Helwan University In Cairo

CFA Research Challenge

2016

Helwan University In Cairo – HUC

This is Student Research supervisor by Faculty Advisor Professor of Economics & Finance

Dr. Ahmed Abd El- Halim Ewis.

Prepared by Five Students from one of Egyptian Public University – Helwan University

Hosted by CFA Research Challenge by Egypt Charted Financial Analyst - CFA Institute.

The duration of preparation of this report start from the kick off meeting at Pricewaterhouse&Coopers

from October 2015 till Jan 2016.

The Students College: Faculty of Commerce & Business Administration – English Section – Senior Year (4th Year).

Mohsen Mahmoud Accounting Department

Manar Eisaa Business Information System Amr Nabil El-Siefy Accounting Department Noha Ashraf Business Information System Nourhan Boshra Economics Department

CFA Institute Research Challenge

Hosted by

Local Challenge CFA Society of Egypt Helwan University

Helwan University – Student Research This report is published for educational purposes only by students Cement Industry

Competing in the CFA Research Challenge Egyptian Exchange (EGX)

Date: 19/1/2016

Current Price: EGP 8.26 (19/1/2016)

Recommendation: BUY

Ticker : ARCC.CA USD1.00 = EGP 7.83 Target Price: 14.65EGP (Upside79%)

Highlights

Arabian cement is an Egyptian company and one of the leading producers of cement in Egypt

(appendix M) , the company has a market share of 8%, we issued buy recommendation as

our estimation for fair value per share is EGP 14.65 with an 79% upside potential. We used

both DCF method and relative valuation method to reach the estimated fair value, adding

that our analysis on the company, the cement industry in Egypt and the Neighboring region.

The Fair value we reached after all is supported by many factors.

Company Specific Factors

the company’s stable energy supply as the company completed shifting to coal

phase

coal cost is around 31% less than the natural gas on which the company used to

depend as the man energy source

The high margins enjoyed by the company that enable it to absorb any cost

increases.

Industrial and economic Factors

The expected increase in the construction activities as a result to the increase in the

population, the new Mega projects in the country, and also the expected increase in the

market capacity.

The main risks facing the company and the industry as well:

prices cut down as the company will reach the full capacity in 2018 and the growth in the

company’s revenues beyond that will depend mainly on the price.

Saudi Arabia cement: there is a surplus of 20 million ton and Egypt is one of the main

markets the country considers exporting to them. This will affect the price and increase the

competition

Business Description

Arabian Cement Company was founded 18 years ago by a group of Egyptian shareholders, however. Due to market conditions the project was halted for a while until September 2004, when the Spanish cement group” Cementos La Union” (CLU) decided to invest in ACC, resuming ACC’s activities. The company operations started in 2008 and it’s currently a leading cement producer. Majority owned by Cementos La Union, which is a cement player with operations in several countries such as Chile and Congo. ACC operated as a private company until its IPO in 2014. Appendix (A) Production The company established with the aim of building a cement plant with a capacity of producing 2.5 MTA. Now, ACC has a production capacity of 5 MTA with a market share of 8% as of 1H15, after the second line started production in 2012. The Company sells four types of cement, which

are either bagged and branded or sold in bulk. Appendix (B) Properties

ACC has two production lines and each one includes: One raw materials vertical grinding mill

Arabian Cement Company

Cost of Debt 6.11%Cost of Equity 17.8%Growth Rate (g) 3.5%ERP 9.0%Beta 0.90Terminal value 7,135,363,727

PV of Terminal CF 3,148,812,960 Rf rate 9.7%Enterprise Value 6,331,461,089 No. of Outstanding Shares 378,739,700

Equity Value 5,549,122,815

Fair Value (FV) 14.65

Recommendation - ( BUY )

Figure 1: Market profile

Figure 2: Valuation summary

One clinker silo. Five stage pre-heater, kiln and cooler system Two horizontal cement mills Two cement silos Packing unit and four bulk loading outlets, two for each silo. Transportation services split between own fleet and third party. One palletizer Strategy The Company’s vision is to be one of the top two premium cement brands in Egypt by price and to become the second largest cement plant in Egypt by production capacity with one of the highest profitability per ton of production. The Company aims to achieve this vision by implementing the following strategies:

1. Secure Energy Supply: ACC invested in an energy program to shift its dependence on natural gas to other fuels (namely solid and refuse derived fuel (“RDF”)). The company now has the technical capability to substitute 70% of energy needs through coal and 10% through RDF, the decision had been largely a financial one, with coal prices around 30 percent cheaper than gas prices. Coal is imported from Dekhiela port in Alexandria, Sokhna port which is only 30 km away from the plant, and Imports are coming through Adabeya port which is 65 km away. The proximity to these ports provides the company with operational efficiencies and helps to reduce transportation cost. The desired Fuel mix is 70% coal and 30% RDF which may be done by the second half of next year.

2. Optimize existing relationships in order to maximize sales: The Company also plans to concentrate on developing its commercial activities. On a blended basis the Company currently commands the second highest price of cement across all governorates and Management strongly believe that by (I) utilizing its experienced commercial team on the ground; (ii) growing and maintaining good relations with customers; and (iii) continuing to grow the Company’s Express Wassal service, the Company can maintain this price positioning and maintain the right mix of customer sizes and control supplied amounts for each governorate.

3. Vertical Expansion: • Andalus Ready Mix concrete: it became part of Arabian Cement Company, using its brand Al Mosalah as its main component. • RDF Plants: During 1H15, the company used RDF to generate between 7-10% of its energy requirements. Starting June 2015 the company started commissioning the hot disc operations to enable using alternative fuels of up to 30% of the total energy needs. Appendix (I) 4. Expanding production in Egypt: The Company is in a position to use its unutilized land to build up to two additional production lines as per the facility design. Alternatively, if there is a strategic opportunity to acquire an existing player and the valuation is justifiable, the Company could pursue that opportunity as a further means of expanding production in Egypt. Management and governance Management has successfully positioned the Company as one of the leading players in the Egyptian cement market since the start of commercial production of cement in 2010. The entire executive Management team. Has an average of 16 years of experience, the management has effectively overcome many obstacles Mainly the Energy issues, lack of natural gas, and shifting to coal. The Company maintains international best practices in management through its adoption of the quality management system developed by TUV-SUD Management Service GmbH, which is an internationally accredited¨ certification body that has the know-how to audit and certify a wide range of internationally recognized management systems in various sectors and industries. Appendix(C) Audit Committee: In accordance with the EGX Listing Rules, the Board has formed an audit committee, comprised of three members. The audit committee is chaired by Mr. Salvador Veguer Roger and also comprises Mr. Maged Hosny Mohamed Al-Sayed and Mrs. Elena Bertolin. Shareholder structure: 60% Aridos Jativa, 17.5% El Bourini Family 22.5% Free Float. Corporate structure The Company currently has two consolidated Subsidiaries, and has a 50% joint venture interest in a third company (ARM). Appendix(D) Regulation The Egyptian cement industry is subject to Egyptian laws, regulations and rules applicable to industrial establishments and their environmental compliance. These include regulations that apply Egyptian standards for the specifications of various types of cement, such as the Egyptian

Standard number 1/4756 of 2009 for Portland cement. In addition, the Environmental Law and its Executive Regulations require cement producers to follow the permitted limits of emissions relating to cement production. Corporate Social Responsibility Khaleeha Suessi: A Competition Supporting Startups in Suez. Hope Village Society: ACC has been supporting Hope Village Society to develop its “Dream Building” project since 2010. Among

Figure 3:ownership Structure

Figure 4: Cement Utilization Source Company & Team Projection

Market Share

others, Hope Village Society initiatives include securing shelter to more than 300 orphans through its properties across Cairo. Appendix(E)

Industry Overview &Competitive positioning

The cement industry has some distinctive characteristics. It is a capital intensive industry, and energy intensive. The world map of cement has changed dramatically over the past 60 years, where the center of gravity has been moving steadily away from the west toward the East or developing economies. Appendix(F) Demand Drivers: The cement consumption is closely related to the construction industry business cycle. It’s also related to the population; this relationship is intuitive because the ultimate purpose of any building and construction development activity is to serve people, whether in the form of housing, commercial, industrial, service or infrastructure developments. Appendix(G) Cement demand is primarily derived from the following segments— Housing at 60%–65%: Housing accounts for a major portion of total domestic cement demand. Infrastructure at 20%–25%: This demand comes from infrastructure projects. The projects are funded by the government. Infrastructure development can be tracked through the government funds that are allocated for the projects. Commercial construction at 10%–15%: The commercial construction sector can be divided into retail, office space, hotels, and other civil structures—hospitals, multiplexes, and schools. Industrial at 5%–10% For ACC the main demand segment is Housing. Cost Drivers: The major cost drivers for cement production are as follows - 1.Power and fuel costs: The cement industry relies on power. Power and fuel costs account for 30-40% of production cost. Coal remains the largest single component in the overall fuel mix used by the cement industry. Cement Plants in Egypt have started shifting to coal science 2013 due to gas limitation. And it’s imported mainly from South Africa ACC was one of the first companies to use coal. ACC currently uses a fuel mix of 70-80%coal, 10-15%Alternative fuel, 5-10%Diesl. Appendix(H) 2.Limestone and other Raw material costs: The primary raw material that’s used is limestone. Raw materials account for 30%–40% of the cost of sales, they are sourced from quarries near the plant 3.Transportation expenses: Cement plants are located near limestone reserves. As a result, cement has to travel a considerable distance to reach the end-users. It constitutes from 10% to 20% of the cost of sales. 4.Selling and Other expenses: These account for 15%–20% of the cost of sales.

Competitive Positioning Egyptian Cement Industry Egypt is the 14th largest cement producer in the world, contributing approximately 1.4% of global cement production. The Egyptian cement market is primarily driven by local consumption, particularly residential real estate construction, which has been relatively stable over the past few years. Egypt’s cement sector consists of approximately 24 cement companies some of which operate more than one plant in Egypt, with a combined annual capacity of approximately 70 Mmtpa. “Porter’s Five Forces” Rivalry (High) The Company operates in a highly competitive sector with 25 cement companies some of which operate more than one plant in Egypt, eight of which benefit from the support of a significant international cement company shareholder. The Company must compete with these companies in a variety of ways including by offering the right product mix, quality and price. Threat of substitutes (Low) the industry does not face a credible threat of competition. This represents the reality of the cement industry. No product exists to date that can substitute effectively for cement. Buyer bargaining power (low) the power of consumers is limited due to the lack of substitutes. Supplier bargaining power (High) Suppliers of cement industry are divided into three categories: suppliers of transportation, Suppliers of coal and suppliers of raw materials. Cement manufacturers have argued that price hikes in the cement industry are due to increases in the price of both transportation and raw materials. The raw materials the company needs for the production of cement (limestone, clay, gypsum and water) are granted by the Egyptian government. As for transportation, the company full transportation service for bulk and/or bagged products provided by the company’s fleet of 25 trucks as well as by 3rd party business partners, it helps Reducing ACC’s dependency on external transport providers which is fragmented and can be unreliable. The stronger Bargaining power is Barriers to entry and exit: the cement industry has high barriers to entry and high barriers to exit. First, government creates barriers by limiting the number of licenses it sells for

Figure 5: Global Cement Production

production. Second, assets needed to produce cement cannot be easily utilized for another industry (i.e. the cement industry is highly asset specific). Finally, economies of scale can prevent entry. For cement firms, neutralizing the high fixed costs requires a minimum efficient scale of production that creates a strong barrier to entry Competitive Strategy: Cost leadership: this is the followed strategy by the company. ACC’s continues efforts to reduce the cost enable it to have one of the highest margin per ton comparing to its peers, which make the company able to absorb any cost increase. At the same time the company maintained its cement premium quality.

INVESTMENT SUMMARY

The analysis on the company, industry, and the Sector by which the industry is affected along

with the estimated valuation based on our calculation using both DCF model and multiple

valuation, confirm our recommendation to Buy as our estimation for fair value per share is

EGP 14.65 with an 77% upside potential.

This valuation is supported by and derived from numerous factors:

Company specific Factors

Reliable Secured energy supply

Energy accounts for more than 30% of the company’s cost of goods sold. The Company has

stopped its dependency on Egypt’s unreliable natural gas supply, in addition to preventing its

exposure to the expected increase in natural gas prices. ACC was one of the leading companies

to shift to Coal.the decision had been largely a financial one as natural gas costed the company

USD 8 per MMBTU, comparing to USD 5.5 per MMBTUfor coal which is 31% cheaper, plus it’s

more reliable, as shortage of natural gas has cost the company significant losses and led to the

stoppage of clinker production and importing clinker at higher prices. ACC substituted more

than 70% of its energy needs with coal.The proximity to the main ports (Dekhiela, Sokhna, and

Adabeya) from which the coal is imported helps the company to reduce transportation cost.

the company used RDF to generate between 7-10% of its energy requirements. Since June 2015

the company started commissioning the hot disc operations to enable using alternative fuels

of up to 30% of the total energy needs which gives the company with Better Position for

Diversifying Energy Sources.

High Profitability

The higher margins enjoyed by the Company provide it with a buffer to be able to absorb any

cost increases. They also mean that the Company is more likely to achieve greater

profitability in the future if costs generally in Egypt increase and peers with a higher cost base

are forced to pass on these cost increases to consumers, thereby increasing the market price

for cement. Growth profit margin will get be stronger starting from 2016 mainly because the

final fuel mix would be implied which costs the company less as the cost will go to USD

5.2/MMBTU from the natural gas cost which is USD 8/MMBTU, there would be no more

imported clinker.

Stable Market share

Andalus for Concrete offers the Company vertical integration and allows the Company to

secure market share through the use of its products in large scale construction projects. The

Company specializes in all aspects of concrete products; it uses the Company’s brand Al

Mosalah as the main component for its production of concrete.

Industry Specific Factors

Country wide mega projects

From the new administrative capital to the 1mn housing units and road network projects.

This will have a significant impact on cement demand and increase the utilization Capacity.

This also will offset the decrease in informal individual construction activities which has

witnessed remarkable increase due to illegal building activities on agricultural lands following

the January 2011 revolution. ACC is Located in the northern area of the country where most

mega projects take place and away from the potential threat of cheap Saudi imports.

Housing Supply Shortage

We are living on only 6% of our land, it’s expected that the population to be more than 180

million by 2050. Egypt’s demographic profile has witnessed slight improvements in

urbanization levels. Increasing marriage rates coupled with the low urbanization rates,

compared to regional peers, is likely to put further pressure on the already undersupplied

housing market.

Figure 6: EBITDA

Figure 7: gross Profit

Figure 8: EBIT

Figure 9: Company Net Profit

Two construction projects are currently taking place. The first is the Social Housing Program

which the

Increase in residential units the annual demand of Egyptians for residential property has

reached 600,000 units, according to Minister of Housing Mostafa Madbouly. The total

investments in the real estate sector registered EGP 250bn, 45% of which was for the

governmental sector.

Two projects are currently taking place. The first is the Social Housing Program, a project

through which the government is aiming to provide one million units, around 200,000

residential units per year, for low-income Egyptian citizens.

The second one took a place in March 2014 when a major UAE construction firm Arabtec

agreed to build the one million affordable homes project on 160m square meters of land with

investment from the private sector of $40bn (EGP 280bn) backed by Egypt, Abu Dhabi and

possibly Saudi Arabia.

Strong Growing sector

The industry is highly affected to the construction sector which grows annually by around the

double rate by which the GPD grows. The construction sector grew from 2005/2006 to

2012/2013 by a CAGR of 20%, the real estate sector in the same period grew by a CAGR of 14%

both at constant prices and both grew by a CAGR of 18%, 16 respectively at current prices. This

will be reflected by an increase in the cement sector as well

Announced agreements

Minister of Tourism HishamZaazou stated that bilateral discussions are being held between

Egypt and Saudi Arabia on plans to build the largest tourist resort in Sharm El-Sheikh. He said

the investment required for the project is approximately $4bn.

The Emirati Majid Al Futtaim Group (MAF) announced on Thursday the beginning of

construction of City Centre Almaza, with EGP 4bn in investments.MAF has invested EGP 800m

of their equity in City Centre Almaza so far, rather than from banking loans.

Increase in market Capacity

minister of Industry and Foreign Trade Tarek Qabil announced that the ministry issued

conditions for tender documents and requirement specifications of cement production to

meet the future needs of the local market, which is expected to reach 90.4 million tonnes by

2022.

Valuation

In order to reach fair value for ARCC, we have used Discounted Cash Flow (DFC) method, using

Free Cash Flow to Firm (FCFF) approach, which is suitable for ARCC because the Company

intends to change its capital structure to be free from debt during the forecasted period.

According to our detailed DCF analysis we estimated the target price to be EGP 14.65.

Discounted Cash Flow (DCF) method (Figure 12)

The Discounted Cash Flow (DCF) method used in the valuation of ARCC was the Free Cash Flow

to Firm (FCFF) approach, which is defined as after tax operating cash flow after covering all the

company’s capital expenditures and working capital needs. Our forecast horizon extends for 5

years, from 2016 to 2020, which represent the terminal year. The terminal value is estimated

using constant growth Gordon Growth Model.

WACC – Weighted Average Cost of Capital (Figure13 &14)

The rate that a company is expected to pay on average to all of its security holders to finance

its assets we compute it use a moving weighted average cost of capital (WACC) to discount

FCFF. WACC has been change with values according to each year specifically start from 2016

till 2020 as the capital structure of the firm changes through our forecast horizon. For more

details about components of WACC and its assumptions please refer to Figure (xx)

Weight of debt from our forecast Balance Sheet is (0%). Loans will finish their interest at

2019. The beginning of the year 2020 we assume that will not be debt obligation due to the

company. There is no any plans for taking another additional loans as the target of the

company for their capital structure for no debts. Weight of equity we compute it from our

forecast Balance Sheet (100%) as a company will be with 0% debt.

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

6,331,461,089

(1,073,814,463)

291,476,189

5,549,122,815

-

5,549,122,815

Shares Outstanding 378,739,700

14.65

Enterprise Value - EV

Consolidated Equity Value

Less: Debt

Add: Cash

Attribuitbal Equity Value

FV/Share, EGP

Less: Minority Interest

DCF COMPONENTS (EGP)

2016 20179.7% 9.7%0.9 0.9

9.0% 9.0%

17.8% 17.8%

Cost of Debt before Tax 7.9% 7.9%

Corporate Income Tax 22.5% 22.5%

6.11% 6.11%

70% 81%

30% 19%

14% 16%

WACC COMPONENTSRisk Free Rate - RFB e t a

Equity Risk Premium - ERP

Cost of Equity

Weight of Equity

Weight of Debt

WACC

Cost of Debt

Figure 10: Source Central Bank & IMF projection

Figure 11: Source Central bank

Figure 12: DCF Team Estimate

Figure 13: WACC analysis Team Estimate

1. After tax Risk Free Rate of 9.7%, representing government 2015 treasury bills.

2. The sum of market and country risk premium is equal to 9 % (Based on A. Damodaran’s

Model)

3. Beta of 0.9 (source: Bloomberg), although our calculations have a beta lower than 0.9

(0.5), we preferred to use a beta of 0.9 to reflect the current political and economic risks.

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

value 17.8%

5. Perpetual growth of 3.5%. From IMF forecasted world inflation in 2020. Effective tax rate

Appendix(P) is (22.5%) that refer to the last amend in the Egyptian tax law (91) on 21 August

2015

6. The After-tax cost of debt was calculated using value of 6.11% for ARCC and marginal tax

rate

7. In calculating ERP of 9% we used Damodaran Equity risk premium model, it states that, to

estimate the equity risk premium for a country, we start with a mature market premium and

add an additional country risk premium. We used the Implied US market risk premium for S&P

500 which is 6% as a mature market premium and add to that risk premium of 3% which is

Egypt’s 5 years’ credit default swap (CDS)

Relative Valuation Method (Figure15&16)

While the DCF method was the main valuation approach, we also compared ARCC to other

comparable companies in the region. We identified its most appropriate local peers then we

calculated the fair value of the company using the multiples valuation technique, by

multiplying the average of the P/E ratios of the comparable companies excluding ARCC

and the EPS 2015 of ARCC to reach a fair value of 7.87. This FV is totally not reflecting

the market due to insufficient data and difficulty in finding comparable and timely

comparisons, we depend only on DCF valuation model and assigned 100% weight to it. In

addition to some draw backs in using P/E and EV/EBITDA ratios including that a multiple

represents a snapshot of where a firm is at a specific time, but fails to capture the dynamic

nature of business and competition.

Risks to valuation

- Lower than forecasted local cement demand, would adversely affect the projected

sales volumes.

- Lower than forecasted sales volumes and/or selling price, would negatively affect

the projected sales values, which in turn will lead to lower valuation.

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

- Higher than projected capital expenditure would negatively affect valuation.

2018 2019 20209.7% 9.7% 9.7%0.9 0.9 0.9

9.0% 9.0% 9.0%

17.8% 17.8% 17.8%

7.9% 7.9% 7.9%

Corporate Income Tax 22.5% 22.5% 22.5%

6.11% 6.11% 6.11%

17% 100% 100%

7% 0% 0%

17% 18% 18%

WACC COMPONENTSRisk Free Rate - RFB e t a

Equity Risk Premium - ERP

Cost of Equity

Cost of Debt before Tax

Cost of Debt

Weight of Equity

Weight of Debt

WACC

Potential Scenarios Fair Value Estimated Fair value Change

Risk free rate of 12.5% 12.08 14.65 -18%

Utilization at 2015 level 12.73 14.65 -13%

Increase in Expected prices by 10% 27.9 14.65 90%

Decrease expected prices by 10% 5.31 14.65 -64%

Terminal growth rate of 5.033% 15.79 14.65 8%

Taxes on coal by 10% 14.02 14.65 -4%

Taxes on coal by 30% 12.76 14.65 -13%

Beta of 0.5 19.93 14.65 36%

Increase in Electricity Prices by 20% 13.43 14.65 -8%

Scenario Analysis

Figure 14: WACC analysis Cont.

9.06

10.26

7.41

9.00

Median 8.93

Forecasted EPS 2015 0.88

FV 7.87

Weight 0%

P/E Multiple

P/E of Industry

4.70

4.43

Median 4.57

EBITDA 3,240,230,755

EV / Share 8.56

Weight 0%

EV/EBITDA

EV/EBITDA of Industry

Figure 15: PE

Figure 16: EV/EBITDA

Financial Analysis:

Financial Ratios

2013

A 2014

A 2015

P 2016

P 2017

P 2018

P 2019

P 2020

P Liquidity Ratio

a) Current Ratio 0.41 0.49 0.58 0.76 0.97 1.49 2.46 3.07

b) Quick Ratio 0.28 0.25 0.29 0.56 0.76 1.23 2.10 2.71

Activity Ratio

1)Average Inventory Turnover 14.77 10.69 7.72 9.65 13.13 13.19 12.94 12.90

2) Average age of Inventory 24.72 34.15 47.28 37.81 27.80 27.68 28.21 28.29

3)Debtor’s Turnover 10.99 52.18 42.46 47.71 50.87 50.92 49.85 49.61

4) Average Collection Period 33.22 6.99 8.60 7.65 7.17 7.17 7.32 7.36

5) Average Payment Payable 84.16 74.74 78.87 77.34 73.64 73.33 74.74 74.94

6) Total assets turnover 0.61 0.76 0.71 0.79 0.91 1.00 1.05 1.06

Debt Ratio

1) Debt Ratio 66.54% 61.08% 54.75% 45.41% 36.93% 28.32% 23.20% 21.69%

2) Debt/Equity ratio 199% 157% 121% 83% 59% 40% 30% 28%

Profitability Ratio

1) Gross profit margin 41.65% 36.76% 33.88% 38.52% 40.33% 41.67% 42.70% 43.46%

2) Operating profit margin 29.85% 25.59% 22.13% 27.12% 29.75% 31.83% 33.23% 34.28%

3) Net Profit Margin 20% 15% 14% 19% 22% 24% 26% 27% 4) Return on total Assets (ROA) 13% 11% 11% 15% 20% 24% 26% 27% 5) Average return on total Assets (ROA) 12.29% 11.37% 10.28% 15.17% 19.89% 24.29% 26.93% 28.16% 6) Return on total Equity (ROE) 38.46% 28.88% 23.36% 28.26% 31.36% 33.38% 34.36% 34.53% 7)Average return on total Equity (ROE) 36.71% 31.38% 24.48% 30.43% 33.80% 36.02% 36.25% 36.29%

8) EPS 55.36 0.99 0.88 1.24 1.61 2.01 2.31 2.57

Revenues: Appendix(W)

Total revenue will continue to grow driven by Increase in capacity: it’ expected reach to increase by the company average market share of 8.17% and reach full utilization in 2018 as the total cement market capacity will increase by the same average from 2010 t0 2014, excluding 2013 considering it an outlier as the market was facing gas shortage and stoppage of clinker production Prices Recovery: the prices will recover after the 2015 drop that was mainly a result of the softer increase in demand and the prices cut by one of the market players forcing other companies to lower the price. We used the last updated cement price of 2016 as it’s more accurate as a base to expect future prices taking into consideration the effect of the inflation.

EPS: Appendix(O) There was a stock split in 2014 of 50 times, by which the par

value of the share was set to EGP 2 instead of EGP 100 that justifies the

significant change of EPS from 2013 to 2014

COGS (Figure19) (Appendix L&W): cost per ton is expected to drop to EGP 341 in 2016 from

EGP 355 in 2015, the decrease is driven by:

Stoppage of using imported clinker Shifting to coal will be completed by the end of

the first half of 2016

Diesel will be only used till the first half of 2016 in which (2016) it would represent

5% of the fuel mix instead of 13% that was used in 2015.

Starting from 2016 the cost per ton will increase to reach EGP 438 mainly based on these

assumptions:

Raw material: which is mainly used for making clinker, will increase by a steady percentage

of sales based on the historical data and we excluded both 2013 and 2014 because there was

a big amount of imported clinker in both years

Figure 17:Source Company & team calculations

Figure 18: Sales Volume Team Estimate

Coal: imported mainly from South Africa, will represent 70% of the fuel mix with a cost of

USD 5.5/MMBTU, we used IMF forecast for the coal prices of south Africa, and we expect

that the price will remain at the same average as the main coal consumers like USA and China

are shifting to other energy resources like natural gas due to environmental concerns.

RDF: It costs the company USD 4.5/MMBTU. We expected the prices of waste and other

types of RDF to increase by the inflation rate as more companies are starting to use RDF

Electricity: The government has issued the new tariff per kw with an annual increase, we

expect the cost per KW to increase by 5% annually beyond 2018, The electricity is mainly

used in the cements mills, every ton of cement requires 65 kw and much less for the ton of

clinker which is around 17 kw.

O&M: We expected it to stay in its average percent of sales in both 2012 and 9M 2015, as in

both periods there was either no or little imported clinker, that’s because more imported

clinker means less clinker production process so less O&M cost.

Other costs: Represent around 20% of sales are forecasted as a percentage of sales as they

have maintained a stable percentage of sales over the past years.

Debt: according to the last declaration of the company in May 2015 about the restructure of

the due installment to be over sixteen equal installments started from july2015 to july2019

Depreciation, Amortization and CAPEX. Appendix W &V)

ARCC CAPEX has been changing from 2010 to 2015. There was a dramatic increase in 2014

as a result of constructing a new production line. We estimated that the CAPEX will

gradually increase based on the inflation rate, as there are no major Fixed Assets

investments.

The terminal year’s CAPEX was equated with the value of the year’s depreciation, to avoid

the Gross Fixed Assets diminishing by the depreciation value.

Depreciation is calculated on the straight-line method to write off the cost of each asset to

its residual value over the estimated useful lives of assets. The depreciation expenditure is

obtained by multiplying the depreciation-to-sales ratio by the sales in this period.

Intangible assets have a finite useful life and are carried at cost less accumulated

amortization. Amortization is calculated using the straight-line method to allocate these

costs over 10 years.

INVESTMENT RISK

Risks Related to the Company

The energy supply risk (operational) (OR1)

Energy represents around 35% of the Company’s production costs. ACC suffered from

shortage in both natural gas. Appendix(K) and electricity which led to significant losses, now

as the company has shifted to coal and no longer depends on gas, the risk of gas disruption is

no longer exist. The current risk is the coalitions that object to coal being used for industrial

use due to its environmental threats. An Egyptian environmental coalition named “Egyptians

Against Coal” (EAC) released a statement calling for the end of coal usage in Egypt by 2017. If

the government took any procedures to ban coal usage the Company may be unable to

increase or maintain its current levels of production.

The Company relies extensively on third parties to operate its production facilities and

quarries (operational) (OR2)

The Company outsources the operation of the limestone quarry and the production of

cement to RHI and outsources the production of clinker to NLS.There are a number of risks

associated with the Company’s dependence on third-party, including: quality assurance,

potential lack of adequate capacity during periods of excess demand, and the risk that a sub-

contractor goes out of business. Changes in the Company’s relationship with RHI or NLS or

termination of the relevant agreements may disrupt its operations

The exploitation rights (Legal) (LR1)

The main raw materials for the cement production require a valid exploitation rights given by

the Egyptian government in order to extract them. If those rights are restricted or cancelled

by the government authorities, RHI may not be able to mine the quarry and deliver

limestone. This would impair the Company’s ability to operate the Plant, so if the company

was forced to source limestone from different quarry, its supply of limestone could be

disrupted or it may no longer gain the benefit of its close proximity to its current source

The Company relies heavily on the position of its brand in the market (operational) (OR3)

Figure 19: Cogs breakdown 2016 Team Estimate

Figure 20: source Company & Team Estimate

Figure 21: Source South Valley Company

Al Mosalah, the company’s main brand which is positioned in the premium segment of the

cement market in Egypt, represented 89% of the company’s sales in 2014 and about 86% in

9M 2015. the Company relies heavily on that positioning in order to maintain its target

market share and margins. if the Company is unable to maintain its brand positioning, it will

be more difficult to maintain existing margins.

The Company is controlled by a single Shareholder (market) (MR1)

60% of the Company’s Shares are owned by Aridos which in turn is owned by CLU. This gives

Andrios significant control over the company’s business. The interest of other shareholders

may sometimes not match his interests. The ability of Aridos to delay or prevent certain

actions could cause the price of the Shares to decline.

Risks Related to the Egyptian Cement Industry

Cement Prices cut down (market risk) (MR2)

The company’s revenues are really sensitive to the cement price, as the company is close to

full utilization and the only growth beyond that depends on the price per ton, recently the

market has witnessed a decrease in prices and it’s the first time since way many years, and

that was due to the softer increase in demand plus unnamed big market player started to cut

the price down to increase sales forcing other companies to lower the price. We believe the

prices will recover and continue to increase as a result to the expected increase in demand.

Thereat of Saudi Arabia Cement. (Economic) (ER1)

Saudi Arabia is considering lifting the 3 year exports bans on cement and steel to relieve over

supply in the local market as construction sector had witnessed a reduction as a slump in oil

prices has pushed the government to cut spending on non-essential projects so cement firms

are trying to reduce surplus of 20million tone. According to the chairman of the Gulf

Kingdom’s cement makers, they aim to supply Egypt with six million tons of cement. The ton

of cement is sold for an average of EGP 500 which is close the cement price in Egypt, adding

the freight cost the price will go even higher around EGP 600-625. If cement producer in

Saudi decided to sell the ton at lower prices that would affect the market and may force the

cement producer in Egypt to cut the prices down.

Demand for cement depends on the level of construction activity in Egypt (economic) (ER2)

Cement consumption in Egypt has a high correlation with construction levels particularly in

the residential real estate sector, as well as the spending by the Egyptian government on

infrastructure and public sector projects and other investments, which lead to high

consumption of cement

Risks Relating to Egypt

The Company is exposed to political, economic and legal risks in Egypt.

the Egyptian Government is heavily reliant on foreign aid to address chronic budget deficits.

There can also be no assurance that aid will continue, this might lead to more taxes

imposed by the government to cover the deficit. Since the 2011 revolution, Egypt has also

experienced a material decline in foreign investment and tourism. The EGP has also

experienced significant devaluation. Economic and political conditions may from time to

time affect the share price.

securities markets in Egypt

Risks Relating to an Investment in the Shares

The Company may not pay dividends to holders of Shares in the future. (market) (MR3)

The Company’s ability to pay dividends will depend on the Company’s existing and

future financial condition. Even if the Company generates significant profits, it may not pay

dividends if the Board believes that shareholder value may be increased more effectively by

using the profit for other purposes.

Limited free float of shares (market) (MR4)

The limited free float (22.5%) may have a negative impact on the liquidity of the Shares and

result in a low trading volume of the Shares, which could adversely affect the then prevailing

market price for the Shares.

Market risk

Foreign exchange risk (FXR)

The group is exposed to foreign exchange risk arising from various currency exposures,

primarily with respect to the US Dollar and Euro. Foreign exchange risk arises from future

commercial transactions and assets and liabilities in foreign currencies at the date of the

financial statements.

Interest rate risk (IRR)

Figure 22: Source Company & Team estimate

Figure 23:Risk Matrix

the Company is exposed to interest rate risk arising from its loans. The Company borrows

funds at variable interest rates. Loans issued at variable rates expose the Company to cash

flow interest rate risk.

Liquidity risk (LR)

The Company’s liquidity risk arises from timing differences between cash inflows and

outflows. As all sales are on credit.

SWOT Analysis: Strengths

1) One of the leading producers of cement in Egypt

2) Diversity (differentiation)

3) Outsourcing strategy

4) Low transportation costs

5) Strong and dynamic management team

Weaknesses

1) Most of the sales are generated from only one type of cement

2) High energy costs

3) competitive market

Opportunities

1) Broad distribution network

2) Strategic location

3) Efficient technology and production techniques

Threats

1) Depending on a third party contractor

2) Aridos Owning most of the company’s share

3) Disruptions or delays in the supply of raw materials

4) Laws and regulations

5) Limitation of insurance policies

6) Economic instability

7) Increasing costs

Figure 24: SWOT Analysis

Appendix (A)

HISTORY

The initial business plan for the company, following CLU’s indirect acquisition, was for the Company to seek to produce 2 Mmtpa of clinker for export to the European market due to economies expected to be achieved through favorable rates on energy, tax concessions, proximity to raw materials and proximity to sea ports. Opportunities in the Egyptian market were subsequently identified by Management and as cost competition in Europe was not as favorable as initially anticipated at the date of inception of the business plan, the focus of the business shifted to the domestic Egyptian market

Appendix(B)

PRODUCTION

Utilizing its skills and expertise, Management has successfully managed to position its premium brand cement which represent around 85% of sales, Al Mosalah, as a leading premium brand in the Egyptian market. The Company’s other brands including, in particular, its lower-priced brand cement, Al Tahrir, are integral tools for the Company’s marketing and pricing strategy and enable the Company to provide cement products for the various segments of the Egyptian cement industry. Also in 2011, the Company launched its Express Wassal service, a cement delivery service for bulk and bagged products provided by the Company’s fleet of 25 trucks (which can be adapted for both bulk and bag transportation) as well as by third party business partners. As of 1H15, ACC distributed 59% of its production through its own distribution network: Direct delivery (28%), distribution center in Banha (19%) and the newly opened in warehouse at Damanhur (12%).ACC is the only cement producer in Egypt with its owns warehouse facilities that act both distribution hub and sales points.

INTEGRATED PRODUCTION PROCESS

Overview Cement is typically made by heating limestone (calcium carbonate) and smaller quantities of clay and sand in a kiln to 1450 C. This process is known as calcination. A molecule of carbon dioxide is liberated from the calcium carbonate to form calcium oxide, or quicklime, which is then blended with the other materials that have been included in the mix. The resulting hard substance, called clinker, is then ground with a small amount of gypsum (which prevents cement from flash setting and slows down the curing process) into a powder to make cement. Manufacturing Process The Company’s cement manufacturing process can be divided into three stages: limestone mining, clinker production and cement production.

Limestone Mining The Company’s limestone mining operations are carried out in a limestone quarry area approximately 2.8 km from the Company’s Plant. The Company has a utilization contract with the Suez Quarry Department of the Suez Governorate which is renewable on a yearly basis. A crusher with a capacity of 1,200 tph is also located in the quarry area.

Under an operational management agreement, RHI is responsible for the operation of the quarry and the geological mapping and analysis. RHI also carries out planning for future works including all drilling and transporting limestone to the crusher hopper.

Clinker Production The limestone, after being mixed with the clay (received by trucks from different quarries including the quarry operated by ARM) and crushed in the crusher, is transported via conveyor belt to the Plant. The other raw materials (other than well water) are delivered by truck to the Company’s production facilities. The limestone and other raw materials are then distributed into special dispensers equipped with scales in order to control mixing percentages. The mixture is then transported via conveyor belts to the raw materials vertical grinding mills for each production line, each of which has a grinding capacity of 500 tph. The raw materials vertical grinding mill is part of the production line and its main function is to grind raw materials to the required fineness for pyro-process. After grinding the materials are ready for clinkerization. Clinker is formed by passing the ground raw materials through a five stage pre-heater, kiln and cooling system (currently producing between 6,600-7,000 tpd for each of the two lines). The raw materials mixture is burned, melted and forms pebbles in a rotating kiln. This involves heating the raw materials in a pre-heater from ambient temperature to between 860c-880c for approximately 30 seconds. The material then remains in the calciner for around five seconds for de-carbonation and then another 10 seconds in a lower cyclone before being fed to the kiln where it is retained for around 25 minutes at normal capacity. The material is then cooled in a special cooler at the end of the kiln by using air (the retention time is another 25-30 minutes depending on the cooler speed). Under another operational management agreement, NLS is responsible for the technical management, operation and maintenance of the machinery involved in the clinker production at the Plant, including receiving raw materials from the Company, transportation of limestone from the quarry on the conveyor belt, mix storage, raw grinding, burning and cooling to produce and store clinker. NLS also manages the fire suppression system in the Plant, including the management of the Plants’ firefighting network and trucks. Under the operational management agreement, NLS guarantees that the Plant will produce at least 4.2 million tons of clinker per year.

Cement Production Clinker is transported to clinker silos (one per line) by conveyor belts and is then extracted from the silo and fed into horizontal cement mills (two mills per line) with a capacity of 190 tph each. The cement mills contain iron balls of various sizes that grind clinker and other components when the mills rotate. The resultant ground cement is then fed to the cement silos (two per line) by a belt bucket elevator. Cement bags of 50 kilograms each are packed at the packing station by three packing machines per line, each with a capacity of 120 tph. The full cement bags are then loaded on the trucks at a rate of more than 2,400 bags per hour. Bulk cement is pumped into cement trucks via feeding tubes located directly under each cement silo at a rate of 250 tph. In 2013 the Company produced approximately 3,875,000 tons of bagged cement and 148,000 tons of bulk cement. Under its operational management agreement with the Company, RHI is responsible for the operation (including technical management) and maintenance of the machinery and equipment of the cement production at the Plant including clinker extraction machinery, grinding, cement storing, packaging and dispatch of cement in addition to the required maintenance, including the supply of all necessary spare parts. Under the operational management agreement, RHI guarantees that, subject to certain conditions (e.g. a sufficient supply of clinker), the Plant will produce at least 4.6 million tons of cement per year.

Appendix(C) MANAGEMENT Executive Officers

Executive Position Career History Description

Mr. Jose Mar´ıa Magrina Chief Executive

Officer

Mr. Magrina worked in the field of

management consultancy with

Deloitte˜ Consulting, PwC and

Accenture, covering the gas, oil and

construction industries where he

advised for nine years on strategy and

operations in various developed and

developing countries.

He graduated from the Universidad Politecnica de Catalu´ na

(Spain) and received his MBA at the Instituto de Empresa˜

and Hong Kong Science and Technology University in 2004.

Mr. He has been involved since the beginning of

construction of the Plant affording him valuable experience

of the Company. Mr. Magrina currently oversees the sales

and marketing teams in the Company’s offices and the

production teams in the Plant.

Mr. Tarek Talaat Chief Commercial

Officer

In 1996 he joined Black and Decker, as

Kuwait and Qatar Area Sales Manager.

In 2001 he joined Lafarge as

Commercial Director for Alexandria

Portland co. In 2004 he joined

Cementia Trading AG, Zurich,

Switzerland, the international trading

arm of Lafarge, as Regional Manager.

Mr. Talaat graduated with a Bsc. in Civil Engineering from

Cairo University and received his MBA from the Swiss

Business School. Since July 2009 he has been the Chief

Commercial Officer of the Company, leading and developing

the sales, marketing, distribution, transportation and trading

functions and setting the division’s strategy.

Mr. Sherif Salib Chief Financial

Officer

he ran his own company for eight years

providing consultancy services in the

field of information technology. He also

worked for USAID in water and

wastewater infrastructure projects for

four years

He graduated from the American University in Cairo with

Bsc. of Computer Science and later received his MBA at the

American University in Cairo. Since joining the Company Mr.

Salib has been able to increase the efficiency of the entire

reporting system, leveraging on his information technology

background that played a key role in the development and

implementation of the reporting program SAP.

Mr. Sergio Alcantarilla Chief Operations

Officer

In 2002, he started his career in the

cement industry and, since then, has

participated practically in all fields of

the business’ technical side. After more

than five years as Plant Manager in

Spain.

He graduated from the Superior Industrial Engineering

School in the University of Seville (Spain). Currently he

oversees the entire production process (both the Company’s

shadow production team and RHI and NLS’ respective

teams).

Mr. Hussein El Ashmawi Chief Human

Resources Officer

Mr. El Ashmawi has been the Chief

Human Resources Officer since joining

the Company in April 2012. Prior to

joining the Company, Mr. El Ashmawi

was with ABB working as HR Manager

for Egypt and sub regional central

Africa.

acquired his Bsc. from the faculty of Medicine & Surgery,

Cairo University in 1994. He complimented this with a

Master Degree in Pediatrics in 2001 from the same

university. he obtained an MBA from Beaumont Institute of

Management, Washington State University, he enjoys 16

years of experience in the human resources management

field.

Mr. Nael El Koshairy Chief Legal

Officer & Head of

Aggregates

started his career as an auditor with

top financial advisory firms, he took

managerial financial positions in oil and

gas, pharmaceutical and cement

companies. He was budgeting manager

for Cemex (Egypt) and British Gas

graduated from Richmond, the American International

University in London, in 1990. He is a Certified Public

Accountant from California State Board of Accountants, Los

Angeles, USA. he succeeded in directing financial operations

of companies of EGP2 billion in revenues. He joined the

Company in 2008 as the Chief Financial Officer, and assumed

this position till 2012. Currently, he holds the position of

Chief Legal Officer & Head of Aggregates of the Company

Mr. Fernas El Hakim Governmental

Affairs Director

30 years of experience in the cement

industry in Egypt during his tenure at

ASEC Engineering

Mr. El Hakim previously served the Company’s Chief

Operations Officer.

Source: Preliminary offering circular Highlight

Board of Directors

Member Age Position Description

Mr. Generoso Bertolin Agustin 45 Chairman 15 years of experience gained during his work at CLU as a

Chairman

Mr. Wahid Abou Bakr Ahmed Al-Ebiary 68 Vice Chairman over 40 years of experience in the cement sector having

worked at various firms in Spain and Egypt in the sales and

marketing of cement.

Mr. Ricardo Vela Ibanez 52 Managing

Director

20 years of experience gained during his work at CLU as a

General Manager.

Mr. Jose Mar´ıa Magrina Vadillo˜ 45 Executive Director an executive Board member and Chief Executive Officer of

the Company. 19 years of professional experience stretches

across several industries.

Mr. Ahmed Mohamed Ahmed Ali 66 Director lawyer in Egypt. Mr. Ali also sits on a number of other

boards including Degla Company and Triple A for Trading

and Development

Mr. Maged Hosny Mohamed Al-Sayed 62 Director a prominent Egyptian architect and shareholder of Degla

Company that has developed several landmark projects in

Egypt.

Mr. Salvador Viguer 60 Director over 30 years of management experience and is currently

the Chief Financial Officer of CLU.

Source: Preliminary offering circular Highlight

Appendix(D)

CORPORATE STRUCTURE

ACC for Management ACC for Management is a service company responsible for providing labor and human resources to the Company under the terms of a service agreement entered into between them dated 4 July 2011. Under the terms of this agreement ACC for Management is required to provide the Company with services including administrative, accounting, feasibility and restructuring services. These services are provided by ACC for Management through the secondment to the Company of employees with experience in sales, transport, accounting and cement production in return for a monthly fee paid by the Company to ACC for Management. ACC for Management is an Egyptian limited liability company that was registered on the commercial register on 16 May 2011 for a 25year period which is due to expire on 15 May 2036. 99% of the issued share capital is held by the Company with the remaining 1% held by Mrs.’s Elena Bertolin who is a project manager for CLU.

Andalus for Concrete Andalus for Concrete offers the Company vertical integration and allows the Company to secure market share through the use of its products in large scale construction projects. The Company specializes in all aspects of concrete products, including standard mixes, high strength mixes and special concrete specifications. Andalus for Concrete uses the Company’s brand Al Mosalah as the main component for its production of concrete. The Company currently operates two ready mix plants in new urban developments around Cairo (New Giza in West Cairo and 5th Settlement in East Cairo) and has plans to expand its operations to 10 plants. At the end of April 2010, Andalus for Concrete started to produce and supply concrete for the New Giza project in accordance with the terms of an agreement entered into on 31 August 2009 between Andalus for Concrete and New Giza Co for Real Estate Development, (an affiliate of Degla Company) (the New Giza Supply Agreement). During 2012, Andalus for Concrete established its sales department to increase its production volume in the 6th of October market in addition to the New Giza Project. Andalus for Concrete produced over 30,000 m3 of concrete for more than 40 customers outside the New Giza project during 2012 compared to 4,000 m3 in 2011. Andalus for Concrete is an Egyptian joint stock company which was registered on the commercial register on 24 October 2009 for a 25year period, which is due to expire on 25 October 2034. 99.96% of the issued share capital is held by the Company with the remaining shares being held equally by Aridos and Wahid Abu Bakr El-Ebiary.

ARM ARM is an Egyptian joint stock company that registered in the commercial register on 14 November 2013 for a 25-year period, which is due to expire on 13 November 2038. ARM’s total issued share capital is EGP 250,000 divided into 2,500 shares of EGP 100.00 each. 50% of the issued share capital of ARM is held by the Company, 49% of the issued share capital is held by RHI, and 1% of the issued share capital is held by Mr. Mohamed Ashraf Sami Abdel Salam Kassab. ARM’s board of directors consists of eight board members. The Chairman of ARM’s board is Mr. Jose Mar´ıa Magrina Vadillo and Mr. Mohamed Ashraf Mohamed Sami Abdel Salam Kassab is the Managing Director.

It is planned that ARM will supply the Company with clay for its cement production with further plans to supply other manufacturers once exploitation increases. Management expects that ARM will become a subsidiary of the Company from the commencement of its operations. Appendix(E) Corporate Social Responsibility

A) Khaleeha Suessi” Competition Supporting Startups in Suez Arabian Cement Company has teamed up with Nahdet El Mahrousa to launch “Khaleeha Suessi”, a social start-up competition focused on supporting social entrepreneurs tackling local economic challenges and opportunities in Suez. The main goal of the program is to create employment opportunities through providing entrepreneurs with the tools needed to successfully establish a business with strong social impact. The program is divided into two phases: a 2.5 months Validation phase and a 1-year Incubation Journey.

B) Hope Village Society ACC has been supporting Hope Village Society to develop its “Dream Building” project since 2010. Among others, Hope Village Society initiatives include securing shelter to more than 300 orphans through its properties across Cairo, 10th of Ramadan and Alexandria. The Dream Building project aims at serving as an integrated shelter for all the Hope Village orphans. As such, ACC is collaborating with Hope Village by providing it with the cement needed to complete its project. To date, over 40% of the project has been completed, and ACC will continue its support until the entire development is complete. ACC will also continue its support to Hope Village Society initiatives, aiming to deliver a better future for Egyptian children. Appendix(F)

INDUSTRY OVERVIEW

Emerging markets such as India and China now represent approximately 60% of the world-wide cement market. Chinese growth, which has recently been typified over-construction, is by far the largest single factor behind rising global cement consumption over this period. However, slowing Chinese economic growth and the fact that China is now actively removing older and less efficient cement plants mean that Chinese production is unlikely to increase at the same rate as has been observed in the recent past. It may even fall in the next few years if the central government pulls the appropriate levers. Economically-advanced nations such as Europe and the Americas account for most of the remainder. Moving to the Middle East region Particularly Saudi Arabia there is a domestic cement surplus of around 22 million tons, Cement producers demanding government to lift a long-standing export ban, Saudi Arabia partially lifted the cement export ban in 2009 before enforcing it again in 2012 to ensure enough supplies for domestic projects. Egypt would be a target market if the ban were lifted. According to Jihad Al-Rasheed, chairman of the national cement committee in the council of Saudi chambers of commerce and industry, they are ready to export 6Mt of their cement surplus to Egypt. Despite the satisfaction in the Egyptian market, the price of cement in Saudi Arabia adding the shipment cost is slightly lower than the Egyptian cement, which is considered a risk on the Egyptian Cement producers as the prices in Saudi Arabia are going down.

Appendix(G)

DEMAND DRIVERS

The cement consumption is related to the construction industry, which in turn is largely determined by the overall macro-economic

growth. However, cement is to some extent protected from extreme cycles in the construction industry, because it is almost used in

every type of construction. That is why the cement demand as a building material is the last to be influenced during economic

recessions and the first to benefit from an economic recovery. The demand on cement is inelastic in nature, as a decrease in cement

prices will not significantly boost consumption during down cycle in the construction sector, as well as an increase in cement prices will

not materially reduce demand throughout a high construction activity period. Cement demand will only increase for an individual

country up to a certain level of urbanization. Most countries enter a “repair and maintain” stage. In developed countries this trend is

reinforced by low population growth rates. To see this effect, we need look no further than the EU28, the U.S., and Japan. The cement

industry of each of these developed regions produced 12–34% less cement in 2012 than it did in 2000.As each economy achieves the

“repair and maintain” level of development, demand for cement will be reduced in an increasing number of countries, causing growth

in global cement demand to fall. After this point, it is conceivable that global cement demand, and by extension the amount of coal it

requires, will peak. However, whether or not this could occur by 2050 remains to be seen.

Egypt Demand Fundamentals Cement Consumption Growth driven by growing GDP The demand fundamentals in the Egyptian cement industry remain strong, with strong growth potential on the back of healthy demographics.

Egypt’s GDP per capita is low when compared to other emerging and regional markets. GDP per capita is widely believed to carry a strong correlation with cement consumption as it is an indicator for a country’s level of development. Management believes that the current low base GDP per capita, coupled with Egypt’s expected average annual GDP growth rate of 5% over the next five years, should act as a strong driver for cement demand in the future (Source: IMF). Need Based Infrastructure Spending Egypt’s demand fundamentals are also based on need driven investments. Egypt has historically suffered from low levels of investment in infrastructure. The general state of Egypt’s infrastructure is poor, due to historically low levels of investment in infrastructure, in comparison to emerging markets Housing Supply Shortage Egypt’s demographic profile has witnessed slight improvements in urbanization levels; however, the country still lags behind its peers indicating room for growth. Increasing marriage rates coupled with the low urbanization rates, compared to regional peers, is likely to put further pressure on the already undersupplied housing market. Growth in Real Estate Development Demand for cement in Egypt is also driven by increasing real estate development activity, which is partially driven by a housing supply shortage. The real estate sector is expected to continue to drive cement sales due to a major structural shortage in the market, particularly in middle and low cost housing, despite the launch of several large projects by Egyptian real estate developers. This shortage was evident in the increase in real estate developers’ net sales in addition to the increase in house prices across various regions, despite political and economic turmoil. The country still lags behind its peers indicating room for growth. Increasing marriage rates coupled with the low urbanization rates, compared to regional peers, is likely to put further pressure on the already undersupplied housing market Growth in the under penetrated mortgage loans market is also expected to become a driver for growth in housing demand, further supporting the urbanization movement. Several large commercial banks have recently announced increasing allocations on their balance sheets to mortgage loans focused on middle and low income housing. The company Sales is driven by levels of individuals’ construction activity, particularly in the Delta region, which is the company’s main

Market, has generally continued following the January 2011 revolution as builders seek to take advantage of the vacuum created in

terms of government regulation and oversight of construction activity and, to an extent, this has helped to sustain the Company’s

results throughout the period. However, sustained growth in the construction sector and therefore demand for cement, is expected to

result only from a general improvement in economic conditions that the Company expects will follow from the emergence of a more

stable political situation in Egypt. Fiscal stimulus packages aimed at improving Egypt’s infrastructure and measures designed to address

the housing shortage in Egypt are the type of initiatives which would be likely to have a significant effect on the demand for cement

and therefore the Company’s results.

The Company’s primary customers are made up of distributors, wholesalers and retailers. The Company does not sell its product to the

end user; except in the ready-mix concrete market through its subsidiary Andalus for Concrete. The Company currently targets a

balance of customers that allows it to maintain a large customer base, while limiting transactions with customers to cash transactions,

ensuring that the Company’s balance sheet remains strong with no exposure to credit risks.

The Company’s customer base typically consists of between 120 - 150 customers with no single customer providing a material

proportion of the Company’s revenue. The chart below shows the customer concentration in relation to tons of cement sold per

month:

Appendix(H)

POWER AND FUEL COST

The cement industry uses around 5% of the coal produced globally every year, using on the order of 330–350 Mt of coal per year. Oil and gas have also been used but have traditionally been limited to countries with large natural reserves. The fact that thermal energy represents 30–40% of overall costs for the cement industry has increasingly led to a search for lower-cost fuels. In the past 25–30 years this has led to the rise of the use of alternative fuels, a term used to describe any non-fossil fuel that has sufficient calorific value for cement production. The drivers for the use of any alternative fuel will often include legislation that demands reduced CO2 emissions, the impact of landfill taxes and bans, and the price of alternative fuels relative to conventional fuels. In Egypt Cement companies also assume responsibility for:

Coal transport from ports to the plant

Unloading, handling, grinding, combustion and storage at plant according to EU best practice

Emission monitoring and control, and waste management The coal price has headed steadily downwards over the past four years. It’s all down to chronic oversupply and low demand. Mines in Australia, South Africa, Colombia and other big coal mining countries have had strong production. But demand from the countries that import coal isn’t growing as strongly as it was. China, Japan and India are still importing coal, but demand isn’t going up the way it was seven or eight years ago. ACC currently uses a fuel mix of 70-80%coal, 10-15%Alternative fuel, 5-10%Diesl.

Appendix(I)

RDF: means refuse derived fuel

Types of Alternative Fuel materials include:

• Municipal solid wastes: The Egyptian government owns the landfills and tenders the collection and treatment together or

separately among waste management companies. All geographic locations for waste management have been contracted to

collection or treatment companies;

• Dried sewage sludge: The main supplier for dried sewage sludge is Orasqualia Company. Orasqualia is a 50% joint-venture

between Aqualia and Egypt’s Orascom Construction Industries. Its plant is located at Quatameya and is designed to treat waste

water coming from New Cairo; and

• Agriculture waste: This includes rice straw and cotton stalks

Egypt annually produces around 34.6 million tons of municipal solid wastes, as well as 12.3 million tons of biomass or animal waste and

plant substances which are used as a source of fuel.

There is little operational experience of using alternative fuels in Egypt. However, the majority of Egyptian cement companies are part

of international cement companies which have experience elsewhere. Hence, knowledge transfer should not be a major obstacle.

There are two different approaches for the alternative fuels procurement; the first procurement approach involves the purchase of

alternative fuels that are readily collected and prepared by others, such that cement company does not get involved in the processing of

the fuels themselves, while the second procurement approach involves the collection and the preparation of the alternative fuels by the

cement company itself, to control its own supply chain.

The following cement companies have indicated their enthusiasm to proceed with alternative fuel projects.

Arabian Cement Company

Arabian cement plant operates 2 identical production lines with a total production capacity of 4.2 Million ton of clinker per year. They

are proposing to partially substitute Natural Gas used in the clinker production process in the production lines with 40,000 tons of

agricultural wastes / year (rice straw and cotton stalk), 20,000 tons of sludge / year, and 82,000 tons of Refuse Derived Fuel (RDF) / year.

Like Suez Cement Company & Ameriya Cement Company, they will purchase fuels from dedicated fuel collectors or suppliers using long

term contracts

Lafarge Cement Company

Lafarge Cement Company is currently using 23,000 ton/ year of hazardous waste on Kiln 4. The hazardous waste is mainly composed of

the waste generated from the local petroleum industry and the pharmaceutical industry. This application of beneficial utilization of waste

has been welcomed by the regulators (EEAA) and they would be pleased to see the quantity of hazardous waste disposed of by this route

increasing.

Lafarge Cement has also invested in a solid shredded waste (RDF) fuel plant to utilize 72,000 tons/year of RDF for Kiln 2. The RDF will be

mainly composed of rejects from a waste sorting and baling plant.

Lafarge has also indicated that it is planning a further phase of the alternative fuel project which will utilize a 120,000 t/year of rice straw

fuel for Kiln 1.

CEMEX Assiut

CEMEX Assiut has a registered CDM project which utilizes two sources of Biomass residues:

56,400 tons / year of trimmings from a dedicated Casurina trees plantation developed solely for biomass production

333,000 tons of agricultural residues/year (rice straw, rice husk, cotton stalks, sugar cane, and maize residues).

CEMEX Assiut has also proposed the utilization of 60,000 tons / year of other alternative fuels such as tires, liquid residues (used oils,

lubricants, etc.), industrial sludge and RDF.

CEMEX has indicated some early difficulties with the operation during the pilot phase. This appears to be largely caused by blockages in

the pneumatic conveyor taking the shredded waste from the dosing systems to the calciner and these blockages cause irregular flow of

fuel and fuel on/off situations which in turn cause process disturbances and, in this case, increased CO trips on the electrostatic

precipitators. CEMEX are foreseeing the fitting of a mechanical feeding system rather than pneumatic feeding system for the alternative

fuels for their next installation.

Suez Cement Company

Suez Cement’s strategy aims to merge and promote the use of alternative fuels. There are two plants of Suez Cement Company (SCC)

that have plans for alternative fuels utilization. They have submitted Environmental Impact Assessments (EIAs) to the EEAA for such

projects and are also applying for CDM registration.

Kattameya Cement Plant is proposing to utilize 30,000 tons of agricultural residues /year and 25,000 tons of RDF /year, whereas Helwan

Cement Plant is proposing to utilize 40,000 tons, agricultural residues/year, 10,000 tons of sludge / year and 20,000 tons of RDF /year.

Suez Cement Company will not get involved in the procurement of the fuels themselves. They will purchase fuels from dedicated fuel

collectors or suppliers using long term contracts.

Appendix (J)

EGYPTIAN CEMENT INDUSTRY

In 2006, industry produced 30 million ton of cement. In 2010 that number jumped to 50 MT, due to a 200% increase in the producers. Total cement production capacity stands at 70 million tone. While this figure is much higher than current market consumption, it is anticipated that demand will grow in the near future as Egypt's economy and construction sector recovers.

Egypt’s cement sector consists of approximately 24 cement companies some of which operate more than one plant in Egypt, with a combined annual capacity of approximately 70 Mmtpa

Appendix (k)

ENERGY CRISIS IN THE EGYPTIAN CEMENT SECTOR

The Egyptian cement sector has suffered from a severe energy crisis over the last few years, where the supply of natural gas and/or fuel oil was not enough to sustain full production rates. In many cases, the plant operators were forced to reduce the kiln feed, and on several occasions they had to stop the kiln completely. This resulted in loss of production, as well as several other problems related to unsteady operational conditions, Gas shortages in April, May and June 2014 had cut Arabian Cement's first-half clinker production, by almost 20 percent compared with the previous year. Cement plants that were producing their own electric power using diesel generators were the most affected by the energy crisis. Furthermore, as grinding imported clinker was not an easy task due to the limitations of the electric power grid, plants were forced to suspend their grinding mills

Currently, the installed capacity of Egypt’s cement industry is approximately 62 million tpy. The industry consumes more than 9% of total primary energy in the country, making it the most energy-consuming sector. At near past, most of the consumed energy in the cement sector is supplied in the form of natural gas or fuel oil, which is provided by the state at subsidized prices. Over the last few years, it became obvious that Egypt has a very low level of self-sufficiency in terms of both natural gas and fuel oil, with a clear trend of increasing the import of most energy types year after year. With a badly suffering budget and limited resources in terms of hard currency, the burden of subsidizing energy to the cement sector was considered beyond the limits, especially if one considers the rapidly increasing global energy prices. Power plants currently get 72% of the natural gas produced in Egyptian fields, which has led to the stoppage of gas supplies to a number of factories and a reduction in gas supply to a number of others, according to the EGAS official.

In exclusive statements to Al-Borsa, the official said that EGAS has halted gas supplies to cement factories. The company is now sending fuel oil instead due to Egypt’s decreased gas production and power plants receiving most of the country’s gas supplies.

He explained that the Helwan, Al-Qatameya, and Al-Qawmeya cement factories have been exempt from the gas cuts as they are connected directly to the Abu Gharadiq gas field. The three factories have a total consumption of 61m cubic feet of gas per day.

The EGAS official said that Egyptian cement factories’ total needs are 430m cubic feet of gas per day. If the price of Brent continues to decline in the coming years, gas supplies will remain out of reach for the cement sector, he said.

At first the Ministry of Petroleum intended to reduce supplies to cement plants by 35% in January and February 2014. Reportedly the price of cement then shot up by 30% in March 2014 to offset the rise in energy prices. Then the gas was cut completely, leading to the shutdowns. So companies started to shift to coal.

Appendix (L)

COGS Projection

Main Items Assumption

Imported Clinker

In 2013 the company started to import clinker due to the gas disturbance which led to a temporarily stoppage

in the clinker production, this increased the cost significantly, specially in 2014 as the imported clinker cost

represented 34% of total COGS. As importing clinker costs more than making clinker. This has stopped

completely in 2015 with the stable energy supply and shifting to coal. This helped to reduce cost.

Raw Material We projected the row material cost as a percentage of sales based on both 2012 & 9M 2015 data, since they

indicate the more accurate percentage of sales, because in both 2013 and 2014 there was a big amount of

imported clinker, so less amount of raw materials which are mainly used to make clinker and there will be no

more imported clinker in the future.

Energy

Coal

The final fuel mix that will be implied in the first half of 2016 is 70% coal and 30% RDF. The ton per clinker

requires 3.5MMBTU, 2.45 MMBTU comes from coal which is around 0.103 ton (each ton of Coal contain 23.8

MMBTU). Coal is imported mainly from South Africa and Ukraine which it stopped exporting due to political

issues. We used the IMF forecast for South Africa’s coal price per ton, it’s expected that the price will remain

around the same average based on the following reasons:

The main coal consumers like USA and china are shifting to other energy resources like natural gas

due to environmental concerns.

South Africa which is the main supplier for the company discovered two new mines that are

expected to decrease the price of coal as it will increase coal surplus.

There is no clear trend now of prices for the further future as the global economy is not in its best

status.

The coal currently costs the company EGP 900 per ton which is around USD 115.38 this means that there is

around USD 54 extra freight cost per ton, we assumed this cost will increase by the world inflation rate (IMF

Forecast).

RDF It costs the company USD 4.5/MMBTU. We expected the prices of waste and other types of RDF to increase

by the inflation rate as more companies are starting to use RDF to generate energy in the kilns.

Diesel Currently represent less than 13% of the energy mix, we expected that it will be used till the first half of 2016,

in which it will only represent 5% of energy mix.

Electricity The government has issued the new tariff per kw with an annual increase, we expect the cost per KW to

increase by 5% annually beyond 2018.

The electricity is mainly used in the cements mills, every ton of cement requires 65 kw and much less for the

ton of clinker which is around 17 kw.

O&M We expected it to stay in its average percent of sales in both 2012 and 9M 2015, as in both periods there was

either no or little imported clinker, as imported clicker what brought down the percentage in 2013 and even

more in FY14 when much more imported clinker was used, that’s because more imported clinker means less

clinker production process so less O&M cost

Other costs Represent around 20% of sales are forecasted as a percentage of sales as they have maintained a stable

percentage of sales over the past years.

Appendix (M)

OVER VIEW ABOUT ARABIC REPUBLIC OF EGYPT

Arabian country which located in the northeast corner of Africa and southwest of Asia, part of the country located in Asia which Sinai and the rest in Africa. It extents along almost 1million KM(390,000square) and the Nile river which is the longest river in the world cross through it. Egypt is the most populous country in north Africa and in the Arabian world, it is the fifteenth most populous in the world with 90 million citizens, most of the population lives next to the Nile river The economy of Egypt was centralized planned economy which focus mainly on import substitution, in the past century many international monetary fund arrangements helped Egypt to improve the macro economic performance in addition to participation in gulf war which helped Egypt to decrease the massive debts. In the past fifteen years many fiscal, taxation and structural reforms helped Egypt to move toward a more market oriented economy, the annual growth was also affected by these reforms which result for average 0.08 annually between 2004&2009. As the country government failed to diversify the wealth equally so the conditions went bad and the 2011 Jan revolution took place to force president Hosni Mubarak to stop down. In these events the Egyptian foreign exchange reserves fall from 36 billion$ in Dec2010 to only 16.3 billion$ in Jan 2012, also the Egyptian credit risk was lowered from(B+) to(B) in 2013, the credit risk was lowered again to reach CCC for long term credit risk and from B to C for the short term credit. In Dec 2015 Fitch institution had proved that credit rating classification to Egypt in B with stable outlook as a result of the progress in the implementation of the financial and economic reforms, in the last December the rating of Egypt raised from (-B) to B) and this after the repeated cutting down after the Egyptian revolution.) Under the supervision of president Abdel-Fattah El-Size the Egypt Economic Development conference in March 2015, The conference is a key milestone of the government’s medium term economic development plan, which is designed to bring prosperity and improved social services to the people of Egypt, The EEDC will reposition Egypt on the global investment map and affirm its potential as a source of political and economic stability in the region and a trusted partner on the international stage.

Macro-economic analysis

Significant imbalances in the Egyptian economy have emerged in recent months, which combined with a deteriorating security situation, threaten to disrupt growth going forward. Latest data show falling industrial production, declines in the non-oil sector and weak revenues at the expanded Suez Canal. Moreover, the important tourism sector is at risk of collapse following a series of terrorist incidents attributed to the Islamic State (ISIL) in the Sinai Peninsula. A decline in tourism and further weakening of confidence among foreign investors will not only drag on economic activity and the government’s ability to push ahead with spending projects, but this will also exacerbate problems associated with a severe shortage of foreign exchange reserves all these made budget deficits. Macroeconomic analysis broadly focuses on three things: national output measured by gross domestic product (GDP)), unemployment and inflation. GDP growth -Egypt is the second largest economy in the Arab world. Services are the most important sector of the economy and account for around 47.5 percent of total GDP. The most important segments within Services Are Wholesale and Retail Trade (10 percent of the output), Government (9 percent), Transportation and Communication (8 percent), Finance, Insurance and Real Estate (8 percent) and Tourism (4 percent). Industry constitutes 30 percent of the output and the largest segments within this sector are: Manufacturing (15.5 percent) and Extraction (13.5 percent). Agriculture accounts for 14.5 percent of output and Electricity, Water, Sanitation and Construction for around 7 percent. - Egypt has one of the most developed and diversified economies in the Middle East. Until 2010, Egyptian economy was growing an average 5 percent a quarter as a result of several economic reforms attracting foreign investments. During that time, the economy and the living standards for majority of population improved. Yet, living conditions for the average Egyptian still remained poor and large income disparities continued to grow, leading to the public discontent. The 2011 revolution, which brought down President Hosni Mubarak regime, have caused economic slowdown as political and institutional uncertainty and rising insecurity continue to hurt tourism, manufacturing, and construction. - the last GDP growth rate is 4.5 in the second quarter of 2015

Unemployment rate Unemployment Rate in Egypt increased to 12.80 percent in the third quarter of 2015 from 12.70 percent in the second quarter of 2015. the government developed a national training plan to encourage employment as part of its efforts to reduce unemployment. The plan aims to provide two million with jobs. 170,000 jobs were provided throughout 2014, of which 70% were filled, Prime Minister Ibrahim Mehleb said, noting that the goal is to increase the number of these opportunities by 25% during each stage. According to Mehleb, the government seeks to annually train and prepare, through the plan, approximately 750,000 Egyptians to work in Egypt. A further 850,000 others will be trained to work abroad in a number of both traditional and new markets in Africa, Eastern Europe, and Asia. Inflation rate The annual inflation rate in Egypt was recorded at 11.1 percent in November of 2015

Appendix (N)

LOANS AND DEBT First Loan On September 2006, the Group has obtained a loan facility from the National Bank of Egypt of US $103.9 million. In 31 January 2008, the Bank approved to increase the loan to be US $149 million to cover the increase in the investment cost, in addition to financing 15% of the industrial license fee. Second Loan In 31 January 2008, the bank also approved a new facility of US $142 million to finance the second production line as well as 25% of the second line’s industrial license fee; an equivalent amount of US $57 million will be utilized in Egyptian Pounds Third Loan On 22 February 2011, the Group obtained a new loan facility from the National Bank of Egypt amount to 265 million Egyptian pound to finance the construction of a clinker mill On Feb 2015 the full loan balance was paid. Fourth loan On 20 June, 2013, the company obtained a loan facility from the National bank of Egypt which is amounted to 70 million Egyptian pounds in order to contribute in the financing of 70% of the gross investment cost which is amounted to 100 million Egyptian pounds, which is needed for new project held by the company for the purpose of using the solid and agricultural wastes as an alternative fuel beside the natural gas in the process of manufacturing.

APPENDIX (O) SHARE SPLIT On 23 January 2014, the company's management held an extra-ordinary general assembly meeting in which a decision was approved for the stock split through modifying the par value of the company's share as a prelude for the listing of the company in the Egyptian stock exchange market. The extraordinary general assembly approved on modifying the par value of the share to be 2 EGP instead of EGP 100. In addition to the mentioned above, the extra-ordinary general approved updating article number (6) from the article of association which states that the capital of the company amounted to EGP 757,479,400 distributed among 7,574,794 shares the par value for each share is EGP 100 to be distributed among 378,739,700 shares the par value for each share is EGP 2.

Appendix (P) TAX POSITIONING

Arabian Cement Company was passed with a Tax Exception from the start day of its activity & operations here in Egypt from

2008 until 2014 this decree is belong to the Egyptian Tax &Investment Law No (8), So it’s start to pay and surrender Tax return

to ETA – Egyptian tax authorities from 2014 to pay Corporate Income Tax liability with a tax rate 25% with an additional 5% to

the revenues over 1 M, But now there is amend in the law On August 2015, Law No.(96) was issued to amend the general

corporate income tax rate to be 22.5% from the tax base.

Not means that if the company will passing with Tax exemption that it will not compute Deferred Tax. From 2010 until 2014

there is deferred taxes the company had as a liability and obligations accrued in P&L statements but this value tend to decrease

from the first year until it comes with positive value in 2015 that’s mean there is no liabilities toward the company at this item,

So we assume the item Deferred tax will be Zero to 2020 as ACC considered now one of the Tax payers in Egypt, there is a

corporate income tax liability the company will paid after negotiation with the ETA and the Tax inspector that represent it.

Egyptian Taxation & Accounting Standards Amendments

Summary of the principal tax consequences for holders of ordinary shares who are not resident in Egypt (Non-Residents). only

the tax consequences for Non-Resident Investors who hold the ordinary shares as capital assets and does not address the tax

consequences. The ministry of Investment’s Decree No. (110) of 2015 was issued on July 9, 2015. It has been decided to replace

and supersede the former Egyptian Accounting standards for the preparation and presentation. The application of the former

Egyptian Accounting standards issued by Ministerial Decree No. 243 of 2006 was cancelled, effective as a date of applying this

decree was published in the official Gazette, an shall be effective as of January 1, 2016 and will be applied on the entities whose

fiscal year starts on or after this date.

(1) Corporate tax The Company enjoys a tax exemption for a period of 5 years starting from the fiscal year following the startup of the production of the Company’s operation. This period was determined by the General Authority for Free Zones and Investments to start from 22 April 2008. Consequently, the Company is exempted from corporate tax for the period from 1 January 2009 till 31 December 2013.

For the years from 2006 till 2008 the company has been hypothetically accounted due to statute of limitation.

The Company prepares tax return according to income tax laws and regulations and submits them on a timely basis as stated by the law, from 2009 till 2015.

(2) Sales tax The sales tax was inspected till December 2015 and the Company paid the final settlement.

The Company submits tax return on a timely basis and the Company’s books have not yet inspected for 2012 and 2013.

(3) Stamp tax The stamp tax was inspected till the year 2011 and the Company paid the final settlement.

The Company’s books have not yet been inspected for the year 2012 and 2013.

Under Egyptian Law No. 9 of 2013 amending Egyptian Law No. 111 of 1980, stamp duty of 0.1% shall be imposed on the buyer and a similar stamp duty shall be imposed on the seller regarding all transactions on EGX.

(4) Payroll tax Payroll tax was inspected till 2007 by the Tax Authority and final settlement was reached

(5) Dividend W.H Tax Dividends are not taxed under Egyptian tax law. Taxes are levied only on the corporation’s net profit.

(6) Tax of Capital Gains Under Tax Law No. 91 of 2005, there is no capital gains tax levied in Egypt on the sale or exchange of listed shares.

EFSA and EGX are responsible for the collection of the stamp duties and transfer them to the (ETA).

(7) Inheritance Tax Under Law No. 227 of 1996, Egypt has abolished all inheritance taxes. Accordingly, no inheritance taxes in Egypt will be chargeable on the death of an owner of shares.

Income statement – (P&L) (Appendix Q)

P/L 2013 A 2014 A 2015 P 2016 P 2017 P 2018 P 2019 P 2020 P

EGP EGP EGP EGP EGP EGP EGP EGP

Sales Revenues 2,075,452,431 2,520,586,769 2,302,538,041 2,458,367,520 2,779,667,902 3,148,484,091 3,410,201,831 3,656,946,984

Cost of goods sales (COGS) (1,211,052,518) (1,593,960,480) (1,522,537,438) (1,511,517,458) (1,658,515,044) (1,836,383,695) (1,954,039,037) (2,067,564,411)

Gross Profit 864,399,913 926,626,289 780,000,603 946,850,063 1,121,152,858 1,312,100,396 1,456,162,794 1,589,382,574

GPM 42% 37% 34% 39% 40% 42% 43% 43%

Selling, General and administrative expenses (57,082,529) (91,030,115) (70,714,328) (75,500,080) (85,367,687) (96,694,574) (104,732,311) (112,310,217)

EBITDA 807,317,384 835,596,174 709,286,275 871,349,983 1,035,785,171 1,215,405,821 1,351,430,483 1,477,072,356

Depreciation (165,239,602) (168,130,074) (177,326,631) (182,123,153) (186,216,363) (190,700,352) (195,621,059) (200,950,799)

Amortization (22,519,999) (22,519,999) (22,519,999) (22,519,999) (22,519,999) (22,519,999) (22,519,999) (22,519,999)

EBIT 619,557,783 644,946,101 509,439,645 666,706,831 827,048,809 1,002,185,471 1,133,289,425 1,253,601,558

Foreign exchange loss (68,702,795) (25,856,362)

loan interest expense (62,390,449) (36,113,430) (29,090,463) (23,530,767) (15,687,178) (7,843,589) (1,960,897) -

operation licence expense (45,024,000) (45,024,000) (38,228,283) (28,838,071) (19,530,463) (10,222,856) (2,784,526) -

electricity agreement interest expense (12,282,000) (12,282,000) (10,290,324) (8,298,649) (6,306,973) (4,315,297) (2,323,622) -

bank overdraft interest exp

long term notes payble interest expense (1,141,179) (3,128,382) (585,799) - - - -

Interest Income 1,468,411 826,015 754,559 805,625 910,918 1,031,782 1,117,548 1,198,409

Total Finance cost - net (186,930,833) (119,590,956) (79,982,894) (60,447,659) (40,613,696) (21,349,960) (5,951,496) 1,198,409

Other Operating Income 13,516,433 1,223,200 1,117,384 1,193,006 1,348,928 1,527,908 1,654,916 1,774,657

Others (6,338,531) (2,263,854)

EBT 439,804,852 524,314,491 430,574,136 607,452,178 787,784,041 982,363,419 1,128,992,844 1,256,574,624

Deferred Income Tax (20,486,537) (14,000,000) - - - - - -

Income Tax - (135,591,732) (96,879,181) (136,676,740) (177,251,409) (221,031,769) (254,023,390) (282,729,290)

Net Profit 419,318,315 374,722,759 333,694,955 470,775,438 610,532,632 761,331,650 874,969,454 973,845,333

NPM 20% 15% 14% 19% 22% 24% 26% 27%

Minority Interest 1,316 4,823

Net Profi to Shareholders 419,316,999 374,717,936 333,694,955 470,775,438 610,532,632 761,331,650 874,969,454 973,845,333

Arabian Cement Compariy (S.A.E) Consolidated Statement of Income - P/L

BALANCE SHEET – FINANCIAL POSITION (APPENDIX R)

2013 A 2014 A 2015 P 2016 P 2017 P 2018 P 2019 P 2020 P

EGP EGP EGP EGP EGP EGP EGP EGP

Non current Assets

Fixed Assets (net) 2,653,318,452 2,676,733,351 2,593,152,631 2,491,029,479 2,392,450,716 2,297,923,428 2,206,469,820 2,206,469,820

Projects under construction 143,613,902 99,410,072 58,564,316 - - - - -

Intangible assets (net) 162,456,478 139,936,479 117,416,480 94,896,481 72,376,482 49,856,483 27,336,484 4,816,485

Investments in Joint ventures 31,250 - - - - - - -

Total non-current Assets 2,959,420,082 2,916,079,902 2,769,133,427 2,585,925,960 2,464,827,198 2,347,779,911 2,233,806,304 2,211,286,305

Current Assets

Inventory 96,510,807 201,761,865 192,721,210 120,455,362 132,169,846 146,344,498 155,720,649 164,767,677

Debtors and other debit balances (Net) 39,925,935 56,679,974 51,776,752 51,286,508.97 57,989,483.51 65,683,733.71 71,143,694.07 76,291,296.06

Due from related parties 1,758,966 827,715 756,112 807,283 912,793 1,033,905 1,119,848 1,200,875

Operating Cash 159,750,204 137,567,241 125,666,694 134,171,472 151,707,233 171,836,286 186,120,178 199,586,903

Excess cash 1,402,489 21,799,505 16,866,067 158,406,416 279,013,991 449,058,865 667,760,786 948,298,532

Total Current Assets 299,348,401 418,636,300 387,786,835 465,127,042 621,793,346 833,957,288 1,081,865,156 1,390,145,283

Total Assets 3,258,768,483 3,334,716,202 3,156,920,262 3,051,053,002 3,086,620,544 3,181,737,199 3,315,671,459 3,601,431,588

Current Liabilities

Provisions 7,110,829 8,770,069 11,580,532 11,580,532 11,580,532 11,580,532 11,580,532 11,580,532

Current Income Tax liabilities 518,278 135,158,769 58,096,302

Creditors and Other credit balances 316,233,689 336,514,326 321,435,610 319,109,090 350,142,980 387,694,318 412,533,521 436,500,812

Dividend Payble

Current portion of long - term loans 337,970,515 294,065,338 162,292,850 162,292,850 162,292,850 81,146,425

Current portion of long term other liabilities 69,438,000 77,934,000 114,462,000 114,462,000 114,462,000 75,902,000 12,308,000 -

Due to related parties 1,921,649 3,905,131 3,073,024 3,050,782 3,347,476 3,706,478 3,943,949 4,173,083

Overdrafts - - - - - -

Total Current Liabilities 733,192,960 856,347,633 670,940,319 610,495,254 641,825,837 560,029,753 440,366,002 452,254,427

Net (deficit) in Working capital (187,588,737) (225,078,741) (148,931,394) (161,191,250) (173,998,865) (189,919,192) (200,073,810) (209,994,580)

Change in WC (350,242,521) (37,490,004) 76,147,347 (12,259,855) (12,807,615) (15,920,327) (10,154,618) (9,920,770)

Non current liabilities

Borrowings 520,680,947 341,739,770 405,732,125 243,439,275 81,146,425 - - -

other liabilities 576,555,416 486,502,712 322,991,988 202,672,000 88,210,000 12,308,000 - -

Deferred income tax liability 337,985,370 352,418,333 328,794,174 328,794,174 328,794,174 328,794,174 328,794,174 328,794,174

Total non-current Liabilities 1,435,221,733 1,180,660,815 1,057,518,287 774,905,449 498,150,599 341,102,174 328,794,174 328,794,174

Total Liabilities 2,168,414,693 2,037,008,448 1,728,458,606 1,385,400,703 1,139,976,436 901,131,927 769,160,176 781,048,601

Equity

Issued and paid up capital 757,479,400 757,479,400 757,479,400 757,479,400 757,479,400 757,479,400 757,479,400 757,479,400

Legal Reserve 118,792,048 129,463,619 156,122,086 189,491,582 236,569,125 297,622,388 373,755,553 373,755,553

Retained Earning 214,078,006 410,755,576 514,850,088 718,669,562 952,581,843 1,225,487,388 1,415,258,357 1,689,128,127

Total Shareholder's Equity 1,090,349,454 1,297,698,595 1,428,451,574 1,665,640,543 1,946,630,369 2,280,589,176 2,546,493,311 2,820,363,081

Non controling Interest 4,336 9,159 10,082 11,756 13,739 16,096 17,973 19,906

Total Shareholder's Equity & Non controling Interest 1,090,353,790 1,297,707,754 1,428,461,656 1,665,652,299 1,946,644,108 2,280,605,272 2,546,511,284 2,820,382,986

Total Liabilities and Equity 3,258,768,483 3,334,716,202 3,156,920,262 3,051,053,002 3,086,620,544 3,181,737,199 3,315,671,459 3,601,431,588

Consolidated Balance Sheet

Arabian Cement Company

BALANCE SHEET - COMMON SIZE ANALYSIS (APPENDIX S)

2013 A 2014 A 2015 P 2016 P 2017 P 2018 P 2019 P 2020 P

EGP EGP EGP EGP EGP EGP EGP EGPNon current Assets

Fixed Assets (net) 81% 80% 82% 82% 78% 72% 67% 61%

Projects under construction 4% 3% 2% 0% 0% 0% 0% 0%

Intangible assets (net) 5% 4% 4% 3% 2% 2% 1% 0%

Investments in Joint ventures 0% 0% 0% 0% 0% 0% 0% 0%

Total non-current Assets 91% 87% 88% 85% 80% 74% 67% 61%

Current Assets 0% 0% 0% 0% 0% 0% 0% 0%

Inventory 3% 6% 6% 4% 4% 5% 5% 5%

Debtors and other debit balances 1% 2% 2% 2% 2% 2% 2% 2%

Due from related parties 0% 0% 0% 0% 0% 0% 0% 0%

Operating Cash 5% 4% 4% 4% 5% 5% 6% 6%

Excess cash 0% 1% 1% 5% 9% 14% 20% 26%

Total Current Assets 9% 13% 12% 15% 20% 26% 33% 39%

Total Assets 100% 100% 100% 100% 100% 100% 100% 100%

Current Liabilities

Provisions 0.22% 0.26% 0.37% 0.38% 0.38% 0.36% 0.35% 0.32%

Current Income Tax liabilities 0% 4% 2% 0% 0% 0% 0% 0%

Creditors and Other credit balances 10% 10% 10% 10% 11% 12% 12% 12%

Dividend Payble 0% 0% 0% 0% 0% 0% 0% 0%

Current portion of long - term loans 10% 9% 5% 5% 5% 3% 0% 0%

Current portion of long term other liabilities

2% 2%4% 4% 4% 2% 0% 0%

Due to related parties 0% 0% 0% 0% 0% 0% 0% 0%

Overdrafts 0% 0% 0% 0% 0% 0% 0% 0%

Total Current Liabilities 22% 26% 21% 20% 21% 18% 13% 13%

Net (deficit) in Working capital -6% -7% -5% -5% -6% -6% -6% -6%

Change in WC -11% -1% 2% 0% 0% -1% 0% 0%

Non current liabilities

Borrowings 16% 10% 13% 8% 3% 0% 0% 0%

other liabilities 18% 15% 10% 7% 3% 0% 0% 0%

Deferred income tax liability 10% 11% 10% 11% 11% 10% 10% 9%

Total non-current Liabilities 44% 35% 33% 25% 16% 11% 10% 9%

Total Liabilities 67% 61% 55% 45% 37% 28% 23% 22%

Equity

Issued and paid up capital 23% 23% 24% 25% 25% 24% 23% 21%

Legal Reserve 4% 4% 5% 6% 8% 9% 11% 10%

Retained Earning 7% 12% 16% 24% 31% 39% 43% 47%

Total Shareholder's Equity 33% 39% 45% 55% 63% 72% 77% 78%

Non controling Interest 0% 0% 0% 0% 0% 0% 0% 0%

Total Shareholder's Equity & Non controling Interest

33% 39% 45% 55% 63% 72% 77% 78%

Total Liabilities and Equity 100% 100% 100% 100% 100% 100% 100% 100%

Balance Sheet-Common Size

INCOME STATEMENT ANALYSIS (Appendix T)

P/L 2013 A 2014 A 2015 P 2016 P 2017 P 2018 P 2019 P 2020 P

EGP EGP EGP EGP EGP EGP EGP EGP

Net Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Less

Cost of sales (COGS) 58.35% 63.24% 61.48% 59.67% 58.33% 57.30% 56.54% 56.54%

Gross Profit 41.65% 36.76% 33.88% 38.52% 40.33% 41.67% 42.70% 43.46%

S&GA Expense -2.75% -3.61% -3.07% -3.07% -3.07% -3.07% -3.07% -3.07%

EBITDA 38.90% 33.15% 30.80% 35.44% 37.26% 38.60% 39.63% 40.39%

Depreciation & Amortization -7.96% -6.67% -7.70% -7.41% -6.70% -6.06% -5.74% -5.50%

EBIT 29.85% 25.59% 22.13% 27.12% 29.75% 31.83% 33.23% 34.28%

Finance cost - net -5.76% -3.17% -3.47% -2.46% -1.46% -0.68% -0.17% 0.03%

Others -0.31% -0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

EBT 21.19% 20.80% 18.70% 24.71% 28.34% 31.20% 33.11% 34.36%

Deferred Income Tax -0.99% -0.56% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Income Tax 0.00% -5.38% -4.21% -5.56% -6.38% -7.02% -7.45% -7.73%

Net Profit 20.20% 14.87% 14.49% 19.15% 21.96% 24.18% 25.66% 26.63%

I/S Common Size Analysis

(APPENDIX V) DEPRECATION

(Appendix W) Amortization

COGS & SALES REVENUES BREAKDOWN

Years Projection 2016 P 2017 P 2018 P 2019 P 2020 P4,719,101 4,719,101 4,719,101 4,719,101 4,719,101

4,430,258 4,572,720 4,719,763 4,719,763 4,719,763

93.88% 96.90% 100.01% 100.01% 100.01%

555 608 667 723 775

2,458,367,520 2,779,667,902 3,148,484,091 3,410,201,831 3,656,946,984

Average Blended Price

Sales Revenues

Capacity - Cement

Sales Volume

Utilization Rate

COGS Breakdown 2015 P 2016 P 2017 P 2018 P 2019 P 2020 PElectricity 154,774,704 164,779,453 175,321,290 190,263,329 200,046,019 210,326,029

Energy 489,589,756 542,175,235 573,477,331 615,699,544 637,918,466 660,410,255

Raw Materials 274,927,058 293,533,370 331,897,195 375,934,492 407,184,046 436,645,848

Imported Clinker 124,609,335 - - - - -

Bags 121,219,262 129,423,051 146,338,209 165,754,881 179,533,256 192,523,384

O&M costs 192,124,883 205,127,370 231,936,828 262,711,029 284,548,883 305,137,418

Others 95,115,989 101,553,179 114,825,838 130,061,338 140,872,686 151,065,530

Depreciation 177,326,631 182,123,153 186,216,363 190,700,352 195,621,059 200,950,799

Amortization 22,519,999 22,519,999 22,519,999 22,519,999 22,519,999 22,519,999

Overhead cost 70,176,450 74,925,801 84,718,351 95,959,082 103,935,681 111,455,947

Total COGS 1,522,537,438 1,511,517,458 1,658,515,044 1,836,383,695 1,954,039,037 2,067,564,411

Column1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Gross Fixed Assets 1,534,580,297 3,215,678,736 3,257,620,303 3,273,320,054 3,465,771,369 3,559,517,281 3,639,517,281 3,727,154,881 3,823,327,945 3,927,495,395 4,128,446,194

CAPEX 1,681,098,439 41,941,567 15,699,751 192,451,315 93,745,912 80,000,000 87,637,600 96,173,064 104,167,450 200,950,799

Depreciation 70,192,275 107,439,277 163,078,306 166,203,962 169,433,043 177,326,631 182,123,153 186,216,363 190,700,352 195,621,059 200,950,799

Dep as % of Gross FA 7.00% 5.07% 5.10% 5.18% 5.12% 5.12% 5.12% 5.12% 5.12% 5.12%

Accumulated Dep. 789,038,018 966,364,649 1,148,487,802 1,334,704,165 1,525,404,516 1,721,025,575 1,921,976,374

Column1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Intangible Assets 215,602,301 199,221,969 184,976,477 162,456,478 139,936,479 117,416,480 94,896,481 72,376,482 49,856,483 27,336,484 4,816,485

Amortization 9,597,699 16,380,332 14,245,492 22,519,999 22,519,999 22,519,999 22,519,999 22,519,999 22,519,999 22,519,999 22,519,999

Projects under Construction 1,511,104,559 12,000,000 9,229,356 143,613,902 99,410,072 58,564,316 -

Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report doesn’t hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report doesn’t Know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as an officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Egypt Society CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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