Morningstar: aandeel in de kijker is Lafarge (26/3/2014) | Vlaamse Federatie van Beleggers

Market Cap (EUR Mil) 15,602

52-Week High (EUR) 57.50

52-Week Low (EUR) 45.00

52-Week Total Return % 18.4

YTD Total Return % -0.3

Last Fiscal Year End 31 Dec 2013

5-Yr Forward Revenue CAGR % 10.4

5-Yr Forward EPS CAGR % 33.1

Price/Fair Value 0.76

2012 2013

Price/Earnings 32.2 26.1 17.3 12.1

EV/EBITDA 5.8 8.1 7.6 6.5

EV/EBIT 8.2 12.1 10.9 8.8

Free Cash Flow Yield % 6.7 1.5 5.6 8.0

Dividend Yield % 1.9 2.1 1.8 1.8

2012 2013

Revenue 15,816 15,198 16,204 18,040

Revenue YoY % 3.5 -3.9 6.6 11.3

EBIT 2,440 2,075 2,451 3,037

EBIT YoY % 12.0 -15.0 18.1 23.9

Net Income, Adjusted 432 601 900 1,290

Net Income YoY % -27.2 39.1 49.8 43.3

Diluted EPS 1.50 2.09 3.13 4.49

Diluted EPS YoY % -27.2 39.1 49.8 43.3

Free Cash Flow 1,454 1,927 1,132 1,473

Free Cash Flow YoY % -54.9 32.5 -41.3 30.1

Despite adverse exchange rates, Lafarge's business is improving as construction demand returns.

Elizabeth Collins, CFA Director

elizabeth.collins@morningstar.com +1 (312) 384-4033

Kristoffer Inton Stock Analyst

kristoffer.inton@morningstar.com 312-384-4897

Research as of 19 Feb 2014 Estimates as of 19 Feb 2014 Pricing data through 19 Feb 2014 Rating updated as of 19 Feb 2014

Investment Thesis 30 Jul 2013

Lafarge is one of the world's largest cement producers and a leading producer of aggregates and concrete. Demand for construction materials in the markets it serves will largely determine its earnings, but the downturn in construction activity in North America and Europe has wreaked havoc on profitability.

However, growth should be restored once construction activity strengthens, and Lafarge's recent efforts on cost reductions and price increases should help boost earnings further.

Lafarge's main business--cement production--is characterized by high capital intensity, stiff barriers to entry in some markets, high energy intensity, and a low value/weight ratio that leads to regional rather than global markets. Cement is made from limestone, sand, alumina, and iron ore, and plants are usually built close to large deposits of these raw materials. The need to heat these materials in a kiln to 1,500 degrees Celsius makes fuel the largest single production cost input. The company's investments in efficiency help determine its cost competitiveness in each market. Since it's costly to transport cement over land, plants typically have a shipping radius of no more than 300 km. In turn, these regional markets have tended to result in favorable pricing for producers.

Before the construction downturn began, Lafarge had invested heavily in capacity expansion in emerging markets, given the more promising prospects for materials demand growth in the Middle East, Africa, and Asia. The early 2008 acquisition of Orascom Cement gave the company a leading position in the Middle East and the Mediterranean Basin, and the Orascom plants are some of the newest, largest, and lowest-cost in Lafarge's whole portfolio.

However, the acquisition came at a steep cost--12 times 2008 EBITDA--and burdened Lafarge's balance sheet heading into the huge downturn in demand for construction materials, particularly in developed markets. Lafarge has also been investing in China, where the growth outlook appears favorable, although a fragmented industry and inefficient operations have hampered profitability. Lafarge is focusing on improving efficiency there.

Lafarge is one of the world's largest cement producers, as well as a leading producer of aggregates and concrete. In 2013, the company sold 137 million metric tons of cement, 193 million metric tons of aggregates, and 31 million cubic meters of concrete. In 2013, 37% of EBITDA was generated in the Middle East and Africa, 18% in Europe, 19% in Asia, 8% in Latin America, and 18% in North America.

Profile Vital Statistics

Valuation Summary and Forecasts

Financial Summary and Forecasts

The primary analyst covering this company does not own its stock.

Currency amounts expressed with "$" are in U.S. dollars (USD) unless otherwise denoted.

Historical/forecast data sources are Morningstar Estimates and may reflect adjustments.

(EUR Mil)

Contents

Investment Thesis Morningstar Analysis

Analyst Note

Valuation, Growth and Profitability Scenario Analysis

Economic Moat Moat Trend Bulls Say/Bears Say Credit Analysis

Financial Health Capital Structure Enterprise Risk Management & Ownership Analyst Note Archive Additional Information Morningstar Analyst Forecasts Comparable Company Analysis Methodology for Valuing Companies

Fiscal Year:

Fiscal Year:

1

2 2 2 2 3 4

5 5 5 6 7 - 9 13 15

Morningstar Analysis

Despite Adverse Exchange Rates, Lafarge’s Results Show Improvement That Should Continue Into 2014 19 Feb 2014

Lafarge reported decent financial results for 2013 with improving business performance marred by adverse exchange rates. The company realized sales of EUR 15.2 billion and EBITDA of EUR 3.1 billion for the full year, representing 4% and 9% declines, respectively, relative to 2012. However, on a like-for-like basis, which assumes constant scope and exchange rates, sales and EBITDA actually increased 2% over the prior year. We are maintaining our narrow moat rating and fair value estimate of EUR 71 per share. Lafarge remains well positioned across its markets and should see improvement in both volumes and prices.

Looking forward to 2014, Lafarge should see volume improvement across all of its markets except Western Europe (which we expect will be flat in 2014), resulting in expected global cement volume growth of 2% to 5%. Similar to the expected trends in concrete, the company expects to see volume growth in North America and emerging markets with stabilization in Western Europe for aggregates and concrete. Lafarge expects price improvement for both products.

Even with improving operations, leverage remains a concern, with total debt of EUR 13.7 billion (net debt of EUR 10.4 billion) at the end of 2013 and large near-term maturities looming. Lafarge is targeting net debt below EUR 9 billion by the end of 2014. We aren’t sure the company can achieve this given our expectations for cash flow in the coming year but do like the company’s balanced approach to debt reduction and investment in high potential regions like Africa. To illustrate, management is focused on investing in Africa using cash flow generated in excess of cash needed for deleveraging. We think this approach makes sense and could improve both its financial position and earnings.

Valuation, Growth and Profitability 19 Feb 2014 Our fair value estimate for Lafarge is EUR 71. Cement sales volume is an important driver of earnings power, and we assume about a 4% increase in 2014, followed by 8%-9%

growth per year after that. We believe Lafarge will maintain favorable pricing in most of its markets. Our long-term EBITDA margin assumption is 25%, versus a margin of 20%

in 2013. We think cost reductions and price increases will help Lafarge expand margins as sales volumes grow. We use a 9.6% weighted average cost of capital assumption (approximately) in our discounted cash flow model, and our implied terminal enterprise value/EBITDA multiple is about 6.5 times.

Scenario Analysis

Our scenario analysis for Lafarge incorporates revenue growth, margins, and capital expenditures. We do not explicitly weight our high- and low-case scenario valuations in our EUR 71 fair value estimate. In a high-case scenario, which would entail robust growth in global demand for building materials driven by strong construction activity, Lafarge would probably generate higher sales growth and margins. We envision a long-term EBITDA margin of 27%.

This scenario values Lafarge at EUR 107 per share. In a low-case scenario, which would entail continued weak construction activity, Lafarge would probably suffer from weak sales growth and pricing, and lower margins. In this scenario, we envision long-term EBITDA margins shaking out at 22%. This scenario values Lafarge at EUR 35 per share.

Economic Moat

We argue that Lafarge has a narrow economic moat because

of the combination of barriers to entry and a low-cost

advantage. The evidence of Lafarge's economic moat is its

pricing power in most markets--despite currently weak

volume--and adequate returns on invested capital during

periods of normal demand. Barriers to entry in the cement industry stem from the need to locate plants near raw-material sources, capital intensity, and the low value/weight ratio of cement. Relatively high shipping costs lead to regional rather than global markets, usually translating into a favorable pricing environment for producers. If local demand is high enough to require costly imports, benefits accrue to local producers because of their shipping-cost advantage. The other aspect of Lafarge's low-cost advantage is the efficiency of its plants.

Moat Trend

We believe Lafarge's moat trend is stable. On the upside, strong-return opportunities can include investing in the efficiency of existing plants, expanding capacity through reasonable-cost acquisitions, or new builds. However, it's reasonable to expect that Lafarge's competitors have these same opportunities, so they don't represent chances for the company to truly vault ahead of competitors. The maturity of some of Lafarge's markets is on the downside of our moat trend consideration. Strong demand reinforces the advantage of local producers, which get pushed to the lower end of the cost curve when imports are demanded. In mature

markets, these dynamics seem less likely. However, we note that emerging markets don't offer unmitigated positives for cement producers. Cement industries in emerging markets tend to be more fragmented with lower barriers to entry, which can lead to more competition. On balance, though, we believe Lafarge's substantial exposure to emerging markets bodes well for future returns, as some emerging markets can become more attractive with time. A good example: the Brazilian cement industry.

On balance, we think competitors' efficiency initiatives and

mature market exposure offset the efficiency improvement

opportunities and a strong contribution from emerging

markets.

Bulls Say/Bears Say

Bulls Say Bears Say

3 Lafarge has a strong and growing position in emerging markets, where prospects for strong demand for building materials are much brighter.

3 The global cement industry is fairly consolidated, especially in developed markets, which bodes well for producers.

3 Lafarge and its peers are showing progress on cost- cutting and price increases.

3 At different times in the past, certain markets have been subject to intense price competition, such as South Korea, Brazil, and Malaysia. There's no guarantee Lafarge's other markets won't fall prey to the same dynamics.

3 Given the energy intensity of cement production, strict greenhouse gas limits could result in cement losing share to other building materials.

3 Lafarge arguably overpaid for Orascom and put its

balance sheet at risk, which ultimately resulted in a

dilutive rights offering.

2014(E) 2015(E) 2016(E) 2017(E) 2018(E)

Cash and Equivalents (beginning of period) 3,346 3,688 4,358 5,402 6,839

Adjusted Available Cash Flow 1,156 1,535 1,955 2,395 2,844

Total Cash Available before Debt Service 4,502 5,223 6,313 7,797 9,682

Principal Payments -3,000 -2,100 -1,500 -2,200 -1,700

Interest Payments -822 -822 -822 -822 -822

Other Cash Obligations and Commitments — — — — —

Total Cash Obligations and Commitments -3,822 -2,922 -2,322 -3,022 -2,522

EUR Millions

% of Commitments

Beginning Cash Balance 3,346 22.9

Sum of 5-Year Adjusted Free Cash Flow 9,884 67.7

Sum of Cash and 5-Year Cash Generation 13,230 90.6

Revolver Availability — —

Asset Adjusted Borrowings (Repayment) — —

Sum of Cash, 5-Year Cash Generation, Revolver and Adjustments 13,230 90.6

Sum of 5-Year Cash Commitments -14,609 —

LG Sector Universe

Business Risk 6 6.2 5.1

Cash Flow Cushion 8 6.5 6.1

Solvency Score 7 5.5 5.0

Distance to Default 7 5.6 3.8

Credit Rating BB+ BBB BBB+

Five Year Adjusted Cash Flow Forecast (EUR Mil)

Credit Analysis

Cumulative Annual Cash Flow Cushion

Cash Flow Cushion Possible Liquidity Need

Adjusted Cash Flow Summary

Credit Rating Pillars Peer Group Comparison

Source: Morningstar Estimates

Note: Scoring is on a scale 1-10, 1 being Best, 10 being Worst

Financial Health & Capital Structure

The EUR 8.3 billion Orascom acquisition in early 2008 was largely debt-financed and significantly increased Lafarge's financial leverage, heading into a period of abysmal demand for construction materials. Since then, Lafarge has spent its efforts on working capital reductions, cost-cutting, capital expenditure reductions, dividend cuts, equity raises, and asset sales. We think Lafarge should cover its interest expense by a comfortable amount in the future. However, the threat remains of a significant maturity coinciding with a downturn in materials demand and tight credit conditions.

Enterprise Risk

The biggest risk is weak demand for building materials.

Steep energy costs that cannot be recouped through higher

pricing are another threat. Fierce or irrational competition

in regional markets that leads to unfavorable pricing would

also hurt Lafarge's profitability. Political risk could manifest

itself in the form of nationalization of assets or price

controls. Finally, stringent greenhouse gas limits could

impair Lafarge's business.We give Lafarge a high

uncertainty rating because even reasonable assumptions

for normal demand levels can vary materially, and the

company has a decent amount of financial leverage.

Name Position Shares Held Report Date* InsiderActivity

NA NA NA NA NA

Top Owners % of Shares

Held % of Fund Assets Change

(k) Portfolio Date

Alken Fund European Opportunities 0.58 1.93 -59 31 Dec 2013

Longleaf Partners International Fund 0.56 6.68 — 31 Dec 2013

BlackRock European Fund 0.57 1.66 -406 31 Oct 2013

Davis New York Venture Fund 0.55 0.54 1,590 31 Oct 2013

Pioneer Fds Euroland Equity 0.46 3.02 99 30 Nov 2013

Concentrated Holders

Longleaf Partners International Fund 0.56 6.68 — 31 Dec 2013

Etorkizuna de Inversiones SICAV — 6.17 — 31 Dec 2013

iShares STOXX Europe 600 Cnstr & M (DE) 0.01 6.08 5 31 Jan 2014

Excellence Commodities — 5.57 — 30 Nov 2013

Mereu de Inversiones SICAV — 4.80 0 31 Dec 2013

Top 5 Buyers % of Shares

Held % of Fund Assets

Shares Bought/

Sold (k) Portfolio Date

Davis Selected Advisers LP 0.70 0.50 1,971 31 Jan 2014

Marsh and Mclennan Companies Retirement Plan — 0.02 682 31 Dec 2009

State Farm Insurance Retirement Plan For U.S.

Employees 0.08 0.16 238 31 Dec 2009

Allianz Global Investors France 0.09 1.38 203 30 Nov 2013

La Banque Postale Asset Management 0.37 0.77 147 31 Oct 2013

Top 5 Sellers

BlackRock Investment Management (UK) Ltd. 0.64 1.15 -501 31 Oct 2013

Blackrock Financial Management, Inc 0.08 0.64 -305 31 Oct 2013

SIGNAL IDUNA Asset Management GmbH — 0.53 -138 31 Dec 2013

Legal and General 0.41 0.12 -137 30 Nov 2013

Eurizon Capital S.A. 0.01 0.45 -114 30 Jun 2013

Management 03 Mar 2011

Management & Ownership

Management Activity

Fund Ownership

Institutional Transactions

*Represents the date on which the owner’s name, position, and common shares held were reported by the holder or issuer.

Bruno Lafont is chairman of the board and CEO of Lafarge.

He became CEO in January 2006 and chairman in May 2007.

He has been with Lafarge since 1983. Major moves since

Lafont took the helm include the purchase of the minority

stake in Lafarge North America in 2006, the sale of the

underperforming roofing division in 2007, and the 2008

acquisition of Orascom Cement (a leading producer in the

Middle East and the Mediterranean Basin) from the Sawiris

family. Variable pay has tended to make up a significant

chunk of Lafont's total cash compensation, and the criteria

used to determine performance-related pay include

earnings per share growth, free cash flow, return on capital

employed, return on investment compared with

competitors, and cost savings. Major shareholders of

Lafarge include Groupe Bruxelles Lambert (a holding

company whose interests include Total and GDF Suez) and

NNS Holding Sarl (the Sawiris family holding company).

Analyst Notes

Despite Adverse Exchange Rates, Lafarge’s Results Show Improvement That Should Continue Into 2014 19 Feb 2014

Lafarge reported decent financial results for 2013 with improving business performance marred by adverse exchange rates. The company realized sales of EUR 15.2 billion and EBITDA of EUR 3.1 billion for the full year, representing 4% and 9% declines, respectively, relative to 2012. However, on a like-for-like basis, which assumes constant scope and exchange rates, sales and EBITDA actually increased 2% over the prior year. We are maintaining our narrow moat rating and fair value estimate of EUR 71 per share. Lafarge remains well positioned across its markets and should see improvement in both volumes and prices.

Looking forward to 2014, Lafarge should see volume improvement across all of its markets except Western Europe (which we expect will be flat in 2014), resulting in expected global cement volume growth of 2% to 5%. Similar to the expected trends in concrete, the company expects to see volume growth in North America and emerging markets with stabilization in Western Europe for aggregates and concrete. Lafarge expects price improvement for both products.

Even with improving operations, leverage remains a concern, with total debt of EUR 13.7 billion (net debt of EUR 10.4 billion) at the end of 2013 and large near-term maturities looming. Lafarge is targeting net debt below EUR 9 billion by the end of 2014. We aren’t sure the company can achieve this given our expectations for cash flow in the coming year but do like the company’s balanced approach to debt reduction and investment in high potential regions like Africa. To illustrate, management is focused on investing in Africa using cash flow generated in excess of cash needed for deleveraging. We think this approach makes sense and could improve both its financial position

and earnings.

Lafarge Sees Volume Growth in 3Q, but Unfavorable Currency Exchange Rates Drag Results 07 Nov 2013 Unfavorable currency exchange rates overshadowed improving volume trends in Lafarge’s third-quarter earnings.

Driven by emerging markets growth, a U.S. recovery, and European stabilization, volumes for cement, pure aggregates, and ready-mix grew 3%, 5%, and 1% on a like- for-like basis, respectively. This drove a 4% increase in both sales and EBITDA on a like-for-like basis. However, when including the effects of change in scope and exchange rates, sales and EBITDA declined 4% and 6%, respectively. This was driven primarily by the depreciation of the Canadian dollar, the U.S. dollar, the South African rand, and other currencies against the euro. As Lafarge’s earnings did not materially change our views, we are maintaining our narrow moat rating and our fair value estimate of EUR 71. While we don't expect Lafarge to generate strong returns on invested capital this year due to still-weak construction activity, primarily in Europe, we ultimately think that returns will improve and that they'll be sustainable assuming normal macroeconomic conditions.

For the full year, Lafarge expects growth in North America driven by the U.S. residential sector and Canadian oil industry. Western Europe is expected to decline, driven by austerity measures and slow economic growth. In particular, the company expects markets in France to decline 4%-7%, Spain to decline 15%-20%, and Greece to decline 7%-10%.

In general, Lafarge expects continued growth in emerging market countries.

We continue to remain concerned with the company’s

leverage, as total debt at the end of the quarter sat at EUR

14.4 billion and several large maturities are due over the

next few years. Lafarge will have to continue focusing on

Analyst Notes

cost-cutting and potential asset sales before it can start to

consider growth opportunities again.

Growth (% YoY)

3-Year

Hist. CAGR 2011 2012 2013

5-Year Proj. CAGR

Revenue 0.8 3.0 3.5 -3.9 6.6 11.3 10.4

EBIT -4.6 -8.9 12.0 -15.0 18.1 23.9 19.0

EBITDA -3.8 -7.7 7.2 -10.1 13.1 17.6 14.6

Net Income -10.1 -28.3 -27.2 39.1 49.8 43.3 33.1

Diluted EPS -10.2 -28.5 -27.2 39.1 49.8 43.3 33.1

Earnings Before Interest, after Tax -4.9 24.2 -14.2 -19.2 42.6 31.4 26.6

Free Cash Flow 15.0 154.8 -54.9 32.5 -41.3 30.1 6.7

Profitability

3-Year

Hist. Avg 2011 2012 2013

5-Year Proj. Avg

Operating Margin % 14.5 14.3 15.4 13.7 15.1 16.8 17.9

EBITDA Margin % 21.1 21.1 21.8 20.4 21.7 22.9 23.5

Net Margin % 3.5 3.9 2.7 4.0 5.6 7.2 8.1

Free Cash Flow Margin % 14.3 21.1 9.2 12.7 7.0 8.2 9.0

ROIC % 3.6 4.0 3.6 3.1 4.3 5.5 6.4

Adjusted ROIC % 3.8 4.3 3.8 3.4 4.8 6.2 7.6

Return on Assets % 1.4 1.4 1.1 1.6 2.4 3.4 4.1

Return on Equity % 3.5 3.7 2.7 4.0 6.1 8.2 9.6

Leverage

3-Year

Hist. Avg 2011 2012 2013

5-Year Proj. Avg

Debt/Capital 0.48 0.49 0.47 0.48 0.47 0.46 0.43

Total Debt/EBITDA 4.41 4.73 4.08 4.42 3.90 3.32 2.97

EBITDA/Interest Expense 2.78 2.82 2.90 2.64 4.27 5.02 5.84

2012 2013

Price/Fair Value 0.69 0.77 — —

Price/Earnings 32.2 26.1 17.3 12.1

EV/EBITDA 5.8 8.1 7.6 6.5

EV/EBIT 8.2 12.1 10.9 8.8

Free Cash Flow Yield % 6.7 1.5 5.6 8.0

Dividend Yield % 1.9 2.1 1.8 1.8

Cost of Equity % 12.0

Pre-Tax Cost of Debt % 8.5

Weighted Average Cost of Capital % 9.6

Long-Run Tax Rate % 30.2

Stage II EBI Growth Rate % 3.0

Stage II Investment Rate % 31.3

Perpetuity Year 6

EUR Mil Firm Value (%) Per Share

Value

Present Value Stage I 6,921 22.8 24.09

Present Value Stage II 23,495 77.3 81.79

Present Value Stage III — — —

Total Firm Value 30,416 100.0 105.88

Cash and Equivalents 3,346 — 11.65

Debt -13,696 — -47.68

Preferred Stock — — —

Other Adjustments — — —

Equity Value 20,066 — 69.85

Projected Diluted Shares 287

Fair Value per Share —

Morningstar Analyst Forecasts

Forecast Fiscal Year Ends in December

Financial Summary and Forecasts

Valuation Summary and Forecasts

Key Valuation Drivers

Discounted Cash Flow Valuation

Additional estimates and scenarios available for download at http://select.morningstar.com.

The data in the table above represent base-case forecasts in the company’s reporting currency as of the beginning of the current year. Our fair value estimate may differ from the equity value per share shown above due to our time value of money adjustment and in cases where probability-weighted scenario analysis is performed.

(EUR)

2011 2012 2013

Revenue 15,284 15,816 15,198 16,204 18,040

Cost of Goods Sold 11,627 11,945 11,740 12,278 13,361

Gross Profit 3,657 3,871 3,458 3,926 4,679

Selling, General & Administrative Expenses 1,478 1,431 1,383 1,475 1,642

Other Operating Expense (Income) — — — — —

Other Operating Expense (Income) — — — — —

Depreciation & Amortization (if reported separately) — — — — —

Operating Income (ex charges) 2,179 2,440 2,075 2,451 3,037

Restructuring & Other Cash Charges — — — — —

Impairment Charges (if reported separately) 541 546 350 350 350

Other Non-Cash (Income)/Charges -45 -53 -295 -100 -100

Operating Income (incl charges) 1,683 1,947 2,020 2,201 2,787

Interest Expense 1,142 1,191 1,177 822 822

Interest Income 135 165 155 155 155

Pre-Tax Income 676 921 998 1,535 2,120

Income Tax Expense 432 316 262 476 636

Other After-Tax Cash Gains (Losses) 492 16 46 46 46

Other After-Tax Non-Cash Gains (Losses) — — — — —

(Minority Interest) -143 -189 -181 -205 -241

(Preferred Dividends) — — — — —

Net Income 593 432 601 900 1,290

Weighted Average Diluted Shares Outstanding 287 287 287 287 287

Diluted Earnings Per Share 2.06 1.50 2.09 3.13 4.49

Adjusted Net Income 593 432 601 900 1,290

Diluted Earnings Per Share (Adjusted) 2.06 1.50 2.09 3.13 4.49

Dividends Per Common Share 1.00 0.50 1.01 1.00 1.00

EBITDA 2,721 2,957 3,047 3,259 3,877

Adjusted EBITDA 3,217 3,450 3,102 3,509 4,127

Morningstar Analyst Forecasts

Income Statement (EUR Mil)

Fiscal Year Ends in December Forecast

2011 2012 2013

Cash and Equivalents 3,171 2,733 3,346 3,688 4,358

Investments — — — — —

Accounts Receivable 2,589 2,541 2,726 2,906 3,236

Inventory 1,531 1,662 1,621 1,695 1,845

Deferred Tax Assets (Current) — — — — —

Other Short Term Assets 2,256 2,348 24 24 24

Current Assets 9,547 9,284 7,717 8,314 9,462

Net Property Plant, and Equipment 15,542 14,992 14,752 14,794 14,838

Goodwill 12,701 12,184 11,612 11,612 11,612

Other Intangibles 652 620 574 574 574

Deferred Tax Assets (Long-Term) 804 1,149 1,082 1,082 1,082

Other Long-Term Operating Assets 718 537 682 682 682

Long-Term Non-Operating Assets 755 698 656 756 856

Total Assets 40,719 39,464 37,075 37,814 39,106

Accounts Payable 3,463 3,552 3,671 3,839 4,178

Short-Term Debt 2,940 2,823 2,891 2,891 2,891

Deferred Tax Liabilities (Current) 165 220 125 125 125

Other Short-Term Liabilities 690 670 262 262 262

Current Liabilities 7,258 7,265 6,949 7,117 7,456

Long-Term Debt 12,266 11,261 10,805 10,805 10,805

Deferred Tax Liabilities (Long-Term) 933 973 915 915 915

Other Long-Term Operating Liabilities 766 725 666 666 666

Long-Term Non-Operating Liabilities 1,295 1,490 1,234 1,234 1,234

Total Liabilities 22,518 21,714 20,569 20,737 21,076

Preferred Stock — — — — —

Common Stock 1,149 1,149 1,149 1,149 1,149

Additional Paid-in Capital 9,684 9,695 9,712 9,712 9,712

Retained Earnings (Deficit) 6,219 6,546 6,868 7,481 8,483

(Treasury Stock) -17 -11 -1 -1 -1

Other Equity -1,031 -1,711 -3,173 -3,173 -3,173

Shareholder's Equity 16,004 15,668 14,555 15,168 16,170

Minority Interest 2,197 2,082 1,951 1,909 1,860

Total Equity 18,201 17,750 16,506 17,077 18,030

Morningstar Analyst Forecasts

Balance Sheet (EUR Mil)

Fiscal Year Ends in December Forecast

2011 2012 2013

Net Income 244 605 736 1,105 1,530

Depreciation 1,038 1,010 1,027 1,058 1,090

Amortization — — — — —

Stock-Based Compensation — — — — —

Impairment of Goodwill 388 212 125 — —

Impairment of Other Intangibles — — — — —

Deferred Taxes -52 -171 -263 — —

Other Non-Cash Adjustments -19 -54 -333 -100 -100

(Increase) Decrease in Accounts Receivable -226 -151 -182 -180 -329

(Increase) Decrease in Inventory -89 -183 -46 -74 -149

Change in Other Short-Term Assets — — — — —

Increase (Decrease) in Accounts Payable 335 30 192 168 339

Change in Other Short-Term Liabilities — — — — —

Cash From Operations 1,619 1,298 1,256 1,976 2,380

(Capital Expenditures) -1,071 -775 -1,051 -1,100 -1,133

Net (Acquisitions), Asset Sales, and Disposals 2,084 413 1,105 — —

Net Sales (Purchases) of Investments -51 18 -15 — —

Other Investing Cash Flows -119 17 -2 — —

Cash From Investing 843 -327 37 -1,100 -1,133

Common Stock Issuance (or Repurchase) 18 9 3 — —

Common Stock (Dividends) -288 -145 -289 -287 -287

Short-Term Debt Issuance (or Retirement) -42 -75 9 — —

Long-Term Debt Issuance (or Retirement) -1,820 -859 -151 — —

Other Financing Cash Flows -397 -278 -32 -247 -290

Cash From Financing -2,529 -1,348 -460 -534 -577

Exchange Rates, Discontinued Ops, etc. (net) — — — — —

Net Change in Cash -67 -377 833 342 669

Morningstar Analyst Forecasts

Cash Flow (EUR Mil)

Fiscal Year Ends in December Forecast

Company/Ticker Price/Fair

Value 2013

2013

2013

2013

2013

Holcim Ltd HOLN CHE 0.68 25.4 23.3 17.3 7.2 6.7 5.7 13.6 15.5 11.5 1.3 1.3 1.2 1.2 1.1 1.0

Cemex, S.A.B. de C.V. CX USA 1.10 NM NM NM 10.8 11.4 8.7 231.8 NM 40.9 0.9 1.4 1.4 0.7 0.9 0.8

HeidelbergCement AG HEI DEU 0.70 17.9 15.1 12.4 4.6 3.9 3.5 13.7 10.3 8.7 0.8 0.8 0.7 0.8 0.7 0.7

Average 21.7 19.2 14.9 7.5 7.3 6.0 86.4 12.9 20.4 1.0 1.2 1.1 0.9 0.9 0.8

Lafarge SA LG FR 0.76 26.1 17.3 12.1 8.1 7.6 6.5 67.6 17.8 12.5 1.0 1.0 1.0 0.9 1.0 0.9

Company/Ticker Total Assets

(Mil) 2013

2013

2013

2013

2013

Holcim Ltd HOLN CHE — CHF 3.7 4.2 5.2 4.2 4.9 6.2 5.2 5.5 7.2 2.1 2.3 3.0 2.5 2.9 3.2

Cemex, S.A.B. de C.V. CX USA 496,130 MXN 10.4 21.9 0.7 11.0 23.7 0.7 -7.5 -7.1 -0.6 -2.2 -2.0 -0.2 — — —

HeidelbergCement AG HEI DEU — EUR 4.7 4.9 5.3 8.9 8.9 9.5 4.7 5.3 6.1 2.1 2.4 2.8 0.6 0.6 0.6

Average 6.3 10.3 3.7 8.0 12.5 5.5 0.8 1.2 4.2 0.7 0.9 1.9 1.6 1.8 1.9

Lafarge SA LG FR 37,075 EUR 3.1 4.3 5.5 3.4 4.8 6.2 4.0 6.1 8.2 1.6 2.4 3.4 2.1 1.8 1.8

Company/Ticker Revenue

(Mil) 2013

2013

2013

2013

2013

Holcim Ltd HOLN CHE 19,537 CHF -9.3 8.3 9.0 21.4 14.0 27.7 41.7 9.2 34.0 -2.5 -11.1 24.3 74.4 14.3 12.5

Cemex, S.A.B. de C.V. CX USA 195,661 MXN -0.7 6.7 10.4 26.9 25.8 58.3 -18.8 -6.2 -91.5 35.8 83.4 -93.8 — — —

HeidelbergCement AG HEI DEU 14,236 EUR 1.5 7.5 7.4 0.4 24.6 15.8 100.0 18.1 22.1 -20.7 22.3 11.4 — — —

Average -2.8 7.5 8.9 16.2 21.5 33.9 41.0 7.0 -11.8 4.2 31.5 -19.4 74.4 14.3 12.5

Lafarge SA LG FR 15,198 EUR -3.9 6.6 11.3 -15.0 18.1 23.9 39.1 49.8 43.3 32.5 -41.3 30.1 99.3 -0.6 —

Comparable Company Analysis

These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.

Valuation Analysis

Returns Analysis

Growth Analysis

Price/Earnings EV/EBITDA Price/Free Cash Flow Price/Book Price/Sales

ROIC % Adjusted ROIC % Return on Equity % Return on Assets % Dividend Yield %

Revenue Growth % EBIT Growth % EPS Growth % Free Cash Flow Growth % Dividend/Share Growth %

Last Historical Year

Last Historical Year

Company/Ticker Net Income

(Mil) 2013

2013

2013

2013

2013

Holcim Ltd HOLN CHE 883 CHF 43.7 44.3 46.3 22.7 22.8 24.2 11.3 11.9 13.9 4.5 4.6 5.6 8.5 6.9 8.5

Cemex, S.A.B. de C.V. CX USA -10,834 MXN 31.1 31.6 33.8 16.2 17.0 20.3 7.5 8.8 12.6 -5.5 -4.9 -0.4 0.3 -1.7 2.0

HeidelbergCement AG HEI DEU 602 EUR 41.4 42.9 43.7 17.6 19.2 20.0 11.4 13.2 14.2 4.2 4.7 5.3 5.5 6.9 7.5

Average 38.7 39.6 41.3 18.8 19.7 21.5 10.1 11.3 13.6 1.1 1.5 3.5 4.8 4.0 6.0

Lafarge SA LG FR 601 EUR 22.8 24.2 25.9 20.4 21.7 22.9 13.7 15.1 16.8 4.0 5.6 7.2 1.4 5.4 6.9

Company/Ticker Total Debt

(Mil) 2013

2013

2013

2013

2013

Holcim Ltd HOLN CHE 13,507 CHF 78.2 76.8 74.5 43.9 43.5 42.7 5.5 6.0 7.0 3.0 2.8 2.4 2.4 2.4 2.4

Cemex, S.A.B. de C.V. CX USA 258,251 MXN 174.1 186.9 188.1 63.5 65.2 65.3 1.6 1.8 2.3 8.1 7.3 5.5 3.3 3.6 3.6

HeidelbergCement AG HEI DEU 8,528 EUR 64.9 61.8 58.4 39.3 38.2 36.9 4.3 5.0 5.6 3.4 2.9 2.6 2.2 2.2 2.1

Average 105.7 108.5 107.0 48.9 49.0 48.3 3.8 4.3 5.0 4.8 4.3 3.5 2.6 2.7 2.7

Lafarge SA LG FR 13,696 EUR 94.1 90.3 84.7 48.5 47.5 45.9 2.6 4.3 5.0 4.4 3.9 3.3 2.5 2.5 2.4

Company/Ticker Market Cap

(Mil) 2013

2013

2013

2013

2013

Holcim Ltd HOLN CHE 22,498 CHF 12.11 13.54 15.92 1.07 1.14 1.26 0.85 0.91 1.02 1.09 1.22 1.43 64.2 67.2 56.4

Cemex, S.A.B. de C.V. CX USA 14,490 USD 0.36 0.60 0.65 1.16 1.39 1.52 0.87 1.08 1.19 0.40 0.66 0.71 — — —

HeidelbergCement AG HEI DEU 10,757 EUR 10.97 15.43 20.75 1.32 1.55 1.80 0.94 1.15 1.39 1.49 2.10 2.82 10.9 9.2 7.6

Average 7.81 9.86 12.44 1.18 1.36 1.53 0.89 1.05 1.20 0.99 1.33 1.65 37.6 38.2 32.0

Lafarge SA LG FR 15,602 EUR 11.65 12.84 15.17 1.11 1.17 1.27 0.88 0.93 1.02 1.16 1.28 1.51 48.1 31.9 22.3

Comparable Company Analysis

These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.

Profitability Analysis

Leverage Analysis

Liquidity Analysis

Gross Margin % EBITDA Margin % Operating Margin % Net Margin % Free Cash Flow Margin %

Debt/Equity % Debt/Total Cap % EBITDA/Interest Exp. Total Debt/EBITDA Assets/Equity

Cash per Share Current Ratio Quick Ratio Cash/Short-Term Debt Payout Ratio %

Last Historical Year

Last Historical Year

3 Moat Valuation 3 Three-Stage Discounted Cash Flow 3 Weighted Average Cost of Capital 3 Fair Value Estimate 3 Scenario Analysis 3 Uncertainty Ratings 3 Margin of Safety 3 Consider Buying/Selling 3 Stewardship Rating

their fair value. A number of components drive this rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s intrinsic value based on a discounted cash-flow model, (3) the margin of safety bands we apply to our Fair Value Estimate, and (4) the current stock price relative to our fair value estimate.

The concept of the Morningstar Economic Moat™ Rating plays a vital role not only in our qualitative assessment of a firm’s investment potential, but also in our valuation process.

We assign three moat ratings—none, narrow, or wide—as well as the Morningstar Moat Trend™ Rating—positive, stable, or negative—to each company we cover. There are two major requirements for firms to earn either a narrow or wide moat rating: (1) the prospect of earning above-average returns on capital; and (2) some competitive edge that pre- vents these returns from quickly eroding. The assumptions we make about a firm’s moat determine the length of “eco- nomic outperformance” that we assume in the latter stages

enterprise value and the value of the firm if no future net in- vestment were to occur. Said differently, moat value identi- fies the value generated by the firm as a result of any future net new investment. Our Moat Trend Rating reflects our as- sessment of whether each firm’s competitive advantage is either getting stronger or weaker, since we think of moats as dynamic, rather than static.

At the heart of our valuation system is a detailed projection of a company’s future cash flows. The first stage of our three- stage discounted cash flow model can last from 5 to 10 years and contains numerous detailed assumptions about various financial and operating items. The second stage of our mod- el—where a firm’s return on new invested capital (RONIC) and earnings growth rate implicitly fade until the perpetuity year—can last anywhere from 0 years (for no-moat firms) to 20 years (for wide-moat companies). In our third stage, we assume the firm’s RONIC equals its weighted average cost of capital, and we calculate a continuing value using a standard Morningstar Research Methodology for Valuing Companies

Analyst conducts company and industry research:

Financial statement analysis Channel checks Trade-show visits Industry and company reports and journals Conference calls Management and site visits 3 3

3 3

3 3

Strength of competitive advantage is rated:

None, Narrow, or Wide Advantages that confer an economic moat:

High Switching Costs (Microsoft)

Cost advantage (Wal-Mart) Intangible assets (Johnson & Johnson) Network Effect (Mastercard) Efficient Scale (Lockheed Martin)

Analyst considers past financial results and focuses on competitive position and future prospects to forecast future cash flows.

Assumptions are entered into Morningstar’s proprietary discounted cash-flow model.

The analyst then eval- uates the range of potential intrinsic values for the company and assigns an Uncertainty Rating: Low, Medium, High, Very High, or Extreme.

The Uncertainty Rating determines the margin of safety required before we would rec- ommend the stock.

The higher the uncer- tainty, the wider the margin of safety.

Analyst uses a discounted cash-flow model to develop a Fair Value Estimate, which serves as the foundation for the Morningstar Rating for stocks.

The current stock price relative to Morningstar’s Fair Value Estimate, adjusted for uncertainty, determines the Morningstar Rating for stocks.

The Morningstar Rating for stocks is updated each evening after the market closes.

QQQQQ QQQQ QQQ QQ Q

Fundamental Analysis

Economic Moat

Rating

Company Valuation

Fair Value Estimate

Uncertainty

Assessment

3 Uncertainty Methodology 3 Cost of Equity Methodology 3 Morningstar DCF Valuation Model 3 Stewardship Rating Methodology

* Please contact a sales representative for more information.

Instead, we rely on a system that measures the estimated volatility of a firm’s underlying future free cash flows, tak- ing into account fundamental factors such as the diversity of revenue sources and the firm’s fixed cost structure.

We also employ a number of other tools to augment our valu- ation process, including scenario analysis, where we assess the likelihood and performance of a business under different economic and firm-specific conditions. Our analysts typically model three to five scenarios for each company we cover, stress-testing the model and examining the distribution of resulting fair values.

The Morningstar Uncertainty Rating captures the range of these potential fair values, based on an assessment of a company’s future sales range, the firm’s operating and fi- nancial leverage, and any other contingent events that may impact the business. Our analysts use this range to assign an appropriate margin of safety—or the discount/premium

prices receive our highest rating of five stars, whereas firms trading above our consider-selling prices receive our lowest rating of one star.

Morningstar Margin of Safety and Star Rating Bands

Price/Fair Value 2.75

2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25

Low Medium High Very High*

* Occasionally a stock’s uncertainty will be too high for us to estimate, in which case we label it Extreme.

• 5 Star

• 4 Star

• 3 Star

• 2 Star

• 1 Star

Uncertainty Rating

— 125%

105% — 80% —

— 95%

— 135%

110% —

70% —

— 90%

— 155%

115% —

60% —

— 85%

— 175%

125% —

50% —

— 80%

New Morningstar Margin of Safety and Star Rating Bands as of August 18th, 2011

Our corporate Stewardship Rating represents our assess- ment of management's stewardship of shareholder capital, with particular emphasis on capital allocation decisions.

Analysts consider companies' investment strategy and

valuation, financial leverage, dividend and share buyback

policies, execution, compensation, related party transac-

tions, and accounting practices. Corporate governance

practices are only considered if they've had a demonstrated

impact on shareholder value. Analysts assign one of three

ratings: "Exemplary," "Standard," and "Poor." Analysts judge

stewardship from an equity holder's perspective. Ratings

are determined on an absolute basis. Most companies will

receive a Standard rating, and this is the default rating in

the absence of evidence that managers have made

exceptionally strong or poor capital allocation decisions.

coverage list.

3 Encapsulates our in-depth modeling and quantitative work in one letter grade.

3 Allows investors to rank companies by each of the four underlying com- ponents of our credit ratings, including both analyst-driven and quantitative measures.

3 Provides access to all the underlying forecasts that go into the rating, available through our insti- tutional service.

different lenses—qualitative and quantitative, as well as fundamental and market-driven. We therefore evaluate each company in four broad categories.

Business Risk

Business Risk captures the fundamental uncertainty around a firm’s business operations and the cash flow generated by those operations. Key components of the Business Risk rating include the Morningstar Economic Moat

Rating and the Morningstar Uncertainty Rating.

Cash Flow Cushion

Morningstar’s proprietary Cash Flow Cushion

ratio is a fundamental indicator of a firm’s future financial health The measure reveals how many times a company’s internal cash generation plus total excess liquid cash will cover its debt-like contractual commitments over the next five years. The Cash Flow Cushion acts as a predictor of financial distress, bringing to light potential refinancing, operational, and liquidity risks inherent to the firm.

3 3 3 3 3

3

The higher the rating, the less likely we think the company is to default on these obligations.

The Morningstar Corporate Credit Rating builds on the modeling expertise of our securities research team. For each company, we publish:

Five years of detailed pro-forma financial statements Annual estimates of free cash flow

Annual forecasts of return on invested capital

Scenario analyses, including upside and downside cases Forecasts of leverage, coverage, and liquidity ratios for five years

Estimates of off balance sheet liabilities

These forecasts are key inputs into the Morningstar Corporate Credit Rating and are available to subscribers at select.morningstar.com.

Morningstar Research Methodology for Determining Corporate Credit Ratings

Competitive Analysis

Cash-Flow Forecasts

Scenario Analysis

Quantitative Checks

Rating Committee

A AA

BBB

C

D

BB CC B

CCC

Analyst conducts company and industry research:

• Management interviews

• Conference calls

• Trade show visits

• Competitor, supplier, distributor, and customer interviews

• Assign Economic Moat

Rating

Analyst considers company financial statements and competitive dynamics to forecast future free cash flows to the firm.

Analyst derives estimate of Cash- Flow Cushion

.

Analysts run bull and bear cases through the model to derive alternate estimates of enterprise value.

Based on compet- itive analysis, cash-flow fore- casts, and scenario analysis, the analyst assigns Business Risk.

We gauge a firm’s health using quantitative tools supported by our own backtesting and academic research.

• Morningstar Solvency Score

• Distance to Default

Senior personnel review each company to determine the appropriate final credit rating.

• Review modeling assumptions

• Approve company-specific adjustments

AAA Extremely Low Default Risk AA Very Low Default Risk

A Low Default Risk BBB Moderate Default Risk

BB Above Average Default Risk B High Default Risk

CCC Currently Very High Default Risk CC Currently Extreme Default Risk

C Imminent Payment Default D Payment Default UR Under Review UR+ Positive Credit Implication UR- Negative Credit Implication

AAA

a credit committee of at least five senior research per- sonnel reviews each preliminary rating.

We review credit ratings on a regular basis and as events warrant. Any change in rating must be approved by the Credit Rating Committee.

Investor Access

Morningstar Corporate Credit Ratings are available on Morningstar.com. Our credit research, including detailed cash-flow models that contain all of the components of the Morningstar Corporate Credit Rating, is available to subscribers at select.morningstar.com.

measure focuses on the future cash-generating performance of the firm derived from Morningstar’s proprietary discounted cash flow model. By making standardized adjustments for certain expenses to reflect their debt-like characteristics, we can compare future projected free cash flows with debt-like cash commitments coming due in any particular year. The forward-looking nature of this metric allows us to anticipate changes in a firm’s financial health and pinpoint periods where cash shortfalls are likely to occur.

Morningstar Solvency Score

The Morningstar Solvency Score

is a quantitative score derived from both historical and forecasted financial ratios.

It includes ratios that focus on liquidity (a company’s ability to meet short term cash outflows), profitability (a company’s ability to generate profit per unit of input), capital structure (how does the company finance its operations), and interest coverage (how much of profit is used up by interest payments).

Distance to Default

Morningstar’s quantitative Distance to Default measure ranks companies on the likelihood that they will tumble into financial distress. The measure is a linear model of the percentile of a firm’s leverage (ratio of Enterprise Value to Market Value), the percentile of a firm’s equity volatility relative to the rest of the universe and the interaction of these two percentiles. This is a proxy methodology for the common definition of Distance to Default which relies on option-based pricing models. The proxy has the benefit of increased breadth of coverage, greater simplicity of calculation, and more predictive power.

For each of these four categories, we assign a score, which

we then translate into a descriptive rating along the scale

of Very Good / Good / Fair / Poor / Very Poor.