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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 ikechukwuiheagwam@agusto.com
Isaac Babatunde isaacbabatunde@agusto.com
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
3 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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.
4 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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
5 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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
6 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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)
7 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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
8 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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
)
9 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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%
2015 2014 2012Guinness NB
43%
78%
46%
5%
15%8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2015 2014 2013Guinness NB
Figure 7: Interest expense as a % of Sales
10 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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%
11 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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.
12 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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
13 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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.
14 2015 Corporate Rating Review Report
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%
15 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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
16 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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
17 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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%
18 2015 Corporate Rating Review Report
Guinness Nigeria Plc
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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