A Look Into The Crystal Ball: The Concrete Industry In 2030 And Beyond

1. A Look Into The Crystal Ball: The Concrete Industry In 2030 And Beyond Presented to The Economic Summit Luncheon World of Concrete By Pierre G. Villere Allen-Villere Partners January 22, 2008

2. Our Overview: A Population Bomb That Drives Everything • Despite the current slowdown, AVP remains extremely bullish on the outlook for the construction industry and the concrete business as a subset • We believe the next recovery cycle will be as strong or stronger than any in the past • WHY?

3. Our Overview: A Population Bomb That Drives Everything • A report prepared by The Brookings Institute in early 2005 titled “Toward a New Metropolis: The Opportunity to Rebuild America” is striking in its conclusions, which are driven by population growth as projected by the US Census Bureau • Just think: • The first 100 million in population – the Pilgrim’s landing to 1915 (300 years!) • The next 100 million – 1967 (52 years)

4. Our Overview: A Population Bomb That Drives Everything • Just think: • The third 100 million – 2006 (39 years) • Estimates for the fourth 100 million – 2043 (37 years) • Brookings extensively reports on the corresponding demand for new building space of all types, i.e. commercial, residential, industrial, and public, to accommodate our population growth:

5. Our Overview: A Population Bomb That Drives Everything • By 2030, which is well beyond the relevant projection we are presenting here, but indicative of the velocity in growth, they believe: • about half of the buildings in which Americans live, work, and shop will have been built after 2000 • most of the space built between 2000 and 2030 will be residential space

6. Our Overview: A Population Bomb That Drives Everything • Overall, most new growth will occur in the South and the West • Here are some specifics:

7. Space Demand: The Greatest in History • 300 billion square feet of built space existed in 2000 • 427billion square feet will be required by 2030 • 82 billion square feet of that demand will be from replacement of existing space • 131 billion square feet will be new space

8. Space Demand: The Greatest in History • Most of the space built between 2000 and 2030 will be residential space • The largest component will be homes, at over 100 billion square feet by 2030, with a value of roughly $10 trillionin today’s dollars • However, percentage-wise, the commercial/industrial sectors will have the most new space, with over 60% of the space in 2030 less than 30 years old

9. Space Demand: The Greatest in History • Overall, most new growth will occur in the South and West, with a tremendous variation in the total amount of buildings to be built between regions: • In the Northeast, less than 50% of the space built in 2030 will have been built since 2000 • In the West, that figure is about 87%, a near doubling of built space in that region • Fast-growing southern and western locales, like Nevada and Florida, and cities like Austin and Raleigh, will see the most dramatic growth

10. Space Demand: The Greatest in History • Projected demand for industrial space in the Midwest outpaces that of other regions, unlike other major land uses • Though a small component of overall growth, states with a strong industrial presence will see the largest amount of growth • California far outpaces the rest of the nation in absolute square feet in new industrial construction, but the next four largest are:

11. Space Demand: The Greatest in History • Ohio • Michigan • Illinois • Indiana • ALL are Rust Belt states • By 2030, 70% of the Midwest’s industrial space will be less than 30 years old

12. Space Demand: The Greatest in History • While these projections may seem overwhelming, they also demonstrate that nearly half of what will be the built environment in 2030 doesn’t even exist yet, giving the current generation a vital opportunity to reshape future development • Recent trends indicate that demand is increasing for more compact, walkable , and high-quality living, entertainment, and work environments

13. Space Demand: The Greatest in History • The challenge for leaders is to create the right market, land use, and other regulatory climates to accommodate new growth in more sustainable ways

14. So What Does That Mean For Our Industry???? • A Coming Boom…

15. Total Concrete Volume Could Range Between 600-700M Yards by 2015 • We have studied projections from several industry sources and examined historical rates of consumption growth to project ready-mixed concrete production in 2015

16. Total Concrete Volume Could Range Between 600-700M Yards by 2015 • Our internal estimates indicate total US concrete production could be as low of 500 million cubic yards (in the case of a near-term, mild recession and prolonged housing slump) • 18 months ago, we projected a high 800million cubic yards if economic expansion resumes, but we no longer believe that number in achievable

17. Total Concrete Volume Could Range Between 600-700M Yards by 2015

18. 2015 Total Concrete Volume Projections • I know you are saying to yourself, “That is some crystal ball!” • Based on this data, it is reasonable to assume that production by the end of 2015 could range between 600-700M cubic yard mark for the US • Obviously, the higher the production potential, the greater impact on the future growth of the ready mixed concrete industry

19. …And Other Areas We See In Our Crystal Ball • Consolidation Will Continue • Fleet Efficiency Will Continue To Grow • HR Will Continue to Be A Challenge • More Sophisticated Marketing Will Play A Key Role In Growth

20. Overview: The Areas We See In Our Crystal Ball • 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

21. 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 50-55% of total production in 2006

22. Consolidation Will Continue • We think the Top 25 producers in the US will represent 80% of total production in 2015 • 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

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

24. Fleet Efficiency Will Continue To Grow • In 1995, the average yards delivered/year/truck was 4398, against a US market totaling 261.5 million cubic yards • In 2005, the average yards delivered/year/truck was 5846, against a US market totaling 458.3 million cubic yards • This represents a per-truck delivery efficiency improvement of 33% over the ten-year period.

25. Fleet Efficiency Will Continue To Grow • During this same period, total production yardage grew by 75% (261.5M vs. 458.3M) • Finally, the US mixer fleet grew from 59,454 units in 1995 to 78,393 in 2005, for an increase of 31% • Anecdotally, with believe the total fleet may be 5-10% larger, because smaller producers are difficult to measure

26. HR Will Continue to Be A Challenge • There has been so much written on the challenges of hiring truck drivers, and there is really no relief in sight. • In markets with large pools of new immigrants, or with an ingrained blue collar culture, the problem will not be so acute

27. 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

28. 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

29. 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

30. Mixers Will Continue to Become More Sophisticated • By 2015, new mixers being delivered without GPS/camera/tracking systems will be the exception, not the rule • Truck tracking will be more accurate, with intelligent, real-time routing to compensate for traffic patterns, weight restrictions, etc., translating into more efficient fleet utilization

31. Mixers Will Continue to Become More Sophisticated • Electronic detection devices that already measure slumps and quantities of water added at the job site will be supplemented by sensors that report mileage, fuel usage, hydraulic temperature and pressure, water temperature, and the top speed a driver reached • In-cab cameras will make use of video, increasing safety awareness and efficiency • Multiple cameras at various angles around the truck will also monitor job site activity

32. 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

33. 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

34. 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

35. Technology Will Continue To Be The Key Driver in Efficiency Improvements • Technology will continue to drive improvements in productivity, profitability, and the ability to “work smarter” • Things that now “take a while” will be instantaneous, will all real-time metrics loaded onto your screen • You will know the profitability of each load the moment the truck is batched, and the erosion of that profit based on waiting time/return

36. Technology Innovations • Improvements in GPS • Next generation will take into account traffic patterns, weight restrictions, etc. • Complete integration with back office, truck maintenance, etc. • Voice & Status (like Never Lost or OnStar)

37. Technology Innovations • Complete, seamless, integration of all systems • Dispatch • Payroll • A/P • QC • Truck Maintenance • Real Time Productivity and Profitability • By Load, as the truck is rolling out of the plant • By Customer, in real time • By Plant, in real time

38. Plant Innovations • The advent of truly “smart” plants • Batching performance will be measured in real time • Temperature and humidity levels will be measured in real time, and adjustments made to the mix designs • Wireless Technology will be prevalent in all aspects of operations, from dispatch to batching to trucks and delivery • These systems will move and monitor gates, valves, conveyors, and other mechanical parts

39. Plant Innovations • IP Addressable Valves • Automatic Maintenance • Signals or e-mail identifying failing or failed components • Automatic QC Information • Immediate e-mail notification of mix issues • Inventory • Automatic e-mail or integration of materials based on inventory, outstanding orders, and production models

40. Communication Innovations • Cameras in Plants • Centralized Batching • Cameras on Trucks • Job Site Conditions • Safety Issues • Voice Over IP • Connectivity at Low Costs

41. Communication Innovations • Electronic or Web Business • Orders • Tickets • Invoices • Payment • Delivery Schedules • PDAs

42. Summary – Our Opinion • Ready mixed concrete production will grow to between 600-700 million cubic yards by 2015, driven by the underlying assumptions in the Brookings Report • An average yard of concrete will sell in a range of $105 - $115, with certain markets well over $120 - $125, without value-added products • Fleet utilization will continue to climb due to technology • Driver recruiting and training will grow to being the biggest challenge for many producers

43. Summary – Our Opinion • Environmental compliance costs will continue to climb, becoming one of the fastest growing costs by percentage • Many of you will be far more computer-literate than you are today • Many of you will become better marketers • All of you will have had to adapt to are larger, consolidated industry ever striving for greater efficiency

44. And finally… Thank You!