Dangote Cement Plc. Company Update. Upgraded to HOLD despite higher cost pressures in Q1'14 HOLD N Equity Research

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1 Upgraded to HOLD despite higher cost pressures in Q1'14 In this report, we present an update of our views on Dangote Cement Nigeria Plc (DANGCEM), taking into account its recently released Q1 14 and FY'13 figures, newly introduced products and revised expansion plans. Based on revisions to projected revenue growth, our new target price for DANGCEM is N ($1.43), which implies 5% upside to the current price of N ($1.37). Hence we upgrade our rating on DANGCEM to a HOLD. Slower volume growth from gas distruptions... Gas disruptions continued into Q1 14, impacting capacity utilization and limiting volume growth. Though Dangote Cement (DANGCEM) managed to muster an overall 6.4% YoY increase in volume in Q1'14, the company actually recorded declining sales from its two largest plants, Obajana and Ibese as production volume from these two plants decreased YoY by c.7% and c.6% respectively. However, Gboko's volume picked up considerably coming from a lower base in Q1 13, which was riddled by a mothball and temporary shutdown. Despite, the challenges from gas we note that DANGCEM's Nigerian volume was still up 4.2%, leading to an overall 9% growth in group's revenue, as DANGCEM raised increase during the quarter to N28,720 ($175.87) per tonne from N27,955 ($171.19) per tonne as at December Switch to coal will limit the impact of gas disruptions DANGCEM is stepping up plans to diversify its fuel mix with coal in response to gas supply pressures which led to a 26% YoY increase in Cost of Sales and pushed margins lower (Q1'14 PBT margin at 51% from 56% in Q1'13). The company intends to substitute coal for Low Pour Fuel Oil in its fuel mix by year end 2014 in its Obajana and Ibese plants; hence we might see this limit the impact of the gas shortfall and boost margins from present levels. We note that margins may not recover fully until DANGEM substantially return to full gas usage as it is still the cheapest fuel for Nigerian cement manufacturers. According to DANGCEM's management, the first consignment of coal has arrived and trial run should start within a month. We wait to see how this impacts its margins in the second half of the year. In a bid to maintain the long-term sustainability of coal supply, the company DANGCEM intends to invest in coal exploration as some coal exploration blocks have already been acquired. The cost of putting up all the coal mills is expected to be in the range of c. 60 to 70 million (N12.8 billion - N14.9 billion). Although rich fundamentals, stock is fairly priced... We maintain our view of the company s strong fundamentals, its impressive growth outlook, but consider the stock fairly valued at a current price of N223.00, which presents a 5% upside to our new FY 14 TP of N Hence, we upgrade the stock to a HOLD. At a FY 14 projected P/E of 19.8x, DANGCEM is trading at a premium to peers' (Middle East and Africa Basket) forward P/E average of 14.03x. We adjudge the premium on the stock is on the back of its aggressive growth plans and strong fundamentals. Company Information Address Website Analysts Folasade Obilomo* Nnadozie Asinobi* research@cardinal-stone.com HOLD N MD FYE NSE Sector Ownership Structure Union Marble House, 1 Alfred Rewane, Ikoyi Lagos Devakumar Victor Gnanadoss Edwin December Industrial Goods Dangote Industries Limited 93% Public Investments Corp. S.A 2% Others 5% Stock Data Bloomberg Ticker: DANGCEM:NL Market Price (N) Shares Outs (Mn) 17,041 Market cap (N Mn) 3,800,033 Price Performance DANGCEM NSE 12-month (%) 24% 7% 6-month (%) 19% 3% YTD (%) 2% -6% Valuation 2012A 2013A 2014E P/E (x) P/BV (x) Div. Yield (%) 1.5% 3.1% 4.0% YTD Price Performance (Rebased) DANGCEM NSEASI Jan-14 2-Mar-14 2-May-14 Please see penultimate page for additional important disclosures. CardinalStone Partners Ltd ( CS ) is a foreign broker-dealer unregistered in the USA. C-S research is prepared by research analysts who are not registered in the USA. C-S research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Cadwyn Point Partners LLC, an SEC registered and FINRA-member broker-dealer.

2 Operational Review Nigerian Plants Obajana Plant Average capacity utilization rate at the plant reduced to 75% from 77% levels seen as at FY 13 and Q3 13, hence volumes declined YoY by 7.3% to 1.9MT. The decrease in capacity utilization is largely due to poor gas supply as the recent successful privatisation of the power plants has significantly increased gas demand for power generation thus exerting supply pressure on other industrial users. Poor gas supply reduces capacity utilization in Obajana in Q Expansion plans: management advised the proposed expansion plan to add one line of 3mtpa to bring capacity at the plant to 13.25MT will be completed this year Coal mill expected to come on stream in H2 14 for line 3 Ibese Plant Lower volumes were also recorded in the Ibese plant due to the gas shortages experienced during the period. The plant which had previously enjoyed relatively better margins on the back of more robust gas supply, saw a dip in capacity utilization to 63% (from 67% and 68% as at FY 13 and Q3 13) as gas usage declined to 92% from 99% as at FY 13. Hence the volume produced from Ibese plant dipped by 6.1% to 0.95mt. Additional capacity expected to come in this year to double Ibese s production capacity - Expansion plans: The group plans to double Ibese s capacity with an additional two lines of 3mtpa expected to come on stream in H2 14, which will bring total capacity at the plant to 12mtpa - Management stated the Coal mill is expected to come on stream for line 1 and 2 in a month or two. Gboko Plant DANGCEM s Gboko plant in Benue state, which has a production capacity of 4mtpa was the only plant that recorded higher production volume during the period relative to Q1 13. Unlike DANGCEM s other plants, the Gboko plant runs primarily on LPFO which is the most expensive fuel for NIgerian cement producers; hence it was unaffected by gas shortages during the period. Sales grew 148% to 0.59 million tonnes. - Newly added 1mtpa: Management advised the additional 1mtpa has been commisioned, which brings Gboko s production capacity to 4mtpa from 3mtpa. - Expansion plans: management plans to invest in a new power plant which will be coal based, thus bringing down the group's demand for gas. Gboko records a 148%YoY growth in sale largely due to a low base comparable period in which mothballing reduced sales Value in new products and capacity coming aboard: DANGCEM has seen the direct sales gain more traction with over half of the sales in Q1'14 done through direct delivery. 2

3 Also, the group recently announced its switch to 42.5R grade cement coupled with the unveiling of a new product (42.5 3X), an announcement that coincides with the recent maelstrom surrounding the ban of the 32.5 grade cement, which is still being produced by other cement manufacturers in the country. Outlook on gas supply and alternative fuels Gas disruptions continued through Q4 13 to Q1 14, impacting capacity utilization, limiting production volumes, and increasing the group's cost of sales. DANGCEM expressed concerns about the long-term sustainability of gas supply with not enough investment going into developing gas blocks. Although Nigeria has a proven reserve of 260 trillion cubic feet of natural gas, with its gas reserve 3x crude oil reserves, there is lack of investment in maintenance of the gas treatment and distribution facilities by the new owners of the privatized GAAP facility. Also, there hasn't been new investment in gas exploration to add to the existing available gas sources. The demand for gas has risen significantly following the privatisation of power generating companies, hence the increased pressure on gas supply to existing industrial users. We however expect increased attention and investment in gas infrastructure and supply given rising pressure from key players, in view of its importance in the country's industrial development. The Nigerian Government, in its efforts to improve power generation, plans to invest about $8 billion on a Public Private Partnership basis to develop local gas potentials, even as an additional $3.7 billion is in the pipeline to be invested on upgrade and expansion of the transmission grid to wheel up to 20,000 megawatts of electricity....coal as the alternative: Though there's optimism that gas supply challenges will be resolved in the longer term, DANGCEM is fast-tracking the inclusion of coal in its fuel mix, to cushion the immediate impact of increased subsitution with LPFO necessiated by gas shortfall. By the end of 2014, DANGCEM plans to use coal as the second predominant fuel in its Obajana and Ibese plants, as trial runs with coal should commence within the next one month given that the company has begun importation of coal from South Africa and Mozambique. The landing cost (including taxes, duties, and clearing charges at the port) is about US$140 per tonne, which initially will be more expensive than gas. However, gas prices are structured in a way that incorporates annual increases, hence it is expected that if DANGCEM suceeds in its exploration of coal, prices of coal and gas would converge in the near future. Presently, LPFO is 7x more expensive than gas, while coal is about 2x more expensive than gas. In the interim, coal will be imported and kept in large stocks at the plants. In a bid to maintain the longterm sustainability of coal supply, the company has stated plans to embark on coal exploration with some coal exploration blocks already acquired. DANGCEM can use 100% coal in Ibese lines 1 & 2 and one of the lines in Obajana (line 3). Based on their 80/20 gas to LPFO strategy, they intend to replace the 20% LPFO with coal. The cost of putting up the coal mills is estimated to range between 60 million - 70 million (N12.8 billion - N14.9 billion). 3

4 Update on the African projects - Greenview International: Greenview International Ghana recorded slower sales QoQ, although it came in around the N3 billion levels seen in Q1 13. Greenview contributed N3.0 billion of the company s total revenue during the period, accounting for 3% of the group s revenue. The outlook for the next couple of quarters is further dampened by currency depreciation, and lagging-forecasts of Ghana's crude oil production. - Sephaku Cement: With the construction of the 1.1 mtpa Delmas grinding plant completed, Sephaku recorded some cement sales in Q1'14 and accounted for 1% of DANGCEM's Q1 revenue. The Delmas grinding plant is one of the two projects embarked upon by Sephaku Cement, DANGCEM's South African subsidiary. We expect the commissioning of the 2.2 mtpa integrated Aganang plant over the next few months as production is scheduled to commence by mid Still cautious on Senegal: Senegal plant was scheduled to commence operations in H1 13. However with the delayed opening due to a pending legal case on the title of the land, and an administrative order by local authorities to cease construction work until the land issue has been resolved. We have however factored production to come in from H2 14, with the company advising operations will commence in May. Sales dip QoQ in Greenview International Ghana Sephaku South Africa commences production in Q1 14, contributes 1% of total revenue Operations in Senegal scheduled to commence in Q2 14 New cement types introduced , 52.5, and 3X grade Cement 42.5 and 3X grade cement... Dangote recently announced it only produces 42.5 grade cement, an announcement which coincides with the recent maelstorm surrounding the ban of the 32.5 grade cement, which is still being produced by other cement manufacturers in the country. In addition, the company launched a 42.5 point grade cement with special features called the 3X (3X Xtra strong, Xtra life, and Xtra yield), which it claims is primarily aimed at preventing the recent increase in collapse of houses in major Nigerian cities. Other properties credited to the product is xtra strength and rapid drying. The company communicated that it has launched an elightenment programme to highlight the positive features of its cement compared to other products manufactured in the market grade cement... The company has also launched 52.5 grade cement which is suitable for constructing heavy load bearing structures. Opposing views on 32.5 grade cement ban in Nigeria... A school of thought believes that 32.5 grade cement should be used for general construction work like plastering, finishing works etc, where high strength is not required and 42.5 grade cement should be used for buildings. A different school of thought believes cement grade has little to do with quality, but more with the appropriate mix in concretes and that 32.5 grade cement meets requirements for erecting ordinary structures like buildings. Switch to 42.5 grade cement, Dangote 3X Cement product, and launch of 52.5 grade cement for heavy load bearing structures... Increased debate on the quality of the 32.5 cement grade 4

5 ...Dangote Cement still benefits Whatever the case may be, we note Dangote Cement has an added advantage, as we believe it will benefit from public perception of a higher quality, which willl likely translate into higher substititution rate and sales regardless of whether there is really an added advantage in switching to 42.5 grade cement Figure 1 - Proposed additional Capacity in Africa Country Expected Capacity CAPEX CAPEX/tonne Type of Plant * Proposed operational date Cameroon 1.5 mta $105m $70 Grinding **Dec-14 Rep. Congo 1.5 mta $301m $201 Integrated Apr-16 Cote d Ivoire 1.5 mta $100m $67 Grinding Jan-15 Ghana 3.0 mta $173m $58 Grinding Jan-15 Liberia 0.5 mta $41m $82 Import Jan-15 Senegal 1.5 mta $307m $205 Integrated **May-14 Sierra Leone 0.7 mta $40m $57 Import **Dec-14 Ethiopia 2.5 mta $469m $188 Integrated Dec-14 Kenya 1.5 mta $75m $50 Grinding Feb-15 South Africa Combined 3.3 mta $421m $128 Integrated/Grinding Apr-14 South Sudan 1.5 mta $345m $230 Integrated Oct-16 Tanzania 3.0 mta $453m $151 Integrated Oct-15 Zambia 1.5 mta $300m $200 Integrated Jul-14 *management s timeline, **Postponed Source: Company presentation Financial analysis and outlook Q1 14 Earnings Review Top-line up 9% YoY: DANGCEM s Q1 14 revenue grew 8.5% YoY to N103.6 billion, which aligned with our estimate of N billion (a 1% deviation). QoQ, revenue rose by 6.6% down from 7.4% QoQ growth recorded in Q4'13. Production disruptions due to gas and LPFO shortages contributed to the slower YoY growth, as the Q1 is ideally one of the strong quarters for cement producers. The increase in revenue was largely driven by both price and volume increases as the company raised per tonne price by 2.7% YoY while overall volume rose by 6.4%. Cost of Sales spiked due to gas supply shortfall: Production costs rose by c.26% to N37.1 billion (in line with our estimate of N37.2 billion) in Q1'14 as the company had to minimise production disruptions as a result of gas shortage by using LPFO. This was in line with our expectations as we factored in the effect of the continued gas shortage on the company s production cost during the quarter. The sharp rise in COS muted the growth in gross profit, which inched up marginally by 0.7% YoY to N66.4 billion, whilst gross profit margin declined to 64.2% from 69.2%. 5

6 Higher expenses and tax charge reduces profit YoY: Operating expenses rose to N11.9 billion as a result of wage increases and higher depreciation expenses. Consequently, EBIT was N54.55 billion, in line with our estimate of N54.7 billion. The pioneer tax status of Obajana lines one and two and Gboko plants expired; hence the company incurred a tax charge of N5.39 billion during the period relative to a tax credit of c.n51 million in Q1'13. Consequently annualised EPS came in at N Looking ahead... Q2 14 forecasts Gas supply challenges to continue, Impacting volumes... With the outlook on gas supply still murky, we do not assume a significant shift in volume in Q2 14. We estimate total volume from DANGCEM's Nigerian plants would be around 3.45MT in Q2, based on our assumption of capacity utilization of 75%, 65%, and 54% for the Obajana, Ibese, and Gboko plants respectively. Hence, our projection for Q2 14 revenue stands at N106.4 billion. Beyond H1 14, the additional installed capacity in Nigeria (expected to come on stream in H2 14 according to management's guidance) may contribute to revenue; although we expect this will be little as newly installed cement lines usually take time to ramp-up. In our projections, we expect the new lines to significantly contribute to DANGCEM's revenue from Profitability Increased cost and pioneer tax status... We expect margins to remain around Q1 levels in Q2. Our projection for EBIT margin for the quarter is 51%. Hence, we forecast PBT to come in flattish YoY at N54.3 billion. We note however this lags the company s projections, the company expects to record cement sales of 15 million tons in 2014 and projects an increase in EBITDA margin to 58% by FY'14, up from the 51% in Q Expiry of tax pioneer status: We expect a 12% decline in Q2 PAT to N47.6 billion on the back of an expected effective tax rate of 10% compared to the zero tax charge in the comparative period last year. The pioneer tax status on Obajana lines 1 & 2 and Gboko has expired, hence DANGCEM's effective tax rate would be around 10%, as advised by the company. We expect some moderation in the tax rate as new lines come on stream later in the year. Therefore, we expect effective tax rate to be around 10-12% for FY' 14. Figure 2 - Q2 14 Forecasts Turnover (N Bn) PBT (N Bn) PAT (N Bn) Q2'13A Q2'14E Growth Q2'13A Q2'14F Growth Q2'13A Q2'14F Growth 103, , % 53, , % 53, , % 6

7 Forecasts & Valuation revisions DCF Assumptions The Discounted Cash-Flow valuation for DANGCEM spans a period of eight years covering an extended duration giving room for ramp-up of installed and proposed capacity. The DCF is based on a segmental forecast of revenue and costs associated with each business segment and plant in all the Pan-African countries. Our estimated gradual ramp-up of installed capacity of the installed and proposed plants are tabulated below; Capacity ramp-up remains key revenue driver Figure 3: Estimated Capacity Utilization of Plants Average Capacity Utilisation Nigeria Obajana 75% 85% 95% 95% 95% 95% 95% 95% Obajana 2 0% 25% 70% 90% 95% 95% 95% 95% Ibese 65% 85% 95% 95% 95% 95% 95% 95% Ibese 2 0% 25% 70% 90% 95% 95% 95% 95% Gboko 55% 55% 65% 70% 70% 70% 70% 75% Sagamu 0% 0% 0% 0% 0% 0% 0% 0% Senegal 0% 40% 60% 90% 95% 95% 95% 95% South Africa 10% 40% 70% 95% 95% 95% 95% 95% Ethiopia 0% 40% 70% 90% 95% 95% 95% 95% Congo Rep 0% 0% 0% 40% 60% 80% 90% 90% Tanzania 0% 0% 0% 40% 70% 90% 95% 95% Zambia 0% 40% 70% 90% 95% 95% 95% 95% South Sudan 0% 0% 0% 0% 40% 70% 90% 90% Cameroon 0% 25% 70% 90% 95% 95% 95% 95% Cote d'ivoire 0% 0% 40% 70% 90% 95% 95% 95% Ghana 25% 30% 40% 70% 90% 95% 95% 95% Kenya 0% 0% 0% 40% 70% 90% 95% 95% Changes to our assumption For the rest of 2014 we assume a Gas/LPFO ratio of 78%/22% for the Ibese and 75%/25% for Obajana and a 100% LPFO usage for Gboko plant. However with the concrete steps taken towards including coal in the fuel mix, we expect LPFO to be substituted with coal from 2015 and assume an average Gas/Coal/LPFO ratio of 80%/15%/5% over the years of our forecast for Obajana and Ibese. We assume a LPFO/Coal ratio of 80%/20% for Gboko from current 100% LPFO, admist other costs, thus resulting in an average COS/Sales percentage of 35% over the 8 year period. For the integrated plants in Africa we maintained an average COS/Sales percentage of 32-35% across board. On profitability we project an EBITDA and EBIT margins of 58% and 54% over the 8 year period. 7

8 Our WACC assumptions are as detailed in the table below; Figure 4: WACC Assumptions After tax cost of debt 9.7% Tax Rate 10.0% Risk Free Rate 12.4% Beta 1.1 Equity Risk Premium 5.0% Cost of equity 17.7% Debt/Total Capital 25.0% WACC 15.3% Valuation Although rich fundamentals, stock is fairly priced: We maintain our view of the DANGCEM s strong fundamentals and its impressive growth outlook. Our revised TP for DANGCEM comes to N (previous: N208.86), which implies a 5% upside to current price of N223.00, Hence, we upgrade the counter to a HOLD (previous: SELL). Based on our earnings projection, DANGCEM s FY'14 P/E stands at 19.8x, a premium to emerging market peer forward P/E average of 14.03x (see figure 6 for emerging market comparables). Figure 5: VALUATION - ENTERPRISE VALUE DCF (N in millions) 2014E 2015E 2016E 2017E 2018E 2019E 2020E EBIT 219, , , , , , ,574 Tax charge (21,933) (16,628) (13,793) (16,331) (17,133) (17,796) (16,967) NOPAT 197, , , , , , ,607 Less: Capex (169,094) (157,296) (52,371) (62,864) (56,582) (58,832) (57,055) Add: Depreciation 37,528 45,393 48,011 51,155 53,984 56,925 59,778 +/- Decrease/Increase in OpWC 33,170 30,437 37,080 44,191 25,477 10,740 6,031 Operating FCF 98, , , , , , ,361 Discount factor Present Value of OpFCF 98, , , , , , ,304 Terminal Value Operating FCF 4,746,803 Discount factor 0.37 Present Value of OpFCF 1,752,931 EV 3,822,082 Less: Net debt (110,638) Minorities (5,029) Gratuity Provisions (FY'12) 1,963 Equity Value N' Miliion 3,708,378 Price/Share (N) FY'14 Price/Share (N)

9 Figure 6: Emerging market comparables valuation Name Country Mkt Cap $'m EBITDA Mrgn EV/EBITDA T12M Est P/E FY 14 DANGOTE CEMENT PLC NIGERIA 23, LAFARGE CEMENT WAPCO NIGERIA NIGERIA 2, SAUDI CEMENT SAUDI ARABIA 4, YANBU CEMENT SAUDI ARABIA 3, YAMAMAH SAUDI CEMENT CO. LTD SAUDI ARABIA 3, PPC LTD SOUTH AFRICA 1, LAFARGE CIMENTS MOROCCO 3, QASSIM CEMENT/THE SAUDI ARABIA 2, EASTERN CEMENT SAUDI ARABIA 1, NORTHERN REGION CEMENT CO SAUDI ARABIA 1, NAJRAN CEMENT CO SAUDI ARABIA 1, CIMENTS DU MAROC MOROCCO 1, ANHUI CONCH CEMENT CO LTD-H CHINA 15, n/a SEMEN INDONESIA PERSERO TBK INDONESIA 8, ULTRATECH CEMENT LTD INDIA 10, n/a INDOCEMENT TUNGGAL PRAKARSA INDONESIA 7, CHINA NATIONAL BUILDING MA-H CHINA 5, n/a GRASIM INDUSTRIES LTD INDIA 4, BBMG CORPORATION-H CHINA 4, n/a ACC LTD INDIA 4, JAIPRAKASH ASSOCIATES LTD INDIA 2, n/a SIAM CITY CEMENT PUB CO LTD THAILAND 2, HOLCIM INDONESIA TBK PT INDONESIA 1, LAFARGE MALAYSIA BHD MALAYSIA 2, HOLCIM PHILIPPINES INC PHILIPPINES 2, CHINA SHANSHUI CEMENT GROUP CHINA 1, n/a LAFARGE REPUBLIC INC PHILIPPINES 1, RAMCO CEMENTS LTD/THE INDIA n/a TPI POLENE PUBLIC CO LTD THAILAND Source: Bloomberg 9

10 Financial Statements and Key Ratios (N'Million) Income Statement (N'Mn) E 2015F 2016F Revenue 235, , , , , ,853 Cost of Sales (81,605) (90,711) (108,961) (113,884) (179,505) (261,202) Gross Profit 154, , , , , ,650 Distrib. And Admin Expenses (22,460) (38,058) (49,502) (54,110) (74,873) (108,234) EBITDA 131, , , , , ,417 Depreciation and Amortisation (15,125) (27,594) (33,556) (37,528) (45,393) (48,011) EBIT/Operating profit 118, , , , , ,535 Foreign Exchange Earnings or loss Interest Expense/Income (680) (10,844) (5,121) (5,824) (5,791) (3,235) Pre-tax earnings 118, , , , , ,535 Taxation 7,627 16,286 10,437 (21,350) (16,339) (13,696) Profit after tax 125, , , , , ,839 Statement of Financial Position (N'Mn) E 2015F 2016F Assets Fixed Assets 452, , , , , ,236 Investments 3 45,016 91,716 91,716 91,716 91,716 Inventories 14,586 32,478 27,667 26,802 44,786 71,622 Trade Debtors 1,926 3,408 10,266 8,278 14,117 17,462 Bank and Cash Balances 22,436 44,425 70,502 15,000 55, ,750 Other current assets 42,672 43,584 39,646 37,062 53,438 74,133 Total Assets 534, , , ,831 1,106,853 1,402,918 Liabilities Trade Creditors 3,178 18,279 22,211 25,897 41,311 61,544 Other Creditors 39,731 45,495 60,546 63,338 94, ,115 Taxation 4,279 2, ,928 19,234 20,927 Short term loan 30,445 50,434 55,434 29,401 17,641 19,993 Other current liabilities 33,889 19,318 24,788 36,825 50,163 72,994 Long term loans 118, , , ,604 99,964 79,971 Retirement Benefit Obligation 482 1,744 1,963 1,123 1,200 1,414 Deferred taxation Other long-term liabilities - 2,898 2,245 2,245 2,245 2,245 Total Liabilities 230, , , , , ,710 Capital and Reserves Share capital 7,746 8,520 8,520 8,520 8,520 8,520 Share Reserves 42,430 42,430 42,430 42,430 42,430 42,430 Retained Earnings 247, , , , , ,215 Other component of equity 7,209 7,921 2,687 3,369 4,471 6,043 Shareholders' funds 304, , , , ,672 1,005,208 Total liabilities and equity 534, , , ,831 1,106,853 1,402,918 Key Ratios E 2015F 2016F Profitability Return on Average Equity 48.8% 41.9% 41.5% 32.8% 44.3% 49.6% Return on Average Assets 26.9% 25.1% 26.5% 21.9% 30.7% 35.3% EBITDA Margin 55.9% 56.9% 59.0% 60.3% 59.6% 57.7% EBIT Margin 50.4% 49.1% 50.7% 51.9% 52.9% 52.7% Pretax Profit Margin 50.1% 45.5% 49.4% 50.5% 51.9% 52.3% Net Profit Margin 53.4% 50.9% 52.1% 45.5% 49.3% 50.7% Valuation Multiples E 2015F 2016F P/E (x) P/B (x) Dividend Yield (%) 0.6% 1.5% 3.1% 4.0% 5.7% 10.5% EV/EBITDA (x) Source: CardinalStone Research 10

11 Financial Statements and Key Ratios ($'Million) Income Statement ($' Mn) E 2015F 2016F Revenue 1,550 1,914 2,479 2,635 3,808 5,129 Cost of Sales (536) (582) (700) (710) (1,086) (1,535) Gross Profit 1,014 1,332 1,780 1,925 2,721 3,594 Distri. And Admin Expenses (148) (244) (318) (337) (453) (636) EBITDA 866 1,088 1,462 1,588 2,268 2,958 Depreciation and Amortisation (99) (177) (215) (234) (275) (282) EBIT/Operating profit ,225 1,331 1,978 2,682 Foreign Exchange Earnings or loss Interest Expense/Income (4) (70) (33) (36) (35) (19) Pre-tax earnings ,225 1,331 1,978 2,682 Taxation (133) (99) (80) Profit after tax ,292 1,198 1,879 2,602 Statement of Financial Position ($' Mn) E 2015F 2016F Assets Fixed Assets 2,891 3,240 3,874 4,581 5,125 5,002 Investments Inventories Trade Debtors Bank and Cash Balances ,744 Other current assets Total Assets 3,411 4,325 5,414 5,696 6,699 8,243 Liabilities Trade Creditors Other Creditors Taxation Short term loan Other current liabilities Long term loans Retirement Benefit Obligation Deferred taxation Other long-term liabilities Total Liabilities 1,468 1,628 1,882 1,813 1,980 2,337 Capital and Reserves Share capital Share Reserves Retained Earnings 1,577 2,318 3,188 3,545 4,383 5,571 Other component of equity Shareholders' funds 1,943 2,696 3,532 3,883 4,719 5,906 Total liabilities and equity 3,411 4,325 5,414 5,696 6,699 8,243 Key Ratios E 2015F 2016F Profitability Return on Average Equity 48.8% 41.9% 41.5% 32.8% 44.3% 49.6% Return on Average Assets 26.9% 25.1% 26.5% 21.9% 30.7% 35.3% EBITDA Margin 55.9% 56.9% 59.0% 60.3% 59.6% 57.7% EBIT Margin 50.4% 49.1% 50.7% 51.9% 52.9% 52.7% Pretax Profit Margin 50.1% 45.5% 49.4% 50.5% 51.9% 52.3% Net Profit Margin 53.4% 50.9% 52.1% 45.5% 49.3% 50.7% Valuation Multiples E 2015F 2016F P/E (x) P/B (x) Dividend Yield (%) 0.6% 1.5% 3.1% 4.0% 5.7% 10.5% EV/EBITDA (x) Source: CardinalStone Research 11

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This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither CardinalStone Partners nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report s preparation or publication, or any losses or damages which may arise from the use of this research report. CardinalStone Partners may rely on information barriers, such as Chinese Walls to control the flow of information within the areas, units, divisions, groups, or affiliates of CardinalStone Partners. Investing in any non-u.s. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. 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