A Look Into The Crystal Ball: The Ready Mixed Concrete Industry In 2010 And Beyond Presented at the 46 th Annual NRMCA Business Administration Conference October 20, 2004

Overview  Cement Shortages Will Be Short-lived, Maybe  Total Concrete Volume Could Reach 500M Yards Within the Next Few Years  Consolidation Will Continue  HR Will Continue to Be A Challenge  More Sophisticated Marketing Will Play A Key Role In Growth

Overview  Mixers Will Continue to Become More Sophisticated  Permitting And Compliance Will Become More Daunting Than Ever  Technology Will Continue To Be The Key Driver in Efficiency Improvements

Current Cement Shortages

Cement Shortages Will Be Short-lived, Maybe  The length and severity of the shortage will depend on the region  However, an easing of the current crisis should occur over the next 6-12 months  PCA sees a potential easing of shortage conditions in some regions during the fourth quarter, assuming a reduction in housing demand and increased import supply

Long-term Cement Concerns  Cement consumption last year was million metric tons in the United States. Of that figure, only 84.3 million metric tons were produced domestically  Over the next 5 years, domestic producers expect to expand production capacity by 17.6 million metric tons  Greenfield Operations: 9.9 million metric tons  Modernization: 7.0 million metric tons

Long-term Cement Concerns  These numbers indicate that total domestic production in 2010 will be approximately million metric tons  With the ready-mixed concrete industry consuming approximately 75% of the cement production in the US, our industry cannot sustain our current production levels, much less any growth, without historically high levels of imported cement

Long-term Cement Concerns  If the ready-mixed concrete industry achieves a 500M cubic yard production level in 2010, this translates into a requirement of 48.7 million tons of cement in excess of domestic production capacity at that time  This means that imported cement will represent 32.4% of total domestic consumption, which is a record high percentage

Long-term Cement Concerns  Additionally, the economics of imported cement relies heavily on favorable ocean freight rates  Current economic growth in China, and its corresponding demand for cement, creates some concern about the stability of future supplies of imported cement

Imported Cement As a Percentage of Total Supply  Since the early 1980s, imported cement has increased significantly as a percentage of total supply, regardless of US economic conditions  Early 1980’s (recession):3% of Total Supply  Latter 1980s:15-16% of Total Supply  Early 1990’s (recession):6-8% of Total Supply  1998:24% of Total Supply  :29% of Total Supply  Today:22-24% of Total Supply

Total Concrete Volume Could Reach 500M Yards by 2010  We have studied projections from several industry sources and examined historical rates of consumption growth to project ready-mixed concrete production in 2010  Our internal estimates indicate total US concrete production will range between a low of 434 million cubic yards to a high of 576 million cubic yards

Total Concrete Volume Could Reach 500M Yards by 2010

 I know you are saying to yourself, “That is some crystal ball!”  Based on a number of these data, it is reasonable to assume that production by the end of this decade COULD reach the 500M cubic yard mark  Obviously, the higher the production potential, the greater impact the role of imported cement may have on our industry and its growth

Consolidation Will Continue  We estimate that more than 500 companies have been consolidated since the late 90’s  Succession, estate planning, and a concentration of net worth in the family business will continue to motivate the sale of smaller producers to the larger ones  The Top 25 producers in the US represent % of total production in 2004

Consolidation Will Continue  The Top 25 producers in the US will represent 65-70% of total production in 2010  Of those, the Top 10 could command more than 50% of the market  The smaller independents in local markets will find it more difficult to compete with larger, more sophisticated operations

Consolidation Will Continue  The exception will be the smallest producers in the smallest markets, who will be with us forever

HR Will Continue to Be A Challenge  More professional management will continue to find its way into the industry.  College curriculums will continue to expand, and young talent will continue to become available (although the supply of talent may be outstripped by demand for years to come)  While management may improve, hourly labor will continue to be a headache

HR Will Continue to Be A Challenge  The Wall Street Journal and USA Today have both written stories on the challenges of hiring truck drivers in just the past week, despite the number of lost jobs we have suffered in this last recession  In markets with large pools of new immigrants, or with an ingrained blue collar culture, the problem will not be so acute

HR Will Continue to Be A Challenge  In markets where such pools don’t exist, the available labor pools will become even more challenging  New initiatives, such as captive Driver Training Schools, outreach programs to local high schools, etc. will become a must for producers in the tougher labor pool markets

More Sophisticated Marketing Will Play A Key Role In Growth  The role of our state and national associations will continue to grow in educating the specifying community and consumers at large  A continued effort to educate the industry to sell concrete, rather than price concrete, will be adopted and/or grown by the leaders in individual markets

More Sophisticated Marketing Will Play A Key Role In Growth  Continuing to educate the customer base at large of the benefits of concrete over asphalt will be critical in continuing to grow volumes at the national level

Mixers Will Continue to Become More Sophisticated  By 2010, new mixers being delivered without GPS tracking systems will be the exception, not the rule  Truck tracking will be more accurate, translating into more efficient fleet utilization  Electronic detection devices to measure slumps and quantities of water added at the job site will be commonplace (these are already in the market)

Permitting And Compliance Will Become More Daunting Than Ever  Federal EPA and state environmental compliance will continue to become more stringent in most states, and compliance costs will continue to escalate  Environmental compliance costs may accelerate at the same percentage rates as recent increases in insurance, fuel, and cement

Permitting And Compliance Will Become More Daunting Than Ever  With new plants as unpopular as prisons and landfills, permitting for “greenfield” locations will become harder, and will probably be eliminated altogether in many large, urban markets  In the face of permitting challenges, sited and permitted plants will continue to rise in value

Permitting And Compliance Will Become More Daunting Than Ever  The trend towards siting plants in aggregates suppliers’ yards will be one way around this issue

Technology Will Continue To Be The Key Driver in Efficiency Improvements  Wireless technology will be prevalent in all aspects of operations, from dispatch to batching to trucks and delivery  Wireless technology will move and monitor gates, valves, conveyors, and other mechanical parts

Technology Will Continue To Be The Key Driver in Efficiency Improvements  The range of new computer and software will continue to grow at an exponential pace (Wally is next)

Summary – Our Opinion  Ready mixed concrete production will grow to 500 million cubic yards by 2010  An average yard of concrete will sell for $88.45  Fleet utilization will continue to climb due to technology  Driver recruiting and training will grow to being the biggest challenge for many producers

Summary – Our Opinion  Environmental compliance costs will continue to climb, becoming one of the fastest growing costs by percentage  Many of you will be more computer-literate than you are today  Many of you will become better marketers  Some of you will be living in Florida