At a meeting chaired by Giampiero Pesenti, the Board of Directors of Italcementi examined and approved the consolidated half-year report at June 30, 2007.
After an excellent first quarter assisted by unusually favorable meteorological conditions in most of the countries where the Group operates, with the exception of North America, sales volumes in the second quarter slowed in some European countries and in Turkey, largely due to adverse weather.
Under these conditions, compared with the year-earlier period, first-half sales volumes on a like-for-like basis were substantially stable in the cement and aggregates lines of business and slightly higher in ready mixed concrete.
Revenues, amounting to 3,073.1 million euro (+5.6% YoY), benefited from the trend in prices, although this did not counterbalance, in all countries, the significant rise in operating expenses (notably fuel and transport). Nonetheless, recurring gross operating profit, driven in particular by the healthy performance of the emerging countries and the positive contribution of France and Belgium, and despite a negative exchange rate effect, was 720 million euro (-1.7%). Operating profit for the first half was 508.1 million euro (-5.1%). After a slight increase in net finance costs and a rise in the share of results of associates, profit for the first half, after tax, was down—in respect of the record results of 2006—by 7.6%, to stand at 313.7 million euro. Group net profit was 208 million euro (- 9.5%) .
Net debt at June 30, 2007, was 2,337 million euro, up by 126.7 million euro from December 31, 2006, after investments in industrial and financial fixed assets of 397.1 million euro. These investments drove significant growth by the Group in ready mixed concrete and aggregates in North America and Egypt and entry on to the Chinese cement market at the end of June.
Total shareholders’ equity, at 4,790.1 million euro, was up by 129.9 million euro; gearing moved from 47.4% at the end of 2006 to 48.8%.
In July the Standard & Poor’s rating agency upgraded its long-term rating for Italcementi and Ciments Français from BBB with a positive outlook to BBB+ with a stable outlook.
The Parent Company Italcementi S.p.A. reported half-year revenues of 532.7 million euro, down 1% from the year-earlier period largely as a result of the slowdown in second-quarter sales volumes; although sales prices increased, the average half-year levels were in line with the year-earlier period. In this situation, the parent company was unable to offset the sharp rise in operating expenses, and consequently reported a downturn in operating results, with recurring gross operating profit of 75.3 million euro (-19.3%). The rise in net finance income and the lower estimated tax expense for the period allowed the company to limit the decrease in half-year net profit, which totaled 50.3 million euro (- 13.5%).

For the current year, the construction sector in the industrialized countries is at a very advanced cyclical phase with some signs of weakening, while market conditions are still favorable in the emerging countries where the Group operates. In this scenario, and in view of the half-year results, subject to currently unforeseeable events the Group confirmed its projection of reporting 2007 operating results in line with the very positive figures of 2006, despite increased difficulties. The comparison in terms of net profit will be affected by the fact that 2006 benefited from positive non-recurring fiscally driven items.

2007 SECOND QUARTER

In the second quarter of 2007 market trends varied from one geographical area to another. Group sales volumes decreased compared with the year-earlier period, at constant size, in all three core businesses: cement (-4.8% largely owing to the downturn in exports), aggregates (-6.6%) and ready mixed concrete (-3.4%). Despite this slackening, 2007 second-quarter revenues rose by 2.2% to 1,665.1 million euro as a result of the positive trend in sales prices, which, nevertheless, did not counterbalance in full the continuing rise in production costs, notably energy costs. The increase in operating expenses was reflected on half-year gross operating profit, which was 442.6 million euro (-6%).

2007 FIRST-HALF BUSINESS PERFORMANCE

During the first half of 2007 Group sales volumes, at constant size, were substantially stable in the cement business at 32.4 million metric tons (-0.7%, with a slowdown on the European markets and weak conditions on the American market and in trading offset by very lively markets in the emerging countries) and in aggregates at 30 million metric tons (+0.5%). In the ready mixed concrete business, the larger contribution from the Med Rim countries (especially Egypt and Morocco) generated a slight improvement  (+1.5%) to 11.4 million cubic meters.

FIRST-HALF FINANCIAL PERFORMANCE

Italcementi Group consolidated half-year revenues amounted to 3,073.1 million euro (+5.6% compared with the January-June 2006 period) with improvements in all geographical regions except North America, as a result of stable sales volumes and positive price trends. Specifically, business growth accounted for 5.1%, the changes in the scope of consolidation for 2.2% (essentially line-by-line consolidation of Zuari Cement in India as from June 2006 and of the ready mixed concrete operations acquired in Egypt as from October 2006 and in North America during the first half of 2007). The exchange-rate effect had a negative impact of 1.7%.
In absolute terms, the region that made the strongest contribution to revenue growth was Central Western Europe thanks to France, Belgium and Spain; the emerging countries also made a significant contribution. North America reduced the significant revenue decline of the first quarter with second-quarter revenues in line with the year-earlier period, at constant size and exchange rates.
The upward trend in operating expenses continued in the second quarter. This was largely the result of the further rise in fuel prices and logistics costs, and of cement and clinker purchases from third parties to supplement availability in some countries, in response to demand. Plant maintenance costs and employee expenses also increased.
The growth in revenues was not sufficient to cover the significant rise in costs in the first half. This was reflected on recurring gross operating profit which, at 720 million euro, was 1.7% lower than the year-earlier result. Operating profit was affected by higher amortization and depreciation charges, and amounted to 508.1 million euro (-5.1%).
Net finance costs showed a slight increase (+3.3%) to 58.7 million euro, largely as a result of charges relating to the debt restructuring operations at Ciments Français.
Net profit was 313.7 million euro (-7.6%), after income tax expense of 139.7 million euro. Group net profit for the period was 208 million euro (-9.5%).
The continuation of the fixed asset investment program—with investments totaling 397.1 million euro in the first half of 2007—enabled the Group to strengthen its presence in ready mixed concrete (acquisitions of Cambridge and Arrow in North America) and in aggregates (45% of Tecno Gravel in Egypt). At the end of June the Group reached an agreement for the acquisition of Fuping Cement, an operation marking its entry on to the Chinese market (Fuping Cement will be consolidated as from the second half of the year).
Net debt stood at 2,337 million euro at June 30, from 2,210.3 million euro at December 31, 2006. Shareholders’ equity at the end of the first half was 4,790.1 million euro (+129.9 million euro), while gearing (net debt/consolidated equity) passed to 48.8% (47.4% at December 31, 2006).

PERFORMANCE BY GEOGRAPHICAL REGION

CENTRAL WESTERN EUROPE (Italy, France, Belgium, Spain, Greece)
Italy reported a slight increase in cement consumption in the first half of the year, after a very strong first quarter and a slight slowdown in the second quarter, with average prices per unit in line with the year-earlier period. For the Group, this produced a small improvement in revenues, but a negative trend in operating results owing to the rise in operating expenses. In ready mixed concrete, where demand slackened, revenues at Calcestruzzi were slightly higher thanks to the sales price factor, while operating results were significantly lower.
The upbeat market climate in France continued, especially in the early months of the year. Group cement sales benefited from the situation and, together with higher revenues per unit, produced an improvement in turnover and operating results. Revenues in ready mixed concrete and aggregates also made good progress.
In Belgium the Group reported growth in both the cement and the ready mixed concrete businesses. Lively demand and satisfactory revenues per unit boosted operating profits.
Group performance was uneven in Spain, with sales volumes rising in the northern regions and decreasing in the southern regions, where there was a significant downturn in the residential sector; the general trend in ready mixed concrete sales improved. Overall turnover increased, in part as a result of the recovery in revenues per unit, which covered the rise in operating expenses and permitted a small improvement in operating results.
In Greece the market slowed compared with the high levels of 2006, leading to a downturn in sales volumes in cement and in ready mixed concrete. Sales prices on average were higher than those of the year-earlier period, but unable to offset the rise in operating expenses.

NORTH AMERICA (USA, Canada, Puerto Rico)
There was a slight slowdown in operations in the first half compared with 2006, due to the strong decline in residential demand which the steady trend in public works and private non-residential construction did not counterbalance. As a result, Group cement and clinker sales slackened, a trend also driven by the negative performance of the first quarter (in comparison, however, with the first quarter of 2006, the last period of growth on the residential market). The fall in volumes and the rise in operating expenses, offset in part by higher prices, led to a reduction in revenues and results. During the first half the Group expanded its operations in ready mixed concrete with the acquisition of Cambridge (as from March 1) and Arrow (as from April 1).

EASTERN EUROPE – SOUTHERN MED RIM (Egypt, Morocco, Turkey, Bulgaria)
In Egypt the cement market remained strong, supported by the residential segment and investments in tourist infrastructures. Group performance was in line with the market, with higher revenues. Sales prices were largely stable, while operating expenses rose significantly, especially for energy and personnel. During the first half, the Group continued its expansion in aggregates with the acquisition of Tecno Gravel (45%); in ready mixed concrete, the Decom company was acquired in July.
Group sales in Morocco reflected the new growth on the market. The increase in sales volumes and prices produced a significant improvement in revenues and operating results, although the latter reflected the impact of higher costs, owing to clinker purchases to meet domestic demand and the rise in fuel prices.
In Turkey, despite strong competitive pressures, Group domestic sales volumes continued to improve thanks to an excellent first quarter, accompanied by a significant rise in prices which offset the increase in production costs. Sales in ready mixed concrete were steady over the first half, despite a slowdown in the second quarter. Operating results were adversely affected by a negative exchange rate.
Cement demand rose significantly in Bulgaria thanks to favorable meteorological conditions and the strong business levels in infrastructure and residential building. High domestic demand, as a result of which cement exports decreased, supported average sales prices, generating higher revenues and operating results.

ASIA (Thailand, India, Kazakhstan)
The uncertain political climate in Thailand continued to exert a negative effect on demand for cement and ready mixed concrete, due to delays in important public and private projects. The drop in domestic sales was offset in part by the rise in Group cement exports. The decline in demand also flattened sales volumes in ready mixed concrete. The downturn in sales volumes, made up only in part by the growth in exports, where margins are smaller, led to a decrease in revenues and operating results.
Group cement sales in India made good progress, supported by favorable weather conditions and higher demand in the Group’s area of business, which absorbed production capacity in full. These market conditions produced a favorable trend in revenues per unit and a significant improvement in results.
Demand grew strongly on the cement market in Kazakhstan, supported by the construction sector. Group cement sales volumes made healthy progress and, combined with the positive sales price trend, led to an increase in operating results, despite higher operating expenses (electricity and maintenance).

TRADING CEMENT
Third-party cement and clinker sales volumes slackened, due to availability problems arising in part as a result of strong demand by Group companies. High demand on domestic markets in the Med Rim area reduced cement and clinker volumes for export. The increase in sales prices made up for the rise in logistic costs.

ITALCEMENTI S.p.A. – The Parent Company Italcementi S.p.A. reported revenues of 532.7 million euro for the first half of 2007, a decrease of 1.0% from the year-earlier period as a result of the downturn in sales volumes in the second quarter. This trend, together with the significant increase in operating expenses, compressed operating results, which were significantly down on the prior first-half results: recurring gross operating profit was 75.3 million euro (-19.3%) and operating profit was 41 million euro (-33.1%).
The rise in net finance income and the lower estimated tax expense for the period allowed the company to limit the decrease in half-year net profit, which totaled 50.3 million euro (-13.5%).

OUTLOOK – For the current year, the construction sector in the industrialized countries is at a very advanced cyclical phase with some signs of weakening, while market conditions are still favorable in the emerging countries where the Group operates. In this scenario, and in view of the half-year results, subject to currently unforeseeable events the Group confirmed its projection of reporting 2007 operating results in line with the very positive figures of 2006, despite increased difficulties. The comparison in terms of net profit will be affected by the fact that 2006 benefited from positive non-recurring fiscally driven items.

DEBENTURE ISSUES AND MATURITIES – On March 21, 2007, the subsidiary Ciments Français S.A. issued new bonds under its Euro Medium Term Note program for 500 million euros, bearing interest at a fixed rate of 4.75%, with a 10-year maturity. On the same date, Ciments Français launched a Tender Offer in respect of the 350 million euro, 5.875% notes due 2009, issued under its Euro Medium Term Note program. Notes totalling 190.7 million euro had been bought back on the closing date March 30, 2007. These two transactions were settled on April 4, 2007. No issues are due to mature in the 18 months after the end of June 2007.