Press kit: Lafarge in China

LLaaffaarrggee iinn CChhiinnaa :: Long-term growth perspectives

Press kit June 2010

LAFARGE IN CHINA: LONG-TERM GROWTH PERSPECTIVES 1

Contents CHINA : THE WORLD’S BIGGEST EMERGING MARKET

� China, the growth of a giant - Exceptional economic fundamentals - Cities and infrastructure for an increasingly urban population - Managing urban growth : housing and infrastructure

� The building materials market in China - Cement : 50% of world production and a sector in the process of

consolidating - Aggregates & Concrete: 30% of worldwide consumption with important

growth - Gypsum: sharp growth in supply and demand

LAFARGE IN CHINA

� A development strategy - Lafarge: main developments in China between 1994 and 2010 - Development priorities focused on four provinces where growth is

underpinned by the « Go West policy » - Lafarge operations in China today

� Presentation of Lafarge’s activities in China - Cement - Aggregates & Concrete - Gypsum - R&D facilities

� Lafarge, a responsible player in China - Reconciling economic growth and respect for the environment - High level encounters to promote best practices - Acting on behalf of the company’s stakeholders

LAFARGE, PARTNER OF THE FRANCE PAVILION AT THE WORLD EXPO 2010

SHANGHAI

� World Expositions: showcases of innovation since the 19th century

� World Expo 2010 Shanghai : the ultimate expo - « Better City, Better Life » : a very pertinent theme

� Focus on the France Pavilion - Between technical prowess and sensuality : Jacques Ferrier’s “Sensual

City” - Lafarge : the « Sensual City » expressed through the sense of touch

APPENDIX

� Cement � Aggregates & Concrete � Gypsum

� Sources and credits

� Corporate Snapshot

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China : the world’s biggest

emerging market


China, the growth of a giant

EXCEPTIONAL ECONOMIC FUNDAMENTALS Strong GDP growth Through remarkably buoyant growth over the past thirty years, China has become the world’s second biggest economic power behind the United States in terms of GDP. In 2009, China’s GDP growth was 8.7%. This figure should average 9.5% in 2010, with moderate inflation. This rapid growth, achieved despite adverse world economic conditions, was made possible in part by government investment initiatives

1.

“The world’s workshop” Today China is the world’s biggest exporter, primarily of manufactured goods, with $1,201 billion in exports in 2009. Its main customers are the United States (19.1%), Hong Kong (15.1%), Japan (8.4%), South Korea (4.6%) and Germany (4%). France accounts for 1.5% of Chinese exports. Chinese imports amounted to $1,005 billion in 2008. China’s main suppliers are Japan (13.3%), South Korea (13.3%), Taiwan (9.2%), the United States (7.2%) and Germany (4.9%). France accounts for 1.4% of Chinese imports

2.

20% of the world population In terms of surface area, China is one of the largest countries on the planet with 9,596,961 square kilometers, 18 times the size of France. Above all, China is the world’s most populated country with 1.3 billion inhabitants. According to the authorities, the unemployment rate is 4% in urban areas. The industrial sector generates 48.6% of GDP and employs about 27% of the active population.

1 See the Quarterly Report on China, World Banks, March 2010 :

http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/CHINAEXTN/0,,contentMDK:22502137~pagePK:1497618~piPK:217854~theSitePK:318950,00.html 2 See the website of the US-China Business Council : http://www.uschina.org/statistics/tradetable.html


CITIES AND INFRASTRUCTURE FOR AN INCREASINGLY URBAN POPULATION Accelerated urbanization In its 2010 report on world urbanization, the UN stated that China contains a quarter of the world’s 958 cities with a population of over 500,000 inhabitants. In 1980, China had only 51 of these cities. The report projects that by 2025, there will be 100 more such cities in China, with an estimated urbanization rate of 59%

3.

Chinese economic growth has been accompanied by rampant urban development with the number of city dwellers doubling over a period of 20 years. Since the 1970s, the urbanization rate has increased on average by 3% a year. Today, UN estimates indicate that 48% of the Chinese population live in urban areas, or a total of nearly 600 million people, although this figure masks big disparities between regions. This trend should continue with the addition of about 15 to 20 million new city dwellers a year till 2020

4.

The 2009 report on urban development in China conducted by the Academy of Social Science indicates that although the surface area of Chinese cities has increased by 70% between 2001 and 2007, the urban population has increased by only 30%. To resolve this paradox, the Chinese government has decided to encourage urbanization and to support development projects in cities while placing emphasis on more sustainable development policies. Shanghai, Chengdu and Chongqing: three major Chinese cities

� Shanghai

The municipal province of Shanghai has an exceptional location at the mouth of the Yangtze River. This strategic location makes it one of the main platforms for world trade. Shanghai benefits from the rapid growth of the city’s outskirts, which attract over a third of

3 http://esa.un.org/unpd/wup/unup/p2k0data.asp

4 ECOFYS report, “How to turnaround the trend of cement-related emissions in the developing world?”

Shanghai key figures:

� Inhabitants: 18.9 million � Surface area: 6,340 km² � Density: 2,863 inhabitants/km²


foreign direct investment received by China. The city hosts a growing number of the Asian headquarters of major international corporations. A showcase of modern China, Shanghai is the trendsetter, where all new Chinese trends take shape. With Beijing, Tianjin and Chongqing, Shanghai is one of four municipal provinces that are directly controlled by the central authorities. The port of Shanghai, the leader in bulk transport, turns the city into a logistical crossroads and an open door on the world. In 2008, France was Europe’s second biggest user of the Shanghai Port. The city boasts the most active airport in continental China. Shanghai is also the leading destination for French foreign investment. In early 2008, the city housed over 35% of the subsidiaries of French companies in China. Several French companies have set up their Chinese headquarters in Shanghai. It is the leading Chinese destination for French expatriates. Although Shanghai has mainly built its reputation as an industrial power, it would now like to become a services-oriented city. � Chengdu

Capital of Sichuan Province, Chengdu is considered the center of western China. Located at the foot of the Tibetan plateau, it has built up an age-old reputation for economic and scientific advancement. The municipality contains the famous Dujiangyan irrigation system as well as the world’s oldest school. Today, Chengdu has nearly 70 national R&D institutes, 9 top-ranking national laboratories and 40 universities. Chengdu has developed a very dynamic economy geared towards leading-edge sectors like high technology, aeronautics, information & communications technology and nuclear power. Chengdu boasts a high-performance infrastructure network. Served by one of the country’s five international airports, Chengdu is striving to become the largest rail transport and logistics center in central and western China. With nearly 4,000 foreign companies (including 35 French companies), it is the most attractive city in Sichuan. Although all sectors are represented, the most significant investments are in aeronautics and distribution.

Chengdu key figures:

� Inhabitants: 12.7 million � Surface area: 12,400 km² � Density: 888 inhabitants/km²


� Chongqing

Located at the confluence of the Yangtze and Jialing rivers, the Chongqing municipality is eight times

bigger than the Greater Paris region (Ile-de-France) and has over 30 million inhabitants. Founded in

the Zhou dynasty by the people of Ba, Chongqing was the economic center of eastern Sichuan and

served as China’s capital during the Japanese invasion. Not long after the People’s Republic of China

was founded, Chairman Mao Zedong designated the city as one of the six main industrial centers in

China.

Chengdu is its main rival in terms of economic and political supremacy in the region. The most recent

statistics for the city show GDP of $56 billion in 2007, with a growth rate of 15.3%. The Chongqing

municipality has considerable needs for urban development. Thirty-three of the world’s 500 largest

companies already have offices in Chongqing. The city’s development is mainly geared towards

automobile and motorcycle manufacturing, in which it has 12.5% market share, as well as the

chemical industry. Chongqing’s trade surplus is growing constantly.

Chongqing key figures:

� Inhabitants: 31.5 million � Surface area: 82,400 km² � Density: 378.8 inhabitants/km²


China: Analysis of construction investment by sector (2008)

Source : Global Construction Perspectives

and Oxford Economics

MANAGING URBAN GROWTH: HOUSING AND INFRASTRUCTURE Improving the energy efficiency of buildings The massive rural exodus is fuelling an unprecedented construction boom. Two billion square meters are built each year in China, accounting for about 50% of world construction. Consequently, China absorbs half of world cement production – 1.4 bn tonnes - and a third of steel output. At this pace, over the next 15 years China would build the equivalent of the urbanized area of the European Union! Faced with this enormous wave, the Chinese government is paying great attention to its regional development, and urban development in particular. It supports defining targets for reducing the energy consumption of buildings.

FOCUS ON… ENERGY EFFICIENCY TARGETS FOR BUILDINGS IN CHONGQING

In 2008, Chongqing had 156 Mm² of buildings under construction and 65 Mm² of existing buildings. During that year, the City of Chongqing defined energy efficiency targets for buildings to promote more environmentally friendly urban development. New residential construction projects are now required to meet a standard of 33 Kwh/m²/year, or the equivalent of 130 kWh of primary energy per square meter of usable floor space under French criteria. This entails a 65% reduction in energy

consumption for these buildings.

Infrastructure development: “logistical hypermobility” towards the west Since the 1980s, China's economic boom has been concentrated mainly on the eastern coastal areas. To remedy the resulting disparities, in 2000 the Chinese government initiated a "Go West" policy to promote development of regions in the country's interior. Colossal investments and numerous projects are underway or on the drawing board to transform China into a hypermobile country.

While the housing sector now accounts for 57% of construction investment, it is estimated that by 2020, investment in infrastructure will reflect the strongest growth. Infrastructure spending will receive more support from government programs similar to the one launched in November 2008 by the Chinese government, which promised to spend USD585 billion over two years, with 85% of that dedicated to building infrastructures

5.

5 Report Global Construction Perspectives and Oxford Economics, 2009


Motorways and bridges China has the world’s second-largest motorway network with 65,000 km of motorways as of 2009. Among its most famous bridges is the Suzhou-Nantong bridge, the world’s largest cable-stayed bridge, which opened on 1 July 2008. The Donghai bridge, the world’s longest bridge over water when it was inaugurated in December 2005, is an amazing achievement linking the 32.5 km between Shanghai and the Yangshan islands.

Railways With 33,000 km of high-speed rail lines, China’s high-speed rail network ranks third in the world and is as big as the entire European network. With 70 projects planned to start up in 2010, China is in the process of becoming the country with the most high-speed rail lines. Railway construction projects are estimated at over $300 billion. Dams The most famous Chinese dam is the Three Gorges hydraulic dam located in Hubei province in the heart of China. Production was phased in between 2006 and 2009. The Three Gorges is the world’s biggest hydraulic dam and the biggest generator of electricity, supplying 10% of China’s energy needs. Altogether, 1.8 million individuals, 15 cities and 116 villages had to be relocated for its construction.


Capacity (in Mt)

Market share

CNBM 144 9 %

Anhui Conch 108 7 %

Sinoma 52 3 %

Huaxin 33 2 %

Jidong 33 2 %

Tiansui 33 2 % Lafarge 24 + 7 2 %

Shanshui 24 2 %

World cement production

1970 - 2050

The building materials market in China Today, China is the world's leading producer and consumer of building materials. According to Global Construction Perspectives 2020, the Chinese construction market will be worth an estimated $2.5 trillion by 2020, or three to four times more than its Indian counterpart. For building materials companies, growth prospects remain highly positive for the years ahead as the Chinese government is investing massively in infrastructure and residential construction projects, both to open up the western provinces and to provide housing for the new urban dwellers. CEMENT: 50% OF WORLD PRODUCTION IN A SECTOR THAT IS UNDERGOING CONSOLIDATION China alone accounts for half of the world's cement consumption, or 1.4 billion metric tons in 2009 (19.1% more than in 2008).

The Chinese cement market is highly fragmented, even though it has undergone significant consolidation in the recent past. In the mid-1990s, there were no fewer than 6,500 cement companies in China. This number has fallen to less than 4,000 today. Yet the top 10 cement companies in China account for only 30% of the market. Only 65 Chinese cement companies had an annual production capacity of over 5 Mt, and only 20 had a capacity of over 10 Mt

6.

Even so, the trend is to consolidation. In 2004, the Ministry of Industry and Information Technologies decided to close or to disallow construction of cement plants that used older, less energy-efficient technologies. The goal is to increase the percentage of plants that use dry-line technologies from 61% at the end of 2008 to 90% by 2015. Plants with a production capacity under 200,000 metric tons per year are also undergoing consolidation. The number of cement companies should strongly be reduced by 2015.

Today, the largest cement companies in China, CNBM and Anhui Conch Cement, are Chinese. They each have an annual production of over 100 million tonnes, and neither one operates in other countries. Lafarge is the leading foreign cement company in China. Production capacity is expected to rise sharply within the next four years, with a projected net increase of 330 Mt (590 Mt of new capacity less 260 Mt of obsolete capacity to be shut down) according to the Ministry of Industry.

6 Quantitative Economics and Audit Society of China Building Materials


AGGREGATES & CONCRETE: 30% OF WORLDWIDE CONSUMPTION WITH IMPORTANT GROWTH

China needs concrete and aggregates to build the 40 billion m² of floor space to be constructed by 2025, and more specifically for the 50,000 skyscrapers that will emerge from the ground. In Aggregates, China produced 8.2 billion metric tons in 2009, or 30% of total world production. Even so, per capita consumption is low. This business is highly fragmented. Local governments are trying to reduce the number of operators for safety and environmental reasons. They are encouraging consolidation in the sector at the local level by seeking companies that are more responsible.

In Concrete, production of ready mixed concrete is estimated at 3.2 billion m3 with a fairly low

penetration rate (around 30%), as on-site mixing using bags is still prevalent. Hence, annual growth in RMX concrete ranges from 10% to 50% depending on the location. Moreover, the 9% of GDP dedicated to infrastructure construction under the prevailing stimulus plan is expected to boost demand for concrete to over 800 M m

3 in 2010. At the moment, RMX concrete is still controlled by

construction companies or small independent contractors. GYPSUM: SKYROCKETING DEMAND AND SUPPLY The Chinese plasterboard market began to emerge only thirty years ago. The first plasterboard factory, with a capacity of 4 Mm², was built by BNBM (Beijing New Building Materials) in 1978. This market has boomed over the past ten years, from only 100 million m² in 2000 to over 1 billion m² today. It could reach an estimated 2.5 billion m² in 2015. China is now the world’s second largest gypsum market. The structure of the Chinese gypsum market is atypical. About a hundred operators share the market. Most of them are family businesses that offer products of uneven quality. BNBM, a state-owned company, controls over one-third of China's total plasterboard production capacity, i.e. 360 Mm². Foreign companies including Lafarge, Knauf and Saint-Gobain have also established a presence in the market. This multitude of operators induces efforts to differentiate among products available on the market, particularly in terms of quality and production cost efficiencies.

Lafarge in China


Lafarge in China Lafarge entered the Chinese market in 1994 through the acquisition of a cement plant in Beijing. Two years later, it inaugurated its first plasterboard plant in Shanghai. The Group’s growth accelerated thereafter, fuelled by the construction of new plants, the modernization of existing facilities, the addition of new capacity and the development of partnerships. Lafarge’s development in China illustrates the power of the Group’s multi-local business model. Nearly fifteen years later, Lafarge has become the market leader in southwest China and holds leading positions in each of its business lines (cement, concrete & aggregates and gypsum). A DEVELOPMENT STRATEGY Lafarge: main developments in China between 1994 and 2010

1994 Acquisition and modernization

of a cement plant in Beijing 1996 Construction of a plasterboard factory in Shanghai

Acquisition of a concrete plant in Beijing 2002

Inauguration of the Dujiangyan cement plant

Construction of a plasterboard plant in Chongqing

2003 Acquisition of a cement plant in Chongqing

2004 Capacity of the Dujiangyan and Chongqing cement

plants doubled, with an investment close to 100 million$ 2005

Capacity of the Shanghai and Chongqing plasterboard factories doubled, extension of plasterboard capacity in Chongqing

New production line placed in service at Chongqing cement plant

Partnership agreement signed with Shui On construction group, leading to the creation of Lafarge Shui On Cement 2007

New production line placed in service at Dujiangyan cement plant

2008 Inauguration of a new plasterboard factory in Chengdu, with a capacity of 10 Mm²

Acquisition of 3 concrete plants and construction of a concrete plant in Chongqing

2010 Announced the divestment of Cement and Concrete operations in Beijing,

in keeping with the policy of expanding westward

Construction of a third production line at the Dujiangyan cement plant

To come in 2010: New cement plants to be inaugurated in Guizhou and Chongqing

Construction of an additional plasterboard line in Chongqing factory, adding a further 15 Mm² capacity

New aggregates quarry in Yangze River Delta to start

New ready-mix plant in Chongqing

2009 Construction of the second plasterboard plant

in Shanghai


Development priorities focused on four provinces where growth is underpinned by the "Go West" policy When Lafarge made its first move in China with the acquisition of a cement plant in Beijing in 1994, the Group was able to explore the Chinese market and the opportunities it held. While Beijing’s excellent growth prospects were confirmed, the Group rapidly repositioned its operations to the southwestern provinces, first in Sichuan and Chongqing, then in Yunnan and Guizhou, following the lead of the "Go West" policy adopted by the Chinese government to open up the interior regions. This decision to shift to the southwestern regions is one of the factors that now sets Lafarge apart from other building materials companies. Today, China is the country where Lafarge has its strongest presence, with 13,000 employees, over 30 cement operations, 5 concrete facilities and 4 plasterboard plants. These modern facilities meet all the Group’s standards in terms of industrial and commercial excellence, as well as its environmental, health and safety standards. Their performances are real strengths in an increasingly mature market showing ever-greater sensitivity to quality, corporate social responsibility and respect for the environment. Lafarge ranks among the top ten producers of construction materials and is the leading foreign company. It is the overall leader in the regions of Southwest China. Lafarge will use its solid positions to benefit from booming demand for building materials. Lafarge operations in China as of today

CEMENT 8 plants Capacity: 8 Mt

Xinjian

Guangxi

Hunan

Hubei

Hainan

Qinghai

Ningxia

Shaanxi

Jiangxi

Anhui

Fujian

Neimongu

Shanxi Shandong

Xizan

Yunnan

Guizhou

Henan

Heilon

Jili

Liaoning

Zhejian

Jiangs

Hebei

Beijing

Shanghai

Guangdong

Gansu

Chongqing



Beijing

Headquarters

GYPSUM 1 plant Capacity: 12 Mm²


GYPSUM 2 plants Capacity: 45 Mm²

GYPSUM 1 plant Capacity: 12 Mm²

CONCRETE 5 concrete plants Capacity: 3 Mm²

Sichuan


Concrete plant in Chongqing

PRESENTATION OF LAFARGE’S ACTIVITIES IN CHINA Cement

Lafarge’s development in China entered a new phase in August 2005 when it joined forces with Shui On, a Hong Kong-based construction group. This considerably strengthened Lafarge’s positions in a very fast-growing market: The joint venture gave rise to Lafarge Shui On Cement (LSOC), LSOC is 55% owned and managed by Lafarge. Lafarge is now present in Cement in four provinces: Sichuan, Chongqing, Yunnan and Guizhou. Lafarge Shui On is one of the top ten cement companies in China, with market share ranging from 6% to 16% in the regions where it operates. The Group plans to pursue its development. It will concentrate on the high-potential markets in the

southwest. The Group recently refocused on these provinces after selling its plants near Beijing to a Chinese company. Of the 15.6 Mt of new cement capacity now under construction in Asia, 10.5 Mt is located in China, in the four provinces where the Group is already present, with 6.9 Mt to be inaugurated in 2010. For example, in the Sichuan province, a third 2.3 Mt production line at the Dujiangyan plant will be inaugurated in 2010, thereby increasing the plant’s total capacity to 5.4 Mt per year. Aggregates & Concrete

Lafarge has been present in China via its concrete business since 1996, when it opened a plant in Beijing. Today, Lafarge has refocused its Concrete business on Chongqing. The company is capitalizing on the many construction projects underway in this city by positioning itself near to the consumption centers. Also, the Chinese government is granting fewer and fewer licenses to produce concrete on site, which is attracting companies that make ready mixed concrete and promoting the professionalization of the sector. Today, Lafarge's objectives are: - to continue to seize opportunities in the city and province of Chongqing and Sichuan - to increase the share of its value-added concretes, which now stands at 16%, and which grew by

2.4% in 2009 - to propose a mobile plant offer dedicated to infrastructure projects - to develop an Aggregates business around megacities in developing a partnership with local

authorities around “green quarry” concept.

Production capacity: 24 million tonnes 19 cement plants in southwest China 11 grinding stations Employees: 10,000

Production capacity: 3 Mm3

5 concrete plants in Chongqing Employees: 400


Gypsum

Lafarge’s gypsum division has been present in China since 1996 with the opening of a plant in Shanghai. In June 2000, the Group strengthened its market positions by joining forces with Boral Limited of Australia in a joint venture called Lafarge Boral Gypsum. Lafarge owns 50% of the joint venture, which also operates in six other countries (South Korea, Indonesia, Thailand, Malaysia, Vietnam and India). In China, Lafarge has four plasterboard factories – two in Shanghai, one in Chongqing and one in Chengdu – with total production capacity of 100 Mm². The Chongqing factory's capacity will be doubled in 2011. In addition, two factories produce metal framing for plasterboard. This enables the company to offer turnkey solutions, for example, walls or ceilings incorporating thermal and sound insulation or moisture barriers or that meet stringent earthquake resistance standards. Lafarge Boral Gypsum Asia is a well-known brand in China and gives the company an edge with architects and developers, including in premium products. The company supplied plaster for 50% of the country pavilions at the Shanghai World Expo, including China's. For retail customers, Lafarge has a chain of company-owned stores and a network of distributors. Lastly, the company is deeply committed to reducing its environmental impact. Since 2001, the Chongqing factory has used 100% synthetic gypsum, which is a recycled by-product from electric power plants. This standard has been applied to all Lafarge plasterboard factories in China, which now use natural gas as their fuel. Lafarge was the first plasterboard manufacturer to adopt this approach in China. Research and development institutes

These two institutes are located near Beijing. They provide support to the factories, and particularly to new sites, to help them optimize efficiency. The Technical Centre has a staff of 90 and provides technical assistance to the factories. It centralizes good operating practices within Lafarge and disseminates them across the network of Chinese factories. The Beijing Research Laboratory provides support to all Lafarge production facilities in Asia. This center’s purpose is to promote exchanges among the different factories in the country, as a venue for training and exchanges. ARL is also involved in new product development, measuring and curtailing the factories' environmental impact and recommending solutions for more rational use of natural resources.

Production capacity: 100 Mm² 4 plasterboard plants Employees: 450

Lafarge Asia Research Laboratory (ARL), founded in 2007 Lafarge Asia Technical Center, created in 2005


Lafarge, a responsible player in China

RECONCILING ECONOMIC GROWTH AND RESPECT FOR THE ENVIRONMENT A deliberate policy for a greener industry China is now the biggest producer of CO2 emissions in absolute value terms, but its emission rate per inhabitant is much lower than in the United States, Europe or Japan. The Chinese government has set up numerous targeted incentives to reconcile economic growth and environmental protection. A five-year plan aims to reduce energy consumption by 4% a year while boosting the share of renewable energy sources. The National Development and Reform Commission (NDRC) is the government agency in charge of developing projects to attain this goal, in association with the State Environmental Protection Administration (SEPA). Through its regional offices, NDRC closely monitors industrial investments and has the power to turn down projects that use outdated or polluting technologies and to promote projects that respect the highest energy efficiency standards. As for building materials, NDRC works in partnership with the China Building Materials Industry Association. To promote technologies with a lesser environmental impact, the government is seeking to consolidate the cement market by supporting projects to build new, bigger and more energy efficient plants. In 2004, it announced that its target was for 70% of cement production capacity to use dry process technology by year 2010 and the target has already been realized. Lafarge: modernizing plants to reduce CO2 emissions In China, Lafarge’s production is used to meet local demand. Lafarge Cement has expanded through the construction of new plants, but also through the acquisition of existing plants, which were modernized and production capacity increased. Between 2005 and 2009, Lafarge shut down 38 kilns in China while building eight new production lines. The total capacity of the new units was 8.5 MT, vs 5.5 MT for the plants that were closed. Lafarge invested a total of RMB 6.1 billion.

FOCUS ON… THE DUJIANGYAN CEMENT PLANT

Inaugurated in June 2002, the Dujiangyan plant complies with very strict environmental standards. It uses the most modern technology for cement production and is also energy efficient. Bag filters for kiln gas reduce dust emissions to less than 10 mg/m

3 under normal operating conditions.

T Priority was also placed on integrating the site within the landscape, with special features added to reduce harmful effects: buildings were hermetically sealed to reduce noise, water is fully recycled and limestone is transported from the quarry to the plant on a 6-kilometer conveyor belt, including three tunnels. The plant is also connected to the national rail network thanks to a specially constructed 2.4 km connecting line.


By modernizing these sites and shutting down outdated sites using older and less efficient technology, Lafarge Shui On significantly reduced its energy consumption and CO2 emissions. Between 1990 and 2009, specific net CO2 emissions declined by 29%. These investments also helped significantly reduce the plants’ dust, NOx and SO2 emissions. Reducing the environmental impact at all levels Lafarge’s efforts to reduce its environmental footprint are not limited solely to increasing energy efficiency. The company also applies the highest international standards to quarry rehabilitation, targeting to making a comprehensive quarry rehabilitation plan for at least 85% of its quarries.

Lafarge’s other business lines in China have also launched ecological initiatives, notably in gypsum. Plasterboard production requires the use of gypsum, a natural resource that can be replaced by other materials. Recent changes in Chinese regulations on electrical power plants have resulted in the production of large quantities of desulfogypsum waste, about 15 million tonnes a year. Lafarge Gypsum China decided to recycle this waste as much as possible by organizing local recuperation chains. Since 2001, the Chongqing plasterboard plant uses 100% recycled gypsum to produce 12 Mm² of plasterboard annually. HIGH LEVEL ENCOUNTERS TO PROMOTE BEST PRACTICES The emerging markets are playing an ever-greater role in the world economy and within the Group’s organization, offering bright long-term growth prospects. Currently over half of the planet’s demand in cement needs is concentrated in China, making it a key market for a leader in building materials. Lafarge has a lot to learn from its peers and is highly involved in trade associations and high-level meetings. Exchanges with other Chinese cement makers and industrial groups Lafarge’s investment in China can be measured not only in financial terms but also through its involvement in trade associations. This implication gives Lafarge a better understanding of the Chinese economic environment. It is able to participate as a partner in discussions with major corporations on subjects like the responsible growth of Chinese megacities. Lafarge Shui On is a member of numerous associations, including:

- China Building Materials Association - China Association for the Promotion of Industry Development - China Cement Association - China Business Council for Sustainable Development.


FOCUS ON… THE CHINA CEMENT ASSOCIATION (CCA)

Historically, the China Cement Association was a government organization responsible for steering the cement industry. It has gradually taken on the role of mediator with the Chinese authorities and coordinator to facilitate talks on fundamental issues such as sustainable development and cement production.

In December 2007, Lafarge Shui On became the first foreign joint venture to be named a vice president of the association, a strong

signal of the company’s integration within China’s economic landscape.

CCA has 29 vice presidents, the majority of which are industrial companies (71%), followed by scientific institutions (11%) and trade organizations (18%).

These meetings provide an opportunity to promote a broader approach at sector level. In June 2009, in partnership with the China Cement Association, Lafarge co-organized a roundtable bringing together twelve business leaders from China’s largest cement manufacturers. They all signed a statement on sustainable development, the first joint commitment by the cement sector in China. Following this roundtable, five major Chinese cement makers joined the Cement Sustainability Initiative (CSI) run by the World Business Council for Sustainable Development (WBCSD), whose goal is to promote a sectoral approach when defining strategies for a more sustainable and lasting development of the cement industry. China accounts for 50% of the world cement market, and the integration of Chinese cement makers in this process is a major advancement. At the heart of the Chongqing megalopolis Lafarge entered the Chongqing market in 2003. This is the only city in the world in which Lafarge is active in all of its three businesses. A city of 31.5 million inhabitants, Chongqing is a major market for the Group, which wanted to become more involved in subjects pertaining to its business. The Chongqing municipality was also seeking to attract numerous foreign players who could contribute their expertise in the business world to propose solutions for the responsible development of such a fast-growing city. Two key initiatives were launched:

- Like Beijing and Shanghai, Chongqing has its own consultative committee of foreign companies. The committee has about 20 corporate members, a third of which are French, including major groups such as GDF SUEZ, Carrefour, Veolia and Lafarge. The committee meets once a year and provides Chongqing’s mayor with an opportunity to hear the views of major business leaders on the best strategy to take for the city’s economic development. Bruno Lafont is currently vice-president.

- The Chongqing municipality also launched a sustainable development and urban planning program entitled “Livable Chongqing, Healthy Chongqing”. In September 2009, Lafarge signed a strategic partnership agreement with the city as part of this program to work specifically on waste management and the energy efficiency of buildings. In its Chongqing plants in particular, the Group is working on such topics as heat recuperation, mud recycling, ground rehabilitation and recycling combustion gases in heating power plants to produce gypsum. These guidelines have already produced solutions for better waste management and recycling.


ACTING ON BEHALF OF THE COMPANY’S STAKEHOLDERS Like all the Group’s business units, Lafarge in China is actively engaged in the 2010 Sustainable Development Ambitions

7, which sets targets that Lafarge must meet as it addresses the major

challenges of sustainable development. In China, five themes are given top priority, one of which is relations with local communities. Developing employee skills Developing talents within the Group's Chinese facilities According to a 2007 Hudson Report, China's employee turnover rate is the highest in Asia, at 15% to 18%; Chinese employees stay in the same job for less than two years on average. The same survey highlights the most important factors for attracting job candidates: opportunities for professional training and development, and the reputation of the company and its name. Lafarge has 13,000 employees in China, i.e. over 15% of the Group's total workforce. Attracting and retaining talented employees is therefore a major consideration. As a multi-local company, Lafarge primarily seeks local talents, as they are in the best position to understand a market and its culture. Over 90% of the Group's factory managers in China are Chinese. Lafarge follows a four-pronged approach in this area by offering:

- attractive compensation, with periodic salary reviews to remain in line with the market - a training program - individual follow-up for high-potential employees - development of a corporate culture

FOCUS ON… TRAINING AT LAFARGE IN CHINA

In 2009, Lafarge dispensed 200,000 hours of training in China. Lafarge has developed several special training programs for Chinese employees, including a "Cement Master" for new cement plant managers and a professional development program for young engineers. Lafarge also has a "factory school" where employees can develop their technical skills before they go to work in a real factory.

Lafarge's Gypsum division has made significant efforts and managed to reduce employee turnover appreciably:

In the Cement business, employees turnover amounts 4%, whereas manufacturing average is 12%.

7 These are targets that the Group has established in order to address the major challenges of sustainable

development.


Deploying Group safety standards in China In addition to the company's responsibility to provide a safe working environment for employees, health and safety are core values for Lafarge and an essential component of its corporate culture. Health and safety are operational priorities for the Group, which aims to deploy its standards and apply them in all countries where it is active, even if local regulations do not require it to meet any such standards.

This applies to Lafarge's Chinese units, which, like all other Lafarge facilities, have taken accident prevention measures. Results show improvement in this area in China, where lost-time injuries for the Group's Cement division dropped by 56% year-over-year in 2008. The accident rate has declined by 70% over the past three years, and five factories set a record with 1,000 days without an injury.

Local partnerships In China, Lafarge is involved in many local partnerships, with direct investments with local communities and its neighbors. Since 2006, Lafarge's Chinese subsidiary has invested over RMB20 million in donations, philanthropic actions and sponsorship programs. The company participates in a wide variety of projects, including:

- efforts to reduce reducing the environmental impact of production sites and assessments of rehabilitation projects in conjunction with WWF

- fighting poverty and support to education, with the Fuping Development Institute - healthcare actions with the Marie Stopes International family planning association and the

Global Business Coalition on HIV - development of local expertise: Lafarge in China has teamed up with the Chongqing

Business and Industrial School to offer training to job seekers; 500 people received training and 86% of them later found jobs.

Responding to emergency situations: the Sichuan earthquake of May 2008 On 12 May 2008, an earthquake with a magnitude of 8 on the Richter scale hit the Wenchuan district in Sichuan province. The epicenter of the earthquake was located in Ngawa, 90 km from Chengdu, the capital of Sichuan province. The power of the earthquake was strong enough to be felt in Beijing (1,500 km away), Shanghai, off the coast of Taiwan, as well as in Hanoi, the capital of Vietnam. The toll was horrific: 68,620 deaths, nearly 2,000 orphans, about 360,213 wounded and millions of homeless

8.*

Lafarge, which operates in the disaster-stricken region, immediately mobilized teams to help. Lafarge teams responded rapidly to transport basic necessities in the first days of the crisis (medicine, food, water and tents), assisting not only its employees and their families, but also the local population living

8 Source: official statistics from Sichuan province


near its plants. Very rapidly, the Group helped rebuild small residences for families that had lost their homes. In all, over 328 emergency housing units were built. Lafarge donated €1.5 million in relief funds to the local Chinese authorities and launched a Group-wide solidarity campaign. A donation system (with matching funds by the Group) was rapidly set up for Lafarge’s 13,000 employees in China. Internationally, there was an outpouring of donations by Lafarge employees to help their Chinese colleagues. In addition to emergency relief and crisis management, Lafarge is also developing ideas to minimize earthquake-related risks. Lafarge plants were built according to antiseismic building codes in vigor in the region, which limited damage despite the extreme power of the earthquake.

Lafarge, Partner of the French Pavilion

at the World Expo 2010 Shanghai


WORLD FAIRS: SHOWCASES OF INNOVATION SINCE THE 19TH

CENTURY A Universal Exposition or World Fair is defined as an event “whose principal purpose is the education of the public: it may exhibit the means at man’s disposal for meeting the needs of civilization, or demonstrate the progress achieved in one or more branches of human endeavor, or show prospects for the future.”

9

FOCUS ON… THE CRYSTAL PALACE

The first Universal Exposition was held in London in 1851. Called the ‘Great Exhibition’ (Great Exhibition of the Works of Industry of all Nations), it was designed to present the latest advancements in Great Britain in the Victorian era thanks to the development of machines. The Great Exhibition had nearly 14,000 exhibitors and the Crystal Palace attracted over 6 million visitors. Joseph Paxton, a head gardener inspired by greenhouse construction techniques, designed the 84,000m² glass building by blending a metal

structure and glass. The Crystal Palace was moved to a new site at the end of the Exhibition, and was destroyed by fire in 1936.

Cities hosting World Fairs frequently preserve some major architectural developments, which often become symbols, like the Eiffel Tower in Paris (Expo 1889), the Atomium in Brussels (Expo 1958), the Space Needle in Seattle (Expo 1962) and the Biosphere in Montreal (Expo 1967). World Fairs are often the starting point for major infrastructure projects as well, notably in transportation. Today, the tradition of World Fairs continues. The only rule is to choose a universal theme and a host city capable of carrying out urban and economic development projects. After World Expo 2010 Shanghai, the location and dates of the next World Fairs have already been announced:

- Yeosu, South Korea will host the 2012 World Fair on the theme “The living ocean and coast: diversity of resources and sustainable activities,” providing an occasion to review and exchange ideas on the state of the oceans and marine ecosystems.

- Milan, Italy will hold the 2015 World Fair on the theme “Feeding the planet, energy for life”, which will take a comprehensive look at food. What traditions and innovations will be needed to feed the entire planet healthily and sufficiently?

9 Definition by the Bureau International des Expositions (BIE)


WORLD EXPO 2010 SHANGHAI: THE ULTIMATE EXPO The Shanghai World Fair will run from May 1 to October 31, 2010 on the theme “Better City, Better Life”. Seventy million visitors are expected to attend the event, with Chinese visitors accounting for about 90% of the total. After the 2008 Beijing Olympics, China wants to demonstrate yet again its capacity to host world-class international events. The symbolism is particularly strong because this is the first World Fair to be organized by an emerging country. The city of Shanghai, the symbol of China’s mercurial economic development over the past twenty years, is hosting the event. The site of World Expo 2010 Shanghai is divided into five zones (A to E) straddling the Huangpu river, part of which is on the east bank (Pudong) and the rest on the west bank (Puxi).

- Zone A is devoted to pavilions from Asia and the Middle East. In addition to the China Pavilion, 31 regional pavilions represent the host country.

- Zone B hosts pavilions from the Pacific islands and Southeast Asia as well as those representing international organizations like the United Nations and WWF.

- In Zone C, pavilions from the European countries are featured along with those from Africa. - Zones D and E are comprised essentially of the pavilions of private companies as well as

those devoted to specific themes like space and telecommunications.

“Better City, Better Life”: a very pertinent theme For World Expo 2010, Shanghai chose a universal and modern theme, a major challenge facing China and the city of Shanghai: urban development in the 21

st century.

In 1800, only 2% of the world population lived in cities. By 1950, this figure had risen to 29%. Today, a United Nations study estimates the percentage of city dwellers at 55%. China is also experiencing a strong urbanization movement that is leading it to reflect on more sustainable urban development strategies. In its approach to World Expo 2010, the organizers have defined the city as follows: “The city is not just a group of individuals, but a real unity in its own, a spiritual organism, and that is why there is a strong analogy between its constitution and structure and those of man. Nowadays, with cities having a growing impact on our planet, the same analogy can be applied between cities and the planetary scale.


Haibao, mascot of World Expo 2010 Shanghai

Better cities and better life rely on our ability to create a harmonious co-existence and interaction between the three organic systems - man, city and Earth – very different in scale but similarly complex.”

10

This core message and idea underlies the Expo’s theme “Better City, Better Life”, which is divided into five sub-themes: Blending diverse cultures in the city, economic prosperity in the city, technical and scientific innovation for the city, remodeling urban communities and interactions between urban and rural areas. Through these subjects, the Expo wants to explore various responses to three questions: What kind of city for a better life? What kind of life for a better city? And what kind of urban development for a better planet? The World Fair is organized like a forum in which participating nations and organizations create pavilions to present their own interpretation of the Expo’s theme.

FOCUS ON… AN EVENT ORGANIZED IN PARTERSHIP WITH THE COLLEGE OF ARCHITECTURE AND

URBAN PLANNING OF SHANGHAI

Keen to be involved in the debate on urbanization, Lafarge wants to propose new constructive solutions with a reduced environmental impact and enlarged social role. It is from such a standpoint of constructive dialogue that Lafarge is participating in the seminar on “affordable housing and sustainable cities” at the Urban Planning & Design Institute of Shanghai on 10 June 2010. This initiative is the fruit of a partnership between Tongji University Shanghai (College of Architecture and Urban Planning, CAUP), the Ecole

d’Architecture de Paris Belleville and the Lafarge group, and aims to explore suitable solutions for the provision of affordable and innovative homes that are integrated into their environment and offer greater durability.

10

Guide to theme content, World Expo 2010 Shanghai (http://fr.expo2010.cn/download/neirongzhinan_fr.pdf)


FOCUS ON THE FRANCE PAVILION France was the first country to accept China’s invitation launched in 2002 to participate in this world-class event. COFRES SAS (Compagnie Française pour l’Exposition de Shanghai) is the company responsible for building the France Pavilion and managing its events. Bruno Lafont is a member of the COFRES Steering Committee and Board of Directors. The budget for France’s participation in the World Expo amounts to €50 million, which covers the construction of the pavilion as well as its activities. Funds were contributed in part by a few major partners, including Lafarge, which each contributed €1.5 million to the event. French regions, departements and other institutions and companies, including medium and small businesses, also made financial contributions to the project. Between technical prowess and sensuality: Jacques Ferrier’s “Sensual City” France was attributed an area of 6,000 square meters in zone C, which houses the European pavilions. The building is designed to represent French art de vivre. For the duration of the World Expo, the pavilion is to capture France’s ability to combine tradition and innovation. The France Pavilion is expected to attract 10 million visitors during the six-month Expo.

Forty-seven architects participated in a design contest from which the “Sensual City” project designed by Jacques Ferrier was selected. His “sensorial path” highlights the senses of sight, smell, touch, sound and taste. Surrounded by water, the building includes numerous architectural innovations such as a concrete lattice, suspended roof garden and vertical gardens on the interior patio. The visit begins on the upper floor with a terrace planted like a French garden and then descends within the curved interior of the pavilion, with commanding views of an indoor patio planted with small trees. Throughout their visit, visitors will discover typical French scenes as well as masterpieces on loan from the Musée d’Orsay. Construction of the French pavilion began in November 2008.


Lafarge: the “Sensual City” expressed through the sense of touch Like numerous companies around the world, Lafarge decided to join this project in China through a partnership with the France Pavilion, because it has built up a strong presence for over 15 years in this country. The core themes of World Expo 2010 Shanghai are urban development, architecture and sustainable construction. These challenges echo the core business and concerns of the Lafarge Group, which wanted to seize the opportunity of a partnership to:

- Participate in debates on the new challenges of urban development - Promote innovative, environmentally-friendly solutions that are specifically adapted to the

problems facing Chinese cities. Inside the French pavilion, Lafarge has reserved an area to present some of its products that allow architects to lend substance and relief to their buildings. Its walls are made from a mosaic of small Ductal® tiles (ultra-high performance concrete), decorative concrete and gypsum of various colors and aspects, from pleated to smooth, rough, granulated, leathery or skin-like, to express the sense of touch. The mosaic tiles are interspaced with images presenting emblematic French views, landscapes and monuments of the past or future, as well as photos of cities and buildings in China. Finally, models of ‘living bridges’, like the project for Shanghai, illustrate the “Living within Infrastructure” study conducted in partnership with the architect Marc Mimram. A series of films present innovative building concepts developed by Lafarge that respect the environment and are adapted to the specific problems of Chinese cities.

Appendix


Cement

Cement is a hydraulic binder and the basic ingredient of concretes and mortars. Cement has been used since ancient times. The first limestone-based structures were made by the Egyptians and date back to 2600 BC. Modern cement dates from the 19

th century.

UNDERSTANDING HOW CEMENT IS MADE Cement is manufactured by extracting and then firing limestone and clay, which produces clinker. Clinker is then finely ground with gypsum.

Phases of making cement

Raw materials, mainly limestone and clay, are extracted from quarries (1) and then transferred to dumpers. (2) After crushing, it is routed to the cement plant on a conveyor belt (3), where it is stored and homogenized. Very fine grinding is used to obtain a fine powder (4), which is preheated before entering the kiln (5): a 2000 C flame heats the material to 1500°C, before being cooled by ventilation. Clinker is obtained through the firing process. Clinker is finely ground with gypsum (6) to obtain “pure cement”. Various additives can be injected to obtain compound cement. Cement is stored in silos before being delivered in bulk or bags to the place of consumption.


Aggregates & Concrete

WHAT ARE AGGREGATES? Aggregates are very small-sized mineral fragments. Aggregates include sand, crushed gravel and gravel originating from natural sources (sea, rivers or land) or recycled waste (recycled demolition materials, for example). Aggregates are an essential part of the production of concrete and the basic materials used in roadways, landfill and buildings. The characteristics of aggregates depend on local geology. Consequently, not all aggregates are suitable for making quality concrete, which depends on their physical and chemical compositions.

WHAT IS CONCRETE? Also known as “liquid stone”, concrete is a mixture of cement (10% to 15% on average), water and aggregates (sand and crushed gravel). Given its resistance and durability, concrete is the second most commonly used material in the world after water. Additives can be used to give concrete additional characteristics. Currently there are nearly 500 different formulas for concrete. In its most common form, concrete is combined with steel to obtain reinforced concrete, which combines the resistance of the two materials in terms of compression and traction.

Phases for making ready-mixed concrete Ready-mixed concrete is produced at a concrete plant and then delivered directly to the construction site by in-transit mixer trucks. Ready-mixed concrete is produced on a just-in-time basis, because concrete has the same properties as fresh produce: once the various components have been mixed together, it must be used within four hours on average. Once concrete is poured into the formwork, the setting time varies depending on the formula (12 hours on average). After this setting time, the formwork can be removed.


Gypsum

WHAT IS GYPSUM? Gypsum is made from natural gypsum (sedimentary rock extracted from open mines or underground quarries, which is then crushed and ground) or synthetic gypsum (produced from by-products of power generation or industrial waste). The paste that is obtained is fired to 150°C. Plaster is primarily available as plasterboard, but Lafarge also produces other plaster-based products such as precast plaster blocks.

Manufacturing plasterboard

Plasterboard is made up of a thin layer of gypsum set between two cardboard sheets. The gypsum is mixed with water. Various solid and liquid admixtures are introduced until a homogenous slurry is obtained. Two rolls of cardboard are continuously unrolled, one below and the other above the mixer. The edges of the upper cardboard sheet are then glued to the folded edges of the lower sheet. The sandwich is then laminated (compressed between two cylinders to the desired thickness). Once dried, the plasterboard is cut to the desired length. It is then stored, ready to be shipped to building sites.


Sources and credits

� Official BIE website (Bureau International des Expositions) http://www.bie-paris.org � Official website of World Expo 2010 Shanghai http://en.expo2010.cn/ � CIA – The World Factbook � Ecofys Report: “How to turnaround the trend of cement-related emissions in the developing

world?” - September 2007 � United Nations Population Division: World Urbanization Prospects – The 2009 revision http://www.un.org/esa/population/ � The World Bank > Countries > China http://www.worldbank.org/ � US-China Business Council http://www.uschina.org/ � World Business Council for Sustainable Development – Cement Sustainability Initiative http://www.wbcsdcement.org/ Photo credits: Jacques Ferrier Architectures - Image Ferrier Production Lafarge photo library - Xinping Zhang Lafarge photo library - Cedric Arnold – Rea Lafarge photo library – Ignus Gerber Lafarge photo library - Xinping Zhang These visuals, along with many others, are available on request from the Lafarge press service.



PRESS CONTACTS

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Press kit: Lafarge in China