenced during economic recessions and the first to benefit from
an economic recovery.

The cement consumption is seasonal throughout the year, where consumption decline in the
winter season due to bad weather conditions. Furthermore, the demand on cement is inelastic
in nature, as a decrease in cement prices will not significantly boost consumption during
a down cycle in the construction sector, as well as an increase in cement prices will not
materially reduce demand throughout a high construction activity period.

The cement industry has some distinctive characteristics. It is a capital intensive industry,
where the typical investment cost of a green field plant with an annual capacity of 1mn ton is
estimated to be in the range of USD150-200mn. In addition, the cement industry is an energy
intensive industry, where the production of one ton of cement requires around 60-130kg of
fuel oil or its equivalent, depending on the cement type and the production process, and about
105kwh of electricity.

The cement industry is closely related to the population, this relationship is intuitive because
the ultimate purpose of any building and construction development activity is to serve people,
whether in the form of housing, commercial, industrial, service or infrastructure developments.
The supply curve of cement kept shifting upward in close relation to population, exhibiting a
95.8% correlation between cement production and population.

Chart 01: World Cement production against world population
         3,500                                                                                                                                                                                                                     7,500

         3,000
                                                                                                                                                                                                                                   6,500
         2,500

                                                                                                                                                                                                                                   5,500
Ton mn




                                                                                                                                                                                                                                           People mn




         2,000

         1,500
                                                                                                                                                                                                                                   4,500

         1,000
                                                                                                                                                                                                                                   3,500
          500

             -                                                                                                                                                                                                                     2,500
                 1950
                        1952
                               1954
                                      1956
                                             1958
                                                    1960
                                                           1962
                                                                  1964
                                                                         1966
                                                                                1968
                                                                                       1970
                                                                                              1972
                                                                                                     1974
                                                                                                            1976
                                                                                                                   1978
                                                                                                                          1980
                                                                                                                                 1982
                                                                                                                                        1984
                                                                                                                                               1986
                                                                                                                                                      1988
                                                                                                                                                             1990
                                                                                                                                                                    1992
                                                                                                                                                                           1994
                                                                                                                                                                                  1996
                                                                                                                                                                                         1998
                                                                                                                                                                                                2000
                                                                                                                                                                                                       2002
                                                                                                                                                                                                              2004
                                                                                                                                                                                                                     2006
                                                                                                                                                                                                                            2008




                                                                                  Cement production                                     Wrold Population

Source: USGS, U.S Census Bureau & Global research



July 2009                                                                                      Egypt Cement Sector                                                                                                                              
Global Research - Egypt                                                                                                       Global Investment House


Supply and Demand Analysis

The world cement industry witnessed a stage of rapid growth over the period from 2002-
2007, resulting generally from good economic performance in world economies. The world
GDP growth achieved a CAGR of 4.6% over the same period and a growth rate of 5.2%
in 2007. This growth in the world economy came mainly on the back of strong economic
performance in emerging economies, which were able to achieve high economic growth rate
during the period from 2002 to 2007, growing at a CAGR of 7.4%, compared to 2.7% in
developed economies.

Chart 02: Real GDP growth rates
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
                 2000           2001    2002                  2003        2004                  2005               2006            2007            2008
                                         World                 Developed Economies                Developing Economies
Source: IMF & Global research


Much of the growth in developing countries is attributable to intensive spending in the field
of social development and construction activities, especially in the Middle East and Asian
economies. Consequently, global cement consumption has been growing vigorously over
the past 5 years at a CAGR of 8.7%, reaching 2.76bn tons in 2007 up from 2.57bn tons
consumed in 2006. On the other hand, world cement production responded to this increasing
consumption by growing robustly at a CAGR of 8.5% over the same period, where cement
production reached 2.76bn ton in 2007, compared to 2.57bn tons in 2006.

Chart 03: World cement production and consumption
         3,000


         2,500
Ton mn




         2,000
                                                                                                                                          2,872

                                                                                                                                                   2,857
                                                                                                           2,814

                                                                                                                      2,763
                                                                           2,619

                                                                                     2,568
                                           2,371

                                                      2,342
                        2,200

                                2,185




         1,500


         1,000
                           2004                2005                           2006                           2007                           2008
                                                                 Production                  Consumption
Source: Cembureau, ICR, USGS & Global research


By far China is the world’s largest cement producer and consumer, accounting for about
50% of the world’s aggregate supply and demand. China’s large population of 1.3bn people,
besides the massive numbers of infrastructure projects and continuing urbanization are the
driving forces behind its tremendous cement consumption and production quantities. The



                                                             Egypt Cement Sector                                                                 July 2009
Global Research - Egypt                                                           Global Investment House


second largest producer and consumer of cement is India with a population of 1.1bn people
and substantial housing and infrastructure development projects.

Chart 04: World cement 2008 by region
              Production                                                 Consumption
                 Others, 5.2%                                             Others, 5.8%
        MENA, 8.9%                                               MENA, 9.1%


Americas, 9.0%                                         Americas, 9.1%

                                     China,                                                      China,
                                     49.1%                                                       48.7%
  Europe, 9.5%                                             Europe, 9.0%



 Asia Pacific, 18.3%                                        Asia Pacific, 18.4%

Source: Cembureau, ICR & Global research


The world map of cement has changed dramatically over the past 60 years, where the center of
gravity has been moving steadily away from the west toward the East or developing economies.
North America and Europe (developed market) share in world cement consumption has been
declining from around 80% in the 50’s to around 20% recently. This trend is attributable
to developing countries’ large population growth, as well as the continuous construction
development plans, including large scale infrastructure and real estate projects and cheap
labor and raw materials.

Chart 05: Growth in World cement consumption in developed vs. developing countries
 20%

 15%

 10%

  5%

  0%
                2005                   2006                       2007                    2008
 -5%

-10%

-15%                      World      Developed Countries         Developing Countries
Source: Cembureau, ICR, USGS & Global research


The world has changed dramatically after the emergence of the financial crisis in the United
States and its rapid spillover effect all over the world. Deteriorating credit markets and tight
credit conditions prevailing around the globe, as well as slower economic growth will act as
major drags on the construction and building materials sectors, in terms of lower demand and
hard project financing.

The strong performance of the world cement industry over the past half decade is believed to
come to an end, as the world cement consumption increased by 3.4% in 2008, compared to
7.6% in 2007, whereas the world cement production achieved a growth rate of 2.1% in 2008
against 7.4% in 2007. Therefore, we believe that the world cement industry already started its
down cycle, which is expected to prevail at least during the coming year, if not longer.


July 2009                                  Egypt Cement Sector                                            
Global Research - Egypt                                                            Global Investment House


The decline in world cement consumption was mainly attributable to developed economies’
weak demand, which is estimated to be decreased by around 9.6% in 2008, compared to a
decline of 1.7% in 2007. Although, cement demand in developing economies is estimated
to decrease too, it is still on the positive side, growing by a moderate 5.9% in 2008, against
a 9.6% in 2007. The continuing construction spending in emerging economies will offset the
negative cement demand growth witnessed in developed countries.

Chart 06: World expected cement demand by region




Source: Global research


Moreover, an examination of how the growth in cement production evolved historically over
the past 60 years can provide us with some insight on where the global cement industry is
heading. As indicated in chart 07, we plotted the growth in cement production for different
time periods for years 2007 and 2008. We found that the trend line for 2008 different periods
CAGR shows a flatter slope than the trend line for 2007, which supports our previous
argument that the cement industry entered a period of slowdown.

The cement industry production achieved a growth rate of 7.4% over 2007, compared to
2.1% in 2008, which is even lower than cement production long term growth. Therefore, we
believe that the cement industry will grow at its long term average growth rate in the range
of 4.5 to 5% over the short term, before rebounding again when the world economy starts to
recover.

Chart 07: World cement production CAGR for different periods
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
         80 years    50 years    25 years    20 years      15 years     10 years     5 years      1 year
                                        2007          2008          Trend 2008         Trend 2007
Source: USGS & Global research




                                         Egypt Cement Sector                                      July 2009
Global Research - Egypt                                                                                   Global Investment House


Cement Pricing

The world average cement prices have been growing at a CAGR of 5% over the past 4 years,
reaching an average of US$105-110/ton in 2008, compared to US$85-90/ton in 2004. This
robust growth in cement prices came mainly on the back of the rapid growth in cement
demand, especially from emerging markets as we explained earlier, in addition to the rising
international energy prices, particularly the prices of steam coal and petcoke, which represent
the main energy source in the cement industry.

Chart 08: Australia -New Castle Steam Coal FOB price
          200
          180
          160
          140
          120
US$/ton




          100
           80
           60
           40
           20
            0
                Jan-06


                         Apr-06


                                  Jul-06


                                           Oct-06


                                                    Jan-07


                                                             Apr-07


                                                                      Jul-07


                                                                               Oct-07


                                                                                        Jan-08


                                                                                                 Apr-08


                                                                                                             Jul-08


                                                                                                                      Oct-08


                                                                                                                               Jan-09
Source: World Bank & Global Research


The production cost of cement varies significantly from one country to another, depending
on the availability and cost of energy, raw materials and labor. As long as energy cost is
the largest contributor to the cement’s production cost, cement producers in countries with
lower cost of energy will have a competitive advantage over their counterparts. In addition,
environmental regulations and carbon dioxide (CO2) restrictions in some countries will
add an incremental cost to the overall production cost. As an example for these restrictions,
Europe’s current CO2 price is EUR25 per ton of clinker produced.

On average, energy cost represents around 30% of the cement total production cost. Keeping
all other things constant, a rise in energy cost will be translated into higher production cost,
causing cement manufacturers to increase their selling prices in order to maintain their target
profit margins. The extent to which the cement prices will respond to an increase in energy
cost will depend primarily on the prevailing conditions in the construction market, which
directly affects demand for cement.

Capacities Additions

The world new cement capacity additions experienced a period of significant growth to cope
with the increasing cement consumption. This trend is evidenced by the large increase in the
contracted cement kiln capacities, achieving a CAGR of 33.5% for the period 2003-2008.
Given the annual contracted new cement kiln capacities globally excluding China, as indicated
in chart 09, and the fact that a time period of 2-3 years is needed between the contract award
and the commissioning of production, we can forecast that around an additional 400mn ton
of cement capacities will come on stream outside China during the next 3 years.




July 2009                                               Egypt Cement Sector                                                             9
Global Research - Egypt                                                                   Global Investment House


Chart 09: New Global contracted cement kiln capacities (excluding China)
         160
         140                                                             -10.7%
                                                                                              -1.6%
         120
                                             86.7%
         100
Ton mn




          80            43.1%
          60
          40
          20
           0
               2004                 2005                    2006                  2007                   2008
                      Middle East   Africa     Asia (excl. China)   Europe   N. America     S. America
Source: FLSmidth & Global Research


However, new cement capacities annual order book declined in 2007 and 2008 by 10.7%
and 1.6%, respectively, reflecting cement producers concern regarding the coming 2-3 years
outlook of the world cement consumption. This implies that the growth in cement consumption
during near future is expected to grow at a slower pace compared to the previous robust 5
years.

An analysis of the distribution of the annual contracted order book among different
regions shows that around 90% of the contracted new capacity additions were originated
from developing countries, especially from MENA region and India, against only 10% in
developed markets.

The shift in cement manufacturing toward the Eastern hemisphere was mainly driven by tight
supply conditions and escalating demand environment, on the back of increasing population
and continuous development of immature housing and infrastructure projects, which remain
a fundamental driver for growth. The supply/demand imbalance in emerging markets enabled
cement producers to command higher prices and enjoy higher profitability, which created
surplus funds available for investment and further capacity expansions.

Furthermore, emerging markets have a competitive advantage with respect to production cost
and price differential, which is considered another reason encouraging cement producers to
shift east. Access to cheap labor and energy cost, as well as relaxed environmental regulations
were two main factors contributing to the lower production cost in emerging markets. In
addition, high cement prices in developed markets compared to emerging markets, with the
exception of Africa due to limited supply and dependence on imports, created the basis for
exports to developed markets at competitive prices.

Moreover, Chinese equipment manufactures provide cement plant projects at lower cost. The
Chinese Sinoma Company is able to provide turnkey projects at approximately 30% less than
European suppliers. Therefore, the return on invested capital for cement producers employing
the Chinese technology for a typical 1.5mn ton cement plant reaches 16%, compared to 10%
for an identical plant build by any European supplier. It is worth mentioning that Sinoma had
a market share of 34% in 2008, taking the lead for the first time from FLSmidth.




0                                            Egypt Cement Sector                                               July 2009
Global Research - Egypt                                                 Global Investment House


Chart 10: Cement plants equipment suppliers market share 2008

                                                              FLSmidth (Denmark), 32%
                          Others, 13%



             KHD (Germany), 7%




            Polysius (Germany), 14%                           Sinoma (China), 34%

Source: FLSmidth & Global Research


The emergence of the financial crisis and its negative consequences on the construction
sector, especially in the developed markets, resulted in capacity reduction and projects delay,
as well as exacerbating the move of the new cement capacities to the emerging markets. In
Developed markets, companies will focus on vertical integration into ready-mix concrete and
aggregates, as a strategy to protect their market share and profitability.

Lafarge, the world largest cement producer, modified its 2006-2010 initial global capacity
expansion plan down from 60mn ton to 48mn ton and extended the plan time horizon by 1
year to end in 2011. In addition, Lafarge re-allocated the planned 10% capacity expansion in
developed countries in its initial plan, to become 100% directed toward emerging markets.

In addition, major multinational players are expected to abandon merger and acquisition
activity during 2009, as they will focus mainly on cash flow generation and achieving a sound
liquidity position through cost optimization, applying a conservative investment approach and
keeping low leverage. However, cement manufacturers emerging from developing countries
are serious competitors to the traditional industry leaders. These emerging market players
are gaining momentum and increasing control over the cement industry, on the back of high
profitability making them cash rich companies eager for growth and willing to diversify
abroad.

A new competitive environment will emerge in the global cement industry, where countries
with lower cash cost of production will be better positioned to survive the declining global
cement prices and export their excess capacities at competitive prices.

Trade

Generally, cement is not an export oriented product because it is a heavy and low value
product. Therefore, cement transportation cost is considered an important factor in
determining its import/export destinations world-wide. Consequently, the world total cement
trade represented only 6-8% of the world total consumption over the period from 1999 to
2008.




July 2009                               Egypt Cement Sector                                 
        Global Research - Egypt                                                                     Global Investment House


        Chart 11: Cement world trade
                  180                                                                                                   9.0%
                  160                                                                                                   8.0%
                  140                                                                                                   7.0%
                  120                                                                                                   6.0%
         Ton mn



                  100                                                                                                   5.0%
                   80                                                                                                   4.0%
                   60                                                                                                   3.0%
                   40                                                                                                   2.0%
                   20                                                                                                   1.0%
                    -                                                                                                   0.0%
                           1999     2000     2001      2002      2003     2004      2005     2006      2007   2008E
                                       World cement trade        Seaborne trade       % of global consumption
        Source: Ocean Shipping Consultants, Clarkson, ICR & Global Research


        The United States of America is the largest importer of cement in the world. However, the
        volume of cement imports to the United States has been significantly slashed by 33.2% and
        42.8% in 2007 and 2008, respectively. This decline resulted from the construction sector
        slow down, which mainly came on the back of weakness in the housing segment. On the other
        hand, China is the world’s largest cement exporting country, thanks to its huge capacities,
        which produce around 50% of the world cement production, and its competitive cement
        selling prices of approximately US$55/ton.

        Cement Seaborne Shipping is much more economically than inland shipping, allowing
        cement to travel very long distance at lower cost. Therefore, seaborne shipping has the lion’s
        share in global cement trading, where around 80% of total cement trading is shipped by sea.
        However, seaborne cement trading accounted for a small percentage of the world dry bulk
        shipments amounting to 4.5% of in 2007 and it is estimated to be 4.2% in 2008.

        Chart 12: World dry bulk shipments
                                          2007                                                           2008E
                        Phosphate rock, 1.1%                                           Phosphate rock, 1.0%

                   Others, 14.9%                       Iron ore, 25.9%              Others, 14.8%                       Iron ore, 27.2%


 Steel products, 8.9%                                                    Steel products, 8.9%

Forest Products, 5.8%                                                  Forest Products, 5.6%
         Cement, 4.5%                                                            Cement, 4.2%
 Bauxite/ Alumina, 2.8%                                                  Bauxite/ Alumina, 2.7%
                                                      Coal, 26.1%                                                     Coal, 25.7%
                          Grains, 10.0%                                                   Grains, 9.9%
        Source: Clarkson & Global Research


        The bulk carrier freight rates, which are determined by factors outside the cement sector,
        including fleet supply, seasonal factors and bunker price (carrier fuel), can change the cost
        competitiveness of one country compared to others in global markets.

        The international seaborne dry bulk freight rates, as measured by Baltic Dry Index (BDI), which
        provide an assessment of the price of moving the major raw materials by sea, has witnessed a
        dramatic drop by around 93% since late May 2008 till the end of December 2008, back to its
        2005 levels. However, the index started to recover some of its losses since early 2009.



        2                                                    Egypt Cement Sector                                     July 2009
Global Research - Egypt                                                                                                                                               Global Investment House


Chart 13: Baltic Dry Index
14,000
12,000
10,000
 8,000
 6,000
 4,000
 2,000
      -
          3-Jan-05

                     3-Apr-05

                                3-Jul-05

                                           3-Oct-05

                                                      3-Jan-06

                                                                 3-Apr-06

                                                                            3-Jul-06

                                                                                         3-Oct-06

                                                                                                    3-Jan-07

                                                                                                               3-Apr-07

                                                                                                                          3-Jul-07

                                                                                                                                     3-Oct-07

                                                                                                                                                3-Jan-08

                                                                                                                                                           3-Apr-08

                                                                                                                                                                       3-Jul-08

                                                                                                                                                                                  3-Oct-08

                                                                                                                                                                                             3-Jan-09

                                                                                                                                                                                                        3-Apr-09
Source: Bloomberg & Global Research


The current financial turmoil along with the global economic slow-down, especially in
developed economies, will result in reduction in the global cement consumption growth.
Therefore, the volume of global cement trading is expected to be negatively affected, as most
of the cement volumes are forecasted to be produced and consumed locally, whereas cement
trading will be mainly concentrated in the Eastern hemisphere, where demand still exists.




July 2009                                                                              Egypt Cement Sector                                                                                                         
Global Research - Egypt                                                                                               Global Investment House



MENA Cement Industry
For the purpose of the report, the Middle East and North Africa (MENA) region is represented
by 20 countries, including 18 Arab countries and 2 non-Arab countries, as follows:

-            Gulf Co-operation Council (GCC) Countries; Bahrain, Kuwait, Oman, Qatar, Saudi
             Arabia and United Arab Emirates (UAE).

-            The Arab Peninsula; Iraq, Yemen and the GCC region.

-            The Levant; Jordan, Lebanon, Syria and Palestine.

-            North Africa; Algeria, Egypt, Libya, Morocco, Sudan and Tunis.

-            Non-Arab Countries; Iran and Turkey. They are added to the MENA region because they
             are considered major cement producers.

Table 02: MENA economic indicators 2008e
                                                                                                                               Inflation rate
                                                                                            GDP     Population    GDP per            (End of
                                                                   Country                growth         (mn.) capita (US$)           period)
                                                                   Bahrain                    6.3         0.78       25,245              10.5
                                                                   Kuwait                     5.9         3.44       46,397               9.0
                                                      GCC region




                                                                   Oman                       7.4         2.60       21,704              10.0
                      Arab Peninsula




                                                                   Qatar                     16.8         1.10      106,460              15.0
                                                                   Saudi Arabia               5.9        24.90       21,221              11.5
                                                                   United Arab Emirates       7.0         4.76       56,667              12.9
                                                                   Iraq                       9.8        28.22         3,324              6.8
     Arab Countries




                                                                   Yemen                      3.5        22.98         1,199             15.9
                                                                   Jordan                     6.0         5.85         3,267             16.1
                                       The Levant




                                                                   Lebanon                    6.0         3.80         7,376              8.7
                                                                   Syria                      4.2        19.88         2,238              8.0
                                                                   Palestine                  0.8         2.41         2,758             11.5
                                                                   Algeria                    4.9        34.80         4,922              4.2
                                                                   Egypt                      7.2        75.05         2,109             20.2
                                       North Africa




                                                                   Libya                      7.1         6.21       17,468              12.0
                                                                   Morocco                    6.5        31.18         2,902              3.9
                                                                   Sudan                      8.5        38.13         1,631             12.0
                                                                   Tunis                      5.5        10.36         4,032              4.7
Non-Arab                                                           Iran                       5.5        72.87         5,247             24.0
Countries                                                          Turkey                     3.5        69.69       11,463              10.9
Source: IMF, CIA and Global Research


Sector Drivers

Economic Activity
The MENA region is endowed with a substantial energy reserve, where more than 66%
of the world’s crude oil reserve exists and around 47% of the global natural gas reserve is
located. Accordingly, the hydrocarbon sector is a main contributor to MENA’s economy,



                                                                                  Egypt Cement Sector                              July 2009
Global Research - Egypt                                                                                      Global Investment House


especially for oil-exporting countries, such as Saudi Arabia, UAE, Kuwait, Algeria, Libya
and Iran. Other countries including Egypt, Morocco, Tunis, Oman and Jordan are not mainly
dependent on the hydrocarbon sector and have more diversified economies.

Chart 14: Global Oil and Natural Gas proven reserves (end of 2008)
                  OIL                                   Natural GAS
    Other MENA, 8.4%
                                                                                  Other MENA, 5.7%
                                                                                   Algeria, 2.4%
     UAE, 7.8%
                                          Rest of the                              UAE, 3.5%
                                          World, 34.7%                    Saudi Arabia, 4.1%
Kuwait, 8.1%                                                                                                            Rest of the
                                                                                                                        World, 54.5%

     Iraq, 9.1%                                                                 Qatar, 13.8%

            Iran, 10.9%
                                              Saudi Arabia, 21.0%
                                                                                                  Iran, 16.0%
Source: BP & Global Research


The overall MENA region witnessed a period of strong economic performance, growing at
a CAGR of around 5.3% over the past 5 years. Economies were expanding vigorously on all
fronts, following the global growth trend, achieving a growth rate of 5.8% in 2008, the same
as 2007. MENA oil-exporters economic growth rate declined from 6.4% in 2007 to 5.8%
in 2008, resulting from slower domestic demand growth in Iran. However, GCC economic
growth reached 6% in 2008 from 4.1% in 2007. On the other hand, MENA diversified
economies achieved an economic growth rate of 5.7% in 2008, compared to 3.8% in 2007.

Chart 15: MENA GDP growth rate
7.0%

6.0%

5.0%

4.0%
                    6.4%




3.0%
                                                                                                                              6.0%
                                                            6.0%
                                   5.8%




                                                     5.8%


                                                                   5.8%
                                              5.7%




                                                                                                                5.7%




                                                                                                                                     5.2%
                                                                                                                       5.0%
                                                                                               4.3%




2.0%
                           4.1%




                                                                                 4.0%




                                                                                                      3.9%
                                                                                        3.9%
             3.8%




1.0%

0.0%
                     2007                       2008e                2009f                                         2010f
                                  MENA Diversified     MENA Oil Exporters                              GCC       MENA
Source: World Bank & Global Research


The significant surge in the international food and oil prices starting in 2007 to mid 2008
caused inflation rate to exceed the 10%-mark in the majority of MENA countries. Crude
oil prices reached almost US$145/barrel in mid 2008 from around US$55/barrel at the
beginning of 2007. This remarkable increase in oil prices created surplus liquidity mainly in
oil exporting countries, especially the GCC economies.

On the other hand, more diversified economies, which are dependent on food and oil imports,
experienced a decline in their current account balances as a percentage of GDP, due to higher
cost of imports.



July 2009                                               Egypt Cement Sector                                                                 
Global Research - Egypt                                                                                     Global Investment House


Chart 16: MENA current account position as percentage of GDP
 25.0%
 20.0%
 15.0%




                                                              19.2%



                                                                              18.7%
 10.0%




                                                                      17.2%
             14.9%



                              13.5%
                     12.8%




                                                                                      8.0%
                                      6.0%

                                             4.1%




                                                                                             5.4%
  5.0%
                                                                                                                                      0.0%
  0.0%




                                                                                                    -1.2%

                                                                                                             -3.6%

                                                                                                                     -7.3%

                                                                                                                             -0.7%
 -5.0%
-10.0%
                             MENA                             MENA Oil Exporters                      MENA Diversified
                                                    2006     2007    2008        2009               2010
Source: World Bank & Global Research


The governments of the GCC countries utilized these excess funds to diversify their economies
to become less dependent on the oil and gas sector, as they invested a substantial amount
of these excess petrodollars in society development, such as real estate and infrastructure
projects, in order to attract private investments, which were primarily directed to develop
high-end housing, commercial and tourism schemes, as well as industrial project. These large
scale multi-facet development projects on all fronts, as well as infrastructure developments
created a great demand for building materials, including cement.

The world economic slowdown, resulting from the manifestation of the global credit crunch,
which started in mid September 2008, negatively affected MENA economies. The direct effect
of the crisis was relatively mild, compared to developed economies, as financial institutions in
MENA region were not large holders of subprime mortgage securities. However, the vulnerability
of MENA economies to the ripple effect of the financial crisis was more severe than its direct
effect, with respect to shrinking global demand, squeezing liquidity and falling stock markets.

Therefore, MENA countries economic growth are expected to slowdown, on the back of
lower revenues, resulting from weak demand for the region’s exports and tourism, falling oil
prices and tight credit conditions. This will lead to decline in investment spending, which will
result in scaling down and postponement of ambitious investment projects.

Oil exporting countries current account position will be negatively affected, as receipts from
hydrocarbons were slashed, on the back of falling crude oil prices, reaching around US$45/
barrel from a peak of US$145/barrel in mid-2008. On the other hand, diversified economies will
benefit from lower commodity and oil prices, as their current account position will improve.

It is worth mentioning that oil price is an essential key factor affecting the region’s economy,
as well as the world economy. Therefore, any decision by the region’s main oil exporting
countries, which are also members in the Organization of the Petroleum Exporting Countries
(OPEC), to cut oil production to set a floor under oil prices will play a major role in shaping
the region’s growth profile.

Population
Population is one of the main determinants of cement consumption. As any construction
activity undertaken to develop any type of real estate or infrastructure project, is implemented
to serve the people whether in form of housing, tourism or public services projects. MENA



                                                         Egypt Cement Sector                                                       July 2009
Global Research - Egypt                                                                Global Investment House


region has a large population base, with a total population of around 461mn people, growing
at a CAGR of 2% over the past 10-year period.

Population in the MENA region is expected to grow by its historical annual average rate until
it reaches approximately 507mn people in 2013. Furthermore, MENA region has favorable
population segmentation with around 39% of its population are young and less than 18 years
old, which ensures strong demand on housing and utilities development projects.

Chart 17: MENA historical and forecasted population
                 600                                                                                         3.0%

                 500                                                                                         2.5%

                 400                                                                                         2.0%
Population mn.




                 300                                                                                         1.5%

                 200                                                                                         1.0%

                 100                                                                                         0.5%

                   -                                                                                         0.0%
                       1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011   2012   2013
                                               MENA population   MENA population Growth
Source: IMF, US Census Bureau & Global Research


Arab Countries contribute to around 69% of total MENA population, with a total population
of 318mn people in 2008, compared to 142mn people in non-Arab countries. North Africa
was the greatest contributor with a share of 43% of total MENA population.

Chart 18: MENA Population distribution 2008
  Non-Arab Countries, 31%



                                                                                           GCC, 8%
                                                                     Arab
                                                                     Peninsula,            Yemen, 5%
                                                                     19%
                                                                                           Iraq, 6%


                       North Africa, 43%                        The Levant, 7%
Source: IMF, US Census Bureau & Global Research


Construction activity
The MENA region’s construction activity has been expanding vigorously over the past years
to develop large scale real estate and infrastructure projects. Generally, this high level of
activity in the construction sector came on the back of the good economic performance all
over the MENA region, as well as different governments’ hefty investments, through the
public sector to develop immature housing and infrastructure projects to upgrade the living
standards and social services offered to the increasing population. Moreover, the contribution
of the private sector to this construction boom was mainly focused on the development of
luxurious residential, commercial and leisure schemes.




July 2009                                            Egypt Cement Sector                                        
Global Research - Egypt                                                             Global Investment House


The GCC region witnessed the highest level of construction activity in the MENA region,
driven by two main factors; the high oil prices, which created a surplus liquidity, and
willingness to diversify their economies to become less dependent on the hydrocarbon
sector.

The world economic recession resulting from the outbreak of the global financial crisis and
the subsequent free fall in the world oil prices, as a consequence of slower global demand,
negatively affected the liquidity levels of oil dependant economies. Moreover, dry credit
market conditions worsened the situation even more, with project financing became very
hard to obtain, as banks willingness to finance real estate projects disappeared. This situation
has adversely affected the construction activity, leading to a slowing-down in the sector
and downsizing and rescheduling of ambitious development plans. Accordingly, demand on
building materials decreased, leading to a decline in their prices.

According to data published by MEED, the Gulf region, which includes GCC, Iraq and Iran,
projects’ value in March 2009 reached US$3.1bn, growing at a CAGR of around 10% over
the past 10 quarters. Although the total projects’ value increased by 16.5% during the last
quarter in 2008, it advanced only by 5% in the first quarter of 2009. The large increase in
the projects’ value in the last quarter of 2008 came on the back of the stimulus packages
announced by the governments to invest in infrastructure projects, in order to counter attack
the slowdown resulting from the financial turmoil.

Chart 19: Gulf region projects value against their growth rate
      3,500                                                                                         18.0%
      3,000                                                                                         16.0%
                                                                                                    14.0%
      2,500
                                                                                                    12.0%
US$ mn.




      2,000                                                                                         10.0%
      1,500                                                                                         8.0%
                                                                                                    6.0%
      1,000
                                                                                                    4.0%
          500                                                                                       2.0%
            -                                                                                       0.0%
                Dec.   Mar.   Jun.   Sept.        Dec.      Mar.    Jun.    Sept.   Dec.    Mar.
                2006   2007   2007   2007        2007       2008    2008    2008    2008    2009
                                             Projects value        Growth
Source: MEED & Global Research


The value of the projects in itself is promising and assures a good activity in the broad
construction sector over the next years. However, the two crucial questions are how many
projects will find their way to the light with the current liquidity constraints and falling
demand and how such projects are distributed among different economic sectors.

We believe that the coming period will determine the destiny of many projects, where
infrastructure and economically feasible projects with adequate financing will be the surviving
projects, although they may witness some delays relative to their original completion dates.
On the other hand, projects that are speculative in nature, mainly luxurious real estate projects,
will be the ones that are more likely to witness cancellations.

The UAE has the largest construction market worth US$1.23bn, representing around 42% of
the Gulf region projects’ value, where some 80% of the UAE planned activity is in the real



                                           Egypt Cement Sector                                   July 2009
Global Research - Egypt                                                     Global Investment House


estate construction segment. Therefore, the UAE vulnerability to the negative consequences
of the credit crunch is much harsher than other countries in the region. There are around
US$335mn worth of projects on hold, representing 25% of UAE projects’ value and even on-
going projects were rescheduled with extended time frames and minimal work force because
of lack of funding and lower population projections, due to downsizing of the expatriate work
force.

Chart 20: Gulf region projects breakdown by country on March 2009

                      UAE, 41.9%                            Iran, 9.7%


                                                               Iraq, 5.0%
                                                                Bahrain, 2.2%

                                                              Kuwait, 9.9%

                                                       Oman, 3.5%
                  Saudi Arabia, 20.7%              Qatar, 7.1%
Source: MEED & Global Research


The decline in building material prices, which is considered a positive factor in stimulating
the construction sector, was not enough to fuel more real estate investments due to declining
demand and the severe lack of funds to finance projects, in addition to that the fiscal budget
of oil exporting countries, mainly GCC, came under pressure due to lower oil prices.

Although the construction sector is under pressure, the governments still have the ability
to ease strain on a slowing down construction sector by injecting funds to stimulate the
economic activity. Therefore, many governments in the region adopted stimulus package
plans to enhance their economies, mainly through increasing public spending on society
development projects, such as schools, universities, hospitals and infrastructure projects, as
well as injecting fresh money in the troubled financial system .

Data shows that merely the top 12 infrastructure projects in the MENA region will cost around
US$55bn, to be implemented during the coming years. This level of expected expenditure on
infrastructure projects should provide a good level of assurance that the construction activity
in the overall MENA region is not expected to fall sharply. However, the construction activity
will vary from one country to another. Accordingly, MENA demand on building materials is
not expected also to decline severely.




July 2009                             Egypt Cement Sector                                       9
Global Research - Egypt                                                      Global Investment House


Table 03: Top 12 railway and road mega projects
                                                Value                                                          Completion
Project                       Country         (US$ bn) Scope                                    Status              Date
GCC rail network              GCC region            14 3,000km rail network connecting          Planning            2016
                                                       the 6 GCC countries
Kuwait national rail network Kuwait                6.6 505km railway linking Saudi borders      Planning             2014
                                                       in the south with Iraqi borders in the
                                                       north though Kuwait cities
Land bridge                   Saudi Arabia         6.6 1,155km railway linking port cities      Developer            2011
                                                       of Jeddah, Dammam and Jubail             selection
                                                       through Riyadh
Makkah-Madina railway         Saudi Arabia           6 440km railway linking the 2 holy         Contract             2012
                                                       cities of Makkah and Madina with         awarded
                                                       Jeddah
Mina-Arafa railway            Saudi Arabia         5.3 The railway will link the Holy city      Contract             2013
                                                       of Makkah with Mina, Muzdalefa           awarded
                                                       and Arafat
UAE railway                   UAE                    3 9000km high speed railway linking        Planning             2015
                                                       all the 7 emirates together
Total railway projects                            41.5
Friendship causeway           Bahrain/             4.2 45km road and railway linking            Contract             2013
                              Qatar                    Bahrain and Qatar                        awarded
Subiya Causeway               Kuwait               3.7 36km bridge linking between              Planning             2016
                                                       Kuwait city and Subia peninsula
Red Sea bridge                Yemen/                 2 27km road and railway linking the        Planning             2020
                              Djibouti                 Arabian Peninsula and Africa
Jamarat bridge                Saudi Arabia         1.5 Expansion of the Hajj bridge in Mina     Construction         2009
Persian Gulf bridge           Iran                   1 Bridge linking Qeshm island with         Planning             2014
                                                       Iranian mainlan
Island bridges                UAE                    1 20 bridges linking islands of            Contract             N/A
                                                       Suwwa, Reem and Umlafaine                awarded
Total road projects                               13.4
Total rail & road projects                        54.9
Source: MEED, Zawya & Global Research


Regulations

The cement industry is highly regulated, as it is subject to high level of intervention by most
the region’s governments. The reason behind this is that cement is considered a strategic
commodity, as it is an essential building material for all and every kind of society construction
and infrastructure development activity.

Therefore, different governments across the region issued various regulations on their
respective local cement markets to regulate trading of cement, with the objective of prioritizing
meeting local demand and controlling local selling price of cement.

In Saudi Arabia, cement prices soared from an average of US$67/ton in 2007 to over
than US$100/ton, on June 2008. In turn, the Ministry of Commerce and Industry (MOCI)
imposed a ceiling on the factory price of cement at SR250/ton (US$68/ton). In addition, the


20                                       Egypt Cement Sector                                July 2009
Global Research - Egypt                                                  Global Investment House


government banned all cement exports effective June 2008, following growing complaints
from contractors and individuals that traders are directing cement for exports, attracted by
higher profit. On May 25th, 2009, cement export ban was removed on condition that cement
companies abide by the government decision to sell each bag of cement on the local market
for SAR10 (US$2.67).

It is worth mentioning that, Eastern Province Cement Company decided to shut a production
line, which produces 3,500 ton per day, for four months (for a lengthy maintenance), as the
government decision to ban exports has inflated the Company’s stockpiles. However, Saudi
Arabia decision to remove export ban, was driven by two reasons, the current high level of
inventory and the expected new capacities additions.

Table 04: Main government regulations
Country             Regulations                                Effective date
Egypt               Price cap of US$58.5/ton                   August 2006
                    Export duty of US$12/ton                   February 2007
                    Export duty of US$15/ton                   August 2007
                    Export ban                                 March 2008 to September 2008
                    Removal of export duty of US$15/ton        October 2008
                    Allowing imports                           April 2009
                    Export ban                                 April 2009 to August 2009
Saudi Arabia        Price cap of US$68/ton                     June 2008
                    Export ban                                 June 2008
                    Removal of export ban                      May 2009
UAE                 Price cap of US$81/ton                     2007
                    Price cap of US$99/ton                     2008
                    Reintroduction of 5% imports duty          February 2009
Oman                Export duty US$78/ton                      June 2008 until now
Syria               Price cap of US$130/ton                    February 2009 until now
Iran                Export ban                                 May 2008 to December 2008
                    Price cap of US$50-60/ton                  July 2008
                    Export Duty US$100/ton                     July 2008 to December 2008
                    Price cap of US$65/ton                     January 2009
Source: ICR, Reuters & Global Research


On the other hand, UAE government decided to set cement price at US$81/ton in 2007.
Price cap was further raised to US$94/ton and again to around US$99/ton in 2008. The surge
witnessed in cost of raw materials and fuel coupled with supply shortage pushed cement
prices to a record high. Accordingly, the Ministry of Economy signed an agreement with
producers to increase production and remove import duties, as well as reducing port handling
fees on May 2008. Later in February 2009, import duties of 5% were reintroduced to protect
local manufacturers, as well as avoiding oversupply in the market.

During March 2008, Oman two cement companies along with the Oman Chamber of
Commerce and Industry (OCCI) agreed to increase the retail price of cement by OMR0.20 to
OMR1.50 per bag equivalent to OMR30.0 per ton (US$78.0/ton) for cement manufacturers,
effective June 1st, 2008.




July 2009                                Egypt Cement Sector                                  2
Global Research - Egypt                                                                       Global Investment House


In 2008, the Syrian Prime Minister decided to extend, until June 2009, the permission to
import cement to satisfy the rapidly growing demand. This decision is revised on June of
every year. On February 2009, the Syrian government decided to fix the cement price at
US$130/ton, in order to protect the local producers, from the notably cheaper imported
cement from countries with lower production cost.

Moreover, the Iranian government banned producers from exporting cement because of
concerns to witness a local shortage, effective May 2008. However, recently established
plants were allowed to export a proportion of their production to cover bank repayments
and other debt, but have to pay an export tax duty of US$100/ton, which was imposed by
the government on July 2008. Additionally, Iran government has enforced a US$50-60/ton
cement price, as the black market price was more than double the ex-work price, effective
July 2008.

On January 2009, the government has decided to eliminate the US$100/ton export duty,
as the local supply and demand were almost balanced, after new plants started production.
Additionally, exports will only be allowed as long as the price of cement in Iran does not
exceed a maximum of US$65/ton.

Concerning Egypt the latest set of regulations were issued by the Minister of Trade and
Industry in April 2009, to control local cement prices including, banning cement exports for
4 months, reduction of cement imports clearing period from 30day period to 3-day period,
as well as obliging cement producers to print their selling prices on cement bags for all
distribution channels, including end-user price. Further details regarding regulations in the
cement market will be discussed later under Egypt’s cement sector.

Supply and Demand Analysis

The MENA region’s cement industry has been expanding remarkably over the past five
years, on the back of the high activity witnessed in the construction sector to undertake large
scale real estate and infrastructure developments, including housing, tourism, industrial and
public projects. MENA region cement consumption has been expanding at a CAGR of 9.6%,
reaching 258.7mn ton in 2008, whereas cement production reached 255.6mn ton in 2008,
achieving a CAGR of 7.6% over the same period.

Chart 21: MENA cement production and consumption
         300                                                                                                      14.0%

         250                                                                                                      12.0%

                                                                                                                  10.0%
         200
                                                                                                                  8.0%
Ton mn




         150
                                                                                                                  6.0%
                                                                                                          256
                                                                                                    259
                                                                                  242

                                                                                        240
                                                                 225

                                                                       222




         100
                     177
               164




                                                       202
                                                 201




                                                                                                                  4.0%
                                     188
                               177




          50                                                                                                      2.0%

           -                                                                                                      0.0%
                2003             2004              2005           2006             2007             2008
                       Consumption         Production        Consumption growth        Production growth
Source: Arab union for Cement and Building Material (AUCBM), ICR & Global Research




22                                               Egypt Cement Sector                                            July 2009
Global Research - Egypt                                                                                                                         Global Investment House


Turkey is considered the largest cement producer in the region, producing 20.1% of the
region’s total cement production in 2008. Iran produces around 17.4% of the region’s cement
production and comes in the second place, followed by Egypt, which produced almost 15.5%
of MENA cement production in 2008. Saudi Arabia and UAE ranked the fourth and fifth
biggest cement producers in the region in 2008, manufacturing around 12.9% and 6.3%,
respectively.

Chart 22: MENA countries cement production and consumption 2008
         60




                                                                                                                                                                                51.4
         50




                                                                                                                                                                        44.0
                                                                                                                                                                        44.4



                                                                                                                                                                                     40.6
                                                                                                                               39.7
                                                                                                                              38.4
         40
                                                   32.9
                                                  29.9
Ton mn




         30
                                                            20.0




                                                                                                                       16.5
                                                          16.0




         20




                                                                                                                      14.0




                                                                                                                                                12.5
                                                                                                                                               11.2
                                                                                                                                        8.0
                                                                     8.0




                                                                                                                                                                6.9
         10
                                                                                                      6.7




                                                                                                                                                                6.3
                                                                                                                                      5.2
                                                                                                     5.4
                                                                             5.3
                           5.0




                                                                                              4.7
                                                                                      4.5
                                 4.2




                                                                                      4.1
                                 3.5




                                                                                             3.5
                                                                            3.1
                                        3.0




                                                                   2.8




                                                                                                                                                         2.6
                                        2.5
                         2.2




                                                                                                              2.0
                 1.6
                 1.5




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                                                                            Production          Consumption
Source: Arab union for Cement and Building Material (AUCBM), ICR & Global Research


On the consumption front, Iran is the largest cement consumer in the region, consuming around
17% of the region’s cement consumption, followed by Turkey, which consumed 15.7% of
the region’s cement consumption in 2008. Egypt took the third place with approximately
14.8% of MENA cement consumption in 2008. In addition, Saudi Arabia and UAE came
as the fourth and fifth biggest cement consumers in the region in 2008, consuming around
11.5% and 7.7%, respectively.

Chart 23: MENA countries Cement per Capita Consumption (CPCC) Vs. 5 year CPCC CAGR
             4,500                                                                                                                                                              45%
             4,000                                                                                                                                                              40%
                                                                    40%




             3,500                                                                                                                                                              35%
             3,000                                                                                                                                                              30%
CPCC (kg.)




             2,500                                                                                                                                                              25%
                                      16%




                                                            16%




                                                                                                                                   15%




             2,000                                                                                                                                                              20%
                                                                                      13%




             1,500                                                                                                                                                              15%
                                                                                                                                10%
                        9%




                                                                             9%




                                                                                                                              7%




                                                                                                                              6%
                                                                                                                              6%




                                                                                                                              6%

                                                                                                                                                                        6%




             1,000                                                                                                                                                              10%
                                                                                             4%
                                                    3%




                                                                                                                            3%




                 500                                                                                                                                                            5%
                                 1%




                                                                                                    1%
                                             -1%




                                                                                                                      e -3%




                   -                                                                                                                                                            0%
             (500)                                                                                                                                                              -5%
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                                      CPCC (kg.)                         GCC avg. CPCC                           MENA avg. CPCC                   5 year CAGR

Source: AUCBM, ICR & Global Research


Further analysis of the cement consumption data with respect to Cement Per Capita
Consumption (CPCC) and its respective CAGR over the past five years reveals that all Arab
countries average CPCC stands at 490kg, with a CAGR of 8% over the previous 5-year
period, compared to a CPCC of 593kg and a CAGR of 6.3% over the same period in non-
Arab countries. Collectively, the MENA region average CPCC recorded 519kg, achieving a
CAGR of 7.4% over the past half decade, relative to a world average CPCC of 426kg and a
CAGR of 6.1% over the past 5 years.




July 2009                                                                        Egypt Cement Sector                                                                                   2
Global Research - Egypt                                                                                                          Global Investment House


GCC countries have the highest CPCC figures in the MENA region, recording an average
of 1,660kg in 2008, with a CAGR of 7.4% over the period from 2003-2008, resulting from
the high level of construction activity experienced in the GCC region. UAE has the highest
CPCC in the MENA region, reaching 4,200kg in 2008. It is worth mentioning that Libya
CPCC is in the same level as some GCC countries. Other countries in the MENA region
CPCC figures hover around the region’s average CPCC, with the exception of Iraq, Syria,
Yemen and Sudan, which are far below the MENA region’s average.

We believe that countries with a large population base and relatively lower CPCC will have
a good potential for cement consumption growth on the long-term. Countries under this
category are Sudan, Yemen, Iraq and Syria. On the other hand, GCC countries CPCC is not
sustainable on the long term, given their low population base, except for Saudi Arabia, which
has a much larger population compared to other GCC countries.

Capacities

As aforementioned, the strong economic performance witnessed in the MENA countries has
encouraged more investments in real estate and infrastructure development projects, which
in turn created high demand for building materials. Therefore, cement producers around the
MENA region planned to raise their production capacities to meet the growing demand.

The MENA region cement production capacity in 2008 is estimated at around 376mn ton,
which is forecasted to increase by 40.5%, reaching around 529mn ton in 2012, according to
the announced expansion plans. Arab Countries cement annual production capacity stood
at 222mn ton, representing 59% of the MENA region’s cement annual production capacity.
Arab Countries cement annual production capacity is expected to increase by 99mn ton over
the next 4 years, reaching 321mn ton.

Chart 24: MENA countries current and forecasted annual cement production capacity
    120

    100

         80
Ton mn




         60
                     113.5




         40
                                61.8


                                         61.2
              60.0




                                       48.0




                                                  46.8




         20
                             43.3




                                                          26.0
                                                30.0




                                                                 23.1
                                                         16.2


                                                                 19.0




                                                                              15.0


                                                                                           12.4
                                                                        8.0


                                                                                     6.0


                                                                                                  4.5
                                                                                                  9.8

                                                                                                        7.7
                                                                                                        8.7

                                                                                                                4.8
                                                                                                                7.8

                                                                                                                         0.7
                                                                                                                         7.8

                                                                                                                                 4.7
                                                                                                                                 6.2

                                                                                                                                       3.0
                                                                                                                                       6.0

                                                                                                                                             2.6
                                                                                                                                             4.4

                                                                                                                                                    0.5
                                                                                                                                                          0.9




          0
               Iran          Egypt     Saudi    UAE Morocco Algeria Libya             Syria       Jordan Tunisia Qatar   Sudan   Oman Yemen Kuwait Bahrain
                                       Arabia
                                                                                     2008 E          2012 F
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Arab Union for Cement and
Building Materials (AUCBM), Cement Companies and Global Research


Egypt, Saudi Arabia and UAE are implementing considerable capacity expansion plan, contributing
around 32% of the new capacity expansion in the MENA region, in order to meet the growing
local demand. Egypt is projected to add around 18.5mn ton, increasing its annual production
capacity from 43mn ton in 2008 to 62mn ton in 2012. In addition, Saudi Arabia is expected to
increase its cement annual production capacity by 27%, reaching 61mn ton in 2012, compared to
48mn ton in 2008. Similarly, UAE is forecasted to lift its annual production capacity by 17mn ton
by 2012, representing 56% increase from 2008 production capacity level of 30mn.

2                                                                      Egypt Cement Sector                                                        July 2009
Global Research - Egypt                                                           Global Investment House


Moreover, other countries are also implementing capacity expansions and establishing
Greenfield plants, including Algeria, Morocco, Libya, Jordan, Syria, Yemen, Kuwait, Sudan
and Qatar. Syria was expected to be one of the major cement producers in the region, as
since 2005 the Syrian government planned to add around 25mn ton, of which only 6mn ton
were confirmed. Up to date, no further details were disclosed concerning the start-up dates of
the remaining announced capacities. Therefore, we excluded Syria’s unconfirmed additional
capacities from our calculations.

Chart 25: Distribution of capacities additions in MENA countries between 2009-2012
                              Iran, 35.1%

                                                                       Jordan, 3.5%
                                                                        Kuwait, 1.2%
                        Egypt, 12.1%                                    Libya, 4.6%

                        Bahrain, 0.2%                                  Morocco, 6.4%
                         Algeria, 2.7%
                                                                    Oman, 1.0%
                          Yemen, 2.0%                              Qatar, 2.0%
                               UAE, 11.0%                      Saudi Arabia, 8.6%
                                  Tunisia, 0.7%           Sudan, 4.7%
                                                   Syria, 4.2%
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies & Global
Research


Iran is expected to have the lion’s share with respect to the new capacities additions, where
around 35% of the new cement capacities in the MENA region are expected to come from
Iran, which is projected to boost its production capacity by 89%, reaching 113.5mn ton
in 2012, relative to 60mn ton in 2008. It is worth mentioning that the Iran cement annual
production capacity reached 64mn ton on March 2009.

The new capacities additions in the region are expected to come over the course of the next 4
years, where 25% will be added in 2009, whereas the majority of the new capacities expansions
of 36% are forecasted to start operations in 2010. Afterwards, 23% and 16% of the new
capacities are due to be completed in 2011 and 2012, respectively. Moreover, Arab Countries
are expected to add 34, 36, 28 and 1mn ton over 2009, 2010, 2011 and 2012, respectively.

Chart 26: MENA countries current and forecasted annual cement production capacity
         600.0
                                                                                 24           529
                                                                  35
         500.0                                    55
                                  38
         400.0   376
Ton mn




         300.0

         200.0

         100.0

           0.0
                 2008            2009           2010           2011             2012          2012
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies and
Global Research




July 2009                                   Egypt Cement Sector                                       2
Global Research - Egypt                                                                                       Global Investment House


Saudi Arabia is expected to add 3mn ton in 2009, 7mn ton in 2010 and 3mn ton in 2011,
which will bring Saudi Arabia total cement annual production capacity to 61mn ton by the
end of 2012. UAE is expected to add 10, 2 and 4mn ton of new cement capacities in 2009,
2010 and 2011, respectively.

Chart 27: Capacities additions by country throughout 2009 to 2012
         60

         50

         40
Ton mn




         30

         20

         10

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                                                    2009          2010          2011        2012
                               Sa




Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies and
Global Research


However, the negative effect of the world financial crisis on the construction sector forced
some cement producers to revise their expansion plans, either by postponing their projects
or by cancelling the entire project. Therefore, some of the announced projects were deferred,
especially in UAE and Saudi Arabia.

In UAE, Jebel Ali Cement factory, which will have an annual production capacity of 2.5mn
ton, completion date were postponed to 2010. In addition, JK cement, which is expected
to have an annual capacity of 2.2mn ton, was postponed to commence operation in 2011.
In Saudi Arabia, Arabian Cement Company postponed its 3mn ton cement plant to start
operations in 2011, whereas Southern Provence Cement Company freezed its expansion
plans, until market conditions improve.

These huge cement capacities addition in the MENA region coming on stream over the next
years, unluckily coincided with the global economic slowdown and a declining activity in the
construction sector. This situation is expected to create an over-supply in the regional cement
market and trigger price wars, in addition to possible delays in the planned commissioning
dates of the new capacities, shutdowns of some of the inefficient existing capacities and
lower utilization rates Therefore, we believe that countries with low cash cost of production
per ton will be better positioned to survive the declining global cement prices and export their
excess capacities at competitive prices.

Pricing and Cost

Pricing
Based on the fact that most of the region’s governments intervened in the cement industries,
either by imposing price caps or setting an export duty fee, the cement prices in 2008 were
stable to the extent to which the governments were able to enforce the stated regulations. The
average retail cement price in the MENA region in 2008 was approximately US$103/ton.




2                                                         Egypt Cement Sector                                                  July 2009
Global Research - Egypt                                                                                                                         Global Investment House


Chart 28: Cement retail prices in the region
          250

                   200
          200

                         151
          150                       130
US$/ton




                                                  128
                                                           118
                                                                    101        100          99
          100                                                                                       90       90       90         85        79        78        77        70          65
           50


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Source: International Cement Review (ICR), Global Cement Magazine, WorldCement, CemWeek and Global Research


Cost
Cement production cost varied among different MENA countries and some other selected
countries, depending on the cost of energy, raw materials and labor. The MENA region
average cash cost of production in 2008 reached US$40/ton. It is worth mentioning that
Algeria has the lowest cash cost of production of US$15/ton.

Chart 29: Selected countries cash cost of production
          60
                    55       54
                                             50
          50
                                                           45
                                                                          40
          40
                                                                                       33           33         32
US$/ton




          30                                                                                                                26            25            24          23
          20
                                                                                                                                                                                    15

          10


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Source: International Cement Review (ICR) and Global Research




July 2009                                                                      Egypt Cement Sector                                                                                        2
Global Research - Egypt                                                  Global Investment House



Egypt Cement Industry
Background

Egypt is one of the oldest countries in cement manufacturing in the region, as it started cement
production in the early years of the 20th century, specifically in 1927 with the construction of
Torah Cement Company. Later in 1929, Helwan Cement Company was established followed
by Alexandria Cement Company in 1948 and National Cement Company in 1956. In the 70s,
the production capacities of the 4 cement companies reached around 4mn tons.

The construction boom witnessed in the late 70s and 80s created high demand for cement
that was met through imports because of the limited local production capacities, despite the
opening of 3 new cement companies, Suez, Assuit and Amiryah, which started production
throughout that period. In the mid 80s, Egypt became one of the largest cement importing
countries in the world.

During the 90s, 6 new cement companies were established to cope with the increasing
construction activity and the resulting increasing cement demand, especially with the
appearance of new sub-urban cities such as, Al-Sherouq, Al-Obour, 6th of October, 10th of
Ramadan and Al-Sadat. However, Egypt’s cement net importing position prevailed during
the 90s and the early years of the 21st century.

Consequently, cement producers in Egypt increased their production capacities and enhanced
their production lines to meet the surging local cement demand. In 2002, Egypt turned out to
be a net exporter of cement and later in 2004 Egypt stopped importing cement and became
one of the largest cement exporting countries in the world.

Similarly, cement distribution and pricing evolved over time and went through 3 phases of
development. The first phase started in 1932 with the establishment of the cement store by
the sole cement producers then, Torah and Helwan, to organize selling their production.
Later in 1957, the government replaced the cement store with the cement selling office,
which was responsible for marketing cement in the local and export markets. However, the
government’s centralized management of that office led to price distortions and production
bottlenecking in the cement sector. Therefore, the cement selling office was terminated in
1991 and cement producers became free to set their prices based on the market forces.

Currently, grey cement manufacturers in Egypt reached 13 players with a total production
capacity of 43.3mn ton. Out of the 13 market players, there are 9 cement companies controlled
by 6 leading multinational companies, who entered the Egyptian market mainly through the
privatization of the state-owned cement companies, which started in 1996. The entrance of
these multinational companies significantly contributed to enhancing the productivity and
efficiency of the local cement industry.

Ordinary Portland Cement (OPC) is the most common type of cement produced in Egypt.
This type of cement is the most widely used in every aspect of the construction works. In
addition, the production mix is not limited to OPC, it also includes, seawater cement, rapid
hardening cement, slag cement and white cement. These other types of cement are more
specific purpose cement and differ from OPC in their composition.


2                                    Egypt Cement Sector                               July 2009
Global Research - Egypt                                                                                                        Global Investment House


Sector Drivers

Economic Activity
The Egyptian economy continued its robust growth for the third consecutive year, achieving
an average GDP growth rate of 7.1% over the past 3 years. The economic growth was broad-
based including various sectors. The main sectors that have witnessed the highest growth rate
in real term over the past 3 years were construction 14.9%, Suez Canal 14.0%, tourism 13.7%
and communication 12.9%. This healthy economic performance came on the back of economic
reform policies adopted by the government since 2004, as the government continuously presses
on with legislative and administrative efforts to create better business environment.

Chart 30: Real GDP growth
    800                                                                                         6.9%        7.1%        7.2%                           8.0%
    700                                                                                                                                    7.1%        7.0%
                            5.9%
    600           5.4%                                                                                                                                 6.0%
                                                                                                                                                5.0%
                                                                                     4.6%
    500                                                                  4.2%                                                                          5.0%
LE mn




    400                                 3.4%       3.2%                                                                                                4.0%
                                                              3.1%
    300                                                                                                                                                3.0%
    200                                                                                                                                                2.0%
    100                                                                                                                                                1.0%
         -                                                                                                                                             0.0%
                9



                             0



                                         1



                                                    2



                                                               3



                                                                          4



                                                                                      5



                                                                                                6



                                                                                                            7



                                                                                                                        8



                                                                                                                                      8



                                                                                                                                                  9
             /9



                          /0



                                      /0



                                                 /0



                                                            /0



                                                                       /0



                                                                                   /0



                                                                                             /0



                                                                                                         /0



                                                                                                                     /0



                                                                                                                                   /0



                                                                                                                                               /0
             98



                         99



                                    00



                                               01



                                                          02



                                                                     03



                                                                                 04



                                                                                             05



                                                                                                        06



                                                                                                                    07



                                                                                                                                 07



                                                                                                                                             08
         19



                       19



                                   20



                                              20



                                                         20



                                                                    20



                                                                                20



                                                                                           20



                                                                                                       20



                                                                                                                   20



                                                                                                                                20



                                                                                                                                           20
                                                                                                                               1



                                                                                                                                           1
                                                                   Real GDP               GDP growth
                                                                                                                           H



                                                                                                                                        H
Source: Ministry of Economic development, CBE & Global research


The government efforts placed Egypt for the third time in 4 years, among the top 10 global
reformers and the top regional reformer this year in the «Doing Business 2009» report,
which is compiled annually by the World Bank comparing the business environments in 181
economies worldwide. There have been improvements particularly in the areas of starting a
business, dealing with construction permits, registering property, getting credit, protecting
investors and trading across borders.

Chart 31: Total implemented investments
    250                                                                                                                 22.3%                          24%
                    20.8%                                                                                   20.9%                                     22%
    200                                                                                                                              19.2%
                         18.9%                                                                  18.7%                                           18.5% 20%
                                        17.8%      17.8%                             17.9%
    150                                                       16.3%      16.4%                                                                         18%
LE bn




                                                                                                                          134
    100                                                                                                       97                                       16%
                                                                                      46          66
                                                                           37                                                                     66   14%
        50        30          31         32         32         34                                                                     60
                                                                                                                                                       12%
                  34          34         31         36         34          42         50          49          58          65          24          30
         -                                                                                                                                             10%
              99


                            00


                                      01


                                                 02


                                                            03



                                                                         4


                                                                                   05



                                                                                                6


                                                                                                            7


                                                                                                                        8


                                                                                                                                   08


                                                                                                                                               09
                                                                         0




                                                                                                0


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               /


                             /


                                         /


                                                    /


                                                               /


                                                                      3/



                                                                                      /


                                                                                             5/


                                                                                                        6/


                                                                                                                    7/



                                                                                                                                    /


                                                                                                                                                /
            98


                          99


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                                                 01


                                                            02




                                                                                   04




                                                                                                                                 07


                                                                                                                                             08
                                                                       0




                                                                                              0


                                                                                                          0


                                                                                                                      0
         19


                       19


                                   20


                                              20


                                                         20


                                                                    20


                                                                                20


                                                                                           20


                                                                                                       20


                                                                                                                   20


                                                                                                                                20


                                                                                                                                           20
                                                                                                                           H1


                                                                                                                                       H1




                                   Public Investment                 Private Investment                 Implemented invt./GDP
Source: CBE & Global research


This economic growth came on the back of growth in final consumption at a CAGR of
18.3%, which was mainly attributable to the growth in private consumption, over the period
from 2004/05 to 2007/08. In addition to the huge investments undertaken by local and foreign
investors in almost all the economic sectors, where total investment reached L199.5bn,
representing 22.3% of GDP and achieving a CAGR of 27.4% over the same period.


July 2009                                                           Egypt Cement Sector                                                                   29
Global Research - Egypt                                                                          Global Investment House


Moreover, Foreign Direct Investment (FDI) reached US$13.2bn in 2007/08, recording a
remarkable CAGR of 50.5% over the past 3 years. It is worth mentioning that FDI represented
8.1% of GDP in 2007/08, compared to 8.5% in 2006/07.

Chart 32: Net FDI
     15                                                              13.2                                            150.0%
                                                 11.1

     10        84.4%            6.1                                                                                  100.0%
                                                                                        7.8
                                                      80.9%
US$ bn




         5      3.9                57.8%                                                                 4.0         50.0%
                                                                    19.4%
                                                                                       7.2%
         0                                                                                                           0.0%
              2004/05         2005/06          2006/07             2007/08          H1 2007/08      H1 2008/09
                                                                                                         -48.2%
         -5                                                                                                          -50.0%
                  New Establishments and Expansions           Sale of Assets to Non-Residents       Real Estate
                  FDI Growth                                  Petroleum Sector
Source: Ministry of Investment & Global research


USA and European Union (EU) represent a major source of FDI, where they collectively
account for around 65% of total FDI inflows to the Egyptian economy. When we look at the
distribution of the total FDI inflows by country, we find that USA is the greatest contributor
with a share of 36.1% in 2007/08, followed by the Euro Union with a share of 28.7%.

Chart 33: FDI total inflows
  18
  16
  14
  12
  10
US$ bn




   8
   6
   4
   2
   0
        2004/05        2005/06                    2006/07              2007/08            H1 2007/08           H1 2008/09
                             USA                   EU             Arab Countries          Others
Source: CBE & Global research


Furthermore, higher international food and energy prices prevailed in the international
markets, as well as the higher local consumption level resulted in soaring inflation rate,
reaching a peak of 23.6% in August 2008, and higher cost of imports, which increased by
37.8% in 2007/08 over the previous year, in addition to higher exports proceeds, which
increased by 33.3% in 2007/08. The increase in the cost of imports outweighed the growth
in exports, leading to 43.7% increase in the trade deficit in absolute value and as percent of
GDP in 2007/08, reaching 14.5% compared to 12.7% in 2006/07.




0                                               Egypt Cement Sector                                                July 2009
Global Research - Egypt                                                 Global Investment House


Chart 34: Development in inflation and the corridor range
25.0%
20.0%
15.0%
10.0%
 5.0%
 0.0%
      Ju 05
      Ju 6
      De 7
       Ja 7
      Fe 8
      M 8
      Ap 8
      M 8

      Ju 8
       Ju 8
      Au 8
      Se 8
      Oc 8
      No 8
      De 8
       Ja 8
      Fe 9
      M 9
      Ap 9
      M 9
              9
            0
            0
            0
            0
            0
            0
          r-0

           -0
            0
          l-0

            0
            0
          t-0

            0
            0
            0
            0
            0
          r-0

           -0
         20
         n-
         n-

         c-
         n-
         b-
        ar-




         n-


         g-
         p-


         v-
         c-
         n-
         b-
        ar-
        ay




        ay
    ne
  Ju




                  Inflation Rate    Deposit Rate at the CBE     Lending Rate at the CBE
Source: CBE & Global research


On the other hand, the increase in net services by 30.2%, mainly on the back of the growth
in receipts from Suez Canal and tourism, as well as the incline in transfers by 32.3%,
compensated to some extent for the increase in trade deficit and resulted in a surplus of
US$888mn in the current account balance in 2007/08. Nevertheless, the current account
balance declined by 60.9%, compared to the previous year, and represented 0.6% of GDP.

Starting from the second half of 2008, the global financial crisis extended its shadows on the
Egyptian economy, where GDP growth reached 5% during H1 2008/09, compared to 7.1% in
H1 2007/08. Although final consumption kept is momentum during H1 2008/09, growing at
23.7%, total investments were severely hit, achieving a growth rate of 13.8% in H1 2008/09,
relative to a growth of 33.2% in H1 2007/08. Moreover, FDI witnessed a sharp decline by
48.2% from in US$7.8bn in H1 2007/08 to US$4.0bn in H1 2008/09, as the majority of FDI
inflows were from USA and EU that have been severely hit by the world credit crunch.

The current account balance deficit widened to US$2,513mn, representing 2.7% of GDP
in H1 2008/09, compared to US$294mn, representing 0.4% of GDP in H1 2007/08. This
decline came on the back of deteriorating trade balance position, decreasing by 29.8%, in
addition to slower growth in Suez Canal receipts, which recorded a growth rate of 8.1% in
H1 2008/09 compared to 24.6% in H1 2007/08, as well as 2.8% growth in tourism receipts in
H1 2008/09, as opposed to 30.1% in H1 2007/08.

Therefore, the Egyptian government has taken measures to limit the spillover negative effects
of the world financial crisis and spur economic growth including:

1. Increasing the infrastructure investment budget,

2. Cancelling taxes on exports and increasing financial support to all exporting sectors
   benefiting from export support fund to 50%,

3. Postponing plans to cancel subsidies on electricity and natural gas for energy-intensive
   industries, like cement, fertilizers and petrochemicals,

4. Refraining imports of finished goods and commodities that have a local counterpart.




July 2009                            Egypt Cement Sector                                    
Global Research - Egypt                                                 Global Investment House


We believe that trade deficit is not expected to worsen dramatically in 2009 as imports
decline, as a result of a weaker domestic demand and plunging commodity prices will to
some extent offset the expected drop in the country’s exports. In addition, the current account
deficit is expected to widen as a result of the declining tourism and Suez Canal revenues, as
well as the remittances of the expatriate workers.

Moreover, The subsidy bill, which surged by almost 50% in 2007/08, is expected to witness
a considerable decline as the oil prices dropped severely since June 2008 and the changes
made by the Egyptian government to reduce energy subsidy during 2008 are not expected to
reverse. This in turn will leave more room for the government to direct this saving in other
areas that could bolster the economic growth.

Despite the challenges that currently face the Egyptian government to sustain the economic
growth, the financial intermediation will not be hampered by the international credit crunch,
supported by a strong banking sector with healthy balance sheets and low level of financial
integration, thanks to the government reforms. The Egyptian banking sector reforms were
mainly attributed to strong supervision and regulation, elimination of nonperforming loans
and unadventurous financing and investment practices.

In general, Egypt’s medium term outlook remains sound with an expected GDP growth of
around 4%. We believe that the Egyptian economy is capable of surpassing the current storm
that hit the world economy, thanks to the reforms implemented since 2004. Most likely, the
government will work on targeting inflation rate, maintaining economic growth and balance
of payments stability, throughout 2009.




2                                    Egypt Cement Sector                              July 2009
Global Research - Egypt                                                                                                                                                                 Global Investment House


Construction Activity
The construction sector is considered one of the important sectors in the Egyptian economy,
as it has been expanding remarkably at a CAGR of approximately 15% over the past 3 years
and employs approximately 10% of the Egyptian work force. Another sector that is highly
interrelated with construction sector is the real estate sector, which achieved a CAGR of
around 4% over the same period. Collectively, the two sectors contribution to GDP reached
7.4% in 2007/2008, achieving a CAGR of 10% for the period from 2004/05 to 2007/08.

Chart 35: Construction vs. real estate sector macro indicators
    40,000                                                                                                                                                                                                                       20.0%

    30,000                                                                                                                                                                                                                       15.0%

    20,000                                                                                                                                                                                                                       10.0%
LE mn




    10,000                                                                                                                                                                                                                       5.0%

        -                                                                                                                                                                                                                        0.0%

  (10,000)                                                                                                                                                                                                                       -5.0%
                      9


                                        0


                                                      1


                                                                     02


                                                                                       03



                                                                                                            4


                                                                                                                           5


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                                                                                                                                                                                        1


                                                                                                                                                                                                   1
                                                                                                                                                                                  H


                                                                                                                                                                                                   H
                                 Construction                         Real Estate                           Construction Growth                                  Real Estate growth

Source: CBE & Global research


The high construction activity witnessed in all the economic sectors whether, residential,
recreational, industrial or infrastructure, over the recent past created high demand on all
building materials in the local market. This growth was mainly attributable to robust economic
performance, as well as the large investments implemented by both the government sector
in the field of social services and public utilities, and the private sector in all segments of
the real estate sector including, housing, commercial, hospitality and industrial development
projects.

According to building permits quarterly bulletin published by the Egyptian Cabinet
Information and Decision Support Center (IDSC), the composite building and construction
index in Egypt maintained its momentum in December2008, increasing by 5.6% on Q-o-Q
basis and 18.8% on Y-o-Y basis. The composite building and construction index recorded a
healthy CAGR of 9.2% over the last 5 years.

Chart 36: Composite building and construction index
180
160
140
120
100
 80
 60
 40
 20
  0
            Q4 2003

                       Q1 2004

                                  Q2 2004

                                            Q3 2004

                                                      Q4 2004

                                                                 Q1 2005

                                                                           Q2 2005

                                                                                      Q3 2005

                                                                                                  Q4 2005

                                                                                                              Q1 2006

                                                                                                                        Q2 2006

                                                                                                                                  Q3 2006

                                                                                                                                            Q4 2006

                                                                                                                                                       Q1 2007

                                                                                                                                                                   Q2 2007

                                                                                                                                                                              Q3 2007

                                                                                                                                                                                         Q4 2007

                                                                                                                                                                                                   Q1 2008

                                                                                                                                                                                                             Q2 2008

                                                                                                                                                                                                                       Q3 2008

                                                                                                                                                                                                                                   Q4 2008




Source: IDSC & Global research




July 2009                                                                                       Egypt Cement Sector                                                                                                                          
Global Research - Egypt                                                                                                                                                         Global Investment House


Moreover, the total number of building permits kept its upside trend in December 2008,
reaching 21,905 building permits. The overall building permits index achieved a growth rate
of 9.4% in December 2008, compared to the previous quarter, and an impressive 77.6% over
December 2007. This increase in issued building permits promises a positive outlook in the
construction sector.

Chart 37: Overall building permits index
250

200

150

100

 50

     0
         Q4 2003

                   Q1 2004

                               Q2 2004

                                         Q3 2004

                                                   Q4 2004

                                                             Q1 2005

                                                                       Q2 2005

                                                                                 Q3 2005

                                                                                            Q4 2005

                                                                                                      Q1 2006

                                                                                                                Q2 2006

                                                                                                                          Q3 2006

                                                                                                                                      Q4 2006

                                                                                                                                                Q1 2007

                                                                                                                                                            Q2 2007

                                                                                                                                                                      Q3 2007

                                                                                                                                                                                 Q4 2007

                                                                                                                                                                                           Q1 2008

                                                                                                                                                                                                     Q2 2008

                                                                                                                                                                                                               Q3 2008

                                                                                                                                                                                                                         Q4 2008
Source: IDSC & Global research


It is worth mentioning that the construction activity does not include only the construction
of different types of buildings, but also it includes all infrastructure developments, such as
roads, electricity and water works. According to the latest data published by CAPMAS, the
total value of executed construction work by the private sector in 2007 reached LE8.9bn,
against a total value of LE10.6bn executed by the public sector in 2006/07.

Although the reporting periods for the private sector and the public sector do not match, we
will add the two values up just to find out how the value of executed construction work is
distributed among different economic sector during the last available fiscal year.

Chart 38: Total value of executed construction work according to economic activity
                                                                   Others, 17%                                                      Residential blgs., 17%




                             Electricity stations, 5%                                                                                                Industrial blgs., 5%

                                                                                                                                                          Healthcare blgs., 4%

                                                                                                                                                          Educational blgs., 4%
                                                                                                                                                      Administrative blgs., 1%

                                    Water & water-waste
                                    projects, 29%
                                                                                                                                      Roads & bridges
                                                                                                                                         18%
Source: IDSC & Global research


Residential buildings share of total value of executed construction works was only 17% and
the remaining other types of buildings captured 31% of the total construction works, whereas
the remaining 52% was spent on different infrastructure projects. This fact highlights that the
demand on building materials depends on the broad construction activity including building
construction and infrastructure works.




                                                                                         Egypt Cement Sector                                                                                                 July 2009
     Global Research - Egypt                                                Global Investment House


    Although the construction sector has been negatively affected during the H1 2008/09,
    achieving a growth rate of 9.4%, compared to 14.9% in H1 2007/08, the real estate sector
    was able to slightly improve its growth rate from 3.4% in H1 2007/08 to 3.5% in H1 2008/09.
    This large decline in the construction sector growth came on the back of lower investments,
    as a result of the global financial crisis.

    Therefore, the Egyptian government took some measures to stimulate the Egyptian economy,
    including the construction sector by increasing the public infrastructure investment budget
    by LE15bn, in addition to the originally planned infrastructure investments of approximately
    LE418bn in electricity, water, sanitation, transportation and communication sectors
    throughout the sixth 5-year plan (2007/08-2011/12).

    The sixth five year plan (2007/08-2011/12) placed an overall investment target of LE1,295bn,
    of which around LE670bn are planned to be spent on construction activity in general, which
    includes targeted investments of LE418bn in the infrastructure, LE132bn in construction and
    real estate, LE76bn in health and education and LE44bn in tourism.

    Chart 39: Sixth 5-year plan targeted total investments
      Distribution among economic sectors           Distribution by implementing body
                                        Transportation, 13%
                   Electricity, 6%                                                         Public sector, 16%
                                                  Communication, 10%
  Other social services, 6%
                                                     Water, 1%
Education & Health, 6%                                Sanitation, 3%

          Tourism, 3%                                  Agriculture &
                                                       Irrigation, 5%
              Trade, 3%
                                                                         Private sector,
 Financial services, 0%
                                                     Extractive          84%
           Construction &                            Industries, 11%
           real estate, 10%
                                             Manufacturing, 23%
    Source: Ministry of Economic Development & Global Research


    The government 5-year plan set a target to encourage investment and prioritize development
    in Upper Egypt, within the context of the government’s local development of developing
    under-developed areas of Egypt. The plan included establishing a holding company for Upper
    Egypt to identify investment opportunities, providing investment incentives to encourage
    private sector investment, completing delivery of potable water, electricity and natural gas.
    The local development plan also included rural development, which include the establishment
    of 400 villages and reclamation of 1mn acre, as well as slum development project.

    Moreover, the government announced that it will allocate another LE15bn to be invested
    in participation with the private sector in infrastructure and industrial development projects
    within the context of Public-Private Partnership (PPP) strategy, which proved to be a
    successful alternative to government, as it relief some burden from the state’s spending
    budget, besides benefiting from the private sector technical know-how, as well as better
    offered services. During the period from 1998 to 2007, the private sector participation in PPP
    projects reached US$15.3bn in the Energy, Telecom and transportation sectors.




     July 2009                                Egypt Cement Sector                                    
         Global Research - Egypt                                                                       Global Investment House


         Chart 40: Private sector participation in infrastructure projects
                          By year                                     By sector
     4,500                                                            14,000
     4,000                                                                                                 11,895
                                                                      12,000
     3,500
                                                                      10,000
     3,000
US$ mn




                                                                  US$ mn
     2,500                                                                 8,000
     2,000                                                                 6,000
     1,500
                                                                           4,000
     1,000
      500                                                                  2,000    1,092                                        1,277
                                                                                                689                   398
        0                                                                    0
              1998 1999 2000 2001 2002 2003 2004 2005 2006 2007                    Electricity Natural Gas Telecom   Airports   Seaports
                         Energy    Telecom     Transport
         Source: PPI World Bank database & Global Research


         Given the current global economic recession resulted from the credit crunch, the government’s
         total targeted investments throughout the sixth 5-year development plan seem to be optimistic,
         as we believe that total planned investments should be adjusted downward because total
         implemented investments, including FDIs will be negatively affected at least during the next
         one to two years.

         However, lower international commodities prices, including building materials, which came
         on the back of declining global demand, presented an opportunity for more infrastructure and
         building investments at lower cost, mainly in less developed countries with immense society
         development needs.

         In addition, the government’s plan to boost investments in infrastructure, such as transportation
         and public utilities, as well as economic housing and industrial development projects, besides
         prioritizing the development of under-developed areas in Egypt will act as a cushion for the
         activity in the construction sector.

         We, therefore, believe that the construction sector is expected to experience slower growth
         rate during the next one to two years, relative to the booming phase over the last 3 years,
         yet the decline in growth rate is not expected to be that severe, providing reasonable support
         for the building materials sector, including cement. In other words, the outlook of the local
         construction sector is to some extent promising, taking into consideration the concurrent
         global financial turmoil and liquidity squeeze.

         Population
         Population is considered one of the main drivers of the economic activity, including the
         building materials sector, through their demand on housing and different construction
         activities. Egypt is a population rich country and has the largest population in the MENA
         region, representing around 15% and 21% of total MENA and Arab countries population,
         respectively.

         Egypt’s population reached approximately 75mn at the end of June 2008, achieving a CAGR
         of 2% over the past 10 years. Furthermore, population in Egypt is expected to reach 84.5mn
         in 2014, growing at its historical annual average growth rate.




                                                  Egypt Cement Sector                                                   July 2009
Global Research - Egypt                                                          Global Investment House


Chart 41: Egypt population
        90                                                                                          2.2%
        80
        70                                                                                          2.1%
        60
                                                                                                    2.1%
People mn




        50
        40
                                                                                                    2.0%
        30
        20                                                                                          2.0%
        10
         0                                                                                          1.9%
             1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
                                                Population       Growth
Source: IMF & Global research


Egypt has favorable demographics segmentation with around 33% of its current population is
less than 15 years old and 50% falls in 15-45 age-group. This segmentation guarantees a strong
current and future demand on housing and society development projects. It is worth mentioning
that it is estimated that around 350,000 housing units are needed annually to meet new housing
demand, in addition to 2.5mn housing units to meet accumulated unmet housing demand.

Chart 42: Egypt population age-group segmentation
                                                                      45-65 years, 12%


                                                                            >65 years, 5%

                 15-45 years, 50%


                                                                       <15 years, 33%

Source: CAPMAS & Global research


Regulations
Generally, the cement industry in Egypt received a great deal of the government supervisory
authorities’ attention, because of the increasing local cement selling price, resulting from
fake supply shortage existed in the local market, as local production exceeds consumption.
This situation emerged because cement producers and traders preferred to direct cement
production to the export market, where prices are higher than the local selling prices, in order
to achieve higher profits.

To ensure local supply of cement at reasonable prices, the Egyptian government imposed
an export duty of LE65 (US$12)/ton on exported cement in February 2007. Apparently, the
export duty was not severe enough to offset cement export price differential. Therefore, the
government increased the export duty to LE85 (US$15.5)/ton in August 2007. However, local
cement prices remained high, as cement producers passed their increased cost to consumers.

In an attempt by the government to bring discipline to the local cement market, the Egyptian
government imposed a ban on cement exports for 6 months starting from April till the end



July 2009                                    Egypt Cement Sector                                       
Global Research - Egypt                                                 Global Investment House


of September 2008, to calm an overheated local cement market. Unfortunately, local cement
prices remained high, on the back of high local demand driven by the construction boom,
as well as the traders’ malpractices of maintaining high prices through faking shortage of
supply.

In addition, the government decision to impose LE27(US$5)/ton of clay extracted from
quarries, as resources development fees in May 2008, as well as the liberalization of energy
prices for energy intensive industries, will harm the competitive edge of Egyptian cement
sector, for its relatively low cost of production. As the government felt that the subsidy that
should go to local consumers, is passed to exports and that the producers are making high
profit margins.

Furthermore, the Minister of Trade and Industry filed a sue case of anti-competitive practice
against local cement producers for the period from May 2005 till the end of 2006. The local
cement producers were accused of forming a cartel to set local cement prices and dividing
market shares among them. In August 2008, the court found local cement producers guilty of
exercising monopolistic behavior and fined cement manufacturers with a total of LE200mn.

However, the emergence of the global financial crisis since mid September 2008 triggered
the Egyptian government to take some defensive measures in order to minimize the negative
effect of the slowdown in the world economy on Egypt’s cement exports. These measures
included the removal of the LE85/ton export duty in October 2008, as well as bringing the
export ban to an end.

Later in February 2009, cement producers voluntary decided to stop cement exports for 3
months in order to satisfy local demand and calm the surging local cement prices, around
LE490/ton, which reached more than LE700/ton. The skyrocketing cement price came on the
back of two major factors; the first was the significant surge in transportation cost, as truck
drivers organized a strike across the governorates to protest the new law that bans the use of
trailers. The second was the malpractice of traders, who took advantage of this strike, as well
as the surging cement local demand to further raise prices.

Consequently, the Minister of Trade and Industry intervened in April 2009, through issuing
some regulations to control local cement prices including, assigning the government’s
anticompetitive supervisory body to investigate local cement market for any dysfunctional
during the past 6 months, banning cement exports for 4 months, reduction of cement imports
clearing period from 30day period to 3-day period, as well as obliging cement producers
to print their selling prices on cement bags for all distribution channels, including end-user
price, in order to end the manipulation of cement prices by traders.

This new set of regulations is expected to ease some of the upward pressure on local cement
price, due to the competition from imported cement. However, the current strong local cement
demand will act as a buffer for sharp decline in local cement price and the profitability of
cement producers. On the other hand, banning cement exports for 4 months for the second
time in less than a year, although it could jeopardize the position of the Egyptian cement in
export markets, we believe this negative effect will be marginal, as Egyptian main cement
export markets, such as Spain and Italy are facing a severe decline in demand.




                                    Egypt Cement Sector                              July 2009
Global Research - Egypt                                                Global Investment House


We believe that the new capacities addition will fix the current distortion taking place in
local cement price, as new supply will come on stream to meet the soaring local cement
consumption. However, regulating cement imports will be a critical issue, especially that
Saudi Arabia, where huge new capacities are under their way, removed the export ban. In
addition, Saudi Arabia has lower cost of production and could export to Egypt at low prices.
This situation will create unfavorable market conditions for all cement producers, in the form
of price war, which will lead to lower profitability and extended payback period for new
investments.




July 2009                            Egypt Cement Sector                                    9
Global Research - Egypt                                                                                                     Global Investment House


Supply/demand analysis

The Egyptian cement industry has been growing vigorously over the past 5 years, on the back
of the high activity experienced in the construction and real estate sectors. Egypt’s cement
consumption has been growing at a CAGR of approximately 6% over the past 40 years. In
2008, local cement consumption reached 38.4mn tons, achieving a growth rate of 11.4% over
2007 and recording a CAGR of around 9% since 2003. On the other hand, cement production
reached 39.8mn tons, compared to 38.4mn tons in 2007, achieving a CAGR of 6.6% over
the past 5 years.

Chart 43: Egyptian cement industry supply and demand
         50                                                                   91%                            92%                       92%            100%
                                                  85%
         45           77%                                                                                                                             90%
         40                                                                                                         41.8               38.4 43.3      80%
                                                         38.3                        39.8             38.4                      39.8
         35                  36.5                                      36.2                                                                           70%
         30                                                                                                  34.5                                     60%
                                           32.5
Ton mn




                                                                              30.2
         25    28.3                               28.1                                                                                                50%
         20           23.6                                                                                                                            40%
         15                                                                                                                                           30%
         10                                                                                                                                           20%
          5                                                                                                                                           10%
          0                                                                                                                                           0%
                      2004                        2005                  2006                                 2007                     2008
                                    Production             Local Consumption                      Capacity            Utilization rate
Source: IDSC & Global research


Over the past 5 years, the overall cement sector capacity utilization rate kept increasing,
with some companies operating over 100% of their installed capacities, driven by the strong
growth in cement consumption, which outpaced production growth.

Despite the declining global demand, resulting from the global financial crisis, cement
demand in Egypt continued its robust growth fueled by lower steel prices, which triggered
higher construction activity, as developers used this opportunity to complete their pending
and delayed construction works, when steel price was high, in addition to accelerating their
projects schedule to benefit from lower development cost.

Chart 44: Monthly cement demand
         5.0
         4.5
         4.0
         3.5
         3.0
Ton mn




         2.5
         2.0
         1.5
         1.0
         0.5
         0.0
               Jan           Feb        Mar         Apr         May           Jun           Jul        Aug           Sep      Oct        Nov         Dec
                                                                2006          2007            2008            2009
Source: IDSC & Global research


Moreover, individuals who acquired land plots within the context of the national housing
program under “build your own home” scheme, created high demand on building materials



0                                                               Egypt Cement Sector                                                               July 2009
Global Research - Egypt                                                                                                                                                                                                                              Global Investment House


because they are obliged to get the necessary building permits and finalize the construction of
their own homes within a pre-specified time span. In addition, homes construction in villages
experienced high activity, as the government is discussing a law that will regulate building
in villages and agricultural lands.

Accordingly, local cement prices reacted positively to this high demand, surging from around
LE420/ton in the beginning of 2008 to more than LE700/ton in February 2009. Furthermore,
the strike organized by truck drivers in February 2008 to protest the new law that bans the use
of trailers also contributed to the rising local cement price.

Chart 45: Monthly cement demand vs. cement average retail price in Greater Cairo
         5.0                                                                                                                                                                                                                                                                                                    600
         4.5
                                                                                                                                                                                                                                                                                                                500
         4.0
         3.5
                                                                                                                                                                                                                                                                                                                400
         3.0
Ton mn




                                                                                                                                                                                                                                                                                                                      LE/ton
         2.5                                                                                                                                                                                                                                                                                                    300
         2.0
                                                                                                                                                                                                                                                                                                                200
         1.5
         1.0
                                                                                                                                                                                                                                                                                                                100
         0.5
         0.0                                                                                                                                                                                                                                                                                                    -
                Jan-04
                         Mar-04
                                  May-04
                                           Jul-04
                                                    Sep-04
                                                             Nov-04
                                                                      Jan-05
                                                                               Mar-05
                                                                                        May-05
                                                                                                 Jul-05
                                                                                                          Sep-05
                                                                                                                   Nov-05
                                                                                                                            Jan-06
                                                                                                                                     Mar-06
                                                                                                                                              May-06
                                                                                                                                                       Jul-06
                                                                                                                                                                Sep-06
                                                                                                                                                                         Nov-06
                                                                                                                                                                                  Jan-07
                                                                                                                                                                                           Mar-07
                                                                                                                                                                                                    May-07
                                                                                                                                                                                                             Jul-07
                                                                                                                                                                                                                      Sep-07
                                                                                                                                                                                                                               Nov-07
                                                                                                                                                                                                                                        Jan-08
                                                                                                                                                                                                                                                 Mar-08
                                                                                                                                                                                                                                                          May-08
                                                                                                                                                                                                                                                                   Jul-08
                                                                                                                                                                                                                                                                            Sep-08
                                                                                                                                                                                                                                                                                     Nov-08
                                                                                                                                                                                                                                                                                              Jan-09
                                                                                                                                                                                                                                                                                                       Mar-09
                                                                                                                               Local demand                                LE/ton

Source: IDSC, CBE, Ministry of Investment & Global research


It is worth mentioning that cement demand in Egypt is seasonal, as it witnesses some decline
during the winter months from October to February and the Holy month of Ramadan, while
it accelerates throughout the summer months.

Chart 46: Monthly cement demand vs. 3-month moving average
          5.0
          4.5
          4.0
          3.5
          3.0
Ton mn




          2.5
          2.0
          1.5
          1.0
          0.5
          0.0
                03


                                    03


                                                       03


                                                                          04


                                                                                             04


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                                                                                                                                                                                                                                                          08


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                                                                                                   Local Consumption                                                     3 per. Mov. Avg. (Local Consumption)

Source: IDSC, CBE, Ministry of Investment & Global research


On the export front, Egypt’s cement exports as percentage of total cement production
experienced a declining trend over the past 5 years, as cement producers kept directing a
greater proportion of their production to the local market in order to meet the increasing
local cement consumption. The remarkable decline in 2008 exports came on the back of the
Minister of Trade and Industry decision to ban cement exports for a six month period from
March to October 2008.




July 2009                                                                                                                       Egypt Cement Sector                                                                                                                                                                   
Global Research - Egypt                                                                     Global Investment House


Chart 47: Cement and clinker exports
    14               16.9%                                  16.1%                                              18.0%
                                        15.9%
    12                                                                                                         16.0%
                                                                                                               14.0%
    10                                                                       10.9%                             12.0%
                       7.3
Tons mn


          8                                                                                                    10.0%
                                         4.2                 2.4
          6                                                                                                    8.0%
                                                                              1.9
                                                                                                               6.0%
          4                                                                                     3.0%
                                         5.2                 5.8                                               4.0%
          2            4.8                                                    4.2
                                                                                                 0.9           2.0%
                                                                                                 1.2
          -                                                                                                    0.0%
                      2004            2005                2006              2007                 2008
                       Cement Exports           Clinker Exports          Cement exports to total production
Source: CBE, Ministry of Investment & Global research


Going down to the companies’ level, we found that the market share of each company
is highly in line with their respective capacity. With respect to total domestic and export
cement sales, Italicementi group, including Suez, Helwan and Torah cement companies, has
the largest market share of around 28%, followed by Egyptian Cement Company, which is
owned by Lafarge, captured approximately 21% market share in 2008.

Chart 48: Egyptian cement market players market shares in 2008
                                                                    National Cement, 7.4%
                                      South Valley Cement, 0.2%
                                      Misr Cement Qena, 5.0%
                                                                                       Italcementi (Suez+Helwan
                              Misr Beni Suef Cement, 4.3%                              +Torah), 27.7%
                              Sinai Cement (Vicat), 6.0%


                       Ameryah Cement (Cimpor), 7.8%


              Alexandria & Beni Suef Cement (Titan), 8.4%
                                                                                     Egyptian Cement Company
                                    Assuit Cement (Cemex), 12.7%                     (lafarge), 20.5%
Source: Companies financials & Global research


It is worth mentioning that Arabian Cement Company only produces clinker and directs
almost all of its production to the export market. Therefore, we excluded Arabian Cement
Company from our calculations, in order not to distort our cement capacity, production and
consumption figures, besides the scarcity of information about this company specifically.

Capacities

The Egyptian grey cement sector consists of 13 cement manufacturing companies, of which
9 companies are controlled by 6 multinational companies. Only one company is owned by
the Egyptian government that is National Cement Company, while 3 firms are owned by the
Egyptian private sector, namely Misr Beni Suef Cement, Misr Cement Qena and South Valley
Cement. Multinational companies control 85.5% of Egypt’s grey cement manufacturing
capacity.




2                                                  Egypt Cement Sector                                       July 2009
Global Research - Egypt                                                     Global Investment House


Chart 49: Egypt current capacity distribution by company
                                   National Cement, 8.1%
                        South Valley Cement, 3.5%
                                                                        Italcementi (Suez, Helwan,
                       Misr Cement Qena, 3.5%
                                                                        Torah), 27.3%
                 Misr Beni Suef Cement, 3.5%
                  Sinai Cement (Vicat), 3.5%

            Ameryah Cement (Cimpor), 8.5%

Alexandria & Beni Suef Cement (Titan), 7.6%
                                                                       Egyptian Cement Company
                          Assuit Cement (Cemex), 11.5%                 (lafarge), 23.1%

Source: Global research


At the end of 2008, Egypt’s cement production capacity reached 43.3mn tons, compared
to 41.8mn ton in 2007, recording a growth rate of 3.9%. The increase in the production
capacity was attributable to the opening of South Valley Cement new production lines. The
distribution of the current cement capacities in Egypt is found to be more concentrated in
Suez and Sinai.

Chart 50: Egypt current cement capacities distribution by region


            Suez & Sinai, 36%
                                                                   Lower Egypt, 12%




            Central Egypt, 26%                                 Upper Egypt, 26%

Source: Global research


In order to meet the growing local cement consumption, Industrial Development Authority
(IDA) held an auction in October 2007 to bid for new cement capacities licenses, either by
new entrants or existing players wishing to expand their capacities. The bid resulted in the
sale of 8 out of the 10 offered new licenses against a total sum of LE1.14bn, to add 12MTA
of cement capacity.

Later in January 2008, IDA offered the remaining two licenses in El-Wadi El-Gedid and
Sohag governorates for bidding. The bid resulted in the sale of El-Wadi El-Gedid license,
whereas Sohag license was postponed, after all the companies applied for the license have
been disqualified. Accordingly, total new cement capacities additions resulting from IDA
auction summed up to 13.5mn ton tons of cement capacity, which are planned to start
production between 2010 and 2011.




July 2009                                Egypt Cement Sector                                     
Global Research - Egypt                                                        Global Investment House


Table 05: Cement new capacities licenses winners
                                  License cost                          Capacity       Expected
Company                              (LE mn)           Governorate       (MTA) commencement date
Wadi Al-Nil Cement                        251             Beni Suef          1.5           2010
El-Sewedy Cement                          201                  Suez          1.5           2010
Arab National Cement                      200             El-Menya           1.5           2011
Al-Nahda for Industries                    83                  Qena          1.5           2011
North Sinai Cement                         44           North Sinai          1.5           2011
Construction Material                      22                 Assuit         1.5           2010
El-Wadi Cement                               -     El-Wadi El-Gadid          1.5           2011
Total Greenfield capacities               801                               10.5
Assuit Cement                             202                 Assuit         1.5           2010
Beni Suef Cement                          135              Beni Suef         1.5           2010
Total expansion capacities                337                                3.0
Total new capacities                    1,138                               13.5
Source: Industrial Development Authority (IDA) & Global Research


It is worth mentioning that 7 out of the 9 new licenses were oriented toward Upper Egypt,
where the country is far less developed and needs a lot of infrastructure and public utilities
development projects. The concentration of the new licenses in Upper Egypt came in
synchronization with the government plan to prioritize and encourage investment in Upper
Egypt.

Chart 51: Egypt forecasted cement capacity distribution by region in 2011

               Suez & Sinai, 32%                                   Al-Wadi Al-Gedid, 2%

                                                                         Lower Egypt, 10%




            Central Egypt, 20%                                         Upper Egypt, 36%


Source: Global research


In addition, there are approximately another 5mn ton of additional capacities that were
licensed in prior periods to the latest auction. These new capacities are due to come on
stream between 2009 and 2010. During 2009, Sinai Cement and Misr Beni Suef Cement
new production lines will start production with a capacity of 1.5mn ton each, while a new
Company called “Medcom” will start production in Aswan with a capacity of 1mn ton. In
addition, Alexandria and Beni Suef Cement plan to increase their annual capacity by 200,000
tons through debottlenecking. Moreover, National Cement will expand its existing lines
annual production capacity by 750,000tons on 2 phases, the first phase to be implemented in
2010 and the second phase in 2011.

Therefore, Egypt cement production capacity is expected to add around 18.5mn tons between
2009 and 2011, growing at a CAGR of 12.6% over the next 3 years. Accordingly, Egypt
cement production capacity will come very close to 62mn ton.


                                         Egypt Cement Sector                               July 2009
Global Research - Egypt                                                Global Investment House


Chart 52: Egypt expected annual capacities additions
     70
                                                                 6                62
     60                                         8
     50        43              4
     40
Ton mn




     30
     20
     10
         -
              2008           2009             2010              2011             Total
Source: Global research


The capacities addition in Egypt coming on stream, along with the new capacities installation
in the MENA region over the next 3 years, especially Saudi Arabia and United Arab Emirates,
will create an oversupply in the region, where Saudi Arabia is expected to add 13.2mn ton
and UAE is forecasted to add 16.8mn ton.

Unfortunately, the slowdown in the construction sector, resulting from the world financial
crisis will exacerbate the severity of the excess supply situation in the region. However,
on the bright side, Egypt is still witnessing a boom in the construction sector, despite the
declining demand on building materials in the global markets. Therefore, we believe that the
on-going high construction activity will act as a buffer, protecting Egypt’s cement industry
from the negative consequences of the global financial crisis.

Pricing and cost

Pricing
Cement price in Egypt has been growing robustly since the start of 2008, driven by high
demand resulting from higher construction activity, as explained earlier under supply and
demand section. The average retail price of cement in Greater Cairo reached near LE600/
ton in February 2009 from around LE400/ton at the beginning of 2008, recording a growth
rate of 50%. Therefore, the government intervened with some measures, as indicated earlier
under the regulations section, to bring discipline back to the cement market.

However, the imposed government regulations were successful to the extent that cement
prices kept growing at a reasonable pace throughout 2008. Since the beginning of 2009, high
local cement demand caused cement prices to hike again till it reached near the LE600/ton
in February 2009.




July 2009                            Egypt Cement Sector                                   
Global Research - Egypt                                                                                                                                                Global Investment House


Chart 53: Average cement retail prices in Greater Cairo
     700                                                                                                                                                                                                        120
     600                                                                                                                                                                                                        100
     500
                                                                                                                                                                                                                80
     400




                                                                                                                                                                                                                     USD
                                                                                                                                                                                                                60
LE



     300
                                                                                                                                                                                                                40
     200
     100                                                                                                                                                                                                        20
         -                                                                                                                                                                                                      -
             Jan-04

                      Apr-04

                               Jul-04

                                        Oct-04

                                                 Jan-05

                                                          Apr-05

                                                                   Jul-05

                                                                            Oct-05

                                                                                     Jan-06

                                                                                              Apr-06

                                                                                                       Jul-06

                                                                                                                Oct-06

                                                                                                                          Jan-07

                                                                                                                                   Apr-07

                                                                                                                                            Jul-07

                                                                                                                                                     Oct-07

                                                                                                                                                              Jan-08

                                                                                                                                                                       Apr-08

                                                                                                                                                                                 Jul-08

                                                                                                                                                                                          Oct-08

                                                                                                                                                                                                   Jan-09
                                                                                         LE/ton                          USD/ton
Source: CBE, Ministry of Investment & Global research


It is worthy to mention that cement in other governorates is most likely traded at a premium
to the average retail price prevailing in Greater Cairo. The highest retail price is found in
Upper Egypt, due to transportation cost, where cement is traded on average at a 10%-15%
premium compared to those prices in Greater Cairo. Accordingly, when prices in Greater
Cairo reached near LE600/ton, prices in Upper Egypt climbed to more than LE700/ton.

Cost of production
The cost structure of the cement industry has evolved significantly over the past 2 years,
on the back of the government decisions to liberalize energy prices for energy intensive
industries. Therefore, cement cost of production witnessed a large increase over the course of
2008, where the median cash cost of production reached US$31.5/ton in 2008 from US$23.3/
ton in 2007, recording a growth of 35.2% between 2007 and 2008. It is worth mentioning that
cash cost of production increased further in Q1 2009 to reach US$35.2/ton.

Chart 54: Cash cost of production per ton in US$
60.0
50.0
40.0
30.0
20.0
10.0
     -
               ez




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                                                 2008                       2007                           Median 2008                               Median 2007
Source: Companies financials & Global research


Initially, the liberalization of energy prices for energy intensive industries, including cement
was introduced in mid-2007 to be implemented over 3-year period. The scheme encompassed
increasing electricity prices from LE0.134/KWH to LE0.216/KWH for high voltage
usages, through increasing electricity price by LE0.0273/KWH annually over 3 years. In
addition, natural gas prices were set to increase from USD1.25/MBTU toUSD2.65/MBTU,
via increasing its price by USD0.47/MBTU annually. The new scheme first phase of the
liberalization of energy prices started in the first of September 2007, where electricity and
natural gas prices became LE0.1613/KWH and USD1.72/MBTU, respectively.



                                                                                   Egypt Cement Sector                                                                                               July 2009
Global Research - Egypt                                                Global Investment House


Later in May 2008, the government decided to shorten the liberalization of energy prices
phase-out period. Consequently, starting from the first of July 2008, electricity prices were
raised by approximately 52% from LE0.1613/KWH to LE0.245/KWH. Similarly, natural
gas prices increased by 74.4% from USD1.72/MBTU to USD3.0/MBTU and fuel oil price
increased by 100% from LE500/ton to LE100/ton. Moreover, the government imposed LE27/
ton of clay extracted as a resources development fees, starting from first of July 2008.

However, the liberalization of energy prices will jeopardize the competitive edge of the
Egyptian cement industry for its relative low cost of production, in favor of other regional
competitors, who have lower cost of production and excess capacities, such as Saudi Arabia.
Consequently, this will lead to squeezed profit margins for local cement producers, as they
will not be able to raise their prices beyond imported cement, which has a lower cost, to
compensate for the increasing cost of production.

Market Structure Analysis (porter’s five competitive forces)

Chart 55: Cement market competition analysis

                                      Threat of New
                                        Entrants
                                          Low


        Bargaining Power             Rivalry among                Bargaining Power
           of Buyers                 Existing Players               of Suppliers
              Low                          High                         Low


                                        Threat of
                                        Substitute
                                          Low

Source: Global Research


Rivalry among Existing Players – High

Competition among existing players is high, as all cement manufacturers produce similar
product mix with almost no differences with respect to the product quality. Therefore, cement
producers compete along other dimensions, such as cost optimization, distribution channels
and pricing. In addition, customer loyalty is low and creating a brand identity is difficult,
as customers will always prefer to buy at lower prices, as long as the product is similar,
irrespective of the brand name.

Competition among existing cement manufacturers was not fierce over the recent past, as
the cement market witnessed a period of high demand, growing at a CAGR of 9% over the
past 5-year period, that led some cement manufacturers to operate beyond their nominal
capacities. However, the granted new cement capacities licenses besides allowing imports
will intensify the competition among the existing players and the new entrants on capturing
market share, leading to price wars.



July 2009                            Egypt Cement Sector                                   
Global Research - Egypt                                                   Global Investment House


Threat of New Entrants – High

The entry barriers to the cement industry are high, as the cement industry is a capital intensive
industry and requires a large initial investment cost. In addition, a license is required to be
issued by the government to operate a cement plant. Furthermore, economies of scale is
important in operating a cement plant, as cement production fixed costs are high.

Bargaining Power of Suppliers – Low

Cement manufacturing raw materials, such as limestone and clay are located abundantly
in Egypt. In addition, all cement manufacturers in Egypt have concessions to raw material
quarries. Therefore, the bargaining power of suppliers is weak.

Bargaining Power of Buyers – Low

There are two different buyers in the cement market, traders and agents and on the other hand
end-users. The majority of cement distribution is controlled by traders, who purchase cement
from cement manufacturers and resell it to the end users. The high demand witnessed in the
local market gave more power to cement manufacturers and traders, who benefited from the
situation by raising cement prices. In other words, cement producers and traders became
price makers and end-customers price takers.

Therefore, the government intervened with a set of regulations, as mentioned earlier, to
regulate the local cement market. However, power is expected to shift to end-users when the
new cement capacities come on stream, leading to a balance between the supply and demand
forces.

Threat of Substitutes – Low

There is no effective substitute for cement.




                                     Egypt Cement Sector                              July 2009
Global Research - Egypt                                                Global Investment House



Cement market forecast
Supply and Demand
As long as cement consumption is heavily dependent on the construction activity, which in
turn is highly correlated with the economic performance. We regressed the change in local
cement consumption against the change in GDP over the past 12 years, in order to be able to
project how local cement consumption will evolve over the coming 5 years, given the change
GDP. The resulting regression equation is:

%Δ Local cement demand= -0.15+4.19 %Δ GDP

This regression equation is found to be statistically significant with a coefficient of
determination (R²) of 71.8% and standard error of 4.1%.

Table 06: Historical and projected GDP growth vs. local cement consumption growth
                                            GDP Growth           Local consumption growth
1996/97                                       5.3%                          8.5%
1997/98                                       4.1%                          7.2%
1998/99                                       5.4%                         11.1%
1999/00                                       5.9%                          7.0%
2000/01                                       3.4%                         -0.9%
2001/02                                       3.2%                          0.8%
2002/ 03                                      3.1%                         -7.1%
2003/ 04                                      4.2%                         -2.3%
2004/ 05                                      4.6%                          2.3%
2005/ 06                                      6.9%                         18.8%
2006/ 07                                      7.1%                          8.1%
2007/ 08                                      7.2%                         14.7%
2008/09F                                      4.0%                          1.4%
2009/10F                                      4.5%                          3.5%
2010/11F                                      6.0%                          9.7%
2011/12F                                      6.5%                         11.8%
2012/13F                                      6.8%                         12.9%
2013/14F                                      7.0%                         13.9%
Source: Ministry of Economic Development & Global Research


The local cement consumption volume resulting from the regression equation represents
estimated local consumption for the period from July to June of each year. Therefore, we
calculated the average local consumption for each respective year and the year that follows
to obtain an annual local consumption forecast for the period from January to December of
each year for the coming 5 years.

Table 07: Projected local cement consumption
Mid-year                                Tons (mn)    Full year                      Ton (mn)
2008/09F                                    37.32
2009/10F                                    38.61    2009                               37.96
2010/11F                                    42.37    2010                               40.49
2011/12F                                    47.39    2011                               44.88
2012/13F                                    53.49    2012                               50.43
2013/14F                                    60.95    2013                               57.22
Source: Global Research




July 2009                                 Egypt Cement Sector                               9
Global Research - Egypt                                                                                                Global Investment House


The regression equation estimated that local cement consumption is forecasted to be 37.96mn
ton, which is lower than local consumption in 2008. Therefore, we adjusted the regression
results to cope with the fact that local cement consumption in the first 3 months of 2009 was
running at 23% higher than Q1 2008. According to our analysis, we forecast that local cement
consumption will grow at a CAGR of 8.3% over the next 5 year. However, we estimated
that local cement consumption will grow at a slower pace in 2010 and 2011 after growing
vigorously over the past 3 years. Afterwards, local cement demand will rebound gradually
starting from 2012.

Table 08: Adjusted forecasted local cement consumption
                                   Forecasted consumption                                              Adjusted forecasted                 Annual
 Year                                            (Ton mn)                     Premium               consumption (Ton mn)                   growth
 2008A                                               38.40                           -                               38.40
 2009F                                               37.96                        12%                                42.52                     10.7%
 2010F                                               40.49                        10%                                44.54                      4.7%
 2011F                                               44.88                         5%                                47.12                      5.8%
 2012F                                               50.43                         2%                                51.45                      9.2%
 2013F                                               57.22                         0%                                57.22                     11.2%
Source: Global Research


In order to forecast local and export sales for each player in the market, we started with assuming
a utilization rate for each market player in the cement industry for the next 5 years, taking into
consideration each respective player historical utilization rate and the new capacities additions.

Afterward, we multiplied the utilization rate of each cement manufacturer by its annual cement
production capacity to obtain each player cement production. By summing up individual
cement production, we reached to the total cement production, which is then subtracted from
total local consumption to get the total exports sales.

Subsequently, we allocated total export sales to each market player based on every player
respective historical share in cement exports, taking into consideration the entrance of new
competitors in the market. Finally, we subtracted each manufacturer cement production from
forecasted exports to get estimated local sales for each market participant.

Chart 56: Forecasted cement production capacity, utilization rate, local & exports sales
         70                                                                                                                      94.6%          96%

         60                                92.7%                                                                                                94%
                     91.4%
                                                                                                              90.7%                             92%
         50
                                                                                                                                                90%
         40
Ton mn




                                                                                                                                                88%
         30                                42.5
                     38.4                                                                                     51.4                              86%
                                                                84.6%                 84.8%
              43.3                  47.5                 55.4                  61.8                    61.8                  61.8 57.2
         20
                                                                                                                                                84%
                                                                44.5                  47.1
         10                                                                                                                                     82%
                                                                                              5.3                     4.6
                             1.2                   1.5                  2.3                                                              1.2
         0                                                                                                                                      80%
                     2008A                 2009F                2010F                 2011F                   2012F              2013F
                                      Capacity           Local consumption              Exports           Utilization rate

Source: Global research


We believe that exports sales are expected to witness a slight growth in 2009, before it will start to
rebound in 2010 and 2011, as the construction sector in Europe, which represents Egypt’s major


0                                                          Egypt Cement Sector                                                            July 2009
Global Research - Egypt                                                     Global Investment House


export destination, is expected to recover. Afterwards, exports will decline in 2012 till it reaches
2008 levels in 2013, as local demand is expected to rebound, according to our estimates.

We believe that Africa represents a real potential for the Egyptian cement exports, as
many African countries are still under developed, besides they do not have the sufficient
cement capacity to meet their local demand. The main obstacle to achieve this target is the
unavailability of transportation networks. However, Europe is expected to remain a major
export destination, due to its proximity to Egyptian ports. On the other hand, the exports to
the Arabian Peninsula countries are forecasted to decline considerably, on the back of the
new cement production capacity that will come on stream in that region during the next 2 to
3 years, which are expected to cover this region’s deficit.

Chart 57: Egypt’s forecasted major export markets




Source: Global research


Prices
Cement local selling prices is expected to witness some stabilization throughout the remaining
months of 2009, resulting from the latest government decisions of banning exports, allowing
imports and printing retail price on cement bags.

Moreover, cement selling price is not expected to drop notably, as it did not witness the
significant surge in its retail price like other building materials prices, such as steel rebars,
which increased by around 88%, reaching LE6,630/ton in mid 2008, compared to LE3,530/
ton at the end of 2007. Therefore, steel prices witnessed a hard landing, reaching LE3,150/ton
in March 2009. The following graph emphasis our argument, as it shows the indexed retail
local selling prices of cement and steel rebars since the start of 2006.




July 2009                               Egypt Cement Sector                                      
Global Research - Egypt                                                                                                                                   Global Investment House


Chart 58: Cement and steel rebars indexed retail local selling prices
              300.00
              250.00
              200.00
Index value


              150.00
              100.00
               50.00
                   -
                   Jan-06

                            Mar-06

                                     May-06

                                              Jul-06

                                                       Sep-06

                                                                Nov-06

                                                                         Jan-07

                                                                                  Mar-07

                                                                                           May-07

                                                                                                    Jul-07

                                                                                                             Sep-07

                                                                                                                      Nov-07

                                                                                                                               Jan-08

                                                                                                                                        Mar-08

                                                                                                                                                 May-08

                                                                                                                                                          Jul-08

                                                                                                                                                                   Sep-08

                                                                                                                                                                            Nov-08

                                                                                                                                                                                     Jan-09

                                                                                                                                                                                              Mar-09
                                     Steel rebars                        Cement                              Linear (Steel rebars)                                    Linear (Cement)
Source: Global research


However, we believe that cement prices will calm down in 2010 and 2011, when new cement
capacities are expected to come on stream, before it continue to grow moderately in 2012
and 2013. The capacities additions in the local market will coincide with the new capacities
additions in the region, especially in Saudi Arabia and UAE. This will create an oversupply
situation in the local and regional markets, leading to price wars.




2                                                                                Egypt Cement Sector                                                                                   July 2009
Global Research - Egypt                                                   Global Investment House



SWOT Analysis
Strengths

      •     Abundant and cheap raw materials and labor.
      •     Relatively low production cost, compared to other countries in the region.
      •     Competitive cement selling price.
      •     Local demand remained high, despite the global financial crisis.

Weaknesses

      •     Liberalization of energy prices.
      •     The imposition of US$5/ton on clay used in production.
      •     Minimal environmental regulations.
      •     Distortions in the local cement market, due to manipulation of cement prices by
            traders.

Opportunities

      • Large government planned infrastructure investments.
      • Large population base, guaranteeing continuous housing and social development
        demand.
      • High housing demand, especially in the low and lower middle segments.
      • Egypt geographical location gives it flexibility to direct cement exports.
      • Lower steel prices encouraged more construction activity.

Threats

      •     Slowing down GDP and investments.
      •     Large new cement capacities additions in the region, including Egypt.
      •     Loss of export markets due to exports banning.
      •     More government intervention to raise raw materials and fuel prices.




July 2009                               Egypt Cement Sector                                   
Global Research - Egypt                                                    Global Investment House



Outlook
Egypt cement sector outlook is positive, on the back of the continuing activity in the construction
sector. The growth in the construction sector is expected to be driven by the government plan
to boost investments in infrastructure projects, as well as low income housing and industrial
development projects, in addition to the improvement of under developed areas in Egypt.
Furthermore, the private sector investments in the residential, commercial and hospitality
real estate segments are expected to support the construction sector, as well.

However, the government intervention in the cement industry through increasing energy
prices for energy intensive industries, including cement, harmed the competitive edge of
the Egyptian cement sector, for its relatively low cost of production. In addition, banning
cement exports could jeopardize the position of the Egyptian cement in export markets, yet
we believe the negative effect will be marginal, as Europe, which represents Egypt’s main
export market, is witnessing a severe decline in demand.

Although the government decision to shorten cement imports clearing period could work to
stabilize local prices, regulating imports will be a critical issue, especially that Saudi Arabia,
where several new capacities are under their way, removed the export ban. Saudi Arabia has
lower cost of production and could export to Egypt at low prices. This situation will create
unfavorable market conditions for all cement producers, in the form of price war, which will
lead to lower profitability and extended payback period for new investments.

Moreover, the capacities additions in Egypt are expected to come on stream along with the
new capacities installation in the MENA region over the next 3 years, especially in Saudi
Arabia and UAE, creating an oversupply situation. Unfortunately, these new capacities
coincided with a slowing construction sector on the regional level. This situation is expected
to result in price wars, as well as delays in the planned commissioning dates of the new
announced capacities and lower utilization rates.

With respect to cement local price, we believe that prices will go down in 2010 and 2011, on
the back of the competition from imported cement, as well as the commissioning of the new
local cement capacities over the next 2 years, before it continue to grow moderately in 2012
and 2013. On the other hand, local cost of production is not expected to grow significantly,
like what happened over the past year, assuming that the government will not intervene to
materially raise the cement industry raw materials or fuel cost.

Finally, we believe that the cement local demand will be the white knight, which will be able
to provide a safety cushion to the cement industry against turbulences witnessed in the export
markets. Despite the negative consequences of the financial crisis on the world economy,
Egypt cement sector outlook is still believed to be promising.




                                     Egypt Cement Sector                                July 2009
Global Research - Egypt                                                             Global Investment House



Cement Sector Financial Performance
The aggregate financial performance of all the cement companies listed on the Egyptian
Exchange is depicted in the following table.

Table 09: Cement sector financial performance
                                        2007                        2008                Y-o-Y %
                                                      Net                      Net                               Net
(Values in LE mn)     Revenue EBITDA                Profit Revenue EBITDA Profit Revenue EBITDA                Profit
Suez Cement Group        4,196   1,698                981     5,542    2,077 1,041 32.1%    22.3%               6.1%
Egyptian Cement          3,208   1,797              1,548     3,449    1,849 1,494  7.5%     2.9%              -3.5%
Assuit Cement            1,731     902                477     2,316      881   576 33.7%    -2.4%              20.8%
Alexandria Cement          533     276                175       733      287   208 37.6%     3.8%              18.8%
Amiryah Cement             946     462                286     1,310      587   408 38.4%    27.1%              42.7%
National Cement*           975     346                231     1,155      317   240 18.4%    -8.4%               3.9%
Sinai Cement               656     381                342       906      475   414 38.1%    24.8%              21.3%
Misr Beni Suef Cement      588     397                193       660      421   202 12.2%     6.1%               4.8%
Misr Cement Qena           597     344                276       773      408   303 29.5%    18.3%               9.6%
*As National Cement FY ends on June 30, we adjusted the Company’s figures to show it on a comparables basis
to other cement companies.
Source: Companies’ Financials & Global Research


The aggregate sales revenue of the cement sector grew by 25.4% in 2008, where it increased
from LE13.4bn in 2007 to LE16.8bn in 2008. Although sales volume slightly decreased by
0.3% in 2008, the increase in the average selling price per ton from LE331/ton in 2007 to
417/ton in 2008, outweighed the decline in the sales volume, leading to high growth in sales
revenue. It is worth mentioning that we excluded South Valley Cement from our calculations
because its financial results are distorted, as it started cement production in May 2008,
yet the Company was established in 1997, operating as a portfolio management company
managing its own portfolio of actively traded securities. Accordingly, its profitability ratios
and valuation multiples will not be comparable to any other cement company.

Chart 59: Average selling price for all cement companies
    120
    100
     80
US$/ton




     60
            95.6
            90.7




     40
                                83.8
                       79.7




                                                       78.6



                                                                   76.8
                                                       74.5




                                                                                         74.6



                                                                                                   74.2
                                                                             73.8
                      73.1




                                                                                         71.1



                                                                                                   71.4
                                                                             69.6
                                                                  66.7
                               64.8
          64.5




                                                                                        59.5
                                                      58.6




                                                                            58.0




                                                                                                  58.5
                     56.6




                                                                 52.0




     20
                                           40.0
                                           39.8
                                           31.0




      0
             Suez     ECC       Assuit Alexandria Amiryah National           Sinai Misr Beni Misr
            Cement             Cement* Cement Cement Cement                 Cement   Suef    Cement
                                             2007       2008        Q1 2009         Cement    Qena
*Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009.
Source: Companies’ Financials & Global Research


Suez Cement Group achieved the highest sales value, capturing 33% of the total market
sales value, followed by Egyptian Cement and Assuit Cement, representing 20% and 14%
of aggregate sales value, respectively. Collectively, the three companies accounted for 67%
of the total market sales revenue. These results are in line with the three companies’ sales
volumes and production capacities.

July 2009                                   Egypt Cement Sector                                           
Global Research - Egypt                                                                Global Investment House


Moreover, Amiryah Cement achieved the highest growth rate in revenue in 2008, on the back
of the 13% increase in sales volume and the 22% growth in average selling price. Sinai Cement
ranked second in terms of growth in revenue driven by the commencement of production of its
second production line during the Q4 2008, boosting sales volumes in 2008 by 20%.

On the other hand, the cash cost of production reached US$31.5/ton in 2008 from US$23.3/
ton in 2007, increasing by 35.2%. Additionally, the cash cost of production increased further
by 12% in Q1 2009 to reach US$35.2/ton. This growth in cash cost of production, came
mainly on the back of the liberalization of energy prices, as we explained earlier.

It is worth mentioning that Suez Cement Group reported the highest cash cost of production
of US$57.6/ton in Q1 2009, whereas Alexandria Cement had the lowest cash cost of US$24.7/
ton in the same period.

Chart 60: Cash cost of production for all cement companies
  70
  60
  50
US$/ton




  40
  30
              57.6




                                                                    55.4
             51.7




                                                                   46.9
  20
                                                         43.0
                                                        39.9
                                 37.8
                       37.0




                                                                                                      34.3
                                                                               35.2




                                                                                                      31.5
                                                                                           29.0
          32.1




                                                                 32.0
                      30.0




                                                       28.6




                                                                              27.8



                                                                                          23.6
                                           24.7
                               25.3




                                                                                                     23.3
  10




                                                                                          18.3
                                           21.7
                     22.5




                                           13.8




                                                                             16.9
   0
       Suez     ECC      Assuit Alexandria Amiryah National  Sinai Misr Beni Misr
      Cement            Cement* Cement Cement Cement Cement          Suef    Cement
                                   2007      2008    Q1 2009        Cement    Qena
*Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009.
Source: Companies’ Financials & Global Research


Furthermore, the cement sector aggregate EBITDA reached LE7.3bn in 2008, compared to LE6.6bn
in 2007, recording a growth rate of 10.6%. All cement companies average EBITDA margin reached
43.7% in Q1 2009, compared to 49.2% and 43.4% in 2007 and 2008, respectively. Misr Beni Suef
Cement achieved the highest EBITDA margin of 59.4% in Q1 2009 among all cement market players,
while National Cement Company recorded the lowest EBITDA margin of 25.8% in Q1 2009.

Chart 61: Cement sector EBITDA margin
 80%
 70%
 60%
 50%
 40%
                                                                                            67.4%
                                                                                           63.8%
                                                                                          59.4%
                                                                               58.1%




                                                                                                      57.7%




 30%
                      56.8%
                     56.0%
                     53.6%




                                                                                                     52.7%
                                                                              52.5%
                                  52.1%



                                              51.9%




                                                                                                     50.4%
                                                        48.8%




                                                                             47.2%
                                                       44.8%
                                                       44.3%
           40.5%




                                           39.2%
                               38.0%




 20%
          37.5%




                                           36.6%




                                                                   35.5%
          34.9%




                                                                 27.5%
                                                                 25.8%




 10%
   0%
           Suez       ECC      Assuit     Alexandria   Amiryah   National     Sinai      Misr Beni    Misr
          Cement              Cement*      Cement      Cement    Cement      Cement        Suef      Cement
                                            2007       2008      Q1 2009                  Cement      Qena

*Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009.
Source: Companies’ Financials & Global Research

With respect to net profit, the cement sector overall net profit reached LE4.5bn in 2008, compared to
LE4.9bn in 2007, achieving a growth rate of 8.4%. All cement companies’ average Return on Sales
(ROS) reached 31.7% in Q1 2009, compared to 33.6% and 29% in 2007 and 2008, respectively. Misr


                                           Egypt Cement Sector                                      July 2009
Global Research - Egypt                                                                           Global Investment House


Beni Suef Cement also achieved the highest ROS of 46.4% in Q1 2009 relative to all other cement
companies, whereas National Cement Company recorded the lowest ROS of 18% in the same period.

Chart 62: Cement sector ROS
60%

50%

40%

30%




                                                                                          52.0%
                       48.3%




                                                                                                         46.4%

                                                                                                                   46.3%
                                                                                         45.7%
                      43.3%




                                                                                        42.3%




                                                                                                                  42.3%
                      41.6%




                                                                                                                 39.2%
20%
                                              27.5%



                                                       32.9%




                                                                                                     32.8%
                                                                32.1%
                                             24.9%




                                                                31.2%




                                                                                                     30.7%
                                                                30.2%
                                                      29.5%
                                                      28.4%




                                                                              23.7%
          23.4%

          21.7%




                                                                             20.8%
         18.8%




                                                                            18.0%
10%
                                          0.0%


 0%
         Suez          ECC                 Assuit Alexandria    Amiryah     National     Sinai      Misr Beni     Misr
        Cement                            Cement*  Cement       Cement      Cement      Cement        Suef       Cement
                                                      2007      2008       Q1 2009                   Cement       Qena

*Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009.
Source: Companies’ Financials & Global Research


Finally, the average ROE for all cement companies declined to 29.2% in 2008, compared to 30.3%
in 2007. During 2008, the highest ROE was achieved by ECC, reaching 103.1%, while Assuit
Cement reported the lowest ROE of 17.1%.

Chart 63: Cement sector ROE
120%

100%

 80%

 60%
                                 103.1%
                         93.7%




 40%
                                                                  34.6%




                                                                                                                  33.7%
                                                                              43.0%
                                                                              42.6%
                                                        28.9%




                                                                                                                  31.9%
             17.7%
             16.9%




                                                                                          28.6%
                                                                  29.9%
                                            17.1%
                                            17.1%


                                                        25.2%




                                                                                                      27.4%
                                                                                          26.8%



                                                                                                      24.1%




 20%

   0%
             Suez        ECC                Assuit Alexandria Amiryah       National      Sinai      Misr Beni    Misr
            Cement                         Cement*  Cement    Cement        Cement       Cement        Suef      Cement
                                                                2007       2008                       Cement      Qena

Source: Companies’ Financials & Global Research


Valuation ratios

Table 10: Cement companies valuation ratios*
                                                                PE        PBV          EV/EBITDA           EV/Ton (US$)
Suez Cement                                                     5.9        0.9                2.8                  101.0
ECC                                                             0.2        0.2                0.7                   38.3
Assuit Cement^                                                  2.0          -                1.3                   41.2
Alexandria Cement                                               4.0        1.3                2.9                   44.9
Amiryah Cement                                                  6.1        1.9                4.1                  140.1
National Cement                                                 6.9        2.2                4.4                   79.9
Sinai Cement                                                    6.1        1.5                4.8                  185.7
Misr Beni Suef Cement                                           8.7        1.9                3.8                  173.0
Misr Cement Qena                                                7.7        3.1                4.2                  172.0
Average                                                         3.5        1.4                2.5                   88.5
Median                                                          6.1        1.5                3.8                  101.0
Multiples are based on last market prices as of June 30th, 2009.
* Ratios are calculated using balance sheet figures as of March 31st, 2009 & income statement figures on December 31st, 2008
^ Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009
Source: Companies’ Financials & Global Research


July 2009                                              Egypt Cement Sector                                                 

                                                                                                                                                                                                                                                                                                                                                                                                                       Ea




                                                                                                                                                                                                                                                                                                                                                                                                                                                    0.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   10.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   20.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   30.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   40.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   50.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   60.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   70.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                   80.0%
                                                                                 Ea




                                                                                             -30.0%
                                                                                             -20.0%
                                                                                             -10.0%
                                                                                               0.0%
                                                                                              10.0%
                                                                                              20.0%
                                                                                              30.0%
                                                                                              40.0%
                                                                                                                                                                                                                                                   -60.0%
                                                                                                                                                                                                                                                            -40.0%
                                                                                                                                                                                                                                                                     -20.0%
                                                                                                                                                                                                                                                                              0.0%
                                                                                                                                                                                                                                                                                      20.0%
                                                                                                                                                                                                                                                                                              40.0%
                                                                                                                                                                                                                                                                                                      60.0%
                                                                                                                                                                                                                                                                                                              80.0%
                                                                                     ste Ara                                                                                                                                 Ea          A                                                                                                                                                                                 ste Ar
                                                                                         rn       b                                                                                                                             ste
                                                                                                                                                                                                                                    rn
                                                                                                                                                                                                                                              ra
                                                                                                                                                                                                                                             bi                                                                                                                                                                                rn abi
                                                                                            Pr ian
                                                                                              ov                14.6%                                                                                                                    Pr      an                             35.3%                                                                                                                                              Pr an
                                                                                                                                                                                                                                                                                                                                                                                                                                      ov           44.0%
                                                                                                  in                                                                                                                                     ov                                                                                                                                                                                              in
                                                                                                      ce                                                                                                                                     in
                                                                                                                23.2%                                                                                                                            c                               54.4%                                                                                                                                              Q ce             62.1%
                                                                                              Qa
                                                                                                  ss                                                                                                                                    Q e                                                                                                                                                                                            as
                                                                               So                    im                                                                                                                                   as                                                                                                                                                                          So                  s im
                                                                                                                                                                                                                                              sim
                                                                                  ut                            30.0%                                                                                                     So
                                                                                                                                                                                                                             ut                                                      63.0%                                                                                                                               ut
                                                                                                                                                                                                                                                                                                                                                                                                                            he         Sa             71.0%
                                                                                     he                                                                                                                                                                                                                                                                                                                                                    ud
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Global Research - Egypt




                                                                                         rn Sau                                                                                                                                 he                                                                                                                                                                                             rn
                                                                                                                                                                                                                                   rn Sau                                                                                                                                                                                                      i
                                                                                            Pr di
                                                                                              ov                21.8%                                                                                                                  Pr di                                         49.3%                                                                                                                                         Pr
                                                                                                                                                                                                                                                                                                                                                                                                                                      ov           20.8%
                                                                                                  in                                                                                                                                     ov                                                                                                                                                                                              in
                                                                                                      ce                                                                                                                                     in                                                                                                                                                                                              ce
                                                                                    Ya                          33.5%                                                                                                         Ya
                                                                                                                                                                                                                                                 ce                                  60.9%                                                                                                                                Ya                          66.6%
                                                                                        m Tab                                                                                                                                                                                                                                                                                                                                 m Tab
                                                                        Ar                 am uk                                                                                                                  A
                                                                                                                                                                                                                                  m Tab                                                                                                                                                                        A                 am uk
                                                                           ka                 aS                14.5%                                                                                               rk               am uk                                       52.0%                                                                                                                           rk
                                                                                                                                                                                                                                                                                                                                                                                                                   an               aS                67.2%
                                                                              nB                                                                                                                                       an               aS
                                                                                                  au                                                                                                                                         au                                                                                                                                                                       Bu                 au
                                                                                 ui                   di        21.5%
                                                                                                                                                                                                                          Bu
                                                                                                                                                                                                                                                 di                                  54.4%                                                                                                                                                   d        72.2%
                                                                                    ld                                                                                                                                       ild                                                                                                                                                                                         ild          Ya i
                                                                                       in Yan                                                                                                                                    in Ya                                                                                                                                                                                       in
                                                                                          gM b
                                                                                                       u                                                                                                                           g          nb                                                                                                                                                                               g          n
                                                                                                                23.8%                                                                                                                 M                                              51.2%                                                                                                                                        M bu               60.4%
                                                                                              ate                                                                                                                                                                                                                                                                                                                                   at




                                                                                                                                                                                                                                                                                                                      Chart 65: Regional peers ROS in 2008




                                                                                                                         Chart 66: Regional peers ROE in 2008
                                                                                                                                                                                                                                        at u




                      Source: Companies’ Financials & Global Research
                                                                                                                                                                Source: Companies’ Financials & Global Research
                                                                                                                                                                                                                                                                                                                                                             Source: Companies’ Financials & Global Research
                                                                                                  ria                                                                                                                                     er                                                                                                                                                                                           er
                                                                                                      ls -18.1%                                                                                                                               ia                                                                                                                                                                                           ia
                                                                                                                                                                                                                                                  ls           -42.0%                                                                                                                                                                         ls   31.7%
                                                                                                 Gu                                                                                                                                         G                                                                                                                                                                                            G
                                                                                                                                                                                                                                               ul                                                                                                                                                                                           ul
                                                                                             Fu lf              0.1%                                                                                                                   Fu f                                      0.2%                                                                                                                                              Fu f            34.6%
                                                                                                jai                                                                                                                                       ja                                                                                                                                                                                           ja
                                                                                                    ra                                                                                                                                       ira                                                                                                                                                                                          ir a
                                                                                                                20.7%                                                                                                                                                           26.3%                                                                                                                                                              31.6%
                                                                                                                                                                                                                                                                                                                                                                                                                                                              Chart 64: Regional peer EBITDA margin in 2008




                                                                                             Sh h                                                                                                                                       Sh h                                                                                                                                                                                        Sh h
                                                                                                 ar                                                                                                                                         ar                                                                                                                                                                                          ar
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Regional Cement Sector Performance




Egypt Cement Sector
                                                                                                    jah
                                                                                                                17.5%                                                                                                                          j                                21.0%                                                                                                                                              N jah           33.3%
                                                                                            Na                                                                                                                                         N ah                                                                                                                                                                                          at
                                                                                                tio                                                                                                                                      at                                                                                                                                                                                             io
                                                                                                    na                                                                                                                                      io                                                                                                                                                                         U                    na
                                                                                Um                     l        7.5%                                                                                                       U                   na                               34.8%                                                                                                                                    m                     l   15.8%
                                                                                     m                                                                                                                                       m                     l                                                                                                                                                                       m
                                                                                         Al RA                                                                                                                                 m                                                                                                                                                                                               A        RA
                                                                                                                                                                                                                                   A RA                                                                                                                                                                                           lQ K
                                                                                            Qa K                10.0%                                                                                                                 lQ K                                      18.8%                                                                                                                                                 ai           23.2%
                                                                                                iw                                                                                                                                       ai                                                                                                                                                                                              w
                                                                                                    ain                                                                                                                                     w                                                                                                                                                                                               ai
                                                                                                                1.2%                                                                                                                           ai
                                                                                                                                                                                                                                                   n                            6.4%                                                                                                                                                           n   14.3%
                                                                                               Un
                                                                                                                                                                                                                                         U                                                                                                                                                                                            U
                                                                                                   io                                                                                                                                                                                                                                                                                                                                    ni
                                                                                              Ra       n        11.1%
                                                                                                                                                                                                                                             ni
                                                                                                                                                                                                                                                on                              14.0%
                                                                                                                                                                                                                                                                                                                                                                                                                                            on     20.8%
                                                                                                  ys                                                                                                                                     Ra                                                                                                                                                                                          Ra
                                                                                                      ut                                                                                                                                     ys                                                                                                                                                                                          ys
                                                                                                                 27.6%                                                                                                                           ut                             30.4%                                                                                                                                                        ut    39.9%
                                                                                               Om                                                                                                                                         O                                                                                                                                                                                           O
                                                                                                     an                                                                                                                                      m                                                                                                                                                                                           m
                                                                                                                10.6%                                                                                                                           an                              19.7%                                                                                                                                                        an    23.5%
                                                                                     Qa Ku                                                                                                                                     Q                                                                                                                                                                                           Q
                                                                                         tar wa                                                                                                                                  at Kuw                                                                                                                                                                                      at Kuw
                                                                                                                                                                                                                                    ar                                                                                                                                                                                          ar
                                                                                            Na it               3.2%                                                                                                                   N ait                                    5.0%                                                                                                                                               N ait           28.5%
                                                                                                tio                                                                                                                                      at                                                                                                                                                                                          at
                                                                                                    na                                                                                                                                      io                                                                                                                                                                                          io
                                                                                                       l        25.2%
                                                                                                                                                                                                                                               na
                                                                                                                                                                                                                                                   l                            29.3%
                                                                                                                                                                                                                                                                                                                                                                                                                                            na
                                                                                                                                                                                                                                                                                                                                                                                                                                               l   23.3%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Global Investment House




July 2009
Global Research - Egypt                                                               Global Investment House


Table 11: Regional peers valuation ratios*
                                                       PE       PBV         EV/EBITDA           EV/Ton (US$)
Arabian Cement                                        11.1       1.6               11.3                 410.9
Eastern Province Cement                                8.8       2.2                7.2                 321.5
Qassim Cement                                         10.2       2.8                8.2                 432.1
Saudi Cement                                           9.4       2.2               26.8                 356.3
Southern Province Cement                              10.9       3.8                9.5                 439.1
Tabuk Cement                                          12.8       1.8                7.9                 364.5
Yamama Saudi Cement                                    8.8       2.0                6.8                 326.5
Yanbu Cement                                           9.0       2.4                7.5                 294.7
Saudi Arabia Average                                   9.8       2.4                9.4                 367.0
Saudi Arabia Median                                    9.8       2.2                8.0                 360.4

Arkan Building Materials                              N/A         4.9                 37.0                  N/A
Gulf Cement                                          933.9        1.3                  4.3                  N/A
Fujairah Cement                                        5.7        1.3                  7.2                  N/A
Sharjah Cement                                         3.9        0.7                  2.7                  N/A
National Cement                                        6.7        0.6                 14.2                  N/A
RAK Cement                                             7.5        0.8                  6.0                  N/A
Umm Al Qaiwain Cement                                 36.1        0.5                 13.3                  N/A
Union Cement                                           8.4        1.0                  5.7                  N/A
UAE Average                                           25.2        1.5                  9.6                  N/A
UAE Median                                             7.5        0.9                  6.6                  N/A

Raysut Cement                                         11.0        3.5                  7.9                278.2
Oman Cement                                           14.5        1.6                 10.8                211.2
Oman Average                                          12.1        2.4                  8.8                249.0
Oman Median                                           12.8        2.5                  9.4                244.7

Kuwait Cement                                         70.6        3.0                 12.4                  N/A

Qatar National Cement                                  6.9        2.3                 13.6                  N/A

Regional Average                                      12.1        2.1                  9.7                350.9
Regional Median                                        9.4        1.9                  8.1                341.4
Multiples are based on last market prices as of June 30th, 2009.
* Ratios are calculated using balance sheet figures as of March 31st, 2009 & income statement figures on December
31st, 2008
Source: Companies’ Financials & Global Research




July 2009                                    Egypt Cement Sector                                              9
Global Research - Egypt                                                Global Investment House



Valuation and Recommendation
In order to arrive at fair value for cement companies under review, we have used two valuation
methods:

1. Discounted Cash Flow (DFC) method, using Free Cash Flow to Firm (FCFF) approach.

2. Relative valuation method, using Enterprise Value to Earnings before Interest, Taxes,
   Depreciation and Amortization (EV/EBITDA).

Discounted Cash Flow (DCF) method
The Discounted cash Flow (DCF) method used in the valuation of cement companies under
review was the Free Cash Flow to Firm (FCFF) approach, which is defined as after tax
operating cash flow after covering all the company’s capital expenditures and working capital
needs. Our forecast horizon extends for 5 years, from 2009 to 2013, which represent the
terminal year. The terminal value is estimated using constant growth Gordon Growth Model.
The forecasted FCFF and the terminal value are then discounted at the company’s Weighted
Average Cost of Capital (WACC), in order to arrive at total enterprise value. Afterwards,
cash is added to enterprise value and debt deducted from it to arrive at the company’s equity
value, which is then divided by the total number of shares to reach the company’s per share
fair value.

In our DCF valuation, we have used the following assumptions:

1. Risk Free Rate (RFR) of 10.5%, representing the weighted average Yield to Maturity
   (YTM) on April 2014 treasury bonds.

2. Market risk premium of 9.5% was assumed.

3. Beta of 1.

4. The cost of equity was calculated using the Capital Asset Pricing Model (CAPM).

5. Perpetual growth of 3%.

Under these assumptions, the cost of equity reached 20% and a WACC of 20% were used for
Sinai Cement and Misr Cement Qena, as these two companies are free of debt. On the other
hand, the WACC used for Misr Beni Suef Cement was 19.7%, as the Company has a debt
burden, which has a cost of 11.6%. As we mentioned earlier the company has a tax holiday,
therefore it does not benefit from the interest tax shield.

Table 12: Per share value using DCF method
                                                                                Fair value per
Company Name                                                                       share (LE)
Sinai Cement Company                                                                     108.3
Misr Cement Qena Company                                                                  85.8
Misr Beni Suef Cement Company                                                            165.2
Source: Global Research




0                                   Egypt Cement Sector                              July 2009
Global Research - Egypt                                                                Global Investment House


Relative Valuation Method

We compared cement companies under review with other cement producers in the region, in
terms of Enterprise Value to Earnings before Interest, Taxes, Depreciation and Amortization (EV/
EBITDA). We preferred to use EV/EBITDA rather than Price to Earnings ratio (PE), as it puts
different companies on a comparable basis irrespective of their capital structure. We reached a
weighted average EV/EBITDA of 2.51x for the cement sector in Egypt, 9.40x for the cement
sector in Saudi Arabia, 9.59x for the cement sector in UAE, 8.77x for the cement sector in Oman,
12.36x for the cement in Kuwait and 13.56x for the cement sector in Qatar. This resulted in an
overall weighted average EV/EBITDA of 6.82x for the cement sector in the region.

Table13: Peer group EV/EBITDA
Company Name                                                                                       EV/EBITDA
Suez Cement Company                                                                                       2.75
Egyptian Cement Company                                                                                   0.70
Assuit Cement Company                                                                                     1.29
Alexandria Cement Company                                                                                 2.90
Amiryah Cement Company                                                                                    4.11
National Cement Company                                                                                   4.36
Sinai Cement Company                                                                                      4.76
Misr Beni Suef Cement Company                                                                             3.76
Misr Cement Qena Company                                                                                  4.19
Egypt Cement Sector weighted average                                                                      2.51

 Arabian Cement Company                                                                                     11.29
 Eastern Province Cement Company                                                                             7.23
 Qassim Cement Company                                                                                       8.22
 Saudi Cement Company                                                                                       26.78
 Southern Province Cement Company                                                                            9.52
 Tabuk Cement Company                                                                                        7.88
 Yamama Saudi Cement Company                                                                                 6.75
 Yanbu Cement Company                                                                                        7.53
 Saudi Cement Sector weighted average                                                                        9.40

 Arkan Building Materials                                                                                   37.03
 Gulf Cement Company                                                                                         4.29
 Fujairah Cement Company                                                                                     7.19
 Sharjah Cement Company                                                                                      2.75
 National Cement Company                                                                                    14.21
 RAK Cement Company                                                                                          5.98
 Umm Al Qaiwain Cement Company                                                                              13.30
 Union Cement Company                                                                                        5.72
 UAE Cement Sector weighted average                                                                          9.59

 Raysut Cement                                                                                               7.90
 Oman Cement                                                                                                10.84
 Oman Cement Sector weighted average                                                                         8.77

 Kuwait Cement Company                                                                                      12.36
 Kuwait Cement Sector weighted average                                                                      12.36

 Qatar National Cement Company                                                                              13.56
 Qatar Cement Sector weighted average                                                                       13.56

 Overall Weighted Average                                                                                     6.82
EV is calculated using June 30th, 2009 last market price
* Assuit Cement Q1 2009 results was not available, as the Company was delisted on April 2009, we used cash and debt
balances as of 31/12/2008,
Source: Stock Exchanges & Global Research

July 2009                                     Egypt Cement Sector                                               
Global Research - Egypt                                                Global Investment House


Consequently, companies under review fair value per share based on multiple valuation are
shown in the table below:

Table 14: Per share value using multiple valuation
                                                                                  Fair value per
Company Name                                                                         share (LE)
Sinai Cement Company                                                                       103.1
Misr Cement Qena Company                                                                   113.7
Misr Beni Suef Cement Company                                                              152.9
Source: Global Research


In order to arrive at the weighted average fair value per share for each cement company, we
have assigned an 80% weight to DCF valuation and 20% weight to relative valuation. The
weighted average per share value for each company is illustrated in the table below:

Table 15: Per share weighted average fair value
                                                                            Weighted average
Company Name                                                                      value (LE)
Sinai Cement Company                                                                   107.3
Misr Cement Qena Company                                                                 91.3
Misr Beni Suef Cement Company                                                          162.8
Source: Global Research


Risks to valuation

•    Lower than forecasted local and export cement demand, would adversely affect the
     projected sales volumes.

•    Lower than forecasted sales volumes and/or selling price, would negatively affect the
     projected sales values, which in turn will lead to lower valuation.

•    Higher than projected cost of production would affect valuation adversely.

•    Higher than projected capital expenditure would negatively affect valuation.




2                                    Egypt Cement Sector                               July 2009
Global Research - Egypt                            Global Investment House




                          Players Profile




July 2009                    Egypt Cement Sector                       
Global Research - Egypt                                               Global Investment House



                            Sinai Cement Company
Tickers:
SCEM.CA (Reuters)
SCEM:EY (Bloomberg)
Listing:                                                                  July, 2009
The Egyptian Exchange (EGX)
Fair Value:
                                                                         BUY
LE107.3
CMP:
LE71.98 (As of June 30th, 2009)

Key Data                                       Company Background
Market Cap. (LEmn) #                  2,519
EPS (LE)*                                9.2   Sinai Cement Company was incorporated in
BVPS (LE)*                             23.8    1998, as an Egyptian Joint Stock Company,
P/E*                                     7.8   subject to Law No. 8 of year 1997, and
P/BV*                                    1.5   its executive regulations. Sinai Cement is
12M Avg. vol.                       34,001     specialized in the production of grey cement
52 week Low/High (LE)             29.0/75.0    and its related products. Sinai Cement
Source: Global Research                        Company is listed on the Egyptian Exchange
# As of June 30th, 2009
* 2009 projected EPS & BV
                                               (EGX) since July 2000.

The Company’s cement plant, located in North Sinai, started cement production in January
2001, with a production capacity of 1.5mn ton.

On August 2006, the Company contracted with FLSmidth to establish a second production
line with a production capacity of 1.5mn ton. The new production line started operation in
late 2008, raising the Company’s production capacity to 3mn ton.

Sinai Cement Company holds a 25.4% stake in Sinai White Cement Company and a 99.96%
in Sinai Cement Services Company. It is worth mentioning that the Company’s Board of
Directors (BOD) approved on December 2007, the establishment of Sinai Cement Services
Company, with an authorized capital of LE250mn and issued capital of LE25mn. Sinai
Cement Company paid 50% of Sinai Cement Services’ capital, as of the end of first quarter
of 2009.

The Company will raise its issued and paid-in capital from LE350mn to LE700mn, in order
to finance the second production line. It is important to note that trading on Sinai Cement
stocks is limited to the local investors and is prohibited on foreigners.

On August 2008, Sinai Cement Company was fined LE20mn for conduction anti-competitive
practice during the period from May 2005 to the end of 2006. The Company and other local
cement producers were accused of forming a cartel to manipulate local cement prices and
dividing market shares among them.




                                  Egypt Cement Sector                             July 2009
Global Research - Egypt                                                Global Investment House


Management

Sinai Cement Company is chaired by Eng. Hassan Rateb. The Company’s Board of Directors
(BoD) was elected in 2007 for a 3-year period. The table below shows the current board
members.

Table 16:Sinai Cement Board Members
Hassan Rateb                                                    Chairman
Eric Hollar                                                     Managing Director
Gilbert Nathan                                                  Board Member
Mohamed Sanhory                                                 Board Member
Salah Yassin                                                    Board Member
Ezzat Ghazy                                                     Board Member
Anis El Hindy                                                   Board Member
Adel Nasr El Din                                                Board Member
Rehab Rateb                                                     Board Member
Louis Vicat                                                     Board Member
Source: EGX


Shareholding and Liquidity

Sinai Cement Company’s authorized capital is LE1bn, while the issued and paid-in capital
is LE350mn, distributed over 35mn shares, with a par value of LE10/share. On November
2008, the Company’s extraordinary general assembly approved increasing the Company’s
issued and paid-in capital by LE350mn, through a 1:1 stock dividend distribution, in order to
finance the Company’s second production line.

Accordingly, the Company’s issued and paid-in capital will reach LE700mn, distributed over
70mn shares, at a par value of 10/share. It is worth mentioning that the capital increase was
not listed until now.

Chart 67: Sinai Cement Shareholders Structure as of March 31st, 2009
                         Others, 9.0%
                                                   Free Float, 26.3%
   Al Arabia Co. for Industrial
   Investment, 6.2%


                                                              Social Insurance Fund for
                                                              Public Sector Labor, 9.4%

                Vicat Misr Cement                          Sama Cement, 9.4%
                Industries, 39.6%
Source: EGID


Vicat Misr Cement Industries Company holds a 39.6% stake in Sinai Cement Company,
whereas the Company’s free float reached 26.3% as of March 31st, 2009. It is important to
note that foreigners are banned from trading on Sinai Cement stock.




July 2009                            Egypt Cement Sector                                   
Global Research - Egypt                                                                                                                                                                                                                                                                             Global Investment House


Table 17: Stock Liquidity
                                                                                                                                                                                                                                        2007                                                        2008                                                       2009*
Average Daily Volume                                                                                                                                                                                                                  50,612                                                      51,727                                                      36,813
Average Daily Turnover (LE000)                                                                                                                                                                                                         3,054                                                       3,216                                                        1,808
Market Capitalization (LE000) **                                                                                                                                                                                                   2,390,500                                                   1,159,200                                                   2,519,300
* Average daily volume and turnover for the period from January to June 2009.
** Market Capitalization is calculated on respective year-end prices and for 2009 as of June 30th, 2009.
Source: Mubasher and Global Research


The Company’s stock was underperforming the EGX 30 Index, as well as the Building
Materials index till November 2008. Afterwards, Sinai Cement stock outperformed the
EGX30 and it was moving in line with the Building Materials Index.

Chart 68: Sinai Cement share price performance chart
300

250

200

150

100

 50

     -
         28-Dec-06
                     28-Jan-07
                                 28-Feb-07
                                             28-Mar-07
                                                         28-Apr-07
                                                                     28-May-07
                                                                                 28-Jun-07
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                                                                                                         28-Aug-07
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                                                                                                                                              28-Nov-07
                                                                                                                                                          28-Dec-07
                                                                                                                                                                      28-Jan-08
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                                                                                                                                                                                                                                                           28-Aug-08
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                                                                                                                                                                                                                                                                                               28-Nov-08
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                                                                                                                                                                                                                                                                                                                       28-Jan-09
                                                                                                                                                                                                                                                                                                                                   28-Feb-09
                                                                                                                                                                                                                                                                                                                                               28-Mar-09
                                                                                                                                                                                                                                                                                                                                                           28-Apr-09
                                                                                                                                                                                                                                                                                                                                                                       28-May-09
                                                                                                                                                                                                                                                                                                                                                                                   28-Jun-09
                                                                                                                                 SCEM                                   EGX30                                         Building Materials Index

Source: Mubasher, EGX and Global Research


Table 18: Sinai at a glance
                                 CMP (LE)                                                                                        Shares in Issue (mn)     M-Cap (LE mn) 52-Week Hi/Lo (LE)
                                   71.98                                                                                                  35                   2,519        75     29.02
                                        Gross Profit                                                                               Net Profit       EPS    BVPS      ROAE
Year                                       (LE mn)                                                                                  (LE mn)         (LE)     (LE)      (%) P/E (x) P/BV (x)
2010 F                                      691,512                                                                                  514,440         7.35   24.51 30.45%      9.79       1.47
2009 F                                      785,918                                                                                  643,841         9.20   23.77 40.09%      7.83       1.51
2008 A                                      544,355                                                                                  434,131       12.40    44.23 31.65%      2.79       1.63
2007 A                                      465,310                                                                                  341,539         9.76   34.14 32.40%      7.15       2.11
Source: Global Research




                                                                                                                                                        Egypt Cement Sector                                                                                                                                                                                  July 2009
Global Research - Egypt                                                                 Global Investment House



Financial Performance
Income Statement Analysis

During the period from 2004 to 2008, Sinai Cement Company’s total sales volume has
reported a robust growth, rising at a CAGR of 18.7%. This strong growth came on the back of
the increase in local cement sales volume, where it increased form 0.9mn ton in 2004 to 2.3mn
ton in 2008, growing at a CAGR of 26.3%. This can be attributed to the surge witnessed in
the local cement consumption, driven by the higher construction activities witnessed in the
country. In 2008, the Company’s local cement sales volume grew by 44.8%, compared to
2007. Meanwhile, the exported cement volume dropped by 74.7% in 2008, on the back of the
Minister of Trade and Industry decision to ban cement exportation for a 6-month period from
March to October 2008, as well as the surging local demand.

Chart 69: Sinai Cement Sales Volume Breakdown
          2.5                                                                                                25%
                                                                                              0.1
                                                                                           19.9%
          2.0                                                                                                20%
                                                                   0.4
          1.5                             0.6                                                                15%
Tons mn




                       0.6                                       11.1%
          1.0                                                                                                10%
                                     7.3%
                                          1.2                      1.6                        2.3
          0.5          1.0                                                                                   5%
                1.9%
          0.0                                                                                                0%
                   2005                  2006                      2007                      2008
                                Local Sales       Export Sales        Growth in sales
Source: Sinai Cement Company and Global Research


Moreover, the increase witnessed in the local cement demand in 2008 has fuelled the growth
in the selling prices, where Sinai Cement Company’s average selling price rose by 15.2% in
2008. Consequently, the Company’s total sales value climbed to LE906.3mn in 2008 from
LE656.4mn in 2007, achieving a growth rate of 38.1%. Sinai Cement Company maintained
a healthy growth in its sales value over the past 4 years, growing at a CAGR of 28.9% from
2004 to 2008.

Chart 70: Sinai Cement Sales Value and Average Price
   1,000                                                                                                 450
          900                                                                               382
                                                                                                         400
          800                           326                       332
                   306                                                                                   350
          700
                                                                                                         300
          600
                                                                                                         250
LE mn




          500
                                                                                                               LE




                                                                                                         200
          400
                                                                                                         150
          300
                                        540.2                     656.4                     906.3        100
          200     421.0
          100                                                                                            50
           0                                                                                             0
                  2005                  2006                   2007                        2008
                             Total Sales Value       Average price per ton (right scale)
Source: Sinai Cement Company and Global Research




July 2009                                   Egypt Cement Sector                                                   
Global Research - Egypt                                                                   Global Investment House


The government’s plan to reduce the subsidy bill through cutting the energy subsidies for the
energy intensive industries, including the cement, implemented since mid 2007, has raised
the Company’s cash cost of production by 58.0% in 2008, reaching LE153/ton from LE97/
ton in 2007. It is worth mentioning that cash cost of production is calculated by excluding
depreciation expense from cost of sales.

Chart 71: Sinai Cement average selling price and cash cost of production
        450                                     72.5%                                                      80.0%
                        72.1%                                            70.9%
        400                                                                                382
                                                                                                           70.0%
        350                               326                      332
                  306                                                                             60.1%    60.0%
        300
                                                                                                           50.0%
        250
LE




                                                                                                           40.0%
        200
                                                                                                   153     30.0%
        150
                           85                     89                       97                              20.0%
        100
         50                                                                                                10.0%
          -                                                                                                0.0%
                    2005                     2006                     2007                      2008
                                 Average price per ton        Cash cost per ton        Spread

Source: Sinai Cement Company and Global Research


Consequently, COGS soared by almost 90% in 2008, from LE191.1mn in 2007 to LE362.0mn
in 2008. This increase in COGS out-weighted the growth in sales, leading to an escalation in
the COGS/Sales ratio from 29.1% in 2007 to 39.9% in 2008.

Chart 72: Sinai Cement Cost of Goods Sold (COGS)
        400                                                                                                 100%
                                                                                                 362
        350
                                                                                                  89.5%     80%
        300
        250                                                                                                 60%
LE mn




                                                                         191
        200
                                                159                                               39.9%
                        142                                                                                 40%
        150                                                              29.1%
        100              33.6%
                                                 29.5%                                                      20%
         50              2.6%                                             20.1%
                                                  12.4%
              -                                                                                             0%
                        2005                    2006                     2007                    2008
                                   COGS                Growth in COGS             COGS/Sales
Source: Sinai Cement Company and Global Research


Although the S,G&A declined as a percent of sales from 12.8% in 2007 to 7.6% in 2008, the
EBITDA margin decreased from 58.1% in 2007 to 52.5% in 2008, as the hike witnessed in
the COGS outpaced the growth in the sales and the decline in the S,G&A.




                                                Egypt Cement Sector                                     July 2009
Global Research - Egypt                                                      Global Investment House


Chart 73: Sinai Cement EBITDA
        500                                                                                     65%
        450                               60.3%
        400                                                                                     60%
                                                                     58.1%
        350     54.6%
        300                                                                                     55%
LE mn




        250                                                                             52.5%
        200                                                                                     50%
        150
        100                                                                                     45%
         50
                  230                   326                    381                475
          -                                                                                     40%
                 2005                  2006                2007                  2008
                                       EBITDA          EBITDA Margin
Source: Sinai Cement Company and Global Research


Sinai Cement Company enjoys a10 year tax exemption according to Law no. 8 of year 1997.
The tax holiday started in 2002 and will end in 2011. It is worth mentioning that the Company
paid LE0.32mn in 2008, representing the 20% taxes on the interest income, which is not
included in the tax holiday.

The Company has incurred LE20mn, reported as extraordinary item in 2008, as a result of the
court’s decision for committing anti-competitive practice during the period from May 2005
to the end of 2006. In turn, the Company’s Return on Sales (ROS) declined from 52.0% in
2007 to 45.7% in 2008.

Chart 74: Sinai Cement Net Profit
        450                           53.1%                                                     60%
                                                            52.0%
        400
                                                                                 45.7%          50%
        350     43.2%

        300                                                                                     40%
LE mn




        250
                                                                                                30%
        200                                                                       414
                                                               342
        150                            287                                                      20%
        100      182
                                                                                                10%
        50
          -                                                                                     0%
                2005                  2006                  2007                 2008
                                       Net profit       Return on Sales
Source: Sinai Cement Company and Global Research


Balance Sheet Analysis

In 2008, the Company’s total assets grew by 29.9%, reaching LE1.8bn, compared to LE1.4bn
in 2007. The Company’s asset structure is dominated by the long term assets, which include
fixed assets and projects under construction. The long term assets increased from LE672.0mn
in 2006 to LE1.2bn and LE1.4bn in 2007 and 2008, respectively, as the Company established
a second production line, which was contracted in August 2006, to double its cement annual
production capacity from 1.5mn ton to 3mn ton. The remaining cost to complete the second
line is estimated to be LE150-160mn, based on the Company’s management guidance.

Sinai Cement Company’s investments, which constituted 5.9% of total assets, grew from
LE80.2mn in 2007 to LE103.1mn in 2008, up by 28.5%. It is worth mentioning that the



July 2009                                Egypt Cement Sector                                      9
Global Research - Egypt                                                          Global Investment House


Company holds a stake of 25.4% in Sinai White Cement Company. In addition, the Company’s
Board of Directors (BOD) approved on December 2007, the establishment of Sinai Cement
Services Company, with an authorized capital of LE250mn and issued capital of LE25mn.
Sinai Cement will hold a 99.96% stake in the new company. It is worth mentioning that Sinai
Cement paid 50% of Sinai Cement Services’ capital, as of the end of first quarter of 2009.

Chart 75: Sinai Cement Assets Composition
100%             4.8%                   5.6%                        5.9%                 5.9%
 90%
 80%
 70%
 60%                                    68.8%
                77.6%                                                                    77.9%
 50%                                                               85.0%
 40%
 30%
                                        7.5%
 20%
                 8.7%                                                                    9.5%
 10%                                    18.1%                     7.7%
                 8.8%                                             1.4%                   6.7%
  0%
                2005                    2006                     2007                     2008
                    Cash & Equivalent      Other assets       Long-term Assets     Investments

Source: Sinai Cement Company and Global Research


On the other hand, the Company’s funding structure was dominated by the equity, as the
Company is free of debt. The shareholders equity accounted for 88.0% of the Company’s
total assets in 2008, reaching LE1.5bn in 2008, compared to LE1.2bn in 2007, up by 29.5%.

In addition, the Company’s other liabilities rose from LE159.4mn in 2007 to LE211.6mn in
2008, up by 32.8%. The accrued expenses have contributed significantly to this increase, as
the Company accrued LE20mn fine for conducting anticompetitive practice.



Chart 76: Sinai Cement Liabilities and Shareholders’ Equity
100%             6.3%                   6.5%
                                                                   11.8%                 12.0%
 90%
 80%
 70%
 60%
 50%            93.7%                   93.5%                      88.2%                 88.0%
 40%
 30%
 20%
 10%
  0%
                 2005                   2006                        2007                 2008
                                           Equity         Other liabilities
Source: Sinai Cement Company and Global Research


Q1 2009

Sinai Cement local sales volume reached 893,102 ton in the first quarter of 2009, compared
to 458,644 ton in the first quarter of 2008, growing by 94.7% Y-o-Y. This came on the back
of the commencement of the Company’s second production line, which raised the annual
production capacity from 1.5mn ton to 3mn ton. Additionally, the ongoing growth in the local
cement demand during the first quarter of 2009 has supported the local sales volume of Sinai



0                                       Egypt Cement Sector                                     July 2009
Global Research - Egypt                                                            Global Investment House


Cement Company. It is worth mentioning that the Company didn’t export cement during the
first quarter of 2009, compared to 31,233 ton exported in the first quarter of 2008.

Chart 77: Sinai Cement Q1 Sales Value
        400                                                                                         120%
        350                                                                                108.5%
                                                                                                    100%
        300
                                                                                                    80%
        250
LE mn




        200                                                                                         60%
                43.4%
        150
                                      30.3%                                                         40%
        100                                                    19.5%
                                                                                                    20%
         50
                   115                    150                   179                   373
          -                                                                                         0%
               Q1 2006               Q1 2007                  Q1 2008                Q1 2009
                                          Total Sales Value        Growth

Source: Sinai Cement Company and Global Research


Furthermore, the Company’s average selling prices increased by 9.1% during the first quarter
of 2009, reaching LE418/ton, compared to the average selling price in 2008. Accordingly, the
total sales value mounted by 108.5% during the first quarter of 2009, reaching LE372.7mn up
from LE178.8mn reported in the same period the previous year.

Chart 78: Sinai Cement Selected Income Statement Items in Q1
        200                                                     61.8%                               70%
                58.7%                 60.0%
        180
                                                                                                    60%
        160
                                                                                       47.2%
        140                                                                                         50%
        120                                                                            47.7%        40%
LE mn




        100
         80                                                                                         30%
                29.5%                 30.4%                     30.2%
         60                                                                                         20%
         40
                                                                                                    10%
         20
              34         67          45         90            54      110            178    176
          -                                                                                         0%
               Q1 2006               Q1 2007                   Q1 2008                Q1 2009
                              COGS    EBITDA             COGS/Sales         EBITDA Margin

Source: Sinai Cement Company and Global Research


Moreover, Sinai Cement Company’s cash cost per ton soared in the first quarter of 2009
by 9.6%, reaching LE199/ton from LE182/ton in 2008. The COGS/Sales ratio rose from
30.2% in the first quarter of 2008 to 47.7% in the first quarter of 2009. On the other hand, the
S,G&A/Sales ratio declined from 8.0% to 5.0% during the comparable periods.

The rise in the production cost has negatively impacted the Company’s EBITDA margin,
which decreased from 61.8% in the first quarter of 2008 to 47.2% in the first quarter of
2009. Similarly, the net profit margin declined from 54.4% to 42.3% between the comparable
periods.




July 2009                                   Egypt Cement Sector                                           
Global Research - Egypt                                                                                    Global Investment House


Table 19: Sinai Cement Q1 Income Statement
 LE000                                                                              Q1 2008               Q1 2009                Change%
 Sales                                                                              178,784                372,717                 108.5%
 COGS                                                                               (53,964)             (177,907)                 229.7%
 S,G&A                                                                              (14,339)              (18,799)                  31.1%
 EBITDA                                                                             110,481                176,011                  59.3%
 Depreciation                                                                        (8,882)              (17,522)                  97.3%
 EBIT                                                                               101,599                158,489                  56.0%
 Interest Income                                                                           0                  2,652                      -
 Investment Income                                                                         0                      0                      -
 Interest Expense                                                                          0                      0                      -
 Other Provisions                                                                    (3,454)                (4,695)                 35.9%
 Other Non-Operating Income\(Expense)                                                (1,177)                  1,220                203.7%
 NPBT                                                                                 96,968               157,666                  62.6%
 Income Tax                                                                                0                      0                      -
 NPAT                                                                                 96,968               157,666                  62.6%
 Capital Gain/Loss                                                                       290                      0               -100.0%
 Other Extraordinary Items                                                                 0                      0                      -
 NPAUI                                                                                97,258               157,666                  62.1%
 Minority Interest                                                                         0                      0                      -
 Net Profit/(Loss)                                                                    97,258               157,666                  62.1%
Source: Sinai Cement Company and Global Research


Financial Forecast

Based on our cement market forecast, Sinai Cement Company is expected to operate at a utilization
rate of 120% in 2009, on the back of high local demand. Then, the utilization rate will decline to
118%, as we assumed that local cement demand will grow at a slower rate in 2010 and 2011.

Chart 79: Sinai Cement forecasted capacity, utilization rate, local & export sales volume
         4.0                                                                                                                        130%
                     3.5
                                              3.3                    3.2                    3.3
         3.5                                                                                                              125%
                                                                                               123%                                 125%
         3.0                                                         121%
                     120%
                                              118%                                                                                  120%
         2.5
Ton mn




         2.0                                                                                                                        115%
                                                                                                                    3.6
         1.5   3.0                      3.0                    3.0                    3.0                     3.0
                                                                                                                                    110%
         1.0
                                                                            0.5                    0.4                              105%
         0.5                                         0.2
                            0.1                                                                                            0.1
         0.0                                                                                                                        100%
                     2009                     2010                   2011                   2012                    2013
                                  Capacity            Local sales           Export Sales            Utilization rate

Source: Global Research


However, we assumed that Sinai will increase its utilization rate to 121% in 2011, as the
company will allocate a larger proportion of its production to the export markets. Afterwards,
utilization rate is expected to rebound gradually, to reach 125% in 2013, as local demand growth
is forecasted to increase.

Moreover, we assumed that average price per ton during 2009 will follow cement consumption
pattern, declining by around 5% in 2010, then increasing gradually to reach almost LE450/
ton by 2013.


2                                                         Egypt Cement Sector                                                    July 2009
Global Research - Egypt                                                                           Global Investment House


Chart 80: Sinai Cement forecasted sales value and average price
        1,700                                                                                                         460
        1,650                                                                                                 447     450
        1,600                                                                                                         440
        1,550                                                                              429                        430
                       418
                                                                413
LE mn




        1,500                                                                                                         420




                                                                                                                            LE
        1,450                                                                                          1,677          410
                                            399
                                                                                    1,582
        1,400                                                                                                         400
                      1,504                                   1,500
        1,350                                                                                                         390
                                        1,411
        1,300                                                                                                         380
        1,250                                                                                                         370
                      2009               2010                 2011                  2012               2013
                                        Sales value             Average price/ton (Right scale)
Source: Global Research


With respect to cash cost of production, we assumed a growth rate of 30.5% in 2009, in order to
reflect the government decision to increase energy prices. Afterwards, cash cost of production is
forecasted to increase on average by 2% annually, assuming no further government intervention,
such as increasing energy prices and/or imposing any additional duties on cement manufacturers.

Chart 81: Sinai Cement forecasted average selling price and cash cost of production
        500                                                                                                           65%
                  60.1%                                                                                447
        450                     418                                                   429                             60%
                                                                      413
                                                  399
        400     382
                                                                                                                      55%
                                                                                             51.0%           52.0%
        350                           52.3%
                                                                            50.0%
                                                        49.0%                                                         50%
LE




        300
                                                                                                                      45%
        250
                                                        203                 207             210              215
                                      199                                                                             40%
        200
                      153
        150                                                                                                           35%

        100                                                                                                           30%
                 2008            2009                2010              2011             2012             2013
                                  Average price/ton               Cash cost/ton             Spread

Source: Global Research


Consequently, COGS/Sales ratio is forecasted to increase in 2010, as the selling price is
expected to decline, whereas cash cost of production is not foreseen to decrease, based on
our estimates. Nevertheless, COGS/Sales ratio is estimated to decline gradually starting from
2011 till it reaches 2009 levels in 2013, as the selling price will rebound at a higher rate than
the growth in cash cost of production.

Chart 82: Sinai Cement forecasted cost of sales and COGS/Sales ratio
        820                                  51.0%                50.0%                                               52%
                                                                                                        805
        800
                        47.7%                                                          49.0%                          50%
        780
                                                                750                                           48.0%   48%
        760                                                                          775
LE mn




        740                                                                                                           46%
                      718                720
        720
                                                                                                                      44%
        700
                                                                                                                      42%
        680
        660                                                                                                           40%
                  2009                  2010                  2011                  2012               2013
                                                      COGS             COGS/Sales
Source: Global Research


July 2009                                         Egypt Cement Sector                                                       
Global Research - Egypt                                                      Global Investment House


Furthermore, we assumed that the S,G&A will increase annually by 10% from 2008 levels.
Therefore, S,G&A/Sales is expected to increase marginally throughout our forecast horizon,
as the percentage increase in S,G&A will outpace the increase in sales. Accordingly,
EBITDA Margin is forecasted to decline in 2010, as a result of the increase in COGS/Sales
and S,G&A/Sales, then improving gradually over the next years.

Chart 83: Sinai Cement forecasted EBITDA and EBITDA margin
        800   47.2%                                                                            48%
        700                                                                                    47%
        600    710                                                                  45.4%      46%
                                                                    44.6%
        500                  43.1%                                                             45%
                                                 43.9%
LE mn




        400                                                                        761         44%
        300                                                                                    43%
                              608                658
        200                                                          706                       42%
        100                                                                                    41%
          -                                                                                    40%
               2009          2010                2011                2012         2013
                                     EBITDA              EBITDA margin
Source: Global Research


Net profit as a percent of sales is expected to follow a similar pattern like EBITDA margin
from 2009 to 2011, for the same reasons mentioned above. However, net profit margin will
be lower than EBITDA margin, mainly due to the expected increase in depreciation expense,
resulting from depreciating the new production line.

Starting from 2012, Sinai Cement will start to pay 20% taxes, as its tax exemption period will
end in 2011. Therefore, ROS will drop in 2012. It is worth mentioning that we assumed a tax
rate of 20% on interest income during the tax exemption period, according to the Egyptian tax
law, which exempts only operating income from taxes throughout the tax holiday period.

Chart 84: Sinai Cement forecasted net profit and ROS
        700   42.8%                                                                            44%
        600                                                                       538          42%

        500                                      37.7%                                         40%
        400                  36.5%                                                             38%
              644
LE mn




                                                                     493
        300                                                                                    36%
        200                                      565                                           34%
                             514                                                   32.1%
                                                                     31.1%
        100                                                                                    32%
          -                                                                                    30%
              2009          2010                 2011               2012          2013
                                     Net profit           Return on Sales
Source: Global Research




                                     Egypt Cement Sector                                  July 2009
Global Research - Egypt                                                  Global Investment House



Valuation
Discounted Cash Flow (DCF)

Based on our valuation assumption stated earlier under valuation and recommendation section
and out projected Free Cash Flow to Firm (FCFF), shown below, we reached a fair value of
LE108.3/share using DCF method, implying 50.4% upside potential from the current market
price of LE71.98/share, as of June 30th, 2009.

Table 20: Sinai Cement DCF valuation
(Values in 000)                              2009F      2010F       2011F        2012F     2013F
Free Cash Flow                              509,412    570,416     619,473      548,946   591,968
Terminal Value                 3,586,627
Discounted Cash Flow                        465,143    434,038     392,806      290,071   260,670
PV of Terminal Value           1,579,352
Enterprise Value               3,422,080
Cash                             368,015
Debt                                   -
Equity value                   3,790,095
No. of Shares                     35,000
Fair Value (LE)                    108.3
Source: Global Research


Sensitivity Analysis

We provide below a sensitivity analysis table, which shows the probable values given
different growth rate assumption and WACC. The shaded area represents the most probable
outcome.

Table 21: Sensitivity Analysis
                                                              Terminal Growth
                                              1.0%          2.0%      3.0%        4.0%      5.0%
                                 18.0%        112.9         116.4     120.3       124.8     130.0
                                 19.0%        107.5         110.5     113.9       117.8     122.1
            WACC                 20.0%        102.8         105.4     108.3       111.6     115.3
                                 21.0%         98.4         100.7     103.3       106.1     109.3
                                 22.0%         94.6          96.6      98.8       101.2     104.0
Source: Global Research


Relative Valuation

Using the Weighted average EV/EBITDA of 6.82x for the cement sector in the region,
calculated earlier under the valuation and recommendation section, we reached a fair value
of LE103.1/share using relative valuation method, implying 43.2% upside potential from the
current market price of LE71.98/share, as of June 30th, 2009.

Based on the fact that relative valuation is being highly influenced by the market prices of the
comparable companies, a 20% weight was assigned for EV/EBITDA and 80% to the DCF.



July 2009                             Egypt Cement Sector                                      
Global Research - Egypt                                             Global Investment House


Table 22: Sinai Cement weighted average fair value
                                                   Fair Value/                  Weighted
Valuation approach                                 share (LE)       Weight     Value (LE)
DCF Valuation                                            108.3        80%             86.6
Relative valuation                                       103.1        20%             20.6
Weighted average fair value                                                         107.3
Current market price (LE)*                                                          71.98
Upside/(Downside) potential                                                        49.0%
*Price as of June 22nd, 2009
Source: Global Research


Combining both methods resulted in a fair value of LE107.3/share, compared to the current
market price of LE71.98/share, implying an upside potential of 49.0% over the market
price. Therefore, we initiated our coverage for Sinai Cement Company with a “BUY”
recommendation.




                                 Egypt Cement Sector                            July 2009
                      BALANCE SHEET
                                                                                                              Sinai Cement
                                                                                       Actual                                           Projected
                      (in LE 000s)                                          2005      2006          2007        2008     2009 (F)    2010 (F)     2011 (F)    2012 (F)
                      Assets
                      Operating Cash                                        6,544     7,562        18,110      16,820      27,906      26,191       27,841      29,365
                      Excess Cash                                          57,067   169,440           748     100,662      73,754     182,338      297,592     409,656
                      Net Accounts Receivables                             11,129     6,103         6,460      20,750      34,553      35,090       36,562      37,784




July 2009
                      Inventory                                            34,741    39,056        52,916      78,436     104,070     109,040      115,135     119,012
                      Dues From HC’s & Affiliates                           1,146       321           170      15,620      15,620      15,620       15,620      15,620
                      Other Current Assets                                 15,626    27,509        44,313      52,976      61,006      62,977       67,506      69,779
                      Total Current Assets                                126,254   249,991       122,716     285,265     316,909     431,256      560,254     681,217
                                                                                                                                                                         Global Research - Egypt




                      Deferred tax asset                                        -         -             -           -           -           -            -           -
                      Subsidiaries & Other Long Term Investments           34,604    54,855        80,213     103,069     113,064     113,064      113,064     113,064
                      Other long term assets                                    -         -             -           -           -           -            -           -
                      Intangibles                                               -         -             -           -           -           -            -           -
                      Projects Under Implementation                         7,362   144,681       634,897     878,194      22,555      10,780        8,282       4,928
                      Gross Fixed Assets :                                713,101   725,519       751,924     764,451   1,804,881   1,846,076    1,879,730   1,915,850
                      Less : Acc. Depreciation                            162,308   198,222       235,374     271,340     335,548     426,787      519,896     614,749
                      Net Fixed Assets                                    550,793   527,297       516,550     493,112   1,469,332   1,419,289    1,359,834   1,301,101
                      Total Assets                                        719,013   976,824     1,354,376   1,759,639   1,921,860   1,974,388    2,041,434   2,100,310
                      Liabilities & Shareholder’s Equity
                      Short Term Debt                                           -         -         4,622           -           -           -            -           -
                      CPLTD                                                     -         -             -           -           -           -            -           -




Egypt Cement Sector
                      Accounts Payable                                     18,873    24,550        48,260      34,281      50,241      49,662       51,754      52,722
                      Accrued expenses                                      8,147     8,858        10,392      36,881      53,829      53,261       55,505      56,599
                      Down payments                                         8,133    11,679        18,574      32,463      48,868      45,866       48,754      50,633
                      Dividends payable                                         9         9             9           9           -           -            -           -
                      Dues To HC’s & Affiliates                                 -         -             -           -           -           -            -           -
                      Other Current Liabilities                             2,141     5,980        60,832      79,419      84,332      86,368       86,257      88,387
                      Total Current Liabilities                            37,303    51,077       142,688     183,054     237,271     235,157      242,270     248,341
                      Total Long Term Debt                                      -         -             -           -           -           -            -           -
                      Provisions For Deferred Taxes                             -         -             -           -           -           -            -           -
                      Other Provisions                                      1,978     9,521        15,592      17,567      20,724      23,688       26,838      30,161
                      Other Non-Current Liabilities                         5,787     3,055         1,082      11,000           -           -            -           -
                      Minority interest                                         -         -             -           -           -           -            -           -
                                                                                                                                                                         Global Investment House





                      Total Liabilities                                    45,069    63,653       159,362     211,621     257,995     258,844      269,109     278,502
                      Net Paid-In Capital                                 350,000   350,000       350,000     350,000     700,000     700,000      700,000     700,000
                      Additional paid-in capital                           50,000    50,000             -           -           -           -            -           -
                      Legal & Statutory Reserves                            8,128    17,221        81,561      98,638     130,830     156,552      184,814     209,442
                      General & Other Reserves                             29,359    29,359        29,359      29,359      29,359      29,359       29,359      29,359
                      Retained Earnings                                   236,457   466,591       734,093   1,070,021     803,675     829,632      858,152     883,006
                      Shareholders’ Equity                                673,944   913,171     1,195,014   1,548,018   1,663,864   1,715,544    1,772,325   1,821,807
                      Total Liabilities & Shareholders’ Equity            719,013   976,824     1,354,376   1,759,639   1,921,860   1,974,388    2,041,434   2,100,310
                      Source: Sinai Cement financials & Global Research

                      INCOME STATEMENT
                                                                                                                    Sinai Cement
                                                                                              Actual                                             Projected
                      (in LE 000s)                                              2005         2006          2007         2008    2009 (F)     2010 (F)       2011 (F)     2012 (F)
                      Revenues from Operation                               421,049      540,230       656,364      906,316    1,503,641    1,411,250      1,500,127    1,582,296
                      COGS                                                (141,607)    (159,123)     (191,054)    (361,960)    (717,723)    (719,737)      (750,063)    (775,325)
                      S. , G. & Adm. Expenses                              (49,552)     (55,117)      (84,197)     (68,876)     (75,763)     (83,339)       (91,673)    (100,841)
                                                                                                                                                                                     Global Research - Egypt




                      EBITDA                                                229,890      325,990       381,113      475,480      710,155      608,173        658,390      706,130
                      Depreciation & Amortization                          (36,471)     (36,084)      (37,389)     (37,895)     (64,209)     (91,239)       (93,109)     (94,853)
                      Operating Profit -EBIT                                193,419      289,906       343,724      437,585      645,947      516,934        565,281      611,278
                      Interest Income                                          3,226        5,452         5,670        1,583        3,143        2,303          5,694        9,293
                      Investment Income                                        6,018             -            -            -            -            -              -            -
                      Interest Expense                                     (18,113)              -            -            -            -            -              -            -
                      Other Provisions                                         (864)      (7,758)       (6,274)      (4,367)      (3,158)      (2,964)        (3,150)      (3,323)
                      Other Non-Operating Income/(expense)                   (1,925)        (783)       (1,664)        (882)      (1,463)      (1,373)        (1,459)      (1,539)
                      NPBT                                                  181,761      286,817       341,458      433,919      644,469      514,901        566,365      615,708
                      Income Tax                                                   -             -            -        (317)        (629)        (461)        (1,139)   (123,142)
                      NPAT                                                  181,761      286,817       341,458      433,602      643,841      514,440        565,226      492,566




Egypt Cement Sector
                      Capital Gain/Loss                                           93           (6)           82          529            -            -              -            -
                      Extraordinary items                                          -             -            -    (20,000)             -            -              -            -
                      NPAUI                                                 181,854      286,811       341,539      434,131      643,841      514,440        565,226      492,566
                      Minority Interest                                            -             -            -            -            -            -              -            -
                      Net Profit/ (loss)                                    181,854      286,811       341,539      434,131      643,841      514,440        565,226      492,566
                      Source: Sinai Cement financials & Global Research
                                                                                                                                                                                     Global Investment House




July 2009
                      CASH FLOW STATEMENT
                                                                                                                     Sinai Cement
                                                                                             Actual                                                Projected
                      (in LE 000s)                                             2005        2006           2007         2008       2009 (F)     2010 (F)        2011 (F)    2012 (F)
                      Net Income                                            181,854     286,811        341,539      434,131        643,841      514,440         565,226     492,566
                      Depreciation & Amortization                            36,471       36,084         37,389       37,895        64,209       91,239          93,109      94,853




July 2009
                      Non-operating items                                      1,925         783          1,664          882          1,463        1,373           1,459       1,539
                      Provision                                                  864       7,758          6,274        4,367          3,158        2,964           3,150       3,323
                      Investment Income                                      (6,018)           -              -            -              -            -               -           -
                      Interest Income                                        (3,226)     (5,452)        (5,670)      (1,583)        (3,143)      (2,303)         (5,694)     (9,293)
                      Interest expense                                       18,113            -              -            -              -            -               -           -
                                                                                                                                                                                       Global Research - Egypt




                      Capital loss/ (gain)                                      (93)           6           (82)        (529)              -            -               -           -
                      Extra ordinary items                                         -           -              -       20,000              -            -               -           -
                      Operating profit before working capital changes       229,890     325,990        381,113      495,163        709,527      607,712         657,251     582,989
                      (Increase)/decrease in receivables                       2,742       5,026          (357)     (14,290)      (13,802)         (537)         (1,472)     (1,222)
                      (Increase)/decrease in inventory                       (4,873)     (4,315)       (13,860)     (25,520)      (25,634)       (4,970)         (6,095)     (3,878)
                      (Increase)/decrease in other current assets            10,514     (11,058)       (16,652)     (24,114)        (8,030)      (1,971)         (4,529)     (2,274)
                      increase/(decrease) in payables                          8,836       5,677         23,710     (13,978)        15,959         (579)           2,092         968
                      increase/(decrease) in accrued expenses                  1,830         711          1,533       26,489        16,948         (569)           2,244       1,094
                      increase/(decrease) in down payments                     1,940       3,546          6,895       13,889        16,405       (3,003)           2,889       1,879
                      increase/(decrease) in other current liabilities         (327)       3,839         54,852       18,588          4,913        2,036           (111)       2,130
                      Cash flow from operating activities                   250,551     329,417        437,234      476,226        716,286      598,120         652,270     581,687




Egypt Cement Sector
                         Receipts from extraordinary items                   (1,925)       (783)        (1,664)     (20,882)        (1,463)      (1,373)         (1,459)     (1,539)
                      Net cash provided by operating activities             248,627     328,634        435,571      455,345        714,823      596,747         650,811     580,147

                      (Increase)/decrease Fixed assets                      (35,600)    (12,595)       (26,559)     (13,928)    (1,040,429)     (41,195)        (33,654)    (36,120)
                      (Increase)/decrease Projects under implementation        7,188   (137,319)      (490,216)    (243,297)        855,639       11,775           2,497       3,354
                      (Increase)/decrease Investments                       (10,081)   (132,623)        143,334    (122,770)         16,913    (108,584)       (115,254)   (112,064)
                      Other long-term Assets                                       -           -               -           -               -           -               -           -
                      Interest income                                          3,226       5,452           5,670       1,583           3,143       2,303           5,694       9,293
                      Provision                                                (864)     (7,758)         (6,274)     (4,367)         (3,158)     (2,964)         (3,150)     (3,323)
                      Cash flow from Investing activities                   (36,131)   (284,843)      (374,045)    (382,779)      (167,891)    (138,665)       (143,867)   (138,861)

                      Increase/(decrease) in shareholders’ equity             13,570     (3,834)       (15,947)      321,373     (125,495)      (25,487)        (28,003)    (24,403)
                      Increase/(decrease) in long & short term borrowing   (162,122)           -          4,622       (4,622)            -             -               -           -
                                                                                                                                                                                       Global Investment House




9
                      Increase/(decrease) in other long-term liabilities     (2,397)       4,811          4,098       11,893       (7,842)         2,964           3,150       3,323
                      Interest expense                                      (18,113)           -              -             -            -             -               -           -
                      Dividends paid                                        (47,584)    (43,750)       (43,750)    (402,500)     (402,509)     (437,274)       (480,442)   (418,681)
                      Cash flow from Financing activities                  (216,646)    (42,773)       (50,977)     (73,855)     (535,846)     (459,797)       (505,295)   (439,762)
                      Net cash flow                                          (4,150)       1,018         10,548       (1,290)       11,086       (1,715)           1,649       1,525
                      Cash at the beginning of the year                       10,694       6,544          7,562       18,110        16,820        27,906          26,191      27,841
                      Cash at the end of the year                              6,544       7,562         18,110       16,820        27,906        26,191          27,841      29,365
                      Source: Sinai Cement financials & Global Research
                      FACT SHEET
                                                                                                                                                Sinai Cement




0
                                                                                                                Actual                                                          Projected
                                                                                             2005              2006              2007              2008         2009 (F)     2010 (F)     2011 (F)    2012 (F)
                      Profitability
                        Gross Profit Margin                                                 66.4%            70.5%             70.9%             60.1%             52.3%       49.0%        50.0%       51.0%
                        Operating Margin                                                    45.9%            53.7%             52.4%             48.3%             43.0%       36.6%        37.7%       38.6%
                        Net Profit Margin                                                   43.2%            53.1%             52.0%             47.9%             42.8%       36.5%        37.7%       31.1%
                                                                                                                                                                                                                 Global Research - Egypt




                        Turnover ratios
                        Inventory turnover                                                    4.08             4.07              3.61              4.61              6.90       6.60          6.51       6.51
                        Receivables turnover                                                 37.83            88.51           101.60              43.68             43.52      40.22         41.03      41.88
                        Payables turnover                                                     7.50             6.48              3.96             10.56             14.29      14.49         14.49      14.71
                        Net working capital turnover                                          4.73             2.72           (32.86)              8.87             18.88       7.20          4.72       3.66
                        GFA turnover                                                          0.59             0.74              0.87              1.19              0.83       0.76          0.80       0.83
                        NFA turnover                                                          0.76             1.02              1.27              1.84              1.02       0.99          1.10       1.22
                        Asset turnover                                                        0.59             0.55              0.48              0.52              0.78       0.71          0.73       0.75
                      Leverage Ratios
                        Debt/Total Assets                                                    0.0%              0.0%             0.3%              0.0%              0.0%        0.0%         0.0%        0.0%
                        Debt/Equity                                                              -                 -            0.004                 -                 -           -            -           -
                        Interest coverage                                                     10.7                 -                -                 -                 -           -            -           -




Egypt Cement Sector
                      Return Ratios
                        Return on average assets                                            25.2%            33.8%             29.3%             27.9%            35.0%        26.4%        28.1%       23.8%
                        Return on average equity                                            30.3%            36.1%             32.4%             31.7%            40.1%        30.4%        32.4%       27.4%
                        Return on invested capital                                          31.1%            49.1%             49.0%             38.5%           47.01%        34.5%        39.1%       35.3%
                        Valuation Ratios
                        Number of Shares (000)                                             35,000           35,000            35,000            35,000            70,000       70,000       70,000      70,000
                        Market Cap as at year end (LE000)                               1,702,750        2,024,400         2,443,000         1,211,700         5,038,600    5,038,600    5,038,600   5,038,600
                        Market Price (LE)                                                    48.7            57.84             69.80              34.6              72.0         72.0         72.0        72.0
                        Dividend announced (LE000)                                         35,000           43,750            43,750            52,500           402,500      437,274      480,442     418,681
                        Dividend yield                                                      2.1%             2.2%              1.8%              4.3%              8.0%         8.7%         9.5%        8.3%
                        Dividend payout ratio                                              19.2%            15.3%             12.8%             12.1%             62.5%        85.0%        85.0%       85.0%
                        Earnings per share (LE)                                              5.20             8.19              9.76             12.40              9.20         7.35         8.07        7.04
                                                                                                                                                                                                                 Global Investment House




July 2009
                        Price to Earnings (times)                                            9.36             7.06              7.15              2.79              7.83         9.79         8.91       10.23
                        EV/EBIDTA (times)                                                    7.16             5.69              6.42              2.34              3.19         3.72         3.44        3.21
                        Price to book value (times)                                          3.74             2.76              2.11              1.63              1.51         1.47         1.42        1.38
                      Historical multiples are based on respective year-end prices, while that for future years are based on current market prices as of June 30th, 2009.
                      Source: Sinai Cement financials & Global Research
Global Research - Egypt                                                Global Investment House



                            Misr Cement Qena
Tickers:
MCQE.CA (Reuters)
MCQE:EY (Bloomberg)
Listing:                                                                   July, 2009
The Egyptian Exchange (EGX)
Fair Value:
                                                                          BUY
LE91.3
CMP:
LE78.0 (As of June 30th, 2009)

Key Data                                      Company Background
Market Cap. (LEmn) #                 2,340
                                              Misr Cement Qena was established in 1997, as an
EPS (LE)*                             11.4
                                              Egyptian Joint Stock Company. The Company
BVPS (LE)*                            22.6
                                              operates under Law No. 159 of year 1981 and its
P/E*                                    6.9
                                              executive regulations. The Company also enjoys
P/BV*                                   3.5
                                              the tax exemption benefits of Law No. 8 of year
12M Avg. vol.                      11,308
                                              1997. Misr Cement Qena Company mainly
52 week Low/High (LE)            60.5/91.3
Source: Global Research
                                              produces grey cement and its related products.
# As of June 30th, 2009                       Misr Cement Qena Company is listed on the
* 2009 projected EPS & BV
                                              Egyptian Exchange (EGX) since May 2000.
The Company’s cement plant is located in Qena governorate and it started production in
April 2002, with a production capacity of 1.5mn ton. Misr Cement Qena holds a 20% stake
in South Upper Egypt Company, which is specialized in the production of cement bags.

On August 2008, Misr Cement Qena Company was fined LE20mn for conducting anti-
competitive practice during the period from May 2005 to the end of 2006. The Company and
other local cement producers were accused of forming a cartel to manipulate local cement
prices and dividing market shares among them.

Management

On March 2009, Misr Cement Qena Company’s Board of Directors (BoD) was elected,
where Mr. Mahmoud Hassan was reelected to chair the Company’s Board.




July 2009                          Egypt Cement Sector                                     
Global Research - Egypt                                                            Global Investment House


Table 23: Misr Cement Qena Board Members
Mahmoud Hassan            Chairman and Managing Director
Adel Fatouh               Board Member & representing Misr Insurance & Al Shark Insurance companies
Amr El Gawhary            Board Member & representing the Egyptian Investment Projects Company
Mohamed Sultan            Board Member & representing Egyptian Kuwaiti Investment Company
Giorgio Bodo              Board Member & representing Asec Cement Company
Roshdi Eskander           Board Member & representing Al Ahli Capital Holding
Souheir Mahmoud           Board Member & representing Misr Bank
Osama Abd ElWahab         Board Member & representing National Investment Bank
Mamdouh Mahmoud           Board Member & representing Misr Construction and Trading Company
Mohamed Naseem            Board Member
Mahmoud Suboh             Board Member
Mohamed Riziq             Board Member
Mahmoud Abd Allah         Board Member
Source: EGX


Misr Cement Qena Company current senior management is shown in the table below.

Table 24: Misr Cement Qena senior management
Mohamed Ismail              General Manager - Finance
Alaa Hassan                 General Manager – Cement Plant
Sabry Hassan                Manager – Administration
Ahmed Imam                  Manager – Finance (Cairo Branch)
Mahmoud Abd El Aziz         Manager – Finance (Main Branch)
Mahmoud Safwat              Manager – Production
Source: EGX


Shareholding and Liquidity

Misr Cement Qena Company’s authorized capital is LE600mn, while the issued and paid-
in capital is LE300mn, distributed over 30mn shares, with a par value of LE10/share. The
Company holds 122,000 shares, as treasury stock, representing 0.4% of the Company’s issued
shares, with total value of LE10.1mn, as of March 31st, 2009. It is worth mentioning that the
Company acquired the treasury shares at an average purchase price of LE83.05/share.

According to the Capital Market Authority law, companies hold treasury stock for more than one-
year period are obliged to resell these treasury shares in the market or write them off. Therefore,
Misr Cement Qena Company extraordinary general assembly meeting, held on March 22nd, 2009,
approved decreasing its issued and paid-in capital by LE1.22mn, through writing off 122,000 treasury
stock. The Company is currently performing the required procedures to write off its treasury stock.

Chart 85: Misr Cement Qena Shareholders Structure as of March 31st, 2009
                                                 Banks, 7.5%
                      Free Float, 15.5%

                     Others, 2.1%                           Misr Insurance, 20.1%




                                                               Al Ahli Capital Holding, 7.5%
               Asec Cement, 27.4%
                                                         Egyptian Kuwaiti Investment, 9.8%

                                             Egyptian Investment Projects, 10.0%
Source: EGID



2                                        Egypt Cement Sector                                    July 2009
Global Research - Egypt                                                                       Global Investment House


The Company’s shareholders structure is diversified between different companies, banks,
insurance and other companies, with a 15.5% of its shares is free floated in the market, as of
March 31st, 2009.

Table 25: Stock Liquidity
                                                                          2007                   2008          2009*
Average Daily Volume                                                    74,386                 22,430             860
Average Daily Turnover (LE000)                                           5,840                  1,714              67
Market Capitalization (LE000) **                                         2,208                  2,091           2,340
* Average daily volume and turnover for the period from January to June 2009.
** Market Capitalization is calculated on respective year-end prices and for 2009 as of June 30th, 2009.
Source: Mubasher and Global Research


Misr Cement Qena Company’s stock performance is considered relatively stable, when
compared to the EGX 30 index and the Building Materials index. The Company’s stock price
movement showed a steady pattern during the market peaks and dips.

Chart 86: Misr Cement Qena share price performance chart
  300

  250

  200

  150

  100

     50

      -
      -Ja 6
     -F 7
     -M 7
     -A 7
    -M 07
      -Ju 7
       -J 7
    -A 7
     -S 7
      -O 7
    -N 7
     -D 07
      -Ja 7
     -F 8
     -M 8
     -A 8
    -M 08
      -Ju 8
       -J 8
    -A 8
     -S 8
      -O 8
    -N 8
     -D 08
      -Ja 8
     -F 9
     -M 9
     -A 9
    -M 09
      -Ju 9
            09
  28 ec-0
  28 n-0
 28 eb-0
  28 ar-0


  28 ay-0
   28 n-0
 28 ul-0
  28 ug-0
  28 ep-0
 28 ct-0


  28 ec-0
  28 n-0
 28 eb-0
  28 ar-0


  28 ay-0
   28 n-0
 28 ul-0
  28 ug-0
  28 ep-0
 28 ct-0


  28 ec-0
  28 n-0
 28 eb-0
  28 ar-0


  28 ay-0
 28 pr-




 28 ov-




 28 pr-




 28 ov-




 28 pr-


         n-
     -D
28




                                    MCQE        EGX30 Index        Building Materials Index

Source: Mubasher, EGX and Global Research


Table 26: Misr Cement Qena at a glance
       CMP (LE)                  Shares in Issue (mn)           M-Cap (LE mn)     52-Week Hi/Lo (LE)
        78.00                             30                         2,340          91.25     60.50
           Gross Profit            Net Profit       EPS          BVPS      ROAE         P/E     P/BV
Year          (LE mn)               (LE mn)         (LE)           (LE)       (%)         (x)      (x)
2010 F         353,830               270,746         9.06         23.08    39.66%       8.61      3.39
2009 F         432,589               339,952       11.38          22.62    41.80%       6.86      3.46
2008 A         431,956               302,950       10.10          31.69    34.22%       7.72      2.46
2007 A         359,348               276,448         9.21         27.32    37.07%       7.99      2.86
Source: Global Research




July 2009                                     Egypt Cement Sector                                                 
Global Research - Egypt                                                                        Global Investment House



Financial Performance
Income Statement Analysis

Misr Cement Qena sales volume reached 2.0mn ton in 2008, compared to 1.8mn ton in 2007,
a Y-o-Y growth of 10.5%. This growth is mainly attributed to the local sales, where the local
sales volume grew from 1.2mn ton in 2007 to 1.6mn ton in 2008, up by 30.2%, reflecting the
surge witnessed in the local cement consumption.

Meanwhile the export sales volume declined by 30.0% between 2007 and 2008, on the back
of the Minister of Trade and Industry decision to ban cement exportation for a 6-month
period from March to October 2008.

During the period from 2004 to 2008, the Company’s total sales volume reported strong
growth, rising at a CAGR of 10.6%, as it reached 2.0mn tons in 2008 against 1.3mn tons
in 2004. The local sales volume grew at a CAGR of 9.8%, whereas the export sales volume
increased at a CAGR of 13.6% between 2004 and 2008.

Chart 87: Misr Cement Qena Sales Volume Breakdown
          2.5                                                                                                      12%
                                                                                                   10.5%
                                                                                                                   10%
          2.0
                       8.1%                                                                            0.4
                                                                                                                   8%
          1.5    0.5                                                      0.6
                                              0.6
Tons mn




                                                                                                                   6%
          1.0
                                                                                   4.4%                            4%
                 1.2                          1.1
          0.5                                                             1.2                          1.6
                                                                                                                   2%
                                                      1.8%
          0.0                                                                                                      0%
                2005                         2006                        2007                         2008
                              Local Sales        Export Sales           Growth in Total Sales Volume

Source: Misr Cement Qena Company and Global Research


In 2008, Misr Cement Qena Company’s average selling price was up by 17.2%, triggered by the
robust growth in the local cement demand. The increase in average selling prices along with the
rise in the sales volume, have resulted in the growth in the Company’s total sales value, reaching
LE773.3mn in 2008 up from LE597.3mn in 2007, achieving a growth rate of 29.5%. Between
2004 and 2008, the growth in Company’s total sales value has increased at a CAGR of 18.0%,
where local and export sales values grew at a CAGR of 76.9% and 23.1%, respectively.

Chart 88: Misr Cement Qena Sales Value and Average Price
          900                                                                                                  450
                                                                                                      392
          800                                                                                                  400
                                                                         335
          700                                305                                                               350
          600                                                                                                  300
                 250
          500                                                                                                  250
LE mn




                                                                                                                     LE




          400                                                                                        773.3     200
          300                                                           597.3                                  150
                                             521.8
          200   420.1                                                                                          100
          100                                                                                                  50
            0                                                                                                  0
                2005                          2006                      2007                         2008
                                  Total Sales Value          Average price per ton (right scale)
Source: Misr Cement Qena Company and Global Research


                                              Egypt Cement Sector                                          July 2009
Global Research - Egypt                                                               Global Investment House


The government’s energy subsidy cut decision has adversely influenced the production cost
of Misr Cement Qena Company. The Company’s cash cost per ton jumped by 29.9% in 2008,
reaching LE173/ton from LE133/ton in 2007. This came on the back of the surge witnessed
in the fuel oil and the electricity prices, where they contributed together to 52.6% of the total
COGS in 2008. It is worth mentioning that Misr Cement Qenq use fuel oil as a source of
energy not natural gas.

Chart 89: Misr Cement Qena average selling price and cash cost of production
        450                                                                                           62.0%
                                                                  60.2%
        400                                59.1%                                                      60.0%
                                                                                      392
        350
                                                            335                                       58.0%
        300
                                     305
        250                                                                                 55.9%     56.0%
LE




              250
        200                                                                                           54.0%
        150     52.7%                                                                        173
                                                                                                      52.0%
        100           118                    125                    133
         50                                                                                           50.0%

          -                                                                                           48.0%
                2005                    2006                     2007                     2008
                            Average price per ton      Cash cost per ton         Spread
Source: Misr Cement Qena Company and Global Research


Accordingly, the Company’s COGS mounted to LE341.4mn in 2008, compared to LE238.0mn
in 2007, rising by 43.5%. In addition, COGS/Sales ratio increased from 39.8% in 2007 to
44.1% in 2008, as the growth in COGS outpaced the growth in sales.

Chart 90: Misr Cement Qena Cost of Goods Sold (COGS)
        400                                                                                            60%
        350     47.3%
                                                                                          44.1%
        300                             40.9%                    39.8%
                                                                                                       40%
        250                                                                                 43.5%
LE mn




        200         26.8%
                                                                                          341.4
        150
                                                                                                       20%
                                                                 238.0
        100     198.8                   213.6

         50                                                       11.4%
                                             7.5%
          -                                                                                            0%
                2005                    2006                     2007                     2008
                                COGS            Growth in COGS           COGS/Sales

Source: Misr Cement Qena Company and Global Research


Moreover, the S,G&A/Sales ratio rose from 2.5% in 2007 to 3.2% in 2008. Therefore, the
EBITDA margin decreased from 57.7% to 52.7% between 2007 and 2008, reflecting the
increase in COGS/Sales and S,G&A/Sales ratios.




July 2009                                   Egypt Cement Sector                                              
Global Research - Egypt                                                  Global Investment House


Chart 91: Misr Cement Qena EBITDA
        450                                                  57.7%                        60%
        400                           56.4%
        350                                                                               55%
                                                                             52.7%
        300
LE mn



        250     49.9%
                                                                                          50%
        200                                                                  407.5
                                                              344.4
        150                           294.1
        100     209.7                                                                     45%

         50
          -                                                                               40%
                2005                  2006                    2007           2008
                                       EBITDA          EBITDA Margin
Source: Misr Cement Qena Company and Global Research


Additionally, the Company’s interest income surged by 95.8% in 2008, reaching LE17.8mn,
as opposed to LE9.1mn in 2007. This came on the back of the hike witnessed in the time
deposits from LE281.1mn in 2007 to LE477.0mn in 2008, growing by 69.7%. Furthermore,
the Company formed LE45mn as provision expense in 2008, resulting from the government’s
decision to raise the resources development fees on clay.

Misr Cement Qena Company enjoys 10 years tax exemption according to Law no. 8 of year
1997. The tax holiday started in 2003 and will end in 2012. It is worth mentioning that the
Company paid LE3.2mn in 2008, representing the taxes on the interest income, which is not
included in the tax holiday.

The ROS declined from 46.3% in 2007 to 39.2% in 2008, mainly due to the cost increase and
the provision expense incurred in 2008. The Company reported a net profit of LE302.9mn in
2008, compared to LE276.4mn in 2007, recording a Y-o-Y growth of 9.6%.

Chart 92: Misr Cement Qena Net Profit
        350                          45.2%                   46.3%                        50%

        300
                                                                               39.2%      40%
                35.3%
        250

        200                                                                               30%
LE mn




        150                                                                  303
                                                              276                         20%
                                      236
        100
                148                                                                       10%
         50

          -                                                                               0%
                2005                 2006                    2007           2008
                                       Net profit       Return on Sales
Source: Misr Cement Qena Company and Global Research


Balance Sheet Analysis

The Company’s total assets reached LE1.1bn in 2008, as opposed to LE1.0mn in 2007, up
by 17.4%. This growth is basically attributed to the surge witnessed in the cash and cash
equivalents, which soared by 67.2%, reaching LE489.6mn, compared to LE292.9mn in 2007.
In turn, the cash and cash equivalents’ contribution to the Company’s total assets grew from
30.1% to 42.9% between 2007 and 2008.



                                      Egypt Cement Sector                            July 2009
Global Research - Egypt                                                         Global Investment House


On the other hand, the long term assets, which were the major component in the Company’s
asset structure, represented 51.3% of the Company’s total assets in 2008, down from 63.6%
in 2007. Furthermore, the inventory grew from LE36.5mn in 2007 to LE51.1mn in 2008,
increasing by 40.1%. This came on the back of the hike witnessed in the fuel oil price, which
was doubled during the year.

Chart 93: Misr Cement Qena Assets Composition
100%
 90%
 80%
                                                                                         51.3%
 70%                                                              63.6%
 60%            81.8%                  80.2%
 50%
                                                                                         5.8%
 40%
 30%                                                              6.2%
 20%                                                                                     42.9%
                8.4%                   7.8%                       30.1%
 10%
                9.8%                   11.9%
  0%
                2005                   2006                       2007                   2008
                            Cash & Equivalent      Other assets       Long-term Assets
Source: Misr Cement Qena Company and Global Research


On the other hand, the Company’s financing was dominated by the equity, which represented
83.4% of the total assets in 2008. The shareholders equity reached LE950.8mn in 2008,
compared to LE819.6mn in 2007, increasing by 16.0%.

Additionally, the Company’s other liabilities rose from LE152.0mn in 2007 to LE189.8mn
in 2008, up by 24.9%. This increase is mainly attributed to the growth in the provisions for
the resource development fees.

Chart 94: Misr Cement Qena Liabilities and Shareholders’ Equity
100%
 90%                                   16.8%                      15.6%                  16.6%
 80%            37.3%
 70%
 60%
 50%
 40%                                   83.2%                      84.4%                  83.4%
 30%            62.7%
 20%
 10%
  0%
                2005                   2006                       2007                   2008
                                          Equity       Other liabilities
Source: Misr Cement Qena Company and Global Research


Q1 2009

During the first quarter of 2009, Misr Cement Qena sales value grew by 12.7%, on the back
of the strong local cement demand, driven by the higher construction activities witnessed in
the country. The Company’s sales value increased from LE213.3mn in the first quarter of
2008 to LE240.4mn in the first quarter of 2009.




July 2009                               Egypt Cement Sector                                         
Global Research - Egypt                                                             Global Investment House


Chart 95: Misr Cement Qena Q1 Sales Value
        300                                                                                           70%
                   59.6%
        250                                                                                           60%
                                                                  49.1%
                                                                                                      50%
        200
                                                                                                      40%
LE mn



        150
                                                                                                      30%
        100
                                                                                        12.7%         20%
                                        10.5%
         50                                                                                           10%
                   129.5                143.1                     213.3                 240.4
          -                                                                                           0%
               Q1 2006              Q1 2007                  Q1 2008                   Q1 2009
                                         Total Sales Value          Growth

Source: Misr Cement Qena Company and Global Research


In addition, the Company’s COGS reached LE111.1mn in the first quarter of 2009, compared
to LE86.0mn in the first quarter of 2008, rising by 29.1%. As a result, the COGS/Sales ratio
increased from 40.3% to 46.2% between the comparable periods. In addition, the S,G&A/
Sales ratio rose slightly from 3.3% in the first quarter of 2008 to 3.4% in the first quarter of
2009. Accordingly, the Company’s EBITDA margin fell from 56.3% to 50.4% between the
comparable periods.

Chart 96: Misr Cement Qena Selected Income Statement Items in Q1
        140    55.9%                 54.7%                    56.3%                                   60%
                                                                                       50.4%
        120                                                                                           50%
        100                                                                            46.2%
                                     42.9%                                                            40%
               41.6%                                          40.3%
LE mn




         80
                                                                                                      30%
         60                                                          120                     121
                                                                                     111
                                                             86                                       20%
         40           72                    78
              54                   61
         20                                                                                           10%

          -                                                                                           0%
              Q1 2006               Q1 2007                  Q1 2008                  Q1 2009
                           COGS     EBITDA            COGS/Sales             EBITDA Margin
Source: Misr Cement Qena Company and Global Research


Moreover, the interest income increased from LE4.2mn in the first quarter of 2008 to
LE7.2mn in the first quarter of 2009, a Y-o-Y growth of 71.8%. This came on the back of the
62.9% growth in the time deposits from LE387.4mn to LE631.0mn between the comparable
periods.

The Company’s bottom line reached LE101.7mn in the first quarter of 2009, as opposed to
LE89.8mn reported in the first quarter of 2008, achieving a growth of 13.2%. The ROS rose
merely from 42.1% to 42.3% between the comparable periods.




                                        Egypt Cement Sector                                      July 2009
Global Research - Egypt                                                                              Global Investment House


Table 27: Misr Cement Qena Q1 Income Statement
LE000                                                                            Q1 2008             Q1 2009              Change%
Sales                                                                            213,315              240,424                12.7%
COGS                                                                             (86,042)           (111,121)                29.1%
SG&A                                                                              (7,080)              (8,217)               16.1%
EBITDA                                                                           120,192              121,085                 0.7%
Depreciation                                                                     (10,176)            (10,252)                  0.8%
EBIT                                                                             110,016              110,833                 0.7%
Interest Income                                                                     4,212                7,237               71.8%
Investment Income                                                                     160                    0             -100.0%
Interest Expense                                                                     (22)                 (13)              -42.9%
Other Provisions                                                                 (20,000)            (20,000)                  0.0%
Other Non-Operating Income\(Expense)                                              (2,426)                5,531              328.0%
NPBT                                                                               91,940             103,588                12.7%
Income Tax                                                                        (2,146)              (1,938)                -9.7%
NPAT                                                                               89,794             101,650                13.2%
Capital Gain/Loss                                                                       0                    0                     -
Other Extraordinary Items                                                               0                    0                     -
NPAUI                                                                              89,794             101,650                13.2%
Minority Interest                                                                       0                    0                     -
Net Profit/(Loss)                                                                  89,794             101,650                13.2%
Source: Misr Cement Qena Company and Global Research


Financial Forecast

According to our cement market forecast, Misr Cement Qena is expected to operate at a utilization
rate of 130% in 2009, fueled by high local consumption. After that the utilization rate will decrease
to 115%, as we forecasted that local demand will advance by a slower pace in 2010 and 2011.

In addition, the Company’s utilization rate was assumed to rebound gradually from 115% in
2010 to reach 118% in 2013. We also assumed that the Company is expected to allocate a greater
proportion of its production to the export market in 2010 and 2011. Afterwards, an increasing
percentage of production will be allocated to the local market, as local demand will rebound.

Chart 97: Misr Cement Qena forecasted capacity, utilization rate, local & export sales volume
         1.8                                                                                                                 135%
                                                                                                              1.7
         1.6   1.5 1.5               1.5                    1.5                   1.5                   1.5
         1.4                                                                            1.3                                  130%
                                           1.3
                                                                  1.2
         1.2         130%
                                                                                                                             125%
Ton mn




         1.0

         0.8
                                                                                                                             120%
         0.6                                                             0.5
                         0.5                      0.5                                                               118%
                                                                                           117%
                                                                                            0.4
         0.4                                                                                                                 115%
         0.2                                                            116%                                        0.1
                                                 115%
         0.0                                                                                                                 110%
                  2009                     2010                   2011                  2012                 2013
                               Capacity            Local sales           Export Sales          Utilization rate

Source: Global Research


Furthermore, we assumed that average price per ton during 2009 will maintain its current
levels, on the back of higher local demand, then decline by 5% in 2010, before rebounding
gradually until reaching approximately LE450/ton in 2013.



July 2009                                               Egypt Cement Sector                                                      9
Global Research - Egypt                                                                              Global Investment House


Chart 98: Misr Cement Qena forecasted sales value and average price
        820                                                                                                             460
        800                                                                                                     449     450
        780     810
                                                                                                                        440
        760                                                                              430                            430
        740                                                 414                                                         420
LE mn




                                                                                                                              LE
        720           415
                                   402                                                                   794            410
        700
                                                                                  754                                   400
        680
                                                            720                                                         390
        660                        693
        640                                                                                                             380
        620                                                                                                             370
                2009               2010                     2011                  2012                   2013
                                  Sales value               Average price/ton (Right scale)
Source: Global Research


Moreover, we assumed that cash cost of production to grow at around 12% in 2009, in order to
reflect the government decision to liberalize energy prices. Afterwards, cash cost of production is
forecasted to increase on average by 1.5% annually, assuming no further government intervention,
such as increasing energy prices and/or imposing any additional duties on cement manufacturers.

Chart 99: Misr Cement Qena forecasted average selling price & cash cost of production
        500                                                                                                             60%
               55.9%
        450                  53.4%                                                       53.5%             54.2%
                                                                     52.2%                                              55%
                                                51.1%
        400
                                                                                                                        50%
        350
LE




        300                                                                                                             45%
                                                                                        430               449
        250   392           415                 402                 414
                                                                          198                  200              205     40%
                                  193                 196
        200         173
                                                                                                                        35%
        150
        100                                                                                                             30%
               2008          2009                2010                 2011                2012              2013
                              Average price/ton                   Cash cost/ton               Spread
Source: Global Research


Accordingly, COGS/Sales ratio is expected to increase in 2010, as the selling price is expected to
decrease, while cash cost of production will keep increasing marginally over our forecast horizon.
However, COGS/Sales ratio is estimated to decline gradually starting from 2011 till it reaches
45.8% in 2013, as the selling price growth will outpace the rise in the cash cost of production

Chart 100: Misr Cement Qena forecasted cost of sales and COGS/Sales ratio
        390                                                                                                              50%
                                        48.9%
        380                                                                                                              49%
                                                                  47.8%
                                                                                                                         48%
        370     46.6%                                                                    46.5%            45.8%          47%
        360                                                                                                              46%
                                                                                   351
LE mn




                    377
        350                                                  344                                           364           45%
        340                         339                                                                                  44%
                                                                                                                         43%
        330
                                                                                                                         42%
        320                                                                                                              41%
        310                                                                                                              40%
                2009               2010                     2011                   2012                   2013
                                                 COGS                COGS/Sales
Source: Global Research




90                                              Egypt Cement Sector                                                   July 2009
Global Research - Egypt                                                     Global Investment House


Additionally, we assumed that S,G&A will increase annually by 10% from 2008 level.
Consequently, S,G&A/Sales is expected to increase marginally throughout our forecast
horizon, as the percentage increase in S,G&A will outpace the increase in sales. Accordingly,
EBITDA Margin is forecasted to decline in 2010, as a result of the increase in COGS/Sales
and S,G&A/Sales, then improving gradually over the next years.

Chart 101: Misr Cement Qena forecasted EBITDA and EBITDA margin
        450                                                                                  52%
              50.2%                                                              49.8%
        400
                                                                   49.2%                     50%
        350                                      48.0%
        300                 47.0%                                                            48%
LE mn




        250
                                                                                             46%
        200    406                                                                396
                                                  346               371
        150                  326                                                             44%
        100
                                                                                             42%
         50
          -                                                                                  40%
               2009          2010                2011               2012         2013
                                     EBITDA              EBITDA margin

Source: Global Research


ROS is expected to follow a similar trend like EBITDA margin from 2009 to 2012, for the
same reasons mentioned above. However, net profit margin will be lower than EBITDA
margin, mainly because we assumed that the Company will continue to form provisions but
at lower rate than the historical rate, as percentage of sales.

Starting from 2013, Misr Cement Qena will start to pay 20% taxes, as its tax exemption
period will end in 2012. Therefore, ROS will drop in 2013. It is worth mentioning that we
assumed a tax rate of 20% on interest income during the tax exemption period, according to
the Egyptian tax law, which exempts only operating income from taxes throughout the tax
holiday period.

Chart 102: Misr Cement Qena forecasted net profit and ROS
        400                                                                                   44%
              42.0%                                                 42.3%
        350                                      40.6%                                        42%
        300                  39.1%                                                            40%
        250
                                                                                              38%
LE mn




        200
                                                                                 35.2%        36%
                340                                                  319
        150                                       293
                              271
                                                                                              34%
        100                                                                        280
         50                                                                                   32%

          -                                                                                   30%
               2009          2010                2011                2012         2013
                                     Net profit            Return on Sales

Source: Global Research




July 2009                             Egypt Cement Sector                                       9
Global Research - Egypt                                                  Global Investment House



Valuation
Discounted Cash Flow (DCF)

Based on our valuation assumption stated earlier under valuation and recommendation
section and out projected Free Cash Flow to Firm (FCFF), shown below, we reached a fair
value of LE85.8/share using DCF method, implying 9.9% upside potential from the current
market price of LE78/share, as of June 30th, 2009.

Table 28: Misr Cement Qena DCF valuation
(Values in 000)                              2009F      2010F       2011F        2012F     2013F
Free Cash Flow                              383,571    306,337     325,311      349,174   311,032
Terminal Value                 1,884,487
Discounted Cash Flow                        350,239    233,096     206,279      184,508   136,961
PV of Terminal Value             829,824
Enterprise Value               1,940,908
Cash                             631,843
Debt                                   -
Equity value                   2,572,750
No. of Shares                     30,000
Fair Value (LE)                     85.8
Source: Global Research


Sensitivity Analysis

We provide below a sensitivity analysis table, which shows the probable values given
different growth rate assumption and WACC. The shaded area represents the most probable
outcome.

Table 29: Sensitivity Analysis
                                                              Terminal Growth
                                              1.0%          2.0%      3.0%        4.0%       5.0%
                                 18.0%         88.7          90.8      93.2        96.0       99.2
                                 19.0%         85.3          87.2      89.3        91.6       94.3
            WACC
                                 20.0%         82.4          84.0      85.8        87.8       90.1
                                 21.0%         79.7          81.1      82.6        84.4       86.3
                                 22.0%         77.2          78.5      79.8        81.3       83.0
Source: Global Research


Relative Valuation

Using the Weighted average EV/EBITDA of 6.82x for the cement sector in the region,
calculated earlier under the valuation and recommendation section, we reached a fair value
of LE113.7/share using relative valuation method, implying 45.7% upside potential from the
current market price of LE78/share, as of June 30th, 2009.

Based on the fact that relative valuation is being highly influenced by the market prices of the
comparable companies, a 20% weight was assigned for EV/EBITDA and 80% to the DCF.



92                                    Egypt Cement Sector                                 July 2009
Global Research - Egypt                                            Global Investment House


Table 30: Misr Cement Qena weighted average fair value
                                                   Fair Value/                 Weighted
Valuation approach                                 share (LE)      Weight     Value (LE)
DCF Valuation                                             85.8       80%             68.6
Relative valuation                                       113.7       20%             22.7
Weighted average fair value                                                          91.3
Current market price (LE)*                                                             78
Upside/(Downside) potential                                                       17.1%
*Price as of June 30th, 2009
Source: Global Research


Combining both methods resulted in a fair value of LE91.3/share, compared to the current
market price of LE78/share, implying an upside potential of 17.1% over the market price.
Therefore, we initiated our coverage for Misr Cement Qena Company with a “BUY”
recommendation.




July 2009                          Egypt Cement Sector                                 9
                      Balance Sheet
                                                                                                                Misr Cement Qena
                                                                                           Actual                                          Projected
                      (in LE 000s)                                              2005      2006          2007        2008     2009 (F)   2010 (F)     2011 (F)    2012 (F)
                      Assets
                      Operating Cash                                            5,859     4,975       11,725       12,620     13,216     11,302        11,755      12,305
                      Excess Cash                                              76,901    91,459      281,133      476,996    269,733    332,675       397,087     463,653
                      Net Accounts Receivables                                 10,481     6,137        3,543        3,000      3,485      3,603         3,977       4,433
                      Inventory                                                25,462    30,441       36,486       51,119     53,728     50,730        52,363      53,789




9
                      Dues From HC’s & Affiliates                                   -         -            -            -          -          -             -           -
                      Other Current Assets                                     34,759    26,651       20,432       12,214     13,497     12,121        12,308      12,544
                      Total Current Assets                                    153,463   159,663      353,319      555,949    353,660    410,431       477,490     546,724
                      Deferred tax asset                                            -         -            -            -          -          -             -           -
                      Subsidiaries & Other Long Term Investments                  808       808          808          808        808        808           808         808
                      Other long term assets                                        -         -            -            -          -          -             -           -
                                                                                                                                                                            Global Research - Egypt




                      Intangibles                                                   -         -            -            -          -          -             -           -
                      Projects Under Implementation                             4,305     8,259        7,401          950        297        249           156         137
                      Gross Fixed Assets :                                    784,102   776,966      787,518      801,579    819,053    834,495       850,510     867,097
                      Less : Acc. Depreciation                                 99,698   138,052      177,394      218,680    262,215    306,634       351,898     398,038
                      Net Fixed Assets                                        684,404   638,914      610,124      582,898    556,837    527,861       498,612     469,059
                      Total Assets                                            842,981   807,645      971,652    1,140,605    911,602    939,349       977,066   1,016,728
                      Liabilities & Shareholder’s Equity
                      Short Term Debt                                             195         -             -           -          -          -             -           -
                      CPLTD                                                         -         -             -           -          -          -             -           -
                      Accounts Payable                                         29,932    22,180        25,263      26,032     27,352     24,561        24,940      25,419
                      Accrued expenses                                         11,274     8,296         7,716       3,464      3,773      3,388         3,440       3,506
                      Down payments                                            24,722     6,848        14,543       7,272      7,545      6,776         6,880       7,012




Egypt Cement Sector
                      Dividends payable                                             -         -             -           -          -          -             -           -
                      Dues To HC”s & Affiliates                                     -         -         1,593       3,193      3,193      3,193         3,193       3,193
                      Other Current Liabilities                                15,429    21,228        26,870      20,558     22,636     20,327        20,640      21,036
                      Total Current Liabilities                                81,552    58,552        75,984      60,518     64,498     58,244        59,094      60,166
                      Total Long Term Debt                                    202,572    14,976             -           -          -          -             -           -
                      Provisions For Deferred Taxes                                 -    38,623        47,534      52,988     55,811     57,407        59,377      61,727
                      Other Provisions                                         16,438    16,438        24,000      74,200    114,200    134,200       154,200     174,200
                      Other Non-Current Liabilities                            13,717     6,997         4,522       2,141      1,381          -             -           -
                      Minority interest                                             -         -             -           -          -          -             -           -
                      Total Liabilities                                       314,279   135,585   152,040.432     189,846    235,890    249,852       272,670     296,093
                      Net Paid-In Capital                                     300,000   300,000       282,329     289,868    298,780    298,780       298,780     298,780
                      Additional paid-in capital                                    -         -             -           -          -          -             -           -
                                                                                                                                                                            Global Investment House




July 2009
                      Legal & Statutory Reserves                                8,372    15,777        27,561      41,383     58,381     71,918        86,548     102,495
                      General & Other Reserves                                  2,413     2,413         2,413       2,413      2,413      2,413         2,413       2,413
                      Retained Earnings                                       217,917   353,870       507,309     617,094    316,139    316,387       316,655     316,947
                      Shareholders” Equity                                    528,702   672,060       819,611     950,758    675,712    689,498       704,396     720,635
                      Total Liabilities & Shareholder’s Equity                842,981   807,645       971,652   1,140,605    911,602    939,349       977,066   1,016,728
                      Source: Misr Cement Qena Financials & Global Research
                      Income Statement
                                                                                                                       Misr Cement Qena




July 2009
                                                                                                   Actual                                             Projected
                      (in LE 000s)                                                  2005          2006         2007         2008     2009 (F)     2010 (F)         2011 (F)     2012 (F)
                      Revenues from Operation                                   420,108       521,823       597,321      773,339      809,855      692,609          720,332      754,070
                      COGS                                                    (198,784)     (213,641)     (237,973)    (341,382)    (377,265)    (338,779)        (344,006)    (350,607)
                      S. , G. & Adm. Expenses                                  (11,637)      (14,095)      (14,963)     (24,416)     (26,247)     (28,216)         (30,332)     (32,607)
                                                                                                                                                                                            Global Research - Egypt




                      EBITDA                                                    209,686       294,087       344,385      407,540      406,342      325,614          345,994      370,856
                      Depreciation & Amortization                              (26,456)      (40,334)      (40,552)     (42,688)     (43,535)     (44,419)         (45,264)     (46,140)
                      Operating Profit -EBIT                                    183,230       253,753       303,833      364,853      362,807      281,195          300,730      324,716
                      Interest Income                                              2,867         3,907         9,082      17,786       22,381       12,656           15,609       18,631
                      Investment Income                                              320           320           320          520          520          520              520          520
                      Interest Expense                                         (32,701)        (9,067)         (548)        (141)            -            -                -            -
                      Other Provisions                                           (5,558)             -     (21,788)     (70,200)     (40,000)     (20,000)         (20,000)     (20,000)
                      Other Non-Operating Income/(expense)                           (55)        1,050       (3,947)      (1,222)      (1,279)      (1,094)          (1,138)      (1,191)
                      NPBT                                                      148,104       249,963       286,953      311,596      344,429      273,277          295,722      322,676
                      Income Tax                                                        -    (14,291)      (10,505)       (8,646)      (4,476)      (2,531)          (3,122)      (3,726)
                      NPAT                                                      148,104       235,672       276,448      302,950      339,952      270,746          292,600      318,950




Egypt Cement Sector
                      Capital Gain/Loss                                                 -            -             -            -            -            -                -            -
                      Extraordinary items                                               -            -             -            -            -            -                -            -
                      NPAUI                                                     148,104       235,672       276,448      302,950      339,952      270,746          292,600      318,950
                      Minority Interest                                                 -            -             -            -            -            -                -            -
                      Net Profit/ (loss)                                        148,104       235,672       276,448      302,950      339,952      270,746          292,600      318,950
                      Source: Misr Cement Qena Financials & Global Research
                                                                                                                                                                                            Global Investment House




9
                      Cash Flow Statement
                                                                                                                      Misr Cement Qena
                                                                                                 Actual                                            Projected
                      (in LE 000s)                                                 2005         2006          2007        2008     2009 (F)    2010 (F)        2011 (F)    2012 (F)
                      Net Income                                               148,104      235,672        276,448     302,950      339,952     270,746         292,600     318,950
                      Depreciation & Amortization                                26,456       40,334        40,552       42,688      43,535      44,419          45,264      46,140
                      Non-operating items                                             55     (1,050)          3,947       1,222        1,279       1,094           1,138       1,191
                      Provision                                                   5,558            -        21,788       70,200      40,000      20,000          20,000      20,000
                      Investment Income                                           (320)        (320)          (320)       (520)        (520)       (520)           (520)       (520)




9
                      Interest Income                                           (2,867)      (3,907)        (9,082)    (17,786)    (22,381)    (12,656)        (15,609)    (18,631)
                      Interest expense                                           32,701        9,067            548         141            -           -               -           -
                      Capital loss/ (gain)                                             -           -              -           -            -           -               -           -
                      Extra ordinary items                                             -           -              -           -            -           -               -           -
                      Operating profit before working capital changes          209,686      279,795        333,881     398,895      401,866     323,083         342,872     367,130
                      (Increase)/decrease in receivables                          7,067        4,345          2,594         543        (485)       (118)           (374)       (455)
                                                                                                                                                                                       Global Research - Egypt




                      (Increase)/decrease in inventory                            4,028      (4,978)        (6,045)    (14,634)      (2,609)       2,999         (1,633)     (1,426)
                      (Increase)/decrease in other current assets                 9,121        8,108          6,219       8,219      (1,284)       1,377           (187)       (236)
                      increase/(decrease) in payables                            12,050      (7,752)          3,083         769        1,319     (2,790)             379         479
                      increase/(decrease) in accrued expenses                       304      (2,978)          (580)     (4,252)          309       (385)              52          66
                      increase/(decrease) in down payments                       20,020     (17,874)          7,695     (7,271)          273       (770)             105         132
                      increase/(decrease) in other current liabilities         (13,785)        5,799          7,235     (4,713)        2,078     (2,309)             314         396
                      Cash flow from operating activities                      248,492      264,464        354,081     377,556      401,468     321,087         341,527     366,085
                         Receipts from extraordinary items                          (55)       1,050        (3,947)     (1,222)      (1,279)     (1,094)         (1,138)     (1,191)
                      Net cash provided by operating activities                248,437      265,514        350,134     376,335      400,188     319,993         340,389     364,894

                      (Increase)/decrease Fixed assets                          (4,942)        5,156       (11,762)    (15,462)    (17,474)     (15,443)        (16,015)    (16,587)




Egypt Cement Sector
                      (Increase)/decrease Projects under implementation             646      (3,954)            859       6,451         653           48              93          19
                      (Increase)/decrease Investments                          (32,806)     (14,238)      (189,354)   (195,343)    207,783      (62,422)        (63,891)    (66,047)
                      Other long-term Assets                                          -            -              -           -           -            -               -           -
                      Interest income                                             2,867        3,907          9,082      17,786      22,381       12,656          15,609      18,631
                      Provision                                                 (5,558)            -       (21,788)    (70,200)    (40,000)     (20,000)        (20,000)    (20,000)
                      Cash flow from Investing activities                      (39,793)      (9,129)      (212,963)   (256,768)    173,343      (85,161)        (84,204)    (83,983)

                      Increase/(decrease) in shareholders’ equity                20,908      (2,314)         20,036      74,691   (338,398)     (36,670)        (39,630)    (43,198)
                      Increase/(decrease) in long & short term borrowing      (119,396)    (187,791)       (14,976)           -           -            -               -           -
                      Increase/(decrease) in other long-term liabilities        (6,302)       31,903         13,998      53,272      42,063       20,216          21,969      22,350
                      Interest expense                                         (32,701)      (9,067)          (548)       (141)           -            -               -           -
                      Dividends paid                                           (68,299)     (90,000)      (148,933)   (246,494)   (276,601)    (220,291)       (238,072)   (259,512)
                      Cash flow from Financing activities                     (205,789)    (257,269)      (130,422)   (118,672)   (572,935)    (236,745)       (255,733)   (280,360)
                                                                                                                                                                                       Global Investment House




July 2009
                      Net cash flow                                               2,855        (884)          6,750         895         596      (1,913)             452         551
                      Cash at the beginning of the year                           3,004        5,859          4,975      11,725      12,620       13,216          11,302      11,755
                      Cash at the end of the year                                 5,859        4,975         11,725      12,620      13,216       11,302          11,755      12,305
                      Source: Misr Cement Qena Financials & Global Research
                      Fact Sheet
                                                                                                                                             Misr Cement Qena
                                                                                                                Actual                                                          Projected
                                                                                             2005              2006              2007              2008         2009 (F)     2010 (F)     2011 (F)    2012 (F)
                      Profitability




July 2009
                        Gross Profit Margin                                                 52.7%            59.1%             60.2%             55.9%             53.4%       51.1%        52.2%       53.5%
                        Operating Margin                                                    43.6%            48.6%             50.9%             47.2%             44.8%       40.6%        41.7%       43.1%
                        Net Profit Margin                                                   35.3%            45.2%             46.3%             39.2%             42.0%       39.1%        40.6%       42.3%
                      Turnover ratios
                        Inventory turnover                                                    7.81             7.02              6.52              6.68             7.02        6.68          6.57       6.52
                                                                                                                                                                                                                 Global Research - Egypt




                        Receivables turnover                                                 40.08            85.04            168.59            257.79           232.36      192.22        181.10     170.11
                        Payables turnover                                                     6.64             9.63              9.42             13.11            13.79       13.79         13.79      13.79
                        Net working capital turnover                                          5.84             5.16              2.15              1.56             2.80        1.97          1.72       1.55
                        GFA turnover                                                          0.54             0.67              0.76              0.96             0.99        0.83          0.85       0.87
                        NFA turnover                                                          0.61             0.82              0.98              1.33             1.45        1.31          1.44       1.61
                        Asset turnover                                                        0.50             0.65              0.61              0.68             0.89        0.74          0.74       0.74
                      Leverage Ratios
                        Debt/Total Assets                                                   24.1%              1.9%             0.0%              0.0%              0.0%        0.0%         0.0%        0.0%
                        Debt/Equity                                                           0.38              0.02                -                 -                 -           -            -           -
                        Interest coverage                                                      5.6              28.0            554.6             2,583                 -           -            -           -
                      Return Ratios




Egypt Cement Sector
                        Return on average assets                                            17.5%            28.6%             31.1%             28.7%            33.1%        29.3%        30.5%       32.0%
                        Return on average equity                                            31.0%            39.3%             37.1%             34.2%            41.8%        39.7%        42.0%       44.8%
                        Return on invested capital                                          24.7%            40.6%             46.0%             59.0%           60.01%        48.6%        54.7%       62.2%
                      Valuation Ratios
                        Number of Shares (000)                                             30,000           30,000            30,000            30,000            29,878       29,878       29,878      29,878
                        Market Cap as at year end (LE000)                               1,520,700        1,560,000         2,207,700         2,338,200         2,330,484    2,330,484    2,330,484   2,330,484
                        Market Price (LE)                                                    50.7            52.00             73.59              77.9              78.0         78.0         78.0        78.0
                        Dividend announced (LE000)                                         60,000           90,000           148,933           246,494           276,601      220,291      238,072     259,512
                        Dividend yield                                                      3.9%             5.8%              6.7%             10.5%             11.9%         9.5%        10.2%       11.1%
                        Dividend payout ratio                                              40.5%            38.2%             53.9%             81.4%             81.4%        81.4%        81.4%       81.4%
                        Earnings per share (LE)                                              4.94             7.86              9.21             10.10             11.38         9.06         9.79       10.68
                        Price to Earnings (times)                                           10.27             6.62              7.99              7.72              6.86         8.61         7.96        7.31
                        EV/EBIDTA (times)                                                    7.85             5.04              5.59              4.57              4.21         5.25         4.94        4.61
                                                                                                                                                                                                                 Global Investment House




9
                        Price to book value (times)                                          4.43             3.48              2.86              2.46              3.46         3.39         3.32        3.25
                      Historical multiples are based on respective year-end prices, while that for future years are based on current market prices as of June 30th, 2009.
                      Source: Misr Cement Qena Financials & Global Research
Global Research - Egypt                                               Global Investment House



                            Misr Beni Suef Cement
Tickers:
MBSC.CA (Reuters)
MBSC:EY (Bloomberg)
Listing:                                                                   July, 2009
The Egyptian Exchange (EGX)
Fair Value:
                                                                         BUY
LE162.8
CMP:
LE88.49 (As of June 30th, 2009)

Key Data                                      Company Background
Market Cap. (LEmn) #                 1,770
                                              Misr Beni Suef Cement Company was
EPS (LE)*                             19.3
                                              founded in 1997, as a Joint Stock Company,
BVPS (LE)*                            42.6
                                              operating under Law No. 8 of year 1997 and
P/E*                                    4.6
                                              its executive regulations. The Company is
P/BV*                                   2.1
                                              involved in the production of grey cement and
12M Avg. vol.                       14,496
                                              its related products. The Company is listed on
52 week Low/High (LE)             41.0/104
Source: Global Research
                                              the Egyptian Exchange (EGX) since August
# As of June 30th, 2009                       1999.
* 2009 projected EPS & BV

Misr Beni Suef Cement Company’s plant, which is located in Beni Suef governorate in Upper
Egypt, started production in 2003, with a production capacity of 1.5mn ton. In 2005, the
Company decided to double its production capacity to meet the growing demand on cement
in both the local and exportation markets.

On December 2006, Misr Beni Suef Cement signed the second production line contract
with Polysius. The new line commenced production in the first quarter of 2009, raising the
Company’s production capacity to 3mn ton.

On August 2008, Misr Beni Suef Cement Company was charged by LE20mn for exercising
monopolistic activities during the period from May 2005 to the end of 2006. The Company,
along with other local cement producers, was accused of forming a cartel to manipulate local
cement prices and dividing market shares among them.

Management

Misr Beni Suef Cement Company is currently chaired by Dr. Mohamed Ali Ahmed. The
Company’s Board of Directors (BoD) consists of 6 members in addition to the chairman, as
shown in the table below.




9                                   Egypt Cement Sector                            July 2009
Global Research - Egypt                                                                Global Investment House


Table 31: Misr Beni Suef Cement Board Members
Mohamed Ali Ahmed           Chairman
Farouk Mohamed              Vice Chairman and Managing Director
Fayek Al Qasrawy            Vice Chairman and Managing Director
Al Sayed Ali Ahmed          Vice Chairman and Managing Director
Mostafa Hafez               Board Member and representing the National Investment Bank
Mahmoud Awara               Board Member
Magdi Abbas                 Board Member
Source: EGX


Shareholding and Liquidity

Misr Beni Suef Cement Company’s authorized capital is LE500mn, while the issued and
paid-in capital is LE200mn, distributed over 20mn shares, with a par value of LE10/share.

Chart 103: Misr Beni Suef Cement Shareholders Structure as of March 31st, 2009
                                  Others, 1.4%



                                                                  Top Management, 31.6%


         Free Float, 46.9%




                                                            National Investment Bank, 20.1%
Source: EGID


The Company’s stock is considered relatively liquid, where 46.9% of its capital is free floated
in the stock market. The top management holds a 31.6% stake in the Company and 20.1%
stake is owned by the National Investment Bank, as of March 31st, 2009.

Table 32: Stock Liquidity
                                                                         2007             2008              2009*
Average Daily Volume                                                   16,032           34,661             13,266
Average Daily Turnover (LE000)                                          1,818            3,647                 756
Market Capitalization (LE000) **                                        2,322              994               1,770
* Average daily volume and turnover for the period from January to June 2009.
** Market Capitalization is calculated on respective year-end prices and for 2009 as of June 30th, 2009.
Source: Mubasher and Global Research


Apparently, Misr Beni Suef Cement Company’s stock is underperforming the EGX index, as
well as the Building Materials index. Although, Misr Beni Suef share rose at a slower pace
when compared to both indices, its performance was more stable relative to the two indices.




July 2009                                     Egypt Cement Sector                                              99
Global Research - Egypt                                                                                                                                                                                                                                               Global Investment House


Chart 104: Misr Beni Suef shares price performance chart
300

250

200

150

100

 50

  -
      3-Jan-07
                 3-Feb-07
                            3-Mar-07
                                       3-Apr-07
                                                  3-May-07
                                                             3-Jun-07
                                                                        3-Jul-07
                                                                                   3-Aug-07
                                                                                              3-Sep-07
                                                                                                         3-Oct-07
                                                                                                                     3-Nov-07
                                                                                                                                3-Dec-07
                                                                                                                                            3-Jan-08
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                                                                                                                                                                  3-Mar-08
                                                                                                                                                                             3-Apr-08
                                                                                                                                                                                        3-May-08
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                                                                                                                                                                                                                                                3-Oct-08
                                                                                                                                                                                                                                                           3-Nov-08
                                                                                                                                                                                                                                                                      3-Dec-08
                                                                                                                                                                                                                                                                                 3-Jan-09
                                                                                                                                                                                                                                                                                            3-Feb-09
                                                                                                                                                                                                                                                                                                       3-Mar-09
                                                                                                                                                                                                                                                                                                                  3-Apr-09
                                                                                                                                                                                                                                                                                                                             3-May-09
                                                                                                                                                                                                                                                                                                                                        3-Jun-09
                                                                                                                    MBSC                                   EGX30 Index                                                   Building Materials Index

Source: Mubasher, EGX and Global Research


Table 33: Misr Beni Suef at a glance
                            CMP (LE)                                                                         Shares in Issue (mn)     M-Cap (LE mn) 52-Week Hi/Lo (LE)
                             88.49                                                                                    20                   1,770       104.00   41.01
                                  Gross Profit                                                                 Net Profit       EPS    BVPS      ROAE
Year                                 (LE mn)                                                                    (LE mn)         (LE)     (LE)      (%) P/E (x) P/BV (x)
2010 F                                651,021                                                                    401,362       20.07    53.72 41.67%       4.41    1.65
2009 F                                633,285                                                                    385,737       19.29    42.60 45.57%       4.59    2.08
2008 A                                441,504                                                                    202,412       10.12    42.04 26.17%       4.91    2.10
2007 A                                407,795                                                                    193,150         9.66   35.31 30.15%     12.02     2.51
Source: Global Research




00                                                                                                                                        Egypt Cement Sector                                                                                                                                                               July 2009
Global Research - Egypt                                                                       Global Investment House



Financial Performance
Income Statement Analysis

Misr Beni Suef Cement Company’s total sales volume witnessed a moderate growth during
the period from 2004 to 2008, rising at a CAGR of 2.8%. In 2008, the Company’s total sales
volume reported a slight decline of 2.4%, where it went down from 1.73mn ton in 2007
to 1.69mn ton in 2008.This can be attributed to the plunge witnessed in the export sales
volume in 2008, dropping by 67.0%, from 0.9mn ton to 0.3mn ton between 2007 and 2008.
Conversely, the strong domestic demand has supported the local sales volume, which surged
by 63.4% during the year, growing from 0.9mn ton in 2007 to 1.4mn ton in 2008.

Chart 105: Misr Beni Suef Cement Sales Volume Breakdown
          2.5                                                                                                   20%

          2.0                                                                                                   16%
                                          13.0%                                                    0.3
          1.5                                                                                                   12%
                     0.7                                                 0.9
                                              1.2
Tons mn




          1.0                                                                                                   8%
                                                                                                   1.4
          0.5    3.5%                                                    0.9                                    4%
                     0.8                      0.5
          0.0                                                                                                   0%
                                                                           -2.1%                     -2.4%
          -0.5      2005                     2006                       2007                      2008          -4%
                            Local Sales           Export Sales        Growth in Total Sales Volume
Source: Misr Beni Suef Cement Company and Global Research


Misr Beni Suef Cement Company’s average selling price rose by 13.0% in 2008, rising from
LE346/ton in 2007 to LE391/ton in 2008. Accordingly, the Company’s total sales value
reached LE660.0mn in 2008, compared to LE588.3mn in 2007, up by 12.2%. Between 2004
and 2008, the Company’s total sales value witnessed a robust growth at a CAGR of 22.5%,
where it climbed from LE293.0mn in 2004 to LE660.0mn in 2008.

Chart 106: Misr Beni Suef Cement Sales Value and Average Price
          700                                                                                                  400
                                                                                                  391
          600                                                                                                  390

                                                                                                               380
          500
                     362                                                                                       370
          400
LE mn




                                              355                                                              360
                                                                                                                     LE




          300                                                           346                                    350
          200
                                                                                                               340
          100                                                                                                  330
                    406.0                    557.5                     588.3                      660.0
             0                                                                                                 320
                    2005                     2006                      2007                       2008
                                 Total Sales Value          Average price per ton (right scale)
Source: Misr Beni Suef Cement Company and Global Research


The rise in the energy prices, after the government’s decision to cut energy subsidies for
the energy intensive industries, has contributed significantly to the hike witnessed in the
Company’s cash cost per ton, excluding depreciation, by 23.9% in 2008, reaching LE129/ton
from LE104/ton in 2007.


July 2009                                         Egypt Cement Sector                                            0
Global Research - Egypt                                                               Global Investment House


Chart 107: Misr Beni Suef Cement average selling price and cash cost of production
        450         76.6%                                                                             78.0%
                                                                                      391
        400                                                                                           76.0%
              362                     355                     346
        350                                                                                           74.0%
                                            73.1%
        300
                                                                                                      72.0%
 LE



        250                                                           69.8%
                                                                                                      70.0%
        200
                                                                                             66.9%    68.0%
        150
        100                                                                                   129     66.0%
                       85                     96                      104
         50                                                                                           64.0%
          -                                                                                           62.0%
                 2005                    2006                   2007                     2008
                            Average price per ton        Cash cost per ton         Spread
Source: Misr Beni Suef Cement Company and Global Research


Consequently, the COGS increased from LE180.5mn in 2007 to LE218.4mn in 2008, rising
by 21.0%, which outpaced the growth in sales. Therefore, the COGS/Sales ratio grew from
30.7% in 2007 to 33.1% in 2008.

Chart 108: Misr Beni Suef Cement Cost of Goods Sold (COGS)
        250                                                                                             40%
                32.6%                                                                       33.1%
                                         30.3%                     30.7%
        200
LE mn




        150                              27.3%
                                                                                                        20%
                20.4%                                                                       21.0%
        100
                                          168.6                     180.5
                 132.5                                                                      218.4
         50
                                                                    7.0%
          -                                                                                             0%
                 2005                     2006                      2007                    2008
                                COGS              Growth in COGS             COGS/Sales
Source: Misr Beni Suef Cement Company and Global Research


Additionally, the S,G&A/Sales ratio rose from 1.9% to 3.1% between 2007 and 2008. The
increase witnessed in both, the COGS and S,G&A as percentage of sales, caused EBITDA
margin to decline from 67.4% in 2007 to 63.8% in 2008.

Chart 109: Misr Beni Suef Cement EBITDA
        450                                                                                             75%
        400                              68.7%
                                                                   67.4%                                70%
                66.1%
        350                                                                               63.8%
                                                                                                        65%
        300
LE mn




        250                                                                                             60%
        200                                                        396.8                    421.0
                                         383.1                                                          55%
        150     268.3                                                                                   50%
        100
        50                                                                                              45%

          -                                                                                             40%
                2005                     2006                  2007                         2008
                                         EBITDA            EBITDA Margin
Source: Misr Beni Suef Cement Company and Global Research




02                                         Egypt Cement Sector                                      July 2009
Global Research - Egypt                                                   Global Investment House


Furthermore, the Company’s interest income dropped by 36.5% in 2008, reaching LE14.6mn,
compared to LE23.0mn in 2007. This decline is due to the slump of the time deposits from
LE535.4mn in 2007 to LE216.4mn in 2008, down by 59.6%.

The Company formed LE120mn provision expense in 2008 to meet the cost of extending the
infrastructure for the additional electricity and natural gas required for Company’s second
production line, which will double the current annual production capacity from 1.5mn ton to
3mn ton.

Misr Beni Suef Cement Company enjoys 10 years tax exemption according to Law no. 8 of
year 1997. The tax holiday started in 2004 and will end in 2013. It is worth mentioning that
the Company paid LE2.9mn in 2008, representing the 20% taxes on the interest income,
which is not included in the tax holiday.

The Company’s ROS declined to 30.7% in 2008 from 32.8% in 2007 for the same reasons
explained above. The Company net profit grew from LE193.1mn in 2007 to LE202.4mn in
2008, up by 4.8%.

Chart 110: Misr Beni Suef Cement Net Profit
        250                                                                                50%

                                          40.8%
        200                                                                                40%
                32.7%                                        32.8%
                                                                             30.7%
        150                                                                                30%
LE mn




                                       227.7
        100                                                  193.1            202.4        20%
                 132.8
         50                                                                                10%

          -                                                                                0%
                 2005                  2006                  2007             2008
                                        Net Profit       Return on Sales
Source: Misr Beni Suef Cement Company and Global Research


Balance Sheet Analysis

Misr Beni Suef Cement Company’s total assets increased from LE1.4bn in 2007 to LE1.6bn
in 2008, a Y-o-Y growth of 12.6%. This came as a result of the Company’s expansion plan,
which will double the annual production capacity from 1.5mn ton to 3mn ton. Therefore, the
Company’s projects under construction reported more than twofold growth during the year
rising from LE243.3mn in 2007 to LE781.1mn in 2008.

Consequently, the long term assets has accounted for 80.6% of total assets in 2008, up from
56.3% in 2007. This came on the expense of the cash and cash equivalent balance, which
plummeted by 59.2% in 2008, dropping from LE558.1mn to LE227.9mn between 2007 and
2008.




July 2009                                Egypt Cement Sector                                 0
Global Research - Egypt                                                              Global Investment House


Chart 111: Misr Beni Suef Cement Assets Composition
100%
 90%
 80%
 70%                                    61.6%                        56.3%
 60%            84.5%                                                                          80.6%
 50%
                                                                     3.3%
 40%                                     3.3%
 30%
 20%                                                                 40.5%                     4.8%
                 3.7%                   35.2%
 10%                                                                                           14.7%
                11.8%
  0%
                 2005                   2006                         2007                      2008
                            Cash & Equivalent         Other assets          Long-term Assets
Source: Misr Beni Suef Cement Company and Global Research


On the other hand, Misr Beni Suef Cement Company’s equity, which represents 54.1% of
the Company’s financing structure, grew by 19.1% in 2008, to reach LE840.8mn up from
LE706.1mn in 2007.

On the debt front, the Company’s interest bearing debt balance stood at LE51.7mn in
2008, compared to LE183.4mn in 2007, a drop of 71.8%. This decline was due to the early
repayment of the Company’s debt in 2008. Moreover, the Company’s other liabilities rose
from LE490.1mn in 2007 to LE660.5mn in 2008, up by 34.8%. This increase is mainly
attributed to the growth in the provisions, related to the additional required infrastructure for
electricity and natural gas to operate the Company’s second production line.

Chart 112: Misr Beni Suef Cement Liabilities and Shareholders’ Equity
100%
 90%            23.1%
                                        31.3%                        35.5%
 80%                                                                                           42.5%
 70%
 60%
 50%            48.2%
 40%                                    59.5%                        51.2%
 30%                                                                                           54.1%
 20%
                28.6%
 10%
                                        9.3%                         13.3%                     3.3%
  0%
                 2005                    2006                        2007                      2008
                              Interest Bearing Debt       Equity         Other liabilities
Source: Misr Beni Suef Cement Company and Global Research


Q1 2009

The local cement demand has maintained its growth during the first quarter of 2009,
driven by the accelerated activities witnessed in the construction sector. Misr Beni Suef
Cement Company’s total sales value soared by 57.5% in the first quarter of 2009, reaching
LE231.3mn, as opposed to LE146.8mn in the first quarter of 2008, due to the commencement
of the production from the first phase of the second production line.




0                                       Egypt Cement Sector                                          July 2009
Global Research - Egypt                                                            Global Investment House


Chart 113: Misr Beni Suef Cement Q1 Sales Value
        250                                                                                          70%
                57.6%                                                                  57.5%
                                                                                                     60%
        200
                                                                                                     50%
        150                                                                                          40%
LE mn




                                                               25.2%                       231.3
        100                                                                                          30%
                                                                   146.8                             20%
                   116.8                  117.3
         50
                                                                                                     10%
                                          0.4%
          -                                                                                          0%
               Q1 2006                Q1 2007                 Q1 2008                 Q1 2009
                                          Total Sales Value          Growth
Source: Misr Beni Suef Cement Company and Global Research


In the first quarter of 2009, the Company’s COGS hiked by 85.8%, which outpaced growth in
sales, reaching LE89.9mn, compared to LE48.4mn in the first quarter of 2008. Accordingly,
the COGS/Sales ratio increased from 33.0% to 38.9%, between the comparable periods.

Moreover, the S,G&A/Sales ratio rose from 0.7% in the first quarter of 2008 to 1.7% in the
first quarter of 2009. In turn, the EBITDA margin went down from 66.3% to 59.4% between
the comparable periods.

Chart 114: Misr Beni Suef Cement Selected Income Statement Items in Q1
        160     70.7%                                                                                80%
                                      67.3%                    66.3%
        140                                                                                          70%
                                                                                       59.4%
        120                                                                                          60%
        100                                                                                          50%
                                                                                             38.9%
LE mn




         80                           32.0%                    33.0%                                 40%
                28.6%
         60                                                                                          30%
                                                                       97             90      137
         40           83                      79                                                     20%
         20                                                   48                                     10%
              33                     38
          -                                                                                          0%
               Q1 2006               Q1 2007                  Q1 2008                 Q1 2009
                           COGS      EBITDA             COGS/Sales            EBITDA Margin
Source: Misr Beni Suef Cement Company and Global Research


Misr Beni Suef Cement Company’s bottom line reached LE107.4mn in the first quarter of
2009, as opposed to LE57.7mn reported in the first quarter of 2008, achieving a growth
of 86.0%. Consequently, the net profit margin rose from 39.3% to 46.4% between the
comparable periods.




July 2009                                   Egypt Cement Sector                                       0
Global Research - Egypt                                                                             Global Investment House


Table 34: Misr Beni Suef Cement Q1 Income Statement
LE000                                                                          Q1 2008             Q1 2009              Change%
Sales                                                                          146,809             231,268                 57.5%
COGS                                                                           (48,394)            (89,897)                85.8%
SG&A                                                                            (1,058)             (3,970)               275.3%
EBITDA                                                                           97,357            137,401                 41.1%
Depreciation                                                                   (15,837)            (15,829)                 -0.1%
EBIT                                                                             81,520            121,573                 49.1%
Interest Income                                                                   4,428               3,351               -24.3%
Investment Income                                                                     0                   0                      -
Interest Expense                                                                      0                   0                      -
Other Provisions                                                               (28,000)            (17,223)               -38.5%
Other Non-Operating Income\(Expense)                                                674                 349               -48.1%
NPBT                                                                             58,621            108,050                 84.3%
Income Tax                                                                        (888)               (675)               -24.0%
NPAT                                                                             57,733            107,375                 86.0%
Capital Gain/Loss                                                                     0                   0                      -
Other Extraordinary Items                                                             0                   0                      -
NPAUI                                                                            57,733            107,375                 86.0%
Minority Interest                                                                     0                   0                      -
Net Profit/(Loss)                                                                57,733            107,375                 86.0%
Source: Misr Beni Suef Cement Company and Global Research


Financial Forecast

According to our cement market forecast, Misr Beni Suef Cement is expected to operate
at a utilization rate of 85% in 2009, as the new production line will not be fully completed
during 2009. After that the utilization rate will increase gradually, as the new production line
will be completed in 2010. The utilization rate is forecasted to reach103% in 2013. We also
assumed that the Company is expected to allocate a greater proportion of its production to the
export market in 2010 and 2011. Afterwards, an increasing percentage of production will be
allocated to the local market, as local demand will rebound.

Chart 115: Misr Beni Suef Cement forecasted capacity, utilization rate, local & export sales volume
         3.5                                                                                                                105%
                                   3.0                                                                            103%
         3.0
                                                                99%                         101%                            100%
                     2.2                 2.4
         2.5
                                         94%                                                                                95%
         2.0
Ton mn




         1.5   3.0                                        3.0                   3.0                    3.0 2.9
                                                                                                                            90%
                                                                                      2.4
         1.0                                                    2.2
                                                                       0.8
                                                                                             0.6                            85%
                                                0.4
         0.5          85%
                        0.3
                                                                                                                  0.2
         0.0                                                                                                                80%
                     2009                2010                   2011                  2012                 2013
                            Capacity            Local sales            Export Sales           Utilization rate

Source: Global Research


Furthermore, we assumed that average price per ton during 2009 will maintain its current
levels, on the back of strong local consumption, then decline by 5% in 2010, before rebounding
gradually until reaching LE450/ton in 2013.


0                                                   Egypt Cement Sector                                                 July 2009
Global Research - Egypt                                                                                     Global Investment House


Chart 116: Misr Beni Suef Cement forecasted sales value and average price
        1,600                                                                                                                 460
        1,400                                                                                                         447     450

        1,200                                                                                                                 440
                                                                                            428                               430
        1,000
                                                                  413                                                         420
LE mn




                                                                                                                                    LE
         800                   414
                                            400                                                                               410
         600
                                                                                                                              400
         400                                                                                                                  390
         200                                                                                                                  380
                     1,055                  1,122                 1,219                 1,298                  1,382
               -                                                                                                              370
                         2009               2010                  2011               2012                      2013
                                           Sales value             Average price/ton (Right scale)

Source: Global Research


Moreover, we assumed that cash cost of production to grow at around 28% in 2009, reflecting the
government decision to liberalize energy prices. Afterwards, cash cost of production is forecasted
to increase on average by 2% annually, assuming no further government intervention, such as
increasing energy prices and/or imposing any additional duties on cement manufacturers.

Chart 117: Misr Beni Suef Cement forecasted average selling price and cash cost of production
        500                                                                                                                    70%
                    66.9%
        450
                                                                                                                               65%
        400                           60.0%                                                                        60.0%
                                                                           58.5%                59.0%
                                                         58.0%                                                                 60%
        350
LE




        300                                                                                                                    55%
                                                                                                428               447
        250        391               414             400                  413
                                                                                                                               50%
        200                                                 168                 171                   176               179
                                           166
                                                                                                                               45%
        150              129

        100                                                                                                                    40%
                    2008              2009           2010                   2011                 2012              2013
                                         Average price/ton              Cash cost/ton            Spread

Source: Global Research


Consequently, COGS/Sales ratio is expected to increase in 2010, as the selling price is
expected to decrease, while cash cost of production will keep increasing marginally over our
forecast horizon. However, COGS/Sales ratio is estimated to decline gradually starting from
2011 till it reaches 45.8% in 2013, as the selling price is expected to increase at a higher rate
than the growth in the cash cost of production.

Chart 118: Misr Beni Suef Cement forecasted cost of sales and COGS/Sales ratio
        600                                                                                                       553          44%
                                                                                          532
                                                                   506
        500                                 471                                                                                43%
                         422
        400                                                                                                                    42%
                                           42.0%
LE mn




        300                                                       41.5%                                                        41%
                                                                                         41.0%
        200                                                                                                                    40%
                     40.0%                                                                                       40.0%
        100                                                                                                                    39%

           -                                                                                                                   38%
                     2009                   2010                   2011                  2012                     2013
                                                         COGS              COGS/Sales
Source: Global Research


July 2009                                                Egypt Cement Sector                                                        0
Global Research - Egypt                                                    Global Investment House


Additionally, we assumed that S,G&A will increase annually by 10% from 2008 level.
Consequently, S,G&A/Sales is forecasted to increase marginally over our forecast horizon,
as the growth in S,G&A will outpace the increase in sales. Accordingly, EBITDA Margin is
forecasted to decline in 2010, as a result of the increase in COGS/Sales and S,G&A/Sales,
then advancing gradually over the next years.

Chart 119: Misr Beni Suef Cement forecasted EBITDA and EBITDA margin
        900   57.9%                                                             57.6%        60%
                                                56.3%              56.7%                     58%
        800                 55.8%
        700                                                                                  56%
        600                                                                                  54%
                                                                                             52%
LE mn




        500
                                                                                             50%
        400                                                         736          796
                                                 686                                         48%
        300     611          626
                                                                                             46%
        200                                                                                  44%
        100                                                                                  42%
          -                                                                                  40%
               2009          2010               2011             2012            2013
                                    EBITDA              EBITDA margin
Source: Global Research


Net profit as a percent of sales is expected to follow a similar trend like EBITDA margin
from 2009 to 2013, for the same reasons mentioned above. However, net profit margin will
be lower than EBITDA margin, mainly because we assumed that the Company will continue
to form provisions required to meet the cost of supply energy to its new production line, but
at lower rate than the historical rate, as percentage of sales.

Starting from 2014, Misr Beni Suef Cement will start to pay 20% taxes, as its tax exemption
period will end in 2013. It is worth mentioning that we assumed a tax rate of 20% on interest
income during the tax exemption period, according to the Egyptian tax law, which exempts
only operating income from taxes throughout the tax holiday period.

Chart 120: Misr Beni Suef Cement forecasted net profit and net profit margin
        700                                                                     45.2%        46%

        600                                                        42.1%                     44%
                                                                                             42%
        500
                                                39.0%                            624         40%
        400
LE mn




              36.5%                                                                          38%
        300                 35.8%
                                                                    546                      36%
                                                 475
        200    386           401
                                                                                             34%
        100                                                                                  32%
          -                                                                                  30%
               2009          2010               2011                2012         2013
                                    Net profit           Return on Sales

Source: Global Research




0                                  Egypt Cement Sector                                 July 2009
Global Research - Egypt                                                  Global Investment House



Valuation
Discounted Cash Flow (DCF)

Based on our valuation assumption stated earlier under valuation and recommendation section
and out projected Free Cash Flow to Firm (FCFF), shown below, we reached a fair value of
LE165.2/share using DCF method, implying 86.7% upside potential from the current market
price of LE88.49/share, as of June 30th, 2009.

Table 35: Misr Beni Suef Cement DCF valuation
(Values in 000)                              2009F      2010F       2011F        2012F     2013F
Free Cash Flow                             (42,193)    477,877     653,014      699,846   756,028
Terminal Value                 3,736,089
Discounted Cash Flow                       (38,576)    365,052     416,788      373,206   336,852
PV of Terminal Value           1,663,397
Enterprise Value               3,116,719
Cash                             257,190
Debt                            (69,039)
Equity value                   3,304,871
No. of Shares                     20,000
Fair Value (LE)                    165.2
Source: Global Research


Sensitivity Analysis

We provide below a sensitivity analysis table, which shows the probable values given
different growth rate assumption and WACC. The shaded area represents the most probable
outcome.

Table 36: Sensitivity Analysis
                                                              Terminal Growth
                                              1.0%          2.0%      3.0%        4.0%      5.0%
                                 17.7%        173.9         180.4     187.8       196.3     206.2
                                 18.7%        163.8         169.5     175.8       183.0     191.3
            WACC
                                 19.7%        154.9         159.8     165.2       171.4     178.4
                                 20.7%        146.9         151.1     155.9       161.2     167.1
                                 21.7%        139.6         143.3     147.5       152.1     157.2
Source: Global Research


Relative Valuation

Using the Weighted average EV/EBITDA of 6.82x for the cement sector in the region,
calculated earlier under the valuation and recommendation section, we reached a fair value
of LE152.9/share using relative valuation method, implying 72.8% upside potential from the
current market price of LE88.49/share, as of June 30th, 2009.

Based on the fact that relative valuation is being highly influenced by the market prices of the
comparable companies, a 20% weight was assigned for EV/EBITDA and 80% to the DCF.



July 2009                             Egypt Cement Sector                                     09
Global Research - Egypt                                              Global Investment House


Table 37: Misr Beni Suef Cement weighted average fair value
                                                    Fair Value/                  Weighted
Valuation approach                                  share (LE)        Weight    Value (LE)
DCF Valuation                                             165.2         80%          132.2
Relative valuation                                        152.9         20%            30.6
Weighted average fair value                                                          162.8
Current market price (LE)*                                                           88.49
Upside/(Downside) potential                                                         83.9%
*Price as of June 22nd, 2009
Source: Global Research


Combining both methods resulted in a fair value of LE162.8/share, compared to the current
market price of LE88.49/share, implying an upside potential of 83.9% over the market price.
Therefore, we initiated our coverage for Misr Beni Suef Cement Company with a “BUY”
recommendation.




0                                 Egypt Cement Sector                            July 2009
                      Balance Sheet
                                                                                                                     Misr Beni Suef Cement
                                                                                                Actual                                              Projected
                      (in LE 000s)                                                   2005      2006          2007          2008      2009 (F)    2010 (F)     2011 (F)    2012 (F)
                      Assets
                      Operating Cash                                                   933     5,495        12,678        11,492       22,746      24,189       26,274      27,962
                      Excess Cash                                                   91,062   334,522       545,437       216,440            -     167,443      527,159     924,866
                      Net Accounts Receivables                                       1,009       212           229           375          600         639          694         738




July 2009
                      Inventory                                                     15,723    25,795        29,644        27,804       43,990      51,006       56,767      60,750
                      Dues From HC’s & Affiliates                                        -         -             -             -            -           -            -           -
                      Other Current Assets                                          12,100     5,587        15,405        45,882       80,216      86,272       87,533      88,841
                      Total Current Assets                                         120,827   371,610       603,394       301,993      147,553     329,548      698,427   1,103,157
                                                                                                                                                                                     Global Research - Egypt




                      Deferred tax asset                                                 -         -             -             -            -           -            -           -
                      Subsidiaries & Other Long Term Investments                         -         -             -             -            -           -            -           -
                      Other long term assets                                             -         -             -             -            -           -            -           -
                      Intangibles                                                        -         -             -             -            -           -            -           -
                      Projects Under Implementation                                    767     1,294       243,320       781,148       21,109       6,558        2,943       2,893
                      Gross Fixed Assets :                                         777,151   777,467       779,801       779,948    2,173,651   2,336,651    2,367,651   2,396,651
                      Less : Acc. Depreciation                                     120,507   183,497       246,811       310,133      398,741     522,775      652,143     783,161
                      Net Fixed Assets                                             656,645   593,970       532,991       469,815    1,774,909   1,813,876    1,715,508   1,613,489
                      Total Assets                                                 778,238   966,875     1,379,704     1,552,956    1,943,571   2,149,983    2,416,877   2,719,539
                      Liabilities & Shareholder’s Equity
                      Short Term Debt                                                2,330       679         6,251        21,640       32,459           -            -           -
                      CPLTD                                                         24,245    16,516             -             -       76,639      76,639       76,639           -




Egypt Cement Sector
                      Accounts Payable                                              12,214    14,622        54,137         6,350       10,555      11,786       12,649      13,832
                      Accrued expenses                                              14,014     2,914         3,817        28,315       50,663      55,393       56,922      57,986
                      Down payments                                                 14,813    39,716        13,594             -       15,832      16,837       18,288      19,463
                      Dividends payable                                                  -         -             -         2,388            -           -            -           -
                      Dues To HC’s & Affiliates                                          -         -             -             -            -           -            -           -
                      Other Current Liabilities                                     25,511    40,649        63,784       107,458      110,192     117,857      118,903     119,696
                      Total Current Liabilities                                     93,127   115,095       141,584       166,152      296,339     278,512      283,401     210,976
                      Total Long Term Debt                                         196,383    72,500       177,196        30,051      153,278      76,639            -           -
                      Provisions For Deferred Taxes                                      -         -             -             -            -           -            -           -
                      Other Provisions                                             104,083   198,073       351,403       515,283      641,940     720,511      796,102     868,763
                      Other Non-Current Liabilities                                  9,183     6,227         3,410           696            -           -            -           -
                      Minority interest                                                  -         -             -             -            -           -            -           -
                                                                                                                                                                                     Global Investment House





                      Total Liabilities                                            402,776   391,895   673,592.043       712,182    1,091,557   1,075,662    1,079,503   1,079,739
                      Net Paid-In Capital                                          200,000   200,000       200,000       200,000      200,000     200,000      200,000     200,000
                      Additional paid-in capital                                         -         -             -             -            -           -            -           -
                      Legal & Statutory Reserves                                     3,713    10,353        21,737        31,395       50,682      70,750       94,496     100,000
                      General & Other Reserves                                      38,938   136,945       291,225       406,967      601,333     803,571    1,042,878   1,339,800
                      Retained Earnings                                            132,811   227,681       193,150       202,412            -           -            -           -
                      Shareholders’ Equity                                         375,463   574,979       706,112       840,774      852,014   1,074,321    1,337,375   1,639,800
                      Total Liabilities & Shareholder’s Equity                     778,238   966,875     1,379,704     1,552,956    1,943,571   2,149,983    2,416,877   2,719,539
                      Source: Misr Beni Suef Cement Financials & Global Research
                      Income Statement




2
                                                                                                                           Misr Beni Suef Cement
                                                                                                       Actual                                              Projected
                      (in LE 000s)                                                      2005         2006          2007            2008    2009 (F)     2010 (F)      2011 (F)     2012 (F)
                      Revenues from Operation                                        406,008      557,502       588,293        659,952    1,055,474    1,122,451     1,219,204    1,297,515
                      COGS                                                         (132,501)    (168,649)     (180,498)      (218,447)    (422,190)    (471,429)     (505,969)    (531,981)
                      S. , G. & Adm. Expenses                                         (5,173)      (5,775)     (11,016)       (20,474)     (22,521)     (24,773)      (27,251)     (29,976)
                                                                                                                                                                                               Global Research - Egypt




                      EBITDA                                                         268,334      383,079       396,779        421,030      610,763      626,248       685,983      735,558
                      Depreciation & Amortization                                   (63,138)     (63,112)      (63,366)       (63,323)     (88,608)    (124,033)     (129,368)    (131,018)
                      Operating Profit -EBIT                                         205,196      319,966       333,413        357,708      522,155      502,215       556,615      604,540
                      Interest Income                                                       -            -       22,955         14,580         8,394           -          6,494      20,445
                      Investment Income                                                     -            -             -              -            -           -              -            -
                      Interest Expense                                              (27,567)       (8,849)       (3,119)              -    (18,302)     (24,222)      (13,398)       (4,466)
                      Other Provisions                                              (55,000)     (95,000)     (156,500)      (168,115)    (126,657)     (78,572)      (75,591)     (72,661)
                      Other Non-Operating Income/(expense)                            10,182       11,564            886          1,141        1,825       1,941          2,108        2,243
                      NPBT                                                           132,811      227,681       197,635        205,314      387,416      401,362       476,228      550,102
                      Income Tax                                                            -            -       (4,485)        (2,903)      (1,679)           -        (1,299)      (4,089)
                      NPAT                                                           132,811      227,681       193,150        202,412      385,737      401,362       474,930      546,012




Egypt Cement Sector
                      Capital Gain/Loss                                                     -            -             -              -            -           -              -            -
                      Extraordinary items                                                   -            -             -              -            -           -              -            -
                      NPAUI                                                          132,811      227,681       193,150        202,412      385,737      401,362       474,930      546,012
                      Minority Interest                                                     -            -             -              -            -           -              -            -
                      Net Profit/ (loss)                                             132,811      227,681       193,150        202,412      385,737      401,362       474,930      546,012
                      Source: Misr Beni Suef Cement Financials & Global Research
                                                                                                                                                                                               Global Investment House




July 2009
                      Cash Flow Statement
                                                                                                                           Misr Beni Suef Cement
                                                                                                     Actual                                                 Projected
                      (in LE 000s)                                                      2005        2006           2007           2008      2009 (F)    2010 (F)        2011 (F)    2012 (F)
                      Net Income                                                    132,811     227,681        193,150        202,412        385,737     401,362         474,930     546,012




July 2009
                      Depreciation & Amortization                                     63,138      63,112         63,366         63,323        88,608     124,033         129,368     131,018
                      Non-operating items                                           (10,182)    (11,564)          (886)        (1,141)        (1,825)     (1,941)         (2,108)     (2,243)
                      Provision                                                       55,000      95,000       156,500        168,115        126,657      78,572          75,591      72,661
                      Investment Income                                                    -           -               -             -              -           -               -           -
                      Interest Income                                                      -           -       (22,955)       (14,580)        (8,394)           -         (6,494)   (20,445)
                                                                                                                                                                                                Global Research - Egypt




                      Interest expense                                                27,567       8,849          3,119              -        18,302      24,222          13,398        4,466
                      Capital loss/ (gain)                                                 -           -               -             -              -           -               -           -
                      Extra ordinary items                                                 -           -               -             -              -           -               -           -
                      Operating profit before working capital changes               268,334     383,079        392,294        418,128        609,085     626,248         684,685     731,469
                      (Increase)/decrease in receivables                             (1,009)         797            (17)         (147)          (225)        (38)            (55)        (45)
                      (Increase)/decrease in inventory                               (3,153)    (10,072)        (3,849)          1,840      (16,186)      (7,016)         (5,761)     (3,982)
                      (Increase)/decrease in other current assets                      8,374       6,513        (9,818)       (30,476)      (34,334)      (6,055)         (1,261)     (1,308)
                      increase/(decrease) in payables                                  5,036       2,408         39,515       (47,788)          4,205       1,231             864       1,182
                      increase/(decrease) in accrued expenses                        (7,012)    (11,100)            903         24,498        22,347        4,730           1,529       1,064
                      increase/(decrease) in down payments                               849      24,903       (26,121)       (13,594)        15,832        1,005           1,451       1,175
                      increase/(decrease) in other current liabilities                 1,792      15,137         23,136         43,674          2,733       7,666           1,046         793




Egypt Cement Sector
                      Cash flow from operating activities                           273,211     411,664        416,043        396,135        603,457     627,770         682,496     730,348
                         Receipts from extraordinary items                            10,182      11,564            886          1,141          1,825       1,941           2,108       2,243
                      Net cash provided by operating activities                     283,393     423,228        416,929        397,276        605,282     629,710         684,604     732,591

                      (Increase)/decrease Fixed assets                                 7,279       (438)         (2,387)          (147)   (1,393,702)   (163,000)        (31,000)    (29,000)
                      (Increase)/decrease Projects under implementation                  636       (528)      (242,026)      (537,828)        760,038      14,551           3,616          50
                      (Increase)/decrease Investments                               (88,558)   (243,460)      (210,916)        328,998        216,440   (167,443)       (359,717)   (397,707)
                      Other long-term Assets                                               -           -               -              -             -           -               -           -
                      Interest income                                                      -           -         22,955         14,580          8,394           -           6,494      20,445
                      Provision                                                     (55,000)    (95,000)      (156,500)      (168,115)      (126,657)    (78,572)        (75,591)    (72,661)
                      Cash flow from Investing activities                          (135,643)   (339,425)      (588,874)      (362,511)      (535,487)   (394,463)       (456,197)   (478,873)
                      Increase/(decrease) in shareholders’ equity                     10,139      26,836         (2,016)        12,250      (222,041)    (20,424)        (24,167)    (27,785)
                      Increase/(decrease) in long & short term borrowing           (148,320)   (133,262)         93,751      (131,756)        210,686   (109,098)        (76,639)    (76,639)
                                                                                                                                                                                                Global Investment House





                      Increase/(decrease) in other long-term liabilities              41,572      91,034        150,512        161,167        125,960      78,572          75,591      72,661
                      Interest expense                                              (27,567)     (8,849)         (3,119)              -      (18,302)    (24,222)        (13,398)     (4,466)
                      Dividends paid                                                (28,164)    (55,000)       (60,000)       (77,612)      (154,844)   (158,632)       (187,708)   (215,802)
                      Cash flow from Financing activities                          (152,340)    (79,241)        179,128       (35,951)       (58,541)   (233,804)       (226,322)   (252,031)
                      Net cash flow                                                  (4,590)       4,561           7,183        (1,186)        11,254       1,443           2,085       1,688
                      Cash at the beginning of the year                                5,524         933           5,495        12,678         11,492      22,746          24,189      26,274
                      Cash at the end of the year                                        933       5,495         12,678         11,492         22,746      24,189          26,274      27,962
                      Source: Misr Beni Suef Cement Financials & Global Research
                      Fact Sheet
                                                                                                                                               Misr Beni Suef
                                                                                                                Actual                                                          Projected
                                                                                             2005              2006              2007              2008         2009 (F)     2010 (F)     2011 (F)    2012 (F)





                      Profitability
                        Gross Profit Margin                                                 67.4%            69.7%             69.3%             66.9%             60.0%       58.0%        58.5%       59.0%
                        Operating Margin                                                    50.5%            57.4%             56.7%             54.2%             49.5%       44.7%        45.7%       46.6%
                        Net Profit Margin                                                   32.7%            40.8%             32.8%             30.7%             36.5%       35.8%        39.0%       42.1%
                      Turnover ratios
                        Inventory turnover                                                   8.43              6.54              6.09             7.86               9.60        9.24         8.91        8.76
                                                                                                                                                                                                                 Global Research - Egypt




                        Receivables turnover                                               402.54          2,631.24          2,570.10         1,757.94          1,757.94     1,757.94     1,757.94    1,757.94
                        Payables turnover                                                   10.85             11.53              3.33            34.40             40.00        40.00        40.00       38.46
                        Net working capital turnover                                        14.66              2.17              1.27             4.86             (7.09)       21.99         2.94        1.45
                        GFA turnover                                                         0.52              0.72              0.75             0.85               0.49        0.48         0.51        0.54
                        NFA turnover                                                         0.62              0.94              1.10             1.40               0.59        0.62         0.71        0.80
                        Asset turnover                                                       0.52              0.58              0.43             0.42               0.54        0.52         0.50        0.48
                      Leverage Ratios
                        Debt/Total Assets                                                   28.6%             9.3%             13.3%              3.3%             13.5%       7.1%          3.2%       0.0%
                        Debt/Equity                                                           0.59            0.156             0.260             0.061             0.308      0.143         0.057          -
                        Interest coverage                                                      7.4             36.2             106.9                 -              28.5       20.7          41.5      135.4
                      Return Ratios
                        Return on average assets                                            17.2%            26.1%             16.5%             13.8%            22.1%        19.6%        20.8%       21.3%




Egypt Cement Sector
                        Return on average equity                                            41.8%            47.9%             30.2%             26.2%            45.6%        41.7%        39.4%       36.7%
                        Return on invested capital                                          29.3%            51.6%             61.6%             50.8%           43.57%        28.6%        31.2%       35.7%
                      Valuation Ratios
                        Number of Shares (000)                                             20,000           20,000            20,000            20,000            20,000       20,000       20,000      20,000
                        Market Cap as at year end (LE000)                               1,672,200        2,085,600         2,321,800           994,200         1,769,800    1,769,800    1,769,800   1,769,800
                        Market Price (LE)                                                    83.6           104.28            116.09              49.7              88.5         88.5         88.5        88.5
                        Dividend announced (LE000)                                         25,000           55,000            60,000            80,000           152,456      158,632      187,708     215,802
                        Dividend yield                                                      1.5%             2.6%              2.6%              8.0%              8.6%         9.0%        10.6%       12.2%
                        Dividend payout ratio                                              18.8%            24.2%             31.1%             39.5%             39.5%        39.5%        39.5%       39.5%
                        Earnings per share (LE)                                              6.64            11.38              9.66             10.12             19.29        20.07        23.75       27.30
                        Price to Earnings (times)                                           12.59             9.16             12.02              4.91              4.59         4.41         3.73        3.24
                        EV/EBIDTA (times)                                                    6.72             4.81              4.94              1.97              2.30         2.25         2.05        1.91
                                                                                                                                                                                                                 Global Investment House




July 2009
                        Price to book value (times)                                          4.71             3.08              2.51              2.10              2.08         1.65         1.32        1.08
                      Historical multiples are based on respective year-end prices, while that for future years are based on current market prices as of June 30th, 2009.
                      Source: Misr Beni Suef Cement Financials & Global Research
This Page is Intentionally Left Blank
This Page is Intentionally Left Blank
The following is a comprehensive list of disclosures which may or may not apply to all our researches.
Only the relevant disclosures which apply to this particular research has been mentioned in the table
below under the heading of disclosure.
 Disclosure Checklist
Company                               Recommendation Reuters Ticker                       Price (LE.)        Disclosure

Sinai Cement Company                           Buy                 SCEM.CA                   71.98                1,10
                                                                   SCEM:EY                                        1,10
Misr Cement Qana                               Buy                 MCQE.CA                   78.00                1,10
                                                                   MCQE:EY                                        1,10
Misr Beni Suef Cement                          Buy                 MBSC.CA                   88.49                1,10
                                                                   MBSC:EY                                        1,10

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