Press release

At a meeting today the Italcementi Board of Directors examined and approved the consolidated half-year report at June 30, 2008, drawn up in compliance with IFRS 5 (Turkey) and deconsolidating Calcestruzzi.

During the first six months of the year, the cement industry was affected by a combination of negative factors, chiefly the slowdown in construction in almost all developed countries due in part to the impact of the international financial crisis and rising costs, especially energy costs. This was compounded by an unexpected deterioration on the markets toward the end of the second quarter, with the result that the current situation and the outlook are significantly worse than could have been forecast at the beginning of the year.
Under these conditions, the Italcementi Group reported a slowdown in sales volumes, worsening in June on the mature markets – with the exception of France – countered by performance improvements in almost all the countries in the emerging regions. Efficiency drives, production and distribution rationalization programs (in Italy in particular) and the acquisitions in countries with high growth potential should enable the Group to mitigate the critical effects of the slowdown on the mature markets and recover overall efficiency. These measures are expected to bring benefits starting this year. Over the medium term, they will combine with the effects of current programs for internal growth and on-going integration in the ready mixed concrete sector, enabling the Group to continue geographical diversification and integration of its core business.
In the first half of 2008, Italcementi Group cement and clinker sales volumes slackened by 1.4% to 30.2 million metric tons, reflecting particularly significant reductions in Italy, Spain and North America set against overall growth in the emerging countries. Ready mixed concrete sales totaled 6.1 million cubic meters, a downturn of 1.4% not including the significant consolidation effect generated by the deconsolidation of Calcestruzzi (-40.6% on an historic basis). Sales of aggregates totaled 25 million metric tons (-4.5% on a like-for-like basis, -16.6% on an historic basis), largely owing to the sharp decrease in Spain.
Set against the reduction in sales volumes, a positive trend in sales prices – except on the North American market – enabled the Group to report revenues of 2,814.7 million euro, a decrease of 4.5% (but an improvement of 3.6% at constant size and exchange rates) caused largely by the negative impact of the changes in the scope of consolidation (5.2%) and exchange rates (2.9%).
Looking at operating results, where the sharp rise in operating expenses, for energy in particular, was countered by the rise in sales prices, key factors were the fall in sales volumes and the significant exchange-rate effect (mainly for the US dollar and Egyptian pound). Half-year recurring EBITDA was 589.1 million euro
(-15.4%), while EBIT, at 381.3 million euro, fell by 22.4% from the year-earlier period. After an increase in net finance costs to 72.7 million euro (+25.9%), net profit for the period was 221.7 million euro, a reduction of 29.3%, of which Group net profit was 132 million euro (-36.6%).
Group investments in industrial and financial fixed assets were significant during the first six months, rising by approximately 20% to 471.2 million euro; of the total, approximately 60% was capital expenditure to improve the Group production facilities and raise operating efficiency.
Net debt at the end of June stood at 2,608.3 million euro, while shareholders' equity was 4,442.8 million euro. The gearing ratio (net debt/equity) was 58.7% (from 50.8% at December 31, 2007)

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Outlook – The short-term outlook is highly uncertain at present, due to the impossibility of drawing up reliable forecasts for energy prices and the difficulties on the financial markets. Even assuming a return to less critical conditions, economic performance in the industrialized countries is expected to be flatter in the second half of the year than in the first. Moreover, it is possible that some of the main emerging countries will show signs of an economic slowdown due to growing inflationary pressures. Given this situation, the Group is intensifying action to ensure that the reduction in profitability reported in the first half is kept at significantly contained levels as from the second half of the year. Specifically, the Group will continue incisive action to contain variable costs and also will benefit from the measures already taken in the first half to contain fixed costs. In light of the negative performance of the industry at the end of the second quarter, the targets published at the end of the first quarter indicating full-year operating results in line with 2007 are now no longer applicable.
Subject to currently unforeseeable events, the Group’s second-half operating results are expected to be slightly down on the second half of 2007.

SECOND QUARTER 2008

Total Q2 sales volumes were penalized by negative performance in June.
As in Q1, the decline in cement and clinker sales volumes arose largely on markets in the mature countries, notably Italy, Spain, Greece and North America, where the negative trend intensified. In the emerging countries, on the other hand, sales volumes grew on all domestic markets (particularly India, Morocco and Bulgaria) with the exception of Kazakhstan, where production and sales did not resume until April after the suspension on quarrying licenses was lifted.
Aggregates sales volumes on a like-for-like basis were affected by the sharp decline in Spain, whereas ready mixed concrete sales volumes on a like-for-like basis showed an improvement, albeit marginal, thanks to the lively performance of the emerging countries which countered the deterioration in Spain and Greece.

2008 Q2 revenues totaled 1,508.1 million euro, replicating the first-quarter trend with a YoY downturn of 4.4%. Operating results were considerably lower than in Q2 2007 due to larger cost increases and a significant negative exchange-rate effect, countered only in part by the still positive sales price trend: Q2 recurring EBITDA (328.1 million euro) showed a YoY decrease of 21.9%, while EBIT was 223.7 million euro (-29.7%).

BUSINESS PERFORMANCE IN THE FIRST HALF OF 2008

In the cement and clinker sector, the slide in sales volumes arose chiefly on the mature markets, notably Italy, Spain and North America. The emerging countries reported overall sales growth on domestic markets (especially Egypt, Morocco and India), and consequently a reduction in product availability for export and trading. Group sales performance in Asia was affected by the difficult situation in Kazakhstan.
In aggregates, on a like-for-like basis, sales volumes were affected by the significant downturn in Spain, set against substantial stability in France and positive performance on the other markets, notably Belgium, Greece and Morocco.

In ready mixed concrete, also on a like-for-like basis, the slowdown in Central-Western Europe (reflecting sharp declines in Spain and Greece) generated a reduction in total sales volumes. Performance was positive in Egypt and Morocco, but sales volumes slowed in Thailand.

CENTRAL WESTERN EUROPE (Italy, France, Belgium, Spain, Greece)

In Italy the general decline in all areas of the construction industry produced a sharp reduction in cement consumption, intensifying at the end of the period. Overall revenues were substantially unchanged from the year-earlier period, thanks to a positive sales price effect counterbalancing the slide in sales volumes. With regard to operating results, which included non-recurring expense for the rationalization of Italian production facilities, the increase in revenues per unit virtually absorbed the rise in operating expenses, but operating results were lower overall due to the negative sales volumes effect.
In France, despite a slowdown in the second quarter, cement consumption as a whole benefited from an upbeat climate in the construction industry. Under these conditions, despite a slight reduction in sales volumes caused by strikes and saturation of production capacity, Group revenues strengthened, thanks to the positive sales price effect. The increase in operating expenses, especially energy and raw materials, countered only in part by the rise in sales prices, generated a downturn in operating results. In ready mixed concrete and aggregates, stable sales volumes and higher prices produced a significant improvement in results.
In Belgium Group half-year cement and ready mixed concrete sales volumes were stable, whereas aggregates reported strong growth. The positive sales price trend generated higher revenues, but did not offset in full the rise in costs, so that operating results were down on the year-earlier period.
In Spain Group cement sales volumes fell sharply due to the weakness of the residential market in southern Spain and the postponement of a number of public works in the North. The negative sales volume effect generated a downturn in operating results, where a positive factor was the decrease in operating expenses as the new Malaga line reduced the need for cement and clinker purchases.
In Greece, a significant slide in cement sales on the domestic market was countered only in part by the strong rise in exports. Performance improved in aggregates. Overall operating results declined owing to the sales volume effect and higher operating expenses.

NORTH AMERICA (USA, Canada, Puerto Rico)

In an unfavorable economic situation, the building industry slackened as a result of the sharp downturn in private building countered only in part by public works.
Group cement sales volumes were down, while the new acquisitions in ready mixed concrete produced important growth in that business.
The increase in variable production costs and, above all, the decline in sales volumes led to a sharp reduction in operating results.

EASTERN EUROPE AND SOUTHERN MED RIM (Egypt, Morocco, Bulgaria)

In Egypt cement demand climbed strongly in the first half, absorbing Group production in full. Demand also rose for ready mixed concrete, which the Group met through its recent acquisitions. The generally positive trend in sales prices supported significant growth in operating results, despite increases in some operating expenses and the exchange-rate effect.
In Morocco cement consumption continued to increase in the first half. Group plants operated at full production capacity and revenues increased in all segments, accompanied by a positive trend in sales prices.
Operating results were nevertheless down on the year-earlier period, since the rise in operating expenses was not offset by the positive sales volume/price effect.
In Bulgaria the lively market mood continued and the Group reported an increase in sales volumes driven by demand from residential building and infrastructures.
Higher sales prices led to an improvement in revenues and results, despite the rise in operating expenses.

ASIA (Thailand, India, China, Kazakhstan)

In Thailand the continuing economic slowdown flattened cement consumption. For the Group, the decline on the domestic market was countered by an increase in exports, although export margins are smaller. Operating results slowed, despite a positive sales price trend, largely due to the increase in operating expenses and the negative exchange-rate effect.
In India favorable economic conditions supported strong growth in Group cement sales volumes. The lively market also allowed significant increases in sales prices so that operating results made healthy progress, despite higher costs for energy and raw materials.
In China, adverse meteorological conditions at the beginning of the year limited Group sales. Despite a recovery in the second quarter, the Group reported an operating loss.
In Kazakhstan Group half-year performance was constricted by the temporary suspension on quarrying licenses ordered in December 2007. Production and sales operations resumed in the second half of April, on a significantly flatter market.

CEMENT/CLINKER TRADING

Clinker and cement availability for export in the first half was affected by the reduced contribution from the Southern Med Rim countries as they responded to high local demand. Operating results made good progress thanks to the improvement in margins and the positive consolidation effect (consolidation of Hilal Cement as from September 30, 2007), which more than made up for the decrease in sales volumes and the negative exchange-rate effect.

FINANCIAL PERFORMANCE

Group half-year consolidated revenues totaled 2,814.7 million euro, down 4.5% from the year-earlier period.
This overall change arose from business growth of +3.6% driven by the positive sales price trend, a negative overall change in the scope of consolidation (-5.2%, reflecting the positive contribution of acquisitions and the deconsolidation of the Calcestruzzi group) and a negative exchange-rate effect (-2.9%).
At constant size and exchange rates, Eastern Europe and Southern Med Rim was the area that made the largest contribution to revenue growth with a general positive trend in all countries and in Egypt in particular, while North America reported a sharp decline. Despite the decrease in sales volumes, Trading made a positive contribution, as did Asia, thanks to India. Central Western Europe was substantially stable: the downturns in Spain, Italy and Greece were offset by the bright performance of the France-Belgium area.
The negative consolidation effect was due to the exclusion of the Calcestruzzi group, which had an impact of -7.1%, significantly larger than the positive effect of acquisitions in the period.
The negative exchange-rate effect referred chiefly to the US dollar and Egyptian pound.
Half-year operating results were penalized by the rise in operating expenses, which intensified in the second quarter. This was largely due to trends in variable costs, notably fuel, electricity, logistics and the cost of cement and clinker procured from third parties. Fixed costs also increased, mainly as a result of specific effects in the second quarter concerning personnel, maintenance and general overheads.
The satisfactory trend in sales prices offset only in part the fall in sales volumes and the rise in expenses, which were accompanied by negative exchange-rate and consolidation effects.
Recurring EBITDA (589.1 million euro) decreased by 15.4%, while EBIT, at 381.3 million euro, fell by 22.4%.
Looking at the macro regions, the healthy performance in Eastern Europe and Southern Med Rim (significantly limited nonetheless by a negative exchange-rate effect) and in Trading did not offset the downturns in North America, Central Western Europe and Asia (where results suffered from the situation in Kazakhstan and a negative exchange-rate effect).
Finance costs, net of finance income, amounted to 72.7 million euro, up by 25.9% from the year-earlier period (57.7 million euro) largely due to higher exchange-rate losses (6.4 million euro), the rise in net debt (7.4 million euro) and the general increase in interest rates (3.2 million euro). The 2007 half-year result also reflected the impact of costs (5.2 million euro) for the early redemption of the Ciments Français debenture maturing in July 2009. Adjustments to financial asset values included a prudential writedown of 15.2 million euro on the Calcestruzzi company to reflect the difference between the cost of the equity investment at the time of loss of control (January 2008) and the value attributable at June 30, 2008; the difference arose as a result of changes in the fourth quarter of 2007, previously not included in the consolidated financial statements, and changes during the first half of 2008.
The share of results of associates was 13.1 million euro, a YoY increase of
9 million euro.
Net profit from continuing operations (before the results of the discontinued operations in Turkey) was 222.1 million euro (-26.2%); the figure was penalized by operating results and the increase in net finance costs, but benefited from significantly lower tax expense compared with the first half of 2007 (-38.1%), partly as a result of the increased weight of the countries with lower tax loads and a reduction in tax rates in some countries (Spain and Morocco in particular).
Net profit for the period, at 221.7 million euro (-29.3%), reflected a small loss (0.3 million euro) from discontinued operations compared with a net profit in the year-earlier period.
Group net profit was 132 million euro (208 million euro in the year-earlier period).
Total investments in fixed assets were significant during the first half, rising to 471.2 million euro from 393.2 million euro in the year-earlier period.
Capital expenditure totaled 302.0 million euro (220.0 million euro) and focused mainly on Central Western Europe and North America, although strong YoY increases were reported in the emerging countries, particularly India (the new Yerraguntla production line and the Sitapuram power station), Morocco (the new production line in AIt Baha), Egypt (investments in ready mixed concrete). Structural improvements to Group industrial facilities and action to raise operating efficiency accounted for approximately 59% of total capital expenditure. Investments in financial fixed assets totaled 169.2 million euro (173.2 million euro), and consisted mainly of the purchase of a grinding center with the formation of the Cementi Romagna S.r.l. company, acquisition of 100% of the capital of Crider & Shockey Inc. (U.S.A.), acquisition of ready mixed concrete operations in Kuwait. During the six months the Group purchased Ciments Français S.A. shares for 14.6 million euro, raising its equity investment to 78.94% (89.40% of voting rights). During the period, under the program approved by the shareholders in April, Ciments Français bought back shares for 32.8 million euro. Treasury shares held at June 30, 2008, represented 2.68% of share capital.
Net debt at June 30, 2008, was 2,608.3 million euro compared with 2,418.2 million euro at December 31, 2007 (for comparative purposes, 2,260.3 million euro excluding the Calcestruzzi group which left the scope of consolidation in 2008).
At the end of the first half total shareholders' equity was 4,442.8 million euro (4,760.5 million euro at December 31, 2007). 
The gearing ratio (net debt/consolidated shareholders' equity) at June 30 was 58.7% (50.8% at December 31, 2007).


OUTLOOK

The short-term outlook is highly uncertain at present, due to the impossibility of drawing up reliable forecasts for energy prices and the difficulties on the financial markets. Even assuming a return to less critical conditions, economic performance in the industrialized countries is expected to be flatter in the second half of the year than in the first. Moreover, it is possible that some of the main emerging countries will show signs of an economic slowdown due to growing inflationary pressures. Given this situation, the Group is intensifying action to ensure that the reduction in profitability reported in the first half is kept at significantly contained levels as from the second half of the year. Specifically, the Group will continue incisive action to contain variable costs and also will benefit from the measures already taken in the first half to contain fixed costs. In light of the negative performance of the industry at the end of the second quarter, the targets published at the end of the first quarter indicating full-year operating results in line with 2007 are now no longer applicable.
Subject to currently unforeseeable events, the Group’s second-half operating results are expected to be slightly down on the second half of 2007.

DEBENTURE ISSUES AND MATURITIES

No debentures were issued by the Italcementi Group during the 12 months up to June 30, 2008. In the 18 months after June 30, 2008, debentures for 159.3 million euro will mature on July 10, 2009, in connection with the original EMTN program for 350 million euro issued by the subsidiary Ciments Français on July 10, 2002, and maturing in 2009.

The manager in charge of preparing the company’s financial reports, Carlo Bianchini, declares, pursuant to paragraph 2 article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the document results, books and accounting entries.