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Supply Capacity of Construction Materials (Cement, Ready Mix Concrete, Aggregates)
Ulrich Aumuller, Lafarge Readymix & Aggregates
2 RPF, Ulrich Aumuller, Nov. 20, 2007
South African Construction OutputSouth African Construction Output
3 RPF, Ulrich Aumuller, Nov. 20, 2007
2006 Estimated Value of Building and 2006 Estimated Value of Building and Construction: R160 billion.Construction: R160 billion.
Residential Building
R66 700 million
Residential Building
R66 700 millionNon-Residential Building
R38 300 million
Non-Residential Building
R38 300 millionConstruction
R55 000 million
Construction
R55 000 million
Total Building
R105 000 million
Total Building
R105 000 million
Total Building and Construction
R160 000 million
Total Building and Construction
R160 000 million
Cement comprises roughly 8,5% of the total value.
Source: LHA Market Survey for C&CI, August 2007
4 RPF, Ulrich Aumuller, Nov. 20, 2007
Growth in the Construction Industry was, since mid 2006
increasingly driven by Non - Residential and Construction and will
continue to do so
1000
6000
11000
16000
21000
26000
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Value Rm % Y-on-Y Growth
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Value Rm % Y-on-Y Growth
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11000
16000
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26000
31000
36000
41000
46000
51000
2000
Q1
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Val
ue
Rm
-20
-10
0
10
20
30
40
%
Value Rm % Y-on-Y Growth
Building Residential
Building Non-Residential Construction
Source: LHA Market Survey for C&CI, August 2007
5 RPF, Ulrich Aumuller, Nov. 20, 2007
South Africa Infrastructure Investment:South Africa Infrastructure Investment:2007 Budget Figures2007 Budget Figures
Public infrastructure investments grow at CAGR of 7-8% above inflation
State budget understates trend: investments of parastatal sector (i.e. ACSA) and public-private partnerships (Gautrain) not fully captured
Biggest issue in infrastructure investment is delivery, not funding
BudgetR billion FY06 FY07 FY08 FY09 FY10 3yr tot
Electricity 12 16 17 23 31 71Roads 13 16 19 21 23 62Rail 5 13 16 16 14 46Water & sanitation 8 11 11 12 13 37Housing 5 7 8 10 12 30Ports 3 4 7 6 4 17Health 3 4 5 5 6 16Education 2 3 3 3 4 11Criminal/justice system 1 1 1 2 2 5
Budget
R billion FY06 FY07 FY08 FY09 FY10 3yr tot
Provincial governments 23 27 35 42 42 119
Municipalities 21 23 28 32 34 94
Other government 9 13 15 18 18 51
Parastatals 26 38 45 50 57 152
Total 79 101 123 142 151 416
Source: Michael Mc Clintock, SASOL, Presentation at Deloitte & Touche Forum, Feb. 2007
6 RPF, Ulrich Aumuller, Nov. 20, 2007
Major Public Infrastructure Projects Major Public Infrastructure Projects
ESKOM: R 150 b capital pipeline TRANSNET: R 80 b
• Saldanha Iron Ore Terminal• Durban Terminal Expansion and Harbor Mouth Widening• PE: Completion of COEGA Harbor and Industrial Zone• Cape Town Terminal Expansion, Berth Deepening• Richards Bay Bulk Terminal Expansion
GAUTRAIN: R 25 bn for rapid rail network Soccer Stadiums for FIFA World Cup and annex infrastructure: R 15 bn SANRAL: R 30 b for Road Infrastructure Housing (low cost): R 30 b ACSA R 18 b
• Enlargement OR Tambo and Capetown Airport• New King Shaka International Airport (Durban)
DWAF (Water): R 20 bn (4 dams, water transfer schemes), financed on the capital market
7 RPF, Ulrich Aumuller, Nov. 20, 2007
Significant Industrial Investments mainly in Significant Industrial Investments mainly in Metals, Mining and BeneficiationMetals, Mining and Beneficiation
ALCAN Aluminum Smelter at COEGA, PE (construction to start 2008) New refinery (COEGA) SASOL Coal to Liquid Project (likely Free State) Expansion of ISCOR/Mittal Steel: R 7 b investment at 4 different sites to
boost steel capacity by 2,5 M t Cement Industry Expansion Program (PPC, Lafarge, ORASCOM):
approx. R 5 b in projects confirmed or underway, additional R 3-4 b under feasibility study
DUBE Trade Port (King Shaka Airport Durban), KZN Investment in the Coal Industry (Mpumalanga, Limpopo) to cater for
demand from ESKOM and increased coal exports Platinum industry (Mines and Smelters), mainly North West Province Ferro Alloy Industry (Mining and Smelters)
Industrial Investments in Mining and Beneficiation in remote areas (i.e. Ellisras): will require establishment of housing and related infrastructure to cater for the workforce. Tourism will remain a growth driver.
8 RPF, Ulrich Aumuller, Nov. 20, 2007
Construction Output to Double in Constant Construction Output to Double in Constant Currency by 2014 Compared to 2006Currency by 2014 Compared to 2006
25% Capital formation-to-GDP ratio
Doubling of industry output over 2006Average real growth in
industry of 8% p.a.
Civil construction larger than building industry by
2009/10
0
20
40
120
160
200
240
280
320
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Val
ue
Building Civil Construction Total
Source: LHA Market Survey for C&CI, August 2007
9 RPF, Ulrich Aumuller, Nov. 20, 2007
Demand and Supply in the Cement Demand and Supply in the Cement MarketMarket
10 RPF, Ulrich Aumuller, Nov. 20, 2007
Cement Market Growth Driven by Cement Market Growth Driven by Civil/Construction OutputCivil/Construction Output
Sector Cement Demand (kTon and % Contribution) % Change
over Period2007 2008 2009 2010 2014
Residential7 191 7 479 7 965 8 403 9 410
4,4%48,3% 46,5% 45,8% 45,0% 42,3%
Non-Residential4 343 4 691 5 019 5 346 6 373
6,4%29,1% 29,2% 28,9% 28,7% 28,7%
Construction3 362 3 900 4 388 4 913 6 438
11,2%22,6% 24,3% 25,3% 26,3% 29,0%
TOTAL14 896 16 070 17 372 18 662 22 221
6,7%100% 100% 100% 100% 100%
% Change p.a. 12,2% 7,9% 8,1% 7,4% 4,5% -
SA per capita cement consumption is around 270 kg/capita and will grow to approx. 350 kg (world average) by 2010
Source: LHA Market Survey for C&CI, August 2007
11 RPF, Ulrich Aumuller, Nov. 20, 2007
Main Growth Driver for Cement: Public Main Growth Driver for Cement: Public Sector. Private Investment also Contributes Sector. Private Investment also Contributes
to Growth but less than in the Pastto Growth but less than in the Past
Sector
Cement Demand (kTon and % Contribution) % Change over Period
2007 2008 2009 2010 2014
Public1)5 656 6 448 7 222 7 944 9 931
10,1%38,0% 40,1% 41,6% 42,6% 44,7%
Private9 240 9 622 10 150 10 718 12 290
4,5%62,0% 59,9% 58,4% 57,4% 55,3%
TOTAL14 896 16 070 17 372 18 662 22 221
6,7%100% 100% 100% 100% 100%
% Change p.a. 12,2% 7,9% 8,1% 7,4% 4,5% -
1) Public sector accounts for 35% of cement demand in 2006: the public-sector investment program adds 800 000 tons to annual demand in 2010
Source: LHA Market Survey for C&CI, August 2007
12 RPF, Ulrich Aumuller, Nov. 20, 2007
Growth of the Cement Supply in South AfricaGrowth of the Cement Supply in South Africa
M tIndustry Capacity end 2006 14Out of which Lafarge 2.7 Lichtenburg Cement Plant+Richards Bay Grinding PlantProjects underway, completed between 2007 and 2010Lafarge 1.0 Brownfield kiln Lichtenburg + milling plant GautengPPC 1.8 Batsweledi and Milling Capacity Upgrades GautengNPC CIMPOR 0.6 Simuma Plant Expansion, KZNAFRISAM 0.4 Milling and Blending Capacity IncreaseORASCOM 2.0 New Greenfiled Plant in Northwest Commissioned 2010Total Expansion underway 6Industry Capacity end 2010 20Projects under study, commissioned after 2010AFRISAM 2.0 North West brownfield LichtenburgPPC 1.9 Riebeek Project, Western Cape, other expansionsNPC or New Operator 0.6 Other greenfiled investment North West ??, SimumaTotal Projects 5Capacity Long Term 24
Source: Proceedings INTERCEM South Africa Congress Sept. 2007
There is another 0,7-1,0 Mt supply capacity from extenders Fly ash usage not at potential (cement and RMX) Granulated blast furnace slag supply will increase with steel output
(milling capacity in place to process additional tonnage
13 RPF, Ulrich Aumuller, Nov. 20, 2007
Growth of the Cement Supply in South AfricaGrowth of the Cement Supply in South Africa
In 2006 and 2007 capacity was insufficient to fully cater for the demand, yet the market was fully served: balance supplied through cement imports (PPC, NPC, HOLCIM and Lafarge).
NPC Simuma expansion came on stream early 2007
Other projects underway come on stream on time to supply the mid term (2010) demand (imports will phase out in 2008)
Project pipeline sufficient for satisfying demand forecast
Regional Supply/demand imbalances possible: most capacity will be created in the Northwest, Eastern Cape will remain “net importer” of cement (transport impact on cement prices)
Source: Proceedings INTERCEM South Africa Congress Sept. 2007
14 RPF, Ulrich Aumuller, Nov. 20, 2007
Growth of Supply by Lafarge CementGrowth of Supply by Lafarge Cement
Brownfield expansion (kiln) at the Lichtenburg Cement Plant Northwest Province
Grinding Facility close to the market in Randfontein, West Rand (Gauteng)
Rail Logistics for clinker Transport Chinese Technology (CBMI) R 1,2 b investment for 1 Mt additional capacity Lowest investment per t additional capacity created of all projects
currently underway in South Africa
Lafarge supply position to the industry reinforced by its subsidiary “Ash Ressources” supplying a range of classified and non-classified cementitious materials to the cement, ready mix concrete and pre-cast industry
15 RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge Aggregates and RMX at a Lafarge Aggregates and RMX at a glanceglance
16 RPF, Ulrich Aumuller, Nov. 20, 2007
66 Ready Mix Plants
• 58 Commercial Fixed Plants
• 8 Mobile Plants• 480 Ready Mix
Concrete Trucks
Pump Services• 17 Truck
mounted Boom Pumps, truck mounted Conveyors
Workforce: > 1100
The largest, most innovative and leading supplier of Aggregates and Ready Mix Concrete on the African Continent
Extensive coverage of the National Territory
24 Aggregate Quarries• 450 Tipper Trucks
Mobile Crushing• 3 Crushing Units
Lafarge Aggregates & Readymix
17 RPF, Ulrich Aumuller, Nov. 20, 2007
WitfonteinGeorge
Port Elizabeth
Nelspruit
Polokwane
East London
NORTHERN CAPENORTHERN CAPE
WESTERN CAPEWESTERN CAPE
EASTERN CAPEEASTERN CAPE
FREE STATEFREE STATE
LESOTHOLESOTHO
NORTH WESTNORTH WEST
LIMPOPOLIMPOPO
MPUMULANGAMPUMULANGA
KWA-ZULU KWA-ZULU NATALNATAL
GAUTENGGAUTENG
Durban
Richards Bay
Cape Town
Saldanha
Mossel Bay
King Williams Town
BloemfonteinBloemfonteinPietermaritzburg
White River
Evander
Olive Hill
Empangeni
Ninians
Stanger
Inanda
Tongaat
Ridgeview
Blue Rock
Moregrove
Coega
Perseverance
KnysnaTygerberg
Dorsberg
Peak
SWAZILANDSWAZILAND
Lichtenburg
3
173
11
1
12
3
11
31111
1
14
2
11
Aggregate Quarry
Ready Mix Concrete Plant (Circle Center Number of plants)
Lafarge Plant NetworkLafarge Plant NetworkCement Plant
Gypsum Wallboard Plant
Gypsum Project
Limestone Quarry Machadodorp Komatipoort
18 RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge Readymix & AggregatesLafarge Readymix & AggregatesWhat we are proud of – Soccer World CupWhat we are proud of – Soccer World Cup
Lafarge Aggregates & Readymix is proud of having been the only operator contributing with the supply of heavy construction materials to all 5 new stadium constructions
In partnership with all major South African construction companies on these jobsites we are fully committed to success
Venue
Consorti
um
Tender
Ran
d M
Concret
e
m3
Aggregat
es
Cemen
t
Cape Town Murray&Roberts - WBHO 2490 Lafarge 136000 Lafarge PPCDurban Group 5 - WBHO - Pandev 2430 Lafarge 92000 Lafarge NPC-CimporPort Elisabeth Grinaker LTA - Interbeton 1150 Site batch 40000 Lafarge PPCPolokwane WBHO - Pauls 800 Site batch 70000 Lafarge LafargeNelspruit Basil Read - Bouygues Civils 860 Lafarge 75000 Lafarge PPC
19 RPF, Ulrich Aumuller, Nov. 20, 2007
Demand and Supply in the Ready Mix Demand and Supply in the Ready Mix Concrete MarketConcrete Market
20 RPF, Ulrich Aumuller, Nov. 20, 2007
Increasing Importance of Readymix Concrete Increasing Importance of Readymix Concrete
• Quality, guarantees, consistency
• Accessibility to sites• Storage of material on site• Theft and loss of product• Placing techniques
(pumping)• Special concretes (self-
compacting, readymix mortars and plasters) gain market acceptance
• Speed of construction paramount, lack of skilled labor, new technology formwork, turnaround times
• Improved service levels• Increased average strength,
particularly in civil
Total
2006 34,1
2003 24,4
Readymix concrete in % of all concrete produced
Readymix concrete in % of all concrete produced
Total
2006 67,9
2003 56,5
Ready Mix Concrete within Large Construction (%)
Ready Mix Concrete within Large Construction (%)
Source: LHA Market Survey for C&CI, August 2007
21 RPF, Ulrich Aumuller, Nov. 20, 2007
Growth of the Ready Mix IndustryGrowth of the Ready Mix Industry
The Ready Mix Concrete market will grow significantly faster than cement: trend to larger jobsites and the intrinsic superiority of Ready Mix Concrete versus site batched concrete
Ready Mix Volumes and No. of plants will double by 2014 compared to 2006.
The industry will grow in line with demand: standard, “off the shelf” engineering = lead times to put capacity are short (4-6 months)
Clients may still be exposed to local shortages as a result of poor planning (allow for sufficient lead time when tendering !)
2006 2007 2008 2009 2010 2014Volume M m3 7.5 8.6 9.5 10.5 11.4 14.7Growth % p.a. 15% 10% 10% 9% 6%Number of Plants 188 216 237 261 286 368
South Africa RMX industry forecast
22 RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge’s Capacity Plan for ReadymixLafarge’s Capacity Plan for Readymix
So far Network: 2003 to 2007: number of plants from 42 to 66 Mobility: 8 mobile plants to go where the demand is Trucking Capacity: 60 8 m3 trucks since 2005 Upgrading of existing plants (to load 8 m3 trucks = 70% done) Increase and major refurbishments of pump fleet Innovation: ARTEVIATM and ULTRASCC product ranges
Future Grow by 6-8 plants per annum
• Add capacity• Increase geographic footprint
High output wet batch plants in large markets as from 08 Increase truck fleet with full conversion to 8 m3 trucks More innovation to come: ExtensiaTM (industrial flooring)
23 RPF, Ulrich Aumuller, Nov. 20, 2007
Demand and Supply in the Aggregate Demand and Supply in the Aggregate MarketMarket
24 RPF, Ulrich Aumuller, Nov. 20, 2007
Growth of the Aggregate IndustryGrowth of the Aggregate Industry
Aggregate Volumes will more than double until 2014, grow at double digit rates until 2010 (road and infrastructure)
Quarried Products will increase their share in output (Poor quality of natural sands, environmental concerns)
Share of industrial clients (RMX, Concrete Products, Asphalt) in total demand will increase: stringent quality requirements
Aggregates from alternative sources (mine dumps, slag, recycling) will remain a factor of local/regional importance
2006 2007 2008 2009 2010 2014Total Volume 000 ton 59 69 78 88 97 116Growth % p.a. 19% 12% 13% 11% 4%Volume "High End"* 41 50 57 66 74 88Growth % p.a. 22% 15% 15% 12% 4%* clear sizes and base course products from quarrying, excludes roadbase,natural sand
South Africa AGGREGATES Industry forecast
Source: 2006 Base DME Statistics, recalculated
25 RPF, Ulrich Aumuller, Nov. 20, 2007
Aggregate Industry challenges affecting Aggregate Industry challenges affecting supply/demand balancesupply/demand balance
Changes in Product Mix from the demand pattern prevalent when most of the plants were built
• Substitution (Crusher Dust – Natural Sand): Capetown, PE, Bloemfontein, Mpumalanga, Limpopo
• Other products with demanding specifications (UTFC)• Washed materials, in particular manufactured sand
Local spikes in demand in rural areas related to large projects
MPDRA (Mining Law): uncertainty about mining right conversions in 2009
Illegal Mining Reserves at existing, legal, quarries is not an issue
(Lafarge: > 50 years permitted reserves at current sales, no quarry with less than 10 years)
Source: 2006 Base DME Statistics, recalculated
26 RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge’s Capacity Plan for Aggregates: so farLafarge’s Capacity Plan for Aggregates: so far
Mobility
3 mobile units, capacity 250 – 300 t/h producing the entire range of clear sizes and road products (from G7 to G1) with primary, secondary and tertiary section (Total investment, including mobile equipment: > R 80 M)
• 1st plant: June 2006, Peak Quarry, Capetown, moved to Saldanha• 2nd plant: Feb 2007, Ridgeview Quarry, Durban• 3rd plant: Nov. 2007, White River Quarry, Mpumalanga
Capacity Expansion• Tygerberg automation and capacity expansion from 0,8 Mt to 1,2
Mt p.a. commissioned end 2006 (R 25 M)• Moregrove screening capacity from 250 t/h to 450 t/h (R 7 M)
Feb. 2007• Tongaat new plant: 60-70 Kt/month, investment R 60 M
Product Mix Adjustments and Quality Improvements• Peak Quarry Cape Town: Replacement tertiary section with new
generation crushers bringing capacity to 750 Kt/h (> 2 Mt p.a.) with up to 55% manufactured sand (R 44 M)
27 RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge’s Capacity Plan for Aggregates: FutureLafarge’s Capacity Plan for Aggregates: Future Lafarge COEGA Quarry re-commissioned Nov. 2007, R 4 M Upgrade of screening capacity at Inanda Quarry (Durban,
operated in JV, reopened in 2007): 1st half 2008, R 2 M De-bottlenecking of Machadodorp Quarry, replacement of
secondary crusher and upgrading of screening capacity to double output of rail ballast, R 5 M
New plant at Perseverance (PE) to double production and improve quality of natural sand, R 15 M
Mobile Barmac plant to crush single sizes to crusher dust, R 3 M De-bottlenecking and upgrade of Ridgeview Quarry in Durban
end 2008 or 1st half 2009, investment > R 30 M
Investments of approx. R 255 M, commissioned in 2007 and 2008 boost Lafarge Aggregate’s capacity by over 4 Mt
Additional investments are directed to acquisitions and mobile equipment
2014: 30 quarries, enlarged geographic footprint, average output/quarry up 50% from 2007
28 RPF, Ulrich Aumuller, Nov. 20, 2007
Price Trends for Aggregates, Cement Price Trends for Aggregates, Cement and Ready Mix Concreteand Ready Mix Concrete
29 RPF, Ulrich Aumuller, Nov. 20, 2007
Construction Material Industry TrendsConstruction Material Industry Trends
Industry growth triggered listings in 2006 and 2007 (JSE Main Board and AltX)
• WG Wearne (RMX, Aggregates)• AFRIMAT (RMX, Aggregates, Concrete Products)• RAUBEX (Aggregates, Asphalt, Road Construction)• INFRASORS (Aggregates, Concrete Products)• AFRICAN BRICKS (Clay Bricks)
Raise capital to fund organic growth and consolidation• AFRIMAT -> Malans Quarries, Denver Quarries• WG Wearne -> De Bruyn Sand, Tzaneen Quarries, Willows• RAUBEX -> Queenstown Quarries
Vertical Integration moves by listed construction companies• Group 5: AFRIMIX, Quarry Cats, Sky Sand, GoCrete• Protech Kuthele: Rockcrete, Instant Concrete
Lafarge participated in consolidation (White River Quarries, Stonetech): reasonably priced acquisitions become scarce
Black economic empowerment transactions, the largest of which the investment of AFRISAM into 85% of HOLCIM South Africa
30 RPF, Ulrich Aumuller, Nov. 20, 2007
Volume Growth and Price Trend for Volume Growth and Price Trend for Construction Materials 2003-2006 Construction Materials 2003-2006
41%46%
32%58%
44%65%
51%38%
22%83%
57%55%
53%44%
59%15%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Cement
Structural Steel
Reinforcing Steel
Building Timber
Concrete Roof Tiles
Bricks
Crushed Stone
Bitumen
PPI Volume
Source: LHA Market Survey for C&CI, August 2007
31 RPF, Ulrich Aumuller, Nov. 20, 2007
Pricing Trend for construction materialsPricing Trend for construction materials
Prices have increased at rates above consumer price inflation between 2003 and 2006 and will continue to do so
Aggregate and Cement Industry run at capacity: additional volume will come from capacity expansion (Capital Cost, Depreciation)
Industry inflation rates significantly above consumer price inflation• Electricity with ESKOM Plans to adjust prices for industrial users• Costs for compensation 2,5-3,0% above CPIX every year• Energy (Fuel, Explosives) significant Industry Cost Factors• Maintenance component strongly impacted by steel, rubber• High reliance on imported capital equipment (fixed and mobile).• Additional charges ahead ? (Minerals Levy, Rates + Taxes)
Listed operators strive to ensure adequate return for investors
Concrete Prices will reflect the prices for Materials and Transport (> 85% of the operating Cost of the Industry)
32 RPF, Ulrich Aumuller, Nov. 20, 2007
ConclusionConclusion
33 RPF, Ulrich Aumuller, Nov. 20, 2007
Construction Material Demand DriversConstruction Material Demand Drivers
The South African Economy entered into its longest expansion period on record in 2000/2001
Increased disposable income, consumer spending, emergence of a black middle class
Construction industry output to double between 2007 and 2014• Residential construction main driver until 2006• Industrial and infrastructure developments over the next 3-8 years
Sufficient funding by federal and provincial budgets (budgets extended by “build + operate” schemes, i.e. toll roads)
Investments will address bottlenecks enabling SA to redress the negative current account balance = main economic risk factor
• Absorb backlog out of the long period of underinvestment• Capacity for further growth of the backbones of South Africa’s
economy: Mining, Metals and Tourism
34 RPF, Ulrich Aumuller, Nov. 20, 2007
Construction Materials SupplyConstruction Materials Supply The industry has progressively saturated existing production
capacities until 05/06, further growth = investment into plants and mobile equipment
• Cement capacities will grow by > 70% and in line with demand• Ready Mix Concrete will double until 2014 (plants and trucks)• Aggregate Supply will more than double until 2014
Local, temporary, shortages may occur, in particular for aggregates but will be related to poor planning, bidding behavior and improper accounting for logistics constraints
Lafarge drives a growth strategy focusing on organic growth and innovation in all of its product lines
• 1 Mt additional cement by 2009• Local manufacturing base for gypsum wallboard• Doubling of ready mix concrete and aggregate production
Main challenge = investment inhibitor for Cement and Aggregates: uncertainty around the conversion of Mining Licenses
35 RPF, Ulrich Aumuller, Nov. 20, 2007
THANK YOUTHANK YOU