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Operational Review REVIEW OF THE BUSINESS IN 2016 Dangote Cement amongst retailers and buyers. We continued our efforts to activate new, highly visible retail outlets in key markets, supporting them with colourfully branded tarpaulins, tables, chairs and parasols, all of which proved extremely popular with sellers. In addition, we provided large, branded storage containers for a number of vendors and worked with them to improve awareness of the product. The average value of this material to retailers was about ₦100,000 per site. Our cement is now sold through more than 15,000 outlets across Nigeria and this is by far the largest retail activation campaign ever undertaken by any cement company in Nigeria. At distributor level, we gave a total of 120 trucks to more than 100 of our largest partners as an incentive to help them improve the distribution of our cement to their customers. We will continue our strong marketing efforts in 2017 with new and very innovative promotions to increase retailer loyalty, such as giving away a daily prize of a heavily branded 20ft container loaded with 600 bags of cement over a 60-day campaign. This daily prize is worth about ₦2m to the retailer and provides a highly visible presence at the point of sale. We believe that imports of cement into Nigeria fell significantly in 2016, made deeply uneconomic because of the lower pricing regime for most of the year, as well as the fact that bulk cement could only be purchased at the much more expensive unofficial exchange rate. During 2016 we exported 0.2Mt of cement from Nigeria to Ghana, using a dedicated fleet of 1,000 trucks. We will increase exports of cement to Ghana in 2017 and as both countries are in the ECOWAS trading zone, these exports are not subject to duties on arrival in Ghana, nor are profits on them taxed in Nigeria. We hope to supply all of our needs in Ghana from Nigeria. In addition, we sold cement into other markets including Togo and Niger, both of which are in the ECOWAS duty-free zone. With our formal exports exceeding imports, we have transformed Nigeria, once one of the world’s biggest importers of cement, into a net exporter. In addition, we believe that large quantities of cement sold into markets near the Nigerian border were informally exported by customers. We will substantially increase export sales from Nigeria in 2017. Gas supply was a significant problem during 2016 as attacks on gas pipelines in the south of Nigeria forced us to use the back-up fuels of LPFO and coal. While some of our Nigerian lines were able to use coal as a back-up fuel in the first eight months of the year, the high demand for cement obliged us to produce on lines that could only use LPFO as a back-up when gas pressures dropped. Our use of LPFO was especially high in the period from May to July, averaging 62% at Obajana and 30% at Ibese. This was before we had completed the conversion of all lines to be able to use coal, in September. During 2016, we imported more than 0.4Mt of coal from South Africa to support our operations, and purchased an additional 0.1Mt of coal from thirdparty mines in Nigeria. In the first half of 2017 we will begin sourcing coal from mines in Kogi State, operated by our parent company, Dangote Industries. Locally-mined coal will be cheaper than imported coal and even cheaper than gas at the Obajana plant. Use of Nigerian coal, priced and paid for in Naira, will reduce our need for foreign currency. The impact of the sub-optimal fuel mix was exacerbated by the devaluation of the Naira in June and the associated shortage of US Dollars required to pay for coal and LPFO imports. Additionally, though sourced in Nigeria, our gas supply is priced in US Dollars, but paid in Naira. We estimate that the sub-optimal fuel mix increased costs by ₦13B in 2016. Pan-African operations Pan-African operations include factories or import facilities in Cameroon, Ethiopia, Ghana, Senegal, South Africa, Tanzania, Zambia and forthcoming operations in Congo and Sierra Leone. Annual Report 2016 57

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