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Nigeria Corporate Analysis | Public Credit Rating

Dangote Cement Plc

Nigeria Corporate Analysis September 2017

Financial data:

(USD’m Comparative) ‡

31/12/15 31/12/16

N/USD (avg.) 193.1 253.2

N/USD (close) 197.0 305.0

Total assets 4,979.8 3,633.9

Total debt 1,265.0 838.0

Total capital 3,259.4 2,600.7

Cash & equiv. 207.1 379.3

Turnover 2,545.9 2,429.4

EBITDA 1,356.1 1,014.2

NPAT 938.8 737.1

Op. cash flow 1,430.1 956.7

Market cap. ° USD11,413.1m

Market share*

Nigeria: 65%

Cameroon: 43%

Zambia: 40%

Senegal: 25%

Ethiopia: 24%

Ghana: 23%

‡ Central Bank of Nigeria exchange rates. °As at 30/08/2017 @ N305.35/USD.

*Estimated percentage share of 2016 cement sales

in selected territories.

Rating history:

Initial rating/last rating (September 2016)

Long term: AA+(NG)

Short term: A1+(NG)

Rating outlook: Stable

Related methodologies/research:

Global master criteria for rating corporate

entities, updated February 2017

Glossary of terms/ratios, February 2016

Dangote Cement Plc (“DCP”, “Dangote

Cement” or “the Group”), Issuer rating

report, 2016

GCR contacts:

Primary Analyst

Adekemi Adebambo

Senior Credit Analyst

[email protected]

Committee Chairperson

Dave King

[email protected]

Analyst location: Lagos, Nigeria

+234 1 462 – 2545

Website: http://www.globalratings.com.ng

Summary rating rationale

The ratings take cognisance of Dangote Cement’s strong position as one of the

world’s top 20 cement companies by installed capacity. DCP has secured clinker

sufficiency in Nigeria, and as a low-cost producer, is well positioned to absorb

exogenous shocks without incurring material earnings variability.

Rapid fixed capital accumulation increased its capacity to c.46 million tonnes

per annum (“mtpa”) across ten countries by 1H FY17, from just 8mtpa in 2011.

Management plans to revise its expansion pipeline, in view of foreign currency

restrictions and unutilised capacity in Nigeria. Medium term commitments have

been limited to grinding plants in Cote d’Ivoire and Ghana, while execution of

the rest of the capex plan will depend on foreign currency availability.

While the Group has achieved a five year 20% CAGR in revenue to N615.1bn

in FY16, management relied on sharp price compression to secure strong

volumes. Combined with marked energy and distribution cost escalation,

challenges in Tanzania and Ghana, as well as a weaker Naira, the EBITDA

margin shed c.12 percentage points to 41.7% (five-year average 53.8%).

Nevertheless, EBITDA eased just 2% to N256.8bn in FY16. Repricing in the

domestic market bolstered the EBITDA margin to 49.2% in 1H FY17, while

increased productivity and the bedding down of additional international capacity

are expected to see it average at a strong 55% in the medium term. Cash generation remains sound, albeit discretionary cash flow coverage of net

debt has eased to new lows in FY16 and 1H FY17 (65%; 48%), and the short

term debt exposure was high at 71% of total debt at 1H FY17 (FY16: 59%). Net

interest cover remains adequate (FY16: 4.3x; 1H FY17: 8.5x), and is expected

to trend within range for the current ratings in the medium term.

Despite an aggressive cumulative outlay of N813.6bn on capex in the five and a

half years under review, DCP also paid out N573.2bn in distributions, which

represented 63% of cumulative net income. This has seen total borrowings more

than double from N181.2bn at FY13 to N432.6bn at 1H FY17, of which 47%

represented DIL (Naira denominated) loans.

In addition to proven shareholder support, note is also taken of established

relationships with strong funders, N120bn in trade finance credit lines, as well

as plans to access debt capital markets to reduce reliance on shareholder loans

and enhance funding flexibility and improve the debt maturity profile.

International operations do provide a natural currency hedge, albeit constrained

by the erratic performance trajectory in some regions.

While net gearing and net debt to EBITDA have risen from very conservative

levels reported prior to FY14, they remain aligned to the ratings, at 39% and

79% respectively as of 1H FY17 (FY16: 32%; 100%). Stressed scenarios

indicate that metrics are expected to remain within range over the rating horizon,

assuming a tapered capex plan (amongst other considerations).

Factors that could trigger rating action may include

Positive change: An upgrade will be dependent on the proven ability to sustain

high capacity utilisation domestically in the medium term and the successful

bedding down of international capacity enhancements translating to strong Pan-

African free cash flows and sustained conservative gearing metrics for the Group.

Negative change: Slower than anticipated economic growth in key territories,

delays in rolling out public infrastructure projects, foreign currency scarcity, the

adverse movement in foreign exchange rates, punitive regulatory changes and

competitive pressures may constrain demand and/or pricing flexibility. This could

adversely affect earnings and result in liquidity strain, increased gearing metrics

and impede debt service, placing downward pressure on the ratings.

Rating class Rating scale Rating Rating outlook Expiry date Long term National AA+(NG)

Stable August 2018

Short term National A1+(NG)

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Business Profile and recent developments

Dangote Cement is Africa’s leading integrated cement

group, with plants in 10 countries (FY16: eight). In

addition, four export markets are served from Nigeria. DCP

is a subsidiary of Dangote Industries Limited (“DIL”), a

diversified multinational corporate with operations

spanning building materials, packaging, logistics, real

estate, food and beverages, as well as real estate. In

addition, DIL has projects under development in

telecommunications, steel, fertilizer and oil and gas in

several African countries. DIL entered the cement market

by cement importation and trading and subsequently

acquired Benue Cement Company Plc (“BCC”) from the

Federal Government of Nigeria (“FGN”) in 2000, under a

privatisation exercise. Thereafter, DIL acquired Obajana

Cement Plc (“OCP”) from the Kogi State Government in

2002. OCP was renamed DCP in 2010 and was merged

with BCC. DCP listed on the Nigerian Stock Exchange

(“NSE”) in October 2010 and remains the most capitalised

public company, accounting for c.30% of the NSE as at 30

June 2017.

DCP has 39 subsidiaries (FY15: 35), 32 of which are

directly owned. The remainder comprises Dangote Cement

South Africa (Pty) Limited’s six subsidiaries (mainly

engaged in mining and exploration, cement production, and

investment property) and Dangote Industries (Zambia)

Limited’s limestone mining subsidiary. Dangote Cement

was previously organised into three strategic regional

groupings, namely; Nigeria, West & Central Africa

(“WCA”) and South & East Africa (“SEA”). Following a

restructuring of management during 2016, WCA and SEA

were merged to form the Pan-African segment.

DCP commenced operations in Sierra Leone in January

2017, with the launch of a 0.7mtpa import terminal and

recently commissioned a 1.5mtpa1 integrated plant in the

Republic of Congo (“Congo”). DCP has rapidly increased

its installed domestic cement capacity from 8mtpa in 2011

to 45.8mtpa by March 2017, across 13 plants. In 2016,

Dangote Cement revealed plans to enter new markets to

achieve total integrated capacity of over 75mtpa by 2020,

from 22 plants across 17 countries. Management also

indicated that the scale and timing of the rollout schedule

were provisional, and thus subject to change. Accordingly,

management plans to review its expansion pipeline (in view

of ongoing foreign currency restrictions and underutilised

capacity in Nigeria) by December 2017.

Table 1: Cement capacity

by country Type

Current capacity

(mtpa)

Operations

start date

Nigeria Integrated 29.3 2007

South Africa Integrated 3.3 2014

Tanzania Integrated 3.0 2016

Ethiopia Integrated 2.5 2015

Zambia Integrated 1.5 2015

Senegal Integrated 1.5 2014

Congo Integrated 1.5 2017

Cameroon Grinding 1.5 2015

Ghana Import terminal 1.0 2011

Sierra Leone Import terminal 0.7 2017

Total 45.8

1 Operations fully commenced in July 2017.

Nigeria remains DCP’s dominant area of operations, with a

combined production capacity of 29.25mtpa (66% of the

Group total), spread across three sites in Ibese (12mtpa),

Obajana (13.25mtpa) and Gboko (4mtpa), including 48

depots and 5,000 trucks (for cement distribution). Ibese and

Obajana were originally designed to use gas, with low-pour

fuel oil (“LPFO”) as back-up. The sustained pipeline

vandalism in Nigeria during 1H 2016 disrupted gas supply

for prolonged periods, and as a result, cement producers

(including DCP) had to rely more on LPFO, which is 2.5x

more expensive than gas (measured against the amount

used to produce a tonne of cement). As a result, industry

players witnessed overall contraction in margins during

FY16, which was somewhat moderated by a 45% price

increase effective September 2016. The bulk of the Pan-

African operations commenced within the past two fiscal

years, with some regions reporting strong sales growth in

2016. As such, DCP was able to offset top line pressures in

Nigeria with revenues from other countries.

Coal facilities have been commissioned across all the

Nigerian plants during 4Q 2016, thus eliminating the need

to use costly LPFO. Positively, DIL has begun mining coal,

and as such, DCP’s coal requirement can be considerably

met locally. Per management, purchases are priced and paid

for in Naira and cheaper compared to gas (which is priced

in USD and paid for in Naira). This enables DCP to control

its fuel supply chain and reduce foreign currency

requirements (for imported fuel). There have been three

market price increases2 in Nigeria during 1H 2017, thus,

DCP reported robust turnover growth and improved

earnings margins in 1H FY17 (albeit the margins remain

below the historical high achieved in FY13).

Management’s immediate focus is to improve margins and

cash generation.

Corporate governance and shareholding structure

DCP’s corporate governance structure complies with the

relevant requirements of the Companies and Allied Matters

Act, Securities and Exchange Commission (“SEC”) Code

of Corporate Governance for Public Companies in Nigeria,

as well as NSE regulations. There were few changes in the

size and composition of FO’s Board of directors in 2016,

owing to appointment of a new board member, and the re-

designation of an existing board member. Mrs Dorothy

2 N3000/tonne and N5,000/tonne in January and February respectively, and a further %

price increase in April 2017.

0

10

20

30

40

50

60

70

FY12 FY13 FY14 FY15 FY16 1H FY17

% Figure 1: Operating performance

Turnover growth EBITDA margin Operating margin


Ufot, a seasoned lawyer, was appointed as an independent

non-executive director in April 2016, (to improve gender

diversity) while the designation of Mr. Olusegun Olusanya

was changed from non-executive director, to independent

non-executive director (after meeting the required

conditions). The Group CFO, Mr. Brian Egan was

appointed Executive Director, Finance in July 2017. He has

worked with DCP since April 2014. Board members are

from diverse backgrounds, with extensive experience in

manufacturing, engineering, marketing, law, logistics and

finance. The Board provides strategic direction and

oversight of financial, operational, corporate governance,

compliance and risk management processes. Day to day

operations are managed the Managing Director, supported

by the Executive Management team. Mr. Aliko Dangote,

an internationally renowned Nigerian industrialist and

DIL’s sole shareholder, is the Chairman of DCP.

Table 2: Corporate governance summary

Board Composition

Number of directors 14

Independent non-executives 4

Non-independent non-executives 8 (including the Chairman)

Executives 2 (the Managing Director and ED, Finance)

Tenure of non-executives Initial term of 3 years, and eligible for additional terms of three

years each, subject to satisfactory performance.

Tenure of executives

Initial term of 3 years, and eligible for additional terms of

three years each, subject to satisfactory performance and

retirement age of 65 years.

Separation of the chairman Yes

Frequency of meetings Minimum of quarterly. The Board met six times during

FY16

Board committees

Finance and General Purpose; Audit, Compliance and Risk

Management; Technical and Operations; Remuneration and

Governance and Nominations.

Internal control and

compliance Yes, reports to Audit Risk Management Committee.

Joint external auditors Akintola Williams Deloitte and Ahmed Zakari & Co.

Unqualified audits over the five-year review period.

Although DIL’s financials are not publicly available,

comfort is taken from a demonstrated financial support to

DCP, including providing intercompany loans. Such loans

historically accounted for over 50% of total debt for most

of the review period. DIL also provides non-financial

support by way of technical support, as well as marketing,

business review and consultancy services.

Table 3: DCP shareholder profile at 31 December 2016 % holding

Dangote Industries Limited 90.9

Public Investment Corporation of South Africa 1.5

Investment Corporation of Dubai 1.4

Other institutional and individual shareholders 6.2

Total 100.0

Financial reporting

Audited financial statements are prepared in accordance

with International Financial Reporting Standards (“IFRS”),

as well as the requirements of Company and Allied Matters

Act 2004 and the Financial Reporting Council of Nigeria

Act, 2011. DCP’s joint external auditors, Akintola

Williams Deloitte and Ahmed Zakari & Co., issued a clean

audit opinion on the 2016 financial statements and the

preceding four years under review.

3 Benchmark interest rate 4 MPR has been left unchanged since July 2016

Operating environment

The Nigerian economy remained subdued throughout

2016, owing to a marked reduction in crude production,

amidst low and unstable international oil prices. This has

severely affected the country’s foreign reserve levels and

fiscal planning capacity. Specifically, international crude

oil prices declined from c.USD110/bbl in June 2014 to

USD30/bbl in January 2016, and averaged USD43 in 2016

(on the back of a rebound towards year-end, which saw

prices climb to USD53/bbl in December). The negative

economic trend was exacerbated by the resurgence of

disturbances in the Niger Delta region (which affected

crude oil production outputs) and the impact of reduced

foreign exchange earnings on the economy. The significant

fall in the value of the Naira against the US dollar further

heightened uncertainty. The country’s real gross domestic

product (“GDP”) contracted by 1.5% in 2016 (compared to

2.8% and 6.2% growth recorded in 2015 and 2014

respectively), placing the country in a recession. The

economy contracted further by 0.52% in 1Q 2017 (1Q

2016: 0.67%), representing the fifth consecutive quarter of

contraction since 2016. Inflation climbed from 9.5% at

end-December 2015 to 18.6% at end-December 2016,

before easing to 16.1% at end-June 2017 (end-May: 16.3%)

Despite Central Bank of Nigeria’s (“CBN”) restrictive

policy that denied access to forex (from the official CBN

window) for 41 items and removal the exchange rate peg to

the USD in favour of a flexible exchange rate policy in June

2016, the Naira remained under pressure, with the

inadequate forex supply from the official CBN window

driving much weaker exchange rates in the parallel market.

The NGN/USD exchange rate rose above N500/USD in

February 2017, remaining above N450/USD till mid-

March 2017. CBN established the Investors & Exporters

FX window in April 2017, to boost liquidity in the FX

market and to ensure timely execution and settlement for

eligible transactions. The recent intervention has increased

the dollar liquidity in the market with exchange rates

remaining below N400/USD since end-April. At its last

sitting in July 2017, the Monetary Policy Committee left

the monetary policy rate3 (“MPR”) unchanged at 14%4,

while the cash reserve ratio and liquidity ratio for banks

were also maintained at 22.5% and 30% respectively, in

line with efforts to combat inflation and maintain price

stability.

Given the current macroeconomic challenges, prospects for

growth remain mixed over the short to medium term. Both

the International Monetary Fund and World Bank expect

the economy to record a modest rebound in 2017 (of 0.8%

and 1.2% respectively). To stabilise the economy, the FGN

has maintained an expansionary policy for the 2017 fiscal

year, with a budget of N7.44trn5 (2016: N6.08tn, 2015:

N4.49tn). The budget is based on an oil benchmark of

USD44.5/bbl and a daily production output of 2.2mb/d,

inter alia. The Ministry of Budget and National Planning

5 Signed into law in June 2017.


has recently released the Economic Recovery and Growth

Plan (“ERGP”) 2017-2020. Based on the ERGP, the FGN

anticipates that accelerated infrastructural spend and the

diversification of earnings would drive an increase in

economic activities, thereby, resulting in an overall GDP

growth in 2017.

Industry overview - Nigeria

Nigeria, DCP’s main market, has the most significant

potential in Africa, with its abundant limestone reserves,

large population (over 180m) and huge infrastructural

deficit. Per capita consumption is low at around 125kg

suggesting significant potential for further growth. The

significant decline in crude oil prices and shortfall in

production placed material strain on government revenue

and expenditure. Government expenditure is a critical

growth driver in the construction sector. In addition, delay

in passing the national budget, high inflation, reduced

consumer spending, higher lending rates and inadequate

funding all contributed to a 6% contraction in the

construction sector in 2016 (2015: 4.4% growth).

According to industry sources, overall domestic demand

for cement of c.22.6mt was flat (a departure from the five-

year CAGR of c.9% to 2015).

Table 4: Competitive position - Dangote Cement vs Lafarge Africa Plc

FY16 (N'm) DCP LAP

Revenue 615,103 219,714

EBITDA 256,778 25,804

Op. Income 182,028 9,927

Net interest income/(expense) (42,719) (11,829)

NPAT 186,624 16,899

Equity 793,200 247,389

Total debt 372,775 127,530

Cash and equiv. 115,693 19,265

Current assets 303,164 98,344

Total assets 1,523,763 500,927

Current liabilities 512,247 175,987

Cement Capacity in Nigeria 29.3mtpa 11mtpa

Total Cement Capacity 45.8mtpa 14.6mtpa

Ratios (%) Market share (%) 65.0 25.0

Revenue growth 25.1 (17.8)

EBITDA margin 41.7 11.7

Operating margin 29.6 4.5

Net gearing 32.4 43.8

Net debt :EBITDA 100.1 419.6

DCP and Lafarge Africa Plc6 (“LAP”), controlled 90% of

industry volumes and revenues in 2016. BUA Group

accounted for around 9% of the industry while a few small

players including Ibeto Group accounted for the balance.

The price cut (of N6,000/tonne) in September 2015, drove

volume growth for DCP, in the 11 months that followed

Having sold about 8.8mt of cement in 1H FY16, DCP

reported a 39% YoY volume growth, driven by small-scale

building projects. Also contributing to the volume growth

was increased marketing activities. DCP recruited

additional sales and marketing staff, focused on efforts in

activating several outlets, and invested significantly in

logistics and distribution. In this regard, GCR noted a 38%

increase in selling and distribution costs. The cement

industry is highly capital intensive, posing a significant

barrier to entry. The anticipated recovery in the Nigerian

economy during 2H 2017 bodes positively for the cement

sector, albeit that the impact will likely be more evident

6 Inclusive of revenues of subsidiaries (AshakaCem and UniCem)

during 1Q 2018. Prospects are high for the Nigerian

market, as the FGN committed to investment in

infrastructure and housing, with the capital spending

retained at around 31% of 2017 budget (2016: 31%; 2015:

12%).

Competitive position – Rest of Africa

According to African Economic Outlook Report 2017,

Africa’s real GDP growth slowed to 2.2% in 2016, from

3.4% in 2015. This was mainly attributed to due to the

persistent decline in commodity prices and weak global

economic growth. Growth is projected to tick up to 3.4% in

2017, albeit dependent on sustained recovery in commodity

prices, strengthening of global economy and

macroeconomic reforms within the respective domestic

economies. As such, the recovery will likely be fragile with

most of the uplift anticipated from Nigeria and Angola.

Significant opportunities abound for African producers to

expand, replace imports, especially in West Africa, much

of which lacks limestone. Cement demand will be driven

by large population, rapid urbanisation (which requires

housing and infrastructure) and higher disposable incomes

(due to an expanding middle-income class and a growing

work force).

During 2H 2016, DCP began exporting cement from

Nigeria to Ghana, reducing the need for Asian imports and

generating foreign currency sales. Out of total sales of

1.1mt it sold in Ghana, 0.2mt were produced in Nigeria.

The Group also exported cement to Togo and Niger,

bringing total exports to 366kt in 2016. Table 6 gives an

overview of DCP’s leading markets outside Nigeria,

including population, per capita consumption, GDP

growth, DCP’s main competitors, and respective market

share.

Source: United Nations Population Division, Word Bank estimates, Global Cement Report

estimates and DCP estimates.

*Based on the first seven months of operations.

Earnings diversification

Nigeria

A combination of factors including tough economic

conditions, price increase and fuel shortages slowed down

sales during 4Q FY16. This notwithstanding, total sales

volumes increased by 14% to 15.1mt (including exports of

366kt) in FY16, albeit that some margin was lost (due to

elevated production costs exacerbated by the devaluation of

the Naira). Overall, Nigeria contributed 64% of DCP’s

Table 5: Cement – DCP’s

African markets Ghana Senegal Cameroon Ethiopia Zambia Tanzania

Population (m) 28 15 24 101 16 52

Per capita utilisation (kg) 211 102 83 61 95 65

2016 GDP (%Δ) 3.6 6.6 4.5 7.6 3.3 7.0

Sales volumes, FY16 (mt) 1.1 1.0 2.5 2.0 0.8 0.6

DCP market share (%) 23 25 43 24 40 26

DCP main

Competitors

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production volume and 69% of its revenue in FY16 (FY15:

70% and 79%). The impact of the 45% price increase in

September 2016 buoyed EBITDA margin in 4Q FY16. As

such, Nigeria’s overall EBITDA contribution remained

strong at 90% (FY15: 91%). The three price increases in

Nigeria (during 1H FY17) and improved operating

efficiencies, moderated the impact of higher cost of sales

and have led to a rallying of margins as at June 2017.

Table 6: Geographic

diversification (N'm)

2015 2016

Nigeria Pan Africa Nigeria Pan Africa

Revenue 389,215 103,477 426,129 195,028

EBITDA 247,479 25,070 241,969 26,456

Operating profit 203,766 13,330 194,856 (1,928)

Net finance cost* 26,869 (27,514) 190,666 40,055

Net result 223,239 (23,594) 379,331 (38,520)

Total assets 1,124,475 430,310 1,530,075 758,042

Capex 69,300 87,792 59,271 59,570

Capacity (mtpa) 29.3 14.3 29.3 14.3

Sales vol. (mt) 13.3 5.6 15.1 8.6

EBITDA margin (%) 63.6 24.2 56.8 13.6

Op. margin (%) 52.4 12.9 45.7 (1.0)

Asset turnover (x) 0.4 0.3 0.3 0.3

Note: numbers are inclusive of intercompany balances.

*Inclusive of foreign exchange gains.

Pan-African operations

Supported by production ramp up at established factories

and a maiden contribution from Tanzania, cement volumes

increased by 54% to 8.6mt. Accordingly, Pan-African

revenue almost doubled to N195bn in FY16, representing

31% of the Group’s turnover (FY15: 21%) and 10% of

EBITDA (FY15: 9%). Operating performance was mixed

in the Pan-African region, with strong margins reported in

Senegal and Ethiopia while diesel costs weighed in heavily

on margins in Tanzania. The lack of reliable gas supply had

forced DCP to use diesel generators due to inadequate

electricity (from grid) to keep the plant running. Ghana also

incurred high haulage costs as imports are done via road

transportation. In addition, Sierra-Leone and Congo

incurred start-up costs and are yet to make positive earnings

contributions. Combined these factors resulted in a sharp

contraction in earnings margins. Overall, the Pan-African

region reported an operating loss of N1.9bn in FY16,

compared with a N13.3bn operating profit in FY15.

Management expects a recovery in earnings in FY17 which

will be underpinned by production ramp-up at the 3mtpa

Tanzania plant, increased volumes across other countries

and initial contributions from Sierra-Leone and Congo.

DCP has reached an agreement on gas supply and expects

gas turbines to be in place in December. Before end-2017,

management will begin the construction of a permanent

coal/gas power station. Estimated cost of the project is

USD90m.

Financial performance

A five-year financial synopsis and the unaudited interim

results to June 2017 are appended to this report, while

commentary follows.

The Group’s strong top line performance (notably a 20%

five-year CAGR) was underpinned by rapid fixed capital

accumulation and dominance of the domestic market,

7 Pan-African operations accounted for 41% of DCP’s cement volumes and 30% of turnover

in 1H FY17

which enabled DCP to absorb sharp price compression to

secure volume traction. Specifically, DCP’s revenue rose

by 25% to N615.1bn in FY16 (91% of forecast), on the

back of a similar increase in sales volumes to 23.6mt. The

combined impact of lower selling prices in Nigeria up to

August 2016 and a 69% increase in energy costs to

N112.3bn (which absorbed 18% of revenue, from 14% in

FY15), saw the normalised gross margin reduce from

66.7% in FY15 to a review period low of 55.7% in FY16.

Positively, there has been increased stability in gas supply

since September 2016, while DCP has launched coal

facilities at all domestic plants. The Group also had to

contend with a weaker Naira, as well as various challenges

in Tanzania and Ghana, which compounded procurement

costs and added pressure to the gross margin.

Table 7: Income statement

(N'm) FY15 FY16 1H FY16 1H F17 YoY %Δ

Sales volume (mt) 18.9 23.6 13.0 11.5 (11.3)

Revenue 491,725 615,103 292,191 412,678 41.2

Gross Profit 289,917 291,287 153,004 235,127 53.7

EBITDA 261,931 256,778 132,259 203,005 53.5

Depreciation (54,626) (74,750) (34,472) (40,177) 16.5

Op. Profit 207,305 182,028 97,787 162,828 66.5

Net interest* (31,778) (42,719) (15,878) (19,127) 20.5

Forex mvmt. 12,250 41,155 42,726 11,210 (73.8)

Other op. income† 517 465 255 670 162.7

NPBT 188,294 180,929 124,890 155,581 24.6

Gross margin (%) 59.0 47.4 52.4 57.0 -

Norm. gross margin (%)# 66.7 55.7 60.0 63.8 -

EBITDA margin (%) 53.3 41.7 45.3 49.2 -

Op. margin (%) 42.2 29.6 33.5 39.5 -

Net int. cover (x) 6.5 4.3 6.2 8.5 -

*Excludes amounts included in cost of qualifying assets and forex gain/losses †Includes insurance claim, adjustments to recognise concessionary interest rate of

government loam per IFRS requirements and provision for defined benefit obligation #Excludes plant depreciation

Business expansion saw employee count rise by almost

2,000 to 16,272 in FY16. Accordingly, staff costs rose by

23%, which equated to a higher 4% of Group turnover

(FY15: 3%). Selling and distribution costs increased were

up 38% in FY16 (13% of revenue, from 11% previously),

due to higher sales and related distribution costs in Nigeria,

as well increased activity levels for Pan-African operations.

Most of the pressure emanated from the gross margin line

and accordingly, the EBITDA margin shed 11.5 percentage

points to 41.7% (forecast: 43.3%; five-year average:

53.8%). This notwithstanding EBITDA eased by just 2% to

N256.8bn. Depreciation rose sharply by N20bn, following

the recognition of a full year’s charge on the four plants

commissioned in 2015 (Ethiopia, Zambia, Cameroon and

Tanzania). Operating profit thus fell by 12% to N182bn in

FY16.

Based on adverse economic conditions and delay in passing

the national budget, cement demand was sluggish in

Nigeria during 1H FY17. According to the Group’s

estimates, total market demand in Nigeria was 10.2mt

during 1H FY17. Consequently, DCP domestic cement

volumes reduced 22% YoY to 6.9mt in 1H FY17, but rose

by 13% YoY for Pan-African operations7, translating to a

combined c.12% decline for the Group. This was offset by

price increases in Nigeria, which supported a 41% YoY

increase in the Group’s revenue to N412.7bn in 1H FY17.


Higher Pan-African volumes and the foreign exchange

translation impact led to 28% increase in the Group’s

manufacturing costs (Average exchange rate during 1H

FY16 was N212/USD while it was N308/USD in 1H

FY17). Despite lower production volumes in Nigeria,

manufacturing costs also went up due to the increase in the

price of gas, higher landed cost of imported coal. DCP’s

fuel mix improved in 1H FY17, as locally-mined coal

became available for use across Nigerian plants and

imports were reduced.

The enhanced revenue and firmer gross margin combined

to see EBITDA rise 54% YoY to N203bn at 1H FY17 at a

stronger 49.2% margin. Marketing and administration

expenses rose further by 29% as business operations

expanded. An additional 1,000 trucks were added to DCP’s

Pan-African truck fleet during 1H FY17. As such haulage

costs and depreciation costs increased 39% YoY. This

notwithstanding, the higher EBITDA margin still

supported a 10 percentage-point correction in the operating

margin to 39.5%, leading to a significant rise in operating

profit to N162.8bn (1H FY15: N97.8bn).

DCP is budgeting for revenue growth of 11% to USD2.6bn

(c.N1trn) in FY17 and a further 26% growth in FY18. This

will be underpinned by increased exports from Nigeria to

Ghana, production ramp-up in Tanzania and contributions

from new capacity in Sierra Leone and the Congo Republic.

In GCR’s view, the projected revenue growth appears

reasonable, given that price correction is expected to be

sustained into 2H FY17, and in view of significant

headroom to ramp-up production volumes across its plants

(given the moderate plant capacity utilisation of c.55%).

Management expects full year earnings to be stronger, even

if Nigeria volumes remain same or lower than FY16.

Positively, Nigeria earnings are typically firmer in the last

quarter of the year, due to increased construction activities

in the dry season. Per Group forecasts, the EBITDA margin

is projected at 51.1% in FY17 averaging c.55% through to

FY21. Over the past 5-years, DCP has achieved an average

EBITDA margin of 53.8%, with a peak of 59% in FY13. In

GCR’s opinion, benefits accruing from operating

efficiencies and cheaper fuel mix in Nigeria (arising from

increased utilisation of coal), should sustain EBITDA

margins above the FY16 low in the medium term.

The gross finance charge increased 36% to N45.4bn in

FY16, mainly due to cessation of interest capitalisation on

newly commissioned plants and the higher debt. The

average interest rate on DCP’s credit facilities remained at

13% in FY16, while total debt had risen by N117.2bn to

N372.8bn at FY16. Overall, the net interest charge rose by

34% to N42.7bn in FY16. Although net interest expenses

increased by 21% during 1H FY17, net interest cover

firmed up to 8.5x (1H FY16: 6.2x) and was bolstered by the

stronger operating profit. During 1H FY16, the value of the

Naira depreciated by 45%, resulting in significant exchange

gains in FY16, which resulted from translation of foreign

currency denominated assets into the reporting currency

(Naira). Net foreign exchange gains rose to N41.2bn

(FY15: N12.3bn), before moderating in 1H FY17, as the

currently stabilised somewhat from April 2017.

After accounting for other income, pre-tax earnings fell by

4% to N180.9bn in FY16, before rising 25% YoY to

N155.6bn in 1H F17, suggesting stronger earnings for

FY17. The effective tax rate for the Nigerian operations

was 2%, representing a mix of non-taxable profits from

cement produced on lines still under Pioneer Tax

Exemption (Ibese lines 3&4 and Obajana line 4), the

application of the Commencement Rule that resulted in

increased tax rates for lines out of Pioneer status, and tax

exemption on the profits of export sales. The Group

reported a net N5.7bn tax credit in FY16 which resulted

mainly from deferred tax credits for Pan-African

operations. As a result, NPAT increased 3% to N186.6bn

but at a lower 30% net margin (FY15: 37%).

Cash flows

Cash generation has been very strong and has trended in

line with EBITDA, barring adjustments for fair value and

unrealised foreign currency movements. DCP reflects

significant working capital movements, being in ramp-up

phase across several territories. This is largely attributed to

substantial prepayments for diesel, LPFO, coal, as well as

deposits for imports (inter alia), with the accumulation and

unwinding of creditors to fund trading assets adding to

variability. Management also stocks critical machine spares

to minimise downtime, as well as consumables that will

cover up to two years’ operations. Spare parts have

historically accounted for over 35% of inventory.

Table 8: Working capital (N'm) FY15 FY16 1H FY17

Inventories 53,118 82,903 84,154

Trade receivables 6,234 15,987 12,997

Trade payables (44,044) (83,164) (81,005)

Operating working capital 15,308.0 15,726.0 16,146.0

Other receivables 6,165 36,698 93,386

Prepayments 59,671 51,883 60,298

Other payables and accruals (108,090) (204,109) (213,443)

Current tax payable (1,289) (4,674) (3,868)

Non-operating working capital (43,543) (120,202) (63,627)

Net working capital asset/(liability) (28,235) (104,476) (47,481)

Net working capital movement 26,356 35,857 (49,934)

Sales are mainly made on cash basis prior to dispatch of

goods, with a few large wholesalers allowed up to 15 days’

credit if a bank guarantee is in place. Thus, trade debtors

have little impact on working capital movements,

accounting for less than 4% of revenue over the review

period. In comparison, the average credit period on DCP’s

trade payables in FY16 was 94 days (FY15: 80 days). DCP

enjoys strong relationships with creditors, which saw its

average credit period extended to 94 days in FY16 (FY15:

80 days (five-year average: 73 days).

DCP reported two sizeable successive working capital

releases (FY16: N35.9bn), as the increase in creditors more

than offset the movement in inventory and debtors. During

1H FY17, DCP registered a N57.8bn increase in related

party receivables, following the commissioning of the

Congolese and Sierra Leone operations, which drove a

c.N50bn working capital absorption overall. After


accounting for higher interest charges and tax payments,

the Group’s operating cash flows reduced by 12% to

N242.2bn in FY16. Although, interest and tax payments

rose by 49% YoY in 1H FY17, operating cashflows

increased 17% YoY to N118bn at 1H FY17, despite the

impact of the working capital absorption. (On an

annualised basis, operating cashflows declined by 3%).

Robust discretionary cash flows have funded cumulative

dividend payments of N573.2bn over the review period,

translating to 63% of cumulative net income. The dividend

pay-out ratio has hovered around 75% since FY15. This is

somewhat at odds with the aggressive expansion

programme, which saw DCP spend a cumulative N813.6bn

from FY12-1H FY17. While no quantified guidance is

given as regards DCP’s dividend policy, management

indicated that the Group’s dividend cover is set after taking

into account operational and expansionary capital

expenditure requirements. Capex spend was more

moderate at N40.2bn in 1H FY17, in line with

management’s plans to slow down spend in the medium

term. Overall, net debt increased by N13.1bn at FY16 and

further by N67.7bn in 1H FY17. The latter was driven by a

transient elevation in working capital requirements and

should correct by FY17.

Funding and gearing profile

Underpinned by substantial capacity expansion and

geographical diversification, DCP’s asset base almost

trebled from N656.5bn at FY12 to N1.6trn at 1H F1Y17.

DCP evidences a capital-intensive balance sheet, with

property, plant and equipment having averaged 80% of

total assets over the review period. Inventories have

accounted for a stable 5% of the asset base between FY15

and 1H FY17 while debtors and prepayments increased to

10% of total assets at 1H FY17 (FY16: 7%), as activity

levels increased across newly commissioned plants. Cash

balances increased significantly to N115.7bn in FY16

(FY15: N40.8bn), supported by higher sales and impact of

translation of foreign currency. As such, cash increased

from 4% of total assets at FY15 to 8% at FY16. The

remainder comprise investments which constitute a small

proportion (less than 5%) of the asset base.

Operations remain well-capitalised, with tangible equity

having more than doubled (despite the high dividend

payout ratio) from N402.8bn at FY12 to N817.4bn at 1H

FY17, and averaging at least 55% of DCP’s funding. The

large distributions to shareholders are considered as an

indirect claw back of capital invested (both through equity

and loans) into the business. While it is incongruous with

DCP’s expansion plans, it does imply that shareholders will

be willing to extend existing loans or plough in additional

debt when required to sustain robust credit protection

metrics. The N67.7bn net debt increase saw the proportion

of equity funding decreased to 50% in 1H FY17 (FY16:

52%), with the remainder of liabilities almost evenly split

between debt and creditors. The bulk of term loans were

provided by DIL, with maturities between 2017 and 2019.

The outstanding balance on the parent company loans stood

at N205bn at 1H FY17 (FY16: N206.1bn), of which

N130bn is due for repayment by December 2017.

During 1H FY17, DCP made a further draw down on

existing trade finance lines to meet increased working

capital requirements, as funds had to be set aside for the

large dividend payment made during the period. As such,

short term debt accounted for a high 71% of total debt at

1H FY17 (FY16: 59%; FY15: 19%). Of the loans, N30bn

is subordinated, which puts a modest portion of the DIL’s

claims well behind those of external funders. While GCR

is concerned about the high short-term debt exposure at

1H FY17, the significant portion of maturing term loans

pertain to DIL loans, with no undue pressure to refinance.

To increase financial flexibility, DCP intends to refinance

the payment of intercompany loans with a Naira bond

issuance, albeit dependent on favourable market

conditions.

Table 9: Funding

lines Loan type

Interest

rate (%)

FY15

(N'bn)

FY16

(N'bn)

1H FY17

(N'bn) Maturity

DIL (subord.) LT loan 15 30.0 30.0 30.0 2019

DIL LT loan 15 146.2 176.1 175.0 2017; 2019

Bulk Comm. Ltd. USD: WC 6 0.7 9.8 10.6 on demand

Power loan Term loan 7 14.7 12.5 11.4 2021

Overdrafts Loan 23-27 2.9 6.3 6.4 on demand

ST bank loans USD 6 19.2 47.6 116.8 2017

LT bank loans CFA 8.5 0.0 24.0 24.0 2021

Nedbank /Standard

Bank Rand 10 31.4 50.2 50.2 2022

Interest payable n.a n.a 10.6 16.3 8.2 n.a

Total 255.6 372.8 432.6

*LT is long term, ST is short term, WC is working capital.

The Group has a mix of Naira and foreign currency

denominated loans across seven major banks. Besides the

current facility limit of N320bn for DIL loans and USD33m

on a related party loan (Bulk Commodities), DCP has trade

finance facilities of USD322m (which can renewed as

required), and an equivalent of c.USD250m across other

currencies for the subsidiaries. The Power Intervention loan

is a N24.5bn government loan, obtained in 2011 under the

aegis of CBN’s Power & Aviation Intervention Fund,

through the Bank of Industry. Nigeria’s bank loans are

secured by a debenture on all fixed and floating assets of

DCP. The loan from Nedbank/Standard is a project finance

loan obtained in 2010 for the South African joint venture

with Sephaku, and is secured with subsidiary assets. The

loan has a four-year tenor, with bullet repayment on

maturity in May 2017. The remainder of USD denominated

loans pertain to international trade finance facilities and

letters of credit and are usually paid quarterly. The N24bn

debt is a CFA48.75 subsidiary loan obtained in July 2016

to refinance existing debt for the Cameroon business, and

is secured with pledged assets.

DCP faces foreign exchange and repricing risks in respect

of its foreign loan loans, especially when the reporting

currencies weaken against the USD. The exposure is

heightened by regulatory uncertainty with regarding the

floating of the Naira, in particular. Management has

indicated that DCP receives foreign currency from export

proceeds, international businesses, and also sources

through bids in the interbank market. This does provide a

natural hedge, but is currently constrained by the erratic

performance trajectory of some offshore operations and the


modest proportion of hard currency earnings, which stood

at 6% of the Group’s EBITDA at 1H FY17 (FY16: 5%).

DCP had budgeted for higher debt levels in line with earlier

expansion plans and related working capital requirements.

Total debt edged significantly higher to N372.8bn at FY16,

and reached a new peak of N432.6bn at 1H FY17. With the

expansion plans, scaled down somewhat, gross debt was

well within targets. Despite the larger debt, substantial cash

balances kept gearing metrics moderate at FY16 and 1H

FY17. Net gearing increased from 34% at FY15 to 39% at

1H FY17 (FY16: 32%). Stronger earnings at 1H FY17, saw

net debt to EBITDA improve to 79%, from 100% at FY16

(FY15: 82%). From a high of 218% in FY13, discretionary

cash flow coverage of net debt declined to 65% in FY16

(FY15: 103%), and registered at a low of 48% in 1H FY17.

This does imply moderate strain on the Group’s debt

service despite the conservative gearing metrics, and will

be monitored closely. Having fallen off to new lows of 4x

and 4.3x in FY16 (FY15: 6.2x and 6.5x), gross interest

cover and net interest cover picked up to 6.7x and 8.5x at

1H FY17, and are expected to remain within range for the

current ratings over the medium term.

Table 10: Funding profile

(N’m) FY15 FY16

Forecast

FY16* 1H FY17

Short term debt 47,275 220,300 103,090 305,446

Long term debt 208,329 152,475 369,355 127,123

Total debt 255,604 372,775 472,445 432,569

Cash (40,792) (115,693) (111,325) (110,573)

Net Debt 214,812 257,082 361,120 321,996

Equity 642,110 793,200 944,585 817,370

Net debt: equity (%) 33.5 32.4 38.2 39.4

Total debt: equity (%) 39.8 47.0 50.0 52.9

Net debt: EBITDA (%) 82.0 100.1 102.6 79.3

Total debt: EBITDA (%) 97.6 145.2 134.3 106.5

Cash: ST debt (x) 0.9 0.5 1.1 0.4

*USD forecasts were provided. The balances were translated at CBN closing exchange rate

of N305/USD

GCR has performed a number of stresses to test the impact

on the Group’s earnings if projected growth forecasts, or

earnings margins do not materialise. Severe stressors were

applied to determine if debt serviceability ratios and

earning based gearing metrics will still sustain ratings

within the current rating band over the rating horizon,

barring unforeseen exogenous factors. At all the EBITDA

margin levels tested (30%, 40% and 50%), DCP should be

able to generate strong free cash flows and debt service

metrics aligned to the ratings. The stress tests assumed that

forecast debt levels will be 40% higher (in each year) at an

assumed interest rate of 20% for the incremental debt

(average interest rate on DCP’s facilities is 13% in FY16).

The net finance costs utilised for the stress tests were

almost double the actual forecast levels for FY17 and

FY18. At a 40% EBITDA margin keeping other parameters

(of higher debt and interest constant), net debt to EBITDA

will remain below 1.8x, and interest cover will be above 3x.

If EBITDA margin is sustained at 50% over the forecast

period, net debt to EBITDA will remain below 1.5x and

interest coverage will remain above 4x. EBITDA margins

will have to decline to 30%, under the stressed scenarios

for net debt to EBITDA to rise above 200%, with interest

cover still remaining above 2x.

Outlook and rating rationale

DCP’s strategic vision is to remain Africa’s leading

producer of cement and aims to be the leader in quality,

costs and services across all operations, with a market share

of at least 30% and a first or second position in each market.

GCR has been provided with revised USD-based five-year

forecasts for the period spanning FY17 to FY21, to reflect

a revision of expansion plans. Double-digit revenue growth

will be underpinned by increased exports from Nigeria to

Ghana, production ramp-up in Tanzania and contributions

from new capacities in Sierra-Leone and Congo. According

to management, earnings will be enhanced by benefits of

higher pricing, cheaper fuel mix and sustained operating

efficiencies. EBITDA margin is expected to reach 51.1% in

FY17 (1H FY17: 49.2%) and improve annually, averaging

54.7% in the medium term.

Operating profit is expected to be USD1.1bn in FY17, and

should rise by 39% in FY18. Operating margin is forecast

to increase to 41.2% in FY17 (1H F17: 39.5%) before rising

to 45.5% in FY18. In line with the higher quantum of debt,

net finance charges are expected to rise to USD131.6m in

FY17 and by 19% in FY18. Supported by anticipated

robust earnings, net interest cover is forecast to remain firm

at 8.2x in FY17 (in line with 1H FY17) and should edge

higher to 9.6x in FY18. Overall, DCP anticipates NPBT to

grow at a CAGR of 27% by FY21, from USD946.9m in

FY17. Budgets indicate that operating cash flows will be

USD1bn in FY16 and rise by 55% in FY18, due to

anticipated robust earnings. Management has significantly

scaled down its earlier capex plans. Over the medium term,

DCP intends to establish two grinding plants (in Cote

d’Ivoire and Ghana). Capex is projected at USD1.1bn over

the medium term and will be financed through internal cash

generation and debt. In the short term, DCP will pursue

capex improvements, rather than building and expansion.

FY17 capex pertains largely to the Tanzania power plant,

purchase of trucks, settlement of outstanding balances to

Sinoma on the various projects and as well as operational

capex in Nigeria, Zambia and Senegal.

Gross debt is budgeted to reach USD1.4bn in FY17, before

rising to USD1.8bn in FY18, corresponding to level of the

capex. Management remains committed to a strong balance

sheet with low leverage, and intends to maintain debt to

EBITDA below 1.5x over the forecast period. Net gearing

is expected to peak to 56% at FY17 (FY16: 38%) and

should decline to 45% by FY19. Net debt to EBITDA is

0

10

20

30

40

50

60

0

1,000

2,000

3,000

4,000

5,000

6,000

FY17 FY18 FY19 FY20 FY21

%USD'm Figure 2: Medium term operating forecasts

Revenue EBITDA Op. profit Op. margin (RHS)


anticipated to rise to 91% in FY17. Gearing metrics as at

1H FY17 were in line with forecasts. Operating cash flow

coverage of total debt is forecast to be 71% and 86% in

FY17 and FY18 respectively.

Sub-Saharan Africa (“SSA”) significantly lags global

average per-capita cement consumption, although

opportunities in each country are limited by individual per

capita income, poverty levels, state indebtedness (and

ability to borrow), fiscal discipline, and GDP growth (inter

alia). Forecast profitability margins are largely in line with

historical strong margins and appear achievable, albeit

dependent on an effective fuel strategy, improved

economic conditions across key geographies, continued

focus on efficiency and sufficient ramp up in exports (to

allow for increased capacity utilisation).

Management has indicated that DCP is focused on

sustaining efficiency initiatives including better

coordination of clinker supply ships to avoid shortages or

oversupply, optimising local logistics for raw material

supplies and improvements in the organisation and

throughput of trucks collecting cement. The impact of

higher prices and fuel savings in Nigeria, utilisation of gas

turbines in Tanzania and production ramp up in the rest of

Africa should also support margins. Key elements of its

business model are to: expand rapidly and profitably, while

its competitors are hampered by debt or smaller scale;

target high growth, populous markets with cement deficits

and older and less efficient producers.

DCP’s operations remain susceptible to external factors

(including gas and foreign currency shortages), and

vagaries of the economy. This notwithstanding, the strong

financial profile, serves to moderate the impact of external

shocks. DCP remains well-capitalised for a cement

company, given the long life of the plants (>30 years). This

presents a core rating strength. That said, risks in this regard

continue to emanate from obsolescence, the potential for

punitive regulatory changes in key territories, and

competitive pressures, and the currency mismatch in

respect of funding fixed capital in most African territories

using debt. GCR has thus considered the legacy parental

support, which in addition to the planned use of listed

instruments, does lend DCP a fair amount of headroom

with respect to funding.

(50)

0

50

100

150

(500)

0

500

1,000

1,500

FY17 FY18 FY19 FY20 FY21

%USD'm Figure 3: Net debt and gearing forecasts

Net debt (LHS) Net gearing Net debt : EBITDA


Dangote Cement Plc

(Naira in millions except as noted)

Year end: 31 December

Statement of comprehensive income 2012 2013 2014 2015 2016 1H 2017

Turnover 298,454 386,177 391,639 491,725 615,103 412,678 EBITDA 174,113 227,876 222,720 261,931 256,778 203,005 Depreciation (27,621) (33,706) (36,266) (54,626) (74,750) (40,177) Operating income 146,492 194,170 186,454 207,305 182,028 162,828 Net finance charge (10,844) (6,722) (14,902) (31,778) (42,719) (19,127) Forex and reserving 0 1,905 12,873 12,250 41,155 11,210 Other operating income/(expense) 0 1,408 264 517 465 670 Net Profit Before Tax 135,648 190,761 184,689 188,294 180,929 155,581 Taxation paid 9,377 10,437 (25,188) (6,971) 5,695 (11,537) Net Profit After Tax 145,024 201,198 159,501 181,323 186,624 144,044 Other comprehensive income (2,310) 0 1,602 (26,245) 100,701 26,143 Total Comprehensive Income 142,714 201,198 161,103 155,078 287,325 170,187

Statement of cash flows Cash generated by operations 180,268 231,208 241,933 275,395 243,865 197,460 Utilised to increase working capital (32,562) 52,466 (26,359) 26,356 35,857 (49,934) Net interest paid (9,859) (6,389) (13,461) (23,308) (36,367) (26,701) Taxation paid (2,539) (1,936) (226) (2,234) (1,128) (2,830) Cash flow from operations 135,308 275,349 201,887 276,209 242,227 117,995 Maintenance capex‡ (27,621) (33,706) (36,266) (54,626) (74,750) (40,166) Discretionary cash flow from operations 107,687 241,644 165,621 221,583 167,477 77,829 Dividends paid (19,364) (51,122) (119,284) (102,243) (136,324) (144,844) Retained cash flow 88,323 190,522 46,337 119,340 31,153 (67,015) Net expansionary capex (94,068) (147,060) (158,816) (102,466) (44,091) 0 Investments and other (65) (443) (1,596) (298) (745) (682) Proceeds on sale of assets/investments 10,903 11 1,487 0 0 0

Shares issued 0.0 0.0 0.0 0.0 0.0 0.0 Cash movement: (increase)/decrease (22,569.8) (29,402.0) 53,746.6 (25,062.0) (71,110.0) 14,684.0 Borrowings: increase/(decrease) 17,476.6 (13,628.7) 58,841.7 8,486.0 84,176.0 53,013.0 Net increase/(decrease) in debt (5,093.2) (43,030.7) 112,588.2 (16,576.0) 13,066.0 67,697.0

Statement of financial position Ordinary shareholders interest 395,575 542,758 584,025 648,345 806,125 815,054 Outside shareholders interest 7,234 5,029 4,161 (6,235) (12,925) 2,316 Pref. shares and convertible debentures 0 0 0 0 0 0 Total shareholders' interest 402,810 547,787 588,186 642,110 793,200 817,370 Current debt 51,697 56,289 117,263 47,275 220,300 305,446 Non-current debt 112,462 124,850 131,942 208,329 152,475 127,123 Total interest-bearing debt 164,159 181,140 249,205 255,604 372,775 432,569 Interest-free liabilities 89,505 113,192 143,630 210,619 357,788 382,722 Total liabilities 656,474 842,119 981,021 1,108,333 1,523,763 1,632,661 Property, Plant and Equipment 523,107 673,181 827,285 926,306 1,168,907 1,207,691 Investments and other non-current assets 9,472 19,636 16,633 16,047 51,692 63,562 Cash and cash equivalent 44,425 70,502 20,593 40,792 115,693 110,573 Other current assets 79,470 78,801 116,510 125,188 187,471 250,835 Total assets 656,474 842,119 981,021 1,108,333 1,523,763 1,632,661

Ratios Cash flow: Operating cash flow : total debt (%) 82.4 152.0 81.0 108.1 65.0 54.6 Discretionary cash flow : net debt (%) 89.9 218.4 72.4 103.2 65.1 48.3

Profitability: Turnover growth (%) 23.6 29.4 1.4 25.6 25.1 34.2 Gross profit margin (%) 60.4 66.2 63.5 59.0 47.4 57.0 EBITDA : revenues (%) 58.3 59.0 56.9 53.3 41.7 49.2 Operating profit margin (%) 49.1 50.3 47.6 42.2 29.6 39.5 EBITDA : average total assets (%) 31.5 32.9 25.7 25.8 20.7 27.7 Return on equity (%) 43.5 40.0 28.3 29.4 25.7 35.5 Coverage: Operating income : gross interest (x) 11.0 15.7 10.3 6.2 4.0 6.7 Operating income : net interest (x) 13.5 28.9 12.5 6.5 4.3 8.5 Activity and liquidity: Trading assets turnover (x) 21.3 27.1 33.6 35.5 39.6 25.9 Days receivable outstanding (days) 3.3 4.8 5.1 3.9 6.6 6.4 Current ratio (:1) 0.9 0.9 0.6 0.8 0.6 0.9 Capitalisation: Net debt : equity (%) 29.7 20.2 38.9 33.5 32.4 39.4 Total debt : equity (%) 40.8 33.1 42.4 39.8 47.0 52.9 Net debt : EBITDA (%) 68.8 48.6 102.6 82.0 100.1 79.3 Total debt : EBITDA (%) 94.3 79.5 111.9 97.6 145.2 106.5

‡Depreciation used as a proxy for maintenance capex expenditure


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SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument. The ratings expire in August 2018. Dangote Cement Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The credit rating/s has been disclosed to Dangote Cement Plc with no contestation of the ratings. The information received from Dangote Cement Plc and other reliable third parties to accord the credit ratings included: - the 2016 audited annual financial statements and audited comparative results for the preceding four years, - revised financial forecasts spanning 2017 to 2021, - unaudited management accounts to June 2017, - a completed rating questionnaire containing additional information on Dangote Cement Plc, - Insurance schedule for Dangote Cement Plc, - breakdown of facilities available and related counterparties The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

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