19 August 2008 Equity Research

Yamama Cement is a cement producer based in Riyadh. Following

the completion of a major expansion, it had the largest cement
production capacity in the Kingdom at the end of 2007. It is also one
of the most profitable cement producers. We believe that at its
current share price Yamama Cement is slightly undervalued.

Investment positives
Excellent market access by virtue of its location at the center of
one of the main construction hubs in the Kingdom.
As one of the first to complete a major capacity expansion,
Yamama stands to reap the full benefit of the current
construction boom.
Prospects for continued growth through investment in new
cement companies or expansion into complementary industries.
Profit margins are among the highest in the industry and the
stock market.
New dynamic management team with prior experience in top tier
listed companies.
Durable and efficient cement mills supplied by a leading global
contractor; the ability to fuel its plants with both natural gas and
fuel oil improves cost and operational efficiency.
Sound leverage and capital adequacy position.

Investment negatives
Competition from new players and existing producers selling in
the Central region because of an export ban is eroding
Yamamas market share.
New capacity is straining inventory turnover and sales
performance.
The proximity of its plant to a population center means Yamama
has to carefully adhere to environmental policy.
All companies in the sector face falling cement prices and a price
war can not be ruled out.







































1
Sell
Consider
selling
Hold Consider
buying
Buy
SR79-68 SR85-80 >SR85
SR67-61
<SR61
Recommendation: Consider buying
Share details
Market cap (SR million) 8,437
Shares outstanding (million) 135
Free float (million) 122
Earnings per share (SR) 5.79
Dividends per share (SR) 3.0
Book value per share (SR) 17.52
52-week high (SR) 106
52-week low (SR) 60.25
Share price
Key ratios
Price-earnings ratio (P/E) 10.82
Price-book ratio (P/B) 3.07
Return on equity (%) 30.9
Return on total assets (%) 20.3
Gross margin (%) 71.9
Operating margin (%) 61.5
Quick ratio 0.9
Market risk (beta) 0.85
Earnings yield (%) 9.23
Dividends yield (%) 3.18
Company risk (standard deviation) 0.37
Yamama Cement:
Solid foundations
Investment summary
60
70
80
90
100
110
0
6
/
0
1
/
2
0
0
7
1
0
/
0
2
/
2
0
0
7
1
7
/
0
3
/
2
0
0
7
2
1
/
0
4
/
2
0
0
7
2
6
/
0
5
/
2
0
0
7
3
0
/
0
6
/
2
0
0
7
0
4
/
0
8
/
2
0
0
7
0
8
/
0
9
/
2
0
0
7
2
1
/
1
0
/
2
0
0
7
2
5
/
1
1
/
2
0
0
7
0
5
/
0
1
/
2
0
0
8
0
9
/
0
2
/
2
0
0
8
1
5
/
0
3
/
2
0
0
8
1
9
/
0
4
/
2
0
0
8
2
4
/
0
5
/
2
0
0
8
2
8
/
0
6
/
2
0
0
8
0
2
/
0
8
/
2
0
0
8
Fair value
SR73
Current price
SR62.5


Saudi Arabia is the largest producer of cement in the GCC with
installed capacity of over 38 million tons in 2007 (actual production
last year was 30.3 million tons). It is the third largest cement
producer the Middle East, behind Iran, where production in 2007 was
55 million tons and Egypt, which produced 38 million tons last year.

Raw materials

The basic raw material of cement is limestone, a sedimentary rock
about half of which is calcium carbonate. Enormous deposits of
limestone exist in Saudi Arabia, although the high purity type that is
used in white cement is relatively rare. Limestone constitutes
between 70 and 80 percent of cement.

Other raw materials that go into the manufacturing of cement include
dolomite, sand, gypsum and iron ore. Together, these materials
constitute about 20 to 30 percent of the final product and all but iron
are available naturally in large quantities in Saudi Arabia. Most
cement manufacturers procure their iron ore requirements from local
petrochemical and minerals producer Sabic.

State and structure of the industry

The cement market in Saudi Arabia has historically been dominated
by a small group of companies. For decades, eight publicly listed
companies captured almost all cement revenues. Last year, the
revenues of the listed cement companies amounted to SR7.7 billion
(data is not available on the private cement companies). This is
starting to change, as six newcomers were issued licenses within the
last five years, a few of which have begun operations (all are
scheduled to commence production by 2010).

Locations and production capacities of Saudi cement companies
Recently, the Ministry of Petroleum and Minerals (MOPAM)
announced that seven more licenses will be issued for limestone
2
16 August 2008
Industry analysis
Company Location Region Status
Capacity
in 2008
('000
tons)
Capacity in
2010
('000 tons)
1
Saudi Cement Dammam Eastern Public 7,862 8,540
Yanbu Cement Yanbu Western Public 4,620 7,920
Arabian Cement Jeddah Western Public 4,950 6,440
Yamama Cement Riyadh Central Public 6,325 6,325
Southern Cement Abha South Public 6,270 6,270
Eastern Cement Khursanyah Eastern Public 3,630 3,630
Qassim Cement Buraidah Central Public 3,520 3,520
Riyadh Cement Riyadh Central Private 1,650 3,300
Najran Cement Marrat Central Private 2,200 3,300
Tabuk Cement Tabuk North Public 1,320 2,970
Northern Cement
2
Ar'ar North Private 2,200 2,200
Al-Jouf Cement
3
Turaif North Private 0 1,665
Madinah Cement Najran South Private 1,650 1,650
Al Safwa Cement
4
Makkah Western Private 0 1,650
Total 46,197 59,380
2
Scheduled for production in 2008
3
Scheduled for production in 2009
4
Scheduled for production in 2010
1
End of first phase of current expansion, reflecting retired capacity by Saudi Cement
and Arabian Cement.
-10000
0
10000
20000
30000
40000
50000
60000
70000
1980 1984 1988 1992 1996 2000 2004 2008
Domestic production Imports Exports
(
t
h
o
u
s
a
n
d

t
o
n
s
)
Production, imports and exports


concessions for new cement plants. Two of these have been issued
to plants in Hail and Baha. The remaining five will be offered through
competitive auctions, where quarry concessions will be awarded to
the highest bidder. Additionally, winners have to commit to floating
50 percent of their capital through an IPO at book value in the
coming years. By the time bidding for the new licenses is completed,
there will a maximum of 21 cement companies in Saudi Arabia.
Shortlisted companies were asked to submit their bids for the
limestone quarries in July.

By awarding limestone quarries throughout Saudi Arabia, the
MOPAM has averted competition, but made sure that cement is
available where needed for infrastructure development. The pie
charts illustrate how capacity will shift towards the West, home of the
King Abdullah Economic City, and the North, where there are major
mining and infrastructure projects. The sharp fall in Central regions
share of production capacity is because the bulk of the new capacity
for this region entered production during 2007 (capacity increased
from 4.8 million tons to 8.3 million tons at end-year) whereas the new
production capacity elsewhere will come on stream later.

Competition has been mute as a result of a long standing
understanding between cement companies and regulators whereby
companies were allowed to set a floor for factory prices that is
agreeable for all. Also, the fact that factories are spread out evenly
throughout Saudi Arabia with each focusing on meeting demand in
its immediate area helped avert competition between companies.
Transporting cement is very expensive, so it is not attractive for
producers to sell outside of their home region.

Production

Saudi Arabia became self sufficient in cement in 1989 and its first
exports were in the following year. Production then went through a
period of very slow growth that coincided with weak economic
performance during the 1990s. Responding to early signs of
recovery in the economy, production started to gather strength early
this decade, but it was not until 2006 when cement output suddenly
surged, owing to new capacity and a draw down of existing stocks.

Cement production

Production in 2007 totaled a record 30.3 million tons, up 12 percent
on the previous year. This exceeded installed operating capacity at
the start of the year, as plants were drawing from inventories of
clinker built up during lean years and new production capacity came
on stream. Exports also reached an all-time high in 2007, of 3.57
Central
Eastern
Western
North
South
Central
Eastern
Western
North
South
Production capacity by region (2007)
Production capacity by region (2010)
3
16 August 2008
2002 2003 2004 2005 2006 2007 2008
1

Southern Cement 3,692 3,799 4,214 4,561 4,600 4,613 2,809
Saudi Cement 4,483 4,555 4,705 5,003 4,966 5,289 2,807
Yamama Cement 2,849 3,111 3,512 3,566 3,847 4,654 2,775
Yanbu Cement 4,162 4,162 4,256 3,742 3,521 4,622 2,291
Eastern Cement 2,461 2,699 2,374 2,493 3,229 3,482 1,860
Qassim Cement 1,799 1,984 2,169 2,226 2,231 3,464 1,822
Arabian Cement 2,629 2,597 2,799 3,022 3,026 2,824 1,522
Riyadh Cement 0 0 0 0 0 0 826
Tabuk Cement 1,184 1,166 1,445 1,419 1,633 1,361 746
Najran Cement 0 0 0 0 0 0 573
Madinah Cement 0 0 0 0 0 0 493
Total 23,259 24,073 25,474 26,032 27,053 30,309 18,524
Annual change (percent) - 3.5 5.8 2.2 3.9 12.0 -
1
First half of year
Central
35%
Eastern
21%
Western
19%
North
3%
South
22%
Central
25%
Eastern
20%
Western
27%
North
8%
South
20%


million tons. There was a small quantity of imports, mainly clinker
and types of cement that are not manufactured locally.

Production capacity

A huge increase in production capacity is under way. We expect total
annual cement production capacity to rise to 69.9 million tons by
2013 from 23.8 million tons in 2005. Over 12 million tons in new
production capacity was brought on stream last year and a further
7.8 million tons will be added this year. The intensity of the major
capacity ramp up should slow after 2010 and production capacity is
expected to stabilize after 2013, when the second batch of new
cement projects is completed (bids have already been invited for
quarry allocations for prequalified companies). For phase two of the
capacity expansion, we assume that each of the seven plants will be
operating at a maximum designed capacity of 1.5 million tons per
year and that 3.5 million tons of new capacity will be added annually
for the years from 2011 to 2013.

The current surge in capacity stems from an upgrade of existing
production facilities and the establishment of new cement
companies. In light of the construction boom within the Saudi
economy, we expect that most of the new plants will be operating at
or above designed capacity (typically, cement plants are designed
with 10-15 percent excess capacity).

Prices

Cement is considered a strategic commodity whose pricing should
not be left entirely to the market. A price ceiling is determined
through consultations between the listed cement companies and the
Ministry of Commerce and Industry (MOCI). Factors that are taken
into consideration in determining the price include historical and
current supply and demand patterns, protecting consumers and the
best interests of cement manufacturers. Cement companies are
expected to abide by the price ceiling, but are free to charge less if
they wish. There are no restrictions on the prices that distributors can
charge. Prices vary according to type of cement; unless otherwise
stated those quoted in this report are for Ordinary Portland Cement
(OPC). The cement price ceiling has not been changed over the past
three years, except for the period within the last 12 months when
MOCI removed the price-fixing system.

The ongoing increase in production capacity prompted concerns
within the industry that it would trigger a slump in prices. Instead,
prices have been on a volatile upward trend for most of the last 12
months, as strong local demand and rising exports (prices in
neighboring countries are around 30 percent higher than the ceiling
imposed by the MOCI) have generated shortages.

Local prices surged owing to a shortage last summer and a black
market for cement and other building materials (cement blocks and
pre-mixed concrete) emerged for the first time in many years. The
shortage was so sudden and severe that construction contractors
had no option but to pass on the higher cost of cement to end users,
which resulted in work on some projects being slowed or suspended
until prices fell. This prompted the government to compensate
contractors for government projects for some of the losses incurred.

The MOCI's initial reaction to the cement shortage was to abolish the
10,000
15,000
20,000
25,000
30,000
35,000
1990 1992 1994 1996 1998 2000 2002 2004 2006
(
t
h
o
u
s
a
n
d

t
o
n
s
)
0
25
50
75
100
125
150
175
200
225
250
275
(
S
R
p
e
r

t
o
n
)
Sales Production Average price (RHS)
0
10
20
30
40
50
60
70
80
2006 2007 2008 2009 2010 2011 2012 2013
(
m
illio
n
t
o
n
s
)
Existing capacity Upgrade New capacity
Huge increase in production capacity
Cement production, sales and prices
4
16 August 2008
0
50
100
150
200
250
300
1990 1992 1994 1996 1998 2000 2002 2004 2006
(
S
R
p
e
r
t
o
n
)
Historical average cement price


price-fixing arrangement based on the assumption that the cement
companies were deliberately keeping prices high despite the new
capacity coming on stream. This had no effect and prices continued
to rise because many distributors exported the new supplies and
some stockpiled supplies in expectation of even higher prices. A
reduction in the customs tariff on cement, to encourage imports, was
similarly ineffective.

With shortages persisting the MOCI reimposed the ceiling on the
factory price of cements of SR250 per ton and banned all cement
exports effective June 2008. It also worked closely with the cement
companies to ensure that cement supplies were rushed to the
Western province, where the shortage had been most severe. As a
result, cement prices dropped by nearly 40 percent in June from
SR440 per ton to SR280 per ton.

The huge increase in capacity under way combined with a recent
ban on exports is expected to exert considerable downward pressure
on cement prices in the years ahead. Companies and the MOCI may
attempt to influence prices, but we think that they will be unable to
prevent prices declining. We expect that prices will remain flat for the
rest of 2008 and most of 2009. Over the following three years, prices
will decline gradually within a narrow range of 3-5 percent per year.

The export ban

Cement exports were on course for a record high when the export
ban was imposed. Prior to the ban, eight of the eleven cement
companies were exporting, compared to just four in 2006. None of
the companies from the central region were exporting three years
ago, whereas all four were earlier this year. Exports accounted for
12.3 percent of total production over the first half of the year,
compared to 11.8 percent for the whole of 2007.

The export ban was heavily criticized by cement manufacturers.
Many claim they have binding agreements with foreign importers and
were concerned they would incur penalties due to violating their
contractual obligations. They also emphasized that much of their
new expansions were originally intended for export, and that the ban
may cause them to lose their footing in foreign markets and send a
message that they are not reliable business partners.

Nearly two months into the ban, signs of inventory accumulation are
emerging especially in the Riyadh area. Attracted by the robust
construction activity, cement producers from other areas began to
redirect their excess production to Riyadh. This development is
viewed by cement producers in the area as an early sign of dumping,
which may ultimately lead to a price war if the ban remained in place.
Cement factories do not have the flexibility to reduce production due
to the difficulties associated with switching kilns off and the high
proportion of fixed costs to total costs. We think that the ban will be
lifted before the end of the year.

Outlook

We believe that the fundamentals of the cement industry are sound.
The imbalance between supply and demand will be eliminated as
activity commences on more construction projects (this would be
helped by a fall in the prices of other key commodities such as steel).
A price war is unlikely, as producers recognize that the
Cement exporters (first half 2008)
5
16 August 2008
Saudi Cement
Eastern Cement
Qassim Cement
Southern
Cement
Yamama
Cement.
Madinah Cement
Najran Cement
Riyadh Cement


consequences could be severe. Nonetheless, cement companies will
eventually accept a lower price ceiling. Whether sound or not from
an economic viewpoint, the price-setting arrangement has served the
strategic goals of the government and industry well in the past and it
is likely to remain.

The MOCI will continue to monitor cement supplies and is likely to
drop the export ban before the end of the year (though it could
reimpose it in the event of further sharp price hikes). A new export
licensing system will help the government control supplies to the
local market and therefore prices. We view export contracts as
important for the future of the industry, particularly as other countries
in the region are building up their production capacities.

Yamama Cement is a joint stock company with an authorized and
paid up capital of SR1.35 billion. The company is active in cement
manufacturing and trading. It has 135 million shares outstanding;
122 million of which are freely floating. Established in 1961, it was
the first cement company in the Central region and third in the
Kingdom. The companys manufacturing facilities and head office are
in Riyadh.

Production

Last year, Yamama completed a major expansion that increased
designed clinker production capacity by 3 million tons to 6 million
tons, making it the largest cement company in terms of designed
capacity in the Kingdom at the end of 2007. Saudi Cement will
overtake Yamama when its expansion comes on stream this year
and by 2010, it is expected to have the fourth largest capacity. Plans
to lift capacity through debottlenecking (improving the efficiency of
existing plant and equipment) are currently under discussion.

The clinker is used to manufacture two types of cement at Yamamas
Riyadh plant; Ordinary Portland Cement (OPC) and sulphate-
resistant cement. OPC accounted for 81.4 percent of total production
in 2007, at 3.8 million tons, and sulphate-resistant the remainder
(867,000 tons). About 60 percent of OPC is sold as bulk at an
average price of SR250 per ton. Bagged cement accounts for 40
percent of OPC production and is sold in 50 kilogram sacks at
SR260 per ton. Sulphate-resistant cement is sold at SR270 per ton
both in bulk and bagged. These prices have not changed for the past
three years (distributors account for most of the difference between
the factory gate price and the retail price).

Quality control laboratories ensure that products are consistent with
international standards. The company received a certificate from the
Quality Management Institute, a division of the Canadian Counsel for
Standards, for developing the first Arabic language quality assurance
system. Yamama believes the certificate is compatible with ISO 9001
(the global standard for manufacturing quality).

Production increased by 21 percent to 4.65 million tons in 2007. This
reflects the launch of a seventh production line (mill) early in the year
(commissioning started in the first quarter of 2007; the official hand
over was in the first quarter of this year). In the first half of 2008
production was 2.75 million tons. As production at all the mills is
Saudi Cement
12%
Eastern
Cement
9%
Qassim
9%
Yanbu
12%
Arabian
Cement
7%
Southern
Cement
17%
Madina
Cement
4%
Najran
Cement
6%
Riyadh
Cement
4%
Tabuk Cement
3%
Yamama
17%
Installed clinker capacity (end 2007)
6
16 August 2008
The company
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2002 2003 2004 2005 2006 2007 2008 H1
(
t
h
o
u
s
a
n
d
t
o
n
s
)
Yamama Cement production


approaching capacity, Yamama is on target to more than double this
level by the end of the year. Production grew over the previous few
years as the mills were able to draw from a large clinker inventory
that was built up during the years of slow economic growth in the late
1990s and early part of this decade.

Yamamas quarry has sufficient limestone to keep it operating for at
least another 70 years. The property where the quarry is located is
owned by the company.

With the city of Riyadh spreading to close to Yamamas plants, the
company has put in place an efficient filtration system to deal with
dust emissions. The introduction of natural gas to power the
manufacturing facilities in 2005 has helped reduce gaseous
emissions from the plant.

Production facilities

Yamama currently operates seven production lines. All were
supplied and installed by Polysius AG of Germany, a leading
engineering contractor for the cement and minerals industries. The
latest was a 3.3 million ton expansion executed under a turnkey
contract worth SR1.5 billion, which was commissioned in the first
quarter of last year. GAMA Industry Arabia of Turkey helped with the
civil works portion of the contract. While most other cement
companies have turned to China for in order to procure cheaper
equipment, Yamama has remained loyal to Polysius because of the
reliability of their equipment and after sales support.

As Yamama has just finished a major capacity ramp up, we do not
think the company will embark on further expansion in the
foreseeable future, however it might consider a debottlenecking
project to boost the current capacity by 15-20 percent.

Modernization and upgrade of the electric power turbines was
recently completed at a cost of around SR500 million. In addition to
boosting power generation, the project makes it possible for
Yamama to use both crude oil and natural gas in operating its power
turbines. Natural gas can be used in all lines, but is mostly used for
line seven, as current supplies are insufficient for all installations.
Turbines are used to power all of the companys operations apart
from its furnaces.

Yamamas investment portfolio

Yamama has investments in eight other companies worth a total of
SR396 million. Only Cement Industry Products is an affiliate, with the
0
200
400
600
800
1,000
1,200
1,400
1,600
2003 2004 2005 2006 2007
(
S
R

m
i
l
l
i
o
n
)
Capital expenditure
7
16 August 2008
Investment Type
Share
(percent)
Amount
('000 SR)
Cement Industry Products Ltd. Affiliate 33.3 13,585
Industrialization & Energy Services Co. Securities 5.6 112,500
Sahara Petrochemicals Securities 1.2 94,609
Saudi Kayan (petrochemicals) Securities 0.3 26,000
Kuwaiti-Sudanese Holding Co. Securities 6.7 14,190
Arabian Shield (Insurance) Securities 5.0 64,250
Kafa'h Iron and Steel Securities 6.0 11,250
Total 396,384
Hail Cement Affiliate 5.0 60,000
0
500
1000
1500
2000
2500
3000
3500
4000
2005 2006 2007
(
t
h
o
u
s
a
n
d

t
o
n
s
)
OPC Sulphateresistant
Production by type


rest being minority interests in other companies. Yamama owns a 33
percent stake in the Cement Industry Products, which is based in
Jeddah and produces paper sacks for cement packaging (Yamama
Cement is one of its customers). Its production capacity is 30 million
sacks per year and it is currently producing close to this level.

Management

Company management has been restructured with a number of
younger senior executives recruited over the past year to revitalize
operations. Yamamas chairman is Prince Faisal bin Mohammad bin
Saud Al-Kabeer. His brother, Sultan bin Mohammad bin Saud Al-
Kabeer, Yamamas Managing Director, is also chairman of Almarai,
one of the most efficiently run listed companies in the Kingdom. He
holds about 10 percent of Yamamas stock. The General
Organization of Social Insurance (GOSI) holds about 6 percent.

A new general manager, Jihad Al-Rasheed, was appointed in
January 2008 replacing Saud Al-Dablan, who had held the position
for the previous 14 years. Prior to joining Yamama, Mr. Al-Rasheed
spent 25 years at Sabic; his final posting was as general manager of
logistics. Muneer Al-Sahali, the general manager for finance and IT,
also has 10 years of experience at Sabic and joined Yamama after
four years as operational finance manager at Almarai.

Yamama has 1,100 employees; 1,000 work at the plant and 100 at
the companys head office in Batha, Riyadh. Saudiization at
Yamama stands at 67 percent (the quota for the industry is 30
percent). The company has an education center at the plant site for
training new recruits and upgrading the skills of existing staff.
Location in a big city helps Yamama to have a lower turnover among
Saudi employees than other more remote cement companies.

Competitive position

Yamama dominated the cement market in the Central region for
many decades and continues to be among the top producers in the
Kingdom. It anticipated the current upturn in the local economy early
and upgraded capacity accordingly, meaning that it had the largest
installed capacity in the Kingdom at the end of 2007. When the
current round of industry-wide production capacity increases is
complete in 2010, Yamama is expected to have the fourth greatest
capacity in the Kingdom. In terms of actual output, the company was
second largest producer in the Kingdom last year.

With Qassim cement doubling capacity and two other companies
(Riyadh and Madina) entering production in 2007, it may prove
increasingly difficult for Yamama to maintain its supremacy in the
Central region. The combined capacity of the two new companies
plants accounts for 32 percent of the Central regions total capacity.
Moreover, one of the two is already in the process of doubling
capacity by 2010. The fact that Yamama did not pursue an
aggressive expansion strategy over the past 20 years encouraged
other players to step in.

Although Yamama is not expected to add any new production lines,
it should enhance its competitive position though its recently
announced participation as a founding member of Hail Cement.
Yamama has taken a 5 percent equity stake at a cost of SR60
million. Hail Cement is one of two companies that have been
8
16 August 2008


confirmed recipients of limestone quarries in the second round of
industry expansion. Yamamas management is undergoing a full
review of the companys competitive position and more inorganic
expansion can not be ruled out.

Marketing and distribution

Yamamas longstanding marketing strategy has been to dominate
the market in the Central region. Similar to other cement companies,
distributors play a major role in Yamamas supply network. Sales are
made at the factory site. Private customers can also buy from the
plant. All customers buy at the predetermined price.

Unlike distributors, cement companies are bound by the cement
price ceiling agreed with the Ministry of Commerce and Industry.
Distributors were responsible for much of a recent price hike and
shortage of cement (by exporting rather than supplying the local
market), but cement companies appear to be hurt the most by the
ban on exports imposed to lower prices and lift supply to the local
market. Yamama is contemplating a new approach to distribution
whereby it reaches agreements with transport companies to sell
directly to end users. If implemented, this arrangement should make
it possible for cement companies to tighten their grip on the market,
take full advantage of the export opportunities and minimize price
manipulation by distributors, as unlike distributors, the transport
companies will not control the retail price.

In the past, Yamama did not view exporting as part of its marketing
strategy and the few shipments made were mainly for disposing of
the huge clinker inventory the company built up during the last
industry downturn. After exporting 203,000 tons of clinker in 2002,
Yamama did not export again until 2006, when it sold 77,000 tons
abroad. In 2007 exports jumped to 339,000 tons and in the first half
of this year, Yamama was the third largest cement exporter, with
303,000 tons. The GCC and Iraq have been Yamamas main export
markets.

Disclosure and transparency

The companys latest report to shareholders indicated that it has
been working on implementing relevant provisions of Capital Market
Authoritys corporate governance manual and that it was in the
process of drafting a manual for company governance. The
provisions that are yet to be dealt with include conditions for
nomination to board membership, conflict of interests, information
disclosure and transparency and social responsibility. Company
report and accounts are in line with industry standards. We were
impressed by the level of disclosure and transparency in our meeting
with company management.

Revenues from cement sales increased by 25 percent to SR1.2
billion in 2007, as a result of the new line entering production. This is
the highest annual growth in revenues since 2002. Cost of
operations grew at a lower rate owing to greater operational
efficiencies at the new plant. Net of depreciation (Saudi accounting
standards permit treatment of depreciation as a cost of operation
item), cost of operations totaled SR333 million in 2007 versus SR417
0
200
400
600
800
1000
1200
1400
2002 2003 2004 2005 2006 2007
(
S
R

m
i
l
l
i
o
n
)
Operating revenue Cost of operations
Operating revenues and costs
9
16 August 2008
Financial analysis


million including deprecation. Therefore, the adjusted cost of
operations is equivalent to 28 percent of sales. Unadjusted, it rises to
35 percent, which deflates gross margins. Net of depreciation,
Yamama recorded an impressive gross margin of 72 percent.
An examination of the sales-to-fixed assets ratio over time indicates
that Yamamas efficiency in utilizing its plant, property and
equipment has been declining. This is due to the huge capital outlay
on upgrading capacity. With capital outlay falling and the new facility
entering production, the sales-to-fixed asset ratio is set to improve.
The sales-to-total assets ratio, a more stringent measure of asset
utilization, is improving slightly as Yamamas spending on expanding
production capacity has come to an end and no funds are allocated
for new investments.

Net income rose to SR731 million in 2007, up 22 percent as growth
in sales revenues exceeded growth in costs. This was the highest
growth since 2004 (when it was 40 percent) and that was mainly due
to the one-time sale of the companys stake in the Saudi Industrial
Investment Group (SIIG). Yamamas investment revenues were
insignificant in 2007 accounting for about 1 percent of total revenues.
Selling, general and administrative expenses have declined steadily
as a percent of total sales over the past five years and accounted for
4.4 percent of total expenses, which may reflect better financial
controls and efficiency in running the business.

Profitability ratios
(percent)

In terms of profitability, the net profit margin has been relatively flat
over the last few years at a very healthy 60 percent. Other
profitability measures were similarly impressive in 2007, with return
on average assets of 21.7 percent, return on average equity of 34
percent and return on invested capital of 26.8 percent. The spike in
2004 in all of these ratios reflects the extraordinary revenues from
the sale of the stake in SIIG.

Yamamas liquidity position was stretched last year owning to a
combination of increasing short-term debt repayment obligations
(Tawarrok loans assumed by company) and a large increase in
accounts payable to suppliers. The latter grew by 235 percent last
year alone, as a result of expenses incurred relating to the new plant.
Also, Yamama had a large balance of dividends payable last year. At
the end of 2007, the companys current ratio was neutral at 1:1,
whereas the acid-test ratio (a more stringent measure of liquidity)
and net working capital were in a more precarious position, at 0.9
and minus SR18.1 million, respectively.

According to the companys latest results, for June 30, 2008, the
acid-test ratio bounced back to an impressive 2.4 and net working
capital rose to SR417 million. However, this reflects the payment of
SR405 million in dividends for 2007.

Activity ratios show a mixed performance in 2007. Inventory
turnover, which measures the average number of times inventories
0.0
0.5
1.0
1.5
2.0
2.5
2003 2004 2005 2006 2007
-50
50
150
250
350
450
Current ratio Net working capital (SR million)
Sales ratios
Liquidity
10
16 August 2008
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2003 2004 2005 2006 2007
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
Sales to fixed assets Sales to total assets (RHS)
2003 2004 2005 2006 2007
Net profit margin 59.5 76.1 63.3 63.3 61.7
Return on average equity 27.2 31.4 21.5 20.6 21.7
Return on average assets 38.1 44.7 34.3 34.2 34.0
Return on invested capital 38.1 41.3 26.1 24.4 26.8


are cleared, slowed to 8.7 times from 13.1 times last year, therefore
the days required to sell inventory increased to 42 from 28 last year.
This reflects the large increase in production and the new
competition in the Central region. Nonetheless, only five years ago it
took Yamama 182 days to sell inventory. The turnover of accounts
receivable has improved, rising to 5.2 times from 4.7 times; it took
about 70 days to collect accounts from 78 days a year ago.

Activity ratios

Yamama had a comfortable and declining debt-to-equity ratio of 52.4
percent in 2007. Its equity to total capital is also very strong, at 83.7
percent, and should improve further as the company continues to
clear its debt in the years ahead.

Leverage ratios
(percent)

Yamama is the second largest cement company by assets, which
totaled SR3.6 billion in 2007. Assets have grown by an annual
average of 25 percent over the past five years owning to capacity
expansion. This is reflected in the sharp increase in the value of
plant, property and equipment, which jumped from SR238 million in
2003 to SR2.47 billion in 2007. Plant, property and equipment
account for 68.5 percent of Yamamas total assets.

Assets, liabilities and shareholders equity
(SR million)

Liabilities grew by an average of 35.6 percent over the last five
years, owing to an increase in long-term debt taken on by the
company to finance expansion. Liabilities totaled SR1.24 billion in
2007 with short- and long-term debt accounting for close to 50
percent of the total. Shareholders equity, which is the net worth of
the company, reached SR2.36 billion, up 22 percent from 2006.
Funding of the recent expansion also was partially secured by
increasing the equity capital from SR450 million in 2005 to SR1.35
billion in 2006 by drawing on its huge statutory and general reserves.
Dividend stocks were issued to the then shareholders at a 1:2 ratio.
Yamamas shareholders equity is now the second largest in the
sector.



Accounts
payable, 9%
Other, 6%
Current portion of
long term loans,
9.6%
Long-term
government debt,
37%
Accrued
expenses and
other, 3%
Dividends
payable, 35%
Asset composition (end-2007)
Liability composition (end-2007)
11
16 August 2008
2003 2004 2005 2006 2007
Inventory turnover (times) 2.0 3.0 5.7 13.1 8.7
Days to sell inventory 181.9 122.2 63.6 27.9 42.0
Recievables turnover (times) 4.3 4.2 4.6 4.7 5.2
Average collection period
(days) 85.6 86.2 78.9 77.5 70.2
2003 2004 2005 2006 2007
Debt to equity 38.3 45.5 71.7 61.3 52.4
Equity to total capital 100.0 87.1 69.0 73.4 83.7
2003 2004 2005 2006 2007
Assets 1489 1960 2706 3128 3604
Liabilities 412 613 1130 1189 1239
Shareholders' equity 1077 1347 1576 1939 2365
Cash, 12.2%
Accounts
receivable, 6.0%
Inventory, 1.3%
Plant, property
andequipment,
net, 68.5%
Projects
underway, 0.8%
Other, 1.8%
Longterm
investments ,
9.3%


First half 2008 results

Yamamas results for the first half of 2008 were released recently.
Not surprisingly, the company was not as negatively impacted by the
suspension of cement exports as the other more export-oriented
companies. Total sales revenues from operations were SR717
million during the first half this year, up 23 percent from the same
period of 2007 and 19 percent higher than the previous six months.
Over the last quarter alone, revenues totaled SR379 million, up 12
percent from the quarter ending March 31, 2008. Net income during
the first half of the year was SR425 million, up 13 percent from the
same period of 2007 and 20 percent higher than the previous six
months. This was because of greater output and efficiency savings
through the use of the new plant. During the second quarter, net
income totaled SR228 million, up 12.5 percent.

On June 30, Yamamas assets totaled SR3.54 billion, up 9 percent
on the corresponding period of last year, but down 2 percent from
the end 2007 figure as no more funds were allocated for projects
under way. Liabilities totaled SR793 million, down 16.6 percent on
annual basis and 36 percent over the first six months this year as a
result of a dividend payment in April of SR405 million. At SR2.75
billion, shareholders equity is up 16 percent on both an annual and
six-monthly basis.
We base our valuation of Yamama on a combination of the
discounted cash flow (DCF) and relative valuation approaches. We
believe DCF analysis is the best way of determining an appropriate
fair value for a share price. Relative valuation allows us to
incorporate the prevailing market conditions of companies in the
same sector in our valuation. We have assigned 70 percent weight to
the DCF and 30 percent to relative valuation.

The discounted cash flow model

The DCF method estimates value on the basis of future cash flows
over an investment horizon using empirical market data,
macroeconomic and industry evidence and the underlying
fundamental trends of the subject company. The DCF method then
applies a present value discount rate, known as the required rate of
return on investment, to project future cash flows, which results in an
estimation of net present value of projected cash flows.

The value of the company is estimated by projecting the cash flows
that the company is expected to produce and discounting those cash
flows back to the valuation date using a discount rate that reflects the
related risk. An in-depth analysis of the companys revenues, fixed
and variable expenses and capital structure were conducted.

DCF valuation calculations

Present value discount rate: We estimated the cost of Yamamas
equity capital (net of long-term debt) using the capital asset pricing
model which incorporates a risk free rate, a long-term risk premium
and a companys stock beta.

12
16 August 2008
Valuation


Risk free rate: The risk free rate is used as to measure the
opportunity cost of investing. Since DCF analysis is based upon
a long-term investment horizon, the appropriate risk-free rate is
that of a long-term government security. We use the 10-year
Saudi riyal bond issued by SAMA, which yielded 5.44 on the
valuation date.

Equity risk premium: We calculate the equity risk premium as
the average of the arithmetic and geometric means of TASI
historical returns, less the long-term rate of return on the10-year
SAMA bond. The arithmetic mean of the TASI over the period
from 1980 to August 13 2008 , was 16.03 percent .The geometric
mean over the same period was 11.07percent. The average of
the two is 13.55 percent, which is the market return. Accordingly,
the equity risk premium is 8.11 percent.

Beta: Beta is a measure of the risk inherent in the companys
investment returns. The market (TASI) beta is always one. A
stock beta that is lower than one, as in the case of Yamama
(0.85) indicates that the stock tends to be about 15 percent less
volatile (up or down) than the TASI. Applying beta to the long-
term equity risk premium gives a beta-adjusted long-term equity
risk premium of 7 percent.

The capital asset pricing model resulted in a total estimated cost of
equity capital of approximately 12.36 percent. This is arrived at by
adding the beta-adjusted equity risk premium and the risk free rate.

Projected cash flows: Taking into account the outlook for the
economy, the plethora of megaprojects planned or underway, the
boom in the construction and real estate sectors, the rapid growth in
population, the huge expansion in cement production capacities and
cement price trends, we projected that net income growth of the
company will average around eight percent for the next five years.
Sales growth of cement companies is a function of production and
prices. Output of a cement plant is limited by its installed capacity (6
million tons per year in the case of Yamama), although companies
may be able to exceed that level by 10-15 percent (equipment
manufacturers allow for some extra capacity as a precautionary
measure). As Yamama has no plans to add to its designed
production capacity, its output is likely to be relatively flat once the
new production line has hit full capacity in 2010.

Prices of cement appear to be leveling off due to the ban on exports
and are forecast to decline by around 3-5 percent per annum over
the next few years. Yamamas operating costs should improve given
that more efficient plants have been installed. In our opinion, our
projections of income for the fiscal years 2008 through 2013 present
a reasonable estimate of the companys future earnings capacity
(see valuation summary annex)

We selected the net cash flow to equity (NCFe) approach as the
appropriate measure of economic income to use in this valuation.
Net cash flow represents the maximum amount of cash that could be
distributed to shareholders without affecting the companys normal
operational cash requirements. We calculated net cash flow to equity
by adding back depreciation and deducting capital expenditures,
debt repayments and increases in working capital from net income.
Yamama has no further projects under way; therefore we expect that
its capital investments will be minimal and that no additional debt will
13
16 August 2008


be assumed. We expect Yamamas requirement for net working
capital will decrease substantially over the projection period.

We calculated that the present value of the companys NCFe for
fiscal years 2008 through 2013 is approximately SR4.4 billion. Of
course, Yamama will continue to generate cash flows beyond the
discrete projection period. Therefore, the DCF analysis also projects
a terminal value. In estimating an appropriate terminal growth rate for
the companys net cash flows, we considered several factors,
including the expected growth of the overall economy and the
expected long-term rate of inflation. Based on this information we
selected a long-term rate of 3 percent as appropriate for Yamamas
net cash flow.

Combining the present value of the terminal cash flow with the
present value of the discrete cash flow projections results in a total
value of Yamama of SR10.1 billion. Based on the above, the DCF
results in a fair market value of Yamamas common stock on the
valuation date of SR75.1.

Relative valuation calculation

Relative valuation, or comparable company analysis, values a
company in reference to other publicly traded companies with similar
operating and financial characteristics. Some of the most commonly
used financial ratios for this process are the price-to-earnings ratio
(PE) and price-to-book value ratio (PB). A lower ratio than its peers
and the industry average may suggest that a stock is undervalued
and vice versa. The rationale for using the PE is that earnings power
is the main driver of investment value. The PB ratio measures how
much investors are willing to pay for a unit of the companys net
asset value.

We have used our estimates of leading twelve months earnings per
share and book value per share to arrive at a relative valuation of
Yamama. Based on a one year comparable forward PE and a one
year trailing PB, we have arrived at a fair value of SR67.1. This
valuation is based on our projections of company performance in
2008 and 2009, which would reflect the prevailing market conditions
of Yamamas peer group. For our comparables, we used companies
listed under the cement sector on the TASI, as follows:

Yamamas stock is currently trading at a leading PE of 9.37, the
second lowest of the cement companies, suggesting that its share
price is relatively undervalued. From a PB perspective, the stock is
slightly below the sector average. Based on our analysis of the
14
16 August 2008
Company Price
Market
Cap (SR
mn)
EPS
(SR)
Trailing
PE
Leading
PE*
BV
(SR) PB
Yamama Cement 62.5 8,438 5.77 10.8 9.37 20.3 3.1
Arab Cement 66.5 5,320 5.04 13.2 12.29 29.7 2.2
Saudi Cement 95.0 9,690 6.60 14.4 12.00 25.2 3.8
Qassim Cement 132.5 5,962 13.66 9.7 10.30 36.7 3.6
Southern Cement 67.0 9,380 5.83 11.5 - 17.6 3.8
Yanbu Cement 63.3 6,641 5.78 10.9 9.03 20.1 3.1
Eastern Cement 66.3 5,698 6.31 10.5 11.34 21.7 3.1
Tabuk Cement 34.0 3,060 2.44 13.9 - 12.8 2.7
Sector (average) 6.01 11.9 10.7 23.0 3.2
Market (average) 2.25 19.4 - 13.3 3.3
* Source: Tadawul and Reuters


companys future performance, we have assigned Yamama forward
earnings per share of SR6.96 and forward book value per share of
SR18.79. By applying these ratios to the industrys one year leading
PE and one year trailing PB, and assigning 50/50 weights to each
measure, we arrived at a 12-month target price of SR67.1 per share
of Yamamas stock.

Recommendation

Based on the two valuation parameters weighted 70:30 in favor of
the DCF, we arrive at a one year target price of SR72.7. We believe
Yamama is slightly undervalued at its current price of SR62.5 and
recommend that investors consider buying.
15
16 August 2008

Price per
share (SR) Weights Contribution
Valuation method
Free cash flow to equity (DCF) 75.1 70% 52.6
Relative valuation (PE/PB) 67.1 30% 20.1
Fair value price 72.7


16
16 August 2008








The bar on the front page of this report is Jadwas method of
conveying our investment recommendation as clearly and concisely
as possible. The bar is based on traffic lights, where green means
go (buy), yellow is slow (hold), and red is stop (sell). Fair value
for the stock is the middle of the yellow area. The further the current
price diverges from fair value, the greater the degree of over or
under valuation (depending on whether the current price is to the
right or left of fair value). We use five colors in our recommendation
bar, with those on either side of the yellow area signifying that an
investor should consider buying or selling the stock. The price range
for each of these alternatives is within the colored section. These
price ranges have been adjusted to take account of share price
volatility (using the stock's variance-mean ratio). The more volatile
the share price, the larger the price ranges.
The Jadwa recommendation bar
Fair value
SR73
Current price
SR62.5
Sell Consider
selling
Hold Consider
buying
Buy
SR79-68 SR85-80 >SR85
SR67-61
<SR61


This table ranks Yamama Cements performance against what we believe are the key success factors
for the sector it operates in (cement). A green rating is positive, yellow neutral and red negative.
17
16 August 2008
Performance matrix
Factor Measures Yamama's status Rating
Valuation Fair market value of the
company
The stock is slightly undervalued.

Management How efficiently and effectively
the company is run.
New dynamic senior management team with prior
experience in top tier listed companies.

Competitive
position
The position of business
relative to others in the same
industry.
Top producer in the Central region, although market
share is declining. National position vulnerable in
light of capacity build up by competitors.

Technology Efficiency, durability and
reliability of plant and
equipment.
All production lines are supplied by leading global
contractor. Ability to use natural gas for fueling
makes operations more cost efficient.
Quarry
concessions
Long run supply of raw
materials.
Limestone quarries have supplies sufficient to last
for many decades. Yamama owns the property on
which its plant and quarries are located.

Marketing and
distribution
The extent to which income
depends on long term sales
contracts or distributorship
agreements.
The company has longstanding relationships with
end users and major distributors, but no formal
contracts exist. The company is currently reviewing
its distribution strategy.

Location Proximity to markets with high
construction activity and
exports terminals.
Yamama is located at the center of one of the
busiest construction hubs in the Kingdom, but is far
from export outlets.

Expansion
potential
What future projects or plans
does the company have to
maintain growth momentum
locally or regionally.
As one of the first to complete a major capacity
expansion, Yamama should reap the full benefit of
the construction boom. It is not considering a further
increase in production capacity, but is looking at
other opportunities.
Environment
protection
Compliance with the anti-
pollution requirements
The company has reduced emissions and its
location means it has to carefully adhere to
environmental policy.

Labor issues Saudiization, turnover and
visa issues.
Yamama exceeds its Saudiization quota. Its location
in a major population center helps with staffing.

Disclosure &
transparency
Company practice in
providing information required
by investors.
Published annual reports contain adequate
information and the website is useful. Management
was open and co-operative during our dealings.

Profitability The end-result of a
company's operations utilizing
all resources at its disposal.
At 72 percent gross margin (net of depreciation) and
62 percent net income, the company has one of the
highest profitability ratios in the industry.

Activity How efficient management is
in using its assets.
Most activity ratios slowed last year due to a
combination of higher production and liquidity
squeeze, reflecting less efficient use of assets.

Performance Efficiency in generating sales. Sales as percent of fixed assets dropped sharply
due to the large capital outlay, but improved slightly
as a percentage of total assets.

Liquidity Company's ability to meet
short-term and current
obligations on time.
The liquidity position was strained at end-2007, but
improved significantly during the first half of 2008.

Coverage Long term solvency and
ability to deal with financial
problems.
Financing charges are not reported, but we believe
they are insignificant.

Leverage Capital adequacy and ability
to meet long-term obligations
and take advantage of
opportunities as they arise.
With long-term debt accounting for 16 percent of
total capital and equity accounting for 84 percent,
Yamamas leverage position is very comfortable.




18
16 August 2008
DCF valuation
SR' 000 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
Net income 853,408 1,026,184 1,102,393 1,172,493 1,103,286 1,037,013
+ Depreciation 90,772 95,311 100,077 105,080 110,334 115,851
- Capital expenditure (123,500) (129,675) (136,159) (142,967) (150,115) (157,621)
-/+ Increase/decrease in working capital (74,767) 32,783 34,422 36,143 37,950 39,848
+ Increase in long-term debt - - - - - -
= Net cash flow to equity 745,914 1,024,603 1,100,732 1,170,750 1,101,455 1,035,091
Estimating the discount rate
k = rf + (rm - rf)B
Risk-free rate (rf) 5.435%
Market return (rm) 13.55%
B (beta) 0.85
Discount rate (k) 12.36%
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
Discounted Value of Equity (DFCFe) 713,492 872,248 833,970 789,436 661,003 552,840
Total DFCF 4,422,989
Terminal Cash Flow
Value in year 5 1,035,091
Assumed growth into perpetuity 3.00%
Present value of terminal cash flow 6,082,900
Total value of business (SR '000) 10,505,427
Repayment of outstanding debt (362,000)
Total value of business net of debt (SR '000) 10,143,427
Shares outstanding 135,000,000
Value per share (SR) as @ 13-8-2008 75.14
Current Price 62.50



19
16 August 2008
Balance sheet
Financial statements
As of December 31
2003 2003 2003 2003 2004 2004 2004 2004 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007
ASSETS ASSETS ASSETS ASSETS SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000 SR '000
Current Assets:
Cash at vault and banks 517,911 294,246 564,983 259,698 440,785
Accounts receivable, trade 158,775 177,632 164,406 239,068 217,096
Inventories (cement; finished & under
processing) 107,282 69,048 13,269 29,527 47,105
Prepaid expenses and other receivables 1,109 499 60,700 10,478 7,341
Total Current Assets 785,077 541,425 803,358 538,771 712,327
Long term investments 331,694 311,303 61,726 203,703 336,384
Plant, property and equipment, net 237,803 255,319 635,976 823,957 2,469,997
Projects underway 116,502 812,649 1,166,519 1,542,737 28,304
Deferred expenses & others 17,698 39,400 38,616 18,694 57,311
Total Fixed Assets 703,697 1,418,671 1,902,837 2,589,091 2,891,996
TOTAL ASSETS 1,488,774 1,960,096 2,706,196 3,127,862 3,604,323

LIABILITIES & SHAREHOLDERS EQUITY
Current portion of long term loans - - - 60,000 119,000
Accounts payable 19,308 20,950 26,012 35,227 117,648
Accrued expenses and other 54,303 46,231 41,626 32,409 36,074
Dividends payable 285,076 288,275 290,682 300,828 433,676
Zakat provision 18,450 17,561 19,479 17,743 24,022
Total Current Liabilities 377,137 373,017 377,799 446,207 730,420

Long-term government debt - 200,000 709,760 701,247 462,247
Provision for employees end of service,
indemnities & other provisions
34,838 39,852 42,327 41,650 46,274
TOTAL LIABILITIES 411,975 612,869 1,129,886 1,189,104 1,238,941

SHAREHOLDERS' EQUITY
Share capital (paid up) 450,000 450,000 450,000 1,350,000 1,350,000
Statutory reserve 300,535 300,535 300,535 60,116 133,258
General reserve 307,401 557,401 807,401 457,935 707,935
Retained earnings 18,863 39,292 18,375 37,018 37,905
Unrealized investment gains - 33,687 136,283
TOTAL SHAREHOLDERS' EQUITY 1,076,799 1,347,228 1,576,311 1,938,756 2,365,381

TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY 1,488,774 1,960,097 2,706,197 3,127,860 3,604,322



20
16 August 2008
Income statement
Cash flow statement
As of December 31
2003 2004 2005 2006 2007
SR '000 SR '000 SR '000 SR '000 SR '000
Operating Revenue 653,119 712,641 791,087 950,121 1,185,502
Cost of operations (241,576) (263,321) (236,146) (279,786) (333,171)
Gross operating income 411,543 449,320 554,941 670,335 852,331
SG&A expenses (32,069) (36,011) (39,892) (36,057) (40,009)
Depreciation (12,408) (13,017) (13,288) (38,774) (83,549)
Operating income, net 367,066 400,292 501,761 595,504 728,773
Other revenues 39,230 157,936 15,122 21,655 22,658
Income before Zakat 406,296 558,228 516,883 617,159 751,431
Provision for Zakat (18,000) (16,000) (16,000) (16,000) (20,000)
Net Income 388,296 542,228 500,883 601,159 731,431
Shares outstanding (million units) 135,000 135,000 135,000 135,000 135,000
Earnings per share (EPS) SR 2.88 4.02 3.71 4.45 5.42
For the fiscal Year ending December 31
2003 2004 2005 2006 2007
SR '000 SR '000 SR '000 SR '000 SR '000
Cash flows from operating activties
Net cash provided from operating activities 424,168 431,980 534,000 599,263 919,434
Net cash provided (used) in investing activities (131,577) 588,844 (505,430) (696,181) (286,196)
Net cash used in financing activities (267,593) (66,800) (242,167) (208,368) (452,151)
Cash and cash equivalents at yearend 517,911 294,246 564,983 259,697 440,785



21
16 August 2008
Ratio analysis
For the fiscal Year ending December 31
2003 2004 2005 2006 2007
Liquidity
Current ratio 2.1 1.5 2.1 1.2 1.0
Quick ratio (Acid-Test) 1.8 1.3 1.9 1.1 0.9
Net working capital (SR million) 407.9 168.4 425.6 92.6 (18.1)

Activity
Turnover:
Sales to net working capital 1.6 4.2 1.9 10.3 (65.5)
Inventory 2.0 3.0 5.7 13.1 8.7
Receivables 4.3 4.2 4.6 4.7 5.2
Average collection period 85.6 86.2 78.9 77.5 70.2
Days to sell inventory 181.9 122.2 63.6 27.9 42.0

Performance (Asset utilization ratios)
Sales to fixed assets 2.7 2.8 1.2 1.2 0.5
Sales to total assets 0.44 0.36 0.29 0.30 0.33

Profitability (per share)
Gross margin (%) 63.0 63.0 70.1 70.6 71.9
Operating margin before depreciation (%) 58.1 58.0 65.1 66.8 68.5
Operating margin after depreciation (%) 56.2 56.2 63.4 62.7 61.5
Pretax profit margin (%) 62.2 78.3 65.3 65.0 63.4
Net profit margin (%) 59.5 76.1 63.3 63.3 61.7
Return on:
Total assets (%) 26.1 27.7 18.5 19.2 20.3
Equity (%) 36.1 40.2 31.8 31.0 30.9
Investment (%) 38.1 41.3 26.1 24.4 26.8
Return on average assets (%) 27.2 31.4 21.5 20.6 21.7
Return on average equity (%) 38.1 44.7 34.3 34.2 34.0
Return on invested capital (ROIC, %) 38.1 41.3 26.1 24.4 26.8

Leverage (Balance sheet)
Long-term debt to total capital 0.0 12.6 30.5 26.1 16.1
Debt to equity ratio 38.3 45.5 71.7 61.3 52.4
Equity to total assets (Equity ratio, %) 72.3 68.7 58.2 62.0 65.6
Equity to total capital (%) 100.0 87.1 69.0 73.4 83.7



22
16 August 2008
Summary of quarterly results
Balance Sheet
Q3 2007
SR '000
Q4 2007
SR '000
Q1 2008
SR '000
Q2 2008
SR '000

Current Assets 572,615 665,223 882,126 648,114
Inventory 33,461 50,216 53,828 39,676
Investments 282,931 336,384 306,910 344,017
Fixed Assets 2,435,382 2,498,301 2,512,700 2,486,583
Other Assets 24,037 57,311 23,608 20,774
Total Assets 3,348,426 3,607,435 3,779,172 3,539,164
Current Liabilities 125,998 205,003 723,527 271,070
Non-Current Liabilities 581,247 581,247 476,019 476,019
Other Liabilities 45,334 46,274 48,834 46,375
Shareholder's Equity 2,595,847 2,774,911 2,530,792 2,745,700
Total Liabilities & Shareholder Equity 3,348,426 3,607,435 3,779,172 3,539,164


Income Statement
Q3 2007
SR '000
Q4 2007
SR '000
Q1 2008
SR '000
Q2 2008
SR '000

Sales 338,771 264,782 338,762 378,616
Sales Cost 98,667 128,119 126,066 138,801
Total Income 240,104 136,663 212,696 239,815
Other Revenues 2,782 3,819 6,156 11,593
Total Revenues 242,886 140,482 218,852 251,408
Admin and Marketing Expenses 5,281 6,233 9,248 11,566
Depreciation 2,176 2,113 3,260 3,293
Other Expenses 2,001 1,525 3,872 3,750
Total Expenses 9,458 9,871 16,380 18,609
Net Income Before Zakat 233,428 130,611 202,472 232,799
Provision for Zakat 5,000 5,000 5,000 5,000
Net Income 228,428 125,611 197,472 227,799




Disclaimer of Liability
The information contained in this research (hereinafter refer to as Research) has
been obtained from various sources whose data is believed to be reliable and
accurate. Jadwa Investment does not claim and has no way of ascertaining that such
information is precise or free of error. This Research shall not be reproduced,
redistributed or passed directly or indirectly to any other person or published in whole
or in part for any purpose without written consent of Jadwa Investment.

The information, opinions, rankings or recommendations contained in this Research
are submitted solely for informational purposes. This Research is not an advice to sell
nor is it a solicitation to buy any securities, or to take into account any particular
investment objectives, or financial positions or is intended to meet the particular needs
of any investor who may receive this Research.

Jadwa Investment or its directors, staff, or affiliates make no warranty, representation
or undertaking whether expressed or implied, nor does it assume any legal liability,
whether direct or indirect, or responsibility for the accuracy, completeness or
usefulness of any information that is contained in this Research. It is not the intention
of this Research to be used or deemed as an advice, option or for any action that may
take place in the future. Investors should seek an independent opinion before taking
any investment action. The investor should understand that the income of investments
is subject to fluctuation and that the price or the value may change at any time. Any
action relying on this Research in whole or in part is entirely the sole responsibility of
the investor.

Jadwa Investment or its directors, staff, or affiliates may have a financial interest in the
security referred to herein.

All rights connected with this Research are reserved to Jadwa Investment. This
Research may be updated or changed at any time without prior written notice.
23
16 August 2008
For comments and queries please
contact:
Brad Bourland
Chief Economist
jadwaresearch@jadwa.com

or the author:
Gasim Abdulkarim
Equity Research Director
gabdulkarim@jadwa.com

Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555
Kingdom of Saudi Arabia
www.jadwa.com