Vicat is a leading cement producer in Europe and emerging markets. The presentation discussed Vicat's business overview, investment programs, valuation, and risks. Key points include that Vicat has a quality management team, is increasing capacity in emerging markets, and trades at a discount to peers despite having stronger earnings power. While the industry faces risks from recession and overcapacity, Vicat is well-positioned due to its diverse markets and focus on efficiency gains.

1. VALUE INVESTING IN EUROPE
DON FITZGERALD, CFA
dfitzgerald@tocquevillefinance.fr
Fund Manager, Tocqueville Value Europe
6th Annual Value Investing Seminar
Molfetta, Italy July 14-15, 2009

2. Tocqueville Finance
Tocqueville Finance & investment philosophy
Some investing principles re-visited
Case study: Vicat
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3. Tocqueville Finance

4. Tocqueville Finance
Established May 1991
(AMF [French Financial Securities Regulator] approval No. GP 91-12)
International footprint - France, Switzerland, USA
Independent company with capital divided between European (92%)
and US (8%) shareholders
2 business lines: Asset Management and Private Wealth Management
53 staff in Paris and 8 in Geneva
€1.5bn of assets under management at 30/6/2009
A range of 9 funds
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5. The investment philosophy
Fundamental analysis of companies based on a bottom-up approach
No geographical or sector bias
Non-benchmarked, contrarian, value-oriented approach
Interest in all market caps
• History of expertise in small and medium caps (€ 100 m - € 5 bn)
Low portfolio turnover
Marginal use of derivatives (covered calls…)
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6. The investment philosophy
Profile of stocks in which we invest
Quality companies we understand
• Unique & durable market position
• History of improving margins and return on capital employed
• Sound balance-sheet structure
• Quality management or replacement of disappointing team
Stocks undervalued in relation to intrinsic value (probable transaction value)
• Company generating high cash flows: high FCF yield
• Candidate for corporate activity: sum of the parts vs market value
• Turnaround situation
• Optimisation of capital structure: significant cash surplus
Stocks of companies out of favour with or forgotten by the market
• Historically weak stock-market price
• Succession of profits warnings
• Illiquid & ill-covered
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7. The investment philosophy
Performance of Ulysse since creation
Past performance is no indication of future performance. Performance is not constant over time
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8. Some investing principles re-visited

9. Some investing principles re-visited
Carry cash ...
“Holding cash is uncomfortable but not as uncomfortable as doing something stupid”
W. Buffett
… and be patient
… But remain alert
Continuous review – Add where fundamentals are intact & cull value traps
Discipline to sell when value is “outed”
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10. Some investing principles re-visited
Be humble not dogmatic
Don’t confuse a bull market with being a super-investor
Balance conviction with humility
If facts change or new facts emerge that challenge investment, take action
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11. Some investing principles re-visited
How to get most out of Management Meetings
Some “Dos”
Use meetings to understand barriers to entry, competitive advantage & company
strategy, alignment of shareholder interests
Complement/cross-check insights with other sources
Judge by actions not words
Some “Don’ts”
Search for information that confirms your investment case
Expect management to pick economic turning points
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12. Some investing principles re-visited
Try to have basic understanding of cycles …
Credit/ Liquidity – cost, availability & terms
• For financials, corporations, households & sovereigns
Industry Economics – supply, demand, capacity utilization, etc.
Sentiment – Irrational exuberance & hubris to gloom to doom
"Buy when there's blood in the streets,
even if the blood is your own and sell to the sound of trumpets."
Baron Nathan Rothschild, 19th Century
Identify bubbles (and inverse bubbles) in earnings, valuation multiples and sentiment
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13. Some investing principles re-visited
… But precisely predicting the future is a waste of energy
“Better to be roughly right than precisely wrong”
John Maynard Keynes
Macro variables
Economy, inflation, interest rates, FX rates, sector bets, political interference etc.
Micro variables
Price, volumes, gross margin, SG&A, tax rate etc.
EPS more volatile than intrinsic value
Focus on where consensus thinking is wrong
Use price volatility arising from short term trading noise, quarterly EPS revisions,
sector rotation etc. to optimize your entry & exit point
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14. Some investing principles re-visited
Understand different layers of Leverage
Investor level – amongst shareholders of your (potential) investments
At level of corporation’s clients and supply chain
Concealed leverage at company level
e.g. lease obligations, defined benefit pension obligations etc.
On pensions
• Gross assets vs gross liabilities not net position
• Are you investing in an operating business or an investment company that also
controls an industrial company?
• Accounting Liability – Challenge key assumptions regarding life span of retirees,
discount rate
• Is statutory liability disclosed
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15. Some investing principles re-visited
We should all be better Investors after our experiences in 2008
“Experience is not what happens to you
It's what you do with what happens to you.”
Aldous Huxley
But we’ve had several boom bust cycles in last 20 years
1980s Japan, 1990s Tech, 2000s Structured credit, real estate etc.
Understand both fundamentals & psychology
What is next bubble?
Guiding principal “Price is what you pay. Value is what you get” not seducing story
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16. Case Study: Vicat

17. Case Study: Vicat
Company Overview
Leader in South East France and strong regional positions in mature markets (Western
Switzerland, California, South East USA) and in emerging countries (Western Africa,
Egypt & Turkey)
Vertically integrated - 2/3 cement, 1/3 aggregates / RMC
Modern production base & cautious acquisition strategy
60% family controlled. Free float increased from 5% to 40% in 2007
Strategy - use group cash-flow to improve vertical integration, diversify from home
base and increase exposure to faster growing markets
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18. Case Study: Vicat
Cement Industry
Uses - housing, commercial construction, infrastructure, RMI
High weight to value
Producers concentrated vs customer base, limited substitutes
Barriers to entry
• Ownership of quarries / environmental constraints
• Capital intensity
• Geographic / Transport costs
• Control over import terminals
• Vertical integration
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19. Case Study: Vicat
Cement Plant, Montalieu, France
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20. Case Study: Vicat
Extracting & crushing aggregates at quarry, Maizieres France
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21. Case Study: Vicat
Concrete Plant, Turkey
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22. Case Study: Vicat
Business overview
Supply /
Market % of sales Market Share C A R Producers Imports Comments
Demand
• Demographics
Terminals
France • • • 4 Balanced • Limited housing
controlled
bubble
• Western border
Switzerland • • • 3 Balanced Landlocked • Alpine
• No housing bubble
• Infrastructure
South-East Distance
• • 6 Balanced deficit
US from sea
• Integrate vertically
Terminals • Demographics
California • • 7 Normally deficit
controlled • Integrate vertically
Key : C : Cement / A : Aggregates / R : Readymix concrete
Source : company filings, industry reports
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23. Case Study: Vicat
Business overview
Supply /
Market % of sales Market Share C A R Producers Imports Comments
Demand
Senegal Exports Mali,
• • 2 Deficit • Limestone rare
(West Africa) Mauritania
Fragmented,
Turkey • • • Surplus Exports Russia, Syria • Lowest cost producer
volatile
Will move • Regional leader
Medium Deficit moving to
Egypt • from importer Sinai
concentration surplus
to exporter • Low cost energy
Key : C : Cement / A : Aggregates / R : Readymix concrete
Source : company filings, industry reports
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24. Case Study: Vicat
Management
Alignment of interests - Allocate capital with care, no dilutive option programmes
All growth self-financed
Conservative capital structure – net debt ca 1.6x EBITDA
Long term approach – secure reserves of ca. 100 years for limestone / clay & 30 years
for aggregates
Efficient operator – production per employee, ROCE, alternative energy
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25. Case Study: Vicat
Investment Programme - Efficiency Gains
Increase portion of alternative fuel sources from 14% to 23% and other measures to
reduce energy costs per tonne by ca. 10% (ca. 1% of sales)
Less external procurement, reduced logistics & maintenance costs (ca. 1% of sales)
Further EUR 50m cost savings announced in Q4 2008 - of which ca. EUR 20m relate
to fixed costs => sustainable margin improvement of ca. 1% p.a.
All in all we estimate these measures, ceteris paribus, relutive to margins by ca. 3%
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26. Case Study: Vicat
Investment Programme – Capacity Additions
Ca. 50% increase in capacity from 2006 to 2012. Biased towards emerging countries
Estimate increase in sustainable earnings power from new capacity at existing sites at
least EUR 130m of EBITDA p.a.
Developing markets move from ca 25% to 35% of EBITDA
CEMENT CAPACITIES (m tonnes) 2006 2007 2008 2009 2010 2011 2012
France 6,0 6,4 6,8 6,8 6,8 6,8 6,8
Switzerland 0,9 0,9 0,9 1,2 1,2 1,2 1,2
USA 2,1 2,1 2,1 2,1 2,1 2,1 2,1
Turkey 3,7 5,3 5,3 5,3 5,3 5,3 5,3
Kazahkstan 1,2 1,2 1,2
India 2,75
Egypt 2,1 2,1 3,5 3,5 3,5 3,5 3,5
Senegal 2,2 2,2 2,2 3,6 3,6 3,6 3,6
TOTAL 17,0 19,0 20,8 22,5 23,7 23,7 26,5
Growth 12% 9% 8% 5% 0% 12%
% Capacity Developing 47% 51% 53% 55% 57% 57% 62%
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27. Case Study: Vicat
Kazakhstan - 60% stake in JV
1.1Mt cement plant due to start operations in 2010
Country recently moved from deficit to surplus but long term growth prospects very
promising
India – 51% stake in JV
5.5Mt cement plant. 2.75Mt is due to start operations in 2012
Fragmented - MNCs already trying to begin move to consolidation
We estimate the combined earnings power of the two JVs at ca. EUR 100m (Vicat share
EUR 55m)
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28. Case Study: Vicat
Valuation
Earnings
Peer Group
Transaction multiples
Balance sheet
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29. Case Study: Vicat
Valuation - Earnings
Current earnings
• 9x 2009 net earnings and 5x EV / EBITDA which should represent trough in
earnings cycle. In 2010 lagged benefit energy price deflation
• Free Cash flow yield before expansionary capex ca. 15%.
Peak 2007 earnings
• 5.8x 2007 net profit; 4.3x 2007 EBITDA
Earnings power in next cycle
• We estimate mid-cycle EBITDA at ca. 600m comparable to 2007 levels
(current EV EUR 2.6Bn). If mid-cycle 2012 – ca. 3.5x EBITDA
• Peak earnings - next cycle
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30. Case Study: Vicat
Valuation - Peer Group
Trades at discount of ca. 20% to peer group despite better pricing power, stronger
balance sheet, superior track record and better medium term growth
Implied value of equity per share ca. EUR 60
EV EV/EBITDA EV/EBITDA
2009 2010
Cemex (USD) 23 307 7,1 6,8
CRH 14 837 6,7 6,6
Lafarge 29 655 7,5 7,3
Holcim (CHF) 35 039 7,9 7,5
Heidelberg Cement 15 433 6,9 6,7
Italcementi 5 533 5,6 5,2
Ciments Français 4 459 4,9 4,6
Cimpor 5 555 9,3 8,7
Titan 2 709 8,1 7,3
Cementir 845 5,6 4,9
Buzzi Unicem 3 193 5,3 4,8
Peers average 6,8 6,4
Vicat 2 623 5,7 5,2
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31. Case Study: Vicat
Valuation - transaction multiples
Industry average 8.7x EBITDA transactions over last 17 years
(Source JP Morgan)
Given family control & cyclical considerations a transaction is unlikely but implied
value of equity is ca EUR 75 per share
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32. Case Study: Vicat
Valuation – Balance Sheet
Ca. 1x book value
Replacement Value of industrial assets
Cement Cost Replacement
Capacity per tonne Value (EUR m)
OECD 8,8 200 1764
Developing 11,8 100 1181
Value - cement capacity 2 945
Value - Aggs & RMC * 511
Implied EV 3456
Implied Value per share 61
* Eur 51M EBITx10
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33. Case Study: Vicat
Key Risks
Prolonged deeper recession
Price Deflation – Mitigated by
• Industry consolidation
• Focus of geared players cash generation not market share
• Capacity utilization comparable to 1990s
• Capacity additions delayed / cancelled
• Limited risk of falling prices for Vicat due to market mix
Antitrust investigations / fines
CO2 compliance costs
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34. Case Study: Vicat
Where we diverge from consensus thinking
Consensus concern industry-wide price deflation – Vicat largely protected
Industry out-of-favour due to negative momentum
Consensus focus on cyclical downturn not through the cycle earnings power.
Next cycle’s earnings power for Vicat higher due to:
• Efficiencies from industrial upgrades
• Increased earnings from capacity additions & JVs
• Possible acquisitions at bottom of cycle
Liquidity
Overexposed to France? Attractive market & diluted over time
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35. Case Study: Vicat
Summary
Cement - reasonable business in cyclical downturn
Vicat:
• Quality operator, proven management, interests aligned with shareholders,
cautious growth strategy
• Balanced portfolio, cash generative oligopolistic businesses & fast-growing
markets
• Underappreciated through the cycle earnings power and earnings growth
• Stable balance sheet & option value to create value from acquiring assets at
bottom of cycle
Status change: Improved diversification & developed vs emerging mix
Value exceeds price
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36. Grazie per la vostra attenzione
Qualche domanda?
... in inglese per favore
Contact:
DON FITZGERALD, CFA
Fund Manager, European Equities
Tocqueville Finance S.A.
Tel. :+33 (0)1 53 77 20 36
dfitzgerald@tocquevillefinance.fr
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