Equity Research

Nigeria: Company Note

UAC of Nigeria plc Earnings expectations slightly outlook still robust, in our view lower,
12 March 2012
Esili.Eigbe*
esili.eigbe@stanbicibtc.com

Bunmi Njugo*
bunmi.njugo@stanbicibtc.com

Earnings expectations slightly lower We have cut our earnings estimates for UACN slightly lower over the medium term on account of higher input cost inflation expectations particularly in FY:12e and higher than expected administrative costs. These more than offset stronger sales growth expectations at its animal feeds & edible oil, property and logistics businesses as well as an improvement at its restaurant business. We expect UACNs group EPS to be N3.65 in FY:14e (previously N3.98). Relative to FY:11e EPS of N4.67 (+134% y/y, previously N5.39), this represents a decline of 8% p.a. over the period. However, this trend is reflective of a significantly higher base in FY:11e, underpinned by a one-off gain from the sale of 49% of UACNs interest in UAC Foods Ltd to Tiger Brands. On an operating basis, we expect UACNs earnings to expand 17% p.a. over the same period. Re-iterating our investment case We are constructive on UACN over the longer term because of: (1) the potentially stronger market position of its major businesses post ongoing restructuring; (2) we view its diversified business mix as a plus; (3) high dividend yield and strong operating cash flow; and (4) attractive valuation. In the short term, UACN is our most preferred play on the Nigerian consumer market because: (1) we believe that positive dynamics in the food and retail market amid concerns of a softening in consumer spending is positive for UACN given that 67% of its sales are staple food which are quite resilient in a weak macro-economic environment; and (2) we see limited risk to UACNs earnings as a result of a weaker naira of our universe of Nigerian consumer companies, UACN is the least exposed to imported raw materials. Valuation In light of the slight cut to our earnings estimates over the medium term and a review of our valuation methodology, we have cut our 12-month TP to N47.00 (previously N47.50), representing upside potential of 65% from current levels. Therefore, we maintain our Buy recommendation on UACN. Trading on a CY:13e PE of 8.9x, UACN is one of the most attractive companies within our universe of Nigerian consumer companies. In comparison to its peer of Nigeria consumer companies it trades at a 39% discount.
Key forecasts Revenue (N'm) Growth (%) EBITDA margin (%) Operating profit (N'm) Operating margin (%) EPS (N) Growth (%) CFPS (N) Growth (%) DPS (N) PE (x) Dividend yield (%)
Source: Company data, Stanbic IBTC estimates

NSE code Bloomberg code Recommendation Share price (NGN) Target price (NGN) Implied return (%) Share statistics (09/03/2012) Market cap (NGN'm) Market cap (USD'm) Shares free float (%) Shares in issue (m) Book value (NGN'm) Price/book (x) ROE (%) Debt/equity (%) 30-day avg. daily trade (NGN'm) 30-day avg. daily trade (USD'm)

UACN UACN NL BUY 28.53 47.00 65

45,669 290 95 1,601 36,406 1.3 8.6 67.3 13.6 0.1

Price relative to adjusted ASI

1.20 1.10 1.00 0.90 0.80 0.70 UACN NSE ASI 0.60 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12

Source: NSE, performance Stanbic IBTC Research Historical (%)

FY 10 52,314 (7.6) 21.1 8,530 16.3 2.0 (20.6) 4.6 (42.3) 1.10 14.6 3.8

FY 11E 61,031 16.7 19.6 9,213 15.1 4.7 134.1 5.2 13.9 1.60 6.2 5.5

FY 12E 65,937 8.0 20.2 10,243 15.5 2.5 (45.7) 6.4 22.3 1.80 11.5 6.2

FY 13E 77,340 17.3 20.8 12,876 16.6 3.3 29.4 7.9 23.7 2.30 8.9 7.9 1 month 6 months 12 months

Absolute -1.6 -25.6 -17.1

Relative -1.8 -22.4 0.0

Source: Bloomberg, Company data

IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ARE IN THE DISCLOSURE APPENDIX. U.S. Disclosure: Stanbic IBTC Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers in the United States can receive independent, third party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can email research_nigeria@stanbic.com to request a copy of this research.

Company Note - 12 March 2012

Earnings expectations slightly lower

We have cut our earnings estimates for UACN slightly lower over the medium term on account of higher input cost inflation expectations particularly in FY:12e and higher than expected administrative costs. These more than offset stronger sales growth expectations at its animal feeds & edible oil, property and logistics businesses as well as an improvement at its restaurant business. We expect UACNs group EPS to be N3.65 in FY:14 e (previously N3.98). Relative to FY:11e EPS of N4.67 (+134% y/y, previously N5.39), this represents a decline of 8% p.a. over the period. However, this trend is reflective of a significantly higher base in FY:11e, underpinned by a one-off gain from the sale of 49% of UACNs interest in UAC Foods Ltd to Tiger Brands. On an operating basis, we expect UACNs earnings to expand 17% p.a. over the same period. Notably the adjustment to our FY:11e EPS is sharp (down 13%) largely because of an upward adjustment to our estimate of earnings due to minorities during the year. We now estimate that the minority interest charge for the year will amount to N3.0bn (previously N2.2bn), in line with management guidance and reflective of Tiger Brands interest in UAC Foods Ltd.
Figure 1: UAC of Nigeria Plc - changes to earnings estimates FY11E New Revenue EBITDA PBT Net Income Net Asset EPS DPS 61.0 12.0 13.6 7.5 42.7 4.67 1.60 old 57.6 12.5 13.3 8.6 51.6 5.39 1.54 % 6 (4) 2 (13) (17) (13) 4 New 65.9 13.3 9.5 4.1 41.4 2.53 1.80 FY12E old 65.1 14.1 9.5 4.2 55.1 2.64 1.87 % 1 (6) 1 (4) (25) (4) (4) New 77.3 16.1 11.7 5.2 50.9 3.28 2.30 FY13E old 73.8 16.7 11.8 5.3 60.0 3.28 1.90 % 5 (4) (0) (0) (15) (0) 21 New 86.5 18.1 12.9 5.8 49.3 3.65 2.55 FY14E old 83.4 19.3 14.3 6.4 67.9 3.98 2.05 % 4 (7) (10) (8) (27) (8) 24

Source: Company annual report, Stanbic IBTC Research estimates

Figure 2: UACN- EPS

5.00 4.50 4.00 3.50 3.00 2.50 2.00 2.00 1.50 1.00 0.50 0.00 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 2.25 1.99 2.65 3.28 3.65 4.67

2.51

2.53

Source: Company annual report, Stanbic IBTC Research estimates

Below we discuss factors that influenced changes to our earnings projections.

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Company Note - 12 March 2012

Higher input costs inflation. Our estimates for UACN now incorporate a greater increase in input costs, underpinned by the partial removal of gasoline subsidy earlier this year. As highlighted in several of our previous publications in 2012, we anticipate that the increase in gasoline prices will translate into higher raw material costs, particularly those sourced locally. We recall that Standard Bank recently revised its inflation forecast for 2012e to +12.8% (previously 9.8%); forecasts for 2013e and 2014e are unchanged at 10.5% and 11.5% respectively. We expect this will have the greatest impact on UACNs animal feeds & edible oil, packaged food (UAC Foods Ltd) and its paints businesses. These businesses contribute 24%, 11% and 9% to earnings respectively - based on performance in FY:10. At UACNs animal feeds & edible oil business, we are concerned that the price of grains could continue to rise. At its packaged food business, the proposed increase in import duties on wheat will increase the cost of general purpose flour. With respect to its paint business, the cost of pigments and solvents are likely to be sticky given trends in oil prices. Nevertheless, we expect gross margins to strengthen over the medium term relative to our previous forecasts except for FY:11e, when management was unable to pass the higher costs of raw materials to the consumer across the board. In FY:12e FY:14e, we believe gross margins will receive support from operating efficiency and an increase in prices. UAC Foods Ltd and Grand Cereal benefited from these initiatives in the previous year and are likely to continue to build on this. The restructuring of UACNs restaurant business will also provide support for gross margins over the medium term as well. We now expect UACNs gross margin to average 34.0% over FY:12e FY:14e (previously 33.7%). Relative to our previous forecasts, we expect the trend in gross margins over the medium term to remain unchanged lower from FY:10.
Figure 3: UACN - gross margin estimates (current vs. previous est.)
38.0 37.0 36.0 35.0 11.00 34.0 10.00 33.0 32.0 31.0 30.0 FY:06 FY:07 FY:08 FY:09 FY:10 FY:11e FY:12e FY:13e FY:14e 9.00 8.00 7.00 6.00 FY:06 FY:07 FY:08 FY:09 FY:10 FY:11e FY:12e FY:13e FY:14e Current gross margin estimate Previous gross margin estimate

Figure 4: UACN - admin cost/ net revenue (current vs. previous est.)
15.00 14.00 13.00 12.00

Current admin costs to net revenue Previous admin costs to net revenue

Source: Company annual report, Stanbic IBTC Research estimates

Source: Company annual report, Stanbic IBTC Research estimates

Higher than expected administrative costs. We have raised our estimates on administrative costs as recent trends in earnings and our discussions with UACNs management indicate that administrative costs are likely to remain high contrary to our previous estimates. We previously hoped that over time UACNs administration costs would moderate as management aims to improve efficiency across its businesses and bring administrative costs to net revenue closer to that of its peer of Nigerian consumer companies. However, it would seem the focus for now is on specific businesses like UAC Foods Ltd, where its JV with Tiger Brands is expected
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Company Note - 12 March 2012

to operate more efficiently over the medium term. We now estimate that UACNs administrative costs to net sales will average 11.2% over the medium term (FY:12e FY:14e), ahead of our previous estimate of 8.9% and industry average of 6.1% over the same period. UACNs relatively high admin costs are partly reflective of its property business direct distribution model, but also indicative of inefficiencies in other businesses. Consequently, we expect EBITDA margins to contract, averaging 20.6% over the medium term below our previous estimate of 22.5%. Relative to its peer group of Nigerian consumer companies, which we expect to have an EBITDA margin of 14.0% on average over the same period, UACNs profit margins remain attractive.
Figure 5: UACN - EBITDA margin estimates (current vs. previous)
24.0 23.0 22.0 21.0 20.0 19.0 18.0 17.0 16.0 15.0 14.0 FY:06 FY:07 FY:08 FY:09 FY:10 FY:11e FY:12e FY:13e FY:14e Current EBITDA margin estimate Previous EBITDA margin estimate

Source: Company annual report, Stanbic IBTC Research estimates

UACNs marketing and distribution costs are relatively low when compared with other brand oriented companies, in our opinion, given its marketing and distribution costs to net revenue of 2.3% over the medium term. Notably, its peer group of brand oriented Nigerian consumer companies have a marketing & distribution costs to net revenue of 12.3% over the same period. We see the potential for UACNs marketing and distribution costs to rise substantially over the medium to long term as it consolidates its market share and strengthens its brands. However, we have deliberately not incorporated this in our estimates due to lack of visibility on this at present. Stronger than expected sales growth in certain businesses . Despite a relatively tough business environment, some of UACNs businesses, including animal feeds & edible oil, property and logistics are experiencing better than expected growth. Grand Cereal, UACNs animal feeds and edible oil business witnessed a sharp improvement in sales volumes in FY:11e, reflective of relatively less restiveness in Jos its major hub and the location of its main facility. While insecurity in Northern Nigeria remains a concern for Grand Cereals earnings outlook, the situation is much better in comparison to the wide spread ethnic violence in the region about 18 24 months ago. Accordingly, we expect the business will continue to see sustained growth. We note that Grand Cereal recently expanded its feed mill and is expected to expand further over the medium term. Grand Cereal began milling feed in Benin (Southern Nigeria) in FY:11 following an agreement with Bendel Feeds. Management is also considering building new feed mills in Southern Nigeria in a bid to decentralise its mills and enhance growth. Sales of edible oils are also strong and recent re-branding efforts are gradually being monetised.
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Company Note - 12 March 2012

Figure 6: UACN - Grand Cereal 2010 business mix (revenue)

Figure 7: UACN - Grand Cereal - business mix (N,bn)

40.0

Maize meal 10%

Animal feeds 35.0

Edible oil

Maize meal 2.5

30.0 2.3 25.0 Edible oil 20% 20.0 15.0 10.0 Animal feeds 70% 16.2 5.0 0.0 2010 2011E 2012E 2013E 2014E 11.8 1.7 3.4 22.0 18.3 25.3 1.9 3.9 2.1 4.3 5.2 5.9

Source: Company annual report, Stanbic IBTC Research estimates

Source: Company annual report, Stanbic IBTC Research estimates

Figure 8: UACN - revenue estimates by business FY11e New UAC Food Ltd Restaurant Edible oil & feeds Real Estate Logistics Paint Vehicles Bottled water - Warm Springs Others 11.4 5.7 22.0 11.6 3.3 4.2 1.5 0.7 0.5 old 13.5 6.0 18.8 9.5 2.8 4.1 1.5 0.7 0.5 % (15.5) (5.3) 16.9 22.5 17.6 1.5 0.0 0.0 0.0 New 13.6 3.0 24.7 13.4 3.5 4.6 1.7 0.8 0.7 FY12e old 14.9 6.8 21.2 11.2 2.8 4.9 1.8 0.8 0.7 % (8.7) (55.8) 16.1 19.8 23.5 (5.4) (4.3) 0.0 0.0 New 16.3 3.3 29.5 15.4 3.8 5.3 1.9 0.9 0.9 FY13e old 17.1 7.5 23.4 12.9 3.4 5.7 2.0 0.9 0.9 % (4.6) (55.8) 26.4 19.8 13.2 (8.5) (8.5) 0.0 0.0 New 17.9 3.6 33.8 17.1 4.1 5.8 2.0 1.1 1.1 FY14e old 19.6 8.2 25.7 14.8 3.9 6.8 2.2 1.1 1.1 % (8.8) (55.8) 31.5 15.1 6.3 (14.7) (8.5) 0.0 0.0

Source: Company annual report, Stanbic IBTC Research estimates

Figure 9: UACN - Segment gross profit FY11e New UAC Food Ltd Restaurant Edible oil & feeds Real Estate Logistics Paint Vehicles Bottled water - Warm Springs Others 2.7 1.4 5.6 6.4 1.3 2.2 0.3 0.2 0.5 old 3.7 1.5 4.7 6.2 0.8 2.0 0.3 0.2 0.5 % (27) (5) 18 4 55 8 (3) 0 (10) New 3.1 1.4 5.8 7.1 1.3 2.4 0.3 0.2 0.6 FY12e old 3.9 1.7 5.3 6.2 1.0 2.2 0.4 0.2 0.7 % (22) (22) 9 15 31 7 (7) 0 (10) New 3.9 1.8 6.9 8.2 1.4 2.8 0.4 0.2 0.8 FY13e old 4.9 2.0 5.6 7.1 1.2 2.6 0.4 0.2 0.9 % (20) (10) 23 15 20 4 (11) 0 (10) FY14e New 4.3 2.4 7.8 9.0 1.5 3.0 0.4 0.3 0.9 old 5.6 2.1 6.4 8.2 1.4 3.1 0.4 0.3 1.1 % (23) 11 21 11 12 (3) (9) 0 (10)

Source: Company annual report, Stanbic IBTC Research estimates

With respect to UAC Property Development Company (UPDC), UACNs property business, off-plan sales of development property strengthened in the previous year and are likely to remain robust over the medium term underpinned by demand for quality housing and credible property developers. UACN was able to consolidate its market share in the previous year as the recent banking crisis resulted in the

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Company Note - 12 March 2012

demise and loss of credibility of a great number of property developers. Further more, rental income is expanding and its hotel business is starting to gain traction.

Figure 10: UACN - UPDC - business mix FY:09 (revenue)

Management fees 2% Rental income 5%

Figure 11: UACN - UPDC - business mix FY:14e (revenue)

Management fees 1%

Hotels & rest house income 0%

Rental income 10% Hotels & rest house income 10%

Property sales 81% Property sales 93%

Source: Company annual report, Stanbic IBTC Research estimates

Source: Company annual report, Stanbic IBTC Research estimates

MDS Logistics, UACNs logistics business enjoyed a better than expected performance in FY:11e, setting a higher base for growth in subsequent years. According to management, the companys performance was enhanced by business from its fast moving goods and pharmaceutical clientele as its diversification strategy from telcos deepens. Although this business has great potential given Nigerias highly fragmented and unorganised logistics market, its potential at the moment is limited by managements deliberate strategy not to expand the haulage segment of this business without a partner with strength in haulage. Given the inadequacy of transportation infrastructure in Nigeria, we see merit in managements strategy. Given that the search for a strategic partner for this business has taken a great deal of management time and is likely to continue to do so, we think management should explore spinning off the business completely. This will give management more time to focus on other businesses which contribute significantly more to earnings. In FY:10 MDS Logistics contributed 7% to UACNs group earnings and we expect its contribution could shrink to 5% over the medium term on an organic basis. Improvements in UACNs restaurant business. UACN restaurant franchise is beginning to witness some improvements facilitated by the franchising of most of its outlets. UACN is currently shifting from companyoperated outlets/ franchising business model to a pure franchising business model. According to UACNs management, total company operated outlets was 12 at the time of writing, down from 50 outlets for most of FY:11. We note that total outlets stood at 152, at the time of writing, implying total franchised outlets of 140. We attribute the improvements at UACNs restaurant business to the following: the closure of non-performing franchisees, the licensing of credible ones and the strengthening of its management team. More so, this exercise has enabled UACN to consolidate its franchisees, making the business easier to manage. While we see merit in UACNs pure franchising model as it reduces the day-to-day burden on UACNs management, we are concerned about UACNs ability to sustain this model and the quality of its franchise. As shown in figure 8, we expect revenue from this business to collapse

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Company Note - 12 March 2012

over the medium term relative to our previous estimates. However, its earnings should improve strongly on significantly greater franchised margins.

Dividend payout likely to increase

In our last discussion with UACNs management, it indicated that the company is in a position to increase its annual dividend payout ratio (which as of FY:10 was 55%) given its relatively robust cash position. UACNs cash position was greatly enhanced by its recent transaction with Tiger Brands in which it received N9.2bn for 49% of its interest in UAC Foods Ltd. As at 9M:11, UACN had a cash position of N10.5bn (+91% y/y). Whilst management has indicated a dividend payout ratio closer to 100% of earnings over the medium term, we estimate dividend payout ratio could average 70% over the same period. This compares to an average of 51% over the last five years. Consequently, we expect its DPS to climb 17% p.a. over the medium term to N2.55 in FY:14e (previously N2.05). At current price levels, our DPS estimates represents a dividend yield of 7.3% over the medium term attractive in light of local consumer companies with an average dividend yield of 4.0% over the same period. Note that dividend yield in developed and other emerging market are much lower averaging 2.6% and 2.1% respectively over the same period.

Figure 12: UACN - DPS and dividend payout ratio

3.00 DPS (N) Dividend payout ratio 71 80 70 2.30 55 2.00 40 1.50 1.36 1.04 1.00 0.80 20 1.10 30 1.60 41 1.60 34 40 1.80 60 50 70 2.55 70

Figure 13: UACN - DPS yield vs. local peers

12.00 10.9

2.50

10.00

60

60

8.00

7.3 6.0

6.00 3.9 4.00 3.9 3.7 3.7

3.3 2.8 2.6 2.1

2.00

DSR

NB

UACN

Cadbury

HFM

Unilever

Nestle

PZ

DM consumers

10 0.00 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e -

Source: Company annual report and management, Stanbic IBTC Research estimates

Source: Company annual report and management, Stanbic IBTC Research estimates

Management Capex guidance moderate

Excluding UPDC, UACNs management guided towards a relatively moderate capex programme over the medium term, albeit higher relative to previous years. Managements capex programme collaborates its more optimistic outlook for dividend policy over the period. Based on our discussion with management, capex programme over the medium term is likely to focus on the following business: (1)

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EM consumers

Guinness

0.50

0.00

Company Note - 12 March 2012

UPDC; (2) UAC Food Ltd; (3) Grand Cereal; and (4) CAP Plc, UACNs paint business. Over the medium term we estimate capex to net revenue is likely to average 15%, ahead of a five year average of 10.6%. Note that excluding UACNs property business, we expect annual capex to average N1.0bn per year over the FY:12e FY:14e. This represents a capex to net revenue of 2% on average, which we believe is reasonable relative to peers. Implicitly, capex at its property business would be N8.9bn, N10.6bn and N12.0bn in FY:12e, FY:13e and FY:14e respectively representing 68% of UPDCs net revenue on average over the period. UACNs property business is capital intensive, but capex over the medium term is particularly high as UPDCs management seeks to improve its mix of rental vs. property development income over the medium to long term. Notably, capex funding at UPDC will be sourced independent of group resources (based on management guidance). UPDC is listed independently on the Nigerian Stock Exchange and can secure funding on its own. At the moment its management has mentioned launching a REIT fund (N20.0bn) and an equity offering (size unknown) in the current year to raise capital. Note that we have incorporated funding from the REIT in our estimates, but delayed incorporating funding from the equity offering as we have greater visibility on the former.
Figure 14: UACN - Capex
Capex (N,bn) 14.00 12.00 10.00 8.1 8.00 6.00 4.00 2.5 2.00 -2% 0.00 -2.00 (0.6) 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e -5% 0% 7% 5% 7.9 10% 15% 10.4 9.2 18% 15% 11.6 15% Capex, % of net revenue 13.0 15% 15% 9.9 15% 15% 20%

Source: Company annual report, Stanbic IBTC Research estimates

At UAC Foods Ltd, management will continue to expand the capacity of existing products (Gala and dairy) with the potential of acquiring Deli Foods Ltd, which was acquired by Tiger Brands in the previous year. UAC Foods expanded its Gala capacity by 25% toward the end of FY:11. At the same time, there were investments in packaging and dough processing to enhance efficiency. These, according to management, resulted in a 20% increase in Galas volumes in FY:11. In the dairy segment of this business, management is investing in chillers and logistics. We note that the sale of Gala sausages and dairy products represents 92% of UAC Foods revenue. In our view, the acquisition of Deli Food Ltd by UAC Foods is most likely to happen over the medium term. At CAP, management is currently in discussions with potential targets in the Nigerian paint market. The objective is the diversification of its product portfolio and deepening its product suite of architectural paints. CAP is predominantly an architectural paint manufacturer and would like to strengthen its earnings through

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Company Note - 12 March 2012

greater product offering, capitalising on its established brand (Dulux). At Grand Cereal, UACNs management is currently expanding its feed milling capacity. At the moment, its main facility in Jos operates at a relatively high utilisation rate (+80% - by our estimate), underpinned by strong demand for livestock feeds particularly in the North. While its facility in Jos will see its current capacity increase, management is also considering expanding in other regions in a bid to reduce the impact of restiveness in the North on its operations.

Explaining low group ROAEs

At first glance, UACNs ROAE is low, standing at 8.6% in FY:10 and averaging 13.4% in the last five years. However, using this parameter can be misleading as it largely reflects the balance sheet of the property business which is notably a low ROE business as the revaluation gains on its investment property portfolio is credited to shareholders funds, thus constantly swelling the denominator. UPDCs low ROE is reflective of its large investment property book, which takes into account unrealised gains on these assets. UACNs investment property portfolio is typically re-valued every two years and the excess or deficit on its investment property relative to its cost or previous book value is credited to shareholders funds. Analysing a group of DM and EM property companies, we observe that property companies are naturally low ROE businesses, reflective of their large investment property reserves. Based on a sample of five hundred global property companies we examined, average ROE in 2010 was 9.3% (based on Bloomberg data). Figure 15 below shows the ROAE of a group of DM and EM property companies over the last ten years. We note that some of the property companies below with strikingly high ROAEs have either witnessed a boom in their local property market in the last ten years or have earnings enhanced by unrealised gains from investment property in their books (in line with IFRS reporting standard). In contrast, UPDC does not incorporate unrealised gains on investment property in its earnings. Adjusting for UPDCs investment property reserves and high retained earnings which is also peculiar with property companies, UACNs ROAE stood at 21.6% in FY:10, which was slightly below its peer of Nigerian consumer companies in 2010, but still a decent return on equity. We expect UACNs adjusted ROAE to climb to 20.0% in FY:14e, slightly below its peer of Nigerian consumer companies which we expect will average 20.6% during the same period.

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Company Note - 12 March 2012

Figure 15: DM and EM property companies - 10 year average ROE's (%)

Aldar Properties (UAE) TMG Holdings (Eygpt) Great Portland Properties (UK) United Industrial Corp (Singapore) Parque Arauco SA UPDC (Nigeria) Metrovacesa SA (Spain) LSR Group (Russia) UOL Group Ltd (Singapore) Redefine Properties LT (SA) Azrieli Group (Isreal) Altarea (France) Farglory Land Dev. (Turkey) Oberoi Realty Ltd (India) Risesun Real Estate (China) Douja Prom Addoha (Mexico) BR Properties SA (Brazil) Vincom JSC (Vietnam) 0 10 20 30 1.1 4.9 7.9 8.1 8.5 9.2 9.4 11.3 12.2 13.3 13.9 15.2 18.3 23.0 24.3 28.5 29.8 36.6 40

Figure 16: UACN- ROAE (%)

35 31.6 30 25.5 25 19.9 19.9 20 15.7 15 12.4 10.5 10 8.6 9.7 16.2 22.6 22.0 18.9 17.4 15.5 11.4 11.7 17.1 Norminal Adjusted

0 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e

Source: Bloomberg, company annual report, Stanbic IBTC Research estimates

Source: Company annual report, Stanbic IBTC Research estimates

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Company Note - 12 March 2012

Re-iterating our investment case

We are positive on UACN over the longer term because of: (1) the potentially stronger market position of its major businesses post ongoing restructuring; (2) we view its diverse business model as a plus; (3) high dividend yield and strong operating cash flow; and (4) attractive valuation. In the short term, UACN is our most preferred play on the Nigerian consumer market because: (1) we believe that positive dynamics in the food and retail market amid concerns of a softening in consumer spending is positive for UACN given that 67% of its sales are staple food which are relatively resilient in a weak macro-economic environment; and (2) we see limited risk to UACNs earnings as a result of a weaker naira within our universe of Nigerian consumer companies, UACN is the least exposed to imported raw materials. Below, we discuss our long term investment case. Potentially stronger market positioning post ongoing business restructuring . We believe that post ongoing business restructuring at UACN, its major businesses will have a much stronger position in their respective markets. Currently, major businesses such as Grand Cereal, UPDC, UAC Foods, UAC Restaurants and CAP have a ranking of #1 #2 position in their respective markets. The introduction of new and experienced partners in UAC Foods and UAC restaurants could, in our opinion, transform those businesses. UAC Foods is improving the brand value of its products, enhancing its route to market and consolidating its market share. While management has no plans at this point to introduce strategic partners in either Grand Cereal, UPDC or CAP, we believe lesson learned at the UAC Foods and UAC restaurant can be transferred. UAC restaurant is shifting to a pure franchise business model and UACN will spin it off this later year as an independent business within the group see figure 23. MDS Logistics is currently seeking a strategic partner and will also be spun-off as an independent company within the group by year end. This should make it easier to attract a preferred partner and capital required to grow the business. Although UACN has been progressively restructuring its businesses in the last couple of years, more recent developments will likely have the most significant impact on its businesses, in our opinion. UACNs management mentioned it was considering a strategic plan for smaller business like GM Nigeria (auto sales), UNICOM (pension administration - captive) and UAC Registrars. We advocate that these businesses be spun-off and sold given that their contribution to earnings is meagre 5% collectively in FY:10. This should free up more time for management to focus on businesses which contribute more meaningfully to group earnings. Diverse business model is a plus. We view UACNs diverse business model as a plus to group earnings as it should help mitigate the impact of weakness in any one business on group earnings in the long term. That said, we note that earnings are largely skewed to food related businesses UAC Foods, UAC restaurants, Grand Cereal and Warm Spring. Combined these businesses contribute 49% to group earnings. Contribution from UPDC is also relatively high at 31% in FY:10. Over the medium term, we do not expect the contribution of these business segments to change much; however, within the food segment, we estimate that the contribution of UAC Foods and Grand Cereal will increase.

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Company Note - 12 March 2012

Figure 17: UACN - Gross margin mix (FY:10)

Warm Springs (water) 1% Paint 9% Others 2% UAC Food Ltd 11%

Figure 18: UACN - Gross margin mix (FY:14e)

Warm Springs (water) 1% Paint 10% UAC Food Ltd 15% Others 3%

Vehicles 2%

Vehicles 1%

Logistics 7%

Restaurant 15%

Logistics 5%

Restaurant 8%

Real Estate 31%

Edible oil & feeds 22%

Real Estate 31%

Edible oil & feeds 26%

Source: Company annual report, Stanbic IBTC Research estimates

Source: Company annual report, Stanbic IBTC Research estimates

High dividend yield. As mentioned earlier, UACN has a high dividend yield at current price levels and it is one of the most attractive in the sector from that perspective. Having lost 26% in the last six month, the companys dividend yield rose sharply. Over the medium term, UACNs dividend yield averages 7.3%, ahead of its peer of Nigerian consumer companies which yield 4.0% on average over the same period. In light of managements positive outlook on dividend payment over the medium term, we see upside risk to our DPS estimates yields could be higher. UACNs strong dividend yield will be supported by its relatively robust cash position following the sale of its 49% interest in UAC Foods to Tiger Brands last year. More so, its operating cash flow is strong. We expect operating cash to PAT to average 146% over the medium term. In the last five years, this parameter averaged 170%.
Figure 19: UACN - DPS and DPS yield
3.00 DPS (N) DPS yield 8.8% 9.0% 2.50 7.9% 8.0% 6.2% 5.5% 1.50 4.7% 3.6% 1.00 2.8% 1.60 1.36 0.50 0.80 1.04 1.10 1.60 1.80 3.0% 2.0% 1.0% 0.0% 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 6.0 4.0 6.1 2.0 1.9 0.00 0.0 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 0% 42% 3.8% 2.30 2.55 5.5% 7.0% 6.0% 5.0% 4.0% 16.0 14.0 12.0 149% 10.0 8.0 17.2 12.8 80% 10.3 7.4 8.4 50% 12.7 14.0 100% 135% 144% 145% 150% 217% 206% 2.00 200% 18.0 251% 250% 10.0%

Figure 20: UACN- operating cash flow and operating cash to PAT (%)
20.0 Operating cash Operating cash to PAT 300%

Source: Company annual report, Stanbic IBTC Research estimates

Source: Company annual report, Stanbic IBTC Research estimates

Equity Research

Company Note - 12 March 2012

Attractive valuation. Trading on a CY:13e PE of 8.9x, UACN is one of the most attractive companies within our universe of Nigerian consumer companies. In comparison to its peer of Nigeria consumer companies, it trades at a 39% discount. Based on the CY:13e PE of a composite of similar EM companies (weighted based on the contribution of each segment to UACNs earnings) , UACN trades at a 27% discount. Relative to its historical one-year forward PE of 12.1x, UACN trades at a 25% discount at current levels.
Figure 21: UACN - CY:13e PE vs. Nigerian peers (x)
25 23.0 20 18.7 15 17.1 17.5 19.3

10 9.1 5

11.8 10.8

12.7

0 UACN Unilever Nestle DSR PZ NB Cadbury Guinness HFM

Source: Company annual report, Stanbic IBTC Research estimates

Major catalysts we see for the stock over the near term are: (1) better than expected FY:11e earnings and dividend (due in April 2012); and (2) greater visibility on all its businesses.

Equity Research

Company Note - 12 March 2012

Figure 22: UACN current group structure

UACN

Associates: Opticom Leasing (40%) General Cotton Mills (18%)

Divisions: UAC Restraurants MDS Logistics

UPDC (46%)

Grand Cereals and Oil Mills Ltd (64%)

UAC Food Ltd (51%)

GM Nigeria (60%)

Warm Springs Water Ltd (76%)

Mr Biggs Ghana (100%)

UNICO CPFA Ltd (87%)

UAC Registrars (100%)

Source: Company annual report, Stanbic IBTC Research estimates

Equity Research

Company Note - 12 March 2012

Figure 23: UACN expected group structure by year end

UACN

Associates: Opticom Leasing (40%) General Cotton Mills (18%)

UPDC (46%)

Grand Cereals and Oil Mills Ltd (64%)

UAC Food Ltd (51%)

GM Nigeria (60%)

Warm Springs Water Ltd (76%)

Mr Biggs Ghana (100%)

UNICO CPFA Ltd (87%)

UAC Registrars (100%)

UAC Restraurants (100%)

MDS Logistics (100%)

Source: Company annual report, Stanbic IBTC Research estimates

Equity Research

Company Note - 12 March 2012

Valuation
In light of the slight cut to our earnings estimates over the medium term and a review of our valuation methodology, we have cut our 12-month TP to N47.00 (previously N47.50), representing upside potential of 65% from current levels. Therefore, we maintain our Buy recommendation on UACN. We arrived at our 12-month TP of N47.00 based on a combination of a blended relative valuation methodology using sum of the parts. Notably, we now use a CY:13e exit price to book multiple (based on the valuation of GEM peers) to value UACNs property, pension and registrars business as we be lieve that the true value of these businesses lie in the value of their book. UACNs property business in particular holds a substantial portfolio of investment and development properties, which an earnings based valuation does not capture. On the other hand we value UAC Foods, UAC restaurant, Grand Cereal, MDS Logistics, CAP and Warm Springs using a CY:13e EV/EBITDA exit multiple based on its GEM peers. Note that in the past we used an EV/EBITDA exit multiple to value all UACNs businesses. Also worth noting, our exit price to book and EV/EBITDA represent a 15% discount to those of GEM companies in respective sectors.

Figure xx: UACN - Relative valuation using SOTP Exit 2013 EV/ EBITDA EBITDA (2013) UAC Foods Restaurant Edible oil & animal feed Real estate Logistics Paint Auto Sales Warm Springs UNICO & Registrars Total UACN EV Net debt - corporate Fair Mkt. Cap Price per share (present value) 12 month target price
Source: Company annual report, Stanbic IBTC Research estimates

Exit 2013 P/ B Net asset (2013)

Interest 51% 100% 64%

EV 19,593 8,663 19,297 36,318 5,269 11,077 0 797 397 101,410

Net debt 0 0 (3,912) (8,446) 0 703 0 374 734

Fair market value 9,992 8,663 8,438 12,822 5,269 6,261 0 1,083 1,068 53,595 (9,766) 63,361 40 47.30

8.5 7.5 4.0 5.5 6.5 8.5 -

2,305 1,155 4,824 958 1,704 65 94 2.0 566 0.80 34,841

46% 100% 50% 60% 89% 94%

Key risk
Key risks to our valuation of UACN are: Poor execution of ongoing business restructuring. Greater than expected input cost could weigh on profit margins.

Equity Research

Company Note - 12 March 2012

Income statement (NGN'm) Year-end: December Revenue EBITDA EBIT Profit before taxation Net profit EPS (NGN) DPS (NGN) Ratios: Net sales growth (%) EBITDA margin (%) Operating margin (%) Interest cover (x) Effective tax rate (%) Dividend payout ratio (x)
Source: Company financials, Stanbic IBTC estimates

FY 08 53,652 10,705 9,175 8,851 6,846 2.65 1.60

FY09 56,605 10,566 8,487 8,077 6,177 2.51 1.04

FY10 52,314 11,030 8,530 7,094 5,451 1.99 1.10

FY11E 61,031 11,986 9,213 13,596 10,469 4.67 1.60

FY12E 65,937 13,288 10,243 9,525 6,858 2.53 1.80

FY13E 77,340 16,101 12,876 11,716 8,787 3.28 2.30

44.4 20.0 17.1 10.0 22.6 60

5.5 18.7 15.0 5.9 23.5 41

(7.6) 21.1 16.3 4.6 23.2 55

16.7 19.6 15.1 4.6 23.0 34

8.0 20.2 15.5 5.1 28.0 71

17.3 20.8 16.6 8.1 25.0 70

Balance sheet (NGN'm) FY 08 Current assets Cash Non current assets Total assets Current liabilities Non-current liabilities Long-term interest bearing debt Minorities interest Shareholders equity Ratios: Debt: Equity (%) Net debt: Equity (gearing) (%) ROA (avg) (%) ROE (avg) (%) Book value per share (NGN)
Source: Company financials, Stanbic IBTC estimates

FY09 37,392 5,531 56,699 94,091 37,478 11,625 6,933 7,477 37,487

FY10 48,548 7,246 53,824 102,372 32,061 24,723 20,512 9,182 36,406

FY11E 53,806 12,866 57,807 111,613 34,031 22,712 18,500 12,182 42,688

FY12E 49,897 7,940 62,180 112,076 34,678 21,045 16,833 14,983 41,370

FY13E 54,672 11,157 66,495 121,167 35,742 16,045 11,833 18,520 50,860

38,032 4,092 57,374 95,406 38,025 11,862 6,879 6,759 38,760

63.8 50.2 7.2 12.4 24.21

53.1 40.5 6.6 10.5 23.42

67.3 50.0 5.3 8.6 22.74

70.9 45.5 9.4 18.9 26.67

65.8 41.1 6.1 9.7 25.84

52.8 32.1 7.3 11.4 31.77

Cash flow statement (NGN'm) FY 08 EBITDA Cash from operating activities Net cash flow from investing activities Cash flow from financing activities Net increase/ (decrease) in cash Free cash flow Ratios: Cash flow per share (NGN) Free cash flow per share (NGN)
Source: Company financials, Stanbic IBTC estimates

FY09 10,566 12,751 (9,909) (1,404) 1,439 2,843

FY10 11,030 7,361 (7,552) 1,906 1,715 (191)

FY11E 11,986 8,383 916 (3,679) 5,620 9,299

FY12E 13,288 10,251 (8,604) (6,573) (4,926) 1,647

FY13E 16,101 12,678 (11,204) 1,743 3,217 1,474

10,705 17,178 (8,117) (10,218) (1,157) 9,061

10.73 7.08

7.97 2.22

4.60 (0.12)

5.24 5.81

6.40 1.03

7.92 0.92

Equity Research

Company Note - 12 March 2012

Income statement (USD'm) Year-end: December Revenue EBITDA EBIT Profit before taxation Net profit EPS (US) DPS (US) Ratios: Net sales growth (%) EBITDA margin (%) Operating margin (%) Interest cover (x) Effective tax rate (%) Dividend payout ratio (x)
Source: Company financials, Stanbic IBTC estimates

FY 08 452.8 90.3 77.4 74.7 58 2.24 1.35

FY09 377.9 70.5 56.7 53.9 41 1.68 0.69

FY10 346.4 73.0 56.5 47.0 36 1.32 0.73

FY11E 396.3 77.8 59.8 88.3 68 3.03 1.04

FY12E 407.8 82.2 63.3 58.9 42 1.57 1.11

FY13E 478.0 99.5 79.6 72.4 54 2.03 1.42

44.4 20.0 17.1 10.0 22.6 60

5.5 18.7 15.0 5.9 23.5 41

(7.6) 21.1 16.3 4.6 23.2 55

16.7 19.6 15.1 4.6 23.0 34

8.0 20.2 15.5 5.1 28.0 71

17.3 20.8 16.6 8.1 25.0 70

Balance sheet (USD'm) FY 08 Current assets Cash Non current assets Total assets Current liabilities Non-current liabilities Long-term interest bearing debt Minorities interest Shareholders equity Ratios: Debt: Equity (%) Net debt: Equity (gearing) (%) ROA (avg) (%) ROE (avg) (%) Book value per share (cents)
Source: Company financials, Stanbic IBTC estimates

FY09 249.6 36.9 378.5 628.1 250.2 77.6 46.3 49.9 250.2

FY10 321.5 48.0 356.5 678.0 212.3 163.7 135.8 60.8 241.1

FY11E 349.4 83.5 375.4 724.8 221.0 147.5 120.1 79.1 277.2

FY12E 308.6 49.1 384.5 693.1 214.5 130.1 104.1 92.7 255.8

FY13E 337.9 69.0 411.0 748.9 220.9 99.2 73.1 114.5 314.3

320.9 34.5 484.2 805.1 320.9 100.1 58.0 57.0 327.1

63.8 50.2 7.2 12.4 20.43

53.1 40.5 6.6 10.5 15.63

67.3 50.0 5.3 8.6 15.06

70.9 45.5 9.4 18.9 17.32

65.8 41.1 6.1 9.7 15.98

52.8 32.1 7.3 11.4 19.64

Cash flow statement (USD'm) FY 08 EBITDA Cash from operating activities Net cash flow from investing activities Cash flow from financing activities Net increase/ (decrease) in cash Free cash flow Ratios: Cash flow per share (cents) Free cash flow per share (cents)
Source: Company financials, Stanbic IBTC estimates

FY09 70.5 85.1 (66.1) (9.4) 9.6 19.0

FY10 73.0 48.7 (50.0) 12.6 11.4 (1.3)

FY11E 77.8 54.4 6.0 (23.9) 36.5 60.4

FY12E 82.2 63.4 (53.2) (40.7) (30.5) 10.2

FY13E 99.5 78.4 (69.2) 10.8 19.9 9.1

90.3 145.0 (68.5) (86.2) (9.8) 76.5

9.06 5.97

5.32 1.48

3.05 (0.08)

3.40 3.77

3.96 0.64

4.90 0.57

Equity Research

Company Note - 12 March 2012

Companies mentioned (Price as of 09 March 2012) UAC of Nigeria plc(UACN NL, NGN29.03, TP: N47.00:BUY) UAC Property Development Company plc (UACPROP, NGN10.49, NGN21.50, TP:BUY) CAP plc (CAP NL, NGN15.88,NGN23.00, TP:BUY) Nigerian Breweries plc (NB NL, NGN98.00,NGN97.00, TP:SELL) Guinness Nigeria plc (GUINNESS NL, NGN230.00,NGN260.00, TP:HOLD) Nestle Nigeria plc (NESTLE NL, NGN441.54,NGN389.00, TP:SELL) Cadbury Nigeria plc (CADBURY NL, NGN10.70, NGN12.90, TP:BUY) PZ Cussons plc (PZ NL, NGN25.00 ,NGN25.50, TP:SELL) Unilever Nigeria plc (UNILEVER NL, NGN29.10 ,NGN33.50, TP:HOLD) PZ Cussons plc (PZ NL, NGN25.00 ,NGN25.50, TP:SELL) Dangote Sugar Refinery (DANGSUGAR NL, N3.80, N5.25, TP:SELL) Honeywell Flour Mills plc (HONEYFLOU NL, NGN2.31,NGN2.25, TP:SELL) Tiger Brands (TBS SJ,R270.20, R210.00, SELL) Great Portland Properties (GPOR LN,3.69, NR) United Industrial Corp (UIC SP, SGD2.76, NR) UOL Group Ltd (UOL SP,SGD4.67, NR) Douja Prom Addoha (ADH MC,MAD72.44, NR) Risesun Real Estate (002146 CH,CNY10.16, NR) Vincom JSC (VIC VN,VND106,000, NR) BR Properties SA (BRPR3 BZ,BRL23.66, NR) Altarea (ALTA FP,125.30, NR) Aldar Properties (ALDAR UH,AED1.34, NR)

Disclosure
Certification The analyst(s) who prepared this research report (denoted by an asterisk*) hereby certifies(y) that: (i) all of the views and opinions expressed in this research report accurately reflect the research analyst's(s') personal views about the subject investment(s) and issuer(s) and (ii) no part of the analysts(s) compensation was, is or will be directly or indirectly related to the specific recommendations or views exp ressed by the analyst(s) in this research report. Rating Definitions Analysts stock ratings are defined as follows*: Buy (B): The stocks total return* is expected to be more than 20% (or more, depending on perceived risk) over the next 12 months. Hold (H): The stocks total return is expected to be in the range of 10-20% over the next 12 months. Sell (S): The stocks total return is expected to be less than 10% over the next 12 months. As of 15 June 2011, Stanbic IBTC Equity Investment Research ratings are based on (1) a stocks absolute/total return potential to its current share price and (2) the relative attractiveness of a stocks total return potential within an analysts coverage universe**, with Buys representing the most attractive, Holds the less attractive, and Sells the least attractive investment opportunities. The frontier share markets like Kenya, Nigeria and Turkey ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors, for these countries a 25% and 15% threshold replace the 20 and 10% level in the Buy and Sell stock rating definitions, respectively, subject to analysts perceived risk. The 25% and 15% thresholds replace the +10 -20% and -10-20% levels in the Hold stock rating definition, respectively, subject to analysts perceived risk. * Total return is calculated as the sum of the stocks expected Capital Appreciation and expected Dividend Yield. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Stanbic IBTC Equity Investment Research policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Stanbic IBTC Equity Investment Researchs and/or Standard Banks Groups engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Prices are valid as at cob 09 March 2012. Frequency of Next Update We plan to update this research when there is next substantial financial news about UAC of Nigeria plc. Conflict of Interest It is the policy of The Standard Bank Group Limited and its worldwide affiliates and subsidiaries (together the Standard Bank Group) that research analysts may not be involved in activities in a way that suggests that he or she is representing the interests of any member of the Standard Bank Group or its clients if this is reasonably likely to appear to be inconsistent with providing independent investment research. In addition research analysts reporting lines are structured so as to avoid any conflict of interests. For exam ple, research analysts cannot be subject to the supervision or control of anyone in the Standard Bank Groups investment banking or sales and trading departme nts. However, such sales and trading departments may trade, as principal, on the basis of the res earch analysts published research. Therefore, the proprietary interests of those sales and trading departments may conflict with your interests.

Equity Research

Company Note - 12 March 2012

Disclosures* Company UAC of Nigeria plc UAC Property Development Company plc (UPDC) Chemical And Allied Products plc (CAP Plc) A. B. C. D. E. F. G. H. I. J. Disclosure D, G D, E D

The analyst is an officer, board member, or director of the Company The company beneficially owns 5% or more of the equity shares of Standard Bank Group as at Dec 2010 Standard CIB beneficially owns 1% or more of the equity shares of the company The Company is a client of Standard CIB Standard CIB has lead managed or co-lead managed a public offering of the securities of the company in the last 12 months Standard CIB has received compensation for investment banking services from the company within the last 12 months Standard CIB expects to receive, or intends to seek, compensation for investment banking services from the company during the next 3 months This research report has been communicated to the Company and following this communication, its conclusion(s) has been amended before its dissemination. Analyst holds long or short personal positions in a class of common equity securities of this company Standard CIB is a market maker or liquidity provider in the financial instruments of the relevant issuer * Disclosures are correct as of 29 February 2012. This report covers UAC of Nigeria plc. All other companies were used for illustrative purposes only. We are not commenting on the investment merit of the securities of these companies. Distribution of Ratings / Investment Banking Relationships Stanbic IBTC Equity Investment Research Rating All Recommendations (%) Recommendations with Banking Relationship (%) Buy 82 91 Hold 4 3 Sell 14 6

Investment

For the period 1 October 2011 to 31 December 2011, Stanbic IBTC Research produced investment ratings on equity securities on 131 occasions, of these 80 had a material investment banking relationship with Standard CIB in the last 12 months. Previous Ratings UACN: We maintained our Buy rating of 1 August 2008, in our reports of 7 November 2008, 20 May 2009, 22 June 2009, 30 July 2009, 27 August 2009, 2 October 2009, 18 November 2009, 24 December 2009 and 12 March 2010. We downgraded the company to a Hold on 7 April 2010, and again to a Sell on 6 September 2010. We maintained this Sell rating on 4 November 2010 and 25 November 2010. We upgraded the stock to a Buy on 25 January 2011, a rating we maintained on 3 March 2011, 7 April 2011, 5 May 2011, 7 June 2011, 20 June 2011, 3 August 2011, 24 September 2011, 11 October 2011 and 31 October 2011 and 02 February 2012.
45

43 41 39 37
35

33 31 29
27 25 Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Risks to our Forecasts Key risks to our valuation of UAC of Nigeria are: (1) increased competition; and (2) poor execution of ongoing business restructuring. Valuation Methodology We arrived at a target price of N47.00 using a relative valuation methodology (sum of the parts).

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Company Note - 12 March 2012

Legal Entities To U. S. Residents Standard New York Securities Inc. is registered with the Securities and Exchange Commission as a broker-dealer and is also a member of the FINRA and SIPC. Standard Americas, Inc is registered as a commodity trading advisor and a commodity pool operator with the CFTC and is also a member of the NFA. Both are affiliates of Standard Bank Plc and Standard Bank of South Africa. Standard New York Securities, Inc is responsible for the dissemination of this research report in the United States. Any recipient of this research in the United States wishing to effect a transaction in any security mentioned herein should do so by contacting Standard New York Securities, Inc. To South African Residents The Standard Bank of South Africa Limited (Reg.No.1962/000738/06) is regulated by the South African Reserve Bank and is an Authorised Financial Services Provider. To U.K. Residents Standard Bank Plc is authorised and regulated by the Financial Services Authority (register number 124823) and is an affiliate of Standard Bank of South Africa. The information contained herein does not apply to, and should not be relied upon by, retail customers. To Turkey Residents Standard Unlu Menkul Degerler A.S. and Standard Unlu Portfoy Yonetimi A.S. are regulated by the Turkish Capital Markets Board (CMB). Under the CMBs legislation, the information, comments and recommendations contained in this report fall outside of the defin ition of investment advisory services. Investment advisory services are provided under an investment advisory agreement between a client and a brokerage house, a portfolio management company, a bank that does not accept deposits or other capital markets professionals. The comments and recommendations contained in this report are based on the personal opinions of the authors. These opinions might not be appropriate for your financial situation and risk and return preferences. For that reason, investment decisions that rely solely on the information contained in this presentation might not meet your expectations. You should pay necessary discernment, attention and care in order not to experience losses. To Singapore Residents Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. Important Regional Disclosures The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (ies) within the past 12 months. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts (denoted by an asterisk*) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts (denoted by an asterisk*) may not be associated persons of Standard New York Securities Inc. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Each analyst (denoted by an asterisk*) is a Non-U.S. Analyst. The analyst is a research analyst employed by Stanbic IBTC, a member of The Standard Bank Group Limited General For the purposes of this report Standard CIB refers to those divisions of Standard Bank Group Limited who are mainly involved in corporate and investment banking business and does not refer exclusively to any particular entities within Standard Bank Group. This research report is based on information from sources that Standard CIB believes to be reliable. Whilst every care has been taken in preparing this document, no research analyst or member of Standard CIB gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy or completeness of the information set out in this document (except with respect to any disclosures relative to members of Standard CIB and the research analysts involvement with any issuer referred to above). All views, opinions and estimates contained in this document may be changed after publication at any time without notice. Past performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors or any particular class of investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Members of Standard CIB may act as placement agent, advisor or lender, make a market in, or may have been a manager or a co-manager of, the most recent public offering in respect of any investments or issuers referenced in this report. Members of Standard CIB and/or their respective directors and employees may own the investments of any of the issuers discussed herein and may sell them to or buy them from customers on a principal basis. This report is intended solely for clients and prospective clients of members of Standard CIB and is not intended for, and may not be relied on by, retail customers or persons to whom this report may not be provided by law. This report is for information purposes only and may not be reproduced or distributed to any other person without the prior consent of a member of Standard CIB. Unauthorised use or disclosure of this document is strictly prohibited. By accepting this document, you agree to be bound by the foregoing limitations. Copyright 2012 Standard Bank Group Limited. All rights reserved. AG/NER/01812.

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