DANGOTE FLOUR MILLS PLC - Regency Assets ...

THIS DOCUMENT IS IMPORTANT AND SHOULD BE READ CAREFULLY. If you are in any doubt about its contents or the action to be taken, please consult your Stockbroker, Banker, Accountant, Solicitor or any other professional adviser for guidance immediately.

“For information concerning certain risk factors which should be considered by prospective investors, see ‘risk factors’ commencing from page 22”

DANGOTE FLOUR MILLS PLC

Initial Public Offering

By way of an Offer for Sale of

1,250,000,000 ORDINARY SHARES OF 50 KOBO EACH

AT N15.00 PER SHARE

PAYABLE IN FULL ON APPLICATION

JOINT ISSUING HOUSES:

Application List opens on Thursday, 6th September, 2007 Application List closes on Thursday, 27th September, 2007

This Prospectus and the securities which it offers have been registered by the Securities & Exchange Commission. The Investments and Securities Act Cap I24 LFN 2004 provides for civil and criminal liabilities for the issue of a Prospectus that contains false or misleading information. Clearance and registration of this Prospectus and the securities which it offers do not relieve the parties from any liability arising under the Act for false and misleading statements contained therein or for any omission of a material fact.

This Prospectus is dated 29th August, 2007

FCMB CAPITAL MARKETS LIMITED A MEMBER OF THE FIRST CITY GROUP

RC 446561 RC 639491

RC 125384 RC 161996 RC 217005

RC 189502 RC 444999

RC 501757

2

TABLE OF CONTENTS

PAGE

DEFINITIONS 3

ABRIDGED TIMETABLE 4

SUMMARY OF THE OFFER 5

THE OFFER 9

DIRECTORS & OTHER PARTIES TO THE OFFER 10 1. THE CHAIRMAN’S LETTER 14 1.1 History of the Company 14

1.2 Business 15 1.3 Board of Directors 24

1.4 Management and Staff 26 1.5 Premises 27 1.6 Purpose of the Offer 27

1.7 Working Capital, Profit and Dividend Forecasts 28 1.8 Unclaimed Dividends 28

1.9 Corporate Governance 28 1.10 Research and Development 29

1.11 Mergers and Takeovers 29 1.12 Future Plans 29

2. PROFIT FORECAST 30 2.1 Letter from the Reporting Accountants 30 2.2 Profit Forecast for the Years ending 31st December 2007, 2008, 2009, 2010 and 2011 32 2.3 Bases and Assumptions 33 2.4 Letter from the Reporting Accountants in respect of DFM’s Going Concern Status 35 2.5 Letter from the Issuing Houses 36

3. HISTORICAL FINANCIAL INFORMATION 38 3.1 Historical Financial Information on Dangote Flour Mills Plc 38 3.1.1 Letter from the Reporting Accountants 38 3.1.2 Statement of Accounting Policies 40 3.1.3 Profit and Loss Account 41 3.1.4 Balance Sheet 42 3.1.5 Cash Flow Statement 43 3.1.6 Notes to the Financial Statements 44 3.2 Historical Financial Information on Dangote Pasta Plc (now Dangote Pasta Limited) 48 3.2.1 Letter from the Reporting Accountants 48 3.2.2 Statement of Accounting Policies 50 3.2.3 Profit and Loss Account 52 3.2.4 Balance Sheet 53 3.2.5 Cash Flow Statement 54 3.2.6 Notes to the Financial Statements 55 3.3 Historical Financial Information on Dangote Agro Sacks Limited 59 3.3.1 Letter from the Reporting Accountants 59 3.3.2 Statement of Accounting Policies 61 3.3.3 Profit and Loss Account 62 3.3.4 Balance Sheet 63 3.3.5 Cash Flow Statement 64 3.3.6 Notes to the Financial Statements 65

4. STATUTORY AND GENERAL INFORMATION 69 4.1 Incorporation and Share Capital History 69 4.2 Shareholding Structure 69 4.3 Directors’ Beneficial Interests 69 4.4 Indebtedness 69 4.5 Subsidiaries and Associated Companies 69 4.6 Off Balance Sheet Items 69 4.7 Extracts from the Memorandum & Articles of Association 70 4.8 Claims and Litigation 81 4.9 Material Contracts 81 4.10 Costs and Expenses 82 4.11 Declaration 82 4.12 Consents 83 4.13 Documents available for Inspection 84 4.14 Relationship between the Issuer and its Advisers 85 4.15 Related party transaction 85 4.16 Compliance with code of Corporate Governance 85

5 CONSOLIDATED FINANCIAL INFORMATION 86

5.1 Letter from the Reporting Accountants 87 5.2 Consolidated Balance Sheet for Dangote Flour Mills, Dangote Pasta Limited and Dangote Agro Sacks Limited 89 5.3 Consolidated Profit and Loss Account for Dangote Flour Mills, Dangote Pasta Limited and Dangote Agro Sacks Limited 90 5.4 Consolidated Cash Flow Statements for Dangote Flour Mills, Dangote Pasta Limited and Dangote Agro Sacks Limited 91 5.5 Notes to the Consolidated Statements 93 PROCEDURE FOR APPLICATION AND ALLOTMENT 94

RECEIVING AGENTS 95 APPLICATION FORM 96

INSTRUCTIONS FOR COMPLETING THE APPLICATION FORM 97

3

DEFINITIONS OF TERMS

1. “Access Bank” Access Bank Plc

2. “CAC” Corporate Affairs Commission

3. “CAGR” Compound Annual Growth Rate

4. “CAPEX” Capital Expenditure

5. “CSCS” Central Securities Clearing Systems Limited

6. “Dangote Agro Sacks” or “DAS” Dangote Agro Sacks Limited

7. “Dangote Flour” or “DFM” or “Dangote Flour Group” “the Company”

Dangote Flour Mills Plc

8. “Dangote Pasta” or “DP” Dangote Pasta Limited

9. “Dangote Noodles” or “DN” Noodles division of Dangote Flour Mills Plc

10. “Diamond Bank” Diamond Bank Plc

11. “DIL” Dangote Industries Limited

12. “DPS” Dividend Per Share

13. “EBITDA” Earnings Before Interest, Taxes, Depreciation and Amortisation

14. “ECOWAS” Economic Community of West African States

15. “EGM” Extra-Ordinary General Meeting

16. “EPS” Earnings Per Share

17. “EU” European Union

18 “FCMB-CM” FCMB Capital Markets Limited

19. “FGN” Federal Government of Nigeria

20. “Fidelity Bank” Fidelity Bank Plc

21. “FMAN” Flour Millers Association of Nigeria

22. “FutureView” FutureView Financial Services Limited

23. “GDP” Gross Domestic Product

24. “Greenwich Trust” Greenwich Trust Limited

25. “GTBank” Guaranty Trust Bank Plc

26. “HDI” Household Disposable Income per capita

27. “IBTC” IBTC Chartered Bank Plc

28. “ICML” Intercontinental Capital Markets Limited

29. “ISO” International Standards Organisation

30. “JIH” Joint Issuing Houses

31. “LFN” Laws of the Federation of Nigeria

32. “MT” Metric Tons

33. “NAFDAC” National Agency for Food, Drug Administration and Control

34. “Oceanic Registrars” Oceanic Registrars Limited

35. “PAT” Profit After Tax

36. “PBT” Profit Before Taxation

37. “PHCN” Power Holding Company of Nigeria

38. “SEC” or “the Commission” Securities & Exchange Commission

39 “SON” Standards Organisation of Nigeria

40. “The NSE” or “The Exchange” The Nigerian Stock Exchange

41. “The Offer” or “IPO” Offer for Sale of 1,250,000,000 Ordinary Shares of 50 kobo each in Dangote Flour Mills Plc at N15 per share

42. “UBAGM” UBA Global Markets Limited

43. “Zenith” Zenith Capital Limited

4

ABRIDGED TIMETABLE

DATE ACTIVITY RESPONSIBILITY 6th September, 2007 Application List opens Joint Issuing Houses

27th September, 2007

Application List closes Joint Issuing Houses

11th October, 2007 Receiving Agents to forward returns Joint Issuing Houses / Registrars

1st November, 2007 Forward allotment proposal and draft newspaper advertisement to SEC

Joint Issuing Houses

15th November, 2007 Receive SEC clearance of proposed basis of allotment


16th November, 2007 Remit net proceeds of the Offer to DIL Receiving Banks/Underwriters

20th November, 2007 Publish basis of allotment in dailies Joint Issuing Houses

22nd November, 2007 Return surplus / rejected application monies Registrars

29th November, 2007 Dispatch share certificates Registrars

3rd December, 2007 Forward Declaration of Compliance to The NSE

Stockbrokers / Joint Issuing Houses

5th December, 2007 Listing of Dangote Flour Mills Plc shares and trading commences

Stockbrokers / Joint Issuing Houses

13th December, 2007 Submission of summary report of the Offer to SEC


5

SUMMARY OF THE OFFER

The following information should be read in conjunction with the full text of this Prospectus, from which it is derived:

1. ISSUER: Dangote Flour Mills Plc

2. OFFEROR: Dangote Industries Limited

3. ISSUING HOUSES: FCMB Capital Markets Limited Zenith Capital Limited Access Bank Plc Diamond Bank Plc Fidelity Bank Plc Futureview Financial Services Limited Greenwich Trust Limited Guaranty Trust Bank Plc IBTC Chartered Bank Plc Intercontinental Capital Markets Limited UBA Global Markets Limited

4. SHARE CAPITAL: Authorised: N3,000,000,000.00 comprising 6,000,000,000 Ordinary shares of 50 kobo

each

Issued and fully paid: N2,500,000,000.00 comprising 5,000,000,000 Ordinary shares of 50 kobo each

5. METHOD OF OFFER: Offer for Sale

6. PURPOSE: The Offer is being undertaken to give investors an opportunity to become part owners of DFM, which is currently a wholly owned subsidiary of Dangote Industries Limited. The IPO will also avail the Company the opportunity to meet the requirements for a listing on The Nigerian Stock Exchange.

7. UNITS OF SALE Minimum of 1,000 Ordinary shares and multiples of 100 Ordinary Shares thereafter

8. OFFER PRICE: N15.00 per share

9. OFFER SIZE: N18,750,000,000

10. MARKET CAPITALISATION AT OFFER PRICE:

N75,000,000,000

11. PAYMENT: In full on application

12. PREFERENTIAL ALLOTMENT: A maximum of 750,000,000, representing 60% of the Offer, will be preferentially allotted to identified investors

13. UNDERWRITING: The Offer is 80% underwritten by the Joint Underwriters on a firm basis, with each of the 11 (Eleven) Underwriters committing N1,363, 636,363.34.

14. OPENING DATE: Thursday, 6th September, 2007

15. CLOSING DATE: Thursday, 27th September, 2007

16. QUOTATION: An application has been made to The Council of The Nigerian Stock Exchange for the admission to its Daily Official List of, the entire issued and paid-up share capital of Dangote Flour

17. STATUS: The shares being offered shall rank pari passu in all respects with the other existing issued Ordinary Shares of the Company, and shall qualify for any dividend that may be declared for the year ending 31st December, 2007

6

SUMMARY OF THE OFFER (Cont’d)

18. FINANCIAL SUMMARY: (Extracted from the Reporting Accountants’ Report) Dangote Flour Mills Plc.

PRE- SCHEME OF ARRANGEMENT

<--DANGOTE FLOUR DIVISION - SEGMENTAL FINANCIAL SUMMARY-->

For the years ended 31 December 2006 2005 2004 2003 2002

N'000 N'000 N'000 N'000 N'000

Turnover

35,672,696 34,017,095

31,194,184

22,403,243

11,468,685

Profit before taxation

721,983

(569,296)

1,600,925

2,839,290

2,173,927

Profit after taxation

721,983

(569,296)

1,600,925

2,833,801

2,173,927

Dividends

-

-

-

-

-

Shareholders' funds

14,153,520 13,431,537

14,000,833

12,399,908

6,098,567

Total Assets

27,348,831 33,870,168

21,411,491

15,805,192

14,413,360

Adjusted earning per share (kobo)

14.44 -

32.02

56.68

43.48

Dangote Pasta Ltd.

PRE- SCHEME OF ARRANGEMENT <--DANGOTE PASTA DIVISION - SEGMENTAL FINANCIAL SUMMARY-->

For the years ended 31 December 2006 2005 2004 2003 2002

N'000 N'000 N'000 N'000 N'000

Turnover 6,575,183 6,737,620 4,677,634 2,510,935 1,270,858

Profit before taxation 646,426 227,804 139,772 104,998 2,370

Profit after taxation 646,426 227,804 139,772 104,998 2,370

Dividends - - - - -

Shareholders' funds 2,872,471 2,226,046 1,998,242 1,858,470 (116,052)

Total Assets 16,436,850 2,973,806 2,367,991 3,860,271 72,024

Adjusted earning per share (kobo) 12.93 4.56 2.80 2.10 0.05

Dangote Agro Sacks Ltd.

For the years ended 31-Dec 31-Dec 31-Mar 31-Mar 31-Mar 31-Mar

2006 2005 2005 2004 2003 2002

N'000 N'000 N'000 N'000 N'000 N'000

Turnover 5,974,636 3,668,399 3,907,145 3,286,535 2,411,006 1,837,197

Profit before taxation 873,584 968,949 497,158 645,829 673,138 (109,065)

Profit after taxation 742,546 968,949 497,158 645,829 673,138 (109,065)

Dividends - - - - - -

Shareholders' funds 4,385,271 3,642,725 2,671,824 1,623,984 978,155 245,017

Total Assets 10,662,624 10,544,470 8,520,941 7,785,064 4,885,431 2,671,269

Adjusted earning per share (kobo) 14.85 19.38 9.94 12.92 13.46 (2.18)

7


(Extracted from the Reporting Accountants’ Report) Proforma Consolidated Historical Financial Summary of Dangote Flour group Dangote Flour Mills Plc.

For the years ended 31 December 2006 2005

N’000 N’000

Turnover 48,222,515 44,423,114

Profit before taxation 2,241,993 627,457

Profit after taxation 2,110,955 627,457

Dividends - -

Shareholders' funds 21,411,262 19,300,308

Total Assets 54,448,305 47,388,444

Adjusted earning per share (kobo)* 42 24 * Calculation of adjusted earnings per share is based on the issued and paid-up capital of N2.5 billion comprising 5 billion Ordinary Shares of

50 kobo each as at the date of this Prospectus.

19. FORECAST OFFER STATISTICS: (Extracted from the Reporting Accountants’ Report)

Year ending 31 December 2007 2008 2009 2010 2011 N’000 N’000 N’000 N’000 N’000

Turnover 57,272,722 93,181,773 131,962,735 159,915,120 172,142,470 Profit before interest, tax and depreciation 4,637,353 10,975,965 14,709,362 19,660,538 22,093,390

Taxation (918,707) (2,491,294) (3,407,447) (4,596,532) (5,199,672)

Profit After taxation 2,744,228 7,432,841 10,171,138 13,721,881 15,519,835

Dividend (2,000,000) (6,000,000) (7,500,000) (10,000,000) (12,500,000)

Retained profit for the year 744,228 1,432,841 2,671,138 3,721,881 3,019,835

Forecast Ratios

Forecast earnings per 50 kobo share (kobo) 55 149 203 274 310

Forecast earnings yield at offer price (%) 3.66 9.91 13.56 18.30 20.69

Forecast EBITDA per 50 kobo share (kobo) 93 220 294 393 442

Forecast dividend per 50 kobo share (kobo) 40 120 150 200 250

Forecast dividend yield at offer price (%) 2.67 8 10 13.33 16.67

Forecast price/earnings ratio at offer price 27.33 10.09 7.37 5.47 4.83

* Calculations of forecast EBITDA, earnings and dividend per share for the years ending 31 December 2007, 2008, 2009, 2010 and 2011 are based on the 5 billion Ordinary Shares of 50 kobo each expected to be in issue on those dates.

8


20. CORPORATE DIRECTORY: Dangote Flour Mills Plc currently operates from its corporate office, four

factories located in Apapa, Calabar, Kano and Ilorin, one pasta plant in Ikorodu and two sack manufacturing plants in Lagos and Adamawa States.

Head Office: 8, Rycroft Road

Apapa Lagos Tel: +234 1 2702202, 2712204 ; Fax: +234 1 2712205, 2712206

Factories: Shed 20

Apapa Port Apapa Wharf Lagos State Tel: +234 1 5803783; Fax: +234 1 5803781, 5804424

Sharada Industrial Estate Phase III Kano State

NPA Calabar Complex Calabar Cross River State

Asa Dam Road Ilorin Kwara State

21. GROUP STRUCTURE: Dangote Flour Mills Plc has two subsidiaries, Dangote Pasta Limited and Dangote Agro Sacks Limited as well as a Noodles division. DFM is currently 99.35% owned by DIL and operated as a division of DIL until January, 2006, when it was spun-off via a Scheme of Arrangement. DIL’s shareholding is expected to reduce to 74.35% at the conclusion of the IPO.

22. CLAIMS AND LITIGATIONS: As at 31st December, 2006, DFM in its ordinary course of business was involved in 2 cases.

23. INDEBTEDNESS: As at 31st December, 2006, the Company had secured bank over drafts in the ordinary course of business amounting to N2,003 billion. However, the Company had no outstanding debenture, mortgages, charges or similar indebtedness or contingent liabilities as at the referenced date.

24. SHARE CERTIFICATES: Share certificates in respect of shares allotted will be sent by registered post not later than 15 working days from the date of allotment. Any investor who does not want to receive a physical share certificate, should state the name of his/her stockbroker and his/her CSCS account number in the space provided on the Application Form.

Three Operating Platforms

Dangote Flour Mills Plc Product Portfolio: Flour, Semolina, Wheat Offals, Noodles

Dangote Pasta Limited Spaghetti and Macaroni

Dangote Agro Sacks Ltd. Polypropylene bags and Praying Mats

Dangote Industries Limited Product Portfolio: Cement, Sugar, Flour, Salt etc

9

THE OFFER A copy of this Prospectus and the documents specified herein has been delivered to the Securities & Exchange Commission for clearance and registration. This prospectus is being issued in compliance with the provisions of the Investments and Securities Act Cap I24 LFN 2004, the Rules and Regulations of the Commission and the listing requirements of The Exchange and contains particulars in compliance with the requirements of the Commission and The Exchange, for the purpose of giving information to the public with regard to the Initial Public Offering of 1,250,000,000 Ordinary Shares of Dangote Flour Mills Plc by FCMB Capital Markets Limited, Zenith Capital Limited, Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc, FutureView Financial Services Limited, Greenwich Trust Limited, Guaranty Trust Bank Plc, IBTC Chartered Bank Plc, Intercontinental Capital Markets Limited and UBA Global Markets Limited. An application has been made to The Council of The Exchange for the admission to its Daily Official List of the whole of the Company’s paid-up share capital. The Directors of Dangote Flour individually and collectively accept fully, responsibility for the accuracy of the information contained in this Prospectus. The Directors have taken reasonable care to ensure that the facts contained herein are true and accurate in all respects and confirm, having made all reasonable enquiries that to the best of their knowledge and belief, there are no material facts, the omission of which would make any statement herein misleading or untrue. FCMB CAPITAL MARKETS LIMITED ZENITH CAPITAL LIMITED

ACCESS BANK PLC DIAMOND BANK PLC FIDELITY BANK PLC

FUTUREVIEW FINANCIAL SERVICES LIMITED GREENWICH TRUST LIMITED GUARANTY TRUST BANK PLC IBTC CHARTERED BANK PLC

INTERCONTINENTAL CAPITAL MARKETS LIMITED UBA GLOBAL MARKETS LIMITED

On behalf of

DANGOTE INDUSTRIES LIMITED Offer for Sale

and are authorized to receive applications for

1,250,000,000 Ordinary Shares of 50 Kobo each at N15 per Share in DANGOTE FLOUR MILLS PLC Payable in full on application

The Application List for the shares now being offered will open on Thursday, 6th September, 2007 and close on Thursday, 27th September, 2007 SHARE CAPITAL AND RESERVES OF THE COMPANY AS AT 31st DECEMBER 2006: (EXTRACTED FROM THE REPORTING ACCOUNTANT’S REPORT) N’000 AUTHORISED* 3 billion Ordinary Shares of 50 kobo each 1,500,000 ISSUED AND FULLY PAID* 3 billion Ordinary Shares of 50 kobo each 1,500,000 EQUITY Called-up share capital 1,500,000 Share premium 11,931,537 Revenue reserve 721,983 SHAREHOLDERS’FUNDS 14,153,520

* At an Extra-Ordinary General Meeting held on 21st May 2007, the authorised share capital was increased from N1.5 billion to N3 billion and the issued share capital was increased from N1.5 billion to N2.5 billion through the allotment of 250 million shares to existing shareholders via a bonus issue, 1.05 billion shares to the former shareholders of Dangote Agro Sacks as consideration for 99% acquisition of DAS by DFM and 700 million shares to the former shareholders of Dangote Pasta as consideration for 99% acquisition of DP by DFM.

RC 125097

RC 103022

RC 428270

RC 71242

RC 125384

RC 446561

RC 152321

RC 161996

RC 639491

RC 189502 RC 217005

RC 444999

RC 501757

10

DIRECTORS, SECRETARY AND OTHER PARTIES TO THE OFFER

DIRECTORS: Alhaji Aliko Dangote CON (Chairman) 4, Karimu Kotun Street Victoria Island Lagos

JOINT ISSUING HOUSES: FCMB Capital Markets Limited Primrose Tower (4th floor) 17A, Tinubu Street Lagos

Mr. Michael Zetzsche (German) – Managing Director/CEO 8, Rycroft Road Off Liverpool Road Apapa Lagos

Zenith Capital Limited Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island Lagos

Alhaji Ahmed Yakassai – Executive Director 8, Rycroft Road Off Liverpool Road Apapa Lagos

Access Bank Plc Plot 1665, Oyin Jolayemi Street Victoria Island Lagos

Mr. Olakunle Alake Marble House 1, Alfred Rewane Street Falomo, Ikoyi Lagos

Diamond Bank Plc Plot 1261, Adeola Hopewell Street Victoria Island Lagos

Alhaji Abdu Dantata Marble House 1, Alfred Rewane Street Falomo, Ikoyi Lagos

Fidelity Bank Plc Fidelity Place 2, Kofo Abayomi Street Victoria Island Lagos

Alhaji Sani Dangote Plot 245, Muri Okunola Street Victoria Island Lagos

FutureView Financial Services Limited Plot 161D, Aufu Taylor Close Off Idejo Street Off Adeola Odeku Street Victoria Island Lagos

Mr. Asue Ighodalo 98, Awolowo Road S.W. Ikoyi Lagos

Greenwich Trust Limited Plot 1698A, Oyin Jolayemi Street Victoria Island Lagos

Alhaji Abdullahi Sarki Mahmoud 4, Lodge Road Kano

Guaranty Trust Bank Plc Plural House Plot 1669, Oyin Jolayemi Street Victoria Island Lagos

Mr. Uzoma Nwankwo Marble House 1, Alfred Rewane Street Falomo, Ikoyi Lagos

IBTC Chartered Bank Plc I.B.T.C. Place Walter Carrington Crescent Victoria Island Lagos

Brig. Gen. Teidi (rtd.) 266, Etim Inyang Crescent Victoria Island Lagos

Intercontinental Capital Markets Limited Wesley House 20/22, Marina Lagos

Company Secretary/Registered Office: Mr. Hamis Bashir 8, Rycroft Road Apapa Lagos

UBA Global Markets Limited UBA House (11th floor) 57, Marina Lagos

11


AUDITORS Akintola Williams Deloitte Akintola Williams Deloitte House 235, Ikorodu Road Ilupeju Lagos

JOINT STOCKBROKERS: Camry Securities Ltd Wesley House Annex 21/22, Marina Lagos

REPORTING ACCOUNTANTS Ahmed Zakari & Co (Chartered Accountants) 5th Floor African Alliance Building F1, Sani Abacha Way Kano

Capital Assets Limited Bookshop House (8th Floor) 50/52, Broad Street Lagos

SOLICITORS TO THE COMPANY Babalakin & Co 9th – 12th Floors 43A, Afribank Street Victoria Island Lagos

Cowry Asset Management Limited Plot 1319, Karimu Kotun Street Victoria Island Lagos

SOLICITORS TO THE OFFER Olaniwun Ajayi UBA House (4th Floor) 57, Marina Lagos

CSL Securities Limited Primrose Tower 17A, Tinubu Street Lagos

REGISTRARS Oceanic Registrars Limited 226, Awolowo Road Ikoyi Lagos

De Canon Investment Limited Wesley House (4th Floor) 21/22, Marina Lagos

JOINT STOCKBROKERS: Nova Finance & Securities Ltd Speedway House (1st Floor) 21, Araromi Street Off Macarthy Street Onikan, Lagos

Dominion Trust Limited Dominion House 207, Igbosere Road Lagos

Afrinvest (West Africa) Limited 11th & 12th Floors Foreshore Towers 2A, Osborne Road Ikoyi Lagos

ESL Securities Limited Cowrie House (3rd Floor) 27/29, Adeyemo Alakija Street Victoria Island Lagos

Anchoria Investment & Securities Limited 112, Lewis Street Lagos Island Lagos

Enterprise Stockbrokers Plc 18, Ramat Crescent Ogudu G.R.A. Lagos

BGL Securities Limited Plot 1061, Abagbon Close Off Adeola Odeku Street Victoria Island Lagos

Equity Capital Solutions Limited Kingsway Building 51/52, Marina Lagos

12


JOINT STOCKBROKERS: Finmal Finance Services Limited 10, Ijora Causeway Ijora Lagos

JOINT STOCKBROKERS: Resort Securities & Trust Limited Resort House 12, Boyle Street Onikan Lagos

IBTC Asset Management Limited I.B.T.C. Place Walter Carrington Crescent Victoria Island Lagos

Santrust Securities Limited 28, Beckley Street (4th Floor) Onikan Lagos

Intercontinental Securities Limited 16th floor Bull Plaza 38/39, Marina, Lagos

SMADAC Securities Limited Kingsway Building (2nd Floor) 51/52, Marina Lagos

International Standard Securities Limited 144A, Association Road Dolphin Estate Ikoyi Lagos

Tiddo Securities Limited Church House (6th Floor) 29, Marina Lagos

Lambeth Trust & Investment Company 4/6, Mobolaji Bank Anthony Street Lagos Island Lagos

Unex Securities & Investment Limited 3, Biaduo Street Off Keffi Street South West, Ikoyi Lagos

Lead Capital Limited Plot 281, Ajose Adeogun Street Victoria Island Lagos

Valueline Securities & Investments Limited 3rd Floor 21/25, Broad Street Lagos

Marina Securities Limited 45, Saka Tinubu Street Victoria Island Lagos

Vetiva Capital Management Limited Plot 266B, Kofo Abayomi Street Victoria Island Lagos

Nigerian Stockbrokers Limited 24, Campbell Street Lagos

Zenith Securities Limited Zenith Heights (4th Floor) Plot 87, Ajose Adeogun Street Victoria Island Lagos

Partnership Investment Co. Limited 37, Ademola Street South West, Ikoyi Lagos

13


JOINT UNDERWRITERS: First City Monument Bank Plc Primrose Tower 17A, Tinubu Street Lagos

JOINT RECEIVING BANKS: First City Monument Bank Plc Primrose Tower 17A, Tinubu Street Lagos

Zenith Bank Plc Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island Lagos

Zenith Bank Plc Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island Lagos






Ecobank Nigeria Plc Plot 21, Ahmadu Bello way Victoria Island Lagos

FutureView Financial Services Limited Plot 161D, Aufu Taylor Close Off Idejo Street Off Adeola Odeku Street Victoria Island Lagos


Greenwich Trust Limited Plot 1698A, Oyin Jolayemi Street Victoria Island Lagos



IBTC Chartered Bank Plc I.B.T.C Place Walter Carrington Crescent Victoria Island Lagos

IBTC Chartered Bank Plc I.B.T.C Place Walter Carrington Crescent Victoria Island Lagos

Intercontinental Bank Plc Intercontinental Plaza Plot 999C, Danmole Street Victoria Island Lagos

Intercontinental Capital Markets Limited Wesley House 20/22, Marina Lagos

United Bank for Africa Plc UBA House 57, Marina Lagos

UBA Global Markets Limited UBA House (11th floor) 57, Marina Lagos

14

THE CHAIRMAN’S LETTER The following is the text of a letter from Alhaji Aliko Dangote, C.O.N on behalf of the Board of Directors of Dangote Flour Mills Plc.

28th August, 2007

The Directors FCMB Capital Markets Limited Primrose Tower (4th floor) 17A, Tinubu Street Lagos

The Directors Zenith Capital Limited Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island, Lagos

The Directors Access Bank Plc Plot 1665, Oyin Jolayemi Street Victoria Island Lagos

And And And

The Directors Diamond Bank Plc Plot 1261, Adeola Hopewell Street Victoria Island Lagos

The Directors Greenwich Trust Limited Plot 1698A, Oyin Jolayemi Street Victoria Island Lagos

The Directors Guaranty Trust Bank Plc Plural House Plot 1669, Oyin Jolayemi Street Victoria Island Lagos

And And And

The Directors Fidelity Bank Plc Fidelity Place 2, Kofo Abayomi Street Victoria Island Lagos

The Directors FutureView Financial Services Limited Plot 161D, Aufu Taylor Close off Idejo Road off Adeola Odeku Street Victoria Island Lagos

The Directors IBTC Chartered Bank Plc I.B.T.C. Place Walter Carrington Crescent Victoria Island Lagos

And And

The Directors Intercontinental Capital Markets Ltd Wesley House 21/22, Marina Lagos

The Directors UBA Global Markets Limited UBA House (11th floor) 57, Marina Lagos

Dear Sirs,

DANGOTE FLOUR MILLS PLC OFFER FOR SALE OF 1,250,000,000 ORDINARY SHARES OF 50 KOBO EACH AT N15 PER SHARE

On behalf of the Directors of Dangote Flour Mills Plc and in line with the resolutions passed at the Company’s Annual General Meeting held on 16th June, 2007, I am pleased to provide the following information relating to the Offer for Sale of 1,250,000,000 Ordinary shares of 50 kobo each at N15 per share, which you are making on our behalf:

1.1 HISTORY

Dangote Flour Mills Plc commenced operations in 1999, as a division of Dangote Industries Limited – one of Nigeria’s largest and fastest growing conglomerates. Following the strategic decision of DIL to unbundle its various operations, Dangote Flour Mills Plc was incorporated in 2006. The restructuring was completed in January, 2006, when the Federal High Court sanctioned a Scheme of Arrangement wherein all the assets, liabilities and undertakings of the erstwhile flour division of DIL was transferred to Dangote Flour Mills Plc.

15

THE CHAIRMAN’S LETTER (Cont’d)

From an initial installed capacity of 500 MT per day at its Apapa mill, Dangote Flour has expanded rapidly by opening, in quick successions, three other flour mills in Kano (2000), Calabar (2001) and Ilorin (2005). Each of the mills started with an installed capacity of 500 MT per day but three of them were subsequently expanded resulting in a total installed capacity of 4,000 MT per day, distributed as follows:

• Apapa - 1,000 MT per day

• Kano - 1,500 MT per day

• Calabar - 1,000 MT per day

• Ilorin - 500 MT per day

These expansions were in response to a growing national demand for flour and flour-based products in addition to the Company’s drive for increased market share. Thus from a modest beginning, the Company has grown to become one of the industry leaders within a six year period. The Company has 2 wholly owned subsidiaries, namely:

i. Dangote Agro Sacks Limited; and, ii. Dangote Pasta Limited.

In line with DIL’s business philosophy of establishing a dominant presence in any sector it operates in, these subsidiaries occupy leadership positions in their respective industries.

1.2 Business

The Company is in the business of flour milling, processing and marketing of branded flour. Its product portfolio comprises of the following:

i. Bread Flour;

ii. Pasta Semolina; and, iii. Wheat Offals (Brans).

Flour Milling Technology and Process Technology In order to transform wheat into high-quality flour, the deployment of state-of-the-art plant and equipment as well as technical expertise is critical. DFM’s mills across the country are equipped with the latest flour milling technology available in the world. All mills were purchased, installed and commissioned by world-renowned milling equipment supplier- The Buhler Group of Switzerland (“Buhler”). Buhler is the market leader in the provision of cutting-edge process technology and advanced engineering specifically designed to meet customer requirements. They also provide after-sale consultancy and support services in the areas of training of designated DFM staff, plant maintenance as well as the provision of genuine spare parts and machine upgrades. Buhler products are reliable, safe, and easy to maintain. They are designed and built in compliance with all international operating standards including ISO-certification.

Product and Processes

The Company imports its principal raw material, wheat (the Hard Red Winter Wheat No. 2 variety) from United States of America (highly regarded as producers of the best quality of wheat in the world) in shiploads of about 35,000 Metric Tonnes each. The wheat is discharged from the ship through a conveyor into Dangote-owned port silos at the factory strategically located at the Lagos port. Wheat Silo Trucks (also DIL-owned) thereafter convey the wheat to the inland mills in Kano and Ilorin.

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Wheat Cleaning: Before milling starts, the wheat is tested for protein content and other characteristics and graded into various categories. It is then cleaned to remove foreign materials such as stones, dust and weed seeds. A number of grades are usually then blended together to produce the desired type of flour. Soft, low protein wheat is most suitable for biscuit flour, while flour for bread making is usually made from the harder, higher protein wheat variety.

Wheat Conditioning or Tempering: Water is added to the wheat blend in a process called conditioning or tempering. The amount of water added is usually between 4-6%, depending on the initial moisture content of the grain and the type of wheat being milled. The wheat is then allowed to lie in the conditioning bins for between 10 and 24 hours. The bran layers are toughened by the addition of water, thus minimising shattering during milling and making the endosperm more friable (crumbly), such that less energy is required to grind the wheat into flour.

Flour Milling: The flour milling process is designed to

a) Open up each wheat grain and scrape off the endosperm.

b) Remove the branny particles from the endosperm.

c) Grind the endosperm into flour.

d) Sift the ground stock.

i. to remove any oversized endosperm particles that need further grinding;

ii. to extract bran and germ particles that have escaped the action of purifiers; and,

iii. to remove flour produced at each stage as soon as possible.

Grinding involves shearing open the wheat grain and scraping the endosperm away from the bran skin and reducing the particle size of the released endosperm until it is fine enough to be classified as flour.

The three (3) main grinding operations are:

a) The Break System: The aim of the break system is to achieve maximum release of endosperm particles as semolina and middling with minimal disintegration of the wheat skin or bran.

b) The Scratch System: Removes any small pieces of bran and germ sticking to the endosperm. In most cases, bran finisher is installed after later break rolls to dust off the remaining adhesive endosperm to the bran in order to increase the total extraction of flour.

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c) The Reduction system: Grinds the endosperm into flour of the necessary fineness, while controlling damage to the starch granules.

The purpose of the 'break' system is to break open the wheat grains to release semolina particles and leave bran in the largest particle size possible, thus minimising bran contamination in the semolina. The granular stocks produced are predominantly semolina interspersed with bran particles. Some flour is produced at this time. The main production of fine flour however, comes from the later reduction stage. To purify the mixed granular stocks of semolina and bran coming from the break system, they are passed through the purification system. A purifier is essentially a long rectangular machine with oscillating sieves through which a current of air is drawn. Semolina stock is conveyed along the length of sieves and the shaking motion, together with the upward current of air, causes the stock to stratify. The lighter bran fragments are floated above a layer of pure semolina, which gradually passes through the sieves. The bran fragments pass over to the end of the sieves.

The particles of purified semolina are then crushed to fine flour by the 'reduction' system. This is comprised of roller mills fitted with smooth rolls operating at slightly different speeds. Flour is removed by sifting the ground stock over fine mesh nylon screens. Coarse mesh sieves separate the bran flakes. The size of any intermediate product is gradually reduced by subjecting it to repeated roll and sifting treatments. Up to eight to twelve passages may be employed as required.

Stock failing to pass through the flour sieves at the completion of the reduction system becomes offal (pollard), as does the course material (bran) rejected at the termination of the break system.

All the mill products, including flour (75%), semolina (3%) and bran (22%) are either bagged or stored in bulk bins. Flour is normally stored for at least three days before being delivered to bakeries and food processing factories. The ageing process has a beneficial effect on the flour for most purposes.

Mill Management and Process Control: Buhler Automation has designed and produced electrical control systems for operating our plant and equipment. Automation has made work easier, making sure everything runs smoothly with minimum maintenance and manpower. The milling process is constantly checked and controlled, ensuring that the parameters are in accord with set standards. Samples are taken at all stages of production (hourly) and an in-house analysis is carried out to test for moisture, ash, gluten and enzyme contents.

Mill Maintenance: A team of largely indigenous in-house engineers and technicians equipped with the necessary skills and tools required for effective maintenance management carry out maintenance activities. The mill maintenance is managed through a planning, scheduling and project management technique. A series of daily factory scheduled maintenance activities are designed to strive for zero maintenance backlogs, controlling cost and reducing maintenance inventory.

The Operating Environment

In nominal terms, the size of the economy as measured by the country’s GDP increased considerably from N7.06 trillion in 2001 to N18.07 trillion in 2006, reflecting a CAGR of 20.68% over this period.

An important trend in the economy’s growth is the increasing contribution of the non-oil sector, particularly the agriculture and telecommunication sectors to the nation’s GDP. The demand for consumer food products is primarily driven by population growth, changes in HDI (or purchasing power) and consumer trends. The 2006 census exercise estimates Nigeria’s population at 140 million, with a projected growth rate of 3% p.a., thus providing a further impetus for growth in the flour milling industry. Changes in HDI also impact both the volume and value of food consumed. For example, when the HDI increases consumers tend to purchase more high priced, premium products and tend to eat out more often. These factors (growing economy and population, and consumer trends) have led to a general increase in installed capacity in the Nigerian flour milling industry.

Changing consumer trends are also a key determinant of growth in sale of convenience food products. Trends currently driving demand include:

Fast foods: To complement their busy lifestyles, consumers are demanding pastries, sandwiches etc that can be consumed away from home or on when on the move. The geometric growth of fast food outlets across the nation is a testimony to this fact.

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Taste: Consumers are cooking more gourmet meals at home which has increased demand for flour based foods and products like spaghetti, macaroni and noodles. Urbanisation and the demands of a cosmopolitan nation have led to a significant increase in the demand for convenience and fast food products like bread, pastries and confectionaries, pasta, noodles etc, which are predominantly flour based. The total market size of wheat for 2006 is currently estimated at 4 million tonnes.

Real GDP growth is expected to remain robust in the forecast period, driven by rising oil and gas production and strong non-oil sector growth. It is also expected that the per capita consumption patterns in Nigeria will increase in line with expected growth in GDP per capita as well as rural-urban migration. These factors are expected to drive the demand for flour based convenience foods.

i) Highly competitive industry:

The industry is comprised of a large number of players that can be segmented on the basis of installed capacity. The top two (2) players (of which DFM is one), have a combined installed capacity of approximately 11,000 MT per day and control over 65% of the market. Both companies have plans to further increase capacity, thus further heightening the level of competitiveness within the industry. Two other players control another 15-20% of the market while the marginal players account for the remaining share of the market. Given the industry’s high fixed cost regime, profitability is largely dependent on a company’s ability to increase volumes. Dangote Flour plans to embark on an aggressive expansion strategy that will increase its current installed capacity by over 62% within the next 12 months.

The company also intends to leverage on its strong distribution machinery as well as its geographical advantage (it plants are strategically located in the north, south, east and west) to ensure that its products reach all parts of the country and beyond.

ii) Opportunity for increased flour consumption

Wheat consumption in Nigeria is currently among the lowest in the developing economies. The table below clearly demonstrates the significant growth potentials of the flour milling industry in Nigeria. With a population of 140 million as well as a projected population growth rate of 3% per annum, we anticipate a considerable growth in flour consumption in the immediate future.

Country Daily flour consumption (g/capita)

Syria 490 Turkey 484 Egypt 397 Chile 372 Greece 371 Argentina 344 Pakistan 318 Uruguay 269 South Africa 191 Bolivia 159 Peru 136 Nigeria 69

Source: USAID/Agusto & Co

iii) Federal Government Policy a. Tariff Protection: The FGN encourages local manufacturers (Millers inclusive) by

imposing a 60% import duties on flour, whilst only a 10% import duty is payable on raw wheat;

b. Vitamin A Fortification: the SON requires all millers to fortify flour with vitamin A. c. Cassava inclusion policy: Local flour millers have been mandated to include a minimum

of 5% cassava flour into wheat flour.

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Dangote Pasta Limited Business Overview Like DFM, Dangote Pasta also operated as a division of DIL, until the restructuring exercise in 2006. Dangote Pasta is in the business of pasta production and the current size of the market is between 22-25 million cartons of pasta a year, of which Dangote Pasta currently produces 10.8 million cartons. The Dangote Pasta factory was established in June 2000 with one line producing 2,500kg of spaghetti per hour. Another line producing 3,500kg per hour was installed in 2002 and in 2003, production was further increased by 7,500 kg per hour when 2 additional production lines were commissioned. DP’s product portfolio comprises;

i. Spaghetti - Standard and Slim.

ii. Macaroni – Elbow, Alphabet, Spiral, Shell, Twist and Salad cut. Pasta is a wholesome food that can be prepared in less than twelve minutes. Its consumption has increased rapidly over the last couple of years. The hectic lifestyle that urbanization engenders means more and more professionals, artisans, students and other categories of workers in general have less time to cook ‘time-consuming’ traditional meals and hence the resort to quick meals with nutritional value. Competitive Position

Dangote Pasta competes with other brands of spaghetti and macaroni on the basis of price, availability and market demands. Dangote Pasta is one of the two dominant players in the Nigerian pasta industry, controlling approximately 45% of the market. Its major competitor controls another 45% market share while the balance of 10% comes from smuggled imports. Milestone Achievements:

• The Nigerian Industrial Standards Award for quality by the SON. • I.S.O. 9000 – 2001 for systems quality.

Dangote Pasta, like all other DIL establishments, uses state-of-the art technology in its factories. These new Buhler plants ensure efficiency in operations, minimizes down time and reduces the need for human intervention to the barest minimum. All their plants are relatively new, with the oldest being about 7 years old, and have a useful life of about 18 years. Buhler also provides regular technical support and training of staff. Key Strategies for Growth Production capabilities will be strengthened by investing in additional production plants and a mill. It is also expected that consumer orientation will be changed positively toward the consumption of Pasta as a staple food through the deployment of effective marketing strategies. Expansion ensures that fixed cost (and consequently, total cost) per unit reduces significantly, thus enabling Dangote Pasta to compete favourably with cheaper (smuggled) imports.

o The expansion will also incorporate the installation of a mill (with a daily capacity of 800Mt.) that will

process wheat into pasta semolina, resulting in significant cost savings. The new mill will adequately meet the Semolina requirements of both Dangote Pasta and Dangote Noodles and allow DFM to focus on its core business of flour milling. This will also result in the release of DFM’s capacity that was hitherto used to produce semolina for Dangote Pasta.

o Expansion would also afford Dangote Pasta the capacity to aggressively penetrate the lucrative

export market, with encouraging incentives from the Federal Government.

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THE CHAIRMAN’S LETTER (Cont’d) Dangote Pasta is also exploring the possibility of using gas (a cheaper, safer and more efficient source of energy) to power its plants, given the factory’s proximity to PHCN’s Egbin thermal plant, thereby significantly reducing its operating cost. Expansion ensures that fixed cost (hence total cost) per unit reduces significantly, thus enabling Dangote Pasta to compete favorably with cheap smuggled products. Dangote Agro Sacks Limited Business Overview Dangote Agro Sacks Limited has two divisions; Agro Sacks and AD Star, which were established in 1998 and 2000 respectively for the production of polypropylene (PP) bags. They currently serve the packaging needs of Dangote Group as well as those of the external customers across Nigeria and beyond.

The Agro Sacks Plant in Lagos, which produces bags for all non-cement products, was commissioned in November 1998 and has an installed capacity of 10 million bags per month. The AD*Star plant in Adamawa produces only block bottom valve cement bags and started operations in May 2001, and has a capacity to produce 9 million bags per month.

DAS is an ISO 9001 – 2000 certified company. DAS and AD Star have an operational philosophy which is customer-driven. Their philosophy is to provide high quality polypropylene bags, which meet the present and continuous needs of our customers in order to achieve and sustain a reputation for quality in both the national and international markets. The machines used in the production of bags are top-of-the-range and manufactured by Starlinger of Germany, the world’s leading supplier of machinery for woven plastic sacks.

Competitive Position Barriers to entry are high especially for the block bottom valve cement sacks - a plant that has a capacity of 9 million bags per month costs approximately 20 million Euros (excluding cost of land, buildings and ancillary charges). Only 2 companies in Nigeria (of which DAS is one) produce the patented block bottom valve

cement bags and industry output is currently estimated at 37 million bags per month, with DAS controlling about 51% of the market. Dangote Agro Sacks sources its main raw material, polypropylene raffia, from the international market. Of recent however, with the turnaround of the Eleme Petrochemical Company Limited, DAS has been able to source some of its polypropylene requirements locally at a cost that is approximately 15% cheaper than imports. The company intends to promote a strategic partnership with Eleme Petrochemicals both as a supplier of its primary raw materials as well as a prime consumer of DAS’ bags. A more stable supply from the local market would undoubtedly increase an already respectable profit margin. Key Strategies for Growth DAS is diversifying its product portfolio to include inner lining for sugar bags as well as the manufacture of prayer mats. The raw materials required to make prayer mats are the palletised waste generated from the production of sacks, hence aside from the cost of machinery, variable costs incurred for the production of prayer mats is limited to labour. This product would therefore, significantly impact on the profitability of DAS in particular and the DFM group in general. Dangote Agro Sacks is currently expanding the capacity of both the Agro Sacks and AD*Star plants to produce 31 million bags per month, in order to provide for the increasing needs of the Dangote Group companies, most especially the rapidly expanding Obajana Cement, as well as external clients. DAS is exploring export opportunities and intends to increase sales to external customers to 25% after the expansion. DA services the Dangote Group (85%) and others (15%) from its current capacity.

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THE CHAIRMAN’S LETTER (Cont’d) Dangote Noodles Business Overview Dangote Noodles will commence operations as a division of DFM early in 2008 with an installed capacity of 11,550 Metric Tonnes per annum which would increase to 103,950 Mt. by 2011. The Noodles business is expected to start off on a large scale in order to take advantage of fast changing consumer tastes and trends and will benefit from the existing production and distribution platform of the Pasta business. Economies of scale and the synergies from Dangote Pasta Ltd would make Dangote Noodles a cost leader in the Nigerian noodles market. Nigeria’s growing population provides a ready market for Noodles and research has shown that the current level of supply cannot meet the market demand. Nigeria is a fast growing market for instant noodles and it is continues to gain popularity especially among children, students and young adults who have developed a taste for quick and easy to prepare meals. The Nigerian instant Noodles market is in its growth stage and profitability will be determined by sales volumes and pricing. Dangote Flour Mills Group Overview Despite the fierce competition, DFM remains a significant player in the flour milling and associated products industry. DFM’s competitive advantage is driven by a number of factors, some of which are enumerated below: Key selling points

• Brand Name: The Company has a strong and well-established brand name. The Dangote brand has become synonymous with high quality products at affordable prices.

• Economies of Scale: To remain a market leader, the Company will continue to implement its

aggressive expansion strategies to produce and sell significant volumes thereby ensuring sustainable profitability, as it is able to significantly reduce fixed cost per unit of its products. DFM will focus on maximizing returns in product categories where it has comparative advantage. DFM will also continue to invest in high margin segments that are capable of delivering above average growth. The Company also intends to explore identified new markets.

• Transportation: Distribution is critical to the flour and pasta businesses. DFM has a fleet of 1200

truck-trailers available for the distribution of flour (and other products) across Nigeria. These trucks are maintained and managed by Dangote Group and are a significant source of cost savings.

• Efficient Distribution Network: With more than 2,000 distributors spread across the Country, the

Company is constantly provided with valuable market intelligence on consumer tastes and preferences. Accordingly, the delicate balance of product volumes and pricing is more easily achieved. DFM’s good relationship with its distributors has facilitated the Group’s rapid growth in the domestic market and it is expected that this network will help its new products, especially Noodles establish a strong market presence within a relatively short time. DFM plans to open depots in Lagos, Ibadan and Sokoto, thereby bringing all Dangote products closer to consumers and also create a new customer base and explore export opportunities in the coastal/sub Saharan markets (Angola, Benin, Togo, Cameroon, Gambia, Cote D’Ivoire, Niger etc).

• Factory Location: Since distribution cost is a major expense item in the flour business, cost advantage

is gained when a factory is located close to the final consumers. With factories located in Apapa (West), Calabar (East), Ilorin (Middle Belt) and Kano (North), the cost of getting its products to the consumers is considerably reduced. Furthermore, two of the four mills are located at the ports (Apapa and Calabar ports), which gives them a comparative advantage over other players. DFM incurs little or no cost discharging wheat from the ship through a conveyor into Dangote-owned port silos in Apapa.

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• Technology: The Company has state-of-the art equipments, manufactured by Buhler Group of Switzerland and Starlinger of Germany. These equipments ensure a fully automated production process, minimal down time as well as waste amongst other advantages. There are firm arrangements in place with these manufacturers to provide technical support, maintenance and training of the Nigerian staff of Dangote Group both locally and abroad. The flour milling plants have a life span of 50 years while the pasta plants have a life span of about 15 years.

• Captive Market: There is a ready and captive market for Agro Sacks, as DAS exclusively supplies this product to related companies.

• Skilled Personnel: The Company has a crop of skilled and dedicated personnel with strong track records.

• Milestone Achievements: - The Nigerian Industrial Standards Award for quality by the SON. - I.S.O. 9000 – 2001 for systems quality.

Risk Factors and Mitigants

Investors should be aware that there are risks associated with any investment in the stock market. In addition, there are a number of risks factors specific to the Company, the industries in which the Company operates and the general business environment. These risk factors may be outside the control of the Company, Directors and senior management team and have an impact on the operating and financial performance of the Company.

The business activities of the Company are subject to various risks. These risks include (but are not limited to):

Country Risk

Nigeria faces economic and political risk Nigeria has experienced 8 years of uninterrupted democratic rule for the first time in its recent history and for the first time in its post-independence history, political power has been successfully transferred from one civilian government to another. The Musa Yar’Adua administration has resolved to continue the economic reforms initiated by its predecessor. Furthermore, Nigeria, for the second consecutive year, has retained BB- credit rating by S&P and Fitch (which puts it at par with other developing economies like Venezuela, Turkey, Indonesia and Ukraine). Currency Risk The input costs of the Company are subject to fluctuations in the exchange rate of the naira against the US dollar.

It is expected that the country’s huge foreign reserves and the CBN’s effective management of the exchange rate would ensure that the exchange rate between the naira and the dollar continues to remain stable. Regulatory Risk Dangote Flour is exposed to changes in the regulatory environment

Fortification: The wheat flour produced by Dangote Flour complies with the SON’s requirement to fortify flour with micronutrients. Wheat flour fortification is an initiative designed to help improve nutrition around the world, especially in countries where flour is a major food source.

Tariff: The Government is currently encouraging the local flour milling companies by imposing significantly higher import duties of 60% on finished wheat (flour) and semolina products whilst wheat grains attract only 10%. Dangote Flour, like other companies in the manufacturing sector, is protected by the import substitution policy of the Government and it is not likely that this policy would be discontinued, leaving local manufacturing firms exposed to unfair competition.

Cassava flour inclusion in wheat flour: As a means of creating import substitution opportunities for cassava, the local flour millers have been mandated to include 5% cassava flour in wheat flour. Dangote Flour continuously sources good quality cassava flour from the local market to ensure that their flour output meets the high standards of the Company and complies with the SON’s requirement.

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Operating Risks

The Company is exposed to fluctuations in raw material costs

Wheat represents 80% of the cost of production of flour and material increases in wheat prices, which can occur in times of drought. DFM has firm agreements with their suppliers for 50% of their projected wheat demand, thus hedging 50% of its supply risk.

The Company could be adversely affected if it is unable to obtain adequate supplies of raw materials on a timely basis

The Company’s production processes depend on obtaining adequate supplies of raw materials on a timely basis. US Wheat Associates, the industry’s export market development organization funded by US wheat producers and The US Department of Agriculture (USDA), established a full time consulting office in Lagos over six years ago. US Wheat Associates provide information and technical assistance in addition to facilitating the purchase of wheat from the United States.

The forward purchase agreements with suppliers ensure that DFM is guaranteed at least 50% of its wheat requirements.

The Company faces competition from potential new entrants

The competition to produce cheaper flour has resulted in large efficient mills supported by wheat exporting countries and mill equipment producing companies. Entry barriers are high owing to the huge capital expenditure requirements of flour mills and polypropylene sack manufacturing machines. Given the current trends in the Nigerian Flour Mills industry, it is expected that in order to benefit from economies of scale, a new entrant should consider a plant with an installed capacity of at least 1,500 MT per day. A flour milling plant with a daily production capacity of 500 Mt. would cost in excess of $15 million (N2 billion). Cement sack manufacturing plants with a monthly capacity of 9 million bags would cost about €20 million (excluding land and buildings).

The Company faces competition from importers of flour and other wheat based products

The competition to produce cheaper flour around the world has resulted in large efficient mills supported by wheat exporting countries and mill equipment producing companies. In addition, import duties of 60% are imposed on finished wheat and semolina based products.

The cost savings derivable from the installation of a mill as well as the increased capacity of Dangote Pasta will increase profit margins and allow DP sell its products lower than the price of smuggled goods which are currently cheaper.

The Company faces competition from other local producers of flour, pasta and polypropylene bags

The Company has a strong and well-established brand name, “Dangote” which has become synonymous with high quality products at affordable prices.

Dangote Flour and Pasta plan to create brand loyalty and build stronger relationships with existing clients.

An efficient distribution network nationwide ensures a presence in major markets in the country. The Company is also exploring the coastal/sub-Sahara states market (Benin, Togo, Cameroon, Niger, Chad, Gambia, Abidjan etc)

Flour is a price sensitive product

Although the Company already enjoys economies of scale, it plans to increase its milling capacity from 4000Mt to 6500Mt. per day. Dangote Flour intends to increase profit margins by reducing its average fixed cost per unit produced rather than resort to price increases.

Environmental Risks

The operation of the Company’s factories poses certain environmental challenges which include but is not limited to dust or solid particulate matter (SPM) emission into the atmosphere and the possible change of water quality as a result thereof, increase in noise level, possible distortion of soil chemistry of the area and deterioration in the aesthetic value of the area.

The Company is always taking steps to mitigate the environmental risks through the adoption of measures that include:

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1. Regular monitoring and reduction of SPM by the installation and servicing of pollution abatement facilities. 2. Resurfacing and re-vegetation of exposed surfaces 3. Regular and proper maintenance of the generators 4. Provision of safety manuals and emergency procedures 5. Monitoring of the implementation of Health Safety and Environmental (HSE) procedures for the Company 6. Training and re-training of staff on HSE issues 7. Engagement of a registered waste management firm to handle waste management issues. 8. General strict compliance with all environmental laws and regulations.

1.3 DIRECTORS AND KEY MANAGEMENT STAFF

(a) Directors

Dangote Flour Mills Plc has assembled a formidable team of renowned business leaders and professionals; I am pleased to introduce members of its board:

I am a graduate of Business Studies from the Al-Azahar University in Cairo, Egypt, and the Founder/President of the Dangote Group with interests spanning the manufacturing, food and beverages, oil and gas and telecoms industries. The guiding philosophy of the Dangote Group is to create a world class company owned and managed by Nigerians, for the benefit of Nigerians, Nigeria and the world, by instituting corporate governance and adopting value-adding investment strategies.

I am a recipient of numerous awards including the prestigious ZIK Award (1992); The International Award of Sir Ahmadu Bello; Officer of the Order of the Niger (OON) (2000); Cross River State Roll of Honour Award (2002); Commander of the Order of the Niger (CON) (2005); Thisday Newspaper Award for Chief Executive Officer of the Year (2005); etc.

I am also on the Board of the National Council of Nigerian Vision, Mohammed Bello Endowment for Justice and Jurisprudence, Kano Foundation, Nigerian Economic Summit Group, African Petroleum Plc, National Investment Promotion Council, the Heart of Africa project and many more.

Mr. Michael Zetzsche (German) - Managing Director/CEO: He is an alumnus of Baron Von Jenisch Gymnasium, Hamburg. He has over 30 years management experience, 18 of which, has been in the milling industry. He has been responsible for the rehabilitation and resuscitation of several companies including Lister Flour Mills Limited and Ghana Agro-Food Company Limited, Tema, Ghana. He served as a member of the board of IBN Group of companies from 1995 to 2000.

He joined Dangote Group in 2000 as Executive Director of Foods and moved on to serve as Managing Director of Premier Bottling Company. He rejoined the Group in 2005 as MD/CEO Dangote Flour Mills.

Alhaji Ahmed Shehu Yakassai – Executive Director. Alhaji Yakassai is a graduate of Kano State Polytechnic (1989) with an HND in Accountancy. He also holds a Postgraduate degree (with specialization in Management) from the Bayero University, Kano. Alhaji Yakassai is a member of the Nigerian Institute of Management and is a Certified National Accountant.

Before joining the Dangote Group in 1995 as the Finance Director of Dansa Food Processing Company Limited, he was the Chief Accountant to Kano Agricultural Supply Company Limited (a World Bank financed and managed program) and later the Financial Controller/Company Secretary to Raleigh Industries Nigeria Plc. Alhaji Yakassai has served in various capacities within the Dangote Group including Northern Regional executive and special assistant to the Vice-President of the Group. He is currently the Sales and Marketing Director for Dangote Flour Mills and is charged with the overall responsibility for implementing the Company’s marketing strategies.

Mr. Olakunle Alake - Director. Mr. Alake is a graduate of Civil Engineering from Obafemi Awolowo University, Ife (1983) and also a Fellow of the Institute of Chartered Accountants of Nigeria, Mr. Alake is currently the Chief Operating Officer of the Dangote Group. He started his working career with PriceWaterHouse, a firm of Chartered Accountants in September 1984 and left in 1990 to join Liberty Merchant Bank Limited as the Financial Controller where he was for three (3) years. In August 1993, Mr. Alake was appointed Managing Director/ Chief Executive of Liberty Merchant Securities Limited, and was a part of the team that provided consultancy services for the take-over of the International Trust Bank Plc, by Dangote Group in August 1996. He joined the Dangote Group in July 1997 as the Financial Controller and Head of Strategic Services. He was promoted to the position of Executive Director in 2001 and subsequently Chief Operating Officer in 2007.

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THE CHAIRMAN’S LETTER (cont’d)

Alhaji Sani Dangote – Director. Alhaji Sani Dangote is an alumnus of Harvard Business School in the United States of America. Alhaji Sani Dangote is an accomplished businessman with investments in key sectors of the economy including manufacturing, agriculture, banking and oil services.

In addition to being the Group Vice President of the Dangote Group, Alhaji Sani Dangote also sits on the Boards of several other companies including Nigerian Textile Mills Plc., Nutra Sweet Ltd, Gum Arabic Ltd, Dangote Textile Mills Limited, Alsan Insurance Brokers, Dan-Hydro Company Ltd, Dansa Food Processing Company Ltd and Dangote Farms Ltd.

He is also the Deputy Chairman of African Gum Arabic Producers Association, two- time President of Lagos Polo Club and current President of Fertilisers Producers and Suppliers Association (FERSAN). In recognition of his sterling leadership qualities, he was recently appointed as the Consul-General of the Romanian Embassy in Nigeria. Apart from being a member of several Chambers of Commerce, he is a Fellow of the Chartered Institute of Shipping of Nigeria.

Alhaji Abdu Garba Dantata – Director. Alhaji Dantata is a non-Executive Director of Dangote Flour. He is currently the Executive Director, Sales & Marketing of the Dangote Group, a position he held since the Group was established more than 20 years ago. He has responsibility for coordinating the sales and marketing of all products manufactured or imported by the Group. He is also responsible for coordinating the distribution of the Group’s products to reach every corner of the Nigerian market. He is the Chairman of Agad Nigeria Limited, a trading and transportation company operating throughout Nigeria.

Mr. Asue A. Ighodalo – Director. Mr. Ighodalo is a trained Economist and Lawyer having obtained a B.Sc degree in Economics from the University of Ibadan (1981), an LL.B from the London School of Economics and Political Science (1984) and a B.L from the Nigerian Law School, Lagos (1985). Since graduating from the law school, Mr. Ighodalo has been in active legal practice – first as an Associate in the law firm of Chris Ogunbajo & Co (1985 to 1991) and then establishing in 1991, the law firm of Banwo & Ighodalo where he is currently the Managing Partner. Mr. Ighodalo has been involved as legal counsel in some of the land mark transactions in Nigeria in the areas of Mergers & Acquisitions, Corporate Restructuring, Corporate and Capital Market issues, Investment and Divestment transactions, Electric Power, Oil & Gas, Company Law, Banking and Project Finance. Mr. Ighodalo is a strong advocate of good corporate governance and has been a resource person and lecturer in several seminars and training courses on Corporate Governance. He is a member of the Board of Directors of the Nigerian Economic Summit Group and also Director of various financial, stock broking, trading, furniture manufacturing and investment companies.

Alhaji Abdullahi Mahmoud – Director. Alhaji Mahmoud has professional Banking and Accountancy qualifications having obtained Diploma in Accountancy, ABU (1966), ACCA, UK (1973), FCA (1980) and FCIB (1992). He is a banking and management enthusiast with almost twenty-five (25) years of considerable experience in both domestic and international banking activities. He has held various responsible positions in different banks, insurance and reputable companies in the country among which are General Manager, United Bank for Africa Plc, Managing Director, African International Bank Limited and now, Group Managing Director, Northern Nigerian Development Company Limited. He is also a Director of First Bank of Nigeria Plc.

Mr. Uzoma Nwankwo – Director. Mr Nwankwo is currently the Executive Director (Corporate Finance and Treasury) in the Dangote Group. He graduated from University of Nigeria, Nsukka in 1980 with a Second Class Honours (Upper Division) in Engineering. And obtained a Masters of Science (MSc) in Agricultural Engineering from Michigan State University. He also holds a Masters of Business Administration (MBA) with specialization in Financial and International Business Management from the University of Michigan.

Mr. Nwankwo has held positions in several international organizations. He was Vice President/Unit Head at Citicorp North America with responsibility for developing and managing asset based and structured finance for the middle market in the US. In 1994, he joined Citibank Nigeria as Executive Director Corporate Bank and Citibank Africa Division in 1997 as Africa Head of Structured and Asset Based Finance. He was Director for Structured Finance Africa LOITA Capital Partners, Johannesburg, a boutique investment bank. He returned to Nigeria in 2000 to join First Bank of Nigeria Plc as Executive Director (Risk Management and Control). He has also been Consultant/Lead Advisor to many companies both locally and internationally in the areas of financial management, mergers and acquisitions and Business process improvement.

26


Brig. Gen. Samuel L. Teidi (rtd) – Director. Brig. Gen. Teidi is a retired army general. He was commissioned into the Nigerian Army in 1969 following his graduation from the Nigeria Defence Academy (NDA) in September 1969. Since his commissioning into the Army he had pursued further academic and military training and obtained a diploma from the Royal Military Academy, Sandhurst, UK; B.Sc. (Applied Physics) from the Council of National Academic Award (CCNA); M.Phil (Atmosphere Physics) also from CCNA as well as an honorary Doctor of Science degree from St. Clement University, Australia. During his military service, Gen. Teidi held many important military positions including Directing Staff, Commandant, School of Ammunition, Ojo and several attachments with the British Army. Since his retirement from the Army, Gen. Teidi has been involved in important corporate activities including being Chairman of Overseas Agency Nigeria Limited, Director, Bureau Veritas Nigeria and several other board appointments. Gen. Teidi was awarded the Maritime Gold Award for his contributions to maritime commercial activities.

1.4 Key Management Staff of the Company

The day to day affairs of Dangote Flour Mills Plc is managed by a Management Team consisting of the Managing Director/CEO (Michael Zetzsche), the Executive Director (Ahmed Shehu Yakassai) and a crop of other key management staff which include the following:

Mr. Tolu Ashaye - Head of Regional Sales & Marketing (West). He holds a Bachelors Degree in Agriculture (1977) and MBA (1982) from University of Ife. He has 12 years senior management experience in manufacturing organisations such as Intercontinental Distillers Ltd, Associated Match Industries Ltd, Nigerian Breweries Plc and Honey Well Flour Mills where he was the National Sales Manager. Tolu has attended several executive, leadership and management programmes in Nigeria and abroad. He is an active member of Nigerian Marketing Association (NIMARK).

Mr. Abdulkadir Sidi – Head of Regional Sales & Marketing (North). Mr Sidi is a graduate of University of Maiduguri where he obtained a Bachelors Degree in Management and MBA Management. He worked in the Kano State Ministry of Land and Surveys in 1975 to 1983, before joining the Dangote Group in 1983.

Mr. Abdulsalam Waya – Head of Regional Sales & Marketing (East). Mr. Waya holds an HND in Business Administration and a PGD in Management. He has over 15 years Management experience and joined the Group in 1995. He is a Life Patron of National Association of Technological Students (NATS).

Mr Wolfgang Heinz Buge – Corporate Sales Manager. Mr. Buge holds a Bachelors Degree in Chemistry from the Technical University, Berlin. He has over 15 years Management experience in manufacturing organisations such as Schering AG, Berlin, Helm AG, Hamburg and Industrie-Bau Nord AG, Switzerland.

Mr. Micheal Gbetanu – General Manager (Kano Mills). Mr. Gbetanu joined the Dangote Group in 2000 as General Manager of the Flour Mills in Kano. He obtained specialist training in Advance Milling Technology from Takoradi Flour Mills, Ghana (1974-79) and in Production Planning and Control from Management Development and Productivity Institute Accra, Ghana. He has over 30 years experience in milling from 9 Flour Milling Companies in Nigeria and Ghana. He is an active member of International Association of Operative Millers (IAOM) Leawood U.S.A. Mr. Gbetan is charged with the overall responsibility for the efficient operations of Kano Mill.

Mr. Nana Osei Bonsu - General Manager (Apapa Mills). Mr. Bonsu was trained at I.G.P and the world-renowned Buhler, manufacturing plant in Switzerland. He has acquired over 38 years experience in milling with flour mills spread across West Africa including Guinea, Ghana and Benin. He joined the Dangote Group in 1999 from Crown Flour Mills Lagos. Mr. Bonsu is charged with the overall responsibility for the efficient operations of Company mills located in Apapa.

Mr. Mustafa Mohammed Mustafa – General Manager (Ilorin Mills). Mr. Mustafa has a B.Sc in Mechanical Engineering from University of Khartoum, Sudan (1978). He received Professional training in milling technology from Oorlm Institute, Cremona, Italy (1981) and Factory Management from AOTS Japan (1993). He is an active member of the International Association of Operative Millers USA, Sudan Engineering Council and Association for Overseas Technical Sponsorship, Japan. With over 27 years milling experience, he joined the Dangote Group as General Manager of the Ilorin Mills in 2002. Mr. Chamberlain W. Oguzo – Head Human Resources. Mr. Chamberlain Oguzo graduated from Ahmadu Bello University, Zaria in 1984 with a Second-class Upper Division in Economics. He also holds a Master of Science degree in Monetary Economics (1987) from the same university. Mr. Oguzo has varied experience in both the private and public sectors having being at various times Teaching Assistant in the Economics

27


Department of the Ahmadu Bello University, Zaria and Planning Officer in the Office of Budget & Planning under the Presidency. He was at the Equip Division of SCOA Nigeria Plc for seven years and rose to the position of Area Manager. In the year 2000, Mr. Oguzo became the first Administrator of the Eastern operations office of Spar Aerospace/GS Telecom Nigeria Limited in Port Harcourt. He moved to the corporate Head Office in Lagos in May 2002 and in January 2003, joined the services of Dangote Group as the Head, Organisation & Methods unit in the Admin/HR Division. He is a Member of the Nigerian Institute of Management (Chartered) and a Fellow of the Corporate Resource Management Institute. Mr. Rolf-D Burckhardt – General Manager (Calabar Mills). Mr. Burckhardt has a Masters Degree in Business Administration from the Fachhochschule Rosenheim University, Germany (1979). He joined the Dangote Group as General Manager of the Flour Mills in Calabar in 2006 with over 25 years management experience from organisations in the Europe and Ghana. Mr. Burckhardt is charged with the overall responsibility for the efficient operations of Company mills located in Calabar. Mr. Bashir Hamis – Company Secretary. Mr. Hamis holds a LLB degree from the Ahmadu Bello University, Zaria, Kaduna. He was called to the Nigerian Bar in July 1993. He lectured at the Kano State Polytechnic between 1994 and 2001, and subsequently served as the Chairman of Kano State Rent Tribunal until 2003, before joining the Dangote Group as assistant legal adviser. He was transferred to Dangote Flour Plc as the substantive Company Secretary in 2005.

Mr. Hamis served on several committees including the Kano State Government committee on the operations of Private Hospitals in 2002 as well as the Kano State Advisory Committee on Citizenship (Naturalisation) in the same year. He is the current Secretary, Board of Trustees of Diamond Development Initiative (Partners to Africa Development Foundation, USA) 1.5 PREMISES

Dangote Flour currently operates from a Corporate Office and four factories, which are located in Apapa, Calabar, Ilorin and Kano. Details of the Company’s premises are provided below:

Location Description Nature of Holding Unexpired Lease 8, Rycroft Road, Corporate Office Leasehold 2 years Apapa, Lagos

Shed 20 Factory Leasehold 24 years Apapa Port, Wharf, Apapa

Sharada Ind. Estate Factory Freehold - Phase III Kano

NPA Calabar Complex Factory Leasehold 24 years Calabar

Asa Dam Road Factory Freehold - Ilorin

1.6 PURPOSE OF THE OFFER FOR SALE

The Initial Public Offering of 1,250,000,000 Ordinary shares of 50 kobo each at N15 per share is being undertaken to give Nigerians the opportunity to become part owners of a profitable and well diversified company. The IPO will also enable the Company meet the requirements for a listing on The Nigerian Stock Exchange.

28

THE CHAIRMAN’S LETTER (cont’d) 1.7 WORKING CAPITAL, PROFIT AND DIVIDEND FORECAST

The Directors of Dangote Flour Mills, after due consideration of the Company’s future strategic plans, are of the opinion that the Company will have adequate working capital for its immediate and foreseeable obligations and funding requirements.

1.8 UNCLAIMED DIVIDENDS There are no unclaimed dividends accruing to shareholders of Dangote Flour as at the date of this Prospectus.

1.9 CORPORATE GOVERNANCE

In line with its aspiration of becoming a world class company, Dangote Flour recognizes the significance of effective Corporate Governance in corporate and economic performance. Accordingly, the Company subscribes to the Code of Best Practices on Corporate Governance in Nigeria. The full extent of the Company’s compliance with the Code is provided as follows: Responsibility of the Board of Directors DFM is in full compliance with all the duties and responsibilities of directors stated under Parts A, B and C of the Code. Composition of the Board The Board of DFM is composed of nine members made up of two (2) Executive Directors and seven (7) non-Executive Directors. The Board members are professionals and entrepreneurs with vast experience and credible track records. Chairman and Chief Executive Officer Positions Responsibilities at the top of the Company are well defined and the Board is not dominated by one individual. The position of the Chairman is separate from the Chief Executive. The Chairman is not involved in the day to day operations of the Company. Proceedings and Frequency of Meetings The Board meets regularly. Sufficient clear agenda/reports are given ahead of such meetings. All Directors have access to the Company Secretary who can only be appointed or removed by the Board and is also responsible for the Board. Non-Executive Directors Dangote Flour’s non-Executive Directors are of strong caliber and contribute actively to Board deliberations and decision-making. However, non-Executive Directors are not appointed for a fixed period, but shall instead remain in office until the Company determines their tenure or by operation of law. Executive Directors The remuneration of the Chief Executive Officer is fixed by the Board. The Board Establishment Committee will be chaired by a non-Executive Director and composed of other non-Executive Directors. Full disclosure is provided for Directors’ remuneration i.e., the highest paid Director and remuneration of the Chairman. Reporting and Control The Board is responsible for and ensures proper finance reporting as well as the establishment of strong internal control procedures. The Board Audit Committee comprising Executive and non-Executive Directors and representatives of shareholders will be set up on completion of this Offer. The Audit Committee will be chaired by a shareholder. Shareholders’ Rights and Privileges The Directors ensure that shareholders’ statutory and general rights are protected at all times. Shareholders are responsible for electing the Directors at Annual General Meetings for which at least notice of 21 working days have been given before the meeting. Shareholders holding at least 10% of the new equity can be represented on the Board. The Board of the Company accepts that the new shareholders to be admitted by the Company after the IPO may nominate new members to the Board, to ensure that the Board appropriately reflects the enlarged shareholding structure.

29


1.10 RESEARCH AND DEVELOPMENT Up until January, 2006, whilst Dangote Flour operated as the flour milling division of DIL, all its research activities were undertaken jointly with other divisions of DIL. Upon the Scheme coming into effect, DFM is now responsible for its research and development activities and intends to continue to explore ways of improving the quality of its products at cheaper prices, enhancing efficiency in its operations, and increasing the returns attributable to shareholders.

1.11 MERGERS AND TAKEOVERS

As at the date of this Prospectus, there was no known merger or take over attempts of the Company’s shares by a third party or by the Company in respect of another company’s shares.

1.12 FUTURE PLANS

Dangote Flour has already concluded plans to increase its production capacity from 4,000 MT to 6,500 MT per annum, this would further establish the Company as the leading miller in the country. This increase, will bring forth a significant reduction is cost of production per unit, and increase the returns to shareholders. Similarly, Dangote Pasta has commenced an expansion of its production capacity, in order to double current capacity to 21.6 million cartons per annum. The expansion ensures reduced cost per unit of DP’s products and will enable Dangote Pasta compete favorably with cheap smuggled products in Nigeria as well as proffer an avenue to penetrate the lucrative export markets. Plans to commission the Dangote Noodles plants have reached an advanced stage, with the installation of plants at the Ikorodu factory. This division of DFM is expected to commence production in the first quarter of 2008. Finally, Dangote Agro Sacks future plans include diversifying into mat production, the raw material for this product would be waste generated in the production of sacks and hence cost of production is low. DAS also intends to increase production significantly, to allow it cater for the subsequent phases of the Obajana cement plant and various external clients. The portfolio of leading Dangote brands, an efficient distribution network and a strong management team provides the Dangote Flour group a strong platform to take advantage of the unique growth potentials in the Nigerian flour milling industry. The Board and senior management team are positive about the future prospects of the Dangote Flour Group. Together with my fellow Directors, I look forward to welcoming you as a shareholder of Dangote Flour Mills.

Yours faithfully, FOR AND ON BEHALF OF DANGOTE FLOUR MILLS PLC

ALHAJI ALIKO DANGOTE, CON CHAIRMAN

30

PROFIT FORECAST

2.1 Letter from the Reporting Accountants

The following is a copy of a letter on the Profit Forecast by Messrs Ahmed Zakari & Co (Chartered Accountants) Reporting Accountants to the Offer:

AHM ED ZAK ARI & CO. 5th Floor African Alliance HouseF1 Sani Abacha WayP O Box 6500 (064) 645400, 646447, 647888E-mail: ahm [email protected]

20B(2) Keffi StreetSouth West IkoyiP O Box 55757 FalomoTel 080-36918838Lagos.

29th June 2007

The Directors Dangote Flour Mills Plc 8, Rycroft Road Apapa Lagos

The Directors Dangote Industries Limited Marble House 1, Alfred Rewane Road Ikoyi Lagos


And And And

The Directors Zenith Capital Limited Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island Lagos



And And And


The Directors FutureView Financial Services Limited Plot 161D Aufu Taylor Close off Idejo Road off Adeola Odeku Street Victoria Island Lagos


And And And




And And


Dear Sirs, We have reviewed the accounting bases and calculations for the consolidated profit forecast of Dangote Flour Mills Plc and its subsidiaries (Dangote Pasta Limited and Dangote Agro Sacks Limited), (for which the Directors of Dangote Flour Mills Plc are solely responsible) for the years ending 31 December, 2007, 2008, 2009, 2010 and 2011.

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PROFIT FORECAST (contd.) In our opinion, the annexed forecast, so far as the accounting policies and calculations are concerned, has been properly compiled based on the assumptions made by the Directors of the company as set out on pages 33 to 34 and are presented on a basis consistent with the accounting policies normally adopted by the company and in accordance with generally accepted accounting principles applicable in Nigeria.

However, there will usually be differences between forecast and actual results, because events and circumstances frequently do not occur as expected and these differences may be material.

We have no responsibility to update this report for events and circumstances occurring after the date of this report. Yours faithfully

(Chartered Accountants) Lagos – Nigeria

Reporting Accountants

32

PROFIT FORECAST (contd.) 2.2 PROFIT FORECAST FOR THE SIX YEARS ENDING 31ST DECEMBER 2010

The Directors are of the opinion that subject to unforeseen circumstances, and based on the assumptions in note 2.3.2, the profit before taxation and minority interest for the years ending 31st December, 2007, 2008, 2009, 2010 and 2011 will be in the order of N3.67 billion, N9.97 billion, N13.63 billion, N18.39 billion and N20.80 billion respectively as detailed below:

For the year ending 31 December 2007 2008 2009 2010 2011

N'000 N'000 N'000 N'000 N'000

Turnover 57,272,722 93,181,773 131,962,735 159,915,120 172,142,470

Cost of Sales (49,981,699) (77,923,746) (109,917,668) (131,620,997) (140,816,337)

Gross Profit 7,291,023 15,258,027 22,045,067 28,294,123 31,326,132

Other income 266,238 936,565 972,421

1,017,898

1,056,325 Distribution and Administrative Expenses (2,632,257) (4,500,539) (5,791,245) (6,598,418) (6,991,455)

Management fees (287,651) (718,088) (2,516,882) (3,053,065) (3,297,612)

Profit before interest, tax and depreciation 4,637,353 10,975,965 14,709,362 19,660,538 22,093,390

Interest payable and similar charges (731,758) (834,295) (821,073) (928,352) (999,861)

Profit on ordinary activities before depreciation 3,905,596 10,141,670 13,888,289 18,732,187 21,5093,529

Depreciation (351,716) (514,430) (619,812) (736,433) (718,139)

Net profit from operations 3,553,879 9,627,239 13,268,477 17,995,753 20,375,390 Net profit from I/L Project 22,060 41,273 49,812 64,044 74,718

Net profit from Praying Mat Project 98,888 296,665 311,498 326,331 348,581

3,674,827 9,965,177 13,629,787 18,386,129 20,798,689

Taxation (918,707) (2,491,294) (3,407,447) (4,596,532) (5,199,672)

Profit on ordinary activities before minority interest 2,756,120 7,473,883 10,222,341 13,789,597 15,599,017

Minority Interest in earnings of subsidiaries (11,893) (41,041) (51,203) (67,715) (79,182)

2,744,228 7,432,841 10,171,138 13,721,881 15,519,835

Dividend (2,000,000) (6,000,000) (7,500,000) (10,000,000) (12,500,000)

Retained profit for the year 744,228 1,432,841 2,671,138 3,721,881 3,019,835

Forecast Ratios

Forecast earnings per 50 kobo share (kobo) 55 149 203 274 310

Forecast earnings yield at offer price (%) 3.66 9.91 13.56 18.30 20.69

Forecast EBITDA per 50 kobo share (kobo) 93 220 294 393 442

Forecast dividend per 50 kobo share (kobo) 40 120 150 200 250

Forecast dividend yield at offer price (%) 2.67 8 10 13.33 16.67

Forecast price/earnings ratio at offer price 27.33 10.09 7.37 5.47 4.83

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PROFIT FORECAST (contd.)

2.3 BASES AND ASSUMPTIONS FOR THE PROFIT FORECAST FOR THE YEARS ENDING 31 DECEMBER, 2007, 2008, 2009, 2010 AND 2011

The forecast has been arrived at on the following bases and assumptions which are expected to remain in operation throughout the forecast period:

2.3.1 BASES

(a) The forecast is based on the estimated results of Dangote Flour Mills Plc and 99% ownership of Dangote Agro Sacks Limited and Dangote Pasta Limited.

(b) The previous years’ performances of Dangote Flour Mills Plc and its subsidiaries; Dangote Pasta Limited and Dangote Agro Sacks Limited were used as bases of confirming the reasonableness of the estimates for 2007, 2008, 2009, 2010 and 2011 financial years.

(c) The estimates for the Flour Mills are based on the ongoing expansion programme in Lagos, Ilorin and Calabar. The production capacity is estimated to increase from 717,665 metric tons per annum in 2007 to 1,611,675 metric tons per annum by 2011.

(d) The estimates for Dangote Pasta Limited are based on the almost completed expansion of lines 5 and 6. These lines are expected to start production in September and October 2007 respectively. The production capacity shall increase from its current 85,463 metric tons per annum to 164,208 metric tons per annum by October 2007.

(e) The estimates for Dangote Agro Sacks Limited are based on the expected expansion of production capacity from 16,528 metric tons per annum in 2007 to 58,722 metric tons by 2011. This expected growth is based on the expected increase in supply to its Sister Business Units based on their own individual expansion programmes as follows:

• Increase in production capacity of Benue Cement Company Plc from 861 metric tons (10.5 million bags) in 2007 to 8,200 metric tons (100 million bags) by 2011.

• Anticipated gradual increase in Obajana Cement Plc capacity from 3,526 metric tons (43 million bags) in 2007 to 9,020 metric tons (110 million bags) by 2011 from the installed lines 1 and 2.

• Commencement of production in 2010 of lines 3 and 4 of Obajana Cement Plc with 2,460 metric tons (30 million bags) in that year and gradually increasing to 4,100 metric tons (50 million bags) in 2011.

• The commencement of production in 2010 of Ibese Cement Plc with 4,920 metric tons (60 million bags) in that year and gradual progression to 8,200 metric tons (100 million bags) in 2011.

(f) The estimates for the years ending 31 December 2008, 2009, 2010 and 2011 include those of Instant noodles which were not part of the previous years’ results and the estimates of 2007. The production capacity is expected to increase from a total capacity of 24,504 metric tons in 2008 to 85,764 metric tons in 2011. The expected growth is based on the following:

• Ikorodu plant is expected to start with a production capacity of 12,252 metric tons in 2008 and increase to 36,756 by 2011.

• Kano plant is expected to start with a production capacity of 6,126 metric tons in 2008 and increase to 24,504 by 2011.

• Calabar plant is expected to start with a production capacity of 6,126 metric tons in 2008 and increase to 24,504 by 2011.

(g) The estimates for the year ending 31 December, 2007, 2008, 2009, 2010 and 2011 have been prepared on a basis consistent with the company’s accounting policies.

2.3.2 ASSUMPTIONS The following assumptions have been made, and are expected to remain in operation throughout the forecast period:

(a) At the current selling prices and based on projected level of demand and production capacity, the turnover of the company for the years ending 31 December, 2007, 31 December, 2008, 31 December, 2009, 31 December, 2010 and 31 December, 2011 will be approximately N57.27 billion, N93.18 billion, N131.96 billion, N160.00 and N172.14 billion respectively.

34

PROFIT FORECAST (contd.) (b) The company’s planned expansion programme will go on as scheduled.

(c) There will be no adverse change in existing price structure for DFM’s products, other than as provided in the forecast.

(d) There will be no changes in the current accounting policies.

(e) The total national demand for the company’s product will be sustained, and its share of the market

will not show a significant reduction.

(f) No import restriction or ban will be imposed on the raw materials and machinery spares

requirements of the company.

(g) The principal raw materials will be available in sufficient quantity.

(h) There will be no change in the existing production cost structure.

(i) There will be no material change in international currency exchange rates, or import duties

pertaining to the company’s business.

(j) Shipping arrangements with overseas suppliers of raw materials and spares will be executed on

schedule.

(k) Interest rates and bases of taxation, both direct and indirect, will not change materially.

(l) There will be no material acquisitions or disposal of fixed assets, other than as shown in the forecast.

(m) The political situation in this country, and in the country of suppliers of essential raw materials and

spare parts, will remain stable.

(n) Trading results will not be affected by industrial disputes within the company, or in those of its

principal suppliers.

(o) The company will suffer no major uninsured catastrophe.

(p) There will be no drastic change in the legal, political and economic environment that will adversely

affect the operations of the company.

(q) There will be no material successful claims for damages against the company.

35

PROFIT FORECAST (contd.)

2.4 Letter from the Reporting Accountants in respect of DFM’s Going Concern Status



29th June, 2007




And And And




And And And




And

And And




And


Dear Sirs, CONFIRMATION OF THE GOING CONCERN STATUS

Based on confirmations received from the Directors of Dangote Flour Mills Plc, and our review of past results of the Company, as well as existing position, we do not have reasons to doubt that the Company will continue in operation in the foreseeable future.

Yours faithfully



36

PROFIT FORECAST (contd.) 2.5 The following is a copy of the letter from the Joint Issuing Houses on the Profit Forecast:

29th August, 2007 The Directors Dangote Flour Mills Plc 8, Rycroft Road Apapa Lagos Dear Sirs, RE: INITIAL PUBLIC OFFERING OF 1,250,000,000 ORDINARY SHARES OF 50 KOBO EACH AT N15 PER SHARE We write further to the Prospectus issued in respect of the Initial Public Offering of 1,250,000,000 ordinary shares of 50 kobo each in Dangote Flour Mills Plc. The Prospectus contains forecasts of the profits of the Company for each of the three years ending 31st December, 2007, 2008, and 2009 respectively. We have discussed with you and with Messrs Ahmed Zakari & Co (Chartered Accountants), the Reporting Accountants, the bases and assumptions upon which the forecasts were made. We have also considered the letter dated 29th June 2007 from the Reporting Accountants regarding the accounting bases and calculations upon which the forecasts were compiled. Having considered the assumptions made by you, as well as the accounting bases and calculations reviewed by the Reporting Accountants, we consider that the forecasts (for which you as Directors are solely responsible) have been made by you after due and careful enquiry. Yours faithfully, FOR AND ON BEHALF OF THE ISSUING HOUSES Dr. Jonathan A.D. Long China Onyemelukwe Executive Vice Chairman Managing Director FCMB Capital Markets Limited Zenith Capital Limited

FCMB CAPITAL MARKETS LIMITED A MEMBER OF THE FIRST CITY GROUP

37

PROFIT FORECAST (contd.) Aigboje Aig-Imokhuede Emeka Onwuka Reginald Ihejiahi Managing Director Managing Director Managing Director Access Bank Plc Diamond Bank Plc Fidelity Bank Plc Elizabeth Ebi Kayode Falowo Tayo Aderinokun Managing Director Managing Director Managing Director FutureView Financial Services Ltd Greenwich Trust Limited Guaranty Trust Bank Plc Atedo N. A. Peterside OON Ayodele Thomas Sonnie Ayere Chief Executive Officer Managing Director Managing Director IBTC Chartered Bank Plc Intercontinental Capital Markets Ltd UBA Global Markets Limited

38

HISTORICAL FINANCIAL INFORMATION

3.1.1 LETTER FROM THE REPORTING ACCOUNTS ON THE HISTORICAL PERFORMANCE OF DANGOTE FLOUR MILLS PLC

AHM ED ZAKARI & CO. 5th Floor African Alliance HouseF1 Sani Abacha WayP O Box 6500 (064) 645400, 646447, 647888E-mail: ahm [email protected]


29th June, 2007 The Directors Dangote Flour Mills Plc 8, Rycroft Road Apapa Lagos



And And And

The Directors Zenith Bank Plc Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island Lagos



And And And




And And And




And


Dear Sirs, INITIAL PUBLIC OFFERING OF 1,250,000,000 ORDINARY SHARES OF 50 KOBO EACH AT N15 PER SHARE – REPORTING ACCOUNTANTS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF DANGOTE FLOUR MILLS PLC FOR THE YEAR ENDED 31ST DECEMBER 2006

We report on the financial information set out on pages 40 to 47, which have been prepared for inclusion in the Prospectus to be issued in connection with the proposed Offer for Sale of 1,250,000,000 ordinary shares of 50 kobo each in the issued share capital of Dangote Flour Mills Plc.

39

HISTORICAL FINANCIAL INFORMATION (contd.) Sequel to a Court Order dated 23rd January, 2006 sanctioning the Scheme of Arrangement of Dangote Industries Limited (DIL), the assets, liabilities and rights attached to DIL’s Flour Division were transferred to Dangote Flour Mills Plc with effect from 1st January, 2006.

The financial information is based on the audited financial statements of Dangote Flour Mills Plc, for the year ended 31st December, 2006, and incorporates, for comparative purposes only, the segmental financial statement summaries of the erstwhile Flour Division of Dangote Industries Limited for the four years ended 31st December, 2005. The financial statements were prepared under the historical cost convention. Messrs Akintola Williams Deloitte were the company’s auditors for the year ended 31st December, 2006. The financial information have been prepared in accordance with the accounting policies set out on page 40 after making such adjustments we considered necessary. The financial statements on which the information is based are the responsibility of the Directors of Dangote Flour Mills Plc who approved their issue. The Directors of Dangote Flour Mills Plc are responsible for the contents of the prospectus in which this report is included. We conducted our work in accordance with the International Standard on Auditing applicable to review engagements. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatements. Our review was limited primarily to examination of the work papers of the external auditors, inquiries of the Company’s personnel and analytical procedures applied to financial data and thus provide less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial information does not give a true and fair view of the state of affairs of Dangote Flour Mills Plc as at the dates stated and of the profit and loss and cash flows for the years then ended in accordance with generally acceptable accounting principles in Nigeria.

Yours faithfully,



40

HISTORICAL FINANCIAL INFORMATION (contd.) 3.1.2 STATEMENT OF ACCOUNTING POLICIES OF DANGOTE FLOUR MILLS PLC

The following are significant accounting policies which have been adopted.

(a) Basis of accounting The financial statements are prepared on the historical cost basis. No adjustment has been made to reflect the impact on the financial statements of specific price changes or changes in the general level of price.

(b) Turnover

Turnover represents the net value of goods and services sold to third parties during the year less discounts.

(c) Fixed assets

Fixed assets are stated at cost or valuation less accumulated depreciation.

(d) Depreciation Depreciation is calculated to write of the cost of fixed assets on a straight line basis over their expected useful lives. The principal annual rates used for this purpose were:

2006 2005 2004 2003 2002

% % % % % Leasehold land and buildings 2.00 2.00 2.00 2.00 2.00 Plant and machinery 6.67 6.67 6.67 6.67 6.67 Motor vehicles 25.00 25.00 25.00 25.00 25.00 Tool and equipments 20.00 20.00 20.00 20.00 20.00 Furniture and fittings 20.00 20.00 20.00 20.00 20.00 Computer equipment/ soft wares

33.33 33.33 33.33 33.33 33.33

(e) Stocks and work-in- progress

Stocks and work-in-progress are valued at lower of cost and net realizable value. Goods in transit are valued at the invoice price. Cost of stocks includes purchase cost, conversion cost (materials, labour and overhead) and other cost incurred to bring inventory to its present location and condition.

(f) Foreign currencies Transactions in foreign currencies are recorded in Naira at the rates of exchange ruling at the time they arise. Assets and liabilities existing in foreign currencies are converted to Naira at the rates of exchange ruling at the balance sheet date. Gains or losses arising there-from are included in profit and loss account.

(g) Debtors

Debtors are stated after deduction for specific provisions for debts considered doubtful of recovery.

(h) Deferred taxation Deferred taxation is provided using the liability method at the current rate of income tax on all timing differences between the treatment of certain items for accounting purposes and their treatment for taxation in accordance with SAS 19.

(i) Employees retirement benefit scheme

The Company makes provision for retirement benefits in accordance with the Pension Reform Act of 2004. The contribution of the employer is 7.5% while that of the employee is 7.5% of relevant emoluments. The Company also operates a gratuity scheme for its permanent Nigerian staff, the benefits under which are related to employees’ length of service and remuneration. The provision for liability in respect thereof based on actuarial valuation is provided in full in the financial statements.

41

HISTORICAL FINANCIAL INFORMATION (contd.)

3.1.3 PROFIT AND LOSS ACCOUNT FOR DANGOTE FLOUR MILLS PLC


DANGOTE FLOUR DIVISION - SEGMENTAL PROFIT AND LOSS ACCOUNTS

FOR THE YEARS ENDED 31 DECEMBER

2006 2005 2004 2003 2002

Notes N'000 N'000 N'000 N'000 N'000

Turnover 2 35,672,696 34,017,095 31,194,184 22,403,243 11,468,685

Cost of sales (32,011,804) (29,534,418) (25,872,395)

(18,267,228) (8,098,352)

Gross profit 3,660,892 4,482,677 5,321,789 4,136,015 3,370,333

Distribution and administrative expenses (2,251,510) (2,847,045) (1,910,792)

(820,924) (454,196)

Trading Profit 1,409,382 1,635,632 3,410,997 3,315,091 2,916,137

Other income 3 27,475 2,829 90,642 46,135 58,836

Operating profit 1,436,857 1,638,461 3,501,639 3,361,226 2,974,973

Interest Payable and similar charges (714,874) (2,207,757) (1,900,714)

(521,936) (801,046)

Profit/(Loss) on ordinary activities before taxation 721,983 (569,296) 1,600,925 2,839,290 2,173,927

Taxation - - -

(5,489) - Profit/(Loss) after taxation transferred to revenue reserve 721,983 (569,296) 1,600,925 2,833,801 2,173,927

The accounting policies on page 40 and other explanatory notes on pages 44 to 47 form part of these financial statements

42


3.1.4 BALANCE SHEET FOR DANGOTE FLOUR MILLS PLC


<----DANGOTE FLOUR DIVISION - SEGMENTAL PROFIT AND LOSS ACCOUNTS----->

FOR THE YEARS ENDED 31 DECEMBER 2006 2005 2004 2003 2002 Notes N'000 N'000 N'000 N'000 N'000 ASSETS EMPLOYED

Fixed Assets 6

13,365,235

13,426,053

11,142,003

11,753,723

7,492,738

Investments

-

80,335

469,778

177,362

26,905

13,365,235

13,506,388

11,611,781

11,931,085

7,519,643 CURRENT ASSETS

Stocks and Work-in-Progress 7

4,289,231

5,106,133

2,138,288

1,674,928

1,327,294

Debtors and Prepayments 8

9,335,722

14,231,404

6,760,276

1,487,221

4,086,526

Cash and Bank Balances

358,643

1,026,243

901,146

711,958

1,479,897

13,983,596

20,363,780

9,799,710

3,874,107

6,893,717 LESS CURRENT LIABILITIES

Bank Overdrafts

2,003,143

7,089,827

1,054,172

1,357,063

3,711,252

Trade and Other Creditors 9

10,937,358

13,159,097

6,356,486

2,048,221

4,603,541

12,940,501

20,248,924

7,410,658

3,405,284

8,314,793

Net Current Assets / (Liabilities)

1,043,095

114,856

2,389,052

468,823

(1,421,076)

Total Assets Less Current Liabilities

14,408,330

13,621,244

14,000,833

12,399,908

6,098,567

Provision for Liabilities and Charges 10

(254,810)

(189,707)

-

-

-

Total Net Assets

14,153,520

13,431,537

14,000,833

12,399,908

6,098,567 CAPITAL AND RESERVES

Share Capital 11a

1,500,000

-

-

-

-

Share Premium 11b

11,931,537

-

-

-

-

Revaluation Reserves

-

6,167,986

6,167,986

6,167,986

2,700,446

Revenue Reserves 12

721,983

7,263,551

7,832,847

6,231,922

3,398,121

14,153,520

13,431,537

14,000,833

12,399,908

6,098,567

The Accounting policies on page 40 and the notes on pages 44 to 47 form a part of these financial Statements.

43


3.1.5 CASH FLOW STATEMENT FOR DANGOTE FLOUR MILLS PLC

PRE-SCHEME OF ARRANGEMENT <--DANGOTE FLOUR DIVISION - SEGMENTAL CASH FLOW

STATEMENTS--> FOR THE YEARS ENDED 31 DECEMBER

2006 2005 2004 2003 2002

N'000 N'000 N'000 N'000 N'000 CASH FLOW FROM OPERATING ACTIVITIES

Operating profit before taxation 721,983

(569,296) 1,600,925 2,839,290 2,173,927

Adjustment for non-cash items:

Depreciation of fixed assets 931,682 1,084,524 1,051,038 844,637 276,303

Cash Flow before changes in working capital 1,653,665 515,228 2,651,963 3,683,927 2,450,230

Decrease/[Increase] in stock & work in progress (4,289,231)

(2,967,845)

(463,360)

(347,634)

(1,031,489)

Decrease/[Increase] in debtors & prepayment (9,335,722)

(7,471,128)

(5,273,055) 2,599,305

(1,848,944)

[Decrease]/Increase in creditors & accruals 10,937,358 6,802,611 4,308,265

(2,560,809) 1,507,364

Decrease/Increase in Gratuity Provision 254,810 189,707 - - -

(779,120)

(2,931,427) 1,223,813 3,374,789 1,077,161

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of fixed assets (14,296,917)

(3,368,574)

(439,318)

(1,638,082)

(2,350,347)

Investments - 389,443

(292,416)

(150,457)

(26,905)

Net cash outflow from investing activities (14,296,917)

(2,979,131)

(731,734)

(1,788,539)

(2,377,252)

CASH FLOW FROM FINANCING ACTIVITIES

Shares 1,500,000 - - - -

Share premium account 11,931,537 - - - -

Net cash provided by financing activities 13,431,537 - - - -

Net decrease in cash and cash equivalents (1,644,500)

(5,910,558) 492,079 1,586,250

(1,300,091)

CASH AND CASH EQUIVALENT AT 1 JAN

Bank and Cash Balances - 901,146 711,958 1,479,897 809,751

Bank Overdraft -

(1,054,172)

(1,357,063)

(3,711,252)

(1,741,015)

(1,644,500)

(6,063,584)

(153,026)

(645,105)

(2,231,355)

CASH AND CASH EQUIVALENT AT 31 DEC

Bank and Cash Balances 358,643 1,026,243 901,146 711,958 1,479,897

Bank Overdraft (2,003,143)

(7,089,827)

(1,054,172)

(1,357,063)

(3,711,252)

(1,644,500)

(6,063,584)

(153,026)

(645,105)

(2,231,355)

44


3.1.6 NOTES TO THE FINANCIAL STATEMENTS OF DANGOTE FLOUR MILLS PLC

Notes 1. THE COMPANY

The Company began operations as a division of Dangote Industries Limited in 1999 but was incorporated as limited liability company on 01 January 2006 and commenced operations as a separate entity on that date. It's principal activity is the milling and marketing of flour.

It has four (4) plants located in Lagos, Calabar, Kano and Ilorin.

PRE-SCHEME OF ARRANGEMENT <--DANGOTE FLOUR DIVISION - SEGMENTAL CASH FLOW STATEMENTS-->

FOR THE YEARS ENDED 31 DECEMBER 2006 2005 2004 2003 2002

2. TURNOVER N'000 N'000 N'000 N'000 N'000 Products:

Flour

30,503,881

28,203,489

27,856,304 20,007,260 10,396,509

Bran

1,105,037

1,854,335

1,220,366 793,634 393,630

Danvita and semolina

4,063,778

3,959,271

2,117,514 1,602,349 678,546

35,672,696 34,017,095

31,194,184 22,403,243 11,468,685

3. OTHER INCOME

Interest Received

26,568

1,201

23,075 22,373 9,330

Sundry income

907

1,628

67,567 23,762 49,506

27,475 2,829 90,642 46,135 58,836

4. PROFIT ON ORDINARY ACTIVITIES

BEFORE TAXATION

This is arrived at after charging:

Directors' Emoluments;-

Fees

-

-

-

- -

Salaries and allowances

36,316

-

-

- -

Depreciation

931,682

1,084,524

1,051,038

844,637 276,302

Auditors' remuneration

18,000 N/A N/A N/A N/A

5. TAXATION

Profit and loss account

Income tax charge at 30% based on the

total profit for the year

-

-

-

5,489 -

Education tax at 2% of assessable profit - -

-

- -

- -

-

- -

Balance sheet

As per profit and loss account

-

-

-

5,489 -

At 01 January

-

-

5,489

- -

Payments during the year - -

(5,489)

- -

At 31 December - -

-

5,489 -

The Company is not liable to taxation as it has acquired a pioneer status under a scheme of arrangement with its holding company which has since been granted pioneer status under the Act. In addition, deferred taxation has not been provided as a result of this dispensation. The pioneer status expired on January 01, 2007.

45


PRE-SCHEME OF ARRANGEMENT <---DANGOTE FLOUR DIVISION - SEGMENTAL FINANCIAL STATEMENTS--->

FOR THE YEARS ENDED 31 DECEMBER 2006 2005 2004 2003 2002

6. FIXED ASSETS N'000 N'000 N'000 N'000 N'000 Cost / Valuation

Land & Buildings

1,819,130 1,853,679

3,498,690 3,380,843 2,122,349

Plant & Machinery

11,311,919 13,754,165

9,113,471 8,933,477 5,329,220

Tools & Equipment

268,288 1,091,297

856,339 841,289 576,288

Computer Hardware/Software

26,697 27,359

15,554 11,791 6,380

Motor Vehicles

186,020 223,757

115,106 35,722 24,594

Furniture and Fittings

59,694 112,091

104,284 61,004 99,673

Assets Under Construction

625,169 9,670 - - -

At 31 December

14,296,917 17,072,018

13,703,444 13,264,126 8,158,504 Accumulated depreciation

Land & Buildings

35,732 118,499

84,120 52,325 20,534

Plant & Machinery

762,705 2,449,959

1,693,612 973,824 389,860

Tools & Equipment

71,319 895,170

683,936 431,074 232,956


5,212 20,259

12,730 8,466 5,390

Motor Vehicles

45,963 94,055

40,903 14,268 3,781


10,751 68,023

46,140 30,446 13,245

Assets under Construction

- - - - -

At 31 December

931,682 3,645,965

2,561,441 1,510,403 665,766 Net book value

Leasehold, Land & Buildings

1,783,398 1,735,180

3,414,570 3,328,518 2,101,815

Plant & Machinery

10,549,214 11,304,206

7,419,859 7,959,653 4,939,360

Tools & Equipment

196,969 196,127

172,403 410,215 343,332


21,485 7,100

2,824 3,325 990

Motor Vehicles

140,057 129,702

74,203 21,454 20,813


48,943 44,068

58,144 30,558 86,428

Assets under Construction

625,169 9,670 - - -

At 31 December

13,365,235 13,426,053

11,142,003 11,753,723 7,492,738

46


<-------------------PRE-SCHEME OF ARRANGEMENT--------------------> DANGOTE FLOUR DIVISION - SEGMENTAL FINANCIAL

STATEMENTS FOR THE YEARS ENDED 31 DECEMBER

2006 2005 2004 2003 2002

N'000 N'000 N'000 N'000 N'000

7 STOCK AND WORK-IN-PROGRESS

Finished Goods 251,123 411,856 399,169

159,302

-

Raw materials and work-in-progress 3,539,637 4,400,322 1,425,236

1,442,582

-

Goods in transit 119,539 167,836 6,293

-

-

Engineering spares and other stock 378,932 126,119 307,590

73,044

-

4,289,231 5,106,133 2,138,288

1,674,928

1,327,294

8 DEBTORS AND PREPAYMENTS

Trade Debtors 6,028,563 4,849,177 5,410,576

886,317

2,997,726

Provision for bad and doubtful debts

(990,578)

(435,321)

(318,558)

-

-

5,037,985 4,413,856 5,092,018

886,317

2,997,726

Other Debtors and prepayments 1,129,087 1,907,408 1,668,258

600,904

365,986

Due from related companies 3,168,650 7,910,140 -

-

722,814

9,335,722 14,231,404 6,760,276

1,487,221

4,086,526

9 TRADE AND OTHER CREDITORS

Trade Creditors 5,827,004 7,007,229 2,815,938

1,662,242

4,028,122

Due to related companies -

- 995,059

-

-

Other creditors and accruals 5,110,354 6,151,868 2,545,489

385,979

575,419

10,937,358 13,159,097 6,356,486

2,048,221

4,603,541

10 EMPLOYEES' GRATUITIES

At 1st January 2006 189,707

- -

-

-

Provision for the year

127,822 189,707 -

-

-

Payments during the year

(62,719)

- -

-

-

254,810 189,707 -

-

-

11 SHARE CAPITAL

A Authorised

3,000,000,000 Ordinary shares of 50 kobo each 1,500,000

- -

-

-

Issued and fully paid

3,000,000,000 Ordinary shares of 50 kobo each 1,500,000

- -

-

-

B Share premium 11,931,537 - -

-

-

This represents the value of net assets of Dangote Flour Division transferred as at January 01, 2006 over and above the Company's authorised share capital in accordance with the scheme of arrangement of Dangote Industries Limited.

12 REVENUE RESERVE

Balance brought forward - 7,832,847 6,231,922 3,398,121 1,224,194

Transfer from profit and loss account 721,983 (569,296) 1,600,925 2,833,801 2,173,927

Balance carried forward 721,983 7,263,551 7,832,847 6,231,922 3,398,121

47


13 CONTINGENT LIABILITIES

13.1 There is no material contingent liability in respect of pending litigation against the Company. 13.2

The Directors are of the opinion that all known commitments and liabilities which are relevant in assessing the state of the affairs of the Company have been taken into consideration in the preparation of these financial statements

14 CAPITAL COMMITMENT

Capital commitments as at 31st December, 2006 was N572,041,493.

15 RELATED PARTY TRANSACTIONS

There is a system in place for the Company and Dangote Industries limited (Holding company) to provide short term funding for each other at an interest rate. The net balance due from Dangote Industries Limited amounted to N3.168 billion as at 31st December, 2006.

16 POST BALANCE SHEET EVENTS

16.1 Increase in Authorised Share Capital

At an extra ordinary meeting of the Company held on 16 June 2007, it was unanimously resolved that the present authorised share capital of the company be increased from N1,500,000,0000 to N3,000,000,000 by the creation of 3,000,000,000 ordinary shares of 50 kobo each, such new shares to rank pari passu in all respects with the existing ordinary shares in the capital of the company.

16.2 Increase in paid up Capital

At the Extraordinary General Meeting of the Company held on 16 June 2007, the paid up capital was increased to N2.5 billion through bonus issues by the allottment of 2,000,000,000 ordinary shares to existing shareholders.

48


3.2.1 Letter from the Reporting Accountants on the historical performance of Dangote Pasta Ltd






And And And

The Directors Zenith Capital Ltd Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island Lagos



And And The Directors Greenwich Trust Limited Plot 1698A, Oyin Jolayemi Street Victoria Island Lagos



And The Directors FutureView Financial Services Limited Plot 161D Aufu Taylor Close off Idejo Road off Adeola Odeku Street Victoria Island Lagos



And The Directors UBA Global Markets Limited UBA House (11th floor) 57, Marina Lagos

Dear Sirs, INITIAL PUBLIC OFFERING OF 1,250,000,000 ORDINARY SHARES OF 50 KOBO EACH AT N15 PER SHARE – REPORTING ACCOUNTANTS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF DANGOTE FLOUR MILLS PLC FOR THE YEARS ENDED 31ST DECEMBER 2006


49

HISTORICAL FINANCIAL INFORMATION (contd.) Sequel to a Court Order dated 23rd January, 2006 sanctioning the Scheme of Arrangement of Dangote Industries Limited (DIL), the assets, liabilities and rights attached to DIL’s Pasta Division were transferred to Dangote Pasta Plc with effect from 1st January, 2006. On March 16, 2007 the Company’s name was changed to Dangote Pasta Limited.

The financial information is based on the audited financial statements of Dangote Pasta Limited (formally Dangote Pasta Plc), a wholly owned subsidiary of Dangote Flour Mills Plc, for the year ended 31st December, 2006, and incorporates, for comparative purposes only, the segmental financial statement summaries of the erstwhile Pasta Division of Dangote Industries Limited for the four years ended 31st December, 2005. The financial statements were prepared under the historical cost convention. Messrs Akintola Williams Deloitte were the Company’s auditors for the year ended 31st December, 2006. The financial information have been prepared in accordance with the accounting policies set out on pages 50 to 51 after making such adjustments we considered necessary. The financial statements on which the information is based are the responsibility of the Directors of the Company who approved their issue. The Directors of the Company are responsible for the contents of the prospectus in which this report is included. We conducted our work in accordance with the International Standard on Auditing applicable to review engagements. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatements. Our review was limited primarily to examination of the work papers of the external auditors, inquiries of the Company’s personnel and analytical procedures applied to financial data and thus provide less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial information does not give a true and fair view of the state of affairs of Dangote Pasta Plc as at 31st December, 2006 and of its profit and cash flows for the year then ended in accordance with generally acceptable accounting principles in Nigeria.

Yours Faithfully,



50

HISTORICAL FINANCIAL INFORMATION (contd.) 3.2.2 STATEMENT OF ACCOUNTING POLICIES OF DANGOTE PASTA LTD

The following are the significant accounting policies which have been adopted:

(a) Basis of accounting

The financial statements are prepared on the historical cost basis. No adjustment has been made to reflect the impact on the financial statements of specific price changes or changes in the general level of prices.

(b) Turnover

Turnover represents the net value of goods and services sold to third parties during the year less discounts.

(c) Fixed assets


(d) Depreciation of fixed assets Depreciation is calculated to write off the cost of fixed assets on a straight line basis over their expected useful lives. The principal annual rates used for this purpose were:

2006 2005 2004 2003 2002 % % % % %

Leasehold land and buildings 2.00 2.00 2.00 2.00 2.00

Plant and Machinery 6.67 6.67 6.67 6.67 6.67

Motor vehicles 25.00 25.00 25.00 25.00 25.00

Tools and equipment 25.00 25.00 25.00 25.00 25.00

Furniture and fittings 20.00 20.00 20.00 20.00 20.00

Computer equipment/software 33.33 33.33 33.33 33.33 33.33

(e) Stock and work-in-progress

Stock and work-in-progress are valued at the lower of cost and net realizable value. Goods in transit are valued at the invoice price. Cost of stocks includes purchase cost, conversion cost (materials, labour and overhead) and other costs incurred to bring inventory to its present location and condition.

(f) Foreign currencies Transactions in foreign currencies are recorded in Naira at the rates of exchange ruling at the time they arise.

Assets and liabilities existing in foreign currencies are converted to Naira at the rates of exchange ruling at the balance sheet date. Gains or losses arising there from are included in the profit and loss account.

(g) Debtors

Bad debts are written off and specific provisions are made for those debts considered doubtful.

(h) Deferred taxation Deferred taxation is provided using the liability method at the current rate of income tax on all timing differences between the treatment of certain items for accounting purposes and their treatment for taxation in accordance with SAS 19.

51


(i) Employees' retirement benefit scheme

The Company makes provision for retirement benefits in accordance with the Pension Reform Act of 2004. The contribution of the employer is 8.5% while that of the employee is 7.5% of relevant emoluments.

The Company also operates a gratuity scheme for its permanent Nigerian staff, the benefits under which are related to employees’ length of service and remuneration. The provision for liability in respect thereof is provided in full in the financial statements.

52


3.2.3 PROFIT AND LOSS ACCOUNT FOR DANGOTE PASTA LTD

PRE- SCHEME OF ARRANGEMENT <--DANGOTE PASTA DIVISION - SEGMENTAL

PROFIT AND LOSS ACCOUNTS--> FOR THE YEARS ENDED 31 DECEMBER

2006 2005 2004 2003 2002 Notes N'000 N'000 N'000 N'000 N'000 Turnover 2 6,575,183 6,737,620 4,677,634 2,510,935 1,270,858 Cost of sales (5,063,299) (5,152,188) (3,811,142) (1,920,307) (1,100,937) Gross profit 1,511,884 1,585,432 866,492 590,628 169,921 Operating expenses (804,425) (935,236) (553,369) (415,622) (126,647) Trading profit 707,459 650,196 313,123 175,006 43,274 Other income 3 9,935 8,192 10,038 603 1,091 Profit before interest and similar charges 717,394 658,388 323,161 175,609 44,365 Interest expense and similar charges (70,968) (430,584) (183,389) (70,611) (41,995) Profit on ordinary activities before taxation 4 646,426 227,804 139,772 104,998 2,370 Taxation 5 - - - - - Retained profit for the year 646,426 227,804 139,772 104,998 2,370 The accounting policies on pages 50 to 51 and the notes on pages 55 to 58 form part of these financial statements

53


3.2.4 BALANCE SHEET FOR DANGOTE PASTA LTD

PRE- SCHEME OF ARRANGEMENT <-DANGOTE PASTA DIVISION - SEGMENTAL BALANCE SHEET ACCOUNTS->

FOR THE YEARS ENDED 31 DECEMBER AS AT 2006 2005 2004 2003 2002 Notes N'000 N'000 N'000 N'000 N'000 FIXED ASSETS 6 3,715,811 3,946,778 4,322,636 4,376,094 1,880,008 Capital Work in Progress 7 4,967,822 232,241 - - - Investments - - 250,000 - - 8,683,633 4,179,019 4,572,636 4,376,094 1,880,008 Current Assets Stock and Work-in-progress 8 495,206 254,709 112,364 511,892 80,468 Debtors and Prepayments 9 6,562,104 (1,460,068) (2,831,816) (1,229,502) (1,950,780) Cash and Bank Balances 695,907 146 514,807 201,787 62,328 7,753,217 (1,205,213) (2,204,645) (515,823) (1,807,984) Creditors: Amounts falling due within one year Bank Borrowings (Secured) 10 1,060,656 713,109 15,434 102,269 158,315 Trade and Other Creditors 11 10,993,211 (11,466) 338,449 1,899,532 29,761 Taxation - - - - - 12,053,867 701,643 353,883 2,001,801 188,076 Net Current Assets/Liabilities (4,300,650) (1,906,856) (2,558,528) (2,517,624) (1,996,060) Total Assets Less Current Liabilities 4,382,983 2,272,163 2,014,108 1,858,470 (116,052) Term Loan 12 (1,445,145) - - - - Provision for liabilities and charges 13 (65,367) (46,117) (15,867) - - NET ASSETS 2,872,471 2,226,046 1,998,241 1,858,470 (116,052) CAPITAL AND RESERVES Share Capital 14 50,000 - - - - Share Premium Account 15 75,334 - - - - Revaluation reserve 2,100,711 2,100,711 2,100,711 2,100,711 231,187 Revenue Reserve 16 646,426 125,335 (102,469) (242,241) (347,239) 2,872,471 2,226,046 1,998,242 1,858,470 (116,052) The accounting policies on pages 50 to 51 and the notes on pages 55 to 58 form part of these accounts

54


3.2.5 CASH FLOW STATEMENT FOR DANGOTE PASTA LTD

PRE- SCHEME OF ARRANGEMENT <--DANGOTE PASTA DIVISION - SEGMENTAL CASH FLOW STATEMENT-->

FOR THE YEARS ENDED 31 DECEMBER 2006 2005 2004 2003 2002 N'000 N'000 N'000 N'000 N'000 CASH FLOW FROM OPERATING ACTIVITIES Operating profit before taxation 646,426 227,804 139,772 104,998 2,370 Adjustment for non-cash items: Depreciation of fixed assets 305,705 404,423 398,635 235,065 86,030 Loss on sale of fixed asset 300 - - - - Cash Flow before changes in working capital 952,431 632,227 538,407 340,063 88,400 Decrease/[Increase] in stock & work in progress (495,207) (142,345) 399,528 (431,424) 55,341 Decrease/[Increase] in debtors & prepayment (901,116) 119,720 1,295 (367,319) 30,715 Decrease/[Increase] in due from related companies (5,660,987) (1,491,468) 1,601,018 (353,959) - [Decrease]/Increase in Trade creditors 1,065,469 - - - - [Decrease]/Increase in creditors & accruals 490,588 (349,915) (187,569) 496,258 429,018 [Decrease]/Increase in due to related companies 9,437,154 - (1,373,514) 1,373,514 93,451 [Decrease]/Increase in gratuity 65,366 30,250 15,866 - - Cash generated from/[absorbed] in operations 4,953,698 (1,201,531) 995,031 1,057,133 696,925 CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets (4,027,015) (28,565) (345,177) (2,731,151) (1,046,039) Proceeds on disposal of fixed assets 5,200 - - - - Capital work in Progress (4,967,822) (232,241) - - - Investment - 250,000 (250,000) - - Net cash outflow from investing activities (8,989,637) (10,806) (595,177) (2,731,151) (1,046,039) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issue of Shares 50,000 - - - - Share premium 75,334 - - - - Revaluation reserve 2,100,711 - - 1,869,524 231,187 Term Loan 1,445,145 - - - - Net cash provided by financing activities 3,671,190 - - 1,869,524 231,187 Net decrease in cash and cash equivalents (364,749) (1,212,337) 399,854 195,506 (117,927) CASH AND CASH EQUIVALENT AT 1 JAN Bank and Cash Balances - 514,807 201,788 62,328 42,653 Bank overdraft - (15,434) (102,269) (158,315) (20,713) Short term loans - - - - - (364,749) (712,964) 499,373 99,519 (95,987) CASH AND CASH EQUIVALENT Bank and Cash Balances 695,907 145 514,807 201,788 62,328 Bank overdraft - (713,109) (15,434) (102,269) (158,315) Short term loans (1,060,656) - - - - (364,749) (712,964) 499,373 99,519 (95,987)

55


3.2.6 NOTES TO THE FINANCIAL STATEMENTS OF DANGOTE PASTA LTD

Notes

1. THE COMPANY

Dangote Pasta Plc began operation as a division of Dangote Industries Limited in the year 2000. The company became incorporated as an entity by the Corporate Affairs Commission in January 2006 and officially commenced operation then. The company is in the business of producing Pasta products which are Flour derivatives.

PRE SCHEME OF ARRANGEMENT <-- DANGOTE PASTA DIVISION SEGMENTAL FINANCIAL STATEMENT-->

FOR THE YEAR ENDED 31 DECEMBER

2006 2005 2004 2003 2002 N'000 N'000 N'000 N'000 N'000

2. TURNOVER Products: Spagetti 5,693,653 5,843,410 4,230,795 2,382,362 1,270,858 Macaroni 881,530 894,210 446,839 128,573 - 6,575,183 6,737,620 4,677,634 2,510,935 1,270,858

3. Other Income Sundry income 10,235 8,192 10,038 603 1,091 Loss on the sale of fixed assets (300) - - - - 9,935 8,192 10,038 603 1,091

4. Profit before taxation This is arrived at after charging: Depreciation of fixed assets 305,705 404,423 398,635 235,065 86,030 Directors' remuneration 24,506 - - - - Auditors' remuneration 4,000 N/A N/A N/A N/A Loss on disposal of assets 300 - - - - Management fees (Note 22) 131,504 134,752 93,553 50,219 25,417

5. TAXATION Charge for the year: - - - - - Per Profit and Loss Account: - - - - -

The Company is not liable to taxation as it acquired pioneer status through a Scheme of Arrangement with its holding company Dangote Industries Limited which had since 1 January, 2002 been granted pioneer status by the Nigerian Investments Promotion Commission under the Act. The pioneer status expires on January 01, 2007.

56

FINANCIAL INFORMATION (contd.) Notes to the Financial Statements


FOR THE YEAR ENDED 31 DECEMBER 2006 2005 2004 2003 2002

6 Fixed assets N'000 N'000 N'000 N'000 N'000 Cost / Valuation Leasehold, Land & Buildings 325,917 349,931 349,931 349,931 284,477 Motor Vehicles 51,029 44,083 28,198 28,198 15,554 Furniture & Fittings 12,724 40,502 36,570 35,890 29,700 Plant & Machinery 3,455,966 4,333,112 4,331,248 3,989,017 1,469,687 Tools & Equipment 167,012 445,599 441,851 439,736 313,284 Computer Hardware/Software 6,368 6,025 2,889 2,738 1,657 At 31 December 4,019,016 5,219,252 5,190,687 4,845,510 2,114,359 Accumulated Depreciation Leasehold, Land & Buildings 6,515 24,278 17,279 10,280 5,410 Motor Vehicles 8,559 27,286 17,912 10,863 5,593 Furniture & Fittings 2,075 33,464 25,874 18,578 13,478 Plant & Machinery 229,021 904,889 614,621 326,381 167,734 Tools & Equipment 55,671 278,752 189,943 101,836 41,362 Computer Hardware/Software 1,364 3,805 2,422 1,478 774 At 31 December 303,205 1,272,474 868,051 469,416 234,351 Net Book Value Leasehold, Land & Buildings 319,402 325,653 332,652 339,651 279,067 Motor Vehicles 42,470 16,797 10,286 17,335 9,961 Furniture & Fittings 10,649 7,038 10,696 17,312 16,222 Plant & Machinery 3,226,945 3,428,223 3,716,627 3,662,636 1,301,953 Tools & Equipment 111,341 166,847 251,908 337,900 271,922 Computer Hardware/Software 5,004 2,220 467 1,260 883 At 31 December 3,715,811 3,946,778 4,322,636 4,376,094 1,880,008

57



FOR THE YEAR ENDED 31 DECEMBER

2006 2005 2004 2003 2002 N'000 N'000 N'000 N'000 N'000

7. Capital Work in Progress

Construction of Flour Mills and expansion of Pasta Lines 4,967,822 232,241 - - -

8. Stock and Work-in-progress

Finished Goods 250,809 - - 386,844 20,047 Raw Materials and Work-in-progress 70,302 72,750 6,479 24,670 47,840 Engineering Spares and Other Stocks 174,095 181,959 105,885 100,378 12,581 495,206 254,709 112,364 511,892 80,468

9. Debtors and Prepayments Trade Debtors 722,114 352,757 370,436 407,506 31,991 Less: Provision for Doubtful Debts (73,831) (73,831) (11,857) - - 648,283 278,926 358,579 407,506 31,991

Other Debtors and Prepayments 252,834 3,027 43,094

(4,538) 3,658

Due from Related Companies 5,660,987 (1,742,021) (3,233,489)

(1,632,470) (1,986,429)

6,562,104 (1,460,068) (2,831,816)

(1,229,502) (1,950,780) 10. Borrowings

(i) Overdrafts - 713,109 15,434 102,269 158,315 (ii) Short term Loans 1,060,656 - - - - 1,060,656 713,109 15,434 102,269 158,315

11. Trade and Other Creditors Trade Creditors 1,065,469 - - - - Other Creditors and Accruals 490,588 (11,466) 338,449 526,018 29,761 Due to Related Companies 9,437,154 - - 1,373,514 - 10,993,211 (11,466) 338,449 1,899,532 29,761

12. Term Loans At 1st January 2006 - - - - - Loans obtained during the year 2,505,801 - - - - Amount due within one year (1,060,656) - - - - Due after one year 1,445,145 - - - -

The loan amount of $19.8 million which was obtained during the year was granted to the Company by Commerzbank Germany for the Company's flour mill and pasta line expansion projects. The loan amount is repayable in 3 years with $8.26 million payable in 2007, $9.87 million payable in 2008 and $1.61 million payable in 2009. The interest rate is 9.029% per annum.

58



FOR THE YEAR ENDED 31 DECEMBER 2006 2005 2004 2003 2002 N'000 N'000 N'000 N'000 N'000

13. Employees Gratuity At 1 January 46,117 15,867 - - - Provision made during the year 22,341 46,117 15,867 - - Payments during the year (3,091) (15,867) - - - At 31 December 65,367 46,117 15,867 - -

14. Share Capital

50,000,000 Ordinary Shares of N1.00 each 50,000 - - - -

15. Share Premium Share of Dangote Pasta's profit in DIL 75,334 - - - -

This represents the value of net assets of Dangote Pasta Division transferred as at January 01, 2006 over and above the Company's authorised share capital in accordance with the Scheme of Arrangement of Dangote Industries Limited.

16. Revenue Reserve

Profit brought forward - (645,604) (462,215) (391,604) (349,609)

Transferred from profit and loss (70,968) (430,584) (183,389) (70,611) (41,995) (70,968) (1,076,188) (645,604) (462,215) (391,604)

17. Directors Emoluments Chairman - - - - - Highest paid director 24,506 - - - - 24,506 - - - - As fees - - - - - Emoluments as executive 24,506 - - - -

The number of directors excluding the chairman whose emoluments were within the following Number

N'000 4,000 and above 1 - - - -

18. Guarantees and other financial commitments 1. The Directors are of the opinion that all known liabilities and commitments which are relevant in assessing the

company's state of affairs, have been taken into accounts in the preparation of these financial statements. 2. There is no contingent liability in respect of litigation against the Company.

19. Related party transactions

Related party transactions arose from collection from customers and payments to suppliers by Dangote Industries Limited and other related companies on behalf of Dangote Pasta Plc. As at the year end 31st December 2006, balances due to Dangote Industries Limited and due from other related parties was N3.484 billion and N9.437 respectively.

20. Management Fees

The Company has annual financial commitment to Dangote Industries Limited amounting to 2% of turnover as management fees. Total Management fees for the financial year ending 31st December 2006 was N131.5 million.

21. Post balance sheet event

The name of the company was changed to Dangote Pasta Limited by a special resolution and with the authority of the Registrar-General of the Corporate Affairs Commission on May 11, 2007.

59

HISTORICAL FINANCIAL INFORMATION 3.3.1 Letter from the Reporting Accountants on the historical performance of Dangote Agro Sacks Ltd






And And And The Directors Zenith Bank Plc Zenith Heights Plot 87, Ajose Adeogun Street Victoria Island Lagos



And And The Directors Greenwich Trust Limited Plot 1698A, Oyin Jolayemi Street Victoria Island Lagos



And The Directors FutureView Financial Services Limited Plot 161D Aufu Taylor Close off Idejo Road off Adeola Odeku Street Victoria Island Lagos



And The Directors UBA Global Markets Limited UBA House (11th floor) 57, Marina Lagos

Dear Sirs, INITIAL PUBLIC OFFERING OF 1,250,000,000 ORDINARY SHARES OF 50 KOBO EACH AT N15 PER SHARE – REPORTING ACCOUNTANTS’ REPORT ON THE AUDITED FINANCIAL STATEMENTS OF DANGOTE FLOUR MILLS PLC FOR THE YEARS ENDED 31ST DECEMBER 2006


60

HISTORICAL FINANCIAL INFORMATION (contd.) The financial information is based on the audited financial statements of Dangote Agro Sacks Limited a wholly owned subsidiary of Dangote Flour Mills Plc, for the four years ended 31st March 2002 to 31st March 2005 and for the two years ended 31st December 2005 and 2006.

The financial statements were prepared under the historical cost convention, modified to include the revaluation of certain fixed assets. Messrs Robert Odiachi & Co., were the auditors of the Company for the years ended 31st March 2002, 2003, 2004, 2005 and the year ended 31st December 2005 while SIAO Partners were the auditors for the year ended 31st December, 2006.

The financial information have been prepared in accordance with the accounting policies set out on page 61 after making such adjustments we considered necessary. The financial statements on which the information is based are the responsibility of the Directors of Dangote Agro Sacks Limited who approved their issue. The Directors of Dangote Flour Mills Plc are responsible for the contents of the prospectus in which this report is included.

We conducted our work in accordance with the International Standard on Auditing applicable to review engagements. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatements. Our review was limited primarily to examination of the work papers of the external auditors, inquiries of the Company’s personnel and analytical procedures applied to financial data and thus provide less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial information does not give a true and fair view of the state of affairs of Dangote Agro Sacks Limited as at the dates stated and of the profit and loss and cash flows for the years then ended in accordance with generally acceptable accounting principles in Nigeria.

Yours Faithfully,



61

HISTORICAL FINANCIAL INFORMATION (contd.) 3.3.2 STATEMENT OF ACCOUNTING POLICIES OF DANGOTE AGRO SACKS LTD

The following is a summary of the principal accounting policies adopted in the preparation of the accounts of the Company.

(a) Basis of accounting

The accounts are prepared under the historical cost convention.

(b) Fixed assets


(c) Depreciation of fixed assets

Depreciation on fixed assets charged on straight – line basis at rates calculated to write off the cost of assets over the estimated useful lives. The principal annual rates were:

2006 2005 2004 2003 2002

% % % % %

Freehold land and buildings 2.0 2.0 2.0 2.0 2.0

Plant and Machinery 7.5 7.5 7.5 7.5 7.5

Motor vehicles 25.0 25.0 25.0 25.0 25.0

Office equipment 20.0 20.0 20.0 20.0 20.0

Furniture and fittings 20.0 20.0 20.0 20.0 20.0

Computer equipment 33.33 33.33 33.33 33.33 33.33

(d) Turnover

Turnover represents the net value of sales invoiced to third parties during the year.

(h) Debtors Debtors are stated after deduction of provision for debts considered bad and doubtful of collection.

(e) Stock and work-in-progress

Stock and work-in-progress are valued at the lower of cost and net realizable value after provision for obsolete and damaged items. Cost of production, work in progress and finished goods include materials, labour and overheads directly attributable to processing.

(f) Repairs and renewals

Normal repairs and renewals are written off as incurred.

(g) Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction.

62


3.3.3 PROFIT AND LOSS ACCOUNT FOR DANGOTE AGRO SACKS LTD

FOR THE YEARS ENDED 31-Dec 31-Dec 31-Mar 31-Mar 31-Mar 31-Mar 2006 2005 2005 2004 2003 2002 Notes N'000 N'000 N'000 N'000 N'000 N'000

Turnover

5,974,636 3,668,399 3,907,145 3,286,535

2,411,006 1,837,197

Cost of sales

(4,823,983)

(2,407,142)

(3,064,156)

(2,250,622)

(1,430,737) (1,714,878)

Gross profit

1,150,653 1,261,257 842,989 1,035,913

980,269 122,319

Distribution cost (8,228)

(4,177)

(2,526) (4,386)

(17,248) (4,215)

Administration expenses

(265,570)

(179,718)

(229,539)

(108,214) (97,458) (90,998)

876,855 1,077,362 610,924 923,313

865,563 27,106

Other operating income

17,348 14,724 64,080 7,026

4,852 2,654

Operating profit

894,203 1,092,086 675,004 930,339

870,415 29,760

Exceptional income - - 72,201 - - -

894,203 1,092,086 747,205 930,339 870,415 29,760

Interest expense and similar charges

(20,619)

(123,137)

(250,047)

(284,510)

(197,277) (138,825)

Profit on ordinary activities before taxation 873,584 968,949 497,158 645,829 673,138 (109,065)

Taxation 11 (131,038) - - - - -

Retained profit for the year

742,546 968,949 497,158 645,829

673,138 (109,065)

Prior year adjustment - 1,952

(52,060) -

60,000 -

Profit for the financial year 10

742,546 970,901 445,098 645,829

733,138 (109,065)

Retained profit brought forward 9

2,954,983 1,984,082 1,538,984 893,155

160,017 269,082

Retained profit carried forward 9

3,697,529 2,954,983 1,984,082 1,538,984

893,155 160,017

The accounting policies on page 61 the notes on pages 65 to 68 form part of these accounts

63


3.3.4 BALANCE SHEET FOR DANGOTE AGRO SACKS LTD

AS AT 31-Dec 31-Dec 31-Mar 31-Mar 31-Mar 31-Mar

2006 2005 2005 2004 2003 2002

Notes N'000 N'000 N'000 N'000 N'000 N'000 Fixed assets

Tangible assets 1 2,569,548 2,255,747 2,154,496 1,637,386 1,705,850

1,775,959

Investments 2 - 84,154 - - - -

2,569,548 2,339,901 2,154,496 1,637,386 1,705,850

1,775,959

Current assets

Stocks 3 1,395,474 1,034,782 787,901 732,628 609,837 354,243

Debtors 4 6,595,672 7,112,491 5,574,551 5,411,110 2,569,656 539,377

Cash and bank balances 5 101,930 57,296 3,993 3,940 88 1,690

8,093,076 8,204,569 6,366,445 6,147,678 3,179,581 895,310

Creditors: Amounts falling due within one year 6 6,277,353 6,901,745 5,849,117 6,161,080 3,907,276

2,426,252

Net current assets 1,815,723 1,302,824 517,328 (13,402) (727,695)

(1,530,942) Total assets less current liabilities 4,385,271 3,642,725 2,671,824 1,623,984 978,155 245,017

CAPITAL AND RESERVES

Share capital 7 85,000 85,000 85,000 85,000 85,000 85,000

Revaluation reserve 8 602,742 602,742 602,742 - - -

Profit and loss account 9 3,697,529 2,954,983 1,984,082 1,538,984 893,155 160,017

Shareholders' funds 4,385,271 3,642,725 2,671,824 1,623,984 978,155 245,017

The accounting policies on page 61 and the notes on pages 65 to 68 form part of these accounts

64


3.3.5 CASH FLOW STATEMENT FOR DANGOTE AGRO SACKS LTD

31-Dec 31-Dec 31-Mar 31-Mar 31-Mar 31-Mar

2006 2005 2005 2004 2003 2002

N'000 N'000 N'000 N'000 N'000 N'000

CASH GENERATED FROM OPERATIONS

Operating profit 894,203 1,092,086 675,004 930,339 870,416 29,760

prior year adjustment on profit brought forward

- 1,952

(52,060) - 60,000 -

Depreciation 260,108 176,562 189,539 184,629 179,620 360,826

Amortisation of intangible fixed assets 2,433 - - - - -

Decrease/[Increase] in stock & work in progress

(360,691)

(246,881)

(55,273)

(122,792)

(255,594)

(103,967)

Decrease/[Increase] in debtors & prepayment 516,819

(1,537,940)

(163,441)

(2,841,454)

(2,030,280)

(408,145)

[Decrease]/Increase in creditors & accruals

(298,370) 2,081,739

(507,245) 806,311

(471,519) 751,465

1,014,502 1,567,518 86,524

(1,042,967)

(1,647,357) 629,939

Cash generated from other sources

Exceptional items

- - 72,201 - - -

1,014,502 1,567,518 158,725

(1,042,967)

(1,647,357) 629,939

Application of cash

Interest paid

(20,619)

(123,137)

(250,047)

(284,510)

(197,278)

(138,825)

Purchase of tangible fixed assets

(576,343)

(277,813)

(87,951)

(116,167)

(106,269)

(1,894,064)

Repayment of amount borrowed

- - - 1,001,239 1,637,395 359,394

Capitalisation of fixed assets investments

- - - - - 1,132,652

Reclassification of fixed assets investments 84,154

(84,154) - - - -

Net increase/decrease in cash 501,694 1,082,414

(179,273)

(442,405)

(313,509) 89,096

Cash at bank and in hand less overdraft brought forward

(416,486)

(1,498,901)

(1,319,628)

(877,223)

(563,714)

(652,810)

Cash at bank and in hand less overdraft carried forward 85,208

(416,487)

(1,498,901)

(1,319,628)

(877,223)

(563,714)

Consisting of

Cash at bank and in hand 101,930 57,296 3,993 3,940 88 1,690

Bank Overdraft

(16,722)

(473,783)

(1,502,894)

(1,323,568)

(877,311)

(565,404)

85,208

(416,487)

(1,498,901)

(1,319,628)

(877,223)

(563,714)

65


3.3.6 NOTES TO THE FINANCIAL STATEMENTS OF DANGOTE AGRO SACKS LTD


NOTE Note

2006 2005 2005 2004 2003 2002

1 Fixed assets

N'000 N'000 N'000 N'000 N'000 N'000

Cost / Valuation

Freehold, Land & Buildings

302,407 300,487 300,096 147,200 146,789 118,226

Leasehold Improvement

8,052 7,945 7,945 7,945 7,945 7,943

Capital Work in progress

463,112 - - - - 21,711

Plant and Machinery

3,292,850 3,214,953 2,940,485 2,409,713 2,298,225 2,195,921

Motor Vehicles

26,655 12,540 11,766 7,331 6,891 6,891

Furniture & Fittings

10,436 8,354 7,824 7,207 15,839 14,416

Office Equipment

18,119 14,015 13,259 11,064 - -

Computer Equipment

8,678 5,404 4,510 4,733 3,337 2,693

Development Expenditure 17 9,732 - - - - -

At 31 December

4,140,041 3,563,698 3,285,885 2,595,193 2,479,026 2,367,801

Accumulated depreciation


28,099 22,103 17,597 7,699 4,758 2,245


7,949 7,945 7,945 7,945 6,780 5,191


- - - - - -

Plant and Machinery

1,487,373 1,244,688 1,079,063 918,516 744,435 572,672

Motor Vehicles

16,648 11,740 9,519 7,032 5,379 3,656


7,668 5,888 4,677 4,937 9,281 6,168

Office Equipment

13,678 11,439 9,667 7,825 - -

Computer Equipment

6,645 4,148 2,921 3,853 2,543 1,910


At 31 December

1,570,493 1,307,951 1,131,389 957,807 773,176 591,842

Net book value


274,308 278,384 282,499 139,501 142,031 115,981


103 - - - 1,165 2,752


463,112 - - - - 21,711

Plant and Machinery

1,805,477 1,970,265 1,861,422 1,491,197 1,553,790 1,623,249

Motor Vehicles

10,007 800 2,247 299 1,512 3,235


2,768 2,466 3,147 2,270 6,558 8,248

Office Equipment

4,441 2,576 3,592 3,239 - -

Computer Equipment

2,033 1,256 1,589 880 794 783


At 31 December

2,569,548 2,255,747 2,154,496 1,637,386 1,705,850 1,775,959

The Company revalued its fixed assets in 2005. The revaluation was carried out by Messrs Alagbe & Partners, Estate Surveyors and Valuers on the basis of Open Market Values between a willing buyer and a willing seller. The resulting surplus on revaluation was credited to a Fixed Assets revaluation Reserve Account. Subsequent additions to the revalued assets are stated at cost.

66



2006 2005 2005 2004 2003 2002

NOTE N'000 N'000 N'000 N'000 N'000 N'000

2 Investment

-

84,154

-

-

-

-

The production line earlier planned to be located Kano was transferred to Lagos and is located at the Picano Shed. This project as represented by management is 90% completed. The project has undergone test production and is planned to be put to full use in April, 2007. It has accordingly been reclassified to fixed assets.

3 Stocks

Raw materials

661,970

326,131

555,607

310,236

336,974 198,444

Work in progress

122,287

201,841

98,966

86,578

47,075

55,133

Finished goods

611,217

506,810

133,328

335,814

225,788 100,666

1,395,474

1,034,782

787,901

732,628

609,837 354,243

4 Debtors

Trade debtors

207,692

1,468,730

74,779

3,732,570

1,211,539

427,173

Other debtors

179,132

25,680

9,722

8,566

416

278

Amounts owed by subsidiary undertakings

5,353,609

4,564,737

5,137,166

1,491,032

1,117,781

-

Prepayment

3,243

11,654

7,160

12,254

18,560

11,298

Staff debtors

10,476

4,299

3,823

2,501

2,466

1,520

Advance deposit

841,520

1,037,391

341,901

164,187

218,894 99,108

6,595,672

7,112,491

5,574,551

5,411,110

2,569,656 539,377

5 Cash and bank balances

Cash at bank

101,124

56,953

3,673

3,863

20

1,501

Petty cash

806

343

320

77

68

189

101,930

57,296

3,993

3,940

88

1,690

6 Creditors: amounts falling due within one year

Bank loans and overdrafts

16,723

473,783

1,502,894

1,323,568

877,311 565,404

Suppliers' accounts (Trade creditors)

494,179

515,108

726,942

212,085

166,304

118,223

Accounts owed to associated undertakings

4,260,324

4,544,125

2,727,205

3,686,721

2,685,485 1,048,090

Customers deposit

200,339

-

-

-

-

-

Provision

53,778

354,450

343,220

-

-

-

Taxation

131,038

-

-

-

-

-

Other creditors

209,485

454,236

168,981

785,422

(60,000) 649,012

Accruals

899,678

560,043

379,875

153,284

238,176 45,523

Pension contributions

11,809

-

-

-

-

-

6,277,353

6,901,745

5,849,117

6,161,080

3,907,276 2,426,252

67



2006 2005 2005 2004 2003 2002

NOTE N'000 N'000 N'000 N'000 N'000 N'000

7 Share capital

Authorised equity shares

85,000,000 Ordinary shares of N1.00 each

85,000

85,000

85,000

85,000

85,000

85,000

Issued and fully paid equity shares

85,000,000 Ordinary shares of N1.00 each

85,000

85,000

85,000

85,000

85,000

85,000

8 Revaluation reserves

At January 01

602,742

602,742

-

-

-

-

Revaluation surplus

-

-

602,742

-

-

-

At December 31

602,742

602,742

602,742

-

-

-

9 Profit and loss account

Brought forward

2,954,983

1,984,082

1,538,984

893,155

160,017

269,082

Profit for the year

742,546

968,949

497,158

645,829

673,138

(109,065)

Prior year adjustments

-

1,952

(52,060)

-

60,000

-

Carried forward

3,697,529

2,954,983

1,984,082

1,538,984

893,155

160,017

10 Reconciliation of movement in shareholders' funds

Profit for the financial year

742,547

968,949

497,158

645,829

673,138

(109,065)

Prior year adjustment

-

1,952

(52,060)

-

60,000

-

Increase in shareholders' funds

742,547

970,901

445,098

645,829

733,138

(109,065)

Revaluation reserves - - 602,742 - - -

Opening shareholders' funds

3,642,725

2,671,824

1,623,984

978,155

245,017

354,082

Closing shareholders' funds

4,385,271

3,642,725

2,671,824

1,623,984

978,155

245,017

11 Taxation

Provision for taxation

131,038

-

-

-

-

-

The tax holiday period under the pioneer certificate granted by the Governing Council of the Nigerian Investment Promotion Commission lapsed during the 2006 financial year. A provision for tax of N131,037,626 on profit for the year have been made in the accounts.

12 Gross cash flows

Returns on investments and servicing of finance

Interest paid

(20,619)

(123,137)

(250,047)

(284,510)

(197,278)

(138,825)

Prior year adjustment

-

1,952

(52,060)

-

60,000

-

(20,619)

(121,185)

(302,107)

(284,510)

(137,278)

(138,825)

Capital expenditure and financial investment

Payments to acquire tangible fixed assets

(576,343)

(277,813)

(690,692)

(116,166)

(127,980)

(1,894,064)

Capitalisation of fixed assets investments

-

(84,154)

-

-

21,711

1,132,652

(576,343)

(361,967)

(690,692)

(116,166)

(106,269)

(761,412)

Decrease/increase in amounts owed to associated companies due within the year

(283,802)

1,816,920

(959,516)

1,001,236

1,637,395

359,394

68


31-Dec 31-Dec 31-Mar 31-Mar 31-Mar 31-Mar 2006 2005 2005 2004 2003 2002 NOTES N'000 N'000 N'000 N'000 N'000 N'000

13 Analysis of changes in net debt

Opening cash at bank and in hand

57,296

3,993

3,940

88

1,690

4,663

Opening overdrafts

(473,783)

(1,502,894)

(1,323,568)

(877,311)

(565,404)

(657,473)

(416,487)

(1,498,901)

(1,319,628)

(877,223)

(563,714)

(652,810)

Closing cash at bank and in hand

101,930

57,296

3,993

3,940

88

1,690

Closing overdrafts

(16,723)

(473,783)

(1,502,894)

(1,323,568)

(877,311)

(565,404)

85,207

(416,487)

(1,498,901)

(1,319,628)

(877,223)

(563,714)

Cash flow

501,694

1,082,414

(179,273)

(442,405)

(313,509)

89,096

Opening debt due within one year

(4,544,125)

(2,727,205)

(3,686,721)

(2,685,485)

(1,048,090)

(688,696)

Closing debt due within one year

(4,260,323)

(4,544,125)

(2,727,205)

(3,686,721)

(2,685,485)

(1,048,090)

Cash flow

283,802

(1,816,920)

959,516

(1,001,236)

(1,637,395)

(359,394)

Net cash flow

785,496

(734,506)

780,243

(1,443,641)

(1,950,904)

(270,298) 14 Operating Profit

The operating profit is stated after charging or crediting:

Depreciation of owned tangible fixed assets

262,542

176,562

173,582

184,631

181,334

360,826

Amortisation of Fixed Assets

2,433

-

-

-

-

-

Auditors' fee

6,000

4,549

4,549

3,956

1,000

635

15 Exceptional items

-

-

72,201

-

-

-

This arose as a result of wrong treatment of bulk purchase of spare parts as expense items during the year ended March 2005. The figure represents the total value of spare parts expensed by the Company over the years but still carried in stock as at 31 March 2005.

16 Prior year adjustments -

1,952

(52,060)

-

60,000

- These relate to transactions that occurred in preceding years but were not captured in those years they occurred.

17 Development Expenditure

This represents total cost incurred as an assistance to PHCN for the purchase and installation of a transformer for the Ad Star factory in 2006. The cost is to be amortised over a period of four years at an annual rate of N2,433,067.

69

STATUTORY & GENERAL INFORMATION

4.1 INCORPORATION AND SHARE CAPITAL HISTORY

Dangote Flour Mills Plc was incorporated on April 1, 2004 with its Registered Office at 8, Rycroft Road, off Liverpool Road, Apapa, Lagos. The Company was incorporated with an initial share capital of N100,000,000 comprising of 100,000,000 ordinary shares of N1.00 each. At present the Authorised Share Capital is N3,000,000,000 comprising of 6,000,000,000 ordinary shares of 50 kobo each. The issued and fully paid up share capital of the Company is N2,500,000,000 comprising of 5,000,000,000 Ordinary shares of 50 kobo each.

Date Authorised (N=) Issued and fully paid (N=) Consideration Increase Cumulative Increase/(Decrease) Cumulative 2004 100,000,000 100,000,000 100,000,000 100,000,000 Cash 2005 1,400,000,000 1,500,000,000 910,000,000 1,010,000,000 Scheme shares to DIL 2006 0 1,500,000,000 490,000,000 1,500,000,000 Bonus shares (1,000 to every

2,061) 2006 0 1,500,000,000 125,000,000 1,625,000,000 Bonus shares (1 for every 12) 2007 1,500,000,000 3,000,000,000 525,000,000 2,150,000,000 Consideration to DIL for

shares in Dangote Agro Sacks 2007 0 3,000,000,000 350,000,000 2,500,000,000 Consideration to DIL for

shares in Dangote Pasta

4.2 SHAREHOLDING STRUCTURE

As at the date of this Prospectus, the 5,000,000,000 issued and fully paid ordinary shares of the Company were beneficially held as follows:

Shareholders No. of Shares Held % Holding Dangote Industries Limited 4,967,716,667 99.35 Alhaji Aliko Dangote 32,283,333 0.65 5,000,000,000 100

4.3 DIRECTORS’ BENEFICIAL INTERESTS The interests of the Directors of Dangote Flour Mills in the issued share capital of the Company as recorded in the Register of Members as at the date of this Prospectus and as notified by the Directors for the purposes of Section 275 of the Companies and Allied Matters Act, Cap C20 LFN 2004 are as follows:

Directors Direct Shareholding

Indirect Shareholding

% Holding

Alhaji Aliko Dangote, CON 32,283,333 4,520,622,167 91.06 Mr. Michael Zetzsche (German) - - - Alhaji Ahmed Shehu Yakassai - - - Mr. Olakunle Alake - - - Alhaji Sani Dangote - 447,094,500 8.94 Alhaji Abdu Dantata Mr. Asue A. Ighodalo - - - Alhaji Abdullahi Mahmoud - - - Mr. Uzoma Nwankwo - - - Brig. Gen. Teidi (Rtd) - - -

4.4 INDEBTEDNESS

As at 31st December, 2006, the Company had secured bank over drafts in the ordinary course of business amounting to N2,003 billion. However, the Company had no outstanding debenture, mortgages, charges or similar indebtedness or contingent liabilities as at the referenced date.

4.5 SUBSIDIARIES AND ASSOCIATED COMPANIES

As at the date of the prospectus, the Company had two subsidiaries, details of which are:

Dangote Agro Sacks Limited 99% Dangote Pasta Limited 99%

4.6 OFF BALANCE SHEET ITEMS As at 30th June, 2007, the Company had no off balance sheet items.

70

STATUTORY & GENERAL INFORMATION (contd.)

4.7 EXTRACTS FROM THE MEMORANDUM AND ARTICLES OF ASSOCIATION

The following are the relevant extracts from the Company’s Memorandum and Articles of Association:

SHARES 2.10 The company may from time to time issue classes of shares. It shall be the responsibility of the directors to

determine the classes of shares to be issued. All the rights and restrictions attached to each particular class of shares shall be specified in the terms of issue but such rights may at any time be varied in accordance with the provisions of Section 141 of the Act.

2.10.1 No part of the funds of the company shall be employed in the purchase of the company’s shares and the

company’s shares shall not be used to secure any loans granted by the company. Notwithstanding the following, nothing in this Article shall be taken to prohibit:

2.10.1.1 the lending of money in the ordinary course of its business; 2.10.1.2 the provision by the company, in accordance with any scheme for the time being in force, of

money for the purchase of, or subscription for, fully – paid shares in the company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit of employees of the company, including any director holding a salaried employment or office in the company;

2.10.1.3 the making by the company of loans to persons, other than directors, bonafide in the employment of the company with a view to enabling those persons to purchase or subscribe for fully paid shares in the company or its holding company, to be held by themselves by way of beneficial ownership;

2.10.1.4 any act or transaction otherwise authorizes by law.

SHARES AT THE DISPOSAL OF DIRECTORS 2.11 Subject to the provisions of the Act and any other rules and regulations governing the company, all unissued

shares shall be at the disposal of the directors, and they may allot, grant options over, or otherwise deal with or dispose of them to such person at such times and generally on such terms and conditions as they think proper, provided that no shares shall be issued at a discount.

SHARE CERTIFICATE

2.12 Every member shall without payment be entitled to receive within two months after allotment or lodgement of transfer (or within such periods as the condition of issue shall provide) a certificate under the seal specifying the shares allotted or transferred to him and the amount paid up thereon, provided that in the case of joint holders the company shall not be bound to issue more than one certificate to all the joint holders, and delivery of such certificate to any of them shall be sufficient delivery to all. Where a member has transferred part of the shares comprised in his holding he shall be entitled to a certificate for the balance without charge.

2.13 If any such certificate shall be worn out, defaced, destroyed, or lost, it may be renewed on such evidence

being produced as the directors shall require, and in case of wearing out, or defacement or delivery up of the old certificate, and in case of destruction or loss on execution of such indemnity (if any) and in either case on payment of such sum, as the directors may from time to time require. in case of destruction or loss the member to whom such renewed certificate is given shall also bear and pay to the company all expenses incidental to the investigation by the company of the evidence of such destruction or loss and to such indemnity.

71

STATUTORY & GENERAL INFORMATION (cont’d.)

TRANSFER OF SHARES 2.14 Subject to the restrictions contained in the Articles, any member may transfer all or any of his shares, by an

instrument of transfer which must be in writing and in the usual common forms the directors may approve and must be left at the office accompanied by the certificate of the shares to be transferred, and such evidence as the directors may require to prove the title of the transferor or his right to transfer the shares, and be permanently deposited in the custody of the board.

2.15 The instrument of transfer of a share shall be executed both by the transferor and the transferee and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register of Members in respect of the share.

2.16 The company may refuse to recognise any instrument of transfer unless:

2.16.1 Such fee as the company may from time to time require, is paid to the company in respect thereof; and

2.16.2 The instrument of transfer is left at the registered office for registration and is accompanied by the certificates of the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer, and

2.16.3 The instrument of transfer is in respect of only one class of shares.

2.17 The transfer book and register of shareholder and debenture holders respectively may be closed at such times

and for such periods as the directors may from time to time determine, provided always that they shall not be closed by more than thirty days in any year.

2.18 There shall be paid to the company in respect of the registration or noting in the register, of any probate, letter

of administration, certificate of marriage or death, Power of Attorney, instrument recording a change of name, designation or other document relating to or affecting the title of any share, such fees as the directors may from time to time require or prescribe.

TRANSMISSION OF SHARES

2.19 In case of death of a registered member, the survivors or survivor, where the deceased was a joint holder, and

the executor or administrator of the deceased where he was a sole or only surviving holder, shall be the only persons recognised by the company as having any title to his shares, but herein contained shall release the estate of a deceased holder (whether sole or joint) from any liability in respect of any share solely or jointly held by him.

2.20 Any person becoming entitled to a registered share in consequence of the death or bankruptcy of any

member may upon producing such evidence of title as the Director shall require, and subject as hereinafter provided, either elect to be registered himself as holder of the share, or elect to have some person nominated by him registered as the transferee of the shares; but the Company shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that member before his death or bankruptcy, as the case may be.

2.21 If the person so becoming entitled elects to be registered himself, he shall deliver or send to the Company a

notice writing signed by him and stating that he so elects and if he elects to have another person registered he shall testify his election by executing to that person a transfer of the share.

72

STATUTORY & GENERAL INFORMATION (contd.) 2.22 A person entitled to a registered share by transmission shall be entitle to receive and give a discharge for any

dividend or other moneys payable in respect of the share, but he shall not be entitled to receive of or to attend or vote at meetings of the Company, or (unless the Article provide otherwise) to any of the rights or privileges of a member unless and until he shall have become a member in respect of the share.

FORTFEITURE OF SHARES

2.23 If any shareholder fail to pay any call or instalment of a call on the day appointed for the payment thereof, the

directors may, at any time thereafter, during such time as any part of the call, or instalment remains unpaid, serve a notice on him requiring him to pay such calls, or such instalment as is unpaid, together with any accrued interest any expenses incurred by the company by reason of such non payment.

2.24 The notice shall name a further day (not earlier than the expiration of 14 days from the date of service of the

notice) on or before which such call or instalment as aforesaid, and all such interest and expenses as aforesaid are to be paid. It shall also name the place where payment is to be made, and shall state that in the event of non-payment at or before payment of all calls, interest and expenses due in respect of which such call was made will be liable to be forfeited.

2.25 If the requirements of any such notice as aforesaid are not complied with any shares in respect of which such

notice has been given may at any time thereafter, before payment of all calls, interest and expenses due in respect thereof has been made, be forfeited by a resolution of the Directors to that effect.

2.26 A forfeiture of shares under the preceding Articles shall include all dividends declares in respects of the

forfeited shares and not actually paid before the forfeiture. 2.27 When any share has been forfeited in accordance with these Articles, notice of the forfeiture shall forthwith

been given to the holder of the share, or the person shall entitle to the share, by transmission, as the case may be, and an entry of such notice having been given and of the forfeiture with the date thereof shall forthwith be made in the register of members opposite to the entry of the share; but no forfeiture shall be in any manner invalidated by any omission or neglect to given such notice or to make such entry as aforesaid.

2.28 Notwithstanding any such forfeiture as aforesaid, the Directors may at any time before the forfeited share has

been otherwise disposed of permit the share so forfeited to be redeemed upon the terms of payment of all calls and interest due upon and expenses incurred in respect of the share and upon any further or other terms they may think fit.

2.29 Every share which shall be forfeited shall thereupon become the property of the company, and may be sold,

re –allotted or otherwise disposed of, either to the person who was before forfeiture the holder thereof or entitled thereto, or to any other person, upon such terms and in such manner as the director shall think fit, and whether with or without all or any part of the amount previously paid on the share being credited or any part of the amount previously paid on the share being credited or any part of the amount previously paid on the share being credited as paid. The directed may, if necessary, authorise some person to transfer a forfeited share to any such other person as aforesaid.

2.30 The forfeiture of a share shall involve the extinction at the time of forfeiture of all interest in and all claims

and demands against the company in respect of the share and all other right and liabilities incidental to the share as between shareholders whose share is forfeited and the company; except only such of those rights and liabilities as are by these Articles expressly saved, or as are by the Decree given or imposed in the case of past members.

2.31 A statutory declaration in writing that the declaring is a Director of the company, and that a share has been

duly forfeited in pursuance of these Articles, and stating the time when it was forfeited, shall, as against all persons claiming to be entitled to the share, be conclusive evidence of the facts therein stated.

73


LIEN ON SHARES

2.32 The company shall have a first and paramount lien on every share, (not being a fully paid shares for all moneys (whether currently payable or not) called or payable at a fixed time in respect of that share, and the company shall also have a first and paramount lien on all shares (other than fully paid shares) standing registered in the name of a single person for all moneys presently payable by him or his estate to the company.

2.33 But the directors may at any time declare any share to be wholly or in part exempt from the provisions of this

subsection; and the company’s lien, if any, on a share shall extend to all dividend payable on it. 2.34 For the purpose of enforcing such lien, the company may sell all or any of the shares subject thereto in such

manner as the director thinks fit, but no sale shall be made until such time as the money are presently payable, and until notice in writing stating the amount due and demanding payment, and giving notice of intention to sell in default, shall have been served in such manner as the directors shall think fit on such member or the person (if any) entitled by transmission to the shares ,and default in payment shall have been made by him or them for seven days after such notice.

2.35 The net proceed of any such sale shall be received by the company and applied in or towards satisfaction of

the amount due in respect of which the lien exists as is presently payable, (if any) shall (subject to a like lien for sum not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.

2.36 For the purpose of giving effect to any such sale, the director may authorise some persons to transfer the

shares to the purchaser thereof and the purchaser shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

CALL ON SHARES

2.37 The directors may, subject to the regulation of these Articles and to any condition of allotment, from time to

time make such call upon the share holders in respect of all money unpaid on the shares as they think fit, provided that each call does not exceed one-fourth of the nominal value unpaid on the shares called and no call shall be made on any share, within a period less than one (1) month from the last call and subject to receiving at least fourteen (14) days notice specifying the time or times and place of payment, and each shareholder shall be liable to pay the amount of every call so made upon him to the persons and as at the times and places appointed by the Directors. A call may be made payable by instalments. A call shall be deemed to have been made as soon as the resolution of the Directors authorizing such call shall have been passed. The holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

2.38 If before or on the day appointed for payment thereof a call payable in respect of a share is not paid, the

person from whom the amount of the call is due shall pay interest on such amount, not exceeding the prevailing prescribed bank rate per annum as the Directors may determine from the day appointed for payment thereof to the time of actual payment.

2.39 Any sum which by the terms of issue of a share become payable upon allotment or at any fixed date, whether

on account of the nominal value of the share by way of premium, shall, for the purposes of these Articles, be deemed to be a call duly made and payable on the date on which by the terms of issue the same becomes payable and in case of non-payment, all the relevant provisions of these Article as to payment of interest, expenses ,forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

2.40 The Directors may, if they think fit, receive from any member willing to advance the same all or any part of

the moneys uncalled and unpaid upon any shares held by him; due upon his shares beyond the sum actually called up thereon, and upon all of any of the moneys so advanced the Directors may (until the same would,

74


but for such advance become presently payable) pay or allow such interest (not exceeding, without the consent of a General Meeting, six per cent per annum) as may be agreed upon between them and such shareholder, in addition to the dividend payable upon such par, part of the share in respect of which such advance as been made as its actually called up. No sum paid up in advance of calls shall entitle the holder of a share in respect thereof to any portion of a dividend subsequently declared in respect of any period prior to the date upon which sum would, but for such payment, become presently payable.

CONVERSION OF SHARE INTO STOCK

2.41 The company may, from time to time, by ordinary resolution of a General Meeting, convert all or any of its

paid-up shares into stock and from time to time, in like manner re-convert any such stock into paid-up shares of any denomination.

2.42 When any shares have been converted into stock, these oral holders of such stocks may transfer their

respective interest therein, or any part of such interest, in such manner as the company in General Meeting shall direct, but in default of any such direction in the same manner and subject to the same regulations as and subject to which the share from which the stock arose might previously to conversion have been transferred, or as near thereto as circumstances will admit. But the Directors may, if they think fit from time to time to fix the minimum amount of stock transferable, provided that such minimum shall not exceed the nominal amount of the shares from which the stock arose.

2.43 The several holders of stocks shall be entitle to participate in the dividends and profits of the company

according to the amount of their respective interests in such stock, and such interest shall, in proportion to the amount thereof, confer on the holders thereof respective the same privileges and advantages for the purpose of voting at meetings of the company and for other purposes as if they held the shares from which the stock arose, but so that none of such privileges or advantages, except the participation in the dividends, profits and assets of the Company, shall be conferred by any such aliquot part of stock as would not, if existing in shares have conferred such privileges or advantages.

2.44 All such provisions of these Articles as are applicable to paid up shares shall apply to stock, and in all such

provisions the word “share” and “shareholder” shall include “stock” and “stockholder”.

ALTERATION OF SHARE CAPITAL 2.45 The company may from time to time by Ordinary Resolution effect an alteration of its share capital in any

ways set out in Section 100 of the Act.

INCREASE OF SHARE CAPITAL 2.46 The company may from time to time by Resolution, whether or not the shares have been converted into stock,

may in General Meeting and not otherwise, increase its share capital by new shares of such amount as it thinks expedient. Upon such increase, the company shall within fifteen (15) days after passing of the resolution authorising the increase, give to the Corporate Affair Commission (“the commission”), notice of the increase and the commission shall record the increase. The notice to be given under this Article shall include any particulars prescribed with respect to the classes of shares affected and the condition subject to which the new shares have been or are to be issued and the notice shall be accompanied by a printed copy of the resolution authorizing the increase.

MEETING

2.47 A General Meeting to be known as the Annual General Meeting shall be held once in every calendar year at

such time (not being more than fifteen (15) months after the holding of the last preceding Annual General Meeting) and place as may be determined by the Directors; and shall specify the Meeting as such in the notice of calling it.

75

STATUTORY & GENERAL INFORMATION (cont’d.) 2.48 All General Meeting other than Annual General Meetings shall be called extra ordinary General meeting. 2.49 The Director may convene an Extraordinary General Meeting whenever they deem fit, and if at any times

there are not within Nigeria sufficient directors capable of acting to form a quorum, any director may convene an Extraordinary General Meeting.

NOTICE OF MEETING

2.50 All General Meeting shall be called by twenty-one days notice in writing from the date on which the notice

was sent out. And a General Meeting called by a shorter notice shall be deemed to have been duly called if it so agreed.

2.51 The notice of a Meeting shall specify the place, date and time of the Meeting, and the general nature of the

business to be transacted at the Meeting in sufficient details to enable those to whom it is given to decide whether to attend or not, and where the meeting is to consider specific resolution shall set out the terms of the resolution.

2.52 The Chairman of the Board of Directors shall preside as Chairman at every General Meeting of the company

or if there is no such Chairman or if he is not present within thirty minutes after the time appointed of the holding of the meeting or is unwilling to act, the Directors present shall elect one of their number to be chairman of the meeting.

2.53 If at the meeting, no directors is willing to act as chairman or of no Director is present within thirty minutes

after the time appointed for holding the meeting, the members present shall choose one of their numbers to be chairman of the meeting.

PROCEEDINGS AT GENERAL MEETINGS

2.54 All business shall be deemed special that is transacted at an Annual General Meeting with the exception of

declaring a dividend, the consideration of the Accounts, Balance Sheet; and the Reports of the Directors and Auditors, the election of Director in the place of those retiring and the appointment of an the fixing of the remuneration of the Auditors, the voting of additional remuneration to the directors and the election of directors in the place of those retiring.

2.55 No business shall be transacted at any General Meeting unless a quorum of members is present at the time

when the meeting proceeds to business and unless it is otherwise provided, one third of the total members of the company or 25 (twenty-five) members (whichever is less) present in person or by proxy shall be a quorum.

2.56 If within half an hour from the time appointed for the meeting a quorum is not present, the meeting if

convened upon the requisition of members shall be dissolved in any either case it shall stand adjourned to the same day in the next week, at the same time and place and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the members of whatever class present shall be a quorum.

2.57 At any General Meeting a resolution put to the vote of the meeting shall be decide don a show of hand unless

a pool is (before or on the declaration of the result of a show of hand) demanded by the chairman or at least three members entitled to vote at the meeting or by the holders present in person or proxy of at least one-tenth part of total voting rights of all members having the right to vote at the meeting or by a member or members holding shares on which an aggregate sum as been paid-up equal to not less than one –tenth of the to talk sum paid upon all the shares conferring that right. Unless a pool is so demanded, a declaration by the chair man that a resolution as one show of hands been carried on, carried unanimously, or by a particular majority or lost, and an entry to that effect in minute book of the company shall be conclusive evidence of the number of proportion for the vote recorded in favour of such resolution. A proxy need not be a member of the company.

2.58 A proxy may take part in the proceedings of general meetings as if he were a member whom he represents.

76


VOTE OF MEMBERS

2.59 On a show of hand every member present in person shall have one vote. On a poll, every member present in person or by proxy shall have one vote for each share held by him.

2.60 If any member be a lunatic, idiot or non-compos mentis, he may vote whether on a show of hand or at pool,

by his committee, curator boins, or other legal curator, as such last-mentioned person may give there vote by proxy on a pool.

2.61 If two or more person are jointly entitle to a share, then, in voting upon any question, the vote of a senior who

tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the vote of the other registered holders of the share, and for this purpose seniority shall be determined by the order in which the name stand in the register of members.

2.62 Save as herein expressly provided, no person other than a member duly registered who shall, after a call shall

have been made, paid all amount for the time being due from him and payable to the company in respect of the share, shall be entitle to be present or to vote on any question either personally or by proxy or as a proxy for another member at any general meeting.

2.63 Vote may be given either personally or by proxy. On a show of hand a member present only by proxy shall

not be entitle to vote except that member is a corporation. Only members that entitle to attend and vote at meetings shall act as proxy except in the case of a corporation.

2.64 Any corporation which is a member of a company may, by a resolution of it directors or other governing

body, authorised any person to act as its representative at any meeting of this company or any class of members thereof, and such representative shall be entitled to exercise the same powers on behalf of a corporation which he represent as if he has been an individual share holder including power, when personally present, to vote on a show of hand.

2.65 The instrument appoint a proxy shall be in writing under the hand of appointer or his attorney duly

authorised in writing, or if such appointer is a corporation, either under its common seal, or under the hand of an officer or attorney duly authorised.

2.66 The instrument appointing a proxy and the power of attorney or other authority if any under which its

signed, or certified copy of that power or authority shall be deposited at the registered office or head office of the company or at such other place within Nigeria as its specified for that purpose in the notice convening the meeting, not less than forty-eight hours before the time for holding the meeting or adjourn the meeting, at which the person named in the instrument proposes to vote, or in the case of a pool, not less than 24 hours before the time appointed for the taken of a pool and in default, the instrument of proxy shall not be treated as valid and the person named therein shall not be entitled to vote.

2.67 A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the

previous death or insanity of the principal or revocation of the proxy or the authority under which it was executed, or the transfer of the share in respect of which the vote is given, provided no intimation in writing of the death, insanity, revocation or transfer shall have been received by the company before the commencement or adjourned meeting at which the proxy is used.

DIRECTORS

2.68 The first director of the company, shall be appointed by the subscribers to the Memorandum of Association. 2.69 Unless and until otherwise determined by the company in General Meeting the number of director shall not

be less than two or more than fifteen. 2.70 The director shall have power at any time and from time to time appoint a person as an additional director.

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STATUTORY & GENERAL INFORMATION (cont’d.) 2.71 The company at a General Meeting may from time to time direct such sum as may be thought fit to be paid as

and by way of remuneration to the director and any such shall be divided amongst them as they may agreed or failing agreement equally, the director shall also be entitle to be repaid all expenses reasonably incurred by them respectively in or about their duties as directors.

2.72 It shall not be necessary for any director of the company to acquire or hold any qualification, but a director

shall be entitled to receive notice and to attend general meetings.

DISQUALIFICATION OF DIRECTORS

2.73 The office of a director shall be vacated:

2.73.1 upon removal in accordance with provision of Section 262 of the Act; 2.73.2 If by notice in writing to the company he resigns the office of Director. If he is disqualified in

accordance with Section 257 of the Act

2.74 A Director shall be capable of contracting or participating in the profit of any contract with the company in the same manner as if he were not a director subject nevertheless to the following provisions:

2.74.1 He shall declare the nature of his interest in any contract or proposed contract in which he is

interested; and 2.74.2 After he has become interested therein he shall not vote as director in respect of the contract or

proposed contract or any matter arising thereat and if he does so vote, his vote shall not be counted. The prohibition against voting shall not, however, apply to any contract or arrangement for given security to a director for advances made or to be made by him to the company or for liabilities or obligation whether by way of guarantee or otherwise, incurred or assumed for the benefit of the company or to any contract relating to the subscription by a director (whether absolutely or conditionally) for any shares or debentures of the company or any company in which this company is interested, and it may at any time be suspended, relaxed or removed to any extent and on anytime on condition by the company in general meeting.

2.75 A director shall be counted for the purpose of forming a quorum notwithstanding that he may be

disqualifying from voting under this Article. 2.76 The company may by extra-ordinary resolution remove any director and may by ordinary resolution appoint

another person in his stead. Such removal shall be without prejudice to any claim such director may have for damages for breach of contract of service between him and the company.

APPOINTMENT AND REMUNERATION OF DIRECTORS

2.77 There shall be a board of directors consisting of not less than five and not more than fifteen made up of not

more than five Executive Directors who shall be employee of the company and directors appointed under Article76 hereunder.

2.78 A director needs to be a shareholder. 2.79 A Director appointed in accordance with Section 76 may at any time appoint any person approved by the

director to be an alternate director of the company, and may at anytime remove any alternate director so appointed by him. An alternate director so appointed shall not in respect of such appointment be entitled to receive any remuneration from the company nor be required to hold any qualification but shall otherwise be subject to provision of this presents with regards to directors. An alternate director shall be entitle to receive notices of all meetings of the director, and to attend and vote as a director at any such meeting at which the director appointing him is not personally present and generally at such meeting to perform all the function of his appointer as a director in the absence of such appointer. An alternate director shall ipso facto cease to be an alternate director if his appointer ceases for any reason to be a director; provided that if any director

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retires by rotation but is re-elected at the meeting at which such retirement took effect, any appointment made by him pursuant to this article which was in force immediately prior to his retirement shall continue to operate after his re election as if he had not so retired. All appointment and removals of alternate director shall be effected by writing under the hand of the director making or revoking such appointment left at the office.

2.80 The continuing director at anytime may act, notwithstanding any vacancy in their body; provided always that in case the director shall at anytime be reduce the number to the minimum number fixed by or in accordance with this Article, it shall be lawful for them to act as director for the purpose of filling up vacancies in their body or calling a general meeting of the company, but not for any other purpose.

2.81 The directors may from time to time appoint any other person to be a director to fill a casual vacancy. Any

director appointed under this article shall hold office until the Annual General Meeting following next after his appointment, when he shall retire, but shall be eligible for election as a director at that meeting.

2.82 A shareholder holding not less than ten percent of the issued and paid up shares of the company shall be

entitled to nominate in writing to the board one director for each ten percent of share held by him provided that the number of directors nominated by a shareholder under this sub-clause shall not be more than two persons. Such shareholder shall have the power to remove and re-appoint a nominee as he thinks fit. Any nomination for appointment or removal of a director shall be in writing.

2.83 Subject to Article 76 (a), every nomination or removal of a director made in pursuance of this article shall be

made writing to the company at its registered office signed by the shareholder making the nomination or in the case of corporations by its duel authorised officer and shall be effective as from the time fixed therein, but not before delivery of such notice to the company.

2.84 All other shareholders, each of whom may hold less than ten percent of the issued and paid shares of the

company shall be entitle to nominate to the board one director for each ten percent of the shares held in aggregate by them.

2.85 The remuneration of the directors shall be such sum (if any) as shall from time to time be voted to them by

the company in general meeting, and any such sum shall be divided amongst the directors as they shall agree, or, failing agreement, equally. The directors shall also be entitle to be repaid all travelling, hotel, and other expenses incurred by them in and about the business of the company, including their expenses of travelling to and from Board or committee meetings.

2.86 The directors may grant special remuneration to any member of the board who, being called upon shall be

willing to render any special or extra services to the company, to go or reside abroad in connection with the conduct of any of the affairs of the company. Such special remuneration may be made payable to such director in addition or in substitution for his ordinary remuneration as a director and may be payable by a large sum or by way of salary or a percentage of profit or by any or all of those modes.

POWERS, DUTIES OF DIRECTORS

2.87 Directors, from time to time, and at any time, may provide through local boards, Attorneys, or Agencies for

management of the affairs of the company outside Nigeria, and may appoint, fix their remuneration’s. 2.88 The directors, from time to time, and at any time delegate to any such local board, Attorney or Agents any of

the powers, authorities and discretion’s for the time being vested in the directors, other than the power to make calls, forfeit shares, borrow money or issue debentures and may include a power to sub delegate, and the directors may at any time annul or vary such delegation, but no person dealing in good faith and without notice of such annulment or vacation shall be affected thereby.

79

STATUTORY & GENERAL INFORMATION (cont’d.) 2.89 Any director may at any time appoint any other director or appoint any other person approved by a majority

of the other directors for the time being to be his alternate and may at any time remove any alternate director appointed by him and (subject to such approval as aforesaid) appoint another in his place, an alternate director shall not be entitled to receive any remuneration from the company nor be entitled (subject to his giving to the company an address within Nigeria at which notices may be served on him) to receive notice of meetings of the directors and to attend and vote as director at any such meeting at which the director appointing him is not present and at such meeting to exercise all powers, duties and authorities of the director appointing him. a director who is also an alternate director shall be entitled in addition to his vote to a separate vote on behalf of the director he is representing. An alternate director, if his appointor ceases for any reason to be a director, shall ipso facto cease to be an alternate director. Every person acting as an alternate director shall be an officer of the company and shall not be an agent of or for the director appointing him, all appointment and removal of an alternate director made by any director in pursuance of the article shall be sent to or left at the registered office of the company.

ROTATION OF DIRECTORS

2.90 At each Annual General Meeting, one – third of the director for the time being, or if their number is not a

multiple of three , the number nearest to but not greater than one-third, shall retire from office. Provided that a director appointed to the office of managing director or being an executive director shall not while holding that office, be subject to retirement by rotation or be taken into account in determining the number of directors to retire in each year.

2.91 The directors to retire in every year shall be those who being subject to retirement by rotation have been

longest in office since their last election or appointment but as between persons who became or were last elected directors on the same day, those to retire shall (unless they otherwise agree amongst themselves) be determined by lot.

2.92 A retiring director shall be eligible for re- election and shall act as director throughout the meeting at which

he retires. 2.93 The company may at the meeting at which any director retires in manner aforesaid, fill up the vacated office

by electing a person thereto. In default, the retiring director shall be deemed to have been re- elected unless at such meeting, it is resolved not to fill up the vacated office or a resolution for the re-election of a retiring director has been rejected.

2.94 No person, not being a director retiring at the meeting shall, unless recommended by the director for the

election, be eligible for the office of director at any general meeting unless, within the prescribed time before the day appointed for the meeting, there shall have been given to the secretary notice in writing by some members duly qualified to be present and vote at the meeting for which such notice is given, of its intension to propose such person for election, and also notice in writing, signed by the person to be proposed of his willingness to be elected.

2.95 The time within which notice is served in relation to the above Article shall, be such that, between the date

when the notice is served, or deemed to be served, and the day appointed for the meeting there shall be not less than seven nor more than twenty-one clear intervening days.

2.96 The company may from time to time in General Meeting increase or reduce the number of directors and may

make the appointment necessary for effecting such increase and may determine in what rotation such increased or reduced number shall go out of office.

2.97 The company may by ordinary resolution of which special notice has been given in accordance with Section

262 of the Act remove any director before the expiration of his term of office notwithstanding any thing these Articles contained or in any agreement between the company and any such director. Such removal shall be without prejudice to any claim the director may have for breach of any covenant of service between him and the company. The company may, if though fit, by ordinary resolution, appoint another person instead; and any person so appointed shall retain his office so long as the director in whose place he is appointed would have held the same if he had not been removed, but shall be eligible for re-election.

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PROCEEDINGS OF DIRECTORS

2.98 The directors or any committee of directors may meet together for the despatch of business, adjourn and otherwise regulate their meeting as they think fit, and determine the quorum necessary for the transaction of business. A meting of the board of directors at which a quorum is present shall be competent to exercise all powers and discretion for the time being exercised by the directors.

2.99 Until otherwise determined, the quorum necessary for the transaction of the business of the directors shall be

five, one of which must be the chief executive or in his absence any executive director nominated by him. Questions arising at any meeting shall be decided by a majority of votes and in the Case of an equality of votes, the chairman shall have a second or lasting vote.

BORROWING POWERS

3.0 The directors may exercise all the powers of the company to borrow money and to mortgage or charge its

undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the company or of any third party.

DIVIDEND AND RESERVE FUND

3.01 Subject to any right or privileges for the time being attached to any share in the capital of the company having

preferential, deferred or other special rights in regard to dividends, the profit for the company which it shall from time to time be determined to distribute by way of dividend, shall be applied in payment of dividend upon the shares of the company in proportion to the amount paid thereon respectively otherwise than in advance of calls.

3.02 The directors may with sanction of the general meeting, from time to time declare dividends, but no such

dividend shall (except as by the statute expressly authorised) be payable otherwise than out of the profits of the company. No higher dividend shall be paid than is recommended by the directors, and a declaration as to the amount of profit at any time available for dividends shall be conclusive. The director may, if they think fit, and if in their opinion the position of the company justifies such payment, without any such sanction as aforesaid, from time to time declare and pay an interim dividend, or pay any preferential dividend on shares issued upon the terms that the preferential dividends thereon shall be payable on fixed dates.

3.03 With the sanction of a general meeting, dividend may be paid wholly or in part in specie, and may be

satisfied in whole or in part by the distribution among the members in accordance with their right of fully paid shares, stock or debentures of any other company or of any other property suitable for distribution as aforesaid. The directors shall have full liberty to make all such valuation, adjustments, and arrangements and to issue all such certificate or documents of title as may in their shares and interest in the property, and no valuation, adjustment or arrangement so made shall be questioned by any member.

3.04 The directors may, before recommending any dividend, set aside out of the profits of the company such sum

as they think proper in a reserve and which shall at the discretion of the directors be applicable for meting contingencies, or for repairing or maintaining any work connected with the business of the company, or for any other purposes for which the profit of the company may lawfully be applied, or shall with the with the sanction of the general meeting be as to the whole or in part applicable for equalising dividends, or for distribution by way of special; dividend or bonus and the directors may divide the reserve funds into separate funds for special purposes and may either employ the sum from time to time carried to the credit of such fund or funds in the business of the company or invest the same in such investment, (other than the shares of the company) as they may elect. The directors may also from time to time carry forward such sums, as they may deem expedient in the interest of the company.

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3.05 The directors may deduct from dividend or other money payable in respect of any shares held by members, either alone or jointly with any other members all such money (if any) as may be due and payable by him either alone or jointly with any other person to the company on account of calls or otherwise.

3.06 A transfer of shares shall not pass the right to any dividend declared in respect thereof before the transfer has

been registered. 3.07 A dividend, instalment of dividend or interest in respect of any share may be paid by cheque of warrant

payable to the order of the member entitled thereto, or (in the case of joint holder) of that member whose name stands first in the register in respect of the joint holdings. Every such cheque or warrant shall (unless otherwise directed) be sent by post to the last registered address of member entitled thereto and the receipt of the person whose name appears on the register as the owner of any share, or of his or their agent duly appointed in writing, shall be a good discharge to the company for all dividends or other payment made in respect of such share. Every such cheque or warrant shall be sent at the risk of the person entitled to the money represented thereby.

3.08 Where there is an omission occasioned by the fault of the company to send dividends to members, such

dividend shall earn interest at the current bank rate, computed three months from the date when the dividend should have been sent.

4.8 CLAIMS & LITIGATION

The Company in its ordinary course of business is presently involved in Two [2] cases. The total amount claimed in those cases instituted against the Company is Five Hundred and Twenty Nine Thousand, Three Hundred Naira only (N529,300.00). Other than the above, there is no other claim pending against the Company or any other litigation that the Company is involved in either as Plaintiff or Defendant. The Directors of the Company are of the opinion that none of the aforementioned cases is likely to have a material effect on the Company or the Offer, and are not aware of any other pending and or threatened claims or litigation which may be material to the Offer.

4.9 MATERIAL CONTRACTS The following agreements have been entered into and are considered material to the Offer for Sale:

i. A Vending Agreement between FCMB Capital Markets Limited, Zenith Capital Limited, Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc, FutureView Financial Services Limited, Guaranty Trust Bank Plc, Greenwich Trust Limited, IBTC Chartered Bank Plc, Intercontinental Capital Markets Limited and UBA Global Markets Limited on one hand, and Dangote Flour Mills Plc on the other hand, dated [29th of August 2007] under which FCMB Capital Markets Limited, Zenith Capital Limited, Access Bank Plc, Diamond Bank Plc, Fidelity Bank, Plc FutureView Financial Services Limited, Guaranty Trust Bank Plc, Greenwich Trust Limited, IBTC Chartered Bank Plc, Intercontinental Capital Markets Limited and UBA Global Markets Limited have agreed to Offer for Sale of 1,250,000,000 Ordinary Shares of 50 kobo each in Dangote Flour Mills Plc at N15 per share.

ii. An Underwriting Agreement dated [29th of August 2007] under which First City Monument Bank Plc,

Zenith Bank Plc, Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc, FutureView Financial Services Limited, Guaranty Trust Bank Plc, Greenwich Trust Limited, IBTC Chartered Bank Plc, Intercontinental Capital Markets Limited and UBA Global Markets Limited have agreed to fully underwrite 80% of the Offer on a firm commitment basis.

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4.10 COSTS AND EXPENSES

The costs and expenses of this Offer, including fees payable to the Joint Issuing Houses, legal fees, costs of printing the Offer Prospectuses and other miscellaneous expenses are estimated to amount to N975.80 million representing approximately 5.2% of the gross proceeds of the Offer and are payable by DIL.

4.11 DECLARATION

Except as otherwise disclosed in this Prospectus:

(a) No share of Dangote Flour Mills is under option or agreed conditionally or unconditionally to be put under option;

(b) No commissions, discounts, brokerages or other special terms have been granted by Dangote Flour Mills to any person in connection with the offer or sale of any share of the Company;

(c) Save as disclosed herein, the Directors of Dangote Flour Mills Plc have not been informed of any holding representing 5% or more of the issued share capital of the Company;

(d) There are no founder, management or deferred shares or any option outstanding in Dangote Flour Mills;

(e) There are no material service agreements between Dangote Flour Mills and any of its Directors and employees other than in the ordinary course of business;

(f) No Director of Dangote Flour Mills Plc has had any interest, direct or indirect, in any property purchased or proposed to be purchased by the Company in the five years prior to the date of this Memorandum;

(g) No director or key management staff of the Company is or has been involved in any of the following:

A petition under any bankruptcy or insolvency laws filed (and not struck out) against such person or a partnership in which he was a partner or any company of which he was a director or key personnel;

A conviction in a criminal proceeding in a named subject of pending criminal proceedings

relating to fraud or dishonesty; and

The subject of any order, judgment or ruling of any court of competent jurisdiction or regulatory body relating to fraud or dishonesty, restraining him from acting as an investment

adviser, dealer in securities, director or employee of a financial institution and engaging in any type of business practice or activity.

(h) No existing and potential related-party transactions and conflict of interest in relation to the company and its related-parties.

(i) There are no amounts or benefits paid or intended to be paid or given to any promoter within the two years preceding the date of the Memorandum.

(j) No merger/take-over offers by third parties in respect of Dangote Flour Mills’ securities or merger/take-over offers by Dangote Flour Mills in respect of other company’s securities during the preceding year and the current financial year.

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4.12 CONSENTS

The underlisted parties have given and have not withdrawn their written consents to the issue of this Prospectus, with their names and reports (where applicable) being included in the form and context in which they appear:

Directors Alhaji Aliko Dangote, CON Chairman Mr. Michael Zetzsche (German) Managing Director Alhaji Ahmed Shehu Yakassai Executive Director Mr. Olakunle Alake Alhaji Sani Dangote Mr. Asue A. Ighodalo Alhaji Abdullahi Mahmoud Mr. Uzoma Nwankwo Brig. Gen. Teidi (rtd.)

Company Secretary: Mr. Hamis Bashir

Joint Issuing Houses: FCMB Capital Markets Limited Zenith Capital Limited Access Bank Plc Diamond Bank Plc Fidelity Bank Plc FutureView Financial Services Limited Greenwich Trust Limited Guaranty Trust Bank Plc IBTC Chartered Bank Plc Intercontinental Capital Markets Limited UBA Global Markets Limited

Joint Stockbrokers: Nova Securities Limited Lead Stockbroker Afrinvest West Africa Anchoria Investment & Securities Limited BGL Securities Limited Camry Securities Limited Capital Assets Limited Cowry Asset Management Limited CSL Securities Limited De Canon Investment Limited Dominion Trust Limited Enterprise Stockbrokers Plc ESL Securities Limited Equity Capital Solutions Limited Finmal Finance Services Limited IBTC Asset Management Limited Intercontinental Securities Limited International Standard Securities Limited Lambeth Trust and Investment Company Lead Capital Limited Marina Securities Limited Nigerian Stockbrokers Limited Partnership Investment Co. Limited Resort Securities & Trust Limited Santrust Securities Limited SMADAC Securities Limited Tiddo Securities Limited Unex Securities & Investment Limited Valueline Securities & Investments Limited Vetiva Capital Management Limited Zenith Securities Limited

84


Solicitors to the Company Babalakin & Co Solicitors to the Offer: Olaniwun Ajayi

Joint Reporting Accountants Ahmed Zakari & Co

Auditors: Akintola Williams Deloitte

Registrars: Oceanic Registrars Limited

Joint Underwriters: FCMB Capital Markets Limited Zenith Capital Limited Access Bank Plc Diamond Bank Plc Fidelity Bank Plc FutureView Financial Services Limited Greenwich Trust Limited Guaranty Trust Bank Plc IBTC Chartered Bank Plc Intercontinental Capital Markets Limited UBA Global Markets Limited

Receiving Bankers: First City Monument Bank Plc Zenith Bank Plc

Access Bank Plc Diamond Bank Plc Ecobank Plc Fidelity Bank Plc Guaranty Trust Bank Plc IBTC Chartered Bank Plc Intercontinental Bank Plc United Bank for Africa Plc

4.13 DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available at the offices of the Joint Issuing Houses during normal business hours on any weekday (except public holidays), during the Offer Period:

(a) The Prospectus issued in respect of the Offer;

(b) The Certificate of Incorporation of the Company;

(c) The Certified True Copy of the Certificate of Increase in Share Capital;

(d) The Memorandum and Articles of Association of the Company, duly certified by the Corporate Affairs Commission;

(e) The resolution of the Board of Directors recommending the Offer, which was passed at the meeting of 18th June, 2007, duly certified by a Director and the Company Secretary;

(f) The Shareholders’ resolution authorising the Offer, which was passed at the Annual General Meeting held on 18th June, 2007;

(g) The written consents referred to in 4.11 above;

(h) The Audited Financial Statement of the Company for the financial year ended 31st December, 2006;

(i) The Audited Financial Statement of Dangote Agro Sacks for each of the five years ended 31st December, 2006;

(j) The Audited Financial Statement of Dangote Pasta for the year ended 31st December, 2006;

(k) The Audited Financial Statement of DIL for each of the five years ended 31st December, 2005;

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(h) The report of Ahmed Zakari & Co (Chartered Accountants), Reporting Accountants, on the audited

financial statement of DIL for the four years ended 31st December, 2005 and for Dangote Flour Mills for year ended 31st December, 2006;

(i) The Report of Ahmed Zakari & Co (Chartered Accountants), Reporting Accountants, on the Profit Forecast of the Company for the years ending 31st December, 2007, 2008, 2009, 2010 and 2011;

(j) A certified true copy of the Federal High Court order sanctioning the Scheme of Arrangement between DIL, Dangote Sugar Refinery Plc, Dangote Salt Plc, Dangote Pasta Limited and the Company;

(k) The list of pending claims and litigations referred to in section 4 on page 81;

(l) The material contracts referred to in section 4 on page 81;

(m) The written consents referred to in section 4 on pages 83 to 84;

(n) The letter from the Securities & Exchange Commission, approving the Offer; and,

(o) The Letter from The Nigerian Stock Exchange, approving the Offer. 4.14 RELATIONSHIP BETWEEN THE ISSUER AND ITS ADVISERS.

As at the date of the Prospectus, there is no relationship between the Company and any of its Advisers except in the ordinary course of business.

4.15 RELATED PARTY TRANSACTIONS.

Dangote Flour Mills Plc entered into a Management and Technical Services Agreement dated 2nd January, 2006 with DIL. The Agreement is for an initial period of 5 years with an option to renew for a further period of 5 years, subject to termination by either party in accordance with the terms of the Agreement.

4.16 COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE

Dangote Flour Mills Plc is in compliance with the code of corporate governance as it relates to its operations. See page 28 for details.

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CONSOLIDATED FINANCIAL INFORMATION (2002 – 2006)

87

CONSOLIDATED FINANCIAL INFORMATION 5 .1 LETTER FROM THE REPORTING ACCOUNTANTS

The following is a copy of a letter on the consolidated historical performance of Dangote Flour Mills Plc by Messrs Ahmed Zakari & Co (Chartered Accountants) Reporting Accountants to the Offer:



20th July 2007




And And And




And And And




And And And




And And


Dear Sirs,

We have reviewed the accounting bases and calculations for the Consolidated Balance Sheet, Profit and Loss Account and the Cash flow Statement of the enlarged Dangote Flour Mills Plc, (for which the Directors of Dangote Flour Mills Plc are solely responsible) for the years ended 31 December, 2002, 2003, 2004, 2005 and 2006.

88

CONSOLIDATED FINANCIAL INFORMATION (contd.) In our opinion, the consolidated Balance Sheet, Profit and Loss Account and the Cash flow Statement pages 89-92, so far as the accounting policies and calculations are concerned, have been properly compiled and are presented on a basis consistent with the accounting policies normally adopted by the company and in accordance with generally accepted accounting principles applicable in Nigeria.

The un-audited financial information has been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the net assets which would have been reported if the transaction had occurred at 31 December 2002, 31 December 2003, 31 December 2004, 31 December 2005 and 31 December 2006. We have no responsibility to update this report for events and circumstances occurring after the date of this report.

Yours faithfully,



89

CONSOLIDATED FINANCIAL INFORMATION (contd.)

5.2 CONSOLIDATED BALANCE SHEET FOR DANGOTE FLOUR MILLS PLC, DANGOTE

PASTA LIMITED AND DANGOTE AGRO SACKS LIMITED

2006 2005 2004 2003 2002 N' 000 N' 000 N' 000 N' 000 N' 000 ASSETS EMPLOYED

Fixed Assets 18,562,313

19,860,819

17,619,135

17,767,203

11,078,597

Investments 0 164,489

719,778

177,362

26,905

Work - In - Progress

6,056,103

-

-

-

-

24,618,416

20,025,308

18,338,913

17,944,565

11,105,502

CURRENT ASSETS:

Stock 6,179,911

6,395,624

3,038,553

2,919,448

2,017,599

Debtors & Prepayments 22,505,119

19,895,449

9,403,358

5,518,995

4,533,740

Cash and Bank Balances 1,156,480

1,083,684

1,419,946

917,686

1,542,312

29,841,510

27,374,757

13,861,857

9,356,129

8,093,651

LESS: CURRENT LIABILITIES

Creditors and Accruals 28,511,376

19,811,417

11,057,025

8,785,264

7,663,267

Bank Overdraft 4,525,666

8,276,718

2,572,500

2,782,901

4,746,879

33,037,042

28,088,135

13,629,525

11,568,165

12,410,146

Net Current Asset/(Liabilities) (3,195,532)

(713,378)

232,332

(2,212,036)

(4,316,495)

Net assets 21,422,884

19,311,930

18,571,245

15,732,529

6,789,007

SHARE CAPITAL & RESERVES

Share Capital 1,635,000

85,000

85,000

85,000

85,000

Share Premium 12,006,871 0 0 0 0

Revaluation Reserves 2,703,453

8,871,438

8,871,438

8,268,699

2,931,633

Profit and Loss Account 5,077,560

10,355,492

9,614,807

7,378,830

3,772,374

21,422,884

19,311,930

18,571,245

15,732,529

6,789,007

90

CONSOLIDATED FINANCIAL INFORMATION (contd.) 5.3 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR DANGOTE FLOUR MILLS PLC,

DANGOTE PASTA LIMITED AND DANGOTE AGRO SACKS LIMITED 2006 2005 2004 2003 2002 N'000 N'000 N'000 N'000 N'000

Turnover

48,222,516

45,399,901

39,623,810

27,981,831

15,007,097

-

-

Cost of sales

(41,899,086)

(37,859,786)

(32,544,309)

(22,233,186)

(10,695,531)

Gross profit

6,323,430

7,540,115

7,079,501

5,748,645

4,311,566 Distribution and administrative expenses

(3,329,733)

(4,024,193)

(2,666,360)

(1,349,672)

(696,205)

2,993,697

3,515,922

4,413,141

4,398,973

3,615,361

Other income

54,758

48,753

165,602

68,221

109,230

Operating profit before interest payable

3,048,455

3,564,675

4,578,743

4,467,194

3,724,591

Interest payable and similar charges

(806,461)

(2,823,990)

(2,342,766)

(855,249)

(1,025,706)

Profit before taxation

2,241,994

740,685

2,235,977

3,611,945

2,698,885

Taxation

(131,038)

-

-

(5,489)

-

Profit after taxation

2,110,956

740,685

2,235,977

3,606,456

2,698,885

Balance Brought Forward

2,966,604

9,614,806

7,378,829

3,772,373

1,073,488

Per Balance Sheet

5,077,560

10,355,491

9,614,806

7,378,829

3,772,373

91


5.4 CONSOLIDATED CASH FLOW STATEMENTS FOR DANGOTE FLOUR MILLS PLC, DANGOTE PASTA LIMITED AND DANGOTE AGRO SACKS LIMITED


2006 2005 2004 2003 2002 N'000 N'000 N'000 N'000 N'000 CASH FLOW FROM OPERATING ACTIVITIES

Operating profit before taxation

2,241,993

740,684 2,235,978 3,611,944 2,698,884 Adjustment for non-cash items:

Depreciation of fixed assets

1,497,495

1,665,508

1,623,255

1,264,335

538,712

Amortisation of intangible fixed assets

2,433

-

-

-

-

Loss on sale of fixed asset

300

-

-

-

- Cash Flow before changes in working capital

3,742,221

2,406,192

3,859,233

4,876,279

3,237,596

Decrease/[Increase] in stock & work in progress

(5,145,129)

(3,357,071)

(119,105)

(901,850)

(1,231,742)

Decrease/[Increase] in debtors & prepayment

(9,720,019)

(9,000,622)

(5,485,383)

(631,296)

(3,637,958)

Decrease/[Increase] in due from related companies

(5,660,987)

(1,491,468)

1,601,018

(353,959)

-

[Decrease]/Increase in Trade creditors

1,065,469

-

-

-

-

[Decrease]/Increase in creditors & accruals

11,129,576

8,534,435

3,629,407

(257,004)

3,105,499 [Decrease]/Increase in due to related companies

9,437,154

-

(1,373,514)

1,373,514

93,451

[Decrease]/Increase in gratuity

320,176

219,957

15,866

-

- Cash generated from/[absorbed] in operations

5,168,461

(2,688,577)

2,127,522

4,105,684

1,566,846

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of fixed assets

(18,900,275)

(3,674,952)

(872,446)

(4,485,400)

(3,502,655)

Proceeds on disposal of fixed assets

5,200

-

-

-

-

Capital work in Progress

(4,967,822)

(232,241)

-

-

-

Investment

84,154

555,289

(542,416)

(150,457)

(26,905)

Net cash outflow from investing activities

(23,778,743)

(3,351,904)

(1,414,862)

(4,635,857)

(3,529,560)

92

CONSOLIDATED FINANCIAL INFORMATION (contd.) CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issue of Shares

1,550,000

-

-

-

-

Share premium

12,006,871

-

-

-

-

Revaluation reserve

2,100,711

-

-

1,869,524

231,187

Term Loan

1,445,145

-

-

-

-

Net cash provided by financing activities

17,102,727

-

-

1,869,524

231,187

Net decrease in cash and cash equivalents

(1,507,555)

(6,040,481)

712,660

1,339,351

(1,731,527)

CASH AND CASH EQUIVALENT AT 1 JAN

Bank and Cash Balances

-

1,415,953

913,746

1,542,225

852,404

Bank overdraft

(416,486)

(2,568,507)

(2,778,960)

(4,746,790)

(2,325,442)

Short term loans

-

-

-

-

-

(1,924,041)

(7,193,035)

(1,152,554)

(1,865,214)

(3,204,565)

CASH AND CASH EQUIVALENT

Bank and Cash Balances

1,156,480

1,083,684

1,419,946

913,746

1,542,313

Bank overdraft

(2,019,865)

(8,276,719)

(2,572,500)

(2,778,960)

(4,746,878)

Short term loans

(1,060,656)

-

-

-

-

(1,924,041)

(7,193,035)

(1,152,554)

(1,865,214)

(3,204,565)

93


5.5 NOTES TO THE CONSOLIDATED STATEMENTS

1. Information on Dangote Flour Mills Plc has been extracted without material adjustment from the financial information set out in the audited financial statements of the Company for the years ended 31 December 2002, 31 December 2003, 31 December 2004, 31 December 2005 and 31 December 2006.

2. Information on Dangote Pasta Limited has been extracted without material adjustment from the

financial information set out in the audited financial statements of the Company for the years ended 31 December 2002, 31 December 2003, 31 December 2004, 31 December 2005 and 31 December 2006.

3. Information on Dangote Agro Sacks Limited has been extracted with adjustment from the financial

information set out in the audited financial statements of the Company for the years ended 31 December 2002, 31 December 2003, 31 December 2004, 31 December 2005 and 31 December 2006.

This adjustment is necessitated by the difference between the reporting dates of Dangote Agro Sacks Limited (March) and Dangote Flour Mills Plc (December) and Dangote Pasta Limited (December). The accounts of Dangote Agro Sacks Limited have been restated with December as the year end up till 2004 for the purpose of these Consolidated Statements in line with the requirements of the International Financial Reporting Standards (IAS 27).

94

PROCEDURE FOR APPLICATION AND ALLOTMENT 1. APPLICATION

1.1 The general investing public is hereby invited to apply for the shares through any of the Receiving Agents listed on page 95.

1.2 Application for the ordinary shares now being offered must be made in accordance with the

instructions set out on the back of the Application Form. Care must be taken to follow these instructions, as applications which do not comply will be rejected.

1.3 The Application List for the ordinary shares now being offered will open on Thursday, 6th September,

2007 and close on Thursday, 27th September, 2007. Applications must be for a minimum of 1,000 shares and in multiples of 100 thereafter. The number of shares for which an application is made and value of the cheque or bank draft should be entered in the boxes provided on the Application Form.

1.4 A single applicant should sign the declaration and write his/her full names, addresses and daytime

telephone number(s) in the appropriate sections. A corporate applicant should affix its seal and state its incorporation (RC) number in the spaces provided for this purpose.

1.5 An applicant should only make one application, whether in his/her own name or in the name of a

nominee. Multiple or suspected multiple applications will be rejected. 1.6 Each application should be forwarded together with the cheque or bank draft for the full amount of

the purchase price to any of the Receiving Agents listed on page 95. Applications must be accompanied by a cheque or bank draft made payable to the Receiving Agent to whom the application is submitted, for the full amount payable on application. The cheque or draft must be drawn on a bank in the same city in which the Receiving Agent is domiciled and crossed “DANGOTE FLOUR IPO” with the name, address and daytime telephone number of the applicant written on the back. All bank commissions and transfer charges must be prepaid by the applicant. All cheques and drafts will be presented upon receipt and all applications in respect of which cheques are returned unpaid will be rejected and returned through the post.

2. ALLOTMENT

The Issuing Houses and the Directors of the Company reserve the right to accept or reject any application in whole or in part, for not complying with the conditions of the Offer. The allotment proposal will be subject to the clearance of the Securities & Exchange Commission.

3. APPLICATION MONIES

All application monies will be retained in a separate interest-yielding bank account with the Receiving Banks pending allotment. If any application is not accepted, or is accepted for fewer shares than the number applied for, a crossed cheque for the full amount or the balance of the amount paid (as the case may be), together with accrued interest, will be returned by registered post within 5 working days of allotment. Share certificates in respect of shares allotted will be sent by registered post not later than 15 working days from the date of allotment clearance. Any investor who does not want to receive a physical share certificate, should state the name of his/her stockbroker and his/her CSCS account number in the space provided on the Application Form.

95

RECEIVING AGENTS

Application Forms may be obtained free of charge from, and submitted upon completion to, any of the under listed Receiving Agents duly registered as capital market operators by the SEC, to whom brokerage will be paid at the rate of 0.75% per N100 worth of Units allotted in respect of Application Forms bearing their official stamp.

The Issuing Houses cannot accept responsibility for the conduct of any of the Receiving Agents listed below. Investors are therefore advised to conduct their own enquiries before choosing an agent to act on their behalf. Evidence of lodgment of funds with any of the Receiving Agents listed below, in the absence of corresponding evidence of receipt by the Issuing Houses, cannot give rise to a liability on the part of the Issuing Houses under any circumstances.

BANKS Access Bank of Nigeria Plc Guaranty Trust Bank Plc Stanbic Bank Nigeria Limited Afribank Nigeria Plc IBTC Chartered Bank Plc. Standard Chartered Bank Nigeria Limited Equitorial Trust Bank Plc Intercontinental Bank Plc Sterling Bank Plc Diamond Bank Limited Nigerian International Bank Limited Union Bank of Nigeria Plc Ecobank Plc Oceanic International Bank Plc United Bank for Africa Plc Fidelity Bank Plc Platinum Habib Bank Plc Unity Bank Plc First Inland Bank Plc Skye Bank Plc Wema Bank Plc First City Monument Bank Plc Spring Bank Plc Zenith Bank Plc First Bank of Nigeria Plc

STOCKBROKERS AND OTHERS AAA Stockbrokers Limited Financial Derivatives Co. Ltd. Pivot Trust & Investment Limited Adamawa Securities Limited. Finmal Finance Services Ltd Profund Securities Limited Adonai Stockbrokers Ltd. First Equity Sec. Limited Prominent Securities Limited Afrinvest West-Africa Ltd. First Stockbrokers Limited PSL Securities Limited AIL Securities Limited. FIS Securities Limited PSI Securities Ltd Alangrange Sec. Ltd. Foresight Sec. Inv. Limited Pyramid Securities Ltd Alliance Capital Management Company Limited. Forte Asset Management Limited Quantum Securities Limited AMYN Investment Ltd. Forthright Sec. & Inv. Limited Rainbow Sec. & Inv. Co. Ltd. Anchoria Inv. & Sec. Ltd. Fountain Securities Limited Reading Investments Ltd Apel Asset & Trust Ltd. Future View Financial Services Ltd Regency Assets Mgt. Ltd. APT Sec. & Funds Limited. Gidauniya Inv. & Sec. Ltd. Resano Securities Limited Aquila Capital Limited Global Assets Mgt (Nig) Ltd Resort Securities & Trust Ltd. Asset Resource & Mgt. Ltd. Golden Securities Ltd. Reward Inv. & Sec. Ltd. Associated Asset Managers Ltd. GTI Capital Limited Rivtrust Securities Limited Atlas Portfolio Ltd. Heartbeat Investments Ltd. Rolex Securities Limited Belfry Invest. & Sec. Limited Hedge Sec. & Inv. Co. Ltd Rostrum Inv. & Investments & Securities Ltd Best Link Investment Ltd. Horizon Stockbrokers Ltd. Royal Crest Finance Limited Bestworth Assets & Trust Ltd. IBTC Asset Mgt. Limited Santrust Securities Limited BFCL Assets & Sec. Ltd. ICMG Securities Limited Securities Trading & Investment Ltd BGL Securities Limited Icon Stockbrokers Limited. Securities Solutions Limited BIC Securities Ltd. Independent Securities Ltd. Security Swaps Limited BSD Securities Limited Intercontinental Capital Markets Ltd. Shelong Investment Limited Bytofel Trust & Securities Ltd Intercontinental Sec. Limited Sigma Securities Limited C & I Heritage Limited International Standard Sec. Ltd. Signet Investments Sec. Ltd. Calyx Securities Limited Interstate Securities Ltd SMADAC Securities Ltd. Camry Securities Ltd. Investment Centre Ltd (ICL) Solid Rock Sec. & Inv. Limited Capital Asset Limited Investment Masters & Trust Ltd Solid Rock Securities & Investment Ltd Capital Bancorp Limited. Jamkol Investment Ltd. Spring Capital Markets Ltd Capital Express Sec. Limited Kapital Care Trust & Sec. Ltd Spring Trust & Securities Limited Capital Trust Brokers Ltd. Kundila Finance Services Ltd. Springboard Trust & Inv. Ltd. Cashcraft Asset Management Ltd. Lambeth Trust & Inv. Co. Ltd Stanbic Equities Nig. Limited Centre Point Investment Ltd. LB Securities Limited Stanwal Securities Limited Century Securities Limited Lead Capital Limited100 Sterling Capital Market Ltd Chapel Hill Advisory Partners Lighthouse Asset Management Limited Strategy & Arbitrage Limited Citi Investment Capital Ltd Maclaize Trust & Securities Limited Summa Guaranty & Trust Co. City Investment Mgnt. Ltd Mainland Trust Limited Summit Finance Co. Ltd. Clearview Inv. Co. Limited Maninvest Asset Mgt. Ltd Supra Commercial Trust Ltd. Compass Investment & Securities Ltd Marimpex Finance & Investment Limited TFS Securities & Inv. Co. Ltd Core Trust & Inv. Limited Marina Securities Limited The Bridge Securities Ltd Cowry Asset Management Ltd Marriot Sec. & Inv. Co. Tiddo Securities Limited Cradle Trust Finance & Sec. Ltd Maven Asset Management Ltd Tomil Trust Limited Crossworld Securities Ltd. Maxifund Invest & Sec. Ltd. Topmost Finance & Investment Limited Crownwealth Assets Mgt. Ltd MBC Securities Limited Tower Assets Mgt. Limited CSL Stockbrokers Limited MBL Financial Services Ltd Tower Securities & Investment Co. Ltd De-Canon Investment Ltd. Mega Equities Limited Traders Trust & Investment Co. Ltd Deep Trust Investment Ltd Mercov Securities Limited Trans Africa Financial Services Limited De-Lords Securities Limited Meristem Securities Ltd Transworld Investment & Securities Ltd Denham Management Ltd. Metropolitant Trust Nigeria Ltd Tropics Securities Limited Dependable Securities Ltd. Midland Capital Markets Limited Trust Yeild Securities Limited Dominion Trust Ltd Mission Securities Limited Trusthouse Investment Ltd. EBN Securities Limited Molten Trust Limited TRW Stockbrokers Limited Emerging Capital Limited Mountain Inv. & Sec. Limited UBA Global Markets Ltd EMI Capital Resources Limited Mutual Alliance Inv. & Sec. Ltd. UBA Stockbrokers Ltd Empire Securities Limited Networth Securities & Finance Ltd. UIDC Securities Limited Enterprise Stockbroker Plc. Newdevco Invest. & Sec. Ltd Unex Sec. & Inv. Limited EPIC Investment & Trust Limited Nigerian International Sec. Ltd. Union Capital Markets Ltd Equity Capital Solutions Ltd Nigerian Stockbrokers Ltd. Valmon Securities Limited ESL Securities Limited Nova Finance & Securities Ltd. Valueline Sec. & Inv. Limited Eurocomm Securities Ltd. OASIS Capital Fomerly OMF Sec. & Fin. Limited Vetiva Capital Management Limited Excel Securities Limited Omas Inv. & Trust Limited Vision Trust & Inv. Limited Express Discount Asset Management Ltd Options Securities Limited Viva Securities Limited Express Portfolio Services Ltd. P.S.I. Securities Limited Wizetrade Capital Asset & Mgt. Ltd F & C Securities Limited Peninsula Assets Management & Investment Co. Ltd WSTC Financial Services Limited Falcon Securities Limited Pilot Securities Ltd. Yobe Investment & Sec. Limited FBC Trust & Securities Ltd Pinefields Inv. Serv. Limited Yuderb Investment & Securities Limited FBN Capital Limited PML Securities Company Ltd Zenith Securities Limited FCMB Capital Markets Limited Premium Securities Limited Zuma Securities Limited Fidelity Finance Co. Plc Professional Stockbrokers Ltd Fidelity Union Sec. Ltd.

DANGOTE FLOUR MILLS PLCRC 501757

Company Seal & Incorporation Number (Corporate Applicant)

Signature or Thumbprint Signature or Thumbprint

Stamp of Receiving Agent

3. Bank details (for E-Dividend):

Application List Closes

Thursday27th September, 2007

Application List Opens

Thursday6th September, 2007

DECLARATION

I/We declare that I/we have read a copy of the Prospectus for the Offer dated 29th August, 2007 issued by the JointIssuing Houses on behalf of Dangote Flour Mills Plc.

I/We authorise you to send a share certificate and/or cheque for any amount overpaid by Registered post tothe address given below and to procure registration in my/our name as the holder(s) of such number ofshares or such smaller number, as aforesaid.

I/We am/are 18 years of age or over. I/We agree to accept the same or any smaller number of shares in respect of which allotment may be made upon theterms of the Prospectus and subject to the Memorandum and Articles of Association of Dangote Flour Mills Plc.

Applications must be made in accordance with the instructions set out on the back of this application form. Care must be taken to follow these instructions as applications that do not comply may be rejected. If you are in anydoubt, please consult your Stockbroker, Accountant, Banker, Solicitor or any other professional adviser for guidance.

I/We attach the amount payable in full on application for the number of shares in Dangote Flour Mills Plc. at N15.00 per share.

Number of Units Applied for:

PLEASE COMPLETE IN BLOCK LETTERS

Value of units applied for / Amount Paid

.

GUIDE TO APPLICATIONNumber of units applied for1000 minimunSubsequent multiples of 100

Amount payableN15,000.00N 1,500.00

Surname / Company's Name

Other Names (for individual applicant only)

Full Postal Address

State

Mobile (GSM) Phone Number

Surname

Other Names

2. JOINT APPLICANT

1. INDIVIDUAL / CORPORATE APPLICANT

Title : Mr. Mrs. Miss

Date (DD/MM/YYYY)

/ / 2 0 0 7

City

Land Phone Number

CONTROL NO: (Registrar's use only)

Title: Mr. Mrs. Miss Others

Next of Kin

Email Address

CSCS NO (if you want shares allotted credited to your CSCS A/C) Name of your Stockbroker

Name of Bank

Branch Account No:

N=

Joint Issuing Houses:

RC 639491 RC 125384 RC 161996

RC 189502RC 444999

RC 217005

=N

INITIAL PUBLIC OFFERBy way of an Offer for Sale of

1,250,000,000 Ordinary Shares of 50 kobo eachat 15.00 per share

Payable in Full on Application

==

0906238716

97

INSTRUCTION FOR COMPLETING THE APPLICATION FORM 1. Applications should be made only on the Application Form or photocopy, downloaded or scanned copy of

the Application Form. 2. Applications must not be for less than the minimum number of shares stated on the Application Form.

Applications for more than the minimum number of shares must be in the multiples stated on the Application Form. The number of Ordinary Shares for which an application is made and the amount of the cheque or bank draft attached should be entered in the boxes provided.

3. The application Form when completed should be lodged with any of the Receiving Agents listed on Page 95.

Applications must be accompanied by a cheque or bank draft made payable to the Receiving Agent to whom the application is submitted, for the full amount payable on application. The cheque or draft must be drawn on a bank in the same town or city in which the Receiving Agent is located and crossed “DANGOTE FLOUR IPO” with the name, address and daytime telephone number of the applicant written on the back. All bank commissions and transfer charges must be prepaid by the applicant. All cheques and drafts will be presented upon receipt and all applications in respect of which cheques are returned unpaid will be rejected and returned through the post.

4. The applicant should make only one application, whether in his own name or in the name of a nominee.

Multiple or suspected multiple applications will be rejected. 5. Joint applicants must all sign the Application Form. 6. An application from a group of individuals should be made in the names of those individuals with no

mention of the name of the group. An application by a firm which is not registered under the Companies and Allied Matters Act Cap C20 LFN 2004 should be made either in the name of the proprietor or in the names of the individual partners. In neither case should the name of the firm be mentioned.

7. An application from a corporate body must bear the corporate body’s seal and be completed under the hand

of a duly authorized official. 8. An application by an illiterate should bear his right thumbprint on the Application Form and be witnessed by

an official of the Bank or stockbroker where the application is lodged who must first have explained the meaning and effect of the Application Form to the illiterate in his own language. Above the thumb print of the illiterate, the witness must record in writing that he has given this explanation to the illiterate in a language understandable to him and that the illiterate appeared to have understood same before affixing his thumb impression.

9. The applicant should not print his signature. If he is unable to sign in the normal manner, he should be treated for the purpose of this Offer as an illiterate and his right thumbprint should be clearly impressed on the Application Form.

APPLICATION FORM

DANGOTE FLOUR MILLS PLC

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