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Highlights of the 2012 NRMCA Industry Data Survey with

Actual 2011 Data

Presented by Pierre G. Villere The Alabama Concrete Industries Association – January 22, 2013


Highlights A Note About These Results ῆFor the first time this year, NRMCA released a Version 2 of the IDS in just the last few weeks, which differs from the Version 1 results presented at ConcreteWorks in September ῆThe numbers presented here therefore may not match previously published results


Highlights ῆ Two years ago, we projected that 2010 would be the worst year in memory in terms of industry volumes and financial performance

We were right… Top line selling price fell by $5.63 per cubic yard compared to 2009, from $96.05 to $90.42


Highlights ῆ But in 2011, the slide in top line selling price fell even further, despite the fact that we believe prices started turning around in the last half of the year ῆ Top line selling price in 2011 only fell by $2.03 per cubic yard compared to 2010, from $90.42 to

$88.39


Highlights ῆ But the operating losses continued, and the industry could not close the gap in its financial performance, almost repeating the operating losses for the industry of $(7.27) in 2010 to‌.

$(7.23) per cubic yard


Highlights ῆ This means the industry has suffered collective losses of….

$(14.43) per cubic yard in just the last two years…


Highlights ῆ In applying simple arithmetic by multiplying the peryard losses by the total yards produced, here are the losses for the last three years: ῆ 2009 - $(793.9) million ῆ 2010 - $(1.87) billion ῆ 2011 - $(1.92) billion


Highlights for a Collective Loss of…

$(4,583,900,000) ….in just the last three years


Highlights ῆ But we believe the last half of 2011 marked a turnaround year for the industry, and that trend has accelerated in 2012 ῆ Volumes increased for the first time since 2005 last year, rising from 257.7 million to 265.7 million cubic yards ῆ Cement prices are moving upward, and significantly in some markets


Highlights ῆ The cement increase are putting pressure on producers in increase concrete prices, which are starting to stick in some markets ῆ CDL drivers and even mixer truck shortages are starting to emerge in certain markets ῆ …. and most importantly, volumes are on the increase


Highlights ῆ The contraction in ready mixed concrete production has finally turned around: ῆ 2005 – 458.3 million cubic yards ῆ 2006 - 456.8 million cubic yards ῆ 2007 - 414.6 million cubic yards ῆ 2008 - 351.7 million cubic yards ῆ 2009 – 258.6 million cubic yards ῆ 2010 – 257.7 million cubic yards ῆ 2011 - 265.7 million cubic yards


Highlights ῆ As recently as September, we were studying the first-half volume run rates and estimated the industry would produce 295 million cubic yards ῆBut volumes tanked in the last four months of the year, and now we estimate…


Highlights

270 million cubic yards ‌ a volume number we haven’t seen since 1994-95


Highlights


Highlights


Highlights ῆ If you recall, the contraction of 201,000,000 cubic yards (peak-to-trough) translated into an estimated 37,400 parked mixer trucks, or 48% of the estimated US mixer fleet at its peak in 2005 ῆ Accurate employment data was difficult to discern, but the drop in volume for ready mixed producers, and on attendant cement and aggregates employment, easily exceeded the six figure mark


Highlights ῆ But that has turned around! ῆ The projected increase of yardage from the trough two years ago of 257.7 million cubic yards to almost 300 million in 2013-14 requires an estimate 8,460 concrete mixers to deliver, and an attendant number of CDL drivers


Highlights ῆ The single biggest concern for the industry is the CONTINUING disadvantage of the Lowest Quartile, which has dramatically accelerated in this recession ῆ In 2011 alone, this segment representing the bottom 25% of the market generated $11.08 per yard in operating losses ῆ This compares to $13.01 in 2010… a small improvement, but still significant red ink


Highlights ῆ In addition, EBITDA losses equaled $4.92 per yard last year, compared to $6.46 in 2010 ῆ While both Operating Profit and EBITDA improved over 2010, the collective losses from this segment are still staggering ῆ Over the last 3 years, this lowest quartile has accumulated $38.88 per yard in operating losses, and $13.29 per yard in EBITDA losses


Highlights ῆ As in the prior two years, this loss is completely attributable to their top line selling price disadvantage…

… . $11.50 compared to the Upper Quartile … .but improved from $13.91 in 2010


Highlights ῆ The mystery is ‌.

how this segment, representing 25% of the industry, has survived


Highlights

???????


Impact of Average Selling Price on Profitability and EBITDA on the Lowest and Upper Quartiles Profit Before ASP EBITDA -$11.08 $93.58 $82.08 -$4.92 $4.01Taxes $8.33 Lower Quartile Upper

$100.00 -$20.00 $80.00 $60.00 $40.00 $20.00 $0.00


Lowest Quartile Historical Profit Before Taxes & EBITDA Profit2006 EBITDA 2011 2010 2009 2008 2007 Before -$11.08 -$13.01 -$10.37 -$4.37 -$4.92 -$6.46 -$1.91 $1.49 Taxes $1.52 $0.81 $6.14 $6.50

-$10.00 -$15.00 $10.00 -$5.00 $5.00 $0.00


Company Demographics Company Size Analysis Lowest Quartile 1

COMPANY DEMOGRAPHICS

2

Number of ready mixed concrete plants

3

Cubic yards of ready mixed concrete sold

4

Cubic yards per plant sold

5

Number of ready mixed concrete truck mixers

6

Cubic yards per truck mixer

7

Average age of truck mixer fleet (months)

8

Number of aggregate hauling trucks

9

Number of cement hauling trucks

10

Distance per roundtrip (miles)

11

Time per roundtrip (minutes)

12

Total roundtrips

13

Total number of concrete truck drivers' hours

14

Delivered cubic yards per hour

15

Variable delivery cost per minute

16

Fixed delivery cost per minute

17

Total delivery cost per minute

Upper Quartile

15

8

594,494

289,203

40,396

37,203

135

64

4,398

4,552

102

106

5

11

8

2

25

26

122

121

590

556

218,871

105,812

2.7

2.7

$0.86

$0.85

0.26

0.23

$1.12

$1.07


Highlights ῆ As we said above, these metrics demonstrate the Lower Quartile are not sub-performers from an operating perspective ῆ The difference is all in the selling price

‌ . $11.50 compared to the Upper

Quartile


Ready Mixed Concrete Production Annual Production (Cubic Yards)

500,000,000 450,000,000 400,000,000 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000


Typical Producer – Annual Cubic Yards 440,799 462,920 442,607 657,035 695,344 866,414 981,828 779,784 2011 2010 2009 2008 2007 2006 2005 2004 Cubic Yards

1,200,000 1,000,000 800,000 600,000 400,000 200,000 0


Typical Producer – Cubic Yards Per Plant 2011 2010 2009 2008 2007 2006 2005 2004 38,650 Cubic Yards 37,675 38,890 49,796 57,920 58,903 66,391 63,115

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0


Typical Producer – Number of Ready Mixed Concrete Trucks 2011 2010 2009 2008 2007 2006 2005 2004 110 108 127 124 150 168 135 99 Mixer Trucks

180 160 140 120 100 80 60 40 20 0


Typical Producer – Cubic Yards Per Truck 2011 2010 2009 2008 2007 2006 2005 2004 4,467 Cubic Yards 4,206 4,098 5,158 5,595 5,784 5,846 5,779

7,000 6,000 5,000 4,000 3,000 2,000 1,000 0


Average Sales Price Per Cubic Yard $88.39 $90.42 $96.05 $94.15 $91.88 $90.31 $80.98 $69.44 $68.04 2011 ASP 2010 2009 2008 2007 2006 2005 2004 2003

$100.00 $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00


Pre-Tax Profit – Dollars Per Cubic Yard 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 ($7.23 ($7.27 ($3.07 $0.20 $6.06 $7.63 $6.14 $2.98 $2.30 $1.58 $3.23 Pre Tax Profit

($1.00) ($2.00) ($3.00) ($4.00) ($5.00) ($6.00) ($7.00) ($8.00) ($9.00) $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00


Price Per Cubic Yard vs Pre-Tax Profit Average Average Price Pre-Tax Per Cubic ProfitYard 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 $88.39 $90.42 $96.05 $94.15 $91.88 $90.31 $80.98 $69.44 $68.04 $67.21 $66.24 $66.48 $65.26 $63.63 $60.80 $59.88 -$7.23 -$7.27 -$3.07 $0.20 Avg.Avg. $6.06 $7.63 $6.14 $2.98 $2.30 $1.58 $3.23 $4.26 $5.27 $4.76 $3.51 $2.89 PricePretax per Cubic Profit Yard

Year

$120.00 $100.00 $80.00 $60.00 $40.00 $20.00 -$1.00 -$2.00 -$3.00 -$4.00 -$5.00 -$6.00 -$7.00 -$8.00 -$9.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00


Pre-Tax Profit - Percentage Of Sales 2011Pre 2010 2009 2008 2007 2006 2005 2004 2003 2000 1995 1990 1985 -8.1% -3.1% 0.2% Tax Profit % 6.7% 8.7% 7.5% 4.5% 3.4% 6.4% 4.2% 2.0% 3.2%

-10.0% 10.0% -2.0% -4.0% -6.0% -8.0% 8.0% 6.0% 4.0% 2.0% 0.0%


Cost vs Price per Cubic Yard 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 $88.39 Avg. $90.42 $96.05 $94.15 $91.88 $90.31 $80.98 $69.44 $68.04 $67.21 $66.24 $66.48 $65.26 $63.63 $60.80 $59.88 $95.84 $97.87 $99.12 $94.22 $86.11 $82.68 $74.84 $66.46 $65.74 $65.63 $63.01 $62.22 $59.99 $58.87 $57.29 $56.99 Avg. Total Price Cost perper Cubic Cubic Yard Yard

$100.00 $95.00 $90.00 $85.00 $80.00 $75.00 $70.00 $65.00 $60.00 $55.00 $50.00


US Ready Mixed Concrete Production vs Profit Per Cubic Yard US Profit/Yd 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Production

500,000,000 450,000,000 400,000,000 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 -$10.00 $10.00 -$2.00 -$4.00 -$6.00 -$8.00 $8.00 $6.00 $4.00 $2.00 $0.00 -


US Production vs Pre-Tax Profit Cubic Average Yards Produced Pre-Tax (in Profit millions) 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 -$7.23 -$7.27 -$3.07 $0.20 $6.06 $7.63 $6.14 $2.98 $2.30 $1.58 $3.23 $4.26 $5.27 $4.76 $3.51 $2.89 266 Avg. 257 351 415 456 458 431 404 390 406 396 391 372 348 329 USPre-Tax Production Profit

$10.00 -$2.00 -$4.00 -$6.00 -$8.00 $8.00 $6.00 $4.00 $2.00 $0.00 500 450 400 350 300 250 200 150 100 50 0


Marginal Contribution by Company Size 2011 2010 2009 2008 2007 Member Under Upper Over 299,999 500,000 100,000 300,000 NRMCA Quartile Typical Lowest cyd 500,000 100,000 Quartile cyd -

$25.00 $20.00 $15.00 $10.00 $5.00 $0.00


Marginal Contribution by Region Mid-Atlantic Northwest Southwest Member Rocky Typical Lowest Upper North Southeastern South Northeastern Great Pacific Mountain Central Quartile NRMCA Central Quartile Lakes 2011 2010 2009 2008 2007

$30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00


EBITDA by Company Size 2011 2010 2009 2008 2007 Over Typical Lowest Under Upper -299,999 500,000 100,000 Member 300,000 500,000 cyd 100,000 Quartile NRMCA Quartile cyd cyd - cyd

-10.0% 16.0% 14.0% 12.0% 10.0% -2.0% -4.0% -6.0% -8.0% 8.0% 6.0% 4.0% 2.0% 0.0%


EBITDA by Region Upper 2011 2010 2009 2008 2007 South North Southeastern Northeastern Great Mid-Atlantic Southwest Northwest Mountain Member NRMCA Quartile Typical Lowest Pacific Rocky Central Quartile Lakes

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%


2011 Typical Producer Average Sales Price Per Yard $88.39 Fixed CST Plant Delivery Other Material Profit $50.38 $19.06 $19.94 -$0.22 -$7.23 $6.46


2011 Upper Quartile Producers Average Sales Price Per Yard $93.58 Fixed CST Delivery Plant Material Profit Other $48.43 $16.61 $18.73 -$0.14 $5.94 $4.01


2011 Lowest Quartile Producers Average Sales Price Per Yard $82.08 Fixed CST Delivery Plant Material Profit Other -$11.08 $48.62 $19.44 $19.02 -$0.30 $6.38


Net Average Sales Price (per cubic yard) 2011$68.04 2010 2009 2008 2007 2006 2005 2004 2003 $88.39 $90.42 $96.05 $94.15 $91.88 $90.31 $80.98 $69.44

$100.00 $95.00 $90.00 $85.00 $80.00 $75.00 $70.00 $65.00 $60.00


Total Raw Material Costs (per cubic yard) 2010 2009 2008 2007 2006 2005 2004 2003 $50.38 $52.70 $53.81 $51.06 $49.82 $44.24 $37.86 $36.98

$60.00 $55.00 $50.00 $45.00 $40.00 $35.00 $30.00


2011: Total Raw Material Costs (per cubic yard) Raw Lowest Upper Typ Materials NRMCA Quartile Quartile $48.43Costs $48.62 $50.38 Member

$60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00


Total Variable Plant Costs (per cubic yard) 2010 2009 2008 2007 2006 2005 2004 2003 $6.46 $6.00 $5.27 $4.80 $4.27 $4.37 $3.83 $4.04

$7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00


2011: Total Variable Plant Costs (per cubic yard) TypVariable Lowest Upper NRMCA Quartile Quartile Plant $5.94 $6.38 $6.46 Member Costs

$7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00


Total Variable Delivery Costs (per cubic yard) 2011$12.91 2010 2009 2008 2007 2006 2005 2004 2003 $19.06 $17.76 $17.35 $17.39 $15.49 $14.80 $14.26 $12.72

$20.00 $19.00 $18.00 $17.00 $16.00 $15.00 $14.00 $13.00 $12.00 $11.00


2011: Total Variable Delivery Costs (per cubic yard) Typ Variable Lowest Upper NRMCA Quartile Delivery Quartile $18.73 $19.02 $19.06 Member Costs

$20.00 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00


Marginal Contribution (per cubic yard) 2011 2010 2009 2008 2007 2006 2005 2004 2003 $12.49 $15.53 $20.00 $17.68 $20.53 $21.42 $18.11 $15.03 $14.11

$24.00 $20.00 $16.00 $12.00 $8.00


2011: Marginal Contribution (per cubic yard) Typ Marginal Lowest Upper NRMCA Quartile Quartile Contribution $12.49 $20.48 $8.06 Member

$25.00 $20.00 $15.00 $10.00 $5.00 $0.00


Total Direct Fixed Costs – Plant (per cubic yard) 2011$3.05 2010 2009 2008 2007 2006 2005 2004 2003 $7.05 $7.80 $7.30 $5.34 $4.10 $3.78 $3.23 $3.26 $8.50 $8.00 $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50


2011: Total Direct Fixed Costs - Plant (per cubic yard) Typ Direct Lowest Upper NRMCA Fixed Quartile Quartile $4.42 $6.89 $7.05 Member Costs - Plant

$9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00


Total Direct Fixed Costs – Delivery (per cubic yard) 2011$3.79 2010 2009 2008 2007 2006 2005 2004 2003 $5.70 $6.63 $6.88 $5.02 $4.55 $4.32 $3.78 $3.73 $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50


2011: Total Direct Fixed Costs – Delivery (per cubic yard) TypDirect Lowest Upper NRMCA Fixed Quartile Quartile Member $4.84 $5.79 $5.70 Costs - Delivery

$9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00


Total Selling Expenses (per cubic yard) 2011$1.30 2010 2009 2008 2007 2006 2005 2004 2003 $1.84 $2.12 $2.16 $1.89 $1.60 $1.49 $1.34 $1.19

$2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00


2011: Total Selling Expenses (per cubic yard) TypLowest Upper Selling NRMCA Quartile Quartile Expenses $1.88 $1.70 $1.84 Member

$3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00


Total General & Administrative Expenses (per cubic yard) 2011$3.73 2010 2009 2008 2007 2006 2005 2004 2003 $4.79 $5.95 $6.14 $4.98 $3.98 $3.83 $3.62 $3.69

$6.50 $6.25 $6.00 $5.75 $5.50 $5.25 $5.00 $4.75 $4.50 $4.25 $4.00 $3.75 $3.50 $3.25 $3.00


2011: Total General & Administrative Expenses (per cubic yard) TypLowest Upper NRMCA G&A Quartile Expenses Quartile $5.11 $4.74 $4.79 Member

$9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00


Total Fixed Costs (per cubic yard) 2011$12.18 2010 2009 2008 2007 2006 2005 2004 2003 $19.94 $22.98 $23.02 $17.75 $14.76 $14.00 $12.28 $12.22

$25.00 $24.00 $23.00 $22.00 $21.00 $20.00 $19.00 $18.00 $17.00 $16.00 $15.00 $14.00 $13.00 $12.00 $11.00


2011: Total Fixed Costs (per cubic yard) TypLowest Upper Total NRMCA Fixed Quartile Quartile $16.61 $19.44 $19.94 Member Costs

$30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00


The Bottom Line – 2010 vs. 2011 Results 2010 Total Sales Total Variable Costs Marginal Contribution

$ $ $

90.42 74.89 15.53

Total Fixed Costs Profit Before Taxes & Other Income/Expense

$ $

Other Income Other Expenses

2011 100.0% 82.8% 17.2%

$ $ $

88.39 75.90 12.49

100.0% 85.9% 14.1%

22.98 (7.45)

25.4% -8.2%

$ $

19.94 (7.45)

22.6% -8.4%

$ $

0.85 (0.67)

0.9% -0.7%

$ $

0.68 (0.46)

0.8% -0.5%

Profit Before Taxes

$

(7.27)

-8.0%

$

(7.23)

-8.2%

EBITDA

$

(0.34)

-0.4%

$

(0.77)

-0.9%


So What Should We Have Learned In This Recession? ῆ Manage risk!!!! ῆ So how do we manage risk in the next recovery? ῆ We apply all the hard lessons of the worst recession in history, and make sure we don’t repeat the mistakes of the last decade, when volumes and profits were robust ῆ Remember, a bubble is exactly that:

A bubble!!!


Key Points of Risk Management ῆ Don’t add to long term debt in the next boom, reduce it ᾶ If business is too good to be true, it probably is

ῆ Be a contrarian – don’t expand at the top of the market ῆ Husband you financial resources, keep your balance sheet strong, and spend the money on discounted assets in the next recession


Key Points of Risk Management ῆ Be wise on capital expenditures and acquisitions ᾶ Strong cash flows have a tendency to makes us fall in love with new equipment or acquisitions

ῆ Review all Mix Designs ῆ Reduce all Fixed Costs by reviewing each line item ῆ Cost out all jobs to assure that each one produces a positive Marginal Contribution


Our Thoughts… ῆ The biggest risks our industry faces as we head into this upturn are: ᾶ the “New Normal” of lower volumes for some time… we just don’t know how long ᾶ Supply shortages will then follow ῆ Cement ῆ Mixer trucks ῆ Personnel


Our Thoughts… ῆ Maintenance CapEx has been on hold throughout the recession, and finances will continue to be strained, as fleet and equipment upgrades are absolutely necessary ῆ Bank credit to our industry is still extremely challenging, making the CapEx requirements even more difficult to handle


Our Thoughts… ῆ The survey results illustrate clearly how significantly volume impacts this industry, and while we can’t quantify the improvement, our sense is that 2012 demonstrated the stable beginning of the turnaround ῆ While we all know there is still a housing hangover, there is a market-by-market improvement in new starts


Our Thoughts… ᾶ And the biggest risk is….

Positioning our industry for profitability… .

… ..aligning our cost structure with the reality of prices in our respective markets


Our Thoughts… ῆ Housing inventories have worked their way through the system in every market and new starts are clearly rebounding, affecting collateral commercial work ῆ But most importantly…

Starts that hovered around 400K per year for 5 years was unsustainable, and shortages are in the headlights!


Our Thoughts… ῆ We are VERY concerned about the Lowest Quartile, as we cannot expect some to survive the massive losses they have accumulated ῆ Consolidation will continue as the construction economy improves, and the total headcount in companies, plants in service, and serviceable rolling stock will be down from their 2005-06 highs


Our Thoughts… ῆ The industry turned the corner in 2012, and we project an increase in volumes to 300 million cubic yards in the 2013-14 timeframe ῆ This is close to 50 million cubic yards more than the trough, raising questions about the ability to handle this growth in an equipment and personnel-constrained industry ῆ For example, 10,000 more mixer trucks are needed to handle this volume


Our Thoughts… ῆ If the growth in GDP, which has been slow but steady, can pick up speed and fuel further employments gains, these positive trends will bolster consumer sentiment and help speed the recovery ῆ While 2012 looks like volume growth will be flat… … ..look for a BIG improvement in 2013


And Finally… ῆ Our industry’s recovery will be a slow and gradual growth cycle that began to take hold in the first half of 2012 ῆ Sometime in the foreseeable future, expect shortages in raw materials, rolling stock, and equipment essential for the next growth cycle… this will emerge market-by-market ῆ By 2015, we expect close to a full recovery, with accelerating growth due to pent up demand


And Finally… ῆ These kinds of growth spurts are not uncommon in our industry, as evidenced by past performance ῆ Take a look at historical gains:


Ready Mixed Concrete Production Annual Production (Cubic Yards)

500,000,000 450,000,000 400,000,000 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000


And Finally… ῆ And as the bullish firm that we are, we say…

By 2014-15-16, get ready for a ride!

strong


And Finally‌

Thank You!


Allen Villere PowerPoint