Dangote Flour Mills Plc: Weak revenue growth remains a problem

Transcription

1 Dangote Flour Mills Plc: Weak revenue growth remains a problem H revenue improves by 1.70% and post-tax loss widens by % y/y. In H1 2013, Dangote Flour Mills Plc (DFM) reported revenue of N29.32billion, up 1.70% y/y from N28.89billion in H1 2012, and post-tax loss of N2.30billion, up % from a post-tax loss of N464.53million in H H post-tax loss widened by 1.77% compared to the loss levels recorded for the full year to December 2012, i.e. N2.26billion, H loss is 1.77% higher. As a result, we anticipate further expansion in loss levels by September 2013, the company s new financial year-end. On a q/q basis, revenue and post-tax loss for Q came in at N15.33billion and N864.59billion respectively. Q revenue is 9.13% above N14.05billion posted in Q and 1.58% above the N15.09billion recorded in Q Meanwhile, Q post-tax loss decreased by 39.75% to N864.59million from N1.44billion in Q and expanded by 48.80% compared to the post-tax loss of N581.05million posted in Q In our view, the single-digit growth in revenue continues to reflect competitive pressure across DFM s flour and flour-based products on the back of excess supply in Nigeria s flour milling industry. This has impacted DFM s sales efforts negatively, weakened its growth momentum and depressed its sales volumes, especially across its Pasta business. Fig. 1: Quarterly results commentary Q Q Q Q/q Y/y Revenue (N millions) 15,333 14,050 15, % 1.58% Operating profit (N millions) % % Post-tax profit (N millions) , % 48.80% Source: Bloomberg, DLM Research Flour business contribution to H revenue increases to 53.21%. The flour business Dangote Flour recorded a 6.60% y/y increase in revenue to N15.60billion. This represents a contribution of 53.21% to H revenue, an improvement from 50.43% recorded in H However, the business made an operating loss of N1.90billion due to a surge in costs. According to DFM s new management, the company has embarked on a turnaround strategy to ensure strict adherence to worldclass flour manufacturing standards and operating disciplines in order to improve product quality and service levels whilst boosting sales revenues and profitability in the months and years ahead. Oyakhilome Ibhagui oibhagui@dunnlorenmerrifield.com Price: - Current N9.05* - Target N8.56 Recommendation: * As at Tuesday, September 24, 2013 Fig. 2: Stock data SELL Price Mov t: YtD / 52wk 10.11% / 29.14% 52-week range N N10.69 Outstanding Shares ( m) 5,000 Market Cap. (N m) Source: Bloomberg, NSE, DLM Research Fig. 3: Key ratios Fig. 4: Valuations 45,200($279.01m) P/Sales 0.96x 0.80x 0.69x 0.58x EV/Sales 1.54x 1.43x 1.23x 1.08x P/B 1.61x 1.78x 1.72x 1.48x P/E N/A N/A 54.59x 41.42x PEG N/A N/A EV/EBITDA 5.20x 4.71x 4.08x 3.83x ROE -9.44% -0.81% 3.16% 3.58% Div. Yield 0.00% 0.00% 1.13% 1.47% Source: DLM Research H H Gross profit margin 8.52% 14.28% Net profit margin -7.83% -1.61% Equity multiplier 3.28x 2.76x Asset turnover 0.39x 0.38x Source: NSE, DLM Research Fig. 5: Dangote Flour Mills vs. NSE (rebased), last 52 weeks NSE DANFLOUR Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Source: Bloomberg, DLM Research Bloomberg: <DLMN> GO Please read the Important Disclosures at the end of this report.

2 Pasta business weakens further, Noodles business shows signs of top line recovery The Pasta business Dangote Pasta posted revenue of N2.90billion in H1 2013, down 39.20% y/y from H levels. The fall in revenue was largely driven by a decrease in output on the back of a temporary shutdown of the firm s pasta manufacturing facility for 3 weeks. The shutdown was in order to address production inefficiencies and challenges in output quality and also improve service levels and supply chain management. This led to a reduction in pasta sales volumes and a consequent drop in top line. Against past trends, the Noodles business Dangote Noodles recorded a turnaround in sales volumes and achieved a 27.96% y/y growth in revenue to N2.90billion in H The growth in sales volumes was supported by improved service levels and high demand which prompted the firm to reactivate its Noodles manufacturing plant in Calabar and increase production in order to satisfy the excess demand. However, Pasta and Noodles businesses still maintained their reputation as loss generating centers. We estimate that Dangote Pasta and Dangote Noodles together posted an aggregate operating loss of N1.28billion in H but Agrosacks business continues to lead the pack on all fronts, placing a lid on group operating loss in H Dangote Agrosacks continues to dominate DFM s businesses in terms of growth momentum and consistency of profitability levels. The business recorded H revenue of N9.20billion, up 15.01% y/y from H levels, and H operating profit of N1.46billion, up 47.00% y/y from H levels. The growth in revenue and operating profit reflects consistent demand for the firm s packaging materials both within and outside the broader Dangote Group and underpins its position as one of the largest producers of packaging materials in the world. We believe the location of one of its production lines within Obajana cement factory confers on it the benefits of efficient production cost management as most plants in Obajana factory are gas powered, with a relatively cheap supply of gas, and thus cost effective. Fig. 6: H Revenue and Operating Profit by Business 35,000 Revenue (N'millions) Operating profit (N'millions) 30,000 29,322 25,000 20,000 15,000 10,000 5, ,000-1,684 Dangote PastaD adangote Noodles Dangote AgrosacksD sdangote Flour DFM Source: NSE, DLM Research Estimates 2

3 Fig. 7: Revenues and PAT (N millions) Revenue (N'millions) PAT (N'millions) 32,000 27,000 22,000 17,000 12,000 7,000 2,000-3,000 H2 2011H 1H1 2012H 2H2 2012H 2H Flour business segment buoys inventory levels and weakens sales speed, in our view. DFM s inventory increased by 13.20% y/y to N11.13billion in H from N9.83billion in H1 2012; however, inventory turnover dropped to 2.41x from 2.52x. In our evaluation, this highlights the challenges and competitive pressure that the firm s flour business faced with respect to converting products to proceeds and sales receivables. Meanwhile, receivables turnover declined to 2.22x from 2.31x whilst days receivables outstanding (DSO) increased to c.83days from c.79days, indicating that DFM s credit policy for the period was customer-friendly to its credit-worthy customers and not overly strict. The decline and increase in receivables turnover and DSO should ideally have buoyed inventory turnover as they should have served as an incentive for target customers to willingly accept more of DFM s products since payment terms are flexible and favorable. This, in turn, could have buoyed DFM s inventory turnover. However, that was not the case in the period. Despite DFM s credit policy, the firm was unable to speedily convert products to receivables and grow sales revenues substantially, especially in its flour and pasta businesses. DFM s weak business activity ratios point to two of three possible scenarios. First, the weak inventory turnover, slow receivables turnover and weak revenue growth, despite the firm s light credit policy, possibly implies that the firm did not aggressively market its products in the review period. Second, it could be an indication that, despite DFM s efforts to market products, the firm s supply chain was inefficient and customers did not find the quality of its products sufficiently high to necessitate a substantial buy via cash or credit. Third, it could imply that DFM carefully selected the customers to whom it extended credit, given the trade debt the firm suffered in recent times and the unwillingness of the firm to continue making provisions for such debt as such provisions would widen its already substantial loss position and place its operations in an undesirable position. 3

4 We believe the first scenario was less likely to have materialized in the period since the firm s distribution and administrative expenses increased by 18.06% y/y, an indication that the firm did attempt to market its products. We are therefore inclined to go with the second and third scenarios. It is our opinion that, given the homogeneous nature of products and prices in Nigeria s milling industry, the quality and attractiveness of the firm s products, coupled with bottlenecks in its supply chain, could be a reason why patronage of its products from high quality, credit worthy customers has not been strong in recent times, despite efforts and funds committed to products distribution. Also, it is our opinion that the firm has become more selective on whom to grant credit facilities, given its increasing provisions for bad trade debts and their consequent negative effects on profitability and margins. In H1 2013, the firm recorded an abnormal item of N293.41million related to write-off of obsolete stock and fixed assets, up by more than 64x y/y from N4.56million posted in H In addition to highlighting the indirect corollary of prolonged exposure to bad trade debts, the write-off likely underpins the clean-up exercise being embarked upon by DFM s new parents, Tiger Brands. Although the influence of Tiger Brands on DFM s operations is yet to become visible, we believe the new parent will continue to concentrate on the aforementioned challenges in order to make DFM a strong brand name and strengthen its high quality, credit-worthy customer base whilst helping the firm realize a strong and consistent growth in sales revenues. Fig. 8: DFM Business Activity Ratios Inventory turnover (x) Receivables turnover (x) Payables turnover (x) It is our opinion that, given the homogeneous nature of products and prices in Nigeria s milling industry, the quality and attractiveness of the firm s products, coupled with bottlenecks in its supply chain, could be a reason why patronage of its products from high quality, credit worthy customers has not been strong in recent times, despite efforts and funds committed to products distribution H2 2011H 1H1 2012H 2H2 2012H 2H Net cash flows from operations decline further on the back of weak receivables turnover and strong payables turnover. DFM s net cash generated from operations declined to N375.49million in H from N10.62billion. On the reverse side, the firm s payables turnover the speed at which it pays its creditors rose to 2.33x in H from 1.38x. This crowded out the firm s receivables turnover of 2.22x in H and signifies that the firm paid its creditors at a faster rate than it received 4

5 proceeds from its debtors. From this, we deduce that the firm seeks to improve its customers loyalty through payment incentives while it is yet to gain the full trust and confidence of its creditors. It is our opinion that the fall in net cash flows from operations was driven by the strong payables turnover and weak receivables turnover for the period. We estimate that DFM realized a negative free cash flow per share of c.-n0.12 in H1 2013, down % y/y from c. N1.76 in H This signifies that the chips are still down for DFM as it is unlikely to pay dividend with proceeds from its main operations in the current financial year, given the huge loss, weak cash position and negative free cash flows it has recorded thus far. Cost of goods sold (COGS) up 8.54% y/y to N26.88billion. We believe the increase in cost of sales reflects a pick-up in wheat prices in H relative to H (See Fig. 9) and high tariffs on imported wheat. Specifically, wheat prices averaged $7.77/bushels in H1 2013, representing an increase of 11.38% from $6.97/bushels in H Despite the double digit rise in wheat prices and associated import costs, including tariffs on imported wheat, we believe COGS recorded a single digit growth because the firm utilised some of the raw material it already had in store and thus was able to mitigate the impact of a double digit growth in wheat prices on COGS. Fig. 9: Wheat price ($/bushel) 9 We believe the increase in cost of sales reflects a pick-up in wheat prices in H relative to H and high tariffs on imported wheat. Specifically, wheat prices averaged $7.77/bushels in H1 2013, representing an increase of 11.38% from $6.97/bushels in H Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Source: Ychart Financials, DLM Research Estimates We expect that wheat prices for the rest of the year will trend slightly higher than current levels. This increase, in our view, will be driven by China s continued strong demand for wheat as necessitated by recent floods and droughts as well as other weatherrelated problems that have damaged crops in China in the last few months. We now expect wheat prices to average $8.47/bushels in H2 2013, up by 9.12% from the average price recorded in H average. The spike in demand for imported wheat in China has prompted farmers in Australia to hold-back sales of the grain in anticipation that wheat prices will trend even higher. Given Australia s position as the second-biggest wheat exporter, it is our belief that other wheat exporting nations are likely to tow a similar path 5

6 with a view to exploiting the likely short-term increase in wheat prices. If this materialises, then it should create supply shortfall and excess demand for wheat, especially in view of China s consumption capacity. The excess demand may propel wheat prices and likely weaken currencies of net importers of substantial quantities of wheat, with the attendant risk of a high domestic food inflation via pass-through effects, especially if such countries already have weak trade balances and net invisibles, and negligible capital accounts to fund their current account deficits. Flour producers that employ wheat as their major raw material in those countries may experience input cost inflation and a resulting weaknesses in profitability and margins. In such a scenario, the producers with less exposure will be those that have a strong currency risk management in place and also possess large quantities of wheat in inventory and/or have already entered favorable medium-term futures deals with wheat sellers. It is our belief that such a turn of event will be unfavorable for Nigeria and flour millers in Nigeria. Our position is predicated on the fact that Nigeria is a large net importer (non-oil)... It is our belief that such a turn of event will be unfavorable for Nigeria and flour millers in Nigeria. Our position is predicated on the fact that Nigeria is a large net importer (non-oil) and further depreciation of its currency will have unfavourable consequences on domestic consumers and producers, in particular flour millers, on several fronts. First, it will expose millers and consumers to the full impact of exchange rate risk. For millers, a weak local currency given millers dollar exposures implies a rise in obligations to offshore creditors, an increase in resources committed to currency risk management and a consequent weakness in profitability and margins. For consumers, a weak local currency implies erosion of purchasing power. This means less demand for goods and services as more Nigerians are low income earners who live below the poverty line. In turn, the reduced demand will have an indirect negative effect on millers via a reduction in capacity utilization in the flour milling industry. Second, given the fall in consumer demand that usually accompanies an upward revision of prices in Nigeria, a spike in wheat prices is likely to increase production costs and further weaken millers profitability and margins, given the difficulty involved with passing high production costs to final consumers in the form of increased prices of finished goods. Business restructuring leads to higher y/y operating expenses. DFM continued the cleansing of its operations in the period under review via business restructuring and management reorganization with a view to optimizing supply chain efficiencies, enhancing products quality and ultimately remodeling the firm to achieve maximum profit. These one-off events caused the firm to incur an additional cost of N796.01million. Consequently, operating expenses (opex) rose by 18.06% y/y to N4.04billion in H1 2013, from N3.43billion in H Without these one-off costs, opex would have been c. N3.24billion and opex growth would have been down 5.54% y/y. High opex, finance costs and impairment allowance drag down margins, despite enormous growth in tax credit. Gross margin, operating margin and net profit margin all weakened in H compared to H In our assessment, these margins decreased 6

7 to 8.52%, -5.73% and -7.83% respectively in H1 2013, from 14.28%, 3.18% and -1.61% in H The low gross margin for the period implies that DFM converted less than 10% of its revenue to gross profit, after covering production costs, whilst the negative operating margin highlights the impact of the one-off expenses on DFM s operations and, together with the negative net profit margin, implies that the firm was unprofitable in the period under review. Fig. 10: Profit Margins 20% Gross margin Operating margin Net margin 15% 10% 5% 0% -5% -10% H2 2011H 1H H2 2012H 2H In view of the foregoing, it is our opinion that, despite a % y/y increase in income tax credit to N1.47billion, reflecting tax benefits from capacity expansion of Dangote Agrosacks, profits and margins were weakened by 1) higher growth rates in COGS and opex compared to revenue; 2) supernormal increase in impairment allowance related to the write-off of obsolete stock and fixed assets to N293.41million a 6,338.57% increase y/y; 3) 24.90% increase in finance costs to N2.10billion on the back of a 48.90% rise in total financial liabilities to N37.10billion. In addition to the increased debt burden, the net finance costs further reflects the compounding effects of high borrowing cost in Nigeria. We believe DFM s cost of borrowing will remain relatively high as long as its credit risk profile, as captured by its negative interest coverage ratio and growing capitalization ratio, remains high. In addition to the increased debt burden, the net finance costs further reflect the compounding effects of high borrowing cost in Nigeria. We believe DFM s cost of borrowing will remain relatively high as long as its credit risk profile, as captured by its negative interest coverage ratio and growing capitalization ratio, remains high. Fig. 11: Credit risk assessment metrics 35% Capitalisation ratio (%) Interest coverage ratio (x) % % % 15% % - 5% % H2 2011H 1H1 2012H 2H2 2012H 2H

8 Fig. 12: Revenue and Cost of sales Fig. 13: Gross, operating and after-tax profits 90,000 Revenue(N'millions) Cost of sales (N'millions) 12,000 Gross Profit (N'millions) Operating Profit(N'millions) Profit after tax (N'millions) 80,000 70,000 60,000 10,000 8,000 50,000 6,000 40,000 4,000 30,000 2,000 20,000 10,000 0 FY2013EF EFY2014FF FF Y2015FF FF Y2016F 0-2,000-4,000 FY2013E EF Y2014FF FFY2015FF FFY2016F Fig. 14: Total assets, liabilities and net assets Fig. 15: Returns on assets and equity 100,000 90,000 Total Assets(N'millions) Total Liabilities(N'millions) Net Assets(N'millions) 6% 4% ROE ROA 80,000 2% 70,000 60,000 50,000 40,000 0% -2% -4% FY2013EF FY2014FF FY2015FF FY2016F 30,000-6% 20,000-8% 10, % FY2013EF EFY2014FF FFY2015FF FFY2016F -12% Financial year-end shifts to September 30 to align with Tiger Brands. Following the release of its H results, DFM announced a change in its financial year end to September 30 from December 31. This new financial year end conforms to that of its new parents, Tiger Brands, whose financial year end is also September 30. We have now revised our forecasts to capture the change in financial year (See Fig ). Stock still richly priced and we do not see any fundamentally-backed near term upside. Although the stock now trades in the neighbourhood of our previous target price estimate as contained in our initiation coverage report on the firm (When the Chips are down), we believe the stock is still priced at a premium which cannot be justified by the firm s near-term fundamentals and our broader short-term outlook for Nigeria s milling industry. We expect the firm to post a loss in the current and next financial year 8

9 end. We also expect its free cash flows to be negative in those years, with zero dividend payments. We therefore reiterate our SELL recommendation. We now expect the stock to trade at a risk-adjusted discount of 5.37% to its current market price, largely supported by our estimates of the firm s earnings and cash flows and the relatively flat direction we expect bond yields to follow. Our valuation is based on EV/EBITDA, DCF and P/EBIT techniques. Although current levels do not offer an excellent entry point and margin of safety, we believe a buying opportunity may present itself when the firm s fundamentals strengthens and its operations begin to show clear signs of strong turnarounds. 9

10 Fig. 16: Income statements, N mn Revenue 47,132 56,276 65,574 77,377 Cost of sales 42,899 50,085 57,705 67,318 Gross Profit 4,233 6,190 7,869 10,059 Operating Expenses 5,523 5,065 5,246 5,803 Operating profit -1,290 1,126 2,623 4,256 Interest Expense 1,912 2,141 2,313 2,563 Profit before tax -3,202-1, ,693 Income Tax Expense Profit after tax -2, ,095 Basic EPS Fig. 17: Year-on-year change, % Revenue 6.87% 19.40% 16.52% 18.00% Cost of sales 18.32% 16.75% 15.21% 16.66% Gross Profit 42.37% 46.24% 27.12% 27.83% Operating Expenses 14.17% -8.30% 3.58% 10.63% Operating profit % % % 62.25% Profit before tax % % % % Profit after tax % % % 31.87% Fig. 18: Balance sheets, N mn Assets Cash & Near Cash Items 2,432 1,897 1,903 2,093 Accounts Receivable 11,363 11,927 12,102 13,312 Inventories 11,671 12,946 13,023 14,325 Total Current Assets 38,856 31,773 34,131 37,544 Non-current Asset 47,785 45,673 45,236 49,760 Total Assets 86,641 77,446 79,367 87,303 Liabilities & Shareholders Equity Accounts Payable 11,636 10,433 11,013 11,784 Short-Term Borrowings 27,628 26,488 28,488 30,482 Total Current Liabilities 50,599 37,322 41,801 44,727 Long-Term Borrowings 2,184 10,692 9,088 9,724 Total Liabilities 58,627 52,123 53,135 56,854 Total Equity 28,014 25,323 26,232 30,449 Total Liabilities & Equity 86,641 77,446 79,367 87,303 Source: Company Financials, DLM Research Fig. 19: Profitability Margins Gross margin 8.98% 11.00% 12.00% 13.00% Operating margin -2.74% 2.00% 4.00% 5.50% Net margin -5.61% -0.36% 1.27% 1.41% Returns ROE -9.44% -0.81% 3.16% 3.60% ROA -3.05% -0.26% 1.05% 1.25% Fig. 20: DuPont Analysis Total assets turnover(x) Net margin -5.61% -0.36% 1.27% 1.41% Equity multiplier (x) ROE -9.44% -0.81% 3.16% 3.60% Fig. 21: Efficiency ratios Fixed assets turnover (x) Current assets turnover (x) Total assets turnover (x) Equity turnover (x) Fig. 22: Liquidity ratios Working capital (N millions) -11,743-5,549-7,670-7,183 Current ratio (x) Quick ratio (x) Cash ratio (x) Fig. 23: Activity ratios Margins Inventory turnover (x) Receivables turnover (x) Payables turnover (x) Days inventory outstanding Days sales outstanding Days payables outstanding Cash conversion cycle Fig. 24: Leverage and Solvency ratios Equity multipler(x) Debt-to-equity (x) Tota debt-to-assets (x) Total assets-to-liabilities (x) Interest coverage (x) Fig. 25: Valuation Metrics P/S (x) P/E (x) N/A N/A P/B (x) EV/EBITDA (x) EV/Sales (x)

11 Equity research methodology employed in this report Views documented in this equity research report stem from conclusions reached through the use of multiple valuation methodologies, industry-wide knowledge, company specific information and our near to medium term expectations of industry and company performance, as well as market outlook. Our forecasts are based on a combination of top down and bottom up analysis, alongside historical trends in industry and company financials. Where appropriate, we factored in available forecasts and business direction provided by company management. This equity research report qualifies as an initiation research report on the company whose stock has been analysed, hence the level and depth of details documented herein. Further updates on this company, or its stock, or both, will be communicated to investors via brief research notes or earnings-flash s, as occasion demands. Our recommendation is slightly biased towards value investing. Therefore, our investment rank gauge a customized scale we use to judge how well a firm under coverage has performed is determined using major value parameters as well as relevant ratios and multiples computed with figures from the company s most recent financials. The investment rank or grade given to a company is an alphabet which falls in the set {A+, A, B, C+, C, D, E, F}, where Grade A+ means the company has done excellently well on all fronts that form the basis of our consideration, and has a strongly positive performance outlook. Grade A means the company s performance is of high quality, but can be made better. Outlook for the company is positive. Grade B means the company performed marginally above average, at least relative to its peers, but faltered on some fronts. Outlook is weakly positive. Grade C+ means the company s performance is exactly average; outlook is neither positive nor negative. Grades C and D indicate that dwindling performance is the company s fate at the current time. Outlook for the company is mildly negative. Grades E and F mean the company is headed for towards jeopardy, which might impair its ability to continue as a going concern. Outlook for the company in this case is alarmingly negative. The variables used to arrive at the company s investment rank cover a wide range of measures which characterize liquidity, operational efficiency, profitability, profitability margins, growth, economic profitability, gearing, relative valuation ratios, capital structure and management performance. Our investment recommendation is underpinned by the upside or downside potential of a stock under coverage. This potential is estimated by comparing the stock s current market price to its price target and fair value, on a percentage increase or decrease basis as summarized below: Deviation from current price Recommendation >30% STRONG BUY 15%-30% BUY 0%-14% HOLD <0% SELL Source: DLM Research 11

12 In our analysis, we distinguish between fair value and price target. Fair value is our opinion of the actual fundamental worth of a stock, irrespective of what the market thinks of the stock or what investors are willing to pay for it. Value investors purchase stocks way below their fair values, while income investors might purchase stocks at their fair values at the very maximum. Price target, on the other hand, is the estimated price we opine the stock will trade in the near to medium term. It is the price that, if realized, could result in the best investment returns, given prevailing market conditions. It gives an idea of the price other investors might be willing to pay for a stock regardless of its actual worth. We employ fair value, price target or both to determine a stock s upside or downside potential. A BUY recommendation directly means what it says; purchase the stock according to your wallet and appetite for risk. A SELL recommendation prompts investors to exit their positions in the stock, as the analyst believes the stock is not worth investors time and capital commitment. A HOLD recommendation generally tells investors to do nothing; if you have not bought the stock, do not buy it and if you have bought it, do not sell it. 12

13 IMPORTANT DISCLOSURES. This research report has been prepared by the analyst(s), whose name(s) appear on the front page of this document, to provide background information about the issues which are the subject matter of this report. It is given for informational purposes only. Each analyst hereby certifies that with respect to the issues discussed herein, all the views expressed in this document are his or her own and reflect his or her personal views about any and all of such matters. These views are not necessarily held or shared by Dunn Loren Merrifield Limited or any of its affiliate companies ( DL Merrifield ). The analyst(s) views herein are expressed in good faith and every effort has been made to use reliable comprehensive information but no representation is made as to its accuracy or completeness. The opinions and information contained in this report are subject to change and neither the analysts nor DL Merrifield is under any obligation to notify you or make public any announcement with respect to such change. This report is produced independently of DL Merrifield and the recommendations (if any), forecasts, opinions, estimates, expectations and views contained herein are entirely those of the analysts. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the recommendations, forecasts, opinions, estimates, expectations and views contained herein are fair and reasonable, none of the analysts, DL Merrifield nor any of its directors, officers or employees has verified the contents hereof and accordingly, none of the analysts, DL Merrifield nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. With the exception of information regarding DL Merrifield, reports prepared by DL Merrifield analysts are based on public information. Facts and views presented in this report have not been reviewed and may not reflect information known to professionals on other DL Merrifield business areas including investment banking. This report does not provide individually tailored investment advice. Reports are prepared without regard to individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. It is recommended that investors independently evaluate particular investments and strategies. The appropriateness of a particular investment or strategy will depend on an investor s individual circumstances or objectives. Neither the analyst(s), DL Merrifield, any of its respective directors, officers nor employees accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Each analyst and/or any person connected with any analyst may have acted upon or used the information herein contained, or the research or analysis on which it is based prior to its publication date. This document may not be relied upon by any of its recipients or any other person in making investment decisions. Each research analyst certifies that no part of his or her compensation was, or will be directly or indirectly related to the specific recommendations (if any), opinions, forecasts, estimates or views in this report. Analysts compensation is based upon activities and services intended to benefit clients of DL Merrifield. As with other employees of DL Merrifield, analysts compensation is impacted by the overall profitability of DL Merrifield, which includes revenues from all business areas of DL Merrifield. DL Merrifield does and seeks to do business with companies/governments covered in its research reports including market making, trading, risk arbitrage and investment banking. As result, investors should be aware that DL Merrifield may have a conflict of interest that could affect the objectivity of this report. 13 DUNN LOREN MERRIFIELD Elephant House 214 Broad Street, Lagos, Nigeria Tel: