Nomura International plc, London
Global Emerging Markets Research
European Building Materials-Valuation pricing in
the worst
Ankur Agarwal (+44 (0) 2071029138)
Ankit Kumar (+91 (0) 2240533808)
Nomura International plc
September 2011
ANY AUTHORS NAMED ON THIS REPORT ARE RESEARCH ANALYSTS UNLESS OTHERWISE INDICATED
PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON SLIDE 69.
Nomura International plc
Key recommendations in the sector

Saint Gobain (Buy, TP EUR 50) - Our top pick in the sector for 2011


CRH (Buy, TP EUR 16) – Now in deep value zone


We are Neutral on Lafarge as we believe that the current stock price largely factors in the concerns around its exposure to Egypt where
recent pricing has been weak and margin pressure in Asia. We believe that recent announcements around the gypsum business have
confirmed that management is focused on addressing leverage concerns and is on track to exceed its net debt reduction and disposal
targets. However, the stock will likely still remain one of the most leveraged names in the sector. Our fair value would move down to c.
EUR 40 assuming zero GDP growth in Europe and the US along with an increased risk premium.
Italcementi (Neutral, TP EUR 7) – Compelling for value-based investors, lacks near-term catalyst


We have a Buy rating on Holcim, a company that apart from a solid balance sheet has what we regard as the right long-term growth drivers
in place, with 80% of its influenced capacity in emerging markets (c. 70% of EBITDA in 2010), more than half of which is in Asia, with a
particularly strong position in the Indian market. Not only that, we believe it will also benefit from a recovery in Europe and North America,
where it lost c. CHF 1.9bn (42% of the 2010 EBITDA) between the peak in 2007 and 2010. However, the appreciating Swiss franc and
margins pressure in key emerging market will likely mean some near-term pain. Our fair value would move down to c. CHF 44 assuming
zero GDP growth in Europe and the US, an increased risk premium and the strength of the Swiss franc.
Lafarge (Neutral, TP EUR 45) – Neutral as most concerns now in the share price


Relatively defensive name owing to a solid balance sheet and a high dividend yield. In our view, concerns around US are already factored
into the stock price. We see current valuation as very attractive for long-term value-focused investors, given that it is 0.76x 2010 book value
(a 33% discount to its Europe ex-UK market valuation), and at what we regard as an attractive dividend yield of 5.6%. Our fair value would
move down to c. EUR 12 assuming zero GDP growth in Europe and the US along with an increased risk premium.
Holcim (Buy, TP CHF 73) - Our favoured emerging market name even though near-term pain


Three reasons to own the stock apart from what we see as a reasonable valuation: 1) exposure to relatively resilient residential markets,
especially in northern/western Europe; 2) balance sheet strength at the top end of the sector; and 3) increasing exposure to energy efficiency
products. Even in a zero GDP growth scenario in Europe and the US we see fair value of the stock close to EUR 40.
We remain Neutral on this Italian small cap stock; even though we consider it deep value (trades at 0.31x 2010 book value), we see few
catalysts, especially in context of increasing sovereign concerns around Italy.
Buzzi Unicem (Reduce, TP EUR 7) – Among the Italians we see better value in Italcementi

We retain our Reduce stance which is a relative call versus the other Italian small cap stocks; even though on an absolute basis, we see
limited downside potential from current levels.
2
Summarising 2010 ─ a challenging year for the cement industry

Continued decline in developed markets as the expected recovery, especially in the US, was delayed.

Robust volumes in most emerging markets, but margin pressure in some key markets like India and Egypt, driven by a
combination of demand-supply dynamics and rising energy prices.

Focus on de-leveraging balance sheets, driven by a combination of cost-cutting and scaling back capital expenditure.

Capacity rationalisation in developed markets with steps like mothballing and closures.

Relatively muted year in terms of M&A activity.
3
Snapshot of volume trends in 2010
Russia
UK
Poland
German
France
y
Italy
Spain
Turkey
US
China
Morocco
Egypt
Mexico
India
Indonesia
Brazil
Western Europe
Eastern Europe
Global
> 20%
Source: Nomura estimates
-5% to 0%
-5% to 0%
0% to 5%
10% to 15%
5% to 10%
0% to 5%
0% to -5%
-5% to -10%
-10% to -15%
<-20%
4
Snapshot of pricing trends in 2010
Russia
UK
Poland
German
France
y
Italy
Spain
Turkey
US
China
Morocco
Egypt
Mexico
India
Indonesia
Brazil
Western Europe
-5% to 0%
Eastern Europe
-5% to -10%
Global
-5% to 0%
> 20%
Source: Nomura estimates
10% to 15%
5% to 10%
0% to 5%
0% to -5%
-5% to -10%
-10% to -15%
<-20%
5
Country grid representing the price volume trend for 2010
3
Turkey
Brazil
India
2
Indonesia
China
1
Egypt
Morocco
Czech
Rank of Volume Trends
Decreasing Volume
Increasing Volumes
Russia
UK
US
Range of Price/Volume
Rank assigned
Change
Poland
0
-3
-2
-1
0
1
2
3
France
-1 Saudi Arabia
Nigeria
Italy
-2
UAE
Australia
> 10%
5% to 10%
0% to 5%
-5% to 0%
-10% to -5%
< -10%
3
2
1
-1
-2
-3
Germany
Algeria
Mexico
Spain
-3
Rank of Pricing Trends
Decreasing Prices
Source: Company data, Nomura research
Increasing Prices
6
Reflected in the margin performance in 2010

Margins remained close to trough levels in 2010, driven by a lack of volume recovery in most mature markets and
adverse demand-supply dynamics in some emerging markets against a backdrop of rising energy prices.

In parts of Europe, operating performance was supported by the sale of carbon credits (carbon credit sales
contribution to 2010 EBITDA are 8.0%, 6.6%, 4.3% and 2.1% for Buzzi Unicem, Italcementi, Lafarge and Holcim,
respectively).
EBITDA Margin Trend
27%
25%
23%
21%
19%
17%
15%
2005
2006
2007
2008
2009
2010E
2011E
2012E
Holcim Ltd.
Lafarge S.A.
Heidelberg Cement AG
Avg of three (Cons)
Avg of three (Hist & NOM)
Mean last 5yr (Avg of three)
Peak last 5yr (Avg of three)
Trough last 5yr (Avg of three)
7
Source: Company data, Factset, Nomura estimates
Focus on de-leveraging the balance sheet

Companies continued to focus on de-leveraging their balance sheets through a combination of disposals, costcutting and scaling back capital expenditure.

Lafarge and Heidelberg Cement are specifically in focus from a balance sheet perspective, given that they acquired
Orascom Cement and Hanson at the peak of the cycle.
Net Debt/Equity Trend
220%
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
2005
2006
2007
2008
2009
2010E
2011E
2012E
Holcim Ltd.
Lafarge S.A.
Heidelberg Cement AG
Avg of three (Cons)
Avg of three (Hist & NOM)
Mean last 5yr (Avg of three)
Peak last 5yr (Avg of three)
Trough last 5yr (Avg of three)
Source: Company data, Factset, Nomura estimates
8
Driven by scaling back capital expenditure

Capital expenditure as a percentage of sales peaked in 2008.

After 2008, the focus of the companies has been to minimise capital expenditure - not only growth, but
maintenance as well.
Capex/Sales Trend
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
2005
2006
2007
2008
2009
2010E
2011E
2012E
Holcim Ltd.
Lafarge S.A.
Heidelberg Cement AG
Avg of three (Cons)
Avg of three (Hist & NOM)
Mean last 5yr (Avg of three)
Peak last 5yr (Avg of three)
Trough last 5yr (Avg of three)
Source: Company data, Factset, Nomura estimates
9
Most of the capacity addition in emerging markets

Total Capacity Additions excl China (mta)
FLSmidth expects new global contracted kiln
160
capacity of c. 65MT in 2011, which is in line
140
with the expected annual average additions.
120
100

In 2010, the most of the capacity additions
80
60
were in emerging markets (48% in Asia, ex-
40
China, and 29% in the Middle East and Africa.
20
2008
2009
2010
2008
2009
2011E
2007
2007
2006
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
2010 Capacity Addition breakup (excl China)
Capacity Additions breakup excl China (mta)
160
140
Africa
13%
Rest Asia
13%
120
100
80
Middle East
16%
60
40
20
Europe
8%
Russia
0%
Source (all charts): FLSmidth
North
America
0%
Rest Asia
India
Europe
South America
Middle East
Africa
2010
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
Latin
America
15%
1990
India
35%
North America
10
Capacity closures driven by market conditions

Significant capacity closures in Europe and North America are dictated by weak market conditions.

Capacity closures in some markets in Europe like Italy; Spain delayed because companies continue to
benefit from carbon credits allotted on production volumes based on pre-crisis levels.
25
45%
40%
20
35%
30%
15
25%
20%
10
15%
10%
5
5%
0
0%
Rest of Europe
Russia
US
Mexico
Capacity Closure in MT (LHS)
Italy
Spain
Turkey
UK
Closure as a % of 2008 consumption (RHS)
Source: Company data (highlights approximate closures indicated in 2008-09), Nomura estimates. China also phased out 101MT of vertical kiln capacity in 200809 (c. 7% of 2008 consumption) and, according to the Chinese government, will phase out a further 30MT in 2010 and 65MT in 2011.
11
Snapshot of cement consumption by region

Centre of gravity of cement consumption moving towards the east.

China was the driver in the past five years; in the next five years, India and Indonesia are likely to be the fastestgrowing countries in Asia.
Cement consumption by region in 2005
Middle East
4%
Africa
4%
Cement consumption by region in 2010
Middle East
5%
Africa
4%
Europe
16%
North America
6%
Latin America
5%
North America
2%
Europe
10%
Latin America
5%
Asia Pacific ex
China
14%
China
46%
Asia Pacific ex
China
19%
Source: CEMBUREAU, Nomura estimates. 2005 absolute consumption 2253MT, 2010 estimate c. 3009MY
China
60%
12
Snapshot of utilisation rates

In spite of capacity closures in Europe and North America, utilisation rates remained low.

Emerging market (ex-Eastern Europe) utilisation rates were lower than the peak in 2008, driven by
new capacity additions, but they were still at a reasonable level .
120%
100%
80%
60%
40%
20%
0%
Western Europe North America
Eastern Europe
Middle East
Asia
Latin America
Africa
Source: Company data, Cemnet, PCA, Nomura research
13
Price performance with EPS and EBITDA consensus estimates trends
2010 price performance along with 2011 EPS &
EBITDA consensus estimates
2011 YTD price performance along with 2012 EPS &
EBITDA consensus estimates
14
Source: FactSet, IBES, Nomura research
2011 so far has been equally challenging even though volume
trajectory is positive

Light side building material names like Saint Gobain have done better than heavy side cement names in terms of
organic growth, margin trends.

Contrasting trends between Europe (driven by the strength in Northern Europe), and North America in terms of volume
trends.

While all cement companies in our coverage universe have reported a volume uptick in 1H-11, a key concern has been
pricing, especially in North America, western Europe, the Middle East and parts of Asia.

Overall margins for cement names under our coverage were down between 200bp-500bp in 2Q-11, driven by
increasing costs (especially energy costs), which could not be offset by increased prices. In contrast, margins have
expanded for light side names like Saint Gobain and diversified names (c. 70% heavy side mainly aggregates, and c.
30% light side) like CRH.

Companies like Lafarge have announced a range of disposals including an exit from the gypsum business (ex of its US
operation, while companies with a solid balance sheet like Saint Gobain have focussed on distressed acquisitions (eg,
recent acquisitions from Wolseley).
15
Country grid representing the cement price volume trend for 1H11
Nigeria
China
Russia
Poland
Algeria
Germany
Indonesia
India
2
Turkey
UK
Morocco
Rank of Volume Trends
Decreasing Volume
Increasing Volumes
3
Range of Price/Volume
Rank assigned
Change
1
Brazil
France
US
0
-3
-2
-1
1 Mexico
0
2
Saudi Arabia
Czech
Italy
-1
3
> 10%
5% to 10%
0% to 5%
-5% to 0%
-10% to -5%
< -10%
3
2
1
-1
-2
-3
Australia
UAE
-2
Egypt
Spain
-3
Rank of Pricing Trends
Decreasing Prices
Source: Company data, Nomura research
Increasing Prices
16
Scenario analysis – Zero GDP growth in US and mainland Europe
Stress-case scenario impact on our estimates



We conducted a stress test
assuming zero GDP growth in
mainland Europe and the US
in 2011-12 (while leaving our
estimates for growth in
emerging markets unchanged)
on large cap names in our
coverage universe.
Our
simplified
analysis
indicates that the market is
already pricing in a recession
across names, and it is easy
to build a valuation case for
the sector, which has been an
underperformer for close to
three years.
We expect the sharpest
downgrades for Holcim given
the additional impact of
strengthening Swiss franc,
while we see a more limited
impact for Lafarge where
expectations are already low
and most of its exposure is
concentrated in the Middle
East/North Africa region.
Key Estim ates
(EUR m )
CRH
Sales
Sales growth
EBITDA
EBITDA margin
Key Estim ates
(SFR m )
Holcim * [SFR m ]
Sales
Stress case scenario
Current estim ates
% change
2011E
2012E
2011E
2012E
2011E
2012E
16,741
-2.5%
1,613
9.6%
16,941
1.2%
1,700
10.0%
17,398
1.3%
18,376
5.6%
-3.8%
-7.8%
-5.8%
1,797
10.3%
2,166
11.8%
-10.2%
-21.5%
-15.9%
Stress case scenario
Current estim ates
Avg Change
% change
2011E
2012E
2011E
2012E
2011E
2012E
Avg Change
-12.3%
-19.5%
-15.9%
-12.6%
-25.6%
-19.1%
18,459
17,937
21,037
22,289
Sales growth
-14.8%
-2.8%
-2.8%
6.0%
EBITDA
EBITDA margin
3,803
20.6%
3,947
22.0%
4,351
20.7%
5,306
23.8%
Key Estim ates
[Eur m ]
Lafarge
Sales
Sales growth
EBITDA
EBITDA margin
Stress case scenario
2011E
2012E
Key Estim ates
Stress case scenario
16,591
2.6%
3,601
21.7%
17,213
3.8%
3,864
22.4%
Current estim ates
2011E
2012E
% change
2011E
2012E
16,720
3.4%
3,647
21.8%
-0.8%
-1.7%
-1.3%
-1.3%
-4.8%
-3.0%
17,517
4.8%
4,061
23.2%
Current estim ates
Avg Change
% change
(m n EUR)
Saint Gobain
2011E
2012E
2011E
2012E
2011E
2011E
Avg Change
Sales
-5.8%
-8.2%
-7.0%
-11.8%
-11.3%
-11.5%
40860
41558
43366
45281
Sales growth
1.8%
1.7%
8.1%
4.4%
EBITDA
EBITDA margin
4824
11.8%
5167
12.4%
5466
12.6%
5823
12.9%
(*) Holcim estimates also includes the impact of increasing Sw iss Franc
Source: Nomura estimates
17
Summary of our stress test analysis
Saint Gobain (Buy, TP EUR 50) still screens as attractive: If we factor in zero GDP growth in 2011-12 in mainland Europe and the
US, we would expect Saint Gobain’s 2011-12 EBITDA to come down by an average of 11.5%. Our DCF-based fair value would likely
move down c. 20% to EUR 40 from EUR 50 (still potential upside of c. 14.2%), if we factor in stress-case estimates along with an
increased equity risk premium of 6.5% (versus 6% now).
CRH (Buy, TP EUR 16) a relatively defensive name in the sector: Zero GDP growth in 2011-12 in mainland Europe and the US
would reduce CRH’s 2011-12 EBITDA by an average of c. 16%. Our DCF-based fair value would likely move down by c. 25% to
EUR 12 from EUR 16 if we factor in stress-case estimates along with an increase in our equity risk premium. The share price is also
supported by a 5.4% dividend yield, and we would not foresee any risk to it given the group’s strong dividend record (26 straight
years of dividend growth to 2009 and constant in 2010), and what we believe to be one of the strongest balance sheets in the sector.
Holcim (Buy, TP CHF 73), headwinds from CHF a major factor: If we factor in a zero GDP growth scenario in 2011-12 in
mainland Europe and the US, and the current strength of the Swiss franc, we would expect Holcim’s 2011-12 EBITDA estimates to
come down by an average of 19%. Our DCF-based fair value would move down by c. 39% to CHF 44 from CHF 73 (in line with the
current stock price), if we factor in our stress-case estimates. The group estimates are significantly affected by the Swiss franc, which
has been very volatile in the last month and makes any forecasts relatively unstable. The group, however, would still have more of a
balance sheet cushion in our distressed case scenario than its transnational cement peer, Lafarge, as we estimate net debt/EBITDA
of around 2.9x in 2011-12.
Lafarge (Neutral, TP EUR 45): In the case of zero GDP growth in 2011-12 in mainland Europe and the US, we expect Lafarge’s
2011-12 EBITDA to come down by an average of c. 3%. Our DCF-based fair value would move down by 11% to EUR 40 from
EUR 45 based on our stress test. In an environment of distress driven by concerns around sovereign debt, we believe the group’s
(recently downgraded to below investment grade by Moody’s) net debt/EBITDA multiple (based on 0% GDP growth in Europe and
the US) would be around 3.6x in 2011 and 3.2x in 2012 (ex announced, but not completed, disposals), which would weigh on the
stock. There is a trade-off between an inexpensive valuation and a relatively stretched balance sheet.
18
Estimated movements in fair value
Change in Multiples on stress case estimates
Source: Nomura estimates
19
US market – Cautious outlook
Housing Starts (Private)
Case-Shiller Composite-20 Home Price Index
60
150
800
148
700
Architecture Billing Index
55
146
600
50
144
500
142
400
45
140
300
40
138
200
136
100
134
35
0
30
132
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Construction Spending Trends (Jan-07 = 100)
Jul-09
Jan-10
Jul-10
Jan-11
Construction End markets Trends(Jan-07 = 100)
Jul-09
Jul-10
Jan-11
Jul-11
PPI values trend (Jan-07 = 100)
150
120
130
110
120
140
110
130
100
Jan-10
100
90
90
80
80
120
110
70
70
100
60
60
50
50
90
40
80
Jan-07
Jan-08
Cement
Asphalt Coating
Private
Public
Non Residential
Jan-09
Jan-10
Jan-11
Ready Mix Concrete
Residential
20
Source: Bloomberg, Nomura research
US recovery still a slow and arduous climb
Volum e in MTPA
2007
2008
2009
2010
2011E
2012E
2013E
Residential
33
23
17.9
17.5
17
18
27
Non Residential
16
12
6.1
4.1
4
4
6
Public
52
47
35.8
37.4
37
35
35
Other
10
12
8.6
9.8
11
12
12
Total Cement Vol
Volum es % change
110.2
93.5
68.4
68.8
68.6
68.9
80.1
2007
2008
2009
2010
2011E
2012E
2013E
Residential
-21%
-31%
-21%
-2%
-4.0%
5%
53%
Non Residential
-6%
-23%
-50%
-32%
-5.2%
6%
39%
Public
-6%
-10%
-23%
4%
-1.6%
-4%
-1%
Other
18%
25%
-28%
14%
13.7%
5%
3%
Total Cement Vol
-10%
-15%
-27%
0.6%
-0.2%
0%
16%
-2.0%
-9.0%
-10.0%
PCA change in estim ates (Sum m er 2011 versus the Spring 2011 forecasts)
Source: Portland Cement Association
European outlook – domestic cement consumption
20%
15%
10%
5%
0%
-5%
-10%
2011 vs 2010
Source: Company data, Euroconstruct
Spain
Ireland
Portugal
Hungary
Austria
Finland
Slovakia
Germany
UK
Italy
Czech
Belgium
Switzerland
Netherlands
Sweden
Denmark
France
Norway
Poland
-15%
2011-13 avg vs 2010
21
Euroconstruct’s revised forecasts
Country
Total residential
Total non-residential
Ireland
Infrastructure
Total construction
Total residential
Total non-residential
UK
Infrastructure
Total construction
Total residential
Total non-residential
France
Infrastructure
Total construction
Total residential
Total non-residential
Germany
Infrastructure
Total construction
Total residential
Italy
Total non-residential
Total construction
Total residential
Total non-residential
Spain
Infrastructure
Total construction
Total residential
Total non-residential
Poland
Infrastructure
Total construction
Total residential
Total non-residential
Netherlands
Infrastructure
Total construction
Total residential
Total non-residential
Sw itzerland
Infrastructure
Total construction
Total residential
Austria
Total non-residential
Total construction
Dec 10 Forecast
2011E
2012E
-7.60%
6.50%
-16.80%
-0.90%
-10.40%
-5.40%
-10.70%
0.20%
-0.60%
2.10%
-0.80%
0.40%
5.20%
3.20%
0.20%
1.50%
2.40%
1.70%
0.30%
1.10%
1.00%
1.10%
1.50%
1.40%
2.40%
2.70%
0.50%
0.80%
-0.80%
-0.30%
1.30%
1.60%
2.80%
5.20%
-0.50%
1.10%
0.90%
3.10%
-1.00%
3.90%
-13.20%
-3.20%
-26.30%
-9.40%
-13.60%
-2.30%
3.50%
4.60%
3.50%
4.70%
26.30%
21.70%
12.70%
12.40%
3.50%
3.10%
-1.20%
2.50%
-0.40%
1.20%
1.00%
2.40%
3.60%
3.20%
2.40%
-0.90%
-5.40%
-0.40%
1.10%
1.10%
0.10%
0.60%
2.30%
2.00%
0.70%
0.80%
June 11 Forecast
2011E
2012E
-9.30%
-1.70%
-14.60%
-2.80%
-20.40%
-5.30%
-15.00%
-3.30%
-2.90%
0.80%
-2.40%
-4.30%
-0.20%
5.30%
-2.20%
-0.70%
5.60%
2.40%
-0.40%
2.50%
0.90%
2.10%
2.70%
2.30%
2.80%
2.90%
0.50%
0.80%
0.50%
0.20%
1.70%
1.80%
0.50%
3.20%
-1.10%
1.10%
-0.50%
2.10%
-3.70%
3.40%
-11.90%
-3.50%
-29.10%
-13.60%
-15.00%
-3.60%
3.70%
3.00%
3.50%
4.70%
29.20%
4.40%
12.80%
4.10%
3.90%
5.10%
-1.20%
2.50%
0.30%
0.60%
1.40%
3.20%
3.10%
3.20%
2.50%
-0.90%
-6.20%
2.50%
0.80%
1.70%
0.30%
0.60%
2.40%
2.40%
0.00%
1.00%
Difference
2013E
3.40%
-0.10%
2.80%
2.40%
4.80%
3.90%
6.30%
4.70%
3.60%
1.90%
2.70%
2.90%
2.50%
0.80%
0.50%
1.70%
1.20%
1.80%
1.50%
5.40%
2.00%
-5.60%
1.50%
6.50%
4.50%
-4.60%
1.00%
4.00%
3.20%
0.80%
3.00%
1.00%
2.70%
2.80%
1.90%
1.10%
2.40%
1.30%
2011E
-1.7%
2.2%
-10.0%
-4.3%
-2.3%
-1.6%
-5.4%
-2.4%
3.2%
-0.7%
-0.1%
1.2%
0.4%
0.0%
1.3%
0.4%
-2.3%
-0.6%
-1.4%
-2.7%
1.3%
-2.8%
-1.4%
0.2%
0.0%
2.9%
0.1%
0.4%
0.0%
0.7%
0.4%
-0.5%
0.1%
-0.8%
-0.3%
0.2%
0.1%
-0.7%
2012E
-8.2%
-1.9%
0.1%
-3.5%
-1.3%
-4.7%
2.1%
-2.2%
0.7%
1.4%
1.0%
0.9%
0.2%
0.0%
0.5%
0.2%
-2.0%
0.0%
-1.0%
-0.5%
-0.3%
-4.2%
-1.3%
-1.6%
0.0%
-17.3%
-8.3%
2.0%
0.0%
-0.6%
0.8%
0.0%
0.0%
2.9%
0.6%
0.0%
0.4%
0.2%
22
Source: Euroconstruct, Nomura research
Improving French construction market
Construction Survey Recent Activity Trend
Housing Permits Total
45000
15
60%
50%
10
40000
40%
5
0
30%
35000
20%
-5
30000
-10
10%
0%
-15
25000
-20
-25
-10%
-20%
20000
-30
-30%
-35
15000
-40
-40%
Jun-09
Jul-09
Jan-10
Jul-10
Jan-11
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Jul-11
Housing Permits Total (LHS)
House Price Index [2000=100])
Housing Starts Total
215
45000
210
40000
y-o-y change (RHS)
100%
80%
60%
205
35000
40%
200
30000
20%
195
0%
25000
190
-20%
20000
-40%
185
15000
180
Sep-09
Mar-10
Sep-10
Mar-11
-60%
Jun-09
Oct-09
Feb-10
Jun-10
France Housing Starts Total (LHS)
Source: Bloomberg, Nomura research
Oct-10
Feb-11
Jun-11
y-o-y change (RHS)
23
Indian market – pricing trends have been positive in recent times
Cement Dispatches
Regional Recent Price Trends (INR per bag)
18
25%
16
20%
14
15%
12
10%
10
5%
8
0%
-5%
4
-10%
2
-15%
0
-20%
Jul/09
Aug/09
Sep/09
Oct/09
Nov/09
Dec/09
Jan/10
Feb/10
Mar/10
Apr/10
May/10
Jun/10
Jul/10
Aug/10
Sep/10
Oct/10
Nov/10
Dec/10
Jan/11
Feb/11
Mar/11
Apr/11
May/11
Jun/11
Jul/11
6
Monthly Depatches in mt (RHS)
y-o-y changes (RHS)
Cement Demand-Supply scenario
350
98%
100%
Regional Long-term Price trends (INR per bag)
100%
94%
91%
300
95%
90%
83%
250
85%
77%
200
78%
80%
75%
150
70%
100
69.3
73.4
50
2.7
0.7
20.4
11.2
65%
60%
44.0
55%
0
50%
FY07
FY08
FY09
FY10
Average Capacity (LHS)
Excess Capacity (LHS)
Source: Bloomberg, Nomura research
FY11E
FY12E
FY13E
Total Demand (LHS)
Capacity Utilisation (RHS)
24
Egypt – Political uncertainty to adversely affect outcome in 2011
Cement Deliveries
Consumption in m ton
50%
60
40%
50
30%
4,400
Thousand ton
4,200
30%
4,000
25%
24.6%
40
20%
19.1%
20%
3,800
30
3,600
15%
14.0%
10%
11.4%
20
3,400
0%
3,200
-10%
3,000
-20%
Jan-09
Jul-09
Jan-10
Jul-10
Total domestic cement deliveries (LHS)
5%
3.5%
0
0%
2005
2006
2007
2008
Consumption in mn ton (LHS)
y-o-y growth (RHS)
2009
2010
y-o-y growth(RHS)
Growth trends
60
105%
102%
50
96%
40
10
Jan-11
Utilization trends
10%
7.7%
92%
93%
100%
95%
90%
20
85%
13.7%
13.2%
11.4%
10%
7.2%
7.1%
6.9%
6%
4.3%
3.8%
4%
10
15.7%
12%
8%
85%
15.8%
16%
14%
91%
30
18%
5.1%
4.7%
3.7%
3.8%
4.2%
80%
2%
0
75%
2005
2006
Production
2007
2008
Capacity
2009
2010
0%
2006
Utilization rate
2007
GDP growth
2008
Construction growth
2009
2010
Real estate growth
25
Source: Bloomberg, Nomura research
Indonesia – an attractive and consolidated market
Industry participants are adding capacity
Demand growth should absorb the additional capacity
mn tons
90
30
80
25
70
20
60
50
15
40
30
10
20
5
10
0
2004
2005
2006
2007
2008
Semen Gresik Group
2009
2010 2011E 2012E 2013E 2014E 2015E
Indocement
Holcim Indonesia
Others
Expected Domestic Demand
Estimated Exports
Estimated Industry Capacity
Source: Company data, Nomura estimates
Source: Indonesia cement association, Nomura research
Cement selling price is expected to pick up this year
Catching up rising coal prices
30%
1,200
1,400
140
25%
1,000
1,200
120
20%
800
1,000
100
15%
600
10%
400
Cement Price (RHS - Rp'000/t)
Price chg (%)
Source: Indonesia cement association, Bloomberg, Nomura research
Inflation (%)
80
600
60
400
40
200
20
Cement Price (LHS - Rp'000/t)
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2011E
2010
2009
2008
2007
2006
2005
2004
2003
-
2002
0%
2001
200
2000
5%
800
Coal Price (RHS - US$/t)
Source: Indonesia cement association, Bloomberg, Nomura research
26
Sector valuation summary
Com pany Nam e
Price Rating
Target
Price
Upside
Market Cap Market Cap
EV/EBITDA EV/EBITDA
m n USD
(LC)
11
12
P/E 11
P/E 12
Prem ium /Discount to the Sector Average
EV/EBITDA EV/EBITDA
P/E 11
P/E 12
11
12
Lafarge
29.1
Neutral
45
55%
12,012
8,343
6.1
5.4
9.7
7.4
-15%
-10%
-19%
-33%
Holcim
Italcem enti
48.9
5.9
Buy
Neutral
73
7
49%
19%
20,665
1,707
16,665
1,186
6.8
4.3
5.5
3.6
13.8
18.2
9.8
10.5
-6%
-40%
-9%
-40%
15%
51%
-11%
-4%
HeidelbergCement
29.9
NA
NA
NA
8,080
5,612
5.8
5.3
9.4
7.2
-19%
-12%
-22%
-35%
CEMEX
6.7
NA
NA
NA
5,495
67,461
8.2
7.1
na
33.0
14%
18%
na
na
8.1 Reduce
7
-14%
Buzzi Unicem
CRH
12.4 Buy
16
29%
Vulcan Materials
35.0 NA
NA
NA
Martin Marietta
70.8 NA
NA
NA
Weighted Average of US and European Heavyside nam es
Saint Gobain
35.0 Buy
50
43%
Wolseley
16.0 NA
NA
NA
SIG
1.0 NA
NA
NA
Grafton
2.7 NA
NA
NA
Travis Perkins
8.3 NA
NA
NA
Kingfisher
2.4 NA
NA
NA
Low e
19.9 NA
NA
NA
1,891
12,822
4,527
3,236
7,381
27,015
7,432
1,000
910
3,252
9,104
25,122
1,313
8,905
4,524
3,241
4.8
5.2
15.4
10.2
6.0
4.4
6.5
5.6
7.4
6.6
4.8
5.7
24.4
13.9
na
34.9
12.0
9.1
12.0
11.3
14.0
9.4
10.1
12.5
12.2
9.4
na
26
11.0
8.0
9.9
9.2
10.6
8.2
8.9
11.2
-13%
-11%
168%
61%
0%
-28%
11%
-3%
25%
10%
-19%
-9%
-20%
-14%
155%
69%
0%
-28%
7%
-8%
21%
7%
-21%
-7%
103%
15%
na
190%
18,763
4,564
614
632
1,997
5,591
25,248
6.3
6.4
19.3
11.6
7.2
4.7
7.2
6.3
8.2
7.2
5.3
5.9
-25%
-1%
-7%
15%
-23%
-17%
3%
11%
-14%
na
139%
0%
-25%
-8%
-14%
-1%
-23%
-17%
5%
Home Depot
33.4 NA
NA
Weighted Average US and European Lightside
53,149
53,452
7.8
7.3
14.2
12.4
19%
20%
16%
16%
15,873
na
6.5
6.1
12.2
10.7
0%
0%
0%
0%
NA
*Based on closing prices as on 31 August 2011
Source: Nomura 2011-12 estimates for Buzzi Unicem, CRH, Holcim, Italcementi, Lafarge, Saint Gobain, IBES consensus estimates for others, FactSet
27
Snapshot of outlook in key markets
Per
Currency 2011 Real
capita
2011 Outlook ##
2012 Outlook ##
Capacity cem ent Com panies under coverage
im pact
GDP
Region
(m tpa) consum
w ith Material Exposure #
2011E (vs. grow th
EUR)
forecast
ption
Price Vol Margin Price Vol Margin
(kg)
Asia-Pacific
No material exposure
yet.Companies influenced
China
2000
1100
↔
↑↑
↔
↑↑
+
9.5%
↓
capacity(mtpa):Holcim (30),
Lafarge(25), CRH(14)
India
290
180
Holcim (18%), Italcementi (4%)
↑
↑↑
↑
↑↑
+
7.7%
↓
Indonesia
54
172
Holcim (5%)
↑
↑↑
-
↑
↑↑
+
↓
6.5%
Australia
Am erica
12
500
Holcim (6%)
↑
↔
+
↑
↔
+
↓↓*
2.8%
USA
103
366
CRH (48%), Buzzi (23%), Holcim
(9%), Lafarge (8%), Saint
Gobain (10%)
↔
↔
-
↑
↑
+
↓↓
2.3%
Brazil
63
238
Holcim (4%), Lafarge (5%)
↑
↑↑
+
↑
↑↑
+
↑
3.8%
Mexico
Europe
Russia
54
344
Buzzi (13%), Holcim (12%)
↑
↑
-
↑
↑
+
↓
4.0%
60
430
Buzzi (10%)
↑
↑↑
-
↑
↑
+
↓
4.4%
Spain
52
1267
Italcementi (4%), CRH (c1%)
↓
↓↓
-
↑
↑
+
NA
0.7%
Italy
50
600
↑
↑
+
↑
↑
+
NA
0.8%
Germany
46
260
↑
↑↑
+
↑
↑
+
NA
3.5%
France
28
419
↑
↑↑
+
↑
↑
+
NA
2.0%
Poland
19
433
↓
↑↑↑
+
↑
↑↑
+
↓
4.4%
UK
13
268
↔
↑
+
↔
↑
+
↓
1.3%
Ireland
7
1117
Buzzi (23%), Italcementi(14%)
Buzzi(20%),Saint
Gobain(8%),CRH(4.5%)
Italcementi (29%), Saint Gobain
(28%), Lafarge(14%)
CRH (c10%), Buzzi (9%)
Saint Gobain (9%),Holcim (6%),
Lafarge (6%)
CRH (2%), Saint Gobain (5%)
-
↓
↓
-
NA
0.3%
6
408
Buzzi (8%)
↓
↓
↓↓
Czech
MENA
Saudi
Arabia
↑↑
-
↑
↑
+
↑
1.4%
49
972
Lafarge's likely exposure of c1%
starting 2011
↔
↑
-
↔
↑
-
↓↓
6.0%
Egypt
47
470
Lafarge(10%),Italcementi (32%)
↔
↓
-
↑
↑
-
20
472
Lafarge (7%)
↔
↑
-
↔
↑
-
Morocco
19
85
Italcementi (15%), Lafarge (5%)
↔
↑
-
↔
↑
-
Nigeria
12
108
Lafarge (2%)
↔
↑
-
↔
↑
-
↓↓↓
↓
↓
↓↓
1.2%
Algeria
5.1%
5.9%
7.4%
(#) Approximate exposures at operating level (or sales level w hereever split at operating level is not available)
(##) ↑ Single arrow represents 0-5% change, + indicates increase and - indicates decrease
(*) Aus $ vs Sw iss Franc
Source: CEMNET, Euroconstruct, PCA, Nomura Global Economics, company data, Datastream, IMF, Nomura research
28
Emerging markets – Long-term growth prospects intact, margin
concerns in the near term

Positive on the long-term prospects of
Concern
Margins under
Pressure
emerging markets where drivers of
construction activity such as increasing
urbanisation, economic growth and
population growth are present, but
Reasons
increasingly concerned about short-
High Energy Costs
High Food Inflation
Concern globally but impact on
margins higer in emerging markets
owing to lesser consolidation
More of a concern for emerging
markets especially net food importers
like countries in Africa
term margin pressure in those regions.

Emerging markets typically tend to be
more fragmented than mature markets
and where pricing power is reduced in
an
inflationary scenario given the
regulated nature of the sector.

How?
Higher
operating
costs which in
more
fragmented
markets may
be difficult to
pass on to the
customer
High food inflation and high energy
Demand under
pressure:
Wage
Inflation:
Lower Pricing
power:
Especially in
emerging market
where signficant %
of the end market
is the private
home builder who
buys cement in
bags and spends a
very high % of his
income on food
Workers demand
higher wages due
to inflation
Govt esspecially in
net importing
countries forced to
act on inflation
and the cement
tends to one of the
first sectors to see
price caps
costs to affect margins of the firms.
Source: Nomura research
29
Food inflation to affect margins in emerging markets
Lafarge is the most vulnerable to food prices
In emerging markets, we
are relatively positive on
50
80
48
46
India, Brazil, Indonesia,
Vulnerability to food price
inflation increases
44
42
Poland, but less so on
40
38
the African markets of
36
34
Egypt,
Morocco
and
Food share vs GDP per capita (USD) in 2008
Share of food in household spending (%)

32
30
Nigeria.
Lafarg e
Ho lcim
Italcemen ti
Buzzi
Note: y axis represents a weighted average (of capacity) of a food
vulnerability index of countries in which companies have installed
capacity
Source: Company data, Nomura Strategy, Nomura research
Nigeria
70
Morocco
60
Indonesia
50
Algeria
Egypt
India
40
China
Mexico
30
Russia
Poland
Czech
Saudi
Arabia
20
Brazil
10
0
1000
6000
11000
16000
21000
Nominal GDP per capita - US$ at market exch rates
Source: FAO, Seale, USDC, World Bank and Nomura Global
Economics
Headwinds from higher energy prices in 2011E
Energy costs (electricity + fuel) as % of sales

We estimate that for a
Energy price impact (y-o-y)
WTI Crude Futr
Global Coal Spot
Prices SA Rds Bay
1Q10
30.4%
26.6%
2Q10
15.3%
57.3%
3Q10
5.7%
39.5%
4Q10
2.9%
57.4%
12.5%
45.2%
8%
FY10
2011
6%
1Q11
36.9%
43.6%
2Q11
56.1%
28.4%
3Q11E
43.4%
34.6%
4Q11E
18.5%
7.2%
18%
% change
10% increase in energy
16%
2010
prices, a c. 3% price
14%
increase is required (all
12%
else being equal) for the
EBITDA margin to stay
stable
in
business.
the
cement
10%
4%
2%
0%
Italcementi Buzzi
Lafarge Holcim
Source: Company data, Nomura research
CRH Saint Gobain
FY11E
38.0%
27.0%
Estimates of WTI crude for 2011 are of Nomura Global Oil and
Gas Team and all other are by extrapolating the current prices
Source: Bloomberg, Nomura estimates
30
Saint Gobain (Buy, EUR TP 50): Top pick in the sector
Investment summary

Even after its YTD outperformance in 2011, valuation appears compelling to us in the context of expected growth.

Strongest earnings momentum among our coverage universe, which was evident in 1H-11 results.

Strong exposure to residential recovery in the right European markets.

Low exposure to energy cost inflation (c. 4% of the group sales), and high exposure to energy efficiency products.

Sum-of-the-parts without any holding discount suggests a value of EUR 47/share.
Attractive Valuation
We regard its rolling valuation at a 22% discount to the
Europe ex-UK market on an EBITDA multiple and
10% discount on an EPS multiple as attractive.
Target valuation
Our target price is based on a WACC of 7.5%, a terminal
growth rate of 2%, and cash flows that are discounted back
to the end of 2011E. We assume a terminal EBITDA margin
of 12.5%. The relative index for this stock is the DJ EURO
STOXX Construction and Materials.
Price
50.0
Source: IBES consensus, Nomura Strategy, Nomura estimates
Prem ium FY11E
EBITDA
EPS CAGR
to 5 year
CAGR 2011E2011E-2013E
average
2013E
EV/EBITDA
11E
EV/EBITDA
12E
6.2
5.7
3.2%
P/E 11E
P/E 12E
Prem ium FY11E
to 5 year
average
12.9
11.4
23.7%
Source: Datastream, Nomura estimates
5.1%
12.3%
31
Strong exposure to residential recovery in the right European markets

Exposure to the residential recovery in
Europe, especially in countries such as
End Markets
New Residential
New Non-Residential
Renovation/Infra
Autom otive
Household consum ption
Other Industrial
Group
France (27% of 2010 sales), Germany
(10%), Scandinavia (10%) and the UK (8%),
where the outlook for 2011 is relatively
positive.
Total
21%
10%
45%
6%
11%
7%
France
8%
1%
14%
1%
2%
1%
27%
Western
Europe ex
France
8%
5%
21%
2%
3%
2%
41%
North
Am erica
2%
1%
3%
1%
4%
2%
13%
Asia and
em erging
countries
3%
3%
7%
2%
2%
2%
19%
Source: Company data, Nomura research
Saint Gobain’s share price is highly correlated to French construction
survey future activity trend, which indicates upside potential
40
80
50
30
70
40
20
60
30
50
20
40
10
30
0
-30
20
-10
-40
10
-20
-50
0
-30
10
0
-10
-20
y = 1.331x - 59.923
R² = 0.7812
-40
-50
French construction survey future activity trend(LHS)
Saint Gobain stock price (RHS)
10
20
30
40
50
60
70
80
32
Source: Bloomberg, Nomura research
Sum-of-the-parts reinforces our target price
Suggests the market is undervaluing the recovery of the building distribution division

Our
SOTP
suggests
a
analysis
valuation
of
EUR 47/per share for Saint
Gobain.

We believe that the market
is not recognising the likely
recovery in Saint Gobain’s
distribution business; the
market has significantly rerated its distribution peers
Wolseley
and
Travis
Perkins.
Source: IBES consensus, Nomura estimates
33
Saint Gobain’s 2015 target reinforce our target price
Financial targets
2015
Com m ents
Group Sales (in EURm)
55000
Implies annualised CAGR2010-2015 of c8.5% ex of packaging
Combination of recovery in mature markets, increasing exposure to
energy efficiency products and grow th in emerging markets w here the
group intends to direct 65% of grow th capex
Annualised Organic sales grow th betw een 2010-2015
External sales grow th betw een 2010-2015
>6%
3%-4%
Group operating income (in EUR m)
5500
Group operating margin
10%
Group recurring net income
3000
Recurring EPS in EUR
5.5
Blue Sky Scenario construction
2015 EPS ex packaging (A)
Largely bolt-on acquisitions in the distribution business
Implies annualised CAGR2010-2015 of 15% ex of packaging
Apart from mix, w ill also be positively impacted by the operating leverage
especially as 50% of the cost taken out betw een 2008-2010 w as
structural, implies an ROCE of 14%-15%
Im plies an ROI of 25%
Assumes that sale of packaging is value Neutral
5.5
Target P/E Multiple (B)
13.5
Target Value per share in 2015 (C=A*B))
74.25
Cost of Equity (D)
Target value per share end of 2011 discounting the 2015 value by cost of
equity (E= C/(1+D)**4)
10.1%
51
Source: Company data, Nomura research
34
Impact of operating leverage on the building distribution division

We believe that an uptick in volumes
80%
35
60%
will
result
in
significant
margin
40%
improvement. We have factored in a
20%
150bp improvement in margins for 2011
30
25
0%
20
-20%
15
to 4.8% (still below the 2015 target of
-40%
6%).
-60%
10
5
-80%
-100%
0
2H-08
1H-09
2H-09
Sales % change (LHS)
1H-10
2H-10
2010
2011E
Operating Profit % change (LHS)
Operating leverage (RHS)
Source: Company data, Nomura estimates
35
Increasing exposure to energy efficiency products has sharply
increased the stock’s correlation with oil prices
50
120
45
110
40
100
35
90
30
80
Saint Gobain Stock Price in EUR
21/03/2011
28/02/2011
07/02/2011
17/01/2011
27/12/2010
06/12/2010
15/11/2010
25/10/2010
04/10/2010
13/09/2010
23/08/2010
02/08/2010
12/07/2010
21/06/2010
31/05/2010
10/05/2010
19/04/2010
29/03/2010
08/03/2010
20
15/02/2010
60
25/01/2010
25
04/01/2010
70
50
Saint Gobain Stock Price in EUR
130
y = 0.3263x + 6.9576
R² = 0.7948
45
40
35
30
25
Oil Price (Brent) in US$
70
80
90
100
110
120
130
Oil Price (Brent in US$)
Source: Bloomberg, Nomura research
36
Saint Gobain: Snapshot
Key financials
Key ratios
P&L (EUR m )
Sales
growth
EBITDA
growth
EBIT
growth
PBT
Income Tax Expense
Effective Tax Rate
PBT
Minority Interest
MI as % of PBT
NI to Equity holders
EPS
growth
EPS recurring
DPS
growth
2010
2011E
2012E 2013E
40,119 43,366 45,281 46,413
6.2%
8.1%
4.4% 2.5%
4,652
5,466
5,823 6,041
25%
18%
7%
4%
2,524
3,582
3,990
4,287
104%
42%
11%
7%
1,790
3,037
3,445
3,801
577
881
999
1,102
32%
29%
29%
29%
1,213
2,156
2,446
2,699
84
105
113
113
6.9%
4.9%
4.6%
4.2%
1,129
2,052
2,333
2,586
2.2
3.9
4.4
4.9
453%
77%
14%
11%
2.58
3.87
4.40
4.87
1.2
1.5
1.8
1.9
15%
34%
14%
11%
Cash Flow (EUR m )
Operating Cash Flow
Investing Cash Flow
Financial Cash Flow
2010
2,773
(1,295)
(1,946)
2011E
3,526
(2,438)
(637)
2012E 2013E
3,955 4,166
(2,665) (2,868)
(866) (979)
Balance Sheet (EUR m )
PPE
Working Capital
Intagible Assets
Invested Capital
Net Debt
Shareholder's Equity
Free cash flow
FCF dividend cover
2010
13,727
(105)
14,097
16,915
7,168
17,868
1,642
2.5
2011E
14,581
(215)
14,097
18,434
6,718
19,324
1,697
1.3
2012E
15,613
(124)
14,097
20,014
6,294
20,837
1,829
1.4
Key Ratios
EBITDA Margin
EBIT Margin
EBIT ROIC
Net RoE
Net Debt / Equity
Net Debt/EBITDA
2010
11.6%
6.3%
7%
6.3%
39%
1.5x
2011E
11.8%
7.2%
7%
9%
36%
1.4x
2012E 2013E
12.4% 13.4%
8.0% 9.3%
8%
9%
9% 11%
32% 28%
1.3x 1.1x
2013E
16,926
(87)
14,097
21,734
5,975
22,489
1,750
1.3
37
Source: Company data, Nomura estimates
Saint Gobain: Segmental breakdown
Operating income breakdown
Revenue breakdown
Net Sales [Eur m ]
Building Distribution
Innovative Materials
High Performance Mat
Flat Glass
Packaging
Construction Products
Interiors
Exteriors
Others
Total
Sales Grow th
Building Distribution
Innovative Materials
2010
17,326
9,283
4,088
5,218
3,553
10,940
5,195
5,781
(983)
40,119
2010
1.3%
19.1%
2011E
18,712
10,103
4,415
5,688
3,660
11,906
5,663
6,243
(1,014)
43,366
2011E
8.0%
8.8%
2012E
19,648
10,608
4,636
5,972
3,751
12,319
5,888
6,431
(1,045)
45,281
2012E
5.0%
5.0%
2013E
20,139
10,873
4,752
6,121
3,845
12,627
6,036
6,592
(1,071)
46,413
2013E
2.5%
2.5%
High Performance Mat
Flat Glass
Packaging
Construction Products
Interior
Exterior
Group Sales Grow th
26.2%
14.1%
3.1%
5.1%
3.2%
6.8%
6.2%
8.0%
9.0%
3.0%
8.8%
9.0%
8.0%
8.1%
5.0%
5.0%
2.5%
3.5%
4.0%
3.0%
4.4%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
Operating Incom e [Eur m ]
Building Distribution
Innovative Materials
High Performance Mat
Flat Glass
Packaging
Construction Products
Interior
Exterior
Others
Total
Operating Incom e Margin
Building Distribution
Innovative Materials
High Performance Mat
Flat Glass
Packaging
Construction Products
Interior
Exterior
Group operating Margin
2010
578
1,024
585
439
434
1,064
379
685
17
3,117
2010
3.3%
11.0%
14.3%
8.4%
12.2%
9.7%
7.3%
11.8%
7.8%
2011E
889
1,172
631
540
457
1,347
566
780
18
3,882
2011E
4.8%
11.6%
14.3%
9.5%
12.5%
11.3%
10.0%
12.5%
9.0%
2012E
982
1,260
663
597
478
1,452
648
804
18
4,190
2012E
5.0%
11.9%
14.3%
10.0%
12.7%
11.8%
11.0%
12.5%
9.3%
2013E
1,108
1,353
679
673
490
1,518
724
794
19
4,487
2013E
5.5%
12.4%
14.3%
11.0%
12.7%
12.0%
12.0%
12.0%
9.7%
Source: Company data, Nomura estimates
38
Holcim (Buy, TP CHF 73) – Favoured emerging market name
Investment summary

Attractive emerging market exposure (80% of influenced capacity in emerging markets; 70% of EBITDA in 2010).

Strong balance sheet lends greater strategic flexibility in terms of expansion.

Holcim (which underperformed its listed emerging market subsidiaries by an average of 50% in 2010), is a less expensive
way of gaining exposure to these emerging markets (than investing in these emerging market listed businesses) with an
option of potential upside from a recovery in the mature markets of Europe and the US.

We believe its valuation deserves a premium to the sector in the context of the company's exposure to high growth
markets and a strong balance sheet

Appreciating Swiss franc and margin pressure in emerging market will likely affect the outcome in the short term.
Valuation versus Europe ex-UK
We regard its rolling valuation at a 2% premium to the
Europe ex-UK market on an EBITDA multiple and
24% premium as attractive for a high quality emerging
market name.
Target valuation
Our target price is based on a WACC of 7.2%, a terminal
growth rate of 2%, and cash flows that are discounted back
to the end of 2011E. We assume a terminal EBITDA margin
of 23.5%. The relative index for this stock is DJ
EUROSTOXX 600 Construction and Materials.
Price (SFR)
EV/EBITDA
11E
8.7
73
P/E 11E
20.5
Source: IBES consensus, Nomura strategy, Nomura estimates
Prem ium
EBITDA
EV/EBITD FY12E to 10
CAGR 2011EA 12E
year FY2
13E
average
7.0
9.5%
Prem ium
FY12E to 10
P/E 12E
20.4%
year FY2
average
14.7
17.4%
Source: Datastream, Nomura estimates
EPS
CAGR
2011E13E
37.1%
39
Appreciating Swiss franc negating the company’s strong organic results
Holcim’s Organic growth
Exchange rate impact on Holcim numbers
6.8%
2.9%
1.8% 1.7%
1Q10
2.5%
2Q10
3Q10
4Q10
-2.2%
-3.1%
1Q11
2Q11
1.2%
-4.3%
-4.1%
0.0%
1Q10
2Q10
3Q10
-8.0%
-9.2%
4Q10
1Q11
2Q11
-1.5%
-3.3%
-14.2%
-14.9%
Net Sales Impact
Source: Company data, Nomura research
Source: Datastream, Nomura research
-5.0%
Operating EBITDA impact
Source: Company data, Nomura research
40
Replacement cost analysis backs our target price
Replacem ent cost analysis for Holcim
Com m ents
Replacem ent Cost
Region
Cem ent Capacity
Replacem ent Cost
USD / tonne
Europe
50
175
8750 Based on discussions w ith
North America
23
225
5220 cement equipment vendors
like FLS, KHD Humboldt and
Latin America
33
200
6680
recent average capex by
Africa and Middle East
11
175
1960
region
Asia Pacific
94
130
12181
Estimated proportion of new Capacity planned in 2011-2012 for w hich capex has
1400
been
incurred
already
Valuation
of cem
ent assets (in USD)
36191
Aggregate Business
2010 Sales
Years of reserves
158
Valuation of aggregate assets (in USD)
50
Replacem ent Cost Replacem ent Cost Based on discussions w ith
USD / tonne
0.5
3950 various companies in the
sector
3950
RMX Business
Num ber of plants
Replacem ent cost
per plant in m USD
1426
Valuation of ready m ix assets (in USD)
Based on discussions w ith
various companies in the
1426 sector
Replacem ent cost
1
1426
Asphalt Business
Num ber of plants
Replacem ent cost
per plant in m USD
106
Valuation of asphalt assets (in USD)
Total Replacem ent cost of fixed assets (USD m )
2
Total Replacem ent cost of fixed assets (SFR m ) (1 USD = 0.935 SFR)
Investment in Associates and long term financial assets
Working Capital
Net Debt
Provisions
Unfunded Pension liability
Based on discussions w ith
various companies in the
212 sector
Replacem ent cost
212
41779
39063
2353
2359
-11333
-1379
-308
Minorities
-3757
Equity Replacem ent valuation (SFR m )
26998
Total number of dividend bearing shares (m)
Per share Replacem ent Cost (SFR)
Book Value multiplied by the
current price to book
327
83
41
Source: Company data, Nomura estimates
Blue sky scenario based on the group’s target ROE
suggests significant upside potential
Assum ing upper
end of the target
ROE in 2013
Assum ing low er
end of the target
ROE in 2013
Based our current
ROE assum ptions
for 2013
24,647
24,491
24,239
15%
13%
12%
3,188
2,742
2,543
NOSH (m)
327
327
327
EPS (SFR) (e=c/d)
9.7
8.4
7.8
12.1
12.1
12.1
118
101
94
9.1%
9.1%
9.1%
99
85
79
65.3
65.3
65.3
52%
31%
21%
Metrics
a.
b.
c.
d.
e.
Average Shareholder's Equity in 2012-13
Target ROE
Implied NI to Equity holders (SFR m) (c=a*b)
f. Average P/E FY1 in the last 5 years
g. Implied Share Price at 2013 end (SFR) (g = e*f)
h. Cost of Equity for Holcim
2
i. Im plied Price target for 2011 (SFR) ( i=g/(1+h) )
j. Current Stock Price (SFR)
k. Upside Potential (k = i/j*100)
Source: Company data, Nomura estimates
42
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Holcim 's consolidated capacity [m t]
Europe
Analysis indicates rising
importance of Asia


On our estimates, Holcim in 2020 may
have c. 53% of its consolidated capacity
in Asia, of which 33% will be in India
alone. Holcim potentially will have
higher capacity in India alone (close to
c. 92MT) than in Europe and North
America (close to c. 76MT) put together
in 2020.
Holcim will be required to add c. 57MT
(assuming that utilisation rates stay below
100%) in 2011-20, 86% of which will be
added in Asia (c. 60% will need to be
added in India), but no further
additions in North America.
53
53
53
53
53
53
53
53
53
53
North America
23.2
23.2
23.2
23.2
23.2
23.2
23.2
23.2
23.2
23.2
Latin America
35.1
35.1
35.1
35.1
35.1
35.1
35.1
35.1
36.1
38.1
Africa Middle East
11.2
11.2
11.2
11.2
12.2
13.2
14.2
15.2
16.2
16.2
96
96
96
98
103
111
119
127
136
145
30.7
30.7
31.7
33.7
36.7
39.7
42.7
45.7
48.7
Asia Pacific
India ACC 30.7
India Ambuja
26.9
26.9
26.9
27.9
29.9
31.9
34.9
36.9
39.9
42.9
Rest of Asia (excludes China w hich is not consolidated)
38.4
38.4
38.4
38.4
39.4
42.4
44.4
47.4
50.4
53.4
Total consolidated capacity
219
219
219
221
227
236
245
254
265
276
Asia (ex China) as % of group capacity
44%
44%
44%
44%
45%
47%
49%
50%
51%
53%
India as a % of group capacity
Holcim 's cem ent sold across regions based on
construction grow th CAGR [m t]
26%
26%
26%
27%
28%
29%
31%
31%
32%
33%
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Europe
34
35
36
37
38
39
40
40
41
42
North America
14
14
15
15
16
16
17
17
17
18
Latin America
26
27
28
30
31
32
33
34
36
37
Africa Middle East
10
10
11
11
12
13
13
14
15
16
Asia Pacific
77
82
88
94
101
108
116
124
133
143
India ACC
25
26
29
31
33
36
39
42
45
48
India Ambuja
22
23
25
27
29
31
34
36
39
42
Rest of Asia (excludes China w hich is not consolidated)
31
33
35
37
39
41
44
46
49
52
Total cem ent sold
161
169
178
187
197
208
219
230
243
256
Asia (ex China) as % of group cem ent volum es sold
48%
49%
50%
50%
51%
52%
53%
54%
55%
56%
India as a % of group cem ent volum es sold
Cem ent Volum e sold by Holcim based on
construction grow th CAGR
29%
29%
30%
31%
32%
32%
33%
34%
35%
35%
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Europe (assuming 1/3rd Eastern Europe)
65%
67%
68%
70%
71%
73%
75%
76%
78%
80%
North America
60%
62%
64%
65%
67%
69%
71%
73%
75%
78%
Latin America
75%
78%
81%
84%
87%
91%
94%
98%
99%
97%
Africa Middle East
85%
90%
95%
100%
97%
95%
93%
92%
92%
97%
Asia Pacific
80%
86%
92%
96%
98%
98%
98%
98%
98%
99%
India ACC 80%
86%
93%
97%
98%
97%
97%
97%
98%
99%
India Ambuja 80%
86%
93%
97%
97%
98%
97%
99%
98%
99%
85%
90%
96%
99%
97%
99%
98%
98%
98%
Rest of Asia (excludes China w hich is not consolidated)
80%
Cem ent Consum ption CAGR assum ption through 2020 (based on Oxford Construction Econom ics)
Europe
2.3%
North America
2.9%
Latin America
3.9%
Africa Middle East
5.7%
Asia Pacific
India ACC
7.8%
India Ambuja
7.8%
Rest of Asia (excludes China w hich is not consolidated)
6.1%
Source: Company data, Nomura estimates, Oxford Construction Economics.
*Analysis assumes growth at annualised CAGR estimates till 2020, while in reality growth may vary; also for simplicity it does not model in the lead time for the construction of a
cement plant of 2-3 years, * includes only consolidated capacity (fully or proportionate) , therefore excludes China, Egypt, Nigeria.
43
Holcim: Snapshot
Key ratios
Key financials
P&L (SFR m )
Sales
growth
Operating EBITDA
EBITDA incl associates
EBIT
PBT
Income tax expense
Effective tax rate
PAT
Minority
Minority as % of PAT
Net Profit to Equity Holders
EPS
DPS
Cash Flow (SFR m )
Operating Cash Flow
Investing Cash Flow
Financial Cash Flow
Balance Sheet (SFR m )
PPE
Working Capital
Intangible Assets
Invested Capital
Net Debt
Shareholder's Equity
Free Cash Flow
Dividend Yield
FCF Dividend cover
Capex
Minority
2010
21,653
2%
4,513
4,988
2,871
2,236
615
28%
1,621
439
27%
1,182
3.69
1.50
2010
3,659
(1,362)
(3,240)
2010
23,343
2,359
9,666
22,173
11,333
18,101
2,142
2011E
21,037
-3%
4,351
4,538
2,787
2,139
588
28%
1,551
388
25%
1,163
3.56
1.42
2011E
3,117
(2,400)
(752)
2011E
23,992
2,293
9,666
22,792
11,368
18,784
1,375
2012E
22,289
6%
5,306
5,494
3,623
3,023
846
28%
2,176
550
25%
1,626
4.97
1.49
2012E
3,758
(2,600)
(873)
2012E
24,721
2,437
9,666
23,914
11,083
19,922
1,802
2013E
24,545
10%
6,308
6,498
4,570
3,993
1,118
28%
2,875
688
24%
2,187
6.69
2.01
2013E
4,486
(2,875)
(1,138)
2013E
25,668
2,692
9,666
25,470
10,610
21,453
2,247
3.41
4.78
3.24
1.47
3.39
1.76
4.56
2.54
1821
3020
2400
3136
2600
3301
2875
3508
Source: Company data, Nomura estimates
Ratios
Operating EBITDA margin
EBIT Margin
Net RoE
Net Debt / Equity
Net Debt/EBITDA
2010
20.8%
13.3%
6.5%
54%
2.3x
2011E
20.7%
13.2%
6.2%
52%
2.5x
2012E
23.8%
16.3%
8.2%
48%
2.0x
2013E
25.7%
18.6%
10.2%
43%
1.6x
44
Holcim: Segmental breakdown
Revenue breakdown
Operating EBITDA breakdown
Revenue (SFR m )
2011E 2012E 2013E
Op EBITDA (SFR m )
2010
2011E 2012E 2013E
1,045
1,059
2010
Europe
6,535
6,418
6,659
7,235
Europe
North America
3,240
2,938
3,142
3,497
North America
460
455
628
769
Latin America
3,442
3,291
3,508
3,884
Latin America
999
905
1,088
1,282
Africa Middle East
1,098
1,035
1,063
1,138
Asia Pacific
7,958
7,965
8,537
9,491
Africa Middle East
Asia Pacific
359
1,820
341
1,752
351
2,049
364
2,563
Corporate Eliminations
(620)
(610)
(620)
(700)
Corporate Eliminations
(170)
(162)
(208)
(225)
Total
4,513
4,351
5,306
6,308
Total
21,653 21,037 22,289 24,545
Sales Grow th (y-o-y)
Europe
2010
North America
-6.9%
Latin America
-9.3%
3.8%
7.0%
1,555
Op EBITDA Margin
2010
2011E 2012E 2013E
8.7%
Europe
16.0%
16.5%
21.0%
21.5%
11.3%
North America
14.2%
15.5%
20.0%
22.0%
10.7%
Latin America
29.0%
27.5%
31.0%
33.0%
2011E 2012E 2013E
-10.7% -1.8%
1,398
2.8%
-4.4%
6.6%
Africa Middle East
-9.0%
-5.8%
2.7%
7.1%
Africa Middle East
32.7%
33.0%
33.0%
32.0%
Asia Pacific
24.0%
0.1%
7.2%
11.2%
Asia Pacific
22.9%
22.0%
24.0%
27.0%
Total
2.5%
-2.8%
6.0%
10.1%
Total
20.8%
20.7%
23.8%
25.7%
Geographical breakdown Sales(‘10)
Geographical breakdown Op EBITDA (‘10)
Europe
22%
Europe
29%
Asia Pacific
36%
Africa
Middle East
5%
Asia Pacific
39%
Latin
America
15%
North
America
15%
Source: Company data, Nomura estimates
North
America
10%
Latin
America
21%
Africa
Middle East
8%
45
CRH (Buy, TP EUR 16) – Now in deep value zone
Investment summary

We are buyers of this high-quality name as concerns around US are already factored into the share price. We regard the
current valuation as very attractive for long-term value-focused investors, given that it is 0.85x 2010 book value (a 31%
discount to its Europe ex-UK market valuation) and at what we regard as an attractive dividend yield of 5.6%.

Our sum-of-the-parts valuation, excluding holding discount, suggests a value of EUR 17/share.

The company’s strong balance sheet provides significant scope for re-leveraging, which, given its strong record on this
front, could re-rate the stock.
Valuation versus Europe ex-UK
We regard its rolling valuation at a 4% discount to the
Europe ex-UK market on an EBITDA multiple as
attractive, especially in the context of a solid balance
sheet and a well diversified portfolio.
Target valuation
Our target price is based on a WACC of 8.5%, a terminal
growth rate of 2%, and cash flows that are discounted back to
the end of 2011E. The benchmark index for this stock is DJ
EUROSTOXX 600 Construction and Materials.
Price (EUR)
16.0
Source: IBES consensus, Nomura Strategy, Nomura estimates
EPS
EBITDA
EV/EBITD EV/EBITD Prem ium FY12E to 10
CAGR 2011E- CAGR
A 11E
A 12E
year FY2 average
2011E13E
13E
8.2
6.6
-8%
P/E 11E
P/E 12E
Prem ium FY12E to 10
year FY2 average
18.1
12.2
0%
Source: Datastream, Nomura estimates
14.7%
33.0%
46
Sum-of-the-parts also suggests a significant upside

Our SOTP analysis suggests a valuation of EUR 19 per share for CRH.

Our sum-of-the-parts valuation, where we apply an EBITDA multiple of 10.2 for the US material division (20%
discount to the average multiple of Martin Marietta and Vulcan, as about one-third of CRH’s US material division
is the low-margin contracting business), excluding a holding discount is EUR1/share higher than our target.
Divisions [EUR m ]
EBITDA12E m ultiple
assum ption
EBITDA12E
EV
1117
6549
Materials
545
2969
5.5
Products
Distribution
279
294
1673
1908
6.0
6.5
Am ericas
1049
9297
Materials
696
7129
10.2
Products
Distribution
255
99
1527
641
6.0
6.5
Europe
EV
JV
15846
336
Net Debt
3431
Unfunded Pension and minorities
Total
Com m ents
Average of Lafarge and Holcim
Average Multiple for Wolseley, SIG, Grafton, Travis Perkins
and Kingfisher
20% discount to average multiple of Martin Marietta and Vulcan
as 1/3rd of their business is paving and contracting
Average Multiple for Low e's and Home Depot
Share of Joint ventures divided by WACC
636
12115
Total number of shares after buyback(m)
710
SOTP Im plied fair value (EUR)
17
Source: IBES consensus, Nomura estimates
47
CRH: Snapshot
Key ratios
Key financials
P&L (EUR m )
Sales
growth
EBITDA
EBIT
PBT
Income Tax Expense
Effective tax rate
PAT
Minortiy Interest
Minority Int as % of PAT
Net Income to Equity holders
EPS
EPS recurring
DPS
2010 2011E
17,173 17,398
-1.2% 1.3%
1,615 1,797
753
996
534
805
95
169
18%
21%
439
636
7
9
1.6%
1.5%
432
627
0.61
0.88
0.71
0.88
0.63
0.63
2012E
18,376
6%
2,166
1,356
1,213
267
22%
946
13
1.3%
934
1.31
1.31
0.65
Cash Flow (EUR m )
Operating Cash Flow
Investing Cash Flow
Financial Cash Flow
2010
1,391
(607)
(498)
Balance Sheet (EUR m )
PPE
Working Capital
Intangible Assets
Invested Capital
Net Debt
Shareholder's Equity
Free Cash Flow
Capex
Minority
2010 2011E 2012E
8,892 8,851 8,851
2,760 3,013 3,521
4,305 4,255 4,205
11,652 11,864 12,372
3,431 3,211 2,822
10,328 10,514 11,003
1,697
807
949
466
750
800
83
87
95
2013E
19,325
5%
2,362
1,547
1,439
317
22%
1,122
14
1.3%
1,108
1.56
1.56
0.70
Key Ratios
EBITDA Margin
EBIT Margin
EBIT ROCE post tax
Net RoE
Net Debt / Equity
Net Debt/EBITDA
2010
9.4%
4.4%
4.0%
4.3%
33%
2.1x
2011E 2012E 2013E
10.3% 11.8% 12.2%
5.7%
7.4%
8.0%
4.7%
6.1%
6.8%
6.0%
8.7%
9.8%
30%
25%
20%
1.8x
1.3x
1.0x
2011E 2012E 2013E
1,416 1,638 1,823
(750) (800) (850)
(446) (449) (467)
2013E
8,896
4,137
4,155
13,033
2,316
11,649
1,044
850
104
48
Source: Company data, Nomura estimates
CRH: Segmental breakdown
EBITDA breakdown
Revenue breakdown
Sales (EUR m )
Europe
Materials
Products
Distribution
Am ericas
Materials
Products
Distribution
Group Sales
Sales Grow th
Europe
Materials
Products
Distribution
Am ericas
Materials
Products
Distribution
Sales Grow th
2010
9,048
2,665
2,817
3,566
8,125
4,417
2,469
1,239
17,173
2010
-3.6%
-3.1%
-6.2%
-1.8%
1.7%
3.2%
-2.6%
5.6%
-1.2%
2011E
9,377
2,855
2,529
3,994
8,021
4,392
2,409
1,220
17,398
2011E
3.6%
7.1%
-10.2%
12.0%
-1.3%
-0.6%
-2.4%
-1.5%
1.3%
2012E
9,875
3,026
2,655
4,194
8,501
4,641
2,545
1,314
18,376
2012E
5.3%
6.0%
5.0%
5.0%
6.0%
5.7%
5.7%
7.7%
5.6%
2013E
10,399
3,208
2,788
4,404
8,926
4,873
2,673
1,380
19,325
2013E
5.3%
6.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.2%
EBITDA (EUR m )
Europe
Materials
Products
Distribution
Am ericas
Materials
Products
Distribution
Total
EBITDA Margin
Europe
Materials
Products
Distribution
Am ericas
Materials
Products
Distribution
Group Margin
2010
835
423
198
214
780
566
154
60
1,615
2010
9.2%
15.9%
7.0%
6.0%
9.6%
12.8%
6.2%
4.8%
9.4%
2011E
951
471
240
240
846
580
193
73
1,797
2011E
10.1%
16.5%
9.5%
6.0%
10.5%
13.2%
8.0%
6.0%
10.3%
2012E
1,117
545
279
294
1,049
696
255
99
2,166
2012E
11.3%
18.0%
10.5%
7.0%
12.3%
15.0%
10.0%
7.5%
11.8%
2013E
1,214
577
307
330
1,148
770
267
110
2,362
2013E
11.7%
18.0%
11.0%
7.5%
12.9%
15.8%
10.0%
8.0%
12.2%
Source: Company data, Nomura estimates
49
Lafarge (Neutral, TP EUR 45) – Neutral as most concerns now in the share price
Investment summary

The current share price largely factors in the concerns around margin pressure in Asia and its exposure to the Middle East
North Africa, mainly Egypt where pricing recently has been weak.

Recent announcements around the gypsum business have confirmed that management is focused on addressing leverage
concerns and is on track to exceed its net debt reduction and disposal targets. However, it still remains one of the most
levered name in the sector, which may limit its manoeuvrability in terms of sustaining its market share in emerging markets
and when its peers will be looking to invest in high-growth markets, Lafarge may still be looking to dispose of assets to
deleverage its balance sheet

Trade-off between an attractive valuation and a leveraged balance sheet. No major catalyst in sight.
Valuation versus Europe ex-UK
We regard its rolling valuation at a 4% discount to the
Europe ex-UK market on an EBITDA multiple and 9%
discount on an EPS multiple as fairly balanced in the
context of its leverage concerns.
Target valuation
Our price target is based on a WACC of 7.9%, a terminal
growth rate of 2%, and cash flows that are discounted back
to the end of 2011E. We assume a terminal EBITDA margin
of 24.5%. The benchmark index for this stock is DJ
EUROSTOXX 600 Construction and Materials.
Price (EUR)
EV/EBITDA
11E
7.6
45.0
P/E 11E
15.0
Source: IBES consensus, Nomura Strategy, Nomura estimates
Prem ium
EV/EBITDA FY12E to 10
12E
year FY2
average
6.6
-3.7%
Prem ium
FY12E to 10
P/E 12E
year FY2
average
11.5
1.9%
Source: Datastream, Nomura estimates
EBITDA
EPS CAGR
CAGR
2011E-12E
2011E-12E
7.8%
20.3%
50
Balance sheet may constrain
Lafarge versus its peers

Our analysis suggests that the group
may have to spend EUR 3.1bn–
EUR 5.5bn in 2011-15 on growth capex
alone, apart from c. EUR 5.0bn on
maintenance capex (assuming that
maintenance capex stays at c. 80% of
each year’s depreciation).
Lafarge's consolidated capacity [m t]
Africa Middle East
Latin Am erica
Asia
Cem ent Volum e sold by Lafarge based on
construction grow th CAGR
2011E 2012E 2013E 2014E 2015E
2016E 2017E 2018E
2019E 2020E
56.3
56.3
56.3
56.3
56.3
57.3
60.3
63.3
66.3
12
12
12
13
13
14
14
15
15
16
56.7
56.7
56.7
56.7
58.7
61.7
65.7
69.7
73.7
77.7
2011E 2012E 2013E 2014E 2015E
2016E 2017E 2018E
69.3
2019E 2020E
Africa Middle East
45
47.2
49.5
51.8
54.3
56.9
59.7
62.5
65.5
68.7
Latin America
11
11.2
11.7
12.1
12.6
13.1
13.6
14.1
14.7
15.2
Asia
45
48.1
51.1
54.2
57.5
61.0
64.7
68.7
72.8
77.3
Utilization rates
2011E 2012E 2013E 2014E 2015E
2016E 2017E 2018E
2019E 2020E
Africa Middle East
80%
84%
88%
92%
97%
99%
99%
99%
99%
99%
Latin America
90%
94%
97%
93%
97%
93%
97%
94%
98%
95%
Asia
80%
85%
90%
96%
98%
99%
98%
99%
99%
99%
Cem ent Consum ption CAGR assum ption through 2020 (based on Oxford Construction Econom ics)
Africa Middle East
4.8%
Latin America
3.9%
Asia
New Capacity Requirem ent In MT (to ensure
utilization rates are below 100%)
6.1%
2011E 2012E 2013E 2014E 2015E
2016E 2017E 2018E
Africa Middle East
1
Latin America
Asia
Cost of New Capacity in USD/ MT (assume 3%
inflation)
1
3
1
2
2011E 2012E 2013E 2014E 2015E
3
2019E 2020E
3
3
3
1
4
4
2016E 2017E 2018E
1
4
4
2019E 2020E
Africa Middle East
175
180
186
191
197
203
209
215
222
228
Latin America
200
206
212
219
225
232
239
246
253
261
Asia
130
134
138
142
146
151
155
160
165
170
Estim ated Capex spend in USD
2011E 2012E 2013E 2014E 2015E
2016E 2017E 2018E
2019E 2020E
Africa Middle East
0
0
0
0
0
203
627
646
665
685
Latin America
0
0
0
219
0
232
0
246
0
261
Asia
Estim ated capex spend for Lafarge betw een
2011-2020 in m illion USD (assum ing 100%
capacity utilization as a constraint)
Estim ated capex spend for Lafarge betw een
2011-2020 in m illion USD (assum ing 90%
capacity utilization as a constraint)
0
0
0
0
293
452
621
640
659
678
Source: Company data, Oxford Economics forecasts (for cement consumption CAGR by region), Nomura estimates (for capacity additions)
7125
10513
51
Management focused on deleveraging


Disposals,
all
at
reasonable multiples,
have confirmed that
management
is
focussed on reducing
debt and is on track to
exceed its net debt
reduction and disposal
target.
We estimate a net
Debt/EBITDA
ratio
(3.87x at the end of
2010), for 2011 of 3.5x
and if we assume the
completion of disposals
at the end of 2011, we
estimate that our 2012
net Debt/EBITDA ratio
will likely move down
from 2.85x to 2.55x on
the back of all these
disposals
that
we
outline in the table.
Business (EURm)
Southeast US
Cement
Date of
announcement
12/05/2011
Buyer
Cementos
Argos
EV
530
EBITDA
2010
0
EV/EBITDA
Comments
na
Translates to an EV/Sales of 3.2x,
Cementos Argos indicates that on
normalized EBITDA ($120-$150) these
assets will entail an EV/EBITDA in the
range of 6.3x-5.1x. In 2010 these assets
were just breaking even (EBITDA of zero)
for Lafarge. Cementos Argos has
suggested synergies of US$120 given its
existing footprint in the market.
Completion expected in 3Q-11
European and South
American Gypsum
14/07/2011
Etex
1000
115
8.70
Australia Gypsum
22/07/2011
Knauf
120
13
9.23
Lafarge would receive net cash proceeds
of approximately EUR 850m and in
addition would receive a 20% interest in
the new partnership, which would
combine the European and South
American gypsum activities of both
groups. Completion is subject to approval
from antitrust authorities and discussions
with the employee representative body,
and no specific timeline has been
suggested for it. Lafarge, according to the
contract, would be able to sell its 20%
interest to Etex Group after 5 years.
Completion expected at the end of 3Q2011
13.84
Sale of a high growth platform at a
reasonable multiple. The joint venture
achieved average revenue growth of
10.4% per annum since 2001, driven by
average volume growth of 7.5% while
EBITDA has increased by an average of
7.3% since 2001, almost doubling in the 6
years leading to 2011, completion
expected at the end of 2011
Gypsum stake in
Asia JV with Boral
17/08/2011
Boral
429
31
Source: Company data, Oxford Economics forecasts (for cement consumption CAGR by region), Nomura estimates (for capacity additions)
52
Lafarge: Snapshot
Key ratios
Key financials
P&L (EUR m )
Sales
growth
EBITDA
EBIT
PBT
Net Profit
EPS
EPS post exceptional
DPS
2010
16,169
2%
3,614
2,441
1,430
827
2.88
2.57
1.00
2011E
16,720
3%
3,647
2,433
1,509
860
2.99
2.91
1.35
2012E
17,517
5%
4,061
2,670
1,895
1,122
3.91
3.91
1.76
2013E
18,056
3%
4,240
2,838
2,102
1,244
4.33
4.33
1.95
Cash Flow (EUR m )
Operating
Investing
Financial
2010
2,172
(1,244)
38
2011E
2,499
(1,000)
(416)
2012E
2,568
(1,401)
(527)
2013E
2,773
(1,986)
(661)
Bal Sheet (EUR m )
PPE
Working Capital
Intangible Assets
Invested Capital
Net Debt
Shareholder's Equity
Free cash flow
Capex
BVPS
Minority
2010
17,912
697
661
14,965
13,993
16,144
2,464
1,331
56
2,080
2011E
17,723
192
661
15,667
12,909
16,717
2,229
1,000
58
2,208
2012E
17,884
(75)
661
16,543
12,270
17,452
1,873
1,401
61
2,349
2013E
18,618
(34)
661
17,438
12,080
18,191
1,465
1,986
63
2,504
Key Ratios
EBITDA Margin
Operating Margin
EBIT Margin
ROCE post tax
Net ROE
Net Debt / Equity
Net Debt/EBITDA
2010
22.4%
15.1%
13.4%
6.1%
4.2%
77%
3.87x
2011E
21.8%
14.6%
13.8%
5.6%
4.5%
68%
3.54x
2012E
23.2%
16.1%
15.2%
6.5%
6.0%
62%
3.02x
2013E
23.5%
16.6%
15.7%
6.1%
6.7%
58%
2.85x
Source: Company data, Nomura estimates
53
Lafarge: 2010 sales and operating income breakdown
Sales breakdown – by geography
Sales breakdown – by business
Gypsum
and others
9%
Asia
17%
Latin
America
5%
Central
and
Eastern
Europe
6%
Western
Europe
27%
Aggregates
and
Concrete
31%
Middle East
and Africa
24%
North
America
21%
Operating income breakdown – by
geography
Operating income breakdown – by
business
Aggregates
& Concrete
9%
Asia
15%
Latin
America
9%
Central and
Eastern
Europe
9%
Cement
60%
Gypsum
2%
Western
Europe
20%
North
America
5%
Middle East
and Africa
42%
Cement
89%
54
Source: Company data, Nomura research
Lafarge: Segmental breakdown
EBITDA breakdown
Revenue breakdown
Revenues (EUR m )
Cem ent
Western Europe
North America
Central & Eastern Europe
Latin America & Carribean
Asia
Middle East and Africa
Total
Aggregates and Concrete
Gypsum
Group Revenues
Revenue Grow th(yoy)
2010
9,656
1,892
1,333
757
722
2,046
3,530
10,280
5,088
1,422
16,169
2010
2011E
9,983
1,949
1,358
811
855
2,128
3,526
2012E
10,674
2,048
1,466
864
927
2,299
3,762
2013E
11,049
2,099
1,525
894
960
2,391
3,894
10628
5,262
1,476
16,720
2011E
11364
5,307
1,536
17,517
2012E
11763
5,440
1,567
18,056
2013E
Cem ent
Western Europe
North America
Central & Eastern Europe
Latin America & Carribean
Asia
Middle East and Africa
Aggregates and Concrete
Gypsum
Group Grow th
1.9% 3.4%
-10.1% 3.0%
12.1% 1.9%
-4.8% 7.1%
17.6% 18.5%
11.4% 4.0%
-1.0% -0.1%
0.5% 3.4%
6.6% 3.8%
1.8%
3.4%
6.9%
5.1%
7.9%
6.6%
8.4%
8.0%
6.7%
0.9%
4.0%
4.8%
3.5%
2.5%
4.0%
3.5%
3.5%
4.0%
3.5%
2.5%
2.0%
3.1%
EBITDA Margin
Cem ent Overall
Western Europe
North America
Central & Eastern Europe
Latin America & Carribean
Asia
Middle East and Africa
Aggregates and Concrete
Gypsum
Overall EBITDA m argin
EBITDA (EUR m )
Cem ent Overall
Western Europe
North America
Central & Eastern Europe
Latin America & Carribean
Asia
Middle East and Africa
2010
29.2%
30.4%
16.2%
32.0%
31.6%
23.5%
35.8%
9.5%
10.1%
22.4%
2010
3005
575
216
242
228
480
1264
2011E
27.2%
30.5%
17.0%
29.0%
31.5%
22.0%
31.0%
11.0%
12.0%
21.8%
2011E
2891
594
231
235
269
468
1093
2012E
28.5%
32.0%
21.0%
33.0%
32.0%
23.0%
31.0%
12.0%
12.0%
23.2%
2012E
3240
655
308
285
297
529
1166
2013E
28.9%
32.0%
22.0%
34.0%
32.0%
24.0%
31.0%
12.0%
12.0%
23.5%
2013E
3399
672
335
304
307
574
1207
Aggregates and Concrete
Gypsum
Overall EBITDA
482
143
3614
579
177
3647
637
184
4061
653
188
4240
Source: Company data, Nomura estimates
55
Italcementi (Neutral, TP EUR 7) – Compelling for value-based investor; lacks
near-term catalyst
Investment summary

We remain Neutral on this Italian small cap stock; even though we consider it as deep value (trades at 0.34x 2010 book
value), we see few catalysts, especially in context of increasing sovereign concerns around Italy.

We believe that improving trends in Italy will be a backdrop to continued uncertainty in Egypt, given the political
uncertainty, and, to a certain degree, Morocco, where there is a new competitor.

It has stronger emerging market exposure outside Europe and low exposure to US than its Italian peer Buzzi.

Leverage ratios not a concern and we do not expect the company to aggressively look at re-leveraging its balance sheet.
Valuation versus Europe ex-UK
We regard its rolling valuation at a 34% discount to the
Europe ex-UK market on an EBITDA multiple but a 41%
premium on an EPS multiple as fairly balanced. We
believe it looks compelling for a value-based investor
(0.34x 2010 book value).
Target valuation
Our price target is based on a WACC of 8%, terminal
growth rate of 2%, and cash flows that are discounted back
to the end of 2011. We have assumed a terminal EBITDA
margin of 22%. The benchmark index for this stock is DJ
EUROSTOXX 600 Construction and Materials.
80%
Price
(EUR)
40%
0%
7.0
EV/EBITDA
11E
EV/EBITDA
12E
4.9
4.1
P/E 11E
P/E 12E
25.3
14.6
-40%
Prem ium FY12E
EBITDA
to 10 yr FY2
CAGR 2011Eaverage
13E
-19.7%
Prem ium FY12E
12.8%
to 10 yr FY2
average
28.1%
EPS
CAGR
2011E-
45.5%
-80%
Premium on P/E FY1
relative to the market
Premium on EV/EBITDA Premium on P/B relative to
FY1 relative to the market
the market
Source: IBES consensus, Nomura Strategy, Nomura estimates
Source: Datastream, Nomura estimates
56
Italcementi: Snapshot
Key financials
Key ratios
P&L (EUR m )
Sales
growth
EBITDA recurring
EBIT
PBT
Income Tax Expense
Effective Tax rate
PAT
Minority Interest
MI as % of PAT
NI to Equity holders
EPS(ordinary)
DPS
2010 2011E 2012E 2013E
4,791 4,786 5,115 5,407
-4.3% -0.1% 6.9% 5.7%
836
832
974 1,059
354
384
496
579
259
291
397
482
62
87
119
145
24.0% 30.0% 30.0% 30.0%
197
203
278
338
151
122
139
169
77%
60%
50% 50%
46
81
139
169
0.15
0.28
0.48
0.59
0.12
0.12
0.14
0.18
Cash Flow (EUR m )
Operating
Investing
Financial
2010
748
(405)
(333)
2011E 2012E 2013E
682
699
766
(185) (500) (550)
(193) (173) (227)
Balance Sheet (EUR m )
PPE
Working Capital
Intangible Assets
Invested Capital
Net Debt
Shareholder's Equity
Free Cash Flow
Capex
Minority
2010
4,595
897
2,150
5,492
2,259
3,525
373
500
1,461
2011E
4,344
1,193
2,150
5,537
1,955
3,573
233
510
1,459
Source: Company data, Nomura estimates
2012E
4,366
1,276
2,150
5,642
1,929
3,674
168
612
1,462
Key Ratios
EBITDA Margin
EBIT Margin
ROCE post tax
Net ROE
Interest Cover (EBIT)
Depreciation % sales
Invested Capital Turnover
Net Debt / Equity
Net Debt/EBITDA
2010 2011E 2012E 2013E
17.3% 17.8% 19.0% 19.6%
7.3% 8.0% 9.7% 10.7%
3.8% 3.8% 4.9% 5.7%
1.3% 2.3% 3.8% 4.4%
3.7x
3.4x
4.2x
5.0x
9.9% 9.9% 9.3% 8.9%
0.9x
0.9x
0.9x
0.9x
0.45x 0.39x 0.38x 0.37x
2.7x
2.3x
2.0x
1.8x
2013E
4,436
1,316
2,150
5,752
1,941
3,799
220
628
1,470
57
Italcementi: Segmental breakdown
Geographical breakdown sales (‘10)
Revenues (EUR m )
Spain +
Greece
5%
Bulgaria +
Turkey +
Kuwait
6%
Morocco
7%
France +
Belgium
32%
North
America
9%
India+Thail
and+Kazak
hastan+Chi
na
9%
Egypt
17%
Italy
15%
Geographical breakdown op EBITDA (‘10)
32.4%
38.0%
15.1%
8.1%
5.6%
3.0%
2.2%
Source: Company data, Nomura estimates
Italy
Bulgaria + Turkey + Kuwait
North America
Spain + Greece
India+Thailand+Kazakhasta
n+China
Morocco
Egypt
France + Belgium
-4.3%
EBITDA breakdown
Revenue breakdown
European Union
Italy
France+Belgium
Spain
Greece
North Am erica
Med Rim
Egypt
Morocco
Bulgaria
Turkey
Kuw ait
Asia
Thailand
India
Kazakhastan
China
Trading
Other and Eliminations
Total
Revenue Grow th
European Union
Italy
France +Belgium
Spain
Greece
North Am erica
Med Rim
Egypt
Morocco
Bulgaria
Turkey
Kuw ait
Asia
Thailand
India
Kazakhastan
China
Trading
Total
2010
2,407
689
1,494
176
70
415
1,379
789
326
56
157
50
449
180
170
47
52
229
(88)
4,791
2010
-9.1%
-16.5%
-2.3%
-22.4%
-16.0%
3.4%
-1.1%
-0.5%
1.8%
-44.1%
18.8%
2.0%
9.1%
11.9%
-1.0%
46.9%
10.6%
3.6%
-4.3%
2011E 2012E 2013E
European Union
Italy
France+Belgium
Spain
Greece
North Am erica
Med Rim
Egypt
Morocco
Bulgaria
Turkey
Kuw ait
Asia
Thailand
India
Kazakhastan
China
Trading
Other and Eliminations
Total
Rec EBITDA Margin
2010
328
(36)
318
32
15
25
415
271
126
17
(4)
5
68
15
36
9
8
14
(15)
836
2010
2011E 2012E 2013E
370
471
500
10
68
89
338
361
368
16
28
29
6
13
14
26
36
40
347
369
395
202
212
227
127
138
147
18
19
21
1
1
1
6
6
6
90
99
125
31
26
33
50
52
68
7
10
10
3
11
14
15
16
17
(16)
(17)
(19)
832
974
1,059
2011E 2012E 2013E
7.6%
10.7%
7.6%
-9.8%
-13.2%
-3.4%
-17.8%
-14.5%
3.9%
-8.0%
-91.6%
10.4%
15.2%
13.7%
24.1%
-3.3%
8.3%
2.5%
-0.1%
European Union
Italy
France+Belgium
Spain
Greece
North Am erica
Med Rim
Egypt
Morocco
Bulgaria
Turkey
Kuw ait
Asia
Thailand
India
Kazakhastan
China
Trading
Total
13.6%
-5.2%
21.3%
18.2%
21.4%
6.0%
30.1%
34.3%
38.7%
30.4%
-2.5%
10.0%
15.1%
8.3%
21.2%
19.1%
15.4%
6.1%
17.5%
14.3%
3.5%
21.0%
10.0%
10.0%
6.5%
30.7%
30.0%
37.5%
35.0%
7.0%
10.0%
17.5%
15.0%
23.5%
15.0%
6.0%
6.2%
17.4%
2011E
2,590
763
1,607
159
61
401
1,133
675
339
52
13
55
517
205
211
45
56
235
(90)
4,786
2012E
2,758
854
1,679
162
62
423
1,209
719
362
55
14
59
572
220
240
48
64
248
(95)
5,115
2013E
2,870
887
1,754
166
63
447
1,295
770
388
59
15
64
632
236
273
52
72
263
(101)
5,407
6.5% 4.1%
12.0% 3.8%
4.4% 4.4%
2.2% 2.2%
2.1% 2.1%
5.5% 5.8%
6.7% 7.1%
6.6% 7.1%
7.0% 7.1%
7.1% 7.1%
4.9% 7.3%
7.4% 7.1%
10.6% 10.5%
7.5% 7.3%
13.9% 13.6%
6.6% 6.8%
12.9% 12.5%
5.7% 6.0%
6.9% 5.7%
Rec EBITDA(EUR m )
17.1%
8.0%
21.5%
17.5%
21.5%
8.5%
30.5%
29.5%
38.0%
35.0%
8.0%
10.0%
17.2%
12.0%
21.5%
20.0%
17.0%
6.5%
19.0%
17.4%
10.0%
21.0%
17.5%
21.5%
9.0%
30.5%
29.5%
38.0%
35.0%
10.0%
10.0%
19.8%
14.0%
25.0%
20.0%
19.0%
6.6%
19.6%
58
Buzzi Unicem (Reduce, TP EUR 7) – Expect YTD outperformance to reverse
Investment summary

We retain our Reduce stance (although this is a relative call versus the other Italian small cap stocks), as we believe that
its current valuation is not compelling given the muted outlook in Italy and the US, which we believe is unlikely to be offset
by some recovery in eastern European markets.

High exposure to the US, where the outlook has deteriorated and where Buzzi is facing increasing competition from
Holcim's St Genevieve plant.

Emerging market exposure limited to eastern Europe and Mexico, no exposure to Asia/Africa.

Reasonable balance sheet, but group unlikely to explore options for re-leveraging.
Valuation versus Europe ex-UK
Rolling valuation in line with Europe ex-UK market on an
EBITDA multiple, but a considerable premium on an EPS
multiple is not compelling, in our view.
Target valuation
Our price target is based on a WACC of 8.4%, a terminal
growth rate of 2%, and cash flows that are discounted back
to the end of 2011E. We have assumed a terminal EBITDA
margin of 20.5%. The benchmark index for this stock is DJ
EUROSTOXX 600 Construction and Materials.
100%
60%
Price (Euro)
20%
-20%
EV/EBITDA EV/EBITDA
11E
12E
6.2
4.7
P/E 11E
P/E 12E
25.0
12.2
-60%
7.0
-100%
Premium on P/E FY1
relative to the market
Premium on EV/EBITDA
FY1 relative to the market
Premium on P/B FY1
relative to the market
Source: IBES consensus, Nomura Strategy, Nomura estimates
EPS
Prem ium FY12E
EBITDA
to 10 year FY2
CAGR 2011E- CAGR
2011Eaverage
13E
13E
4%
Prem ium FY12E
22.4%
81.1%
to 10 year FY2
average
23%
Source: Datastream, Nomura estimates
59
Buzzi: Snapshot
Key ratios
Key financials
P&L (EUR m )
Sales
growth
EBITDA
EBIT
PBT
Income Tax Expense
Effective Tax Rate
PAT
Minority Interest
MI as % of PAT
NI to Equity Holders
EPS (ordinary)
EPS recuring(ordinary)
DPS (ordinary)
2010
2648
-0.9%
387
0.3
-102
-61
59%
-42
22
-53%
-64
-0.33
0.47
0.00
2011E
2797
5.6%
412
202
107
34
32%
73
20
28%
52
0.24
0.24
0.06
2012E 2013E
2970
3135
6.2%
5.6%
517
617
305
407
215
327
69
105
32%
32%
146
223
41
62
28%
28%
105
160
0.49
0.76
0.49
0.76
0.12
0.19
Cash Flow (Eur m )
Operating Cash Flow
Investing Cash Flow
Financial Cash Flow
2010
225
(217)
(341)
2011E
218
(150)
0
2012E 2013E
326
403
(180) (225)
(13)
(26)
Balance Sheet (Eur m )
PPE
Working Capital
Intangible Assets
Invested Capital
Net Debt
Shareholder's Equity
Free Cash Flow
Capex
BNVPS
Minority
2010
3478
12
733
4071
1267
2561
49
300
12.4x
242
2011E
3419
(64)
733
4145
1199
2614
136
150
12.7x
263
2012E 2013E
3387
3402
(32)
(30)
733
733
4277
4474
1066
915
2706
2840
213
240
180
225
13.1x 13.8x
304
366
Key Ratios
EBITDA Margin
EBIT Margin
EBIT ROCE post Tax
Net RoE
Interest Cover (EBIT)
Dividend Cover
Depreciation % sales
Invested Capital Turnover
Net Debt / Equity
Net Debt/EBITDA
2010
14.6%
0.0%
1.8%
-2.5%
0.0x
na
8.4%
0.7x
45%
3.27x
2011E
14.7%
7.2%
3.6%
2.0%
2.1x
4.3x
7.5%
0.7x
42%
2.91x
2012E 2013E
17.4% 19.7%
10.3% 13.0%
5.4%
7.3%
4.0%
5.8%
3.4x
5.1x
4.2x
4.0x
7.1%
6.7%
0.7x
0.7x
35%
29%
2.06x 1.48x
Source: Company data, Nomura estimates
60
Buzzi: Segment Breakdown
Geographical breakdown sales
(2010)
Mexico
8%
Italy
23%
USA
22%
Germany
21%
Russia
5%
Ukraine
3%
Czech and
Slovakia
6%
Poland
5%
NetherLand
4%
Luxembour
g
3%
Geographical breakdown EBITDA
(2010)
22.9%
19.9%
19.7%
10.3%
8.6% 8.5%
8.4%
EBITDA breakdown
Revenue breakdown
Sales (EUR m )
2010
Italy
614
Central Europe
754
Germany
549
Luxembourg
92
Netherland
113
Eastern Europe
494
Poland
129
Czech Rep and Slovakia 159
Ukraine
82
Russia
124
USA
601
Mexico
213
TOTAL
2,648
Sales Grow th
2010
Italy
-13.1%
Central Europe
4.1%
Germany
3.9%
Luxembourg
11.2%
Netherland
0.2%
Eastern Europe
4.9%
Poland
6.9%
Czech Rep and Slovakia -9.4%
Ukraine
8.7%
Russia
25.4%
USA
-2.0%
Mexico
18.6%
Total
-0.9%
2011E
648
845
621
106
118
538
145
172
84
138
566
229
2,797
2011E
5.6%
12.1%
13.3%
14.5%
4.2%
8.8%
11.8%
7.7%
2.7%
11.2%
-5.7%
7.4%
5.6%
2012E
693
893
659
110
123
573
155
182
88
147
597
245
2,970
2012E
6.9%
5.6%
6.1%
4.0%
4.7%
6.5%
7.2%
6.3%
5.6%
6.6%
5.5%
7.0%
6.2%
2013E
720
943
699
114
129
612
168
194
94
156
632
262
3,135
2013E
3.8%
5.6%
6.1%
4.0%
4.7%
6.8%
8.2%
6.6%
6.0%
6.0%
5.8%
6.7%
5.6%
EBITDA (EUR m )
2010
Italy
32.5
Central Europe
93.3
Germany
76.3
Luxembourg
16.4
Netherlands
0.6
Eastern Europe
95.4
Poland
33.4
Czech Rep and Slovakia 32.8
Ukraine
(10.5)
Russia
39.7
USA
88.7
Mexico
77.2
Total
387
EBITDA Margin
2010
Italy
5.3%
Central Europe
12.4%
Germany
13.9%
Luxembourg
17.8%
Netherland
0.5%
Eastern Europe
19.3%
Poland
25.8%
Czech Rep and Slovakia20.6%
Ukraine
-12.9%
Russia
32.0%
USA
14.8%
Mexico
36.2%
Total
14.6%
2011E
19.5
125.3
99.4
21.1
4.7
110.4
36.1
30.0
2.1
42.1
76.5
80.2
412
2011E
3.0%
14.8%
16.0%
20.0%
4.0%
20.5%
25.0%
17.5%
2.5%
30.5%
13.5%
35.0%
14.7%
2012E
55.4
134.2
108.8
19.2
6.2
132.3
41.8
32.8
6.2
51.5
107.5
87.1
517
2012E
8.0%
15.0%
16.5%
17.5%
5.0%
34.0%
27.0%
18.0%
7.0%
35.0%
18.0%
35.5%
17.4%
2013E
86.4
153.0
125.9
20.6
6.5
157.4
45.2
38.9
14.0
59.3
126.4
94.2
617
2013E
12.0%
16.2%
18.0%
18.0%
5.0%
34.0%
27.0%
20.0%
15.0%
38.0%
20.0%
36.0%
19.7%
4.2%
0.2%
-2.7%
61
Source: Company data, Nomura estimates
Appendix
62
Holcim price and volume trends
Cem ent Prices (y-o-y)
Europe
Belgium
France
Sw itzerland
Italy
Hungary
Czech Republic
Slovakia
Croatia
Romania
Bulgaria
Serbia
Russia
Azerbaijan
Spain
North Am erica
Canada
USA
Latin Am erica
Mexico
El Salvador
Costa Rica
Nicaragua
Colombia
Ecuador
Brazil
Africa Middle East
Indian Ocean
Asia Pacific
India
Sri Lanka
Bangladesh
Vietnam
Malaysia
Indonesia
Australia
New Zealand
1Q10
-8.9%
-1.1%
-7.9%
-15.3%
-5.8%
-6.5%
-18.3%
-9.9%
-9.9%
-21.7%
11.6%
-1.5%
-22.3%
-8.0%
1.0%
-3.4%
-2.1%
0.0%
1.1%
-0.4%
-15.8%
3.7%
-6.5%
-9.8%
3.8%
-11.7%
0.1%
-7.9%
-5.7%
0.0%
6.8%
-0.1%
1H10
-4.4%
-4.0%
-2.0%
-3.1%
-20.9%
-7.8%
-6.1%
-11.8%
-10.9%
-10.7%
-23.3%
8.7%
-6.5%
-11.6%
-6.8%
-3.7%
-1.1%
-5.7%
0.4%
-0.9%
0.4%
6.9%
-0.3%
-14.4%
3.0%
-4.1%
-2.0%
-9.8%
1.1%
1.5%
-10.6%
0.2%
-5.9%
0.4%
0.6%
7.0%
-0.3%
9M10
-4.4%
-3.5%
-1.0%
-2.1%
-23.5%
-8.0%
-6.5%
-7.5%
-9.3%
-11.0%
-22.6%
10.6%
-7.8%
-6.6%
-6.0%
-4.3%
0.2%
-6.4%
1.0%
0.5%
1.1%
10.8%
-0.1%
-9.8%
2.1%
-2.2%
-1.4%
-4.4%
-1.6%
-3.8%
-8.7%
0.5%
-5.4%
3.2%
1.4%
7.1%
1.2%
2010
-4.4%
-3.5%
1.2%
-1.1%
-23.6%
-8.4%
-7.0%
-3.9%
-9.5%
-10.9%
-21.4%
11.8%
-6.5%
-4.7%
-5.5%
-5.0%
1.1%
-6.9%
1.6%
0.7%
1.9%
9.7%
0.2%
-9.3%
1.8%
-0.6%
-1.0%
0.0%
-1.8%
-3.9%
-7.2%
0.9%
-4.6%
3.4%
3.2%
1.9%
1Q11
-0.9%
-4.5%
0.0%
1.5%
-14.8%
-2.2%
-7.7%
-9.2%
-7.0%
-3.9%
-14.1%
5.5%
-2.3%
3.9%
1.7%
-7.8%
2.2%
-9.5%
4.1%
5.0%
3.1%
8.1%
1.1%
-5.1%
1.8%
4.3%
-0.1%
2.9%
3.5%
3.8%
-0.1%
4.0%
8.3%
6.9%
0.6%
2.7%
5.2%
1H11
0.6%
-4.8%
0.4%
-0.6%
-7.2%
-9.0%
-8.4%
-5.6%
-5.6%
-3.5%
-6.6%
-0.9%
10.1%
2.1%
2.8%
-4.6%
1.7%
-5.7%
4.3%
1.8%
4.7%
1.7%
2.7%
-3.5%
2.4%
5.4%
1.1%
-0.1%
4.8%
5.3%
0.2%
5.3%
14.1%
2.2%
-0.9%
1.5%
3.7%
Cem ent Vol (y-o-y)
Europe
Belgium
France
Sw itzerland
Italy
Hungary
Czech Republic
Slovakia
Croatia
Romania
Bulgaria
Serbia
Russia
Azerbaijan
Spain
North Am erica
Canada
USA
Latin Am erica
Mexico
El Salvador
Costa Rica
Nicaragua
Colombia
Ecuador
Brazil
Africa Middle East
Indian Ocean
Asia Pacific
India
Sri Lanka
Bangladesh
Vietnam
Malaysia
Indonesia
Australia
New Zealand
1Q10
9.3%
1.9%
0.8%
-9.3%
-14.8%
0.0%
55.6%
-42.7%
-40.4%
-64.2%
-34.4%
-33.0%
10.3%
-23.3%
32.9%
-14.7%
-9.0%
-7.3%
1.5%
6.0%
18.3%
-4.4%
22.2%
-8.3%
1.6%
32.6%
18.3%
5.8%
2.6%
24.1%
-5.5%
-14.0%
1H10
-8.5%
-6.4%
7.7%
-0.1%
-4.4%
-16.7%
4.0%
1.2%
-36.2%
-30.0%
-48.5%
-14.2%
-18.5%
4.9%
-8.1%
0.0%
21.9%
-3.9%
-0.9%
-7.3%
-10.2%
-12.5%
5.0%
13.5%
-6.8%
20.9%
11.1%
-0.5%
3.8%
3.2%
34.3%
13.3%
5.2%
6.3%
19.7%
-5.1%
-9.6%
9M10
-4.8%
-4.5%
6.9%
1.1%
-1.2%
-13.4%
0.8%
45.7%
-31.1%
-18.8%
-33.5%
-7.3%
-11.0%
1.5%
-1.2%
1.2%
11.9%
-1.8%
-1.8%
-9.3%
-13.4%
-20.6%
3.9%
8.1%
-4.5%
20.3%
7.6%
-1.4%
3.2%
2.9%
30.9%
15.7%
3.1%
3.3%
11.3%
-5.0%
-6.7%
2010
-3.3%
-4.0%
4.3%
1.5%
-0.9%
-14.0%
-2.8%
-1.1%
-27.6%
-14.5%
-27.7%
-5.7%
-5.1%
1.7%
-0.5%
3.7%
7.9%
2.2%
-0.4%
-7.0%
-11.8%
-24.4%
4.5%
10.9%
-3.5%
19.2%
4.5%
0.2%
3.6%
3.5%
28.3%
15.3%
2.4%
4.1%
-2.0%
-5.3%
1Q11
19.9%
36.0%
22.6%
22.4%
-0.7%
-16.3%
5.5%
22.2%
5.1%
15.7%
63.5%
10.2%
37.9%
7.0%
9.7%
3.5%
-8.8%
5.5%
2.3%
-1.5%
3.0%
-24.5%
17.2%
1.8%
5.4%
5.7%
-10.0%
2.9%
6.3%
8.7%
14.0%
18.9%
16.6%
9.9%
24.7%
-6.0%
-10.3%
1H11
6.5%
17.3%
8.3%
10.8%
-1.7%
-20.5%
-3.7%
10.8%
-2.3%
10.2%
28.3%
4.8%
26.0%
-3.5%
-13.2%
-0.4%
-7.4%
1.1%
5.4%
0.6%
10.3%
-15.5%
15.0%
17.3%
6.3%
6.2%
-8.0%
1.5%
4.4%
7.2%
10.7%
8.9%
4.5%
18.2%
29.1%
-4.8%
-6.0%
63
Source: Company data, Nomura research
Cemex price and volume trends
Aggregate (y-o-y)
Ready Mix (y-o-y)
Gray Cement (y-o-y)
Volum e
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10 2010 1Q11 2Q11 1H11
2%
0%
-4%
1%
3%
2%
0%
3%
0%
-4% -10%
-7%
-21% -12% -22%
5% -11%
-4%
9%
-3%
1% 20%
1% 10%
N/A
N/A
N/A
N/A
N/A
N/A
7%
-5%
-2% 60%
4% 21%
-1% 14%
-1% 53% 16% 26%
-1%
0%
5%
-2%
2%
0%
1%
0%
2%
-6%
0%
-3%
2% -11%
8% -12% -20% -16%
-1%
-2%
-3%
3%
-1%
1%
Volum e
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10 2010 1Q11 2Q11 1H11
-4% 24%
-4% 16% 13% 14%
-5% -10%
-7% -10% -14% -12%
-20%
-9% -20% 16% -15%
-1%
5%
1%
-3% 30% 11% 20%
12%
6%
1% 29% 10% 18%
-2% -19% -10% 39%
-2% 11%
14%
8% 10% 71% 44% 54%
2%
4%
1% 15% 31% 23%
11%
9% 11% -26% -14% -20%
N/A
N/A
N/A
N/A
N/A
N/A
-3%
2%
-5% 14%
5%
9%
Volum e
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10
-4%
-4%
-15%
0%
4%
1%
24%
11%
13%
N/A
-2%
Prices (USD)
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10 2010 1Q11 2Q11 1H11
4%
9%
8% 11% 11% 11%
-7%
-8%
-8%
-3%
0%
-1%
-16% -16% -12%
-3% 14%
5%
-7%
-6%
-6%
6% 12%
9%
N/A
N/A
N/A
N/A
N/A
N/A
-12% -11%
-8%
-1% 14%
9%
-8%
-6%
-4%
1% 24% 16%
6%
2%
7%
5% 14% 10%
0%
-3%
3%
-9% -11% -10%
12%
8%
8%
1%
-2%
-1%
-2%
0%
0%
3%
8%
6%
Prices (USD)
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10 2010 1Q11 2Q11
8% 12% 11% 12% 16%
-9%
-4% -11%
0%
3%
-17% -18% -14%
-6%
8%
-5%
-5%
-5%
5% 11%
-9%
-9%
-6%
2% 17%
-10% -10%
-8%
2% 15%
-14%
-7% -10% 10% 38%
4%
6%
5%
7% 14%
-5%
-8%
-5%
-9% -10%
N/A
N/A
N/A
N/A
N/A
-5%
-4%
-4%
5% 13%
1H11
14%
2%
1%
8%
10%
10%
26%
11%
-9%
N/A
9%
Prices (USD)
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10
12% 16%
-4%
1%
-5%
-4%
-8%
-6%
-4%
-7%
-9%
-9%
-1%
5%
-26% -19%
-6% -16%
N/A
N/A
-5%
-5%
Prices (LC)
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10
0%
4%
-7%
-8%
-8%
-8%
-3%
-2%
N/A
N/A
-4%
-3%
-3%
-2%
-3%
-4%
3%
2%
5%
0%
-2%
-1%
Prices (LC)
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10 2010 1Q11 2Q11
4%
6%
3%
6%
5%
-9%
-4% -11%
0%
3%
-10% -10%
-9%
-7%
-6%
-1%
0%
-3%
1%
1%
-1%
-1%
-1%
0%
1%
-2%
-2%
-1%
0%
0%
-9%
-3% -10%
8% 17%
-5%
-1%
-8%
3%
5%
-2%
-2%
-3%
-2%
-4%
N/A
N/A
N/A
N/A
N/A
-2%
-2%
-4%
2%
3%
1H11
6%
2%
-7%
1%
1%
0%
14%
4%
-3%
N/A
2%
Prices (LC)
Mexico
U.S.
Spain
UK
France
Germany
Poland
Colombia
Egypt
Philippines
Total
3Q10 4Q10 2010 1Q11 2Q11 1H11
8% 10% 11% 12% 14% 13%
-4%
1%
-4%
4%
9%
7%
4%
5%
2%
5%
3%
4%
-4%
-2%
-4%
1%
2%
1%
5%
2%
3%
3%
4%
3%
-1%
-1%
3%
-1%
-1%
-1%
4% 10%
1% 30% 32% 31%
-31% -24% -13% -11%
-9% -10%
-3% -11%
-3% -14% -20% -18%
N/A
N/A
N/A
N/A
N/A
N/A
-1%
-3%
-1%
7%
5%
5%
2010 1Q11 2Q11
0%
5%
1%
-8%
-3%
0%
-7%
-5%
-2%
-4%
2%
2%
N/A
N/A
N/A
-1%
-4%
-1%
-4%
0%
5%
-6%
1%
5%
5%
-2%
-5%
2%
-4%
-8%
-2%
1%
1%
Source: Company data, Nomura research
1H11
3%
-1%
-3%
2%
N/A
-2%
3%
3%
-4%
-6%
1%
4Q10 2010 1Q11 2Q11 1H11
30%
-1%
8%
3%
5%
-7%
-5%
-6%
-7%
-7%
-19% -14%
-1% -22% -13%
-6%
-2% 16%
1%
8%
-2%
-4% 24%
6% 14%
-11%
-7% 46%
1% 16%
-10%
7% 31% 10% 15%
-37%
-5%
2% 13%
8%
-5%
2% -28% -18% -23%
N/A
N/A
N/A
N/A
N/A
-1%
-4% 10%
0%
4%
2010 1Q11 2Q11 1H11
19% 18% 25% 22%
-4%
4%
9%
7%
-3%
7% 19% 13%
-6%
5% 12%
8%
-2%
5% 20% 13%
-4%
1% 14%
9%
0% 32% 56% 49%
1%
-7%
-1%
-4%
-4% -20% -24% -23%
N/A
N/A
N/A
N/A
-2%
9% 15% 11%
64
2011 outlook as suggested by companies
Lafarge
Cemex
Volum es
Gray
Cem ent
Ready m ix
Aggregat
es
Mexico
3%
7%
3%
US
flat
flat
flat*
Spain
-10%
-10%
-10%
UK
4%
9%
3%
France
N/A
7%
9%
Germany
14%
11%
10%
Poland
11%
15%
1%
Colombia
6%
17%
40%
Philippines
-10%
N/A
N/A
*on like for like basis for the ongoing operations
Heidelberg Cement
Cem ent
Region
Western Europe
North Am erica
Middle East and Africa
CEE
Latin Am erica
Asia
Overall
Volum es
-5% to -2%
-1% to 2%
3% to 6%
6% to 9%
6% to 9%
4% to 7%
2% to 5%
Price
=
=/+ (1)
=/+ (1)
+
+
+
=/+
(1)- Relative to year-end pricing; dow n at average pricing
Aggregate
Volum e
Price
Volum e
Price
US
↑
↑
↔
↑
Canada
↑
↑
↑
↑
Germany
↑
↔
↔
↑
UK
↑
↑
↑
↑
Benelux
↑
↓
↔
↔
Norw ay
↑
↔
↑
↑
Sw eden
↑
↑
↑
↑
Poland
↑
↔
↔
↑
Romania
↓
↓
↑
↑
Russia
↑
↔
↑
↓
Ukraine
↑
↑
↑
↑
Czech Rep.
↔
↓
↔
↓
Kazakhstan
↑
↑
↑
↑
Australia
↑
↔
↑
↑
Indonesia
↑
↑
↑
↔
(*)Based on most recent market estimates as of March 2011
65
Source: Company data, Nomura research
Robust long-term prospects of EM markets
Drivers of emerging market construction demand

Increasing population, urbanisation and economic
9%
7.7%
8%
growth may drive construction material demand in
7.1%
7%
emerging markets. A strong footprint in Asia and
6.7%
6.1%
6%
5.2%
4.8%
5%
5.7%
5.0%
4%
Africa/Middle East will be a critical growth driver
for transnational European companies, in our
view.
3%
2%
2.0%
1.0%
0.9%
1%
0%
-0.3%
-1%
Population
European majors like Holcim, Lafarge, Heidelberg
Cement and Italcementi have built solid platforms
Construction
Africa & Middle East
Asia Pacific - Emerging markets
Eastern Europe
South & Central America
Source: Company data, UN for population growth 2010E-20E and Global Construction
Perspectives and Oxford Economics for GDP 2009E-20E and construction 2009E-20E
in different emerging markets (CRH has also
Global cement consumption (million tons)
from its presence in eastern Europe, while Buzzi's
2990
2740 2800
emerging market exposure is concentrated in
2500
2300
eastern Europe), and it can play the role of a
2100
consolidator in some of these markets.
1350
1250 1300
1140 1200
1495
1420 1470
1570 1620
1700
1800
Emerging
markets
90%
1900
Emerging
markets
55%
Developed
markets
45%
Source: Company data, Nomura research
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
Developed
markets 10%
2009
made initial forays into India and China, apart
1991

GDP
66
Longer-term cement consumption growth rates by region
Note (1): China cement consumption per capita kept at 2009 level, but growing with population.
Note (2): Western Europe = FR, DE, IT, GR, ES, UK / Eastern Europe = BU, CZ, HU, RO, RU, / North America = CA, USA / South America = AG, BR, CL, CO /
Asia Pacific (developed) = AU, JP / Asia Pacific (developing) = ID, PH, KR, TH, VN / Africa-Middle East = EG, MA, NG, SA, ZA, AE
Source: Construction Perspectives and Oxford Economics, United Nations World Population Prospects, company reports, Nomura research
67
Scope for further consolidation
 International cement operators have the
opportunity to further consolidate/expand
their footprints in markets like China,
Russia, India, Indonesia, Brazil, South
Africa and Nigeria
 Otherwise they risk the transformation of
some of the domestic operators like Anhui
Conch, China National Building Material
(China), Eurocement (Russia), Grasim
(India),
Semen
Gresik
(Indonesia),
Votorantim (Brazil), Pretoria Cement
Company (South Africa), Dangote Cement
(Nigeria) into international contenders.
 It has happened before, when CEMEX
transformed itself from a domestic Mexican
operator in the 1990s to an international
company
Capacity controlled by international operators by
region
Africa
Latin America
Western Europe
North America
Eastern Europe
Asia ex China
Middle East
Asia including China
0%
20%
40%
60%
80%
100%
Source: Company reports, CEMBUREAU, Nomura estimates
*International operators include Buzzi Unicem, Cemex, Cimpor, CRH, Heidelberg Cement, Holcim, Italcementi, Lafarge Titan and Votorantim.
68
Any Authors named on this report are Research Analysts unless otherwise indicated
Analyst Certification
We, Ankur Agarwal and Ankit Kumar, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or
issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc
or any other Nomura Group company.
Important Disclosures
Conflict-of-interest disclosures
Important disclosures may be accessed through the following website: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx . If you have difficulty
with this site or you do not have a password, please contact your Nomura Securities International, Inc. salesperson (1-877-865-5752) or email grpsupport-eu@nomura.com for assistance.
Online availability of research and additional conflict-of-interest disclosures
Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe,
Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG.
Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://go.nomuranow.com/research/globalresearchportal or requested from Nomura
Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupport-eu@nomura.com for technical assistance.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by
Investment Banking activities.
Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of
NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a
research analyst account.
Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which
they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear.
Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomura’s Equity
Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their
sector.
69
Distribution of ratings (Global)
The distribution of all ratings published by Nomura Global Equity Research is as follows:
49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with this rating are investment banking clients of the
Nomura Group*.
40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of
the Nomura Group*.
11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 14% of companies with this rating are investment banking clients of
the Nomura Group*.
As at 30 June 2011.
*The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to
target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current
intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.
A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months.
A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months.
A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain
circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company.
Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the
Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated
in the valuation methodology.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.
A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months.
A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months.
Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
70
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In
most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple
analysis, etc.
A 'Buy' recommendation indicates that potential upside is 15% or more.
A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%.
A 'Reduce' recommendation indicates that potential downside is 5% or more.
A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances
including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company.
Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors
should not expect continuing or additional information from Nomura relating to such securities and/or companies.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.
A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation.
A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America
published prior to 27 October 2008)
STOCKS
A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months.
A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months.
A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months.
A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months.
A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months.
Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it
undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months.
A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months.
A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months.
Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT
Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W
Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
71
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In
most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or
Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ
from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value.
Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the
prevailing market price to differ from the upside or downside implied by the recommendation.
A 'Strong buy' recommendation indicates that upside is more than 20%.
A 'Buy' recommendation indicates that upside is between 10% and 20%.
A 'Neutral' recommendation indicates that upside or downside is less than 10%.
A 'Reduce' recommendation indicates that downside is between 10% and 20%.
A 'Sell' recommendation indicates that downside is more than 20%.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.
A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation.
A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and
macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
Disclaimers
This publication contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or joint contributions of one or
more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or elsewhere identified in the publication. Affiliates and subsidiaries of Nomura
Holdings, Inc. (collectively, the 'Nomura Group'), include: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), United Kingdom; Nomura Securities
International, Inc. ('NSI'), New York, NY; Nomura International (Hong Kong) Ltd. (‘NIHK’), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (‘NFIK’), Korea (Information on
Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr ); Nomura Singapore Ltd. (‘NSL’),
Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Capital Nomura Securities Public Company Limited (‘CNS’), Thailand; Nomura Australia
Ltd. (‘NAL’), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number
246412; P.T. Nomura Indonesia (‘PTNI’), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (‘NSM’), Malaysia; Nomura International (Hong Kong) Ltd., Taipei Branch (‘NITB’), Taiwan;
Nomura Financial Advisory and Securities (India) Private Limited (‘NFASL’), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant
Road, Worli, Mumbai- 400 018, India; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034); Banque Nomura France (‘BNF’); NIplc, Dubai
Branch (‘NIplc, Dubai’); NIplc, Madrid Branch (‘NIplc, Madrid’) and OOO Nomura, Moscow (‘OOO Nomura’).
72
THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON
INFORMATION THAT WE CONSIDER RELIABLE.
NOMURA GROUP DOES NOT WARRANT OR REPRESENT THAT THE PUBLICATION IS ACCURATE, COMPLETE, RELIABLE, FIT FOR ANY PARTICULAR PURPOSE OR
MERCHANTABLE AND DOES NOT ACCEPT LIABILITY FOR ANY ACT (OR DECISION NOT TO ACT) RESULTING FROM USE OF THIS PUBLICATION AND RELATED DATA. TO
THE MAXIMUM EXTENT PERMISSIBLE ALL WARRANTIES AND OTHER ASSURANCES BY NOMURA GROUP ARE HEREBY EXCLUDED AND NOMURA GROUP SHALL HAVE NO
LIABILITY FOR THE USE, MISUSE, OR DISTRIBUTION OF THIS INFORMATION.
Opinions expressed are current opinions as of the original publication date appearing on this material only and the information, including the opinions contained herein, are subject to
change without notice. Nomura is under no duty to update this publication. If and as applicable, NSI's investment banking relationships, investment banking and non-investment banking
compensation and securities ownership (identified in this report as 'Disclosures Required in the United States'), if any, are specified in disclaimers and related disclosures in this report. In
addition, other members of the Nomura Group may from time to time perform investment banking or other services (including acting as advisor, manager or lender) for, or solicit
investment banking or other business from, companies mentioned herein. Furthermore, the Nomura Group, and/or its officers, directors and employees, including persons, without
limitation, involved in the preparation or issuance of this material may, to the extent permitted by applicable law and/or regulation, have long or short positions in, and buy or sell, the
securities (including ownership by NSI, referenced above), or derivatives (including options) thereof, of companies mentioned herein, or related securities or derivatives. For financial
instruments admitted to trading on an EU regulated market, Nomura Holdings Inc's affiliate or its subsidiary companies may act as market maker or liquidity provider (in accordance with
the interpretation of these definitions under FSA rules in the UK) in the financial instruments of the issuer. Where the activity of liquidity provider is carried out in accordance with the
definition given to it by specific laws and regulations of other EU jurisdictions, this will be separately disclosed within this report. Furthermore, the Nomura Group may buy and sell certain
of the securities of companies mentioned herein, as agent for its clients.
Investors should consider this report as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or
indirect, that may be associated with any investment decision. Please see the further disclaimers in the disclosure information on companies covered by Nomura analysts available at
http://go.nomuranow.com/research/globalresearchportal under the 'Disclosure' tab. Nomura Group produces a number of different types of research product including, among others,
fundamental analysis, quantitative analysis and short term trading ideas; recommendations contained in one type of research product may differ from recommendations contained in other
types of research product, whether as a result of differing time horizons, methodologies or otherwise; it is possible that individual employees of Nomura may have different perspectives to
this publication.
NSC and other non-US members of the Nomura Group (i.e. excluding NSI), their officers, directors and employees may, to the extent it relates to non-US issuers and is permitted by
applicable law, have acted upon or used this material prior to, or immediately following, its publication.
Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment.
In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk.
The securities described herein may not have been registered under the US Securities Act of 1933, and, in such case, may not be offered or sold in the United States or to US persons
unless they have been registered under such Act, or except in compliance with an exemption from the registration requirements of such Act. Unless governing law permits otherwise, you
must contact a Nomura entity in your home jurisdiction if you want to use our services in effecting a transaction in the securities mentioned in this material.
This publication has been approved for distribution in the United Kingdom and European Union as investment research by NIplc, which is authorized and regulated by the UK Financial
Services Authority ('FSA') and is a member of the London Stock Exchange. It does not constitute a personal recommendation, as defined by the FSA, or take into account the particular
investment objectives, financial situations, or needs of individual investors. It is intended only for investors who are 'eligible counterparties' or 'professional clients' as defined by the FSA,
and may not, therefore, be redistributed to retail clients as defined by the FSA. This publication may be distributed in Germany via Nomura Bank (Deutschland) GmbH, which is authorized
and regulated in Germany by the Federal Financial Supervisory Authority ('BaFin'). This publication has been approved by NIHK, which is regulated by the Hong Kong Securities and
Futures Commission, for distribution in Hong Kong by NIHK. This publication has been approved for distribution in Australia by NAL, which is authorized and regulated in Australia by the
ASIC. This publication has also been approved for distribution in Malaysia by NSM. In Singapore, this publication has been distributed by NSL. NSL accepts legal responsibility for the
content of this publication, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expert or institutional
investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this publication should contact NSL in respect of matters arising from, or in connection with, this
publication. Unless prohibited by the provisions of Regulation S of the U.S. Securities Act of 1933, this material is distributed in the United States, by NSI, a US-registered broker-dealer,
which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934.
73
This publication has not been approved for distribution in the Kingdom of Saudi Arabia or to clients other than 'professional clients' in the United Arab Emirates by Nomura Saudi Arabia,
NIplc or any other member of the Nomura Group, as the case may be. Neither this publication nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any
person other than those authorised to do so into the Kingdom of Saudi Arabia or in the United Arab Emirates or to any person located in the Kingdom of Saudi Arabia or to clients other
than 'professional clients' in the United Arab Emirates. By accepting to receive this publication, you represent that you are not located in the Kingdom of Saudi Arabia or that you are a
'professional client' in the United Arab Emirates and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the
Kingdom of Saudi Arabia or the United Arab Emirates.
No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means; or (ii) redistributed without the prior written consent of the Nomura Group member
identified in the banner on page 1 of this report. Further information on any of the securities mentioned herein may be obtained upon request. If this publication has been distributed by
electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late
or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this publication, which may arise as a result of electronic
transmission. If verification is required, please request a hard-copy version.
Additional information available upon request
NIPlc and other Nomura Group entities manage conflicts identified through the following: their Chinese Wall, confidentiality and independence policies, maintenance of a Restricted List
and a Watch List, personal account dealing rules, policies and procedures for managing conflicts of interest arising from the allocation and pricing of securities and impartial investment
research and disclosure to clients via client documentation.
Disclosure information is available at the Nomura Disclosure web page:
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
74