September 28, 2007 Europe, Middle East & Africa: Multi-Industry September 28, 2007

Europe, Middle East & Africa: Multi-Industry

Initiating coverage in the Middle East: We select our top ten beneficiaries of the boom

Geared to infrastructure investment Best buy ideas The Middle East is experiencing an economic Emaar Properties ACTION boom, born out of structural reform and Aldar Properties supported by the strong liquidity effects of high 12-month Potential oil prices, low interest rates and a weak US dollar. Union Properties Price price target up/downside Buy list stocks Equity markets, having overshot in 2005, now Emaar Properties Dh10.70 Dh16.2 51% Arabtec Holding Aldar Properties Dh7.35 Dh14.4 96% look inexpensive relative to mainstream emerging Union Properties Dh3.16 Dh5.9 87% Arabtec Holding Dh6.25 Dh8.6 38% markets. Tabreed Tabreed Dh2.43 Dh3.2 32% Tamweel Dh4.0 Dh7.0 75% We initiate coverage of 30 stocks in the UAE and Tamweel Abu Dhabi Nat'l Hotels Dh5.85 Dh7.6 30% Agility KD1.82 KD2.4 32% Turkey, which provide exposure to the theme of Aramex Dh2.55 Dh3.4 33% Abu Dhabi National Hotels Dubai Financial Market Dh3.14 Dh4.1 31% infrastructure development in the region. Our Agility Sell list stocks coverage stocks span sectors including real estate Union Cement Dh4.74 Dh4.0 -16% development, construction, building materials, National Cement Co Dh9.65 Dh8.0 -17% Aramex RAK White Cement Dh2.14 Dh1.9 -11% utilities, mortgage finance, logistics and Gulf Cement Dh6.45 Dh5.4 -16% transportation. Together, they represent over 80% Dubai Financial Market of the non-financial market cap of the Dubai Financial Market and c.40% of the non-financial Best sell ideas stocks of the Abu Dhabi Securities Market that UAE cement sector: can be purchased by non-GCC entities. Union Cement Potential upside is attractive, at c.20% to price National Cement target for the coverage group, and c.50% for our Buy list, on a weighted average basis. We see RAK White Cement downside risks, including the impact of falling oil Gulf Cement prices on regional economies as moderate. Neil Wedlake The Goldman Sachs Group, Inc. does and seeks to do business with +44(20)7552-0158 | [email protected] Goldman Sachs International companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the text preceding the disclosures. For other important disclosures go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not required to take the NASD/NYSE analyst exam.

The Goldman Sachs Group, Inc. Global Investment Research Goldman Sachs Global Investment Research 1 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Table of contents

Overview: We identify top ten beneficiaries of the Middle East boom 4 Middle East economies are booming, while equities look cheap 6 GCC markets appear set for recovery 7 Initiating on UAE markets with a positive regional outlook 9

The macro underpin: Well-oiled economies booming, and diversifying 11

UAE is diversifying rapidly: Real estate takes over from oil as growth leader 23 On-shoring of capital is the driver as diversification takes a new form 26 Will the GCC economies run out of fuel? Our oil view suggests not 28 Potential for currency appreciation to enhance returns 31

Investing in infrastructure: How to gain exposure to the theme 33

Real estate developers: Buy Emaar, Aldar, Union Properties 36

Contractors and materials suppliers: Buy Arabtec 40

Mortgage finance: Buy Tamweel 42

Cement: Sell Union, Gulf, RAK White and National 43

Other sectors: Buy Tabreed, Agility, Aramex, DFM, ADNH 45 We identify stocks with attractive growth at a reasonable price 46 Real Estate company summaries 51 Construction and Materials company summaries 77 Mortgage Finance company summaries 103 Logistics and Transportation company summaries 117 Other UAE company summaries 137 UAE Cement company summaries 157 Turkish Cement company summaries 195 Disclosures 232 The prices in the body of this report are based on the market close of September 26, 2007. We would like to thank Neville Shaw for his contribution to the preparation of this report.

Goldman Sachs Global Investment Research 2 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Overview: We identify top ten beneficiaries of the Middle East boom

We initiate coverage of 22 UAE-listed equities and a further six Turkish stocks, of which we identify ten Buy and four Sell ideas (see Exhibit 1). The Middle East is experiencing an economic boom, born out of structural reform and supported by the strong liquidity effects of high oil prices, low interest rates and a weak US dollar. Nominal GDP growth in the UAE reached 23% in 2006, led by construction and real estate, as economies continued to diversify from the oil sector and invest in new infrastructure.

The theme of infrastructure investment is the unifying thread through our coverage universe, which we believe provides broad exposure to the economic transformation taking place in the region, and the UAE specifically. Our coverage stocks span sectors including real estate development, construction, building materials, utilities, mortgage finance, logistics and transportation.

Equity markets in the region look inexpensive relative to alternative emerging markets (and the developed world) and have showed low or negative correlation to global equities. A combination of strong growth, low valuations and low correlation is highly attractive in any environment, but all the more when global markets (and the oil price) are around all-time highs.

Exhibit 1: Goldman Sachs New Markets Research: Top ten beneficiaries of the Middle East boom Our top ten Buy ideas have average upside to 12-month price target of 50%, while our four Sells have average potential downside of 16%

Market Director's Investment Valuation Potential Multiple Company name Sector cap Price Target price Cut list Methodology upside vs Peers (USD bn) Quartile Emaar Properties Real Estate Developers 17.71 Buy DCF/Adj NAV Dh 10.70 Dh 16.20 51% ;; Aldar Properties Real Estate Developers 3.45 Buy DCF/Adj NAV Dh 7.35 Dh 14.40 96% ;; Union Properties Real Estate Developers 2.39 Buy DCF Dh 3.16 Dh 5.90 87% ;; Abu Dhabi National Hotels Company Hotels 1.15 Buy DCF Dh 5.85 Dh 7.60 30% ;; Arabtec Holding PJSC Construction 1.02 Buy DCF Dh 6.25 Dh 8.60 38% ;; Agility Transportation: Logistics 6.19 Buy DCF KD 1.82 KD 2.40 32% ;; Aramex PJSC Transportation: Logistics 0.76 Buy DCF Dh 2.55 Dh 3.40 33% †† Tabreed Utilities 0.75 Buy DCF Dh 2.43 Dh 3.20 32% †† Tamweel PJSC Financial Services 1.09 Buy WEV/DDM Dh 4.00 Dh 7.00 75% †; Dubai Financial Market Capital Markets 6.84 Buy DCF Dh 3.14 Dh 4.10 31% †; Union Cement Construction: Cement 0.72 Sell DCF/SOTP Dh 4.74 Dh 4.00 -16% :: RAK White Cement Construction: Cement 0.27 Sell DCF/SOTP Dh 2.14 Dh 1.90 -11% :: National Cement Company Construction: Cement 0.73 Sell DCF/SOTP Dh 9.65 Dh 8.00 -17% :: Gulf Cement Construction: Cement 1.25 Sell DCF/SOTP Dh 6.45 Dh 5.40 -16% ::

Source: DataStream, Goldman Sachs Research estimates

Goldman Sachs Global Investment Research 3 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 2: Substantial upside/downside to our Buy and Sell list stocks Exhibit 3: Our coverage is dominated by real estate and construction Potential upside or downside to our 12 month price targets Share of coverage market capitalisation, by sector

6.9 100%

3.1

0.8 80%

24.9

60% 8.6

40%

20% 5.6

0% ALDR UPRO TAML EMAR ARTC TABR ARMX ADNH AGLT DFM RAKC UCC GCEM NCC 3.9 -20%

17.3

-40% Real Estate Construction UAE Cement Turkey Cement Transport Utilities Specialty Finance DFM

Source: Goldman Sachs Research estimates. Source: Bloomberg, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 4 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Middle East economies are booming, while equities look cheap

We believe that Middle East equity markets are set for recovery, as continued strong growth, attractive valuation and improving market access should provide the ingredients for sustained growth from lows earlier this year. In this report we set out the background case for ongoing economic transformation and describe our qualitative and quantitative approaches to identifying our top ten Buy picks in the UAE market, which is home to the exchanges most open to foreign investors.

We recap the views of our economics and oils teams on the drivers of growth in the region: high oil prices and economic transformation and diversification. We reproduce our Economics Research team’s forecasts on Gulf Cooperation Council (GCC) countries’ future growth potential: they forecast a potential windfall to the region from hydrocarbons at over US$5 tn over the next 25 years, in 2006 terms.

Using relatively conservative assumptions, our Economics Research team forecasts that the GCC’s economy by 2050 could be comparable in size to Germany or Italy. Under slightly more aggressive assumptions of high population growth, better use of technology and improving education, the region’s economy could overtake that of the UK and GDP per capita could equal that of the G7 over the same period.

Looking specifically at the UAE, we see evidence of improvement in some of the factors in our Economics Team’s analysis. Very high population growth, through immigration, is immediately raising growth potential, as the economy is certainly not capital- constrained, while simultaneously improving the country’s skill base. The UAE is ,in essence, a reverse of the model of growth we find in most of the BRICs and other emerging economies. Rather than being the beneficiary of developed markets off-shoring capital to exploit labour cost differentials, the UAE is on- shoring its own capital, which in previous cycles would have been invested off-shore, and importing the labour required, both low-cost and high-skill as required.

This flow of capital is augmented by oil prices that are at all-time highs, at least in nominal US dollar terms. Although economies are diversifying rapidly and would not be under fiscal stress unless prices were much lower, the process should be aided by sustained high oil prices in the medium term. The Goldman Sachs view here is also positive. In a recent research paper, our Global Energy Research team raised their forecasts for 2008 and 2009 oil prices to US$80/bbl and US$90/bbl respectively. They believe that energy markets are now in 'phase 2' of a multi-year 'super spike' era, before they fall back to a normalised level. This view supports the rationale of diversifying economies for the longer term and, if true, would suggest that economies will have the capital to invest.

Having set out the economic case, we briefly outline our investment philosophy and the rationale behind our ten Buy list and four Sell list stocks in our launch coverage group. In short, we identify, both qualitatively and quantitatively, those stocks that we believe possess unrecognised sustainability in growth or returns. We believe that the stocks on our Buy list have strong potential to remain or become leaders in their industries and continue to earn superior returns on capital in a region that looks set to remain one of the fastest growing in the world over the foreseeable future.

Goldman Sachs Global Investment Research 5 September 28, 2007 Europe, Middle East & Africa: Multi-Industry GCC markets appear set for recovery

After peak-to-trough corrections of c.55% to April this year, we believe UAE equity markets are attractive. Improved market access and lowering of restrictions on foreign ownership should provide stabilisation to more volatile retail liquidity flows that have historically driven these markets.

Exhibit 4: GCC equity markets have significantly underperformed global, and other emerging markets MSCI indices, rebased to January 1, 2006

EMEA AC World GCC UAE

160

140

120

100

80

60

40

5 6 6 6 6 7 7 7 06 06 06 00 0 0 0 00 00 00 00 00 00 00 007 007 2 2 2 2 2 2 2

8/07/2 8/09/2 0/10/2 30/12/ 10/02/200624/03/2 05/05/2 16/06/2 2 0 2 01/12/ 12/01/ 23/02/ 06/04/ 18/05/ 29/06/ 10/08/2007

Source: Factset, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 6 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

The collapse in equity markets across the GCC region in 2005 to early 2007 has not hindered the region’s economies, with economic growth remaining robust and earnings growth strong, outside the banking sector. This has allowed valuations to retreat to very attractive levels in many instances.

In aggregate, we believe GCC markets are now attractively valued, standing at a discount to EMEA emerging markets on P/E multiples, despite higher ROE, strong medium-term growth prospects, and a lower cost of capital.

Exhibit 5: UAE is the cheapest market in our EMEA coverage on P/E … Exhibit 6: … while its companies generate the highest ROE Our forecast 2009 P/E of our UAE coverage group, relative to I/B/E/S consensus Forecast 2009 ROE of our coverage group, relative to I/B/E/S consensus

16 21

15 20 14

13 19

12

18 11

10 17 9

8 16

7 15 6

n y t ia ca 14 cco ech and da ar yp i AE o z l r g ss fr U r Israel n u Eg A o C Po Jo u R Turkey UAE Hungary Turkey Poland Czech South Israel Russia M H th u Africa So

Source: I/B/E/S, Factset, Goldman Sachs Research estimates. Source: I/B/E/S, Factset, Goldman Sachs Research estimates.

Market volatility has reduced, and we believe that the entry of more foreign institutional funds should help to improve liquidity and reduce further the influence of more volatile retail money on market movement. GCC markets are becoming increasingly ‘on benchmark’. We believe that liquidity would be further enhanced by changes to IPO procedures.

IPOs are pre-funded in most regional markets and (due to high multiples of oversubscription historically) therefore drain substantial liquidity from the market. The Saudi market is moving to a book-building mechanism and we expect other GCC markets to follow suit, improving conditions for equity issuance and secondary trading.

Additionally, a recent decision in the UAE to drop the requirement for companies to offer 55% of their shares in an IPO should remove a substantial disincentive for private companies to go public. Many large private companies are family-owned and have historically shown a reluctance to lose control.

Goldman Sachs Global Investment Research 7 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Initiating on UAE markets with a positive regional outlook

As we show below, the macro environment in the region is highly supportive to equity performance: growth is strong and resilient, interest rates are low, currencies are very well supported and valuations are the lowest in the EMEA region. Upside to many of our Neutral rated stocks is high and, we believe, more susceptible to upward than downward estimate revision.

Exhibit 7: GCC equities experienced an extreme bubble into 2005 Exhibit 8: We believe UAE markets reached their trough in April this year ADSM and DFM indices, rebased DFM and ADSM market performance, year-to-date, indexed

900 130

800 125

700 120

600 115 500 110 400 Index rebased Index 105

300 Index rebased

100 200

95 100

0 90

4 4 5 6 6 6 7 7 0 0 0 0 0 0 0 0 005 0 0 0 0 007 /2 /2 /2 /2 /2 /2 /2 2 /200 7 7 7 7 7 7 85 /2 /27 /2 /2 /2 3/27/200 6 9/27/2004 3/27/20056 9/2 3/2 6/27/20069 2 3 6/27/ 9/27 12/27/2003 12/27/2004 12/27/2005 1 1/2/07 4/2/07 7/2/07 DFM General Index ADSM General Index DFM General Index ADSM General Index

Source: Bloomberg. Source: Bloomberg.

Goldman Sachs Global Investment Research 8 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 9: Goldman Sachs New Markets Research: Middle East coverage universe Valuations at current and 12-month target prices

EV/EBITDA at Dividend Yield at P/E EV/EBITDA3 Dividend Yield EV/GCI5 CROCI/WACC PE at Target Target Target Target Market Potential Company name Price Target price price Investment list cap EV (bn)1 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E upside period (bn) Simple average: Middle East 21.4% 3.78 14.5x 13.4x 11.9x 11.0x 10.6x 8.2x 5.8% 5.9% 7.1% 1.7x 1.6x 1.4x 1.7x 1.6x 1.6x 16.0x 16.7x 14.1x 13.7x 12.3x 11.2x 5.1% 5.1% 5.6% Weighted average: Middle East 45.0% 45.0% 71.79 13.4x 10.9x 8.9x 11.7x 8.9x 7.0x 3.4% 4.8% 9.1% 2.0x 1.7x 1.5x 1.7x 1.7x 2.0x 18.0x 15.8x 12.4x 16.3x 13.0x 10.0x 2.6% 3.4% 5.8% Emaar Properties Dh 10.70 Dh 16.20 12 mo 51% Buy $ 17.7 Dh 72.45 10.1x 8.2x 7.1x 11.0x 7.9x 6.3x 1.0% 1.8% 2.8% 1.6x 1.4x 1.2x 1.7x 1.8x 1.8x 15.2x 12.4x 10.7x 16.1x 11.4x 9.2x 0.7% 1.2% 1.9% Aldar Properties Dh 7.35 Dh 14.40 12 mo 96% Buy $ 3.45 Dh 15.80 4.4x 3.2x 4.8x 5.5x 4.1x 5.8x 5.7% 10.7% 13.6% 1.7x 1.2x 1.1x 1.2x 1.8x 1.3x 8.6x 6.4x 9.3x 9.9x 7.1x 9.8x 2.9% 5.5% 7.0% Union Properties Dh 3.16 Dh 5.90 12 mo 87% Buy $ 2.39 Dh 10.51 13.9x 13.4x 2.5x 24.5x 19.8x 1.4x NM NM 40.1% 1.5x 1.3x 0.9x 1.0x 0.7x 5.0x 25.9x 24.9x 4.7x 42.5x 33.7x 3.5x NM NM 21.5% Abu Dhabi National Hotels Company Dh 5.85 Dh 7.60 12 mo 30% Buy $ 1.15 Dh 3.43 9.1x 10.0x 10.5x 7.4x 7.1x 7.3x 5.5% 5.0% 7.1% 1.6x 1.4x 1.3x 2.5x 2.0x 1.8x 11.8x 13.0x 13.7x 10.2x 9.8x 10.1x 4.2% 3.8% 5.5% Simple average: Real Estate 24.7 9.4x 8.7x 6.2x 12.1x 9.7x 5.2x 4.1% 5.8% 15.9% 1.6x 1.3x 1.1x 1.6x 1.6x 2.5x 15.4x 14.2x 9.6x 19.7x 15.5x 8.1x 2.6% 3.5% 9.0% Weighted average: Real Estate 8.7x 7.0x 5.8x 9.8x 7.2x 5.3x 2.6% 4.7% 13.1% 1.6x 1.3x 1.1x 1.6x 1.7x 2.0x 15.2x 12.8x 10.1x 17.5x 12.9x 8.7x 1.5% 2.6% 7.2% Orascom Construction Industries £E 459.52 £E 462.00 12 mo 1% Neutral $ 16.6 £E 117.01 28.1x 22.0x 14.8x 18.6x 14.1x 10.5x 1.4% 2.3% 5.1% 3.7x 3.0x 2.6x 1.8x 1.8x 2.0x 28.3x 22.1x 14.8x 18.7x 14.1x 10.6x 1.4% 2.3% 5.1% Arabtec Holding PJSC Dh 6.25 Dh 8.60 12 mo 38% Buy $ 1.02 Dh 3.96 12.6x 11.3x 9.5x 9.4x 8.0x 6.7x NM 2.1% 5.0% 2.6x 2.2x 2.0x 2.9x 2.9x 3.1x 17.4x 15.6x 13.1x 13.1x 11.3x 9.5x NM 1.5% 3.6% Bildco Dh 3.80 Dh 4.20 12 mo 11% Neutral $ 0.31 Dh 1.19 13.8x 12.0x 11.0x 13.4x 12.3x 11.9x 6.9% 7.9% 8.7% 1.8x 1.7x 1.7x 1.4x 1.4x 1.4x 15.2x 13.2x 12.1x 14.7x 13.4x 13.0x 6.2% 7.2% 7.8% Aerated Concrete Industries Company KD 0.54 KD 0.60 12 mo 11% Neutral $ 0.38 KD 0.15 10.8x 9.2x 8.6x 16.1x 13.7x 12.9x 6.4% 7.5% 5.8% 1.5x 1.4x 1.3x 0.9x 1.0x 1.0x 12.0x 10.2x 9.6x 17.4x 14.8x 13.9x 5.8% 6.8% 5.2% Simple average: Construction 18.3 16.3x 13.6x 11.0x 14.4x 12.0x 10.5x 4.9% 5.0% 6.1% 2.4x 2.1x 1.9x 1.7x 1.8x 1.9x 18.2x 15.3x 12.4x 16.0x 13.4x 11.7x 4.5% 4.4% 5.4% Weighted average: Construction 25.2x 20.1x 14.1x 17.6x 13.5x 10.3x 1.9% 2.7% 5.2% 3.4x 2.8x 2.5x 1.8x 1.8x 2.0x 27.1x 21.3x 14.6x 18.3x 14.0x 10.6x 1.8% 2.5% 5.0% Union Cement Dh 4.74 Dh 4.00 12 mo -16% Sell $ 0.72 Dh 2.61 12.2x 14.7x 19.5x 9.3x 10.4x 12.6x 6.1% 6.8% 5.1% 1.7x 1.6x 1.6x 1.9x 1.5x 1.2x 10.3x 12.4x 16.4x 7.8x 8.7x 10.6x 7.3% 8.1% 6.1% SCIDC Dh 4.50 Dh 5.90 12 mo 31% Neutral $ 0.58 Dh 1.67 7.1x 10.2x 14.5x 4.8x 6.7x 9.2x 10.5% 9.8% 6.9% 1.5x 1.5x 1.5x 2.6x 2.1x 1.6x 9.3x 13.4x 19.0x 6.7x 9.4x 12.9x 8.0% 7.5% 5.3% RAK White Cement Dh 2.14 Dh 1.90 12 mo -11% Sell $ 0.27 Dh 0.73 25.2x NM NM 13.4x 30.1x NM 3.0% 1.8% NM 1.0x 1.0x 1.0x 0.5x 0.3x 0.0x 22.4x 49.8x 0.0x 11.3x 25.6x NM 3.4% 2.0% NM RAK Cement Dh 2.08 Dh 2.60 12 mo 25% Neutral $ 0.27 Dh 0.83 6.5x 9.7x 13.8x 4.8x 7.0x 9.6x 11.6% 10.3% 7.3% 1.1x 1.1x 1.1x 2.2x 1.5x 1.1x 8.1x 12.1x 17.2x 6.3x 9.1x 12.5x 9.2% 8.3% 5.8% National Cement Company Dh 9.65 Dh 8.00 12 mo -17% Sell $ 0.73 Dh 2.44 21.1x 38.2x NM 17.5x 30.7x NM 3.6% 2.6% 1.2% 1.2x 1.2x 1.2x 0.5x 0.3x 0.2x 17.5x 31.6x NM 14.2x 25.0x 45.3x 4.3% 3.2% 1.5% Gulf Cement Dh 6.45 Dh 5.40 12 mo -16% Sell $ 1.25 Dh 4.67 8.5x 11.3x 15.4x 12.0x 11.5x 15.7x 8.8% 8.8% 6.5% 2.3x 2.2x 2.2x 2.0x 1.9x 1.4x 7.1x 9.5x 12.9x 10.1x 9.7x 13.3x 10.5% 10.5% 7.8% Simple average: Construction: Cement 3.81 13.4x 16.8x 15.8x 10.3x 16.1x 11.8x 7.3% 6.7% 5.4% 1.5x 1.4x 1.4x 1.6x 1.3x 0.9x 12.5x 21.5x 16.4x 9.4x 14.6x 18.9x 7.1% 6.6% 5.3% Weighted average: Construction: Cement 10.2x 13.5x 15.8x 9.4x 11.5x 12.7x 8.4% 8.2% 6.2% 1.6x 1.6x 1.5x 1.7x 1.4x 1.0x 11.2x 17.8x 15.4x 9.7x 13.4x 19.2x 8.5% 8.5% 6.4% Adana Cimento A YTL 9.70 YTL 10.50 12 mo 8% Neutral $ 0.83 YTL 0.42 9.3x 10.2x 11.6x 6.2x 4.3x 5.2x 4.0% 6.4% 5.6% 0.9x 0.8x 0.8x 1.7x 1.3x 1.0x 10.1x 11.0x 12.6x 7.0x 4.8x 5.9x 3.7% 5.9% 5.2% Adana Cimento B YTL 4.68 YTL 5.60 12 mo 20% Neutral $ 0.24 YTL 0.07 6.3x 6.9x 7.9x 6.2x 4.3x 5.2x 5.9% 9.4% 8.3% 0.9x 0.8x 0.8x 1.7x 1.3x 1.0x 7.6x 8.3x 9.4x 8.0x 5.6x 6.7x 4.9% 7.8% 6.9% Adana Cimento C YTL 0.80 YTL 1.00 12 mo 25% Neutral $ 0.85 YTL -0.12 7.8x 8.5x 9.7x 6.5x 4.5x 5.5x 4.8% 7.6% 6.7% 0.9x 0.8x 0.8x 1.7x 1.3x 1.0x 9.7x 10.6x 12.1x 8.8x 6.3x 7.6x 3.8% 6.1% 5.4% Akcansa Cimento YTL 9.35 YTL 10.00 12 mo 7% Neutral $ 1.46 YTL 1.61 14.4x 14.3x 13.0x 11.7x 8.7x 7.9x 3.9% 5.3% 5.8% 1.7x 1.6x 1.5x 1.4x 1.3x 1.3x 15.4x 15.2x 13.9x 12.6x 9.4x 8.5x 3.6% 4.9% 5.4% Bolu Cimento YTL 2.62 YTL 3.70 12 mo 41% Neutral $ 0.28 YTL 0.26 6.9x 7.4x 7.7x 6.7x 4.8x 4.9x 8.9% 11.1% 10.7% 1.6x 1.5x 1.4x 2.8x 2.5x 2.3x 9.8x 10.5x 10.9x 10.2x 7.4x 7.5x 6.3% 7.8% 7.6% Cimsa (Cimento Sanayi) YTL 10.00 YTL 10.70 12 mo 7% Neutral $ 0.99 YTL 1.33 8.2x 9.4x 10.8x 7.8x 6.4x 7.0x 6.9% 8.0% 6.9% 1.2x 1.2x 1.1x 1.5x 1.3x 1.1x 8.7x 10.1x 11.6x 8.3x 6.8x 7.4x 6.4% 7.4% 6.5% Mardin Cimento YTL 7.40 YTL 7.70 12 mo 4% Neutral $ 0.44 YTL 0.51 6.2x 9.0x 10.3x 7.0x 6.9x 7.8x 9.9% 9.2% 8.0% 2.4x 2.4x 2.2x 3.4x 2.4x 2.0x 6.5x 9.3x 10.8x 7.3x 7.2x 8.1x 9.5% 8.8% 7.7% Unye Cimento YTL 6.80 YTL 7.60 12 mo 12% Neutral $ 0.53 YTL 0.58 11.0x 10.0x 10.4x 8.4x 5.8x 6.1x 6.5% 9.7% 9.3% 2.8x 2.5x 2.4x 2.9x 2.9x 2.5x 12.3x 11.2x 11.6x 9.5x 6.6x 6.9x 5.8% 8.6% 8.3% Simple average: Construction: Cement 5.63 8.8x 9.5x 10.2x 7.6x 5.7x 6.2x 6.3% 8.3% 7.7% 1.6x 1.4x 1.4x 2.2x 1.8x 1.5x 10.0x 10.8x 11.6x 9.0x 6.8x 7.3x 5.5% 7.2% 6.6% Weighted average: Construction: Cement 8.8x 9.7x 10.5x 7.9x 6.1x 6.5x 5.9% 7.9% 7.2% 1.5x 1.4x 1.3x 1.9x 1.6x 1.4x 11.0x 11.6x 12.2x 9.4x 7.1x 7.5x 5.3% 6.9% 6.3% Agility KD 1.82 KD 2.40 12 mo 32% Buy $ 6.19 KD 1.80 15.5x 9.0x 6.9x 11.7x 7.6x 5.8x 3.2% 5.5% 7.2% 2.0x 1.7x 1.4x 2.1x 2.7x 2.9x 20.4x 11.8x 9.1x 15.5x 9.9x 7.6x 2.4% 4.2% 5.4% Aramex PJSC Dh 2.55 Dh 3.40 12 mo 33% Buy $ 0.76 Dh 3.26 20.0x 19.2x 16.2x 14.9x 14.4x 12.8x 3.7% 3.9% 4.6% 2.1x 1.9x 1.8x 1.7x 1.6x 1.6x 26.7x 25.6x 21.6x 20.2x 19.4x 17.2x 2.8% 2.9% 3.4% Air Arabia Dh 1.31 Dh 1.20 12 mo -8% Neutral $ 1.66 Dh 3.81 22.2x 23.8x 24.6x 8.6x 7.5x 6.3x NM 1.0% 2.0% 1.3x 1.2x 1.1x 1.5x 1.0x 1.0x 20.4x 21.8x 22.5x 7.3x 6.4x 5.5x NM 1.1% 2.2% Simple average: Transportation 8.62 19.2x 17.3x 15.9x 11.8x 9.8x 8.3x 3.4% 3.5% 4.6% 1.8x 1.6x 1.4x 1.7x 1.8x 1.8x 22.5x 19.7x 17.7x 14.3x 11.9x 10.1x 2.6% 2.7% 3.7% Weighted average: Transportation 16.8x 10.8x 8.5x 11.5x 8.0x 6.3x 3.2% 5.0% 6.7% 1.9x 1.6x 1.4x 1.9x 2.3x 2.4x 20.9x 15.0x 12.8x 14.3x 10.0x 8.0x 2.4% 3.8% 5.1% Tabreed Dh 2.43 Dh 3.20 12 mo 32% Buy $ 0.75 Dh 4.85 29.5x 22.9x 20.7x 23.4x 15.9x 12.3x NM 2.2% 3.6% 1.3x 1.1x 1.0x 0.7x 0.9x 1.0x 38.9x 30.1x 27.3x 27.7x 18.6x 14.4x NM 1.7% 2.7% Simple average: Utilities 0.75 29.5x 22.9x 20.7x 23.4x 15.9x 12.3x NM 2.2% 3.6% 1.3x 1.1x 1.0x 0.7x 0.9x 1.0x 38.9x 30.1x 27.3x 27.7x 18.6x 14.4x NM 1.7% 2.7% Weighted average: Utilities 29.5x 22.9x 20.7x 23.4x 15.9x 12.3x NM 2.2% 3.6% 1.3x 1.1x 1.0x 0.7x 0.9x 1.0x 38.9x 30.1x 27.3x 27.7x 18.6x 14.4x NM 1.7% 2.7% AMLAK Finance Dh 3.18 Dh 3.40 12 mo 7% Neutral $ 1.30 - 19.8x 13.7x 10.6x NM NM NM NM NM 2.4% 2.4x 2.0x 1.7x 1.1x 1.3x 1.4x 21.2x 14.6x 11.4x NM NM NM NM NM 2.2% Tamweel PJSC Dh 4.00 Dh 7.00 12 mo 75% Buy $ 1.09 - 14.8x 11.2x 8.5x NM NM NM NM NM 2.3% 1.9x 1.6x 1.4x 1.2x 1.3x 1.5x 25.9x 19.6x 15.0x NM NM NM NM NM 1.3% Oasis International Leasing Dh 1.82 Dh 1.80 12 mo -1% Neutral $ 0.74 - 17.4x 13.3x 11.5x NM NM NM NM 1.9% 4.4% 1.5x 1.3x 1.2x 0.7x 0.9x 0.9x 17.2x 13.1x 11.4x NM NM NM NM 1.9% 4.4% Simple average: Specialty Finance 3.13 17.3x 12.7x 10.2x NM NM NM NM 1.9% 3.0% 1.9x 1.7x 1.4x 1.0x 1.2x 1.3x 21.4x 15.8x 12.6x NM NM NM NM 0.6% 2.6% Weighted average: Specialty Finance 17.2x 12.5x 9.7x NM NM NM NM 1.9% 2.5% 2.1x 1.8x 1.5x 1.1x 1.3x 1.4x 23.2x 16.8x 13.1x NM NM NM NM 1.9% 1.9% Dubai Financial Market Dh 3.14 Dh 4.10 12 mo 31% Buy $ 6.84 - 42.3x 27.2x 20.1x NM NM NM NM 1.8% 3.7% 9.1x 6.8x 5.6x 2.0x 2.4x 2.6x NM 35.5x 26.2x NM NM NM NM 1.4% 2.9% Simple average: Capital Markets 6.84 42.3x 27.2x 20.1x NM NM NM NM 1.8% 3.7% 9.1x 6.8x 5.6x 2.0x 2.4x 2.6x NM 35.5x 26.2x NM NM NM NM 1.4% 2.9% Weighted average: Capital Markets 42.3x 27.2x 20.1x NM NM NM NM 1.8% 3.7% 9.1x 6.8x 5.6x 2.0x 2.4x 2.6x 35.5x 26.2x NM NM NM NM 1.4% 2.9%

2007E 2008E 2009E 2007E 2008E 2009E P/BV ROE/Ke Notes: 1 EV is here defined as average market cap plus net debt plus market value of minorities plus pension deficit plus leases. 2 For EV/EBITDAR, EV is defined as average market cap plus net debt plus market value of minorities plus pension deficit plus leases less market value of associates. Lease payments have been added back to EBITDAR. 3 For EV/EBITDA, EV is defined as average market cap plus net debt plus market value of minorities plus pension deficit less market value of associates. 4 For EV/EBIT, EV is defined as average market cap plus net debt plus market value of minorities plus pension deficit plus leases less market value of associates. Adjusted lease payments have been added back to EBIT. 5 For EV/GCI, EV is defined as average market cap plus net debt plus market value of minorities plus pension deficit plus leases.

Source: Factset, Datastream, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 9 September 28, 2007 Europe, Middle East & Africa: Multi-Industry The macro underpin: Well-oiled economies booming, and diversifying

A recent Goldman Sachs Economics Paper (‘The GCC Dream: Between the BRICs and the Developed World’, Ahmet Akarli, April 17, 2007) concluded that strong global energy demand, particularly from BRICs and N11 nations, is likely to secure a windfall for GCC countries of US$4-5 tn (in 2006 dollars) over the next 25 years. With continued structural reform and increased investment, GCC per capita incomes could exceed those of the G7 by 2050. This chapter is extracted from that report.

Oil windfall comes as a blessing for the GCC region GCC economies have clearly benefited from the surge in global energy prices in recent years. The massive oil and natural gas windfall has allowed GCC economies to improve their overall net foreign asset and fiscal positions over the past four years, and post strong, investment-driven economic growth. Regional current account and budget surpluses soared to 30% and 23% of regional GDP in 2006, respectively, and economic growth rebounded strongly to an estimated 7% in 2006 – well above the 3.5% average for 1990-2002.

This robust economic performance is likely to continue uninterrupted in the next few years, as the region continues to benefit from high energy prices, which will be reinforced by a combination of strong demand growth and supply-side constraints. But what is more interesting from our perspective is the region’s longer-term economic potential. Not surprisingly, the region’s growing importance in energy markets and as a supplier of capital to the rest of the world is commonly acknowledged and widely discussed. What is less clearly appreciated, however, is the ongoing economic transformation of the Gulf region and its long-term economic potential. The region is becoming an economic power to be reckoned with. The GCC currently boasts a GDP level of about US$735 bn, comparable to that of such sizeable economies as Mexico (US$810 bn), Australia (US$745 bn) and the Netherlands (US$665 bn). Average regional per capita income is also fairly high at US$20,500, and ranks 27th on a global scale, just after New Zealand (US$24,500), Greece (US$22,000) and Cyprus (US$21,000), and above Israel (US$20,000), Portugal (US$18,000) and Korea (US$18,000).

But we believe that the region has a lot more to offer as it continues to benefit from strong global energy demand growth in the coming decades. Rapid economic development of the BRICs and N-11 economies will exert considerable pricing pressure on global energy markets, especially in the coming 10 to 15 years. This strong demand-side stimulus will, in turn, secure an (extra-normal) oil and natural gas windfall for the GCC, allowing the region’s economies to sustain very high investment levels and generate strong, welfare-enhancing economic growth in the coming decades.

The region’s economic convergence process is unlikely to be as explosive as that of the BRICs or some leading N-11 economies. Certain economic rigidities, political constraints and general regional instability will likely continue to prevent the GCC from realising its full economic potential. But with a little extra effort, placing more emphasis on improving the overall investment climate and facilitating strong total factor productivity growth, we believe the GCC can emerge as one of the most prosperous regions in the world in the coming decades.

Goldman Sachs Global Investment Research 10 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

GCC ideally positioned to benefit from rising energy demand As is commonly known, the GCC region is exceptionally well-endowed with crude oil and natural gas reserves and, as such, it will continue to play a crucial role in global energy production in the coming decades.

Currently, the region’s proven oil reserves stand at 484.3 billion barrels and natural gas reserves at 41.4 trillion cubic meters – accounting for 40.3% of the world’s proven oil and 23% of natural gas reserves, respectively. The region produces roughly 6.7 billion barrels of crude oil and 195.9 billion cubic metres of natural gas every year. So, even if production levels were to rise substantially through time, the vast natural resource base of the GCC region would still be sufficient to comfortably sustain steady oil and natural gas production for a long time.

More importantly perhaps, the GCC is set to capture an increasingly large share of the global energy pie in the coming decades. The region’s share of global oil (22.8%) and natural gas production (7.1%) is currently below its share of proven reserves, which suggests that going forward the GCC will contribute increasingly to global oil and natural gas supply. The IEA estimates that during 2005-2030 roughly 38% of the projected increase in the global oil supply will come from the GCC region, with regional production growing 72%. GCC natural gas production is also projected to grow rapidly, by more than 200%, during the same period, accounting for roughly 46% of the total projected increase in global natural gas supply.

Exhibit 10: The GCC nations account for 22 percent of global oil output … Exhibit 11: … but almost twice that share of future reserves 2005 production Share of estimated reserves, 2006

1% 3% 1% 8% 0% 1% 14%

3% 22%

61%

8% 78%

Kuwait Oman Qatar Saudi Arabia United Arab Emirates Rest of World Kuwait Oman Qatar Saudi Arabia United Arab Emirates Rest of World

Source: BP. Source: BP.

Goldman Sachs Global Investment Research 11 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

That said, it will be quite a challenge to increase the region’s production capacity at a pace that would match the world’s growing demand for energy, and considerable capex will be required to bring new capacity on stream. The region’s crude oil reserves are abundant but some of the giant oil fields in the region are aging gradually, with natural ‘decline rates’ approaching 12% pa in places. Likewise, the region (especially Qatar) boasts some of the largest natural gas reserves in the world, but considerable investment is needed to bring existing reserves into use.

The IEA estimates the total capex needed to sustain a steady 2.2% pa increase in crude oil and 5.6% increase in regional natural gas production at roughly US$650 bn (measured in 2006 prices) in the coming 25 years.

This is a substantial figure, but the GCC governments see further opportunities building in the global economy. They understand the importance of providing affordable energy sources for the overall health of the world economy, and are matching production to growing demand and committing considerable resources to capacity expansion.

Besides this, financing is not as pressing a problem for the more prosperous GCC region as it is for some of the less developed African, Middle Eastern and Central Asian energy producers. The latter are subject to more serious sovereign risks and do not enjoy the financial means available to the more prosperous GCC economies. They also face much higher extraction costs upstream.

The likelihood of serious ‘investment failure’ remains relatively limited in the GCC – hence, the region will most likely consolidate its lead as the world’s prime energy exporter. This implies sustained and increasing oil and natural revenue inflow into the region, probably well beyond what we have seen in previous decades.

GCC’s cumulative energy windfall could reach US$5 tn in the next 25 years To put the region’s long-term windfall potential into some quantitative perspective, we projected GCC oil and natural gas revenues going into 2030. We developed two scenarios: base and the historical trend. Our base scenario more or less captures the picture we depict above: i.e., sustained, strong global demand for carbon-based fuels, coupled with robust capex growth, and steady capacity expansion. We set all parameters in line with our global energy demand forecasts. More specifically, we assume that oil and natural gas exports from the region will grow on average by 2.5% and 5.5% pa during 2005-2030, consistent with our global energy demand growth projections.

We set the average oil price at US$48/bbl, above the US$35/bbl post-war average (both measured in 2006 prices). We basically assumed that prices would prove ‘sticky’ in the coming 15 years, due mainly to strong demand growth and supply-side constraints. Beyond 2020, we assumed that the pressure would ease as new production capacity comes on stream and as demand pressures moderate somewhat, allowing the oil price to retreat gradually towards US$40/bbl. We assumed US$1.2 tn capex (measured in 2006 prices) during the forecast period, well above the US$650 bn projected by the IEA. As such, we accounted for potential supply- side challenges involved in raising production levels to match growing demand.

The oil and natural gas revenues projected under the base policy scenario, measured in NPV terms (using a discount rate of 6.5%), reach a cumulative US$5.1 tn in the base scenario, significantly higher than the US$3.6 tn implied by the historical trend scenario.

Goldman Sachs Global Investment Research 12 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 12: Revenues from hydrocarbons could total US$5 tn by 2030 Exhibit 13: Population growth absorbs some of the windfall Population growth by emirate, percent

10.0

6000 9.5 The windfall over and above historical trend revenues 9.0 5000 amounts to a NPV of $1.5tr in the base scenario 8.5

4000 8.0

7.5 3000 7.0

2000 6.5

6.0 1000 5.5

0 5.0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2001 2002 2003 2004 Base Scenario Historical trend Abu Dhabi Dubai

Source: IEA, Goldman Sachs Economics Research estimates. Source: IMF, UAE MoE.

Population growth is expected to remain fairly robust throughout the region during the forecast period, so there will be more GCC citizens to share the windfall in the coming decades. But, reducing our forecasts to per capita terms does not change the picture fundamentally. Specifically, our projections put the cumulative per capita oil and natural gas export revenue (again measured in NPV terms) at US$115,500 in the base scenario, well above the relatively modest US$84,250 implied by our historical trend scenario. Note that regional (nominal) per capita income currently stands at around US$20,500, which implies serious wealth creation in the region during the forecast period under the base scenario.

Inflows will peak in the next 15 years. Our projections suggest that the bulk of the windfall is likely to accrue in the coming decade or so, when we expect BRICs demand to peak, and alternative energy use and energy efficiency gains to remain limited. In the base scenario, roughly 65%-70% of the total projected revenues accrue within the next 15 years.

Goldman Sachs Global Investment Research 13 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Old challenges and new opportunities: Risks to the investment case The sizeable windfall implied by our projections suggests that the GCC will remain as a structural current account surplus region in the global economy and will be able sustain high investment levels and generate strong, welfare-enhancing economic growth in the coming decades. The key question is whether this potential will be realised or not.

We believe that important challenges will have to be overcome, and we also see certain macroeconomic and institutional weaknesses that could undermine the region’s long-term growth potential. However, we believe that, with some effort and good economic management, the region can make a leap forward and emerge as one of the most prosperous regions of the world in the coming decades. We see two main, overarching impediments/rigidities: one related to the broader Middle East risk and the other linked to the so-called ‘natural resource curse’.

The Middle East risk: The GCC is located in what has been one of the most unstable regions of the World. Many complex examples from the past and today are well known, including the Arab-Israeli conflict, Iraq’s ongoing instability, Iran’s external relations, growing friction within different religious faiths. They all still stand as key risk factors that could destabilise the broad Middle East region (and the rest of the world) in a major way. GCC countries may (controlling a good chunk of the world’s hydrocarbon reserves) have to commit considerable resources to enhancing their defense capabilities, diverting resources form possibly more efficient uses. The need to constantly secure domestic political stability surrounding the GCC could dent political and economic reforms, rendering it more difficult to address deep-rooted incumbency problems.

‘Natural Resource Curse’ – Rent-Seeking and ‘Voracity’: The GCC represents an extreme resource endowment case, characterized by strong rent-seeking opportunities and motives and relatively weak institutional (market) structures. In the past, the distribution and use of economic resources have not necessarily taken place in efficient allocation. All too often, networks of patronage and clientelism have led to economic inefficiency. Past windfalls have resulted in dramatic increases in government spending, leading to considerable economic waste. It is possible that any future revenue windfall implied by our projections could repeat past tendencies, creating considerable inertia in the region’s transition to a more market based economy characterized by more commonly accepted rule of law and strong market institutions.

Goldman Sachs Global Investment Research 14 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 14: GES scores for GCC countries are high but can improve … Exhibit 15: … if economic stability leads to higher levels of investment

9 12

8

10 7

6 8

5

6 4

3 4

2 2

1

0 0 Macro Stability Macro Conditions Human Capital Political Conditions Technological Qatar United Arab Kuwait Oman Bahrain Saudi Arabia Capabilities Emirates GCC Average Growth Environment Score (GES) GCC GES Mean HIC Mean UMC Mean LMI Mean LIC High Income Group Best in Class GES

Source: Goldman Sachs Economics Research estimates. Source: Goldman Sachs Economics Research estimates.

Overall the GCC’s growth environment has improved significantly That said, the GCC economies are undergoing a major economic transformation. The GCC governments now place a great deal of emphasis on economic diversification, openness and market regulation, as well as on infrastructure and human resource development. These reform efforts, combined with the oil and natural gas revenue boon, are helping to improve the overall growth environment and pulling the region’s long-term growth potential above the rather disappointing 3.5% average of the past few decades.

Our Growth Environment Score (GES) indices capture the fundamental improvement that has taken place across the region and the solid growth potential. The GES is an objective summary measure of 13 variables that drive productivity and help to achieve a country’s growth potential. We look at a set of key socio-economic and demographic parameters. We then typically use our GES measures to compare growth conditions across a broad range of countries and to assess whether our long-term GDP and per capita income growth projections are likely to become a reality or not.

The results of our recently updated GES measures show a rather encouraging picture for the GCC region. Without exception, the GCC economies now occupy top positions in our global rankings. Specifically, Qatar and UAE rank 24th and 25th, while Kuwait, Oman, Bahrain and Saudi Arabia occupy 32nd, 39th, 42nd and 43rd places (out of 177) in the GES rankings, above (for example) Greece (44th), Hungary (47th), Poland (54th), China (58th) and Mexico (68th).

Goldman Sachs Global Investment Research 15 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Among developing economies, the region stands out: Qatar and UAE rank 1st and 2nd, and Kuwait, Oman, Bahrain and Saudi Arabia follow in 4th, 8th, 9th and 10th place, respectively – all well above the BRICs and the N-11 (save South Korea). Among developed high income group countries, Qatar and UAE compare quite well with their peers, while Kuwait, Oman, Bahrain and Saudi Arabia also do fairly well – although in the latter group there is considerable room for improvement, especially in human resource development, technology use, political stability and governance. In any case, our GES indices show that the region’s growth potential remains as good as that of any developing economy.

The base line: Solid growth and rapid convergence In order to put the region’s potential in quantitative perspective, we used our GDP projection models, which we first used in our BRICs projections. The model is based on neo-classical growth theory and sets labour, capital and total factor productivity (TFP) as key determinants of long-term economic growth. In projecting GDP levels for the GCC going into 2050, as base-line, we made a conscious effort to keep our assumptions as conservative as possible:

Investment levels, at average for past 10 years: We set the underlying gross investment rate at the average over the past 10 years for each GGC economy; specifically, at 15.2% for Bahrain, 15.6% for Kuwait, 15.7% for Oman, 17.9% for Saudi Arabia, 24.7% for UAE and 28.5% for Qatar. As such, we did not factor in a major improvement in the overall investment climate in constructing our base-line projections, and we assumed reasonably low investment levels, notwithstanding the extra-normal revenue inflow. In other words, we assumed that the region would remain a capital exporter and diversify more gradually going forward.

Relatively subdued productivity growth: Despite the high GES rankings of the GCC economies, we set the convergence ratio (the other key parameter in our projection models capturing TFP growth) at 0.8% for the entire 2006-2050 period – towards the lower end of the c.1%-1.5% we use for our BRICs and most of our N-11 projections. As such, we conservatively assumed relatively subdued TFP growth for the region, reflecting the overall growth-retarding effects of the above-mentioned structural rigidities and geopolitical challenges.

Gradual demographic normalisation: Lastly, we set regional population growth rates around 2%-2.5% until 2015, around 1.5% until 2040 and slightly above 1% until 2050. As such, we assumed a gradual demographic ‘normalisation’.

Goldman Sachs Global Investment Research 16 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 16: GDP per capita for the GCC is forecast to close in on the G7 Exhibit 17: UAE and Qatar benefit form rich resources and small GDP per capita populations GDP per capita

90,000 160,000

80,000 140,000

70,000 120,000

60,000 100,000

50,000

80,000 2006 USD 40,000 2006 US$ 60,000 30,000

40,000 20,000

10,000 20,000

0 0 6 8 0 2 4 16 18 20 22 24 004 006 008 010 012 014 2000 2002 2 2 2 2 2 2 20 20 20 20 20 202 050 202 203 203 203 2036 2038 2040 2042 2044 2046 2048 2 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 BRICs N-11 G7 GCC Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates

Source: Goldman Sachs Economics Research estimates. Source: Goldman Sachs Economics Research estimates.

Under these fairly conservative assumptions, our projections suggest reasonably rapid economic growth and convergence. By the first half of the 21st century, the GCC could become comparable to major developed economies – both in terms of size and per capita income levels. Specifically, we project the region’s total GDP in 2050 at US$4.5 tn, or just under the projected GDP levels of Germany (US$4.9 tn) and France (US$4.5 tn). We estimate the region’s 2050 per capita GDP at US$63,250, which compares favourably with that of such leading industrial economies as Japan (US$69,000), Germany (US$67,000) and Italy (US$58,000). Accordingly, we project the income gap with the G-7 to narrow quite significantly, to roughly 77% of the projected G-7 average, up from the current 50%.

An alternative ‘dream scenario’ The region potentially could have a lot more to offer than our conservative base-line projections suggest. The growth and convergence potential implied by the base-line scenario is no doubt impressive, but it also does not suggest as robust a convergence as that of the BRICs or some of the stronger N-11 economies. To realise its full potential, the region will have to put stronger emphasis on improving the overall investment climate, and more importantly on technology and human resource development.

Goldman Sachs Global Investment Research 17 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Investment levels are low: The investment levels prevailing throughout the region remain fairly low by international standards. The rapidly diversifying economies of Qatar and the UAE are the big spenders of the region, with average investment levels hovering around 25%-30%. These compare well with the levels in China (34%), Korea (31%), Vietnam (29%), Japan (26%) and India (23%) (all 10-year averages). These economies are probably testing the limits of their absorption capacity; they are already growing rapidly and can probably do very little to bolster investment levels further without creating more serious macroeconomic imbalances – namely chronic inflation, both in goods and service and asset prices. However, Saudi Arabia, Oman, Kuwait and Bahrain are still well behind, with their respective investment levels averaging a mere 15%-18%. Relative to the massive pool of economic resources at their disposal, the absorption level of these economies probably remains well below potential. They can comfortably raise investment levels and commit more resources to economic diversification.

Exhibit 18: A wide divergence in investment across the GCC … Exhibit 19: … reflected also in FDI inflows of capital Gross fixed capital formation as a share of GDP, % Foreign direct investment as a share of GDP, %

40 Percent

35 10.0

30 8.0 25

20 6.0

15 4.0 10

5 2.0

0 . a a ia il s ia t in da es aly ica an ai 0.0 Iran ates ndia esh key in It ab fr m stan Ch Qatar ir I Braz ance r ussia i Japan lad Tur EgyptA A O 00 01 02 03 04 05 ea, Rep m Niger MexicoCana Fr i R ngdom ak Kuw r Vietnam g Germany ilipp d P Bahrain Indonesi ted State Ki uth Ph o Ko Ban S Uni Sau ited Un -2.0 ited Arab E n U Gross Fixed Capital Formation (% GDP, 10-yr ave) Bahrain Kuwait Oman Qatar Saudi Arabia UAE

Source: IMF, Goldman Sachs Research estimates. Source: IMF, Goldman Sachs Research estimates.

The region is lagging its peers in technology use. Our GES indices also show that the region is lagging behind its peers in high income countries (HIC) in terms of technology use and human resource development. On technology use, the region is well behind the HIC and resembles more closely an upper middle income economy (UMC). The GCC can therefore benefit immensely from greater economic openness, which would help facilitate the transfer of technology and know-how.

Human resource base is not sufficiently strong. On human resource development, the region is ranked just below the HIC and slightly above UMC averages, but there is still considerable room for improvement. Specifically, the region can benefit immensely

Goldman Sachs Global Investment Research 18 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

from a further improvement in education and health standards, which would help bolster TFP growth and further economic development over the longer term. Another major constraint here is the low female labour participation ratio, which still hovers around a disappointing 25%-30%. There are cultural obstacles here, but the region could benefit immensely from the incorporation of women into the active labour force, which would help strengthen the region’s demographic dynamics even further.

In order to demonstrate the hidden potential here, we adjusted two key parameters of our GDP projection models to capture the impact of a more robust investment climate, and stronger technology and human resource base:

We set the investment ratio one standard deviation above the 10-year average for Saudi Arabia (19.7%), Kuwait (21.6%), Oman (18.9%) and Bahrain (19%) and left investment ratios for the region’s big spenders, UAE and Qatar, unchanged at 24.7% and 28.5%, respectively.

We set the convergence ratio at 1% until 2035 and to 1.2% thereafter, above the 0.8% we assumed in the base line and more consistent with the region’s exceptionally high GES scores – with a view to incorporating the productivity gains to be reaped from technology transfer and diffusion and human resource development. Under these assumptions, the region comfortably achieves promotion to the league of advanced economies. Specifically, the region’s GDP hits US$5.5 tn by 2050 (well above the US$4.5 tn projected in the base line), overtaking such leading industrial economies as the UK and Germany (both around US$5 tn) and moving closer to Indonesia (US$6.7 tn) and Japan (US$7 tn). In tandem, per capita GDP reaches US$78,800 and the income gap with the G-7 and the GCC disappears almost completely, with GCC per capita GDP reaching 97% of the G-7 average.

As we have discussed above, the odds against this ‘dream’ scenario are high and there is a risk that deep-rooted structural weaknesses and regional instability might continue to hold back the GCC region from fully realising this huge economic potential. It is more likely that the region will grow into a ‘dual’ economic structure characterised, on the one hand, by ultra modern Dubai-like ‘growth-poles’ and, on the other, by continuing inefficiency and ‘waste’ in general resource utilisation.

However, the GCC’s long-term economic potential is immense and we firmly believe that, with a little bit of effort, the region can capitalise on the new opportunities presented by the fast-globalising world economy and emerge as a leading economic power in the coming decades.

This globally driven economic transformation and development process will also provide some strong support for regional asset prices (particularly to equity prices) and drive regional currency substantially stronger in the coming decades. In that sense, we do not see the GCC solely as a source of capital for the rest of the world, but also as a long-term investment story, with significant upside potential.

Goldman Sachs Global Investment Research 19 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 20: GCC economies enjoying the windfall of high oil prices Selected economic indicators

2003 2004 2005 2006 2007* UAE Current account ($ million) 7,600 10,600 26,500 33,300 22,700 Current account balance (% of GDP) 8.6 10.3 20.0 20.4 13.0 Real GDP growth (%) 11.9 9.7 8.2 8.9 5.7 Inflation (%) 3.1 7.0 10.5 11.0 8.5

BAHRAIN Current account ($ million) 201 415 1,575 1,918 1,018 Current account balance (% of GDP) 2.1 3.7 11.8 12.3 6.1 Real GDP growth (%) 7.2 5.6 7.8 7.1 6.8 Inflation (%) 1.6 2.3 2.6 2.1 2.5

QATAR Current account ($ million) 5,800 7,600 7,100 11,300 6,800 Current account balance (% of GDP) 24.4 23.8 16.6 21.5 12.5 Real GDP growth (%) 3.5 20.8 6.1 6.0 6.6 Inflation (%) 2.3 6.8 8.8 11.9 12.5

SAUDI ARABIA Current account ($ million) 28,000 52,000 90,700 113,800 84,000 Current account balance (% of GDP) 4.5 11.4 18.8 19.9 13.8 Real GDP growth (%) 6.5 4.0 6.5 4.4 4.0 Inflation (%) 0.6 0.3 0.4 2.3 2.6

Source: MEED, IMF.

What is true of GCC markets in aggregate is, of course true of the UAE in particular. Its macroeconomic indicators, as summarised in Exhibit 20, are typical in terms of growth, current account balance and inflation. As our Economists point out, however, UAE and Qatar are particularly well positioned to develop a higher growth path, given their higher level of infrastructure investment, and in the case of the UAE, immigration-driven higher population growth, which is an import vector for skills and intellectual capital.

Goldman Sachs Global Investment Research 20 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 21: Rapid growth makes MENA markets meaner than the BRICs in some instances Targeting high population and GDP growth

GDP/Capita Population Growth Growth

9% CAGR CAGR International CDP/Capita Growth vs. Population Growth 05 – O8E 05 – 08E

8% United Arab Emirates MENA 9.5% 2.3% 7% US 4.0% 1.0% Western Europe 5.6% 0.3% 6% Eastern Europe 10.7% -0.1%

5%

MENA growth markets 4%

3% Syrian Arab Republic Saudi Arabia Jordan

Egypt Libya 2% Pakistan

Expected Population Growth(CAGR 2005 - 2008E) Algeria India Turkey Indonesia 1% United States Morocco Western Eastern France UK China Europe Italy Europe 0% Germany Croatia Serbia Hungary Czech Poland Bulgaria -1%

-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Expected GDP/Capita Growth (CAGR 2005 - 2008E)

Source: IMF - World Economic Database (April 2007).

As can be seen above, the UAE stands out among countries of the MENA region and developed and emerging Europe for the combination of economic and population growth. In fact, much of the population growth expected in the coming years comes from other MENA growth markets, underlining the current attractiveness of the UAE as a place to work. It is quite possible that this ‘first mover advantage’ will become still more entrenched over time, as cities such as Dubai and Abu Dhabi become established as the financial and commercial capitals of the region.

Goldman Sachs Global Investment Research 21 September 28, 2007 Europe, Middle East & Africa: Multi-Industry UAE is diversifying rapidly: Real estate takes over from oil as growth leader

The substantial rise in the price of oil over the last few years has undoubtedly boosted the rate of economic growth and pace of economic transformation in the UAE, but it is important to note that the share of the oil and gas sector in GDP has fallen over this time as the economy continues to diversify. Growth in services and industrial sectors has been higher in real terms than the oil sector, as a consequence of economic policies devised in a period of lower hydrocarbon prices.

We believe that the region’s growth trajectory is less dependent now on the level of oil prices than in previous periods, as economies continue to diversify. In the UAE, the non-oil segment of GDP is over 62% and non-oil growth has been resilient to recent dips in oil prices. The key to the non-oil sectors’ ability to keep pace with the growth of the petrochemical complex lies in the increased commitment to reform and increased investment that many GCC governments have shown in this cycle.

Reform momentum in the UAE has been led by Dubai, which recently renewed its ten-year strategic plan, first formulated in 2000, to stretch to 2015. It outlines the reforms required to achieve targets that include reaching GDP of US$108 bn by 2015 (11% compound annual growth from 2005) and GDP per capita of US$44,000, equivalent to that of the US today.

Exhibit 22: The non-oil sector has been growing rapidly Exhibit 23: At constant prices, diversification is even more evident Components of GDP, Dh mn, current prices Share of GDP, constant prices

600,000 100%

90% 500,000 80%

70% 400,000

60%

50% 300,000

40%

200,000 30%

20%

100,000 10%

0% 2000 2005 0 2000 2001 2002 2003 2004 2005 Crude Oil & Natural Gas Agriculture Industry Services Oil sector Government sector Private sector

Source: IMF, UAE Ministry of Economy. Source: IMF, UAE Ministry of Economy.

Goldman Sachs Global Investment Research 22 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 24: Growth in GDP now being led by real estate and construction … Exhibit 25: … in Dubai 95% of the economy is non-oil Growth in components of GDP, current prices (%) Non-oil share of GDP, current prices (%)

40.0 100

90 35.0

80 30.0 70 25.0 60

20.0 50

15.0 40

Change y-o-y, % y-o-y, Change 10.0 30

5.0 20

10 0.0 2001 2002 2003 2004 2005 2006* 0 -5.0 1975 1980 1985 1990 1995 2000 2005 Gross domestic product Construction Real estate

Source: IMF. Source: IMF.

The UAE is positioning itself as a highly competitive and efficient hub for a variety of industries and services. Its favourable geographical location, as a gateway between Asia and Europe or Africa, is a natural endowment like its oil, but much has been achieved politically to enhance the economy’s attractiveness, including:

• Zero income tax on individuals and corporate entities. Budget revenues come largely (about two-thirds) from revenues of the state-owned oil and gas producers; this sector effectively faces a 100% tax burden. • Economic free zones where foreign entities can own 100% of local firms, are exempt from duties and can fully repatriate capital. Several of these zones specialise in certain industry segments: Dubai is home to Dubai Media City, Dubai Internet City, Dubai International Finance Centre, for example, as well as the original Jebel Ali Free Zone. These areas have been instrumental to Dubai attracting such strong flows of FDI in recent years; not only is the taxation and regulation environment attractive, but the ‘clustering’ of sector specialism leads to positive externalities. Even outside these zones, companies may enjoy tax holidays and freedom to repatriate capital, but ownership is generally restricted to 49%.

• Foreign ownership of real estate, which was until relatively recently not possible even for nationals. Freehold ownership is currently restricted to certain foreign ownership zones (FOZ). This, in fact, is an important factor in allowing controlled expansion of the real estate market, lessening the potential for a property crash, as seen in other regions.

Goldman Sachs Global Investment Research 23 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 26: UAE’s current account is in massive surplus … Exhibit 27: … as is the fiscal balance: Petrodollars are driving investment Current account balance, share of GDP (%) Federal budget balance, share of GDP (%)

20 30

18 25 16

14 20

12 15 10

8 10

6 5 4

2 0 2000 2001 2002 2003 2004 2005 0 2000 2001 2002 2003 2004 2005 -5

Source: IMF. Source: IMF.

Exhibit 28: Investment in the non-oil sector has increased dramatically … Exhibit 29: … meaning that overall GDP growth is less impacted by oil Growth in Gross Fixed Capital Formation, nominal (%) prices Growth in GDP by sector, constant 2000 prices (%)

35.0 15.0

30.0

25.0 10.0

20.0

15.0 5.0

10.0

5.0 0.0 2001 2002 2003 2004 2005 - 2001 2002 2003 2004 2005 -5.0 -5.0

-10.0

-15.0 Crude Oil & Natural Gas Manufacturing Industries -10.0 Construction Real Estate & Business Services Crude Oil & Natural Gas Agriculture Industry Services

Source: IMF. Source: IMF.

Goldman Sachs Global Investment Research 24 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 30: UAE’s economy is showing strong growth across almost all sectors Growth rates of GDP and components, current prices (%)

Growth, % 2001 2002 2003 2004 2005 2006*

Gross domestic product -1.5 6.2 18.7 19.8 27.3 22.5 Crude oil production -13.5 -6.9 30.4 32.9 43.3 29.6 Other sectors 4.6 11.7 14.6 14.7 19.9 18.6 Agriculture -2.0 2.7 0.5 10.4 9.2 11.0 Industry 2.2 11.5 15.8 15.5 28.3 15.2 Mining and quarrying 2.2 4.0 5.5 8.2 10.3 Manufacturing 1.1 7.3 11.9 18.8 37.4 6.5 Electricity and water 6.0 0.8 21.9 11.8 17.6 20.5 Construction 3.5 23.1 21.4 11.1 15.5 34.9 Services 6.5 12.6 15.1 14.5 16.3 21.1 Trade 3.6 23.5 20.2 21.0 20.7 1.4 Wholesale and retail trade 2.6 26.5 22.7 22.6 20.8 19.2 Restaurants and hotels 8.1 10.9 8.3 12.5 20.8 17.6 Transportation, storage, and communication 13.6 11.0 13.6 10.4 17.6 20.1 Finance and insurance 13.3 2.8 14.9 17.4 17.6 29.8 Real estate 3.1 14.6 12.6 18.4 17.6 30.7 Government services 5.7 3.1 10.3 5.6 7.1 9.9 * preliminary data

Source: IMF, UAE MoE.

On-shoring of capital is the driver as diversification takes a new form

Potentially the most important decision in policy direction that the UAE appears to have made is how best to diversify its petrodollar income stream. This, in our view, is central to the acceleration in the economy’s growth trajectory over the last few years, and supportive to the sustainability of such trends if oil prices moderate.

Historically, much of the emirates’ hydrocarbon revenues had been invested offshore, either in foreign treasuries or in equities via government investment funds such as ADIA. Such activity is likely to continue across the GCC regions (as witnessed by numerous recent major acquisitions by institutions such as Qatar’s Delta Two) but it is clear that from around 2002-2003 there was a step change in levels of investment in the non-oil sectors of the domestic economy (see Exhibit 30).

This coincided, of course, with a pick up in oil prices, but there were other factors that led to changes in capital, and hence investment, flows. For example, following 9/11 Gulf investors either found obstacles to investing in foreign markets, especially the US, or were afraid of funds becoming frozen. At the same time, perceptions were that the US dollar would weaken and speculation rose that GCC currencies may eventually abandon their peg to the US dollar, making GCC assets more attractive.

Goldman Sachs Global Investment Research 25 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

There were political changes too. The present leaders of the UAE and Dubai, Sheikh Khalifa bin Zayed Al Nahayan and Sheikh Mohammed bin Rashid Al Maktoum, had already become more involved in the political process, prior to succession, and each had visions as to how to liberalise their emirate’s economies, as witnessed by the relaxation of property laws, for example.

The retention, and attraction, of financial capital is finding its natural corollary in migration of labour and consequent high rates of population growth. By lowering barriers to movement of labour, and building appropriate infrastructure, the UAE has created the conditions for human and financial capital to combine and generate sustainable economic growth. In short, the mode of hedging the emirate’s oil wealth shifted from external to internal diversification. In effect, Gulf states began incrementally ‘on-shoring’ their own financial capital. This makes an interesting contrast with BRICs economies (with the exception of Russia) that have benefitted from the off-shoring of foreign capital to tap their low cost labour pools.

Exhibit 31: GDP expansion further aided by rapid population growth … Exhibit 32: … driving per capita growth rates into high double digits UAE population and forecasts Per capita GDP growth, %

7,000,000

35.0 6,000,000 8% CAGR 30.0

5,000,000 25.0

20.0 4,000,000

15.0

3,000,000 10.0

2,000,000 5.0

0.0 1,000,000 2001 2002 2003 2004 2005 2006 -5.0

- -10.0 8 2 6 0 2 4 6 8 0 2 4 8 2 6 8 8 8 8 9 0 0 96 97 97 98 99 99 99 00 1 1970 1 1974 1 1978 19 198 19 1 19 1 19 1 1996 1 2000 20 2004 20 2 Abu Dhabi Dubai

Source: World Bank. Source: UAE MoE.

Goldman Sachs Global Investment Research 26 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Will the GCC economies run out of fuel? Our oil view suggests not

That the GCC economies are, at least initially, driven by the hydrocarbon sector cannot be disputed, although we discuss the ongoing diversification of economies in some detail in this report. While in transition, a high oil price should support investment in infrastructure while other sectors grow. The outlook for the medium-term oil price is therefore more important than long-term projections. Our Energy Research team’s outlook is positive. The importance of the oil price outlook is moderated by ongoing diversification of the economy, as we have noted, but remains a significant source of fiscal revenues, and certainty of revenue stability would be a major factor in the scaling of future investment planning. From a total revenue perspective, however, it is worth noting that the UAE plans to increase its production capacity to 3 mn bbl per day over the next two to three years, which would either help offset price declines or result in an outright increase in revenues.

Exhibit 33: UAE plans to increase output to 3.0 mn barrels per day by 2010 Exhibit 34: Average Abu Dhabi oil prices on the up Oil output and revenues from oil and oil products, Dh mn Export oil prices, US$ per barrel

3.0 60,000 70

2.5 50,000 60

2.0 40,000 50

40 1.5 30,000

30 Revenue, Dh mn Dh Revenue,

Barrels per day, mn day, per Barrels 1.0 20,000

20

0.5 10,000 10

0.0 0 2001 2002 2003 2004 2005 0 2000 2001 2002 2003 2004 2005 2006 Crude oil and condensates Oil and product exports Average Abu Dhabi oil export price

Source: : IMF, UAE MoE. Source: : IMF, UAE MoE.

Goldman Sachs Global Investment Research 27 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Our Global Energy Research team recently raised their forecasts for medium-term oil prices, and believe markets are now in ‘phase 2’ of a multi-year ‘super-spike’ era (see ‘The next leg up for oil markets – Still searching for demand destruction tipping point’, September 14, 2007). Resilient demand has moved their forecasts to the top end of their former US$50- 105/bbl oil price band. As such, our base-case forecasts now reflect the upper portion of that band, including US$80/bbl for 2008 and US$90/bbl in 2009 for crude oil.

Based on the updated view of the price that might destroy demand, the team raised the high side of their ‘super-spike’ range to US$135/bbl for crude oil, although they note that prices may not need to go so high to lower demand. The remainder of this chapter is extracted from the report and summarises the team’s view.

We believe oil markets have begun what looks to us to be the next big leg up, what we are calling ‘phase 2’ of a multi-year, three-phase ‘super-spike’ era. The core drivers of our long-standing ‘super spike’ framework remain firmly intact: spare capacity throughout the oil value chain remains limited, supply is struggling to grow, and demand growth continues. It remains our view that oil and refined product prices need to move to a high enough level for a long enough period of time in order to stimulate a multi-year reduction in demand only after which might lower prices return. Key trends underpinning our bullish view include:

• Demand growth remains resilient. We expect ~1.5 mn b/d per annum of demand growth over the remainder this decade, which is consistent with ~ 4% global GDP growth. Importantly, after two years of deceleration, global oil demand growth re- accelerated in 2007 despite continued US$60-70/bbl oil.

• Non-OPEC crude oil supply is struggling to grow. We expect not more than 0.7 mn b/d per annum of non-OPEC crude oil growth in coming years, which also provides some cushion should oil demand growth disappoint due to US GDP weakness. Non-OPEC supply continues to fall well short of consensus expectations that have called for ~1.5 mn b/d of growth each year.

• Upstream industry cost curve continues to rise as well as steepen. We believe the marginal producer (defined as the bottom portion of the fourth quartile of our global coverage universe) now requires a stunning US$75-80/bbl WTI/Brent oil price in order to earn a cost-of-capital (i.e., 8%) return. Effectively, the marginal producer is unable to grow supply, resulting in an exponential increase in its costs. While the price needed by the ‘average’ producer is much lower—in the low US$40s/bbl—in an environment of limited spare capacity, we believe the marginal producer will set the clearing price for oil.

• OPEC spare capacity expected to remain at minimal levels. As global oil demand growth continues and non-OPEC crude oil supply falls short, the world we think is becoming increasingly dependent on OPEC (i.e., Saudi Arabia) being able to sustainably grow its production. Our base-case view assumes Saudi Arabia meets its ~3% per annum production capacity growth target, despite the fact that just about all of the super majors fell well short of their own production growth targets. Note, even if Saudi Arabia meets its objectives, we see little-to-no increase in likely spare capacity given resilient oil demand growth.

• Refining capacity remains tight. Global refining spare capacity seems even tighter than that of crude oil. New construction appears likely to be right around the levels of demand growth over the remainder of this decade, suggesting no increase in spare capacity. Excluding Asia capacity adds (but including Reliance Petroleum’s new facility since it is targeting western markets), Atlantic Basin supply/demand looks especially tight. Tightness in heavy-coking refining capacity coupled with new near sulfur-free gasoline and diesel regulations in Western Europe and the United States are contributing to a widening premium for light-sweet crude oils like WTI and Brent.

Goldman Sachs Global Investment Research 28 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Given lack of supply response, we continue to focus on point at which global oil demand growth will turn negative. We believe the experience of the last two years shows that the low end of our previous US$50-105/bbl oil price band has not resulted in demand destruction. As such, we are now building the upper portion of the previous band into our base-case forecast. We now forecast US$80/bbl for 2008, US$90/bbl in 2009, and US$80/bbl in 2010 for crude oil and a corresponding US$14/bbl, US$16/bbl, and US$14/bbl for Gulf Coast 3:2:1 refining margins. For US natural gas, our 2008 forecast of US$8.50/MMBtu is unchanged and we are raising our 2009 forecast to US$10/MMBtu followed by a return to US$8.50/MMBtu in 2010.

Exhibit 35: We believe we are now in ‘phase 2’ of a multi-year, three-phase ‘super-spike’ period

During Phase 1, oil We believe Phase prices moved 2 represents the sharply higher from next big leg up Phase 3: "the big old $15-$25 trading leg down" and a The last "super spike" was band return to a lower $140 from 1979-1985 "normalized" range, $120 but timing is uncertain $100

$80

$/bbl $60 '70-'86 avg. = $47 '70-'06 avg. = $40 $40

$20 '86-'98 avg. = $28 $0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008E 2010E 2012N

Source: Bloomberg, Goldman Sachs Research estimates.

Exhibit 36: Goldman Sachs Global Investment Research commodity price forecast changes

WTI spot oil ($/bbl) Brent ($/bbl) GC 3:2:1 ($/bbl) WTI-WTS ($/bbl) Maya-WTI ($/bbl) HH nat gas ($/MMBtu) new old new old new old new old new old new old 2007E: 1Q $58.09 $58.09 $58.08 $58.08 $10.07 $10.07 $3.98 $3.98 ($13.10) ($13.10) $7.06 $7.06 2Q 64.95 64.95 68.73 68.73 23.58 23.58 4.59 4.59 (9.76) (9.76) 7.65 7.65 3QE 73.00 68.00 73.00 69.00 12.00 12.00 5.10 5.44 (11.50) (13.60) 6.13 7.25 4QE 72.00 68.00 72.00 68.00 9.00 9.00 5.76 5.44 (14.40) (16.32) 7.25 7.50 Year $67.01 $64.76 $67.95 $65.95 $13.66 $13.66 $4.86 $4.86 ($12.19) ($13.20) $7.02 $7.37

2008E $80.00 $68.00 $80.00 $65.00 $14.00 $12.00 $6.40 $5.44 ($16.00) ($17.00) $8.50 $8.50 2009E 90.00 68.00 90.00 65.00 16.00 12.00 7.20 5.44 (18.00) (17.00) 10.00 8.50 2010E 80.00 45.00 80.00 42.00 14.00 7.00 6.40 3.60 (16.00) (11.25) 8.50 6.00 2011E 75.00 N/A 75.00 N/A 13.00 N/A 6.00 N/A (15.00) N/A 7.00 N/A 2012N 50.00 N/A 49.00 N/A 8.00 N/A 4.00 N/A (10.00) N/A 6.00 N/A

Source: Bloomberg, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 29 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Potential for currency appreciation to enhance returns

Our Economics Research team have argued that the existing GCC currency pegs are unsustainable and that the region will have to move to a more flexible exchange rate regime (see ‘GCC: Fed cut raises likelihood of revaluation’, September 20, 2007). We have not made assumptions of currency revaluations in our forecasts. The remainder of this chapter is extracted from the report and summarises our Economics Research team’s views.

Recent developments in the US, as well as in the energy markets, have intensified the policy dilemmas for GCC central banks and increased the likelihood of a peg adjustment, especially in the UAE and Qatar, both of which are struggling with serious inflation pressures. Likewise, Kuwaiti authorities could allow for further KD appreciation, in response to recent US dollar weakness.

We believe that price and currency stability objectives cannot be reconciled, given the favourable terms of trade and rapid public expenditure growth.

So far, regional central banks have allowed for inflation, reluctant to let go of the existing currency pegs which have served as a firm nominal anchor. Regional governments were also unwilling or unable to impose meaningful fiscal restraint; the ensuing sterilisation problem has fuelled inflation pressures, especially in the rapidly diversifying economies of the UAE and Qatar, where official inflation rates recently surged to around 15%.

Exhibit 37: GCC currencies do not look extremely overvalued, yet … Exhibit 38: … but petrodollar inflows and rising inflation = upward pressure Real Effective Exchange Rate Index. 1990 =100. Annual CPI Inflation, 2006

10 120

9 110 8 100 7

90 6

80 5

4 70

3 60 2 50 1

40 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Bahrain Kuwait Oman UAE Qatar Kuwait Bahrain Saudi Arabia Oman Qatar Saudi Arabia United Arab Emirates

Source: IIF. Source: IMF, IIF, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 30 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

The pressure on regional central banks to allow for exchange rate flexibility has intensified over the past few months

• First, the structural pricing pressure in global energy markets has intensified, leading to a surge in oil prices. Our commodities team sees the WTI average price at US$85/bbl in 2008. Other things being equal, this would imply a further improvement in the terms of trade for the GCC region, which, unless it is counterbalanced by some fiscal restraint or currency appreciation, will give way to further inflation.

• Secondly, the global environment remains US dollar bearish, with the US economy set to slow due to troubles in the housing sector. The GCC region will import some inflation through US dollar weakness, a factor that recently forced the Kuwaiti authorities to abandon the US dollar peg and allow for further exchange rate flexibility, tracking a composite currency basket against the KWD.

• Finally, our US economics team expects the Fed to cut rates by a further 75 bp to 4.0% by early next year.

This poses a huge challenge for GCC central banks. To keep their pegs sustainable against the US dollar, the GCC central banks should keep their policy rates broadly in line with the US. But the higher inflation means that real rates are already negative in the GCC, and a further reduction in local policy rates would only push inflation higher. On the other hand, if the GCC central banks do not follow the Fed's lead, it would lead to a widening of interest rate differentials and intensify appreciation pressure on their currencies; hence the policy impasse.

In a recent meeting in Damascus, the GCC central bank governors expressed their commitment to the existing currency regimes and said that they would ease policy rates in line with the Fed. However, the Saudi Arabian Monetary Authority (SAMA) announced this morning that it will not cut rates, in view of inflation risks. This clearly undermines the credibility of the Saudi peg. However, Saudi authorities are determined to maintain the existing peg arrangement and are unlikely to make a move anytime soon. But clearly, a combination of higher oil prices, USD weakness, Fed easing and mounting inflation pressures will render it increasingly more difficult for the two big spenders of the region, the UAE and Qatar, to hang on to the USD pegs. We believe the probability of a revaluation has increased after recent events in the US and global energy markets, although the exact timing of a potential move is very difficult to ascertain.

Goldman Sachs Global Investment Research 31 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Real estate and infrastructure: How to gain exposure to the theme

Exhibit 39: Real estate and infrastructure development are at the centre of the structural transformation of the UAE economy We are not concerned about overheating at this point; Real estate development is not the driver of economic growth, but the vehicle

Property law and economic Rapid economic growth reform • GDP CAGR 22% 2002–06 PoliticalPolitical transformationtransformation • Foreign ownership zones • Construction >20% CAGR andand mastermaster planningplanning • Free enterprisese zones • Diversification from oil • Freeholdd propertyproperty reform

Highly supportive Real exte rnal conditions Estate Houses a nd attracts e s boom mployees

Low interestest ratesrates anda high Rapid population growth liquidityquidit • AttractedAt by employment • Interest rates and currency InwardInward migrationmigration prospectspros and low taxes pegged to US ccontainsontains inflationinflation • Proximity to low cost labour • High oil prices markets • Curr a/c surplus c.15% of GDP

Source: Goldman Sachs Research

Goldman Sachs Global Investment Research 32 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

The investment case for the region is rooted in its ability to build sufficient infrastructure to support economic diversification and growth while avoiding the ‘boom-bust’ cycle of over-investment that has befallen other economies in the past. Likewise, the investment case for our coverage stocks is rooted in the sustainability of their returns on capital.

In selecting our ten Buy list stocks in our coverage universe providing exposure to the infrastructure theme in the UAE, we apply qualitative and well as quantitative criteria, although the former are in essence reflected in the latter via our modelled forecasts. We find that our Buy list stocks, with the greatest upside to price target, tended to populate the ‘attractive’ segment of our EV/GCI versus CROCI/WACC chart, or were migrating in that direction, despite this analysis being based only on static 2009 forecasts.

This hints at the sustainability of expected returns of these companies, and thus we circle back to the qualitative aspects of our analysis. Exhibit 40 shows a similar dispersal of our coverage universe as the valuation chart if the axes become their position in the ‘value chain’ and their degree of market dominance, measured by share or pricing power. Naturally, we prefer stocks with long- term pricing power and believe that the market may be mispricing some sectors or stocks in the UAE markets on expectation of sustainability that may not occur, or by not believing in the sustainability of premium market returns. We believe that stocks such as Emaar, Union Properties and Aramex belong in the latter category and are thus undervalued, and that stocks such as the cement companies in our coverage group are in the former; their pricing power should reduce substantially over the coming few years, along with their market ratings.

Below we summarise our sector views. For more detail, please see the individual company summaries that follow.

Exhibit 40: Our Buy list stocks occupy the top end of the value chain; developers, contractors, logistics suppliers Our Sell ideas are in the cement sector; commoditised, fragmented, with low barriers to entry

Master Secondary Contractors Suppliers Planners Developers

Emmar High Aldar Union Arabtec OCI Our Buy list Bildco stocks have pricing power ACIC Low and are higher up the value Cement

Market Share/Pricing Power Our Sell list stocks are in fragmented chain Companies industries with no pricing power

Source: Goldman Sachs Research.

Goldman Sachs Global Investment Research 33 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 41: Many of our Buy list stocks fall in the ‘right’ segment of the EV/GCI vs CROCI/WACC scatter chart; we expect those outside to migrate as they grow Based on estimates for 2009E

3.0 B

2.5 OCIC UNYEC MRDIN GCEM

2.0 B Sell ARTC ARMX A AMLK BOLUC BILD SCID 1.5 B AKCNS AGLT UCC TAML EV/GCIEV/GCI NCC ADNH Buy OILC CIMSA AIRA ALDR EMAR RKCC UPRO ACIC 1.0 RAKC TABR A

ADANA

0.5

0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

A High growth and / or cash generation CROCI/WACC B Deteriorating fundamentals

Source: Factset, Bloomberg, Goldman Sachs Research estimates, Quantum database.

Stocks populating the upper-left quadrant of our EV/GCI versus CROCI/WACC scatter chart (see the valuation chapter for a detailed description) are those in the bottom right of our value chain, i.e. companies with limited pricing power and therefore inferior returns on capital. We do not see much scope for improvement in the case of the cement companies, for example, as capacity additions come on stream, so these stocks should de-rate further, in our view.

Stocks in the lower-right segment including Emaar, Union Properties, Arabtec, Agility and ADNH are earning a wide premium of return over cost of capital and could therefore trade at a much higher valuation if those returns are sustainable. We believe they are more sustainable than the market currently gives credit for and hence rate them as Buy. Aldar, Tabreed and Aramex will grow into the premium return section as their businesses mature and fully leverage their capital base, we believe.

Goldman Sachs Global Investment Research 34 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Real estate developers: Buy Emaar, Aldar, Union Properties

We believe high returns on capital are sustainable for the primary developers in the UAE and their shares are therefore significantly undervalued. At this point we do not believe that development is at excess: in our view, real estate is not the driver of growth in the UAE, but the vehicle for the region’s development, to achieve a level of infrastructure and activity commensurate with its earning power. This process still has a long way to go, in our view.

The real estate sector in Dubai and other areas of the region has been experiencing a boom since property reforms were enacted and economies began to feel the effect of higher oil prices. This, of course, raises the risk of oversupply in coming years, which we believe is a major reason behind the discount to NAV at which developers trade.

We believe that growth and returns are more sustainable than the market appears to believe. It is true that growth in construction and real estate is at all time highs (34% and 31% y-o-y in 2006 according to GDP data) but it is less clear that this is excessive, given rapidly-rising demand. Rents are rising, as an indication of real end-user demand, rather than off-plan sales, and vacancy rates are low in both residential and commercial segments. Our analyses of demand and supply in the Dubai and Abu Dhabi markets do not suggest substantial oversupply over the medium term. We believe demand and supply will remain in reasonable balance.

Our demand estimates are based on: (i) expected population growth, (ii) the proportion of the workforce in communal accommodation, and (iii) the ratio of inhabitants per household. We show a summary of our Dubai model in Exhibit 43.

For Dubai, for example, we expect excess supply in certain geographical or market segments but, overall, demand and supply appear balanced. Our estimates suggest demand for over 200,000 residential units between 2006 and 2010, which is likely to be outstripped by supply marginally around 2008, before the market regains balance.

We forecast higher supply and lower demand than consensus. While the market remains tight overall, this does not imply stable or rising unit prices. In fact, for developers such as Emaar, we forecast unit prices diminishing by as much as 25% over the next three years or so, although this is in part due to changes in mix (more apartments than villas, for example) than outright declines in values per square metre. Taking into account growth rates in the region’s economies and populations, and all we have discussed about the nature of structural reform and the sustainability of economic expansion, we believe there is substantial unpriced, profitable growth for each of the developers in our coverage universe. We initiate coverage of Aldar Properties, Emaar Properties and Union Properties on our Buy list.

Goldman Sachs Global Investment Research 35 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 42: Is this a boom-bust cycle? Unprecedented investment plans feature our coverage companies such as Emaar and Aldar properties Announced projects by value, as tracked by the Middle East Economic Digest

Project Project cost portfolio Ranking Developer Headquarters Selected projects Location Status/completion ($ million) value ($ million ) 1 Emaar Properties Dubai Emirates Living 2,000 UAE Completion fourth quarter 2007 84,619 Dubai Marina 4,360 UAE Completion 2010-12 Umm al-Quwain Marina 3,267 UAE Phase 1 completion 2009 Burj Dubai 20,000 UAE Under construction. Completion 2008-09 Samarah Dead Sea Golf Beach 500 Jordan Construction started January 2007 Resort Bahia Bay 1,225 Morocco Completion 2011 King Abdullah Economic City 26,600 Saudi Arabia Completion third quarter 2008 Eighth Gate 500 Syria Under construction. Completion 2012 2 Aldar Properties Abu Dhabi Raha Beach 15,000 UAE Under construction. Final completion 2020 60,000 Yas Island 40,000 UAE Under construction. Final completion 2014 Central Market 1,200 UAE Construction due to start 2007. Completion 2010 Al-Gurm Resort 300 UAE Ground work started. Completion 2008 3 Tatweer Dubai Dubailand 20,000 UAE First-phase completion 2010 47,000 Tiger Woods Dubai tba UAE Ground work started. Completion 2009 Bawadi 27,000 UAE Not yet started 4 Dubai Properties Dubai Business Bay 40,000 UAE Work started. Completion 2010 43,212 Jumeirah Beach Residence 360 UAE Under construction. Completion due 2007 Mirdif Villas 327 UAE Under construction. Completion 2008 Al-Quoz accommodation 490 UAE Under construction. Completion 2008 Mudun 400 UAE Under construction. Completion 2009 5 Nakheel Dubai Palm Jumeirah na UAE Completion 2012 30,000+ Dubai Waterfront and The Palm na UAE 95 per cent of the land has been reclaimed Jebel Ali Tall Tower na UAE Planned tba Palm Deira na UAE 20 per cent of the land reclaimed The World na UAE Reclamation completed 2008 6 Al-Futtaim Real Estate Dubai Dubai Festival City 16,540 UAE Some parts finished. Final completion 2012 27,240 Abu Dhabi Festival City 9,500 UAE Not yet started Tourism Development & 7 Abu Dhabi Saadiyat Island 27,200 UAE Under construction. Final completion 2018 27,200 Investment Company

Source: MEED.

Goldman Sachs Global Investment Research 36 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 43: UAE real estate: Our macro model supports a doubling of housing stock by 2015 Extract from our Dubai demand/supply model (Population in thousands)

Demand 1995 2005 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

Population, '00 689 1,130 1,366 1,503 1,638 1,769 1,893 2,006 2,107 2,212 2,322 2,439 Growth, % 211098765555 % in communal housing 3634333130282625232220 Pop requiring individual housing 723 896 1,010 1,127 1,245 1,363 1,477 1,584 1,699 1,821 1,951

Pop per unit 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0

Housing Units, '000 112 238 295 334 374 414 454 492 528 566 607 650 Growth, % 24 13 12 11 10 8 7 7 7 7

Incremental unit demand, '000 58 38 40 40 40 38 36 38 41 43

Supply 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

High growth locations, per Colliers International: 4 35 80 11 Percentage development in HGLs 80 75 75 75

Incremental unit supply, '000 5 47 107 14 28 35 41 45 47 49

Cumulative deficit (53) (44) 23 (4) (16) (18) (14) (7) (1) 5

Source: Goldman Sachs Research estimates.

Exhibit 44: UAE real estate: Our forecasts are conservative, relative to consensus, but we still see a tight market We forecast demand and supply in cumulative balance to 2015

Incremental unit demand, '000 Incremental unit supply, '000 Cumulative deficit Estimates for 2006 - 2010 Supply Demand 120 Emaar 107 300 EFG 270 250 100 Global Investment House 170 Colliers (low) 170 151 80 Colliers (high) 240 180 Asteco 210 215 60 SICO 200 390 Emirates Specialities Co. 175 200 MEED 175 180 40 Average 191 233 Goldman Sachs 201 217 20

0

(20) M Emaar’s own arke t in s estimate of demand (40) urplu s in 2 is substantially 008, tight higher than ours (60) there after (80)

Source: Industry estimates, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 37 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 45: Leading GDP up; construction and real estate rise sharply Exhibit 46: Housing the highest CPI component; result of tight supply Change year on year, current prices (%) Annual change in components of CPI (%)

Food & tobacco Clothing Rent & housing 40.0 Medical services Transport & comms Education and leisure Other goods and services 35.0 12.0% 30.0

10.0% 25.0

20.0 8.0%

15.0 6.0% Change y-o-y, % 10.0 % Change

5.0 4.0%

0.0 2001 2002 2003 2004 2005 2006* 2.0% -5.0

Gross domestic product Construction Real estate 0.0% 2002 2003 2004 2005

Source: IMF, UAE Ministry of Economy. * - preliminary figures Source: IMF.

Exhibit 47: Prime office rentals in Dubai have risen sharply … Exhibit 48: … as vacancies have reduced to nil US$ per square foot Vacancy rate for prime office space, %

40% 80

35% 70

30% 60

25% 50

20% 40

15% 30

20 10%

10 5%

0 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Colliers International. Source: Colliers International.

Goldman Sachs Global Investment Research 38 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Contractors and materials suppliers: Buy Arabtec

The construction sector in the GCC has been experiencing a boom since property reforms were enacted and economies began to feel the effect of higher oil prices. Substantial investments in infrastructure to support the growing economy and population result in an exceptionally large construction sector relative to other economies, even in the emerging world.

Since 2003, the construction sector has contributed around 8% of total GDP in the UAE and grown at a nominal CAGR above 20%. MEED, a regional economic digest, estimates project values in the UAE totaling almost US$700 bn and over US$1.6 tn in the GCC in total. This clearly provides a high-growth environment, at least in the medium term, but it also attracts much competition. From a stock perspective, we believe it is the sustainability of pricing power that drives value, rather than growth, and companies in the construction sector are beginning to find the balance of power moving back to developers after a few years of excess demand for their services pushing up costs. They are therefore potentially moving into a pinch point, squeezed between continued inflation in labour and materials costs, and downward pressure on rates from developers on revenues. As large-scale projects are delivered, contractors will need to find new employment for their labour and capital.

We initiate coverage of four Middle East construction companies, Arabtec, Orascom Construction Industries (OCI), Aerated Concrete Industries, (ACIC) and Bildco.

Of the group, we include only Arabtec on our Buy list. While we believe OCI is a strong regional operator, its large exposure to cement reduces the sustainability of its returns, in our opinion, while Arabtec enjoys a longer-term advantage as a pure-play contractor. It is the contractor of choice to a number of the leading property developers, has strong political patronage and should benefit from the technical expertise gained from building the Burj Dubai, the world’s tallest building, as further mega projects are planned throughout the region. ACIC and Bildco are in competitive businesses of material supply and mid-tier contacting and are under constant margin pressure.

Exhibit 49: Announced projects worth over US$1.6 tn in the Gulf, with almost US$700 mn in the UAE Announced projects by value, as tracked by the Middle East Economic Digest

Announced project % change on % change on 10-Sep-07 10-Aug-07 10-Sep-06 values, USD mn month year Bahrain 31,435.00 31,055 1.2 30,975 1.5 Kuwait 252,662 252,757 0 212,635 18.8 Oman 46,016 44,496 3.4 40,216 14.4 Qatar 142,466 144,851 -1.6 117,437 21.3 Saudi Arabia 363,278 365,239 -0.5 283,731 28 UAE 662,984 665,101 -0.3 370,778 78.8 GCC total 1,498,841 1,503,499 -0.3 1,055,772 42 Iran 106,350 110,800 -4 103,433 2.8 Iraq 25,747 26,202 -1.7 28,888 -10.9

Gulf total 1,630,938 1,640,501 -0.6 1,188,093 37.3

Source: MEED

Goldman Sachs Global Investment Research 39 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 50: Arabtec is the lead contractor by 2006 orders, but much of the construction sector is in private hands of offshore Announced contracts by value, as tracked by the Middle East Economic Digest

New orders New order Company Based Change, % 2005 ($ million) 2006 ($ million) Arabtec Construction UAE 832 1,793 16 Arabian Construction Company Lebanon UAE 1,042 1,631 57 Al-Hamad Contracting Company UAE 545 954 75 Dubai Contracting Company UAE 274 855 212 Al-Shalar General Contracting UAE 460 640 39 Six Construct Belgium 376 553 47 Snimizu Corporation Japan 0 544 nm Alec UAE 358 513 43 Consolidated Contractors International Company Athens-based 527 502 -5 Al-Naboodah Laing O'Rourke UAE/UK 381 490 29 Al-Basti & Muktha UAE 272 463 70 Dutco Balfour Beatty UAE/UK 258 436 69 Al-Habtoor Engineering Enterprises UAE 1,251 310 -75 Multiplex Australia 816 272 -67 Murray & Roberts South Africa 400 200 -50 Baytur Construction & Contracting Comp Turkey 0 108 nm Al-Muhairy General Contracting Compan UAE 49 89 82 Al-Arrab Contracting Company Saudi Arabia 19 57 200 Mushrif Trading & Contracting Company Kuwait 28 28 0 Gull Leignton Australia 0 27 nm

Source: MEED.

Goldman Sachs Global Investment Research 40 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Mortgage finance: Buy Tamweel

We initiated coverage of two UAE Islamic mortgage finance companies, Tamweel and Amlak, both of which we expect to deliver strong asset growth in the coming years and improvement in ROE. We believe that, of the two stocks, Tamweel provides more rapid growth at a cheaper valuation.

Liberalisation of property laws in UAE has greatly stimulated the real estate sector, with support from low interest rates and strong economic and population growth. We forecast almost 50% CAGR in mortgage loans from 2007 to 2010.

UAE’s mortgage market is under-penetrated relative to global comparables, while the population structure (young, expatriate) should encourage mortgage take-up. Amlak and Tamweel currently account for c.50% of UAE’s mortgage market.

Low mortgage penetration is a function of the lack of available loan products and the youth of UAE’s property market. Our forecast for the mortgage market in 2010, based on expectations for property delivery, pricing, mortgage take-up and typical LTV, implies mortgage/GDP of 9.7%, well below the level supported by UAE’s GDP/capita. Despite the distortions of the large hydrocarbon sector, we believe our bottom-up projections are reasonable from a macro perspective.

Exhibit 51: UAE’s mortgage market is immature Exhibit 52: UAE’s mortgage penetration is very low Mortgage penetration is low relative to GDP per capital Our forecast 13% mortgage/GDP in 2015 is low in global terms

100% 100%

90% 90%

80% 80% 70% 70% 60%

60% 50%

50% 40%

40% GDP debt Mortgage 30% Mortgage Debt Debt GDP Mortgage

20% 30%

10% 20% 0% 10% y a it a n d E n y n n an co ry a n ia ia ia o a ia pt UK SA an p sia ric c a ar an s d s bia y U hi In UA n rke m a m Ja lay Af ro uw C ol u O Qatar ne Eg er K Jorda ulg P Tuni eba T i Ar 0% Ma h Mo Hung B Bahrai do G L In 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Sout Saud GDP per Capita USD

Source: Goldman Sachs Research estimates, World Bank, IMF, Central Banks. Source: Goldman Sachs Research estimates, World Bank, IMF, Central Banks.

Goldman Sachs Global Investment Research 41 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Cement: Sell Union, Gulf, RAK White and National

We initiate coverage of six cement producers in the UAE, with four on our Sell list. We believe that cement stocks in aggregate are mispriced, as a classic case of confusion of short-term profitability with long-term sustainable returns on capital. We assume that oversupply will cause significant downward pressure on cement prices and profitability over the coming two or three years, which we factor into our valuations.

UAE’s infrastructure developments have led to strong demand for cement and other building materials. We forecast cement demand CAGR at over 12% in 2006-2010; prices have climbed to an all-time high. However, utilisation and prices will likely fall by mid-2008 as increased capacity, new entrants and imports result in oversupply. We expect capacity to reach 28 mn tonnes next year, over 50% above the forecast of 18 mn tonnes. We expect a peak-to-trough fall in prices of over 25% through 2010, towards cash costs. Increased competition and price deflation will pressure all producers with declining sales volumes and lower margins, we believe. ROIC will likely decline across the sector until capacity is shut down and the demand/supply balance is restored. We believe National, RAK White, Union and Gulf are overvalued, with downside to our price targets, which are based on the DCF values of core businesses plus the value of significant traded portfolios. SCIDC and RAK Cement offer some potential upside, in our view, but due to our negative view on the sector we rate them Neutral.

Exhibit 53: Cement consumption per head is at extreme high Exhibit 54: Economic growth the primary driver Consumption per capita, Kg Extraordinary growth, but sustainability unlikely

5000 Consumption per capita is highest in the GCC countries. 2006 per capita consumption in the UAE of 3,000 kg is 35.0 Capacity increases expected beyond 2008 and 4500 expected to rise to over 4,000 kg before levelling off. into 2009 will hold up capacity expansions and Historical average for industrialising countries has been result in many producers operating at well below 30.0 4000 between 1,000 - 1,500kg capacity. Sector already operating at less than 100% utilisation 3500 25.0

3000 20.0

2500

15.0 2000

10.0 1500

1000 5.0

500 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0 Cement Consumption (Mn Tons) Cement Capacity (Mn Tons) in q y n n it n E a SA an i a A it Ira ssia p Ira a rai India r u U hina man w U B Ja C O Sp Saudi u ah Qatar erman R K B at G re G Cement Consumption per Capita (kg)

Source: ICR, IMF, Goldman Sachs Research estimates. Source: ICR, IMF, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 42 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 55: Pricing environment: Gradual decline from highs in mid-2006

140

White cement trades at a premium to ordinary Portland cement. Price correlation across the different types is high and stable 120

100

80 Average prices peaked in 2006 at around $80/ton, but have lost little during 2007, currently averaging c. $75/ton 60

40 Prices not expected to decline materially during 2007

UAEUAE Cement Cement Price Price (US$/ton) (US$/ton) as demand remains robust. Deflation will accelerate beyond year-end and throughout 2008 bottoming- out at around $55/ton 20

- 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E Union Gulf RAK National RAK White SCIDC

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 43 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Other sectors: Buy Tabreed, Agility, Aramex, DFM, ADNH

We apply a similar qualitative overlay in selecting Buy list stocks from other sectors; we favour those stocks that we believe possess unrecognised, sustainable growth or return on capital potential.

These are stocks such as district cooling provider Tabreed, whose quasi-monopoly position in its areas of operation, long-term growth prospects and cost-hedged pricing model should generate long-duration returns at a premium to its cost of capital.

Agility and Aramex in the logistics space are asset light operators in an industry that typically grows revenues at a premium to GDP growth. They enjoy barriers to entry from the very nature of the networks they operate and have consistently maintained margins in respective lines of business.

Abu Dhabi National Hotels is another example of mispricing of organic growth, in our opinion, and we see further value in the substantial land bank the company possesses.

Meanwhile, the DFM is a play on the validity of our call on the region and its capital markets as a whole. We expect sustained strong growth from increasing volumes and new listings and believe the market has not priced-in the impact of new product development (such as derivatives) proposed changes in IPO laws (allowing less than 55% of a company to be floated) or the ability to replace trading commissions (if pricing comes under pressure) with charges for other services such as data provision. Thus we believe that premium returns on its relatively light asset base are sustainable for a longer period than the market believes and that the shares deserve to trade on high near-term multiples.

Exhibit 56: Goldman Sachs New Markets Research: Top ten beneficiaries of the Middle East boom Our top ten Buy ideas have average upside to 12-month price target of 50%, while our four Sells have average potential downside of 16%

Market Director's Investment Valuation Potential Multiple Company name Sector cap Price Target price Cut list Methodology upside vs Peers (USD bn) Quartile Emaar Properties Real Estate Developers 17.80 Buy DCF/Adj NAV Dh 10.75 Dh 16.20 51% ;; Aldar Properties Real Estate Developers 3.49 Buy DCF/Adj NAV Dh 7.42 Dh 14.40 94% ;; Union Properties Real Estate Developers 2.43 Buy DCF Dh 3.21 Dh 5.90 84% ;; Abu Dhabi National Hotels Company Hotels 1.14 Buy DCF Dh 5.82 Dh 7.60 31% ;; Arabtec Holding PJSC Construction 1.01 Buy DCF Dh 6.19 Dh 8.60 39% ;; Agility Transportation: Logistics 6.23 Buy DCF KD 1.84 KD 2.40 30% ;; Aramex PJSC Transportation: Logistics 0.78 Buy DCF Dh 2.60 Dh 3.40 31% †† Tabreed Utilities 0.75 Buy DCF Dh 2.44 Dh 3.20 31% †† Tamweel PJSC Financial Services 1.08 Buy WEV/DDM Dh 3.95 Dh 7.00 77% †; Dubai Financial Market Capital Markets 6.91 Buy DCF Dh 3.17 Dh 4.10 29% †; Union Cement Construction: Cement 0.73 Sell DCF/SOTP Dh 4.81 Dh 4.10 -15% :: RAK White Cement Construction: Cement 0.27 Sell DCF/SOTP Dh 2.17 Dh 1.90 -12% :: National Cement Company Construction: Cement 0.76 Sell DCF/SOTP Dh 10.15 Dh 8.00 -21% :: Gulf Cement Construction: Cement 1.26 Sell DCF/SOTP Dh 6.46 Dh 5.40 -16% ::

Source: DataStream, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 44 September 28, 2007 Europe, Middle East & Africa: Multi-Industry We identify stocks with attractive growth at a reasonable price

We use a range of methodologies to set target prices for the stocks under our coverage to account for sector characteristics: our principal valuation methodology is DCF, but for real estate we also employ adjusted NAV values, and for mortgage companies we have developed a variant of the Warranted Equity Valuation to adjust for extreme near-term growth rates.

DCF is most appropriate methodology Given potentially very high medium- and long-term growth prospects, limited coverage of relevant peer groups, diversity of ‘consensus’, we believe that DCF is the most appropriate valuation methodology for most of our coverage universe.

Adjusted NAV for property developers In our coverage group, Aldar and Emaar publish ‘fair values’ for their land bank, which the market uses to set an adjusted NAV for valuation purposes. We have adjusted these fair values to account for the developer’s expected margin. This is subtracted from surveyors’ fair values and is implicit in market transactions. The published fair value of Emaar’s land bank, for example, is derived by various methodologies, but we believe all are ‘pre-developer’s’ margin. Assuming a 15% developers margin on cost, and 45% gross margin, we derive an additional fair value adjustment of 22.5% of the published fair value. We believe this is appropriate: ‘fair value’ for land is an assessment of the price at which a profit can still be made on its development, so, in valuing the developer, we believe it is appropriate to add back an estimate of this profit to the NAV. This accounts for the expected profitability of the business in the same way we would assume profits accruing from future activities of an industrial company.

Exhibit100 57: We adjust real estate ‘fair value’ adjustments to account for developers margin (% of development value) 90

80

70 55

ir 60 fa n o % e 50 15 Land 2 lu % 2 va on fair cos 40 t 8 value

30

20 45 37 10

0 Development Less: direct Gross profit Less developer's Land 'Fair Value' Add back value costs margin developer margin Source: Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 45 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Adjusted WEV methodology for mortgage finance companies Significant near-term growth is a challenge for typical ROE-based valuation methodologies, such as the Warranted Equity Valuation (WEV) method: Target P/BV multiple = (ROE-g)/(Ke-g).

Rapid earnings growth in the next few years for Amlak and Tamweel means both ROE-g and Ke-g will be negative and the methodology breaks down. Even as growth rates begin to normalise, the methodology leads to distorted results that are not reasonable or sustainable. We take two approaches to compensate for short-term growth rates far in excess of long-term expectations, and for the excess capital that the companies are obliged to carry to smooth out fluctuations in rapid growth.

One is to adjust our DDM models for excess capital, which we achieve via hypothetical dividend adjustments (positive and negative), targeting a 20% ratio of capital to risk-adjusted assets. This is above the central bank’s threshold of 15%.

More innovatively, we adjust the WEV approach by projecting P/BV calculations further into the forecast period at a conservative target long-term growth rate (5%) and discounting values back to the price target date. Discounted future dividend payments are added back, since projected fair values are calculated from forecast (post-dividend) balance sheets. Our 12-month WEV price target is the average of these discounted values.

Exhibit 58: Our adjusted WEV valuation is close to DDM value Exhibit 59: Graphically, we see future potential nominal performance Adjusted WEV valuation, Tamweel, based on our financial forecasts Adjusted WEV valuation, Tamweel and Amlak

WEV calculation - Tamweel 2008 2009 2010 2011 2012 Target P/BV 1.95 2.26 2.53 2.50 2.31 BV 2.45 2.92 3.42 3.96 4.54 14.0 PT at 5% long-term growth 4.78 6.60 8.65 9.92 10.49

Discounted value 4.78 5.97 7.09 7.35 7.03 12.0 Plus NPV of dividends post 2008 0.00 0.08 0.19 0.30 0.42 Total 4.78 6.05 7.27 7.65 7.45 10.0 Average 6.85 6.85 6.85 6.85 6.85 DDM Value 7.17 7.17 7.17 7.17 7.17 8.0

6.0

4.0

2.0

0.0 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

PT at 5% long-term growth Discounted value Average DDM Value Amlak - nominal

Source: Goldman Sachs Research estimates. Source: Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 46 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

P/Es and PEGs provide a useful check Clearly, more basic ratios such as P/Es do not capture growth potential, unless used within a PEG framework, or at long time horizons, over which forecast error (ours and consensus) increases materially. We do not believe the market is using P/E ratios across the Middle East region, given wide dispersion; in our opinion a reversion to a tighter range is likely as research coverage deepens and market consensus consequently narrows.

Exhibit 60: Forecast P/Es at our target prices appear reasonable … Exhibit 61: … as do EV/EBITDA multiples At our target prices, only Tabreed and DFM would trade above 15x 2009E EV/EBITDA multiples for our coverage sectors at target prices. earnings; this is because of the longer duration of growth and cash flow

45.0 30.0

40.0 25.0 35.0

30.0 20.0

25.0 15.0 20.0

15.0 10.0

10.0 5.0 5.0

0.0 0.0 Real Estate Construction UAE Cement Turkey Transport Utilities Specialty DFM Real Estate Construction UAE Cement Turkey Cement Transport Utilities Cement Finance 2007E 2008E 2009E 2007E 2008E 2009E

Source: Goldman Sachs Research estimates. Source: Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 47 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Director’s Cut and IP scoring screens Another technique that we incorporate is our Director’s Cut methodology, comparing the relationship of the ratios of EV to invested capital and returns versus WACC, thereby attempting to judge whether the market is providing the correct premium to capital employed to reflect the value creation on that capital.

The basic premise behind the Director’s Cut methodology is to consider how the market values the cash invested in a business (EV/GCI) relative to the returns (value) created by the company from those assets (CROCI/WACC).

Exhibit 62: Definition of economic returns spread

The definition of economic return valuation or CROCI For full details of the methodology behind Director’s Cut and the results of back-testing work, please see our series of Director’s Cut reports, the most EV CROCI = recent being: ‘Valuing the laggards’, February 23, 2006. GCI WACC

The total capitalisation The spread of economic of the cash invested in = return over economic the business cost of capital

Where: EV (Enterprise value) = Market capitalisation + net debt + minorities + unfunded pensions GCI (Gross cash invested) = Gross tangible and intangible assets (before depreciation or write offs) + investments in associates + working capital CROCI (Cash return on cash invested) = Post tax, pre interest cash flow as a percentage of average GCI WACC (Weighted average cost of capital) = Economic cost of equity (dividend yield + long term growth) + cost of debt, adjusted for capital structure

Source: Goldman Sachs Research.

Basic methodology assumes reversion to sector average; incorporating ‘sustainability premia’ drives higher returns At a simple level, we compare a company’s ratio of EV/GCI vs. CROCI/WACC against the sector average ratio. The basic theory is that over the long term, the company’s ratio will converge with the sector average as under/overvaluations are arbitraged away.

However, our Tactical Research Group has also developed (and back-tested) more advanced methodologies which capture the fact that companies generating either particularly high sustained returns or particularly low returns relative to the sector do not tend to follow the same pattern as stocks closer to the average. • Where relevant, we incorporate the findings of this work into our analysis. We also look at whether the stock has tended to trade at a discount or premium to its sector over time and how this ratio is expected to change in the future.

• The Director’s Cut methodology does not fully capture growth, as it is a snapshot of the returns that we forecast for a particular year. Therefore, the market’s expectations of above-average growth for a particular stock are likely to be manifested in the

Goldman Sachs Global Investment Research 48 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

stock appearing expensive on this screen. This is one of the reasons why we do not take a purely quantitative approach to interpreting the results of the Director’s Cut screen.

• Furthermore, this methodology is inappropriate for companies with rapidly changing capital bases or very high growth, such as for Tabreed and the DFM. Hence, we do not use Director’s Cut to inform our investment view for these companies.

Exhibit 63: Many of our Buy list stocks fall in the ‘right’ segment of the EV/GCI vs. CROCI/WACC scatter chart; we expect those outside to migrate as they grow Based on estimates for 2009E

3.0 B

2.5 OCIC UNYEC MRDIN GCEM

2.0 B Sell ARTC ARMX A AMLK BOLUC BILD SCID 1.5 B AKCNS AGLT UCC TAML EV/GCIEV/GCI NCC ADNH Buy OILC CIMSA AIRA ALDR EMAR RKCC UPRO ACIC 1.0 RAKC TABR A

ADANA

0.5

0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

A High growth and / or cash generation CROCI/WACC B Deteriorating fundamentals

Source: Factset, Bloomberg, Goldman Sachs Research estimates, Quantum database.

Goldman Sachs Global Investment Research 49 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Exhibit 64: Valuation is linked to financial performance, strategy and competitive advantage

Stocks close to the regression line are reliant Regression line for perfect on growth in returns to valuation effect a re-rating. There is margin for error either side of the line. Limited Line in practice. Determined investment opportunities by sector specifics Why doesn’t the market punish all those companies destroying value with discount ratings? The market expects either improvement in performance or corporate action. If Why aren’t all companies in

EV / GCI companies remain in Q4 for a Q1 trading on a premium? sustained period, valuation discount The answer lies in 1 widens. Much improvement tends to understanding the duration be priced in by a market looking of competitive advantage. one year out. Those companies spending less than 3 years in Q1will be valued on the basis of a return to sector average. Those with sustainable advantage enjoy premium ratings that widen with time. Understanding this duration of competitive advantage and relative valuation can result in high pay-offs for investors

0.0 0.512 1.5 2.5 CROCI/WACC Quartile 4 Quartile 3 Quartile 2 Quartile 1

Companies with returns spreads less As the returns spread grows and value is As returns reach industry leadership, returns than 1x are destroying value. To add created a growth strategy can be pursued, must be held and the capital base grown as value they must shrink their business but it must be balanced growth and the quickly as possible. Reaching this limit can by restructuring and capital discipline, asset base can still be upgraded result in acquisitions, especially if the and grow returns company has highly rated paper

Source: Goldman Sachs Research.

Goldman Sachs Global Investment Research 50 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Real Estate company summaries

Aldar Properties 52

Emaar Properties 58

Union Properties 64

Abu Dhabi National Hotels Company 70

Goldman Sachs Global Investment Research 51 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aldar Properties (ALDR.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 96%

United Arab Emirates: Real Estate Investment Profile: ALDR.AD

Low Hi gh

Substantial upside to NAV and DCF valuations Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • Aldar is the premier property developer in Abu Dhabi, where the real estate market is seeing Percentile 20th 40th 60th 80th 100th the beginning of a transformation similar to that currently under way in Dubai. The fair value Aldar Properties of its 34 mn sq m land bank is independently appraised at Dh38 bn, or Dh11.42 per share, Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the while its portfolio comprises US$50 bn of projects over the next ten years in the residential, investment profile measures please refer to commercial and hospitality segments. the disclosure section of this document. Key data (*) • Aldar provides concentrated exposure to one of the world’s fastest growing economies. Abu Price (Dh) 7.35 Dhabi enjoys the highest GDP per capita in the world (US$46,185 in 2005) and growth Price target (Dh) 14.4 remains strong. Aldar is focused on this market, with no businesses outside the emirate at Market cap ($ mn) 3,453 Average daily trading volume ($ mn) NA present. Its strategy of retaining 40% of residential property and all commercial space for Free float 75% rental provides a long-term income stream. Bloomberg code ALDAR DB 2006 2007E 2008E 2009E • At 0.5x 2006 adjusted book value and 3.0x 2008E P/E, Aldar is undervalued, in our opinion, Sales (Dh mn) 187.5 2,483 7,107 6,954 although we acknowledge that the long lead time of developments means that re-rating is EBITDA (Dh mn) 1,185 2,897 4,351 3,177 EV / EBITDAR 6.7x 5.5x 4.1x 5.8x likely to be more gradual than for other major UAE developers. The year end revaluation of P / E 10.1x 4.4x 3.2x 4.8x the land bank will be a key catalyst, in our opinion. Dividend yield 0.0% 5.7% 10.7% 13.6% (*) multiples and ratios are calendarised

Valuation: 12-month target price of Dh14.40 2.0 600 Our 12-month price target for Aldar is the average of our adjusted NAV and DCF values and is 1.8 1.6 550 more than 100% above the current share price. Our price target implies 2008E and 2009E P/Es of 1.4 1.2 500 6.4x and 9.3x, compared with European real estate peer group averages of 23.8x and 21.7x, 1.0 0.8 450 despite more rapid growth. We calculate an adjusted NAV valuation of Dh14.40 per diluted share 0.6 to 2008 year-end, based on fair value adjustments for land, assumed conversion of the 0.4 400 0.2 convertible bond issued in 2007, and an adjustment for anticipated developer’s margin. Our DCF 0.0 350 6 6 7 7 7 7 7 06 0 06 06 0 07 07 07 07 07 0 07 0 07 0 07 0 0 0 0 0 0 calculation takes into account only explicitly planned projects and the existing land bank. We /20 /2 /20 /2 /2 /20 /2007 /2 /20 2 3 5 6 /11 /12/2012 /01 /03/20 04 /07/20 /08 0/10/20 5/01/20 7/05/20 2/08/20 3/09/20 believe there is further upside to the shares’ valuation from projects yet to be planned in full on 3 14 29/11/2014 29/ 1 30 14/0 01 16/0 02/04/200717/ 02/0 1 01/0 18/06/2003 18/07/20070 17 0 ALDR.A D (Dh) MSCI EM Europe & Middle East Aldar’s existing land bank and from future additions to its land assets.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 52 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aldar Properties: Overview Company description Aldar Properties is an Abu Dhabi-based property Core drivers of growth development company listed on the ADSM and with • Population growth, a booming economy and property law reform are the drivers for demand significant government shareholdings. It is the primary growth in the emirate. We forecast a 75% increase in housing stock in Abu Dhabi between 2007 developer in Abu Dhabi, with a large land bank and 2015, with the market remaining in balance over the period as a whole. Aldar controls a donated by the government, and is involved in substantial proportion of known supply. commercial, residential, retail, hospitality as well as entertainment projects. In November 2006, the • We see further potential upside from modifying our assumption of medium-term selling prices company launched the Yas Island project, one of the at a 15%-20% discount to Dubai. We believe that strong demographics and economic growth largest mixed-use developments in the region. The should drive prices closer to parity, but currently reflect the lesser maturity of the Abu Dhabi US$40 bn project will also include the world’s first market in lower values. Also, Aldar’s land bank contains large plots that are not yet planned out ‘Ferrari World’ theme park. or reflected in our forecasts. Shareholder structure (2007)

9% Risk to the investment case 14% • The sustainability of UAE’s property boom and in particular, the ability of Abu Dhabi to attract sufficient investment to compete with other major regional cities, in particular Dubai. 60% • Execution of a very large portfolio of developments is the principal risk to our investment case. 17% The total announced development cost of US$50 bn (Dh184 bn) is greater than the equivalent

figure for Emaar Properties of Dh140 bn, while Aldar does not yet have an established track Public record of deliveries. However, we include only Dh28 bn of developments in our forecasts. Other Mubadala Development Company The Abu Dhabi Retirement Pensions and Benefits Fund

Industry context Sales by division (2007E) Abu Dhabi’s real estate market lagged that of Dubai, due to slower reform of property law until 2004. Now, however, UAE nationals enjoy unrestricted property ownership and foreigners may buy surface property on renewable 99-year leases. The government has stimulated the market by gifting land to developers such as Aldar, with a remit to develop a balance of residential and commercial space, including hotels, to stimulate the government’s plan of turning Abu Dhabi into a world class tourist and cultural destination and diversify its economy from oil and gas.

We see potential for a temporary oversupply of units in 2010-2012, if current delivery plans are met. 100% As in Dubai, we believe there is a high probability of late delivery, either due to logistical constraints or better to match demand. The revenue impact on Aldar may not be significant, given the substantial proportion of off-plan sales and the ability to control much of the market’s supply. Land sale

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 53 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aldar Properties: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn ( LHS) EBIT Margin (RHS) 4.0x 25.0% 3.0x 636% 20.0% 7,000 2.0x 6,000 536% 1.0x 15.0% 5,000 436% 0.0x 10.0% -1.0x 4,000 336% -2.0x 5.0% 3,000 -3.0x 0.0% 236% -4.0x 2,000 -5.0% -5.0x 1,000 136% -6.0x -10.0% 0 36% 05 06 07E 08E 09E 10E 11E 12E 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Very large land bank in areas central to Abu Dhabi’s master plan for ƒ Long lead time on developments and lack of substantial deliveries to date redevelopment. Gifted by the government. mean the stock may trade weaker to NAV in the near term than would otherwise be the case. ƒ Strong market presence and key positioning across the full spectrum of real estate developments.

ƒ Retention of a substantial portion of developments for rental income to benefit from yield convergence over time.

Opportunities Threats ƒ Very large scale projects in Abu Dhabi should keep an adequate pipeline ƒ Susceptible to a slowdown in the regional real estate market, as well as in the medium term, but Aldar may extend its geographical footprint into the possibility of demand and supply mismatches in the future. countries of the region. ƒ Cost inflation in the region is already pressuring development margins, although Aldar will agree construction on fixed-price contracts as far as possible.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 54 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aldar Properties: Summary financials Income statement 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 396.8 187.5 2,483 7,107 6,954 5,426 6,812 7,354 0.9% EBITDAR 321.9 1,185.0 2,897 4,351 3,177 2,447 3,989 5,474 EBITDA 321.9 1,185.0 2,897 4,351 3,177 2,447 3,989 5,474 EBITDA margin 81.1% NM NM 61.2% 45.7% 45.1% 58.6% 74.4% EBIT 321.3 1,181.9 2,879 4,316 3,166 2,434 3,974 5,457 6.0% EBIT margin 81.0% NM NM 60.7% 45.5% 44.9% 58.3% 74.2% Net interest expense 355.9 67.8 6 (440) (505) (521) (596) (634) Associate income / other 5.3 (0.0) 0 0 (0) (0) (0) (0) Profit before tax 682.5 1,249.7 2,884 3,877 2,661 1,914 3,378 4,822 Adjusted PBT 682.6 1,250.6 2,896 3,903 2,661 1,914 3,378 4,822 5.4% Tax 0.00.0000000 Exceptional items 0.00.0000000 Minority interest 0.00.0000000 Net income 682.5 1,249.7 2,884 3,877 2,661 1,914 3,378 4,822 Adjusted net income 682.6 1,250.6 2,896 3,903 2,661 1,914 3,378 4,822 5.4%

08E-12E Per share data (Dh) 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 1,725 1,725 1,725 1,725 1,725 1,725 1,725 1,725 No. of diluted shares outstanding (*) 1,725 1,725 3,355 3,355 3,355 3,355 3,355 3,355 EPS (basic) 0.40 0.72 1.67 2.25 1.54 1.11 1.96 2.80 5.6% EPS (diluted) 0.40 0.72 0.86 1.16 0.79 0.57 1.01 1.44 EPS (adjusted, basic) 0.40 0.72 1.68 2.26 1.54 1.11 1.96 2.80 5.4% Annual growth 83.2% NM 34.7% -31.8% -28.1% 76.5% 42.8% EPS (adjusted, diluted) 0.40 0.72 0.86 1.16 0.79 0.57 1.01 1.44 DPS 0.04 0.00 0.42 0.79 1.00 0.83 0.98 1.40 15.5% Annual growth -100.0% NM 88.2% 27.5% -17.0% 17.7% 42.8% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 55 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aldar Properties: Summary financials Balance sheet 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 1,760 895 8,246 6,052 5,540 3,026 1,750 1,796 Other current assets 182 2,591 7,229 7,973 6,409 3,083 3,236 1,849 Total current assets 1,942 3,486 15,475 14,026 11,949 6,109 4,986 3,645 -28.6% Long term investments & other 502 1,572 3,683 8,095 11,998 17,631 21,019 25,607 Property, plant and equipment 4 13 44 71 95 110 129 148 Intangible assets 23382600000 Total assets 2,472 5,109 19,228 22,192 24,042 23,849 26,133 29,400 7.3% Trade payables 37 206 1,360 1,168 1,715 1,338 1,680 1,813 Short term debt 21 635 1,635 1,635 1,635 1,635 1,635 1,635 Long term debt 49 32 9,113 9,113 9,113 9,113 9,113 9,113 Pension liabilities 85 622 622 622 622 622 622 622 Other liabilities 139 343 343 343 343 343 343 343 Total liabilities 330 1,838 13,073 12,881 13,427 13,051 13,392 13,526 1.2% Minority interests 00000000 Shareholders' equity 2,142 3,271 6,155 9,311 10,615 10,799 12,741 15,874 Total equity and liabilities 2,472 5,109 19,228 22,192 24,042 23,849 26,133 29,400 7.3%

Cash flow 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 8.5 (8.0) (2,698.3) (997.6) 1,385 (236.4) 789 2,406 NM Net interest paid 355.9 67.8 5.6 (439.6) (505) (520.8) (596) (634) Tax paid 0.00.00.00.000.00 0 Operating cash flow 364.4 59.8 (2,692.7) (1,437.2) 880 (757.2) 193 1,771 NM Capex on PP&E (4.6) (11.2) (37.2) (35.5) (35) (27.1) (34) (37) Other investing cash flow (104.5) (1,381.4) 0.0 0.0 0 0.0 0 0 Investing cash flow (109.1) (1,392.6) (37.2) (35.5) (35) (27.1) (34) (37) 0.9% Operating free cash flow (*) 359.8 48.6 (2,730.0) (1,472.7) 845 (784.3) 159 1,735 NM Free cash flow (**) 255.3 (1,332.8) (2,730.0) (1,472.7) 845 (784.3) 159 1,735 NM Dividends paid 0.0 (75.0) 0.0 (721.1) (1,357) (1,729.5) (1,435) (1,689) Share buybacks / issuances 1,500.0 0.0 0.0 0.0 0 0.0 0 0 Other 4.6 518.9 10,081.0 0.0 0 0.0 0 0 Financing cash flow 1,504.6 443.9 10,081.0 (721.1) (1,357) (1,729.5) (1,435) (1,689) 23.7% Change in cash and cash equivalents (864.9) 7,351.0 (2,193.8) (512) (2,513.8) (1,276) 46 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 56 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aldar Properties: Valuation summary

Relative to GS New Markets Non-financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 18.6x 10.1x 4.4x 3.2x 4.8x 6.6xCROCI NA NM 12.1% 19.2% 13.5% 6.3%EBITDA margin 81.1% NA NA 61.2% 45.7% 45.1% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA 3.6x 20.1x 7.8x 8.8x 18.7xROE NA 46.2% 61.2% 50.1% 26.7% 17.9%EBIT margin 81.0% NA NA 60.7% 45.5% 44.9% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4x GS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA NA 1.2x 1.8x 1.3x 0.6xNOPAT margin 81.0% NA NA 61.1% 45.5% 44.9% EV / EBITDA lease adj'd NA 6.7x 5.5x 4.1x 5.8x 8.6x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x GS coverage 1.6x 1.9x 1.8x 1.9x 1.9x 1.8x EV / GCI NA 2.2x 1.7x 1.2x 1.1x 1.1xCapex / sales 1.2% 6.0% 1.5% 0.5% 0.5% 0.5% EV / NOPAT lease adj'd NA 6.7x 5.5x 4.1x 5.8x 8.6x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NA 3,678 9,321 14,719 16,560 19,281Capex / depreciation 8.5x 5.0x 6.1x 4.2x 3.2x 2.1x P / book 5.9x 3.9x 2.1x 1.4x 1.2x 1.2x Net debt / (cash) * (1,690) (228) 2,502 4,696 5,208 7,721 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 85 622 622 622 622 622 FCF yield NA -43.0% -21.5% -11.6% 6.7% -6.2% Net Debt / Equity -0.8x -0.1x 0.4x 0.5x 0.5x 0.7x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -5.3x -0.2x 0.9x 1.1x 1.6x 3.2x Dividend yield 0.6% 0.0% 5.7% 10.7% 13.6% 11.3% Net interest / EBITDA NM -5.7% -0.2% 10.1% 15.9% 21.3% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 2.0x 120% 5.0x 4.5x 4.0x 1.8x 100% 4.0x 3.5x 1.6x 80% 3.5x I 3.0x 1.4x 3.0x 60% 2.5x 1.2x EV / GCIEV

2.5x EV / GC 2.0x 1.0x 40% 2.0x SectorA LDR.A D Sector 0.8x 1.5x 1.5x 20% A LDR.A D 1.0x 1.0x 0.6x 0% 0.4x 0.5x 0.5x -20% 0.0x 0.2x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -40% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin A LDR.A D

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 57 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Emaar Properties (EMAR.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 51%

United Arab Emirates: Real Estate Investment Profile: EMAR.DU

Low Hi gh

Growth assets at a value price Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • Emaar is the largest listed real estate developer in the GCC, with strong ties to the UAE Percentile 20th 40th 60th 80th 100th government, yet trades at a substantial discount to the value of its assets, on our estimates. Emaar Properties We believe the recent cancellation of the proposed land-for-shares deal with Dubai Holding Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the should be a positive catalyst for the share, although we believe it was sound in concept. investment profile measures please refer to the disclosure section of this document. • The company is central to Dubai’s economic transformation plans, being one of the emirate’s Key data (*) ‘master developers’. This has ensured access to the best land plots for free or at highly Price (Dh) 10.7 advantageous prices and significant working capital advantages through sales of sub-plots Price target (Dh) 16.2 and properties off-plan in iconic developments. Market cap ($ mn) 17,705 Average daily trading volume ($ mn) 78.7 • Emaar seeks to replicate this formula through partnerships in the MENA region and sub- Free float 70% Bloomberg code EMAAR DB continent and has already announced around US$35 bn of projects outside the UAE. Some 2006 2007E 2008E 2009E US$11 bn of this pipeline is not yet incorporated in our explicit projections due to Sales (Dh mn) 14,006 16,810 31,394 45,548 uncertainties over timing or pricing. Likewise, Emaar has substantial land not yet valued in EBITDA (Dh mn) 5,860 6,486 9,391 11,737 EV / EBITDAR 15.2x 11.0x 7.9x 6.3x its NAV, such as 200 mn sq m in Libya, providing still further upward potential to fair value. P / E 10.1x 10.1x 8.2x 7.1x Dividend yield 0.0% 1.0% 1.8% 2.8% (*) multiples and ratios are calendarised Valuation: 12-month target price of Dh16.20

Emaar trades at a steep discount to its sector on all metrics, and also to intrinsic value based on 4.0 600 adjusted Net Asset Value or DCF, on our estimates. Our price target of Dh16.20 is the average of 3.5 3.0 550 an adjusted NAV valuation and DCF. At our price target, the stock would trade at 12.4x and 10.7x 2.5 500 2008E and 2009E P/E, compared with the European peer group at 23.8x and 21.7x. 2.0 1.5 450 1.0 We adjust NAV for Emaar’s listed securities and the published value of the company’s land bank, 400 which we further augment to account for the implicit developer’s margin. This yields an adjusted 0.5 0.0 350

6 6 7 7 7 NAV for 2008E of Dh16.10 per share. We calculate a DCF valuation of Dh16.40 on the basis of our 0 06 06 06 0 06 07 0 07 07 07 0 07 07 0 07 0 0 0 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 explicit forecasts for announced development projects, a terminal growth rate on identifiable 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 recurring revenue streams (not property sales) of 3%, and a WACC of 9.5%. EMA R.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 58 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Emaar Properties: Overview Company description Emaar Properties listed on the DFM in 2000 and is now Core drivers of growth one of the world’s largest listed real estate developers. • A strong pipeline of projects in the UAE such as the Burj Dubai development, should provide a Historically, Emaar’s primary market has been in solid platform for revenues and profitability since much is pre-sold. Dubai, but the group is diversifying via acquisitions and projects throughout the MENA region and in South • In the medium term, Emaar’s growth story lays increasingly outside the UAE. The company Asia, the US and Europe. Its Burj Dubai development targets markets with high population and economic growth, typically in the MENA and sub- will house the world’s tallest building. Emaar’s primary continent region. Real estate markets in such countries are underdeveloped and Emaar has activities are the development and management of succeeded in securing large banks of land and participation in large scale projects, often with residential and commercial real estate projects. Other local partners. We expect 65% of revenues to come from outside the UAE by 2010. divisions include healthcare, education, retail and • Recurring revenue streams such as rental income on retail and commercial property, and hospitality. hospitality, provide a further source of growth. We forecast 13% of revenues from such sources Shareholder structure (2007) by 2012E, up from just 1% in 2007E.

32% Risk to the investment case • Execution risk in multiple large-scale projects across a wide geographical region is perhaps the

greatest risk to our investment case. We believe diversification of exposure to individual 68% property markets is a positive for the stock, but it does put strain on management resource.

• The sustainability of the UAE’s real estate boom is a perceived risk, although Emaar’s exposure to the country’s property market is diminishing rapidly. Public Government of Dubai

• The dilution risk associated with the proposed land-for-shares deal with Dubai Holding has

been removed, with the announcement that the deal will not go ahead and the parties will Sales by division (2007E) instead pursue joint venture projects. There remains, however, the possibility that Emaar will

not have total control over the timing and nature of its future investments in Dubai. 14%

14% Industry context The real estate sector in Dubai and other areas of the region have been experiencing a boom since 72% property reforms were enacted and economies began to feel the effect of higher oil prices. As one of three government-sponsored ‘master developers’ Emaar has been a pioneer in this market, delivering over 16,000 residential units to date, of a total 88,500 planned. The Dubai example has

stimulated property markets not just in the remainder of the UAE, but across the GCC and the wider Sale of development properties JL Homes Sale of land region. Emaar is more actively expanding from its base in the UAE and diversifying its exposure.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 59 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Emaar Properties: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn ( LHS) EBIT Margin (RHS) 1.5x 15.0% 48.3% 1.0x 45,000 10.0% 0.5x 40,000 43.3% 0.0x 5.0% 35,000 38.3% 30,000 -0.5x 0.0% -1.0x 25,000 33.3% -5.0% -1.5x 20,000 28.3% -2.0x -10.0% 15,000 23.3% -2.5x 10,000 -15.0% 18.3% -3.0x 5,000 -3.5x -20.0% 0 13.3% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ The company’s status as master developer in Dubai confers significant ƒ Potential for overstretch, taking on very large scale developments in advantages in terms of access to attractive land plots and the ability to multiple countries. Senior management’s resources are finite. reduce working capital requirements. ƒ Perceived opacity, due to the difficultly in assimilating and ƒ Free, or very cheap, land enhances margins and reduces cash outlay. communicating detailed information from diverse operations. ƒ The plan to diversify operations geographically and by segment spreads exposure to individual economies and property markets.

Opportunities Threats ƒ Substantial expansion opportunities in the near region as economies and ƒ Perceived risk of government interference, as seen by market reaction to populations continue to grow rapidly. the Dubai Holding proposal.

ƒ Expansion of divisions generating recurring revenue streams, such as ƒ Softening of the property market in UAE and across the region; rising retail and hotels. interest rates.

ƒ Regional political tensions would decrease asset values and may complicate access to new land and projects.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 60 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Emaar Properties: Summary financials

Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 1,335 3,721 5,246 8,361 14,006 16,810 31,394 45,548 45,690 31,897 30,484 -0.7% EBITDAR 468 696 1,692 4,034 5,860 6,486 9,391 11,737 12,343 11,333 11,547 EBITDA 468 696 1,692 4,034 5,860 6,486 9,391 11,737 12,343 11,333 11,547 EBITDA margin 35.1% 18.7% 32.2% 48.3% 41.8% 38.6% 29.9% 25.8% 27.0% 35.5% 37.9% EBIT 451 617 1,596 3,935 5,742 6,197 8,677 10,538 10,737 9,490 9,480 2.2% EBIT margin 33.8% 16.6% 30.4% 47.1% 41.0% 36.9% 27.6% 23.1% 23.5% 29.8% 31.1% Net interest expense 59 30 56 326 274 (166) (522) (805) (1,021) (1,037) (771) Associate income / other 7 29 40 467 386 610 641 674 708 744 782 Profit before tax 516 676 1,692 4,729 6,403 6,642 8,796 10,407 10,424 9,197 9,490 Adjusted PBT 516 676 1,692 4,729 6,403 6,642 8,796 10,407 10,424 9,197 9,490 1.9% Tax 0 0 0 0 (47) (189) (864) (1,254) (1,223) (625) (515) Exceptional items 00000000000 Minority interest 1 0 (1) 2 15 15 15 15 15 15 15 Net income 517 676 1,691 4,731 6,371 6,468 7,948 9,168 9,216 8,587 8,991 Adjusted net income 517 676 1,691 4,731 6,371 6,468 7,948 9,168 9,216 8,587 8,991 3.1%

08E-12E Per share data (Dh) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 5,381 5,381 5,052 5,565 5,988 6,076 6,076 6,076 6,076 6,076 6,076 No. of diluted shares outstanding (*) 5,381 5,381 5,052 5,666 6,096 6,183 6,183 6,183 6,183 6,183 6,183 EPS (basic) 0.100.130.330.851.061.061.311.511.521.411.483.1% EPS (diluted) 0.100.130.330.841.051.051.291.481.491.391.45 EPS (adjusted, basic) 0.10 0.13 0.33 0.85 1.06 1.06 1.31 1.51 1.52 1.41 1.48 3.1% Annual growth 30.8% NM NM 25.1% 0.1% 22.9% 15.4% 0.5% -6.8% 4.7% EPS (adjusted, diluted) 0.10 0.13 0.33 0.84 1.05 1.05 1.29 1.48 1.49 1.39 1.45 DPS 0.000.060.090.400.000.110.200.300.761.061.4865.7% Annual growth NM 45.8% NM -100.0% NM 84.3% 53.8% 151.3% 39.8% 39.6% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 61 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Emaar Properties: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 2,156 1,975 1,835 10,368 2,329 2,116 4,356 8,813 8,268 17,133 19,177 Other current assets 978 3,052 3,018 5,672 13,903 23,729 31,536 38,143 37,777 23,654 21,847 Total current assets 3,134 5,027 4,853 16,040 16,232 25,846 35,892 46,957 46,044 40,787 41,024 3.4% Long term investments & other 3,378 4,000 8,088 14,290 18,312 18,517 23,153 26,987 32,366 34,831 36,138 Property, plant and equipment 126 178 273 1,876 4,185 6,922 10,917 15,184 18,147 18,856 19,228 Intangible assets 0 0 0 0 2,962 2,962 2,962 2,962 2,962 2,962 2,962 Total assets 6,638 9,206 13,214 32,205 41,690 54,246 72,925 92,090 99,519 97,437 99,352 8.0% Trade payables 722 1,589 2,326 5,528 6,265 7,369 13,762 19,966 20,029 13,982 13,363 Short term debt 0 0 639 0 1,100 1,100 1,100 1,100 1,100 1,100 1,100 Long term debt 0 0 0 239 2,893 7,893 12,893 17,893 17,893 17,893 17,893 Pension liabilities 2 61,577912121212121212 Other liabilities 185 949 619 733 876 876 876 876 876 876 876 Total liabilities 909 2,544 5,160 6,508 11,145 17,249 28,642 39,846 39,909 33,862 33,243 3.8% Minority interests 0 1 3 135 566 551 535 520 504 489 473 Shareholders' equity 5,729 6,661 8,052 25,561 29,979 36,447 43,748 51,724 59,106 63,085 65,636 Total equity and liabilities 6,638 9,206 13,214 32,205 41,690 54,246 72,925 92,090 99,519 97,437 99,352 8.0%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 1,235 (180.4) 3,099 5,740 2,655 (1,737.6) 8,502 11,885 13,351 20,017 13,373 12.0% Net interest paid 59 30.4 56 326 274 (165.6) (522) (805) (1,021) (1,037) (771) Tax paid 0 0.0 0 0 (47) (189.1) (864) (1,254) (1,223) (625) (515) Operating cash flow 1,293 (150.0) 3,155 6,066 2,882 (2,092.3) 7,116 9,826 11,107 18,354 12,087 14.2% Capex on PP&E (54) (114.2) (216) (1,482) (2,504) (3,025.8) (4,709) (5,466) (4,569) (2,552) (2,439) Other investing cash flow 931 169.1 (2,876) (5,255) (8,856) (95.0) (4,520) (3,712) (5,249) (2,329) (1,163) Investing cash flow 877 54.9 (3,092) (6,736) (11,361) (3,120.8) (9,229) (9,177) (9,819) (4,881) (3,602) -21.0% Operating free cash flow (*) 1,239 (264.2) 2,939 4,584 378 (5,118.0) 2,407 4,360 6,538 15,802 9,648 41.5% Free cash flow (**) 2,170 (95.1) 63 (671) (8,478) (5,213.0) (2,113) 649 1,288 13,473 8,485 NM Dividends paid (326) (124.6) (312) (340) (2,355) 0.0 (647) (1,192) (1,834) (4,608) (6,440) Share buybacks / issuances 00.008,0781,4780.000000 Other 02.0639(265)1,5615,000.05,0005,000000 Financing cash flow (326) (122.6) 327 7,472 684 5,000.0 4,353 3,808 (1,834) (4,608) (6,440) NM Change in cash and cash equivalents (180.7) (140) 8,533 (8,039) (213.0) 2,240 4,457 (545) 8,865 2,044

(*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 62 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Emaar Properties: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised) Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 12.6x 10.1x 10.1x 8.2x 7.1x 7.1x CROCI 40.6% 41.7% 17.6% 18.1% 18.3% 16.7% EBITDA margin 48.3% 41.8% 38.6% 29.9% 25.8% 27.0% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4x GS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6% GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACF lease adj'd 17.5x 9.0x 10.7x 8.3x 6.9x 6.5x ROE 29.6% 23.0% 19.5% 19.8% 19.2% 16.6% EBIT margin 47.1% 41.0% 36.9% 27.6% 23.1% 23.5% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4x GS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0% GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9%

EV / EBITDA lease adj'd 21.5x 15.2x 11.0x 7.9x 6.3x 6.1x CROCI / WACC 4.0x 4.1x 1.7x 1.8x 1.8x 1.6x NOPAT margin 47.1% 41.0% 36.9% 27.6% 23.1% 23.5% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x GS coverage 1.6x 1.9x 1.8x 1.9x 1.9x 1.8x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9%

EV / NOPAT lease adj'd 22.1x 15.5x 11.5x 8.5x 7.1x 7.0x EV / GCI 5.5x 2.8x 1.6x 1.4x 1.2x 1.0x Capex / sales 17.7% 17.9% 18.0% 15.0% 12.0% 10.0% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1x GS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% P / book 2.4x 2.2x 1.8x 1.5x 1.3x 1.1x GCI (*) 17,267 40,186 53,294 62,700 73,381 83,999 Capex / depreciation 15.0x 21.2x 10.5x 6.6x 4.6x 2.8x GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Net debt / (cash) * (10,129) 1,663 6,876 9,636 10,179 10,725 FCF yield -7.9% -18.8% -9.1% -11.1% -5.7% -7.1% Pension liabilities * 9 12 12 12 12 12 GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / Equity -0.4x 0.1x 0.2x 0.2x 0.2x 0.2x Dividend yield 3.7%0.0%1.0%1.8%2.8%7.1%Net Debt / EBITDA -2.5x 0.3x 1.1x 1.0x 0.9x 0.9x GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1% Net interest / EBITDA -14.2% -4.8% 2.6% 5.6% 6.9% 8.3% * Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.6x 70% 5.0x 60% 4.5x 4.0x 1.4x 50% 4.0x 3.5x 1.2x

I 40% 3.5x 3.0x 3.0x 1.0x 30% 2.5x 20% EV / GCIEV

2.5x EV / GC 2.0x 0.8x 2.0x 10% Sector EMA R.DU 1.5x Sector 1.5x EMA R.DU 0.6x 0% 1.0x 1.0x 0.4x -10% 0.5x 0.5x -20% 0.0x 0.2x 0.0x -30% 0.0x 2.0x 4.0x 6.0x 0.0x -40% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin EMA R.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 63 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Properties (UPRO.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan Europe Buy List [email protected]

RATING: Return potential: 87%

United Arab Emirates: Real Estate Investment Profile: UPRO.DU

Low Hi gh

Cheap, after accounting (for) differences Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • UP is regarded as one of the higher quality developers in Dubai, whose developments have Percentile 20th 40th 60th 80th 100th enjoyed strong demand. It has branded its projects, Green Community and Uptown, and Union Properties plans to extend them in the UAE and, potentially, in other markets. This reduces design and Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the marketing costs, speeds time to market, improves margins and reduces working capital investment profile measures please refer to requirements. the disclosure section of this document. Key data (*) • Contracting and rental income underpin UP’s revenues and net income in the short term. Price (Dh) 3.16 However, its 0.25 mn sq m rental portfolio will be dwarfed by the delivery for sale of 0.9 mn Price target (Dh) 5.90 sq m of properties in 2009-10. We expect revenues in 2009 of almost Dh12 bn, compared with Market cap ($ mn) 2,394 Average daily trading volume ($ mn) 2.33 Dh2.4 bn in 2007, and net income to exceed Dh3.5 bn, putting the stock on a P/E ratio of 2.5x. Free float 51% Bloomberg code UPP DB • We believe the market undervalues UP due to its accounting treatment for development 2006 2007E 2008E 2009E properties, which differs from that of peers such as Emaar and Aldar. It accounts for property Sales (Dh mn) 2,525 2,390 2,667 11,984 sales only on delivery, not on a partial completion basis. This depresses near-term earnings. EBITDA (Dh mn) 377.0 429.3 555.3 3,637 EV / EBITDAR 25.7x 24.5x 19.8x 1.4x P / E 14.3x 13.9x 13.4x 2.5x Dividend yield 0.0% 0.0% 0.0% 40.1% Valuation: 12-month target price Dh5.90 (*) multiples and ratios are calendarised UP’s comparable valuations are distorted by its accounting treatment, but an average P/E over 2007E to 2009E of 9.8x compares with the European real estate sector at around 19x. 1.0 0.9 600 0.8 550 Our DCF-based price target incorporates our explicit forecasts, including the large development 0.7 0.6 portfolio due for delivery in 2009-10, but beyond that we assume a much lower level of activity in 500 0.5 property development, to reflect the fact that UP has not yet announced projects that would be 0.4 450 0.3 large enough to replace those revenues in 2010-11. We believe this is prudent and it is likely that 0.2 400 new developments in UAE and potentially beyond will be announced over the coming quarters. 0.1 0.0 350

6 6 7 7 7 Our estimates also do not include revenues related to the Formula One theme park, which we 0 06 06 06 0 06 07 0 07 07 07 0 07 07 0 07 0 0 0 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 expect to begin operations in 2009. 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 UPRO.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 64 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Properties: Overview Company description Union Properties is one of the largest real estate Core drivers of growth developers in the GCC region. The company’s primary • The delivery of 0.9 mn sq m of sellable area over a number of projects in Motor City and the activities include investing in and developing a variety Dubai International Financial Centre (DIFC) dwarfs all other growth drivers for the company. of commercial and residential properties, maintaining We expect sales revenues of almost Dh12 bn over 2009 and 2010, compared with Dh400 mn in and managing its own properties, and providing a 2006. We believe that UP will continue to move up the value chain in its property portfolio, but variety of property-related services to third parties. also maintain a material rental portfolio that should benefit from yield convergence. Notable projects for the company include the Green Community and the Motor City development. In 2006 • The firm’s contracting businesses provide further growth, with smaller units such as ServeU the company was also awarded exclusive rights to and Fitout growing at very high rates, albeit from a low base. We forecast Thermo, the develop Formula 1 theme parks worldwide. Union company’s mechanical, electrical and plumbing (MEP) contractor that provides most of the Properties listed on the DFM in 1993. company’s revenues until 2009, to continue growing its top line at high single-digit rates. Shareholder structure (2007) • Finally, we expect accelerating growth from the company’s hotel operations from 2009, as hotels are brought into operation in both Motor City and DIFC developments.

Risk to the investment case 49% 51% • The sustainability of Dubai’s property boom is a clear risk factor, yet our estimates of demand and supply suggest scope for further large developments and appreciation in unit values.

• Execution risk in multiple large-scale developments and the availability of land at reasonable valuations; UP is well connected, but not one of the big three master developers. Public Emirates Bank International

• Lack of visibility regarding the Formula One theme park franchise, although this does not

feature in our explicit forecasts at this stage. Sales by division (2007E)

13% Industry context 11% The real estate sector in Dubai and other areas of the region has been experiencing a boom since property reforms were enacted and economies began to feel the effect of higher oil prices. This raises the inevitable risk of oversupply in coming years; we expect excess supply in certain geographical or market segments but, overall, demand and supply appear balanced. Our estimates 76% suggest demand for over 200,000 residential units between 2006 and 2010, which is likely to be outstripped by supply marginally around 2008, before the market regains balance. In this context of

strong demand, UP looks well positioned, with a large land bank and a track record of delivering Contrac ting Property Rentals Property Sales high-quality properties.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 65 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Properties: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn ( LHS) EBIT Margin (RHS) 12.0x 40.0% 12,000 10.0x 30.0% 30.0% 8.0x 20.0% 10,000

6.0x 10.0% 8,000 25.0% 4.0x 0.0% 6,000 2.0x -10.0% 20.0% 4,000 0.0x -20.0% 15.0% -2.0x -30.0% 2,000

-4.0x -40.0% 0 10.0% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Strong market presence with an extensive order book of development ƒ Dependency on a number of service providers creates exposure to projects. delays, shortages of materials and other inputs.

ƒ Access to the full spectrum of real estate projects, including niche ƒ Concentration risk. The company is highly geared to the momentum of developments such as the MotorCity and F1 theme park projects. the real estate market.

Opportunities Threats ƒ Further growth prospects throughout its local market, the MENA region ƒ Highly competitive market with a variety of competing firms across the and beyond. full spectrum of development projects.

ƒ Union has sole development rights for the first F1 theme park in Dubai, ƒ A pullback or slowdown in the region’s real estate market. as well as all subsequent F1 parks worldwide. ƒ Due to long lead times of developments, business is exposed to the risk ƒ Company could potentially lever its relationship with the FIA and export of mismatches in demand and supply. its MotorCity concept internationally.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 66 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Properties: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 338.6 404.5 569.9 1,388 2,525 2,390 2,667 11,984 5,149 5,385 5,634 20.6% EBITDAR 68.4 76.4 84.6 303 377 429 555 3,637 1,122 1,051 976 EBITDA 68.4 76.4 84.6 303 377 429 555 3,637 1,122 1,051 976 EBITDA margin 20.2% 18.9% 14.8% 21.8% 14.9% 18.0% 20.8% 30.3% 21.8% 19.5% 17.3% EBIT 59.6 65.9 71.6 273 343 394 517 3,596 1,078 1,002 921 15.5% EBIT margin 17.6% 16.3% 12.6% 19.7% 13.6% 16.5% 19.4% 30.0% 20.9% 18.6% 16.3% Net interest expense 2.7 (21.2) 31.0 8 (8) (50) (59) (76) 105 71 64 Associate income / other 10.4 42.5 45.8 303 279 290 200 8 12 13 15 Profit before tax 72.6 87.2 148.4 585 614 634 658 3,528 1,196 1,086 1,000 Adjusted PBT 73.1 87.2 148.5 585 614 634 658 3,528 1,196 1,086 1,000 11.0% Tax 0.00.00.000000000 Exceptional items 0.00.50.000000000 Minority interest (0.5)(0.5)0.000000000 Net income 72.1 87.2 148.4 585 614 634 658 3,528 1,196 1,086 1,000 Adjusted net income 72.5 86.8 148.5 585 614 634 658 3,528 1,196 1,086 1,000 11.0%

08E-12E Per share data (Dh) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 2,781 2,781 2,781 2,569 2,781 2,781 2,781 2,781 2,781 2,781 2,781 No. of diluted shares outstanding (*) 2,781 2,781 2,781 2,569 2,781 2,781 2,781 2,781 2,781 2,781 2,781 EPS (basic) 0.030.030.050.230.220.230.241.270.430.390.3611.0% EPS (diluted) 0.030.030.050.230.220.230.241.270.430.390.36 EPS (adjusted, basic) 0.03 0.03 0.05 0.23 0.22 0.23 0.24 1.27 0.43 0.39 0.36 11.0% Annual growth 20.3% 71.2% NM -3.0% 3.2% 3.8% NM -66.1% -9.2% -7.9% EPS (adjusted, diluted) 0.03 0.03 0.05 0.23 0.22 0.23 0.24 1.27 0.43 0.39 0.36 DPS 0.000.000.000.000.000.000.001.270.430.390.36NM Annual growth NM NM NM NM NM NM NM -66.1% -9.2% -7.9% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 67 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Properties: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 110 117 52 1,292 112 305 258 6,903 4,738 4,530 4,344 Other current assets 214 323 367 1,098 2,355 2,220 2,439 3,598 1,945 2,037 2,134 Total current assets 324 439 418 2,391 2,467 2,525 2,698 10,501 6,683 6,567 6,478 24.5% Long term investments & other 1,539 1,795 2,118 3,596 4,676 6,555 8,585 3,159 3,171 3,184 3,198 Property, plant and equipment 35 44 353 367 367 379 394 413 420 452 481 Intangible assets 0 0 0 40 40 40 40 40 40 40 40 Total assets 1,897 2,279 2,889 6,394 7,550 9,500 11,718 14,113 10,314 10,243 10,198 -3.4% Trade payables 136 166 240 880 1,170 1,048 1,169 1,313 846 885 926 Short term debt 164 376 463 192 776 1,276 1,776 2,376 1,376 1,376 1,376 Long term debt 231 214 482 598 607 607 607 607 607 607 607 Pension liabilities 12 60 75 396 140 140 140 140 140 140 140 Other liabilities 46 72 92 442 305 1,243 2,181 305 305 305 305 Total liabilities 589 889 1,353 2,507 2,997 4,314 5,873 4,741 3,274 3,313 3,354 -13.1% Minority interests 40000000000 Shareholders' equity 1,304 1,390 1,537 3,888 4,553 5,187 5,844 9,372 7,040 6,930 6,844 Total equity and liabilities 1,897 2,279 2,889 6,394 7,550 9,500 11,718 14,113 10,314 10,243 10,198 -3.4%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 82.2 39.7 117 876 (969.0) 682 458 2,622 2,309 998 920 19.1% Net interest paid 2.7 (21.2) 31 8 (8.1) (50) (59) (76) 105 71 64 Tax paid 0.00.0000.0000000 Operating cash flow 84.8 18.5 148 884 (977.1) 632 398 2,546 2,414 1,069 984 25.4% Capex on PP&E (208.3) (98.2) (482) (1,331) (524.1) (48) (53) (60) (51) (81) (85) Other investing cash flow 4.9(106.1)(71)21(233.1)(1,830)(1,830)5,435000 Investing cash flow (203.3) (204.3) (553) (1,310) (757.2) (1,878) (1,883) 5,375 (51) (81) (85) -54.0% Operating free cash flow (*) (123.5) (79.7) (334) (446) (1,501.1) 584 345 2,487 2,363 988 900 27.1% Free cash flow (**) (118.5) (185.8) (405) (426) (1,734.3) (1,246) (1,485) 7,921 2,363 988 900 NM Dividends paid (44.5) 0.0 0 0 0.0 0 0 0 (3,528) (1,196) (1,086) Share buybacks / issuances0.00.001,77612.8000000 Other 40.2 (11.8) 296 114 244.2 1,438 1,438 (1,277) (1,000) 0 0 Financing cash flow (4.4) (11.8) 296 1,890 257.0 1,438 1,438 (1,277) (4,528) (1,196) (1,086) NM Change in cash and cash equivalents 6.4 (65) 1,241 (1,180.0) 193 (46) 6,644 (2,165) (208) (186)

(*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 68 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Properties: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 13.9x 14.3x 13.9x 13.4x 2.5xCROCI 7.4x 30.3% NM 10.2% 7.2% 51.6% 21.4%EBITDA margin 21.8% 14.9% 18.0% 20.8% 30.3% 21.8% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 12.6x NA 15.7x 19.9x 1.4x 5.5xROE 21.6% 14.5% 13.0% 11.9% 46.4% 14.6%EBIT margin 19.7% 13.6% 16.5% 19.4% 30.0% 20.9% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 2.9x NA 1.0x 0.7x 5.0x 2.1xNOPAT margin 19.7% 13.6% 16.5% 19.4% 30.0% 20.9% EV / EBITDA lease adj'd 40.3x 25.7x 24.5x 19.8x 1.4x 5.4x GS coverage 1.6x 1.9x 1.8x 1.9x 1.9x 1.8xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI 3.2x 1.6x 1.5x 1.3x 0.9x 1.3xCapex / sales 95.9% 20.8% 2.0% 2.0% 0.5% 1.0% EV / NOPAT lease adj'd 44.6x 28.2x 26.7x 21.3x 1.4x 5.6x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 4,042 6,257 7,262 8,533 6,087 4,991Capex / depreciation 45.6x 15.6x 1.3x 1.4x 1.4x 1.2x P / book 2.3x 1.9x 1.7x 1.5x 0.9x 1.2x Net debt / (cash) * (502) 1,271 1,578 2,125 (3,920) (2,755) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 396 140 140 140 140 140 FCF yield -18.0% -31.1% -27.6% -29.3% NM 26.7% Net Debt / Equity -0.1x 0.3x 0.3x 0.4x -0.4x -0.4x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -1.7x 3.4x 3.7x 3.8x -1.1x -2.5x Dividend yield 0.0% 0.0% 0.0% 0.0% 40.1% 13.6% Net interest / EBITDA -2.8% 2.1% 11.7% 10.7% 2.1% -9.4% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 7.0x 600% 5.0x 4.0x 4.5x 6.0x 500% 4.0x 3.5x

3.5x I 3.0x 5.0x 400% 3.0x 2.5x 4.0x 300% EV / GCIEV

2.5x EV / GC 2.0x 2.0x Sector 3.0x 200% 1.5x Sector 1.5x UPRO.DU UPRO.DU 1.0x 1.0x 2.0x 100%

0.5x 0.5x 1.0x 0% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -100% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin UPRO.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 69 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Abu Dhabi National Hotels Company (ADNH.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 30% United Arab Emirates: Lodging

Investment Profile: ADNH.AD

Low Hi gh

Cheap exposure to the growth of Abu Dhabi’s tourism sector Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • ADNH is uniquely exposed to the growth planned for Abu Dhabi’s tourist sector, which has Percentile 20th 40th 60th 80th 100th been ear-marked by the government as a key to the emirate’s economic diversification and Abu Dhabi National Hotels Company growth. A recent paper released by the emirate’s Urban Planning Council forecasts tourist Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the arrivals increasing from 1.8 mn per annum in 2007 to 3.3 mn in 2013 and to 7.9 mn by 2030. investment profile measures please refer to the disclosure section of this document. • The stock appears cheap, even on existing organic growth rates and is thus protected to the Key data (*) downside if such grand plans do not come to fruition. Additionally, ADNH owns large plots of Price (Dh) 5.85 land in Abu Dhabi that could be utilised or sold; depending on how exactly the emirate’s Price target (Dh) 7.60 economy develops. Market cap ($ mn) 1,147 Average daily trading volume ($ mn) NA Free float 83% Bloomberg code ADNH DB Valuation: 12-month target price of Dh7.60 2006 2007E 2008E 2009E Sales (Dh mn) 1,196 1,378 1,533 1,623 Our 12-month price target is based on DCF valuation, with reasonableness checks including EBITDA (Dh mn) 350.9 464.1 476.7 458.4 EV / EBITDAR NM 7.4x 7.1x 7.3x EV/GCI versus CROCI/WACC and implied P/E ratios at target prices relative to the coverage group. P / E 14.4x 9.1x 10.0x 10.5x We use a two-stage terminal value calculation, stepping growth down from the rate at the end of Dividend yield 3.4% 5.5% 5.0% 7.1% the explicit forecast period to a 3% perpetual value. We use a WACC of 10.5%, which is higher (*) multiples and ratios are calendarised than the average of our UAE coverage, to account for the lower liquidity of the share.

At our price target, the stock would trade at 13x and 13.7x 2008E and 2009E P/E respectively, 2.0 1.8 600 compared with the European peer group average of 23.8x and 21.7x. 1.6 550 1.4 1.2 We have not fully incorporated the potential for growth through new developments, due to lack of 500 1.0 visibility on nature, magnitude and timing. If Abu Dhabi’s ambitious plans to develop its tourism 0.8 450 0.6 sector come to fruition, ADNH would be in a highly favourable position to expand its portfolio 0.4 400 significantly. Alternatively, ADNH could release some of its considerable land bank. We do not 0.2 0.0 350

6 6 7 7 7 calculate a Net Asset Valuation at present, due to lack of information on the size and value of the 0 06 06 06 0 06 07 0 07 07 07 0 07 07 0 07 0 0 0 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 land bank, but we believe there could be substantial upside to an operational DCF valuation if 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 more information became available to investors. A DNH.A D (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 70 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Abu Dhabi National Hotels Company: Overview Company description Abu Dhabi National Hotels Company (ADNH) began Core drivers of growth operations in 1975 with the purchase of three • In the near-term, rising room rates (RevPAR) and occupancy rates are the drivers of revenue government hotels. The company now owns or growth, as supply increases are unlikely to reach market until at least 2009. ADNH reports a manages hotels belonging to the Hilton, Mercure, year-on-year increase in room rates of around 35% in June of this year, and continuation of Meridien and Sheraton brands, and its own Al Diar strong pricing power. chain. ADNH diversified into catering, entering a JV with Compass that services airlines, schools, hospitals • We expect margins to expand in the hotels business, as the rate of cost increases, while and so on, with an estimated 85% market share in Abu tangible, is much lower than that of RevPAR expansion. We forecast gross margin to rise to Dhabi. The company also has a transportation 50% in 2007 from 46% in 2006, but with much of the additional revenue flowing straight to the subsidiary, with taxi and limousine services. bottom line, we see upside risk to this assumption.

• We see much more muted revenue expansion in the catering and transportation segments over Shareholder structure (2007) the next two or three years. Catering already enjoys such high market share that significant

growth is difficult to achieve organically. The terms of the JV with Compass also mean that 18% revenue and profitability in the unit would have to increase substantially if ADNH were to receive more than its guaranteed contribution.

• Longer term growth drivers are government plans for a more than seven-fold increase in the number of hotel rooms in the emirate by 2030.

82%

Risk to the investment case Public Abu Dhabi Investment Council • Government plans currently are just that; there is no guarantee that Abu Dhabi will succeed in developing its tourism industry as aggressively as planned with strong competition from neighbours in the region such as Dubai; however, the shares look inexpensive on the basis of Sales by division (2007E) organic growth, on our estimates. 9% • Regional tensions or a fall in the oil price may impact negatively Abu Dhabi’s plans to expand it’s tourism sector.

52% 39% Industry context Abu Dhabi’s government has identified the tourism sector as key to driving, and diversifying the sources of, economic growth in the emirate. Both the Policy Agenda 2007-2008 of the Executive

Council, and the more recent Urban Structure Framework Plan, envisage stimulation of the tourism Hotels Catering & Contrac t Transport sector to become a primary sector in the future economy.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 71 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Abu Dhabi National Hotels Company: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin (RHS) 0.0x 0.0% 29.0% -5.0% 1,800 1,600 -0.5x -10.0% 27.0% 1,400 -15.0% 25.0% -1.0x 1,200 -20.0% 23.0% 1,000 -25.0% 21.0% -1.5x 800 -30.0% 19.0% 600 -35.0% -2.0x 400 17.0% -40.0% 200 15.0% -2.5x -45.0% 0 13.0% 03 04 05 06 07E 08E 09E 10E 11E 12E 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Dominance in market share of Abu Dhabi’s existing hotel portfolio. ƒ The shares are relatively illiquid. ƒ Represents high-quality international hotel brands. ƒ Possesses large land bank that could be employed for expansion or sold for development.

ƒ Strong balance sheet with substantial investments to be revalued.

Opportunities Threats ƒ Abu Dhabi’s government plans for substantial expansion of the tourism ƒ Dubai challenging Abu Dhabi as a regional financial and commercial sector, providing a growth environment and political patronage. centre, yet ADNH at liberty to expand there also.

ƒ Expansion out of Abu Dhabi into Dubai and surrounding emirates and countries.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 72 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Abu Dhabi National Hotels Company: Summary financials Income statement 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 1,050 1,043 1,074 1,196 1,378 1,533 1,623 1,700 1,771 1,845 4.7% EBITDAR 223 253 290 351 464 477 458 483 505 528 EBITDA 223 253 290 351 464 477 458 483 505 528 EBITDA margin 21.3% 24.3% 27.0% 29.3% 33.7% 31.1% 28.3% 28.4% 28.5% 28.6% EBIT 170 176 218 266 383 395 374 394 409 424 1.8% EBIT margin 16.2% 16.9% 20.3% 22.2% 27.8% 25.8% 23.1% 23.2% 23.1% 23.0% Net interest expense 406211426192526282828 Associate income / other (0) 0 0 0 60 0 (0) 0 (0) (0) Profit before tax 210 238 332 293 462 420 400 421 437 452 Adjusted PBT 210 238 332 293 462 420 400 421 437 452 1.9% Tax 0000000000 Exceptional items (0)(0)00000000 Minority interest 0000000000 Net income 210 238 332 293 462 420 400 421 437 452 Adjusted net income 210 238 332 293 462 420 400 421 437 452 1.9%

08E-12E Per share data (Dh) 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 720 720 720 720 720 720 720 720 720 720 No. of diluted shares outstanding (*) 720 720 720 720 720 720 720 720 720 720 EPS (basic) 0.29 0.33 0.46 0.41 0.64 0.58 0.56 0.59 0.61 0.63 1.9% EPS (diluted) 0.29 0.33 0.46 0.41 0.64 0.58 0.56 0.59 0.61 0.63 EPS (adjusted, basic) 0.29 0.33 0.46 0.41 0.64 0.58 0.56 0.59 0.61 0.63 1.9% Annual growth 13.0% 39.6% -11.8% 57.8% -9.1% -4.8% 5.3% 3.7% 3.5% EPS (adjusted, diluted) 0.29 0.33 0.46 0.41 0.64 0.58 0.56 0.59 0.61 0.63 DPS 0.25 0.20 0.40 0.20 0.32 0.29 0.42 0.44 0.46 0.47 12.7% Annual growth -20.0% 100.0% -50.0% 60.4% -9.1% 42.8% 5.3% 3.7% 3.5% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 73 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Abu Dhabi National Hotels Company: Summary financials Balance sheet 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 449 477 479 670 868 911 970 981 993 1,009 Other current assets 604 586 670 609 692 785 850 889 925 963 Total current assets 1,052 1,064 1,149 1,279 1,560 1,696 1,819 1,869 1,918 1,972 3.8% Long term investments & other 243 574 1,297 792 792 792 792 792 792 792 Property, plant and equipment 464 494 528 563 620 692 770 851 932 1,012 Intangible assets 0000000000 Total assets 1,759 2,132 2,974 2,635 2,973 3,181 3,382 3,513 3,642 3,776 4.4% Trade payables 111 83 151 150 170 189 200 210 218 227 Short term debt 6 6 613131313131313 Long term debt 31 25 20 14 14 14 14 14 14 14 Pension liabilities 157 126 94 62 62 62 62 62 62 62 Other liabilities 121 163 104 147 147 147 147 147 147 147 Total liabilities 426 403 374 386 406 425 436 446 454 464 2.2% Minority interests 0000000000 Shareholders' equity 1,333 1,729 2,600 2,249 2,567 2,756 2,946 3,067 3,188 3,312 Total equity and liabilities 1,759 2,132 2,974 2,635 2,973 3,181 3,382 3,513 3,642 3,776 4.4%

Cash flow 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 174 196 195 297 461 402 405 453 478 500 5.6% Net interest paid 406211426192526282828 Tax paid 0000000000 Operating cash flow 213 257 309 323 480 427 431 481 506 528 5.5% Capex on PP&E (134) (113) (97) (101) (138) (153) (162) (170) (177) (184) Other investing cash flow 68195(84)111000000 Investing cash flow (66) 82 (181) 10 (138) (153) (162) (170) (177) (184) 4.7% Operating free cash flow (*) 79 145 212 222 342 273 269 311 329 344 5.9% Free cash flow (**) 147 340 127 334 342 273 269 311 329 344 5.9% Dividends paid (120) (132) (120) (144) (144) (231) (210) (300) (316) (328) Share buybacks / issuances 0000000000 Other (6)(6)(6)(6)000000 Financing cash flow (126) (138) (126) (150) (144) (231) (210) (300) (316) (328) 9.1% Change in cash and cash equivalents 29 1 191 198 42 59 11 13 16 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 74 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Abu Dhabi National Hotels Company: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 12.7x 14.4x 9.1x 10.0x 10.5x 10.0xCROCI 10.6% 10.8% 25.5% 21.0% 18.4% 17.9%EBITDA margin 27.0% 29.3% 33.7% 31.1% 28.3% 28.4% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NM NM 6.5x 7.1x 7.3x 6.9xROE 15.3% 12.1% 19.2% 15.8% 14.0% 14.0%EBIT margin 20.3% 22.2% 27.8% 25.8% 23.1% 23.2% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 1.0x 1.0x 2.5x 2.0x 1.8x 1.7xNOPAT margin 20.3% 22.3% 27.8% 25.8% 23.1% 23.2% EV / EBITDA lease adj'd NM NM 7.4x 7.1x 7.3x 6.9x GS coverage NA NA NA NA NA NAGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NA NA 1.6x 1.4x 1.3x 1.2xCapex / sales 9.0% 8.5% 10.0% 10.0% 10.0% 10.0% EV / NOPAT lease adj'd NM NM 9.0x 8.6x 8.9x 8.4x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 2,631 2,172 2,471 2,812 3,147 3,467Capex / depreciation 1.3x 1.2x 1.7x 1.9x 1.9x 1.9x P / book 1.6x 1.9x 1.6x 1.5x 1.4x 1.4x Net debt / (cash) * (453) (643) (841) (884) (943) (954) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 94 62 62 62 62 62 FCF yield -1.8% 1.9% 6.7% 6.5% 6.4% 7.4% Net Debt / Equity -0.2x -0.3x -0.3x -0.3x -0.3x -0.3x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -1.6x -1.8x -1.8x -1.9x -2.1x -2.0x Dividend yield 6.8%3.4%5.5%5.0%7.1%7.5% Net interest / EBITDA -39.2% -7.5% -4.0% -5.2% -5.7% -5.7% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.0x 0% 5.0x 4.5x 4.0x 0.9x -5% 4.0x 3.5x 0.8x

3.5x I 0.7x 3.0x -10% 3.0x 2.5x 0.6x EV / GCIEV

2.5x EV / GC 2.0x 0.5x -15% 2.0x Sector Sector 0.4x 1.5x ADNH.AD 1.5x A DNH.A D -20% 1.0x 1.0x 0.3x 0.5x 0.2x 0.5x -25% 0.0x 0.1x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -30% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin A DNH.A D

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 75 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 76 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Construction and Materials company summaries

Arabtec Holding PJSC 78

Orascom Construction Industries 84

Aerated Concrete Industries Co 90

Bildco 96

Goldman Sachs Global Investment Research 77 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Arabtec Holding PJSC (ARTC.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan Europe Buy List [email protected]

RATING: Return potential: 38%

United Arab Emirates: Construction Investment Profile: ARTC.DU

Low Hi gh

Leading contractor in the UAE still offers attractive upside potential Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • Arabtec is one of the leading construction companies in the UAE and the only contractor listed Percentile 20th 40th 60th 80th 100th on the DFM. The company enjoys strong relationships with both government and leading Arabtec Holding PJSC property developers such as Emaar, and has distinguished itself as the leading contractor on Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the mega projects such as the Burj Dubai. investment profile measures please refer to the disclosure section of this document. • The UAE’s booming construction sector provides strong demand for Arabtec’s services. The Key data (*) company has an order book in excess of Dh16 bn and has recently embarked on a regional Price (Dh) 6.25 expansion strategy, diversifying its operations away from the domestic market. We forecast a Price target (Dh) 8.60 five-year revenue CAGR of 15% at an EBITDA margin of c.11%. Market cap ($ mn) 1,018 Average daily trading volume ($ mn) 3.40 • We expect Arabtec to remain the dominant contractor in the UAE and believe it will be able to Free float 66% Bloomberg code ARTC DB leverage its expertise on new mega projects in the region. With its extensive pipeline of 2006 2007E 2008E 2009E notable projects and strong relationships with leading developers, we consider the shares’ Sales (Dh mn) 2,810 3,611 4,522 6,122 valuation attractive, and initiate our coverage on our Buy list. EBITDA (Dh mn) 298.1 391.0 467.6 645.0 EV / EBITDAR 8.6x 9.2x 8.0x 6.8x P / E 16.4x 12.6x 11.3x 9.5x Dividend yield 0.0% 0.0% 2.1% 5.0% Valuation: 12-month target price of Dh8.60 (*) multiples and ratios are calendarised Our 12-month price target is based on DCF valuation, with reasonableness checks including EV/GCI versus CROCI/WACC and implied P/E ratios at target prices relative to the peer group. 2.0 1.8 600 1.6 550 We use a two-stage terminal value calculation, stepping growth down from the rate at the end of 1.4 1.2 the explicit forecast period to a 3% perpetual value. We use a WACC of 10.5%. 500 1.0 0.8 450 At our price target, the stock would trade at 15.6x and 13.1x 2008E and 2009E P/E respectively, 0.6 0.4 400 compared with the European peer group average of 17.2x and 15.8x. 0.2 0.0 350

6 7 7 7 We have not incorporated potential expansion into new product groups or geographical areas, 06 06 06 07 07 07 07 07 0 006 0 00 0 006 0 0 00 0 00 0 00 0 /2 2 /2 /2 /2 2 /2 /2 /2 /2 /2 /2 /2 /2007/2 9 0/ 0 1 1 1 2 3 4 5 6 7 8 8 1 /1 /0 /0 /0 /0 /0 /0 which might provide some upside potential. 2/0 6/1 9/1 5/0 2/0 8/0 2 10/ 2 13 2 15/12/02 18/01/20070 21/02/200709 27/03/20071 30/04/200716 01/06/200719 05/07/200723 0 24 ARTC.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 78 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Arabtec Holding PJSC: Overview Company description Arabtec invests in the construction sector by acquiring Core drivers of growth interests in existing companies in the UAE to be at the • Arabtec is the contractor of choice to a number of the leading property developers and has strong forefront of the construction boom taking place in the political patronage. Being at the forefront of the infrastructure boom, Arabtec currently has an region. The group’s primary activities are carried out order book in excess of Dh16 bn. Arabtec should benefit from the technical expertise gained from through Arabtec Construction Company, Arabtec building the Burj as further mega projects are planned throughout the region. Engineering services, and Arabtec Precast. In 2005 the group acquired Austrian Arabian Ready Mix Concrete • The company’s close relationship with Emaar should continue to generate order flow for the company. Arabtec is the contractor of choice for company, particularly with regard to the construction of Villas and other residential properties. leading property developer Emaar, and is the leading Our estimates suggest demand for over 200,000 residential units in Dubai alone between 2006 contractor for the Burj Dubai mega project. and 2010. Emaar also provides Arabtec with growth potential in other markets, such as Pakistan. Management targets 40% of revenues from outside the UAE by 2010. Our forecasts, based on announced backlog and expected contract awards, are in line with this target. Shareholder structure (2007)

• We expect some widening of margin, as the company is able to re-price new contracts to 15% compensate for cost inflation over the last two or three years. 11%

55% Risk to the investment case 19% • Capacity constraints and potential shortages of materials and access to a skilled labour force are

the key risks in our view. Wage and material inflation (particularly steel and cement) is also a Public concern. With a workforce of 24,000, Arabtec is particularly exposed to the risk of wage inflation. Riad Burhan Kamal Other • A slowdown in construction activity in UAE and increased competition as new entrants are Abraaj Capital [via Abraaj Real Estate Fund] attracted to the regions rapidly growing construction industry. Sales by division (2007E)

6% Industry context The real estate sector in Dubai and other areas of the UAE have been experiencing a boom since property reforms were enacted and economies began to feel the effect of higher oil prices.

Substantial investments in infrastructure to support the growing economy and population result in an exceptionally large construction sector relative to other economies, even in the emerging world. Since 2003, the construction sector has contributed around 8% of total GDP in the UAE and grown 94% at a nominal CAGR above 20%. MEED, a regional economic digest, estimates project values in the

UAE totaling almost US$700 bn and over US$1.6 tn in the GCC in total. Arabtec looks well Contracts Electrical and Drainage positioned to benefit from high growth in the UAE, as well as through its regional expansion.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 79 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Arabtec Holding PJSC: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin ( RHS) 0.2x 3.0% 9.9% 7,000 0.0x 2.0% 9.4% 6,000 8.9% -0.2x 1.0% 5,000 8.4% -0.4x 0.0% 4,000 7.9% 3,000 7.4% -0.6x -1.0% 6.9% 2,000 -0.8x -2.0% 6.4% 1,000 5.9% -1.0x -3.0% 0 5.4% 05 06 07E 08E 09E 10E 11E 12E 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Contractor of choice for the major property developers such as Emaar. ƒ Arabtec’s projects are still largely concentrated in the UAE, creating the Involved in many of the major projects in Dubai and Abu Dhabi such as need to diversify geographically. Burj Dubai and Dubai Pearl. ƒ Capacity constraints could stretch the group in keeping up with demand. ƒ Strong partnerships and JV arrangements with a number of leading

property developers in the region.

ƒ Strong pipeline of projects and developments.

Opportunities Threats ƒ The ongoing construction boom should continue to present opportunities ƒ A slowdown in construction activity in the UAE. and new projects for the company. As projects become more elaborate, ƒ Shortages of materials and skilled labor could persist as development technical expertise plays more of a role, improving group prospects. activity remains strong. ƒ Barriers to entry. Limited number of companies with the capacity to ƒ Sharp increases in input costs could put margins under pressure. undertake the scale of projects that Arabtec manages.

ƒ Significant room for expansion beyond the company’s home market of the UAE.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 80 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Arabtec Holding PJSC: Summary financials Income statement 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 2,566 2,810 3,611 4,522 6,122 6,593 6,957 7,196 12.3% EBITDAR 251 327 429 515 709 745 809 848 EBITDA 234 298 391 468 645 677 736 773 EBITDA margin 9.1% 10.6% 10.8% 10.3% 10.5% 10.3% 10.6% 10.7% EBIT 172 206 287 345 495 534 564 585 14.1% EBIT margin 6.7% 7.3% 7.9% 7.6% 8.1% 8.1% 8.1% 8.1% Net interest expense (6) (1) (1) 8 13 17 19 19 Associate income / other (0) 14 (0) 0 0 (0) 0 (0) Profit before tax 166 219 286 353 508 551 583 603 Adjusted PBT 177 230 300 371 532 577 611 612 13.3% Tax 0 0 0(10)(36)(44)(51)(56) Exceptional items 00000000 Minority interest 0 (2) (5) (30) (101) (121) (139) (153) Net income 166 217 281 313 370 386 393 394 Adjusted net income 177 228 296 331 395 412 421 403 5.0%

08E-12E Per share data (Dh) 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 598 598 598 598 598 598 598 598 No. of diluted shares outstanding (*) 598 598 598 598 598 598 598 598 EPS (basic) 0.28 0.36 0.47 0.52 0.62 0.65 0.66 0.66 5.9% EPS (diluted) 0.28 0.36 0.47 0.52 0.62 0.65 0.66 0.66 EPS (adjusted, basic) 0.30 0.38 0.49 0.55 0.66 0.69 0.70 0.67 5.0% Annual growth 29.0% 29.6% 11.8% 18.9% 4.4% 2.0% -3.9% EPS (adjusted, diluted) 0.30 0.38 0.49 0.55 0.66 0.69 0.70 0.67 DPS 0.00 0.00 0.00 0.13 0.31 0.48 0.49 0.49 39.4% Annual growth NM NM NM 136.6% 56.3% 1.9% 0.3% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 81 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Arabtec Holding PJSC: Summary financials Balance sheet 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 122 129 370 542 676 739 734 745 Other current assets 1,093 1,482 1,690 2,119 2,869 3,089 3,259 3,371 Total current assets 1,215 1,611 2,060 2,660 3,545 3,828 3,994 4,116 11.5% Long term investments & other 242 218 218 218 218 218 218 218 Property, plant and equipment 331 416 543 709 951 1,230 1,503 1,755 Intangible assets 101 90 105 87 63 37 9 0 Total assets 1,890 2,335 2,926 3,675 4,777 5,313 5,724 6,090 13.5% Trade payables 1,227 1,234 1,583 1,982 2,684 2,890 3,050 3,154 Short term debt 0 157 107 107 107 107 107 107 Long term debt 00000000 Pension liabilities 89 134 140 147 155 163 171 179 Other liabilities 00000000 Total liabilities 1,316 1,525 1,830 2,237 2,945 3,160 3,327 3,440 11.4% Minority interests 0 26 31 61 162 283 422 576 Shareholders' equity 574 784 1,065 1,378 1,670 1,871 1,974 2,074 Total equity and liabilities 1,890 2,335 2,926 3,675 4,777 5,313 5,724 6,090 13.5% Cash flow 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 201 (4.0) 539 445 604 670 734 774 14.8% Net interest paid (6) (1.2) (1) 8 13 17 19 19 Tax paid 0 0.00(10)(36)(44)(51)(56) Operating cash flow 195 (5.2) 538 443 580 643 702 737 13.6% Capex on PP&E (107) (165.7) (217) (271) (367) (396) (417) (432) Other investing cash flow (283) (4.0) (30) 0 0 0 0 0 Investing cash flow (390) (169.7) (247) (271) (367) (396) (417) (432) 12.3% Operating free cash flow (*) 88 (171.0) 321 172 213 248 284 306 15.5% Free cash flow (**) (195) (175.0) 291 172 213 248 284 306 15.5% Dividends paid 0 0.0 0 0 (78) (185) (289) (295) Share buybacks / issuances 4000.0000000 Other (112) 182.0 (50) 0 0 0 0 0 Financing cash flow 288 182.0 (50) 0 (78) (185) (289) (295) NM Change in cash and cash equivalents 7.2 241 172 135 63 (5) 11 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investingcashflow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 82 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Arabtec Holding PJSC: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised) Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 21.1x 16.4x 12.6x 11.3x 9.5x 9.1x CROCI NA 38.4% 29.9% 29.5% 30.9% 26.3% EBITDA margin 9.1% 10.6% 10.8% 10.3% 10.5% 10.3% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4x GS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6% GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACF lease adj'd 31.8x 7.0x 9.2x 8.1x 7.2x 7.1x ROE NA 32.0% 30.4% 25.6% 24.3% 21.8% EBIT margin 6.7% 7.3% 7.9% 7.6% 8.1% 8.1% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4x GS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0% GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9%

EV / EBITDA lease adj'd 10.5x 8.6x 9.2x 8.0x 6.8x 6.7x CROCI / WACC NA 3.8x 2.9x 2.9x 3.1x 2.6x NOPAT margin 7.3% 8.1% 8.6% 8.3% 8.8% 8.8% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x GS coverage 1.4x 1.6x 1.5x 1.6x 1.6x 1.5x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9%

EV / NOPAT lease adj'd 14.0x 12.4x 12.7x 10.9x 9.0x 8.7x EV / GCI 3.5x 2.1x 2.6x 2.2x 2.0x 1.7x Capex / sales 4.2% 5.9% 6.0% 6.0% 6.0% 6.0% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1x GS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% P / book 6.5x 4.8x 3.5x 2.7x 2.2x 2.0x GCI (*) 837 1,469 1,725 2,206 2,903 3,722 Capex / depreciation 2.1x 2.1x 2.4x 2.6x 2.9x 3.4x GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Net debt / (cash) * (122) 28 (263) (435) (570) (632) FCF yield -10.7% -9.5% 7.6% 4.4% 5.5% 6.4% Pension liabilities * 89 134 140 147 155 163 GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / Equity -0.2x 0.0x -0.2x -0.3x -0.3x -0.3x Dividend yield 0.0%0.0%0.0%2.1%5.0%7.7%Net Debt / EBITDA -0.5x 0.1x -0.7x -0.9x -0.9x -0.9x GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1% Net interest / EBITDA 2.5% 0.4% 0.2% -1.7% -2.0% -2.5% * Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.0x 0% 5.0x 4.0x 0.9x 4.5x -5% 4.0x 3.5x 0.8x

3.5x I 3.0x 0.7x -10% 3.0x 2.5x 0.6x ARTC.DU -15% EV / GCIEV 2.5x EV / GC ARTC.DU 2.0x 0.5x 2.0x -20% Sector Sector 0.4x 1.5x 1.5x 1.0x 1.0x 0.3x -25% 0.2x 0.5x 0.5x -30% 0.0x 0.1x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -35% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin ARTC.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 83 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Orascom Construction Industries (OCIC.CA) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 1%

Egypt: Construction Investment Profile: OCIC.CA

Low Hi gh

Regional heavyweight with attractive prospects, but fully valued Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Orascom Construction Industries (OCI) is the largest cement producer in the Middle East and Percentile 20th 40th 60th 80th 100th has a large and rapidly growing construction business that spans the MENA region. We believe Orascom Construction Industries OCI offers attractive growth potential and it is the only listed entity in the region with such a Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the wide exposure to the regional infrastructure boom. investment profile measures please refer to the disclosure section of this document. • Construction and infrastructure developments in OCI’s core markets are driving strong demand Key data (*) for building materials and construction services. OCI’s revenue growth has been c.40% over the Price (£E) 459.5 last two years, and we expect it to continue to grow at a CAGR of 23% over the next five years, Price target (£E) 462.0 generating net income margins in excess of 15%. Market cap ($ mn) 16,609 Average daily trading volume ($ mn) NA • Given the diversity of operations and the growth potential, we consider OCI to be the most Free float 36% Bloomberg code ORCI EY complete investment play on the regional infrastructure boom, but we feel that this is fully 2006 2007E 2008E 2009E reflected in the share price. We initiate coverage on OCI as Neutral. Sales (£E mn) 16,475 22,823 29,883 37,249 EBITDA (£E mn) 4,441 6,406 8,745 11,947 EV / EBITDAR 13.6x 18.3x 14.1x 10.5x P / E 33.7x 28.1x 22.0x 14.8x Valuation: 12-month target price of £E462 Dividend yield 1.2% 1.4% 2.3% 5.1% (*) multiples and ratios are calendarised Our 12-month price target is based on DCF valuation, with reasonableness checks including EV/GCI versus CROCI/WACC and implied P/E ratios at target prices relative to the peer group.

90 We use a two-stage terminal value calculation, stepping growth down from the rate at the end of 600 80 the explicit forecast period to a 3% perpetual value. We use a WACC of 10% and calculate a 12- 550 70 month target price of £E462. 500 60 450 At our price target, the stock would trade at 22.1x and 14.8x 2008E and 2009E P/E respectively, 50 compared with the European peer group average of 17.2x and 15.8x. 40 400 30 350

6 7 7 7 We have not incorporated potential expansion into new product groups or geographical areas, 06 06 06 07 07 07 07 07 0 006 0 00 0 006 0 0 00 0 00 0 00 0 /2 2 /2 /2 /2 2 /2 /2 /2 /2 /2 /2 /2 /2007/2 9 0/ 0 1 1 1 2 3 4 5 6 7 8 8 1 /1 /0 /0 /0 /0 /0 /0 which might provide some additional upside potential. 2/0 6/1 9/1 5/0 2/0 8/0 2 10/ 2 13 2 15/12/02 18/01/20070 21/02/200709 27/03/20071 30/04/200716 01/06/200719 05/07/200723 0 24 OCIC.CA (£E) MSCI EM Eur ope & Middle Eas t

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 84 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Orascom Construction Industries: Overview Company description Orascom Construction Industries (OCI) is an Egypt- Core drivers of growth based construction company and manufacturer of • Rapid regional expansion from both the cement and construction divisions provides a strong cement. The company is a heavyweight in the MENA growth environment. OCI also has a proven track record in completing successful acquisitions. region with operations in over 20 countries. OCI We expect the company to continue to acquire complimentary operations as part of its expansion operates cement plants in Egypt, Algeria, Pakistan, plans, although no explicit account has been made in our forecasts. Iraq, Turkey and the UAE, with year-end 2007 capacity expected to reach 31 mn tonnes. The company also • Cement demand in emerging markets is at an all-time high leading to large-scale investments in has significant contracting operations through its 50% new capacity. OCI has is set to increase capacity by 86% from 2006 levels to 39 mn tonnes by stake in the Besix Group and 100% stake in Contrack. 2009. Contracting revenue is also showing signs of significant growth with the backlog standing The company’s key markets for construction include at US$3.45 bn, with US$1.8 bn in new contract awards in 1H07. We expect the construction Egypt, Algeria and the GCC countries. business to generate revenue CAGR in excess of 20% out to 2009. Shareholder structure (2007) • OCI is expanding into the fertilizer business with two investments in natural gas in Egypt and Algeria. OCI will likely have access to a number of high growth markets in the Middle East and should operate at a very competitive cash cost. We expect the fertilizer business to be a core driver of growth in the medium to longer tem. 40%

60% Risk to the investment case • A slowdown in construction activity across the MENA region remains a threat to the group. OCI’s

geographic spread mitigates the downside risk in isolated markets but a region-wide slowdown Saw iris family Public could significantly affect the company.

• Increased competition as new entrants are attracted to the region’s rapidly growing construction industry. This is likely to be particularly evident in the cement sector where pricing pressure in a Sales by division (2007E) number of the company’s key markets remains a concern. Strong demand across the region is also driving up the cost of inputs and labour costs, placing margins under pressure. 31%

Industry context Substantial investments in infrastructure to support growing economies and populations in 69% emerging markets, have resulted in exceptionally large construction sectors relative to other economies, even in the emerging world. MEED, a regional economic digest, estimates values of over US$1.6 tn in the GCC alone. As the largest player in the Middle East and with a diverse and growing operational base, OCI is well positioned to benefit from the developments taking place. Construction Cement

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 85 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Orascom Construction Industries: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) £Emn (LHS) EBIT Margin (RHS) 2.5x 25.0% 45,000 28.2% 2.0x 20.0% 40,000 35,000 26.2% 1.5x 15.0% 30,000 24.2% 25,000 1.0x 10.0% 20,000 22.2% 15,000 20.2% 0.5x 5.0% 10,000 18.2% 5,000 0.0x 0.0% 0 16.2% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Geographic expansion has opened up new growth markets and reduced ƒ Competes with more focused companies that specialize in their concentration risk. respective markets.

ƒ Barriers to entry. Limited number of companies with the capacity to match the scale of OCI’s operations.

ƒ Strong pipeline of construction projects and large-scale cement expansion plans.

Opportunities Threats ƒ The ongoing infrastructure boom should continue to present ƒ New entrants in rapidly expanding markets. opportunities and new projects for the company. ƒ A slowdown in construction activity, either in a boom-bust scenario, or a ƒ The fertilizer business presents attractive growth potential for the group longer-term natural decline in construction activity as large projects draw going forward. to a close.

ƒ Oversupply in the cement operations, particularly in relatively new growth markets such as the UAE.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 86 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Orascom Construction Industries: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (£E mn, year to Dec) CAGR Sales 2,911 4,403 8,556 11,367 16,475 22,823 29,883 37,249 40,057 43,685 46,178 11.5% EBITDAR 801 1,204 2,224 2,683 4,441 6,406 8,745 11,947 12,309 13,400 14,003 EBITDA 801 1,204 2,224 2,683 4,441 6,406 8,745 11,947 12,309 13,400 14,003 EBITDA margin 27.5% 27.3% 26.0% 23.6% 27.0% 28.1% 29.3% 32.1% 30.7% 30.7% 30.3% EBIT 590 945 1,909 2,559 3,817 4,966 6,684 9,367 9,456 10,255 10,557 12.1% EBIT margin 20.3% 21.5% 22.3% 22.5% 23.2% 21.8% 22.4% 25.1% 23.6% 23.5% 22.9% Net interest expense (216) (253) (315) (330) (461) (432) (849) (1,032) (1,016) (945) (851) Associate income / other 101 161 (13) 76 194 (0) (0) (0) (0) (0) 0 Profit before tax 475 853 1,581 2,304 3,550 4,534 5,836 8,335 8,440 9,311 9,705 Adjusted PBT 496 875 1,522 1,991 3,550 4,534 5,836 8,335 8,440 9,311 9,705 13.6% Tax (9) (29) (77) (114) (136) (227) (292) (417) (422) (466) (485) Exceptional items 00000000000 Minority interest (102) (266) (403) (489) (743) (1,029) (1,347) (1,680) (1,806) (1,970) (2,082) Net income 364 558 1,101 1,700 2,671 3,278 4,196 6,239 6,212 6,875 7,138 Adjusted net income 385 580 1,042 1,387 2,671 3,278 4,196 6,239 6,212 6,875 7,138 14.2%

08E-12E Per share data (£E) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 191 191 190 189 196 200 200 200 200 200 200 No. of diluted shares outstanding (*) 191 191 190 189 196 200 200 200 200 200 200 EPS (basic) 1.91 2.93 5.81 8.97 13.62 16.35 20.93 31.12 30.99 34.30 35.61 14.2% EPS (diluted) 1.91 2.93 5.81 8.97 13.62 16.35 20.93 31.12 30.99 34.30 35.61 EPS (adjusted, basic) (2.85) (12.22) 5.51 7.40 13.62 16.35 20.93 31.12 30.99 34.30 35.61 14.2% Annual growth NM NM 34.3% 83.9% 20.1% 28.0% 48.7% -0.4% 10.7% 3.8% EPS (adjusted, diluted) (2.85) (12.22) 5.51 7.40 13.62 16.35 20.93 31.12 30.99 34.30 35.61 DPS 0.5 0.5 0.9 2.0 5.5 6.5 10.5 23.3 23.2 25.7 26.7 26.4% Annual growth 0.0% 98.0% 124.0% 175.0% 18.9% 60.0% 123.0% -0.4% 10.7% 3.8% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 87 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Orascom Construction Industries: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (£E mn, year ending Dec) CAGR Cash and cash equivalents 787 925 1,643 3,009 3,211 970 684 1,247 3,613 6,717 10,136 Other current assets 1,665 1,956 4,023 5,173 7,797 11,118 14,517 17,865 19,349 21,114 22,382 Total current assets 2,453 2,881 5,667 8,183 11,008 12,088 15,201 19,111 22,962 27,831 32,518 20.9% Long term investments & other 170 241 388 620 2,063 2,063 2,063 2,063 2,063 2,063 2,063 Property, plant and equipment 3,705 4,989 6,696 8,807 15,545 23,234 28,013 31,134 31,084 30,998 30,784 Intangible assets 00000000000 Total assets 6,327 8,111 12,750 17,610 28,616 37,384 45,277 52,308 56,108 60,891 65,364 9.6% Trade payables 1,017 939 2,405 1,274 3,189 3,752 4,912 6,123 6,585 7,181 7,591 Short term debt 758 714 983 1,344 2,988 2,988 2,988 2,988 2,988 2,988 2,988 Long term debt 1,656 2,563 3,493 5,518 6,262 11,262 13,762 13,762 13,762 13,762 13,762 Pension liabilities 82 138 295 617 1,329 1,329 1,329 1,329 1,329 1,329 1,329 Other liabilities 499 453 1,042 2,628 3,688 3,688 3,688 3,688 3,688 3,688 3,688 Total liabilities 4,012 4,808 8,219 11,381 17,456 23,019 26,679 27,890 28,352 28,948 29,358 2.4% Minority interests 876 1,146 1,487 1,965 2,488 3,518 4,865 6,545 8,351 10,321 12,403 Shareholders' equity 1,439 2,158 3,044 4,264 8,672 10,847 13,732 17,873 19,406 21,622 23,603 Total equity and liabilities 6,327 8,111 12,750 17,610 28,616 37,384 45,277 52,308 56,108 60,891 65,364 9.6%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (£E mn, year to Dec) CAGR Cash from operations 902 833 1,283 2,479 4,428 3,648 6,506 9,810 11,287 12,231 13,145 19.2% Net interest paid (216) (253) (315) (330) (461) (432) (849) (1,032) (1,016) (945) (851) Tax paid (9) (29) (77) (114) (136) (227) (292) (417) (422) (466) (485) Operating cash flow 677 551 891 2,034 3,831 2,990 5,366 8,361 9,849 10,821 11,808 21.8% Capex on PP&E (692) (1,408) (1,616) (2,921) (7,468) (9,129) (6,840) (5,700) (2,804) (3,058) (3,232) Other investing cash flow 35(66)(102)(971)(450)000000 Investing cash flow (657) (1,474) (1,718) (3,891) (7,918) (9,129) (6,840) (5,700) (2,804) (3,058) (3,232) -17.1% Operating free cash flow (*) (15) (857) (724) (886) (3,637) (6,139) (1,474) 2,661 7,045 7,763 8,576 NM Free cash flow (**) 21 (923) (827) (1,857) (4,086) (6,139) (1,474) 2,661 7,045 7,763 8,576 NM Dividends paid (45) (95) (143) (172) (404) (1,102) (1,311) (2,098) (4,679) (4,659) (5,156) Share buybacks / issuances(78)89(12)(10)2,193000000 Other (182)1,0591,6972,6312,8675,0002,5000000 Financing cash flow (305) 1,053 1,542 2,449 4,656 3,898 1,189 (2,098) (4,679) (4,659) (5,156) NM Change in cash and cash equivalents 138 718 1,366 202 (2,242) (286) 563 2,366 3,104 3,419 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 88 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Orascom Construction Industries: Valuation summary

Relative to the GS New Markets Non-Financial coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 62.1x 33.7x 28.1x 22.0x 14.8x 14.8xCROCI 46.2% 31.4% 23.7% 23.0% 25.5% 23.3%EBITDA margin 23.6% 27.0% 28.1% 29.3% 32.1% 30.7% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 8.4x 12.1x 19.0x 14.6x 11.0x 10.5xROE 46.5% 41.3% 33.6% 34.1% 39.5% 33.3%EBIT margin 22.5% 23.2% 21.8% 22.4% 25.1% 23.6% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 3.6x 2.4x 1.8x 1.8x 2.0x 1.8xNOPAT margin 19.8% 23.2% 21.8% 22.4% 25.1% 23.6% EV / EBITDA lease adj'd 14.5x 13.6x 18.3x 14.1x 10.5x 10.1x GS coverage 1.4x 1.6x 1.5x 1.6x 1.6x 1.5xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI 3.4x 3.0x 3.7x 3.0x 2.6x 2.4xCapex / sales 25.7% 45.3% 40.0% 22.9% 15.3% 7.0% EV / NOPAT lease adj'd 17.4x 15.8x 23.6x 18.4x 13.4x 13.2x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 18,267 35,167 45,585 55,749 64,799 69,154Capex / depreciation 6.7x 12.0x 6.3x 3.3x 2.2x 1.0x P / book 20.4x 10.6x 8.5x 6.7x 5.2x 4.7x Net debt / (cash) * 3,853 6,038 13,280 16,066 15,503 13,137 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 617 1,329 1,329 1,329 1,329 1,329 FCF yield -8.7% -11.4% -6.7% -1.6% 2.9% 7.6% Net Debt / Equity 0.6x 0.5x 0.9x 0.9x 0.6x 0.5x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA 1.4x 1.4x 2.1x 1.8x 1.3x 1.1x Dividend yield 0.4%1.2%1.4%2.3%5.1%5.1% Net interest / EBITDA 12.3% 10.4% 6.7% 9.7% 8.6% 8.3% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* £E mn

Relative to GS New Markets Non-Financial coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 2.5x 120% 5.0x 4.5x 4.0x 100% 4.0x 3.5x 2.0x OCIC.CA 3.5x I 3.0x OCIC.CA 80% 3.0x 2.5x 1.5x EV / GCIEV

2.5x EV / GC 2.0x 60% 2.0x Sector Sector 1.0x 1.5x 1.5x 40% 1.0x 1.0x 0.5x 0.5x 0.5x 20% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin OCIC.CA

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 89 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aerated Concrete Industries Co (ACIC.KW) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 11%

Kuwait: Construction Investment Profile: ACIC.KW

Low Hi gh

Transition brings uncertainties Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Aerated Concrete Industries Company (ACICO) presents a spread of exposure to the themes Percentile 20th 40th 60th 80th 100th of real estate development and construction in the Middle East. It operates in several Aerated Concrete Industries Company countries in the region, so is not a concentrated play on Dubai or the UAE. Its original line of Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the business was the production and distribution of aerated concrete blocks, but it is now investment profile measures please refer to involved in engineering, contracting and real estate development. There are some synergies the disclosure section of this document. between these activities, as evidenced by the high level of inter-segment eliminations in the Key data (*) company’s financial statements; we believe this raises concentration risk. Price (KD) 0.54 Price target (KD) 0.60 • The shares look inexpensive, but the company is going through a transition phase that raises Market cap ($ mn) 376.1 Average daily trading volume ($ mn) 502.6 risks, and is in a highly competitive market to start. Revenues in the first half of this year Free float 72% declined by 44% compared with 1H2006 as property development revenues dropped Bloomberg code ACICO KK significantly, but there were declines across all business segments. 2006 2007E 2008E 2009E Sales (KD mn) 54.5 41.9 49.4 55.1 • The shares appear cheap, but the environment is challenging; we initiate as Neutral. EBITDA (KD mn) 8.87 9.16 10.8 11.6 EV / EBITDAR 13.5x 16.0x 13.7x 12.9x P / E 7.8x 10.8x 9.2x 8.6x Dividend yield 8.8% 6.4% 7.5% 5.8% Valuation: 12-month target price of KD0.60 (*) multiples and ratios are calendarised Our 12-month price target is based on DCF valuation, with reasonableness checks including EV/GCI versus CROCI/WACC and implied P/E ratios at target prices relative to the peer group. 2.0 1.8 600 1.6 550 We use a two-stage terminal value calculation, stepping growth down from the rate at the end of 1.4 1.2 the explicit forecast period to a 3% perpetual value. We use a WACC of 10.5%, which is higher 500 1.0 than the average of our UAE coverage, to account for the lower liquidity and transparency. 0.8 450 0.6 0.4 400 At our price target, the stock would trade at 10.2x and 9.6x 2008E and 2009E P/E respectively, 0.2 compared with the European building materials peer group average of 17.2x and 15.8x, which 0.0 350 6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 may appear to be rather a wide discount for illiquidity and higher cost of capital, but we also 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 believe the medium-term outlook is challenging from a pricing perspective, as we discuss in more 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 ACIC.KW (KD) MSCI EM Europe & Middle East detail in our coverage of the UAE cement sector.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 90 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aerated Concrete Industries Company: Overview Company description Aerated Concrete Industries Company (ACICO) was Core drivers of growth established in Kuwait in 1990 and was listed on the • Restoration of growth in the core contracting and concrete production businesses. KSE in 1997 and on the DFM in 2006. The company Manufacturing plants in Saudi Arabia and Qatar should become operational in the second half was originally involved purely in the production of of 2007, while recent contracts signed with Nakheel for construction of villas at Jebel Ali should autoclaved aerated concrete blocks, licensed by Hebel contribute to revenues in 2H2007 and 2008. Germany. It subsequently began contracting operations, and this now forms the majority of • Revenues should also begin to accrue from ACICO’s first hotel development, which became revenues, albeit at a lower margin. The company also operational in May 2007. The five-star hotel in Fujairah, owned by ACICO but operated by has a real estate development arm, and has operations Japanese Airlines (JAL) will be a model for future developments. in Kuwait, UAE, Qatar and Saudi Arabia.

Risk to the investment case Shareholder structure (2007) ƒ A slowdown in economic and construction activity in the Middle East, caused either by falling 12% oil prices, rising political tensions, or a boom-bust cycle of overinvestment. 16% ƒ Competition from new suppliers and materials or techniques. ƒ Overstretch of management resource across multiple divisions and countries. 72%

Industry context Public Ghassan Ahmad Saud Al Khaled

The real estate and constructions sectors in the GCC have been experiencing a boom since property Ahmad Ghassan Ahmad Saud Al Khaled reforms were enacted and economies began to feel the effect of higher oil prices. Substantial

investments in infrastructure to support the growing economy and population result in an Sales by division (2007E) exceptionally large construction sector relative to other economies, even in the emerging world.

Since 2003, the construction sector has contributed around 8% of total GDP in the UAE and grown at a nominal CAGR above 20%. MEED, a regional economic digest, estimates project values in the UAE totaling almost US$700 bn and over US$1.6 tn in the GCC in total.

ACICO is positioned in several segments of the real estate and construction sectors, engineering, industrial, contracting and real estate development and thus is exposed to several sources of

growth and is capable of extracting synergies from its various operations. 100%

Contrac ting

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 91 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aerated Concrete Industries Company: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) KDmn (LHS) EBIT Margin (RHS) 5.0x 30.0% 70.0 24.6% 4.5x 25.0% 60.0 4.0x 22.6% 20.0% 3.5x 50.0 20.6% 3.0x 15.0% 40.0 18.6% 2.5x 10.0% 2.0x 30.0 16.6% 1.5x 5.0% 20.0 14.6% 1.0x 0.0% 0.5x 10.0 12.6% 0.0x -5.0% 0.0 10.6% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Reputation for high quality and holder of a licence from Hebel ƒ Concrete is a commoditized business and margins are thin. Despite International, the originator of autoclaved aerated concrete, a very ACICO’s product being a ‘premium’ material, pricing power is poor. versatile construction material. ƒ Diverse business activities may spread risk, but may also reduce focus, ƒ Partly integrated vertically into the supply chain, by establishing its own as management resource is finite. lime plant.

ƒ Synergies between various business divisions; engineering, industrial, contracting and real estate development.

Opportunities Threats ƒ Expansion of production capacity in high growth markets, such as Saudi ƒ A slowdown in economic and construction activity in the Middle East, Arabia. caused either by falling oil prices, rising political tensions, or a boom- bust cycle of overinvestment. ƒ Development of its real estate business in Kuwait and outside, such as the hotel development in Fujairah that opened in May 2007. ƒ Competition from new suppliers and materials or techniques.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 92 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aerated Concrete Industries Company: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (KD mn, year to Dec) CAGR Sales 27.0 27.8 43.8 34.0 54.5 41.9 49.4 55.1 58.4 61.9 65.6 7.4% EBITDAR 5.4 6.2 8.9 8.8 8.9 9.2 10.8 11.6 12.2 12.7 13.3 EBITDA 5.4 6.2 8.9 8.8 8.9 9.2 10.8 11.6 12.2 12.7 13.3 EBITDA margin 20.0% 22.5% 20.4% 25.8% 16.3% 21.9% 21.9% 21.1% 20.8% 20.5% 20.3% EBIT 4.2 4.7 7.4 7.1 7.2 7.6 9.3 10.1 10.6 11.1 11.7 6.0% EBIT margin 15.6% 17.0% 16.8% 21.0% 13.3% 18.1% 18.8% 18.3% 18.2% 18.0% 17.9% Net interest expense 0.0 0.1 0.0 0.0 0.1 (2.4) (2.3) (2.4) (2.4) (2.4) (2.4) Associate income / other (0.5) (0.3) 5.1 1.5 7.3 5.6 5.6 5.6 5.6 5.6 5.6 Profit before tax 3.7 4.5 12.5 8.6 14.6 10.8 12.5 13.3 13.7 14.3 14.9 Adjusted PBT 3.9 4.8 12.8 8.7 14.7 10.9 12.6 13.4 13.8 14.4 15.0 4.5% Tax (0.0) (0.1) (0.3) (0.3) (0.5) (0.4) (0.4) (0.4) (0.4) (0.5) (0.5) Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest (0.2) (0.3) (0.6) (0.5) (0.7) (0.7) (0.7) (0.7) (0.7) (0.7) (0.7) Net income 3.4 4.1 11.5 7.9 13.3 9.7 11.3 12.1 12.6 13.1 13.7 Adjusted net income 3.7 4.4 11.8 8.0 13.4 9.8 11.4 12.2 12.7 13.2 13.8 4.8%

08E-12E Per share data (KD) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 107 113 132 141 152 195 195 195 195 195 195 No. of diluted shares outstanding (*) 107 113 195 195 195 195 195 195 195 195 195 EPS (basic) 0.030.040.090.060.090.050.060.060.060.070.074.8% EPS (diluted) 0.030.040.060.040.070.050.060.060.060.070.07 EPS (adjusted, basic) 0.03 0.04 0.06 0.04 0.07 0.05 0.06 0.06 0.06 0.07 0.07 4.8% Annual growth 14.1% 55.6% -32.3% 67.7% -27.4% 17.2% 6.8% 3.6% 4.4% 4.5% EPS (adjusted, diluted) 0.03 0.04 0.06 0.04 0.07 0.05 0.06 0.06 0.06 0.07 0.07 DPS 0.00 30.62 39.37 0.04 0.05 0.03 0.04 0.03 0.03 0.03 0.04 -3.7% Annual growth NM 28.6% -99.9% 8.7% -27.0% 17.2% -23.8% 3.6% 4.4% 4.5% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 93 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aerated Concrete Industries Company: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (KD mn, year ending Dec) CAGR Cash and cash equivalents3.01.30.52.56865679 Other current assets 24.931.727.324.824161921222425 Total current assets 27.933.027.927.3302425252831347.6% Long term investments & other 3.1 2.9 27.2 21.5 16 21 27 32 38 44 49 Property, plant and equipment 12.6 14.8 15.1 29.9 63 62 62 61 61 61 61 Intangible assets 1.91.81.71.61111100 Total assets 45.5 52.4 71.8 80.3 109 108 114 120 127 135 143 5.9% Trade payables 1.31.72.33.37556677 Short term debt 19.422.221.222.017171717171717 Long term debt 0.0 1.8 5.2 7.5 29 29 29 29 29 29 29 Pension liabilities 0.20.30.40.51111111 Other liabilities 2.13.12.73.80000000 Total liabilities 23.029.131.937.1545253545454550.8% Minority interests 0.60.71.01.01233456 Shareholders' equity 21.9 22.7 38.9 42.2 53 54 58 63 69 76 83 Total equity and liabilities 45.5 52.4 71.8 80.3 109 108 114 120 127 135 143 5.9%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (KD mn, year to Dec) CAGR Cash from operations (2.7) 0.9 11.3 13.2 12.3 14.7 8.8 10.1 11.3 11.8 12.3 8.7% Net interest paid 0.0 0.1 0.0 0.0 0.1 (2.4) (2.3) (2.4) (2.4) (2.4) (2.4) Tax paid (0.0) (0.1) (0.3) (0.3) (0.5) (0.4) (0.4) (0.4) (0.4) (0.5) (0.5) Operating cash flow (2.7) 0.8 10.9 12.9 11.9 11.9 6.1 7.3 8.4 8.9 9.4 11.8% Capex on PP&E (1.8) (0.8) (1.1) (3.1) (0.9) (0.8) (1.0) (1.1) (1.2) (1.2) (1.3) Other investing cash flow (0.7) (2.5) (16.3) (4.9) (11.2) 0.0 0.0 0.0 0.0 0.0 0.0 Investing cash flow (2.5) (3.3) (17.4) (8.0) (12.2) (0.8) (1.0) (1.1) (1.2) (1.2) (1.3) 7.4% Operating free cash flow (*) (4.5) 0.1 9.8 9.8 11.0 11.1 5.1 6.2 7.2 7.7 8.1 12.6% Free cash flow (**) (5.2) (2.5) (6.4) 4.9 (0.3) 11.1 5.1 6.2 7.2 7.7 8.1 12.6% Dividends paid (3.4) (3.4) (3.6) (5.9) (6.7) (9.3) (6.8) (7.9) (6.1) (6.3) (6.6) Share buybacks / issuances 3.6 0.0 2.0 0.0 1.3 0.0 0.0 0.0 0.0 0.0 0.0 Other 7.33.97.31.35.40.00.00.00.00.00.0 Financing cash flow 7.5 0.6 5.7 (4.6) (0.0) (9.3) (6.8) (7.9) (6.1) (6.3) (6.6) -0.8% Change in cash and cash equivalents (1.8) (0.7) 2.0 3.6 1.8 (1.7) (1.8) 1.2 1.4 1.6 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 94 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aerated Concrete Industries Company: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 13.1x 7.8x 10.8x 9.2x 8.6xCROCI 8.3x 12.7% 7.9% 8.4% 9.5% 9.5% 9.3%EBITDA margin 25.8% 16.3% 21.9% 21.9% 21.1% 20.8% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 12.1x 17.5x 17.4x 14.9x 14.0x 13.3xROE 19.5% 27.9% 18.1% 20.2% 20.0% 19.1%EBIT margin 21.0% 13.3% 18.1% 18.8% 18.3% 18.2% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 1.3x 0.8x 0.9x 1.0x 1.0x 1.0xNOPAT margin 21.3% 13.5% 18.3% 18.9% 18.5% 18.4% EV / EBITDA lease adj'd 12.7x 13.5x 16.0x 13.7x 12.9x 12.2x GS coverage 1.6x 1.9x 1.8x 1.9x 1.9x 1.8xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI 1.5x 1.2x 1.5x 1.4x 1.3x 1.2xCapex / sales 9.1% 1.7% 2.0% 2.0% 2.0% 2.0% EV / NOPAT lease adj'd 15.4x 16.3x 19.1x 15.8x 14.7x 13.9x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 103 176 177 187 196Capex 205 / depreciation 2.0x 0.6x 0.6x 0.7x 0.8x 0.8x P / book 2.5x 2.0x 2.0x 1.8x 1.7x 1.5x Net debt / (cash) * 27 40 39 40 42 41 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 1 1 1 1 1 1 FCF yield 13.1% 4.2% 5.3% -0.5% 0.6% 1.6% Net Debt / Equity 0.6x 0.7x 0.7x 0.7x 0.6x 0.6x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA 3.1x 4.6x 4.2x 3.7x 3.6x 3.4x Dividend yield 8.1%8.8%6.4%7.5%5.8%6.0% Net interest / EBITDA 0.0% -0.7% 26.1% 21.6% 20.5% 20.1% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* KD mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.8x 80% 5.0x 4.5x 4.0x 1.6x 70% 4.0x 3.5x 1.4x 60% 3.5x I 3.0x 1.2x 3.0x 50% 2.5x 1.0x EV / GCIEV

2.5x EV / GC 2.0x 40% 2.0x 0.8x Sector Sector 1.5x 1.5x 30% ACIC.KW ACIC.KW 0.6x 1.0x 1.0x 0.4x 20% 0.5x 0.5x 0.0x 0.2x 10% 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin ACIC.KW

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 95 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bildco (BILD.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 11% United Arab Emirates: Construction

Investment Profile: BILD.AD

Low Hi gh

Reasonable growth, but little pricing power Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Bildco is placed at the centre of the construction boom underway in the UAE. It is an Percentile 20th 40th 60th 80th 100th established company in the materials supply business and is attempting to move further up Bildco the value chain from wholesale trading to production of certain building materials, such as Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the concrete blocks, paving and steel reinforcement. investment profile measures please refer to the disclosure section of this document. • Its products are, however, commoditised, and we believe Bildco will struggle to expand Key data (*) margins in a highly competitive environment. Management has indicated that it might Price (Dh) 3.80 consider entering the cement business, which we would view as a negative step. Revenue Price target (Dh) 4.20 growth is likely to remain strong, but margins will likely come under continued pressure. Market cap ($ mn) 310.5 Average daily trading volume ($ mn) NA • With 11% upside to our 12-month price target we initiate as Neutral, as we see more Free float 73% Bloomberg code BILDCO DB attractive ways to gain exposure to construction in the UAE, although the shares’ high 2006 2007E 2008E 2009E dividend yield might be considered an attraction. Sales (Dh mn) 827.6 993.1 1,142 1,256 EBITDA (Dh mn) 67.8 88.9 100.4 106.8 EV / EBITDAR 33.8x 13.4x 12.3x 11.9x P / E 15.4x 13.8x 12.0x 11.0x Valuation: 12-month target price of Dh4.20 Dividend yield 6.6% 6.9% 7.9% 8.7% (*) multiples and ratios are calendarised Our 12-month price target is based on DCF valuation, with reasonableness checks including EV/GCI versus CROCI/WACC and implied P/E ratios at target prices relative to the peer group.

2.0 We use a two-stage terminal value calculation, stepping growth down from the rate at the end of 1.8 600 1.6 550 the explicit forecast period to a 3% perpetual value. We use a WACC of 11.0%, which is higher 1.4 1.2 than the average of our UAE coverage to account for the lower liquidity and transparency. 500 1.0 0.8 450 At our price target, the stock would trade at 13.4x and 13.0x 2008E and 2009E P/E respectively, 0.6 0.4 400 compared with the European peer group average of 17.2x and 15.8x. 0.2 0.0 350

6 6 7 We have not incorporated potential expansion into new product groups or geographical areas, 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 which might provide some upside potential. However, the most likely expansion opportunities are 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 in highly competitive industries and are unlikely to be highly value accretive, in our view. BILD.AD (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 96 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bildco: Overview Company description Abu Dhabi National Company for Building Materials Core drivers of growth (Bildco) was established over 30 years ago as an • UAE’s booming construction sector provides strong demand for building materials. Bildco’s importer and distributor of building materials. The revenue growth has been 25%-30% over the last two years, although gross margin has fallen company has gradually shifted its focus from its from 11% in 2004 to 9% last year. We expect a continuation of this trend; strong revenue original retail operations at three stores in the UAE to growth will likely come at the expense of margin. We expect earnings growth in high single wholesale supply and into production of materials such digits unless management succeed in developing new lines of business or expand as paving stone and interlock and steel rebar. The geographically. company plans to construct two new factories, one for milled steel and the other for light concrete blocks, • Management has expressed a desire to expand the company’s production of light concrete and which are expected to come into operation by 2009. steel products, and recently signed contracts for the construction of factory facilities. The company expects production to commence in 2009, although we do not include these potential revenue streams (or the required investment) in our forecasts due to uncertainties over their Shareholder structure (2007) nature and magnitude and timing of investment. 7%

20% Risk to the investment case • A slowdown in construction activity in UAE.

• Increased competitive threats as new entrants are attracted to the regions rapidly growing 73%

construction industry. Pu blic • On the positive side, it is possible that management will succeed in making value-enhancing Ali Nasser Rsheid Al Omeira investments. Khaled Ali Risheid Al Omeira

Sales by division (2007E) Industry context The real estate sector in Dubai and other areas of the UAE have been experiencing a boom since property reforms were enacted and economies began to feel the effect of higher oil prices. Our estimates suggest demand for over 200,000 residential units in Dubai alone between 2006 and 2010.

Substantial investments in infrastructure to support the growing economy and population result in an exceptionally large construction sector relative to other economies, even in the emerging world. Since 2003, the construction sector has contributed around 8% of total GDP in the UAE and grown 100% at a nominal CAGR above 20%. MEED, a regional economic digest, estimates project values in the

UAE totaling almost US$700 bn and over US$1.6 tn in the GCC in total. Bildco is positioned to Building materials benefit from construction activity, but is in a very competitive field.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 97 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bildco: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin (RHS) 6.0x 10.0% 1,600 9.4% 4.0x 5.0% 1,400 0.0% 2.0x 1,200 8.4% -5.0% 0.0x 1,000 7.4% -10.0% 800 -2.0x 6.4% -15.0% 600 -4.0x -20.0% 5.4% 400 -6.0x -25.0% 200 4.4% -8.0x -30.0% 0 3.4% 03 04 05 06 07E 08E 09E 10E 11E 12E 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Established position in the building materials segment; over 30 years in ƒ Low barriers to entry and low value of building materials puts constant the market. downward pressure on margins.

ƒ Strong balance sheet. High dividend yield from cash generative business.

Opportunities Threats ƒ Expansion across the region, providing economies of scale such as ƒ New entrants in a rapidly expanding markets. increased purchase sizes. ƒ A slowdown in construction activity, either in a boom-bust scenario, or a ƒ Expansion of production activities, although this is likely to be in longer-term natural decline in construction activity as large projects draw commoditised products. to a close.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 98 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bildco: Summary financials Income statement 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 207.1 504.8 659.4 827.6 993.1 1,142 1,256 1,344 1,438 1,539 7.7% EBITDAR 17.4 39.8 34.3 67.8 88.9 100 107 115 124 133 EBITDA 17.4 39.8 34.3 67.8 88.9 100 107 115 124 133 EBITDA margin 8.4% 7.9% 5.2% 8.2% 8.9% 8.8% 8.5% 8.5% 8.6% 8.6% EBIT 11.3 33.9 28.1 60.9 82.0 94 104 111 119 127 7.7% EBIT margin 5.5% 6.7% 4.3% 7.4% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% Net interest expense (0.7) 10.7 44.3 14.3 (2.4) (3) (4) (5) (6) (7) Associate income / other 0.2 (0.0) 0.0 (0.0) (0.0) 0 (0) (0) 0 (0) Profit before tax 10.9 44.6 72.3 75.3 79.7 92 100 106 113 120 Adjusted PBT 10.9 44.6 72.3 75.3 79.7 92 100 106 113 120 7.0% Tax 0.00.00.00.00.000000 Exceptional items (0.5)0.00.00.00.000000 Minority interest (1.0) (1.7) (1.3) (1.0) (1.0) (1) (1) (1) (1) (1) Net income 9.4 42.9 71.0 74.2 78.6 90 99 105 112 119 Adjusted net income 9.9 42.9 71.0 74.2 78.6 90 99 105 112 119 7.1%

08E-12E Per share data (Dh) 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 72.0 72.0 186 300 285 285 285 285 285 285 No. of diluted shares outstanding (*) 72.0 72.0 186 300 285 285 285 285 285 285 EPS (basic) 0.13 0.60 0.38 0.25 0.28 0.32 0.35 0.37 0.39 0.42 7.1% EPS (diluted) 0.13 0.60 0.38 0.25 0.28 0.32 0.35 0.37 0.39 0.42 EPS (adjusted, basic) 0.14 0.60 0.38 0.25 0.28 0.32 0.35 0.37 0.39 0.42 7.1% Annual growth NM -35.9% -35.2% 11.5% 15.1% 9.0% 6.2% 6.6% 6.6% EPS (adjusted, diluted) 0.14 0.60 0.38 0.25 0.28 0.32 0.35 0.37 0.39 0.42 DPS 0.07 0.25 0.30 0.25 0.26 0.30 0.33 0.35 0.37 0.40 7.1% Annual growth NM 20.0% -16.7% 4.8% 15.1% 9.0% 6.2% 6.6% 6.6% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 99 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bildco: Summary financials Balance sheet 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 25 58 380 309 295 253 216 187 156 125 Other current assets 135 278 323 465 521 599 659 706 755 808 Total current assets 160 335 702 774 816 852 875 892 911 932 2.3% Long term investments & other 31 37 205 233 233 233 233 233 233 233 Property, plant and equipment 28 24 26 25 28 34 43 53 62 72 Intangible assets 0000000000 Total assets 219 396 933 1,032 1,078 1,119 1,151 1,178 1,207 1,237 2.5% Trade payables 48 119 109 126 163 188 207 221 236 253 Short term debt 91 144 166 387 387 387 387 387 387 387 Long term debt 0000000000 Pension liabilities 2223333333 Other liabilities 3797777777 Total liabilities 143 272 287 523 561 585 604 618 634 650 2.7% Minority interests 3566789101112 Shareholders' equity 73 120 640 503 510 526 539 550 562 575 Total equity and liabilities 219 396 933 1,032 1,078 1,119 1,151 1,178 1,207 1,237 2.5%

Cash flow 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations (26.8) (63.1) (38.0) (83.2) 69.8 46.7 65.6 83.2 89.7 96.6 19.9% Net interest paid (0.7) 10.7 44.3 14.3 (2.4) (2.8) (4.0) (5.1) (6.0) (6.9) Tax paid 0.00.00.00.00.00.00.00.00.00.0 Operating cash flow (27.6) (52.4) 6.2 (68.9) 67.5 43.9 61.6 78.1 83.7 89.7 19.5% Capex on PP&E (1.4) (1.8) (8.4) (6.4) (9.9) (11.4) (12.6) (13.4) (14.4) (15.4) Other investing cash flow (2.8) 5.8 (158.9) (115.6) 0.0 0.0 0.0 0.0 0.0 0.0 Investing cash flow (4.2) 4.0 (167.2) (122.0) (9.9) (11.4) (12.6) (13.4) (14.4) (15.4) 7.7% Operating free cash flow (*) (28.9) (54.2) (2.1) (75.3) 57.5 32.5 49.0 64.6 69.3 74.3 23.0% Free cash flow (**) (31.7) (48.4) (161.0) (190.9) 57.5 32.5 49.0 64.6 69.3 74.3 23.0% Dividends paid (4.8) (4.8) (12.0) (60.0) (71.3) (74.7) (86.0) (93.7) (99.6) (106.1) Share buybacks / issuances 0.0 0.0 456.0 (62.6) 0.0 0.0 0.0 0.0 0.0 0.0 Other 33.0 53.1 22.2 221.5 0.0 0.0 0.0 0.0 0.0 0.0 Financing cash flow 28.2 48.3 466.2 98.9 (71.3) (74.7) (86.0) (93.7) (99.6) (106.1) 9.2% Change in cash and cash equivalents 32.3 322.4 (71.2) (13.7) (42.2) (37.0) (29.1) (30.3) (31.8) (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 100 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bildco: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 10.0x 15.4x 13.8x 12.0x 11.0x 10.3xCROCI NA 7.9% 14.1% 14.8% 14.5% 14.6%EBITDA margin 5.2% 8.2% 8.9% 8.8% 8.5% 8.5% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA 54.4x 13.4x 12.3x 11.9x 11.3xROE 18.7% 13.0% 15.5% 17.5% 18.5% 19.3%EBIT margin 4.3% 7.4% 8.3% 8.3% 8.3% 8.3% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA 0.8x 1.4x 1.4x 1.4x 1.4xNOPAT margin 4.3% 7.4% 8.3% 8.3% 8.3% 8.3% EV / EBITDA lease adj'd NA 33.8x 13.4x 12.3x 11.9x 11.3x GS coverage 1.6x 1.9x 1.8x 1.9x 1.9x 1.8xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NA 3.7x 1.8x 1.7x 1.7x 1.6xCapex / sales 1.3% 0.8% 1.0% 1.0% 1.0% 1.0% EV / NOPAT lease adj'd NA 37.6x 14.5x 13.0x 12.2x 11.7x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NA 624 657 731 837Capex 883 / depreciation 1.3x 0.9x 1.5x 1.9x 4.1x 3.4x P / book 1.8x 2.2x 2.1x 2.1x 2.0x 2.0x Net debt / (cash) * (214) 79 92 135 172 201 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 2 3 3 3 3 3 FCF yield NA -8.9% 5.3% 3.0% 4.5% 6.0% Net Debt / Equity -0.3x 0.2x 0.2x 0.3x 0.3x 0.4x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -6.2x 1.2x 1.0x 1.3x 1.6x 1.7x Dividend yield 7.9%6.6%6.9%7.9%8.7%9.2% Net interest / EBITDA NM -21.1% 2.7% 2.8% 3.8% 4.5% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 6.0x 450% 5.0x 4.5x 4.0x 400% 5.0x 4.0x 3.5x 350%

3.5x I 3.0x 4.0x 300% 3.0x 2.5x 250% EV / GCIEV

2.5x EV / GC 2.0x 3.0x 2.0x BILD.AD BILD.AD 200% Sector Sector 1.5x 1.5x 2.0x 150% 1.0x 1.0x 100% 0.5x 0.5x 1.0x 0.0x 50% 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin BILD.AD

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 101 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 102 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Mortgage Finance company summaries

Tamweel PJSC 104

AMLAK Finance 110

Goldman Sachs Global Investment Research 103 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tamweel PJSC (TAML.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 75%

United Arab Emirates: Banks Investment Profile: TAML.DU

Low Hi gh

Stronger growth at a cheaper valuation than its peer Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • Tamweel is the faster growing of the two major Islamic mortgage providers yet trades at Percentile 20th 40th 60th 80th 100th lower multiples and a greater discount to intrinsic value than its peer, Amlak, on our Tamweel PJSC estimates. We believe it has shown greater focus on its core business than its competitor, as Europe New Markets Banks Peer Group Average * Returns = Return on Capital For a complete description of the evidenced by becoming number one in terms of assets this year, having launched operations investment profile measures please refer to in 2004, four years after Amlak. the disclosure section of this document. Key data (*) • We believe momentum, and innovation, will continue to favour Tamweel in the medium term Price (Dh) 4.00 in terms of both asset growth and funding. The company recently launched the UAE’s first Price target (Dh) 7.00 Sharia’a-compliant mortgage-backed security and intends to use such funding aggressively Market cap ($ mn) 1,089 Average daily trading volume ($ mn) NA to reduce risk and utilize equity most effectively. Free float 50% Bloomberg code TAMEEL DB • The market appears to believe that the failure to secure a retail banking licence is a negative 2006 2007E 2008E 2009E for the company; we disagree. Retail deposits may be cheap in terms of interest cost, but Sales (Dh mn) 269.5 425.1 578.4 751.6 require an expensive branch network to service. We believe the overall impact on Tamweel’s EBITDA (Dh mn) EV / EBITDAR NA NA NA NA profitability is, in fact, positive if MBS funding remains readily available. P / E 29.4x 14.8x 11.2x 8.5x Dividend yield 0.0% 0.0% 0.0% 2.3% (*) multiples and ratios are calendarised Valuation: 12-month target price of Dh7.0

Our 12-month price target is the average of values derived from a dividend discount model (DDM) 2.0 1.8 600 and a variation of a Warranted Equity Valuation (WEV) method. To account for the very rapid 1.6 550 growth rates in assets and returns in the next few years, we project our WEV valuation further 1.4 1.2 500 forward than would typically be the case, and take the average of values discounted to our price 1.0 0.8 450 target date. We employ a cost of equity of 10.5% and assume a terminal growth rate of 5%. 0.6 0.4 400 Tamweel looks inexpensive in comparison with its direct peer, Amlak, on near term multiples, 0.2 0.0 350

6 7 7 7 trading at 11.2x 2008E P/E and 1.6x 2008E P/BV versus 13.7x and 2.0x respectively for Amlak. The 06 06 06 07 07 07 07 07 0 006 0 00 0 006 0 0 00 0 00 0 00 0 /2 2 /2 /2 /2 2 /2 /2 /2 /2 /2 /2 /2 /2007/2 9 0/ 0 1 1 1 2 3 4 5 6 7 8 8 1 /1 /0 /0 /0 /0 /0 /0 share also trades on lower multiples than central European banks and at similar multiples to 2/0 6/1 9/1 5/0 2/0 8/0 2 10/ 2 13 2 15/12/02 18/01/20070 21/02/200709 27/03/20071 30/04/200716 01/06/200719 05/07/200723 0 24 Turkish banks, although its cost of equity is cheaper. TA ML.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 104 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tamweel PJSC: Overview Company description Tamweel is a finance provider in the UAE providing Core drivers of growth Sharia’a-compliant mortgage products. The company • Tamweel has good visibility on the growth of its loan book, since much of the property now began as a joint venture between Dubai Islamic Bank reaching market has been pre-financed and is disclosed as a commitment in its financial and Istithmar in 2004 and was listed on the DFM in July statements. Acceleration of property hand-over in 2H07 and into 2008 means that much of the 2006. Like its competitor Amlak, Tamweel provides present commitment balance should convert to assets. We forecast an average 70% annual only Sharia’a-compliant financing facilities, which it growth rate in assets in 2007E-2009E. believes provides focus and the widest possible potential customer base. From inception in 2004 it has • Tamweel has already established a JV in Saudi Arabia and has disclosed its intention to already become the largest mortgage lender in the expand across the MENA region over time. We believe that its experience in the UAE and its UAE by assets and plans to expand into other countries relationships with developers there will put it in a strong competitive position in regional of the region, such as Saudi Arabia. markets. We do not yet include this potential in our financial forecasts. Shareholder structure (2007)

9% Risk to the investment case • The home loan market in the UAE is already competitive and we expect more finance providers 20% to target the Sharia’a-compliant sector, pressuring margins and taking market share. 49%

• Tamweel is unlikely to receive a banking licence and will therefore need to attract more costly sources of funding such as corporate deposits, although its Sukuk programme may in fact turn 22% out to be a cheaper source of funding, once costs of a branch network are taken into account.

Public Istithmar Dubai Is lamic Bank Other

Industry context Rapid economic and population growth in the UAE create the conditions for a robust property Sales by division (2007E) market, and potentially an even stronger market for mortgage products, given high levels of inward

immigration and substantial addition to a small initial housing stock. 26% Mortgage penetration in the UAE is very low, relative to its GDP per capita. We understand that GDP is distorted by the large hydrocarbon sector, but still see substantial upside potential to our 48% estimation of the current ratio of mortgage loans to GDP of c.3.5%. UAE’s GDP per capita would be supportive of a level ten times this figure, although we do not explicitly forecast such a dramatic 26% increase in the medium term. We forecast 9.7% by 2010.

We expect Sharia’a-compliant financing to continue to take a large share of the mortgage market, Income from financing and investing assets

since it does not exclude non-Islamic customers and hence caters to the widest customer base. Non-Finance Income Income from sale of development properties

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 105 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tamweel PJSC: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin (RHS) 1.2x 120.0% 0.0% 1,200 -10.0% 1.0x 100.0% 1,000 -20.0% 0.8x 80.0% -30.0% 800 -40.0% 0.6x 60.0% 600 -50.0% -60.0% 0.4x 40.0% 400 -70.0% 0.2x 20.0% -80.0% 200 -90.0% 0.0x 0.0% 0 -100.0% 1 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Strong brand and market position as the largest Islamic mortgage lender ƒ The refusal of the central bank to grant a retail banking licence means in the UAE. that Tamweel cannot accept retail deposits, which are potentially a cheap source of funding. ƒ Policy of securitizing assets moves much of the company’s risk off the balance sheet and optimizes leverage.

ƒ Financing operations complimented and returns augmented by the real estate development portfolio.

Opportunities Threats ƒ Continued economic and population expansion present ongoing growth ƒ Mortgage finance is a competitive environment, with Tamweel facing potential for mortgage finance. competition from a number of banks and other mortgage providers.

ƒ Expansion into new markets in the rest of the region to cater for the ƒ A softening in the UAE real estate market would impact future growth demand in Sharia’a-compliant finance products. rates and existing collateral, potentially raising financing costs.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 106 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tamweel PJSC: Summary financials

Income Statement 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year to Dec) CAGR Finance income 8.2 46.2 128.5 269.5 466.2 763.2 1103.6 1394.8 1574.9 1685.1 1803.1 1929.3 35.6 Net finance income 7.6 24.1 78.0 151.6 219.7 291.0 386.1 471.2 535.1 596.9 659.0 726.0 Net Finance Margin, % 92.6 52.2 60.7 56.2 47.1 38.1 35.0 33.8 34.0 35.4 36.5 37.6 Non-finance income 8.0 31.2 94.4 147.4 220.0 314.8 403.6 470.6 503.4 535.1 568.6 604.3 Non-finance expense -18.2 -35.6 -54.5 -85.0 -130.8 -181.7 -228.8 -289.3 -328.0 -352.8 -379.4 -407.9 Net operating income 18.0 42.2 163.6 270.7 357.4 467.8 599.2 692.7 752.7 823.5 894.6 971.3 20.5 Associate income / other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income before taxes 18.0 42.2 163.6 270.7 357.4 467.8 599.2 692.7 752.7 823.5 894.6 971.3 As a % of sales 218.8 91.3 127.3 100.4 76.7 61.3 54.3 49.7 47.8 48.9 49.6 50.3 Adjusted PBT 18.0 42.2 163.6 270.7 357.4 467.8 599.2 692.7 752.7 823.5 894.6 971.3 20.5 Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tax rate, % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 -27.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Post tax exceptionals 0.0 0.0 699.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adjusted net income 18.0 42.2 835.2 270.7 357.4 467.8 599.2 692.7 752.7 823.5 894.6 971.3 20.5

08E-12E Per Share Data 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E CAGR No. of basic shares outstanding (*) 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 No. of diluted shares outstanding (*) 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 EPS (basic) 0.020.040.850.270.360.470.600.690.750.820.890.9720.5 EPS (diluted) 0.020.040.850.270.360.470.600.690.750.820.890.97 EPS (adjusted, basic) 0.020.040.140.270.360.470.600.690.750.820.890.9720.5 Annual growth NMNM-0.680.320.310.280.160.090.090.090.09 EPS (adjusted, diluted) 0.02 0.04 0.14 0.27 0.36 0.47 0.60 0.69 0.75 0.82 0.89 0.97 DPS 0.000.000.000.000.000.090.150.170.190.210.220.24NM Annual growth NM NM NM NM NM 0.60 0.16 0.09 0.09 0.09 0.09

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 107 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tamweel PJSC: Summary financials Balance Sheet 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year ending Dec) CAGR Cash & Deposits 88 162 380 598 330 466 508 584 796 868 960 1,072 Financing & Investing Assets 267 1,303 2,584 4,604 7,827 12,524 16,907 20,288 21,708 23,228 24,854 26,594 Other Investments 0 1 72 72 72 72 72 72 72 72 72 72 Total Financing & Investing Assets 354 1,466 3,036 5,274 8,229 13,061 17,486 20,944 22,576 24,167 25,885 27,737 28.7 Associates & Other Assets 56 107 195 195 195 195 195 195 195 195 195 195 Property, Plant & Equipment, Net 5 18 31 41 45 54 68 86 104 122 139 156 Total As s ets 415 1,591 3,262 5,510 8,469 13,311 17,750 21,225 22,876 24,485 26,220 28,088 28.2 Investment Deposits 75 1,005 1,231 1,846 2,400 3,000 3,600 3,960 4,237 4,534 4,851 5,191 Trade Payables 22 71 205 66 115 188 272 344 388 416 445 476 Mortgage Backed Securities 0 0 0 1,500 3,500 7,200 10,450 12,950 13,700 14,350 15,050 15,800 Pension & Other Provisions 0 0 0 0 0 0 0 0 0 0 0 0 Total Liabilities 97 1,083 1,443 3,419 6,022 10,395 14,329 17,261 18,332 19,306 20,353 21,473 32.1 Minority Interes ts 0 0 0 0 0 0 0 0 0 0 0 0 Total Shareholders' Equity 318 508 1,820 2,090 2,448 2,916 3,421 3,964 4,543 5,179 5,868 6,615 Total Liabilities & Equity 415 1,591 3,262 5,510 8,469 13,311 17,750 21,225 22,876 24,485 26,220 28,088 28.2

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 108 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tamweel PJSC: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 94.8x 29.4x 14.8x 11.2x 8.5xCROCI 6.7x NA NA NA NA NAEBITDA NA margin NA NA NA NA NA NA GS coverage 26.5x 21.9x 16.3x 12.5x 10.4x 10.5xGS coverage 39.4% 52.2% 38.5% NM NM 92.5%GS coverage 51.7% NA 47.9% 43.5% 41.1% 41.2%

EV / DACFlease adj'd NA NA NA NA NA NAROE 10.2% 71.8% 13.8% 15.8% 17.4% 18.9%EBIT margin NA NA NA NA NA NA GS coverage 16.9x 8.1x 13.0x 8.6x 6.6x 8.6xGS coverage 26.4% 23.6% 21.5% 21.1% 20.7% 17.8%GS coverage 1.7% 2.0% 1.9% 2.1% 2.5% 22.4% CROCI / WACC NA NA NA NA NANOPAT NA margin 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EV / EBITDA lease adj'd NA NA NA NA NA NA GS coverage 3.1x 4.2x 3.1x 11.9x 10.4x 7.4xGS coverage 1.3% 1.8% 1.8% 2.0% 2.4% 20.4% GS coverage 22.9x 14.5x 12.3x 9.0x 6.7x 7.8x EV / GCI NANANANANANACapex / sales NANANANANANA EV / NOPAT lease adj'd NA NA NA NA NA NA GS coverage 5.2x 2.6x 5.2x 7.4x 8.6x 9.1xGS coverage 23.2% 16.4% 14.0% 11.6% 146.5% 77.3% GS coverage 23.5x 15.2x 13.8x 10.2x 7.7x 9.5x GCI (*) NANANANANANACapex / depreciation NA NA NA NA NA NA P / book 7.9x 2.2x 1.9x 1.6x 1.4x 1.2x Net debt / (cash) * NANANANANANA GS coverage 5.6x 4.3x 2.7x 2.3x 2.0x 1.8x Pension liabilities * 0 0 0 0 0 0 FCF yield NANANANANANA Net Debt / Equity NM NM NM NM NM NM GS coverage NA NA NA NA 57.4% 26.7% Net Debt / EBITDA NANANANANANA Dividend yield 0.0%0.0%0.0%0.0%2.3%3.7% Net interest / EBITDA NA NA NA NA NA NA GS coverage 1.4% 1.6% 2.1% 2.5% 3.2% 5.0%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.2x 120% 5.0x 4.5x 4.0x 1.0x 100% 4.0x 3.5x

3.5x I 3.0x 0.8x 80% 3.0x 2.5x EV / GCIEV

2.5x EV / GC 2.0x 0.6x 60% 2.0x Sector Sector 1.5x 1.5x 0.4x 40% 1.0x 1.0x 0.5x 0.5x 0.2x 20% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 1 Premium to the sector (RHS) Emerging Markets Non-Fin TAML.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 109 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

AMLAK Finance (AMLK.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 7%

United Arab Emirates: Banks Investment Profile: AMLK.DU

Low Hi gh

Strong growth already reflected in valuation Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Amlak is well positioned in the high growth sector of Islamic mortgage financing, yet we find Percentile 20th 40th 60th 80th 100th its valuation less attractive than its direct peer, Tamweel, and initiate as Neutral. AMLAK Finance Europe New Markets Banks Peer Group Average • Amlak is the longest established Sharia’a-compliant mortgage finance company in the UAE, * Returns = Return on Capital For a complete description of the although its market leadership has been overtaken by its competitor Tamweel. Its revised investment profile measures please refer to the disclosure section of this document. management team has pledged to restore focus on the core mortgage business and we expect Key data (*) some improvement in asset growth and ROE over the next two to three years. Price (Dh) 3.18 Delays in property deliveries through 2006 and early 2007 have constrained balance sheet Price target (Dh) 3.40 • Market cap ($ mn) 1,299 growth and ROE. We expect an acceleration of loan growth from 2H07 as a number of major Average daily trading volume ($ mn) 8.45 developments begin handover. This should help to absorb some of Amlak’s excess equity. Free float 55% Bloomberg code AMLAK DB While the market seems to have taken as negative the central bank’s decision not to award 2006 2007E 2008E 2009E Amlak a banking licence, and hence allow it to take retail deposits, we do not believe this is so Sales (Dh mn) 206.7 342.5 480.9 613.0 bad in the medium term. Amlak will avoid the additional cost of a more extensive branch EBITDA (Dh mn) EV / EBITDAR NA NA NA NA network and can use securitization as a means to increase leverage to equity. Signs that this is P / E 36.6x 19.8x 13.7x 10.6x to happen more aggressively would be positive for the stock. Dividend yield 0.0% 0.0% 0.0% 2.4% (*) multiples and ratios are calendarised

Valuation: 12-month target price Dh3.40 2.0 1.8 600 Our 12-month price target is the average of a dividend discount model (DDM) value and a value 1.6 550 derived by a variation of a Warranted Equity Valuation (WEV) method. To account for the very 1.4 1.2 500 rapid growth rates in assets and returns in the next few years, we project our WEV valuation 1.0 0.8 450 further forward than would typically be the case, and take an average of values discounted to our 0.6 0.4 400 price target date. For both methods we employ a cost of equity of 10.5% and our DDM valuation 0.2 assumes a terminal growth rate of 5%. 0.0 350 6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 Amlak looks expensive in comparison with its direct peer, Tamweel, on near term multiples, 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 trading at 13.7x 2008E P/E and 2.0x 2008E P/BV versus 11.2x and 1.6x respectively for Tamweel. AMLK.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 110 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

AMLAK Finance: Overview Company description Amlak Finance was the first specialist provider of Core drivers of growth Islamic home finance in the UAE. It was established in • Amlak has good visibility on the growth of its loan book, since much of the property now 2000 by master developer Emaar and listed on the DFM reaching market has been pre-financed and is disclosed as a commitment in its financial in 2004. The company provides a wide range of statements. Acceleration of property hand-over in 2H07 and into 2008 means that much of the Sharia’a-compliant financial products, although present commitment balance should convert to assets. We forecast an average 40% annual management has expressed an intention to refocus on growth rate in assets in 2007E-2009E. the core mortgage business, having lost market leadership to new entrant, Tamweel. Amlak plans to • Amlak has been more active in its pursuit of regional expansion than its peer, Tamweel, as it expand across the MENA region, and recently tends to follow its parent, Emaar, into new markets. It has established JVs in Saudi Arabia and established ventures in Egypt and Saudi Arabia. Egypt and has ventures in Sudan and Bahrain. We believe its experience in the UAE, and ties to major regional developers put it in a strong position in regional markets, but do not yet include this potential in our financial forecasts. Shareholder structure (2007)

Risk to the investment case 45% • The home loan market in the UAE is already competitive and we expect more finance providers 55% to target the Sharia’a-compliant sector, pressuring margins.

• Amlak has not been successful in its application for a retail banking licence and will therefore need to attract more expensive sources of funding such as corporate deposits, although a

Sukuk programme may in fact turn out to be a cheaper source of funding. Public Emaar Properties

Industry context Sales by division (2007E) Rapid economic and population growth in the UAE create the conditions for a robust property

market, and potentially an even stronger market for mortgage products, given high levels of inward 24% immigration and substantial addition to a small initial housing stock.

Mortgage penetration in the UAE is very low, relative to its GDP per capita. We understand that GDP is distorted by the large hydrocarbon sector, but still see substantial upside potential to our estimation of the current ratio of mortgage loans to GDP of c.3.5%. UAE’s GDP per capita would be 76% supportive of a level ten times this figure, although we do not explicitly forecast such a dramatic increase in the medium term. Income from financing and investing assets We expect Sharia’a-compliant financing to continue to take a large share of the mortgage market, since it does not exclude non-Islamic customers and hence caters to the widest customer base. Non-Finance Income

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 111 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

AMLAK Finance: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin (RHS) 1.2x 120.0% 1,000 0.0% 900 -10.0% 1.0x 100.0% 800 -20.0% 0.8x 80.0% 700 -30.0% 600 -40.0% 0.6x 60.0% 500 -50.0% 400 -60.0% 0.4x 40.0% 300 -70.0% 0.2x 20.0% 200 -80.0% 100 -90.0% 0.0x 0.0% 0 -100.0% 1 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Strong balance sheet, with sufficient equity to expand assets ƒ Focus on mortgage financing means Amlak would suffer the full effects aggressively. of a slowdown in residential real estate activity.

ƒ Move to issue asset-backed securities reduces risk and further ƒ Net interest margin may be narrower than banks with a retail deposit strengthens the company’s balance sheet. base; Amlak will need to control cost and secure reliable wholesale financing. ƒ Close ties to Emaar properties, provide market intelligence and access to development pipeline.

Opportunities Threats ƒ Geographical expansion into new markets such as Saudi Arabia, Egypt ƒ Increasing levels of competition in the housing finance space from and Morocco. existing Islamic banks.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 112 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

AMLAK Finance: Summary financials

Income Statement 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year to Dec) CAGR Finance income 62.4 171.0 301.5 413.5 591.7 819.7 1123.1 1412.0 1592.8 1704.3 1822.9 1949.1 28.1 Net finance income 52.1 68.3 128.2 233.7 337.7 431.4 530.6 619.9 684.1 741.0 801.8 866.8 Net Finance Margin, % 83.5 39.9 42.5 56.5 57.1 52.6 47.2 43.9 42.9 43.5 44.0 44.5 Non-finance income 18.3 64.1 78.5 108.8 143.2 181.5 223.3 251.7 265.4 279.9 295.3 311.7 Non-finance expense -22.6 -57.5 -86.7 -101.5 -131.7 -164.1 -224.7 -284.3 -322.0 -346.0 -371.8 -399.3 Net operating income 47.8 74.8 120.0 241.0 349.1 448.9 529.2 587.4 627.5 674.9 725.4 779.3 15.8 Associate income / other 0.0 31.2 10.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income before taxes 47.8 106.0 130.4 241.0 349.1 448.9 529.2 587.4 627.5 674.9 725.4 779.3 As a % of sales 76.6 62.0 43.3 58.3 59.0 54.8 47.1 41.6 39.4 39.6 39.8 40.0 Adjusted PBT 47.8 106.0 130.4 241.0 349.1 448.9 529.2 587.4 627.5 674.9 725.4 779.3 15.8 Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tax rate, % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Post tax exceptionals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adjusted net income 47.8 106.0 130.4 241.0 349.1 448.9 529.2 587.4 627.5 674.9 725.4 779.3 15.8

08E-12E Per Share Data 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E CAGR No. of basic shares outstanding (*) 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 No. of diluted shares outstanding (*) 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 EPS (basic) 0.03 0.07 0.09 0.16 0.23 0.30 0.35 0.39 0.42 0.45 0.48 0.52 15.8 EPS (diluted) 0.03 0.07 0.09 0.16 0.23 0.30 0.35 0.39 0.42 0.45 0.48 0.52 EPS (adjusted, basic) 0.03 0.07 0.09 0.16 0.23 0.30 0.35 0.39 0.42 0.45 0.48 0.52 15.8 Annual growth NM 0.23 0.85 0.45 0.29 0.18 0.11 0.07 0.08 0.07 0.07 EPS (adjusted, diluted) 0.03 0.07 0.09 0.16 0.23 0.30 0.35 0.39 0.42 0.45 0.48 0.52 DPS 0.000.000.000.000.000.070.090.100.100.110.120.13NM Annual growth NM NM NM NM NM 0.18 0.11 0.07 0.08 0.07 0.07 (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 113 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

AMLAK Finance: Summary financials Balance Sheet 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year ending Dec) CAGR Cash & Deposits 223 749 268 330 325 460 461 499 537 565 582 589 Financing & Investing Assets 1,490 3,184 4,126 5,817 8,124 11,352 15,307 18,358 19,640 21,012 22,480 24,051 Other Investments 55 552 545 409 307 230 173 129 97 73 55 41 Total Financing & Investing Assets 1,769 4,485 4,939 6,556 8,756 12,043 15,940 18,985 20,274 21,650 23,117 24,682 23.4 Associates & Other Assets 21 210 98 98 98 98 98 98 98 98 98 98 Property, Plant & Equipment, Net 7 7 9 13 20 29 41 55 70 85 99 113 Total As s ets 1,797 4,702 5,046 6,667 8,873 12,169 16,078 19,138 20,442 21,833 23,314 24,892 23.2 Investment Deposits 202 2,169 2,509 3,387 4,741 7,586 11,075 13,678 14,499 15,369 16,291 17,268 Trade Payables 5 0 0 0 0 0 0 0 0 0 0 0 Mortgage Backed Securities 0 698 698 1,198 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 Pension & Other Provisions 0 0 0 0 0 0 0 0 0 0 0 0 Total Liabilities 992 2,917 3,277 4,658 6,514 9,361 12,853 15,458 16,282 17,154 18,079 19,059 25.7 Minority Interes ts 0 0 0 0 0 0 0 0 0 0 0 0 Total Shareholders' Equity 806 1,785 1,769 2,010 2,359 2,808 3,225 3,680 4,161 4,679 5,235 5,833 Total Liabilities & Equity 1,797 4,702 5,046 6,667 8,873 12,169 16,078 19,138 20,442 21,833 23,314 24,892 23.2

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 114 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

AMLAK Finance: Valuation summary

Relative to the GS New Markets Banks coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 45.0x 36.6x 19.8x 13.7x 10.6xCROCI 9.0x NA NA NA NA NAEBITDA NA margin NA NA NA NA NA NA GS coverage 26.5x 21.9x 16.3x 12.5x 10.4x 10.5xGS coverage 39.4% 52.2% 38.5% NM NM 92.5%GS coverage 51.7% NA 47.9% 43.5% 41.1% 41.2%

EV / DACFlease adj'd NA NA NA NA NA NAROE 8.2% 7.3% 12.8% 16.0% 17.4% 17.5%EBIT margin NA NA NA NA NA NA GS coverage 16.9x 8.1x 13.0x 8.6x 6.6x 8.6xGS coverage 26.4% 23.6% 21.5% 21.1% 20.7% 17.8%GS coverage 1.7% 2.0% 1.9% 2.1% 2.5% 22.4% CROCI / WACC NA NA NA NA NANOPAT NA margin 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EV / EBITDA lease adj'd NA NA NA NA NA NA GS coverage 3.1x 4.2x 3.1x 11.9x 10.4x 7.4xGS coverage 1.3% 1.8% 1.8% 2.0% 2.4% 20.4% GS coverage 22.9x 14.5x 12.3x 9.0x 6.7x 7.8x EV / GCI NANANANANANACapex / sales NANANANANANA EV / NOPAT lease adj'd NA NA NA NA NA NA GS coverage 5.2x 2.6x 5.2x 7.4x 8.6x 9.1xGS coverage 23.2% 16.4% 14.0% 11.6% 146.5% 77.3% GS coverage 23.5x 15.2x 13.8x 10.2x 7.7x 9.5x GCI (*) NANANANANANACapex / depreciation NA NA NA NA NA NA P / book 2.7x 2.7x 2.4x 2.0x 1.7x 1.5x Net debt / (cash) * NANANANANANA GS coverage 5.6x 4.3x 2.7x 2.3x 2.0x 1.8x Pension liabilities * 0 0 0 0 0 0 FCF yield NANANANANANA Net Debt / Equity NM NM NM NM NM NM GS coverage NA NA NA NA 57.4% 26.7% Net Debt / EBITDA NANANANANANA Dividend yield 0.0%0.0%0.0%0.0%2.4%2.8% Net interest / EBITDA NA NA NA NA NA NA GS coverage 1.4% 1.6% 2.1% 2.5% 3.2% 5.0%

* Dh mn

Relative to the GS New Markets Banks coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.2x 120% 5.0x 4.5x 4.0x 1.0x 100% 4.0x 3.5x

3.5x I 3.0x 0.8x 80% 3.0x 2.5x EV / GCIEV

2.5x EV / GC 2.0x 0.6x 60% 2.0x Sector Sector 1.5x 1.5x 0.4x 40% 1.0x 1.0x 0.5x 0.5x 0.2x 20% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 1 Premium to the sector (RHS) Emerging Markets Non-Fin AMLK.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 115 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 116 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Logistics and Transportation company summaries

Aramex PJSC 118

Agility 124

Air Arabia 130

Goldman Sachs Global Investment Research 117 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aramex PJSC (ARMX.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 33% United Arab Emirates: Logistics

Investment Profile: ARMX.DU

Low Hi gh

Strong growth prospects not fully reflected in valuation Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • Aramex offers a wide spectrum of distribution services and has established itself as a Percentile 20th 40th 60th 80th 100th heavyweight in the region in international and domestics express, freight forwarding and Aramex PJSC logistics. The business model is asset light, creating economies of scale and generating gross Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the margins in excess of 50% across most divisions. investment profile measures please refer to the disclosure section of this document. • Aramex established the Global Distribution Alliance (GDA), a network of 40 express companies Key data (*) around the globe. This allows the company to penetrate markets at low cost and leads to Price (Dh) 2.55 franchising as part of its regional expansion programme. Price target (Dh) 3.40 Market cap ($ mn) 764.0 • Following the successful integration of TwoWay-Vanguard and other smaller acquisitions, the Average daily trading volume ($ mn) 1.96 company is well positioned to deliver strong organic growth; we forecast revenue CAGR of Free float 75% Bloomberg code ARMX DB c.19% over the next five years. 2006 2007E 2008E 2009E • Despite trading at relatively high multiples, we do not believe that the share price fully reflects Sales (Dh mn) 1,364 1,701 2,066 2,463 EBITDA (Dh mn) 134.2 190.5 200.8 231.0 the growth potential of Aramex. With its strong and expanding global presence, attractive EV / EBITDAR 23.7x 13.5x 12.9x 11.6x growth prospects and margins, we initiate coverage on Aramex on our Buy list with a 12- P / E 29.2x 20.0x 19.2x 16.2x Dividend yield 3.6% 3.7% 3.9% 4.6% month price target of Dh3.40. (*) multiples and ratios are calendarised

1.0 Valuation: 12-month target price of Dh3.40 0.9 600 0.8 550 Our 12-month price target is based on DCF valuation, with reasonableness checks including 0.7 0.6 EV/GCI versus CROCI/WACC and implied P/E ratios at target prices relative to the peer group. 500 0.5 0.4 450 We use a two-stage terminal value calculation, stepping growth down from the rate at the end of 0.3 0.2 400 the explicit forecast period to a 3% perpetual value. We use a WACC of 10.5% and calculate a 12- 0.1 month target price of Dh3.40. 0.0 350 6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 At our price target, the stock would trade at 25.6x and 21.6x 2008E and 2009E P/E respectively, 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 compared with the European peer group average of 16.6x and 14.5x. A RMX.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 118 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aramex PJSC: Overview Company description Aramex is a Middle East-based provider of Core drivers of growth transportation solutions with a global presence, • Sustained levels of strong economic growth and trade should underlie activity levels in freight providing a range of transport services including and logistics. Aramex is well positioned to benefit from this, particularly in the Middle East and international and domestic express delivery, freight Asia. forwarding, logistics and warehousing. The company leads the Global Distribution Alliance (GDA), which • Expansion into new markets of China and the US, and leveraging the Global Distribution Alliance allies 40 independent express companies from around (GDA) to penetrate smaller markets. the globe. Each company specializes in its own region • Ambitious plans to become the fifth-largest logistics and express transport provider worldwide. whilst retaining common standards and procedures across the group. The network has over 12,000 offices, • A strong expected performance from TwoWay-Vanguard and further acquisitions should also 33,000 vehicles, and 66,000 employees worldwide. play a major role in growth for the company. We expect earnings CAGR of 22% over the next five years with net margins being maintained at c.8%. Shareholder structure (2007)

8% 10% Risk to the investment case • The company’s aggressive acquisition strategy may pose some challenges in terms of extracting 55% synergies and value. Expanding into new and relatively unknown markets adds additional risk, 27% despite the assistance of the GDA.

• A slowdown in global economic growth and the subsequent impact on trade volumes would

impact the group. Our estimates show that freight forwarding and logistics have typically grown Public Other Levant Logistics Holdings AIL Holding at multiples of 2.0x and 1.5x GDP growth, respectively. Aramex is therefore geared to a decline in economic growth and trade activity.

Sales by division (2007E)

Industry context 11%

The global logistics market is a highly fragmented and competitive environment, yet few of the 14% large international players have a significant presence in the Middle East, where Aramex is 45% dominant. The closest competitor regionally is Agility; but the business models of the two companies are not directly comparable. In the international express business, Aramex competes

with a number of large international courier companies, resulting in the group needing to leverage 30% the GDA to compete.

Freight Forw arding International Express

Domestic Ex press Logistics

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 119 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aramex PJSC: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin ( RHS) 0.0x 5.0% 14.4% -1.0x 0.0% 3,500 13.4% -2.0x -5.0% 3,000 12.4% 2,500 -3.0x -10.0% 11.4% 2,000 -4.0x -15.0% 10.4% 1,500 -5.0x -20.0% 9.4% 1,000 8.4% -6.0x -25.0% 500 7.4% -7.0x -30.0% 0 6.4% 03 04 05 06 07E 08E 09E 10E 11E 12E 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Extensive global network with key contacts and management expertise. ƒ Highly dependent on third-party service providers. ƒ Relatively high barriers to entry with significant economies of scale. ƒ Geared to the economic cycle and therefore susceptible to declines in trade activity. ƒ Asset-light business that leverages off specialised knowledge and access to relevant service providers. As a result, the marginal cost of expansion is very low.

Opportunities Threats ƒ Directly benefits from increasing economic activity and trade. ƒ Strong competition among existing players such as Fedex, DHL and TNT express, particularly as the industry becomes more global. ƒ Global network allows for easier expansion into new markets through partnerships and joint ventures. ƒ High and sustained fuel prices may impact margins depending on the extent to which the company can pass on costs to the customer. ƒ Has a proven track record of successful acquisitions and plans to pursue growth through investments in related businesses. ƒ Slowdown in global and regional economic activity and trade.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 120 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aramex PJSC: Summary financials Income statement 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 556.6 693.2 458.9 1,364 1,701 2,066 2,463 2,881 3,307 3,733 15.9% EBITDAR 61.9 72.7 61.3 168 242 263 305 372 443 513 EBITDA 61.9 72.7 52.9 134 191 201 231 286 344 401 EBITDA margin 11.1% 10.5% 11.5% 9.8% 11.2% 9.7% 9.4% 9.9% 10.4% 10.7% EBIT 47.2 57.9 43.7 109 161 167 200 248 296 342 19.6% EBIT margin 8.5% 8.4% 9.5% 8.0% 9.5% 8.1% 8.1% 8.6% 9.0% 9.2% Net interest expense (0.5)0.013.45555444 Associate income / other (2.3) 0.0 0.9 (1) 0 (0) (0) 0 0 (0) Profit before tax 44.4 58.0 58.0 113 166 173 205 252 300 347 Adjusted PBT 46.7 58.0 58.4 114 167 174 206 252 300 347 18.8% Tax (1.7) (3.2) (2.3) (4) (6) (7) (8) (10) (12) (14) Exceptional items (0.0)0.00.00000000 Minority interest (5.8) (7.2) (4.5) (14) (20) (21) (25) (30) (36) (42) Net income 36.9 47.6 51.2 95 139 145 172 212 252 291 Adjusted net income 39.2 47.6 51.6 96 140 146 173 212 252 291 18.8%

08E-12E Per share data (Dh) 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 1,100 1,100 1,017 1,100 1,100 1,100 1,100 1,100 1,100 1,100 No. of diluted shares outstanding (*) 1,100 1,100 1,017 1,100 1,100 1,100 1,100 1,100 1,100 1,100 EPS (basic) 0.03 0.04 0.05 0.09 0.13 0.13 0.16 0.19 0.23 0.26 19.1% EPS (diluted) 0.03 0.04 0.05 0.09 0.13 0.13 0.16 0.19 0.23 0.26 EPS (adjusted, basic) (0.12) 0.04 0.05 0.09 0.13 0.13 0.16 0.19 0.23 0.26 18.8% Annual growth NM 17.3% 72.0% 46.0% 4.2% 18.6% 22.1% 19.1% 15.6% EPS (adjusted, diluted) (0.12) 0.04 0.05 0.09 0.13 0.13 0.16 0.19 0.23 0.26 DPS 0.00 0.00 0.00 0.09 0.09 0.10 0.12 0.14 0.17 0.20 19.1% Annual growth NM NM NM 4.4% 4.1% 18.7% 23.0% 19.1% 15.6% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 121 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aramex PJSC: Summary financials Balance sheet 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 55 54 340 223 250 221 198 196 211 239 Other current assets 128 146 179 340 366 454 548 641 729 814 Total current assets 182 200 519 563 616 675 746 837 940 1,054 11.8% Long term investments & other 88 37 637 818 818 818 818 818 818 818 Property, plant and equipment 39 45 78 128 168 208 265 328 396 468 Intangible assets 0044310000 Total assets 310 282 1,238 1,512 1,604 1,702 1,829 1,983 2,154 2,340 8.3% Trade payables 47 65 71 131 163 198 236 276 317 358 Short term debt 5 5 636373839404141 Long term debt 3 3 513131313131313 Pension liabilities 16 19 24 41 41 41 41 41 41 41 Other liabilities 36 45 67 123 123 123 123 123 123 123 Total liabilities 107 136 172 345 378 414 453 494 535 577 8.7% Minority interests 10 12 15 19 39 60 85 116 152 194 Shareholders' equity 192 134 1,051 1,148 1,187 1,228 1,291 1,374 1,467 1,569 Total equity and liabilities 310 282 1,238 1,512 1,604 1,702 1,829 1,983 2,154 2,340 8.3%

Cash flow 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 35.4 133 54.0 77.8 196 147 175 233 296 357 24.7% Net interest paid (0.5)013.45.3555444 Tax paid (1.7) (3) (2.3) (4.4) (6) (7) (8) (10) (12) (14) Operating cash flow 33.3 130 65.0 78.7 195 146 172 227 288 347 24.2% Capex on PP&E (13.0) (18) (39.4) (55.3) (68) (72) (86) (101) (116) (131) Other investing cash flow (1.3)5(692.0)(157.6)000000 Investing cash flow (14.3) (13) (731.3) (212.9) (68) (72) (86) (101) (116) (131) 15.9% Operating free cash flow (*) 20.3 112 25.7 23.4 127 74 85 126 172 217 30.9% Free cash flow (**) 19.0 117 (666.3) (134.2) 127 74 85 126 172 217 30.9% Dividends paid 0.0 (108) 0.0 (10.5) (100) (104) (109) (129) (159) (189) Share buybacks / issuances 0.001,000.00.0000000 Other (9.7)(10)2.8(1.4)111111 Financing cash flow (9.7) (118) 1,002.8 (11.9) (99) (103) (108) (128) (158) (188) 16.1% Change in cash and cash equivalents (1) 286.3 (117.8) 28 (30) (22) (2) 14 29 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 122 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Aramex PJSC: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 50.3x 29.2x 20.0x 19.2x 16.2x 13.3xCROCI 17.2% 18.5% 15.9% 15.2% 15.5% 16.7%EBITDA margin 11.5% 9.8% 11.2% 9.7% 9.4% 9.9% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 61.2x 19.2x 14.0x 13.3x 12.0x 10.3xROE 8.6% 8.7% 11.9% 12.0% 13.7% 15.9%EBIT margin 9.5% 8.0% 9.5% 8.1% 8.1% 8.6% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 1.8x 2.0x 1.7x 1.6x 1.6x 1.8xNOPAT margin 10.2% 8.9% 10.5% 9.1% 9.1% 9.6% EV / EBITDA lease adj'd 86.8x 23.7x 13.5x 12.9x 11.6x 9.9x GS coverage 1.7x 2.1x 2.0x 2.0x 2.1x 1.9xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI 6.1x 2.9x 2.1x 1.9x 1.8x 1.6xCapex / sales 8.6% 4.1% 4.0% 3.5% 3.5% 3.5% EV / NOPAT lease adj'd NM 32.9x 18.3x 18.0x 15.7x 13.4x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 907 1,411 1,629 1,869 2,179 2,464Capex / depreciation 4.5x 2.3x 2.4x 2.2x 2.9x 2.7x P / book 2.7x 2.4x 2.4x 2.3x 2.2x 2.0x Net debt / (cash) * (330) (173) (200) (169) (146) (143) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 24 41 41 41 41 41 FCF yield -23.0% -8.2% 4.5% 2.6% 3.0% 4.5% Net Debt / Equity -0.3x -0.1x -0.2x -0.1x -0.1x -0.1x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -6.2x -1.3x -1.0x -0.8x -0.6x -0.5x Dividend yield 0.0%3.6%3.7%3.9%4.6%5.7% Net interest / EBITDA -25.3% -3.9% -2.5% -2.7% -2.0% -1.3% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 4.0x 300% 5.0x 4.5x 4.0x 3.5x 250% 4.0x 3.5x 3.0x 3.5x I 3.0x 200% 3.0x 2.5x 2.5x EV / GCIEV

2.5x EV / GC 2.0x 2.0x 150% 2.0x ARMX.DU ARMX.DU Sector Sector 1.5x 1.5x 1.5x 100% 1.0x 1.0x 1.0x 0.5x 0.5x 50% 0.0x 0.5x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin ARMX.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 123 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Agility (AGLT.KW) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 32%

Kuwait: Logistics Investment Profile: AGLT.KW

Low Hi gh

Strong growth prospects not reflected in valuation Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • Through a number of large-scale acquisitions in recent years, Agility has grown from a niche Percentile 20th 40th 60th 80th 100th provider of warehousing and government supply services into a fully- integrated global Agility logistics player. From the profits generated from lucrative US Defense contracts, Agility made Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the three key acquisitions in 2005, building a freight forwarding platform. investment profile measures please refer to the disclosure section of this document. • Agility partnered with US-based Dyncorp and was recently awarded a US$50 bn ten-year US Key data (*) Defense contract. Agility’s role extends to supply chain services and warehousing. We expect Price (KD) 1.82 Agility’s economic interest in the partnership to be c.35%, but this has not been confirmed by Price target (KD) 2.40 management. A number of new contract wins and renewals have also been announced that Market cap ($ mn) 6,189 Average daily trading volume ($ mn) NA should continue to underpin the logistics business. Free float 75% Bloomberg code TPWC KK • Expansion into the freight forwarding business has reduced reliance on logistics revenue and 2006 2007E 2008E 2009E opened up new growth avenues. The freight forwarding business is asset-light, has attractive Sales (KD mn) 1,013 1,525 2,149 2,739 margins and allows Agility to leverage its network and derive significant economies of scale. EBITDA (KD mn) 209.0 153.8 248.7 322.5 EV / EBITDAR 7.5x 11.7x 7.6x 5.8x • With an expanding global presence, strong growth prospects, and attractive valuation we P / E 9.7x 15.5x 9.0x 6.9x Dividend yield 4.1% 3.2% 5.5% 7.2% initiate our coverage on Agility on our Buy list. (*) multiples and ratios are calendarised

8.0 Valuation: 12-month target price of KD2.40 600 7.0 Our 12-month price target is based on DCF valuation, with reasonableness checks including 6.0 550 5.0 EV/GCI versus CROCI/WACC and implied P/E ratios at target prices relative to the peer group. 500 4.0 We use a two-stage terminal value calculation, stepping growth down from the rate at the end of 3.0 450 2.0 400 the explicit forecast period to a 3% perpetual value. We use a WACC of 12% and calculate a 12- 1.0 month rounded price target for Agility of KD2.40. 0.0 350 6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 At our price target, the stock would trade at 11.8x and 9.1x 2008E and 2009E P/E respectively, 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 compared with the European peer group average of 16.6x and 14.5x. AGLT.KW (KD) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 124 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Agility: Overview Company description Formerly known as Public Warehousing Company, Core drivers of growth Agility is a logistics provider with presence in over 100 • The acquisition strategy of Agility has launched the company from a niche warehousing and countries across six continents through a network of service provider to a global integrated logistics business. Although no large-scale acquisitions warehousing facilities and transport and freight appear on the agenda in the short term, we expect the company will continue to add management businesses. Agility currently operates a complimentary businesses, providing greater economies of scale. fleet of over 3,000 transportation and delivery vehicles. In 2005 the company acquired Trans-Link, • Global economic growth and the positive impact on trade continue to drive expansion of the Transoceanic and Geologistics, expanding the group’s logistics market. Specifically, ongoing contract wins in the Defense and Government Services services to include freight and project forwarding and (DGS) business provide attractive and relatively predictable income streams several years out. events and exhibitions logistics. Agility listed on the These contracts are, however, subject to renewal. DFM in February 2006. • Ongoing contract wins in the DGS business, other than the US$50 bn US Defense contract, Shareholder structure (2007) include a US$345 mn contract for the provision of a variety of logistics services at US bases in

Iraq. Agility will also partner Transcar in the c.US$200 mn Pearl GTL project. We expect the 15% strong growth of the division to generate revenue CAGR of 25% between 2007 and 2012.

24% Risk to the investment case 61% • A reduction in troop deployment in the region would negatively impact the group as the DGS

business accounts for over 30% of total revenue. A mitigating factor, however, would be the Other

transferability of transport assets from DGS to the Global Integrated Logistics (GIL) division. National Real Estate Company • Higher fuel costs would also impact the group through lower demand from customers, and Public Institution for Social Security margin pressure where increases cannot be passed through to the end user. Sales by division (2007E) • Growth in recent years in freight forwarding and contract logistics has averaged 2.0x and 1.5x GDP growth respectively, on our estimates. Agility is therefore geared to the economic cycle and the risk of a slowdown and reduction in trade volumes. 39%

Industry context 61% The global freight forwarding and logistics market is fragmented but competitive. Few of the large international players have a significant presence in the Middle East, where Agility enjoys the largest network. The logistics operations under the defence contracts are highly specialised and require an

extensive network, with which few other regional players can compete. In our view, the company is Freight and Project forw arding Logistics services very well positioned to win the ongoing contracts available in the region.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 125 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Agility: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) KDmn (LHS) EBIT Margin (RHS) 0.6x 3.5% 70.0% 0.5x 3,500 3.0% 60.0% 0.4x 3,000 0.3x 2.5% 50.0% 0.2x 2,500 2.0% 40.0% 0.1x 2,000 0.0x 1.5% 30.0% 1,500 -0.1x 1.0% 20.0% -0.2x 1,000 0.5% -0.3x 500 10.0% -0.4x 0.0% 0 0.0% 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Supply chain manager of choice for the US armed forces in Kuwait, Iraq, ƒ Focus on acquisitive growth. Need to ensure operational synergies and Qatar, and Afghanistan. Recently secured a number of large ongoing shift focus towards more sustainable organic growth. contracts with the US Department of Defense. ƒ Geared to the economic cycle by between 1.5 and 2.0x GDP growth, and ƒ Acquisition of Geologistics and other niche logistics companies elevated therefore susceptible to declines in trade volumes. the group to a global logistics solutions provider. ƒ Dependency on third-party service providers.

Opportunities Threats ƒ Directly benefits from increases in economic activity and trade. ƒ Highly competitive market with strong competition from companies such as DHL, UPS and Kuehne and Nagel. ƒ Recent acquisitions have successfully opened up a number of new markets internationally, allowing the group a number of new growth ƒ Gradual reduction in troop deployment in Middle East expected to impact opportunities. DGS business.

ƒ Ongoing presence of armed forces throughout the Middle East. ƒ Sharp and sustained increases in the oil price. ƒ Slowdown in global and regional economic activity and trade.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 126 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Agility: Summary financials Income statement 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (KD mn, year to Dec) CAGR Sales 140.9 453.2 1,013 1,525 2,149 2,739 3,127 3,437 3,645 14.1% EBITDAR 91.1 143.8 209 154 249 323 331 370 389 EBITDA 91.1 143.8 209 154 249 323 331 370 389 EBITDA margin 64.7% 31.7% 20.6% 10.1% 11.6% 11.8% 10.6% 10.8% 10.7% EBIT 83.5 126.0 174 124 211 274 272 299 310 10.1% EBIT margin 59.3% 27.8% 17.2% 8.1% 9.8% 10.0% 8.7% 8.7% 8.5% Net interest expense (2.0) (4.3) (2) (5) (6) (9) (9) (9) (8) Associate income / other 31.9 34.3 17 (0) 0 (0) 0 0 (0) Profit before tax 113.4 156.0 189 119 204 266 263 290 302 Adjusted PBT 113.4 156.0 191 122 207 270 268 295 303 10.0% Tax (3.3) (5.8) (11) (7) (11) (15) (15) (16) (17) Exceptional items (10.6)(7.5)(9)000000 Minority interest (1.1) (0.9) (3) (3) (3) (3) (3) (3) (3) Net income 98.5 141.9 167 110 190 248 246 271 282 Adjusted net income 109.1 149.3 177 112 193 252 251 276 284 10.1%

08E-12E Per share data (KD) 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 833 888 942 951 951 951 951 951 951 No. of diluted shares outstanding (*) 833 888 942 951 951 951 951 951 951 EPS (basic) 0.12 0.16 0.18 0.12 0.20 0.26 0.26 0.28 0.30 10.4% EPS (diluted) 0.12 0.16 0.18 0.12 0.20 0.26 0.26 0.28 0.30 EPS (adjusted, basic) 0.13 0.17 0.19 0.12 0.20 0.26 0.26 0.29 0.30 10.1% Annual growth 28.3% 11.9% -37.4% 72.4% 30.4% -0.6% 10.1% 2.9% EPS (adjusted, diluted) 0.13 0.17 0.19 0.12 0.20 0.26 0.26 0.29 0.30 DPS 0.01 0.04 0.08 0.06 0.10 0.13 0.13 0.14 0.15 10.4% Annual growth NM 88.2% -23.0% 73.0% 30.5% -0.9% 10.1% 4.3% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 127 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Agility: Summary financials Balance sheet 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (KD mn, year ending Dec) CAGR Cash and cash equivalents 19 203 317 259 178 184 174 211 260 Other current assets 144 307 385 654 1,030 1,311 1,508 1,657 1,759 Total current assets 163 510 703 913 1,207 1,496 1,682 1,868 2,019 13.7% Long term investments & other 120 334 385 385 385 385 385 385 385 Property, plant and equipment 97 197 212 245 297 362 433 504 572 Intangible assets 0020181511610 Total assets 381 1,040 1,320 1,561 1,904 2,254 2,506 2,759 2,977 11.8% Trade payables 99 189 302 501 706 900 1,028 1,130 1,198 Short term debt 35 26 92 92 92 92 92 92 92 Long term debt 34 229 163 163 163 163 163 163 163 Pension liabilities 13144444444444444 Other liabilities 5 11 15 15 15 15 15 15 15 Total liabilities 174 485 615 815 1,020 1,214 1,341 1,443 1,512 10.3% Minority interests 3 8 17 20 23 25 28 31 33 Shareholders' equity 203 547 688 727 862 1,015 1,137 1,285 1,432 Total equity and liabilities 381 1,040 1,320 1,561 1,904 2,254 2,506 2,759 2,977 11.8%

Cash flow 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (KD mn, year to Dec) CAGR Cash from operations 82.0 101 245 85.2 77.7 235 262 322 356 46.3% Net interest paid (2.0) (4) (2) (4.6) (6.4) (9) (9) (9) (8) Tax paid (3.3) (6) (11) (6.7) (11.5) (15) (15) (16) (17) Operating cash flow 76.7 91 232 73.9 59.8 211 239 297 331 53.3% Capex on PP&E (96.8) (107) (47) (61.0) (86.0) (110) (125) (137) (146) Other investing cash flow (0.2)(144)(162)0.00.00000 Investing cash flow (97.0) (251) (209) (61.0) (86.0) (110) (125) (137) (146) 14.1% Operating free cash flow (*) (20.0) (16) 185 12.9 (26.1) 102 114 159 185 NM Free cash flow (**) (20.2) (160) 23 12.9 (26.1) 102 114 159 185 NM Dividends paid (8.6) (0) (37) (71.3) (54.9) (95) (124) (123) (135) Share buybacks / issuances 0.0187150.00.00000 Other 44.3156(2)0.00.00000 Financing cash flow 35.7 343 (24) (71.3) (54.9) (95) (124) (123) (135) 25.3% Change in cash and cash equivalents 184 114 (58.4) (81.1) 7 (10) 36 50

(*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 128 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Agility: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 10.8x 9.7x 15.5x 9.0x 6.9xCROCI 6.9x 35.9% 28.3% 18.0% 23.5% 24.8% 22.1%EBITDA margin 31.7% 20.6% 10.1% 11.6% 11.8% 10.6% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 12.4x 7.8x 12.2x 7.9x 6.1x 6.0xROE 39.8% 28.5% 15.5% 23.9% 26.4% 22.9%EBIT margin 27.8% 17.2% 8.1% 9.8% 10.0% 8.7% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 4.1x 3.3x 2.1x 2.7x 2.9x 2.5xNOPAT margin 27.8% 17.4% 8.3% 10.0% 10.2% 8.8% EV / EBITDA lease adj'd 14.5x 7.5x 11.7x 7.6x 5.8x 5.7x GS coverage 1.7x 2.1x 2.0x 2.0x 2.1x 1.9xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI 3.1x 2.1x 2.0x 1.7x 1.4x 1.2xCapex / sales 23.6% 4.7% 4.0% 4.0% 4.0% 4.0% EV / NOPAT lease adj'd 16.5x 8.9x 14.2x 8.8x 6.7x 6.8x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 743 812 994 1,278 1,509 1,742Capex / depreciation 6.0x 1.4x 2.2x 2.5x 2.5x 2.3x P / book 3.1x 2.5x 2.4x 2.0x 1.7x 1.5x Net debt / (cash) * 51 (63) (4) 77 70 80 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 31 44 44 44 44 44 FCF yield -19.9% -1.7% 0.7% -1.5% 5.9% 6.6% Net Debt / Equity 0.1x -0.1x 0.0x 0.1x 0.1x 0.1x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA 0.4x -0.3x 0.0x 0.3x 0.2x 0.2x Dividend yield 2.2%4.1%3.2%5.5%7.2%7.1% Net interest / EBITDA 3.0% 1.2% 3.0% 2.6% 2.7% 2.6% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* KD mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.2x 10% 5.0x 4.5x 4.0x 5% 1.0x 4.0x 3.5x 0%

3.5x I 3.0x 0.8x -5% 3.0x 2.5x -10% EV / GCIEV

2.5x EV / GC 2.0x 0.6x 2.0x AGLT.KW -15% Sector Sector AGLT.KW 1.5x 1.5x 0.4x -20% 1.0x 1.0x -25% 0.5x 0.5x 0.2x 0.0x -30% 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -35% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin AGLT.KW

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 129 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Air Arabia (AIRA.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: -8%

United Arab Emirates: Airlines Investment Profile: AIRA.DU

Low Hi gh

Overcapitalized and fully valued Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Air Arabia is the first and largest low-cost carrier (LCC) operating from the Middle East. We Percentile 20th 40th 60th 80th 100th expect its fleet of nine planes, based at its Sharjah hub just 15 km from the emirate of Dubai, to Air Arabia grow to 22 by year-end 2010 and to 53 by 2015. Management has also announced its intention Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the to add further hubs in the region in order to extend its range and addressable market. investment profile measures please refer to the disclosure section of this document. • The company raised Dh3.3 bn in its recent IPO and private placement to fund plane purchases, Key data (*) set up a new regional hub and provide financing for acquisitions and other opportunities, Price (Dh) 1.31 according to management. We believe the company is now overcapitalized; unless acquisitions Price target (Dh) 1.20 can be made, return on capital will remain diluted. The shares look expensive on an ROE basis. Market cap ($ mn) 1,665 Average daily trading volume ($ mn) NA • Sharjah’s proximity to Dubai, its function as a dormitory town for (often lower-income) Dubai Free float 45% Bloomberg code AIRARABI DB workers, its low cost per passenger, subsidies from the emirate’s government and rapid 2006 2007E 2008E 2009E turnaround times make the low-cost model viable, in our view. At 23.8x 2008E P/E, 1.1x NAV Sales (Dh mn) 749.2 1,163 1,501 1,993 and ROE of 4.8%, Air Arabia looks expensive, on our estimates. We expect strong organic EBITDA (Dh mn) 75.9 203.9 224.3 257.1 EV / EBITDAR NA 8.5x 7.7x 6.9x growth but believe new, value-accretive developments need to be announced to justify its P / E 60.4x 22.2x 23.8x 24.6x present valuation. Dividend yield 0.0% 0.0% 1.0% 2.0% (*) multiples and ratios are calendarised • We initiated coverage as Neutral with a 12-month price target of Dh1.20, based on a DCF valuation to year-end 2008. Our valuation implies limited upside without additional, presently undefined, acquisitions or other expansion opportunities. We believe our assumptions of 1.0 0.9 600 organic growth are prudent but not overly conservative in the light of our expectations for 0.8 550 increased competition in the sector. 0.7 0.6 500 0.5 0.4 450 0.3 0.2 400 Valuation: 12-month target price of Dh1.20 0.1 0.0 350

7 7 7 7 Our valuation approach is based on a DCF analysis. The key inputs for our DCF calculation 0 07 07 0 07 07 07 07 07 0 07 07 0 0 0 0 0 /2007 /2 /2 /20 /2007 /2 /20 /2 7 7 8 8 9 /07/20 /08/20 08 /08/20 08 /08 beyond our explicit forecast period are: a WACC of 10.5%, growth rate in perpetuity of 3% and a 3/07/20 2/08/20 7/09/20 2 25/0 27 31/0 0 06/08/200708 10/0 14/ 16/08/200720 22/0 24/ 28/08/2030 03/09/200705/0 0 terminal NOPAT margin of 12%. We calculate a price target for Air Arabia of Dh1.20. AIRA.DU (Dh) MSCI EM Eur ope & Middle Eas t

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 130 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Air Arabia: Overview Company description Air Arabia is the first low-cost carrier in the GCC region Core drivers of growth and is based at Sharjah Airport in the UAE. Air Arabia • Strong growth of regional economies and populations (mostly expatriates from surrounding currently operates a fleet of nine Airbus A320 aircraft, countries) provides a positive backdrop for growth in the LCC market. Low-priced air travel is the but expects to grow the fleet to over 50 aircraft by most viable method of transportation for a large section of the local population and inbound 2015. The company typically offers fares that are on regional tourists. LCC penetration in the Middle East is very low, compared with developed average 40% cheaper than conventional carriers in the markets. Market share should grow in this expanding aviation market. region. Air Arabia currently flies to 35 destinations throughout the MENA region and has flown 4 mn • The company’s strategy of operating a single class of aircraft reduces operating overheads and passengers since it launched. The company listed on turnaround time, thereby enhancing flight frequency and margins. We do not foresee dramatic the DFM in July 2007. margin expansion from the current level, however, as competition rises.

• The company’s geographical expansion through the establishment of new hubs should drive Shareholder structure (2007) customer numbers and diversify income streams across the MENA region. We expect growth in ancillary revenues such as an airport hotel and holiday operations, ground handling services, 7% 9% cargo, catering and maintenance services.

10%

Risk to the investment case 57% 17% • Air Arabia has a high exposure to fuel prices, which account for c.40% of operating costs. The

company does attempt to mitigate this risk by hedging its exposure to fuel prices; this may Other reduce volatility of earnings, but in the long term must add to cost. Abraaj Capital Department of Civil Aviation - Sharjah Al Maha Holding • The threat of competition will likely grow, particularly as the group expands beyond its home Sharjah International Airport market. Regulatory factors may also play a negative role as regional expansion depends on securing hubs at crucial locations abroad. Sales by division (2007E)

• General slowdown in tourism and business activity and the failure to find suitable avenues for the capital raised also presents significant opportunity cost.

Industry context Strong economic growth and the subsequent impact on tourism and business travel drive demand in the sector. Airbus expects passenger traffic to grow at c.7% until 2010, the highest level globally. 100% LCC penetration in the Middle East is less than 1%, compared to over 10% in Europe and 75% in North America; we expect this penetration to grow significantly as the economic boom continues in Passenger Revenue the region. Air Arabia is very well positioned, in our view, to capitalize on these developments.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 131 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Air Arabia: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn ( LHS) EBIT Margin (RHS) 0.0x 100.0% 4,000 18.9% 80.0% -2.0x 3,500 60.0% 3,000 -4.0x 13.9% 40.0% 2,500 -6.0x 20.0% 2,000 8.9% 0.0% -8.0x 1,500 -20.0% 1,000 3.9% -10.0x -40.0% 500 -12.0x -60.0% 0 -1.1% 04 05 06 07E 08E 09E 10E 11E 12E 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ First mover advantage in the LCC space, reinforced with a strong and ƒ Presently overcapitalized, which is diluting return on capital. recognizable brand. ƒ Flying out of Sharjah increases journey times for passengers transferring ƒ Single model and young fleet improves safety and lowers operational via Dubai or Abu Dhabi. and maintenance cost per aircraft. ƒ Minimal ancillary revenue items at present. ƒ Cost leadership and an efficient distribution network.

Opportunities Threats ƒ High levels of economic growth and the positive effect on business and ƒ Threat of new entrants into the LCC market in the region. related travel. Strong growth in inbound and outbound tourism in the ƒ Competition for traffic and landing rights at new airport destinations. UAE, as well as being the natural choice for the large number of migrant laborers traveling to and from the region. ƒ Exposed to sharp increases in fuel and aircraft spares prices.

ƒ The establishment of additional hubs, creating the potential for new routes into North Africa and the Mediterranean.

ƒ Expansion into ancillary business lines of accommodation, catering and aircraft-related services.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 132 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Air Arabia: Summary financials Income statement 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 181.3 411.2 749.2 1,163 1,501 1,993 2,470 3,085 3,851 26.6% EBITDAR 24.5 68.1 180.2 327 397 499 604 744 945 EBITDA (1.7) 12.6 75.9 204 224 257 311 428 613 EBITDA margin -0.9% 3.1% 10.1% 17.5% 14.9% 12.9% 12.6% 13.9% 15.9% EBIT (1.7) 12.6 75.9 171 158 157 176 239 361 23.0% EBIT margin -0.9% 3.1% 10.1% 14.7% 10.5% 7.9% 7.1% 7.8% 9.4% Net interest expense 1.3 18.7 25.3 104 99 92 68 33 (15) Associate income / other (0.0) 0.0 (0.0) 0 (0) 0 0 (0) (0) Profit before tax (0.4) 31.3 101.2 275 257 249 244 272 346 Adjusted PBT (0.4) 31.3 101.2 275 257 249 244 272 346 7.8% Tax 0.00.00.0000000 Exceptional items 0.00.00.05000000 Minority interest 0.00.00.0000000 Net income (0.4) 31.3 101.2 325 257 249 244 272 346 Adjusted net income (0.4) 31.3 101.2 275 257 249 244 272 346 7.8%

08E-12E Per share data (Dh) 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 4,667 4,667 4,667 4,667 4,667 4,667 4,667 4,667 4,667 No. of diluted shares outstanding (*) 4,667 4,667 4,667 4,667 4,667 4,667 4,667 4,667 4,667 EPS (basic) (0.00) 0.01 0.02 0.07 0.05 0.05 0.05 0.06 0.07 7.8% EPS (diluted) (0.00) 0.01 0.02 0.07 0.05 0.05 0.05 0.06 0.07 EPS (adjusted, basic) (0.00) 0.01 0.02 0.06 0.05 0.05 0.05 0.06 0.07 7.8% Annual growth NM NM NM -6.7% -3.0% -1.9% 11.3% 27.4% EPS (adjusted, diluted) (0.00) 0.01 0.02 0.06 0.05 0.05 0.05 0.06 0.07 DPS 0.00 0.00 0.00 0.00 0.01 0.03 0.04 0.04 0.06 41.9% Annual growth NM NM NM NM 94.0% 47.2% 11.3% 27.4% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 133 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Air Arabia: Summary financials Balance sheet 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 63.0 100 182 3,296 3,217 3,556 4,132 4,583 5,054 Other current assets 0.0 36 75 112 144 191 237 296 369 Total current assets 63.0 135 257 3,408 3,361 3,747 4,369 4,879 5,424 12.7% Long term investments & other 31.5 59 111 111 111 111 111 111 111 Property, plant and equipment 0.0 0 0 467 900 1,300 1,686 2,306 2,996 Intangible assets 0.0 0 0 1,400 1,400 1,400 1,400 1,400 1,400 Total assets 94.5 195 368 5,385 5,772 6,557 7,565 8,696 9,930 14.5% Trade payables 0.0 56 115 191 247 328 406 507 633 Short term debt 0.000000000 Long term debt 0.0 0 0 0 74 595 1,404 2,345 3,311 Pension liabilities 12.3 11 10 10 10 10 10 10 10 Other liabilities 43.94569696969696969 Total liabilities 56.2 112 194 270 399 1,001 1,888 2,931 4,023 78.1% Minority interests 0.000000000 Shareholders' equity 38.4 83 174 5,116 5,372 5,557 5,677 5,765 5,908 Total equity and liabilities 94.6 195 368 5,385 5,772 6,557 7,565 8,696 9,930 14.5%

Cash flow 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations (1.3) (18.7) (25.3) 243 247 291 343 470 665 28.0% Net interest paid 1.3 18.7 25.3 104 99 92 68 33 (15) Tax paid 0.00.00.0000000 Operating cash flow 0.0 0.0 0.0 348 346 383 411 503 650 17.1% Capex on PP&E 0.0 0.0 0.0 (500) (500) (500) (520) (809) (941) Other investing cash flow 0.00.00.0000000 Investing cash flow 0.0 0.0 0.0 (500) (500) (500) (520) (809) (941) 17.1% Operating free cash flow (*) 0.0 0.0 0.0 (152) (154) (117) (109) (307) (291) 17.3% Free cash flow (**) 0.0 0.0 0.0 (152) (154) (117) (109) (307) (291) 17.3% Dividends paid 0.0 0.0 0.0 0 0 (64) (124) (183) (204) Share buybacks / issuances 0.00.00.03,26700000 Other 0.0 0.0 0.0 0 74 520 809 941 966 Financing cash flow 0.0 0.0 0.0 3,267 74 456 685 758 762 79.0% Change in cash and cash equivalents 36.6 82.6 3,114 (79) 339 576 452 471 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 134 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Air Arabia: Valuation summary

Relative to GS New Markets Non-Financial coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E NA 60.4x 22.2x 23.8x 24.6x 25.0xCROCI NA NA 17.8% 12.1% 11.8% 11.6%EBITDA margin 3.1% 10.1% 17.5% 14.9% 12.9% 12.6% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA NA 11.7x 11.0x 10.2x 9.5xROE 51.8% 78.9% 10.4% 4.9% 4.6% 4.3%EBIT margin 3.1% 10.1% 14.7% 10.5% 7.9% 7.1% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA NA 1.5x 1.0x 1.0x 1.0xNOPAT margin 7.5% 14.7% 18.2% 14.3% 11.9% 11.0% EV / EBITDA lease adj'd NA NA 8.5x 7.7x 6.9x 6.4x GS coverage 1.3x 1.5x 1.5x 1.5x 1.6x 1.4xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NA NA 1.3x 1.2x 1.1x 1.0xCapex / sales 0.0% 0.0% 43.0% 33.3% 25.1% 21.1% EV / NOPAT lease adj'd NA NA 18.1x 20.3x 21.5x 21.0x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NA NA 3,620 4,695 5,916 7,029Capex / depreciation NA NA 15.0x 7.5x 5.0x 3.9x P / book 74.1x 35.2x 1.2x 1.1x 1.1x 1.1x Net debt / (cash) * (100) (182) (3,296) (3,143) (2,961) (2,728) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 11 10 10 10 10 10 FCF yield NA NA -2.5% -2.5% -1.9% -1.8% Net Debt / Equity -1.2x -1.0x -0.6x -0.6x -0.5x -0.5x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -1.5x -1.0x -10.1x -7.9x -5.9x -4.5x Dividend yield 0.0%0.0%0.0%1.0%2.0%3.0% Net interest / EBITDA NM -33.3% -51.2% -44.1% -35.7% -21.9% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financial coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.4x 35% 5.0x 4.0x 4.5x 1.2x 30% 4.0x 3.5x 25% 3.5x I 3.0x 1.0x 3.0x 20% 2.5x 0.8x EV / GCIEV

2.5x EV / GC 2.0x 15% 2.0x 0.6x Sector Sector 1.5x 1.5x 10% AIRA.DU AIRA.DU 1.0x 1.0x 0.4x 5% 0.5x 0.5x 0.2x 0.0x 0% 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -5% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin AIRA.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 135 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 136 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Other UAE company summaries

Dubai Financial Market 138

Tabreed 144

Oasis International Leasing 150

Goldman Sachs Global Investment Research 137 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Dubai Financial Market (DFM.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 31% United Arab Emirates: Capital Markets

Investment Profile: DFM.DU

Low Hi gh

A capital market play on capital formation Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • The Dubai Financial Market (DFM) is the first exchange to be listed in the Middle East, and has Percentile 20th 40th 60th 80th 100th become the natural destination for the larger UAE firms seeking a listed presence. DFM is being Dubai Financial Market converted into an Islamic Market, making it the only Sharia’a-compliant exchange globally. Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the • DFM should directly benefit from new listings and increasing market turnover as capital investment profile measures please refer to the disclosure section of this document. markets continue to deepen and recover from the fall from 2005 to 2007. The company Key data (*) operates with negligible overheads and generates gross margins above 90%, which we expect Price (Dh) 3.14 to continue over our forecast period due to its relative monopoly and government sponsorship. Price target (Dh) 4.10 Market cap ($ mn) 6,842 • Management expects trading values to average Dh1 bn per day during 2007. A number of new Average daily trading volume ($ mn) 45.5 listings scheduled this year and in 2008 should bring additional revenues. DFM intends to Free float 20% Bloomberg code DFM DB expand the type of securities offered to include derivatives, and should begin generating rental 2006 2007E 2008E 2009E income from its new premises from 2009. Sales (Dh mn) 789.1 545.2 805.6 1,074 EBITDA (Dh mn) • The tie up with the DIFX under the umbrella of government-owned Bourse Dubai provides EV / EBITDAR NA 45.6x 29.6x 21.2x interesting opportunities for overseas expansion and the import of trading technology. P / E 31.5x 42.3x 27.2x 20.1x Dividend yield 0.0% 0.0% 1.8% 3.7% • We initiate coverage of DFM with as a Buy, with a 12-month target price of Dh4.10. (*) multiples and ratios are calendarised

1.0 Valuation: 12-month target price of Dh4.10 0.9 600 0.8 550 0.7 Our valuation approach is based on a DCF analysis. The key inputs for our DCF calculation 0.6 500 beyond our explicit forecast period are: a WACC of 9.5%, growth rate in perpetuity of 5% and a 0.5 0.4 450 terminal NOPAT margin of 92%. We calculate a price target for DFM of Dh4.10. 0.3 0.2 400 0.1 On a multiples basis, DFM appears cheap relative to global peers given our growth forecasts. Our 0.0 350 2008E P/E multiple for DFM of 27x compares with 21.5x for Nasdaq, 30.9x for CME Group and 25x for Euronext. 08/03/2007 16/03/2007 26/03/2007 03/04/2007 11/04/2007 19/04/2007 27/04/2007 07/05/2007 15/05/2007 23/05/2007 31/05/2007 08/06/2007 18/06/2007 26/06/2007 04/07/2007 12/07/2007 20/07/2007 30/07/2007 07/08/2007 15/08/2007 23/08/2007 31/08/2007 10/09/2007 DFM.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 138 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Dubai Financial Market: Overview Company description The Dubai Financial Market (DFM) was established in Core drivers of growth 2000 and listed in March 2007. The IPO was the first of • Growth will likely be driven primarily by increases in trading activity and sales volumes. We its kind in the region and resulted in 20% of the expect these to remain high on the back of rapid economic growth and high demand for primary company’s shares being floated. DFM acts as a primary capital. and secondary market for the regulation and trading of a number of securities such as equities, federal and • Plans are underway to expand the current offering of financial assets on the DFM to include local government bonds, corporate debt (including derivatives. Derivative products account for a significant amount of trading volume on developed Islamic Sukuk), and listed mutual funds. DFM is an exchanges and therefore present a significant growth opportunity for the DFM, in our view. order-driven market which operates off an automated • We expect that any pressure on the current 20 bp fee earned per transaction can be offset by screen-based trading platform. There are currently 51 levying additional charges for data, listing fees and deposits, which currently are not charged. listed equities on the DFM. • The new premises of the DFM will house 120 brokers’ offices, which will be sold and leased and Shareholder structure (2007) should generate material additional revenue for the company. 20% • The consolidation of DFM and DIFX into Borse Dubai should allow the company to explore joint opportunities in capital markets, including the recent deal with OMX and Nasdaq whereby Borse Dubai will take a stake in Nasdaq and the London Stock Exchange.

Risk to the investment case 80%

• A correction or pullback in regional or emerging markets would have a material impact on the Government of Dubai Public DFM. With c.95% of revenues derived from trading margins, a pullback similar in scale to that seen last year, would impact the DFM.

• Margin squeeze on the revenue derived per transaction and increased competition from regional Sales by division (2007E) exchanges could have a material impact on the group’s earnings going forward. 7%

Industry context International capital flows across the region have increased significantly in recent years, as foreign investors chase the strong growth in the oil-rich economies of the Middle East. Dubai has

positioned itself as the financial centre of the region, thereby creating strong externalities for the 93% DFM. DFM also enjoys a relative monopoly with little real competition from other regional exchanges. The DIFX, a secondary exchange in Dubai, does not compete with the DFM with the majority of its listings being Sukuk. Trading Commission's Broker's Fees

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 139 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Dubai Financial Market: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin ( RHS) 0.0x 120.0% 0.0% -0.5x 1,400 -10.0% 100.0% -1.0x 1,200 -20.0% -1.5x -30.0% 80.0% 1,000 -2.0x -40.0% 800 -2.5x 60.0% -50.0% -3.0x 600 -60.0% 40.0% -3.5x -70.0% -4.0x 400 20.0% -80.0% -4.5x 200 -90.0% -5.0x 0.0% 0 -100.0% 05 06 07E 08E 09E 10E 11E 12E 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Primary securities exchange in the region in terms of liquidity, ƒ Almost entirely dependent on market turnover and the frequency and transparency and market depth. size of new listings.

ƒ Virtual monopoly with captive market and relative freedom in terms of ƒ Introduction of new securities and products could take some time to pricing and commissions. The company operates with a very low cost implement, with progress likely to be dictated by legislative procedures. base, with negligible capital requirements.

ƒ Barriers to entry. Highly regulated market with significant legislative hurdles for potential competitors.

Opportunities Threats ƒ Natural choice for all multinational corporations wanting a listed ƒ The potential for other regional exchanges becoming more attractive to presence in the Middle East. international listings.

ƒ Currently no derivatives trading on DFM, creating opportunity for large ƒ Highly exposed to pull-back in global or regional equity markets, in terms expansion of listed products and services. of both market turnover and new listings.

ƒ Economic boom in the region leads to higher capital requirements and therefore greater number of listings.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 140 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Dubai Financial Market: Summary financials

Income Statement 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year to Dec) CAGR Sales 1289.5 789.1 545.2 805.6 1074.0 1221.0 1335.4 1431.3 1500.5 1568.2 1639.2 15.5 EBITDAR 1249.0 734.0 501.8 743.6 998.8 1135.4 1241.8 1331.0 1395.4 1458.1 1523.9 EBITDA 1249.0 734.0 501.8 743.6 998.8 1135.4 1241.8 1331.0 1395.4 1458.1 1523.9 EBITDA Margin, % 96.9 93.0 92.0 92.3 93.0 93.0 93.0 93.0 93.0 93.0 93.0 EBIT 1246.1 728.2 498.6 739.6 993.7 1129.1 1234.2 1321.9 1384.8 1445.9 1510.1 15.6 EBIT Margin, % 96.6 92.3 91.5 91.8 92.5 92.5 92.4 92.4 92.3 92.2 92.1 Net interest expense 6.8 67.6 99.2 190.0 262.4 323.7 363.0 396.4 430.2 464.2 499.6 Associate income / other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Profit before tax 1253.9 797.6 593.4 925.1 1251.6 1448.3 1592.7 1713.8 1810.5 1905.6 2005.2 Adjusted PBT 1253.9 797.6 593.4 925.1 1251.6 1448.3 1592.7 1713.8 1810.5 1905.6 2005.2 16.7 Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Exceptional items 0.0 0.0 468.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interes t 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income 1253.9 797.6 1061.4 925.1 1251.6 1448.3 1592.7 1713.8 1810.5 1905.6 2005.2 Adjusted net income 1253.9 797.6 1061.4 925.1 1251.6 1448.3 1592.7 1713.8 1810.5 1905.6 2005.2 16.7

08E-12E Per Share Data 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E CAGR No. of basic shares outstanding (*) 7999 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000 No. of diluted shares outstanding (*) 7999 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000 EPS (basic) 0.160.100.130.120.160.180.200.210.230.240.2516.7 EPS (diluted) 0.16 0.10 0.13 0.12 0.16 0.18 0.20 0.21 0.23 0.24 0.25 EPS (adjus ted, bas ic) 0.16 0.10 0.07 0.12 0.16 0.18 0.20 0.21 0.23 0.24 0.25 16.7 Annual growth, % -36.40 -25.60 55.91 35.29 15.71 9.97 7.60 5.64 5.25 5.23 EPS (adjusted, diluted) 0.16 0.10 0.07 0.12 0.16 0.18 0.20 0.21 0.23 0.24 0.25 DPS 0.000.000.000.060.120.140.160.170.180.190.2031.2 Annual growth, % NM NM NM 102.94 23.43 9.97 7.60 5.64 5.25 5.23 (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 141 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Dubai Financial Market: Summary financials

Balance Sheet 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 1,341 1,241 2,375 3,281 4,047 4,538 4,954 5,377 5,802 6,245 6,712 Other current assets 58 584 30 44 59 67 73 78 82 86 90 Total Current As sets 1,399 1,824 2,405 3,325 4,106 4,605 5,028 5,456 5,884 6,331 6,801 13.2 Investments in finance leases and loans 50 499 499 499 499 499 499 499 499 499 499 Operating lease assets 17 28 39 47 58 70 82 94 106 118 128 Property, plant and equipment 0 0 0 0 0 0 0 0 0 0 0 Total As sets 1,465 2,351 2,942 3,870 4,662 5,173 5,608 6,049 6,489 6,947 7,429 11.8

Short-Term Debt 98 149 149 149 149 149 149 149 149 149 149 Trade Payables 18 8 6 8 11 13 14 15 16 16 17 Long-Term Debt 0 0 0 0 0 0 0 0 0 0 0 Pension liabilities 1 1 1 1 1 1 1 1 1 1 1 Other liabilities 7 22 22 22 22 22 22 22 22 22 22 Total Liabilities 124 181 178 181 184 185 187 188 188 189 190 0.9 Minority Interests 0 0 0 0 0 0 0 0 0 0 0 Total Shareholders' Equity 1,341 2,170 2,764 3,689 4,478 4,988 5,422 5,861 6,301 6,758 7,239 Total Liabilities & Equity 1,465 2,351 2,942 3,870 4,662 5,173 5,608 6,049 6,489 6,947 7,429 11.8

Cash flow 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year to Dec) CAGR Cash from operations 1,252 267 1,053 732 987 1,129 1,237 1,327 1,392 1,455 1,521 16.0 Net interest received 7 68 99 190 262 324 363 396 430 464 500 Tax paid 0 0 0 0 0 0 0 0 0 0 0 Operating cash flow 1,257 334 1,148 918 1,245 1,448 1,595 1,719 1,818 1,915 2,016 17.0 Purchase of operating lease assets (0) 0 0 0 0 0 0 0 0 0 0 Sale (Purchase) of Intangible & Fin Assets (709) (224) 0 0 0 0 0 0 0 0 0 Capex on PP&E (18) (17) (14) (12) (16) (18) (20) (21) (23) (24) (25) Investing cash flow (727) (242) (14) (12) (16) (18) (20) (21) (23) (24) (25) 15.5

Free Cash Flow 531 93 1,134 906 1,229 1,430 1,575 1,697 1,796 1,891 1,991 17.0 Short-Term Debt (Decrease) Increase 0 0 0 0 0 0 0 0 0 0 0 Long-Term Debt (Decrease) Increase (42) 0 0 0 0 0 0 0 0 0 0 Dividends paid 0 0 0 0 (463) (939) (1,159) (1,274) (1,371) (1,448) (1,525) Share buybacks / issuances 0 0 0 0 0 0 0 0 0 0 0 Others 0 0 0 0 0 0 0 0 0 0 0 Financing cash flow (42) 0 0 0 (463) (939) (1,159) (1,274) (1,371) (1,448) (1,525) NM

Change in cash and cash equivalents 489 93 1,134 906 766 491 417 423 425 443 467

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 142 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Dubai Financial Market: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 20.0x 31.5x 42.3x 27.2x 20.1x 17.3xCROCI NA NA NA NA NAEBITDA NA margin NA NA NA NA NA NA GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA NA NA NA NA NAROE NA 45.4% 24.1% 28.7% 30.7% 30.6%EBIT margin 96.6% 92.3% 91.5% 91.8% 92.5% 92.5% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA NA NA NA NANOPAT NA margin 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EV / EBITDA lease adj'd NA NA 45.6x 29.6x 21.2x 18.3x GS coverage NA NA NA NA NA NAGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NANANANANANACapex / sales NANANANANANA EV / NOPAT lease adj'd NA NA NA NA NA NA GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NANANANANANACapex / depreciation NA NA NA NA NA NA P / book 18.7x 11.6x 9.1x 6.8x 5.6x 5.0x Net debt / (cash) * (1,242) (1,091) (2,226) (3,131) (3,898) (4,389) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 1 1 1 1 1 1 FCF yield NANANANANANA Net Debt / Equity NM NM NM NM NM NM GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -1.0x -1.5x -4.4x -4.2x -3.9x -3.9x Dividend yield 0.0%0.0%0.0%1.8%3.7%4.6% Net interest / EBITDA NA NA NA NA NA NA GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.2x 120% 5.0x 4.5x 4.0x 1.0x 100% 4.0x 3.5x

3.5x I 3.0x 0.8x 80% 3.0x 2.5x EV / GCIEV

2.5x EV / GC 2.0x 0.6x 60% 2.0x Sector Sector 1.5x 1.5x 0.4x 40% 1.0x 1.0x 0.5x 0.5x 0.2x 20% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 1 Premium to the sector (RHS) Emerging Markets Non-Fin DFM.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 143 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tabreed (TABR.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Buy List [email protected]

RATING: Return potential: 32%

United Arab Emirates: Utilities Investment Profile: TABR.DU

Low Hi gh

Must gear up for substantial growth Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Buy recommendation Volatility Volatility • Tabreed is the leading provider of district cooling (DC) services in the Middle East. The Percentile 20th 40th 60th 80th 100th company builds and operates stations to chill water, which is circulated through the air Tabreed conditioning systems of neighboring buildings. Tabreed is market leader in providing an Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the essential utility, cool air, in a rapidly growing market, enjoying a quasi-monopoly position in investment profile measures please refer to the areas where it operates. We suspect that pricing to date has not fully exploited this the disclosure section of this document. advantage. Key data (*) Price (Dh) 2.43 • The company currently operates 25 cooling plants in the UAE, and we expect installed capacity Price target (Dh) 3.20 to increase to 185,000 tons of refrigeration (TR) by year end 2007. We forecast an increase in Market cap ($ mn) 750.5 Average daily trading volume ($ mn) 2.38 capacity of 150% by year-end 2010 and strong organic growth thereafter. Free float 25% Bloomberg code TABREED DB • Much ‘un-priced’ potential exists, from projects such as the Dubai Metro and the company’s 2006 2007E 2008E 2009E announced JV with Aldar, which plans to develop sizeable projects in Abu Dhabi. These, and Sales (Dh mn) 470.0 509.7 672.1 885.6 potential overseas expansion, are not reflected in our forecasts. EBITDA (Dh mn) 104.5 205.9 333.1 431.0 EV / EBITDAR 44.0x 23.4x 15.9x 12.3x • We initiate coverage with a Buy rating and a 12-month price target of Dh 3.20 based on a DCF P / E 56.2x 29.5x 22.9x 20.7x Dividend yield 0.0% 0.0% 2.2% 3.6% valuation, implying c.32% potential upside to the current price. At 23x 2008E P/E, Tabreed does (*) multiples and ratios are calendarised not appear cheap, but this is due to building out capacity due to come on line over the next few years. We believe that the market does not recognize even the near-term growth that is already

under contract. 1.0 0.9 600 0.8 550 0.7 0.6 500 Valuation: 12-month target price of Dh3.20 0.5 0.4 450 0.3 We use a two-stage terminal value calculation, stepping growth down from the rate at the end of 0.2 400 the explicit forecast period to a 3% perpetual value. We use a WACC of 11% and arrive at a price 0.1 0.0 350

6 7 7 7 target of Dh3.20. 06 06 06 07 07 07 07 07 0 006 0 00 0 006 0 0 00 0 00 0 00 0 /2 2 /2 /2 /2 2 /2 /2 /2 /2 /2 /2 /2 /2007/2 9 0/ 0 1 1 1 2 3 4 5 6 7 8 8 1 /1 /0 /0 /0 /0 /0 /0 2/0 6/1 9/1 5/0 2/0 8/0 At our price target, the stock would trade at 30.1x and 27.3x 2008E and 2009E P/E respectively, 2 10/ 2 13 2 15/12/02 18/01/20070 21/02/200709 27/03/20071 30/04/200716 01/06/200719 05/07/200723 0 24 TA BR.DU (Dh) MSCI EM Europe & Middle East compared with its new markets peer group average of 34.2x and 28.7x.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 144 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tabreed: Overview Company description Tabreed is the leading provider of district cooling Core drivers of growth services throughout the GCC region. District cooling • Visibility on near-term growth is high, since construction of new facilities takes time and does not involves the supply of chilled water for air conditioning commence until sufficient contracts are in place to cover fixed costs. We expect growth in purposes to a variety of industrial, commercial and capacity of c.150% to 2010 and c.125% in revenues. We forecast economies of scale and increase residential buildings. The group currently operates 25 in gearing to push ROE from 8.8% in 2006 to c.18% by 2015E. cooling plants with year end capacity projected at 185,000 tons of capacity. In 2005, the group was • Tabreed has announced the formation of a JV with Aldar, the prime developer in Abu Dhabi, that awarded the prestigious Dubai Metro project, which could require a total of 1.4 mn tons of capacity, which we have not accounted for in our forecasts. will peak at 350,000 tons. Cooling facilities are powered The company also signed an agreement to provide the entire Dubai Metro project with DC by gas or electricity off the local grid and consume half services, expected to peak at 350,000 TR. We expect further growth to come from expansions the energy of conventional air conditioning systems. away from public towards private sector customers. Shareholder structure (2007) • Tabreed has already established a presence in the wider GCC region, including Saudi Arabia, Qatar, Bahrain and Oman, although we do not yet forecast revenues from these sources 8% 6% explicitly. Tie-ups with developers will likely be important to ensure access to future investment 7% opportunities.

Risk to the investment case 79% • Share issuance to manage gearing; we believe the company could be more aggressively geared. Other General Pensions and SSA • Competition is rising, but Tabreed should maintain a monopoly in its areas of operation; General Investments Abdulraouf Waleed Al Bitar regulation is unlikely in the medium term, but may pose some risk in the longer term.

• An overall slowdown in real estate developments, although not likely in the near-term, could Sales by division (2007E) occur in the longer term and hinder organic growth. Another risk could arise as the company

runs into capacity constraints and the extent to which further capacity can be financed. 13%

18% 44% Industry context Tabreed is the market leader in district cooling services in the GCC region, with only moderate levels of competition. The industry comprises a handful of specialist district cooling players (such 25% as Emicool) and a number of developers that provide their own in-house DC services. Tabreed’s diversity across a variety of developments from military installations to hospitals also insulates the

company from the risks of a real estate correction. Chilled Water Manuf ac tur ing Contracting Services

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 145 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tabreed: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Mar gin ( RHS) 16.0x 45.0% 1,200 14.0x 40.0% 36.4% 12.0x 35.0% 1,000 31.4% 30.0% 10.0x 800 26.4% 25.0% 8.0x 21.4% 20.0% 600 6.0x 15.0% 16.4% 400 4.0x 10.0% 11.4% 2.0x 5.0% 200 6.4% 0.0x 0.0% 0 1.4% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Revenue derived from long dated contracts, sometimes out to 20 years, ƒ District cooling is a capital intensive business, and requires high levels of providing predictable income streams. gearing.

ƒ DC has half the energy requirement of conventional A/C, and can save ƒ Depends on having a number of serviced buildings in close proximity to contractors up to 10% on construction costs, making it the preferred each cooling plant in order to achieve economies of scale. method for cooling. ƒ Once maximum capacity is achieved, there is significant lead time before ƒ The company has close ties with governments, municipalities and new capacity can be brought online. leading property developers.

Opportunities Threats ƒ Currently controls only 10% of the total cooling market. Room for growth. ƒ Expansion potential of the company may be hindered by Tabreed’s ability to continue to raise capital in the future. ƒ Major player in the UAE, but still relatively small in other GCC countries. Large expansion opportunities both regionally and internationally. ƒ Risk of developers sourcing new business from competitors or providing cooling services through subsidiaries. ƒ DC is a necessity in the GCC region. Directly benefits from the real estate and economic boom in the UAE and neighboring countries.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 146 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tabreed: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 85.4 191.0 242.1 400.9 470.0 509.7 672.1 885.6 1,062 1,139 1,209 15.8% EBITDAR 11.9 30.2 48.4 82.0 104.5 205.9 333.1 431.0 512 563 612 EBITDA 11.9 30.2 48.4 82.0 104.5 205.9 333.1 431.0 512 563 612 EBITDA margin 14.0% 15.8% 20.0% 20.4% 22.2% 40.4% 49.6% 48.7% 48.2% 49.4% 50.6% EBIT 1.5 6.2 11.1 38.5 45.1 125.0 176.3 243.9 316 361 404 23.0% EBIT margin 1.7% 3.2% 4.6% 9.6% 9.6% 24.5% 26.2% 27.5% 29.8% 31.7% 33.4% Net interest expense (1.0) (6.1) (16.4) (25.7) (40.3) (54.5) (81.9) (139.4) (165) (164) (160) Associate income / other 0.8 0.9 3.6 10.7 61.5 40.0 42.0 44.1 46 49 51 Profit before tax 1.2 0.9 (1.8) 23.6 66.2 110.4 136.3 148.5 198 246 295 Adjusted PBT 2.0 1.7 (0.9) 23.6 66.2 110.4 136.3 148.5 198 246 295 21.2% Tax 0.00.00.00.00.00.00.00.0000 Exceptional items 10.524.137.344.059.00.00.00.0000 Minority interest (3.5) (1.6) (3.9) (16.5) (20.9) (24.0) (24.7) (25.4) (26) (27) (28) Net income 8.1 23.4 31.6 51.1 104.4 86.4 111.6 123.1 172 219 267 Adjusted net income (1.6) 0.1 (4.8) 7.1 45.4 86.4 111.6 123.1 172 219 267 24.3%

08E-12E Per share data (Dh) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 No. of diluted shares outstanding (*) 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 1,050 EPS (basic) 0.010.020.030.050.100.080.110.120.160.210.2524.3% EPS (diluted) 0.010.020.030.050.100.080.110.120.160.210.25 EPS (adjusted, basic) (0.00) 0.00 (0.00) 0.01 0.04 0.08 0.11 0.12 0.16 0.21 0.25 24.3% Annual growth NM NM NM NM 90.4% 29.2% 10.3% 39.6% 27.4% 21.9% EPS (adjusted, diluted) (0.00) 0.00 (0.00) 0.01 0.04 0.08 0.11 0.12 0.16 0.21 0.25 DPS 0.000.000.000.000.000.000.050.090.120.160.2547.9% Annual growth NM NM NM NM NM NM 65.4% 39.6% 27.4% 62.5% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 147 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tabreed: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 256 111 255 596 975 887 905 596 702 771 866 Other current assets 131 107 213 316 1,023 365 413 493 550 586 619 Total current assets 387 218 468 912 1,998 1,251 1,318 1,088 1,252 1,357 1,484 3.0% Long term investments & other 4 33 41 46 111 151 193 237 284 332 383 Property, plant and equipment 744 992 1,105 1,647 2,038 3,357 4,438 4,487 4,440 4,379 4,304 Intangible assets 120303838383838383838 Total assets 1,146 1,243 1,644 2,644 4,185 4,798 5,988 5,850 6,014 6,106 6,210 0.9% Trade payables 112 81 72 158 165 168 221 291 349 374 398 Short term debt 112 40 72 165 562 1,062 1,062 762 762 712 662 Long term debt 394 452 840 995 1,839 1,839 2,339 2,339 2,339 2,339 2,339 Pension liabilities 24871845454545454545 Other liabilities 0 71 89 161 264 264 264 264 264 264 264 Total liabilities 620 693 1,079 1,498 2,875 3,378 3,931 3,701 3,759 3,734 3,708 -1.5% Minority interests 6 8 15 65 122 146 171 196 222 249 277 Shareholders' equity 520 542 550 1,081 1,188 1,274 1,886 1,953 2,033 2,123 2,225 Total equity and liabilities 1,146 1,243 1,644 2,644 4,185 4,798 5,988 5,850 6,014 6,106 6,210 0.9%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations (30.6) 77.4 (53.8) 218 87.9 867 338 422 512 552 602 15.5% Net interest paid (1.0) (6.1) (16.4) (26) (51.3) (55) (82) (139) (165) (164) (160) Tax paid 0.00.00.000.0000000 Operating cash flow (31.6) 71.2 (70.2) 192 36.6 812 256 282 348 389 442 14.6% Capex on PP&E (4.7) (4.5) (5.7) (26) (63.4) (1,400) (1,238) (236) (149) (141) (133) Other investing cash flow(339.5)(270.6)(177.9)(674)(903.9)000000 Investing cash flow (344.2) (275.0) (183.6) (700) (967.3) (1,400) (1,238) (236) (149) (141) (133) -42.8% Operating free cash flow (*) (36.4) 66.8 (75.9) 166 (26.8) (588) (981) 46 199 248 309 NM Free cash flow (**) (375.9) (203.8) (253.8) (508) (930.7) (588) (981) 46 199 248 309 NM Dividends paid 0.0 0.0 (15.0) (25) 0.0 0 0 (56) (92) (129) (164) Share buybacks / issuances178.871.2(5.1)4950.005000000 Other 378.1 (18.8) 411.6 218 1,108.8 500 500 (300) 0 (50) (50) Financing cash flow 556.9 52.4 391.6 688 1,108.8 500 1,000 (356) (92) (179) (214) NM Change in cash and cash equivalents (145.7) 144.8 341 378.2 (88) 19 (310) 106 69 95 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 148 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Tabreed: Valuation summary

Relative to GS New Markets Non-Financial coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E NA 56.2x 29.5x 22.9x 20.7x 14.8xCROCI 14.9% 32.4% 6.2% 7.6% 8.4% 9.5%EBITDA margin 20.4% 22.2% 40.4% 49.6% 48.7% 48.2% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NM 5.9x 23.6x 16.0x 12.4x 10.3xROE 0.9% 4.0% 7.0% 7.1% 6.4% 8.6%EBIT margin 9.6% 9.6% 24.5% 26.2% 27.5% 29.8% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 1.7x 3.8x 0.7x 0.9x 1.0x 1.1xNOPAT margin 9.6% 9.6% 24.5% 26.2% 27.5% 29.8% EV / EBITDA lease adj'd NM 44.0x 23.4x 15.9x 12.3x 10.2x GS coverage 1.8x 2.2x 2.0x 2.2x 2.2x 2.0xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NA 1.6x 1.3x 1.1x 1.0x 1.0xCapex / sales 6.5% 13.5% 274.7% 184.1% 26.7% 14.0% EV / NOPAT lease adj'd NM NM 38.5x 30.1x 21.8x 16.5x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 3,644 5,206 7,386 9,898 9,681 9,914Capex / depreciation 0.6x 1.1x 17.3x 7.9x 1.3x 0.8x P / book 2.4x 2.1x 2.0x 1.4x 1.3x 1.3x Net debt / (cash) * 564 1,427 2,015 2,496 2,506 2,399 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 18 45 45 45 45 45 FCF yield -2.5% -50.1% -24.6% -40.1% 0.1% 6.0% Net Debt / Equity 0.5x 1.1x 1.4x 1.2x 1.2x 1.1x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA 6.9x 13.7x 9.8x 7.5x 5.8x 4.7x Dividend yield 0.0%0.0%0.0%2.2%3.6%5.1% Net interest / EBITDA 31.3% 38.6% 26.5% 24.6% 32.4% 32.2% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financial coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 2.0x 100% 5.0x 4.5x 4.0x 1.8x 80% 4.0x 3.5x 1.6x 60% 3.5x I 3.0x 1.4x 3.0x 40% 2.5x 1.2x EV / GCIEV

2.5x EV / GC 2.0x 1.0x 20% 2.0x Sector Sector 0.8x 1.5x 1.5x 0% TA BR.DU 1.0x 1.0x TABR.DU 0.6x -20% 0.4x 0.5x 0.5x -40% 0.0x 0.2x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -60% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin TABR.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 149 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Oasis International Leasing (OILC.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: -1%

United Arab Emirates: Specialty Finance Investment Profile: OILC.AD

Low Hi gh

Definitely maybe Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Oasis is a company in transition; even its name is changing to Oasis Capital. The change in Percentile 20th 40th 60th 80th 100th name reflects the change in the company’s focus after new management took control last Oasis International Leasing year and implemented a thorough review of operations and strategy with Boston Consulting Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the Group. We believe there is great potential for financial performance to improve; the company investment profile measures please refer to currently does not cover its cost of capital, but we have limited visibility on how, and over the disclosure section of this document. what time scale, this might be achieved. Key data (*) Price (Dh) 1.82 • Were management to succeed in simultaneously expanding assets and improving margin, Price target (Dh) 1.80 the stock should re-rate, as it currently prices-in only modest growth. Diversification from the Market cap ($ mn) 743.5 Average daily trading volume ($ mn) NA traditional aircraft leasing business opens new avenues for expansion, and provides Free float 83% diversification of risk. Targeting the financing of infrastructure projects in the GCC seems to Bloomberg code OILC DB be a sensible move, given the vast scale of developments under construction or in planning. 2006 2007E 2008E 2009E Sales (Dh mn) 307.6 423.1 533.3 653.0 EBITDA (Dh mn) EV / EBITDAR 16.7x 19.2x 17.3x 16.9x P / E 28.5x 17.4x 13.3x 11.5x Valuation: 12-month target price of Dh1.80 Dividend yield 0.0% 0.0% 1.9% 4.4% Our 12-month price target is the average of a DDM value and a value derived by a variation of a (*) multiples and ratios are calendarised Warranted Equity Valuation (WEV) method. To account for the rapid growth rates in assets and returns in the next few years, we project our WEV valuation further forward than would typically 1.0 be the case, and take an average of values discounted to our price target date. For both methods 0.9 600 0.8 550 we employ a cost of equity of 9.5% and our DDM valuation assumes a terminal growth rate of 3%. 0.7 0.6 500 Oasis looks fairly valued, compared with intrinsic valuations, and also in comparison with other 0.5 0.4 450 financial service companies in our coverage universe. With ROE/Ke of 0.9x in 2009, on our 0.3 0.2 400 estimates and 1.2x book value for the same year, Oasis’ share price reflects expectations of 0.1 moderate growth, but limited improvement in balance sheet gearing. If management succeed in 0.0 350 6 6 7 7 7 7 7 06 06 07 07 07 07 0 00 0 00 0 00 007 00 00 00 0 007 0 0 00 /2 /2 /2 /2 /2 /2 2 /2 /2 /2 /2 2 /2 /2 /2 /2007 its plans to aggressively increase its asset base and better utilise its equity base, we would expect 0 1 2 2 1 1 3 3 4 5 6/ 7 8 8 9 /1 /1 /1 /0 /0 0 /0 0 /0 /0 0/1 5/0 7/0 2/0 3/0 3 14 29/11/200614 29 1 30 14/02/01 16/ 02/04/200717 02/05/20071 01/ 18/06/200703 18/07/20070 17 0 a substantial re-rating of the share. We await more clarity before taking a view on this possibility. OILC.AD (Dh) MSCI EM Eur ope & Middle Eas t

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 150 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Oasis International Leasing: Overview Company description Oasis International Leasing was set up in 1997 as part Core drivers of growth of the Abu Dhabi government’s ‘offset’ (i.e. re- • Focusing of management on growth strategy: to develop the company’s core competence in investment) scheme with British military supplier BAE, aircraft leasing, and to expand more aggressively into other areas of financing, for example conceived as a provider of lease financing for high shipping and infrastructure developments. value assets such as aircraft, ships and infrastructure assets. Since the BAE deal mostly involved aircraft, this • Oasis has already entered a JV with Tabreed, provider of central cooling in Abu Dhabi, to became a specialism for Oasis and the core of its finance plants, and has invested in a MENA infrastructure fund alongside Dubai International business to the present. A management change in Capital (DIC) and HSBC. Oasis capital outlay is an initial US$50 mn, which we expect to be 2006 has led to a strategic review and a strategy to drawn down and augmented with debt at the project level, over the next two to three years. leverage the company’s balance sheet more • Oasis intends to set up a niche investment bank, focusing on execution of infrastructure-related aggressively and pursue new growth opportunities. transactions. We do not forecast revenues from this source at this stage, due to lack of Shareholder structure (2007) visibility, but see it as an indication of new management’s desire to leverage all aspects of

financing of the economic transformation taking place in the Middle East. 17%

Risk to the investment case • Visibility on the company’s transformation is limited. We believe the market will want to see one or two more major transactions announced before assigning the share a multiple reflecting 83% higher growth and greater capital efficiency.

Other Mubadala Development Company • Diversifying from aircraft leasing should make Oasis’ business less cyclical, which should in turn allow the company to increase gearing and grow assets further, but there is heightened execution risk in the early stages, in our view. Sales by division (2007E)

9% Industry context The Middle East is undergoing an economic transformation that has sparked a significant wave of infrastructure investment. We estimate that construction activity has increased by 35% in nominal 51% 40% terms in the UAE between 2005 and 2006, for example, and MEED estimates the value of announced projects in the GCC region at over US$1.6 tn. Transportation assets to service these growing economies are also in great demand. Airbus estimates that the UAE alone will demand US$71 bn worth of aircraft over the coming years, the seventh highest figure globally.

Oasis intends to benefit from this growth in assets by expanding its financing activities from its core Operating leases Finance leases Loan investments competence of aircraft leasing, and into shipping and other infrastructure-related financing.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 151 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Oasis International Leasing: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin (RHS) 14.0x 120.0% 0.0% 1,000 -10.0% 12.0x 100.0% -20.0% 10.0x 800 -30.0% 80.0% -40.0% 8.0x 600 60.0% -50.0% 6.0x -60.0% 400 40.0% -70.0% 4.0x -80.0% 20.0% 200 2.0x -90.0% 0.0x 0.0% 0 -100.0% 04 05 06 07E 08E 09E 10E 11E 12E 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Core competence in aircraft leasing; the twentieth largest in the world ƒ Visibility on the nature and potential viability of the company’s transition currently. Provides a solid base for expansion. is currently poor.

ƒ Strong ties with the government of the UAE. ƒ New and motivated management team.

Opportunities Threats ƒ Significant potential financing market arising from unprecedented levels ƒ Loss of focus on core business. of infrastructure development in the region. ƒ Entry of competition with larger balance sheets and greater ability to ƒ Establishment of an investment bank would further enhance ROE and redistribute risk. provide a source of origination.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 152 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Oasis International Leasing: Summary financials

Income Statement 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year to Dec) CAGR Sales 177.0 187.3 307.6 423.1 533.3 653.0 785.0 919.4 1057.0 1203.7 1360.2 1527.4 18.7 EBITDAR 128.6 130.3 193.7 275.1 356.6 424.3 501.5 581.0 658.5 737.0 819.9 908.0 EBITDA 128.6 130.3 193.7 275.1 356.6 424.3 501.5 581.0 658.5 737.0 819.9 908.0 EBITDA Margin, % 72.7 69.5 63.0 65.0 66.9 65.0 63.9 63.2 62.3 61.2 60.3 59.4 EBIT 7.3 7.7 66.9 144.6 207.2 240.9 271.9 295.2 307.9 313.8 315.8 313.9 10.4 EBIT Margin, % 4.1 4.1 21.7 34.2 38.9 36.9 34.6 32.1 29.1 26.1 23.2 20.6 Net interest expense 2.5 23.4 23.4 12.0 9.3 9.2 9.7 8.0 6.2 5.6 5.3 5.0 Associate income / other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Profit before tax 9.8 31.1 90.3 156.6 216.5 250.1 281.6 303.2 314.1 319.4 321.1 318.9 Adjusted PBT 9.8 31.1 90.3 156.6 216.5 250.1 281.6 303.2 314.1 319.4 321.1 318.9 9.7 Tax -1.9 -2.9 5.5 0.0 -10.8 -12.5 -14.1 -15.2 -15.7 -16.0 -16.1 -15.9 Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interes t 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income 7.9 28.1 95.8 156.6 205.7 237.6 267.5 288.1 298.4 303.5 305.0 303.0 Adjusted net income 7.9 28.1 95.8 156.6 205.7 237.6 267.5 288.1 298.4 303.5 305.0 303.0 9.7

08E-12E Per Share Data 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E CAGR No. of basic shares outstanding (*) 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 No. of diluted shares outstanding (*) 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 EPS (bas ic) 0.01 0.02 0.06 0.10 0.14 0.16 0.18 0.19 0.20 0.20 0.20 0.20 9.7 EPS (diluted) 0.01 0.02 0.06 0.10 0.14 0.16 0.18 0.19 0.20 0.20 0.20 0.20 EPS (adjus ted, bas ic) 0.01 0.02 0.06 0.10 0.14 0.16 0.18 0.19 0.20 0.20 0.20 0.20 9.7 Annual growth, % NM 255.82 240.37 63.54 31.34 15.52 12.60 7.67 3.58 1.71 0.51 -0.68 EPS (adjusted, diluted) 0.01 0.02 0.06 0.10 0.14 0.16 0.18 0.19 0.20 0.20 0.20 0.20 DPS 0.00 0.00 0.00 0.00 0.03 0.08 0.13 0.19 0.20 0.20 0.20 0.20 55.2 Annual growth, % NM NM NM NM NM 131.04 68.90 43.56 3.58 1.71 0.51 -0.68 (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 153 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Oasis International Leasing: Summary financials

Balance Sheet 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 158 885 400 310 306 323 268 207 187 176 167 153 Other current assets 6 28 29 39 49 61 73 86 99 114 129 146 Total Current As s ets 164 913 429 350 355 384 341 293 286 290 296 299 -5.2 Investments in finance leases and loans 42 96 1,881 2,742 3,494 4,150 4,745 5,208 5,716 6,275 6,889 7,563 Operating lease assets 1,756 1,841 1,591 1,772 2,168 2,722 3,376 4,106 4,874 5,680 6,529 7,423 Property, plant and equipment 0 0 2 3 3 4 5 6 7 8 9 10 Total As s ets 1,962 2,850 3,902 4,867 6,021 7,260 8,466 9,613 10,883 12,253 13,723 15,294 16.0

Short-Term Debt 0 310 118 118 118 118 118 118 118 118 118 118 Trade Payables 64 100 127 185 234 286 344 403 463 528 596 670 Long-Term Debt 1,145 860 1,987 2,737 3,637 4,637 5,637 6,637 7,837 9,137 10,537 12,037 Pension liabilities 0 0 0 0 0 0 0 0 0 0 0 0 Other liabilities 0 0 0 0 0 0 0 0 0 0 0 0 Total Liabilities 1,208 1,269 2,233 3,041 3,990 5,042 6,100 7,159 8,419 9,783 11,252 12,825 20.5 Minority Interes ts 0 0 0 0 0 0 0 0 0 0 0 0 Total Shareholders' Equity 753 1,580 1,669 1,826 2,031 2,218 2,366 2,454 2,464 2,469 2,471 2,469 Total Liabilities & Equity 1,962 2,850 3,902 4,867 6,021 7,260 8,466 9,613 10,883 12,253 13,723 15,294 16.0

Cash flow 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E (Dh mn, year to Dec) CAGR Cash from operations 120 145 200 322 395 466 547 627 705 787 873 965 15.6 Net interes t received 3 23 23 12 9 9 10 8 6 6 5 5 Tax paid (2) (3) 5 0 (11) (13) (14) (15) (16) (16) (16) (16) Operating cash flow 121 165 229 334 393 462 542 620 696 776 862 954 15.3 Purchase of operating lease assets 52 (379) 233 (312) (546) (736) (884) (1,016) (1,118) (1,230) (1,353) (1,488) Sale (Purchase) of Intangible & Fin Assets 4 (83) (1,694) (897) (752) (656) (594) (463) (509) (559) (614) (674) Capex on PP&E (0) (0) (2) (1) (1) (1) (1) (1) (1) (1) (1) (1) Investing cash flow 56 (462) (1,463) (1,209) (1,298) (1,393) (1,479) (1,480) (1,628) (1,789) (1,967) (2,163) 5.8

Free Cash Flow 177 (297) (1,235) (875) (905) (931) (937) (860) (932) (1,013) (1,105) (1,209) 0.7 Short-Term Debt (Decrease) Increase 0 0 0 0 0 0 0 0 0 0 0 0 Long-Term Debt (Decrease) Increase (280) 55 936 750 900 1,000 1,000 1,000 1,200 1,300 1,400 1,500 Dividends paid 0 0 0 0 0 (51) (119) (201) (288) (298) (303) (305) Share buybacks / issuances 173 770 0 0 0 0 0 0 0 0 0 0 Others (2) (1) 0 0 0 0 0 0 0 0 0 0 Financing cash flow (110) 824 936 750 900 949 881 799 912 1,002 1,097 1,195 0.3

Change in cash and cash equivalents 67 527 (299) (125) (5) 17 (55) (61) (20) (11) (9) (14)

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 154 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Oasis International Leasing: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 97.0x 28.5x 17.4x 13.3x 11.5x 10.2xCROCI NA NA NA NA NAEBITDA NA margin NA NA NA NA NA NA GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA NA NA NA NA NAROE 2.4% 5.9% 9.0% 10.7% 11.2% 11.7%EBIT margin 4.1% 21.7% 34.2% 38.9% 36.9% 34.6% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA NA NA NA NANOPAT NA margin 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EV / EBITDA lease adj'd NA 16.7x 19.2x 17.3x 16.9x 16.4x GS coverage 1.5x 1.9x 1.7x 1.8x 1.9x 1.7xGS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NANANANANANACapex / sales NANANANANANA EV / NOPAT lease adj'd NA NA NA NA NA NA GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NANANANANANACapex / depreciation NA NA NA NA NA NA P / book 1.7x 1.6x 1.5x 1.3x 1.2x 1.2x Net debt / (cash) * 285 1,706 2,545 3,450 4,432 5,488 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 0 0 0 0 0 0 FCF yield NANANANANANA Net Debt / Equity NM NM NM NM NM NM GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA 2.2x 8.8x 9.3x 9.7x 10.4x 10.9x Dividend yield 0.0%0.0%0.0%1.9%4.4%7.4% Net interest / EBITDA NA NA NA NA NA NA GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/WACC 1.2x 120% 5.0x 4.5x 4.0x 1.0x 100% 4.0x 3.5x

3.5x I 3.0x 0.8x 80% 3.0x 2.5x EV / GCIEV

2.5x EV / GC 2.0x 0.6x 60% 2.0x Sector Sector 1.5x 1.5x 0.4x 40% 1.0x 1.0x 0.5x 0.5x 0.2x 20% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 1 Premium to the sector (RHS) Emerging Markets Non-Fin OILC.AD

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 155 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 156 September 28, 2007 Europe, Middle East & Africa: Multi-Industry UAE Cement company summaries

Gulf Cement 158

National Cement Company 164

RAK Cement 170

RAK White Cement 176

Sharjah Cement Co 182

Union Cement 188

Goldman Sachs Global Investment Research 157 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Gulf Cement (GCEM.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Sell List [email protected]

RATING: Return potential: -16% United Arab Emirates: Construction

Investment Profile: GCEM.AD

Low Hi gh

Dominant market position, but downside to share price Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Sell recommendation Volatility Volatility • Gulf continues to enjoy leadership in the market with robust prices and operating at full Percentile 20th 40th 60th 80th 100th capacity in both clinker and cement production. As the only producer of excess clinker in the Gulf Cement UAE, Gulf has strengthened its position in the sector. As the industry moves towards excess Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the supply and prices fall from current levels, we expect Gulf to be more resilient than some of its investment profile measures please refer to peers, due to the fact that to export clinker is more efficient than cement. the disclosure section of this document. Key data (*) • First half results reflected the buoyant industry environment with 27% year-on-year growth, Price (Dh) 6.45 and a reversal of the trading losses that the company suffered on its portfolio during the Price target (Dh) 5.40 market correction last year. We expect revenues to peak in 2009 before turning negative as the Market cap ($ mn) 1,254 Average daily trading volume ($ mn) NA full impact of oversupply and price deflation occurs. Free float 72% Bloomberg code GFCC DB • We forecast a 2006-2008 revenue CAGR of 19% and expect net margins to remain above 30%. 2006 2007E 2008E 2009E With 40% of its NAV in listed securities net margins will likely be driven to a large extent by the Sales (Dh mn) 663.7 843.5 940.2 842.5 performance of the local stock markets. EBITDA (Dh mn) 259.2 389.9 410.4 310.7 EV / EBITDAR 10.6x 12.0x 11.5x 15.7x • Gulf’s leading position in the sector – its cost advantages, market share and prospects – are P / E 41.8x 8.5x 11.3x 15.4x Dividend yield 4.0% 8.8% 8.8% 6.5% appreciated by the market and reflected in its price. Despite its operational strengths we view (*) multiples and ratios are calendarised

Gulf as a relatively strong player in an industry with a negative outlook. We initiate coverage on our Sell list with a 12-month target price of Dh5.40.

2.0 1.8 600 1.6 550 1.4 Valuation: 12-month target price of Dh5.40 1.2 500 1.0 Our sector-wide valuation approach involves a modified sum-of-the-parts, whereby we calculate 0.8 450 0.6 the value of the core operations of the business using a DCF, and then add back the value of the 0.4 400 portfolio at the most recent balance sheet date (June 2007). The key inputs for our DCF calculation 0.2 0.0 350

6 7 7 7 7 7 7 beyond our explicit forecast period are: a WACC of 11.25%, growth rate in perpetuity of 3% and a 0 06 06 06 0 07 0 07 0 07 07 07 0 07 0 07 07 0 0 0 0 0 0 07 0 /2 /20 /2 /2 /2 /2007 /2 /2 /20 1 1 2 3 4 7 /12 /05/20 06 /07/20 08 terminal NOPAT margin of 28.9%. This calculation gives a fair value for Gulf of Dh 4.53. The 9/10/20 0/11/20 5/02/20 7/03/20 6/04/20 2/06/20 7/09/20 1 03/1 2 05/12/200620 04/01/2019/0 0 20/0 0 22/0 0 23/0 08 23/05/2007/ 2 09/0 24 08/08/200723/ 0 portfolio value per share amounts to Dh0.87 resulting in our rounded SOTP price target of Dh5.40. GCEM.AD (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 158 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Gulf Cement: Overview Company description GCC is a Ras Al Khaimah based producer of clinker and Core drivers of growth cement products. It is the largest producer in the UAE • The regional infrastructure boom taking place, particularly in Dubai and Abu Dhabi, has created a on both market capitalization and market share. In sharp increase in cement demand in the UAE. Capacity increases have lagged these December 2006 GCC added an additional 2.4 mn developments, resulting in rapid price increases and high margins across the industry. tonnes of clinker capacity to its 1.3 mn tonnes per annum facility, making it the largest clinker producer in • Capacity additions that brought total clinker production to 3.7 mn mean Gulf no longer needs to the UAE. GCC currently runs four mills with total purchase clinker to achieve maximum cement capacity. Clinker is also cheaper to export than annual production capacity of 3.7 mn tonnes of clinker cement, placing the company in a stronger position when the industry in the UAE hits and 2.5 mn tonnes of cement. GCC therefore produces oversupply. Mixed fuel burning and the use of coal also generate cost benefits. 1.2 mn tonnes of excess clinker and is the only cement producer in the UAE to do so. Risk to the investment case Shareholder structure (2007) • Our base view is that oversupply will drive prices down to around US$55/tonne by 2010, forcing 6% 9% unprofitable capacity out of the market. A risk to this view is that a sharp rise in development projects in Abu Dhabi and Ras Al Khaimah might provide support to domestic cement prices. 9%

• Competition in domestic/foreign markets will likely dictate utilization rates, a fall-off in planned 52% capacity expansions and successful penetration into export markets remains a risk to the upside. 24% • Lower fuel costs should cushion the negative impact on margins and ROIC stemming from price Other declines, although Gulf is already operating at the lower end of the production cost curve through National Investments Company the use of its coal and mixed-use burning systems. Hamad Bin Abdulaziz Bin Hamad Al Younis Government of Ras Al Khaimah Banque Saudi Fransi • With an investment portfolio representing 40% of NAV, GCC’s earnings will be largely affected by

the performance of its investments. The rebound in the local markets led to Gulf earning a profit Sales by division (2007E) on investments of Dh140 mn in 1H2007, almost recovering the losses incurred for FY 2006. Recent market volatility and its impact on company performance remains a concern.

Industry context Demand in the industry to is set to remain robust, but excess supply is expected from mid-2008. Prices are expected to gradually decline from current levels as a wave of new capacity and new entrants are likely to result in the UAE market moving from a production deficit to excess supply. 100% Gulf Cement is the largest producer in the UAE in terms of both market capitalization and market

share, which is currently around 16%. Its positioning and cost leadership are expected to make it Local Sales more defensive to the effect of excess supply and lower prices.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 159 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Gulf Cement: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Mar gin ( RHS) 2.0x 8.0% 1.5x 900 41.8% 6.0% 1.0x 800 36.8% 4.0% 0.5x 700 31.8% 0.0x 2.0% 600 26.8% -0.5x 500 0.0% 21.8% -1.0x 400 16.8% -1.5x -2.0% 300 -2.0x 11.8% -4.0% 200 -2.5x 100 6.8% -3.0x -6.0% 0 1.8% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Currently the only producer of excess clinker in the UAE. Produces all the ƒ Significant portion of company assets are tied up in a listed investment clinker necessary for its own production and has an advantage in terms portfolio, creating significant exposure to regional and global equity of ease and cost of exporting. markets.

ƒ Production process utilizes only coal, providing a cost advantage and protection from the significantly more expensive oil-based fuels used by competitors.

ƒ Largest producer in terms of market share and clinker production.

Opportunities Threats ƒ Most domestic supply is currently directed towards Dubai. Abu Dhabi ƒ Large-scale, industry-wide capacity increases to lead to oversupply in and to a lesser degree Ras Al Khaimah, are also experiencing significant 2008, with negative impact on prices. investment in infrastructure and real estate. This could potentially drive ƒ Number of new entrants expected in the UAE cement market over the demand much higher and offset much of the forecast excess supply. next two to three years will likely add to existing competition. ƒ With cost advantages and dominant market share we believe Gulf is best ƒ Excess supply from GCC neighbours could potentially flood the local positioned to weather the challenges facing the sector. market following a pullback in demand in those countries.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 160 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Gulf Cement: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 188.3 247.5 484.0 632.2 663.7 843.5 940.2 842.5 789.6 819.8 851.1 -2.5% EBITDAR 30.3 63.1 164.1 226.6 259.2 389.9 410.4 310.7 253.5 271.0 290.7 EBITDA 30.3 63.1 164.1 226.6 259.2 389.9 410.4 310.7 253.5 271.0 290.7 EBITDA margin 16.1% 25.5% 33.9% 35.8% 39.1% 46.2% 43.6% 36.9% 32.1% 33.1% 34.2% EBIT 4.1 35.6 131.3 203.1 238.1 350.3 362.5 254.7 190.0 200.3 213.0 -12.5% EBIT margin 2.2% 14.4% 27.1% 32.1% 35.9% 41.5% 38.6% 30.2% 24.1% 24.4% 25.0% Net interest expense 0.0 0.0 3.0 0.9 10.9 (10.4) (8.5) (10.1) (14.4) (17.6) (19.1) Associate income / other 4.5 30.7 52.4 298.5 (138.8) 200.0 51.8 55.4 59.3 63.5 67.9 Profit before tax 8.6 66.3 186.7 502.5 110.2 539.9 405.8 299.9 234.9 246.1 261.7 Adjusted PBT 8.6 66.3 186.7 502.5 110.2 539.9 405.8 299.9 234.9 246.1 261.7 -10.4% Tax 0.00.00.00.00.00.00.00.00.00.00.0 Exceptional items 2.1 1.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 10.7 67.8 186.7 502.5 110.2 539.9 405.8 299.9 234.9 246.1 261.7 Adjusted net income 8.6 66.3 186.7 502.5 110.2 539.9 405.8 299.9 234.9 246.1 261.7 -10.4%

08E-12E Per share data (Dh) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 470 470 673 714 714 714 714 714 714 714 714 No. of diluted shares outstanding (*) 470 470 673 714 714 714 714 714 714 714 714 EPS (basic) 0.020.140.280.700.150.760.570.420.330.340.37-10.4% EPS (diluted) 0.020.140.280.700.150.760.570.420.330.340.37 EPS (adjusted, basic) 0.02 0.14 0.28 0.70 0.15 0.76 0.57 0.42 0.33 0.34 0.37 -10.4% Annual growth NM 96.8% NM -78.1% NM -24.8% -26.1% -21.7% 4.8% 6.3% EPS (adjusted, diluted) 0.02 0.14 0.28 0.70 0.15 0.76 0.57 0.42 0.33 0.34 0.37 DPS 0.000.100.100.610.260.570.570.420.330.340.37-10.4% Annual growth NM 0.0% NM -57.1% 117.4% 0.2% -26.1% -21.7% 4.8% 6.3% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 161 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Gulf Cement: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 78 127 194 695 93 261 310 271 268 323 381 Other current assets 131 168 261 363 397 468 442 410 395 409 424 Total current assets 209 295 455 1,057 490 729 752 681 663 732 805 1.7% Long term investments & other 19 20 79 88 591 791 843 898 958 1,021 1,089 Property, plant and equipment 175 158 234 399 651 671 689 692 683 670 652 Intangible assets 00000000000 Total assets 403 473 767 1,545 1,732 2,191 2,284 2,271 2,305 2,423 2,546 2.8% Trade payables 31 34 56 104 115 116 103 92 87 90 93 Short term debt 0 0 26 1 43 147 251 355 460 564 668 Long term debt 0 0 27 110 170 170 170 170 170 170 170 Pension liabilities 9 9101011111111111111 Other liabilities 88934444444 Total liabilities 49 51 129 228 343 448 539 633 731 838 946 15.1% Minority interests 00000000000 Shareholders' equity 355 422 639 1,317 1,390 1,744 1,744 1,639 1,573 1,585 1,600 Total equity and liabilities 403 473 767 1,545 1,732 2,191 2,284 2,271 2,305 2,423 2,546 2.8%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 16.7 30.5 91.0 159 221 320 424 331 263 260 280 -9.9% Net interest paid 0.0 0.0 3.0 1 11 (10) (8) (10) (14) (18) (19) Tax paid 0.00.00.000000000 Operating cash flow 16.7 30.5 93.9 159 232 310 416 321 249 242 260 -11.0% Capex on PP&E (2.8) (11.1) (107.8) (194) (263) (59) (66) (59) (55) (57) (60) Other investing cash flow 6.8(43.5)(26.4)(89)(127)000000 Investing cash flow 3.9 (54.6) (134.3) (283) (390) (59) (66) (59) (55) (57) (60) -2.5% Operating free cash flow (*) 13.8 19.4 (13.9) (35) (31) 251 350 262 194 185 201 -12.9% Free cash flow (**) 20.6 (24.1) (40.3) (124) (158) 251 350 262 194 185 201 -12.9% Dividends paid (0.5) (0.2) (22.9) (1) (0) (186) (405) (406) (300) (235) (246) Share buybacks / issuances0.00.00.000000000 Other 0.0 0.0 53.9 248 101 104 104 104 104 104 104 Financing cash flow (0.5) (0.2) 31.1 246 101 (82) (301) (302) (196) (131) (142) -17.1% Change in cash and cash equivalents 48.7 67.1 501 (602) 169 49 (40) (2) 54 59 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 162 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Gulf Cement: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 9.2x 41.8x 8.5x 11.3x 15.4x 19.6xCROCI NA 19.1% 21.1% 19.9% 14.4% 11.2%EBITDA margin 35.8% 39.1% 46.2% 43.6% 36.9% 32.1% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA 11.2x 12.0x 11.5x 15.7x 19.6xROE 51.4% 8.1% 34.5% 23.3% 17.7% 14.6%EBIT margin 32.1% 35.9% 41.5% 38.6% 30.2% 24.1% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA 1.8x 2.0x 1.9x 1.4x 1.1xNOPAT margin 32.1% 35.9% 41.5% 38.6% 30.2% 24.1% EV / EBITDA lease adj'd NA 10.6x 12.0x 11.5x 15.7x 19.6x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI NA 1.6x 2.3x 2.2x 2.2x 2.2xCapex / sales 30.7% 39.6% 7.0% 7.0% 7.0% 7.0% EV / NOPAT lease adj'd NA 11.5x 13.3x 13.0x 19.1x 26.2x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NA 2,489 2,571 2,633 2,699 2,789Capex / depreciation 8.3x 12.4x 1.5x 1.4x 1.1x 0.9x P / book 3.5x 3.3x 2.6x 2.6x 2.8x 2.9x Net debt / (cash) * (584) 121 56 111 255 361 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 10 11 11 11 11 11 FCF yield NA-24.7%1.1%6.5%4.5%2.9% Net Debt / Equity -0.4x 0.1x 0.0x 0.1x 0.2x 0.2x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -2.6x 0.5x 0.1x 0.3x 0.8x 1.4x Dividend yield 9.4%4.0%8.8%8.8%6.5%5.1% Net interest / EBITDA -0.4% -4.2% 2.7% 2.1% 3.3% 5.7% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC 2.5x EV/GCI / CROCI/WACC 140% 5.0x 4.0x 4.5x 120% 4.0x 3.5x 2.0x

3.5x I 3.0x 100% 3.0x 1.5x 2.5x 80% EV / GCI

2.5x / GC EV GCEM.AD GCEM.AD 2.0x 2.0x 60% Sector Sector 1.0x 1.5x 1.5x 1.0x 1.0x 40% 0.5x 0.5x 0.5x 20% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin GCEM.AD

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 163 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

National Cement Company (NCC.DU) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Sell List [email protected]

RATING: Return potential: -17% United Arab Emirates: Construction

Investment Profile: NCC.DU

Low Hi gh

Appears extremely overvalued Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Sell recommendation Volatility Volatility • National is currently operating at maximum capacity, producing 1.6 mn tonnes of cement, and Percentile 20th 40th 60th 80th 100th accounts for 10% of the domestic market. As the industry moves towards excess supply and National Cement Company prices fall we expect National will struggle to retain its market positioning and margins. Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the • First-half results reflected reasonable top-line growth of 11%, but net income was down 27%, investment profile measures please refer to the disclosure section of this document. due largely to adverse mark-to-market adjustments on securities. As shown by the first-half Key data (*) results, with 76% of its NAV in listed securities, overall profitability will largely be driven by the Price (Dh) 9.65 performance of the underlying securities portfolio. Price target (Dh) 8.00 Market cap ($ mn) 725.4 • With no expansion plans and limited scope for cost reduction, we do not have a positive Average daily trading volume ($ mn) 0.01 outlook for the cement operations. Given the size of the investment portfolio, however, the Free float 16% Bloomberg code NCC DB company is as much a play on the local markets as it is on the core operations. However, there 2006 2007E 2008E 2009E is no logic, in our view, for the shares to trade at a premium to the value of the core operation Sales (Dh mn) 456.3 420.4 357.3 321.6 and the investment portfolio. Investors would normally demand a discount for excess capital EBITDA (Dh mn) 167.4 139.7 79.9 44.8 EV / EBITDAR 25.3x 17.5x 30.7x 55.5x and prefer to manage portfolio risk themselves. Our target price for the stock is Dh8.00 and we P / E 12.3x 21.1x 38.2x 81.9x initiate coverage of National Cement on our Sell list. Dividend yield 0.0% 3.6% 2.6% 1.2% (*) multiples and ratios are calendarised

Valuation: 12-month target price of Dh8.00 5.0 4.5 600 Our sector-wide valuation approach involves a sum-of-the-parts, whereby we calculate the core 4.0 550 operations of the business using a DCF analysis. We then add back the value of the portfolios to 3.5 3.0 500 derive the SOTP value. We allocate a higher WACC to those companies with higher portfolio 2.5 2.0 450 exposures, with a range of 10.5%-12.0%. The key inputs for our DCF calculation beyond our 1.5 1.0 400 explicit forecast period are: a WACC of 12% given the high proportion of listed securities to NAV, 0.5 growth rate in perpetuity of 3% and a terminal NOPAT margin of 12%. 0.0 350 6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 This gives a fair value for National’s core operations of Dh2.27. The portfolio value per share 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 equates to Dh5.74 bringing the total rounded SOTP value to Dh8.00. NCC.DU (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 164 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

National Cement Company: Overview Company description National Cement is based in the Emirate of Ras Al Core drivers of growth Khaimah and was established in 1968 to domestically • The regional infrastructure boom taking place, in particular in Dubai and Abu Dhabi, has created produce the basic materials required to drive expected a sharp increase in cement demand in the UAE. Capacity increases have lagged these developments in the UAE. National Cement has current developments, resulting in rapid price increases and high margins across the industry. annual production capacity of 1.2 mn tonnes of clinker and 1.6 mn tonnes of cement, following recent kiln • Recent kiln modifications have reduced operational overheads which should result in cost modifications designed to increase capacity. The benefits going forward. However, we do not believe this will be sufficient to maintain margins if company holds a sizeable investment portfolio prices fall as we forecast through to 2010. comprising 75% of net asset value at the end of the first-half 2007. National trades on the Dubai Financial Market. Risk to the investment case Shareholder structure (2007) • Our base view is that oversupply will drive prices down to around US$55 per tonne by 2010, in order to force unprofitable capacity out of the market. A risk to this view is that a sharp rise in development projects in Abu Dhabi and Ras Al Khaimah, similar in scale to those seen in Dubai, might provide support to domestic cement prices. 37%

• Competition in domestic/foreign markets will likely dictate utilisation rates, a fall-off in planned capacity expansions and successful penetration into export markets remains a risk to the upside. 63%

• National currently uses fuel oil in its production process and therefore remains largely exposed to rising prices. A marked reduction in the cost of fuel inputs would have a beneficial impact on margins and company results. Al Ghurair Investment Public

• With an investment portfolio representing 76% of NAV, National’s earnings will be largely

affected by the performance of its investment portfolio. Portfolio investment decisions are Sales by division (2007E) managed by the controlling shareholder in the company making it unlikely, in our view, that the portfolio will be distributed as cash to shareholders or re-invested into the cement operations. In such an instance the assets may end up financing the losses of the cement business.

Industry context Demand in the industry looks set to remain robust, but excess supply is likely to occur in the market from mid-2008. We expect prices to gradually decline off current levels as a wave of new capacity 100% and new entrants will likely result in the UAE market moving from a production deficit to excess

supply. We expect National to struggle as the impact of higher costs and lower prices takes full Domestic Sales effect on the sector.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 165 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

National Cement Company: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Mar gin ( RHS) 0.0x 0.0% 450 36.9% -1.0x 400 -5.0% 31.9% -2.0x 350 26.9% 300 -3.0x -10.0% 250 21.9% -4.0x -15.0% 200 16.9% -5.0x 150 -20.0% 11.9% -6.0x 100 50 6.9% -7.0x -25.0% 0 1.9% 04 05 06 07E 08E 09E 10E 11E 12E 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Recent kiln modifications allow the introduction of slag to the production ƒ Over 75% of National’s NAV lies in listed securities, creating significant process, improving cost and capacity efficiencies. exposure to regional and global equity markets.

ƒ Strong performance from the investment portfolio may significantly ƒ No plans to expand capacity is likely to result in the full impact of price offset losses in the cement business and correlations with the sector. deflation being felt by the company.

ƒ Reliant on clinker imports to achieve maximum grinding capacity.

Opportunities Threats ƒ Most domestic supply is currently directed towards Dubai. Abu Dhabi ƒ Large scale, industry-wide capacity increases to lead to oversupply in and to a lesser degree Ras Al Khaimah, are also experiencing significant 2008, with negative impact on prices. investment in infrastructure and real estate. This could potentially drive ƒ Number of new entrants expected in the UAE cement market over the demand much higher and offset much of the forecast excess supply. next two to three years will likely add to existing competition.

ƒ Excess supply from GCC neighbors could potentially flood the local market following a pullback in demand in those countries.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 166 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

National Cement Company: Summary financials Income statement 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 326.7 450.4 456.3 420.4 357.3 321.6 308.6 327.2 340.4 -1.2% EBITDAR 72.3 183.1 167.4 139.7 79.9 44.8 28.3 41.3 49.8 EBITDA 72.3 183.1 167.4 139.7 79.9 44.8 28.3 41.3 49.8 EBITDA margin 22.1% 40.7% 36.7% 33.2% 22.3% 13.9% 9.2% 12.6% 14.6% EBIT 56.4 168.0 155.0 124.1 62.6 25.7 7.5 18.8 25.5 -20.1% EBIT margin 17.3% 37.3% 34.0% 29.5% 17.5% 8.0% 2.4% 5.8% 7.5% Net interest expense 15.5 11.8 12.0 2.3 7.2 6.8 5.8 5.3 5.4 Associate income / other 41.6 75.0 49.2 0.0 (0.0) (0.0) (0.0) (0.0) 0.0 Profit before tax 113.4 254.7 216.3 126.4 69.8 32.5 13.3 24.1 30.9 Adjusted PBT 113.4 254.7 216.3 126.4 69.8 32.5 13.3 24.1 30.9 -18.4% Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Exceptional items (0.3) (0.2) (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 113.1 254.5 216.1 126.4 69.8 32.5 13.3 24.1 30.9 Adjusted net income 113.4 254.7 216.3 126.4 69.8 32.5 13.3 24.1 30.9 -18.4%

08E-12E Per share data (Dh) 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 276 276 276 276 276 276 276 276 276 No. of diluted shares outstanding (*) 276 276 276 276 276 276 276 276 276 EPS (basic) 0.41 0.92 0.78 0.46 0.25 0.12 0.05 0.09 0.11 -18.4% EPS (diluted) 0.41 0.92 0.78 0.46 0.25 0.12 0.05 0.09 0.11 EPS (adjusted, basic) 0.41 0.92 0.78 0.46 0.25 0.12 0.05 0.09 0.11 -18.4% Annual growth NM -15.1% -41.5% -44.8% -53.4% -59.0% 80.8% 28.3% EPS (adjusted, diluted) 0.41 0.92 0.78 0.46 0.25 0.12 0.05 0.09 0.11 DPS 0.12 0.17 0.00 0.34 0.25 0.12 0.05 0.09 0.11 -18.4% Annual growth 42.9% -100.0% NM -26.4% -53.4% -59.0% 80.8% 28.3% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 167 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

National Cement Company: Summary financials Balance sheet 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 43 125 78 241 227 194 176 180 183 Other current assets 222 286 282 227 191 179 176 184 190 Total current assets 266 411 360 468 418 374 352 365 373 -2.8% Long term investments & other 939 2,044 1,587 1,587 1,587 1,587 1,587 1,587 1,587 Property, plant and equipment 105 161 209 214 222 225 226 227 226 Intangible assets 000000000 Total assets 1,310 2,616 2,155 2,270 2,227 2,186 2,166 2,178 2,187 -0.5% Trade payables 42 41 64 52 34 31 30 31 33 Short term debt 010000000 Long term debt 000000000 Pension liabilities 16 18 18 18 18 18 18 18 18 Other liabilities 1249999999 Total liabilities 59 84 91 78 61 57 56 58 59 -0.7% Minority interests 000000000 Shareholders' equity 1,250 2,532 2,065 2,191 2,166 2,129 2,110 2,121 2,127 Total equity and liabilities 1,310 2,616 2,155 2,270 2,227 2,186 2,166 2,178 2,187 -0.5%

Cash flow 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 77.3 170 228 182 98.8 52.8 30.0 35.1 45.1 -17.8% Net interest paid 15.5 12 12 2 7.2 6.8 5.8 5.3 5.4 Tax paid 0.0 0 0 0 0.0 0.0 0.0 0.0 0.0 Operating cash flow 92.8 182 240 184 106.0 59.6 35.8 40.4 50.5 -16.9% Capex on PP&E (15.9) (74) (60) (21) (25.0) (22.5) (21.6) (22.9) (23.8) Other investing cash flow (37.6) (1) (159) 0 0.0 0.0 0.0 0.0 0.0 Investing cash flow (53.5) (75) (219) (21) (25.0) (22.5) (21.6) (22.9) (23.8) -1.2% Operating free cash flow (*) 76.9 107 180 163 81.0 37.1 14.2 17.5 26.7 -24.2% Free cash flow (**) 39.2 106 21 163 81.0 37.1 14.2 17.5 26.7 -24.2% Dividends paid (27.6) (32) (46) 0 (94.8) (69.8) (32.5) (13.3) (24.1) Share buybacks / issuances 0.0 0 0 0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0 0 0 0.0 0.0 0.0 0.0 0.0 Financing cash flow (27.6) (32) (46) 0 (94.8) (69.8) (32.5) (13.3) (24.1) -29.0% Change in cash and cash equivalents 81 (47) 163 (13.8) (32.7) (18.3) 4.2 2.6 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 168 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

National Cement Company: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 10.5x 12.3x 21.1x 38.2x 81.9xCROCI NA 12.7% 8.9% 6.9% 3.9% 2.2% 1.4%EBITDA margin 40.7% 36.7% 33.2% 22.3% 13.9% 9.2% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 34.6x 21.2x 17.5x 30.7x 55.5x 88.6xROE 13.5% 9.4% 5.9% 3.2% 1.5% 0.6%EBIT margin 37.3% 34.0% 29.5% 17.5% 8.0% 2.4% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 1.0x 0.7x 0.5x 0.3x 0.2x 0.1xNOPAT margin 37.3% 34.0% 29.5% 17.5% 8.0% 2.4% EV / EBITDA lease adj'd 44.4x 25.3x 17.5x 30.7x 55.5x 88.6x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI 3.3x 2.1x 1.2x 1.2x 1.2x 1.2xCapex / sales 16.5% 13.2% 5.0% 7.0% 7.0% 7.0% EV / NOPAT lease adj'd 48.4x 27.3x 19.7x 39.2x 96.7x NM GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 2,521 2,196 2,161 2,177 2,197 2,223Capex / depreciation 4.9x 4.9x 1.4x 1.4x 1.2x 1.0x P / book 1.1x 1.3x 1.2x 1.2x 1.3x 1.3x Net debt / (cash) * (124) (78) (241) (227) (194) (176) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 18 18 18 18 18 18 FCF yield -12.5% 10.0% 6.1% 3.0% 1.4% 0.5% Net Debt / Equity 0.0x 0.0x -0.1x -0.1x -0.1x -0.1x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -0.7x -0.5x -1.7x -2.8x -4.3x -6.2x Dividend yield 1.7%0.0%3.6%2.6%1.2%0.5% Net interest / EBITDA -6.4% -7.2% -1.7% -9.0% -15.2% -20.6% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2009E EV/GCI vs CROCI/WACC 2008E EV/GCI vs CROCI/WACC 12.0x EV/GCI / CROCI/WACC 1200% 5.0x 4.5x 4.0x 10.0x 1000% 4.0x 3.5x I 3.5x I 3.0x 8.0x 800% 3.0x 2.5x EV / GC EV

2.5x / GC EV 2.0x 6.0x 600% 2.0x Sector Sector 1.5x 1.5x NCC.DU NCC.DU 4.0x 400% 1.0x 1.0x 0.5x 0.5x 2.0x 200% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin NCC.DU

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 169 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK Cement (RKCC.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 25% United Arab Emirates: Construction

Investment Profile: RKCC.AD

Low Hi gh

Attractive growth profile fairly well reflected in valuation Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • In anticipation of the oversupply facing the industry, RAK opted not to invest in additional Percentile 20th 40th 60th 80th 100th capacity but turned its focus on operating efficiencies. As the industry moves towards excess RAK Cement supply and prices fall from current levels, with no additional capacity and rising costs RAK Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the faces a challenging future. However, we believe our forecasts adequately account for these investment profile measures please refer to factors. the disclosure section of this document. Key data (*) • First-half results were fairly weak, with revenue down by 1% and net income dropping 39%. Price (Dh) 2.08 Restrictions on natural gas supply led to the use of more expensive liquid fuels and a shortfall Price target (Dh) 2.60 Market cap ($ mn) 274.2 in clinker production. We expect these negative influences to carry through until year-end but Average daily trading volume ($ mn) NA an upgrade to hybrid fuel burning capabilities should alleviate margin pressure from 2008. Free float 34% Bloomberg code RAKCC DB

• Despite the challenges facing the sector, as a smaller, niche player RAK may not face the idle 2006 2007E 2008E 2009E capacity issues that a number of its peers will. Although we expect margin deterioration, we Sales (Dh mn) 325.2 372.8 313.7 279.5 EBITDA (Dh mn) 144.3 172.2 118.7 87.8 expect it to level out at 22% in 2010 before recovering to 28% at the end of our forecast horizon. EV / EBITDAR 6.3x 4.8x 7.0x 9.6x P / E 8.0x 6.5x 9.7x 13.8x • Our target price is Dh2.60, and despite attractive potential upside to the present share price, we Dividend yield 7.2% 11.6% 10.3% 7.3% (*) multiples and ratios are calendarised believe there are better ways to gain exposure to the UAE infrastructure story, with potentially

higher return and lower risk. If we are wrong on the outlook for cement prices, RAK would be an attractive story at the current price. We initiate coverage of RAK Cement as Neutral.

1.0 0.9 600 0.8 550 0.7 Valuation: 12-month target price of Dh2.60 0.6 500 0.5 Our sector-wide valuation approach involves a sum-of-the-parts, whereby we calculate the core 0.4 450 0.3 operations of the business using a DCF, and then add back the value of the portfolio at the most 0.2 400 0.1 7 recent balance sheet date. With no portfolio exposure we value RAK solely with our DCF. The key 7 7 0 07 0.0 07 0 07 0 0 350 7 7 07 07 07 /2 07 0 0 0 0 9 6 07 07 07 /2 /20 6 06 06 0 0 /2007/2 inputs for the DCF calculation beyond the explicit forecast period are: a WACC of 10.5%, growth 0 0 0 0 20 4 4 /07/20 /2 /2 /2 / 05 /05 3/07/20 03/0 /2 1 1 1/06/205/06/20 2 06/08/2020/08/2007 2 02 /02/20 28 1 2 09 12 5/03/209/03/2002/04/200716/0 30/0 14/ 05/ 19 0 1 0/10/20 25/ 08/0 22/0 rate in perpetuity of 3% and a terminal NOPAT margin of 27%. This calculation gives our price 3 13/11/2027/11/200611/1 target for RAK of Dh2.60. RKCC.A D (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 170 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK Cement: Overview Company description RAK Cement is one of the mid-tier cement producers in Core drivers of growth the UAE selling all of its capacity in the local market. • The regional infrastructure boom taking place, particularly in Dubai and Abu Dhabi, has created a The company has annual production capacity of 1m sharp increase in cement demand in the UAE. Capacity increases have lagged these tonnes of clinker and 1.2m tonnes of cement. RAK developments, resulting in rapid price increases and high margins across the industry. commands a 7% market share in the UAE, and currently has no expansion plans. Unlike the majority • RAK has not invested in new capacity, but made modifications that allows fly ash to be added to of its sector peers, RAK does not hold a material the production process at a similar cost to clinker. This should add an extra 10%-15% to existing portfolio of listed securities. capacity in 2008. Modifications to the fuel burning system are also underway to mitigate rising fuel costs.

• As a niche player, we expect that RAK will be less likely to shut in capacity as prices fall and operate defensively as margin and cost pressures pressure the sector. Shareholder structure (2007)

16% Risk to the investment case

• Our base view is that oversupply will drive prices down to around US$55 per tonne by 2010, in 47% 17% order to force unprofitable capacity out of the market. A risk to this view is that a sharp rise in development projects in Abu Dhabi and Ras Al Khaimah, similar in scale to those seen in Dubai,

might provide support to domestic cement prices. 20%

• Cost-reducing steps should filter through to margin improvement from next year, potentially Other Hydra Properties providing upside risks to our Neutral view on the share. RA K White Cement Union Cement Company • With lower market share RAK will likely feel the marginal effects of a decline in capacity more

than some of its larger peers as competition and oversupply develop in the market. Sales by division (2007E)

Industry context Demand in the industry is set to remain robust, but excess supply will likely occur from mid-2008. We expect prices to gradually decline from current levels as a wave of new capacity and new entrants will likely result in the UAE market moving from a production deficit to excess supply.

RAK has shown the ability to remain competitive in the past, and we expect this to continue. 100% Although it will likely feel the impact of the deteriorating fundamentals in the industry, we believe cost containment and its position as a niche player will help in its defence. UA E Market

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 171 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK Cement: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin (RHS) 3.0x 12.0% 10.0% 2.0x 350 41.0% 8.0% 6.0% 300 1.0x 36.0% 4.0% 250 0.0x 2.0% 200 31.0% 0.0% -1.0x 150 -2.0% 26.0% -4.0% 100 -2.0x 21.0% -6.0% 50 -3.0x -8.0% 0 16.0% 03 04 05 06 07E 08E 09E 10E 11E 12E 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Strong balance sheet positions the group to withstand operating ƒ Sells majority of cement production in the domestic market and hence is pressures. fully exposed to UAE developments. Could also potentially be more difficult to migrate production to export markets. ƒ RAK produces the majority of the clinker requirements to meet its grinding capacity. ƒ Uses mixed fuels which incur higher operating costs, investments to combat this will likely only show benefits from 2008. ƒ With no investment portfolio, RAK is insulated from market movements and entirely focused on its core cement operations.

Opportunities Threats ƒ Most domestic supply is currently directed towards Dubai. Abu Dhabi ƒ Large-scale, industry-wide capacity increases to lead to oversupply in and to a lesser degree Ras Al Khaimah, are also experiencing significant 2008, with negative impact on prices. investment in infrastructure and real estate. This could potentially drive ƒ New entrants to the UAE cement market over the next two to three years local demand much higher and offset much of the forecast excess will likely add to existing competition. supply. ƒ Excess supply from GCC neighbors could potentially flood the local ƒ Recent kiln modifications allow the introduction of fly ash to the cement market following a pullback in demand in those countries. production process at a similar cost to clinker. This should allow an increase in capacity from 2008.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 172 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK Cement: Summary financials Income statement 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 172.7 246.8 300.8 325.2 372.8 313.7 279.5 265.6 273.5 281.7 -2.7% EBITDAR 57.1 122.9 144.4 144.3 172.2 118.7 87.8 73.4 79.0 85.0 EBITDA 57.1 122.9 144.4 144.3 172.2 118.7 87.8 73.4 79.0 85.0 EBITDA margin 33.1% 49.8% 48.0% 44.4% 46.2% 37.8% 31.4% 27.7% 28.9% 30.2% EBIT 36.1 101.8 123.2 123.0 152.0 98.5 67.6 53.1 58.5 64.0 -10.2% EBIT margin 20.9% 41.2% 41.0% 37.8% 40.8% 31.4% 24.2% 20.0% 21.4% 22.7% Net interes t expens e (5.8) (4.6) (1.9) 2.9 3.2 5.4 5.5 4.9 4.6 4.7 Associate income / other 0.3 0.3 0.2 0.3 0.0 (0.0) 0.0 0.0 0.0 0.0 Profit before tax 30.6 97.4 121.5 126.3 155.2 103.9 73.1 58.0 63.1 68.7 Adjusted PBT 30.6 97.4 121.5 126.3 155.2 103.9 73.1 58.0 63.1 68.7 -9.8% Tax 0.00.00.00.00.00.00.00.00.00.0 Exceptional items (0.6) (0.5) (1.8) (0.5) 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 30.0 96.9 119.7 125.8 155.2 103.9 73.1 58.0 63.1 68.7 Adjusted net income 30.6 97.4 121.5 126.3 155.2 103.9 73.1 58.0 63.1 68.7 -9.8%

08E-12E Per share data (Dh) 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 440 440 440 484 484 484 484 484 484 484 No. of diluted shares outstanding (*) 440 440 440 484 484 484 484 484 484 484 EPS (basic) 0.07 0.22 0.27 0.26 0.32 0.21 0.15 0.12 0.13 0.14 -9.8% EPS (diluted) 0.07 0.22 0.27 0.26 0.32 0.21 0.15 0.12 0.13 0.14 EPS (adjusted, basic) 0.07 0.22 0.28 0.26 0.32 0.21 0.15 0.12 0.13 0.14 -9.8% Annual growth NM 24.7% -5.5% 22.9% -33.1% -29.6% -20.7% 8.7% 9.0% EPS (adjusted, diluted) 0.07 0.22 0.28 0.26 0.32 0.21 0.15 0.12 0.13 0.14 DPS 0.00 0.00 0.00 0.15 0.24 0.21 0.15 0.12 0.13 0.14 -9.8% Annual growth NM NM NM 60.3% -10.7% -29.6% -20.7% 8.7% 9.0% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 173 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK Cement: Summary financials Balance sheet 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 0 0 18 108 183 187 167 157 161 165 Other current assets 80 115 141 158 176 153 141 136 140 143 Total current assets 80 115 159 266 359 340 308 294 301 308 -2.5% Long term investments & other 9 9 13 38 38 38 38 38 38 38 Property, plant and equipment 520 504 484 470 468 470 469 467 466 465 Intangible assets 0000000000 Total assets 609 628 656 774 865 848 815 799 805 811 -1.1% Trade payables 55 20 19 21 26 21 19 18 19 19 Short term debt 14210040444444 Long term debt 0000000000 Pension liabilities 1122222222 Other liabilities 98148888888 Total liabilities 207 129 38 32 40 36 34 33 33 34 -1.6% Minority interests 0000000000 Shareholders' equity 402 499 617 742 825 812 781 766 771 777 Total equity and liabilities 609 628 656 774 865 848 815 799 805 811 -1.1%

Cash flow 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 46.8 55.2 126 121 159 137 97.7 77.1 76.3 82.2 -12.1% Net interes t paid (5.8) (4.6) (2) 3 3 5 5.5 4.9 4.6 4.7 Tax paid 0.00.000000.00.00.00.0 Operating cash flow 41.0 50.6 124 124 162 143 103.2 82.0 80.9 86.9 -11.7% Capex on PP&E (1.8) (4.2) (1) (7) (19) (22) (19.6) (18.6) (19.1) (19.7) Other investing cash flow 0.0 0.1 (4) (23) 0 0 0.0 0.0 0.0 0.0 Investing cash flow (1.8) (4.1) (6) (29) (19) (22) (19.6) (18.6) (19.1) (19.7) -2.7% Operating free cash flow (*) 39.2 46.4 123 117 144 121 83.6 63.4 61.8 67.2 -13.7% Free cash flow (**) 39.2 46.5 118 95 144 121 83.6 63.4 61.8 67.2 -13.7% Dividends paid 0.0 0.0 0 0 (73) (116) (103.9) (73.1) (58.0) (63.1) Share buybacks / issuances 0.00.000000.00.00.00.0 Other (39.2) (46.5) (100) (5) 4 0 0.0 0.0 0.0 0.0 Financing cash flow (39.2) (46.5) (100) (5) (69) (116) (103.9) (73.1) (58.0) (63.1) -14.2% Change in cash and cash equivalents (0.0) 18 90 75 4 (20.3) (9.8) 3.7 4.1

(*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 174 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK Cement: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other

P / E 7.5x 8.0x 6.5x 9.7x 13.8xCROCI 17.4x NA 19.7% 23.4% 15.7% 11.5%EBITDA 9.5% margin 48.0% 44.4% 46.2% 37.8% 31.4% 27.7% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9xGS 9.4x coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7% EV / DACF ROE 21.8% 18.6% 19.8% 12.7% 9.2%EBIT 7.5% margin 41.0% 37.8% 40.8% 31.4% 24.2% 20.0% lease adj'd NA 6.7x 4.8x 7.0x 9.6x 11.6x GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0% NOPAT margin 41.0% 37.8% 40.8% 31.4% 24.2% 20.0% EV / EBITDA CROCI / WACC NA 1.9x 2.2x 1.5x 1.1x 0.9x lease adj'd NA 6.3x 4.8x 7.0x 9.6x 11.6x GS coverage NA NA NA NA NAGS NAcoverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NA 1.3x 1.1x 1.1x 1.1xCapex 1.1x / sales 0.5%2.1%5.0%7.0%7.0%7.0% EV / NOPAT lease adj'd NA 7.4x 5.5x 8.4x 12.5x 16.1xGS coverage 1.1x 1.5x 1.6x 1.4x 1.2xGS 1.1x coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1xGCI 5.2x (*) NA 1,169 1,269 1,325 1,377Capex 1,413 / depreciation 0.1x 0.3x 0.9x 1.1x 1.0x 0.9x P / book 1.5x 1.4x 1.2x 1.2x 1.3xNet 1.3x debt / (cash) * (14) (108) (179) (183) (163) (153) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4xPension 2.1x liabilities * 2 2 2 2 2 2 FCF yield NA 7.1% 14.3% 12.0% 8.3% 6.3%Net Debt / Equity 0.0x -0.1x -0.2x -0.2x -0.2x -0.2x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5%Net Debt / EBITDA -0.1x -0.7x -1.0x -1.5x -1.9x -2.1x Dividend yield 0.0% 7.2% 11.6% 10.3% 7.3% 5.8%Net interes t / EBITDA 1.3% -2.0% -1.9% -4.5% -6.3% -6.7% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/W ACC

5.0x 1.4x 50% 4.0x 4.5x 40% 1.2x 4.0x 3.5x 30% 3.5x 3.0x 1.0x 20% 3.0x 2.5x 10% 0.8x EV / GCI 2.5x EV / GCI 2.0x 0% 2.0x Sector Sector 0.6x 1.5x 1.5x -10% RKCC.A D RKCC.A D 1.0x 1.0x 0.4x -20% 0.5x 0.5x -30% 0.0x 0.2x 0.0x -40% 0.0x 2.0x 4.0x 6.0x 0.0x 5.0x 10.0x CROCI / WA CC 0.0x -50% CROCI / WA CC 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin RKCC.A D

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 175 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK White Cement (RAKC.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Sell List [email protected]

RATING: Return potential: -11%

United Arab Emirates: Construction Investment Profile: RAKC.AD

Low Hi gh

Interesting niche producer, but overvalued Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Sell recommendation Volatility Volatility • RAK White operates as a niche producer at the higher end of the market, producing premium- Percentile 20th40th 60th 80th100th priced white cement and clinker, as well as limestone. RAK White commands 100% of the local RAK White Cement limestone market, producing 130k tonnes per annum, and 480k tonnes of white cement. Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the • With 75% of its NAV in listed assets, RAK White is highly geared towards the performance of investment profile measures please refer to the disclosure section of this document. the stock market with net earnings and margins highly correlated to investment performance. Key data (*) • First-half trading results saw revenue down by 2%. Net income of Dh77 mn was reported with Price (Dh) 2.14 Price target (Dh) 1.90 almost all of its profits generated from trading gains. The net margins of 73% for 1H07 Market cap ($ mn) 267.1 compared to -30% for the same period in 2006, emphasizes the volatility of earnings. Average daily trading volume ($ mn) NA Free float 68% • Although we do not believe that RAK White will be as exposed to the market downturn as its Bloomberg code RAKWCT AD peers, the company will likely still face a challenging environment. Without a positive outlook 2006 2007E 2008E 2009E for its core operations and volatility in performance due to its market exposure, we are bearish Sales (Dh mn) 206.8 223.4 189.4 164.2 EBITDA (Dh mn) 47.4 52.2 24.8 3.73 on the stock. EV / EBITDAR NA 13.4x 30.1x NM P / E 14.8x 25.2x 56.0x NA • Our target price for the stock is Dh1.90 and we initiate coverage of RAK Cement on our Sell list. Dividend yield 7.3% 3.0% 1.8% 0.0% (*) multiples and ratios are calendarised

Valuation: 12-month target price of Dh1.90 1.0 0.9 600 Our sector-wide valuation approach involves a modified sum-of-the-parts, whereby we calculate 0.8 550 the value of the core operations of the business using DCF. We allocate a higher WACC to those 0.7 0.6 500 companies with higher portfolio exposures, with a range of 10.5%-12.0%. 0.5 0.4 450 The key inputs for our DCF calculation beyond our explicit forecast period are: a WACC of 12% 0.3 0.2 400 due to RAK White’s large market exposure, growth rate in perpetuity of 3% and a terminal NOPAT 0.1 0.0 350

6 7 7 7 7 7 7 margin of 11%. We calculate a fair value for the production operations of Dh0.24. Portfolio value 0 06 06 06 0 07 0 07 0 07 07 07 0 07 0 07 07 0 0 0 0 0 0 07 0 /2 /20 /2 /2 /2 /2007 /2 /2 /20 1 1 2 3 4 7 /12 /05/20 06 /07/20 08 per share of Dh1.62 results in a total rounded SOTP valuation of Dh1.90. 9/10/20 0/11/20 5/02/20 7/03/20 6/04/20 2/06/20 7/09/20 1 03/1 2 05/12/200620 04/01/2019/0 0 20/0 0 22/0 0 23/0 08 23/05/2007/ 2 09/0 24 08/08/200723/ 0 RA KC.A D (Dh) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 176 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK White Cement: Overview Company description Ras Al Khaimah Company for White Cement and Core drivers of growth Construction Materials is involved in the manufacture • The regional infrastructure boom taking place, particularly in Dubai and Abu Dhabi, has created a and supply of white cement and lime products, with its sharp increase in cement demand in the UAE. Capacity increases have until now lagged these two subsidiaries Ras Al Khaimah Lime Co. and Ras Al developments, resulting in price increases and high margins across the industry. White cement Khaimah Lime brick factory. The company has total demand has risen in line with that of ordinary building materials but trades at a premium. annual production capacity of 480,000 tonnes of white cement and 130,000 tonnes of lime. The group also • RAK White has not invested in new capacity, but enjoys a dominant market share position in both owns a 17% shareholding in RAK Cement. limestone and white cement.

• Earnings are largely driven by the performance of the company’s investment portfolio. This has led to volatile swings in the past and is expected to continue for the foreseeable future. Shareholder structure (2007)

Risk to the investment case 9% • Our base view is that oversupply will drive prices down to around US$55 per tonne by 2010, in 23% order to force unprofitable capacity out of the market. A risk to this view is that a sharp rise in development projects in Abu Dhabi and Ras Al Khaimah, similar in scale to those seen in Dubai,

might provide support to domestic cement prices. 68% • With an investment portfolio representing 75% of NAV, RAK White’s earnings will be mostly affected by the performance of its investment portfolio. Public Abdullatif Abdullah Al Mehry • Pricing pressures in the overall sector may not have the same impact on the niche products Government of Ras Al Khaimah provided by the company as with the rest of the UAE market. With the bulk (80%) of its product

destined for export markets, RAK will be more susceptible to competition in white cement and Sales by division (2007E) limestone from other regional players.

16%

Industry context Demand in the industry is set to remain robust, but excess supply will likely occur from mid-2008. 52% We expect prices to gradually decline from current levels as a wave of new capacity and new 32% entrants results in the UAE market moving from a production deficit to excess supply. Supply from other regional markets, producing at lower costs, is another negative risk factor. RAK White occupies an attractive, albeit uncertain, niche in the UAE cement sector. With the bulk of its

production destined for export markets, we expect the group to experience strong competition as GCC Ex ports UAE Market Other regional heavyweights begin offloading surplus capacity in their own markets.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 177 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK White Cement: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Mar gin ( RHS) 25.0x 100.0% 18.3% 20.0x 80.0% 200 13.3% 15.0x 60.0% 8.3% 10.0x 150 40.0% 5.0x 3.3% 20.0% 100 0.0x -1.7% 0.0% -5.0x -6.7% 50 -10.0x -20.0% -11.7%

-15.0x -40.0% 0 -16.7% 04 05 06 07E 08E 09E 10E 11E 12E 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ RAK White is the only producer of lime in the UAE and enjoys an ƒ Company has a large component of its assets in listed securities, creating effective monopoly. significant exposure to both regional and global equity markets.

ƒ White cement sells at a significant premium to ordinary types of cement ƒ Sells majority of cement production in the foreign markets and is unlikely such as Portland. to be able to compete with other regional players in the long run on a cost-basis. ƒ Strong balance sheet positions the group to withstand operating pressures.

Opportunities Threats ƒ Most domestic supply is currently directed towards Dubai. Abu Dhabi ƒ Large-scale, industry-wide capacity increases to lead to oversupply in and to a lesser degree Ras Al Khaimah, are also experiencing significant 2008, with negative impact on prices. investment in infrastructure and real estate. This could potentially drive ƒ Number of new entrants expected in the UAE cement market over the local demand much higher and offset much of the forecast excess next two to three years will likely add to existing competition. supply. ƒ Excess supply from GCC neighbors could potentially flood the local

market following a pullback in demand in those countries.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 178 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK White Cement: Summary financials Income statement 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 136.2 163.0 206.8 223.4 189.4 164.2 152.9 157.7 162.1 -3.8% EBITDAR 24.9 37.1 47.4 52.2 24.8 3.7 (8.8) (11.3) (8.8) EBITDA 24.9 37.1 47.4 52.2 24.8 3.7 (8.8) (11.3) (8.8) EBITDA margin 18.3% 22.8% 22.9% 23.4% 13.1% 2.3% -5.7% -7.2% -5.4% EBIT 1.9 11.2 31.9 37.2 9.7 (11.4) (21.2) (19.3) (17.7) NM EBIT margin 1.4% 6.9% 15.4% 16.7% 5.1% -6.9% -13.9% -12.3% -10.9% Net interest expense 1.3 (2.7) (1.6) 2.4 8.1 7.6 7.2 6.9 6.4 Associate income / other 37.5 100.3 37.1 (0.0) (0.0) 0.0 0.0 0.0 0.0 Profit before tax 40.7 108.7 67.4 39.6 17.8 (3.8) (14.0) (12.4) (11.3) Adjusted PBT 40.7 108.7 67.4 39.6 17.8 (3.8) (14.0) (12.4) (11.3) NM Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 40.7 108.7 67.4 39.6 17.8 (3.8) (14.0) (12.4) (11.3) Adjusted net income 40.7 108.7 67.4 39.6 17.8 (3.8) (14.0) (12.4) (11.3) NM

08E-12E Per share data (Dh) 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 444 447 467 467 467 467 467 467 467 No. of diluted shares outstanding (*) 444 447 467 467 467 467 467 467 467 EPS (basic) 0.09 0.24 0.14 0.08 0.04 (0.01) (0.03) (0.03) (0.02) NM EPS (diluted) 0.09 0.24 0.14 0.08 0.04 (0.01) (0.03) (0.03) (0.02) EPS (adjusted, basic) 0.09 0.24 0.14 0.08 0.04 (0.01) (0.03) (0.03) (0.02) NM Annual growth NM -40.7% -41.2% -55.0% NM NM -11.4% -8.8% EPS (adjusted, diluted) 0.09 0.24 0.14 0.08 0.04 (0.01) (0.03) (0.03) (0.02) DPS 0.06 0.13 0.16 0.06 0.04 0.00 0.00 0.00 0.00 NM Annual growth 98.7% 25.0% -59.4% -40.0% -100.0% NM NM NM (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 179 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK White Cement: Summary financials Balance sheet 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 100 292 94 284 265 254 244 227 211 Other current assets 140 113 332 106 113 104 101 103 105 Total current assets 240 405 426 390 378 358 345 330 317 -4.3% Long term investments & other 465 970 537 537 537 537 537 537 537 Property, plant and equipment 150 83 69 70 68 64 62 65 68 Intangible assets 000000000 Total assets 854 1,457 1,031 997 983 959 945 932 921 -1.6% Trade payables 10 11 16 15 13 11 10 11 11 Short term debt 000000000 Long term debt 005555555 Pension liabilities 556666666 Other liabilities 152326262626262626 Total liabilities 31 39 54 53 51 49 48 48 49 -0.9% Minority interests 000000000 Shareholders' equity 823 1,418 978 944 932 910 896 884 873 Total equity and liabilities 854 1,457 1,031 997 983 959 945 932 921 -1.6%

Cash flow 08E-12E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations (2.4) 50.1 71.0 277 15.8 10.4 (5.9) (13.3) (10.6) NM Net interest paid 1.3 (2.7) (1.6) 2 8.1 7.6 7.2 6.9 6.4 Tax paid 0.0 0.0 0.0 0 0.0 0.0 0.0 0.0 0.0 Operating cash flow (1.1) 47.4 69.4 279 23.9 18.0 1.3 (6.3) (4.2) NM Capex on PP&E (13.7) (24.2) (1.9) (16) (13.3) (11.5) (10.7) (11.0) (11.3) Other investing cash flow (33.0) 39.9 (25.1) 0 0.0 0.0 0.0 0.0 0.0 Investing cash flow (46.6) 15.7 (27.1) (16) (13.3) (11.5) (10.7) (11.0) (11.3) -3.8% Operating free cash flow (*) (14.8) 23.2 67.5 264 10.6 6.5 (9.4) (17.3) (15.5) NM Free cash flow (**) (47.8) 63.1 42.3 264 10.6 6.5 (9.4) (17.3) (15.5) NM Dividends paid (20.0) (21.7) (47.7) (73) (29.7) (17.8) 0.0 0.0 0.0 Share buybacks / issuances 0.0 0.0 0.0 0 0.0 0.0 0.0 0.0 0.0 Other 0.0 (0.8) 4.6 0 0.0 0.0 0.0 0.0 0.0 Financing cash flow (20.0) (22.5) (43.1) (73) (29.7) (17.8) 0.0 0.0 0.0 NM Change in cash and cash equivalents 191.6 (198.1) 191 (19.1) (11.4) (9.4) (17.3) (15.5) (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 180 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

RAK White Cement: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 8.8x 14.8x 25.2x 56.0x NACROCI NA NA NA 6.1% 3.3% 0.5%EBITDA NM margin 22.8% 22.9% 23.4% 13.1% 2.3% -5.7% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA NA 13.9x 30.1x NM NAROE 9.7% 5.6% 4.1% 1.9% NMEBIT NM margin 6.9% 15.4% 16.7% 5.1% -6.9% -13.9% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA NA 0.5x 0.3x 0.0xNOPAT NA margin 6.9% 15.4% 16.7% 5.1% -6.9% -13.9% EV / EBITDA lease adj'd NA NA 13.4x 30.1x NM NM GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI NA NA 1.0x 1.0x 1.0x 1.0xCapex / sales 14.9% 0.9% 7.0% 7.0% 7.0% 7.0% EV / NOPAT lease adj'd NA NA 18.7x 77.0x NM NM GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NA NA 789 819 830 860Capex / depreciation 0.9x 0.1x 1.0x 0.9x 0.8x 0.9x P / book 0.7x 1.0x 1.1x 1.1x 1.1x 1.1x Net debt / (cash) * (292) (88) (279) (260) (248) (239) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 5 6 6 6 6 6 FCF yield NA NA 26.4% 1.1% 0.6% -0.9% Net Debt / Equity -0.2x -0.1x -0.3x -0.3x -0.3x -0.3x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -7.9x -1.9x -5.3x -10.5x -66.6x 27.2x Dividend yield 5.9%7.3%3.0%1.8%0.0%0.0% Net interest / EBITDA 7.3% 3.4% -4.6% -32.9% NM 82.4% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2009E EV/GCI vs CROCI/WACC 2008E EV/GCI vs CROCI/WACC 30.0x EV/GCI / CROCI/WACC 3000% 5.0x 4.5x 4.0x 25.0x 2500% 4.0x 3.5x

3.5x I 3.0x 20.0x 2000% 3.0x 2.5x EV / GCIEV

2.5x EV / GC 2.0x 15.0x 1500% 2.0x Sector Sector 1.5x 1.5x 10.0x 1000% 1.0x RA KC.A D 1.0x RA KC.A D 0.5x 0.5x 5.0x 500% 0.0x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x 0% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin RA KC.A D

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 181 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Sharjah Cement Co (SCID.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 31%

United Arab Emirates: Construction Investment Profile: SCID.AD

Low Hi gh

Reasonable upside but with limited visibility Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Following recent capacity additions, Sharjah Cement and Industrial Development Company Percentile 20th40th 60th 80th100th (SCIDC) has 1.85 mn tonnes of clinker and 2.5 mn tonnes of cement capacity. The group also Sharjah Cement & Industrial Development Corporatio holds an investment portfolio that accounts for 40% of estimated net asset value. Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the • First half 2007 results reflected the buoyant industry environment with 37% yoy growth in investment profile measures please refer to the disclosure section of this document. revenues as the group experienced the benefits of increased capacity. Margins declined as Key data (*) input costs rose, a challenge likely to remain for the foreseeable future, on our estimates. Price (Dh) 4.50 Price target (Dh) 5.90 • With an estimated 40% of NAV in listed securities, company profitability and net margins will Market cap ($ mn) 575.8 be largely influenced by the performance of the local markets. Average daily trading volume ($ mn) NA Free float 30% • On our estimates SCIDC trades at a discount to the sum of its portfolio and DCF valuation and Bloomberg code SCIDC DB 2006 2007E 2008E 2009E in fact trades at a slight discount to our valuation for its core business. However, with limited Sales (Dh mn) 671.8 696.5 597.9 543.5 transparency and a negative sector outlook, we believe there are better investment stories in EBITDA (Dh mn) 314.0 346.6 240.0 178.0 EV / EBITDAR 6.0x 4.8x 6.7x 9.2x the UAE market. Were our outlook on cement prices to turn more positive, SCIDC would be a P / E 7.5x 7.1x 10.2x 14.5x preferred investment in the sector, along with RAK cement. Our price target is Dh5.90 and we Dividend yield 5.2% 10.5% 9.8% 6.9% (*) multiples and ratios are calendarised initiate coverage of SCIDC as Neutral.

Valuation: 12-month target price of Dh5.90 1.4 600 Our sector-wide valuation approach involves a modified SOTP whereby we calculate the value of 1.2 1.0 550

the core operations of the business using a DCF. We then add back the value of the portfolios at 0.8 500 0.6 the last balance sheet date (June 2007). We allocate a higher WACC to those companies with 450 0.4 higher portfolio exposures, with a range between 10.5% and 12%. 400 0.2

7 7 7 0 07 0.0 07 0 07 0 0 350 7 7 07 07 07 /2 The key inputs for our DCF calculation beyond our explicit forecast period are: a WACC of 11.25%, 07 0 0 0 0 9 6 07 07 07 /2 /20 6 06 06 0 0 /2007/2 0 0 0 0 20 4 4 /07/20 /2 /2 /2 / 05 /05 3/07/20 03/0 /2 1 1 1/06/205/06/20 2 06/08/2020/08/2007 growth rate in perpetuity of 3% and a terminal NOPAT margin of 25%. This calculation derives a 2 02 /02/20 28 1 2 09 12 5/03/209/03/2002/04/200716/0 30/0 14/ 05/ 19 0 1 0/10/20 25/ 08/0 22/0 value for the core operations of SCIDC of Dh4.94. Portfolio value per share amounts to Dh0.97 3 13/11/2027/11/200611/1 SCID.AD (Dh) MSCI EM Europe & Middle Eas t resulting in our rounded SOTP valuation of Dh5.90.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 182 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Sharjah Cement & Industrial Development Corporation: Overview Company description SCIDC is one of the oldest cement producers in the Core drivers of growth UAE. Its primary business includes the production of • The regional infrastructure boom taking place, in particular that of Dubai and Abu Dhabi, has cement but it is also involved in the manufacture of created a sharp increase in cement demand in the UAE. Capacity increases have lagged these paper sacks, synthetic ropes and plastics. Following developments, resulting in rapid price increases and high margins across the industry. recent capacity upgrades, SCIDC currently has total annual clinker and cement production capacity of • Capacity additions and cost benefits derived from investment in new production capabilities 1.85 mn tonnes and 2.5 mn tonnes respectively. should position SCIDC in a relatively stronger position to withstand the pricing and oversupply Similar to its peers, SCIDC holds a large investment challenges facing the industry. If cement prices hold above our current forecasts in the period to portfolio which accounted for c.40% of NAV in 1H07. 2010, we expect our price target for SCIDC to rise proportionally more than the average for the The company is dual-listed in both Abu Dhabi and peer group, due to efficiency improvements and the higher share of core operational value in our Kuwait. SOTP than average. Shareholder structure (2007)

Risk to the investment case 30% • Our base view is that oversupply will drive prices down to around US$55 per tonne by 2010, in order to force unprofitable capacity out of the market. A risk to this view is that a sharp rise in development projects in Abu Dhabi and Ras Al Khaimah, similar in scale to those seen in Dubai, might provide support to domestic cement prices. 70%

• Increased competition in domestic and foreign markets is also expected to impact utilization

rates, and may impact SCIDC’s ability to shift its new capacity. Public Government of Sharjah • The extent to which SCIDC can contain costs, particularly those relating to energy, will likely dictate the group’s competitiveness and performance. Sales by division (2007E) • With a material exposure to market movements, SCIDC’s earnings will be largely affected by the performance of its investment portfolio.

Industry context Demand within the industry to is set to remain robust but we expect excess from mid-2008. We expect prices to gradually decline from current levels as a wave of new capacity and new entrants result in the UAE market moving from a production deficit to excess supply. 100%

We believe SCIDC is reasonably well positioned within the sector and trades at enough of a discount to its price target to account for the challenging periods ahead. Domestic Sales

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 183 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Sharjah Cement & Industrial Development Corporation: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Margin (RHS) 1.0x 6.0% 700 0.5x 4.0% 60.7% 600 55.7% 0.0x 2.0% -0.5x 500 50.7% 0.0% 45.7% -1.0x 400 -2.0% 40.7% -1.5x -4.0% 300 35.7% -2.0x 30.7% -2.5x -6.0% 200 25.7% -3.0x -8.0% 100 20.7% -3.5x -10.0% 0 15.7% 05 06 07E 08E 09E 10E 11E 12E 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Reasonably large producer within the industry and operating modern ƒ Significant portion of assets are tied up in a listed investment portfolio, plant following recent capacity expansions. creating significant exposure to regional and global equity markets.

Opportunities Threats ƒ Most domestic supply is currently directed towards Dubai. Abu Dhabi, ƒ Large-scale, industry-wide capacity increases could lead to oversupply in and to a lesser degree Ras Al Khaimah, are also experiencing significant 2008, with negative impact on prices. investment in infrastructure and real estate. This could potentially drive ƒ Number of new entrants expected in the UAE cement market over the demand much higher and offset much of the forecast excess supply. next two to three years will likely add to existing competition.

ƒ Excess supply from GCC neighbors could potentially flood the local market following a pullback in demand in those countries.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 184 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Sharjah Cement & Industrial Development Corporation: Summary financials Income statement 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 567.6 671.8 696.5 597.9 543.5 521.5 542.5 564.4 -1.4% EBITDAR 380.2 314.0 346.6 240.0 178.0 148.7 163.3 178.8 EBITDA 380.2 314.0 346.6 240.0 178.0 148.7 163.3 178.8 EBITDA margin 67.0% 46.7% 49.8% 40.1% 32.7% 28.5% 30.1% 31.7% EBIT 348.0 277.9 305.7 197.2 133.5 102.6 115.4 128.9 -10.1% EBIT margin 61.3% 41.4% 43.9% 33.0% 24.6% 19.7% 21.3% 22.8% Net interest expense (12.3) (15.1) (8.5) 10.2 12.4 11.3 10.7 11.2 Associate income / other 105.1 20.8 (0.0) 0.0 0.0 (0.0) (0.0) (0.0) Profit before tax 440.8 283.7 297.2 207.3 145.9 113.9 126.1 140.0 Adjusted PBT 440.8 283.7 297.2 207.3 145.9 113.9 126.1 140.0 -9.3% Tax 0.00.00.00.00.00.00.00.0 Exceptional items (105.1) (33.3) 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 335.7 250.4 297.2 207.3 145.9 113.9 126.1 140.0 Adjusted net income 440.8 283.7 297.2 207.3 145.9 113.9 126.1 140.0 -9.3%

08E-12E Per share data (Dh) 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 392 470 470 470 470 470 470 470 No. of diluted shares outstanding (*) 392 470 470 470 470 470 470 470 EPS (basic) 0.86 0.53 0.63 0.44 0.31 0.24 0.27 0.30 -9.3% EPS (diluted) 0.86 0.53 0.63 0.44 0.31 0.24 0.27 0.30 EPS (adjusted, basic) 1.13 0.60 0.63 0.44 0.31 0.24 0.27 0.30 -9.3% Annual growth -46.4% 4.8% -30.2% -29.7% -21.9% 10.8% 11.0% EPS (adjusted, diluted) 1.13 0.60 0.63 0.44 0.31 0.24 0.27 0.30 DPS 0.23 0.23 0.47 0.44 0.31 0.24 0.27 0.30 -9.3% Annual growth 0.0% 103.1% -7.0% -29.7% -21.9% 10.8% 11.0% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 185 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Sharjah Cement & Industrial Development Corporation: Summary financials Balance sheet 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 599 47 669 743 706 688 703 719 Other current assets 383 822 383 296 275 269 278 287 Total current assets 982 869 1,052 1,040 981 957 981 1,007 -0.8% Long term investments & other 84 106 106 106 106 106 106 106 Property, plant and equipment 535 640 647 646 640 630 620 610 Intangible assets 00000000 Total assets 1,601 1,615 1,805 1,793 1,727 1,694 1,708 1,723 -1.0% Trade payables 25 35 38 41 37 36 37 39 Short term debt 114 129 129 129 129 129 129 129 Long term debt 98 86 86 86 86 86 86 86 Pension liabilities 12 13 13 13 13 13 13 13 Other liabilities 101 136 136 136 136 136 136 136 Total liabilities 350 399 402 405 401 400 401 403 -0.1% Minority interests 00000000 Shareholders' equity 1,251 1,216 1,403 1,388 1,326 1,294 1,307 1,321 Total equity and liabilities 1,601 1,615 1,805 1,793 1,727 1,694 1,708 1,723 -1.0%

Cash flow 08E-12E 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 169 284 789 329 196 153 156 171 -15.1% Net interest paid (12)(15)(9)1012111111 Tax paid 00000000 Operating cash flow 157 269 781 339 208 164 166 182 -14.4% Capex on PP&E (48) (140) (49) (42) (38) (37) (38) (40) Other investing cash flow (29)(55)000000 Investing cash flow (77) (196) (49) (42) (38) (37) (38) (40) -1.4% Operating free cash flow (*) 109 129 732 297 170 128 128 143 -16.8% Free cash flow (**) 80 73 732 297 170 128 128 143 -16.8% Dividends paid (32) (91) (110) (223) (207) (146) (114) (126) Share buybacks / issuances 00000000 Other (34)1000000 Financing cash flow (65) (91) (110) (223) (207) (146) (114) (126) -13.3% Change in cash and cash equivalents (553) 622 75 (37) (18) 15 16

(*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 186 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Sharjah Cement & Industrial Development Corporation: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other

P / E 4.0x 7.5x 7.1x 10.2x 14.5xCROCI 18.6x NA 58.8% 26.7% 22.3% 16.8%EBITDA 13.7% margin 67.0% 46.7% 49.8% 40.1% 32.7% 28.5% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9xGS 9.4x coverage 15.6% 18.8% 17.7% 18.5% 18.9%GS 17.6% coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7% EV / DACF ROE NA 23.0% 22.7% 14.9% 10.7%EBIT 8.7% margin 61.3% 41.4% 43.9% 33.0% 24.6% 19.7% lease adj'd NA 2.7x 4.8x 6.7x 9.2x 11.1x GS coverage 25.1% 26.5% 22.4% 23.2% 23.0%GS 20.0% coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4x CROCI / WACC NA 5.7x 2.6x 2.1x 1.6xNOPAT 1.3x margin 61.3% 41.4% 43.9% 33.0% 24.6% 19.7% EV / EBITDA lease adj'd NA 6.0x 4.8x 6.7x 9.2x 11.1x GS coverage NA NA NA NA NAGS NAcoverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI NA 1.3x 1.5x 1.5x 1.5xCapex 1.5x / sales 8.4% 20.9% 7.0% 7.0% 7.0% 7.0% EV / NOPAT lease adj'd NA 6.8x 5.5x 8.1x 12.3x 16.1xGS coverage 1.1x 1.5x 1.6x 1.4x 1.2xGS 1.1x coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1xGCI 5.2x (*) NA 1,929 1,529 1,508 1,553Capex 1,609 / depreciation 1.5x 3.9x 1.2x 1.0x 0.9x 0.8x P / book 1.4x 1.7x 1.5x 1.5x 1.6xNet 1.6x debt / (cash) * (387) 169 (454) (528) (491) (473) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4xPension 2.1x liabilities * 121313131313 FCF yield NA -18.3% 34.6% 14.1% 8.1% 6.0%Net Debt / Equity -0.3x 0.1x -0.3x -0.4x -0.4x -0.4x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5%Net Debt / EBITDA -1.0x 0.5x -1.3x -2.2x -2.8x -3.2x Dividend yield 5.2% 5.2% 10.5% 9.8% 6.9% 5.4%Net interes t / EBITDA 3.2% 4.8% 2.5% -4.2% -7.0% -7.6% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/W ACC

5.0x 1.2x 60% 4.5x 4.0x 40% 4.0x 3.5x 1.0x 3.5x 3.0x 20% 3.0x 0.8x 2.5x 0% EV / GCI 2.5x EV / GCI 2.0x 2.0x 0.6x Sector Sector -20% 1.5x SCID.AD 1.5x SCID.AD 0.4x 1.0x 1.0x -40% 0.5x 0.5x 0.2x 0.0x -60% 0.0x 0.0x 2.0x 4.0x 6.0x CROCI / WA CC 0.0x 5.0x 10.0x 0.0x -80% CROCI / WA CC 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin SCID.AD

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 187 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Cement (UCC.AD) INVESTMENT LIST MEMBERSHIP Neil Wedlake Pan-Europe Sell List [email protected]

RATING: Return potential: -16%

United Arab Emirates: Construction Investment Profile: UCC.AD

Low Hi gh

Large-scale capacity increases planned, despite declining cement prices Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Sell recommendation Volatility Volatility • Union has developed from a mid-tier producer to having the largest capacity in the UAE at Percentile 20th40th 60th 80th100th 4.6 mn tonnes, and number two in terms of production. Clinker capacity increased to 3.7 mn Union Cement tonnes as part of the expansion, putting the company in control of around 80% of its clinker. Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the • Increasing capacity levels should partially offset the pricing declines we believe are facing the investment profile measures please refer to the disclosure section of this document. industry as a whole and position Union as one of the more resilient performers going forward. Key data (*) • First-half results reflected the buoyant industry environment, with 34% year-on-year revenue Price (Dh) 4.74 Price target (Dh) 4.00 growth and net margins of 43%. Despite efforts at cost containment, we believe it will be Market cap ($ mn) 715.7 difficult for Union to avoid the impact of reduced cement prices as industry capacity expands in Average daily trading volume ($ mn) NA the coming years. Free float 17% Bloomberg code UCC UH • We forecast 2006-2009 revenue CAGR of 23%, the highest in our peer group, but expect net 2006 2007E 2008E 2009E margins to dip into the mid-teens during the periods of oversupply before recovering to 21% in Sales (Dh mn) 401.8 602.1 690.9 746.2 EBITDA (Dh mn) 130.1 281.8 252.4 212.3 the terminal year. With only 15% of its NAV in listed securities, Union has a far more acceptable EV / EBITDAR 18.6x 9.3x 10.4x 12.6x level of stock market exposure relative to its peers. Our target price for Union Cement is Dh4.00 P / E 14.7x 12.2x 14.7x 19.5x Dividend yield 0.0% 6.1% 6.8% 5.1% and we initiate coverage on our Sell list. (*) multiples and ratios are calendarised

2.0 Valuation: 12-month target price of Dh4.00 1.8 600 1.6 550 Our sector-wide valuation approach involves a modified sum-of-the-parts, whereby we calculate 1.4 1.2 the value of the core operations of the business using a DCF, and then add back the value of the 500 1.0 portfolio at the most recent balance sheet date (June 2007). We allocate a higher WACC to those 0.8 450 0.6 companies with higher portfolio exposures, with a range of 10.5%-12.0%. 0.4 400 0.2 The key inputs for our DCF calculation beyond our explicit forecast period are: a WACC of 11% 0.0 350 6 7 7 0 06 06 06 07 0 07 07 07 07 07 07 07 07 0 07 07 0 0 0 0 0 0 0 due to the moderate component of 15% of NAV in listed securities, growth rate in perpetuity of /20 /2 /2 /20 /2 /2 /2 /2007/20 /2 /2 2 3 4 6 7 8 /11 /12/2001 02 /03/20 05 /06 1/11/20 1/02/20 4/05/20 /08/20 3% and a terminal NOPAT margin of 22%. We calculate a fair value for Union of Dh3.70. Portfolio 0 16 01/1 18 02/ 17/01/20070 16/ 05/0 20 04/0 19/04/20070 21/ 05/0 20 05/0 20/07/2006 21/0 05/09/2007 UCC.AD (Dh) MSCI EM Europe & Middle East value per share amounts to Dh0.34 for a rounded SOTP total of Dh4.00.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 188 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Cement: Overview Company description Union Cement Company (UCC) was the first producer Core drivers of growth set up in the limestone and silica-rich emirate of Ras Al • The regional infrastructure boom taking place, particularly in Dubai and Abu Dhabi, has created a Khaimah. UCC recently completed a large scale sharp increase in cement demand in the UAE. Capacity increases have lagged these expansion bringing total grinding capacity of 1.3 mn developments, resulting in rapid price increases and high margins across the industry. tonnes per annum up to 4.6 mn tonnes per annum during the first half of 2007. Maximum clinker capacity • Investments in capacity at Union have increased clinker production to 3.7 mn tonnes and is now 3.6 mn tonnes. The new capacity makes UCC grinding capabilities to 4.6 mn tonnes. This creates scope to capture market share in the longer the largest cement producer in the UAE and also term, but due to very high investment across the industry, we believe cement prices will decline incorporates a multi-fuel burning process, allowing the significantly through to 2010 towards cash costs. company to mitigate energy related costs. UCC also owns a minority interest of 19% in RAK Cement Co. Risk to the investment case Shareholder structure (2007)

• Our base view is that oversupply will drive prices down to around US$55 per tonne by 2010, in 17% order to force unprofitable capacity out of the market. A risk to this view is that a sharp rise in development projects in Abu Dhabi and Ras Al Khaimah, similar in scale to those seen in Dubai, 41% might provide support to domestic cement prices. 20% • Competition in domestic/foreign markets will likely dictate utilization rates, a fall-off in planned capacity expansions and successful penetration into export markets remain risks to the upside. 22% • Declining fuel prices and higher-than-expected sales volumes could also sustain profitability at Government of Ras Al Khaimah Khalid Abdullah Al Qasimi higher levels for a longer period. Abu Dhabi Investment Authority Public • With an investment portfolio representing 15% of NAV, Union Cement’s earnings will still be

impacted by the performance of its investment portfolio, albeit to a lesser extent than sector Sales by division (2007E) peers. Recent market volatility and its impact on company performance remains a concern.

Industry context Demand in the industry to is set to remain robust, but excess supply will likely occur from mid-2008. We expect prices to gradually decline from current levels as a wave of new capacity and new entrants will likely result in the UAE market moving from a production deficit to excess supply. With economies of scale we expect Union to gain market share in the longer-term, with growing sales 100% volumes partially offsetting price declines. Given the commoditized nature of the industry and the

challenges faced, however, we view Union as one of the more resilient players in an industry with UA E Market an unfavourable outlook.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 189 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Cement: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) Dhmn (LHS) EBIT Mar gin ( RHS) 0.5x 6.0% 900 37.0% 0.0x 4.0% 800 -0.5x 700 2.0% 32.0% -1.0x 600 0.0% -1.5x 500 27.0% -2.0% 400 -2.0x 22.0% -4.0% 300 -2.5x 200 -3.0x -6.0% 17.0% 100 -3.5x -8.0% 0 12.0% 03 04 05 06 07E 08E 09E 10E 11E 12E 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Following new capacity investment, now the largest producer in terms of ƒ Although lower relative to peers, Union still has exposure to market grinding capacity and second largest by clinker production. movements through its listed investment portfolio.

ƒ New production capacity utilizes mixed-fuel burning systems which ƒ Sells majority of cement production in the domestic market and hence is generate cost savings. fully exposed to UAE developments. Could also potentially be more difficult to migrate production to export markets. ƒ Relatively low exposure to the market through its portfolio investments, comprising 15% of NAV, provides moderate insulation from market volatility.

Opportunities Threats ƒ Most domestic supply is currently directed towards Dubai. Abu Dhabi ƒ Large scale, industry-wide capacity increases to lead to oversupply in and to a lesser degree Ras Al Khaimah, are also experiencing significant 2008, with negative impact on prices. investment in infrastructure and real estate. This could potentially drive ƒ Number of new entrants expected in the UAE cement market over the demand much higher and offset much of the forecast excess supply. next two to three years will likely add to existing competition. ƒ As the largest producer by capacity, Union has the greatest potential to ƒ Excess supply from GCC neighbors could potentially flood the local absorb high and sustained levels of demand and to shift excess market following a pullback in demand in those countries. production into export markets.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 190 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Cement: Summary financials Income statement 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Sales 195.2 314.5 399.3 401.8 602.1 690.9 746.2 779.8 843.4 877.3 6.2% EBITDAR 51.2 124.3 156.1 130.1 281.8 252.4 212.3 186.9 212.8 235.2 EBITDA 51.2 124.3 156.1 130.1 281.8 252.4 212.3 186.9 212.8 235.2 EBITDA margin 26.2% 39.5% 39.1% 32.4% 46.8% 36.5% 28.4% 24.0% 25.2% 26.8% EBIT 38.5 110.3 142.4 120.8 226.7 189.7 146.2 117.2 139.3 157.8 -4.5% EBIT margin 19.7% 35.1% 35.7% 30.1% 37.6% 27.5% 19.6% 15.0% 16.5% 18.0% Net interest expense 2.5 3.3 (4.4) 8.7 (5.1) (4.5) (4.8) (6.6) (7.5) (7.0) Associate income / other 13.7 38.9 394.1 55.9 0.0 (0.0) (0.0) 0.0 (0.0) (0.0) Profit before tax 54.7 152.5 532.2 185.4 221.5 185.2 141.4 110.7 131.9 150.8 Adjusted PBT 54.7 152.5 532.2 185.4 221.5 185.2 141.4 110.7 131.9 150.8 -5.0% Tax 0.00.00.00.00.00.00.00.00.00.0 Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest (8.0) (6.9) (7.5) (6.5) (6.5) (6.5) (6.5) (6.5) (6.5) (6.5) Net income 46.7 145.7 524.7 178.8 215.0 178.7 134.9 104.1 125.3 144.3 Adjusted net income 46.7 145.7 524.7 178.8 215.0 178.7 134.9 104.1 125.3 144.3 -5.2%

08E-12E Per share data (Dh) 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 462 462 554 554 554 554 554 554 554 554 No. of diluted shares outstanding (*) 462 462 554 554 554 554 554 554 554 554 EPS (basic) 0.10 0.32 0.95 0.32 0.39 0.32 0.24 0.19 0.23 0.26 -5.2% EPS (diluted) 0.10 0.32 0.95 0.32 0.39 0.32 0.24 0.19 0.23 0.26 EPS (adjusted, basic) 0.10 0.32 0.95 0.32 0.39 0.32 0.24 0.19 0.23 0.26 -5.2% Annual growth NM NM -65.9% 20.2% -16.9% -24.5% -22.8% 20.3% 15.1% EPS (adjusted, diluted) 0.10 0.32 0.95 0.32 0.39 0.32 0.24 0.19 0.23 0.26 DPS 0.00 0.00 0.00 0.00 0.29 0.32 0.24 0.19 0.23 0.26 -5.2% Annual growth NM NM NM NM 10.8% -24.5% -22.8% 20.3% 15.1% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 191 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Cement: Summary financials Balance sheet 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year ending Dec) CAGR Cash and cash equivalents 89 144 472 250 271 261 202 171 189 219 Other current assets 217 252 186 169 263 326 365 389 418 432 Total current assets 306 396 658 418 534 587 567 561 607 651 2.6% Long term investments & other 178 218 204 361 361 361 361 361 361 361 Property, plant and equipment 54 45 347 738 864 850 836 821 806 790 Intangible assets 0000000000 Total assets 538 659 1,209 1,517 1,759 1,797 1,764 1,742 1,774 1,802 0.1% Trade payables 10 12 27 13 33 47 51 53 58 60 Short term debt 0000000000 Long term debt 0 0 0 180 180 180 180 180 180 180 Pension liabilities 15 14 14 14 14 14 14 14 14 14 Other liabilities 9 13 14 22 22 22 22 22 22 22 Total liabilities 33 40 55 229 249 264 267 270 274 276 1.2% Minority interests 2 2 2 2 8 15 21 28 34 41 Shareholders' equity 503 618 1,152 1,287 1,502 1,519 1,476 1,445 1,466 1,485 Total equity and liabilities 538 659 1,209 1,517 1,759 1,797 1,764 1,742 1,774 1,802 0.1%

Cash flow 08E-12E 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (Dh mn, year to Dec) CAGR Cash from operations 36.0 93.6 140 133 207 204 177 165 188 224 2.3% Net interest paid 2.5 3.3 (4) 9 (5) (4) (5) (7) (7) (7) Tax paid 0.00.000000000 Operating cash flow 38.5 96.9 136 142 202 199 172 158 181 217 2.1% Capex on PP&E (14.5) (4.9) (316) (401) (181) (48) (52) (55) (59) (61) Other investing cash flow 2.33.2365(50)000000 Investing cash flow (12.2) (1.6) 50 (451) (181) (48) (52) (55) (59) (61) 6.2% Operating free cash flow (*) 23.9 92.1 (180) (259) 22 151 120 104 122 155 0.7% Free cash flow (**) 26.2 95.3 186 (309) 22 151 120 104 122 155 0.7% Dividends paid (31.4) (31.4) (21) (0) 0 (161) (179) (135) (104) (125) Share buybacks / issuances 0.00.000000000 Other (109.1)(8.5)80170000000 Financing cash flow (140.5) (39.9) 59 170 0 (161) (179) (135) (104) (125) -6.1% Change in cash and cash equivalents 55.4 328 (223) 22 (10) (59) (31) 18 30 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 192 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Union Cement: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 5.0x 14.7x 12.2x 14.7x 19.5x 25.2xCROCI NA 13.0% 20.0% 15.9% 12.6% 10.6%EBITDA margin 39.1% 32.4% 46.8% 36.5% 28.4% 24.0% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd NA 18.5x 9.3x 10.4x 12.6x 14.5xROE 59.3% 14.7% 15.4% 11.8% 9.0% 7.1%EBIT margin 35.7% 30.1% 37.6% 27.5% 19.6% 15.0% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC NA 1.3x 1.9x 1.5x 1.2x 1.0xNOPAT margin 35.7% 30.1% 37.6% 27.5% 19.6% 15.0% EV / EBITDA lease adj'd NA 18.6x 9.3x 10.4x 12.6x 14.5x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI NA 1.9x 1.7x 1.6x 1.6x 1.5xCapex / sales 79.1% 99.8% 30.0% 7.0% 7.0% 7.0% EV / NOPAT lease adj'd NA 20.1x 11.5x 13.8x 18.4x 23.2x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) NA 2,071 2,014 2,088 2,198 2,297Capex / depreciation 23.1x 43.2x 3.3x 0.8x 0.8x 0.8x P / book 2.3x 2.0x 1.7x 1.7x 1.8x 1.8x Net debt / (cash) * (472) (69) (91) (81) (22) 9 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 14 14 14 14 14 14 FCF yield NA-19.0%0.8%5.8%4.6%3.9% Net Debt / Equity -0.4x -0.1x -0.1x -0.1x 0.0x 0.0x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -3.0x -0.5x -0.3x -0.3x -0.1x 0.0x Dividend yield 0.0%0.0%6.1%6.8%5.1%4.0% Net interest / EBITDA 2.8% -6.7% 1.8% 1.8% 2.3% 3.5% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* Dh mn

Relative to GS New Markets Non-Financials coverage

2009E EV/GCI vs CROCI/WACC 2008E EV/GCI vs CROCI/WACC 1.6x EV/GCI / CROCI/WACC 80% 5.0x 4.5x 4.0x 1.4x 70% 4.0x 3.5x 1.2x 60% 3.5x I 3.0x 50% 3.0x 1.0x 2.5x 40% EV / GCIEV

2.5x EV / GC 2.0x 0.8x 2.0x 30% Sector UCC.A D Sector UCC.A D 1.5x 1.5x 0.6x 20% 1.0x 1.0x 0.4x 10% 0.5x 0.5x 0.0x 0.2x 0% 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -10% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin UCC.A D

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 193 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 194 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Turkish Cement company summaries

Adana Cimento 196

Akcansa Cimento 202

Bolu Cimento 208

Cimsa (Cimento Sanayi) 214

Mardin Cimento 220

Unye Cimento 226

Goldman Sachs Global Investment Research 195 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Adana Cimento A (ADANA.IS) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 8%

Turkey: Construction Investment Profile: ADANA.IS

Low Hi gh

Attractive growth profile fairly well reflected in valuation Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • As the flagship company in the Oyak group, Adana benefits from a number of competitive Percentile 20th 40th 60th 80th 100th strengths including a popular brand, strong presence in both local and foreign markets, and Adana CimentoA margin expansion from the introduction of slag to the production process. The company is also Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the expanding white cement capacity. investment profile measures please refer to the disclosure section of this document. • Adana is the second largest producer in Turkey, with clinker and cement capacity of 2.3 mn and Key data (*) 4.5 mn tonnes, respectively. It is based in the eastern Mediterranean region and enjoys Price (YTL) 9.70 proximity to a port and the lucrative Iraq and Syrian export markets. Price target (YTL) 10.5 Market cap ($ mn) 831.5 • Following the dissolution of the Sabanci-Oyak partnership in Oysa, Adana received the Average daily trading volume ($ mn) 0.48 Iskenderun steel works and three ready-mix concrete terminals. Acquisition of the steel plant Free float 86% Bloomberg code ADANA TI should allow the introduction of slag to the grinding process, allowing a cheaper mix and 2006 2007E 2008E 2009E margin benefits. Sales (YTL mn) 251.4 306.3 316.8 324.2 EBITDA (YTL mn) 108.8 112.0 96.4 80.8 • Attractive growth prospects and the flexibility of its exposure to both the domestic and foreign EV / EBITDAR NM 0.5x 0.4x 0.7x market makes Adana attractive in our view. The three classes of share offer attractive yields but P / E 8.9x 9.3x 10.2x 11.6x Dividend yield 5.3% 5.4% 6.4% 5.6% are fairly valued in our view. We initiate coverage on Adana’s A, B and C classes of share as (*) multiples and ratios are calendarised

Neutral.

8.0 600 7.0

Valuation: 12-month target price of TL10.50 (Adana A) 6.0 550 5.0 Adana has three separate classes of share, A, B and C, each with a different economic right to 500 4.0 equity and dividends. The respective claims on equity and dividends are: 26% and 54% for the A 3.0 450 2.0 share, 25% and 36% for the B share, and 49% and 10% for the C share. 400 1.0 The key inputs for our DCF calculation beyond our explicit forecast period are: a WACC of 12%, 0.0 350 6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 growth rate in perpetuity of 3% and a terminal NOPAT margin of 17%. We calculate 12-month 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 price targets for Adana A shares of TL10.50, TL5.60 for Adana B shares and TL1.00 for Adana C 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 ADANA.IS (YTL) MSCI EM Europe & Middle East shares. Our preferred pick in the group is the A shares.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 196 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Adana Cimento A: Overview Company description Adana is the flagship company and largest producer in Core drivers of growth the Oyak Cement group of companies. It is also the • The acquisition of the Iskenderun facility allows the introduction of slag to the production second largest producer in Turkey. Adana produces process. Slag is added to cement at lower cost than clinker. Slag cement is popular due to its both grey clinker and cement, ready mix concrete, and, resistance to salt water, and although the benefits are unlikely to impact capacity utilization, we more recently, white cement. Total grinding capacity is forecast a positive impact on margins. Capacity additions should also enable production of up to currently 2.3 mn tonnes of clinker and 4.5 mn tonnes of 400k tonnes of premium-priced white cement by the end of 2007. cement, following its production expansion last year. Adana sells most of its cement production in the local • Strong demand from both the Turkish and foreign markets should underpin growth. Adana has market but also has an export presence in Syria and also shown the ability to shift production between the domestic and export markets depending Iraq. In addition, Adana holds a 16% stake in Cimsa, on the relative attractiveness of each. the third largest producer in Turkey. Shareholder structure (2007) Risk to the investment case • In response to the recent pick-up in demand for building materials, most local producers have

stepped up capacity investments and new players have entered the market. Most of this new 43% capacity should come on stream towards the end of this year and into 2008. We expect the 57% excess supply to exert downward pressure on local prices.

• Any potential fall-off in housing demand is likely to be offset by higher levels of public expenditure, but the risk of this mitigating factor not happening remains.

• Possibility of waning demand in Iraq and higher levels of competition in the region could detract Oyak Group Public from a lucrative component of the group’s export operations.

• Adana is currently operating at full capacity, with its recent investments only likely to come on Sales by division (2007E) stream in 2008 and 2009. This creates the timing risk of missing the present opportunities in the market as the present demand for construction materials remains high. 20%

Industry context Demand in Turkey is being driven by robust housing demand, with the introduction of new

mortgage laws and a number of new infrastructure projects. The cement industry is competitive 80% with a number of large players. Total cement production reached 43 mn tonnes in 2006, and is on track to top 46 mn tonnes in 2007. Industry sources expect capacity to reach c.62 mn tonnes by

2009. Adana should retain its key position in the industry and also has the added ability to switch Domestic Sales Export Sales production with relative ease between domestic and export markets.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 197 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Adana Cimento A: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) YTLmn (LHS) EBIT Margin (RHS) 0.0x 0.0% 350 39.2% -5.0% -0.5x 300 34.2% -10.0% -1.0x 250 29.2% -15.0% -1.5x 200 24.2% -20.0% -2.0x -25.0% 150 19.2% -2.5x -30.0% 100 14.2% -3.0x -35.0% 50 9.2% -3.5x -40.0% 0 4.2% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Ability to export into Iraq and Syria at prices well above those prevailing ƒ Currently operating at maximum capacity, the time lag between the in the local market. introduction of new capacity has resulted in Adana having to turn away new business from new European markets. ƒ Dominant position in the eastern Mediterranean region of Turkey, where local demand is strong and in close proximity to port and export markets.

Opportunities Threats ƒ Declining interest rates in Turkey and the positive impact on housing ƒ Increasing levels of supply should exert downward pressure on prices. developments. ƒ Tightening up of the export markets will likely make it more difficult to ƒ Higher demand for building materials stemming from higher levels of shift production in foreign markets, particularly Iraq. public infrastructure spend, both domestically and in export markets. ƒ Slowdown in the housing market not being offset by higher numbers of ƒ With 16% shareholding, Adana should benefit from the solid growth public developments. expected from Cimsa. ƒ Political instability and rising fuel prices.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 198 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Adana Cimento A: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Sales 147.6 172.5 189.4 228.0 251.4 306.3 316.8 324.2 324.2 326.8 329.5 1.0% EBITDAR 23.7 9.0 32.4 86.4 108.8 112.0 96.4 80.8 79.5 80.6 81.7 EBITDA 23.7 9.0 32.4 86.4 108.8 112.0 96.4 80.8 79.5 80.6 81.7 EBITDA margin 16.0% 5.2% 17.1% 37.9% 43.3% 36.5% 30.4% 24.9% 24.5% 24.6% 24.8% EBIT 23.7 9.0 32.4 68.4 94.7 98.0 82.4 66.5 64.8 65.4 65.9 -5.4% EBIT margin 16.0% 5.2% 17.1% 30.0% 37.7% 32.0% 26.0% 20.5% 20.0% 20.0% 20.0% Net interest expense 3.1 3.2 3.1 10.0 28.6 6.2 6.8 7.0 6.4 6.2 6.0 Associate income / other 11.4 13.5 18.5 29.9 34.8 46.1 48.3 47.2 46.1 44.9 44.6 Profit before tax 38.2 25.7 54.0 108.3 158.1 150.3 137.4 120.7 117.4 116.5 116.5 Adjusted PBT 38.2 25.7 54.0 108.4 158.2 150.4 137.5 120.8 117.4 116.6 116.6 -4.0% Tax (9.4) (8.4) (14.6) (24.6) (24.9) (23.6) (21.6) (19.0) (18.5) (18.3) (18.3) Exceptional items (0.9) 0.2 (3.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 27.8 17.5 36.4 83.7 133.2 126.7 115.8 101.7 98.9 98.2 98.2 Adjusted net income 28.8 17.3 39.4 83.8 133.3 126.7 115.9 101.8 99.0 98.3 98.3 -4.0%

08E-12E Per share data (YTL) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 65.8 65.8 65.8 65.8 65.8 65.8 65.8 65.8 65.8 65.8 65.8 No. of diluted shares outstanding (*) 251 251 251 251 251 251 251 251 251 251 251 EPS (basic) 0.050.030.070.160.250.240.210.190.180.180.18-4.0% EPS (diluted) 0.110.070.150.330.530.510.460.410.390.390.39 EPS (adjusted, basic) 0.24 0.14 0.32 0.69 1.09 1.04 0.95 0.84 0.81 0.81 0.81 -4.0% Annual growth -39.8% NM NM 59.1% -4.9% -8.6% -12.1% -2.8% -0.7% 0.0% EPS (adjusted, diluted) 0.11 0.07 0.16 0.33 0.53 0.51 0.46 0.41 0.39 0.39 0.39 DPS 0.370.000.441.070.520.520.620.540.530.520.52-4.0% Annual growth -100.0% NM 143.3% -51.4% 0.4% 18.8% -12.1% -2.8% -0.7% 0.0% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 199 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Adana Cimento A: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year ending Dec) CAGR Cash and cash equivalents 38 34 72 160 208 227 235 215 207 201 197 Other current assets 57 55 54 40 63 68 70 74 74 75 76 Total current assets 94 89 126 200 270 295 305 289 281 277 273 -2.7% Long term investments & other 76 114 158 250 240 279 320 361 400 437 475 Property, plant and equipment 124 122 97 83 79 81 82 84 86 87 88 Intangible assets 00001111000 Total assets 295 325 381 534 590 655 708 735 767 801 836 4.2% Trade payables 121313139111212121212 Short term debt 94000000000 Long term debt 50000000000 Pension liabilities 6 7 6 712121212121212 Other liabilities 2015221113131313131313 Total liabilities 52 39 40 31 34 36 36 36 36 37 37 0.3% Minority interests 00000000000 Shareholders' equity 243 286 340 503 556 619 672 698 731 765 799 Total equity and liabilities 295 325 381 534 590 655 708 735 767 801 836 4.2%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Cash from operations 0.0 0.0 0.0 101 108 115 102 83.4 86.3 87.3 88.5 -3.6% Net interest paid 3.1 3.2 3.1 10 29 6 7 7.0 6.4 6.2 6.0 Tax paid (9.4) (8.4) (14.6) (25) (25) (24) (22) (19.0) (18.5) (18.3) (18.3) Operating cash flow (6.3) (5.2) (11.5) 87 112 97 88 71.5 74.3 75.1 76.2 -3.4% Capex on PP&E 0.0 0.0 0.0 (6) (10) (15) (16) (16.2) (16.2) (16.3) (16.5) Other investing cash flow 0.0 0.0 0.0 73 13 0 0 0.0 0.0 0.0 0.0 Investing cash flow 0.0 0.0 0.0 67 3 (15) (16) (16.2) (16.2) (16.3) (16.5) 1.0% Operating free cash flow (*) (6.3) (5.2) (11.5) 80 102 82 72 55.3 58.1 58.8 59.8 -4.5% Free cash flow (**) (6.3) (5.2) (11.5) 154 115 82 72 55.3 58.1 58.8 59.8 -4.5% Dividends paid 0.0 0.0 0.0 (26) (63) (63) (63) (75.3) (66.1) (64.3) (63.8) Share buybacks / issuances0.00.00.000000.00.00.00.0 Other 0.0 0.0 0.0 (0) (0) 0 0 0.0 0.0 0.0 0.0 Financing cash flow 0.0 0.0 0.0 (26) (63) (63) (63) (75.3) (66.1) (64.3) (63.8) 0.2% Change in cash and cash equivalents (4.1) 38.6 88 47 19 8 (20.0) (8.1) (5.5) (4.1) (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 200 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Adana Cimento A: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 14.1x 8.9x 9.3x 10.2x 11.6x 11.9xCROCI 20.1% 30.1% 22.8% 17.2% 13.0% 11.6%EBITDA margin 37.9% 43.3% 36.5% 30.4% 24.9% 24.5% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 1.7x 2.5x 4.4x 5.0x 6.2x 6.4xROE 19.8% 25.2% 21.6% 17.9% 14.9% 13.8%EBIT margin 30.0% 37.7% 32.0% 26.0% 20.5% 20.0% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 1.6x 2.3x 1.8x 1.3x 1.0x 0.9xNOPAT margin 30.0% 37.7% 32.0% 26.0% 20.5% 20.0% EV / EBITDA lease adj'd 1.3x NM 0.5x 0.4x 0.7x 0.7x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI 0.3x 0.7x 0.9x 0.8x 0.8x 0.7xCapex / sales 2.7% 4.0% 5.0% 5.0% 5.0% 5.0% EV / NOPAT lease adj'd 1.6x NM 0.6x 0.5x 0.8x 0.9x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 382 414 480 546 615 680Capex / depreciation 0.3x 0.7x 1.1x 1.1x 1.1x 1.1x P / book 4.8x 4.4x 3.9x 3.6x 3.5x 3.3x Net debt / (cash) * (160) (207) (226) (235) (215) (207) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 7 12 12 12 12 12 FCF yield 19.1%21.1%5.8%3.9%1.4%2.1% Net Debt / Equity -0.3x -0.4x -0.4x -0.3x -0.3x -0.3x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -1.9x -1.9x -2.0x -2.4x -2.7x -2.6x Dividend yield 11.0% 5.3% 5.4% 6.4% 5.6% 5.4% Net interest / EBITDA -11.6% -26.3% -5.6% -7.0% -8.7% -8.1% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* YTL mn

Relative to GS New Markets Non-Financials coverage

2009E EV/GCI vs CROCI/WACC 2008E EV/GCI vs CROCI/WACC 1.0x EV/GCI / CROCI/WACC 10% 5.0x 4.5x 4.0x 0.9x 0% 4.0x 3.5x 0.8x -10% 3.5x I 3.0x 0.7x 3.0x -20% 2.5x 0.6x EV / GCIEV

2.5x EV / GC 2.0x 0.5x -30% 2.0x Sector Sector 0.4x 1.5x 1.5x -40% 0.3x 1.0x ADANA.IS 1.0x ADANA.IS -50% 0.2x 0.5x 0.5x -60% 0.0x 0.1x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -70% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin ADANA.IS

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 201 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Akcansa Cimento (AKCNS.IS) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 7%

Turkey: Construction Investment Profile: AKCNS.IS

Low Hi gh

Leading market position, but fully valued Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Akcansa is the largest cement producer in Turkey and is continuing to expand its capacity and Percentile 20th 40th 60th 80th 100th geographical reach. It enjoys a strong position in the Aegean and Marmara regions, the latter Akcansa Cimento showing the highest demand growth in the Turkish market in 1H2007. Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the • Akcansa recently acquired Ladik for US$158 mn, adding additional capacity of 0.6 mn tonnes of investment profile measures please refer to the disclosure section of this document. clinker and 1.2 mn tonnes of cement. Key data (*) • Ladik brings a number of benefits, including access to the more lucrative North Eastern/Black Price (YTL) 9.35 Price target (YTL) 10.0 Sea region of the country, where it holds 13% market share. We expect the Black Sea area to be Market cap ($ m n) 1,465 one of the fastest growing industrial regions in Turkey, with a number of concrete-intensive Average daily trading volum e ($ m n) 1.00 Free float 21% infrastructure projects underway, such as motorways and dams. Bloomberg code AKCNS TI

2006 2007E 2008E 2009E • The company is currently expanding its existing capacity at the Canakkale plant, which should Sales (YTL mn) 582.7 623.5 742.6 816.9 increase total clinker capacity by 1.9 mn tonnes by year end. EBITDA (YTL mn) 216.4 183.6 184.6 200.1 EV / EBITDAR 6.6x 8.8x 8.7x 7.9x • Following completion of the Canakkale upgrades, total group capacity should reach 6.2 mn P / E 12.2x 14.4x 14.3x 13.0x Dividend yield 0.0% 5.2% 5.3% 5.8% tonnes of clinker and 9.6 mn tonnes of cement. Canakkale should also aid the group in growing (*) multiples and ratios are calendarised its export presence, particularly into the lucrative Russian market. • With its dominant domestic market position and a growing presence in export markets, we expect Akcansa to continue to perform well. Following a surge in the share price in recent 9.0 600 months, however, we consider it fairly valued and initiate as Neutral, with a 12-month target 8.0 7.0 550 price of TL10.00. 6.0 5.0 500 4.0 450 3.0 2.0 400 Valuation: 12-month target price of TL10.00 1.0 7 07 07 0 0.0 07 07 07 07 350 07 07 07 07 0 20 6 07 07 0 0 0 20 /20 / 6 6 0 07 0 0 20 /2 / /2 6 0 0 0 /2007/2 / /2 Our valuation approach is based solely on a DCF analysis. The key inputs for our DCF calculation 0 06 /2 /2 4 06 /06 /07/20/07 /08/208/08/20 /2 2 2 3 3 04 05 /05 1 12 27 13 2 11/ 28 12/ 27 12/0 27/0 11/ 26/0 09/024/01/200708/0 23/0 beyond our explicit forecast period are: a WACC of 11%, growth rate in perpetuity of 3% and a 2/09/209/10/204/10/20 23/11/200608/12/2025/12/2006 2 0 2 08/11/20 terminal NOPAT margin of 16%. A KCNS.IS (Y TL) MSCI EM Eur op e & Mid dle Eas t

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 202 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Akcansa Cimento: Overview Company description Akcansa is a joint venture between Sabanci Holding Core drivers of growth and CBR International, and is currently the largest • Cement demand in Turkey is strong, driven by robust housing demand after the introduction of producer of clinker, cement and ready-mix concrete new mortgage laws, and a number of large new infrastructure projects. (RMC) in Turkey. Annual capacity is currently c.6 mn tonnes but should exceed 9 mn tonnes in 2008. The • Large-scale capacity additions create room for significant growth, with production capabilities company produces most of its cement for the local increasing to 6.2 mn tonnes of clinker and 9.6 mn tonnes of cement by the end of next year. We market, with the remainder being exported to Italy, do not expect this capacity to be fully utilized from the outset, but see potential for 15%-20% pa Spain, France and North America. Akcansa operates in growth in sales volumes over the next year or two. Strong housing demand and large-scale the Marmara and Aegean regions, where it runs three investment in infrastructure projects should continue to drive demand for cement. cement terminals. The Betonsa brand, acquired in • The expansion at Canakkale provides extra capacity in the higher-growth Black Sea region of 1998, operates 20 RMC plants in the region. Turkey, which enjoys the highest selling prices domestically. The factory is also well positioned Shareholder structure (2007) for exports to surrounding countries such as Russia, where demand and prices are high.

21%

Risk to the investment case 39% In response to the recent pick-up in demand for building materials, most of the local producers have stepped up capacity investments with new players entering the market as well. We expect most new capacity to come on stream towards the end of this year and into 2008. We expect excess 40% supply to exert downward pressure on local prices.

The potential fall-off in housing demand; potentially offset by higher levels of public expenditure. Sabanci Holdings Heidelberg Cement Other

Rising fuel and energy costs and the need to import clinker to meet capacity have had a negative

impact on margins, and we expect them to remain a challenge to Akcansa. Sales by division (2007E)

8% Industry context The Turkish cement industry is competitive, with a number of large players. Total production reached 43 mn tonnes in 2006, and we expect c.7% CAGR through 2010. We forecast an additional 10 mn tonnes of clinker capacity by 2008 and a total reaching c.62 mn tonnes by 2009. We expect prices to decline into 2008 as supply-side pressures mount, but demand to catch up from 2009. 92% Akcansa is the largest producer in Turkey in terms of both clinker and cement capacity. Being predominantly domestically focused, Akcansa is sensitive to domestic market prices, with exports

only gradually becoming material in the coming periods. We expect export contributions to account Domestic Sales Foreign Sales for c.11% of revenues by 2010, diversifying income streams.

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 203 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Akcansa Cimento: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) YTLmn (LHS) EBIT Margin (RHS) 0.0x 0.0% 34.3% -0.2x 800 -2.0% -0.4x 700 29.3% -0.6x -4.0% 600 -0.8x 24.3% 500 -1.0x -6.0% 19.3% -1.2x 400 -8.0% -1.4x 300 14.3% -1.6x -10.0% 200 9.3% -1.8x 100 -2.0x -12.0% 0 4.3% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ The recent acquisition of Ladik and upgrades at Canakkale increase ƒ Bias towards the local market makes Akcansa more exposed to domestic capacity and also open up new export markets and growth opportunities. prices and less sensitive to strong demand in regional export markets.

ƒ Akcansa is currently the largest single producer in Turkey in terms of ƒ Exposed to devaluation of the Lira through the dollar-denominated loan both clinker and cement capacity, and will likely remain so for the secured for the Ladik acquisition. foreseeable future.

Opportunities Threats ƒ Declining interest rates in Turkey and the positive impact on housing ƒ Increasing levels of supply will likely exert downward pressure on prices. developments of new mortgage laws. ƒ Increased competition in export markets, particularly Iraq and Syria. ƒ Higher demand for building materials stemming from higher levels of ƒ Slowdown in the housing market not offset by higher public public infrastructure spend, both domestically and in export markets. infrastructure spend.

ƒ Political tension and rising fuel prices.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 204 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Akcansa Cimento: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Sales 300.1 322.3 371.3 418.7 582.7 623.5 742.6 816.9 826.9 837.1 847.4 3.4% EBITDAR 58.6 51.8 111.9 139.6 216.4 183.6 184.6 200.1 203.6 207.3 211.3 EBITDA 58.6 51.8 111.9 139.6 216.4 183.6 184.6 200.1 203.6 207.3 211.3 EBITDA margin 19.5% 16.1% 30.1% 33.3% 37.1% 29.5% 24.9% 24.5% 24.6% 24.8% 24.9% EBIT 27.6 17.2 77.4 104.5 180.0 143.4 142.6 156.8 158.8 160.7 162.7 3.4% EBIT margin 9.2% 5.3% 20.8% 25.0% 30.9% 23.0% 19.2% 19.2% 19.2% 19.2% 19.2% Net interest expense 0.0 0.0 0.0 14.6 14.3 4.1 6.3 6.6 7.5 8.7 10.0 Associate income / other 1.1 10.6 0.6 24.3 (20.8) 0.0 (0.0) (0.0) (0.0) 0.0 (0.0) Profit before tax 28.7 27.8 77.9 143.5 173.5 147.5 148.9 163.5 166.3 169.4 172.7 Adjusted PBT 28.7 27.8 77.9 143.5 173.5 147.5 148.9 163.5 166.3 169.4 172.7 3.8% Tax (5.5) 13.6 (11.6) (27.6) (26.2) (22.3) (22.5) (24.7) (25.2) (25.6) (26.1) Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest (0.8) (0.7) (3.0) (2.4) (0.8) (0.8) (0.8) (0.8) (0.8) (0.8) (0.8) Net income 22.5 40.7 63.3 113.6 146.5 124.4 125.6 137.9 140.4 143.0 145.8 Adjusted net income 22.5 40.7 63.3 113.6 146.5 124.4 125.6 137.9 140.4 143.0 145.8 3.8%

08E-12E Per share data (YTL) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 191 191 191 191 191 191 191 191 191 191 191 No. of diluted shares outstanding (*) 191 191 191 191 191 191 191 191 191 191 191 EPS (basic) 0.120.210.330.590.770.650.660.720.730.750.763.8% EPS (diluted) 0.120.210.330.590.770.650.660.720.730.750.76 EPS (adjusted, basic) 0.12 0.21 0.33 0.59 0.77 0.65 0.66 0.72 0.73 0.75 0.76 3.8% Annual growth 81.0% 55.6% 79.3% 29.0% -15.1% 0.9% 9.9% 1.8% 1.9% 1.9% EPS (adjusted, diluted) 0.12 0.21 0.33 0.59 0.77 0.65 0.66 0.72 0.73 0.75 0.76 DPS 0.090.100.270.460.000.490.490.540.550.560.573.8% Annual growth 21.2% 161.7% 68.5% -100.0% NM 0.9% 9.9% 1.8% 1.9% 1.9% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 205 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Akcansa Cimento: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year ending Dec) CAGR Cash and cash equivalents 24 51 103 148 148 229 246 285 331 379 429 Other current assets 87 92 103 121 159 192 232 255 259 262 265 Total current assets 111 143 206 269 307 421 479 540 589 641 694 9.8% Long term investments & other 90 120 132 193 167 167 167 167 167 167 167 Property, plant and equipment 367 397 381 381 439 461 456 454 450 446 439 Intangible assets 12 14 14 14 15 15 15 15 15 15 15 Total assets 581 674 732 856 928 1,065 1,117 1,177 1,222 1,269 1,316 4.2% Trade payables 19 26 30 28 60 65 77 85 86 87 88 Short term debt 14 12 9 7 2 9 16 23 30 37 44 Long term debt 22114444444 Pension liabilities 7057484832323232323232 Other liabilities 4 4162228282828282828 Total liabilities 109 101 105 107 127 138 157 172 180 188 196 5.7% Minority interests 5 6 9 11 12 13 14 14 15 16 17 Shareholders' equity 467 567 619 738 790 914 946 990 1,027 1,065 1,103 Total equity and liabilities 581 674 732 856 928 1,065 1,117 1,177 1,222 1,269 1,316 4.2%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Cash from operations 53.0 50.4 108 116 194 154 157 185 201 205 209 7.5% Net interes t paid 0.0 0.0 0 15 14 4 6 7 8 9 10 Tax paid (5.5) 13.6 (12) (28) (26) (22) (23) (25) (25) (26) (26) Operating cash flow 47.6 63.9 96 103 182 136 141 166 184 188 193 8.2% Capex on PP&E (20.7) (13.2) (18) (34) (89) (62) (37) (41) (41) (42) (42) Other investing cash flow (9.4)(19.1)(36)844000000 Investing cash flow (30.1) (32.3) (54) 50 (86) (62) (37) (41) (41) (42) (42) 3.4% Operating free cash flow (*) 26.9 50.7 78 69 93 74 103 126 143 146 151 9.8% Free cash flow (**) 17.5 31.6 42 153 96 74 103 126 143 146 151 9.8% Dividends paid (3.7) (18.9) (21) (52) (90) 0 (93) (94) (103) (105) (107) Share buybacks / issuances0.00.0000000000 Other (3.4)(1.3)(2)(2)(7)777777 Financing cash flow (7.1) (20.2) (23) (54) (96) 7 (86) (87) (96) (98) (100) 3.8% Change in cash and cash equivalents 27.5 52 45 0 81 17 38 46 48 50

(*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 206 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Akcansa Cimento: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other

P / E 15.8x 12.2x 14.4x 14.3x 13.0xCROCI 12.8x 14.9% 21.2% 17.8% 16.5% 16.8%EBITDA 16.4% margin 33.3% 37.1% 29.5% 24.9% 24.5% 24.6% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9xGS 9.4x coverage 15.6% 18.8% 17.7% 18.5% 18.9%GS 17.6% coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7% EV / DACF ROE 16.7% 19.2% 14.6% 13.5% 14.2%EBIT 13.9% margin 25.0% 30.9% 23.0% 19.2% 19.2% 19.2% lease adj'd 8.2x 8.2x 10.0x 9.8x 8.9x 8.5x GS coverage 25.1% 26.5% 22.4% 23.2% 23.0%GS 20.0% coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4x CROCI / WACC 1.2x 1.6x 1.4x 1.3x 1.3xNOPAT 1.3x margin 25.0% 30.9% 23.0% 19.2% 19.2% 19.2% EV / EBITDA lease adj'd 6.5x 6.6x 8.8x 8.7x 7.9x 7.5x GS coverage NA NA NA NA NAGS NAcoverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI 1.1x 1.7x 1.7x 1.6x 1.5xCapex 1.4x / sales 8.1% 15.3% 10.0% 5.0% 5.0% 5.0% EV / NOPAT lease adj'd 8.6x 8.0x 11.3x 11.3x 10.0x 9.7xGS coverage 1.1x 1.5x 1.6x 1.4x 1.2xGS 1.1x coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1xGCI 5.2x (*) 1,004 1,153 1,273 1,359 1,447Capex 1,519 / depreciation 1.0x 2.5x 1.5x 0.9x 0.9x 0.9x P / book 2.4x 2.3x 2.0x 1.9x 1.8xNet 1.7x debt / (cash) * (140) (142) (216) (226) (257) (296) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4xPension 2.1x liabilities * 483232323232 FCF yield 10.9% 9.2% 4.1% 5.8% 7.0% 8.0%Net Debt / Equity -0.2x -0.2x -0.2x -0.2x -0.3x -0.3x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5%Net Debt / EBITDA -1.0x -0.7x -1.2x -1.2x -1.3x -1.5x Dividend yield 4.9%0.0%5.2%5.3%5.8%5.9%Net interes t / EBITDA -10.5% -6.6% -2.2% -3.4% -3.3% -3.7% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* YTL mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/W ACC

5.0x 1.4x 40% 4.0x 4.5x 35% 1.2x 4.0x 3.5x 30% 3.5x 3.0x 1.0x 3.0x 25% 2.5x 0.8x EV / GCI 2.5x EV / GCI 20% 2.0x 2.0x Sector AKCNS.IS Sector A KCNS.IS 0.6x 15% 1.5x 1.5x 10% 1.0x 1.0x 0.4x 5% 0.5x 0.5x 0.0x 0.2x 0.0x 0% 0.0x 2.0x 4.0x 6.0x CROCI / WA CC 0.0x 5.0x 10.0x 0.0x -5% CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin A KCNS.IS

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 207 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bolu Cimento (BOLUC.IS) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 41%

Turkey: Construction

Investment Profile: BOLUC.IS

Low Hi gh

Domestic player offering attractive yield Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Bolu Cimento is the second largest producer in the Oyak Cement Group, but unlike its peers Percentile 20th 40th 60th 80th 100th produces all of its cement for the domestic market. This dependency on conditions in Turkey Bolu Cimento exposes the company to concentration risk and we expect a softening of domestic prices as Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the large capacity increases come on stream over the course of the next few years. investment profile measures please refer to the disclosure section of this document. • Bolu has been the cement producer of choice to a number of large-scale projects and benefits Key data (*) from its proximity to Turkey’s two major cities, Ankara and Istanbul. Price (YTL) 2.62 Price target (YTL) 3.70 • We forecast domestic sales growth to reach 10% this year, with net margins being maintained Market cap ($ mn) 275.6 above 20% until 2010. Average daily trading volume ($ mn) 0.25 Free float 51% • Unlike many of its peers, Bolu is currently operating at under two-thirds capacity, thereby Bloomberg code BOLUC TI offering growth potential with minimal required investment. 2006 2007E 2008E 2009E Sales (YTL mn) 157.8 164.4 184.5 191.9 • The acquisition of Deniz Cement, a grinding facility near the Erdemir Steal works is almost EBITDA (YTL mn) 62.2 53.2 55.0 53.4 EV / EBITDAR 4.7x 5.0x 4.8x 4.9x complete. Construction of a new facility inside Erdemir has commenced, and upon completion P / E 4.7x 6.9x 7.4x 7.7x in 2009 should add an extra 200,000 tonnes to production capabilities. The new plant will also Dividend yield 17.4% 11.9% 11.1% 10.7% (*) multiples and ratios are calendarised allow the introduction of slag to the process, bringing cost and production efficiencies.

• Bolu offers the highest dividend yield in our coverage group with 2008 and 2009 yields of

11.1% and 10.7% respectively. Despite the attractive prospects, we consider Bolu to be fairly 3.0 600 valued and initiate coverage as Neutral. 2.5 550 2.0 500 1.5 450 Valuation: 12-month target price of TL3.70 1.0 0.5 400 Our valuation approach is based solely on a DCF analysis. The key inputs for our DCF calculation 0.0 350

6 6 7 beyond the explicit forecast period are: a WACC of 11%, growth rate in perpetuity of 3% and a 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 terminal NOPAT margin of 13%. 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 BOLUC.IS (Y TL) MSCI EM Eur op e & Mid dle Eas t

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 208 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bolu Cimento: Overview Company description Bolu Cimento is the smallest of the Oyak group by Core drivers of growth market cap, but second behind Adana in terms of • New capacity of 3 mn tonnes generates the potential for a further 50% growth in production cement capacity. Following recent kiln rehabilitations, volumes from 2008 levels, depending on local demand. Bolu now has a total annual production capacity of 1.5 mn tonnes of clinker and 3 mn tonnes of cement. • The Turkish housing market has been invigorated by the passing of the new mortgage law and The company supplies all of its capacity to the local large-scale infrastructure projects should continue to drive domestic cement demand for the next market and also produces ready mix concrete. The two to three years. company has a grinding facility in Ankara, and packing facilities in both Istanbul and Ankara. Risk to the investment case • In response to the recent pick-up in demand for building materials, most local producers have Shareholder structure (2007) stepped up capacity investments and new players are entering the market. Most of this new capacity should come on stream towards the end of this year and into 2008. We expect the supply to exert downward pressure on local prices.

• The potential fall-off in housing demand is likely to be offset by higher levels of public 43% expenditure. 57%

• Bolu’s sole provision of its product to the local market creates concentration risk. A slowdown in domestic demand would facilitate the need to move into export markets. This would be difficult in terms of gaining market share and would also add to the cost base, given the location of Bolu’s facilities. Oyak Group Public

Industry context Sales by division (2007E) The Turkish cement industry is competitive, with a number of large players. Total production reached 43 mn tonnes in 2006, and we expect c.7% CAGR through 2010. We forecast an additional 10 mn tonnes of clinker capacity by 2008 and a total reaching c.62 mn tonnes by 2009. We expect prices to decline into 2008 as supply-side pressures mount, but demand to catch up from 2009.

With no exposure to export markets, and unutilized capacity, Bolu is the most sensitive company in our peer group to the Turkish economy and the infrastructure and housing developments taking place. 100%

Domestic Sales

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 209 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bolu Cimento: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) YTLmn (LHS) EBIT Margin (RHS) 0.0x 0.0% 200 -0.5x -10.0% 36.3% -1.0x -20.0% 150 31.3% -1.5x -30.0% 26.3% -2.0x -40.0% 100 21.3% -2.5x -50.0% -3.0x 16.3% 50 -3.5x -60.0% 11.3% -4.0x -70.0% 0 6.3% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Recent capacity additions create significant room for growth, with 2006 ƒ With no export presence, Bolu is entirely dependent on the performance sales volumes below two-thirds of total capacity. of the local market. Bias towards the local market does create an opportunity cost against the higher selling prices prevalent in export ƒ Strong proximity to the major cities of Istanbul and Ankara. markets.

ƒ Currently operating at maximum capacity may forego the opportunity of the strong growth in the domestic market.

Opportunities Threats ƒ Declining interest rates in Turkey and the positive impact on housing ƒ Increasing levels of supply will likely exert downward pressure on prices. developments. ƒ Increased competition in export markets, particularly Iraq and Syria. ƒ Higher demand for building materials stemming from higher levels of ƒ Slowdown in the housing market not being offset by higher numbers of public infrastructure spend. public developments.

ƒ Political tension and rising fuel prices.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 210 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bolu Cimento: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Sales 95.1 113.5 120.1 124.6 157.8 164.4 184.5 191.9 193.8 195.8 197.7 1.8% EBITDAR 23.6 9.0 24.4 44.4 62.2 53.2 55.0 53.4 50.6 48.0 45.6 EBITDA 23.6 9.0 24.4 44.4 62.2 53.2 55.0 53.4 50.6 48.0 45.6 EBITDA margin 24.8% 7.9% 20.3% 35.6% 39.4% 32.4% 29.8% 27.8% 26.1% 24.5% 23.1% EBIT 23.6 9.0 24.4 35.0 53.2 43.9 45.6 43.8 40.7 37.8 34.9 -6.4% EBIT margin 24.8% 7.9% 20.3% 28.1% 33.7% 26.7% 24.7% 22.8% 21.0% 19.3% 17.7% Net interest expense 4.3 14.1 14.2 8.3 7.2 2.6 0.2 0.2 0.3 0.4 0.5 Associate income / other 4.4 (7.8) (10.1) 6.6 28.5 14.3 10.7 10.7 10.7 10.7 10.7 Profit before tax 32.2 15.3 28.4 50.0 88.9 60.8 56.5 54.7 51.7 48.9 46.1 Adjusted PBT 32.2 15.3 28.4 50.1 89.1 60.9 56.6 54.8 51.8 49.0 46.3 -4.9% Tax (10.6) (8.9) (11.5) (12.0) (17.8) (12.2) (11.3) (10.9) (10.4) (9.8) (9.2) Exceptional items (0.2) 1.1 7.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 21.4 7.5 24.1 38.0 71.1 48.6 45.2 43.7 41.3 39.1 36.9 Adjusted net income 21.6 6.4 17.0 38.1 71.2 48.7 45.3 43.8 41.5 39.2 37.0 -4.9%

08E-12E Per share data (YTL) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 129 129 129 129 129 129 129 129 129 129 129 No. of diluted shares outstanding (*) 129 129 129 129 129 129 129 129 129 129 129 EPS (basic) 0.170.060.190.300.550.380.350.340.320.300.29-4.9% EPS (diluted) 0.170.060.190.300.550.380.350.340.320.300.29 EPS (adjusted, basic) 0.17 0.05 0.13 0.30 0.55 0.38 0.35 0.34 0.32 0.30 0.29 -4.9% Annual growth -70.4% NM NM 87.1% -31.6% -6.9% -3.3% -5.4% -5.5% -5.5% EPS (adjusted, diluted) 0.17 0.05 0.13 0.30 0.55 0.38 0.35 0.34 0.32 0.30 0.29 DPS 0.140.000.160.250.460.310.290.280.260.250.24-4.9% Annual growth -100.0% NM 60.4% 81.9% -31.7% -7.0% -3.3% -5.4% -5.5% -5.6% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 211 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bolu Cimento: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year ending Dec) CAGR Cash and cash equivalents 40 35 51 51 87 125 123 127 131 135 139 Other current assets 45 46 38 47 59 62 71 75 76 78 79 Total current assets 85 81 89 98 146 188 194 201 207 213 218 2.9% Long term investments & other8917238888888 Property, plant and equipment7879687078777777777776 Intangible assets 00000000000 Total assets 171 170 174 191 233 274 280 287 292 297 302 1.9% Trade payables 12 12 7 7 9 9 10 11 11 11 11 Short term debt 33121111111 Long term debt 4 1 0 0 0 50 50 50 50 50 50 Pension liabilities 35322222222 Other liabilities 2217734444444 Total liabilities 43 38 18 13 16 66 67 68 68 68 68 0.3% Minority interests 00000000000 Shareholders' equity 128 132 156 178 217 207 212 219 224 229 234 Total equity and liabilities 171 170 174 191 233 274 280 287 292 297 302 1.9%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Cash from operations 0.0 0.0 0.0 37.5 66.9 64.8 58.4 60.9 59.9 57.3 54.9 -1.5% Net interest paid 4.3 14.1 14.2 8.3 7.2 2.6 0.2 0.2 0.3 0.4 0.5 Tax paid (10.6) (8.9) (11.5) (12.0) (17.8) (12.2) (11.3) (10.9) (10.4) (9.8) (9.2) Operating cash flow (6.4) 5.2 2.7 33.9 56.3 55.2 47.3 50.1 49.8 47.9 46.2 -0.6% Capex on PP&E 0.0 0.0 0.0 (12.0) (17.0) (8.2) (9.2) (9.6) (9.7) (9.8) (9.9) Other investing cash flow 0.0 0.0 0.0 14.4 2.7 0.0 0.0 0.0 0.0 0.0 0.0 Investing cash flow 0.0 0.0 0.0 2.5 (14.3) (8.2) (9.2) (9.6) (9.7) (9.8) (9.9) 1.8% Operating free cash flow (*) (6.4) 5.2 2.7 21.9 39.3 47.0 38.1 40.5 40.1 38.1 36.3 -1.2% Free cash flow (**) (6.4) 5.2 2.7 36.3 41.9 47.0 38.1 40.5 40.1 38.1 36.3 -1.2% Dividends paid 0.0 0.0 0.0 (20.1) (32.2) (58.6) (40.0) (37.2) (36.0) (34.1) (32.2) Share buybacks / issuances 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 (3.2) 0.0 50.0 0.0 0.0 0.0 0.0 0.0 Financing cash flow 0.0 0.0 0.0 (23.2) (32.2) (8.6) (40.0) (37.2) (36.0) (34.1) (32.2) -5.3% Change in cash and cash equivalents (5.5) 16.3 (0.5) 36.3 38.4 (2.0) 3.2 4.1 4.1 4.1 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 212 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Bolu Cimento: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 8.8x 4.7x 6.9x 7.4x 7.7x 8.1xCROCI 30.0% 41.1% 35.5% 31.8% 28.6% 25.8%EBITDA margin 35.6% 39.4% 32.4% 29.8% 27.8% 26.1% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 5.3x 4.8x 4.7x 4.9x 4.9x 5.1xROE 22.7% 35.9% 22.9% 21.5% 20.3% 18.7%EBIT margin 28.1% 33.7% 26.7% 24.7% 22.8% 21.0% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 2.4x 3.3x 2.8x 2.5x 2.3x 2.1xNOPAT margin 28.2% 33.8% 26.8% 24.8% 22.9% 21.1% EV / EBITDA lease adj'd 4.4x 4.7x 5.0x 4.8x 4.9x 5.1x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI 1.4x 1.9x 1.6x 1.5x 1.4x 1.3xCapex / sales 9.6% 10.8% 5.0% 5.0% 5.0% 5.0% EV / NOPAT lease adj'd 5.6x 5.4x 6.0x 5.8x 6.0x 6.3x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 158 179 194 216 235 252Capex / depreciation 1.3x 1.9x 0.9x 1.0x 1.0x 1.0x P / book 1.9x 1.5x 1.6x 1.6x 1.5x 1.5x Net debt / (cash) * (49) (86) (74) (72) (75) (79) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 2 2 2 2 2 2 FCF yield 10.2% 13.1% 10.6% 8.8% 9.5% 9.4% Net Debt / Equity -0.3x -0.4x -0.4x -0.3x -0.3x -0.4x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -1.1x -1.4x -1.4x -1.3x -1.4x -1.6x Dividend yield 9.6% 17.4% 11.9% 11.1% 10.7% 10.1% Net interest / EBITDA -18.8% -11.6% -4.8% -0.4% -0.3% -0.5% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* YTL mn

Relative to GS New Markets Non-Financials coverage

2009E EV/GCI vs CROCI/WACC 2008E EV/GCI vs CROCI/WACC 1.0x EV/GCI / CROCI/WACC 0% 5.0x 4.5x 4.0x 0.9x -5% 4.0x 3.5x 0.8x -10% 3.5x I 3.0x 0.7x 3.0x -15% 2.5x 0.6x EV / GCIEV

2.5x EV / GC 2.0x 0.5x -20% 2.0x Sector Sector 0.4x 1.5x BOLUC.IS 1.5x BOLUC.IS -25% 1.0x 1.0x 0.3x -30% 0.2x 0.5x 0.5x -35% 0.0x 0.1x 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -40% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin BOLUC.IS

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 213 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Cimsa (Cimento Sanayi) (CIMSA.IS) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 7% Turkey: Construction

Investment Profile: CIMSA.IS

Low Hi gh

Appealing growth prospects but fully reflected in valuation Growth Growth

Returns * Returns * Investment thesis: Neutral recommendation Multiple Multiple • Cimsa is Turkey’s third largest cement producer and the major producer in the Central Volatility Volatility Percentile 20th 40th 60th 80th 100th Anatolian and Mediterranean regions, where we expect demand to remain strong. Cimsa (Cimento Sanayi)

• Following the dissolution of the Sabanci-Oyak partnership in Oysa, Cimsa merged with Oysa in Europe New Markets Non Financi Peer Group Average May 2007. The deal resulted in an additional 400k tonnes of clinker and 850k tonnes of cement * Returns = Return on Capital For a complete description of the investment profile measures please refer to capacity. As part of the split, Sabanci (Cimsa’s parent) acquired the Nigde plant and four ready- the disclosure section of this document.

mix concrete terminals. Oysa is currently 41% consolidated. Key data (*) • We forecast full consolidation of Oysa by year-end will lead to a slight dilution in margins in the Price (YTL) 10.0 Price target (YTL) 10.7 near-term. However, this should be offset by higher growth beyond 2008. Market cap ($ mn) 992.5 Average daily trading volume ($ mn) 1.65 • Cimsa benefits from its presence in export markets, particularly Iraq and Syria, where prices Free float 28% are higher. Forecast capacity expansion should drive growth in both domestic and foreign Bloomberg code CIMSA TI markets over the next couple of years. Expansion is also underway in the lucrative Russian 2006 2007E 2008E 2009E Sales (YTL mn) 506.9 565.3 557.9 553.5 market. EBITDA (YTL mn) 231.3 228.2 203.4 182.4 EV / EBITDAR 5.5x 5.8x 6.4x 7.0x • Cimsa expects to fully utilize its 1.1 mn tonnes of white cement assets this year. A growing P / E 8.9x 8.2x 9.4x 10.8x proportion of white cement exports are also destined for Russia where the company expects Dividend yield 8.7% 9.2% 8.0% 6.9% (*) multiples and ratios are calendarised sales to reach 150k tonnes in 2008 and over 200k tonnes thereafter and where prices are currently c.US$95/ tonne. We forecast grey clinker capacity to reach 4.2 mn tonnes by 2008.

9.0 • Cimsa’s attractiveness lies in its resilience to a pricing downturn in the domestic market, given 600 8.0 its exposure to exports and white cement. Cimsa trades at moderate multiples and offers a 7.0 550 2008E dividend yield of 8%. However, we find better value elsewhere in our coverage universe 6.0 5.0 500 and initiate coverage with a Neutral rating and a 12-month price target of TL10.7. 4.0 450 3.0 2.0 400 1.0 Valuation: 12-month target price of TL10.7 0.0 350

6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 Our valuation is based solely on a DCF analysis. The key inputs beyond our explicit forecast /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 period are: a WACC of 11%, growth rate in perpetuity of 3% and a terminal NOPAT margin of 17%. 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 CIMSA .IS (Y TL) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 214 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Cimsa (Cimento Sanayi): Overview Company description Cimsa is a Turkish manufacturer of ready mix concrete Core drivers of growth and cement. The company operates 23 plants • Cimsa’s Clinker capacity is set to increase from 3.6 mn tonnes to 5.3 mn tonnes by 2009. We throughout the country and has total clinker production believe that strong market leadership in white cement will also generate growth for the company. capacity of 3.6 mn tonnes and 4.4 mn tonnes of grinding capacity. In May Cimsa merged with the Oysa • The Turkish housing market has been invigorated with the passing of the new mortgage law and cement group, with the new entity retaining the Cimsa large-scale infrastructure projects should contribute to strong domestic cement demand in the name. The merger resulted from the dissolution of the coming years. High levels of demand in Iraq and Syria are also key to growth. Sabanci-Oyak partnership that had previously formed • The growth focus in the domestic market is centered on acquiring aggregate assets and Oysa cement. Cimsa has a strong presence in both the increasing ready-mix concrete capacity. We believe the company is likely to seek organic cement domestic and export markets, deriving 23% of growth abroad in regions such as North Africa and Russia. revenues from foreign markets in 2006. Shareholder structure (2007)

7% Risk to the investment case 10% • Industry-wide capacity increases are expected to come on stream towards the end of this year 39% and into 2008, exerting downward pressure on prices. The potential fall off in housing demand is 16% likely to be offset by higher levels of public expenditure.

• Demand waning in key export markets such as Iraq, Syria and Russia as well as stronger

competition as local production in these markets develops. 28% Sabanci Holdings Other Adana Cimento • Rising input costs, notably transportation and petrocoke, have put margins under pressure. This

is likely to remain a risk to the extent that Cimsa can utilize cheaper alternative sources of fuel Akcansa Cimento Akbank Tekaut and generate other cost efficiencies.

Sales by division (2007E)

Industry context 14% The Turkish cement industry is competitive with a number of large players. Total production reached 43m tonnes in 2006 and we forecast a c.7% CAGR through 2010. We forecast an additional 22% 10 mn tonnes of clinker capacity by 2008 and a total reaching c.62 mn tons by 2009. We expect prices to decline into 2008 as supply-side pressures mount but for demand to catch up from 2009. 64%

Since Cimsa is a major white cement producer and commands c.20% in the rapidly growing Mediterranean and Central Anatolia regions, we believe the company may be more insulated than many of its peers from price declines. The group controls c.7% of the overall Turkish market and is the world’s third largest producer of white cement with 5% of the global market. Domes tic Sales Foreign Sales Discounts

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 215 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Cimsa (Cimento Sanayi): Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) YTLmn (LHS) EBIT Margin (RHS) 1.5x 15.0% 10.0% 38.0% 500 1.0x 5.0% 33.0% 0.0% 400 0.5x -5.0% 28.0% 300 -10.0% 0.0x 23.0% -15.0% 200 -0.5x -20.0% 18.0% -25.0% 100 -1.0x -30.0% 0 13.0% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Significant exposure to more lucrative export markets and market ƒ Need to generate cheaper methods of fuel burning in order to sustain leadership in premium-priced white cement. margins.

ƒ Major player in the Central Anatolian and Mediterranean regions of ƒ Exposed to sharp devaluation of the Turkish lira through the dollar- Turkey where local demand remains robust. denominated loan secured for the Eskensihir acquisition.

Opportunities Threats ƒ Declining interest rates in Turkey, new mortgage law and the positive ƒ Increasing levels of supply will likely exert downward pressure on prices. impact on housing developments driving growth. ƒ Increased competition in export markets, particularly Iraq and Syria. ƒ Higher demand for building materials stemming from higher levels of ƒ Slowdown in the housing market not being offset by higher numbers of public infrastructure spend, both domestically and in export markets. public developments.

ƒ Political tension and rising input costs, particularly fuel.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 216 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Cimsa (Cimento Sanayi): Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Sales 249.1 275.7 294.9 358.1 506.9 565.3 557.9 553.5 550.7 554.8 558.9 0.0% EBITDAR 75.1 80.1 112.1 139.6 231.3 228.2 203.4 182.4 164.2 153.7 155.3 EBITDA 75.1 80.1 112.1 139.6 231.3 228.2 203.4 182.4 164.2 153.7 155.3 EBITDA margin 30.2% 29.0% 38.0% 39.0% 45.6% 40.4% 36.5% 33.0% 29.8% 27.7% 27.8% EBIT 50.0 44.9 79.3 106.5 191.2 186.6 161.8 140.6 122.0 111.0 111.8 -8.8% EBIT margin 20.1% 16.3% 26.9% 29.7% 37.7% 33.0% 29.0% 25.4% 22.2% 20.0% 20.0% Net interest expense 7.8 20.8 (0.6) (1.0) (25.3) (8.3) (7.1) (6.2) (5.4) (4.6) (3.8) Associate income / other (49.9) 5.6 13.4 19.5 (2.5) 0.0 0.0 0.0 0.0 (0.0) (0.0) Profit before tax 7.9 71.2 92.2 125.0 163.4 178.3 154.7 134.4 116.6 106.3 108.0 Adjusted PBT 7.9 71.2 92.2 125.0 163.4 178.3 154.7 134.4 116.6 106.3 108.0 -8.6% Tax (21.6) (13.6) (27.2) (28.2) (27.3) (29.7) (25.8) (22.4) (19.5) (17.7) (18.0) Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income (13.8) 57.7 65.1 96.8 136.1 148.5 128.9 112.0 97.2 88.6 89.9 Adjusted net income (13.8) 57.7 65.1 96.8 136.1 148.5 128.9 112.0 97.2 88.6 89.9 -8.6%

08E-12E Per share data (YTL) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 121 121 121 121 121 121 121 121 121 121 121 No. of diluted shares outstanding (*) 121 121 121 121 121 121 121 121 121 121 121 EPS (basic) (0.11)0.480.540.801.121.221.060.920.800.730.74-8.6% EPS (diluted) (0.11)0.480.540.801.121.221.060.920.800.730.74 EPS (adjusted, basic) (0.11) 0.48 0.54 0.80 1.12 1.22 1.06 0.92 0.80 0.73 0.74 -8.6% Annual growth NM 12.8% 48.8% 40.5% 9.1% -13.2% -13.1% -13.2% -8.8% 1.5% EPS (adjusted, diluted) (0.11) 0.48 0.54 0.80 1.12 1.22 1.06 0.92 0.80 0.73 0.74 DPS 0.270.210.390.370.870.920.800.690.600.550.56-8.6% Annual growth -22.7% 85.8% -5.1% 135.1% 5.6% -13.2% -13.1% -13.2% -8.9% 1.5% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 217 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Cimsa (Cimento Sanayi): Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year ending Dec) CAGR Cash and cash equivalents 52 66 73 35 54 95 123 150 175 202 240 Other current assets 65 74 90 110 154 173 175 177 180 184 185 Total current assets 117 140 163 145 208 267 298 327 355 386 425 9.3% Long term investments & other 71 178 200 405 396 396 396 396 396 396 396 Property, plant and equipment 210 207 216 319 350 337 323 309 294 279 264 Intangible assets 0 0 0 23 22 22 22 22 22 22 22 Total assets 398 525 580 892 975 1,022 1,039 1,054 1,067 1,083 1,106 1.6% Trade payables 11 14 15 21 28 31 31 30 30 30 31 Short term debt 12 1 3 46 74 74 74 74 74 74 74 Long term debt 0 5 0 163 110 110 110 110 110 110 110 Pension liabilities 3828252924242424242424 Other liabilities 9 16 20 18 37 37 37 37 37 37 37 Total liabilities 70 64 64 276 273 276 275 275 275 275 276 0.0% Minority interests 00000000000 Shareholders' equity 328 461 516 616 703 746 763 779 792 807 831 Total equity and liabilities 398 525 580 892 975 1,022 1,039 1,054 1,067 1,083 1,106 1.6%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Cash from operations 83.4 69.6 107 136 239 213 201 180 161 150 154 -6.4% Net interest paid 7.8 20.8 (1) (1) (25) (8) (7) (6) (5) (5) (4) Tax paid (21.6) (13.6) (27) (28) (27) (30) (26) (22) (19) (18) (18) Operating cash flow 69.6 76.8 79 107 186 175 168 151 137 128 132 -5.8% Capex on PP&E (6.6) (11.3) (44) (67) (73) (28) (28) (28) (28) (28) (28) Other investing cash flow(16.7)(16.6)(8)(176)1000000 Investing cash flow (23.3) (27.9) (52) (242) (72) (28) (28) (28) (28) (28) (28) 0.0% Operating free cash flow (*) 63.0 65.5 35 41 114 147 140 123 109 100 104 -7.1% Free cash flow (**) 46.3 48.9 27 (135) 114 147 140 123 109 100 104 -7.1% Dividends paid (29.1) (37.5) (27) (47) (45) (106) (111) (97) (84) (73) (66) Share buybacks / issuances0.00.0000000000 Other (17.8)(3.9)(1)204(51)000000 Financing cash flow (46.9) (41.3) (28) 157 (96) (106) (111) (97) (84) (73) (66) -12.1% Change in cash and cash equivalents 14.5 7 (38) 18 41 29 27 25 27 38 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 218 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Cimsa (Cimento Sanayi): Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 12.5x 8.9x 8.2x 9.4x 10.8x 12.5xCROCI 16.2% 24.9% 18.9% 16.3% 14.3% 12.6%EBITDA margin 39.0% 45.6% 40.4% 36.5% 33.0% 29.8% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 8.4x 5.2x 6.7x 7.4x 8.0x 8.7xROE 17.1% 20.6% 20.5% 17.1% 14.5% 12.4%EBIT margin 29.7% 37.7% 33.0% 29.0% 25.4% 22.2% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 1.3x 1.9x 1.5x 1.3x 1.1x 1.0xNOPAT margin 29.7% 37.7% 33.0% 29.0% 25.4% 22.2% EV / EBITDA lease adj'd 7.4x 5.5x 5.8x 6.4x 7.0x 7.6x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI 1.1x 1.2x 1.2x 1.2x 1.1x 1.1xCapex / sales 18.6% 14.3% 5.0% 5.0% 5.0% 5.0% EV / NOPAT lease adj'd 9.6x 6.6x 7.1x 8.0x 9.0x 10.2x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 1,112 1,206 1,262 1,315 1,368 1,419Capex / depreciation 2.0x 1.8x 0.7x 0.7x 0.7x 0.7x P / book 2.0x 1.7x 1.6x 1.6x 1.6x 1.5x Net debt / (cash) * 174 130 89 60 34 9 GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 29 24 24 24 24 24 FCF yield -42.4% 8.8% 12.1% 11.5% 10.2% 9.0% Net Debt / Equity 0.3x 0.2x 0.1x 0.1x 0.0x 0.0x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA 1.2x 0.6x 0.4x 0.3x 0.2x 0.1x Dividend yield 3.7%8.7%9.2%8.0%6.9%6.0% Net interest / EBITDA 0.7% 10.9% 3.6% 3.5% 3.4% 3.3% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* YTL mn

Relative to GS New Markets Non-Financials coverage

2009E EV/GCI vs CROCI/WACC 2008E EV/GCI vs CROCI/WACC 1.2x EV/GCI / CROCI/WACC 40% 5.0x 4.5x 4.0x 30% 1.0x 4.0x 3.5x 20% 3.5x I 3.0x 0.8x 3.0x 10% 2.5x EV / GCIEV

2.5x EV / GC 2.0x 0.6x 0% 2.0x Sector Sector 1.5x 1.5x -10% CIMSA .IS CIMSA .IS 0.4x 1.0x 1.0x -20% 0.5x 0.5x 0.2x 0.0x -30% 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -40% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin CIMSA .IS

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 219 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Mardin Cimento (MRDIN.IS) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 4%

Turkey: Construction Investment Profile: MRDIN.IS

Low Hi gh

Strong export presence, but fairly valued Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Mardin generates the highest selling prices within the Oyak group owing to favourable Percentile 20th 40th 60th 80th 100th economics in the local market and strong demand for exports. Mardin Cimento Europe New Markets Non Financi Peer Group Average • Government incentives allow the company to pay 40% of its calculated corporate tax rate up * Returns = Return on Capital For a complete description of the until 2008, while energy incentives result in Mardin paying 31% lower electricity charges. investment profile measures please refer to the disclosure section of this document. • These two factors resulted in Mardin having the highest net income margins in the sector, Key data (*) reaching 61% in 2006. Price (YTL) 7.40 Price target (YTL) 7.70 • Mardin benefits from its proximity to the lucrative Iraqi market and has recently begun Market cap ($ mn) 442.9 Average daily trading volume ($ mn) 0.26 exporting into Syria. Selling prices in both markets average over 50% the domestic price in Free float 44% Turkey. Bloomberg code MRDIN TI 2006 2007E 2008E 2009E • The completion of its capacity additions in 2Q2007 has added an additional 1 mn tonnes of Sales (YTL mn) 147.1 219.0 184.2 184.5 clinker capacity to the group, bringing total production capabilities to 2 mn tonnes of clinker EBITDA (YTL mn) 77.7 96.6 74.3 66.5 EV / EBITDAR 6.1x 5.2x 6.9x 7.8x and cement. The timing of the completion of the new capacity fits well with the strong demand P / E 6.1x 6.2x 9.0x 10.3x present in the local and export markets. Dividend yield 13.6% 13.3% 9.2% 8.0% (*) multiples and ratios are calendarised

• With its strong position in both domestic and foreign markets and attractive prospects, our outlook for Mardin over the next medium-term remains positive.

7.0 • Despite a supportive operating environment, we believe the share is fairly valued. We initiate 600 6.0

our coverage on Mardin as Neutral, with a 12-month target price of TL7.70. 5.0 550

4.0 500 3.0 450 2.0 Valuation: 12-month target price of TL7.70 400 1.0 Our valuation approach is based solely on a DCF analysis. The key inputs for our DCF calculation 0.0 350 6 6 7 0 06 06 06 0 06 07 7 7 0 0 0 0 07 07 07 0 07 07 0 07 beyond our explicit forecast period are: a WACC of 11%, growth rate in perpetuity of 3% and a /2 /2 /2 /2007 /2007/20 /20 0 2 2 4 11 /01/20 /03/20 /05 /06/20 /07 /08/20 2/09/20 6/10/20 9/11/20 5/02/20 2/04/20 8/08/20 terminal NOPAT margin of 17%. We calculate a price target for Mardin of TL7.70. 2 10/1 2 13/ 2 15/1 02 18/01/20070 21/0 09 27/03/20071 30/0 16 01/06/2019 05/07/200723 0 24 MRDIN.IS (Y TL) MSCI EM Europe & Middle East

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 220 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Mardin Cimento: Overview Company description Mardin Cimento is the largest exporter within the Oyak Core drivers of growth Group, selling almost of half of its annual capacity • Demand in Iraq is expected to remain high at least until 2008, with relative price stability over the abroad. The company is located in the South Eastern same period. We expect sales of over 800k tonnes in its export markets in 2008, at significantly region of Turkey providing close proximity to both higher prices ($100+) than domestic operations. Syria and Iraq and facilitating its presence in those markets. Mardin added an additional 1m tonnes of • Owing to recent profitability of the local market and sales in Iraq, previously no exports were sold clinker capacity in 2Q07 bringing its total capacity to into Syria. Recent capacity expansions however have paved the way for penetration into this 2m tonnes of cement and clinker respectively. market for the first time in 2H2007, at prices well above domestic levels and in line with those enjoyed in Iraq.

• The Turkish housing market will likely remain robust during the course of this year and a number of infrastructure projects should drive local cement demand. Shareholder structure (2007)

Risk to the investment case • Increased competition and the subsequent rise in supply, both domestically and in export 44% markets of Iraq and Syria, could erode the attractive pricing Mardin currently enjoys. 56%

• The potential fall-off in housing demand is likely to be offset by higher levels of public expenditure.

• Rising input costs, notably fuel, have placed margins under pressure. This is likely to remain a Oyak Group Public risk to the extent that Mardin can utilize cheaper alternative sources of fuel and generate other cost efficiencies.

Sales by division (2007E)

Industry context The Turkish cement industry is competitive, with a number of large players. Total production reached 43 mn tonnes in 2006, and we forecast a c.7% CAGR through 2010. We forecast an 43%

additional 10 mn tonnes of clinker capacity by 2008 and a total reaching c.62 mn tonnes by 2009. 57% We expect prices to decline into 2008 as supply-side pressures mount, but for demand to catch up from 2009.

Mardin offers the best geographical diversification with our 2007 forecasts suggesting an even split between domestic and foreign sales. Ex por t Sales Domestic Sales

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 221 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Mardin Cimento: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) YTLmn (LHS) EBIT Margin (RHS) 0.0x 8.0% 6.0% 51.8% 200 -0.5x 4.0% 46.8% 2.0% 150 41.8% -1.0x 0.0% -2.0% 36.8% 100 -1.5x -4.0% 31.8% -6.0% 26.8% -2.0x -8.0% 50 -10.0% 21.8% -2.5x -12.0% 0 16.8% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Attractive selling prices in the local market of c. US$77/tonne and over ƒ Reliance on export markets and susceptibility to growing levels of US$100/tonne in exports to Iraq. competition within those markets.

ƒ Strong local demand and low cost base due to government incentives on tax and electricity.

ƒ Enjoys premium brand status in Iraq, selling at US$10/tonne more than other brands. Split between local and export markets removes concentration risk.

Opportunities Threats ƒ Declining interest rates in Turkey and the positive impact on housing ƒ Increasing levels of supply will likely exert downward pressure on prices. developments. ƒ Tightening up of the export markets would make it more difficult to shift ƒ Higher demand for building materials stemming from higher levels of production in foreign markets, particularly Iraq. public infrastructure spend, both domestically and in export markets. ƒ Slowdown in the housing market not being offset by increased public ƒ Growth of exports into Syria. developments. ƒ Political tension and rising fuel prices.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 222 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Mardin Cimento: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Sales 41.3 69.1 85.5 121.7 147.1 219.0 184.2 184.5 186.3 188.2 190.1 0.8% EBITDAR 10.5 15.4 28.0 60.5 77.7 96.6 74.3 66.5 60.0 54.2 49.8 EBITDA 10.5 15.4 28.0 60.5 77.7 96.6 74.3 66.5 60.0 54.2 49.8 EBITDA margin 25.5% 22.2% 32.8% 49.7% 52.8% 44.1% 40.3% 36.1% 32.2% 28.8% 26.2% EBIT 10.5 15.4 28.0 56.6 73.6 89.8 66.3 58.1 51.2 44.8 39.9 -11.9% EBIT margin 25.5% 22.2% 32.8% 46.5% 50.0% 41.0% 36.0% 31.5% 27.5% 23.8% 21.0% Net interest expense 0.2 1.1 1.1 1.1 8.1 2.1 (2.8) (3.0) (3.1) (3.1) (3.1) Associate income / other 7.0 (0.1) 3.2 15.2 12.2 0.0 (0.0) 0.0 (0.0) 0.0 (0.0) Profit before tax 17.7 16.4 32.3 72.8 93.9 91.9 63.6 55.1 48.1 41.8 36.9 Adjusted PBT 17.7 16.4 32.3 72.8 93.9 91.9 63.6 55.1 48.1 41.8 36.9 -12.7% Tax (2.7) (2.3) (4.3) (7.7) (4.8) (4.7) (3.3) (2.8) (2.5) (2.1) (1.9) Exceptional items (0.6) 0.6 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 14.3 14.7 29.8 65.1 89.1 87.2 60.3 52.3 45.6 39.6 35.0 Adjusted net income 15.0 14.1 28.0 65.1 89.1 87.2 60.3 52.3 45.7 39.7 35.0 -12.7%

08E-12E Per share data (YTL) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 66.1 66.1 66.1 66.1 73.1 73.1 73.1 73.1 73.1 73.1 73.1 No. of diluted shares outstanding (*) 66.1 66.1 66.1 66.1 73.1 73.1 73.1 73.1 73.1 73.1 73.1 EPS (basic) 0.220.220.450.991.221.190.820.710.620.540.48-12.7% EPS (diluted) 0.220.220.450.991.221.190.820.710.620.540.48 EPS (adjusted, basic) 0.23 0.21 0.42 0.99 1.22 1.19 0.82 0.72 0.62 0.54 0.48 -12.7% Annual growth -6.1% 99.0% NM 23.6% -2.1% -30.8% -13.3% -12.7% -13.2% -11.7% EPS (adjusted, diluted) 0.23 0.21 0.42 0.99 1.22 1.19 0.82 0.72 0.62 0.54 0.48 DPS 0.160.000.370.761.010.980.680.590.520.450.40-12.7% Annual growth -100.0% NM 106.9% 32.6% -2.1% -30.8% -13.3% -12.7% -13.2% -11.7% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 223 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Mardin Cimento: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year ending Dec) CAGR Cash and cash equivalents 23.3 35 59 103 74 146 137 136 136 136 137 Other current assets 12.512181828464143464850 Total current assets 35.7 46 78 122 102 193 178 180 182 184 187 1.2% Long term investments & other11.320254747474747474747 Property, plant and equipment 40.2 43 41 40 96 122 123 124 124 124 124 Intangible assets 0.00000000000 Total assets 87.3 109 144 209 244 361 348 350 353 355 357 0.7% Trade payables 3.244571088889 Short term debt 0.14245555555 Long term debt 0.0 0 0 0 0 100 100 100 100 100 100 Pension liabilities 2.63386666666 Other liabilities 3.74787777777 Total liabilities 9.5 15 16 25 25 128 126 126 127 127 127 0.1% Minority interests 0.00000000000 Shareholders' equity 77.8 95 128 184 219 233 221 224 226 228 230 Total equity and liabilities 87.3 109 144 209 244 361 348 350 353 355 357 0.7%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Cash from operations 0.0 0.0 0.0 77.7 78.5 81.3 77.8 64.4 57.8 52.1 48.1 -11.3% Net interest paid 0.2 1.1 1.1 1.1 8.1 2.1 (2.8) (3.0) (3.1) (3.1) (3.1) Tax paid (2.7) (2.3) (4.3) (7.7) (4.8) (4.7) (3.3) (2.8) (2.5) (2.1) (1.9) Operating cash flow (2.5) (1.2) (3.2) 71.0 81.8 78.7 71.8 58.6 52.3 46.9 43.1 -12.0% Capex on PP&E 0.0 0.0 0.0 (2.9) (52.5) (32.8) (9.2) (9.2) (9.3) (9.4) (9.5) Other investing cash flow 0.0 0.0 0.0 4.6 39.3 0.0 0.0 0.0 0.0 0.0 0.0 Investing cash flow 0.0 0.0 0.0 1.7 (13.3) (32.8) (9.2) (9.2) (9.3) (9.4) (9.5) 0.8% Operating free cash flow (*) (2.5) (1.2) (3.2) 68.1 29.3 45.8 62.6 49.3 43.0 37.5 33.6 -14.4% Free cash flow (**) (2.5) (1.2) (3.2) 72.7 68.5 45.8 62.6 49.3 43.0 37.5 33.6 -14.4% Dividends paid 0.0 0.0 0.0 (24.2) (50.1) (73.6) (72.0) (49.8) (43.2) (37.7) (32.7) Share buybacks / issuances 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 1.5 1.0 100.0 0.0 0.0 0.0 0.0 0.0 Financing cash flow 0.0 0.0 0.0 (22.7) (49.2) 26.4 (72.0) (49.8) (43.2) (37.7) (32.7) -17.9% Change in cash and cash equivalents 11.7 24.5 43.7 (29.1) 72.3 (9.4) (0.5) (0.2) (0.2) 0.9 (*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 224 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Mardin Cimento: Valuation summary

Relative to the GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other P / E 7.5x 6.1x 6.2x 9.0x 10.3x 11.8xCROCI 81.3% 62.9% 48.8% 32.9% 28.4% 24.4%EBITDA margin 49.7% 52.8% 44.1% 40.3% 36.1% 32.2% GS coverage 23.0x 15.5x 16.4x 11.8x 9.9x 9.4xGS coverage 15.6% 18.8% 17.7% 18.5% 18.9% 17.6%GS coverage 35.7% 35.5% 34.9% 36.1% 36.2% 35.7%

EV / DACFlease adj'd 2.2x 5.8x 5.5x 7.3x 8.1x 9.0xROE 41.8% 44.1% 38.5% 26.5% 23.5% 20.3%EBIT margin 46.5% 50.0% 41.0% 36.0% 31.5% 27.5% GS coverage 8.4x 10.2x 10.3x 8.4x 7.1x 6.4xGS coverage 25.1% 26.5% 22.4% 23.2% 23.0% 20.0%GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% CROCI / WACC 5.9x 4.5x 3.5x 2.4x 2.0x 1.8xNOPAT margin 46.5% 50.1% 41.0% 36.0% 31.5% 27.5% EV / EBITDA lease adj'd 2.5x 6.1x 5.2x 6.9x 7.8x 8.6x GS coverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1xGS coverage NA NA NA NA NA NA EV / GCI 1.6x 2.9x 2.4x 2.4x 2.2x 2.1xCapex / sales 2.4% 35.7% 15.0% 5.0% 5.0% 5.0% EV / NOPAT lease adj'd 2.7x 6.4x 5.6x 7.8x 8.9x 10.1x GS coverage 1.1x 1.5x 1.6x 1.4x 1.2x 1.1xGS coverage 16.9% 16.7% 17.7% 17.3% 15.2% 13.6% GS coverage 7.0x 8.7x 9.1x 7.5x 6.1x 5.2x GCI (*) 110 245 293 294 311 328Capex / depreciation 0.7x 12.8x 4.9x 1.2x 1.1x 1.1x P / book 2.7x 2.5x 2.3x 2.4x 2.4x 2.4x Net debt / (cash) * (99) (69) (41) (32) (31) (31) GS coverage 4.6x 3.2x 2.7x 2.3x 2.4x 2.1x Pension liabilities * 8 6 6 6 6 6 FCF yield 14.9% 11.2% 8.5% 11.6% 9.1% 7.9% Net Debt / Equity -0.5x -0.3x -0.2x -0.1x -0.1x -0.1x GS coverage 33.9% 12.1% 5.7% 6.1% 7.8% 9.5% Net Debt / EBITDA -1.6x -0.9x -0.4x -0.4x -0.5x -0.5x Dividend yield 10.2% 13.6% 13.3% 9.2% 8.0% 7.0% Net interest / EBITDA -1.8% -10.4% -2.1% 3.7% 4.6% 5.1% GS coverage 2.8% 2.6% 2.4% 2.8% 3.2% 3.1%

* YTL mn

Relative to GS New Markets Non-Financials coverage

2009E EV/GCI vs CROCI/WACC 2008E EV/GCI vs CROCI/WACC 4.5x EV/GCI / CROCI/WACC 350% 5.0x 4.5x 4.0x 4.0x 300% 4.0x 3.5x 3.5x 250%

3.5x I 3.0x 3.0x 200% 3.0x 2.5x MRDIN.IS 2.5x 150% EV / GCIEV 2.5x MRDIN.IS EV / GC 2.0x 2.0x 2.0x 100% Sector Sector 1.5x 1.5x 1.5x 50% 1.0x 1.0x 1.0x 0% 0.5x 0.5x 0.0x 0.5x -50% 0.0x 0.0x 2.0x 4.0x 6.0x 0.0x -100% CROCI / WA CC 0.0x 5.0x 10.0x CROCI / WA CC 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin MRDIN.IS

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 225 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Unye Cimento (UNYEC.IS) INVESTMENT LIST MEMBERSHIP Neil Wedlake Neutral [email protected]

RATING: Return potential: 12%

Turkey: Construction Investment Profile: UNYEC.IS

Low Hi gh

Strong competitive position fairly well reflected in valuation Growth Growth

Returns * Returns *

Multiple Multiple

Investment thesis: Neutral recommendation Volatility Volatility • Unye Cimento enjoys a very strong competitive niche in the domestic market: it operates in the Percentile 20th 40th 60th 80th 100th Black Sea region where there is limited competition at present but where there is the threat of Unye Cimento Akcansa’s imminent entry. Prices in the northeast of the country are higher than anywhere else Europe New Markets Non Financi Peer Group Average * Returns = Return on Capital For a complete description of the at c.US$85/tonne. investment profile measures please refer to the disclosure section of this document. • Unye also benefits from export market exposure. Expansion into markets such as Romania and Key data (*) Bulgaria, as well as existing growth in the lucrative Russian market should benefit the group. Price (YTL) 6.80 Price target (YTL) 7.60 • Following recent investments, total annual cement production capacity is now at 2.5 mn Market cap ($ mn) 529.4 tonnes, with the company also selling clinker in both the local and foreign markets. Average daily trading volum e ($ m n) 0.06 Free float 11% • The company also enjoys significant cost reductions owing to government incentives on taxes Bloomberg code UNYEC TI 2006 2007E 2008E 2009E and electricity rates, which are 28% lower than in the rest of Turkey. As a result, Unye enjoys Sales (YTL mn) 184.9 181.1 227.7 247.8 the highest EBITDA margins in our Turkey coverage, recording 58% in 2006 and we forecast EBITDA (YTL m n) 106.9 91.3 100.1 96.6 EV / EBITDAR 3.2x 6.3x 5.8x 6.1x these to average 33% beyond 2010. P / E 8.1x 11.0x 10.0x 10.4x Dividend yield 12.0% 8.7% 9.7% 9.3% • Dividend yields are also very attractive with forecast dividend yields of 9.7% 2008 and 9.3% for (*) multiples and ratios are calendarised 2009.

• We consider Unye to be fairly valued at current levels and are also mindful of the relatively low liquidity of the stock. We initiate coverage as Neutral. 7.0 600 6.0

5.0 550

4.0 500 Valuation: 12-month target price of TL7.60 3.0 450 Our valuation approach is based on a DCF analysis. The key inputs for our DCF calculation 2.0 400 1.0 beyond our explicit forecast period are: a WACC of 11%, growth rate in perpetuity of 3% and a 7 07 07 0 0.0 07 07 07 07 350 07 07 07 07 0 20 6 07 07 0 0 0 20 /20 / 6 6 0 07 0 0 20 /2 / /2 6 0 0 0 /2007/2 / /2 terminal NOPAT margin of 21%. We calculate a 12-month price target for Unye of TL7.60. 0 06 /2 /2 4 06 /06 /07/20/07 /08/208/08/20 /2 2 2 3 3 04 05 /05 1 12 27 13 2 11/ 28 12/ 27 12/0 27/0 11/ 26/0 09/024/01/200708/0 23/0 2/09/209/10/204/10/20 23/11/200608/12/2025/12/2006 2 0 2 08/11/20 UNY EC.IS (Y TL) MSCI EM Eur op e & Mid dle Eas t

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 226 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Unye Cimento: Overview Company description Unye Cimento is part of the Oyak Group and the Core drivers of growth second largest in terms of market cap. Unye is located • As the only producer in the Black Sea region, Unye operates in a competitive vacuum and enjoys in the Black Sea area in the northeast of Turkey where the benefit of the highest domestic selling prices. We expect expansion into new markets of it has no competition and enjoys the highest average Romania and Bulgaria to drive forecast growth, although we fear downside risk to pricing as domestic selling prices. The company sells both clinker competition is finally established in the region. and cement in both the local market and abroad. Using its proximity to the Black Sea, traditional export • Unye is currently only operating at roughly 80% of capacity, with strong demand in both the markets include Spain, Portugal, Italy and the UK, with domestic and export markets expected to close the production gap. new export markets expected to open up in Romania • We expect the Turkish housing market to remain robust during the course of this year driving and Bulgaria. Current annual production capacity is local cement demand. Exports to western Europe are also expected to remain strong on the back 1.5 mn tonnes of clinker and 2.5 mn tonnes of cement. of sustained regional demand. Shareholder structure (2007)

Risk to the investment case • In response to the recent pick-up in demand for building materials, most of the local producers 49% 51% have stepped up capacity investments with new players also entering the market. We expect most of this new capacity to come on stream towards the end of this year and into 2008. We expect excess supply to exert downward pressure on local prices beyond 2008.

• Growing competition in export markets is also a threat, with Akcansa and other producers entering the Black Sea region, targeting the domestic market as well as the lucrative export Oyak Group Public routes from the region’s ports.

• The potential fall-off in housing demand is likely to be offset by higher levels of public spending. Sales by division (2007E)

Industry context 19% The Turkish cement industry is competitive, with a number of large players. Total production reached 43 mn tonnes in 2006 and we forecast a 7% CAGR through 2010. We forecast an additional 10 mn tonnes of clinker capacity by 2008 and a total reaching c.62 mn tonnes by 2009. We expect

prices to decline into 2008 as supply-side pressures mount but for demand to catch up from 2009. 81% Unye operates within a very attractive niche and is not exposed to the local markets economics in the same way as the rest of our peer group, although the entry of Akcansa into its market is a medium term threat to market share and pricing. Domestic Sales Export Sales

Source: Company data, Goldman Sachs Research estimates, Datastream.

Goldman Sachs Global Investment Research 227 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Unye Cimento: Overview

Leverage ratios Sales and EBIT margins

Net Debt / EBITDA (LHS) Net Interest / EBITDA (RHS) YTLmn (LHS) EBIT Margin (RHS) 5.0x 70.0% 60.0% 250 46.8% 0.0x 50.0% 36.8% 200 40.0% -5.0x 26.8% 30.0% 150 16.8% 20.0% -10.0x 10.0% 100 6.8%

-15.0x 0.0% -3.2% 50 -10.0% -13.2% -20.0x -20.0% 0 -23.2% 03 04 05 06 07E 08E 09E 10E 11E 12E 02 03 04 05 06 07E 08E 09E 10E 11E 12E

Strengths Weaknesses ƒ Enjoys highest selling prices (c. $85) and highest additives ratio in ƒ Currently operating at maximum capacity may forego the opportunity of Turkey. the strong growth in the domestic market.

ƒ Benefits from low cost base owing to technological advancement and ƒ Bias towards the local market does create an opportunity cost against the government incentives on tax and electricity. higher selling prices prevalent in export markets.

ƒ No significant rivals within the isolated Black Sea domestic market. ƒ Relatively illiquid. ƒ Has packaging terminal in Rize and own port within 2 km.

Opportunities Threats ƒ Declining interest rates in Turkey and the positive impact on housing ƒ Increasing levels of supply will likely exert downward pressure on prices. developments. ƒ Tightening up of the export markets would make it more difficult to shift ƒ Higher demand for building materials stemming from higher levels of production in foreign markets, particularly Iraq. public infrastructure spend, both domestically and in export markets. ƒ Akcansa moving into the Black Sea region through the acquisition of Ladik.

ƒ Political tension and rising fuel prices.

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 228 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Unye Cimento: Summary financials Income statement 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Sales 61.3 83.5 99.1 138.8 184.9 181.1 227.7 247.8 254.8 257.0 259.3 3.3% EBITDAR (11.8) (4.6) 11.8 64.9 106.9 91.3 100.1 96.6 88.7 85.7 86.5 EBITDA (11.8) (4.6) 11.8 64.9 106.9 91.3 100.1 96.6 88.7 85.7 86.5 EBITDA margin -19.3% -5.5% 11.9% 46.8% 57.8% 50.4% 44.0% 39.0% 34.8% 33.4% 33.4% EBIT (11.8) (4.6) 11.8 51.9 94.6 79.6 88.8 85.4 77.6 74.5 75.1 -4.1% EBIT margin -19.3% -5.5% 11.9% 37.4% 51.1% 44.0% 39.0% 34.5% 30.4% 29.0% 29.0% Net interest expense 4.5 2.8 1.4 0.0 0.0 2.4 1.8 1.6 1.3 1.0 0.9 Associate income / other (23.9) 3.3 (3.6) 9.1 17.8 (0.0) 0.0 (0.0) (0.0) (0.0) (0.0) Profit before tax (31.2) 1.5 9.6 60.9 112.4 82.0 90.6 87.0 78.9 75.5 76.1 Adjusted PBT (31.2) 1.5 9.6 61.3 112.4 82.0 90.6 87.1 78.9 75.6 76.1 -4.3% Tax 0.0 0.0 0.0 6.3 (32.2) (23.5) (25.9) (24.9) (22.6) (21.6) (21.8) Exceptional items (6.9) 0.0 6.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income (38.1) 1.5 16.2 67.2 80.2 58.5 64.6 62.1 56.3 53.9 54.3 Adjusted net income (31.2) 1.5 9.6 67.6 80.2 58.6 64.7 62.2 56.4 54.0 54.3 -4.3%

08E-12E Per share data (YTL) 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E CAGR No. of basic shares outstanding (*) 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 No. of diluted shares outstanding (*) 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 EPS (basic) (0.40)0.020.170.710.840.620.680.650.590.570.57-4.3% EPS (diluted) (0.40)0.020.170.710.840.620.680.650.590.570.57 EPS (adjusted, basic) (0.33) 0.02 0.10 0.71 0.84 0.62 0.68 0.65 0.59 0.57 0.57 -4.3% Annual growth NM NM NM 18.6% -27.0% 10.4% -3.9% -9.4% -4.2% 0.7% EPS (adjusted, diluted) (0.33) 0.02 0.10 0.71 0.84 0.62 0.68 0.65 0.59 0.57 0.57 DPS 0.000.000.000.250.810.590.660.630.570.550.55-4.3% Annual growth NM NM NM NM -27.0% 10.4% -3.9% -9.4% -4.2% 0.7% (*) weighted average number of shares; in millions

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 229 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Unye Cimento: Summary financials Balance sheet 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year ending Dec) CAGR Cash and cash equivalents 25131457140120114105959292 Other current assets 23 27 28 36 47 50 65 73 78 80 80 Total current assets 48 40 42 93 187 170 179 178 173 171 172 -1.1% Long term investments & other34893333333 Property, plant and equipment 158 165 143 146 142 140 140 141 143 144 146 Intangible assets 11121400111000 Total assets 220 220 208 248 333 314 323 323 320 319 322 -0.1% Trade payables 45335567777 Short term debt 18 19 17 11 10 10 10 10 10 10 10 Long term debt 80 64 43 26 22 22 22 22 22 22 22 Pension liabilities 5 4 2 719191919191919 Other liabilities 3 2 1 221212121212121 Total liabilities 110946648777778797979790.3% Minority interests 00000000000 Shareholders' equity 110 126 142 199 256 237 245 245 241 240 243 Total equity and liabilities 220 220 208 248 333 314 323 323 320 319 322 -0.1%

Cash flow 08E-12E 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E (YTL mn, year to Dec) CAGR Cash from operations 0.0 0.0 0.0 60.3 141 89.1 85.9 88.8 84.3 84.2 85.9 0.0% Net interes t paid 4.5 2.8 1.4 0.0 0 2.4 1.8 1.6 1.3 1.0 0.9 Tax paid 0.0 0.0 0.0 6.3 (32) (23.5) (25.9) (24.9) (22.6) (21.6) (21.8) Operating cash flow 4.5 2.8 1.4 66.6 109 68.0 61.8 65.5 63.1 63.6 65.1 1.3% Capex on PP&E 0.0 0.0 0.0 (1.8) (9) (9.1) (11.4) (12.4) (12.7) (12.9) (13.0) Other investing cash flow 0.0 0.0 0.0 0.6 10 (0.6) 0.0 0.0 0.0 0.0 0.0 Investing cash flow 0.0 0.0 0.0 (1.3) 1 (9.7) (11.4) (12.4) (12.7) (12.9) (13.0) 3.3% Operating free cash flow (*) 4.5 2.8 1.4 64.8 100 58.9 50.4 53.1 50.3 50.8 52.1 0.8% Free cash flow (**) 4.5 2.8 1.4 65.4 110 58.3 50.4 53.1 50.3 50.8 52.1 0.8% Dividends paid 0.0 0.0 0.0 0.0 (23) (77.5) (56.5) (62.4) (60.0) (54.4) (52.1) Share buybacks / issuances 0.0 0.0 0.0 0.0 0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 (22.4) (5) 0.0 0.0 0.0 0.0 0.0 0.0 Financing cash flow 0.0 0.0 0.0 (22.4) (29) (77.5) (56.5) (62.4) (60.0) (54.4) (52.1) -2.0% Change in cash and cash equivalents (12.1) 0.9 43.0 82 (19.1) (6.1) (9.4) (9.7) (3.6) 0.0

(*) Operating cash flow - Capex on PP&E, (**) Operating cash flow - Investing cash flow

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 230 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

Unye Cimento: Valuation summary

Relative to GS New Markets Non-Financials coverage (multiples are calendarised)

Returns and Margins and Valuation 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E 2005 2006 2007E 2008E 2009E 2010E liquidity other

P / E 9.6x 8.1x 11.0x 10.0x 10.4xCROCI 11.5x 38.2% 60.4% 34.7% 34.5% 30.2%EBITDA 25.8% margin 46.8% 57.8% 50.4% 44.0% 39.0% 34.8% GS coverage NA NA NA NA NAGS coverage NA NA NA NA NA NAGS NAcoverage NA NA NA NA NA NA EV / DACF ROE 39.4% 35.3% 23.8% 26.8% 25.4%EBIT 23.2% margin 37.4% 51.1% 44.0% 39.0% 34.5% 30.4% lease adj'd 2.7x 2.9x 8.4x 7.8x 8.2x 9.1x GS coverage 23.4% 24.3% 21.9% 22.9% 24.2% 25.9% GS coverage NA NA NA NA NA NAGS coverage NA NA NA NA NA NA NOPAT margin 37.6% 51.2% 44.0% 39.0% 34.5% 30.5% EV / EBITDA CROCI / WACC 3.2x 5.1x 2.9x 2.9x 2.5x 2.2x lease adj'd 3.1x 3.2x 6.3x 5.8x 6.1x 6.8x GS coverage NA NA NA NA NAGS NAcoverage 23.5% 24.5% 22.1% 23.0% 24.3% 25.9% GS coverage 5.1x 6.5x 6.7x 5.7x 4.7x 4.1x EV / GCI 1.0x 1.8x 2.8x 2.5x 2.4xCapex 2.3x / sales 1.3%4.9%5.0%5.0%5.0%5.0% EV / NOPAT lease adj'd 3.8x 3.6x 7.2x 6.6x 6.9x 7.8xGS coverage NA NA NA NA NAGS NAcoverage NA NA NA NA NA NA GS coverage 7.0x 8.7x 9.1x 7.5x 6.1xGCI 5.2x (*) 251 253 276 316 351Capex 383 / depreciation 0.1x 0.7x 0.8x 1.0x 1.1x 1.1x P / book 3.2x 2.5x 2.7x 2.6x 2.6xNet 2.7x debt / (cash) * (20) (108) (89) (83) (73) (64) GS coverage NA NA NA NA NAPension NA liabilities * 7 19 19 19 19 19 FCF yield 30.5% 22.4% 9.0% 7.8% 8.2% 7.8%Net Debt / Equity -0.1x -0.4x -0.4x -0.3x -0.3x -0.3x GS coverage NA NA NA NA NANet NA Debt / EBITDA -0.3x -1.0x -1.0x -0.8x -0.8x -0.7x Dividend yield 3.6% 12.0% 8.7% 9.7% 9.3% 8.4%Net interes t / EBITDA 0.0% 0.0% -2.6% -1.8% -1.7% -1.5% GS coverage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

* YTL mn

Relative to GS New Markets Non-Financials coverage

2008E EV/GCI vs CROCI/WACC 2009E EV/GCI vs CROCI/WACC EV/GCI / CROCI/W ACC 5.0x 8.0x 700% 4.5x 4.0x 7.0x 600% 4.0x 3.5x 6.0x 500% 3.5x 3.0x 3.0x UNY EC.IS 2.5x UNY EC.IS 5.0x 400% 2.5x EV / GCI EV / GCI 2.0x 2.0x 4.0x 300% Sector 1.5x 1.5x Sector 3.0x 200% 1.0x 1.0x 0.5x 2.0x 100% 0.5x 0.0x 1.0x 0% 0.0x 2.0x 4.0x 6.0x 0.0x CROCI / WA CC 0.0x 5.0x 10.0x 0.0x -100% CROCI / WA CC 03 04 05 06 07E 08E 09E 10E Premium to the sector (RHS) Emerging Markets Non-Fin UNY EC.IS

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 231 September 28, 2007 Europe, Middle East & Africa: Multi-Industry Reg AC

I, Neil Wedlake, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

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Goldman Sachs Global Investment Research 232 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 233 September 28, 2007 Europe, Middle East & Africa: Multi-Industry

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Goldman Sachs Global Investment Research 235