Aggregate Industries US – an overview Will Glusac – CEO AI US St Louis, September 15, 2010 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Executive Summary Aggregate Industries US (AI US) • Our markets are regional and product offering is broad • A process of continuous improvement has been in place since the crisis began • We have taken the opportunity to develop one company where eight regions existed in the past • Fixed cost reductions of ~ USD 260M were achieved in the last two years • The renewed focus on improving operational efficiency is already paying dividends • Our culture is ‘performance based’, doing our ‘homework’ well with passion • We have a world class safety program • AI US is well set up for recovery and will achieve its 27% EBITDA margin target in aggregates with the recovery © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Agenda Our portfolio in the US Our response to the crisis Our performance Our value creation © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 AI US participates in Aggregates, Ready-mix Concrete, Concrete Products and Asphalt Supply Basic Materials Processing Cementitious Materials (cement, mineral components) Channels Transactional Transformational End - users Direct Sales Ready -mix Concrete Traders General Contractors Concrete Products Self - builders Masons Wholesalers Mortars Aggregates Retailers (sand, gravel, stone, recycled aggregates) Demand Applications and Construction Fields Asphalt Direct Sales Civil Engineering A p p l i c a t i o n s Housing Commercial / Industrial Building Infrastructure © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 In US, we operate two separate companies to effectively execute on our twin leg strategy • Maintain the required degree of entrepreneurial spirit and freedom in the companies This ensures strong local management which is an integral part of Holcim’s strategy • Cement, Aggregate and Construction Materials (ACM) are two distinct businesses ACM has: a larger and more diverse customer base greater number of locations localized business makes transportation a significant cost component Asset footprint is more flexible • Our focus on stand-alone profitability of ACM business rather than vertical integration © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 While AI US covers a broad geographical area its markets are regional AI covering: • 16 states • > 300 US cities AI providing: • Crushed stone • Sand • Gravel • Asphalt • RMX © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Our broad product offerings execute our twin leg strategy © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 AI US is the 7th largest supplier of aggregate in the US • AI has aggregate reserves of 2.4 billion tons • Total resource of 1.1 billon tons1 • Sales volumes (2009) – 24.4M tons • AI has a market share of 26% in regions which we operate • Resources are unpermitted known reserves on operational sites © Holcim Ltd 2010 AI has 21 hard rock and 58 sand and gravel operations – 56 of which are operating due to the economic downturn Investor / Analyst Capital Markets Event 2010 Aggregate reserves are plentiful in all regions North Central Region 167 137 3.8 79 Central Region Southwest Region 566 381 2.3 54 31 2.1 40 Northeast Region 100 Meyer Material 94 1.8 2.1 206 235 2.9 2.9 100 915 282 6.2 100 100 Region Reserves 2009 [M t] Resources 2009 [M t] Useful life numbers for each region includes resources Resources are unpermitted known reserves on operational sites © Holcim Ltd 2010 36 44 Mid-Atlantic Region West Central Region 373 Depletion 2009 [M t] Useful Life (R&R) Years Investor / Analyst Capital Markets Event 2010 AI US is the 4th largest producer of Ready-mix Concrete in the US • Sales volumes in 2009 – 3.7M cubic yards • AI has a market share of 27% in regions which we operate • AI has 135 ready-mix plants – 81 of which are operating due to the economic downturn 10 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 The current recession has impacted our industry volumes in an unprecedented way AI US area construction spending (B $) • Total construction spending in our markets has declined by 44% since 2005 160 140 120 • Main decline is in the residential sector (-75%) 100 80 60 40 • Infrastructure sector remained relatively constant due to consistency in state spend (boosted by the federal stimulus package) 20 08 20 06 20 04 20 02 20 00 20 98 19 96 19 94 19 92 19 19 90 Historical US aggregate volume (M tons) 3500 3000 2500 2000 1500 1000 500 Sand and Gravel 09 20 06 20 03 20 00 97 Stone 20 19 94 19 91 19 85 88 19 19 82 19 76 79 19 19 73 19 19 70 Total 15 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Market conditions have led to a reorganization Previous regions New regions North Central Region Central Region Meyer West Central Material Region Southwest Region Midwest Region Northeast Region MidAtlantic Region South Carolina Region (Hardaway) Northeast Region Western Region MidAtlantic Region AI US total employees • Move from regions to 5,500 • Reduced average employees from 5,000 to 5,000 2,700 4,500 4,000 • Aligned processes to develop best practice 3,500 structure 3,000 2,500 • stone sites, 17 sand and gravel sites, 54 2,000 ready mix plants and 11 asphalt plants are currently closed 1,500 Avg 06 Avg 07 Avg 08 Avg 09 16 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Fixed costs have been reduced by ~USD 260M or 30% 900 800 855 738 181 700 176 597 M $$mio 600 144 500 400 300 674 562 453 200 100 2007A 2008A Fixed Manufacturing and Distribution Cost 2009A Support Process Cost 17 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Reduced average NWC by ~USD 25M in 2009 and target an additional ~USD 25M in 2010 Net Working Capital (M $) • Developed and implemented a new credit policy in late ‘09, creating consistent best practices across all regions 300.0 250.0 200.0 • Reviewed all customer accounts to assure credit worthiness 150.0 100.0 50.0 Jan Feb Mar Apr May Jun 2008 Jul Aug Sep Oct Nov Dec 2009 • Aligned inventory levels with decreasing demand • Renegotiated vendor terms 2010 DSO (day sales outstanding) • AI is a seasonal business resulting in higher DSO values in the winter months 80 75 70 • DSO improved even as the economy worsened 65 60 55 • Daily focus on accounts receivable collection results 50 45 40 35 Jan Feb Mar Apr May DSO 08 Jun Jul DSO 09 Aug Sep Oct Nov Dec DSO 10 © Holcim Ltd 2010 12 month average net working capital reduction 18 Investor / Analyst Capital Markets Event 2010 Agenda Our portfolio in the US Our response to the crisis Our performance Our value creation 19 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 As the economy declined, AI results were impacted commensurately Sales [B $] • 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2008 2008 2009 2007 2007 2006 2005 2004 2003 2002 2001 2000 • Sales Key Performance Indicators [%] 60% • AI grew its business through acquisitions early in the decade The business combinations in 2007 and 2008 failed to grow overall revenue as the economy slumped As volume dropped, margins and profitability have suffered Aggressive reductions in fixed cost have stabilized the margins and positioned the business well for significant profit increases when volumes return 50% 40% 30% 20% 10% 0% EBITDA % EBIT % 2009 2006 2005 2004 2003 2002 2001 2000 -10% Cash Flow % 20 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 We have created a strong and lasting culture which focuses on improving operating efficiency and reducing costs • Operations Committees have been created for both the aggregate and ready-mix segments • • • • • The task is to identify areas to improve profitability and create site specific action plans Each committee/team is made up of key personnel taken from the existing business across the company The team typically spends less than one week at the targeted site, working in conjunction with local management The end result is an agreed plan with multiple action items, each detailing the expected improvement To date, the following sites have been reviewed: Rockville, Sloan, Accokeek, Wrentham, Taunton Meyer and Twin Cities ready mix • Other concurrent projects are producing results in the areas of Raw Materials and Delivery Costs 21 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 The transformation to world class safety results Lost Time 30 25 20 15 10 0 2006 2007 2008 Lost Time Cases 2009 2010 YTD Lost Time Freq Rate AI US Experience Modifier Rate (Work Comp Insurance) • Near miss process working at lost time incident reduction by seeking out unsafe conditions and acts and managing them • Safety Observation System (SOS) focusing on restricted-duty reportable reduction via observation and case-management 10% 1.0 5% 0.8 0% 0.6 -5% 0.4 -10% -15% 0.2 -20% 0.0 -25% 2006 2007 2008 Holcim Experience Mod Rate 2009 % improvement EMR (insurance rating) rating of less than 1.0 indicates that the company’s claim history company is performing better than would be expected Lost time frequency rate = No of LTI cases*1,000,000/Actual Hours Worked 22 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 We continuously invest in technologies that allow the reduction of carbon footprint in our manufacturing processes 23 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Agenda Our portfolio in the US Our response to the crisis Our performance Our value creation 24 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 PCA and McGraw Hill are forecasting a sharp recovery US construction spending (B $) 900 PCA 800 700 Total 600 500 Residential 400 300 Commercial 200 2013 2010 2007 2004 1998 1995 1992 1989 1986 1983 1980 2001 Other 100 Infrastructure AI US areas construction spending (B $) • Residential also saw a big and sustained increase especially from early 2000’s However, the downturn has resulted in an ‘over correction’ of residential spending PCA is forecasting a significant rebound • The non-residential and Other segments have also seen similar reduction in spending in the current downturn 20 12 20 10 20 08 20 06 20 04 20 02 20 00 19 98 19 96 19 94 McGraw Hill 19 92 19 90 200 180 160 140 120 100 80 60 40 20 • Infrastructure spending has seen a steady increase based on highway programs authorized by Congress PCA is forecasting a continued steady increase of infrastructure spending based on a new highway bill 25 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 AI US is well positioned to achieve the target 27% EBITDA margin in aggregates even under longer recovery scenario 60 50 40 30 20 10 $10 $6 $4 $/ton $8 $2 Sc en Sc ario en a 20 rio 13 PC A 09 08 07 06 05 $0 04 M tons Volume and price development Agg volumes Price M$ 200 30% 20% 100 10% EBITDA Sc en Sc ario en 20 ario 13 PC A 09 08 07 06 0% 05 04 EBITDA Margin % EBITDA margin EBITDA margin impact • The primary driver of EBITDA margin increase will be volume, but price increases and/or production efficiencies are important • Given the severity of recession, it is likely that we will see above normal growth rates in volume for a few years with the recovery However, the pace of this recovery is unclear at this time • The three scenarios of volume and price increases required to achieve 27% EBITDA margin are presented below Volume +20%, Price +$1.25/ton Volume +30%, Price +$0.75/ton, Cost $0.25/ton Volume +37% (PCA 2013 Forecast), Cost $0.70/ton • AI US prices have remained consistent • AI US peak sales volume of 50.8M tons in 2005 was 25.0M higher than 2010 Forecast This precipitous decline of 49% occurred even as we made acquisitions • The sustainable cost reductions allows AI US to achieve the target EBITDA margin much quicker during recovery 26 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Contact information Bernhard A Fuchs Marco Knuchel Binit Sanghvi Investor Relations Phone +41 58 858 87 87 Fax +41 58 858 80 09 investor.relations@holcim.com www.holcim.com/investors Mailing list: www.holcim.com/subscribe 27 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Disclaimer Cautionary statement regarding forward-looking statements This presentation may contain certain forward-looking statements relating to the Group’s future business, development and economic performance Such statements may be subject to a number of risks, uncertainties and other important factors, such as but not limited to (1) competitive pressures; (2) legislative and regulatory developments; (3) global, macroeconomic and political trends; (4) fluctuations in currency exchange rates and general financial market conditions; (5) delay or inability in obtaining approvals from authorities; (6) technical developments; (7) litigation; (8) adverse publicity and news coverage, which could cause actual development and results to differ materially from the statements made in this presentation Holcim assumes no obligation to update or alter forward-looking statements whether as a result of new information, future events or otherwise As part of Holcim's global commitment to compliance with competition laws, please note that this presentation has been comprehensively reviewed by counsel in both the United States and Switzerland 28 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Strength Performance Passion 29 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 ... © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Agenda Our portfolio in the US Our response to the crisis Our performance Our value creation © Holcim Ltd 2010 Investor / Analyst... offerings execute our twin leg strategy © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 AI US is the 7th largest supplier of aggregate in the US • AI has aggregate reserves of 2.4... Fixed Manufacturing and Distribution Cost 2009A Support Process Cost 17 © Holcim Ltd 2010 Investor / Analyst Capital Markets Event 2010 Reduced average NWC by ~USD 25M in 2009 and target an additional