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2015 Corporate Rating Review Report

Guinness Nigeria Plc Issuer Rating

A- A company with good financial condition and strong capacity to meet

obligations as and when they fall due

Outlook: Stable

Issue Date: 11 March 2016

Expiry Date: 31 December 2016

Previous Rating: A-

Industry: Brewery

Outline Page Rationale 1

Company Profile 3

Financial Condition 5

Ownership, Mgt & Staff 10

Outlook 12

Financial Summary 14

Rating Definition 18

Analysts:

Ikechukwu Iheagwam [email protected]

Isaac Babatunde [email protected]

Agusto & Co. Limited

UBA House (5th Floor)

57, Marina

Lagos

Nigeria

www.agusto.com

RATING RATIONALE Agusto & Co. affirms the “A-“ rating assigned to Guinness Nigeria Plc

(“Guinness”, “GNPLC” or “the Company”). The rating assigned takes into

cognisance Guinness’ good cash flow and improved leverage position as well

as the overt support of the parent company (Diageo Plc) which controls

54.32% of the Company’s equity. Nevertheless, the Company’s rating is

tempered by inadequate working capital and declining profitability.

Guinness is one of the leading alcoholic and non-alcoholic beverage

companies in Nigeria with the dominant market share in the stout segment.

The Company’s strong market share in the brewing industry in Nigeria is

supported by a good brand name, technical & product quality assistance from

its parent company and an improved Route To Market (RTM) strategy.

Although Guinness’ turnover grew by 9% during the financial year ended 30

June 2015 (FYE 2015), the six months unaudited figures for the period ended

31 December 2015 showed a 10% decline in top line growth when compared

with corresponding figures of 2014. We consider this a rating concern on

account of the current weak macroeconomic environment and declining

consumers’ effective disposable income. Despite the uptick in revenue growth

during FYE 2015, higher operating and finance expenses eroded the gains

thus resulting in a lower profit before tax margin of 9% (FYE 2014: 11%).

However, GNPLC recorded a satisfactory return on equity of 22% (FYE 2014:

26%) which is above the average yield on treasury certificate in the same

period.

Subsequent to year end, there has been changes in senior management with a

view to turn around the fortunes of the Company as well as improve cost

management amidst the challenging operating environment. Though GNPLC

expected gains from these initiatives, a review of the unaudited accounts for

the six months ended 31 December 2015 showed a 65% decline in profit

before tax when compared with corresponding figures of 2014. In our view,

Guinness’ profitability is declining and requires improvement.

In FYE 2015, Guinness optimized its stock of raw materials to meet

manufacturing demand as opposed to yearly build-up of raw materials as well

2 2015 Corporate Rating Review Report

Guinness Nigeria Plc

as improved its receivable collection period to 38 days from 52 days in the

prior year. These initiatives, amongst others resulted in a significant increase

in the Company’s operating cash flow (OCF) by 96% in the period under

review. Going forward, the Company intends to implement the Just in Time

(JIT) procurement and inventory system as well as collaborate with local

producers for cheaper input materials with a view to sustain the improved

cash flow position.

Guinness enjoys favourable terms of trade with its customers and suppliers;

hence the Company has over the past three years recorded sufficient

spontaneous financing which was adequate to cover its working assets.

Nonetheless, GNPLC’s long term funds are inadequate to cover the long term

assets; hence the Company recorded working capital deficiency which was

financed with short term borrowing.

Subsequent to year end, Guinness acquired the rights to distribute Diageo

Plc’s International Premium Spirits (IPS) brands as well as United Spirits

Limited’s McDowell in Nigeria. In addition, the Company plans to deepen its

distribution and sales of value products across the Country. In our opinion,

quick penetration of these products into the market will make Guinness more

competitive in the spirits and value segment of the Industry.

Guinness plans to expand its Aba Brewery plant to support its Orijin bitters

product manufacture as well as upgrade the Aba Logistics center in the short

to medium term. In addition, the Company also plans to expand infrastructure

to cover the optimization of the warehouse in Ikeja. Agusto & Co. believes

that the successful implementation of the expansion projects will drive

growth in the medium term.

We have attached a stable outlook to Guinness Nigeria Plc.

Table 1: Strengths, Weaknesses and Challenges

•Well established and diverse brands

•Qualified management team

•Strong support from parent company - Diageo Plc

•Dominant leader in the stout market

•Good cash flow

Strengths

•Inadequate working capital

•Declining profitability that requires improvement

Weaknesses

•Weak operating environment

•Higher raw material cost as a result of devaluation of the local currency

•Stiff competition for products in the value segments

•Lower consumers’ effective disposable income

Challenges



COMPANY PROFILE Guinness Nigeria Plc was incorporated on 29 April 1950 as a trading company importing Guinness Stout from

Dublin, under the name Guinness Nigeria Ltd. In 1963, the Company commenced production in Nigeria and

was listed on the Nigerian Stock Exchange (NSE) in 1965.

Guinness is part of Diageo Group, the world’s leading premium drinks business, trading in over 180 countries

around the world. Diageo has a wide array of beverages and alcoholic brands spanning across spirits, wines

and beer categories including Johnnie Walker, Smirnoff, J&B, Baileys, Tanquery, Captain Morgan, Guinness

Foreign Extra Stout, Beaulem Vineyard and Sterling Vineyard wines.

Guinness Nigeria Plc is primarily engaged in the brewing, packaging and marketing of alcoholic and non-

alcoholic beverages comprising Stout (Guinness Foreign Extra Stout and Guinness Extra Smooth), Lager

(Harp, Satzenbrau Pilsner and Dubic), Malt (Malta Guinness, Malta Guinness Low Sugar, Dubic), Flavoured

Alcoholic Beverages (Smirnoff Ice, Smirnoff Ice Double Black with Guarana, Snapp and Alvaro) and Spirits &

Bitters (Master’s choice, Orijin mixed drink and Orijin bitters).

Guinness Nigeria Plc’s head office is situated at 24, Oba Akran Avenue, Ikeja, while the Company’s 3 brewery

plants are located in Lagos State (Ogba Brewery), Edo State (Benin Brewery) and Abia State (Aba Brewery).

The plants have a combined installed production capacity of 6 million hectolitres and estimated total

capacity utilization rate was 74% during FYE 2015.

Table 2: Product categorization

Premium Category Mainstream Category Value Category

Guinness Foreign Extra Stout Harp Lager beer Dubic lager, Dubic malt, Dubic Ale

Guinness Extra Smooth Malta Guinness, Malta Guinness Low Sugar Satzenbrau Pilsner

Master’s choice Orijin bitters, Orijin ready to drink

Premium Spirits Smirnoff Ice, Smirnoff Ice Double Black with Guarana

Alvaro, Snapp

Source: GNPLC

The Company’s products are sold through over 130 major distributors spread across Nigeria and one in the

United Kingdom. Guinness’ main competitors in Nigeria are Nigerian Breweries Plc and SAB Miller.

Diageo Plc is the Company’s largest shareholder with a 54.32% equity holding through subsidiaries; Guinness

Overseas Limited (46.48%) and Atalantaf Limited (7.84%). The balance of 45.68% is held by other individuals,

associations and organizations.

Guinness Nigeria Plc maintains Technical Services Agreements and Trademark and Control Agreements with

companies in the Diageo Group for various brewed products. The Company also sources some raw materials,

engineering spares and fixed assets from other companies within the Group.



Guinness has a thirteen member Board of Directors consisting of eleven non-executives and three executive

directors. The Company’s Board is headed by Mr. B. A. Savage as Chairman, while the management team is

led by Mr. Peter Ndegwa, who was appointed subsequent to year end. During the financial year ended 30

June 2015, Mr. Seni Adetu, the erstwhile Managing Director resigned his appointment and was replaced by

Mr. John O’Keeffe, a non-executive director. In the same review period, Messers Andy Fennel and Lisa Nichols

resigned from the Board while Mr. R.C. Plumridge and Mr. Cephas Afebuameh were appointed as executive

directors, while Amb. S.T Dogonyaro was appointed as a non-executive director. In June 2015, Mr. S.G.

Lauridsen was appointed to the Board as Managing Director to replace Mr. John O’Keeffe, who was elevated

to the role of President Diageo Africa and remains a non-executive director in the Company. In the same

month Mr. S.G. Lauridsen resigned as Managing Director. Subsequent to year end, Ms. Ngozi Edozien and Dr.

(Mrs.) Omobola Johnson were appointed to the board as non-executive directors, while Ms. Yvonne Ike

resigned her appointment from the board as a non-executive director.

Table 3 - Current Directors

Mr. Babatunde Abayomi Savage Chairman

Dr. Nick Blazquez Vice Chairman

Mr. Peter Ndegwa Managing Director/Chief Executive Officer (appointed 4 September 2015)

Mr. Cephas Afebuameh Executive Director – Supply Chain

Mr. Ronald Plumridge Executive Director – Finance & Strategy

Prof. J. O. Irukwu, SAN Non-executive Director

Mr. Bismarck Jemide Rewane Non-executive Director

Mrs. Zainab Abdurrahman Non-executive Director

Mr. Rory John O’Keeffe Non-executive Director

Mr. Philip John Jenkins Non-executive Director

Amb. S.T. Dogonyaro Non-executive Director

Ms. Ngozi Edozien Non-executive Director

Dr. (Mrs.) Omobola Johnson Non-executive Director

Source: GNPLC 2015 annual report and investor presentation

As at 30 June 2015, Guinness had total assets of ₦122.2 billion (2014: ₦132.3 billion). The Company

generated turnover of ₦118 billion and recorded profit after tax of ₦7.8 billion during the financial year

ended 30 June 2015. Guinness had an average staff strength of 1,371 (2014: 1,368 persons).

Table 4 - Background Information

Authorized Share Capital: ₦1.25 billion

Paid-up Capital: ₦752 million

Shareholders’ Funds: ₦48.3 billion

Registered Office: The Ikeja Brewery, Oba Akran Avenue, Ikeja

Principal Business: Brewery

Auditors: KPMG Professional Services

Source: GNPLC 2015 annual report



FINANCIAL CONDITION ANALYSTS’ COMMENTS

PROFITABILITY

Guinness Nigeria Plc is a leading producer of alcoholic and non-alcoholic beverages in Nigeria. During the

year ended 30 June 2015 (FYE 2015), Guinness recorded a top line growth of 9% to ₦118 billion. The key

sales drivers were improved turnover performance of Orijin and Satzenbrau products as well as efficiency of

the Guinness’ Route To Market distribution strategy. The Company’s flagship products which includes

Guinness Stout, Malta Guinness and Harp Lager beer accounted for over 80% of revenue during the review

period. Similar to prior year, Nigeria remains the Company’s primary geographical segment accounting for

over 98% of sales.

During the financial year ended 30 June 2015, the Company imported about 66% of its raw materials, while

the balance was sourced locally. Despite the uncertainty in the foreign exchange market and the impact on

the cost of imported raw materials, GNPLC maintained a cost of sales to turnover ratio of 53% in 2015,

mainly due to the use of existing stock of raw materials and local sourcing of packaging materials.

Subsequent to year end, Guinness ramped up local sourcing of raw materials to about 50% and plans to

increase this to about 75% by 2017 through collaborations with local suppliers to provide sugar, ethanol,

sorghum and other raw materials.

As is common with large manufacturing concerns, GNPLC’s

marketing and distribution expenses accounted for two-thirds

of operating expenses in FYE 2015, while administrative

expenses mainly comprising personnel cost represented the

balance. Operating expenses to revenue ratio increased

marginally to 35% (FYE 2014: 33%) mainly on account of

higher distribution and marketing cost incurred in the year

under review. Thus, the Company recorded an operating profit

margin of 13% (FYE 2014: 14%), which is within our

expectation but lower than Nigerian Breweries’ operating profit

margin of 21% for the year ended 31 December 2015.

Guinness’ other income comprising operating lease income, interest income on bank deposits and other gains

on foreign exchange transactions amounted to ₦1.4 billion during the FYE 2015. This resulted in a profit

before interest and tax of ₦16.4 billion during the same period. Over the last three years, GNPLC’s other

income has averaged ₦1 billion per year and is primarily generated from an operating lease arrangement for

property, plant and machinery and motor vehicles as well as interest earned on bank deposits. Agusto & Co.

therefore believes that the Company’s other income is sustainable giving the steady nature of the underlying

transactions.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2015 2014 2013OPM PBT to Sales

Figure 1: Operating Profit Margin (OPM)

& PBT to Sales



In the same period under review, the Company recorded an interest expense to revenue ratio of 4.7% (FYE

2014: 4.4%), which we consider high when compared with our benchmark.

Although Guinness Nigeria Plc recorded a satisfactory profit

before tax margin of 9.1% in FYE 2015 (FYE 2014: 10.7%), this

level is lower than Nigerian Breweries’ (NB) 18.5% for the year

ended 31 December 2015. Guinness recorded a return on

assets (ROA) of 13% which is within our acceptable benchmark,

although lower than NB’s 18% for the financial year ended 31

December 2015.

Due to the decline in profit before tax during the year,

Guinness’ return on equity (ROE) declined to 22% (FYE 2014:

26%). Although GNPLC’s ROE is lower than NB’s ROE of 32%, it

still provides significant premium above the average yield on

government debt securities over the same period.

Guinness’ unaudited accounts for the six months period ended

31 December 2015 showed a 10% decline in turnover to ₦49.8

billion from corresponding period in 2014. Although the

Company made changes to its senior management team to

drive growth as well as significant cost improvements in the

areas of distribution and administration, GNPLC recorded a

profit before tax of ₦1.65 billion representing a 65% decline

from the comparable period of 2014.

In our view, we expect to see further cost savings from the

sourcing of raw materials locally as well as gains from

deepening the distribution network and sales of innovative

value products in the short to medium term.

Overall, Guinness’ profitability is declining and requires

improvement.

22%26%

37%32%

36%

55%

0%

10%

20%

30%

40%

50%

60%

2015 2014 2013Guinness NB

Figure 3: Return on Equity (ROE)

13% 12%

17%18%

28%

25%

0%

5%

10%

15%

20%

25%

30%

2015 2014 2013

Guinness NB

Figure 2: Return on Assets (ROA)



CASH FLOW

Guinness’ credit policy entails an evaluation of customer’s credit quality before a credit limit which

represents maximum open amount is set. Nevertheless, the Company predominantly engages in cash sales

and grants an average credit period of 21 to 49 days to major customers depending on the customer’s size

and stocking capacity. The Company also enjoys favourable terms of trade with its suppliers with an average

trade creditor period of 60 days.

During the financial year ended 30 June 2015, GNPLC’s operating cash flow (OCF) spiked to ₦33.6 billion,

representing a 96% increase from prior year. This growth was mainly spurred by optimization of stock of

existing raw materials to meet manufacturing demand (as opposed to yearly buildup of raw materials due to

the unfavourable foreign exchange regime) as well as marked improvement in receivable collection period to

38 days from 52 days in prior year. In the course of the year, debtors & prepayments declined by 42%, while

stocks and trade debtors decreased by 24% and 21% respectively. Going forward, the Company plans to

implement the Just in Time (JIT) procurement and inventory system to improve its cash flow position. The

Company’s OCF in FYE 2015 was sufficient to pay returns to providers of finance of ₦10.6 billion, comprising

interest (53%) and dividend (47%). The net OCF was also sufficient to cover estimated mandatory capital

expenditure and current portion of long term loans.

Over the last three years (2013 - 2015), Guinness recorded

cumulative OCF of ₦74.9 billion, which was sufficient to

cover payments to providers of finance amounting ₦42.1

billion. The three year cumulative net OCF of ₦32.8 billion

was only sufficient to cover cumulative amortized

estimated loan principal of ₦28.5 billion.

The Company’s OCF to sales ratio improved significantly to

28% during the financial year ended 30 June 2015 (FYE

2014: 16%). In the last three years (2013 – 2015),

Guinness’ OCF to sales ratio averaged 21% which is

slightly higher than our benchmark.

In our opinion, the Company’s cash flow position is good and sustainable.

28%

16%

20%

0%

5%

10%

15%

20%

25%

30%

2015 2014 2013

Ou

r B

en

chm

ark

Figure 4: OCF to Sales



FINANCING STRUCTURE AND ADEQUACY OF WORKING CAPITAL

As at 30 June 2015, Guinness’ working assets stood at ₦26.8 billion, representing a 22% decrease from prior

year. The main reasons for the reduction in working assets is the depletion of stocks (especially raw

materials) as well as the reduction in trade & other debtors owing to improved receivables collection. Trade

debtors account for 46% of working assets, while stocks and other debtors & prepayments represent 37%

and 12% respectively of working assets as at FYE 2015.

The Company’s spontaneous financing which stood at ₦53.2 billion as at 30 June 2015 is mainly supported

by a favourable trade credit terms of 60 days. Guinness’ spontaneous financing was sufficient to cover

working assets, leaving a short term financing surplus of ₦26.4 billion as at the same date. Over the last

three years, GNPLC has consistently recorded short term financing surpluses. We consider this to be good as

it provides sufficient cover for the Company’s working assets.

As at 30 June 2015, Guinness’ long term assets stood at ₦89.6 billion. As at the same date, the Company’s

long term funds of ₦60.5 billion, comprising equity (79%) and long term borrowings (23%), were insufficient

to finance its long term assets, leaving a long term financing need of ₦29.1 billion. Over the last three years

(2013 – 2015) GNPLC has persistently recorded long term financing need largely attributable to the ongoing

capacity expansion programme and investment in the RTM distribution infrastructure.

Similar to FYE 2014, Guinness’ short term financing surplus of

₦26.4 could not cover the long term financing need of ₦29.1

billion, hence the Company resulted to short term borrowings

(overdraft and 180-days commercial paper issuance) to fund the

working capital deficiency of ₦2.7 billion in FYE 2015. In our

view, the Company’s working capital is inadequate.

Guinness’ long term financing need has been on the upward

trajectory largely as a result of the ongoing plant expansion at

the Aba brewery. GNPLC recorded overall working capital

deficiencies over the last three years. Going forward, Guinness

plans to access long term debt from the capital market to

diversify its funding source and create a balance in the short-

term and long term funding composition.

Agusto & Co believes that Guinness’ working capital deficiency will persist except there is fresh injection of

long term funds in the form of equity or long tenured debt instruments.

Figure 5: Working Capital Deficiency (₦'billion)

(2.7)

(1.5)

(9.1) (10.0)

(9.0)

(8.0)

(7.0)

(6.0)

(5.0)

(4.0)

(3.0)

(2.0)

(1.0)

-

1.0

2.0

2015 2014 2013

(₦' b

illi

on

)



LEVERAGE

Guinness Nigeria Plc had total liabilities of ₦73.9 billion as at 30 June 2015 - representing a 15% decline

from prior year. The dip in total liabilities was due to repayment of unsecured commercial bank loans (used

to fund plant expansion) during the year. As at the same date, non-interest bearing liabilities accounted for

72% of total liabilities, while interest bearing liabilities (IBL) represented the balance of 28%.

As at 30 June 2015, GNPLC’s non-interest bearing liabilities consisted largely of trade creditors (33%),

deferred taxation (25%) and other creditors & accruals (17%). As at the same date, the Company’s interest

bearing debt (IBD) declined by 41% from prior year. GNPLC’s IBD to equity ratio of 43% as at FYE 2015 (FYE

2014: 78%) was within our expectation.

During the financial year ended 30 June 2015, the Company’s interest expense to sales ratio pegged at a high

4.7% (FYE 2014: 4.4%). Nonetheless, Guinness’ operating cash flow is sufficient to cover interest expense 6

times, which in our opinion is satisfactory.

As at 30 June 2015, the Company’s total assets was funded by shareholders’ funds (40%) and total liabilities

(60%) depicting satisfactory equity cushion. As at the same date, Guinness’ net debt (total debt less cash) as a

percentage of average total assets at 56% is in line with our expectation.

In our opinion, Guinness Nigeria Plc’s leverage is satisfactory.

Figure 6: IBD as a % of Equity

4.7%4.4%

3.4%

2.8%

2.2%

2.8%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%


43%

78%

46%

5%

15%8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%


Figure 7: Interest expense as a % of Sales



OWNERSHIP, MANAGEMENT & STAFF

As at 30 June 2015, Guinness Nigeria Plc’s had over 69,000

shareholders with Diageo Group Plc holding 54.32% of the

Company’s shares via its subsidiaries Guinness Overseas

Limited and Atalantaf Limited. The remaining shares are

held by other investors.

Guinness has a thirteen member Board of Directors headed

by Mr. B. A. Savage as Chairman, while Mr. Peter Ndegwa was

appointed as the Managing Director in September 2015.

During the financial year ended 30 June 2015, Messrs Seni

Adetu (the erstwhile Managing Director), Andy Fennel and Lisa Nichols resigned from the Board, while Mr.

S.G. Lauridsen who was appointed to the Board as Managing Director in June 2015 also resigned in the same

month. Amb. S.T. Dogonyaro was appointed as a non-executive director, while Mr. R.C. Plumridge and Mr. C.

Afebuameh were appointed as executive directors during the review period. Subsequent to year end, Ms.

Ngozi Edozien and Dr. (Mrs.) Omobola Johnson were appointed to the Board as non-executive directors, while

Ms. Yvonne Ike resigned from the board as a non-executive director. Over the last two years, there has been

series of changes to the senior management team, although all of which are from within the Diageo group.

Guinness’ management also known as the Guinness Leadership Team (GLT) comprises 8 members including

the Managing Director. Members of the GLT have broad experience within the Diageo group and the

minimum relevant years of experience of the GLT members is about fifteen years. In our opinion, Guinness’

leadership team is qualified.

In November 2014, Mr. Seni Adetu, the erstwhile Managing Director resigned his appointment and was

replaced by Mr. John O’Keeffe, a non-executive director. In June 2015, Mr. Soren Lauridsen was appointed as

Managing Director to replace Mr. John O’Keeffe who was elevated to the role of President, Diageo Africa. In

the same month, Mr. Soren Lauridsen resigned his appointment with the Company. Subsequent to year end,

Mr. Peter Ndegwa, a Kenyan, was appointed as the Managing Director to oversee the operations of the

Company in Nigeria.

Mr. Peter Ndegwa holds a Bachelor of Economics degree from University of Nairobi. He is a qualified

accountant and alumnus of the London Business School, University of IESE and Strathmore University. Peter

has over 10 years’ experience in East Africa and the United Kingdom with PricewaterhouseCoopers. He joined

East African Breweries Limited, an integral part of Diageo Plc in 2004 as Strategy Director; he was later

appointed Sales Director in 2006 and Group Finance Director in 2008. Prior to joining Guinness Nigera in

September 2015, Peter was the Managing Director for Guinness Ghana Breweries Ltd.

Guinness Overseas Limited 46.48%Atalantaf

Limited 7.84%

Other investors45.68%



Mr. Ronald Plumridge is an internationally experienced CFO. He began his career in the UK where he

qualified as a Chartered Accountant with Ernst & Whinney (now EY), prior to joining SSL International, a UK

organisation which subsequently became part of Reckitt Benckiser. He was with SSL International for 15

years in a variety of senior finance and CFO roles across Europe and the Americas. In 2004, he was appointed

Commercial Director (CFO) at Guinness Nigeria Plc where he served as an executive director until 2007 when

he became the CFO for Diageo Africa until he left Diageo in 2010. Ronald was appointed an Executive

Director in charge of Finance and Strategy of Guinness Nigeria Plc with effect from 29 January 2015.

Mr. Cephas Afebuameh is the Executive Director in charge of Supply Chain division at Guinness Nigeria Plc.

He holds a Bachelor of Engineering degree from the Federal University of Agriculture, Makurdi and an MBA

from the University of Benin. He has attended several management courses at the Lagos Business School

among other renowned management schools. Cephas joined Guinness Nigeria Plc in 2002 and has worked in

various capacities in the Benin Brewery, Lagos Brewery and East African Brewery, Kenya, where he was the

operations director until he was appointed the Supply Chain Director in 2012.

Other members of the Guinness Leadership team include:

Sesan Sobowale Corporate Relations Director

Monica A. Peach Human Resources Director

Paul Costigan Commercial Director

Gavin Pike Marketing & Innovation Director

Neil Comerford General Manager, Spirits

The recruitment of staff is guided by the Company’s human resources policy, which promotes a transparent

process of selecting the best candidate with the appropriate skills and experience, devoid of discrimination.

In the year under review, Guinness’ staff strength comprised males (85%) and females (15%) from diverse

backgrounds, ethnic origin and religion. The staff (non-management) of Guinness Nigeria Plc belongs to the

National Union of Food and Beverages & Tobacco Employees, while the management staff belong to Food

Beverages & Tabacco Senior Staff Association. The Company has a series of incentive and performance

related packages which it uses to reward its employees periodically.

Average staff cost per employee increased significantly by 30% to ₦9.2 million (FYE 2014: ₦6.9 million)

through the activities of labour union negotiations. Revenue per staff increased by only 8% to ₦86.4 million

in the same period. Notwithstanding, revenue per staff is 9.3 times the average staff cost per employee,

which in our opinion is satisfactory.



OUTLOOK The effective demand in the brewery industry in Nigeria has slowed down over the last two years as a result

of weak macroeconomic environment and declining consumers’ effective disposable income. In addition,

scarce and expensive foreign currency resulting to higher cost of imported raw materials, persistent irregular

power supply and the insecurity situation in some parts of the country are major challenges for the

manufacturing industry generally and brewing, in particular.

Competition to increase wallet share in the Industry continues to be intense as disposable income of

consumers also declined in the review period. Nevertheless, Guinness intends to drive volume on value

products and consolidate gains on the Orijin brands which appeal to large number of consumers. Subsequent

to year end, Guinness Nigeria acquired the distribution rights to Diageo Plc’s International Premium Spirits

(IPS) brands and also took over the inventory of Diageo Brands Nigeria (DBN) to distribute and market the IPS

brands in Nigeria. Going forward, we expect the Company’s sales to be driven by products in the value

category (Dubic and Satzenbrau), the newly acquired international premium spirits brands (McDowells) as

well as dominant flagship products – Guinness Extra Stout and Malta Guinness.

The Company plans to expand spirit manufacture through installation of 10,000 bottles per hour (bph) Origin

Bitters 20cl plant in Aba, creation of extra 1,500 bph packaging capability and Cube Extension by way of an

additional packaging line of 2500 bph capacity. Guinness also plans expansion in infrastructure to cover the

optimization of the warehouse in Ikeja and upgrade of the Aba Logistics center. Agusto & Co. believes that

the successful implementation of the expansion projects will drive growth in the medium term and enable

the Company compete favourably in the value segment of the Industry.

In the year under review, the Company opened a 180-day unsecured commercial paper (CP) financing line of

₦10 billion to augment working capital and also refinance some portion of pricey unsecured commercial

bank loans. As at 31 December 2015, the Company’s outstanding interest bearing liabilities stood at ₦29.5

billion mainly driven by short term borrowings. Guinness plans to access long term debt from the capital

market to diversify its funding source. In our opinion, the Company’s working capital inadequacy which has

persisted over the last three years will continue unless additional long term funding by way of equity or long

tenured debt is injected into the business.

Although Guinness was able to post a 9% top line growth during the financial year ended 30 June 2015, the

unaudited accounts for the six months period ended 31 December 2015 showed a 10% decline in turnover

from prior comparable period to peg at ₦49.8 billion. Despite the significant cost improvements in

distribution and administration cost in the six months period ended 31 December 2015, GNPLC recorded a

profit before tax of ₦1.65 billion representing a 65% decline from comparable period in 2014.

Agusto & Co. believes that the cost efficiencies realised in H1’2016 will be sustained as GNPLC’s

management intends to increase the volume of locally sourced raw materials and also drive down

distribution cost through RTM strategy. Nevertheless, Agusto & Co. does not expect notable improvement in

profitability in the short term due to contraction in economic activities and weak consumer disposable

income. Agusto & Co. also expects the Company to continue to enjoy the support of Diageo Plc, given the

proposed increase in parental equity holding to 75% from 54.32% previously held. Overall, we expect



Guinness to continue to enjoy favourable terms of trade with customers, suppliers and related parties, which

in turn will impact positively on its cash flow in the short to medium term.

Based on the aforementioned, we have attached a stable outlook to Guinness Nigeria Plc.



FINANCIAL SUMMARY STATEMENT OF FINANCIAL POSITION AS AT 30-Jun-15 30-Jun-14 30-Jun-13

₦'000 ₦'000 ₦'000

ASSETS

IDLE CASH 1,950,283 1.6% 3,061,648 2.3% 1,507,947 1.2%

MARKETABLE SECURITIES & TIME DEPOSITS 3,854,340 3.2% 3,228,934 2.4% 1,681,292 1.4%

CASH & EQUIVALENTS 5,804,623 4.7% 6,290,582 4.8% 3,189,239 2.6%

FX PURCHASED FOR IMPORTS

ADVANCE PAYMENTS AND DEPOSITS TO

SUPPLIERS

STOCKS 9,796,541 8.0% 12,906,673 9.8% 11,252,341 9.3%

TRADE DEBTORS 12,310,899 10.1% 15,491,921 11.7% 9,066,066 7.5%

DUE FROM RELATED PARTIES 1,582,839 1.3% 396,772 0.3% 930,910 0.8%

OTHER DEBTORS & PREPAYMENTS 3,100,712 2.5% 5,388,207 4.1% 6,782,681 5.6%

TOTAL TRADING ASSETS 26,790,991 21.9% 34,183,573 25.8% 28,031,998 23.2%

INVESTMENT PROPERTIES

OTHER NON-CURRENT INVESTMENTS

PROPERTY, PLANT & EQUIPMENT 87,754,074 71.8% 90,683,405 68.5% 88,112,582 72.8%

SPARE PARTS, RETURNABLE CONTAINERS, ETC 954,057 0.8% 562,575 0.4% 1,148,031 0.9%

GOODWILL, INTANGIBLES & OTHER L T ASSETS 942,887 0.8% 608,138 0.5% 578,771 0.5%

TOTAL LONG TERM ASSETS 89,651,018 73.3% 91,854,118 69.4% 89,839,384 74.2%

TOTAL ASSETS 122,246,632 100.0% 132,328,273 100.0% 121,060,621 100.0%

Growth -7.6% 9.3% 14.2%

LIABILITIES & EQUITY

SHORT TERM BORROWINGS 1,471,762 1.2% 4,680,225 3.5% 3,747,585 3.1%

CURRENT PORTION OF LONG TERM BORROWINGS 6,967,560 5.7% 3,148,882 2.4% 8,557,059 7.1%

LONG-TERM BORROWINGS 12,250,754 10.0% 27,429,985 20.7% 8,796,183 7.3%

TOTAL INTEREST BEARING LIABILITIES (TIBL) 20,690,076 16.9% 35,259,092 26.6% 21,100,827 17.4%

TRADE CREDITORS 17,669,293 14.5% 20,404,418 15.4% 20,899,579 17.3%

DUE TO RELATED PARTIES 4,886,576 4.0% 3,966,071 3.0% 3,282,923 2.7%

ADVANCE PAYMENTS AND DEPOSITS FROM

CUSTOMERS

OTHER CREDITORS AND ACCRUALS 8,926,444 7.3% 6,353,088 4.8% 6,250,852 5.2%

TAXATION PAYABLE 2,275,704 1.9% 1,585,320 1.2% 4,050,356 3.3%

DIVIDEND PAYABLE 3,903,005 3.2% 4,110,475 3.1% 4,486,743 3.7%

DEFERRED TAXATION 13,341,236 10.9% 12,559,441 9.5% 11,955,673 9.9%

OBLIGATIONS UNDER UNFUNDED PENSION SCHEMES 2,212,922 1.8% 3,028,651 2.3% 2,994,557 2.5%

MINORITY INTEREST

REDEEMABLE PREFERENCE SHARES

TOTAL NON-INTEREST BEARING LIABILITIES 53,215,180 43.5% 52,007,464 39.3% 53,920,683 44.5%

TOTAL LIABILITIES 73,905,256 60.5% 87,266,556 65.9% 75,021,510 62.0%

SHARE CAPITAL 752,944 0.6% 752,944 0.6% 752,944 0.6%

SHARE PREMIUM 8,961,346 7.3% 8,961,346 6.8% 8,961,346 7.4%

IRREDEEMABLE DEBENTURES

REVALUATION SURPLUS

OTHER NON-DISTRIBUTABLE RESERVES 18,582 0.0% 18,582 0.0% 18,582 0.0%

REVENUE RESERVE 38,608,504 31.6% 35,328,845 26.7% 36,306,239 30.0%

SHAREHOLDERS' EQUITY 48,341,376 39.5% 45,061,717 34.1% 46,039,111 38.0%

TOTAL LIABILITIES & EQUITY 122,246,632 100.0% 132,328,273 100.0% 121,060,621 100.0%



STATEMENT OF COMPREHENSIVE INCOME FOR THE

YEAR ENDED

30-Jun-15 30-Jun-14 30-Jun-13

₦'000 ₦'000 ₦'000

TURNOVER 118,495,882 100.0% 109,202,120 100.0% 122,463,538 100.0%

COST OF SALES (62,604,362) -52.8% (57,868,906) -53.0% (66,385,104) -54.2%

GROSS PROFIT 55,891,520 47.2% 51,333,214 47.0% 56,078,434 45.8%

OTHER OPERATING EXPENSES (40,946,728) -34.6% (35,944,182) -32.9% (35,960,323) -29.4%

OPERATING PROFIT 14,944,792 12.6% 15,389,032 14.1% 20,118,111 16.4%

OTHER INCOME/(EXPENSES) 1,428,030 1.2% 1,054,087 1.0% 1,016,690 0.8%

PROFIT BEFORE INTEREST & TAXATION 16,372,822 13.8% 16,443,119 15.1% 21,134,801 17.3%

INTEREST EXPENSE (5,577,720) -4.7% (4,761,559) -4.4% (4,125,926) -3.4%

PROFIT BEFORE TAXATION 10,795,102 9.1% 11,681,560 10.7% 17,008,875 13.9%

TAX (EXPENSE) BENEFIT (3,000,203) -2.5% (2,108,080) -1.9% (5,145,149) -4.2%

PROFIT AFTER TAXATION 7,794,899 6.6% 9,573,480 8.8% 11,863,726 9.7%

NON-RECURRING ITEMS (NET OF TAX)

MINORITY INTERESTS IN GROUP PAT

PROFIT AFTER TAX & MINORITY INTERESTS 7,794,899 6.6% 9,573,480 8.8% 11,863,726 9.7%

DIVIDEND (4,818,842) -4.1% (10,541,217) -9.7% (11,799,404) -9.6%

PROFIT RETAINED FOR THE YEAR 2,976,057 2.5% (967,737) -0.9% 64,322 0.1%

SCRIP ISSUES

OTHER APPROPRIATIONS/ ADJUSTMENTS 303,602 (9,657) (24,039)

PROFIT RETAINED B/FWD 35,328,845 36,306,239 36,265,956

PROFIT RETAINED C/FWD 38,608,504 35,328,845 36,306,239

- - -

ADDITIONAL INFORMATION 30-Jun-15 30-Jun-14 30-Jun-13

Staff costs (₦'000) 12,728,213 9,527,408 8,899,803

Average number of staff 1,371 1,368 1,433

Staff costs per employee (₦'000) 9,284 6,964 6,211

Staff costs/Turnover 10.7% 8.7% 7.3%

Capital expenditure (₦'000) 9,075,583 13,512,308 22,926,310

Depreciation expense - current year (₦'000) 11,215,213 10,525,929 9,995,054

(Profit)/Loss on sale of assets (₦'000) - - -

Number of 50 kobo shares in issue at year end

('₦'000)

1,505,888 1,505,888 1,505,888

Market value per share of 50 kobo (year end) 16,281 20,000 25,107

Market capitalisation (₦'000) 309,708,456 283,650,570 262,190,160

Market/Book value multiple 6.4 6.3 5.7

Auditors KPMG KPMG KPMG

Opinion CLEAN CLEAN CLEAN



CASH FLOW STATEMENT FOR Y/E 30-Jun-15 30-Jun-14 30-Jun-13

=N='000 =N='000 =N='000

OPERATING ACTIVITIES

Profit after tax 7,794,899 9,573,480 11,863,726

ADJUSTMENTS

Interest expense 5,577,720 4,761,559 4,125,926

Minority interests in Group PAT - - -

Depreciation 11,215,213 10,525,929 9,995,054

(Profit)/Loss on sale of assets - - -

Other non-cash items 303,602 (9,927) (67,495)

Potential operating cash flow 24,891,434 24,851,041 25,917,211

INCREASE/(DECREASE) IN SPONTANEOUS FINANCING:

Trade creditors (2,735,125) (495,161) 2,410,255

Due to related parties 920,505 683,148 815,986

Advance payments and deposits from customers - - -

Other creditors & accruals 2,573,356 102,236 (149,139)

Taxation payable 690,384 (2,465,036) (1,138,825)

Deferred taxation 781,795 603,768 1,052,924

Obligations under unfunded pension schemes (815,729) 34,094 211,748

Minority interest - - -

Cash from (used by) spontaneous financing 1,415,186 (1,536,951) 3,202,949

(INCREASE)/DECREASE IN WORKING ASSETS:

FX purchased for imports - - -

Advance payments and deposits to suppliers - - -

Stocks 3,110,132 (1,654,332) 703,272

Trade debtors 3,181,022 (6,425,855) (4,594,447)

Due from related parties (1,186,067) 534,138 (697,413)

Other debtors & prepayments 2,287,495 1,394,474 (417,689)

Cash from (used by) working assets 7,392,582 (6,151,575) (5,006,277)

CASH FROM (USED IN) OPERATING ACTIVITIES 33,699,202 17,162,515 24,113,883

RETURNS TO PROVIDERS OF FINANCING

Interest paid (5,577,720) (4,761,559) (4,125,926)

Dividend paid (5,026,312) (10,917,485) (11,765,371)

CASH USED IN PROVIDING RETURNS ON FINANCING (10,604,032) (15,679,044) (15,891,297)

OPERATING CASH FLOW AFTER PAYMENTS TO

PROVIDERS OF FINANCING 23,095,170 1,483,471 8,222,586

NON-RECURRING ACTIVITIES

Non-recurring items (net of tax) - - -

CASH FROM (USED IN) NON-RECURRING ACTIVITIES - - -

INVESTING ACTIVITIES

Capital expenditure (9,075,583) (13,512,308) (22,926,310)

Sale of assets 789,701 415,826 1,112,255

Purchase of other long term assets (net) (726,231)

Sale of other long term assets (net) - 556,089 191,139

CASH FROM (USED IN) INVESTING ACTIVITIES (9,012,113) (12,540,393) (21,622,916)

FINANCING ACTIVITIES

Increase/(Decrease) in short term borrowings (3,208,463) 932,640 (1,181,331)

Increase/(Decrease) in long term borrowings (11,360,553) 13,225,625 5,567,706

Proceeds of shares issued - - 7,431,040

CASH FROM (USED IN) FINANCING ACTIVITIES (14,569,016) 14,158,265 11,817,415

CHANGE IN CASH INC/(DEC) (485,959) 3,101,343 (1,582,915)

OPENING CASH & MARKETABLE SECURITIES 6,290,582 3,189,239 4,772,154

CLOSING CASH & MARKETABLE SECURITIES 5,804,623 6,290,582 3,189,239



STATEMENT OF CASH FLOW

FOR THE YEAR ENDED 30-Jun-15 30-Jun-14 30-Jun-13

₦'000 ₦'000 ₦'000

Operating cash flow (OCF) 33,699,202 17,162,515 24,113,883

Less: Returns to providers of finance (10,604,032) (15,679,044) (15,891,297)

OCF after returns to providers of finance 23,095,170 1,483,471 8,222,586

Non-recurring items - - -

Free cash flow 23,095,170 1,483,471 8,222,586

Investing activities (9,012,113) (12,540,393) (21,622,916)

Financing activities (14,569,016) 14,158,265 11,817,415

Change in cash (485,959) 3,101,343 (1,582,915)

PROFITABILITY

PBT as % of Turnover 9% 11% 14%

Return on equity 23% 26% 40%

Real sales growth -0.6% -17.6% -3.0%

CASH FLOW

Interest cover (times) 6.0 3.6 5.8

Principal payback (years) 2.6 - -

WORKING CAPITAL

Working capital need (days) - - -

Working capital deficiency (days) 8 5 27

LEVERAGE

Interest bearing debt to Equity 31% 64% 39%

Total debt to Equity 141% 180% 156%



RATING DEFINITIONS Aaa This is the highest rating category. It indicates a company with impeccable financial

condition and overwhelming ability to meet obligations as and when they fall due.

Aa This is a company that possesses very strong financial condition and very strong

capacity to meet obligations as and when they fall due. However, the risk factors are

somewhat higher than for Aaa obligors.

A This is a company with good financial condition and strong capacity to repay

obligations on a timely basis.

Bbb This refers to companies with satisfactory financial condition and adequate capacity to

meet obligations as and when they fall due.

Bb This refers to companies with satisfactory financial condition but capacity to meet

obligations as and when they fall due may be contingent upon refinancing. The

company may have one or more major weakness (es).

B This refers to a company that has weak financial condition and capacity to meet

obligations in a timely manner is contingent on refinancing.

C This refers to an obligor with very weak financial condition and weak capacity to meet

obligations in a timely manner.

D In default.

Rating Category Modifiers

A "+" (plus) or "-" (minus) sign may be assigned to ratings from ‘Aa’ to ‘C’ to reflect comparative position within the rating category.

Therefore, a rating with + (plus) attached to it is a notch higher than a rating without the + (plus) sign and two notches higher than a

rating with the - (minus) sign.

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