Presentation to the analysts and investors - Lafarge

Credit: Rudy Ricciotti (Architect) / Jae-Seong E. (Photograph) 

2008 Investor & Analyst Day 

© Copyright 2006, Lafarge SA 

All rights reserved. No part of this document may be reproduced, stored in a retrieval system, translated, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of Lafarge SA. 

Cairo, 1-2 December, 2008

2 

Analyst & Investor Days 

Monday, December 1 

� 12:30 - 14:00 Buffet Lunch 

� 14:00 - 14:30 Keynote address 

Strategic Overview Bruno Lafont 

� 14:30 - 15:30 Lafarge’s Global Portfolio 

Supply / demand: Managing in today’s environment Jean Desazars 

� 15:30 - 16:00 Break 

� 16:00 - 17:00 Lafarge’s Global Portfolio 

Focus: Orascom Guillaume Roux 

& Gérard Kuperfarb 

� 17:00 - 17:30 Innovation initiatives 

Innovation in ReadyMix Gérard Kuperfarb 

� 18:30 Pick up and transfer for dinner

3 

Analyst & Investor Days 

Tuesday, December 2 

� 8:30 - 9:15 Capital Expenditures Jean-Carlos Angulo 

Cement - revised plan 

� 9:15 - 10:30 Excellence 2011 Tom Farrell 

Cost Reduction Program & Isidoro Miranda 

� 10:30 - 11:00 Break 

� 11:00 - 11:45 Open discussion / General Q&A 

� 11:45 - 12:00 Conclusion 

� 12:00 - 12:30 Lunch 

� 12:30 Pick up to the optional site visit or transfer to the airport

4 

Disclaimer 

This presentation may contain forward-looking statements. Such forward-looking 

statements do not constitute forecasts regarding the Company’s results or any other 

performance indicator, but rather trends or targets, as the case may be. These 

statements are by their nature subject to risks and uncertainties as described in the 

Company’s annual report available on its Internet website (www.lafarge.com). These 

statements do not reflect future performance of the Company, which may materially 

differ. The Company does not undertake to provide updates of these statements. 

More comprehensive information about Lafarge may be obtained on its Internet 

website (www.lafarge.com), under Regulated Information.

Keynote Address 

Bruno Lafont 

Chairman and CEO 

2008 Investor & Analyst Day – Cairo, 1-2 December, 2008

6 

Cash Flow Generation – a Continuous Focus 

� The Group will continue to take actions to deleverage in 2009 

� Flexible capital expenditures management 

� Cost reductions 

� Divestments 

€0.9bn 

Free Cash Flow Growth 

€1.4bn 

€1.7bn 

€2.0bn 

2005 2006 2007 Last 12 

months at 

Sept 2008

7 

Orascom Reinforces the Group 

� Portfolio of countries complements the Group’s existing network 

� High margin businesses are delivering results

8 

Foundation Put in Place for Lafarge to be the Best 

� Proven ability of management to adapt and succeed 

€16 bn 

Sales Operating Margin EPS 

€19 bn 

2005 Last 12 

months 

2008 

14.8% 

19.2% 

2005 Last 12 

months 

2008 

€6.39 

€10.27 

2005 Last 12 

months 

2008

Supply and Demand: 

Managing in Today’s Environment 

Jean Desazars 

Executive Vice President, 

Strategy, Development and Public Affairs 


10 

Summary 

� Macroeconomic forces, primarily financing constraints, are 

creating significant business uncertainties across our industry. 

As a result, most producers are curtailing current production 

and slowing cement capacity additions around the world 

� Most markets should still show increases in cement consumption 

in 2009 and 2010 

� There might be some local supply-demand imbalances, depending 

on the speed of implementation of the economic stimulus 

packages already announced by most governments and on the 

ability of the cement industry to adjust production to demand 

� The cement industry already experienced such local imbalances in 

the past, without Lafarge being severely hurt. The size and 

geographical spread of our portfolio of assets as well as our 

successful cement / ReadyMix product differentiation policy of the 

last years should give Lafarge enough flexibility to mitigate the 

impacts of these potential local imbalances on our earnings

11 

Agenda 

I. Supply 

II. Demand 

III. In what conditions could the current slow down 

significantly impact our industry? 

IV. How do we manage the situation?

12 

I – Supply 

� Net actual capacity increases result from a variety of factors 

� Producers try to anticipate or even preempt growth and/or 

modernize obsolete equipment 

� Closure of old production equipment (VSK, wet kilns) 

� Temporary downtime or mothballing capacity 

� Over the last three months, we have seen players accelerating 

the rate of plant closures and delays in launching new capacity 

to adjust to market and financing conditions 

� Taking into account cancellations announced, 

total net supply trends towards 3.1 billion tons in 2009, 

versus 2.9 billion tons in 2007 

� Current capacity additions are concentrated for 2008 and 2009 

in China, India, MENA, and Latin America 

� For 2010, capacity additions are more diversified; 

new suspensions or delays to be expected

13 

World Net Capacities Additions (Year Average) 

World total 

China 

India 

Egypt + Turkey 

Rest of the world 

2008 

110 

70 

18 

5 

17 

2009 

150 

� The capacities for the rest of the world are spread 

among many countries 

� 2010 figure of 67 MT for the rest of the world is likely 

to be revised downwards in the coming months 

75 

26 

10 

39 

2010 

140 

45 

21 

7 

67

14 

Capacity Reduction and Project Delays 

are Accelerating Everywhere 

� United States 

� Brazil 

� Africa 

� Russia 

� Spain 

� Holcim to mothball kilns at Clarksville 

and Dundee 

� Holcim press release 

� Lafarge to mothball Woodstock 

� Holcim to suspend its 2MT expansion project 

� Holcim press release 

� Dangote to cut and delay its investments plan 

for $3.25 bn 

� Sinoma press release 

� Strabag-BaselCement - Russia and Eastern 

Europe - 10 cement plants projects delayed - 

2009-2012 

� Kommersant 

� Eurocement - reduce production - 2009-2010 

� The Moscow Times 

� Sibcement - abandon project to build capacity 

of 7.8mn tons per year 

� Kommersant 

� Cemex - Catalonia - idles two lines 

at Sant Feliu and one line at Alcanar 

� Cemex press release 

� United Kingdom 

� Cemex - Barrington plant closure 

� Cemex press release 

� Lafarge Northfleet plant closure 

Westbury kiln mothball 

� Germany 

� Lafarge to close Sötenich 

� Cambodia/Indonesia 

� China 

� Siam Cement – delay of their expansion plans 

in Cambodia and Indonesia 

� Siam Cement press release 

� 72 cement VSK closures in Xingtai in 2008-2009 

� Chinacements 

� 19 cement firms closures in Shaanxi 

� Digital Cement 

� Guangdong province - 38 million tons old 

capacity closure by 2010 

� Digital Cement 

� Taiwan 

� Southeast Cement and Hsing Ta Cement - 

production cut of 6% 

� Commercial Times

15 

Net Global Cement Supply Evolution 

Lafarge estimates 

Million Tonnes 

2,920 

3.7% 

3,030 

5% 

3,180 

4.5% 

3,320 

2007 2008 2009 2010

16 

II – Demand 

� Demand anticipation is more difficult today 

due to diversity of profiles 

� Translation of GDP growth into construction growth 

� Translation of stimulus programs into construction growth 

� Link between balances of payments 

and capacity to finance construction and infrastructure 

� In a great number of countries, cement demand growth is resilient, 

albeit temporarily lower 

� Other countries have seen markedly slowing growth 

but most of them will benefit from government stimulus programs 

� We are preparing our Group to adjust to demand conditions 

region by region in many different types of scenarios

17 

Americas and Europe 

� North America and Western Europe 

� Significant demand decline in 2009 

� Lafarge will adjust its production accordingly 

� Latin America 

� Mexican surplus increases 

� Sustainable growth for Lafarge in South America 

� Eastern Europe 

� Demand growth varies widely by country 

� Lafarge will adjust its expansion plans accordingly

18 

MENA and Sub-Saharan Africa 

� MENA + Turkey 

� Demand growth rates among the highest 

� Capacity additions to cope with demand growth in most markets 

� Imbalances in Turkey 

� Trading, a key lever for Lafarge 

� Sub-Saharan Africa 

� Strong growth continues 

� No delays in Lafarge’s investment plans

19 

Asia 

� China 

� India 

� Demand resilient, supported by stimulus package 

and lower interest rates 

� End of overheating is favorable 

� Uneconomic capacity closures accelerate 

� Large demand in Sichuan 

� Lafarge accelerates its investment program 

� Significant over-capacity, mainly focused in the Center 

and the North West, mostly landlocked 

� Lafarge, located in the East, continues its investment program 

� South-East Asia 

� Modest growth and continued surpluses, similar to past downturns

20 

III - In What Conditions Could the Current Slow Down 

Significantly Impact our Industry? 

� It would take the combination of 

• An important amount of very low cost homeless tons that are easily transportable 

• And deflationary trends in several markets at the same time 

� However, we see several positive factors offsetting this 

� Demand 

• Price and availability of steel bars makes finished concrete cheaper, spurring growth 

• Backlog of big developers is a sign of resilience : Vinci, Bouygues, Siemens, Alstom 

• Lafarge position strengthened with customer loyalty, branding and innovation 

� Costs 

• Energy costs still historically high, making it difficult to lower selling prices 

dramatically 

• USD evolution increases costs for importers 

• Many players have invested at high costs and with high indebtedness 

• Cost of working capital 

� Supply 

• Cement producers already lowering capacity

21 

III - In What Conditions Could the Current Slow 

Down Significantly Impact our Industry? 

� In any case, the impact is not likely to happen on a global basis in 

our business 

� All tons are not equal 

� Size of the potential surplus will be manageable 

� Locally, we have seen imbalances in the past 

� Today’s conditions do not favor it 

� High production costs will push FOB prices up 

� Financing constraints limit the capacity of cement producers to 

export at marginal costs 

� Similarly, import facilities are more difficult to finance 

� Lack of forex visibility might hamper exporters, traders and potential 

customers 

� Some local situations bear watching

22 

IV- The Strengths of Lafarge Should Enable us to 

Mitigate the Impacts of Potential Local Imbalances 

on our Earnings 

� Strategy and Portfolio 

� 60% of our assets are in the resilient markets category 

� Most of the remainder positioned to benefit from stimulus programs 

� Our worldwide presence dramatically increases our capacity 

to anticipate and react 

� Action plans 

� Cost cutting 

� Re-phasing of our development capex program 

� Accelerating product differentiation through innovation 

� Key role of our trading department combined with mothballing 

� How do we manage? 

� Looking at multiple scenarios, with relevant action plans 

� Remain flexible and ahead

23 

Conclusion 

� Uncertainty is causing cuts in current and future industry capacity 

� Cement consumption will still increase 

� Local imbalances are possible, but we have levers to deal with it 

� Lafarge will stay flexible and ahead

Orascom 

A Major Step for Lafarge 

Guillaume Roux 

Executive Vice President, Cement 


25 

Orascom – A Major Step for Lafarge 

� Early technical issues are behind us 

� Fast and focused integration process 

� Synergies action plans have been implemented 

and will deliver higher results in 2009 than expected 

� Solid market fundamentals combined with Lafarge expertise 

confirm the expected strong cash flow growth 

from ex- Orascom operations

26 

Early Technical Issues Are Behind Us 

� Algeria 

� Late start of CIBA grey / white 

� White and grey export 

� Iraq slow start of Bazian 

� United Arab Emirates 

� Raw mill issues 

Now Fully Solved 

€90M 

Impact on 2008 results

27 


Successful Integration Completed 

� A very fast integration process 

� Connecting the teams 

� Putting safety 

at the top of their priorities 

� Ensuring business results

28 


Successful Integration Completed 

� In 4 months merger process completed 

and key improvement opportunities identified 

� Organizational structure finalized 

� Regional center created in Cairo 

� Synergies implementation started 

Synergies Action Plan Follow Up 

Workstream 

White Cement 

HR & 

Organization 

Key actions 

Status 

�� Provide Pascal Rousseaux with product quality 

�� EN 42.5 required for European markets; 

specifications 

�� Set up a dedicated organization 

production underway 

�� Ensure adequacy of CiBA white cement characteristics to 

Spanish & Italian market requirements 

�� Prepare pre-budget 2009 P&L for all white cement activities activities �� Vol ume forecast incl. operational i nvestment 

underway underway 

�� C ai ro Office Accomodation 

�� H ire an Office, HR and Admin manager 

� The operations are fully in our business cycle 

In ch arge 

�� P.Hoddinott 




�� E.Meuriot 

�� K.Deighton 

Deadlin e 

�� 30/06 

�� Asap 

�� 30/06 

�� 30/6 

�� 31/07 

�� 30/08 

Status

29 

Synergies Have Been Implemented 

and Will Deliver Higher Results than Expected in 2009 

� White cement 

Sagunto 

Tanger 

CIBA 

Tetouan 

Meknes 

Bouskoura 

Volos 

Halkis 

Milaki 

SCC 

Lafarge Cement plant 

x-Orascom cement plant / project 

Lafarge grinding station

30 



� Spain GLA 

� Emirates 

� Iraq 

� Clinker and trading optimization 

� Fixed costs and SG&A 

Va llad o lid 

M ad rid 

� Reliability, blended cement 

Va len c ia 

Ta rra go n a 

LAFARGE FACILITIES 

Cement 

A & C 

GLA FACILITIES 

Cement 

A & C 

Ba rce lo na 

� Reliability, new product development

31 



� Algeria 

� Trading 

� Grinding capacity increase, reliability 

� Meftah integration 

CiBA 

ACC 

Meftah 

� Euromed, East and West Africa Synergies 

Total € 80 M expected in 2009 

€150 M + confirmed for 2010

32 

Solid Fundamentals Combined with Lafarge Expertise 

Will Ensure Strong Cash Flow Generation 

� Solid market fundamentals 

� Managing supply relative to demand 

� Managing costs and margins 

� Taking full advantage of selective growth opportunities

33 

Solid Market Fundamentals 

2008 Market Forecasts Confirmed 

Algeria 

Volumes 

up 9 to 11% 

Prices + 

Iraq 

Volumes up 15 to 20% 

Prices +/++ 

Egypt 

Volumes up >10% 

Prices ++ 

UAE 

Volumes up >20% 

Prices ++

34 

Managing Supply Relative to Demand in this Region 

� Different countries, different situations 

� Careful follow up of the timing of new capacities coming on line 

and their relative cost position 

� Lafarge will use multiple levers depending on the situation 

� Optimize Lafarge’s plant network 

� Optimize our trading flows

New capacity management 

35 

4 MT of planned 

new capacity set aside 

Managing Supply Relative to Demand in this 

Region 

Existing capacities optimization 

2 to 2.5MT reduction in production 

in the region 

Trading optimization 

Optimization of sourcing from 

markets with surplus to relocate 

to markets in deficit 

2008 

2009 

Lafarge Cement plant 

x-Orascom cement plant / projects 

Lafarge grinding station / terminal 

x-Orascom grinding station 

Equity affilliates

36 

Managing Costs and Margins 

� Stable situation in Algeria 

� Stable fuel prices 

� Management of costs 

� Increasing cement production

37 


� In Egypt, managing cost inflation 

� Increase grinding capacity 

� Managing margins 

Apr 99 

Sep 99 

Dec 00 

Nov 01 

June 2006

38 


� In Iraq, taking full potential of the market 

� Improved reliability in production and logistics 

� Offer differentiation 

Lafarge plants 

Main Markets 

Secondary Markets 

Baghdad 

Al Sulaymaniyah

39 


� United Arab Emirates confirms potential 

� Improved reliability 

� Logistics and market optimization 

� The best product offering

Orascom 


Focus on Aggregates & Concrete Development 

Gérard Kuperfarb 

Executive Vice President, Aggregates & Concrete 


41 

Aggregates & Concrete Opportunities 

Our Development Priorities in Emerging Markets 

� Aggregates 

� Develop a deep understanding of local geology and other scarcity 

factors in key markets 

� Master timing of market entry 

• Level of enforcement of environmental and safety regulations, etc 

� Build bridgeheads in attractive markets through greenfields 

• Geology, regulations, demographics 

� Strive for positioning advantage 

� ReadyMix 

� Increase the share of cash generated in emerging markets 

• Continue to develop existing high ROCE BUs in consolidating markets 

• Invest selectively in high-growth countries mainly through internal 

growth 

� (e.g. build on Orascom platform) 

• Manage the transition from primarily project plants to establish 

commercial ReadyMix networks 

• Capitalize on our Value Added Products development “from day 1”

42 

Egypt ReadyMix 

Developing for the Future 

� The Orascom acquisition brings us 

� A strong position in fast growing market 

� A team of experienced professionals 

� An opportunity to promote our emerging market model

43 

Egypt ReadyMix 

Developing for the Future 

� Our objective for 2011 

� More than triple volume, 50% of which will be achieved through 

commercial plants 

� Our actions in 2008 

� Doubling production 

� Building a commercial network 

• 3 commercial plants 

� While growing our mobile offering 

• 6 project plants 

� Continue building 

the HR talent pool 

Sidi Krir 2BP 

Borg El Arah 2BP 

Sugar 

Marasi 

Tebien 2BP 

Koraymat 

Abo Rawash 

Abasia 

Katamya 

Madinty 

Ataba 

El Rehab 

Johayna Sokhna 

Trophy 

Tramway 

Marsa Alam 

Commercial Projects Plants

44 

Algeria – ReadyMix Goals 

� Reach and maintain leadership position in the Algerian market 

� Drive market acceptance of ReadyMix Concrete 

� Maintain a price premium position in the market 

2 

6 

8 

3 1 

10 45 

9 

7 

Sites by end 

of 2008 

Additional sites 

by end of 2009

Orascom 


Focus on Cement, New Potential for Growth 

Guillaume Roux 



46 

Cement – Realizing New Potentials for Growth 

� Saudi Arabia 

� Start up 2010 

� Best market position in the region 

� Low cost, potential expansion 

~1/3 of total market 

~1/3 of total market 

~15% of total market 

47 

Cement – Realizing New Potentials for Growth 

� Syria 

� Start up spring 2010 

� Construction costs optimization 

Abu Shamat

48 


� Early technical issues are behind us: we have reached our run rate 

� Fast and focused integration process: synergies action plans have 

been implemented and 2009 results will exceed initial expectations 

� The management of our expanded network through 2010 

will allow us to extract the full potential of these operations 

A Decisive Acceleration of our Cement Strategy

Leading Through Innovation 

in Ready Mix Concrete 

Gérard Kuperfarb 



50 

Innovation Differentiates Lafarge 

� Concrete is a pillar of Lafarge’s strategy 

� Our innovative approach is unique 

� It generates high return on investment 

� Results are in line with plans 

� It works in all economic times 

� It supports penetration of new markets 

� Pipeline is full of projects

51 

The Rationale for Innovation in Concrete 

Why We Do It 

� Value for our customers 

� Cost savings through reduced time in labor or lower quantity 

of other materials 

� Performance advantages for structural design or architectural 

beauty 

� Value for Lafarge 

� Higher margins 

• Agilia is 10 times more profitable than standard concrete 

� Higher market penetration and customer loyalty 

• The same customers that buy Agilia 

and other specialty products 

will also buy standard concrete 

10 

From Commodity to Value Added Products 

We Know How to Escape the Commodity Trap 

Average 

COI/m 3 

Current Operating Income per m 3 

After specific costs 

X 5 

X 10 

Standard All VAPs Agilia/Artevia 

Progress on Innovative and Value Added Products is key!

52 

An Advantage Unique to Lafarge 

� Concrete has many potentials 

� Hundreds of applications 

� Many properties that can be changed to add value for customers 

� Lafarge approach is unique 

� Lafarge operates the largest research facility of its kind located 

in Lyon, France 

� Our scientific knowledge combined with our understanding of customer 

needs drive innovation 

� We were first to establish international brands 

• Which stand for riskless, innovative 

and specific solution for customers 

3 

Many different uses… 

Multiple customer needs… 

Meeting new environmental requirements… 

Housing 40% 

Commercial 

building 

Non building 

Road 

construction 

… 

Hundreds of different applications 

Individual 15% 

Grouped 

Individual 

Multifamily 

High rise 

… 

Vertical 

Horizontal 5% 

Foundation 

Other shapes 

… 

Large slabs 

Small slabs 

Decorative slabs 

Decks 

Screed 1% 

… 

& 

400/600 mix designs per plant 

Numerous characteristics 

that can be modified and combined 

Rheology 

Shrinking 

Weight 

Color 

Aspect 

Temperature 

sensitivity 

Setting time 

Strengthening kinetics 

Long term Strength 

Longevity 

Insulation capacity 

Thermal ability 

Frost resistance 

Provide as many opportunities for innovation & differentiation 

Differentiation leads to higher prices even on standard products 

…..

53 

Boosting Innovation via TURBO 

� A 5-year vision for Value Added Product penetration 

� Increase by 85% R&D budget between 2006 and 2009 

to accelerate current projects and start new ones 

� Accelerate transfer capability 

• Know-how to implement branded products worldwide 

� Accelerate deployment of innovation throughout the Division 

• ~ 300 people dedicated to the deployment 

• Build and implement solid action plans 

• Track efforts and results monthly

54 

TURBO Works 

� Investments in people and equipment as planned 

� Value Added Product action plans monitored and delivering 

� Results are in line with plans 

� Steep increase of VAP penetration 

� Employees fully mobilized 

Volume of Value-Added Products has increased 18% to 7,9 Mm 3 

� Now representing 25% of total volumes (vs.15% in 2005) 

Total Contribution of Value Added Products up by more than 30% 

� > 40% of COI in ’08 vs. ~ 30% in 2005

55 

Innovation Works in all Economic Times 

� Example of 3 countries facing reduced demand: UK, US, Spain 

• Total volumes declined by 20% 

• The 4 international brands grew by 26% 

• Their market penetration grew from 3.3% to 4.8% 

UK 

Spain 

US East 

US West 

Total volume 

(21)% 

(24)% 

(18)% 

(17)% 

Agilia+ Artevia+ 

Chronolia+ Extensia 

Volumes 

stable 

up 103% 

up 28% 

up 30% 

International Brands Reinforce our Leadership

56 

Continuous Deployment of Branded Products 

in New Markets 

� International brand strategy drives continuous market roll-out 

� The successful example of 

� From 5 countries in 2005 to 20 countries in 2009

57 

Continuous Deployment of Branded Products 

in New Markets Offers Further Opportunities 

� And of

58 

Deployment Acceleration 

of New Products 

� Ramp-up of Chronolia 

� Build on past successes 

� Faster than planned 

� Faster than Agilia in 2000 

• Faster in each country 

• Faster transfer to new countries 

� YTD September 2008 - Overall 40% above plan 

BU 1 BU 2 BU 3 BU 4 BU 5 BU 6 Total 

Plan 2008 YTD 2008

59 

Pipeline is Also Full of New Product Potential 

� Next waves of Innovation will be driven by 30 R&D projects 

� These projects are structured around 2 well defined areas 

� Sustainable construction 

� Specific needs in emerging countries

60 

Leading Through Innovation in Concrete 

� Innovation is proving itself as a powerful strategic lever 

to create value 

� It works 

� It will help in the short term and in the long run 

� It is an opportunity with huge potential going forward 

Lafarge is in a Unique Position 

to Capture the Full Potential of Innovation

Capital Expenditures 

Jean Carlos ANGULO 



62 

Capital Expenditures 

Executive Summary 

� €1 Bn reduction in capital expenditures in 2009 

� Group’s spending including sustaining limited to €2 Bn 

� Large flexibility in execution of programs 

� Projects maintained will be highly profitable 

� A good geographical spread of maintained projects 

� A portfolio of projects

63 

Overview of Group’s 2009 Capex 

� Total capex limited to €2Bn 

� €550M for sustaining capex 

� €1,450M for development 

� Of total development 

� €1,250M for Cement 

� €150M for Aggregates & Concrete 

� €50M for Gypsum 

These figures correspond to our current assessment 

of the situation but we remain flexible

64 

Operation 

P 

O 

S 

T 

- 

A 

U 

D 

I 

T 

4 

Implementation 

C 

L 

O 

S 

I 

N 

G 

Start 

depreciation 

1 

Opportunity 

qualification 

Business case 

Strategy 

S 

E 

L 

E 

C 

T 

I 

O 

N 

Validation 

by 

Division 

2 

Concepts 

& 

feasibility 

study 

C 

L 

E 

A 

R 

A 

N 

C 

E 

Clearance 

At 

Group level 

3 

Project 

design 

A 

P 

P 

R 

O 

P 

R 

I 

A 

T 

I 

O 

N 

Appropriation 

validation 

Capex Projects Approval Process: 

Phase by Phase

65 

Cement Internal Development Plan 

Adapting for Today’s situation 

� Very strict management of our project portfolio 

� Capacity to react very quickly 

� New technical organization fully operational with regional flexibility 

� Our size gives us an advantage 

� Standardization of plant design 

� Relationships with suppliers 

� Costs optimization 

We have re-balanced our project portfolio 

and adapted project schedule to market demand evolution

66 


A Quick Step Back 

Selection of our Capex Projects: our Criteria 

� Cost of investment vs. internal benchmark 

� Comprehensive set of financial criteria 

� ROCE 

� Impact on Group EPS 

� IRR 

� Market demand forecast to adapt project schedule 

to market evolution

67 


Purchasing Strategy 

� Diversification of our equipment purchasing strategy 

� Western supplier turnkey (EPC*) 

� Western supplier (EP*) with local contractors 

� Chinese turnkey (EPC) in China & outside China 

� Chinese (EP) with local contractors 

� Orascom Construction contracting model with Western suppliers 

� Anticipating equipment orders based on the critical path 

� Ordering standardized cement lines 

* EPC: Engineering, Purchasing and Construction; EP: Engineering and Purchasing

68 


Where we Were 

� June 2006: 45 MT internal development plan 

� To start over 2006 to 2010 

� More than 90% in emerging countries 

� December 2007: 15 MT of additional projects from Orascom 

� To start over 2008 to 2010 

� 100% in emerging countries 

A total of 60 MT additional capacity by end of 2010 initially planned

69 


Our Revised Internal Development Plan 

� 15 MT already started 

� of which in 2008: Algeria, Zambia, Ecuador, China (Yunnan) 

� 33 MT to come on stream in 2009 to 2011 

� 6 MT of grinding capacities or debottlenecking of existing lines 

� of which 1MT delayed vs. initial plan to start by end of 2011 

� 18 MT of new clinker lines to come on stream by end of 2010 

� 9 MT of new clinker lines delayed vs. initial plan to start by end 

of 2011 

� All Orascom projects confirmed with the exception of South Africa 

A total of 48 MT additional capacity between 2006 and 2011 

� of which 38 MT end of 2010

70 

Our Revised Cement Internal Development Plan 

Focus on Emerging Markets Reinforced 

Latin America 

2 MT 

* Group share 

Middle East 

& Med.Basin 

12 MT 

Central & Eastern 

Europe 

6 MT 

Sub-Saharan 

Africa 

8 MT 

India + 

Bangladesh 

3 MT 

€4 Bn* for 48 MT Capacity 

100% in Emerging Markets 

China 

15 MT 

South East Asia 

2 MT

71 


Careful Phasing of New Capacities Start Up 

� Initial plan: 60 MT planned by the end of 2010 

� Revised plan: 38 MT will have started by end of 2010 

* Group share 

MT 

� Of which 15 MT already started at the end of 2008 

48 MT will be operating in 2012 

New capacities schedule 2009-2011 

13 

9 

26 

14 

2009 2010 2011 

Capex: ~ €2Bn * to spend over 2009-2011 

10 

Initial plan 

Revised plan

72 


Our Revised Plan Correspond to 48 MT Capacity 

and 32 MT Additional Sales* 

Contributing to 750/850M€ EBITDA*, 12-15% ROCE in 2012 

Additional sales - net (MT)* 

Additional sales (M€)* 

Additional EBITDA (M€)* 

ROCE* after tax 

on assets started up 

* New Capacity after replacement, Group share 

2010 

20 

1,100 

450 

11% 

2012 

33 

2,000 

750 / 850 

12-15%

73 


A Few Examples 

Doubling the Capacity at our DuJiangYan plant 

DJY 3 project already ordered: start up 2010 

Clearance 

Q2 04 

@ 100% 

Capacity addition (MT) 

Investment (M€) 

EBITDA (M€) 

ROCE 

DJY 2 

NTP in Q2 05 

2007: sold out 

First clinker 

in Q3 06 

Clearance 

Q1 08 

2007 

1.4 

30 

7 

16% 

DJY 3 

NTP in Q4 08 

First clinker 

in Q4 10 

2012 

2.3 

89 

16 

12%

74 



Greenfield of 0.7 MT in Zambia 

Clearance Q3 05 

NTP Q2 06 



EBITDA (M€) 

ROCE 

First clinker 

in Q3 08 

2009 

0.8 

81 

27 

21% 

2010 

0.8 

81 

35 

27%

75 



New Line of 0.7 MT in Ecuador 

Clearance Q2 06 

NTP Q1 07 



EBITDA (M€) 

ROCE 

First clinker 

in Q4 08 

2010 

0.8 

84 

18 

14% 

2012 

0.8 

84 

23 

20%

76 

Flexible Process for a Quick Reaction 

� We have revised our plan to carefully match market conditions 

� 15 MT started by end of 2008 generating €110 M additional 

EBITDA* in 2008 

� 33 MT additional capacity to come on stream by end of 2011 

• Of which 23 MT over 2009 - 2010 

� These 48 MT of new capacities built between 2006 and 2011 

to generate €750 M to €850 M additional EBITDA*, 

with 12-15% ROCE 

� New capacities located in the growing and promising markets 

� A portfolio of projects for the future 

* Group share

Cost Reduction Program 

Tom Farrell 



78 

Executive Summary 

� Lafarge will exceed the target of €400 M in 2008 

� The culture has changed at Lafarge 

� Lafarge has a proven methodology that is a strictly adhered to 

� We have already started a new cost reduction program 

Lafarge delivers sustainable savings and these will continue

79 

Lafarge Cost Reduction Program is Important 

in the Current Environment 

� In uncertain times, it is crucial to be able to adapt quickly 

� Adapt our capacity 

� Adapt our spending 

� Identify and eliminate “nice-to-haves”

80 

The 2005-2008 Cost Reduction Program should 

Deliver an Estimated €420 M 

� June 2006: The Group announced a cost reduction 

target of €340 M 

� December 2008: Should reach an estimated €420 M

81 

Cost Reduction Target 2005 - 2008 

All Divisions had Commited to Contribute 

Corporate functions 

Gypsum 

A&C 

Cement 

€340 M 

Debottl. / Cementitious / 

Plant reliability 

Energy / Fuel 

Productivity / 

Maintenance 

SG&A

82 

Each Division Will Exceed its 2005-2008 Target 

Cement 

Aggregates & Concrete 

Gypsum 

Holding 

Inter-Divisions Eliminations 

Total 

Others 

1.0 

Depr 

0.7 

Raw materials 

3.3 

Fixed costs 

2.5 

SG&A 

1.7 

Transport 

1.5 

Energy 

1.5 

2005 

Cost Base 

(Bn€) 

6.5 

5.0 

1.3 

0.1 

(0.7) 

12.2 

Targeted 

savings 

(M€) 

250 

50 

30 

10 

- 

340 

Projected 

savings 

(M€) 

267 

106 

37 

10 

- 

420 

2005 costs: €12.2 Bn

83 

The 2005 – 2008 Cost Reduction Program 

� Has contributed to change at Lafarge 

� The way Lafarge delivers 

� The change is sustainable

84 

The Way Lafarge Operates has Changed 

� Strong mobilization and alignment on cost consciousness created 

in all Divisions down to the operations level 

� Evolution 

� From technical indicators to actual costs 

� From performance to bottom-line results 

� Specific individual commitments / bonus alignment 

� Regular review of commitments at all levels 

� Quarterly at Group level 

� Monthly review by BU

85 

Savings are Delivered Thanks to a Rigorous 

Approach / Methodology 

� Top / down assessment 

� High quality action plans 

� Strict, auditable cost tracking 

capturing positives and negatives 

� Regular management review 

of results at all levels

86 

A Continuous and Sustainable Process is in Place 

� The program is incorporated in the management cycle 

� Using existing tools 

� Using existing operating models 

� New action plans are being developed continuously 

� Frequent management review with standard tracking: 

a fixed base / well established foundation / dedicated team 

at Group level 

� Use of external and internal benchmarking 

� Investments have been made and will continue to provide results 

� Strict attention paid to delta price over cost

87 

Cost Consciousness is Now Well Established 

� Excellent Foundation for Continuous Cost Reduction 

� The Group has launched a new multi-year cost cutting program 

� Commit to cut €400 M cost by the end of 2011 

� And to face the downturn in certain economies, Lafarge 

demonstrates its ability to react quickly 

� By committing to save €120 M in 2009

88 

New Cost Reduction Targets for 2009 - 2011 

€120 M 


Gypsum 

A&C 

Cement 

€400 M 


Gypsum 

A&C 

Cement 

2009 2011 

25 

35 

85 

255

89 

These Further Savings are Made Possible Through 

� The lessons learned from the cost reduction program 2005 - 2008 

� The opportunities are well identified 

� Investments made in 2007 and 2008 that will enable the Group to 

deliver a significant part of the 2009 commitment 

� New ad hoc resources to go beyond “business as usual” 

� Dedicated resources on priority projects 

� Orascom cost synergies

90 

Cost Reduction is Focused on Few Priorities 

Cement A&C 

Solid fuels 

Alternative 

fuels 

Power 

C/K 

Productivity 

Fixed costs 

SG&A 

Aggregates 

Logistics 

Plant 

Standardization 

Aggregates plants 

shutdown 

SG&A 

Gypsum 

Energy 

Reliability 

Logistics 

SG&A

91 

Priorities are Being Converted into Specific 

Objectives 

� Identify BUs with highest potential - these will be supported first 

� Maximize savings ambition by stretching BUs’ initial targets 

� Provide BUs effective support in action plan setting 

and resources planning (people and CAPEX) 

� Make sure key projects are launched in early 2009 

and implemented fast with: 

� Adequate local staffing 

� When needed, project management support from the Divisions

Cost Reduction Program: 

Cement 

Isidoro Miranda 


2008 Investor & Analyst Day – Cairo, 1-2, 2008

93 

Cement Division will Contribute €255 M 

� Variable costs reduction 

� Solid fuel optimization 

� Deliver a step change in alternative fuels 

� Reduce electricity bill 

� Increase volumes while reducing environmental footprint 

� Optimize cementitious consumption 

� Improve productivity 

� Industrial fixed costs through plant mastery 

� SG&A through shared services and standardization

94 

Reduce Energy Bill 

� Opportunities in solid fuels 

� Improve heat consumption 

� Fuel flexibility by shifting to lower grades and sourcing strategies 

� Step change in Alternative Fuels 

� Become a full player on the waste management market 

� Make co-processing an embedded part of our business 

� Reduce electricity bill 

� Power consumption optimization 

� Waste heat recovery and captive power plants

95 

Solid Fuel Optimization: Ashaka (Nigeria) 

� Ashaka plant was operated with heavy fuel oil 

� Fuels shortages and exceptional kiln stoppages 

� Proposed solution 

� Results 

� Integrate backwards with a nearby lignite mine 

� Invest in grinding and fuel conditioning (safety with HV fuels) 

Economics: 

� Investment of 37M€ for grinding shop and mine 

� Fuel bill reduced by 60% and no stoppages with better logistics

96 

Step Change in Alternative Fuels: 

Port La Nouvelle (France) 

Sharp increase in fossil fuels substitution 

(Tires & Solid Shredded Waste) by co-processing at the plant 

Investment of 4.0 M€ 

In waste processing 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

20% 

34% 

2006 2007 2008 

Fuel Substitution 

67% 

160% 

140% 

120% 

100% 

80% 

60% 

40% 

20% 

0% 

- 37% 

2006 2007 2008 

Plant Fuel Cost Pet Coke price 

Next step is to reach and sustain 75% fossil fuel substitution 

+ 52%

97 

Reduce Electricity Bill: Sonadih (India) 

� Consumption reduction 

� Installation of Belt Bucket Elevators for Raw Meal and Kiln Feed. 

� Separator upgrade & expert system for Raw Mill 

� Cost management of kWh 

� Enhancement of operational efficiency of Diesel Generator (DG) 

� Reduction in Contract demand and strict control of Maximum demand by 

synchronizing DG and Grid Power and sale of surplus power 

� Power consumption reduced 

� Increase in kWh/t clinker 

for better clinker reactivity, 

higher production rate 

& environmental control 

� Improved finish mills reliability 

kWh/t cement 

Index 100 in 2005 

110 

100 

90 

80 

70 

60 

50 

Sonadih Power Trend 

2005 2006 2007

98 

Optimize Cementitious Consumption: Poland 

� A strong marketing approach… 

� New product offer 

Index 100 in 2005 

� Focus on Usage quality 

� Innovation across the board 

� Targeting our bag customers 

� Strongly branded 

120 

110 

100 

90 

80 

70 

60 

Cement / clinker 

2005 2008 

� Bringing the following benefits… 

� Cost reduction 

� Improved market share 

� Price Premium 

� Additional capacity 

� Lower CO2 impact

99 

Reduce Fixed Costs and SG&A: 

A Proven Track Record 

� Industrial Fixed costs 

� SG&A 

� In Bouskoura (Morocco), a thorough training program, systematic 

problem solving and strong animation, led to an increase of Kiln 

reliability by 800 basis points and a multiplication by 8 of MTBF * 

from 2006 to 2008 

� North America business and functional departments (interdivisions) 

were to reduce 10-15% of a cost base of ~US$500 M 

� Shared services, standardization and elimination of 

2 management layers delivered US$100 M 

� New actions in France, UK, Central and Eastern Europe and Asia 

* Medium Time Between Failure


Gypsum 

Isidoro Miranda 


2008 Investor & Analyst Day – Cairo, 1-2 1 2 December, 2008

101 

Gypsum Division will Generate €35 M Costs Savings 

� Energy Savings 

� Improve calcining and drying processes 

� Alternative fuels 

� Water loss reduction 

� Electricity optimization 

� Plant Reliability 

� Improve machine efficiency and production quality 

� Logistics Optimization 

� Benefit from our plant network

Index 100 in 2001 

105 

100 

95 

90 

85 

80 

(number of plasterboard lines) 

102 

2001 

(26) 

2002 

(31) 

Energy Savings: Water loss reduction 

� Improve process to reduce water content and energy consumption 

� A response to both cost reduction and environmental challenges 

Water Consumption Energy Consumption 

2003 

(33) 

2004 

(33) 

2005 

(34) 

2006 

(34) 

2007 

(36) 

Sep 08 

(40) 

Index 100 in 2001 

105 

100 

95 

90 

85 

80 

2001 

(26) 

2002 

(31) 

2003 

(33) 

2004 

(33) 

2005 

(34) 

(number of plasterboard lines) 

2006 

(34) 

2007 

(36) 

Sep 08 

(40)

Cost Reduction Program: 

Aggregates & Concrete 

Tom Farrell 


2008 Investor & Analyst Day – Cairo, 1-2, 2008

104 

Aggregates: 4 Main Levers to Reduce Costs 

1 

2 

3 

4 

� Aggregates operating model : ROCK 

� Strong focus on cost management 

• KPI improvement 

• Cost reduction 

• Down to site level 

� Capacity optimization 

� Adjusting capacity to volume decline 

� Reducing fixed costs 

� Logistics improvement 

� Project at Division level 

� First: realize quick wins 

� Then: Build and roll out a ROCK Logistics module 

with KPI, maturity matrix and tool box of best practices 

� Purchasing performance 

� New global contracts 

Levers 

� Increased compliance with existing contracts

105 

1 A Comprehensive ROCK Operating Model 

� Levers 

� Plant efficiency, Labor optimization, Equipment utilization, Maintenance, 

Energy management, Inventory optimization and Mining Plans 

� Topics 

� KPIs 

� Covering the entire Aggregates Land and Manufacturing process 

� Organized in ROCK modules addressing key levers regarding Asset 

optimization, Productivity and Organization 

� In limited number and applied consistently 

� Early indicator of performance improvement 

� Focusing on Uptime and Throughput 

Implementing in a disciplined way

106 

1 

94% 

92% 

90% 

88% 

86% 

84% 

82% 

80% 

Continuous Implementation of ROCK Modules 

Driving KPI Improvement Ambitions 

Across 600 sites 

�Savings levers 

83% 

Uptime and Throughput 

� Reliability improvement via Maintenance Module 

� Reduced downtime via improved feeding of plants 

(Mining Plans and Target Fleet) and organization 

(Micro-organization) 

85% 

Quarry reviews 

Assets Optimization 

(+2 pts) 

88% 

Maintenance 

2008 (+3 pts) 

91% 

Micro organization 

2011(+ 3 pts) 

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

107 

106 

105 

104 

103 

102 

101 

100 

99 

98 

97 

100 

(+1 pt) 

Savings levers 

� Debottlenecking of plants using PERs and Training 

� Improved plant design through standardization 

101 

103 

2008(+2 pts) 

106 

2011(+3 pts) 

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

107 

1 

ROCK Operating Model 

Example of NEUS Aggregates 

Strong Focus on Cost Management 

� Identifying opportunities from 

� Financial analysis of historical costs data 

� Benchmarking of costs and KPIs 

� Setting cost reduction target at site level 

� Expressed in total $ and $ per ton spent 

� Supported by action plans resulting from in depth implementation 

of ROCK modules 

� Rigorous process to follow up on costs 

� Involving key operation managers down to the site level to drive 

accountability 

� With corrective actions to close gaps 

� Including KPIs and action plans driving down costs 

Cost reduction €6 M net of inflation and absolute cost reduction of €1 M

108 

1 ROCK Operating Model 

Example of Follow up Process NEUS Aggregates 

� Weekly monitoring of costs 

� Operations managers and quarry managers 

� Monitoring costs at site level 

� Financial monthly call – day 4 

� BU Manager, Manufacturing Director, Financial Controller , Area General 

Manager and Area Operation Manager 

� Review of P&L and cost tracker at BU, Market and site level 

� Cost monthly review – day 6 

� Manufacturing Director, Area General Manager and Area Operation 

Manager 

� Detailed review of costs by buckets, costs savings, KPIs and action plans 

� One on one monthly cost reduction action planning– day 4 to 10 

� Manufacturing Director and Area operation Manager 

� Decision on corrective actions to reduce costs

109 

2 

Capacity Optimization 

Example of WUS Aggregates 

� Strongly adverse external impacts 

� US economic downturn has depressed BU sales volumes 

by ~ 40% 

� 50% rise in petroleum costs 

� ROCK modules used to reduce costs 

� Quarry reviews 

� Asset optimization 

� Micro-organization 

1,200 

1,000 

800 

600 

400 

200 

Production (K Tons per annum) 

Plant Utilization 

0 

0% 20% 40% 60% 80% 100% 120% 140%

110 

2 Capacity Optimization 

Example of WUS Aggregates

111 

2 


� Rigorous site selection & planning 

� Using “Sales Production Balance” forecasts from ROCK module 

� Results of sales forecasts and inventory levels will determine 

• Which sites to close 

� Rigorous tracking 

• When they should close 

• How long they will be closed 

� Weekly analysis of selected site costs 

� Monthly analysis of variations in “Sales Production Balance” 

� Monthly assessment of Hard Shutdown schedule as a function 

of market demands 

� Monthly verification of planned versus actual savings

112 

2 


Example of UK Aggregates 

� Key Comments 

� Sites classed under ‘C’ are dependant on market conditions in those areas 

� Ongoing site based manning actions are under review

113 

3 

Logistics Improvement 

Quick Wins Cost Savings Methodology 

Cleaning 

Knowing /Organizing 

Transportation 

policy 

To correct discrepancies and to better 

understanding of how and with whom 

we operate 

Optimizing 

To work on our suppliers panel, 

estimate our capacity needs, 

begin contractualisation 

To adjust our needs (logistics reviews), 

find more optimized schemes, introduce 

performance in our contracts with haulers, 

identify the right operational levers 

to realize more performance

114 

3 

Logistics improvement 

Quick wins 

Example of France Aggregates 

5 

4.5 

4 

3.5 

3 

2.5 

2 

1.5 

All the points above the average purchase price 

(the red line is the trend) are discussed. 

The potential gain is calculated (qty * (price paid-average price)) 

0 5 10 15 20 25 30 35 40

Credit: Rudy Ricciotti (Architect) / Jae-Seong E. (Photograph) 


Conclusion 

Tom Farrell 


2008 Investor & Analyst Day – Cairo, 1-2, 2008 

© Copyright 2006, Lafarge SA 

All rights reserved. No part of this document may be reproduced, stored in a retrieval system, translated, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of Lafarge SA.

116 

Conclusion 

� We have the program 

� We have done it already 

� We have the teams and the reward system 

Our goal is to stay ahead of our competitors

Presentation to the analysts and investors - Lafarge

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