Dangote Flour Mills IPO September 12, 2007 A Unique Triple Play Investment Opportunity

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1 A Member of the Nigerian Stock Excha nge Key IPO Statistics Opening date Closing date Shares outstanding (Naira, bn) 6th September 27th September 5.00 Shares Offered (bn) 1.25 Method of Offer Free Float (%) 25.0 Price (Naira) Offer Size (Naira, bn) Market Cap Post-Offer (Naira, bn) Offer for Sale EPS 2007 (Naira) 0.55 EPS 2008 (Naira) 1.49 P/E x P/E x DPS 2007 (Naira) 0.40 DPS 2008 (Naira) 1.20 Dividend Yield 2007 (%) 2.67 Dividend Yield 2008 (%) 8.00 ROE 2006 (%) 9.90 Dangote Flour Mills IPO A Unique Triple Play Investment Opportunity Executive Summary Recommendation Summary Dangote Flour Plc ( Dangote Flour or the Company ) offers a unique opportunity for investors to participate in the underlying growth of two sectors of the Nigeria economy that are expected to outperform over the next five years: consumer foods and building / construction. We initiate coverage of the stock with a BUY recommendation, based on expected strong post IPO performance (under current market conditions), and the underlying growth and profitability of the Sacks and Pasta business divisions. We however draw attention to challenges within the core flour milling business, and recommend caution in evaluating the stock on the basis of its milling related earnings. We anticipate the possibility of a recommendation revision before the end of Q1 2008, based on continued observation of margins and earnings performance in the flour milling business. Recommendation Rationale Discounted Cash Flow (DCF) valuation analysis for Dangote Flour yields a valuation range of N14.30 to N19.49, compared to an offer price (the Offer Price ) of N At the Offer Price, Dangote Flour would be trading at a Year - End (YE) P/E of (2007), and forward P/E (2008) of The Offer P/E suggests a richly priced opportunity, even under current market conditions where average market P/E s are in the region. Investment Research Fola Fagbule Tel: , ffagbule@afrinvestwa.com Torera Omilani Tel: , oomilani@afrinvestwa.com Rotimi Tewe Tel: , otewe@afrinvestwa.com Pabina Yinkere Tel: , pyinkere@afrinvestwa.com Esohe Alile Tel: , ealile@afrinvestwa.com However, with expected large increases in production capacity across the various business lines; continued growth in the Nigerian economy (minimum of 6% p.a forecast for 2007, 2008); continued government spending on infrastructure; continued access for Dangote Sacks to the various captive bagging requirements of the Dangote group, we anticipate earnings performance will match or exceed management forecasts, and create an attractively priced investment opportunity. research@afrinvestwa.com

2 Dangote Flour Mills: Unique Triple Play Opportunity Industry Overview The Nigeria flour industry is a highly concentrated one, with 20% of the players controlling 80% of market share. There are about 22 flour milling companies operating in Nigeria today, with four dominant players controlling over 80% of the market (Flour Mills of Nigeria Plc, Honeywell Flour Mills, Northern Nigeria Flour Mills and Dangote Flour Mills). Nigeria has one of the lowest per capita wheat consumption rates among developing countries, with total market size for wheat estimated at 4m Metric Tonnes (MT) per annum in The top two players have a combined installed capacity of approximately 2.8 MT per day. Chart 1: Emerging Market Per Capita Wheat Consumption (g/capita) Syria Turkey...however, competitive pressure, low industry capacity utilization and rising global wheat prices place severe constraints on industry wide earnings... Egypt Chile Greece Argentina Pakistan Uruguay South Africa Bolivia Peru Nigeria Potential exists for growth however, as wheat consumption in the country remains at a low level relative to other emerging market economies Source: Afrinvest Research, Company Data Capacity utilization by millers in Nigeria is currently at about 33% - 40% of total installed capacity, as current installed capacity surpasses demand for flour. The industry faces ever shrinking margins resulting from high operating/ processing costs, rising cost of imported wheat, inadequate power supply and other infrastructure challenges. Further pressure is exerted by delays in the transportation of raw materials and finished goods as well as in the milling process. 2

3 Dangote Flour Mills: Unique Triple Play Opportunity Opportunities are also being created by federal government efforts to increase local content in the flour industry... The Federal Government of Nigeria in its bid to support the industry has instituted a policy imposing a 60% import duty on flour and only a 10% import duty on raw wheat, with a view to encouraging local processing plants. Up to 80% of total wheat supplies utilized by local flour millers is currently imported. The government also demands that all local flour millers include a minimum of 5% cassava flour into wheat flour in further efforts to grow local content in the industry. In addition to this requirement, the Standards Organization of Nigeria (SON) requires all flour millers to fortify wheat flour with Vitamin A. Industry Outlook...while population growth, urban migration and demographic changes are combining to create further growth potential. Ability to capture market share and achieve cost - reducing economies of scale has emerged as a key consideration for industry players. Demand for flour-based products is primarily driven by population growth, changes in purchasing power and consumer trends. With real GDP growth estimated at over 6% per annum for 2007 and 2008, more of Nigeria s 140 million population is expected to demand for flour based products. This is particularly so considering changes in the demographic structure of the country, with a larger and fast growing young, urban and middle - income population. We expect that long term industry profitability will be driven by these fundamental changes in population demography within a rapidly growing economy. In the short to medium term however, we expect that industry profitability will be determined in large part by ability to ramp up sales volumes, increase market share, and generate economies of scale. 3

4 Dangote Flour Flour Mills: Mills: Unique Triple Triple Play Play Opportunity September 12, 12, Dangote Flour Mills Plc: Business Summary Dangote Flour Mills Plc is a combination of three separate businesses: flour processing, pasta production and sacks manufacturing... Dangote Flour is 99.35% owned by Dangote Industries Limited 1 (DIL). The Company commenced operations in 1999, with a 500 MT per day facility located within the main Apapa port premises in Lagos. The Company also has two wholly owned subsidiaries, with fully integrated facilities for operating a Pasta business ( DPL ) and a Sack manufacturing business ( DSL ). Dangote Flour Mills...founded by a prominent local entrepreneur, the Company is selling shares in order to achieve a stock market listing and expand ownership of the business... The Flour milling business ( DFM ) has since expanded rapidly, deploying mills in Kano (1,500 MT per day), Calabar (1,000 MT per day) and Illorin (500 MT per day). Apapa has also been expanded to a 1,000 MT per day facility. DFL produces a full variety of flour products, including bread flour, pasta semolina, and wheat offals (brans). DFM has seen rapid growth in turnover since 2002, with a 32.8% CAGR up to December The business is consistently the largest contributor to Dangote Flour turnover (average of 78.2% per annum). That said, flour milling is a tight rope business, with average annual net margins in the region of 7.4% per annum, reducing from a full 19% in 2002 to 2% in Dangote Pasta The Company enjoys vertical integration since pasta production is linked to the output from the flour business. DPL is a major beneficiary of the rapidly growing consumer goods market in Nigeria turnover CAGR was 50.8%, an impressive performance for a business that operates from a single, fully automated factory in Lagos. DPL is a significant operator in the local pasta market, enjoying a share of about 45% of the total estimated market. DPL currently has capacity to produce 15,500kg of pasta per hour, to serve a million cartons per annum (p.a) market. 1 DIL is the holding company for diversified investments by Alhaji Aliko Dangote, one of Nigeria s wealthiest entrepreneurs, with several billions of US dollars invested in construction, industrials, oil and gas, consumer products, real estate, financial services and telecoms. 4

5 Dangote Flour Mills: Unique Triple Play Play Opportunity September 12, 12, Chart 2: Flour Market Share, in MT p.a Fringe Players Two Others Dangote Flour Market Leader Total Market - 5,000 10,000 15,000 20,000 Chart 3: Pasta Market Share, in KG p.a Dangote Agro Sacks DSL is one of only two manufacturers of block bottom valve cement sacks in Nigeria, a 37m bags per month, N12bn p.a market. DSL operate from two facilities a 10m sacks per month Lagos plant for manufacturing non-cement bags, and a 9m sacks per month cement bags plant in Adamawa, serving mainly the captive Dangote Cement production business. A total of 85% of DSL revenues are derived from inter-group sales to other Dangote companies, with this figure projected to decrease to 75% as DSL plans to increase total capacity to 31m sacks per month. Captive business continues to be a future source of income as Dangote Cement expands with the new Obajana cement plant (projected full capacity for Obajana is 5m MT per annum). Investment Thesis Fundamental Business Potential Smuggled Impo rts Major Competitor With a triple play earnings model, Dangote Flour offers exposure to a diversified pool of cash flows from three separate and complementary sources. Each of these sources: building/construction, packaged consumer foods and flour are sectors of the Nigeria economy that are projected to out - perform over the next few years. IPO Market Opportunity Dangote Pasta Chart 4: Sacks Market Share, in bags p.a External Sales Inter-Gro up Sales Dangote Sacks Major Competitor Total Market Source: Afrinvest Research, Company Data Furthermore, the Company is coming to the market at a time of unprecedented liquidity and demand for high quality equity securities. The 2007 Nigeria IPO market has seen outstanding performance by newly listed stocks. Analysis of a selection of 2007 new listings across three sectors (aviation services, industrials and insurance) provides an indication of expected after-market performance. Chart 5: Dangote Sugar Refinery, 2007 Post IPO Price Performance % Mar-07 3-Apr Apr May Jun Jul-07 6-Aug Aug-07 Source: Afrinvest Research 5

6 Dangote Dangote Flour Flour Mills: Mills: Unique Unique Triple Triple Play Play Opportunity Opportunity Chart 6: Continental Reinsurance, 2007 New Listing: Price Performance The Nigeria market for new securities has proven to be a hugely successful one in 2007, with new listings typically achieving strong after - market performance % 0 31-May Jun Jun-07 4-Jul Jul Jul-07 7-Aug Aug Aug Sep-07 Source: Afrinvest Research Chart 7: Airline Services and Logistics, 2007 New Listing: Price Performance 20 After - market price appreciation is often driven by supply constraints relating to these new instruments, and investor demand for new market opportunities % 26-Jul-07 2-Aug-07 9-Aug Aug Aug Aug-07 6-Sep-07 Source: Afrinvest Research However, Dangote Flour offers exposure to potentially high growth segments of the Nigeria economy: consumer goods and Significant Growth Potential Furthermore, increased national spending on infrastructure (total requirements estimated at N1 trillion per annum), and continued government support for locally manufactured cement will combine to sustain growth in the cement sector, and by extension in the Dangote Sacks business. Continued macro-economic expansion (currently forecast at an average of 6% p.a till 2009) is driving the growth of a new middle class demographic in Nigeria. This is a group with preference for packaged consumer goods and flour related meals. These factors are expected to drive growth in the Dangote Flour and Pasta businesses. 6

7 Dangote Flour Flour Mills: Mills: Unique Triple Triple Play Play Opportunity Segmental Financial Analysis Flour is the largest contributor to the Company s historical annual revenues... We recommend caution in evaluating the Company based on flour related earnings. Despite contributing 74.0% to 2006 turnover, flour was responsible for only 34.2% of after tax profits, and the flour business yielded only a 2.0% net margin. Pasta however, with barely 13.6% of 2006 turnover, contributed 30.6% to after tax profits, yielding net margins of 9.8%. Of note, the Dangote Sacks business generated the largest proportion of 2006 after tax profits 35.2%, with the highest net margins 12.4%, and the lowest contribution to turnover 12.4%. These proportions are of major significance, considering that Dangote Sacks is a business generating a significant proportion of its income (85%) from inter-group sales, and is thus the most dependent on opaque internal financial transactions (particularly costing, pricing and income recognition) that are potentially shielded from market realities. Chart 8 shows turnover, earnings, assets and equity contribution by business division for 2002 to however, after tax profits are almost equally distributed across the three business areas... Chart 8: Dangote Flour Mills Plc Historical Contribution Analysis Turnover Flour 78.7% 82.0% 79.7% 76.6% 74.0% Pasta 8.7% 9.2% 11.9% 15.2% 13.6% Sacks 12.6% 8.8% 8.4% 8.3% 12.4% After Tax Profits Flour 105.2% 77.2% 67.1% -90.4% 34.2% Pasta 0.1% 2.9% 5.9% 36.2% 30.6% Sacks -5.3% 20.0% 27.1% 154.3% 35.2% Flour related assets make up about 50% of the Company s balance sheet, with Pasta and Sacks making up the balance. Total Assets Flour 84.0% 64.4% 67.8% 71.5% 50.2% Pasta 0.4% 15.7% 7.5% 6.3% 30.2% Sacks 15.6% 19.9% 24.7% 22.3% 19.6% Total Equity Flour 97.9% 81.4% 79.4% 69.6% 66.1% Pasta -1.9% 12.2% 11.3% 11.5% 13.4% Sacks 3.9% 6.4% 9.2% 18.9% 20.5% Source: Company Data, Afrinvest Research 7

8 Dangote Flour Mills: Unique Triple Play Opportunity CAGR observed across the three businesses over the last 5 years reflect the rapid growth of the market and point to potential opportunities for the future... Chart 9: CAGR in Turnover, Flour Pasta Sacks 32.8% 50.8% 34.3% Source: Company Data, Afrinvest Research Chart 10: Gross and Net Margins, Gross Margins Flour 29.4% 18.5% 17.1% 13.2% 10.3% Pasta 13.4% 23.5% 18.5% 23.5% 23.0% Sacks 6.7% 40.7% 31.5% 34.4% 19.3% Net Margins...however, this growth has often been at the expense of profit margins in the core flour business... Flour 19.0% 12.6% 5.1% -1.7% 2.0% Pasta 0.2% 4.2% 3.0% 3.4% 9.8% Sacks -5.9% 30.4% 19.7% 26.5% 12.4% Source: Company Data, Afrinvest Research Key Insights and Deductions As with much of our analysis, historical growth and margins have been more in favour of Pasta and Sacks than the core Flour operation. Chart 8 shows compounded annual growth rates for the three lines of business from , revealing that Pasta has seen the highest annualized CAGR: 50.8% p.a, versus 32.8% and 34.3% for Flour and Sacks respectively. Caution needs to be exercised in evaluating the Company on the basis of flour related earnings, and a key investment consideration has to be the inherent opportunity in the pasta and cement sacks markets. Again, with respect to gross and net margins, the flour business reflects the intense competition in a consolidated industry with less than half a dozen major players. The Dangote flour business posted 2.0% net margins in 2006, declining from 19.0% in 2002, compared with 5.4% in 2006 net margins for Flour Mills Plc, a similarly diversified publicly quoted flour milling business. Sacks is the most profitable business, with gross and net margins of 19.3% and 12.4% respectively. This is despite contributing only 19.6% and 20.5% respectively to total assets and total equity, as shown on Chart 8. 8

9 Dangote Flour Mills: Unique Triple Play Opportunity Consolidated financial analysis reveals a company with RoA and RoE numbers in the region of 3.9% and 9.9% respectively As is to be expected, Flour is the business with the lowest return on assets and equity, as over 50% of assets and 66% of equity are deployed in the low margin flour business. Flour margins, though low, are somewhat in line with listed industry peers: Flour Mills and Northern Nigeria Flour Mills have 2006 net margins of 5.4% and 1.1% respectively (see Charts 12 to 14 for detailed comparative financial analysis of these peers). Consolidated Financial Analysis Chart 11: Consolidated Historical Financial Analysis: Turnover (Naira, billions) EBITDA (Naira, billions) comparing favorably against p e e r f l o u r p r o c e s s i n g companies. PAT (Naira, billions) EPS (Naira) Gross Earnings Growth (yoy, %) N/A PAT Growth (yoy, %) Gross Margins (%) EBITDA Margins (%) Net Margin (%) N/A Asset Turnover (times) but nonetheless indicating opportunities for significant improvement in order to deliver consistently superior market performance to shareholders. Liquidity Ratio (times) RoA (%) RoE (%) P/E (times) Assuming N15.00 Offer Price Source: Afrinvest Research, Company Data 9

10 Dangote Flour Mills: Unique Triple Play Opportunity Chart 12: 2006 Flour Sector Comparable Statistics Selected market comparables analysis reveals a favorable valuation range for the Company, based on trailing earnings performance... NNFM YE Mar. 31, 2007 Flour Mills YE Mar. 31, 2007 Dangote Flour YE Dec. 31, 2006 Gross Earnings (Naira, billions) PAT (Naira, billions) EPS (Naira) N/A Gross Earnings Growth (yoy, %) PAT Growth (yoy, %) N/A however, opportunities continue to exist for improvements in margins and asset management Net Margin (%) RoE (%) Current Share Price (N) P/E (times) N/A P/BV (times) N/M Source: Afrinvest Research Chart 13: 2006 Turnover: Flour Sector Comparables Chart 14: Trailing P/E: Flour Mills versus Dangote Flour NNFM Flour Mills Dangote Flour Flour Mills Dangote Flour Source: Afrinvest Research Source: Afrinvest Research 10

11 Dangote Flour Mills: Unique Triple Play Opportunity The Company has experienced significant growth in turnover over the last 5 years, with consolidated revenues growing at a CAGR of 34.9%. Pasta and Sacks continue to exhibit superior profitability and asset management performance to the core flour business... Key Insights Analysis of 5 - Year historical consolidated financials for the Company reveals a number of key insights: Consolidated Turnover has grown steadily: at a CAGR of 34.9%. After - tax profits have been more volatile, appreciating by 235% in 2006, having declined 35% and 73.6% in two preceding years. Consolidated net margins have declined steadily, from 14.2% in 2002, to 4.4% in Returns on assets and equity have hence taken a hit over this 5 year period, declining from 12% to 3.9%, and 33.2% to 9.9% respectively. EBITDA margins have declined in similar fashion: to 11.8% from a 2002 high of 14.2%. Price to earnings valuation, based on trailing 2006 earnings produces a multiple in the region of 35.5 times, a valuation multiple that is a premium to current trading averages for a comparable flour related business (Flour Mills of Nigeria Plc trades at 15.6 times trailing earnings). K e y i n v e s t m e n t considerations therefore include an evaluation of the Company s ability to sustain high top line growth rates across the three divisions, while improving margin performance in the flour business. Key Deductions We conclude that based on historical performance, Dangote Flour Mills is a company fully capable of capturing market share and achieving scale. However, the Company appears to have challenges sustaining profitability at higher levels of turnover, and will need to address this issue to substantially improve valuation. At current levels, the stock appears to be on offer at a fully priced multiple, requiring significant earnings improvement to justify further fundamentals-driven price appreciation. We observe further that the core flour business is one with low profit margins, as with peer companies across the industry. This raises a point as to the importance of the triple play nature of this opportunity. Much of the historical profit performance of the business lies not as much in the flour division (largest by turnover, assets and capital), but in the smaller, higher margin subsidiaries Pasta and Sacks. We consider this factor, along with the earnings diversification advantage to be key considerations for any investment in the Company. 111

12 Dangote Flour Mills: Unique Triple Play Opportunity Consolidated forecasts suggest a 2008 forward P/E of 10.1, based on the offer price of N Chart 15: Consolidated Forecast Financial Analysis: Turnover (Naira, billions) EBITDA (Naira, billions) PAT (Naira, billions) EPS (Naira) Gross Earnings Growth (yoy, %) PAT Growth (yoy, %) This valuation improvement is largely dependent on achieving aggressive turnover and profit margin growth targets. Gross Margins (%) EBITDA Margins (%) Net Margin (%) P/E Assuming N15.00 Offer Price Source: Company Data, Afrinvest Research Summary Assessment Our analysis of management forecasts reveals that much of the expected improvement in earnings performance is tied to economies of scale expected to be generated by rapidly increasing capacity across all the lines of business. While this opportunity indeed exists, we caution that management competence in executing scale economies will be a crucial requirement to yield desired results. We also caution that competitive pressures in the flour market may impact efforts to improve earnings on that side of the business. We believe that long term price appreciation will be determined in large part by management s ability to deliver on promised margins and earnings improvements. However, short term market conditions may potentially lead to a run up in valuation despite this requirement for longer term caution. We believe that current IPO market conditions, coupled with favorable market perception of the stock will be a key short term driver of value. Growth in fundamental business and improvements in margins are more likely to drive value over the longer term, particularly with forecasts indicating forward P/E valuations in the range of 10.1 times. 112

13 Dangote Flour Mills: Unique Triple Play Opportunity Valuation Analysis Overview Discounted Cash Flow based valuation suggests a price range of N14.30 to N19.49 for the stock, compared to the offer price of N15.00 per share. DCF based valuation analysis for Dangote Flour yields a range of possible market values for the Company from N14.30 to N Afrinvest Research thus estimates that based on Discounted Cash Flow Analysis, there could be as much as 30% upside to the N15.00 IPO price. Notwithstanding these indications of value based on the DCF approach, we draw attention to trailing (2006) P/E valuation multiples for the Company, implying trading commencement at a P/E of This compares unfavorably to a current P/ E of 15.6 for Flour Mills Plc, a major listed competitor with a similarly diversified income stream and a large flour related business. The YE (2007) forecast P/E multiple for the Company would be 27.3, based also on the offer price of N Despite attractively priced forecast P/E multiples (2008 forward P/E forecast at 10.1, 2009 at 7.4), the stock appears to be coming to market at a price that has largely captured the value in the Company, with limited upside potential based on fundamental valuation analysis. DCF Valuation Assumptions Weighted Average Cost of Capital (WACC) estimated at between a base case of 14.1% and 16.1%, based on 21.5% cost of equity and 9.1% cost of debt. Predominant weight of debt in capital structure, 60.7% versus 39.3% equity. Tax rate assumed at 32%. Forecast turnover based on Company Data (31.7% five year forecast CAGR). Costs and margins based on Company Data and Afrinvest estimates. Depreciation, Capital Expenditure and Working Capital estimates based on historical trends, Company Data, and Afrinvest estimates. Capital Expenditure estimates tied to management discussion of expected future expansion plans. Depreciation estimates tied to historical trends under Generally Accepted Accounting Principles (GAAP). Terminal Value computation based on Gordon s growth valuation methodology, assuming 5% Terminal Growth Rate (TGR). All other model estimates and assumptions per Company Data. 113

14 Dangote Flour Mills: Unique Triple Play Opportunity Chart 16: Free Cash Flow Analysis, in thousands (Naira) EBITDA 10,975,965 14,709,361 19,660,538 22,093,391 29,090,248 Less: Depreciation and Amortization (514,430) (619,812) (736,433) (718,139) (858,445) EBIT 10,461,535 14,089,549 18,924,105 21,375,252 28,231,803 Less: Taxes (2,491,294) (3,407,447) (4,596,532) (5,199,672) (6,779,765) After-Tax EBIT 7,970,241 10,682,102 14,327,573 16,175,580 21,452,038 Plus: Depreciation and Amortization 514, , , , ,445 Less: Total Capex (8,008,389) (8,648,878) (6,233,904) (2,726,927) (12,158,217) Changes in Working Capital 904, , , ,822 1,372,447 Plus: Other Cash Flows Unlevered Free Cash Flows 1,380,287 3,629,340 9,533,799 14,474,613 11,524,713 Chart 17: Discounted Cash Flow Analysis, in thousands (Naira) TV Unlevered Free Cash Flows 1,380,287 3,629,340 9,533,799 14,474,613 11,524,713 Discounted Free Cash Flows 1,199,728 2,741,918 6,260,458 8,261,530 5,717,379 59,733,815 Chart 18: Discounted Cash Flow Summary Present Value of Enterprise 83,914,829 Less: Total Debt (2,003,000) Less: Minority Interest - Less: Preferred Equity - Plus: Cash - Present Value of Equity 81,911,829 Diluted Shares Outstanding 5,000,000 Equity Value Per Share 16.38* * Assumes WACC at base case, 15.05% Source: Afrinvest Analysis 114

15 Dangote Flour Mills: Unique Triple Play Opportunity Recommendation and Risk Factors Afrinvest Research initiates coverage of Dangote Flour Mills Plc with a BUY rating, based on our strong long term view of the Nigeria building / construction and consumer goods sectors, and our favorable short term view of the IPO market for new securities. We anticipate positive after market performance for the stock, based on its limited post - IPO free float (approximately 25%), the resulting supply constraints, and positive market sentiment. Guided in part by current Nigeria IPO market conditions, we hold a positive short term view of the stock. However, based on fundamentals driven valuation analysis, and taking a long term view of the Company, we recommend caution in assessing the stock based on its flour related earnings. We encourage strong vigilance regarding earnings performance and management ability to achieve forecast profit margin improvements. We remain concerned about competition in the larger flour market, and about the Company s ability to bring to bear its scale and capacity strengths to create shareholder value. Some of the key metrics to be kept under scrutiny in future earnings releases include: Gross, EBITDA and Net Margins, Return on Assets, Return on Equity, and flour contribution to Turnover and After-tax profits. Key Risks We anticipate that an investment in Dangote Flour Mills will involve various company specific risks, including amongst others, supply chain risks relating to the importation, processing and transportation of the key raw materials for flour production. The Company maintains large integrated facilities including a processing plant within the Apapa Ports in Lagos, and a fleet of trucks for transporting the primary processed product to inland factories. We see risks relating to the management of this entire process and the possibility of severe supply chain disruptions. A further key risk factor relates to the inter-group relationship between the Company s Sacks division and the larger Dangote Group. We are concerned about possible lack of transparency and market pricing in the transfer of costs, funds and other transactions between the group. Internal control shortfalls in this regard could lead to a crisis of confidence in the Company s earnings reports and distort its true operating condition. Further risks relate to the significant proportion of Sack business that is attributable to the DIL Group, and management ability to execute on continued expansion, while maintaining sight of profit margin pressures. This report has been issued and approved by Afrinvest West Africa Limited ( Afrinvest ). This report is based on information from various sources that we believe are reliable; however, no representation is made that it is accurate or complete. While reasonable care has been taken in preparing this document no responsibility or liability is accepted for errors or fact or for any opinion expressed herein. This document is for information purposes only. It does not constitute any offer or solicitation to any person to enter into any trading transaction. Any investment discussed may not be suitable for all investors. This report is provided solely for the information of clients of Afrinvest who are expected to make there own investment decisions. Afrinvest conducts designated investment business with market counter parties and intermediate customers and this document is directed only at such persons. Other persons should not rely on this document. Afrinvest accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for private circulation only. This report may not reproduced distributed or published by any recipient for any purpose without prior express consent of Afrinvest. Investments can fluctuate in price and value and the investor might get back less than was originally invested. Past performance is not necessarily a guide to future performance. It may difficult for the investor to realize an investment. Afrinvest and/or a connected company may have a position in any of the instruments mentioned in this document. Afrinvest and/or a connected company may or may not have in the future a relationship with any of the entities mentioned in this document for which it has received or may receive in the future fees or other compensation. Afrinvest is a member of The Nigerian Stock Exchange and is regulated by the Securities and Exchange Commission to conduct investment business in Nigeria. AFRINVEST WEST AFRICA LIMITED. 11TH -12TH FLOORS, FORESHORE TOWERS, 2A OSBORNE ROAD, IKOYI, LAGOS, NIGERIA. PHONE NO: , , , , , Fax: ,