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Operational Review REVIEW OF THE BUSINESS IN 2016 Global Cement Report 11 estimated consumption in 2016 would be about 2.4Mt, for a population of about 4.5 million, driven by strong building activity across the residential, commercial and infrastructure sectors. Before our entry, the country had limited production capacity, from sub-scale plants, and most demand was satisfied by imported cement. Our forthcoming 1.5Mta plant at Mfila will be by far the largest and most modern production facility in the country. It began clinker production late in February 2017 and therefore made no contribution to the business in 2016. However, we are confident that the plant will quickly achieve good sales in 2017, given our ability to produce and distribute high-quality cement across the country and even into the neighbouring Democratic Republic of Congo, which has good potential for export sales. Ethiopia Ethiopia’s economy has been one of the top performers in Africa and even after some slowing, the country is expected to have achieved 8% growth in 2016, according to the World Bank. Higher growth is forecast for 2017 and 2018. Inflation fell during the year, according to Trading Economics, starting at about 10% in January and falling to 6.7% by the end of the year. Our 2.5Mt cement plant in Mugher opened in May 2015 and quickly achieved a strong presence in the market, being just 90km from the capital, Addis Ababa, with good road links in between. Cement sales of nearly 2.0Mt in 2016 were well ahead of the 1.0Mt sold during seven months of operation in 2015, despite significant disruption to sales caused by drought, civil unrest and attacks on foreign-owned factories. We estimate that we achieved market share of 24% in 2016, despite the entry in the final quarter of a new manufacturer with a 1.4Mta plant not far from our own. Our plant benefits from being able to take electrical power from Ethiopia’s well-developed grid, which reduces the need for imported fuel and thereby helps to reduce costs. The large size of our plant is another competitive advantage in a market that is supplied by numerous sub-scale plants using inefficient legacy kiln technologies. In addition, we have nearly 400 trucks for distribution of cement into key markets such as Addis Ababa. Cement prices fluctuated during the year, averaging $80 and ending the year at $82. With low per-capita consumption of around 60kg65kg, good economic growth and a large population, we believe Ethiopia will continue to be a key market, especially if the government can deliver its ambitious plans for development, with major projects including the Renaissance Dam, which begins operation in 2017. Furthermore, we believe there is some potential to export cement from Ethiopia to countries such as Somalia and South Sudan, despite the distances involved. We have also experienced some interest from cement importers in Kenya. Ghana Ghana’s economy remains under pressure from high inflation and lower prices for key exports such as oil, gold and cocoa. GDP growth was expected to have been about 3.6% in 2016, per World Bank estimates. Ghana’s currency, the Cedi, devalued slightly during 2016, experiencing a slight fall across the year against the US Dollar. The trend is likely to continue in 2017 if cocoa prices decline as the market goes into surplus, though increases in gold and oil prices would help to support the local currency. We sold 1.1Mt of cement in Ghana, up 73.9% on 2015. In doing so, we increased our market share from an estimated 19% at the start of 2016, to 23% in December. We sell higher-quality 42.5R (rapid-setting) against 32.5R and 42.5N (normal-setting) products available from competitors, but price competition remains a factor and selling prices averaged $115 during the year, ending 2016 at $92. From July, having taken delivery of a fleet of 1,000 trucks dedicated to Ghanaian operations, we began to replace Far Eastern imports with cement from Nigeria. We imported 0.2Mt from Nigeria and our enhanced distribution capabilities enabled much of Annual Report 2016 59

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