Industry Leaders vs. Typical Members: Closing The Gap In A Recovering Market

1. Industry Leaders vs. Typical Members:Closing The Gap In A Recovering Market Presented at the 46th Annual NRMCA Business Administration Conference October 18, 2004

2. Review Of Changes Since The Last Survey • The Industry Leaders have witnessed a dramatic change in the reason why they rank in the top quartile over the previous year, which is measured in Profit Per Yard. • This past year, the Industry Leaders rose to the top due almost exclusively to dramatic improvements in Net Sales Price.

3. Review Of Changes Since The Last Survey cont’d • Their performance in many other areas shrank both in comparison to the previous year and compared to the Typical Member. • This key finding speaks to the ability of the Typical Member to close the gap between themselves and the Industry Leaders during this last recessionary cycle.

4. Review Of Changes Since The Last Survey cont’d • This year’s areas of improvement narrowed to only a couple of categories, including value added and direct delivery costs. • The Typical Member closed the gap in several areas including materials costs, Variable Delivery Cost, Direct Fixed Plant Costs , and G& A expenses.

5. Areas of PerformanceThis Year vs Last

6. Areas of PerformanceThis Year vs Last cont’d

7. Industry Leaders 2004:Their Competitive Advantages Are Shrinking Industry Leaders’ Advantages • Net Sales Price • Direct Delivery Costs Where the Typical Members Have Closed The Gap • Materials Costs • Variable Delivery Cost • Direct Fixed Plant Costs • G& A expenses

8. Industry Leaders:Their 2004 Advantages • Net Sales Price • Direct Delivery Costs

9. Industry Leaders:Their 2004 Advantages con’t Net Sales Price Per Yard • Industry leaders were able to increase the Net Sales Price by $3.86 compared to the previous year. • Key factors contributing to this increase include: • Value added increased by $4.59 for a 278% gain

10. Industry Leaders:2004 Advantages con’t Net Sales Price Per Yard • Miscellaneous yard sales increased $0.76 for a 102% gain • Fuel and environmental surcharges increased $.13 for a gain of 29.5% • Despite these gains, the price of concrete declined $1.23 (we believe the Industry Leaders are doing a better job of tracking these costs than in previous years).

11. Industry Leaders:2004 Advantages con’t

12. Industry Leaders:2004 Advantages con’t Direct Fixed Delivery Costs Per Yard • Industry leaders decreased their total direct fixed delivery costs over the previous year by $0.40 • Key factors contributing to the reduction: • Truck equipment leases declined by $0.39 • Fleet insurance declined by $0.15

13. Industry Leaders:2004 Advantages con’t

14. Where the Typical Members Have Closed The Gap • Materials Costs • Variable Delivery Cost • Direct Fixed Plant Costs • G& A expenses

15. Where the Typical Members Have Closed The Gap con’t Materials Costs Per Yard • While the Typical Member has seen an increase of $0.17 over the previous year, this compares to an increase of $2.95 for the Industry Leaders. • Key factors contributing to comparison include: • Cement decreased by $0.19 compared to an increase of $1.10 for the Industry Leaders • Fly ash increased only $0.07 compared to an increase of $0.63 for the Industry Leaders

16. Where the Typical Members Have Closed The Gap con’t

17. Where the Typical Members Have Closed The Gap con’t Variable Delivery Costs Per Yard • While the Typical Member has seen an increase of $0.58 over the previous year, this compares to an increase of $1.00 for the Industry Leaders. • Key factors contributing to difference include: • Driver Wages increased by $0.23 compared to an increase of $0.63 for the Industry Leaders • Fringes increased by $0.18 compared to an increase of $0.24 for the Industry Leaders

18. Where the Typical Members Have Closed The Gap con’t

19. Where the Typical Members Have Closed The Gap con’t Direct Fixed Plant Costs Per Yard • While the Typical Member has seen an increase of only $0.03 over the previous year, this compares to an increase of $0.52 for the Industry Leaders. • Key factors contributing to difference include: • Depreciation increased by $0.05 compared to an increase of $0.19 for the Industry Leaders • All other direct plant expense increased by $0.07 compared to an increase of $0.36 for the Industry Leaders

20. Where the Typical Members Have Closed The Gap con’t

21. Where the Typical Members Have Closed The Gap con’t G & A Expenses Per Yard • While the Typical Member has seen an decrease of $0.35 over the previous year, this compares to an increase of $0.11 for the Industry Leaders. • Key factors contributing to difference include: • Executive Salaries decreased by $0.05 compared to an increase of $0.11 for the Industry Leaders • Office Salaries & Wages decreased by $0.14 compared to an decrease of $0.01 for the Industry Leaders • Fringes decreased by $0.02 compared to an increase of $0.07 for the Industry Leaders

22. Where the Typical Members Have Closed The Gap con’t

23. Profit Model Ratios • Pre-Tax Profit Margin % • Asset Turnover • Return on Assets (ROA) % • Return on Equity (ROE) %

24. Profit as a Percentage of Sales by Company Size

25. Profit as a Percentage of Sales by Regions

26. Asset Turnover by Company Size

27. Asset Turnover by Regions

28. Return on Assets (ROA) % by Company Size

29. Return on Assets (ROA) % by Regions

30. Return on Equity (ROE) % by Company Size

31. Return on Equity (ROE) % by Regions

32. Summary Slide • The Industry as a whole does not seem to have recovered as well as the rest of the economy. • Both the Industry Leaders and the Typical Members have been unable to increase prices to reflect increased costs.

33. Summary Slide con’t • While the gap has narrowed between the Industry Leaders and the Typical Member, industry-wide profitability is trailing the highs of the late 90’s by $2.97 per yard, or a decline of 56.3% since 1999 ($5.27 in 1999 vs $2.30 in 2003). • The industry must increase prices to match the realities of increased costs to return to its historical levels of profitability.